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
MISSISSIPPI POWER COMPANY
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(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
NOTICE OF 2005
ANNUAL MEETING
& INFORMATION STATEMENT
WWW.MISSISSIPPIPOWER.COM
(MISSISSIPPI POWER LOGO)
MISSISSIPPI POWER COMPANY
GULFPORT, MISSISSIPPI
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
Mississippi Power Company will be held on May 18, 2005 at 10:15 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 seven 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/Vicki L. Pierce
Vicki L. Pierce
Corporate Secretary
Gulfport, Mississippi
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 Mississippi 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
10:15 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 seven 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 1,121,000 shares
of common stock outstanding and entitled to vote, all of which are held by The
Southern Company ("Southern Company"). There were also 34,210 shares of $100
preferred stock and 1,200,000 shares of depositary preferred stock, each
representing one-fourth of a share of preferred stock, outstanding on that date.
With respect to the election of directors, all of the outstanding shares of
preferred stock are entitled to vote as a single class with the Company's common
stock. Each share of outstanding common stock counts as one vote and each share
of outstanding preferred stock counts as one-half vote. Neither the Company's
charter nor by-laws provides for cumulative voting rights.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
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SHAREHOLDER PROPOSALS
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Shareholders may present proper proposals for inclusion in the Company's
information statement and for consideration at the next annual meeting of its
shareholders by submitting their proposals to the Company in a timely manner. In
order to be so included for the 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 seven 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.
ANTHONY J. TOPAZI - Director since 2004
Mr. Topazi, 54, is president and chief executive officer of the Company. He
previously served as executive vice president of Southern Company Generation and
Energy Marketing from November 2000 to December 2003, senior vice president of
Southern Power Company from November 2002 to December 2003, vice president of
Southern Power Company from October 2001 to November 2002 and vice president of
Southern Company Services, Inc., Fuel Services from 1999 to November 2000.
TOMMY E. DULANEY - Director since 2001
Mr. Dulaney, 66, is president and chief executive officer of Structural Steel
Services, Inc. (steel fabrication), Meridian, Mississippi. He is a member of the
advisory board of Trustmark National Bank.
WARREN A. HOOD, JR. - Director since 2004
Mr. Hood, 53, is chairman and chief executive officer of Hood Companies (lumber,
plywood, sheathing, roofing), Hattiesburg, Mississippi. He is chairman of the
board for the Institute for Technology Development.
ROBERT C. KHAYAT - Director since 2002
Dr. Khayat, 67, is chancellor of the University of Mississippi, University,
Mississippi.
GEORGE A. SCHLOEGEL - Director since 1995
Mr. Schloegel, 64, is president and chief executive officer of Hancock Bank of
Mississippi, Gulfport, Mississippi; Hancock Bank of Louisiana, Baton Rouge,
Louisiana; and Hancock Bank of Florida, Tallahassee, Florida. He is vice
chairman, chief executive officer and director of Hancock Holding Company.
PHILIP J. TERRELL - Director since 1995
Dr. Terrell, 51, is retired superintendent of schools, Pass Christian Public
School District, Pass Christian, Mississippi. He is adjunct professor of
education at the University of Southern Mississippi, Gulf Park Campus, Long
Beach, Mississippi. He is a director of Hancock Bank.
N. EUGENE WARR - Director since 1986
Mr. Warr, 69, is a retailer in Gulfport, Mississippi. He is a director of Coast
Community Bank, formerly SouthTrust Bank of Mississippi.
Each nominee has served in his 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 seven members. The current nominees for
election as directors consist of six 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, 2003 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, preferred stock 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. Schloegel, Chair; Mr. Dulaney; Dr. Khayat and Mr. Warr
- Met five times in 2004
- Oversees the Company's internal controls and compliance matters
The 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 in 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. Dulaney, Chair; Mr. Hood, Dr. Terrell and Mr. Warr
- Met two 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 six times in 2004. Average director attendance at all
board and committee meetings was 93 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, Mississippi Power Company, 2992 West Beach Boulevard, Gulfport,
Mississippi 39502-40798. 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) $296 $1,281
Audit-Related Fees(2) 262 --
Tax Fees -- 2
All Other Fees -- --
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Total $558 $1,283
============================================================================
</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 Mississippi Power Company, 2992 West
Beach, Gulfport, Mississippi 39501 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 Mr.
Topazi, 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 Mr. Topazi, 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 salary
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.
Mr. Topazi's annual performance bonus under the Southern Company Omnibus
Incentive Compensation Plan for target-level performance was 60 percent of his
base pay. The target percentage of base pay for the other executive officers was
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 207 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 Mr. Topazi's total target
compensation and 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 Mr. Topazi, 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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Mr. George A. Schloegel is president and chief executive officer of Hancock
Bank, Gulfport, Mississippi. During 2004, Hancock Bank furnished a number of
regular banking services in the ordinary course of business to the Company. The
Company intends to maintain normal banking relations with Hancock Bank in the
future.
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.
On July 26, 2004, the Company entered into a separation agreement with Mr. Don
E. Mason in connection with his retirement from the Company. The agreement
provided for a severance payment of $375,000. Mr. Mason also agreed to forego
eligibility for any short-term incentive compensation payment under the Omnibus
Incentive Compensation Plan in exchange for eligibility for a supplemental
termination payment, at the discretion of the Company's chief executive officer,
in an amount up to the short-term incentive compensation payment he was
otherwise eligible to receive under the Omnibus Incentive Compensation Plan. Mr.
Mason retired on January 1, 2005 and thereafter he received a severance payment
of $375,000. Mr. Mason also received a supplemental termination payment of
$227,794 which is shown in the Bonus column of the Summary Compensation Table on
page 12. The agreement also contains customary releases by the Company and Mr.
Mason and an agreement by Mr. Mason not to engage in specified competitive
activities for two years.
The Company also entered into a consulting agreement with Mr. Mason which was
effective January 1, 2005 and expires on June 30, 2006, unless terminated
earlier by the Company. At the discretion of the Company, Mr. Mason may perform
professional consulting services for the Company as requested by the Company's
chief executive officer or his designee. Mr. Mason will be paid a consulting fee
of $750 per day worked.
11
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the chief executive
officer and the other four most highly compensated executive officers of the
Company serving during 2004.
<Table>
<Caption>
LONG-TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION NUMBER OF
-------------------------------------------- SECURITIES LONG-TERM
OTHER ANNUAL UNDERLYING INCENTIVE ALL OTHER
NAME AND PRINCIPAL COMPENSATION STOCK OPTIONS PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($)(1) (SHARES) ($)(2) ($)(3)
- ---------------------------------------------------------------------------------------------------------------------------------
ANTHONY J. TOPAZI(4) 2004 310,384 389,232 16,962 37,479 145,128 37,067
President, Chief Executive
Officer, Director
- ---------------------------------------------------------------------------------------------------------------------------------
BOBBY J. KERLEY(5) 2004 207,951 195,464 8,732 16,113 54,390 19,714
Vice President 2003 185,055 144,128 3,450 11,828 53,623 8,756
- ---------------------------------------------------------------------------------------------------------------------------------
DON E. MASON(6) 2004 234,391 227,794 8,175 18,778 165,647 22,700
Vice President 2003 237,969 204,985 1,646 19,687 202,281 12,040
2002 222,856 219,927 17,588 21,950 182,925 36,161
- ---------------------------------------------------------------------------------------------------------------------------------
MICHAEL W. SOUTHERN(7) 2004 225,094 210,695 20,600 17,369 117,695 47,109
Vice President, Treasurer, 2003 217,594 187,758 16,179 18,032 109,556 36,668
Chief Financial Officer 2002 207,266 199,528 14,814 19,914 119,748 30,480
- ---------------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------------
</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
- ---------------------------------------------------------------------------------
Anthony J. Topazi $9,225 $740 $2,102
- ---------------------------------------------------------------------------------
Bobby J. Kerley 7,378 740 1,596
- ---------------------------------------------------------------------------------
Don E. Mason 8,401 740 3,559
- ---------------------------------------------------------------------------------
Michael W. Southern 9,225 740 2,144
- ---------------------------------------------------------------------------------
Gene L. Ussery, Jr. 9,225 740 2,294
- ---------------------------------------------------------------------------------
</Table>
In 2004, this amount also includes additional incentive compensation for
Messrs. Topazi, Kerley, Mason, Southern and Ussery in the amounts of
$25,000, $10,000, $10,000, $35,000 and $15,500, respectively. In 2003, Mr.
Southern's amount includes additional incentive compensation of $25,000. In
2002, these amounts for Messrs. Blakeslee, Mason, Southern and Ussery
included additional incentive compensation of $25,000, $25,000, $20,000 and
$15,000, respectively.
(4) Mr. Topazi became president and chief executive officer of the Company
effective January 1, 2004.
(5) Mr. Kerley became an executive officer of the Company in November 2003.
(6) Mr. Mason retired from the Company effective January 1, 2005.
(7) Mr. Southern resigned from the Company effective March 17, 2005.
12
STOCK OPTION GRANTS IN 2004
The following table sets forth all stock option grants to the named executive
officers of the Company during the year ending December 31, 2004.
<Table>
<Caption>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR GRANT DATE
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR(2) ($/SH)(1) DATE(1) VALUE($)(3)
- -----------------------------------------------------------------------------------------------------
Anthony J. Topazi 37,479 12.1 29.50 2/13/2014 123,306
- -----------------------------------------------------------------------------------------------------
Don E. Mason 18,778 6.1 29.50 1/1/2010 61,780
- -----------------------------------------------------------------------------------------------------
Bobby J. Kerley 16,113 5.2 29.50 2/13/2014 53,012
- -----------------------------------------------------------------------------------------------------
Michael W. Southern 17,369 5.6 29.50 2/13/2014 57,114
- -----------------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. 17,886 5.8 29.50 2/13/2014 58,845
- -----------------------------------------------------------------------------------------------------
</Table>
(1) Under the terms of the Southern Company Omnibus Incentive Compensation Plan,
stock option grants to 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 309,043 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
- ------------------------------------------------------------------------------------------------------------
Anthony J. Topazi 54,436 686,722 53,385 65,572 486,137 332,894
- ------------------------------------------------------------------------------------------------------------
Don E. Mason 29,053 484,622 96,557 39,219 1,195,899 208,699
- ------------------------------------------------------------------------------------------------------------
Bobby J. Kerley 10,248 88,603 16,177 28,405 132,615 144,898
- ------------------------------------------------------------------------------------------------------------
Michael W. Southern -- -- 60,443 36,028 660,809 191,310
- ------------------------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. 26,084 426,709 35,410 36,328 323,300 191,419
- ------------------------------------------------------------------------------------------------------------
</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 $30.25 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
</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
- ---------------------------------------------------------------------------------------------
Anthony J. Topazi $549,503 34
- ---------------------------------------------------------------------------------------------
Bobby J. Kerley 322,509 30
- ---------------------------------------------------------------------------------------------
Don E. Mason 398,442 38
- ---------------------------------------------------------------------------------------------
Michael W. Southern 384,892 29
- ---------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. 370,897 36
- ---------------------------------------------------------------------------------------------
</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)
- ----------------------------------------------------------------------------------------------------
Thomas E. Dulaney Southern Company Common Stock 2,949
- ----------------------------------------------------------------------------------------------------
Warren A. Hood Southern Company Common Stock 419
- ----------------------------------------------------------------------------------------------------
Robert C. Khayat Southern Company Common Stock 779
- ----------------------------------------------------------------------------------------------------
George A. Schloegel Southern Company Common Stock 2,470
- ----------------------------------------------------------------------------------------------------
Phillip J. Terrell Southern Company Common Stock 2,205
- ----------------------------------------------------------------------------------------------------
E. Eugene Warr Southern Company Common Stock 3,533
- ----------------------------------------------------------------------------------------------------
Bobby J. Kerley Southern Company Common Stock 32,721 29,897
- ----------------------------------------------------------------------------------------------------
Don E. Mason Southern Company Common Stock 132,602 116,696
- ----------------------------------------------------------------------------------------------------
Michael W. Southern Southern Company Common Stock 85,459 78,881
- ----------------------------------------------------------------------------------------------------
Anthony J. Topazi Southern Company Common Stock 96,425 84,796
- ----------------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. Southern Company Common Stock 57,146 53,771
- ----------------------------------------------------------------------------------------------------
Directors, Nominees and
Executive Officers as a group
(14 people) Southern Company Common Stock 428,858 364,041
- ----------------------------------------------------------------------------------------------------
</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
(RECYCLE LOGO)