Common Stock and Stock Compensation

12 Months Ended

Dec. 31, 2013

Stock Issued

During 2013, Southern Company issued approximately 6.9 million shares of common stock for $222.4 million through the employee and director stock plans, of which 0.7 million shares related to Southern Company's performance share plan.

During the first seven months of 2013, all sales under the Southern Investment Plan and the employee savings plan were funded with shares acquired on the open market by the independent plan administrators. Beginning in August 2013 and continuing through the fourth quarter 2013, Southern Company began using shares held in treasury to satisfy the requirements under the Southern Investment Plan and the employee savings plan, issuing a total of approximately 4.4 million shares of common stock previously held in treasury for approximately $183.6 million.

In addition, during the last six months of 2013, Southern Company issued approximately 8.0 million shares of common stock through at-the-market issuances pursuant to sales agency agreements related to Southern Company’s continuous equity offering program and received cash proceeds of approximately $327.3 million, net of $2.8 million in fees and commissions.

In 2012, Southern Company raised $397 million from the issuance of 12.1 million new common shares through the employee and director stock plans.

Stock Repurchased

In July 2012, Southern Company announced a program to repurchase shares to partially offset the incremental shares issued under its employee and director stock plans. There were no repurchases under this program in 2013 and no further repurchases under the program are anticipated.

Shares Reserved

At December 31, 2013, a total of 116 million shares were reserved for issuance pursuant to the Southern Investment Plan, the Employee Savings Plan, the Outside Directors Stock Plan, and the Omnibus Incentive Compensation Plan (which includes stock options and performance shares units as discussed below). Of the total 116 million shares reserved, there were 28 million shares of common stock remaining available for awards under the Omnibus Incentive Compensation Plan as of December 31, 2013.

Stock Options

Southern Company provides non-qualified stock options through its Omnibus Incentive Compensation Plan to a large segment of Southern Company system employees ranging from line management to executives. As of December 31, 2013, there were 5,776 current and former employees participating in the stock option program. The prices of options were at the fair market value of the shares on the dates of grant. These options become exercisable pro rata over a maximum period of three years from the date of grant. Southern Company generally recognizes stock option expense on a straight-line basis over the vesting period which equates to the requisite service period; however, for employees who are eligible for retirement, the total cost is expensed at the grant date. Options outstanding will expire no later than 10 years after the date of grant, unless terminated earlier by the Southern Company Board of Directors in accordance with the Omnibus Incentive Compensation Plan. Stock options held by employees of a company undergoing a change in control vest upon the change in control.

The estimated fair values of stock options granted were derived using the Black-Scholes stock option pricing model. Expected volatility was based on historical volatility of Southern Company's stock over a period equal to the expected term. Southern Company used historical exercise data to estimate the expected term that represents the period of time that options granted to employees are expected to be outstanding. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant that covers the expected term of the stock options.

The following table shows the assumptions used in the pricing model and the weighted average grant-date fair value of stock options granted:



Year Ended December 31	2013	2012	2011
Expected volatility	16.6%	17.7%	17.5%
Expected term (in years)	5.0	5.0	5.0
Interest rate	0.9%	0.9%	2.3%
Dividend yield	4.4%	4.2%	4.8%
Weighted average grant-date fair value	$2.93	$3.39	$3.23

Southern Company's activity in the stock option program for 2013 is summarized below:



	Shares Subject to Option		Weighted Average Exercise Price
Outstanding at December 31, 2012	35,916,303		$	36.37
Granted	9,152,716		44.17
Exercised	(6,078,735	)	33.39
Cancelled	(170,918	)	43.30
Outstanding at December 31, 2013	38,819,366		$	38.64
Exercisable at December 31, 2013	24,150,442		$	35.70

The number of stock options vested, and expected to vest in the future, as of December 31, 2013 was not significantly different from the number of stock options outstanding at December 31, 2013 as stated above. As of December 31, 2013, the weighted average remaining contractual term for the options outstanding and options exercisable was approximately six years and five years, respectively, and the aggregate intrinsic value for the options outstanding and options exercisable was $147 million and $142 million, respectively.

As of December 31, 2013, there was $9 million of total unrecognized compensation cost related to stock option awards not yet vested. That cost is expected to be recognized over a weighted-average period of approximately 11 months.

For the years ended December 31, 2013, 2012, and 2011, total compensation cost for stock option awards recognized in income was $25 million, $23 million, and $22 million, respectively, with the related tax benefit also recognized in income of $10 million, $9 million, and $8 million, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2013, 2012, and 2011 was $77 million, $162 million, and $155 million, respectively. The actual tax benefit realized by the Company for the tax deductions from stock option exercises totaled $30 million, $62 million, and $60 million for the years ended December 31, 2013, 2012, and 2011, respectively.

Southern Company has a policy of issuing shares to satisfy share option exercises. Cash received from issuances related to option exercises under the share-based payment arrangements for the years ended December 31, 2013, 2012, and 2011 was $204 million, $397 million, and $528 million, respectively.

Performance Shares

Southern Company provides performance share award units through its Omnibus Incentive Compensation Plan to a large segment of Southern Company system employees ranging from line management to executives. The performance share units granted under the plan vest at the end of a three-year performance period which equates to the requisite service period. Employees that retire prior to the end of the three-year period receive a pro rata number of shares, issued at the end of the performance period, based on actual months of service prior to retirement. The value of the award units is based on Southern Company's total shareholder return (TSR) over the three-year performance period which measures Southern Company's relative performance against a group of industry peers. The performance shares are delivered in common stock following the end of the performance period based on Southern Company's actual TSR and may range from 0% to 200% of the original target performance share amount.

The fair value of performance share awards is determined as of the grant date using a Monte Carlo simulation model to estimate the TSR of Southern Company's stock among the industry peers over the performance period. Southern Company recognizes compensation expense on a straight-line basis over the three-year performance period without remeasurement. Compensation expense for awards where the service condition is met is recognized regardless of the actual number of shares issued. The expected volatility was based on the historical volatility of Southern Company's stock over a period equal to the performance period. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant that covers the performance period of the award units.

The following table shows the assumptions used in the pricing model and the weighted average grant-date fair value of performance share award units granted:



Year Ended December 31	2013	2012	2011
Expected volatility	12.0%	16.0%	19.2%
Expected term (in years)	3.0	3.0	3.0
Interest rate	0.4%	0.4%	1.4%
Annualized dividend rate	$1.96	$1.89	$1.82
Weighted average grant-date fair value	$40.50	$41.99	$35.97

Total unvested performance share units outstanding as of December 31, 2012 were 1,633,156. During 2013, 929,653 performance share units were granted, 807,702 performance share units were vested, and 111,348 performance share units were forfeited, resulting in 1,643,759 unvested units outstanding at December 31, 2013. In January 2014, the vested performance share award units were converted into 240,980 shares outstanding at a share price of $41.27 for the three-year performance and vesting period ended December 31, 2013.

For the years ended December 31, 2013, 2012, and 2011, total compensation cost for performance share units recognized in income was $31 million, $28 million, and $18 million, respectively, with the related tax benefit also recognized in income of $12 million, $11 million, and $7 million, respectively. As of December 31, 2013, there was $35 million of total unrecognized compensation cost related to performance share award units that will be recognized over a weighted-average period of approximately 11 months.

Diluted Earnings Per Share

For Southern Company, the only difference in computing basic and diluted earnings per share is attributable to awards outstanding under the stock option and performance share plans. The effect of both stock options and performance share award units were determined using the treasury stock method. Shares used to compute diluted earnings per share were as follows:



	Average Common Stock Shares
	2013	2012	2011
	(in millions)
As reported shares	877	871	857
Effect of options and performance share award units	4	8	7
Diluted shares	881	879	864

Stock options and performance share award units that were not included in the diluted earnings per share calculation because they were anti-dilutive were $16 million and were immaterial as of December 31, 2013 and 2012, respectively.

Common Stock Dividend Restrictions

The income of Southern Company is derived primarily from equity in earnings of its subsidiaries. At December 31, 2013, consolidated retained earnings included $6.1 billion of undistributed retained earnings of the subsidiaries.

Alabama Power [Member]

STOCK COMPENSATION

Stock Options

Southern Company provides non-qualified stock options through its Omnibus Incentive Compensation Plan to a large segment of the Company's employees ranging from line management to executives. As of December 31, 2013, there were approximately 1,000 current and former employees of the Company participating in the stock option program, and there were 28 million shares of Southern Company common stock remaining available for awards under the Omnibus Incentive Compensation Plan. The prices of options were at the fair market value of the shares on the dates of grant. These options become exercisable pro rata over a maximum period of three years from the date of grant. The Company generally recognizes stock option expense on a straight-line basis over the vesting period which equates to the requisite service period; however, for employees who are eligible for retirement, the total cost is expensed at the grant date. Options outstanding will expire no later than 10 years after the date of grant, unless terminated earlier by the Southern Company Board of Directors in accordance with the Omnibus Incentive Compensation Plan. Stock options held by employees of a company undergoing a change in control vest upon the change in control.

The following table shows the assumptions used in the pricing model and the weighted average grant-date fair value of stock options granted:



Year Ended December 31	2013	2012	2011
Expected volatility	16.6%	17.7%	17.5%
Expected term (in years)	5.0	5.0	5.0
Interest rate	0.9%	0.9%	2.3%
Dividend yield	4.4%	4.2%	4.8%
Weighted average grant-date fair value	$2.93	$3.39	$3.23

The Company's activity in the stock option program for 2013 is summarized below:



	Shares Subject to Option		Weighted Average Exercise Price
Outstanding at December 31, 2012	6,060,552		$	36.02
Granted	1,319,038		44.07
Exercised	(1,035,611	)	32.74
Cancelled	(4,271	)	42.88
Outstanding at December 31, 2013	6,339,708		$	38.23
Exercisable at December 31, 2013	4,021,541		$	35.29

As of December 31, 2013, there was $1 million of total unrecognized compensation cost related to stock option awards not yet vested. That cost is expected to be recognized over a weighted-average period of approximately 11 months.

For the years ended December 31, 2013, 2012, and 2011, total compensation cost for stock option awards recognized in income was $4 million, $4 million, and $3 million, respectively, with the related tax benefit also recognized in income of $2 million, $1 million, and $1 million, respectively.

The compensation cost and tax benefits related to the grant and exercise of Southern Company stock options to the Company's employees are recognized in the Company's financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company.

The total intrinsic value of options exercised during the years ended December 31, 2013, 2012, and 2011 was $11 million, $28 million, and $23 million, respectively. The actual tax benefit realized by the Company for the tax deductions from stock option exercises totaled $4 million, $11 million, and $9 million for the years ended December 31, 2013, 2012, and 2011, respectively.

Performance Shares

Southern Company provides performance share award units through its Omnibus Incentive Compensation Plan to a large segment of the Company's employees ranging from line management to executives. The performance share units granted under the plan vest at the end of a three-year performance period which equates to the requisite service period. Employees that retire prior to the end of the three-year period receive a pro rata number of shares, issued at the end of the performance period, based on actual months of service prior to retirement. The value of the award units is based on Southern Company's total shareholder return (TSR) over the three-year performance period which measures Southern Company's relative performance against a group of industry peers. The performance shares are delivered in common stock following the end of the performance period based on Southern Company's actual TSR and may range from 0% to 200% of the original target performance share amount.

The fair value of performance share awards is determined as of the grant date using a Monte Carlo simulation model to estimate the TSR of Southern Company's stock among the industry peers over the performance period. The Company recognizes compensation expense on a straight-line basis over the three-year performance period without remeasurement. Compensation expense for awards where the service condition is met is recognized regardless of the actual number of shares issued. The expected volatility was based on the historical volatility of Southern Company's stock over a period equal to the performance period. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant that covers the performance period of the award units.

The following table shows the assumptions used in the pricing model and the weighted average grant-date fair value of performance share award units granted:



Year Ended December 31	2013	2012	2011
Expected volatility	12.0%	16%	19.2%
Expected term (in years)	3.0	3.0	3.0
Interest rate	0.4%	0.4%	1.4%
Annualized dividend rate	$1.96	$1.89	$1.82
Weighted average grant-date fair value	$40.50	$41.99	$35.97

Total unvested performance share units outstanding as of December 31, 2012 were 280,536. During 2013, 141,355 performance share units were granted, 131,581 performance share units were vested, and 5,484 performance share units were forfeited resulting in 284,826 unvested units outstanding at December 31, 2013. In January 2014, the vested performance share award units were converted into 39,258 shares outstanding at a share price of $41.27 for the three-year performance and vesting period ended December 31, 2013.

For the years ended December 31, 2013, 2012, and 2011, total compensation cost for performance share units recognized in income was $5 million, $5 million, and $3 million, respectively, with the related tax benefit also recognized in income of $2 million, $2 million, and $1 million, respectively. As of December 31, 2013, there was $6 million of total unrecognized compensation cost related to performance share award units that will be recognized over a weighted-average period of approximately 11 months.

Georgia Power [Member]

STOCK COMPENSATION

Stock Options

Southern Company provides non-qualified stock options through its Omnibus Incentive Compensation Plan to a large segment of the Company's employees ranging from line management to executives. As of December 31, 2013, there were 1,265 current and former employees of the Company participating in the stock option program, and there were 28 million shares of Southern Company common stock remaining available for awards under the Omnibus Incentive Compensation Plan. The prices of options were at the fair market value of the shares on the dates of grant. These options become exercisable pro rata over a maximum period of three years from the date of grant. The Company generally recognizes stock option expense on a straight-line basis over the vesting period which equates to the requisite service period; however, for employees who are eligible for retirement, the total cost is expensed at the grant date. Options outstanding will expire no later than 10 years after the date of grant, unless terminated earlier by the Southern Company Board of Directors in accordance with the Omnibus Incentive Compensation Plan. Stock options held by employees of a company undergoing a change in control vest upon the change in control.

The following table shows the assumptions used in the pricing model and the weighted average grant-date fair value of stock options granted:



Year Ended December 31	2013	2012	2011
Expected volatility	16.6%	17.7%	17.5%
Expected term (in years)	5.0	5.0	5.0
Interest rate	0.9%	0.9%	2.3%
Dividend yield	4.4%	4.2%	4.8%
Weighted average grant-date fair value	$2.93	$3.39	$3.23

The Company's activity in the stock option program for 2013 is summarized below:



	Shares Subject to Option		Weighted Average Exercise Price
Outstanding at December 31, 2012	6,547,498		$	36.18
Granted	1,509,662		44.09
Exercised	(1,196,585	)	33.38
Cancelled	(11,421	)	40.99
Outstanding at December 31, 2013	6,849,154		$	38.41
Exercisable at December 31, 2013	4,321,853		$	35.51

As of December 31, 2013, the amount of unrecognized compensation cost related to stock option awards not yet vested was immaterial.

The total intrinsic value of options exercised during the years ended December 31, 2013, 2012, and 2011 was $16 million, $34 million, and $32 million, respectively. The actual tax benefit realized by the Company for the tax deductions from stock option exercises totaled $6 million, $13 million, and $12 million for the years ended December 31, 2013, 2012, and 2011, respectively.

Performance Shares

The fair value of performance share awards is determined as of the grant date using a Monte Carlo simulation model to estimate the TSR of Southern Company's stock among the industry peers over the performance period. The Company recognizes compensation expense on a straight-line basis over the three-year performance period without remeasurement. Compensation expense for awards where the service condition is met is recognized regardless of the actual number of shares issued. The expected volatility was based on the historical volatility of Southern Company's stock over a period equal to the performance period. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant that covers the performance period of the award units.

The following table shows the assumptions used in the pricing model and the weighted average grant-date fair value of performance share award units granted:



Year Ended December 31	2013	2012	2011
Expected volatility	12.0%	16.0%	19.2%
Expected term (in years)	3.0	3.0	3.0
Interest rate	0.4%	0.4%	1.4%
Annualized dividend rate	$1.96	$1.89	$1.82
Weighted average grant-date fair value	$40.50	$41.99	$35.97

Total unvested performance share units outstanding as of December 31, 2012 were 280,000. During 2013, 161,240 performance share units were granted, 151,769 performance shares were vested, and 16,371 performance share units were forfeited, resulting in 273,100 unvested units outstanding at December 31, 2013. In January 2014, the vested performance share award units were converted into 45,239 shares outstanding at a share price of $41.27 for the three-year performance and vesting period ended December 31, 2013.

For the years ended December 31, 2013, 2012, and 2011, total compensation cost for performance share units recognized in income was $6 million, $6 million, and $4 million, respectively, with the related tax benefit also recognized in income of $2 million, $2 million and $1 million, respectively. As of December 31, 2013, there was $6 million of total unrecognized compensation cost related to performance share award units that will be recognized over a weighted-average period of approximately 11 months.

Gulf Power [Member]

STOCK COMPENSATION

Stock Options

Southern Company provides non-qualified stock options through its Omnibus Incentive Compensation Plan to a large segment of the Company's employees ranging from line management to executives. As of December 31, 2013, there were 211 current and former employees of the Company participating in the stock option program, and there were 28 million shares of Southern Company common stock remaining available for awards under the Omnibus Incentive Compensation Plan. The prices of options were at the fair market value of the shares on the dates of grant. These options become exercisable pro rata over a maximum period of three years from the date of grant. The Company generally recognizes stock option expense on a straight-line basis over the vesting period which equates to the requisite service period; however, for employees who are eligible for retirement, the total cost is expensed at the grant date. Options outstanding will expire no later than 10 years after the date of grant, unless terminated earlier by the Southern Company Board of Directors in accordance with the Omnibus Incentive Compensation Plan. Stock options held by employees of a company undergoing a change in control vest upon the change in control.

Southern Company used historical exercise data to estimate the expected term that represents the period of time that options granted to employees are expected to be outstanding. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant that covers the expected term of the stock options.

The following table shows the assumptions used in the pricing model and the weighted average grant-date fair value of stock options granted:



Year Ended December 31	2013	2012	2011
Expected volatility	16.6%	17.7%	17.5%
Expected term (in years)	5.0	5.0	5.0
Interest rate	0.9%	0.9%	2.3%
Dividend yield	4.4%	4.2%	4.8%
Weighted average grant-date fair value	$2.93	$3.39	$3.23

The Company's activity in the stock option program for 2013 is summarized below:



	Shares Subject to Option		Weighted Average Exercise Price
Outstanding at December 31, 2012	1,388,915		$	36.08
Granted	285,209		44.06
Exercised	(281,377	)	33.62
Cancelled	—		—
Outstanding at December 31, 2013	1,392,747		$	38.21
Exercisable at December 31, 2013	883,985		$	35.29

The number of stock options vested, and expected to vest in the future, as of December 31, 2013, was not significantly different from the number of stock options outstanding at December 31, 2013 as stated above. As of December 31, 2013, the weighted average remaining contractual term for the options outstanding and options exercisable was approximately six years and five years, respectively, and the aggregate intrinsic value for the options outstanding and options exercisable was $5.7 million and $5.5 million, respectively.

As of December 31, 2013, there was $0.4 million of total unrecognized compensation cost related to stock option awards not yet vested. That cost is expected to be recognized over a weighted average period of approximately 11 months.

For each of the years ended December 31, 2013, 2012, and 2011, total compensation cost for stock option awards recognized in income was $0.7 million, with the related tax benefit also recognized in income of $0.3 million.

The total intrinsic value of options exercised during the years ended December 31, 2013, 2012, and 2011 was $1.7 million, $3.8 million, and $3.2 million, respectively. The actual tax benefit realized by the Company for the tax deductions from stock option exercises totaled $0.6 million, $1.5 million, and $1.2 million for the years ended December 31, 2013, 2012, and 2011, respectively.

Performance Shares

The fair value of performance share awards is determined as of the grant date using a Monte Carlo simulation model to estimate the TSR of Southern Company's stock among the industry peers over the performance period. The Company recognizes compensation expense on a straight-line basis over the three-year performance period without remeasurement. Compensation expense for awards where the service condition is met is recognized regardless of the actual number of shares issued. The expected volatility was based on the historical volatility of Southern Company's stock over a period equal to the performance period. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant that covers the performance period of the award units.

The following table shows the assumptions used in the pricing model and the weighted average grant-date fair value of performance share award units granted:



Year Ended December 31	2013	2012	2011
Expected volatility	12.0%	16.0%	19.2%
Expected term (in years)	3.0	3.0	3.0
Interest rate	0.4%	0.4%	1.4%
Annualized dividend rate	$1.96	$1.89	$1.82
Weighted average grant-date fair value	$40.50	$41.99	$35.97

Total unvested performance share units outstanding as of December 31, 2012 were 68,805. During 2013, 30,627 performance share units were granted, 25,102 performance share units were vested, and 1,740 performance share units were forfeited resulting in 72,590 unvested units outstanding at December 31, 2013. In January 2014, the vested performance share award units were converted into 7,476 shares outstanding at a share price of $41.27 for the three-year performance and vesting period ended December 31, 2013.

For the years ended December 31, 2013, 2012, and 2011, total compensation cost for performance share units recognized in income was $1.0 million, $1.0 million, and $0.7 million, respectively, with the related tax benefit also recognized in income of $0.4 million, $0.4 million, and $0.3 million, respectively. As of December 31, 2013, there was $1.2 million of total unrecognized compensation cost related to performance share award units that will be recognized over a weighted average period of approximately 11 months.

Mississippi Power [Member]

STOCK COMPENSATION

Stock Options

Southern Company provides non-qualified stock options through its Omnibus Incentive Compensation Plan to a large segment of the Company's employees ranging from line management to executives. As of December 31, 2013, there were 236 current and former employees of the Company participating in the stock option program and there were 28 million shares of Southern Company common stock remaining available for awards under the Omnibus Incentive Compensation Plan. The prices of options were at the fair market value of the shares on the dates of grant. These options become exercisable pro rata over a maximum period of three years from the date of grant. The Company generally recognizes stock option expense on a straight-line basis over the vesting period which equates to the requisite service period; however, for employees who are eligible for retirement, the total cost is expensed at the grant date. Options outstanding will expire no later than 10 years after the date of grant, unless terminated earlier by the Southern Company Board of Directors in accordance with the Omnibus Incentive Compensation Plan. Stock options held by employees of a company undergoing a change in control vest upon the change in control.

The following table shows the assumptions used in the pricing model and the weighted average grant-date fair value of stock options granted:



Year Ended December 31	2013	2012	2011
Expected volatility	16.6%	17.7%	17.5%
Expected term (in years)	5.0	5.0	5.0
Interest rate	0.9%	0.9%	2.3%
Dividend yield	4.4%	4.2%	4.8%
Weighted average grant-date fair value	$2.93	$3.39	$3.23

The Company's activity in the stock option program for 2013 is summarized below:



	Shares Subject to Option		Weighted Average Exercise Price
Outstanding at December 31, 2012	1,373,566		$	36.34
Granted	345,830		44.03
Exercised	(379,933	)	33.59
Cancelled	(5,870	)	44.94
Outstanding at December 31, 2013	1,333,593		$	39.08
Exercisable at December 31, 2013	898,518		$	37.02

The number of stock options vested, and expected to vest in the future, as of December 31, 2013 was not significantly different from the number of stock options outstanding at December 31, 2013 as stated above. As of December 31, 2013, the weighted average remaining contractual term for the options outstanding and options exercisable was approximately six years and four years, respectively, and the aggregate intrinsic value for the options outstanding and options exercisable was $4.6 million and $4.4 million, respectively.

As of December 31, 2013, there was $0.3 million of total unrecognized compensation cost related to stock option awards not yet vested. That cost is expected to be recognized over a weighted-average period of approximately 10 months.

For the years ended December 31, 2013, 2012, and 2011, total compensation cost for stock option awards recognized in income was $1.0 million, $0.9 million, and $0.8 million, respectively, with the related tax benefit also recognized in income of $0.4 million, $0.3 million, and $0.3 million, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2013, 2012, and 2011 was $2.7 million, $4.9 million, and $4.2 million, respectively. The actual tax benefit realized by the Company for the tax deductions from stock option exercises totaled $1.1 million, $1.9 million, and $1.6 million for the years ended December 31, 2013, 2012, and 2011, respectively.

Performance Shares

The fair value of performance share awards is determined as of the grant date using a Monte Carlo simulation model to estimate the TSR of Southern Company's stock among the industry peers over the performance period. The Company recognizes compensation expense on a straight-line basis over the three-year performance period without remeasurement. Compensation expense for awards where the service condition is met is recognized regardless of the actual number of shares issued. The expected volatility was based on the historical volatility of Southern Company's stock over a period equal to the performance period. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant that covers the performance period of the award units.

The following table shows the assumptions used in the pricing model and the weighted average grant-date fair value of performance share award units granted:



Year Ended December 31	2013	2012	2011
Expected volatility	12.0%	16.0%	19.2%
Expected term (in years)	3.0	3.0	3.0
Interest rate	0.4%	0.4%	1.4%
Annualized dividend rate	$1.96	$1.89	$1.82
Weighted average grant-date fair value	$40.50	$41.99	$35.97

Total unvested performance share units outstanding as of December 31, 2012 were 68,486. During 2013, 36,769 performance share units were granted, 48,019 performance share units were vested, and 15,699 performance share units were forfeited resulting in 41,537 unvested units outstanding at December 31, 2013. In January 2014, the vested performance share award units were converted into 14,341 shares outstanding at a share price of $41.27 for the three-year performance and vesting period ended December 31, 2013.

For the years ended December 31, 2013, 2012, and 2011, total compensation cost for performance share units recognized in income was $1.5 million, $1.2 million, and $0.7 million, respectively, with the related tax benefit also recognized in income of $0.6 million, $0.4 million, and $0.3 million, respectively. As of December 31, 2013, there was $1.7 million of total unrecognized compensation cost related to performance share award units that will be recognized over a weighted-average period of approximately 11 months.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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