INTRODUCTION

The condensed quarterly financial statements of each registrant included herein have been prepared by such registrant, without audit, pursuant to the rules and regulations of the SEC. The Condensed Balance Sheets as of December 31, 2017 have been derived from the audited financial statements of each registrant. In the opinion of each registrant's management, the information regarding such registrant furnished herein reflects all adjustments, which, except as otherwise disclosed, are of a normal recurring nature, necessary to present fairly the results of operations for the periods ended March 31, 2018 and 2017. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP 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. Disclosures which would substantially duplicate the disclosures in the Form 10-K and details which have not changed significantly in amount or composition since the filing of the Form 10-K are generally omitted from this Quarterly Report on Form 10-Q unless specifically required by GAAP. Therefore, these Condensed Financial Statements should be read in conjunction with the financial statements and the notes thereto included in the Form 10-K. Due to the seasonal variations in the demand for energy, operating results for the periods presented are not necessarily indicative of the operating results to be expected for the full year.

Certain prior year data presented in the financial statements have been reclassified to conform to the current year presentation. These reclassifications had no impact on the results of operations, financial position, or cash flows of any registrant.

Recently Adopted Accounting Standards

See Note 1 to the financial statements of the registrants under "Recently Issued Accounting Standards" in Item 8 of the Form 10-K for additional information.

Revenue

In 2014, the FASB issued ASC 606, Revenue from Contracts with Customers (ASC 606), replacing the existing accounting standard and industry-specific guidance for revenue recognition with a five-step model for recognizing and measuring revenue from contracts with customers. The underlying principle of the standard is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 became effective on January 1, 2018 and the registrants adopted it using the modified retrospective method applied to open contracts and only to the version of the contracts in effect as of January 1, 2018. In accordance with the modified retrospective method, the registrants' previously issued financial statements have not been restated to comply with ASC 606 and the registrants did not have a cumulative-effect adjustment to retained earnings. The adoption of ASC 606 had no significant impact on the timing of revenue recognition compared to previously reported results; however, it requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows arising from contracts with customers, which are included in Note (C).

ASC 606 provided additional clarity on financial statement presentation that resulted in reclassifications into other revenues and other operations and maintenance from other income/(expense), net at Alabama Power and Georgia Power related to certain unregulated sales of products and services. In addition, contract assets related to certain fixed retail revenues and pole attachment revenues at Georgia Power have been reclassified from unbilled revenue and other accounts and notes receivable, respectively, in accordance with the guidance in ASC 606. Neither of these changes resulted in an adjustment to the timing or amount of the recognition of revenues or cash flows. ASC 606 also provided additional guidance on over-time revenue recognition, resulting in a change in the timing of revenue recognized from guaranteed and fixed billing arrangements at Southern Company Gas. The increase in natural gas revenues recognized in the first quarter 2018 relates primarily to the seasonal nature of natural gas usage and is expected to be offset by decreases in natural gas revenue recognized in future periods during 2018.

The net impact of accounting for revenue under ASC 606 increased Southern Company's consolidated net income and net income per share by $10 million and $0.01 per basic share, respectively, for the three months ended March 31, 2018.

The specific impacts of applying ASC 606 to revenues from contracts with customers on the financial statements of Southern Company, Alabama Power, Georgia Power, and Southern Company Gas as of and for the three months ended March 31, 2018 compared to previously recognized guidance is shown below.



	As of and for the Three Months Ended March 31, 2018
	As Reported			Balances Without Adoption of ASC 606			Effect of Change
	(in millions)
Southern Company
Condensed Consolidated Statements of Income
Natural gas revenues	$	1,607		$	1,593		$	14
Other revenues	413			412			1
Other operations and maintenance	1,451			1,441			10
Operating income	1,376			1,371			5
Other income (expense), net	60			51			9
Earnings before income taxes	1,049			1,035			14
Income taxes	113			109			4
Consolidated net income	936			926			10
Consolidated net income attributable to Southern Company	938			928			10
Basic earnings per share	$	0.93		$	0.92		$	0.01
Diluted earnings per share	$	0.92		$	0.91		$	0.01

Condensed Consolidated Statements of Cash Flow
Consolidated net income	$	936		$	926		$	10
Changes in certain current assets and liabilities:
Receivables	197			211			(14		)
Other current assets	7			(7		)	14
Accrued taxes	(79		)	(75		)	(4		)
Other current liabilities	81			67			14



	As of and for the Three Months Ended March 31, 2018
	As Reported		Balances Without Adoption of ASC 606			Effect of Change
	(in millions)
Condensed Consolidated Balance Sheet
Unbilled revenues	$	777	$	822		$	(45	)
Other accounts and notes receivable	703		709			(6		)
Other current assets	286		235			51
Accrued taxes	368		364			4
Other current liabilities	923		937			(14		)
Retained earnings	9,257		9,247			10

Alabama Power
Condensed Statements of Income
Other revenues	$	63	$	55		$	8
Other operations and maintenance	387		377			10
Operating income	372		374			(2		)
Other income (expense), net	5		3			2

Georgia Power
Condensed Statements of Income
Other revenues	$	109	$	94		$	15
Other operations and maintenance	408		394			14
Operating income	513		512			1
Other income (expense), net	38		39			(1		)

Condensed Statements of Cash Flows
Changes in certain current assets and liabilities:
Receivables	$	135	$	145		$	(10	)
Other current assets	9		(1		)	10

Condensed Balance Sheet
Unbilled revenues	$	189	$	202		$	(13	)
Other accounts and notes receivable	77		83			(6		)
Other current assets	39		20			19



	As of and for the Three Months Ended March 31, 2018
	As Reported			Balances Without Adoption of ASC 606			Effect of Change
	(in millions)
Southern Company Gas
Condensed Statements of Income
Natural gas revenues	$	1,631		$	1,617		$	14
Operating income	388			374			14
Earnings before income taxes	383			369			14
Income taxes	104			100			4
Net income	279			269			10

Condensed Statements of Cash Flows
Net income	$	279		$	269		$	10
Changes in certain current assets and liabilities:
Accrued taxes	28			32			(4		)
Other current liabilities	48			34			14

Condensed Consolidated Balance Sheet
Accrued income taxes	$	77		$	73		$	4
Other current liabilities	143			157			(14		)
Accumulated deficit	(55		)	(65		)	10

Other

In 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). ASU 2016-18 eliminates the need to reflect transfers between cash and restricted cash in operating, investing, and financing activities in the statements of cash flows. In addition, the net change in cash and cash equivalents during the period includes amounts generally described as restricted cash or restricted cash equivalents. The registrants adopted ASU 2016-18 effective January 1, 2018 with no material impact on their financial statements. Southern Company, Southern Power, and Southern Company Gas retrospectively applied ASU 2016-18 effective January 1, 2018 and have restated prior periods in the statements of cash flows by immaterial amounts. The change in restricted cash in the statements of cash flows was previously disclosed in operating activities for Southern Company and Southern Company Gas and in investing activities for Southern Company and Southern Power. See "Restricted Cash" herein for additional information.

In March 2017, the FASB issued ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07). ASU 2017-07 requires that an employer report the service cost component in the same line item or items as other compensation costs and requires the other components of net periodic pension and postretirement benefit costs to be separately presented in the statements of income outside of income from operations. Additionally, only the service cost component is eligible for capitalization, when applicable. The registrants adopted ASU 2017-07 effective January 1, 2018 with no material impact on their financial statements. ASU 2017-07 has been applied retrospectively for the presentation of the service cost component and the other components of net periodic benefit costs in the statements of income for Southern Company, the traditional electric operating companies, and Southern Company Gas. Since Southern Power did not participate in the qualified pension and postretirement benefit plans until December 2017, no retrospective presentation of Southern Power's net periodic benefits costs is required. The requirement to limit capitalization to the service cost component of net periodic benefit costs has been applied on a prospective basis from the date of adoption for all registrants. The presentation changes resulted in a decrease in operating income and an increase in other income for the three months ended March 31, 2018 and 2017 for Southern Company, the traditional electric operating companies, and Southern Company Gas.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). ASU 2017-12 makes more financial and non-financial hedging strategies eligible for hedge accounting, amends the related presentation and disclosure requirements, and simplifies hedge effectiveness assessment requirements. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The registrants adopted ASU 2017-12 effective January 1, 2018 with no material impact on their financial statements. See Note (I) for disclosures required by ASU 2017-12.

On February 14, 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02) to address the application of ASC 740, Income Taxes (ASC 740) to certain provisions of the Tax Reform Legislation. ASU 2018-02 specifically addresses the ASC 740 requirement that the effect of a change in tax laws or rates on deferred tax assets and liabilities be included in income from continuing operations, even when the tax effects were initially recognized directly in OCI at the previous rate, which strands the income tax rate differential in accumulated OCI. The amendments in ASU 2018-02 allow a reclassification from accumulated OCI to retained earnings for stranded tax effects resulting from the Tax Reform Legislation. The registrants adopted ASU 2018-02 effective January 1, 2018 with no material impact on their financial statements.

Goodwill and Other Intangible Assets

At March 31, 2018 and December 31, 2017, goodwill was as follows:



	Goodwill
	At March 31, 2018		At December 31, 2017
	(in millions)
Southern Company	$	6,226	$	6,268
Southern Power	$	2	$	2
Southern Company Gas
Gas distribution operations	$	4,702	$	4,702
Gas marketing services	1,223		1,265
Southern Company Gas total	$	5,925	$	5,967

On April 11, 2018, Southern Company Gas entered into a stock purchase agreement for the sale of Pivotal Home Solutions. In contemplation of the transaction, a goodwill impairment charge of $42 million was recorded as of March 31, 2018. See Note (J) under "Southern Company Gas" for additional information.

Goodwill is not amortized, but is subject to an annual impairment test during the fourth quarter of each year, or more frequently if impairment indicators arise.

Other intangible assets were as follows:



	At March 31, 2018							At December 31, 2017
	Gross Carrying Amount		Accumulated Amortization			Other Intangible Assets, Net		Gross Carrying Amount		Accumulated Amortization			Other Intangible Assets, Net
	(in millions)							(in millions)
Southern Company
Other intangible assets subject to amortization:
Customer relationships	$	288	$	(93	)	$	195	$	288	$	(83	)	$	205
Trade names	159		(19		)	140		159		(17		)	142
Storage and transportation contracts	64		(40		)	24		64		(34		)	30
PPA fair value adjustments	456		(54		)	402		456		(47		)	409
Other	18		(6		)	12		17		(5		)	12
Total other intangible assets subject to amortization	$	985	$	(212	)	$	773	$	984	$	(186	)	$	798
Other intangible assets not subject to amortization:
Federal Communications Commission licenses	75		—			75		75		—			75
Total other intangible assets	$	1,060	$	(212	)	$	848	$	1,059	$	(186	)	$	873

Southern Power
Other intangible assets subject to amortization:
PPA fair value adjustments	$	456	$	(54	)	$	402	$	456	$	(47	)	$	409

Southern Company Gas
Other intangible assets subject to amortization:
Gas marketing services
Customer relationships	$	221	$	(86	)	$	135	$	221	$	(77	)	$	144
Trade names	115		(10		)	105		115		(9		)	106
Wholesale gas services
Storage and transportation contracts	64		(40		)	24		64		(34		)	30
Total other intangible assets subject to amortization	$	400	$	(136	)	$	264	$	400	$	(120	)	$	280

Amortization associated with other intangible assets was as follows:



	Three Months Ended
	March 31, 2018
	(in millions)
Southern Company	$	26
Southern Power	$	7
Southern Company Gas	$	16

Restricted Cash

The registrants adopted ASU 2016-18 as of January 1, 2018. See "Recently Adopted Accounting Standards – Other" herein for additional information.

At December 31, 2017, Southern Power had restricted cash primarily related to certain acquisitions and construction projects. At both March 31, 2018 and December 31, 2017, Southern Company Gas had restricted cash held as collateral for worker's compensation, life insurance, and long-term disability insurance.

The following tables provide a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed balance sheets that total to the amounts shown in the condensed statements of cash flows for the registrants that had restricted cash at March 31, 2018 and/or December 31, 2017:



	Southern Company		Southern Company Gas
	(in millions)
At March 31, 2018
Cash and cash equivalents	$	2,284	$	94
Restricted cash:
Other accounts and notes receivable	6		6
Total cash, cash equivalents, and restricted cash	$	2,290	$	100



	Southern Company		Southern Power		Southern Company Gas
	(in millions)
At December 31, 2017
Cash and cash equivalents	$	2,130	$	129	$	73
Restricted cash:
Other accounts and notes receivable	5		—		5
Deferred charges and other assets	12		11		—
Total cash, cash equivalents, and restricted cash	$	2,147	$	140	$	78

Natural Gas for Sale

Southern Company Gas' natural gas distribution utilities, with the exception of Nicor Gas, carry natural gas inventory on a WACOG basis.

Nicor Gas' natural gas inventory is carried at cost on a LIFO basis. Inventory decrements occurring during the year that are restored prior to year end are charged to cost of natural gas at the estimated annual replacement cost. Inventory decrements that are not restored prior to year end are charged to cost of natural gas at the actual LIFO cost of the inventory layers liquidated. Southern Company Gas' inventory decrement at March 31, 2018 is expected to be restored prior to year end. The cost of natural gas, including inventory costs, is recovered from customers under a purchased gas recovery mechanism adjusted for differences between actual costs and amounts billed; therefore, LIFO liquidations have no impact on Southern Company's or Southern Company Gas' net income.

Natural gas inventories for Southern Company Gas' non-utility businesses are carried at the lower of weighted average cost or current market price, with cost determined on a WACOG basis. For any declines in market prices below the WACOG considered to be other than temporary, an adjustment is recorded to reduce the value of natural gas inventories to market value. Southern Company Gas had no material LOCOM adjustment in any period presented.

Hypothetical Liquidation at Book Value

Southern Power has consolidated renewable generation projects that are partially financed by a third-party tax equity investor. The related contractual provisions represent profit-sharing arrangements because the allocations of cash distributions and tax benefits are not based on fixed ownership percentages. Therefore, the noncontrolling interest is accounted for under a balance sheet approach utilizing the hypothetical liquidation at book value (HLBV) method. The HLBV method calculates each partner's share of income based on the change in net equity the partner can legally claim in a hypothetical liquidation at the end of the period compared to the beginning of the period.