UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant To Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[ ] Preliminary information statement
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14c-5(d)(2))
[x] Definitive information statement
GULF POWER COMPANY
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(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
NOTICE OF 2005
ANNUAL MEETING
& INFORMATION STATEMENT
WWW.GULFPOWER.COM
(GULF POWER LOGO)
GULF POWER COMPANY
PENSACOLA, FLORIDA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 18, 2005
NOTICE IS HEREBY GIVEN that the 2005 Annual Meeting of Shareholders of Gulf
Power Company will be held on May 18, 2005 at 10:00 a.m., Eastern Time, at the
offices of the Company's affiliate, Georgia Power Company, 241 Ralph McGill
Boulevard, N.E., Atlanta, Georgia 30308, to elect six members of the board of
directors and to transact any other business that may properly come before said
meeting or any adjournment or postponement thereof.
Only shareholders of record at the close of business on April 11, 2005 will be
entitled to notice of and to vote at said meeting or any adjournment or
postponement thereof.
The Information Statement and the 2004 Annual Report are included in this
mailing.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Susan D. Ritenour
Susan D. Ritenour
Corporate Secretary
Pensacola, Florida
April 22, 2005
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
General Information........................................................... 1
Shareholder Proposals......................................................... 1
Nominees for Election as Directors............................................ 2
Corporate Governance.......................................................... 3
Director Nomination Process................................................... 4
Communications to the Board................................................... 5
Board Attendance at Annual Meeting of Shareholders............................ 5
Audit Committee Report........................................................ 6
Compensation and Management Succession Committee Report....................... 8
Compensation Committee Interlocks and Insider Participation................... 10
Certain Relationships and Related Transactions................................ 10
Executive Compensation Information............................................ 11
Stock Ownership Table......................................................... 15
</Table>
INFORMATION STATEMENT
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GENERAL INFORMATION
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This Information Statement is furnished by Gulf Power Company (the "Company") in
connection with the 2005 Annual Meeting of Shareholders and any adjournment or
postponement thereof. The meeting will be held on May 18, 2005 at 10:00 a.m.,
Eastern Time, at the offices of the Company's affiliate, Georgia Power Company,
241 Ralph McGill Boulevard, N.E., Atlanta, Georgia 30308. This Information
Statement is initially being provided to shareholders on or about April 22,
2005.
At the meeting, we will elect six members to the board of directors and transact
any other business that may properly come before the meeting. We are not aware
of any other matters to be presented at the meeting; however, the holder of the
Company's common stock will be entitled to vote on any other matters properly
presented.
All shareholders of record on the record date of April 11, 2005 are entitled to
notice of and to vote at the meeting. On that date, there were 992,717 shares of
common stock outstanding and entitled to vote, all of which are held by The
Southern Company ("Southern Company"). There were also 42,361 shares of
preferred stock outstanding on that date. With respect to the election of
directors, all of the outstanding shares of preferred stock are entitled to vote
as a single class with the Company's common stock. Each share of outstanding
common stock counts as one vote and each share of outstanding preferred stock
counts as one vote. Neither the Company's charter nor by-laws provides for
cumulative voting rights.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
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SHAREHOLDER PROPOSALS
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Shareholders may present proper proposals for inclusion in the Company's
information statement and for consideration at the next annual meeting of its
shareholders by submitting their proposals to the Company in a timely manner. In
order to be so included for the 2006 annual meeting, shareholder proposals must
be received by the Company no later than February 21, 2006.
1
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NOMINEES FOR ELECTION AS DIRECTORS
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A board of six directors is to be elected at the annual meeting, with each
director to hold office until the next annual meeting of shareholders and until
the election and qualification of a successor. If any named nominee becomes
unavailable for election, the board may substitute another nominee.
Below is information concerning the nominees for director stating, among other
things, their names, ages, positions and offices held and brief descriptions of
their business experience. The information is current as of the date of this
Information Statement.
SUSAN N. STORY -- Director since 2003
Ms. Story, 45, has served as president, chief executive officer and director of
the Company since 2003. She previously served as executive vice president of
Southern Company Services, Inc. from January 2001 to April 2003; senior vice
president of Southern Power Company from November 2002 to April 2003; vice
president of Southern Company Services, Inc. from May 2000 to January 2001 and
vice president of Alabama Power Company from June 1997 to April 2000.
C. LEDON ANCHORS - Director since 2001
Mr. Anchors, 65, is an attorney and is president of Anchors, Foster, McInnis &
Keefe, Attorneys at Law, Fort Walton Beach, Florida. He is chairman of Regions
Bank of Okaloosa County.
WILLIAM C. CRAMER, JR. - Director since 2002
Mr. Cramer, 52, is president and owner of Tommy Thomas Chevrolet, Panama City,
Florida.
FRED C. DONOVAN, SR. - Director since 1991
Mr. Donovan, 64, is chairman and chief executive officer of Baskerville-Donovan,
Inc. (an architectural and engineering firm), Pensacola, Florida.
WILLIAM A. PULLUM - Director since 2001
Mr. Pullum, 57, is broker/president of Bill Pullum Realty, Inc., Navarre,
Florida, and owner, president and director of Cowboy's Steakhouse, Navarre,
Florida.
WINSTON E. SCOTT - Director since 2003
Mr. Scott, 54, is executive director of the Florida Space Authority, Cape
Canaveral, Florida, a position he has held since 2003. He previously served as a
professor and associate dean with the Florida Agriculture and Mechanical
University and Florida State University ("FSU") College of Engineering in 2003,
vice president for Student Affairs at FSU from 2000 until 2003 and associate
vice president with the Division of Student Affairs at FSU from 1999 to 2000.
Each nominee has served in his or her present position for at least the past
five years, unless otherwise noted.
VOTE REQUIRED
The majority of the votes cast by the shares outstanding and entitled to vote at
a meeting at which a quorum is present is required for the election of
directors. Southern Company, as the owner of all of the Company's outstanding
common stock, will vote for all of the nominees above.
2
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CORPORATE GOVERNANCE
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HOW IS THE COMPANY ORGANIZED?
The Company is managed by a core group of officers and governed by a board of
directors that currently consists of six members. The current nominees for
election as directors consist of five non-employee directors and the president
and chief executive officer of the Company.
WHAT ARE DIRECTORS PAID FOR THEIR SERVICES?
- Standard Arrangements. The following fees are paid to the Company's
directors for service as a member of the board of directors and any board
committee(s), except that employee directors received no fees or
compensation for service as a member of the board of directors or any board
committee. At the election of the director, all or a portion of the cash
retainer may be payable in Southern Company common stock, and all or a
portion of the total fees may be deferred under the Company's deferred
compensation plan for its directors until membership on the board is
terminated.
<Table>
Annual Cash Retainer Fee.............. $12,000
Quarterly Stock Retainer Fee.......... 85 shares of Southern Company common stock
Meeting Fees.......................... $1,200 for each board meeting attended; and $1,000
for each committee meeting attended
</Table>
- Pension Plan. There is no pension plan for non-employee directors.
- Other Arrangements. No director received compensation for services as a
director during the year ended December 31, 2004 in addition to or in lieu
of that specified by the standard arrangements specified above.
GOVERNANCE POLICIES AND PROCESSES
Southern Company owns all of the Company's outstanding common stock, which
represents a substantial majority of the overall voting power of the Company's
equity securities, and the Company has listed only debt and preferred securities
on the New York Stock Exchange (the "NYSE"). Accordingly, under the rules of the
NYSE, the Company is exempt from most of the NYSE's listing standards relating
to corporate governance. The Company has voluntarily complied with certain of
the NYSE's listing standards relating to corporate governance where such
compliance was deemed to be in the best interests of the Company's shareholders.
In addition, under the rules of the Securities and Exchange Commission (the
"SEC"), the Company is exempt from the audit committee requirements of Section
301 of the Sarbanes-Oxley Act of 2002 and, therefore, is not required to have an
audit committee or an audit committee report on whether it has an audit
committee financial expert.
EXECUTIVE SESSIONS
It is the practice of the directors to periodically hold executive sessions of
the non-employee directors without management participation at meetings of the
Controls and Compliance Committee. Information on how to communicate with the
chair of the Controls and Compliance Committee and the non-employee directors is
provided under "Communications to the Board" below.
COMMITTEES OF THE BOARD
CONTROLS AND COMPLIANCE COMMITTEE:
- Members are Mr. Donovan, Chair; Mr. Anchors; Mr. Cramer; Mr. Pullum; and Mr.
Scott
- Met three times in 2004
- Oversees the Company's internal controls and compliance matters
The Company's Controls and Compliance Committee provides, on behalf of the
board, oversight of the Company's system of internal control, compliance, ethics
and employee concerns programs and activities. Its responsibilities include
review and assessment of such matters as the adequacy of internal controls, the
internal control environment, management risk assessment, response to reported
internal control weaknesses, internal auditing and ethics and compliance program
policies and practices. The Controls and Compliance Committee reports activities
and findings to the board and the Southern Company Audit Committee. The Controls
and Compliance Committee meets periodically with management, internal auditors
and independent auditors to discuss auditing, internal controls and compliance
matters.
3
The Southern Company Audit Committee provides broad oversight of the Company's
financial reporting and control functions. The Southern Company Audit Committee
reviews and discusses the Company's financial statements with management, the
internal auditors and the independent auditors. Such discussions include
critical accounting policies and practices, alternative financial treatments,
proposed adjustments and control recommendations. Such discussions also include
significant management judgments and estimates, reporting or operational issues
and changes in accounting principles, as well as any disagreements with
management.
The charter of the Southern Company Audit Committee is available on Southern
Company's website (www.southerncompany.com). The Southern Company Audit
Committee has authority to appoint, compensate and oversee the work of the
independent auditors.
COMPENSATION COMMITTEE:
- Members are Mr. Anchors, Chair; Mr. Cramer; Mr. Donovan; Mr. Pullum; and Mr.
Scott
- Met three times in 2004
- Oversees the administration of the Company's compensation arrangements
The Company's Compensation Committee reviews and provides input to Southern
Company's Compensation and Management Succession Committee on the performance
and compensation of the Company's chief executive officer and makes
recommendations regarding the fees paid to members of the Company's board of
directors.
Southern Company's Compensation and Management Succession Committee approves the
corporate performance goals used to determine incentive compensation and
establishes the mechanism for setting compensation levels for the Company's
executive officers. It also administers executive compensation plans and reviews
management succession plans.
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The board of directors met five times in 2004. Director attendance at all board
and committee meetings was 100 percent. No director nominee attended less than
75 percent of applicable meetings.
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DIRECTOR NOMINATION PROCESS
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The Company does not have a nominating committee. The full board, with input
from the Company's president and chief executive officer, identifies director
nominees. The board evaluates candidates based on the requirements set forth in
the Company's by-laws and regulatory requirements applicable to the Company.
Southern Company owns all of the Company's common stock and, as a result,
Southern Company's affirmative vote is sufficient to elect director nominees.
Consequently, the board does not accept proposals from preferred shareholders
regarding potential candidates for director nominees. Southern Company's
president and chief executive officer also has input on behalf of Southern
Company regarding potential candidates for director nominees.
4
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COMMUNICATIONS TO THE BOARD
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Shareholders and other parties interested in communicating directly with the
Company's board of directors, the chair of the Controls and Compliance Committee
or the non-employee directors can contact them by writing c/o Corporate
Secretary, Gulf Power Company, One Energy Place, Pensacola, Florida 32520-0786.
The Corporate Secretary will receive the correspondence and forward it to the
individual director or directors to whom the correspondence is directed or the
chair of the Controls and Compliance Committee. The Corporate Secretary will not
forward any correspondence that is unduly hostile, threatening, illegal, not
reasonably related to the Company or its business or similarly inappropriate.
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BOARD ATTENDANCE AT ANNUAL MEETING OF SHAREHOLDERS
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The Company does not have a policy relating to attendance at the Company's
annual meeting of shareholders by directors. The Company does not solicit
proxies for the election of directors because the affirmative vote of Southern
Company is sufficient to elect the nominees and, therefore, holders of the
Company's preferred stock rarely attend the annual meeting. Consequently, a
policy encouraging directors to attend the annual meeting of shareholders is not
necessary. None of the Company's current directors attended the Company's 2004
annual meeting of shareholders.
5
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AUDIT COMMITTEE REPORT
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The Southern Company Audit Committee (the "Audit Committee") oversees the
Company's financial reporting process on behalf of the board of directors of
Southern Company. The Company's management has the primary responsibility for
the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the Audit
Committee reviewed the audited financial statements of the Company in the Annual
Report with management. The Audit Committee also reviews the Company's quarterly
and annual reports on Forms 10-Q and 10-K prior to filing with the SEC. The
Audit Committee's review process included discussions of the quality, not just
the acceptability, of the accounting principles, the reasonableness of
significant judgments and estimates and the clarity of disclosures in the
financial statements.
The independent auditors are responsible for expressing an opinion on the
conformity of those audited financial statements with accounting principles
generally accepted in the United States. The Audit Committee reviewed with the
independent auditors their judgments as to the quality, not just the
acceptability, of the Company's accounting principles and such other matters as
are required to be discussed with the Audit Committee under generally accepted
auditing standards, rules and regulations of the Public Company Accounting
Oversight Board ("PCAOB") and SEC and the NYSE corporate governance rules. In
addition, the Audit Committee has discussed with the independent auditors their
independence from management and the Company including the matters in the
written disclosures made under Rule 3600T of the PCAOB, which, on an interim
basis, has adopted Independence Standards Board Standard No. 1, "Independence
Discussions with Audit Committees." The Audit Committee has also considered
whether the independent auditors' provision of non-audit services to the Company
is compatible with maintaining their independence.
The Audit Committee discussed the overall scopes and plans with the Company's
internal and independent auditors for their respective audits. The Audit
Committee meets with the internal and independent auditors, with and without
management present, to discuss the results of their audits, their evaluations of
the Company's internal controls and the overall quality of the Company's
financial reporting. The Audit Committee also meets privately with Southern
Company's compliance officer. The Audit Committee held 14 meetings during 2004.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the board of directors of Southern Company (and the
board approved) that the audited financial statements be included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2004 and
filed with the SEC. The Audit Committee also reappointed Deloitte & Touche LLP
as the Company's independent auditors for 2005. At the 2005 annual meeting of
Southern Company's shareholders, its shareholders will be asked to ratify the
Audit Committee's selection of the independent auditors.
Members of the Committee:
J. Neal Purcell, Chair
Francis S. Blake
Donald M. James
Zack T. Pate
6
PRINCIPAL ACCOUNTING FIRM FEES
The following represents the fees billed to the Company for the two most recent
fiscal years by Deloitte & Touche LLP ("Deloitte & Touche") -- the Company's
principal accountant for 2003 and 2004:
<Table>
<Caption>
2003 2004
---------------
(IN THOUSANDS)
Audit Fees(1) $392 $897
Audit-Related Fees(2) 160 --
Tax Fees 2 --
All Other Fees -- --
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Total $554 $897
=============================================================================
</Table>
(1) Includes services performed in connection with financing transactions.
(2) Includes internal control review services and accounting consultations in
2003.
The Audit Committee (on behalf of Southern Company and all of its subsidiaries,
including the Company) has adopted a Policy on Engagement of the Independent
Auditor for Audit and Non-Audit Services that includes requirements for the
Audit Committee to pre-approve services provided by Deloitte & Touche. This
policy was initially adopted in July 2002 and since that time, all services
included in the chart above have been pre-approved by the Audit Committee.
Under the policy, the independent auditor delivers an annual arrangements letter
which provides a description of services anticipated to be rendered to the
Company by the independent auditor for the Audit Committee to approve. The Audit
Committee's approval of the independent auditor's annual arrangements letter
constitutes pre-approval of all services covered in the letter. In addition,
under the policy, the Audit Committee has pre-approved the engagement of the
independent auditor to provide services related to the issuance of comfort
letters and consents required for securities sales by the Company and services
related to consultation on routine accounting and tax matters. The Audit
Committee has delegated pre-approval authority to the chair of the Audit
Committee with respect to permissible services up to a limit of $50,000 per
engagement. The chair of the Audit Committee is required to report any
pre-approval decisions at the next scheduled Audit Committee meeting.
Under the policy, prohibited non-audit services are services prohibited by the
SEC to be performed by the Company's independent auditors. These services
include bookkeeping or other services related to the preparation of accounting
records of the Company, financial information systems design and implementation,
appraisal or valuation services, fairness opinions or contribution-in-kind
reports, actuarial services, internal audit outsourcing services, management
functions or human resources, broker-dealer, investment advisor or investment
banking services, legal services and expert services unrelated to the audit and
any other service that the PCAOB determines is impermissible. In addition,
officers of the Company may not engage the independent auditor to perform any
personal services, such as personal financial planning or personal income tax
services.
PRINCIPAL ACCOUNTING FIRM REPRESENTATION
No representative of Deloitte & Touche is expected to be present at the meeting
unless no later than three business days prior to the day of the meeting the
Company's Corporate Secretary has received written notice from a shareholder
addressed to the Corporate Secretary at Gulf Power Company, One Energy Place,
Pensacola, Florida 32520-0786 that such shareholder will attend the meeting and
wishes to ask questions of a representative of Deloitte & Touche.
7
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COMPENSATION AND MANAGEMENT SUCCESSION COMMITTEE REPORT
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Southern Company's Compensation and Management Succession Committee (the
"Committee") is responsible for the oversight and administration of the
Company's executive compensation program. The Committee is composed entirely of
independent, non-employee directors and operates pursuant to a written charter,
which is available on Southern Company's website (www.southerncompany.com).
TOTAL EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION PHILOSOPHY
The executive compensation program is based on a philosophy that total executive
compensation must be competitive and must be tied to the Company's and Southern
Company's short- and long-term performance. With the objective of maximizing
Southern Company shareholder value over time, our program aligns the interests
of our executives and the Company's and Southern Company's shareholders.
DETERMINATION OF TOTAL EXECUTIVE COMPENSATION
The Committee retains an independent executive compensation consultant who
provides information on total executive compensation paid at other large
companies in the electric and gas utility industries. Most of these companies
are included in the 20 companies that comprise the S&P Electric Utility Index.
Based on the market data, total executive compensation targets are set at an
appropriate size-adjusted level. This means that for target level performance,
the program is designed to pay executives an amount that is at or about the
median of the market. Total executive compensation is paid through an
appropriate mix of both fixed and performance-based (incentive) compensation.
Because the program focuses on incentive compensation, actual total compensation
paid can be above or below the targets based on actual corporate performance.
COMPONENTS OF TOTAL EXECUTIVE COMPENSATION
The primary components of the executive compensation program are:
- - Base pay (salary);
- - Short-term incentives (annual performance bonuses); and
- - Long-term incentives (stock options and performance-based dividend
equivalents).
The Company also provides certain perquisites that the Committee reviews
periodically to determine if they are reasonable and appropriate. The primary
perquisites provided by the Company are financial planning services, club
memberships (for business use) and home security.
BASE PAY
A range for base pay is determined for each executive officer, including Ms.
Story, by comparing the base pay at the appropriate peer group of companies
described previously. Base pay is generally set at a level that is at or below
the size-adjusted median paid at those companies because of the emphasis on
incentive compensation in the executive compensation program. The 2004 base pay
level for the named executive officers, including Ms. Story, was at or near the
median.
ANNUAL PERFORMANCE BONUSES
Annual bonuses are paid through the Southern Company Omnibus Incentive
Compensation Plan. All executive officers participated in this plan in 2004.
PERFORMANCE GOALS
Annual performance bonuses are based on the attainment of corporate performance
goals and attainment of the Company's adjusting goals. All performance goals
were set in the first quarter of the year.
8
For 2004, the corporate performance goals included specific targets for:
- - Southern Company earnings -- earnings per share ("EPS") and
- - The Company's return on equity ("ROE").
The Committee believes that accomplishing the corporate goals is essential for
the Company's and Southern Company's continued success and sustained financial
performance. A target performance level is set for each corporate performance
goal. Performance above or below the targets results in proportionately higher
or lower bonus payments. The bonus amount is then adjusted, up or down, based on
the degree of achievement of the Company's adjusting goals related to such
measures as capital expenditures, cash flow, safety, customer satisfaction,
system reliability, plant availability and diversity. A target percentage of
base pay is established for each executive officer, based on his or her position
level, for target-level performance. Annual performance bonuses may range from 0
percent of the target to 220 percent based on actual corporate performance. An
additional amount of up to 10 percent of base pay also may be paid for
exceptional individual performance. No bonuses are paid if performance is below
a threshold level or if a minimum earnings level is not reached. Also, no
bonuses are paid if Southern Company's current earnings are not sufficient to
fund the Southern Company common stock dividend at the same level as the prior
year.
ANNUAL BONUS PAYMENTS
Performance met or exceeded the target levels in all areas in 2004, resulting in
bonuses that exceeded the target levels.
Ms. Story's annual performance bonus under the Southern Company Omnibus
Incentive Compensation Plan for target-level performance was 60 percent of her
base pay. The target percentage of base pay for the other executive officers
ranged from 40 to 45 percent. Each individual's bonus paid for 2004 performance
was based 30 percent on the degree of achievement of Southern Company's EPS goal
and 70 percent on the degree of achievement of the Company's ROE goal.
Performance for both goals exceeded the target, resulting in bonus payouts to
all named executive officers that were 134 percent of their respective target
bonuses.
LONG-TERM INCENTIVES
The Committee bases a significant portion of the total compensation program on
long-term incentives, including Southern Company stock options and performance
dividend equivalents.
STOCK OPTIONS
Executives are granted options with 10-year terms to purchase Southern Company's
common stock at the market price on the date of the grant under the terms of the
Southern Company Omnibus Incentive Compensation Plan. The estimated annualized
value represented approximately 20 percent of Ms. Story's total target
compensation and 14 to 16 percent for the other named executive officers. The
size of prior grants was not considered in determining the size of the grants
made in 2004. The options fully vest upon retirement and expire at the earlier
of five years from the date of retirement or the end of the 10-year term.
PERFORMANCE DIVIDENDS
The executive officers, including Ms. Story, also are paid performance-based
dividend equivalents on most stock options held at the end of the year. Dividend
equivalents can range from 25 percent of the Southern Company common stock
dividend paid during the year if Southern Company total shareholder return over
a four-year period, compared to a group of other utility companies, is at the
30th percentile to 100 percent of the dividend paid if it reaches the 90th
percentile. No dividend equivalents are paid if the total Southern Company
shareholder return over the period is below the 30th percentile or if Southern
Company's earnings are not sufficient to fund the current Southern Company
common stock dividend. For eligible stock options held on December 31, 2004, all
participants, including the named executive officers, received a payout of $1.22
per option for above-target performance under the Southern Company Omnibus
Incentive Compensation Plan.
9
OTHER COMPENSATION
The Company participates in the Southern Company Deferred Compensation Plan for
eligible employees, including the executive officers. Participation is voluntary
and permits deferral of up to 50 percent of salary and up to 100 percent of
bonus awards. Except for certain prescribed hardship conditions, all amounts are
deferred until termination of employment. A participant has two investment
options under this plan -- a prime-rate investment option and an option that
tracks the performance of Southern Company common stock, neither of which
produce above-market earnings. This is an unfunded plan and all amounts deferred
are payable out of the general assets of the Company. The Committee has reviewed
the terms of this plan.
The Committee does not consider earnings on deferred compensation in
establishing total compensation targets. The Company also participates in
additional non-qualified deferred compensation plans and arrangements that
provide post-retirement compensation. In addition, the Committee reviews other
benefit programs that are generally available to all employees of the Company.
POLICY ON INCOME TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
limits the deductibility of certain executives' compensation that exceeds $1
million per year unless the compensation is paid under a performance-based plan
as defined in the Code and that has been approved by shareholders. Southern
Company has obtained shareholder approval of the Omnibus Incentive Compensation
Plan. However, because the policy is to maximize long-term shareholder value,
tax deductibility is only one factor considered in setting compensation.
SUMMARY
The Committee believes that the policies and programs described in this report
link pay and performance and serve the best interest of the Company's and
Southern Company's shareholders. The Committee frequently reviews the various
pay plans and policies and modifies them as it deems necessary to continue to
attract, retain and motivate talented executives.
Members of the Committee:
G.J. St. Pe', Chair
D.P. Amos
T.F. Chapman
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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Southern Company's Compensation and Management Succession Committee is made up
of non-employee directors who have never served as executive officers of
Southern Company or the Company. During 2004, none of Southern Company's or the
Company's executive officers served on the board of directors of any entities
whose directors or officers serve on Southern Company's Compensation and
Management Succession Committee.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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None.
10
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EXECUTIVE COMPENSATION INFORMATION
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EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company has adopted Southern Company's Change in Control Program, which is
applicable to its officers. If an officer is involuntarily terminated, other
than for cause, within two years following a change in control of Southern
Company or the Company, the program provides for:
- lump sum payment of two or three times annual compensation,
- up to five years' coverage under group health and life insurance plans,
- immediate vesting of all stock options, stock appreciation rights and
restricted stock previously granted,
- payment of any accrued long-term and short-term bonuses and dividend
equivalents and
- payment of any excise tax liability incurred as a result of payments
made under the program.
A Southern Company change in control is defined under the program as:
- acquisition of at least 20 percent of Southern Company's stock,
- a change in the majority of the members of Southern Company's board of
directors in connection with an actual or threatened change in control,
- a merger or other business combination that results in Southern
Company's stockholders immediately before the merger owning less than 65
percent of the voting power after the merger or
- a sale of substantially all the assets of Southern Company.
A change in control of the Company is defined under the program as:
- acquisition of at least 50 percent of the Company's stock,
- a merger or other business combination unless Southern Company controls
the surviving entity or
- a sale of substantially all of the assets of the Company.
Southern Company also has amended its short- and long-term incentive plan to
provide for pro-rata payments at not less than target-level performance if a
change in control occurs and the plan is not continued or replaced with a
comparable plan or plans.
11
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the chief executive
officer and the other four most highly compensated executive officers of the
Company serving during 2004.
<Table>
<Caption>
LONG-TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION NUMBER OF
-------------------------------------------- SECURITIES LONG-TERM
OTHER ANNUAL UNDERLYING INCENTIVE ALL OTHER
NAME AND PRINCIPAL COMPENSATION STOCK OPTIONS PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($)(1) (SHARES) ($)(2) ($)(3)
- ---------------------------------------------------------------------------------------------------------------------------------
SUSAN N. STORY(4) 2004 313,256 254,668 6,811 37,837 156,306 16,531
President, Chief Executive 2003 297,771 245,241 3,572 24,978 138,695 14,203
Officer, Director
- ---------------------------------------------------------------------------------------------------------------------------------
GENE L. USSERY, JR. 2004 230,587 187,621 10,534 17,886 87,520 27,759
Vice President 2003 218,752 182,806 8,388 18,129 110,711 11,488
2002 204,236 177,887 12,244 19,067 111,853 25,671
- ---------------------------------------------------------------------------------------------------------------------------------
FRANCIS M. FISHER, JR. 2004 222,455 135,067 3,470 17,200 104,933 13,987
Vice President 2003 214,404 130,248 2,436 17,737 135,659 10,772
2002 205,826 118,698 2,455 19,776 134,454 12,260
- ---------------------------------------------------------------------------------------------------------------------------------
RONNIE R. LABRATO 2004 202,063 122,861 2,399 15,646 47,631 12,986
Vice President, Chief Financial 2003 183,716 108,945 21 11,530 57,461 9,217
Officer, Comptroller 2002 161,709 88,392 1,142 11,866 60,400 8,260
- ---------------------------------------------------------------------------------------------------------------------------------
P. BERNARD JACOB(5) 2004 180,415 109,874 3,093 14,090 25,664 12,112
Vice President 2003 167,967 94,904 2,471 6,678 22,150 7,734
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) This column reports tax reimbursements on certain perquisites and personal
benefits as well as on additional incentive compensation, if applicable.
Additional incentive compensation is reported in the All Other Compensation
column.
(2) Payout of performance dividend equivalents on most stock options granted
after 1996 that were held by the named executive officer at the end of the
performance periods under the Southern Company Omnibus Incentive
Compensation Plan for the four-year performance periods ended December 31,
2002, 2003 and 2004, respectively. Dividend equivalents can range from 25
percent of the Southern Company common stock dividend paid during the last
year of the performance period if Southern Company total shareholder return
over the four-year period, compared to a group of other large utility
companies, is at the 30th percentile to 100 percent of the dividend paid if
it reaches the 90th percentile. No dividend equivalents are paid if the
total Southern Company shareholder return over the period is below the 30th
percentile or if Southern Company's earnings are not sufficient to fund the
current Southern Company common stock dividend. For eligible stock options
held on December 31, 2002, 2003 and 2004, all named executive officers
received a payout of $1.355, $1.385 and $1.22 per option, respectively.
(3) Company contributions in 2004 to the Employee Savings Plan ("ESP"), the
Employee Stock Ownership Plan ("ESOP") and non-pension related accruals
under the Supplemental Benefit Plan ("SBP") are provided in the following
table:
<Table>
<Caption>
NAME ESP ESOP SBP
- --------------------------------------------------------------------------------
Susan N. Story $9,225 $740 $6,566
- --------------------------------------------------------------------------------
Gene L. Ussery, Jr. 9,225 740 2,294
- --------------------------------------------------------------------------------
Francis M. Fisher, Jr. 8,282 740 1,965
- --------------------------------------------------------------------------------
Ronnie R. Labrato 8,740 740 506
- --------------------------------------------------------------------------------
P. Bernard Jacob 8,050 740 322
- --------------------------------------------------------------------------------
</Table>
In 2004, the amounts for Messrs. Ussery, Fisher, Labrato and Jacob included
additional incentive compensation of $15,500, $3,000, $3000 and $3,000,
respectively. In 2002, the amount for Mr. Ussery also includes $15,000 of
additional incentive compensation.
(4) Ms. Story became president and chief executive officer of the Company
effective April 11, 2003.
(5) Mr. Jacob became an executive officer of the Company in June 2003.
12
STOCK OPTION GRANTS IN 2004
The following table sets forth all stock option grants to the named executive
officers of the Company during the year ending December 31, 2004.
<Table>
<Caption>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR GRANT DATE
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR(2) ($/SH)(1) DATE(1) VALUE ($)(3)
- -----------------------------------------------------------------------------------------------------
Susan N. Story 37,837 14.8 29.50 2/13/2014 124,484
- -----------------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. 17,886 7.0 29.50 2/13/2014 58,845
- -----------------------------------------------------------------------------------------------------
Francis M. Fisher, Jr. 17,200 6.7 29.50 2/13/2014 56,588
- -----------------------------------------------------------------------------------------------------
Ronnie R. Labrato 15,646 6.1 29.50 2/13/2014 51,475
- -----------------------------------------------------------------------------------------------------
P. Bernard Jacob 14,090 5.5 29.50 2/13/2014 46,356
- -----------------------------------------------------------------------------------------------------
</Table>
(1) Stock option grants to the named executive officers were made on February
13, 2004 and vest annually at a rate of one-third on the anniversary date of
the grant. Grants fully vest upon termination as a result of death, total
disability or retirement and expire five years after retirement, three years
after death or total disability, or their normal expiration date if earlier.
Exercise price is the average of the high and low price of Southern
Company's common stock on the date granted. Options may be transferred to a
revocable trust.
(2) A total of 256,363 stock options were granted in 2004 to employees of the
Company.
(3) Value was calculated using the Black-Scholes option valuation model. The
actual value, if any, ultimately realized depends on the market value of
Southern Company's common stock at a future date. Significant assumptions
are shown below:
<Table>
<Caption>
- ------------------------------------------------
RISK-FREE DIVIDEND EXPECTED
VOLATILITY RATE OF RETURN YIELD TERM
- ------------------------------------------------
19.65% 3.08% 4.75% 5 years
- ------------------------------------------------
</Table>
AGGREGATED STOCK OPTION EXERCISES IN 2004 AND YEAR-END OPTION VALUES
The following table sets forth information concerning options exercised during
the year ending December 31, 2004 by the named executive officers and the value
of unexercised options held by them as of December 31, 2004.
<Table>
<Caption>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES VALUE YEAR-END (#) AT YEAR-END ($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------------------
Susan N. Story 9,858 128,306 64,790 63,330 695,313 317,467
- ----------------------------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. 26,084 426,709 35,410 36,328 323,300 191,419
- ----------------------------------------------------------------------------------------------------------------
Francis M. Fisher, Jr. 29,138 446,695 50,395 35,616 529,613 189,158
- ----------------------------------------------------------------------------------------------------------------
Ronnie R. Labrato 18,092 224,073 11,755 27,287 86,660 138,184
- ----------------------------------------------------------------------------------------------------------------
P. Bernard Jacob 9,047 55,951 0 21,036 0 101,929
- ----------------------------------------------------------------------------------------------------------------
</Table>
(1) The "Value Realized" is ordinary income, before taxes, and represents the
amount equal to the excess of the fair market value of the shares at the
time of exercise above the exercise price.
(2) These columns represent the excess of the fair market value of Southern
Company's common stock of $33.52 per share, as of December 31, 2004, above
the exercise price of the options. The amounts under the Exercisable column
report the "value" of options that are vested and therefore could be
exercised. The amounts under the Unexercisable column report the "value" of
options that are not vested and therefore could not be exercised as of
December 31, 2004.
13
DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
The following table sets forth the estimated annual pension benefits payable at
normal retirement age under Southern Company's qualified Pension Plan, as well
as non-qualified supplemental benefits, based on the stated compensation and
years of service with the Southern Company system for the named executive
officers of the Company. Compensation for pension purposes is limited to the
average of the highest three of the final 10 years' compensation. Compensation
is base salary plus the excess of annual incentive compensation over 15 percent
of base salary. The compensation components are reported under columns titled
"Salary" and "Bonus" in the Summary Compensation Table detailed earlier in this
Information Statement.
The amounts shown in the table were calculated according to the final average
pay formula and are based on a single life annuity without reduction for joint
and survivor annuities or computation of the Social Security offset which would
apply in most cases.
<Table>
<Caption>
YEARS OF ACCREDITED SERVICE
-----------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40
- --------------------------------------------------------------------------------
$ 100,000 $ 25,500 $ 34,000 $ 42,500 $ 51,000 $ 59,500 $ 68,000
300,000 76,500 102,000 127,500 153,000 178,500 204,000
500,000 127,500 170,000 212,500 255,000 297,500 340,000
700,000 178,500 238,000 297,500 357,000 416,500 476,000
900,000 229,500 306,000 382,500 459,000 535,500 612,000
1,100,000 280,500 374,000 467,500 561,000 654,500 748,000
1,300,000 331,500 442,000 552,500 663,000 773,500 884,000
1,500,000 382,500 510,000 637,500 765,000 892,500 1,020,000
</Table>
As of December 31, 2004, the applicable compensation levels and accredited
service for determination of pension benefits would have been:
<Table>
<Caption>
COMPENSATION ACCREDITED
NAME LEVEL YEARS OF SERVICE
- ---------------------------------------------------------------------------------------------
Susan N. Story $484,648 22
- ---------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. 370,897 36
- ---------------------------------------------------------------------------------------------
Francis M. Fisher, Jr. 311,516 33
- ---------------------------------------------------------------------------------------------
Ronnie R. Labrato 269,005 25
- ---------------------------------------------------------------------------------------------
P. Bernard Jacob 237,471 21
- ---------------------------------------------------------------------------------------------
</Table>
14
- -------------------------------------------------------------------------------
STOCK OWNERSHIP TABLE
- -------------------------------------------------------------------------------
Southern Company is the beneficial owner of 100 percent of the outstanding
common stock of the Company. The following table shows the number of shares of
Southern Company common stock owned by directors, nominees and executive
officers as of December 31, 2004. It is based on information furnished by the
directors, nominees and executive officers. The shares owned by all directors,
nominees and executive officers as a group constitute less than one percent of
the total number of shares of Southern Company common stock outstanding on
December 31, 2004.
<Table>
<Caption>
SHARES BENEFICIALLY
OWNED INCLUDE:
-------------------
SHARES INDIVIDUALS
SHARES HAVE RIGHTS TO
NAME OF DIRECTORS, NOMINEES BENEFICIALLY ACQUIRE WITHIN 60
AND EXECUTIVE OFFICERS TITLE OF SECURITY OWNED(1) DAYS(2)
- ----------------------------------------------------------------------------------------------------
C. LeDon Anchors Southern Company Common Stock 3,893
- ----------------------------------------------------------------------------------------------------
William C. Cramer, Jr. Southern Company Common Stock 2,538
- ----------------------------------------------------------------------------------------------------
Fred C. Donovan, Sr. Southern Company Common Stock 1,715
- ----------------------------------------------------------------------------------------------------
William A. Pullum Southern Company Common Stock 3,704
- ----------------------------------------------------------------------------------------------------
Winston E. Scott Southern Company Common Stock 1,051
- ----------------------------------------------------------------------------------------------------
Susan N. Story Southern Company Common Stock 98,945 94,570
- ----------------------------------------------------------------------------------------------------
Francis M. Fisher, Jr. Southern Company Common Stock 72,483 68,633
- ----------------------------------------------------------------------------------------------------
P. Bernard Jacob Southern Company Common Stock 12,919 9,417
- ----------------------------------------------------------------------------------------------------
Ronnie R. Labrato Southern Company Common Stock 29,153 24,769
- ----------------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. Southern Company Common Stock 57,146 53,771
- ----------------------------------------------------------------------------------------------------
Directors, Nominees and Executive
Officers as a group (11 people) Southern Company Common Stock 284,061 251,160
- ----------------------------------------------------------------------------------------------------
</Table>
(1) "Beneficial ownership" means the sole or shared power to vote, or to direct
the voting of, a security, and/or investment power with respect to a
security or any combination thereof.
(2) Indicates shares of Southern Company's common stock that certain executive
officers have the right to acquire within 60 days. Shares indicated are
included in the Shares Beneficially Owned column.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
No reporting person of the Company failed to file, on a timely basis, the
reports required by Section 16(a) of the Securities Exchange Act of 1934.
15
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