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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 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 32501
(850) 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 October 31, 1997
The Southern Company Par Value $5 Per Share 690,113,512
Alabama Power Company Par Value $40 Per Share 5,608,955
Georgia Power Company No Par Value 7,761,500
Gulf Power Company No Par Value 992,717
Mississippi Power Company Without Par Value 1,121,000
Savannah Electric and Power Company Par Value $5 Per Share 10,844,635
This combined Form 10-Q is separately filed by The Southern Company,
Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi
Power Company and Savannah Electric and Power Company. Information contained
herein relating to any individual company is filed by such company on its own
behalf. Each company makes no representation as to information relating to the
other companies.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 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..................................................................... 17
Condensed Statements of Cash Flows................................................................. 18
Condensed Balance Sheets........................................................................... 19
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 21
Exhibit 1 - Report of Independent Public Accountants............................................... 25
Georgia Power Company
Condensed Statements of Income..................................................................... 27
Condensed Statements of Cash Flows................................................................. 28
Condensed Balance Sheets........................................................................... 29
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 31
Exhibit 1 - Report of Independent Public Accountants............................................... 36
Gulf Power Company
Condensed Statements of Income..................................................................... 38
Condensed Statements of Cash Flows................................................................. 39
Condensed Balance Sheets........................................................................... 40
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 42
Mississippi Power Company
Condensed Statements of Income..................................................................... 47
Condensed Statements of Cash Flows................................................................. 48
Condensed Balance Sheets........................................................................... 49
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 51
Savannah Electric and Power Company
Condensed Statements of Income..................................................................... 56
Condensed Statements of Cash Flows................................................................. 57
Condensed Balance Sheets........................................................................... 58
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 60
Notes to the Condensed Financial Statements........................................................... 63
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................... 71
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......................................................................................... 71
Item 6. Exhibits and Reports on Form 8-K.......................................................................... 72
Signatures ............................................................................................... 73
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 For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
OPERATING REVENUES $ 4,071,204 $ 2,932,556 $ 9,372,813 $ 7,925,418
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Operation--
Fuel 694,152 642,408 1,697,158 1,700,439
Purchased power 1,138,447 256,463 2,079,864 766,914
Other (Note H) 480,519 460,975 1,364,054 1,387,718
Maintenance 164,748 169,856 567,593 553,573
Depreciation and amortization 357,564 249,915 936,595 745,751
Amortization of deferred Plant Vogtle costs (Note M) 37,580 34,077 112,791 101,070
Taxes other than income taxes 145,668 162,836 436,635 485,044
Income taxes 332,182 290,600 632,070 661,523
-------------- -------------- -------------- --------------
Total operating expenses 3,350,860 2,267,130 7,826,760 6,402,032
-------------- -------------- -------------- --------------
OPERATING INCOME 720,344 665,426 1,546,053 1,523,386
OTHER INCOME:
Allowance for equity funds used during construction 2,649 1,169 4,272 2,213
Interest income 30,027 11,783 78,250 39,590
Other, net (3,678) 18,832 28,921 48,333
Income taxes applicable to other income 14,354 (19,264) 27,402 2,681
United Kingdom Windfall Profit Tax (Note R) (148,062) - (148,062) -
-------------- -------------- -------------- --------------
INCOME BEFORE INTEREST CHARGES 615,634 677,946 1,536,836 1,616,203
-------------- -------------- -------------- --------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 160,891 126,428 478,236 389,774
Allowance for debt funds used during construction (1,840) (4,400) (10,424) (15,189)
Interest on notes payable 26,406 30,288 81,834 95,095
Amortization of debt discount, premium and expense, net 9,395 15,560 25,750 36,500
Other interest charges 15,947 12,326 44,815 40,478
Minority interest in subsidiaries (15,454) 3,765 12,888 4,591
Distributions on capital and preferred
securities of subsidiary companies 34,572 4,183 84,965 11,823
Preferred dividends of subsidiary companies 11,007 22,356 42,254 65,556
-------------- -------------- -------------- --------------
Interest charges and other, net 240,924 210,506 760,318 628,628
-------------- -------------- -------------- --------------
CONSOLIDATED NET INCOME $ 374,710 $ 467,440 $ 776,518 $ 987,575
============== ============== ============== ==============
AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (Thousands) 687,159 673,651 682,924 671,838
EARNINGS PER SHARE OF COMMON STOCK $0.55 $0.69 $1.14 $1.47
CASH DIVIDENDS PAID PER SHARE
OF COMMON STOCK $0.325 $0.315 $0.975 $0.945
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
6
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Nine Months
Ended September 30,
1997 1996
OPERATING ACTIVITIES:
Consolidated net income $ 776,518 $ 987,575
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization 1,112,051 913,122
Deferred income taxes and investment tax credits (16,696) 67,694
Allowance for equity funds used during construction (4,272) (2,213)
Amortization of deferred Plant Vogtle costs (Note M) 112,791 101,070
Gain on asset sales (16,167) (62,787)
Other, net 76,471 39,254
Changes in certain current assets and liabilities--
Receivables, net (420,068) (75,918)
Fossil fuel stock 33,942 64,170
Materials and supplies 18,553 22,266
Prepayments (24,433) (29,748)
Payables 34,266 (136,168)
Customer deposits 2,418 (83,360)
Taxes Accrued 478,208 159,459
Other 85,096 (82,096)
---------------- ----------------
Net cash provided from operating activities 2,248,678 1,882,320
---------------- ----------------
INVESTING ACTIVITIES:
Gross property additions (1,220,017) (911,435)
Southern Energy business acquisitions (2,812,404) -
Sales of property 33,270 209,558
Other (42,086) (98,990)
---------------- ----------------
Net cash used for investing activities (4,041,237) (800,867)
---------------- ----------------
FINANCING ACTIVITIES:
Proceeds--
Common stock 270,632 95,873
Capital and preferred securities 1,321,250 322,000
First mortgage bonds - 60,000
Pollution control obligations 339,500 146,100
Other long-term debt 1,827,088 319,148
Retirements--
Preferred stock (428,440) (78,897)
First mortgage bonds (112,409) (377,149)
Pollution control obligations (289,500) (91,460)
Other long-term debt (534,095) (1,116,073)
Special deposits-redemption funds (6,877) (61,480)
Notes payable, net 316,104 (40,027)
Payment of common stock dividends (664,718) (634,553)
Miscellaneous (70,453) (16,318)
---------------- ----------------
Net cash provided from (used for) financing activities 1,968,082 (1,472,836)
---------------- ----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 175,523 (391,383)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 444,832 772,340
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 620,355 $ 380,957
================ ================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $674,499 $545,845
Income taxes $427,029 $458,731
Southern Energy business acquisitions--
Fair value of assets acquired $4,795,324 -
Less cash paid for common stock 2,812,404 -
-------------- --------------
Liabilities assumed $1,982,920 -
============== ==============
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
7
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At September 30,
1997 At December 31,
(Unaudited) 1996
----------------- ------------------
UTILITY PLANT:
Plant in service $ 33,702,312 $ 33,260,914
Less accumulated provision for depreciation 11,727,455 10,921,242
--------------- ----------------
21,974,857 22,339,672
Nuclear fuel, at amortized cost 202,134 245,702
Construction work in progress 845,908 683,924
--------------- ----------------
Total 23,022,899 23,269,298
--------------- ----------------
OTHER PROPERTY AND INVESTMENTS:
Goodwill, being amortized 1,886,188 318,142
Leasehold interests 1,818,598 415,600
Equity investments in subsidiaries 1,160,461 227,097
Long-term notes receivable 582,530 -
Nuclear decommissioning trusts, at market 365,338 278,938
Miscellaneous 269,313 261,175
--------------- ----------------
Total 6,082,428 1,500,952
--------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 620,355 444,832
Special deposits 169,472 139,387
Receivables, less accumulated provisions for uncollectible accounts
of $78,063 at September 30, 1997 and $31,587 at December 31, 1996 2,064,490 1,363,159
Fossil fuel stock, at average cost 236,604 269,940
Materials and supplies, at average cost 494,834 509,409
Prepayments 294,201 252,977
Vacation pay deferred 75,690 77,195
--------------- ----------------
Total 3,955,646 3,056,899
--------------- ----------------
DEFERRED CHARGES:
Deferred charges related to income taxes 1,244,490 1,302,342
Deferred Plant Vogtle costs (Note M) 58,198 170,988
Debt expense, being amortized 101,742 78,042
Premium on reacquired debt, being amortized 284,613 289,019
Miscellaneous 634,204 624,262
--------------- ----------------
Total 2,323,247 2,464,653
--------------- ----------------
TOTAL ASSETS $ 35,384,220 $ 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 September 30,
1997 At December 31,
(Unaudited) 1996
---------------- ----------------
CAPITALIZATION:
Common stock, par value $5 per share-
Authorized -- 1 billion shares
Outstanding -- September 30, 1997: 689,591,537 shares
-- December 31, 1996: 677,035,961 shares $ 3,447,958 $ 3,385,180
Paid-in capital 2,265,204 2,067,228
Retained earnings 3,875,410 3,763,987
---------------- ----------------
9,588,572 9,216,395
Preferred stock of subsidiaries 695,702 979,527
Subsidiary obligated mandatorily redeemable
capital and preferred securities (Note I) 1,742,020 422,000
Long-term debt 10,055,279 7,935,269
---------------- ----------------
Total 22,081,573 18,553,191
---------------- ----------------
CURRENT LIABILITIES:
Preferred stock of subsidiaries due within one year 28,913 173,528
Long-term debt due within one year 679,670 191,411
Notes payable 1,871,505 1,482,822
Accounts payable 896,628 787,809
Customer deposits 133,962 131,544
Taxes accrued--
Income taxes 395,708 11,965
Other 315,110 192,921
Interest accrued 191,525 187,152
Vacation pay accrued 104,240 103,514
Miscellaneous 858,090 535,366
---------------- ----------------
Total 5,475,351 3,798,032
---------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 4,580,072 4,738,085
Deferred credits related to income taxes 844,343 879,090
Accumulated deferred investment tax credits 764,915 787,545
Employee benefits provisions 488,647 439,176
Minority interests in subsidiaries 394,750 374,922
Prepaid capacity revenues 113,206 122,496
Department of Energy assessments 80,523 80,523
Disallowed Plant Vogtle capacity buyback costs 56,316 57,250
Storm damage reserves 37,852 35,112
Miscellaneous 466,672 426,380
---------------- ----------------
Total 7,827,296 7,940,579
---------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES $ 35,384,220 $ 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
THIRD QUARTER 1997 vs. THIRD QUARTER 1996
AND
YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996
RESULTS OF OPERATIONS
Earnings
SOUTHERN's consolidated net income for the third quarter and year-to-date 1997
was $375 million ($0.55 per share) and $777 million ($1.14 per share),
respectively, compared to $467 million ($0.69 per share) and $988 million
($1.47 per share) for the corresponding periods of 1996. Earnings decreased
19.8% and 21.4% for the quarter and year-to-date, respectively due to several
factors. These factors included a windfall profit tax imposed by the government
of the United Kingdom on SWEB and increased depreciation and amortization
expenses. The windfall profit tax caused a one-time charge in the third quarter
reducing earnings by $111 million or about $0.16 per share, after giving effect
to minority interest.
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)
--------------------------------------------------------------
Third Quarter Year-To-Date
------------------------------- ------------------------------
(in thousands) % (in thousands) %
Operating revenues............................... $1,138,648 38.8 $1,447,395 18.3
Purchased power expense.......................... 881,984 343.9 1,312,950 171.2
Depreciation and amortization expense............ 107,649 43.1 190,844 25.6
Taxes other than income taxes.................... (17,168) (10.5) (48,409) (10.0)
Interest income.................................. 18,244 154.8 38,660 97.7
Income taxes applicable to other income.......... 33,618 (174.5) 24,721 N/M
United Kingdom Windfall Profit Tax............... (148,062) N/A (148,062) N/A
Interest on long-term debt....................... 34,463 27.3 88,462 22.7
Interest on notes payable........................ (3,882) (12.8) (13,261) (13.9)
Minority interest in subsidiaries................ (19,219) N/M 8,297 180.7
Distributions on capital and preferred
securities of subsidiary companies............ 30,389 N/M 73,142 N/M
Preferred dividends of subsidiary
companies..................................... (11,349) (50.8) (23,302) (35.5)
N/M - Not meaningful.
N/A - Not applicable.
10
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Operating revenues. Operating revenues for the traditional core business
for the third quarter increased $207 million or 8.1% and year-to-date decreased
$33 million or 0.5%, compared to the corresponding periods of 1996. Operating
revenues for non-traditional business were up $931 million or 260.2% for the
quarter and $1.480 billion or 128.5% for year-to-date. The increase in third
quarter traditional core revenues was mainly due to a 5.6% increase in energy
sales during the quarter. Energy sales to the residential, commercial and
industrial sectors increased by 5.7%, 5.4% and 4.1%, respectively. The decrease
in year-to-date traditional core revenues was mainly due to the 5.2% decrease in
energy sales to residential customers. This decrease in energy sales was a
result of milder-than-normal weather experienced throughout the operating
companies' service areas. Non-traditional operating revenues increased for the
quarter and year-to-date due primarily to increased sales by Southern Energy's
energy marketing organization. These revenues were $883 million and $1.313
billion for the current quarter and year-to-date 1997, respectively.
Purchased power expense. For the third quarter, purchased power expenses
for the traditional core business rose by 35.3% while year-to-date traditional
core business purchased power expenses fell by 5.5%. The increase for the
quarter was primarily due to increased energy sales to residential, commercial
and industrial customers. The decrease year-to-date was primarily due to
decreased energy sales to residential customers. For non-traditional business,
purchased power expenses rose 466.9% and 225.8% for the quarter and year-to-date
1997. These increases are primarily due to the power purchasing activities of
Southern Energy's energy marketing organization. These power purchases rose by
$866 million for the quarter and $1.288 billion year-to-date.
Depreciation and amortization expense. Depreciation and amortization
expense of the traditional core business for the quarter and year-to-date
increased compared to the corresponding periods in 1996. These increases can be
attributed primarily to additional depreciation charges of $76.7 million and
$104.9 million, respectively for the quarter and year-to-date 1997 pursuant to
GEORGIA's retail accounting order as discussed in Note (L) in the "Notes to the
Condensed Financial Statements" herein. Additions to utility plant further
contributed to the increase in depreciation and amortization for the quarter and
year-to-date 1997. The acquisition of CEPA is the primary cause for the
increases in non-traditional business depreciation and amortization expense for
the quarter and year-to-date. These expenses increased by $23.6 million and
$63.0 million for the respective periods.
Taxes other than income taxes. Taxes other than income taxes decreased for
the third quarter and year-to-date 1997 when compared to the same periods of
1996 primarily due to reductions of $17.7 million for the quarter and $51.4
million year-to-date attributable to SWEB. These decreases resulted from the
lowering, in November 1996, of the taxes on electricity sales in the United
Kingdom from 10% to 3.7%.
Interest income. The increase in interest income for
the quarter and year-to-date as compared to the corresponding periods of 1996,
is due to a $14.2 million increase for the quarter and a $33.4 million increase
year-to-date in interest income for the non-traditional business, primarily
CEPA.
11
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Income taxes applicable to other income. The decreases for the quarter and
year-to-date 1997 when compared to the same periods in 1996 is primarily due to
increased tax benefits from increased interest expense at the corporate level
and to taxes relating to the sale, in July 1996, of a 25% interest in SWEB.
United Kingdom Windfall Profit Tax. This item represents 100% of the
Windfall Profit Tax applicable to SWEB before giving effect to a 25% minority
interest ownership. See Note (R) in the "Notes to the Condensed Financial
Statements" herein for further details.
Interest on long-term debt. Interest on long-term debt for the quarter and
year-to-date 1997 compared to the same periods of 1996, increased primarily due
to the CEPA acquisition. Southern Energy's interest on long-term debt increased
$43.3 million for the quarter and $92.6 million year-to-date 1997 compared to
the corresponding periods in 1996, mainly as a result of that acquisition.
Interest on notes payable. The decreases for the quarter and year-to-date
when compared to the same periods of 1996, is primarily due to a reduction in
the amount of notes payable outstanding for the non-traditional business.
Minority interest in subsidiaries. The decrease in minority interest for
the quarter results from the recording of the effect of the windfall profit tax.
Such tax also affected year-to-date 1997 results; however, its effect was
somewhat offset due to minority interests in other consolidated subsidiaries.
Distributions on capital and preferred securities of subsidiaries. This
increase for the quarter and year-to-date 1997 resulted from the sales of
securities in 1996 and the first half of 1997. See Note (I) in the "Notes to the
Condensed Financial Statements" herein for additional information.
Preferred dividends of subsidiary companies. The decrease in this item for
the quarter and year-to-date when compared to the corresponding periods in 1997
is due to redemptions of preferred stock, including redemptions during the
first, second and third quarters of 1997. See "Financing Activities" herein for
additional information.
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.
On September 29, 1997, SOUTHERN, through Southern Energy, completed its
purchase of 26% of the outstanding common stock of Berliner Kraft und Licht AG
(Bewag), the vertically integrated electric utility that serves Berlin, Germany,
for approximately $820 million. That investment is accounted for under the
equity method.
12
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In July 1997, Southern Energy entered into an agreement to acquire Hopewell
Holdings Limited's (Hopewell) 19.99% share of CEPA. Under this agreement, which
closed on August 13, 1997, Southern Energy bought from Hopewell its CEPA shares
in exchange for $150 million and CEPA's 80% interest in the Tanjung Jati B
Project. The Tanjung Jati B Project is a 1,320 megawatt coal-fired power station
under development in Central Java, Indonesia. As a result of the transaction,
Southern Energy now owns over 99.9% of CEPA's shares.
In August 1997, Southern Energy entered into an agreement with Vastar
Resources Inc. (Vastar) providing for the organization of a limited partnership
to which the parties are to contribute their gas and power trading and marketing
businesses. Southern Energy and Vastar initially acquired indirect ownership
interests of 60% and 40%, respectively, of the new entity. In September 1997,
Southern Energy contributed its gas marketing operations to the partnership and
made a cash payment of $40 million into escrow for Vastar's account.
For additional information relating to non-traditional business activities,
including information relating to the acquisition of Southern Energy's interest
in CEPA, see Item 1 - BUSINESS - "New Business Development" in the Form 10-K.
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 July 1997, the United States Environmental Protection Agency ("EPA")
published revisions to the ambient air quality standards for ozone and
particulate matter, making the standards significantly more stringent. In
addition, in October 1997, EPA issued a proposed rule which, if implemented as
proposed, would require substantial further reductions in NOx emissions from
fossil-fueled generating facilities. Implementation of the above-described
standards and proposed rules would result in increased compliance costs and
capital expenditures for the operating companies in amounts that cannot be
determined at this time.
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."
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of "comprehensive
income," which is the total of net income and all other non-owner changes in
stockholders' equity, and its components. SOUTHERN will adopt the standard in
1998.
13
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information. Statement No. 131, which supersedes
Statement Nos. 14, 18, 24 and 30, establishes new standards for segment
reporting, using the "management approach," in which reportable segments are
based on the same criteria on which management disaggregates a business for
making operating decisions and assessing performance. SOUTHERN is in the process
of evaluating Statement No. 131 and its impact and will adopt the standard by
1998.
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 nine months of
1997 included the addition of approximately $1.2 billion to utility plant and
the acquisition of CEPA. The funds for these additions and other capital
requirements were from operations and sales of securities. See SOUTHERN's
Condensed Statements of Cash Flows for further details.
Financing Activities
During the first nine months of 1997, retirements of the operating companies'
first mortgage bonds totaled $109 million and redemptions of preferred stock
totaled $428 million. Subsidiaries of SOUTHERN, ALABAMA, GEORGIA, GULF and
MISSISSIPPI have formed statutory business trusts which sold, during the first
nine months of 1997, an aggregate of $1.3 billion of trust preferred or capital
securities. See Note (I) in the "Notes to the Condensed Financial Statements"
herein for further details.
During the first nine months of 1997, SOUTHERN raised $271 million from the
issuance of new common stock under SOUTHERN's various stock plans. The market
price of SOUTHERN's common stock at September 30, 1997 was $22.5625 per share
and the book value was $13.90 per share, representing a market-to-book ratio of
162%, compared to $22.625, $13.61 and 166%, respectively, at the end of 1996.
The dividend for the third quarter of 1997 was $0.325 per share.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of SOUTHERN
under "Capital Requirements for Construction," "Environmental Matters" and
"Other Capital Requirements" in the Form 10-K for a description of the Southern
electric system's capital requirements for its construction program,
environmental compliance efforts, sinking fund requirements and maturing debt.
Approximately $709 million will be required by September 30, 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.
14
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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
September 30, 1997, approximately $620 million of cash and cash equivalents and
approximately $4,265 million of unused credit arrangements with banks (including
$1,160 million of such arrangements under which borrowings may be made only to
fund purchase obligations of the operating companies relating to variable rate
pollution control bonds). At September 30, 1997, the system companies had
outstanding approximately $218 million of short-term notes payable and $1,653
million 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.
15
ALABAMA POWER COMPANY
16
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
OPERATING REVENUES: $ 932,313 $ 869,950 $ 2,289,637 $ 2,253,194
Revenues 30,133 43,358 105,666 172,510
Revenues from affiliates ------------ ------------ -------------- --------------
Total operating revenues 962,446 913,308 2,395,303 2,425,704
------------ ------------ -------------- --------------
OPERATING EXPENSES:
Operation--
Fuel 253,645 245,386 660,216 668,034
Purchased power from non-affiliates 25,036 11,795 33,180 31,651
Purchased power from affiliates 25,313 27,502 70,822 67,365
Other 125,618 124,623 367,622 375,808
Maintenance 47,171 62,361 193,668 193,354
Depreciation and amortization 82,346 80,142 247,628 239,859
Taxes other than income taxes 43,161 46,507 138,553 140,244
Federal and state income taxes 110,669 92,469 184,922 193,141
------------ ------------ -------------- --------------
Total operating expenses 712,959 690,785 1,896,611 1,909,456
------------ ------------ -------------- --------------
OPERATING INCOME 249,487 222,523 498,692 516,248
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction - 161 - 594
Income from subsidiary 876 944 2,861 2,885
Interest income 7,879 6,521 23,626 21,506
Other, net (5,993) (7,907) (20,642) (30,526)
Income taxes applicable to other income 7,033 1,368 7,419 15,463
------------ ------------ -------------- --------------
INCOME BEFORE INTEREST CHARGES 259,282 223,610 511,956 526,170
------------ ------------ -------------- --------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 41,618 42,179 124,846 127,067
Allowance for debt funds used during construction (299) (1,390) (2,679) (5,112)
Interest on interim obligations 7,144 5,374 18,016 16,852
Amortization of debt discount, premium and expense, net 2,403 10,165 7,201 19,809
Other interest charges 7,382 6,221 21,345 21,179
Distributions on preferred securities of subsidiary trusts 5,588 1,788 16,174 4,928
------------ ------------ -------------- --------------
Total Interest charges and other 63,836 64,337 184,903 184,723
------------ ------------ -------------- --------------
NET INCOME 195,446 159,273 327,053 341,447
DIVIDENDS ON PREFERRED STOCK 3,646 6,684 14,309 19,921
------------ ------------ -------------- --------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 191,800 $ 152,589 $ 312,744 $ 321,526
============ ============ ============== ==============
17
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Nine Months
Ended September 30,
1997 1996
OPERATING ACTIVITIES:
Net income $ 327,053 $ 341,447
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 294,436 303,893
Deferred income taxes and investment tax credits, net 1,147 (50)
Allowance for equity funds used during construction - (594)
Other, net (911) 22,666
Changes in certain current assets and liabilities--
Receivables, net (75,636) (39,366)
Inventories 2,439 40,621
Prepayments (37,607) (27,527)
Payables (76,033) (71,740)
Taxes accrued 114,784 81,314
Energy cost recovery, retail (3,015) 25,186
Other (17,027) (9,764)
------------- -------------
Net cash provided from operating activities 529,630 666,086
-------------- --------------
INVESTING ACTIVITIES:
Gross property additions (290,200) (325,313)
Other (32,258) (34,838)
------------- -------------
Net cash used for investing activities (322,458) (360,151)
-------------- --------------
FINANCING ACTIVITIES:
Proceeds--
Company obligated mandatorily redeemable preferred securities 200,000 97,000
Retirements--
Preferred stock (162,000) -
First mortgage bonds (19,801) (83,797)
Other long-term debt (693) (706)
Interim obligations, net 55,083 (58,637)
Payment of preferred stock dividends (17,027) (19,945)
Payment of common stock dividends (251,800) (228,800)
Miscellaneous (6,407) (3,042)
------------- -------------
Net cash used for financing activities (202,645) (297,927)
-------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 4,527 8,008
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,587 12,616
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,114 $ 20,624
============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 162,897 $ 152,197
Income taxes 97,705 135,370
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
18
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At September 30,
1997 At December 31,
(Unaudited) 1996
---------------- -----------------
UTILITY PLANT:
Plant in service $ 10,981,995 $ 10,806,921
Less accumulated provision for depreciation 4,322,467 4,113,622
---------------- ---------------
6,659,528 6,693,299
Nuclear fuel, at amortized cost 89,597 123,862
Construction work in progress 298,087 256,802
---------------- ---------------
Total 7,047,212 7,073,963
---------------- ---------------
OTHER PROPERTY AND INVESTMENTS:
Southern Electric Generating Company, at equity 25,093 26,032
Nuclear decommissioning trusts 173,558 148,760
Miscellaneous 21,844 20,243
---------------- ---------------
Total 220,495 195,035
---------------- ---------------
CURRENT ASSETS:
Cash and cash equivalents 14,114 9,587
Receivables--
Customer accounts receivable 400,392 334,150
Other accounts and notes receivable 50,128 28,524
Affiliated companies 42,318 47,630
Accumulated provision for uncollectible accounts (2,213) (1,171)
Refundable income taxes - 5,856
Fossil fuel stock, at average cost 90,611 81,704
Materials and supplies, at average cost 156,446 167,792
Prepayments 169,477 131,870
Vacation pay deferred 27,083 28,369
---------------- ---------------
Total 948,356 834,311
---------------- ---------------
DEFERRED CHARGES:
Deferred charges related to income taxes 407,858 410,010
Debt expense, being amortized 7,399 7,398
Premium on reacquired debt, being amortized 79,245 84,149
Uranium enrichment decontamination and decommissioning fund 37,490 37,490
Miscellaneous 95,940 91,490
---------------- ---------------
Total 627,932 630,537
---------------- ---------------
TOTAL ASSETS $ 8,843,995 $ 8,733,846
================ ===============
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
19
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At September 30,
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 99 146
Retained earnings 1,246,219 1,185,128
-------------- --------------
2,775,321 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 2,219,594 2,354,006
-------------- --------------
Total 5,570,315 5,505,683
-------------- --------------
CURRENT LIABILITIES:
Preferred stock due within one year - 100,000
Long-term debt due within one year 130,576 20,753
Commercial paper 419,936 364,853
Accounts payable--
Affiliated companies 65,950 64,307
Other 102,620 182,563
Customer deposits 34,410 32,003
Taxes accrued--
Federal and state income 98,660 35,638
Other 57,259 15,271
Interest accrued 46,645 51,941
Vacation pay accrued 27,083 28,369
Miscellaneous 76,513 96,485
-------------- --------------
Total 1,059,652 992,183
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 1,199,126 1,177,687
Accumulated deferred investment tax credits 285,664 294,071
Prepaid capacity revenues, net 113,206 122,496
Uranium enrichment decontamination and decommissioning fund 33,741 33,741
Deferred credits related to income taxes 352,121 364,792
Natural disaster reserve 21,809 20,757
Miscellaneous 208,361 222,436
-------------- --------------
Total 2,214,028 2,235,980
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $ 8,843,995 $ 8,733,846
============== ==============
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
20
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIRD QUARTER 1997 vs. THIRD QUARTER 1996
AND
YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996
RESULTS OF OPERATIONS
Earnings
ALABAMA's net income after dividends on preferred stock for the third quarter
and year-to-date 1997 was $191.8 million and $312.7 million, respectively,
compared to $152.6 million and $321.5 million for the corresponding periods of
1996. Earnings increased 25.7% for this quarter due primarily to a rise in
energy sales. Year-to-date earnings decreased 2.7% when compared to the
corresponding period in 1996 due mainly to milder-than-normal temperatures
during the first half of 1997 .
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
--------------------------------------------------------
Third Quarter Year-To-Date
-------------------------- -----------------------------
(in thousands) % (in thousands) %
Revenues............................................. $62,363 7.2 $36,443 1.6
Revenues from affiliates............................. (13,225) (30.5) (66,844) (38.7)
Purchased power from non-affiliates.................. 13,241 112.3 1,529 4.8
Maintenance.......................................... (15,190) (24.4) 314 0.2
Income taxes applicable to other income.............. 5,665 414.1 (8,044) (52.0)
Amortization of debt discount, premium
and expense net................................. (7,762) (76.4) (12,608) (63.6)
Distributions on preferred securities of
subsidiary trusts................................. 3,800 212.5 11,246 228.2
Dividends on preferred stock......................... (3,038) (45.5) (5,612) (28.2)
Revenues. Excluding fuel revenues, which represent the pass-through of fuel
expenses and do not affect net income, revenues for the third quarter increased
$28.7 million and decreased for year-to-date 1997 $27.8 million, compared to the
corresponding periods of 1996. The increase in third quarter revenues can be
attributed primarily to a 6.7% increase in total retail energy sales. The
increase in retail energy sales is due primarily to relatively normal weather
compared to milder weather in the third quarter of 1996. Energy sales to
residential, commercial, and industrial customers were up by 5.8%, 6.3% and
7.7%, respectively for the quarter. The drop in year-to-date revenues resulted
primarily from decreases in prices charged to industrial and commercial
customers and a decrease in energy sales to residential customers of 5.2%. The
decrease in energy sales to residential customers is primarily due to
milder-than-normal temperatures during the first half of 1997.
Revenues from affiliates. Revenues from sales to affiliated companies
within the Southern electric system 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.
21
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Purchased power from non-affiliates. The increase for the quarter compared
to the corresponding period of 1996 resulted primarily from increased purchases
in connection with power marketing activities, the majority of which were resold
to non-affiliated third parties. These transactions had no significant effect on
net income.
Maintenance expense. The decrease during the third quarter when compared to
the same period in 1996 was due to the reclassification in 1996 of expenses
charged to operations and the write-off of obsolete steam generating plant
inventory, accompanied by overall cost reduction efforts in 1997.
Income taxes applicable to other income. This increase for the quarter when
compared to the corresponding period in 1996 is primarily a result of increased
tax benefits from losses of the parent company allocated to ALABAMA under the
joint consolidated income tax agreement between SOUTHERN and its subsidiaries .
The year-to-date decrease in income taxes applicable to other income can be
attributed to ALABAMA's donation, in June 1996, of certain nonutility property
which resulted in a reduction of income taxes applicable to other income of
approximately $10.6 million.
Amortization of debt discount, premium and expense, net. The decrease in
this item for the current quarter and year-to-date compared to the same periods
of 1996 is the result of ALABAMA's reducing the asset account related to
premiums incurred in connection with the refinancing of high cost debt by $5.0
million and $8.0 million in February and July 1996, respectively, as allowed by
the Alabama PSC. See Note (J) in the "Notes to the Condensed Financial
Statements herein for further details.
Distributions on preferred securities of subsidiary trusts. The change in
this item resulted primarily from the issuance of additional mandatorily
redeemable preferred securities. For additional information, see Item 7
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Capital Structure" of ALABAMA in the
Form 10-K.
Dividends on preferred stock. The decrease for the quarter and year-to-date
1997, compared to the corresponding periods of 1996, resulted from redemptions
of preferred stock in the first nine months of 1997.
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.
22
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In July 1997, the United States Environmental Protection Agency ("EPA")
published revisions to the ambient air quality standards for ozone and
particulate matter, making the standards significantly more stringent. In
addition, in October 1997, EPA issued a proposed rule which, if implemented as
proposed, would require substantial further reductions in NOx emissions from
fossil-fueled generating facilities. Implementation of the above-described
standards and proposed rules would result in increased compliance costs and
capital expenditures for the operating companies in amounts that cannot be
determined at this time.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of "comprehensive
income," which is the total of net income and all other non-owner changes in
stockholders' equity, and its components. The standard is effective in 1998. It
is not expected to affect ALABAMA's financial reporting.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information. Statement No. 131, which supersedes
Statement Nos. 14, 18, 24 and 30, establishes new standards for segment
reporting, using the "management approach," in which reportable segments are
based on the same criteria on which management disaggregates a business for
making operating decisions and assessing performance. ALABAMA is in the process
of evaluating Statement No. 131 and its impact and will adopt the standard by
1998.
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 nine months of
1997 included the addition of approximately $290.2 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 nine months of 1997, redemptions of first mortgage bonds and
preferred stock of ALABAMA totaled $181.8 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. 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 approximately $80.0 million of first mortgage bonds in November 1997 and
January 1998.
ALABAMA will continue to retire higher-cost debt and preferred stock and
replace these securities with lower-cost capital, if market conditions permit.
23
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Capital Requirements
Capital expenditures are estimated to be $463 million for 1997, $615 million for
1998, and $723 million for 1999. The total is $1.8 billion for the three years.
Actual capital costs may vary from this estimate because of factors such as
changes in business conditions; revised load growth projections; changes in
environmental regulations; changes in the existing nuclear plant to meet new
regulatory requirements; increasing cost of labor, equipment, and materials; and
cost of capital. In addition, there can be no assurance that costs related to
capital expenditures will be fully recovered.
ALABAMA will replace all six steam generators at Plant Farley at a total
cost of approximately $202 million. Additionally, subject to requisite
regulatory approval, ALABAMA plans to construct and install new generating
capacity and transmission facilities at Plant Barry. The increase in projected
capital expenditures for this project is approximately $85 million.
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 September
30, 1997, approximately $14.1 million of cash and cash equivalents and had
unused committed lines of credit of approximately $813.6 million (including
$208.2 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
September 30, 1997, ALABAMA had no outstanding short-term notes payable to banks
and $419.9 million of commercial paper.
24
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 September 30, 1997, and the related condensed statements of income
and cash flows for the three-month and nine-month periods ended September 30,
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
November 7, 1997
25
GEORGIA POWER COMPANY
26
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
OPERATING REVENUES:
Revenues $ 1,396,896 $ 1,303,783 $ 3,352,311 $ 3,444,445
Revenues from affiliates 9,736 7,044 28,379 29,367
-------------- -------------- -------------- --------------
Total operating revenues 1,406,632 1,310,827 3,380,690 3,473,812
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Operation--
Fuel 276,814 245,635 657,443 648,320
Purchased power from non-affiliates 54,624 46,563 113,293 124,335
Purchased power from affiliates 45,148 51,592 118,732 174,349
Provision for separation benefits (Note H) 1,641 7,947 4,512 34,821
Other 178,451 171,032 490,337 532,035
Maintenance 71,565 65,014 225,852 217,617
Depreciation and amortization 187,710 108,556 434,537 323,824
Amortization of deferred Plant Vogtle costs (Note M) 37,580 34,077 112,791 101,070
Taxes other than income taxes 55,829 56,725 159,846 163,585
Federal and state income taxes 179,637 184,787 361,037 390,026
-------------- -------------- -------------- --------------
Total operating expenses 1,088,999 971,928 2,678,380 2,709,982
-------------- -------------- -------------- --------------
OPERATING INCOME 317,633 338,899 702,310 763,830
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 2,610 912 3,849 1,167
Equity in earnings of unconsolidated subsidiary 876 944 2,861 2,885
Interest income 3,317 1,002 6,187 3,916
Other, net (8,330) (20,281) (19,180) (29,671)
Income taxes applicable to other income 14,739 7,800 18,706 10,326
-------------- -------------- -------------- --------------
INCOME BEFORE INTEREST CHARGES 330,845 329,276 714,733 752,453
-------------- -------------- -------------- --------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 48,092 51,492 146,904 157,602
Allowance for debt funds used during construction (1,500) (2,724) (7,426) (9,215)
Interest on interim obligations 356 3,500 6,794 14,657
Amortization of debt discount, premium and expense, net 3,388 3,597 10,879 11,069
Other interest charges 4,332 3,122 10,316 11,370
Distributions on preferred securities of subsidiary companies 13,601 2,395 33,767 6,895
-------------- -------------- -------------- --------------
Interest charges and other, net 68,269 61,382 201,234 192,378
-------------- -------------- -------------- --------------
NET INCOME 262,576 267,894 513,499 560,075
DIVIDENDS ON PREFERRED STOCK 5,132 12,415 19,510 35,906
-------------- -------------- -------------- --------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 257,444 $ 255,479 $ 493,989 $ 524,169
============== ============== ============== ==============
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
27
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Nine Months
Ended September 30,
1997 1996
OPERATING ACTIVITIES:
Net income $ 513,499 $ 560,075
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 519,380 384,726
Deferred income taxes and investment tax credits, net (35,910) 45,883
Allowance for equity funds used during construction (3,849) (1,167)
Amortization of deferred Plant Vogtle costs (Note M) 112,791 101,070
Other, net 55,703 42,855
Changes in certain current assets and liabilities--
Receivables, net (62,023) (55,008)
Inventories 27,651 27,632
Payables (29,752) (58,218)
Taxes accrued 159,873 125,462
Energy cost recovery, retail (11,887) (9,416)
Other (41,386) (15,161)
-------------- --------------
Net cash provided from operating activities 1,204,090 1,148,733
-------------- --------------
INVESTING ACTIVITIES:
Gross property additions (327,768) (328,219)
Other (20,831) (49,167)
-------------- --------------
Net cash used for investing activities (348,599) (377,386)
-------------- --------------
FINANCING ACTIVITIES:
Proceeds--
Preferred securities 364,250 225,000
Pollution control bonds 284,700 112,825
First mortgage bonds - 10,000
Retirements--
Preferred stock (191,940) (78,897)
Pollution control bonds (234,700) (58,185)
First mortgage bonds (60,258) (210,860)
Special deposits - redemption funds (5,546) (61,480)
Interim obligations, net (430,496) (298,117)
Payment of preferred stock dividends (21,665) (35,705)
Payment of common stock dividends (385,500) (365,700)
Miscellaneous (18,815) (8,409)
-------------- --------------
Net cash used for financing activities (699,970) (769,528)
-------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 155,521 1,819
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,356 28,930
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 170,877 $ 30,749
============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 204,091 $ 199,603
Income taxes (net of refunds) 264,593 261,270
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
28
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At September 30,
1997 At December 31,
(Unaudited) 1996
---------------- -----------------
UTILITY PLANT:
Plant in service $ 14,982,122 $ 14,769,573
Less accumulated provision for depreciation 5,219,574 4,793,638
---------------- ----------------
9,762,548 9,975,935
Nuclear fuel, at amortized cost 112,537 121,840
Construction work in progress 256,423 256,141
---------------- ----------------
Total 10,131,508 10,353,916
---------------- ----------------
OTHER PROPERTY AND INVESTMENTS:
Southern Electric Generating Company, at equity 25,093 26,032
Nuclear decommissioning trusts, at market 191,780 130,178
Miscellaneous 87,210 103,787
---------------- ----------------
Total 304,083 259,997
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 170,877 15,356
Receivables--
Customer accounts receivable 495,687 392,328
Other accounts and notes receivable 117,572 159,499
Affiliated companies 14,717 20,095
Accumulated provision for uncollectible accounts (3,000) (4,000)
Fossil fuel stock, at average cost 95,164 117,382
Materials and supplies, at average cost 253,387 258,820
Prepayments 91,199 109,771
Vacation pay deferred 39,746 39,965
---------------- ----------------
Total 1,275,349 1,109,216
---------------- ----------------
DEFERRED CHARGES:
Deferred charges related to income taxes 763,247 818,418
Deferred Plant Vogtle costs (Note M) 58,198 170,988
Premium on reacquired debt, being amortized 167,354 166,670
Debt expense, being amortized 41,235 32,693
Miscellaneous 151,516 159,153
---------------- ----------------
Total 1,181,550 1,347,922
---------------- ----------------
TOTAL ASSETS $ 12,892,490 $ 13,071,051
================ ================
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
29
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At September 30,
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 2,134,971 2,134,886
Premium on preferred stock 371 371
Retained earnings 1,783,246 1,674,774
---------------- ----------------
4,262,838 4,154,281
Preferred stock 292,786 464,611
Company obligated mandatorily redeemable preferred securities
of subsidiaries substantially all of whose assets are junior
subordinated debentures or notes (Note I) 689,250 325,000
Long-term debt 3,102,481 3,200,419
---------------- ----------------
Total 8,347,355 8,144,311
---------------- ----------------
CURRENT LIABILITIES:
Preferred stock due within one year 28,913 49,028
Long-term debt due within one year 150,388 60,622
Notes payable to banks - 207,300
Commercial paper - 223,196
Accounts payable--
Affiliated companies 74,009 66,821
Other 206,952 263,093
Customer deposits 68,320 64,901
Taxes accrued--
Federal and state income 129,145 15,497
Other 146,886 100,661
Interest accrued 66,200 79,936
Vacation pay accrued 31,666 38,597
Miscellaneous 97,900 114,530
---------------- ----------------
Total 1,000,379 1,284,182
---------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 2,415,183 2,522,945
Accumulated deferred investment tax credits 404,413 415,477
Deferred credits related to income taxes 363,810 382,381
Employee benefits provisions 184,873 186,319
Disallowed Plant Vogtle capacity buyback costs 56,316 57,250
Miscellaneous 120,161 78,186
---------------- ----------------
Total 3,544,756 3,642,558
---------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES $ 12,892,490 $ 13,071,051
================ ================
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
30
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIRD QUARTER 1997 vs. THIRD QUARTER 1996
AND
YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996
RESULTS OF OPERATIONS
Earnings
GEORGIA's net income after dividends on preferred stock for the third quarter
and year-to-date 1997 was $257.4 million and $494.0 million, respectively,
compared to $255.5 million and $524.2 million for the corresponding periods in
1996. Earnings for this quarter increased slightly above the same period in 1996
while year-to-date earnings decreased 5.8% compared to the same period in 1996.
This year-to-date earnings decrease resulted primarily from lower revenues due
to milder-than-normal weather and additional depreciation charges pursuant to a
Georgia PSC retail accounting order discussed below.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
-------------------------------------------------------
Third Quarter Year-To-Date
-------------------------- ----------------------------
(in thousands) % (in thousands) %
Revenues............................................. $93,113 7.1 $(92,134) (2.7)
Revenues from affiliates............................. 2,692 38.2 (988) (3.4)
Fuel expense......................................... 31,179 12.7 9,123 1.4
Purchased power from non-affiliates.................. 8,061 17.3 (11,042) (8.9)
Purchased power from affiliates...................... (6,444) (12.5) (55,617) (31.9)
Maintenance expense.................................. 6,551 10.1 8,235 3.8
Depreciation and amortization expense................ 79,154 72.9 110,713 34.2
Other, net........................................... (11,951) (58.9) (10,491) (35.4)
Income taxes applicable to other income.............. 6,939 89.0 8,380 81.2
Distributions on preferred securities
of subsidiary companies........................... 11,206 467.9 26,872 389.7
Dividends on preferred stock......................... (7,283) (58.7) (16,396) (45.7)
Revenues. Excluding fuel revenues, which represent the pass-through of fuel
expenses and do not affect income, revenues for the third quarter of 1997
increased $62.4 million and for year-to-date 1997 decreased $45.7 million,
compared to the corresponding periods of 1996. Retail revenues, excluding fuel
revenues, increased 6.8%, or $63.7 million for the current quarter and decreased
1.7%, or $40.9 million year-to-date as compared to the corresponding periods of
1996. The increase in third quarter retail revenues was primarily due to
increased energy sales to residential, commercial and industrial customers of
5.5%, 4.6% and 1.3%, respectively.
The decrease in year-to-date retail revenues can be attributed to lower
energy sales in the residential sector as well as industrial customers taking
advantage of load management rates. Year-to-date sales to residential customers
dropped 5.7% while sales to commercial and industrial customers increased
slightly by 0.5% and 1.5%, respectively. The year-to-date decrease in
residential sales is a result of the milder-than-normal temperatures experienced
during 1997.
31
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues from affiliates and Purchased power from affiliates. Revenues from
sales to affiliated companies within the Southern electric system, as well as
purchases of energy, will vary from period to period depending on demand and the
availability and cost of generating resources at each company. These
transactions do not have a significant impact on earnings.
Fuel expense. The increase for the current quarter is primarily due to
increased generation resulting from higher energy sales.
Purchased power from non-affiliates. The current quarter increase in
purchased power from non-affiliates is primarily due to an increase in energy
purchases in connection with power marketing activities, the majority of which
were resold to non-affiliated third parties. These transactions had no
significant effect on net income.
Maintenance expense. The increase in the current quarter from the
corresponding period of 1996 is primarily due to an increase in transmission and
distribution line maintenance.
Depreciation and amortization expense. The increase in depreciation and
amortization for the current quarter and year-to-date compared to the same
period of 1996 is primarily due to additional depreciation charges of $76.7
million and $104.9 million, respectively, pursuant to a Georgia PSC retail
accounting order discussed below. See "Future Earnings Potential" below and Note
(L) in the "Notes to the Condensed Financial Statements" herein for further
details.
Other, net. The decrease for the current quarter and year-to-date is
primarily the result of expenses incurred in connection with activities related
to the 1996 Summer Olympic games.
Income taxes applicable to other income. The change for the current quarter
and year-to-date is primarily the result of increased tax benefits from losses
of the parent company allocated to GEORGIA under the joint consolidated income
tax agreement between SOUTHERN and its subsidiaries.
Distributions on preferred securities of subsidiary companies. The increase
in this item resulted primarily from the issuance of additional mandatorily
redeemable preferred securities in August 1996, January 1997 and June 1997. For
additional information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Financing Activities" of GEORGIA in the Form 10-K, and Note (I) in the "Notes
to the Condensed Financial Statements" herein.
Dividends on preferred stock. The decrease in dividends on preferred stock
for the current quarter and year-to-date results from the redemption of various
issues of such securities.
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.
32
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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.
The staff of the Georgia PSC has issued a report regarding its prudence
review of the Rocky Mountain pumped storage hydroelectric plant. Reference is
made to Note (N) 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.
In July 1997, the United States Environmental Protection Agency ("EPA")
published revisions to the ambient air quality standards for ozone and
particulate matter, making the standards significantly more stringent. In
addition, in October 1997, EPA issued a proposed rule which, if implemented as
proposed, would require substantial further reductions in NOx emissions from
fossil-fueled generating facilities. Implementation of the above-described
standards and proposed rules would result in increased compliance costs and
capital expenditures for the operating companies in amounts that cannot be
determined at this time.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of "comprehensive
income," which is the total of net income and all other non-owner changes in
stockholders' equity, and its components. The standard is effective in 1998. It
is not expected to affect GEORGIA's financial reporting.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information. Statement No. 131, which supersedes
Statement Nos. 14, 18, 24 and 30, establishes new standards for segment
reporting, using the "management approach," in which reportable segments are
based on the same criteria on which management disaggregates a business for
making operating decisions and assessing performance. GEORGIA is in the process
of evaluating Statement No. 131 and its impact and will adopt the standard by
1998.
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
The major change in GEORGIA's financial condition during the first nine months
of 1997 was the addition of approximately $327.8 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.
33
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Financing Activities
During the first nine months of 1997, maturities and redemptions of first
mortgage bonds and preferred stock by GEORGIA totaled $252.2 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 were
applied to the redemption on July 1, 1997 of $90.0 million outstanding principal
amount of 8.375% pollution control revenue bonds.
In June 1997, Georgia Power Capital Trust III , a statutory business trust
established for the purpose of holding GEORGIA's junior subordinated notes and
issuing trust preferred securities and common securities, sold $189.3 million of
its 7.75% quarterly income preferred securities, which are guaranteed by
GEORGIA. (See Note (I) in the " Notes to the Condensed Financial Statements" for
further details.)
In September 1997, GEORGIA sold, through public authorities, $194.7 million
of variable rate pollution control revenue bonds with $144.7 million due in 2029
and $50.0 million due in 2034. The proceeds were used to redeem $105.9 million
aggregate principal amount of 6.20% pollution control revenue bonds and $38.8
million aggregate principal amount of 5.70% pollution control revenue bonds in
September 1997. The remaining proceeds will be used to redeem $50.0 million
aggregate principal amount of 9 3/8% pollution control revenue bonds in December
1997.
GEORGIA has announced the planned redemption of $28.9 million of preferred
stock in December 1997.
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.
34
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 September
30, 1997, approximately $170.9 million of cash and cash equivalents and
approximately $1,143.9 million of unused credit arrangements with banks
(including $878.9 million of such arrangements under which borrowings may be
made only to fund purchase obligations relating to variable rate pollution
control bonds). At September 30, 1997, GEORGIA had no outstanding short-term
notes payable to banks or 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.
35
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 September 30, 1997, and the related
condensed statements of income and cash flows for the three-month and nine-month
periods ended September 30, 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
November 7, 1997
36
GULF POWER COMPANY
37
GULF POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
OPERATING REVENUES:
Revenues $ 187,841 $ 173,993 $ 467,488 $ 477,986
Revenues from affiliates 5,869 5,626 12,888 10,375
------------- ------------- ------------ ------------
Total operating revenues 193,710 179,619 480,376 488,361
------------- ------------- ------------ ------------
OPERATING EXPENSES:
Operation--
Fuel 60,938 56,105 138,712 140,240
Purchased power from non-affiliates 6,908 2,941 9,697 6,804
Purchased power from affiliates 4,482 6,835 19,381 32,177
Other 31,414 28,324 93,241 83,062
Maintenance 9,731 8,998 32,532 38,360
Depreciation and amortization 14,470 14,199 43,362 42,373
Taxes other than income taxes 14,736 14,527 39,775 40,377
Federal and state income taxes 16,281 15,122 29,561 30,634
------------- ------------- ------------ ------------
Total operating expenses 158,960 147,051 406,261 414,027
------------- ------------- ------------ ------------
OPERATING INCOME 34,750 32,568 74,115 74,334
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction - 1 2 12
Interest income 387 376 895 1,142
Other, net (81) (294) (274) (1,041)
Income taxes applicable to other income 979 (74) 758 (167)
------------- ------------- ------------ ------------
INCOME BEFORE INTEREST CHARGES 36,035 32,577 75,496 74,280
------------- ------------- ------------ ------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 5,691 5,880 16,978 18,264
Other interest charges 438 288 1,960 793
Interest on notes payable 242 716 764 1,845
Amortization of debt discount, premium, and expense, net 592 524 1,728 1,567
Allowance for debt funds used during construction - (3) (6) (61)
Distributions on preferred securities of subsidiary trust 763 - 2,042 -
------------- ------------- ------------ ------------
Interest charges and other, net 7,726 7,405 23,466 22,408
------------- ------------- ------------ ------------
NET INCOME 28,309 25,172 52,030 51,872
DIVIDENDS ON PREFERRED STOCK 825 1,451 3,420 4,312
------------- ------------- ------------ ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 27,484 $ 23,721 $ 48,610 $ 47,560
============= ============= ============ ============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
38
GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Nine Months
Ended September 30,
1997 1996
OPERATING ACTIVITIES:
Net income $ 52,030 $ 51,872
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 54,642 56,903
Deferred income taxes (3,573) 559
Allowance for equity funds used during construction (2) (12)
Deferred costs of 1995 coal contract renegotiation 1,246 7,172
Other, net 3,522 5,841
Changes in certain current assets and liabilities--
Receivables, net (7,590) (7,868)
Inventories 8,610 14,132
Payables 1,531 (9,553)
Taxes accrued 23,368 16,987
Current costs of 1995 coal contract renegotiation 10,529 (5,157)
Other (5,043) (3,000)
------------- -----------
Net cash provided from operating activities 139,270 127,876
-------------- ------------
INVESTING ACTIVITIES:
Gross property additions (31,968) (49,747)
Other (1,709) (3,533)
------------- -----------
Net cash used for investing activities (33,677) (53,280)
-------------- ------------
FINANCING ACTIVITIES:
Proceeds--
Preferred securities 40,000 -
First mortgage bonds - 30,000
Pollution control bonds 40,930 33,275
Other long-term debt 20,000 22,148
Retirements--
Preferred stock (39,500) -
First mortgage bonds (25,000) (1,750)
Pollution control bonds (40,930) (33,275)
Other long-term debt (13,482) (32,588)
Notes payable, net (25,000) (43,000)
Payment of preferred stock dividends (4,148) (4,312)
Payment of common stock dividends (50,500) (37,100)
Miscellaneous (3,413) (1,852)
------------- -----------
Net cash used for financing activities (101,043) (68,454)
-------------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 4,550 6,142
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 807 680
-------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,357 $ 6,822
============== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 17,572 $ 19,269
Income taxes 17,644 20,846
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
39
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At September 30,
1997 At December 31,
(Unaudited) 1996
-------------- ----------------
UTILITY PLANT:
Plant in service $ 1,748,011 $ 1,734,510
Less accumulated provision for depreciation 728,541 694,245
-------------- --------------
1,019,470 1,040,265
Construction work in progress 30,296 23,465
-------------- --------------
Total 1,049,766 1,063,730
-------------- --------------
OTHER PROPERTY AND INVESTMENTS: 623 652
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 5,357 807
Receivables--
Customer accounts receivable 74,833 67,727
Other accounts and notes receivable 2,831 3,098
Affiliated companies 2,483 1,821
Accumulated provision for uncollectible accounts (700) (789)
Fossil fuel stock, at average cost 20,204 28,352
Materials and supplies, at average cost 29,790 30,252
Current portion of deferred coal contract costs 4,982 16,389
Regulatory clauses under recovery 3,046 4,144
Prepaid income taxes - 353
Other prepayments 11,045 8,833
Vacation pay deferred 4,055 4,055
-------------- --------------
Total 157,926 165,042
-------------- --------------
DEFERRED CHARGES:
Deferred charges related to income taxes 28,038 28,313
Debt expense and loss, being amortized 23,350 23,308
Deferred coal contract costs 4,521 13,126
Deferred storm charges 895 3,275
Miscellaneous 11,683 10,920
-------------- --------------
Total 68,487 78,942
-------------- --------------
TOTAL ASSETS $ 1,276,802 $ 1,308,366
============== ==============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
40
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At September 30,
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 187,325 179,179
-------------- --------------
443,867 435,758
Preferred stock 50,102 65,102
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding Company Junior Subordinated Notes (Note I) 40,000 -
Long-term debt 296,911 331,880
-------------- --------------
Total 830,880 832,740
-------------- --------------
CURRENT LIABILITIES:
Preferred stock due within one year - 24,500
Long-term debt due within one year 55,817 40,972
Notes payable - 25,000
Accounts payable--
Affiliated companies 11,712 10,274
Other 21,648 22,496
Customer deposits 13,825 13,464
Taxes accrued--
Federal and state income 12,308 -
Other 16,976 8,342
Interest accrued 6,767 7,629
Regulatory clauses over recovery 4,617 5,884
Vacation pay accrued 4,055 4,055
Dividends declared 725 11,453
Miscellaneous 2,629 5,668
-------------- --------------
Total 151,079 179,737
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 164,913 163,857
Deferred credits related to income taxes 61,524 64,354
Accumulated deferred investment tax credits 32,104 33,760
Accumulated provision for postretirement benefits 20,022 18,339
Miscellaneous 16,280 15,579
-------------- --------------
Total 294,843 295,889
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $ 1,276,802 $ 1,308,366
============== ==============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
41
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIRD QUARTER 1997 vs. THIRD QUARTER 1996
AND
YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996
RESULTS OF OPERATIONS
Earnings
GULF's net income after dividends on preferred stock for the third quarter and
year-to-date 1997 was $27.5 million and $48.6 million, respectively, compared to
$23.7 million and $47.6 million for the corresponding periods of 1996. Earnings
for the quarter and year-to-date 1997 compared to the same periods in 1996
increased 15.9% and 2.2%, respectively. The increase for the current quarter was
due primarily to increased energy sales.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
----------------------------------------------------------
Third Quarter Year-To-Date
------------------------------ ---------------------------
(in thousands) % (in thousands) %
Revenues......................................... $13,848 8.0 $(10,498) (2.2)
Revenues from affiliates......................... 243 4.3 2,513 24.2
Fuel expense..................................... 4,833 8.6 (1,528) (1.1)
Purchased power from non-affiliates.............. 3,967 134.9 2,893 42.5
Purchased power from affiliates.................. (2,353) (34.4) (12,796) (39.8)
Other operation expense.......................... 3,090 10.9 10,179 12.3
Maintenance expense.............................. 733 8.1 (5,828) (15.2)
Income taxes applicable to other income.......... 1,053 N/M 925 N/M
Distributions on preferred securities of
subsidiary trust............................. 763 N/A 2,042 N/A
Dividends on preferred stock..................... (626) (43.1) (892) (20.7)
N/A - Not applicable
N/M - Not meaningful
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 increased $6.3 million or 6.2% for the third quarter and
decreased $3.5 million or 1.3% year-to-date 1997, compared to the corresponding
periods of 1996. Retail revenues rose 4.9% for the current quarter primarily due
to an increase in retail sales as a result of warmer weather during the third
quarter; however, retail revenues fell 1.6% year-to-date primarily due to a
decrease in energy sales to residential customers reflecting the impact of
milder-than-normal temperatures during the first half of 1997. Energy sales to
industrial customers increased 7.2% and 4.6% for the quarter and year-to-date,
respectively; however, revenues from this sector increased by only 2.0% for the
quarter and decreased by 0.3% year-to-date 1997. The disparity between
industrial energy sales and industrial revenues is 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.
42
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues from affiliates and Purchased power from affiliates. The
year-to-date decrease in purchased power from affiliates compared to the
corresponding period in 1996 can be attributed to maintenance outages at Plant
Crist and Plant Daniel during the first half of 1996. Revenues from sales to
affiliated companies within the Southern electric system, as well as purchases
of energy, will vary from period to period depending on demand and the
availability and cost of generating resources at each company. These
transactions do not have a significant impact on earnings.
Fuel expense. The current quarter increase in fuel expense is due to
increased generation as a result of warmer weather and increased energy sales
during the third quarter.
Purchased power from non-affiliates. The increases in purchased power from
non-affiliates can primarily be attributed to an increase in energy purchases
due to increased power marketing activities, the majority of which were resold
to non-affiliated third parties. These transactions had no significant effect on
net income.
Other operation expense. The current quarter and year-to-date increases
were primarily due to an increase in amortization costs related to the buyout
and renegotiation of a coal supply contract.
Maintenance expense. The increase in maintenance expense for the third
quarter is primarily due to routine maintenance, while the year-to-date decrease
is primarily attributed to the scheduled maintenance on production facilities
which occurred in the first half of 1996 at Plant Crist and Plant Daniel.
Income taxes applicable to other income. The change for the third quarter
and year-to-date when compared to the corresponding periods of 1996 is primarily
due to increased tax benefits from losses of the parent company allocated to
GULF under the joint consolidated income tax agreement between SOUTHERN and its
subsidiaries.
Distributions on preferred securities of subsidiary trust. See "Financing
Activities" herein for details relating to the January 1997 issuance by Gulf
Power Capital Trust I of its 7.625% trust preferred securities.
Dividends on preferred stock. Current quarter and year-to-date preferred
stock dividends decreased when compared to the same periods in 1996 due to
redemptions of preferred stock in March and August of 1997.
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.
43
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In July 1997, the United States Environmental Protection Agency ("EPA")
published revisions to the ambient air quality standards for ozone and
particulate matter, making the standards significantly more stringent. In
addition, in October 1997, EPA issued a proposed rule which, if implemented as
proposed, would require substantial further reductions in NOx emissions from
fossil-fueled generating facilities. Implementation of the above-described
standards and proposed rules would result in increased compliance costs and
capital expenditures for the operating companies in amounts that cannot be
determined at this time.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of "comprehensive
income," which is the total of net income and all other non-owner changes in
stockholders' equity, and its components. The standard is effective in 1998. It
is not expected to affect GULF's financial reporting.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information. Statement No. 131, which supersedes
Statement Nos. 14, 18, 24 and 30, establishes new standards for segment
reporting, using the "management approach," in which reportable segments are
based on the same criteria on which management disaggregates a business for
making operating decisions and assessing performance. GULF is in the process of
evaluating Statement No. 131 and its impact and will adopt the standard by 1998.
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 nine months of 1997
included the addition of approximately $32.0 million to utility plant. The funds
for these additions and other capital requirements were derived primarily from
operations. See GULF's Condensed Statements of Cash Flows for further details.
Financing Activities
During the first quarter of 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 during the first quarter of 1997 and $15 million of 7.30% cumulative
preferred stock in August 1997.
On July 1, 1997, GULF sold, through public authorities, $40.93 million of
variable rate pollution control revenue refunding bonds due July 1, 2022. The
proceeds were used to redeem $32 million aggregate principal amount of 8.25%
pollution control revenue refunding bonds; $5 million aggregate principal amount
of 6.75% pollution control revenue refunding bonds; and $3.93 million aggregate
principal amount of 6.75% pollution control revenue refunding bonds.
44
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Also, on August 1, 1997, GULF sold $20 million of Series B 7.50% Junior
Subordinated Notes due June 30, 2037. The proceeds were used to pay a portion of
the scheduled maturity of $25 million of 5.875% first mortgage bonds that were
due on August 1, 1997.
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.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of GULF
under "Capital Requirements for Construction," "Environmental Matters" and
"Other Capital Requirements" in the Form 10-K for a description of GULF's
capital requirements for its construction program, environmental compliance
efforts and maturing debt. GULF's capital requirements for its construction
program for 1997 through 1999 were increased in October 1997 by $43 million
primarily due to production project costs at Plant Daniel and additional costs
related to a new company-owned cogeneration facility being built at an
industrial customer's site. GULF's gross property additions, including those
amounts related to environmental compliance, are now budgeted at $185 million
for 1997 through 1999 ($55 million in 1997, $68 million in 1998, and $62 million
in 1999). Approximately $55.8 million will be required through September 30,
1998, for maturities of long-term debt.
Sources of Capital
In addition to the financing activities previously described herein, GULF plans
to obtain the funds required for construction and other purposes from sources
similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. Currently,
GULF expects to have adequate earnings coverage ratios for any anticipated
security sales through at least 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 September 30,
1997, approximately $5.4 million of cash and cash equivalents and $103.4 million
of unused committed lines of credit with banks (including $61.9 million
liquidity support for variable rate pollution control bonds). At September 30,
1997, GULF had no outstanding 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.
45
MISSISSIPPI POWER COMPANY
46
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
OPERATING REVENUES:
Revenues $ 163,622 $ 148,125 $ 408,761 $ 403,425
Revenues from affiliates 8,252 8,478 8,931 16,881
------------ ------------ ------------- ------------
Total operating revenues 171,874 156,603 417,692 420,306
------------ ------------ ------------- ------------
OPERATING EXPENSES:
Operation--
Fuel 49,858 40,029 109,888 106,506
Purchased power from non-affiliates 10,721 11,075 12,919 17,011
Purchased power from affiliates 5,295 5,840 26,438 26,359
Other 27,241 25,686 71,912 76,958
Maintenance 10,423 10,278 32,427 35,116
Depreciation and amortization 11,417 11,559 34,010 34,912
Taxes other than income taxes 11,736 11,082 33,916 32,532
Federal and state income taxes 14,742 13,384 29,269 27,477
------------ ------------ ------------- ------------
Total operating expenses 141,433 128,933 350,779 356,871
------------ ------------ ------------- ------------
OPERATING INCOME 30,441 27,670 66,913 63,435
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 11 29 22 153
Interest income 182 23 544 201
Other, net 955 787 2,575 3,519
Income taxes applicable to other income 615 40 (157) (983)
------------ ------------ ------------- ------------
INCOME BEFORE INTEREST CHARGES 32,204 28,549 69,897 66,325
------------ ------------ ------------- ------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 4,968 4,691 14,857 15,119
Allowance for debt funds used during construction (22) (225) (45) (541)
Interest on notes payable 40 488 96 1,339
Amortization of debt discount, premium, and expense, net 408 390 1,182 1,159
Other interest charges 125 196 439 696
Distributions on preferred securities of subsidiary trust 699 - 1,670 -
------------ ------------ ------------- ------------
Interest charges and other, net 6,218 5,540 18,199 17,772
------------ ------------ ------------- ------------
NET INCOME 25,986 23,009 51,698 48,553
DIVIDENDS ON PREFERRED STOCK 823 1,225 3,272 3,674
------------ ------------ ------------- ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 25,163 $ 21,784 $ 48,426 $ 44,879
============ ============ ============= ============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
47
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Nine Months
Ended September 30,
1997 1996
OPERATING ACTIVITIES:
Net income $ 51,698 $ 48,553
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 37,082 39,372
Deferred income taxes 1,042 (2,757)
Allowance for equity funds used during construction (22) (153)
Other, net 249 113
Changes in certain current assets and liabilities--
Receivables, net (10,340) 1,751
Inventories 2,044 4,765
Payables (7,213) (1,489)
Taxes accrued 5,675 2,834
Other 309 327
------------ ------------
Net cash provided from operating activities 80,524 93,316
------------ ------------
INVESTING ACTIVITIES:
Gross property additions (38,509) (43,879)
Other (144) (2,765)
------------ ------------
Net cash used for investing activities (38,653) (46,644)
------------ ------------
FINANCING ACTIVITIES:
Proceeds--
Capital contribution - 27
Preferred securities 35,000 -
Other long-term debt - 30,000
Retirements--
Preferred stock (35,000) -
First mortgage bonds - (45,447)
Other long-term debt - (20,000)
Notes payable, net - 16,500
Payment of preferred stock dividends (3,272) (3,674)
Payment of common stock dividends (35,600) (31,900)
Miscellaneous (1,283) (2,932)
------------ ------------
Net cash used for financing activities (40,155) (57,426)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,716 (10,754)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,058 12,641
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,774 $ 1,887
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 2,864 $ 16,715
Income taxes 16,310 22,240
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
48
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At September 30,
1997 At December 31,
(Unaudited) 1996
-------------- ----------------
UTILITY PLANT:
Plant in service, at original cost $ 1,504,021 $ 1,483,875
Less accumulated provision for depreciation 556,110 526,776
-------------- --------------
947,911 957,099
Construction work in progress 47,118 35,100
-------------- --------------
Total 995,029 992,199
-------------- --------------
OTHER PROPERTY AND INVESTMENTS: 2,976 3,054
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 8,774 7,058
Receivables--
Customer accounts receivable 34,599 26,364
Regulatory clauses under recovery 8,257 7,300
Other accounts and notes receivable 6,671 7,468
Affiliated companies 8,287 6,329
Accumulated provision for uncollectible accounts (852) (839)
Fossil fuel stock, at average cost 11,328 12,168
Materials and supplies, at average cost 19,879 21,083
Current portion of accumulated deferred income taxes 4,107 7,227
Prepayments 3,647 4,744
Vacation pay deferred 4,806 4,806
-------------- --------------
Total 109,503 103,708
-------------- --------------
DEFERRED CHARGES:
Debt expense and loss, being amortized 12,552 12,220
Deferred charges related to income taxes 23,072 22,274
Long-term notes receivable 2,990 3,737
Work Force Reduction Plan of 1997 15,700 -
Miscellaneous 7,932 5,135
-------------- --------------
Total 62,246 43,366
-------------- --------------
TOTAL ASSETS $ 1,169,754 $ 1,142,327
============== ==============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
49
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At September 30,
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 179,108 166,282
-------------- --------------
396,560 383,734
Preferred stock 39,414 74,414
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding Company Junior Subordinated Notes (Note I) 35,000 -
Long-term debt 291,609 326,379
-------------- --------------
Total 762,583 784,527
-------------- --------------
CURRENT LIABILITIES:
Long-term debt due within one year 35,010 10
Accounts payable--
Affiliated companies 5,626 4,136
Regulatory clauses over recovery 6,756 8,788
Other 31,829 38,720
Customer deposits 3,475 3,154
Taxes accrued--
Federal and state income 10,725 -
Other 27,395 32,445
Interest accrued 4,035 4,384
Miscellaneous 13,094 13,942
-------------- --------------
Total 137,945 105,579
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 132,962 133,437
Accumulated deferred investment tax credits 27,423 28,333
Deferred credits related to income taxes 39,764 40,568
Postretirement benefits 22,644 21,850
Accumulated provision for property damage 14,080 12,955
Work Force Reduction Plan of 1997 15,700 -
Miscellaneous 16,653 15,078
-------------- --------------
Total 269,226 252,221
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $ 1,169,754 $ 1,142,327
============== ==============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
50
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIRD QUARTER 1997 vs. THIRD QUARTER 1996
AND
YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996
RESULTS OF OPERATIONS
Earnings
MISSISSIPPI's net income after dividends on preferred stock for the third
quarter and year-to-date 1997 was $25.2 million and $48.4 million, respectively,
compared to $21.8 million and $44.9 million for the corresponding periods of
1996. Earnings for the current quarter increased by 15.5% primarily as a result
of increased operating revenues.
Year-to-date earnings increased 7.9% due primarily to lower operating expenses.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
--------------------------------------------------------
Third Quarter Year-To-Date
--------------------------- ----------------------------
(in thousands) % (in thousands) %
Revenues........................................... $15,497 10.5 $5,336 1.3
Revenues from affiliates........................... (226) (2.7) (7,950) (47.1)
Fuel expense....................................... 9,829 24.6 3,382 3.2
Purchased power from non-affiliates................ (354) (3.2) (4,092) (24.1)
Other operation expense............................ 1,555 6.1 (5,046) (6.6)
Revenues. The increase in revenues for the third quarter was primarily due
to increased energy sales to retail customers. Energy sales increased 1.9%, 5.4%
and 2.1% to residential, commercial and industrial customers, respectively. The
revenue increases associated with these sales were 6.6%, 7.4% and 5.3%. Retail
revenues, excluding those revenues which represent the recovery of fuel expense
and certain other expenses and do not affect income, increased $3.0 million for
the quarter due to increased energy sales and decreased $1.4 million for
year-to-date 1997 primarily due to milder temperatures experienced during this
period as compared to 1996. Third quarter and year-to-date revenues from
territorial wholesale customers, excluding fuel revenues which do not affect
income, increased $4.5 million and decreased $1.1 million, respectively,
compared to the same periods of 1996, with a increase in energy sales of 8.1%
and 0.7%, respectively.
Revenues from affiliates. Revenues from sales to 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. In
addition, the third quarter and year-to-date 1997 periods reflect adjustments in
affiliated billings. These transactions do not have a significant impact on
earnings.
Fuel expense. The increases in fuel expense was due to increased generation
resulting from a rise in retail and territorial wholesale energy sales.
51
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Purchased power from non-affiliates. Purchased power from non-affiliates
decreased in both the current quarter and year-to-date when compared to the same
periods in 1996 due to MISSISSIPPI's purchase during the third quarter 1996 of
capacity and energy from another utility.
Other operation expense. The current quarter increase in other operation
expense was primarily due to higher administrative and general expenses. The
year-to-date decrease can be primarily attributed to lower administrative and
general expenses in 1997.
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.
The Mississippi PSC has initiated a docket to study retail access in order
to determine a position on electric deregulation which best serves the
State. Hearings have been and will continue to be held in which interested
parties including MISSISSIPPI are participating. The Public Utilities Staff of
the Mississippi PSC has issued without recommendation a proposed deregulation
plan for comment from interested parties and to form a basis for future
hearings of the Mississippi PSC. No conclusion by the Mississippi PSC is
anticipated during this year. Further hearings will be held in 1998.
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.
In July 1997, the United States Environmental Protection Agency ("EPA")
published revisions to the ambient air quality standards for ozone and
particulate matter, making the standards significantly more stringent. In
addition, in October 1997, EPA issued a proposed rule which, if implemented as
proposed, would require substantial further reductions in NOx emissions from
fossil-fueled generating facilities. Implementation of the above-described
standards and proposed rules would result in increased compliance costs and
capital expenditures for the operating companies in amounts that cannot be
determined at this time.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of "comprehensive
income," which is the total of net income and all other non-owner changes in
stockholders' equity, and its components. The standard is effective in 1998. It
is not expected to affect MISSISSIPPI's financial reporting.
52
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information. Statement No. 131, which supersedes
Statement Nos. 14, 18, 24 and 30, establishes new standards for segment
reporting, using the "management approach," in which reportable segments are
based on the same criteria on which management disaggregates a business for
making operating decisions and assessing performance. MISSISSIPPI is in the
process of evaluating Statement No. 131 and its impact and will adopt the
standard by 1998.
One hundred employees of MISSISSIPPI, in certain areas, including finance,
environmental quality and external affairs, have accepted a workforce reduction
plan. This voluntary plan was an effort to find appropriate ways to reduce fixed
costs, while at the same time providing employees with choices about their
future. The total cost to be incurred in connection with this voluntary plan is
expected to be within the range of $16 million to $19 million and will be
deferred and amortized, pending regulatory approval. See Note (H) in the "Notes
to the Condensed Financial Statements" herein for additional information.
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 nine months
of 1997 included the addition of approximately $38.5 million to utility plant.
The funds for these additions and other capital requirements were derived
primarily from operations. See MISSISSIPPI's Condensed Statements of Cash Flows
for further details.
Financing Activities
During the first quarter of 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.
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.
53
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
MISSISSIPPI has applied for a certificate of public convenience and
necessity to the Mississippi PSC to build up to 1,000 MW of natural gas-fired
combined cycle generation at Plant Daniel. The estimated capital cost associated
with construction of this additional generation at Plant Daniel is approximately
$450 million. MISSISSIPPI would own two-thirds of the new generation, with an
affiliate owning the other one-third. This two-thirds share results in an
estimated capital cost of approximately $300 million. Hearings on MISSISSIPPI's
certificate request are expected in November 1997.
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
September 30, 1997, approximately $8.8 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 September 30, 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.
54
SAVANNAH ELECTRIC
AND
POWER COMPANY
55
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
OPERATING REVENUES:
Revenues $ 78,716 $ 72,676 $ 173,901 $ 183,226
Revenues from affiliates 1,184 683 1,460 2,614
----------- ---------- ------------ -------------
Total operating revenues 79,900 73,359 175,361 185,840
----------- ---------- ------------ -------------
OPERATING EXPENSES:
Operation--
Fuel 16,609 11,482 27,063 24,174
Purchased power from non-affiliates 1,669 802 2,351 2,014
Purchased power from affiliates 11,756 14,395 31,786 45,915
Other 11,737 10,624 33,379 32,317
Maintenance 2,991 3,064 9,551 9,515
Depreciation and amortization 5,027 4,525 15,047 14,329
Taxes other than income taxes 3,208 3,195 8,823 9,373
Federal and state income taxes 9,372 8,730 15,087 15,313
----------- ---------- ------------ -------------
Total operating expenses 62,369 56,817 143,087 152,950
----------- ---------- ------------ -------------
OPERATING INCOME 17,531 16,542 32,274 32,890
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 11 48 216 229
Interest income 41 24 165 129
Other, net (767) (747) (858) (1,465)
Income taxes applicable to other income 1,046 607 1,033 840
----------- ---------- ------------ -------------
INCOME BEFORE INTEREST CHARGES 17,862 16,474 32,830 32,623
----------- ---------- ------------ -------------
INTEREST CHARGES:
Interest on long-term debt 2,677 2,769 8,289 8,787
Allowance for debt funds used during construction (8) (46) (149) (222)
Interest on notes payable 54 81 174 219
Amortization of debt discount, premium, and expense, net 186 185 552 396
Other interest charges 96 89 264 286
----------- ---------- ------------ -------------
Net interest charges 3,005 3,078 9,130 9,466
----------- ---------- ------------ -------------
NET INCOME 14,857 13,396 23,700 23,157
DIVIDENDS ON PREFERRED STOCK 581 581 1,743 1,743
----------- ---------- ------------ -------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 14,276 $ 12,815 $ 21,957 $ 21,414
=========== ========== ============ =============
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
56
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Nine Months
Ended September 30,
1997 1996
OPERATING ACTIVITIES:
Net income $ 23,700 $ 23,157
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 15,712 15,248
Deferred income taxes and investment tax credits, net 2,179 5,974
Allowance for equity funds used during construction (216) (229)
Other, net 1,304 1,983
Changes in certain current assets and liabilities--
Receivables, net (10,197) (6,668)
Inventories 464 (1,022)
Payables 5,231 (171)
Taxes accrued 6,772 5,689
Other (173) (3,594)
------------- ------------
Net cash provided from operating activities 44,776 40,367
------------- ------------
INVESTING ACTIVITIES:
Gross property additions (14,938) (21,078)
Other (1,385) (4,774)
------------- ------------
Net cash used for investing activities (16,323) (25,852)
------------- ------------
FINANCING ACTIVITIES:
Proceeds--
First mortgage bonds - 20,000
Other long-term debt 13,870 17,000
Retirements--
First mortgage bonds - (29,400)
Other long-term debt (14,263) (403)
Notes payable, net (5,000) (2,500)
Payment of preferred stock dividends (1,743) (1,743)
Payment of common stock dividends (16,000) (14,400)
Miscellaneous (350) (2,241)
------------- ------------
Net cash used for financing activities (23,486) (13,687)
------------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 4,967 828
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,214 877
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,181 $ 1,705
============= ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 9,457 $ 10,987
Income taxes 5,382 6,070
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
57
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At September 30,
1997 At December 31,
(Unaudited) 1996
------------- --------------
UTILITY PLANT:
Plant in service, at original cost $ 753,043 $ 739,461
Less accumulated provision for depreciation 317,355 304,760
------------- ------------
435,688 434,701
Construction work in progress 12,166 13,463
------------- ------------
Total 447,854 448,164
------------- ------------
OTHER PROPERTY AND INVESTMENTS: 1,784 1,785
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents 10,181 5,214
Special deposits 250 1,395
Receivables--
Customer accounts receivable 26,608 18,827
Other accounts and notes receivable 2,060 769
Affiliated companies 2,597 844
Accumulated provision for uncollectible accounts (515) (632)
Fuel cost under recovery 7,689 7,289
Fossil fuel stock, at average cost 6,051 5,892
Materials and supplies, at average cost 7,390 8,013
Prepayments 6,086 6,135
------------- ------------
Total 68,397 53,746
------------- ------------
DEFERRED CHARGES:
Deferred charges related to income taxes 18,741 19,167
Premium on reacquired debt, being amortized 7,288 7,142
Cash surrender value of life insurance for deferred compensation plans 10,288 10,288
Miscellaneous 2,196 2,003
------------- ------------
Total 38,513 38,600
------------- ------------
TOTAL ASSETS $ 556,548 $ 542,295
============= ============
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
58
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At September 30,
1997 At December 31,
(Unaudited) 1996
------------ --------------
CAPITALIZATION:
Common stock equity--
Common stock (par value $5 per share)--
authorized 16,000,000 shares; outstanding 10,844,635 shares $ 54,223 $ 54,223
Paid-in capital 8,688 8,688
Retained earnings 115,329 109,373
------------ -------------
178,240 172,284
Preferred stock 35,000 35,000
Long-term debt 140,651 161,801
------------ -------------
Total 353,891 369,085
------------ -------------
CURRENT LIABILITIES:
Long-term debt due within one year 21,742 637
Notes payable - 5,000
Accounts payable--
Affiliated companies 5,424 6,374
Other 15,011 10,201
Customer deposits 5,481 5,232
Taxes accrued--
Federal and state income 3,796 -
Other 3,991 1,015
Interest accrued 4,377 5,275
Vacation pay accrued 2,149 2,038
Miscellaneous 6,900 7,470
------------ -------------
Total 68,871 43,242
------------ -------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 79,377 76,654
Accumulated deferred investment tax credits 12,773 13,271
Deferred credits related to income taxes 22,710 22,792
Deferred compensation plans 9,206 8,602
Postretirement benefits 6,251 5,472
Miscellaneous 3,469 3,177
------------ -------------
Total 133,786 129,968
------------ -------------
TOTAL CAPITALIZATION AND LIABILITIES $ 556,548 $ 542,295
============ =============
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
59
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIRD QUARTER 1997 vs. THIRD QUARTER 1996
AND
YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996
RESULTS OF OPERATIONS
Earnings
SAVANNAH's net income after dividends on preferred stock for the third quarter
and year-to-date 1997 was $14.3 million and $22.0 million, respectively, as
compared to $12.8 million and $21.4 million for the corresponding periods of
1996. For the quarter, earnings increased 11.4% due to increased operating
revenues during this period. Year-to-date earnings increased 2.5% primarily as a
result of lower interest charges and an increase in other income during this
period.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
---------------------------------------------------------
Third Quarter Year-To-Date
--------------------------- -----------------------------
(in thousands) % (in thousands) %
Revenues....................................... $6,040 8.3 $(9,325) (5.1)
Revenues from affiliates....................... 501 73.4 (1,154) (44.1)
Fuel expense................................... 5,127 44.7 2,889 12.0
Purchased power from affiliates................ (2,639) (18.3) (14,129) (30.8)
Other operation expense........................ 1,113 10.5 1,062 3.3
Income taxes applicable to other income........ 439 72.3 193 23.0
Revenues. Excluding fuel revenues, which represent the pass-through of fuel
expenses and do not affect income, revenues increased $4.3 million for the
quarter and increased $1.4 million year-to-date when compared to the same
periods of 1996. Revenues for the current quarter of 1997 were up primarily
because of increased energy sales to residential, commercial and industrial
customers. Energy sales to these customers increased 3.7%, 5.4% and 14.7%,
respectively, resulting in revenue increases of 4.4%, 6.9% and 11.8%,
respectively. Year-to-date revenues for 1997 increased primarily because of a
$0.5 million increase in other operating revenues and a $1.0 million increase in
revenues from non-affiliates. Retail revenues, excluding fuel revenues were down
slightly primarily because of a 5.5% decrease in energy sales to residential
customers offset somewhat by increased energy sales of 1.0% in the commercial
sector and 3.5% in the industrial sector. Energy sales to residential customers
were impacted by the milder-than-normal temperatures experienced during 1997.
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
year-to-date 1997 reflects an adjustment in affiliated billings. These
transactions do not have a significant impact on earnings.
Fuel expenses. The increases for the quarter and year-to-date can be
attributed to higher generation.
60
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Other operation expense. The current quarter and year-to-date increases
when compared to the same periods in 1996 are due primarily to higher
administrative and general expense due to expenses associated with the voluntary
severance plan during this quarter.
Income taxes applicable to other income. The increases in this item for the
quarter and year-to-date can be attributed to increased tax benefits from losses
of the parent company allocated to SAVANNAH under the joint consolidated income
tax agreement between SOUTHERN and its subsidiaries.
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.
In July 1997, the United States Environmental Protection Agency ("EPA")
published revisions to the ambient air quality standards for ozone and
particulate matter, making the standards significantly more stringent. In
addition, in October 1997, EPA issued a proposed rule which, if implemented as
proposed, would require substantial further reductions in NOx emissions from
fossil-fueled generating facilities. Implementation of the above-described
standards and proposed rules would result in increased compliance costs and
capital expenditures for the operating companies in amounts that cannot be
determined at this time.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of "comprehensive
income," which is the total of net income and all other non-owner changes in
stockholders' equity, and its components. The standard is effective in 1998. It
is not expected to affect SAVANNAH's financial reporting.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information. Statement No. 131, which supersedes
Statement Nos. 14, 18, 24 and 30, establishes new standards for segment
reporting, using the "management approach," in which reportable segments are
based on the same criteria on which management disaggregates a business for
making operating decisions and assessing performance. SAVANNAH is in the process
of evaluating Statement No. 131 and its impact and will adopt the standard by
1998.
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.
61
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
Overview
Major changes in SAVANNAH's financial condition during the first nine months of
1997 included the addition of approximately $14.9 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 were
applied to the redemption in May 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 September
30, 1997, approximately $10.2 million of cash and cash equivalents and
approximately $40.5 million of unused credit arrangements with banks. At
September 30, 1997, SAVANNAH had no 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.
62
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, R
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
63
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SAVANNAH ELECTRIC AND POWER COMPANY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS:
(A) The condensed financial statements of the registrants included herein have
been prepared by each registrant, without audit, pursuant to the rules and
regulations of the SEC. In the opinion of each registrant's management, the
information regarding such registrant furnished herein reflects all
adjustments (which included only normal recurring adjustments) necessary to
present fairly the results for the periods ended September 30, 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 unrecoverable 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 September 30, 1997,
the status of outstanding non-trading related derivative contracts was as
follows:
64
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
Year of
Maturity or Notional Unrealized
Type Termination Amount Gain (Loss)
(in thousands)
Interest rate swaps 2002-2012 $777,408 $(25,644)
2001-2012 (pound)500,000 $(50,890)
2002-2007 DM691,000 $(2,189)
Cross currency swaps 2001-2007 (pound)439,300 $9,777
Cross currency swaption 2003 DM570,000 $(5,522)
(pound) - Denotes British pounds sterling.
DM - Denotes Deutschemark.
Net unrealized gains and losses on outstanding positions with respect to
trading activities were not material at September 30, 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. On August 13, 1997, an
additional 19.99% interest was acquired for $150 million plus an interest
in a project under development. (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. In addition, reference is also made to
"Management's Discussion and Analysis - Future Earnings Potential" of
SOUTHERN herein for more information relating to the acquisition in August
1997 by Southern Energy of an additional 19.99% interest in CEPA.)
The acquisition of CEPA was accounted for as a purchase with the $1.6
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 September 30, 1997 and 1996 and the nine months
ended September 30, 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 $916 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 6.62%. Eventually, the
existing borrowing may be replaced by some other combination of long-term
debt and equity.
65
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
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.
As Reported and Pro Forma Information (Unaudited)
(Stated in Thousands of Dollars, except per share)
For the Three Months Ended September 30,
1997 1996
As Reported Pro Forma As Reported Pro Forma
Operating revenues $4,071,204 $4,071,204 $2,932,556 $2,989,161
Consolidated Net Income $374,710 $378,257 $467,440 $467,681
Earnings Per Share of Common Stock $0.55 $0.55 $0.69 $0.69
For the Nine Months Ended September 30,
1997 1996
As Reported Pro Forma As Reported Pro Forma
Operating revenues $9,372,813 $9,393,470 $7,925,418 $8,015,914
Consolidated Net Income $776,518 $781,471 $987,575 $963,476
Earnings Per Share of Common Stock $1.14 $1.14 $1.47 $1.43
66
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. Southern Energy's energy trading activities also
play an important role in its business. Financial data for business
segments and geographic areas are as follows: (in thousands)
Business Segments Operating Operating Operating Operating Total
Revenues Income Revenues Income Assets
For the Three Months Ended For the Nine Months Ended At
September 30, 1997 September 30, 1997 September 30, 1997
------------------------------ ------------------------------- ------------------
Traditional core business $2,782,063 $637,650 $6,741,141 $1,336,423 $25,100,862
Southern Energy 1,289,141 82,694 2,631,672 209,630 10,283,358
------------ ---------- ----------- ------------ -------------
Consolidated $4,071,204 $720,344 $9,372,813 $1,546,053 $35,384,220
========== ======== ========== ========== ===========
For the Three Months Ended For the Nine Months Ended At
September 30, 1996 September 30, 1996 December 31, 1996
------------------------------ ------------------------------- -----------------
Traditional core business $2,574,656 $627,831 $6,773,828 $1,427,607 $25,367,558
Southern Energy 357,900 37,595 1,151,590 95,779 4,924,244
------------ ---------- -------------- ------------- -------------
Consolidated $2,932,556 $665,426 $7,925,418 $1,523,386 $30,291,802
========== ======== ========== ========== ===========
Geographic Areas Operating Operating Operating Operating Total
Revenues Income Revenues Income Assets
For the Three Months Ended For the Nine Months Ended At
September 30, 1997 September 30, 1997 September 30, 1997
------------------------------ ------------------------------- ------------------
Domestic $3,686,108 $640,266 $8,117,898 $1,344,696 $25,996,233
International:
Europe 254,265 35,301 911,649 106,482 3,593,606
Asia 56,892 30,328 170,597 76,834 4,289,286
Other 73,939 14,449 172,669 18,041 1,505,095
------------- ---------- ------------- ------------- -------------
Total $4,071,204 $720,344 $9,372,813 $1,546,053 $35,384,220
========== ======== ========== ========== ===========
For the Three Months Ended For the Nine Months Ended At
September 30, 1996 September 30, 1996 December 31, 1996
------------------------------ ------------------------------- -----------------
Domestic $2,606,715 $632,428 $6,852,782 $1,446,420 $25,868,253
International:
Europe 276,703 30,965 918,813 68,472 2,965,578
Asia - - - - -
Other 49,138 2,033 153,823 8,494 1,457,971
------------- ----------- ------------ -------------- -------------
Total $2,932,556 $665,426 $7,925,418 $1,523,386 $30,291,802
========== ======== ========== ========== ===========
(G) Reference is made to Note 3 to each of the registrant's financial
statements, except SAVANNAH's, 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.
67
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 Nine Months Ended Unamortized Balance
September 30, September 30, at September 30, 1997
----------------------- -------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
ALABAMA $8,759 $5,951 $26,242 $18,360 $25,304
GEORGIA 1,641 7,947 4,512 34,821 -
GULF 950 238 2,192 2,472 -
MISSISSIPPI 1,088 1,847 1,192 3,625 16,696*
SAVANNAH 378 28 1,185 262 -
OTHER 74 129 121 343 -
--------- ------- --------- -------- -------
SOUTHERN
system $12,890 $16,140 $35,444 $59,883 $42,000
======= ======= ======= ======= =======
* Of this amount, $15.7 million relates to the current workforce reduction
plan. The remainder, $996,000, relates to workforce reduction programs
initiated in previous years.
(I) During the first nine months 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
GEORGIA 6/11/97 189,250 7.75 195,000 3/31/2037
Southern Capital 6/6/97 200,000 7.75 206,000 3/31/2037
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.
68
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(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 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. In November 1996, on appeal by a consumer group,
the Superior Court of Fulton County, Georgia reversed the accounting order
and remanded the matter to the Georgia PSC. In October 1997, the Georgia
Court of Appeals upheld the accounting order and reversed the Superior
Court's decision. GEORGIA continued to recognize expenses in accordance
with the accounting order while it was 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 charges of $76.7 million and $104.9 million, respectively,
for the three months and nine months ended September 30, 1997 (presented in
the accompanying financial statements as depreciation expense of electric
plant 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 September 30,
1997, was $58.2 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. At September 30, 1997, GEORGIA's net investment in the
plant was approximately $163 million. In August 1997, the staff of the
Georgia PSC issued a report regarding its prudence review of the plant. The
report recommends that of GEORGIA's initial $202 million investment in the
plant, approximately $79 million be allowed in rate base, with a
disallowance of approximately $123 million. The report also concludes that
GEORGIA should be allowed to retain the benefits of the plant's lower fuel
costs (as compared to alternative sources of generation). The report states
that as an alternative, it may be reasonable to provide a larger allowance
in rate base and allow customers to receive the benefit of the fuel
savings. GEORGIA estimates the present value of the fuel benefits over the
69
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
life of the plant to be in the range of approximately $50 million to $70
million. The Georgia PSC intends to conclude hearings on this matter in
December 1997, at which time the Georgia PSC will take the matter under
advisement for future action. While GEORGIA disagrees with the Georgia PSC
staff's conclusions, the outcome of this matter cannot now be determined.
(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 approved by FERC and was implemented in August 1997.
(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) On November 7, 1997, SAVANNAH filed with the Georgia PSC to request
an accounting order to make certain accounting adjustments including
implementation of new depreciation rates, to increase the provision in the
storm damage reserve, and to provide a process to address SAVANNAH's level
of earnings in the future. On November 10, 1997, SAVANNAH filed for a rate
reduction, of approximately $1.0 million, targeted to the small business
class.
(R) In July 1997, the new Labor government in the United Kingdom introduced
its first budget which became effective July 31, 1997. This budget
included a one-time windfall profit tax on privatized utilities. As
reflected in the "Condensed Consolidated Statements of Income", the effect
of this tax, approximately (pound)90 million ($148 million), was recorded
in the quarter ended September 30, 1997. The tax is payable in two equal
installments on or before December 1, 1997 and December 1, 1998.
70
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 issued by the Internal Revenue Service claiming
that GEORGIA and SOUTHERN owed additional taxes for the
years 1984 through 1987 and regarding GEORGIA's and
SOUTHERN's claims for tax refunds for such years.
In August 1997, SOUTHERN and the Internal Revenue
Service entered into a settlement agreement which is
subject to the review and approval of the Joint
Congressional Committee on Taxation. If approved by the
Joint Committee, the agreement would resolve all issues
in the case for the years before the Tax Court,
resulting in a refund to SOUTHERN in an amount which is
not expected to have a material effect on earnings.
There can be no assurance that such Joint Committee
approval will be received.
(3) ALABAMA, GEORGIA and MISSISSIPPI, et al. v. TVA
(U.S. District Court for the Northern District of
Alabama)
On July 24, 1997, ALABAMA, GEORGIA, MISSISSIPPI and
other plaintiffs entered into an agreement with TVA that
will settle the action filed in April 1997, which sought
to enjoin TVA from violating a 1959 act that prohibits
TVA from selling power outside the area that was being
served by it in 1957. In the settlement agreement, TVA
agrees that it will enter into exchange power
arrangements only with authorized entities to which it
may lawfully sell such power under the 1959 act, and
that it will not knowingly engage in such transactions
where the authorized entity is reselling that power to
unauthorized entities.
Item 5. Other Information.
On November 3, 1997, SOUTHERN commenced offers to purchase for
cash (the "Offers") certain series of the preferred stocks of
ALABAMA, GEORGIA, GULF and MISSISSIPPI. The Offers are being
made for one series ($36.4 million aggregate par value) in the
case of ALABAMA, nine series ($95.8 million aggregate stated
value) in the case of GEORGIA, five series ($50.1 million
aggregate par value or stated capital) in the case of GULF and
three series ($11.0 million aggregate par value) in the case of
MISSISSIPPI.
SOUTHERN will sell any shares purchased by it pursuant
to the Offers to the respective subsidiary companies at the
purchase price paid by SOUTHERN plus expenses, and the
respective subsidiary companies will thereupon retire and
cancel such shares.
Concurrently with the Offers, the subsidiary companies
are soliciting proxies on behalf of their respective boards of
directors in connection with special meetings of stockholders
scheduled to be held on December 10, 1997. The purpose of the
special meetings is to consider a proposed
71
Item 5. Other Information. (Continued)
amendment to each such subsidiary company's charter to
eliminate certain provisions restricting its ability to issue
unsecured indebtedness, to sell assets, merge or consolidate
without preferred stockholder approval under certain
circumstances and to pay dividends on its common stock.
For further information with regard to this matter,
including the terms and conditions of the Offers, reference is
made to the four Issuer Tender Offer Statements on Schedule
13E-4 filed by SOUTHERN with the SEC on November 3, 1997.
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.
GULF filed a Current Report on Form 8-K dated
July 28, 1997:
Items reported: Item 5
Item 7
Financial statements filed: None
72
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
THE SOUTHERN COMPANY
By A. W. Dahlberg
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
By W. L. Westbrook
Financial Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: November 12, 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: November 12, 1997
73
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
GEORGIA POWER COMPANY
By H. Allen Franklin
President and Chief Executive Officer
(Principal Executive Officer)
By Warren Y. Jobe
Executive Vice President, Treasurer and Chief Financial Officer
(Principal Financial Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: November 12, 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: November 12, 1997
74
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
MISSISSIPPI POWER COMPANY
By Dwight H. Evans
President and Chief Executive Officer
(Principal Executive Officer)
By Michael W. Southern
Vice President, Secretary, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: November 12, 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 /s/ G. Edison Holland, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
By Kirby R. Willis
Vice President, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: November 12, 1997
75