===================================================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997
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) 257-1000
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 32520
(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) 644-7171
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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 April 30, 1997
The Southern Company Par Value $5 Per Share 681,674,776
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
March 31, 1997
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..................................................................... 15
Condensed Statements of Cash Flows................................................................. 16
Condensed Balance Sheets........................................................................... 17
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 19
Exhibit 1 - Report of Independent Public Accountants............................................... 22
Georgia Power Company
Condensed Statements of Income..................................................................... 24
Condensed Statements of Cash Flows................................................................. 25
Condensed Balance Sheets........................................................................... 26
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 28
Exhibit 1 - Report of Independent Public Accountants............................................... 32
Gulf Power Company
Condensed Statements of Income..................................................................... 34
Condensed Statements of Cash Flows................................................................. 35
Condensed Balance Sheets........................................................................... 36
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 38
Mississippi Power Company
Condensed Statements of Income..................................................................... 42
Condensed Statements of Cash Flows................................................................. 43
Condensed Balance Sheets........................................................................... 44
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 46
Savannah Electric and Power Company
Condensed Statements of Income..................................................................... 50
Condensed Statements of Cash Flows................................................................. 51
Condensed Balance Sheets........................................................................... 52
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 54
Notes to the Condensed Financial Statements........................................................... 56
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................... 62
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.......................................................................... 62
Signatures ............................................................................................... 64
3
DEFINITIONS
TERM MEANING
affiliates.............................. ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH
ALABAMA................................. Alabama Power Company
CEPA.................................... Consolidated Electric Power Asia
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, 1996
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.),
including SOUTHERN subsidiaries managed or controlled by Southern
Energy
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
Ended March 31,
1997 1996
OPERATING REVENUES $ 2,584,414 $ 2,429,355
-------------- --------------
OPERATING EXPENSES:
Operation--
Fuel 485,755 502,710
Purchased power 458,241 271,497
Other (Note H) 425,347 451,061
Maintenance 191,292 186,377
Depreciation and amortization 292,124 246,619
Amortization of deferred Plant Vogtle costs (Note M) 37,627 33,759
Taxes other than income taxes 151,694 168,667
Income taxes 146,182 160,603
-------------- --------------
Total operating expenses 2,188,262 2,021,293
-------------- --------------
OPERATING INCOME 396,152 408,062
OTHER INCOME:
Allowance for equity funds used during construction 791 860
Interest income 28,084 15,728
Other, net 14,210 22,346
Income taxes applicable to other income 4,439 (3,160)
-------------- --------------
INCOME BEFORE INTEREST CHARGES 443,676 443,836
-------------- --------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 152,200 139,768
Allowance for debt funds used during construction (4,596) (5,311)
Interest on notes payable 29,319 22,547
Amortization of debt discount, premium and expense, net 7,520 12,975
Other interest charges 18,123 16,444
Minority interest in subsidiaries 15,519 (556)
Distributions on capital and preferred securities of subsidiary companies 21,523 3,601
Preferred dividends of subsidiary companies 17,055 21,493
-------------- --------------
Interest charges and other, net 256,663 210,961
-------------- --------------
CONSOLIDATED NET INCOME $ 187,013 $ 232,875
============== ==============
AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (Thousands) 678,826 670,105
EARNINGS PER SHARE OF COMMON STOCK $0.28 $0.35
CASH DIVIDENDS PAID PER SHARE
OF COMMON STOCK $0.325 $0.315
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 Three Months
Ended March 31,
1997 1996
OPERATING ACTIVITIES:
Consolidated net income $ 187,013 $ 232,875
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization 347,829 306,320
Deferred income taxes and investment tax credits (6,835) 18,918
Allowance for equity funds used during construction (791) (860)
Amortization of deferred Plant Vogtle costs (Note M) 37,627 33,759
Gain on asset sales (15,593) (11,072)
Other, net (38,019) 20,947
Changes in certain current assets and liabilities--
Receivables, net 229,542 130,802
Fossil fuel stock (30,419) 25,113
Materials and supplies 13,491 11,486
Prepayments (62,908) (45,250)
Payables (58,783) (126,490)
Customer deposits 551 (85,141)
Taxes Accrued 76,706 (17,221)
Other (93,766) (87,831)
---------------- ----------------
Net cash provided from operating activities 585,645 406,355
---------------- ----------------
INVESTING ACTIVITIES:
Gross property additions (377,836) (306,470)
Southern Energy business acquisitions (1,755,064) -
Sales of property 15,350 1,800
Other (45,932) (79,155)
---------------- ----------------
Net cash used for investing activities (2,163,482) (383,825)
---------------- ----------------
FINANCING ACTIVITIES:
Proceeds--
Common stock 88,528 18,530
Capital and preferred securities 931,500 97,000
First mortgage bonds - 40,000
Pollution control bonds - 21,200
Other long-term debt 998,133 279,147
Retirements--
Preferred stock (203,528) -
First mortgage bonds (83,574) (239,127)
Pollution control bonds - (6,800)
Other long-term debt (252,728) (1,074,005)
Special deposits-redemption funds 44,454 (21,291)
Notes payable, net 458,762 618,850
Payment of common stock dividends (220,194) (211,081)
Miscellaneous (78,455) (5,479)
---------------- ----------------
Net cash provided from (used for) financing activities 1,682,898 (483,056)
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NET CHANGE IN CASH AND CASH EQUIVALENTS 105,061 (460,526)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 444,832 772,340
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 549,893 $ 311,814
================ ================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $213,978 $199,455
Income taxes $3,956 $56,321
Southern Energy business acquisitions--
Fair value of assets acquired $3,551,064 -
Less cash paid for common stock 1,755,064 -
-------------- --------------
Liabilities assumed $1,796,000 -
============== ==============
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 March 31,
1997 At December 31,
(Unaudited) 1996
---------------- -----------------
UTILITY PLANT:
Plant in service $ 33,343,549 $ 33,260,914
Less accumulated provision for depreciation 11,174,138 10,921,242
---------------- ---------------
22,169,411 22,339,672
Nuclear fuel, at amortized cost 220,620 245,702
Construction work in progress 748,674 683,924
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Total 23,138,705 23,269,298
---------------- ---------------
OTHER PROPERTY AND INVESTMENTS:
Goodwill, being amortized 1,807,245 318,142
Leasehold interests 1,441,891 415,600
Equity investments in subsidiaries 1,044,943 227,097
Nuclear decommissioning trusts, at market 307,475 278,938
Miscellaneous 283,371 261,175
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Total 4,884,925 1,500,952
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CURRENT ASSETS:
Cash and cash equivalents 549,893 444,832
Special deposits - 44,454
Receivables, less accumulated provisions for uncollectible accounts
of $29,753 at March 31, 1997 and $31,587 at December 31, 1996 1,779,456 1,458,092
Fossil fuel stock, at average cost 301,367 269,940
Materials and supplies, at average cost 499,491 509,409
Prepayments 340,949 252,977
Vacation pay deferred 75,399 77,195
---------------- ---------------
Total 3,546,555 3,056,899
---------------- ---------------
DEFERRED CHARGES:
Deferred charges related to income taxes 1,284,674 1,302,342
Deferred Plant Vogtle costs (Note M) 133,361 170,988
Debt expense, being amortized 92,370 78,042
Premium on reacquired debt, being amortized 284,202 289,019
Miscellaneous 635,290 624,262
---------------- ---------------
Total 2,429,897 2,464,653
---------------- ---------------
TOTAL ASSETS $ 34,000,082 $ 30,291,802
================ ===============
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 March 31,
1997 At December 31,
(Unaudited) 1996
---------------- ------------------
CAPITALIZATION:
Common stock, par value $5 per share-
Authorized -- 1 billion shares
Outstanding -- March 31, 1997: 681,118,747 shares
-- December 31, 1996: 677,035,961 shares $ 3,405,594 $ 3,385,180
Paid-in capital 2,125,534 2,067,228
Retained earnings 3,730,782 3,763,987
---------------- ----------------
9,261,910 9,216,395
Preferred stock of subsidiaries 833,372 979,527
Subsidiary obligated mandatorily redeemable
capital and preferred securities (Note I) 1,353,500 422,000
Long-term debt 9,699,757 7,935,269
---------------- ----------------
Total 21,148,539 18,553,191
---------------- ----------------
CURRENT LIABILITIES:
Preferred stock of subsidiaries due within one year 116,155 173,528
Long-term debt due within one year 466,515 191,411
Notes payable 2,024,235 1,482,822
Accounts payable 772,527 787,809
Customer deposits 132,095 131,544
Taxes accrued--
Income taxes 150,222 11,965
Other 146,967 192,921
Interest accrued 185,734 187,152
Vacation pay accrued 102,843 103,514
Miscellaneous 527,292 535,366
---------------- ----------------
Total 4,624,585 3,798,032
---------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 4,674,025 4,738,085
Deferred credits related to income taxes 866,806 879,090
Accumulated deferred investment tax credits 780,012 787,545
Employee benefits provisions 451,868 439,176
Minority interests in subsidiaries 730,178 374,922
Prepaid capacity revenues 119,417 122,496
Department of Energy assessments 80,523 80,523
Disallowed Plant Vogtle capacity buyback costs 56,947 57,250
Storm damage reserves 36,297 35,112
Miscellaneous 430,885 426,380
---------------- ----------------
Total 8,226,958 7,940,579
---------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES $ 34,000,082 $ 30,291,802
================ ================
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
FIRST QUARTER 1997 vs. FIRST QUARTER 1996
RESULTS OF OPERATIONS
Earnings
SOUTHERN's consolidated net income for the first quarter of 1997 was $187
million ($0.28 per share), compared to $233 million ($0.35 per share) for the
corresponding period of 1996, representing a 19.7% decrease. Milder weather in
the service territories of the operating affiliates during the current quarter,
compared with the corresponding quarter of 1996, was the primary reason for this
reduction in earnings. In addition, the acquisition of CEPA also had a slightly
negative effect, which was anticipated. (Reference is made to "Future Earnings
Potential" below for additional information relating to the acquisition, in
January 1997, of CEPA.)
SOUTHERN's traditional 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
its non-traditional business primarily 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)
-----------------------------------------
(in thousands) %
Operating revenues................................... $155,059 6.4
Purchased power expense.............................. 186,744 68.8
Depreciation and amortization expense................ 45,505 18.5
Taxes other than income taxes........................ (16,973) (10.1)
Interest income...................................... 12,356 78.6
Interest on long-term debt........................... 12,432 8.9
Distributions on preferred and
capital securities of subsidiaries.............. 17,922 497.7
Minority interest.................................... 16,075 NM
--------------
NM - Not meaningful.
Operating revenues. Operating revenues for the first quarter of 1997 when
compared to the corresponding quarter of 1996 decreased by $81 million (4.1%)
for the traditional core business while operating revenues were up by $236
million (55.1%) for the non-traditional business. The primary factor
contributing to this decrease in traditional core revenues was milder weather
during the current period which resulted in a lower demand for electricity. The
effect of weather on first quarter results is evidenced by the fact that
residential energy sales were down by 9.7% when compared to the corresponding
quarter of 1996. In addition, although energy sales for commercial and
industrial customers were up by 0.3% and 2.9%, respectively, revenues, in both
cases, were down primarily due to rate reductions to certain large customers.
The increase in operating revenues for the non-traditional business was
primarily attributable to increased sales by Southern Energy's power marketing
organization and to CEPA, which was acquired in late January 1997.
10
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Purchased power expense. Purchased power expense for the traditional core
business declined by $17 million for the first quarter of 1997, compared to the
comparable period of 1996, primarily because of milder-than-normal weather.
Purchased power expense attributable to Southern Energy-related activities
increased by $204 million primarily due to purchases in connection with its
power marketing activities.
Depreciation and amortization expense. Depreciation and amortization
expense for the traditional core business increased by $28 million for the
current quarter as compared to the corresponding quarter of 1996 primarily due
to additions to utility plant and a charge of $19.8 million pursuant to
GEORGIA's retail accounting order as discussed in Note (L) in the "Notes to the
Condensed Financial Statements" herein. For the non-traditional business,
depreciation and amortization increased by $17 million primarily because of the
acquisition of CEPA.
Taxes other than income taxes. Taxes other than income taxes for the firs
quarter of 1997 when compared to the corresponding quarter of 1996 decreased
primarily due to a $15 million reduction attributable to SWEB. This decrease
resulted from the lowering, in November 1996, of the taxes on electricity sales
from 10% to 3.7%.
Interest income. This increase for the current quarter as compared to the
corresponding quarter of 1996, is primarily attributable to $8 million in
interest income from investment of funds provided to Southern Energy prior to
closing of the CEPA acquisition.
Interest on long-term debt. Interest on long-term debt for the operating
companies decreased by $7 million for the current quarter as compared to the
comparable quarter of 1996, reflecting the refinancing efforts of such
companies. However, increases attributable to non-traditional business
activities, primarily CEPA, resulted in a net increase in such interest for the
current quarter.
Distributions on preferred and capital securities of subsidiaries. This
increase resulted from the sales of securities in 1996 and the first quarter of
1997. See Note (I) in the "Notes to the Condensed Financial Statements" herein
for additional information.
Minority interest. The increase in minority interest for the current
quarter as compared to the corresponding quarter of 1996 is primarily
attributable to the sale in July 1996 of a 25% share of SWEB and to the
acquisition of an 80% controlling interest in CEPA.
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 non-traditional business becoming more significant. (For
additional information relating to non-traditional business activities,
including information relating to the acquisition in January 1997 of an 80%
interest in CEPA, see Item 1 - BUSINESS - "New Business Development" in the Form
10-K.)
In May 1997, SOUTHERN announced that, through Southern Energy, it had
agreed to purchase 25% of the outstanding common stock of Berliner Kraft und
Licht AG (Bewag), the vertically integrated electric utility that serves Berlin,
Germany, for approximately $830 million. The purchase is subject to approval by
Berlin's parliament and European regulators.
11
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
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, SOUTHERN is positioning the
business to meet the challenge of increasing competition. For additional
information, see Item 1 - BUSINESS - "Competition" and Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SOUTHERN in the Form
10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be 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.
In February, 1997, the FASB issued Statement No. 128, Earnings Per Share.
The standard simplifies the computation of earnings per share (EPS) required by
existing rules. SOUTHERN will adopt this standard on December 31, 1997. If EPS
amounts were computed as specified by Statement No. 128, basic EPS and diluted
EPS would be equal, and would equal the amounts currently reported in the
"Condensed Statements of Income".
Reference is made to Notes (B), (C), (D), (G), (J), (K), (L), (M), (N) and
(P) 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
Major changes in SOUTHERN's financial condition during the first three months of
1997 included the addition of approximately $378 million to utility plant and
the acquisition of CEPA. The funds for these additions and other capital
requirements were derived primarily from operations and sales of securities. See
SOUTHERN's Condensed Statements of Cash Flows for further details.
Financing Activities
During the first three months of 1997, retirements of the operating companies'
first mortgage bonds totaled $80 million and redemptions of preferred stock
totaled $204 million. Subsidiaries of SOUTHERN, ALABAMA, GEORGIA, GULF and
MISSISSIPPI have formed statutory business trusts which sold, during the first
quarter of 1997, an aggregate of $932 million of trust preferred or capital
securities. See Note (I) in the "Notes to the Condensed Financial Statements"
herein for further details.
During the first three months of 1997, SOUTHERN raised $89 million from the
issuance of new common stock under SOUTHERN's various stock plans. The market
price of SOUTHERN's common stock at March 31, 1997 was $21.125 per share and the
book value was $13.60 per share, representing a market-to-book ratio of 155%,
compared to $22.625, $13.61 and 166%, respectively, at the end of 1996. The
dividend for the first quarter of 1997 was $0.325 per share.
12
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of 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 $583 million will be required by March 31, 1998, 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 1997, as well as in
subsequent years, will be contingent on SOUTHERN's investment opportunities. The
operating companies plan to obtain the funds required for construction and other
purposes from sources similar to those used in the past. 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 1999. See
Item 1 BUSINESS - "Financing Programs" in the Form 10-K for additional
information.
To meet short-term cash needs and contingencies, the SOUTHERN system had at
March 31, 1997, approximately $550 million of cash and cash equivalents and
approximately $4,127 million of unused credit arrangements with banks (including
$829 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 March 31, 1997, the system companies had
outstanding approximately $286 million of short-term notes payable and $1.7
billion of commercial paper. Since SOUTHERN's construction program with respect
to major generating projects in the traditional 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.
13
ALABAMA POWER COMPANY
14
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
1997 1996
OPERATING REVENUES:
Revenues $ 658,105 $ 655,401
Revenues from affiliates 46,663 77,408
------------- ------------
Total operating revenues 704,768 732,809
------------- ------------
OPERATING EXPENSES:
Operation--
Fuel 204,358 211,630
Purchased power from non-affiliates 3,374 8,967
Purchased power from affiliates 20,058 15,846
Other 114,278 116,996
Maintenance 68,950 62,934
Depreciation and amortization 85,652 79,898
Taxes other than income taxes 49,457 50,064
Federal and state income taxes 35,186 44,422
------------- ------------
Total operating expenses 581,313 590,757
------------- ------------
OPERATING INCOME 123,455 142,052
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction - 401
Income from subsidiary 980 974
Interest income 11,090 9,670
Other, net (8,372) (7,623)
Income taxes applicable to other income (708) (370)
------------- ------------
INCOME BEFORE INTEREST CHARGES 126,445 145,104
------------- ------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 41,383 42,576
Allowance for debt funds used during construction (946) (1,876)
Interest on interim obligations 4,406 5,727
Amortization of debt discount, premium and expense, net 2,396 7,372
Other interest charges 10,704 10,183
Distributions on preferred securities of subsidiary trusts 4,997 1,351
------------- ------------
Total interest charges and other 62,940 65,333
------------- ------------
NET INCOME 63,505 79,771
DIVIDENDS ON PREFERRED STOCK 5,698 6,612
------------- ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 57,807 $ 73,159
============= ============
The accompanying notes as they relate to ALABAMA are an integral part of
these condensed statements.
15
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,__
1997 1996
OPERATING ACTIVITIES:
Net income $ 63,505 $ 79,771
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 101,987 101,996
Deferred income taxes and investment tax credits, net (2,380) 4,469
Allowance for equity funds used during construction - (401)
Other, net (38,460) (6,600)
Changes in certain current assets and liabilities--
Receivables, net 48,292 6,009
Inventories (16,130) 14,268
Prepayments (45,067) (42,872)
Payables (76,068) (66,557)
Taxes accrued 53,076 53,974
Energy cost recovery, retail 14,656 30,855
Other (39,157) (32,087)
-------------- --------------
Net cash provided from operating activities 64,254 142,825
-------------- --------------
INVESTING ACTIVITIES:
Gross property additions (94,605) (105,663)
Other (9,469) (19,058)
-------------- --------------
Net cash used for investing activities (104,074) (124,721)
-------------- --------------
FINANCING ACTIVITIES:
Proceeds--
Company obligated mandatorily redeemable preferred securities 200,000 97,000
Retirements--
Preferred stock (100,000) -
First mortgage bonds (19,801) (83,797)
Other long-term debt (232) (239)
Interim obligations, net 48,933 46,014
Payment of preferred stock dividends (6,730) (6,638)
Payment of common stock dividends (80,100) (76,000)
Miscellaneous (6,361) (2,869)
-------------- --------------
Net cash provided from (used for) financing activities 35,709 (26,529)
-------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (4,111) (8,425)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,587 12,616
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,476 $ 4,191
============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $58,030 $ 56,128
Income taxes 3,009 218
The accompanying notes as they relate to ALABAMA are an integral part
of these condensed statements.
16
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At March 31,
1997 At December 31,
(Unaudited) 1996
---------------- -----------------
UTILITY PLANT:
Plant in service $ 10,861,095 10,806,921
Less accumulated provision for depreciation 4,196,246 4,113,622
---------------- ---------------
6,664,849 6,693,299
Nuclear fuel, at amortized cost 113,666 123,862
Construction work in progress 282,433 256,802
---------------- ---------------
Total 7,060,948 7,073,963
---------------- ---------------
OTHER PROPERTY AND INVESTMENTS:
Southern Electric Generating Company, at equity 27,011 26,032
Nuclear decommissioning trusts 152,253 148,760
Miscellaneous 21,353 20,243
---------------- ---------------
Total 200,617 195,035
---------------- ---------------
CURRENT ASSETS:
Cash and cash equivalents 5,476 9,587
Receivables--
Customer accounts receivable 302,374 334,150
Other accounts and notes receivable 19,467 28,524
Affiliated companies 37,753 47,630
Accumulated provision for uncollectible accounts (1,357) (1,171)
Refundable income taxes 8,461 5,856
Fossil fuel stock, at average cost 105,255 81,704
Materials and supplies, at average cost 160,371 167,792
Prepayments 176,937 131,870
Vacation pay deferred 27,083 28,369
---------------- ---------------
Total 841,820 834,311
---------------- ---------------
DEFERRED CHARGES:
Deferred charges related to income taxes 409,263 410,010
Debt expense, being amortized 7,619 7,398
Premium on reacquired debt, being amortized 82,717 84,149
Uranium enrichment decontamination and decommissioning fund 37,490 37,490
Miscellaneous 109,721 91,490
---------------- ---------------
Total 646,810 630,537
---------------- ---------------
TOTAL ASSETS $ 8,750,195 $ 8,733,846
================ ===============
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)
CAPITALIZATION AND LIABILITIES
At March 31,
1997 At December 31,
(Unaudited) 1996
-------------- ----------------
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 1,162,776 1,185,128
-------------- --------------
2,691,925 2,714,277
Preferred stock 278,400 340,400
Company obligated mandatorily redeemable preferred securities of
subsidiary trusts holding Company Junior Subordinated Notes (Note I) 297,000 97,000
Long-term debt 2,298,601 2,354,006
-------------- --------------
Total 5,565,926 5,505,683
-------------- --------------
CURRENT LIABILITIES:
Preferred stock due within one year 62,000 100,000
Long-term debt due within one year 50,955 20,753
Commercial paper 413,786 364,853
Accounts payable--
Affiliated companies 55,406 64,307
Other 112,936 182,563
Customer deposits 32,721 32,003
Taxes accrued--
Federal and state income 53,230 35,638
Other 30,476 15,271
Interest accrued 43,930 51,941
Vacation pay accrued 27,083 28,369
Miscellaneous 78,303 96,485
-------------- --------------
Total 960,826 992,183
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 1,198,950 1,177,687
Accumulated deferred investment tax credits 291,269 294,071
Prepaid capacity revenues, net 119,417 122,496
Uranium enrichment decontamination and decommissioning fund 33,741 33,741
Deferred credits related to income taxes 360,680 364,792
Natural disaster reserve 21,379 20,757
Miscellaneous 198,007 222,436
-------------- --------------
Total 2,223,443 2,235,980
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $ 8,750,195 $ 8,733,846
============== ==============
The accompanying notes as they relate to ALABAMA are an integral part
of these condensed statements.
18
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 1997 vs. FIRST QUARTER 1996
RESULTS OF OPERATIONS
Earnings
ALABAMA's net income after dividends on preferred stock for the first quarter of
1997 was $57.8 million, compared to $73.2 million for the corresponding period
of 1996. This 21.0% decrease in earnings was primarily due to milder weather and
a decrease in commercial and industrial prices.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
-----------------------------------------
(in thousands) %
Revenues............................................. $ 2,704 0.4
Revenues from affiliates............................. (30,745) (39.7)
Purchased power from affiliates...................... 4,212 26.6
Maintenance expense.................................. 6,016 9.6
Depreciation and amortization........................ 5,754 7.2
Distributions on preferred securities of
subsidiary trusts................................. 3,646 269.9
Revenues. Excluding fuel revenues, which represent the pass-through of fuel
expenses and do not affect net income, revenues for the first quarter 1997
decreased $16.1 million, compared to the corresponding period of 1996. The
decrease in first quarter 1997 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 current quarter of 1997 as compared to the corresponding
quarter of 1996 primarily impacted residential energy sales, which were down
9.5%. Commercial energy sales and industrial energy sales increased 3.0% and
2.6%, respectively, for the first quarter compared to 1996. Total retail
kilowatt-hour sales for the quarter were down 1.3% compared to the same period
of 1996.
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. These
transactions did not have a significant impact on earnings.
Maintenance expense. Maintenance expense increased for the first quarter of
1997 compared to the same period of 1996 primarily due to an increase in the
accrual of estimated maintenance expenses related to nuclear refueling outages.
Depreciation and amortization. The increase in depreciation and
amortization for the first quarter of 1997 as compared to the corresponding
period of 1996 was primarily due to additions to utility plant and an increase
in depreciation rates.
Distributions on preferred securities of subsidiary trusts. The change in
this item resulted primarily from the issuance of mandatorily redeemable
preferred securities. For additional information, see Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Capital Structure" of ALABAMA in the Form 10-K.
19
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 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), (G), (H), (J) and (K) 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
Major changes in ALABAMA's financial condition during the first three months of
1997 included the addition of approximately $94.6 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 1997, redemptions of first mortgage bonds of ALABAMA
totaled $19.8 million. Also, Alabama Power Capital Trust II, a statutory
business trust established for the purpose of holding ALABAMA's junior
subordinated notes and issuing trust preferred securities and common securities,
sold $200.0 million of its 7.60% trust originated preferred securities which are
guaranteed by ALABAMA. A portion of these proceeds was used to redeem $100
million of cumulative preferred stock in February 1997. For additional
information, see Note (I) in the "Notes to the Condensed Financial Statements"
and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Capital Structure" of
ALABAMA in the Form 10-K. In addition, ALABAMA has announced its plans to redeem
an aggregate of $62 million of preferred stock in June and July of 1997.
ALABAMA will continue to retire higher-cost debt and preferred stock and
replace these securities with lower-cost capital, if market conditions permit.
20
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of ALABAMA
under "Capital Requirements," "Other Capital Requirements" and "Environmental
Matters" in the Form 10-K for a description of ALABAMA's capital requirements
for its construction program, maturing debt and environmental compliance
efforts.
Sources of Capital
In addition to the financing activities previously described herein, ALABAMA
plans to obtain the funds required for construction and other purposes from
sources similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. Currently,
ALABAMA expects to have adequate earnings coverage ratios for any anticipated
security sales through at least 1999. See Item 1 - BUSINESS - "Financing
Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, ALABAMA had at March 31,
1997, approximately $5.5 million of cash and cash equivalents and had unused
committed lines of credit of approximately $815 million (including $208 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 borrowings. At March 31, 1997,
ALABAMA had outstanding $413.8 million of commercial paper. Since ALABAMA has no
major traditional 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.
21
Exhibit 1
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO ALABAMA POWER COMPANY:
We have reviewed the accompanying condensed balance sheet of ALABAMA POWER
COMPANY as of March 31, 1997, and the related condensed statements of income and
cash flows for the three-month periods ended March 31, 1997 and 1996. 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, 1996
(not presented herein) and, in our report dated February 12, 1997, 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, 1996 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
May 6, 1997
22
GEORGIA POWER COMPANY
23
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
1997 1996
OPERATING REVENUES:
Revenues $ 951,453 $ 1,015,353
Revenues from affiliates 7,259 13,466
------------ --------------
Total operating revenues 958,712 1,028,819
------------ --------------
OPERATING EXPENSES:
Operation--
Fuel 178,629 188,494
Purchased power from non-affiliates 26,775 36,920
Purchased power from affiliates 41,371 65,476
Provision for separation benefits 604 18,500
Other 151,005 165,544
Maintenance 74,950 75,826
Depreciation and amortization 129,302 107,520
Amortization of deferred Plant Vogtle costs (Note M) 37,627 33,759
Taxes other than income taxes 53,931 55,146
Federal and state income taxes 84,649 89,684
------------ --------------
Total operating expenses 778,843 836,869
------------ --------------
OPERATING INCOME 179,869 191,950
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 542 255
Equity in earnings of unconsolidated subsidiary 980 973
Interest income 595 901
Other, net (5,598) (3,673)
Income taxes applicable to other income 2,366 138
------------ --------------
INCOME BEFORE INTEREST CHARGES 178,754 190,544
------------ --------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 48,455 53,430
Allowance for debt funds used during construction (3,500) (3,190)
Interest on interim obligations 3,693 5,039
Amortization of debt discount, premium and expense, net 3,774 3,847
Other interest charges 2,924 3,115
Distributions on preferred securities of subsidiary companies 9,417 2,250
------------ --------------
Interest charges and other, net 64,763 64,491
------------ --------------
NET INCOME 113,991 126,053
DIVIDENDS ON PREFERRED STOCK 7,956 11,652
------------ --------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 106,035 $ 114,401
============ ==============
The accompanying notes as they relate to GEORGIA are an integral part of
these condensed statements.
24
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
1997 1996
OPERATING ACTIVITIES:
Net income $ 113,991 $ 126,053
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 155,377 133,095
Deferred income taxes and investment tax credits, net (13,553) 9,399
Allowance for equity funds used during construction (542) (255)
Amortization of deferred Plant Vogtle costs (Note M) 37,627 33,759
Other, net 26,260 10,576
Changes in certain current assets and liabilities--
Receivables, net 83,646 42,945
Inventories (3,784) 14,250
Payables (61,585) (25,785)
Taxes accrued 46,910 28,253
Energy cost recovery, retail 16,764 15,980
Other (29,131) (32,232)
-------------- --------------
Net cash provided from operating activities 371,980 356,038
-------------- --------------
INVESTING ACTIVITIES:
Gross property additions (103,455) (111,998)
Other (26,972) (51,702)
-------------- --------------
Net cash used for investing activities (130,427) (163,700)
-------------- --------------
FINANCING ACTIVITIES:
Proceeds--
Preferred securities 175,000 -
First mortgage bonds - 10,000
Retirements--
Preferred stock (79,028) -
First mortgage bonds (60,258) (150,000)
Pollution control bonds - (6,800)
Special deposits - redemption funds 44,454 -
Interim obligations, net (168,658) 72,810
Payment of preferred stock dividends (7,679) (11,518)
Payment of common stock dividends (122,700) (121,500)
Miscellaneous (6,492) (86)
-------------- --------------
Net cash used for financing activities (225,361) (207,094)
-------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 16,192 (14,756)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,356 28,930
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 31,548 $ 14,174
============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 72,031 $ 75,312
Income taxes (net of refunds) (7) 10,460
The accompanying notes as they relate to GEORGIA are an integral part
of these condensed statements.
25
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At March 31,
1997 At December 31,
(Unaudited) 1996
---------------- ------------------
UTILITY PLANT:
Plant in service $ 14,850,880 $ 14,769,573
Less accumulated provision for depreciation 4,908,485 4,793,638
---------------- ----------------
9,942,395 9,975,935
Nuclear fuel, at amortized cost 106,954 121,840
Construction work in progress 242,666 256,141
---------------- ----------------
Total 10,292,015 10,353,916
---------------- ----------------
OTHER PROPERTY AND INVESTMENTS:
Southern Electric Generating Company, at equity 25,891 26,032
Nuclear decommissioning trusts, at market 155,222 130,178
Miscellaneous 103,132 103,787
---------------- ----------------
Total 284,245 259,997
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 31,548 15,356
Receivables--
Customer accounts receivable 334,018 392,328
Other accounts and notes receivable 85,360 159,499
Affiliated companies 15,900 20,095
Accumulated provision for uncollectible accounts (4,000) (4,000)
Fossil fuel stock, at average cost 125,092 117,382
Materials and supplies, at average cost 254,894 258,820
Prepayments 113,289 109,771
Vacation pay deferred 39,455 39,965
---------------- ----------------
Total 995,556 1,109,216
---------------- ----------------
DEFERRED CHARGES:
Deferred charges related to income taxes 801,921 818,418
Deferred Plant Vogtle costs (Note M) 133,361 170,988
Premium on reacquired debt, being amortized 164,151 166,670
Debt expense, being amortized 37,131 32,693
Miscellaneous 167,313 159,153
---------------- ----------------
Total 1,303,877 1,347,922
---------------- ----------------
TOTAL ASSETS $ 12,875,693 $ 13,071,051
================ ================
The accompanying notes as they relate to GEORGIA are an integral part of
these condensed statements.
26
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At March 31,
1997 At December 31,
(Unaudited) 1996
---------------- ------------------
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 2,134,886 2,134,886
Premium on preferred stock 371 371
Retained earnings 1,658,105 1,674,774
---------------- ----------------
4,137,612 4,154,281
Preferred stock 380,456 464,611
Company obligated mandatorily redeemable preferred securities
of subsidiaries substantially all of whose assets are junior
subordinated debentures or notes (Note I) 500,000 325,000
Long-term debt 3,200,526 3,200,419
---------------- ----------------
Total 8,218,594 8,144,311
---------------- ----------------
CURRENT LIABILITIES:
Preferred stock due within one year 54,155 49,028
Long-term debt due within one year 372 60,622
Notes payable to banks 58,400 207,300
Commercial paper 203,438 223,196
Accounts payable--
Affiliated companies 46,210 66,821
Other 201,774 263,093
Customer deposits 66,873 64,901
Taxes accrued--
Federal and state income 111,339 15,497
Other 51,729 100,661
Interest accrued 68,893 79,936
Vacation pay accrued 31,666 38,597
Miscellaneous 123,341 114,530
---------------- ----------------
Total 1,018,190 1,284,182
---------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 2,502,966 2,522,945
Accumulated deferred investment tax credits 411,797 415,477
Deferred credits related to income taxes 375,506 382,381
Employee benefits provisions 175,153 186,319
Disallowed Plant Vogtle capacity buyback costs 56,947 57,250
Miscellaneous 116,540 78,186
---------------- ----------------
Total 3,638,909 3,642,558
---------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES $ 12,875,693 $ 13,071,051
================ ================
The accompanying notes as they relate to GEORGIA are an integral part of
these condensed statements.
27
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 1997 vs. FIRST QUARTER 1996
RESULTS OF OPERATIONS
Earnings
GEORGIA's net income after dividends on preferred stock for the first quarter of
1997 was $106.0 million compared to $114.4 million for the corresponding period
of 1996. Earnings decreased by 7.3% primarily as a result of decreased revenues
due to milder weather experienced during the current quarter.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
--------------------------------------
(in thousands) %
Revenues............................................. $(63,900) (6.3)
Revenue from affiliates.............................. (6,207) (46.1)
Purchased power from non-affiliates.................. (10,145) (27.5)
Purchased power from affiliates...................... (24,105) (36.8)
Provision for separation benefits.................... (17,896) (96.7)
Other operation expense.............................. (14,539) (8.8)
Depreciation and amortization expense................ 21,782 20.3
Interest on long-term debt........................... (4,975) (9.3)
Distributions on preferred securities of
subsidiary companies............................... 7,167 318.5
Dividends on preferred stock......................... (3,696) (31.7)
Revenues. Excluding fuel revenues, which represent the pass-through of fuel
expenses and do not affect income, revenues for the first quarter decreased
$31.0 million compared to the corresponding period of 1996. The decrease in
revenues is primarily due to a 9.7% decrease in residential kilowatt-hour sales
resulting from milder-than-normal weather. Retail revenues, excluding fuel
revenues, decreased 4.7% or $33.0 million for the current quarter as compared to
the corresponding quarter of 1996.
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.
Purchased power from non-affiliates. The decrease in purchased power from
non-affiliates compared to the corresponding period of 1996 is primarily due to
a decrease in energy purchases resulting from milder-than-normal weather.
28
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Provision for separation benefits. The decrease in provision for separation
benefits is attributable to work force reduction programs charged to this
provision in the first quarter of 1996, which have been implemented to control
growth in future operating expenses.
Other operation expense. The decrease in other operation expense for the
current quarter is primarily due to lower administrative and general expenses
compared to the same period of 1996.
Depreciation and amortization expense. The increase in depreciation and
amortization for the current quarter compared to the same period of 1996 is
primarily due to a charge of $19.8 million pursuant to the retail accounting
order. See Note (L) in the "Notes to the Condensed Financial Statements" herein
for further details.
Interest on long-term debt and Dividends on preferred stock. These declines
reflect the redemption and refinancing of long-term debt and preferred stock.
Distributions on preferred securities of subsidiary companies. The change
in this item resulted primarily from the issuance of additional mandatorily
redeemable preferred securities in August 1996 and January 1997. For additional
information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Financing
Activities" of GEORGIA in the Form 10-K.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including regulatory matters and energy sales.
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 accounting order. Under the order, GEORGIA's earnings are 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 order'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.
29
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Reference is made to Notes (B), (C), (G) and (L) through (P) 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
Major changes in GEORGIA's financial condition during the first three months of
1997 included the addition of approximately $103 million to utility plant. The
funds for these additions and other capital requirements were derived primarily
from operations. See GEORGIA's Condensed Statements of Cash Flows for further
details.
Financing Activities
During the first quarter of 1997, maturities and redemptions of first mortgage
bonds and preferred stock by GEORGIA totaled $139 million. In January 1997,
Georgia Power Capital Trust II, a statutory business trust established for the
purpose of holding GEORGIA's junior subordinated notes and issuing trust
preferred securities and common securities, sold $175.0 million of its 7.60%
trust preferred securities, which are guaranteed by GEORGIA. (See Note (I) in
the " Notes to the Condensed Financial Statements" and Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Financing Activities" of GEORGIA in the Form 10-K for
further details.) In April 1997, GEORGIA sold, through public authorities, $90.0
million of variable rate pollution control revenue bonds due 2032. The proceeds
will be applied to the redemption on July 1, 1997 of $90.0 million outstanding
principal amount of 8.375% pollution control revenue bonds.
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 1999. See Item 1 - BUSINESS - "Financing
Programs" in the Form 10-K for additional information.
30
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
To meet short-term cash needs and contingencies, GEORGIA had at March 31,
1997, approximately $31.5 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
March 31, 1997, GEORGIA had outstanding $58.4 million of short-term notes
payable to banks and $203.4 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.
31
Exhibit 1
ARTHUR ANDERSEN LLP
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 March 31, 1997, and the related condensed
statements of income and cash flows for the three-month periods ended March 31,
1997 and 1996. 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, 1996
(not presented herein), and, in our report dated February 12, 1997, 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, 1996, 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
May 9, 1997
32
GULF POWER COMPANY
33
GULF POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
1997 1996
OPERATING REVENUES:
Revenues $ 140,204 $ 153,670
Revenues from affiliates 1,170 1,251
------------ ------------
Total operating revenues 141,374 154,921
------------ ------------
OPERATING EXPENSES:
Operation--
Fuel 36,992 38,213
Purchased power from non-affiliates 1,096 1,676
Purchased power from affiliates 8,863 19,319
Other 30,620 25,636
Maintenance 9,510 15,047
Depreciation and amortization 14,446 14,085
Taxes other than income taxes 12,775 13,466
Federal and state income taxes 6,860 7,278
------------ ------------
Total operating expenses 121,162 134,720
------------ ------------
OPERATING INCOME 20,212 20,201
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 1 9
Interest income 329 349
Other, net (254) (471)
Income taxes applicable to other income (77) 4
------------ ------------
INCOME BEFORE INTEREST CHARGES 20,211 20,092
------------ ------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 5,797 6,148
Other interest charges 716 282
Interest on notes payable 283 504
Amortization of debt discount, premium, and expense, net 566 525
Allowance for debt funds used during construction (3) (48)
Distributions on preferred securities of subsidiary trust 517 -
------------ ------------
Interest charges and other, net 7,876 7,411
------------ ------------
NET INCOME 12,335 12,681
DIVIDENDS ON PREFERRED STOCK 1,595 1,423
------------ ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 10,740 $ 11,258
============ ============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
34
GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
1997 1996
OPERATING ACTIVITIES:
Net income $ 12,335 $ 12,681
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 17,857 18,255
Deferred income taxes (983) 2,268
Allowance for equity funds used during construction (1) (9)
Deferred costs of 1995 coal contract renegotiation 1,246 2,070
Other, net 722 934
Changes in certain current assets and liabilities--
Receivables, net 11,985 6,351
Inventories (3,522) 3,377
Payables (3,413) (10,690)
Taxes accrued 6,333 2,562
Current costs of 1995 coal contract renegotiation 4,121 (2,271)
Other (7,611) (7,627)
------------ ------------
Net cash provided from operating activities 39,069 27,901
------------ ------------
INVESTING ACTIVITIES:
Gross property additions (11,072) (16,692)
Other (1,146) (1,640)
------------ ------------
Net cash used for investing activities (12,218) (18,332)
------------ ------------
FINANCING ACTIVITIES:
Proceeds--
Preferred securities 40,000 -
First mortgage bonds - 30,000
Pollution control bonds - 21,200
Other long-term debt - 22,147
Retirements--
Preferred stock (24,500) -
First mortgage bonds - (1,750)
Other long-term debt (5,456) -
Notes payable, net (7,500) (45,000)
Special deposits - redemption funds (21,291)
Payment of preferred stock dividends (2,058) (1,423)
Payment of common stock dividends (22,900) (12,300)
Miscellaneous (1,519) (939)
------------ ------------
Net cash used for financing activities (23,933) (9,356)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,918 213
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 807 680
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,725 $ 893
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 6,132 $ 4,743
Income taxes 3 49
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
35
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At March 31,
1997 At December 31,
(Unaudited) 1996
-------------- ---------------
UTILITY PLANT:
Plant in service $1,740,191 $1,734,510
Less accumulated provision for depreciation 706,404 694,245
-------------- --------------
1,033,787 1,040,265
Construction work in progress 26,075 23,465
-------------- --------------
Total 1,059,862 1,063,730
-------------- --------------
OTHER PROPERTY AND INVESTMENTS: 628 652
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 3,725 807
Receivables--
Customer accounts receivable 56,321 67,727
Other accounts and notes receivable 2,380 3,098
Affiliated companies 1,999 1,821
Accumulated provision for uncollectible accounts (828) (789)
Fossil fuel stock, at average cost 31,972 28,352
Materials and supplies, at average cost 30,154 30,252
Current portion of deferred coal contract costs 12,204 16,389
Regulatory clauses under recovery 3,881 4,144
Prepaid income taxes - 353
Other prepayments 10,064 8,833
Vacation pay deferred 4,055 4,055
-------------- --------------
Total 155,927 165,042
-------------- --------------
DEFERRED CHARGES:
Deferred charges related to income taxes 27,974 28,313
Debt expense and loss, being amortized 23,157 23,308
Deferred coal contract costs 9,511 13,126
Deferred storm charges 2,400 3,275
Miscellaneous 11,709 10,920
-------------- --------------
Total 74,751 78,942
-------------- --------------
TOTAL ASSETS $1,291,168 $1,308,366
============== ==============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
36
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At March 31,
1997 At December 31,
(Unaudited) 1996
-------------- ---------------
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 44 81
Retained earnings 177,056 179,179
-------------- --------------
433,598 435,758
Preferred stock 65,102 65,102
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding Company Junior Subordinated Notes (Note I) 40,000 -
Long-term debt 325,022 331,880
-------------- --------------
Total 863,722 832,740
-------------- --------------
CURRENT LIABILITIES:
Preferred stock due within one year - 24,500
Long-term debt due within one year 41,271 40,972
Notes payable 17,500 25,000
Accounts payable--
Affiliated companies 7,999 10,274
Other 20,778 22,496
Customer deposits 13,669 13,464
Taxes accrued--
Federal and state income 8,333 -
Other 6,757 8,342
Interest accrued 7,764 7,629
Regulatory clauses over recovery 3,004 5,884
Vacation pay accrued 4,055 4,055
Dividends declared 989 11,453
Miscellaneous 1,502 5,668
-------------- --------------
Total 133,621 179,737
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 163,306 163,857
Deferred credits related to income taxes 62,814 64,354
Accumulated deferred investment tax credits 33,208 33,760
Accumulated provision for postretirement benefits 18,832 18,339
Miscellaneous 15,665 15,579
-------------- --------------
Total 293,825 295,889
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $ 1,291,168 $1,308,366
============== ==============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
37
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 1997 vs. FIRST QUARTER 1996
RESULTS OF OPERATIONS
Earnings
GULF's net income after dividends on preferred stock for the first quarter of
1997 was $10.7 million, compared to $11.3 million for the corresponding period
of 1996. Earnings decreased by 4.6% primarily due to lower revenues as a result
of milder temperatures.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
(in thousands) %
Revenues......................................... $(13,466) (8.8)
Purchased power from affiliates.................. (10,456) (54.1)
Other operation expense.......................... 4,984 19.4
Maintenance expense.............................. (5,537) (36.8)
Revenues. Excluding fuel and other revenues which represent the
pass-through of fuel expense and certain other expenses and do not affect net
income, revenues for the first quarter decreased $6.1 million, compared to the
corresponding period of 1996. The decrease in revenues for the current period
was influenced most heavily by a 5.4% decrease in retail kilowatt-hour sales
compared to the same period of 1996. This change in retail energy sales is
primarily due to lower residential sales as a result of milder weather during
the current quarter as compared to the previous year offset somewhat by an
increase in the number of customers served. Industrial revenues were down for
the current quarter 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.
Purchased power from affiliates. Purchased power from affiliates for the
first quarter compared to the corresponding period of 1996 was lower 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 primarily due to
an increase in amortization costs related to the buyout and renegotiation of a
coal supply contract and costs associated with work force reduction programs.
For additional information regarding work force reduction programs, see Note (H)
in the "Notes to the Condensed Financial Statements" herein.
38
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Maintenance expense. The decrease in maintenance expense for the current
quarter is primarily due to the scheduled maintenance on production facilities
which occurred in the first quarter of 1996 at Plant Crist and Plant Daniel.
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 potentially 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 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 (G) 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
Major changes in GULF's financial condition during the first three months of
1997 included the addition of approximately $11.1 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
On January 31, 1997, Gulf Power Capital Trust I, a statutory business trust
established for the purpose of holding GULF's junior subordinated notes and
issuing trust preferred securities and common securities, sold $40 million of
its 7.625% trust preferred securities which are guaranteed by GULF. For
additional information, see Note (I) in the "Notes to the Condensed Financial
Statements" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Sources of
Capital" of GULF in the Form 10-K. A portion of these proceeds was used to
redeem $5 million of 7.88% cumulative preferred stock, $5 million of 7.52%
cumulative preferred stock and $14.5 million of 7.00% cumulative preferred
stock.
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.
39
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of 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.
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 1999. See Item 1 - BUSINESS - "Financing
Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, GULF had at March 31,
1997, approximately $3.7 million of cash and cash equivalents and $66.8 million
of unused committed lines of credit with banks (including $20.3 million
liquidity support for variable rate pollution control bonds). At March 31, 1997,
GULF had outstanding $17.5 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.
40
MISSISSIPPI POWER COMPANY
41
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
1997 1996
OPERATING REVENUES:
Revenues $ 117,789 $ 124,960
Revenues from affiliates (886) 1,994
------------- ------------
Total operating revenues 116,903 126,954
------------- ------------
OPERATING EXPENSES:
Operation--
Fuel 29,541 29,900
Purchased power from non-affiliates 484 1,693
Purchased power from affiliates 10,515 12,998
Other 20,824 24,758
Maintenance 9,612 10,296
Depreciation and amortization 11,194 11,373
Taxes other than income taxes 10,897 10,723
Federal and state income taxes 6,704 7,139
------------- ------------
Total operating expenses 99,771 108,880
------------- ------------
OPERATING INCOME 17,132 18,074
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 4 95
Interest income 141 56
Other, net 654 1,430
Income taxes applicable to other income (329) (552)
------------- ------------
INCOME BEFORE INTEREST CHARGES 17,602 19,103
------------- ------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 4,895 5,493
Allowance for debt funds used during construction (8) (104)
Interest on notes payable 47 230
Amortization of debt discount, premium, and expense, net 387 373
Other interest charges 139 191
Distributions on preferred securities of subsidiary trust 272 -
------------- ------------
Interest charges and other, net 5,732 6,183
------------- ------------
NET INCOME 11,870 12,920
DIVIDENDS ON PREFERRED STOCK 1,225 1,225
------------- ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 10,645 $ 11,695
============= ============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
42
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,___
1997 1996
OPERATING ACTIVITIES:
Net income $ 11,870 $ 12,920
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 12,263 13,422
Deferred income taxes 884 (2,012)
Allowance for equity funds used during construction (4) (95)
Other, net (1,821) (1,454)
Changes in certain current assets and liabilities--
Receivables, net 10,073 1,945
Inventories (2,300) 2,922
Payables (12,277) (10,679)
Taxes accrued (16,094) (12,238)
Other (1,662) (781)
------------ ------------
Net cash provided from operating activities 932 3,950
------------ ------------
INVESTING ACTIVITIES:
Gross property additions (11,437) (12,165)
Other (2,286) (1,476)
------------ ------------
Net cash used for investing activities (13,723) (13,641)
------------ ------------
FINANCING ACTIVITIES:
Proceeds--
Capital contribution - 27
Preferred securities 35,000 -
Retirements--
Other long-term debt - (20,000)
Notes payable, net - 31,000
Payment of preferred stock dividends (1,225) (1,225)
Payment of common stock dividends (11,300) (10,600)
------------ ------------
Net cash provided from (used for) financing activities 22,475 (798)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 9,684 (10,489)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,058 12,641
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,742 $ 2,152
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 4,833 $ 4,568
Income taxes 390 1
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
43
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At March 31,
1997 At December 31,
(Unaudited) 1996
-------------- ----------------
UTILITY PLANT:
Plant in service, at original cost $ 1,489,018 $ 1,483,875
Less accumulated provision for depreciation 537,589 526,776
-------------- --------------
951,429 957,099
Construction work in progress 40,819 35,100
-------------- --------------
Total 992,248 992,199
-------------- --------------
OTHER PROPERTY AND INVESTMENTS: 3,035 3,054
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 16,742 7,058
Receivables--
Customer accounts receivable 21,607 26,364
Regulatory clauses under recovery 8,028 7,300
Other accounts and notes receivable 5,775 7,468
Affiliated companies 1,843 6,329
Accumulated provision for uncollectible accounts (704) (839)
Fossil fuel stock, at average cost 14,367 12,168
Materials and supplies, at average cost 21,184 21,083
Current portion of accumulated deferred income taxes 3,863 7,227
Prepayments 6,746 4,744
Vacation pay deferred 4,806 4,806
-------------- --------------
Total 104,257 103,708
-------------- --------------
DEFERRED CHARGES:
Debt expense and loss, being amortized 11,910 12,220
Deferred charges related to income taxes 22,540 22,274
Long-term notes receivable 3,404 3,737
Miscellaneous 7,837 5,135
-------------- --------------
Total 45,691 43,366
-------------- --------------
TOTAL ASSETS $ 1,145,231 $ 1,142,327
============== ==============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
44
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At March 31,
1997 At December 31,
(Unaudited) 1996
-------------- ----------------
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 179,389 179,389
Premium on preferred stock 372 372
Retained earnings 165,527 166,282
-------------- --------------
382,979 383,734
Preferred stock 74,414 74,414
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding Company Junior Subordinated Notes (Note I) 35,000 -
Long-term debt 291,455 326,379
-------------- --------------
Total 783,848 784,527
-------------- --------------
CURRENT LIABILITIES:
Long-term debt due within one year 35,010 10
Accounts payable--
Affiliated companies 5,285 4,136
Regulatory clauses over recovery 11,279 8,788
Other 21,262 38,720
Customer deposits 3,288 3,154
Taxes accrued--
Federal and state income 5,726 -
Other 10,625 32,445
Interest accrued 4,588 4,384
Miscellaneous 13,918 13,942
-------------- --------------
Total 110,981 105,579
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 131,491 133,437
Accumulated deferred investment tax credits 28,032 28,333
Deferred credits related to income taxes 40,300 40,568
Postretirement benefits 22,141 21,850
Accumulated provision for property damage 13,330 12,955
Miscellaneous 15,108 15,078
-------------- --------------
Total 250,402 252,221
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $ 1,145,231 $ 1,142,327
============== ==============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
45
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 1997 vs. FIRST QUARTER 1996
RESULTS OF OPERATIONS
Earnings
MISSISSIPPI's net income after dividends on preferred stock for the first
quarter of 1997 was $10.6 million compared to $11.7 million for the
corresponding period of 1996. The 9.0% decrease in earnings was primarily due to
a decrease in revenues.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
(in thousands) %
Revenues........................................... $(7,171) (5.7)
Revenues from affiliates........................... (2,880) (144.4)
Purchased power from affiliates.................... (2,483) (19.1)
Other operation expense............................ (3,934) (15.9)
Maintenance expense................................ (684) (6.6)
Interest on long-term debt......................... (598) (10.9)
Revenues. The decrease in revenues for the current quarter as compared to
the corresponding period of 1996 was influenced by a 1.3% decrease in the amount
of retail energy sold. For the current quarter, residential energy sales
decreased 7.1% while commercial and industrial energy sales increased by 1.2%
and 0.5%, respectively, as compared to the same period of 1996. Retail revenues,
excluding those revenues which represent the recovery of fuel expense and
certain other expenses and do not affect income, decreased $3.6 million
primarily due to milder weather experienced during the current quarter as
compared to 1996, offset somewhat by a slight increase in the number of
customers. For the current quarter, sales to territorial wholesale customers
were lower than in 1996. First quarter revenues from territorial wholesale
customers, excluding fuel revenues which do not affect income, decreased $1.6
million compared to the same period of 1996, with a decrease in energy sales of
3.5%.
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. In addition, the
first quarter of 1997 reflects an adjustment in affiliated billings. These
transactions do not have a significant impact on earnings.
Other operation expense. The decrease in other operation expense for the
current quarter as compared to the corresponding quarter of 1996 is primarily
due to lower administrative and general expenses.
Maintenance expense. The decrease in maintenance expense for the current
quarter is primarily attributable to scheduled maintenance performed at Plant
Daniel during the first quarter of 1996.
Interest on long-term debt. The decline in interest on long-term debt
reflects the redemption and refinancing of long-term debt.
46
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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. MISSISSIPPI's 1997
annual filing under the ECO Plan with the Mississippi PSC resulted in an
approved annual revenue requirement increase of $0.9 million, effective April
1997.
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.
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), (G) and (H) 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
Major changes in MISSISSIPPI's financial condition during the first three months
of 1997 included the addition of approximately $11.4 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
On February 26, 1997, Mississippi Power Capital Trust I, a statutory business
trust established for the purpose of holding MISSISSIPPI's junior subordinated
notes and issuing trust preferred securities and common securities, sold $35
million of its 7.75% trust originated preferred securities which are guaranteed
by MISSISSIPPI. For additional information, see Note (I) in the "Notes to the
Condensed Financial Statements" and Item 7 - MANAGEMENT'S DISCUSSION AND
ANALYSIS - "Sources of Capital" of MISSISSIPPI in the Form 10-K.
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.
47
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of
MISSISSIPPI under "Capital Requirements for Construction," "Environmental
Matters" and "Other Capital Requirements" in the Form 10-K for a description of
MISSISSIPPI's capital requirements for its construction program, environmental
compliance efforts, sinking fund requirements and maturities of long-term debt.
Sources of Capital
In addition to the financing activities previously described herein, MISSISSIPPI
plans to obtain the funds required for construction and other purposes from
sources similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. Currently,
MISSISSIPPI expects to have adequate earnings coverage ratios for any
anticipated security sales through at least 1999. See Item 1 - BUSINESS -
"Financing Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, MISSISSIPPI had at March
31, 1997, approximately $16.7 million of cash and cash equivalents and
approximately $76.3 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 March 31, 1997, MISSISSIPPI had no short-term borrowings outstanding.
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.
48
SAVANNAH ELECTRIC
AND
POWER COMPANY
49
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
1997 1996
OPERATING REVENUES:
Revenues $ 42,887 $ 49,367
Revenues from affiliates 58 1,208
---------- ----------
Total operating revenues 42,945 50,575
---------- ----------
OPERATING EXPENSES:
Operation--
Fuel 3,517 3,949
Purchased power from non-affiliates 405 550
Purchased power from affiliates 9,282 15,850
Other 10,674 10,283
Maintenance 3,042 3,130
Depreciation and amortization 4,992 4,902
Taxes other than income taxes 2,841 3,020
Federal and state income taxes 2,075 2,329
---------- ----------
Total operating expenses 36,828 44,013
---------- ----------
OPERATING INCOME 6,117 6,562
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 145 83
Interest income 2 2
Other, net (184) (316)
Income taxes applicable to other income 70 117
---------- ----------
INCOME BEFORE INTEREST CHARGES 6,150 6,448
---------- ----------
INTEREST CHARGES:
Interest on long-term debt 2,771 2,914
Allowance for debt funds used during construction (80) (82)
Interest on notes payable 60 102
Amortization of debt discount, premium, and expense, net 181 104
Other interest charges 92 89
---------- ----------
Net interest charges 3,024 3,127
---------- ----------
NET INCOME 3,126 3,321
DIVIDENDS ON PREFERRED STOCK 581 581
---------- ----------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 2,545 $ 2,740
========== ==========
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
50
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
1997 1996
OPERATING ACTIVITIES:
Net income $ 3,126 $ 3,321
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 5,398 5,116
Deferred income taxes and investment tax credits, net (783) 1,038
Allowance for equity funds used during construction (145) (83)
Other, net 872 691
Changes in certain current assets and liabilities--
Receivables, net 7,382 3,623
Inventories 14 1,535
Payables (5,111) (297)
Taxes accrued 1,293 2,457
Other (1,548) (5,200)
------------- ------------
Net cash provided from operating activities 10,498 12,201
------------- ------------
INVESTING ACTIVITIES:
Gross property additions (4,628) (6,655)
Other (2,318) (5,563)
------------- ------------
Net cash used for investing activities (6,946) (12,218)
------------- ------------
FINANCING ACTIVITIES:
Proceeds--
Other long-term debt - 7,000
Retirements--
First mortgage bonds - (1,200)
Other long-term debt (185) (70)
Notes payable, net (800) (500)
Payment of preferred stock dividends (581) (581)
Payment of common stock dividends (5,100) (4,800)
Miscellaneous 24 -
------------- ------------
Net cash used for financing activities (6,642) (151)
------------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,090) (168)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,214 877
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,124 $ 709
============= ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 3,657 $ 4,982
Income taxes - 104
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
51
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At March 31,
1997 At December 31,
(Unaudited) 1996
------------- --------------
UTILITY PLANT:
Plant in service, at original cost $ 741,051 $ 739,461
Less accumulated provision for depreciation 309,652 304,760
------------- ------------
431,399 434,701
Construction work in progress 16,409 13,463
------------- ------------
Total 447,808 448,164
------------- ------------
OTHER PROPERTY AND INVESTMENTS: 1,785 1,785
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents 2,124 5,214
Special deposits 1,014 1,395
Receivables--
Customer accounts receivable 17,470 18,827
Other accounts and notes receivable 348 769
Affiliated companies - 844
Accumulated provision for uncollectible accounts (538) (632)
Fuel cost under recovery 2,816 7,289
Fossil fuel stock, at average cost 5,915 5,892
Materials and supplies, at average cost 7,976 8,013
Prepayments 6,217 6,135
------------- ------------
Total 43,342 53,746
------------- ------------
DEFERRED CHARGES:
Deferred charges related to income taxes 19,025 19,167
Premium on reacquired debt, being amortized 6,979 7,142
Cash surrender value of life insurance for deferred compensation plans 10,288 10,288
Miscellaneous 1,846 2,003
------------- ------------
Total 38,138 38,600
------------- ------------
TOTAL ASSETS $ 531,073 $ 542,295
============= ============
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
52
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At March 31,
1997 At December 31,
(Unaudited) 1996
------------- --------------
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
Retained earnings 106,818 109,373
------------- ------------
169,729 172,284
Preferred stock 35,000 35,000
Long-term debt 161,315 161,801
------------- ------------
Total 366,044 369,085
------------- ------------
CURRENT LIABILITIES:
Long-term debt due within one year 980 637
Notes payable 4,200 5,000
Accounts payable--
Affiliated companies 5,447 6,374
Other 3,893 10,201
Customer deposits 5,349 5,232
Taxes accrued--
Federal and state income 113 -
Other 2,195 1,015
Interest accrued 4,459 5,275
Vacation pay accrued 2,075 2,038
Miscellaneous 4,862 7,470
------------- ------------
Total 33,573 43,242
------------- ------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 77,562 76,654
Accumulated deferred investment tax credits 13,105 13,271
Deferred credits related to income taxes 22,764 22,792
Deferred compensation plans 8,875 8,602
Postretirement benefits 5,762 5,472
Miscellaneous 3,388 3,177
------------- ------------
Total 131,456 129,968
------------- ------------
TOTAL CAPITALIZATION AND LIABILITIES $ 531,073 $ 542,295
============= ============
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
53
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 1997 vs. FIRST QUARTER 1996
RESULTS OF OPERATIONS
Earnings
SAVANNAH's net income after dividends on preferred stock for the first quarter
of 1997 was $2.5 million compared to $2.7 million for the corresponding period
of 1996. The 7.1% decrease in earnings was primarily due to a decrease in
revenues.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
(in thousands) %
Revenues....................................... $ (6,480) (13.1)
Revenues from affiliates....................... (1,150) (95.2)
Purchased power from affiliates................ (6,568) (41.4)
Revenues. Excluding fuel revenues, which represent the pass-through of
fuel expenses and do not affect income, revenues for the quarter decreased
approximately $647 thousand, compared to the corresponding period of 1996. The
decrease in revenues was due primarily to an 8.2% decrease in the amount of
residential energy sold. Retail revenues, excluding fuel revenues, decreased
approximately $650 thousand. This decrease in revenues was primarily a result of
milder-than-normal weather during the current quarter offset somewhat by an
increase in the number of customers served and an increase in energy
requirements to the industrial sector.
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. In addition, the
first quarter of 1997 reflects an adjustment in affiliated billings. These
transactions do not have a significant impact on earnings.
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.
54
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Reference is made to Notes (B) and (Q) 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
Major changes in SAVANNAH's financial condition during the first three months of
1997 included the addition of approximately $4.6 million to utility plant. The
funds for these additions and other capital requirements were derived primarily
from operations. See SAVANNAH's Condensed Statements of Cash Flows for further
details.
Financing Activities
In April 1997, SAVANNAH sold, through a public authority, $13.87 million of
variable rate pollution control revenue bonds due 2037. The proceeds will be
applied to the redemption on May 5, 1997 of $13.87 million of 6 3/4% pollution
control revenue bonds.
SAVANNAH plans to continue, to the extent possible, a program to retire
higher-cost debt and replace these obligations with lower-cost capital.
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 1999. See Item 1 - BUSINESS - "Financing
Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, SAVANNAH had at March 31,
1997, approximately $2.1 million of cash and cash equivalents and approximately
$36.3 million of unused credit arrangements with banks. At March 31, 1997,
SAVANNAH had $4.2 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.
55
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
ALABAMA A, B, C, G, H, I, J, K
GEORGIA A, B, C, G, H, I, L, M, N, O, P
GULF A, B, G, H, I
MISSISSIPPI A, B, G, H, I
SAVANNAH A, B, H, Q
56
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 March 31, 1997 and 1996. 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) SOUTHERN engages in price risk management activities for trading and
non-trading purposes. Reference is made to Note 1 to the financial
statements of SOUTHERN in Item 8 of the Form 10-K for a discussion of
these activities. Activities for non-trading purposes consist of
transactions that are employed to mitigate SOUTHERN's risk related to
interest rate and foreign currency fluctuations. At March 31, 1997, the
status of outstanding non-trading related derivative contracts was as
follows:
57
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
Maturity or Notional Unrealized
Type Termination Amount Gain (Loss)
(in thousands)
Interest rate swaps: 2002-2012 $778,401 $ 8,647
2001-2012 (pound)500,000 $ (2,809)
Cross-currency swaps 2001-2007 (pound)455,399 $(27,201)
(pound) - Denotes British pounds sterling.
Outstanding positions on trading activities were not material at March
31, 1997.
(E) On January 29, 1997, Southern Energy, a wholly-owned subsidiary of
SOUTHERN, completed the acquisition of an 80% interest in CEPA for a total
net investment of approximately $2.0 billion. (Reference is made to the
Current Report on Form 8-K of SOUTHERN dated October 9, 1996 for a more
detailed description of the acquisition.)
The acquisition of CEPA was accounted for as a purchase with the $1.5
billion excess of the acquisition cost over the preliminary estimate of
the fair value of CEPA's net assets being assigned to goodwill. The
allocation of the purchase price is preliminary and may be revised at a
later date. Goodwill will be amortized on a straight-line basis over 40
years. Results of operations of CEPA are included in the condensed
consolidated financial statements subsequent to January 29, 1997.
The following unaudited pro forma combined results of operations for
the three months ended March 31, 1997 and 1996 have been prepared assuming
the acquisition of CEPA had occurred at the beginning of each period. The
pro forma results assume acquisition financing of $764 million of
short-term borrowings, $792 million of long-term notes and $400 million of
capital securities and SOUTHERN's assumed effective composite interest
rate on these obligations for each period presented was 6.70%. Eventually,
the existing borrowing may be replaced by some other combination of
long-term debt and equity. The pro forma results are provided for
information only. The results are not necessarily indicative of the actual
results that would have been realized had the acquisition occurred on the
indicated dates, nor are they necessarily indicative of future results of
operations of the combined companies. The pro forma results for the three
months ended March 31, 1996, include no revenues from CEPA's ownership
interest in 2,715 megawatts of capacity that began commercial operation in
mid-1996.
As Reported and Pro Forma Information (Unaudited)
(Stated in Thousands of Dollars, except per share)
For the Three Months Ended March 31,
1997 1996
As Reported Pro Forma As Reported Pro Forma
Operating revenues $2,584,414 $2,605,071 $2,429,355 $2,438,696
Consolidated Net Income 187,013 184,338 232,875 215,848
Earnings Per Share of Common Stock $0.28 $0.27 $0.35 $0.32
58
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(F) SOUTHERN's principal business segment -- or its traditional core business
-- is the five electric utility operating companies, which provide
electric service in four southeastern states. The other reportable
business segment is Southern Energy, which owns and operates power
production and delivery facilities in the United States and various
international markets. Financial data for business segments and geographic
areas are as follows:
Business Segments Operating Operating Total
Revenues Income Assets
(in thousands)
For the Three Months Ended At
March 31, 1997 March 31, 1997
------------------------ --------------
Traditional core business $1,919,282 $334,429 $24,521,029
Southern Energy 665,132 61,723 9,479,053
---------- -------- -----------
Consolidated $2,584,414 $396,152 $34,000,082
========== ======== ===========
For the Three Months Ended At
March 31, 1996 December 31, 1996
------------------------ -----------------
Traditional core business $2,000,552 $374,052 $25,367,558
Southern Energy 428,803 34,010 4,924,244
---------- -------- -----------
Consolidated $2,429,355 $408,062 $30,291,802
========== ======== ===========
Geographic Areas Operating Operating Total
Revenues Income Assets
(in thousands)
For the Three Months Ended At
March 31, 1997 March 31, 1997
------------------------ --------------
Domestic $2,098,475 $337,534 $25,088,069
International:
Europe 387,357 38,479 2,833,613
Asia 43,129 18,330 4,066,223
Other 55,453 1,809 2,012,177
---------- -------- -----------
Total $2,584,414 $396,152 $34,000,082
========== ======== ===========
For the Three Months Ended At
March 31, 1996 December 31, 1996
------------------------ -----------------
Domestic $2,021,734 $381,590 $25,868,253
International:
Europe 354,908 24,849 2,965,578
Asia - - -
Other 52,713 1,623 1,457,971
---------- -------- -----------
Total $2,429,355 $408,062 $30,291,802
========== ======== ===========
(G) 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.
59
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(H) Certain of the registrants and other SOUTHERN subsidiaries have instituted
work force reduction programs. The expenses recognized under these
programs and the unamortized balance of expenses deferred under regulatory
orders were as follows: (in thousands)
Three Months Ended Unamortized Balance
March 31, at March 31, 1997
----------------------- -----------------
1997 1996
---- ----
ALABAMA $ 8,598 $ 4,365 $39,786
GEORGIA 604 18,500 -
GULF 1,151 959 -
MISSISSIPPI 53 250 1,991
SAVANNAH 15 5 -
Other (76) 183 -
---------- ------- ------------
SOUTHERN
system $10,345 $24,262 $41,777
======= ======= =======
(I) During the first quarter of 1997, statutory business trusts formed by
ALABAMA, GEORGIA, GULF, MISSISSIPPI, Southern Investments UK plc ("SIUK")
and Southern Company Capital Funding, Inc. ("Southern Capital"), of which
the respective companies own all the common securities, issued mandatorily
redeemable preferred or capital securities as follows (in thousands):
Maturity Date
Date of Issue Amount Rate Notes of Notes
ALABAMA 1/16/97 $200,000 7.60% $206,000 12/31/2036
GEORGIA 1/16/97 175,000 7.60 180,000 12/31/2036
GULF 1/31/97 40,000 7.625 41,000 12/31/2036
MISSISSIPPI 2/26/97 35,000 7.75 36,000 2/15/2037
SIUK 1/29/97 82,000 8.23 85,000 2/1/2027
Southern Capital 2/4/97 325,000 8.19 335,000 2/1/2037
Southern Capital 2/4/97 75,000 8.14 77,000 2/15/2027
Substantially all the assets of each trust are junior subordinated notes
issued by the related company in the respective approximate principal
amounts set forth above. The notes of Southern Capital are guaranteed by
SOUTHERN. ALABAMA, GEORGIA, GULF, MISSISSIPPI, SIUK and SOUTHERN each
considers that the mechanisms and obligations relating to the preferred or
capital securities issued for its benefit, taken together, constitute a
full and unconditional guarantee by it of the respective trusts' payment
obligations with respect to the preferred or capital securities. Reference
is also made to Note 9 to the financial statements of ALABAMA and GEORGIA
in the Form 10-K.
(J) 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
60
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
information. In April 1997, the Alabama PSC issued an additional order
authorizing ALABAMA to reduce balance sheet asset items. This order
authorizes the reduction of such items up to an amount equal to 5 times
the total estimated annual revenue reduction resulting from future rate
reductions.
(K) In 1996, legal actions against ALABAMA were 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. See Note 3
to the financial statements of SOUTHERN and ALABAMA in Item 8 of the Form
10-K for additional information.
(L) In February 1996, the Georgia PSC approved a three-year accounting order,
effective January 1, 1996, which is currently under appeal. GEORGIA is
continuing to recognize expenses in accordance with the accounting order
while it is under appeal. Under the order, earnings in excess of a 12.5%
retail return on common equity will be used to accelerate the amortization
of regulatory assets or depreciation of electric plant. Accordingly, for
earnings in excess of the 12.5% return, GEORGIA recorded a charge of $19.8
million for the three months ended March 31, 1997 (presented in the
accompanying financial statements as depreciation expense and as an
addition to the reserve for depreciation). 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.
(M) In 1987 and 1989, the Georgia PSC ordered that the allowed costs of Plant
Vogtle, a two-unit nuclear facility of which GEORGIA owns 45.7%, be phased
into rates. Pursuant to the orders, GEORGIA recorded a deferred return
under phase-in plans until October 1991 when the allowed investment was
fully reflected in rates. In 1991, the Georgia PSC levelized the remaining
Plant Vogtle declining capacity buyback expenses over a six-year period.
In addition, GEORGIA deferred certain Plant Vogtle operating expenses and
financing costs under accounting orders issued by the Georgia PSC. These
Georgia PSC orders provide for the recovery of deferred costs within 10
years. The unamortized balance of these deferred costs at March 31, 1997,
was $133 million.
(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 GEORGIA in Item
8 of the Form 10-K for information relating to an agreement reached
January 10, 1997, between GEORGIA and MEAG relating to a new power supply
relationship. A power supply contract entered into between GEORGIA and
MEAG has been filed with FERC and is presently awaiting its approval.
(P) 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.
(Q) SAVANNAH is currently undergoing an earnings review by the Georgia PSC,
and to date, the Georgia PSC has made no determination.
61
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) ALABAMA, GEORGIA and MISSISSIPPI, et al. v. TVA
(U.S. District Court for the Northern District of
Alabama)
On April 10, 1997, ALABAMA, GEORGIA and MISSISSIPPI
joined in the filing of an action seeking to enjoin TVA
from violating a 1959 act which prohibits TVA from
selling power outside the area that was being served by
it in 1957. TVA is alleged to have entered into
arrangements with entities to which it may lawfully sell
power under the 1959 act which enable TVA to deliver
power to organizations for use outside TVA's statutorily
defined service territory. The plaintiffs contend such
arrangements are in violation of the 1959 act.
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, 1996, 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.
ALABAMA and GEORGIA each filed a Current Report on Form
8-K dated January 9, 1997:
Items reported: Item 5
Item 7
Financial statements filed: None
62
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K. (Continued)
GULF filed a Current Report on Form 8-K dated January 27, 1997:
Items reported: Item 5
Item 7
Financial statements filed: None
SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and
SAVANNAH each filed a Current Report on Form 8-K dated
February 12, 1997:
Item reported: Item 7
Financial statements filed: Each registrant's
audited financial statements for the year ended December
31, 1996.
MISSISSIPPI filed a Current Report on Form 8-K dated February 20, 1997:
Items reported: Item 5
Item 7
Financial statements filed: None
63
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: May 13, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
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: May 13, 1997
64
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: May 13, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
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: May 13, 1997
65
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: May 13, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
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: May 13, 1997
66