-----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, EczWDQhPTzZ1F6183Rk+p8jrX2DNYq6SA2nwdNGouei5UXLRvTtHBEhyef5XacmK U9+bjL4+U1mG7NLqytRNag== 0000092122-97-000053.txt : 19970912 0000092122-97-000053.hdr.sgml : 19970912 ACCESSION NUMBER: 0000092122-97-000053 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 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: SEC FILE NUMBER: 001-03526 FILM NUMBER: 97658866 BUSINESS ADDRESS: STREET 1: 270 PEACHTREE ST CITY: ATLANTA STATE: GA ZIP: 30303 BUSINESS PHONE: 7703930650 MAIL ADDRESS: STREET 1: 270 PEACHTREE STREET CITY: ATLANTA STATE: GA ZIP: 30303 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: SEC FILE NUMBER: 001-03164 FILM NUMBER: 97658867 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: SEC FILE NUMBER: 001-06468 FILM NUMBER: 97658868 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: SEC FILE NUMBER: 000-02429 FILM NUMBER: 97658869 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: SEC FILE NUMBER: 001-11229 FILM NUMBER: 97658870 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: SEC FILE NUMBER: 001-05072 FILM NUMBER: 97658871 BUSINESS ADDRESS: STREET 1: 600 BAY ST EAST CITY: SAVANNAH STATE: GA ZIP: 31401 BUSINESS PHONE: 9122327171 10-Q 1 SECOND QUARTER 1997 =================================================================================================================== 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 June 30, 1997 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) 257-1000 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 (850) 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 East Bay Street Savannah, Georgia 31401 (912) 644-7171 ===================================================================================================================
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 July 31, 1997 The Southern Company Par Value $5 Per Share 685,435,398 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 June 30, 1997 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 Consolidated Statements of Income........................................................ 6 Condensed Consolidated Statements of Cash Flows.................................................... 7 Condensed Consolidated Balance Sheets.............................................................. 8 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 10 Alabama Power Company Condensed Statements of Income..................................................................... 16 Condensed Statements of Cash Flows................................................................. 17 Condensed Balance Sheets........................................................................... 18 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 20 Exhibit 1 - Report of Independent Public Accountants............................................... 24 Georgia Power Company Condensed Statements of Income..................................................................... 26 Condensed Statements of Cash Flows................................................................. 27 Condensed Balance Sheets........................................................................... 28 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 30 Exhibit 1 - Report of Independent Public Accountants............................................... 34 Gulf Power Company Condensed Statements of Income..................................................................... 36 Condensed Statements of Cash Flows................................................................. 37 Condensed Balance Sheets........................................................................... 38 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 40 Mississippi Power Company Condensed Statements of Income..................................................................... 45 Condensed Statements of Cash Flows................................................................. 46 Condensed Balance Sheets........................................................................... 47 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 49 Savannah Electric and Power Company Condensed Statements of Income..................................................................... 53 Condensed Statements of Cash Flows................................................................. 54 Condensed Balance Sheets........................................................................... 55 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 57 Notes to the Condensed Financial Statements........................................................... 60 PART II - OTHER INFORMATION Item 1. Legal Proceedings......................................................................................... 68 Item 2. Changes in Securities..................................................................................... Inapplicable Item 3. Defaults Upon Senior Securities........................................................................... Inapplicable Item 4. Submission of Matters to a Vote of Security Holders....................................................... 68 Item 5. Other Information......................................................................................... Inapplicable Item 6. Exhibits and Reports on Form 8-K.......................................................................... 70 Signatures ............................................................................................... 72
DEFINITIONS
TERM MEANING affiliates.................................. ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH ALABAMA..................................... Alabama Power Company CEPA........................................ Consolidated Electric Power Asia 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, 1996 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 operating affiliates........................ see affiliates operating companies......................... see affiliates PEP......................................... Performance Evaluation Plan PSC......................................... Public Service Commission SAVANNAH.................................... Savannah Electric and Power Company SEC......................................... Securities and Exchange Commission SOUTHERN.................................... The Southern Company Southern Energy............................. Southern Energy, Inc. (formerly Southern Electric International, Inc.), including SOUTHERN subsidiaries managed or controlled by Southern Energy 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 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months For the Six Months Ended June 30, Ended June 30, 1997 1996 1997 1996 ---- ---- ---- ---- OPERATING REVENUES $ 2,717,195 $ 2,563,507 $ 5,301,609 $ 4,992,862 -------------- -------------- -------------- -------------- OPERATING EXPENSES: Operation-- Fuel 517,251 555,321 1,003,006 1,058,031 Purchased power 483,176 238,954 941,417 510,451 Other (Note H) 458,188 475,682 883,535 926,743 Maintenance 211,553 197,340 402,845 383,717 Depreciation and amortization 286,907 249,217 579,031 495,836 Amortization of deferred Plant Vogtle costs (Note M) 37,584 33,234 75,211 66,993 Taxes other than income taxes 139,273 153,541 290,967 322,208 Income taxes 153,706 210,320 299,888 370,923 -------------- -------------- -------------- -------------- Total operating expenses 2,287,638 2,113,609 4,475,900 4,134,902 -------------- -------------- -------------- -------------- OPERATING INCOME 429,557 449,898 825,709 857,960 OTHER INCOME: Allowance for equity funds used during construction 832 184 1,623 1,044 Interest income 20,139 12,079 48,223 27,807 Other, net 18,389 7,155 32,599 29,501 Income taxes applicable to other income 8,609 25,105 13,048 21,945 -------------- -------------- -------------- -------------- INCOME BEFORE INTEREST CHARGES 477,526 494,421 921,202 938,257 -------------- -------------- -------------- -------------- INTEREST CHARGES AND OTHER: Interest on long-term debt 165,145 123,578 317,345 263,346 Allowance for debt funds used during construction (3,988) (5,478) (8,584) (10,789) Interest on notes payable 26,109 42,260 55,428 64,807 Amortization of debt discount, premium and expense, net 8,835 7,965 16,355 20,940 Other interest charges 10,745 11,708 28,868 28,152 Minority interest in subsidiaries 12,823 1,382 28,342 826 Distributions on capital and preferred securities of subsidiary companies 28,870 4,039 50,393 7,640 Preferred dividends of subsidiary companies 14,192 21,707 31,247 43,200 -------------- -------------- -------------- -------------- Interest charges and other, net 262,731 207,161 519,394 418,122 -------------- -------------- -------------- -------------- CONSOLIDATED NET INCOME $ 214,795 $ 287,260 $ 401,808 $ 520,135 ============== ============== ============== ============== AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (Thousands) 682,786 671,757 680,806 670,931 EARNINGS PER SHARE OF COMMON STOCK $0.31 $0.43 $0.59 $0.78 CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK $0.325 $0.315 $0.65 $0.63 The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements. 6
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Six Months Ended June 30, 1997 1996 OPERATING ACTIVITIES: Consolidated net income $ 401,808 $ 520,135 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 683,854 608,643 Deferred income taxes and investment tax credits (3,336) 9,265 Allowance for equity funds used during construction (1,623) (1,044) Amortization of deferred Plant Vogtle costs (Note M) 75,211 66,993 Gain on asset sales (15,879) (24,965) Other, net 19,988 45,328 Changes in certain current assets and liabilities-- Receivables, net (87,114) (66,659) Fossil fuel stock (57,751) 9,564 Materials and supplies 14,766 16,630 Prepayments (66,438) (48,522) Payables (4,102) (102,684) Customer deposits 2,398 (84,412) Taxes Accrued 79,212 (8,627) Other 111,225 (45,480) ---------------- ---------------- Net cash provided from operating activities 1,152,219 894,165 ---------------- ---------------- INVESTING ACTIVITIES: Gross property additions (789,528) (642,501) Southern Energy business acquisitions (1,854,064) - Sales of property 15,392 20,895 Other (28,128) (102,653) ---------------- ---------------- Net cash used for investing activities (2,656,328) (724,259) ---------------- ---------------- FINANCING ACTIVITIES: Proceeds-- Common stock 167,945 95,826 Capital and preferred securities 1,321,250 97,000 First mortgage bonds - 60,000 Pollution control obligations 103,870 84,620 Other long-term debt 1,009,865 644,148 Retirements-- Preferred stock (269,683) - First mortgage bonds (83,574) (284,574) Pollution control obligations (13,870) (40,115) Other long-term debt (314,403) (1,422,917) Special deposits-redemption funds (134,307) (51,345) Notes payable, net 155,064 920,124 Payment of common stock dividends (441,738) (422,353) Miscellaneous (58,347) (3,155) ---------------- ---------------- Net cash provided from (used for) financing activities 1,442,072 (322,741) ---------------- ---------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (62,037) (152,835) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 444,832 772,340 ---------------- ---------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 382,795 $ 619,505 ================ ================ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $373,619 $344,035 Income taxes $270,350 $303,355 Southern Energy business acquisitions-- Fair value of assets acquired $3,650,064 - Less cash paid for common stock 1,854,064 - -------------- -------------- Liabilities assumed $1,796,000 - ============== ============== The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
7
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At June 30, 1997 At December 31, (Unaudited) 1996 ---------------- ----------------- UTILITY PLANT: Plant in service $ 33,562,405 $ 33,260,914 Less accumulated provision for depreciation 11,420,098 10,921,242 ---------------- --------------- 22,142,307 22,339,672 Nuclear fuel, at amortized cost 226,631 245,702 Construction work in progress 824,315 683,924 ---------------- --------------- Total 23,193,253 23,269,298 ---------------- --------------- OTHER PROPERTY AND INVESTMENTS: Goodwill, being amortized 1,756,976 318,142 Leasehold interests 1,799,545 415,600 Equity investments in subsidiaries 833,889 227,097 Nuclear decommissioning trusts, at market 331,612 278,938 Miscellaneous 279,408 261,175 ---------------- --------------- Total 5,001,430 1,500,952 ---------------- --------------- CURRENT ASSETS: Cash and cash equivalents 382,795 444,832 Special deposits 236,994 61,868 Receivables, less accumulated provisions for uncollectible accounts of $34,751 at June 30, 1997 and $31,587 at December 31, 1996 2,008,799 1,440,678 Fossil fuel stock, at average cost 328,699 269,940 Materials and supplies, at average cost 498,216 509,409 Prepayments 316,796 252,977 Vacation pay deferred 75,545 77,195 ---------------- --------------- Total 3,847,844 3,056,899 ---------------- --------------- DEFERRED CHARGES: Deferred charges related to income taxes 1,268,860 1,302,342 Deferred Plant Vogtle costs (Note M) 95,778 170,988 Debt expense, being amortized 102,274 78,042 Premium on reacquired debt, being amortized 279,257 289,019 Miscellaneous 623,683 624,262 ---------------- --------------- Total 2,369,852 2,464,653 ---------------- --------------- TOTAL ASSETS $ 34,412,379 $ 30,291,802 ================ =============== The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements. 8
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At June 30, 1997 At December 31, (Unaudited) 1996 ---------------- ------------------ CAPITALIZATION: Common stock, par value $5 per share- Authorized -- 1 billion shares Outstanding -- June 30, 1997: 684,868,295 shares -- December 31, 1996: 677,035,961 shares $ 3,424,341 $ 3,385,180 Paid-in capital 2,190,378 2,067,228 Retained earnings 3,723,644 3,763,987 ---------------- ---------------- 9,338,363 9,216,395 Preferred stock of subsidiaries 739,615 979,527 Subsidiary obligated mandatorily redeemable capital and preferred securities (Note I) 1,744,465 422,000 Long-term debt 9,630,366 7,935,269 ---------------- ---------------- Total 21,452,809 18,553,191 ---------------- ---------------- CURRENT LIABILITIES: Preferred stock of subsidiaries due within one year 143,757 173,528 Long-term debt due within one year 591,029 191,411 Notes payable 1,707,887 1,482,822 Accounts payable 861,582 787,809 Customer deposits 133,942 131,544 Taxes accrued-- Income taxes 61,608 11,965 Other 234,075 192,921 Interest accrued 243,301 187,152 Vacation pay accrued 103,727 103,514 Miscellaneous 670,914 535,366 ---------------- ---------------- Total 4,751,822 3,798,032 ---------------- ---------------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 4,654,483 4,738,085 Deferred credits related to income taxes 854,223 879,090 Accumulated deferred investment tax credits 772,474 787,545 Employee benefits provisions 466,456 439,176 Minority interests in subsidiaries 736,159 374,922 Prepaid capacity revenues 116,351 122,496 Department of Energy assessments 80,523 80,523 Disallowed Plant Vogtle capacity buyback costs 56,635 57,250 Storm damage reserves 37,609 35,112 Miscellaneous 432,835 426,380 ---------------- ---------------- Total 8,207,748 7,940,579 ---------------- ---------------- TOTAL CAPITALIZATION AND LIABILITIES $ 34,412,379 $ 30,291,802 ================ ================ 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 SECOND QUARTER 1997 vs. SECOND QUARTER 1996 AND YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996 RESULTS OF OPERATIONS Earnings SOUTHERN's consolidated net income for the second quarter and year-to-date 1997 was $215 million ($0.31 per share) and $402 million ($0.59 per share), respectively, compared to $287 million ($0.43 per share) and $520 million ($0.78 per share) for the corresponding periods of 1996. This 25.2% and 22.7% decrease in earnings for the quarter and year-to-date 1997, respectively, was mainly due to the milder-than-normal weather in the operating companies' service territories. SOUTHERN's traditional core business is primarily represented by its five domestic electric utility operating companies, which provide electric service in four Southeastern states. Another significant portion of SOUTHERN's business is its non-traditional business primarily represented by Southern Energy, which owns and manages international and domestic businesses for SOUTHERN. Businesses acquired by Southern Energy 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) -------------------------------------------------------------- Second Quarter Year-To-Date ------------------------------- ------------------------------ (in thousands) % (in thousands) % Operating revenues............................... $153,688 6.0 $308,747 6.2 Purchased power expense.......................... 244,222 102.2 430,966 84.4 Depreciation and amortization expense............ 37,690 15.1 83,195 16.8 Taxes other than income taxes.................... (14,268) (9.3) (31,241) (9.7) Interest income.................................. 8,060 66.7 20,416 73.4 Interest on long-term debt....................... 41,567 33.6 53,999 20.5 Interest on notes payable........................ (16,151) (38.2) (9,379) (14.5) Minority interest in subsidiaries................ 11,441 N/M 27,516 N/M Distributions on capital and preferred securities of subsidiary companies............ 24,831 N/M 42,753 N/M Preferred dividends of subsidiary companies..................................... (7,515) (34.6) (11,953) (27.7) N/M - Not meaningful.
10 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Operating revenues. Operating revenues for the traditional core business for the second quarter decreased $159 million or 7.2% and year-to-date decreased $240 million or 5.7%, compared to the same periods of 1996. Operating revenues for non-traditional business were up $312 million or 85.6% for the quarter and $549 million or 69.2% for year-to-date. The decrease in traditional core revenues was mainly due to decreases of 4.8% and 3.1% for the quarter and year-to-date, respectively, in the amount of energy sold as a result of milder-than-normal temperatures. Energy sales to residential customers showed a 15.0% decrease for the quarter and a 12.3% decrease year-to-date, as further evidence of the effect of milder weather. The increase in non-traditional operating revenues was primarily attributable to increased sales by Southern Energy's energy marketing organization. These revenues were $273 million and $430 million for the current quarter and year-to-date 1997, respectively. Purchased power expense. For the traditional core business, purchased power expenses were down 31.1% and 33.1% for the quarter and year-to-date, respectively, as a result of the milder temperatures throughout the Southern electric system. For the non-traditional business, purchased power expenses were up 145.6% and 115.9% for the quarter and year-to-date, respectively, due primarily to increases on purchases in connection with Southern Energy's energy marketing activities. These purchases increased $266 million and $422 million for the quarter and year-to-date, respectively. Depreciation and amortization expense. The increases in depreciation and amortization expense of the traditional core business for the quarter and year-to-date compared to the same periods in 1996, can be attributed primarily to an $8 million and $28 million charge for the quarter and year-to-date 1997 pursuant to GEORGIA's retail accounting order as discussed in Note (L) in the "Notes to the Condensed Financial Statements" herein. Further, additions to utility plant contributed to the increase in depreciation and amortization for the quarter and year-to-date 1997. For the non-traditional business, depreciation and amortization increased by $22.3 million and $39.4 million fo the quarter and year-to-date, compared to the corresponding periods of 1996, primarily because of the acquisition of CEPA in January 1997. Taxes other than income taxes. Taxes other than income taxes for the second quarter and year-to-date of 1997 when compared to the corresponding periods of 1996 decreased primarily due to reductions of $18 million for the quarter and $34 million year-to-date attributable to SWEB. These decreases resulted from the lowering, in November 1996, of the taxes on electricity sales in the United Kingdom from 10% to 3.7%. Interest income. The increase in interest income for the quarter and year-to-date as compared to the same periods of 1996, is due to a $9 million increase for the quarter and a $19 million increase year-to-date in interest income for the non-traditional business, primarily CEPA. Interest on long-term debt. Interest on long-term debt for the quarter and year-to-date 1997 compared to the same periods of 1996, increased primarily due to non-traditional business activities, primarily CEPA. Southern Energy's interest on long-term debt increased $45.1 million for the quarter and $65.2 million year-to-date 1997 compared to the corresponding periods in 1996, mainly as a result of the CEPA acquisition. Interest on notes payable. Interest on notes payable for the quarter and year-to-date 1997 compared to the same periods of 1996, decreased primarily due to a reduction in the amount of notes payable outstanding for the non-traditional business. 11 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Minority interest. The increase in minority interest for the quarter and year-to-date 1997 compared to the same periods in the previous year was due primarily to the 20% minority interest in CEPA and to the sale in July 1996 of a 25% share of SWEB. Distributions on capital and preferred securities of subsidiaries. This increase for the quarter and year-to-date 1997 resulted from the sales of securities in 1996 and the first half of 1997. See Note (I) in the "Notes to the Condensed Financial Statements" herein for additional information. Preferred dividends of subsidiary companies. The decrease in this item for the quarter and year-to-date compared to the same periods in the previous year is due to redemptions of preferred stock, including redemptions during the first and second quarters of 1997. See "Financing Activities" herein for additional information. 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-traditional business becoming more significant. In May 1997, SOUTHERN announced that, through Southern Energy, it had agreed to purchase 25% of the outstanding common stock of Berliner Kraft und Licht AG (Bewag), the vertically integrated electric utility that serves Berlin, Germany, for approximately $830 million. The purchase is subject to approval by European regulators. On July 2, 1997, the new Labor government in the United Kingdom introduced its first budget which included a windfall profit tax on privatized utilities. Based on the proposed method of calculating this tax, SWEB estimates its liability to be approximately $160 million. The tax is proposed to be payable in two equal installments on or before December 1, 1997, and December 1, 1998. The budget became effective on July 31, 1997. In July 1997, Southern Energy entered into an agreement to acquire Hopewell Holdings Limited's (Hopewell) 19.99% share of CEPA. Under this agreement, Southern Energy will buy from Hopewell its CEPA shares in exchange for $150 million and CEPA's 80% interest in the Tanjung Jati B Project. The Tanjung Jati B Project is a 1,320 megawatt coal-fired power station in Central Java, Indonesia. As a result of the transaction, Southern Energy will own over 99.9% of CEPA's shares. In August 1997, a subsidiary of SOUTHERN entered into an agreement with Vastar Resources Inc. (Vastar) providing for the organization of a limited partnership to which the parties are to contribute their gas and power trading and marketing businesses. SOUTHERN and Vastar will initially acquire indirect ownership interests of 60% and 40%, respectively, of the new entity. In addition, the SOUTHERN subsidiary will pay $40 million to Vastar in connection with the partnership's formation, which is expected to occur in early September 1997. For additional information relating to non-traditional business activities, including information relating to the acquisition in January 1997 of Southern Energy's 80% interest in CEPA, see Item 1 - BUSINESS - "New Business Development" in the Form 10-K. 12 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES 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, SOUTHERN 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 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 environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS "Environmental Matters" of SOUTHERN in the Form 10-K. In February, 1997, the FASB issued Statement No. 128, Earnings Per Share. The standard simplifies the computation of earnings per share (EPS) required by existing rules. SOUTHERN will adopt this standard on December 31, 1997. If EPS amounts were computed as specified by Statement No. 128, basic EPS and diluted EPS would be equal, and would equal the amounts currently reported in the "Condensed Statements of Income." In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income, which establishes standards for reporting and display of "comprehensive income," which is the total of net income and all other non-owner changes in stockholders' equity, and its components. SOUTHERN will adopt the standard in 1998. In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. Statement No. 131, which supersedes Statement Nos. 14, 18, 24 and 30, establishes new standards for segment reporting, using the "management approach," in which reportable segments are based on the same criteria on which management disaggregates a business for making operating decisions and assessing performance. SOUTHERN is in the process of evaluating Statement No. 131 and its impact and will adopt the standard by 1998. Reference is made to Notes (B), (C), (D), (G), (J), (K), (L), (M), (N) 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. Reference is also made to Part II - Item 1 - "Legal Proceedings" herein. FINANCIAL CONDITION Overview Major changes in SOUTHERN's financial condition during the first six months of 1997 included the addition of approximately $790 million to utility plant and the acquisition of CEPA. The funds for these additions and other capital requirements were from operations and sales of securities. See SOUTHERN's Condensed Statements of Cash Flows for further details. Financing Activities During the first six months of 1997, retirements of the operating companies' first mortgage bonds totaled $80 million and redemptions of preferred stock totaled $270 million. Subsidiaries of SOUTHERN, ALABAMA, GEORGIA, GULF and MISSISSIPPI have formed statutory business trusts which sold, during the first half of 1997, an aggregate of $1.3 billion of trust preferred or capital securities. See Note (I) in the "Notes to the Condensed Financial Statements" herein for further details. 13 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION During the first six months of 1997, SOUTHERN raised $168 million from the issuance of new common stock under SOUTHERN's various stock plans. The market price of SOUTHERN's common stock at June 30, 1997 was $21.875 per share and the book value was $13.64 per share, representing a market-to-book ratio of 160%, compared to $22.625, $13.61 and 166%, respectively, at the end of 1996. The dividend for the second quarter of 1997 was $0.325 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 $735 million will be required by June 30, 1998, for present sinking fund requirements, redemption of preferred stock and redemptions and maturities of long-term debt. Also, the operating companies plan to continue, to the extent possible, a program to retire higher-cost debt and preferred stock and replace these securities with lower-cost capital. 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 1997, 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 1999. 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 June 30, 1997, approximately $383 million of cash and cash equivalents and approximately $3,965 million of unused credit arrangements with banks (including $962 million of such arrangements under which borrowings may be made only to fund purchase obligations of the operating companies relating to variable rate pollution control bonds). At June 30, 1997, the system companies had outstanding approximately $319 million of short-term notes payable and $1.4 billion of commercial paper. Since SOUTHERN's construction program with respect to major generating projects in the traditional 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) in the "Notes to the Condensed Financial Statements" herein for discussion of financial derivative contracts entered into by SOUTHERN. 14 ALABAMA POWER COMPANY 15
ALABAMA POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months For the Six Months Ended June 30, Ended June 30, --------------------- ---------------- 1997 1996 1997 1996 ---- ---- ---- ---- OPERATING REVENUES: Revenues $ 699,219 $ 727,843 $ 1,357,324 $ 1,383,244 Revenues from affiliates 28,870 51,744 75,533 129,152 ------------ ------------ -------------- -------------- Total operating revenues 728,089 779,587 1,432,857 1,512,396 ------------ ------------ -------------- -------------- OPERATING EXPENSES: Operation-- Fuel 202,213 211,020 406,571 422,649 Purchased power from non-affiliates 4,770 10,889 8,144 19,856 Purchased power from affiliates 25,451 24,017 45,509 39,863 Other 127,726 134,187 242,004 251,184 Maintenance 77,547 68,059 146,497 130,993 Depreciation and amortization 79,630 79,819 165,282 159,717 Taxes other than income taxes 45,935 43,673 95,392 93,737 Federal and state income taxes 39,067 56,250 74,253 100,672 ------------ ------------ -------------- -------------- Total operating expenses 602,339 627,914 1,183,652 1,218,671 ------------ ------------ -------------- -------------- OPERATING INCOME 125,750 151,673 249,205 293,725 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction - 32 - 433 Income from subsidiary 1,005 967 1,985 1,941 Interest income 4,657 5,315 15,747 14,985 Other, net (6,277) (14,996) (14,649) (22,619) Income taxes applicable to other income 1,094 14,465 386 14,095 ------------ ------------ -------------- -------------- INCOME BEFORE INTEREST CHARGES 126,229 157,456 252,674 302,560 ------------ ------------ -------------- -------------- INTEREST CHARGES AND OTHER: Interest on long-term debt 41,845 42,312 83,228 84,888 Allowance for debt funds used during construction (1,434) (1,846) (2,380) (3,722) Interest on interim obligations 6,466 5,751 10,872 11,478 Amortization of debt discount, premium and expense, net 2,402 2,272 4,798 9,644 Other interest charges 3,259 4,776 13,963 14,958 Distributions on preferred securities of subsidiary trusts 5,589 1,788 10,586 3,140 ------------ ------------ -------------- -------------- Total Interest charges and other 58,127 55,053 121,067 120,386 ------------ ------------ -------------- -------------- NET INCOME 68,102 102,403 131,607 182,174 DIVIDENDS ON PREFERRED STOCK 4,965 6,625 10,663 13,237 ------------ ------------ -------------- -------------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 63,137 $ 95,778 $ 120,944 $ 168,937 ============ ============ ============== ============== The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements. 16
ALABAMA POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Six Months Ended June 30, 1997 1996 OPERATING ACTIVITIES: Net income $ 131,607 $ 182,174 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 194,622 198,735 Deferred income taxes and investment tax credits, net 5,479 (2,830) Allowance for equity funds used during construction - (433) Other, net (26,840) 17,395 Changes in certain current assets and liabilities-- Receivables, net 428 (27,979) Inventories (29,247) 6,925 Prepayments (44,517) (43,803) Payables (78,032) (54,441) Taxes accrued 34,576 26,521 Energy cost recovery, retail 7,120 29,781 Other (18,666) (707) -------------- -------------- Net cash provided from operating activities 176,530 331,338 -------------- -------------- INVESTING ACTIVITIES: Gross property additions (193,632) (221,021) Other (18,024) (33,413) ------------- -------------- Net cash used for investing activities (211,656) (254,434) -------------- -------------- FINANCING ACTIVITIES: Proceeds-- Company obligated mandatorily redeemable preferred securities 200,000 97,000 Retirements-- Preferred stock (112,000) - First mortgage bonds (19,801) (83,797) Other long-term debt (495) (481) Interim obligations, net 148,029 85,017 Payment of preferred stock dividends (11,749) (13,261) Payment of common stock dividends (165,700) (152,400) Miscellaneous (6,407) (3,031) ------------- -------------- Net cash provided from (used for) financing activities 31,877 (70,953) -------------- -------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (3,249) 5,951 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,587 12,616 -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,338 $ 18,567 ============== ============== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $ 100,921 $ 94,323 Income taxes 70,120 99,855 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) ASSETS At June 30, 1997 At December 31, (Unaudited) 1996 ---------------- ----------------- UTILITY PLANT: Plant in service $ 10,910,095 $ 10,806,921 Less accumulated provision for depreciation 4,266,191 4,113,622 ---------------- --------------- 6,643,904 6,693,299 Nuclear fuel, at amortized cost 104,353 123,862 Construction work in progress 318,028 256,802 ---------------- --------------- Total 7,066,285 7,073,963 ---------------- --------------- OTHER PROPERTY AND INVESTMENTS: Southern Electric Generating Company, at equity 25,370 26,032 Nuclear decommissioning trusts 160,962 148,760 Miscellaneous 21,681 20,243 ---------------- --------------- Total 208,013 195,035 ---------------- --------------- CURRENT ASSETS: Cash and cash equivalents 6,338 9,587 Receivables-- Customer accounts receivable 340,052 334,150 Other accounts and notes receivable 25,952 28,524 Affiliated companies 42,066 47,630 Accumulated provision for uncollectible accounts (1,873) (1,171) Refundable income taxes 8,364 5,856 Fossil fuel stock, at average cost 118,049 81,704 Materials and supplies, at average cost 160,694 167,792 Prepayments 176,387 131,870 Vacation pay deferred 27,083 28,369 ---------------- --------------- Total 903,112 834,311 ---------------- --------------- DEFERRED CHARGES: Deferred charges related to income taxes 408,560 410,010 Debt expense, being amortized 7,532 7,398 Premium on reacquired debt, being amortized 80,981 84,149 Uranium enrichment decontamination and decommissioning fund 37,490 37,490 Miscellaneous 102,107 91,490 ---------------- --------------- Total 636,670 630,537 ---------------- --------------- TOTAL ASSETS $ 8,814,080 $ 8,733,846 ================ =============== The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements. 18
ALABAMA POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At June 30, 1997 At December 31, (Unaudited) 1996 -------------- ---------------- 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 99 146 Retained earnings 1,140,575 1,185,128 -------------- -------------- 2,669,677 2,714,277 Preferred stock 278,400 340,400 Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding Company Junior Subordinated Notes (Note I) 297,000 97,000 Long-term debt 2,298,860 2,354,006 -------------- -------------- Total 5,543,937 5,505,683 -------------- -------------- CURRENT LIABILITIES: Preferred stock due within one year 50,000 100,000 Long-term debt due within one year 50,970 20,753 Notes payable 94,000 - Commercial paper 418,882 364,853 Accounts payable-- Affiliated companies 56,025 64,307 Other 112,421 182,563 Customer deposits 33,542 32,003 Taxes accrued-- Federal and state income 31,008 35,638 Other 45,433 15,271 Interest accrued 54,010 51,941 Vacation pay accrued 27,083 28,369 Miscellaneous 80,089 96,485 -------------- -------------- Total 1,053,463 992,183 -------------- -------------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 1,199,165 1,177,687 Accumulated deferred investment tax credits 288,466 294,071 Prepaid capacity revenues, net 116,351 122,496 Uranium enrichment decontamination and decommissioning fund 33,741 33,741 Deferred credits related to income taxes 356,389 364,792 Natural disaster reserve 22,129 20,757 Miscellaneous 200,439 222,436 -------------- -------------- Total 2,216,680 2,235,980 -------------- -------------- TOTAL CAPITALIZATION AND LIABILITIES $ 8,814,080 $ 8,733,846 ============== ============== The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements. 19
ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SECOND QUARTER 1997 vs. SECOND QUARTER 1996 AND YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996 RESULTS OF OPERATIONS Earnings ALABAMA's net income after dividends on preferred stock for the second quarter and year-to-date 1997 was $63.1 million and $120.9 million, respectively, compared to $95.8 million and $168.9 million for the corresponding periods of 1996. Earnings decreased 34.1% for the quarter and 28.4% year-to-date due primarily to extremely mild weather and a decrease in prices charged to commercial and industrial customers. Significant income statement items appropriate for discussion include the following:
Increase (Decrease) -------------------------------------------------------- Second Quarter Year-To-Date -------------------------- ----------------------------- (in thousands) % (in thousands) % Revenues............................................. $(28,624) (3.9) $(25,920) (1.9) Revenues from affiliates............................. (22,874) (44.2) (53,619) (41.5) Purchased power from non-affiliates.................. (6,119) (56.2) (11,712) (59.0) Other operation expense.............................. (6,461) (4.8) (9,180) (3.7) Maintenance.......................................... 9,488 13.9 15,504 11.8 Income taxes applicable to other income.............. (13,371) (92.4) (13,709) (97.3) Distributions on preferred securities of subsidiary trusts................................. 3,801 212.6 7,446 237.1 Dividends on preferred stock......................... (1,660) (25.1) (2,574) (19.4)
Revenues. Excluding fuel revenues, which represent the pass-through of fuel expenses and do not affect net income, revenues for the second quarter and year-to-date 1997 decreased $40.4 million and $56.6 million, respectively, compared to the corresponding periods of 1996. The decrease in revenues was due to a reduction in the sale of energy to retail customers and a reduction in the rates charged to industrial and commercial customers. Retail energy sales were down by 4.1% for the quarter and 2.7% year-to-date primarily due to a 15.5% decrease for the quarter and a 12.5% decrease year-to-date in energy sales to residential customers. This decrease in energy sales to residential customers is primarily a result of much milder-than-normal temperatures. 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. Purchased power from non-affiliates. This decrease for the quarter and year-to-date 1997 resulted from reduced demand for energy due to mild temperatures. 20 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Other operation expense. The decrease in other operation expense for both the current quarter and year-to-date 1997 is primarily due to lower administrative and general expenses compared to the same periods of 1996. Maintenance expense. Maintenance expense increased for the second quarter and year-to-date 1997 compared to the same periods of 1996 primarily due to an increase in the accrual of estimated maintenance expenses related to nuclear refueling outages. Income taxes applicable to other income. The primary reason for this change is attributable to ALABAMA's donation in June 1996 of certain nonutility property which resulted in a reduction of income taxes applicable to other income of approximately $10.6 million. Distributions on preferred securities of subsidiary trusts. The change in this item resulted primarily from the issuance of additional mandatorily redeemable preferred securities. For additional information, see Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS - "Capital Structure" of ALABAMA in the Form 10-K. Dividends on preferred stock. The decrease for the quarter and year-to-date 1997, compared to the corresponding periods of 1996, is due to redemptions during the first half of 1997. 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 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 environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS "Environmental Matters" of ALABAMA in the Form 10-K. In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income, which establishes standards for reporting and display of "comprehensive income," which is the total of net income and all other non-owner changes in stockholders' equity, and its components. ALABAMA will adopt the standard in 1998. In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. Statement No. 131, which supersedes Statement Nos. 14, 18, 24 and 30, establishes new standards for segment reporting, using the "management approach," in which reportable segments are based on the same criteria on which management disaggregates a business for making operating decisions and assessing performance. ALABAMA is in the process of evaluating Statement No. 131 and its impact and will adopt the standard by 1998. 21 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Reference is made to Notes (B), (C), (G), (H), (J) and (K) 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 Major changes in ALABAMA's financial condition during the first six months of 1997 included the addition of approximately $193.6 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operating activities. See ALABAMA's Condensed Statements of Cash Flows for further details. Financing Activities During the first half of 1997, redemptions of first mortgage bonds and preferred stock of ALABAMA totaled $131.8 million. Also, Alabama Power Capital Trust II, a statutory business trust established for the purpose of holding ALABAMA's junior subordinated notes and issuing trust preferred securities and common securities, sold $200.0 million of its 7.60% trust originated preferred securities which are guaranteed by ALABAMA. Additionally, ALABAMA redeemed $50 million of 7.60% preferred stock (Second 1992 Series) in July 1997. For additional information, see Note (I) in the "Notes to the Condensed Financial Statements" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Capital Structure" of ALABAMA in the Form 10-K. ALABAMA will continue to retire higher-cost debt and preferred stock and replace these securities with lower-cost capital, if 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 1999. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. 22 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION To meet short-term cash needs and contingencies, ALABAMA had at June 30, 1997, approximately $6.3 million of cash and cash equivalents and had unused committed lines of credit of approximately $814 million (including $208 million of such lines under which borrowings may be made only to fund purchase obligations relating to variable rate pollution control bonds) with regulatory authority for up to $750 million of short-term borrowings. At June 30, 1997, ALABAMA had outstanding $94.0 million of short-term notes payable to banks and $418.9 million of commercial paper. Since ALABAMA has no major traditional 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. 23 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 June 30, 1997, and the related condensed statements of income and cash flows for the three-month and six-month periods ended June 30, 1997 and 1996. 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, 1996 (not presented herein) and, in our report dated February 12, 1997, 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, 1996 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 August 8, 1997 24 GEORGIA POWER COMPANY 25
GEORGIA POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months For the Six Months Ended June 30, Ended June 30, -------------------- ----------------- 1997 1996 1997 1996 ---- ---- ---- ---- OPERATING REVENUES: Revenues $ 1,003,962 $ 1,125,309 $ 1,955,415 $ 2,140,662 Revenues from affiliates 11,384 8,857 18,643 22,323 -------------- -------------- -------------- -------------- Total operating revenues 1,015,346 1,134,166 1,974,058 2,162,985 -------------- -------------- -------------- -------------- OPERATING EXPENSES: Operation-- Fuel 202,000 214,191 380,629 402,685 Purchased power from non-affiliates 31,894 40,852 58,669 77,772 Purchased power from affiliates 32,213 57,281 73,584 122,757 Provision for separation benefits (Note H) 2,267 8,374 2,871 26,874 Other 160,881 195,459 311,886 361,003 Maintenance 79,337 76,777 154,287 152,603 Depreciation and amortization 117,525 107,748 246,827 215,268 Amortization of deferred Plant Vogtle costs (Note M) 37,584 33,234 75,211 66,993 Taxes other than income taxes 50,086 51,714 104,017 106,860 Federal and state income taxes 96,751 115,555 181,400 205,239 -------------- -------------- -------------- -------------- Total operating expenses 810,538 901,185 1,589,381 1,738,054 -------------- -------------- -------------- -------------- OPERATING INCOME 204,808 232,981 384,677 424,931 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 697 - 1,239 255 Equity in earnings of unconsolidated subsidiary 1,005 968 1,985 1,941 Interest income 2,275 2,013 2,870 2,914 Other, net (5,252) (5,717) (10,850) (9,390) Income taxes applicable to other income 1,601 2,388 3,967 2,526 -------------- -------------- -------------- -------------- INCOME BEFORE INTEREST CHARGES 205,134 232,633 383,888 423,177 -------------- -------------- -------------- -------------- INTEREST CHARGES AND OTHER: Interest on long-term debt 50,357 52,680 98,812 106,110 Allowance for debt funds used during construction (2,426) (3,301) (5,926) (6,491) Interest on interim obligations 2,745 6,118 6,438 11,157 Amortization of debt discount, premium and expense, net 3,717 3,625 7,491 7,472 Other interest charges 3,060 5,133 5,984 8,248 Distributions on preferred securities of subsidiary companies 10,749 2,250 20,166 4,500 -------------- -------------- -------------- -------------- Interest charges and other, net 68,202 66,505 132,965 130,996 -------------- -------------- -------------- -------------- NET INCOME 136,932 166,128 250,923 292,181 DIVIDENDS ON PREFERRED STOCK 6,422 11,839 14,378 23,491 -------------- -------------- -------------- -------------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 130,510 $ 154,289 $ 236,545 $ 268,690 ============== ============== ============== ============== The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements. 26
GEORGIA POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Six Months Ended June 30, 1997 1996 OPERATING ACTIVITIES: Net income $ 250,923 $ 292,181 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 297,654 264,814 Deferred income taxes and investment tax credits, net (28,586) 14,365 Allowance for equity funds used during construction (1,239) (255) Amortization of deferred Plant Vogtle costs (Note M) 75,211 66,993 Other, net 43,804 41,927 Changes in certain current assets and liabilities-- Receivables, net 53,617 (13,207) Inventories (17,345) 8,552 Payables (62,605) (26,551) Taxes accrued 34,221 27,766 Energy cost recovery, retail 20,776 (5,618) Other (26,739) (13,416) -------------- -------------- Net cash provided from operating activities 639,692 657,551 -------------- -------------- INVESTING ACTIVITIES: Gross property additions (228,986) (242,457) Other (11,611) (53,953) -------------- -------------- Net cash used for investing activities (240,597) (296,410) -------------- -------------- FINANCING ACTIVITIES: Proceeds-- Preferred securities 364,250 - Pollution control bonds 90,000 51,345 First mortgage bonds - 10,000 Retirements-- Preferred stock (133,183) - Pollution control bonds - (6,840) First mortgage bonds (60,258) (150,000) Special deposits - redemption funds (45,546) (51,345) Interim obligations, net (328,594) 40,737 Payment of preferred stock dividends (14,976) (23,364) Payment of common stock dividends (253,700) (243,600) Miscellaneous (13,048) (204) -------------- -------------- Net cash used for financing activities (395,055) (373,271) -------------- -------------- NET CHANGE IN CASH AND CASH EQUIVALENTS 4,040 (12,130) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,356 28,930 -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,396 $ 16,800 ============== ============== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $ 125,492 $ 126,668 Income taxes (net of refunds) 166,981 166,178 The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements. 27
GEORGIA POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At June 30, 1997 At December 31, (Unaudited) 1996 ---------------- ------------------ UTILITY PLANT: Plant in service $ 14,915,851 $ 14,769,573 Less accumulated provision for depreciation 5,021,893 4,793,638 ---------------- ---------------- 9,893,958 9,975,935 Nuclear fuel, at amortized cost 122,278 121,840 Construction work in progress 257,623 256,141 ---------------- ---------------- Total 10,273,859 10,353,916 ---------------- ---------------- OTHER PROPERTY AND INVESTMENTS: Southern Electric Generating Company, at equity 25,370 26,032 Nuclear decommissioning trusts, at market 170,650 130,178 Miscellaneous 88,626 103,787 ---------------- ---------------- Total 284,646 259,997 ---------------- ---------------- CURRENT ASSETS: Cash and cash equivalents 19,396 15,356 Receivables-- Customer accounts receivable 379,682 392,328 Other accounts and notes receivable 164,389 159,499 Affiliated companies 16,270 20,095 Accumulated provision for uncollectible accounts (3,000) (4,000) Fossil fuel stock, at average cost 140,391 117,382 Materials and supplies, at average cost 253,156 258,820 Prepayments 102,609 109,771 Vacation pay deferred 39,601 39,965 ---------------- ---------------- Total 1,112,494 1,109,216 ---------------- ---------------- DEFERRED CHARGES: Deferred charges related to income taxes 786,862 818,418 Deferred Plant Vogtle costs (Note M) 95,778 170,988 Premium on reacquired debt, being amortized 161,169 166,670 Debt expense, being amortized 43,201 32,693 Miscellaneous 157,086 159,153 ---------------- ---------------- Total 1,244,096 1,347,922 ---------------- ---------------- TOTAL ASSETS $ 12,915,095 $ 13,071,051 ================ ================ The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements. 28
GEORGIA POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At June 30, 1997 At December 31, (Unaudited) 1996 ---------------- ------------------ 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 2,134,886 2,134,886 Premium on preferred stock 371 371 Retained earnings 1,657,610 1,674,774 ---------------- ---------------- 4,137,117 4,154,281 Preferred stock 321,699 464,611 Company obligated mandatorily redeemable preferred securities of subsidiaries substantially all of whose assets are junior subordinated debentures or notes (Note I) 689,250 325,000 Long-term debt 3,200,707 3,200,419 ---------------- ---------------- Total 8,348,773 8,144,311 ---------------- ---------------- CURRENT LIABILITIES: Preferred stock due within one year 58,757 49,028 Long-term debt due within one year 90,380 60,622 Notes payable to banks 1,300 207,300 Commercial paper 100,602 223,196 Accounts payable-- Affiliated companies 70,099 66,821 Other 197,129 263,093 Customer deposits 68,661 64,901 Taxes accrued-- Federal and state income 54,533 15,497 Other 95,846 100,661 Interest accrued 79,918 79,936 Vacation pay accrued 31,666 38,597 Miscellaneous 122,480 114,530 ---------------- ---------------- Total 971,371 1,284,182 ---------------- ---------------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 2,462,759 2,522,945 Accumulated deferred investment tax credits 408,117 415,477 Deferred credits related to income taxes 368,666 382,381 Employee benefits provisions 181,118 186,319 Disallowed Plant Vogtle capacity buyback costs 56,635 57,250 Miscellaneous 117,656 78,186 ---------------- ---------------- Total 3,594,951 3,642,558 ---------------- ---------------- TOTAL CAPITALIZATION AND LIABILITIES $ 12,915,095 $ 13,071,051 ================ ================ The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements. 29
GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SECOND QUARTER 1997 vs. SECOND QUARTER 1996 AND YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996 RESULTS OF OPERATIONS Earnings GEORGIA's net income after dividends on preferred stock for the second quarter and year-to-date 1997 was $130.5 million and $236.5 million, respectively, compared to $154.3 million and $268.7 million for the corresponding periods in 1996. Earnings decreased by 15.4% for the quarter and 12.0% year-to-date primarily as a result of decreased revenues due to milder-than-normal weather experienced during both periods. Significant income statement items appropriate for discussion include the following:
Increase (Decrease) ------------------------------------------------------- Second Quarter Year-To-Date -------------------------- ---------------------------- (in thousands) % (in thousands) % Revenues............................................. $(121,347) (10.8) $(185,247) (8.7) Revenues from affiliates............................. 2,527 28.5 (3,680) (16.5) Purchased power from non-affiliates.................. (8,958) (21.9) (19,103) (24.6) Purchased power from affiliates...................... (25,068) (43.8) (49,173) (40.1) Other operation expense.............................. (34,578) (17.7) (49,117) (13.6) Depreciation and amortization expense................ 9,777 9.1 31,559 14.7 Distributions on preferred securities of subsidiary companies........................... 8,499 377.7 15,666 348.1 Dividends on preferred stock......................... (5,417) (45.8) (9,113) (38.8)
Revenues. Excluding fuel revenues, which represent the pass-through of fuel expenses and do not affect income, revenues for the second quarter of 1997 decreased $77 million and for year-to-date 1997 decreased $108 million, compared to the corresponding periods of 1996. Retail revenues, excluding fuel revenues, decreased 9.1%, or $72 million for the current quarter and 7.0%, or $105 million year-to-date as compared to the corresponding periods of 1996. The decrease in retail revenues is primarily due to a decrease in residential and commercial kilowatt-hours sold. Retail energy sales to residential and commercial customers decreased 16.1% and 2.4%, respectively, for the second quarter 1997 and 12.9% and 2.0%, respectively, for year-to-date 1997 when compared to the corresponding periods in 1996, as a result of milder-than-normal temperatures. Additionally, although industrial sales remained relatively constant for the second quarter of 1997 and increased 1.6% year-to-date 1997 when compared to the corresponding periods in 1996, industrial revenues decreased primarily as a result of more customers taking advantage of load management rates. Revenues from affiliates and Purchased power 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 and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings. 30 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Purchased power from non-affiliates. The decrease in purchased power from non-affiliates for the second quarter and year-to-date 1997 compared to the corresponding periods of 1996 resulted from a decrease in energy purchases due to milder-than-normal temperatures. Other operation expense. The decrease in other operation expense for the current quarter and year-to-date is primarily due to an adjustment in 1996 to a deferred regulatory asset as a result of changes in GEORGIA's retiree benefits plan and lower administrative and general expenses compared to corresponding periods of 1996. Depreciation and amortization expense. The increase in depreciation and amortization for the current quarter and year-to-date compared to the same period of 1996 is primarily due to additional depreciation charges of $8 million and $28 million, respectively, pursuant to a Georgia PSC retail accounting order discussed below. See "Future Earnings Potential" below and Note (L) in the "Notes to the Condensed Financial Statements" herein for further details. Distributions on preferred securities of subsidiary companies. The increase in this item resulted primarily from the issuance of additional mandatorily redeemable preferred securities in August 1996, January 1997 and June 1997. For additional information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Financing Activities" of GEORGIA in the Form 10-K, and Note (I) in the "Notes to the Condensed Financial Statements" herein. Dividends on preferred stock. The decline in dividends on preferred stock in each period reflects the redemption of various issues of such securities. 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 including regulatory matters and energy sales. 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 accounting order. Under the order, GEORGIA's earnings are 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 order's three-year operation, including $14.0 million annually of accelerated depreciation of electric plant. Reference is made to Note (L) in the "Notes to the Condensed Financial Statements" herein for additional information. The staff of the Georgia PSC has issued a report regarding its prudence review of the Rocky Mountain pumped storage hydroelectric plant. Reference is made to Note (N) in the "Notes 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 environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS "Environmental Issues" of GEORGIA in the Form 10-K. 31 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income, which establishes standards for reporting and display of "comprehensive income," which is the total of net income and all other non-owner changes in stockholders' equity, and its components. GEORGIA will adopt the standard in 1998. In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. Statement No. 131, which supersedes Statement Nos. 14, 18, 24 and 30, establishes new standards for segment reporting, using the "management approach," in which reportable segments are based on the same criteria on which management disaggregates a business for making operating decisions and assessing performance. GEORGIA is in the process of evaluating Statement No. 131 and its impact and will adopt the standard by 1998. Reference is made to Notes (B), (C), (G) and (L) through (P) 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 six months of 1997 was the addition of approximately $229 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. Financing Activities During the first half of 1997, maturities and redemptions of first mortgage bonds and preferred stock by GEORGIA totaled $193 million. In January 1997, Georgia Power Capital Trust II, a statutory business trust established for the purpose of holding GEORGIA's junior subordinated notes and issuing trust preferred securities and common securities, sold $175.0 million of its 7.60% trust preferred securities, which are guaranteed by GEORGIA. (See Note (I) in the " Notes to the Condensed Financial Statements" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Financing Activities" of GEORGIA in the Form 10-K for further details.) In April 1997, GEORGIA sold, through public authorities, $90.0 million of variable rate pollution control revenue bonds due 2032. The proceeds were applied to the redemption on July 1, 1997 of $90.0 million outstanding principal amount of 8.375% pollution control revenue bonds. In June 1997, Georgia Power Capital Trust III , a statutory business trust established for the purpose of holding GEORGIA's junior subordinated notes and issuing trust preferred securities and common securities, sold $189.3 million of its 7.75% quarterly income preferred securities, which are guaranteed by GEORGIA. (See Note (I) in the " Notes to the Condensed Financial Statements" for further details.) GEORGIA plans to continue, to the extent possible, a program to retire higher-cost debt and preferred stock and replace these securities with lower-cost capital. 32 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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 1999. 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 June 30, 1997, approximately $19.4 million of cash and cash equivalents and approximately $946.1 million of unused credit arrangements with banks (including $681.1 million of such arrangements under which borrowings may be made only to fund purchase obligations relating to variable rate pollution control bonds). At June 30, 1997, GEORGIA had outstanding $1.3 million of short-term notes payable to banks and $100.6 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. 33 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 June 30, 1997, and the related condensed statements of income and cash flows for the three-month and six-month periods ended June 30, 1997 and 1996. 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, 1996 (not presented herein), and, in our report dated February 12, 1997, 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, 1996, 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 August 8, 1997 34 GULF POWER COMPANY 35
GULF POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------- ----------------- 1997 1996 1997 1996 ---- ---- ---- ---- OPERATING REVENUES: Revenues $ 139,443 $ 150,323 $ 279,647 $ 303,993 Revenues from affiliates 5,849 3,498 7,019 4,749 ------------- ------------- ------------ ------------ Total operating revenues 145,292 153,821 286,666 308,742 ------------- ------------- ------------ ------------ OPERATING EXPENSES: Operation-- Fuel 40,782 45,922 77,774 84,135 Purchased power from non-affiliates 1,693 2,187 2,789 3,863 Purchased power from affiliates 6,036 6,023 14,899 25,342 Other 31,207 29,102 61,827 54,738 Maintenance 13,291 14,315 22,801 29,362 Depreciation and amortization 14,446 14,089 28,892 28,174 Taxes other than income taxes 12,264 12,384 25,039 25,850 Federal and state income taxes 6,420 8,234 13,280 15,512 ------------- ------------- ------------ ------------ Total operating expenses 126,139 132,256 247,301 266,976 ------------- ------------- ------------ ------------ OPERATING INCOME 19,153 21,565 39,365 41,766 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 1 2 2 11 Interest income 179 417 508 766 Other, net 61 (276) (193) (747) Income taxes applicable to other income (144) (97) (221) (93) ------------- ------------- ------------ ------------ INCOME BEFORE INTEREST CHARGES 19,250 21,611 39,461 41,703 ------------- ------------- ------------ ------------ INTEREST CHARGES AND OTHER: Interest on long-term debt 5,490 6,236 11,287 12,384 Other interest charges 806 223 1,522 505 Interest on notes payable 239 625 522 1,129 Amortization of debt discount, premium, and expense, net 570 518 1,136 1,043 Allowance for debt funds used during construction (3) (10) (6) (58) Distributions on preferred securities of subsidiary trust 762 - 1,279 - ------------- ------------- ------------ ------------ Interest charges and other, net 7,864 7,592 15,740 15,003 ------------- ------------- ------------ ------------ NET INCOME 11,386 14,019 23,721 26,700 DIVIDENDS ON PREFERRED STOCK 1,000 1,438 2,595 2,861 ------------- ------------- ------------ ------------ NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 10,386 $ 12,581 $ 21,126 $ 23,839 ============= ============= ============ ============ The accompanying notes as they relate to GULF are an integral part of these condensed statements. 36
GULF POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Six Months Ended June 30, 1997 1996 OPERATING ACTIVITIES: Net income $ 23,721 $ 26,700 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 36,026 37,052 Deferred income taxes (3,015) 1,483 Allowance for equity funds used during construction (2) (11) Deferred costs of 1995 coal contract renegotiation 1,246 4,227 Other, net 2,379 605 Changes in certain current assets and liabilities-- Receivables, net (105) (7,004) Inventories (7,180) 5,759 Payables (1,539) (7,546) Taxes accrued 7,218 12,753 Current costs of 1995 coal contract renegotiation 7,313 (3,771) Other (4,178) (7,154) ----------- ------------ Net cash provided from operating activities 61,884 63,093 ------------ ------------ INVESTING ACTIVITIES: Gross property additions (21,543) (38,212) Other (1,221) (2,583) ----------- ------------ Net cash used for investing activities (22,764) (40,795) ------------ ------------ FINANCING ACTIVITIES: Proceeds-- Preferred securities 40,000 - First mortgage bonds - 30,000 Pollution control bonds - 33,275 Other long-term debt - 22,148 Retirements-- Preferred stock (24,500) - First mortgage bonds - (1,750) Pollution control bonds - (33,275) Other long-term debt (7,868) (27,263) Notes payable, net (5,500) (16,000) Payment of preferred stock dividends (3,048) (2,861) Payment of common stock dividends (36,700) (24,700) Miscellaneous (1,527) (1,754) ----------- ------------ Net cash used for financing activities (39,143) (22,180) ------------ ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS 51 118 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 807 680 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 858 $ 798 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $ 11,181 $ 12,850 Income taxes 13,073 4,271 The accompanying notes as they relate to GULF are an integral part of these condensed statements. 37
GULF POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At June 30, 1997 At December 31, (Unaudited) 1996 -------------- --------------- UTILITY PLANT: Plant in service $ 1,742,147 $ 1,734,510 Less accumulated provision for depreciation 716,852 694,245 -------------- -------------- 1,025,295 1,040,265 Construction work in progress 29,430 23,465 -------------- -------------- Total 1,054,725 1,063,730 -------------- -------------- OTHER PROPERTY AND INVESTMENTS: 633 652 -------------- -------------- CURRENT ASSETS: Cash and cash equivalents 858 807 Receivables-- Customer accounts receivable 68,020 67,727 Other accounts and notes receivable 3,022 3,098 Affiliated companies 1,572 1,821 Accumulated provision for uncollectible accounts (652) (789) Fossil fuel stock, at average cost 35,525 28,352 Materials and supplies, at average cost 30,259 30,252 Current portion of deferred coal contract costs 9,002 16,389 Regulatory clauses under recovery 1,910 4,144 Prepaid income taxes - 353 Other prepayments 10,345 8,833 Vacation pay deferred 4,055 4,055 -------------- -------------- Total 163,916 165,042 -------------- -------------- DEFERRED CHARGES: Deferred charges related to income taxes 28,006 28,313 Debt expense and loss, being amortized 22,686 23,308 Deferred coal contract costs 7,046 13,126 Deferred storm charges 1,525 3,275 Miscellaneous 11,564 10,920 -------------- -------------- Total 70,827 78,942 -------------- -------------- TOTAL ASSETS $ 1,290,101 $ 1,308,366 ============== ============== The accompanying notes as they relate to GULF are an integral part of these condensed statements. 38
GULF POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At June 30, 1997 At December 31, (Unaudited) 1996 -------------- --------------- 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 44 81 Retained earnings 173,541 179,179 -------------- -------------- 430,083 435,758 Preferred stock 65,102 65,102 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding Company Junior Subordinated Notes (Note I) 40,000 - Long-term debt 307,540 331,880 -------------- -------------- Total 842,725 832,740 -------------- -------------- CURRENT LIABILITIES: Preferred stock due within one year - 24,500 Long-term debt due within one year 56,431 40,972 Notes payable 19,500 25,000 Accounts payable-- Affiliated companies 8,114 10,274 Other 22,473 22,496 Customer deposits 13,721 13,464 Taxes accrued-- Federal and state income 1,617 - Other 12,117 8,342 Interest accrued 8,160 7,629 Regulatory clauses over recovery 3,229 5,884 Vacation pay accrued 4,055 4,055 Dividends declared 1,100 11,453 Miscellaneous 2,561 5,668 -------------- -------------- Total 153,078 179,737 -------------- -------------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 164,193 163,857 Deferred credits related to income taxes 62,169 64,354 Accumulated deferred investment tax credits 32,656 33,760 Accumulated provision for postretirement benefits 19,263 18,339 Miscellaneous 16,017 15,579 -------------- -------------- Total 294,298 295,889 -------------- -------------- TOTAL CAPITALIZATION AND LIABILITIES $ 1,290,101 $ 1,308,366 ============== ============== The accompanying notes as they relate to GULF are an integral part of these condensed statements. 39
GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SECOND QUARTER 1997 vs. SECOND QUARTER 1996 AND YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996 RESULTS OF OPERATIONS Earnings GULF's net income after dividends on preferred stock for the second quarter and year-to-date 1997 was $10.4 million and $21.1 million, respectively, compared to $12.6 million and $23.8 million for the corresponding periods of 1996. The earnings decrease of 17.4% and 11.4% for the quarter and year-to-date, respectively, was primarily due to milder-than-normal temperatures. Significant income statement items appropriate for discussion include the following:
Increase (Decrease) ---------------------------------------------------------- Second Quarter Year-To-Date ------------------------------ --------------------------- (in thousands) % (in thousands) % Revenues......................................... $(10,880) (7.2) $(24,346) (8.0) Revenues from affiliates......................... 2,351 67.2 2,270 47.8 Fuel expense..................................... (5,140) (11.2) (6,361) (7.6) Purchased power from affiliates.................. 13 0.2 (10,443) (41.2) Other operation expense.......................... 2,105 7.2 7,089 13.0 Maintenance expense.............................. (1,024) (7.2) (6,561) (22.3) Distributions on preferred securities of subsidiary trust............................. 762 N/A 1,279 N/A Dividends on preferred stock..................... (438) (30.5) (266) (9.3) N/A - Not applicable
Revenues. Excluding fuel and other revenues which represent the pass-through of fuel expense and certain other expenses and do not affect net income, revenues for the second quarter and year-to-date 1997 decreased $3.4 million or 3.8% and $9.8 million or 5.6%, respectively, compared to the corresponding periods of 1996. Retail revenues decreased 5.2% for the quarter and 5.5% year-to-date due primarily to a decrease in the amount of energy sold to residential customers. Sales to residential customers for the quarter and year-to-date decreased 8.9% and 10.4%, respectively, due to the milder-than-normal temperatures. Energy sales to industrial customers increased 8.1% and 3.3% for the quarter and year-to-date 1997, respectively, however revenues from this sector had only a slight increase of 0.7% for the quarter and a 1.6% decrease year-to-date 1997 primarily due to the participation of these customers in the Real-Time-Pricing program. See Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of GULF in the Form 10-K for information on initiatives to remain competitive and to meet conservation goals set by the Florida PSC. Revenues from affiliates and Purchased power from affiliates. Purchased power from affiliates year-to-date compared to the corresponding period of 1996 was lower due to maintenance outages at Plant Crist and Plant Daniel during the first half of 1996. 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 and the availability 40 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION and cost of generating resources at each company. These transactions do not have a significant impact on earnings. Fuel expense. The decrease in fuel expense for the second quarter and year-to-date 1997 was primarily due to decreased generation as a result of the milder-than-normal temperatures and a lower cost of fuel. Other operation expense. The increase in other operation expense was primarily due to an increase in amortization costs related to the buyout and renegotiation of a coal supply contract. Maintenance expense. The decrease in maintenance expense for the second quarter and year-to-date is primarily due to the scheduled maintenance on production facilities which occurred in the first half of 1996 at Plant Crist and Plant Daniel. Distributions on preferred securities of subsidiary trust. See "Financing Activities" herein for details relating to the January 1997 issuance by Gulf Power Capital Trust I of its 7.625% trust preferred securities. Dividends on preferred stock. This decrease for the second quarter and year-to-date 1997 when compared to the corresponding periods of 1996 is due to preferred stock redemptions in the first quarter of 1997. 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 potentially 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 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 environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" of GULF in the Form 10-K. In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income, which establishes standards for reporting and display of "comprehensive income," which is the total of net income and all other non-owner changes in stockholders' equity, and its components. GULF will adopt the standard in 1998. In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. Statement No. 131, which supersedes Statement Nos. 14, 18, 24 and 30, establishes new standards for segment reporting, using the "management approach," in which reportable segments are based on the same criteria on which management disaggregates a business for making operating decisions and assessing performance. GULF is in the process of evaluating Statement No. 131 and its impact and will adopt the standard by 1998. 41 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Reference is made to Notes (B) 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. FINANCIAL CONDITION Overview Major changes in GULF's financial condition during the first six months of 1997 included the addition of approximately $21.5 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 During the first quarter of 1997, Gulf Power Capital Trust I, a statutory business trust established for the purpose of holding GULF's junior subordinated notes and issuing trust preferred securities and common securities, sold $40 million of its 7.625% trust preferred securities which are guaranteed by GULF. For additional information, see Note (I) in the "Notes to the Condensed Financial Statements" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Sources of Capital" of GULF in the Form 10-K. A portion of these proceeds was used to redeem $5 million of 7.88% cumulative preferred stock, $5 million of 7.52% cumulative preferred stock and $14.5 million of 7.00% cumulative preferred stock during the first quarter of 1997 and $15 million of 7.30% cumulative preferred stock in August 1997. On July 1, 1997, GULF sold, through public authorities, $40.93 million of variable rate pollution control revenue refunding bonds due July 1, 2022. The proceeds were used to redeem $32 million aggregate principal amount of 8.25% pollution control revenue refunding bonds; $5 million aggregate principal amount of 6.75% pollution control revenue refunding bonds; and $3.93 million aggregate principal amount of 6.75% pollution control revenue refunding bonds. Also, on August 1, 1997, GULF sold $20 million of Series B 7.50% Junior Subordinated Notes due June 30, 2037. The proceeds were used to pay a portion of the scheduled maturity of $25 million of 5.875% first mortgage bonds that were due on August 1, 1997. GULF plans to continue, to the extent possible, a program to retire higher-cost debt and preferred stock and replace these securities 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. 42 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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 1999. 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 June 30, 1997, approximately $0.9 million of cash and cash equivalents and $95.9 million of unused committed lines of credit with banks (including $61.9 million liquidity support for variable rate pollution control bonds). At June 30, 1997, GULF had outstanding $19.5 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. 43 MISSISSIPPI POWER COMPANY 44
MISSISSIPPI POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months For the Six Months Ended June 30, Ended June 30, ---------------------- ------------------- 1997 1996 1997 1996 ---- ---- ---- ---- OPERATING REVENUES: Revenues $ 127,350 $ 130,340 $ 245,139 $ 255,300 Revenues from affiliates 1,565 6,409 679 8,403 ------------ -------------- ------------ ------------ Total operating revenues 128,915 136,749 245,818 263,703 ------------ -------------- ------------ ------------ OPERATING EXPENSES: Operation-- Fuel 30,489 36,577 60,030 66,477 Purchased power from non-affiliates 1,714 4,243 2,198 5,936 Purchased power from affiliates 10,628 7,521 21,143 20,519 Other 23,847 26,514 44,671 51,272 Maintenance 12,392 14,542 22,004 24,838 Depreciation and amortization 11,399 11,980 22,593 23,353 Taxes other than income taxes 11,283 10,727 22,180 21,450 Federal and state income taxes 7,823 6,954 14,527 14,093 ------------ -------------- ------------ ------------ Total operating expenses 109,575 119,058 209,346 227,938 ------------ -------------- ------------ ------------ OPERATING INCOME 19,340 17,691 36,472 35,765 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 7 29 11 124 Interest income 221 122 362 178 Other, net 966 1,302 1,620 2,732 Income taxes applicable to other income (443) (471) (772) (1,023) ------------ -------------- ------------ ------------ INCOME BEFORE INTEREST CHARGES 20,091 18,673 37,693 37,776 ------------ -------------- ------------ ------------ INTEREST CHARGES AND OTHER: Interest on long-term debt 4,994 4,935 9,889 10,428 Allowance for debt funds used during construction (15) (212) (23) (316) Interest on notes payable 9 621 56 851 Amortization of debt discount, premium, and expense, net 387 396 774 769 Other interest charges 175 309 314 500 Distributions on preferred securities of subsidiary trust 699 - 971 - ------------ -------------- ------------ ------------ Interest charges and other, net 6,249 6,049 11,981 12,232 ------------ -------------- ------------ ------------ NET INCOME 13,842 12,624 25,712 25,544 DIVIDENDS ON PREFERRED STOCK 1,224 1,224 2,449 2,449 ------------ -------------- ------------ ------------ NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 12,618 $ 11,400 $ 23,263 $ 23,095 ============ ============== ============ ============ The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements. 45
MISSISSIPPI POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Six Months Ended June 30, 1997 1996 OPERATING ACTIVITIES: Net income $ 25,712 $ 25,544 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 24,652 26,802 Deferred income taxes 1,326 (2,233) Allowance for equity funds used during construction (11) (124) Other, net 333 (1,630) Changes in certain current assets and liabilities-- Receivables, net (3,478) (8,281) Inventories (2,449) 2,195 Payables (7,294) (3,295) Taxes accrued (13,007) (11,164) Other (990) (1,184) ------------ ------------ Net cash provided from operating activities 24,794 26,630 ------------ ------------ INVESTING ACTIVITIES: Gross property additions (26,681) (28,810) Other (1,528) (1,769) ------------ ------------ Net cash used for investing activities (28,209) (30,579) ------------ ------------ FINANCING ACTIVITIES: Proceeds-- Capital contribution - 27 Preferred securities 35,000 - Other long-term debt - 30,000 Retirements-- First mortgage bonds - (45,447) Other long-term debt - (20,000) Notes payable, net - 55,000 Payment of preferred stock dividends (2,449) (2,449) Payment of common stock dividends (23,400) (21,300) Miscellaneous - (2,932) ------------ ------------ Net cash provided from (used for) financing activities 9,151 (7,101) ------------ ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS 5,736 (11,050) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,058 12,641 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,794 $ 1,591 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $ 2,864 $ 11,647 Income taxes 13,307 14,472 The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements. 46
MISSISSIPPI POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At June 30, 1997 At December 31, (Unaudited) 1996 -------------- ---------------- UTILITY PLANT: Plant in service, at original cost $ 1,497,632 $ 1,483,875 Less accumulated provision for depreciation 548,478 526,776 -------------- -------------- 949,154 957,099 Construction work in progress 44,304 35,100 -------------- -------------- Total 993,458 992,199 -------------- -------------- OTHER PROPERTY AND INVESTMENTS: 3,002 3,054 -------------- -------------- CURRENT ASSETS: Cash and cash equivalents 12,794 7,058 Receivables-- Customer accounts receivable 28,283 26,364 Regulatory clauses under recovery 8,869 7,300 Other accounts and notes receivable 7,531 7,468 Affiliated companies 6,042 6,329 Accumulated provision for uncollectible accounts (625) (839) Fossil fuel stock, at average cost 15,400 12,168 Materials and supplies, at average cost 20,300 21,083 Current portion of accumulated deferred income taxes 3,862 7,227 Prepayments 5,751 4,744 Vacation pay deferred 4,806 4,806 -------------- -------------- Total 113,013 103,708 -------------- -------------- DEFERRED CHARGES: Debt expense and loss, being amortized 11,600 12,220 Deferred charges related to income taxes 22,806 22,274 Long-term notes receivable 3,140 3,737 Miscellaneous 7,594 5,135 -------------- -------------- Total 45,140 43,366 -------------- -------------- TOTAL ASSETS $ 1,154,613 $ 1,142,327 ============== ============== The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements. 47
MISSISSIPPI POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At June 30, 1997 At December 31, (Unaudited) 1996 -------------- ---------------- 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 179,389 179,389 Premium on preferred stock 372 372 Retained earnings 166,145 166,282 -------------- -------------- 383,597 383,734 Preferred stock 39,414 74,414 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding Company Junior Subordinated Notes (Note I) 35,000 - Long-term debt 291,532 326,379 -------------- -------------- Total 749,543 784,527 -------------- -------------- CURRENT LIABILITIES: Preferred stock due within one year 35,000 - Long-term debt due within one year 35,010 10 Accounts payable-- Affiliated companies 5,558 4,136 Regulatory clauses over recovery 9,420 8,788 Other 26,651 38,720 Customer deposits 3,412 3,154 Taxes accrued-- Federal and state income 632 - Other 18,806 32,445 Interest accrued 4,238 4,384 Miscellaneous 13,777 13,942 -------------- -------------- Total 152,504 105,579 -------------- -------------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 132,466 133,437 Accumulated deferred investment tax credits 27,727 28,333 Deferred credits related to income taxes 40,032 40,568 Postretirement benefits 22,426 21,850 Accumulated provision for property damage 13,705 12,955 Miscellaneous 16,210 15,078 -------------- -------------- Total 252,566 252,221 -------------- -------------- TOTAL CAPITALIZATION AND LIABILITIES $ 1,154,613 $ 1,142,327 ============== ============== The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements. 48
MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SECOND QUARTER 1997 vs. SECOND QUARTER 1996 AND YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996 RESULTS OF OPERATIONS Earnings MISSISSIPPI's net income after dividends on preferred stock for the second quarter and year-to-date 1997 was $12.6 million and $23.3 million, respectively, compared to $11.4 million and $23.1 million for the corresponding periods of 1996. Earnings for the current quarter increased by 10.7% primarily as a result of lower operating expenses. For the year-to-date period, earnings were relatively flat as evidenced by the slight 0.7% increase. Significant income statement items appropriate for discussion include the following:
Increase (Decrease) -------------------------------------------------------- Second Quarter Year-To-Date --------------------------- ---------------------------- (in thousands) % (in thousands) % Revenues........................................... $(2,990) (2.3) $(10,161) (4.0) Revenues from affiliates........................... (4,844) (75.6) (7,724) (91.9) Fuel expense....................................... (6,088) (16.6) (6,447) (9.7) Purchased power from affiliates.................... 3,107 41.3 624 3.0 Other operation expense............................ (2,667) (10.1) (6,601) (12.9) Maintenance expense................................ (2,150) (14.8) (2,834) (11.4)
Revenues. The decrease in revenues was primarily due to a 7.8% decrease for the quarter and a 4.8% decrease for year-to-date in the amount of energy sold. Total retail energy sales decreased 2.9% and 2.1% for the quarter and year-to-date, respectively, primarily due to a 13.4% and 10.3% decrease in the amount of energy sold to residential customers. Retail revenues, excluding those revenues which represent the recovery of fuel expense and certain other expenses and do not affect income, decreased $0.8 million for the quarter and $4.4 million for year-to-date 1997 primarily due to milder temperatures experienced during these periods as compared to 1996. Second quarter and year-to-date revenues from territorial wholesale customers, excluding fuel revenues which do not affect income, decreased $0.2 million and $3.2 million, respectively, compared to the same periods of 1996, with a decrease in energy sales of 4.5% and 4.0%, respectively. Fuel expense. The second quarter and year-to-date 1997 decreases can be attributed to the lower cost of fuel and to decreases in generation of 12.0% for the quarter and 4.4% year-to-date 1997. Generation decreased due to the reduced demand for energy resulting from milder temperatures. Revenues from affiliates and Purchased power 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 and the availability and cost of generating resources at each company. In addition, the second quarter and year-to-date 1997 periods reflect adjustments in affiliated billings. These transactions do not have a significant impact on earnings. 49 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Other operation expense. This decrease for the quarter and year-to-date 1997 as compared to the corresponding periods of 1996 is primarily due to lower administrative and general expenses. Maintenance expense. Maintenance expenses will vary from period to period depending on the timing and scheduling of maintenance outages and other projects. 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 1997 annual filing under the ECO Plan with the Mississippi PSC resulted in an approved annual revenue requirement increase of $0.9 million, effective April 1997. 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 environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" of MISSISSIPPI in the Form 10-K. In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income, which establishes standards for reporting and display of "comprehensive income," which is the total of net income and all other non-owner changes in stockholders' equity, and its components. MISSISSIPPI will adopt the standard in 1998. In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. Statement No. 131, which supersedes Statement Nos. 14, 18, 24 and 30, establishes new standards for segment reporting, using the "management approach," in which reportable segments are based on the same criteria on which management disaggregates a business for making operating decisions and assessing performance. MISSISSIPPI is in the process of evaluating Statement No. 131 and its impact and will adopt the standard by 1998. Employees of MISSISSIPPI, in certain areas, including finance, environmental quality and external affairs, are being offered a Career Transition Plan. This voluntary plan is an effort to find appropriate ways to reduce employees, while at the same time providing employees with choices about their future. The costs to be incurred in connection with this plan are unknown at the present time. Reference is made to Notes (B), (G) and (H) 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. 50 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL CONDITION Overview Major changes in MISSISSIPPI's financial condition during the first six months of 1997 included the addition of approximately $26.7 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operations. See MISSISSIPPI's Condensed Statements of Cash Flows for further details. Financing Activities During the first quarter of 1997, Mississippi Power Capital Trust I, a statutory business trust established for the purpose of holding MISSISSIPPI's junior subordinated notes and issuing trust preferred securities and common securities, sold $35 million of its 7.75% trust originated preferred securities which are guaranteed by MISSISSIPPI. For additional information, see Note (I) in the "Notes to the Condensed Financial Statements" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Sources of Capital" of MISSISSIPPI in the Form 10-K. MISSISSIPPI plans to continue, to the extent possible, a program to retire higher-cost debt and preferred stock and replace these securities 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. 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 1999. 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 June 30, 1997, approximately $12.8 million of cash and cash equivalents and approximately $76.3 million of unused committed credit arrangements with banks (including $10.8 million of such arrangements under which borrowings may be made only to fund purchase obligations relating to variable rate pollution control bonds). At June 30, 1997, MISSISSIPPI had no short-term borrowings outstanding. 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. 51 SAVANNAH ELECTRIC AND POWER COMPANY 52
SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months For the Six Months Ended June 30, Ended June 30, 1997 1996 1997 1996 OPERATING REVENUES: Revenues $ 52,298 $ 61,183 $ 95,185 $ 110,550 Revenues from affiliates 218 723 276 1,931 ----------- ---------- ---------- ------------ Total operating revenues 52,516 61,906 95,461 112,481 ----------- ---------- ---------- ------------ OPERATING EXPENSES: Operation-- Fuel 6,937 8,743 10,454 12,692 Purchased power from non-affiliates 277 662 682 1,212 Purchased power from affiliates 10,748 15,670 20,030 31,520 Other 10,968 11,410 21,642 21,693 Maintenance 3,518 3,321 6,560 6,451 Depreciation and amortization 5,028 4,902 10,020 9,804 Taxes other than income taxes 2,774 3,158 5,615 6,178 Federal and state income taxes 3,640 4,254 5,715 6,583 ----------- ---------- ---------- ------------ Total operating expenses 43,890 52,120 80,718 96,133 ----------- ---------- ---------- ------------ OPERATING INCOME 8,626 9,786 14,743 16,348 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 60 98 205 181 Interest income 122 103 124 105 Other, net 93 (402) (91) (718) Income taxes applicable to other income (83) 116 (13) 233 ----------- ---------- ---------- ------------ INCOME BEFORE INTEREST CHARGES 8,818 9,701 14,968 16,149 ----------- ---------- ---------- ------------ INTEREST CHARGES: Interest on long-term debt 2,841 3,104 5,612 6,018 Allowance for debt funds used during construction (61) (94) (141) (176) Interest on notes payable 60 36 120 138 Amortization of debt discount, premium, and expense, net 185 107 366 211 Other interest charges 76 108 168 197 ----------- ---------- ---------- ------------ Net interest charges 3,101 3,261 6,125 6,388 ----------- ---------- ---------- ------------ NET INCOME 5,717 6,440 8,843 9,761 DIVIDENDS ON PREFERRED STOCK 581 581 1,162 1,162 ----------- ---------- ---------- ------------ NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 5,136 $ 5,859 $ 7,681 $ 8,599 =========== ========== ========== ============ The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements. 53
SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Six Months Ended June 30, 1997 1996 OPERATING ACTIVITIES: Net income $ 8,843 $ 9,761 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 10,299 10,241 Deferred income taxes and investment tax credits, net 211 3,264 Allowance for equity funds used during construction (205) (181) Other, net 1,128 1,444 Changes in certain current assets and liabilities-- Receivables, net 1,829 (7,835) Inventories 1,411 (608) Payables (3,161) 5,287 Taxes accrued 1,173 2,103 Other (2,767) (2,503) ------------- ------------ Net cash provided from operating activities 18,761 20,973 ------------- ------------ INVESTING ACTIVITIES: Gross property additions (10,364) (15,150) Other (1,508) (3,936) ------------- ------------ Net cash used for investing activities (11,872) (19,086) ------------- ------------ FINANCING ACTIVITIES: Proceeds-- First mortgage bonds - 20,000 Other long-term debt 13,870 17,000 Retirements-- First mortgage bonds - (1,200) Other long-term debt (14,104) (146) Notes payable, net 3,000 (4,000) Payment of preferred stock dividends (1,162) (1,162) Payment of common stock dividends (10,500) (9,600) Miscellaneous (254) (257) ------------- ------------ Net cash provided from (used for) financing activities (9,150) 20,635 ------------- ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS (2,261) 22,522 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,214 877 ------------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,953 $ 23,399 ============= ============ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $ 6,042 $ 5,935 Income taxes 5,313 2,547 The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements. 54
SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At June 30, 1997 At December 31, (Unaudited) 1996 ------------- -------------- UTILITY PLANT: Plant in service, at original cost $ 749,948 $ 739,461 Less accumulated provision for depreciation 312,652 304,760 ------------- ------------ 437,296 434,701 Construction work in progress 11,288 13,463 ------------- ------------ Total 448,584 448,164 ------------- ------------ OTHER PROPERTY AND INVESTMENTS: 1,784 1,785 ------------- ------------ CURRENT ASSETS: Cash and cash equivalents 2,953 5,214 Special deposits 240 1,395 Receivables-- Customer accounts receivable 21,557 18,827 Other accounts and notes receivable 770 769 Affiliated companies 718 844 Accumulated provision for uncollectible accounts (477) (632) Fuel cost under recovery 3,855 7,289 Fossil fuel stock, at average cost 4,905 5,892 Materials and supplies, at average cost 7,589 8,013 Prepayments 8,768 6,135 ------------- ------------ Total 50,878 53,746 ------------- ------------ DEFERRED CHARGES: Deferred charges related to income taxes 18,883 19,167 Premium on reacquired debt, being amortized 7,455 7,142 Cash surrender value of life insurance for deferred compensation plans 10,288 10,288 Miscellaneous 2,018 2,003 ------------- ------------ Total 38,644 38,600 ------------- ------------ TOTAL ASSETS $ 539,890 $ 542,295 ============= ============ The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements. 55
SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES At June 30, 1997 At December 31, (Unaudited) 1996 ------------- -------------- CAPITALIZATION: Common stock equity-- Common stock (par value $5 per share)-- authorized 16,000,000 shares; outstanding 10,844,635 shares $ 54,223 $ 54,223 Paid-in capital 8,688 8,688 Retained earnings 106,554 109,373 ------------- ------------ 169,465 172,284 Preferred stock 35,000 35,000 Long-term debt 161,997 161,801 ------------- ------------ Total 366,462 369,085 ------------- ------------ CURRENT LIABILITIES: Long-term debt due within one year 631 637 Notes payable 8,000 5,000 Accounts payable-- Affiliated companies 4,927 6,374 Other 6,977 10,201 Customer deposits 5,396 5,232 Taxes accrued-- Federal and state income - - Other 2,188 1,015 Interest accrued 4,991 5,275 Vacation pay accrued 2,112 2,038 Miscellaneous 5,549 7,470 ------------- ------------ Total 40,771 43,242 ------------- ------------ DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 78,469 76,654 Accumulated deferred investment tax credits 12,939 13,271 Deferred credits related to income taxes 22,737 22,792 Deferred compensation plans 9,012 8,602 Postretirement benefits 6,038 5,472 Miscellaneous 3,462 3,177 ------------- ------------ Total 132,657 129,968 ------------- ------------ TOTAL CAPITALIZATION AND LIABILITIES $ 539,890 $ 542,295 ============= ============ The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements. 56
SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SECOND QUARTER 1997 vs. SECOND QUARTER 1996 AND YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996 RESULTS OF OPERATIONS Earnings SAVANNAH's net income after dividends on preferred stock for the second quarter and year-to-date 1997 was $5.1 million and $7.7 million, as compared to $5.9 million and $8.6 million for the corresponding periods of 1996. Earnings decreased 12.3% for the quarter and 10.7% for year-to-date due to a decrease in operating revenues caused primarily by milder-than-normal temperatures. Significant income statement items appropriate for discussion include the following:
Increase (Decrease) --------------------------------------------------------- Second Quarter Year-To-Date --------------------------- ----------------------------- (in thousands) % (in thousands) % Revenues....................................... $(8,885) (14.5) $(15,365) (13.9) Revenues from affiliates....................... (505) (69.8) (1,655) (85.7) Fuel expense................................... (1,806) (20.7) (2,238) (17.6) Purchased power from affiliates................ (4,922) (31.4) (11,490) (36.5) Taxes other than income taxes.................. (384) (12.2) (563) (9.1)
Revenues. Excluding fuel revenues, which represent the pass-through of fuel expenses and do not affect income, revenues for the quarter and year-to-date decreased $2.3 million and $2.9 million, respectively, compared to the corresponding periods of 1996. Revenues decreased as a result of decreased energy sales to residential, commercial and industrial customers of 14.7%, 4.3%, 9.4%, respectively, for the quarter and 11.6%, 1.8% and 1.8%, respectively, for year-to-date. The decreases were primarily due to milder-than-normal temperatures during the quarter and year-to-date for the residential and commercial sectors. The decreases in the industrial class were due to a decrease in the energy requirements of one of SAVANNAH's major industrial customers. Fuel expenses. The decreases for the quarter and year-to-date can be attributed to a decrease in the average cost of fuel and the overall lower demand for energy. Revenues from affiliates and Purchased power 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 and the availability and cost of generating resources at each company. In addition, the second quarter and year-to-date 1997 reflect an adjustment in affiliated billings. These transactions do not have a significant impact on earnings. Taxes other than income taxes. The decreases for the quarter and year-to-date 1997 were due to a true-up of property tax accrual to actual tax expense in 1996 and lower franchise taxes. 57 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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 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 environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS "Environmental Matters" of SAVANNAH in the Form 10-K. In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income, which establishes standards for reporting and display of "comprehensive income," which is the total of net income and all other non-owner changes in stockholders' equity, and its components. SAVANNAH will adopt the standard in 1998. In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. Statement No. 131, which supersedes Statement Nos. 14, 18, 24 and 30, establishes new standards for segment reporting, using the "management approach," in which reportable segments are based on the same criteria on which management disaggregates a business for making operating decisions and assessing performance. SAVANNAH is in the process of evaluating Statement No. 131 and its impact and will adopt the standard by 1998. Reference is made to Notes (B) and (Q) 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 Major changes in SAVANNAH's financial condition during the first six months of 1997 included the addition of approximately $10.4 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operations. See SAVANNAH's Condensed Statements of Cash Flows for further details. Financing Activities In April 1997, SAVANNAH sold, through a public authority, $13.87 million of variable rate pollution control revenue bonds due 2037. The proceeds were applied to the redemption in May 1997 of $13.87 million of 6 3/4% pollution control revenue bonds. SAVANNAH plans to continue, to the extent possible, a program to retire higher-cost debt and replace these obligations with lower-cost capital. 58 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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 1999. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. To meet short-term cash needs and contingencies, SAVANNAH had at June 30, 1997, approximately $3.0 million of cash and cash equivalents and approximately $32.5 million of unused credit arrangements with banks. At June 30, 1997, SAVANNAH had $8.0 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. 59 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, M, N, O, P ALABAMA A, B, C, G, H, I, J, K GEORGIA A, B, C, G, H, I, L, M, N, O, P GULF A, B, G, H, I MISSISSIPPI A, B, G, H, I SAVANNAH A, B, H, Q 60 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 THE 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 June 30, 1997 and 1996. 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) SOUTHERN engages in price risk management activities for trading and non-trading purposes. Reference is made to Note 1 to the financial statements of SOUTHERN in Item 8 of the Form 10-K for a discussion of these activities. Activities for non-trading purposes consist of transactions that are employed to mitigate SOUTHERN's risk related to interest rate and foreign currency fluctuations. At June 30, 1997, the status of outstanding non-trading related derivative contracts was as follows: 61 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
Year of Maturity or Notional Unrealized Type Termination Amount Gain (Loss) (in thousands) Interest rate swaps 2002-2012 $778,071 $(9,533) 2001-2012 (pound)500,000 $(25,485) Cross currency swaps 2001-2007 (pound)455,399 $(22,540) (pound) - Denotes British pounds sterling.
Net unrealized gains and losses on outstanding positions with respect to trading activities were not material at June 30, 1997. (E) On January 29, 1997, Southern Energy, a wholly-owned subsidiary of SOUTHERN, completed the acquisition of an 80% interest in CEPA for a total net investment of approximately $2.0 billion. (Reference is made to the Current Report on Form 8-K of SOUTHERN dated October 9, 1996 for a more detailed description of the acquisition. In addition, reference is also made to "Management's Discussion and Analysis - Future Earnings Potential" of SOUTHERN herein for information relating to the proposed acquisition by Southern Energy of an additional 19.99% interest in CEPA.) The acquisition of CEPA was accounted for as a purchase with the $1.5 billion excess of the acquisition cost over the preliminary estimate of the fair value of CEPA's net assets being assigned to goodwill. The allocation of the purchase price is preliminary and may be revised at a later date. Goodwill will be amortized on a straight-line basis over 40 years. Results of operations of CEPA are included in the condensed consolidated financial statements subsequent to January 29, 1997. The following unaudited pro forma combined results of operations for the three months ended June 30, 1997 and 1996 and the six months ended June 30, 1997 and 1996 have been prepared assuming the acquisition of CEPA had occurred at the beginning of each period. The pro forma results assume acquisition financing of $764 million of short-term borrowings, $792 million of long-term notes and $400 million of capital securities and SOUTHERN's assumed effective composite interest rate on these obligations for each period presented was 6.70%. Eventually, the existing borrowing may be replaced by some other combination of long-term debt and equity. 62 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) The pro forma results are provided for information only. The results are not necessarily indicative of the actual results that would have been realized had the acquisition occurred on the indicated dates, nor are they necessarily indicative of future results of operations of the combined companies.
As Reported and Pro Forma Information (Unaudited) (Stated in Thousands of Dollars, except per share) For the Three Months Ended June 30, 1997 1996 As Reported Pro Forma As Reported Pro Forma Operating revenues $2,717,195 $2,717,195 $2,563,507 $2,588,057 Consolidated Net Income 214,795 214,795 287,260 276,793 Earnings Per Share of Common Stock $0.31 $0.31 $0.43 $0.41 For the Six Months Ended June 30, 1997 1996 As Reported Pro Forma As Reported Pro Forma Operating revenues $5,301,609 $5,322,266 $4,992,862 $5,026,753 Consolidated Net Income 401,808 399,133 520,135 492,641 Earnings Per Share of Common Stock $0.59 $0.59 $0.78 $0.73
63 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) (F) SOUTHERN's principal business segment -- or its traditional core business -- is the five electric utility operating companies, which provide electric service in four southeastern states. The other reportable business segment is Southern Energy, which owns and operates power production and delivery facilities in the United States and various international markets. Financial data for business segments and geographic areas are as follows: (in thousands)
Business Segments Operating Operating Operating Operating Total Revenues Income Revenues Income Assets For the Three Months Ended For the Six Months Ended At June 30, 1997 June 30, 1997 June 30, 1997 ------------------------------ ------------------------------- ------------- Traditional core business $2,039,796 $364,344 $3,959,078 $698,773 $25,067,443 Southern Energy 677,399 65,213 1,342,531 126,936 9,344,936 ------------ ---------- ----------- --------- ------------- Consolidated $2,717,195 $429,557 $5,301,609 $825,709 $34,412,379 ========== ======== ========== ======== =========== For the Three Months Ended For the Six Months Ended At June 30, 1996 June 30, 1996 December 31, 1996 ------------------------------ ------------------------------- ----------------- Traditional core business $2,198,620 $425,724 $4,199,172 $799,776 $25,367,558 Southern Energy 364,887 24,174 793,690 58,184 4,924,244 ------------ ---------- ------------ ---------- ------------- Consolidated $2,563,507 $449,898 $4,992,862 $857,960 $30,291,802 ========== ======== ========== ======== =========== Geographic Areas Operating Operating Operating Operating Total Revenues Income Revenues Income Assets For the Three Months Ended For the Six Months Ended At June 30, 1997 June 30, 1997 June 30, 1997 ------------------------------ ------------------------------- ------------- Domestic $2,333,315 $366,896 $4,431,790 $704,430 $25,814,270 International: Europe 270,027 32,702 657,384 71,181 2,868,908 Asia 70,576 28,176 113,705 46,506 4,286,442 Other 43,277 1,783 98,730 3,592 1,442,759 ------------- ----------- ------------- ----------- ------------- Total $2,717,195 $429,557 $5,301,609 $825,709 $34,412,379 ========== ======== ========== ======== =========== For the Three Months Ended For the Six Months Ended At June 30, 1996 June 30, 1996 December 31, 1996 ------------------------------ ------------------------------- ----------------- Domestic $2,224,333 $432,402 $4,246,067 $813,992 $25,868,253 International: Europe 273,273 17,106 628,181 41,955 2,965,578 Asia - - - - - Other 65,901 390 118,614 2,013 1,457,971 ------------- ------------ ------------ ----------- ------------- Total $2,563,507 $449,898 $4,992,862 $857,960 $30,291,802 ========== ======== ========== ======== ===========
(G) Reference is made to Note 3 to each of the registrant's financial statements, except SAVANNAH's, 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. 64 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) (H) Certain of the registrants and other SOUTHERN subsidiaries have instituted work force reduction programs. The expenses recognized under these programs and the unamortized balance of expenses deferred under regulatory orders were as follows: (in thousands)
Three Months Ended Six Months Ended Unamortized Balance June 30, June 30, at June 30, 1997 ----------------------- -------------------- -------------------- 1997 1996 1997 1996 ---- ---- ---- ---- ALABAMA $8,885 $8,044 $17,483 $12,409 $32,817 GEORGIA 2,267 8,374 2,871 26,874 - GULF 91 1,275 1,242 2,234 - MISSISSIPPI 51 1,528 104 1,778 1,991 SAVANNAH 12 234 27 234 - OTHER 123 26 47 214 - --------- ------- --------- -------- --------- SOUTHERN system $11,429 $19,481 $21,774 $43,743 $34,808 ======= ======= ======= ======= =========
(I) During the first six months of 1997, statutory business trusts formed by ALABAMA, GEORGIA, GULF, MISSISSIPPI, Southern Investments UK plc ("SIUK") and Southern Company Capital Funding, Inc. ("Southern Capital"), of which the respective companies own all the common securities, issued mandatorily redeemable preferred or capital securities as follows: (in thousands)
Maturity Date Date of Issue Amount Rate Notes of Notes ALABAMA 1/16/97 $200,000 7.60% $206,000 12/31/2036 GEORGIA 1/16/97 175,000 7.60 180,000 12/31/2036 GULF 1/31/97 40,000 7.625 41,000 12/31/2036 MISSISSIPPI 2/26/97 35,000 7.75 36,000 2/15/2037 SIUK 1/29/97 82,000 8.23 85,000 2/1/2027 Southern Capital 2/4/97 325,000 8.19 335,000 2/1/2037 Southern Capital 2/4/97 75,000 8.14 77,000 2/15/2027 GEORGIA 6/11/97 189,250 7.75 195,000 3/31/2037 Southern Capital 6/6/97 200,000 7.75 206,000 3/31/2037
Substantially all the assets of each trust are junior subordinated notes issued by the related company in the respective approximate principal amounts set forth above. The notes of Southern Capital are guaranteed by SOUTHERN. ALABAMA, GEORGIA, GULF, MISSISSIPPI, SIUK and SOUTHERN each considers that the mechanisms and obligations relating to the preferred or capital securities issued for its benefit, taken together, constitute a full and unconditional guarantee by it of the respective trusts' payment obligations with respect to the preferred or capital securities. Reference is also made to Note 9 to the financial statements of ALABAMA and GEORGIA in the Form 10-K. 65 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) (J) 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. In April 1997, the Alabama PSC issued an additional order authorizing ALABAMA to reduce balance sheet asset items. This order authorizes the reduction of such items up to an amount equal to 5 times the total estimated annual revenue reduction resulting from future rate reductions. (K) In 1996, legal actions against ALABAMA were filed in several counties in Alabama charging ALABAMA with fraud and non-compliance with regulatory statutes relating to the offer, sale and financing of "extended service contracts" in connection with the sale of electric appliances. See Note 3 to the financial statements of SOUTHERN and ALABAMA in Item 8 of the Form 10-K for additional information. (L) In February 1996, the Georgia PSC approved a three-year accounting order, effective January 1, 1996, which is currently under appeal. GEORGIA is continuing to recognize expenses in accordance with the accounting order while it is under appeal. Under the order, earnings in excess of a 12.5% retail return on common equity will be used to accelerate the amortization of regulatory assets or depreciation of electric plant. Accordingly, for earnings in excess of the 12.5% return, GEORGIA recorded charges of $8 million and $28 million, respectively, for the three months and six months ended June 30, 1997 (presented in the accompanying financial statements as depreciation expense and as an addition to the reserve for depreciation). 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. (M) In 1987 and 1989, the Georgia PSC ordered that the allowed costs of Plant Vogtle, a two-unit nuclear facility of which GEORGIA owns 45.7%, be phased into rates. Pursuant to the orders, GEORGIA recorded a deferred return under phase-in plans until October 1991 when the allowed investment was fully reflected in rates. In 1991, the Georgia PSC levelized the remaining Plant Vogtle declining capacity buyback expenses over a six-year period. In addition, GEORGIA deferred certain Plant Vogtle operating expenses and financing costs under accounting orders issued by the Georgia PSC. These Georgia PSC orders provide for the recovery of deferred costs within 10 years. The unamortized balance of these deferred costs at June 30, 1997, was $95.8 million. (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 concerning the recovery by GEORGIA of its costs associated with the Rocky Mountain pumped storage hydroelectric plant. At June 30, 1997, GEORGIA's net investment in the plant was approximately $167 million. In August 1997, the staff of the Georgia PSC issued a report regarding its prudence review of the plant. The report recommends that of GEORGIA's initial $202 million investment in the plant, approximately $79 million be allowed in rate base, with a disallowance of approximately $123 million. The report also concludes that GEORGIA should be allowed to retain the benefits of the plant's lower fuel costs (as compared to alternative sources of generation). The report states that as an alternative, it may be reasonable to provide a larger allowance in rate base and allow customers to receive the benefit of the fuel savings. GEORGIA estimates the present value of the fuel benefits over the life of the plant to be in the range of approximately $50 million to $70 million. The Georgia PSC intends to conclude hearings on this matter in December 1997, at which time the Georgia PSC will take the matter under advisement for future action. While GEORGIA disagrees with the Georgia PSC staff's conclusions, the outcome of this matter cannot now be determined. 66 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) (O) Reference is made to Note 3 to the financial statements of GEORGIA in Item 8 of the Form 10-K for information relating to an agreement reached January 10, 1997, between GEORGIA and MEAG relating to a new power supply relationship. A power supply contract entered into between GEORGIA and MEAG has been approved by FERC. (P) 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. (Q) SAVANNAH is currently undergoing an earnings review by the Georgia PSC. SAVANNAH and the Georgia PSC staff met in June 1997 and will meet in August 1997 to discuss resolution of the review. 67 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) ALABAMA, GEORGIA and MISSISSIPPI, et al. v. TVA (U.S. District Court for the Northern District of Alabama) On July 24, 1997, ALABAMA, GEORGIA, MISSISSIPPI and other plaintiffs entered into an agreement with TVA that will settle the action filed in April 1997, which sought to enjoin TVA from violating a 1959 act that prohibits TVA from selling power outside the area that was being served by it in 1957. In the settlement agreement, TVA agrees that it will enter into exchange power arrangements only with authorized entities to which it may lawfully sell such power under the 1959 act, and that it will not knowingly engage in such transactions where the authorized entity is reselling that power to unauthorized entities. Item 4. Submission of Matters to a Vote of Security Holders. SOUTHERN SOUTHERN held its annual meeting of stockholders on May 28, 1997. Each nominee for director of SOUTHERN received the requisite plurality of votes. The vote tabulation was as follows:
Nominees Shares For Shares Withhold Vote John C. Adams 509,862,951 9,405,885 A. D. Correll 509,761,454 9,507,382 A. W. Dahlberg 509,826,971 9,441,866 Paul J. DeNicola 509,923,297 9,345,539 Jack Edwards 503,710,753 15,558,084 H. Allen Franklin 509,956,952 9,311,885 Bruce S. Gordon 508,734,126 10,534,710 L. G. Hardman III 509,862,328 9,406,508 Elmer B. Harris 509,779,120 9,489,717 William A. Parker, Jr. 490,423,219 28,845,516 William J. Rushton, III 509,513,378 9,755,458 Gloria M. Shatto 509,507,344 9,761,493 Gerald J. St. Pe 490,870,363 28,398,473 Herbert Stockham 509,470,107 9,798,729
68 Item 4. Submission of Matters to a Vote of Security Holders.(Continued) ALABAMA ALABAMA held its annual common stockholders meeting on April 25, 1997, and the following persons were elected to serve as directors of ALABAMA: Whit Armstrong William V. Muse A. W. Dahlberg John T. Porter Peter V. Gregerson, Sr. Robert D. Powers Bill M. Guthrie John W. Rouse Elmer B. Harris William J. Rushton, III Carl E. Jones, Jr. James H. Sanford Wallace D. Malone, Jr. John Cox Webb, IV All of the 5,608,955 outstanding shares of ALABAMA's common stock are owned by SOUTHERN and were voted for the election of such directors. GEORGIA By written consent, in lieu of the annual meeting of stockholders of GEORGIA, effective May 21, 1997, the following persons were elected to serve as directors of GEORGIA: Daniel P. Amos James R. Lientz, Jr. Juanita P. Baranco William A. Parker, Jr. Bennett A. Brown G. Joseph Prendergast A. W. Dahlberg Herman J. Russell William A. Fickling, Jr. Gloria M. Shatto H. Allen Franklin William Jerry Vereen L. G. Hardman III Carl Ware Warren Y. Jobe Thomas R. Williams All of the 7,761,500 outstanding shares of GEORGIA's common stock are owned by SOUTHERN and were voted for the election of such directors. GULF By written consent, in lieu of the annual meeting of stockholders of GULF, effective June 24, 1997, the following persons were elected to serve as directors of GULF: Travis J. Bowden W. Deck Hull, Jr. Paul J. DeNicola Joseph K. Tannehill Fred C. Donovan Barbara H. Thames All of the 992,717 outstanding shares of GULF's common stock are owned by SOUTHERN and were voted for the election of such directors. 69 Item 4. Submission of Matters to a Vote of Security Holders.(Continued) MISSISSIPPI MISSISSIPPI held its annual stockholders meeting on April 1, 1997, and the following persons were elected to serve as directors of MISSISSIPPI: Paul J. DeNicola Aubrey K. Lucas Edwin E. Downer George A. Schloegel Dwight H. Evans Philip J. Terrell Robert S. Gaddis N. Eugene Warr Walter H. Hurt, III All of the 1,121,000 outstanding shares of MISSISSIPPI's common stock are owned by SOUTHERN and were voted for the election of such directors. SAVANNAH SAVANNAH held its annual stockholders meeting on May 20, 1997, and the following persons were elected to serve as directors of SAVANNAH: Helen Quattlebaum Artley Walter D. Gnann Archie H. Davis Robert B. Miller, III Paul J. DeNicola Arnold M. Tenenbaum Arthur M. Gignilliat, Jr All of the 10,844,635 outstanding shares of SAVANNAH's common stock are owned by SOUTHERN and were voted for the election of such directors. 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, 1996, 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 70 Item 6. Exhibits and Reports on Form 8-K. (b) Reports on Form 8-K. (Continued) SOUTHERN filed a Current Report on Form 8-K dated June 5, 1997: Items reported: Item 5 Item 7 Financial statements filed: None GEORGIA filed a Current Report on Form 8-K dated June 6, 1997: Items reported: Item 5 Item 7 Financial statements filed: None 71 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: August 12, 1997 - - - - - - - -------------------------------------------------------------------------------- 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: August 12, 1997 72 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: August 12, 1997 - - - - - - - -------------------------------------------------------------------------------- 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: August 12, 1997 73 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: August 12, 1997 - - - - - - - -------------------------------------------------------------------------------- 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. Chairman of the Board 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: August 12, 1997 74 EX-27 2 FINANCIAL DATA SCHEDULE - SOUTHERN COMPANY
UT This schedule contains summary financial information extracted from the Form 10-Q for June 30, 1997, and is qualified in its entirety by reference to such financial statements. 0000092122 THE SOUTHERN COMPANY 1,000 6-MOS DEC-31-1996 JUN-30-1997 PER-BOOK 23,193,253 5,001,430 3,847,844 2,369,852 0 34,412,379 3,424,341 2,190,378 3,723,644 9,338,363 1,744,465 739,615 6,801,975 319,276 2,681,905 1,388,611 588,007 143,757 146,486 3,022 10,516,897 34,412,379 5,301,609 299,888 4,176,012 4,475,900 825,709 95,493 921,202 488,147 433,055 31,247 401,808 441,738 0 1,152,219 0.59 0.59
EX-27 3 FINANCIAL DATA SCHEDULE - ALABAMA POWER COMPANY
UT This schedule contains summary financial information extracted from the Form 10-Q for June 30, 1997, and is qualified in its entirety by reference to such financial statements. 0000003153 ALABAMA POWER COMPANY 1,000 6-MOS DEC-31-1996 JUN-30-1997 PER-BOOK 7,066,285 208,013 903,112 636,670 0 8,814,080 224,358 1,304,744 1,140,575 2,669,677 297,000 278,400 2,292,269 94,000 0 418,882 50,000 50,000 6,591 970 2,656,291 8,814,080 1,432,857 74,253 1,109,399 1,183,652 249,205 3,469 252,674 121,067 131,607 10,663 120,944 165,700 0 176,530 0 0
EX-27 4 FINANCIAL DATA SCHEDULE - GEORGIA POWER COMPANY
UT This schedule contains summary financial information extracted from the Form 10-Q for June 30, 1997, and is qualified in its entirety by reference to such financial statements. 0000041091 GEORGIA POWER COMPANY 1,000 6-MOS DEC-31-1996 JUN-30-1997 PER-BOOK 10,273,859 284,646 1,112,494 1,244,096 0 12,915,095 344,250 2,135,257 1,657,610 4,137,117 689,250 321,699 3,114,230 1,300 0 100,602 90,000 58,757 86,477 380 4,315,283 12,915,095 1,974,058 181,400 1,407,981 1,589,381 384,677 (789) 383,888 132,965 250,923 14,378 236,545 253,700 0 639,692 0 0
EX-27 5 FINANCIAL DATA SCHEDULE - GULF POWER COMPANY
UT This schedule contains summary financial information extracted from the Form 10-Q for June 30, 1997, and is qualified in its entirety by reference to such financial statements. 0000044545 GULF POWER COMPANY 1,000 6-MOS DEC-31-1996 JUN-30-1997 PER-BOOK 1,054,725 633 163,916 70,827 0 1,290,101 38,060 218,482 173,541 430,083 40,000 65,102 280,540 19,500 27,000 0 56,431 0 0 0 371,445 1,290,101 286,666 13,280 234,021 247,301 39,365 96 39,461 15,740 23,721 2,595 21,126 36,700 0 61,958 0 0
EX-27 6 FINANCIAL DATA SCHEDULE - MISSISSIPPI POWER COMPANY
UT This schedule contains summary financial information extracted from the Form 10-Q for June 30, 1997, and is qualified in its entirety by reference to such financial statements. 0000066904 MISSISSIPPI POWER COMPANY 1,000 6-MOS DEC-31-1996 JUN-30-1997 PER-BOOK 993,458 3,002 113,013 45,140 0 1,154,613 37,691 179,761 166,145 383,597 35,000 39,414 211,532 0 80,000 0 35,010 0 0 0 335,060 1,154,613 245,818 14,527 194,819 209,346 36,472 1,221 37,693 11,981 25,712 2,449 23,263 23,400 0 24,794 0 0
EX-27 7 FINANCIAL DATA SCHEDULE - SAVANNAH ELECTRIC AND POWER COMPANY
UT This schedule contains summary financial information extracted from the Form 10-Q for June 30, 1997, and is qualified in its entirety by reference to such financial statements. 0000086940 SAVANNAH ELECTRIC AND POWER COMPANY 1,000 6-MOS DEC-31-1996 JUN-30-1997 PER-BOOK 448,584 1,784 50,878 38,644 0 539,890 54,223 8,688 106,554 169,465 0 35,000 125,774 8,000 30,000 0 0 0 6,223 631 164,797 539,890 95,461 5,715 75,003 80,718 14,743 225 14,968 6,125 8,843 1,162 7,681 10,500 0 18,761 0 0
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