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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 September 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____to_____
<TABLE>
<CAPTION>
<S> <C> <C>
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
(770) 393-0650
1-3164 Alabama Power Company 63-0004250
(An Alabama Corporation)
600 North 18th Street
Birmingham, Alabama 35291
(205) 250-1000
1-6468 Georgia Power Company 58-0257110
(A Georgia Corporation)
333 Piedmont Avenue, N.E.
Atlanta, Georgia 30308
(404) 526-6526
0-2429 Gulf Power Company 59-0276810
(A Maine Corporation)
500 Bayfront Parkway
Pensacola, Florida 32501
(904) 444-6111
0-6849 Mississippi Power Company 64-0205820
(A Mississippi Corporation)
2992 West Beach
Gulfport, Mississippi 39501
(601) 864-1211
1-5072 Savannah Electric and Power Company 58-0418070
(A Georgia Corporation)
600 Bay Street, East
Savannah, Georgia 31401
(912) 232-7171
</TABLE>
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<PAGE>
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____
<TABLE>
<CAPTION>
<S> <C> <C>
Description of Shares Outstanding
Registrant Common Stock at October 31, 1995
The Southern Company Par Value $5 Per Share 666,156,579
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
</TABLE>
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.
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
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 19
Review by Independent Public Accountants 19
Condensed Statements of Income 20
Condensed Statements of Cash Flows 21
Condensed Balance Sheets 22
Management's Discussion and Analysis of Results of Operations and Financial Condition 24
Exhibit 1 - Report of Independent Public Accountants 28
Georgia Power Company
Management's Opinion as to Fair Statement of Results 30
Review by Independent Public Accountants 30
Condensed Statements of Income 31
Condensed Statements of Cash Flows 32
Condensed Balance Sheets 33
Management's Discussion and Analysis of Results of Operations and Financial Condition 35
Exhibit 1 - Report of Independent Public Accountants 42
Gulf Power Company
Management's Opinion as to Fair Statement of Results 44
Condensed Statements of Income 45
Condensed Statements of Cash Flows 46
Condensed Balance Sheets 47
Management's Discussion and Analysis of Results of Operations and Financial Condition 49
Mississippi Power Company
Management's Opinion as to Fair Statement of Results 54
Condensed Statements of Income 55
Condensed Statements of Cash Flows 56
Condensed Balance Sheets 57
Management's Discussion and Analysis of Results of Operations and Financial Condition 59
Savannah Electric and Power Company
Management's Opinion as to Fair Statement of Results 64
Condensed Statements of Income 65
Condensed Statements of Cash Flows 66
Condensed Balance Sheets 67
Management's Discussion and Analysis of Results of Operations and Financial Condition 69
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
(Continued)
<S> <C>
Page
Notes to the Condensed Financial Statements 73
PART II
Item 1. Legal Proceedings 79
Item 6. Exhibits and Reports on Form 8-K 79
Signatures 80
</TABLE>
DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
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
FASB................................................................. Financial Accounting Standards Board
FERC................................................................. Federal Energy Regulatory Commission
GEORGIA.............................................................. Georgia Power Company
GULF................................................................. Gulf Power Company
IRS.................................................................. Internal Revenue Service
MEAG................................................................. Municipal Electric Authority of Georgia
MISSISSIPPI.......................................................... Mississippi Power Company
Mobile............................................................... Mobile Energy Services Company, L.L.C.
NRC.................................................................. Nuclear Regulatory Commission
OPC.................................................................. Oglethorpe Power Corporation
PEP.................................................................. Performance Evaluation Plan
PSC ................................................................. Public Service Commission
SAVANNAH ............................................................ Savannah Electric and Power Company
SCS.................................................................. Southern Company Services, Inc.
SEC.................................................................. Securities and Exchange Commission
SEI.................................................................. Southern Electric International, Inc.
SEGCO................................................................ Southern Electric Generating Company
SOUTHERN ............................................................ The Southern Company
South Western........................................................ South Western Electricity PLC (United Kingdom)
</TABLE>
4
<PAGE>
THE SOUTHERN COMPANY
AND SUBSIDIARY COMPANIES
5
<PAGE>
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. As more fully discussed in Note (I) 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 plant. 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 been known, the information
furnished herein reflects all adjustments (which, except for the purchase of
South Western and the provision for separation benefits as described in Notes
(A) and (E), respectively, to the Condensed Financial Statements herein,
included only normal recurring adjustments) necessary to present fairly the
results for the periods ended September 30, 1995 and 1994. 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
<PAGE>
<TABLE>
<CAPTION>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
<S> <C> <C> <C> <C>
(See Note A)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
OPERATING REVENUES $2,758,848 $2,381,335 $6,871,461 $6,382,250
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Operation--
Fuel 665,190 591,568 1,660,738 1,608,240
Purchased power 115,091 48,107 244,180 171,966
Other 430,888 334,766 1,180,913 1,122,343
Maintenance 142,936 162,201 465,244 497,077
Depreciation and amortization 243,639 204,664 672,680 607,050
Amortization of deferred Plant Vogtle expenses, net (Note H) 32,493 22,847 90,443 51,254
Taxes other than income taxes 131,995 121,309 376,875 358,260
Federal and state income taxes 323,112 289,316 668,556 589,201
------------ ------------ ------------ -----------
Total operating expenses 2,085,344 1,774,778 5,359,629 5,005,391
------------ ------------ ------------ -----------
OPERATING INCOME 673,504 606,557 1,511,832 1,376,859
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 843 2,680 5,847 8,455
Interest income 10,753 7,834 19,132 21,375
Other, net (36,584) (26,571) (42,747) (42,585)
Income taxes applicable to other income 8,751 12,339 13,790 17,064
------------ ------------ ------------ ------------
INCOME BEFORE INTEREST CHARGES 657,267 602,839 1,507,854 1,381,168
------------ ------------ ------------ -----------
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest on long-term debt 131,999 141,496 405,500 430,154
Allowance for debt funds used during construction (3,663) (4,061) (14,902) (13,787)
Interest on interim obligations 15,501 7,142 43,892 24,714
Amortization of debt discount, premium and expense, net 7,836 7,598 23,777 22,441
Other interest charges 14,982 12,682 40,416 38,796
Preferred dividends of subsidiary companies 21,788 22,030 66,491 65,096
------------ ------------ ------------ -----------
Net interest charges and preferred dividends 188,443 186,887 565,174 567,414
------------ ------------ ------------ -----------
CONSOLIDATED NET INCOME $ 468,824 $ 415,952 $ 942,680 $ 813,754
============ ============ ============ ===========
AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (Thousands) 665,774 650,454 664,279 648,417
EARNINGS PER SHARE OF COMMON STOCK $0.71 $0.64 $1.42 $1.25
CASH DIVIDENDS PAID PER SHARE
OF COMMON STOCK $0.305 $0.295 $0.915 $0.885
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
<S> <C> <C>
For the Nine Months
Ended September 30,
1995 1994
OPERATING ACTIVITIES:
Consolidated net income $ 942,680 $ 813,754
Adjustments to reconcile consolidated net income to net cash provided by
operating activities--
Depreciation and amortization 836,792 786,836
Deferred income taxes, net 82,255 28,076
Allowance for equity funds used during construction (5,847) (8,455)
Deferred Plant Vogtle costs 90,443 51,254
Provision for separation benefits - 78,993
Gain on asset sales (23,533) (23,375)
Other, net 107,832 34,066
Changes in certain current assets and liabilities--
Receivables, net (224,916) (24,708)
Fossil fuel stock 82,023 (50,138)
Materials and supplies 8,610 (8,167)
Accounts payable (216,121) (47,910)
Taxes accrued 234,696 102,168
Other (44,650) (20,102)
------------ -------------
Net cash provided from operating activities 1,870,264 1,712,292
------------ ------------
INVESTING ACTIVITIES:
Gross property additions (967,016) (1,034,060)
SEI investments (343,947) -
Sales of property 131,099 141,496
Other 17,224 (108,508)
------------ ------------
Net cash used in investing activities (1,162,640) (1,001,072)
------------ ------------
FINANCING ACTIVITIES:
Proceeds--
Common stock 186,610 206,368
First mortgage bonds 345,210 35,000
Pollution control bonds 515,300 609,815
Other long-term debt 265,772 377,185
Retirements--
Preferred stock (1,000) (1,000)
First mortgage bonds (538,414) (240,238)
Pollution control bonds (355,205) (469,910)
Other long-term debt (261,551) (181,359)
Special deposits-redemption funds (149,585) (143,819)
Interim obligations, net 96,753 (366,702)
Payment of common stock dividends (607,988) (573,999)
Miscellaneous (11,315) (23,808)
------------ ------------
Net cash provided from (used in) financing activities (515,413) (772,467)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 192,211 (61,247)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 139,309 178,346
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 331,520 $ 117,099
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 486,235 $ 485,613
Income taxes 453,265 515,503
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
<S> <C> <C>
At September 30,
1995 At December 31,
(Unaudited) 1994
(Note A)
UTILITY PLANT:
Plant in service $31,704,257 $29,208,380
Less accumulated provision for depreciation 10,153,982 9,576,577
------------ ------------
21,550,275 19,631,803
Nuclear fuel, at amortized cost 208,258 238,055
Construction work in progress 989,583 1,247,427
------------ ------------
Total 22,748,116 21,117,285
------------ ------------
OTHER LONG-TERM ASSETS:
Investments 450,800 93,049
Argentine operating concession, being amortized 435,563 445,834
Goodwill 357,837 12,233
Nuclear decommissioning trusts 165,128 125,311
Miscellaneous 312,039 130,455
------------ ------------
Total 1,721,367 806,882
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents 331,520 139,309
Special deposits 149,585 36,338
Receivables, less accumulated provisions for uncollectible accounts
of $29,776 at September 30, 1995 and $9,129 at December 31, 1994 1,484,461 1,021,590
Fossil fuel stock, at average cost 268,662 350,540
Materials and supplies, at average cost 553,901 552,809
Prepayments 241,636 193,983
Miscellaneous 73,390 73,614
------------ ------------
Total 3,103,155 2,368,183
------------ ------------
DEFERRED CHARGES:
Deferred charges related to income taxes 1,386,596 1,454,190
Deferred Plant Vogtle costs (H) 341,649 432,092
Debt expense and loss, being amortized 399,707 345,897
Miscellaneous 617,942 518,358
------------ ------------
Total 2,745,894 2,750,537
------------ ------------
TOTAL ASSETS $30,318,532 $27,042,887
=========== ===========
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
At September 30,
1995 At December 31,
(Unaudited) 1994
(Note A)
CAPITALIZATION:
Common stock, par value $5 per share -
Authorized - 1 billion shares;
Outstanding -September 30, 1995: 665,774,460 shares
December 31, 1994: 656,528,126 shares $ 3,328,872 $ 3,282,643
Paid-in capital 1,848,486 1,711,366
Premium on preferred stock 1,012 1,012
Retained earnings 3,524,396 3,191,228
------------ ------------
8,702,766 8,186,249
Preferred stock of subsidiaries 1,332,203 1,332,203
Guaranteed interest in preferred securities of partnership 100,000 100,000
Long-term debt 8,483,890 7,592,826
------------ ------------
Total 18,618,859 17,211,278
------------ ------------
CURRENT LIABILITIES:
Amount of securities due within one year 435,823 229,925
Notes payable 947,135 575,200
Commercial paper 452,387 402,484
Accounts payable 638,586 806,459
Customer deposits 134,710 101,575
Taxes accrued--
Federal and state income 192,440 243
Other 253,588 152,979
Interest accrued 165,669 190,094
Vacation pay accrued 89,396 87,431
Miscellaneous 468,158 232,325
------------ ------------
Total 3,777,892 2,778,715
------------ ------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 4,583,119 4,007,427
Deferred credits related to income taxes 944,975 986,933
Accumulated deferred investment tax credits 827,275 857,387
Disallowed Plant Vogtle capacity buyback costs 58,390 60,490
Prepaid capacity revenues, net 133,062 138,421
Miscellaneous 1,374,960 1,002,236
------------ ------------
Total 7,921,781 7,052,894
------------ ------------
TOTAL CAPITALIZATION AND LIABILITIES $30,318,532 $27,042,887
=========== ===========
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
</TABLE>
10
<PAGE>
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 third quarter and year-to-date 1995 were higher than
earnings recorded in the corresponding periods of 1994 primarily because of
higher retail revenues and, for year-to-date, costs recorded in the prior period
associated with workforce reduction programs for GEORGIA and the system service
company, SCS. Consolidated net income was $469 million ($0.71 per share) for the
third quarter of 1995, compared to $416 million ($0.64 per share) for the third
quarter of 1994. Earnings were $943 million ($1.42 per share) for year-to-date
1995, compared to $814 million ($1.25 per share) in the corresponding period of
1994. Disregarding the after-tax effect of the workforce reduction programs of
$54 million ($0.09 per share), year-to-date earnings would have risen 8.6% over
1994's results.
On September 18, 1995, SOUTHERN attained control of South Western. The
acquisition was recorded on the purchase method. Accordingly, SOUTHERN's
condensed financial statements for the periods ending September 30, 1995 include
twelve days of South Western's operations, which were not material to SOUTHERN's
Results of Operations. Reference is made to Note (A) to the Condensed Financial
Statements herein for information regarding the purchase of South Western.
Revenues
Retail energy sales increased 8.5% and 5.3% for the third quarter and
year-to-date 1995, respectively, due to weather influences, an improvement in
the economy and an increase in customers served. The summer of 1994 was
unseasonably mild, in contrast to the exceptionally hot summer of 1995 as
evidenced by the eight occasions SOUTHERN set new peak hour demand records. The
new peak record of 27,465 megawatts was 5.9% higher than the previous record set
in 1993. Wholesale energy sales for the third quarter of 1995 rose 14.0% over
the third quarter of 1994 due to increased demand created by the hot weather.
However, scheduled reductions in off-system contracts brought year-to-date
wholesale energy sales back to approximately the amount sold in 1994. Capacity
revenues for the third quarter and year-to-date 1995 were $13 million and $39
million less than in the corresponding periods of 1994 and coincided with
GEORGIA completing the final sale in a series of four transactions for the sale
of Plant Scherer Unit 4 in June 1995. The capacity from this unit had been
dedicated to unit power sales.
Expenses
Fuel expense for the third quarter and year-to-date 1995 rose over the
corresponding periods of 1994 due to increased generation and the change in the
composition of the generation mix. Because of the hot weather in the summer of
1995 and the reduced hydro generation due to lower stream flows, SOUTHERN
utilized more generation from fossil sources, particularly combustion turbine.
Fuel expense for both periods of 1995 benefitted from the lower, when segregated
by fuel type, average cost of fuel consumed. Purchased power expense in recent
years has steadily declined because of the reduction in capacity buyback
payments by GEORGIA to the co-owners of Plant Vogtle; however, an increase was
recorded for the third quarter and year-to-date 1995 because of record demand
11
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (Continued)
levels and, with respect to year-to-date, the one-time reduction recorded in
1994 as a result of a new agreement with GEORGIA's territorial wholesale
customers. See Note (H) 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.
Other operation expenses for the third quarter of 1995 increased for a
variety of factors including higher costs for demand-side option programs
(partially recoverable through rates), higher employee benefit and training
costs, the recognition of emission allowance expense (also recoverable through
rates) and the expiration of the amortization of credits associated with the
Gulf States Utilities settlement. As discussed in Note (K) to the Condensed
Financial Statements herein, GEORGIA expensed in July 1995 approximately $22
million of demand-side option program costs that will not be recovered. Other
operation expense in the first quarter of 1994 included approximately $93
million for costs associated with workforce reduction programs. (See Note (E) to
the Condensed Financial Statements herein.) The decrease in maintenance expense
for both periods of 1995 reflect the establishment by ALABAMA in September 1994
of a Natural Disaster Reserve with an initial accrual of $28 million. This
coincided with a change in the estimating procedure for computing unbilled
kilowatt-hours which resulted in an increase in unbilled revenues of a like
amount. The increase in depreciation and amortization is attributable to
increased investment in plant and GEORGIA expensing in September 1995
approximately $15 million for previously capitalized software development costs.
Other Income
In May 1995, as a result of litigation, ALABAMA recorded a charge of $9 million
to reflect the refund of interest on financing of merchandise sales. See Note
(F) to the Condensed Financial Statements herein for further details. On June 1
of 1994 and 1995, GEORGIA completed the third and fourth sales in a series of
four separate transactions to sell Plant Scherer Unit 4. Each of these sales
were for 16.55% of the unit. These sales generated cash of $133 million and $131
million, respectively, and resulted in after-tax gains of approximately $11
million and $12 million, respectively.
Interest Charges and Dividends on Preferred Stock
The decrease in interest on long-term debt reflects the SOUTHERN system's
efforts to decrease its capital costs. Interest on interim obligations rose
because of higher average interest rates on an increased average amount of
short-term debt outstanding.
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.
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.
12
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
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 growth in energy sales to a less regulated, more
competitive environment.
Reference is made to SOUTHERN's Current Reports on Form 8-K dated July 13,
September 7 and September 18, 1995 for information regarding SOUTHERN's purchase
of South Western. South Western is one of twelve regional electricity companies
in the United Kingdom. South Western's principal business is the distribution of
electricity to 1.3 million customers in the southwest portion of England.
Further discussion of this transaction is made in Note (A) to the Condensed
Financial Statements herein.
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 plant; a tax issue regarding
GEORGIA's tax accounting for the sale in 1984 of an interest in Plant Vogtle and
related capacity and energy buyback commitments; and the outcome of proceedings
initiated by the FERC to determine the appropriate return on equity on wholesale
power and transmission contracts.
As discussed in Note (G) to the Condensed Financial Statements herein,
ALABAMA has a retail rate moratorium on increases (but not decreases) in effect
until July 2001.
As discussed in Note (J) to the Condensed Financial Statement herein, the
staff of the Georgia PSC issued a report regarding its preliminary review of
GEORGIA's earnings. This report recommends, among other things, that the allowed
return on equity be lowered to 11 1/4% from the current 12 1/4% and that $60
million of GEORGIA's $200 million investment in the Rocky Mountain pumped
storage hydroelectric plant be excluded from rate base. The outcome of this
matter cannot now be determined.
As a result of an investigation of GULF's 1995 earnings by the Florida PSC,
GULF presented a 1995 earnings proposal which requires that any jurisdictional
revenues contributing to annual earnings in excess of a 12.75% return on equity
on a Florida PSC adjusted basis be deferred. GULF must petition the Florida PSC
to determine the disposition of any deferred revenues by April 1996. The
proposal was approved by the Florida PSC in August 1995. Based upon current
estimates, GULF's management does not expect a material impact on future
earnings.
Reference is made to Note 3 to the financial statements of SOUTHERN in Item
8 of the SOUTHERN system's combined 1994 Annual Report on Form 10-K for
13
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (Continued)
information regarding proceedings with respect to GEORGIA's recovery of
demand-side conservation program costs. In August 1995, the Georgia PSC ordered
GEORGIA to discontinue the current demand-side conservation programs by the end
of 1995. The rate riders will continue in effect until costs deferred are
collected, not to exceed an $80 million cap as of December 31, 1995. In July
1995, GEORGIA recognized expenses of approximately $22 million for previously
deferred costs which will not be recovered under the riders and costs expected
to be incurred in excess of the capped amount.
Hurricane Opal struck SOUTHERN's service territory in October 1995. A
significant portion of the costs of repairing damages, excluding the amounts
capitalized, will be charged, to the extent available, to storm damage reserves.
Management believes that the cost of repairing damages will not have a material
effect on future results of operations.
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 1994 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 SOUTHERN's service area. The
enactment of the Energy Act is beginning to have a dramatic 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 1994
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. Further discussion of this issue is found in
"Future Earnings Potential" in Item 7 Management's Discussion and Analysis in
SOUTHERN's 1994 Annual Report on Form 10-K.
Reference is made to Note 3 to the financial statements in Item 8 of
SOUTHERN's 1994 Annual Report on Form 10-K for information on certain
environmental contingencies.
SOUTHERN's domestic operating affiliates are subject to the provisions of
FASB Statement No. 71, Accounting for the Effects of Certain Types of
Regulation. In the event that a portion of the company's operations is no longer
subject to these provisions, SOUTHERN would be required to write-off related
regulatory assets and liabilities. See Note 1 to the financial statements in
Item 8 of SOUTHERN's 1994 Annual Report on Form 10-K.
14
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (Continued)
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of. This
statement requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount for an
asset may not be recoverable. This statement also imposes stricter criteria for
regulatory assets by requiring that such assets be probable of future recovery
at each balance sheet date. SOUTHERN must adopt this standard by January 1, 1996
and does not expect that adoption will have a material impact on the financial
position or results of operations of SOUTHERN based on the current regulatory
structure in which SOUTHERN operates. This conclusion may change in the future
as competitive factors influence wholesale and retail pricing in this industry.
In October 1995, the FASB issued Statement No. 123, Accounting for
Stock-Based Compensation. The statement is effective for transactions that are
entered into in fiscal years beginning after December 15, 1995. This statement
establishes a fair value based method of accounting for employee stock options.
This method provides for a compensation cost to be charged to results of
operations at the grant date. However, the statement allows companies to
continue to follow the accounting prescribed by APB Opinion No. 25. Opinion 25
generally requires compensation cost to be recognized only for the excess of the
quoted market price at the grant date over the price that an employee must pay
to acquire the stock. Companies electing to continue with Opinion 25 must make
pro forma disclosures of net income as if Statement 123 had been adopted.
SOUTHERN has not yet determined the method of accounting that it will follow for
stock options. However, it does not expect that adoption of the requirements of
Statement 123 would have a material impact on the results of operations.
Financial Condition
Overview
The major changes in SOUTHERN's financial condition during the first nine months
of 1995 were the addition of approximately $1.0 billion to utility plant, the
acquisition of South Western, the commercial operation of twelve generating
units designed for peak demand (approximately 930 megawatts of capacity), and
the consummation of the final transaction in the sale of Plant Scherer Unit 4.
The funds for gross property additions and other capital requirements were
derived primarily from operations, an increase in notes payable and the sale of
common stock by SOUTHERN. See SOUTHERN's Condensed Statements of Cash Flows for
further details.
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 42.5% at September
30, 1995, compared to 44.4% at December 31, 1994. The market price of SOUTHERN's
common stock at September 30, 1995, was $23.50 per share, compared to a book
15
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Financial Condition (Continued)
value of $13.07. This represents a market-to-book value ratio of 180%. The
dividend for the third quarter of 1995 was 30.5 cents per share.
Capital Requirements for Construction
The construction program of SOUTHERN's operating subsidiaries is budgeted at
$4.0 billion for the three years 1995 through 1997 ($1.4 billion in 1995, $1.3
billion in 1996 and $1.3 billion in 1997). 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, within the service
area, the construction of combustion turbine peaking units of approximately 380
megawatts (in addition to those units that began commercial operation in 1995)
is planned to be completed by 1997. In addition, significant construction will
continue related to transmission and distribution facilities and the upgrading
and extension of the useful lives of generating plants. Also, see Note 6 to the
financial statements in Item 8 in SOUTHERN's 1994 Annual Report on Form 10-K for
information regarding GEORGIA's joint ownership agreement for a combustion
turbine unit in Florida.
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 impact 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 1994 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 $436
million will be required by September 30, 1996, for present sinking fund
requirements and maturities of long-term debt. Included in this amount is $150
million on deposit with the trustee that may be used only for the redemption of
pollution control obligations. 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
SOUTHERN had a sale of its common stock in the first quarter of 1995 and issued
additional common shares through employee savings and stock purchase plans.
Other than the employee savings and stock purchase plans, no issuance of
additional shares of SOUTHERN's common stock is planned. The amounts and timing
of additional equity capital to be raised in the future will be contingent on
16
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Financial Condition (Continued)
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 regulatory approval.
To meet short-term cash needs and contingencies, the SOUTHERN system had at
September 30, 1995, approximately $332 million of cash and cash equivalents and
approximately $2.7 billion of unused credit arrangements with banks.
In connection with the tender offer for South Western, SOUTHERN established
credit commitments with four banks for $700 million. As of November 10, 1995,
none of these credit commitments had been utilized.
At September 30, 1995, the system companies had outstanding $947 million of
notes payable and $452 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.
See Note (B) to the Condensed Financial Statements herein for discussion of
financial derivative contracts entered into by SOUTHERN and its subsidiaries.
In order to issue additional first mortgage bonds 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 and dividend 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.
17
<PAGE>
ALABAMA POWER COMPANY
18
<PAGE>
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, except for the adjustment to
revenues and the establishment of a Natural Disaster Reserve in September 1994,
included only normal recurring adjustments) necessary to present fairly the
results for the periods ended September 30, 1995 and 1994. 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.
19
<PAGE>
<TABLE>
<CAPTION>
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
<S> <C> <C> <C> <C>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
OPERATING REVENUES:
Revenues $910,023 $803,220 $2,264,183 $2,168,707
Revenues from affiliates 28,261 35,707 73,925 116,466
---------- ---------- ------------ ------------
Total operating revenues 938,284 838,927 2,338,108 2,285,173
---------- ---------- ------------ ------------
OPERATING EXPENSES:
Operation--
Fuel 242,649 217,901 596,257 622,770
Purchased power from non-affiliates 16,684 2,265 25,895 11,900
Purchased power from affiliates 41,011 26,900 93,695 78,595
Other 125,667 109,231 363,062 333,401
Maintenance 51,299 78,716 174,529 198,420
Depreciation and amortization 75,886 72,878 228,717 218,237
Taxes other than income taxes 45,959 45,833 137,668 137,277
Federal and state income taxes 105,807 85,467 204,329 193,518
---------- ---------- ------------ ------------
Total operating expenses 704,962 639,191 1,824,152 1,794,118
---------- ---------- ------------ ------------
OPERATING INCOME 233,322 199,736 513,956 491,055
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 564 579 2,823 1,749
Interest income 5,840 4,242 6,760 12,500
Other, net (7,446) (6,258) (16,945) (25,741)
Income taxes applicable to other income 1,155 2,941 9,154 9,876
---------- ---------- ------------ ------------
INCOME BEFORE INTEREST CHARGES 233,435 201,240 515,748 489,439
---------- ----------- ------------ ------------
INTEREST CHARGES:
Interest on long-term debt 44,737 44,544 135,684 133,681
Allowance for debt funds used during construction (915) (716) (4,585) (2,165)
Interest on interim obligations 4,430 1,868 13,300 4,177
Amortization of debt discount, premium, and expense, net 2,544 2,505 7,588 7,400
Other interest charges 7,999 5,200 21,192 14,945
---------- ---------- ------------ ------------
Net interest charges 58,795 53,401 173,179 158,038
---------- ---------- ------------ ------------
NET INCOME 174,640 147,839 342,569 331,401
DIVIDENDS ON PREFERRED STOCK 6,702 6,625 20,377 19,488
---------- ---------- ------------ ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $167,938 $141,214 $ 322,192 $ 311,913
=========== ========== ============ =============
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
<S> <C> <C>
For the Nine Months
Ended September 30,
1995 1994
OPERATING ACTIVITIES:
Net income $ 342,569 $ 331,401
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization 272,505 268,500
Deferred income taxes, net 27,182 2,377
Allowance for equity funds used during construction (2,823) (1,749)
Other, net 59,823 42,708
Change in certain current assets and liabilities--
Receivables, net (88,215) (18,679)
Inventories 26,669 (7,449)
Payables (100,678) (116,613)
Taxes accrued 83,959 50,471
Energy cost recovery, retail (18,693) (2,478)
Other (32,948) (22,105)
----------- -----------
Net cash provided from operating activities 569,350 526,384
----------- -----------
INVESTING ACTIVITIES:
Gross property additions (357,749) (334,366)
Other (40,366) (23,359)
----------- -----------
Net cash used for investing activities (398,115) (357,725)
----------- -----------
FINANCING ACTIVITIES:
Proceeds:
Other long-term debt 50,000 208,910
Retirements:
First mortgage bonds - (20,387)
Other long-term debt (50,563) (108,653)
Special deposits-redemption funds - (101,650)
Interim obligations, net 60,128 81,516
Payment of preferred stock dividends (20,296) (18,723)
Payment of common stock dividends (210,700) (200,400)
Miscellaneous (1,567) (4,415)
----------- -----------
Net cash provided from (used for) financing activities (172,998) (163,802)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,763) 4,857
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,676 3,233
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,913 $ 8,090
=========== ===========
Supplemental cash flow information:
Cash paid during the period for--
Interest (net of amount capitalized) $ 148,104 $ 140,343
Income taxes 112,268 157,331
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
<S> <C> <C>
At September 30,
1995 At December 31,
(Unaudited) 1994
UTILITY PLANT:
Plant in service, at original cost $ 10,337,386 $10,052,772
Less accumulated provision for depreciation 3,792,306 3,598,604
------------- -------------
6,545,080 6,454,168
Nuclear fuel, at amortized cost 91,148 101,630
Construction work in progress 313,412 317,779
------------- -------------
Total 6,949,640 6,873,577
------------- -------------
OTHER PROPERTY AND INVESTMENTS:
Nuclear decommissioning trusts 92,484 71,014
Other 47,378 43,955
139,862 114,969
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents 12,913 14,676
Receivables --
Customer accounts receivable 427,591 308,561
Other accounts and notes receivable 26,220 22,547
Affiliated companies 30,295 29,303
Accumulate d provision for uncollectible accounts (3,073) (2,297)
Refundable income taxes - 16,011
Fossil fuel stock, at average cost 102,460 119,555
Materials and supplies, at average cost 175,026 184,600
Prepayments--
Income taxes 1,466 19,196
Other 110,310 84,354
Vacation pay deferred 20,442 20,442
------------- -------------
Total 903,650 816,948
------------- -------------
DEFERRED CHARGES:
Deferred charges related to income taxes 440,742 451,886
Debt expense and loss, being amortized 105,691 109,221
Uranium enrichment decontamination and decommissioning fund 42,996 42,996
Miscellaneous 61,370 49,620
------------- -------------
Total 650,799 653,723
------------- -------------
TOTAL ASSETS $ 8,643,951 $ 8,459,217
============= =============
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
At September 30,
1995 At December 31,
(Unaudited) 1994
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 1,196,880 1,085,256
------------ ------------
2,726,029 2,614,405
Preferred stock 440,400 440,400
Long-term debt 2,396,963 2,455,013
------------ ------------
Total 5,563,392 5,509,818
------------ ------------
CURRENT LIABILITIES:
Long-term debt due within one year 60,871 796
Commercial paper 240,010 179,882
Accounts payable--
Affiliated companies 62,480 60,334
Other 147,268 258,657
Customer deposits 31,632 30,245
Taxes accrued --
Federal and state income 56,507 6,848
Other 59,068 15,589
Interest accrued 48,885 52,516
Miscellaneous 72,812 77,489
779,533 682,356
------------ ------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 1,185,240 1,181,342
Accumulated deferred investment tax credits 308,395 317,018
Prepaid capacity revenues, net 133,062 138,421
Uranium enrichment decontamination and decommissioning fund 39,413 39,413
Deferred credits related to income taxes 390,365 405,256
Miscellaneous 244,551 185,593
------------ ------------
Total 2,301,026 2,267,043
------------ ------------
TOTAL CAPITALIZATION AND LIABILITIES $8,643,951 $8,459,217
============ =============
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
</TABLE>
23
<PAGE>
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
ALABAMA's earnings during the third quarter and year-to-date 1995 increased,
compared to the same periods of 1994, due primarily to higher retail energy
sales. Compared to the corresponding periods of 1994, net income after dividends
on preferred stock was $26.7 million higher in the third quarter of 1995 and
$10.3 million higher year-to-date.
Revenues
Operating revenues for the third quarter and year-to-date 1995 rose over the
corresponding periods of 1994 due primarily to higher retail energy sales and,
for the third quarter, increased wholesale energy sales to non-affiliates.
Retail energy sales rose 6.7% in the third quarter and 4.7% year-to-date. The
increase for the third quarter was primarily due to hot weather in 1995,
especially when compared to the mild weather experienced in the same period for
1994. The year-to-date increase over the prior year was primarily due to weather
and a strong economy in ALABAMA's service territory. Capacity payments received
from non-affiliated customers decreased $2.9 million for the third quarter and
$8.8 million year-to-date. Total energy sales increased 8.5% for the quarter and
0.6% year-to-date 1995.
Revenues from sales to affiliated companies within the Southern electric
system, as well as purchases of energy, will vary from period to period
depending on demand, the availability, and the variable production cost of
generating resources at each company.
Expenses
The average cost of fuel consumed decreased for both the third quarter and
year-to-date 1995. However, fuel expense for the third quarter increased because
of the displacement of nuclear and hydro generation with fossil fuel generation,
including, due to peak demands, gas-fired combustion turbines. Nuclear and hydro
generation decreased because of a refueling outage and lower stream flows,
respectively. The most significant increase in other operation expenses for both
third quarter and year-to-date 1995 is due to the expiration in 1994 of the
amortization of credits associated with the Gulf States Utilities settlement.
The decrease in maintenance expense for both the third quarter and
year-to-date 1995 reflect the establishment in September 1994 of a Natural
Disaster Reserve with an initial accrual of $28 million. This coincided with a
change in the estimating procedure for computing unbilled kilowatt-hours which
resulted in an increase in unbilled revenues of $28 million. The increase in
depreciation and amortization reflects additions to utility plant. The increase
in income tax expense is attributable to the change in earnings.
Other Income
In May 1995, pursuant to litigation, ALABAMA recorded a charge of $9 million to
reflect the refund of interest on the sales of merchandise by vendors other than
ALABAMA. See Note (F) to the Condensed Financial Statements herein for further
24
<PAGE>
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (Continued)
details. The change in "Other, net" for year-to-date is primarily attributable
to a decrease in contributions to non-profit organizations.
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.
Interest Charges
Interest on interim obligations rose due to higher average interest rates on an
increased average amount of short-term debt outstanding. Other interest charges
for the third quarter and year-to-date 1995 reflect interest on refunds
associated with long-term power sales agreements. Also, interest on federal
income tax assessments arising from the audit for the tax years 1988-1990
contributed to the year-to-date increase.
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 growth in energy sales to a less regulated, more
competitive environment.
Discussed in Note (D) to the Condensed Financial Statements herein are the
proceedings concerning the reasonableness of the Southern electric system's
wholesale rate schedules and contracts. Also, see Note (G) to the Condensed
Financial Statements herein for information regarding a retail rate moratorium
and the application of adjustments to achieve parity among the various rate
classes.
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 Matters" in Item 7 - Management's
Discussion and Analysis in ALABAMA's 1994 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. However, the enactment of the Energy
Act is beginning to have a dramatic 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 ALABAMA's 1994 Annual Report on Form
10-K.
25
<PAGE>
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (Continued)
Hurricane Opal struck ALABAMA's service area on October 4, 1995. The
expense of repairing damages to ALABAMA's property will be charged to the
Natural Disaster Reserve, which amounted to $31 million at September 30, 1995.
Management believes that the cost of repairing damages and the loss of revenues
will not have a material effect on future results of operations.
The staff of the SEC has questioned certain current accounting practices of
the electric utility industry regarding the recognition, measurement and
classification of decommissioning costs for nuclear generating stations in
financial statements. Further discussion of this issue is found under "Future
Earnings Potential" in Item 7 - Management's Discussion and Analysis in
ALABAMA's 1994 Annual Report on Form 10-K.
ALABAMA is subject to the provisions of FASB Statement No. 71, Accounting
for the Effects of Certain Types of Regulation. In the event that a portion of
the company's operations is no longer subject to these provisions, ALABAMA would
be required to write off related regulatory assets and liabilities. See Note 1
to the financial statements in Item 8 in ALABAMA's 1994 Annual Report on Form
10-K for additional information.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of. This
statement requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount for an
asset may not be recoverable. This statement also imposes stricter criteria for
regulatory assets by requiring that such assets be probable of future recovery
at each balance sheet date. ALABAMA must adopt this standard by January 1, 1996
and does not expect that adoption will have a material impact on the financial
position or results of operations of ALABAMA based on the current regulatory
structure in which ALABAMA operates. This conclusion may change in the future as
competitive factors influence wholesale and retail pricing in this industry.
Financial Condition
Overview
The principal change in ALABAMA's financial condition in the first nine months
of 1995 was gross property additions of $358 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. ALABAMA's common equity as a percent of total
capitalization was 49.0% at September 30, 1995, compared to 47.4% at year-end
1994.
Liquidity and Capital Resources
ALABAMA has committed lines of credit and regulatory approval for short-term
borrowings of up to $530 million. At September 30, 1995, ALABAMA had outstanding
$240 million of commercial paper.
26
<PAGE>
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Financial Condition (Continued)
Capital expenditures are estimated to total $1.6 billion for the three
years 1995 through 1997 ($604 million in 1995, $500 million in 1996 and $502
million in 1997). Current energy demand forecasts do not require any additional
baseload generating facilities until well into the future. However, five
combustion turbine peaking units (400 megawatts of capacity) began commercial
operation in May 1995 to meet increased peak-hour demand and an additional four
units (320 megawatts of capacity) are scheduled to be placed in service in 1996.
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 $60.9
million will be required by September 30, 1996, for debt maturities. Also,
ALABAMA will continue to retire higher-cost debt and preferred stock and replace
these obligations with lower-cost capital, as market conditions permit.
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. The amount of securities
which ALABAMA will be permitted to issue in the future will depend upon market
conditions and other factors prevailing at that time.
27
<PAGE>
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 September 30, 1995, and the related condensed statements of income
for the three-month and nine-month periods ended September 30, 1995 and 1994,
and condensed statements of cash flows for the nine-month periods ended
September 30, 1995 and 1994. 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, 1994
(not presented herein), and, in our report dated February 15, 1995, 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, 1994, is
fairly stated, in all material respects, in relation to the balance sheet from
which it has been derived.
/S/ ARTHUR ANDERSEN
Birmingham, Alabama
November 8, 1995
28
<PAGE>
GEORGIA POWER COMPANY
29
<PAGE>
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 (I) 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 plant. 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 provisions for
separation benefits recorded in 1994 as described in Note (E) to the Condensed
Financial Statements herein, included only normal recurring adjustments)
necessary to present fairly the results for the periods ended September 30, 1995
and 1994. 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.
30
<PAGE>
<TABLE>
<CAPTION>
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
<S> <C> <C> <C> <C>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
OPERATING REVENUES:
Revenues $1,341,661 $1,197,061 $3,356,077 $3,182,709
Revenues from affiliates 31,895 15,576 66,875 52,725
------------ ------------ ------------ ------------
Total operating revenues 1,373,556 1,212,637 3,422,952 3,235,434
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Operation--
Fuel 282,111 254,677 714,366 683,931
Purchased power from non-affiliates 53,871 44,165 142,585 148,296
Purchased power from affiliates 36,721 39,102 94,606 115,620
Provision for separation benefits 2,073 2,204 6,052 90,101
Other 211,983 148,796 549,969 470,465
Maintenance 64,197 58,059 201,384 203,476
Depreciation and amortization 122,449 94,702 317,942 284,146
Amortization of deferred
Plant Vogtle expenses, net (Note H) 32,493 22,847 90,443 51,254
Taxes other than income taxes 56,301 49,367 158,602 147,816
Federal and state income taxes 174,278 167,652 372,927 325,586
------------ ------------ ------------ ------------
Total operating expenses 1,036,477 881,571 2,648,876 2,520,691
------------ ------------ ------------ ------------
OPERATING INCOME 337,079 331,066 774,076 714,743
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 61 1,538 2,471 4,450
Other, net (9,146) (4,964) 12,763 19,465
Income taxes applicable to other income 2,841 6,115 (8,467) (1,461)
------------ ------------ ------------ ------------
INCOME BEFORE INTEREST CHARGES 330,835 333,755 780,843 737,197
------------ ------------ ------------ ------------
INTEREST CHARGES:
Interest on long-term debt 61,571 76,279 199,029 236,148
Allowance for debt funds used during construction (2,447) (2,882) (9,498) (9,216)
Interest on interim obligations 5,356 4,229 17,476 12,647
Amortization of debt discount, premium and expense, net 3,983 3,927 11,999 11,693
Preferred distribution of subsidiary 2,250 - 6,750 -
Other interest charges 3,576 6,830 9,402 19,909
------------ ------------ ------------ ------------
Net interest charges 74,289 88,383 235,158 271,181
------------ ------------ ------------ ------------
NET INCOME 256,546 245,372 545,685 466,016
DIVIDENDS ON PREFERRED STOCK 11,843 12,112 36,321 35,773
------------ ------------ ------------ ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 244,703 $ 233,260 $ 509,364 $ 430,243
============ ============ ============ ============
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
<S> <C> <C>
For the Nine Months
Ended September 30,
1995 1994
OPERATING ACTIVITIES
Net income $ 545,685 $ 466,016
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 397,225 360,874
Deferred income taxes, net 46,289 30,869
Allowance for equity funds used during construction (2,471) (4,450)
Deferred Plant Vogtle costs 90,443 51,254
Provision for separation benefits - 74,112
Gain on asset sales (23,344) (22,474)
Other, net 61,254 (45,500)
Changes in current assets and liabilities--
Receivables, net (113,261) 31,118
Inventories 62,153 (39,947)
Payables (55,295) 8,076
Taxes accrued 109,460 11,027
Other 20,811 13,071
------------ -----------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 1,138,949 934,046
------------ -----------
INVESTING ACTIVITIES
Property additions (326,858) (420,025)
Sales of property 131,099 132,644
Other (53,362) (63,394)
------------ -----------
NET CASH USED FOR INVESTING ACTIVITIES (249,121) (350,775)
------------ -----------
FINANCING ACTIVITIES
Proceeds--
First mortgage bonds 75,000 -
Pollution control bonds 454,700 388,065
Retirements--
First mortgage bonds (505,789) (133,559)
Pollution control bonds (305,205) (391,810)
Other long-term debt (37,000) (132)
Special deposits-redemption funds (149,585) -
Interim obligations, net (33,875) (98,952)
Payment of preferred stock dividends (36,540) (35,001)
Payment of common stock dividends (333,800) (285,800)
Miscellaneous (12,261) (12,121)
------------ -----------
NET CASH USED FOR FINANCING ACTIVITIES (884,355) (569,310)
------------ -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 5,473 13,961
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,539 5,896
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,012 $ 19,857
============ ===========
Supplemental Cash Flow Information--
Interest (net of amount capitalized) $ 241,955 $ 267,367
Income taxes 277,260 300,417
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
<S> <C> <C>
At September 30,
1995 At December 31,
(Unaudited) 1994
UTILITY PLANT:
Plant in service $ 14,444,104 $14,054,917
Less accumulated provision for depreciation 4,322,431 4,054,986
------------- -------------
10,121,673 9,999,931
Nuclear fuel, at amortized cost 117,110 136,425
Construction work in progress 245,222 541,889
------------- -------------
Total 10,484,005 10,678,245
------------- -------------
OTHER PROPERTY AND INVESTMENTS:
Nuclear decommissioning trusts 72,644 54,297
Miscellaneous 127,974 116,527
------------- -------------
Total 200,618 170,824
------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 18,012 12,539
Special deposits - redemption funds 149,585 -
Receivables--
Customer accounts receivable 494,738 377,570
Other accounts and notes receivable 94,450 104,989
Affiliated companies 22,182 14,443
Accumulated provision for uncollectible accounts (6,975) (4,500)
Fossil fuel stock, at average cost 111,563 169,252
Materials and supplies, at average cost 289,000 293,464
Prepayments 87,222 55,383
Vacation pay deferred 40,344 40,823
------------- -------------
Total 1,300,121 1,063,963
------------- -------------
DEFERRED CHARGES:
Deferred charges related to income taxes 864,914 919,750
Deferred Plant Vogtle costs (Note H) 341,649 432,092
Debt expense and loss, being amortized 197,510 190,899
Miscellaneous 219,533 256,885
------------- -------------
Total 1,623,606 1,799,626
------------- -------------
TOTAL ASSETS $ 13,608,350 $13,712,658
============= ===========
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
At September 30,
1995 At December 31,
(Unaudited) 1994
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 1,588,106 1,412,543
------------- -------------
4,317,117 4,141,554
Preferred stock 692,787 692,787
Guaranteed interest in preferred securities of partnership 100,000 100,000
Long-term debt 3,313,119 3,757,823
------------- -------------
Total 8,423,023 8,692,164
------------- -------------
CURRENT LIABILITIES:
Long-term debt due within one year 300,025 167,420
Notes payable to banks 178,550 202,200
Commercial paper 212,377 222,602
Accounts payable--
Affiliated companies 38,987 41,760
Other 218,580 313,307
Customer deposits 50,547 47,017
Taxes accrued--
Federal and state income 60,701 2,856
Other 141,778 90,163
Interest accrued 91,459 110,256
Miscellaneous 163,122 109,726
------------- -------------
Total 1,456,126 1,307,307
------------- -------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 2,509,922 2,477,661
Accumulated deferred investment tax credits 435,175 453,121
Deferred credits related to income taxes 411,765 433,334
Disallowed Plant Vogtle capacity buyback costs 58,390 60,490
Miscellaneous 313,949 288,581
------------- -------------
Total 3,729,201 3,713,187
------------- -------------
TOTAL CAPITALIZATION AND LIABILITIES $13,608,350 $13,712,658
=========== ===========
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
</TABLE>
34
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Earnings
GEORGIA recorded higher earnings for both the third quarter and year-to-date
1995, compared to the corresponding periods of 1994, primarily as a result of
higher retail energy sales and lower interest charges and, for year-to-date,
expenses recorded in the prior period related to workforce reduction programs at
GEORGIA and the system service company, SCS. (See Note (E) to the Condensed
Financial Statements herein.) Net income after dividends on preferred stock rose
$11.4 million in the third quarter of 1995 and $79.1 million in the first nine
months of 1995, compared to the corresponding periods of 1994. Disregarding the
after-tax effect of the provision for separation benefits in 1994, GEORGIA's
earnings for year-to-date 1995 would have been $23.9 million above earnings in
the corresponding period of 1994.
Revenues
Total operating revenues for both periods of 1995 increased compared to the
corresponding periods of 1994 primarily because of higher retail energy sales.
Excluding fuel clause revenues, which represent the pass-through of fuel
expenses and do not affect income, operating revenues for the third quarter and
year-to-date 1995 increased $118.7 million and $144.7 million, respectively,
compared to the corresponding periods of 1994.
Retail - Retail energy sales in 1995 increased 10.0% in the third quarter
and 5.9% year-to-date over the corresponding periods of 1994 primarily because
of weather influences, an increase in customers served and continued expansion
of Georgia's economy. The summer of 1994 was milder than normal, whereas the
summer of 1995 was unusually hot as evidenced by the six times GEORGIA set new
peak demand records. Residential, commercial and industrial energy sales for the
third quarter and year-to-date 1995 increased 19.6% and 9.3%; 8.8% and 5.6%; and
3.9% and 3.9%, respectively. Total non-fuel retail revenues increased $123.7
million in the third quarter of 1995 and $168.5 million in the first nine months
of 1995. Of these amounts, $14.3 million and $29.2 million, respectively, are
attributable to increased revenues from demand-side option program rate riders
reinstated in December 1994. Revenues from demand-side programs generally
represent the direct recovery of program costs. See Note (K) to the Condensed
Financial Statements herein for additional information on these programs.
Wholesale - Energy sales to non-affiliated wholesale customers decreased
7.8% in the third quarter of 1995 and decreased 9.5% year-to-date, compared to
the corresponding periods of 1994. Capacity revenues from non-affiliated
utilities outside the service area were down $7.1 million for the third quarter
of 1995 and $22.9 million year-to-date. The decrease in capacity revenues
coincides with GEORGIA completing the final in a series of four transactions for
the sale of Plant Scherer Unit 4 in June 1995. Energy revenues from
non-affiliated utilities outside the service area decreased $7.6 million for the
third quarter of 1995 and $52.4 million year-to-date. The energy component of
contract sales is priced at approximately the variable production cost and does
not materially affect earnings.
35
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (Continued)
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.
Disregarding long-term capacity and energy sales contracts and capacity buyback
provisions, this also is true of non-territorial sales and purchases.
Operating Expenses
Fuel and Purchased Power - Fuel expense increased because of higher generation
which stemmed from greater demand. Purchased power expense for year-to-date 1995
decreased primarily due to lower energy purchases from non-affiliated companies
and scheduled reductions in capacity buyback payments to the co-owners of Plant
Vogtle. See Note (H) to the Condensed Financial Statements herein for
information regarding the levelization of capacity buyback expense for Plant
Vogtle. Purchased power from non-affiliates increased in the third quarter of
1995 primarily because of higher demand.
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. See Note (E) to the Condensed Financial Statements
herein for further details. Other operation expense for 1995 increased, compared
to 1994, primarily as a result of costs associated with demand-side option
programs. The demand-side option program costs were offset in part by increases
in retail revenues. As discussed in Note (K) to the Condensed Financial
Statements herein, GEORGIA expensed in July 1995 approximately $22 million of
demand-side option program costs that will not be collected through rate riders.
Environmental remediation costs at various sites were $7.5 million through
September 1995, compared to $7.8 million in the first nine months of 1994.
Depreciation expense for the third quarter and year-to-date 1995 increased
over prior periods primarily because of the commercial operation of four
combustion turbine units and three hydroelectric pumped storage units and an
increase in the accrual for nuclear decommissioning costs. Additionally, in
September 1995 GEORGIA charged to amortization expense approximately $15 million
for previously capitalized software development costs.
Taxes other than income taxes increased due to higher ad valorem taxes and
higher taxes paid to municipalities as a result of increased sales.
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 is dependent upon the level of construction
work in progress, capital costs and capitalization ratios. The decrease in
equity AFUDC, as compared to the prior periods, is primarily due to the decrease
36
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (Continued)
in the level of construction work in progress and an increase in the proportion
of construction work in progress financed through short-term debt. Based upon
GEORGIA's construction budget, AFUDC is estimated to total $15 million in 1995
and $17 million in 1996.
Other Income
In June 1994 and 1995, GEORGIA completed the third and fourth sales in a series
of four separate transactions to sell Plant Scherer Unit 4. Each sale was for
16.55% of the unit. These sales generated cash of $133 million and $131 million,
respectively, and resulted in after-tax gains of approximately $11 million and
$12 million, respectively. Also, in August 1995 GEORGIA recognized the donation
of $4 million in property to an educational institution.
Interest Charges and Dividends on Preferred Stock
Interest charges on long-term debt have declined due to refinancing efforts over
the past twelve months. Also, GEORGIA used the proceeds from the Plant Scherer
sales to redeem higher cost securities. Other interest charges have declined
during 1995, as compared to 1994, due to interest accrued during 1994 on tax
assessments. Dividends on preferred stock have fluctuated because GEORGIA has
outstanding $175 million aggregate stated value of preferred stock that have
variable dividend rates. Interest on interim obligations rose due to higher
average interest rates and average amounts outstanding.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings. The level of future earnings depends on numerous factors
including energy sales and regulatory matters.
Growth in energy sales is subject to a number of factors which
traditionally 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 is having a dramatic 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 GEORGIA's 1994
Annual Report on Form 10-K.
The commercial operation of four combustion turbine units and two
pumped storage hydroelectric units in the second quarter of 1995 and a third
pumped storage hydroelectric unit in July 1995 will increase related operation
and maintenance and depreciation expenses. GEORGIA has entered into a four-year
purchase power agreement to meet peaking needs. Beginning in 1996, GEORGIA will
purchase 400 megawatts of capacity. In 1998, this amount will decline to 200
37
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operation (Continued)
megawatts for the remaining two years. Capacity payments are projected to be $6
million in 1996 and 1997 and $3 million in 1998 and 1999. GEORGIA has also
entered into a purchase power agreement whereby GEORGIA will buy electricity
during peak periods from a proposed 300 megawatt cogeneration facility,
starting in June 1998. The agreement was filed with the Georgia PSC for
certification in the third quarter of 1995.
GEORGIA sold in June 1995 its remaining ownership interest (16.55%) in
Plant Scherer Unit 4 to two Florida utilities. This transaction coincided with
scheduled reductions in capacity revenues from Florida utilities under unit
power sales contracts of approximately $18 million in 1995 and an additional $10
million in 1996.
As discussed in Note 4 to the financial statements of GEORGIA in Item 8 of
the SOUTHERN system's combined 1994 Annual Report on Form 10-K, regulatory
uncertainties exist related to the Rocky Mountain pumped storage hydroelectric
plant. In the event the Georgia PSC does not allow full recovery of the plant's
costs, then the portion not allowed may have to be written off. GEORGIA's total
investment in the plant is approximately $200 million.
As discussed in Note (J) to the Condensed Financial Statements herein, the
staff of the Georgia PSC issued a report regarding its preliminary review of
GEORGIA's earnings. This report recommends, among other things, that the allowed
return on equity be lowered to 11 1/4% and that $60 million of GEORGIA's
investment in the Rocky Mountain pumped storage hydroelectric plant be excluded
from rate base. The outcome of this matter cannot now be determined.
Reference is made to Note 3 to the financial statements of GEORGIA in Item
8 of the SOUTHERN system's combined 1994 Annual Report on Form 10-K for
information regarding proceedings with respect to GEORGIA's recovery of
demand-side conservation program costs. In August 1995, the Georgia PSC ordered
GEORGIA to discontinue the current demand-side conservation programs by the end
of 1995. The rate riders will continue in effect until costs deferred are
collected, not to exceed an $80 million cap as of December 31, 1995. In July
1995, GEORGIA recognized expenses of approximately $22 million for previously
deferred costs which will not be recovered under the riders and costs expected
to be incurred in excess of the capped amount.
Reference is made to Note 3 to the financial statements of GEORGIA in Item
8 of the SOUTHERN system's combined 1994 Annual Report on Form 10-K for
information regarding proceedings with respect to litigation currently pending
in the U. S. Tax Court. Also see Note (M) to the Condensed Financial Statements
herein for developments concerning the joint complaints filed by OPC and MEAG in
two separate venues seeking to recover from GEORGIA approximately $16.5 million
38
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (Continued)
in alleged partial requirements rates overcharges, plus approximately $6.3
million in interest.
OPC gave GEORGIA notices in 1994 and 1995 of its intent to decrease its
purchases of capacity under a power supply agreement by 250 megawatts in
September 1996 and an additional 250 megawatts in September 1997. As a result of
these notifications, GEORGIA's capacity revenues from OPC will decline by
approximately $8 million in 1996, an additional $25 million in 1997, and an
additional $18 million in 1998.
The FERC regulates wholesale rate schedules and power sales contracts that
GEORGIA has with its sales for resale customers. The FERC currently is reviewing
the rate of return on common equity included in these schedules and contracts
and may require such returns to be lowered, possibly retroactively. See Note 3
to the financial statements in Item 8 in GEORGIA's 1994 Annual Report on Form
10-K for additional information.
Hurricane Opal struck GEORGIA's service territory in October 1995. GEORGIA
currently estimates that the cost of repairing damages will be approximately $10
million, of which a portion will be capitalized. Management believes that the
cost of repairing damages will not have a material effect on future results of
operations.
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. Further discussion of this issue is found in
"Future Earnings Potential" in Item 7 Management's Discussion and Analysis in
GEORGIA's 1994 Annual Report on Form 10-K.
Reference is made to Note 4 to the financial statements in Item 8 of
GEORGIA's 1994 Annual Report on Form 10-K for information on certain
environmental contingencies.
GEORGIA is subject to the provisions of FASB Statement No. 71, Accounting
for the Effects of Certain Types of Regulation. In the event that a portion of
the company's operations is no longer subject to these provisions, GEORGIA would
be required to write off related regulatory assets and liabilities. See Note 1
to the financial statements in Item 8 of GEORGIA's 1994 Annual Report on Form
10-K for additional information.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of. This
statement requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. This statement also imposes stricter criteria for
regulatory assets by requiring that such assets be probable of future recovery
at each balance sheet date. GEORGIA anticipates adopting this standard by
39
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (Continued)
January 1, 1996 and does not expect that adoption will have a material impact
on the financial position or results of operations of GEORGIA based on the
current regulatory structure in which GEORGIA operates. This conclusion may
change in the future as competitive factors influence wholesale and retail
pricing in this industry.
Financial Condition
Overview
The principal changes in GEORGIA's financial condition during the first nine
months of 1995 were additions of $327 million to utility plant, which included
the commercial operation of four combustion turbine units (cumulatively, 320
megawatts of capacity) and all three units of the Rocky Mountain pumped storage
hydroelectric plant (GEORGIA's ownership interest is approximately 70 megawatts
of capacity per unit). Additionally, GEORGIA completed the final in a series of
four transactions for the sale of Plant Scherer Unit 4. The funds needed for
gross property additions are currently provided from operations. See GEORGIA's
Condensed Statements of Cash Flows for further details.
Construction and Other Capital Requirements
Estimated construction expenditures for the years 1995 through 1997 are $579
million, $626 million and $724 million, respectively. GEORGIA's management has
adopted an initiative to reduce its 1996 and 1997 construction expenditures by
approximately 10% from currently estimated amounts. There can be no assurance
that such reductions will be achieved.
The Clean Air Act will impact the capital requirements of the Southern
electric system. This legislation, as well as other legislation and regulations,
is described under "Environmental Issues" in Item 7 - Management's Discussion
and Analysis in GEORGIA's 1994 Annual Report on Form 10-K.
Cash requirements for long-term debt maturities and redemptions total
approximately $300 million for the twelve months ending September 30, 1996.
Included in this amount is the redemption associated with the refinancing of
$150 million of pollution control obligations for which funds are on deposit
with the trustee and may be used only for that purpose.
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 nine
months of 1995 increased, as compared to the corresponding period in 1994,
primarily because of an increase in revenues and a decrease in income tax and
interest payments.
40
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Financial Condition (Continued)
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. The amount of securities which GEORGIA will be
permitted to issue in the future will depend upon market conditions and other
factors prevailing at that time.
To meet short-term cash needs and contingencies, GEORGIA had approximately
$740 million of unused credit arrangements with banks at September 30, 1995.
41
<PAGE>
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 September 30, 1995, and the related
condensed statements of income for the three-month and nine-month periods ended
September 30, 1995 and 1994, and the condensed statements of cash flows for the
nine-month periods ended September 30, 1995 and 1994. 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 (I) 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 plant. The outcome of this uncertainty cannot presently be
determined until a regulatory review is completed. 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, 1994
(not presented herein), and, in our report dated February 15, 1995, 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 plant. In our
opinion, the information set forth in the accompanying condensed balance sheet
as of December 31, 1994, is fairly stated, in all material respects, in relation
to the balance sheet from which it has been derived.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 8, 1995
42
<PAGE>
GULF POWER COMPANY
43
<PAGE>
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
September 30, 1995 and 1994. 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.
44
<PAGE>
<TABLE>
<CAPTION>
GULF POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Revenues $178,335 $157,637 $461,441 $432,530
Revenues from affiliates 5,916 4,506 16,785 14,470
---------- ---------- ---------- ----------
Total operating revenues 184,251 162,143 478,226 447,000
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Operation--
Fuel 55,590 48,273 148,822 125,377
Purchased power from non-affiliates 3,897 1,234 6,964 4,933
Purchased power from affiliates 9,696 6,002 19,884 18,776
Other 25,042 26,488 79,899 90,090
Maintenance 9,975 9,469 32,952 37,628
Depreciation and amortization 13,863 14,453 41,212 42,427
Taxes other than income taxes 14,169 11,399 38,057 32,044
Federal and state income taxes 16,832 13,702 32,356 25,491
---------- ---------- ---------- ----------
Total operating expenses 149,064 131,020 400,146 376,766
---------- ---------- ---------- ----------
OPERATING INCOME 35,187 31,123 78,080 70,234
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 22 129 69 401
Interest income 520 346 1,433 1,109
Other, net (213) (100) (508) (268)
Income taxes applicable to other income (171) (190) (522) (447)
---------- ---------- ---------- ----------
INCOME BEFORE INTEREST CHARGES 35,345 31,308 78,552 71,029
---------- ---------- ---------- ----------
INTEREST CHARGES:
Interest on long-term debt 5,838 6,838 17,709 20,586
Allowance for debt funds used during construction (32) (158) (98) (491)
Interest on notes payable 668 443 2,433 1,101
Amortization of debt discount, premium and expense, net 507 456 1,524 1,360
Other interest charges 339 411 1,044 3,221
---------- ---------- ---------- ----------
Net interest charges 7,320 7,990 22,612 25,777
---------- ---------- ---------- ----------
NET INCOME 28,025 23,318 55,940 45,252
DIVIDENDS ON PREFERRED STOCK 1,437 1,487 4,376 4,418
---------- ---------- ---------- ----------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 26,588 $ 21,831 $ 51,564 $ 40,834
========== ========== ========== ==========
</TABLE>
The accompanying notes as they relate to GULF are an integral part of these
condensed statements.
45
<PAGE>
<TABLE>
<CAPTION>
GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Nine Months
Ended September 30,
-------------------
1995 1994
----- -----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 55,940 $ 45,252
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization 57,320 67,292
Deferred income taxes, net (3,454) (4,836)
Allowance for equity funds used during construction (69) (401)
Other, net (7,794) 5,189
Changes in certain current assets and liabilities--
Receivables, net (20,755) (713)
Inventories 3,716 (5,267)
Payables 17,211 (6,596)
Other 20,839 17,196
---------- ---------
Net Cash Provided From Operating Activities 122,954 117,116
---------- ---------
INVESTING ACTIVITIES:
Gross property additions (44,915) (63,344)
Other 3,081 (3,303)
---------- ---------
Net Cash Used For Investing Activities (41,834) (66,647)
---------- ---------
FINANCING ACTIVITIES:
Proceeds--
Pollution control bonds - 42,000
Other long-term debt - 32,108
Retirements:
Preferred stock subject to mandatory redemption (1,000) (1,000)
First mortgage bonds (1,750) (48,856)
Other long-term debt (9,053) (19,950)
Special deposits - redemption funds - (42,169)
Notes payable, net (30,500) 21,447
Payment of preferred stock dividends (4,376) (4,418)
Payment of common stock dividends (34,300) (32,900)
Miscellaneous (131) (1,381)
---------- ---------
Net Cash Used For Financing Activities (81,110) (55,119)
---------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 10 (4,650)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 902 5,576
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 912 $ 926
========== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 17,570 $ 20,002
Income taxes 25,505 24,595
The accompanying notes as they relate to GULF are an integral part of these
condensed statements.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At September 30,
1995 At December 31,
(Unaudited) 1994
-------------- ---------------
<S> <C> <C>
UTILITY PLANT:
Plant in service, at original cost $ 1,686,289 $1,656,367
Less accumulated provision for depreciation 654,748 622,911
------------ ------------
1,031,541 1,033,456
Construction work in progress 27,742 24,288
------------ ------------
Total 1,059,283 1,057,744
------------ ------------
OTHER PROPERTY AND INVESTMENTS 782 7,997
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents 912 902
Receivables--
Customer accounts receivable 78,683 57,637
Other accounts and notes receivable 2,505 2,268
Affiliated companies 734 1,079
Accumulated provision for uncollectible accounts (783) (600)
Fuel stock, at average cost 33,301 35,686
Materials and supplies, at average cost 33,926 35,257
Current portion of deferred coal contract costs 2,484 2,521
Regulatory clauses under recovery 2,914 5,002
Prepayments 6,234 4,354
Vacation pay deferred 4,172 4,172
------------ ------------
Total 165,082 148,278
------------ ------------
DEFERRED CHARGES:
Deferred charges related to income taxes 30,151 30,433
Debt expense and loss, being amortized 20,894 22,119
Deferred coal contract costs 25,011 38,169
Miscellaneous 11,966 10,802
------------ -----------
Total 88,022 101,523
------------ -----------
TOTAL ASSETS $ 1,313,169 $1,315,542
============ ==========
The accompanying notes as they relate to GULF are an integral part of these
condensed statements.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At September 30,
1995 At December 31,
(Unaudited) 1994
---------------- ---------------
<S> <C> <C>
CAPITALIZATION:
Common stock equity--
Common stock (without par value)--
authorized and outstanding 992,717 shares $ 38,060 $ 38,060
Paid-in capital 218,380 218,380
Premium on preferred stock 81 81
Retained earnings 186,173 168,951
------------ ------------
442,694 425,472
Preferred stock 89,602 89,602
Long-term debt 327,590 356,393
------------ ------------
Total 859,886 871,467
------------ ------------
CURRENT LIABILITIES:
Preferred stock due within one year - 1,000
Long-term debt due within one year 31,650 13,439
Notes payable 23,000 53,500
Accounts payable--
Affiliated companies 12,701 9,132
Other 25,458 14,524
Customer deposits 13,446 13,609
Taxes accrued--
Federal and state income 12,479 5,990
Other 17,064 7,475
Interest accrued 8,176 6,106
Regulatory clauses over recovery 4,041 3,960
Vacation pay accrued 4,172 4,172
Miscellaneous 6,018 7,828
------------ ------------
Total 158,205 140,735
------------ ------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 155,234 151,681
Deferred credits related to income taxes 69,012 71,964
Accumulated deferred investment tax credits 36,607 38,391
Accumulated provision for property damage 49 11,522
Accumulated provision for postretirement benefits 16,183 13,680
Miscellaneous 17,993 16,102
------------ ------------
Total 295,078 303,340
------------ ------------
TOTAL CAPITALIZATION AND LIABILITIES $1,313,169 $1,315,542
========== ==========
The accompanying notes as they relate to GULF are an integral part of these
condensed statements.
</TABLE>
48
<PAGE>
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 both the third quarter
and year-to-date 1995 increased over the same periods of 1994 by $4.8 million
and $10.7 million, respectively. The rise in earnings was primarily due to
higher retail revenues, lower net interest charges and decreased non-fuel
operation expenses as discussed below.
Revenues
Retail energy sales for the third quarter and year-to-date 1995 increased 9.8%
and 5.7%, respectively, over the corresponding periods of 1994 due primarily to
an increase in customers served and an exceptionally hot summer of 1995, in
contrast to the unseasonably mild temperatures experienced in 1994's summer.
Retail revenues also increased because of higher regulatory cost recovery clause
revenues. The regulatory clause recovery provisions equal the related expenses
and have no material effect on net income. Wholesale energy sales to
non-affiliates for the third quarter and year-to-date 1995 rose, however,
capacity revenues were lower by $2.1 million and $6.1 million, respectively.
Also, included in operating revenues for 1995 are amounts collected to recover
county franchise fees. These collections are also included in taxes other than
income taxes and have no impact on earnings (see discussion under "Expenses").
Including energy sales to affiliated companies, total energy sales increased
6.4% for the third quarter and 3.9% year-to-date 1995.
Expenses
Fuel expenses for the third quarter and year-to-date 1995 increased over the
same periods of 1994 due to an increase in generation and a higher average cost
of fuel consumed. 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 variable cost of
generating resources at each company. Disregarding long-term energy sales
contracts, this is also true of non-affiliate sales and purchases. Other
operation expenses for the third quarter and year-to-date 1995, compared to the
corresponding periods of last year, were lower due primarily to a reduction in
costs associated with a coal supply suspension agreement, which was essentially
fully amortized by year-end 1994. See Note 5 to the financial statements in Item
8 in GULF's 1994 Annual Report on Form 10-K for additional information.
Maintenance expenses will fluctuate due primarily to the scheduling of
maintenance on production facilities. The decrease in depreciation and
amortization is attributable to the amortization of limited-term property, which
was fully amortized by December 1994. The increase in taxes other than income
taxes is attributable to county franchise fees being collected in 1995 as
discussed above.
Interest Charges and Dividends on Preferred Stock
The decrease in interest on long-term debt reflects GULF's efforts to decrease
its capital costs through refinancings of higher-cost issues. Interest on notes
payable rose because of higher average interest rates on an increased average
outstanding amount of notes payable. Other interest charges for year-to-date
1994 included a $2.1 million contingent liability related to potential
assessments arising from a
49
<PAGE>
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (Continued)
federal income tax audit for the tax years 1988-1990. 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. The level of future earnings depends on a number of
factors ranging from growth in energy sales to the effects of a less regulated,
more competitive environment.
Future earnings in the near term will depend upon growth in energy sales,
which is 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 GULF's service area. The enactment of the Energy Act
is beginning to have a dramatic 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 GULF's 1994 Annual Report on Form 10-K.
As a result of an investigation of GULF's 1995 earnings by the Florida PSC,
GULF presented a 1995 earnings proposal which requires that any jurisdictional
revenues contributing to annual earnings in excess of a 12.75% return on equity
on a Florida PSC adjusted basis be deferred. GULF must petition the Florida PSC
to determine the disposition of any deferred revenues by April 1996. The
proposal was approved by the Florida PSC in August 1995. Based upon current
estimates, management does not expect a material impact on future earnings.
Hurricane Erin struck GULF's service territory on August 3, 1995. GULF
recorded an estimate for the damages related to Erin as a reduction in the
Accumulated Provision for Property Damage in September and will adjust this
estimate for actual results in the fourth quarter leaving a balance in the
property damage reserve of approximately $1.1 million at year-end. Hurricane
Opal struck GULF's service territory October 4, 1995. The expense of repairing
damages for Opal is estimated to be $9 to $11 million, which exceeds the amount
available in the Accumulated Provision for Property Damage. Management is
considering various alternatives, including petitioning the Florida PSC for
deferral and amortization of any reserve deficiency.
See Note 3 to the financial statements in Item 8 in GULF's 1994 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.
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 1994 Annual Report on Form 10-K. See also Note
50
<PAGE>
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (Continued)
3 to the financial statements in Item 8 in GULF's 1994 Annual Report on Form
10-K for a discussion of the Environmental Cost Recovery clause which provides
for the recovery of such costs.
GULF is subject to the provisions of FASB Statement No. 71, Accounting for
the Effects of Certain Types of Regulation. In the event that a portion of the
company's operations is no longer subject to these provisions, GULF would be
required to write off related regulatory assets and liabilities. See Note 1 to
the financial statements in Item 8 in GULF's 1994 Annual Report on Form 10-K for
additional information.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of. This
statement requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. This statement also imposes stricter criteria for
regulatory assets by requiring that such assets be probable of future recovery
at each balance sheet date. GULF anticipates adopting this standard by January
1, 1996 and does not expect that adoption will have a material impact on the
financial position or results of operations of GULF based on the current
regulatory structure in which GULF operates. This conclusion may change in the
future as competitive factors influence wholesale and retail pricing in this
industry.
Financial Condition
Overview
The major change in GULF's financial condition during the first nine months of
1995 was gross property additions of $44.9 million. The principal sources of
funds for these additions and other capital requirements were provided from
operations. 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 1995 through 1997 ($62 million in 1995, $71 million in 1996 and
$67 million in 1997). The estimates of property additions for the three-year
period include $6 million committed to meeting the requirements of the Clean Air
Act, the cost 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 changes in environmental regulations, revised load
projections, the cost and efficiency of construction labor, equipment, and
materials, and the cost of capital. GULF does not have any baseload generating
plants under construction, however, construction related to maintenance and
upgrading transmission and distribution facilities and generating plants will
continue.
51
<PAGE>
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Financial Condition (Continued)
Various environmental legislation and other related regulations are
described in "Environmental Matters" in Item 7 - Management's Discussion and
Analysis in GULF's 1994 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, $31.7
million will be required by September 30, 1996 in connection with maturities and
redemptions of long-term debt. GULF plans to continue a program to retire
higher-cost debt and preferred stock and replace these obligations with
lower-cost capital as market conditions and terms of the instruments permit.
At September 30, 1995, GULF had $61.8 million of unused credit arrangements
with banks to meet its short-term cash needs. GULF had $23 million of short-term
bank borrowings outstanding at September 30, 1995.
GULF's business is highly seasonal. At the close of the summer peak demand
season, short-term bank borrowings and fuel inventory decrease while customer
accounts receivable rise.
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 and dividend 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.
52
<PAGE>
MISSISSIPPI POWER COMPANY
53
<PAGE>
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, except for the
provision for separation benefits recorded in 1995 as described in Note (E) to
the Condensed Financial Statements herein, included only normal recurring
adjustments) necessary to present fairly the results for the periods ended
September 30, 1995 and 1994. 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.
54
<PAGE>
<TABLE>
<CAPTION>
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Revenues $154,405 $140,191 $388,507 $380,777
Revenues from affiliates 2,714 2,149 6,688 7,489
---------- ---------- ---------- ----------
Total operating revenues 157,119 142,340 395,195 388,266
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Operation--
Fuel 37,366 36,756 90,692 81,084
Purchased power from non-affiliates 3,386 367 5,298 2,152
Purchased power from affiliates 15,520 10,877 38,059 53,886
Other 27,807 24,705 78,502 71,177
Maintenance 8,668 9,913 26,107 35,683
Depreciation and amortization 10,533 8,945 30,605 27,189
Taxes other than income taxes 10,893 10,938 30,097 31,153
Federal and state income taxes 14,429 13,627 29,396 26,929
---------- ---------- ---------- ----------
Total operating expenses 128,602 116,128 328,756 329,253
---------- ---------- ---------- ----------
OPERATING INCOME 28,517 26,212 66,439 59,013
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 123 263 300 939
Other, net 1,236 243 3,379 3,073
Income taxes applicable to other income (241) 31 (777) (739)
---------- ---------- ---------- ----------
INCOME BEFORE INTEREST CHARGES 29,635 26,749 69,341 62,286
---------- ---------- ---------- ----------
INTEREST CHARGES:
Interest on long-term debt 5,444 3,460 16,737 13,586
Allowance for debt funds used during construction (131) (180) (353) (882)
Interest on notes payable 371 412 942 1,163
Amortization of debt discount, premium and expense, net 392 372 1,137 1,101
Other interest charges 173 103 1,037 277
---------- ---------- ---------- ----------
Net interest charges 6,249 4,167 19,500 15,245
---------- ---------- ---------- ----------
NET INCOME 23,386 22,582 49,841 47,041
DIVIDENDS ON PREFERRED STOCK 1,225 1,225 3,674 3,674
---------- ---------- ---------- ----------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 22,161 $ 21,357 $ 46,167 $ 43,367
========== ========== ========== ==========
( ) Denotes negative figure.
The accompanying notes as they relate to MISSISSIPPI are an integral part of
these condensed statements.
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Nine Months
Ended September 30,
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 49,841 $ 47,041
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization 40,259 36,449
Deferred income taxes, net (918) (849)
Allowance for equity funds used during construction (300) (939)
Other, net 4,376 (524)
Change in certain current assets and liabilities--
Receivables, net (11,100) (8,746)
Inventories 3,880 (5,972)
Payables 7,595 (5,920)
Taxes accrued (2,913) 6,243
Other 2,482 4,953
--------- ---------
Net cash provided from operating activities 93,202 71,736
---------- ---------
INVESTING ACTIVITIES:
Gross property additions (52,314) (81,175)
Other (6,880) (15,817)
---------- ----------
Net cash used for investing activities (59,194) (96,992)
---------- ----------
FINANCING ACTIVITIES:
Proceeds--
Capital contributions from parent company - 25,000
First mortgage bonds - 35,000
Pollution control bonds 10,600 -
Other long-term debt - 50,309
Retirements--
First mortgage bonds (1,625) (32,371)
Other long-term debt (38,619) (7,108)
Notes payable, net 29,000 (15,000)
Payment of preferred stock dividends (3,674) (3,674)
Payment of common stock dividends (29,100) (25,500)
Miscellaneous - (1,182)
---------- ---------
Net cash provided (used) from financings (33,418) 25,474
---------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 590 218
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,317 878
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,907 $ 1,096
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 17,307 $ 13,574
Income taxes 25,616 15,177
The accompanying notes as they relate to MISSISSIPPI are an integral part of
these condensed statements.
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At September 30,
1995 At December 31,
(Unaudited) 1994
<S> <C> <C>
UTILITY PLANT:
Plant in service, at original cost $1,416,342 $1,385,032
Less accumulated provision for depreciation 498,434 477,098
------------ ------------
Total 917,908 907,934
Construction work in progress 53,566 44,838
------------ ------------
Total 971,474 952,772
------------ ------------
OTHER PROPERTY AND INVESTMENTS 7,892 3,353
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents 1,907 1,317
Receivables--
Customer accounts receivable 36,992 27,865
Other accounts and notes receivable 8,633 6,599
Affiliated companies 6,198 6,058
Accumulated provision for uncollectible accounts (871) (670)
Fuel stock, at average cost 14,621 16,885
Materials and supplies, at average cost 23,685 25,301
Current portion of deferred fuel charges 1,360 1,068
Current portion of accumulated deferred income taxes 5,026 5,410
Prepaid federal income taxes - 5,019
Prepayments 1,631 760
Vacation pay deferred 4,588 4,588
------------ ------------
Total 103,770 100,200
------------ ------------
DEFERRED CHARGES:
Deferred charges related to income taxes 24,634 25,036
Deferred fuel charges 2,070 9,000
Debt expense and loss, being amortized 10,049 10,929
Deferred early retirement program costs 9,036 11,286
Miscellaneous 13,520 11,135
------------ ------------
Total 59,309 67,386
------------ ------------
TOTAL ASSETS $1,142,445 $1,123,711
========== ==========
The accompanying notes as they relate to MISSISSIPPI are an integral part of
these condensed statements.
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At September 30,
1995 At December 31,
(Unaudited) 1994
<S> <C> <C>
CAPITALIZATION:
Common stock equity--
Common stock (without par value), authorized
1,130,000 shares, outstanding 1,121,000 shares $ 37,691 $ 37,691
Paid-in capital 179,362 179,362
Premium on preferred stock 372 372
Retained earnings 161,395 144,328
------------ ------------
378,820 361,753
Cumulative preferred stock 74,414 74,414
Long-term debt 296,253 306,522
------------ ------------
Total 749,487 742,689
------------ ------------
CURRENT LIABILITIES:
Long-term debt due within one year 22,080 41,199
Notes payable 29,000 -
Accounts payable--
Affiliated companies 9,214 3,337
Other 29,794 31,144
Customer deposits 2,710 2,712
Taxes accrued--
Federal and state income 3,651 433
Other 25,093 31,224
Interest accrued 5,122 4,427
Miscellaneous 14,049 14,613
------------ ------------
Total 140,713 129,089
------------ ------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 129,616 129,505
Accumulated deferred investment tax credits 30,140 31,228
Deferred credits related to income taxes 44,017 45,832
Accumulated provision for property damage 12,030 10,905
Miscellaneous 36,442 34,463
------------ ------------
Total 252,245 251,933
------------ ------------
TOTAL CAPITALIZATION AND LIABILITIES $1,142,445 $1,123,711
========== ==========
The accompanying notes as they relate to MISSISSIPPI are an integral part of
these condensed statements.
</TABLE>
58
<PAGE>
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 third
quarter and year-to-date 1995 rose $0.8 million and $2.8 million, respectively,
compared to the corresponding periods of 1994. Net income rose primarily because
of higher retail energy sales, lower maintenance expenses and a retail rate
increase under the ECO plan.
Revenues
Revenues for the third quarter and year-to-date 1995 increased, compared to the
same periods of 1994, because of higher retail and territorial wholesale energy
sales and a retail rate increase of $3.7 million annually under the ECO plan
that became effective May 1995. MISSISSIPPI registered respective increases of
5.5% and 2.7% in retail energy sales and respective increases of 20.5% and 12.1%
in territorial wholesale sales. Retail energy sales increased because of the
expanding economy in coastal Mississippi (particularly the commercial sector),
an increase in the number of customers served and weather influences. However,
industrial sales decreased slightly because MISSISSIPPI's largest industrial
customer shut down its facility in anticipation of Hurricane Erin and later
experienced a fire at the facility. The customer's facility returned to service
in October. The customer demand experienced by territorial wholesale customers
is determined by factors very similar to MISSISSIPPI's, however, their base is
smaller and, thus, their growth rate for energy sales exceeds MISSISSIPPI's.
Additionally, MISSISSIPPI began serving a new cooperative in the second quarter
of 1995. Total energy sales, compared to prior year, increased 5.6% for the
third quarter and 1.9% year-to-date 1995.
Expenses
The increase in fuel expense for the third quarter of 1995, compared to the
third quarter of 1994, is attributable to the displacement of coal-fired
generation with oil- and gas-fired generation. Coal-fired generation was
impaired because one coal-fired plant experienced temporary operating
difficulties that precluded its operation to its fullest extent. Fuel expense
for year-to-date increased over the corresponding period of 1994 due to an
increase in generation. Generation in 1994 was impacted by the timing of
scheduled maintenance on production facilities. 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 variable cost of generating resources at each company.
Other operation expenses for the third quarter and year-to-date 1995,
compared to the corresponding periods in 1994, increased primarily due to the
amortization of workforce reduction programs and, pursuant to the Clean Air Act,
the recognition of emission allowance expense. Such emission allowances are a
recoverable expense under the ECO plan. Depreciation in 1995 increased due to
the additions to utility plant necessitated by the rapid growth in energy sales
arising from the influx of casinos beginning in 1993. Maintenance expenses in
1995 showed a drop from 1994 because a significant portion of scheduled
maintenance on production facilities has been scheduled for the fourth quarter
of 1995. Taxes other than income taxes decreased because of lower payroll
related taxes
59
<PAGE>
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (Continued)
which reflects the workforce reduction program instituted in 1994. The increase
in income tax expense reflects the assessment of approximately $1.0 million in
additional federal income taxes pursuant to an audit for the tax years
1988-1990. Additionally, MISSISSIPPI incurred interest on this tax assessment of
approximately $0.55 million which is reflected in other interest charges. The
additional tax and interest was paid in June 1995.
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. The amount of AFUDC
recorded in 1994 was higher because of MISSISSIPPI's investment in the
construction of a combustion turbine generating unit. This unit began commercial
operation in May 1994.
Other Income
Included in "Other, net" for the third quarter of 1994 is $1.0 million to fund a
program to encourage employee use of electric products and upgrade energy
efficiency.
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 to a less
regulated, more competitive environment. Operating revenues will be affected by
any changes in rates under the PEP and ECO plans. The PEP has proven to be a
stabilizing force on electric rates, with only moderate changes in rates taking
place. Also see Notes (D) and (E) to the Condensed Financial Statements herein
for information regarding FERC's review of equity returns and workforce
reduction programs, respectively.
MISSISSIPPI's 1995 annual filing under the ECO plan with the Mississippi
PSC resulted in an approved annual revenue requirement, effective in May 1995,
of $3.7 million, including $1.6 million of 1994 carryover.
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 is beginning to have a dramatic 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
MISSISSIPPI's 1994 Annual Report on Form 10-K.
60
<PAGE>
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (Continued)
MISSISSIPPI is subject to the provisions of FASB Statement No. 71,
Accounting for the Effects of Certain Types of Regulation. In the event that a
portion of the company's operations is no longer subject to these provisions,
MISSISSIPPI would be required to write off related regulatory assets and
liabilities. See Note 1 to the financial statements in Item 8 in MISSISSIPPI's
1994 Annual Report on Form 10-K for additional information.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of. This
statement requires that long-lived assets be reviewed for impairment whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable. This statement also imposes stricter criteria for regulatory assets
by requiring that such assets be probable of future recovery at each balance
sheet date. MISSISSIPPI anticipates adopting this standard by January 1, 1996,
and does not expect that adoption will have a material impact on the financial
position or results of operations of MISSISSIPPI based on the current regulatory
structure in which MISSISSIPPI operates. This conclusion may change in the
future as competitive factors influence wholesale and retail pricing in this
industry.
Financial Condition
Overview
During the first nine months of 1995, gross property additions were $52.3
million. The funds for these additions and other capital requirements were
derived primarily from internal sources and an increase in short-term debt. See
the Condensed Statements of Cash Flows for further details.
At September 30, 1995, cash totaled approximately $1.9 million and
MISSISSIPPI had $97 million of unused credit arrangements with banks to meet
short-term cash needs. MISSISSIPPI had $29 million of notes payable outstanding
at quarter-end. It is MISSISSIPPI's strategy to maintain a permanent layer of
short-term debt, approximately $40 million through the end of 1995, consistent
with its overall risk capital strategy.
MISSISSIPPI's business is highly seasonal. At the close of the summer peak
demand season, compared to year-end, fuel stock is reduced and customer accounts
receivable are higher.
Capital Requirements
MISSISSIPPI's gross property additions for the next three years are
estimated to be $223 million ($78 million in 1995, $73 million in 1996 and $72
million in 1997). The major emphasis within the construction program will be on
upgrading existing facilities. Included in these construction estimates is $2.9
million committed to meeting the requirements of the Clean Air Act regulations.
Revisions
61
<PAGE>
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Financial Condition (Continued)
may be necessary because of factors such as revised load projections, the
availability and cost of capital and changes in environmental regulations.
In addition to the funds required for the construction program,
approximately $22.1 million will be required by September 30, 1996, 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 and
dividend 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.
Environmental Matters
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 impact 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 1994 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.
MISSISSIPPI must comply with other environmental laws and regulations that
cover the handling and disposal of hazardous waste. Under these various laws and
regulations, MISSISSIPPI could incur costs to clean up properties currently or
previously owned. Upon identifying potential sites, the company conducts
studies, when possible, to determine the extent of any required remediation.
Should remediation be determined to be probable, reasonable estimates of costs
to clean up such sites are developed and recognized in the financial statements.
A currently owned site where manufactured gas plant operations were located
prior to MISSISSIPPI's ownership is under investigation for potential
remediation. The remedial investigation has been concluded and is pending
approval by the Mississippi Department of Environmental Quality. In recognition
of probable remediation, MISSISSIPPI in September 1995 recorded a liability and
a deferred debit (regulatory asset) of $1.5 million. Should remediation of the
site be undertaken, MISSISSIPPI would recognize the expense as it is incurred
and recover such costs under the ECO Plan as provided by MISSISSIPPI's 1995 ECO
order. If this site were required to be remediated, industry studies show
MISSISSIPPI could incur cleanup costs ranging from $1.5 million to $10 million
before giving consideration to possible recovery of clean-up costs from other
parties.
62
<PAGE>
SAVANNAH ELECTRIC
AND
POWER COMPANY
63
<PAGE>
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 first quarter of 1994 as
described in Note (E) to the Condensed Financial Statements herein, included
only normal recurring adjustments) necessary to present fairly the results for
the periods ended September 30, 1995 and 1994. 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.
64
<PAGE>
<TABLE>
<CAPTION>
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Revenues $71,517 $61,264 $172,731 $162,761
Revenues from affiliates 1,932 2,410 5,134 4,007
--------- --------- ---------- ----------
Total operating revenues 73,449 63,674 177,865 166,768
--------- --------- ---------- ----------
OPERATING EXPENSES:
Operation--
Fuel 12,096 7,220 21,587 16,545
Purchased power from non-affiliates 1,149 134 1,867 1,577
Purchased power from affiliates 13,417 14,182 40,861 43,063
Other 11,235 10,668 32,162 30,481
Maintenance 2,831 3,530 10,323 9,161
Depreciation and amortization 4,747 4,616 14,202 13,238
Taxes other than income taxes 2,871 3,096 8,791 8,363
Federal and state income taxes 8,665 6,733 15,246 14,160
--------- --------- ---------- ----------
Total operating expenses 57,011 50,179 145,039 136,588
--------- --------- ---------- ----------
OPERATING INCOME 16,438 13,495 32,826 30,180
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 34 119 93 796
Other, net (116) (214) (129) (711)
Income taxes applicable to other income 45 85 50 277
--------- --------- ---------- ----------
INCOME BEFORE INTEREST CHARGES 16,401 13,485 32,840 30,542
--------- --------- ---------- ----------
INTEREST CHARGES:
Interest on long-term debt 3,045 3,139 9,474 9,425
Allowance for debt funds used during construction (112) (99) (307) (974)
Amortization of debt discount, premium and expense, net 103 137 344 412
Other interest charges 91 180 432 440
--------- --------- ---------- ----------
Net interest charges 3,127 3,357 9,943 9,303
--------- --------- ---------- ----------
NET INCOME 13,274 10,128 22,897 21,239
DIVIDENDS ON PREFERRED STOCK 581 581 1,743 1,743
--------- --------- ---------- ----------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 12,693 $ 9,547 $ 21,154 $ 19,496
========= ========= ========== ==========
( ) Denotes red figure.
The accompanying notes as they relate to SAVANNAH are an integral part of these
condensed statements.
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
<S> <C> <C>
For the Nine Months
Ended September 30,
1995 1994
OPERATING ACTIVITIES:
Net income $ 22,897 $ 21,239
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization 15,202 14,372
Deferred taxes, net 3,102 1,577
Allowance for equity funds used during construction (93) (796)
Other, net (783) 932
Changes in certain current assets and liabilities--
Receivables, net (6,674) 9,900
Inventories 2,090 942
Payables 5,725 (19,522)
Taxes accrued 8,514 6,204
Other (6,413) (2,026)
---------- ----------
Net Cash Provided From Operating Activities 43,567 32,822
---------- ----------
INVESTING ACTIVITIES:
Gross property additions (19,500) (24,033)
Other (547) (1,525)
---------- ----------
Net Cash Used For Investing Activities (20,047) (25,558)
---------- ----------
FINANCING ACTIVITIES:
Proceeds:
First mortgage bonds 15,000 -
Other long-term debt 33,500 8,500
Retirements:
First mortgage bonds (29,250) (5,065)
Other long-term debt (22,554) (628)
Notes payable, net (2,500) 3,000
Payment of preferred stock dividends (1,743) (1,548)
Payment of common stock dividends (13,000) (12,300)
Miscellaneous (2,019) (74)
---------- ----------
Cash Provided From (Used For) Financing Activities (22,566) (8,115)
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 954 (851)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,563 3,915
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,517 $ 3,064
========== ==========
Supplemental cash flow information:
Cash paid (received) during the period for--
Interest (net of amount capitalized) $ 11,984 $ 10,298
Income taxes 5,811 8,543
The accompanying notes as they relate to SAVANNAH are an integral part of these
condensed statements.
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At September 30,
1995 At December 31,
(Unaudited) 1994
<S> <C> <C>
UTILITY PLANT:
Plant in service, at original cost $706,284 $693,432
Less accumulated provision for depreciation 279,801 267,590
---------- ----------
426,483 425,842
Construction work in progress 9,490 5,930
---------- ----------
Total 435,973 431,772
---------- ----------
OTHER PROPERTY AND INVESTMENTS 1,788 1,790
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 2,517 1,563
Receivables--
Customer accounts receivable 24,528 17,581
Other accounts and notes receivable 320 216
Affiliated companies 922 177
Accumulated provision for uncollectible accounts (918) (866)
Fuel cost under recovery 2,037 3,113
Fuel stock, at average cost 5,687 7,557
Materials and supplies, at average cost 8,856 9,076
Prepayments 8,129 7,446
---------- ----------
Total 52,078 45,863
---------- ----------
DEFERRED CHARGES:
Deferred charges related to income taxes 22,565 23,521
Debt expense and loss, being amortized 8,062 6,387
Cash surrender value of life insurance for deferred compensation plan 7,028 7,028
Miscellaneous 4,497 1,944
---------- ----------
Total 42,152 38,880
---------- ----------
TOTAL ASSETS $531,991 $518,305
======== ========
The accompanying notes as they relate to SAVANNAH are an integral part of these
condensed statements.
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At September 30,
1995 At December 31,
(Unaudited) 1994
<S> <C> <C>
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 (2,181) (546)
Retained earnings 107,392 99,216
---------- ----------
168,122 161,581
Preferred stock 35,000 35,000
Long-term debt 153,591 155,922
---------- ----------
Total 356,713 352,503
---------- ----------
CURRENT LIABILITIES:
Amount of securities due within one year 2,042 2,579
Notes payable - 2,500
Accounts payable--
Affiliated companies 5,300 5,162
Other 8,690 3,829
Customer deposits 4,950 4,698
Taxes accrued--
Federal and state income 5,800 272
Other 3,847 861
Interest accrued 4,281 6,830
Vacation pay accrued 1,879 1,823
Pensions accrued 1,082 4,783
Miscellaneous 3,006 3,499
---------- ----------
Total 40,877 36,836
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 73,662 70,786
Accumulated deferred investment tax credits 14,100 14,637
Deferred credits related to income taxes 24,965 25,487
Deferred compensation plans 7,372 6,807
Deferred under-funded accrued benefit obligation 5,688 3,022
Postretirement benefits 4,769 3,808
Miscellaneous 3,845 4,419
---------- ----------
Total 134,401 128,966
---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES $531,991 $518,305
======== ========
The accompanying notes as they relate to SAVANNAH are an integral part of these
condensed statements.
</TABLE>
68
<PAGE>
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 third quarter
and year-to-date 1995 increased $3.1 million and $1.7 million, respectively,
compared to the corresponding periods of 1994. The improvement in earnings is
primarily attributable to increased retail energy sales. Additionally, earnings
for the third quarter were positively impacted by lower maintenance and interest
expenses.
Revenues
Revenues for the third quarter and year-to-date 1995 rose over the corresponding
periods in 1994, due to higher retail energy sales and, with respect to the
third quarter, higher fuel clause revenues. When compared to prior year, retail
energy sales increased 10.3% in the third quarter and 7.9% year-to-date because
of weather influences, an increase in the number of customers served and, with
respect to year-to-date, higher demand from industrial customers. Industrial
energy sales were higher primarily because a major customer performed
maintenance on its cogeneration facility in 1995. Although the replacement
energy was purchased under a rate schedule that has a slimmer profit margin,
such sales improved earnings. 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 approximately $110,000 for each
quarter of 1995, compared to the corresponding quarters in the prior year.
Expenses
Fuel expenses for the third quarter and year-to-date 1995 increased over the
corresponding periods of 1994 due to higher generation of 60% and 38%,
respectively, and the change in sources of generation. The exceptionally hot
summer experienced by SAVANNAH and its affiliated companies in 1995 necessitated
using generation from oil- and gas-fired facilities to a greater extent. This
was partially offset by the lower average cost of coal. Fuel costs in 1994
spiked because of increases in the cost of fuel in the spot market due to the
coal miners' strike and higher freight charges. 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 variable cost
of generating resources at each company. These transactions do not have a
significant impact on earnings. Other operation expenses for the third quarter
and year-to-date 1995 increased over the corresponding periods in 1994 for a
variety of reasons including employee compensation and consulting costs for
training and increased expenses related to demand side option programs.
Maintenance expenses, compared to 1994, decreased in the third quarter due to
the timing of scheduled maintenance, whereas, the increase in year-to-date
reflected higher than expected costs incurred performing maintenance in the
second quarter of 1995. Depreciation and amortization reflected additions to
utility plant. Taxes other than income taxes in the third quarter of 1994
reflected a true-up recorded in August to rectify the under accrual of property
taxes during the first two quarters. Income taxes were higher because of the
change in taxable income.
69
<PAGE>
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (Continued)
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. 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 in 1994 was higher because of SAVANNAH's investment in two 80
megawatt combustion turbine peaking units which began commercial operation 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 growth in energy sales to a less regulated, more
competitive environment.
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
SAVANNAH's 1994 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 is beginning to have a dramatic 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 SAVANNAH's 1994
Annual Report on Form 10-K.
SAVANNAH is subject to the provisions of FASB Statement No. 71, Accounting
for the Effects of Certain Types of Regulation. In the event that a portion of
the company's operations is no longer subject to these provisions, SAVANNAH
would be required to write off related regulatory assets and liabilities. See
Note 1 to the financial statements in Item 8 of SAVANNAH's 1994 Annual Report on
Form 10-K for additional information.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of. This
statement requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. This statement also imposes stricter criteria for
regulatory assets by requiring that such assets be probable of future recovery
at each balance sheet date. SAVANNAH anticipates adopting this standard by
January 1, 1996 and does not expect that adoption will have a material impact on
the financial position or results of operations of
70
<PAGE>
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations (Continued)
SAVANNAH based on the current regulatory structure in which SAVANNAH operates.
This conclusion may change in the future as competitive factors influence
wholesale and retail pricing in this industry.
Financial Condition
Overview
During the first nine months of 1995, SAVANNAH made gross property additions to
utility plant of $19.5 million. The funds for these additions and other capital
requirements came 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 $87 million for the three years
1995 through 1997 ($34 million in 1995, $27 million in 1996 and $26 million in
1997). Actual construction costs may vary from this estimate because of such
factors as changes in business conditions; changes in environmental regulations;
the cost and efficiency of construction labor, equipment and materials; revised
load growth estimates and changes in cost of capital. Such construction
expenditures will be incurred for transmission and distribution facilities and
the upgrading and extension of the useful lives of generating plants.
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 impact 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 1994 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.
Sources of Capital
At September 30, 1995, SAVANNAH had $40.5 million of unused credit arrangements
with banks to meet its short-term cash needs and no short-term debt outstanding.
SAVANNAH has $2.0 million of long-term debt due by September 30, 1996. 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.
SAVANNAH's business is highly seasonal. At the close of the summer peak
demand season, compared to year end, short-term debt and fuel stock are reduced
while customer accounts receivable are higher.
71
<PAGE>
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Financial Condition (Continued)
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 and
dividend 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.
72
<PAGE>
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SAVANNAH ELECTRIC AND POWER COMPANY
INDEX TO APPLICABLE NOTES TO
FINANCIAL STATEMENTS BY REGISTRANT
Registrant Applicable Notes
SOUTHERN A, B, C, D, E, F, G, H, I, J, K, L, N
ALABAMA D, E, F, G
GEORGIA D, E, H, I, J, K, L, M, N
GULF D, E
MISSISSIPPI D, E
SAVANNAH E, K
73
<PAGE>
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) On September 18, 1995, SOUTHERN's acquisition of the ordinary share
capital of South Western was declared wholly unconditional in all respects
and that, as a result of an unconditional bid, SOUTHERN had effectively
acquired 100% of South Western. The consideration paid or to be paid in
respect of the acquisition of South Western shares consists of
approximately $1.7 billion in cash, $40 million in Loan Notes, and $17
million in Grid Bonds. (Reference is made to the Current Reports on Form
8-K of SOUTHERN dated July 13, 1995, August 25, 1995 and September 18,
1995 for a more detailed description of the acquisition, a definition of
Loan Notes and Grid Bonds, and the sources of consideration to be paid.)
The acquisition of South Western was accounted for as a purchase with
the $346 million excess of the acquisition cost over the preliminary
estimate of the fair value of South Western's net assets being assigned to
goodwill. The allocation of the purchase price may be revised at a later
date. Goodwill will be amortized on a straight-line basis over 40 years.
Results of operations of South Western are included in the condensed
consolidated financial statements subsequent to September 18, 1995.
The following unaudited pro forma combined results of operations for
the nine months ended September 30, 1995 and 1994 have been prepared
assuming the acquisition of South Western had occurred at the beginning of
each period. The pro forma results assume 100% short-term debt financing
and SOUTHERN's effective average borrowing rates for the periods presented
of 6% and 4.8%, respectively. Eventually, the short-term borrowing will be
replaced by a combination of long-term debt and equity. The pro forma
results are provided for information only. The results are not necessarily
indicative of the actual results that would have been realized had the
acquisition occurred on the indicated dates, nor are they necessarily
indicative of future results of operations of the combined companies.
<TABLE>
<CAPTION>
As Reported and Pro Forma Information (Unaudited)
(Stated in Thousands of Dollars, except per share)
For the Nine Months Ended September 30,
1995 1994
As Reported Pro Forma As Reported Pro Forma
<S> <C> <C> <C> <C>
Revenues $6,871,461 $7,704,510 $6,382,250 $7,231,150
Consolidated Net Income 942,680 983,535 813,754 846,391
Earnings Per Share of Common Stock 1.42 1.48 1.25 1.31
</TABLE>
74
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS: (Continued)
(B) SOUTHERN utilizes certain financial derivative contracts solely for the
purpose of risk management. SOUTHERN's participation in derivative
contracts have been to hedge its exposure to fluctuations in interest
rates and foreign currency exchange rates.
As of September 30, 1995, SOUTHERN has outstanding forward exchange
contracts to exchange $369 million for (pound) 238 million. These forward
contracts are designated as a hedge of SOUTHERN's net investment in South
Western and are scheduled to mature in 30 days. At September 30, 1995,
deferred net losses related to the contracts totaled $2 million.
On December 19, 1994, a SOUTHERN subsidiary, Mobile, entered into two
swaps with a bank. The purpose of the swaps was to reduce the impact of
interest rate fluctuations between December 19, 1994 and the date the
rates on Mobile's outstanding industrial revenue bonds and first mortgage
bonds were to become fixed. On August 24, 1995, Mobile paid approximately
$32.3 million from the proceeds of its first mortgage bond offering to
terminate the swaps. The cost of the hedge transaction was deferred and
will be amortized to interest expense over the period of the related debt.
(C) 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, 1994
for a description of the proceedings related to a derivative action filed
against certain current and former directors and officers of SOUTHERN. In
June 1995, the U.S. District Court for the Southern District of Georgia,
on remand from the U.S. Court of Appeals for the Eleventh Circuit, granted
the motion for summary judgment filed on behalf of the defendant directors
and officers. The plaintiffs have again appealed to the Eleventh Circuit
Court.
(D) Reference is made to Note 3 to each of the registrant's, except
SAVANNAH's, notes to the financial statements in Item 8 in the SOUTHERN
system's combined 1994 Annual Report on Form 10-K for a discussion of the
proceedings initiated by the FERC regarding the reasonableness of the
return on common equity on certain of the Southern electric system's
wholesale rate schedules and contracts.
(E) Certain of the registrants and SCS, the system service company, have
instituted workforce
75
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS: (Continued)
reduction programs. The expenses recognized and the unamortized balance
of deferred expenses (pursuant to regulatory orders)
under these programs were as follows: (in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Unamortized Balance
September 30, September 30, at September 30, 1995
------------------------ ----------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ALABAMA $1,327 $ (645) $ 5,631 $ 11,625 $ 4,682
GEORGIA 2,073 2,204 6,052 90,101 -
GULF 490 - 490 657 -
MISSISSIPPI 971 - 2,471 - 9,036
SAVANNAH (4) (186) 25 365 -
-------- ------- -------- ---------- -------
SOUTHERN
system $4,857 $1,373 $14,669 $102,748 $13,718
====== ====== ======= ======== =======
</TABLE>
(F) In September 1990, two customers of ALABAMA filed a civil complaint in the
Circuit Court of Shelby County, Alabama, against ALABAMA seeking to
represent all persons who, prior to June 23, 1989, entered into agreements
with ALABAMA for the financing of heat pumps and other merchandise
purchased from vendors other than ALABAMA. The plaintiffs contended that
ALABAMA was required to obtain a license under the Alabama Consumer
Finance Act to engage in the business of making consumer loans. The
plaintiffs were seeking an order declaring these agreements null and void
and requiring ALABAMA to refund all payments, principal and interest, made
under these agreements. The aggregate amount under these agreements,
together with interest paid, currently is estimated to be $40 million.
In June 1993, the court ordered ALABAMA to refund or forfeit interest
because of ALABAMA's failure to obtain such license. However, the court's
order did not require any refund or forfeiture with respect to any
principal payments under the agreements at issue. In May 1995, the Supreme
Court of Alabama affirmed the order of the Circuit Court. The case has now
been remanded to the trial court for implementation of the order. ALABAMA
recorded a charge of $9 million in "Other Income (Expense)" to cover the
refund subject to final resolution of this matter.
(G) In June 1995, the Alabama PSC issued an order granting ALABAMA's request
for gradual adjustments to move toward parity among rate classes. This
order also calls for a moratorium on retail rate increases (but not
decreases) until July 2001, under the retail ratemaking procedure that
provides for periodic adjustments based upon ALABAMA's earned return on
end-of-period retail common equity.
(H) Pursuant to orders from the Georgia PSC, GEORGIA deferred financing and
depreciation costs under phase-in plans for Plant Vogtle units 1 and 2
until the allowed investment was fully reflected in rates as of October
1991. In addition, the Georgia PSC issued two separate accounting orders
that required GEORGIA to defer substantially all operating and financing
costs related to both units until rate orders addressed these costs. The
Georgia PSC orders provide for recovery of
76
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS: (Continued)
deferred costs within 10 years. The Georgia PSC also ordered GEORGIA to
levelize declining capacity buyback expense from the co-owners of the
plant over a six-year period beginning October 1991. The unamortized
balance of these deferred costs at September 30, 1995, was $342 million.
(I) Reference is made to Note 4 to the financial statements of SOUTHERN and
GEORGIA in Item 8 of the SOUTHERN system's combined 1994 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 plant. The ultimate
outcome of this matter cannot now be determined. See Note (J) herein.
(J) The staff of the Georgia PSC has issued a report regarding its preliminary
review of GEORGIA's earnings. The report finds that GEORGIA has earned less
than the 12 1/4% return on equity authorized in GEORGIA's most recent
general retail rate proceeding. The staff concludes, however, based upon
certain adjustments proposed by the staff, including a recommended return
on equity of 11 1/4% and the exclusion from rate base of $60 million of
GEORGIA's investment in the Rocky Mountain pumped storage hydroelectric
plant, that GEORGIA's current retail rates will produce annual revenues
that exceed projected revenue requirements by a range of approximately $49
million to $63 million. In addition, the staff recommends that the
magnitude of such "excess revenue" warrants a formal Georgia PSC proceeding
to review GEORGIA's earnings. While GEORGIA disagrees with the Georgia PSC
staff's conclusions, the outcome of this matter cannot now be determined.
(K) Reference is made to Note 3 to the financial statements of SOUTHERN and
GEORGIA in Item 8 of the SOUTHERN system's combined 1994 Annual Report on
Form 10-K for information regarding recovery of GEORGIA's costs from
demand-side conservation programs. In August 1995, the Georgia PSC ordered
GEORGIA and SAVANNAH to discontinue their current demand-side conservation
programs by the end of 1995. GEORGIA's rate riders will continue in effect
until costs deferred are collected, not to exceed an $80 million cap as of
December 31, 1995. In July 1995, GEORGIA recognized expenses of
approximately $22 million for previously deferred costs which will not be
recovered under the riders and costs expected to be incurred in excess of
the capped amount. SAVANNAH discontinued collecting under its rate riders
on October 1, 1995; management believes that the rate rider revenues
collected to date will cover the anticipated costs of SAVANNAH's programs.
(L) Reference is made to Note 3 to the financial statements of SOUTHERN and
GEORGIA in Item 8 of the SOUTHERN system's combined 1994 Annual Report on
Form 10-K for information regarding a tax deficiency notice received from
the Internal Revenue Service relating to GEORGIA's tax accounting for the
sale in 1984 of an interest in Plant Vogtle and related capacity and
energy buyback commitments. 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.
77
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS: (Continued)
(M) Reference is made to Note 3 to the financial statements of GEORGIA in Item
8 of the SOUTHERN system's combined 1994 Annual Report on Form 10-K for
information regarding joint complaints filed by OPC and MEAG seeking
recovery from GEORGIA for alleged partial requirements rates overcharges
plus interest. In July 1995, the FERC denied OPC's and MEAG's request for
a rehearing with respect to this matter. In September 1995, OPC appealed
the FERC's decision on this issue to the Court of Appeals for the District
of Columbia Circuit. While the outcome of this matter cannot now be
determined, in management's opinion, it will not have a material adverse
effect on GEORGIA's Condensed Financial Statements.
(N) Reference is made to Note 3 and Note 4 to the financial statements of
SOUTHERN and GEORGIA, respectively, in Item 8 of the SOUTHERN system's
combined 1994 Annual Report on Form 10-K for information on certain
environmental contingencies.
78
<PAGE>
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) Reference is made to Item 3 - LEGAL PROCEEDINGS in the
SOUTHERN system's combined 1994 Annual Report on Form 10-K
for information regarding GEORGIA's designation as a
potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 24(a) - Powers of Attorney and resolutions.
(Designated in the SOUTHERN system's combined Form 10-K for
the year ended December 31, 1994, 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.)
Exhibit 24(b) - Power of Attorney relating to Chief
Executive Officer of MISSISSIPPI. (Designated in the
SOUTHERN system's combined Form 10-Q for the quarter ended
March 31, 1995, File No. 0-6849 as Exhibit 24(b) and
incorporated herein by reference.)
Exhibits 27 - Financial Data Schedules (a) SOUTHERN (b)
ALABAMA (c) GEORGIA (d) GULF (e) MISSISSIPPI (f) SAVANNAH
(b) Reports on Form 8-K.
During the third quarter of 1995, SOUTHERN filed Form 8-Ks
dated July 13, 1995, August 25, 1995 and September 18, 1995
which, in each case, pertained to the purchase of South
Western.
79
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
THE SOUTHERN COMPANY
By A. W. Dahlberg
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
By W. L. Westbrook
Financial Vice President
(Principal Financial and
Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: November 10, 1995
- - ------------------------------------------------------------------------------
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 and
Chief Financial Officer
(Principal Financial Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: November 10, 1995
80
<PAGE>
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: November 10, 1995
- - -------------------------------------------------------------------------------
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: November 10, 1995
81
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
MISSISSIPPI POWER COMPANY
By Dwight H. Evans, President and Chief Executive Officer
By Michael W. Southern, Vice President, Secretary, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: November 10, 1995
- - -------------------------------------------------------------------------------
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: November 10, 1995
82
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted
from the Form 10-Q for September 30, 1995, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000092122
<NAME> SOUTHERN CO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 22,748,116
<OTHER-PROPERTY-AND-INVEST> 1,721,367
<TOTAL-CURRENT-ASSETS> 3,103,155
<TOTAL-DEFERRED-CHARGES> 2,745,894
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 30,318,532
<COMMON> 3,328,872
<CAPITAL-SURPLUS-PAID-IN> 1,849,498
<RETAINED-EARNINGS> 3,524,396
<TOTAL-COMMON-STOCKHOLDERS-EQ> 8,702,766
100,000
1,332,203
<LONG-TERM-DEBT-NET> 8,447,158
<SHORT-TERM-NOTES> 947,135
<LONG-TERM-NOTES-PAYABLE> 325,310
<COMMERCIAL-PAPER-OBLIGATIONS> 452,387
<LONG-TERM-DEBT-CURRENT-PORT> (433,226)
0
<CAPITAL-LEASE-OBLIGATIONS> 147,245
<LEASES-CURRENT> (2,597)
<OTHER-ITEMS-CAPITAL-AND-LIAB> 10,300,151
<TOT-CAPITALIZATION-AND-LIAB> 30,318,532
<GROSS-OPERATING-REVENUE> 6,871,461
<INCOME-TAX-EXPENSE> 668,556
<OTHER-OPERATING-EXPENSES> 4,691,073
<TOTAL-OPERATING-EXPENSES> 5,359,629
<OPERATING-INCOME-LOSS> 1,511,832
<OTHER-INCOME-NET> (3,978)
<INCOME-BEFORE-INTEREST-EXPEN> 1,507,854
<TOTAL-INTEREST-EXPENSE> 498,683
<NET-INCOME> 1,009,171
66,491
<EARNINGS-AVAILABLE-FOR-COMM> 942,680
<COMMON-STOCK-DIVIDENDS> 607,988
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 1,870,264
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted
from the Form 10-Q for September 30, 1995, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000003153
<NAME> ALABAMA POWER CO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,949,640
<OTHER-PROPERTY-AND-INVEST> 139,862
<TOTAL-CURRENT-ASSETS> 903,650
<TOTAL-DEFERRED-CHARGES> 650,799
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 8,643,951
<COMMON> 224,358
<CAPITAL-SURPLUS-PAID-IN> 1,304,791
<RETAINED-EARNINGS> 1,196,880
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,726,029
0
440,400
<LONG-TERM-DEBT-NET> 2,448,643
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 240,010
<LONG-TERM-DEBT-CURRENT-PORT> (60,000)
0
<CAPITAL-LEASE-OBLIGATIONS> 9,191
<LEASES-CURRENT> (871)
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,840,549
<TOT-CAPITALIZATION-AND-LIAB> 8,643,951
<GROSS-OPERATING-REVENUE> 2,338,108
<INCOME-TAX-EXPENSE> 204,329
<OTHER-OPERATING-EXPENSES> 1,619,823
<TOTAL-OPERATING-EXPENSES> 1,824,152
<OPERATING-INCOME-LOSS> 513,956
<OTHER-INCOME-NET> 1,792
<INCOME-BEFORE-INTEREST-EXPEN> 515,748
<TOTAL-INTEREST-EXPENSE> 173,179
<NET-INCOME> 342,569
20,377
<EARNINGS-AVAILABLE-FOR-COMM> 322,192
<COMMON-STOCK-DIVIDENDS> 210,700
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 569,350
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted
from the Form 10-Q for September 30, 1995, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000041091
<NAME> GEORGIA POWER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 10,484,005
<OTHER-PROPERTY-AND-INVEST> 200,618
<TOTAL-CURRENT-ASSETS> 1,300,121
<TOTAL-DEFERRED-CHARGES> 1,623,606
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 13,608,350
<COMMON> 344,250
<CAPITAL-SURPLUS-PAID-IN> 2,384,761
<RETAINED-EARNINGS> 1,588,106
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,317,117
100,000
692,787
<LONG-TERM-DEBT-NET> 3,525,672
<SHORT-TERM-NOTES> 178,550
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 212,377
<LONG-TERM-DEBT-CURRENT-PORT> (299,695)
0
<CAPITAL-LEASE-OBLIGATIONS> 87,472
<LEASES-CURRENT> (330)
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,794,400
<TOT-CAPITALIZATION-AND-LIAB> 13,608,350
<GROSS-OPERATING-REVENUE> 3,422,952
<INCOME-TAX-EXPENSE> 372,927
<OTHER-OPERATING-EXPENSES> 2,275,949
<TOTAL-OPERATING-EXPENSES> 2,648,876
<OPERATING-INCOME-LOSS> 774,076
<OTHER-INCOME-NET> 6,767
<INCOME-BEFORE-INTEREST-EXPEN> 780,843
<TOTAL-INTEREST-EXPENSE> 235,158
<NET-INCOME> 545,685
36,321
<EARNINGS-AVAILABLE-FOR-COMM> 509,364
<COMMON-STOCK-DIVIDENDS> 333,800
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 1,138,949
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted
from the Form 10-Q for September 30, 1995, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000044545
<NAME> GULF POWER CO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,059,283
<OTHER-PROPERTY-AND-INVEST> 782
<TOTAL-CURRENT-ASSETS> 165,082
<TOTAL-DEFERRED-CHARGES> 88,022
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,313,169
<COMMON> 38,060
<CAPITAL-SURPLUS-PAID-IN> 218,461
<RETAINED-EARNINGS> 186,173
<TOTAL-COMMON-STOCKHOLDERS-EQ> 442,694
0
89,602
<LONG-TERM-DEBT-NET> 317,905
<SHORT-TERM-NOTES> 23,000
<LONG-TERM-NOTES-PAYABLE> 41,335
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> (31,650)
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 430,283
<TOT-CAPITALIZATION-AND-LIAB> 1,313,169
<GROSS-OPERATING-REVENUE> 478,226
<INCOME-TAX-EXPENSE> 32,356
<OTHER-OPERATING-EXPENSES> 367,790
<TOTAL-OPERATING-EXPENSES> 400,146
<OPERATING-INCOME-LOSS> 78,080
<OTHER-INCOME-NET> 472
<INCOME-BEFORE-INTEREST-EXPEN> 78,552
<TOTAL-INTEREST-EXPENSE> 22,612
<NET-INCOME> 55,940
4,376
<EARNINGS-AVAILABLE-FOR-COMM> 51,564
<COMMON-STOCK-DIVIDENDS> 34,300
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 122,954
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted
from the Form 10-Q for September 30, 1995, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000066904
<NAME> MISSISSIPPI POWER CO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 971,474
<OTHER-PROPERTY-AND-INVEST> 7,892
<TOTAL-CURRENT-ASSETS> 103,770
<TOTAL-DEFERRED-CHARGES> 59,309
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,142,445
<COMMON> 37,691
<CAPITAL-SURPLUS-PAID-IN> 179,734
<RETAINED-EARNINGS> 161,395
<TOTAL-COMMON-STOCKHOLDERS-EQ> 378,820
0
74,414
<LONG-TERM-DEBT-NET> 261,263
<SHORT-TERM-NOTES> 29,000
<LONG-TERM-NOTES-PAYABLE> 57,070
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> (22,080)
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 363,958
<TOT-CAPITALIZATION-AND-LIAB> 1,142,445
<GROSS-OPERATING-REVENUE> 395,195
<INCOME-TAX-EXPENSE> 29,396
<OTHER-OPERATING-EXPENSES> 299,360
<TOTAL-OPERATING-EXPENSES> 328,756
<OPERATING-INCOME-LOSS> 66,439
<OTHER-INCOME-NET> 2,902
<INCOME-BEFORE-INTEREST-EXPEN> 69,341
<TOTAL-INTEREST-EXPENSE> 19,500
<NET-INCOME> 49,841
3,674
<EARNINGS-AVAILABLE-FOR-COMM> 46,167
<COMMON-STOCK-DIVIDENDS> 29,100
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 93,202
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted
from the Form 10-Q for September 30, 1995, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000086940
<NAME> SAVANNAH ELECTRIC AND POWER CO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 435,973
<OTHER-PROPERTY-AND-INVEST> 1,788
<TOTAL-CURRENT-ASSETS> 52,078
<TOTAL-DEFERRED-CHARGES> 42,152
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 531,991
<COMMON> 54,223
<CAPITAL-SURPLUS-PAID-IN> 8,688
<RETAINED-EARNINGS> 105,211
<TOTAL-COMMON-STOCKHOLDERS-EQ> 168,122
0
35,000
<LONG-TERM-DEBT-NET> 134,699
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 20,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> (1,200)
0
<CAPITAL-LEASE-OBLIGATIONS> 934
<LEASES-CURRENT> (842)
<OTHER-ITEMS-CAPITAL-AND-LIAB> 175,278
<TOT-CAPITALIZATION-AND-LIAB> 531,991
<GROSS-OPERATING-REVENUE> 177,865
<INCOME-TAX-EXPENSE> 15,246
<OTHER-OPERATING-EXPENSES> 129,793
<TOTAL-OPERATING-EXPENSES> 145,039
<OPERATING-INCOME-LOSS> 32,826
<OTHER-INCOME-NET> 14
<INCOME-BEFORE-INTEREST-EXPEN> 32,840
<TOTAL-INTEREST-EXPENSE> 9,943
<NET-INCOME> 22,897
1,743
<EARNINGS-AVAILABLE-FOR-COMM> 21,154
<COMMON-STOCK-DIVIDENDS> 13,000
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 43,567
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
