-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Ax8LwwK3lrysCircTOuzJGG54MlUpSPPK7fIyi90GOnA/dmlvIHFMEkcxnAL1KSt l/eWIMhAepzPYVT9+40uPg== 0000950144-94-001079.txt : 19940517 0000950144-94-001079.hdr.sgml : 19940517 ACCESSION NUMBER: 0000950144-94-001079 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN CO CENTRAL INDEX KEY: 0000092122 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 580690070 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03526 FILM NUMBER: 94528651 BUSINESS ADDRESS: STREET 1: 64 PERIMETER CTR EAST CITY: ATLANTA STATE: GA ZIP: 30346 BUSINESS PHONE: 4043930650 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALABAMA POWER CO CENTRAL INDEX KEY: 0000003153 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 630004250 STATE OF INCORPORATION: AL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03164 FILM NUMBER: 94528652 BUSINESS ADDRESS: STREET 1: 600 N 18TH ST STREET 2: P O BOX 2641 CITY: BIRMINGHAM STATE: AL ZIP: 35291 BUSINESS PHONE: 2052501000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEORGIA POWER CO CENTRAL INDEX KEY: 0000041091 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 580257110 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06468 FILM NUMBER: 94528653 BUSINESS ADDRESS: STREET 1: 333 PIEDMONT AVE NE CITY: ATLANTA STATE: GA ZIP: 30308 BUSINESS PHONE: 4045266526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULF POWER CO CENTRAL INDEX KEY: 0000044545 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 590276810 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-02429 FILM NUMBER: 94528654 BUSINESS ADDRESS: STREET 1: 500 BAYFRONT PKWY CITY: PENSACOLA STATE: FL ZIP: 32501 BUSINESS PHONE: 9044446111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MISSISSIPPI POWER CO CENTRAL INDEX KEY: 0000066904 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 640205820 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11229 FILM NUMBER: 94528655 BUSINESS ADDRESS: STREET 1: 2992 W BEACH CITY: GULFPORT STATE: MS ZIP: 39501 BUSINESS PHONE: 6018641211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAVANNAH ELECTRIC & POWER CO CENTRAL INDEX KEY: 0000086940 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 580418070 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05072 FILM NUMBER: 94528656 BUSINESS ADDRESS: STREET 1: 600 BAY ST EAST CITY: SAVANNAH STATE: GA ZIP: 31401 BUSINESS PHONE: 9122327171 10-Q 1 SOUTHERN COMPANY FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1994 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) 64 Perimeter Center East Atlanta, Georgia 30346 (404) 393-0650 1-3164 ALABAMA POWER COMPANY 63-0004250 (An Alabama Corporation) 600 North 18th Street Birmingham, Alabama 35291 (205) 250-1000 1-6468 GEORGIA POWER COMPANY 58-0257110 (A Georgia Corporation) 333 Piedmont Avenue, N.E. Atlanta, Georgia 30308 (404) 526-6526 0-2429 GULF POWER COMPANY 59-0276810 (A Maine Corporation) 500 Bayfront Parkway Pensacola, Florida 32501 (904) 444-6111 0-6849 MISSISSIPPI POWER COMPANy 64-0205820 (A Mississippi Corporation) 2992 West Beach Gulfport, Mississippi 39501 (601) 864-1211 1-5072 SAVANNAH ELECTRIC AND POWER COMPANY 58-0418070 (A Georgia Corporation) 600 Bay Street, East Savannah, Georgia 31401 (912) 232-7171
2 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No____
DESCRIPTION OF SHARES OUTSTANDING REGISTRANT COMMON STOCK AT APRIL 30, 1994 - ---------- ------------- ----------------- THE SOUTHERN COMPANY PAR VALUE $5 PER SHARE 648,346,540 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. 3 Table of Contents PART I
PAGE DEFINITIONS 4 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES Management's Opinion as to Fair Statement of Results 6 Condensed Statements of Income 7 Condensed Statements of Cash Flows 8 Condensed Balance Sheets 9 Management's Discussion and Analysis of Results of Operations and Financial Condition 11 ALABAMA POWER COMPANY Management's Opinion as to Fair Statement of Results 17 Review by Independent Public Accountants 17 Condensed Statements of Income 18 Condensed Statements of Cash Flows 19 Condensed Balance Sheets 20 Management's Discussion and Analysis of Results of Operations and Financial Condition 22 Exhibit 1 - Report of Independent Public Accountants 25 GEORGIA POWER COMPANY Management's Opinion as to Fair Statement of Results 27 Review by Independent Public Accountants 27 Condensed Statements of Income 28 Condensed Statements of Cash Flows 29 Condensed Balance Sheets 30 Management's Discussion and Analysis of Results of Operations and Financial Condition 32 Exhibit 1 - Report of Independent Public Accountants 36 GULF POWER COMPANY Management's Opinion as to Fair Statement of Results 38 Condensed Statements of Income 39 Condensed Statements of Cash Flows 40 Condensed Balance Sheets 41 Management's Discussion and Analysis of Results of Operations and Financial Condition 43 MISSISSIPPI POWER COMPANY Management's Opinion as to Fair Statement of Results 47 Condensed Statements of Income 48 Condensed Statements of Cash Flows 49 Condensed Balance Sheets 50 Management's Discussion and Analysis of Results of Operations and Financial Condition 52 SAVANNAH ELECTRIC AND POWER COMPANY Management's Opinion as to Fair Statement of Results 56 Condensed Statements of Income 57 Condensed Statements of Cash Flows 58 Condensed Balance Sheets 59 Management's Discussion and Analysis of Results of Operations and Financial Condition 61
3 4 Table of Contents (Continued)
PAGE NOTES TO THE CONDENSED FINANCIAL STATEMENTS 64 PART II Item 1. Legal Proceedings 69 Item 6. Exhibits and Reports on Form 8-K 69 SIGNATURES 70
DEFINITIONS
TERM MEANING ---- ------- AFUDC . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for Funds Used During Construction ALABAMA . . . . . . . . . . . . . . . . . . . . . . . . . Alabama Power Company Clean Air Act . . . . . . . . . . . . . . . . . . . . . . Clean Air Act Amendments of 1990 ECO Plan . . . . . . . . . . . . . . . . . . . . . . . . . Environmental Compliance Overview Plan Energy Act . . . . . . . . . . . . . . . . . . . . . . . . Energy Policy Act of 1992 FERC . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Energy Regulatory Commission GEORGIA . . . . . . . . . . . . . . . . . . . . . . . . . Georgia Power Company GULF . . . . . . . . . . . . . . . . . . . . . . . . . . . Gulf Power Company Gulf States . . . . . . . . . . . . . . . . . . . . . . . Gulf States Utilities Company MISSISSIPPI . . . . . . . . . . . . . . . . . . . . . . . Mississippi Power Company NML . . . . . . . . . . . . . . . . . . . . . . . . . . . Nuclear Mutual Limited NRC . . . . . . . . . . . . . . . . . . . . . . . . . . . Nuclear Regulatory Commission PEP . . . . . . . . . . . . . . . . . . . . . . . . . . . Performance Evaluation Plan (PEP-1A) PSC . . . . . . . . . . . . . . . . . . . . . . . . . . . Public Service Commission SAVANNAH . . . . . . . . . . . . . . . . . . . . . . . . Savannah Electric and Power Company SCS . . . . . . . . . . . . . . . . . . . . . . . . . . . Southern Company Services, Inc. SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities and Exchange Commission SEGCO . . . . . . . . . . . . . . . . . . . . . . . . . . Southern Electric Generating Company SOUTHERN . . . . . . . . . . . . . . . . . . . . . . . . The Southern Company
4 5 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES 5 6 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S OPINION AS TO FAIR STATEMENT OF RESULTS The condensed financial statements of SOUTHERN included herein have been prepared by SOUTHERN, without audit, pursuant to the rules and regulations of the SEC. In the opinion of SOUTHERN's management, subject to the effect of such adjustments, if any, as might have been required had the outcome of the uncertainty with respect to the actions of the regulators regarding the recoverability of GEORGIA's investment in the Rocky Mountain pumped storage hydroelectric project as more fully discussed in Note (G) to the Condensed Financial Statements herein, been known, the information furnished herein reflects all adjustments (which, except for the provision for separation benefits recorded in the first quarter of 1994, included only normal recurring adjustments) necessary to present fairly the results for the periods ended March 31, 1994 and 1993. 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 SOUTHERN believes that the disclosures 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 SOUTHERN's latest annual report on Form 10-K. 6 7 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars)
For the Three Months For the Twelve Months Ended March 31, Ended March 31, --------------- --------------- 1994 1993 1994 1993 ---- ---- ---- ---- OPERATING REVENUES $1,932,430 $1,839,562 $8,582,012 $8,104,281 ---------- ---------- ---------- ---------- OPERATING EXPENSES: Operation-- Fuel 479,991 457,387 2,287,610 2,125,084 Purchased power 80,660 94,215 322,129 438,203 Provision for separation benefits 93,150 - 97,605 - Other 330,173 310,795 1,460,627 1,312,175 Maintenance 173,787 157,465 668,886 633,027 Depreciation and amortization 200,210 194,394 799,298 771,928 Amortization of deferred Plant Vogtle expenses, net (Note F) 12,618 3,027 45,875 (15,215) Taxes other than income taxes 118,936 115,042 465,323 440,682 Federal and state income taxes 112,593 129,875 716,700 646,855 ---------- ---------- ---------- ---------- Total operating expenses 1,602,118 1,462,200 6,864,053 6,352,739 ---------- ---------- ---------- ---------- OPERATING INCOME 330,312 377,362 1,717,959 1,751,542 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 3,283 747 11,521 8,307 Interest income 6,098 6,528 29,721 31,322 Other, net (15,876) (8,145) (49,066) (55,499) Income taxes applicable to other income 6,061 3,405 59,868 37,586 ---------- ---------- ---------- ---------- INCOME BEFORE INTEREST CHARGES 329,878 379,897 1,770,003 1,773,258 ---------- ---------- ---------- ---------- INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest on long-term debt 142,571 155,662 581,655 662,125 Allowance for debt funds used during construction (4,384) (2,654) (14,984) (11,366) Interest on interim obligations 9,249 5,763 33,319 17,729 Amortization of debt discount, premium and expense, net 7,361 5,504 28,153 17,070 Other interest charges 12,144 14,314 84,918 40,844 Preferred dividends of subsidiary companies 21,334 24,305 90,495 101,328 ---------- ---------- ---------- ---------- Net interest charges and preferred dividends 188,275 202,894 803,556 827,730 ---------- ---------- ---------- ---------- CONSOLIDATED NET INCOME $ 141,603 $ 177,003 $ 966,447 $ 945,528 ========== ========== ========== ========== AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING *(THOUSANDS) 646,452 633,565 640,540 632,408 EARNINGS PER SHARE OF COMMON STOCK* $0.22 $0.28 $1.51 $1.50 CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK* $0.295 $0.285 $1.15 $1.11
*The data for 1993 are adjusted to reflect a two-for-one common stock split in the form of a stock distribution for each share issued and outstanding as of February 7, 1994. ( ) Denotes red figure. The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements. 7 8 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars)
For the Three Months Ended March 31, -------------------- 1994 1993 ---- ---- OPERATING ACTIVITIES: Consolidated net income $141,603 $177,003 Adjustments to reconcile consolidated net income to net cash provided by operating activities-- Depreciation and amortization 259,093 247,636 Deferred income taxes, net (2,844) 33,590 Allowance for equity funds used during construction (3,283) (747) Deferred Plant Vogtle costs 12,618 3,027 Provision for separation benefits 91,466 - Other, net (30,373) (26,120) Changes in certain current assets and liabilities-- Receivables, net 177,397 172,464 Fossil fuel stock (30,907) (73,013) Materials and supplies 2,892 2,335 Accounts payable (94,587) (64,196) Other (62,362) 22,113 --------- -------- Net cash provided from operating activities 460,713 494,092 --------- -------- INVESTING ACTIVITIES: Gross property additions (319,410) (262,792) Other (40,133) (41,251) --------- -------- Net cash used in investing activities (359,543) (304,043) --------- -------- FINANCING ACTIVITIES: Proceeds-- Common stock 121,767 40,000 First mortgage bonds 35,000 1,155,000 Pollution control bonds 52,465 4,085 Other long-term debt 264,653 704 Retirements-- Preferred stock (1,000) (107,500) First mortgage bonds (72,128) (601,354) Pollution control bonds (52,465) (5,245) Other long-term debt (37,652) (18,367) Special deposits-redemption funds - (49,125) Interim obligations, net (181,833) (280,944) Payment of common stock dividends (191,262) (180,381) Miscellaneous (3,702) (48,186) --------- -------- Net cash provided from (used in) financing activities (66,157) (91,313) --------- -------- NET CHANGE IN CASH AND CASH EQUIVALENTS 35,013 98,736 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 178,346 97,313 --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $213,359 $196,049 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $166,489 $154,128 Income taxes 49,356 1,201
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements. 8 9 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS
At March 31, 1994 At December 31, (Unaudited) 1993 ------------ --------------- UTILITY PLANT: Plant in service (Note C) $27,812,068 $27,686,539 Less accumulated provision for depreciation 9,100,658 8,933,717 ----------- ----------- 18,711,410 18,752,822 Nuclear fuel, at amortized cost 221,151 229,293 Construction work in progress 1,142,370 1,031,240 ----------- ----------- Total 20,074,931 20,013,355 ----------- ----------- OTHER PROPERTY AND INVESTMENTS: Foreign utility operations, being amortized 552,713 558,960 Nuclear decommissioning trusts (Note C) 88,384 87,487 Miscellaneous 92,564 89,425 ----------- ----------- Total 733,661 735,872 ----------- ----------- CURRENT ASSETS: Cash and cash equivalents 213,359 178,346 Receivables, less accumulated provisions for uncollectible accounts of $8,654 at March 31, 1994 and $9,067 at December 31, 1993 967,337 1,146,774 Fossil fuel stock, at average cost 271,940 241,051 Materials and supplies, at average cost 531,848 547,697 Prepayments 152,181 147,915 Miscellaneous 84,264 73,074 ----------- ----------- Total 2,220,929 2,334,857 ----------- ----------- DEFERRED CHARGES: Deferred charges related to income taxes 1,531,015 1,546,338 Deferred Plant Vogtle costs (Note F) 494,362 506,980 Debt expense and loss, being amortized 321,063 320,515 Deferred fuel charges 64,338 70,404 Miscellaneous 432,459 382,336 ----------- ----------- Total 2,843,237 2,826,5723 ----------- ----------- TOTAL ASSETS $25,872,758 $25,910,657 =========== ===========
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements. 9 10 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES
At March 31, 1994 At December 31, (Unaudited) 1993 -------------- --------------- CAPITALIZATION: Common stock, par value $5 per share - Authorized - 1 billion shares; Outstanding - March 31, 1994: 648,346,540 shares December 31, 1993: 642,661,658 shares* $ 3,241,734 $ 3,213,308 Paid-in capital 1,595,391 1,502,193 Premium on preferred stock 1,012 1,012 Retained earnings 2,917,663 2,967,706 ----------- ----------- 7,755,800 7,684,219 Preferred stock 1,332,203 1,332,203 Preferred stock subject to mandatory redemption 500 1,000 Long-term debt 7,656,946 7,411,455 ----------- ----------- Total 16,745,449 16,428,877 ----------- ----------- CURRENT LIABILITIES: Preferred stock due within one year 500 1,000 Long-term debt due within one year 101,252 155,638 Notes payable 665,926 865,381 Commercial paper 93,149 75,527 Accounts payable 563,653 697,749 Customer deposits 103,603 102,822 Taxes accrued-- Federal and state income 75,950 34,023 Other 105,781 171,673 Interest accrued 176,212 186,057 Vacation pay accrued 91,940 90,206 Miscellaneous 185,947 190,638 ----------- ----------- Total 2,163,913 2,570,714 ----------- ----------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 3,980,782 3,978,889 Deferred credits related to income taxes 1,036,584 1,050,512 Accumulated deferred investment tax credits 891,702 900,203 Disallowed Plant Vogtle capacity buyback costs 59,921 63,067 Prepaid capacity revenues, net 142,474 143,762 Miscellaneous 851,933 774,633 ----------- ----------- Total 6,963,396 6,911,066 ----------- ----------- TOTAL CAPITALIZATION AND LIABILITIES $25,872,758 $25,910,657 =========== ===========
*Adjusted to reflect a two-for-one common stock split in the form of a stock distribution for each share issued and outstanding as of February 7, 1994. The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements. 10 11 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS EARNINGS SOUTHERN's earnings for the first three months of 1994 were lower than earnings recorded in the same period of 1993 primarily because of costs associated with workforce reduction programs for GEORGIA and the system service company, SCS. Consolidated net income was $142 million for the first quarter of 1994, compared to $177 million for the first quarter of 1993. Earnings per share were $0.22 in the first quarter of 1994, compared to $0.28 in the corresponding period of 1993. However, disregarding the after-tax effect of the workforce reduction programs of $57 million ($0.09 per share), earnings would have risen approximately $22 million. The improvement in operating results was primarily the result of higher retail revenues and lower capital costs. REVENUES Retail energy sales increased 4.9% primarily because of weather, abetted by improvement in the economy. Energy sales to residential, commercial and industrial customers increased 6.8%, 6.7% and 2.5%, respectively. Wholesale energy sales decreased due to reduced demand and scheduled reductions in off-system contracts. Capacity revenues for the first quarter of 1994 were $21 million less than in the first quarter of 1993 primarily because GEORGIA completed the second sale of a portion of Plant Scherer Unit 4 in June 1993. The third sale in a series of four transactions for the sale of this generating unit is scheduled for June 1994. The generation from this unit has been dedicated to unit power sales. EXPENSES Fuel expense for the first three months of 1994, compared to the corresponding period of 1993, increased due primarily to a 3.8% increase in fossil fuel generation. The increase in fossil generation was necessitated by increased demand and reduced hydro generation. Purchased power expense decreased because of the reduction in capacity buyback payments by GEORGIA to the co-owners of plants Vogtle and Scherer. See Note (F) to the Condensed Financial Statements herein for information regarding the Georgia PSC's retail rate order that required the levelization of capacity buyback expense for Plant Vogtle. The workforce reduction programs initiated by GEORGIA and SCS and an earlier one for SAVANNAH are projected to yield pre-tax savings, disregarding the one-time cost of these programs, of approximately $16 million in 1994 and approximately $30 million in each of the succeeding four years. Maintenance expenses increased due to the timing of scheduled maintenance on generating units. The increase in depreciation and amortization is attributable to increased investment in plant. The decrease in income tax expense was not proportionate to the change in net income because of the federal income tax rate increase enacted in August 1993. 11 12 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS (Continued) INTEREST CHARGES AND DIVIDENDS ON PREFERRED STOCK The decrease in interest on long-term debt and dividends on preferred stock reflects the SOUTHERN system's efforts to decrease its capital costs. In response to the low interest rate levels prevailing during 1992 and 1993, the SOUTHERN system refinanced a significant portion of its long-term debt and preferred stock. To the extent it is economically feasible, efforts to reduce capital costs will continue. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION AFUDC represents the cost of capital charged to utility plant under construction and not included in rate base. The equity portion represents non-cash income. However, when facilities are completed and included in rate base, previously capitalized amounts significantly increase cash flow because revenues are higher as a result of the increased rate base and additional depreciation expense. FUTURE EARNINGS POTENTIAL The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings is contingent upon numerous factors ranging from regulatory matters to growth in energy sales. Reference is made to the Notes to the Condensed Financial Statements herein for further discussion of various uncertainties and legal proceedings related to: the actions of regulators regarding the recovery of GEORGIA's investment in the Rocky Mountain pumped storage hydroelectric project; a civil suit filed against ALABAMA related to financing agreements; a suit filed against GULF related to fuel transportation; and the outcome of a proceeding initiated by the FERC to determine the appropriate return on equity on wholesale power and transmission contracts. Pursuant to an Integrated Resource Plan approved by the Georgia PSC, GEORGIA has implemented various demand-side option programs and had been authorized by the Georgia PSC to recover associated program costs through rate riders. In October 1993, a superior court judge ruled that recovery of these costs through rate riders was unlawful. GEORGIA has appealed this ruling and ceased collection of the rate riders. The Georgia PSC has allowed the deferral of program costs pending the final outcome of this matter. For additional information on this matter, see Note (H) to the Condensed Financial Statements herein. Compliance costs related to the Clean Air Act will reduce earnings if such increased costs cannot be offset. The Clean Air Act is discussed under "Environmental Matters" in Item 7 - Management's Discussion and Analysis in SOUTHERN's 1993 Annual Report on Form 10-K. 12 13 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS (Continued) Future earnings in the near term will also depend upon growth in electric sales which are subject to a number of factors. Traditionally, these factors have included changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, weather, competition, and the rate of economic growth in SOUTHERN's service area. The enactment of the Energy Act will have a profound effect on the electric utility industry. A discussion of the potential impact of the Energy Act and particularly its effect on competition is found under "Future Earnings Potential" in Item 7 - Management's Discussion and Analysis in SOUTHERN's 1993 Annual Report on Form 10-K. The staff of the SEC has questioned certain of the current accounting practices of the electric utility industry regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in financial statements. In response to these questions the electric utility industry has requested the Financial Accounting Standards Board to review the accounting for removal costs, including decommissioning. If current electric utility industry accounting practices for such decommissioning costs are changed: (1) annual provisions for decommissioning could increase and (2) the total estimated cost for decommissioning may be required to be recorded as a liability on the balance sheet. ALABAMA and GEORGIA do not believe that such changes, if required, would have a significant adverse effect on results of operations due to their current and expected future ability to recover decommissioning costs through rates. Further discussion of nuclear decommissioning costs is made in Note (C) to the Condensed Financial Statements herein. FINANCIAL CONDITION OVERVIEW The major changes in SOUTHERN's financial condition during the first three months of 1994 were the addition of approximately $319 million to utility plant and the sale of SOUTHERN's common stock for $122 million. The funds for gross property additions and other capital requirements were derived primarily from operations, an increase in short-term indebtedness and security sales. See SOUTHERN's Condensed Statements of Cash Flows for further details. Additionally, SOUTHERN's board of directors declared a two-for-one common stock split in the form of a stock distribution for each share issued and outstanding as of February 7, 1994. CAPITAL STRUCTURE One of SOUTHERN's goals is to maintain common equity as a percent of total capitalization, including short-term debt and the current portion of capitalization, within a range of 40 to 45%. This ratio was 44.1% at March 31, 1994, compared to 43.8% at December 31, 1993. The market price of SOUTHERN's common stock at March 31, 1994, was $19 per share, compared to a book value of $11.96. This represents a market-to-book value ratio of 159%. The quarterly dividend for the first quarter of 1994 was 29.5 cents per share. 13 14 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL CONDITION (Continued) CAPITAL REQUIREMENTS FOR CONSTRUCTION The construction program of the Southern electric system is budgeted at $4.3 billion for the three years 1994 through 1996 ($1.5 billion in 1994, $1.3 billion in 1995 and $1.5 billion in 1996). Actual construction costs may vary from this estimate because of such factors as changes in business conditions; changes in nuclear plants to meet new regulations; changes in environmental regulations; revised load growth projections; increasing costs of labor, equipment and materials; and the cost of capital. Current energy demand forecasts do not require any additional baseload generating facilities until well into the future. However, the construction of combustion turbine peaking units of approximately 1,700 megawatts is planned by 1996 to meet the increased peak-hour demands. In addition, significant construction will continue related to transmission and distribution facilities and the upgrading and extension of the useful lives of generating plants. GEORGIA and Oglethorpe Power Corporation have entered into a joint ownership agreement for the latter to assume responsibility for the construction and completion of the Rocky Mountain project. This agreement is described further in Note 4 to the financial statements in Item 8 of SOUTHERN's 1993 Annual Report on Form 10-K. Changes in environmental regulations could substantially increase the Southern electric system's capital requirements and operating costs. The acid rain compliance provision of the Clean Air Act will have a significant impact on the Southern electric system. This legislation, as well as other legislation and regulations, are described under "Environmental Matters" in Item 7 - Management's Discussion and Analysis in SOUTHERN's 1993 Annual Report on Form 10-K. The full impact of these requirements cannot be determined at this time, pending the development and implementation of applicable regulations. OTHER CAPITAL REQUIREMENTS In addition to the funds needed for the construction program, approximately $97 million will be required by March 31, 1995, for present sinking fund requirements and maturities of long-term debt and preferred stock. Also, the operating subsidiaries plan to continue, to the extent possible, a program to retire high-cost debt and preferred stock and replace these obligations with lower-cost capital. SOURCES OF FUNDS In addition to the sale of common stock in the first quarter of 1994, SOUTHERN may require additional equity capital during the remainder of the year. The amounts and timing of additional equity capital to be raised in 1994, as well as in subsequent years, will be contingent on SOUTHERN's investment opportunities. The operating subsidiaries plan to obtain the funds required for construction and other purposes from sources similar to those used in the past. However, the type and timing of financings will depend on market conditions, maintenance of adequate earnings, and 14 15 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL CONDITION (Continued) regulatory approval. Additionally, GEORGIA expects to receive approximately $260 million during 1994 and 1995 from the sale of its remaining ownership interest in Plant Scherer Unit 4. These property sales are discussed further in Note 7 to the financial statements in Item 8 in SOUTHERN's 1993 Annual Report on Form 10-K. To meet short-term cash needs and contingencies, the SOUTHERN system had at March 31, 1994, approximately $213 million of cash and cash equivalents and approximately $1.1 billion of unused credit arrangements with banks. At March 31, 1994, the system companies had outstanding $666 million of notes payable and $93 million of commercial paper. The short-term lines of credit may not be utilized in their entirety without additional regulatory approval. Since the construction program with respect to major generating projects 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. In order to issue additional long-term debt and preferred stock, the operating subsidiaries must comply with certain earnings coverage requirements outlined in their respective mortgage indentures and corporate charters. The coverage ratios of SOUTHERN's operating subsidiaries are sufficiently high to permit, at present interest rate levels, any foreseeable security sales. The amount of securities which they will be permitted to issue in the future will depend upon market conditions and other factors prevailing at that time. 15 16 ALABAMA POWER COMPANY 16 17 ALABAMA POWER COMPANY MANAGEMENT'S OPINION AS TO FAIR STATEMENT OF RESULTS The condensed financial statements of ALABAMA included herein have been prepared by ALABAMA, without audit, pursuant to the rules and regulations of the SEC. In the opinion of ALABAMA's management, the information regarding ALABAMA furnished herein reflects all adjustments (which included only normal recurring adjustments) necessary to present fairly the results for the periods ended March 31, 1994 and 1993. 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 ALABAMA believes that the disclosures regarding ALABAMA 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 ALABAMA's latest annual report on Form 10-K. REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS The condensed financial statements of ALABAMA included herein have been reviewed by ALABAMA's independent public accountants as set forth in their report included herein as Exhibit 1. 17 18 ALABAMA POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars)
For the Three Months For the Twelve Months Ended March 31, Ended March 31, --------------- --------------- 1994 1993 1994 1993 ---- ---- ---- ---- OPERATING REVENUES: Revenues $654,313 $596,226 $2,883,720 $2,676,751 Revenues from affiliates 32,534 39,333 175,176 156,094 -------- -------- ---------- ---------- Total operating revenues 686,847 635,559 3,058,896 2,832,845 -------- -------- ---------- ---------- OPERATING EXPENSES: Operation-- Fuel 185,000 160,430 901,670 777,631 Purchased power from non-affiliates 5,258 3,720 16,767 16,463 Purchased power from affiliates 26,582 27,395 119,516 117,751 Other 110,634 104,493 476,956 447,776 Maintenance 67,659 59,891 260,274 248,104 Depreciation and amortization 72,602 73,074 289,837 282,825 Taxes other than income taxes 46,423 46,926 178,494 174,959 Federal and state income taxes 44,066 35,274 216,003 190,432 -------- -------- ---------- ---------- Total operating expenses 558,224 511,203 2,459,517 2,255,941 -------- -------- ---------- ---------- OPERATING INCOME 128,623 124,356 599,379 576,904 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 667 428 3,499 2,180 Interest income 4,230 4,114 20,891 15,748 Other, net (3,748) (2,803) (24,237) (13,652) Income taxes applicable to other income 667 771 10,134 8,447 -------- -------- ---------- ---------- INCOME BEFORE INTEREST CHARGES 130,439 126,866 609,666 589,627 -------- -------- ---------- ---------- INTEREST CHARGES: Interest on long-term debt 44,489 49,207 180,143 203,235 Allowance for debt funds used during construction (683) (594) (3,082) (2,112) Interest on interim obligations 810 794 3,776 3,675 Amortization of debt discount, premium, and expense, net 2,472 1,860 9,549 5,491 Other interest charges 4,961 9,939 30,497 24,569 -------- -------- ---------- ---------- Net interest charges 52,049 61,206 220,883 234,858 -------- -------- ---------- ---------- NET INCOME 78,390 65,660 388,783 354,769 DIVIDENDS ON PREFERRED STOCK 6,359 7,804 28,114 33,402 -------- -------- ---------- ---------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 72,031 $ 57,856 $ 360,669 $ 321,367 ======== ======== ========== ==========
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements. 18 19 ALABAMA POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars)
For the Three Months Ended March 31, -------------------- 1994 1993 --------- --------- OPERATING ACTIVITIES: Net income $ 78,390 $ 65,660 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 88,655 89,571 Deferred income taxes, net (18,561) (14,400) Allowance for equity funds used during construction (667) (428) Other, net 9,289 25,387 Change in certain current assets and liabilities: Receivables, net 68,069 53,590 Inventories (6,787) (54,916) Payables (52,536) (28,162) Taxes accrued 50,245 54,098 Energy cost recovery, retail 1,719 25,863 Other (51,743) (37,392) --------- --------- Net cash provided from operating activities 166,073 178,871 --------- --------- INVESTING ACTIVITIES: Gross property additions (99,622) (98,939) Other (10,076) 2,127 --------- --------- Net cash used for investing activities (109,698) (96,812) --------- --------- FINANCING ACTIVITIES: Proceeds: First mortgage bonds - 610,000 Other long-term debt 27,987 625 Retirements: Preferred stock - (49,000) First mortgage bonds (20,387) (243,525) Other long-term debt (32,388) (9,513) Interim obligations, net 50,398 (194,916) Special deposits - redemption fund - (49,125) Payment of preferred stock dividends (5,759) (8,926) Payment of common stock dividends (66,500) (62,900) Miscellaneous (636) (21,682) --------- --------- Net cash provided from (used for) financing activities (47,285) (28,962) --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS 9,090 53,097 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,233 13,629 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,323 $ 66,726 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $ 48,347 $ 35,981 Income taxes 14,896 448
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements. 19 20 ALABAMA POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS
At March 31, 1994 At December 31, (Unaudited) 1993 -------------- -------------- UTILITY PLANT: Plant in service, at original cost (Note C) $9,807,079 $9,757,141 Less accumulated provision for depreciation 3,454,093 3,384,156 ---------- ---------- 6,352,986 6,372,985 Nuclear fuel, at amortized cost 88,761 93,551 Construction work in progress 261,806 225,786 ---------- ---------- Total 6,703,553 6,692,322 ---------- ---------- OTHER PROPERTY AND INVESTMENTS 99,845 99,185 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents 12,323 3,233 Receivables -- Customer accounts receivable 267,732 312,090 Other accounts and notes receivable 41,765 48,808 Affiliated companies 28,038 40,216 Accumulated provision for uncollectible accounts (2,453) (2,632) Refundable income taxes 5,552 11,940 Fossil fuel stock, at average cost 102,343 88,481 Materials and supplies, at average cost 169,653 176,728 Prepayments-- Income taxes 8,941 18,980 Other 102,338 60,227 Vacation pay deferred 22,680 22,680 ---------- ---------- Total 785,912 780,751 ---------- ---------- DEFERRED CHARGES: Deferred charges related to income taxes 465,942 469,010 Debt expense and loss, being amortized 108,557 109,698 Uranium enrichment decontamination and decommissioning fund 44,726 45,554 Miscellaneous 54,639 52,163 ---------- ---------- Total 673,864 676,425 ---------- ---------- TOTAL ASSETS $8,236,174 $8,248,683 ========== ==========
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements. 20 21 ALABAMA POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES
At March 31, 1994 At December 31, (Unaudited) 1993 ---------------- -------------- CAPITALIZATION: Common stock equity -- Common stock, par value $40 per share--authorized 6,000,000 shares, outstanding 5,608,955 shares $ 224,358 $ 224,358 Paid-in capital 1,304,645 1,304,645 Premium on preferred stock 146 146 Retained earnings 1,002,627 997,199 ---------- ---------- 2,531,776 2,526,348 Preferred stock 440,400 440,400 Long-term debt 2,350,507 2,362,852 ---------- ---------- Total 5,322,683 5,329,600 ---------- ---------- CURRENT LIABILITIES: Long-term debt due within one year 47,376 58,998 Notes payable 47,000 40,000 Commercial paper 43,398 - Accounts payable-- Affiliated companies 52,941 62,507 Other 223,108 272,491 Customer deposits 31,719 31,198 Taxes accrued -- Federal and state income 58,418 25,730 Other 30,810 14,414 Interest accrued 49,604 52,809 Miscellaneous 59,978 73,106 ---------- ---------- Total 644,352 631,253 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 1,147,956 1,165,127 Accumulated deferred investment tax credits 326,620 329,909 Prepaid capacity revenues, net 142,474 143,762 Uranium enrichment decontamination and decommissioning fund 39,644 39,644 Deferred credits related to income taxes 434,815 441,240 Miscellaneous 177,630 168,148 ---------- ---------- Total 2,269,139 2,287,830 ---------- ---------- TOTAL CAPITALIZATION AND LIABILITIES $8,236,174 $8,248,683 ========== ==========
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements. 21 22 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS ALABAMA's financial performance during the first quarter of 1994 improved, compared to the same period of 1993, due primarily to higher retail revenues and lower financing costs. Net income after dividends on preferred stock was $72.0 million during the first three months of 1994, compared to $57.9 million in the corresponding period of 1993. REVENUES Operating revenues in the first three months of 1994 increased over the corresponding period of 1993 due to higher energy sales to retail customers. The rise in retail energy sales of 5.0% is attributable primarily to an increase in customers served, weather and the improving economy in Alabama. Revenues from non-affiliated wholesale customers also increased, including an $11.5 million increase in capacity revenues. Total energy sales increased 3.2%. 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. EXPENSES Fuel expense increased because of a 17.5% increase in coal-fired generation. Coal-fired generation increased because of greater demand and lower hydro generation. Other operation expenses increased primarily due to a workforce reduction program initiated by the system service company, SCS, for which ALABAMA recorded $7.3 million as its share of such costs (includes allocation of $1.9 million from Southern Nuclear Operating Company). Maintenance expenses for the first quarter of 1994 were higher than the same period of 1993 due primarily to increased maintenance on fossil generating units and transmission plant. The decrease in depreciation and amortization reflects lower average depreciation rates effective January 1994 primarily as a result of new estimates of the expected lives of certain fossil generating units. The increase in income tax expense reflected the improvement in earnings and an increase in the federal income tax rate enacted in August 1993. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it is realized over the service life of the plant through increased revenues resulting from a higher rate base and higher depreciation expense. The amount of AFUDC recorded will rise as ALABAMA's investment in the construction of combustion turbine peaking units approach commercial operation. INTEREST CHARGES AND DIVIDENDS ON PREFERRED STOCK The decrease in interest on long-term debt and dividends on preferred stock reflects ALABAMA's 22 23 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS (Continued) efforts to decrease its capital costs. ALABAMA, in response to the low interest rate levels prevailing during 1992 and 1993, refinanced a significant portion of its long-term debt and preferred stock. 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 regulatory matters to growth in energy sales. Discussed in the Notes to the Condensed Financial Statements herein are certain regulatory and legal proceedings that may impact ALABAMA's future earnings. The issues include a civil suit related to financing agreements and proceedings concerning the reasonableness of the Southern electric system's wholesale rate schedules and contracts. Compliance costs related to the Clean Air Act will reduce earnings if such cost increases cannot be offset. The Clean Air Act and other environmental issues are discussed under "Environmental Issues" in Item 7 - Management's Discussion and Analysis in ALABAMA's 1993 Annual Report on Form 10-K. Future earnings will also depend upon growth in electric sales which are subject to a number of factors. Traditionally, these factors have included changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, weather, competition, and the rate of economic growth in ALABAMA's service area. The enactment of the Energy Act will have a profound effect on the future of the electric utility industry. A discussion of the potential impact of the Energy Act and particularly its effect on competition is found under "Future Earnings Potential" in Item 7 - Management's Discussion and Analysis in ALABAMA's 1993 Annual Report on Form 10-K. The staff of the SEC has questioned certain of the current accounting practices of the electric utility industry regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in financial statements. In response to these questions the electric utility industry has requested the Financial Accounting Standards Board to review the accounting for removal costs, including decommissioning. If current electric utility industry accounting practices for such decommissioning costs are changed: (1) annual provisions for decommissioning could increase and (2) the total estimated cost for decommissioning may be required to be recorded as a liability on the balance sheet. ALABAMA does not believe that such changes, if required, would have a significant adverse effect on results of operations due to its current and expected future ability to recover decommissioning costs through rates. Further discussion of nuclear decommissioning costs is made in Note (C) to the Condensed Financial Statements herein. 23 24 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL CONDITION OVERVIEW The principal change in ALABAMA's financial condition in the first three months of 1994 was gross property additions of $100 million to utility plant. The funds for gross property additions were derived from operating activities and an increase in short-term debt. See ALABAMA's Condensed Statements of Cash Flows herein for further details. During the first three months of 1994, ALABAMA refinanced $24.4 million of pollution control bonds. ALABAMA's common equity as a percent of total capitalization was 47.6% at March 31, 1994, compared to 47.4% at year-end 1993. LIQUIDITY AND CAPITAL RESOURCES ALABAMA has regulatory approval for short-term borrowings of up to $450 million. At March 1994, ALABAMA had outstanding $43 million of commercial paper and $47 million of notes payable and had $469 million of committed lines of credit available. Capital expenditures are estimated to total $1.7 billion for the three years 1994 through 1996 ($588 million in 1994, $572 million in 1995 and $531 million in 1996). Current energy demand forecasts do not require any additional baseload generating facilities until well into the future. However, the construction of combustion turbine peaking units of approximately 720 megawatts of capacity is planned by 1996 to meet increased peak-hour demands. In addition, significant construction of transmission and distribution facilities and upgrading of generating plants will continue. The capital budget is subject to periodic review and revision and capital costs incurred may vary from estimates because of several factors, including changes in business conditions; revised load growth projections; changes in environmental regulations; changes in existing nuclear plant to meet new regulatory requirements; increasing costs of labor, equipment and materials; and the cost of capital. In addition to the funds needed for the capital budget, approximately $47.4 million will be required by March 31, 1995, for debt maturities. Also, ALABAMA plans to continue a program to retire higher-cost debt and preferred stock and replace these obligations with lower-cost capital. It is anticipated that the funds required will be derived from sources similar to those used in the past. In order to issue additional first mortgage bonds and preferred stock, ALABAMA must comply with certain earnings coverage requirements contained in its mortgage indenture and corporate charter. ALABAMA's coverages are at a level that would permit any necessary amount of security sales at current interest and dividend rates. 24 25 ARTHUR ANDERSEN & CO. Exhibit 1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO ALABAMA POWER COMPANY: We have reviewed the accompanying condensed balance sheet of ALABAMA POWER COMPANY as of March 31, 1994, and the related condensed statements of income for the three-month and twelve-month periods ended March 31, 1994 and 1993, and condensed statements of cash flows for the three-month periods ended March 31, 1994 and 1993. 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, 1993 (not presented herein) and, in our report dated February 16, 1994, 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, 1993 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. /s/ ARTHUR ANDERSEN & CO. Birmingham, Alabama May 6, 1994 25 26 GEORGIA POWER COMPANY 26 27 GEORGIA POWER COMPANY MANAGEMENT'S OPINION AS TO FAIR STATEMENT OF RESULTS The condensed financial statements of GEORGIA included herein have been prepared by GEORGIA, without audit, pursuant to the rules and regulations of the SEC. As more fully discussed in Note (G) to the Condensed Financial Statements herein, an uncertainty exists with respect to the actions of the regulators regarding the recoverability of GEORGIA's investment in the Rocky Mountain pumped storage hydroelectric project. In the opinion of GEORGIA's management, subject to the effect of such adjustments, if any, as might have been required had the outcome of the uncertainty been known, the information regarding GEORGIA furnished herein reflects all adjustments (which, except for the provision for separation benefits recorded in the first quarter of 1994, included only normal recurring adjustments) necessary to present fairly the results for the periods ended March 31, 1994 and 1993. 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 SEC rules and regulations, although GEORGIA believes that the disclosures regarding GEORGIA 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 GEORGIA's latest annual report on Form 10-K. REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS The condensed financial statements of GEORGIA included herein have been reviewed by GEORGIA's independent public accountants as set forth in their report included herein as Exhibit 1. 27 28 GEORGIA POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars)
For the Three Months For the Twelve Months Ended March 31, Ended March 31, -------------------- --------------------- 1994 1993 1994 1993 ---- ---- ---- ---- OPERATING REVENUES: Revenues $968,059 $ 983,561 $4,374,011 $4,264,366 Revenues from affiliates 24,273 20,254 65,687 79,656 -------- --------- ---------- ---------- Total operating revenues 992,332 1,003,815 4,439,698 4,344,022 -------- --------- ---------- ---------- OPERATING EXPENSES: Operation-- Fuel 211,995 212,512 950,990 951,542 Purchased power from non-affiliates 71,757 89,902 295,025 421,681 Purchased power from affiliates 28,450 41,605 180,869 160,283 Provision for separation benefits 84,689 - 84,689 7,301 Other 152,626 148,062 679,849 613,480 Maintenance 75,089 64,567 295,042 264,911 Depreciation and amortization 94,049 92,369 381,105 375,171 Amortization of deferred Plant Vogtle expenses, net (Note F) 12,618 3,027 45,875 (15,215) Taxes other than income taxes 49,536 47,059 195,148 180,620 Federal and state income taxes 54,383 83,782 422,723 389,076 -------- --------- ---------- ---------- Total operating expenses 835,192 782,885 3,531,315 3,348,850 -------- --------- ---------- ---------- OPERATING INCOME 157,140 220,930 908,383 995,172 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 1,637 129 4,676 4,656 Interest income 361 1,474 2,692 11,453 Other, net (1,100) (2,456) 17,387 (25,397) Income taxes applicable to other income 2,611 2,259 38,012 24,775 -------- --------- ---------- ---------- INCOME BEFORE INTEREST CHARGES 160,649 222,336 971,150 1,010,659 -------- --------- ---------- ---------- INTEREST CHARGES: Interest on long-term debt 80,099 91,529 332,204 390,046 Allowance for debt funds used during construction (2,676) (1,880) (9,068) (8,140) Interest on interim obligations 3,527 4,373 14,684 11,695 Amortization of debt discount, premium and expense, net 3,874 2,915 14,984 9,270 Other interest charges 6,503 3,759 50,137 13,832 -------- --------- ---------- ---------- Net interest charges 91,327 100,696 402,941 416,703 -------- --------- ---------- ---------- NET INCOME 69,322 121,640 568,209 593,956 DIVIDENDS ON PREFERRED STOCK 11,713 13,275 49,112 56,338 -------- --------- ---------- ---------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 57,609 $ 108,365 $ 519,097 $ 537,618 ======== ========= ========== ==========
( ) Denotes red figure. The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements. 28 29 GEORGIA POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars)
For the Three Months Ended March 31, -------------------- 1994 1993 ---- ---- OPERATING ACTIVITIES Net income $ 69,322 $121,640 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 121,351 118,731 Deferred income taxes, net 18,748 47,533 Allowance for equity funds used during construction (1,637) (129) Deferred Plant Vogtle costs 12,618 3,027 Provision for separation benefits 84,275 - Other, net (18,706) (9,360) Changes in current assets and liabilities-- Receivables, net 110,120 90,910 Inventories (14,541) (8,371) Payables (25,863) (36,877) Taxes accrued (68,762) (10,814) Other (1,346) (15,114) --------- -------- NET CASH PROVIDED FROM OPERATING ACTIVITIES 285,579 301,176 --------- -------- INVESTING ACTIVITIES Property additions (143,034) (122,088) Other (12,052) (27,009) --------- -------- NET CASH USED FOR INVESTING ACTIVITIES (155,086) (149,097) --------- -------- FINANCING ACTIVITIES Proceeds-- First mortgage bonds - 510,000 Pollution control bonds 28,065 - Retirements-- Preferred stock - (57,500) First mortgage bonds - (355,379) Pollution control bonds (28,065) - Other long-term debt (128) (149) Interim obligations, net (3,226) (65,528) Payment of preferred stock dividends (11,435) (14,052) Payment of common stock dividends (106,600) (100,100) Miscellaneous (1,569) (25,777) --------- -------- NET CASH USED FOR FINANCING ACTIVITIES (122,958) (108,485) --------- -------- NET CHANGE IN CASH AND CASH EQUIVALENTS 7,535 43,594 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,896 22,114 --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,431 $ 65,708 ========= ======== SUPPLEMENTAL CASH FLOW INFORMATION-- Interest (net of amount capitalized) $ 93,342 $105,161 Income taxes 33,967 128
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements. 29 30 GEORGIA POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS
At March 31, 1994 At December 31, (Unaudited) 1993 -------------- --------------- UTILITY PLANT: Plant in service (Note C) $13,823,602 $13,743,521 Less accumulated provision for depreciation 3,908,860 3,822,344 ----------- ----------- 9,914,742 9,921,177 Nuclear fuel, at amortized cost 132,390 135,742 Construction work in progress 609,021 584,013 ----------- ----------- Total 10,656,153 10,640,932 ----------- ----------- OTHER PROPERTY AND INVESTMENTS: SEGCO, at equity 28,793 29,201 Nuclear decommissioning trusts (Note C) 38,345 37,937 Miscellaneous 36,536 31,941 ----------- ----------- Total 103,674 99,079 ----------- ----------- CURRENT ASSETS: Cash and cash equivalents 13,431 5,896 Receivables-- Customer accounts receivable 398,360 486,947 Other accounts and notes receivable 87,463 117,249 Affiliated companies 20,967 14,832 Accumulated provision for uncollectible accounts (4,300) (4,300) Fossil fuel stock, at average cost 124,189 111,620 Materials and supplies, at average cost 289,523 287,551 Prepayments 50,529 65,269 Vacation pay deferred 41,075 41,575 ----------- ----------- Total 1,021,237 1,126,639 ----------- ----------- DEFERRED CHARGES: Deferred charges related to income taxes 980,879 992,510 Deferred Plant Vogtle costs (Note F) 494,362 506,980 Debt expense and loss, being amortized 172,381 173,876 Miscellaneous 218,135 196,094 ----------- ----------- Total 1,865,757 1,869,460 ----------- ----------- TOTAL ASSETS $13,646,821 $13,736,110 =========== ===========
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements. 30 31 GEORGIA POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES
At March 31, 1994 At December 31, (Unaudited) 1993 -------------- --------------- CAPITALIZATION: Common stock equity-- Common stock (without par value) -- authorized 15,000,000 shares, outstanding 7,761,500 shares $ 344,250 $ 344,250 Paid-in capital 2,384,348 2,384,348 Premium on preferred stock 413 413 Retained earnings 1,267,357 1,316,447 ------------- ------------ 3,996,368 4,045,458 Preferred stock 692,787 692,787 Long-term debt 4,032,349 4,031,387 ------------- ------------ Total 8,721,504 8,769,632 ------------- ------------ CURRENT LIABILITIES: Long-term debt due within one year 10,412 10,543 Notes payable to banks 429,250 406,700 Commercial paper 49,751 75,527 Accounts payable-- Affiliated companies 41,142 38,115 Other 242,900 285,929 Customer deposits 46,077 45,922 Taxes accrued-- Federal and state income 30,697 31,639 Other 54,035 121,854 Interest accrued 104,607 110,497 Miscellaneous 124,980 104,587 ------------- ------------ Total 1,133,851 1,231,313 ------------- ------------ DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 2,501,370 2,479,720 Accumulated deferred investment tax credits 474,296 478,334 Disallowed Plant Vogtle capacity buyback costs 59,921 63,067 Deferred credits related to income taxes 447,336 452,819 Miscellaneous 308,543 261,225 ------------- ------------ Total 3,791,466 3,735,165 ------------- ------------ TOTAL CAPITALIZATION AND LIABILITIES $ 13,646,821 $ 13,736,110 ============= =============
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements. 31 32 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS EARNINGS GEORGIA's earnings for the first quarter of 1994 declined compared to the corresponding quarter of 1993, primarily as a result of charges related to workforce reduction programs at GEORGIA and the system service company, SCS. Net income after dividends on preferred stock was $57.6 million in the first quarter of 1994 and $108.4 million in the first quarter of 1993. However, disregarding the provision for separation benefits, GEORGIA's earnings would have been slightly above earnings in the first quarter of 1993. REVENUES Total operating revenues decreased compared to the first quarter of 1993 because of the decrease in energy sales to non-affiliated wholesale customers. Excluding fuel clause revenues, which represent the pass-through of fuel expenses and do not affect income, operating revenues for the first quarter of 1994 decreased $5.8 million, compared to the corresponding period of 1993. Retail - Retail energy sales increased 4.8% primarily because of an increase in customers served and continued improvement in Georgia's economy. Residential, commercial and industrial energy sales increased 4.1%, 6.5% and 3.9%, respectively. Total non-fuel retail revenues increased $14.9 million. Wholesale - Energy sales to non-affiliated wholesale customers for the first quarter of 1994 decreased 33.4%, compared to the corresponding period of 1993. The energy component of contract sales is priced at approximately the variable production cost and does not materially affect earnings. Capacity revenues from non-affiliated utilities outside the service area, which do affect earnings, were down $30.3 million. These capacity revenues decreased as scheduled, due primarily to GEORGIA completing the second in a series of four transactions for the sale of Plant Scherer Unit 4 in June 1993. The third sale of this unit is scheduled for June 1994. The decline in capacity revenues cited above was partially offset by increases in revenues from wholesale customers within the service territory. 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. OPERATING EXPENSES Fuel and Purchased Power - Purchased power expense for the first quarter of 1994 decreased primarily due to scheduled reductions in capacity buyback payments to the co-owners of plants Vogtle and Scherer. See Note (F) to the Condensed Financial Statements herein for information regarding the levelization of capacity buyback expense for Plant Vogtle. In addition, GEORGIA purchased less energy from affiliated companies because of lower wholesale energy demands. 32 33 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS (Continued) Other - As part of the SOUTHERN system's effort to curtail growth in operating expenses, both GEORGIA and SCS initiated workforce reduction programs in the first quarter of 1994. GEORGIA's portion of SCS's costs for such programs amounted to approximately $12.1 million, while GEORGIA's programs amounted to approximately $72.6 million. Other operation expense increased primarily due to the recognition of higher retiree medical and life insurance costs as mandated by Financial Accounting Standard No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." The Georgia PSC ordered that such costs be phased in over a five-year period as further discussed in Note 2 to the financial statements for GEORGIA in Item 8 of the SOUTHERN system's combined 1993 Annual Report on Form 10-K. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION AFUDC represents the cost of capital charged to utility plant under construction and is included in rate base. The equity portion of AFUDC represents non-cash income. The amount of AFUDC recorded will rise as GEORGIA's investment in the construction of combustion turbine peaking units increases as the units approach their commercial operation in 1994 and 1995. Based upon GEORGIA's construction budget, AFUDC is estimated to total $19 million in 1994 and $27 million in 1995. INTEREST CHARGES AND DIVIDENDS ON PREFERRED STOCK Interest charges and preferred stock dividends have declined due to refinancing efforts over the past twelve months. Also, GEORGIA used the proceeds from the Plant Scherer sale to redeem high cost securities. FUTURE EARNINGS POTENTIAL The results of operations discussed above are not necessarily indicative of future earnings. The level of future earnings is contingent upon numerous factors ranging from regulatory matters to growth in energy sales. Pursuant to an Integrated Resource Plan approved by the Georgia PSC, GEORGIA has implemented various demand-side option programs and had been authorized by the Georgia PSC to recover associated program costs through rate riders. In October 1993, a superior court judge ruled that recovery of these costs through rate riders is unlawful. GEORGIA has appealed this ruling and ceased collection of the rate riders. The Georgia PSC has allowed the deferral of program costs pending the final outcome of this matter. For additional information on this matter, see Note (H) to the Condensed Financial Statements herein. The addition of new peaking capacity in 1994 and 1995 will result in increased related operation, maintenance and depreciation expense. In addition, the Rocky Mountain pumped storage hydroelectric project is scheduled to commence commercial operation in 1995. During 1994 and 1995 GEORGIA is scheduled to sell its remaining ownership interest (33.1%) in Plant 33 34 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS (Continued) Scherer Unit 4 to Florida Power & Light and the Jacksonville Electric Authority. These transactions will generate approximately $260 million in cash, including an estimated after-tax gain of approximately $20 million. These transactions coincide with scheduled reductions in capacity sales to these utilities under unit power sales contracts. Future earnings in the near term will also depend upon growth in electric sales which are subject to a number of factors. Traditionally, these factors have included changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, weather, competition, and the rate of economic growth in GEORGIA's service area. The enactment of the Energy Act will have a profound effect on the future of the electric utility industry. A discussion of the potential impact of the Energy Act and particularly its effect on competition is found under "Future Earnings Potential" in Item 7 - Management's Discussion and Analysis in GEORGIA's 1993 Annual Report on Form 10-K. The staff of the SEC has questioned certain of the current accounting practices of the electric utility industry regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in financial statements. In response to these questions the electric utility industry has requested the Financial Accounting Standards Board to review the accounting for removal costs, including decommissioning. If current electric utility industry accounting practices for such decommissioning costs are changed: (1) annual provisions for decommissioning could increase and (2) the total estimated cost for decommissioning may be required to be recorded as a liability on the balance sheet. GEORGIA does not believe that such changes, if required, would have a significant adverse effect on results of operations due to its current and expected future ability to recover decommissioning costs through rates. Further discussion of nuclear decommissioning costs is made in Note (C) to the Condensed Financial Statements herein. FINANCIAL CONDITION OVERVIEW The principal changes in GEORGIA's financial condition during the first three months of 1994 were additions of $143 million to utility plant and recognition of the liability associated with the implementation of workforce reduction programs. The funds needed for gross property additions are currently provided from operations. See GEORGIA's Condensed Statements of Cash Flows for further details. Moody's Investors Service, Inc. recently upgraded GEORGIA's credit ratings. CONSTRUCTION AND OTHER CAPITAL REQUIREMENTS Estimated construction expenditures for the years 1994 through 1996 are $688 million, $555 million and $629 million, respectively. These estimated expenditures reflect planned but unidentified reductions of $63 million in 1995 and $85 million in 1996 under GEORGIA's business stategy to curtail growth in costs. 34 35 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL CONDITION (Continued) The Clean Air Act will have a significant impact on the capital requirements of the Southern electric system. This legislation, as well as other legislation and regulations are described under "Environmental Issues" in Item 7 - Management's Discussion and Analysis in GEORGIA's 1993 Annual Report on Form 10-K. As a result of requirements by the Nuclear Regulatory Commission, GEORGIA has established external sinking funds for the purpose of funding nuclear decommissioning costs. For 1994 through 1996, the amount to be funded for GEORGIA totals $16 million annually. For additional information concerning nuclear decommissioning costs, see Note (C) to the Condensed Financial Statements herein. Cash requirements for long-term debt maturities and redemptions total approximately $10.4 million for the twelve months ending March 31, 1995. SOURCES OF FUNDS GEORGIA expects to meet future capital requirements primarily using funds from operations and, if needed, by the issuance of new debt and equity securities, term loans and short-term borrowings. Cash from operations for the first three months of 1994 decreased, as compared to the corresponding period in 1993, primarily because of the receipt in 1993 of cash payments from Gulf States as partial settlement of litigation and higher estimated income tax payments in 1994. GEORGIA must comply with coverage requirements of its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. GEORGIA's ability to satisfy all coverage requirements is such that it could issue new first mortgage bonds and preferred stock to provide sufficient funds for all anticipated requirements. To meet short-term cash needs and contingencies, GEORGIA had approximately $295 million of unused credit arrangements with banks at March 31, 1994. Additionally, the completion of the remaining transactions for the sale of Plant Scherer Unit 4 will generate approximately $130 million in both 1994 and 1995. 35 36 ARTHUR ANDERSEN & CO. Exhibit 1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO GEORGIA POWER COMPANY: We have reviewed the accompanying condensed balance sheet of GEORGIA POWER COMPANY (a Georgia corporation) as of March 31, 1994, and the related condensed statements of income for the three-month and twelve-month periods ended March 31, 1994 and 1993, and the condensed statements of cash flows for the three-month periods ended March 31, 1994 and 1993. 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. As more fully discussed in Note (G) to the Condensed Financial Statements, an uncertainty exists with respect to the actions of the regulators regarding the recoverability of the Company's investment in the Rocky Mountain pumped storage hydroelectric project. The outcome of this uncertainty cannot presently be determined. Accordingly, no provision for any writedown of the costs associated with the Rocky Mountain facility resulting from the potential actions of the Georgia Public Service Commission has been made in the accompanying Condensed Financial Statements. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of GEORGIA POWER COMPANY as of December 31, 1993 (not presented herein), and, in our report dated February 16, 1994, we included an explanatory paragraph which describes an uncertainty with respect to the actions of the regulators regarding the recoverability of the Company's investment in the Rocky Mountain pumped storage hydroelectric project. In our opinion, the information set forth in the accompanying condensed balance sheet as of December 31, 1993, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. Atlanta, Georgia May 6, 1994 /s/ ARTHUR ANDERSEN & CO. 36 37 GULF POWER COMPANY 37 38 GULF POWER COMPANY MANAGEMENT'S OPINION AS TO FAIR STATEMENT OF RESULTS The condensed financial statements of GULF included herein have been prepared by GULF, without audit, pursuant to the rules and regulations of the SEC. In the opinion of GULF's management, the information regarding GULF furnished herein reflects all adjustments (which included only normal recurring adjustments) necessary to present fairly the results for the periods ended March 31, 1994 and 1993. 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 GULF believes that the disclosures regarding GULF 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 GULF's latest annual report on Form 10-K. 38 39 GULF POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars)
For the Three Months For the Twelve Months Ended March 31, Ended March 31, -------------------- ------------------ 1994 1993 1994 1993 ---- ---- ---- ---- OPERATING REVENUES: Revenues $134,229 $122,833 $571,372 $548,819 Revenues from affiliates 3,859 4,203 22,822 22,583 -------- -------- -------- -------- Total operating revenues 138,088 127,036 594,194 571,402 -------- -------- -------- -------- OPERATING EXPENSES: Operation-- Fuel 35,941 36,668 169,758 177,990 Purchased power from non-affiliates 2,068 269 6,185 1,432 Purchased power from affiliates 8,791 8,442 32,623 29,835 Other 30,454 22,747 116,871 97,814 Maintenance 10,982 13,122 43,864 46,867 Depreciation and amortization 14,037 13,671 55,676 54,028 Taxes other than income taxes 10,279 9,517 40,965 38,212 Federal and state income taxes 6,382 4,954 34,158 31,287 -------- -------- -------- -------- Total operating expenses 118,934 109,390 500,100 477,465 -------- -------- -------- -------- OPERATING INCOME 19,154 17,646 94,094 93,937 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 160 23 649 35 Interest income 259 397 1,189 2,375 Other, net (152) (244) (1,143) (1,737) Gain on sale of investment securities - 3,820 - 3,820 Income taxes applicable to other income (64) (1,476) 490 (1,005) -------- -------- -------- -------- INCOME BEFORE INTEREST CHARGES 19,357 20,166 95,279 97,425 -------- -------- -------- -------- INTEREST CHARGES: Interest on long-term debt 6,871 7,460 30,756 33,797 Allowance for debt funds used during construction (142) (60) (537) (101) Interest on notes payable 242 258 854 1,077 Amortization of debt discount, premium and expense, net 458 310 1,561 1,076 Other interest charges 355 376 2,856 1,439 -------- -------- -------- -------- Net interest charges 7,784 8,344 35,490 37,288 -------- -------- -------- -------- NET INCOME 11,573 11,822 59,789 60,137 DIVIDENDS ON PREFERRED STOCK 1,456 1,396 5,787 5,197 -------- -------- -------- -------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 10,117 $ 10,426 $ 54,002 $ 54,940 ======== ======== ======== ========
The accompanying notes as they relate to GULF are an integral part of these condensed statements. 39 40 GULF POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars)
For the Three Months Ended March 31, 1994 1993 -------- -------- OPERATING ACTIVITIES: Net income $ 11,573 $ 11,822 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 21,571 16,311 Deferred income taxes, net 899 (578) Allowance for equity funds used during construction (160) (23) Other, net (341) 866 Changes in certain current assets and liabilities-- Receivables, net 9,204 13,842 Inventories (933) (5,426) Payables (4,919) (251) Other 3,315 14,577 -------- -------- Net Cash Provided From Operating Activities 40,209 51,140 -------- -------- INVESTING ACTIVITIES: Gross property additions (20,723) (13,407) Other (4,522) (4,292) -------- -------- Net Cash Used For Investing Activities (25,245) (17,699) -------- -------- FINANCING ACTIVITIES: Retirements: Preferred stock subject to mandatory redemption (1,000) (1,000) First mortgage bonds (29,370) (2,450) Other long-term debt (2,224) (1,834) Notes payable, net 27,447 (17,000) Payment of preferred stock dividends (1,456) (1,425) Payment of common stock dividends (10,900) (10,400) Miscellaneous (317) (9) -------- -------- Net Cash Used For Financing Activities (17,820) (34,118) -------- -------- NET CHANGE IN CASH AND CASH EQUIVALENTS (2,856) (677) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,576 1,204 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,720 $ 527 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amounts capitalized) $ 3,223 $ 3,254 Income taxes (refunded) 2,036 (12)
The accompanying notes as they relate to GULF are an integral part of these condensed statements. 40 41 GULF POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS
At March 31, 1994 At December 31, (Unaudited) 1993 ---------------- --------------- UTILITY PLANT: Plant in service, at original cost $1,613,872 $1,611,704 Less accumulated provision for depreciation 618,674 610,542 ---------- ---------- 995,198 1,001,162 Construction work in progress 47,087 34,591 ---------- ---------- Total 1,042,285 1,035,753 ---------- ---------- OTHER PROPERTY AND INVESTMENTS 10,550 13,242 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents 2,720 5,576 Receivables-- Customer accounts receivable 49,602 57,226 Other accounts and notes receivable 5,567 5,904 Affiliated companies - 1,241 Accumulated provision for uncollectible accounts (450) (447) Fuel stock, at average cost 23,352 20,652 Materials and supplies, at average cost 34,623 36,390 Current portion of deferred coal contract costs 10,235 12,535 Regulatory clauses under recovery 9,061 3,244 Prepayments 1,996 2,160 Vacation pay deferred 4,022 4,022 ---------- ---------- Total 140,728 148,503 ---------- ---------- DEFERRED CHARGES: Deferred charges related to income taxes 31,115 31,334 Debt expense and loss, being amortized 21,123 21,247 Deferred coal contract costs 49,042 52,884 Miscellaneous 6,524 4,846 ---------- ---------- Total 107,804 110,311 ---------- ---------- TOTAL ASSETS $1,301,367 $1,307,809 ========== ==========
The accompanying notes as they relate to GULF are an integral part of these condensed statements. 41 42 GULF POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES
At March 31, 1994 At December 31, (Unaudited) 1993 -------------- --------------- CAPITALIZATION: Common stock equity-- Common stock (without par value)--authorized and outstanding 992,717 shares $ 38,060 $ 38,060 Paid-in capital 218,282 218,282 Premium on preferred stock 81 81 Retained earnings 156,944 157,773 ---------- ---------- 413,367 414,196 Preferred stock 89,602 89,602 Preferred stock subject to mandatory redemption 500 1,000 Long-term debt 366,778 369,259 ---------- ---------- Total 870,247 874,057 ---------- ---------- CURRENT LIABILITIES: Preferred stock due within one year 500 1,000 Long-term debt due within one year 12,502 41,552 Notes payable 33,500 6,053 Accounts payable-- Affiliated companies 8,224 18,560 Other 19,174 20,139 Customer deposits 15,064 15,082 Taxes accrued-- Federal and state income 13,573 10,330 Other 6,220 2,685 Interest accrued 8,968 5,420 Regulatory clauses over recovery 8 840 Vacation pay accrued 4,022 4,022 Miscellaneous 5,451 8,527 ---------- ---------- Total 127,206 134,210 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 153,843 151,743 Deferred credits related to income taxes 75,723 76,876 Accumulated deferred investment tax credits 40,174 40,770 Accumulated provision for property damage 10,809 10,509 Accumulated provision for postretirement benefits 11,663 10,749 Miscellaneous 11,702 8,895 ---------- ---------- Total 303,914 299,542 ---------- ---------- TOTAL CAPITALIZATION AND LIABILITIES $1,301,367 $1,307,809 ========== ==========
The accompanying notes as they relate to GULF are an integral part of these condensed statements. 42 43 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS EARNINGS GULF's net income after dividends on preferred stock for the first three months of 1994 was $10.1 million, compared to $10.4 million for the same period of 1993. The dip in earnings was primarily due to increased other operation expenses as discussed below. REVENUES Retail energy sales for the first quarter of 1994 increased 2.3% over the corresponding period of 1993 due primarily to the mild temperatures experienced in the winter of 1993 and an increase in the number of customers served. However, this increase in retail energy sales was partially offset because GULF's formerly largest industrial customer began operating its co-generation facility in August 1993. Wholesale energy sales to non-affiliates increased slightly, however, capacity revenues were $1 million lower, compared to the first quarter of 1993. Also, included in operating revenues for the first quarter of 1994 is $1.9 million recognized under the Environmental Cost Recovery clause. This clause is discussed in Note 3 to the financial statements in Item 8 to GULF's 1993 Annual Report on Form 10-K. EXPENSES Fuel expenses for the first quarter of 1994 decreased from the same period of 1993 despite a 2.8% increase in generation. This reflects the impact of GULF renegotiating, buying out or otherwise terminating various coal supply contracts. Purchased power transactions (both sales and purchases) among the affiliated companies within the Southern electric system will vary from period to period depending on demand and the availability and cost of generating resources at each company. Other operation expenses increased because of the recognition of higher costs associated with the buyouts and renegotiation of coal supply contracts. The expenses recognized are based, in part, on the amount of fuel consumed at the generating plants. These costs are recoverable through the fuel clause and, thus, have no impact on earnings. Other factors that increased other operation expenses were higher employee benefit costs and the recognition by GULF of its portion of the costs associated with a workforce reduction program at the system service company. Maintenance expenses decreased because of the scheduling of maintenance on production facilities. The increase in income tax expense is attributable to the federal tax rate increase enacted in August 1993. INTEREST CHARGES AND DIVIDENDS ON PREFERRED STOCK The decrease in interest on long-term debt reflects GULF's efforts to decrease its capital costs. GULF, in response to the low interest rate levels prevailing during 1992 and 1993, refinanced a significant portion of its long-term debt and preferred stock. To the extent it is economically feasible, GULF will continue its efforts to lower its capital costs. FUTURE EARNINGS POTENTIAL The results of operations discussed above are not necessarily indicative of future earnings potential. 43 44 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS (Continued) The level of future earnings depends on numerous factors ranging from regulatory matters to growth in energy sales. Future earnings in the near term will also depend upon growth in electric sales which are subject to a number of factors. Traditionally, these factors have included changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, weather, competition, customer growth, and the rate of economic growth in GULF's service area. The enactment of the Energy Act will have a profound effect on the future of the electric utility industry. A discussion of the potential impact of the Energy Act and particularly its effect on competition is found under "Future Earnings Potential" in Item 7 - Management's Discussion and Analysis in GULF's 1993 Annual Report on Form 10-K. See Note 3 to the financial statements in Item 8 in GULF's 1993 Annual Report on Form 10-K for a discussion of the hearings ordered 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. Also discussed therein is the FERC reconsideration concerning GULF's recovery of certain coal contract buyout costs. On April 13, 1994, the FERC approved GULF's Offer of Settlement regarding the return of certain wholesale fuel buyout costs previously refunded to wholesale customers. Also, see Note (I) to the Condensed Financial Statements herein for a discussion of a suit filed against GULF concerning the transportation of coal by barge. Compliance costs related to the Clean Air Act could reduce earnings if such increased costs are not fully recovered. The Clean Air Act is discussed further under "Environmental Matters" in Item 7 - Management's Discussion and Analysis in GULF's 1993 Annual Report on Form 10-K. See Note 3 to the financial statements in Item 8 in GULF's 1993 Annual Report on Form 10-K for a discussion of the Environmental Cost Recovery clause which provides for the expected recovery of such costs. FINANCIAL CONDITION OVERVIEW The major change in GULF's financial condition during the first three months of 1994 was gross property additions of $20.7 million. The principal sources of funds for these additions and other capital requirements were provided from operations and an increase in notes payable. See the Condensed Statements of Cash Flows for further details. CAPITAL REQUIREMENTS FOR CONSTRUCTION GULF's gross property additions, including those amounts related to environmental compliance, are estimated to total approximately $200 million for the three years 1994 through 1996 ($77 million in 1994, $55 million in 1995 and $68 million in 1996). The estimates of property additions for the three-year period include $25 million committed to meeting the requirements of the Clean Air Act, the cost 44 45 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL CONDITION (Continued) of which is expected to be recovered through the Environmental Cost Recovery clause. Actual construction costs may vary from these estimates because of factors such as the granting of timely and adequate rate increases, changes in environmental regulations, revised load projections, the cost and efficiency of construction labor, equipment, and materials, and the cost of capital. Various environmental legislation and other related regulations are described in "Environmental Matters" in Item 7 - Management's Discussion and Analysis in GULF's 1993 Annual Report on Form 10-K. The full impact of these requirements cannot be determined at this time, pending the development and implementation of applicable regulations. In addition to the funds required for the construction program, $13.0 million will be required by March 31, 1995, in connection with maturities and redemptions of long-term debt and preferred stock subject to mandatory redemption. This amount includes approximately $8.7 million of long-term notes payable issued to finance the termination of a coal supply contract. At March 31, 1994, GULF had $2.7 million of cash and $31.5 million of unused credit arrangements with banks to meet its short-term cash needs. GULF had $33.5 million of short-term bank borrowings outstanding at March 31, 1994. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulations, will be derived from operations, the sale of additional first mortgage bonds and preferred stock, and capital contributions from SOUTHERN. GULF is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. GULF's coverage ratios are sufficient to permit, at present interest rate levels, any foreseeable security sales. The amount of securities which GULF will be permitted to issue in the future will depend upon market conditions and other factors prevailing at that time. 45 46 MISSISSIPPI POWER COMPANY 46 47 MISSISSIPPI POWER COMPANY MANAGEMENT'S OPINION AS TO FAIR STATEMENT OF RESULTS The condensed financial statements of MISSISSIPPI included herein have been prepared by MISSISSIPPI, without audit, pursuant to the rules and regulations of the SEC. In the opinion of MISSISSIPPI's management, the information regarding MISSISSIPPI furnished herein reflects all adjustments (which included only normal recurring adjustments) necessary to present fairly the results for the periods ended March 31, 1994 and 1993. 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 MISSISSIPPI believes that the disclosures regarding MISSISSIPPI 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 MISSISSIPPI's latest annual report on Form 10-K. 47 48 MISSISSIPPI POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars)
For the Three Months For the Twelve Months Ended March 31, Ended March 31, -------------------- --------------- 1994 1993 1994 1993 ---- ---- ---- ---- OPERATING REVENUES: Revenues $111,700 $ 97,469 $473,596 $431,033 Revenues from affiliates 2,434 4,083 13,869 10,035 -------- -------- -------- -------- Total operating revenues 114,134 101,552 487,465 441,068 -------- -------- -------- -------- OPERATING EXPENSES: Operation-- Fuel 17,601 20,685 110,902 95,937 Purchased power from non-affiliates 966 233 2,931 1,366 Purchased power from affiliates 24,156 16,138 66,037 63,044 Other 21,381 21,834 99,929 91,938 Maintenance 13,146 13,594 43,554 46,499 Depreciation and amortization 9,299 8,843 33,555 34,083 Taxes other than income taxes 9,805 8,701 38,249 35,242 Federal and state income taxes 4,870 1,995 25,542 16,539 -------- -------- -------- -------- Total operating expenses 101,224 92,023 420,699 384,648 -------- -------- -------- -------- OPERATING INCOME 12,910 9,529 66,766 56,420 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 405 127 1,289 581 Interest income 28 132 414 696 Other, net 1,500 738 4,733 4,647 Income taxes applicable to other income (445) (250) (1,353) (1,090) -------- -------- -------- -------- INCOME BEFORE INTEREST CHARGES 14,398 10,276 71,849 61,254 -------- -------- -------- -------- INTEREST CHARGES: Interest on long-term debt 4,512 4,130 18,071 20,502 Allowance for debt funds used during construction (370) (94) (1,064) (533) Interest on notes payable 326 113 1,213 470 Amortization of debt discount, premium and expense, net 357 259 1,359 794 Other interest charges 82 89 722 317 -------- -------- -------- -------- Net interest charges 4,907 4,497 20,301 21,550 -------- -------- -------- -------- NET INCOME 9,491 5,779 51,548 39,704 DIVIDENDS ON PREFERRED STOCK 1,225 1,355 5,270 4,491 -------- -------- -------- -------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 8,266 $ 4,424 $ 46,278 $ 35,213 ======== ======== ======== ========
( ) Denotes negative figure. The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements. 48 49 MISSISSIPPI POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars)
For the Three Months Ended March 31, --------------- 1994 1993 ---- ---- OPERATING ACTIVITIES: Net income $ 9,491 $ 5,779 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 11,609 10,855 Deferred income taxes, net (3,260) 1,139 Allowance for equity funds used during construction (405) (127) Other, net (3,868) (325) Change in certain current assets and liabilities-- Receivables, net 7,762 2,781 Inventories (5,661) 952 Payables (5,146) 3,120 Taxes accrued (11,140) (16,937) Other 3,115 (562) --------- -------- Net cash provided from operating activities 2,497 6,675 --------- -------- INVESTING ACTIVITIES: Gross property additions (27,022) (17,729) Other (13,925) (9,932) -------- -------- Net cash used for investing activities (40,947) (27,661) --------- -------- FINANCING ACTIVITIES: Proceeds-- Capital contributions from parent company - 30,000 First mortgage bonds 35,000 35,000 Other long-term debt 50,309 - Retirements-- First mortgage bonds (22,371) - Other long-term debt (2,647) (1,938) Notes payable, net (11,000) (31,000) Payment of preferred stock dividends (1,225) (1,355) Payment of common stock dividends (8,500) (7,200) Miscellaneous (989) (531) --------- -------- Net cash provided (used) from financings 38,577 22,976 --------- -------- NET CHANGE IN CASH AND CASH EQUIVALENTS 127 1,990 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 878 7,417 --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,005 $ 9,407 ========= ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for-- Interest (net of amount capitalized) $ 3,224 $ 2,104 Income taxes (refunded) (1,743) 415
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements. 49 50 MISSISSIPPI POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS
At March 31, 1994 At December 31, (Unaudited) 1993 -------------- -------------- UTILITY PLANT: Plant in service, at original cost $1,245,999 $1,238,847 Less accumulated provision for depreciation 465,395 462,725 ---------- ---------- Total 780,604 776,122 Construction work in progress 124,149 108,063 ---------- ---------- Total 904,753 884,185 ---------- ---------- OTHER PROPERTY AND INVESTMENTS 8,577 11,289 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents 1,005 878 Receivables-- Customer accounts receivable 26,175 31,376 Other accounts and notes receivable 5,240 5,581 Affiliated companies 4,259 6,698 Accumulated provision for uncollectible accounts (518) (737) Fuel stock, at average cost 13,270 11,185 Materials and supplies, at average cost 24,721 21,145 Current portion of deferred fuel charges 1,455 440 Prepayments 6,696 7,843 Vacation pay deferred 4,797 4,797 ---------- ---------- Total 87,100 89,206 ---------- ---------- DEFERRED CHARGES: Deferred charges related to income taxes 25,243 25,267 Deferred fuel charges 15,296 17,520 Debt expense and loss, being amortized 11,670 11,666 Miscellaneous 18,193 10,073 ---------- ---------- Total 70,402 64,526 ---------- ---------- TOTAL ASSETS $1,070,832 $1,049,206 ========== ==========
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements. 50 51 MISSISSIPPI POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES
At March 31, 1994 At December 31, (Unaudited) 1993 -------------- -------------- 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 154,362 154,362 Premium on preferred stock 372 372 Retained earnings 129,109 129,343 ---------- ---------- 321,534 321,768 Cumulative preferred stock 74,414 74,414 Long-term debt 308,618 250,391 ---------- ---------- Total 704,566 646,573 ---------- ---------- CURRENT LIABILITIES: Long-term debt due within one year 20,780 19,345 Notes payable 29,000 40,000 Accounts payable-- Affiliated companies 8,243 10,197 Other 34,282 50,731 Customer deposits 2,808 2,786 Taxes accrued-- Federal and state income 6,598 186 Other 9,400 26,952 Interest accrued 5,382 4,237 Miscellaneous 14,341 14,120 ---------- ---------- Total 130,834 168,554 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES: Accumulated deferred income taxes 122,145 123,206 Accumulated deferred investment tax credits 32,345 32,710 Deferred credits related to income taxes 47,687 48,228 Accumulated provision for property damage 10,873 10,538 Miscellaneous 22,382 19,397 ---------- ---------- Total 235,432 234,079 ---------- ---------- TOTAL CAPITALIZATION AND LIABILITIES $1,070,832 $1,049,206 ========== ==========
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements. 51 52 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS NET INCOME MISSISSIPPI's net income after dividends on preferred stock for the first quarter of 1994 was $8.3 million, compared to $4.4 million for the corresponding period of 1993. Net income rose primarily because of higher retail energy sales and retail rate increases under PEP and the ECO Plan. REVENUES Revenues for the first three months of 1994 increased compared to the same period of 1993, because of an increase of 7.6% in retail energy sales, a 22.3% increase in territorial wholesale energy sales and the retail rate increases granted under PEP effective July 1993 and the ECO Plan effective in April 1993. The increase in retail energy sales was due to weather influences, an improving economy in Southeast Mississippi and an increase in the number of customers served. Energy sales to residential customers increased by 10.3% and to commercial customers by 10.7%, with the latter reflecting sales to an increasing number of casinos within MISSISSIPPI's service area. Wholesale capacity revenues decreased approximately $0.5 million. EXPENSES Fuel and purchased power expenses combined increased in the first quarter of 1994, compared to the corresponding period of 1993, due to higher energy sales. Purchased power transactions (both sales and purchases) among the affiliated companies within the Southern electric system will vary from period to period depending on demand and the availability and cost of generating resources at each company. Taxes other than income taxes increased because of higher property taxes and higher revenues. The increase in income tax expense reflects the increase in earnings and the federal tax increase enacted in August 1993. The increase in interest was because of the sale or issuance of additional debt instruments. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION AFUDC represents the cost of capital charged to utility plant under construction. The equity portion of AFUDC represents non-cash income. However, when facilities are completed and included in rate base, previously capitalized amounts increase cash flow because revenues are higher as a result of the increased rate base and additional depreciation expense. 52 53 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS (Continued) FUTURE EARNINGS POTENTIAL The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings is contingent upon numerous factors ranging from regulatory matters to growth in energy sales. Operating revenues will be affected by 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. Also see Note (B) to the Condensed Financial Statements herein for information regarding FERC's review of equity returns. MISSISSIPPI's 1994 annual filing under the Environmental Compliance Overview Plan with the Mississippi PSC resulted in an approved annual revenue requirement of $7.6 million, effective in April 1994. The FERC approved MISSISSIPPI's wholesale rate increase petition for $3.6 million effective April 1994. Future earnings in the near term will also depend upon growth in electric sales which are subject to a number of factors. Traditionally, these factors have included the rate of economic growth in MISSISSIPPI's service area, customer growth, competition, weather, changes in contracts with neighboring utilities, energy conservation practiced by customers, and the elasticity of demand. The enactment of the Energy Act will have a profound effect on the future of the electric utility industry. A discussion of the potential impact of the Energy Act and particularly its effect on competition is found under "Future Earnings Potential" in Item 7 - Management's Discussion and Analysis in MISSISSIPPI's 1993 Annual Report on Form 10-K. FINANCIAL CONDITION OVERVIEW During the first three months of 1994, gross property additions were $27.0 million. The funds for these additions and other capital requirements were derived primarily from internal sources, the sale of $35 million of first mortgage bonds and the issuance of $50 million of long-term notes payable. See the Condensed Statements of Cash Flows for further details. At March 31, 1994, cash totaled approximately $1.0 million and MISSISSIPPI had $96 million of unused credit arrangements with banks to meet short-term cash needs. MISSISSIPPI had $29 million of notes payable outstanding at quarter-end. 53 54 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL CONDITION (Continued) CAPITAL REQUIREMENTS MISSISSIPPI's gross property additions for the next three years are estimated to be $256 million ($96 million in 1994, $62 million in 1995 and $98 million in 1996). The major emphasis within the construction program will be on complying with Clean Air Act regulations and upgrading existing facilities. Revisions may be necessary because of factors such as revised load projections, the availability and cost of capital and changes in environmental regulations. Changes in environmental regulations could substantially increase the Southern electric system's capital requirements and operating costs. The acid rain compliance provision of the Clean Air Act will have a significant impact on the Southern electric system. This legislation, as well as other legislation and regulations, are described under "Environmental Matters" in Item 7 - Management's Discussion and Analysis in MISSISSIPPI's 1993 Annual Report on Form 10-K. The full impact of these requirements cannot be determined at this time pending the development and implementation of applicable regulations. MISSISSIPPI's management believes that the ECO Plan will provide for retail recovery of the Clean Air Act costs. In addition to the funds required for the construction program, approximately $20.8 million will be required by March 31, 1995, for maturities of long-term debt. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulations, will be derived from operations, the sale of additional first mortgage bonds, pollution control bonds and preferred stock and the receipt of additional capital contributions from SOUTHERN. MISSISSIPPI is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. MISSISSIPPI's coverage ratios are sufficiently high to permit, at present interest rate levels, any foreseeable security sales. The amount of securities which MISSISSIPPI will be able to issue in the future will depend upon market conditions and other factors prevailing at that time. 54 55 SAVANNAH ELECTRIC AND POWER COMPANY 55 56 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S OPINION AS TO FAIR STATEMENT OF RESULTS The condensed financial statements of SAVANNAH included herein have been prepared by SAVANNAH, without audit, pursuant to the rules and regulations of the SEC. In the opinion of SAVANNAH's management, the information regarding SAVANNAH furnished herein reflects all adjustments (which, except for the provision for separation benefits recorded in the third and fourth quarters of 1993 and the first quarter of 1994, included only normal recurring adjustments) necessary to present fairly the results for the periods ended March 31, 1994 and 1993. 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 SAVANNAH believes that the disclosures regarding SAVANNAH 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 SAVANNAH's latest annual report on Form 10-K. 56 57 SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars)
For the Three Months For The Twelve Months Ended March 31, Ended March 31, -------------------- --------------------- 1994 1993 1994 1993 ---- ---- ---- ---- OPERATING REVENUES: Revenues $46,400 $42,748 $219,661 $197,101 Revenues from affiliates 317 125 2,625 1,569 ------- ------- -------- -------- Total operating revenues 46,717 42,873 222,286 198,670 ------- ------- -------- -------- OPERATING EXPENSES: Operation-- Fuel 2,139 1,016 26,100 14,365 Purchased power from non-affiliates 359 91 1,060 495 Purchased power from affiliates 15,229 13,839 57,664 56,754 Provision for separation benefits 551 - 5,006 - Other 8,877 9,556 40,477 37,620 Maintenance 2,647 3,279 12,884 14,548 Depreciation and amortization 4,250 4,078 16,638 16,698 Taxes other than income taxes 2,562 2,480 11,219 10,391 Federal and state income taxes 2,973 2,411 15,998 14,542 ------- ------- -------- -------- Total operating expenses 39,587 36,750 187,046 165,413 ------- ------- -------- -------- OPERATING INCOME 7,130 6,123 35,240 33,257 OTHER INCOME (EXPENSE): Allowance for equity funds used during construction 387 113 1,231 458 Other, net (231) (240) (1,622) (1,333) Income taxes applicable to other income 88 91 1,114 817 ------- ------- -------- -------- INCOME BEFORE INTEREST CHARGES 7,374 6,087 35,963 33,199 ------- ------- -------- -------- INTEREST CHARGES: Interest on long-term debt 3,152 2,346 11,501 10,198 Allowance for debt funds used during construction (500) (60) (1,139) (287) Amortization of debt discount, premium and expense, net 137 129 543 477 Other interest charges 106 178 508 580 ------- ------- -------- -------- Net interest charges 2,895 2,593 11,413 10,968 ------- ------- -------- -------- NET INCOME 4,479 3,494 24,550 22,231 DIVIDENDS ON PREFERRED STOCK 581 475 2,212 1,900 ------- ------- -------- -------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 3,898 $ 3,019 $ 22,338 $ 20,331 ======= ======= ======== ========
( ) Denotes red figure. The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements. 57 58 SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars)
For the Three Months Ended March 31, -------------------- 1994 1993 ---- ---- OPERATING ACTIVITIES: Net income $ 4,479 $ 3,494 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 4,617 4,440 Deferred taxes, net 704 (152) Allowance for equity funds used during construction (387) (113) Other, net (85) (375) Changes in certain current assets and liabilities-- Receivables, net 15,175 2,570 Inventories 69 (2,614) Payables (16,994) 430 Taxes accrued 3,454 1,785 Other (2,376) (1,604) --------- -------- Net Cash Provided From Operating Activities 8,656 7,861 --------- -------- INVESTING ACTIVITIES: Gross property additions (7,766) (6,246) Other (916) (1,248) --------- -------- Net Cash Used For Investing Activities (8,682) (7,494) --------- -------- FINANCING ACTIVITIES: Proceeds: Pollution control bonds - 4,085 Other long-term debt 6,000 - Retirements: Pollution control bonds - (4,085) Other long-term debt (198) (201) Notes payable, net (1,000) 5,500 Payment of preferred stock dividends (387) (475) Payment of common stock dividends (4,100) (4,500) Miscellaneous (48) (18) --------- -------- Cash Provided From (Used For) Financing Activities 267 306 --------- -------- NET CHANGE IN CASH AND CASH EQUIVALENTS 241 673 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,915 1,788 --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,156 $ 2,461 ========= ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid (received) during the period for-- Interest (net of amount capitalized) $ 4,236 $ 3,258 Income taxes (refund) (155) 146
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements. 58 59 SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS
At March 31, 1994 At December 31, (Unaudited) 1993 ------------- --------------- UTILITY PLANT: Plant in service, at original cost $623,998 $622,521 Less accumulated provision for depreciation 255,299 251,565 -------- -------- 368,699 370,956 Construction work in progress 55,354 49,797 -------- -------- Total 424,053 420,753 -------- -------- OTHER PROPERTY AND INVESTMENTS 1,792 1,793 -------- -------- CURRENT ASSETS: Cash and cash equivalents 4,156 3,915 Receivables-- Customer accounts receivable 15,945 18,551 Other accounts and notes receivable 431 790 Affiliated companies 1,092 12,924 Accumulated provision for uncollectible accounts (732) (762) Fuel cost under recovery 6,783 7,112 Fuel stock, at average cost 7,994 8,419 Materials and supplies, at average cost 9,714 9,358 Prepayments 5,752 4,849 -------- -------- Total 51,135 65,156 -------- -------- DEFERRED CHARGES: Premium on reacquired debt, being amortized 3,668 3,792 Deferred charges related to income taxes 24,503 24,890 Miscellaneous 11,753 10,803 -------- -------- Total 39,924 39,485 -------- -------- TOTAL ASSETS $516,904 $527,187 ======== ========
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements. 59 60 SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED BALANCE SHEETS (Stated in Thousands of Dollars) CAPITALIZATION AND LIABILITIES
At March 31, 1994 At December 31, (Unaudited) 1993 ---------------- ---- CAPITALIZATION: Common stock equity-- Common stock ($5 par value)-- authorized 16,000,000 shares; outstanding 10,844,635 shares $ 54,223 $ 54,223 Paid-in capital 8,688 8,688 Additional minimum liability for under-funded pension obligations (2,121) (2,121) Retained earnings 93,219 93,479 -------- -------- 154,009 154,269 Preferred stock 35,000 35,000 Long-term debt 157,149 151,338 -------- -------- Total 346,158 340,607 -------- -------- CURRENT LIABILITIES: Long-term debt due within one year 4,503 4,499 Notes payable 2,000 3,000 Accounts payable-- Affiliated companies 6,114 6,041 Other 6,152 24,401 Customer deposits 4,723 4,714 Taxes accrued-- Federal and state income 2,678 342 Other 2,305 1,187 Interest accrued 5,198 6,730 Vacation pay accrued 1,655 1,638 Pensions accrued 1,972 1,792 Work force reduction costs accrued 3,923 3,926 Miscellaneous 2,124 2,985 -------- -------- Total 43,347 61,255 -------- -------- DEFERRED CREDITS: Accumulated deferred income taxes 67,952 66,947 Accumulated deferred investment tax credits 15,135 15,301 Deferred credits related to income taxes 25,922 26,173 Deferred compensation plans 6,328 6,117 Deferred under-funded accrued benefit obligation 5,870 5,855 Miscellaneous 6,192 4,932 -------- -------- Total 127,399 125,325 -------- -------- TOTAL CAPITALIZATION AND LIABILITIES $516,904 $527,187 ======== ========
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements. 60 61 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS EARNINGS SAVANNAH's net income after dividends on preferred stock for the first three months of 1994 was $3.9 million, compared to $3.0 million in the corresponding period of 1993. The increase in net income was primarily due to higher retail revenues. REVENUES Revenues for the first quarter of 1994 increased, compared to the corresponding period in 1993, due to higher retail energy sales. Energy sales to retail customers increased 6.3% due to weather influences, an improving economy in SAVANNAH's service territory and an increase in the number of customers served. Wholesale energy sales to non-affiliated companies decreased, however, only the capacity revenues of such sales have any measurable effect on earnings. Capacity revenues fell $123,000. EXPENSES Fuel expenses during the first quarter of 1994 increased, compared to those recorded in the first quarter of 1993, because generation almost tripled. The change in generation was due to demand in SAVANNAH's service area and elsewhere in the Southeast. Purchased power transactions among the affiliated companies within the Southern electric system will vary from period to period depending on demand and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings. Despite recording approximately $0.6 million for SAVANNAH's portion of the costs related to a workforce reduction program at the system service company, other operation expenses decreased. This decrease reflects the savings associated with SAVANNAH's workforce reduction program, which was implemented in late 1993. Income taxes were higher because of the change in net income and higher federal income tax rates. The increases in interest on long-term debt and dividends on preferred stock reflect the sale by SAVANNAH in 1993 of $45 million of first mortgage bonds and $35 million of preferred stock. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION AFUDC represents the cost of capital charged to utility plant under construction and is included in rate base. The equity portion of AFUDC represents non-cash income. In addition, when facilities are completed and included in rate base, previously capitalized amounts increase cash flow because revenues are higher as a result of the increased rate base and additional depreciation expense. The amount of AFUDC recorded has risen because of SAVANNAH's investment in the construction of two 80 megawatt combustion turbine peaking units. These units were placed in service in April and May 1994. 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 regulatory matters to growth in energy sales. 61 62 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS (Continued) Compliance costs related to the Clean Air Act will reduce earnings if such increased costs cannot be offset. The Clean Air Act is discussed under "Capital Requirements for Construction" in Item 7 - Management's Discussion and Analysis in SAVANNAH's 1993 Annual Report on Form 10-K. Future earnings in the near term will also depend upon growth in electric sales which are subject to a number of factors. Traditionally, these factors have included changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, weather, competition, and the rate of economic growth in SAVANNAH's service area. The enactment of the Energy Act will have a profound effect on the future of the electric utility industry. A discussion of the potential impact of the Energy Act and particularly its effect on competition is found under "Future Earnings Potential" in Item 7 - Management's Discussion and Analysis in SAVANNAH's 1993 Annual Report on Form 10-K. FINANCIAL CONDITION OVERVIEW During the first three months of 1994, SAVANNAH made gross property additions to utility plant of $7.8 million. The funds for these additions and other capital requirements came from an increase in long-term debt and from operating activities, principally from earnings and noncash charges to income such as depreciation. See the Condensed Statements of Cash Flows for further details. CAPITAL REQUIREMENTS FOR CONSTRUCTION SAVANNAH's construction program is budgeted at $98 million for the three years 1994 through 1996 ($33 million in 1994, $32 million in 1995 and $33 million in 1996). Actual construction costs may vary from this estimate because of such factors as changes in environmental regulations; the cost and efficiency of construction labor, equipment and materials; revised load projections and the cost of capital. The largest project during this period is the addition of two 80 megawatt combustion turbine units, which were placed in service in April and May 1994. Changes in environmental regulations could substantially increase the Southern electric system's capital requirements and operating costs. The acid rain compliance provision of the Clean Air Act will have a significant impact on the Southern electric system. This legislation, as well as other legislation and regulations, are described under "Environmental Matters" in Item 7 - Management's Discussion and Analysis in SAVANNAH's 1993 Annual Report on Form 10-K. The full impact of these requirements cannot be determined at this time, pending the development and implementation of applicable regulations. There can be no assurance that compliance costs will be recovered through corresponding increases in rates. 62 63 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL CONDITION (Continued) SOURCES OF CAPITAL At March 31, 1994, SAVANNAH has $4.2 million in cash and cash equivalents and $32.5 million of unused credit arrangements with banks to meet its short-term cash needs. SAVANNAH had $2.0 million of short-term debt outstanding at quarter-end. Additionally, SAVANNAH has $4.5 million of leases and first mortgage bonds maturing by March 31, 1995. SAVANNAH has received the authority from the SEC to have outstanding at any one time an amount of up to $70 million in short-term borrowings. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulations, will be derived from operations and the sale of additional first mortgage bonds and preferred stock and capital contributions from SOUTHERN. SAVANNAH is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. SAVANNAH's coverage ratios are sufficiently high to permit, at present interest rate levels, any foreseeable security sales. The amount of securities which SAVANNAH will be permitted to issue in the future will depend upon market conditions and other factors prevailing at that time. 63 64 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 ALABAMA B, C, D, E, K GEORGIA B, C, D, F, G, H, K GULF B, I, K MISSISSIPPI B, J SAVANNAH K 64 65 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES ALABAMA POWER COMPANY GEORGIA POWER COMPANY GULF POWER COMPANY MISSISSIPPI POWER COMPANY SAVANNAH ELECTRIC AND POWER COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS: (A) Reference is made to Item 3 - LEGAL PROCEEDINGS in the SOUTHERN system's combined Annual Report on Form 10-K for the year ended December 31, 1993 for a description of the proceedings related to a derivative action filed against certain current and former directors and officers of SOUTHERN. In April 1994, the Court of Appeals reversed the dismissal and remanded the case to the trial court, finding that allegations by the plaintiffs created a reasonable doubt that the board validly exercised its business judgment in refusing the earlier demand. (B) Reference is made to Note 3 to each of the registrant's, except SAVANNAH, notes to the financial statements in Item 8 in the SOUTHERN system's combined 1993 Annual Report on Form 10-K for a discussion of the hearings ordered 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 and, in the case of GULF, FERC proceedings regarding recovery of certain coal contract buyout costs. On April 13, 1994, the FERC approved GULF's Offer of Settlement regarding the return of certain of its fuel contract buyout costs previously refunded to wholesale customers. GULF recorded in 1993 the reversal of the $2.7 million refund arising from this issue. The interest due GULF will not be material to GULF's financial statements. (C) Depreciation expense includes a provision for the expected costs of decommissioning nuclear facilities. As approved by the respective public service commissions, annual provisions for nuclear decommissioning are based on an annuity (sinking fund) method, with deposits made each year to external trust funds. Additionally, the amounts previously recorded in internal reserves are being transferred into the external trust funds over a set period of time. It is expected that --over time-- the deposits and earnings of the trust funds will provide sufficient amounts to decontaminate nuclear facilities. The estimated costs of decommissioning and the amounts being 65 66 NOTES TO CONDENSED FINANCIAL STATEMENTS: (Continued) recovered through rates at December 31, 1993, for ALABAMA's Plant Farley and GEORGIA's plants Hatch and Vogtle -- based on its ownership interest -- were as follows:
PLANT FARLEY PLANT HATCH PLANT VOGTLE Site study basis (year) 1993 1990 1990 Decommissioning Periods (years) 2017-2029 2014-2027 2027-2037 (in millions) Site Study Costs: Radiated structures $ 409 $ 184 $ 155 Non-radiated structures 75 35 62 Other 94 55 54 -------------------------------------------------------------------------------------------------------- Total $ 578 $ 274 $ 271 ======================================================================================================== Costs approved for ratemaking $ 578 $ 184 $ 155 Annual expense (1994) 18 6 6 Balance in external trust funds $ 50 $ 22 $ 16 Balance in internal reserve 53 33 11 -------------------------------------------------------------------------------------------------------- Total Accumulated Provision $ 103 $ 55 $ 27 ======================================================================================================== Estimated ultimate costs: Assumed inflation rate 4.50% 4.40% 4.40% Assumed trust earnings rate (net of tax) 7.00% 6.00% 6.00% (in millions) Radiated structures $ 1,258 $ 585 $ 803 Non-radiated structures 231 111 321 Other 289 176 281 -------------------------------------------------------------------------------------------------------- Total $ 1,778 $ 872 $ 1,405 ========================================================================================================
The actual decommissioning cost may vary from the above estimates because of regulatory requirements, changes in technology, and increased costs of labor, materials, and equipment. The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The estimates approved by the Georgia PSC for ratemaking exclude costs of non-radiated structures of $35 million for Plant Hatch and $62 million for Plant Vogtle and site contingency costs of $55 million for Plant Hatch and $54 million for Plant Vogtle. GEORGIA expects the Georgia PSC to periodically review and adjust, if necessary, the amounts collected in rates for the anticipated cost of decommissioning. (D) For information regarding nuclear insurance reference is made to Notes 13, 11 and 4 to the financial statements of SOUTHERN, ALABAMA and GEORGIA, respectively, in Item 8 in the SOUTHERN system's combined 1993 Annual Report on Form 10-K. Had ALABAMA and GEORGIA terminated their insurance coverages with NML as of December 31, 1993, they would have had a contingent right to receive amounts with present values of approximately $16 million 66 67 NOTES TO FINANCIAL STATEMENTS: (Continued) and $11 million, respectively, payable over a twenty-year period commencing in 1996. Any unpaid amounts, however, are subject to forfeiture in the event that NML's aggregate losses in any subsequent two-year period exceed $300 million or fifty percent of its surplus. The accounting for any such amounts actually received would be subject to regulatory treatment. (E) Reference is made to Note 3 to the financial statements of SOUTHERN and ALABAMA in Item 8 of the SOUTHERN system's combined 1993 Annual Report on Form 10-K for information with respect to a civil complaint filed regarding ALABAMA's financing of heat pumps and other merchandise. (F) Pursuant to orders from the Georgia PSC, GEORGIA deferred financing and depreciation costs under phase-in plans for Plant Vogtle units 1 and 2 until the allowed investment was fully reflected in rates as of October 1991. In addition, the Georgia PSC issued two separate accounting orders that required GEORGIA to defer substantially all operating and financing costs related to bGeorgiatPSCnorderstprovidesfordrecoveryhofedeferred costs within 10 years. The Georgia PSC also ordered GEORGIA to levelize declining capacity buyback expense from the co-owners of the plant over a six-year period beginning October 1991. The unamortized balance of these deferred costs at March 31, 1994, was $494 million. (G) Reference is made to Note 4 to the financial statements of SOUTHERN and GEORGIA, in Item 8 of the SOUTHERN system's combined 1993 Annual Report on Form 10-K for information concerning the uncertainty related to the actions of regulatory authorities with respect to the recovery of costs of the Rocky Mountain pumped storage hydroelectric project and preliminary discussions between GEORGIA and other parties regarding the potential sale of GEORGIA's remaining interest in the Rocky Mountain project. The ultimate outcome of this matter cannot be determined at this time. (H) In October 1993, a Superior Court of Fulton County, Georgia, judge ruled that rate riders previously approved by the Georgia PSC for recovery of GEORGIA's costs incurred in connection with demand-side conservation programs were unlawful. The judge held that the Georgia PSC lacked statutory authority to approve such rate riders except through general rate case proceedings and that those procedures had not been followed. GEORGIA has suspended collection of the demand-side conservation costs and appealed the court's decision to the Georgia Court of Appeals. In December 1993, the Georgia PSC approved GEORGIA's request for an accounting order allowing GEORGIA to defer all current unrecovered and future costs related to those programs until the court's decision is reversed or until the next general rate case proceeding. An association of industrial customers has filed a petition for review of such accounting order in the Superior Court of Fulton County, Georgia. GEORGIA's costs related to these conservation programs through March 1994 were $79 million of which $15 million has been collected and the remainder deferred. The estimated costs, assuming no change in the programs certified by the Georgia PSC, are $38 million in 1994 and $40 million in 1995. 67 68 NOTES TO CONDENSED FINANCIAL STATEMENTS: (Continued) The final outcome of this matter cannot now be determined; however, in management's opinion, the final outcome will not have a material adverse effect on SOUTHERN's or GEORGIA's Condensed Financial Statements. (I) In August 1993, a complaint against GULF and SCS was filed in federal district court in Ohio by two companies with which GULF has contracted for the transportation by barge of certain of GULF's coal supplies. The complaint alleges breach of the contract by GULF and seeks damages estimated by the plaintiffs to be in excess of $85 million. While the final outcome of this matter cannot now be determined, in the opinion of management it will not have a material adverse effect on SOUTHERN's or GULF's Condensed Financial Statements. (J) In September 1993, MISSISSIPPI filed a $3.6-million wholesale rate increase request with the FERC. Prior to this filing, MISSISSIPPI conferred and negotiated a settlement with all its wholesale requirements customers, who have executed and filed a Settlement Agreement and Certificates of Concurrence with the FERC. In March 1994, the FERC notified MISSISSIPPI that it has accepted the wholesale rate increase as filed effective April 1994. (K) During the first quarter of 1994, GEORGIA and SCS, the system service company, instituted workforce reduction programs. The costs related to these programs amounted to approximately $72.6 million for GEORGIA and $22.3 million for SCS. The costs of the SCS workforce reduction program were apportioned among the various entities that together form the Southern electric system. Additionally, SAVANNAH instituted a workforce reduction program in late 1993 and incurred related charges of approximately $4.5 million. 68 69 PART II - OTHER INFORMATION Item 1. Legal Proceedings. (1) Reference is made to the Notes to Condensed Financial Statements herein for information regarding certain legal and administrative proceedings in which SOUTHERN and its reporting subsidiaries are involved. (2) In May 1994, GEORGIA received a notice of violation from the NRC proposing a civil penalty in the amount of $200,000 based upon allegedly inaccurate and incomplete information relating to Plant Vogtle reported to the NRC in 1990. The NRC also issued demands for information regarding alleged performance failures by six individual employees to enable the NRC to determine whether additional enforcement actions are necessary. GEORGIA has not yet determined its response to the NRC. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Exhibit 24 - Powers of Attorney and resolutions. (Designated in the SOUTHERN system's combined Form 10-K for the year ended December 31, 1993, 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.) (b) Reports on Form 8-K. During the first quarter of 1994, each of the registrants filed a Form 8-K dated February 16, 1994, whereby their respective audited financial statements as of December 31, 1993, were made a part of the public record. Additionally, during the first quarter of 1994, the following registrants filed Form 8-K's that in each case facilitated a security sale: Registrant Date of Report ---------- -------------- SOUTHERN January 26, 1994 MISSISSIPPI March 8, 1994 69 70 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 Edward L. Addison Chairman (Principal Executive Officer) By W. L. Westbrook Financial Vice President (Principal Financial and Accounting Officer) By /s/ Wayne Boston -------------------------------- (Wayne Boston, Attorney-in-fact) Date: May 12, 1994 - -------------------------------------------------------------------------------- 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 By William B. Hutchins, III, Executive Vice President (Principal Financial Officer) By /s/ Wayne Boston -------------------------------- (Wayne Boston, Attorney-in-fact) Date: May 12, 1994 70 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. GEORGIA POWER COMPANY By H. Allen Franklin President and Chief Executive Officer (Principal Executive Officer) By Warren Y. Jobe Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer) By /s/ Wayne Boston -------------------------------- (Wayne Boston, Attorney-in-fact) Date: May 12, 1994 - -------------------------------------------------------------------------------- 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 By A. E. Scarbrough, Vice President - Finance (Principal Financial and Accounting Officer) By /s/ Wayne Boston -------------------------------- (Wayne Boston, Attorney-in-fact) Date: May 12, 1994 71 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. MISSISSIPPI POWER COMPANY By David M. Ratcliffe, President and Chief Executive Officer By Thomas A. Fanning, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) By /s/ Wayne Boston ------------------------------- (Wayne Boston, Attorney-in-fact) Date: May 12, 1994 - -------------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. SAVANNAH ELECTRIC AND POWER COMPANY By Arthur M. Gignilliat, Jr., President By Kirby R. Willis, Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) By /s/ Wayne Boston -------------------------------- (Wayne Boston, Attorney-in-fact) Date: May 12, 1994 72 -----END PRIVACY-ENHANCED MESSAGE-----