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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____to_____
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
- - ----------- ----------------------------------- ------------------
1-3526 The Southern Company 58-0690070
(A Delaware Corporation)
270 Peachtree Street, N.W.
Atlanta, Georgia 30303
(770) 393-0650
1-3164 Alabama Power Company 63-0004250
(An Alabama Corporation)
600 North 18th Street
Birmingham, Alabama 35291
(205) 250-1000
1-6468 Georgia Power Company 58-0257110
(A Georgia Corporation)
333 Piedmont Avenue, N.E.
Atlanta, Georgia 30308
(404) 526-6526
0-2429 Gulf Power Company 59-0276810
(A Maine Corporation)
500 Bayfront Parkway
Pensacola, Florida 32501
(904) 444-6111
0-6849 Mississippi Power Company 64-0205820
(A Mississippi Corporation)
2992 West Beach
Gulfport, Mississippi 39501
(601) 864-1211
1-5072 Savannah Electric and Power Company 58-0418070
(A Georgia Corporation)
600 East Bay Street
Savannah, Georgia 31401
(912) 232-7171
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Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No____
Description of Shares Outstanding
Registrant Common Stock at October 31, 1996
- - ---------- -------------- -------------------
The Southern Company Par Value $5 Per Share 673,652,878
Alabama Power Company Par Value $40 Per Share 5,608,955
Georgia Power Company No Par Value 7,761,500
Gulf Power Company No Par Value 992,717
Mississippi Power Company Without Par Value 1,121,000
Savannah Electric and Power Company Par Value $5 Per Share 10,844,635
This combined Form 10-Q is separately filed by The Southern Company,
Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi
Power Company and Savannah Electric and Power Company. Information contained
herein relating to any individual company is filed by such company on its own
behalf. Each company makes no representation as to information relating to the
other companies.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 1996
Page
Number
DEFINITIONS................................................................................................... 4
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) and
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
The Southern Company and Subsidiary Companies
Condensed Consolidated Statements of Income................................................... 6
Condensed Consolidated Statements of Cash Flows............................................... 7
Condensed Consolidated Balance Sheets......................................................... 8
Management's Discussion and Analysis of Results of Operations and Financial Condition......... 10
Alabama Power Company
Condensed Statements of Income................................................................ 16
Condensed Statements of Cash Flows............................................................ 17
Condensed Balance Sheets...................................................................... 18
Management's Discussion and Analysis of Results of Operations and Financial Condition......... 20
Exhibit 1 - Report of Independent Public Accountants.......................................... 24
Georgia Power Company
Condensed Statements of Income................................................................ 26
Condensed Statements of Cash Flows............................................................ 27
Condensed Balance Sheets...................................................................... 28
Management's Discussion and Analysis of Results of Operations and Financial Condition......... 30
Exhibit 1 - Report of Independent Public Accountants.......................................... 34
Gulf Power Company
Condensed Statements of Income................................................................ 36
Condensed Statements of Cash Flows............................................................ 37
Condensed Balance Sheets...................................................................... 38
Management's Discussion and Analysis of Results of Operations and Financial Condition......... 40
Mississippi Power Company
Condensed Statements of Income................................................................ 45
Condensed Statements of Cash Flows............................................................ 46
Condensed Balance Sheets...................................................................... 47
Management's Discussion and Analysis of Results of Operations and Financial Condition......... 49
Savannah Electric and Power Company
Condensed Statements of Income................................................................ 54
Condensed Statements of Cash Flows............................................................ 55
Condensed Balance Sheets...................................................................... 56
Management's Discussion and Analysis of Results of Operations and Financial Condition......... 58
Notes to the Condensed Financial Statements...................................................... 61
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................... 66
Item 2. Changes in Securities................................................................................ Inapplicable
Item 3. Defaults Upon Senior Securities...................................................................... Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders.................................................. Inapplicable
Item 5. Other Information.................................................................................... Inapplicable
Item 6. Exhibits and Reports on Form 8-K..................................................................... 66
Signatures .......................................................................................... 67
3
DEFINITIONS
TERM MEANING
affiliates.................... ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH
ALABAMA....................... Alabama Power Company
Clean Air Act ................ Clean Air Act Amendments of 1990
ECO Plan...................... Environmental Compliance Overview Plan
Energy Act.................... Energy Policy Act of 1992
EWG........................... Exempt wholesale generator
FASB.......................... Financial Accounting Standards Board
FERC.......................... Federal Energy Regulatory Commission
Form 10-K..................... Combined Annual Report on Form 10-K of SOUTHERN, ALABAMA, GEORGIA, GULF,
MISSISSIPPI and SAVANNAH for the year ended December 31, 1995
FUCO.......................... Foreign utility company
GEORGIA....................... Georgia Power Company
GULF.......................... Gulf Power Company
MEAG.......................... Municipal Electric Authority of Georgia
MISSISSIPPI................... Mississippi Power Company
OPC........................... Oglethorpe Power Corporation
operating affiliates.......... see affiliates
operating companies........... see affiliates
PEP........................... Performance Evaluation Plan
PSC........................... Public Service Commission
SAVANNAH...................... Savannah Electric and Power Company
SEC........................... Securities and Exchange Commission
SOUTHERN...................... The Southern Company
Southern Energy............... Southern Energy, Inc. (formerly Southern Electric International, Inc.)
SWEB.......................... South Western Electricity plc (United Kingdom)
TVA........................... Tennessee Valley Authority
4
THE SOUTHERN COMPANY
AND SUBSIDIARY COMPANIES
5
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------- -------------------------------
1996 1995 1996 1995
---- ---- ---- ----
OPERATING REVENUES $ 2,916,635 $ 2,758,848 $ 7,870,821 $ 6,871,461
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Operation--
Fuel 642,400 665,190 1,700,351 1,660,738
Purchased power 252,291 115,091 746,951 244,180
Other (Note G) 430,606 430,888 1,298,316 1,180,913
Maintenance 169,675 142,936 552,774 465,244
Depreciation and amortization 247,892 243,639 740,023 672,680
Amortization of deferred Plant Vogtle costs (Note M) 34,077 32,493 101,070 90,443
Taxes other than income taxes 162,384 131,995 483,335 376,875
Income taxes 293,596 323,112 678,424 668,556
-------------- -------------- -------------- --------------
Total operating expenses 2,232,921 2,085,344 6,301,244 5,359,629
-------------- -------------- -------------- --------------
OPERATING INCOME 683,714 673,504 1,569,577 1,511,832
OTHER INCOME:
Allowance for equity funds used during construction 1,169 843 2,213 5,847
Interest income 11,781 10,753 39,588 19,132
Other, net (2,450) (32,266) (14,759) (31,807)
Income taxes applicable to other income (16,268) 8,751 19,584 13,790
-------------- -------------- -------------- --------------
INCOME BEFORE INTEREST CHARGES 677,946 661,585 1,616,203 1,518,794
-------------- -------------- -------------- --------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 126,428 131,999 389,774 405,500
Allowance for debt funds used during construction (4,400) (3,663) (15,189) (14,902)
Interest on notes payable 30,288 15,501 95,095 43,892
Amortization of debt discount, premium and expense, net 15,560 7,836 36,500 23,777
Other interest charges 16,509 14,982 52,301 40,416
Minority interests in subsidiaries' earnings 3,765 4,318 4,591 10,940
Preferred dividends of subsidiary companies 22,356 21,788 65,556 66,491
-------------- -------------- -------------- --------------
Net interest charges and other, net 210,506 192,761 628,628 576,114
-------------- -------------- -------------- --------------
CONSOLIDATED NET INCOME $ 467,440 $ 468,824 $ 987,575 $ 942,680
============== ============== ============== ==============
AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (Thousands) 673,651 665,774 671,838 664,279
EARNINGS PER SHARE OF COMMON STOCK $0.69 $0.71 $1.47 $1.42
CASH DIVIDENDS PAID PER SHARE
OF COMMON STOCK $0.315 $0.305 $0.945 $0.915
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
6
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Nine Months
Ended September 30,
------------------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
Consolidated net income $ 987,575 $ 942,680
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 913,122 836,792
Deferred income taxes and investment tax credits 67,694 82,255
Allowance for equity funds used during construction (2,213) (5,847)
Amortization of deferred Plant Vogtle costs (Note M) 101,070 90,443
Gain on asset sales (62,787) (23,533)
Other, net 39,254 107,832
Changes in certain current assets and liabilities--
Receivables, net (75,918) (224,916)
Fossil fuel stock 64,170 81,768
Materials and supplies 22,266 8,610
Payables (136,168) (216,121)
Customer deposits (83,360) 33,135
Taxes accrued 159,459 234,696
Other (111,844) (77,530)
------------- -------------
Net cash provided from operating activities 1,882,320 1,870,264
------------- -------------
INVESTING ACTIVITIES:
Gross property additions (911,435) (967,016)
SEI investments - (343,947)
Sale of minority interest in SWEB 188,663 -
Sales of property and other investments 20,895 131,099
Other (98,990) 17,224
------------- -------------
Net cash used for investing activities (800,867) (1,162,640)
------------- -------------
FINANCING ACTIVITIES:
Proceeds--
Common stock 95,873 186,610
Subsidiary obligated mandatorily redeemable preferred securities 322,000 -
First mortgage bonds 60,000 345,210
Pollution control bonds 146,100 515,300
Other long-term debt 319,148 265,772
Retirements--
Preferred stock (78,897) (1,000)
First mortgage bonds (377,149) (538,414)
Pollution control bonds (91,460) (355,205)
Other long-term debt (1,116,073) (261,551)
Special deposits-redemption funds (61,480) (149,585)
Notes payable, net (40,027) 96,753
Payment of common stock dividends (634,553) (607,988)
Miscellaneous (16,318) (11,315)
------------- -------------
Net cash used for financing activities (1,472,836) (515,413)
------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (391,383) 192,211
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 772,340 139,309
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 380,957 $ 331,520
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 545,845 $ 486,235
Income taxes 458,731 453,265
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
7
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At September 30,
1996 At December 31,
(Unaudited) 1995
---------------- ------------------
UTILITY PLANT:
Plant in service $ 32,809,676 $ 31,878,166
Less accumulated provision for depreciation 10,737,018 10,067,081
---------------- ----------------
22,072,658 21,811,085
Nuclear fuel, at amortized cost 228,828 225,386
Construction work in progress 777,556 989,808
---------------- ----------------
Total 23,079,042 23,026,279
---------------- ----------------
OTHER PROPERTY AND INVESTMENTS:
Argentine operating concession, being amortized 420,194 431,212
Goodwill 290,262 343,897
Nuclear decommissioning trusts, at market 240,820 200,641
Miscellaneous 347,526 317,103
---------------- ----------------
Total 1,298,802 1,292,853
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 380,957 772,340
Special deposits 61,480 156,114
Receivables, less accumulated provisions for uncollectible accounts
of $32,618 at September 30, 1996 and $37,119 at December 31, 1995 1,434,922 1,362,912
Fossil fuel stock, at average cost 262,499 326,669
Materials and supplies, at average cost 533,908 551,546
Prepayments 284,583 265,988
Vacation pay deferred 77,656 74,135
---------------- ----------------
Total 3,036,005 3,509,704
---------------- ----------------
DEFERRED CHARGES:
Deferred charges related to income taxes 1,330,666 1,386,116
Deferred Plant Vogtle costs (Note M) 206,568 307,638
Debt expense, being amortized 76,913 68,539
Premium on reacquired debt, being amortized 275,039 294,825
Miscellaneous 624,051 636,327
---------------- ----------------
Total 2,513,237 2,693,445
---------------- ----------------
TOTAL ASSETS $ 29,927,086 $ 30,522,281
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The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
8
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At September 30,
1996 At December 31,
(Unaudited) 1995
------------------ -----------------
CAPITALIZATION:
Common stock, par value $5 per share--
Authorized -- 1 billion shares
Outstanding -- September 30, 1996: 673,651,015 shares
-- December 31, 1995: 669,542,914 shares $ 3,368,255 $ 3,347,715
Paid-in capital 1,985,114 1,940,823
Retained earnings 3,835,643 3,483,624
---------------- ----------------
9,189,012 8,772,162
Preferred stock of subsidiaries 1,153,056 1,332,203
Subsidiary obligated mandatorily redeemable preferred securities 422,000 100,000
Long-term debt 7,356,378 8,274,012
---------------- ----------------
Total 18,120,446 18,478,377
---------------- ----------------
CURRENT LIABILITIES:
Preferred stock of subsidiaries due within one year 100,250 -
Long-term debt due within one year 212,080 508,572
Notes payable 1,629,711 1,669,738
Accounts payable 597,190 785,490
Customer deposits 133,284 216,644
Taxes accrued--
Income taxes 144,678 92,684
Other 285,251 178,807
Interest accrued 158,630 199,112
Vacation pay accrued 104,067 99,678
Miscellaneous 442,107 530,461
---------------- ----------------
Total 3,807,248 4,281,186
---------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 4,714,244 4,611,081
Deferred credits related to income taxes 892,148 935,611
Accumulated deferred investment tax credits 795,292 820,127
Employee benefits provisions 478,858 430,802
Minority interests in subsidiaries 373,141 230,500
Prepaid capacity revenues 125,024 131,186
Department of Energy assessments 86,113 86,113
Disallowed Plant Vogtle capacity buyback costs 57,050 58,514
Storm damage reserves 34,136 30,777
Miscellaneous 443,386 428,007
---------------- ----------------
Total 7,999,392 7,762,718
---------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES $ 29,927,086 $ 30,522,281
================ ================
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
9
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIRD QUARTER 1996 vs. THIRD QUARTER 1995
AND
YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995
RESULTS OF OPERATIONS
Earnings
SOUTHERN's consolidated net income for the third quarter and year-to-date 1996
was $467 million ($0.69 per share) and $988 million ($1.47 per share),
respectively, compared to $469 million ($0.71 per share) and $943 million ($1.42
per share) for the corresponding periods of 1995. This resulted in a
consolidated net income decrease of 0.3% for the quarter and an increase of 4.8%
year to date. Milder weather during the third quarter of 1996 when compared with
the third quarter of 1995 kept earnings relatively flat; however, year-to-date
earnings of the core business were positively affected by more favorable weather
conditions during the first half of 1996. The performance of Southern Energy
(primarily resulting from the acquisition of SWEB effective September 18, 1995)
also contributed to 1996 earnings. (Reference is made to Note 14 of SOUTHERN's
financial statements in Item 8 of the Form 10-K for additional information
regarding the acquisition of SWEB. Reference is also made to "Future Earnings
Potential" below relating to the sale, in July 1996, of a 25% share of SWEB to a
subsidiary of PP&L Resources, Inc.)
SOUTHERN's core business is primarily represented by its five domestic
electric utility operating companies, which provide electric service in four
Southeastern states. Another significant portion of SOUTHERN's business is
represented by Southern Energy, which owns and manages international and
domestic businesses for SOUTHERN. Businesses acquired by Southern Energy have
been included in the consolidated statements of income since the date of
acquisition. Certain changes in operating revenues and expenses from the prior
period are the result of such acquisitions.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
--------------------------------------------------------------
Third Quarter Year-To-Date
------------------------------- ------------------------------
(in thousands) % (in thousands) %
Operating revenues............................... $157,787 5.7 $999,360 14.5
Purchased power expense.......................... 137,200 119.2 502,771 205.9
Maintenance expense.............................. 26,739 18.7 87,530 18.8
Depreciation and amortization expense............ 4,253 1.7 67,343 10.0
Taxes other than income taxes.................... 30,389 23.0 106,460 28.2
Interest on long-term debt....................... (5,571) (4.2) (15,726) (3.9)
Interest on notes payable........................ 14,787 95.4 51,203 116.7
Operating revenues. The changes in operating revenues of the core business
were influenced most heavily by changes in the amount of retail energy sold.
Compared to the corresponding periods of 1995, total retail kilowatt-hour sales
for the third quarter decreased 0.3%; however, for the current year-to-date
period, total retail kilowatt-hour sales increased 3.7%. Retail revenues,
excluding those revenues which represent the pass-through of fuel and certain
other expenses and do not affect income, decreased $48 million for the third
quarter and increased $79 million year-to-date 1996. Residential and commercial
energy sales experienced the most significant changes for the third quarter and
10
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
year-to-date periods, respectively. Compared to the corresponding periods of
1995, residential kilowatt-hour sales for the third quarter decreased 5.2%;
however, for the current year-to-date period, residential kilowatt-hour sales
increased 3.6%. Commercial kilowatt-hour sales increased 2.8% and 6.0% for the
current quarter and year-to-date periods, respectively. Compared to the same
periods of 1995, there was growth in the number of residential and commercial
customers served; however, residential energy sales were mainly influenced by
favorable weather conditions during the third quarter of 1995 and the first half
of 1996. For the third quarter and year-to-date 1996, operating revenues
applicable to Southern Energy-related activities increased by $245 million and
$881 million, respectively, as compared to the corresponding periods of 1995.
The primary reason for these increases relates to the acquisition of SWEB.
Purchased power expense. The substantial increase in purchased power
expense is attributable to Southern Energy-related activities, specifically,
SWEB's operations. (SWEB's main business is the distribution of electricity. It
must purchase essentially all of its power.) Purchased power expense in the core
business decreased 10.6% or $9 million for the third quarter and 2.7% or $5
million for year-to-date 1996 compared to the corresponding periods of 1995.
Maintenance expense. After excluding those amounts attributable to Southern
Energy-related business activities, maintenance expense related to the core
business increased $13 million or 9.3% for the third quarter and $46 million or
10.0% for year-to-date 1996 compared to the corresponding periods of 1995. The
increase in the current quarter is primarily attributable to the timing of
scheduled maintenance performed on generating units and a write-off by ALABAMA
of obsolete steam generating plant inventory. The year-to-date increase is
primarily due to the timing of scheduled maintenance performed on generating
units and an accrual by ALABAMA to partially replenish its natural disaster
reserve.
Depreciation and amortization expense. After excluding those amounts
attributable to Southern Energy-related business activities, depreciation and
amortization expense in the core business decreased $9 million or 3.7% for the
third quarter and increased $23 million or 3.5% for year-to-date 1996 compared
to the corresponding periods of 1995. The decrease in the current quarter is
primarily due to a charge to amortization expense by GEORGIA in September 1995
for software development costs. The increase in year-to-date 1996 is mainly due
to accelerated depreciation of certain generating plants pursuant to a new
retail rate plan at GEORGIA effective January 1, 1996, and additional plant
investment.
Taxes other than income taxes. After excluding those amounts attributable
to Southern Energy-related business activities, taxes other than income taxes
associated with the core business increased $2 million or 1.4% for the current
quarter and $13 million or 3.4% for the current year-to-date period compared to
the corresponding periods of 1995 primarily due to higher municipal and county
franchise taxes. Changes in such franchise taxes, which are collected from
customers, have no impact on earnings.
Interest on long-term debt. After excluding those amounts attributable to
Southern Energy-related business activities, interest on long-term debt in the
core business decreased $12 million (9.6%) for the third quarter and $50 million
(13.3%) year-to-date 1996 compared to the corresponding periods of 1995
reflecting the redemption and refinancing of long-term debt by the operating
companies.
11
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Interest on notes payable. After excluding those amounts attributable to
Southern Energy-related business activities, interest on notes payable in the
core business decreased $3 million or 20.0% for the current quarter and
increased $5 million or 12.1% year-to-date 1996 reflecting a lower amount of
short-term debt outstanding in the current quarter compared to the same period
of 1995 and a higher amount of short-term debt outstanding in the current
year-to-date period compared to the corresponding period of 1995.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from energy sales growth to a less regulated, more competitive
environment, with Southern Energy and other business becoming more significant.
With respect to Southern Energy-related activities, SOUTHERN received, in
April 1996, an order from the SEC which in effect allows it to use the proceeds
from financings to increase its aggregate investment in EWGs and FUCOs up to an
amount not exceeding 100% of SOUTHERN's consolidated retained earnings. A
consumer group that had sought to intervene in the SEC proceeding has filed a
motion for reconsideration of such order with the SEC and an appeal with the
U.S. Court of Appeals for the 11th Circuit. At September 30, 1996, SOUTHERN's
consolidated retained earnings amounted to $3,836 million, and its aggregate
investment in EWGs and FUCOs amounted to $889 million. For additional
information relating to Southern Energy and SOUTHERN's other business
activities, see Item 1 - BUSINESS - "New Business Development" in the Form 10-K.
In addition to the discussion in the Form 10-K relating to SWEB, on July 1,
1996, Southern Energy sold, indirectly, a 25% share in SWEB to a subsidiary of
PP&L Resources, Inc. for some $189 million.
On October 9, 1996, Southern Energy announced that a $2.7 billion agreement
had been entered into between Southern Energy, Southern Energy-Asia, Inc. (an
indirect, wholly-owned subsidiary of SOUTHERN), Consolidated Electric Power Asia
Limited (CEPA) and Hopewell Holdings Limited, providing for the acquisition by
Southern Energy-Asia of an 80% interest in CEPA. For additional information,
reference is made to the Current Report on Form 8-K, dated October 9, 1996,
filed by SOUTHERN.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition.
Legislation has been enacted in Alabama that would establish a process for
determining whether utilities would experience "stranded costs" upon the
transfer of an existing customer of a utility to another electric supplier. This
legislation authorizes the Alabama PSC to make a determination of whether
stranded costs would exist as a result of such a transfer by a customer of
ALABAMA and could require the customer seeking an alternative supplier to pay
any stranded costs found to exist. The legislation has termination provisions
keyed to passage of comprehensive retail electric service competition
legislation which addresses stranded costs of existing utilities and eliminates
the obligation of utilities to provide generating resources. For additional
information, see Item 1 - BUSINESS "Competition" and Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SOUTHERN in the Form
10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset. For additional information about the Clean Air Act and
other environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
"Environmental Matters" of SOUTHERN in the Form 10-K.
12
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Reference is made to Notes (B), (C), (E), (F), (H), (J), (L), (M), (N),
(O), (Q) and (R) in the "Notes to the Condensed Financial Statements" herein for
discussion of various contingencies and other matters which may affect future
earnings potential. Reference is also made to Part II - Item 1 - "Legal
Proceedings" herein.
FINANCIAL CONDITION
Overview
The major change in SOUTHERN's financial condition during the first nine months
of 1996 was the addition of approximately $911 million to utility plant. The
funds for these additions and other capital requirements were derived primarily
from operations. See SOUTHERN's Condensed Statements of Cash Flows for further
details.
Financing Activities
During the first nine months of 1996, the operating companies sold $60 million
of first mortgage bonds, and through public authorities, $146 million of
pollution control revenue bonds. Retirements, including maturities, of the
operating companies' first mortgage bonds and pollution control revenue bonds
totaled $463 million, and redemptions of preferred stock totaled $79 million. A
subsidiary of ALABAMA formed as a statutory business trust sold $97 million of
trust preferred securities guaranteed by ALABAMA and loaned the proceeds of such
securities to ALABAMA. See Note (I) in the "Notes to the Condensed Financial
Statements" herein for further details. A subsidiary of GEORGIA formed as a
statutory business trust sold $225 million of trust preferred securities
guaranteed by GEORGIA and loaned the proceeds of such securities to GEORGIA. See
Note (K) in the "Notes to the Condensed Financial Statements" herein for further
details.
During the first nine months of 1996, SOUTHERN raised $96 million from the
issuance of new common stock under SOUTHERN's various stock plans. The market
price of SOUTHERN's common stock at September 30, 1996 was $22.50 per share and
the book value was $13.64 per share, representing a market-to-book ratio of
165%, compared to $24.625, $13.10 and 188%, respectively, at the end of 1995.
The dividend for the third quarter of 1996 was $0.315 per share.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of SOUTHERN
under "Capital Requirements for Construction," "Environmental Matters" and
"Other Capital Requirements" in the Form 10-K for a description of the Southern
electric system's capital requirements for its construction program,
environmental compliance efforts, sinking fund requirements and maturing debt.
Approximately $312 million will be required by September 30, 1997, for present
sinking fund requirements, redemption of preferred stock and redemptions and
maturities of long-term debt. Also, the operating companies plan to continue, to
the extent possible, a program to retire higher-cost debt and preferred stock
and replace these securities with lower-cost capital.
Sources of Capital
In addition to the financing activities previously described, SOUTHERN may
require additional equity capital during the remainder of the year. The amounts
and timing of additional equity capital to be raised in 1996, as well as in
subsequent years, will be contingent on SOUTHERN's investment opportunities. The
13
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
operating companies plan to obtain the funds required for construction and other
purposes from sources similar to those used in the past. The amount, type and
timing of any financings--if needed--will depend upon maintenance of adequate
earnings, regulatory approval, prevailing market conditions and other factors.
Currently, each of the operating companies expects to have adequate earnings
coverage ratios for any anticipated security sales through at least 1998. See
Item 1 BUSINESS - "Financing Programs" in the Form 10-K for additional
information.
To meet short-term cash needs and contingencies, the SOUTHERN system had at
September 30, 1996, approximately $381 million of cash and cash equivalents and
approximately $4,119 million of unused credit arrangements with banks (including
$808 million of such arrangements under which borrowings may be made only to
fund purchase obligations of the operating companies relating to variable rate
pollution control bonds). At September 30, 1996, the system companies had
outstanding approximately $1,040 million of short-term notes payable and $590
million of commercial paper. Since SOUTHERN's construction program with respect
to major generating projects in the core business has been completed, management
believes that the need for working capital can be adequately met by utilizing
lines of credit without maintaining large cash balances.
See Note (D) in the "Notes to the Condensed Financial Statements" herein
for discussion of financial derivative contracts entered into by SOUTHERN.
14
ALABAMA POWER COMPANY
15
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
OPERATING REVENUES:
Revenues $ 869,950 $ 910,023 $ 2,253,194 $ 2,264,183
Revenues from affiliates 43,358 28,261 172,510 73,925
-------------- -------------- -------------- --------------
Total operating revenues 913,308 938,284 2,425,704 2,338,108
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Operation--
Fuel 245,385 242,649 668,034 596,257
Purchased power from non-affiliates 11,795 16,684 31,651 25,895
Purchased power from affiliates 27,502 41,011 67,365 93,695
Other 124,624 125,667 375,808 363,062
Maintenance 62,361 51,299 193,354 174,529
Depreciation and amortization 80,142 75,886 239,859 228,717
Taxes other than income taxes 46,507 45,959 140,244 137,668
Federal and state income taxes 92,469 105,807 193,141 204,329
-------------- -------------- -------------- --------------
Total operating expenses 690,785 704,962 1,909,456 1,824,152
-------------- -------------- -------------- --------------
OPERATING INCOME 222,523 233,322 516,248 513,956
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 161 564 594 2,823
Income from subsidiary 944 990 2,885 2,865
Interest income 6,521 5,840 21,506 6,760
Other, net (7,907) (8,436) (30,526) (19,810)
Income taxes applicable to other income 1,368 1,155 15,463 9,154
-------------- -------------- -------------- --------------
INCOME BEFORE INTEREST CHARGES 223,610 233,435 526,170 515,748
-------------- -------------- -------------- --------------
INTEREST CHARGES:
Interest on long-term debt 42,179 44,737 127,067 135,684
Allowance for debt funds used during construction (1,390) (915) (5,112) (4,585)
Interest on interim obligations 5,374 4,430 16,852 13,300
Amortization of debt discount, premium and expense, net 10,165 2,544 19,809 7,588
Other interest charges 8,009 7,999 26,107 21,192
-------------- -------------- -------------- --------------
Net interest charges 64,337 58,795 184,723 173,179
-------------- -------------- -------------- --------------
NET INCOME 159,273 174,640 341,447 342,569
DIVIDENDS ON PREFERRED STOCK 6,684 6,702 19,921 20,377
-------------- -------------- -------------- --------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 152,589 $ 167,938 $ 321,526 $ 322,192
============== ============== ============== ==============
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
16
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Nine Months
Ended September 30,
---------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
Net income $ 341,447 $ 342,569
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 303,893 272,505
Deferred income taxes and investment tax credits, net (50) 27,182
Allowance for equity funds used during construction (594) (2,823)
Other, net 22,666 59,823
Changes in certain current assets and liabilities--
Receivables, net (39,366) (88,215)
Inventories 40,621 26,669
Payables (71,740) (100,678)
Taxes accrued 81,314 83,959
Energy cost recovery, retail 25,186 (18,693)
Other (37,291) (32,948)
------------ ------------
Net cash provided from operating activities 666,086 569,350
------------ ------------
INVESTING ACTIVITIES:
Gross property additions (325,313) (357,749)
Other (34,838) (40,366)
------------ ------------
Net cash used for investing activities (360,151) (398,115)
------------ ------------
FINANCING ACTIVITIES:
Proceeds--
Company obligated mandatorily redeemable preferred securities of Alabama
Power Capital Trust I holding Company Junior
Subordinated Notes (Note I) 97,000 -
Other long-term debt - 50,000
Retirements--
First mortgage bonds (83,797) -
Other long-term debt (706) (50,563)
Interim obligations, net (58,637) 60,128
Payment of preferred stock dividends (19,945) (20,296)
Payment of common stock dividends (228,800) (210,700)
Miscellaneous (3,042) (1,567)
------------ ------------
Net cash used for financing activities (297,927) (172,998)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 8,008 (1,763)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,616 14,676
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,624 $ 12,913
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 152,197 $ 148,104
Income taxes 135,370 112,268
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
17
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At September 30,
1996 At December 31,
(Unaudited) 1995
------------------- -----------------
UTILITY PLANT:
Plant in service $ 10,705,412 $ 10,430,792
Less accumulated provision for depreciation 4,051,259 3,838,093
---------------- ----------------
6,654,153 6,592,699
Nuclear fuel, at amortized cost 107,488 100,537
Construction work in progress 320,079 362,768
---------------- ----------------
Total 7,081,720 7,056,004
---------------- ----------------
OTHER PROPERTY AND INVESTMENTS:
Southern Electric Generating Company, at equity 25,771 27,232
Nuclear decommissioning trusts, at market 122,526 108,368
Miscellaneous 20,937 19,156
---------------- ----------------
Total 169,234 154,756
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 20,624 12,616
Receivables--
Customer accounts receivable 384,271 355,833
Other accounts and notes receivable 26,719 28,082
Affiliated companies 48,639 41,819
Accumulated provision for uncollectible accounts (1,316) (1,212)
Refundable income taxes - 2,635
Fossil fuel stock, at average cost 77,765 106,627
Materials and supplies, at average cost 167,344 179,103
Prepayments 146,903 116,331
Vacation pay deferred 28,369 29,458
---------------- ----------------
Total 899,318 871,292
---------------- ----------------
DEFERRED CHARGES:
Deferred charges related to income taxes 424,567 436,837
Debt expense, being amortized 7,512 7,648
Premium on reacquired debt, being amortized 72,465 89,967
Uranium enrichment decontamination and decommissioning fund 40,282 40,282
Miscellaneous 90,518 87,574
---------------- ----------------
Total 635,344 662,308
---------------- ----------------
TOTAL ASSETS $ 8,785,616 $ 8,744,360
================ ================
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
18
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At September 30,
1996 At December 31,
(Unaudited) 1995
------------------- -------------------
CAPITALIZATION:
Common stock equity--
Common stock (par value $40 per share)--
authorized 6,000,000 shares; outstanding 5,608,955 shares $ 224,358 $ 224,358
Paid-in capital 1,304,645 1,304,645
Premium on preferred stock 146 146
Retained earnings 1,253,923 1,161,225
-------------- --------------
2,783,072 2,690,374
Preferred stock 440,400 440,400
Company obligated mandatorily redeemable preferred securities of
Alabama Power Capital Trust I holding Company Junior
Subordinated Notes (Note I) 97,000 -
Long-term debt 2,353,522 2,374,948
-------------- --------------
Total 5,673,994 5,505,722
-------------- --------------
CURRENT LIABILITIES:
Long-term debt due within one year 20,749 84,682
Notes payable to banks 20,000 -
Commercial paper 311,379 390,016
Accounts payable--
Affiliated companies 71,643 76,326
Other 99,777 182,401
Customer deposits 32,630 30,353
Taxes accrued--
Federal and state income 45,577 13,599
Other 59,747 18,158
Interest accrued 46,517 53,527
Vacation pay accrued 28,369 29,458
Miscellaneous 82,825 70,543
-------------- --------------
Total 819,213 949,063
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 1,207,453 1,191,591
Accumulated deferred investment tax credits 296,835 305,372
Prepaid capacity revenues, net 125,024 131,186
Uranium enrichment decontamination and decommissioning fund 36,620 36,620
Deferred credits related to income taxes 368,316 386,038
Natural disaster reserve 20,306 17,959
Miscellaneous 237,855 220,809
-------------- --------------
Total 2,292,409 2,289,575
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $ 8,785,616 $ 8,744,360
============== ==============
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
19
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIRD QUARTER 1996 vs. THIRD QUARTER 1995
AND
YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995
RESULTS OF OPERATIONS
Earnings
ALABAMA's net income after dividends on preferred stock for the third quarter
and year-to-date 1996 was $152.6 million and $321.5 million, respectively,
compared to $167.9 million and $322.2 million for the corresponding periods of
1995. Earnings decreased by 9.1% for the third quarter, primarily due to lower
retail energy sales, and by 0.2% year-to-date.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
--------------------------------------------------------
Third Quarter Year-To-Date
-------------------------- -----------------------------
(in thousands) % (in thousands) %
Revenues............................................. $(40,073) (4.4) $(10,989) (0.5)
Revenues from affiliates............................. 15,097 53.4 98,585 133.4
Fuel expense......................................... 2,736 1.1 71,777 12.0
Purchased power from affiliates...................... (13,509) (32.9) (26,330) (28.1)
Maintenance expense.................................. 11,062 21.6 18,825 10.8
Interest income...................................... 681 11.7 14,746 218.1
Other, net........................................... 529 6.3 (10,716) (54.1)
Amortization of debt discount, premium and
expense, net...................................... 7,621 299.6 12,221 161.1
Revenues. Excluding fuel revenues, which represent the pass-through of fuel
expenses and do not affect net income, revenues for the third quarter 1996
decreased $14.5 million, compared to the corresponding period of 1995. The
decrease in third quarter 1996 revenues reflects a decrease in the amount of
retail, particularly residential, energy sold as well as rate reductions
initiated by ALABAMA for certain commercial and industrial customers. Milder
weather during the third quarter of 1996 as compared to the exceptionally warm
summer of 1995 primarily impacted residential energy sales, which were down 7.3%
compared to the third quarter of 1995. Commercial energy sales increased 5.2%,
and industrial energy sales decreased 1.8% for the third quarter compared to
1995. Total retail kilowatt-hour sales for the quarter were down 2.3% compared
to the same period of 1995, and retail revenues, excluding fuel revenues,
decreased $20.1 million.
Revenues from affiliates and Purchased power from affiliates. Revenues from
sales to affiliated companies within the Southern electric system, as well as
purchases of energy, will vary from period to period depending on demand, the
availability, and cost of generating resources at each company.
Fuel expense. The increase in fuel expense for the year-to-date 1996 period
as compared to the corresponding period of 1995 can be attributed to higher
generation.
20
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Maintenance expense. Maintenance expense increased for the third quarter of
1996 compared to the same period of 1995 primarily due to a reclassification of
expenses previously charged to operations and the write-off of obsolete steam
generating plant inventory. These items, plus an accrual to partially replenish
the natural disaster reserve, represent the primary reasons for the year-to-date
increase.
Interest income. The 1996 year-to-date increase in interest income compared
to the same period of 1995 reflects approximately $5 million resulting from the
recognition of gains on sales of securities within the nuclear decommissioning
trust. This increase in income was offset by a concurrent recognition of other
interest charges in accordance with FERC requirements. In addition, interest
income was reduced in May 1995, pursuant to litigation, as a result of a charge
of $9 million to reflect the refund of interest on the sales of merchandise by
vendors other than ALABAMA.
Other, net. The change in this item for the year-to-date 1996 period
compared to the same period of 1995 is primarily due to a $5.6 million gain on
the disposition of property which was recognized in 1995 and increased
contributions and injuries and damages expenses during 1996.
Amortization of debt discount, premium and expense, net. The increase in
this item for the current quarter and year-to-date periods compared to the same
periods of 1995 is the result of ALABAMA's reducing the asset account, relating
to premiums incurred in connection with the refinancing of high-cost debt, by
approximately $5.0 million and $8.0 million in February and July 1996,
respectively, as allowed by the Alabama PSC. See Note (H) in the "Notes to the
Condensed Financial Statements" herein for further details.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from energy sales growth to a less regulated, more competitive
environment.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition.
Legislation has been enacted in Alabama that would establish a process for
determining whether utilities would experience "stranded costs" upon the
transfer of an existing customer of a utility to another electric supplier. This
legislation authorizes the Alabama PSC to make a determination of whether
stranded costs would exist as a result of such a transfer by a customer of
ALABAMA and could require the customer seeking an alternative supplier to pay
any stranded costs found to exist. The legislation has termination provisions
keyed to passage of comprehensive retail electric service competition
legislation which addresses stranded costs of existing utilities and eliminates
the obligation of utilities to provide generating resources. For additional
information, see Item 1 - BUSINESS "Competition" and Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Future Earnings Potential" of ALABAMA in the Form
10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset. For additional information about the Clean Air Act and
other environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
"Environmental Matters" of ALABAMA in the Form 10-K.
Reference is made to Notes (B), (C), (F), (G), (H) and (J) in the "Notes to
the Condensed Financial Statements" herein for discussion of various
contingencies and other matters which may affect future earnings potential.
Reference is also made to Part II - Item 1 - "Legal Proceedings" herein.
21
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
Overview
The major change in ALABAMA's financial condition during the first nine months
of 1996 was the addition of approximately $325.3 million to utility plant. The
funds for these additions and other capital requirements were derived primarily
from operating activities. See ALABAMA's Condensed Statements of Cash Flows for
further details.
Financing Activities
During the first quarter of 1996, maturities and redemptions of first mortgage
bonds of ALABAMA totaled $83.8 million. Also, Alabama Power Capital Trust I, a
statutory business trust established for the sole purpose of holding ALABAMA's
junior subordinated notes and issuing preferred securities, sold $97.0 million
of its 7.375% trust preferred securities which are guaranteed by ALABAMA. See
Note (I) in the "Notes to the Condensed Financial Statements" herein for further
details. No additional securities were issued, redeemed or matured during the
second or third quarters.
ALABAMA has authorized the sale, through a public authority, of $21.0
million of adjustable rate pollution control revenue refunding bonds due 2021.
It is expected that proceeds from the sale of the new bonds will be applied not
later than February 11, 1997, to the redemption of $21.0 million outstanding
principal amount of 7.40% pollution control revenue bonds due 2016, at a
redemption price of 102% plus accrued interest. ALABAMA has also announced that
it intends to redeem on January 2, 1997, $19.8 million of its 9-1/4% first
mortgage bonds due 2021, at par plus accrued interest, pursuant to provisions of
ALABAMA's indenture relating to the improvement fund and use of proceeds of
released property.
ALABAMA will continue to retire higher-cost debt and preferred stock and
replace these securities with lower-cost capital, as market conditions permit.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of ALABAMA
under "Capital Requirements," "Other Capital Requirements" and "Environmental
Matters" in the Form 10-K for a description of ALABAMA's capital requirements
for its construction program, maturing debt and environmental compliance
efforts.
Sources of Capital
In addition to the financing activities previously described herein, ALABAMA
plans to obtain the funds required for construction and other purposes from
sources similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. Currently,
ALABAMA expects to have adequate earnings coverage ratios for any anticipated
security sales through at least 1998. See Item 1 - BUSINESS - "Financing
Programs" in the Form 10-K for additional information.
22
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
To meet short-term cash needs and contingencies, ALABAMA had at September
30, 1996, approximately $20.6 million of cash and cash equivalents and had
committed lines of credit of approximately $795 million (including $187 million
of such lines under which borrowings may be made only to fund purchase
obligations relating to variable rate pollution control bonds) with regulatory
authority for up to $750 million of short-term borrowing. At September 30, 1996,
ALABAMA had outstanding $20.0 million of short-term notes payable to banks and
$311.4 million of commercial paper. Since ALABAMA has no major generating plants
under construction, management believes that the need for working capital can be
adequately met by utilizing lines of credit without maintaining large cash
balances.
23
ARTHUR ANDERSEN LLP
Exhibit 1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO ALABAMA POWER COMPANY:
We have reviewed the accompanying condensed balance sheet of ALABAMA POWER
COMPANY as of September 30, 1996, and the related condensed statements of income
for the three-month and nine-month periods ended September 30, 1996 and 1995,
and condensed statements of cash flows for the nine-month periods ended
September 30, 1996 and 1995. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of ALABAMA POWER COMPANY as of December 31, 1995
(not presented herein) and, in our report dated February 21, 1996, we expressed
an unqualified opinion on that statement. In our opinion, the information set
forth in the accompanying condensed balance sheet as of December 31, 1995 is
fairly stated, in all material respects, in relation to the balance sheet from
which it has been derived.
/s/ARTHUR ANDERSEN LLP
Birmingham, Alabama
November 8, 1996
24
GEORGIA POWER COMPANY
25
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
OPERATING REVENUES:
Revenues $ 1,303,783 $ 1,341,661 $ 3,444,445 $ 3,356,077
Revenues from affiliates 7,044 31,895 29,367 66,875
-------------- -------------- -------------- --------------
Total operating revenues 1,310,827 1,373,556 3,473,812 3,422,952
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Operation--
Fuel 245,635 282,111 648,320 714,366
Purchased power from non-affiliates 46,563 53,871 124,335 142,585
Purchased power from affiliates 51,592 36,721 174,349 94,606
Provision for separation benefits 7,947 2,073 34,821 6,052
Other 171,032 211,983 532,035 549,969
Maintenance 65,014 64,197 217,617 201,384
Depreciation and amortization 108,556 122,449 323,824 317,942
Amortization of deferred Plant Vogtle costs (Note M) 34,077 32,493 101,070 90,443
Taxes other than income taxes 56,725 56,301 163,585 158,602
Federal and state income taxes 184,787 174,278 390,026 372,927
-------------- -------------- -------------- --------------
Total operating expenses 971,928 1,036,477 2,709,982 2,648,876
-------------- -------------- -------------- --------------
OPERATING INCOME 338,899 337,079 763,830 774,076
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 912 61 1,167 2,471
Equity in earnings of unconsolidated subsidiary 944 991 2,885 2,866
Interest income 1,002 1,860 3,916 4,529
Other, net (20,281) (11,997) (29,671) 5,368
Income taxes applicable to other income 7,800 2,841 10,326 (8,467)
-------------- -------------- -------------- --------------
INCOME BEFORE INTEREST CHARGES 329,276 330,835 752,453 780,843
-------------- -------------- -------------- --------------
INTEREST CHARGES:
Interest on long-term debt 51,492 61,571 157,602 199,029
Allowance for debt funds used during construction (2,724) (2,447) (9,215) (9,498)
Interest on interim obligations 3,500 5,356 14,657 17,476
Amortization of debt discount, premium and expense, net 3,597 3,983 11,069 11,999
Other interest charges 5,517 5,826 18,265 16,152
-------------- -------------- -------------- --------------
Net interest charges 61,382 74,289 192,378 235,158
-------------- -------------- -------------- --------------
NET INCOME 267,894 256,546 560,075 545,685
DIVIDENDS ON PREFERRED STOCK 12,415 11,843 35,906 36,321
-------------- -------------- -------------- --------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 255,479 $ 244,703 $ 524,169 $ 509,364
============== ============== ============== ==============
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
26
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Nine Months
Ended September 30,
------------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
Net income $ 560,075 $ 545,685
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 384,726 397,225
Deferred income taxes and investment tax credits, net 45,883 46,289
Allowance for equity funds used during construction (1,167) (2,471)
Amortization of deferred Plant Vogtle costs (Note M) 101,070 90,443
Gain on asset sales (2,265) (23,344)
Other, net 45,120 61,254
Changes in certain current assets and liabilities--
Receivables, net (55,008) (136,413)
Inventories 27,632 62,153
Payables (58,218) (55,295)
Taxes accrued 125,462 109,460
Energy cost recovery, retail (9,416) 28,145
Other (15,161) 15,818
-------------- ---------------
Net cash provided from operating activities 1,148,733 1,138,949
-------------- ---------------
INVESTING ACTIVITIES:
Gross property additions (328,219) (326,858)
Sales of property 1,800 131,099
Other (50,967) (53,362)
-------------- ---------------
Net cash used for investing activities (377,386) (249,121)
-------------- ---------------
FINANCING ACTIVITIES:
Proceeds--
Company obligated mandatorily redeemable preferred securities
of subsidiary substantially all of whose assets are Junior
Subordinated Notes (Note K) 225,000 -
First mortgage bonds 10,000 75,000
Pollution control bonds 112,825 454,700
Retirements--
Preferred stock (78,897) -
First mortgage bonds (210,860) (505,789)
Pollution control bonds (58,185) (305,205)
Other long-term debt - (37,000)
Special deposits - redemption funds (61,480) (149,585)
Interim obligations, net (298,117) (33,875)
Payment of preferred stock dividends (35,705) (36,540)
Payment of common stock dividends (365,700) (333,800)
Miscellaneous (8,409) (12,261)
-------------- ---------------
Net cash used for financing activities (769,528) (884,355)
-------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,819 5,473
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,930 12,539
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 30,749 $ 18,012
============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 199,603 $ 241,955
Income taxes 261,270 277,260
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
27
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At September 30,
1996 At December 31,
(Unaudited) 1995
------------------- ------------------
UTILITY PLANT:
Plant in service $ 14,733,046 $ 14,538,595
Less accumulated provision for depreciation 4,730,005 4,417,120
---------------- ----------------
10,003,041 10,121,475
Nuclear fuel, at amortized cost 121,340 124,849
Construction work in progress 273,215 236,715
---------------- ----------------
Total 10,397,596 10,483,039
---------------- ----------------
OTHER PROPERTY AND INVESTMENTS:
Southern Electric Generating Company, at equity 25,771 27,232
Nuclear decommissioning trusts, at market 123,511 92,273
Miscellaneous 141,850 120,383
---------------- ----------------
Total 291,132 239,888
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 30,749 28,930
Special deposits - redemption funds 61,480 -
Receivables--
Customer accounts receivable 488,678 418,749
Other accounts and notes receivable 81,626 102,953
Affiliated companies 15,427 15,482
Accumulated provision for uncollectible accounts (5,800) (5,000)
Fossil fuel stock, at average cost 119,636 145,151
Materials and supplies, at average cost 284,687 286,804
Prepayments 96,068 107,764
Vacation pay deferred 40,257 35,543
---------------- ----------------
Total 1,212,808 1,136,376
---------------- ----------------
DEFERRED CHARGES:
Deferred charges related to income taxes 830,323 871,783
Deferred Plant Vogtle costs (Note M) 206,568 307,638
Premium on reacquired debt, being amortized 167,322 174,018
Debt expense, being amortized 32,556 27,227
Miscellaneous 187,743 230,306
---------------- ----------------
Total 1,424,512 1,610,972
---------------- ----------------
TOTAL ASSETS $ 13,326,048 $ 13,470,275
================ ================
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
28
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At September 30,
1996 At December 31,
(Unaudited) 1995
------------------- ------------------
CAPITALIZATION:
Common stock equity--
Common stock (without par value)--
authorized 15,000,000 shares; outstanding 7,761,500 shares $ 344,250 $ 344,250
Paid-in capital 2,384,849 2,384,444
Premium on preferred stock 371 413
Retained earnings 1,728,416 1,569,905
---------------- ----------------
4,457,886 4,299,012
Preferred stock 513,640 692,787
Company obligated mandatorily redeemable preferred securities
of subsidiaries substantially all of whose assets are Junior
Subordinated Debentures or Notes (Note K) 325,000 100,000
Long-term debt 3,259,807 3,315,460
---------------- ----------------
Total 8,556,333 8,407,259
---------------- ----------------
CURRENT LIABILITIES:
Preferred stock due within one year 100,250 -
Long-term debt due within one year 61,838 150,446
Notes payable to banks 1,300 178,000
Commercial paper 100,913 222,330
Accounts payable--
Affiliated companies 74,885 72,878
Other 222,664 316,278
Customer deposits 62,690 53,145
Taxes accrued--
Federal and state income 80,307 7,759
Other 149,547 96,633
Interest accrued 77,868 96,162
Vacation pay accrued 38,739 34,233
Miscellaneous 124,434 137,184
---------------- ----------------
Total 1,095,435 1,365,048
---------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 2,519,528 2,510,458
Accumulated deferred investment tax credits 419,359 432,184
Deferred credits related to income taxes 389,579 410,016
Miscellaneous 345,814 345,310
---------------- ----------------
Total 3,674,280 3,697,968
---------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES $ 13,326,048 $ 13,470,275
================ ================
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
29
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIRD QUARTER 1996 vs. THIRD QUARTER 1995
AND
YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995
RESULTS OF OPERATIONS
Earnings
GEORGIA's net income after dividends on preferred stock for the third quarter
and year-to-date 1996 was $255.5 million and $524.2 million, respectively,
compared to $244.7 million and $509.4 million for the corresponding periods of
1995. Earnings increased by 4.4% for the quarter primarily due to lower
operating and interest expenses and by 2.9% year-to-date primarily as a result
of increased retail revenues and lower interest costs.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
-------------------------------------------------------
Third Quarter Year-To-Date
-------------------------- ----------------------------
(in thousands) % (in thousands) %
Revenues............................................. $(37,878) (2.8) $ 88,368 2.6
Revenue from affiliates.............................. (24,851) (77.9) (37,508) (56.1)
Fuel expense......................................... (36,476) (12.9) (66,046) (9.2)
Purchased power from affiliates...................... 14,871 40.5 79,743 84.3
Provision for separation benefits.................... 5,874 283.4 28,769 475.4
Other operation expense.............................. (40,951) (19.3) (17,934) (3.3)
Depreciation and amortization expense................ (13,893) (11.3) 5,882 1.9
Other, net........................................... (8,284) (69.1) (35,039) (652.7)
Income taxes applicable to other income.............. 4,959 (174.6) 18,793 (222.0)
Interest on long-term debt........................... (10,079) (16.4) (41,427) (20.8)
Revenues. Excluding fuel revenues, which represent the pass-through of fuel
expenses and do not affect income, revenues for the third quarter decreased
$31.6 million and for year-to-date increased $45.3 million, compared to the
corresponding periods of 1995. The decrease in revenues for the third quarter is
primarily due to a 4.0% decrease in residential kilowatt-hour sales resulting
from milder-than-normal weather. Total retail kilowatt-hour sales increased
year-to-date primarily due to more favorable weather conditions during the first
and second quarters of 1996 and a slight increase in the number of customers
served. Retail revenues, excluding fuel revenues, decreased 3.1% or $30.3
million for the current quarter and increased 1.9% or $46.3 million
year-to-date. Energy sales to non-affiliated wholesale customers for the third
quarter 1996 compared to the same period in 1995 remained relatively flat, but
increased 6.5% for year-to-date 1996 versus 1995 primarily due to increased
demand by municipalities and cooperatives in Georgia. However, capacity revenues
from sales to non-affiliated utilities outside the service territory fell $0.2
million for the quarter and $13.3 million year-to-date primarily due to the
scheduled decline in megawatts of capacity under long-term contracts.
30
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues from affiliates. Revenues from sales to affiliated companies
within the Southern electric system, as well as purchases of energy, will vary
from period to period depending on demand and the availability and cost of
generating resources at each company. These transactions do not have a
significant impact on earnings.
Fuel expense. Fuel expense decreased primarily due to a decrease in
generation resulting from the timing of maintenance at fossil and nuclear plants
and a slightly lower average cost of fuel. (See Purchased power from affiliates
below.)
Purchased power from affiliates. As a result of the timing of maintenance
at fossil and nuclear plants discussed above, purchased power from affiliates
increased compared to the same periods of 1995. Purchased power transactions
among the affiliated companies within the Southern electric system will vary
from period to period depending on demand and the availability and cost of
generating resources at each company. These transactions do not have a
significant impact on earnings.
Provision for separation benefits. The increase in provision for separation
benefits for each period is attributable to work force reduction programs, which
have been implemented to control growth in future operating expenses. See Note
(G) in the "Notes to the Condensed Financial Statements" herein for further
details.
Other operation expense. The decrease in other operation expense for the
current quarter and year-to-date is primarily due to a charge in July 1995 of
$21.8 million of demand-side option program costs not collected through rate
riders (see Note (O) in the "Notes to the Condensed Financial Statements"
herein) and a charge in August 1995 of $12.6 million of Nuclear Regulatory
Commission mandated study costs, partially offset by increased cost under a new
three-year retail rate plan effective January 1, 1996.
Depreciation and amortization expense. The decrease in depreciation and
amortization for the current quarter compared to the same period of 1995 is
primarily due to a $15.3 million charge to amortization expense in September
1995 for software development costs. Depreciation and amortization increased
year-to-date 1996 compared to year-to-date 1995 primarily due to accelerated
depreciation of generating plant pursuant to a new retail rate plan effective
January 1, 1996, and an increase in plant-in-service.
Other, net and Income taxes applicable to other income. For the current
quarter, the change in each of these items is primarily the result of expenses
incurred in connection with activities related to the 1996 Summer Olympic games.
For the year-to-date period, the primary reason for the change in each of these
items is the completion of the sale, in June 1995, of Plant Scherer Unit 4,
which resulted in an after-tax gain of approximately $12.0 million.
Interest on long-term debt. The decline in interest on long-term debt
reflects the redemption and refinancing of long-term debt.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from energy sales growth to movement towards a less regulated,
more competitive environment.
31
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional information, see Item 1 - BUSINESS - "Competition" and Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of GEORGIA in
the Form 10-K.
Effective January 1, 1996, GEORGIA began operating under a three-year
retail rate plan. Under the plan, GEORGIA's earnings will be evaluated against a
retail return on common equity range of 10% to 12.5%. GEORGIA is required to
absorb cost increases of approximately $29.0 million annually during the plan's
three-year operation, including $14.0 million annually of accelerated
depreciation of electric plant. Reference is made to Note (L) in the "Notes to
the Condensed Financial Statements" herein for additional information.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset. For additional information about the Clean Air Act and
other environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
"Environmental Issues" of GEORGIA in the Form 10-K.
Reference is made to Notes (B), (C), (F) and (L) through (R) in the "Notes
to the Condensed Financial Statements" herein for discussion of various
contingencies and other matters which may affect future earnings potential.
Reference is also made to Part II - Item 1 - "Legal Proceedings" herein.
FINANCIAL CONDITION
Overview
The major change in GEORGIA's financial condition during the first nine months
of 1996 was the addition of approximately $328.2 million to utility plant. These
additions were primarily related to transmission and distribution facilities and
to the purchase of nuclear fuel. The funds for these additions and other capital
requirements were derived primarily from operations. See GEORGIA's Condensed
Statements of Cash Flows for further details.
Financing Activities
During the first quarter of 1996, $150.0 million of GEORGIA's first mortgage
bonds matured, and GEORGIA sold $10.0 million of medium-term notes and redeemed
$6.8 million of industrial development bonds. In June 1996, GEORGIA sold,
through a public authority, $51.3 million of variable rate pollution control
revenue bonds, and the proceeds were applied to the redemption on July 1, 1996
of $51.3 million outstanding principal amount of 7.25% pollution control revenue
bonds. In August 1996, Georgia Power Capital Trust I, a statutory business trust
established for the sole purpose of holding GEORGIA's junior subordinated notes
and issuing preferred securities, sold $225.0 million of its 7.75% trust
preferred securities, which are guaranteed by GEORGIA. (See Note (K) in the
"Notes to the Condensed Financial Statements" herein for further details.) In
September 1996, GEORGIA sold, through public authorities, $61.5 million of
variable rate pollution control revenue bonds due 2026, and the proceeds were
applied to the redemption on October 1, 1996 of $61.5 million outstanding
principal amount of 6-3/8% to 8% pollution control revenue bonds. Also during
the third quarter 1996, GEORGIA redeemed $78.9 million of preferred stock and
$60.9 million of first mortgage bonds.
32
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On November 2, 1996, GEORGIA redeemed all of its 4,000,000 outstanding
shares of $2.125 preferred stock at the redemption price of $25.00 per share,
plus accrued dividends. GEORGIA plans to continue, to the extent possible, a
program to retire higher-cost debt and preferred stock and replace these
securities with lower-cost capital.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of GEORGIA
under "Liquidity and Capital Requirements" and "Environmental Issues" in the
Form 10-K for a description of GEORGIA's capital requirements for its
construction program and environmental compliance efforts.
Sources of Capital
In addition to the financing activities previously described herein, GEORGIA
plans to obtain the funds required for construction and other purposes from
sources similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. Currently,
GEORGIA expects to have adequate earnings coverage ratios for any anticipated
security sales through at least 1998. See Item 1 - BUSINESS - "Financing
Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, GEORGIA had at September
30, 1996, approximately $30.7 million of cash and cash equivalents and
approximately $854.7 million of unused credit arrangements with banks (including
$589.7 million of such arrangements under which borrowings may be made only to
fund purchase obligations relating to variable rate pollution control bonds). At
September 30, 1996, GEORGIA had outstanding $1.3 million of short-term notes
payable to banks and $100.9 million of commercial paper. Since GEORGIA has no
major generating plants under construction, management believes that the need
for working capital can be adequately met by utilizing lines of credit without
maintaining large cash balances.
33
ARTHUR ANDERSEN LLP
Exhibit 1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO GEORGIA POWER COMPANY:
We have reviewed the accompanying condensed balance sheet of GEORGIA POWER
COMPANY (a Georgia corporation) as of September 30, 1996, and the related
condensed statements of income for the three-month and nine-month periods ended
September 30, 1996 and 1995, and the condensed statements of cash flows for the
nine-month periods ended September 30, 1996 and 1995. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of GEORGIA POWER COMPANY as of December 31, 1995
(not presented herein), and, in our report dated February 21, 1996, we expressed
an unqualified opinion on that statement. In our opinion, the information set
forth in the accompanying condensed balance sheet as of December 31, 1995, is
fairly stated, in all material respects, in relation to the balance sheet from
which it has been derived.
/s/ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 8, 1996
34
GULF POWER COMPANY
35
GULF POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
OPERATING REVENUES:
Revenues $ 173,993 $ 178,335 $ 477,986 $ 461,441
Revenues from affiliates 5,626 5,916 10,375 16,785
------------ ------------ ------------- ------------
Total operating revenues 179,619 184,251 488,361 478,226
------------ ------------ ------------- ------------
OPERATING EXPENSES:
Operation--
Fuel 56,105 55,590 140,240 148,822
Purchased power from non-affiliates 2,941 3,897 6,804 6,964
Purchased power from affiliates 6,835 9,696 32,177 19,884
Other 28,324 25,042 83,062 79,899
Maintenance 8,998 9,975 38,360 32,952
Depreciation and amortization 14,199 13,863 42,373 41,212
Taxes other than income taxes 14,527 14,169 40,377 38,057
Federal and state income taxes 15,122 16,832 30,634 32,356
------------ ------------ ------------- ------------
Total operating expenses 147,051 149,064 414,027 400,146
------------ ------------ ------------- ------------
OPERATING INCOME 32,568 35,187 74,334 78,080
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 1 22 12 69
Interest income 376 520 1,142 1,433
Other, net (294) (213) (1,041) (508)
Income taxes applicable to other income (74) (171) (167) (522)
------------ ------------ ------------- ------------
INCOME BEFORE INTEREST CHARGES 32,577 35,345 74,280 78,552
------------ ------------ ------------- ------------
INTEREST CHARGES:
Interest on long-term debt 5,880 5,838 18,264 17,709
Other interest charges 288 339 793 1,044
Interest on notes payable 716 668 1,845 2,433
Amortization of debt discount, premium, and expense, net 524 507 1,567 1,524
Allowance for debt funds used during construction (3) (32) (61) (98)
------------ ------------ ------------- ------------
Net interest charges 7,405 7,320 22,408 22,612
------------ ------------ ------------- ------------
NET INCOME 25,172 28,025 51,872 55,940
DIVIDENDS ON PREFERRED STOCK 1,451 1,437 4,312 4,376
------------ ------------ ------------- ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 23,721 $ 26,588 $ 47,560 $ 51,564
============ ============ ============= ============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
36
GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Nine Months
Ended September 30,
----------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
Net income $ 51,872 $ 55,940
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 56,903 57,320
Deferred income taxes, net 559 (3,454)
Allowance for equity funds used during construction (12) (69)
Deferred costs of 1995 coal contract renegotiation 7,172 -
Other, net 5,841 (7,794)
Changes in certain current assets and liabilities--
Receivables, net (7,868) (20,755)
Inventories 14,132 3,716
Payables (9,553) 17,211
Taxes accrued 16,987 20,416
Other (8,157) 423
------------ ------------
Net cash provided from operating activities 127,876 122,954
------------ ------------
INVESTING ACTIVITIES:
Gross property additions (49,747) (44,915)
Other (3,533) 3,081
------------ ------------
Net cash used for investing activities (53,280) (41,834)
------------ ------------
FINANCING ACTIVITIES:
Proceeds--
First mortgage bonds 30,000 -
Pollution control bonds 33,275 -
Other long-term debt 22,148 -
Retirements--
Preferred stock subject to mandatory redemption - (1,000)
First mortgage bonds (1,750) (1,750)
Pollution control bonds (33,275) -
Other long-term debt (32,588) (9,053)
Notes payable, net (43,000) (30,500)
Payment of preferred stock dividends (4,312) (4,376)
Payment of common stock dividends (37,100) (34,300)
Miscellaneous (1,852) (131)
------------ ------------
Net cash used for financing activities (68,454) (81,110)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 6,142 10
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 680 902
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,822 $ 912
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 19,269 $ 17,570
Income taxes 20,846 25,505
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
37
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At September 30,
1996 At December 31,
(Unaudited) 1995
-------------------- -------------------
UTILITY PLANT:
Plant in service $ 1,724,784 $ 1,695,814
Less accumulated provision for depreciation 685,361 658,806
---------------- --------------
1,039,423 1,037,008
Construction work in progress 28,400 26,301
---------------- --------------
Total 1,067,823 1,063,309
---------------- --------------
OTHER PROPERTY AND INVESTMENTS: 654 740
---------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 6,822 680
Receivables--
Customer accounts receivable 74,271 69,166
Other accounts and notes receivable 3,618 3,393
Affiliated companies 3,413 802
Accumulated provision for uncollectible accounts (841) (768)
Fossil fuel stock, at average cost 25,707 37,875
Materials and supplies, at average cost 31,722 33,686
Current portion of deferred coal contract costs 16,359 12,767
Regulatory clauses under recovery 8,120 3,432
Prepaid income taxes - 4,232
Other prepayments 9,485 8,000
Vacation pay deferred 4,419 4,419
---------------- --------------
Total 183,095 177,684
---------------- --------------
DEFERRED CHARGES:
Deferred charges related to income taxes 28,689 29,093
Debt expense and loss, being amortized 20,668 20,459
Deferred coal contract costs 19,198 33,768
Deferred storm charges 4,537 7,502
Miscellaneous 9,725 9,304
---------------- --------------
Total 82,817 100,126
---------------- --------------
TOTAL ASSETS $ 1,334,389 $ 1,341,859
================ ==============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
38
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At September 30,
1996 At December 31,
(Unaudited) 1995
------------------- -----------------
CAPITALIZATION:
Common stock equity--
Common stock (without par value)--
authorized and outstanding--992,717 shares $ 38,060 $ 38,060
Paid-in capital 218,438 218,438
Premium on preferred stock 81 81
Retained earnings 190,093 179,663
---------------- --------------
446,672 436,242
Preferred stock 89,602 89,602
Long-term debt 331,871 323,376
---------------- --------------
Total 868,145 849,220
---------------- --------------
CURRENT LIABILITIES:
Long-term debt due within one year 40,817 31,548
Notes payable 37,500 80,500
Accounts payable--
Affiliated companies 12,785 14,447
Other 16,839 27,196
Customer deposits 13,453 13,195
Taxes accrued--
Federal and state income 9,138 -
Other 17,007 9,547
Interest accrued 7,088 5,719
Regulatory clauses over recovery 4,584 2,800
Vacation pay accrued 4,419 4,419
Miscellaneous 5,555 7,356
---------------- --------------
Total 169,185 196,727
---------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 165,667 162,345
Deferred credits related to income taxes 65,258 67,481
Accumulated deferred investment tax credits 34,288 36,052
Accumulated provision for postretirement benefits 17,661 16,301
Miscellaneous 14,185 13,733
---------------- --------------
Total 297,059 295,912
---------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $ 1,334,389 $ 1,341,859
================ ==============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
39
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIRD QUARTER 1996 vs. THIRD QUARTER 1995
AND
YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995
RESULTS OF OPERATIONS
Earnings
GULF's net income after dividends on preferred stock for the third quarter and
year-to-date 1996 was $23.7 million and $47.6 million, respectively, compared to
$26.6 million and $51.6 million for the corresponding periods of 1995. Earnings
decreased by 10.8% for the quarter primarily due to lower revenues as a result
of this year's milder summer temperatures compared to the exceptionally hot
summer of 1995 and due to increased other operation expense. Earnings decreased
by 7.8% year-to-date primarily due to higher operation and maintenance expenses.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
----------------------------------------------------------
Third Quarter Year-To-Date
------------------------------ ---------------------------
(in thousands) % (in thousands) %
Revenues......................................... $(4,342) (2.4) $16,545 3.6
Revenues from affiliates......................... (290) (4.9) (6,410) (38.2)
Purchased power from affiliates.................. (2,861) (29.5) 12,293 61.8
Other operation expense.......................... 3,282 13.1 3,163 4.0
Maintenance expense.............................. (977) (9.8) 5,408 16.4
Revenues. Of the $16.5 million increase in revenues year-to-date 1996,
approximately $6.9 million impacted earnings. Territorial revenues, excluding
those revenues which represent the pass-through of fuel expense and certain
other expenses and do not affect income, increased $4.9 million. The increase in
territorial revenues for the current year-to-date period was influenced by a
2.6% increase in retail kilowatt-hour sales compared to the same period of 1995.
This change in year-to-date retail energy sales is primarily due to higher
residential and commercial sales as a result of colder-than-normal winter
weather during the first quarter of 1996 and a slight increase in the number of
customers served. Industrial sales were up for the current quarter and
year-to-date periods while industrial revenues were down for the current quarter
and year-to-date periods, compared to a year ago, primarily due to increased
participation in the Real-Time-Pricing program. See Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Future Earnings Potential" of GULF in the Form 10-K
for information on initiatives to remain competitive and to meet conservation
goals set by the Florida PSC.
Revenues from affiliates. Revenues from sales to affiliated companies
within the Southern electric system, as well as purchases of energy, will vary
from period to period depending on demand and the availability and cost of
generating resources at each company. These transactions do not have a
significant impact on earnings.
40
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Purchased power from affiliates. The reduction in purchased power from
affiliates for the current quarter, compared to one year ago, is primarily due
to increased availability of GULF's generating units. Purchased power from
affiliates was higher for the year-to-date 1996 period compared to the
corresponding period of 1995 due to maintenance outages at Plant Crist and Plant
Daniel during the first half of 1996. Purchased power transactions among the
affiliated companies within the Southern electric system will vary from period
to period depending on demand and the availability and cost of generating
resources at each company. These transactions do not have a significant impact
on earnings.
Other operation expense. Other operation expense increased for the third
quarter and year-to-date 1996 primarily due to increases in various
administrative and general expenses, including expenses related to the approved
increase of GULF's annual accrual to the accumulated provision for property
damage to amortize deferred storm charges and restore the account balance to a
reasonable level. For additional information regarding the provision for
property damage, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future
Earnings Potential" of GULF in the Form 10-K. Costs associated with work force
reduction programs also contributed to the year-to-date increase in other
operation expense. For additional information regarding work force reduction
programs, see Note (G) in the "Notes to the Condensed Financial Statements"
herein.
Maintenance expense. The fluctuation in maintenance expense for the quarter
and year-to-date periods is primarily due to the scheduling of maintenance on
production facilities. The increase in maintenance expense for the year-to-date
1996 period compared to 1995 is primarily attributable to scheduled maintenance
performed at Plant Crist and Plant Daniel during the first half of 1996.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from energy sales growth to a less regulated, more competitive
environment.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. On
September 3, 1996, the Florida PSC approved GULF's petition for the
Commercial/Industrial Service Rider (CISR) to be implemented on a
pilot/experimental basis. The CISR will allow GULF the flexibility to negotiate
prices and other terms of service with its large commercial and industrial
customers who have competitive alternatives to taking electric service from
GULF. For additional information, see Item 7 - MANAGEMENT'S DISCUSSION AND
ANALYSIS "Future Earnings Potential" of GULF and Item 1 - BUSINESS -
"Competition" in the Form 10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs are not fully recovered through GULF's environmental cost recovery clause.
For additional information about the Clean Air Act and other environmental
issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental
Matters" of GULF in the Form 10-K.
Reference is made to Notes (B) and (F) in the "Notes to the Condensed
Financial Statements" herein for discussion of various contingencies and other
matters which may affect future earnings potential.
41
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
Overview
The major change in GULF's financial condition during the first nine months of
1996 was the addition of approximately $49.7 million to utility plant. The funds
for these additions and other capital requirements were derived primarily from
operations. See GULF's Condensed Statements of Cash Flows for further details.
Financing Activities
During the first half of 1996, GULF sold $30.0 million of first mortgage bonds;
sold, through public authorities, $33.3 million of pollution control revenue
refunding bonds and issued a $22.1 million bank note. GULF retired $1.8 million
of first mortgage bonds, redeemed $12.075 million of pollution control revenue
bonds, redeemed $21.2 million of pollution control revenue refunding bonds and
retired a $25.0 million bank note. No additional securities were issued,
redeemed or matured during the third quarter.
On November 6, 1996, GULF entered into an agreement to sell $25.0 million
of 6-1/2% first mortgage bonds due 2006, and it is expected that delivery of the
bonds will be made on November 20, 1996. Also, on November 20, 1996, GULF plans
to issue a $27.0 million bank note due 1999. The proceeds from the sale of the
bonds together with the bank borrowings will be applied by GULF to the
redemption in December 1996 of the $49.2 million outstanding principal amount of
its 8-3/4% first mortgage bonds due 2021. Such redemption is subject to GULF's
closing the sale of the bonds and effecting the bank borrowings. GULF plans to
continue, to the extent possible, a program to retire higher-cost debt and
preferred stock and replace these securities with lower-cost capital. Under the
terms of GULF's supplemental indenture dated as of January 1, 1996, retained
earnings of $127 million were restricted against the payment of cash dividends
on common stock at September 30, 1996.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of GULF under
"Capital Requirements for Construction," "Environmental Matters" and "Other
Capital Requirements" in the Form 10-K for a description of GULF's capital
requirements for its construction program, environmental compliance efforts and
maturing debt. GULF's capital requirements for its construction program for 1996
through 1998 were reduced in October 1996 by $52 million due to various cost
reduction initiatives. GULF's gross property additions, including those amounts
related to environmental compliance, are now budgeted at $157 million for 1996
through 1998 ($61 million in 1996, $47 million in 1997 and $49 million in 1998).
Approximately $40.8 million will be required through September 30, 1997, for
maturities of long-term debt.
Sources of Capital
In addition to the financing activities previously described herein, GULF plans
to obtain the funds required for construction and other purposes from sources
similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. Currently,
GULF expects to have adequate earnings coverage ratios for any anticipated
security sales through at least 1998. See Item 1 - BUSINESS - "Financing
Programs" in the Form 10-K for additional information.
42
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
To meet short-term cash needs and contingencies, GULF had at September 30,
1996, approximately $6.8 million of cash and cash equivalents and $49.3 million
of unused committed lines of credit with banks (including $20.3 million
liquidity support for variable rate pollution control bonds). At September 30,
1996, GULF had outstanding $37.5 million of short-term notes payable to banks.
Since GULF has no major generating plants under construction, management
believes that the need for working capital can be adequately met by utilizing
lines of credit without maintaining large cash balances.
43
MISSISSIPPI POWER COMPANY
44
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
OPERATING REVENUES:
Revenues $ 148,125 $ 154,405 $ 403,425 $ 388,507
Revenues from affiliates 8,478 2,714 16,881 6,688
------------ ------------ ------------ -------------
Total operating revenues 156,603 157,119 420,306 395,195
------------ ------------ ------------ -------------
OPERATING EXPENSES:
Operation--
Fuel 40,029 37,366 106,506 90,692
Purchased power from non-affiliates 11,075 3,386 17,011 5,298
Purchased power from affiliates 5,840 15,520 26,359 38,059
Other 25,686 27,807 76,958 78,502
Maintenance 10,278 8,668 35,116 26,107
Depreciation and amortization 11,559 10,533 34,912 30,605
Taxes other than income taxes 11,082 10,893 32,532 30,097
Federal and state income taxes 13,384 14,429 27,477 29,396
------------ ------------ ------------ -------------
Total operating expenses 128,933 128,602 356,871 328,756
------------ ------------ ------------ -------------
OPERATING INCOME 27,670 28,517 63,435 66,439
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 29 123 153 300
Interest income 23 24 201 56
Other, net 787 1,212 3,519 3,323
Income taxes applicable to other income 40 (241) (983) (777)
------------ ------------ ------------ -------------
INCOME BEFORE INTEREST CHARGES 28,549 29,635 66,325 69,341
------------ ------------ ------------ -------------
INTEREST CHARGES:
Interest on long-term debt 4,691 5,444 15,119 16,737
Allowance for debt funds used during construction (225) (131) (541) (353)
Interest on notes payable 488 371 1,339 942
Amortization of debt discount, premium, and expense, net 390 392 1,159 1,137
Other interest charges 196 173 696 1,037
------------ ------------ ------------ -------------
Net interest charges 5,540 6,249 17,772 19,500
------------ ------------ ------------ -------------
NET INCOME 23,009 23,386 48,553 49,841
DIVIDENDS ON PREFERRED STOCK 1,225 1,225 3,674 3,674
------------ ------------ ------------ -------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 21,784 $ 22,161 $ 44,879 $ 46,167
============ ============ ============ =============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
45
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Nine Months
Ended September 30,
--------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
Net income $ 48,553 $ 49,841
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 39,372 40,259
Deferred income taxes (2,757) (918)
Allowance for equity funds used during construction (153) (300)
Other, net 113 4,376
Changes in certain current assets and liabilities--
Receivables, net 1,751 (11,100)
Inventories 4,765 3,880
Payables (1,489) 7,595
Taxes accrued 2,834 (2,913)
Other 327 2,482
------------ ------------
Net cash provided from operating activities 93,316 93,202
------------ ------------
INVESTING ACTIVITIES:
Gross property additions (43,879) (52,314)
Other (2,765) (6,880)
------------ ------------
Net cash used for investing activities (46,644) (59,194)
------------ ------------
FINANCING ACTIVITIES:
Proceeds--
Capital contribution 27 -
Pollution control bonds - 10,600
Other long-term debt 30,000 -
Retirements--
First mortgage bonds (45,447) (1,625)
Other long-term debt (20,000) (38,619)
Notes payable, net 16,500 29,000
Payment of preferred stock dividends (3,674) (3,674)
Payment of common stock dividends (31,900) (29,100)
Miscellaneous (2,932) -
------------ ------------
Net cash used for financing activities (57,426) (33,418)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (10,754) 590
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,641 1,317
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,887 $ 1,907
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 16,715 $ 17,307
Income taxes 22,240 25,616
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
46
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At September 30,
1996 At December 31,
(Unaudited) 1995
------------------- -------------------
UTILITY PLANT:
Plant in service, at original cost $ 1,469,969 $ 1,434,327
Less accumulated provision for depreciation 525,536 499,308
-------------- --------------
944,433 935,019
Construction work in progress 41,785 41,210
-------------- --------------
Total 986,218 976,229
-------------- --------------
OTHER PROPERTY AND INVESTMENTS: 3,081 4,160
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 1,887 12,641
Receivables--
Customer accounts receivable 32,069 30,761
Other accounts and notes receivable 9,468 9,438
Affiliated companies 6,351 9,213
Accumulated provision for uncollectible accounts (1,029) (802)
Fossil fuel stock, at average cost 12,215 15,666
Materials and supplies, at average cost 21,244 22,558
Current portion of deferred fuel charges - 1,546
Current portion of accumulated deferred income taxes 4,474 5,180
Prepayments 3,505 2,404
Vacation pay deferred 4,611 4,715
-------------- --------------
Total 94,795 113,320
-------------- --------------
DEFERRED CHARGES:
Debt expense and loss, being amortized 12,531 10,039
Deferred charges related to income taxes 23,073 23,384
Deferred early retirement program costs 5,041 7,286
Miscellaneous 14,451 14,535
-------------- --------------
Total 55,096 55,244
-------------- --------------
TOTAL ASSETS $ 1,139,190 $ 1,148,953
============== ==============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
47
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At September 30,
1996 At December 31,
(Unaudited) 1995
-------------------- ------------------
CAPITALIZATION:
Common stock equity--
Common stock (without par value)--
authorized 1,130,000 shares; outstanding 1,121,000 shares $ 37,691 $ 37,691
Paid-in capital 179,389 179,362
Premium on preferred stock 372 372
Retained earnings 170,437 157,459
-------------- --------------
387,889 374,884
Preferred stock 74,414 74,414
Long-term debt 276,312 288,820
-------------- --------------
Total 738,615 738,118
-------------- --------------
CURRENT LIABILITIES:
Long-term debt due within one year 35,010 57,229
Notes payable 16,500 -
Accounts payable--
Affiliated companies 9,881 13,646
Other 37,350 37,129
Customer deposits 3,016 2,716
Taxes accrued--
Federal and state income 8,988 97
Other 25,759 31,816
Interest accrued 4,398 4,701
Miscellaneous 13,061 13,453
-------------- --------------
Total 153,963 160,787
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 128,111 129,711
Accumulated deferred investment tax credits 28,696 29,773
Deferred credits related to income taxes 41,111 43,266
Accumulated provision for property damage 12,580 12,018
Miscellaneous 36,114 35,280
-------------- --------------
Total 246,612 250,048
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $ 1,139,190 $ 1,148,953
============== ==============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
48
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIRD QUARTER 1996 vs. THIRD QUARTER 1995
AND
YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995
RESULTS OF OPERATIONS
Earnings
MISSISSIPPI's net income after dividends on preferred stock for the third
quarter and year-to-date 1996 was $21.8 million and $44.9 million, respectively,
compared to $22.2 million and $46.2 million for the corresponding periods of
1995. The 1.7% decrease in earnings for the current quarter was primarily due to
a decrease in revenues and an increase in operating expenses. An increase in
operating expenses also affected year-to-date results as evidenced by the 2.8%
decrease in earnings compared to prior year.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
--------------------------------------------------------
Third Quarter Year-To-Date
--------------------------- ----------------------------
(in thousands) % (in thousands) %
Revenues........................................... $(6,280) (4.1) $ 14,918 3.8
Revenues from affiliates........................... 5,764 212.4 10,193 152.4
Fuel expense....................................... 2,663 7.1 15,814 17.4
Purchased power from non-affiliates................ 7,689 227.1 11,713 221.1
Purchased power from affiliates.................... (9,680) (62.4) (11,700) (30.7)
Maintenance expense................................ 1,610 18.6 9,009 34.5
Depreciation and amortization expense.............. 1,026 9.7 4,307 14.1
Interest on long-term debt......................... (753) (13.8) (1,618) (9.7)
Revenues. For the quarter and year-to-date periods, compared to one year
ago, the changes in revenues are due primarily to changes in the amount of
retail energy sold. Retail kilowatt-hour sales decreased 0.3% for the quarter
and increased 3.8% year to date. Retail revenues, excluding those revenues which
represent the recovery of fuel expense and certain other expenses and do not
affect income, decreased $1.4 million for the quarter and increased $5.8 million
year to date. The changes in retail sales for the quarter and year-to-date
periods were primarily affected by favorable weather extremes experienced in the
summer of 1995 and in the first half of 1996, respectively. For the third
quarter, sales to territorial wholesale customers were only slightly lower than
in 1995. For the year-to-date period, sales to territorial wholesale customers
were positively impacted by favorable weather during the first half of 1996 and
customer growth. Year-to-date 1996 revenues from territorial wholesale
customers, excluding fuel revenues which do not affect income, increased $4.5
million compared to the same period of 1995, with an increase in energy sales of
7.4%.
Revenues from affiliates and Purchased power from affiliates. Revenues from
sales to affiliated companies within the Southern electric system, as well as
purchases of energy, will vary from period to period depending on demand and the
availability and cost of generating resources at each company. These
transactions do not have a significant impact on earnings.
49
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Fuel expense. The increase in fuel expense for the third quarter and
year-to-date 1996 as compared to the corresponding periods of 1995 can be
attributed to higher generation due to increased kilowatt-hour sales to
affiliated companies.
Purchased power from non-affiliates. The increase in this item for the
current quarter and year-to-date periods results primarily from the purchase,
beginning in June 1996, of capacity and energy from another utility as discussed
later under "Future Earnings Potential."
Maintenance expense. The increase in maintenance expense for the current
quarter is primarily attributable to maintenance performed at two generating
plants/units during the third quarter of 1996. Maintenance performed at two
generating plants during the first and second quarters of 1996 also contributed
to the increase in maintenance expense for the 1996 year-to-date period. In
1995, maintenance normally performed during the first quarter was postponed
until the fourth quarter.
Depreciation and amortization expense. Additional plant investment, higher
depreciation rates beginning in 1996, and increased amortization of regulatory
assets, primarily those assets related to the ECO plan, accounted for the
increases in this item.
Interest on long-term debt. The decline in interest on long-term debt
reflects the redemption and refinancing of long-term debt.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from energy sales growth to a less regulated, more competitive
environment. Operating revenues will be affected by any changes in rates under
the PEP and ECO plans. The PEP has proven to be a stabilizing force on electric
rates, with only moderate changes in rates taking place. Based upon
MISSISSIPPI's semi-annual PEP evaluation for the period ended June 30, 1996, the
Mississippi PSC approved a retail revenue increase of $4.5 million (1.06% of
annual retail revenue), effective October 1996. MISSISSIPPI's 1996 annual filing
under the ECO plan with the Mississippi PSC resulted in an approved annual
revenue requirement decrease of $3.0 million, effective April 1996.
MISSISSIPPI has entered into agreements to purchase summer peaking power
and options for power for the years 1996 through 2000. For June through
September of 1996, MISSISSIPPI entered into an agreement to buy 242 megawatts of
capacity and energy from another electric utility. For each June through
September period of 1997 through 2000, MISSISSIPPI has purchased options from
power marketers for up to 250 megawatts of peaking power in 1997; 300 megawatts
in 1998; 350 megawatts in 1999; and 400 megawatts in 2000. In June 1996, the
Mississippi PSC approved MISSISSIPPI's request that it be allowed to earn a
return on the capacity portion of these agreements.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional information, see Item 1 - BUSINESS - "Competition" and Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of
MISSISSIPPI in the Form 10-K.
50
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be recovered. For additional information about the Clean Air Act
and other environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND
ANALYSIS - "Environmental Matters" of MISSISSIPPI in the Form 10-K.
Reference is made to Notes (B), (F) and (G) in the "Notes to the Condensed
Financial Statements" herein for discussion of various contingencies and other
matters which may affect future earnings potential. Reference is also made to
Part II - Item 1 - "Legal Proceedings" herein.
FINANCIAL CONDITION
Overview
The major change in MISSISSIPPI's financial condition during the first nine
months of 1996 was the addition of approximately $43.9 million to utility plant.
The funds for these additions and other capital requirements were derived
primarily from operations and an increase in short-term debt. See MISSISSIPPI's
Condensed Statements of Cash Flows for further details.
Financing Activities
During the first half of 1996, $20.0 million in bank notes matured and
MISSISSIPPI issued a $30.0 million bank note and redeemed $45.4 million of first
mortgage bonds. No additional securities were issued, redeemed or matured during
the third quarter.
MISSISSIPPI plans to continue, to the extent possible, a program to retire
higher-cost debt and preferred stock and replace these securities with
lower-cost capital.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of
MISSISSIPPI under "Capital Requirements for Construction," "Environmental
Matters" and "Other Capital Requirements" in the Form 10-K for a description of
MISSISSIPPI's capital requirements for its construction program, environmental
compliance efforts, sinking fund requirements and maturities of long-term debt.
Through September 30, 1997, approximately $35.0 million will be required for
maturities of long-term debt.
Sources of Capital
In addition to the financing activities previously described herein, MISSISSIPPI
plans to obtain the funds required for construction and other purposes from
sources similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. Currently,
MISSISSIPPI expects to have adequate earnings coverage ratios for any
anticipated security sales through at least 1998. See Item 1 - BUSINESS -
"Financing Programs" in the Form 10-K for additional information.
51
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
To meet short-term cash needs and contingencies, MISSISSIPPI had at
September 30, 1996, approximately $1.9 million of cash and cash equivalents and
approximately $96.3 million of unused committed credit arrangements with banks
(including $10.8 million of such arrangements under which borrowings may be made
only to fund purchase obligations relating to variable rate pollution control
bonds). At September 30, 1996, MISSISSIPPI had outstanding $16.5 million of
short-term notes payable to banks. Since MISSISSIPPI has no major generating
plants under construction, management believes that the need for working capital
can be adequately met by utilizing lines of credit without maintaining large
cash balances.
52
SAVANNAH ELECTRIC
AND
POWER COMPANY
53
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
OPERATING REVENUES:
Revenues $ 72,676 $ 71,517 $ 183,226 $ 172,731
Revenues from affiliates 683 1,932 2,614 5,134
---------- ----------- ------------ ------------
Total operating revenues 73,359 73,449 185,840 177,865
---------- ----------- ------------ ------------
OPERATING EXPENSES:
Operation--
Fuel 11,482 12,096 24,174 21,587
Purchased power from non-affiliates 802 1,149 2,014 1,867
Purchased power from affiliates 14,395 13,417 45,915 40,861
Other 10,624 11,235 32,317 32,162
Maintenance 3,064 2,831 9,515 10,323
Depreciation and amortization 4,525 4,747 14,329 14,202
Taxes other than income taxes 3,195 2,871 9,373 8,791
Federal and state income taxes 8,730 8,665 15,313 15,246
---------- ----------- ------------ ------------
Total operating expenses 56,817 57,011 152,950 145,039
---------- ----------- ------------ ------------
OPERATING INCOME 16,542 16,438 32,890 32,826
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 48 34 229 93
Interest income 24 5 129 106
Other, net (747) (121) (1,465) (235)
Income taxes applicable to other income 607 45 840 50
---------- ----------- ------------ ------------
INCOME BEFORE INTEREST CHARGES 16,474 16,401 32,623 32,840
---------- ----------- ------------ ------------
INTEREST CHARGES:
Interest on long-term debt 2,769 3,045 8,787 9,474
Allowance for debt funds used during construction (46) (112) (222) (307)
Interest on notes payable 81 12 219 135
Amortization of debt discount, premium, and expense, net 185 103 396 344
Other interest charges 89 79 286 297
---------- ----------- ------------ ------------
Net interest charges 3,078 3,127 9,466 9,943
---------- ----------- ------------ ------------
NET INCOME 13,396 13,274 23,157 22,897
DIVIDENDS ON PREFERRED STOCK 581 581 1,743 1,743
---------- ----------- ------------ ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 12,815 $ 12,693 $ 21,414 $ 21,154
========== =========== ============ ============
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
54
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Nine Months
Ended September 30,
--------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
Net income $ 23,157 $ 22,897
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 15,248 15,202
Deferred income taxes and investment tax credits, net 5,974 3,102
Allowance for equity funds used during construction (229) (93)
Other, net 1,983 (783)
Changes in certain current assets and liabilities--
Receivables, net (6,668) (6,674)
Inventories (1,022) 2,090
Payables (171) 5,725
Taxes accrued 5,689 8,514
Other (3,594) (6,413)
------------ ------------
Net cash provided from operating activities 40,367 43,567
------------ ------------
INVESTING ACTIVITIES:
Gross property additions (21,078) (19,500)
Other (4,774) (547)
------------ ------------
Net cash used for investing activities (25,852) (20,047)
------------ ------------
FINANCING ACTIVITIES:
Proceeds--
First mortgage bonds 20,000 15,000
Other long-term debt 17,000 33,500
Retirements--
First mortgage bonds (29,400) (29,250)
Other long-term debt (403) (22,554)
Notes payable, net (2,500) (2,500)
Payment of preferred stock dividends (1,743) (1,743)
Payment of common stock dividends (14,400) (13,000)
Miscellaneous (2,241) (2,019)
------------ ------------
Net cash used for financing activities (13,687) (22,566)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 828 954
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 877 1,563
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,705 $ 2,517
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 10,987 $ 11,984
Income taxes 6,070 5,811
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
55
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At September 30,
1996 At December 31,
(Unaudited) 1995
---------------- ---------------
UTILITY PLANT:
Plant in service, at original cost $ 731,005 $ 715,146
Less accumulated provision for depreciation 299,406 287,004
------------ ------------
431,599 428,142
Construction work in progress 13,853 6,707
------------ ------------
Total 445,452 434,849
------------ ------------
OTHER PROPERTY AND INVESTMENTS: 1,786 1,788
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents 1,705 877
Receivables--
Customer accounts receivable 25,652 19,574
Other accounts and notes receivable 1,011 7,251
Affiliated companies 854 614
Accumulated provision for uncollectible accounts (887) (983)
Fuel cost under recovery 6,494 -
Fossil fuel stock, at average cost 6,868 6,076
Materials and supplies, at average cost 8,469 8,239
Prepayments 5,094 6,467
------------ ------------
Total 55,260 48,115
------------ ------------
DEFERRED CHARGES:
Deferred charges related to income taxes 20,603 21,557
Premium on reacquired debt, being amortized 7,305 5,316
Cash surrender value of life insurance for deferred compensation plans 8,560 8,560
Miscellaneous 4,062 4,477
------------ ------------
Total 40,530 39,910
------------ ------------
TOTAL ASSETS $ 543,028 $ 524,662
============ ============
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
56
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At September 30,
1996 At December 31,
(Unaudited) 1995
---------------- ---------------
CAPITALIZATION:
Common stock equity--
Common stock (par value $5 per share)--
authorized 16,000,000 shares; outstanding 10,844,635 shares $ 54,223 $ 54,223
Paid-in capital 8,688 8,688
Additional minimum liability
for under-funded pension obligations (1,116) (132)
Retained earnings 112,046 105,033
------------ ------------
173,841 167,812
Preferred stock 35,000 35,000
Long-term debt 161,826 153,679
------------ ------------
Total 370,667 356,491
------------ ------------
CURRENT LIABILITIES:
Long-term debt due within one year 602 1,407
Notes payable 1,500 4,000
Accounts payable--
Affiliated companies 5,257 5,742
Other 5,629 5,620
Fuel cost over recovery - 865
Customer deposits 5,175 5,054
Taxes accrued--
Federal and state income 2,997 570
Other 4,276 1,014
Interest accrued 4,464 6,331
Vacation pay accrued 1,987 1,916
Pensions accrued 397 685
Miscellaneous 5,385 5,185
------------ ------------
Total 37,669 38,389
------------ ------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 76,908 74,152
Accumulated deferred investment tax credits 13,436 13,934
Deferred credits related to income taxes 23,725 24,419
Deferred compensation plans 8,317 7,690
Deferred under-funded accrued benefit obligation 3,727 2,123
Postretirement benefits 5,464 4,728
Miscellaneous 3,115 2,736
------------ ------------
Total 134,692 129,782
------------ ------------
TOTAL CAPITALIZATION AND LIABILITIES $ 543,028 $ 524,662
============ ============
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
57
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIRD QUARTER 1996 vs. THIRD QUARTER 1995
AND
YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995
RESULTS OF OPERATIONS
Earnings
SAVANNAH's earnings for the quarter and year-to-date periods remained fairly
constant compared to the corresponding periods of 1995, increasing by 1.0% and
1.2%, respectively. SAVANNAH's net income after dividends on preferred stock for
the third quarter and year-to-date 1996 was $12.8 million and $21.4 million,
respectively, compared to $12.7 million and $21.2 million for the corresponding
periods of 1995.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
---------------------------------------------------------
Third Quarter Year-To-Date
--------------------------- -----------------------------
(in thousands) % (in thousands) %
Revenues....................................... $ 1,159 1.6 $10,495 6.1
Revenues from affiliates....................... (1,249) (64.6) (2,520) (49.1)
Fuel expense................................... (614) (5.1) 2,587 12.0
Purchased power from affiliates................ 978 7.3 5,054 12.4
Other, net..................................... (626) (517.4) (1,230) (523.4)
Revenues. Excluding fuel revenues, which represent the pass-through of
fuel expenses and do not affect income, revenues for the quarter remained fairly
constant, while revenues year-to-date 1996 increased approximately $227,000,
compared to the corresponding periods of 1995. The increase in year-to-date
revenues was due primarily to an increase in the amount of retail energy sold.
Year-to-date 1996 total retail kilowatt-hour sales increased 2.1% over the same
period of 1995, and retail revenues, excluding fuel revenues, increased
approximately $1.0 million. A slight increase in the number of customers served
coupled with increased usage per customer accounted for most of the increase in
residential and commercial demand; however, kilowatt-hour sales to the
industrial sector were down primarily due to a reduction in the production
schedule of one of SAVANNAH's major industrial customers.
Revenues from affiliates and Purchased power from affiliates. Revenues from
sales to affiliated companies within the Southern electric system, as well as
purchases of energy, will vary from period to period depending on demand and the
availability and cost of generating resources at each company. These
transactions do not have a significant impact on earnings.
Fuel expense. The decrease in fuel expense for the current quarter as
compared to the same period of 1995 is primarily attributable to a timing
difference in accrual of gas invoices. The increase in fuel expense for
year-to-date 1996 as compared to year-to-date 1995 can be attributed to higher
generation necessary to meet the increased demand for electricity and a higher
average cost of fuel.
58
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Other, net. For the current quarter compared to the same period of 1995,
the change in this item is primarily due to employee stock ownership plan
contributions in September 1996 versus October 1995 and due to the sale of
timber in 1995. The year-to-date change in this item is attributable to the same
factors affecting the third quarter as well as the discontinuation of incentive
revenues under the demand-side option program effective October 1, 1995. (For
additional information about the demand-side option program, reference is made
to Note (S) in the "Notes to the Condensed Financial Statements" herein.)
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from energy sales growth to a less regulated, more competitive
environment.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional information, see Item 1 - BUSINESS - "Competition" and Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SAVANNAH
in the Form 10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset. For additional information about the Clean Air Act and
other environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
"Environmental Matters" of SAVANNAH in the Form 10-K.
Reference is made to Notes (B) and (T) in the "Notes to the Condensed
Financial Statements" herein for discussion of various contingencies and other
matters which may affect future earnings potential.
FINANCIAL CONDITION
Overview
The major change in SAVANNAH's financial condition during the first nine months
of 1996 was the addition of approximately $21.1 million to utility plant. The
funds for these additions and other capital requirements were derived primarily
from operations. See SAVANNAH's Condensed Statements of Cash Flows for further
details.
Financing Activities
During the first quarter of 1996, SAVANNAH retired $1.2 million of its 9 3/8%
first mortgage bonds to meet sinking fund requirements and entered into
arrangements with the Savannah Economic Development Authority to provide $7.0
million for the financing of a new coal handling facility at Plant Kraft. During
the second quarter, SAVANNAH issued $20.0 million of 6.90% first mortgage bonds
due 2006 and a $10.0 million 6.88% bank note due 2001. The proceeds were used to
redeem on July 1, 1996 all remaining outstanding 9 3/8% first mortgage bonds due
2021. No additional securities were issued, redeemed or matured during the third
quarter. SAVANNAH plans to continue, to the extent possible, a program to retire
higher-cost debt and replace these obligations with lower-cost capital.
59
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Sources of Capital
SAVANNAH plans to obtain the funds required for construction and other purposes
from sources similar to those used in the past. The amount, type and timing of
any financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. Currently,
SAVANNAH expects to have adequate earnings coverage ratios for any anticipated
security sales through at least 1998. See Item 1 - BUSINESS - "Financing
Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, SAVANNAH had at September
30, 1996, approximately $1.7 million of cash and cash equivalents and
approximately $39.0 million of unused credit arrangements with banks. At
September 30, 1996, SAVANNAH had $1.5 million of short-term notes payable to
banks. Since SAVANNAH has no major generating plants under construction,
management believes that the need for working capital can be adequately met by
utilizing lines of credit.
60
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SAVANNAH ELECTRIC AND POWER COMPANY
INDEX TO APPLICABLE NOTES TO
FINANCIAL STATEMENTS BY REGISTRANT
Registrant Applicable Notes
SOUTHERN A, B, C, D, E, F, G, H, I, J, K, L, M, N, O, P, Q, R
ALABAMA A, B, C, F, G, H, I, J
GEORGIA A, B, C, F, G, K, L, M, N, O, P, Q, R
GULF A, B, F, G
MISSISSIPPI A, B, F, G
SAVANNAH A, B, G, S, T
61
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SAVANNAH ELECTRIC AND POWER COMPANY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS:
(A) The condensed financial statements of the registrants included herein have
been prepared by each registrant, without audit, pursuant to the rules and
regulations of the SEC. In the opinion of each registrant's management, the
information regarding such registrant furnished herein reflects all
adjustments (which included only normal recurring adjustments) necessary to
present fairly the results for the periods ended September 30, 1996 and
1995. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although each registrant believes that the disclosures
regarding such registrant are adequate to make the information presented
not misleading. It is suggested that these condensed financial statements
be read in conjunction with the financial statements and the notes thereto
included in each registrant's latest annual report on Form 10-K. Certain
prior-period amounts have been reclassified to conform with current-period
presentation.
The condensed financial statements of ALABAMA and GEORGIA included
herein have been reviewed by ALABAMA's and GEORGIA's independent public
accountants as set forth in their reports included herein as Exhibit 1 to
ALABAMA's and GEORGIA's condensed financial statements.
(B) SOUTHERN's operating affiliates are subject to the provisions of FASB
Statement No. 71, Accounting for the Effects of Certain Types of
Regulation. In the event that a portion of a company's operations is no
longer subject to these provisions, the company would be required to write
off related regulatory assets and liabilities, and determine if any other
assets have been impaired. For additional information, see Note 1 to the
financial statements of each registrant in Item 8 of the Form 10-K.
(C) The staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry--including SOUTHERN's--regarding
the recognition, measurement and classification of decommissioning costs
for nuclear generating facilities in the financial statements. In response
to these questions, the FASB has decided to review the accounting for
liabilities related to closure and removal of long-lived assets, including
nuclear decommissioning. Reference is made to MANAGEMENT'S DISCUSSION AND
ANALYSIS - "Future Earnings Potential" of SOUTHERN, ALABAMA and GEORGIA in
Item 7 and Note 1 to the financial statements of SOUTHERN, ALABAMA and
GEORGIA under "Depreciation and Nuclear Decommissioning" in Item 8 of the
Form 10-K.
(D) The SOUTHERN system utilizes certain financial derivative contracts solely
for the purpose of risk management. The companies' participation in
derivative contracts has been to hedge business exposure in connection with
Southern Energy activities to fluctuations in interest rates and foreign
currency exchange rates. At September 30, 1996, the status of outstanding
derivative contracts was as follows:
Maturity or Notional Unrealized
Type Termination Amount Gain (Loss)
---- ----------- -------- -----------
(in thousands)
Interest rate swaps 1999-2011 $851,706 $(18,550)
Foreign currency forwards Renewed monthly 74,668 (50)
Cross-currency swaps 2002 165,805 (3,617)
62
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(E) Reference is made to Note 3 to the financial statements of SOUTHERN in Item
8 of the Form 10-K for a description of the proceedings related to a
derivative action filed against certain current and former directors and
officers of SOUTHERN. In May 1996, a panel of the U.S. Court of Appeals for
the 11th Circuit affirmed the trial court's dismissal of this suit. The
plaintiffs' subsequent request for rehearing by the full appellate court
was denied in August 1996.
(F) Reference is made to Note 3 to each of the registrant's, except SAVANNAH's,
financial statements in Item 8 of the Form 10-K for a discussion of the
proceedings initiated by the FERC regarding the reasonableness of the
return on common equity on certain of the Southern electric system's
wholesale rate schedules and contracts.
(G) Certain of the registrants and other SOUTHERN subsidiaries have instituted
work force reduction programs. The expenses recognized and the unamortized
balance of deferred expenses under these programs were as follows: (in
thousands)
Three Months Ended Nine Months Ended Unamortized Balance
September 30, September 30, at September 30, 1996
------------------- ------------------ ---------------------
1996 1995 1996 1995
---- ---- ---- ----
ALABAMA $ 5,951 $1,327 $18,360 $ 5,631 $37,373
GEORGIA 7,947 2,073 34,821 6,052 -
GULF 238 490 2,472 490 -
MISSISSIPPI 1,847 971 3,625 2,471 5,041
SAVANNAH 28 (4) 262 25 -
Other 129 459 343 459 -
------- ------ ------- ------- --------
SOUTHERN
system $16,140 $5,316 $59,883 $15,128 $42,414
======= ====== ======= ======= =======
(H) In June 1995, the Alabama PSC issued a rate order granting ALABAMA's
request for gradual adjustments to move toward parity among customer
classes. This order also calls for a moratorium on any periodic retail rate
increases (but not decreases) until July 2001. In December 1995, the
Alabama PSC issued an order authorizing ALABAMA to reduce balance sheet
items--such as plant and deferred charges--at any time ALABAMA's actual
base rate revenues exceed the budgeted revenues. Reference is made to Note
3 to the financial statements of SOUTHERN and ALABAMA in Item 8 of the Form
10-K for additional information.
(I) In January 1996, Alabama Power Capital Trust I (the "Trust"), of which
ALABAMA owns all the common securities, issued $97 million of 7.375%
mandatorily redeemable preferred securities. Substantially all of the
assets of the Trust are $100 million aggregate principal amount of
ALABAMA's 7.375% Junior Subordinated Notes due March 31, 2026. ALABAMA
considers that the mechanisms and obligations relating to the preferred
securities, taken together, constitute a full and unconditional guarantee
by ALABAMA of the Trust's payment obligations with respect to the preferred
securities.
(J) Actions against ALABAMA have been filed in several counties in Alabama
charging ALABAMA with fraud and non-compliance with regulatory statutes
relating to the offer, sale and financing of "extended service contracts"
in connection with the sale of electric appliances. Some of these cases
have been filed as class actions, while others have been filed on behalf of
multiple individual plaintiffs. The plaintiffs in these actions seek
63
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
damages in an unspecified amount. ALABAMA has offered extended service
agreements to its customers since January 1984, and approximately 175,000
extended service agreements could be involved in these proceedings. The
final outcome of these cases cannot now be determined.
(K) In August 1996, Georgia Power Capital Trust I (the "Trust"), of which
GEORGIA owns all the common securities, issued $225 million of 7.75%
mandatorily redeemable preferred securities. Substantially all of the
assets of the Trust are $232 million aggregate principal amount of
GEORGIA's 7.75% Junior Subordinated Notes due June 30, 2036. GEORGIA
considers that the mechanisms and obligations relating to the preferred
securities, taken together, constitute a full and unconditional guarantee
by GEORGIA of the Trust's payment obligations with respect to the preferred
securities. Reference is also made to Note 9 to the financial statements of
GEORGIA in Item 8 of the Form 10-K.
(L) On February 16, 1996, the Georgia PSC approved a three-year retail rate
plan for GEORGIA effective January 1, 1996. For additional information,
reference is made to Note 3 to the financial statements of SOUTHERN and
GEORGIA in Item 8 of the Form 10-K. In November 1996, on appeal by a
consumer group, the Superior Court of Fulton County (Georgia) reversed the
order of the Georgia PSC approving the rate plan and remanded the matter to
the Georgia PSC. The court found that statutory requirements applicable to
rate cases should have been, but were not, followed. GEORGIA currently
intends to appeal the court's decision.
(M) Pursuant to orders from the Georgia PSC, GEORGIA deferred financing and
depreciation costs under phase-in plans for Plant Vogtle Units 1 and 2
until the allowed investment was fully reflected in rates as of October
1991. In addition, the Georgia PSC issued two separate accounting orders
that required GEORGIA to defer substantially all operating and financing
costs related to both units until rate orders addressed these costs. The
Georgia PSC orders provide for recovery of deferred costs within 10 years.
The Georgia PSC also ordered GEORGIA to levelize declining capacity buyback
expense from the co-owners of the plant over a six-year period beginning
October 1991. The unamortized balance of these deferred costs at September
30, 1996, was $206.6 million. See Notes 1 and 3 to the financial statements
of SOUTHERN and GEORGIA, respectively, in Item 8 of the Form 10-K for
additional information.
(N) Reference is made to Note 3 to the financial statements of SOUTHERN and
GEORGIA in Item 8 of the Form 10-K for information concerning the recovery
by GEORGIA of its costs associated with the Rocky Mountain pumped storage
hydroelectric plant.
(O) Reference is made to Note 3 to the financial statements of SOUTHERN and
GEORGIA in Item 8 of the Form 10-K for information regarding recovery by
GEORGIA of its costs associated with its discontinued demand-side
conservation programs.
(P) Reference is made to Note 3 to the financial statements of GEORGIA in Item
8 of the Form 10-K for information concerning a joint complaint filed with
the FERC by OPC and MEAG seeking recovery of alleged partial requirements
rates overcharges and the order of the FERC dismissing such complaint. In
June 1996, the U.S. Court of Appeals for the District of Columbia Circuit
vacated the FERC's order insofar as it denied OPC's claim for a share of
the settlement proceeds that GEORGIA received from Gulf States Utilities
Company and remanded the case to the FERC.
(Q) In May 1996, MEAG filed a complaint with the FERC seeking termination as of
December 31, 1996 of the partial requirements tariff pursuant to which
GEORGIA currently sells wholesale energy to MEAG. The complaint also seeks
refunds in an unspecified amount as a result of alleged overcharges by
GEORGIA under the tariff for the years 1993, 1994, 1995 and 1996. In its
response, filed with the FERC in June 1996, GEORGIA also requests that its
partial requirements service obligation to MEAG be terminated as of the
date sought by MEAG. GEORGIA further denies that any refund is owed to
MEAG.
64
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(R) Reference is made to Note 3 to the financial statements of SOUTHERN and
GEORGIA in Item 8 of the Form 10-K for information regarding GEORGIA's
designation as a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act and other
environmental contingencies.
(S) Reference is made to Note 3 to the financial statements of SAVANNAH in
Item 8 of the Form 10-K for information regarding SAVANNAH's discontinued
demand-side conservation programs. In May and June 1996, SAVANNAH refunded
to customers a total of $266,000, which is the amount that had been
overcollected from demand-side rate riders as of December 31, 1995.
(T) SAVANNAH is currently undergoing an earnings review by the Georgia PSC,
and to date, the Georgia PSC has made no determination.
65
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
(1) Reference is made to the Notes to the Condensed Financial
Statements herein for information regarding certain legal and
administrative proceedings in which SOUTHERN and its reporting
subsidiaries are involved.
(2) Reference is made to Item 3 - LEGAL PROCEEDINGS in the Form 10-K
for information regarding a tax deficiency notice received from
the Internal Revenue Service relating to GEORGIA's tax accounting
for the sale in 1984 of an interest in Plant Vogtle and related
capacity and energy buyback commitments.
(3) Reference is made to Item 3 - LEGAL PROCEEDINGS in the Form 10-K
for information regarding an action filed by ALABAMA, GEORGIA and
MISSISSIPPI in January 1996 which seeks to enjoin the TVA from
violating a 1959 act that prohibits the TVA from selling power
outside the area that was being served by it in 1957. On August
28, 1996, the U.S. District Court for the Northern District of
ALABAMA granted a summary judgment in favor of ALABAMA, GEORGIA
and MISSISSIPPI, finding that the LG&E Power Marketing (LPM)
contract was unlawful. It is not currently known whether TVA or
LPM will appeal this judgment.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 24 - Powers of Attorney and resolutions. (Designated in
the Form 10-K for the year ended December 31, 1995,
File Nos. 1-3526, 1-3164, 1-6468, 0-2429, 0-6849
and 1-5072 as Exhibits 24(a), 24(b), 24(c), 24(d),
24(e) and 24(f), respectively, and incorporated
herein by reference.)
Exhibits 27 - Financial Data Schedules
(a) SOUTHERN
(b) ALABAMA
(c) GEORGIA
(d) GULF
(e) MISSISSIPPI
(f) SAVANNAH
(b) Reports on Form 8-K.
GEORGIA filed a Current Report on Form 8-K dated August 21, 1996:
Items reported: Item 5
Item 7
Financial statements filed: None
SOUTHERN filed a Current Report on Form 8-K dated October 9,
1996:
Items reported: Item 5
Item 7
Financial statements filed: None
66
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
THE SOUTHERN COMPANY
By A. W. Dahlberg
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
By W. L. Westbrook
Financial Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: November 12, 1996
- - --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
ALABAMA POWER COMPANY
By Elmer B. Harris
President and Chief Executive Officer
(Principal Executive Officer)
By William B. Hutchins, III
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: November 12, 1996
67
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
GEORGIA POWER COMPANY
By H. Allen Franklin
President and Chief Executive Officer
(Principal Executive Officer)
By Warren Y. Jobe
Executive Vice President, Treasurer and Chief Financial Officer
(Principal Financial Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: November 12, 1996
- - --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
GULF POWER COMPANY
By Travis J. Bowden
President and Chief Executive Officer
(Principal Executive Officer)
By A. E. Scarbrough
Vice President - Finance
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: November 12, 1996
68
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
MISSISSIPPI POWER COMPANY
By Dwight H. Evans
President and Chief Executive Officer
(Principal Executive Officer)
By Michael W. Southern
Vice President, Secretary, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: November 12, 1996
- - --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
SAVANNAH ELECTRIC AND POWER COMPANY
By Arthur M. Gignilliat, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
By Kirby R. Willis
Vice President, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: November 12, 1996
69