Common Stock and Stock Compensation

12 Months Ended

Dec. 31, 2017

COMMON STOCK

Stock Issued

During 2017, Southern Company issued approximately 14.6 million shares of common stock primarily through employee equity compensation plans and received proceeds of approximately $659 million.

In addition, during the second and third quarters of 2017, Southern Company issued a total of approximately 2.7 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 $134 million, net of $1.1 million in fees and commissions.

Shares Reserved

At December 31, 2017, a total of 71 million shares were reserved for issuance pursuant to the Southern Investment Plan, employee savings plans, the Outside Directors Stock Plan, the Omnibus Incentive Compensation Plan (which includes stock options and performance share units as discussed below), and an at-the-market program. Of the total 71 million shares reserved, there were 13 million shares of common stock remaining available for awards under the Omnibus Incentive Compensation Plan as of December 31, 2017.

Stock-Based Compensation

Stock-based compensation primarily in the form of performance share units and restricted stock units may be granted through the Omnibus Incentive Compensation Plan to a large segment of Southern Company system employees ranging from line management to executives. In 2015 and 2016, stock-based compensation consisted exclusively of performance share units. Beginning in 2017, stock-based compensation granted to employees includes restricted stock units in addition to performance share units. Prior to 2015, stock-based compensation also included stock options. As of December 31, 2017, there were 5,112 current and former employees participating in the stock option, performance share unit, and restricted stock unit programs.

In conjunction with the Merger, stock-based compensation in the form of Southern Company restricted stock and performance share units was also granted to certain executives of Southern Company Gas through the Southern Company Omnibus Incentive Compensation Plan.

Performance Share Units

Performance share units granted to employees vest at the end of a three-year performance period. All unvested performance share units vest immediately upon a change in control where Southern Company is not the surviving corporation. Shares of Southern Company common stock are delivered to employees at the end of the performance period with the number of shares issued ranging from 0% to 200% of the target number of performance share units granted, based on achievement of the performance goals established by the Compensation Committee of the Southern Company Board of Directors.

Southern Company issues performance share units with performance goals based on three performance goals to employees. These include performance share units with performance goals based on the total shareholder return (TSR) for Southern Company common stock during the three-year performance period as compared to a group of industry peers, performance share units with performance goals based on Southern Company's cumulative earnings per share (EPS) over the performance period, and performance share units with performance goals based on Southern Company's equity-weighted ROE over the performance period.

In 2015 and 2016, the EPS-based and ROE-based awards each represented 25% of the total target grant date fair value of the performance share unit awards granted. The remaining 50% of the total target grant date fair value consisted of TSR-based awards. Beginning in 2017, the total target grant date fair value of the stock compensation awards granted was comprised 20% each of EPS-based awards and ROE-based awards and 30% each of TSR-based awards and restricted stock units.

The fair value of TSR-based performance share unit awards is determined as of the grant date using a Monte Carlo simulation model to estimate the TSR of Southern Company's common 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.

The fair values of the EPS-based awards and the ROE-based awards are based on the closing stock price of Southern Company common stock on the date of the grant. Compensation expense for the EPS-based and ROE-based awards is generally recognized ratably over the three-year performance period initially assuming a 100% payout at the end of the performance period. Employees become immediately vested in the TSR-based performance share units, along with the EPS-based and ROE-based awards, upon retirement. As a result, compensation expense for employees that are retirement eligible at the grant date is recognized immediately while compensation expense for employees that become retirement eligible during the vesting period is recognized over the period from grant date to the date of retirement eligibility. The expected payout related to the EPS-based and ROE-based awards is reevaluated annually with expense recognized to date increased or decreased based on the number of shares currently expected to be issued. Unlike the TSR-based awards, the compensation expense ultimately recognized for the EPS-based awards and the ROE-based awards will be based on the actual number of shares issued at the end of the performance period.

In determining the fair value of the TSR-based awards issued to employees, the expected volatility is based on the historical volatility of Southern Company's stock over a period equal to the performance period. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant that covers the performance period of the awards. 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	2017	2016	2015
Expected volatility	15.6%	15.0%	12.9%
Expected term (in years)	3	3	3
Interest rate	1.4%	0.8%	1.0%
Weighted average grant-date fair value	$49.08	$45.06	$46.38

The weighted average grant-date fair value of both EPS-based and ROE-based performance share units granted during 2017, 2016, and 2015 was $49.21, $48.87, and $47.75, respectively.

Total unvested performance share units outstanding as of December 31, 2016 were 3.2 million. During 2017, 1.2 million performance share units were granted and 1.5 million performance share units were vested or forfeited, resulting in 2.9 million unvested performance share units outstanding at December 31, 2017. The number of shares to be issued for the three-year performance and vesting period ended December 31, 2017 will be determined in the first quarter 2018.

For the years ended December 31, 2017, 2016, and 2015, total compensation cost for performance share units recognized in income was $74 million, $96 million, and $88 million, respectively, with the related tax benefit also recognized in income of $29 million, $37 million, and $34 million, respectively. As of December 31, 2017, $30 million of total unrecognized compensation cost related to performance share award units will be recognized over a weighted-average period of approximately 21 months.

Restricted Stock Units

Beginning in 2017, stock-based compensation granted to employees included restricted stock units in addition to performance share units. One-third of the restricted stock units granted to employees vest each year throughout a three-year service period. All unvested restricted stock units vest immediately upon a change in control where Southern Company is not the surviving corporation. Shares of Southern Company common stock are delivered to employees at the end of the vesting period.

The fair value of restricted stock units is based on the closing stock price of Southern Company common stock on the date of the grant. Since one-third of the restricted stock units vest each year throughout a three-year service period, compensation expense for restricted stock unit awards is generally recognized over the corresponding one-, two-, or three-year period. Employees become immediately vested in the restricted stock units upon retirement. As a result, compensation expense for employees that are retirement eligible at the grant date is recognized immediately while compensation expense for employees that become retirement eligible during the vesting period is recognized over the period from grant date to the date of retirement eligibility.

The weighted average grant-date fair value of restricted stock units granted during 2017 was $49.25.

During 2017, 0.6 million restricted stock units were granted and 0.1 million restricted stock units were vested or forfeited, resulting in 0.7 million unvested restricted stock units outstanding at December 31, 2017, including previously issued restricted stock units related to other employee retention agreements.

For the year ended December 31, 2017, total compensation cost for restricted stock units recognized in income was $25 million with the related tax benefit also recognized in income of $10 million. As of December 31, 2017, $8 million of total unrecognized compensation cost related to restricted stock units will be recognized over a weighted-average period of approximately 13 months.

Stock Options

In 2015, Southern Company discontinued the granting of stock options and all outstanding options have vested. Stock options expire no later than 10 years after the grant date and the latest possible exercise will occur no later than November 2024.

Southern Company's activity in the stock option program for 2017 is summarized below:



	Shares Subject to Option	Weighted Average Exercise Price
	(in millions)
Outstanding at December 31, 2016	24.6	$	41.28
Exercised	6.0	40.03
Cancelled	—	39.90
Outstanding and Exercisable at December 31, 2017	18.6	$	41.68

As of December 31, 2017, the weighted average remaining contractual term for the options outstanding and options exercisable was approximately five years and the aggregate intrinsic value for the options outstanding and options exercisable was $119 million.

Total compensation cost for stock option awards and the related tax benefits recognized in income were immaterial for all years presented.

The total intrinsic value of options exercised during the years ended December 31, 2017, 2016, and 2015 was $64 million, $120 million, and $48 million, respectively. The actual tax benefit for the tax deductions from stock option exercises totaled $25 million, $46 million, and $19 million for the years ended December 31, 2017, 2016, and 2015, respectively. Prior to the adoption of ASU 2016-09, the excess tax benefits related to the exercise of stock options were recognized in Southern Company's financial statements with a credit to equity. Upon the adoption of ASU 2016-09, beginning in 2016, all tax benefits related to the exercise of stock options are recognized in income.

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, 2017, 2016, and 2015 was $239 million, $448 million, and $154 million, respectively.

Southern Company Gas Restricted Stock Awards

At the effective time of the Merger, each outstanding award of existing Southern Company Gas performance share units was converted into an award of Southern Company's restricted stock units. Under the terms of the restricted stock awards, the employees received Southern Company stock when they satisfy the requisite service period by being continuously employed through the original three-year vesting schedule of the award being replaced. Southern Company issued 0.7 million restricted stock units with a grant-date fair value of $53.83, based on the closing stock price of Southern Company common stock on the date of the grant. As a portion of the fair value of the award related to pre-combination service, the grant date fair value was allocated to pre- or post-combination service and accounted for as Merger consideration or compensation cost, respectively. Approximately $13 million of the grant date fair value was allocated to Merger consideration.

For the years ended December 31, 2017 and 2016, total compensation cost for restricted stock units recognized in income was $8 million and $13 million, respectively, and the related tax benefit also recognized in income was $4 million for each year. As of December 31, 2017, $3 million of total unrecognized compensation cost related to restricted stock units will be recognized over a weighted-average period of approximately 12 months.

Southern Company Gas Change in Control Awards

Southern Company awarded performance share units to certain Southern Company Gas employees who continued their employment with the Southern Company in lieu of certain change in control benefits the employee was entitled to receive following the Merger (change in control awards). Shares of Southern Company common stock and/or cash equal to the dollar value of the change in control benefit will vest and be issued one-third each year as long as the employee remains in service with Southern Company or its subsidiaries at each vest date. In addition to the change in control benefit, Southern Company common stock could be issued to the employees at the end of a performance period based on achievement of certain Southern Company common stock price metrics, as well performance goals established by the Compensation Committee of the Southern Company Board of Directors (achievement shares).

The change in control benefits are accounted for as a liability award with the fair value equal to the guaranteed dollar value of the change in control benefit. The grant-date fair value of the achievement portion of the award was determined using a Monte Carlo simulation model to estimate the number of achievement shares expected to vest based on the Southern Company common stock price. The expected payout is reevaluated annually with expense recognized to date increased or decreased proportionately based on the expected performance. The compensation expense ultimately recognized for the achievement shares will be based on the actual performance.

For the years ended December 31, 2017 and 2016, total compensation cost for the change in control awards recognized in income was $12 million and $4 million, respectively. The related tax benefit also recognized in income was $6 million for the year ended December 31, 2017 and an immaterial amount for the year ended December 31, 2016. As of December 31, 2017, approximately $8 million of total unrecognized compensation cost related to change in control awards will be recognized over a weighted-average period of approximately 18 months.

Diluted Earnings Per Share

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



	Average Common Stock Shares
	2017	2016	2015
	(in millions)
As reported shares	1,000	951	910
Effect of options and performance share award units	8	7	4
Diluted shares	1,008	958	914

Prior to the adoption of ASU 2016-09 in 2016, the effect of options and performance share award units included the assumed impacts of any excess tax benefits from the exercise of all "in the money" outstanding share based awards. Stock options and performance share award units that were not included in the diluted EPS calculation because they were anti-dilutive were immaterial in all years presented.

Common Stock Dividend Restrictions

The income of Southern Company is derived primarily from equity in earnings of its subsidiaries. At December 31, 2017, consolidated retained earnings included $5.3 billion of undistributed retained earnings of the subsidiaries.

ALABAMA POWER CO

Class of Stock [Line Items]

Stock compensation

STOCK COMPENSATION

Stock-Based Compensation

Stock-based compensation primarily in the form of Southern Company performance share units and restricted stock units may be granted through the Omnibus Incentive Compensation Plan to a large segment of the Company's employees ranging from line management to executives. In 2015 and 2016, stock-based compensation consisted exclusively of performance share units. Beginning in 2017, stock-based compensation granted to employees includes restricted stock units in addition to performance share units. Prior to 2015, stock-based compensation also included stock options. As of December 31, 2017, there were 793 current and former employees participating in the stock option, performance share unit, and restricted stock unit programs.

Performance Share Units

The fair value of TSR-based performance share unit awards is determined as of the grant date using a Monte Carlo simulation model to estimate the TSR of Southern Company's common 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.

For the years ended December 31, 2017, 2016, and 2015, employees of the Company were granted performance share units of 135,502, 249,065, and 214,709, respectively. The weighted average grant-date fair value of TSR-based performance share units granted during 2017, 2016, and 2015, determined using a Monte Carlo simulation model to estimate the TSR of Southern Company's stock among the industry peers over the performance period, was $49.07, $45.15, and $46.42, respectively. The weighted average grant-date fair value of both EPS-based and ROE-based performance share units granted during 2017, 2016, and 2015 was $49.21, $48.86, and $47.78, respectively.

For the years ended December 31, 2017, 2016, and 2015, total compensation cost for performance share units recognized in income was $9 million, $15 million, and $13 million, respectively, with the related tax benefit also recognized in income of $4 million, $6 million, and $5 million, respectively. The compensation cost related to the grant of Southern Company performance share units to the Company's employees is recognized in the Company's financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company. As of December 31, 2017, $2 million of total unrecognized compensation cost related to performance share award units will be recognized over a weighted-average period of approximately 21 months.

Restricted Stock Units

For the year ended December 31, 2017, employees of the Company were granted 58,001 restricted stock units. The weighted average grant-date fair value of restricted stock units granted during 2017 was $49.21.

For the year ended December 31, 2017, total compensation cost for restricted stock units recognized in income was $3 million with the related tax benefit also recognized in income of $1 million. As of December 31, 2017, total unrecognized compensation cost related to restricted stock units was immaterial.

Stock Options

In 2015, Southern Company discontinued the granting of stock options. Stock options expire no later than 10 years after the grant date and the latest possible exercise will occur no later than November 2024.

The compensation cost related to the grant of Southern Company stock options to the Company's employees is recognized in the Company's financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company. Compensation cost and related tax benefits recognized in the Company's financial statements were not material for any year presented. As of December 31, 2017, all compensation cost related to stock option awards has been recognized.

The total intrinsic value of options exercised during the years ended December 31, 2017, 2016, and 2015 was $12 million, $21 million, and $8 million, respectively. No cash proceeds are received by the Company upon the exercise of stock options. The actual tax benefit realized by the Company for the tax deductions from stock option exercises totaled $5 million, $8 million, and $3 million for the years ended December 31, 2017, 2016, and 2015, respectively. Prior to the adoption of ASU 2016-09 in 2016, the excess tax benefits related to the exercise of stock options were recognized in the Company's financial statements with a credit to equity. Upon the adoption of ASU 2016-09, beginning in 2016, all tax benefits related to the exercise of stock options are recognized in income. As of December 31, 2017, the aggregate intrinsic value for the options outstanding and exercisable was $17 million.

GEORGIA POWER CO

Class of Stock [Line Items]

Stock compensation

STOCK COMPENSATION

Stock-Based Compensation

Stock-based compensation primarily in the form of Southern Company performance share units and restricted stock units may be granted through the Omnibus Incentive Compensation Plan to a large segment of the Company's employees ranging from line management to executives. In 2015 and 2016, stock-based compensation consisted exclusively of performance share units. Beginning in 2017, stock-based compensation granted to employees includes restricted stock units in addition to performance share units. Prior to 2015, stock-based compensation also included stock options. As of December 31, 2017, there were 895 current and former employees participating in the stock option, performance share unit, and restricted stock unit programs.

Performance Share Units

The fair value of TSR-based performance share unit awards is determined as of the grant date using a Monte Carlo simulation model to estimate the TSR of Southern Company's common 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.

For the years ended December 31, 2017, 2016, and 2015, employees of the Company were granted performance share units of 138,102, 261,434, and 236,804, respectively. The weighted average grant-date fair value of TSR-based performance share units granted during 2017, 2016, and 2015, determined using a Monte Carlo simulation model to estimate the TSR of Southern Company's stock among the industry peers over the performance period, was $49.27, $45.17, and $46.41, respectively. The weighted average grant-date fair value of both EPS-based and ROE-based performance share units granted during 2017, 2016, and 2015 was $49.22, $48.84, and $47.78, respectively.

For the years ended December 31, 2017, 2016, and 2015, total compensation cost for performance share units recognized in income was $10 million, $15 million, and $15 million, respectively, with the related tax benefit also recognized in income of $4 million, $6 million, and $6 million, respectively. The compensation cost related to the grant of Southern Company performance share units to the Company's employees is recognized in the Company's financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company. As of December 31, 2017, $3 million of total unrecognized compensation cost related to performance share award units will be recognized over a weighted-average period of approximately 21 months.

Restricted Stock Units

For the year ended December 31, 2017, employees of the Company were granted 59,218 restricted stock units. The weighted average grant-date fair value of restricted stock units granted during 2017 was $49.22.

For the year ended December 31, 2017, total compensation cost for restricted stock units recognized in income was $3 million with the related tax benefit also recognized in income of $1 million. As of December 31, 2017, $1 million of total unrecognized compensation cost related to restricted stock units will be recognized over a weighted-average period of approximately 13 months.

Stock Options

The total intrinsic value of options exercised during the years ended December 31, 2017, 2016, and 2015 was $13 million, $18 million, and $9 million, respectively. No cash proceeds are received by the Company upon the exercise of stock options. The actual tax benefit realized by the Company for the tax deductions from stock option exercises totaled $5 million, $7 million, and $4 million for the years ended December 31, 2017, 2016, and 2015, respectively. Prior to the adoption of ASU 2016-09 in 2016, the excess tax benefits related to the exercise of stock options were recognized in the Company's financial statements with a credit to equity. Upon the adoption of ASU 2016-09, beginning in 2016, all tax benefits related to the exercise of stock options are recognized in income. As of December 31, 2017, the aggregate intrinsic value for the options outstanding and exercisable was $30 million.

GULF POWER CO

Class of Stock [Line Items]

Stock compensation

STOCK COMPENSATION

Stock-Based Compensation

Stock-based compensation primarily in the form of Southern Company performance share units and restricted stock units may be granted through the Omnibus Incentive Compensation Plan to a large segment of the Company's employees ranging from line management to executives. In 2015 and 2016, stock-based compensation consisted exclusively of performance share units. Beginning in 2017, stock-based compensation granted to employees includes restricted stock units in addition to performance share units. Prior to 2015, stock-based compensation also included stock options. As of December 31, 2017, there were 168 current and former employees participating in the stock option, performance share unit, and restricted stock unit programs.

Performance Share Units

The fair value of TSR-based performance share unit awards is determined as of the grant date using a Monte Carlo simulation model to estimate the TSR of Southern Company's common 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.

For the years ended December 31, 2017, 2016, and 2015, employees of the Company were granted performance share units of 28,423, 57,333, and 48,962, respectively. The weighted average grant-date fair value of TSR-based performance share units granted during 2017, 2016, and 2015, determined using a Monte Carlo simulation model to estimate the TSR of Southern Company's stock among the industry peers over the performance period, was $47.30, $45.18, and $46.38, respectively. The weighted average grant-date fair value of both EPS-based and ROE-based performance share units granted during 2017, 2016, and 2015 was $49.18, $48.83, and $47.75, respectively.

For the years ended December 31, 2017, 2016, and 2015, total compensation cost for performance share units recognized in income and the related tax benefit also recognized in income was immaterial. The compensation cost related to the grant of Southern Company performance share units to the Company's employees is recognized in the Company's financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company. As of December 31, 2017, total unrecognized compensation cost related to performance share award units was immaterial.

Restricted Stock Units

For the year ended December 31, 2017, employees of the Company were granted 15,736 restricted stock units. The weighted average grant-date fair value of restricted stock units granted during 2017 was $48.88.

For the year ended December 31, 2017, total compensation cost and the related tax benefit for restricted stock units recognized in income was immaterial. As of December 31, 2017, total unrecognized compensation cost related to restricted stock units was immaterial.

Stock Options

The total intrinsic value of options exercised during the years ended December 31, 2017, 2016, and 2015 was $2 million, $3 million, and $2 million, respectively. No cash proceeds are received by the Company upon the exercise of stock options. The actual tax benefit realized by the Company for the tax deductions from stock option exercises were immaterial for all years presented. Prior to the adoption of ASU 2016-09 in 2016, the excess tax benefits related to the exercise of stock options were recognized in the Company's financial statements with a credit to equity. Upon the adoption of ASU 2016-09, beginning in 2016, all tax benefits related to the exercise of stock options are recognized in income. As of December 31, 2017, the aggregate intrinsic value for the options outstanding and exercisable was $3 million.

MISSISSIPPI POWER CO

Class of Stock [Line Items]

Stock compensation

STOCK COMPENSATION

Stock-Based Compensation

Stock-based compensation primarily in the form of Southern Company performance share units and restricted stock units may be granted through the Omnibus Incentive Compensation Plan to a large segment of the Company's employees ranging from line management to executives. In 2015 and 2016, stock-based compensation consisted exclusively of performance share units. Beginning in 2017, stock-based compensation granted to employees includes restricted stock units in addition to performance share units. Prior to 2015, stock-based compensation also included stock options. As of December 31, 2017, there were 180 current and former employees participating in the stock option, performance share unit, and restricted stock unit programs.

Performance Share Units

The fair value of TSR-based performance share unit awards is determined as of the grant date using a Monte Carlo simulation model to estimate the TSR of Southern Company's common 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.

For the years ended December 31, 2017, 2016, and 2015, employees of the Company were granted performance share units of 30,933, 62,435, and 53,909, respectively. The weighted average grant-date fair value of TSR-based performance share units granted during 2017, 2016, and 2015, determined using a Monte Carlo simulation model to estimate the TSR of Southern Company's stock among the industry peers over the performance period, was $49.24, $45.17, and $46.41, respectively. The weighted average grant-date fair value of both EPS-based and ROE-based performance share units granted during 2017, 2016, and 2015 was $49.22, $48.84, and $47.77, respectively.

For the years ended December 31, 2017, 2016, and 2015, total compensation cost for performance share units recognized in income was $2 million, $4 million, and $4 million, respectively, with the related tax benefit also recognized in income of $1 million, $1 million, and $2 million, respectively. The compensation cost related to the grant of Southern Company performance share units to the Company's employees is recognized in the Company's financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company. As of December 31, 2017, total unrecognized compensation cost related to performance share award units was immaterial.

Restricted Stock Units

For the year ended December 31, 2017, employees of the Company were granted 13,260 restricted stock units. The weighted average grant-date fair value of restricted stock units granted during 2017 was $49.22.

For the year ended December 31, 2017, total compensation cost for restricted stock units and the related tax benefit also recognized in income was immaterial. As of December 31, 2017, total unrecognized compensation cost related to restricted stock units was immaterial.

Stock Options

The total intrinsic value of options exercised during the years ended December 31, 2017, 2016, and 2015 was $2 million, $4 million, and $3 million, respectively. No cash proceeds are received by the Company upon the exercise of stock options. The actual tax benefit realized by the Company for the tax deductions from stock option exercises totaled $1 million, $2 million, and $1 million for the years ended December 31, 2017, 2016, and 2015, respectively. Prior to the adoption of ASU 2016-09 in 2016, the excess tax benefits related to the exercise of stock options were recognized in the Company's financial statements with a credit to equity. Upon the adoption of ASU 2016-09, beginning in 2016, all tax benefits related to the exercise of stock options are recognized in income. As of December 31, 2017, the aggregate intrinsic value for the options outstanding and exercisable was $4 million.

SOUTHERN Co GAS

Class of Stock [Line Items]

Stock compensation

STOCK COMPENSATION

Successor

Stock-Based Compensation

Stock-based compensation primarily in the form of Southern Company performance share units and restricted stock units may be granted through the Omnibus Incentive Compensation Plan to certain levels of management within the Company. In 2017, stock-based compensation granted to employees includes performance share units and restricted stock units. In 2016, in conjunction with the Merger, stock-based compensation was granted to certain executives in the form of Southern Company restricted stock and performance share units. As of December 31, 2017, there were 327 current and former employees participating in the performance share unit and restricted stock unit programs.

Performance Share Units

The total target grant date fair value of the stock compensation awards granted was comprised 20% each of EPS-based awards and ROE-based awards and 30% each of TSR-based awards and restricted stock units.

For the year ended December 31, 2017, employees of the Company were granted 0.3 million performance share units. The weighted average grant-date fair value of TSR-based performance share units granted during 2017, determined using a Monte Carlo simulation model to estimate the TSR of Southern Company's stock among the industry peers over the performance period, was $49.27. The weighted average grant-date fair value of both EPS-based and ROE-based performance share units granted during 2017 was $49.22.

For the year ended December 31, 2017, total compensation cost for performance share units recognized in income was $8 million with the related tax benefit also recognized in income of $3 million. The compensation cost related to the grant of Southern Company performance share units to the Company's employees is recognized in the Company's financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company. As of December 31, 2017, $6 million of total unrecognized compensation cost related to performance share award units will be recognized over a weighted-average period of approximately 21 months.

Restricted Stock Units

Stock-based compensation granted to employees included restricted stock units in addition to performance share units. One-third of the restricted stock units granted to employees vest each year throughout a three-year service period. All unvested restricted stock units vest immediately upon a change in control where Southern Company is not the surviving corporation. Shares of Southern Company common stock are delivered to employees at the end of the vesting period.

For the year ended December 31, 2017, employees of the Company were granted 0.1 million restricted stock units. The weighted average grant-date fair value of restricted stock units granted during 2017 was $49.23.

For the year ended December 31, 2017, total compensation cost for restricted stock units recognized in income was $4 million with the related tax benefit also recognized in income of $2 million. The compensation cost related to the grant of Southern Company restricted stock units to the Company's employees is recognized in the Company's financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company. As of December 31, 2017, $1 million of total unrecognized compensation cost related to restricted stock units will be recognized over a weighted-average period of approximately 13 months.

Merger Stock Compensation

At the effective time of the Merger, each share of Southern Company Gas common stock, other than certain excluded shares, was converted into the right to receive $66 in cash, without interest. Also at the effective time of the Merger:


•	Southern Company Gas' outstanding restricted stock units, restricted stock awards, and non-employee director stock awards were deemed fully vested and were canceled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Southern Company Gas' common stock subject to such award and (ii) the Merger consideration of $66 per share;

•

Southern Company Gas' outstanding stock options, all of which were fully vested, were canceled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Southern Company Gas' common stock subject to such options and (ii) the excess of the Merger consideration of $66 per share over the applicable exercise price per share of such options; and


•	each outstanding award of a performance share unit was converted into an award of Southern Company's restricted stock units (restricted stock awards).

In conjunction with the Merger, stock-based compensation, in the form of Southern Company restricted stock and performance share units, was granted to certain executives of the Company through the Southern Company Omnibus Incentive Compensation Plan.

Southern Company Restricted Stock Awards

Under the terms of the restricted stock awards, the employees received a specified number of restricted stock units that vest when the employees have satisfied the requisite service period(s) at which time the employee receives Southern Company common stock. The terms of the award require the employee to be continuously employed through the original three-year vesting schedule of the award being replaced.

For the successor period ended December 31, 2016, employees of the Company were granted 0.7 million restricted stock units. The grant-date fair value of the restricted stock units granted was $53.83, based on the closing stock price of Southern Company common stock on the date of the grant. As a portion of the fair value of the award related to pre-combination service, the grant date fair value was allocated to pre- or post-combination service and accounted for as Merger consideration or compensation cost, respectively. Approximately $13 million of the grant date fair value was allocated to Merger consideration. The remaining fair value of $12 million is being recognized as compensation expense on a straight-line basis over the remaining vesting period.

The compensation cost related to the grant of restricted stock units 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. For the successor year ended December 31, 2017 and the successor period of July 1, 2016 through December 31, 2016, total compensation cost for restricted stock units recognized in income was $8 million and $13 million, respectively, with the related tax benefit also recognized in income of $4 million and $4 million, respectively. As of December 31, 2017, $3 million of total unrecognized compensation cost related to restricted stock units will be recognized over a weighted-average period of approximately 12 months. See "Performance Share Unit Awards" herein for additional information.

Change in Control Awards

Southern Company awarded performance share units to certain employees remaining with the Company in lieu of certain change in control benefits the employee was entitled to receive following the Merger (change-in-control awards). Shares of Southern Company common stock and/or cash equal to the dollar value of the change-in-control benefit will vest and be issued one-third each year as long as the employee remains in service with the Company, or any of its affiliates, at each vest date. In addition to the change-in-control benefit, Southern Company common stock could be issued to the employees at the end of a performance period with the number of shares issued ranging from 0% to 100% of the target number of performance share units granted, based on achievement of certain Southern Company common stock price metrics, as well as performance goals established by the Compensation Committee of the Southern Company Board of Directors (achievement shares).

The change-in-control benefits are accounted for as a liability award with the fair value equal to the guaranteed dollar value of the change-in-control benefit. The grant-date fair value of the achievement portion of the award was determined using a Monte Carlo simulation model to estimate the number of achievement shares expected to vest based on the Southern Company common stock price. The expected payout is reevaluated annually with expense recognized to date increased or decreased proportionately based on the expected performance. The compensation expense ultimately recognized for the achievement shares will be based on the actual performance.

For the successor year ended December 31, 2017 and the successor period of July 1, 2016 through December 31, 2016, total compensation cost for the change-in-control awards recognized in income was $12 million and $4 million, respectively, with $6 million and less than $1 million, respectively, of related tax benefit recognized in income. The compensation cost related to the grant of Southern Company change-in-control benefit and achievement shares to the Company's employees are recognized in the Company's financial statements with a corresponding credit to a liability or equity, representing a capital contribution from Southern Company, respectively. As of December 31, 2017, $8 million of total unrecognized compensation cost related to change in control awards will be recognized over a weighted-average period of approximately 18 months.

Predecessor

For the predecessor periods of January 1, 2016 through June 30, 2016 and the year ended December 31, 2015, the employees of Southern Company Gas and subsidiaries participated in the AGL Resources Inc. Omnibus Performance Incentive Plan, as amended and restated.

The AGL Resources Inc. Omnibus Performance Incentive Plan, as amended and restated, and the Long-Term Incentive Plan (1999) provided for the grant of incentive and nonqualified stock options, stock appreciation rights, shares of restricted stock, restricted stock units, performance cash awards, and other stock-based awards to officers and key employees. Effective July 1, 2016, all Southern Company Gas shares of stock were canceled and/or converted as a result of the Merger. No further grants will be made from the Long-Term Incentive Plan (1999) or the AGL Resources Inc. Omnibus Performance Incentive Plan, as amended and restated.

For the predecessor periods, the Company recognized stock-based compensation expense for its stock-based awards over the requisite service period based on the estimated fair value at the date of grant for its stock-based awards using the modified prospective method. These stock awards included: stock options, stock and restricted stock awards, and performance units (restricted stock units, performance share units, and performance cash units).

Performance-based stock awards and performance units contained market and performance conditions. Stock options, restricted stock awards, and performance units also contained a service condition. The Company estimated forfeitures over the requisite service period when recognizing compensation expense. These estimates were adjusted to the extent that actual forfeitures differ, or were expected to materially differ, from such estimates. Excess tax benefits were reported as a financing cash inflow. The difference between the proceeds from the exercise of the Company's stock-based awards and the par value of the stock was recorded within additional paid-in capital.

Southern Company Gas granted stock awards with a grant price that was equal to the fair market value on the date of the grant. Fair market value was defined under the terms of the applicable plans as the closing price per share of Southern Company Gas' common stock on the grant date. For the predecessor periods of January 1, 2016 through June 30, 2016 and the year ended December 31, 2015, total compensation cost for cash and stock-based awards recognized in income was $24 million and $40 million, respectively, with related tax benefits also recognized in income, which were immaterial.

Incentive and Nonqualified Stock Options

The stock options that the Company granted prior to the Merger had a three-year vesting period and expired ten years after the date of grant. The exercise price for stock options granted equaled the stock price of Southern Company Gas common stock on the date of grant. Participants realized value from option grants only to the extent that the fair market value of the Company's common stock on the date of exercise of the option exceeded the fair market value of the common stock on the date of the grant. No stock options have been issued under the plan since 2009.

The Company measured compensation cost related to stock options based on the fair value of these awards at their date of grant using the Black-Scholes option-pricing model. For the predecessor year ended December 31, 2015, the Company had no unrecognized compensation costs related to stock options. For the predecessor period ended June 30, 2016 and the year ended December 31, 2015, cash received from stock option exercises and the related income tax benefits were immaterial.

For the predecessor periods of January 1, 2016 through June 30, 2016 and the year ended December 31, 2015, the total intrinsic value of options exercised was $3 million, and $13 million, respectively.

Effective July 1, 2016, all of the Company's outstanding stock options, all of which were fully vested, were canceled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Southern Company Gas' common stock subject to such options and (ii) the excess of the Merger consideration of $66 per share over the applicable exercise price per share of such options.

Restricted Stock Units

A restricted stock unit is an award that represents the opportunity to receive a specified number of shares of the Company's common stock, subject to the achievement of certain pre-established performance criteria. For the predecessor period of January 1, 2016 through June 30, 2016 and the year ended December 31, 2015, the Company granted 25,166 and 47,546, respectively, of restricted stock units (including dividends) to certain employees. At the effective time of the Merger, all restricted stock units outstanding were deemed fully vested and were canceled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Southern Company Gas' common stock subject to such award and (ii) the Merger consideration of $66 per share.

Performance Share Unit Awards

A performance share unit award represented the opportunity to receive cash and shares subject to the achievement of certain pre-established performance criteria. For the predecessor periods of January 1, 2016 through June 30, 2016 and the year ended December 31, 2015, the Company granted performance share unit awards to certain officers. The Company's 2016 and 2015 performance share units had two performance measures. One measure, which accounted for 75%, related to the Company's total shareholder return relative to a group of peer companies. The second measure, which accounted for 25%, related to the Company's earnings per share, excluding wholesale gas services, over the three-year performance period.

At the effective time of the Merger, each outstanding performance share unit was converted into an award of Southern Company's restricted stock units. The conversion ratio was the product of (i) the greater of (a) 125% of the number of units underlying such award based on target level achievement of all relevant performance goals and (b) the number of units underlying such award based on the actual level of achievement of all relevant performance goals against target and (ii) an exchange ratio based on the Merger consideration of $66 per share as compared to the volume-weighted average price per share of Southern Company common stock. The resulting Southern Company restricted stock units will follow the vesting schedule and payment terms, and otherwise be issued on similar terms and conditions, as were applicable to such pre-Merger performance share unit awards, subject to certain exceptions. See "Southern Company Restricted Stock Awards" for additional information.

Stock and Restricted Stock Awards

The compensation cost of both stock awards and restricted stock awards was equal to the grant date fair value of the awards, recognized over the requisite service period. No other assumptions were used to value the awards. The Company referred to restricted stock as an award of Company common stock subject to time-based vesting or achievement of performance measures. Prior to vesting, restricted stock awards were subject to certain transfer restrictions and forfeiture upon termination of employment.

Restricted Stock Awards — Employees

Total unvested restricted stock awards outstanding as of December 31, 2015 totaled 0.4 million. During 2016, 0.3 million restricted stock awards were granted, 0.7 million restricted stock awards were vested or forfeited. At the effective time of the Merger, Southern Company Gas' outstanding restricted stock awards were deemed fully vested and were canceled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Southern Company Gas' common stock subject to such award and (ii) the Merger consideration of $66 per share.