-----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, FDNKuILIhQzCB62g1Yfg11xZaC4I5UmXEsjSL5SKPg05pASZjl6p62gdd4+++BtL razg9MQaOrH/Rb8lL8oibg== 0000092122-96-000073.txt : 19960701 0000092122-96-000073.hdr.sgml : 19960701 ACCESSION NUMBER: 0000092122-96-000073 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN CO CENTRAL INDEX KEY: 0000092122 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 580690070 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03526 FILM NUMBER: 96562682 BUSINESS ADDRESS: STREET 1: 64 PERIMETER CENTER EAST CITY: ATLANTA STATE: GA ZIP: 30346 BUSINESS PHONE: 770-393-06 MAIL ADDRESS: STREET 1: 64 PERIMETER CENTER EAST CITY: ATLANTA STATE: GA ZIP: 30346 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALABAMA POWER CO CENTRAL INDEX KEY: 0000003153 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 630004250 STATE OF INCORPORATION: AL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03164 FILM NUMBER: 96562683 BUSINESS ADDRESS: STREET 1: 600 N 18TH ST STREET 2: P O BOX 2641 CITY: BIRMINGHAM STATE: AL ZIP: 35291 BUSINESS PHONE: 2052501000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEORGIA POWER CO CENTRAL INDEX KEY: 0000041091 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 580257110 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06468 FILM NUMBER: 96562684 BUSINESS ADDRESS: STREET 1: 333 PIEDMONT AVE NE CITY: ATLANTA STATE: GA ZIP: 30308 BUSINESS PHONE: 4045266526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULF POWER CO CENTRAL INDEX KEY: 0000044545 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 590276810 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-02429 FILM NUMBER: 96562685 BUSINESS ADDRESS: STREET 1: 500 BAYFRONT PKWY CITY: PENSACOLA STATE: FL ZIP: 32501 BUSINESS PHONE: 9044446111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MISSISSIPPI POWER CO CENTRAL INDEX KEY: 0000066904 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 640205820 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11229 FILM NUMBER: 96562686 BUSINESS ADDRESS: STREET 1: 2992 W BEACH CITY: GULFPORT STATE: MS ZIP: 39501 BUSINESS PHONE: 6018641211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAVANNAH ELECTRIC & POWER CO CENTRAL INDEX KEY: 0000086940 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 580418070 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05072 FILM NUMBER: 96562687 BUSINESS ADDRESS: STREET 1: 600 BAY ST EAST CITY: SAVANNAH STATE: GA ZIP: 31401 BUSINESS PHONE: 9122327171 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------- FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _____to_____ Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. 1-3526 The Southern Company 58-0690070 (A Delaware Corporation) 270 Peachtree Street, N.W. Atlanta, Georgia 30303 (770) 393-0650 1-3164 Alabama Power Company 63-0004250 (An Alabama Corporation) 600 North 18th Street Birmingham, Alabama 35291 (205) 250-1000 1-6468 Georgia Power Company 58-0257110 (A Georgia Corporation) 333 Piedmont Avenue, N.E. Atlanta, Georgia 30308 (404) 526-6526 0-2429 Gulf Power Company 59-0276810 (A Maine Corporation) 500 Bayfront Parkway Pensacola, Florida 32501 (904) 444-6111 0-6849 Mississippi Power Company 64-0205820 (A Mississippi Corporation) 2992 West Beach Gulfport, Mississippi 39501 (601) 864-1211 1-5072 Savannah Electric and Power Company 58-0418070 (A Georgia Corporation) 600 Bay Street, East Savannah, Georgia 31401 (912) 232-7171 ================================================================================ Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No____
Description of Shares Outstanding Registrant Common Stock at April 30, 1996 The Southern Company Par Value $5 Per Share 670,706,372 Alabama Power Company Par Value $40 Per Share 5,608,955 Georgia Power Company No Par Value 7,761,500 Gulf Power Company No Par Value 992,717 Mississippi Power Company Without Par Value 1,121,000 Savannah Electric and Power Company Par Value $5 Per Share 10,844,635
This combined Form 10-Q is separately filed by The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company and Savannah Electric and Power Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other companies.
INDEX TO QUARTERLY REPORT ON FORM 10-Q MARCH 31, 1996 Page Number DEFINITIONS........................................................................................................ 4 PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) and Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition The Southern Company and Subsidiary Companies Condensed Statements of Income..................................................................... 6 Condensed Statements of Cash Flows................................................................. 7 Condensed Balance Sheets........................................................................... 8 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 10 Alabama Power Company Condensed Statements of Income..................................................................... 15 Condensed Statements of Cash Flows................................................................. 16 Condensed Balance Sheets........................................................................... 17 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 19 Exhibit 1 - Report of Independent Public Accountants............................................... 22 Georgia Power Company Condensed Statements of Income..................................................................... 24 Condensed Statements of Cash Flows................................................................. 25 Condensed Balance Sheets........................................................................... 26 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 28 Exhibit 1 - Report of Independent Public Accountants............................................... 31 Gulf Power Company Condensed Statements of Income..................................................................... 33 Condensed Statements of Cash Flows................................................................. 34 Condensed Balance Sheets........................................................................... 35 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 37 Mississippi Power Company Condensed Statements of Income..................................................................... 41 Condensed Statements of Cash Flows................................................................. 42 Condensed Balance Sheets........................................................................... 43 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 45 Savannah Electric and Power Company Condensed Statements of Income..................................................................... 49 Condensed Statements of Cash Flows................................................................. 50 Condensed Balance Sheets........................................................................... 51 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 53 Notes to the Condensed Financial Statements........................................................... 56 PART II - OTHER INFORMATION Item 1. Legal Proceedings......................................................................................... 60 Item 2. Changes in Securities..................................................................................... Inapplicable Item 3. Defaults Upon Senior Securities........................................................................... Inapplicable Item 4. Submission of Matters to a Vote of Security Holders....................................................... Inapplicable Item 5. Other Information......................................................................................... Inapplicable Item 6. Exhibits and Reports on Form 8-K.......................................................................... 60 Signatures ............................................................................................... 61 3
DEFINITIONS TERM MEANING ALABAMA...........................Alabama Power Company Clean Air Act ....................Clean Air Act Amendments of 1990 ECO Plan..........................Environmental Compliance Overview Plan Energy Act........................Energy Policy Act of 1992 EWG...............................Exempt wholesale generator FASB..............................Financial Accounting Standards Board FERC..............................Federal Energy Regulatory Commission Form 10-K.........................Combined Annual Report on Form 10-K of SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH for the year ended December 31, 1995 FUCO..............................Foreign utility company GEORGIA...........................Georgia Power Company GULF..............................Gulf Power Company MEAG..............................Municipal Electric Authority of Georgia MISSISSIPPI.......................Mississippi Power Company OPC...............................Oglethorpe Power Corporation PEP...............................Performance Evaluation Plan PSC...............................Public Service Commission SAVANNAH..........................Savannah Electric and Power Company SEC...............................Securities and Exchange Commission SEI...............................Southern Electric International, Inc. SOUTHERN..........................The Southern Company SWEB..............................South Western Electricity plc (United Kingdom) TVA...............................Tennessee Valley Authority 4 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES 5
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, 1996 1995 OPERATING REVENUES $ 2,415,618 $ 1,929,043 -------------- -------------- OPERATING EXPENSES: Operation-- Fuel 502,628 449,782 Purchased power 271,497 58,538 Other 424,578 360,013 Maintenance 186,377 159,412 Depreciation and amortization 244,846 212,322 Amortization of deferred Plant Vogtle costs (Note J) 33,759 28,157 Taxes other than income taxes 168,645 123,448 Income taxes 165,951 151,992 -------------- -------------- Total operating expenses 1,998,281 1,543,664 -------------- -------------- OPERATING INCOME 417,337 385,379 OTHER INCOME: Allowance for equity funds used during construction 860 3,119 Interest income 15,727 7,902 Other, net 7,724 (13,491) Income taxes applicable to other income 2,188 11,680 -------------- -------------- INCOME BEFORE INTEREST CHARGES 443,836 394,589 -------------- -------------- INTEREST CHARGES AND OTHER: Interest on long-term debt 139,768 136,398 Allowance for debt funds used during construction (5,311) (5,848) Interest on notes payable 22,547 13,598 Amortization of debt discount, premium and expense, net 12,975 8,119 Other interest charges 20,045 10,324 Minority interest in subsidiaries (556) 3,206 Preferred dividends of subsidiary companies 21,493 22,450 -------------- -------------- Net interest charges and other, net 210,961 188,247 -------------- -------------- CONSOLIDATED NET INCOME $ 232,875 $ 206,342 ============== ============== AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (Thousands) 670,105 661,393 EARNINGS PER SHARE OF COMMON STOCK $0.35 $0.31 CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK $0.315 $0.305
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements. 6
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, 1996 1995 OPERATING ACTIVITIES: Consolidated net income $ 232,875 $ 206,342 Adjustments to reconcile net cash provided by operating activities-- Depreciation and amortization 301,320 270,448 Deferred income taxes and investment tax credits 18,918 22,208 Allowance for equity funds used during construction (860) (3,119) Amortization of deferred Plant Vogtle costs (Note J) 33,759 28,157 Gain on asset sales (11,072) (115) Other, net 20,947 21,455 Changes in certain current assets and liabilities-- Receivables, net 130,802 161,465 Fossil fuel stock 25,113 (47,537) Materials and supplies 11,486 9,418 Prepayments (45,250) (45,925) Payables (126,490) (189,441) Customer deposits (85,141) 1,651 Other (105,052) 60,128 ------------- ----------- Net cash provided from operating activities 401,355 495,135 ------------- ----------- INVESTING ACTIVITIES: Gross property additions (306,470) (312,714) Sales of property 1,800 - Other (74,155) (70,085) ------------- ----------- Net cash used for investing activities (378,825) (382,799) ------------- ----------- FINANCING ACTIVITIES: Proceeds-- Common stock 18,530 180,273 Preferred securities 97,000 - First mortgage bonds 40,000 - Pollution control bonds 21,200 - Other long-term debt 279,147 28,745 Retirements-- Preferred stock - (1,000) First mortgage bonds (239,127) (1,350) Pollution control bonds (6,800) (70) Other long-term debt (1,074,005) (52,653) Notes payable, net 618,850 (95,834) Payment of common stock dividends (211,081) (201,866) Miscellaneous (26,770) 4,666 ------------- ----------- Net cash used for financing activities (483,056) (139,089) ------------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS (460,526) (26,753) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 772,340 139,309 ------------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 311,814 $ 112,556 ============= =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $ 199,455 $ 161,369 Income taxes 56,321 8,827
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements. 7
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At March 31, 1996 At December 31, (Unaudited) 1995 ------------ --------------- UTILITY PLANT: Plant in service $ 32,258,223 $ 31,878,166 Less accumulated provision for depreciation 10,300,678 10,067,081 --------------- --------------- 21,957,545 21,811,085 Nuclear fuel, at amortized cost 211,747 225,386 Construction work in progress 833,939 989,808 --------------- --------------- Total 23,003,231 23,026,279 --------------- --------------- OTHER PROPERTY AND INVESTMENTS: Argentine operating concession, being amortized 427,241 431,212 Goodwill 303,300 343,897 Nuclear decommissioning trusts 231,633 200,641 Miscellaneous 329,367 317,103 --------------- --------------- Total 1,291,541 1,292,853 --------------- --------------- CURRENT ASSETS: Cash and cash equivalents 311,814 772,340 Special deposits 21,291 156,114 Receivables, less accumulated provisions for uncollectible accounts of $34,628 at March 31, 1996 and $37,119 at December 31, 1995 1,223,526 1,362,912 Fossil fuel stock, at average cost 301,556 326,669 Materials and supplies, at average cost 540,060 551,546 Prepayments 311,529 265,988 Vacation pay deferred 78,618 74,135 --------------- --------------- Total 2,788,394 3,509,704 --------------- --------------- DEFERRED CHARGES: Deferred charges related to income taxes 1,368,170 1,386,116 Deferred Plant Vogtle costs (Note J) 273,879 307,638 Debt expense, being amortized 68,052 68,539 Premium on reacquired debt, being amortized 284,747 294,825 Miscellaneous 638,024 636,327 --------------- --------------- Total 2,632,872 2,693,445 --------------- --------------- TOTAL ASSETS $ 29,716,038 $ 30,522,281 =============== ===============
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements. 8
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At March 31, 1996 At December 31, (Unaudited) 1995 ---------------- ---------------- CAPITALIZATION: Common stock, par value $5 per share - Authorized -- 1 billion shares; Outstanding -- March 31, 1996: 670,299,642 shares -- December 31, 1995: 669,542,914 shares $ 3,351,498 $ 3,347,715 Paid-in capital 1,915,094 1,940,823 Retained earnings 3,504,507 3,483,624 ------------- ------------- 8,771,099 8,772,162 Preferred stock of subsidiaries 1,332,203 1,332,203 Subsidiary obligated mandatorily redeemable preferred securities 197,000 100,000 Long-term debt 7,545,346 8,274,012 ------------- ------------- Total 17,845,648 18,478,377 ------------- ------------- CURRENT LIABILITIES: Long-term debt due within one year 100,112 508,572 Notes payable 2,288,588 1,669,738 Accounts payable 592,797 785,490 Customer deposits 131,503 216,644 Taxes accrued-- Income taxes 127,290 92,684 Other 127,135 178,807 Interest accrued 170,937 199,112 Vacation pay accrued 103,871 99,678 Miscellaneous 463,141 530,461 ------------- ------------- Total 4,105,374 4,281,186 ------------- ------------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 4,620,303 4,611,081 Deferred credits related to income taxes 922,073 935,611 Accumulated deferred investment tax credits 812,216 820,127 Minority interest in subsidiaries 229,009 230,500 Prepaid capacity revenues 129,228 131,186 Department of Energy assessments 86,113 86,113 Disallowed Plant Vogtle capacity buyback costs 58,038 58,514 Storm damage reserves 33,323 30,777 Miscellaneous 874,713 858,809 ------------- ------------- Total 7,765,016 7,762,718 ------------- ------------- TOTAL CAPITALIZATION AND LIABILITIES $ 29,716,038 $ 30,522,281 ============= =============
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements. 9 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1996 vs. FIRST QUARTER 1995 RESULTS OF OPERATIONS Earnings SOUTHERN's consolidated net income for the first quarter of 1996 was $233 million ($0.35 per share), compared to $206 million ($0.31 per share) for the same quarter of 1995, representing a 12.9% increase. Colder-than-normal weather during the first three months of 1996 increased the demand for electricity by residential and commercial customers which positively affected earnings of the core business. Compared to the first quarter of 1995, core business earnings increased 6.9% or $14 million. The performance of the non-core portion of the business (primarily resulting from the acquisition of SWEB in the third quarter of 1995) also contributed to the improvement in 1996 earnings. (Reference is made to Note 14 of SOUTHERN's financial statements in Item 8 of the Form 10-K for additional information regarding the acquisition of SWEB.) SOUTHERN's core business is its five electric utility operating companies, which provide electric service in four Southeastern states. The non-core portion of the business is primarily represented by SEI, which owns and manages international and domestic businesses for SOUTHERN. Businesses acquired by SEI have been included in the consolidated statements of income since the date of acquisition. Certain changes in operating revenues and expenses from the prior period are the result of such acquisitions. Significant income statement items appropriate for discussion include the following: Increase (Decrease) ----------------------------------- (in thousands) % Operating revenues........................... $486,575 25.2 Fuel expense................................. 52,846 11.7 Purchased power expense...................... 212,959 363.8 Maintenance expense.......................... 26,965 16.9 Depreciation and amortization expense........ 32,524 15.3 Taxes other than income taxes................ 45,197 36.6 Interest on long-term debt................... 3,370 2.5 Interest on notes payable.................... 8,949 65.8 Operating revenues. The increase in operating revenues of the core business was influenced most heavily by an increase in the amount of retail energy sold. For the first three months of 1996, total retail kilowatt-hour sales increased 8.0% over the same period of 1995. Retail revenues, excluding those revenues which represent the pass-through of fuel expense and certain other expenses and do not affect income, increased $69 million. Residential, commercial and industrial energy sales increased 13.0%, 10.4% and 3.0%, respectively, primarily due to colder temperatures and an increase in the number of customers served. Weather was also a factor in increased wholesale energy sales, which were up 28.5% compared to the corresponding period of 1995. However, capacity revenues from off-system sales were down $17 million primarily due to the scheduled decline in megawatts of capacity under long-term contracts compared to the first quarter of 1995. 10 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Fuel expense. Fuel expense in the core business rose 10.9% or $48 million compared to the same period of 1995 primarily due to higher generation necessary to meet the increased demand for electricity, partially offset by a slightly lower average cost of fuel. Purchased power expense. The substantial increase in purchased power expense is attributable to non-core operations, specifically, SWEB's operations. (SWEB's main business is the distribution of electricity. It must purchase essentially all of its power.) Purchased power expense increased only 4.9% or $2 million in the core business. Maintenance expense. Maintenance expense related to the core business increased $12 million or 7.6% compared to the first quarter of 1995 due to the timing of scheduled maintenance performed on generating units. Depreciation and amortization expense. Depreciation and amortization expense in the core business increased $17 million or 8.3% compared to the same period of 1995 mainly due to accelerated depreciation of generating plants and additional plant investment. Taxes other than income taxes. For the first three months of 1996, taxes other than income taxes associated with the core business increased $10 million, a 7.9% increase, compared to the same quarter of 1995 primarily due to higher municipal and county franchise taxes resulting from increased sales. Interest on long-term debt. The increase in interest on long-term debt is attributable to non-core business activities. In the first quarter of 1996, interest on long-term debt in the core business decreased $29 million (23.2%) compared to the corresponding period of 1995 reflecting the redemption and refinancing of long-term debt by the operating companies. Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a less regulated, more competitive environment, with non-core business becoming more significant. With respect to non-core activities, SOUTHERN received, in April 1996, an order from the SEC which in effect allows it to use the proceeds from financings to increase its aggregate investment in EWGs and FUCOs up to an amount not exceeding 100% of SOUTHERN's consolidated retained earnings. At March 31, 1996, SOUTHERN's consolidated retained earnings amounted to $3,505 million, and its aggregate investment in EWGs and FUCOs amounted to $934 million. For additional information relating to SOUTHERN's non-core business activities, see Item 1 - BUSINESS - "New Business Development" in the Form 10-K. With the enactment of the Energy Act and new legislation being discussed at federal and state levels to expand customer choice, the Southern electric system is positioning the business to meet the challenge of increasing competition. Legislation has been enacted in Alabama that would establish a process for determining whether utilities would experience "stranded costs" upon the transfer of an existing customer of a utility to another electric supplier. This legislation authorizes the Alabama PSC to make a determination of whether stranded costs would exist as a result of such a transfer by a customer of ALABAMA and would require the customer seeking an alternative supplier to pay any stranded costs found to exist. The legislation has termination provisions keyed to passage of comprehensive retail electric service competition legislation which addresses stranded costs of existing utilities and eliminates 11 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION the obligation of utilities to provide generating resources. For additional information, see Item 1 - BUSINESS - "Competition" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SOUTHERN in the Form 10-K. Compliance costs related to the Clean Air Act could affect earnings if such costs cannot be offset. For additional information about the Clean Air Act and other important environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" of SOUTHERN in the Form 10-K. Reference is made to Notes (B), (C), (E), (F), (G), (I), (J), (K), (L) and (N) in the "Notes to the Condensed Financial Statements" herein for discussion of various contingencies and other matters which may affect future earnings potential. Reference is also made to Part II - Item 1 - "Legal Proceedings" herein. FINANCIAL CONDITION Overview The major change in SOUTHERN's financial condition during the first three months of 1996 was the addition of approximately $306 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operations and increased short-term debt. See SOUTHERN's Condensed Statements of Cash Flows for further details. Financing Activities During the first three months of 1996, the operating companies sold $40 million of first mortgage bonds, and through public authorities, $21 million of pollution control revenue bonds. Retirements, including maturities, of the operating companies' first mortgage bonds and pollution control revenue bonds totaled $244 million. A subsidiary of ALABAMA formed as a statutory business trust sold $97 million of trust preferred securities guaranteed by ALABAMA and loaned the proceeds of such securities to ALABAMA. See Note (H) to the Condensed Financial Statements herein for further details. During the first quarter of 1996, SOUTHERN raised $19 million from the issuance of new common stock under SOUTHERN's various stock plans. The market price of SOUTHERN's common stock at March 31, 1996 was $23.875 per share and the book value was $13.09 per share, representing a market-to-book ratio of 182 percent, compared to $24.625, $13.10 and 188 percent, respectively, at the end of 1995. The dividend for the first quarter of 1996 was 31.5 cents per share. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of SOUTHERN under "Capital Requirements for Construction," "Environmental Matters" and "Other Capital Requirements" in the Form 10-K for a description of the Southern electric system's capital requirements for its construction program, environmental compliance efforts, sinking fund requirements and maturing debt. Approximately $100 million will be required by March 31, 1997, for present sinking fund requirements and maturities of long-term debt. Also, the operating subsidiaries plan to continue, to the extent possible, a program to retire higher-cost debt and preferred stock and replace these obligations with lower-cost capital. 12 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Sources of Capital In addition to the financing activities previously described, SOUTHERN may require additional equity capital during the remainder of the year. The amounts and timing of additional equity capital to be raised in 1996, as well as in subsequent years, will be contingent on SOUTHERN's investment opportunities. The operating companies plan to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings--if needed--will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. Currently, each of the operating companies expects to have adequate earnings coverage ratios for any anticipated security sales through at least 1998. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. To meet short-term cash needs and contingencies, the SOUTHERN system had at March 31, 1996, approximately $312 million of cash and cash equivalents and approximately $2.7 billion of unused credit arrangements with banks. At March 31, 1996, the system companies had outstanding approximately $1.4 billion of short-term notes payable and $932 million of commercial paper. Since SOUTHERN's construction program with respect to major generating projects in the core business has been completed, management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. See Note (D) to the Condensed Financial Statements herein for discussion of financial derivative contracts entered into by SOUTHERN. 13 ALABAMA POWER COMPANY 14
ALABAMA POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, 1996 1995 OPERATING REVENUES: Revenues $ 655,401 $ 618,970 Revenues from affiliates 77,408 27,801 ------------ ------------- Total operating revenues 732,809 646,771 ------------ ------------- OPERATING EXPENSES: Operation-- Fuel 211,548 157,189 Purchased power from non-affiliates 8,967 2,619 Purchased power from affiliates 15,846 22,961 Other 117,078 112,723 Maintenance 62,934 63,885 Depreciation and amortization 79,898 76,457 Taxes other than income taxes 50,064 47,678 Federal and state income taxes 44,422 40,310 ------------ ------------- Total operating expenses 590,757 523,822 ------------ ------------- OPERATING INCOME 142,052 122,949 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 401 1,257 Income from subsidiary 974 838 Interest income 9,670 4,895 Other, net (7,623) (7,810) Income taxes applicable to other income (370) 4,730 ------------ ------------- INCOME BEFORE INTEREST CHARGES 145,104 126,859 ------------ ------------- INTEREST CHARGES: Interest on long-term debt 42,576 45,400 Allowance for debt funds used during construction (1,876) (2,041) Interest on interim obligations 5,727 4,006 Amortization of debt discount, premium and expense, net 7,372 2,519 Other interest charges 11,534 4,791 ------------ ------------- Net interest charges 65,333 54,675 ------------ ------------- NET INCOME 79,771 72,184 DIVIDENDS ON PREFERRED STOCK 6,612 6,856 ------------ ------------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 73,159 $ 65,328 ============ =============
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements. 15
ALABAMA POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, 1996 1995 OPERATING ACTIVITIES: Net income $ 79,771 $ 72,184 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 101,996 91,746 Deferred income taxes and investment tax credits, net 4,469 3,547 Allowance for equity funds used during construction (401) (1,257) Other, net (6,600) 52,996 Changes in certain current assets and liabilities-- Receivables, net 6,009 32,703 Inventories 14,268 (27,442) Payables (66,557) (137,642) Taxes accrued 53,974 45,081 Energy cost recovery, retail 30,855 27,803 Other (74,959) (65,887) ----------- ----------- Net cash provided from operating activities 142,825 93,832 ----------- ----------- INVESTING ACTIVITIES: Gross property additions (105,663) (126,840) Other (19,058) (13,643) ----------- ----------- Net cash used for investing activities (124,721) (140,483) ----------- ----------- FINANCING ACTIVITIES: Proceeds-- Company obligated mandatorily redeemable preferred securities of Alabama Power Capital Trust I holding Company Junior Subordinated Notes (Note H) 97,000 - Retirements-- First mortgage bonds (83,797) - Other long-term debt (239) (185) Interim obligations, net 46,014 120,169 Payment of preferred stock dividends (6,638) (6,589) Payment of common stock dividends (76,000) (71,900) Miscellaneous (2,869) (186) ----------- ----------- Net cash provided from (used for) financing activities (26,529) 41,309 ----------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS (8,425) (5,342) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,616 14,676 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,191 $ 9,334 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $ 56,128 $ 49,600 Income taxes 218 2,500
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements. 16
ALABAMA POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At March 31, 1996 At December 31, (Unaudited) 1995 ---------------- ---------------- UTILITY PLANT: Plant in service $ 10,503,568 $ 10,430,792 Less accumulated provision for depreciation 3,914,933 3,838,093 -------------- -------------- 6,588,635 6,592,699 Nuclear fuel, at amortized cost 89,346 100,537 Construction work in progress 383,298 362,768 -------------- -------------- Total 7,061,279 7,056,004 -------------- -------------- OTHER PROPERTY AND INVESTMENTS: Southern Electric Generating Company, at equity 26,273 27,232 Nuclear decommissioning trusts 111,918 108,368 Miscellaneous 19,303 19,156 -------------- -------------- Total 157,494 154,756 -------------- -------------- CURRENT ASSETS: Cash and cash equivalents 4,191 12,616 Receivables-- Customer accounts receivable 322,596 355,833 Other accounts and notes receivable 18,835 28,082 Affiliated companies 69,831 41,819 Accumulated provision for uncollectible accounts (949) (1,212) Refundable income taxes 2,625 2,635 Fossil fuel stock, at average cost 98,858 106,627 Materials and supplies, at average cost 172,604 179,103 Prepayments 159,203 116,331 Vacation pay deferred 29,365 29,458 -------------- -------------- Total 877,159 871,292 -------------- -------------- DEFERRED CHARGES: Deferred charges related to income taxes 432,748 436,837 Debt expense, being amortized 7,600 7,648 Premium on reacquired debt, being amortized 83,640 89,967 Uranium enrichment decontamination and decommissioning fund 40,282 40,282 Miscellaneous 92,233 87,574 -------------- -------------- Total 656,503 662,308 -------------- -------------- TOTAL ASSETS $ 8,752,435 $ 8,744,360 ============== ==============
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements. 17
ALABAMA POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At March 31, 1996 At December 31, (Unaudited) 1995 -------------- --------------- CAPITALIZATION: Common stock equity-- Common stock (par value $40 per share)-- authorized 6,000,000 shares; outstanding 5,608,955 shares $ 224,358 $ 224,358 Paid-in capital 1,304,645 1,304,645 Premium on preferred stock 146 146 Retained earnings 1,158,459 1,161,225 ------------ ------------ 2,687,608 2,690,374 Preferred stock 440,400 440,400 Company obligated mandatorily redeemable preferred securities of Alabama Power Capital Trust I holding Company Junior Subordinated Notes (Note H) 97,000 - Long-term debt 2,372,817 2,374,948 ------------ ------------ Total 5,597,825 5,505,722 ------------ ------------ CURRENT LIABILITIES: Long-term debt due within one year 910 84,682 Notes payable to banks 10,000 - Commercial paper 426,030 390,016 Accounts payable-- Affiliated companies 70,250 76,326 Other 109,554 182,401 Customer deposits 30,901 30,353 Taxes accrued-- Federal and state income 51,747 13,599 Other 32,036 18,158 Interest accrued 47,428 53,527 Vacation pay accrued 29,365 29,458 Miscellaneous 66,551 70,543 ------------ ------------ Total 874,772 949,063 ------------ ------------ DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 1,199,816 1,191,591 Accumulated deferred investment tax credits 302,526 305,372 Prepaid capacity revenues, net 129,228 131,186 Uranium enrichment decontamination and decommissioning fund 36,620 36,620 Deferred credits related to income taxes 380,140 386,038 Natural disaster reserve 19,979 17,959 Miscellaneous 211,529 220,809 ------------ ------------ Total 2,279,838 2,289,575 ------------ ------------ TOTAL CAPITALIZATION AND LIABILITIES $ 8,752,435 $ 8,744,360 ============ ============
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements. 18 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1996 vs. FIRST QUARTER 1995 RESULTS OF OPERATIONS Earnings ALABAMA's net income after dividends on preferred stock for the first quarter of 1996 was $73.2 million, compared to $65.3 million for the same quarter of 1995. This 12.0% increase in earnings is principally the result of an increase in operating revenues offset somewhat by an increase in operating expenses. Significant income statement items appropriate for discussion include the following: Increase (Decrease) -------------------------------- (in thousands) % Revenues........................................ $36,431 5.9 Revenues from affiliates........................ 49,607 178.4 Fuel expense.................................... 54,359 34.6 Interest income................................. 4,775 97.5 Interest on long-term debt...................... (2,824) (6.2) Amortization of debt discount, premium and expense, net.................................. 4,853 192.6 Other interest charges.......................... 6,743 140.7 Revenues. Excluding fuel revenues, which represent the pass-through of fuel expenses and do not affect income, revenues for the first quarter of 1996 increased $21.7 million, compared to the corresponding period of 1995. The increase in revenues was influenced most heavily by an increase in the amount of retail energy sold. For the first three months of 1996, total retail kilowatt-hour sales increased 8.6% over the same period of 1995, and retail revenues, excluding fuel revenues, increased $26.0 million. Residential, commercial and industrial energy sales increased 13.9%, 13.8% and 2.8%, respectively. Weather and a strong economy in ALABAMA's service territory had a positive effect on retail sales. Revenues from affiliates. Revenues from sales to affiliated companies within the Southern electric system, as well as purchases of energy, will vary from period to period depending on demand, the availability, and cost of generating resources at each company. These transactions did not have a significant impact on earnings. Fuel expense. The increase in fuel expense for the first quarter of 1996 as compared to the same quarter of 1995 can be attributed to higher generation necessary to meet the increased demand for electricity. Interest income and Other interest charges. Interest income increased approximately $5 million as the result of the recognition of gains from the sales of securities from the nuclear decommissioning trust. This increase in income was offset by a concurrent recognition of other interest charges in accordance with FERC requirements. Interest on long-term debt. The decline in interest on long-term debt reflects the redemption and refinancing of long-term debt over the past twelve months. 19 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Amortization of debt discount, premium and expense, net. This increase is the result of ALABAMA's reducing the asset account, as allowed by the Alabama PSC, relating to premiums incurred in connection with the refinancing of high-cost debt. See Note (G) to the Condensed Financial Statements herein for further details. Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a less regulated, more competitive environment. With the enactment of the Energy Act and new legislation being discussed at federal and state levels to expand customer choice, the Southern electric system is positioning the business to meet the challenge of increasing competition. Legislation has been enacted in Alabama that would establish a process for determining whether utilities would experience "stranded costs" upon the transfer of an existing customer of a utility to another electric supplier. This legislation authorizes the Alabama PSC to make a determination of whether stranded costs would exist as a result of such a transfer by a customer of ALABAMA and would require the customer seeking an alternative supplier to pay any stranded costs found to exist. The legislation has termination provisions keyed to passage of comprehensive retail electric service competition legislation which addresses stranded costs of existing utilities and eliminates the obligation of utilities to provide generating resources. For additional information, see Item 1 - BUSINESS "Competition" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of ALABAMA in the Form 10-K. Compliance costs related to the Clean Air Act could affect earnings if such costs cannot be offset. For additional information about the Clean Air Act and other important environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" of ALABAMA in the Form 10-K. Reference is made to Notes (B), (C), (F) and (G) in the "Notes to the Condensed Financial Statements" herein for discussion of various contingencies and other matters which may affect future earnings potential. Reference is also made to Part II - Item 1 - "Legal Proceedings" herein. FINANCIAL CONDITION Overview The major change in ALABAMA's financial condition during the first three months of 1996 was the addition of approximately $105.7 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operating activities and an increase in short-term debt. See ALABAMA's Condensed Statements of Cash Flows for further details. Financing Activities In January 1996, Alabama Power Capital Trust I, a statutory business trust established for the sole purpose of holding ALABAMA's junior subordinated notes and issuing preferred securities, sold $97,000,000 of its 7.375% trust preferred securities which are guaranteed by ALABAMA. See Note (H) to the Condensed Financial Statements herein for further details. Also in January, ALABAMA redeemed $23.8 million of its 9 1/4% first mortgage bonds due 2021. ALABAMA's 4 1/2% first mortgage bonds in the principal amount of $60.0 million matured on March 1, 1996. 20 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ALABAMA will continue to retire higher-cost debt and preferred stock and replace these obligations with lower-cost capital, as market conditions permit. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of ALABAMA under "Capital Requirements," "Other Capital Requirements" and "Environmental Matters" in the Form 10-K for a description of ALABAMA's capital requirements for its construction program, maturing debt and environmental compliance efforts. Sources of Capital In addition to the financing activities previously described herein, ALABAMA plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings--if needed--will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. Currently, ALABAMA expects to have adequate earnings coverage ratios for any anticipated security sales through at least 1998. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. To meet short-term cash needs and contingencies, ALABAMA had at March 31, 1996, approximately $4.2 million of cash and cash equivalents and had committed lines of credit of approximately $488 million with regulatory authority for up to $750 million of short-term borrowing. At March 31, 1996, ALABAMA had outstanding $10.0 million of short-term notes payable to banks and $426.0 million of commercial paper. As of May 3, 1996, the committed lines of credit had been increased to approximately $608 million. Since ALABAMA has no major generating plants under construction, management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 21 Exhibit 1 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO ALABAMA POWER COMPANY: We have reviewed the accompanying condensed balance sheet of ALABAMA POWER COMPANY as of March 31, 1996, and the related condensed statements of income for the three-month periods ended March 31, 1996 and 1995, and condensed statements of cash flows for the three-month periods ended March 31, 1996 and 1995. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of ALABAMA POWER COMPANY as of December 31, 1995 (not presented herein) and, in our report dated February 21, 1996, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed balance sheet as of December 31, 1995 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. /s/Arthur Andersen LLP Birmingham, Alabama May 9, 1996 22 GEORGIA POWER COMPANY 23
GEORGIA POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, 1996 1995 OPERATING REVENUES: Revenues $ 1,015,353 $ 961,047 Revenues from affiliates 13,466 13,446 ------------ ---------- Total operating revenues 1,028,819 974,493 ------------ ---------- OPERATING EXPENSES: Operation-- Fuel 188,494 200,943 Purchased power from non-affiliates 36,920 41,572 Purchased power from affiliates 65,476 29,730 Provision for separation benefits 18,500 1,060 Other 165,544 161,673 Maintenance 75,826 65,969 Depreciation and amortization 107,520 96,160 Amortization of deferred Plant Vogtle costs (Note J) 33,759 28,157 Taxes other than income taxes 55,146 50,789 Federal and state income taxes 89,684 91,437 ------------ ---------- Total operating expenses 836,869 767,490 ------------ ---------- OPERATING INCOME 191,950 207,003 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 255 1,671 Equity in earnings of unconsolidated subsidiary 973 838 Interest income 901 281 Other, net (3,673) (5,734) Income taxes applicable to other income 138 3,561 ------------ ---------- INCOME BEFORE INTEREST CHARGES 190,544 207,620 ------------ ---------- INTEREST CHARGES: Interest on long-term debt 53,430 68,565 Allowance for debt funds used during construction (3,190) (3,614) Interest on interim obligations 5,039 5,417 Amortization of debt discount, premium and expense, net 3,847 3,920 Other interest charges 5,365 4,882 ------------ ---------- Net interest charges 64,491 79,170 ------------ ---------- NET INCOME 126,053 128,450 DIVIDENDS ON PREFERRED STOCK 11,652 12,313 ------------ ---------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 114,401 $ 116,137 ============ ==========
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements. 24
GEORGIA POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, 1996 1995 OPERATING ACTIVITIES: Net income $ 126,053 $ 128,450 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 133,095 124,104 Deferred income taxes and investment tax credits, net 9,399 16,077 Allowance for equity funds used during construction (255) (1,671) Amortization of deferred Plant Vogtle costs (Note J) 33,759 28,157 Other, net 10,576 1,462 Changes in certain current assets and liabilities-- Receivables, net 42,945 48,837 Inventories 14,250 (8,834) Payables (25,785) (57,941) Taxes accrued 28,253 29,377 Energy cost recovery, retail 15,980 20,916 Other (32,232) 4,918 ----------- ----------- Net cash provided from operating activities 356,038 333,852 ----------- ----------- INVESTING ACTIVITIES: Gross property additions (111,998) (103,245) Sales of property 1,800 - Other (53,502) (49,232) ----------- ----------- Net cash used for investing activities (163,700) (152,477) ----------- ----------- FINANCING ACTIVITIES: Proceeds-- First mortgage bonds 10,000 - Retirements-- First mortgage bonds (150,000) - Pollution control bonds (6,800) (70) Interim obligations, net 72,810 (51,903) Payment of preferred stock dividends (11,518) (12,208) Payment of common stock dividends (121,500) (113,900) Miscellaneous (86) (329) ----------- ----------- Net cash used for financing activities (207,094) (178,410) ----------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS (14,756) 2,965 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,930 12,539 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,174 $ 15,504 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $ 75,312 $ 81,525 Income taxes 10,460 3,515
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements. 25
GEORGIA POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At March 31, 1996 At December 31, (Unaudited) 1995 -------------- --------------- UTILITY PLANT: Plant in service $ 14,578,574 $ 14,538,595 Less accumulated provision for depreciation 4,524,223 4,417,120 -------------- -------------- 10,054,351 10,121,475 Nuclear fuel, at amortized cost 122,401 124,849 Construction work in progress 277,352 236,715 -------------- -------------- Total 10,454,104 10,483,039 -------------- -------------- OTHER PROPERTY AND INVESTMENTS: Southern Electric Generating Company, at equity 27,009 27,232 Nuclear decommissioning trusts, at market 119,715 92,273 Miscellaneous 127,721 120,383 -------------- -------------- Total 274,445 239,888 -------------- -------------- CURRENT ASSETS: Cash and cash equivalents 14,174 28,930 Receivables-- Customer accounts receivable 382,098 418,749 Other accounts and notes receivable 84,851 102,953 Affiliated companies 18,668 15,482 Accumulated provision for uncollectible accounts (5,000) (5,000) Fossil fuel stock, at average cost 131,856 145,151 Materials and supplies, at average cost 285,849 286,804 Prepayments 113,422 107,764 Vacation pay deferred 40,119 35,543 -------------- -------------- Total 1,066,037 1,136,376 -------------- -------------- DEFERRED CHARGES: Deferred charges related to income taxes 858,360 871,783 Deferred Plant Vogtle costs (Note J) 273,879 307,638 Premium on reacquired debt, being amortized 170,991 174,018 Debt expense, being amortized 26,834 27,227 Miscellaneous 221,691 230,306 -------------- -------------- Total 1,551,755 1,610,972 -------------- -------------- TOTAL ASSETS $ 13,346,341 $ 13,470,275 ============== ==============
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements. 26
GEORGIA POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At March 31, 1996 At December 31, (Unaudited) 1995 -------------- --------------- CAPITALIZATION: Common stock equity-- Common stock (without par value)-- authorized 15,000,000 shares; outstanding 7,761,500 shares $ 344,250 $ 344,250 Paid-in capital 2,384,444 2,384,444 Premium on preferred stock 413 413 Retained earnings 1,562,806 1,569,905 ------------- ------------- 4,291,913 4,299,012 Preferred stock 692,787 692,787 Company obligated mandatorily redeemable preferred securities 100,000 100,000 Long-term debt 3,319,012 3,315,460 ------------- ------------- Total 8,403,712 8,407,259 ------------- ------------- CURRENT LIABILITIES: Long-term debt due within one year 383 150,446 Notes payable to banks 254,825 178,000 Commercial paper 218,315 222,330 Accounts payable-- Affiliated companies 91,360 72,878 Other 236,972 316,278 Customer deposits 56,355 53,145 Taxes accrued-- Federal and state income 77,447 7,759 Other 55,198 96,633 Interest accrued 81,314 96,162 Vacation pay accrued 38,739 34,233 Miscellaneous 139,064 137,184 ------------- ------------- Total 1,249,972 1,365,048 ------------- ------------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 2,511,756 2,510,458 Accumulated deferred investment tax credits 428,277 432,184 Deferred credits related to income taxes 404,058 410,016 Disallowed Plant Vogtle capacity buyback costs 58,038 58,514 Miscellaneous 290,528 286,796 ------------- ------------- Total 3,692,657 3,697,968 ------------- ------------- TOTAL CAPITALIZATION AND LIABILITIES $ 13,346,341 $ 13,470,275 ============= =============
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements. 27 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1996 vs. FIRST QUARTER 1995 RESULTS OF OPERATIONS Earnings GEORGIA's net income after dividends on preferred stock for the first quarter of 1996 was $114.4 million, compared to $116.1 million for the same quarter of 1995. The increase in operating expenses outpaced the increase in operating revenues for the quarter, resulting in a 1.5% decline in earnings. Significant income statement items appropriate for discussion include the following: Increase (Decrease) ---------------------------------- (in thousands) % Revenues...................................... $ 54,306 5.7 Fuel expense.................................. (12,449) (6.2) Purchased power from affiliates............... 35,746 120.2 Provision for separation benefits............. 17,440 1645.3 Maintenance expense........................... 9,857 14.9 Depreciation and amortization expense......... 11,360 11.8 Interest on long-term debt.................... (15,135) (22.1) Revenues. Excluding fuel revenues, which represent the pass-through of fuel expenses and do not affect income, revenues for the first quarter of 1996 increased $26.2 million, compared to the corresponding period of 1995. The increase in revenues was influenced most heavily by an increase in the amount of retail energy sold. For the first three months of 1996, total retail kilowatt-hour sales increased 7.0% over the same period of 1995, and retail revenues, excluding fuel revenues, increased 5.0% or $33.8 million. Residential, commercial and industrial energy sales increased 11.0%, 8.8% and 3.2%, respectively. Colder-than-normal temperatures and a slight increase in the number of customers served had a positive effect on retail sales. Energy sales to non-affiliated wholesale customers for the first quarter of 1996 increased 16.0% compared to the corresponding period of 1995 primarily due to increased demand by municipalities and cooperatives in Georgia. However, capacity revenues from sales to non-affiliated utilities outside the service territory fell $10.3 million primarily due to the scheduled decline in megawatts of capacity under long-term contracts. Fuel expense. Fuel expense decreased primarily due to a decrease in generation by GEORGIA resulting from the timing of maintenance at fossil plants and a slightly lower average cost of fuel. (See Purchased power from affiliates below.) Purchased power from affiliates. As a result of the timing of maintenance at fossil plants discussed above, purchased power from affiliates increased compared to the same period of 1995. Purchased power transactions among the affiliated companies within the Southern electric system will vary from period to period depending on demand and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings. 28 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Provision for separation benefits. The increase in provision for separation benefits for the first quarter of 1996 compared to the first quarter of 1995 is attributable to work force reduction programs, which have been implemented to control growth in future operating expenses. Maintenance expense. The increase in maintenance expense is attributable to the timing of maintenance performed primarily on fossil plants. Depreciation and amortization expense. Depreciation and amortization increased in the first quarter of 1996 primarily due to accelerated depreciation of generating plants pursuant to a new retail rate plan effective January 1, 1996, an increase in plant-in-service and an increase in nuclear decommissioning expense. Interest on long-term debt. The decline in interest on long-term debt reflects the redemption and refinancing of long-term debt over the past twelve months. Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a less regulated, more competitive environment. With the enactment of the Energy Act and new legislation being discussed at federal and state levels to expand customer choice, the Southern electric system is positioning the business to meet the challenge of increasing competition. For additional information, see Item 1 - BUSINESS - "Competition" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of GEORGIA in the Form 10-K. Effective January 1, 1996, GEORGIA began operating under a three-year retail rate plan. Under the plan, GEORGIA's earnings will be evaluated against a retail return on common equity range of 10% to 12.5%. GEORGIA is required to absorb cost increases of approximately $29.0 million annually during the plan's three-year operation, including $14.0 million annually of accelerated depreciation of electric plant. Reference is made to Note (I) to the Condensed Financial Statements herein for additional information. Compliance costs related to the Clean Air Act could affect earnings if such costs cannot be offset. For additional information about the Clean Air Act and other important environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Issues" of GEORGIA in the Form 10-K. Reference is made to Notes (B), (C), (F) and (I) through (N) in the "Notes to the Condensed Financial Statements" herein for discussion of various contingencies and other matters which may affect future earnings potential. Reference is also made to Part II - Item 1 - "Legal Proceedings" herein. FINANCIAL CONDITION Overview The major change in GEORGIA's financial condition during the first three months of 1996 was the addition of approximately $112.0 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operations. See GEORGIA's Condensed Statements of Cash Flows for further details. 29 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Financing Activities In January 1996, GEORGIA sold $10.0 million of 6.07% first mortgage bonds secured medium-term notes due 2005. In February 1996, $6.8 million of proceeds from such sale were applied to the redemption of three outstanding series of industrial development bonds at rates ranging from 6 3/8% to 6 3/4%. GEORGIA's 4 3/4% first mortgage bonds in the principal amount of $150.0 million matured on March 1, 1996. GEORGIA plans to continue, to the extent possible, a program to retire higher-cost debt and preferred stock and replace these obligations with lower-cost capital. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of GEORGIA under "Liquidity and Capital Requirements" and "Environmental Issues" in the Form 10-K for a description of GEORGIA's capital requirements for its construction program and environmental compliance efforts. Sources of Capital In addition to the financing activities previously described herein, GEORGIA plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings--if needed--will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. Currently, GEORGIA expects to have adequate earnings coverage ratios for any anticipated security sales through at least 1998. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. To meet short-term cash needs and contingencies, GEORGIA had at March 31, 1996, approximately $14.2 million of cash and cash equivalents and approximately $740.0 million of unused credit arrangements with banks. At March 31, 1996, GEORGIA had outstanding $254.8 million of short-term notes payable to banks and $218.3 million of commercial paper. Since GEORGIA has no major generating plants under construction, management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 30 Exhibit 1 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO GEORGIA POWER COMPANY: We have reviewed the accompanying condensed balance sheet of GEORGIA POWER COMPANY (a Georgia corporation) as of March 31, 1996, and the related condensed statements of income for the three-month periods ended March 31, 1996 and 1995, and the condensed statements of cash flows for the three-month periods ended March 31, 1996 and 1995. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of GEORGIA POWER COMPANY as of December 31, 1995 (not presented herein), and, in our report dated February 21, 1996, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed balance sheet as of December 31, 1995, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. /s/Arthur Andersen LLP Atlanta, Georgia May 9, 1996 31 GULF POWER COMPANY 32
GULF POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, 1996 1995 OPERATING REVENUES: Revenues $ 153,670 $ 135,776 Revenues from affiliates 1,251 5,142 ---------- ----------- Total operating revenues 154,921 140,918 ---------- ----------- OPERATING EXPENSES: Operation-- Fuel 38,213 43,954 Purchased power from non-affiliates 1,676 1,299 Purchased power from affiliates 19,319 6,042 Other 25,636 28,282 Maintenance 15,047 9,632 Depreciation and amortization 14,085 13,655 Taxes other than income taxes 13,466 11,882 Federal and state income taxes 7,278 6,669 ---------- ----------- Total operating expenses 134,720 121,415 ---------- ----------- OPERATING INCOME 20,201 19,503 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 9 26 Interest income 349 654 Other, net (471) (158) Income taxes applicable to other income 4 (250) ---------- ----------- INCOME BEFORE INTEREST CHARGES 20,092 19,775 ---------- ----------- INTEREST CHARGES: Interest on long-term debt 6,148 5,920 Other interest charges 282 216 Interest on notes payable 504 820 Amortization of debt discount, premium, and expense, net 525 499 Allowance for debt funds used during construction (48) (35) ---------- ----------- Net interest charges 7,411 7,420 ---------- ----------- NET INCOME 12,681 12,355 DIVIDENDS ON PREFERRED STOCK 1,423 1,475 ---------- ----------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 11,258 $ 10,880 ========== ===========
The accompanying notes as they relate to GULF are an integral part of these condensed statements. 33
GULF POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, 1996 1995 OPERATING ACTIVITIES: Net income $ 12,681 $ 12,355 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 18,255 18,834 Deferred income taxes, net 2,268 (125) Allowance for equity funds used during construction (9) (26) Other, net 3,004 1,458 Changes in certain current assets and liabilities-- Receivables, net 6,351 3,400 Inventories 3,377 (634) Payables (10,690) 1,061 Taxes accrued 2,562 3,588 Other (9,898) (1,385) ---------- ---------- Net cash provided from operating activities 27,901 38,526 ---------- ---------- INVESTING ACTIVITIES: Gross property additions (16,692) (14,816) Other (1,640) (1,407) ---------- ---------- Net cash used for investing activities (18,332) (16,223) ---------- ---------- FINANCING ACTIVITIES: Proceeds-- First mortgage bonds 30,000 - Pollution control bonds 21,200 Other long-term debt 22,147 - Retirements-- Preferred stock subject to mandatory redemption - (1,000) First mortgage bonds (1,750) - Other long-term debt - (2,430) Notes payable, net (45,000) (6,000) Special deposits - redemption funds (21,291) - Payment of preferred stock dividends (1,423) (1,475) Payment of common stock dividends (12,300) (11,700) Miscellaneous (939) (13) ---------- ---------- Net cash used for financing activities (9,356) (22,618) ---------- ---------- NET CHANGE IN CASH AND CASH EQUIVALENTS 213 (315) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 680 902 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 893 $ 587 ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $ 4,743 $ 4,733 Income taxes 49 2,705
The accompanying notes as they relate to GULF are an integral part of these condensed statements. 34
GULF POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At March 31, 1996 At December 31, (Unaudited) 1995 ------------- --------------- UTILITY PLANT: Plant in service $ 1,699,857 $ 1,695,814 Less accumulated provision for depreciation 670,814 658,806 ------------ ------------ 1,029,043 1,037,008 Construction work in progress 35,586 26,301 ------------ ------------ Total 1,064,629 1,063,309 ------------ ------------ OTHER PROPERTY AND INVESTMENTS: 657 740 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents 893 680 Special deposits - redemption funds 21,291 - Receivables-- Customer accounts receivable 62,196 69,166 Other accounts and notes receivable 2,968 3,393 Affiliated companies 1,826 802 Accumulated provision for uncollectible accounts (747) (768) Fossil fuel stock, at average cost 35,164 37,875 Materials and supplies, at average cost 33,020 33,686 Current portion of deferred coal contract costs 15,155 12,767 Regulatory clauses under recovery 10,173 3,432 Prepaid income taxes - 4,232 Other prepayments 8,900 8,000 Vacation pay deferred 4,419 4,419 ------------ ------------ Total 195,258 177,684 ------------ ------------ DEFERRED CHARGES: Deferred charges related to income taxes 28,958 29,093 Debt expense and loss, being amortized 20,589 20,459 Deferred coal contract costs 28,695 33,768 Deferred storm charges 6,748 7,502 Miscellaneous 10,105 9,304 ------------ ------------ Total 95,095 100,126 ------------ ------------ TOTAL ASSETS $ 1,355,639 $ 1,341,859 ============ ============
The accompanying notes as they relate to GULF are an integral part of these condensed statements. 35
GULF POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At March 31, 1996 At December 31, (Unaudited) 1995 ------------ --------------- CAPITALIZATION: Common stock equity-- Common stock (without par value)-- authorized and outstanding--992,717 shares $ 38,060 $ 38,060 Paid-in capital 218,438 218,438 Premium on preferred stock 81 81 Retained earnings 178,621 179,663 ------------ ------------ 435,200 436,242 Preferred stock 89,602 89,602 Long-term debt 385,658 323,376 ------------ ------------ Total 910,460 849,220 ------------ ------------ CURRENT LIABILITIES: Long-term debt due within one year 40,578 31,548 Notes payable 35,500 80,500 Accounts payable-- Affiliated companies 16,193 14,447 Other 12,947 27,196 Customer deposits 13,132 13,195 Taxes accrued-- Federal and state income 4,586 - Other 7,051 9,547 Interest accrued 8,362 5,719 Regulatory clauses over recovery 2,710 2,800 Vacation pay accrued 4,419 4,419 Miscellaneous 4,998 7,356 ------------ ------------ Total 150,476 196,727 ------------ ------------ DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 161,459 162,345 Deferred credits related to income taxes 66,740 67,481 Accumulated deferred investment tax credits 35,464 36,052 Accumulated provision for postretirement benefits 16,846 16,301 Miscellaneous 14,194 13,733 ------------ ------------ Total 294,703 295,912 ------------ ------------ TOTAL CAPITALIZATION AND LIABILITIES $ 1,355,639 $ 1,341,859 ============ ============
The accompanying notes as they relate to GULF are an integral part of these condensed statements. 36 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1996 vs. FIRST QUARTER 1995 RESULTS OF OPERATIONS Earnings GULF's net income after dividends on preferred stock for the first quarter of 1996 was $11.3 million, compared to $10.9 million for the same quarter of 1995. This 3.5% increase in earnings is principally the result of an increase in retail revenues offset somewhat by an increase in operating expenses. Significant income statement items appropriate for discussion include the following: Increase (Decrease) ------------------------------------- (in thousands) % Revenues................................ $17,894 13.2 Fuel expense............................ (5,741) (13.1) Purchased power from affiliates......... 13,277 219.7 Other operation expense................. (2,646) (9.4) Maintenance expense..................... 5,415 56.2 Revenues. Of the $17.9 million increase in revenues, approximately $6.8 million impacted earnings. Territorial revenues, excluding those revenues which represent the pass-through of fuel expense and certain other expenses and do not affect income, increased $6.4 million. The increase in retail revenues was influenced significantly by an 11.3% increase in total retail kilowatt-hour sales over the same period of 1995. The change in retail energy sales is primarily due to higher residential and commercial sales as a result of colder-than-normal winter weather and a slight increase in the number of customers served. Industrial sales were also up 3.9% compared to one year ago; however, industrial revenues were down slightly mainly due to increased participation in the Real-Time-Pricing program. The increase in revenues can also be attributed to higher capacity revenues from sales to non-affiliated utilities outside the service territory of $379,000. Fuel expense. The reduction in fuel expense is primarily attributable to decreased generation by GULF due to the scheduled maintenance outages at Plant Crist and Plant Daniel during the first quarter of 1996. (See Purchased power from affiliates below.) The average cost of fuel was unchanged from the corresponding period in 1995. Purchased power from affiliates. As a result of the maintenance outages discussed above, purchased power from affiliates increased compared to the same period of 1995. Purchased power transactions among the affiliated companies within the Southern electric system will vary from period to period depending on demand and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings. Other operation expense. Other operation expense decreased primarily due to a reduction in amortization costs related to the buyout of long-term contracts for the supply of coal to Plant Daniel and also a decrease in various administrative and general expenses. 37 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Maintenance expense. The increase in maintenance expense is attributable to the scheduled maintenance of production facilities at Plant Crist and Plant Daniel during the first quarter of 1996. Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a less regulated, more competitive environment. With the enactment of the Energy Act and new legislation being discussed at federal and state levels to expand customer choice, the Southern electric system is positioning the business to meet the challenge of increasing competition. In September 1995, GULF filed with the Florida PSC a petition for approval of its proposed Commercial/Industrial Service Rider, which would be applicable to the rate schedules serving GULF's largest and most at-risk customers. During the first quarter of 1996, testimony was filed, interrogatories were answered, and hearings were held. GULF filed its post-hearing brief with the Florida PSC on April 8, 1996. A decision by the Florida PSC is expected by late May. For additional information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of GULF and Item 1 - BUSINESS - "Competition" in the Form 10-K. Compliance costs related to the Clean Air Act could affect earnings if such costs are not fully recovered through GULF's environmental cost recovery clause. For additional information about the Clean Air Act and other important environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" of GULF in the Form 10-K. Reference is made to Notes (B) and (F) in the "Notes to the Condensed Financial Statements" herein for discussion of various contingencies and other matters which may affect future earnings potential. FINANCIAL CONDITION Overview The major change in GULF's financial condition during the first three months of 1996 was the addition of approximately $16.7 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operations. See GULF's Condensed Statements of Cash Flows for further details. Financing Activities In January 1996, GULF sold $30.0 million of 6.875% first mortgage bonds due 2026. The proceeds were used to repay a portion of GULF's outstanding short-term debt. GULF's first mortgage bond indenture contains various common stock dividend restrictions which remain in effect as long as the bonds are outstanding. Under the terms of GULF's supplemental indenture dated as of January 1, 1996, retained earnings of $127 million were restricted against the payment of cash dividends on common stock at March 31, 1996. 38 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION In February 1996, GULF sold through a public authority, $21.2 million of 5.5% pollution control revenue refunding bonds due 2026. The proceeds were applied to the redemption on April 1, 1996 of $21.2 million outstanding principal amount of 7.125% pollution control revenue refunding bonds. In February 1996, GULF issued a $22.1 million 5.2125% bank note due 1998. The proceeds were used to buy out a portion of an existing coal contract. Bond retirements during the first quarter of 1996 totaled $1.8 million to meet improvement fund requirements. In April 1996, GULF sold through a public authority, $12.075 million of 5.25% pollution control revenue refunding bonds due 2006. The proceeds will be applied to the redemption in May 1996 of $12.075 million outstanding principal amount of 6% pollution control revenue bonds. GULF plans to continue, to the extent possible, a program to retire higher-cost debt and preferred stock and replace these obligations with lower-cost capital. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of GULF under "Capital Requirements for Construction," "Environmental Matters" and "Other Capital Requirements" in the Form 10-K for a description of GULF's capital requirements for its construction program, environmental compliance efforts and maturing debt. Approximately $40.6 million will be required by March 31, 1997, for maturities of long-term debt. Sources of Capital In addition to the financing activities previously described herein, GULF plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings--if needed--will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. Currently, GULF expects to have adequate earnings coverage ratios for any anticipated security sales through at least 1998. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. To meet short-term cash needs and contingencies, GULF had at March 31, 1996, approximately $0.9 million of cash and cash equivalents and $36.0 million of unused committed lines of credit with banks. At March 31, 1996, GULF had outstanding $35.5 million of short-term notes payable to banks. Since GULF has no major generating plants under construction, management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 39 MISSISSIPPI POWER COMPANY 40
MISSISSIPPI POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, 1996 1995 OPERATING REVENUES: Revenues $ 124,960 $ 107,199 Revenues from affiliates 1,994 2,373 ----------- ------------ Total operating revenues 126,954 109,572 ----------- ------------ OPERATING EXPENSES: Operation-- Fuel 29,900 24,790 Purchased power from non-affiliates 1,693 916 Purchased power from affiliates 12,998 9,547 Other 24,758 25,334 Maintenance 10,296 8,527 Depreciation and amortization 11,373 9,918 Taxes other than income taxes 10,723 9,378 Federal and state income taxes 7,139 5,433 ----------- ------------ Total operating expenses 108,880 93,843 ----------- ------------ OPERATING INCOME 18,074 15,729 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 95 123 Interest income 56 25 Other, net 1,430 1,362 Income taxes applicable to other income (552) (379) ----------- ------------ INCOME BEFORE INTEREST CHARGES 19,103 16,860 ----------- ------------ INTEREST CHARGES: Interest on long-term debt 5,493 5,657 Allowance for debt funds used during construction (104) (71) Interest on notes payable 230 200 Amortization of debt discount, premium, and expense, net 373 373 Other interest charges 191 207 ----------- ------------ Net interest charges 6,183 6,366 ----------- ------------ NET INCOME 12,920 10,494 DIVIDENDS ON PREFERRED STOCK 1,225 1,225 ----------- ------------ NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 11,695 $ 9,269 =========== ============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements. 41
MISSISSIPPI POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, 1996 1995 OPERATING ACTIVITIES: Net income $ 12,920 $ 10,494 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 13,422 13,100 Deferred income taxes (2,012) (626) Allowance for equity funds used during construction (95) (123) Other, net (1,454) 941 Changes in certain current assets and liabilities-- Receivables, net 1,945 5,366 Inventories 2,922 943 Payables (10,679) 581 Taxes accrued (12,238) (20,130) Other (781) 2,224 ---------- ---------- Net cash provided from operating activities 3,950 12,770 ---------- ---------- INVESTING ACTIVITIES: Gross property additions (12,165) (16,337) Other (1,476) (3,325) ---------- ---------- Net cash used for investing activities (13,641) (19,662) ---------- ---------- FINANCING ACTIVITIES: Proceeds-- Capital contribution 27 - Retirements-- Other long-term debt (20,000) (4,119) Notes payable, net 31,000 22,000 Payment of preferred stock dividends (1,225) (1,225) Payment of common stock dividends (10,600) (9,900) ---------- ---------- Net cash provided from (used for) financing activities (798) 6,756 ---------- ---------- NET CHANGE IN CASH AND CASH EQUIVALENTS (10,489) (136) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,641 1,317 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,152 $ 1,181 ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $ 4,568 $ 5,021 Income taxes 1 (384)
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements. 42
MISSISSIPPI POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At March 31, 1996 At December 31, (Unaudited) 1995 ------------- --------------- UTILITY PLANT: Plant in service, at original cost $ 1,440,505 $ 1,434,327 Less accumulated provision for depreciation 507,280 499,308 ------------- ------------- 933,225 935,019 Construction work in progress 44,284 41,210 ------------- ------------- Total 977,509 976,229 ------------- ------------- OTHER PROPERTY AND INVESTMENTS: 3,403 4,160 ------------- ------------- CURRENT ASSETS: Cash and cash equivalents 2,152 12,641 Receivables-- Customer accounts receivable 25,688 30,761 Other accounts and notes receivable 13,473 9,438 Affiliated companies 8,193 9,213 Accumulated provision for uncollectible accounts (689) (802) Fossil fuel stock, at average cost 13,713 15,666 Materials and supplies, at average cost 21,589 22,558 Current portion of deferred fuel charges 582 1,546 Current portion of accumulated deferred income taxes 4,489 5,180 Prepayments 5,378 2,404 Vacation pay deferred 4,715 4,715 ------------- ------------- Total 99,283 113,320 ------------- ------------- DEFERRED CHARGES: Debt expense and loss, being amortized 9,748 10,039 Deferred charges related to income taxes 23,280 23,384 Deferred early retirement program costs 7,036 7,286 Miscellaneous 14,766 14,535 ------------- ------------- Total 54,830 55,244 ------------- ------------- TOTAL ASSETS $ 1,135,025 $ 1,148,953 ============= =============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements. 43
MISSISSIPPI POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At March 31, 1996 At December 31, (Unaudited) 1995 ------------- --------------- CAPITALIZATION: Common stock equity-- Common stock (without par value)--authorized 1,130,000 shares; outstanding 1,121,000 shares $ 37,691 $ 37,691 Paid-in capital 179,389 179,362 Premium on preferred stock 372 372 Retained earnings 158,553 157,459 ------------ ------------ 376,005 374,884 Preferred stock 74,414 74,414 Long-term debt 288,901 288,820 ------------ ------------ Total 739,320 738,118 ------------ ------------ CURRENT LIABILITIES: Long-term debt due within one year 37,229 57,229 Notes payable 31,000 - Accounts payable-- Affiliated companies 8,178 13,646 Other 30,116 37,129 Customer deposits 2,778 2,716 Taxes accrued-- Federal and state income 9,516 97 Other 10,159 31,816 Interest accrued 5,920 4,701 Miscellaneous 13,378 13,453 ------------ ------------ Total 148,274 160,787 ------------ ------------ DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 127,641 129,711 Accumulated deferred investment tax credits 29,414 29,773 Deferred credits related to income taxes 42,547 43,266 Accumulated provision for property damage 12,394 12,018 Miscellaneous 35,435 35,280 ------------ ------------ Total 247,431 250,048 ------------ ------------ TOTAL CAPITALIZATION AND LIABILITIES $ 1,135,025 $ 1,148,953 ============ ============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements. 44 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1996 vs. FIRST QUARTER 1995 RESULTS OF OPERATIONS Earnings MISSISSIPPI's net income after dividends on preferred stock for the first quarter of 1996 was $11.7 million, compared to $9.3 million for the same quarter of 1995. This 26.2% increase in earnings is principally the result of an increase in revenues offset somewhat by an increase in operating expenses. Significant income statement items appropriate for discussion include the following: Increase (Decrease) ----------------------------------- (in thousands) % Revenues..................................... $17,761 16.6 Fuel expense................................. 5,110 20.6 Purchased power from affiliates.............. 3,451 36.1 Maintenance expense.......................... 1,769 20.7 Depreciation and amortization expense........ 1,455 14.7 Taxes other than income taxes................ 1,345 14.3 Revenues. The increase in revenues was influenced most heavily by an increase in the amount of retail energy sold. For the first three months of 1996, total retail kilowatt-hour sales increased 9.5% over the same period of 1995. Retail revenues, excluding those revenues which represent the recovery of fuel expense and certain other expenses and do not affect income, increased $4.6 million. Colder-than-normal winter weather and a slight increase in the number of customers served had a positive effect on retail sales. Residential, commercial and industrial energy sales increased 16.2%, 12.1% and 5.0%, respectively. Colder temperatures also positively impacted sales to territorial wholesale customers. Revenues from territorial wholesale customers, excluding fuel revenues which do not affect income, increased $4.2 million compared to the same period of 1995, with an increase in energy sales of 20%. Fuel expense. The increase in fuel expense for the first quarter of 1996 as compared to the same quarter of 1995 can be attributed to higher generation necessary to meet the increased demand for electricity and a slightly higher average cost of fuel. Purchased power from affiliates. Purchased power transactions among the affiliated companies within the Southern electric system will vary from period to period depending on demand and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings. Maintenance expense. The increase in maintenance expense is primarily attributable to maintenance performed at Plant Daniel during the first quarter of 1996. In 1995, maintenance normally performed during the first quarter was postponed until later in the year. 45 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Depreciation and amortization expense. Due to additional plant investment, depreciation expense for the first quarter of 1996 increased approximately $0.5 million compared to the first quarter of 1995. Increased amortization of regulatory assets, primarily those assets related to the ECO plan, accounted for the remaining $1.0 million increase in this item. Taxes other than income taxes. Taxes other than income taxes rose above the amount recorded for the first quarter of 1995 due to higher retail revenues which resulted in higher municipal franchise taxes. Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a less regulated, more competitive environment. Operating revenues will be affected by any changes in rates under the PEP and ECO plans. The PEP has proven to be a stabilizing force on electric rates, with only moderate changes in rates taking place. MISSISSIPPI's 1996 annual filing under the ECO plan with the Mississippi PSC resulted in an approved annual revenue requirement decrease of $3.0 million, effective April 1996. MISSISSIPPI has entered into agreements to purchase summer peaking power and options for power for the years 1996 through 2000. For June through September of 1996, MISSISSIPPI has entered into an agreement to buy 242 megawatts of capacity and energy from another electric utility. For June through September of 1997 through 2000, MISSISSIPPI has purchased from power marketers options for up to 250 megawatts of peaking power in 1997; 300 megawatts in 1998; 350 megawatts in 1999; and 400 megawatts in 2000. In April 1996, MISSISSIPPI filed a petition with the Mississippi PSC requesting that MISSISSIPPI be allowed to earn a return on the capacity portion of such agreements. MISSISSIPPI anticipates a decision from the PSC within 120 days. With the enactment of the Energy Act and new legislation being discussed at federal and state levels to expand customer choice, the Southern electric system is positioning the business to meet the challenge of increasing competition. For additional information, see Item 1 - BUSINESS - "Competition" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of MISSISSIPPI in the Form 10-K. Compliance costs related to the Clean Air Act could affect earnings if such costs cannot be recovered. For additional information about the Clean Air Act and other important environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" of MISSISSIPPI in the Form 10-K. Reference is made to Notes (B) and (F) in the "Notes to the Condensed Financial Statements" herein for discussion of various contingencies and other matters which may affect future earnings potential. Reference is also made to Part II - Item 1 - "Legal Proceedings" herein. FINANCIAL CONDITION Overview The major change in MISSISSIPPI's financial condition during the first three months of 1996 was the addition of approximately $12.2 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operations and an increase in short-term debt. See MISSISSIPPI's Condensed Statements of Cash Flows for further details. 46 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Financing Activities During the first three months of 1996, maturities of long-term notes to banks totaled $20.0 million, while short-term indebtedness to banks increased $31.0 million. MISSISSIPPI plans to continue, to the extent possible, a program to retire higher-cost debt and preferred stock and replace these obligations with lower-cost capital. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of MISSISSIPPI under "Capital Requirements for Construction," "Environmental Matters" and "Other Capital Requirements" in the Form 10-K for a description of MISSISSIPPI's capital requirements for its construction program, environmental compliance efforts, sinking fund requirements and maturities of long-term debt. Approximately $37.2 million will be required by March 31, 1997, for present sinking fund requirements and maturities of long-term debt. Sources of Capital In addition to the financing activities previously described herein, MISSISSIPPI plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings--if needed--will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. Currently, MISSISSIPPI expects to have adequate earnings coverage ratios for any anticipated security sales through at least 1998. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. To meet short-term cash needs and contingencies, MISSISSIPPI had at March 31, 1996, approximately $2.2 million of cash and cash equivalents and approximately $97.0 million of unused committed credit arrangements with banks. At March 31, 1996, MISSISSIPPI had outstanding $31.0 million of short-term notes payable to banks. Since MISSISSIPPI has no major generating plants under construction, management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 47 SAVANNAH ELECTRIC AND POWER COMPANY 48
SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, 1996 1995 OPERATING REVENUES: Revenues $ 49,367 $ 45,016 Revenues from affiliates 1,208 1,727 ---------- ---------- Total operating revenues 50,575 46,743 ---------- ---------- OPERATING EXPENSES: Operation-- Fuel 3,949 1,350 Purchased power from non-affiliates 550 349 Purchased power from affiliates 15,850 15,236 Other 10,283 10,203 Maintenance 3,130 3,236 Depreciation and amortization 4,902 4,747 Taxes other than income taxes 3,020 2,961 Federal and state income taxes 2,329 2,193 ---------- ---------- Total operating expenses 44,013 40,275 ---------- ---------- OPERATING INCOME 6,562 6,468 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 83 22 Interest income 2 9 Other, net (316) (133) Income taxes applicable to other income 117 48 ---------- ---------- INCOME BEFORE INTEREST CHARGES 6,448 6,414 ---------- ---------- INTEREST CHARGES: Interest on long-term debt 2,914 3,129 Allowance for debt funds used during construction (82) (73) Interest on notes payable 102 84 Amortization of debt discount, premium, and expense, net 104 138 Other interest charges 89 135 ---------- ---------- Net interest charges 3,127 3,413 ---------- ---------- NET INCOME 3,321 3,001 DIVIDENDS ON PREFERRED STOCK 581 581 ---------- ---------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 2,740 $ 2,420 ========== ==========
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements. 49
SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months Ended March 31, 1996 1995 OPERATING ACTIVITIES: Net income $ 3,321 $ 3,001 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 116 5,116 Deferred income taxes and investment tax credits, net 1,038 163 Allowance for equity funds used during construction (83) (22) Other, net 691 (84) Changes in certain current assets and liabilities-- Receivables, net 3,623 2,860 Inventories 1,535 (836) Payables (297) 1,736 Taxes accrued 2,457 2,253 Other (5,200) (2,501) --------- --------- Net cash provided from operating activities 7,201 11,686 --------- --------- INVESTING ACTIVITIES: Gross property additions (6,655) (7,627) Other (563) (1,563) --------- --------- Net cash used for investing activities (7,218) (9,190) --------- --------- FINANCING ACTIVITIES: Proceeds-- Other long-term debt 7,000 3,500 Retirements-- First mortgage bonds (1,200) (1,350) Other long-term debt (70) (1,697) Notes payable, net (500) 500 Payment of preferred stock dividends (581) (581) Payment of common stock dividends (4,800) (4,400) --------- --------- Net cash used for financing activities (151) (4,028) --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS (168) (1,532) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 877 1,563 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 709 $ 31 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $ 4,982 $ 4,871 Income taxes 104 444
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements. 50
SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At March 31, 1996 At December 31, (Unaudited) 1995 ------------ --------------- UTILITY PLANT: Plant in service, at original cost $ 721,828 $ 715,146 Less accumulated provision for depreciation 291,355 287,004 ----------- ----------- 430,473 428,142 Construction work in progress 10,841 6,707 ----------- ----------- Total 441,314 434,849 ----------- ----------- OTHER PROPERTY AND INVESTMENTS: 1,787 1,788 ----------- ----------- CURRENT ASSETS: Cash and cash equivalents 709 877 Receivables-- Customer accounts receivable 16,992 19,574 Other accounts and notes receivable 5,720 7,251 Affiliated companies 1,130 614 Accumulated provision for uncollectible accounts (1,009) (983) Fossil fuel stock, at average cost 4,216 6,076 Materials and supplies, at average cost 8,564 8,239 Prepayments 7,630 6,467 ----------- ----------- Total 43,952 48,115 ----------- ----------- DEFERRED CHARGES: Deferred charges related to income taxes 21,379 21,557 Premium on reacquired debt, being amortized 5,225 5,316 Cash surrender value of life insurance for deferred compensation plans 8,560 8,560 Miscellaneous 4,373 4,477 ----------- ----------- Total 39,537 39,910 ----------- ----------- TOTAL ASSETS $ 526,590 $ 524,662 =========== ===========
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements. 51
SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At March 31, 1996 At December 31, (Unaudited) 1995 --------------- --------------- CAPITALIZATION: Common stock equity-- Common stock ($5 par value)--authorized 16,000,000 shares; outstanding 10,844,635 shares $ 54,223 $ 54,223 Paid-in capital 8,688 8,688 Additional minimum liability for under-funded pension obligations (1,116) (132) Retained earnings 102,973 105,033 ----------- ----------- 164,768 167,812 Preferred stock 35,000 35,000 Long-term debt 160,250 153,679 ----------- ----------- Total 360,018 356,491 ----------- ----------- CURRENT LIABILITIES: Long-term debt due within one year 579 1,407 Notes payable 3,500 4,000 Accounts payable-- Affiliated companies 5,492 5,742 Other 4,856 5,620 Fuel cost over recovery 254 865 Customer deposits 5,110 5,054 Taxes accrued-- Federal and state income 1,640 570 Other 2,401 1,014 Interest accrued 4,299 6,331 Vacation pay accrued 1,935 1,916 Pensions accrued 393 685 Miscellaneous 3,402 5,185 ----------- ----------- Total 33,861 38,389 ----------- ----------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 75,143 74,152 Accumulated deferred investment tax credits 13,768 13,934 Deferred credits related to income taxes 24,275 24,419 Deferred compensation plans 7,983 7,690 Deferred under-funded accrued benefit obligation 3,727 2,123 Postretirement benefits 5,086 4,728 Miscellaneous 2,729 2,736 ----------- ----------- Total 132,711 129,782 ----------- ----------- TOTAL CAPITALIZATION AND LIABILITIES $ 526,590 $ 524,662 =========== ===========
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements. 52 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1996 vs. FIRST QUARTER 1995 RESULTS OF OPERATIONS Earnings SAVANNAH's net income after dividends on preferred stock for the first quarter of 1996 was $2.7 million, compared to $2.4 million for the same quarter of 1995. This 13.2% increase in earnings is principally the result of an increase in retail revenues and a decrease in interest expense offset somewhat by an increase in operating expenses. Significant income statement items appropriate for discussion include the following: Increase (Decrease) ------------------------------------- (in thousands) % Revenues................................ $4,351 9.7 Fuel expense............................ 2,599 192.5 Interest on long-term debt.............. (215) (6.9) Revenues. Excluding fuel revenues, which represent the pass-through of fuel expenses and do not affect income, revenues for the first quarter of 1996 increased approximately $466,000, compared to the corresponding period of 1995. The increase in revenues was influenced most heavily by an increase in the amount of retail energy sold. For the first three months of 1996, total retail kilowatt-hour sales increased 6.1% over the same period of 1995, and retail revenues, excluding fuel revenues, increased approximately $767,000. Colder-than-normal winter weather and a slight increase in the number of customers served accounted for most of the 13.8% increase in residential demand and 11% increase commercial demand. Kilowatt-hour sales to the industrial sector were down 8.8% and industrial revenues were down 6.2%, primarily due to a reduction in the production schedule, and hence energy requirements, of one of SAVANNAH's major industrial customers and the implementation of new time-of-use rates for industrial customers in the first quarter of 1996. Fuel expense. The increase in fuel expense for the first quarter of 1996 as compared to the same quarter of 1995 can be attributed to higher generation necessary to meet the increased demand for electricity, partially offset by a lower average cost of fuel. Interest on long-term debt. Interest on long-term debt decreased in the first quarter of 1996 as compared to the same period of 1995 primarily as a result of the replacement by SAVANNAH, during the second quarter of 1995, of its 9 1/4% first mortgage bonds with 7 7/8% first mortgage bonds and variable rate bank notes. Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a less regulated, more competitive environment. 53 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION With the enactment of the Energy Act and new legislation being discussed at federal and state levels to expand customer choice, the Southern electric system is positioning the business to meet the challenge of increasing competition. For additional information, see Item 1 - BUSINESS - "Competition" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SAVANNAH in the Form 10-K. Compliance costs related to the Clean Air Act could affect earnings if such costs cannot be offset. For additional information about the Clean Air Act and other important environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" of SAVANNAH in the Form 10-K. Reference is made to Notes (B), (O) and (P) in the "Notes to the Condensed Financial Statements" herein for discussion of various contingencies and other matters which may affect future earnings potential. FINANCIAL CONDITION Overview The major change in SAVANNAH's financial condition during the first three months of 1996 was the addition of approximately $6.7 million to utility plant. The funds for these additions and other capital requirements were derived primarily from internal sources and bank debt. See SAVANNAH's Condensed Statements of Cash Flows for further details. Financing Activities During the first three months of 1996, SAVANNAH issued no new securities and retired $1.2 million of its 9 3/8% first mortgage bonds to meet sinking fund requirements. SAVANNAH entered into arrangements with the Savannah Economic Development Authority to provide for the financing of a new coal handling facility at Plant Kraft. The related capitalized lease amount at March 31, 1996 was $7.0 million. SAVANNAH plans to continue, to the extent possible, a program to retire higher-cost debt and replace these obligations with lower-cost capital. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of SAVANNAH under "Capital Requirements for Construction," "Environmental Matters" and "Other Capital Requirements" in the Form 10-K for a description of SAVANNAH's capital requirements for its construction program, environmental compliance efforts, sinking fund requirements and long-term debt maturities. Approximately $0.6 million will be required by March 31, 1997, for maturities of long-term debt. Sources of Capital SAVANNAH plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings--if needed--will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. Currently, SAVANNAH expects to have adequate earnings coverage ratios for any anticipated security sales through at least 1998. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. 54 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION To meet short-term cash needs and contingencies, SAVANNAH had at March 31, 1996, approximately $0.7 million of cash and cash equivalents and approximately $37.0 million of unused credit arrangements with banks. At March 31, 1996, SAVANNAH had outstanding $3.5 million of short-term notes payable to banks. Since SAVANNAH has no major generating plants under construction, management believes that the need for working capital can be adequately met by utilizing lines of credit. 55 NOTES TO THE CONDENSED FINANCIAL STATEMENTS FOR THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES ALABAMA POWER COMPANY GEORGIA POWER COMPANY GULF POWER COMPANY MISSISSIPPI POWER COMPANY SAVANNAH ELECTRIC AND POWER COMPANY INDEX TO APPLICABLE NOTES TO FINANCIAL STATEMENTS BY REGISTRANT Registrant Applicable Notes SOUTHERN A, B, C, D, E, F, G, H, I, J, K, L, N ALABAMA A, B, C, F, G, H GEORGIA A, B, C, F, I, J, K, L, M, N GULF A, B, F MISSISSIPPI A, B, F SAVANNAH A, B, O, P 56 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES ALABAMA POWER COMPANY GEORGIA POWER COMPANY GULF POWER COMPANY MISSISSIPPI POWER COMPANY SAVANNAH ELECTRIC AND POWER COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS: (A) The condensed financial statements of the registrants included herein have been prepared by each registrant, without audit, pursuant to the rules and regulations of the SEC. In the opinion of each registrant's management, the information regarding such registrant furnished herein reflects all adjustments (which included only normal recurring adjustments) necessary to present fairly the results for the periods ended March 31, 1996 and 1995. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although each registrant believes that the disclosures regarding such registrant are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in each registrant's latest annual report on Form 10-K. Certain prior-period amounts have been reclassified to conform with current-period presentation. The condensed financial statements of ALABAMA and GEORGIA included herein have been reviewed by ALABAMA's and GEORGIA's independent public accountants as set forth in their reports included herein as Exhibit 1 to ALABAMA's and GEORGIA's condensed financial statements. (B) SOUTHERN's operating affiliates are subject to the provisions of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of a company's operations is no longer subject to these provisions, the company would be required to write off related regulatory assets and liabilities, and determine if any other assets have been impaired. For additional information, see Note 1 to the financial statements of each registrant in Item 8 of the Form 10-K. (C) The staff of the SEC has questioned certain of the current accounting practices of the electric utility industry--including SOUTHERN's--regarding the recognition, measurement and classification of decommissioning costs for nuclear generating facilities in the financial statements. In response to these questions, the FASB has decided to review the accounting for liabilities related to closure and removal of long-lived assets, including nuclear decommissioning. Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SOUTHERN, ALABAMA and GEORGIA in Item 7 and Note 1 to the financial statements of SOUTHERN, ALABAMA and GEORGIA under "Depreciation and Nuclear Decommissioning" in Item 8 of the Form 10-K. (D) The SOUTHERN system utilizes certain financial derivative contracts solely for the purpose of risk management. The companies' participation in derivative contracts has been to hedge non-core business exposure to fluctuations in interest rates and foreign currency exchange rates. At March 31, 1996, the status of outstanding derivative contracts was as follows: Maturity or Notional Unrealized Type Termination Amount Gain (Loss) ---- ----------- -------- ----------- (in thousands) Interest rate swaps 1999-2006 $423,503 $4,233 Foreign currency forwards Renewed monthly 386,724 464 57 NOTES TO CONDENSED FINANCIAL STATEMENTS: (Continued) (E) Reference is made to Note 3 to the financial statements of SOUTHERN in Item 8 of the Form 10-K for a description of the proceedings related to a derivative action filed against certain current and former directors and officers of SOUTHERN. (F) Reference is made to Note 3 to each of the registrant's, except SAVANNAH's, financial statements in Item 8 of the Form 10-K for a discussion of the proceedings initiated by the FERC regarding the reasonableness of the return on common equity on certain of the Southern electric system's wholesale rate schedules and contracts. (G) In June 1995, the Alabama PSC issued a rate order granting ALABAMA's request for gradual adjustments to move toward parity among customer classes. This order also calls for a moratorium on any periodic retail rate increases (but not decreases) until July 2001. In December 1995, the Alabama PSC issued an order authorizing ALABAMA to reduce balance sheet items--such as plant and deferred charges--at any time ALABAMA's actual base rate revenues exceed the budgeted revenues. Reference is made to Note 3 to the financial statements of SOUTHERN and ALABAMA in Item 8 of the Form 10-K for additional information. (H) In January 1996, Alabama Power Capital Trust I (the "Trust"), of which ALABAMA owns all the common securities, issued $97 million of 7.375% mandatory redeemable preferred securities. Substantially all of the assets of the Trust are $100 million aggregate principal amount of ALABAMA's 7.375% Junior Subordinated Notes due March 31, 2026. ALABAMA considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by ALABAMA of the Trust's payment obligations with respect to the preferred securities. (I) On February 16, 1996, the Georgia PSC approved a three-year retail rate plan for GEORGIA effective January 1, 1996. For additional information, reference is made to Note 3 to the financial statements of SOUTHERN and GEORGIA in Item 8 of the Form 10-K. (J) Pursuant to orders from the Georgia PSC, GEORGIA deferred financing and depreciation costs under phase-in plans for Plant Vogtle Units 1 and 2 until the allowed investment was fully reflected in rates as of October 1991. In addition, the Georgia PSC issued two separate accounting orders that required GEORGIA to defer substantially all operating and financing costs related to both units until rate orders addressed these costs. The Georgia PSC orders provide for recovery of deferred costs within 10 years. The Georgia PSC also ordered GEORGIA to levelize declining capacity buyback expense from the co-owners of the plant over a six-year period beginning October 1991. The unamortized balance of these deferred costs at March 31, 1996, was $273.9 million. See Note 3 to the financial statements of GEORGIA in Item 8 of the Form 10-K for additional information. (K) Reference is made to Note 3 to the financial statements of SOUTHERN and GEORGIA in Item 8 of the Form 10-K for information concerning the recovery by GEORGIA of its costs associated with the Rocky Mountain pumped storage hydroelectric plant. (L) Reference is made to Note 3 to the financial statements of SOUTHERN and GEORGIA in Item 8 of the Form 10-K for information regarding recovery by GEORGIA of its costs associated with its discontinued demand-side conservation programs. (M) Reference is made to Note 3 to the financial statements of GEORGIA in Item 8 of the Form 10-K for information regarding joint complaints filed by OPC and MEAG seeking recovery from GEORGIA for alleged partial requirements rates overcharges plus interest. 58 NOTES TO CONDENSED FINANCIAL STATEMENTS: (Continued) (N) Reference is made to Note 3 to the financial statements of SOUTHERN and GEORGIA in Item 8 of the Form 10-K for information regarding GEORGIA's designation as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act and other environmental contingencies. (O) Reference is made to Note 3 to the financial statements of SAVANNAH in Item 8 of the Form 10-K for information regarding SAVANNAH's discontinued demand-side conservation programs. (P) SAVANNAH is currently undergoing an earnings review by the Georgia PSC, and to date, the Georgia PSC has made no determination. 59 PART II - OTHER INFORMATION Item 1. Legal Proceedings. (1) Reference is made to the Notes to the Condensed Financial Statements herein for information regarding certain legal and administrative proceedings in which SOUTHERN and its reporting subsidiaries are involved. (2) Reference is made to Item 3 - LEGAL PROCEEDINGS in the Form 10-K for information regarding a tax deficiency notice received from the Internal Revenue Service relating to GEORGIA's tax accounting for the sale in 1984 of an interest in Plant Vogtle and related capacity and energy buyback commitments. (3) Reference is made to Item 3 - LEGAL PROCEEDINGS in the Form 10-K for information regarding an action filed by ALABAMA, GEORGIA and MISSISSIPPI in January 1996 which seeks to enjoin the TVA from violating a 1959 act that prohibits the TVA from selling power outside the area that was being served by it in 1957. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Exhibit 24 - Powers of Attorney and resolutions. (Designated in the Form 10-K for the year ended December 31, 1995, File Nos. 1-3526, 1-3164, 1-6468, 0-2429, 0-6849 and 1-5072 as Exhibits 24(a), 24(b), 24(c), 24(d), 24(e) and 24(f), respectively, and incorporated herein by reference.) Exhibits 27 - Financial Data Schedules (a) SOUTHERN (b) ALABAMA (c) GEORGIA (d) GULF (e) MISSISSIPPI (f) SAVANNAH (b) Reports on Form 8-K. GULF filed a Current Report on Form 8-K dated January 17, 1996: Items reported: Item 5 Item 7 Financial statements filed: None SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH each filed a Current Report on Form 8-K dated February 21, 1996: Item reported: Item 7 Financial statements filed: Each registrant's audited financial statements for the year ended December 31, 1995 60 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. THE SOUTHERN COMPANY By A. W. Dahlberg Chairman, President and Chief Executive Officer (Principal Executive Officer) By W. L. Westbrook Financial Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: May 13, 1996 - - -------------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. ALABAMA POWER COMPANY By Elmer B. Harris President and Chief Executive Officer (Principal Executive Officer) By William B. Hutchins, III Executive Vice President and Chief Financial Officer (Principal Financial Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: May 13, 1996 61 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. GEORGIA POWER COMPANY By H. Allen Franklin President and Chief Executive Officer (Principal Executive Officer) By Warren Y. Jobe Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: May 13, 1996 - - -------------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. GULF POWER COMPANY By Travis J. Bowden President and Chief Executive Officer (Principal Executive Officer) By A. E. Scarbrough Vice President - Finance (Principal Financial and Accounting Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: May 13, 1996 62 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. MISSISSIPPI POWER COMPANY By Dwight H. Evans President and Chief Executive Officer (Principal Executive Officer) By Michael W. Southern Vice President, Secretary, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: May 13, 1996 - - -------------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. SAVANNAH ELECTRIC AND POWER COMPANY By Arthur M. Gignilliat, Jr. President and Chief Executive Officer (Principal Executive Officer) By Kirby R. Willis Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: May 13, 1996 63 EX-27.A 2
UT This schedule contains summary financial information extracted from the Form 10-Q for March 31, 1996, and is qualified in its entirety by reference to such financial statements. 0000092122 THE SOUTHERN COMPANY 1,000 3-MOS DEC-31-1995 MAR-31-1996 PER-BOOK 23,003,231 1,291,541 2,788,394 2,632,872 0 29,716,038 3,351,498 1,915,094 3,504,507 8,771,099 197,000 1,332,203 7,172,129 1,356,596 223,113 931,992 97,413 0 150,104 2,699 9,481,690 29,716,038 2,415,618 165,951 1,832,330 1,998,281 417,337 26,499 443,836 189,468 254,368 21,493 232,875 211,081 0 401,355 0.35 0
EX-27.B 3
UT This schedule contains summary financial information extracted from the Form 10-Q for March 31, 1996, and is qualified in its entirety by reference to such financial statements. 0000003153 ALABAMA POWER COMPANY 1,000 3-MOS DEC-31-1995 MAR-31-1996 PER-BOOK 7,061,279 157,494 877,159 656,503 0 8,752,435 224,358 1,304,791 1,158,459 2,687,608 97,000 440,400 2,365,002 10,000 0 426,030 0 0 7,815 910 2,717,670 8,752,435 732,809 44,422 546,335 590,757 142,052 3,052 145,104 65,333 79,771 6,612 73,159 76,000 0 142,825 0 0
EX-27.C 4
UT This schedule contains summary financial information extracted from the Form 10-Q for March 31, 1996, and is qualified in its entirety by reference to such financial statements. 0000041091 GEORGIA POWER COMPANY 1,000 3-MOS DEC-31-1995 MAR-31-1996 PER-BOOK 10,454,104 274,445 1,066,037 1,551,755 0 13,346,341 344,250 2,384,857 1,562,806 4,291,913 100,000 692,787 3,232,026 254,825 0 218,315 40 0 86,986 343 4,469,106 13,346,341 1,028,819 89,684 747,185 836,869 191,950 (1,406) 190,544 64,491 126,053 11,652 114,401 121,500 0 356,038 0 0
EX-27.D 5
UT This schedule contains summary financial information extracted from the Form 10-Q for March 31, 1996, and is qualified in its entirety by reference to such financial statements. 0000044545 GULF POWER COMPANY 1,000 3-MOS DEC-31-1995 MAR-31-1996 PER-BOOK 1,064,629 657 195,258 95,095 0 1,355,639 38,060 218,519 178,621 435,200 0 89,602 366,815 35,500 18,843 0 40,578 0 0 0 369,101 1,355,639 154,921 7,278 127,442 134,720 20,201 (109) 20,092 7,411 12,681 1,423 11,258 12,300 0 27,901 0 0
EX-27.E 6
UT This schedule contains summary financial information extracted from the Form 10-Q for March 31, 1996, and is qualified in its entirety by reference to such financial statements. 0000066904 MISSISSIPPI POWER COMPANY 1,000 3-MOS DEC-31-1995 MAR-31-1996 PER-BOOK 977,509 3,403 99,283 54,830 0 1,135,025 37,691 179,761 158,553 376,005 0 74,414 288,901 31,000 0 0 37,229 0 0 0 327,476 1,135,025 126,954 7,139 101,741 108,880 18,074 1,029 19,103 6,183 12,920 1,225 11,695 10,600 0 3,950 0 0
EX-27.F 7
UT This schedule contains summary financial information extracted from the Form 10-Q for March 31, 1996, and is qualified in its entirety by reference to such financial statements. 0000086940 SAVANNAH ELECTRIC AND POWER COMPANY 1,000 3-MOS DEC-31-1995 MAR-31-1996 PER-BOOK 441,314 1,787 43,952 39,537 0 526,590 54,223 8,688 101,857 164,768 0 35,000 133,414 3,500 20,000 0 0 0 6,836 579 162,493 526,590 50,575 2,329 41,684 44,013 6,562 (114) 6,448 3,127 3,321 581 2,740 4,800 0 7,201 0 0
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