Common Stock and Stock Compensation

12 Months Ended

Dec. 31, 2014

Stock Issued

During 2014, Southern Company issued approximately 20.8 million shares of common stock (including approximately 5.0 million treasury shares) for approximately $806 million through the employee and director stock plans and the Southern Investment Plan. The Company may satisfy its obligations with respect to the plans in several ways, including through using newly issued shares or treasury shares or acquiring shares on the open market through the independent plan administrators.

From August 2013 through December 2014, Southern Company used shares held in treasury, to the extent available, and newly issued shares to satisfy the requirements under the Southern Investment Plan and the employee savings plan. Beginning in January 2015, Southern Company ceased issuing additional shares under the Southern Investment Plan and the employee savings plan. All sales under these plans are now being funded with shares acquired on the open market by the independent plan administrators.

Beginning in 2015, Southern Company expects to repurchase shares of common stock to offset all or a portion of the incremental shares issued under its employee and director stock plans, including through stock option exercises. The Southern Company Board of Directors has approved the repurchase of up to 20 million shares of common stock for such purpose until December 31, 2017. Repurchases may be made by means of open market purchases, privately negotiated transactions, or accelerated or other share repurchase programs, in accordance with applicable securities laws.

Shares Reserved

At December 31, 2014, a total of 93 million shares were reserved for issuance pursuant to the Southern Investment Plan, the Employee Savings Plan, the Outside Directors Stock Plan, and the Omnibus Incentive Compensation Plan (which includes stock options and performance shares units as discussed below). Of the total 93 million shares reserved, there were 15 million shares of common stock remaining available for awards under the Omnibus Incentive Compensation Plan as of December 31, 2014.

Stock Options

Southern Company provides non-qualified stock options through its Omnibus Incentive Compensation Plan to a large segment of Southern Company system employees ranging from line management to executives. As of December 31, 2014, there were 5,437 current and former employees participating in the stock option program. The prices of options were at the fair market value of the shares on the dates of grant. These options become exercisable pro rata over a maximum period of three years from the date of grant. Southern Company generally recognizes stock option expense on a straight-line basis over the vesting period which equates to the requisite service period; however, for employees who are eligible for retirement, the total cost is expensed at the grant date. Options outstanding will expire no later than 10 years after the date of grant, unless terminated earlier by the Southern Company Board of Directors in accordance with the Omnibus Incentive Compensation Plan. Stock options held by employees of a company undergoing a change in control vest upon the change in control.

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

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



Year Ended December 31	2014	2013	2012
Expected volatility	14.6%	16.6%	17.7%
Expected term (in years)	5	5	5
Interest rate	1.5%	0.9%	0.9%
Dividend yield	4.9%	4.4%	4.2%
Weighted average grant-date fair value	$2.20	$2.93	$3.39

Southern Company's activity in the stock option program for 2014 is summarized below:



	Shares Subject to Option	Weighted Average Exercise Price
Outstanding at December 31, 2013	38,819,366	$38.64
Granted	12,812,691	41.40
Exercised	11,585,363	35.06
Cancelled	117,375	42.72
Outstanding at December 31, 2014	39,929,319	$40.55
Exercisable at December 31, 2014	20,695,310	$38.76

The number of stock options vested, and expected to vest in the future, as of December 31, 2014 was not significantly different from the number of stock options outstanding at December 31, 2014 as stated above. As of December 31, 2014, the weighted average remaining contractual term for the options outstanding and options exercisable was approximately seven years and six years, respectively, and the aggregate intrinsic value for the options outstanding and options exercisable was $342 million and $214 million, respectively.

As of December 31, 2014, there was $10 million of total unrecognized compensation cost related to stock option awards not yet vested. That cost is expected to be recognized over a weighted-average period of approximately 16 months.

For the years ended December 31, 2014, 2013, and 2012, total compensation cost for stock option awards recognized in income was $27 million, $25 million, and $23 million, respectively, with the related tax benefit also recognized in income of $10 million, $10 million, and $9 million, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2014, 2013, and 2012 was $125 million, $77 million, and $162 million, respectively. The actual tax benefit realized by the Company for the tax deductions from stock option exercises totaled $48 million, $30 million, and $62 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Southern Company has a policy of issuing shares to satisfy share option exercises. Cash received from issuances related to option exercises under the share-based payment arrangements for the years ended December 31, 2014, 2013, and 2012 was $400 million, $204 million, and $397 million, respectively.

Performance Shares

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

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

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



Year Ended December 31	2014	2013	2012
Expected volatility	12.6%	12.0%	16.0%
Expected term (in years)	3	3	3
Interest rate	0.6%	0.4%	0.4%
Annualized dividend rate	$2.03	$1.96	$1.89
Weighted average grant-date fair value	$37.54	$40.50	$41.99

Total unvested performance share units outstanding as of December 31, 2013 were 1,643,759. During 2014, 1,057,813 performance share units were granted, 755,716 performance share units were vested, and 115,475 performance share units were forfeited, resulting in 1,830,381 unvested units outstanding at December 31, 2014. In January 2015, the vested performance share award units were converted into 105,783 shares outstanding at a share price of $49.71 for the three-year performance and vesting period ended December 31, 2014.

For the years ended December 31, 2014, 2013, and 2012, total compensation cost for performance share units recognized in income was $33 million, $31 million, and $28 million, respectively, with the related tax benefit also recognized in income of $13 million, $12 million, and $11 million, respectively. As of December 31, 2014, there was $37 million of total unrecognized compensation cost related to performance share award units that will be recognized over a weighted-average period of approximately 20 months.

Diluted Earnings Per Share

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



	Average Common Stock Shares
	2014	2013	2012
	(in millions)
As reported shares	897	877	871
Effect of options and performance share award units	4	4	8
Diluted shares	901	881	879

Stock options and performance share award units that were not included in the diluted earnings per share calculation because they were anti-dilutive were $7 million and $16 million as of December 31, 2014 and 2013, respectively.

Common Stock Dividend Restrictions

The income of Southern Company is derived primarily from equity in earnings of its subsidiaries. At December 31, 2014, consolidated retained earnings included $6.4 billion of undistributed retained earnings of the subsidiaries.

Alabama Power [Member]

Class of Stock [Line Items]

STOCK COMPENSATION

Stock Options

Southern Company provides non-qualified stock options through its Omnibus Incentive Compensation Plan to a large segment of the Company's employees ranging from line management to executives. As of December 31, 2014, there were approximately 1,000 current and former employees of the Company participating in the stock option program. The prices of options were at the fair market value of the shares on the dates of grant. These options become exercisable pro rata over a maximum period of three years from the date of grant. The Company generally recognizes stock option expense on a straight-line basis over the vesting period which equates to the requisite service period; however, for employees who are eligible for retirement, the total cost is expensed at the grant date. Options outstanding will expire no later than 10 years after the date of grant, unless terminated earlier by the Southern Company Board of Directors in accordance with the Omnibus Incentive Compensation Plan. Stock options held by employees of a company undergoing a change in control vest upon the change in control.

For the years ended December 31, 2014, 2013, and 2012, employees of the Company were granted stock options for 2,027,298 shares, 1,319,038 shares, and 1,099,315 shares, respectively. The weighted average grant-date fair value of stock options granted during 2014, 2013, and 2012, derived using the Black-Scholes stock option pricing model, was $2.20, $2.93, and $3.39, respectively.

For the years ended December 31, 2014, 2013, and 2012, total compensation cost for stock option awards recognized in income was $5 million, $4 million, and $4 million, respectively, with the related tax benefit also recognized in income of $2 million, $2 million, and $1 million, respectively. The compensation cost and tax benefits related to the grant of Southern Company stock options to the Company's employees and the exercise of stock options are recognized in the Company's financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company. No cash proceeds are received by the Company upon the exercise of stock options. As of December 31, 2014, there was $1 million of unrecognized compensation cost related to stock option awards not yet vested. That cost is expected to be recognized over a weighted-average period of approximately 15 months.

The total intrinsic value of options exercised during the years ended December 31, 2014, 2013, and 2012 was $21 million, $11 million, and $28 million, respectively. The actual tax benefit realized by the Company for the tax deductions from stock option exercises totaled $8 million, $4 million, and $11 million for the years ended December 31, 2014, 2013, and 2012, respectively. As of December 31, 2014, the aggregate intrinsic value for the options outstanding and options exercisable was $55 million and $37 million, respectively.

Performance Shares

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

For the years ended December 31, 2014, 2013, and 2012, employees of the Company were granted performance share units of 176,070, 141,355, and 131,820, respectively. The weighted average grant-date fair value of performance share units granted during 2014, 2013, and 2012, determined using a Monte Carlo simulation model to estimate the TSR of Southern Company's stock among the industry peers over the performance period, was $37.54, $40.50, and $41.99, respectively.

The Company recognizes compensation expense on a straight-line basis over the three-year performance period without remeasurement. Compensation expense for awards where the service condition is met is recognized regardless of the actual number of shares issued. For the years ended December 31, 2014, 2013, and 2012, total compensation cost for performance share units recognized in income was $5 million annually, with the related tax benefit of $2 million annually also recognized in income. The compensation cost and tax benefits related to the grant of Southern Company performance share units to the Company's employees are recognized in the Company's financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company. As of December 31, 2014, there was $5 million of total unrecognized compensation cost related to performance share award units that will be recognized over a weighted-average period of approximately 20 months.

Georgia Power [Member]

Class of Stock [Line Items]

STOCK COMPENSATION

Stock Options

For the years ended December 31, 2014, 2013, and 2012, employees of the Company were granted stock options for 2,034,150 shares, 1,509,662 shares, and 1,269,725 shares, respectively. The weighted average grant-date fair value of stock options granted during 2014, 2013, and 2012, derived using the Black-Scholes stock option pricing model, was $2.20, $2.93, and $3.39, respectively.

The compensation cost and tax benefits related to the grant of Southern Company stock options to the Company's employees and the exercise of stock options are recognized in the Company's financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company. No cash proceeds are received by the Company upon the exercise of stock options. The amounts were not material for any year presented.

As of December 31, 2014, the amount of unrecognized compensation cost related to stock option awards not yet vested was immaterial.

The total intrinsic value of options exercised during the years ended December 31, 2014, 2013, and 2012 was $19 million, $16 million, and $34 million, respectively. The actual tax benefit realized by the Company for the tax deductions from stock option exercises totaled $7 million, $6 million, and $13 million for the years ended December 31, 2014, 2013, and 2012, respectively. As of December 31, 2014, the aggregate intrinsic value for the options outstanding and options exercisable was $73 million and $51 million, respectively.

Performance Shares

For the years ended December 31, 2014, 2013, and 2012, employees of the Company were granted performance share units of 176,224, 161,240, and 152,812, respectively. The weighted average grant-date fair value of performance share units granted during 2014, 2013, and 2012, determined using a Monte Carlo simulation model to estimate the TSR of Southern Company's stock among the industry peers over the performance period, was $37.54, $40.50, and $41.99, respectively.

The Company recognizes compensation expense on a straight-line basis over the three-year performance period without remeasurement. Compensation expense for awards where the service condition is met is recognized regardless of the actual number of shares issued. For the years ended December 31, 2014, 2013, and 2012, total compensation cost for performance share units recognized in income was $6 million annually, with the related tax benefit of $2 million annually also recognized in income. The compensation cost and tax benefits related to the grant of Southern Company performance share units to the Company's employees are recognized in the Company's financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company. As of December 31, 2014, there was $7 million of total unrecognized compensation cost related to performance share award units that will be recognized over a weighted-average period of approximately 20 months.

Gulf Power [Member]

Class of Stock [Line Items]

STOCK COMPENSATION

Stock Options

Southern Company provides non-qualified stock options through its Omnibus Incentive Compensation Plan to a large segment of the Company's employees ranging from line management to executives. As of December 31, 2014, there were 195 current and former employees of the Company participating in the stock option program. The prices of options were at the fair market value of the shares on the dates of grant. These options become exercisable pro rata over a maximum period of three years from the date of grant. The Company generally recognizes stock option expense on a straight-line basis over the vesting period which equates to the requisite service period; however, for employees who are eligible for retirement, the total cost is expensed at the grant date. Options outstanding will expire no later than 10 years after the date of grant, unless terminated earlier by the Southern Company Board of Directors in accordance with the Omnibus Incentive Compensation Plan. Stock options held by employees of a company undergoing a change in control vest upon the change in control.

For the years ended December 31, 2014, 2013, and 2012, employees of the Company were granted stock options for 432,371 shares, 285,209 shares, and 244,607 shares, respectively. The weighted average grant-date fair value of stock options granted during 2014, 2013, and 2012, derived using the Black-Scholes stock option pricing model, was $2.20, $2.93, and $3.39, respectively.

As of December 31, 2014, the amount of unrecognized compensation cost related to stock option awards not yet vested was immaterial.

The total intrinsic value of options exercised during the years ended December 31, 2014, 2013, and 2012 was $5.2 million, $1.7 million, and $3.8 million, respectively. The actual tax benefit realized by the Company for the tax deductions from stock option exercises totaled $2.0 million, $0.6 million, and $1.5 million for the years ended December 31, 2014, 2013, and 2012, respectively. As of December 31, 2014, the aggregate intrinsic value for the options outstanding and options exercisable was $11.9 million and $7.7 million, respectively.

Performance Shares

For the years ended December 31, 2014, 2013, and 2012, employees of the Company were granted performance share units of 37,829, 30,627, and 29,444, respectively. The weighted average grant-date fair value of performance share units granted during 2014, 2013, and 2012, determined using a Monte Carlo simulation model to estimate the TSR of Southern Company's stock among the industry peers over the performance period, was $37.54, $40.50, and $41.99, respectively.

The Company recognizes compensation expense on a straight-line basis over the three-year performance period without remeasurement. Compensation expense for awards where the service condition is met is recognized regardless of the actual number of shares issued. For the years ended December 31, 2014, 2013, and 2012, total compensation cost for performance share units recognized in income was approximately $1.0 million annually, with the related tax benefit also recognized in income of $0.4 million annually. The compensation cost and tax benefits related to the grant of Southern Company performance share units to the Company's employees are recognized in the Company's financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company. As of December 31, 2014, there was $1.3 million of total unrecognized compensation cost related to performance share award units that will be recognized over a weighted-average period of approximately 20 months.

Mississippi Power [Member]

Class of Stock [Line Items]

STOCK COMPENSATION

Stock Options

Southern Company provides non-qualified stock options through its Omnibus Incentive Compensation Plan to a large segment of the Company's system employees ranging from line management to executives. As of December 31, 2014, there were 244 current and former employees of the Company participating in the stock option program. The prices of options were at the fair market value of the shares on the dates of grant. These options become exercisable pro rata over a maximum period of three years from the date of grant. The Company generally recognizes stock option expense on a straight-line basis over the vesting period which equates to the requisite service period; however, for employees who are eligible for retirement, the total cost is expensed at the grant date. Options outstanding will expire no later than 10 years after the date of grant, unless terminated earlier by the Southern Company Board of Directors in accordance with the Omnibus Incentive Compensation Plan. Stock options held by employees of a company undergoing a change in control vest upon the change in control.

For the years ended December 31, 2014, 2013, and 2012, employees of the Company were granted stock options for 578,256 shares, 345,830 shares, and 278,709 shares, respectively. The weighted average grant-date fair value of stock options granted during 2014, 2013, and 2012, derived using the Black-Scholes stock option pricing model, was $2.20, $2.93, and $3.39, respectively.

As of December 31, 2014, the amount of unrecognized compensation cost related to stock option awards not yet vested was immaterial.

The total intrinsic value of options exercised during the years ended December 31, 2014, 2013, and 2012 was $5.4 million, $2.7 million, and $4.9 million, respectively. The actual tax benefit realized by the Company for the tax deductions from stock option exercises totaled $2.1 million, $1.1 million, and $1.9 million for the years ended December 31, 2014, 2013, and 2012, respectively. As of December 31, 2014, the aggregate intrinsic value for the options outstanding and options exercisable was $18.4 million and $12.3 million, respectively.

Performance Shares

For the years ended December 31, 2014, 2013, and 2012, employees of the Company were granted performance share units of 49,579, 36,769, and 33,077, respectively. The weighted average grant-date fair value of performance share units granted during 2014, 2013, and 2012, determined using a Monte Carlo simulation model to estimate the TSR of Southern Company's stock among the industry peers over the performance period, was $37.54, $40.50, and $41.99, respectively.

The Company recognizes compensation expense on a straight-line basis over the three-year performance period without remeasurement. Compensation expense for awards where the service condition is met is recognized regardless of the actual number of shares issued. For the years ended December 31, 2014, 2013, and 2012, total compensation cost for performance share units recognized in income was $1.7 million, $1.5 million, and $1.2 million, respectively, with the related tax benefit also recognized in income of $0.6 million, $0.6 million, and $0.4 million, respectively. The compensation cost and tax benefits related to the grant of Southern Company performance share units to the Company's employees are recognized in the Company's financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company. As of December 31, 2014, there was $1.8 million of total unrecognized compensation cost related to performance share award units that will be recognized over a weighted-average period of approximately 20 months.

- Definition

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

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