===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____to_____
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
1-3526 The Southern Company 58-0690070
(A Delaware Corporation)
270 Peachtree Street, N.W.
Atlanta, Georgia 30303
(404) 506-5000
1-3164 Alabama Power Company 63-0004250
(An Alabama Corporation)
600 North 18th Street
Birmingham, Alabama 35291
(205) 257-1000
1-6468 Georgia Power Company 58-0257110
(A Georgia Corporation)
241 Ralph McGill Boulevard, N.E.
Atlanta, Georgia 30308
(404) 506-6526
0-2429 Gulf Power Company 59-0276810
(A Maine Corporation)
One Energy Place
Pensacola, Florida 32520
(850) 444-6111
001-11229 Mississippi Power Company 64-0205820
(A Mississippi Corporation)
2992 West Beach
Gulfport, Mississippi 39501
(228) 864-1211
1-5072 Savannah Electric and Power Company 58-0418070
(A Georgia Corporation)
600 East Bay Street
Savannah, Georgia 31401
(912) 644-7171
==================================== ========================================
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No____
Description of Shares Outstanding
Registrant Common Stock at April 30, 2002
The Southern Company Par Value $5 Per Share 704,486,641
Alabama Power Company Par Value $40 Per Share 6,000,000
Georgia Power Company No Par Value 7,761,500
Gulf Power Company No Par Value 992,717
Mississippi Power Company Without Par Value 1,121,000
Savannah Electric and Power Company Par Value $5 Per Share 10,844,635
This combined Form 10-Q is separately filed by The Southern Company,
Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi
Power Company and Savannah Electric and Power Company. Information contained
herein relating to any individual company is filed by such company on its own
behalf. Each company makes no representation as to information relating to the
other companies.
2
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2002
Page
Number
DEFINITIONS........................................................................................................ 4
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
The Southern Company and Subsidiary Companies
Condensed Consolidated Statements of Income........................................................ 7
Condensed Consolidated Statements of Cash Flows.................................................... 8
Condensed Consolidated Balance Sheets.............................................................. 9
Condensed Consolidated Statements of Comprehensive Income and
Accumulated Other Comprehensive Income.......................................................... 11
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 12
Alabama Power Company
Condensed Statements of Income..................................................................... 20
Condensed Statements of Cash Flows................................................................. 21
Condensed Balance Sheets........................................................................... 22
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 24
Georgia Power Company
Condensed Statements of Income..................................................................... 30
Condensed Statements of Cash Flows................................................................. 31
Condensed Balance Sheets........................................................................... 32
Condensed Statements of Comprehensive Income and Accumulated
Other Comprehensive Income..................................................................... 34
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 35
Gulf Power Company
Condensed Statements of Income..................................................................... 41
Condensed Statements of Cash Flows................................................................. 42
Condensed Balance Sheets........................................................................... 43
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 45
Mississippi Power Company
Condensed Statements of Income..................................................................... 51
Condensed Statements of Cash Flows................................................................. 52
Condensed Balance Sheets........................................................................... 53
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 55
Savannah Electric and Power Company
Condensed Statements of Income..................................................................... 62
Condensed Statements of Cash Flows................................................................. 63
Condensed Balance Sheets........................................................................... 64
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 66
Notes to the Condensed Financial Statements........................................................... 71
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................................ 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................... 76
Item 2. Changes in Securities and Use of Proceeds................................................................. Inapplicable
Item 3. Defaults Upon Senior Securities........................................................................... Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders....................................................... Inapplicable
Item 5. Other Information......................................................................................... Inapplicable
Item 6. Exhibits and Reports on Form 8-K.......................................................................... 76
Signatures ............................................................................................... 77
3
DEFINITIONS
TERM MEANING
ALABAMA..................................... Alabama Power Company
Clean Air Act .............................. Clean Air Act Amendments of 1990
ECO Plan.................................... Environmental Compliance Overview Plan
Energy Act.................................. Energy Policy Act of 1992
EPA......................................... U. S. Environmental Protection Agency
FASB........................................ Financial Accounting Standards Board
FERC........................................ Federal Energy Regulatory Commission
Form 10-K................................... Combined Annual Report on Form 10-K of SOUTHERN, ALABAMA,
GEORGIA, GULF, MISSISSIPPI and SAVANNAH for the year ended
December 31, 2001
GEORGIA..................................... Georgia Power Company
GULF........................................ Gulf Power Company
ISA......................................... Independent System Administrator
Mirant...................................... Mirant Corporation
MISSISSIPPI................................. Mississippi Power Company
Mobile Energy............................... Mobile Energy Services Company, L.L.C. and Mobile Energy Services
Holdings, Inc.
operating companies......................... ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH
PEP......................................... Performance Evaluation Plan
PSC......................................... Public Service Commission
RTO......................................... Regional Transmission Organization
SAVANNAH.................................... Savannah Electric and Power Company
SCS......................................... Southern Company Services, Inc.
SEC......................................... Securities and Exchange CommissionSOUTHERN
The Southern Company
Southern Power.............................. Southern Power Company
SOUTHERN system............................. SOUTHERN, the operating companies and other subsidiaries
TVA......................................... Tennessee Valley Authority
4
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking and historical
information. In some cases, forward-looking statements can be identified by
terminology such as "may," "will," "could," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "projects," "predicts," "potential" or
"continue" or the negative of these terms or other comparable terminology.
SOUTHERN cautions that there are various important factors that could cause
actual results to differ materially from those indicated in the forward-looking
statements; accordingly, there can be no assurance that such indicated results
will be realized. These factors include the impact of recent and future federal
and state regulatory change, including legislative and regulatory initiatives
regarding deregulation and restructuring of the electric utility industry and
also changes in environmental and other laws and regulations to which SOUTHERN
and its subsidiaries are subject, as well as changes in application of existing
laws and regulations; current and future litigation, including the pending EPA
civil action against certain SOUTHERN subsidiaries and the race discrimination
litigation against certain SOUTHERN subsidiaries; the effect, extent and timing
of the entry of additional competition in the markets in which SOUTHERN's
subsidiaries operate; the impact of fluctuations in commodity prices, interest
rates, and customer demand; state and federal rate regulations; political,
legal, and economic conditions and developments in the United States; the
performance of projects undertaken by the non-traditional business and the
success of efforts to invest in and develop new opportunities; internal
restructuring or other restructuring options that may be pursued; potential
business strategies, including acquisitions or dispositions of assets or
business, which cannot be assured to be completed or beneficial to SOUTHERN or
its subsidiaries; the effects of, and changes in, economic conditions in the
areas in which SOUTHERN's subsidiaries operate; the direct and indirect effects
on SOUTHERN's business resulting from the terrorist incidents on September 11,
2001, or any similar such incidents or responses to such incidents; financial
market conditions and the results of financing efforts; the timing and
acceptance of SOUTHERN's new product and service offerings; the ability of
SOUTHERN to obtain additional generating capacity at competitive prices; weather
and other natural phenomena; and other factors discussed elsewhere herein and in
other reports (including the Form 10-K) filed from time to time with the SEC.
5
.
THE SOUTHERN COMPANY
AND SUBSIDIARY COMPANIES
6
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months
Ended March 31,
2002 2001
-----------------------------------
(in thousands)
Operating Revenues:
Retail sales $1,843,719 $1,885,745
Sales for resale 232,679 260,046
Other revenues 137,190 123,727
---------------- -----------------
Total operating revenues 2,213,588 2,269,518
---------------- -----------------
Operating Expenses:
Fuel 574,193 607,481
Purchased power 67,617 114,026
Other operations 445,252 405,431
Maintenance 228,790 225,857
Depreciation and amortization 240,389 303,666
Taxes other than income taxes 139,847 137,309
---------------- -----------------
Total operating expenses 1,696,088 1,793,770
---------------- -----------------
Operating Income 517,500 475,748
Other Income:
Interest income 4,803 5,810
Equity in losses of unconsolidated subsidiaries (15,904) (2,697)
Other, net 1,734 2,604
---------------- -----------------
Earnings From Continuing Operations
Before Interest and Income Taxes 508,133 481,465
---------------- -----------------
Interest and Other:
Interest expense, net 120,553 145,732
Distributions on capital and preferred
securities of subsidiaries 42,527 42,241
Preferred dividends of subsidiaries 4,381 4,805
---------------- -----------------
Total interest and other 167,461 192,778
---------------- -----------------
Earnings From Continuing Operations Before
Income Taxes 340,672 288,687
Income taxes 116,386 109,944
---------------- -----------------
Earnings From Continuing Operations Before
Cumulative Effect of Accounting Change 224,286 178,743
Cumulative effect of accounting change --
less income taxes of $477 - 770
---------------- -----------------
Earnings From Continuing Operations 224,286 179,513
Earnings from discontinued operations, net of income
taxes of $91,752 for the three months ended 2001 - 140,032
---------------- -----------------
Consolidated Net Income $224,286 $319,545
================ =================
Common Stock Data:
Basic earnings per share of common stock --
Earnings per share from continuing operations $0.32 $0.26
Earnings per share from discontinued operations $0.00 $0.21
---------------- -----------------
Consolidated Basic Earnings Per Share $0.32 $0.47
================ =================
Diluted earnings per share of common stock --
Earnings per share from continuing operations $0.32 $0.26
Earnings per share from discontinued operations $0.00 $0.21
---------------- -----------------
Consolidated Diluted Earnings Per Share $0.32 $0.47
================ =================
Average number of basic shares of common
stock outstanding (in thousands) 701,012 682,575
Average number of diluted shares of common
stock outstanding (in thousands) 706,298 684,968
Cash dividends paid per share of common stock $0.335 $0.335
The accompanying notes as they relate to SOUTHERN are an
integral part of these statements.
7
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months
Ended March 31,
2002 2001
---------------------------------
(in thousands)
Operating Activities:
Consolidated net income $224,286 $319,545
Adjustments to reconcile consolidated net income
to net cash provided from operating activities --
Less income from discontinued operations - 140,032
Depreciation and amortization 274,523 327,793
Deferred income taxes and investment tax credits (15,219) (30,355)
Equity in losses of unconsolidated subsidiaries 16,881 2,697
Other, net 10,364 (344,997)
Changes in certain current assets and liabilities --
Receivables, net 196,907 324,046
Fossil fuel stock (235) (134,413)
Materials and supplies 6,779 533
Accounts payable (143,787) (209,598)
Other (125,517) 6,176
--------------- -----------------
Net cash provided from operating activities of continuing operations 444,982 121,395
--------------- -----------------
Investing Activities:
Gross property additions (680,155) (670,183)
Other (100,705) (76,900)
--------------- -----------------
Net cash used for investing activities of continuing operations (780,860) (747,083)
--------------- -----------------
Financing Activities:
Increase (decrease) in notes payable, net (85,020) 197,365
Proceeds --
Other long-term debt 842,972 458,582
Capital and preferred securities 35,000 -
Common stock 125,882 87,880
Redemptions --
First mortgage bonds (6,794) (200,000)
Other long-term debt (397,075) (6,145)
Payment of common stock dividends (234,272) (228,320)
Other (2,744) (5,777)
--------------- -----------------
Net cash provided from financing activities of continuing operations 277,949 303,585
--------------- -----------------
Cash provided by discontinued operations - 302,668
--------------- -----------------
Net Decrease in Cash and Cash Equivalents (57,929) (19,435)
Cash and Cash Equivalents at Beginning of Period 354,015 199,191
--------------- -----------------
Cash and Cash Equivalents at End of Period $296,086 $179,756
=============== =================
Supplemental Cash Flow Information From Continuing Operations:
Cash paid during the period for --
Interest (net of amount capitalized) $82,315 $144,450
Income taxes (net of refunds) $57,638 ($4,069)
The accompanying notes as they relate to SOUTHERN are an
integral part of these statements.
8
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Assets 2002 2001
- ------
--------------------------------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 296,086 $ 354,015
Receivables, less accumulated provisions for uncollectible accounts
of $23,995 at March 31, 2002 and $24,383
at December 31, 2001 1,053,248 1,146,263
Under recovered retail fuel clause revenue 167,889 280,003
Fossil fuel stock, at average cost 394,692 394,457
Materials and supplies, at average cost 543,438 550,217
Other 294,823 231,425
----------------- -------------------
Total current assets 2,750,176 2,956,380
----------------- -------------------
Property, Plant, and Equipment:
In service 36,009,565 35,813,369
Less accumulated depreciation 15,230,450 15,020,415
----------------- -------------------
20,779,115 20,792,954
Nuclear fuel, at amortized cost 191,837 201,548
Construction work in progress 2,513,586 2,089,259
----------------- -------------------
Property, plant, and equipment 23,484,538 23,083,761
----------------- -------------------
Other Property and Investments:
Nuclear decommissioning trusts, at fair value 698,652 681,688
Leveraged leases 670,009 655,308
Other 219,171 193,055
----------------- -------------------
Total other property and investments 1,587,832 1,530,051
----------------- -------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes 917,401 924,139
Prepaid pension costs 675,179 641,099
Debt expense, being amortized 102,109 102,768
Premium on reacquired debt, being amortized 274,277 279,800
Other 405,492 389,867
----------------- -------------------
Total deferred charges and other assets 2,374,458 2,337,673
----------------- -------------------
Total Assets $30,197,004 $29,907,865
================= ===================
The accompanying notes as they relate to SOUTHERN are an
integral part of these statements.
9
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Liabilities and Stockholders' Equity 2002 2001
- ------------------------------------
-------------------------------------
(in thousands)
Current Liabilities:
Securities due within one year $ 267,547 $ 428,671
Notes payable 1,817,292 1,902,312
Accounts payable 649,472 833,860
Customer deposits 158,303 152,579
Taxes accrued --
Income taxes 221,119 159,764
Other 117,784 193,735
Interest accrued 174,307 117,959
Vacation pay accrued 124,317 124,608
Other 362,810 473,369
---------------- -------------------
Total current liabilities 3,892,951 4,386,857
---------------- -------------------
Long-term debt 8,931,746 8,296,878
---------------- -------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 4,092,707 4,097,403
Deferred credits related to income taxes 488,833 500,151
Accumulated deferred investment tax credits 627,153 634,020
Employee benefits provisions 543,040 532,515
Prepaid capacity revenues 39,099 40,730
Other 831,223 790,961
---------------- -------------------
Total deferred credits and other liabilities 6,622,055 6,595,780
---------------- -------------------
Company or subsidiary obligated mandatorily redeemable
capital and preferred securities 2,276,250 2,276,250
---------------- -------------------
Cumulative preferred stock of subsidiaries 368,126 368,126
---------------- -------------------
Common Stockholders' Equity:
Common stock, par value $5 per share --
Authorized -- 1 billion shares
Issued -- March 31, 2002: 703,544,184 shares;
-- December 31, 2001: 700,622,308 shares 3,517,721 3,503,112
Paid-in capital 76,718 14,380
Treasury, at cost -- March 31, 2002: 96,236 shares;
-- December 31, 2001: 2,278,240 shares (1,961) (57,309)
Retained earnings 4,500,140 4,516,642
Accumulated other comprehensive income 13,258 7,149
---------------- -------------------
Total common stockholders' equity 8,105,876 7,983,974
---------------- -------------------
Total Liabilities and Stockholders' Equity $30,197,004 $29,907,865
================ ===================
The accompanying notes as they relate to SOUTHERN are an
integral part of these statements.
10
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three Months
Ended March 31,
---------------------------------
2002 2001
---------------------------------
(in thousands)
Consolidated net income $ 224,286 $ 319,545
Other comprehensive income - continuing operations:
Change in fair value of marketable securities (140) 315
Cumulative effect of accounting change for qualifying hedges, net of tax of $180 - 286
Changes in fair value of qualifying hedges, net of tax of $3,731 and $236, respectively 6,249 506
--------------- ---------------
Total other comprehensive income - Continuing operations 6,109 1,107
--------------- ---------------
Other comprehensive income - discontinued operations:
Cumulative effect of accounting change for qualifying hedges, net of tax of $(121,326) - (249,246)
Changes in fair value of qualifying hedges, net of tax of $(50,606) - (103,962)
Less: Reclassification adjustment for amounts included in net income, net of tax of $29,137 - 59,857
Foreign currency translation adjustments, net of tax of $(10,319) - (21,199)
--------------- ---------------
Total other comprehensive income - discontinued operations - (314,550)
--------------- ---------------
CONSOLIDATED COMPREHENSIVE INCOME $ 230,395 $ 6,102
=============== ===============
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (UNAUDITED)
At
At March 31, December 31,
2002 2001
-----------------------------------
Balance at beginning of period - continuing operations $7,149 $ 249
Change in current period - continuing operations 6,109 6,900
----------------- ---------------
BALANCE AT END OF PERIOD - Continuing Operations 13,258 7,149
----------------- ---------------
Balance at beginning of period - discontinued operations - (93,847)
Change in current period - discontinued operations - 93,847
----------------- ---------------
BALANCE AT END OF PERIOD - Discontinued Operations - -
----------------- ---------------
TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME $ 13,258 $7,149
================= ===============
The accompanying notes as they relate to SOUTHERN are
an integral part of these statements.
11
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 2002 vs. FIRST QUARTER 2001
RESULTS OF OPERATIONS
SOUTHERN is focusing on three main businesses in the Southeast: its traditional
business, represented by its five operating companies providing electric service
in four states; a growing competitive generation business in the eight state
"Super Southeast" region; and energy-related products and services for its
retail customers.
Earnings
SOUTHERN's first quarter 2002 earnings from continuing operations were $224
million ($0.32 per share) compared with $180 million ($0.26 per share) in the
first quarter of 2001. The first quarter 2002 increase in earnings is primarily
due to increased energy sales in the residential and commercial sectors, lower
interest costs and the overall impact of regulatory rate proceedings in Alabama,
Georgia and Mississippi, partially offset by decreased demand by industrial
customers, as well as increased operation and maintenance expenses. During the
first quarter of 2002, weather had no significant impact when compared to the
same period in 2001.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
-----------------------------------
First Quarter
-----------------------------------
(in thousands) %
Retail sales.......................... $(42,026) (2.2)
Sales for resale...................... (27,367) (10.5)
Other revenues........................ 13,463 10.9
Fuel expense.......................... (33,288) (5.5)
Purchased power....................... (46,409) (40.7)
Other operation expense............... 39,821 9.8
Depreciation and amortization......... (63,277) (20.8)
Equity in losses of unconsolidated
subsidiaries......................... 13,207 489.7
Interest expense, net................. (25,317) (13.1)
Retail sales. Excluding fuel revenues, which generally do not affect net
income, retail sales revenue was down by $4 million, or 0.3%, in the first
quarter of 2002 compared to the same period in the prior year. Retail sales
revenue in the first quarter 2002 was lower primarily due to lower energy sales
to industrial customers. The decrease in industrial energy sales is primarily
attributed to the slowdown in the manufacturing sector of the economy.
Sales for resale. The primary reason for the decrease in sales for resale
revenues in the first quarter 2002 is lower demand from these customers when
compared to the corresponding period in 2001.
Other revenues. The increase in other revenues during the first quarter
2002 when compared to the same period in 2001 is attributed primarily to growth
in subsidiaries that are focused on alternative fuel products and energy
products and services. In April 2001, SOUTHERN formed a new subsidiary to hold
its investment in a partnership producing alternative fuel products. Revenues
from this subsidiary were $14 million in the first quarter of 2002.
12
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Fuel expense. Fuel expense decreased in the first quarter of 2002 primarily
due to the lower price of natural gas when compared to the same period in the
prior year.
Purchased power expense. In the first quarter of 2002, purchased power
expense decreased mainly due to lower costs associated with these energy
purchases and commercial operation of the new units at Plant Daniel in May 2001
when compared to the corresponding period in 2001. Since energy expenses are
usually offset by energy revenues through the operating companies cost recovery
mechanisms, these expenses do not have a significant impact on earnings.
Other operation expense. The first quarter 2002 increase is mainly
attributed to subsidiaries involved in energy products and services and
alternative fuel products. As discussed previously, SOUTHERN formed a new
subsidiary in April 2001 to hold its investment in a partnership producing
alternative fuel products.
Depreciation and amortization. Depreciation and amortization decreased in
the first quarter of 2002 primarily as a result of discontinuing accelerated
depreciation and beginning amortization of the regulatory liability for
accelerated cost recovery in January 2002, in accordance with GEORGIA's new
retail rate order. Reference is made to Note (H) in the "Notes to the Condensed
Financial Statements" herein.
Equity in losses of unconsolidated subsidiaries. The increase for the first
quarter of 2002, compared to the same period in 2001, is primarily attributed to
SOUTHERN's investments in partnerships producing alternative fuel products. As
discussed previously, SOUTHERN formed a new subsidiary in April 2001 to hold its
investment in a partnership producing alternative fuel products.
Interest expense, net. During the first quarter 2002, interest expense, net
decreased primarily due to a reduction in interest rates compared to the same
period in 2001.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors. The two major factors are the ability of the operating companies to
achieve energy sales growth while containing costs in a more competitive
environment and the profitability of the new competitive market-based wholesale
generating facilities being added. For additional information relating to the
other businesses, see Item 1 - BUSINESS - "Southern Power" and "Other Business"
in the Form 10-K. Also, reference is made to Note (B) in the "Notes to the
Condensed Financial Statements" herein for information relating to the spin off
of Mirant from SOUTHERN.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, SOUTHERN is positioning the
business to meet the challenge of increasing competition. For additional
information, see Item 1 - BUSINESS - "Competition" and Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SOUTHERN in the Form
10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be recovered. For additional information about the Clean Air Act
and other environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND
ANALYSIS - "Environmental Matters" of SOUTHERN in the Form 10-K.
On April 25, 2002, the Stakeholder Advisory Committee met and selected the
final four candidates that will be considered for the SeTrans ISA. Reference is
made to Item 1 - BUSINESS - "Certain Factors Affecting the Industry" and Item 7
- - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Industry Restructuring" for each of
the registrants in the Form 10-K for additional information.
13
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Reference is also made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Environmental Matters" and Note 3 to the financial statements of SOUTHERN in
the Form 10-K for information on EPA litigation. On April 29, 2002, the U. S.
District Court in Alabama extended the stay of the proceeding in Alabama through
late July 2002.
Reference is made to Notes (B) through (I) and (N) in the "Notes to the
Condensed Financial Statements" herein for discussion of various contingencies
and other matters which may affect future earnings potential. Reference is also
made to Part II - Item 1 - "Legal Proceedings" herein.
Accounting Policies
Critical Policy
SOUTHERN's significant accounting policies are described in Note 1 to the
financial statements of SOUTHERN in Item 8 of the Form 10-K. SOUTHERN's only
critical accounting policy involves rate regulation. The operating companies are
subject to the provisions of FASB Statement No. 71, "Accounting for the Effects
of Certain Types of Regulation". In the event that a portion of a company's
operations is no longer subject to these provisions, the company would be
required to write off related regulatory assets and liabilities that are not
specifically recoverable, and determine if any other assets, including plant,
have been impaired.
New Accounting Standards
Effective January 1, 2001, SOUTHERN adopted FASB Statement No. 133 "Accounting
for Derivatives and Hedging Activities", as amended, and changed the method of
accounting for derivative instruments. Derivatives are now reflected on the
Condensed Consolidated Balance Sheet as either an asset or liability measured at
fair market value, and the changes in the fair value are currently recognized in
earnings unless specific hedge accounting criteria are met. An additional
interpretation of Statement No. 133 may result in a change -- effective on April
1, 2002 -- in accounting for certain contracts related to fuel supplies that
contain quantity options. If these contracts are derivatives, they will be
marked to market. However, due to the existence of specific cost-based fuel
recovery clauses for the operating companies, this change is not expected to
have a material impact on net income.
In June 2001, the FASB issued Statement No. 143, "Asset Retirement
Obligations," which establishes new accounting and reporting standards for legal
obligations associated with retiring assets, including decommissioning nuclear
plants. The liability for an asset's future retirement must be recorded in the
period in which the liability is incurred. The cost must be capitalized as part
of the related long-lived asset and depreciated over the asset's useful life.
Changes in the liability resulting from the passage of time will be recognized
as operating expenses. Statement No. 143 must be adopted by January 1, 2003.
SOUTHERN is currently assessing the impact of adopting Statement No. 143 on its
financial statements. Reference is made to Note 1 to the financial statements of
SOUTHERN under "Depreciation and Nuclear Decommissioning" in Item 8 of the Form
10-K.
14
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
Overview
Major changes in SOUTHERN's financial condition during the first three months of
2002 included $680 million used for gross property additions to utility plant.
The funds for these additions and other capital requirements were primarily from
other long-term debt. See SOUTHERN's Condensed Consolidated Statements of Cash
Flows for further details.
Off-Balance Sheet Financing Arrangements
In May 2001, MISSISSIPPI began the initial 10-year term of an operating lease
agreement signed in 1999 with Escatawpa Funding Limited Partnership, a special
purpose entity, to use a combined-cycle generating facility located at
MISSISSIPPI's Plant Daniel. The facility cost approximately $370 million. The
lease provides for a residual value guarantee -- approximately 71% of the
completion cost -- by MISSISSIPPI that is due upon termination of the lease in
certain circumstances. Reference is made to Note 9 to the financial statements
in Item 8 of SOUTHERN in the Form 10-K and Note 4 to the financial statements in
Item 8 of MISSISSIPPI in the Form 10-K for additional information. The FASB is
in the process of issuing a draft addressing issues related to identifying and
accounting for certain special purpose entities. One contemplated change would
increase the three percent outside equity requirement to 10 percent. This
interpretation is in draft form; therefore, final conclusions may differ from
the draft. However, certain changes to the accounting guidance could result in
MISSISSIPPI having to change its accounting for this lease agreement, including
having to consolidate the leased asset and related debt.
In 2001, Southern Power entered into a financial arrangement with
Westdeutsche Landesbank Girozentrale (WestLB) whereby Southern Power could
assign up to $125 million in vendor contracts for equipment to WestLB. For
accounting purposes, WestLB was the owner of the contracts. Southern Power acted
as an agent for WestLB and instructed WestLB when to make payments to the
vendors. Southern Power terminated this arrangement and reacquired these assets
in March 2002.
Credit Rating Risk
SOUTHERN and its subsidiaries do not have any credit agreements that would
require material changes in payment schedules or terminations as a result of a
credit rating downgrade. There are certain fixed-price physical gas purchase
contracts that could require collateral - but not accelerated payment - in the
event of a credit rating change to below investment grade. These contracts are
primarily for physical electricity sales, fixed-price physical gas purchases,
and agreements covering interest rate swaps and currency swaps. At March 31,
2002, the maximum potential collateral requirements under the electricity sale
contracts were approximately $288 million. Generally, collateral may be provided
for by a SOUTHERN guaranty, letter of credit, or cash. At March 31, 2002, there
were no material collateral requirements for the gas purchase contracts or other
financial instrument agreements.
Exposure to Market Risks
SOUTHERN's market risk exposures relative to interest rate changes have not
changed materially compared with the previous reporting period, December 31,
2001. In addition, SOUTHERN is not aware of any facts or circumstances that
would significantly affect such exposures in the near term.
15
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Due to cost-based rate regulations, the operating companies have limited
exposure to market volatility in interest rates, commodity fuel prices and
prices of electricity. To mitigate residual risks relative to movements in
electricity prices for the operating companies, they and Southern Power enter
into fixed price contracts for the purchase and sale of electricity through the
wholesale electricity market and to a lesser extent similar contracts for gas
purchases. Also, some of the operating companies have implemented fuel-hedging
programs at the instruction of their respective public service commissions.
Realized gains and losses are recognized in the income statements as incurred.
At March 31, 2002, exposure from these activities was not material to the
consolidated financial statements. Fair value of changes in energy trading
contracts and valuations at March 31, 2002 are as follows:
Year-to-Date Changes
----------------------
Fair Value
- ------------------------------------------ ----------------------
(in thousands)
Contracts beginning of year $ 1,290
Contracts realized or settled (1,108)
New contracts at inception -
Changes in valuation techniques -
Current period changes 32,132
- ------------------------------------------- ----------------------
Contracts at March 31, 2002 $ 32,314
========================================== ======================
Source of March 31, 2002
Valuation Prices
----------- ------------------------
Total Maturity
------------------------
Fair Value Year 1 1-3 Years
- ----------------------------- ------------------------------------
(in thousands)
- ----------------------------- ----------- ----------- ------------
Actively quoted $31,108 $21,581 $9,527
External sources 1,206 1,206 -
Models and other methods - - -
- ----------------------------- ----------- ----------- ------------
Contracts at
March 31, 2002 $32,314 $22,787 $9,527
============================= =========== =========== ============
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Market
Price Risk" of SOUTHERN in the Form 10-K for additional information and Note 1
to the financial statements of SOUTHERN in Item 8 of the Form 10-K.
Financing Activities
In January 2002, GULF issued $45 million of Series E 6.00% Senior Notes due
January 30, 2012. The proceeds from the sale will be used by GULF to finance
certain construction costs incurred in connection with Plant Smith Unit 3,
GULF's 574 megawatt combined cycle facility currently under construction, and
for general corporate purposes.
Also, in January 2002, Southern Company Capital Funding, Inc. issued $400
million of Series A 5.30% Senior Notes due February 1, 2007 and $25 million of
Series B Floating Rate Senior Notes due February 1, 2004. The proceeds from
these sales were remitted to SOUTHERN and applied by SOUTHERN to repay a portion
of its outstanding short-term indebtedness.
16
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In March 2002, MISSISSIPPI issued $80 million of Series D Floating Rate
Senior Notes due March 12, 2004. The proceeds of the sale were used to repay $80
million of Series C Floating Rate Senior Notes due March 28, 2002. Also in March
2002, Mississippi Power Capital Trust II, a statutory business trust, sold $35
million of its 7.20% trust originated preferred securities which are guaranteed
by MISSISSIPPI for the purpose of redeeming in May 2002 $35 million of
Mississippi Power Capital Trust I 7.75% trust originated preferred securities.
During the first quarter of 2002, Southern Power drew down $287 million
under its revolving credit facility to finance project construction
costs. Southern Power anticipates that it will issue unsecured senior notes by
the end of the second quarter of 2002. The net proceeds of the senior notes will
be used to reduce outstanding indebtedness under the company's credit facility
and for general corporate purposes.
The market price of SOUTHERN's common stock at March 31, 2002 was $26.49
per share and the book value was $11.52 per share, representing a market-to-book
ratio of 230%, compared to $25.35, $11.43 and 222%, respectively, at the end of
2001. The dividend for the first quarter of 2002 was $0.335 per share.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Capital
Requirements for Construction", "Other Capital Requirements" and "Environmental
Matters" of SOUTHERN in the Form 10-K for a description of the SOUTHERN system's
capital requirements for its construction program, sinking fund requirements,
maturing debt and environmental compliance efforts. Approximately $267 million
will be required by March 31, 2003 for redemptions and maturities of long-term
debt. Also, the operating companies plan to continue, to the extent possible, a
program to retire higher cost debt and replace these securities with lower-cost
capital.
Sources of Capital
In addition to the financing activities previously described, SOUTHERN may
require additional equity capital over the next several years. The amounts and
timing of additional equity capital to be raised will be contingent on
SOUTHERN's investment opportunities. The operating companies plan to obtain the
funds required for construction and other purposes from sources similar to those
used in the past, which were primarily from internal sources and by the
issuances of new debt and preferred equity securities, term loans and short-term
borrowings. However, the amount, type and timing of any financings--if
needed--will depend upon market conditions and regulatory approval. See Item 1 -
BUSINESS - "Financing Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, the SOUTHERN system had at
March 31, 2002 approximately $296 million of cash and cash equivalents and
approximately $4.3 billion of unused credit arrangements with banks, of which
$3.1 billion expires in 2002 and $1.2 billion expires in 2003 and beyond. These
unused credit arrangements also provide liquidity support to variable rate
pollution control bonds and commercial paper programs. The operating companies
may also meet short-term cash needs through a SOUTHERN subsidiary organized to
issue and sell commercial paper at the request and for the benefit of each of
the operating companies. At March 31, 2002, the SOUTHERN system had short-term
notes payable outstanding of $395 million and commercial paper outstanding of
$1.4 billion. Management believes that the need for working capital can be
adequately met by utilizing lines of credit without maintaining large cash
balances.
17
PART I
Item 3. Quantitative And Qualitative Disclosures About Market Risk.
Reference is made herein to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Market
Price Risk" for each registrant and Note 1 to the financial statements of each
registrant in Item 8 of the Form 10-K.
18
ALABAMA POWER COMPANY
19
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months
Ended March 31,
2002 2001
------------- ---------------
(in thousands)
Operating Revenues:
Retail sales $631,897 $634,772
Sales for resale --
Non-affiliates 94,623 110,462
Affiliates 54,677 75,133
Other revenues 21,052 29,635
------------- ---------------
Total operating revenues 802,249 850,002
------------- ---------------
Operating Expenses:
Fuel 210,297 259,455
Purchased power --
Non-affiliates 15,771 34,309
Affiliates 32,730 35,986
Other 120,062 111,002
Maintenance 76,814 76,360
Depreciation and amortization 98,275 95,517
Taxes other than income taxes 57,500 57,346
------------- ---------------
Total operating expenses 611,449 669,975
------------- ---------------
Operating Income 190,800 180,027
Other Income (Expense):
Interest income 3,162 3,840
Equity in earnings of unconsolidated subsidiaries 952 1,055
Other, net (9,510) (2,640)
------------- ---------------
Earnings Before Interest and Income Taxes 185,404 182,282
------------- ---------------
Interest and Other:
Interest expense, net 55,649 58,665
Distributions on preferred securities of subsidiary 6,019 6,356
------------- ---------------
Total interest and other, net 61,668 65,021
------------- ---------------
Earnings Before Income Taxes 123,736 117,261
Income taxes 47,540 43,610
------------- ---------------
Net Income Before Cumulative Effect of
Accounting Change 76,196 73,651
Cumulative effect of accounting change --
less income taxes of $215 thousand - 353
------------- ---------------
Net Income 76,196 74,004
Dividends on Preferred Stock 3,656 4,052
------------- ---------------
Net Income After Dividends on Preferred Stock $72,540 $69,952
============= ===============
The accompanying notes as they relate to ALABAMA are an integral
part of these condensed statements.
20
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months
Ended March 31,
2002 2001
-------------- -----------------
(in thousands)
Operating Activities:
Net income $76,196 $74,004
Adjustments to reconcile net income
to net cash provided from operating activities --
Depreciation and amortization 116,006 106,491
Deferred income taxes and investment tax credits, net (16,543) 2,656
Other, net 18,757 (33,180)
Changes in certain current assets and liabilities --
Receivables, net 20,098 131,403
Fossil fuel stock 4,351 (31,782)
Materials and supplies 1,403 4,602
Accounts payable (67,620) (135,845)
Under recovered retail fuel clause revenue 56,361 30,624
Other (10,639) (22,531)
-------------- -----------------
Net cash provided from operating activities 198,370 126,442
-------------- -----------------
Investing Activities:
Gross property additions (173,817) (194,434)
Other 233 5,367
-------------- -----------------
Net cash used for investing activities (173,584) (189,067)
-------------- -----------------
Financing Activities:
Increase in notes payable, net 86,837 164,996
Proceeds --
Capital contributions from parent company 1,468 -
Redemptions --
First mortgage bonds (4,498) -
Other long-term debt (580) (1,179)
Payment of preferred stock dividends (3,632) (3,699)
Payment of common stock dividends (107,750) (101,200)
Other (194) 191
-------------- -----------------
Net cash provided from (used for) financing activities (28,349) 59,109
-------------- -----------------
Net Change in Cash and Cash Equivalents (3,563) (3,516)
Cash and Cash Equivalents at Beginning of Period 35,756 14,247
-------------- -----------------
Cash and Cash Equivalents at End of Period $ 32,193 $ 10,731
============== =================
Supplemental Cash Flow Information:
Cash paid during the period for --
Interest (net of amount capitalized) $28,030 $47,083
Income taxes (net of refunds) $23,097 $4,676
The accompanying notes as they relate to ALABAMA are an integral part
of these condensed statements.
21
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Assets 2002 2001
- ------
----------------- --------------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 32,193 $ 35,756
Receivables --
Customer accounts receivable 289,131 281,985
Under recovered retail fuel clause revenue 27,136 83,497
Other accounts and notes receivable 34,988 49,940
Affiliated companies 60,825 72,639
Accumulated provision for uncollectible accounts (5,715) (5,237)
Fossil fuel stock, at average cost 94,927 99,278
Materials and supplies, at average cost 189,921 191,324
Other 138,161 74,640
----------------- --------------------
Total current assets 861,567 883,822
----------------- --------------------
Property, Plant, and Equipment:
In service 13,227,383 13,159,560
Less accumulated provision for depreciation 5,393,858 5,309,557
----------------- --------------------
7,833,525 7,850,003
Nuclear fuel, at amortized cost 77,108 88,777
Construction work in progress 457,469 357,906
----------------- --------------------
Property, plant, and equipment 8,368,102 8,296,686
----------------- --------------------
Other Property and Investments:
Equity investments in unconsolidated subsidiaries 45,685 44,483
Nuclear decommissioning trusts 311,639 317,508
Other 16,987 12,503
----------------- --------------------
Total other property and investments 374,311 374,494
----------------- --------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes 332,600 334,830
Prepaid pension costs 344,044 329,259
Debt expense, being amortized 8,109 8,150
Premium on reacquired debt, being amortized 75,179 77,173
Department of Energy assessments 21,015 21,015
Other 109,087 108,031
----------------- --------------------
Total deferred charges and other assets 890,034 878,458
----------------- --------------------
Total Assets $10,494,014 $10,433,460
================= ====================
The accompanying notes as they relate to ALABAMA are an integral
part of these condensed statements.
22
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Liabilities and Stockholder's Equity 2002 2001
- ------------------------------------
----------------- --------------------
(in thousands)
Current Liabilities:
Securities due within one year $ 904 $ 5,382
Notes payable 96,833 9,996
Accounts payable --
Affiliated 94,892 98,268
Other 91,667 151,705
Customer deposits 43,419 42,124
Taxes accrued --
Income taxes 158,090 113,003
Other 38,293 19,023
Interest accrued 66,977 35,522
Vacation pay accrued 32,324 32,324
Other 53,492 93,589
----------------- --------------------
Total current liabilities 676,891 600,936
----------------- --------------------
Long-term debt 3,742,656 3,742,346
----------------- --------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 1,369,097 1,387,661
Deferred credits related to income taxes 198,571 202,881
Accumulated deferred investment tax credits 235,491 238,225
Employee benefits provisions 124,014 115,078
Prepaid capacity revenues 39,099 40,730
Other 166,550 130,214
----------------- --------------------
Total deferred credits and other liabilities 2,132,822 2,114,789
----------------- --------------------
Company obligated mandatorily redeemable preferred
securities of subsidiary trusts holding company junior
subordinated notes 347,000 347,000
----------------- --------------------
Cumulative preferred stock 317,512 317,512
----------------- --------------------
Common Stockholder's Equity:
Common stock, par value $40 per share --
Authorized - 6,000,000 shares
Outstanding - 6,000,000 shares
Par value 240,000 240,000
Paid-in capital 1,852,144 1,850,676
Premium on preferred stock 99 99
Retained earnings 1,184,890 1,220,102
----------------- --------------------
Total common stockholder's equity 3,277,133 3,310,877
----------------- --------------------
Total Liabilities and Stockholder's Equity $10,494,014 $10,433,460
================= ====================
The accompanying notes as they relate to ALABAMA are an integral
part of these condensed statements.
23
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 2002 vs. FIRST QUARTER 2001
RESULTS OF OPERATIONS
Earnings
ALABAMA's net income after dividends on preferred stock for the first quarter of
2002 was $72.5 million compared to $70.0 million for the corresponding period of
2001. The increase in earnings for the first quarter of 2002 is primarily
attributable to increased territorial sales and retail rates when compared to
the same period in the prior year, which were partially offset by increased
non-fuel operating expenses.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
-----------------------------------
First Quarter
-----------------------------------
(in thousands) %
Retail sales........................... (2,875) (0.5)
Sales for resale - non-affiliates...... (15,839) (14.3)
Sales for resale - affiliates.......... (20,456) (27.2)
Other revenues......................... (8,583) (29.0)
Fuel expense........................... (49,158) (18.9)
Purchased power - non-affiliates....... (18,538) (54.0)
Purchased power - affiliates........... (3,256) (9.0)
Other operation expense................ 9,060 8.2
Other, net............................. (6,870) (260.2)
Retail sales. Excluding energy cost recovery revenues, which generally do
not affect net income, retail sales revenue was higher by $26.5 million, or
5.8%, for the first quarter 2002 when compared to the same period in 2001.
Energy sales to residential, commercial and industrial customers increased by
3.6%, 0.5% and 1.6%, respectively, due primarily to more favorable weather
conditions in 2002. Total retail sales revenue was down, however,
during the first quarter of 2002 due to a decrease in fuel expense recovery.
Sales for resale - non-affiliates. In the first quarter of 2002, the demand
for energy by non-affiliates was lower when compared to the same period in 2001.
These transactions did not have a significant impact on earnings since the
energy is usually sold at variable cost.
Sales for resale - affiliates and Purchased power - affiliates. Revenues
from sales for resale to affiliated companies within the SOUTHERN system, as
well as purchases of energy, will vary depending on demand and the availability
and cost of generating resources at each company. These transactions did not
have a significant impact on earnings.
Other revenues. During the first quarter of 2002, revenues from gas-fueled
cogeneration steam facilities were lower when compared to the same period in
2001 due primarily to lower gas prices and lower demand. Since cogeneration
steam revenues are generally offset by fuel expenses, these revenues did not
have a significant impact on earnings.
24
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Fuel expense. Fuel expense decreased due mainly to the lower price of
natural gas in this first quarter of 2002 when compared to the same period of
2001. Since energy expenses are generally offset by energy revenues, these
expenses did not have a significant impact on earnings.
Purchased power - non-affiliates. In the first quarter of 2002, purchased
power from non-affiliates when compared to the corresponding period in 2001
decreased due to lower costs associated with these energy purchases. These
expenses do not have a significant impact on earnings since energy expenses are
generally offset by energy revenues through ALABAMA's energy cost recovery
clause.
Other operation expense. Other operation expense increased during the first
quarter of 2002 primarily as a result of lower refunds related to nuclear
property and outage insurance when compared to the first quarter of 2001.
Other, net. The first quarter of 2002 decrease is due in part to a decrease
in Allowance for Funds Used During Construction reflecting the commercial
operation of Plant Barry Unit 7 in May 2001.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including regulatory matters and the effect of weather and the economy
on energy sales.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, ALABAMA is positioning the
business to meet the challenge of increasing competition. For additional
information, see Item 1 - BUSINESS - "Competition" and Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Future Earnings Potential" of ALABAMA in the Form
10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be recovered. For additional information about the Clean Air Act
and other environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND
ANALYSIS - "Environmental Matters" of ALABAMA in the Form 10-K.
On April 25, 2002, the Stakeholder Advisory Committee met and selected the
final four candidates that will be considered for the SeTrans ISA. Reference is
made to Item 1 - BUSINESS - "Certain Factors Affecting the Industry" and Item 7
- - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Industry Restructuring" of ALABAMA in
the Form 10-K for additional information.
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Environmental Matters" and Note 3 to the financial statements of ALABAMA in the
Form 10-K for information on EPA litigation. On April 29, 2002, the U. S.
District Court in Alabama extended the stay of the proceeding in Alabama through
late July 2002.
Reference is made to Notes (C) through (E) and (G) in the "Notes to the
Condensed Financial Statements" herein for discussion of various contingencies
and other matters which may affect future earnings potential. Reference is also
made to Part II - Item 1 - "Legal Proceedings" herein.
25
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Accounting Policies
Critical Policy
ALABAMA's significant accounting policies are described in Note 1 to the
financial statements of ALABAMA in Item 8 of the Form 10-K. ALABAMA's only
critical accounting policy involves rate regulation. ALABAMA is subject to the
provisions of FASB Statement No. 71, "Accounting for the Effects of Certain
Types of Regulation". In the event that a portion of ALABAMA's operation is no
longer subject to these provisions, ALABAMA would be required to write off
related regulatory assets and liabilities that are not specifically recoverable
and determine if any other assets have been impaired.
New Accounting Standards
Effective January 1, 2001, ALABAMA adopted FASB Statement No. 133 "Accounting
for Derivatives and Hedging Activities," as amended, and changed the method of
accounting for derivative instruments. Derivatives are now reflected on the
Condensed Balance Sheet as either an asset or liability measured at fair market
value, and the changes in the fair value are currently recognized in earnings
unless specific hedge accounting criteria are met. An additional interpretation
of Statement No. 133 may result in a change -- effective on April 1, 2002 -- in
accounting for certain contracts related to fuel supplies that contain quantity
options. If these contracts are derivatives, they will be marked to market.
However, due to the existence of specific cost-based fuel recovery clauses for
ALABAMA, this change is not expected to have a material impact on net income.
In June 2001, the FASB issued Statement No. 143, "Asset Retirement
Obligations," which establishes new accounting and reporting standards for legal
obligations associated with retiring assets, including decommissioning nuclear
plants. The liability for an asset's future retirement must be recorded in the
period in which the liability is incurred. The cost must be capitalized as part
of the related long-lived asset and depreciated over the asset's useful life.
Changes in the liability resulting from the passage of time will be recognized
as operating expenses. Statement No. 143 must be adopted by January 1, 2003.
ALABAMA is currently assessing the impact of adopting Statement No. 143 on its
financial statements. Reference is made to Note 1 to the financial statements of
ALABAMA under "Depreciation and Nuclear Decommissioning" in Item 8 of the Form
10-K.
FINANCIAL CONDITION
Overview
Major changes in ALABAMA's financial condition during the first three months of
2002 included the addition of approximately $174 million to utility plant. The
funds for these additions and other capital requirements were derived primarily
from operating activities. See ALABAMA's Condensed Statements of Cash Flows for
further details.
Credit Rating Risk
ALABAMA does not have any credit agreements that would require material changes
in payment schedules or terminations as a result of a credit rating downgrade.
26
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Exposure to Market Risks
ALABAMA's market risk exposures relative to interest rate changes have not
changed materially compared with the December 31, 2001 reporting period. In
addition, ALABAMA is not aware of any facts or circumstances that would
significantly affect such exposures in the near term.
Due to cost-based rate regulations, ALABAMA has limited exposure to market
volatility in interest rates, commodity fuel prices, and prices of electricity.
To mitigate residual risks relative to movements in electricity prices, ALABAMA
entered into fixed price contracts for the purchase and sale of electricity
through the wholesale electricity market. Realized gains and losses are
recognized in the Statements of Income as incurred. At March 31, 2002, exposure
from these activities was not material to ALABAMA's financial statements. Fair
value of changes in energy trading contracts and valuations at March 31, 2002
are as follows:
Year-to-Date Changes
----------------------
Fair Value
- ------------------------------------------ ----------------------
(in thousands)
Contracts beginning of year $ 214
Contracts realized or settled (2,423)
New contracts at inception -
Changes in valuation techniques -
Current period changes 25,520
- ------------------------------------------ ----------------------
Contracts at March 31, 2002 $ 23,311
========================================== ======================
Source of March 31, 2002
Valuation Prices
----------- ------------------------
Total Maturity
------------------------
Fair Value Year 1 1-3 Years
- ----------------------------- ------------------------------------
(in thousands)
- ----------------------------- ----------- ----------- ------------
Actively quoted $22,105 $17,375 $4,730
External sources 1,206 1,206 -
Models and other methods - - -
- ----------------------------- ----------- ----------- ------------
Contracts at
March 31, 2002 $23,311 $18,581 $4,730
============================= =========== =========== ============
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Exposure
to Market Risk" of ALABAMA in the Form 10-K and Note 1 to the financial
statements of ALABAMA in Item 8 of the Form 10-K for additional information.
Financing Activities
ALABAMA plans to continue, when economically feasible, a program to retire
higher cost debt and preferred stock and replace these obligations with
lower-cost capital if market conditions permit.
27
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of ALABAMA
under "Capital Requirements," "Other Capital Requirements" and "Environmental
Matters" in the Form 10-K for a description of ALABAMA's capital requirements
for its construction program, maturing debt and environmental compliance
efforts.
Sources of Capital
In addition to the financing activities previously described herein, ALABAMA
plans to obtain the funds required for construction and other purposes from
sources similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. See Item 1
- - BUSINESS - "Financing Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, ALABAMA had at March 31,
2002 approximately $32 million of cash and cash equivalents, unused committed
lines of credit of approximately $964 million (including $454 million of such
lines which are dedicated to funding purchase obligations relating to variable
rate pollution control bonds) and an extendible commercial note program. Of
these lines of credit, $574 million expire at various times during 2002 and $390
million expire in 2004. ALABAMA may also meet short-term cash needs through a
SOUTHERN subsidiary organized to issue and sell commercial paper and extendible
commercial notes at the request and for the benefit of ALABAMA and other
SOUTHERN subsidiaries. ALABAMA has regulatory authority for up to $1.0 billion
of short-term borrowings. At March 31, 2002, ALABAMA had outstanding $97 million
of commercial paper.
28
GEORGIA POWER COMPANY
29
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months
Ended March 31,
2002 2001
-------------- -----------------
(in thousands)
Operating Revenues:
Retail sales $904,914 $949,145
Sales for resale --
Non-affiliates 50,050 87,591
Affiliates 16,507 35,777
Other revenues 35,292 35,516
-------------- -----------------
Total operating revenues 1,006,763 1,108,029
-------------- -----------------
Operating Expenses:
Fuel 227,377 228,692
Purchased power --
Non-affiliates 37,790 54,105
Affiliates 58,780 79,295
Other 173,820 175,574
Maintenance 103,854 106,665
Depreciation and amortization 90,551 164,249
Taxes other than income taxes 49,575 50,101
-------------- -----------------
Total operating expenses 741,747 858,681
-------------- -----------------
Operating Income 265,016 249,348
Other Income (Expense):
Interest income 501 602
Equity in earnings of unconsolidated subsidiaries 971 1,009
Other, net (3,833) (8,367)
-------------- -----------------
Earnings Before Interest and Income Taxes 262,655 242,592
-------------- -----------------
Interest Charges and Other:
Interest expense, net 40,595 50,899
Distributions on preferred securities of subsidiaries 14,776 14,776
-------------- -----------------
Total interest charges and other, net 55,371 65,675
-------------- -----------------
Earnings Before Income Taxes 207,284 176,917
Income taxes 80,371 69,332
-------------- -----------------
Net Income Before Cumulative Effect of
Accounting Change 126,913 107,585
Cumulative effect of accounting change --
less income taxes of $162 thousand - 257
-------------- -----------------
Net Income 126,913 107,842
Dividends on Preferred Stock 168 168
-------------- -----------------
Net Income After Dividends on Preferred Stock $ 126,745 $ 107,674
============== =================
The accompanying notes as they relate to GEORGIA are an integral
part of these condensed statements.
30
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months
Ended March 31,
2002 2001
-------------- ----------------
(in thousands)
Operating Activities:
Net income $126,913 $107,842
Adjustments to reconcile net income
to net cash provided from operating activities --
Depreciation and amortization 98,809 169,340
Deferred income taxes and investment tax credits, net (1,817) (45,751)
Other, net (12,833) 4,206
Changes in certain current assets and liabilities --
Receivables, net 56,234 122,153
Fossil fuel stock 1,609 (69,881)
Materials and supplies 2,925 (2,975)
Accounts payable (74,888) (117,678)
Energy cost recovery, retail 35,601 38,874
Other 24,811 70,846
-------------- ----------------
Net cash provided from operating activities 257,364 276,976
-------------- ----------------
Investing Activities:
Gross property additions (215,043) (385,544)
Sales of property 387,212 -
Other (54,752) (24,444)
-------------- ----------------
Net cash provided from (used for) investing activities 117,417 (409,988)
-------------- ----------------
Financing Activities:
Increase (decrease) in notes payable, net 290,949 (170,727)
Proceeds --
Other long-term debt - 450,000
Capital contributions from parent company 2,984 200,000
Retirements --
First mortgage bonds (1,860) (200,000)
Pollution control bonds (7,800) -
Other long-term debt (300,000) -
Capital distributions to parent company (200,000) -
Payment of preferred stock dividends (182) (83)
Payment of common stock dividends (135,725) (134,500)
Other (1,318) (4,775)
-------------- ----------------
Net cash provided from (used for) financing activities (352,952) 139,915
-------------- ----------------
Net Change in Cash and Cash Equivalents 21,829 6,903
Cash and Cash Equivalents at Beginning of Period 23,260 29,370
-------------- ----------------
Cash and Cash Equivalents at End of Period $ 45,089 $ 36,273
============== ================
Supplemental Cash Flow Information:
Cash paid during the period for --
Interest (net of amount capitalized) $30,324 $38,299
Income taxes (net of refunds) $24,021 ($13,135)
The accompanying notes as they relate to GEORGIA are an integral
part of these condensed statements.
31
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Assets 2002 2001
- ------
---------------- --------------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 45,089 $ 23,260
Receivables --
Customer accounts receivable 345,200 376,322
Under recovered retail fuel clause revenue 125,861 161,462
Other accounts and notes receivable 99,371 129,073
Affiliated companies 69,429 69,355
Accumulated provision for uncollectible accounts (8,145) (8,895)
Fossil fuel stock, at average cost 201,150 202,759
Materials and supplies, at average cost 276,312 279,237
Other 116,149 125,246
---------------- --------------------
Total current assets 1,270,416 1,357,819
---------------- --------------------
Property, Plant, and Equipment:
In service 16,962,814 16,886,399
Less accumulated provision for depreciation 7,327,110 7,243,209
---------------- --------------------
9,635,704 9,643,190
Nuclear fuel, at amortized cost 114,729 112,771
Construction work in progress 596,642 883,285
---------------- --------------------
Property, plant, and equipment 10,347,075 10,639,246
---------------- --------------------
Other Property and Investments:
Equity investments in unconsolidated subsidiaries 36,237 35,209
Nuclear decommissioning trusts 387,013 364,180
Other 30,689 29,618
---------------- --------------------
Total other property and investments 453,939 429,007
---------------- --------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes 539,254 543,584
Prepaid pension costs 290,095 273,405
Debt expense, being amortized 58,419 58,165
Premium on reacquired debt, being amortized 170,922 173,724
Other 154,487 136,137
---------------- --------------------
Total deferred charges and other assets 1,213,177 1,185,015
---------------- --------------------
Total Assets $13,284,607 $13,611,087
================ ====================
The accompanying notes as they relate to GEORGIA are an integral
part of these condensed statements.
32
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Liabilities and Stockholder's Equity 2002 2001
- ------------------------------------
----------------- --------------------
(in thousands)
Current Liabilities:
Securities due within one year $ 202,001 $ 311,620
Notes payable and commercial paper 1,038,486 747,537
Accounts payable --
Affiliated 102,790 109,591
Other 318,095 409,253
Customer deposits 86,305 83,172
Taxes accrued --
Income taxes 93,414 35,247
Other 51,150 125,807
Interest accrued 69,457 46,942
Vacation pay accrued 41,391 41,830
Other 130,376 120,980
----------------- --------------------
Total current liabilities 2,133,465 2,031,979
----------------- --------------------
Long-term debt 2,761,200 2,961,726
----------------- --------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 2,158,434 2,163,959
Deferred credits related to income taxes 225,105 229,216
Accumulated deferred investment tax credits 334,360 337,482
Employee benefits provisions 248,718 244,648
Other 427,768 440,773
----------------- --------------------
Total deferred credits and other liabilities 3,394,385 3,416,078
----------------- --------------------
Company obligated mandatorily redeemable preferred
securities of subsidiary trusts holding company junior
subordinated notes 789,250 789,250
----------------- --------------------
Preferred stock 14,569 14,569
----------------- --------------------
Common Stockholder's Equity:
Common stock, without par value--
Authorized - 15,000,000 shares
Outstanding - 7,761,500 shares 344,250 344,250
Paid-in capital 1,985,541 2,182,557
Premium on preferred stock 40 40
Retained earnings 1,861,812 1,870,791
Accumulated other comprehensive income 95 (153)
----------------- --------------------
Total common stockholder's equity 4,191,738 4,397,485
----------------- --------------------
Total Liabilities and Stockholder's Equity $13,284,607 $13,611,087
================= ====================
The accompanying notes as they relate to GEORGIA are an integral
part of these condensed statements.
33
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three Months
Ended March 31,
--------------------------------------
2002 2001
--------------------------------------
(in thousands)
Net Income After Dividends on Preferred Stock $126,745 $107,674
Other comprehensive income:
Cumulative effect of accounting change for qualifying hedges, net of tax of $180 - 286
Changes in fair value of qualifying hedges, net of tax of $156 and $236, respectively 248 506
----------------- --------------
COMPREHENSIVE INCOME $126,993 $108,466
================= ==============
================================================================================================================================
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (UNAUDITED)
At March 31, At December 31,
2002 2001
---------------------------------------
(in thousands)
Balance at beginning of period $ (153) $ -
Change in current period 248 (153)
------------------ --------------
BALANCE AT END OF PERIOD $ 95 $ (153)
================== ==============
The accompanying notes as they relate to GEORGIA are an
integral part of these condensed statements.
34
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 2002 vs. FIRST QUARTER 2001
RESULTS OF OPERATIONS
Earnings
GEORGIA's net income after dividends on preferred stock for the first quarter
2002 was $126.7 million compared to $107.7 million for the corresponding period
in 2001. Earnings increased by $19.1 million, or 17.7%, for the first quarter
2002 when compared to the same period in 2001 primarily due to reduced
accelerated depreciation under the 2001 retail rate order. This increase will be
offset in future quarters due to the timing of accelerated depreciation recorded
in 2001.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
--------------------------------
First Quarter
--------------------------------
(in thousands) %
Retail sales.............................. (44,231) (4.7)
Sales for resale - non-affiliates......... (37,541) (42.9)
Sales for resale - affiliates............. (19,270) (53.9)
Purchased power - non-affiliates.......... (16,315) (30.2)
Purchased power - affiliates.............. (20,515) (25.9)
Depreciation and amortization............. (73,698) (44.9)
Interest expense, net..................... (10,304) (20.2)
Retail sales. Excluding fuel revenues, which generally do not affect net
income, retail sales revenue decreased in the first quarter of 2002 by $44.8
million, or 6.4%, when compared to the same period in 2001. The decrease in the
first quarter 2002 retail sales revenue is primarily due to a 5% decrease in
energy sales to industrial customers and a rate decrease pursuant to the new
retail rate order effective January 1, 2002. The effect of the rate decrease in
the first quarter 2002 was approximately $25 million. The continued slowdown in
manufacturing activity was the principal factor affecting energy sales to
industrial customers. During the first quarter of 2002, weather had no
significant impact when compared to the same period in 2001. Reference is made
to Note (H) in the "Notes to Condensed Financial Statements" herein.
Sales for resale - non-affiliates. In the first quarter of 2002, sales for
resale to non-affiliates decreased in part as a direct result of reduced energy
sales to these customers. These transactions did not have a significant impact
on earnings since the energy is usually sold at variable cost. The transfer of
Plant Dahlberg to Southern Power also resulted in lower sales in the first
quarter of 2002.
Sales for resale - affiliates and Purchased power - affiliates. Revenues
from sales for resale to affiliated companies, as well as purchases of energy,
within the SOUTHERN system will vary depending on demand and the availability
and cost of generating resources at each company. These transactions did not
have a significant impact on earnings.
35
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Purchased power - non-affiliates. During the first quarter of 2002, these
purchases were lower when compared to the same period in 2001 due primarily to
reduced demand for energy from non-affiliates. In 2001, these expenses were also
higher due to decreased hydro generation and higher natural gas and oil prices.
These expenses do not have a significant impact on earnings since energy
expenses are generally offset by energy revenues through GEORGIA's fuel cost
recovery clause.
Depreciation and amortization. Depreciation and amortization decreased in
the first quarter of 2002 primarily as a result of discontinuing accelerated
depreciation and beginning amortization of the regulatory liability for
accelerated cost recovery in January 2002, in accordance with GEORGIA's new
retail rate order. Reference is made to Note (H) in the "Notes to the Condensed
Financial Statements" herein.
Interest expense, net. The decrease in this item during the first quarter
of 2002 from the first quarter of 2001 is primarily due to a reduction in
interest rates and the accrual of interest on accelerated amortization in 2001
under the prior rate order.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including regulatory matters and the effect of weather and the economy
on energy sales.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, GEORGIA is positioning the
business to meet the challenge of increasing competition. For additional
information, see Item 1 - BUSINESS - "Competition" and Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Future Earnings Potential" of GEORGIA in the Form
10-K.
In January 2002, GEORGIA began operating under a new three-year retail rate
order. Under the terms of the order, earnings will be evaluated annually against
a retail return on common equity range of 10 percent to 12.95 percent.
Two-thirds of any earnings above the 12.95 percent return will be applied to
rate refunds, with the remaining one-third retained by GEORGIA. Retail rates
were decreased by $118 million effective January 1, 2002. Reference is made to
Note (H) in the "Notes to the Condensed Financial Statements" herein and Item 7
- - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of GEORGIA
in the Form 10-K for additional information.
In January 2002, GEORGIA transferred ownership of two units at Plant
Wansley with a net book value of $389.9 million to Southern Power, an affiliated
company.
On April 25, 2002, the Stakeholder Advisory Committee met and selected the
final four candidates that will be considered for the SeTrans ISA. Reference is
made to Item 1 - BUSINESS - "Certain Factors Affecting the Industry" and Item 7
- - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Industry Restructuring" of GEORGIA in
the Form 10-K for additional information.
36
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Compliance costs related to the Clean Air Act and other environmental
issues could affect earnings if such costs cannot be recovered. For additional
information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental
Issues" of GEORGIA and Note 3 to the financial statements of GEORGIA in Item 8
of the Form 10-K for information on the EPA litigation.
Reference is made to Notes (C) through (E), (H) and (I) in the "Notes to
the Condensed Financial Statements" herein for discussion of various
contingencies and other matters which may affect future earnings potential.
Reference is also made to Part II - Item 1 - "Legal Proceedings" herein.
Accounting Policies
Critical Policy
GEORGIA's significant accounting policies are described in Note 1 to the
financial statements of GEORGIA in Item 8 of the Form 10-K. GEORGIA's only
critical accounting policy involves rate regulation. GEORGIA is subject to the
provisions of FASB Statement No. 71, "Accounting for the Effects of Certain
Types of Regulation". In the event that a portion of GEORGIA's operations is no
longer subject to these provisions, GEORGIA would be required to write off
related regulatory assets and liabilities that are not specifically recoverable,
and determine if any other assets, including plant, have been impaired.
New Accounting Standards
Effective January 1, 2001, GEORGIA adopted FASB Statement No. 133 "Accounting
for Derivatives and Hedging Activities," as amended, and changed the method of
accounting for derivative instruments. Derivatives are now reflected on the
Condensed Balance Sheet as either an asset or liability measured at fair market
value, and the changes in the fair value are currently recognized in earnings
unless specific hedge accounting criteria are met. An additional interpretation
of Statement No. 133 may result in a change -- effective on April 1, 2002 -- in
accounting for certain contracts related to fuel supplies that contain quantity
options. If these contracts are derivatives, they will be marked to market.
However, due to the existence of specific cost-based fuel recovery clauses for
GEORGIA, this change is not expected to have a material impact on net income.
In June 2001, the FASB issued Statement No. 143, "Asset Retirement
Obligations," which establishes new accounting and reporting standards for legal
obligations associated with retiring assets, including decommissioning nuclear
plants. The liability for an asset's future retirement must be recorded in the
period in which the liability is incurred. The cost must be capitalized as part
of the related long-lived asset and depreciated over the asset's useful life.
Changes in the liability resulting from the passage of time will be recognized
as operating expenses. Statement No. 143 must be adopted by January 1, 2003.
GEORGIA is currently assessing the impact of adopting Statement No. 143 on its
financial statements. Reference is made to Note 1 to the financial statements of
GEORGIA under "Depreciation and Nuclear Decommissioning" in Item 8 of the Form
10-K.
37
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
Overview
The major changes in GEORGIA's financial condition during the first three months
of 2002 were the sale of two units at Plant Wansley to Southern Power and the
addition of approximately $215 million to utility plant. The funds for these
additions and other capital requirements were derived primarily from operations.
See GEORGIA's Condensed Statements of Cash Flows for further details.
Credit Rating Risk
GEORGIA does not have any credit agreements that would require material changes
in payment schedules or terminations as a result of a credit rating downgrade.
There are certain physical electricity sale contracts that could require
collateral -- but not termination -- in the event of a credit rating change to
below investment grade. At March 31, 2002, the maximum potential collateral
requirements were approximately $111 million.
Exposure to Market Risks
GEORGIA's market risk exposures relative to interest rate changes have not
changed materially compared with the previous reporting period, December 31,
2001. In addition, GEORGIA is not aware of any facts or circumstances that would
significantly affect such exposures in the near term.
Due to cost-based rate regulations, GEORGIA has limited exposure to market
volatility in interest rates, commodity fuel prices, and prices of electricity.
To mitigate residual risks relative to movements in electricity prices, GEORGIA
entered into fixed price contracts for the purchase and sale of electricity
through the wholesale electricity market and to a lesser extent similar
contracts for gas purchases. Realized gains and losses are recognized in the
Statements of Income as incurred. At March 31, 2002, exposure from these
activities was not material to GEORGIA's financial statements. Fair value of
changes in energy trading contracts and valuations at March 31, 2002 are as
follows:
Year-to-Date
Changes
----------------------
Fair Value
- ------------------------------------------ ----------------------
(in thousands)
Contracts beginning of year $ 362
Contracts realized or settled 125
New contracts at inception -
Changes in valuation techniques -
Current period changes (2,147)
- ------------------------------------------ ----------------------
Contracts at March 31, 2002 $ (1,660)
========================================== ======================
38
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Source of March 31, 2002
Valuation Prices
------------------------------------
Total Maturity
------------------------
Fair Value Year 1 1-3 Years
- ----------------------------- ------------------------------------
(in thousands)
- ----------------------------- ----------- ----------- ------------
Actively quoted $(1,660) $(1,690) $ 30
External sources - - -
Models and other methods - - -
- ----------------------------- ----------- ----------- ------------
Contracts at
March 31, 2002 $(1,660) %(1,690) $ 30
============================= =========== =========== ============
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Exposure
to Market Risks" of GEORGIA in the Form 10-K and Note 1 to the financial
statements of GEORGIA in Item 8 of the Form 10-K for additional information.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of GEORGIA
under "Liquidity and Capital Requirements," "Other Capital Requirements" and
"Environmental Issues" in the Form 10-K for a description of GEORGIA's capital
requirements for its construction program and environmental compliance efforts.
Sources of Capital
GEORGIA plans to obtain the funds required for construction and other purposes
from sources similar to those used in the past. The amount, type and timing of
any financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. See Item 1
- - BUSINESS - "Financing Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, GEORGIA had at March 31,
2002 approximately $45.1 million of cash and cash equivalents and approximately
$1.765 billion of unused credit arrangements with banks, of which $1.265 billion
expires in 2002 and $500 million expires in 2003 and beyond. The credit
arrangements provide liquidity support to GEORGIA's obligations with respect to
variable rate pollution control bonds and its commercial paper program. GEORGIA
may also meet short-term cash needs through a SOUTHERN subsidiary organized to
issue and sell commercial paper at the request and for the benefit of GEORGIA
and other SOUTHERN subsidiaries. At March 31, 2002, GEORGIA had outstanding $1
billion of notes payable. Management believes that the need for working capital
can be adequately met by utilizing lines of credit without maintaining large
cash balances.
39
GULF POWER COMPANY
40
GULF POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months
Ended March 31,
2002 2001
------------- --------------
(in thousands)
Operating Revenues:
Retail sales $133,494 $128,830
Sales for resale --
Non-affiliates 17,434 20,147
Affiliates 2,581 8,610
Other revenues 7,424 7,442
------------- --------------
Total operating revenues 160,933 165,029
------------- --------------
Operating Expenses:
Fuel 36,755 49,332
Purchased power --
Non-affiliates 5,804 8,501
Affiliates 17,061 11,566
Other 26,925 27,226
Maintenance 18,189 13,459
Depreciation and amortization 17,291 16,675
Taxes other than income taxes 14,415 13,485
------------- --------------
Total operating expenses 136,440 140,244
------------- --------------
Operating Income 24,493 24,785
Other Income (Expense):
Interest income 149 170
Other, net 1,627 (799)
------------- --------------
Earnings Before Interest and Income Taxes 26,269 24,156
------------- --------------
Interest and Other:
Interest expenses, net 6,986 6,273
Distributions on preferred securities of subsidiary 2,103 1,550
------------- --------------
Total interest charges and other, net 9,089 7,823
------------- --------------
Earnings Before Income Taxes 17,180 16,333
Income taxes 5,409 6,151
------------- --------------
Net Income Before Cumulative Effect of
Accounting Change 11,771 10,182
Cumulative effect of accounting change --
less income taxes of $42 thousand - 68
------------- --------------
Net Income 11,771 10,250
Dividends on Preferred Stock 54 54
------------- --------------
Net Income After Dividends on Preferred Stock $11,717 $10,196
============= ==============
The accompanying notes as they relate to GULF are an integral part
of these condensed statements.
41
GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months
Ended March 31,
2002 2001
------------- ---------------
(in thousands)
Operating Activities:
Net income $11,771 $10,250
Adjustments to reconcile net income
to net cash provided from operating activities --
Depreciation and amortization 18,474 17,636
Deferred income taxes and investment tax credits, net (4,442) (269)
Other, net (2,596) 87
Changes in certain current assets and liabilities --
Receivables, net (2,429) 26,708
Fossil fuel stock (8,048) (18,587)
Materials and supplies 58 (225)
Accounts payable 799 (18,470)
Regulatory clauses under/over recovery 4,852 (3,462)
Other 12,886 2,240
------------- ---------------
Net cash provided from operating activities 31,325 15,908
------------- ---------------
Investing Activities:
Gross property additions (39,801) (46,419)
Other (14,899) (5,281)
------------- ---------------
Net cash used for investing activities (54,700) (51,700)
------------- ---------------
Financing Activities:
Decrease in notes payable, net (41,652) (23,000)
Proceeds --
Other long-term debt 44,853 -
Capital contributions from parent company 37,259 70,000
Retirements --
Other long-term debt - (71)
Payment of preferred stock dividends (54) (54)
Payment of common stock dividends (16,375) (13,500)
Other (575) -
------------- ---------------
Net cash provided from financing activities 23,456 33,375
------------- ---------------
Net Change in Cash and Cash Equivalents 81 (2,417)
Cash and Cash Equivalents at Beginning of Period 2,244 4,381
------------- ---------------
Cash and Cash Equivalents at End of Period $ 2,325 $1,964
============= ===============
Supplemental Cash Flow Information:
Cash paid during the period for --
Interest (net of amount capitalized) $11,808 $7,041
Income taxes (net of refunds) (1,467) 2,499
The accompanying notes as they relate to GULF are an integral part
of these condensed statements.
42
GULF POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Assets 2002 2001
- ------
------------------ --------------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 2,325 $ 2,244
Receivables --
Customer accounts receivable 63,919 64,113
Under recovered regulatory clauses 18,345 24,912
Other accounts and notes receivable 6,340 4,316
Affiliated companies 3,514 2,689
Accumulated provision for uncollectible accounts (1,292) (1,342)
Fossil fuel stock, at average cost 55,703 47,655
Materials and supplies, at average cost 28,799 28,857
Other 6,184 12,662
------------------ --------------------
Total current assets 183,837 186,106
------------------ --------------------
Property, Plant, and Equipment:
In service 1,979,116 1,951,512
Less accumulated provision for depreciation 921,437 912,581
------------------ --------------------
1,057,679 1,038,931
Construction work in progress 269,514 264,525
------------------ --------------------
Property, plant, and equipment 1,327,193 1,303,456
------------------ --------------------
Other Property and Investments 10,078 7,049
------------------ --------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes 16,932 16,766
Prepaid pension costs 31,515 29,980
Debt expense, being amortized 2,617 3,036
Premium on reacquired debt, being amortized 14,149 14,518
Other 12,641 12,222
------------------ --------------------
Total deferred charges and other assets 77,854 76,522
------------------ --------------------
Total Assets $1,598,962 $1,573,133
================== ====================
The accompanying notes as they relate to GULF are an integral part
of these condensed statements.
43
GULF POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Liabilities and Stockholder's Equity 2002 2001
- ------------------------------------
---------------- --------------------
(in thousands)
Current Liabilities:
Notes payable $ 45,659 $ 87,311
Accounts payable --
Affiliated 24,604 18,202
Other 22,564 38,308
Customer deposits 14,982 14,506
Taxes accrued --
Income taxes 10,868 8,162
Other 7,759 8,053
Interest accrued 7,415 8,305
Provision for rate refund 72 1,530
Vacation pay accrued 4,725 4,725
Regulatory clauses over recovery 2,005 3,719
Other 8,848 6,528
---------------- --------------------
Total current liabilities 149,501 199,349
---------------- --------------------
Long-term debt 511,838 467,784
---------------- --------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 160,724 161,968
Deferred credits related to income taxes 27,349 28,293
Accumulated deferred investment tax credits 23,576 24,056
Employee benefits provisions 38,129 41,508
Other 31,114 26,045
---------------- --------------------
Total deferred credits and other liabilities 280,892 281,870
---------------- --------------------
Company obligated mandatorily redeemable preferred
securities of subsidiary trusts holding company junior
subordinated notes 115,000 115,000
---------------- --------------------
Preferred stock 4,236 4,236
---------------- --------------------
Common Stockholder's Equity:
Common stock, without par value--
Authorized - 992,717 shares
Outstanding - 992,717 shares 38,060 38,060
Paid-in capital 343,219 305,960
Premium on preferred stock 12 12
Retained earnings 156,204 160,862
---------------- --------------------
Total common stockholder's equity 537,495 504,894
---------------- --------------------
Total Liabilities and Stockholder's Equity $1,598,962 $1,573,133
================ ====================
The accompanying notes as they relate to GULF are an integral part
of these condensed statements.
44
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 2002 vs. FIRST QUARTER 2001
RESULTS OF OPERATIONS
Earnings
GULF's net income after dividends on preferred stock for the first quarter 2002
was $11.7 million compared to $10.2 million for the same period in 2001.
Earnings for the first quarter 2002 increased by $1.5 million, or 14.9%, due
primarily to an increase in other income.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
----------------------------------
First Quarter
----------------------------------
(in thousands) %
Retail sales............................ $4,664 3.6
Sales for resale - non-affiliates....... (2,713) (13.5)
Sales for resale - affiliates........... (6,029) (70.0)
Fuel expense............................ (12,577) (25.5)
Purchased power - non-affiliates........ (2,697) (31.7)
Purchased power - affiliates............ 5,495 47.5
Maintenance expense..................... 4,730 35.1
Other, net.............................. 2,426 303.6
Retail sales. Excluding the recovery of fuel expense and certain other
expenses that do not affect net income, retail sales increased by $5.1 million,
or 6.7%, for the first quarter 2002. During the first quarter 2002, retail sales
revenue was higher primarily due to growth in the number of residential
customers served by GULF, as well as revenues subject to refund of $2.5 million
in 2001. There are no revenues subject to refund for the first quarter of 2002.
Sales for resale - non-affiliates. In the first quarter 2002, sales for
resale to non-affiliates decreased when compared to the corresponding period in
2001 due mainly to reduced demand for energy by these customers. These
transactions do not have a significant impact on earnings since the energy is
usually sold at variable cost.
Sales for resale - affiliates and Purchased power - affiliates. Revenues
from sales for resale to affiliated companies, as well as purchases of energy,
within the SOUTHERN system will vary depending on demand and the availability
and cost of generating resources at each company. These transactions do not have
a significant impact on earnings.
45
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Fuel expense. The decrease in fuel expense during the first quarter of 2002
is mainly attributed to reduced generation of energy, as well as lower average
fuel costs when compared to the same period in 2001. Since energy expenses are
generally offset by energy revenues through GULF's fuel cost recovery mechanism,
these expenses do not have a significant impact on net income.
Purchased power - non-affiliates. During the first quarter 2002, purchased
power from non-affiliates decreased due primarily to lower costs for this energy
when compared to the same period in 2001. Since energy expenses are generally
offset by energy revenues through GULF's purchased power capacity clause
recovery mechanism, these expenses do not have a significant impact on net
income.
Maintenance expense. The first quarter 2002 increase in maintenance expense
primarily resulted from increased scheduled production maintenance when compared
to the first quarter of the previous year.
Other, net. Other, net increased during the first quarter 2002 when
compared to the same period in the prior year due mainly to a higher allowance
for equity funds used during construction related to the construction of GULF's
new combined cycle unit, Plant Smith Unit 3.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including regulatory matters and the effect of weather and the economy
on energy sales.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, GULF is positioning the
business to meet the challenge of increasing competition. For additional
information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future
Earnings Potential" of GULF and Item 1 - BUSINESS - "Competition" in the Form
10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs are not fully recovered through GULF's Environmental Cost Recovery Clause.
For additional information about the Clean Air Act and other environmental
issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental
Matters" of GULF in the Form 10-K.
In 1999, the Florida PSC approved GULF's plan to reduce its authorized rate
of return, reduce retail base rates and share revenues with its customers. For
additional information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential" of GULF in the Form 10-K.
In April 2002, the Florida PSC approved an annual base rate increase for
GULF of $53.2 million to be effective in June 2002. Reference is made to Note
(J) in the "Notes to the Condensed Financial Statements" herein and Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of GULF in
the Form 10-K for additional information.
46
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On April 25, 2002, the Stakeholder Advisory Committee met and selected the
final four candidates that will be considered for the SeTrans ISA. Reference is
made to Item 1 - BUSINESS - "Certain Factors Affecting the Industry" and Item 7
- - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Industry Restructuring" of GULF in the
Form 10-K for additional information.
Reference is also made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Environmental Matters" and Note 3 to the financial statements of GULF in the
Form 10-K for information on EPA litigation.
Reference is made to Notes (C) through (E) and (J) in the "Notes to the
Condensed Financial Statements" herein for discussion of various contingencies
and other matters which may affect future earnings potential. Reference is also
made to Part II - Item 1 - "Legal Proceedings" herein.
Accounting Policies
Critical Policy
GULF's significant accounting policies are described in Note 1 to the financial
statements of GULF in Item 8 of the Form 10-K. GULF's only critical accounting
policy involves rate regulation. GULF is subject to the provisions of FASB
Statement No. 71, "Accounting for the Effects of Certain Types of Regulation".
In the event that a portion of GULF's operations is no longer subject to these
provisions, GULF would be required to write off related regulatory assets and
liabilities that are not specifically recoverable, and determine if any other
assets, including plant, have been impaired.
New Accounting Standards
Effective January 1, 2001, GULF adopted FASB Statement No. 133 "Accounting for
Derivatives and Hedging Activities," as amended, and changed the method of
accounting for derivative instruments. Derivatives are now reflected on the
Condensed Balance Sheet as either an asset or liability measured at fair market
value, and the changes in the fair value are currently recognized in earnings
unless specific hedge accounting criteria are met. An additional interpretation
of Statement No. 133 may result in a change -- effective on April 1, 2002 -- in
accounting for certain contracts related to fuel supplies that contain quantity
options. If these contracts are derivatives, they will be marked to market.
However, due to the existence of specific cost-based fuel recovery clauses for
GULF, this change is not expected to have a material impact on net income.
In June 2001, the FASB issued Statement No. 143, "Asset Retirement
Obligations," which establishes new accounting and reporting standards for legal
obligations associated with retiring assets. The liability for an asset's future
retirement must be recorded in the period in which the liability is incurred.
The cost must be capitalized as part of the related long-lived asset and
depreciated over the asset's useful life. Changes in the liability resulting
from the passage of time will be recognized as operating expenses. Statement No.
143 must be adopted by January 1, 2003. GULF is currently assessing the impact
of adopting Statement No. 143 on its financial statements.
47
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
Overview
Major changes in GULF's financial condition during the first three months of
2002 included the addition of approximately $39.8 million to utility plant. The
funds for these additions and other capital requirements were derived primarily
from operations, other long-term debt and capital contributions from SOUTHERN.
See GULF's Condensed Statements of Cash Flows for further details.
Credit Rating Risk
GULF does not have any credit agreements that would require material changes in
payment schedules or terminations as a result of a credit rating downgrade.
Exposure to Market Risks
GULF's market risk exposures relative to interest rate changes have not changed
materially compared with the previous reporting period, December 31, 2001. In
addition, GULF is not aware of any facts or circumstances that would
significantly affect such exposures in the near term.
Due to cost-based rate regulations, GULF has limited exposure to market
volatility in interest rates, commodity fuel prices, and prices of electricity.
To mitigate residual risks relative to movements in electricity prices, GULF
entered into fixed price contracts for the purchase and sale of electricity
through the wholesale electricity market and, to a lesser extent, similar
contracts for gas purchases. Realized gains and losses are recognized in the
Statements of Income as incurred. At March 31, 2002, exposure from these
activities was not material to GULF's financial statements. Fair value of
changes in energy trading contracts and valuations at March 31, 2002 are as
follows:
Year-to-Date
Changes
----------------------
Fair Value
- ------------------------------------------ ----------------------
(in thousands)
Contracts beginning of year $ (110)
Contracts realized or settled 20
New contracts at inception -
Changes in valuation techniques -
Current period changes (178)
- ------------------------------------------ ----------------------
Contracts at March 31, 2002 $ (268)
========================================== ======================
48
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Source of March 31, 2002
Valuation Prices
------------------------------------
Total Maturity
------------------------
Fair Value Year 1 1-3 Years
- ---------------------------- ------------------------------------
(in thousands)
- ----------------------------- ----------- ----------- ------------
Actively quoted $ (268) $(273) $ 5
External sources - - -
Models and other
method - - -
- ----------------------------- ----------- ----------- ------------
Contracts at
March 31, 2002 $ (268) $(273) $ 5
============================= =========== =========== ============
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Exposure
to Market Risks" of GULF in the Form 10-K and Note 1 to the financial statements
of GULF in Item 8 of the Form 10-K for additional information.
Financing Activities
In January 2002, GULF issued $45 million of Series E 6.00% Senior Notes due
January 30, 2012. The proceeds from the sale were used by GULF to finance
certain construction costs incurred in connection with Plant Smith Unit 3,
GULF's 574 megawatt combined cycle facility, which was placed in service in
April 2002, and for general corporate purposes. GULF plans to continue, to the
extent possible, a program to retire higher cost debt and replace these
securities with lower-cost capital.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of GULF under
"Capital Requirements for Construction", "Other Capital Requirements" and
"Environmental Matters" in the Form 10-K for a description of GULF's capital
requirements for its construction program and environmental compliance efforts.
Sources of Capital
In addition to the financing activities previously described herein, GULF plans
to obtain the funds required for construction and other purposes from sources
similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. See Item 1
- - BUSINESS - "Financing Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, GULF had at March 31, 2002
approximately $2.3 million of cash and cash equivalents and $113 million of
unused committed lines of credit with banks that expire at various times in
2002. The credit arrangements provide liquidity support to GULF's obligations
with respect to variable rate pollution control bonds and commercial paper. GULF
may also meet short-term cash needs through a SOUTHERN subsidiary organized to
issue and sell commercial paper at the request and for the benefit of GULF and
other SOUTHERN subsidiaries. At March 31, 2002, GULF had outstanding $45.7
million of notes payable. Management believes that the need for working capital
can be adequately met by utilizing lines of credit without maintaining large
cash balances.
49
MISSISSIPPI POWER COMPANY
50
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months
Ended March 31,
2002 2001
-----------------------------
(in thousands)
Operating Revenues:
Retail sales $118,467 $114,579
Sales for resale --
Non-affiliates 52,152 40,288
Affiliates 9,613 11,988
Other revenues 2,826 4,457
------------- ---------------
Total operating revenues 183,058 171,312
------------- ---------------
Operating Expenses:
Fuel 60,202 37,484
Purchased power --
Non-affiliates 2,841 14,623
Affiliates 7,406 31,536
Other 35,361 26,369
Maintenance 20,671 13,848
Depreciation and amortization 14,512 11,916
Taxes other than income taxes 13,192 11,921
------------- ---------------
Total operating expenses 154,185 147,697
------------- ---------------
Operating Income 28,873 23,615
Other Income:
Interest income 86 144
Other, net 107 207
------------- ---------------
Earnings Before Interest and Income Taxes 29,066 23,966
------------- ---------------
Interest Expense and Other:
Interest expense, net 5,046 6,946
Distributions on preferred securities of subsidiary 748 678
------------- ---------------
Total interest charges and other, net 5,794 7,624
------------- ---------------
Earnings Before Income Taxes 23,272 16,342
Income taxes 8,787 6,124
------------- ---------------
Net Income Before Cumulative Effect of
Accounting Change 14,485 10,218
Cumulative effect of accounting change --
less income taxes of $43 thousand - 70
------------- ---------------
Net Income 14,485 10,288
Dividends on Preferred Stock 503 531
------------- ---------------
Net Income After Dividends on Preferred Stock $13,982 $ 9,757
============= ===============
The accompanying notes as they relate to MISSISSIPPI are an integral
part of these condensed statements.
51
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months
Ended March 31,
2002 2001
------------ ---------------
(in thousands)
Operating Activities:
Net income $14,485 $10,288
Adjustments to reconcile net income
to net cash provided from operating activities --
Depreciation and amortization 15,531 12,892
Deferred income taxes and investment tax credits, net (5,429) (1,443)
Other, net 3,063 (5,331)
Changes in certain current assets and liabilities --
Receivables, net 15,279 6,568
Fossil fuel stock (310) (13,020)
Materials and supplies (989) 133
Accounts payable (8,184) (1,545)
Other (20,603) (15,268)
------------ ---------------
Net cash provided from (used for) operating activities 12,843 (6,726)
------------ ---------------
Investing Activities:
Gross property additions (18,687) (14,151)
Other (6,807) (3,972)
------------ ---------------
Net cash used for investing activities (25,494) (18,123)
------------ ---------------
Financing Activities:
Increase in notes payable, net 19,958 34,200
Proceeds --
Senior notes 80,000 -
Preferred securities 35,000 -
Capital contributions from parent company 220 -
Retirements --
Senior notes (80,104) (379)
Payment of preferred stock dividends (503) (531)
Payment of common stock dividends (15,875) (12,800)
------------ ---------------
Net cash provided from financing activities 38,696 20,490
------------ ---------------
Net Change in Cash and Cash Equivalents 26,045 (4,359)
Cash and Cash Equivalents at Beginning of Period 18,950 7,531
------------ ---------------
Cash and Cash Equivalents at End of Period $44,995 $ 3,172
============ ===============
Supplemental Cash Flow Information:
Cash paid during the period for --
Interest (net of amount capitalized) $2,233 $5,785
Income taxes (net of refunds) $6,502 $1,472
The accompanying notes as they relate to MISSISSIPPI are an integral
part of these condensed statements.
52
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Assets 2002 2001
- ------
------------------ --------------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 44,995 $ 18,950
Receivables --
Customer accounts receivable 49,941 48,200
Under recovered regulatory clauses 18,350 15,086
Other accounts and notes receivable 11,270 26,068
Affiliated companies 16,957 22,569
Accumulated provision for uncollectible accounts (730) (856)
Fossil fuel stock, at average cost 31,799 31,489
Materials and supplies, at average cost 24,212 23,223
Other 24,095 16,002
------------------ --------------------
Total current assets 220,889 200,731
------------------ --------------------
Property, Plant, and Equipment:
In service 1,746,409 1,741,499
Less accumulated provision for depreciation 707,505 698,681
------------------ --------------------
1,038,904 1,042,818
Construction work in progress 49,926 38,253
------------------ --------------------
Property, plant, and equipment 1,088,830 1,081,071
------------------ --------------------
Other Property and Investments 4,575 1,900
------------------ --------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes 13,200 13,394
Prepaid pension costs 12,056 11,171
Debt expense, being amortized 4,211 4,396
Premium on reacquired debt, being amortized 6,548 6,719
Other 13,656 20,821
------------------ --------------------
Total deferred charges and other assets 49,671 56,501
------------------ --------------------
Total Assets $1,363,965 $1,340,203
================== ====================
The accompanying notes as they relate to MISSISSIPPI are an integral
part of these condensed statements.
53
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Liabilities and Stockholder's Equity 2002 2001
- ------------------------------------
------------------- --------------------
(in thousands)
Current Liabilities:
Securities due within one year $ 35,020 $ 80,020
Notes payable 35,931 15,973
Accounts payable --
Affiliated 17,248 6,175
Other 64,834 92,538
Customer deposits 6,960 6,540
Taxes accrued --
Income taxes 22,695 14,981
Other 12,489 35,282
Interest accrued 8,057 5,079
Vacation pay accrued 5,810 5,810
Regulatory clauses over recovery 21,674 13,296
Other 9,157 12,041
------------------- --------------------
Total current liabilities 239,875 287,735
------------------- --------------------
Long-term debt 313,661 233,753
------------------- --------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 136,051 138,913
Deferred credits related to income taxes 22,919 23,626
Accumulated deferred investment tax credits 21,964 22,268
Employee benefits provisions 37,977 37,564
Workforce reduction plan 7,899 8,263
Other 26,803 29,592
------------------- --------------------
Total deferred credits and other liabilities 253,613 260,226
------------------- --------------------
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding company junior
subordinated notes 35,000 35,000
------------------- --------------------
Preferred stock 31,809 31,809
------------------- --------------------
Common Stockholder's Equity:
Common stock equity --
Authorized - 1,130,000 shares
Outstanding - 1,121,000 shares
Par value 37,691 37,691
Paid-in capital 267,476 267,256
Premium on preferred stock 326 326
Retained earnings 184,514 186,407
------------------- --------------------
Total common stockholder's equity 490,007 491,680
------------------- --------------------
Total Liabilities and Stockholder's Equity $1,363,965 $1,340,203
=================== ====================
The accompanying notes as they relate to MISSISSIPPI are an integral
part of these condensed statements.
54
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 2002 vs. FIRST QUARTER 2001
RESULTS OF OPERATIONS
Earnings
MISSISSIPPI's net income after dividends on preferred stock for the first
quarter 2002 was $14.0 million compared to $9.8 million for the corresponding
period of 2001. Earnings for the first quarter 2002 increased $4.2 million, or
43.3%, primarily due to higher operating revenues and lower interest expense.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
---------------------------------
First Quarter
---------------------------------
(in thousands) %
Retail sales............................. $3,888 3.4
Sales for resale - non-affiliates........ 11,864 29.4
Sales for resale - affiliates............ (2,375) (19.8)
Other revenues........................... (1,631) (36.6)
Fuel expense............................. 22,718 60.6
Purchased power - non-affiliates......... (11,782) (80.6)
Purchased power - affiliates............. (24,130) (76.5)
Other operation expense.................. 8,992 34.1
Maintenance expense...................... 6,823 49.3
Depreciation and amortization............ 2,596 21.8
Retail sales. Excluding fuel revenues, which generally do not affect net
income, retail sales revenue was up by $10.6 million, or 17%, in the first
quarter 2002 when compared to the corresponding period in 2001 due to higher
retail energy sales and the retail rate increase which took effect in January
2002. Retail energy sales in the first quarter 2002 compared to the same period
in 2001 increased mainly due to colder than average weather.
Sales for resale - non-affiliates. During the first quarter 2002, sales for
resale to non-affiliates increased mainly due to demand for energy by
non-affiliates and additional power sales as a result of the commercial
operation in May 2001 of Plant Daniel Units 3 and 4 when compared to the
corresponding periods in 2001.
Sales for resale - affiliates and Purchased power - affiliates. Revenues
from sales for resale to affiliated companies, as well as purchases of energy,
within the SOUTHERN system will vary depending on demand and the availability
and cost of generating resources at each company. These transactions do not have
a significant impact on earnings.
Other revenues. The decrease in this item in the first quarter of 2002 when
compared to the same period in 2001 is mainly due to the sale of inventory in
the first quarter of 2001.
55
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Fuel expense. Higher fuel expenses in the first quarter of 2002 when
compared to the same period in the prior year are primarily attributed to
increased generation. Commercial operation of Plant Daniel Units 3 and 4, since
May 2001, is also a factor contributing to the increased fuel expense. Since
energy expenses are generally offset by energy revenues through MISSISSIPPI's
fuel cost recovery clause, these expenses do not have a significant impact on
earnings.
Purchased power - non-affiliates. In the first quarter 2002, purchased
power from non-affiliates decreased due primarily to commercial operation of the
new units at Plant Daniel in May 2001. These transactions do not have a
significant impact on net income since energy expenses are generally offset by
energy revenues through MISSISSIPPI's fuel cost recovery clause.
Other operation expense. In the first quarter 2002, other operation expense
increased over the same period in 2001 primarily a result of lease payments
related to the commercial operation of Plant Daniel Units 3 and 4 which began in
May 2001.
Maintenance expense. During the first quarter of 2002, maintenance expense
increased when compared to the corresponding period in 2001 primarily as a
result of scheduled maintenance performed at Plant Watson and Plant Daniel.
Depreciation and amortization. The first quarter 2002 increase over the
corresponding period in 2001 is primarily due to amortization of MISSISSIPPI's
regulatory asset related to the ECO Plan. For additional information about the
ECO Plan, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental
Matters" of MISSISSIPPI in the Form 10-K.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including regulatory matters, the effect of weather, and the economy on
energy sales.
In December 2001, the Mississippi PSC approved MISSISSIPPI'S annual retail
rate increase of approximately $39 million which became effective in January
2002. For additional information, see Note (K) in the "Notes to the Condensed
Financial Statements" herein.
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential" of MISSISSIPPI in the Form 10-K regarding the
settlement agreement between MISSISSIPPI and certain wholesale customers to
increase its wholesale tariff rates effective June 1, 2002. In March 2002, that
agreement was filed with the FERC for approval. On April 19, 2002, the FERC
accepted for filing the settlement agreement and placed the new tariff rates in
effect June 1, 2002 without modifying the agreement reached between MISSISSIPPI
and its customers. For additional information, see Note (L) in the "Notes to the
Condensed Financial Statements" herein.
With the enactment of the Energy Act and new legislation being discussed at
the federal level to expand customer choice, MISSISSIPPI is positioning the
business to meet the challenge of increasing competition. For additional
information, see Item 1 - BUSINESS - "Competition" and Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Future Earnings Potential" of MISSISSIPPI in the Form
10-K.
56
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
MISSISSIPPI's 2002 ECO Plan filing was approved, as filed, by the
Mississippi PSC on March 5, 2002 and resulted in a slight increase in rates.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot continue to be recovered. For additional information about the
Clean Air Act and other environmental issues, see Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Environmental Matters" of MISSISSIPPI in the Form
10-K.
On April 25, 2002, the Stakeholder Advisory Committee met and selected the
final four candidates that will be considered for the SeTrans ISA. Reference is
made to Item 1 - BUSINESS - "Certain Factors Affecting the Industry" and Item 7
- - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Industry Restructuring" of MISSISSIPPI
in the Form 10-K for additional information.
Reference is also made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Environmental Matters" and Note 3 to the financial statements of MISSISSIPPI in
the Form 10-K for information on EPA litigation.
Reference is made to Notes (C) through (E), (K) and (L) in the "Notes to
the Condensed Financial Statements" herein for discussion of various
contingencies and other matters which may affect future earnings potential.
Reference is also made to Part II - Item 1 - "Legal Proceedings" herein.
Accounting Policies
Critical Policy
MISSISSIPPI's significant accounting policies are described in Note 1 to the
financial statements of MISSISSIPPI in Item 8 of the Form 10-K. MISSISSIPPI's
critical accounting policy involves rate regulation. MISSISSIPPI is subject to
the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain
Types of Regulation". In the event that a portion of MISSISSIPPI's operations is
no longer subject to these provisions, MISSISSIPPI would be required to write
off related regulatory assets and liabilities that are not specifically
recoverable, and determine if any other assets, including plant, have been
impaired.
Additionally, MISSISSIPPI accounts for its lease agreement with Escatawpa
Funding, Limited Partnership (Escatawpa) as an operating lease. Under this
agreement, Escatawpa, a special purpose entity, is owner-lessor of the
combined-cycle generating units at MISSISSIPPI's Plant Daniel. MISSISSIPPI does
not consolidate this entity since parties unrelated to MISSISSIPPI have made
substantive residual equity capital investments in excess of 3 percent. The FASB
is in the process of issuing a draft addressing issues related to identifying
and accounting for certain special purpose entities. One contemplated change
would increase the three percent outside equity requirement to 10 percent. This
interpretation is in draft form; therefore, final conclusions may differ from
the draft. However, certain changes to the accounting guidance could result in
MISSISSIPPI having to change its accounting for this lease agreement, including
having to consolidate the leased asset and related debt.
New Accounting Standards
Effective January 1, 2001, MISSISSIPPI adopted FASB Statement No. 133
"Accounting for Derivatives and Hedging Activities," as amended, and changed the
method of accounting for derivative instruments. Derivatives are now reflected
on the Condensed Balance Sheet as either an asset or liability measured at fair
market value, and the changes in the fair value are currently recognized in
earnings unless specific hedge accounting criteria are met. An additional
interpretation of Statement No. 133 may result in a change -- effective on April
1, 2002 -- in accounting for certain contracts
57
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
related to fuel supplies that contain quantity options. If these contracts are
derivatives, they will be marked to market. However, due to the existence of
specific cost-based fuel recovery clauses for MISSISSIPPI, this change is not
expected to have a material impact on net income.
In June 2001, the FASB issued Statement No. 143, "Asset Retirement
Obligations," which establishes new accounting and reporting standards for legal
obligations associated with retiring assets. The liability for an asset's future
retirement must be recorded in the period in which the liability is incurred.
The cost must be capitalized as part of the related long-lived asset and
depreciated over the asset's useful life. Changes in the liability resulting
from the passage of time will be recognized as operating expenses. Statement No.
143 must be adopted by January 1, 2003. MISSISSIPPI is currently assessing the
impact of adopting Statement No. 143 on its financial statements.
FINANCIAL CONDITION
Overview
Major changes in MISSISSIPPI's financial condition during the first three months
of 2002 included the addition of approximately $18.7 million to utility plant.
The funds for these additions and other capital requirements were derived
primarily from operations. See MISSISSIPPI's Condensed Statements of Cash Flows
for further details.
Off-Balance Sheet Financing Arrangements
In May 2001, MISSISSIPPI began the initial 10-year term of an operating lease
agreement signed in 1999 with Escatawpa, a special purpose entity, to use a
combined-cycle generating facility located at MISSISSIPPI's Plant Daniel. The
facility cost approximately $370 million. The lease provides for a residual
value guarantee -- approximately 71 percent of the completion cost -- by
MISSISSIPPI that is due upon termination of the lease in certain circumstances.
Reference is made to Note 4 to the financial statements in Item 8 of MISSISSIPPI
in the Form 10-K for additional information.
Credit Rating Risk
MISSISSIPPI does not have any credit agreements that would require material
changes in payment schedules or terminations as a result of a credit rating
downgrade. There are certain fixed-price physical gas purchase contracts that
could require collateral - but not accelerated payment - in the event of a
credit rating change to below investment grade; however, at March 31, 2002, this
exposure was immaterial.
Exposure to Market Risks
MISSISSIPPI's market risk exposures relative to interest rate changes have not
changed materially compared with the previous reporting period, December 31,
2001. In addition, MISSISSIPPI is not aware of any facts or circumstances that
would significantly affect such exposures in the near term.
58
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Due to cost-based rate regulations, MISSISSIPPI has limited exposure to
market volatility in interest rates, commodity fuel prices, and prices of
electricity. To mitigate residual risks relative to movements in electricity
prices, MISSISSIPPI enters into fixed price contracts for the purchase and sale
of electricity through the wholesale electricity market. Realized gains and
losses are recognized in the income statements as incurred. At March 31, 2002,
exposure from these activities was not material to MISSISSIPPI's financial
statements. Also, based on MISSISSIPPI's overall variable rate long-term debt
exposure at March 31, 2002, a near-term 100 basis point change in interest rates
would not materially affect MISSISSIPPI's financial statements. Fair value of
changes in energy trading contracts and year-end valuations are as follows:
Year-to-Date Changes
----------------------
Fair Value
- ------------------------------------------ ----------------------
(in thousands)
Contracts beginning of year $ (3,830)
Contracts realized or settled 20
New contracts at inception -
Changes in valuation techniques -
Current period changes 8,990
- ------------------------------------------ ----------------------
Contracts at March 31, 2002 $ 5,180
========================================== ======================
Source of March 31, 2002
Valuation Prices
------------------------------------
Total Maturity
------------------------
Fair Value Year 1 1-3 Years
- ----------------------------- ----------- ----------- ------------
(in thousands)
- ----------------------------- ----------- ----------- ------------
Actively quoted $ 5,180 $2,338 $2,842
External sources - - -
Models and other methods - - -
- ----------------------------- ----------- ----------- ------------
Contracts at
March 31, 2002 $5,180 $2,338 $2,842
============================= =========== =========== ============
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Exposure
to Market Risks" of MISSISSIPPI in the Form 10-K and Note 1 to the financial
statements of MISSISSIPPI in Item 8 of the Form 10-K for additional information.
Financing Activities
In March 2002, MISSISSIPPI issued $80 million of Series D Floating Rate Senior
Notes due March 12, 2004. The proceeds of the sale were used to repay $80
million of Series C Floating Rate Senior Notes due March 28, 2002. Also in March
2002, Mississippi Power Capital Trust II, a statutory business trust, sold $35
million of its 7.20% trust originated preferred securities, which are guaranteed
by MISSISSIPPI, for the purpose of redeeming in May 2002, $35 million of
Mississippi Power Capital Trust I 7.75% trust originated preferred securities.
The 7.75% trust originated preferred securities are classified under current
liabilities as securities due within one year in MISSISSIPPI's Condensed Balance
Sheet herein.
MISSISSIPPI plans to continue, to the extent possible, a program to retire
higher cost debt and replace these securities with lower-cost capital.
59
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of
MISSISSIPPI under "Capital Requirements for Construction," "Environmental
Matters" and "Other Capital Requirements" and Note 3 to the financial statements
in the Form 10-K for a description of MISSISSIPPI's capital requirements for its
construction program, environmental compliance efforts, sinking fund
requirements and maturities of long-term debt.
Sources of Capital
In addition to the financing activities previously described herein, MISSISSIPPI
plans to obtain the funds required for construction and other purposes from
sources similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. See Item 1
- - BUSINESS - "Financing Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, MISSISSIPPI had at March
31, 2002 approximately $45 million of cash and cash equivalents and
approximately $88.5 million of unused committed credit arrangements with banks.
Of MISSISSIPPI's committed lines of credit, $119.5 million expires in 2002 and
$5 million expires in 2003. The credit arrangements provide liquidity support to
MISSISSIPPI's obligation with respect to variable rate pollution control bonds
and commercial paper. MISSISSIPPI may also meet short-term cash needs through a
SOUTHERN subsidiary organized to issue and sell commercial paper at the request
and for the benefit of MISSISSIPPI and other SOUTHERN subsidiaries. At March 31,
2002, MISSISSIPPI had outstanding $35.9 million of notes payable. Management
believes that the need for working capital can be adequately met by utilizing
lines of credit without maintaining large cash balances.
60
SAVANNAH ELECTRIC
AND
POWER COMPANY
61
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months
Ended March 31,
2002 2001
------------------------------
(in thousands)
Operating Revenues:
Retail sales $54,947 $58,419
Sales for resale --
Non-affiliates 933 1,558
Affiliates 898 1,227
Other revenues 600 487
-------------- ---------------
Total operating revenues 57,378 61,691
-------------- ---------------
Operating Expenses:
Fuel 8,928 9,394
Purchased power --
Non-affiliates 1,067 2,326
Affiliates 12,127 15,748
Other 13,072 11,681
Maintenance 5,325 6,048
Depreciation and amortization 6,509 6,460
Taxes other than income taxes 3,485 3,235
-------------- ---------------
Total operating expenses 50,513 54,892
-------------- ---------------
Operating Income 6,865 6,799
Other Income (Expense):
Interest income 13 33
Other, net (639) (611)
-------------- ---------------
Earnings Before Interest and Income Taxes 6,239 6,221
-------------- ---------------
Interest Charges and Other:
Interest expense, net 2,769 3,276
Distributions on preferred securities of subsidiary 685 685
-------------- ---------------
Total interest charges and other, net 3,454 3,961
-------------- ---------------
Earnings Before Income Taxes 2,785 2,260
Income taxes 983 806
-------------- ---------------
Net Income Before Cumulative Effect of
Accounting Change 1,802 1,454
Cumulative effect of accounting change --
less income taxes of $14 thousand - 22
-------------- ---------------
Net Income $ 1,802 $ 1,476
============== ===============
The accompanying notes as they relate to SAVANNAH are an integral
part of these condensed statements.
62
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months
Ended March 31,
2002 2001
------------- ---------------
(in thousands)
Operating Activities:
Net income $1,802 $1,476
Adjustments to reconcile net income
to net cash provided from operating activities --
Depreciation and amortization 6,419 6,999
Deferred income taxes and investment tax credits, net (4,453) (699)
Other, net (256) 2,140
Changes in certain current assets and liabilities --
Receivables, net 8,986 4,530
Fossil fuel stock 1,869 (1,143)
Materials and supplies 3,294 (206)
Accounts payable 492 (9,931)
Other (4,118) 2,054
------------- ---------------
Net cash provided from operating activities 14,035 5,220
------------- ---------------
Investing Activities:
Gross property additions (9,565) (11,068)
Other, net (15) 1,467
------------- ---------------
Net cash used for investing activities (9,580) (9,601)
------------- ---------------
Financing Activities:
Increase (decrease) in notes payable, net (91) 14,415
Proceeds --
Other long-term debt 356 -
Capital contributions from parent company 822 -
Retirements --
First mortgage bonds (436) -
Other long-term debt - (254)
Payment of common stock dividends (5,675) (5,500)
------------- ---------------
Net cash provided from (used for) financing activities (5,024) 8,661
------------- ---------------
Net Change in Cash and Cash Equivalents (569) 4,280
Cash and Cash Equivalents at Beginning of Period 2,391 -
------------- ---------------
Cash and Cash Equivalents at End of Period $1,822 $4,280
============= ===============
Supplemental Cash Flow Information:
Cash paid during the period for --
Interest (net of amount capitalized) $1,556 $3,532
Income taxes (net of refunds) 6,806 (3,459)
The accompanying notes as they relate to SAVANNAH are an integral
part of these condensed statements.
63
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Assets 2002 2001
- ------
------------------ --------------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 1,822 $ 2,391
Receivables --
Customer accounts receivable 30,942 29,959
Under recovered retail fuel clause revenue - 11,974
Other accounts and notes receivable 2,487 2,882
Affiliated companies 3,466 1,170
Accumulated provision for uncollectible accounts (396) (500)
Fossil fuel stock, at average cost 7,982 9,851
Materials and supplies, at average cost 9,675 12,969
Prepaid Taxes 17,925 12,511
Other 2,167 586
------------------ --------------------
Total current assets 76,070 83,793
------------------ --------------------
Property, Plant, and Equipment:
In service 858,235 855,290
Less accumulated provision for depreciation 408,496 402,492
------------------ --------------------
449,739 452,798
Construction work in progress 15,408 8,540
------------------ --------------------
Property, plant, and equipment 465,147 461,338
------------------ --------------------
Other Property and Investments 3,101 2,742
------------------ --------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes 12,135 12,283
Cash surrender value of life insurance for deferred compensation plans 20,002 20,002
Debt expense, being amortized 3,142 3,197
Premium on reacquired debt, being amortized 6,718 6,890
Other 7,254 4,498
------------------ --------------------
Total deferred charges and other assets 49,251 46,870
------------------ --------------------
Total Assets $593,569 $594,743
================== ====================
The accompanying notes as they relate to SAVANNAH are an integral
part of these condensed statements.
64
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Liabilities and Stockholder's Equity 2002 2001
- ------------------------------------
----------------- --------------------
(in thousands)
Current Liabilities:
Securities due within one year $ 823 $ 1,178
Notes payable 32,068 32,159
Accounts payable --
Affiliated 6,616 5,087
Other 8,868 10,160
Customer deposits 6,637 6,237
Taxes accrued --
Income taxes 1,218 2,587
Other 2,737 1,668
Interest accrued 5,650 4,014
Vacation pay accrued 2,390 2,361
Other 5,442 9,097
----------------- --------------------
Total current liabilities 72,449 74,548
----------------- --------------------
Long-term debt 160,984 160,709
----------------- --------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 78,476 77,331
Deferred credits related to income taxes 13,443 13,776
Accumulated deferred investment tax credits 9,786 9,952
Employee benefits provisions 29,209 27,486
Other 15,355 14,023
----------------- --------------------
Total deferred credits and other liabilities 146,269 142,568
----------------- --------------------
Company obligated mandatorily redeemable preferred
securities of subsidiary trusts holding company junior
subordinated notes 40,000 40,000
----------------- --------------------
Common Stockholder's Equity:
Common stock, par value $5 per share --
Authorized - 16,000,000 shares
Outstanding - 10,844,635 shares
Par value 54,223 54,223
Paid-in capital 13,649 12,826
Retained earnings 105,995 109,869
----------------- --------------------
Total common stockholder's equity 173,867 176,918
----------------- --------------------
Total Liabilities and Stockholder's Equity $593,569 $594,743
================= ====================
The accompanying notes as they relate to SAVANNAH are an integral
part of these condensed statements.
65
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 2002 vs. FIRST QUARTER 2001
RESULTS OF OPERATIONS
Earnings
SAVANNAH's net income for the first quarter 2002 was $1.8 million as compared to
$1.5 million for the corresponding period of 2001. Earnings were up $0.3
million, or 22.1%, in the first quarter 2002 due mainly to lower operating
expenses and lower interest charges. During the first quarter of 2002, weather
had no significant impact when compared to the same period in 2001.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
---------------------------------
First Quarter
---------------------------------
(in thousands) %
Retail sales............................. $(3,472) (5.9)
Sales for resale - non-affiliates........ (625) (40.1)
Sales for resale - affiliates............ (329) (26.8)
Fuel expense............................. (466) (5.0)
Purchased power - non-affiliates......... (1,259) (54.1)
Purchased power - affiliates............. (3,621) (23.0)
Other operation expense.................. 1,391 11.9
Maintenance expense...................... (723) (12.0)
Retail sales. Excluding fuel revenues, which do not affect net income,
retail sales revenue increased by $1.5 million, or 4.4%, for the first quarter
of 2002 when compared to the corresponding period in 2001 mainly due to growth
in the commercial sector.
Sales for resale - non-affiliates. In the first quarter 2002, sales for
resale to non-affiliates decreased when compared to the corresponding period in
2001 as a result of lower demand from these customers outside SAVANNAH's service
area. These transactions do not have a significant impact on earnings since the
energy is usually sold at variable cost.
Sales for resale - affiliates and Purchased power - affiliates. Revenues
from sales for resale to affiliated companies, as well as purchases of energy,
within the SOUTHERN system will vary depending on demand and the availability
and cost of generating resources at each company. These transactions do not have
a significant impact on earnings.
66
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Fuel expense. Lower fuel expense in the first quarter of 2002 compared to
the same period in 2001 was primarily due to decreased generation due to lower
demand for energy and lower gas prices.
Purchased power - non-affiliates. The first quarter 2002 decrease is
primarily due to lower demand for energy in SAVANNAH's service area and lower
costs associated with these energy purchases. These transactions do not have a
significant impact on net income since energy expenses are generally offset by
energy revenues through SAVANNAH's fuel cost recovery clause.
Other operation expense. During the first quarter 2002, the increase in
other operation expense is primarily due to higher administrative and general
expenses when compared to the corresponding period in 2001.
Maintenance expense. The decrease in this item for the first quarter 2002
compared to the first quarter 2001 is primarily attributed to a scheduled major
maintenance outage at one of SAVANNAH's plants in 2001.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including regulatory matters and the effect of weather and the economy
on energy sales.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, SAVANNAH is positioning the
business to meet the challenge of increasing competition. For additional
information, see Item 1 - BUSINESS - "Competition" and Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SAVANNAH in the Form
10-K.
Compliance costs related to the Clean Air Act and other environmental
issues could affect earnings if such costs cannot be recovered. For additional
information about the Clean Air Act and other environmental issues, see Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" of SAVANNAH in
the Form 10-K.
On April 25, 2002, the Stakeholder Advisory Committee met and selected the
final four candidates that will be considered for the SeTrans ISA. Reference is
made to Item 1 - BUSINESS - "Certain Factors Affecting the Industry" and Item 7
- - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Industry Restructuring" of SAVANNAH in
the Form 10-K for additional information.
Reference is also made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Environmental Matters" and Note 3 to the financial statements of SAVANNAH in
the Form 10-K for information on EPA litigation.
Reference is made to Notes (C) through (E) and (M) in the "Notes to the
Condensed Financial Statements" herein for discussion of various contingencies
and other matters which may affect future earnings potential. Reference is also
made to Part II - Item 1 - "Legal Proceedings" herein.
67
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Accounting Policies
Critical Policy
SAVANNAH's significant accounting policies are described in Note 1 to the
financial statements of SAVANNAH in Item 8 of the Form 10-K. SAVANNAH's only
critical accounting policy involves rate regulation. SAVANNAH is subject to the
provisions of FASB Statement No. 71, "Accounting for the Effects of Certain
Types of Regulation". In the event that a portion of SAVANNAH's operations is no
longer subject to these provisions, SAVANNAH would be required to write off
related regulatory assets and liabilities that are not specifically recoverable,
and determine if any other assets, including plant, have been impaired.
New Accounting Standards
Effective January 1, 2001, SAVANNAH adopted FASB Statement No. 133 "Accounting
for Derivatives and Hedging Activities," as amended, and changed the method of
accounting for derivative instruments. Derivatives are now reflected on the
Condensed Balance Sheet as either an asset or liability measured at fair market
value, and the changes in the fair value are currently recognized in earnings
unless specific hedge accounting criteria are met. An additional interpretation
of Statement No. 133 may result in a change -- effective on April 1, 2002 -- in
accounting for certain contracts related to fuel supplies that contain quantity
options. If these contracts are derivatives, they will be marked to market.
However, due to the existence of specific cost-based fuel recovery clauses for
SAVANNAH, this change is not expected to have a material impact on net income.
In June 2001, the FASB issued Statement No. 143, "Asset Retirement
Obligations," which establishes new accounting and reporting standards for legal
obligations associated with retiring assets. The liability for an asset's future
retirement must be recorded in the period in which the liability is incurred.
The cost must be capitalized as part of the related long-lived asset and
depreciated over the asset's useful life. Changes in the liability resulting
from the passage of time will be recognized as operating expenses. Statement No.
143 must be adopted by January 1, 2003. SAVANNAH is currently assessing the
impact of adopting Statement No. 143 on its financial statements.
FINANCIAL CONDITION
Overview
Major changes in SAVANNAH's financial condition during the first three months of
2002 included the addition of approximately $9.6 million to utility plant. The
funds for these additions and other capital requirements were derived primarily
from operations. See SAVANNAH's Condensed Statements of Cash Flows for further
details.
68
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Credit Rating Risk
SAVANNAH does not have any credit agreements that would require material changes
in payment schedules or terminations as a result of a credit rating downgrade.
Exposure to Market Risks
SAVANNAH's market risk exposures relative to interest rate changes have not
changed materially compared with the previous reporting period, December 31,
2001. In addition, SAVANNAH is not aware of any facts or circumstances that
would significantly affect such exposures in the near term.
Due to cost-based rate regulations, SAVANNAH has limited exposure to market
volatility in interest rates, commodity fuel prices, and prices of electricity.
To mitigate residual risks relative to movements in electricity prices, SAVANNAH
enters into fixed price contracts for the purchase and sale of electricity
through the wholesale electricity market. Realized gains and losses are
recognized in the income statements as incurred. At March 31, 2002, exposure
from these activities was not material to SAVANNAH's financial statements. Also,
based on SAVANNAH's overall variable rate long-term debt exposure at March 31,
2002, a near-term 100 basis point change in interest rates would not materially
affect SAVANNAH's financial statements. Fair value of changes in energy trading
contracts and valuations at March 31, 2002 are as follows:
Year-to-Date Changes
----------------------
Fair Value
- ------------------------------------------ ----------------------
(in thousands)
Contracts beginning of year $ (1,053)
Contracts realized or settled 7
New contracts at inception -
Changes in valuation techniques -
Current period changes 1,052
- ------------------------------------------ ----------------------
Contracts at March 31, 2002 $ 6
========================================== ======================
Source of March 31, 2002
Valuation Prices
------------------------------------
Total Maturity
------------------------
Fair Value Year 1 1-3 Years
- ----------------------------- ----------- ----------- ------------
(in thousands)
- ----------------------------- ----------- ----------- ------------
Actively quoted $ 6 $ 9 $ (3)
External sources - - -
Models and other methods - - -
- ----------------------------- ----------- ----------- ------------
Contracts at
March 31, 2002 $ 6 $ 9 $ (3)
============================= =========== =========== ============
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Exposure
to Market Risks" of SAVANNAH in the Form 10-K and Note 1 to the financial
statements of SAVANNAH in Item 8 of the Form 10-K for additional information.
69
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Financing Activities
SAVANNAH plans to continue, to the extent possible, a program to retire higher
cost debt and replace these securities with lower-cost capital.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of SAVANNAH
under "Capital Requirements for Construction", "Other Capital Requirements" and
"Environmental Matters" in the Form 10-K for a description of SAVANNAH's capital
requirements for its construction program and environmental compliance efforts.
Sources of Capital
SAVANNAH plans to obtain the funds required for construction and other purposes
from sources similar to those used in the past. The amount, type and timing of
any financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. See Item 1
- - BUSINESS - "Financing Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, SAVANNAH had at March 31,
2002 approximately $1.8 million of cash and cash equivalents and approximately
$65.5 million of committed credit arrangements with banks, of which $45.5
million expires in 2002 and $20 million expires in 2003. The credit arrangements
provide liquidity support to SAVANNAH's obligations with respect to variable
rate pollution control bonds and commercial paper. SAVANNAH may also meet
short-term cash needs through a SOUTHERN subsidiary organized to issue and sell
commercial paper at the request and for the benefit of SAVANNAH and other
SOUTHERN subsidiaries. At March 31, 2002, SAVANNAH had outstanding $32.1 million
of notes payable. Since SAVANNAH has no major generating plants under
construction, management believes that the need for working capital can be
adequately met by utilizing lines of credit.
70
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SAVANNAH ELECTRIC AND POWER COMPANY
INDEX TO APPLICABLE NOTES TO
FINANCIAL STATEMENTS BY REGISTRANT
Registrant Applicable Notes
SOUTHERN A, B, C, D, E, F, G, H, I, N
ALABAMA A, C, D, E, G
GEORGIA A, C, D, E, H, I
GULF A, C, D, E, J
MISSISSIPPI A, C, D, E, K, L
SAVANNAH A, C, D, E, M
71
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SAVANNAH ELECTRIC AND POWER COMPANY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS:
(A) The condensed financial statements of the registrants included herein
have been prepared by each registrant, without audit,
pursuant to the rules and regulations of the SEC. In the opinion of
each registrant's management, the information regarding
such registrant furnished herein reflects all adjustments necessary to
present fairly the results of operations for the periods
ended March 31, 2002 and 2001. Certain information and footnote
disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such
rules and regulations, although each registrant believes that the
disclosures regarding such registrant are adequate to make the
information presented not misleading. It is suggested that these
condensed financial statements of each registrant be read in
conjunction with the financial statements of such registrant and the
notes thereto included in the Form 10-K. Certain prior
period amounts have been reclassified to conform with current period
presentation. Due to seasonal variations in the demand for
energy, operating results for the periods presented do not necessarily
indicate operating results for the entire year.
(B) Reference is made to Note 11 to the financial statements of SOUTHERN in
Item 8 and MANAGEMENT'S DISCUSSION AND ANALYSIS - "Overview of
Consolidated Earnings and Dividends" of SOUTHERN in Item 7 of the Form
10-K for information on the spin off of Mirant from SOUTHERN.
On April 2, 2001, SOUTHERN completed the spin off of Mirant with a tax
free distribution to SOUTHERN's shareholders of its remaining ownership of
272 million Mirant shares. Shares from the spin off were distributed at a
ratio of approximately 0.4 share of Mirant common stock for every share of
SOUTHERN common stock held at the record date. The distribution resulted
in charges of approximately $3.2 billion and $0.4 billion to SOUTHERN's
paid-in capital and retained earnings, respectively.
As a result of the spin off, SOUTHERN's financial statements reflect
Mirant as discontinued operations. All historical financial statements
presented and footnotes have been reclassified to conform to this
presentation, with the historical assets and liabilities of Mirant
presented on the Condensed Consolidated Balance Sheet as net assets of
discontinued operations.
(C) The operating companies are subject to the provisions of FASB Statement
No. 71, Accounting for the Effects of Certain Types of Regulation. In the
event that a portion of a company's operations is no longer subject to
these provisions, the company would be required to write off related
regulatory assets and liabilities that are not specifically recoverable,
and determine if any other assets have been impaired. For additional
information, see Note 1 to the financial statements of each registrant in
Item 8 of the Form 10-K.
(D) Reference is made to Note 3 to the financial statements of SOUTHERN,
ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH in Item 8 of the Form
10-K for information on EPA litigation. On April 29, 2002, the U. S.
District Court in Alabama extended the stay of the proceeding in Alabama
through late July 2002.
(E) Reference is made to Note 3 to the financial statements of each registrant
in Item 8 and to Legal Proceedings in Item 3 of the
Form 10-K for information relating to various lawsuits.
72
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(F) SOUTHERN has made separate guarantees to certain counterparties regarding
performance of contractual commitments by Mirant's trading and marketing
subsidiaries. At March 31, 2002, the total notional amount of guarantees
was $52.5 million and the estimated fair value of net contractual
commitments outstanding was approximately $29.2 million. SOUTHERN's
potential exposure under these contractual commitments is not expected to
materially differ from the estimated fair value. Subsequent to the spin
off, Mirant began paying SOUTHERN a monthly fee of 1% on the average
aggregate maximum principal amount of all guarantees outstanding until
they are replaced or expire. Mirant must use reasonable efforts to release
SOUTHERN from all such support arrangements and will indemnify SOUTHERN
for any obligations incurred.
Reference is made to Note 9 to the financial statements of SOUTHERN under
the caption "Guarantees" in Item 8 of the Form 10-K.
(G) Reference is made to Item 1 - Business - "Rate Proceedings" and Note 3 to
the financial statements of SOUTHERN and ALABAMA in Item 8 of the Form
10-K for information relating to retail rate adjustment procedures. On
March 5, 2002, the Alabama PSC approved a revision to ALABAMA's rates that
provide for periodic adjustments based upon ALABAMA's earned return on
end-of-period retail common equity. This revision provides for an annual,
rather than quarterly, adjustment and imposes a 3 percent limit on any
such annual adjustment. The return on common equity range of 13.0 to 14.5
percent remains unchanged. In April 2002, retail rates were increased by
2% in accordance with the Rate Stabilization and Equalization Plan. The
Alabama PSC also accepted ALABAMA's proposal to lower the energy cost
recovery factor for the billing months April 2002 through December 2002.
(H) On December 20, 2001, the Georgia PSC approved a new three-year retail
rate order for GEORGIA ending December 31, 2004. Under the terms of
the order, earnings will be evaluated annually against a retail return
on common equity range of 10 percent to 12.95 percent. Two-thirds of
any earnings above the 12.95 percent return will be applied to rate
refunds, with the remaining one-third retained by GEORGIA. Retail rates
were decreased by $118 million effective January 1, 2002. Pursuant to a
previous three-year accounting order, GEORGIA recorded $332 million of
accelerated cost amortization and interest thereon which has been
credited to a regulatory liability account as mandated by the Georgia PSC.
Under the new rate order, the accelerated amortization and the interest
will be amortized equally over three years as a credit to expense
beginning in January 2002. Effective January 1, 2002, GEORGIA
discontinued recording accelerated depreciation and amortization.
GEORGIA will not file for a general base rate increase unless its
projected retail return on common equity falls below 10 percent.
GEORGIA is required to file a general rate case on July 1, 2004, in
response to which the Georgia PSC would be expected to determine whether
the rate order should be continued, modified or discontinued. See Note 3
to the financial statements of GEORGIA in Item 8 of the Form 10-K under
"Retail Rate Orders" for additional information.
(I) Reference is made to Note 3 to the financial statements of SOUTHERN and
GEORGIA in Item 8 of the Form 10-K for information regarding GEORGIA's
designation as a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act and other
environmental contingencies.
73
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(J) On September 10, 2001, GULF filed a request with the Florida PSC for a
base rate increase of $69.9 million. This increase is necessary to cover
costs related to GULF's new combined cycle facility, Smith Unit 3,
increases in operation and maintenance expenses and capital additions. In
its brief filed with the Florida PSC, GULF reduced its request to $64.9
million, primarily to reflect lower financing costs related to Smith 3 and
a 25-year depreciable life for Smith Unit 3 (rather than the 20-year life
as originally filed). On April 26, 2002, the Florida PSC voted to grant
GULF a $53.2 million, or 8.9%, annual increase, which reflects an
authorized return on equity of 12.00%. The new rates resulting from the
revenue increase were approved by the Florida PSC on May 8, 2002 and
become effective on June 7, 2002.
(K) In August 2001, MISSISSIPPI filed a request with the Mississippi PSC to
increase annual retail rate revenues by approximately $46.4 million.
In order to consider MISSISSIPPI's request, the Mississippi PSC suspended
the semi-annual evaluations under PEP. In December 2001, the Mississippi
PSC approved an increase of approximately $39 million, which took
effect in January 2002. Additionally, the Mississippi PSC ordered
MISSISSIPPI to reactivate the semi-annual evaluations under
PEP, beginning with the 12-month period ending December 31, 2000. PEP
will remain in effect until the Mississippi PSC modifies, suspends or
terminates the plan. On April 30, 2002, the Mississippi PSC held and
concluded hearings on a review of the return on equity models used in
PEP in setting MISSISSIPPI's authorized return on equity. This
proceeding will conclude in 2002, so that changes to the PEP return on
equity models, if any may be incorporated into the PEP evaluation filing
for the period ending December 31, 2002. The outcome of this matter and
any future impact to MISSISSIPPI cannot now be determined.
(L) Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential" of MISSISSIPPI in the Form 10-K regarding the
settlement agreement between MISSISSIPPI and certain wholesale customers to
increase its wholesale tariff rates effective June 1, 2002. In March 2002,
that agreement was filed with the FERC for approval. On April 19, 2002, the
FERC accepted for filing the settlement agreement and placed the new tariff
rates in effect June 1, 2002 without modifying the agreement reached
between MISSISSIPPI and its customers. The settlement agreement results in
annual increase of approximately $10.5 million and the adoption of an
Energy Cost Management clause similar to the one approved by MISSISSIPPI's
retail jurisdiction. Reference is made to Note 1 to the financial
statements of MISSISSIPPI in Item 8 of the Form 10-K for further
information on the Energy Cost Management clause. MISSISSIPPI's order from
the FERC constitutes final agency action on this matter, absent a rehearing
request that has to be filed within 30 days of the date of the order (April
19, 2002). No party opposed the filing, and MISSISSIPPI does not expect any
parties to file for rehearing.
(M) SAVANNAH filed a base rate case on November 30, 2001. The primary reason
for this base rate case is to recover significant new revenue requirements
related to a 200 MW Plant Wansley Purchase Power Agreement beginning June
2002, as well as other operation and maintenance changes. The requested
increase is $24.4 million or 7.6% of total revenues. In the filing,
SAVANNAH announced that it would file for a simultaneous fuel cost recovery
decrease to offset most, if not all, the base rate increase. A public
hearing in which SAVANNAH presented direct testimony to the Georgia PSC was
held in Savannah on February 6 and February 7, 2002. Intervenors and
Adversary Staff presented their case at a public hearing in Atlanta March
27 and March 28, 2002. SAVANNAH filed written rebuttal testimony April 12,
2002 and presented oral rebuttal testimony in a hearing on April 24, 2002.
A decision on both the fuel and base rates will be made at the end of May
to be effective with the first billing cycle in June 2002. The outcome of
this matter and any future impact on SAVANNAH cannot now be determined.
74
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(N) SOUTHERN's reportable business segment is sale of electricity in the
Southeast by the operating companies and Southern Power.
Net income and total assets for discontinued operations are included in
the Reconciling Eliminations columns. The All Other category includes
parent SOUTHERN, which does not allocate operating expenses to business
segments, and segments below the quantitative threshold for separate
disclosure. These segments include telecommunications, energy products and
services, and leasing and financing services. Intersegment revenues are
not material. Financial data for business segments for the periods covered
in the Form 10-Q are as follows:
Electric All Reconciling
Utilities Other Eliminations Consolidated
----------------- -------------- ---------------- -----------------
(in millions)
Three Months Ended March 31, 2002:
Operating revenues $ 2,140 $ 77 $ (3) $ 2,214
Segment net income (loss) 232 (8) - 224
Total assets at March 31, 2002 29,090 2,931 (1,824) 30,197
---------------------------------------------------- ----------------- -------------- ---------------- -----------------
Three Months Ended March 31, 2001:
Operating revenues $ 2,221 $ 52 $ (3) $ 2,270
Segment net income (loss) 199 (25) 146 320
Total assets at December 31, 2001 28,724 2,420 (1,236) 29,908
--------------------------------------------------- ----------------- -------------- ---------------- -----------------
75
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
(1) Reference is made to the Notes to the Condensed Financial
Statements herein for information regarding certain legal and
administrative proceedings in which SOUTHERN and its reporting
subsidiaries are involved.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
--------
Exhibit 24 - (a) Powers of Attorney and resolutions.
(Designated in the Form 10-K for the
year ended December 31, 2001, File
Nos. 1-3526, 1-3164, 1-6468, 0-2429,
0-6849 and 1-5072 as Exhibits 24(a),
24(b), 24(c), 24(d), 24(e) and 24(f),
respectively, and incorporated
herein by reference.)
(b) Reports on Form 8-K.
-------------------
SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and
SAVANNAH filed Current Reports on Form 8-K dated
February 13, 2002:
Items reported: Item 7
Financial statements filed: Each registrant's
financial
statements for the
year ended
December 31, 2001.
GULF filed a Current Report on Form 8-K dated January
18, 2002:
Items reported: Items 5 and 7
Financial statements filed: None
SOUTHERN filed Current Reports on Form 8-K dated January
29, 2002 and January 30, 2002:
Items reported: Items 5 and 7
Financial statements filed: None
MISSISSIPPI filed Current Reports on Form 8-K dated
March 12, 2002 and March 15, 2002:
Items reported: Items 5 and 7
Financial statements filed: None
SOUTHERN filed a Current Report on Form 8-K dated March
28, 2002:
Items reported: Items 4, 7 and 9
Financial statements filed: None
ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH filed
Current Reports on Form 8-K dated March 28, 2002:
Items reported: Items 4 and 7
Financial statements filed: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
THE SOUTHERN COMPANY
By H. Allen Franklin
Chairman and Chief Executive Officer
(Principal Executive Officer)
By Gale E. Klappa
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: May 14, 2002
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
ALABAMA POWER COMPANY
By Charles D. McCrary
President and Chief Executive Officer
(Principal Executive Officer)
By William B. Hutchins, III
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: May 14, 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
GEORGIA POWER COMPANY
By David M. Ratcliffe
President and Chief Executive Officer
(Principal Executive Officer)
By Thomas A. Fanning
Executive Vice President, Treasurer and Chief Financial Officer
(Principal Financial Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: May 14, 2002
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
GULF POWER COMPANY
By Travis J. Bowden
President and Chief Executive Officer
(Principal Executive Officer)
By Ronnie Labrato
Vice President, Chief Financial Officer and Comptroller
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: May 14, 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
MISSISSIPPI POWER COMPANY
By Michael D. Garrett
President and Chief Executive Officer
(Principal Executive Officer)
By Michael W. Southern
Vice President, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: May 14, 2002
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
SAVANNAH ELECTRIC AND POWER COMPANY
By Anthony R. James
President and Chief Executive Officer
(Principal Executive Officer)
By Kirby R. Willis
Vice President, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: May 14, 2002