-----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, UVyA+MqL9U4a/yKsuW6evHGRoyEtzk5SVbTq/rr5XFs9fP5LhSHtFHN6qY81Ignw xeCMgNdZPTCkXd8x5RbgUw== 0000044545-96-000007.txt : 19960305 0000044545-96-000007.hdr.sgml : 19960305 ACCESSION NUMBER: 0000044545-96-000007 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960221 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960304 SROS: NONE 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02429 FILM NUMBER: 96530608 BUSINESS ADDRESS: STREET 1: 500 BAYFRONT PKWY CITY: PENSACOLA STATE: FL ZIP: 32501 BUSINESS PHONE: 9044446111 8-K 1 GULF POWER 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) February 21, 1996 --------------------------- GULF POWER COMPANY (Exact name of registrant as specified in its charter) Maine 0-2429 59-0276810 - --------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer) of incorporation) File Number) (Identification No.) 500 Bayfront Parkway, Pensacola, Florida 32501 - --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (904) 444-6111 ------------------------ N/A - --------------------------------------------------------------------------- (Former name or former address, if changed since last report.) Item 7. Financial Statements and Exhibits. (c) Exhibits. 23 - Consent of Arthur Andersen LLP. 27 - Financial Data Schedule. 99 - Audited Financial Statements of Gulf Power Company as of December 31, 1995. SIGNATURE 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. GULF POWER COMPANY /s/ Wayne Boston By Wayne Boston Assistant Secretary Date: March 1, 1996 EX-23 2 CONSENT OF ARTHUR ANDERSEN EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 21, 1996 on the financial statements of Gulf Power Company, included in this Form 8-K, into Gulf Power Company's previously filed Registration Statement File No. 33-50165. /s/ Arthur Andersen LLP Atlanta, Georgia February 28, 1996 EX-27 3 FINANCIAL DATA SCHEDLE
UT This schedule contains summary financial information extracted from the financial statements filed as Exhibit 99 and is qualified in its entirety by reference to such financial statements. 044545 GULF POWER COMPANY 1,000 YEAR DEC-31-1995 DEC-31-1995 PER-BOOK 1,063,309 740 177,684 100,126 0 1,341,859 38,060 218,519 179,663 436,242 0 89,602 317,850 80,500 37,074 0 (31,548) 0 0 0 412,139 1,341,859 619,077 34,065 493,850 527,915 91,162 1,531 92,693 29,726 62,967 5,813 57,154 46,400 23,154 99,951 0 0
EX-99 4 AUDITED FINANCIAL STATEMENTS 1 EXHIBIT 99 MANAGEMENT'S REPORT Gulf Power Company 1995 Annual Report The management of Gulf Power Company has prepared -- and is responsible for -- the financial statements and related information included in this report. These statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that books and records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of five directors who are not employees, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the consolidated financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Gulf Power Company in conformity with generally accepted accounting principles. /s/ Travis J. Bowden Travis J. Bowden President and Chief Executive Officer /s/ Arlan E. Scarbrough Arlan E. Scarbrough Chief Financial Officer February 21, 1996 2 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Gulf Power Company: We have audited the accompanying balance sheets and statements of capitalization of Gulf Power Company (a Maine corporation and a wholly owned subsidiary of The Southern Company) as of December 31, 1995 and 1994, and the related statements of income, retained earnings, paid-in capital, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages 11-28) referred to above present fairly, in all material respects, the financial position of Gulf Power Company as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the periods stated, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Atlanta, Georgia February 21, 1996 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Gulf Power Company 1995 Annual Report RESULTS OF OPERATIONS Earnings Gulf Power Company's 1995 net income after dividends on preferred stock was $57.2 million, an increase of $2 million over the prior year. This improvement is primarily attributable to higher retail revenues due to exceptionally hot summer weather and lower interest charges on long-term debt. This improvement was partially offset by higher maintenance expenses and reduced capacity revenues from non-affiliated utilities under long-term contracts. Costs related to a work force reduction program implemented in the fourth quarter of 1995 decreased earnings by $4.3 million. These costs are expected to be recovered through future savings over approximately two years. In 1994, earnings were $55.2 million, representing an increase of $0.9 million compared to the prior year. Earnings in 1994 were significantly affected by lower financing costs, an increase in customers, and milder than normal temperatures. Also, earnings decreased approximately $3.0 million, reflecting the first full year of lower industrial sales due to the Company's largest industrial customer, Monsanto, installing its own cogeneration facility in August, 1993. The return on average common equity for 1995 was 13.27 percent, a slight increase from the 13.15 percent return earned in 1994. Revenues Operating revenues increased in 1995 and decreased in 1994 as a result of the following factors: Increase (Decrease) From Prior Year ------------------------------------- 1995 1994 1993 ------------------------------------- (in thousands) Retail -- Change in base rates $ - $ - $ 1,571 Sales growth 3,647 7,126 7,671 Weather 9,749 (4,631) 4,049 Regulatory cost recovery and other 22,502 8,938 (3,079) - ----------------------------------------------------------------- Total retail 35,898 11,433 10,212 - ----------------------------------------------------------------- Sales for resale-- Non-affiliates (5,698) (6,098) 2,131 Affiliates 1,266 (5,813) (909) - ----------------------------------------------------------------- Total sales for resale (4,432) (11,911) 1,222 Other operating revenues 8,798 (3,851) 806 - ----------------------------------------------------------------- Total operating revenues $40,264 $(4,329) $12,240 ================================================================= Percent change 7.0% (0.7)% 2.1% - ----------------------------------------------------------------- Retail revenues of $519 million in 1995 increased $35.9 million or 7.4 percent from last year, compared with an increase of 2.4 percent in 1994 and 2.2 percent in 1993. Residential and commercial revenues surged upward as a result of hotter-than-normal summer weather in 1995, compared with the extremely mild summer of 1994. The Company set an all-time peak demand for energy in 1995. The increase in regulatory cost recovery and other retail revenue is primarily attributable to the recovery of increased fuel costs. Regulatory cost recovery and other includes recovery provisions for fuel expense and the energy component of purchased power costs; energy conservation costs; purchased power capacity costs; and environmental compliance costs. The recovery provisions equal the related expenses and have no material effect on net income. See Notes 1 and 3 to the financial statements under "Revenues and Regulatory Cost Recovery Clauses" and "Environmental Cost Recovery," respectively, for further information. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1995 Annual Report Sales for resale were $79 million in 1995, decreasing $4.4 million or 5.3 percent from 1994. Revenues from sales to utilities outside the service area under long-term contracts consist of capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. The capacity and energy components under these long-term contracts were as follows: 1995 1994 1993 ---------------------------------------- (in thousands) Capacity $25,870 $30,926 $33,805 Energy 18,598 18,456 21,202 ============================================================ Total $44,468 $49,382 $55,007 ============================================================ Capacity revenues decreased in 1995 and 1994, reflecting the scheduled decline in capacity under long-term contracts. Sales to affiliated companies vary from year to year depending on demand and the availability and cost of generating resources at each company. These sales have little impact on earnings. The increase in other operating revenues for 1995 is primarily due to increased amounts collected to recover newly-imposed county franchise fees. These collections are also included in taxes other than income taxes and have no impact on earnings. Other changes for 1995 and the change in 1994 are primarily attributable to adjustments in the regulatory cost recovery clauses for differences between recoverable costs and the amounts actually reflected in revenues. See Notes 1 and 3 to the financial statements under "Revenues and Regulatory Cost Recovery Clauses" and "Environmental Cost Recovery," respectively, for further discussion. Kilowatt-hour sales for 1995 and percent changes in sales since 1993 are reported below. KWH Percent Change ------------ --------------------------- 1995 1995 1994 1993 ------------ --------------------------- (millions) Residential 4,014 7.0% 1.1% 3.2% Commercial 2,708 6.3 4.8 2.7 Industrial 1,795 (2.8) (9.0) (6.9) Other 17 (0.1) - - ------------ Total retail 8,534 4.5 (0.3) 0.4 Sales for resale Non-affiliates 1,397 (1.6) (2.8) 2.0 Affiliates 759 (13.1) (15.2) (14.8) ------------ Total 10,690 2.2 (2.1) (1.1) ================================================================== Retail sales increased in 1995 due to hot summer weather, a 0.9 percent increase in residential customers, and a 2.2 percent increase in commercial customers. Industrial sales were lower due to the reclassification of a major customer from the industrial to commercial class and temporary production delays of other industrial customers. In 1994, retail sales decreased from the prior year primarily due to mild summer weather and a decline in sales in the industrial class, which reflected the loss of Monsanto and a lengthy shutdown of another major customer. In 1995, energy sales for resale to non-affiliates decreased 1.6 percent and are predominantly related to unit power sales under long-term contracts to Florida utilities. Energy sales to affiliated companies vary from year to year as mentioned previously. Expenses Total operating expenses for 1995 increased $41.3 million or 8.5 percent from 1994. The increase is due to higher fuel and purchased power expenses, higher maintenance expenses, and higher taxes other than income taxes, offset by lower depreciation and amortization expenses. In 1994, total operating expenses decreased $4.0 million or 0.8 percent from 1993 primarily due to decreased fuel and purchased power expenses, offset by an increase in other operation expenses and taxes. Fuel and purchased power expenses for 1995 increased $30.1 million or 15.5 percent from 1994. The change reflects the increase in generation due to the extreme weather conditions during the summer of 1995 and slightly higher fuel 5 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1995 Annual Report costs. In 1994, fuel and purchased power expenses declined $13.4 million or 6.5 percent from 1993 reflecting the decrease in generation due to the mild weather and the lower cost of fuel. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated were as follows: 1995 1994 1993 ----------------------------- Total generation (millions of kilowatt-hours) 9,828 9,559 9,558 Sources of generation (percent) Coal 99.5 99.8 99.4 Oil and gas .5 .2 .6 Average cost of fuel per net kilowatt-hour generated (cents) Coal 2.08 2.00 2.03 Oil and gas 3.56 6.93 4.50 Total 2.09 2.01 2.05 - ------------------------------------------------------------------ In 1995, other operation expenses decreased $0.5 million or 0.4 percent from the 1994 level. The decrease is primarily attributable to a $9.4 million reduction in the amortization costs of coal buyouts and renegotiation of coal supply contracts. This was offset by a $7 million accrual for benefits to be provided by the Company under a work force reduction program implemented during the fourth quarter of 1995. These costs are further discussed in Notes 2 and 5 to the financial statements under "Work Force Reduction Programs" and "Fuel Commitments," respectively. In 1994, other operation expenses increased $4.7 million due to additional costs related to the buyouts and renegotiation of coal supply contracts and the Company's pro rata share of affiliated companies' work force reduction costs. Maintenance expense in 1995 increased $5.2 million or 11.2 percent from the prior year. This is attributable to higher power production maintenance related to non-recurring items and higher distribution maintenance. In 1994, maintenance expense remained relatively flat reflecting no major changes in the scheduling of maintenance of production facilities. Depreciation and amortization expenses decreased $1.5 million or 2.7 percent from 1994. The change is attributable to property which was fully amortized by December 1994. Refer to Note 1 to the financial statements under "Depreciation and Amortization" for further discussion. Federal and state income taxes increased $0.1 million or 0.3 percent in 1995 due to a slight increase in taxable income. Taxes other than income taxes increased $7.9 million or 18.9 percent due to an increase in county franchise fees as mentioned previously. In 1994, federal income taxes increased $1.2 million due to an increase in taxable income. Other taxes increased $1.5 million or 3.7 percent due to higher property taxes, gross receipt taxes, and franchise fee collections. Changes in gross receipt taxes and franchise fee collections, which are collected from customers, have no impact on earnings. In 1995, interest expense decreased $2.5 million or 7.8 percent below the prior year. The decline is mainly attributable to lower interest on long-term debt reflecting a lower average principal balance outstanding. The decrease in interest on long-term debt was partially offset by an increase in interest on notes payable as a result of a higher average amount of short-term notes outstanding. Interest expense in 1994 decreased $3.8 million or 10.5 percent under the prior year. The decrease was a result of refinancing some of the Company's higher-cost securities. Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its cost of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in long-lived utility plant. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations, such as long-term debt and preferred stock. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1995 Annual Report Future Earnings Potential The results of operations for the past three years 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. A work force reduction program was implemented in the fourth quarter of 1995 that reduced earnings by $4.3 million. This action will assist in efforts to control growth in future operating expenses. The Florida Public Service Commission (FPSC) approved the Company's request in December to increase the amount of its annual accrual to the accumulated provision for property damage account from $1.2 million to $3.5 million due to significant hurricane-related charges to the account during 1995. The approved accrual increase is intended to restore the account balance to a reasonable level within five years. Refer to Note 1 to the financial statements under "Provision for Property Damage" for further discussion. Future earnings in the near term will depend upon growth in energy sales, which is subject to a number of factors. Traditionally, these factors have included weather, competition, changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the Company's service area. However, the Energy Policy Act of 1992 (Energy Act) is beginning to have a dramatic effect on the future of the electric utility industry. The Energy Act promotes energy efficiency, alternative fuel use, and increased competition for electric utilities. The Company is positioning the business to meet the challenge of this major change in the traditional practice of selling electricity. The Energy Act allows independent power producers (IPPs) to access the Company's transmission network in order to sell electricity to other utilities. This may enhance the incentive for IPPs to build cogeneration plants for industrial and commercial customers and sell excess energy generation to utilities. Also, electricity sales for resale rates are being driven down by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. The Company is aggressively working to maintain and expand its share of wholesale sales in the Southeastern power markets. Currently, Florida law does not permit retail wheeling. Although the Energy Act does not require transmission access to retail customers, retail wheeling initiatives are rapidly evolving and becoming very prominent issues in several states. Potential new federal legislation is being discussed, and legislation allowing customer choice has already been introduced in Florida. In order to address these initiatives, numerous questions must be resolved, with the most complex ones relating to transmission pricing and recovery of stranded investments. As the initiatives become a reality, the structure of the utility industry could radically change. Therefore, unless the Company remains a low-cost producer and provides quality service, the Company's retail energy sales growth could be limited and this could significantly erode earnings. Conversely, being the low-cost producer could provide significant opportunities to increase market share and profitability by seeking new markets that evolve with the changing regulation. The future effect of cogeneration and small-power production facilities cannot be fully determined at this time. One effect of cogeneration which the Company has experienced was the loss in 1993 of its largest industrial customer, Monsanto, which is discussed in "Earnings." The Company's strategy is to identify and pursue profitable cogeneration projects in Northwest Florida. The FPSC has set conservation goals for the Company, beginning in 1995, which require programs to reduce 154 megawatts of summer peak demand and 65,000 KWH of sales by the year 2004. In 1995, the FPSC approved the Company's programs to accomplish these goals. The Company can experience net growth as long as the filed programs achieve the intended reductions in peak demand and KWH sales. In response to these goals and seeking to remain competitive with other electric utilities, the Company has developed initiatives which emphasize price flexibility and competitive offering of energy efficiency products and services. These initiatives will enable customers to lower or alter their peak energy requirements. Besides promoting energy efficiency, another benefit of these initiatives could be the ability to defer the need to construct some generating facilities further into the future. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1995 Annual Report On September 27, 1995, the Company filed a petition with the FPSC which seeks approval for a new optional Commercial/Industrial Service (CIS) rider, which would be applicable to the rate schedules serving the Company's largest and most at-risk customers who are able to show they have viable alternatives for electric power supply. The CIS rider would provide the flexibility needed to enable the Company to offer its services in a more competitive manner to these customers. The FPSC approval process is expected to take approximately 8 months. Compliance costs related to the Clean Air Act Amendments of 1990 (Clean Air Act) could reduce earnings if such costs are not fully recovered. The Clean Air Act is discussed later under "Environmental Matters." Also, state of Florida legislation adopted in 1993 that provides for recovery of prudent environmental compliance costs is discussed in Note 3 to the financial statements under "Environmental Cost Recovery." The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operations is no longer subject to these provisions, the Company would be required to write off related regulatory assets and liabilities and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. New Accounting Standards The FASB has issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount for an asset may not be recoverable. This statement also imposes stricter criteria for regulatory assets by requiring that such assets be probable of future recovery at each balance sheet date. The Company adopted the new rules January 1, 1996, with no material effect on the financial statements. However, this conclusion may change in the future as competitive factors influence wholesale and retail pricing in the utility industry. FINANCIAL CONDITION Overview The principal changes in the Company's financial condition during 1995 were gross property additions of $63.1 million and an increase of $27 million in notes payable. Funds for the property additions were provided by internal sources. The increase in short-term notes payable is primarily attributable to a $22 million note issued in relation to a payment made to a coal supplier for a new arrangement under an existing coal contract. See the Statements of Cash Flows and Note 5 to the financial statements under "Fuel Commitments" for further details. Financing Activities The Company continued to lower its financing costs by retiring issues in 1995. Retirements, including maturities during 1995, totaled $1.8 million of first mortgage bonds, $0.1 million of pollution control bonds, $13.3 million of bank notes and other long-term debt, and $1 million of preferred stock. (See the Statements of Cash Flows for further details.) Composite financing rates for the years 1993 through 1995 as of year end were as follows: 1995 1994 1993 ------------------------------ Composite interest rate on long-term debt 6.5% 6.5% 7.1% Composite preferred stock dividend rate 6.4% 6.6% 6.5% - ---------------------------------------------------------------- The composite interest rate on long-term debt remained constant at 6.5% from 1994 primarily due to no new issues or refinancings during 1995. The decrease in the composite interest rate from 1993 to 1994 reflects the Company's efforts to refinance higher-cost debt. The decrease in the composite preferred dividend rate in 1995 is primarily due to a decrease in dividends on the Company's adjustable rate preferred stock, reflecting lower interest rates. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1995 Annual Report Capital Requirements for Construction The Company's gross property additions, including those amounts related to environmental compliance, are budgeted at $209 million for the three years beginning in 1996 ($71 million in 1996, $67 million in 1997, and $71 million in 1998). The estimates of property additions for the three-year period include $9 million committed to meeting the requirements of the Clean Air Act, the cost of which is expected to be recovered through the Environmental Cost Recovery Clause (ECRC), which is discussed in Note 3 to the financial statements under "Environmental Cost Recovery." Actual construction costs may vary from this estimate because of factors such as changes in business conditions; changes in environmental regulations; revised load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures for the Company will be fully recovered. The Company does not have any baseload generating plants under construction, and current energy demand forecasts do not indicate a need for any additional baseload facilities until well into the future. However, significant construction related to maintaining and upgrading transmission and distribution facilities and generating plants will continue. Other Capital Requirements In addition to the funds needed for the construction program, approximately $109 million will be required by the end of 1998 in connection with maturities of long-term debt. Also, the Company plans to continue a program to retire higher-cost debt and preferred stock and replace these obligations with lower-cost capital as market conditions and terms of the instruments permit. Environmental Matters In November 1990, the Clean Air Act was signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- has significantly impacted the Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants are required in two phases. Phase I compliance began in 1995 and initially affected 28 generating units of The Southern Company. As a result of The Southern Company's compliance strategy, an additional 22 generating units were brought into compliance with Phase I requirements. Phase II compliance is required by 2000, and all fossil-fired generating plants will be affected. In 1993, the Florida Legislature adopted legislation that allows a utility to petition the FPSC for recovery of prudent environmental compliance costs that are not being recovered through base rates or any other recovery mechanism. The legislation is discussed in Note 3 to the financial statements under "Environmental Cost Recovery." Substantially all of the costs for the Clean Air Act and other new legislation discussed below is expected to be recovered through the ECRC. In 1995, the Environmental Protection Agency (EPA) began issuing annual sulfur dioxide emission allowances through the allowance trading program. An emission allowance is the authority to emit one ton of sulfur dioxide during a calendar year. The method for issuing allowances is based on the fossil fuel consumed from 1985 through 1987 for each affected generating unit. Emission allowances are transferable and can be bought, sold, or banked and used in the future. The sulfur dioxide emission allowance program is expected to minimize the cost of compliance. The Southern Company's sulfur dioxide compliance strategy is designed to use allowances as a compliance option. The Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. This compliance strategy resulted in unused emission allowances being banked for later use. Compliance with nitrogen oxide emission limits was achieved by the installation of new control equipment at 22 generating units. Construction expenditures for Phase I compliance totaled approximately $320 million for The Southern Company, including approximately $50 million for the Company through 1995. For Phase II sulfur dioxide compliance, The Southern Company could use emission allowances banked during Phase I, increase fuel switching, install flue gas desulfurization equipment at selected plants, and/or purchase more allowances depending on the price and availability of allowances. Also, in Phase II, equipment to control nitrogen oxide emissions will be installed on additional system fossil-fired units as required to meet Phase II limits. Therefore, during the period 1996 to 2000, the current compliance strategy could 9 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1995 Annual Report require total construction expenditures of approximately $150 million for The Southern Company, including approximately $10 million for the Company. However, the full impact of Phase II compliance cannot now be determined with certainty, pending the continuing development of a market for emission allowances, the completion of EPA regulations, and the possibility of new emission reduction technologies. Following adoption of legislation in April of 1992 allowing electric utilities in Florida to seek FPSC approval of their Clean Air Act Compliance Plans, the Company filed its petition for approval. The FPSC approved the Company's plan for Phase I compliance, deferring until a later date approval of its Phase II Plan. An average increase of up to 2 percent in revenue requirements from the Company's customers could be necessary to fully recover the cost of compliance for both Phase I and Phase II of Title IV of the Clean Air Act. Compliance costs include construction expenditures, increased costs for switching to low-sulfur coal, and costs related to emission allowances. Title III of the Clean Air Act requires a multi-year EPA study of power plant emissions of hazardous air pollutants. The EPA is scheduled to submit a report to Congress on the results of this study in 1996. The report will include a decision on whether additional regulatory control of these substances is warranted. Compliance with any new control standards could result in significant additional costs. The impact of new standards -- if any -- will depend on the development and implementation of applicable regulations. The EPA is evaluating the need to revise the ambient air quality standards for particulate matter and ozone. The impact of any new standard will depend on the level chosen for the standard and cannot be determined at this time. In 1996, the EPA may issue revised rules on air quality control regulations related to stack height requirements of the Clean Air Act. The full impact of the final rules cannot be determined at this time, pending their development and implementation. In 1993, the EPA issued a ruling confirming the non-hazardous status of coal ash. However, the EPA has until 1998 to classify co-managed utility wastes -- coal ash and other utility wastes -- as either non-hazardous or hazardous. If the EPA classifies the co-managed wastes as hazardous, then substantial additional costs for the management of such wastes may be required. The full impact of any change in the regulatory status will depend on the subsequent development of co-managed waste requirements. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur costs to clean up properties currently or previously owned. The Company conducts studies to determine the extent of any required cleanup costs and has recognized in the financial statements costs to clean up known sites. Additional sites may require environmental remediation for which the Company may be liable for a portion or all required cleanup costs. For additional information, see Note 3 to the financial statements under "Environmental Cost Recovery." Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of these requirements cannot be determined at this time, pending the development and implementation of applicable regulations. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect the Company. The impact of new legislation -- if any - -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1995 Annual Report Sources of Capital At December 31, 1995, the Company had $0.7 million of cash and cash equivalents and $25 million of unused committed lines of credit with banks to meet its short-term cash needs. See Note 5 to the financial statements under "Bank Credit Arrangements" for additional information. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulations, will be derived from operations; the sale of additional first mortgage bonds, pollution control bonds, and preferred stock; bank notes; and capital contributions from The Southern Company. The Company is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. The Company's coverage ratios are sufficient to permit, at present interest and preferred dividend levels, any foreseeable security sales. The amount of securities which the Company will be permitted to issue in the future will depend upon market conditions and other factors prevailing at that time. 11
STATEMENTS OF INCOME For the Years Ended December 31, 1995, 1994, and 1993 Gulf Power Company 1995 Annual Report ================================================================================================= 1995 1994 1993 - ------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Revenues $600,458 $561,460 $559,976 Revenues from affiliates 18,619 17,353 23,166 - ------------------------------------------------------------------------------------------------- Total operating revenues 619,077 578,813 583,142 - ------------------------------------------------------------------------------------------------- Operating Expenses: Operation- Fuel 185,274 161,168 170,485 Purchased power from non-affiliates 8,594 6,761 4,386 Purchased power from affiliates 29,966 25,819 32,273 Other 113,397 113,879 109,164 Maintenance 51,917 46,700 46,004 Depreciation and amortization 55,104 56,615 55,309 Taxes other than income taxes 49,598 41,701 40,204 Federal and state income taxes (Note 8) 34,065 33,957 32,730 - ------------------------------------------------------------------------------------------------- Total operating expenses 527,915 486,600 490,555 - ------------------------------------------------------------------------------------------------- Operating Income 91,162 92,213 92,587 Other Income (Expense): Allowance for equity funds used during construction (Note 1) 36 450 512 Interest income 2,877 1,429 1,328 Other, net (1,261) (780) (1,238) Gain on sale of investment securities - - 3,820 Income taxes applicable to other income (121) 95 (921) - ------------------------------------------------------------------------------------------------- Income Before Interest Charges 92,693 93,407 96,088 - ------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 23,294 27,124 31,344 Other interest charges 1,674 2,442 2,877 Interest on notes payable 2,931 1,509 870 Amortization of debt discount, premium, and expense, net 2,014 1,834 1,412 Allowance for debt funds used during construction (Note 1) (187) (656) (454) - ------------------------------------------------------------------------------------------------- Net interest charges 29,726 32,253 36,049 - ------------------------------------------------------------------------------------------------- Net Income 62,967 61,154 60,039 Dividends on Preferred Stock 5,813 5,925 5,728 - ------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 57,154 $ 55,229 $ 54,311 ================================================================================================= The accompanying notes are an integral part of these statements.
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STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1995, 1994, and 1993 Gulf Power Company 1995 Annual Report ============================================================================================================= 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 62,967 $ 61,154 $ 60,039 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 75,293 86,098 72,111 Deferred income taxes and investment tax credits 390 (6,986) 5,347 Allowance for equity funds used during construction (36) (450) (512) Accumulated provision for property damage (19,024) 1,013 817 Deferred costs of 1995 coal contract renegotiation (12,177) - - Other, net 4,664 3,885 (1,681) Changes in certain current assets and liabilities -- Receivables, net (12,210) 3,540 12,867 Inventories (618) (13,901) 5,574 Payables 18,258 (10,159) 5,386 Taxes accrued (2,803) 2,548 (3,280) Current costs of 1995 coal contract renegotiation (9,859) - - Other (4,894) (1,938) (6,224) - ------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 99,951 124,804 150,444 - ------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (63,113) (78,869) (78,562) Other 4,401 (3,493) (5,328) - ------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (58,712) (82,362) (83,890) - ------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred stock - - 35,000 First mortgage bonds - - 75,000 Pollution control bonds - 42,000 53,425 Capital contributions from parent 58 98 11 Other long-term debt - 32,108 25,000 Retirements: Preferred stock (1,000) (1,000) (21,060) First mortgage bonds (1,750) (48,856) (88,809) Pollution control bonds (125) (42,100) (40,650) Other long-term debt (13,314) (24,240) (7,736) Notes payable, net 27,000 47,447 (37,947) Payment of preferred stock dividends (5,813) (5,925) (5,728) Payment of common stock dividends (46,400) (44,000) (41,800) Miscellaneous (117) (2,648) (6,888) - ------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (41,461) (47,116) (62,182) - ------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (222) (4,674) 4,372 Cash and Cash Equivalents at Beginning of Year 902 5,576 1,204 - ------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 680 $ 902 $ 5,576 ============================================================================================================= Supplemental Cash Flow Information: Cash paid during the year for -- Interest (net of amount capitalized) $26,161 $30,139 $28,470 Income taxes $38,537 $43,089 $27,865 - ------------------------------------------------------------------------------------------------------------- ( ) Denotes use of cash. The accompanying notes are an integral part of these statements.
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BALANCE SHEETS At December 31, 1995 and 1994 Gulf Power Company 1995 Annual Report Utility Plant: ================================================================================ ASSETS 1995 1994 - -------------------------------------------------------------------------------- (in thousands) Plant in service (Notes 1 and 6) $1,695,814 $1,656,367 Less accumulated provision for depreciation 658,806 622,911 - -------------------------------------------------------------------------------- 1,037,008 1,033,456 Construction work in progress 26,301 24,288 - -------------------------------------------------------------------------------- Total 1,063,309 1,057,744 - -------------------------------------------------------------------------------- Other Property and Investments 740 7,997 - -------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 680 902 Receivables- Customer accounts receivable 69,166 57,637 Other accounts and notes receivable 3,393 2,268 Affiliated companies 802 1,079 Accumulated provision for uncollectible accounts (768) (600) Fossil fuel stock, at average cost 37,875 35,686 Materials and supplies, at average cost 33,686 35,257 Current portion of deferred coal contract costs (Note 5) 12,767 2,521 Regulatory clauses under recovery (Note 1) 3,432 5,002 Prepaid income taxes (Note 8) 4,232 - Other prepayments 8,000 4,354 Vacation pay deferred 4,419 4,172 - -------------------------------------------------------------------------------- Total 177,684 148,278 - -------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes (Note 8) 29,093 30,433 Debt expense and loss, being amortized 20,459 22,119 Deferred coal contract costs (Note 5) 33,768 38,169 Deferred storm charges (Note 1) 7,502 - Miscellaneous 9,304 10,802 - -------------------------------------------------------------------------------- Total 100,126 101,523 - -------------------------------------------------------------------------------- Total Assets $1,341,859 $1,315,542 ================================================================================ The accompanying notes are an integral part of these statements.
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BALANCE SHEETS (continued) At December 31, 1995 and 1994 Gulf Power Company 1995 Annual Report ======================================================================================== CAPITALIZATION AND LIABILITIES 1995 1994 - ---------------------------------------------------------------------------------------- (in thousands) Capitalization (See accompanying statements): Common stock equity (Note 11) $ 436,242 $ 425,472 Preferred stock 89,602 89,602 Long-term debt 323,376 356,393 - ---------------------------------------------------------------------------------------- Total 849,220 871,467 - ---------------------------------------------------------------------------------------- Current Liabilities: Preferred stock due within one year - 1,000 Long-term debt due within one year (Note 10) 31,548 13,439 Notes payable 80,500 53,500 Accounts payable- Affiliated companies 14,447 9,132 Other 27,196 14,524 Customer deposits 13,195 13,609 Taxes accrued- Federal and state income - 5,990 Other 9,547 7,475 Interest accrued 5,719 6,106 Regulatory clauses over recovery (Note 1) 2,800 3,960 Vacation pay accrued 4,419 4,172 Miscellaneous 7,356 7,828 - ---------------------------------------------------------------------------------------- Total 196,727 140,735 - ---------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 162,345 151,681 Deferred credits related to income taxes (Note 8) 67,481 71,964 Accumulated deferred investment tax credits 36,052 38,391 Accumulated provision for property damage (Note 1) - 11,522 Accumulated provision for postretirement benefits (Note 2) 16,301 13,680 Miscellaneous 13,733 16,102 - ---------------------------------------------------------------------------------------- Total 295,912 303,340 - ---------------------------------------------------------------------------------------- Commitments and Contingent Matters (Notes 1, 2, 3, 4, 5, and 7) Total Capitalization and Liabilities $1,341,859 $1,315,542 ======================================================================================== The accompanying notes are an integral part of these statements.
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STATEMENTS OF CAPITALIZATION At December 31, 1995 and 1994 Gulf Power Company 1995 Annual Report ================================================================================================== 1995 1994 1995 1994 - -------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Common Stock Equity: Common stock, without par value -- Authorized and outstanding -- 992,717 shares in 1995 and 1994 $ 38,060 $ 38,060 Paid-in capital 218,438 218,380 Premium on preferred stock 81 81 Retained earnings (Note 11) 179,663 168,951 - -------------------------------------------------------------------------------------------------- Total common stock equity 436,242 425,472 51.4% 48.8% - -------------------------------------------------------------------------------------------------- Cumulative Preferred Stock: $10 par value -- Authorized -- 10,000,000 shares, Outstanding -- 2,580,000 shares at December 31, 1995 $25 stated capital -- 6.72% 20,000 20,000 7.00% 14,500 14,500 7.30% 15,000 15,000 Adjustable Rate -- at January 1, 1996: 4.67% 15,000 15,000 $100 par value -- Authorized -- 801,626 shares Outstanding -- 251,026 shares at December 31, 1995 4.64% 5,102 5,102 5.16% 5,000 5,000 5.44% 5,000 5,000 7.52% 5,000 5,000 7.88% 5,000 5,000 - -------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $5,691,300) 89,602 89,602 10.5 10.3 - -------------------------------------------------------------------------------------------------- Cumulative Preferred Stock Subject to Mandatory Redemption: $100 par value -- Authorized -- 0 shares Outstanding -- 0 shares at December 31, 1995 11.36% Series - 1,000 - -------------------------------------------------------------------------------------------------- Total - 1,000 - -------------------------------------------------------------------------------------------------- Less amount due within one year - 1,000 - -------------------------------------------------------------------------------------------------- Total excluding amount due within one year - - - - - --------------------------------------------------------------------------------------------------
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STATEMENTS OF CAPITALIZATION (continued) At December 31, 1995 and 1994 Gulf Power Company 1995 Annual Report ============================================================================================================================ 1995 1994 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) First mortgage bonds -- Maturity Interest Rates August 1, 1997 5.875% 25,000 25,000 April 1, 1998 5.55% 15,000 15,000 July 1, 1998 5.00% 30,000 30,000 July 1, 2003 6.125% 30,000 30,000 September 1, 2008 9.00% 930 2,680 December 1, 2021 8.75% 50,000 50,000 - ---------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 150,930 152,680 Pollution control obligations (Note 9) 169,630 169,755 Other long-term debt (Note 9) 37,074 50,388 Unamortized debt premium (discount), net (2,710) (2,991) - ---------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $23,154,000) 354,924 369,832 Less amount due within one year (Note 10) 31,548 13,439 - ---------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 323,376 356,393 38.1 40.9 - ---------------------------------------------------------------------------------------------------------------------------- Total Capitalization $ 849,220 $ 871,467 100.0% 100.0% ============================================================================================================================ The accompanying notes are an integral part of these statements.
17
STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1995, 1994, and 1993 Gulf Power Company 1995 Annual Report =========================================================================================================================== 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Year $168,951 $157,773 $146,771 Net income after dividends on preferred stock 57,154 55,229 54,311 Cash dividends on common stock (46,400) (44,000) (41,800) Preferred stock transactions, net (42) (51) (1,509) - --------------------------------------------------------------------------------------------------------------------------- Balance at End of Year (Note 11) $179,663 $168,951 $157,773 =========================================================================================================================== STATEMENTS OF PAID-IN CAPITAL For the Years Ended December 31, 1995, 1994, and 1993 Gulf Power Company 1995 Annual Report =========================================================================================================================== 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Year $218,380 $218,282 $218,271 Contributions to capital by parent company 58 98 11 - --------------------------------------------------------------------------------------------------------------------------- Balance at End of Year $218,438 $218,380 $218,282 =========================================================================================================================== The accompanying notes are an integral part of these statements.
18 NOTES TO FINANCIAL STATEMENTS Gulf Power Company 1995 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Gulf Power Company is a wholly owned subsidiary of The Southern Company, which is the parent company of five operating companies, a system service company, Southern Communications Services (Southern Communications), Southern Electric International (Southern Electric), Southern Nuclear Operating Company (Southern Nuclear), The Southern Development and Investment Group (Southern Development), and other direct and indirect subsidiaries. The operating companies (Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company) provide electric service in four Southeastern states. Gulf Power Company provides electric service to the Northwest Panhandle of Florida. Contracts among the companies -- dealing with jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) or the Securities and Exchange Commission (SEC). The system service company provides, at cost, specialized services to The Southern Company and subsidiary companies. Southern Communications provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Electric designs, builds, owns and operates power production and delivery facilities and provides a broad range of technical services to industrial companies and utilities in the United States and a number of international markets. Southern Nuclear provides services to The Southern Company's nuclear power plants. Southern Development develops new business opportunities related to energy products and services. The Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both The Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company is also subject to regulation by the FERC and the Florida Public Service Commission (FPSC). The Company follows generally accepted accounting principles and complies with the accounting policies and practices prescribed by the FPSC. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to: 1995 1994 ------------------------ (in thousands) Current & deferred coal contract costs $ 46,535 $ 40,690 Deferred income taxes 29,093 30,433 Deferred loss on reacquired debt 17,015 18,494 Environmental remediation 5,789 7,800 Vacation pay 4,419 4,172 Regulatory clauses under recovery, net 632 1,042 Deferred income tax credits (67,481) (71,964) Deferred storm charges 7,502 - Accumulated provision for property damage - (11,522) Other, net (1,510) (2,691) - ---------------------------------------------------------------- Total $ 41,994 $ 16,454 ================================================================ In the event that a portion of the Company's operations is no longer subject to the provisions of Statement No. 71, the Company would be required to write off related regulatory assets and liabilities. In addition, the Company would be required to determine any impairment to other assets, including plant, and write down the assets, if impaired, to their fair values. 19 NOTES (continued) Gulf Power Company 1995 Annual Report Revenues and Regulatory Cost Recovery Clauses The Company accrues revenues for service rendered but unbilled at the end of each fiscal period. Fuel costs are expensed as the fuel is used. The Company's electric rates include provisions to periodically adjust billings for fluctuations in fuel and the energy component of purchased power costs. The Company also has similar cost recovery clauses for energy conservation costs, purchased power capacity costs, and environmental compliance costs. Revenues are adjusted monthly for differences between recoverable costs and amounts actually reflected in current rates. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. In 1995, uncollectible accounts continued to average significantly less than 1 percent of revenues. Depreciation and Amortization Depreciation of the original cost of depreciable utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.6 percent in 1995 and 3.8 percent in 1994 and 1993. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Also, the provision for depreciation expense includes an amount for the expected cost of removal of facilities. The decrease in 1995 is attributable to property which was fully amortized by December 1994. Income Taxes The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. The Company is included in the consolidated federal income tax return of The Southern Company. See Note 8 for further information related to income taxes. Allowance for Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. The FPSC-approved composite rate used to calculate AFUDC was 7.27 percent for 1995, 1994, and the second half of 1993 and 8.03 percent for the first half of 1993. AFUDC amounts for 1995, 1994, and 1993 were $223 thousand, $1.1 million, and $966 thousand, respectively. The decrease in 1995 is primarily due to the completion of major construction projects at Plant Daniel at the end of 1994. Utility Plant Utility plant is stated at original cost. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property (exclusive of minor items of property) is charged to utility plant. Cash and Cash Equivalents For purposes of the Statements of Cash Flows, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. 20 NOTES (continued) Gulf Power Company 1995 Annual Report Financial Instruments In accordance with FASB Statement No. 107, Disclosure About Fair Values of Financial Instruments, financial instruments of the Company, for which the carrying amounts do not approximate fair value, are shown in the table below as of December 31: 1995 ---------------------------- Carrying Fair Amount Value ---------------------------- (in thousands) Long-term debt $354,924 $365,305 - ------------------------------------------------------------- 1994 ---------------------------- Carrying Fair Amount Value ---------------------------- (in thousands) Long-term debt $369,832 $355,019 Preferred stock subject to mandatory redemption 1,000 1,030 - ------------------------------------------------------------- The fair values for long-term debt and preferred stock subject to mandatory redemption were based on either closing market prices or closing prices of comparable instruments. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. Provision for Injuries and Damages The Company is subject to claims and suits arising in the ordinary course of business. As permitted by regulatory authorities, the Company provides for the uninsured costs of injuries and damages by charges to income amounting to $1.2 million annually. The expense of settling claims is charged to the provision to the extent available. The accumulated provision of $1.7 million and $2.5 million at December 31, 1995 and 1994, respectively, is included in miscellaneous current liabilities in the accompanying Balance Sheets. Provision for Property Damage The Company is self-insured for the full cost of storm and other damage to its transmission and distribution property. At December 31, 1995, in accordance with the FPSC's order, the accumulated provision for property damage had a negative balance of $7.5 million as the result of charges for expenses relating to Hurricanes Erin and Opal. The negative balance was reclassified to deferred storm charges in the accompanying Balance Sheets. The FPSC approved the Company's request in December to increase the amount of its annual accrual to the accumulated provision for property damage account from $1.2 million to $3.5 million, effective October 1, 1995. The approved accrual increase is intended to restore the account balance to a reasonable level within five years. The FPSC also ordered the Company to file within six months a study addressing the appropriate accumulated provision account balance and annual accrual amount. At December 31, 1994, the accumulated provision for property damage amounted to $11.5 million. The expense of repairing damages from major storms and other uninsured property damages are charged to the provision account. 2. RETIREMENT BENEFITS Pension Plan The Company has a defined benefit, trusteed, non-contributory pension plan that covers substantially all regular employees. Benefits are based on one of the following formulas: years of service and final average pay or years of service and a flat-dollar benefit. The Company uses the "entry age normal method with a frozen initial liability" actuarial method for funding purposes, subject to limitations under federal income tax regulations. Amounts funded to the pension trust fund are primarily invested in equity and fixed-income securities. FASB Statement No. 87, Employers' Accounting for Pensions, requires use of the "projected unit credit" actuarial method for financial reporting purposes. 21 NOTES (continued) Gulf Power Company 1995 Annual Report Postretirement Benefits The Company provides certain medical care and life insurance benefits for retired employees. Substantially all employees may become eligible for these benefits when they retire. Trusts are funded to the extent deductible under federal income tax regulations or to the extent required by the Company's regulatory commissions. Amounts funded are primarily invested in equity and fixed-income securities. FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, requires that medical care and life insurance benefits for retired employees be accounted for on an accrual basis using a specified actuarial method, "benefit/years-of-service." Funded Status and Cost of Benefits The following tables show actuarial results and assumptions for pension and postretirement insurance benefits as computed under the requirements of FASB Statement Nos. 87 and 106, respectively. The funded status of the plans at December 31 was as follows: Pension ------------------------- 1995 1994 ------------------------- (in thousands) Actuarial present value of benefit obligation: Vested benefits $ 87,652 $ 73,552 Non-vested benefits 4,284 3,016 - ------------------------------------------------------------------ Accumulated benefit obligation 91,936 76,568 Additional amounts related to projected salary increases 29,073 29,451 - ------------------------------------------------------------------ Projected benefit obligation 121,009 106,019 Less: Fair value of plan assets 180,980 151,337 Unrecognized net gain (48,438) (36,599) Unrecognized prior service cost 2,578 2,802 Unrecognized transition asset (7,187) (8,034) - ------------------------------------------------------------------ Prepaid asset recognized in the Balance Sheets $ 6,924 $ 3,487 ================================================================== Postretirement Benefits --------------------------- 1995 1994 --------------------------- (in thousands) Actuarial present value of benefit obligation: Retirees and dependents $ 9,759 $10,800 Employees eligible to retire 4,921 4,043 Other employees 17,646 19,639 - ---------------------------------------------------------------- Accumulated benefit obligation 32,326 34,482 Less: Fair value of plan assets 7,050 5,740 Unrecognized net loss (gain) 1,538 (458) Unrecognized transition obligation 7,437 15,520 - ---------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $16,301 $13,680 ================================================================ In 1995, the Company announced a cost sharing program for postretirement benefits. The program establishes limits on amounts the Company will pay to provide future retiree postretirement benefits. This change reduced the 1995 accumulated postretirement benefit obligation by approximately $7.1 million. The weighted average rates assumed in the actuarial calculations were: 1995 1994 1993 ----------------------------- Discount 7.3% 8.0% 7.5% Annual salary increase 4.8% 5.5% 5.0% Long-term return on plan assets 8.5% 8.5% 8.5% - --------------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligation was a weighted average medical care cost trend rate of 9.8 percent for 1995, decreasing to 5.3 percent through the year 2005 and remaining at that level thereafter. An annual increase in the assumed medical care cost trend rate of 1 percent would increase the accumulated benefit obligation at December 31, 1995, by $2.5 million and the aggregate of the service and interest cost components of the net retiree cost by $610 thousand. 22 NOTES (continued) Gulf Power Company 1995 Annual Report Components of the plans' net costs are shown below: Pension ------------------------------------ 1995 1994 1993 ------------------------------------ (in thousands) Benefits earned during the year $ 3,867 $ 3,775 $ 3,710 Interest cost on projected benefit obligation 8,042 7,484 7,319 Actual (return) loss on plan assets (33,853) 3,721 (20,672) Net amortization and deferral 19,619 (17,054) 8,853 - ------------------------------------------------------------------ Net pension cost (income) $ (2,325) $(2,074) $ (790) ================================================================== Of the above net pension amounts, pension income of $1.8 million in 1995, $1.5 million in 1994, and $601 thousand in 1993 were recorded in operating expenses, and the remainder was recorded in construction and other accounts. Postretirement Benefits -------------------------------- 1995 1994 1993 -------------------------------- (in thousands) Benefits earned during the year $1,259 $1,362 $1,166 Interest cost on accumulated benefit obligation 2,520 2,535 2,339 Amortization of transition obligation 853 854 854 Actual (return) loss on plan (1,268) 129 (731) assets Net amortization and deferral 742 (591) 310 - ------------------------------------------------------------------- Net postretirement cost $4,106 $4,289 $3,938 =================================================================== Of the above net postretirement costs recorded, $3.1 million in 1995 and 1994 and $3.0 million in 1993 were charged to operating expenses, and the remainder was recorded in construction and other accounts. Work Force Reduction Programs The Company implemented a voluntary work force reduction program in the fourth quarter of 1995 and recorded $7 million in December for the total cost related to the program. These costs are expected to be recovered through future savings over approximately two years. The Company has also incurred its pro rata share for the costs of affiliated companies' programs. The costs related to these programs were $1 million, $1.3 million, and $109 thousand for the years 1995, 1994, and 1993, respectively. 3. LITIGATION AND REGULATORY MATTERS FERC Reviews Equity Returns In May 1991, the FERC ordered that hearings be conducted concerning the reasonableness of the operating companies' wholesale rate schedules and contracts that have a return on common equity of 13.75 percent or greater. The contracts that could be affected by the hearings include substantially all of the transmission, unit power, long-term power and other similar contracts. Any change in the rate of return on common equity that may require refunds as a result of this proceeding would be substantially for the period beginning in July 1991 and ending in October 1992. In August 1992, a FERC administrative law judge issued an opinion that changes in rate schedules and contracts were not necessary and that the FERC staff failed to show how any changes were in the public interest. The FERC staff has filed exceptions to the administrative law judge's opinion, and the matter remains pending before the FERC. In August 1994, the FERC instituted another proceeding based on substantially the same issues as in the 1991 proceeding. The second period under review for possible refunds was substantially from October 1994 through December 1995. In November 1995, a FERC administrative law judge issued an opinion that the FERC staff failed to meet its burden of proof, and therefore, no change in the equity return was necessary. The FERC staff has filed exceptions to the administrative law judge's opinion, and the matter remains pending before the FERC. If the rates of return on common equity recommended by the FERC staff were applied to all of the schedules and contracts involved in both proceedings and refunds were ordered, the amount of refunds could range up to approximately $120 million for The Southern Company, including approximately $8 million for the Company at December 31, 1995. However, management believes that rates are not excessive and that refunds are not justified. 23 NOTES (continued) Gulf Power Company 1995 Annual Report FPSC Review of Earnings As a result of an investigation of Gulf's 1995 earnings by the FPSC, Gulf presented a 1995 earnings proposal, which required deferring any jurisdictional revenues contributing to annual earnings in excess of a 12.75% jurisdictional-adjusted return on equity. The proposal was approved by the FPSC in August 1995. Gulf was to petition the FPSC to determine the disposition of any deferred revenues by April 1996. Based on 1995 actual results, no revenues were deferred. Environmental Cost Recovery In April 1993, the Florida Legislature adopted legislation for an Environmental Cost Recovery Clause (ECRC), which allows a utility to petition the FPSC for recovery of all prudent environmental compliance costs that are not being recovered through base rates or any other recovery mechanism. Such environmental costs include operation and maintenance expense, emission allowance expense, depreciation, and a return on invested capital. On January 12, 1994, the FPSC approved the Company's initial petition under the ECRC for recovery of environmental costs that were projected to be incurred from July 1993 through September 1994. Since this initial period, recovery under the ECRC has been determined semi-annually and includes a true-up of the prior period and a projection of the ensuing six month period. During 1995 and 1994, the Company recorded ECRC revenues of $11.8 million and $7.2 million, respectively. At December 31, 1995, the Company's liability for the estimated costs of environmental remediation projects for known sites was $5.8 million. These estimated costs are expected to be expended during the period 1996 to 1999. These projects have been approved by the FPSC for recovery through the ECRC discussed above. Therefore, the Company recorded $2.0 million in current assets and $3.8 million in deferred charges representing the future recoverability of these costs. 4. CONSTRUCTION PROGRAM The Company is engaged in a continuous construction program, the cost of which is currently estimated to total $71 million in 1996, $67 million in 1997, and $71 million in 1998. The construction program is subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include changes in business conditions; revised load growth estimates; changes in environmental regulations; increasing costs of labor, equipment and materials; and cost of capital. At December 31, 1995, significant purchase commitments were outstanding in connection with the construction program. The Company does not have any new baseload generating plants under construction. However, significant construction will continue related to transmission and distribution facilities and the upgrading and extension of the useful lives of generating plants. See Management's Discussion and Analysis under "Environmental Matters" for information on the impact of the Clean Air Act Amendments of 1990 and other environmental matters. 5. FINANCING AND COMMITMENTS General Current projections indicate that funds required for construction and other purposes, including compliance with environmental regulations, will be derived primarily from internal sources. Requirements not met from internal sources will be financed from the sale of additional first mortgage bonds, pollution control bonds, and preferred stock; bank notes; and capital contributions from The Southern Company. In addition, the Company may issue additional long-term debt and preferred stock primarily for the purposes of debt maturities and redemptions of higher-cost securities. If the attractiveness of current short-term interest rates continues, the Company may maintain a higher level of short-term indebtedness than has historically been true. Bank Credit Arrangements At December 31, 1995, the Company had $20 million in revolving credit lines that expire May 31, 1998, $5 million in revolving credit lines subject to renewal June 1, 1997, and $21.5 million of lines of credit with banks subject to renewal June 1 of each year, of which $25 million remained unused. In connection with these credit lines, the Company has agreed to pay commitment fees and/or to 24 NOTES (continued) Gulf Power Company 1995 Annual Report maintain compensating balances with the banks. The compensating balances, which represent substantially all of the cash of the Company except for daily working funds and like items, are not legally restricted from withdrawal. In addition, the Company has bid-loan facilities with fourteen major money center banks that total $250 million, of which $37 million was committed at December 31, 1995. Assets Subject to Lien The Company's mortgage, which secures the first mortgage bonds issued by the Company, constitutes a direct first lien on substantially all of the Company's fixed property and franchises. Fuel Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into long-term commitments for the procurement of fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Total estimated long-term obligations at December 31, 1995, were as follows: Year Fuel ------- --------------- (in millions) 1996 $ 125 1997 126 1998 95 1999 86 2000 80 2001 - 2007 557 ------------------------------------------------------- Total commitments $1,069 ======================================================= To take advantage of lower-cost coal supplies, agreements were reached in 1986 to terminate two long-term contracts for the supply of coal to Plant Daniel, which is jointly owned by the Company and Mississippi Power, an operating affiliate. The Company's portion of this payment was $60 million. This amount is being amortized to expense on a per ton basis over a nine-year period. The remaining unamortized amount was $1.5 million at December 31, 1995. In 1988, the Company made an advance payment of $60 million to another coal supplier under an arrangement to lower the cost of future coal purchased under an existing contract. This amount is being amortized to expense on a per ton basis over a ten-year period. The remaining unamortized amount was $23 million at December 31, 1995. In 1993, the Company made a payment of $16.4 million to a coal supplier under an arrangement to suspend the purchase of coal under an existing contract for one year. This amount was amortized to expense on a per ton basis during 1993, 1994, and the first quarter of 1995. In December 1995, the Company made a payment of $22 million to a coal supplier under an arrangement to lower the cost of future coal and/or to suspend the purchase of coal under an existing contract for 25 months. This amount is to be amortized to expense on a per ton basis during 1996, 1997, and the first quarter of 1998. The amortization expense of these contract buyouts and renegotiations is being recovered through the fuel cost recovery clause discussed under "Revenues and Regulatory Cost Recovery Clauses" in Note 1. Lease Agreements In 1989, the Company and Mississippi Power jointly entered into a twenty-two year operating lease agreement for the use of 495 aluminum railcars. In 1994, a second lease agreement for the use of 250 additional aluminum railcars was entered into for twenty-two years. Both of these leases are for the transportation of coal to Plant Daniel. The Company, as a joint owner of Plant Daniel, is responsible for one half of the lease costs. The lease costs are charged to fuel inventory and are allocated to fuel expense as the fuel is used. The Company's share of the lease costs charged to fuel inventory was $1.7 million in 1995 and $1.2 million in 1994 and 1993. The Company's annual lease payments for 1996 through 2000 will be approximately $1.7 million and after 2000, lease payments total approximately $22.4 million. The Company has the option after three years from the date of the original contract on the second lease agreement to purchase the railcars at the greater of the termination value or the fair market value. Additionally, at the end of each lease term, the Company has the option to renew the lease. 25 NOTES (continued) Gulf Power Company 1995 Annual Report 6. JOINT OWNERSHIP AGREEMENTS The Company and Mississippi Power jointly own Plant Daniel, a steam-electric generating plant, located in Jackson County, Mississippi. In accordance with an operating agreement, Mississippi Power acts as the Company's agent with respect to the construction, operation, and maintenance of the plant. The Company and Georgia Power, an operating affiliate, jointly own Plant Scherer Unit No. 3. Plant Scherer is a steam-electric generating plant located near Forsyth, Georgia. In accordance with an operating agreement, Georgia Power acts as the Company's agent with respect to the construction, operation, and maintenance of the unit. The Company's pro rata share of expenses related to both plants is included in the corresponding operating expense accounts in the Statements of Income. At December 31, 1995, the Company's percentage ownership and its investment in these jointly owned facilities were as follows: Plant Scherer Plant Unit No. 3 Daniel (coal-fired) (coal-fired) ------------------------------ (in thousands) Plant In Service $185,755(1) $222,515 Accumulated Depreciation $49,982 $97,033 Construction Work in Progress $288 $683 Nameplate Capacity (2) (megawatts) 205 500 Ownership 25% 50% - ----------------------------------------------------------------- (1) Includes net plant acquisition adjustment. (2) Total megawatt nameplate capacity: Plant Scherer Unit No. 3: 818 Plant Daniel: 1,000 7. LONG-TERM POWER SALES AGREEMENTS The Company and the other operating affiliates have long-term contractual agreements for the sale of capacity and energy to certain non-affiliated utilities located outside the system's service area. The agreements for non-firm capacity expired in 1994. The unit power sales agreements, expiring at various dates discussed below, are firm and pertain to capacity related to specific generating units. Because the energy is generally sold at cost under these agreements, revenues from capacity sales primarily affect profitability. The Company's capacity revenues have been as follows: Other Unit Long- Year Power Term Total - ---------- ------------------------------------ (in thousands) 1995 $25,870 $ - $25,870 1994 29,653 1,273 30,926 1993 31,162 2,643 33,805 - ---------------------------------------------------------- Unit power from specific generating plants of The Southern Company is currently being sold to Florida Power Corporation (FPC), Florida Power & Light Company (FP&L), Jacksonville Electric Authority (JEA), and the city of Tallahassee, Florida. Under these agreements, 210 megawatts of net dependable capacity were sold by the Company during 1995, and sales will remain at that level until the expiration of the contracts in 2010, unless reduced by FPC, FP&L and JEA after 1999. Capacity and energy sales to FP&L, the Company's largest single customer, provided revenues of $25.4 million in 1995, $29.3 million in 1994, and $39.5 million in 1993, or 4.1 percent, 5.1 percent, and 6.8 percent of operating revenues, respectively. 26 NOTES (continued) Gulf Power Company 1995 Annual Report 8. INCOME TAXES Effective January 1, 1993, the Company adopted FASB Statement No. 109, Accounting for Income Taxes. The adoption resulted in the recording of additional deferred income taxes and related regulatory assets and liabilities. At December 31, 1995, the tax-related regulatory assets to be recovered from customers were $29.1 million. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized AFUDC. At December 31, 1995, the tax-related regulatory liabilities to be refunded to customers were $67.5 million. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. At December 31, 1995, the Company's current federal and state income taxes accrued, including the current portion of deferred income taxes, were equal to a debit balance of $4.2 million as a result of the early settlement of taxes owed. This amount was reclassified to current assets to reflect the tax prepayment and will be used to satisfy taxes accrued during 1996. Details of the federal and state income tax provisions are as follows: 1995 1994 1993 ---------------------------------- (in thousands) Total provision for income taxes: Federal-- Currently payable $29,018 $34,941 $24,354 Deferred--current year 23,172 18,556 26,396 --reversal of prior years (23,116) (24,787) (22,102) - ------------------------------------------------------------------ 29,074 28,710 28,648 - ------------------------------------------------------------------ State-- Currently payable 4,778 5,907 3,950 Deferred--current year 3,313 2,549 3,838 --reversal of prior years (2,979) (3,304) (2,785) - ------------------------------------------------------------------ 5,112 5,152 5,003 - ------------------------------------------------------------------ Total 34,186 33,862 33,651 Less income taxes charged (credited) to other income 121 (95) 921 - ------------------------------------------------------------------ Federal and state income taxes charged to operations $34,065 $33,957 $32,730 ================================================================== The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 1995 1994 ----------------------- (in thousands) Deferred tax liabilities: Accelerated depreciation $146,926 $146,686 Property basis differences 19,976 18,468 Coal contract buyouts 3,838 6,896 Property insurance 3,039 - Other 10,573 11,846 - ------------------------------------------------------------------- Total 184,352 183,896 - ------------------------------------------------------------------- Deferred tax assets: Federal effect of state deferred taxes 10,212 9,732 Postretirement benefits 5,494 4,383 Property insurance - 5,200 Other 6,313 7,566 - ------------------------------------------------------------------- Total 22,019 26,881 - ------------------------------------------------------------------- Net deferred tax liabilities 162,333 157,015 Less current portion, net (12) 5,334 - ------------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $162,345 $151,681 =================================================================== Deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $2.3 million in 1995, 1994 and 1993. At December 31, 1995, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 1995 1994 1993 ----------------------------- Federal statutory rate 35% 35% 35% State income tax, net of federal deduction 4 4 3 Non-deductible book depreciation 1 1 1 Difference in prior years' deferred and current tax rate (3) (2) (2) Other (2) (2) (1) - --------------------------------------------------------------- Effective income tax rate 35% 36% 36% =============================================================== The Company and the other subsidiaries of The Southern Company file a consolidated federal tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed 27 NOTES (continued) Gulf Power Company 1995 Annual Report on a stand-alone basis. Tax benefits from losses of the parent company are allocated to each subsidiary based on the ratio of taxable income to total consolidated taxable income. 9. POLLUTION CONTROL OBLIGATIONS AND OTHER LONG-TERM DEBT Details of pollution control bonds and other long-term debt at December 31 are as follows: 1995 1994 -------------------------- (in thousands) Obligations incurred in connection with the sale by public authorities of tax-exempt pollution control revenue bonds: Collateralized 6% due 2006* $ 12,075 $ 12,200 8.25% due 2017 32,000 32,000 7.125% due 2021 21,200 21,200 6.75% due 2022 8,930 8,930 5.70% due 2023 7,875 7,875 5.80% due 2023 32,550 32,550 6.20% due 2023 13,000 13,000 6.30% due 2024 22,000 22,000 Variable Rate Remarketable daily 20,000 20,000 - --------------------------------------------------------------- $169,630 $169,755 - --------------------------------------------------------------- Notes payable: 5.39% due 1995 - 4,500 5.72% due 1995 - 4,500 4.69% due 1996 25,000 25,000 6.44% due 1994-1998 12,074 16,388 - --------------------------------------------------------------- 37,074 50,388 - --------------------------------------------------------------- Total $206,704 $220,143 =============================================================== * Sinking fund requirement applicable to the 6 percent pollution control bonds is $200 thousand for 1996 with increasing increments periodically thereafter through 2005, with the remaining balance due in 2006. Pollution control obligations represent installment purchases of pollution control facilities financed by funds derived from sales by public authorities of revenue bonds. With respect to the collateralized pollution control revenue bonds, the Company has authenticated and delivered to trustees a like principal amount of first mortgage bonds as security for obligations under collateralized installment agreements. The principal and interest on the first mortgage bonds will be payable only in the event of default under the agreements. The 5.39 percent and 5.72 percent notes payable were the Company's portion of notes payable issued in connection with the termination of Plant Daniel coal contracts (see Note 5 under "Fuel Commitments" for further information). The estimated annual maturities of the notes payable through 2000 are as follows: $29.6 million in 1996, $4.9 million in 1997, $2.6 million in 1998, and none in 1999 and 2000. 10. LONG-TERM DEBT DUE WITHIN ONE YEAR A summary of the improvement fund requirement and scheduled maturities and redemptions of long-term debt due within one year at December 31 is as follows: 1995 1994 ---------------------- (in thousands) Bond improvement fund requirement $ 1,750 $ 1,750 Less: Portion to be satisfied by cash or certifying property additions - 1,750 - --------------------------------------------------------------- Cash sinking fund requirement 1,750 - Current portion of notes payable 29,598 13,314 (Note 9) Pollution control bond maturity 200 125 (Note 9) - --------------------------------------------------------------- Total $31,548 $13,439 =============================================================== The first mortgage bond improvement (sinking) fund requirement amounts to 1 percent of each outstanding series of bonds authenticated under the indenture prior to January 1 of each year, other than those issued to collateralize pollution control obligations. The requirement may be satisfied by depositing cash, reacquiring bonds, or by pledging additional property equal to 1 and 2/3 times the requirement. 28 NOTES (continued) Gulf Power Company 1995 Annual Report 11. COMMON STOCK DIVIDEND RESTRICTIONS The Company's first mortgage bond indenture contains various common stock dividend restrictions which remain in effect as long as the bonds are outstanding. At December 31, 1995, retained earnings of $101 million were restricted against the payment of cash dividends on common stock under the terms of the mortgage indenture. The Company's charter limits cash dividends on common stock to 50 percent of net income available for such stock during a prior period of 12 months if the capitalization ratio is below 20 percent and to 75 percent of such net income if such ratio is 20 percent or more but less than 25 percent. The capitalization ratio is defined as the ratio of common stock equity to total capitalization, including retained earnings, adjusted to reflect the payment of the proposed dividend. At December 31, 1995, the ratio was 48.7 percent. 12. QUARTERLY FINANCIAL DATA (Unaudited) Summarized quarterly financial data for 1995 and 1994 are as follows: Net Income After Dividends Operating Operating on Preferred Quarter Ended Revenues Income Stock - ------------------------------------------------------------------ (in thousands) March 31, 1995 $140,918 $19,503 $10,880 June 30, 1995 153,057 23,390 14,096 Sept. 30, 1995 184,251 35,187 26,588 Dec. 31, 1995 140,851 13,082 5,590 March 31, 1994 $138,088 $19,154 $10,117 June 30, 1994 146,769 19,957 8,886 Sept. 30, 1994 162,143 31,123 21,831 Dec. 31, 1994 131,813 21,979 14,395 - ------------------------------------------------------------------ The Company's business is influenced by seasonal weather conditions and the timing of rate changes, among other factors. 29
SELECTED FINANCIAL AND OPERATING DATA Gulf Power Company 1995 Annual Report ========================================================================================================= 1995 1994 1993 - --------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $619,077 $578,813 $583,142 Net Income after Dividends on Preferred Stock (in thousands) $57,154 $55,229 $54,311 Cash Dividends on Common Stock (in thousands) $46,400 $44,000 $41,800 Return on Average Common Equity (percent) 13.27 13.15 13.29 Total Assets (in thousands) $1,341,859 $1,315,542 $1,307,809 Gross Property Additions (in thousands) $63,113 $78,869 $78,562 - --------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $436,242 $425,472 $414,196 Preferred stock 89,602 89,602 89,602 Preferred stock subject to mandatory redemption - - 1,000 Long-term debt 323,376 356,393 369,259 - --------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $849,220 $871,467 $874,057 - --------------------------------------------------------------------------------------------------------- Capitalization Ratios (percent): Common stock equity 51.4 48.8 47.4 Preferred stock 10.5 10.3 10.4 Long-term debt 38.1 40.9 42.2 - --------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ========================================================================================================= First Mortgage Bonds (in thousands): Issued - - 75,000 Retired 1,750 48,856 88,809 Preferred Stock (in thousands): Issued - - 35,000 Retired 1,000 1,000 21,060 - --------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A2 A2 Standard and Poor's A+ A A Duff & Phelps A+ A+ A+ Preferred Stock - Moody's a2 a2 a2 Standard and Poor's A A- A- Duff & Phelps A A A - --------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 283,421 280,859 274,194 Commercial 41,281 40,398 39,253 Industrial 278 283 274 Other 134 106 86 - --------------------------------------------------------------------------------------------------------- Total 325,114 321,646 313,807 ========================================================================================================= Employees (year-end) 1,501 1,540 1,565
30A
SELECTED FINANCIAL AND OPERATING DATA Gulf Power Company 1995 Annual Report ============================================================================================================= 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands) $570,902 $565,207 $567,825 Net Income after Dividends on Preferred Stock (in thousands) $54,090 $57,796 $38,714 Cash Dividends on Common Stock (in thousands) $39,900 $38,000 $37,000 Return on Average Common Equity (percent) 13.62 15.17 10.51 Total Assets (in thousands) $1,062,699 $1,095,736 $1,084,579 Gross Property Additions (in thousands) $64,671 $64,323 $62,462 - ------------------------------------------------------------------------------------------------------------ Capitalization (in thousands): Common stock equity $403,190 $390,981 $371,185 Preferred stock 74,662 55,162 55,162 Preferred stock subject to mandatory redemption 2,000 7,500 9,250 Long-term debt 382,047 434,648 475,284 - ------------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) $861,899 $888,291 $910,881 - ------------------------------------------------------------------------------------------------------------ Capitalization Ratios (percent): Common stock equity 46.8 44.0 40.8 Preferred stock 8.9 7.1 7.1 Long-term debt 44.3 48.9 52.1 - ------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ============================================================================================================ First Mortgage Bonds (in thousands): Issued 25,000 50,000 - Retired 117,693 32,807 6,455 Preferred Stock (in thousands): Issued 29,500 - - Retired 15,500 2,500 1,750 - ------------------------------------------------------------------------------------------------------------ Security Ratings: First Mortgage Bonds - Moody's A2 A2 A2 Standard and Poor's A A A Duff & Phelps A A A Preferred Stock - Moody's a2 a2 a2 Standard and Poor's A- A- A- Duff & Phelps A- A- A- - ------------------------------------------------------------------------------------------------------------ Customers (year-end): Residential 267,591 261,210 256,111 Commercial 37,105 34,685 34,019 Industrial 270 264 252 Other 74 72 67 - ------------------------------------------------------------------------------------------------------------ Total 305,040 296,231 290,449 ============================================================================================================ Employees (year-end) 1,613 1,598 1,615
30B
SELECTED FINANCIAL AND OPERATING DATA Gulf Power Company 1995 Annual Report ============================================================================================================== 1989 1988 1987 - -------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $527,821 $550,827 $587,860 Net Income after Dividends on Preferred Stock (in thousands) $37,361 $45,698 $42,217 Cash Dividends on Common Stock (in thousands) $37,200 $35,400 $34,200 Return on Average Common Equity (percent) 10.32 13.41 13.23 Total Assets (in thousands) $1,093,430 $1,097,225 $1,051,182 Gross Property Additions (in thousands) $70,726 $67,042 $97,511 - -------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $365,471 $358,310 $323,012 Preferred stock 55,162 55,162 55,162 Preferred stock subject to mandatory redemption 11,000 12,750 14,000 Long-term debt 484,608 497,069 474,640 - -------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $916,241 $923,291 $866,814 - -------------------------------------------------------------------------------------------------------------- Capitalization Ratios (percent): Common stock equity 39.9 38.8 37.2 Preferred stock 7.2 7.4 8.0 Long-term debt 52.9 53.8 54.8 - -------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ============================================================================================================== First Mortgage Bonds (in thousands): Issued - 35,000 - Retired 9,344 9,369 - Preferred Stock (in thousands): Issued - - - Retired 1,250 1,750 2,500 - -------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 Standard and Poor's A A A Duff & Phelps AA- 4 4 Preferred Stock - Moody's a1 a1 a1 Standard and Poor's A- A- A- Duff & Phelps A+ 5 5 - -------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 251,341 246,450 241,138 Commercial 33,678 33,030 32,139 Industrial 240 206 206 Other 67 61 61 - -------------------------------------------------------------------------------------------------------------- Total 285,326 279,747 273,544 ============================================================================================================== Employees (year-end) 1,614 1,601 1,603
30C
SELECTED FINANCIAL AND OPERATING DATA Gulf Power Company 1995 Annual Report ======================================================================================= 1986 1985 - --------------------------------------------------------------------------------------- Operating Revenues (in thousands) $542,919 $562,068 Net Income after Dividends on Preferred Stock (in thousands) $46,421 $45,484 Cash Dividends on Common Stock (in thousands) $33,100 $30,800 Return on Average Common Equity (percent) 15.06 15.61 Total Assets (in thousands) $1,028,864 $921,635 Gross Property Additions (in thousands) $90,160 $92,541 - --------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $314,995 $301,674 Preferred stock 55,162 55,162 Preferred stock subject to mandatory redemption 16,500 18,250 Long-term debt 482,869 410,917 - --------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $869,526 $786,003 - --------------------------------------------------------------------------------------- Capitalization Ratios (percent): Common stock equity 36.2 38.4 Preferred stock 8.3 9.3 Long-term debt 55.5 52.3 - --------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 ======================================================================================= First Mortgage Bonds (in thousands): Issued 50,000 - Retired 46,640 2,860 Preferred Stock (in thousands): Issued - - Retired 750 750 - --------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 Standard and Poor's A+ A+ Duff & Phelps 4 4 Preferred Stock - Moody's a1 a1 Standard and Poor's A A Duff & Phelps 5 5 - --------------------------------------------------------------------------------------- Customers (year-end): Residential 235,329 227,845 Commercial 31,142 29,603 Industrial 197 183 Other 62 62 - --------------------------------------------------------------------------------------- Total 266,730 257,693 ======================================================================================= Employees (year-end) 1,544 1,509
31
SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1995 Annual Report ========================================================================================================= 1995 1994 1993 - --------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $276,155 $252,598 $244,967 Commercial 159,260 146,394 137,308 Industrial 81,606 82,169 87,526 Other 1,993 1,955 1,882 - --------------------------------------------------------------------------------------------------------- Total retail 519,014 483,116 471,683 Sales for resale - non-affiliates 60,413 66,111 72,209 Sales for resale - affiliates 18,619 17,353 23,166 - --------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 598,046 566,580 567,058 Other revenues 21,031 12,233 16,084 - --------------------------------------------------------------------------------------------------------- Total $619,077 $578,813 $583,142 ========================================================================================================= Kilowatt-Hour Sales (in thousands): Residential 4,014,142 3,751,932 3,712,980 Commercial 2,708,243 2,548,846 2,433,382 Industrial 1,794,754 1,847,114 2,029,936 Other 17,345 17,354 16,944 - --------------------------------------------------------------------------------------------------------- Total retail 8,534,484 8,165,246 8,193,242 Sales for resale - non-affiliates 1,396,474 1,418,977 1,460,105 Sales for resale - affiliates 759,341 874,050 1,029,787 - --------------------------------------------------------------------------------------------------------- Total 10,690,299 10,458,273 10,683,134 ========================================================================================================= Average Revenue Per Kilowatt-Hour (cents): Residential 6.88 6.73 6.60 Commercial 5.88 5.74 5.64 Industrial 4.55 4.45 4.31 Total retail 6.08 5.92 5.76 Sales for resale 3.67 3.64 3.83 Total sales 5.59 5.42 5.31 Average Annual Kilowatt-Hour Use Per Residential Customer 14,148 13,486 13,671 Average Annual Revenue Per Residential Customer $973.35 $907.92 $901.96 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 Maximum Peak-Hour Demand (megawatts): Winter 1,732 1,801 1,571 Summer 2,040 1,795 1,898 Annual Load Factor (percent) 53.0 56.7 54.5 Plant Availability - Fossil-Steam (percent) 84.0 92.2 88.9 - --------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 86.8 87.2 84.5 Oil and gas 0.4 0.2 0.5 Purchased power - From non-affiliates 4.0 2.8 1.5 From affiliates 8.8 9.8 13.5 - --------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ========================================================================================================= Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,609 10,614 10,390 Cost of fuel per million BTU (cents) 196.62 189.55 197.37 Average cost of fuel per net kilowatt-hour generated (cents) 2.09 2.01 2.05 =========================================================================================================
32A
SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1995 Annual Report =============================================================================================================== 1992 1991 1990 - --------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $235,296 $231,220 $217,843 Commercial 133,071 130,691 124,066 Industrial 91,320 92,300 91,041 Other 1,784 1,860 1,805 - --------------------------------------------------------------------------------------------------------------- Total retail 461,471 456,071 434,755 Sales for resale - non-affiliates 70,078 69,636 73,855 Sales for resale - affiliates 24,075 29,343 38,563 - --------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 555,624 555,050 547,173 Other revenues 15,278 10,157 20,652 - --------------------------------------------------------------------------------------------------------------- Total $570,902 $565,207 $567,825 =============================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 3,596,515 3,455,100 3,360,838 Commercial 2,369,236 2,272,690 2,217,568 Industrial 2,179,435 2,117,408 2,177,872 Other 16,649 17,118 18,866 - --------------------------------------------------------------------------------------------------------------- Total retail 8,161,835 7,862,316 7,775,144 Sales for resale - non-affiliates 1,430,908 1,550,018 1,775,703 Sales for resale - affiliates 1,208,771 1,236,223 1,435,558 - --------------------------------------------------------------------------------------------------------------- Total 10,801,514 10,648,557 10,986,405 =============================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.54 6.69 6.48 Commercial 5.62 5.75 5.59 Industrial 4.19 4.36 4.18 Total retail 5.65 5.80 5.59 Sales for resale 3.57 3.55 3.50 Total sales 5.14 5.21 4.98 Average Annual Kilowatt-Hour Use Per Residential Customer 13,553 13,320 13,173 Average Annual Revenue Per Residential Customer $886.66 $891.38 $853.86 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 Maximum Peak-Hour Demand (megawatts): Winter 1,533 1,418 1,310 Summer 1,828 1,740 1,778 Annual Load Factor (percent) 55.0 57.0 55.2 Plant Availability - Fossil-Steam (percent) 91.2 92.2 89.2 - --------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 87.7 82.0 69.8 Oil and gas 0.1 0.1 0.5 Purchased power - From non-affiliates 0.8 0.5 0.6 From affiliates 11.4 17.4 29.1 - --------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 =============================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,347 10,636 10,765 Cost of fuel per million BTU (cents) 200.30 203.60 206.06 Average cost of fuel per net kilowatt-hour generated (cents) 2.07 2.17 2.22 ===============================================================================================================
32B
SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1995 Annual Report ================================================================================================================ 1989 1988 1987 - ---------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $203,781 $184,036 $199,701 Commercial 118,897 107,615 116,057 Industrial 84,671 72,634 80,295 Other 1,586 1,402 1,357 - ---------------------------------------------------------------------------------------------------------------- Total retail 408,935 365,687 397,410 Sales for resale - non-affiliates 67,554 117,466 134,456 Sales for resale - affiliates 39,244 48,277 55,955 - ---------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 515,733 531,430 587,821 Other revenues 12,088 19,397 39 - ---------------------------------------------------------------------------------------------------------------- Total $527,821 $550,827 $587,860 ================================================================================================================ Kilowatt-Hour Sales (in thousands): Residential 3,293,750 3,154,541 3,055,041 Commercial 2,169,497 2,088,598 1,986,332 Industrial 2,094,670 1,968,091 1,839,931 Other 17,209 16,257 15,241 - ---------------------------------------------------------------------------------------------------------------- Total retail 7,575,126 7,227,487 6,896,545 Sales for resale - non-affiliates 1,640,355 1,911,759 2,138,390 Sales for resale - affiliates 1,461,036 2,326,238 2,689,487 - ---------------------------------------------------------------------------------------------------------------- Total 10,676,517 11,465,484 11,724,422 ================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 6.19 5.83 6.54 Commercial 5.48 5.15 5.84 Industrial 4.04 3.69 4.36 Total retail 5.40 5.06 5.76 Sales for resale 3.44 3.91 3.94 Total sales 4.83 4.64 5.01 Average Annual Kilowatt-Hour Use Per Residential Customer 13,173 12,883 12,763 Average Annual Revenue Per Residential Customer $815.00 $751.60 $834.31 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 Maximum Peak-Hour Demand (megawatts): Winter 1,814 1,395 1,354 Summer 1,691 1,613 1,617 Annual Load Factor (percent) 52.6 56.5 54.4 Plant Availability - Fossil-Steam (percent) 89.1 88.2 92.8 - ---------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 78.3 93.2 93.5 Oil and gas 0.2 0.4 0.4 Purchased power - From non-affiliates 0.4 0.4 0.4 From affiliates 21.1 6.0 5.7 - ---------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ================================================================================================================ Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,621 10,461 10,512 Cost of fuel per million BTU (cents) 193.70 178.00 197.53 Average cost of fuel per net kilowatt-hour generated (cents) 2.06 1.86 2.08 ================================================================================================================
32C
SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1995 Annual Report =========================================================================================== 1986 1985 - ------------------------------------------------------------------------------------------ Operating Revenues (in thousands): Residential $200,725 $186,415 Commercial 116,253 109,631 Industrial 79,873 81,621 Other 1,343 1,346 - ------------------------------------------------------------------------------------------ Total retail 398,194 379,013 Sales for resale - non-affiliates 106,892 126,789 Sales for resale - affiliates 27,113 43,844 - ------------------------------------------------------------------------------------------ Total revenues from sales of electricity 532,199 549,646 Other revenues 10,720 12,422 - ------------------------------------------------------------------------------------------ Total $542,919 $562,068 ========================================================================================== Kilowatt-Hour Sales (in thousands): Residential 2,963,502 2,736,432 Commercial 1,913,139 1,777,418 Industrial 1,745,074 1,770,587 Other 14,903 14,702 - ------------------------------------------------------------------------------------------ Total retail 6,636,618 6,299,139 Sales for resale - non-affiliates 1,609,146 2,388,591 Sales for resale - affiliates 1,078,500 1,562,452 - ------------------------------------------------------------------------------------------ Total 9,324,264 10,250,182 ========================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.77 6.81 Commercial 6.08 6.17 Industrial 4.58 4.61 Total retail 6.00 6.02 Sales for resale 4.99 4.32 Total sales 5.71 5.36 Average Annual Kilowatt-Hour Use Per Residential Customer 12,729 12,221 Average Annual Revenue Per Residential Customer $862.16 $832.55 Plant Nameplate Capacity Ratings (year-end) (megawatts) 1,969 1,969 Maximum Peak-Hour Demand (megawatts): Winter 1,406 1,517 Summer 1,678 1,448 Annual Load Factor (percent) 50.5 53.4 Plant Availability - Fossil-Steam (percent) 90.5 84.8 - ------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 85.8 79.7 Oil and gas 0.5 0.2 Purchased power - From non-affiliates 1.9 0.4 From affiliates 11.8 19.7 - ------------------------------------------------------------------------------------------ Total 100.0 100.0 ========================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,639 10,609 Cost of fuel per million BTU (cents) 239.26 254.53 Average cost of fuel per net kilowatt-hour generated (cents) 2.55 2.70 ==========================================================================================
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