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 September 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)
(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 October 31, 1994 all of the voting stock of the registrant (consisting
of 1,000 shares of common stock, $1.00 par value) 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, September 30,
1993 1994
---- ----
ASSETS (A) (Unaudited)
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,813 $ 21,876
Restricted cash 5,264 6,014
Marketable securities 10,795 10,469
Receivables 4,734 2,879
Finished goods inventories 850 859
Other current assets 835 488
-------- --------
Total current assets 45,291 42,585
Properties, net 7,228 6,758
Due from Triarc Companies, Inc. 25,358 33,150
Investments in affiliates 68,211 75,322
Unamortized costs in excess of net assets
of acquired companies 126 21,768
Other assets 1,501 7,791
Net non-current assets of discontinued operations 21,682 6,481
-------- --------
$169,397 $193,855
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 9,045 $ 9,049
Accounts payable 3,430 969
Accrued expenses 7,400 1,985
Net current liabilities of discontinued operations 2,800 12,417
-------- --------
Total current liabilities 22,675 24,420
Long-term debt 50,258 42,131
Other liabilities 2,045 1,866
Commitments and contingencies
Stockholders' equity:
Preferred stock 24 -
Common stock 11,896 1
Additional paid-in capital 90,539 126,963
Accumulated deficit (7,174) (1,123)
Treasury stock (866) -
Unrealized loss on marketable securities -- (403)
-------- --------
Total stockholders' equity 94,419 125,438
-------- --------
$169,397 $193,855
======== ========
<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 Nine months ended
------------------------ ------------------------
August 31, September 30,August 31, September 30,
1993 1994 1993 1994
---- ---- ---- ----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Net sales $ 5,308 $ 5,134 $ 22,683 $ 20,752
--------- -------- -------- --------
Costs and expenses:
Cost of sales 4,792 4,478 17,555 15,758
Selling, general and
administrative expenses 510 880 3,202 2,425
--------- -------- -------- --------
5,302 5,358 20,757 18,183
--------- -------- -------- --------
Operating profit (loss) 6 (224) 1,926 2,569
Other income (expense):
Interest expense (2,427) (2,049) (9,309) (6,172)
Equity in earnings of
affiliates before
extraordinary item
and cumulative effect
of changes in accounting
principles of affiliates 3,790 1,851 6,683 5,628
Interest income from
Triarc Companies, Inc. 870 881 4,110 2,592
Gain on sale of
marketable security
previously deferred - - 6,000 -
Other, net (1,274) 255 (2,844) 1,434
--------- -------- -------- --------
Income from continuing
operations before
income taxes 965 714 6,566 6,051
Benefit from (provision
for) income taxes 1,268 - (20) -
--------- -------- -------- --------
Income from continuing
operations 2,233 714 6,546 6,051
Loss from discontinued
operations, net of
income taxes (22) - (15,925) -
--------- -------- -------- --------
Income (loss) before
equity in extraordinary
item of affiliate and
cumulative effect of
changes in accounting
principles 2,211 714 (9,379) 6,051
Equity in extraordinary
item of affiliate - - (348) -
Cumulative effect of
changes in accounting
principles:
SEPSCO - - 7,617 -
Equity in affiliates - - (102) -
--------- -------- -------- --------
Net income (loss) $ 2,211 $ 714 $ (2,212) $ 6,051
========= ======== ======== ========
</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>
Nine months ended
--------------------------
August 31, September 30,
1993 1994
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,212) $ 6,051
Adjustments to reconcile net income (loss)
to net cash and cash equivalents provided by
(used in) operating activities:
Depreciation and amortization of properties 941 845
Amortization of deferred financing costs and
debt discount 1,193 1,084
Amortization of costs in excess of net assets
of acquired companies 9 438
Equity in earnings of affiliates (6,233) (5,628)
Interest income from Triarc Companies, Inc.
capitalized and not collected - (2,592)
Gain on sale of marketable security previously
deferred (6,000) -
Provision for deferred income taxes 895 -
Other, net (466) (685)
Loss from discontinued operations 15,925 -
Cumulative effect of changes in accounting
principles (7,617) -
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables (172) 2,099
Finished goods inventories 27 (9)
Other current assets 2,555 347
Increase (decrease) in:
Accounts payable 2,793 (2,461)
Accrued expenses 857 (4,054)
-------- --------
Net cash and cash equivalents provided by
(used in) operating activities 2,495 (4,565)
-------- --------
Cash flows from investing activities:
Proceeds from sales of subsidiaries - 21,832
Purchase of a note receivable from an affiliate - (1,239)
Capital expenditures (447) (355)
Repayment from (advances to) Triarc
Companies, Inc. 23,334 (5,200)
Other, net 49 (111)
-------- --------
Net cash and cash equivalents provided by
investing activities 22,936 14,927
-------- --------
Cash flows from financing activities:
Repayments of long-term debt (9,174) (9,025)
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 (22,616) (9,728)
-------- --------
Net cash and cash equivalents provided by
continuing operations 2,815 634
Net cash and cash equivalents used in
discontinued operations (2,730) (1,571)
-------- --------
Net increase (decrease) in cash and cash
equivalents 85 (937)
Cash and cash equivalents at beginning of period 2,442 22,813
-------- --------
Cash and cash equivalents at end of period $ 2,527 $ 21,876
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1994
(Unaudited)
1. Basis of Presentation
Southeastern Public Service Company and subsidiaries ("SEPSCO") is an
indirect wholly-owned (71.1% owned prior to April 14, 1994 -- see Note 10)
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 of normal recurring adjustments and in the nine-month
period ended August 31, 1993, certain significant charges described in Note
13, necessary to present fairly SEPSCO's financial position as of
December 31, 1993 and September 30, 1994 and its results of operations for
the three and nine-month periods ended August 31, 1993 and September 30, 1994
and its cash flows for the nine-month periods ended August 31, 1993 and
September 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 50% owned (49% owned prior to August 31, 1994) 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 nine-month periods ended August 31, 1993 (the "Comparable
Three Months" and the "Comparable Nine Months", respectively) have been
presented herein since they are the periods most nearly comparable to the
three and nine-month periods ended September 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 nine-month periods ended August 31, 1993 were included in Triarc's
condensed consolidated financial statements for Triarc's comparable October
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 nine-month periods ended September 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 SEPSCO and 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") business
segments. 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 $1,162,000. 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 estimated amount of which had previously been accrued. The note, which
bears no interest during the first year and 5% thereafter, is payable in
annual installments of $120,000 in 1995 through 1998 with the balance of
$3,815,000 due in 1999. On August 31, 1994 a subsidiary of SEPSCO sold
substantially all of the operating assets of the NG&O business for cash of
$16,250,000, net of $750,000 held in escrow to cover certain indemnities
given to the buyer by a subsidiary of SEPSCO. Such sale resulted in a pre-
tax estimated gain, net of estimated expenses of $500,000, of $6,043,000.
The only remaining discontinued operation is the other operation (cold
storage) which comprised SEPSCO's Refrigeration business segment. In June
and July 1994 SEPSCO sold to an unaffiliated party two of its cold storage
plants and two idle properties with a net book value of $1,915,000 for
$582,000 in cash and $700,000 in notes, resulting in a loss, including
expenses of $50,000, of $683,000, the estimated amount of which had
previously been accrued. 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. Such letter of intent was
originally scheduled to expire on August 15, 1994, but has been extended to
November 30, 1994. Consummation of the sale is subject to several conditions
including, among others, the buyers obtaining the necessary financing. Based
on such sale 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 $4,500,000, 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 (subject to a security interest granted by the buyers to their
lender), 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 on substantially the same
terms as set forth in the letter of intent by the end of the fourth quarter
of 1994.
After consideration of (i) a $2,866,000 write-down (net of a tax benefit
of $2,037,000) relating to accruals for environmental remediation and losses
on certain contracts in progress and a $4,676,000 write-down (net of a tax
benefit of $3,324,000) relating to the impairment of certain unprofitable
properties, both as recorded in the first two quarters of the Comparable Nine
Months and reflected in operating profit (loss) of discontinued operations
for the period December 1, 1992 to July 22, 1993 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 during the three months ended
November 30, 1993, (iii) the gains and losses realized to date on the
consummated dispositions, including the results of their operations through
their respective actual disposal dates and (iv) the analysis performed to
date with respect to the proposed sale of the cold storage operation, SEPSCO
currently anticipates that once the disposition of the last (cold storage) of
the discontinued operations is consummated it will realize a gain from
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
(the precise nature and timing of such transfer has not yet been determined)
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 each of the periods
from June 1, 1993 and from December 1, 1992 to July 22, 1993 (the periods
included in SEPSCO's condensed consolidated statements of operations for the
Comparable Three Months and Comparable Nine Months, respectively, (see Note
1) and for (i) the period from July 23, 1993 to August 31, 1993 and (ii) the
three and nine-month periods ended September 30, 1994 (the periods subsequent
to the measurement date and which have been previously recognized) consisted
of the following:
PAGE
<PAGE>
<TABLE>
<CAPTION>
June 1, December 1, July 23, Three months Nine months
1993 to 1992 to 1993 to ended ended
July 22, July 22, August 31, September 30, September 30,
1993 1993 1993 1994 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Net sales $ 3,817 $ 11,911 $ 1,026 $ 1,118 $ 5,899
Service revenues 30,059 117,855 18,720 2,231 5,967
-------- -------- -------- -------- --------
33,876 129,766 19,746 3,349 11,866
Operating costs and expenses:
Cost of sales 3,066 10,517 903 455 5,169
Cost of services 28,582 115,625 17,613 1,817 4,587
Selling, general and
administrative expenses 1,986 10,933 814 879 2,155
Write-down of certain
unprofitable properties - 8,000 - - -
Facilities relocation and
corporate restructuring
charge (reversal) (656) 3,933 - - -
-------- -------- -------- -------- --------
32,978 149,008 19,330 3,151 11,911
-------- -------- -------- -------- --------
Operating profit (loss) 898 (19,242) 416 198 (45)
-------- -------- -------- -------- --------
Other income (expense):
Interest expense (499) (2,248) (291) (1) (4)
Other, net (146) (1,145) 57 (94) (99)
-------- -------- -------- -------- --------
Income (loss) before
income taxes 253 (22,635) 182 103 (148)
Benefit from (provision
for) income taxes (275) 6,710 (195) - -
-------- -------- -------- -------- --------
Income (loss) from
discontinued
operations $ (22) $ (15,925) $ (13) $ 103 $ (148)
======== ======== ======== ======== ========
/TABLE
<PAGE>
<TABLE>
Net current liabilities and non-current assets of discontinued operations
consisted of the following:
<CAPTION>
December 31, September 30,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Current assets:
Cash $ 561 48
Receivables 1,725 1,024
Inventories 804 81
Other current assets 253 105
-------- --------
Total current assets 3,343 1,258
-------- --------
Current liabilities:
Accounts payable 2,479 3,184
Accrued expenses and deferred gain on
discontinued operations 3,664 10,491
-------- --------
Total current liabilities 6,143 13,675
-------- --------
Net current liabilities of discontinued
operations $ 2,800 $ 12,417
======== ========
Non-current assets:
Properties, net $ 24,962 $ 8,539
Non-current liabilities:
Other liabilities 3,280 2,058
-------- --------
Net non-current assets of discontinued
operations $ 21,682 $ 6,481
======== ========
</TABLE>
5. Investment in Affiliates
Investments in affiliates consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1993 1994
---- ----
(In thousands)
<S> <C> <C>
Graniteville Company $ 67,824 $ 74,768
CFC Holdings Corp. 387 554
-------- --------
$ 68,211 $ 75,322
======== ========
</TABLE>
Equity in earnings of affiliates before extraordinary item and cumulative
effect of changes in accounting principles, which for the nine-month period
ended August 31, 1993 includes certain significant charges (see Note 13),
consisted of the following:
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
August 31, September 30, August 31, September 30,
1993 1994 1993 1994
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Graniteville Company $ 2,933 $ 1,886 $ 7,343 $ 5,461
CFC Holdings Corp. 857 (35) (660) 167
--------- -------- -------- --------
$ 3,790 $ 1,851 $ 6,683 $ 5,628
========= ======== ======== ========
</TABLE>
Effective August 31, 1994 Triarc, which indirectly owned 51% of
Graniteville, contributed 1% of its ownership of Graniteville to SEPSCO,
increasing SEPSCO's ownership to 50%. The contribution, which amounted to
$1,483,000, was recorded at Triarc's book value since such transaction was
among a controlled group of companies.
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 $64,000,000 as of September 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 nine-month periods ended August 31, 1993 and September 30, 1994 are as
follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
August 31, September 30, August 31, September 30,
1993 1994 1993 1994
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Operating revenues $ 129,179 $ 133,474 $ 391,257 $407,147
Operating profit 11,035 8,630 33,385 24,996
Net income 5,986 3,824 14,986 11,121
</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, $1.00
par value, 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 by 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". In addition, the
contribution to SEPSCO from its parent, a wholly-owned subsidiary of Triarc
of 1% of its ownership of Graniteville (see Note 5), resulted in a $1,483,000
additional investment in SEPSCO by Triarc which 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
SEPSCO had no provision for income taxes for the three months ended
September 30, 1994 since for such period SEPSCO had a loss for income tax
purposes after adjustment for the non-taxable equity in earnings of
affiliates which would be subject to the dividend exclusion upon any
distribution of such earnings. SEPSCO had no provision for income taxes for
the nine months ended September 30, 1994 due to the non-taxable equity in
earnings of affiliates and the release of valuation allowances attributable
to the utilization of net operating and other loss and tax credit
carryforwards. SEPSCO recorded a benefit from income taxes for the three
months ended August 31, 1993 despite pre-tax income in such period and a
provision for income taxes for the nine months ended August 31, 1993 that
represents an effective rate that is substantially less than the United
States Federal statutory income tax rate of approximately 35% due to the non-
taxable 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 nine-
month period ended August 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 as the "Cumulative effect of changes in accounting principles:
Equity in affiliates" in the accompanying condensed consolidated statements
of operations for the nine-month period ended August 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, 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. 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 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, received 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. As a result of the Merger, SEPSCO
became a wholly-owned subsidiary of Triarc. In anticipation of the
settlement of the Ehrman Litigation and Merger, SEPSCO accrued (i) $1,250,000
for Plaintiff's counsel and $50,000 for Plaintiffs financial advisor in the
three months ended February 28, 1993, (ii) $400,000 for defendants' legal
costs associated with the Ehrman Litigation in the three month period ended
May 31, 1993 and (iii) $1,200,000 for investment bankers' fees and estimated
expenses associated with the proxy statement pursuant to Section 14(a) of the
Securities Exchange Act of 1934 in connection with a special meeting of
stockholders' of SEPSCO in order to approve the Merger in the three months
ended August 31, 1993. The Settlement Agreement which was not entered into
until October 18, 1993 established that Triarc and not SEPSCO was responsible
for the payment of Plaintiff's counsel and financial advisor ($1,300,000),
defendant's legal costs associated with the Ehrman Litigation ($400,000) and
a portion of other expenses associated with the Merger ($200,000).
Accordingly, SEPSCO subsequently reversed an aggregate $1,900,000 of such
expenses in the three months ended November 30, 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 has made a
preliminary determination of the fair value of the additional 28.9% interest
in SEPSCO's assets acquired and liabilities assumed. Such preliminary
purchase accounting has been recorded by SEPSCO in accordance with the "push
down" method of accounting whereby Triarc's increase in basis in SEPSCO is
reflected by SEPSCO. Until such valuations are completed, SEPSCO has
reflected $21,433,000 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 nine-month period ended September
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 $ 20,752
Operating profit 2,319
Income from continuing operations 5,801
</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 payments 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 $4,175,000, of
which $2,100,000 was provided in the nine-month period ended August 31, 1993
while the other $2,075,000 was provided in prior years. In connection
therewith, SEPSCO has incurred actual costs of $2,310,000 through September
30, 1994 and has a remaining accrual of $1,865,000 as of September 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 (i) on human health, (ii) to existing recreational uses or (iii) 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. Certain additional related party transactions during the nine
months ended September 30, 1994 are described below.
In March 1994, SEPSCO purchased certain notes receivable for cash from
Arby's, Inc., a subsidiary of Triarc, for their face value of $1,190,000 plus
$49,000 of accrued interest.
In August 1994, SEPSCO entered into a credit arrangement with RC/Arby's
Corporation ("RC/Arby's"), a subsidiary of Triarc, and in accordance
therewith received a promissory note from RC/Arby's maturing in September
1995 pursuant to which SEPSCO may lend up to $9,500,000. Loans under the
promissory note bear interest at 11 7/8% per annum, payable quarterly. As of
September 30, 1994, SEPSCO had made no loans under the promissory note;
however, $3,500,000 was subsequently loaned to RC/Arby's through November 17,
1994.
In September 1994, SEPSCO received a demand promissory note from Triarc.
Loans under the demand promissory note bear interest at the prime rate plus 1
1/4% (9% as of September 30, 1994). As of September 30, 1994, SEPSCO had
outstanding loans of $4,000,000 under the demand promissory note which were
repaid by Triarc on October 12, 1994. Such loans at September 30, 1994 are
included in "Due from Triarc Companies, Inc." in the accompanying condensed
consolidated balance sheet.
13. Significant 1993 Charges Recorded During the Comparable Nine Months
The accompanying condensed consolidated statements of operations for the
nine-months ended August 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") requiring no substantial services 1,374
Estimated cost to relocate SEPSCO's corporate
office 500
------
Total facilities relocation and corporate
restructuring charges 4,714 (a)
Estimated cost allocated to SEPSCO by Triarc for a
payment to a special committee of the Board
of Directors of Triarc 625 (b)
Write-down of certain unprofitable properties 8,000 (c)
Income tax benefit relating to the above charges (4,523) (d)
Provision for income tax contingencies and other
income tax matters 600 (e)
Equity in significant charges of affiliates, net
of taxes 2,260 (f)
-------
$ 11,676
=======
</TABLE>
(a) $782,000 included in "Selling, general and administrative expenses"
of continuing operations and $3,932,000 included in "Loss from
discontinued operations, net of income taxes."
(b) $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."
(c) Included in "Loss from discontinued operations, net of income
taxes."
(d) $301,000 included in "Benefit from (provision for) income taxes" of
continuing operations and $4,222,000 included in "Loss from
discontinued operations, net of income taxes."
(e) $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."
(f) SEPSCO's equity in significant charges of affiliates, 49% of
Graniteville and 5.4% of CFC Holdings, recorded in the nine-month
period ended August 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>
<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
Affiliate's facilities relocation
and corporate restructuring -- 544 544
------ ------ ------
Total facilities relocation and
corporate restructuring charges 902 1,005 1,907
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 (577) (399) (976)
------ ------ ------
$1,138 $1,122 $2,260
====== ====== ======
</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 nine and three-month
periods ended September 30, 1994 are compared below with the nine and three-
month periods ended August 31, 1993 (respectively, the "Comparable Nine
Months" and the "Comparable Three Months"), respectively. It was not
practical for SEPSCO to recast its prior year results and, accordingly, the
Comparable Nine Months and Comparable Three Months were used as the nine and
three-month periods most nearly comparative to the nine and three-month
periods ended September 30, 1994.
NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED WITH NINE MONTHS ENDED AUGUST
31, 1993
Net sales decreased $1.9 million to $20.8 million in the 1994 period
from $22.7 million in the Comparable Nine Months due to a $1.6 million effect
of the inclusion of December, historically a higher volume month, in the
Comparable Nine Months in comparison with the inclusion of September, a lower
volume month, in the 1994 period and a $0.3 million reduction in volume in
the remaining months of January through August. Such reduction in the
January through August period reflects the positive effect on the Comparable
Nine 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 substantially offset by
the effect of relatively colder temperatures in January 1994.
Operating profit increased $0.7 million to $2.6 million in the nine
months ended September 30, 1994 from $1.9 million in the Comparable Nine
Months as a result of a $0.8 million decrease in selling, general and
administrative expenses offset by a $0.1 million decrease in gross profit
(net sales less cost of sales). Selling, general and administrative expenses
decreased due to (i) the absence in the 1994 period of $0.9 million of
nonrecurring significant charges recorded in the Comparable Nine Months, (ii)
a $0.5 million decrease in salaries and other expenses due to a reduction in
personnel at the liquefied petroleum ("LP") gas business and (iii) 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, all partially offset by a $0.5
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 Nine Months and 1994 and a $0.4 million charge
for amortization of costs in excess of acquired companies in the 1994 period
related to the acquisition by Triarc of the minority interest in SEPSCO
accounted for in accordance with the "push down" method of accounting. 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 $0.8
million of facilities relocation and corporate restructuring charges. Gross
profit declined due to the aforementioned decrease in sales volume partially
offset by a higher gross margin resulting from a decrease in the purchase
price of LP gas in an environment of stable selling prices.
Interest expense decreased $3.1 million to $6.2 million in the nine
months ended September 30, 1994 from $9.3 million in the Comparable Nine
Months due to lower debt outstanding during the nine months ended September
30, 1994 as a result of debt repayments principally in connection with the
Change in Control.
Equity in earnings of affiliates decreased $1.1 million from $6.7
million in the Comparable Nine Months to $5.6 million in the 1994 period
resulting from a $1.9 million increase with regard to Graniteville Company
("Graniteville") partially offset by a $0.8 million improvement with respect
to CFC Holdings, Corp. ("CFC Holdings"). The decrease at Graniteville was
due to 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 in indigo-dyed and piece-dyed sportswear
reflecting market conditions and a nonrecurring decrease to cost of sales in
the Comparable Nine Months resulting from a three months ended February 28,
1993 adjustment to revise inventory costing estimates made in the prior three
quarters to actual. Such decreases at Graniteville were partially offset by
the absence in the 1994 period of $2.3 million ($1.2 million at Graniteville
and $1.1 million at CFC Holdings) of nonrecurring significant charges in the
Comparable Nine Months, principally facilities relocation and corporate
restructuring charges related to the Change in Control.
Interest income from Triarc decreased $1.5 million to $2.6 million in
the nine months ended September 30, 1994 from $4.1 million in the Comparable
Nine 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 Nine 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, the gain was recorded in the Comparable Nine Months.
Other, net improved $4.2 million to income of $1.4 million in the nine
months ended September 30, 1994 from expense of $2.8 million in the
Comparable Nine Months due to a $2.9 million provision in the Comparable Nine
Months for expenses related to the settlement of a shareholder derivative
suit (the "Ehrman Litigation") and $1.3 million of investment income in the
1994 nine-month period. The majority of the Ehrman Litigation settlement
costs were ultimately borne by Triarc in accordance with the Ehrman
Litigation settlement agreement which was not entered into until October 18,
1993 and, accordingly, $1.9 million of the $2.9 million provision was
subsequently reversed during the three months ended November 30, 1993.
There is no provision for income taxes for the nine-month period ended
September 30, 1994 due to the non-taxable equity in earnings of affiliates
which would be subject to the dividend exclusion upon any distribution of
such earnings and the release of valuation allowances attributable to the
utilization of net operating and other loss and tax credit carryforwards.
SEPSCO's provision for income taxes for the Comparable Nine Months varies
from the United States Federal statutory income tax rate of approximately 35%
due to the non-taxable equity in earnings of affiliates in pre-tax income.
Loss from discontinued operations, net of taxes, of $15.9 million in the
Comparable Nine 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) $8.7 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) $3.9 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 requiring no
significant services and (c) estimated costs of $0.4 million to relocate
SEPSCO's corporate office, (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 $4.2
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 Nine 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" by an affiliate.
Net income of $6.1 million for the nine months ended September 30, 1994
increased $8.3 million from a net loss for the Comparable Nine Months of $2.2
million for the reasons discussed above.
THREE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED WITH THREE MONTHS ENDED AUGUST
31, 1993
Net sales decreased $0.2 million to $5.1 million in the 1994 period from
$5.3 million in the Comparable Three Months due to lower average selling
prices.
Operating profit (loss) deteriorated $0.2 million to a loss of $0.2
million in the three months ended September 30, 1994 from approximately
breakeven in the Comparable Three Months resulting from an increase in
selling, general and administrative expenses of $0.3 million, partially
offset by an increase in gross profit of $0.1 million. Selling, general and
administrative expenses increased principally due to the $0.2 million of the
previously discussed amortization of costs in excess of net assets of
acquired companies resulting from the acquisition by Triarc of the minority
interest in SEPSCO in April 1994. Gross profit improved primarily due to a
higher gross margin resulting from a decrease in the purchase price of LP gas
in an environment of stable selling prices.
Interest expense decreased $0.4 million to $2.0 million in the 1994
period from $2.4 million in the Comparable Three Months due to lower debt
outstanding during the three months ended June 30, 1994 primarily due to the
$9.0 million annual sinking fund payment on the 11 7/8% Senior Subordinated
Debentures due February 1, 1998 (the "Debentures").
Equity in earnings of affiliates decreased $2.0 million to $1.8 million
in the three months ended September 30, 1994 from $3.8 million in the
Comparable Three Months due to the lower earnings of Graniteville and CFC
Holdings. Graniteville's earnings decreased primarily due to lower profit
margins in the 1994 period principally resulting from the higher cost of
cotton which could not be fully passed on to woven apparel customers through
higher selling prices and increases in other product costs and lower sales
prices for indigo-dyed sportswear reflecting lower customer demand. CFC
Holdings earnings decreased primarily due to an increase in selling, general
and administrative expenses resulting from higher advertising costs
particularly in the soft drink segment attributable to a new domestic media
campaign and promotional programs geared toward both bottlers and consumers.
Other, net improved $1.6 million to income of $0.3 million in the 1994
period million from an expense of $1.3 million in the Comparable Three Months
due to a $1.2 million provision in the Comparable Three Months for expenses
related to the settlement of the Ehrman Litigation and $0.4 million of
investment income in the 1994 period. The majority of the Ehrman Litigation
settlement costs were ultimately borne by Triarc in accordance with the
Ehrman Litigation settlement agreement which was not entered into until
October 18, 1993 and a portion of this provision was subsequently reversed
during the three months ended November 30, 1993.
There is no provision for income taxes for the three-month period ended
September 30, 1994 since for such period SEPSCO had a loss for income tax
purposes after adjustment for the non-taxable equity in earnings of
affiliates which would be subject to the dividend exclusion upon any
distribution of such earnings. SEPSCO was unable to recognize a benefit on
such tax loss since the current estimated 1994 full year effective tax rate
is zero because such estimate assumes taxable income with no provision
required due to the impact of net operating and other loss and tax credit
carryforwards for which valuation allowances will be reversed. SEPSCO's
benefit from income taxes for the three-month period ended August 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.
Net income of $0.7 million for the three months ended September 30, 1994
declined $1.5 million from a net loss for the Comparable Three Months of $2.2
million for the reasons discussed above.
FINANCIAL CONDITION AND LIQUIDITY
Cash and cash equivalents and marketable securities, excluding
restricted cash, declined $1.3 million during the nine-month period ended
September 30, 1994 to $32.3 million at September 30, 1994. Such decrease
reflects (i) scheduled repayments of long-term debt of $9.0 million, (ii)
advances to triarc of $5.2 million, (iii) net cash used by operations of $4.6
million, (iv) a purchase of notes receivable from an affiliate of $1.2
million, (v) net cash used in discontinued operations of $1.6 million and
(vi) other items, net of $2.3 million, all substantially offset by proceeds
from sales of subsidiaries of $21.8 million.
Total stockholders' equity increased $31.0 million during the nine-month
period ended September 30, 1994 to $125.4 million due to the $23.9 million
contribution related to the acquisition of the minority interest in SEPSCO
not owned by Triarc, net income of $6.0 million and $1.5 million due to the
contribution to SEPSCO from its parent, a wholly-owned subsidiary of Triarc,
of 1% of the outstanding common stock of Graniteville offset slightly by
unrealized losses on marketable securities of $0.4 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 September 30, 1994 SEPSCO had a receivable from Triarc of $33.2
million including a promissory note (the "Note") with an original principal
amount of $26.5 million and accrued interest on the Note of $4.1 million and
a demand promissory note (the "Demand Note") in the amount of $4.0 million
which was repaid by Triarc on October 12, 1994, both reduced by payables to
Triarc for facilities relocation and corporate restructuring and other
charges of $1.4 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 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 on February 1, 1994 and August 1, 1994
SEPSCO made its interest payments of $3.7 million and $3.2 million,
respectively.
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 September 30, 1994 such indebtedness was $51.1 million resulting
in allowable additional indebtedness, if SEPSCO desired to make such
borrowings and if such financing could be obtained, of $48.9 million.
SEPSCO has $6.0 million of restricted cash of which $5.25 million
supports letters of credit which collateralize certain performance and other
bonds relating to the utility and municipal services segment and $0.75
million represents funds held in escrow resulting from the sale of the
natural gas & oil business. SEPSCO anticipates that the performance secured
by the bonds will be completed in 1995, and it is anticipated the restricted
cash will revert to SEPSCO free of restrictions and at that time be available
for general corporate purposes. The funds held in escrow, net of charges
thereto, revert to the Company in August 1995 ($0.25 million) and August 1992
($0.5 million)
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 such examination.
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 $1.2
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. On August
31, 1994 a subsidiary of SEPSCO sold substantially all of the operating
assets of the natural gas & oil business for cash of $16.25 million, net of
$0.75 million held in escrow to cover certain indemnities given to the buyer
by a subsidiary of SEPSCO. Such sale resulted in a pre-tax estimated gain,
net of estimated expenses of $0.5 million, of $6.0 million.
The only remaining discontinued operation is the other operation (cold
storage) which comprised SEPSCO's refrigeration business segment. In June
and July 1994 SEPSCO sold to an unaffiliated third party two of its cold
storage plants and two idle properties with a net book value of $1.9 million
for $0.6 million of cash and $0.7 million of notes, resulting in a loss,
including expenses of $0.1 million, of $0.7 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. Such letter of intent was originally scheduled to expire on
August 15, 1994 but has been extended to November 30, 1994. Consummation of
the sale is subject to several conditions including, among others, the buyers
obtaining the necessary financing. Based on such sale 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 $4.5
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 (subject to a security interest
granted by the buyers to their lender), 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 on substantially the same terms as set forth in the letter of intent by
the end of the fourth quarter of 1994.
SEPSCO currently anticipates that once the disposition of the last (cold
storage) of the discontinued operations is consummated, it will realize a
gain from discontinued operations.
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 (the precise
nature and the timing of such transfer has not yet been determined) and the
transfer would be accounted for at net book value and, thus, not result in
any gain or loss upon the transfer.
National Propane Corporation ("National Propane"), a wholly-owned
subsidiary of Triarc, entered into a $150.0 million revolving credit and term
loan facility (the "Propane Financing"). An aggregate $30.0 million of such
Propane Financing ($20.0 million for the first year), is restricted to the
redemption, in part, of the $54.0 million outstanding principal amount of the
Debentures. 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 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
$4.6 million during the nine-month period ended September 30, 1994. Such
amount consisted of $6.0 million of net income less (i) net non-cash
adjustments of $6.5 million and (ii) net changes in operating assets and
liabilities of $4.1 million. Operating results for the fourth quarter of
1994 are expected to continue to result in the utilization of cash and cash
equivalents. Higher seasonal profits in the LP gas business are anticipated
to be offset by higher working capital requirements associated with the
higher net sales. 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.
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
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 5. Other Information
As previously reported, in July 1993, the Board of Directors of
Southeastern Public Service Company ("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,
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. The closing
of this transaction is subject to customary conditions and is
scheduled to take place on or prior to December 31, 1994, on
substantially the same terms as set forth in the Letter of Intent.
In addition, on August 31, 1994 Southeastern Gas Company, a wholly-
owned subsidiary of SEPSCO, sold 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).
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 Southeastern Public Service Company ("SEPSCO"), Triarc
Companies, Inc. ("Triarc") and SEPSCO Merger Corporation,
incorporated herein by reference to Exhibit 2.1 to SEPSCO's
Definitive Proxy Statement (the "Proxy") filed pursuant to
Regulation 14A on March 11, 1994 (SEC file No. 1-4351).
3.1 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 No. 1-
4351).
3.2 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 No. 1-
4351).
3.3 Certificate of Merger merging SEPSCO Merger Corporation into
SEPSCO. (being filed herewith)
4.1 SEPSCO Indenture dated as of February 1, 1983, incorporated
herein by reference to Exhibit 4(a) to SEPSCO's Registration
Statement of Form S-2 dated January 18, 1983 (SEC File No. 2-
81393).
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
No. 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
No. 1-2207).
(b) Reports on Form 8-K
The registrant filed a report on Form 8-K on August 31,
1994, with respect to the closing of the sale of
substantially all of the assets of SEPSCO's oil and gas
business to Eastern States Oil & Gas, Inc.
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: November 21, 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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements included in the accompanying
Form 10-Q of Southeastern Public Service Company for the nine-month period
ended September 30, 1994 and is qualified in its entirety by reference to
such Form 10-Q.
</LEGEND>
<CIK> 0000092050
<NAME> SOUTHEASTERN PUBLIC SERVICE COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 21,876
<SECURITIES> 10,469
<RECEIVABLES> 2,879
<ALLOWANCES> 0
<INVENTORY> 859
<CURRENT-ASSETS> 42,585
<PP&E> 20,586
<DEPRECIATION> 13,828
<TOTAL-ASSETS> 193,855
<CURRENT-LIABILITIES> 24,420
<BONDS> 42,131
<COMMON> 1
0
0
<OTHER-SE> 125,437
<TOTAL-LIABILITY-AND-EQUITY> 193,855
<SALES> 20,752
<TOTAL-REVENUES> 20,752
<CGS> 15,758
<TOTAL-COSTS> 15,758
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,172
<INCOME-PRETAX> 6,051
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,051
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,051
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 3.3
CERTIFICATE OF MERGER
MERGING
SEPSCO MERGER CORPORATION
INTO
SOUTHEASTERN PUBLIC SERVICE COMPANY
(Pursuant to Section 251 of the
Delaware General Corporation Law)
---------------------------------
The undersigned corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware:
DOES HEREBY CERTIFY THAT:
FIRST: The name and state of incorporation of each of the
constituent corporations in the merger are as follows:
Name State of Incorporation
---- ----------------------
SEPSCO Merger Corporation Delaware
Southeastern Public Service Company Delaware
SECOND: An Agreement and Plan of Merger (the "Agreement and Plan of
Merger") between the parties to the merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations
in accordance with the requirements of Section 251 of the General Corporation
Law of the State of Delaware.
THIRD: Southeastern Public Service Company shall be the surviving
corporation (the "Surviving Corporation").
FOURTH: Article "FOURTH" of the certificate of incorporation of the
Surviving Corporation is hereby amended to read as follows: "The total
number of shares of stock of all classes which the Corporation has authority
to issue is 1,000 shares of Common Stock, par value $1.00 per share," and, as
so amended, shall constitute the certificate of incorporation, as amended, of
the Surviving Corporation.
FIFTH: The executed Agreement and Plan of Merger is on file at the
principal place of business of the Surviving Corporation. The address of the
principal place of business of the Surviving Corporation is 777 South Flagler
Drive, Suite 1000E, West Palm Beach, Florida 33401.
SIXTH: A copy of the Agreement and Plan of Merger will be
furnished by the Surviving Corporation, on request and without cost, to any
stockholder of any constituent corporation.
Dated: April 14, 1994
PAGE
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY
By: Joseph A. Levato
-----------------------------------
Name: Joseph A. Levato
Title: Executive Vice President and
Chief Financial Officer
ATTEST:
By: Mary C. Wade
---------------------------
Name: Mary C. Wade
Title: Assistant Secretary
