-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S0atLovMtgdPalmtUGiho0dDfoRv51CPQQrDWu/T6R9ncrHeYxG/KXua7N1uhXf4 W1BwEKXeAKkINS3wl8WjiQ== 0000092122-99-000046.txt : 19990518 0000092122-99-000046.hdr.sgml : 19990518 ACCESSION NUMBER: 0000092122-99-000046 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN CO CENTRAL INDEX KEY: 0000092122 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 580690070 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03526 FILM NUMBER: 99625478 BUSINESS ADDRESS: STREET 1: 270 PEACHTREE ST CITY: ATLANTA STATE: GA ZIP: 30303 BUSINESS PHONE: 4045065000 MAIL ADDRESS: STREET 1: 270 PEACHTREE STREET CITY: ATLANTA STATE: GA ZIP: 30303 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALABAMA POWER CO CENTRAL INDEX KEY: 0000003153 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 630004250 STATE OF INCORPORATION: AL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03164 FILM NUMBER: 99625479 BUSINESS ADDRESS: STREET 1: 600 N 18TH ST STREET 2: P O BOX 2641 CITY: BIRMINGHAM STATE: AL ZIP: 35291 BUSINESS PHONE: 2052571000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEORGIA POWER CO CENTRAL INDEX KEY: 0000041091 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 580257110 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06468 FILM NUMBER: 99625480 BUSINESS ADDRESS: STREET 1: 241 RALPH MCGILL BOULEVARD CITY: ATLANTA STATE: GA ZIP: 30308 BUSINESS PHONE: 4045066526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULF POWER CO CENTRAL INDEX KEY: 0000044545 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 590276810 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-02429 FILM NUMBER: 99625481 BUSINESS ADDRESS: STREET 1: ONE ENERGY PLACE CITY: PENSACOLA STATE: FL ZIP: 32520-0102 BUSINESS PHONE: 8504446111 MAIL ADDRESS: STREET 1: ONE ENERGY PLACE CITY: PENSACOLA STATE: FL ZIP: 32520-0102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MISSISSIPPI POWER CO CENTRAL INDEX KEY: 0000066904 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 640205820 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11229 FILM NUMBER: 99625482 BUSINESS ADDRESS: STREET 1: 2992 W BEACH CITY: GULFPORT STATE: MS ZIP: 39501 BUSINESS PHONE: 2288641211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAVANNAH ELECTRIC & POWER CO CENTRAL INDEX KEY: 0000086940 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 580418070 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05072 FILM NUMBER: 99625483 BUSINESS ADDRESS: STREET 1: 600 BAY ST EAST CITY: SAVANNAH STATE: GA ZIP: 31401 BUSINESS PHONE: 9122327171 10-Q 1 FIRST QUARTER FORM 10-Q 1999 ============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------- FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1999 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 (404) 506-5000 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) 241 Ralph McGill Boulevard, N.E. Atlanta, Georgia 30308 (404) 506-6526 0-2429 Gulf Power Company 59-0276810 (A Maine Corporation) One Energy Place Pensacola, Florida 32520-0102 (850) 444-6111 0-6849 Mississippi Power Company 64-0205820 (A Mississippi Corporation) 2992 West Beach Gulfport, Mississippi 39501 (228) 864-1211 1-5072 Savannah Electric and Power Company 58-0418070 (A Georgia Corporation) 600 East Bay Street Savannah, Georgia 31401 (912) 644-7171 ============================================================================== Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No____
Description of Shares Outstanding Registrant Common Stock at April 30, 1999 The Southern Company Par Value $5 Per Share 697,089,561 Alabama Power Company Par Value $40 Per Share 5,608,955 Georgia Power Company No Par Value 7,761,500 Gulf Power Company No Par Value 992,717 Mississippi Power Company Without Par Value 1,121,000 Savannah Electric and Power Company Par Value $5 Per Share 10,844,635
This combined Form 10-Q is separately filed by The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company and Savannah Electric and Power Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other companies.
INDEX TO QUARTERLY REPORT ON FORM 10-Q March 31, 1999 Page Number DEFINITIONS........................................................................................................ 4 PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) 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 Condensed Consolidated Statements of Comprehensive Income and Accumulated Other Comprehensive Income.......................................................... 10 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 11 Alabama Power Company Condensed Statements of Income..................................................................... 21 Condensed Statements of Cash Flows................................................................. 22 Condensed Balance Sheets........................................................................... 23 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 25 Exhibit 1 - Report of Independent Public Accountants............................................... 29 Georgia Power Company Condensed Statements of Income..................................................................... 31 Condensed Statements of Cash Flows................................................................. 32 Condensed Balance Sheets........................................................................... 33 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 35 Exhibit 1 - Report of Independent Public Accountants............................................... 39 Gulf Power Company Condensed Statements of Income..................................................................... 41 Condensed Statements of Cash Flows................................................................. 42 Condensed Balance Sheets........................................................................... 43 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 45 Mississippi Power Company Condensed Statements of Income..................................................................... 49 Condensed Statements of Cash Flows................................................................. 50 Condensed Balance Sheets........................................................................... 51 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 53 Savannah Electric and Power Company Condensed Statements of Income..................................................................... 58 Condensed Statements of Cash Flows................................................................. 59 Condensed Balance Sheets........................................................................... 60 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 62 Notes to the Condensed Financial Statements........................................................... 65 Item 3. Quantitative and Qualitative Disclosures about Market Risk............................................ 66 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......................................................................................... Inapplicable Item 6. Exhibits and Reports on Form 8-K.......................................................................... 71 Signatures ............................................................................................... 73
3
DEFINITIONS TERM MEANING affiliates.................................. ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH ALABAMA..................................... Alabama Power Company BEWAG....................................... Berliner Kraft und Licht AG CEPA........................................ Consolidated Electric Power Asia Limited 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, 1998 FUCO........................................ Foreign utility company GEORGIA..................................... Georgia Power Company GULF........................................ Gulf Power Company MISSISSIPPI................................. Mississippi Power Company Mobile Energy............................... Mobile Energy Services Company, L.L.C. and Mobile Energy Services Holdings, Inc. 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. including SOUTHERN subsidiaries managed or controlled by Southern Energy SOUTHERN system............................. SOUTHERN, affiliates, Southern Energy, and other subsidiaries SWEB........................................ South Western Electricity plc (United Kingdom) TVA......................................... Tennessee Valley Authority
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This Quarterly Report on Form 10-Q includes forward-looking statements in addition to historical information. The registrants caution that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the markets of SOUTHERN's subsidiaries; challenges related to Year 2000 readiness; potential business strategies, including acquisitions or dispositions of assets or internal restructuring, that may be pursued by the registrants; state and federal rate regulation in the United States; changes in or application of environmental and other laws and regulations to which SOUTHERN and its subsidiaries are subject; political, legal and economic conditions and developments in the United States and in foreign countries in which the subsidiaries operate; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; the performance of projects undertaken by the non-traditional business and the success of efforts to invest in and develop new opportunities; and other factors discussed elsewhere herein and in other reports (including Form 10-K) filed from time to time by the registrants with the SEC. 4 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES 5
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, ------------------------------ 1999 1998 -------------- -------------- OPERATING REVENUES $2,441,565 $2,494,877 -------------- -------------- OPERATING EXPENSES: Operation-- Fuel 512,466 474,328 Purchased power 274,426 307,999 Other 487,069 460,569 Maintenance 221,286 199,988 Depreciation and amortization 315,081 332,085 Taxes other than income taxes 146,262 147,332 Income taxes 108,608 135,922 -------------- -------------- Total operating expenses 2,065,198 2,058,223 -------------- -------------- OPERATING INCOME 376,367 436,654 OTHER INCOME: Equity in earnings of subsidiaries 94,681 34,496 Interest income 29,486 37,905 Other, net 26,712 13,191 Income taxes applicable to other income (16,160) 7,024 -------------- -------------- INCOME BEFORE INTEREST CHARGES 511,086 529,270 -------------- -------------- INTEREST CHARGES AND OTHER: Interest on long-term debt 166,353 174,277 Interest on notes payable 27,457 28,902 Amortization of debt discount, premium and expense, net 9,020 6,957 Other interest charges 13,197 19,108 Minority interests in subsidiaries 21,343 16,587 Distributions on capital and preferred securities of subsidiary companies 43,767 35,097 Preferred dividends of subsidiary companies 5,633 6,640 -------------- -------------- Interest charges and other, net 286,770 287,568 -------------- -------------- CONSOLIDATED NET INCOME $ 224,316 $ 241,702 ============== ============== AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (Thousands) 698,527 695,051 BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK $0.32 $0.35 CASH DIVIDENDS PAID PER SHARE $0.335 $0.335 OF COMMON STOCK The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
6
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, ------------------------------ 1999 1998 ------------- ------------ OPERATING ACTIVITIES: Consolidated net income $ 224,316 $ 241,702 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 357,985 387,956 Deferred income taxes and investment tax credits 33,503 (10,980) Gain on asset sales (8,814) (142) Other, net (49,971) 35,213 Changes in certain current assets and liabilities excluding effects from acquisitions -- Receivables, net 181,305 390,573 Fossil fuel stock (64,830) (68,431) Materials and supplies (3,573) (255) Prepayments (38,475) (46,615) Accounts payable (321,441) (341,549) Taxes accrued (59,004) 52,966 Other (61,738) (76,572) ------------- ------------ Net cash provided from operating activities 189,263 563,866 ------------- ------------ INVESTING ACTIVITIES: Gross property additions (504,592) (438,163) Southern Energy business acquisitions, net of cash acquired (38,570) (154,625) Sales of property 9,192 85 Other (63,126) (61,192) ------------- ------------ Net cash used for investing activities (597,096) (653,895) ------------- ------------ FINANCING ACTIVITIES: Proceeds-- Common stock 23,705 89,372 Capital and preferred securities 250,000 45,000 Pollution control obligations - 89,990 Other long-term debt 348,271 523,300 Retirements/repurchases-- Preferred stock (85,679) (87) First mortgage bonds (504,000) (234,740) Other long-term debt (223,355) (46,106) Special deposits-redemption funds 7 (89,989) Notes payable, net 476,648 (218,465) Payment of common stock dividends (233,879) (232,449) Miscellaneous 38,857 40,643 ------------- ------------ Net cash provided from (used for) financing activities 90,575 (33,531) ------------- ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS (317,258) (123,560) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 871,353 600,820 ============= ============ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 554,095 $ 477,260 ============= ============ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $286,368 $307,297 Income taxes $25,057 $45,480 Southern Energy business acquisitions-- Fair value of assets acquired $ 38,570 $ 154,625 Less cash paid for common stock 38,570 154,625 ============= ============ Liabilities assumed $ - $ - ============= ============ The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
7
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At March 31, 1999 At December 31, (Unaudited) 1998 ---------------- ---------------- UTILITY PLANT: Plant in service $35,025,995 $35,363,533 Less accumulated provision for depreciation 13,447,110 13,239,008 ---------------- ---------------- 21,578,885 22,124,525 Nuclear fuel, at amortized cost 204,353 216,744 Construction work in progress 1,934,253 1,782,482 ---------------- ---------------- Total 23,717,491 24,123,751 ---------------- ---------------- OTHER PROPERTY AND INVESTMENTS: Goodwill, net of accumulated amortization of of $121,114 at March 31, 1999 and $105,755 at December 31, 1998 2,219,991 2,066,765 Property rights, net of accumulated amortization of of $180,816 at March 31, 1999 and $169,339 at December 31, 1998 1,191,456 1,184,734 Equity investments in subsidiaries 1,443,120 1,560,293 Nuclear decommissioning trusts 573,614 516,719 Miscellaneous 679,323 643,743 ---------------- ---------------- Total 6,107,504 5,972,254 ---------------- ---------------- CURRENT ASSETS: Cash and cash equivalents 554,095 871,353 Special deposits 65,950 86,592 Receivables, less accumulated provisions for uncollectible accounts of $103,324 at March 31, 1999 and $112,511 at December 31, 1998 1,519,115 1,797,913 Fossil fuel stock, at average cost 316,789 251,974 Materials and supplies, at average cost 515,865 515,715 Prepayments 137,213 101,843 Vacation pay deferred 79,708 80,752 ---------------- ---------------- Total 3,188,735 3,706,142 ---------------- ---------------- DEFERRED CHARGES AND OTHER ASSETS: Deferred charges related to income taxes 1,022,509 1,035,724 Prepaid pension costs 516,027 489,572 Debt expense, being amortized 123,806 129,257 Premium on reacquired debt, being amortized 304,594 294,055 Miscellaneous 457,133 440,754 ---------------- ---------------- Total 2,424,069 2,389,362 ---------------- ---------------- TOTAL ASSETS $35,437,799 $36,191,509 ================ ================ The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
8
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At March 31, 1999 At December 31, (Unaudited) 1998 ---------------- ---------------- CAPITALIZATION: Common stock, par value $5 per share -- Authorized -- 1 billion shares Issued -- March 31, 1999: 700,615,244 shares; -- December 31, 1998: 699,772,723 shares $3,503,076 $3,498,864 Paid-in capital 2,480,408 2,462,116 Treasury, at cost -- March 31,1999: 1,989,215 shares; -- December 31, 1998: 2,025,536 shares (56,809) (57,863) Retained earnings 3,868,744 3,878,332 Accumulated other comprehensive income (91,289) 15,400 ---------------- ---------------- 9,704,130 9,796,849 Preferred stock of subsidiaries 369,061 369,084 Company or subsidiary obligated mandatorily redeemable capital and preferred securities 2,426,965 2,179,440 Long-term debt 9,952,508 10,471,692 ---------------- ---------------- Total 22,452,664 22,817,065 ---------------- ---------------- CURRENT LIABILITIES: Amount of securities due within one year 1,136,050 1,525,596 Notes payable 2,362,801 1,827,808 Accounts payable 689,686 1,026,869 Customer deposits 125,511 125,078 Taxes accrued-- Income taxes 78,363 49,923 Other 183,516 299,051 Interest accrued 179,536 233,355 Vacation pay accrued 112,771 111,611 Miscellaneous 485,493 542,836 ---------------- ---------------- Total 5,353,727 5,742,127 ---------------- ---------------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 4,406,144 4,480,970 Deferred credits related to income taxes 701,461 714,665 Accumulated deferred investment tax credits 715,700 723,393 Employee benefits provisions 486,317 473,734 Minority interests in subsidiaries 572,942 535,145 Prepaid capacity revenues 92,288 96,080 Department of Energy assessments 64,191 64,191 Disallowed Plant Vogtle capacity buyback costs 54,086 54,458 Storm damage reserves 27,028 23,980 Miscellaneous 511,251 465,701 ---------------- ---------------- Total 7,631,408 7,632,317 ---------------- ---------------- TOTAL CAPITALIZATION AND LIABILITIES $35,437,799 $36,191,509 ================ ================ The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
9
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, ----------------------------- 1999 1998 -------------- ------------- Consolidated net income $ 224,316 $ 241,702 Other comprehensive income: Foreign currency translation adjustments (164,137) 3,123 Less Applicable income taxes (57,448) 1,093 ============== ============= CONSOLIDATED COMPREHENSIVE INCOME $ 117,627 $ 243,732 ============== =============
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (Stated in Thousands of Dollars) At March 31, At December 31, 1999 1998 ------------- -------------- Balance at beginning of period $15,400 $ 7,176 Change in current period (106,689) 8,224 ============= ============== BALANCE AT END OF PERIOD $(91,289) $15,400 ============= ==============
10 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1999 vs. FIRST QUARTER 1998 RESULTS OF OPERATIONS Earnings SOUTHERN's consolidated net income for the first quarter of 1999 was $224 million ($0.32 per share) compared to $242 million ($0.35 per share) for the corresponding period of 1998. Earnings for the traditional business were down for this quarter due primarily to the timing of GEORGIA's earnings under a new retail rate order, mild weather and maintenance expenses. Under GEORGIA's new order, fixed rate reductions and accelerated amortization are being recognized ratably throughout 1999. During 1998, variable accelerated depreciation recorded under the previous accounting order was primarily recognized during the higher revenue summer months. Earnings for the non-traditional business rose primarily due to the improved earnings from CEPA as a result of gains related to settlement of claims on construction of a power plant project and improved financial performance. 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 result from such acquisitions. Significant income statement items appropriate for discussion include the following: Increase (Decrease) ------------------------------- First Quarter (in thousands) % Operating revenues........................... $(53,312) (2.1) Fuel expense................................. 38,138 8.0 Purchased power expense...................... (33,573) (10.9) Other operation expense...................... 26,500 5.8 Maintenance expense.......................... 21,298 10.6 Equity in earnings of unconsolidated subsidiaries.............................. 60,185 174.5 11 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 first quarter of 1999 decreased $73 million or 3.7% compared to the same period of 1998. Despite a slight increase of 1.4% in retail energy sales, traditional core business revenues decreased for this first quarter of 1999 due primarily to a retail rate reduction ordered by the Georgia PSC which affected GEORGIA's revenues. Retail revenues, excluding fuel and any demand-side program revenues which generally do not affect income, decreased $46 million for the first quarter of 1999. Operating revenues for Southern Energy increased approximately $13 million or 2.6% during the first quarter of 1999 when compared to the corresponding period in 1998. This increase in Southern Energy's operating revenues is attributed to Southern Energy's acquisition of Commonwealth Electric's generating business ("New England acquisition") in December 1998 which was partially offset by the deconsolidation of Mobile Energy. Effective with the bankruptcy filing in January 1999, Mobile Energy is accounted for under the equity method, rather than being consolidated as before. See Note (O) in the "Notes to the Condensed Financial Statements" herein for further information regarding Mobile Energy. Reference is also made to Item 1 - BUSINESS - "Non-Traditional Business" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SOUTHERN in the Form 10-K Fuel expense. During the first quarter of 1999, $29 million of the increase in fuel expenses is related to Southern Energy's New England acquisition in December 1998 and the remainder of the increase resulted primarily from increased generation. Purchased power expense. Purchased power expenses for the traditional core business dropped approximately $27 million or 36.3% for the first quarter of 1999. The decrease in these expenses for the traditional core business is mainly attributed to a decrease in energy purchases related to power marketing activities during this first quarter of 1999 when compared to the same period in 1998. Other operation expense. The first quarter of 1999 increase is mainly attributed to Southern Energy, which had a $17 million or 26% increase principally due to Southern Energy's increased business development activities and the New England acquisition. Maintenance expense. The first quarter increase is primarily attributed to the traditional business. Maintenance expenses in the traditional business increased approximately $21 million or 12% due to maintenance being performed during this quarter on generating facilities and transmission and distribution lines. Equity in earnings of unconsolidated subsidiaries. The major increase in this item reflects the $54 million settlement of Southern Energy's claims against a contractor relating to the Shajiao C construction project in China and the improvement in profitability of the Shajiao C operations. The amount of the settlement of contractor claims is partially offset by other related expenses and income taxes included in other income accounts. 12 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a less regulated, more competitive environment, with non-traditional business becoming more significant. For information relating to non-traditional business activities, see Item 1 - BUSINESS - "Non-Traditional Business" 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. On April 15, 1999, SOUTHERN through its subsidiary Southern Energy, completed the purchase of 3,065 megawatts of generating assets in California from Pacific Gas & Electric for approximately $801 million. For information relating to Year 2000 readiness, see "YEAR 2000 READINESS" below. The FASB has issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which must be adopted by the year 2000. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SOUTHERN has not yet quantified the impact of adopting this statement on its financial statements; however, the adoption could increase volatility in earnings and other comprehensive income. Reference is made to Notes (B) through (F), (H) through (M), (O) 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. 13 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION YEAR 2000 READINESS Year 2000 Challenge In order to save storage space, computer programmers in the 1960s and 1970s shortened the year portion of date entries to two digits. Computers assumed, in effect, that all years began with "19." This practice was widely adopted and hard-coded into computer chips and processors found in some equipment. This approach, intended to save processing time and storage space, was used until the mid-1990s. Unless corrected before the Year 2000, affected software systems and devices containing a chip or microprocessor with date and time functions could incorrectly process dates or the systems may cease to function. SOUTHERN depends on complex computer systems for many aspects of its operations, which include generation, transmission, and distribution of electricity, as well as other business support activities. SOUTHERN's goal is to have critical devices or software that are required to maintain operations to be Year 2000 ready by June 1999. Year 2000 ready means that a system or application is determined suitable for continued use through the Year 2000 and beyond. Critical systems include, but are not limited to, reactor control systems, safe shutdown systems, turbine generator systems, control center computer systems, customer service systems, energy management systems, and telephone switches and equipment. Year 2000 Program and Status SOUTHERN's executive management recognizes the seriousness of the Year 2000 challenge and has dedicated what it believes to be adequate resources to address the issue. The Millennium Project is a team of employees, IBM consultants, and other contractors whose progress is reviewed on a monthly basis by a steering committee of SOUTHERN executives. SOUTHERN's traditional business refers to the integrated utility services within Alabama, Florida, Georgia, and Mississippi. For this traditional business, the work was divided into two phases. Phase I began in 1996 and consisted of identifying and assessing corporate assets related to software systems and devices that contain a computer chip or clock. The first phase was completed in June 1997. Phase 2 consists of testing and remediating high priority systems and devices. Also, contingency planning is included in this phase. Completion of Phase 2 is targeted for June 1999. The Millennium Project will continue to monitor the affected computer systems, devices, and applications into the Year 2000. 14 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION For the traditional business, SOUTHERN has completed more than 85% of the activities contained in its work plan. The percentage of completion and projected completion by function are as follows:
Work Plan Remediation Projected Inventory Assessment Testing Completion Generation 100% 100% 85% 6/99 Energy Management 100 100 90 6/99 Transmission and Distribution 100 100 100 1/99 Telecommunications 100 100 82 6/99 Corporate Applications 100 100 100 3/99 - ----------------------------------------------------------------------------------------------------------------------------
For the non-traditional business, Southern Energy has adopted a three-phase plan to address the Year 2000 challenge at its North American and international business units. The first phase consists of awareness and planning, inventory and assessment, and it includes the identification of potentially impacted systems and an assessment of their individual Year 2000 readiness. The second phase, which includes testing, remediation, and validation, consists of repair or replacement of impacted equipment, and verification that those repairs have addressed the issue. Contingency planning is the third phase, and it includes backup plans for unexpected events with critical systems, staffing plans for critical date rollovers, and plans to address external dependencies. Business units are using Year 2000 readiness information received from suppliers, including fuel suppliers, to determine if inventory adjustments are needed for the transition period. The following three tables summarize the status of progress of Southern Energy's North American and international business units as of March 31, 1999.
North American Business Units: Phase % Completed Status Projected Completion - -------------------------------------------------- ------------------- -------------- ------------------------------ Awareness and planning, inventory and 100 Complete November 30, 1998 assessment Testing, remediation, and validation 63 In progress June 1, 1999 Contingency planning 10 In progress June 30, 1999 - -------------------------------------------------- ------------------- -------------- ------------------------------
15 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
International Business Units where Southern Energy has management control: Phase % Completed Status Projected Completion - ------------------------------------------------- -------------------- -------------- ------------------------------ Awareness and planning, inventory and assessment 100 Complete February 22, 1999 Testing, remediation, and validation 54 In progress July 31, 1999 Contingency planning 19 In progress July 31, 1999 - ------------------------------------------------- -------------------- -------------- ------------------------------
Other International Business Units: Phase % Completed Status Projected Completion - ------------------------------------------------- -------------------- -------------- ------------------------------ Awareness and planning, inventory and assessment 80 In progress May 31, 1999 Testing, remediation, and validation 20 In progress September 30, 1999 Contingency planning 18 In progress October 31, 1999 - ------------------------------------------------- -------------------- -------------- ------------------------------
In a number of the international business units, Southern Energy is neither the majority owner nor the managing concern. In these circumstances, Southern Energy is providing technical assistance but does not control the schedule or progress. Year 2000 Costs For the traditional business, current projected total costs for Year 2000 readiness are approximately $91 million, which includes $6 million of cost billed to non-affiliated companies. These costs include labor necessary to identify, test, and renovate affected devices and systems. From its inception through March 31, 1999, the Year 2000 program costs, recognized primarily as expense, amounted to $70 million based on SOUTHERN's ownership interest. In addition to the traditional business costs, current projections for Year 2000 program costs are approximately $20 million for the non-traditional business - based on SOUTHERN's ownership interest of which $11 million has been spent through March 31, 1999. Year 2000 Risks SOUTHERN is implementing a detailed process to minimize the possibility of service interruptions related to the Year 2000. The company believes, based on current tests, the system of the traditional business can provide customers with electricity. These tests increase confidence, but do not guarantee error-free operations. The company is taking what it believes to be prudent steps to prepare for the Year 2000, and it expects any interruptions in service that may occur within the traditional business service territory to be isolated and short in duration. 16 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SOUTHERN expects the risks associated with Year 2000 to be no more severe than the scenarios that its electric system is routinely prepared to handle. The most likely worst case scenario consists of the service loss of one of the largest generating units and/or the service loss of any single bulk transmission element in its traditional business service territory. There is a smaller risk of sporadic and temporary fluctuations of power levels that would be aggravated in the event of rapid and unscheduled changes to load patterns that resulted from the activity of third parties. SOUTHERN has followed a proven methodology for identifying and assessing software and devices containing potential Year 2000 challenges. Remediation and testing of those devices are in progress. SOUTHERN has prepared contingency plans as appropriate and is participating in North American Electric Reliability Council-coordinated national drills during 1999. SOUTHERN is currently reviewing the Year 2000 readiness of material third parties that provide goods and services crucial to SOUTHERN's operations. Among such critical third parties are fuel, transportation, telecommunications, water, chemical, and other suppliers. There is some risk associated with representations by third parties regarding their readiness and completion of their own Year 2000 related work. Contingency plans based on the assessment of each third party's ability to continue supplying critical goods and services to SOUTHERN have been developed and are being reviewed. There is a potential for some earnings erosion caused by reduced electrical demand by customers because of their own Year 2000 challenges. The risk associated with the progress of some operations outside the United States is a function of the local regulatory environment and the priorities of the entities with management control. Year 2000 challenges are included in the list of due diligence activities associated with acquisitions; there is some risk associated with the subsequent validation of any given seller's representations. Contingency Plans Because of experience with hurricanes and other storms, the traditional business is skilled at developing and using contingency plans in unusual circumstances. As part of Year 2000 business continuity and contingency planning, SOUTHERN is drawing on that experience to make risk assessments and is developing additional plans to deal specifically with situations that could arise relative to Year 2000 challenges. SOUTHERN is identifying critical operational locations, and scheduling key employees to be on duty at those locations during the Year 2000 transition. SOUTHERN is participating in two North American Electric Reliability Council-coordinated national drills during 1999, and is conducting additional tests to validate its contingency plans. Because of the level of detail of the contingency planning process, management feels that the contingency plans will keep any service interruptions that may occur within the traditional business service territory isolated and short in duration. Contingency planning efforts for the non-traditional business are generally in the initial phase. The material in this section constitutes forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. There can be no assurance that the actual results of SOUTHERN, its suppliers, or other third party dependencies will not materially differ from expectations. 17 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL CONDITION Overview Major changes in SOUTHERN's financial condition during the first three months of 1999 included $505 million used for gross property additions to utility plant. 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. Reference is made to the Condensed Consolidated Statements of Comprehensive Income enclosed herein for information relating to other comprehensive income for the quarter ended March 31, 1999. In the quarter, Southern Energy recognized $107 million of after-tax foreign exchange translation losses in other comprehensive income which were principally related to normal shifts in exchange rates between the U.S. dollar and the pound sterling and the Deutschemark, and to the 50% devaluation of the Brazilian Real. Financing Activities During the first three months of 1999, retirements and redemptions of the operating companies' first mortgage bonds and preferred stock totaled $504 million and $86 million, respectively. In February 1999, Alabama Power Capital Trust III (the "Trust"), a statutory business trust established for the purpose of holding ALABAMA's junior subordinated notes and issuing trust preferred securities and common securities, sold $50 million of its capital auction preferred securities which are guaranteed by ALABAMA. Also, in February 1999, Georgia Power Capital Trust IV, a statutory business trust established for the purpose of holding GEORGIA's junior subordinated notes and issuing trust preferred securities and common securities, sold $200 million of its 6.85% trust preferred securities, which are guaranteed by GEORGIA. Additionally, in March 1999, GEORGIA issued $100 million of 6 5/8% senior notes due March 31, 2039. The proceeds from this issuance were used to repay a portion of GEORGIA's outstanding short-term indebtedness. During the first three months of 1999, SOUTHERN raised $24 million from the issuance of 883 thousand shares of common stock under SOUTHERN's various stock plans. See Note (P) in the "Notes to the Condensed Financial Statements" herein for discussion of programs to repurchase SOUTHERN's common stock. The market price of SOUTHERN's common stock at March 31, 1999 was $23.3125 per share and the book value was $13.89 per share, representing a market-to-book ratio of 168%, compared to $29.0625, $14.04 and 207%, respectively, at the end of 1998. The dividend for the first quarter of 1999 was $0.335 per share. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Capital Requirements for Construction", "Other Capital Requirements" and "Environmental Matters" of SOUTHERN in the Form 10-K for a description of the Southern electric system's capital requirements for its construction program, sinking fund requirements and maturing debt, and environmental compliance efforts. Approximately $1.1 billion will be required by March 31, 2000, for present sinking fund requirements, redemption of preferred 18 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION stock and redemptions and maturities of long-term debt. Also, the operating companies plan to continue, to the extent possible, a program to retire higher-cost debt and preferred stock and replace these securities with lower-cost capital. Sources of Capital In addition to the financing activities previously described, SOUTHERN may require additional equity capital during the remainder of the year. The amounts and timing of additional equity capital to be raised in 1999, 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. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. To meet short-term cash needs and contingencies, the SOUTHERN system had at March 31, 1999, approximately $554 million of cash and cash equivalents and approximately $4.6 billion of unused credit arrangements with banks (including $1,368 million of such arrangements under which borrowings may be made only to fund purchase obligations of the operating companies relating to variable rate pollution control bonds). At March 31, 1999, the system companies had outstanding approximately $950 million of short-term notes payable and $1,413 million of commercial paper. 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. 19 ALABAMA POWER COMPANY 20
ALABAMA POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, --------------------------- 1999 1998 ------------ ------------- OPERATING REVENUES: Revenues $667,223 $674,295 Revenues from affiliates 47,101 42,210 ------------ ------------- Total operating revenues 714,324 716,505 ------------ ------------- OPERATING EXPENSES: Operation-- Fuel 188,014 193,022 Purchased power from non-affiliates 7,580 17,535 Purchased power from affiliates 27,427 18,632 Other 117,896 114,813 Maintenance 70,774 63,533 Depreciation and amortization 87,182 86,239 Taxes other than income taxes 53,061 49,439 Federal and state income taxes 38,700 42,557 ------------ ------------- Total operating expenses 590,634 585,770 ------------ ------------- OPERATING INCOME 123,690 130,735 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 1,988 285 Equity in earnings of subsidiaries 768 1,523 Interest income 9,446 13,670 Other, net (7,491) (8,917) Income taxes applicable to other income 924 2,177 ------------ ------------- INCOME BEFORE INTEREST CHARGES AND OTHER 129,325 139,473 ------------ ------------- INTEREST CHARGES AND OTHER: Interest on long-term debt 45,060 44,718 Allowance for debt funds used during construction (1,741) (652) Interest on interim obligations 2,675 4,406 Amortization of debt discount, premium and expense, net 2,718 2,424 Other interest charges 7,832 13,620 Distributions on preferred securities of subsidiary companies 5,831 5,588 ------------ ------------- Interest charges and other, net 62,375 70,104 ------------ ------------- NET INCOME 66,950 69,369 DIVIDENDS ON PREFERRED STOCK 3,875 3,328 ------------ ------------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $63,075 $66,041 ============ ============= The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
21
ALABAMA POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, ------------------------------- 1999 1998 ------------- ------------- OPERATING ACTIVITIES: Net income $ 66,950 $ 69,369 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 102,538 102,837 Deferred income taxes and investment tax credits, net 2,526 (11,359) Allowance for equity funds used during construction (1,988) (285) Other, net 19,628 14,056 Changes in certain current assets and liabilities-- Receivables, net 73,983 82,947 Inventories (17,556) (18,734) Prepayments (43,815) (37,195) Payables (101,665) (74,852) Taxes accrued 51,836 64,796 Energy cost recovery, retail 22,450 24,254 Other (40,398) (45,635) ------------- ------------- Net cash provided from operating activities 134,489 170,199 ------------- ------------- INVESTING ACTIVITIES: Gross property additions (142,065) (132,763) Other (21,592) (18,781) ------------- ------------- Net cash used for investing activities (163,657) (151,544) ------------- ------------- FINANCING ACTIVITIES: Proceeds-- Company obligated mandatorily redeemable preferred securities 50,000 - Other long-term debt - 200,000 Retirements-- Preferred stock (50,000) - First mortgage bonds (300,000) (74,345) Other long-term debt (246) (238) Interim obligations, net 322,653 (47,867) Payment of preferred stock dividends (4,487) (3,350) Payment of common stock dividends (98,000) (90,400) Miscellaneous (3,096) (7,706) ------------- ------------- Net cash used for financing activities (83,176) (23,906) ------------- ------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (112,344) (5,251) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 134,248 23,957 ============= ============= CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,904 $ 18,706 ============= ============= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $60,563 $65,401 Income taxes ($14,000) $2,990 The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
22
ALABAMA POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At March 31, 1999 At December 31, (Unaudited) 1998 --------------- ---------------- UTILITY PLANT: Plant in service, at original cost $11,444,205 $11,352,838 Less accumulated provision for depreciation 4,755,275 4,666,513 --------------- ---------------- 6,688,930 6,686,325 Nuclear fuel, at amortized cost 88,963 95,575 Construction work in progress 558,006 525,359 --------------- ---------------- Total 7,335,899 7,307,259 --------------- ---------------- OTHER PROPERTY AND INVESTMENTS: Equity investments in subsidiaries 33,813 34,298 Nuclear decommissioning trusts, at market 245,184 232,183 Miscellaneous 12,210 12,915 --------------- ---------------- Total 291,207 279,396 --------------- ---------------- CURRENT ASSETS: Cash and cash equivalents 21,904 134,248 Receivables -- Customer accounts receivable 270,667 343,630 Other accounts and notes receivable 23,849 32,394 Affiliated companies 37,735 39,981 Accumulated provision for uncollectible accounts (534) (1,855) Refundable income taxes 38,117 52,117 Fossil fuel stock, at average cost 100,469 83,238 Materials and supplies, at average cost 149,994 149,669 Prepayments 60,975 17,160 Vacation pay deferred 28,390 28,390 --------------- ---------------- Total 731,566 878,972 --------------- ---------------- DEFERRED CHARGES AND OTHER ASSETS: Deferred charges related to income taxes 358,685 362,953 Debt expense, being amortized 8,374 8,602 Premium on reacquired debt, being amortized 86,010 83,440 Prepaid pension costs 180,561 169,393 Department of Energy assessments 31,088 31,088 Miscellaneous 105,496 104,595 --------------- ---------------- Total 770,214 760,071 --------------- ---------------- TOTAL ASSETS $9,128,886 $9,225,698 =============== ================ The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
23
ALABAMA POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At March 31, 1999 At December 31, (Unaudited) 1998 --------------- ---------------- 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 1,334,645 1,334,645 Premium on preferred stock 99 99 Retained earnings 1,190,016 1,224,965 --------------- ---------------- 2,749,118 2,784,067 Preferred stock 317,512 317,512 Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding Company Junior Subordinated Notes 347,000 297,000 Long-term debt 2,548,317 2,646,566 --------------- ---------------- Total 5,961,947 6,045,145 --------------- ---------------- CURRENT LIABILITIES: Preferred stock due within one year - 50,000 Long-term debt due within one year 271,180 471,209 Commercial paper 322,653 - Accounts payable -- Affiliated companies 62,739 79,844 Other 98,723 188,074 Customer deposits 29,385 29,235 Taxes accrued-- Federal and state income 97,414 82,219 Other 34,144 17,559 Interest accrued 29,572 38,166 Vacation pay accrued 28,390 28,390 Miscellaneous 46,553 79,095 --------------- ---------------- Total 1,020,753 1,063,791 --------------- ---------------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 1,226,707 1,202,971 Accumulated deferred investment tax credits 268,603 271,611 Prepaid capacity revenues, net 92,288 96,080 Department of Energy assessments 27,202 27,202 Deferred credits related to income taxes 310,311 315,735 Natural disaster reserve 20,052 19,385 Miscellaneous 201,023 183,778 --------------- ---------------- Total 2,146,186 2,116,762 --------------- ---------------- TOTAL CAPITALIZATION AND LIABILITIES $9,128,886 $9,225,698 =============== ================ The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
24 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1999 vs. FIRST QUARTER 1998 RESULTS OF OPERATIONS Earnings ALABAMA's net income after dividends on preferred stock for the first quarter of 1999 was $63.1 million compared to $66.0 million for the corresponding period of 1998. Earnings for this quarter decreased $2.9 million or 4.5% when compared to the same period in 1998 due primarily to an increase in operating expenses. Significant income statement items appropriate for discussion include the following: First Quarter ----------------------------------- (in thousands) % Revenues.................................... $(7,072) (1.0) Revenues from affiliates.................... 4,891 11.6 Purchased power from non-affiliates ........ (9,955) (56.8) Purchased power from affiliates............. 8,795 47.2 Maintenance expense......................... 7,241 11.4 Interest income............................. (4,224) (30.9) Other interest charges...................... (5,788) (42.5) Revenues. Revenues for the first quarter of 1999 were down from the same period in 1998 due primarily to a 12.7% decrease in non-territorial energy sales resulting in a $12.9 million decrease in non-territorial revenues which was partially offset by a 2.3% increase in territorial energy sales or $8.9 million increase in territorial revenues. Non-territorial energy sales were down due to a decrease in unit power sales and a decrease in sales for resale outside ALABAMA's service area. Territorial revenues increased primarily due to a 1.7% increase in retail energy sales. Retail revenues, excluding those revenues which represent the recovery of fuel expense and certain other expenses and do not affect income, increased $1 million for the current quarter. 25 ALABAMA 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, the availability, and cost of generating resources at each company. These transactions did not have a significant impact on earnings. Purchased power from non-affiliates. These expenses dropped in the current quarter of 1999 when compared to the same period of 1998 due primarily to increased purchases in 1998 related to power marketing activities, a majority of which were resold to non-affiliated third parties. These transactions had no significant effect on net income. Maintenance expense. These costs increased for the first quarter primarily due to maintenance on steam and nuclear plants and transmission and distribution lines. Interest income. This item was lower for the first quarter of 1999 when compared to the first quarter in 1998 due to a decrease in recognized gains on investments held by the nuclear decommissioning trust. The decrease in interest income related to the nuclear decommissioning trust was offset by a concurrent recognition of other interest charges in accordance with FERC requirements. Other interest charges. The change in these charges for the current quarter when compared to the same period in 1998 is attributed to a decrease in interest charges related to the nuclear decommissioning trust. The decrease was offset by a concurrent recognition of interest income in accordance with FERC requirements. 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. 26 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ALABAMA's plans to achieve Year 2000 readiness have been implemented and are included in the SOUTHERN system's Year 2000 Program. The costs related to ALABAMA's Year 2000 program, including ALABAMA's share of costs of Southern Nuclear Operating Company, are expected to be $29.6 million. From its inception through March 31, 1999, the Year 2000 program costs, recognized primarily as expense, amounted to $17.5 million. For additional information, see SOUTHERN's MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - "Future Earnings Potential" herein. The FASB has issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which must be adopted by the year 2000. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. ALABAMA has not yet quantified the impact of adopting this statement on its financial statements; however, the adoption could increase volatility in earnings. Reference is made to Notes (B), (C), (F) through (J) 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 ALABAMA's financial condition during the first three months of 1999 included the addition of approximately $142.1 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 three months of 1999, redemptions of first mortgage bonds and preferred stock by ALABAMA totaled $300 million and $50 million, respectively. In February 1999, Alabama Power Capital Trust III (the "Trust"), a statutory business trust established for the purpose of holding ALABAMA's junior subordinated notes and issuing trust preferred securities and common securities, sold $50 million of its capital auction preferred securities which are guaranteed by ALABAMA. The Trust will invest the proceeds in Series C junior subordinated notes. The net proceeds received by ALABAMA will be used to repay a portion of ALABAMA's outstanding short-term indebtedness. See Note (G) in the " Notes to the Condensed Financial Statements" herein for additional information. ALABAMA will continue to retire higher-cost debt and preferred stock and replace these securities with lower-cost capital as market conditions permit. 27 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of ALABAMA under "Capital Requirements," "Other Capital Requirements" and "Environmental Matters" in the Form 10-K for a description of ALABAMA's capital requirements for its construction program, maturing debt and environmental compliance efforts. Sources of Capital In addition to the financing activities previously described herein, ALABAMA plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings--if needed--will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. See Item 1 - - BUSINESS "Financing Programs" in the Form 10-K for additional information. To meet short-term cash needs and contingencies, ALABAMA had at March 31, 1999, approximately $21.9 million of cash and cash equivalents and had unused committed lines of credit of approximately $786 million (including $315 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. Reference is made to "Financing Activities" above for information related to the planned redemptions of certain First Mortgage Bonds. At March 31, 1999, ALABAMA had outstanding $322.7 million of commercial paper. 28 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO ALABAMA POWER COMPANY: We have reviewed the accompanying condensed balance sheet of ALABAMA POWER COMPANY as of March 31, 1999, and the related condensed statements of income for the three-month periods ended March 31, 1999 and 1998 and cash flows for the three-month periods ended March 31, 1999 and 1998. 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, 1998 (not presented herein) and, in our report dated February 10, 1999, 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, 1998 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. /s/ Arthur Andersen LLP Birmingham, Alabama May 10, 1999 29 GEORGIA POWER COMPANY 30
GEORGIA POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, --------------------------- 1999 1998 ------------ ------------ OPERATING REVENUES: Revenues $923,024 $979,334 Revenues from affiliates 7,906 4,809 ------------ ------------ Total operating revenues 930,930 984,143 ------------ ------------ OPERATING EXPENSES: Operation-- Fuel 178,212 176,631 Purchased power from non-affiliates 32,158 45,474 Purchased power from affiliates 54,921 43,685 Other 168,282 169,425 Maintenance 91,536 80,949 Depreciation and amortization 132,435 158,594 Taxes other than income taxes 49,002 52,195 Federal and state income taxes 63,380 80,649 ------------ ------------ Total operating expenses 769,926 807,602 ------------ ------------ OPERATING INCOME 161,004 176,541 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction - 178 Equity in earnings of unconsolidated subsidiary 733 1,082 Interest income 250 553 Other, net (6,637) (5,123) Income taxes applicable to other income 2,559 2,543 ------------ ------------ INCOME BEFORE INTEREST CHARGES 157,909 175,774 ------------ ------------ INTEREST CHARGES AND OTHER: Interest on long-term debt 41,111 45,056 Allowance for debt funds used during construction (2,182) (1,828) Interest on interim obligations 4,216 3,746 Amortization of debt discount, premium and expense, net 3,700 3,331 Other interest charges 3,311 4,014 Distributions on preferred securities of subsidiary companies 14,971 13,524 ------------ ------------ Interest charges and other, net 65,127 67,843 ------------ ------------ NET INCOME 92,782 107,931 DIVIDENDS ON PREFERRED STOCK 1,201 2,027 ------------ ------------ NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $91,581 $105,904 ============ ============ The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
31
GEORGIA POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, ------------------------------- 1999 1998 ------------- ------------- OPERATING ACTIVITIES: Net income $ 92,782 $ 107,931 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 149,086 185,484 Deferred income taxes and investment tax credits, net (1,894) (7,602) Other, net 7,003 (1,904) Changes in certain current assets and liabilities-- Receivables, net 86,184 49,944 Inventories (37,748) (31,165) Payables (90,358) (64,623) Taxes accrued (30,086) 17,940 Energy cost recovery, retail 10,997 14,016 Other 1,600 (15,862) ------------- ------------- Net cash provided from operating activities 187,566 254,159 ------------- ------------- INVESTING ACTIVITIES: Gross property additions (163,030) (80,276) Other (26,920) (42,479) ------------- ------------- Net cash used for investing activities (189,950) (122,755) ------------- ------------- FINANCING ACTIVITIES: Proceeds-- Preferred securities 200,000 - Pollution control bonds - 89,990 Senior notes 100,000 145,000 Retirements-- Preferred stock (35,679) - First mortgage bonds (204,000) (120,460) Special deposits - redemption funds - (89,990) Interim obligations, net 97,308 (79,929) Payment of preferred stock dividends 38 (4,354) Payment of common stock dividends (133,100) (132,100) Miscellaneous (20,576) (4,507) ------------- ------------- Net cash provided from (used for) financing activities 3,991 (196,350) ------------- ------------- NET CHANGE IN CASH AND CASH EQUIVALENTS 1,607 (64,946) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,272 83,333 ============= ============= CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,879 $ 18,387 ============= ============= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $65,971 $76,069 Income taxes (net of refunds) $18,929 $10,384 The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
32
GEORGIA POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At March 31, 1999 At December 31, (Unaudited) 1998 --------------- ---------------- UTILITY PLANT: Plant in service $15,511,121 $15,441,146 Less accumulated provision for depreciation 6,224,037 6,109,331 --------------- ---------------- 9,287,084 9,331,815 Nuclear fuel, at amortized cost 115,390 121,169 Construction work in progress 247,377 189,849 --------------- ---------------- Total 9,649,851 9,642,833 --------------- ---------------- OTHER PROPERTY AND INVESTMENTS: Southern Electric Generating Company, at equity 23,840 24,360 Nuclear decommissioning trusts, at market 328,430 284,536 Miscellaneous 34,322 34,781 --------------- ---------------- Total 386,592 343,677 --------------- ---------------- CURRENT ASSETS: Cash and cash equivalents 17,879 16,272 Receivables -- Customer accounts receivable 363,914 439,420 Other accounts and notes receivable 70,366 99,574 Affiliated companies 21,151 16,817 Accumulated provision for uncollectible accounts (5,500) (5,500) Fossil fuel stock, at average cost 141,268 104,133 Materials and supplies, at average cost 244,090 243,477 Prepayments 31,714 29,670 Vacation pay deferred 42,566 43,610 --------------- ---------------- Total 927,448 987,473 --------------- ---------------- DEFERRED CHARGES: Deferred charges related to income taxes 600,321 604,488 Premium on reacquired debt, being amortized 182,697 173,858 Prepaid pension costs 114,269 103,606 Debt expense, being amortized 59,984 51,261 Miscellaneous 136,480 126,422 --------------- ---------------- Total 1,093,751 1,059,635 --------------- ---------------- TOTAL ASSETS $12,057,642 $12,033,618 =============== ================ The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
33
GEORGIA POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At March 31, 1999 At December 31, (Unaudited) 1998 --------------- ---------------- 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 1,660,215 1,660,206 Premium on preferred stock 40 158 Retained earnings 1,738,039 1,779,558 --------------- ---------------- 3,742,544 3,784,172 Preferred stock 15,504 15,527 Company obligated mandatorily redeemable preferred securities of subsidiaries substantially all of whose assets are junior subordinated debentures or notes 889,250 689,250 Long-term debt 2,746,025 2,744,362 --------------- ---------------- Total 7,393,323 7,233,311 --------------- ---------------- CURRENT LIABILITIES: Preferred stock due within one year - 35,656 Long-term debt due within one year 295,510 399,429 Notes payable to banks 231,813 117,634 Commercial paper 206,347 223,218 Accounts payable -- Affiliated companies 48,426 75,774 Other 273,138 326,317 Customer deposits 70,033 69,584 Taxes accrued-- Federal and state income 59,586 15,801 Other 48,488 122,359 Interest accrued 55,644 60,187 Miscellaneous 106,117 100,793 --------------- ---------------- Total 1,395,102 1,546,752 --------------- ---------------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 2,246,714 2,249,613 Accumulated deferred investment tax credits 378,214 381,914 Deferred credits related to income taxes 279,111 284,017 Employee benefits provisions 181,802 177,148 Miscellaneous 183,376 160,863 --------------- ---------------- Total 3,269,217 3,253,555 --------------- ---------------- TOTAL CAPITALIZATION AND LIABILITIES $12,057,642 $12,033,618 =============== ================ The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
34 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1999 vs. FIRST QUARTER 1998 RESULTS OF OPERATIONS Earnings GEORGIA's net income after dividends on preferred stock for the first quarter of 1999 was $91.6 million compared to $105.9 million for the corresponding period in 1998. Earnings decreased by $14.3 million or 13.5% for this first quarter due primarily to the timing of earnings under a new retail rate order effective January 1999. Under the new order, fixed rate reductions and accelerated amortization are being recognized ratably throughout 1999. During 1998, variable accelerated depreciation recorded under the previous accounting order was primarily recognized during the higher revenue summer months. See Note (K) in the "Notes to the Condensed Financial Statements" herein for further details regarding the retail rate order. Significant income statement items appropriate for discussion include the following: Increase (Decrease) ---------------------------------- (in thousands) % Revenues..................................... $(56,310) (5.7) Revenues from affiliates..................... 3,097 64.4 Purchased power from non-affiliates ......... (13,316) (29.3) Purchased power from affiliates.............. 11,236 25.7 Maintenance expense.......................... 10,587 13.1 Depreciation and amortization expense........ (26,159) (16.5) Distributions on preferred securities of subsidiary companies...................... 1,447 10.7 Dividends on preferred stock................. (826) (40.7) Revenues. Revenues within the service area decreased by $40.9 million for the first quarter when compared to the corresponding period in 1998. Retail revenues, excluding fuel revenues which generally do not affect income, decreased $47.4 million for the first quarter of 1999 when compared to the same period in 1998 as a direct result of retail rate reductions ordered by the Georgia PSC. Energy sales within the service area rose slightly due primarily to a 1.7% increase in retail energy sales. Wholesale revenues within the service area decreased $9.8 million during the first quarter primarily as a result of a scheduled reduction in capacity revenues under a power supply agreement with OPC and a decrease in energy sales. Wholesale revenues outside the service area decreased by $13.9 million for the first quarter of 1999 when compared to the same period in 1998 primarily due to a decrease in energy sales. 35 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 operating affiliates within SOUTHERN, as well as purchases of energy, will vary from period to period depending on demand and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings. Purchased power from non-affiliates. The decrease for this first quarter of 1999 when compared to the same period in 1998 was mainly due to higher demand in 1998 for energy and higher energy purchases in 1998 related to power marketing activities, a majority of which were resold to non-affiliated third parties. These transactions had no significant effect on net income. Maintenance expense. These costs for the first quarter 1999 increased primarily due to scheduled outages at generating facilities. Depreciation and amortization expense. The decrease in the first quarter as compared to the same period in 1998 is primarily due to the decrease of accelerated depreciation and amortization charges of $12.8 million pursuant to the new retail rate order and the completion in 1998 of the amortization of deferred Plant Vogtle costs. See Note (K) in the "Notes to the Condensed Financial Statements" herein for details regarding the retail rate order. Distributions on preferred securities of subsidiary companies. Distributions for the first quarter 1999 increased primarily due to the issuance of additional mandatorily redeemable preferred securities in February 1999. Dividends on preferred stock. Dividends for the current quarter decreased as a result of the redemption during 1998 of adjustable rate preferred stock. Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors including regulatory matters and energy sales. With the enactment of the Energy Act and new legislation being discussed at federal and state levels to expand customer choice, the Southern electric system is positioning the business to meet the challenge of increasing competition. For additional information, see Item 1 - BUSINESS - "Competition" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of GEORGIA in the Form 10-K. Effective January 1, 1999, GEORGIA began operating under a new three-year retail rate order. Under the order, GEORGIA's earnings are evaluated against a retail return on common equity range of 10% to 12.5%. In compliance with the order, retail rates were decreased by $262 million on an annual basis effective January 1, 1999. Reference is made to Note (K) in the "Notes to the Condensed Financial Statements" herein and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of GEORGIA in the Form 10-K for additional information. 36 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION In September 1998, OPC decreased its purchases of capacity under a power supply agreement by 250 megawatts, resulting in a $16 million reduction in 1999 revenues. Under the amended 1995 Integrated Resource Plan approved by the Georgia PSC in March 1997, the resources associated with the decreased purchases in 1998 will be used to meet the needs of GEORGIA's retail customers through 2004. As a result of additional reduction notices given by OPC under its agreement with GEORGIA, GEORGIA's capacity revenues received from OPC were estimated to decrease by an additional $7 million in 1999, $18 million in 2000 and $4 million in 2001. Effective April 1, 1999, GEORGIA and OPC entered into a new agreement which will delay, in part, planned purchase reductions by OPC. The new agreement has been filed with the FERC under SOUTHERN's market-based rate authority. Based on the above, GEORGIA's capacity revenues received from OPC are now estimated to decrease by approximately $6 million in 1999, $15 million in 2000 and $7 million in 2001. Compliance costs related to the Clean Air Act and other environmental issues could affect earnings. For additional information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Issues" of GEORGIA in the Form 10-K. GEORGIA's plans to achieve Year 2000 compliance have been implemented and are included in the SOUTHERN system's Year 2000 Program. The costs related to GEORGIA's Year 2000 program, including GEORGIA's share of costs of Southern Nuclear Operating Company, are expected to be approximately $38 million. From its inception through March 31, 1999, the Year 2000 program costs, recognized as expense, amounted to $32 million. For additional information, see SOUTHERN's MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - "Future Earnings Potential" herein. Reference is made to Notes (B), (C), (F), (G), (K) through (M) in the "Notes to the Condensed Financial Statements" herein for discussion of various contingencies and other matters which may affect future earnings potential. FINANCIAL CONDITION Overview The major change in GEORGIA's financial condition during the first three months of 1999 was the addition of approximately $163 million to gross 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. 37 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Financing Activities During the first three months of 1999, redemptions of first mortgage bonds and preferred stock by GEORGIA totaled $204 million and $35.7 million, respectively. In February 1999, Georgia Power Capital Trust IV, a statutory business trust established for the purpose of holding GEORGIA's junior subordinated notes and issuing trust preferred securities and common securities, sold $200 million of its 6.85% trust preferred securities, which are guaranteed by GEORGIA. (See Note (G) in the " Notes to the Condensed Financial Statements" herein and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Financing Activities" of GEORGIA in the Form 10-K for further details.) In March 1999, GEORGIA issued $100 million of 6 5/8% senior notes due March 31, 2039. The proceeds from this issuance were used to repay a portion of GEORGIA's outstanding short-term indebtedness. 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. See Item 1 - - BUSINESS "Financing Programs" in the Form 10-K for additional information. To meet short-term cash needs and contingencies, GEORGIA had at March 31, 1999, approximately $17.9 million of cash and cash equivalents and approximately $1.3 billion of unused credit arrangements with banks. Of the $1.3 billion, $980 million provides liquidity support to GEORGIA's variable rate pollution control bonds. At March 31, 1999, GEORGIA had $231.8 million and $206.3 million outstanding in short-term notes payable to banks and commercial paper, respectively. Management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 38 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO GEORGIA POWER COMPANY: We have reviewed the accompanying condensed balance sheet of GEORGIA POWER COMPANY (a Georgia corporation) as of March 31, 1999, and the related condensed statements of income for the three-month periods ended March 31, 1999 and 1998 and cash flows for the three-month periods ended March 31, 1999 and 1998. 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, 1998 (not presented herein), and, in our report dated February 10, 1999, 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, 1998, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. /s/ Arthur Andersen LLP Atlanta, Georgia May 10, 1999 39 GULF POWER COMPANY 40
GULF POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, ------------ ------------ 1999 1998 ------------ ------------ OPERATING REVENUES: Revenues $127,435 $134,553 Revenues from affiliates 7,071 6,397 ------------ ------------ Total operating revenues 134,506 140,950 ------------ ------------ OPERATING EXPENSES: Operation-- Fuel 38,753 41,443 Purchased power from non-affiliates 4,156 4,733 Purchased power from affiliates 3,575 3,888 Other 27,142 31,281 Maintenance 16,593 12,896 Depreciation and amortization 16,078 14,703 Taxes other than income taxes 12,544 12,619 Federal and state income taxes 2,641 4,150 ------------ ------------ Total operating expenses 121,482 125,713 ------------ ------------ OPERATING INCOME 13,024 15,237 OTHER INCOME (EXPENSE): Interest income 241 123 Other, net (812) (1,203) Income taxes applicable to other income 161 357 ------------ ------------ INCOME BEFORE INTEREST CHARGES 12,614 14,514 ------------ ------------ INTEREST CHARGES AND OTHER: Interest on long-term debt 4,950 4,877 Other interest charges 278 275 Interest on notes payable 485 338 Amortization of debt discount, premium and expense, net 498 578 Distributions on preferred securities of subsidiary companies 1,550 1,384 ------------ ------------ Interest charges and other, net 7,761 7,452 ------------ ------------ NET INCOME 4,853 7,062 DIVIDENDS ON PREFERRED STOCK 54 209 ------------ ------------ NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 4,799 $ 6,853 ============ ============ The accompanying notes as they relate to GULF are an integral part of these condensed statements.
41
GULF POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, ---------------------------- 1999 1998 ------------ ----------- OPERATING ACTIVITIES: Net income $ 4,853 $ 7,062 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 17,026 18,518 Deferred income taxes (1,060) (1,918) Other, net 6,015 (1,051) Changes in certain current assets and liabilities-- Receivables, net 8,090 15,544 Inventories (17,392) (6,011) Payables (5,832) (12,499) Taxes accrued 2,903 3,431 Current costs of 1995 coal contract renegotiation - 812 Other (5,762) (5,412) ------------ ----------- Net cash provided from operating activities 8,841 18,476 ------------ ----------- INVESTING ACTIVITIES: Gross property additions (12,529) (11,148) Other (9,962) (1,974) ------------ ----------- Net cash used for investing activities (22,491) (13,122) ------------ ----------- FINANCING ACTIVITIES: Proceeds-- Preferred securities - 45,000 Retirements-- Other long-term debt - (5,754) Notes payable, net 28,500 (20,500) Payment of preferred stock dividends (54) (210) Payment of common stock dividends (15,000) (24,100) Miscellaneous (5) (2,373) ------------ ----------- Net cash provided from (used for) financing activities 13,441 (7,937) ------------ ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS (209) (2,583) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 969 4,707 ============ =========== CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 760 $ 2,124 ============ =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $7,219 $6,997 Income taxes - $716 The accompanying notes as they relate to GULF are an integral part of these condensed statements.
42
GULF POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At March 31, 1999 At December 31, (Unaudited) 1998 --------------------------------- UTILITY PLANT: Plant in service $1,812,822 $1,809,901 Less accumulated provision for depreciation 791,301 784,111 -------------- -------------- 1,021,521 1,025,790 Construction work in progress 35,411 34,863 -------------- -------------- Total 1,056,932 1,060,653 -------------- -------------- OTHER PROPERTY AND INVESTMENTS: 1,587 588 -------------- -------------- CURRENT ASSETS: Cash and cash equivalents 760 969 Receivables -- Customer accounts receivable 42,494 49,067 Other accounts and notes receivable 3,091 3,514 Affiliated companies 2,333 3,442 Accumulated provision for uncollectible accounts (981) (996) Fossil fuel stock, at average cost 41,757 24,213 Materials and supplies, at average cost 27,873 28,025 Regulatory clauses under recovery 10,657 9,737 Prepayments 4,760 5,690 Vacation pay deferred 4,035 4,035 -------------- -------------- Total 136,779 127,696 -------------- -------------- DEFERRED CHARGES: Deferred charges related to income taxes 25,297 25,308 Debt expense, being amortized 21,033 21,448 Prepaid pension costs 14,773 13,770 Miscellaneous 17,520 18,438 -------------- -------------- Total 78,623 78,964 -------------- -------------- TOTAL ASSETS $1,273,921 $1,267,901 ============== ============== The accompanying notes as they relate to GULF are an integral part of these condensed statements.
43
GULF POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At March 31, 1999 At December 31, (Unaudited) 1998 --------------------------------- CAPITALIZATION: Common stock equity -- Common stock (without par value) -- authorized and outstanding -- 992,717 shares $ 38,060 $ 38,060 Paid-in capital 218,960 218,960 Premium on preferred stock 12 12 Retained earnings 160,419 170,620 -------------- -------------- 417,451 427,652 Preferred stock 4,236 4,236 Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding Company Junior Subordinated Notes 85,000 85,000 Long-term debt 317,420 317,341 -------------- -------------- Total 824,107 834,229 -------------- -------------- CURRENT LIABILITIES: Long-term debt due within one year 27,000 27,000 Notes payable 60,000 31,500 Accounts payable -- Affiliated companies 11,949 19,756 Other 17,449 23,697 Customer deposits 12,600 12,560 Taxes accrued 6,795 7,432 Interest accrued 7,023 5,184 Regulatory clauses over recovery 4,424 6,037 Vacation pay accrued 4,035 4,035 Dividends declared 54 54 Miscellaneous 1,534 3,960 -------------- -------------- Total 152,863 141,215 -------------- -------------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 165,668 166,118 Deferred credits related to income taxes 51,772 52,465 Accumulated provision for property damage 3,230 1,605 Accumulated deferred investment tax credits 29,152 29,632 Accumulated provision for postretirement benefits 24,608 23,534 Miscellaneous 22,521 19,103 -------------- -------------- Total 296,951 292,457 -------------- -------------- TOTAL CAPITALIZATION AND LIABILITIES $1,273,921 $1,267,901 ============== ============== The accompanying notes as they relate to GULF are an integral part of these condensed statements.
44 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1999 vs. FIRST QUARTER 1998 RESULTS OF OPERATIONS Earnings GULF's net income after dividends on preferred stock for the first quarter of 1999 was $4.8 million, compared to $6.9 million for the corresponding period of 1998. The earnings decrease is attributed to higher maintenance expenses during this quarter when compared to the same period in 1998. Significant income statement items appropriate for discussion include the following: Increase (Decrease) ----------------------------------- First Quarter ----------------------------------- (in thousands) % Revenues.................................. $ (7,118) (5.3) Revenues from affiliates.................. 674 10.5 Fuel expense.............................. (2,690) (6.5) Purchased power from non-affiliates ...... (577) (12.2) Purchased power from affiliates........... (313) (8.1) Other operation expense................... (4,139) (13.2) Maintenance expense....................... 3,697 28.7 Revenues. Revenues for the first quarter decreased due primarily to the recovery of lower fuel costs. The price per ton of coal, which is GULF's primary fuel source, was lower in the first quarter of 1999 compared to the same period in 1998 as the costs related to prior year coal contract renegotiations were fully amortized by March 1998 and a major coal contract price was reduced. Excluding recovery of fuel expense and certain other expenses that do not affect income, retail revenues increased $1.1 million for the quarter. This increase reflects slightly higher retail energy sales of 0.3%, which can be attributed to customer growth in the residential and commercial classes. Revenues from non-territorial wholesale energy sales decreased $2.6 million for the first quarter of 1999 when compared to the corresponding period of 1998. The decrease in non-territorial wholesale energy sales was primarily due to decreased sales through power marketing activities. These sales were largely offset by purchases from non-affiliates and, as a result, had no significant effect on net income. Revenues from affiliates and Purchased power from affiliates. Revenues from sales to affiliated companies within the Southern electric system, as well as purchases of energy, will vary from period to period depending on demand and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings. Fuel expense. The decrease in fuel expense is attributed to lower fuel costs, reflecting the reduction of a major coal contract price. 45 GULF 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 this quarter when compared to the same period in 1998 due primarily to a decrease in power marketing activities, a majority of which were resold to non-affiliated third parties. These transactions had no significant effect on net income. Other operation expense. This item decreased in this quarter when compared to the same period in 1998 due to prior year payments related to renegotiations of coal supply contracts being fully amortized by March 1998. Maintenance expense. These costs for the first quarter of 1999 increased primarily due to scheduled outages at production facilities. 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 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. GULF's plans to achieve Year 2000 readiness have been implemented and are included in the SOUTHERN system's Year 2000 Program. The costs related to GULF's Year 2000 program are expected to be $4.9 million. From its inception through March 31, 1999, the Year 2000 program costs, recognized as expense, amounted to $3.7 million. For additional information, see SOUTHERN's MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - "Future Earnings Potential" herein. In reference to the ongoing matters with the Florida PSC concerning GULF's authorized return on equity (ROE) and the outstanding balances of certain regulatory assets, GULF filed a revised plan on April 6, 1999. The staff countered with another proposal filed on April 8, 1999. At the agenda conference on April 20, 1999, the Florida PSC approved the staff's plan with several modifications. The changes approved by the Florida PSC include the following: a reduction in the authorized return mid-point from 12.0% to 11.5%, the sharing of revenues for a period of 3 years above an earnings level of 12.5% ROE up to 14.0% ROE, revenue credits to customers and the write-off of regulatory assets totaling $7.1 million per year from 1999 through 2001. An order outlining the changes associated with earnings, revenue sharing, and other regulatory issues will be issued by the Florida PSC. Any interested party will have the opportunity to protest the order within 20 days from the date of the order. For additional information, see Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" and Item 1 - BUSINESS - "Regulation - State Commissions" of GULF in the Form 10-K. 46 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The FASB has issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which must be adopted by the year 2000. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Adoption of this statement is not expected to have a material impact on GULF's financial statements. Reference is made to Notes (B) and (F) in the "Notes to the Condensed Financial Statements" herein for discussion of various contingencies and other matters which may affect future earnings potential. FINANCIAL CONDITION Overview Major changes in GULF's financial condition during the first three months of 1999 included the addition of approximately $12.5 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 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. 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. See Item 1 - - BUSINESS "Financing Programs" in the Form 10-K for additional information. To meet short-term cash needs and contingencies, GULF had at March 31, 1999, approximately $760 thousand of cash and cash equivalents and $31.5 million of unused committed lines of credit with banks in addition to $61.9 million liquidity support for variable rate pollution control bonds. At March 31, 1999, GULF had $60.0 million of short-term notes payable to banks. Management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 47 MISSISSIPPI POWER COMPANY 48
MISSISSIPPI POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, --------------------------- 1999 1998 ------------ ------------ OPERATING REVENUES: Revenues $121,400 $121,281 Revenues from affiliates 1,035 875 ------------ ------------ Total operating revenues 122,435 122,156 ------------ ------------ OPERATING EXPENSES: Operation-- Fuel 31,522 27,288 Purchased power from non-affiliates 2,345 4,300 Purchased power from affiliates 8,902 11,296 Other 27,047 23,846 Maintenance 11,601 11,394 Depreciation and amortization 11,789 11,653 Taxes other than income taxes 11,107 12,080 Federal and state income taxes 4,273 4,932 ------------ ------------ Total operating expenses 108,586 106,789 ------------ ------------ OPERATING INCOME 13,849 15,367 OTHER INCOME (EXPENSE): Interest income 81 50 Other, net 634 233 Income taxes applicable to other income (309) (313) ------------ ------------ INCOME BEFORE INTEREST CHARGES 14,255 15,337 ------------ ------------ INTEREST AND OTHER CHARGES: Interest on long-term debt 5,010 4,798 Interest on notes payable 412 428 Amortization of debt discount, premium and expense, net 356 388 Other interest charges 82 141 Distributions on preferred securities of subsidiary companies 699 699 ------------ ------------ Interest and other charges, net 6,559 6,454 ------------ ------------ NET INCOME 7,696 8,883 DIVIDENDS ON PREFERRED STOCK 503 495 ------------ ------------ NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 7,193 $ 8,388 ============ ============ The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
49
MISSISSIPPI POWER COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, ---------------------------- 1999 1998 ------------ ----------- OPERATING ACTIVITIES: Net income $ 7,696 $ 8,883 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 12,801 12,680 Deferred income taxes (991) 72 Other, net (2,927) (492) Changes in certain current assets and liabilities-- Receivables, net 2,570 3,604 Inventories (6,109) (5,457) Payables (8,912) (5,732) Taxes accrued (15,750) (16,612) Other (3,582) (2,537) ------------ ----------- Net cash used for operating activities (15,204) (5,591) ------------ ----------- INVESTING ACTIVITIES: Gross property additions (12,897) (12,886) Other (6,314) (4,933) ------------ ----------- Net cash used for investing activities (19,211) (17,819) ------------ ----------- FINANCING ACTIVITIES: Retirements-- Preferred stock - (87) First mortgage bonds - (35,000) Notes payable, net 48,500 69,000 Payment of preferred stock dividends (503) (495) Payment of common stock dividends (13,800) (12,700) Miscellaneous - (16) ------------ ----------- Net cash provided from financing activities 34,197 20,702 ------------ ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS (218) (2,708) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,327 4,432 ============ =========== CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,109 $ 1,724 ============ =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $4,543 $4,509 Income taxes $1,900 ($534) The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
50
MISSISSIPPI POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At March 31, 1999 At December 31, (Unaudited) 1998 --------------------------------- UTILITY PLANT: Plant in service, at original cost $1,556,279 $1,553,112 Less accumulated provision for depreciation 594,641 583,957 -------------- -------------- 961,638 969,155 Construction work in progress 62,569 51,517 -------------- -------------- Total 1,024,207 1,020,672 -------------- -------------- OTHER PROPERTY AND INVESTMENTS: 978 979 -------------- -------------- CURRENT ASSETS: Cash and cash equivalents 1,109 1,327 Receivables -- Customer accounts receivable 23,309 29,829 Regulatory clauses under recovery 8,762 8,042 Other accounts and notes receivable 14,469 12,495 Affiliated companies 12,014 10,946 Accumulated provision for uncollectible accounts (433) (621) Fossil fuel stock, at average cost 22,591 16,418 Materials and supplies, at average cost 18,671 18,735 Current portion of accumulated deferred income taxes 5,187 4,248 Prepayments 6,136 1,651 Vacation pay deferred 4,717 4,717 -------------- -------------- Total 116,532 107,787 -------------- -------------- DEFERRED CHARGES: Debt expense and loss, being amortized 13,386 13,713 Deferred charges related to income taxes 21,110 22,697 Long-term notes receivable 1,846 2,072 Work force reduction plan 11,210 12,748 Miscellaneous 10,389 8,937 -------------- -------------- Total 57,941 60,167 -------------- -------------- TOTAL ASSETS $1,199,658 $1,189,605 ============== ============== The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
51
MISSISSIPPI POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At March 31, 1999 At December 31, (Unaudited) 1998 --------------------------------- 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 179,473 179,474 Premium on preferred stock 326 326 Retained earnings 167,134 173,740 -------------- -------------- 384,624 391,231 Preferred stock 31,809 31,809 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding Company Junior Subordinated Notes 35,000 35,000 Long-term debt 292,773 292,744 -------------- -------------- Total 744,206 750,784 -------------- -------------- CURRENT LIABILITIES: Long-term debt due within one year 50,020 50,020 Notes payable 61,500 13,000 Accounts payable -- Affiliated companies 9,163 8,788 Regulatory clauses over recovery 5,802 4,412 Other 31,251 47,113 Customer deposits 3,366 3,272 Taxes accrued-- Federal and state income 4,844 1,124 Other 11,909 31,379 Interest accrued 4,616 2,955 Miscellaneous 10,758 11,753 -------------- -------------- Total 193,229 173,816 -------------- -------------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 144,315 143,852 Accumulated deferred investment tax credits 25,605 25,913 Deferred credits related to income taxes 35,175 37,277 Postretirement benefits other than pension 26,050 25,869 Accumulated provision for property damage 1,291 910 Work force reduction plan 12,496 13,051 Miscellaneous 17,291 18,133 -------------- -------------- Total 262,223 265,005 -------------- -------------- TOTAL CAPITALIZATION AND LIABILITIES $1,199,658 $1,189,605 ============== ============== The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
52 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1999 vs. FIRST QUARTER 1998 RESULTS OF OPERATIONS Earnings MISSISSIPPI's net income after dividends on preferred stock for the first quarter of 1999 was $7.2 million compared to $8.4 million for the same period of 1998. The decrease in earnings is attributed to increased operating expenses. Significant income statement items appropriate for discussion include the following: Increase (Decrease) ------------------------------- First Quarter ------------------------------- (in thousands) % Revenues........................................ $ 119 0.1 Revenues from affiliates........................ 160 18.3 Fuel expense.................................... 4,234 15.5 Purchased power from non-affiliates ............ (1,955) (45.5) Purchased power from affiliates................. (2,394) (21.2) Other operation expense......................... 3,201 13.4 Revenues. The slight improvement in revenues for this quarter reflects increased energy sales in the retail sector, in particular to commercial customers. This revenue increase was partially offset by a decrease in non-territorial energy sales. Revenues from territorial energy sales increased $3.2 million and revenues from non-territorial energy sales decreased $2.3 million. Energy sales to commercial customers increased due to increased tourism and continued growth in this sector. Retail revenues, excluding those revenues which represent the recovery of fuel expense and certain other expenses and do not affect income, decreased $650 thousand for the current quarter. Wholesale territorial revenues, excluding fuel revenues which do not affect income, increased $3.1 million for the current quarter. 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. 53 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Fuel expense. These costs increased during the current quarter due to an increase in generation resulting from a higher demand for energy. Purchased power from non-affiliates. This item decreased when compared to the same period in 1998 due primarily to increased availability of generation from MISSISSIPPI's generating plants. Other operation expense. The increase for this quarter compared to the same period in 1998 is attributed primarily to increased administrative and general expenses. The expenses rose due to higher amortization of deferred costs for the work force reduction plan and increased Year 2000 expenses. 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. With the enactment of the Energy Act and new legislation being discussed at federal and state levels to expand customer choice, the Southern electric system is positioning the business to meet the challenge of increasing competition. For additional information, see Item 1 - BUSINESS - "Competition" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of MISSISSIPPI in the Form 10-K. Compliance costs related to the Clean Air Act could affect earnings if such costs cannot be recovered. MISSISSIPPI's 1999 ECO Plan filing was approved, as filed, by the Mississippi PSC on March 18, 1999 and resulted in a slight increase in customer prices. 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. MISSISSIPPI's plans to achieve Year 2000 readiness have been implemented and are included in the SOUTHERN system's Year 2000 Program. The costs related to MISSISSIPPI's Year 2000 program are expected to be $4.9 million. From its inception through March 31, 1999, the Year 2000 program costs, recognized as expense, amounted to $3.9 million. For additional information, see SOUTHERN's MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - "Future Earnings Potential" herein. 54 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The FASB has issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which must be adopted by the year 2000. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. MISSISSIPPI has not yet quantified the impact of adopting this statement on its financial statements; however, the adoption could increase volatility in earnings. Reference is made to Notes (B) and (F) in the "Notes to the Condensed Financial Statements" herein for discussion of various contingencies and other matters which may affect future earnings potential. FINANCIAL CONDITION Overview Major changes in MISSISSIPPI's financial condition during the first three months of 1999 included the addition of approximately $12.9 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 MISSISSIPPI plans to continue, to the extent possible, a program to retire higher-cost debt and replace these securities with lower-cost capital. Capital Requirements In April 1999, MISSISSIPPI and Escatawpa Funding ("Escatawpa"), a limited partnership, entered into a lease agreement whereby MISSISSIPPI will design and construct, as agent for Escatawpa, a 1,064 megawatt natural gas combined cycle facility. It is expected that the project will cost approximately $406 million, and upon completion of the facility, MISSISSIPPI will lease the facility from Escatawpa for an initial term of approximately 10 years. For additional information, reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Capital Requirements for Construction" of MISSISSIPPI and Notes 3 and 4 to the financial statements of MISSISSIPPI in Item 8 of the Form 10-K. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of MISSISSIPPI under "Capital Requirements for Construction," "Environmental Matters" and "Other Capital Requirements" in the Form 10-K for a description of MISSISSIPPI's capital requirements for its construction program, environmental compliance efforts, sinking fund requirements and maturities of long-term debt. Sources of Capital In addition to the financing activities previously described herein, MISSISSIPPI plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings--if needed--will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. See Item 1 BUSINESS - "Financing Programs" in the Form 10-K for additional information. 55 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION To meet short-term cash needs and contingencies, MISSISSIPPI had at March 31, 1999, approximately $1.1 million of cash and cash equivalents and approximately $76.3 million of unused committed credit arrangements with banks (including $10.8 million of such arrangements under which borrowings may be made only to fund purchase obligations relating to variable rate pollution control bonds). At March 31, 1999, MISSISSIPPI had short-term notes payable outstanding of $61.5 million. Management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 56 SAVANNAH ELECTRIC AND POWER COMPANY 57
SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, ------------------------ 1999 1998 ----------- ----------- OPERATING REVENUES: Revenues $46,732 $48,209 Revenues from Affiliates 366 172 ----------- ----------- Total operating revenues 47,098 48,381 ----------- ----------- OPERATING EXPENSES: Operation-- Fuel 6,593 5,808 Purchased power from non-affiliates 1,092 1,213 Purchased power from affiliates 9,177 10,164 Other 11,279 11,145 Maintenance 4,439 3,678 Depreciation and amortization 5,977 5,258 Taxes other than income taxes 2,904 2,838 Federal and state income taxes 720 2,063 ----------- ----------- Total operating expenses 42,181 42,167 ----------- ----------- OPERATING INCOME 4,917 6,214 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 21 21 Interest income 36 68 Other, net (444) (429) Income taxes applicable to other income 158 133 ----------- ----------- INCOME BEFORE INTEREST CHARGES 4,688 6,007 ----------- ----------- INTEREST AND OTHER CHARGES: Interest on long-term debt 2,475 2,710 Allowance for debt funds used during construction (26) (26) Interest on notes payable 21 26 Amortization of debt discount, premium and expense, net 233 187 Distributions on preferred securities of subsidiary trust 685 - Other interest charges 91 103 ----------- ----------- Interest and other charges, net 3,479 3,000 ----------- ----------- NET INCOME 1,209 3,007 DIVIDENDS ON PREFERRED STOCK - 581 ----------- ----------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $1,209 $2,426 =========== =========== The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
58
SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, --------------------------- 1999 1998 ----------- ----------- OPERATING ACTIVITIES: Net income $ 1,209 $3,007 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 6,438 5,654 Deferred income taxes and investment tax credits, net (555) 20 Allowance for equity funds used during construction (21) (21) Other, net 1,329 (691) Changes in certain current assers and liabilities-- Receivables, net 2,913 4,917 Inventories (348) (1,778) Payables (4,064) (3,049) Taxes accrued (635) (1,143) Other 627 (3,333) ----------- ----------- Net cash provided from operating activities 6,893 3,583 ----------- ----------- INVESTING ACTIVITIES: Gross property additions (9,398) (4,250) Other 175 (703) ----------- ----------- Net cash used for investing activities (9,223) (4,953) ----------- ----------- FINANCING ACTIVITIES: Proceeds-- Other long-term debt - 30,000 Retirements-- First mortgage bonds - (1,100) Other long-term debt (182) (167) Notes payable, net 6,500 3,000 Payment of preferred stock dividends - (581) Payment of common stock dividends (6,200) (5,800) Miscellaneous (12) (703) ----------- ----------- Net cash provided from financing activities 106 24,649 ----------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS (2,224) 23,279 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,962 6,144 =========== =========== CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,738 $29,423 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $3,209 $3,332 Income taxes - $984 The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
59
SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At March 31, 1999 At December 31, (Unaudited) 1998 ------------------------------ UTILITY PLANT: Plant in service, at original cost $788,416 $781,964 Less accumulated provision for depreciation 347,082 341,930 ------------ ------------- 441,334 440,034 Construction work in progress 5,123 2,908 ------------ ------------- Total 446,457 442,942 ------------ ------------- OTHER PROPERTY AND INVESTMENTS: 1,420 1,420 ------------ ------------- CURRENT ASSETS: Cash and cash equivalents 3,738 5,962 Receivables -- Customer accounts receivable 15,685 18,030 Other accounts and notes receivable 3,661 3,543 Affiliated companies 2,416 1,388 Accumulated provision for uncollectible accounts (209) (284) Fuel cost under recovery 15,839 17,628 Fossil fuel stock, at average cost 4,789 4,984 Materials and supplies, at average cost 7,039 6,496 Prepayments 4,709 4,772 ------------ ------------- Total 57,667 62,519 ------------ ------------- DEFERRED CHARGES: Deferred charges related to income taxes 17,096 17,130 Debt issue expense, being amortized 3,530 3,554 Premium on reacquired debt, being amortized 8,373 8,570 Prepaid pension costs 2,758 3,281 Cash surrender value of life insurance for deferred compensation plans 14,179 14,179 Miscellaneous 2,678 2,204 ------------ ------------- Total 48,614 48,918 ------------ ------------- TOTAL ASSETS $554,158 $555,799 ============ ============= The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
60
SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At March 31, 1999 At December 31, (Unaudited) 1998 ------------------------------ CAPITALIZATION: Common stock equity -- Common stock (par value 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 107,963 112,954 ------------ ------------- 170,874 175,865 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding Company Junior Subordinated Notes 40,000 40,000 Long-term debt 163,274 163,443 ------------ ------------- Total 374,148 379,308 ------------ ------------- CURRENT LIABILITIES: Long-term debt due within one year 676 689 Notes payable 6,500 - Accounts payable -- Affiliated companies 5,392 5,014 Other 6,533 10,833 Customer deposits 5,321 5,224 Taxes accrued-- Federal and state income 1,589 2,467 Other 2,256 2,891 Interest accrued 3,862 3,815 Vacation pay accrued 2,008 1,978 Miscellaneous 7,090 6,700 ------------ ------------- Total 41,227 39,611 ------------ ------------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 83,098 82,778 Accumulated deferred investment tax credits 11,777 11,943 Deferred credits related to income taxes 21,318 21,349 Deferred compensation plans 9,976 9,788 Postretirement benefits 6,824 6,434 Miscellaneous 5,790 4,588 ------------ ------------- Total 138,783 136,880 ------------ ------------- TOTAL CAPITALIZATION AND LIABILITIES $554,158 $555,799 ============ ============= The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
61 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1999 vs. FIRST QUARTER 1998 RESULTS OF OPERATIONS Earnings SAVANNAH's net income after dividends on preferred stock for the first quarter of 1999 was $1.2 million as compared to $2.4 million for the same period of 1998. The earnings decrease is attributed to lower operating revenues and increased operating expenses, both reflecting the Georgia PSC's accounting order. For additional information, see Note (N) in the "Notes to the Condensed Financial Statements" herein for details regarding the accounting order. Significant income statement items appropriate for discussion include the following: Increase (Decrease) ------------------------------ First Quarter ------------------------------ (in thousands) % Revenues....................................... $(1,477) (3.1) Fuel expense................................... 785 13.5 Maintenance expense............................ 761 20.7 Depreciation and amortization expense.......... 719 13.7 Interest on long-term debt..................... 450 16.6 Dividends on preferred stock................... (581) (100.0) Revenues. The drop in first quarter 1999 revenues is primarily attributed to a decrease in total energy sales primarily to territorial customers and the tariff reduction implemented as a part of the Georgia PSC accounting order. Territorial energy sales to residential and commercial customers were up 3.4% and 1.3%, but were down 30.9% to industrial customers. Energy sales were down to industrial customers due to low demand from one industrial customer and the shut-down of another industrial customer's facilities. For additional information, see "Future Earnings Potential" herein. Fuel expenses. These costs rose from the same period in 1998 due to higher generation and a change in fuel mix. Maintenance expense. The first quarter of 1999 increase is attributed primarily to the timing of maintenance expenses at steam generating facilities. Depreciation and amortization expense. This item increased during this quarter compared to the corresponding period in 1998 due mainly to additional depreciation charges pursuant to the Georgia PSC accounting order. Interest on long-term debt. During the first quarter of 1999, interest on long-term debt increased when compared to the same period in 1998 due to a higher level of debt. Dividends on preferred stock. The change in this item is a direct result of the redemption in November 1998 of all of SAVANNAH's outstanding preferred stock. 62 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a less regulated, more competitive environment. In June 1998, the Georgia PSC approved a four-year accounting order for SAVANNAH. Reference is made to Note (N) in the "Notes to the Condensed Financial Statements" herein and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SAVANNAH in the Form 10-K for additional information. In August, 1998, one of SAVANNAH's largest industrial customers added its own steam turbine unit. The impact to SAVANNAH's revenues from one period to the next will be determined by the reliability of the unit and market conditions. Further, in October 1998, another of Savannah's largest customers shut-down its Savannah operations indefinitely. Base revenues from this customer had averaged $2 million annually or approximately $500 thousand per quarter. Under the terms of SAVANNAH's contract this customer is obligated to pay $1.1 million annually through 2004. In the first quarter of 1999, the impact on SAVANNAH's revenues from this shut-down was $0.2 million. 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. SAVANNAH's plans to achieve Year 2000 readiness have been implemented and are included in the SOUTHERN system's Year 2000 Program. The costs related to SAVANNAH's Year 2000 program are expected to be $1.2 million. From its inception through March 31, 1999, the Year 2000 program costs, recognized as expense, amounted to $0.9 million. For additional information, see SOUTHERN's MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - "Future Earnings Potential" herein. The FASB has issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which must be adopted by the year 2000. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SAVANNAH has not yet quantified the impact of adopting this statement on its financial statements; however, the adoption could increase volatility in earnings. Reference is made to Notes (B) and (N) in the "Notes to the Condensed Financial Statements" herein for discussion of various contingencies and other matters which may affect future earnings potential. 63 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 three months of 1999 included the addition of approximately $9.4 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 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. See Item 1 - - BUSINESS - "Financing Programs" in the Form 10-K for additional information. To meet short-term cash needs and contingencies, SAVANNAH had at March 31, 1999, approximately $3.7 million of cash and cash equivalents and approximately $54 million of unused credit arrangements with banks. At March 31, 1999, SAVANNAH had $6.5 million outstanding of 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. 64 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, H, I, J, K, L, M, O, P ALABAMA A, B, C, F, G, H, I, J GEORGIA A, B, C, F, G, K, L, M GULF A, B, F MISSISSIPPI A, B, F SAVANNAH A, B, N 65 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 necessary to present fairly the results for the periods ended March 31, 1999 and 1998. 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 obligations related to the retirement 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. Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Derivative Financial Instruments" and 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 exchange rate fluctuations. At March 31, 1999, the status of outstanding non-trading related derivative contracts was as follows: 66 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
Year of Maturity or Notional Unrealized Type Termination Amount Gain (Loss) (in thousands) Interest rate swaps 2002-2016 $892,120 $(48,943) 2001-2012 (pound)600,000 $(129,376) 2002-2007 DM691,000 $(30,770) Cross currency swaps 2001-2007 (pound)413,800 $31,556 Cross currency swaption 2003 DM555,000 $(2,377) (pound) - Denotes British pounds sterling. DM - Denotes Deutschemark.
In January 1998, Southern Energy and Vastar Resources, Inc. combined their energy trading and marketing activities to form a joint venture. Southern Energy's investment in the joint venture is accounted for under the equity method of accounting. SOUTHERN and Vastar have jointly made guarantees to certain counterparties regarding performance of contractual commitments by the joint venture. At March 31, 1999, outstanding guarantees related to the estimated fair value of net contractual commitments were approximately $79 million. Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SOUTHERN in Item 7 and Note 1 to the financial statements of SOUTHERN under "Financial Instruments for Trading Activities" in Item 8 of the Form 10-K. (E) SOUTHERN's principal business segment -- or its traditional core business -- is the five regulated electric utility operating companies that provide electric service in four southeastern states. The other reportable business segment is non-traditional energy services provided by Southern Energy, which develops and manages electricity and other energy-related projects both in the United States and abroad. Intersegment revenues are not material. Financial data for business segments for the periods covered in the Form 10-Q are as follows:
Regulated Domestic Southern Energy All Electric Non-Traditional Services Other Reconciling Utilities International Domestic Total (Note) Eliminations Consolidated ------------ -------------------------------- --------- ------------- --------------- Three Months Ended March 31, 1999: (in millions) Operating revenues $ 1,882 $ 461 $ 61 $ 522 $ 43 $ (5) $ 2,442 Segment net income (loss) 168 88 - 88 (33) 1 224 Total assets at 3/31/99 24,397 9,378 2,534 11,912 1,381 (2,252) 35,438 ----------------------------------------- ------------ ---------- ---------- ---------- --------- ------------- --------------- Three Months Ended March 31, 1998: Operating revenues $ 1,954 $ 475 $ 33 $ 508 $ 35 $ (2) $ 2,495 Segment net income (loss) 190 57 6 63 (3) (8) 242 Total assets at 12/31/98 24,421 9,578 2,869 12,447 1,438 (2,114) 36,192 ------------------------------------------ ----------- ----------- -------- ---------- --------- -------------- ---------------
67 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) (Note) The all other category includes parent SOUTHERN, which does not allocate operating expenses to business segments. Also, this category includes segments below the quantitative threshold for separate disclosure. These segments include a wireless communication company and a developmental company for energy products and services. Non-traditional services exclude interest expense to parent SOUTHERN. (F) Reference is made to Notes 3 and 7 to each of the registrant's financial statements, except SAVANNAH'S, in Item 8 of the Form 10-K for a discussion of the FERC orders in proceedings regarding the reasonableness of the return on common equity on certain of the Southern electric system's wholesale rate schedules and contracts and a discussion of the long-term power sales agreements. On April 19, 1999, the FERC entered an order dismissing the request for rehearing filed by customers under long-term power sales agreements. The parties are engaged in discussions with a view toward settlement of the proceedings which remain pending at FERC, but the ultimate outcome of these discussions cannot now be determined. (G) During the first three months of 1999, statutory business trusts, formed by ALABAMA and GEORGIA of which such companies own all the common securities, issued mandatorily redeemable preferred securities as follows: (in thousands)
Maturity Date Company Date of Issue Amount Rate Notes of Notes > ALABAMA 2/25/99 $50,000 Auction $51,550 2/28/2029 GEORGIA 2/25/99 $200,000 6.85% $206,186 3/31/2029
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. ALABAMA and GEORGIA consider that the mechanisms and obligations relating to the preferred 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 securities. (H) Reference is made to Note 3 to the financial statements of SOUTHERN and ALABAMA in Item 8 of the Form 10-K for information relating to retail rate adjustment procedures. (I) Reference is made to Note 3 to the financial statements of SOUTHERN and ALABAMA in Item 8 of the Form 10-K for information relating to a judgment against ALABAMA arising from discharges into Lake Martin. The trial court has denied the defendants' motion for a new trial and for remittitur, and ALABAMA has appealed to the Supreme Court of Alabama. (J) 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. 68 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) (K) 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 a three-year rate order approved by the Georgia PSC effective January 1, 1999. The order decreased annual retail rates by $262 million effective January 1, 1999 and by an additional $24 million effective January 1, 2000. The order further provides for $85 million each year, plus up to $50 million annually of any earnings in excess of a 12.5% retail return on common equity during the second and third years, to be applied to accelerated amortization or depreciation of assets. Two-thirds of any additional earnings in excess of the 12.5% return will be applied to rate reductions and the remaining one-third retained by GEORGIA. (L) 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. (M) In September 1998, OPC decreased its purchases of capacity under a power supply agreement by 250 megawatts, resulting in a $16 million reduction in 1999 revenues. Under the amended 1995 Integrated Resource Plan approved by the Georgia PSC in March 1997, the resources associated with the decreased purchases in 1998 will be used to meet the needs of GEORGIA's retail customers through 2004. As a result of additional reduction notices given by OPC under its agreement with GEORGIA, GEORGIA's capacity revenues received from OPC were estimated to decrease by an additional $7 million in 1999, $18 million in 2000 and $4 million in 2001. Effective April 1, 1999, GEORGIA and OPC entered into a new agreement which will delay, in part, planned purchase reductions by OPC. The new agreement has been filed with the FERC under SOUTHERN's market-based rate authority. Based on the above, GEORGIA's capacity revenues received from OPC are now estimated to decrease by approximately $6 million in 1999, $15 million in 2000 and $7 million in 2001. (N) Reference is made to Note 3 to the financial statements of SAVANNAH in Item 8 of the Form 10-K for information concerning the four-year accounting order approved by the Georgia PSC in June 1998. (O) Reference is made to Note 3 to the financial statements of SOUTHERN in Item 8 and to Legal Proceedings in Item 3 of the Form 10-K for information relating to petitions for Chapter 11 bankruptcy relief which were filed in the U. S. Bankruptcy Court for the Southern District of Alabama. Effective with the bankruptcy filing in January 1999, Mobile Energy is accounted for under the equity method, rather than being consolidated as before. SOUTHERN's equity investment in Mobile Energy was $56 million at March 31, 1999. At March 31, 1999, Mobile Energy had total assets of $372 million and senior debt outstanding of $203 million of first mortgage bonds and $77 million related to tax-exempt bonds. In connection with the bond financings, SOUTHERN provided certain limited guarantees, in lieu of funding debt service and maintenance reserve accounts with cash. In March 1999, under an agreement with the bondholders, SOUTHERN paid $36,144,000 pursuant to the guarantees. The bondholders reserved the right to seek an additional $2,700,000, which SOUTHERN believes was satisfied by an earlier transfer of funds. The ultimate outcome of this matter cannot now be determined. (P) In 1998, SOUTHERN's Board of Directors authorized SOUTHERN to make open market purchases of its common stock in an aggregate amount not to exceed $300 million through March 31, 1999. The purpose of the program was to provide shares of common stock for the purchase requirements of SOUTHERN's various stockholder, employee and outside director stock purchase plans. Under the program, 41,000 shares were sold in the quarter ended March 31, 1999. 69 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) Also, in April 1999, SOUTHERN's board approved the repurchase of up to 50 million shares of SOUTHERN's common stock over the next two years through open market or privately negotiated transactions. The program does not establish a target stock price or timetable for specific repurchases. Under this program, 4,116,800 shares have been repurchased through May 12, 1999, with funding provided from SOUTHERN's commercial paper program. 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. Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. Exhibits 15 - Letter re: unaudited interim financial information (a) ALABAMA (b) GEORGIA Exhibit 24 - Powers of Attorney and resolutions. (Designated in the Form 10-K for the year ended December 31, 1998, 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 Schedule (a) SOUTHERN (b) ALABAMA (c) GEORGIA (d) GULF (e) MISSISSIPPI (f) SAVANNAH (b) Reports on Form 8-K. SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI AND SAVANNAH each filed a Current Report on Form 8-K dated February 10, 1999: Item reported: Item 7 Financial statements filed: Each registrant's audited financial statements for the year ended December 31, 1998. ALABAMA filed a Current Report on Form 8-K dated February 18, 1999: Items reported: Item 5 Item 7 Financial statements filed: None
71 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (b) Reports on Form 8-K. (Continued) GEORGIA filed Current Reports on Form 8-K dated February 17, 1999 and March 3, 1999: 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: May 13, 1999 - ------------------------------------------------------------------------------ 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, Chief Financial Officer and Treasurer (Principal Financial Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: May 13, 1999 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 David M. Ratcliffe Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: May 13, 1999 - ------------------------------------------------------------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. GULF POWER COMPANY By Travis J. Bowden President and Chief Executive Officer (Principal Executive Officer) By A. E. Scarbrough Vice President - Finance (Principal Financial and Accounting Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: May 13, 1999 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: May 13, 1999 - ----------------------------------------------------------------------------- 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 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: May 13, 1999 75 EX-15 2 ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP EXHIBIT 15(a) May 10, 1999 Alabama Power Company 600 North 18th Street Birmingham, Alabama 35291 Ladies and Gentlemen: We are aware that Alabama Power Company has incorporated by reference in Registration Statement 333-67453 its Form 10-Q for the quarter ended March 31, 1999 which includes our report on Alabama Power Company dated May 10, 1999 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933 (the "Act"), such report is not considered a part of the Registration Statement prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, /s/ Arthur Andersen LLP EX-15 3 ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP EXHIBIT 15(b) May 10, 1999 Georgia Power Company 241 Ralph McGill Boulevard, NE Atlanta, Georgia 30308 Ladies and Gentlemen: We are aware that Georgia Power Company has incorporated by reference in Registration Statement 333-75193 its Form 10-Q for the quarter ended March 31, 1999 which includes our report on Georgia Power Company dated May 10, 1999 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933 (the "Act"), such report is not considered a part of the Registration Statement prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, /s/ Arthur Andersen LLP EX-27 4 SOUTHERN FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the Form 10-Q for March 31, 1999, and is qualified in its entirety by reference to such financial statements. 0000092122 THE SOUTHERN COMPANY 1,000 3-MOS Dec-31-1999 Mar-31-1999 PER-BOOK 23,717,491 6,107,504 3,188,735 2,424,069 0 35,437,799 3,446,267 2,480,408 3,777,455 9,704,130 2,426,965 369,061 3,823,063 950,062 5,998,111 1,412,739 1,133,884 0 131,334 2,166 9,486,284 35,437,799 2,441,565 108,608 1,956,590 2,065,198 376,367 134,719 511,086 281,137 229,949 5,633 224,316 233,879 0 189,263 0.32 0.32
EX-27 5 ALABAMA FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the Form 10-Q for March 31, 1999, and is qualified in its entirety by reference to such financial statements. 0000003153 ALABAMA POWER COMPANY 1,000 3-MOS Dec-31-1999 Mar-31-1999 PER-BOOK 7,335,899 291,207 731,566 770,214 0 9,128,886 224,358 1,334,744 1,190,016 2,749,118 347,000 317,512 993,424 0 1,550,000 322,653 270,200 0 4,893 980 2,573,106 9,128,886 714,324 38,700 551,934 590,634 123,690 5,635 129,325 62,375 66,950 3,875 63,075 98,000 0 134,489 0 0
EX-27 6 GEORGIA FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the Form 10-Q for March 31, 1999, and is qualified in its entirety by reference to such financial statements. 0000041091 GEORGIA POWER COMPANY 1,000 3-MOS Dec-31-1999 Mar-31-1999 PER-BOOK 9,649,851 386,592 927,448 1,093,751 0 12,057,642 344,250 1,660,255 1,738,039 3,742,544 889,250 15,504 2,065,362 231,813 595,000 206,347 295,000 0 85,663 510 3,930,649 12,057,642 930,930 63,380 706,546 769,926 161,004 (3,095) 157,909 65,127 92,782 1,201 91,581 133,100 0 187,566 0 0
EX-27 7 GULF FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the Form 10-Q for March 31, 1999, and is qualified in its entirety by reference to such financial statements. 0000044545 GULF POWER COMPANY 1,000 3-MOS Dec-31-1999 Mar-31-1999 PER-BOOK 1,056,932 1,587 136,779 78,623 0 1,273,921 38,060 218,972 160,419 417,451 85,000 4,236 247,420 60,000 70,000 0 27,000 0 0 0 362,814 1,273,921 134,506 2,641 118,841 121,482 13,024 (410) 12,614 7,761 4,853 54 4,799 15,000 0 8,841 0 0
EX-27 8 MISSISSIPPI FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the Form 10-Q for March 31, 1999, and is qualified in its entirety by reference to such financial statements. 0000066904 MISSISSIPPI POWER COMPANY 1,000 3-MOS Dec-31-1999 Mar-31-1999 PER-BOOK 1,024,207 978 116,532 57,941 0 1,199,658 37,691 179,799 167,134 384,624 35,000 31,809 172,773 61,500 120,000 0 50,020 0 0 0 343,932 1,199,658 122,435 4,273 104,313 108,586 13,849 406 14,255 6,559 7,696 503 7,193 13,800 0 (15,204) 0 0
EX-27 9 SAVANNAH FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the Form 10-Q for March 31, 1999, and is qualified in its entirety by reference to such financial statements. 0000086940 SAVANNAH ELECTRIC AND POWER COMPANY 1,000 3-MOS Dec-31-1999 Mar-31-1999 PER-BOOK 446,457 1,420 57,667 48,614 0 554,158 54,223 8,688 107,963 170,874 40,000 0 97,955 6,500 60,000 0 0 0 5,319 676 172,834 554,158 47,098 720 41,461 42,181 4,917 (229) 4,688 3,479 1,209 0 1,209 6,200 0 6,893 0 0
-----END PRIVACY-ENHANCED MESSAGE-----