UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ____________________
Commission file number: 1-4351
SOUTHEASTERN PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
Delaware 13-5534018
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 N.W. 107th Avenue, Miami, FL 33172
(Address of principal executive offices) (zip code)
(305) 593-6565
(Registrant's telephone number, including area code)
777 South Flagler Drive, Suite 1000E, West Palm Beach, FL 33401
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
All of the voting stock of the registrant is held by the registrant's parent,
Triarc Companies, Inc. There were 1,000 shares of the registrant's common
stock ($1.00 par value) outstanding as of August 1, 1994.
PAGE
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION> December 31, June 30,
1993 1994
---------- --------
ASSETS (A) (Unaudited)
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,813 $ 13,447
Restricted cash 5,264 5,264
Marketable securities 10,795 10,571
Receivables 4,734 3,195
Finished goods inventories 850 828
Other current assets 835 131
-------- --------
Total current assets 45,291 33,436
Properties, net 7,228 6,900
Due from Triarc Companies, Inc. 25,358 28,076
Investments in affiliates 68,211 71,988
Unamortized costs in excess of net assets
of acquired companies 126 24,467
Other assets 1,501 6,823
Net non-current assets of discontinued operations 21,682 14,291
-------- --------
$169,397 $185,981
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 9,045 $ 9,049
Accounts payable 3,430 1,477
Accrued expenses 7,400 4,024
Net current liabilities of discontinued operations 2,800 4,399
-------- --------
Total current liabilities 22,675 18,949
Long-term debt 50,258 41,835
Other liabilities 2,045 1,902
Commitments and contingencies
Stockholders' equity:
Preferred stock 24 --
Common stock 11,896 1
Additional paid-in capital 90,539 125,480
Accumulated deficit (7,174) (1,837)
Treasury stock (866) --
Unrealized loss on marketable securities -- (349)
-------- --------
Total stockholders' equity 94,419 123,295
-------- --------
$169,397 $185,981
======== ========
<FN>
(A) Derived from the audited consolidated financial statements as of
December 31, 1993.
</TABLE>
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three months ended Six months ended
------------------ ----------------
May 31, June 30, May 31, June 30,
1993 1994 1993 1994
---- ---- ---- ----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Net sales $ 7,799 $ 5,795 $ 17,375 $ 15,618
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 6,224 4,751 13,045 11,280
Selling, general and administrative expenses 1,584 878 2,410 1,545
--------- --------- --------- ---------
7,808 5,629 15,455 12,825
--------- --------- --------- ---------
Operating profit (loss) (9) 166 1,920 2,793
Other income (expense):
Interest expense (2,791) (2,029) (6,882) (4,123)
Equity in earnings of affiliates before
extraordinary item and cumulative
effect of changes in accounting principles
of affiliates 378 1,846 2,893 3,777
Interest income from Triarc Companies,Inc. 1,411 860 3,240 1,711
Gain on sale of marketable security
previously deferred -- -- 6,000 --
Other, net (435) 504 (1,570) 1,179
--------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes (1,446) 1,347 5,601 5,337
Benefit from (provision for) income taxes 553 -- (1,288) --
--------- --------- --------- ---------
Income (loss) from continuing operations (893) 1,347 4,313 5,337
Loss from discontinued operations, net of
income taxes (9,423) -- (15,903) --
--------- --------- --------- ---------
Income (loss) before equity in extraordinary
item of affiliate and cumulative effect of
changes in accounting principles (10,316) 1,347 (11,590) 5,337
Equity in extraordinary item of affiliate -- -- (348) --
Cumulative effect of changes in accounting
principles:
SEPSCO 7,617 -- 7,617 --
Equity in affiliates (102) -- (102) --
--------- --------- --------- ---------
Net income (loss) $ (2,801) $ 1,347 $ (4,423) $ 5,337
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION> Six months ended
-----------------------
May 31, June 30,
1993 1994
------- ------
(Unaudited)
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,423) $ 5,337
Adjustments to reconcile net income (loss)
to net cash and cash equivalents provided by
(used in) operating activities:
Interest income from Triarc Companies, Inc.
capitalized and not collected -- (1,711)
Depreciation and amortization of properties 648 571
Amortization of deferred financing costs and
debt discount 804 726
Amortization of cost in excess of net assets
of acquired companies 6 204
Equity in earnings of affiliates (2,443) (3,777)
Gain on sale of marketable security previously
deferred (6,000) --
Provision for deferred income taxes 2,163 --
Other, net (533) (210)
Loss from discontinued operations 15,903 --
Cumulative effect of changes in accounting
principles (7,617) --
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables (520) 1,539
Finished goods inventories (127) 22
Other current assets 2,470 582
Increase (decrease) in:
Accounts payable 3,015 (1,953)
Accrued expenses 1,672 (3,376)
-------- --------
Net cash and cash equivalents provided by
(used in) operating activities 5,018 (2,046)
-------- --------
Cash flows from investing activities:
Purchase of a note receivable from an
affiliate -- (1,239)
Purchase of marketable securities -- (700)
Proceeds from sale of marketable securities -- 861
Capital expenditures (279) (208)
Proceeds from sales of properties 36 25
Decrease in due from Triarc Companies, Inc. 23,334 --
-------- --------
Net cash and cash equivalents provided by
(used in) investing activities 23,091 (1,261)
-------- --------
Cash flows from financing activities:
Repayments of long-term debt (9,083) (9,023)
Net repayments of accounts receivable
financing (7,799) --
Redemption of subsidiary preferred stock -- (703)
Repayments of notes payable to affiliate (5,643) --
-------- --------
Net cash and cash equivalents
used in financing activities (22,525) (9,726)
-------- --------
Net cash and cash equivalents provided by
(used in) continuing operations 5,584 (13,033)
Net cash and cash equivalents provided by
(used in) discontinued operations (5,352) 3,667
-------- --------
Net increase (decrease) in cash and cash
equivalents 232 (9,366)
Cash and cash equivalents at beginning of period 2,442 22,813
-------- --------
Cash and cash equivalents at end of period $ 2,674 $ 13,447
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1994
(Unaudited)
1. Basis of Presentation
Southeastern Public Service Company and subsidiaries ("SEPSCO") is a
wholly-owned (71.1% owned prior to April 14, 1994) subsidiary of Triarc
Companies, Inc. ("Triarc").
The accompanying unaudited condensed consolidated financial statements
of SEPSCO have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of SEPSCO, the
accompanying condensed consolidated financial statements contain all
adjustments, consisting only of normal recurring adjustments and in the six-
month period ended May 31, 1993, certain significant charges described in
Note 13, necessary to present fairly SEPSCO's financial position as of
December 31, 1993 and June 30, 1994 and its results of operations for the
three and six-month periods ended May 31, 1993 and June 30, 1994 and its cash
flows for the six-month periods ended May 31, 1993 and June 30, 1994. This
information should be read in conjunction with the consolidated financial
statements and notes thereto included in SEPSCO'S Transition Report on Form
10-K ("Form 10-K") for the ten-month transition period ended December 31,
1993.
In October 1993 SEPSCO's Board of Directors approved a change in the
fiscal year of SEPSCO from a fiscal year ending February 28 to a calendar
year ending December 31, effective for the ten-month transition period ended
December 31, 1993 (the "Transition Period"). Graniteville Company
("Graniteville"), a 49% owned investment of SEPSCO, also changed its fiscal
year from a fiscal year ending on or about February 28 to a calendar year
ending on or about December 31, effective for the Transition Period.
The three and six-month periods ended May 31, 1993 (the "Comparable
Three Months" and the "Comparable Six Months", respectively) have been
presented herein since they are the periods most nearly comparable to the
three and six-month periods ended June 30, 1994. Due to the fact that (i)
consolidations were not prepared other than on a quarterly basis in the year
ended February 28, 1993 and the Transition Period and (ii) the same three and
six-month periods ended May 31, 1993 were included in Triarc's condensed
consolidated financial statements for Triarc's comparable July 31, 1993 prior
year periods, it was not practicable nor consistent with Triarc for SEPSCO to
recast its prior year results and present financial statements for the three
and six-month periods ended June 30, 1993.
2. Reclassifications
Certain amounts included in the prior periods' condensed consolidated
financial statements have been reclassified to conform with the current
periods' presentation.
3. Change in Control
As previously reported, a change in control of Triarc occurred on April
23, 1993 which, as a result of Triarc's ownership of SEPSCO's voting
securities, constituted a change in control of SEPSCO (the "Change in
Control"). In connection with the Change in Control, the Board of Directors
of Triarc was reconstituted and new senior executive officers were elected.
4. Discontinued Operations
On July 22, 1993 SEPSCO's Board of Directors authorized the sale or
liquidation of its utility and municipal services ("Services"), refrigeration
("Refrigeration" or "Refrig.") and natural gas and oil ("NG&O") businesses.
The operating results of the discontinued operations through July 22, 1993
are included in "Loss from discontinued operations, net of income taxes" in
the accompanying condensed consolidated statements of operations. The
operating results of the discontinued operations subsequent to July 22, 1993
have been previously recognized in the loss on disposal of discontinued
operations and are included in "Net current liabilities of discontinued
operations" in the condensed consolidated balance sheets.
In October 1993 SEPSCO sold the assets of its tree maintenance services
operations and the stock of its two construction related operations
previously comprising all of the operations of the former Services business
segment. On April 8, 1994 SEPSCO sold substantially all of the operating
assets of the ice operations of its Refrigeration business segment for
$5,000,000 in cash, a $4,295,000 note (discounted value $3,327,000) and the
assumption by the buyer of certain current liabilities of $837,000. While
the amount of the loss resulting from the sale of the ice operations is
subject to final adjustment, SEPSCO estimates it will approximate $2,100,000.
The note, which bears no interest during the first year and 5% annually
thereafter, is payable in annual installments of $120,000 in 1995 through
1998 with the balance of $3,815,000 due in 1999.
As indicated above, SEPSCO's Board of Directors authorized the sale or
liquidation of the NG&O business on July 22, 1993. However, on December 9,
1993 SEPSCO's Board of Directors decided to sell the NG&O business to Triarc
following the Merger and the resulting elimination of the minority interest
in SEPSCO (see Note 10) rather than selling such business to an independent
third party. Subsequently, SEPSCO identified significant third party
interest in the natural gas and oil business and on August 5, 1994 entered
into a contract for the sale of the principal assets, excluding receivables,
of the NG&O business for cash of $17,000,000 subject to certain post-closing
adjustments. SEPSCO estimates that consummation of the sale at such price
would result in a gain. Such sale is scheduled to close no later than August
31, 1994.
The only remaining discontinued operation is the other operation (cold
storage) which comprised SEPSCO's Refrigeration business segment. In June
1994 SEPSCO sold to an unaffiliated party two of its cold storage plants with
a net book value of $1,888,000 for $475,000 of cash and $700,000 of notes,
resulting in a loss, including expenses of $50,000, of $763,000. In June
1994 SEPSCO entered into a letter of intent with a SEPSCO management-led
buyout group for the sale of substantially all of the remaining assets of the
cold storage operation for $6,500,000 in cash, a $3,000,000 note (discounted
value $2,486,000) and the assumption by the buyer of certain liabilities of
up to $2,500,000. Consummation of the sale is subject to several conditions
including, among others, the buyers obtaining the necessary financing. Based
on such purchase price and excluding any proceeds from the $3,000,000 note
until collection is reasonably assured, SEPSCO estimates that it will incur a
loss of approximately $5,000,000 on such sale, the estimated amount of which
had previously been accrued, including the write-off of approximately
$700,000 of properties, principally land, with minimal value, not being sold
to the buyers. The note would be secured by the assets of the cold storage
operation (which security interest would be subordinated to a security
interest granted to any lender to the buyers), would be due six years from
the date of closing and would be non-interest bearing for the first year and
would bear interest at 8% thereafter. SEPSCO currently anticipates closing
such sale by October 1994.
After (i) consideration of (a) a $2,866,000 write-down (net of a tax
benefit of $2,037,000) recorded in the three-month period ended February 28,
1993 relating to accruals for environmental remediation and losses on certain
contracts in progress and (b) a $4,676,000 write-down (net of a tax benefit
of $3,324,000) recorded in the three-month period ended May 31, 1993 relating
to the impairment of certain unprofitable properties, both as reflected in
operating profit (loss) of discontinued operations set forth below, (ii) a
$13,910,000 provision (with no tax benefit) for the estimated loss on the
sale of the discontinued operations recorded subsequent to May 31, 1993 in
the Transition Period and (iii) based on the analysis performed to date with
respect to the proposed sale of the cold storage operations, SEPSCO expects
that all consummated dispositions, as well as the anticipated closing of the
contract to sell NG&O and the disposition of the cold storage operation,
including the results of their operations through the actual or anticipated
disposal dates, will not have a material adverse affect on the financial
position or results of operations of SEPSCO.
In addition, on July 22, 1993 SEPSCO's Board of Directors authorized the
sale or liquidation of the liquefied petroleum gas business. SEPSCO intends
to transfer (the precise nature and timing of such transfer has not yet been
determined) the liquefied petroleum gas business to a subsidiary of Triarc,
and the transfer would be accounted for at net book value and, thus, not
result in any gain or loss upon the transfer. Accordingly, SEPSCO has
continued to reflect the liquefied petroleum gas business as a continuing
operation.
The income (loss) from discontinued operations for the three and six-
month periods ended May 31, 1993 (the periods included in SEPSCO's condensed
consolidated statements of operations for the Comparable Three Months and the
Comparable Six Months (see Note 1)) and for the three and six-month periods
ended June 30, 1994 subsequent to the measurement date, which have been
previously recognized, consisted of the following:
PAGE
<PAGE>
<TABLE><CAPTION>
Three months Six months Three months Six months
ended ended ended ended
May 31, 1993 May 31, 1993 June 30, 1994 June 30, 1994
----------------- ----------------- -------------- ---------------
Services Services
NG&O and Refrig. NG&O and Refrig. NG&O Refrig. NG&O Refrig.
---- --------- ----- ----------- ---- ------ ----- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues:
Net sales $ 1,397 $ 2,840 $ 3,338 $ 4,756 $ 819 $ 798 $ 2,181 $ 2,600
Service revenues -- 45,443 -- 87,796 - 1,009 -- 3,736
------- ------- ------- ------- ------- ------- ------- -------
1,397 48,283 3,338 92,552 819 1,807 2,181 6,336
Operating costs and expenses:
Cost of sales 744 2,591 2,480 4,971 452 1,200 1,309 3,405
Cost of services -- 42,340 -- 87,043 -- 368 -- 2,770
Selling, general and
administrative expenses 245 3,659 1,083 7,864 205 342 459 817
Write-down of certain
unprofitable properties -- 8,000 -- 8,000 -- -- -- --
Facilities relocation and
corporate restructuring 132 4,457 132 4,457 -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
1,121 61,047 3,695 112,335 657 1,910 1,768 6,992
------- ------- ------- ------- ------- ------- ------- -------
Operating profit (loss) 276 (12,764) (357) (19,783) 162 (103) 413 (656)
------- ------- ------- ------- ------- ------- ------- -------
Other income (expense):
Interest expense (1) (791) (3) (1,746) -- -- -- (3)
Other, net 18 (266) 5 (1,004) 105 (95) 29 (34)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes 293 (13,821) (355) (22,533) 267 (198) 442 (693)
Benefit from (provision
for) income taxes (153) 4,258 64 6,921 -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
discontinued operations$ 140 $(9,563) $ (291) $(15,612) $ 267 $ (198) $ 442 $ (693)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
Net current liabilities and non-current assets of discontinued operations consisted of the following:
<CAPTION>
December 31, 1993 June 30, 1994
----------------- ---------------
NG&O Refrig. NG&O Refrig.
----- -------- ----- --------
(In thousands)
<S> <C> <C> <C> <C>
Current assets:
Cash $ 253 $ 308 $ 8 $ 54
Receivables 197 1,528 271 597
Inventories 157 647 155 81
Other current assets 17 236 33 248
-------- -------- --------- ---------
Total current assets 624 2,719 467 980
-------- -------- --------- ---------
Current liabilities:
Accounts payable 528 1,951 455 2,666
Accrued expenses 1,102 2,562 961 1,764
-------- -------- --------- ---------
Total current liabilities 1,630 4,513 1,416 4,430
-------- -------- --------- ---------
Net current liabilities of discontinued
operations $ 1,006 $ 1,794 $ 949 $ 3,450
======== ======== ======== ========
Non-current assets:
Properties, net $ 7,280 $ 17,682 $ 7,181 $ 9,614
Other assets 1 71 1 16
-------- -------- --------- ---------
Total non-current assets 7,281 17,753 7,182 9,630
-------- -------- --------- ---------
Non-current liabilities:
Deferred income taxes 1,305 (1,305) -- --
Other liabilities 519 2,833 504 2,017
-------- -------- --------- ---------
Total non-current liabilities 1,824 1,528 504 2,017
-------- -------- --------- ---------
Net non-current assets of discontinued
operations $ 5,457 $ 16,225 $ 6,678 $ 7,613
======== ======== ========= =========
/TABLE
<PAGE>
5. Investment in Affiliates
Investments in affiliates consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1993 1994
----- ----
(In thousands)
<S> <C> <C>
Graniteville Company $ 67,824 $ 71,399
CFC Holdings Corp. 387 589
--------- ---------
$ 68,211 $ 71,988
========= =========
</TABLE>
Equity in earnings of affiliates before extraordinary item and cumulative
effect of changes in accounting principles, which for the three and six-month
periods ended May 31, 1993 include certain significant charges (see Note 13),
consisted of the following:
<TABLE>
<CAPTION>
Three months ended Six months ended
----------------------- -----------------
May 31, June 30, May 31, June 30,
1993 1994 1993 1994
---- ---- ---- ----
(In thousands)
<S> <C> <C>
Graniteville Company $ 1,354 $ 1,769 $ 4,410 $ 3,575
CFC Holdings Corp. (976) 77 (1,517) 202
--------- -------- -------- --------
$ 378 $ 1,846 $ 2,893 $ 3,777
========= ======== ======== ========
</TABLE>
Under its present credit facility, Graniteville is permitted to pay
dividends or make loans or advances to its stockholders, including SEPSCO, in
an amount equal to 50% of the net income of Graniteville accumulated from the
beginning of the first fiscal year commencing on or after December 20, 1994,
provided that the outstanding principal balance of Graniteville's term loan
is less than $50,000,000 at the time of the payment (the outstanding
principal balance was $67,000,000 as of June 30, 1994) and certain other
conditions are met. Accordingly, Graniteville is unable to pay any dividends
or make any loans or advances to SEPSCO prior to December 31, 1995 and
thereafter Graniteville's ability to do so will be limited.
Summary consolidated results of operations of Graniteville for the three
and six-month periods ended May 31, 1993 and June 30, 1994 are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
----------------------- -----------------
May 31, June 30, May 31, June 30,
1993 1994 1993 1994
---- ---- ---- ----
(In thousands)
<S> <C> <C>
Operating revenues $ 141,057 $ 143,683 $262,078 $273,673
Operating profit 8,644 8,705 22,350 16,366
Net income 2,764 3,611 8,999 7,297
</TABLE>
6. Stockholders' Equity
As part of the Merger (see Note 10), SEPSCO was recapitalized whereby
all of its then existing preferred stock and common stock, including common
stock held in treasury, were canceled and 1,000 shares of common stock were
issued. The net effect of the reductions in "Preferred stock", "Common
stock" and "Treasury stock" of $11,053,000 was credited to "Additional paid-
in capital". Further, in the Merger Triarc acquired a 28.9% minority
interest in SEPSCO, which is being accounted for in SEPSCO in accordance with
the "push-down" method of accounting whereby Triarc's increase in basis in
SEPSCO is reflected in SEPSCO. As such the $23,888,000 excess of the
acquisition cost of $52,105,000 over the carrying value of the minority
interest liability at Triarc of $28,217,000 has been accounted for as a
contribution to "Additional paid-in capital".
7. Redemption of Subsidiary Preferred Stock
On June 21, 1994 a subsidiary of SEPSCO redeemed 70,369 shares of its
$1.00 par value convertible preferred stock, representing all of the then
issued and outstanding preferred shares of the subsidiary, at par value
aggregating $704,000 plus $10,000 of accrued and unpaid dividends. The
$665,000 excess of the $704,000 purchase price over the $39,000 carrying
value of the stock was recorded as an addition to "Unamortized costs in
excess of net assets of acquired companies". Prior to its redemption, the
carrying value of such preferred stock was reported in "Other liabilities".
8. Income Taxes
There is no provision for income taxes for the three and six month-
periods ended June 30, 1994 (i) since SEPSCO had a loss for income tax
purposes for the three months ended June 30, 1994 after adjustment for the
dividend exclusion on the equity in earnings of affiliates included in pre-
tax income and (ii) due to the utilization of net operating loss
carryforwards and the release of valuation allowances related thereto during
the three months ended March 31, 1994. SEPSCO's benefit from or provision
for income taxes for the three and six-month periods ended May 31, 1993 vary
from the United States Federal statutory income tax rate of approximately 35%
due to the inclusion of the equity in earnings of affiliates in pre-tax
income.
9. Cumulative Effect of Changes in Accounting Principles
Effective March 1, 1993 SEPSCO changed its accounting for income taxes
in accordance with Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes" ("SFAS 109"). SEPSCO's adoption of such
standard resulted in a benefit of $7,617,000 and is reported as the
"Cumulative effect of changes in accounting principles: SEPSCO" in the
accompanying condensed consolidated statements of operations for the three
and six-month periods ended May 31, 1993.
Additionally, effective January 1, 1993 CFC Holdings Corp., a 5.4% owned
affiliate ("CFC Holdings"), changed its accounting for income taxes and
postretirement benefits other than pensions in accordance with SFAS 109 and
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions" ("SFAS 106"), respectively. SEPSCO's equity in the adoption by CFC
Holdings of such standards resulted in a charge of $102,000, consisting of
$94,000 and $8,000 related to SFAS 109 and SFAS 106, respectively, and is
reported in the "Cumulative effect of changes in accounting principles:
Equity in affiliates" in the accompanying condensed consolidated statements
of operations for the three and six-month periods ended May 31, 1993.
10. Merger and Litigation Settlement
In December 1990, a purported shareholder derivative suit (the "Ehrman
Litigation") was brought against SEPSCO's directors at that time and certain
corporations, including Triarc. On January 11, 1994 a settlement agreement
(the "Settlement Agreement") with the plaintiff (the "Plaintiff") in the
Ehrman Litigation was approved. The Settlement Agreement provided, among
other things, that SEPSCO would be merged into, or otherwise acquired by,
Triarc or an affiliate thereof, in a transaction in which each holder of
shares of SEPSCO's common stock ("SEPSCO Common Stock") other than Triarc and
its subsidiaries, aggregating a 28.9% minority interest in SEPSCO, would
receive in exchange for each share of SEPSCO Common Stock 0.8 shares of
Triarc's Class A common stock, or an aggregate 2,691,824 shares. On April
14, 1994 SEPSCO's shareholders other than Triarc and its subsidiaries
approved an agreement and plan of merger between SEPSCO and Triarc (the
"Merger") pursuant to which on that date a subsidiary of Triarc was merged
into SEPSCO. As a result of the Merger, SEPSCO became a wholly-owned
subsidiary of Triarc. Triarc paid Plaintiff's counsel and financial advisor
$1,250,000 and $50,000, respectively, in accordance with the Settlement
Agreement. SEPSCO had previously accrued such $1,300,000 in the three months
ended February 28, 1993 since SEPSCO originally anticipated it would be
responsible for such fees and expenses. In addition, SEPSCO accrued an
additional $400,000 for its legal costs during the three months ended May 31,
1993. However, the Settlement Agreement established that Triarc and not
SEPSCO was responsible for these costs and, accordingly, SEPSCO subsequently
reversed the aggregate $1,700,000 of such expenses in the three months ended
August 31, 1993.
The fair value as of April 14, 1994 of the 2,691,824 shares of Triarc's
Class A Common Stock issued in the Merger aggregated $52,105,000 (the "Merger
Consideration"), net of $3,750,000 of such consideration representing
Triarc's settlement costs. The Merger is being accounted for by Triarc in
accordance with the purchase method of accounting, and the minority interest
in SEPSCO recorded by Triarc has been eliminated. Triarc is in the process
of determining the fair value of the additional 28.9% interest in SEPSCO's
assets acquired and liabilities assumed. The final purchase accounting will
be recorded in SEPSCO in accordance with the "push down" method of accounting
whereby Triarc's increase in basis in SEPSCO is reflected in SEPSCO. Until
such valuations are completed, SEPSCO is temporarily reflecting the
$23,888,000 of excess of cost of $52,105,000 over the minority interest
liability acquired by Triarc of $28,217,000 as "Unamortized costs in excess
of net assets of acquired companies" ("Goodwill"). Such Goodwill is being
amortized on a straight-line basis over 25 years since it is assumed that a
portion thereof will ultimately be allocated to assets with depreciable lives
of less than SEPSCO's amortization period for Goodwill of 30 years. Pro
forma condensed summary operating results of SEPSCO for the six-month period
ended June 30, 1994 giving effect to the Merger as if it had been consummated
on January 1, 1994 are set forth below (in thousands):
<TABLE>
<S> <C>
Net sales $ 15,618
Operating profit 2,514
Income from continuing operations 5,058
</TABLE>
11. Legal Matters
As a result of certain environmental audits in 1991, SEPSCO became aware
of possible contamination by hydrocarbons and metals at certain sites of
SEPSCO's ice and cold storage operations of the refrigeration business and
has filed appropriate notifications with state environmental authorities and
is performing a study of remediation at such sites. SEPSCO has removed
certain underground storage and other tanks at certain facilities of its
refrigeration operations and has engaged in certain remediation in connection
therewith. Such removal and environmental remediation involved a variety of
remediation actions at various facilities of SEPSCO located in a number of
jurisdictions. Such remediation varied from site to site, ranging from
testing of soil and groundwater for contamination, development of remediation
plans and removal, in certain instances, of certain contaminated soils.
Remediation has recently been completed or is ongoing at four sites. In
addition, remediation will be required at thirteen sites which were sold to
or leased by the purchaser of the ice operations (see Note 4) and such
remediation will be made in conjunction with the purchaser who is responsible
for payments of up to $1,000,000 of such remediation costs, consisting of the
first and third payment of $500,000. Remediation is ongoing at six of such
sites. Based on consultations with, and certain reports of, environmental
consultants and others, SEPSCO presently estimates that its cost of such
remediation and/or removal described above will approximate $3,661,000, of
which $2,100,000 was provided in the six-month period ended May 31, 1993
while the other $1,561,000 was provided in prior years. In connection
therewith, SEPSCO has incurred actual costs of $1,894,000 through June 30,
1994 and has a remaining accrual of $1,767,000 as of June 30, 1994. SEPSCO
believes that its current reserves for remediation costs are adequate.
In 1987 Graniteville was notified by the South Carolina Department of
Health and Environmental Control ("DHEC") that it discovered certain
contamination of Langley Pond near Graniteville, South Carolina and DHEC
asserted that Graniteville may be one of the parties responsible for such
contamination. In 1990 and 1991 Graniteville provided reports to DHEC
summarizing its required study and investigation of the alleged pollution and
its sources which concluded that pond sediments should be left undisturbed
and in place and that other less passive remediation alternatives either
provided no significant additional benefits or themselves involved adverse
effects on human health, to existing recreational uses or to the existing
biological communities. In March 1994 DHEC concluded that while
environmental monitoring at Langley Pond should be continued, based on
currently available information, the most reasonable alternative is to leave
the pond sediments undisturbed and in place. SEPSCO is unable to predict at
this time what further actions, if any, may be required in connection with
Langley Pond or what the cost thereof may be. However, given DHEC's recent
conclusion and the absence of desirable remediation alternatives, SEPSCO
believes the ultimate outcome of this matter will not have a material adverse
effect on SEPSCO's consolidated results of operations or financial position.
SEPSCO and its subsidiaries are also engaged in ordinary, routine
litigation incidental to SEPSCO's business. SEPSCO does not believe that the
environmental matters discussed in detail above and ordinary, routine
litigation will have a material adverse effect on its consolidated financial
position or results of operations.
12. Related Party Transactions
SEPSCO continues to have certain related party transactions with Triarc
and its subsidiaries of the nature and general magnitude as described in the
Form 10-K. In addition, during the six months ended June 30, 1994, SEPSCO
purchased for cash certain notes receivable from Arby's, Inc., a subsidiary
of Triarc, for their face value of $1,190,000 plus $49,000 of accrued
interest.
13. Significant 1993 Charges Recorded During the Comparable Six Months
The accompanying condensed consolidated statements of operations for the
three and six-month periods ended May 31, 1993 include the following
significant charges related primarily to actions taken in connection with the
Change in Control (in thousands):
<TABLE>
<S> <C>
Estimated cost allocated to SEPSCO by Triarc
to terminate the lease on Triarc's existing
corporate headquarters $ 2,840
Costs allocated to SEPSCO by Triarc related
to a five-year consulting agreement extending
through April 1998 between Triarc and the
former Vice Chairman of Triarc (the "Consulting
Agreement") 1,374
Estimated cost to relocate SEPSCO's corporate
office 500
Estimated cost allocated to SEPSCO by Triarc for
relocation of Triarc's corporate headquarters,
personnel relocation and employee severance 786 (a)
------
Total facilities relocation and corporate
restructuring charges 5,500 (b)
Estimated cost allocated to SEPSCO by Triarc for a
payment to a special committee of the Board
of Directors of Triarc 625 (c)
Write-down of certain unprofitable properties 8,000 (d)
Income tax benefit relating to the above charges (4,820) (e)
Provision for income tax contingencies and other
income tax matters 600 (f)
Equity in significant charges of affiliates, net
of taxes 3,036 (g)
-------
$12,941
=======
<FN>
(a) Such costs were subsequently reversed during the three months ended
August 31, 1993 and absorbed by Triarc.
(b) $911,000 included in "Selling, general and administrative expenses"
of continuing operations and $4,589,000 included in "Loss from
discontinued operations, net of income taxes."
(c) $104,000 included in "Selling, general and administrative expenses"
of continuing operations and $521,000 included in "Loss from
discontinued operations, net of income taxes."
(d) Included in "Loss from discontinued operations, net of income
taxes."
(e) $350,000 included in "Benefit from (provision for) income taxes" of
continuing operations and $4,470,000 included in "Loss from
discontinued operations, net of income taxes."
(f) $100,000 included in "Benefit from (provision for) income taxes" of
continuing operations and $500,000 included in "Loss from
discontinued operations, net of income taxes."
(g) SEPSCO's equity in significant charges of affiliates, 49% of
Graniteville and 5.4% of CFC Holdings, recorded in the three and
six-month periods ended May 31, 1993, and consisting of both direct
charges and charges allocated by Triarc to Graniteville and CFC
Holdings, is summarized as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
CFC
Graniteville Holdings Total
------------ -------- -----
<S> <C> <C> <C>
Estimated cost allocated to the
affiliates by Triarc to terminate
the lease on Triarc's existing
corporate headquarters $ 790 $ 382 $1,172
Total cost allocated to the
affiliates by Triarc related to
the Consulting Agreement 112 79 191
Estimated cost allocated to the
affiliates by Triarc for
relocation of Triarc's corporate
headquarters, personnel relocation
and employee severance 1,022 122 1,144 (a)
Affiliate's facilities relocation
and corporate restructuring -- 544 544
------ ------ ------
Total facilities relocation and
corporate restructuring charges 1,924 1,127 3,051
Estimated cost allocated to
the affiliates by Triarc for a
payment to a special committee
of the Board of Directors of Triarc 813 97 910
Other -- 419 419
Less income tax benefit on the
above items (945) (399) (1,344)
------ ------ ------
$1,792 $1,244 $3,036
====== ====== ======
(a) Such costs were subsequently reversed during the three months ended
August 31, 1993 and absorbed by Triarc.
</TABLE>
PAGE
<PAGE>
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Introduction
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Transition Report on Form 10-K ("Form 10-K") for the ten-
month period ended December 31, 1993 of Southeastern Public Service Company
(collectively with its subsidiaries, "SEPSCO").
In October 1993 SEPSCO's Board of Directors approved a change in the
fiscal year of SEPSCO from a fiscal year ending February 28 to a calendar
year ending December 31, effective for the ten-month transition period ended
December 31, 1993 (the "Transition Period"). The six and three-month periods
ended June 30, 1994 are compared below with the six and three-month periods
ended May 31, 1993 (respectively, the "Comparable Six Months" and the
"Comparable Three Months"), respectively. It was not practical for SEPSCO to
recast its prior year results and, accordingly, the Comparable Six Months and
Comparable Three Months were used as the six and three-month periods most
nearly comparative to the six and three-month periods ended June 30, 1994.
SIX MONTHS ENDED JUNE 30, 1994 COMPARED WITH SIX MONTHS ENDED MAY 31, 1993
Net sales decreased $1.8 million to $15.6 million in the 1994 period
from $17.4 million in the Comparable Six Months due to the $1.6 million
effect of the inclusion of December, historically a higher volume month, in
the Comparable Six Months in comparison with the inclusion of June, a lower
volume month, in the 1994 period and a $0.2 million reduction in volume in
the remaining months of January through May. Such reduction in the January
through May period reflects the positive effect on the Comparable Six Months
of (i) a March 1993 storm which caused unseasonably colder weather (which
benefited LP gas sales in March and April 1993) and (ii) relatively colder
temperatures in February 1993 both almost fully offset by the effect of
relatively colder temperatures in January 1994.
Operating profit increased $0.9 million to $2.8 million in the six
months ended June 30, 1994 from $1.9 million in the Comparable Six Months as
a result of a decrease in selling, general and administrative expenses of
$0.9 million. Such decrease resulted from (i) the absence in the 1994 first
half of $1.0 million of nonrecurring significant charges recorded in the
Comparable Six Months and (ii) the decision by SEPSCO's parent, Triarc
Companies, Inc. ("Triarc"), to cease charging SEPSCO for management services
effective January 1, 1994, resulting in a $0.3 million reduction in such
costs, both partially offset by a $0.4 million increase in the allocation of
SEPSCO corporate charges to continuing operations due to the sale of certain
discontinued operations during 1993 subsequent to the Comparable Six Months.
The nonrecurring significant charges related primarily to actions taken in
connection with a change in control of Triarc and SEPSCO that occurred on
April 23, 1993 (the "Change in Control") and primarily result from $0.9
million of facilities relocation and corporate restructuring charges. Gross
profits were relatively unchanged as the effect of the $1.8 million decrease
in sales volume was offset by higher gross margin due to the decrease in the
purchase price of liquefied petroleum ("LP") gas in an environment of stable
selling prices.
Interest expense decreased $2.8 million to $4.1 million in the six
months ended June 30, 1994 from $6.9 million in the Comparable Six Months due
to lower debt outstanding during the six months ended June 30, 1994 as a
result of debt repayments principally in connection with the Change in
Control.
Equity in earnings of affiliates increased $0.9 million from $2.9
million in the Comparable Six Months to $3.8 million in the 1994 period due
to the absence in the 1994 first half of $3.0 million of nonrecurring
significant charges in the Comparable Six Months, principally facilities
relocation and corporate restructuring charges related to the Change in
Control, partially offset by lower profit margins in the 1994 period
principally resulting from the higher cost of cotton, one of Graniteville's
principal raw materials, and lower average selling prices.
Interest income from Triarc decreased $1.5 million to $1.7 million in
the six months ended June 30, 1994 from $3.2 million in the Comparable Six
Months due to a reduction in the receivable from Triarc in connection with
the Change in Control.
The gain on sale of marketable security of $6.0 million in the
Comparable Six Months resulted from the recognition of a gain previously
deferred on the sale of the common stock of an unaffiliated company to Triarc
which had previously been deferred until collection of the note received as
proceeds in such sale was assured. Since such note was collected in April
1993 prior to the issuance of the consolidated financial statements for the
year ended February 28, 1993, the gain was recorded in the three months ended
February 28, 1993 and included in the Comparable Six Months.
Other, net improved $2.8 million to income of $1.2 million in the six
months ended June 30, 1994 from expense of $1.6 million in the Comparable Six
Months due to a $1.7 million accrual in the Comparable Six Months for
expenses related to the settlement of a shareholder derivative suit (the
"Ehrman Litigation") and $1.2 million of investment income in the 1994 six-
month period. The Ehrman Litigation settlement costs were ultimately borne
by Triarc and the provision was subsequently reversed during the three months
ended August 31, 1993.
There is no provision for income taxes for the six-month period ended
June 30, 1994 due to (i) the utilization of net operating loss carryforwards
and the release of valuation allowances related thereto during the three
months ended March 31, 1994 and (ii) the loss for income tax purposes after
adjustment for the dividend exclusion on the equity in earnings of affiliates
included in pre-tax income for the three months ended June 30, 1994.
SEPSCO's provision for income taxes for the Comparable Six Months varies from
the United States Federal statutory income tax rate of approximately 35% due
to the inclusion of the equity in earnings of affiliates in pre-tax income.
Loss from discontinued operations, net of taxes, of $15.9 million in the
Comparable Six Months resulted from (i) the net operating losses incurred by
the discontinued businesses, (ii) a $2.9 million write-down (net of a tax
benefit of $2.0 million) relating to accruals for environmental remediation
and losses on certain contracts in progress, and (iii) $9.1 million of
certain significant charges, net of tax benefit, related primarily to actions
taken in connection with the Change in Control. Such significant charges
included (i) $4.6 million of pre-tax costs associated with the facilities
relocation and corporate restructuring, including (a) estimated costs of $2.4
million allocated to SEPSCO by Triarc to terminate the lease on Triarc's
existing corporate facilities, (b) costs of $1.1 million allocated to SEPSCO
by Triarc related to a five-year consulting agreement extending through April
1998 between Triarc and the former Vice Chairman of Triarc, (c) estimated
costs of $0.4 million to relocate SEPSCO's corporate office and (d) estimated
costs of $0.7 million allocated to SEPSCO by Triarc for relocation of
Triarc's corporate headquarters, personnel relocation and employee severance
(subsequently reversed during the three months ended August 31, 1993 and
absorbed by Triarc), (ii) an $8.0 million pre-tax write-down relating to the
impairment of certain unprofitable properties, (iii) estimated pre-tax cost
of $0.5 million allocated to SEPSCO by Triarc for a payment to a special
committee of the Board of Directors of Triarc, (iv) a tax benefit of $4.5
million related to items (i) through (iii) and (v) a provision of $0.5
million for income tax contingencies and other income tax matters. There is
no similar income or loss from discontinued operations in the 1994 period
since the estimated operating losses of the remaining discontinued operations
through the actual or estimated dates of disposal were previously recognized.
The cumulative effect of changes in accounting principles in the
Comparable Six Months resulted from (i) a benefit of $7.6 million from the
adoption effective March 1993 of Statement of Accounting Standards ("SFAS")
No. 109 "Accounting for Income Taxes" ("SFAS 109") and (ii) a charge of $0.1
million from SEPSCO's equity in the January 1993 adoption of SFAS 109 and
SFAS No. 106, "Employers Accounting for Postretirement Benefits Other than
Pensions" ("SFAS 106") by an affiliate.
Net income of $5.3 million for the six months ended June 30, 1994
increased $9.7 million from a net loss for the Comparable Six Months of $4.4
million for the reasons discussed above.
THREE MONTHS ENDED JUNE 30, 1994 COMPARED WITH THREE MONTHS ENDED MAY 31,
1993
Net sales decreased $2.0 million to $5.8 million in the 1994 period from
$7.8 million in the Comparable Three Months due to the $1.6 million effect of
the inclusion of March, a higher volume month, in the Comparable Three Months
in comparison with the inclusion of June, a lower volume month, in the 1994
period and $0.4 million of lower volume in the remaining months of April and
May 1994. Such reduction in April and May 1994 was principally due to the
March 1993 winter storm referred to above which also benefited LP gas sales
in April 1993.
Operating profit improved $0.2 million to $0.2 million in the three
months ended June 30, 1994 from breakeven in the Comparable Three Months
resulting from a decrease in selling, general and administrative expenses of
$0.7 million, partially offset by a decrease in gross profit of $0.5 million.
Selling, general and administrative expenses decreased primarily because
Triarc ceased charging SEPSCO for management services costs effective January
1, 1994. Gross profit decreased principally due to the lower volume in the
1994 period as noted above.
Interest expense decreased $0.8 million to $2.0 million in the 1994
period from $2.8 million in the Comparable Three Months due to lower debt
outstanding during the three months ended June 30, 1994 compared with prior
to April 23, 1993 in the Comparable Three Months as a result of debt
repayments principally in connection with the Change in Control.
Equity in earnings of affiliates increased $1.4 million to $1.8 million
in the three months ended June 30, 1994 from $0.4 million in the Comparable
Three Months due to the higher earnings of Graniteville resulting from the
absence in the 1994 quarter of certain significant charges in connection with
the Change in Control in the Comparable Three Months principally related to
the aforementioned facilities relocation and corporate restructuring
partially offset by lower profit margins in the 1994 period principally
resulting from the higher cost of cotton, one of Graniteville's principal raw
materials, and lower average selling prices.
Interest income from Triarc decreased $0.5 million to $0.9 million in
1994 from $1.4 million in the Comparable Three Months due to the partial
period effect in the Comparable Three Months of the reduction in the
receivable from Triarc in connection with the Change in Control.
Other, net improved $0.9 million to income of $0.5 million in the 1994
period million from an expense of $0.4 million in the Comparable Three Months
due to a $0.4 million accrual in the Comparable Three Months for expenses
related to settlement of the Ehrman Litigation and $0.8 million of investment
income in the 1994 period. The Ehrman Litigation settlement costs were
ultimately borne by Triarc and the provision was subsequently reversed during
the three months ended August 31, 1993.
There is no provision for income taxes for the three-month period ended
June 30, 1994 since SEPSCO had a loss for income tax purposes for the 1994
period after adjustment for the dividend exclusion on the equity in earnings
of affiliates included in pre-tax income. SEPSCO's benefit from income taxes
for the three-month period ended May 31, 1993 varies from the United States
Federal statutory income tax rate of approximately 35% due to the inclusion
of the equity in earnings of affiliates in pre-tax income.
Loss from discontinued operations, net of taxes, of $9.4 million in the
Comparable Three Months resulted from (i) the net operating losses incurred
by the discontinued businesses and (ii) $9.1 million of certain significant
charges, net of tax benefit, previously described. There is no similar
income or loss in the 1994 period since the estimated operating losses of the
remaining discontinued operations through the actual or estimated dates of
disposal were previously recognized.
The cumulative effect of changes in accounting principles in the
Comparable Three Months resulted from (i) a benefit of $7.6 million from the
adoption effective March 1993 of SFAS 109 and (ii) a charge of $0.1 million
from SEPSCO's equity in the January 1993 adoption of SFAS 109 and SFAS 106 by
an affiliate.
Net income of $1.3 million for the three months ended June 30, 1994
improved $4.1 million from a net loss for the Comparable Three Months of $2.8
million for the reasons discussed above.
FINANCIAL CONDITION AND LIQUIDITY
Cash and cash equivalents and marketable securities, excluding
restricted cash, declined $9.6 million during the six-month period ended June
30, 1994 to $24.0 million at June 30, 1994. Such decrease was due to
scheduled repayments of long-term debt of $9.0 million, cash and cash
equivalents used in operating activities of $2.1 million, a purchase of a
note receivable from an affiliate of $1.2 million and other items, net of
$1.0 million, all partially offset by net cash provided by discontinued
operations of $3.7 million.
Total stockholders' equity increased $28.9 million during the six-month
period ended June 30, 1994 to $123.3 million due to the $23.9 million
contribution related to the acquisition of the minority interest in SEPSCO
not owned by Triarc and net income of $5.3 million offset slightly by
unrealized losses of marketable securities of $0.3 million. In connection
with the settlement of the Ehrman Litigation, Triarc acquired the 28.9%
minority interest in SEPSCO it did not already own for shares of Triarc's
common stock valued at $52.1 million, net of $3.8 million of such stock value
representing settlement costs. Such acquisition is being accounted for by
SEPSCO in accordance with the "push down" method of accounting. As such, the
$23.9 million excess of the acquisition cost of $52.1 million over the
carrying value of the minority interest liability at Triarc of $28.2 million
has been accounted for as a contribution to stockholders' equity (see Notes 6
and 10).
At June 30, 1994 SEPSCO had a receivable from Triarc of $28.1 million
including a promissory note (the "Note") with an original principal amount of
$26.5 million and accrued interest on the Note of $3.2 million reduced by
payables to Triarc for facilities relocation and corporate restructuring and
other charges of $1.6 million. The Note bears interest at the annual rate of
13% and is due in August 1998. SEPSCO expects that to the extent it realizes
the interest on the Note from Triarc, such realization will be through
offsets of future amounts otherwise due Triarc and, therefore, such interest
will not provide cash flows to SEPSCO.
Under its present credit facility agreement, Graniteville is unable to
pay any dividends or make any loans or advances to its stockholders,
including SEPSCO, prior to December 31, 1995, and Graniteville's ability to
do so thereafter will be limited. Accordingly, any current income from the
investment in Graniteville will not provide cash flows to SEPSCO.
SEPSCO is required to make an annual $9.0 million sinking fund payment
on its 11 7/8% Senior Subordinated Debentures due February 1, 1998 (the
"Debentures") and to pay interest on such Debentures semi-annually on
February 1 and August 1 of each year. On February 1, 1994 SEPSCO made its
$9.0 million sinking fund payment and semi-annual interest payment in the
amount of $3.7 million. On August 1, 1994 SEPSCO paid its final interest
payment of 1994 of $3.2 million. Such interest payment will be included as a
component of cash flows from operations during the third quarter of 1994.
The indenture pursuant to which the Debentures were issued contains a
provision which limits to $100.0 million the aggregate amount of specified
kinds of indebtedness that SEPSCO and its consolidated subsidiaries can
incur. At June 30, 1994 such indebtedness was $50.9 million resulting in
allowable additional indebtedness, if SEPSCO desired to make such borrowings
and if such financing could be obtained, of $49.1 million.
SEPSCO has $5.3 million of restricted cash which support letters of
credit which collateralize certain performance and other bonds relating to
the utility and municipal services segment. SEPSCO anticipates that the
performance secured by the bond will be completed in late 1994 or early 1995,
and the restricted cash will revert to SEPSCO free of restrictions and at
that time be available for general corporate purposes.
The Federal income tax returns of SEPSCO and its subsidiaries are
currently being examined by the Internal Revenue Service ("IRS") for the tax
years from 1989 through 1992. The amount and timing of any payments required
as a result of such examination cannot presently be determined. However,
SEPSCO believes that it has adequate aggregate reserves for any tax
liabilities, including interest, that may result from all such examinations.
On July 22, 1993 SEPSCO's Board of Directors authorized the sale or
liquidation of all of its operating businesses, consisting of its utility and
municipal services, refrigeration and natural gas and oil businesses. In
October 1993 SEPSCO sold the assets of its tree maintenance services
operations and the stock of its two construction-related operations
comprising all of the operations of the former utility and municipal services
business segment. On April 8, 1994 SEPSCO sold substantially all of the
operating assets of the ice operations of its refrigeration business segment
for $5.0 million in cash, a $4.3 million note (discounted value $3.3 million)
and the assumption by the buyer of certain current liabilities of $0.8
million. While the amount of the loss resulting from the sale of the ice
operations is subject to final adjustment, SEPSCO estimates it will
approximate $2.1 million. The note, which bears no interest during the
first year and 5% thereafter, is payable in annual installments of $0.12
million in 1995 through 1998 with the balance of $3.8 million due in 1999.
As indicated above, SEPSCO's Board of Directors authorized the sale or
liquidation of the natural gas and oil business on July 22, 1993. However,
on December 9, 1993 SEPSCO's Board of Directors decided to sell the natural
gas and oil business to Triarc following a merger between SEPSCO and Triarc
(the "Merger") and the resulting elimination of the minority interest in
SEPSCO, rather than selling such business to an independent third party.
Subsequently, SEPSCO identified significant third party interest in the
natural gas and oil business and on August 5, 1994 entered into a contract
for the sale of the principal assets, excluding receivables, of the natural
gas and oil business for cash of $17.0 million subject to certain post-
closing adjustments. Such sale is scheduled to close no later than August
31, 1994. SEPSCO estimates that consummation of the sale at such price would
result in a gain.
The only remaining discontinued operation is the other operation (cold
storage) which comprised SEPSCO's refrigeration business segment. In June
1994 SEPSCO sold to an unaffiliated third party two of its cold storage
plants with a net book value of $1.9 million for $0.5 million of cash and
$0.7 million of notes, resulting in a loss, including expenses of $0.1
million, of $0.8 million. In June 1994 SEPSCO entered into a letter of
intent with a SEPSCO management-led buyout group for the sale of
substantially all of the remaining assets of the cold storage operation for
$6.5 million in cash, a $3.0 million note (discounted value $2.5 million) and
the assumption by the buyer of certain liabilities of up to $2.5 million.
Consummation of the sale is subject to several conditions including, among
others, the buyers obtaining the necessary financing. Based on such purchase
price and excluding any proceeds from the $3.0 million note until collection
is reasonably assured, SEPSCO estimates that it will incur a loss of
approximately $5.0 million, the estimated amount of which had previously been
accrued, including the write-off of approximately $0.7 million of properties,
principally land, with minimal value, not being sold to the buyers. The note
would be secured by the assets of the cold storage operation (which security
interest would be subordinated to a security interest granted to any lender
to the buyers), would be due six years from the date of closing and would be
non-interest bearing for the first year and would bear interest at 8%
thereafter. SEPSCO currently anticipates closing such sale by October 1994.
SEPSCO expects that all consummated dispositions, as well as the
anticipated closing of the contract to sell the natural gas and oil business
and the disposition of the cold storage operation, including the results of
their operations through the actual or anticipated disposal dates, will not
have a material adverse effect on the financial position or results of
operations of SEPSCO.
In addition, on July 22, 1993 SEPSCO's Board of Directors authorized the
sale or liquidation of the LP gas business. SEPSCO intends to transfer the
liquefied petroleum gas business to a subsidiary of Triarc and the transfer
would be accounted for at net book value and, thus, not result in any gain or
loss upon the transfer. However, the precise nature and the timing of such
transfer has not yet been determined.
National Propane Corporation ("National Propane"), a wholly-owned
subsidiary of Triarc, signed a commitment letter in August 1994 for a $120.0
million credit facility with an option to increase it to $150.0 million (the
"Propane Financing"). An aggregate $30.0 million of such Propane Financing
would be restricted to the redemption, in part, of the $54.0 million
principal amount of the Debentures, including $10.0 million that would not be
so restricted until after one year. Such redemption would be in connection
with the aforementioned intended transfer of the LP gas business to a
subsidiary of Triarc. There can be no assurance, however, that the Propane
Financing will be consummated or that National Propane will borrow the $30.0
million under the Propane Financing to repay, in part, the Debentures.
SEPSCO had cash and cash equivalents used in operating activities of
$2.1 million during the six-month period ended June 30, 1994. Such amount
consisted of $5.3 million of net income less net non-cash adjustments of $4.2
million and net changes in operating assets and liabilities of $3.2 million.
Operating results for the second half of 1994 may result in cash and cash
equivalents used in operations at levels higher than experienced during the
first six months of 1994 dependent upon (i) the timing of the sale or
transfer of the LP gas business to a subsidiary of Triarc and (ii) changes,
if any, in the level of working capital requirements experienced during the
first half of 1994. SEPSCO does not anticipate any significant cash
requirements for the remainder of 1994 excluding cash flows from operations.
SEPSCO believes that its existing cash and cash equivalents and marketable
securities will be more than sufficient to enable SEPSCO to meet its short-
term cash requirements. Nonetheless, should any unexpected shortfall arise,
SEPSCO should have the anticipated proceeds from the sale of the natural gas
and oil business by August 31, 1994 to meet any such shortfall.
CONTINGENCIES
SEPSCO is contingently liable for certain environmental matters which
are described in Note 11 to the condensed consolidated financial statements.
In addition, a purported shareholder derivative suit was settled with the
Merger which was approved by SEPSCO's shareholders other than Triarc and its
subsidiaries on April 14, 1994, all as described in more detail in Note 10 to
the condensed consolidated financial statements. SEPSCO and its subsidiaries
are also engaged in ordinary, routine litigation incidental to SEPSCO's
business. SEPSCO does not believe that such environmental matters and
ordinary, routine litigation will have a material adverse effect on its
consolidated financial position or results of operations.
PAGE
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SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 2. Changes in Securities
On April 14, 1994, a wholly-owned subsidiary of Triarc Companies, Inc.,
a Delaware corporation ("Triarc"), was merged into Southeastern Public
Service Company ("SEPSCO") and, as a result, SEPSCO became a wholly-
owned subsidiary of Triarc. In this merger (the "Merger"), the holders
of outstanding shares of SEPSCO's common stock, other than Triarc and
its subsidiaries, received 0.8 of a share of Triarc's Class A common
stock, par value $0.10 per share, for each of their shares of SEPSCO's
common stock, which shares were cancelled as part of the Merger. As
part of the Merger, all of the convertible preferred stock of SEPSCO,
which had been owned by Triarc, and all of SEPSCO's common stock which
had been owned by Triarc was cancelled, and 1,000 shares, par value
$1.00 per share, of SEPSCO'S common stock was issued to Triarc and its
subsidiaries.
Item 5. Other Information
As previously reported, in July 1993, the Board of Directors of SEPSCO
adopted a resolution calling for the sale or discontinuance of
substantially all of its operating businesses and assets, other than its
minority equity interests in other affiliated subsidiaries. As part of
this plan, on June 10, 1994, SEPSCO entered into a Letter of Intent with
certain members of its management, providing for such management's
purchase of substantially all of SEPSCO's assets which relate to
SEPSCO's cold storage and refrigeration business for $9.5 million ($6.5
million in cash and a $3.0 million note) plus the assumption by the
purchaser of certain liabilities not to exceed $2.5 million in the
aggregate. In addition, on August 5, 1994 Southeastern Gas Company, a
wholly-owned subsidiary of SEPSCO, entered into a definitive agreement
to sell substantially all of the assets of SEPSCO's oil and gas business
to Eastern States Oil & Gas, Inc. for $17 million in cash (subject to
certain post-closing adjustments). The closing of this transaction is
subject to customary conditions (but is not subject to receipt of
financing) and is scheduled to take place on or prior to August 31,
1994.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger dated as of November 22, 1993 among
SEPSCO, Triarc and SEPSCO Merger Corporation, incorporated herein
by reference to Exhibit 2.1 to SEPSCO's Definitive Proxy Statement
filed pursuant to Regulations 14A on March 11, 1994 (SEC file #1-
4351).
4.1 Certificate of Incorporation of SEPSCO, incorporated herein by
reference to Exhibit 3.1 to SEPSCO's Annual Report on Form 10-K for
the fiscal year ended February 28, 1981 (SEC File #1-4351).
4.2 Certificate of Amendment dated September 24, 1984 to the
Certificate of Incorporation of SEPSCO, incorporated herein by
reference to Exhibit 3.2 to SEPSCO's Annual Report on Form 10-K for
the fiscal year ended February 28, 1985 (SEC File #1-4351).
10.1 Form of Former Management Services Agreement between Triarc and
certain other corporations, including SEPSCO, incorporated herein
by reference to Exhibit 10.10 to Triarc's Annual Report on Form 10-
K for the fiscal year ended April 30, 1993 (SEC file #1-2207).
10.2 Form of New Management Services Agreement between Triarc and
certain of its subsidiaries, including SEPSCO, incorporated herein
by reference to Exhibit 10.10 to Triarc's Annual Report on Form 10-
K for the fiscal year ended April 30, 1993 (SEC file #1-2207).
(b) Reports on Form 8-K
The registrant filed a report on Form 8-K on June 15, 1994, as
amended by a report on Form 8-K/A filed on July 30, 1994, with
respect to the dismissal on June 9, 1994, of the registrant's
independent accountants, Arthur Andersen & Co., and the engagement
of Deloitte & Touche as the registrant's new independent
accountants.
PAGE
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SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHEASTERN PUBLIC SERVICE COMPANY
Date: August 18, 1994 BY: /S/ JOSEPH A. LEVATO
---------------------
Joseph A. Levato
Executive Vice President and
Chief Financial Officer
(On behalf of the Company)
/S/ FRED H. SCHAEFER
---------------------
Fred H. Schaefer
Vice President and
Chief Accounting Officer
(Principal accounting officer)
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