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 March 31, 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.)
777 South Flagler Drive, Suite 1000E, West Palm Beach, FL 33401
(Address of principal executive offices) (zip code)
(407) 653-4000
(Registrant's telephone number, including area code)
(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 [ ]
As of May 16, 1994, all of the voting common stock ($1.00 par value) of the
registrant was held by the registrant's parent, Triarc Companies, Inc.
PAGE
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, March 31,
1993 1994
---- ----
(A) (Unaudited)
ASSETS (In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 22,813 $ 8,139
Restricted cash 5,264 5,264
Marketable securities 10,795 13,093
Receivables 4,734 4,034
Finished goods inventories 850 974
Other current assets 835 791
-------- --------
Total current assets 45,291 32,295
Properties, net 7,228 7,058
Due from Triarc Companies, Inc. 25,358 26,706
Investments in affiliates 68,211 70,141
Other assets 1,627 2,796
Net non-current assets of discontinued
operations 21,682 21,539
-------- --------
$ 169,397 $ 160,535
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 9,045 $ 9,045
Accounts payable 3,430 2,492
Accrued expenses 7,400 4,866
Net current liabilities of discontinued
operations 2,800 2,391
-------- --------
Total current liabilities 22,675 18,794
Long-term debt 50,258 41,561
Other liabilities 2,045 1,771
Commitments and contingencies
Stockholders' equity:
Preferred stock 24 24
Common stock 11,896 11,896
Additional paid-in capital 90,539 90,539
Accumulated deficit (7,174) (3,184)
Treasury stock (866) (866)
-------- --------
Total stockholders' equity 94,419 98,409
-------- --------
$ 169,397 $ 160,535
======== ========
<FN>
(A) Derived from the audited consolidated financial statements as of December 31, 1993.
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three months ended
--------------------
February 28, March 31,
1993 1994
---- ----
(Unaudited)
(In thousands except
per share amounts)
<S> <C> <C>
Net sales $ 9,576 $ 9,823
-------- --------
Costs and expenses:
Cost of sales 6,821 6,525
Selling, general and administrative
expenses 826 674
-------- --------
7,647 7,199
-------- --------
Operating profit 1,929 2,624
Other income (expense):
Interest expense (4,091) (2,094)
Equity in earnings of affiliates before
extraordinary item of affiliate 2,514 1,930
Interest income from Triarc Companies,
Inc. 1,829 851
Gain on sale of marketable security
previously deferred 6,000 --
Other, net (1,134) 679
-------- --------
Income from continuing operations
before income taxes 7,047 3,990
Provision for income taxes (1,841) --
-------- --------
Income from continuing operations 5,206 3,990
Loss from discontinued operations,
net of income taxes (6,480) --
-------- --------
Income (loss) before equity in
extraordinary item of affiliate (1,274) 3,990
Equity in extraordinary item of affiliate (348) --
-------- --------
Net income (loss) $ (1,622) $ 3,990
======== ========
Income (loss) per share:
Continuing operations $ .45 $ .34
Discontinued operations (.56) --
Extraordinary item of affiliate (.03) --
-------- --------
Net income (loss) $ (.14) $ .34
======== ========
</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>
Three months ended
--------------------
February 28, March 31,
1993 1994
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,622) $ 3,990
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization of
properties 324 291
Amortization of deferred financing
costs and debt discount 416 366
Gain on sale of marketable security
previously deferred (6,000) --
Equity in net earnings of affiliates (2,166) (1,930)
Loss from discontinued operations 6,480 --
Provision for deferred income taxes 1,871 --
Other, net 260 (569)
Changes in operating assets and
liabilities:
Decrease (increase) in:
Receivables (1,572) 700
Inventories 177 (124)
Other current assets 962 (16)
Increase (decrease) in:
Accounts payable 1,262 (938)
Accrued expenses (1,430) (2,534)
-------- --------
Net cash used in operating
activities (1,038) (764)
-------- --------
Cash flows from investing activities:
Investments in marketable securities -- (1,933)
Capital expenditures (213) (123)
Proceeds from sales of properties 21 2
Increase in due from Triarc
Companies, Inc. (2,045) (1,348)
Purchase of notes receivable -- (1,239)
-------- --------
Net cash used in investing
activities (2,237) (4,641)
-------- --------
Cash flows from financing activities:
Net proceeds from accounts
receivable financing 1,737 --
Repayments of long-term debt (9,002) (9,003)
Proceeds from notes payable
to affiliate 8,400 --
-------- --------
Net cash provided by (used in)
financing activities 1,135 (9,003)
-------- --------
Net cash used in continuing operations (2,140) (14,408)
Net cash used in discontinued operations (63) (266)
-------- --------
Net decrease in cash and cash equivalents (2,203) (14,674)
Cash and cash equivalents at beginning
of period 2,442 22,813
-------- --------
Cash and cash equivalents at end
of period $ 239 $ 8,139
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1994
(Unaudited)
1. Basis of Presentation
Southeastern Public Service Company and subsidiaries ("SEPSCO") is a
wholly-owned subsidiary of Triarc Companies, Inc. ("Triarc") as of April 14,
1994 (71.1% prior thereto).
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, necessary to
present fairly SEPSCO's financial position as of December 31, 1993 and March
31, 1994 and its results of operations and its cash flows for the three-month
periods ended February 28, 1993 and March 31, 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 for the ten-month
period ended December 31, 1993 ("Form 10-K").
On October 27, 1993 SEPSCO's Board of Directors approved a change in the
fiscal year of SEPSCO ending February 28 to a calendar year ending December
31 effective for the ten-month period ending December 31, 1993. Graniteville
Company ("Graniteville"), a 49% owned investment of SEPSCO, also changed its
fiscal year to a calendar year ending on or about December 31, effective for
such period.
The three-month period ended February 28, 1993 has been presented herein
since it is the period most nearly comparable to the three-month period ended
March 31, 1994. Due to the fact that (i) a consolidation was not prepared
other than on a quarterly basis in the prior period and (ii) this same three-
month period ended February 28, 1993 was included in Triarc's condensed
consolidated financial statements for Triarc's comparable April 30, 1993
prior year period, it was not practicable nor consistent with Triarc for
SEPSCO to recast its prior year results and present financial statements for
the three-month period ended March 31, 1993.
2. 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 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 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 liquefied petroleum gas business to a
subsidiary of Triarc and the transfer would be accounted for at net book
value. Accordingly, SEPSCO has continued to reflect the liquefied petroleum
gas business as a continuing operation. 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 6)
rather than selling such business to an independent third party. Such sale
will be in the form of a sale of the stock of the entities comprising the
NG&O business for a net cash purchase price of $8,500,000, which Triarc and
SEPSCO believe is equal to their fair value and which is approximately
$4,000,000 higher than their net book value. SEPSCO currently anticipates
completion of such sale by July 22, 1994.
In October 1993 SEPSCO sold the assets of its tree maintenance services
operations and the stock of its two construction related operations
previously included in its 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 approximating $1,000,000. The note, which bears no
interest during the first year and an annual interest rate of 5% thereafter,
is payable in annual installments of $120,000 in 1995 through 1998 with the
balance of $3,815,000 due in 1999. While the amount of the loss resulting
from the sale of the ice operations has not been finalized, SEPSCO currently
estimates it will approximate $2,100,000. The only remaining discontinued
operations are the cold storage operation of the Refrigeration business and
the NG&O business. SEPSCO has identified certain potential purchasers and is
negotiating potential terms for the sale of the cold storage operation. The
precise timetable for the sale and liquidation of the cold storage operation
will depend upon SEPSCO's ability to negotiate acceptable terms for the sale
of such operation with presently identified potential purchasers, or, failing
to do so, identify other appropriate purchasers. SEPSCO currently
anticipates completion of such sale by July 22, 1994.
After (i) consideration of (a) a $2,866,000 write down (net of a tax
benefit of $2,037,000) in the three-month period ended February 28, 1993
relating to accruals for environmental remediation and losses on certain
contracts in progress reflected in operating profit (loss) of discontinued
operations set forth below, (b) a $4,679,000 write-down (net of a tax benefit
of $3,323,000) relating to the impairment of certain unprofitable properties
recorded in the ten-month transition period ended December 31, 1993, (c) a
$13,910,000 provision (with no tax benefit) for the estimated loss on the
sale of the discontinued operations recorded in the ten-month transition
period ended December 31, 1993, (ii) the accounting for the sale of the NG&O
business will not result in any gain or loss since it will be a transfer
among a controlled group of entities and (iii) based on the analysis
performed to date with respect to the proposed sale of the cold storage
operations, SEPSCO expects that all currently anticipated dispositions,
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.
PAGE
<PAGE>
<TABLE>
Net current liabilities and non-current assets of discontinued operations consist of the following:
<CAPTION>
December 31, 1993 March 31, 1994
----------------- ---------------
NG&O Refrig. NG&O Refrig.
----- -------- ---- --------
(In thousands)
<S> <C> <C> <C> <C>
Current assets:
Cash $ 253 $ 308 $ 146 $ 159
Receivables 197 1,528 299 1,380
Inventories 157 647 156 664
Other current assets 17 236 40 220
-------- -------- -------- --------
Total current assets 624 2,719 641 2,423
-------- -------- -------- --------
Current liabilities:
Accounts payable 528 1,951 498 2,108
Accrued expenses 1,102 2,562 1,076 1,773
-------- -------- -------- --------
Total current liabilities 1,630 4,513 1,574 3,881
-------- -------- -------- --------
Net current liabilities of
discontinued operations $ (1,006) $ (1,794) $ (933) $ (1,458)
======================= ======== ========
Non-current assets:
Properties $ 17,787 $ 51,344 $ 17,816 $ 51,614
Less accumulated depreciation,
depletion and amortization 10,507 33,662 10,583 34,235
-------- -------- -------- --------
7,280 17,682 7,233 17,379
Other assets 1 71 1 72
-------- -------- -------- --------
Total non-current assets 7,281 17,753 7,234 17,451
-------- -------- -------- --------
Non-current liabilities
Deferred income taxes 1,305 (1,305) 1,305 (1,305)
Other liabilities 519 2,833 503 2,643
-------- -------- -------- --------
Total non-current liabilities 1,824 1,528 1,808 1,338
-------- -------- -------- --------
Net non-current assets of
discontinued operations $ 5,457 $ 16,225 $ 5,426 $ 16,113
======== ======== ======== ========
</TABLE>
PAGE
<PAGE>
<TABLE>
The loss from discontinued operations for the three months ended February 28, 1993 as well as the results
of operations during the three months ended March 31, 1994, which has been previously recognized in the loss
on disposal of discontinued operations during the ten-month transition period ended December 31, 1993,
consisted of the following:
<CAPTION>
Three months ended
---------------------------------------------
February 28, 1993 March 31, 1994
----------------- ---------------
Services Services
NG&O and Refrig. NG&O and Refrig.
---- ---------- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
Operating Revenues:
Net sales $ 1,941 $ 1,916 $ 1,362 $ 1,802
Service revenues -- 42,353 -- 2,727
------- ------- ------- -------
1,941 44,269 1,362 4,529
Operating costs and expenses:
Cost of sales 1,736 2,380 857 2,205
Cost of services -- 44,703 -- 2,402
Selling, general and administrative
expenses 838 4,205 254 475
------- ------- ------- -------
2,574 51,288 1,111 5,082
------- ------- ------- -------
Operating profit (loss) (633) (7,019) 251 (553)
Other income (expense):
Interest expense (2) (955) -- (3)
Other, net (13) (738) (76) 61
------- ------- ------- -------
Income (loss) before income taxes (648) (8,712) 175 (495)
Benefit from (provision for)
income taxes 217 2,663 -- --
------- ------- ------- -------
Income (loss) from discontinued
operations $ (431) $(6,049) $ 175 $ (495)
======= ======= ======= =======
</TABLE>
PAGE
<PAGE>
3. Investment in Affiliates
Investments in affiliates consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1993 1994
----- ----
(In thousands)
<S> <C> <C>
Graniteville $ 67,824 $ 69,625
CFC Holdings Corp. 387 516
--------- ---------
$ 68,211 $ 70,141
========= =========
</TABLE>
Equity in earnings of affiliates before cumulative effect of changes in
accounting principles consisted of the following:
<TABLE>
<CAPTION>
Three months ended
-----------------------
February 28, March 31,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Graniteville $ 3,055 $ 1,801
CFC Holdings Corp. (541) 129
--------- --------
$ 2,514 $ 1,930
========= ========
</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 $70,000,000 as of March 31, 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.
Summary consolidated results of operations of Graniteville for the three
months ended February 28, 1993 and March 31, 1994 are as follows:
<TABLE>
<CAPTION>
Three months ended
----------------------
February 28, March 31,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Operating revenues $ 121,021 $ 129,990
Operating profit 13,706 7,661
Net income 6,235 3,686
</TABLE>
4. Income Taxes
There is no provision for income taxes for the three-months ended March
31, 1994 due to the utilization of net operating loss carryforwards
previously recognized in deferred income taxes. The provision for income
taxes in the three months ended February 28, 1993 represented a 26% effective
tax rate which was lower than the Federal statutory rate of 35% due to the
inclusion of the equity in earnings of affiliates on an after-tax basis (net
of the 80% dividend exclusion) in pre-tax income.
5. Income (Loss) Per Share
The income (loss) per share has been computed by dividing net income
(loss), after the reduction for an insignificant amount of preferred stock
dividends, by the 11,655,067 weighted average common shares outstanding
during the three-month periods ended February 28, 1993 and March 31, 1994.
On April 14, 1994 Triarc increased its ownership of SEPSCO's common stock
from 71.1% to 100% (see Note 6). In conjunction with such transaction, all
of the convertible preferred stock, which had been owned by Triarc, was
canceled. In addition, all of the then issued and authorized shares of SEPSCO
common stock were canceled and 1,000 shares, par value $1.00 per share, of
SEPSCO common stock was issued to Triarc and its subsidiaries. Earnings per
share for the three months ended March 31, 1994 would have been $3,990.00 as
a result of such issuance.
6. Legal Matters
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, in the United States District Court for the
Southern District of Florida (the "District Court"). On January 11, 1994 the
District Court approved a settlement agreement (the "Settlement Agreement")
with the plaintiff (the "Plaintiff") in the Ehrman Litigation. 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 2,691,822 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 in accordance with the Settlement
Agreement. Following the Merger, Triarc owns 100% of the SEPSCO Common
Stock.
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. However, as previously indicated, the Settlement
Agreement established that Triarc and not SEPSCO was responsible for these
expenditures and, accordingly, SEPSCO reversed the $1,300,000 of previously
accrued expenses in the ten-month transition period ended December 31, 1993.
The fair value as of April 14, 1994 of the 2,691,822 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 will be accounted for by Triarc in accordance
with the purchase method of accounting. Accordingly, the acquisition of the
additional 28.9% interest in SEPSCO's assets and liabilities will be recorded
at their fair values and the minority interest in SEPSCO recorded by Triarc
will be eliminated. The cost in excess of the fair value of the additional
interest in the net assets acquired ("Goodwill") will be amortized on a
straight-line basis over 30 years. However, SEPSCO has not yet commenced its
evaluation of purchase accounting, and accordingly, cannot presently
determine the amount of the Goodwill that will result from the Merger. Any
such purchase accounting adjustment, including Goodwill, will be recorded by
SEPSCO in accordance with the "push down" method of accounting.
Pro forma unaudited condensed summary operating results of SEPSCO for the
three months ended March 31, 1994, giving effect to the Merger as if it had
been consummated on January 1, 1994, are set forth below. Since SEPSCO
anticipates that a portion of the excess of the Merger Consideration over
Triarc's related minority interest liability will be allocated to the net
assets acquired, with amortization periods at less than 30 years, the pro
forma assumes an average amortization period of such excess of only 25 years.
<TABLE>
<CAPTION>
(In thousands except
per share amounts)
<S> <C>
Net Sales $ 9,823
Operating profit 2,385
Income from continuing operations
before income taxes 3,751
Net income 3,751
Net income per share .31
Supplemental net income
per share (see Note 5) 3,751.00
</TABLE>
Pro forma unaudited stockholders' equity of SEPSCO as of March 31, 1994,
giving effect to the Merger as if it had been consummated on March 31, 1994,
is set forth below:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Common stock $ 1
Additional paid-in capital 101,592
Accumulated deficit $ (3,184)
--------
Total stockholders' equity $ 98,409
========
</TABLE>
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 five sites. In
addition, remediation will be required at thirteen sites which were sold to
or leased by the purchaser of the ice operations and such remediation will be
made in conjunction with the purchaser. Based on preliminary information and
consultations with, and certain reports of, environmental consultants and
others, SEPSCO presently estimates their cost of such remediation and/or
removal described above will approximate $3,661,000, all of which was
provided in prior years. In connection therewith, SEPSCO has incurred actual
costs of $1,469,000 through March 31, 1994 and has a remaining accrual of
$2,192,000 as of March 31, 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. Graniteville entered into a consent decree providing for the
study and investigation of the alleged pollution and its sources. The study
report prepared by Graniteville's environmental consulting firm and filed
with DHEC in April 1990, recommended that pond sediments be left undisturbed
and in place. DHEC responded by requesting that Graniteville submit
additional information concerning potential passive and active remedial
alternatives, with accompanying supportive information. In May 1991
Graniteville provided this information to DHEC in a report of Graniteville's
environmental consulting firm. The 1990 and 1991 reports 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
such environmental matters and ordinary, routine litigation will have a
material adverse effect on its consolidated financial position or results of
operations.
7. Related Party Transactions
The Company continues to have certain related party transactions with
Triarc and its subsidiaries of the nature and general magnitude as described
in Form 10-K. In addition, during the three-months ended March 31, 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.
PAGE
<PAGE>
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Introduction
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included herein 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 for the ten-
month period ended December 31, 1993 ("Form 10-K") of Southeastern Public
Service Company ("SEPSCO").
On October 27, 1993 SEPSCO's Board of Directors approved a change in
the fiscal year of SEPSCO ending February 28 to a calendar year ending
December 31, effective for the ten-month transition period ended December 31,
1993. As used herein, "Comparable 1993" refers to the three-month period
ended February 28, 1993, the prior period most comparable with the three-
month period ended March 31, 1994.
A discussion of (i) the results of operations comparing the three-month
period ended March 31, 1994 and Comparable 1993 and (ii) SEPSCO's financial
condition and liquidity as of March 31, 1994 are set forth below.
THREE MONTHS ENDED MARCH 31, 1994 COMPARED WITH THREE MONTHS ENDED FEBRUARY
28, 1993
Net sales increased $0.2 million from $9.6 million in Comparable 1993
to $9.8 million in 1994 as a result of higher average selling prices while
the sales volume of liquefied petroleum gas remained relatively unchanged
from the previous year.
Operating profit increased $0.7 million from $1.9 million in Comparable
1993 to $2.6 million in 1994 resulting from an increase in gross profit of
$0.5 million and a decrease in selling, general and administrative expenses
of $0.2 million. Gross profit increased due to higher average selling prices
as described above and lower product costs. Selling, general and
administrative expenses decreased primarily because Triarc Companies, Inc.
("Triarc") ceased charging SEPSCO for management services costs effective
January 1, 1994.
Interest expense decreased $2.0 million from $4.1 million in Comparable
1993 to $2.1 million in 1994 due to lower debt outstanding during the 1994
period as a result of debt repayments in connection with the change in
control that occurred on April 23, 1993.
Equity in earnings of affiliates decreased $0.6 million from $2.5
million in Comparable 1993 to $1.9 million in 1994 due to lower earnings at
Graniteville Company ("Graniteville"), a 49% owned affiliate, resulting from
lower profit margins.
Interest income from Triarc decreased $0.9 from $1.8 million in
Comparable 1993 to $0.9 million in 1994 due to a reduction in the receivable
from Triarc in connection with the change in control that occurred on April
23, 1993.
Gain on sale of marketable security previously deferred of $6.0 million
in Comparable 1993 resulted from the recognition of a gain previously
deferred on the sale of 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 financial statements for the year ended
February 28, 1993, the gain was recorded in Comparable 1993.
Other, net improved $1.8 million from an expense of $1.1 million in
Comparable 1993 to income of $0.7 million in 1994. Comparable 1993 amount a
$1.3 million provision for the then proposed settlement costs in connection
with the Ehrman Litigation. Such costs were ultimately borne by Triarc and
the provision was reversed during the ten-month transition period ended
December 31, 1993.
The 1994 period did not result in a provision for income taxes due to
the utilization of net operating carryforwards previously recognized in
deferred income taxes. The provision for income taxes represented a 26%
effective tax rate in Comparable 1993 which was lower than the Federal
statutory rate of 35% due to the inclusion of the equity in earnings of
affiliates on an after-tax basis (net of the 80% dividend exclusion) in pre-
tax income.
Loss from discontinued operations, net of taxes, of $6.5 million in
Comparable 1993 resulted from the operating losses incurred by all of the
discontinued segments. Such losses included 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. The 1994 operating
results of the discontinued operations have been previously recognized in the
loss on disposal of discontinued operations during the ten-month transition
period ended December 31, 1993.
Equity in extraordinary item of affiliate resulted from early
extinguishment of debt by CFC Holdings Corp., a 5.4% owned affiliate.
SEPSCO reported net income of $4.0 million for the three months ended
March 31, 1994 compared to a net loss for Comparable 1993 of $1.6 million for
the reasons discussed above.
FINANCIAL CONDITION AND LIQUIDITY
At December 31, 1993 and March 31, 1994 cash, cash equivalents and
marketable securities, excluding restricted cash, amounted to $33.6 million
(including $10.8 million of marketable securities) and $21.2 million
(including $13.1 million of marketable securities), respectively. The $12.4
million decrease reflects (i) net cash used by operations of $0.8 million,
(ii) an increase in due from Triarc of $1.3 million, (iii) an increase in
notes receivable of $1.2 million, (iv) repayments of long-term debt of $9.0
million and (v) capital expenditures of $0.1 million. Total debt, excluding
the debt of the discontinued operations, amounted to $59.3 million and $50.6
million at December 31, 1993, and March 31, 1994, respectively.
At March 31, 1994 SEPSCO holds a promissory note (the "Note") in the
remaining amount of $28.0 million (including $2.3 million of accrued
interest) from Triarc bearing interest at the annual rate of 13%, payable
semi-annually, and is due in August 1998. The Note is included in "Due from
Triarc Companies, Inc." in the condensed consolidated balance sheet. SEPSCO
anticipates the interest on the Note will not be paid by Triarc and will not
result in cash in-flows to SEPSCO.
Under its present credit agreement, 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 $50.0 million at the time of the payment (the outstanding
principal balance was $70.0 million as of March 31, 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.
Accordingly, any income from the investment in Graniteville will not result
in any cash in-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. During the remainder of 1994 SEPSCO will be required
to make a semi-annual interest payment of $3.2 million. Such interest
payment will be included in cash flows from operations.
The indenture relating to the Debentures 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
March 31, 1994 such indebtedness was $50.6 million resulting in allowable
additional indebtedness, if SEPSCO desired to make such borrowings and if
such financing could be obtained, of $49.4 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 used for general corporate purposes.
The IRS has recently commenced the examination of SEPSCO's Federal
income tax returns for the tax years from 1989 through 1992. The amount and
timing of any payments required as a result of the 1989 through 1992 audit
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
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 liquefied petroleum gas business to a subsidiary of Triarc and
the transfer would be accounted for at net book value. Accordingly, SEPSCO
has continued to reflect the liquefied petroleum gas business as a continuing
operation. On December 9, 1993 SEPSCO's Board of Directors decided to sell
the natural gas and oil business to Triarc following the Merger and the
resulting elimination of the minority interest in SEPSCO rather than selling
such business to an independent third party.
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 up to $1.0
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. The only remaining
discontinued operations are the cold storage operation of the refrigeration
business and the natural gas and oil business. SEPSCO has identified certain
potential customers and is negotiating potential terms for the sale of the
cold storage operation. The precise timetable for the sale and liquidation
of the cold storage operation will depend upon SEPSCO's ability to negotiate
acceptable terms for the sale of such operation with presently identified
potential purchasers, or, failing to do so, identify other appropriate
purchasers. SEPSCO currently anticipates completion of such sales by July
22, 1994. In connection therewith, SEPSCO anticipates that during the
remainder of 1994 that an aggregate $0.75 million cash out-flow will be
required with respect to the sale of the utility and municipal services
business segment, which has been more than offset by the collection of $5.0
with respect to the sale of the ice operations.
SEPSCO had cash used in operating activities of $0.8 million during the
three-month period ended March 31, 1994. Such amount consisted of $4.0
million of net income less non-cash income of $1.9 million and working
capital requirements of $2.9 million. Such net income reflected the results
of the liquefied petroleum gas business during a quarter which benefits from
seasonality due to the winter heating season. Accordingly, operating results
for the remainder of the year may result in cash flows used in operations at
levels higher than experienced during the 1994 first quarter dependent upon
(i) the timing of the sale or transfer of such businesses to Triarc and (ii)
changes, if any, in the level of working capital requirements experienced
during the 1994 first quarter. SEPSCO anticipates its cash requirements for
the remainder of 1994, excluding cash flows from operations, will consist
only of $0.3 million of capital expenditures to provide for business
expansion in the natural gas and oil and liquefied petroleum gas segments.
SEPSCO believes it will be able to meet all of its cash requirements during
the remainder of 1994 with cash and marketable securities on hand and the
proceeds from the sale of the ice operations.
CONTINGENCIES
SEPSCO is contingently liable for certain environmental matters which
are described in Note 6 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 detail in Note 6 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 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
On April 1, 1994 the Registrant issued a report on Form 8-K with
respect to its estimated earnings for the ten-month transition
period ended December 31, 1993.
PAGE
<PAGE>
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: May 20, 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)
<PAGE>
