UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C
(RULE 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant To Section 14(c) of the Securities Exchange
Act of 1934
(AMENDMENT NO. )
Check the appropriate box:
[ ] Preliminary information statement [ ] Confidential, for use of the
Commission only (as permitted
by Rule 14c-5(d)(2))
[x] Definitive information statement
MISSISSIPPI POWER COMPANY
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(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
NOTICE OF 2003
ANNUAL MEETING
& INFORMATION STATEMENT
WWW.MISSISSIPPIPOWER.COM
(MISSISSIPPI POWER LOGO)
Michael D. Garrett 2992 West Beach Boulevard
President and Post Office Box 4079
Chief Executive Officer Gulfport, Mississippi 39502-4079
(MISSISSIPPI POWER LLOGO)
April 25, 2003
Dear Shareholder:
You are cordially invited to attend our 2003 Annual Meeting of Shareholders at
10:15 a.m., Eastern Time, on May 21, 2003 at the offices of our affiliate,
Georgia Power Company, 241 Ralph McGill Boulevard, N.E., Atlanta, Georgia.
At the meeting we will elect our board of directors.
Sincerely yours,
/s/ Michale D. Garrett
Michael D. Garrett
President and Chief Executive Officer
MISSISSIPPI POWER COMPANY
GULFPORT, MISSISSIPPI
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 21, 2003
NOTICE IS HEREBY GIVEN that the 2003 Annual Meeting of Shareholders of
Mississippi Power Company will be held at the offices of its affiliate, Georgia
Power Company, 241 Ralph McGill Boulevard, N.E., Atlanta, Georgia on May 21,
2003 at 10:15 a.m., Eastern Time, to elect eight members of the board of
directors and to transact any other business that may properly come before said
meeting or any adjournment or postponement thereof.
Only shareholders of record at the close of business on April 14, 2003 will be
entitled to notice of and to vote at said meeting or any adjournment or
postponement thereof.
The Information Statement and the Annual Report are included in this mailing.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
BY ORDER OF THE BOARD OF DIRECTORS
Vicki L. Pierce
Corporate Secretary
Gulfport, Mississippi
April 25, 2003
TABLE OF CONTENTS
PAGE
----
General Information......................................... 1
Shareholder Proposals....................................... 1
Nominees for Election as Directors.......................... 2
Corporate Governance........................................ 3
Audit Committee Report...................................... 5
Compensation and Management Succession Committee Report..... 7
Compensation Committee Interlocks and Insider
Participation............................................. 9
Certain Relationships and Related Transactions.............. 9
Executive Compensation Information.......................... 10
Stock Ownership Table....................................... 14
Appendix A -- Southern Company Audit Committee Charter...... A-1
Appendix B -- Southern Company Policy on Engagement of the
Independent Auditor for Audit and Non-Audit Services...... B-1
INFORMATION STATEMENT
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GENERAL INFORMATION
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This Information Statement is furnished by Mississippi Power Company (the
"Company") in connection with the 2003 Annual Meeting of Shareholders and any
adjournment or postponement thereof. The meeting will be held at 10:15 a.m.,
Eastern Time, on May 21, 2003, at the offices of its affiliate, Georgia Power
Company, 241 Ralph McGill Boulevard, N.E., Atlanta, Georgia. This Information
Statement is initially being provided to shareholders on or about April 25,
2003.
At the meeting, we will elect eight members to the board of directors and
transact any other business that may properly come before the meeting. We are
not aware of any other matters to be presented at the meeting; however, the
holder of the Company's common stock will be entitled to vote on any other
matters properly presented.
All shareholders of record on the record date of April 14, 2003 are entitled to
notice of and to vote at the meeting. On that date, there were 1,121,000 shares
of common stock outstanding and entitled to vote, all of which are held by
Southern Company. There were also 84,050 shares of $100 preferred stock and
936,160 shares of depositary preferred stock, each representing one-fourth of a
share of preferred stock, outstanding on that date. With respect to the election
of directors, all of the outstanding shares of preferred stock are entitled to
vote as a single class with the Company's common stock. Each common share counts
as one vote and each share of preferred stock counts as one-half vote. Neither
the Company's charter nor by-laws provides for cumulative voting rights.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
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SHAREHOLDER PROPOSALS
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Shareholders may present proper proposals for inclusion in the Company's
Information Statement and for consideration at the next annual meeting of its
shareholders by submitting their proposals to the Company in a timely manner. In
order to be so included for the 2004 Annual Meeting of Shareholders, shareholder
proposals must be received by the Company no later than February 23, 2004.
1
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NOMINEES FOR ELECTION AS DIRECTORS
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A board of eight directors is to be elected at the annual meeting, each director
to hold office until the next annual meeting of shareholders and until the
election and qualification of a successor. If any named nominee becomes
unavailable for election, the board may substitute another nominee.
Below is information concerning the nominees for director stating, among other
things, their names, ages, positions and offices held and brief descriptions of
their business experience. The information is current as of the date of this
Information Statement.
MICHAEL D. GARRETT -- Director since 2001
Mr. Garrett, 53, is president and chief executive officer of the Company. He
served as executive vice president of customer service of Alabama Power Company
from January 2000 to May 2001 and executive vice president of external affairs
of Alabama Power Company from March 1998 to January 2000. He served as senior
vice president of external affairs of Alabama Power Company from February 1994
to March 1998.
TOMMY E. DULANEY -- Director since 2001
Mr. Dulaney, 64, is president and chief executive officer of Structural Steel
Services, Inc. (steel fabrication), Meridian, Mississippi. He is a member of the
advisory board of Trustmark National Bank, Meridian, Mississippi.
LINDA T. HOWARD -- Director since 1999
Ms. Howard, 59, is president of Howard Industries, Inc. (transformer, ballast
and computer manufacturer), Laurel, Mississippi.
ROBERT C. KHAYAT -- Director since 2002
Dr. Khayat, 65, is chancellor of the University of Mississippi, University,
Mississippi.
AUBREY K. LUCAS -- Director since 1984
Dr. Lucas, 68, is president emeritus and professor of higher education at the
University of Southern Mississippi, Hattiesburg, Mississippi.
GEORGE A. SCHLOEGEL -- Director since 1995
Mr. Schloegel, 62, is president and chief executive officer of Hancock Bank,
Gulfport, Mississippi. He is vice chairman and chief executive officer and
director of Hancock Holding Company.
PHILIP J. TERRELL -- Director since 1995
Dr. Terrell, 49, is retired superintendent of schools, Pass Christian Public
School District, Pass Christian, Mississippi. He is adjunct professor of
education at the University of Southern Mississippi, Gulf Park Campus, Long
Beach, Mississippi. He is a director of Hancock Bank, Gulfport, Mississippi.
N. EUGENE WARR -- Director since 1986
Mr. Warr, 67, is a retailer in Gulfport, Mississippi. He is a director of Coast
Community Bank, formerly SouthTrust Bank of Mississippi, Biloxi, Mississippi.
Each nominee has served in his or her present position for at least the past
five years, unless otherwise noted.
VOTE REQUIRED
The majority of the votes cast by the shares outstanding and entitled to vote at
a meeting at which a quorum is present is required for the election of
directors. Southern Company, as owner of all of the Company's outstanding common
stock, will vote for all of the nominees above.
2
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CORPORATE GOVERNANCE
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HOW IS THE COMPANY ORGANIZED?
The Company is managed by a core group of officers and governed by a board of
directors which has been set at eight members. The current nominees for election
as directors consist of seven non-employees and the chief executive officer of
the Company.
WHAT ARE DIRECTORS PAID FOR THEIR SERVICES?
- Standard Arrangements. The following compensation was paid to the Company's
directors during 2002 for service as a member of the board of directors and
any board committee(s), except that employee directors received no fees or
compensation for service as a member of the board of directors or any board
committee. At the election of the director, all or a portion of the cash
retainer may be payable in Southern Company common stock, and all or a
portion of the total fees may be deferred under the Deferred Compensation
Plan until membership on the board is terminated.
<Table>
Cash Retainer Fee..................... $10,000
Stock Retainer Fee.................... 340 shares of Southern Company common stock
Meeting Fee........................... $750 for each board or committee meeting attended
</Table>
- Pension Plan. There is no pension plan for non-employee directors.
- Other Arrangements. No director received other compensation for services as
a director during the year ending December 31, 2002 in addition to or in
lieu of that specified by the standard arrangements specified above.
NEW GOVERNANCE POLICIES AND PROCESSES
The Company has reviewed the provisions of the Sarbanes-Oxley Act of 2002 (the
"Sarbanes-Oxley Act"), the proposed and final rules of the U.S. Securities and
Exchange Commission (the "SEC") and the proposed new listing standards of the
New York Stock Exchange (the "NYSE") regarding corporate governance policies and
processes. In anticipation of the effectiveness or adoption of final rule
changes, the Company is reviewing its corporate governance policies and
practices. Under the SEC's Final Rule: Standards Relating to Listed Company
Audit Committees, the Company is exempt from the audit committee requirements
set forth in Section 301 of the Sarbanes-Oxley Act and, therefore, is not
required to have an audit committee or an audit committee report on whether it
has an audit committee financial expert. The Southern Company Audit Committee
will perform such functions on behalf of the Company's board of directors. The
Southern Company board of directors has determined that all members of the
Southern Company Audit Committee are independent and that Mr. J. Neal Purcell is
the audit committee financial expert. (For more information, please see the
Southern Company Audit Committee Report in this Information Statement.) The
Company will continue to monitor all actions taken by the SEC and the NYSE and
will amend, to the extent necessary, the standards, disclosures and charters
applicable to the board, its committees and the Company as a whole as final
rules impacting the Company are adopted and become effective.
COMMITTEES OF THE BOARD
AUDIT COMMITTEE:
- Members are Mr. Schloegel, Chairman; Ms. Howard; Dr. Lucas; and Mr. Warr
- Met five times in 2002
- Oversees the Company's internal controls and compliance matters
The Company's audit committee meets periodically with management, internal
auditors and independent auditors to discuss auditing, internal controls and
compliance matters.
3
The Southern Company Audit Committee provides a broad overview of the Company's
financial reporting and control functions. The Southern Company Audit Committee
reviews and discusses the Company's financial statements with management and the
independent auditors. Such discussions include critical accounting policies and
practices, alternative financial treatments, proposed adjustments and control
recommendations. Such discussions also include significant management judgments
and estimates, reporting or operational issues and changes in accounting
principles, as well as any disagreements with management. The Southern Company
Audit Committee also is responsible for recommending the filing of the Company's
annual financial statements with the SEC.
The Southern Company board of directors amended its Audit Committee Charter in
2003. Under the new charter, the Southern Company Audit Committee has authority
to appoint, compensate and oversee the work of the independent auditors. The new
charter is attached to this Information Statement as Appendix A.
COMPENSATION COMMITTEE:
- Members are Mr. Warr, Chairman; Mr. Dulaney; and Dr. Terrell
- Met one time in 2002
- Oversees the administration of the Company's compensation arrangements
The Company's Compensation Committee reviews and provides input to the Southern
Company Compensation and Management Succession Committee on the performance and
compensation of its chief executive officer and makes recommendations regarding
the fees paid to members of the board of directors.
The Southern Company Compensation and Management Succession Committee approves
the corporate performance goals used to determine incentive compensation and
establishes the mechanism for setting compensation levels for the Company's
executive officers. It also administers executive compensation plans and reviews
management succession plans.
FINANCE COMMITTEE:
- Members are Dr. Lucas, Chairman; Mr. Dulaney; Mr. Garrett; Dr. Khayat;
and Dr. Terrell
- Met four times in 2002
- Reviews the Company's financial affairs and recommends actions to the
board
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The board of directors met four times in 2002. Average director attendance at
all board and committee meetings was 93 percent. Ms. Howard attended less than
75 percent of applicable meetings.
4
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AUDIT COMMITTEE REPORT
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The Audit Committee of Southern Company (the "Committee") oversees the Company's
financial reporting process on behalf of the boards of directors of the Company
and Southern Company. The Company's management has the primary responsibility
for the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the Committee
reviewed the audited financial statements of the Company in the Annual Report
with management. The Committee's review process included discussions of the
quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments and the clarity of disclosures in the
financial statements.
The independent auditors are responsible for expressing an opinion on the
conformity of those audited financial statements with accounting principles
generally accepted in the United States. The Committee reviewed with the
independent auditors their judgments as to the quality, not just the
acceptability, of the Company's accounting principles and such other matters as
are required to be discussed with the Committee under generally accepted
auditing standards. Such discussions also included reviews of critical
accounting policies and practices, acceptable alternative financial treatments,
proposed adjustments and control recommendations. In addition, the Committee has
discussed with the independent auditors their independence from management and
the Company including the matters in the written disclosures required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees." The Committee has also considered whether the independent
auditors' provision of non-audit services to the Company is compatible with
maintaining their independence.
The Committee discussed the overall scopes and plans with the Company's internal
and independent auditors for their respective audits. The Committee meets with
the internal and independent auditors, with and without management present, to
discuss the results of their audits, their evaluations of the Company's internal
controls and the overall quality of the Company's financial reporting. The
Committee held 14 meetings during 2002.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the board of directors of Southern Company (and the board
approved) that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2002 and filed with
the Securities and Exchange Commission. The Committee also reappointed Deloitte
& Touche LLP as the Company's independent auditors for 2003.
Members of the Committee:
L. G. Hardman III, Chairman
Dorrit J. Bern
Donald M. James
Zack T. Pate
J. Neal Purcell
5
PRINCIPAL PUBLIC ACCOUNTING FIRM FEES
The following represents the fees billed to the Company for the last fiscal year
by Deloitte & Touche LLP -- the Company's principal public accountant for 2002:
Audit Fees $229,938
Audit-Related Fees 105,104
Tax Fees 12,797
All Other Fees -
--------
Total $347,839
========
The Southern Company Audit Committee has adopted a Policy on Engagement of the
Independent Auditor for Audit and Non-Audit Services (see Appendix B) that
includes requirements for the Audit Committee to pre-approve audit and non-audit
services provided by Deloitte & Touche LLP.
CHANGE IN PRINCIPAL PUBLIC ACCOUNTING FIRM
On March 28, 2002, the board of directors of Southern Company, upon
recommendation of its Audit Committee, decided not to engage Arthur Andersen LLP
("Arthur Andersen") as the Company's principal public accountants and engaged
Deloitte & Touche LLP ("Deloitte & Touche") to serve as the Company's principal
public accountants for fiscal year 2002.
Arthur Andersen's reports on the financial statements of the Company for the two
fiscal years ended December 31, 2001 did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. Such reports have not been re-issued in
connection with the Company's financial statements included in the annual report
on Form 10-K for the year ended December 31, 2002.
During the Company's two fiscal years ended December 31, 2001, and the
subsequent interim period through March 28, 2002:
- there were no disagreements between the Company and Arthur Andersen on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not
resolved to Arthur Andersen's satisfaction, would have caused them to make
reference to the subject matter of the disagreement in connection with their
reports;
- there were no reportable events as described in Item 304(a)(1)(v) of
Regulation S-K; and
- the Company did not consult Deloitte & Touche with respect to the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered
on the Company's financial statements, or any other matters or reportable
events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
No representative of Deloitte & Touche is expected to be present at the 2003
Annual Meeting of Shareholders unless prior to the day of the meeting the
Company's Corporate Secretary has received written notice from a shareholder
addressed to the Corporate Secretary at Mississippi Power Company, 2992 West
Beach, Gulfport Mississippi, 39501, that such shareholder will attend such
meeting and wishes to ask questions of a representative of Deloitte & Touche.
6
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COMPENSATION AND MANAGEMENT SUCCESSION COMMITTEE REPORT
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WHAT IS THE EXECUTIVE COMPENSATION PHILOSOPHY?
The Southern Company Compensation and Management Succession Committee's intent
is to provide an executive compensation program that is competitive and is tied
to Southern Company's and the Company's short- and long-term performance. With
the objective of maximizing Southern Company shareholder value over time, the
program aligns the interests of executives and Southern Company's shareholders.
TOTAL EXECUTIVE COMPENSATION
HOW IS TOTAL EXECUTIVE COMPENSATION ESTABLISHED?
The Committee retains an independent executive compensation consultant who
provides information on total executive compensation paid at other large
companies in the electric and gas utility industries. Seventeen of these
companies are included in the 27 companies that comprise the S&P Electric
Utility Index. Based on the market data, total executive compensation targets
are set at an appropriate size-adjusted level. This means that for target level
performance, the program is designed to pay executives an amount that is at or
about the median of the market. Total executive compensation is paid through an
appropriate mix of both fixed and performance-based (incentive) compensation.
Because the program focuses on incentive compensation, actual total compensation
paid can be above or below the targets based on actual corporate performance.
WHAT ARE THE COMPONENTS OF TOTAL EXECUTIVE COMPENSATION?
- - Base pay (salary);
- - Short-term incentives (annual performance bonuses); and
- - Long-term incentives.
These are the primary components of the executive compensation program. The
Company does provide certain perquisites that the Committee reviews periodically
to determine if they are reasonable and appropriate. The primary perquisites
provided by the Company are financial planning services, club memberships (for
business use) and home security.
BASE PAY
A range for base pay is determined for each executive, including Mr. Garrett, by
comparing the base pay at the appropriate peer group of companies described
previously. Base pay is set at a level that is at or below the size-adjusted
median paid at those companies because of the emphasis on incentive compensation
in the executive compensation program.
ANNUAL PERFORMANCE BONUSES
Annual bonuses are paid through the Omnibus Incentive Compensation Plan. All
named executive officers participated in this plan in 2002.
PERFORMANCE GOALS
Annual performance bonuses levels are based on the attainment of corporate
performance goals and attainment of the Company's adjusting goals. All
performance goals were set in the first quarter of the year.
For 2002, the corporate performance goals included specific targets for:
- - Southern Company earnings -- earnings per share ("EPS") and
- - Company return on equity ("ROE").
The Committee believes that accomplishing the corporate goals is essential for
the Company's continued success and sustained financial performance. A target
performance level is set for each corporate performance goal. Performance above
or below the targets results in proportionately higher or lower bonus payments.
The bonus amount is then adjusted, up or down, based on the degree of
achievement of the Company's adjusting goals related to such measures as capital
expenditures, cash flow, customer service, plant availability and diversity.
7
A target percentage of base pay is established for each executive officer based
on his or her position level for target-level performance. Annual performance
bonuses based on the achievement of the corporate performance goals, as adjusted
for achievement of the Company's adjusting goals, may range from 0 percent of
the target to 240 percent based on actual corporate performance.
No bonuses are paid if performance is below a threshold level or if a minimum
earnings level is not reached. Also, no bonuses are paid if Southern Company's
current earnings are not sufficient to fund the common stock dividend at the
same level as the prior year.
ANNUAL BONUS PAYMENTS
Mr. Garrett's annual performance bonus under the Omnibus Incentive Compensation
Plan for target-level performance was 60% of his base pay. The target percentage
of base pay for the other named executive officers was 45%. Each individual's
bonus paid for 2002 performance was based 30% on the degree of achievement of
the Southern Company EPS goals and 70% on the degree of achievement of the
Company's ROE goal, both as adjusted for the Company's adjusting goals.
Performance for the goals exceeded the target, resulting in bonus payments to
all named executive officers that exceed their respective targets.
LONG-TERM INCENTIVES
The Committee bases a significant portion of the total compensation program on
long-term incentives including Southern Company stock options and performance
dividend equivalents.
STOCK OPTIONS
Executives are granted options with ten-year terms to purchase Southern
Company's common stock at the market price on the date of the grant under the
terms of the Omnibus Incentive Compensation Plan. The estimated annualized value
represented approximately 26 percent of Mr. Garrett's total target compensation
and 17 to 18 percent for the other named executives. The size of prior grants
was not considered in determining the size of the grants made in 2002. These
options vest over a three-year period.
PERFORMANCE DIVIDENDS
Executives also are paid performance-based dividend equivalents on most stock
options held at the end of the year. Dividend equivalents can range from 25
percent of the common stock dividend paid during the year if total shareholder
return over a four-year period, compared to a group of other utility companies,
is at the 30th percentile to 100 percent of the dividend paid if it reaches the
90th percentile. For eligible stock options held on December 31, 2002, all
executives received a payout of $1.355 per option for maximum performance under
the Omnibus Incentive Compensation Plan.
POLICY ON INCOME TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
limits the deductibility of certain executives' compensation that exceeds $1
million per year unless the compensation is paid under a performance-based plan
as defined in the Code and that has been approved by shareholders. Southern
Company has obtained shareholder approval of the Omnibus Incentive Compensation
Plan. However, because our policy is to maximize long-term shareholder value,
tax deductibility is only one factor considered in setting compensation.
SUMMARY
The Committee believes that the policies and programs described in this report
link pay and performance and serve the best interest of Southern Company's
shareholders. We frequently review the various pay plans and policies and modify
them as we deem necessary to continue to attract, retain and motivate talented
executives.
Members of the Committee:
G.J. St. Pe, Chairman
D.P. Amos
T.F. Chapman
8
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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The Southern Company Compensation and Management Succession Committee is made up
of non-employee directors who have never served as executive officers of
Southern Company or the Company. During 2002, none of Southern Company's or the
Company's executive officers served on the board of directors of any entities
whose directors or officers serve on the Southern Company Compensation and
Management Succession Committee.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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Mr. Schloegel is president and chief executive officer of Hancock Bank,
Gulfport, Mississippi. During 2002, Hancock Bank furnished a number of regular
banking services in the ordinary course of business to the Company. The Company
intends to maintain normal banking relations with Hancock Bank in the future.
9
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EXECUTIVE COMPENSATION INFORMATION
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EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company has adopted Southern Company's Change in Control Plan, which is
applicable to certain of its officers, and has entered into an individual change
in control agreement with Mr. Garrett. If an executive is involuntarily
terminated, other than for cause, within two years following a change in control
of Southern Company or the Company, the agreements provide for:
- lump sum payment of two or three times annual compensation,
- up to five years' coverage under group health and life insurance plans,
- immediate vesting of all stock options, stock appreciation rights and
restricted stock previously granted,
- payment of any accrued long-term and short-term bonuses and dividend
equivalents and
- payment of any excise tax liability incurred as a result of payments
made under any individual agreements.
A Southern Company change in control is defined under the agreements as:
- acquisition of at least 20 percent of Southern Company's stock,
- a change in the majority of the members of Southern Company's board of
directors,
- a merger or other business combination that results in Southern
Company's shareholders immediately before the merger owning less than 65
percent of the voting power after the merger or
- a sale of substantially all the assets of Southern Company.
A change in control of the Company is defined under the agreements as:
- acquisition of at least 50 percent of the Company's stock,
- a merger or other business combination unless Southern Company controls
the surviving entity or
- a sale of substantially all of the assets of the Company.
Southern Company's Omnibus Incentive Compensation Plan provides for pro-rata
payments at not less than target-level performance if a change in control occurs
and the plan is not continued or replaced with a comparable plan or plans.
10
SUMMARY COMPENSATION TABLE
The following table shows information concerning the chief executive officer and
the other four most highly compensated executive officers of the Company serving
during 2002.
<Table>
<Caption>
LONG-TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION NUMBER OF
-------------------------------------------- RESTRICTED SECURITIES LONG-TERM
OTHER ANNUAL STOCK UNDERLYING INCENTIVE ALL OTHER
NAME AND PRINCIPAL COMPENSATION OWNERSHIP STOCK OPTIONS PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($) ($) (SHARES) ($)(1) ($)(2)
- ---------------------------------------------------------------------------------------------------------------------------------
MICHAEL D. GARRETT(3) 2002 337,163 433,498 9,854 - 50,478 200,326 16,698
President, Chief Executive 2001 309,194 370,090 11,876 - 60,556 194,297 44,133
Officer, Director 2000 - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
H. E. BLAKESLEE 2002 233,564 224,449 18,529 - 22,402 155,313 36,187
Vice President 2001 224,617 195,312 6,756 - 59,281 168,509 10,857
2000 216,012 169,775 8,929 - 18,711 37,752 10,489
- ---------------------------------------------------------------------------------------------------------------------------------
DON E. MASON 2002 222,856 219,927 17,588 - 21,950 182,925 36,161
Vice President 2001 220,091 182,261 2,702 - 52,771 169,635 10,648
2000 211,662 195,502 1,702 - 18,334 36,992 10,261
- ---------------------------------------------------------------------------------------------------------------------------------
MICHAEL W. SOUTHERN 2002 207,266 199,528 14,814 - 19,914 119,748 30,480
Vice President, Treasurer, 2001 197,478 171,970 10,217 - 41,156 133,400 19,554
Chief Financial Officer 2000 188,300 144,266 8,457 - 14,296 29,739 9,141
- ---------------------------------------------------------------------------------------------------------------------------------
GENE L. USSERY, JR. 2002 204,236 177,887 12,244 - 19,067 111,853 25,671
Vice President 2001 189,361 132,964 17,095 - 34,151 104,576 23,988
2000 171,197 126,070 616 - 12,780 24,928 8,434
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Payout of performance dividend equivalents on stock options granted after
1996 that were held by the executive at the end of the performance periods
under the Omnibus Incentive Compensation Plan for the four-year performance
periods ended December 31, 2000, 2001 and 2002, respectively. Dividend
equivalents can range from 25 percent of the common stock dividend paid
during the last year of the performance period if total shareholder return
over the four-year period, compared to a group of other large utility
companies, is at the 30th percentile to 100 percent of the dividend paid if
it reaches the 90th percentile. The Southern Company Compensation and
Management Succession Committee can increase the payout of performance
dividends by up to 200 percent if necessary to maintain the competitiveness
of Southern Company's executive compensation program. For eligible stock
options held on December 31, 2000, 2001 and 2002, all named executives
received a payout of $.90, $1.34 and $1.355 per option, respectively.
(2) Company contributions in 2002 to the Employee Savings Plan (ESP), Employee
Stock Ownership Plan (ESOP), non-pension related accruals under the
Supplemental Benefit Plan (SBP) and tax sharing benefits paid to
participants who elected receipt of dividends on shares of Southern
Company's common stock held in the ESP are provided in the following table:
NAME ESP ESOP SBP
- -------------------------------------------------------------------------------
Michael D. Garrett $6,325 $701 $9,672
- -------------------------------------------------------------------------------
H. E. Blakeslee 6,240 701 4,246
- -------------------------------------------------------------------------------
Don E. Mason 6,828 701 3,632
- -------------------------------------------------------------------------------
Michael W. Southern 6,992 701 2,787
- -------------------------------------------------------------------------------
Gene L. Ussery, Jr. 7,639 701 2,331
- -------------------------------------------------------------------------------
In 2002, these amounts for Messrs. Blakeslee, Mason, Southern and Ussery
included additional incentive compensation of $25,000, $25,000, $20,000 and
$15,000, respectively.
(3) On May 1, 2001, Mr. Garrett became president and chief executive officer of
the Company.
11
STOCK OPTION GRANTS IN 2002
The following table shows all stock option grants to the named executive
officers of the Company during the year ending December 31, 2002.
<Table>
<Caption>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR GRANT DATE
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR(2) ($/SH)(1) DATE(1) VALUE($)(3)
- --------------------------------------------------------------------------------------------------------
Michael D. Garrett 50,478 13.6 25.66 02/15/2012 170,111
- --------------------------------------------------------------------------------------------------------
H. E. Blakeslee 22,402 6.0 25.26 02/15/2012 75,495
- --------------------------------------------------------------------------------------------------------
Don E. Mason 21,950 5.9 25.26 02/15/2012 73,972
- --------------------------------------------------------------------------------------------------------
Michael E. Southern 19,914 5.4 25.26 02/15/2012 67,110
- --------------------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. 19,067 5.1 25.26 02/15/2012 64,256
- --------------------------------------------------------------------------------------------------------
</Table>
(1) Under the terms of the Omnibus Incentive Compensation Plan, stock options
grants were made on February 15, 2002 and vest annually at a rate of
one-third on the anniversary date of the grant. Grants fully vest upon
termination as a result of death, total disability or retirement and expire
five years after retirement, three years after death or total disability, or
their normal expiration date if earlier. The exercise price is the average
of the high and low price of Southern Company's common stock on the date
granted. Options may be transferred to certain family members, family trusts
and family limited partnerships.
(2) A total of 370,720 stock options were granted in 2002.
(3) Value was calculated using the Black-Scholes option valuation model. The
actual value, if any, ultimately realized depends on the market value of
Southern Company's common stock at a future date. Significant assumptions
are shown below:
- --------------------------------------------------
RISK-FREE DIVIDEND EXPECTED
VOLATILITY RATE OF RETURN YIELD TERM
- --------------------------------------------------
26.34% 2.79% 4.63% 4.28 years
- --------------------------------------------------
AGGREGATED STOCK OPTION EXERCISES IN 2002 AND YEAR-END OPTION VALUES
The following table sets forth information concerning options exercised during
the year ending December 31, 2002 by the named executive officers and the value
of unexercised options held by them as of December 31, 2002.
<Table>
<Caption>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES VALUE OPTIONS AT YEAR-END(#) YEAR-END($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------------------------
Michael D. Garrett 47,636 585,742 44,225 103,617 484,397 642,384
- ----------------------------------------------------------------------------------------------------------------------
H. E. Blakeslee 33,533 430,784 42,816 71,806 409,125 494,400
- ----------------------------------------------------------------------------------------------------------------------
Don E. Mason 13,543 199,712 68,186 66,814 785,393 463,282
- ----------------------------------------------------------------------------------------------------------------------
Michael W. Southern 31,091 423,448 33,473 54,902 329,124 370,376
- ----------------------------------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. 14,561 187,668 33,963 48,585 378,210 327,156
- ----------------------------------------------------------------------------------------------------------------------
</Table>
(1) The "Value Realized" is ordinary income, before taxes, and represents the
amount equal to the excess of the fair market value of the shares at the
time of exercise above the exercise price.
(2) These columns represent the excess of the fair market value of Southern
Company common stock of $28.39 per share, as of December 31, 2002, above the
exercise price of the options. The amounts under the Exercisable column
report the "value" of options that are vested and therefore could be
exercised. The amounts under the Unexercisable column report the "value" of
options that are not vested and therefore could not be exercised as of
December 31, 2002.
12
DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
The following table shows the estimated annual pension benefits payable at
normal retirement age under Southern Company's qualified Pension Plan, as well
as non-qualified supplemental benefits, based on the stated compensation and
years of service with the Southern Company system for the named executive
officers of the Company. Compensation for pension purposes is limited to the
average of the highest three of the final 10 years' compensation. Compensation
is base salary plus the excess of annual incentive compensation over 15 percent
of base salary. The compensation components are reported under columns titled
"Salary" and "Bonus" in the Summary Compensation Table on page 11.
The amounts shown in the table were calculated according to the final average
pay formula and are based on a single life annuity without reduction for joint
and survivor annuities or computation of the Social Security offset which would
apply in most cases.
<Table>
<Caption>
YEARS OF ACCREDITED SERVICE
-----------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40
- -------------------------------------------------------------------------------
$ 100,000 $ 25,500 $ 34,000 $ 42,500 $ 51,000 $ 59,500 $ 68,000
300,000 76,500 102,000 127,500 153,000 178,500 204,000
500,000 127,500 170,000 212,500 255,000 297,500 340,000
700,000 178,500 238,000 297,500 357,000 416,500 476,000
900,000 229,500 306,000 382,500 459,000 535,500 612,000
1,100,000 280,500 374,000 467,500 561,000 654,500 748,000
1,300,000 331,500 442,000 552,500 663,000 773,500 884,000
1,500,000 382,500 510,000 637,500 765,000 892,500 1,020,000
</Table>
As of December 31, 2002, the applicable compensation levels and accredited
service for determination of pension benefits would have been:
<Table>
<Caption>
COMPENSATION ACCREDITED
NAME LEVEL YEARS OF SERVICE
- ---------------------------------------------------------------------------------------------
Michael D. Garrett $598,839 34
- ---------------------------------------------------------------------------------------------
H. E. Blakeslee 380,390 37
- ---------------------------------------------------------------------------------------------
Don E. Mason 372,726 36
- ---------------------------------------------------------------------------------------------
Michael W. Southern 338,702 27
- ---------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. 311,212 34
- ---------------------------------------------------------------------------------------------
</Table>
13
- --------------------------------------------------------------------------------
STOCK OWNERSHIP TABLE
- --------------------------------------------------------------------------------
Southern Company is the beneficial owner of 100% of the outstanding common stock
of the Company. The following table shows the number of shares of Southern
Company common stock owned by directors, nominees and executive officers as of
December 31, 2002. It is based on information furnished by the directors,
nominees and executive officers. The shares owned by all directors, nominees and
executive officers as a group constitute less than one percent of the total
number of shares of Southern Company common stock outstanding on December 31,
2002.
<Table>
<Caption>
SHARES BENEFICIALLY
OWNED INCLUDE:
-------------------
SHARES
INDIVIDUALS
SHARES HAVE RIGHTS TO
NAME OF DIRECTORS, NOMINEES BENEFICIALLY ACQUIRE
AND EXECUTIVE OFFICERS OWNED(1) WITHIN 60 DAYS(2)
- ------------------------------------------------------------------------------------------------
Thomas E. Dulaney 1,333
- ------------------------------------------------------------------------------------------------
Michael D. Garrett 84,434 84,034
- ------------------------------------------------------------------------------------------------
Linda T. Howard 914
- ------------------------------------------------------------------------------------------------
Robert C. Khayat 57
- ------------------------------------------------------------------------------------------------
Aubrey K. Lucas 4,194
- ------------------------------------------------------------------------------------------------
George A. Schloegel 1,759
- ------------------------------------------------------------------------------------------------
Phillip J. Terrell 1,625
- ------------------------------------------------------------------------------------------------
E. Eugene Warr 2,428
- ------------------------------------------------------------------------------------------------
H. E. Blakeslee 29,428 25,258
- ------------------------------------------------------------------------------------------------
Don E. Mason 115,898 92,933
- ------------------------------------------------------------------------------------------------
Michael W. Southern 59,114 53,753
- ------------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. 55,175 52,901
- ------------------------------------------------------------------------------------------------
Directors, Nominees and Executive Officers as a group 355,026 308,879
- ------------------------------------------------------------------------------------------------
</Table>
(1) "Beneficial ownership" means the sole or shared power to vote, or to direct
the voting of, a security, or investment power with respect to a security,
or any combination thereof.
(2) Indicates shares of Southern Company's common stock that certain executive
officers have the right to acquire within 60 days. Shares indicated are
included in the Shares Beneficially Owned column.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
No reporting person of the Company failed to file, on a timely basis, the
reports required by Section 16(a).
14
APPENDIX A
SOUTHERN COMPANY
AUDIT COMMITTEE CHARTER
This Charter identifies the composition, purpose, authority, meeting
requirements and responsibilities of the Southern Company (the Company) Audit
Committee (the Committee) as approved by the Southern Company Board of Directors
(the Board).
I. COMPOSITION
The Committee will be comprised of at least three independent members of the
Board, each of whom will be financially literate. A deliberate effort will
be made to include at least one Director who is a financial expert. The
selection of Committee members will be in accordance with requirements for
independence and financial literacy and expertise, as interpreted by the
Board in its best business judgment, giving full consideration to the rules
of the Securities and Exchange Commission (SEC) and the New York Stock
Exchange.
II. PURPOSE
To assist the Board of Directors in fulfilling its oversight
responsibilities for the following:
A. Integrity of the financial reporting process;
B. The system of internal control;
C. The independence and performance of the internal and independent audit
process; and
D. The Company's process for monitoring adherence with the spirit and
intent of its Code of Ethics and compliance with laws and regulations.
III. AUTHORITY
The Audit Committee has authority to conduct or authorize investigations
into any matters within its scope of responsibility. It is empowered to:
A. Appoint, compensate, and oversee the work of the independent auditors.
B. Resolve any disagreements between management and the independent
auditors regarding financial reporting.
C. Pre-approve all auditing and non-audit services provided by the
independent auditors.
D. Retain independent counsel, accountants, or others to advise the
committee or assist in the conduct of an investigation.
E. Seek any information it requires from employees -- all of whom are
directed to cooperate with the Committee's requests -- or external
parties.
F. Meet with Company officers, independent auditors, internal auditors,
inside counsel or outside counsel, as necessary.
In the execution of its duties, the Committee will report to the Board of
Directors.
IV. MEETING REQUIREMENTS
The Committee shall meet a minimum of four times each year, or more often
if warranted, to receive reports and to discuss the quarterly and annual
financial statements, including disclosures and other related information.
The Committee shall meet separately, at least annually, with Company
management, the Director of Internal Auditing, the Compliance Officer, and
the independent auditors to discuss matters that the Committee or any of
these persons believe should be discussed privately. Meetings of the
Committee may utilize conference call, Internet or other similar electronic
communication technology.
V. RESPONSIBILITIES
A. Financial Reporting and Independent Audit Process -
The oversight responsibility of the Committee in the area of financial
reporting is to provide reasonable assurance that the Company's financial
disclosures and accounting practices accurately portray the financial
condition, results of operations, cash flows, plans and long-term
commitments of the Company
A-1
on a consolidated basis, as well as on a separate company basis for
each consolidated subsidiary that has publicly traded securities. To
accomplish this, the Committee will:
1. Provide oversight of the independent audit process, including
direct responsibility for:
a. Annual appointment of the independent auditors.
b. Compensation of the independent auditors.
c. Review and confirmation of the independence of the external
auditors by obtaining statements from the auditors on
relationships between the auditors and the Company, including
non-audit services, and discussing the relationships with the
auditors. Ensure that non-audit services provided by the
independent auditors comply with and are disclosed to investors
in periodic reports required by the Securities Exchange Act of
1934 and the Sarbanes-Oxley Act of 2002.
d. Review of the independent auditors' quarterly and annual work
plans, and results of audit engagements.
e. Review of the experience and qualifications of the senior
members of the independent audit team annually and ensure that
all partner rotation requirements are executed.
f. Evaluation of the independent auditors' performance.
g. Oversight of the coordination of the independent auditors'
activities with the Internal Auditing and Accounting functions.
2. Review and discuss with management the quarterly and annual
consolidated earnings announcements and earnings guidance provided
to analysts and rating agencies.
3. Review and discuss with management and the independent auditors the
quarterly and annual financial statements (including disclosures
under Management's Discussion and Analysis of Financial Condition
and Results of Operations) and recommend the reports for filing
with the SEC. The financial statements include the Southern Company
consolidated financial statements as well as the separate financial
statements for all consolidated subsidiaries with publicly traded
securities.
a. The review and discussion will be based on timely reports from
the independent auditors, including:
i. All critical accounting policies and practices to be used.
ii. All alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management; ramifications of the use of such
alternative disclosures and treatments, and the treatment
preferred by the independent auditors.
iii. Other material written communications between the
independent auditors and management, such as any management
letter or schedule of unadjusted differences.
b. In addition, the following items will also be reviewed and
discussed:
i. Significant judgments and estimates made by management.
ii. Significant reporting or operational issues identified
during the reporting period, including how they were
resolved.
iii. Issues on which management sought second accounting
opinions.
iv. Significant regulatory changes and accounting and reporting
developments proposed by Financial Accounting Standards
Board, SEC or other regulatory agency.
v. Any audit problems or difficulties and management's response.
4. Review the letter of management representations given to the
independent auditors in connection with the audit of the annual
financial statements.
A-2
B. Internal Control -- The responsibility of the Committee in the area of
internal control, in addition to the actions described in Section
(V).(A.)., is to:
1. Provide oversight of the internal audit function including:
a. Review of audit plans, budgets and staffing levels.
b. Review of audit results.
c. Review of management's appointment, appraisal of, and/or removal
of the Company's Director of Internal Auditing. At least every
two years, regardless of the performance of the incumbent, the
President and Chief Executive Officer will review with the
Committee the merits of reassigning the Director of Internal
Auditing.
2. Assess management's response to any reported weaknesses or
compliance deficiencies.
3. Provide oversight of the Company's Legal and Regulatory Compliance
and Ethics Programs, including:
a. Creation and maintenance of procedures for:
i. Receipt, retention and treatment of complaints received by
management regarding accounting, internal accounting controls
or audit matters.
ii. Confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.
b. Review of plans and activities of the Company's Corporate
Compliance Officer.
c. Review of results of auditing or other monitoring programs
designed to prevent or detect violations of laws or regulations.
d. Review of corporate policies relating to compliance with laws
and regulations, ethics, conflict of interest and the
investigation of misconduct or fraud.
e. Review of reported cases of employee fraud, conflict of
interest, unethical or illegal conduct.
4. Review the quality assurance practices of the internal auditing
function and the independent auditors.
5. Review and discuss significant risks facing the Company and the
guidelines and policies to govern the process by which risk
assessment and risk management is undertaken.
C. Conduct an annual self-assessment of the Committee's performance.
D. Other
1. Set clear employment policies for Southern Company's hiring of
employees or former employees of the independent auditors.
2. Report Committee activities and findings to the Board on a regular
basis.
3. Report Committee activities in the Company's annual proxy statement
to shareholders.
4. Review this charter at least annually and recommend appropriate
changes.
ADOPTED ON FEBRUARY 17, 2003
BY THE SOUTHERN COMPANY
BOARD OF DIRECTORS
A-3
APPENDIX B
SOUTHERN COMPANY
POLICY ON ENGAGEMENT OF THE INDEPENDENT AUDITOR
FOR AUDIT AND NON-AUDIT SERVICES
A. Southern Company (including its subsidiaries) will not engage the
independent auditor to perform any services that are prohibited by the
Sarbanes-Oxley Act of 2002. It shall further be the policy of the Company
not to retain the independent auditor for non-audit services unless there is
a compelling reason to do so and such retention is otherwise pre-approved
consistent with this policy. Non-audit services that are prohibited include:
1. Bookkeeping and other services related to the preparation of
accounting records or financial statements of the Company or its
subsidiaries.
2. Financial information systems design and implementation.
3. Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports.
4. Actuarial services.
5. Internal audit outsourcing services.
6. Management functions or human resources.
7. Broker or dealer, investment adviser, or investment banking services.
8. Legal services or expert services unrelated to financial statement
audits.
9. Any other service that the Public Company Accounting Oversight Board
determines, by regulation, is impermissible.
B. Effective January 1, 2003, officers of the Company (including its
subsidiaries) may not engage the independent auditor to perform any personal
services, such as personal financial planning or personal income tax
services.
C. All audit services (including providing comfort letters and consents in
connection with securities issuances) and permissible non-audit services
provided by the independent auditor must be pre-approved by the Southern
Company Audit Committee.
D. Under this Policy, the Audit Committee's approval of the independent
auditor's annual arrangements letter shall constitute pre-approval for all
services covered in the letter.
E. By adopting this Policy, the Audit Committee hereby pre-approves the
engagement of the independent auditor to provide services related to the
issuance of comfort letters and consents required for securities sales by
the Company and its subsidiaries and services related to consultation on
routine accounting and tax matters. The actual amounts expended for such
services each calendar quarter shall be reported to the Committee at a
subsequent Committee meeting.
F. The Audit Committee also delegates to its Chairman the authority to grant
pre-approvals for the engagement of the independent auditor to provide any
permissible service up to a limit of $50,000 per engagement. Any engagements
pre-approved by the Chairman shall be presented to the full Committee at its
next scheduled regular meeting.
G. The Southern Company Comptroller shall establish processes and procedures to
carry out this Policy.
Approved by the Southern Company Audit Committee
December 9, 2002
B-1
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