This Form 10-Q/A of Southeastern Public Service Company
("SEPSCO") constitutes Amendment No. 1 ("Amendment No. 1") to SEPSCO's
Quarterly Report on Form 10-Q for the quarterly period ended November 30,
1993 which was originally filed with the Securities and Exchange
Commission on December 14, 1993 (such Form 10-Q as originally filed is
referred to herein as the "Original Form 10-Q". This Amendment No. 1
furnishes revised information required by Items 1 and 2 of such Form. Such
revised items reflect the restatement of financial information resulting
from the reporting of SEPSCO's liquefied petroleum gas business as a
continuing operation rather than a discontinued operation as reported in
the Original Form 10-Q (see Note 3 to the Condensed Consolidated Financial
Statements included herein for further discussion). Capitalized terms
used herein have the same meaning as the meaning ascribed to them in the
Original Form 10-Q.
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
February 28, November
30,
1993 1993
(A)
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 239 $ 35,847
Restricted cash and equivalents 5,264 5,264
Receivables, net 3,971 3,884
Finished goods inventories 733 888
Notes receivable from Triarc (less
unamortized deferred discount of $39) 25,047 --
Deferred income tax benefit -- 1,062
Other current assets 1,386 534
Net current assets of discontinued operations 1,987 --
-------- --------
Total current assets 38,627 47,479
Properties, net 7,825 7,298
Notes receivable from Triarc 26,538 26,538
Investments in affiliates 65,327 68,033
Deferred income tax benefit -- 528
Other assets 1,752 2,483
Net non-current assets of discontinued operations 66,184 18,771
-------- --------
$ 206,253 $ 171,130
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 9,312 $ 9,287
Notes payable to affiliate 14,043 --
Accounts receivable financing 9,536 --
Accounts payable 2,249 8,690
Other accrued expenses 4,624 4,190
Net current liabilities of discontinued
operations -- 3,406
-------- --------
Total current liabilities 39,764 25,573
Long-term debt (less unamortized deferred
discount of $5,282 and $4,312) 49,661 50,501
Deferred income taxes 7,230 --
Other liabilities 1,368 1,484
Commitments and contingencies
</TABLE>
2
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
February 28, November 30,
1993 1993
(A)(Unaudited)
<S> <C> <C>
Stockholders' equity:
Preferred stock 24 24
Common stock 11,896 11,896
Additional paid-in capital 90,539 90,539
Retained earnings (accumulated deficit) 6,637 (8,021)
Treasury stock (866) (866)
-------- --------
Total stockholders' equity 108,230 93,572
-------- --------
$206,253 $171,130
======== ========
<FN>
(A) The balance sheet at February 28, 1993 has been derived from audited
consolidated financial statements at that date.
</TABLE>
3
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
<CAPTION>
Three months ended Nine months ended
November 30, November 30,
1992 1993 1992 1993
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 6,647 $ 6,653 $ 18,944 $ 19,760
------- ------- ------- --------
Costs and expenses:
Cost of sales 5,568 5,268 15,783 16,408
Selling, general and administrative
expenses 541 1,573 1,456 2,998
------- ------- ------- --------
6,109 6,841 17,239 19,406
------- ------- ------- --------
Operating profit (loss) 538 (188) 1,705 354
------- ------- ------- --------
Other income (expense):
Interest expense (3,262) (2,316) (9,810) (7,521)
Equity in earnings of affiliates
before cumulative effect of
changes in accounting
principles 4,060 141 9,647 4,310
Write-off of investment in
Chesapeake Insurance
Company, Ltd. -- (1,500) -- (1,500)
Interest income from Triarc 1,853 860 5,507 3,141
Other, net (1) 2,598 147 608
------- ------- ------- --------
2,650 (217) 5,491 (962)
Income (loss) from continuing
operations before income taxes
and cumulative effect of changes
in accounting principles 3,188 (405) 7,196 (608)
Benefit from income taxes 39 248 170 1,791
------- ------- ------- --------
Income (loss) from continuing
operations before cumulative
effect of changes in accounting
principles 3,227 (157) 7,366 1,183
Income (loss) from discontinued
operations 374 (13,910) 938 (23,355)
------- ------- ------- --------
Income (loss) before cumulative
effect of changes in accounting
principles 3,601 (14,067) 8,304 (22,172)
Cumulative effect of changes in
accounting principles:
The Company -- -- -- 7,617
Equity in affiliates -- -- (5,954) (102)
------- -------- ------- --------
Net income (loss) $ 3,601 $ (14,067)$ 2,350 $ (14,657)
======= ======== ======= ========
</TABLE> 4 <PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
<CAPTION>
Three months ended Nine months ended
November 30, November 30,
1992 1993 1992 1993
(Unaudited)
<S> <C> <C> <C> <C>
Income (loss) per share:
Continuing operations $ .28 $ (.02)$ .63 .10
Discontinued operations .03 (1.19) .08 (2.00)
Cumulative effect of changes in
accounting principles -- -- (.51) .64
------- -------- ------- -------
$ .31 $ (1.21) $ .20 $ (1.26)
======= ======== ======= =======
</TABLE>
5
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine months ended
November 30,
1992 1993
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,350 $ (14,657)
Adjustments to reconcile net income (loss) to net
cash provided by (used in)
operating activities:
Depreciation 922 908
Amortization of deferred financing costs
and debt discount 1,038 968
Amortization of deferred discount on notes
receivable from Triarc (72) (39)
Write-off of investment in Chesapeake
Insurance Company Limited -- 1,500
Equity in earnings of affiliates before
cumulative effect of changes in accounting
principles (9,647) (4,310)
Loss (income) from discontinued operations (938) 23,355
Dividend from unconsolidated affiliate 3,004 --
Cumulative effect of changes in accounting
principles 5,954 (7,515)
Decrease in deferred income taxes (2,922) (7,569)
Other, net 774 2,350
Changes in operating assets and liabilities:
Decrease (increase) in receivables 1,260 (70)
Decrease (increase) in inventories 115 (155)
Decrease in notes receivable from Triarc 5,873 --
Decrease (increase) in other current assets (1,443) 852
Increase (decrease) in accounts payable (687) 2,826
Increase (decrease) in accrued expenses 2,869 (434)
-------- --------
Net cash provided by (used in) operating activities 8,450 (1,990)
-------- --------
Cash flows from investing activities:
Proceeds from sales of subsidiaries -- 43,002
Capital expenditures (443) (317)
Other 52 375
-------- --------
Net cash provided by (used in) investing activities (391) 43,060
-------- --------
</TABLE>
6
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine months ended
November 30,
1992 1993
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Debt repayments (247) (23,579)
Collection of notes receivable from Triarc -- 25,379
Net proceeds from accounts receivable
financing (990) --
-------- --------
Net cash provided by (used in) financing activities (1,237) 1,800
-------- --------
Net cash provided by continuing operations 6,822 42,870
Net cash used in discontinued operations (4,662) (7,262)
-------- --------
Net increase in cash 2,160 35,608
Cash at beginning of period 282 239
-------- --------
Cash at end of period $ 2,442 $ 35,847
======== ========
</TABLE>
7
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
November 30, 1993
(Unaudited)
1. Basis of Presentation
Southeastern Public Service Company and subsidiaries ("SEPSCO") is a
71.1% owned subsidiary of Triarc Companies, Inc. ("Triarc", formerly DWG
Corporation).
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, however, the accompanying condensed consolidated
financial statements contain all adjustments, consisting of normal
recurring adjustments and certain significant charges as discussed in
Notes 2 and 3, necessary to present fairly SEPSCO's financial position
as of February 28, 1993 and November 30, 1993, its results of operations
for the three-month and nine-month periods ended November 30, 1992 and
1993 and its cash flows for the nine-month periods ended November 30,
1992 and 1993. This information should be read in conjunction with the
consolidated financial statements and notes thereto included in SEPSCO'S
annual report on Form 10-K and related amendments for the year ended
February 28, 1993.
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,
also changed its fiscal year to a calendar year ending December 31.
SEPSCO plans to issue a transition report on Form 10-K for the ten-month
period ended December 31, 1993. As used herein, "Fiscal 1993" refers to
the year ended February 28, 1993 and "Transition 1993" refers to the ten
months ended December 31, 1993.
2. Significant Charges in the First Six Months of Transition 1993
The accompanying condensed consolidated statements of operations include
the following significant charges recorded in the first six months of
Transition 1993 (in thousands):
<TABLE>
<S> <C> <C>
Estimated cost allocated to SEPSCO by Triarc
to terminate the lease on Triarc's
existing corporate facilities $ 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 1,374
Estimated cost to relocate SEPSCO's
corporate office 500
Facilities relocation and corporate -------
restructuring charges (a) 4,714 (1)
</TABLE>
8 <PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
Estimated cost allocated to SEPSCO by
Triarc for compensation paid to the Special
Committee of the Board of Directors of Triarc (b) 625 (2)
Write-down of certain unprofitable properties (c) 8,000 (3)
Income tax benefit relating to the above charges (4,523) (4)
Provision for income tax contingencies and other
income tax matters 600 (5)
Equity in significant charges of affiliates,
net of taxes (d) 2,260
Cumulative effect of changes in accounting
principles (Note 7) (7,515)
--------
$ 4,161
========
(1) $782,000 included in "Selling, general and administrative
expenses" of continuing operations and $3,932,000 included in
"Income (loss) from discontinued operations."
(2) $104,000 included in "Selling, general and administrative
expenses" of continuing operations and $521,000 included in
"Income (loss) from discontinued operations."
(3) Included in "Income (loss) from discontinued operations."
(4) $(301,000) included in "Benefit from income taxes" of continuing
operations and $(4,222,000) included in "Income (loss) from
discontinued operations."
(5) $100,000 included in "Benefit from income taxes" of continuing
operations and $500,000 included in "Income (loss) from
discontinued operations."
(a) In the first quarter of Transition 1993, net of adjustments
recorded during the second quarter of Transition 1993, results
of operations were significantly impacted by facilities
relocation and corporate restructuring charges aggregating
$4,714,000 consisting of $4,214,000 of charges allocated to
SEPSCO by Triarc: (i) estimated allocated cost of $2,840,000 to
terminate the lease on its existing corporate facilities; (ii)
total allocated costs of $1,374,000 relating to a five-year
consulting agreement (the "Consulting Agreement") extending
through April 1998 between Triarc and Steven Posner, the former
Vice Chairman of Triarc and (iii) $500,000 of estimated costs to
be incurred by SEPSCO to relocate SEPSCO's corporate office.
All of such charges are related to the Change in Control
described in Note 5. In connection with the Change in Control,
Victor Posner and Steven Posner resigned as officers and
directors of Triarc. In order to induce Steven Posner to
resign, Triarc entered into the Consulting Agreement with him.
The allocated cost related to the Consulting Agreement was
recorded as a charge in the first quarter of Transition 1993
9
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
because the Consulting Agreement does not require any
substantial services and SEPSCO and Triarc do not expect to
receive any services that will have substantial value to them.
As a part the Change in Control, the Triarc Board of Directors
was reconstituted. The first meeting of the reconstituted
Triarc Board of Directors was held on April 24, 1993. At that
meeting, based on a report and recommendations from a management
consulting firm that had conducted an extensive review of Triarc
and its subsidiaries operations and management structure, the
Triarc Board of Directors approved a plan of decentralization
and restructuring which entailed, among other things, the
following features: (i) the strategic decision to manage Triarc
in the future on a decentralized rather than on a centralized
basis; (ii) the hiring of new executive officers for Triarc;
(iii) the termination of a significant number of employees as a
result of both the new management philosophy and the hiring of
an almost entirely new management team and (iv) the relocation
of Triarc and certain subsidiaries, including SEPSCO's corporate
headquarters. SEPSCO's allocated cost to terminate the lease on
Triarc's existing corporate facilities ($2,840,000) and the cost
to relocate SEPSCO's headquarters all stemmed from the
decentralization and restructuring plan formally adopted at the
April 24, 1993 meeting of the reconstituted Triarc Board of
Directors and accordingly, were recorded in the first quarter of
Transition 1993.
(b) In accordance with certain court proceedings and related
settlements, five directors, including three court-appointed
directors, were appointed in 1991 to serve on a special
committee (the "Special Committee") of Triarc's Board of
Directors. Such committee was empowered to review and pass on
transactions between Triarc and Victor Posner, the then largest
shareholder of Triarc, and his affiliates. SEPSCO has been
charged $625,000 as an allocation of the cash portion of a
success fee payable to the Special Committee attributable to the
closing of the Triarc reorganization and the resulting Change in
Control.
(c) Represents write-downs in the carrying value of certain
unprofitable properties reflecting their estimated impairment as
a result of management's re-evaluation of such assets.
(d) SEPSCO's equity in significant charges recorded in the first
quarter of Transition 1993, net of adjustments recorded during
the second quarter of Transition 1993, which were allocated by
Triarc to Graniteville and CFC Holdings Corp. ("CFC Holdings"),
a 5.4% owned investment and a subsidiary of Triarc, is
summarized as follows (in thousands):
10
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
<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 (a) $ 790 $ 382 $ 1,172
Total cost allocated to the
affiliates related to the
Consulting Agreement (a) 112 79 191
Estimated cost allocated to the
affiliates for compensation
paid to the Special
Committee (b) 813 97 910
Affiliate's facilities relocation
and corporate restructuring -- 544 544
Other -- 419 419
Less income tax benefit on the
above items (577) (399) (976)
--------- --------- ---------
$ 1,138 $ 1,122 $ 2,260
========= ========= =========
</TABLE>
11
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
3. Discontinued Operations
On July 22, 1993 SEPSCO's Board of Directors authorized the sale or
liquidation of its utility and municipal services, refrigeration and
natural gas and oil businesses. Accordingly, SEPSCO has presented
the accompanying condensed consolidated financial statements for
each of the periods shown to reflect such businesses as discontinued
operations through July 22, 1993. The operating results of the
discontinued operations subsequent to July 22, 1993 have been
deferred and are included in "Net current liabilities of discontinued
operations". On December 9, 1993 SEPSCO's Board of Directors decided
the natural gas and oil business will be transferred to Triarc rather
than SEPSCO selling it to an independent third party. Such transfer
will be in the form of a sale of the stock of the entities comprising
the natural gas and oil business for cash of $8,500,000 which is
equal to their fair value and approximately $4,500,000 higher than
their net book value. It is intended for this sale to occur
following the Merger and the resulting elimination of the minority
interest in SEPSCO (Note 9). However should the Merger not be
approved by the SEPSCO stockholders (Note 9) the sale of the stock of
the natural gas and oil entities for cash to Triarc will be completed
prior to July 22, 1994.
On October 15, 1993 SEPSCO sold the assets of its tree maintenance
services operations previously included in its utility and municipal
services business segment for $69,600,000 in cash plus the assumption
by the purchaser of $5,000,000 in current liabilities resulting in a
loss of $4,771,000. On October 7, 1993 SEPSCO sold the stock of its
two construction related operations previously included in its
utility and municipal services business segment for a nominal amount
subject to adjustments described below. As the related assets are
sold or liquidated the purchasers have agreed to pay, as deferred
purchase price, 75% of the net proceeds received therefrom (cash of
$1,515,000 has been received as of November 30, 1993) plus, in the
case of the larger of the two entities, an amount equal to 1.25 times
the adjusted book value of such entity as of October 5, 1995 (the
"Book Value Adjustment"). As of October 7, 1993, the adjusted book
value of the assets of that entity aggregated approximately
$1,600,000. In addition, SEPSCO paid $2,000,000 in October and
November 1993 to cover the buyer's short-term operating losses and
working capital requirements for the construction related operations.
As of November 30, 1993 SEPSCO estimated the sales of the
construction related operations would result in a gain of $2,030,000
excluding any consideration of the potential Book Value Adjustment.
In January 1994, however, SEPSCO learned that the buyer of such
businesses had successfully negotiated extensions of certain major
contracts with respect to the larger of such businesses and as a
result no longer intends to immediately dispose of the major portion
of the assets. Should the buyer hold such assets through October 5,
1995, the purchase price would effectively be realized through the
Book Value Adjustment. Based on such revised estimates of asset
sales, SEPSCO would approximately break-even excluding any
12
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
consideration of the potential Book Value Adjustment, given its
uncertainty. The charge to discontinued operations during the third
quarter of Transition 1993 (see second following paragraph) reflects
such estimated break-even on the disposal of the construction related
operations.
On November 12, 1993 SEPSCO signed a letter of intent to sell
substantially all of the operating assets of the ice operations of
its refrigeration business segment for $5,000,000 in cash, a
$4,000,000 note (discounted value $3,101,000) and the assumption by
the buyer of certain current liabilities which as of November 30,
1993 would approximate $1,000,000. The note, which bears no interest
during the first year and 5% thereafter, would be payable in
installments of $120,000 at the end of each of the four years
following the closing date with the balance of $3,520,000 due at the
end of the fifth year following the closing date. The precise
timetable for the sale and liquidation of the remaining discontinued
operation, the cold storage operations of SEPSCO's refrigeration
business segment, will depend upon SEPSCO's ability to identify
appropriate potential purchasers and to negotiate acceptable terms
for the sale of such operation. SEPSCO currently anticipates
completion of such sales by July 31, 1994.
On July 22, 1993 SEPSCO's Board of Directors also authorized the sale
or liquidation of the liquefied petroleum gas business. SEPSCO
previously reported the liquefied petroleum gas business as a
discontinued operation since it is to be transferred to a subsidiary
of Triarc and the transfer would be accounted for at net book value.
The precise method of such transfer has not been determined and the
transfer will not occur until after the Merger. Based on these
facts, SEPSCO has reevaluated the accounting for the liquefied
petroleum gas business and retroactively restated the SEPSCO
consolidated financial statements to reflect the liquefied petroleum
gas business as a continuing operation. As a result, for the nine
months ended November 30, 1993, SEPSCO has (i) increased the loss
from discontinued operations by $2,909,000 (included in the
$13,910,000 in the following paragraph) representing the estimated
net income from operations of the liquefied petroleum gas business
from the measurement date to the expected date of disposition which
had previously been used to offset operating losses of other
discontinued operations for the same periods and (ii) decreased the
loss from continuing operations by $572,000 representing the income
from the liquefied petroleum gas business from the measurement date
to November 30, 1993.
In connection with the consummation of the sales of the tree
maintenance services operations and the construction related
activities and the signing of the letter of intent to sell the ice
operations discussed above, SEPSCO reevaluated the estimated gain or
loss from the sale of its discontinued operations and provided
$13,910,000 for the revised estimated loss on the sale of the
discontinued operations from an estimated break-even position as of
13
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
August 31, 1993. The revised estimate principally reflects (i)
$4,700,000 of losses from the sales of the operations comprising
the utility and municipal services business segment previously
estimated to be approximately break-even, (ii) $6,600,000 of losses
from the sale of operations comprising SEPSCO's refrigeration
business segment previously estimated to be a gain of $1,600,000
and (iii) $2,500,000 of estimated losses from operations from July
22, 1993 to the actual or estimated disposal dates of the
discontinued operations and (iv) less previously estimated losses
of $1,500,000 from the sale of the stock of SEPSCO's natural gas
and oil businesses which now will be sold to Triarc for cash.
Since such sale will be to a company which is within a controlled
group it will be accounted for at net book value. The net loss
from the sale of the utility and municipal services business
segment reflects a reduction of $2,030,000 due to a decrease in
asset sales of the construction related activities by July 31,
1994, a reduction of $1,800,000 in the estimated sales price for
the construction related operations from previous estimates and
other adjustments in finalizing the loss on the sale of the tree
maintenance services operations. The $8,200,000 change relating to
the sales of the refrigeration business segment principally results
from (i) a $4,000,000 reduction in the sales price for the ice
operations based on the letter of intent and (ii) a $4,000,000
reduction in the estimated sales price of the cold storage
operations based on preliminary sales discussions and experience
with respect to negotiating the sale of the other operations.
Based on the analysis performed to date, after taking into account
(i) a $4,900,000 pre-tax write-down in the fourth quarter of Fiscal
1993 relating to accruals for environmental remediation and losses on
certain contracts in progress, (ii) an $8,000,000 pre-tax provision
for impairment of certain unprofitable properties in the first
quarter of Transition 1993 reflected in operating profit (loss) of
discontinued operations summarized below and (iii) the charge to
discontinued operations of $13,910,000 taken in the three months
ended November 30, 1993, SEPSCO expects that all remaining
dispositions, including the results of their operations through the
actual or anticipated disposal dates, will not in the aggregate
result in any additional material loss to SEPSCO.
14
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
The income (loss) from discontinued operations consisted of the
following (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
November 30, November 30,
1992 1993 1992 1993
<S> <C> <C> <C> <C>
Income (loss) from operations
of discontinued operations
net of income taxes
(benefit) of $201, $-,
$460 and $(3,830) $ 374 $ -- $ 938 $ (9,445)
Loss on disposal of
discontinued operations
without income tax benefit -- (13,910) -- (13,910)
-------- -------- ------- --------
$ 374 $ (13,910) $ 938 $ (23,355)
======== ======== ======= ========
</TABLE>
The income (loss) from discontinued operations up to the July 22, 1993
measurement date and the loss from operations during the period of
July 23, 1993 to November 30, 1993, consisted of the following (as
used in the following tables natural gas and oil will be referred to
as "NG&O" and Utility and Municipal Services and Refrigeration will be
referred to as "Services and Refrig."):
15
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
<CAPTION>
Nine months ended March 1, 1993 to July 23, 1993 to
November 30, 1992 July 22, 1993 November 30, 1993
Services and Services and Services and
NG&O Refrig. NG&O Refrig. NG&O Refrig.
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Net sales $ 3,547 $ 9,261 $ 2,111 $ 5,943 $ 1,645 $ 2,923
Service revenues -- 145,696 -- 75,502 -- 42,585
-------- ---------- --------- --------- -------- --------
3,547 154,957 2,111 81,445 1,645 45,508
-------- ---------- --------- --------- -------- --------
Operating costs and
expenses:
Cost of sales 2,198 8,425 1,194 5,207 908 3,134
Cost of services -- 132,192 -- 70,922 -- 40,566
Selling, general and
administrative
expenses 1,232 8,806 1,451 4,439 987 4,638
Write-down of certain
unprofitable properties
(Note 2) -- -- -- 8,000 -- --
Facilities relocation and
corporate restructuring
(Note 2) -- -- 161 3,772 -- --
-------- ---------- --------- --------- -------- --------
3,430 149,423 2,806 92,340 1,895 48,338
-------- ---------- --------- --------- -------- --------
Operating profit
(loss) 117 5,534 (695) (10,895) (250) (2,830)
-------- ---------- --------- --------- -------- --------
</TABLE>
16
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
<CAPTION>
Nine months ended March 1, 1993 to July 23, 1993 to
November 30, 1992 July 22, 1993 November 30, 1993
Services Services Services
NG&O and Refrig. NG&O and Refrig. NG&O and Refrig.
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Other income (expense):
Interest expense (7) (2,783) (3) (1,288) (1) (613)
Other, net 39 (1,502) 108 (502) 47 (79)
-------- ---------- --------- --------- -------- --------
32 (4,285) 105 (1,790) 46 (692)
-------- ---------- --------- --------- -------- --------
Income (loss) before
income taxes 149 1,249 (590) (12,685) (204) (3,522)
Benefit from (provision
for) income taxes (45) (415) 258 3,572 (148) 440
-------- ---------- --------- --------- -------- --------
Net income
(loss) $ 104 $ 834 $ (332) $ (9,113) $ (352) $ (3,082)
======== ========== ========= ========= ======== ========
</TABLE>
17
<PAGE>
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
Net current assets (liabilities) and non-current assets of discontinued
operations consist of the following:
<CAPTION>
February 28, 1993 November 30, 1993
Services Services
NG&O and Refrig. NG&O and Refrig.
<C> <S> <S> <S> <S>
Cash $ -- $ -- $ -- $ 189
Receivables 365 26,313 242 1,596
Inventories 160 2,894 159 677
Deferred income tax
benefit -- -- 1,137 930
Other current assets 40 1,939 51 559
Current portion of
long-term debt -- (349) -- --
Current portion of
capitalized leases due
to leasing affiliate (25) (10,245) (57) (448)
Accounts payable (287) (8,693) (315) (1,284)
Due to Triarc -- - (242) (988)
Accrued salaries and
wages (29) (2,800) -- --
Accrued expenses (879) (6,417) (1,083) (4,529)
--------- ---------- ---------- ----------
Net current assets
(liabilities) of
discontinued
operations $ (655) $ 2,642 $ (108) $ (3,298)
========= ========== ========== ==========
Properties, net $ 7,404 $ 84,476 $ 7,289 $ 18,034
Other assets 29 1,083 55 296
Long-term debt -- (172) -- (17)
Capitalized leases
due to leasing
affiliate (21) (16,799) (17) (243)
Deferred income taxes (1,303) (5,162) (1,847) (1,810)
Other liabilities (304) (3,047) (304) (2,665)
--------- ---------- ---------- ----------
Net non-current
assets of
discontinued
operations $ 5,805 $ 60,379 $ 5,176 $ 13,595
========= ========== ========== ==========
</TABLE>
18
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
4. Write-off of Investment
SEPSCO had a $1,500,000 investment in the preferred stock of
Chesapeake Insurance Company Limited ("Chesapeake Insurance"), a
subsidiary of CFC Holdings, and Graniteville had a $2,500,000
investment in such preferred stock. During its quarter ended
September 30, 1993 Chesapeake Insurance increased its reserve for
insurance and reinsurance losses by $10,000,000 and as result reduced
the stockholders' equity of Chesapeake Insurance to $308,000. In
December 1993 Triarc decided to cease writing insurance and
reinsurance of any kind through Chesapeake Insurance. As a result
Chesapeake Insurance will not have any future operating cash flows
and its remaining liabilities, including payment of claims on
insurance previously written, will be liquidated with assets on hand.
Accordingly, the preferred stock investment is not recoverable and
during the three months ended November 30, 1993 SEPSCO and
Graniteville wrote off their investment in such stock since the
decline in value was deemed to be other than temporary.
5. Change in Control
As previously reported, a change in control of SEPSCO's parent,
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 was reconstituted
and new senior executive officers were elected.
In connection therewith, SEPSCO received from Triarc $27,115,000 in
cash and $3,535,000 in the form of an offset of amounts due to Triarc
as of April 23, 1993 in connection with the providing by Triarc of
certain management services to SEPSCO. The aggregate $30,650,000 of
payments by Triarc included full payment of $6,806,000 (including
$306,000 of accrued interest) on an unsecured promissory note issued
to SEPSCO by Triarc in connection with the 1988 sale of an investment
and partial payment of $23,844,000 (including $1,430,000 of accrued
interest) on a $48,952,000 promissory note (the "Note") due to
SEPSCO. The remaining $26,538,000 principal balance of the Note is
due on August 1, 1998. The Note resulted from the 1986 sale of
approximately 51% of the outstanding common shares of Graniteville to
Triarc and is secured by such shares. The Note is subordinated to
senior indebtedness of Triarc to the extent, if any, that the payment
of principal and interest thereon is not satisfied out of proceeds of
the pledged Graniteville shares. SEPSCO used the $27,115,000 of cash
proceeds to pay $12,689,000 due under its accounts receivable
financing arrangement which was then terminated and to pay
$14,426,000 (including $383,000 of accrued interest) owed to
Chesapeake Insurance.
19
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
6. Investment in Affiliates
Investments in affiliates consisted of the following:
<TABLE>
<CAPTION>
February 28, November 30,
1993 1993
(In thousands)
<S> <C> <C>
Graniteville $ 62,530 $ 67,490
CFC Holdings 1,297 543
Chesapeake Insurance (Note 4) 1,500 --
---------- ---------
$ 65,327 $ 68,033
=========== =========
</TABLE>
<TABLE>
Equity in earnings of affiliates before cumulative effect of changes
in accounting principles consisted of the following:
<CAPTION>
Three months ended Nine months ended
November 30, November 30,
1992 1993 1992 1993
(In thousands)
<S> <C> <C> <C> <C> <C>
Graniteville $ 3,958 $ 673 $ 9,371 $ 4,960 (a)
CFC Holdings 102 (532) 276 (650) (a)
------- ------- ------- -------
$ 4,060 $ 141 $ 9,647 $ 4,310
======= ======= ======= =======
</TABLE>
(a) Affected by certain significant charges as set forth in Note 2.
Graniteville
Effective March 1, 1992 Graniteville adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109
"Accounting for Income Taxes" ("SFAS 109") (see Note 7 for further
discussion of SFAS 109) and SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other than Pensions" ("SFAS 106"). The
cumulative effect of the changes in accounting principles resulted in
charges to Graniteville's consolidated statement of income amounting
to $12,314,000 for SFAS 109 and $722,000, net of Graniteville's
income taxes of $429,000, for SFAS 106. SEPSCO's equity in such
cumulative effect, net of SEPSCO income taxes of $434,000 on the
ultimate distribution of such earnings to SEPSCO, amounted to a
charge of $5,954,000, or $.51 per share and is reported separately in
the condensed consolidated statement of operations for the nine
months ended November 30, 1992.
20
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
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
$75,000,000 as of November 30, 1993) 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
nine months ended November 30, 1992 and 1993 are as follows:
<TABLE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
<CAPTION>
Three months ended Nine months ended
November 30, November 30,
1992 1993 1992 1993
(In thousands)
<S> <C> <C> <C> <C>
Operating revenues $ 131,050 $ 129,634 $ 378,039 $ 399,870
Operating profit
(Note 2) 14,495 8,174 36,028 27,853
Earnings before
cumulative effect of
of changes in
accounting principles
(Note 2) 7,650 1,375 19,125 10,127
Net income (Note 2) 7,650 1,375 6,089 10,127
</TABLE>
CFC Holdings
Effective January 1, 1993, CFC Holdings adopted SFAS 109 and SFAS 106
with the cumulative effect of changes in accounting principles
resulting in charges to the CFC Holdings consolidated statement of
operations amounting to $1,738,000 and $153,000, respectively.
SEPSCO's equity in such cumulative effect amounted to a charge of
$102,000 or $.01 per share and is reported separately in the
condensed consolidated statement of operations for the nine months
ended November 30, 1993.
7. Income Taxes
SEPSCO recorded benefits from income taxes of $248,000 and $1,791,000
during the three month and nine-month periods ended November 30, 1993
despite pretax losses of $780,000 and $608,000, respectively,
representing effective rates in excess of the 35% Federal statutory
rate, principally due to the equity in earnings of affiliates on
which no income taxes were provided.
21
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
Effective March 1, 1993 SEPSCO adopted the provisions of SFAS 109
which requires a change from the deferred method to the asset and
liability method of accounting for income taxes. Under the asset and
liability method, deferred income taxes are recognized for the tax
consequences of the temporary differences between the financial
statement carrying amounts and the tax bases of assets and
liabilities. The deferred income tax provision or benefit for each
year represents the decrease or increase, respectively, in the
deferred income tax benefit during such year. The cumulative effect
on prior years of this change in accounting principles was a credit
of $7,617,000 or $.65 per share, and is reported separately in the
condensed consolidated statement of operations for the nine months
ended November 30, 1993. Prior years' financial statements have not
been restated.
The current and non-current deferred tax assets from continuing
operations and current deferred tax asset and non-current deferred
tax (liability) from discontinued operations consisted of the
following components as of March 1, 1993:
Current
-------
Continuing Discontinued
Operations Operations
(In thousands)
Net operating loss, alternative minimum
tax and depletion carryforwards $ 1,961 $ 5,667
Allowance for doubtful accounts 102 353
Reserve for losses on construction
contracts -- 608
Ehrman Litigation settlement reserve
(See Note 9) 495 --
Reserve for employee benefit costs 207 317
Other 20 126
--------- ---------
$ 2,785 $ 7,071
========= =========
Non-Current
------------
Continuing Discontinued
Operations Operations
(In thousands)
Accelerated depreciation $(1,567) $(17,071)
Amortization of original issue discount 1,561 --
Insurance premiums not yet paid to a
third party -- 1,437
Reserves for environmental costs -- 1,115
Reserve for income tax contingencies -- (951)
Other (4) 317
--------- ---------
$ (10) $(15,153)
========= =========
22
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
Federal income tax returns of SEPSCO have been examined by the
Internal Revenue Service ("IRS") for the tax years 1985 through 1988.
Such audit has been substantially resolved at no material cost to
SEPSCO. 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.
8. 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 and nine-month periods ended
November 30, 1992 and 1993.
9. 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 (the "District Court"). On October 18, 1993, Triarc
entered into a settlement agreement (the "Settlement Agreement") with
the plaintiff (the "Plaintiff") in the Ehrman Litigation. The
Settlement Agreement provides, 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 SEPSCO's common
stock other than Triarc Companies will receive in exchange for each
share of SEPSCO's common stock, 0.8 shares of Triarc's common stock.
On November 22, 1993 Triarc and SEPSCO entered into an agreement and
plan of merger which provides for the merger (the "Merger") of a
subsidiary of Triarc into SEPSCO in the manner described in the
Settlement Agreement. Following the Merger, Triarc would own 100% of
SEPSCO's common stock. Consummation of the Settlement Agreement and
the Merger are conditioned on, among other things, approval by
SEPSCO's stockholders other than Triarc Companies. On January 11,
1994 the District Court approved the Settlement Agreement.
The Settlement Agreement also provides that Plaintiff's counsel and
financial advisor will be paid by Triarc, subject to court approval,
cash not to exceed $1,250,000 and $50,000, respectively and that
Triarc would be responsible for other expenses relating to the
issuance of Triarc common shares pursuant to the Merger. SEPSCO had
previously accrued such $1,300,000 in the fourth quarter of Fiscal
1993 and accrued additional expenses related to the settlement of the
Ehrman Litigation of $400,000 and $1,200,000 in the first and second
quarters of Transition 1993, respectively, since SEPSCO originally
anticipated it would be responsible for such fees and expenses.
However, as previously indicated, the Settlement Agreement
23
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
established that Triarc and not SEPSCO was responsible for certain of
these expenditures and, accordingly, SEPSCO reversed $1,900,000 of
previously accrued expenses in the third quarter of Transition 1993.
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 let 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. Triarc 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
the passage of time since the submission of the two reports by DHEC
and the absence of desirable remediation alternatives, other than
continuing to leave the Langley Pond sediments in place and
undisturbed as described in the reports, 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.
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 refrigeration operations and has filed appropriate
notifications with state environmental authorities and has begun 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. Based on
preliminary information and consultations with, and certain reports
of, environmental consultants and others, SEPSCO presently estimates
the cost of such remediation and/or removal will approximate
$3,700,000, all of which was provided in prior years. In connection
therewith, SEPSCO has incurred actual costs through November 30, 1993
of $1,143,000 and has a remaining accrual of $2,557,000. SEPSCO
believes that after such accrual the ultimate outcome of this matter
24
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
will not have a material adverse effect on SEPSCO's consolidated
results of operations or financial position.
NINE MONTHS ENDED NOVEMBER 30, 1993 COMPARED WITH NINE MONTHS ENDED
NOVEMBER 30, 1992
Net sales increased from $18.9 million in 1992 to $19.8 million in
1993 due to higher volume of liquefied petroleum gas sales due to colder
weather in the regions serviced by such business in 1993, offset in part by
slightly lower average selling prices reflecting lower product costs.
Operating profit decreased from $1.7 million in 1992 to $0.4 million
in 1993 principally due to a $1.5 million increase in selling, general and
administrative expenses. Such increase was principally due to $.08 million
of the aggregate $4.7 million of 1993 corporate restructuring charges
allocated to the liquefied petroleum gas business and included in selling,
general and administrative expenses. The aggregate $4.7 million of
corporate restructuring charges consisted of $4.2 million of charges
allocated to SEPSCO by Triarc including: (i) estimated allocated costs of
$2.8 million to terminate the lease on Triarc's existing corporate
facilities; (ii) total allocated costs of $1.4 million relating to the five
year Consulting Agreement extending through April 1998 between Triarc and
Steven Posner, the former Vice Chairman of Triarc and $0.5 million of
estimated costs to be incurred by SEPSCO to relocate SEPSCO's corporate
office. All of such charges are related to the change in control of
Triarc, SEPSCO's parent, which occurred on April 23, 1993 (the "Change in
Control"). The $0.8 million reduction in net sales was substantially
offset by the $0.6 million reduction in cost of sales.
Interest expense decreased from $9.8 million in 1992 to $7.5 million
in 1993 due primarily to the lower debt outstanding and, to a much lesser
extent, lower interest rates during 1993.
Equity in earnings of affiliates before cumulative effect of changes
in accounting principles decreased from $9.6 million in 1992 to $4.3
million in 1993 due to decreased earnings of Graniteville and, to a lesser
extent, CFC Holdings. Such lower earnings are principally attributable to
(i) higher corporate charges from Triarc to Graniteville during the first
nine months of the ten months ended December 31, 1993 ("Transition 1993"),
(ii) provisions for insurance losses by CFC Holdings' subsidiary Chesapeake
Insurance (see below), (iii) certain significant charges recorded in the
first quarter of Transition 1993 relating to costs allocated from Triarc to
such affiliates primarily for facilities relocation and corporate
restructuring and to compensation paid to a special committee of Triarc's
Board of Directors and (iv) the write-off of Graniteville's $2.5 million
investment in Chesapeake Insurance (see below).
SEPSCO also wrote off its $1.5 million investment in Chesapeake
Insurance since such investment is no longer deemed recoverable as a result
of Chesapeake Insurance reducing its stockholders' equity to $0.3 million
following additional provisions for insurance losses of $10.0 million
25
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
during its quarter ended September 30, 1993 and the decision by Triarc in
December 1993 to cease writing new insurance or reinsurance of any kind
through Chesapeake Insurance.
The decrease in interest income from Triarc of $2.4 million resulted
from the lower outstanding balance of the Triarc note receivable as a
result of the April 1993 repayment of $28.9 million in connection with the
Change in Control.
Other income, net increased from $0.1 million in 1992 to $0.6 million
in 1993. The 1993 amount includes a reversal of a $1.3 million accrual,
provided for in the fourth quarter of the year ended February 28, 1993
("Fiscal 1993"), for the legal counsel and financial advisor fees for the
Plaintiff in the Ehrman Litigation. Such fees will now be paid by Triarc
instead of SEPSCO, as originally anticipated, in accordance with the
Settlement Agreement (see further discussion below) entered into in October
1993. The 1993 amount also includes a net accrual of $1.0 million for
SEPSCO's expenses related to the proposed Merger (see further discussion
below in Financial Condition and Liquidity).
SEPSCO recorded a benefit from income taxes of $1.8 million during the
1993 period despite a pretax loss of $0.6 million, representing an
effective rate substantially in excess of the 35% statutory rate,
principally due to the inclusion in pretax loss of equity in earnings of
affiliates of $4.3 million on which no income taxes were provided. SEPSCO
recorded a benefit of $0.2 million despite pretax income of $7.2 million
during the nine moths ended November 30, 1992 principally due to the
inclusion in pretax income of equity in earnings of affiliates of $9.6
million on which income taxes were provided only on the portion remaining
after an 80% dividend exclusion.
Income (loss) from discontinued operations, net of income taxes
decreased $24.3 million to a loss of $23.4 million in 1993 from income of
$0.9 million in 1992 primarily due to the following reasons:
In connection with the consummation of the sales of the tree
maintenance services operations and the construction related
operations and the signing of a letter of intent to sell the ice
operations, SEPSCO reevaluated the estimated gain or loss from
the sale of its discontinued operations and provided $13.9
million for the estimated loss on the sale of discontinued
operations from an estimated break-even position as of August 31,
1993. The revised estimate principally reflects (i) $4.7 million
of losses from the sales of operations comprising the utility and
municipal services business segment previously estimated to be
approximately break-even, (ii) $6.6 million of losses from the
sale of operations comprising SEPSCO's refrigeration business
segment previously estimated to be a gain of $1.6 million, (iii)
$2.5 million of estimated losses from operations from July 22,
1993 to the actual or estimated disposal dates of the
26
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
discontinued operations and (iv) less previously estimated losses of
$1.5 million from the sale of SEPSCO's natural gas and oil business segment
which now will be transferred to Triarc. Since such transfer will be among
companies in a controlled group it will be accounted for at net book value.
The net loss from the sale of the utility and municipal services business
segment reflects a reduction of $2.0 million due to a decrease in asset
sales of the construction related activities by July 31, 1994 a reduction
of $1.8 million in the estimated sales price for the construction related
operations from previous estimates and other adjustments in finalizing the
loss on the sale of the tree maintenance services operations. The $8.2
million charge relating to the sale of the refrigeration business segment
principally results from (i) a $4.0 million reduction in the sales price
for the ice operations based on the letter of intent and (ii) a $4.0
million reduction in the estimated sales price of the cold storage
operations based on preliminary sales discussions and experience with
respect to negotiating the sale of the other operations.
SEPSCO recorded an $8.0 million write-down relating to the
impairment of certain unprofitable properties in the first
quarter of Transition 1993.
Operating profits of certain business segments through July 22,
1993, exclusive of the above charges, also declined. The tree
maintenance activities experienced a decline in earnings due to
higher insurance costs, losses on certain contracts and start-up
costs on new crews. The flooding conditions experienced during
the second quarter of Transition 1993 prevented the generation of
revenues by crews added in anticipation of increased workload,
whereas Fiscal 1993 was favorably affected by the additional work
in connection with Hurricane Andrew. The construction related
activities experienced a decline due to a lower number of
contracts in progress and losses experienced on existing
contracts. Refrigeration operations had lower margins due to
lower revenues from cold storage due to lower occupancy rates and
lower margins in the ice operations due to competitive
conditions.
The corporate restructuring charges described above included $3.9
million of charges included in the 1993 loss from discontinued
operations.
Effective March 1, 1993 SEPSCO changed its method of accounting for
income taxes when it adopted the provisions of SFAS No. 109 ("SFAS 109")
"Accounting for Income Taxes." The cumulative effect on prior years of the
change in accounting principles decreased the net loss for the nine months
ended November 30, 1993 by $7.6 million or $.65 per share. Effective
January 1, 1993, CFC Holdings adopted SFAS 109 and SFAS No. 106 ("SFAS
106") "Employers' Accounting for Postretirement Benefits Other Than
Pensions." SEPSCO's equity in the cumulative effect of changes in
accounting principles amounts to a charge of $0.1 million or $.01 per
27
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
share. Effective March 1, 1992 Graniteville adopted SFAS 109 and SFAS 106.
The changes in accounting principles resulted in charges in the nine months
ended November 30, 1992 amounting to $6.0 million, (net of taxes of $0.4
million), or $.51 per share.
THREE MONTHS ENDED NOVEMBER 30, 1993 COMPARED WITH THREE MONTHS ENDED
NOVEMBER 30, 1992
Net sales were relatively unchanged in 1993 compared with 1992 since
volume and average selling prices in the third quarter of 1993 were at the
same levels of the 1992 period.
Operating profit decreased from income of $0.5 million in 1992 to a
loss of $0.2 million in 1993 principally due to a $1.0 million increase in
selling general and administrative expenses. Such increase was principally
due to $0.7 million relating to the termination of certain SEPSCO officers
and employees recorded in the third quarter of Transition 1993. The
increase in selling general and administrative expense was partially offset
by a reduction of $0.3 million in cost of sales reflecting lower product
costs which were not passed on in lower sales prices.
Interest expense decreased from $3.2 million in 1992 to $2.3 million
in 1993 due primarily to the lower debt outstanding and, to a much lesser
extent, lower interest rates during 1993.
Equity in earnings of affiliates before cumulative effect of changes
in accounting principles decreased from $4.1 million in 1992 to $0.1
million in 1993 due principally to decreased earnings of Graniteville.
Such lower Graniteville earnings are principally attributable to the write
off of Graniteville's $2.5 million investment in Chesapeake Insurance (see
below) and overall weaker third quarter Transition 1993 earnings.
SEPSCO also wrote off its $1.5 million investment in Chesapeake
Insurance since such investment is no longer deemed recoverable as a result
of Chesapeake Insurance reducing its stockholders' equity to $0.3 million
following additional provisions for issuance losses of $10.0 million during
its quarter ended September 30, 1993 and the decision by Triarc in December
1993 to cease writing new insurance or reinsurance of any kind through
Chesapeake Insurance.
The decrease in interest income from Triarc of $1.0 million resulted
from the lower outstanding balance of the Triarc note receivable as a
result of the April 1993 repayment of $28.9 million in connection with the
Change in Control.
Other income net increased $2.6 million in 1993. The 1993 amount
includes a reversal of a $1.9 million accrual of which $1.3 million was
provided for in the fourth quarter of the year ended February 28, 1993
("Fiscal 1993") and $0.6 million in the second quarter of Transition 1993,
for the legal counsel and financial advisor fees for the Plaintiff in the
28
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Ehrman Litigation. Such fees will now be paid by Triarc instead of SEPSCO,
as originally anticipated, in accordance with the Settlement Agreement (see
further discussion below in Financial Condition and Liquidity) entered into
October 1993.
SEPSCO recorded a benefit from income taxes of $0.2 million during the
1993 period on a pretax loss of $0.8 million, representing an effective
rate substantially in excess of the 35% statutory rate, principally due to
the inclusion in pretax earnings of equity in earnings of affiliates, on
which no income taxes were provided. SEPSCO recorded a benefit of less
that $0.1 million despite pretax income of $3.2 million during the three
months ended November 30, 1992 principally due to the inclusion in pretax
income of equity in earnings of affiliates of $4.1 million on which income
taxes were provided only on the portion remaining after an 80% dividend
exclusion.
Income (loss) from discontinued operations, net of income taxes
decreased $14.2 million to a loss of $13.9 million in Transition 1993 from
income of $0.4 million in 1992. The loss in Transition 1993 resulted from
the previously discussed charge for the estimated loss on the sale of the
discontinued operations
FINANCIAL CONDITION AND LIQUIDITY
At February 28, 1993 and November 30, 1993 cash and equivalents,
excluding restricted cash, amounted to $0.2 million and $35.8 million,
respectively. The $35.6 million increase in cash is principally a result
of the remaining excess proceeds from the sale of the tree maintenance
services operations (see subsequent discussion). Total debt, including the
debt of the discontinued operations, amounted to $110.2 million and $60.8
million at February 28, 1993 and November 30, 1993, respectively.
As previously reported, a change in control of Triarc occurred on
April 23, 1993 (the "Closing Date"), which as a result of Triarc's
ownership of SEPSCO's voting securities constituted a change in control of
SEPSCO. In connection therewith SEPSCO received from Triarc $27.1 million
in cash and $3.5 million in the form of an offset of amounts due to Triarc
as of April 23, 1993 in connection with the providing by Triarc of certain
management services to SEPSCO. The aggregate $30.6 million of payments by
Triarc included full payment of $6.8 million (including $0.3 million of
accrued interest) on an unsecured promissory note issued to SEPSCO by
Triarc in connection with the 1988 sale of an investment and partial
payment of $23.8 million (including $1.4 million of accrued interest) on a
$49.0 million promissory note due to SEPSCO resulting from the 1986 sale of
approximately 51% of Graniteville's common stock to Triarc, as described
below. SEPSCO used the $27.1 million of cash proceeds to pay $12.7 million
due under its accounts receivable financing arrangement which was then
terminated and to pay $14.4 million (including $0.4 million of accrued
interest) owed to Chesapeake Insurance.
29
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
SEPSCO holds a promissory note (the "Note") from Triarc in the
original face amount of approximately $49.0 million, bearing interest at
the annual rate of 13% payable semi-annually. As described above, on the
Closing Date, SEPSCO received partial payment of the Note of approximately
$23.8 million (including $1.4 million of accrued interest) from Triarc.
The Note, after giving effect to such prepayment, is due in August 1998 and
resulted from the 1986 sale of approximately 51% of the outstanding common
shares of Graniteville to Triarc and is secured by such shares. The Note
is subordinated to senior indebtedness of Triarc to the extent, if any,
that the payment of principal and interest thereon is not satisfied out of
proceeds of the pledged Graniteville shares.
SEPSCO has not received any cash dividends from its investment in
Graniteville during the nine months ended November 30, 1993 compared with
$3.0 million in the comparable prior year period.
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 $75.0 million as of November 30, 1993)
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.
SEPSCO is required to pay interest on the 11 7/8% Debentures semi-
annually on February 1 and August 1 of each year including interest
payments due February 1, 1994 and August 1, 1994 aggregating $6.9 million.
SEPSCO is also required to retire annually through the operation of a
mandatory sinking fund $9.0 million principal amount of the 11 7/8%
Debentures on February 1 of each year. The Indenture provides that, in
lieu of making such payment in cash, SEPSCO may credit against the
mandatory sinking fund requirement the principal amount of 11 7/8%
Debentures acquired by SEPSCO other than through the sinking fund. On
February 1, 1993, SEPSCO satisfied such sinking fund requirement by payment
of $8.7 million in cash and the delivery of $0.3 million principal amount
of the 11 7/8% Debentures. SEPSCO obtained substantially all of the funds
to satisfy such sinking fund requirement by borrowings from Chesapeake
Insurance as a result of increasing its loans from Chesapeake Insurance by
$8.4 million to $14.0 million. As described elsewhere herein, such loans
were repaid in full on the Closing Date. SEPSCO presently expects that
based on the current market price for such 11 7/8% Debentures it would
satisfy such mandatory sinking fund requirement due February 1, 1994
through cash received from the sale of the tree maintenance services
operations rather than through the delivery of 11 7/8% Debentures.
30
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
The Indenture 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 November 30, 1993 such
indebtedness was $59.3 million resulting in allowable additional
indebtedness, if SEPSCO desired to make such borrowings and if such
financing could be obtained, of $40.7 million.
On October 18, 1993, Triarc entered into a Settlement Agreement. The
Settlement Agreement provides, 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 SEPSCO's common stock other than Triarc
Companies will receive in exchange for each share of SEPSCO's common stock,
0.8 shares of Triarc's common stock. On November 22, 1993 Triarc and
SEPSCO entered into an agreement and plan of merger which provides for the
Merger of a subsidiary of Triarc into SEPSCO in the manner described in the
Settlement Agreement. Following the Merger, Triarc Companies would own
100% of SEPSCO's common stock. Consummation of the Settlement Agreement
and the Merger are conditioned on, among other things, approval of the
Merger by SEPSCO's stockholders other than Triarc Companies. On January
11, 1994 the District Court approved the Settlement Agreement.
On July 22, 1993, SEPSCO's Board of Directors authorized the sale or
liquidation of its utility and municipal services, refrigeration, and
natural gas and oil businesses. On December 9, 1993 SEPSCO's Board of
Directors decided the natural gas and oil business will be transferred to
Triarc rather than SEPSCO selling it to an independent third party. Such
transfer will be in the form of a sale of the stock of the entities
comprising the natural gas and oil business for cash of $8.5 million which
is equal to their fair value and approximately $4.5 million higher than
their net book value. It is intended for this sale to occur following the
Merger and the resulting elimination of the minority interest in SEPSCO.
However, should the Merger not be approved by the SEPSCO stockholders the
sale of the stock of the natural gas and oil entities for cash to Triarc
will be completed prior to July 22, 1994.
On October 15, 1993 SEPSCO sold the assets of its tree maintenance
services operations previously included in its utility and municipal
services business segment for $69.6 million in cash plus the assumption by
the purchaser of $5.0 million in current liabilities resulting in a loss of
$4.8 million. The $35.5 million cash balance as of November 30, 1993 is
principally a result of such cash proceeds, less the repayment of $24.1
million of capitalized lease obligations relating to the tree maintenance
services operations, repayment of $1.1 million of amounts due to Triarc,
payment of the $2.0 million to the purchasers of the construction related
operations (see below) and general operating requirements since October 15,
1993. On October 7, 1993 SEPSCO sold the stock of its two construction
related operations previously included in its utility and municipal
services business segment for a nominal amount subject to adjustments
described below. As the related assets are sold or liquidated the
purchasers have agreed to pay, as deferred purchase price, 75% of the net
31
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
proceeds received therefrom (cash of $1.5 million had been received as of
November 30, 1993) plus, in the case of the larger of the two entities, an
amount equal to 1.25 times the adjusted book value of such entity as of
October 5, 1995 (the "Book Value Adjustment"). As of October 7, 1993, the
adjusted book value of the assets of that entity aggregated approximately
$1.6 million. In addition, SEPSCO paid $2.0 million in October and
November 1993 to cover the buyer's short-term operating losses and working
capital requirements for the construction related operations. As of
November 30, 1993 SEPSCO estimated the sales of the construction related
operations would result in a gain of $2.0 million excluding any
consideration of the potential Book Value Adjustment. In January 1994,
however, SEPSCO learned that the buyer of such businesses had successfully
negotiated extensions of certain major contracts with respect to the larger
of such businesses and as a result no longer intends to immediately dispose
of the major portion of the assets. Should the buyer hold such assets
through October 5, 1995, the purchase price would effectively be realized
through the Book Value Adjustment. Based on such revised estimates of
asset sales, SEPSCO would approximately break-even excluding any
consideration of the potential Book Value Adjustment, given its
uncertainty.
On November 12, 1993 SEPSCO signed a letter of intent to sell
substantially all of the operating assets of the ice operations of its
refrigeration business segment for $5.0 million in cash, a $4.0 million
note (discounted value $3.1 million) and the assumption by the buyer of
certain current liabilities which as of November 30, 1993 would approximate
$1.0 million. The note, which bears no interest during the first year and
5% thereafter, would be payable in installments of $120.0 thousand at the
end of each of the four years following the closing date with the balance
of approximately $3.5 million due at the end of the fifth year following
the closing date. The precise timetable for the sale and liquidation of
the remaining discontinued operation, the cold storage operations of the
refrigeration business segment, will depend upon SEPSCO's ability to
identify appropriate potential purchasers and to negotiate acceptable terms
for the sale of such operations. SEPSCO currently anticipates completion
of such sales by July 31, 1994.
On July 22, 1993 SEPSCO's Board of Directors also authorized the sale
or liquidation of the liquefied petroleum gas business. SEPSCO previously
reported the liquefied petroleum gas business as a discontinued operation
since it is to be transferred to a subsidiary of Triarc and the transfer
would be accounted for at net book value. The precise method of such
transfer has not been determined and the transfer will not occur until
after the Merger. Based on these facts, SEPSCO has reevaluated the
accounting for the liquefied petroleum gas business and retroactively
accounted for the liquefied petroleum gas business as a continuing
operation.
32
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
SEPSCO has $5.3 million of restricted cash and equivalents which
support letters of credit which collateralize certain performance and other
bonds relating to the utility and municipal services business segment.
SEPSCO anticipates that subsequent to the closing of the sales of the
operations comprising such segment, in due course the buyers will provide
the collateral for such bonds or that the performance secured by the bond
will be completed and the restricted cash will revert to SEPSCO free of
restrictions and at that time be used for general corporate purposes.
SEPSCO had cash used in operations of $2.0 million during the nine-
month period ended November 30, 1993. SEPSCO anticipates its cash
requirements for the last month of Transition 1993, exclusive of operating
activities, to be insignificant. Such cash requirements for the calendar
year 1994 will include $3.9 million of capital expenditures, of which
SEPSCO intends to seek financing from banks and other sources for $3.2
million, as well as $9.0 million of sinking fund payments on the 11 7/8%
Debentures. SEPSCO expects to meet all of its cash requirements during the
last month of Transition 1993 and the calendar year 1994 with the
aforementioned financing for capital expenditures and its existing cash
balances principally derived from the sale of the tree maintenance services
operations.
In 1987 Graniteville was notified by the South Carolina 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 alternative either
provided no significant additional benefits or themselves involved adverse
effects on human health, to existing recreational uses or to the existing
biological communities. Triarc 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 the passage of time since the
submission of the two reports by DHEC and the absence of desirable
remediation alternatives, other than continuing to leave the Langley Pond
sediments in place and undisturbed as described in the reports, 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.
33
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
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 refrigeration operations and has filed appropriate
notifications with state environmental authorities and has begun 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. Based on preliminary
information and consultations with, and certain reports of, environmental
consultants and other, SEPSCO presently estimates the cost of such
remediation and/or removal will approximate $3.7 million, all of which was
provided in prior years. In connection therewith, SEPSCO has incurred
actual costs through November 30, 1993 of $1.1 million and has a remaining
accrual of $2.6 million. SEPSCO believes that after such accrual the
ultimate outcome of this matter will not have a material adverse effect on
SEPSCO's consolidated results of operations or financial position.
33
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 18, 1993, Triarc entered into the Settlement Agreement with
the plaintiff in the Ehrman Litigation. The Settlement Agreement
provides, among other things, that the Company would be merged into,
or otherwise acquired, by Triarc or an affiliate thereof in a
transaction in which each holder of the Company's Common Stock other
than Triarc will receive in exchange for each share of the Company's
Common Stock, 0.8 shares of Triarc's Common Stock. The settlement
agreement also provides that plaintiff's counsel and financial advisor
will be paid, subject to court approval, cash not to exceed $1.25
million and $50,000, respectively. The settlement of the Ehrman
Litigation is conditioned on, among other things, approval of the
Company's stockholders. On January 11, 1994 the United States
District Court approved the Settlement Agreement. Following such
merger or acquisition, Triarc would own 100% of the Company's Common
Stock. On November 22, 1993, Triarc and the Company entered into an
Agreement and Plan of Merger (the "Merger Agreement"). The Merger
Agreement provides for the merger of a subsidiary of Triarc into the
Company in the manner described in the settlement agreement and is
conditioned on, among other things, court approval and approval by the
Company's stockholders other than Triarc.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
September 1, 1993, reporting on the execution of an agreement to
sell the Company's tree maintenance business.
October 7, 1993, reporting on (i) regulatory approvals for the
sale of the tree maintenance business and (ii) the sale of the
Company's underground cable and conduit installation and concrete
refurbishment business.
October 15, 1993, reporting on the consummation of the sale of
the tree maintenance business.
October 27, 1993, reporting on management's intention to change
the Company's fiscal year to one ending December 31.
November 16, 1993, reporting on (i) the execution of a letter of
intent to sell the Company's ice business and (ii) approval by
the Company's Board of Directors of the settlement of the Ehrman
Litigation and the Merger Agreement.
34
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHEASTERN PUBLIC SERVICE COMPANY
Date: March 10, 1994 BY: /S/ JOSEPH A. LEVATO
---------------------
Joseph A. Levato
Executive Vice President and
Chief Financial Officer
/S/ FRED H. SCHAEFER
---------------------
Fred H. Schaefer
Vice President and
Chief Accounting Officer
35
<PAGE>
