===============================================================================
<PAGE>
<TABLE>
<CAPTION>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____to_____
<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)
270 Peachtree Street, N.W.
Atlanta, Georgia 30303
(404) 506-5000
1-3164 Alabama Power Company 63-0004250
(An Alabama Corporation)
600 North 18th Street
Birmingham, Alabama 35291
(205) 257-1000
1-6468 Georgia Power Company 58-0257110
(A Georgia Corporation)
241 Ralph McGill Boulevard, N.E.
Atlanta, Georgia 30308
(404) 506-6526
0-2429 Gulf Power Company 59-0276810
(A Maine Corporation)
One Energy Place
Pensacola, Florida 32520-0102
(850) 444-6111
0-6849 Mississippi Power Company 64-0205820
(A Mississippi Corporation)
2992 West Beach
Gulfport, Mississippi 39501
(228) 864-1211
1-5072 Savannah Electric and Power Company 58-0418070
(A Georgia Corporation)
600 East Bay Street
Savannah, Georgia 31401
(912) 644-7171
===================================================================================================================
</TABLE>
<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>
Description of Shares Outstanding
Registrant Common Stock at July 31, 1998
<S> <C> <C>
The Southern Company Par Value $5 Per Share 697,798,995
Alabama Power Company Par Value $40 Per Share 5,608,955
Georgia Power Company No Par Value 7,761,500
Gulf Power Company No Par Value 992,717
Mississippi Power Company Without Par Value 1,121,000
Savannah Electric and Power Company Par Value $5 Per Share 10,844,635
This combined Form 10-Q is separately filed by The Southern Company,
Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi
Power Company and Savannah Electric and Power Company. Information contained
herein relating to any individual company is filed by such company on its own
behalf. Each company makes no representation as to information relating to the
other companies.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 1998
Page
Number
<S> <C>
DEFINITIONS........................................................................................................ 4
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
The Southern Company and Subsidiary Companies
Condensed Consolidated Statements of Income........................................................ 6
Condensed Consolidated Statements of Cash Flows.................................................... 7
Condensed Consolidated Balance Sheets.............................................................. 8
Consolidated Statements of Comprehensive Income.................................................... 10
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 11
Alabama Power Company
Condensed Statements of Income..................................................................... 17
Condensed Statements of Cash Flows................................................................. 18
Condensed Balance Sheets........................................................................... 19
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 21
Exhibit 1 - Report of Independent Public Accountants............................................... 25
Georgia Power Company
Condensed Statements of Income..................................................................... 27
Condensed Statements of Cash Flows................................................................. 28
Condensed Balance Sheets........................................................................... 29
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 31
Exhibit 1 - Report of Independent Public Accountants............................................... 36
Gulf Power Company
Condensed Statements of Income..................................................................... 38
Condensed Statements of Cash Flows................................................................. 39
Condensed Balance Sheets........................................................................... 40
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 42
Mississippi Power Company
Condensed Statements of Income..................................................................... 47
Condensed Statements of Cash Flows................................................................. 48
Condensed Balance Sheets........................................................................... 49
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 51
Savannah Electric and Power Company
Condensed Statements of Income..................................................................... 56
Condensed Statements of Cash Flows................................................................. 57
Condensed Balance Sheets........................................................................... 58
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 60
Notes to the Condensed Financial Statements........................................................... 63
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................................ 64
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................... 69
Item 2. Changes in Securities..................................................................................... Inapplicable
Item 3. Defaults Upon Senior Securities........................................................................... Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders....................................................... 69
Item 5. Other Information......................................................................................... Inapplicable
Item 6. Exhibits and Reports on Form 8-K.......................................................................... 71
Signatures ............................................................................................... 73
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEFINITIONS
TERM MEANING
<S> <C>
affiliates.................................. ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH
ALABAMA..................................... Alabama Power Company
BEWAG....................................... Berliner Kraft und Licht AG
CEPA........................................ Consolidated Electric Power Asia Limited
Clean Air Act............................... Clean Air Act Amendments of 1990
ECO Plan.................................... Environmental Compliance Overview Plan
Energy Act.................................. Energy Policy Act of 1992
EWG......................................... Exempt wholesale generator
FASB........................................ Financial Accounting Standards Board
FERC........................................ Federal Energy Regulatory Commission
Form 10-K................................... Combined Annual Report on Form 10-K of SOUTHERN, ALABAMA,
GEORGIA, GULF, MISSISSIPPI and SAVANNAH for the year ended
December 31, 1997
FUCO........................................ Foreign utility company
GEORGIA..................................... Georgia Power Company
GULF........................................ Gulf Power Company
MISSISSIPPI................................. Mississippi Power Company
Mobile Energy............................... Mobile Energy Services Company, L.L.C. and Mobile Energy Services
Holdings, Inc.
OPC......................................... Oglethorpe Power Corporation
operating affiliates........................ see affiliates
operating companies......................... see affiliates
PEP......................................... Performance Evaluation Plan
PSC......................................... Public Service Commission
SAVANNAH.................................... Savannah Electric and Power Company
SEC......................................... Securities and Exchange Commission
SOUTHERN.................................... The Southern Company
Southern Energy............................. Southern Energy, Inc. (formerly SEI Holdings, Inc.),
including SOUTHERN subsidiaries managed or controlled by Southern
Energy
SWEB........................................ South Western Electricity plc (United Kingdom)
TVA......................................... Tennessee Valley Authority
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q includes forward-looking statements
in addition to historical information. The registrants caution that there are
various important factors that could cause actual results to differ materially
from those indicated in the forward-looking statements; accordingly, there can
be no assurance that such indicated results will be realized. These factors
include legislative and regulatory initiatives regarding deregulation and
restructuring of the electric utility industry; the extent and timing of the
entry of additional competition in the markets of SOUTHERN's subsidiaries;
potential business strategies, including acquisitions or dispositions of assets
or internal restructuring, that may be pursued by the registrants; state and
federal rate regulation in the United States; changes in or application of
environmental and other laws and regulations to which SOUTHERN and its
subsidiaries are subject; political, legal and economic conditions and
developments in the United States and in foreign countries in which the
subsidiaries operate; financial market conditions and the results of financing
efforts; changes in commodity prices and interest rates; weather and other
natural phenomena; the performance of projects undertaken by the non-traditional
business and the success of efforts to invest in and develop new opportunities;
and other factors discussed elsewhere herein and in other reports (including
Form 10-K) filed from time to time by the registrants with the SEC.
</TABLE>
4
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
5
<PAGE>
<TABLE>
<CAPTION>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 2,913,381 $ 2,717,195 $ 5,427,096 $ 5,301,609
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Operation--
Fuel 616,504 517,251 1,090,832 1,003,006
Purchased power 302,978 483,176 610,977 941,417
Other (Note G) 533,114 458,188 994,834 883,535
Maintenance 234,681 211,553 434,669 402,845
Depreciation and amortization 426,415 286,907 750,714 579,031
Amortization of deferred Plant Vogtle costs (Note M) 7,786 37,584 15,572 75,211
Taxes other than income taxes 143,159 139,273 290,491 290,967
Income taxes 158,070 153,706 300,183 299,888
-------------- -------------- -------------- --------------
Total operating expenses 2,422,707 2,287,638 4,488,272 4,475,900
-------------- -------------- -------------- --------------
OPERATING INCOME 490,674 429,557 938,824 825,709
OTHER INCOME:
Equity in earnings of unconsolidated subsidiaries 10,640 8,052 45,136 11,361
Interest income 113,508 20,139 151,413 48,223
Other, net (11,409) 11,169 (15,904) 22,861
Income taxes applicable to other income (6,102) 8,609 7,112 13,048
-------------- -------------- -------------- --------------
INCOME BEFORE INTEREST CHARGES 597,311 477,526 1,126,581 921,202
-------------- -------------- -------------- --------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 178,472 165,145 352,749 317,345
Interest on notes payable 32,534 26,109 61,436 55,428
Amortization of debt discount, premium and expense, net 33,515 8,835 40,472 16,355
Other interest charges, net 26,900 6,757 46,008 20,284
Minority interests in subsidiaries 13,123 12,823 29,710 28,342
Distributions on capital and preferred
securities of subsidiary companies 35,569 28,870 70,666 50,393
Preferred dividends of subsidiary companies 6,425 14,192 13,065 31,247
-------------- -------------- -------------- --------------
Interest charges and other, net 326,538 262,731 614,106 519,394
-------------- -------------- -------------- --------------
CONSOLIDATED NET INCOME $ 270,773 $ 214,795 $ 512,475 $ 401,808
============== ============== ============== ==============
AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (Thousands) 697,659 682,786 696,355 680,806
BASIC AND DILUTED EARNINGS
PER SHARE OF COMMON STOCK $0.39 $0.31 $0.74 $0.59
CASH DIVIDENDS PAID PER SHARE
OF COMMON STOCK $0.335 $0.325 $0.67 $0.65
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Six Months
Ended June 30,
1998 1997
OPERATING ACTIVITIES:
<S> <C> <C>
Consolidated net income $ 512,475 $ 401,808
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization 880,545 683,854
Deferred income taxes and investment tax credits (25,900) (3,335)
Allowance for equity funds used during construction (1,118) (1,623)
Amortization of deferred Plant Vogtle costs (Note M) 15,572 75,211
Gain on asset sales (32,168) (15,879)
Other, net 6,324 (4,324)
Changes in certain current assets and liabilities--
Receivables, net (147,655) (135,736)
Special deposits-other 2,897 48,622
Fossil fuel stock (57,242) (57,825)
Materials and supplies 6,481 14,766
Prepayments (49,494) (42,053)
Payables (214,387) (4,102)
Taxes Accrued 165,187 79,212
Other 35,139 113,623
---------------- ----------------
Net cash provided from operating activities 1,096,656 1,152,219
---------------- ----------------
INVESTING ACTIVITIES:
Gross property additions (957,924) (789,528)
Southern Energy business acquisitions (199,526) (1,854,064)
Sale of additional interest in SWEB 170,000 -
Sales of property 16,577 15,392
Other (21,407) (28,128)
---------------- ----------------
Net cash used for investing activities (992,280) (2,656,328)
---------------- ----------------
FINANCING ACTIVITIES:
Proceeds--
Common stock 111,872 167,945
Capital and preferred securities 245,000 1,321,250
Pollution control obligations 210,300 103,870
Other long-term debt 1,073,532 1,009,865
Notes Receivable 182,792 -
Retirements--
Preferred stock (40,771) (269,683)
First mortgage bonds (502,795) (83,574)
Pollution control obligations (102,990) (13,870)
Other long-term debt (173,989) (314,403)
Notes Receivable (79,000) -
Special deposits-redemption funds (90,707) (134,307)
Notes payable, net (323,463) 155,064
Payment of common stock dividends (466,072) (441,738)
Miscellaneous (61,808) (58,347)
---------------- ----------------
Net cash provided from (used for) financing activities (18,099) 1,442,072
---------------- ----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 86,277 (62,037)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 600,820 444,832
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 687,097 $ 382,795
================ ================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $503,311 $373,619
Income taxes $238,014 $270,350
Southern Energy business acquisitions--
Fair value of assets acquired $199,526 $3,650,064
Less cash paid for common stock 199,526 1,854,064
-------------- --------------
Liabilities assumed - $1,796,000
============== ==============
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At June 30,
1998 At December 31,
(Unaudited) 1997
----------------- ------------------
UTILITY PLANT:
<S> <C> <C>
Plant in service $ 34,586,789 $ 34,044,182
Less accumulated provision for depreciation 12,636,395 11,933,718
--------------- ----------------
21,950,394 22,110,464
Nuclear fuel, at amortized cost 221,870 230,154
Construction work in progress 1,571,091 1,311,540
--------------- ----------------
Total 23,743,355 23,652,158
--------------- ----------------
OTHER PROPERTY AND INVESTMENTS:
Goodwill, being amortized 1,889,568 1,887,574
Leasehold interests, being amortized 1,340,474 1,388,928
Equity investments in subsidiaries 1,416,628 1,167,739
Long-term notes receivable 454,157 460,448
Nuclear decommissioning trusts, at market 470,678 387,425
Miscellaneous 213,884 281,488
--------------- ----------------
Total 5,785,389 5,573,602
--------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 687,097 600,820
Special deposits 190,018 103,462
Receivables, less accumulated provisions for uncollectible accounts
of $80,705 at June 30, 1998 and $77,056 at December 31, 1997 1,999,634 2,014,117
Fossil fuel stock, at average cost 274,493 217,251
Materials and supplies, at average cost 486,035 492,516
Prepayments 137,534 98,398
Vacation pay deferred 78,811 78,866
--------------- ----------------
Total 3,853,622 3,605,430
--------------- ----------------
DEFERRED CHARGES:
Deferred charges related to income taxes 1,101,024 1,142,045
Prepaid pension costs 447,172 398,736
Deferred Plant Vogtle costs (Note M) 34,840 50,412
Debt expense, being amortized 105,314 101,068
Premium on reacquired debt, being amortized 264,638 285,149
Miscellaneous 419,600 461,910
--------------- ----------------
Total 2,372,588 2,439,320
--------------- ----------------
TOTAL ASSETS $ 35,754,954 $ 35,270,510
=============== ================
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At June 30,
1998 At December 31,
(Unaudited) 1997
---------------- ------------------
CAPITALIZATION:
<S> <C> <C>
Common stock, par value $5 per share-
Authorized -- 1 billion shares
Outstanding -- June 30, 1998: 697,797,503 shares
-- December 31, 1997: 693,423,039 shares $ 3,488,988 $ 3,467,115
Paid-in capital 2,418,469 2,330,538
Retained earnings 3,886,150 3,842,135
Accumulated other comprehensive income 9,125 7,176
---------------- ----------------
9,802,732 9,646,964
Preferred stock of subsidiaries 443,914 493,346
Subsidiary obligated mandatorily redeemable
capital and preferred securities (Note I) 1,989,675 1,743,520
Long-term debt 10,929,606 10,273,606
---------------- ----------------
Total 23,165,927 22,157,436
---------------- ----------------
CURRENT LIABILITIES:
Preferred stock of subsidiaries due within one year 8,661 -
Amount of securities due within one year 558,385 783,805
Notes payable 1,838,940 2,064,249
Accounts payable 773,779 1,048,266
Customer deposits 125,198 133,018
Taxes accrued--
Income taxes 275,726 119,782
Other 267,612 259,297
Interest accrued 262,609 261,668
Vacation pay accrued 110,270 108,207
Miscellaneous 546,950 608,761
---------------- ----------------
Total 4,768,130 5,387,053
---------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 4,566,896 4,649,826
Deferred credits related to income taxes 741,543 745,674
Accumulated deferred investment tax credits 738,758 753,861
Employee benefits provisions 467,404 447,188
Minority interests in subsidiaries 588,462 434,987
Prepaid capacity revenues 103,252 109,982
Department of Energy assessments 72,193 72,193
Disallowed Plant Vogtle capacity buyback costs 55,175 55,856
Storm damage reserves 51,775 38,407
Miscellaneous 435,439 418,047
---------------- ----------------
Total 7,820,897 7,726,021
---------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES $ 35,754,954 $ 35,270,510
================ ================
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Stated in Thousands of Dollars)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------- -------------- -------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Consolidated net income $270,773 $214,795 $512,475 $401,808
Other comprehensive income:
Foreign currency translation adjustments (124) 6,524 2,998 (8,509)
Less Applicable income taxes (43) 2,283 1,049 (2,978)
------------ ----------- ----------- -----------
CONSOLIDATED COMPREHENSIVE INCOME $270,692 $219,036 $514,424 $396,277
======== ======== ======== ========
- - - - - - - ------------------------------------------------------------------- --------------- -------------- -------------- ---------------
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME
(Stated in Thousands of Dollars)
At June 30, 1998 At December 31, 1997
Balance at beginning of period $7,176 $13,689
Change in current period 1,949 (6,513)
------- ---------
BALANCE AT END OF PERIOD $9,125 $ 7,176
====== ========
- - - - - - - ------------------------------------------------------------------------- ----------------------- ----------------------------
10
</TABLE>
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SECOND QUARTER 1998 vs. SECOND QUARTER 1997
AND
YEAR-TO-DATE 1998 vs. YEAR-TO-DATE 1997
RESULTS OF OPERATIONS
Earnings
SOUTHERN's consolidated net income for the second quarter and year-to-date
1998 was $271 million ($0.39 per share) and $512 million ($0.74 per share),
respectively, compared to $215 million ($0.31 per share) and $402 million ($0.59
per share) for the corresponding periods of 1997. Earnings for the second
quarter and year-to-date 1998 improved due to strong performance from both the
traditional and non-traditional businesses.
SOUTHERN's traditional core business is primarily represented by its five
domestic electric utility operating companies, which provide electric service in
four Southeastern states. Another significant portion of SOUTHERN's business is
its non-traditional business primarily represented by Southern Energy, which
owns and manages international and domestic businesses for SOUTHERN. Businesses
acquired by Southern Energy have been included in the consolidated statements of
income since the date of acquisition. Certain changes in operating revenues and
expenses from the prior period result from such acquisitions. Significant income
statement items appropriate for discussion include the following:
<TABLE>
<CAPTION>
Increase (Decrease)
--------------------------------------------------------------
Second Quarter Year-To-Date
------------------------------- ------------------------------
(in thousands) % (in thousands) %
<S> <C> <C> <C> <C>
Operating revenues............................... $196,186 7.2 $125,487 2.4
Fuel expense..................................... 99,253 19.2 87,826 8.8
Purchased power expense.......................... (180,198) (37.3) (330,440) (35.1)
Other operation expense.......................... 74,926 16.4 111,299 12.6
Depreciation and amortization ................... 139,508 48.6 171,683 29.7
Amortization of deferred Plant Vogtle costs...... (29,798) (79.3) (59,639) (79.3)
Equity in earnings of unconsolidated subsidiaries
2,588 32.1 33,775 297.3
Interest income.................................. 93,369 463.6 103,190 214.0
Other, net....................................... (22,578) (202.1) (38,765) (169.6)
Income taxes applicable to other income.......... (14,711) (170.9) (5,936) (45.5)
Amortization of debt discount, premium,
and expense, net.............................. 24,680 279.3 24,117 147.5
Other interest charges, net...................... 20,143 298.1 25,724 126.8
</TABLE>
Operating revenues. Operating revenues for the traditional core business
for the second quarter and year-to-date 1998 increased $412 million or 20.4% and
$459 million or 11.7%, respectively, compared to the corresponding periods of
1997. Traditional core business revenues increased for the second quarter and
year-to-date 1998 primarily due to increases in energy sales of 16.2% and 10.4%,
respectively. Sales of energy to residential, commercial and industrial
customers rose by 32.5%, 13.8% and 6.3%, respectively, for the quarter and
19.9%, 8.3% and 4.8%, respectively, year-to-date due to hotter temperatures
during these periods when compared to the milder-than-normal temperatures
recorded in the corresponding periods in 1997. Retail revenues,
11
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
excluding fuel and any demand-side program revenues which generally do not
affect income, increased $266 million for the second quarter and $303 million
for year-to-date 1998. Operating revenues for non-traditional business were down
by $216 million or 30.9% for the quarter and $334 million or 24.3% year-to-date
when compared to the same periods in 1997 due primarily to a change to the
equity method of reporting for Southern Energy's energy marketing activities.
Prior to January 1998, these activities were accounted for on a consolidated
basis. (See Note (D) in the "Notes to the Condensed Financial Statements"
herein.)
Fuel expense. The increases for the second quarter and year-to-date
resulted from increased generation required to meet the higher demand for
energy.
Purchased power expense. For the second quarter and year-to-date 1998,
purchased power expenses for the traditional core business rose by $63.4 million
or 157.1% and $104.9 million or 145.2%, respectively. These expenses increased
mainly due to the increased sale of energy to the different classes of retail
customers. For non-traditional business, purchased power expenses dropped $244
million or 55.0% for the quarter and $435 million or 50.1% year-to-date when
compared to the same periods in 1997. The primary reason for this decline is the
change in reporting for Southern Energy's energy marketing activities, as
mentioned above.
Other operation expense. For the traditional business, these expenses were
up $42.7 million or 11.9% for the quarter and $65.1 million or 9.5% year-to-date
1998 when compared to the same periods in 1997. The reasons for the increases
include the additional costs incurred for a new customer service system,
modifications of certain information systems for year 2000 compliance and
property damage and other reserves. For the non-traditional business, these
expenses were up $32.3 million or 32.3% for the quarter and $46.2 million or
23.6% year-to-date when compared to the corresponding periods in 1997 due
primarily to additional costs related to continued growth in this business.
Depreciation and amortization expense. Depreciation and amortization
expense of the traditional core business for the quarter and year-to-date,
increased compared to the corresponding periods in 1997. These increases are
attributed primarily to additions to utility plant and to additional
depreciation charges of $127.1 million for the quarter and $139.3 million
year-to-date, pursuant to GEORGIA's retail accounting order as discussed in Note
(L) in the "Notes to the Condensed Financial Statements" herein.
Amortization of deferred Plant Vogtle costs. These costs decreased for the
quarter and year-to-date due to the completion in September 1997 of the
amortization of levelized buybacks and Plant Vogtle Unit 1 cost deferrals under
the 1987 Georgia PSC order. See Note (M) in the "Notes to the Condensed
Financial Statements", herein for further details.
Equity in earnings of unconsolidated subsidiaries. The increases in this
item for the quarter and year-to-date 1998 are primarily attributed to BEWAG.
Southern Energy acquired a 26% interest in this Berlin, Germany, integrated
utility in September 1997.
Interest income. The second quarter and year-to-date increases in interest
income were primarily in the traditional business. These increases are
attributed to the settlement between SOUTHERN and the IRS relating to tax issues
for the years 1984 through 1987. For additional information, see Note (H) in the
"Notes to the Condensed Financial Statements" herein.
12
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Other, net. The second quarter and year-to-date 1998 decreases from the
same periods in 1997 were primarily due to donations and contributions during
the second quarter of 1998, and the recognition during the first quarter of 1997
of gains related to the sale of assets and construction activities.
Income taxes applicable to other income. The increases for the quarter and
year-to-date are primarily due to the taxes associated with additional interest
income, as mentioned above.
Amortization of debt discount, premium, and expense, net. Second quarter
and year-to-date 1998 increases primarily result from ALABAMA's accelerated
amortization of premiums incurred in connection with the refinancing of
high-cost debt, in the amount of $25.0 million, as allowed by the Alabama PSC.
See Note (J) in the "Notes to the Condensed Financial Statements" herein for
further details.
Other interest charges, net. These charges increased for the quarter and
year-to-date due primarily to the recognition of interest related to tax issues
and certain interest charges related to a nuclear decommissioning trust.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from energy sales growth to a less regulated, more competitive
environment, with non-traditional business becoming more significant. For
information relating to non-traditional business activities, see Item 1 -
BUSINESS - "Non-Traditional Business" in the Form 10-K.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, SOUTHERN is positioning the
business to meet the challenge of increasing competition. For additional
information, see Item 1 - BUSINESS - "Competition" and Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SOUTHERN in the Form
10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset. For additional information about the Clean Air Act and
other environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
"Environmental Matters" of SOUTHERN in the Form 10-K.
SOUTHERN has assessed and developed a detailed strategy to prevent or at
least minimize problems related to the year 2000 issue. For additional
information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future
Earnings Potential" of SOUTHERN in the Form 10-K.
In May 1998, SOUTHERN through its subsidiary Southern Energy announced that
it had agreed to purchase electric generating assets in New England from
subsidiaries of Commonwealth Energy System and Eastern Utilities Associates for
$537 million. Southern Energy will own and operate the plants which have a
combined generating capacity of 1,260 megawatts, while Southern Company Energy
Marketing, which markets electricity and natural gas nationwide, will sell the
output to the divesting utilities and in the open market.
In June 1998, SOUTHERN, through its subsidiary Southern Energy, sold an
additional 26% interest in SWEB Holdings Limited, the holding company for SWEB,
to PP&L Resources for $170 million.
13
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In March 1998, the American Institute of Certified Public Accountants
issued a new Statement of Position (SOP), Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The SOP, which must be adopted
by 1999, requires capitalization of certain costs of internal-use software.
Adoption of the SOP is not expected to have a material impact on the financial
statements.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. This statement is
effective for fiscal years beginning after June 15, 1999. While SOUTHERN has not
yet quantified the impact of adopting this statement on its financial
statements, it could increase volatility in earnings and other comprehensive
income.
Reference is made to Notes (B), (C), (D), (E), (F), (G), (H), (J) through
(O) and (Q) in the "Notes to the Condensed Financial Statements" herein for
discussion of various contingencies and other matters which may affect future
earnings potential. Reference is also made to Part II - Item 1 - "Legal
Proceedings" herein.
FINANCIAL CONDITION
Overview
Major changes in SOUTHERN's financial condition during the first six months of
1998 included $958 million used for gross property additions to utility plant;
$200 million used for Southern Energy acquisitions; and $187 million received
from property sales. The funds for these additions, acquisitions and other
capital requirements were from operations and sales of securities. See
SOUTHERN's Condensed Statements of Cash Flows for further details.
Financing Activities
During the first six months of 1998, retirements of the operating companies'
first mortgage bonds and preferred stock totaled $503 million and $41 million,
respectively. A subsidiary of GULF formed a statutory business trust which sold,
during the first six months of 1998, $45 million of trust preferred securities.
In June 1998, a subsidiary of SOUTHERN formed a statutory business trust which
sold $200 million of trust originated preferred securities. See Note (I) in the
"Notes to the Condensed Financial Statements" herein for further details. Also
during the first six months of 1998, ALABAMA issued $200 million of 7% senior
notes due December 31, 2047, and $190 million of 7% senior notes due March 31,
2048; GEORGIA issued $145 million of 6 7/8% senior notes due December 31, 2047;
GULF issued $50 million of 6.70% senior notes due June 30, 2038; MISSISSIPPI
issued $55 million of 6.75% senior notes due June 30, 2038 and $35 million of
6.05% senior notes due May 1, 2003; and SAVANNAH issued $30 million of 6 5/8%
senior notes due March 17, 2015.
During the first six months of 1998, SOUTHERN raised $112 million from the
issuance of new common stock under SOUTHERN's various stock plans. The market
price of SOUTHERN's common stock at June 30, 1998 was $27.6875 per share and the
book value was $14.05 per share, representing a market-to-book ratio of 197%,
compared to $25.875, $13.91 and 186%, respectively, at the end of 1997. The
dividend for the second quarter of 1998 was $0.335 per share.
14
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of SOUTHERN
under "Capital Requirements for Construction," "Environmental Matters" and
"Other Capital Requirements" in the Form 10-K for a description of the Southern
electric system's capital requirements for its construction program,
environmental compliance efforts, sinking fund requirements and maturing debt.
Approximately $567 million will be required by June 30, 1999, for present
sinking fund requirements, redemption of preferred stock and redemptions and
maturities of long-term debt. Also, the operating companies plan to continue, to
the extent possible, a program to retire higher-cost debt and preferred stock
and replace these securities with lower-cost capital.
Sources of Capital
In addition to the financing activities previously described, SOUTHERN may
require additional equity capital during the remainder of the year. The amounts
and timing of additional equity capital to be raised in 1998, as well as in
subsequent years, will be contingent on SOUTHERN's investment opportunities. The
operating companies plan to obtain the funds required for construction and other
purposes from sources similar to those used in the past. The amount, type and
timing of any financings--if needed--will depend upon maintenance of adequate
earnings, regulatory approval, prevailing market conditions and other factors.
See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional
information.
To meet short-term cash needs and contingencies, the SOUTHERN system had at
June 30, 1998, approximately $687 million of cash and cash equivalents and
approximately $4.8 billion of unused credit arrangements with banks (including
$1,267 million of such arrangements under which borrowings may be made only to
fund purchase obligations of the operating companies relating to variable rate
pollution control bonds). At June 30, 1998, the system companies had outstanding
approximately $745 million of short-term notes payable and $1,094 million of
commercial paper. Management believes that the need for working capital can be
adequately met by utilizing lines of credit without maintaining large cash
balances.
See Note (D) in the "Notes to the Condensed Financial Statements" herein
for discussion of financial derivative contracts entered into by SOUTHERN.
15
<PAGE>
ALABAMA POWER COMPANY
16
<PAGE>
<TABLE>
<CAPTION>
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Revenues $ 850,330 $ 699,219 $ 1,524,625 $ 1,357,324
Revenues from affiliates 13,385 28,870 55,595 75,533
------------- ------------- -------------- --------------
Total operating revenues 863,715 728,089 1,580,220 1,432,857
------------- ------------- -------------- --------------
OPERATING EXPENSES:
Operation--
Fuel 215,623 202,213 408,645 406,571
Purchased power from non-affiliates 25,150 4,770 42,685 8,144
Purchased power from affiliates 43,617 25,451 62,249 45,509
Other 125,442 127,726 240,255 242,004
Maintenance 86,803 77,547 150,336 146,497
Depreciation and amortization 86,141 79,630 172,380 165,282
Taxes other than income taxes 46,121 45,935 95,560 95,392
Federal and state income taxes 56,096 39,067 98,653 74,253
------------- ------------- -------------- --------------
Total operating expenses 684,993 602,339 1,270,763 1,183,652
------------- ------------- -------------- --------------
OPERATING INCOME 178,722 125,750 309,457 249,205
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 610 - 895 -
Income from subsidiary 758 1,005 1,840 1,985
Interest income 24,828 4,657 38,498 15,747
Other, net (6,966) (6,277) (15,442) (14,649)
Income taxes applicable to other income (4,493) 1,094 (2,316) 386
------------- ------------- -------------- --------------
INCOME BEFORE INTEREST CHARGES 193,459 126,229 332,932 252,674
------------- ------------- -------------- --------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 47,713 41,845 92,431 83,228
Allowance for debt funds used during construction (900) (1,434) (1,552) (2,380)
Interest on interim obligations 2,941 6,466 7,347 10,872
Amortization of debt discount, premium and expense, net 27,457 2,402 29,881 4,798
Other interest charges 12,615 3,259 26,235 13,963
Distributions on preferred securities of subsidiary companies 5,589 5,589 11,177 10,586
------------- ------------- -------------- --------------
Total Interest charges and other 95,415 58,127 165,519 121,067
------------- ------------- -------------- --------------
NET INCOME 98,044 68,102 167,413 131,607
DIVIDENDS ON PREFERRED STOCK 3,293 4,965 6,622 10,663
------------- ------------- -------------- --------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 94,751 $ 63,137 $ 160,791 $ 120,944
============= ============= ============== ==============
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Six Months
Ended June 30,
1998 1997
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 167,413 $ 131,607
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 226,381 194,622
Deferred income taxes and investment tax credits, net (5,789) 5,479
Allowance for equity funds used during construction (895) -
Other, net 12,129 (39,035)
Changes in certain current assets and liabilities--
Receivables, net (35,656) 428
Inventories (20,149) (29,247)
Prepayments (19,814) (32,322)
Payables (33,027) (78,032)
Taxes accrued 46,385 34,576
Energy cost recovery, retail (17,097) 7,120
Other (28,146) (18,666)
------------- ------------
Net cash provided from operating activities 291,735 176,530
-------------- --------------
INVESTING ACTIVITIES:
Gross property additions (301,276) (193,632)
Other (37,307) (18,024)
------------- ------------
Net cash used for investing activities (338,583) (211,656)
-------------- --------------
FINANCING ACTIVITIES:
Proceeds--
Capital contributions 30,000 -
Company obligated mandatorily redeemable preferred securities - 200,000
Pollution control bonds 106,790 -
Other long-term debt 390,000 -
Retirements--
Preferred stock - (112,000)
First mortgage bonds (198,500) (19,801)
Other long-term debt (510) (495)
Interim obligations, net 30,638 148,029
Special Deposits (106,790) -
Payment of preferred stock dividends (6,705) (11,749)
Payment of common stock dividends (180,900) (165,700)
Miscellaneous (20,529) (6,407)
------------- ------------
Net cash provided from financing activities 43,494 31,877
-------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,354) (3,249)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 23,957 9,587
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,603 $ 6,338
============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 112,584 $ 100,921
Income taxes 98,756 70,120
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At June 30,
1998 At December 31,
(Unaudited) 1997
---------------- -----------------
UTILITY PLANT:
<S> <C> <C>
Plant in service $ 11,182,635 $ 11,070,323
Less accumulated provision for depreciation 4,553,773 4,384,180
---------------- ---------------
6,628,862 6,686,143
Nuclear fuel, at amortized cost 110,404 103,272
Construction work in progress 446,149 311,223
---------------- ---------------
Total 7,185,415 7,100,638
---------------- ---------------
OTHER PROPERTY AND INVESTMENTS:
Southern Electric Generating Company, at equity 24,936 24,972
Nuclear decommissioning trusts 220,387 193,008
Miscellaneous 23,783 22,233
---------------- ---------------
Total 269,106 240,213
---------------- ---------------
CURRENT ASSETS:
Cash and cash equivalents 20,603 23,957
Special deposits-redemption funds 106,790 -
Receivables--
Customer accounts receivable 398,695 368,255
Other accounts and notes receivable 49,911 28,921
Affiliated companies 33,795 50,353
Accumulated provision for uncollectible accounts (2,367) (2,272)
Refundable income taxes 879 -
Fossil fuel stock, at average cost 113,424 74,186
Materials and supplies, at average cost 142,512 161,601
Prepayments 40,267 20,453
Vacation pay deferred 28,783 28,783
---------------- ---------------
Total 933,292 754,237
---------------- ---------------
DEFERRED CHARGES:
Deferred charges related to income taxes 386,733 384,549
Debt expense, being amortized 6,601 7,276
Premium on reacquired debt, being amortized 61,547 81,417
Prepaid pension costs 148,623 130,733
Department of Energy assessments 34,416 34,416
Miscellaneous 79,263 79,388
---------------- ---------------
Total 717,183 717,779
---------------- ---------------
TOTAL ASSETS $ 9,104,996 $ 8,812,867
================ ===============
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At June 30,
1998 At December 31,
(Unaudited) 1997
-------------- ----------------
CAPITALIZATION:
<S> <C> <C>
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 1,334,645 1,304,645
Premium on preferred stock 99 99
Retained earnings 1,199,270 1,221,467
-------------- --------------
2,758,372 2,750,569
Preferred stock 255,512 255,512
Company obligated mandatorily redeemable preferred securities of
subsidiary trusts holding Company Junior Subordinated Notes 297,000 297,000
Long-term debt 2,729,430 2,473,202
-------------- --------------
Total 6,040,314 5,776,283
-------------- --------------
CURRENT LIABILITIES:
Long-term debt due within one year 107,792 75,336
Notes payable to banks 30,000 -
Commercial paper 307,520 306,882
Accounts payable--
Affiliated companies 77,938 79,822
Other 127,265 159,146
Customer deposits 31,771 34,968
Taxes accrued--
Federal and state income 37,579 21,177
Other 44,788 15,309
Interest accrued 48,451 50,722
Vacation pay accrued 28,783 28,783
Miscellaneous 63,745 103,602
-------------- --------------
Total 905,632 875,747
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 1,184,590 1,192,265
Accumulated deferred investment tax credits 277,277 282,873
Prepaid capacity revenues, net 103,252 109,982
Department of Energy Assessments 30,592 30,592
Deferred credits related to income taxes 331,900 327,328
Natural disaster reserve 24,928 22,416
Miscellaneous 206,511 195,381
-------------- --------------
Total 2,159,050 2,160,837
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $ 9,104,996 $ 8,812,867
============== ==============
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
20
</TABLE>
<PAGE>
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SECOND QUARTER 1998 vs. SECOND QUARTER 1997
AND
YEAR-TO-DATE 1998 vs. YEAR-TO-DATE 1997
RESULTS OF OPERATIONS
Earnings
ALABAMA's net income after dividends on preferred stock for the second quarter
and year-to-date 1998 was $94.8 million and $160.8 million, respectively,
compared to $63.1 million and $120.9 million for the corresponding periods of
1997. Earnings increased 50.1% for the current quarter and 32.9% year-to-date
when compared to the same periods in 1997 due primarily to increased operating
revenues.
Significant income statement items appropriate for discussion include the
following:
<TABLE>
<CAPTION>
Increase (Decrease)
--------------------------------------------------------------
Second Quarter Year-To-Date
------------------------------- ------------------------------
(in thousands) % (in thousands) %
<S> <C> <C> <C> <C>
Revenues......................................... $151,111 21.6 $167,301 12.3
Revenues from affiliates......................... (15,485) (53.6) (19,938) (26.4)
Purchased power from non-affiliates ............. 20,380 427.3 34,541 424.1
Purchased power from affiliates.................. 18,166 71.4 16,740 36.8
Maintenance...................................... 9,256 11.9 3,839 2.6
Interest income.................................. 20,171 433.1 22,751 144.5
Interest on long-term debt....................... 5,868 14.0 9,203 11.1
Interest on interim obligations.................. (3,525) (54.5) (3,525) (32.4)
Amortization of debt discount, premium and expense, net
25,055 N/M 25,083 N/M
Other interest charges........................... 9,356 287.1 12,272 87.9
Dividends on preferred stock..................... (1,672) (33.7) (4,041) (37.9)
- - - - - - - ------------
N/M - Not meaningful
</TABLE>
Revenues. The increase in revenues for the second quarter and year-to-date
1998 was primarily due to increases in territorial energy sales and
non-territorial wholesale energy sales. Territorial revenues increased $142.0
million and $150.6 million, respectively, for the current quarter and
year-to-date 1998, when compared to the same periods in 1997. The increase in
territorial revenue is attributed to increased retail sales of 17.9% and 11.2%
for the second quarter and year-to-date, respectively, as a result of extremely
hot weather in the second quarter of 1998 as compared to the very mild weather
for same periods in 1997. Also, a strong economy in the company's service
territory contributed to the increase in revenue. Retail revenues, excluding
those revenues which represent the recovery of fuel expense and certain other
expenses and do not affect income, increased $82.0 million and $92.8 million,
for the current quarter and year-to-date, respectively. Non-territorial
wholesale revenues increased $7.4 million and $13.1 million for the second
quarter and year-to-date, respectively, as compared to the same periods in 1997.
The higher non-territorial wholesale energy sales were primarily offset by
increases in purchased power from non-affiliates and, as a result, had no
significant effect on net income.
21
<PAGE>
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues from affiliates and Purchased power from affiliates. Revenues from
sales to affiliated companies within the Southern electric system, as well as
purchases of energy, will vary from period to period depending on demand, the
availability, and cost of generating resources at each company. These
transactions did not have a significant impact on earnings.
Purchased power from non-affiliates. The increases for the quarter and
year-to-date 1998 compared to the same periods of 1997 resulted primarily from
increased purchases related to power marketing activities, a majority of which
were resold to non-affiliated third parties. These transactions had no
significant effect on net income.
Maintenance expense. The increases for the quarter and year-to-date 1998
from the amounts recorded in the corresponding periods in 1997 was due primarily
to increased steam and distribution expenses. For year-to-date 1998, these
increases were offset by a decrease in nuclear expenses.
Interest income. The second quarter and year-to-date increases are
attributed to the recording of ALABAMA's portion ($11.5 million) of the tax
settlement between SOUTHERN and the IRS (for additional information, see Note
(H) in the "Notes to the Condensed Financial Statements" herein), and increased
interest income of $7.9 million and $12.2 million, respectively, as a result of
appreciation of investments held by the nuclear decommissioning trust. The
increases in interest income related to the nuclear decommissioning trust were
offset by a concurrent recognition of other interest charges in accordance with
FERC requirements.
Interest on long-term debt. These increases for the quarter and
year-to-date 1998 compared to similar periods in 1997 primarily reflects the
sale of senior notes during December 1997 and the first six months of 1998.
Interest on interim obligations. The second quarter and year-to-date
decreases are due primarily to a reduction in the amount of outstanding
short-term debt.
Amortization of debt discount, premium and expense, net. The current
quarter and year-to-date 1998 increases from the same periods in 1997 are
attributed to ALABAMA's accelerated amortization of premiums incurred in
connection with the refinancing of high-cost debt, in the amount of $25.0
million, as allowed by the Alabama PSC. See Note (J) in the "Notes to the
Condensed Financial Statements" herein for further details.
Other interest charges. The second quarter and year-to-date 1998 increases
are primarily due to interest charges related to the nuclear decommissioning
trust. These charges increased by $7.5 million and $10.5 million, respectively.
These increases in interest charges were offset by a concurrent recognition of
interest income in accordance with FERC requirements.
Dividends on preferred stock. The decreases for the current quarter and
year-to-date 1998 compared to the same periods of 1997 resulted from preferred
stock redemptions during 1997.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from energy sales growth to a less regulated, more competitive
environment.
22
<PAGE>
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional information, see Item 1 - BUSINESS - "Competition" and Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of ALABAMA in
the Form 10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset. For additional information about the Clean Air Act and
other environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
"Environmental Matters" of ALABAMA in the Form 10-K.
ALABAMA has assessed and developed a detailed strategy to prevent or at
least minimize problems related to the year 2000 issue. For additional
information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future
Earnings Potential" of ALABAMA in the Form 10-K.
In March 1998, the American Institute of Certified Public Accountants
issued a new Statement of Position (SOP), Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The SOP, which must be adopted
by 1999, requires capitalization of certain costs of internal-use software.
Adoption of the SOP is not expected to have a material impact on the financial
statements.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. This statement is
effective for fiscal years beginning after June 15, 1999. ALABAMA is in the
process of evaluating the impact of this statement on its financial statements.
Reference is made to Notes (B), (C), (F), (G), (H), (J) and (K) in the
"Notes to the Condensed Financial Statements" herein for discussion of various
contingencies and other matters which may affect future earnings potential.
FINANCIAL CONDITION
Overview
Major changes in ALABAMA's financial condition during the first six months of
1998 included the addition of approximately $301.3 million to utility plant. The
funds for these additions and other capital requirements were derived primarily
from operating activities. See ALABAMA's Condensed Statements of Cash Flows for
further details.
Financing Activities
During the first six months of 1998, redemptions and maturities of first
mortgage bonds of ALABAMA totaled $198.5 million. In February 1998, ALABAMA
issued $200.0 million of 7% senior notes due December 31, 2047. The proceeds
were used to repay a portion of ALABAMA's short-term indebtedness. In April
1998, ALABAMA issued $190.0 million of 7% senior notes due March 31, 2048. The
proceeds were used to redeem $124.2 million of ALABAMA's First Mortgage Bonds, 8
3/4% Series due December 1, 2021 and to repay a portion of outstanding
short-term indebtedness.
23
<PAGE>
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In June 1998, ALABAMA sold, through public authorities, $106.79 million of
variable rate pollution control revenue bonds due June 1, 2028. The proceeds
from these sales were used to redeem, in July 1998, $106.79 million aggregate
principal amount of pollution control revenue bonds.
ALABAMA will continue to retire higher-cost debt and preferred stock and
replace these securities with lower-cost capital as market conditions permit.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of
ALABAMA under "Capital Requirements," "Other Capital Requirements" and
"Environmental Matters" in the Form 10-K for a description of ALABAMA's capital
requirements for its construction program, maturing debt and environmental
compliance efforts.
Sources of Capital
In addition to the financing activities previously described herein, ALABAMA
plans to obtain the funds required for construction and other purposes from
sources similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. See Item 1
- - - - - - - - BUSINESS - "Financing Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, ALABAMA had at June 30,
1998, approximately $20.6 million of cash and cash equivalents and had unused
committed lines of credit of approximately $807.6 million (including $315.0
million of such lines under which borrowings may be made only to fund purchase
obligations relating to variable rate pollution control bonds) with regulatory
authority for up to $750 million of short-term borrowings. At June 30, 1998,
ALABAMA had outstanding $30.0 million of short-term notes payable to banks and
$307.5 million of commercial paper.
24
<PAGE>
Exhibit 1
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO ALABAMA POWER COMPANY:
We have reviewed the accompanying condensed balance sheet of ALABAMA POWER
COMPANY as of June 30, 1998, and the related condensed statements of income and
cash flows for the three-month and six-month periods ended June 30, 1998 and
1997. 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, 1997
(not presented herein) and, in our report dated February 11, 1998, 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, 1997 is
fairly stated, in all material respects, in relation to the balance sheet from
which it has been derived.
/s/ Arthur Andersen LLP
Birmingham, Alabama
August 7, 1998
25
<PAGE>
GEORGIA POWER COMPANY
26
<PAGE>
<TABLE>
<CAPTION>
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Revenues $ 1,206,151 $ 1,003,962 $ 2,185,485 $ 1,955,415
Revenues from affiliates 20,163 11,384 24,972 18,643
--------------- -------------- -------------- --------------
Total operating revenues 1,226,314 1,015,346 2,210,457 1,974,058
--------------- -------------- -------------- --------------
OPERATING EXPENSES:
Operation--
Fuel 248,030 202,000 424,661 380,629
Purchased power from non-affiliates 58,754 31,894 104,228 58,669
Purchased power from affiliates 36,677 32,213 80,362 73,584
Other 194,267 163,148 363,692 314,757
Maintenance 91,089 79,337 172,038 154,287
Depreciation and amortization 248,054 117,525 398,862 246,827
Amortization of deferred Plant Vogtle costs (Note M) 7,786 37,584 15,572 75,211
Taxes other than income taxes 55,239 50,086 107,434 104,017
Federal and state income taxes 97,994 96,751 178,643 181,400
--------------- -------------- -------------- --------------
Total operating expenses 1,037,890 810,538 1,845,492 1,589,381
--------------- -------------- -------------- --------------
OPERATING INCOME 188,424 204,808 364,965 384,677
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction - 697 178 1,239
Equity in earnings of unconsolidated subsidiary 758 1,005 1,840 1,985
Interest income 64,358 2,275 64,911 2,870
Other, net (23,376) (5,252) (28,499) (10,850)
Income taxes applicable to other income (15,755) 1,601 (13,212) 3,967
--------------- -------------- -------------- --------------
INCOME BEFORE INTEREST CHARGES 214,409 205,134 390,183 383,888
--------------- -------------- -------------- --------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 45,252 50,357 90,308 98,812
Allowance for debt funds used during construction (2,174) (2,426) (4,002) (5,926)
Interest on interim obligations 4,767 2,745 8,513 6,438
Amortization of debt discount, premium and expense, net 3,320 3,717 6,651 7,491
Other interest charges 11,120 3,060 15,134 5,984
Distributions on preferred securities of subsidiary companies 13,601 10,749 27,125 20,166
--------------- -------------- -------------- --------------
Interest charges and other, net 75,886 68,202 143,729 132,965
--------------- -------------- -------------- --------------
NET INCOME 138,523 136,932 246,454 250,923
DIVIDENDS ON PREFERRED STOCK 1,837 6,422 3,864 14,378
--------------- -------------- -------------- --------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 136,686 $ 130,510 $ 242,590 $ 236,545
=============== ============== ============== ==============
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Six Months
Ended June 30,
1998 1997
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 246,454 $ 250,923
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 450,537 297,654
Deferred income taxes, net (23,316) (28,586)
Allowance for equity funds used during construction (178) (1,239)
Amortization of deferred Plant Vogtle costs (Note M) 15,572 75,211
Other, net 12,552 33,492
Changes in certain current assets and liabilities--
Receivables, net (293,473) 53,617
Inventories (5,854) (17,345)
Payables (1,764) (62,605)
Taxes accrued 108,327 34,221
Energy cost recovery, retail (11,196) 20,776
Other 19,240 (16,427)
-------------- --------------
Net cash provided from operating activities 516,901 639,692
-------------- --------------
INVESTING ACTIVITIES:
Gross property additions (207,796) (228,986)
Other 15,641 (11,611)
-------------- --------------
Net cash used for investing activities (192,155) (240,597)
-------------- --------------
FINANCING ACTIVITIES:
Proceeds--
Preferred securities - 364,250
Pollution control bonds 89,990 90,000
Other long-term debt 145,000 -
Retirements--
Preferred stock (40,679) (133,183)
First mortgage bonds (220,460) (60,258)
Pollution control bonds (89,990) -
Special deposits - redemption funds - (45,546)
Interim obligations, net 9,655 (328,594)
Payment of preferred stock dividends (6,628) (14,976)
Payment of common stock dividends (264,400) (253,700)
Miscellaneous (6,703) (13,048)
-------------- --------------
Net cash used for financing activities (384,215) (395,055)
-------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (59,469) 4,040
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 83,333 15,356
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,864 $ 19,396
============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 137,345 $ 125,492
Income taxes (net of refunds) 98,165 166,981
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
28
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At June 30,
1998 At December 31,
(Unaudited) 1997
---------------- -----------------
UTILITY PLANT:
<S> <C> <C>
Plant in service $ 15,226,967 $ 15,082,570
Less accumulated provision for depreciation 5,726,764 5,319,680
---------------- ----------------
9,500,203 9,762,890
Nuclear fuel, at amortized cost 111,466 126,882
Construction work in progress 217,126 214,128
---------------- ----------------
Total 9,828,795 10,103,900
---------------- ----------------
OTHER PROPERTY AND INVESTMENTS:
Southern Electric Generating Company, at equity 24,936 24,973
Nuclear decommissioning trusts, at market 250,291 194,417
Miscellaneous 34,977 87,907
---------------- ----------------
Total 310,204 307,297
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 23,864 83,333
Receivables--
Customer accounts receivable 554,263 385,844
Other accounts and notes receivable 223,018 110,278
Affiliated companies 28,725 20,333
Accumulated provision for uncollectible accounts (3,000) (3,000)
Fossil fuel stock, at average cost 101,816 96,067
Materials and supplies, at average cost 240,492 240,387
Prepayments 25,526 27,503
Vacation pay deferred 40,941 40,996
---------------- ----------------
Total 1,235,645 1,001,741
---------------- ----------------
DEFERRED CHARGES:
Deferred charges related to income taxes 644,924 688,472
Deferred Plant Vogtle costs (Note M) 34,840 50,412
Premium on reacquired debt, being amortized 164,841 166,609
Prepaid pension costs 84,247 67,777
Debt expense, being amortized 43,980 40,927
Miscellaneous 135,641 146,593
---------------- ----------------
Total 1,108,473 1,160,790
---------------- ----------------
TOTAL ASSETS $ 12,483,117 $ 12,573,728
================ ================
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At June 30,
1998 At December 31,
(Unaudited) 1997
---------------- -----------------
CAPITALIZATION:
<S> <C> <C>
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 1,930,079 1,929,971
Premium on preferred stock 160 160
Retained earnings 1,724,136 1,745,347
---------------- ----------------
3,998,625 4,019,728
Preferred stock 116,568 157,247
Company obligated mandatorily redeemable preferred securities
of subsidiaries substantially all of whose assets are junior
subordinated debentures or notes 689,250 689,250
Long-term debt 3,128,306 2,982,835
---------------- ----------------
Total 7,932,749 7,849,060
---------------- ----------------
CURRENT LIABILITIES:
Long-term debt due within one year 412 220,855
Notes payable to banks 151,850 142,300
Commercial paper 224,035 223,930
Accounts payable--
Affiliated companies 64,339 71,373
Other 245,629 261,293
Customer deposits 65,959 68,618
Taxes accrued--
Federal and state income 121,486 4,480
Other 102,863 111,541
Interest accrued 72,170 72,437
Miscellaneous 119,357 105,683
---------------- ----------------
Total 1,168,100 1,282,510
---------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 2,353,671 2,417,547
Accumulated deferred investment tax credits 389,793 397,202
Deferred credits related to income taxes 291,080 297,560
Employee benefits provisions 179,948 169,887
Miscellaneous 167,776 159,962
---------------- ----------------
Total 3,382,268 3,442,158
---------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES $ 12,483,117 $ 12,573,728
================ ================
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
30
</TABLE>
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SECOND QUARTER 1998 vs. SECOND QUARTER 1997
AND
YEAR-TO-DATE 1998 vs. YEAR-TO-DATE 1997
RESULTS OF OPERATIONS
Earnings
GEORGIA's net income after dividends on preferred stock for the second quarter
and year-to-date 1998 was $136.7 million and $242.6 million, respectively,
compared to $130.5 million and $236.5 million for the corresponding periods in
1997. Earnings for the current quarter and year-to-date 1998 rose by $6.2
million or 4.7% and $6.1 million or 2.6%, respectively.
Significant income statement items appropriate for discussion include the
following:
<TABLE>
<CAPTION>
Increase (Decrease)
--------------------------------------------------------------
Second Quarter Year-To-Date
------------------------------- ------------------------------
(in thousands) % (in thousands) %
<S> <C> <C> <C> <C>
Revenues......................................... $202,189 20.1 $230,070 11.8
Revenues from affiliates......................... 8,779 77.1 6,329 33.9
Fuel............................................. 46,030 22.8 44,032 11.6
Purchased power from non-affiliates ............. 26,860 84.2 45,559 77.7
Purchased power from affiliates.................. 4,464 13.9 6,778 9.2
Other operation expense.......................... 31,119 19.1 48,935 15.5
Maintenance...................................... 11,752 14.8 17,751 11.5
Depreciation and amortization expense............ 130,529 111.1 152,035 61.6
Amortization of deferred Plant Vogtle costs...... (29,798) (79.3) (59,639) (79.3)
Interest income.................................. 62,083 N/M 62,041 N/M
Other, net....................................... (18,124) (345.1) (17,649) (162.7)
Income taxes applicable to other income.......... (17,356) N/M (17,179) (433.0)
Other interest charges........................... 8,060 263.4 9,150 152.9
Distributions on preferred securities of
subsidiary companies.......................... 2,852 26.5 6,959 34.5
Dividends on preferred stock..................... (4,585) (71.4) (10,514) (73.1)
- - - - - - - ------------
N/M - Not meaningful
</TABLE>
Revenues. The increases in revenues were primarily due to increases in
energy sales within the service area for the second quarter and year-to-date
1998 when compared to the same periods in 1997. Revenues within the service area
increased by $204.3 million and $220.5 million, respectively, for the second
quarter and year-to-date 1998. The increases in energy sales were primarily in
the retail sector. Energy sales to residential, commercial and industrial
customers increased by 34.8%, 13.3% and 3.3%, respectively, for second quarter
and 22.1%, 9.3% and 2.6%, respectively, year-to-date 1998 due to the hotter
temperatures recorded during these periods as compared to the milder-than-normal
temperatures recorded in the corresponding periods in 1997.
31
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Retail revenues, excluding fuel and demand-side program revenues which
generally do not affect income, increased $152.4 million for the second quarter
and $175.5 million for year-to-date 1998. Wholesale revenues within the service
area, excluding fuel revenues which do not affect income, decreased $4.0 million
for the second quarter and $9.5 million year-to-date 1998 primarily due to a
scheduled decrease in capacity revenues under a power supply agreement with OPC.
Wholesale revenues outside the service area decreased by $4.0 million for
the second quarter and increased $6.3 million year-to-date 1998. The decrease in
the second quarter was primarily due to capacity adjustments under long-term
contracts, partially offset by increases in energy sales. The year-to-date
increase was attributed to increased wholesale energy sales outside the service
area, primarily from power marketing activities. The increases in wholesale
energy sales outside the service area were primarily offset by the increases in
purchased power from non-affiliates and, as a result, had no significant effect
on net income.
Revenues from affiliates and Purchased power from affiliates. Revenues from
sales to affiliated companies within the Southern electric system, as well as
purchases of energy, will vary from period to period depending on demand and the
availability and cost of generating resources at each company. These
transactions do not have a significant impact on earnings.
Fuel expense. The increases for the current quarter and year-to-date 1998
when compared to the same periods in 1997 were due to increased generation
resulting from the higher demand for energy.
Purchased power from non-affiliates. The increases for the current quarter
and year-to-date 1998 were primarily due to an increase in energy purchases
resulting from higher demand and energy purchases related to power marketing
activities, a majority of which were resold to non-affiliated third parties.
These transactions had no significant effect on net income.
Other operation expense. The current quarter and year-to-date increases
were primarily due to higher expenses associated with a new customer service
system implemented in January 1998, and modification of certain information
systems for year 2000 compliance. For additional information on the year 2000
issue, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings
Potential" of GEORGIA in the Form 10-K.
Maintenance expense. The increases in maintenance costs for the current
quarter and year-to-date are attributed primarily to a rise in costs associated
with steam plant and distribution line maintenance.
Depreciation and amortization expense. The increases in depreciation and
amortization for the current quarter and year-to-date compared to the same
periods of 1997 are primarily due to increases in additional depreciation
charges of $127.1 million for the second quarter and $139.3 million
year-to-date, pursuant to a Georgia PSC retail accounting order discussed below,
and an increase in plant-in-service. See "Future Earnings Potential" below and
Note (L) in the "Notes to the Condensed Financial Statements" herein for further
details regarding the retail accounting order.
Amortization of deferred Plant Vogtle costs. These costs decreased for the
quarter and year-to-date due to the completion in September 1997 of the
amortization of levelized buybacks and Plant Vogtle Unit 1 cost deferrals under
the 1987 Georgia PSC order. See Note (M) in the "Notes to the Condensed
Financial Statements", herein for further details.
32
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Interest income. The increases for the quarter and year-to-date 1998 are
attributed primarily to the recognition of $63.7 million in interest income
resulting from the resolution of tax issues between SOUTHERN and the IRS. For
additional information, see Note (H) in the "Notes to the Condensed Financial
Statements" herein.
Other, net. For the second quarter and year-to-date 1998, the change was
primarily due to an increase in donations and contributions.
Income taxes applicable to other income. The second quarter and
year-to-date 1998 increases resulted from taxes on the additional interest
income discussed above.
Other interest charges. These charges increased for the quarter and
year-to-date due, for the most part, to the recognition of interest related to
tax issues.
Distributions on preferred securities of subsidiary companies. The increase
in this item resulted primarily from the issuance of additional mandatorily
redeemable preferred securities in June 1997. For additional information, see
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Financing Activities" of
GEORGIA in the Form 10-K.
Dividends on preferred stock. The decreases for the current quarter and
year-to-date resulted from the redemption of various issues of such securities.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including regulatory matters and energy sales.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional information, see Item 1 - BUSINESS - "Competition" and Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of GEORGIA in
the Form 10-K.
Effective January 1, 1996, GEORGIA began operating under a three-year
retail accounting order. Under the order, GEORGIA's earnings are evaluated
against a retail return on common equity range of 10% to 12.5%. GEORGIA is
required to absorb cost increases of approximately $29.0 million annually during
the order's three-year operation, including $14.0 million annually of
accelerated depreciation of electric plant. Under the order, GEORGIA filed a
general rate case in June 1998. Reference is made to Note (L) in the "Notes to
the Condensed Financial Statements" herein for additional information.
33
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On January 14, 1998, the Georgia PSC ordered that GEORGIA be allowed
approximately $108 million of its $143 million investment in the Rocky Mountain
pumped storage hydroelectric plant in rate base as of December 31, 1998.
Reference is made to Note (N) in the "Notes to the Condensed Financial
Statements" herein for additional information.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset. For additional information about the Clean Air Act and
other environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
"Environmental Issues" of GEORGIA in the Form 10-K.
GEORGIA has assessed and developed a detailed strategy to prevent or at
least minimize problems related to the year 2000 issue. For additional
information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future
Earnings Potential" of GEORGIA in the Form 10-K.
In March 1998, the American Institute of Certified Public Accountants
issued a new Statement of Position (SOP), Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The SOP, which must be adopted
by 1999, requires capitalization of certain costs of internal-use software.
Adoption of the SOP is not expected to have a material impact on the financial
statements.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. This statement is
effective for fiscal years beginning after June 15, 1999. GEORGIA is in the
process of evaluating the impact of this statement on its financial statements.
Reference is made to Notes (B), (C), (F), and (L) through (O) in the "Notes
to the Condensed Financial Statements" herein for discussion of various
contingencies and other matters which may affect future earnings potential.
FINANCIAL CONDITION
Overview
The major change in GEORGIA's financial condition during the first six months of
1998 was the addition of approximately $207.8 million to gross plant. The funds
for these additions and other capital requirements were derived primarily from
operations. See GEORGIA's Condensed Statements of Cash Flows for further
details.
Financing Activities
During the first six months of 1998, redemptions of first mortgage bonds and
preferred stock by GEORGIA totaled $220.5 million and $40.7 million,
respectively. In January 1998, GEORGIA issued $145.0 million of 6 7/8% senior
notes due December 31, 2047. The proceeds from this issuance were used to repay
a portion of GEORGIA's outstanding short-term indebtedness.
34
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In March 1998, GEORGIA sold, through public authorities, $89.99 million
aggregate principal amount of variable rate pollution control revenue bonds with
$72.99 million aggregate principal amount due in 2024 and $17.0 million
aggregate principal amount due in 2025. The proceeds were used in April 1998 to
redeem $4.1 million aggregate principal amount of 6.20% pollution control
revenue bonds; $22.1 million aggregate principal amount of 6.00% pollution
control revenue bonds; $17.0 million aggregate principal amount of 5.90%
pollution control revenue bonds; and $46.79 million aggregate principal amount
of 5 3/8% pollution control revenue bonds.
GEORGIA plans to continue, to the extent possible, a program to retire
higher-cost debt and preferred stock and replace these securities with
lower-cost capital.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of GEORGIA
under "Liquidity and Capital Requirements" and "Environmental Issues" in the
Form 10-K for a description of GEORGIA's capital requirements for its
construction program and environmental compliance efforts.
Sources of Capital
In addition to the financing activities previously described herein, GEORGIA
plans to obtain the funds required for construction and other purposes from
sources similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. See Item 1
- - - - - - - - BUSINESS - "Financing Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, GEORGIA had at June 30,
1998, approximately $23.9 million of cash and cash equivalents and approximately
$1.25 billion of unused credit arrangements with banks. Of the $1.25 billion,
$980 million provides liquidity support to GEORGIA's variable rate pollution
control bonds. At June 30, 1998, GEORGIA had $151.9 million outstanding in
short-term notes payable to banks and $224.0 million outstanding in commercial
paper. Since GEORGIA has no major generating plants under construction,
management believes that the need for working capital can be adequately met by
utilizing lines of credit without maintaining large cash balances.
35
<PAGE>
Exhibit 1
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO GEORGIA POWER COMPANY:
We have reviewed the accompanying condensed balance sheet of GEORGIA POWER
COMPANY (a Georgia corporation) as of June 30, 1998, and the related condensed
statements of income and cash flows for the three-month and six-month periods
ended June 30, 1998 and 1997. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of GEORGIA POWER COMPANY as of December 31, 1997
(not presented herein), and, in our report dated February 11, 1998, 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, 1997, is
fairly stated, in all material respects, in relation to the balance sheet from
which it has been derived.
/s/ Arthur Andersen LLP
Atlanta, Georgia
August 7, 1998
36
<PAGE>
GULF POWER COMPANY
37
<PAGE>
<TABLE>
<CAPTION>
GULF POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Revenues $ 160,061 $ 139,443 $ 294,614 $ 279,647
Revenues from affiliates 17,069 5,849 23,466 7,019
------------- ------------- ------------ ------------
Total operating revenues 177,130 145,292 318,080 286,666
------------- ------------- ------------ ------------
OPERATING EXPENSES:
Operation--
Fuel 55,443 40,782 96,886 77,774
Purchased power from non-affiliates 8,256 1,693 12,989 2,789
Purchased power from affiliates 2,545 6,036 6,433 14,899
Other 34,169 31,207 65,450 61,827
Maintenance 14,591 13,291 27,487 22,801
Depreciation and amortization 16,409 14,446 31,112 28,892
Taxes other than income taxes 12,485 12,264 25,104 25,039
Federal and state income taxes 9,490 6,420 13,640 13,280
------------- ------------- ------------ ------------
Total operating expenses 153,388 126,139 279,101 247,301
------------- ------------- ------------ ------------
OPERATING INCOME 23,742 19,153 38,979 39,365
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction - 1 - 2
Interest income 194 179 317 508
Other, net (203) 61 (1,406) (193)
Income taxes applicable to other income (57) (144) 300 (221)
------------- ------------- ------------ ------------
INCOME BEFORE INTEREST CHARGES 23,676 19,250 38,190 39,461
------------- ------------- ------------ ------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 4,725 5,490 9,602 11,287
Other interest charges 2,825 806 3,100 1,522
Interest on notes payable 481 239 819 522
Amortization of debt discount, premium, and expense, net 522 570 1,100 1,136
Allowance for debt funds used during construction - (3) - (6)
Distributions on preferred securities of subsidiary companies 1,550 762 2,934 1,279
------------- ------------- ------------ ------------
Interest charges and other, net 10,103 7,864 17,555 15,740
------------- ------------- ------------ ------------
NET INCOME 13,573 11,386 20,635 23,721
DIVIDENDS ON PREFERRED STOCK 209 1,000 418 2,595
------------- ------------- ------------ ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 13,364 $ 10,386 $ 20,217 $ 21,126
============= ============= ============ ============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
38
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Six Months
Ended June 30,
1998 1997
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 20,635 $ 23,721
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 35,747 36,026
Deferred income taxes (6,173) (3,015)
Deferred costs of 1995 coal contract renegotiation - 1,246
Other, net 10,570 1,371
Changes in certain current assets and liabilities--
Receivables, net (10,355) (105)
Inventories (10,615) (7,180)
Payables (1,610) (1,539)
Taxes accrued 16,894 7,218
Current costs of 1995 coal contract renegotiation 812 7,313
Other (5,662) (3,098)
------------- ------------
Net cash provided from operating activities 50,243 61,958
-------------- ------------
INVESTING ACTIVITIES:
Gross property additions (26,091) (21,543)
Other (3,114) (1,221)
------------- ------------
Net cash used for investing activities (29,205) (22,764)
-------------- ------------
FINANCING ACTIVITIES:
Proceeds--
Preferred securities 45,000 40,000
Other long-term debt 50,000 -
Retirements--
Preferred stock (5) (24,500)
First mortgage bonds (15,000) -
Other long-term debt (8,327) (7,868)
Notes payable, net (33,000) (5,500)
Payment of preferred stock dividends (419) (3,048)
Payment of common stock dividends (38,200) (36,700)
Miscellaneous (4,026) (1,527)
------------- ------------
Net cash used for financing activities (3,977) (39,143)
-------------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 17,061 51
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,707 807
-------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,768 $ 858
============== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 12,463 $ 11,181
Income taxes 5,442 13,073
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
39
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At June 30,
1998 At December 31,
(Unaudited) 1997
-------------- ----------------
UTILITY PLANT:
<S> <C> <C>
Plant in service $ 1,789,025 $ 1,762,244
Less accumulated provision for depreciation 761,597 737,767
-------------- --------------
1,027,428 1,024,477
Construction work in progress 22,045 31,030
-------------- --------------
Total 1,049,473 1,055,507
-------------- --------------
OTHER PROPERTY AND INVESTMENTS: 637 622
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 21,768 4,707
Receivables--
Customer accounts receivable 78,089 63,691
Other accounts and notes receivable 2,486 2,744
Affiliated companies 3,740 7,329
Accumulated provision for uncollectible accounts (991) (796)
Fossil fuel stock, at average cost 30,056 19,296
Materials and supplies, at average cost 28,489 28,634
Current portion of deferred coal contract costs - 4,456
Regulatory clauses under recovery 2,445 1,675
Other prepayments 1,263 2,171
Vacation pay deferred 4,057 4,057
-------------- --------------
Total 171,402 137,964
-------------- --------------
DEFERRED CHARGES:
Deferred charges related to income taxes 26,606 26,586
Debt expense and loss, being amortized 22,162 22,941
Prepaid pension costs 11,885 10,385
Deferred storm charges - 703
Miscellaneous 11,368 10,904
-------------- --------------
Total 72,021 71,519
-------------- --------------
TOTAL ASSETS $ 1,293,533 $ 1,265,612
============== ==============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At June 30,
1998 At December 31,
(Unaudited) 1997
-------------- ----------------
CAPITALIZATION:
<S> <C> <C>
Common stock equity--
Common stock (without par value)--
authorized and outstanding--992,717 shares $ 38,060 $ 38,060
Paid-in capital 218,438 218,438
Premium on preferred stock 12 12
Retained earnings 163,326 172,208
-------------- --------------
419,836 428,718
Preferred stock 5,025 13,691
Company obligated mandatorily redeemable preferred securities of
subsidiary trusts holding Company Junior Subordinated Notes (Note I) 85,000 40,000
Long-term debt 344,187 296,993
-------------- --------------
Total 854,048 779,402
-------------- --------------
CURRENT LIABILITIES:
Preferred stock due within one year 8,661 -
Long-term debt due within one year 30,000 53,327
Notes payable 14,000 47,000
Accounts payable--
Affiliated companies 8,191 14,334
Other 23,019 20,205
Customer deposits 13,124 13,778
Taxes accrued--
Federal and state income 12,470 -
Other 12,084 8,258
Interest accrued 8,980 7,227
Regulatory clauses over recovery 2,550 5,062
Vacation pay accrued 4,057 4,057
Dividends declared 209 10,210
Miscellaneous 1,574 8,739
-------------- --------------
Total 138,919 192,197
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 162,340 166,302
Deferred credits related to income taxes 55,480 56,935
Accumulated provision for property damage 9,806 -
Accumulated deferred investment tax credits 30,453 31,552
Accumulated provision for postretirement benefits 21,846 20,491
Miscellaneous 20,641 18,733
-------------- --------------
Total 300,566 294,013
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $ 1,293,533 $ 1,265,612
============== ==============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
41
</TABLE>
<PAGE>
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SECOND QUARTER 1998 vs. SECOND QUARTER 1997
AND
YEAR-TO-DATE 1998 vs. YEAR-TO-DATE 1997
RESULTS OF OPERATIONS
Earnings
GULF's net income after dividends on preferred stock for the second quarter and
year-to-date 1998 was $13.4 million and $20.2 million, respectively, compared to
$10.4 million and $21.1 million for the corresponding periods of 1997. Second
quarter earnings increased due primarily to an increase in operating revenues.
Year-to-date earnings decreased slightly due to an increase in operating
expenses.
Significant income statement items appropriate for discussion include the
following:
<TABLE>
<CAPTION>
Increase (Decrease)
--------------------------------------------------------------
Second Quarter Year-To-Date
------------------------------- ------------------------------
(in thousands) % (in thousands) %
<S> <C> <C> <C> <C>
Revenues......................................... $20,618 14.8 $14,967 5.4
Revenues from affiliates......................... 11,220 191.8 16,447 234.3
Fuel expense..................................... 14,661 35.9 19,112 24.6
Purchased power from non-affiliates ............. 6,563 387.7 10,200 365.7
Purchased power from affiliates.................. (3,491) (57.8) (8,466) (56.8)
Other operation expense.......................... 2,962 9.5 3,623 5.9
Maintenance...................................... 1,300 9.8 4,686 20.6
Interest on long-term debt....................... (764) (13.9) (1,684) (14.9)
Other interest charges........................... 2,018 250.4 1,577 103.6
Distributions on preferred securities of
of subsidiary companies....................... 788 103.4 1,655 129.4
Dividends on preferred stock..................... (791) (79.1) (2,177) (83.9)
</TABLE>
Revenues. The increases in revenues were due to increases in territorial
energy sales and non-territorial wholesale energy sales. Revenues from
territorial energy sales increased by $10.7 million for the quarter and $7.1
million year-to-date. These increases are primarily attributable to increases in
retail energy sales of 15.8% for the quarter and 9.5% year-to-date due to
hotter-than-normal temperatures as compared to the milder-than-normal
temperatures recorded in the same periods in 1997. Revenues from non-territorial
wholesale energy sales increased by $3.9 million for the quarter and $3.4
million year-to-date when compared to the same periods of 1997. The increase in
non-territorial wholesale energy sales was primarily offset by the increase in
purchased power from non-affiliates and, as a result, had no significant effect
on net income. Retail revenues, excluding those revenues which represent the
recovery of fuel expense and certain other expenses and do not affect income,
increased $15.9 million for the quarter and $16.4 million year-to-date.
42
<PAGE>
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues from affiliates and Purchased power from affiliates. Revenues from
sales to affiliated companies within the Southern electric system, as well as
purchases of energy, will vary from period to period depending on demand and the
availability and cost of generating resources at each company. These
transactions do not have a significant impact on earnings.
Fuel expense. These expenses increased for the quarter and year-to-date due
primarily to increased generation resulting from a higher demand for energy.
Purchased power from non-affiliates. The increases in purchased power from
non-affiliates when compared to the same periods in 1997 can primarily be
attributed to an increase in energy purchases resulting from hotter-than-normal
weather.
Other operation expense. For the quarter and year-to-date 1998, these
expenses increased when compared to the same periods in 1997 primarily due to
increases in production, customer accounts, and administrative and general
expenses. This was partially offset by a decrease in amortization costs related
to the buyout and renegotiation of coal supply contracts.
Maintenance expense. Maintenance expense increased when compared to the
corresponding periods in 1997 due primarily to scheduled maintenance performed
on production facilities at Plant Crist and Plant Smith during the first half of
1998.
Interest on long-term debt. The decreases for the quarter and year-to-date
reflect the refinancing of $40.93 million of pollution control revenue refunding
bonds during July 1997 and a reduction in first mortgage bonds and other
long-term debt outstanding.
Other interest charges. These charges increased for the quarter and
year-to-date due, for the most part, to the recognition of interest related to
tax issues.
Distributions on preferred securities of subsidiary companies. See
"Financing Activities" herein for details relating to the January 1998 issuance
by Gulf Power Capital Trust II of its 7.00% trust preferred securities.
Dividends on preferred stock. Current quarter and year-to-date 1998
preferred stock dividends decreased when compared to the corresponding periods
in 1997 due to the redemptions of preferred stock during 1997.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from energy sales growth to a less regulated, more competitive
environment.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential" of GULF and Item 1 - BUSINESS - "Competition" in the
Form 10-K.
43
<PAGE>
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Compliance costs related to the Clean Air Act could affect earnings if such
costs are not fully recovered through GULF's Environmental Cost Recovery Clause.
For additional information about the Clean Air Act and other environmental
issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental
Matters" of GULF in the Form 10-K.
GULF has assessed and developed a detailed strategy to prevent or at least
minimize problems related to the year 2000 issue. For additional information,
see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential"
of GULF in the Form 10-K.
In March 1998, the American Institute of Certified Public Accountants
issued a new Statement of Position (SOP), Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The SOP, which must be adopted
by 1999, requires capitalization of certain costs of internal-use software.
Adoption of the SOP is not expected to have a material impact on the financial
statements.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. This statement is
effective for fiscal years beginning after June 15, 1999. GULF is in the process
of evaluating the impact of this statement on its financial statements.
Reference is made to Notes (B) and (F) in the "Notes to the Condensed
Financial Statements" herein for discussion of various contingencies and other
matters which may affect future earnings potential.
FINANCIAL CONDITION
Overview
Major changes in GULF's financial condition during the first six months of 1998
included the addition of approximately $26.1 million to utility plant. The funds
for these additions and other capital requirements were derived primarily from
operations. See GULF's Condensed Statements of Cash Flows for further details.
Financing Activities
During the first six months of 1998, maturities and redemptions of first
mortgage bonds by GULF totaled $15.0 million. In January 1998, Gulf Power
Capital Trust II, a statutory business trust established for the purpose of
holding GULF's junior subordinated notes and issuing trust preferred securities
and common securities, sold $45 million of its 7.00% trust preferred securities
which are guaranteed by GULF. For additional information, see Note (I) in the
"Notes to the Condensed Financial Statements" and Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Sources of Capital" of GULF in the Form 10-K. The
proceeds were used to redeem $36.4 million of cumulative preferred stock and to
repay short-term indebtedness.
In June 1998, GULF issued and sold $50.0 million of its Series A 6.70%
Senior Insured Quarterly Notes due June 30, 2038. The proceeds from the sale
were used to pay at maturity, in July 1998, $30.0 million outstanding principal
amount of its First Mortgage Bonds, 5.0% Series due July 1, 1998, and to repay a
portion of its outstanding short-term indebtedness. Such short-term indebtedness
was incurred in part to pay at maturity $15.0 million principal amount of First
Mortgage Bonds, 5.55% Series due April 1, 1998.
44
<PAGE>
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GULF plans to continue, to the extent possible, a program to retire
higher-cost debt and preferred stock and replace these securities with
lower-cost capital.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of GULF
under "Capital Requirements for Construction," "Environmental Matters" and
"Other Capital Requirements" in the Form 10-K for a description of GULF's
capital requirements for its construction program, environmental compliance
efforts and maturing debt.
Sources of Capital
In addition to the financing activities previously described herein, GULF plans
to obtain the funds required for construction and other purposes from sources
similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. See Item 1
- - - - - - - - BUSINESS - "Financing Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, GULF had at June 30, 1998,
approximately $21.8 million of cash and cash equivalents and $37.5 million of
unused committed lines of credit with banks in addition to $61.9 million
liquidity support for variable rate pollution control bonds. At June 30, 1998,
GULF had $14.0 million of short-term notes payable to banks. Since GULF has no
major generating plants under construction, management believes that the need
for working capital can be adequately met by utilizing lines of credit without
maintaining large cash balances.
45
<PAGE>
MISSISSIPPI POWER COMPANY
46
<PAGE>
<TABLE>
<CAPTION>
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Revenues $ 148,064 $ 127,350 $ 269,345 $ 245,139
Revenues from affiliates 8,548 1,565 9,423 679
------------- ------------- ------------ ------------
Total operating revenues 156,612 128,915 278,768 245,818
------------- ------------- ------------ ------------
OPERATING EXPENSES:
Operation--
Fuel 45,113 30,489 72,401 60,030
Purchased power from non-affiliates 8,988 1,714 13,288 2,198
Purchased power from affiliates 5,118 10,628 16,414 21,143
Other 33,102 23,847 56,948 44,671
Maintenance 11,564 12,392 22,958 22,004
Depreciation and amortization 11,441 11,399 23,094 22,593
Taxes other than income taxes 11,160 11,283 23,240 22,180
Federal and state income taxes 10,003 7,823 14,935 14,527
------------- ------------- ------------ ------------
Total operating expenses 136,489 109,575 243,278 209,346
------------- ------------- ------------ ------------
OPERATING INCOME 20,123 19,340 35,490 36,472
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction - 7 - 11
Interest income 213 221 263 362
Other, net 630 966 863 1,620
Income taxes applicable to other income (41) (443) (354) (772)
------------- ------------- ------------ ------------
INCOME BEFORE INTEREST CHARGES 20,925 20,091 36,262 37,693
------------- ------------- ------------ ------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 5,123 4,994 9,921 9,889
Allowance for debt funds used during construction - (15) - (23)
Interest on notes payable 490 9 918 56
Amortization of debt discount, premium, and expense, net 335 387 723 774
Other interest charges 62 175 203 314
Distributions on preferred securities of subsidiary companies 699 699 1,398 971
------------- ------------- ------------ ------------
Interest charges and other, net 6,709 6,249 13,163 11,981
------------- ------------- ------------ ------------
NET INCOME 14,216 13,842 23,099 25,712
DIVIDENDS ON PREFERRED STOCK 504 1,224 999 2,449
------------- ------------- ------------ ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 13,712 $ 12,618 $ 22,100 $ 23,263
============= ============= ============ ============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
47
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Six Months
Ended June 30,
1998 1997
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 23,099 $ 25,712
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 25,112 24,652
Deferred income taxes (1,687) 1,326
Allowance for equity funds used during construction - (11)
Other, net 1,891 333
Changes in certain current assets and liabilities--
Receivables, net (7,444) (3,478)
Inventories (9,047) (2,449)
Payables 1,682 (7,294)
Taxes accrued 3,671 (13,007)
Other (2,352) (990)
------------ -------------
Net cash provided from operating activities 34,925 24,794
------------ -------------
INVESTING ACTIVITIES:
Gross property additions (31,755) (26,681)
Other (5,131) (1,528)
------------ -------------
Net cash used for investing activities (36,886) (28,209)
------------ -------------
FINANCING ACTIVITIES:
Proceeds--
Preferred securities - 35,000
Pollution control bonds 13,520 -
Other long-term debt 90,000 -
Retirements--
Preferred stock (87) -
First mortgage bonds (35,000) -
Pollution control bonds (13,000) -
Payment of preferred stock dividends (999) (2,449)
Payment of common stock dividends (25,500) (23,400)
Miscellaneous (276) -
------------ -------------
Net cash provided from financing activities 28,658 9,151
------------ -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 26,697 5,736
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,432 7,058
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 31,129 $ 12,794
============ =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 11,482 $ 2,864
Income taxes (534) 13,307
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
48
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At June 30,
1998 At December 31,
(Unaudited) 1997
-------------- ----------------
UTILITY PLANT:
<S> <C> <C>
Plant in service, at original cost $ 1,528,168 $ 1,518,402
Less accumulated provision for depreciation 576,016 559,098
-------------- --------------
952,152 959,304
Construction work in progress 56,686 41,083
-------------- --------------
Total 1,008,838 1,000,387
-------------- --------------
OTHER PROPERTY AND INVESTMENTS: 649 650
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 31,129 4,432
Receivables--
Customer accounts receivable 41,716 32,220
Regulatory clauses under recovery 9,169 7,619
Other accounts and notes receivable 7,315 8,666
Affiliated companies 5,157 7,398
Accumulated provision for uncollectible accounts (708) (698)
Fossil fuel stock, at average cost 19,331 10,651
Materials and supplies, at average cost 19,819 19,452
Current portion of accumulated deferred income taxes 8,946 8,379
Prepayments 3,245 1,791
Vacation pay deferred 5,030 5,030
-------------- --------------
Total 150,149 104,940
-------------- --------------
DEFERRED CHARGES:
Debt expense and loss, being amortized 12,105 12,234
Deferred charges related to income taxes 22,356 21,906
Long-term notes receivable 2,375 2,837
Work force reduction plan 12,148 18,236
Miscellaneous 8,285 5,639
-------------- --------------
Total 57,269 60,852
-------------- --------------
TOTAL ASSETS $ 1,216,905 $ 1,166,829
============== ==============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
49
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At June 30,
1998 At December 31,
(Unaudited) 1997
-------------- ----------------
CAPITALIZATION:
<S> <C> <C>
Common stock equity--
Common stock (without par value)--
authorized 1,130,000 shares; outstanding 1,121,000 shares $ 37,691 $ 37,691
Paid-in capital 179,389 179,389
Premium on preferred stock 326 327
Retained earnings 167,017 170,417
-------------- --------------
384,423 387,824
Preferred stock 31,809 31,896
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding Company Junior Subordinated Notes 35,000 35,000
Long-term debt 342,505 291,665
-------------- --------------
Total 793,737 746,385
-------------- --------------
CURRENT LIABILITIES:
Long-term debt due within one year 40,020 35,020
Notes payable - -
Accounts payable--
Affiliated companies 8,237 8,548
Regulatory clauses over recovery 11,268 15,476
Other 36,763 34,065
Customer deposits 3,230 3,225
Taxes accrued--
Federal and state income 18,798 1,101
Other 19,833 33,859
Interest accrued 3,652 4,098
Miscellaneous 12,326 12,797
-------------- --------------
Total 154,127 148,189
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 134,421 134,645
Accumulated deferred investment tax credits 26,517 27,121
Deferred credits related to income taxes 37,756 38,203
Postretirement benefits 25,428 25,145
Accumulated provision for property damage 14,741 13,991
Work force reduction plan 13,725 15,700
Miscellaneous 16,453 17,450
-------------- --------------
Total 269,041 272,255
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $ 1,216,905 $ 1,166,829
============== ==============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
50
</TABLE>
<PAGE>
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SECOND QUARTER 1998 vs. SECOND QUARTER 1997
AND
YEAR-TO-DATE 1998 vs. YEAR-TO-DATE 1997
RESULTS OF OPERATIONS
Earnings
MISSISSIPPI's net income after dividends on preferred stock for the second
quarter and year-to-date 1998 was $13.7 million and $22.1 million, respectively,
compared to $12.6 million and $23.3 million for the corresponding periods of
1997. The improvement in second quarter earnings is attributed to an increase in
operating revenues. The decrease in year-to-date earnings is primarily due to an
increase in operating expenses.
Significant income statement items appropriate for discussion include the
following:
<TABLE>
<CAPTION>
Increase (Decrease)
--------------------------------------------------------------
Second Quarter Year-To-Date
------------------------------- ------------------------------
(in thousands) % (in thousands) %
<S> <C> <C> <C> <C>
Revenues......................................... $20,714 16.3 $24,206 9.9
Revenues from affiliates......................... 6,983 446.2 8,744 N/M
Fuel expense..................................... 14,624 48.0 12,371 20.6
Purchased power from non-affiliates ............. 7,274 424.4 11,090 N/M
Purchased power from affiliates.................. (5,510) (51.8) (4,729) (22.4)
Other operation expense.......................... 9,255 38.8 12,277 27.5
Interest on notes payable........................ 481 N/M 862 N/M
- - - - - - - ------------
N/M - Not meaningful
</TABLE>
Revenues. The increases in revenues were due to increased territorial
energy sales and non-territorial wholesale energy sales. Revenues from
territorial energy sales increased $18.0 million for the quarter and $18.5
million year-to-date when compared to the corresponding periods in 1997. The
increases in territorial energy sales are primarily due to increases in retail
energy sales to residential and commercial customers. Energy sales to
residential customers increased 31.3% for the quarter and 15.7% year-to-date
while sales to commercial customers increased 20.4% for the quarter and 11.2%
year-to-date primarily due to hotter-than-normal temperatures as compared to the
milder-than-normal temperatures recorded in the same periods in 1997. Revenues
from non-territorial energy sales increased $2.1 million and $4.7 million for
the second quarter and year-to-date, respectively. The increase in
non-territorial wholesale energy sales was primarily offset by the increases in
purchased power from non-affiliates, and as a result, had no significant effect
on net income. Retail revenues, excluding those revenues which represent the
recovery of fuel expense and certain other expenses and do not affect income,
increased $8.5 million and $9.3 million, for the current quarter and
year-to-date, respectively. Wholesale territorial revenues, excluding fuel
revenues which do not affect income, increased $2.2 million for the quarter and
$2.9 million year-to-date.
Revenues from affiliates and Purchased power from affiliates. Revenues from
sales to affiliated companies within the Southern electric system, as well as
purchases of energy, will vary from period to period
51
<PAGE>
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
depending on demand and the availability and cost of generating resources at
each company. These transactions do not have a significant impact on earnings.
Fuel expense. Second quarter and year-to-date increases are attributed to
increased generation compared to the same periods in 1997 due to higher demands
for energy.
Purchased power from non-affiliates. The increases in purchased power from
non-affiliates are attributed to MISSISSIPPI exercising its option to purchase
summer peaking capacity, increased territorial demand and higher-than-normal
energy prices.
Other operation expense. The current quarter and year-to-date increases in
other operation expense were primarily due to the amortization of the work force
reduction plan. See Note (G) in the "Notes to the Condensed Financial
Statements", herein for further details.
Interest on notes payable. The increases for the current quarter and
year-to-date result from increased short-term notes payable when compared to the
same periods in 1997.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from energy sales growth to a less regulated, more competitive
environment. 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.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional information, see Item 1 - BUSINESS - "Competition" and Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of
MISSISSIPPI in the Form 10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be recovered. MISSISSIPPI's 1998 ECO Plan filing was approved, as
filed, by the Mississippi PSC on March 17, 1998 and resulted in a small decrease
in customer prices. For additional information about the Clean Air Act and other
environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Environmental Matters" of MISSISSIPPI in the Form 10-K.
MISSISSIPPI has assessed and developed a detailed strategy to prevent or at
least minimize problems related to the year 2000 issue. For additional
information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future
Earnings Potential" of MISSISSIPPI in the Form 10-K.
In March 1998, the American Institute of Certified Public Accountants
issued a new Statement of Position (SOP), Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The SOP, which must be adopted
by 1999, requires capitalization of certain costs of internal-use software.
Adoption of the SOP is not expected to have a material impact on the financial
statements.
52
<PAGE>
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. This statement is
effective for fiscal years beginning after June 15, 1999. MISSISSIPPI is in the
process of evaluating the impact of this statement on its financial statements.
Reference is made to Notes (B), (F) and (G) in the "Notes to the Condensed
Financial Statements" herein for discussion of various contingencies and other
matters which may affect future earnings potential.
FINANCIAL CONDITION
Overview
Major changes in MISSISSIPPI's financial condition during the first six months
of 1998 included the addition of approximately $31.8 million to utility plant.
The funds for these additions and other capital requirements were derived
primarily from operations. See MISSISSIPPI's Condensed Statements of Cash Flows
for further details.
Financing Activities
During the first six months of 1998, maturities and redemptions of preferred
stock and first mortgage bonds for MISSISSIPPI totaled $35.0 million.
In May 1998, MISSISSIPPI sold through public authorities, $13.52 million of
variable rate pollution control revenue refunding bonds due May 1, 2028. The
proceeds were used to redeem $13.0 million of the 6.20% Series pollution control
revenue bonds and to pay certain costs of issuance. Also in May 1998,
MISSISSIPPI sold $35.0 million of its Series B 6.05% Senior Notes due May 1,
2003 and $55.0 million of its Series A 6.75% Senior Insured Quarterly Notes due
June 30, 2038. The proceeds from these sales were used to repay MISSISSIPPI's
outstanding short-term indebtedness and for other general corporate purposes.
For additional information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Sources of Capital" of MISSISSIPPI in the Form 10-K.
MISSISSIPPI plans to continue, to the extent possible, a program to retire
higher-cost debt and preferred stock and replace these securities with
lower-cost capital.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of
MISSISSIPPI under "Capital Requirements for Construction," "Environmental
Matters" and "Other Capital Requirements" in the Form 10-K for a description of
MISSISSIPPI's capital requirements for its construction program, environmental
compliance efforts, sinking fund requirements and maturities of long-term debt.
53
<PAGE>
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Sources of Capital
In addition to the financing activities previously described herein, MISSISSIPPI
plans to obtain the funds required for construction and other purposes from
sources similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. See Item 1
- - - - - - - - BUSINESS - "Financing Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, MISSISSIPPI had at June
30, 1998, approximately $31.1 million of cash and cash equivalents and
approximately $76.3 million of unused committed credit arrangements with banks
(including $10.9 million of such arrangements under which borrowings may be made
only to fund purchase obligations relating to variable rate pollution control
bonds). At June 30, 1998, MISSISSIPPI had no short-term notes payable
outstanding. Management believes that the need for working capital can be
adequately met by utilizing lines of credit without maintaining large cash
balances.
54
<PAGE>
SAVANNAH ELECTRIC
AND
POWER COMPANY
55
<PAGE>
<TABLE>
<CAPTION>
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Revenues $ 68,482 $ 52,298 $ 116,691 $ 95,185
Revenues from affiliates 1,134 218 1,306 276
----------- ---------- ------------ -----------
Total operating revenues 69,616 52,516 117,997 95,461
----------- ---------- ------------ -----------
OPERATING EXPENSES:
Operation--
Fuel 15,446 6,937 21,254 10,454
Purchased power from non-affiliates 2,723 277 3,936 682
Purchased power from affiliates 9,216 10,748 19,380 20,030
Other 11,692 10,968 22,837 21,642
Maintenance 4,884 3,518 8,562 6,560
Depreciation and amortization 5,258 5,028 10,516 10,020
Taxes other than income taxes 3,128 2,774 5,966 5,615
Federal and state income taxes 5,663 3,640 7,726 5,715
----------- ---------- ------------ -----------
Total operating expenses 58,010 43,890 100,177 80,718
----------- ---------- ------------ -----------
OPERATING INCOME 11,606 8,626 17,820 14,743
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 24 60 45 205
Interest income 67 122 135 124
Other, net (441) 93 (870) (91)
Income taxes applicable to other income 145 (83) 278 (13)
----------- ---------- ------------ -----------
INCOME BEFORE INTEREST CHARGES 11,401 8,818 17,408 14,968
----------- ---------- ------------ -----------
INTEREST CHARGES:
Interest on long-term debt 2,608 2,841 5,318 5,612
Allowance for debt funds used during construction (22) (61) (48) (141)
Interest on notes payable 112 60 138 120
Amortization of debt discount, premium, and expense, net 220 185 407 366
Other interest charges 95 76 198 168
----------- ---------- ------------ -----------
Net interest charges 3,013 3,101 6,013 6,125
----------- ---------- ------------ -----------
NET INCOME 8,388 5,717 11,395 8,843
DIVIDENDS ON PREFERRED STOCK 581 581 1,162 1,162
----------- ---------- ------------ -----------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 7,807 $ 5,136 $ 10,233 $ 7,681
=========== ========== ============ ===========
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
56
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Six Months
Ended June 30,
1998 1997
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 11,395 $ 8,843
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 11,348 10,299
Deferred income taxes and investment tax credits, net 3,171 211
Allowance for equity funds used during construction (45) (205)
Other, net (866) 327
Changes in certain current assets and liabilities--
Receivables, net (17,467) 1,829
Inventories 505 1,411
Payables 10,238 (3,161)
Taxes accrued (950) 1,173
Other (1,956) (1,966)
------------- ------------
Net cash provided from operating activities 15,373 18,761
------------- ------------
INVESTING ACTIVITIES:
Gross property additions (8,126) (10,364)
Other (832) (1,508)
------------- ------------
Net cash used for investing activities (8,958) (11,872)
------------- ------------
FINANCING ACTIVITIES:
Proceeds--
Other long-term debt 50,000 13,870
Retirements--
First mortgage bonds (30,000) -
Other long-term debt (20,340) (14,104)
Notes payable, net 10,000 3,000
Payment of preferred stock dividends (1,162) (1,162)
Payment of common stock dividends (11,600) (10,500)
Miscellaneous (2,232) (254)
------------- ------------
Net cash used for financing activities (5,334) (9,150)
------------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,081 (2,261)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,144 5,214
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,225 $ 2,953
============= ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 6,718 $ 6,042
Income taxes 1,786 5,313
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
57
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At June 30,
1998 At December 31,
(Unaudited) 1997
------------- --------------
UTILITY PLANT:
<S> <C> <C>
Plant in service, at original cost $ 766,025 $ 760,694
Less accumulated provision for depreciation 331,821 321,509
------------- ------------
434,204 439,185
Construction work in progress 9,713 7,709
------------- ------------
Total 443,917 446,894
------------- ------------
OTHER PROPERTY AND INVESTMENTS: 1,782 1,783
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents 7,225 6,144
Special deposits - 94
Receivables--
Customer accounts receivable 30,223 21,148
Other accounts and notes receivable 421 720
Affiliated companies 5,057 1,128
Accumulated provision for uncollectible accounts (332) (354)
Fuel cost under recovery 12,528 7,694
Fossil fuel stock, at average cost 5,077 5,205
Materials and supplies, at average cost 6,603 6,980
Prepayments 1,686 5,922
------------- ------------
Total 68,488 54,681
------------- ------------
DEFERRED CHARGES:
Deferred charges related to income taxes 17,198 17,267
Debt issue expense, being amortized 2,238 2,255
Premium on reacquired debt, being amortized 8,963 7,121
Prepaid pension costs 3,903 3,424
Cash surrender value of life insurance for deferred compensation plans 12,130 12,130
Miscellaneous 3,244 1,797
------------- ------------
Total 47,676 43,994
------------- ------------
TOTAL ASSETS $ 561,863 $ 547,352
============= ============
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
58
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At June 30,
1998 At December 31,
(Unaudited) 1997
------------ --------------
CAPITALIZATION:
<S> <C> <C>
Common stock equity--
Common stock (par value $5 per share)--
authorized 16,000,000 shares; outstanding 10,844,635 shares $ 54,223 $ 54,223
Paid-in capital 8,688 8,688
Retained earnings 111,353 112,720
------------ -------------
174,264 175,631
Preferred stock 35,000 35,000
Long-term debt 163,566 142,846
------------ -------------
Total 372,830 353,477
------------ -------------
CURRENT LIABILITIES:
Long-term debt due within one year 704 21,764
Notes payable 10,000 -
Accounts payable--
Affiliated companies 5,025 6,025
Other 18,391 7,862
Customer deposits 5,314 5,541
Taxes accrued--
Federal and state income 94 534
Other 2,281 2,791
Interest accrued 3,787 4,963
Vacation pay accrued 1,949 1,893
Miscellaneous 5,853 9,031
------------ -------------
Total 53,398 60,404
------------ -------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 82,192 80,697
Accumulated deferred investment tax credits 12,275 12,607
Deferred credits related to income taxes 21,409 21,469
Deferred compensation plans 9,501 9,272
Postretirement benefits 6,641 6,011
Miscellaneous 3,617 3,415
------------ -------------
Total 135,635 133,471
------------ -------------
TOTAL CAPITALIZATION AND LIABILITIES $ 561,863 $ 547,352
============ =============
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
59
</TABLE>
<PAGE>
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SECOND QUARTER 1998 vs. SECOND QUARTER 1997
AND
YEAR-TO-DATE 1998 vs. YEAR-TO-DATE 1997
RESULTS OF OPERATIONS
Earnings
SAVANNAH's net income after dividends on preferred stock for the second quarter
and year-to-date 1998 was $7.8 million and $10.2 million, respectively, as
compared to $5.1 million and $7.7 million for the corresponding periods of 1997.
The increases in earnings for the second quarter and year-to-date were due to
increases in operating revenues.
Significant income statement items appropriate for discussion include the
following:
<TABLE>
<CAPTION>
Increase (Decrease)
--------------------------------------------------------------
Second Quarter Year-To-Date
------------------------------- ------------------------------
(in thousands) % (in thousands) %
<S> <C> <C> <C> <C>
Revenues......................................... $16,184 30.9 $21,506 22.6
Fuel expense..................................... 8,509 122.7 10,800 103.3
Purchased power from non-affiliates ............. 2,446 N/M 3,254 477.1
Purchased power from affiliates.................. (1,532) (14.3) (650) (3.2)
Maintenance expense.............................. 1,366 38.8 2,002 30.5
</TABLE>
Revenues. The increases in revenues are attributed to higher territorial
energy sales and non-territorial wholesale energy sales. Territorial revenues
increased by $15.6 million for the second quarter and $20.3 million year-to-date
due to increases in retail energy sales. For the quarter and year-to-date 1998,
retail energy sales increased by 19.0% and 12.6%, respectively, reflecting
hotter-than-normal temperatures as compared to the milder-than-normal
temperatures recorded in the same periods in 1997. Retail revenues, excluding
those revenues which represent the recovery of fuel expense and do not affect
income, increased $7.4 million for the quarter and $8.8 million year-to-date.
Fuel expenses. Second quarter and year-to-date 1998 increases are
attributed to the higher demand for energy during these periods.
Purchased power from non-affiliates. The increase in purchased power from
non-affiliates is primarily attributed to an increase in energy purchases
related to increased power marketing activities, a majority of which were resold
to non-affiliated third parties. These transactions had no significant effect on
net income.
60
<PAGE>
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Purchased power from affiliates. Purchases of energy within the Southern
electric system will vary from period to period depending on demand and the
availability and cost of generating resources at each company. These
transactions do not have a significant impact on earnings.
Maintenance expense. The increases for the current quarter and year-to-date
1998 when compared to the corresponding periods in 1997 are a result of the
Plant Kraft Unit 3 scheduled turbine outage and boiler outages at Plants Kraft
and McIntosh.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from energy sales growth to a less regulated, more competitive
environment.
In June 1998, the Georgia PSC approved and adopted a modified stipulation
between the Georgia PSC and SAVANNAH, resolving the issues in the SAVANNAH
earnings review. See Note (P) in the "Notes to the Condensed Financial
Statements" for additional information.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional information, see Item 1 - BUSINESS - "Competition" and Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SAVANNAH
in the Form 10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset. For additional information about the Clean Air Act and
other environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
"Environmental Matters" of SAVANNAH in the Form 10-K.
SAVANNAH has assessed and developed a detailed strategy to prevent or at
least minimize problems related to the year 2000 issue. For additional
information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future
Earnings Potential" of SAVANNAH in the Form 10-K.
In March 1998, the American Institute of Certified Public Accountants
issued a new Statement of Position (SOP), Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The SOP, which must be adopted
by 1999, requires capitalization of certain costs of internal-use software.
Adoption of the SOP is not expected to have a material impact on the financial
statements.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. This statement is
effective for fiscal years beginning after June 15, 1999. SAVANNAH is in the
process of evaluating the impact of this statement on its financial statements.
Reference is made to Notes (B) and (P) in the "Notes to the Condensed
Financial Statements" herein for discussion of various contingencies and other
matters which may affect future earnings potential.
61
<PAGE>
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
Overview
Major changes in SAVANNAH's financial condition during the first six months of
1998 included the addition of approximately $8.1 million to utility plant. The
funds for these additions and other capital requirements were derived primarily
from operations. See SAVANNAH's Condensed Statements of Cash Flows for further
details.
Financing Activities
During the first half of 1998, maturities and redemptions of first mortgage
bonds by SAVANNAH totaled $30.0 million. In March 1998, SAVANNAH issued $30.0
million of Series A 6 5/8% senior retail intermediate bonds due March 17, 2015.
The proceeds of the sales were used by SAVANNAH to redeem in April 1998 the
$28.9 million outstanding principal amount of its 8.30% Series First Mortgage
Bonds due July 1, 2022.
SAVANNAH plans to continue, to the extent possible, a program to retire
higher-cost debt and replace these obligations with lower-cost capital.
Sources of Capital
SAVANNAH plans to obtain the funds required for construction and other purposes
from sources similar to those used in the past. The amount, type and timing of
any financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. See Item 1
- - - - - - - - BUSINESS - "Financing Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, SAVANNAH had at June 30,
1998, approximately $7.2 million of cash and cash equivalents and approximately
$29.5 million of unused credit arrangements with banks. At June 30, 1998,
SAVANNAH had $10.0 million outstanding of notes payable to banks. Since SAVANNAH
has no major generating plants under construction, management believes that the
need for working capital can be adequately met by utilizing lines of credit.
62
<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
<TABLE>
<CAPTION>
Registrant Applicable Notes
<S> <C>
SOUTHERN A, B, C, D, E, F, G, H, I, J, K, L, M, N, O, Q
ALABAMA A, B, C, F, G, H, J, K
GEORGIA A, B, C, F, G, H, L, M, N, O
GULF A, B, F, G, I
MISSISSIPPI A, B, F, G
SAVANNAH A, B, P
</TABLE>
63
<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 THE CONDENSED FINANCIAL STATEMENTS:
(A) The condensed financial statements of the registrants included herein have
been prepared by each registrant, without audit, pursuant to the rules and
regulations of the SEC. In the opinion of each registrant's management, the
information regarding such registrant furnished herein reflects all
adjustments necessary to present fairly the results for the periods ended
June 30, 1998 and 1997. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although each registrant believes
that the disclosures regarding such registrant are adequate to make the
information presented not misleading. It is suggested that these condensed
financial statements be read in conjunction with the financial statements
and the notes thereto included in each registrant's latest annual report on
Form 10-K. Certain prior period amounts have been reclassified to conform
with current period presentation.
The condensed financial statements of ALABAMA and GEORGIA included
herein have been reviewed by ALABAMA's and GEORGIA's independent public
accountants as set forth in their reports included herein as Exhibit 1 to
ALABAMA's and GEORGIA's condensed financial statements.
(B) SOUTHERN's operating affiliates are subject to the provisions of FASB
Statement No. 71, Accounting for the Effects of Certain Types of
Regulation. In the event that a portion of a company's operations is no
longer subject to these provisions, the company would be required to write
off related unrecoverable regulatory assets and liabilities, and determine
if any other assets have been impaired. For additional information, see
Note 1 to the financial statements of each registrant in Item 8 of the
Form 10-K.
(C) The staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry--including
SOUTHERN's--regarding the recognition, measurement and classification of
decommissioning costs for nuclear generating facilities in the financial
statements. In response to these questions, the FASB has decided to review
the accounting for obligations related to the retirement of long-lived
assets, including nuclear decommissioning. Reference is made to
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of
SOUTHERN, ALABAMA and GEORGIA in Item 7 and Note 1 to the financial
statements of SOUTHERN, ALABAMA and GEORGIA under "Depreciation and
Nuclear Decommissioning" in Item 8 of the Form 10-K.
(D) SOUTHERN engages in price risk management activities. Reference is made to
MANAGEMENT'S DISCUSSION AND ANALYSIS "Derivative Financial Instruments"
and Note 1 to the financial statements of SOUTHERN in Item 8 of the Form
10-K for a discussion of these activities. Activities for non-trading
purposes consist of transactions that are employed to mitigate SOUTHERN's
risk related to interest rate and foreign currency exchange rate
fluctuations. At June 30, 1998, the status of outstanding non-trading
related derivative contracts was as follows:
64
<PAGE>
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
<TABLE>
<CAPTION>
Year of
Maturity or Notional Unrealized
Type Termination Amount Gain (Loss)
(in thousands)
<S> <C> <C> <C>
Interest rate swaps 2002-2016 $995,557 $(51,700)
2001-2012 (pound)600,000 $(55,585)
2002-2007 DM691,000 $(12,230)
Cross currency swaps 2001-2007 (pound)428,800 $3,061
Cross currency swaption 2003 DM570,000 $1,253
(pound) - Denotes British pounds sterling.
DM - Denotes Deutschemark.
</TABLE>
Effective in January 1998, Southern Energy and Vastar Resources, Inc.
combined their energy trading and marketing activities to form a joint
venture. Southern Energy's investment in the joint venture is accounted
for under the equity method of accounting. SOUTHERN and Vastar have
jointly made guarantees to certain counterparties regarding performance of
contractual commitments by the joint venture. At June 30, 1998,
outstanding guarantees related to the estimated fair value of net
contractual commitments were approximately $125 million.
(E) Effective December 31, 1997, SOUTHERN adopted FASB Statement No. 131,
Disclosure about Segments of an Enterprise and Related Information.
SOUTHERN's principal business segment -- or its traditional core
business -- is the five regulated electric utility operating companies
that provide electric service in four southeastern states. The other
reportable business segment is non-traditional energy services
provided by Southern Energy, which develops and manages electricity
and other energy-related projects both in the United States and
abroad. In 1997, non-traditional domestic services included revenues
related to energy trading and marketing. As discussed in Note (D)
above, effective January 1998, that business is accounted for under
the equity method and its revenues are not reflected below for 1998.
Intersegment revenues are not material. Financial data for business
segments for the periods covered in the Form 10-Q are as follows:
<TABLE>
<CAPTION>
Regulated
Domestic Non-Traditional Services All
Electric (Southern Energy) Other Reconciling
Utilities International (Note) Eliminations Consolidated
Domestic Total
------------ -------------------------------- --------- ------------- ---------------
Three Months Ended June 30, 1998: (in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $ 2,431 $ 411 $ 33 $ 444 $ 42 $ (4) $ 2,913
Segment net income (loss) 266 34 1 35 (21) (9) 271
Six Months Ended June 30, 1998:
Operating revenues 4,385 886 67 953 95 (6) 5,427
Segment net income (loss) 456 91 7 98 (24) (18) 512
Total assets at 6/30/98 24,864 9,862 1,689 11,551 1,180 (1,841) 35,754
------------------------------------ ------------ ---------- ---------- ---------- --------- ------------- ---------------
Three Months Ended June 30, 1997:
Operating revenues $ 2,019 $ 390 $ 287 $ 677 $ 23 $ (2) $ 2,717
Segment net income (loss) 222 21 (2) 19 (26) - 215
Six Months Ended June 30, 1997:
Operating revenues 3,926 865 478 1,343 38 (5) 5,302
Segment net income (loss) 410 42 (1) 41 (49) - 402
Total assets at 12/31/97 24,555 9,225 1,832 11,057 1,224 (1,565) 35,271
------------------------------------ ------------ ----------- -------- ---------- --------- -------------- ---------------
</TABLE>
65
<PAGE>
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(Note) The all other category includes parent SOUTHERN, which does not
allocate operating expenses to business segments. Also, this category
includes segments below the quantitative threshold for separate
disclosure. These segments include a wireless communication company and a
developmental company for energy products and services. Non-traditional
services exclude interest expense to parent SOUTHERN.
(F) Reference is made to Notes 3 and 7 to each of the registrant's financial
statements, except SAVANNAH's, in Item 8 of the Form 10-K for a discussion
of the proceedings initiated by the FERC regarding the reasonableness of
the return on common equity on certain of the Southern electric system's
wholesale rate schedules and contracts and a
discussion of the long-term sales agreements. On April 3, 1998, three
customers under the long-term power sales agreements filed a complaint
with the FERC seeking (a) to lower the equity return component in such
agreements from the existing return rate of 13.75% and (b) to unbundle the
transmission component of such agreements and instead take transmission
services under SOUTHERN's open access transmission tariff presently
pending before the FERC. The common equity return under these agreements
is also subject to the ultimate outcome of the pending FERC proceeding
commenced in May 1991 and discussed in Note 3. The final outcome of this
matter cannot now be determined.
(G) Certain of the registrants and other SOUTHERN subsidiaries have instituted
work force reduction programs. The expenses recognized under these
programs and the unamortized balance of expenses deferred under regulatory
orders were as follows: (in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Unamortized Balance
June 30, June 30, at June 30, 1998
----------------------- -------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ALABAMA $5,478 $8,885 $11,454 $17,483 $11,020
GEORGIA 1,856 2,267 1,799 2,871 -
GULF 57 91 2,569 1,242 -
MISSISSIPPI 6,110 51 6,142 104 12,148
SAVANNAH 4 792 16 807 -
Other 143 123 147 47 -
--------- ------- --------- -------- ---------
SOUTHERN
system $13,648 $12,209 $22,127 $22,554 $ 23,168
======== ======== ======== ======== ========
</TABLE>
(H) Reference is made to Note 3 to the financial statements of SOUTHERN,
ALABAMA and GEORGIA in Item 8 of the Form 10-K for information relating to
a settlement agreement entered into between SOUTHERN and the Internal
Revenue Service on certain tax issues for the years 1984 through 1987. The
agreement received final approval by the Joint Congressional Committee on
Taxation in June 1998 and, as a result, ALABAMA and GEORGIA recognized
$11.5 million and $63.7 million, respectively, in interest income in the
second quarter of 1998.
66
<PAGE>
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(I) During the first half of 1998, statutory business trusts, formed by GULF
and Southern Company Capital Funding, Inc. ("Southern Capital"), of which
such companies own all the common securities, issued mandatorily
redeemable preferred or capital securities as follows: (in thousands)
<TABLE>
<CAPTION>
Maturity Date
Company Date of Issue Amount Rate Notes of Notes
<S> <C> <C> <C> <C> <C> <C>
GULF 1/20/98 $45,000 7.00% $46,392 12/31/2037
Southern Capital 6/25/98 $200,000 7 1/8% $206,186 6/30/2028
</TABLE>
Substantially all the assets of each trust are junior subordinated notes
issued by the related company in the respective approximate principal
amounts set forth above. The notes of Southern Capital are guaranteed by
SOUTHERN. GULF and SOUTHERN consider that the mechanisms and obligations
relating to the preferred or capital securities issued for its benefit,
taken together, constitute a full and unconditional guarantee by it of the
respective trusts' payment obligations with respect to the preferred
securities or capital securities.
(J) Reference is made to Note 3 to the financial statements of SOUTHERN and
ALABAMA in Item 8 of the Form 10-K for information relating to retail rate
adjustment procedures.
(K) In 1996, legal actions against ALABAMA were filed in several counties in
Alabama charging ALABAMA with fraud and non-compliance with regulatory
statutes relating to the offer, sale and financing of "extended service
contracts" in connection with the sale of electric appliances. See Note 3
to the financial statements of SOUTHERN and ALABAMA in Item 8 of the Form
10-K for additional information.
(L) Reference is made to Note 3 to the financial statements of SOUTHERN and
GEORGIA in Item 8 of the Form 10-K for information concerning a three-year
accounting order approved by the Georgia PSC effective January 1, 1996.
Under the order, earnings in excess of a 12.5% retail return on common
equity are to be used to accelerate the amortization of regulatory assets
or depreciation of electric plant. Accordingly, for earnings in excess of
the 12.5% return, GEORGIA recorded charges of $135.5 million and $167.5
million for the three months and six months ended June 30, 1998,
respectively (presented in the accompanying financial statements as
depreciation expense of electric plant and as an addition to the reserve
for depreciation).
Further, under the order, GEORGIA filed a general rate case in June 1998.
In its rate case filing, GEORGIA proposes to extend the current accounting
order for three years, with one-third of earnings in excess of a 12.5%
retail return on common equity reducing rates while continuing to apply
the remaining two-thirds to the acceleration of the amortization of
regulatory assets or the depreciation of electric plant. GEORGIA also
proposes a $50.0 million rate reduction for certain small business
customers. A decision is expected by the Georgia PSC by December 1998.
67
<PAGE>
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(M) Reference is made to Note 1 to the financial statements of SOUTHERN and
GEORGIA in Item 8 of the Form 10-K for information relating to Plant
Vogtle phase-in plans resulting from orders of the Georgia PSC. These
Georgia PSC orders provide for the recovery of deferred costs within 10
years. The unamortized balance of these deferred costs at June 30, 1998,
was $34.8 million.
(N) Reference is made to Note 3 to the financial statements of SOUTHERN and
GEORGIA in Item 8 of the Form 10-K for information concerning the recovery
by GEORGIA of its costs associated with the Rocky Mountain pumped storage
hydroelectric plant. On January 14, 1998, the Georgia PSC ordered that
GEORGIA be allowed approximately $108 million of its $143 million
investment in the plant in rate base as of December 31, 1998. GEORGIA has
appealed the Georgia PSC's order to the Superior Court of Fulton County,
Georgia. If such order is ultimately upheld, GEORGIA will be required to
record a charge to earnings currently estimated at approximately $25
million, after taxes. The final outcome of this matter cannot now be
determined. Accordingly, no provision related to the Georgia PSC's
disallowance has been recorded.
(O) Reference is made to Note 3 to the financial statements of SOUTHERN and
GEORGIA in Item 8 of the Form 10-K for information regarding GEORGIA's
designation as a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act and other
environmental contingencies.
(P) On June 10, 1998, the Georgia PSC approved for SAVANNAH a four-year
accounting order. Under this order, SAVANNAH will reduce its Small Business
4 rate by approximately $11.0 million over the four years; expense an
additional $1.95 million for storm damage accrual over 4 years from the
date of this order; accrue $8.0 million in accelerated depreciation on
generating assets, which will be accumulated in a regulatory liability
account; file quarterly surveillance reports and agree not to file an
application to increase its rates except upon significant changes in
economic conditions, capital markets, new laws or regulation or other
reasons, deemed appropriate by the Georgia PSC. Further, the order gives
SAVANNAH discretionary authority to expense an additional accrual to storm
damage reserve up to an annual maximum of $1.5 million from the date of
this order and to accrue additional accelerated depreciation up to a
cumulative cap of $12.0 million over the 4 years from the date of the
order. The accelerated depreciation allowed under the order is to provide
for the mitigation of potentially strandable costs.
(Q) Mobile Energy (a wholly-owned SOUTHERN subsidiary) received notice in May
1998 from a major customer of the customer's intention to close its pulp
mill in Mobile, Alabama, for which Mobile Energy provides electricity,
steam and other services. The closure of the mill will be effective
September 1, 1999. The mill provided approximately 50% of Mobile Energy's
operating revenues for the quarter and six-month period ended June 30, 1998
and for the year ended December 31, 1997. Mobile Energy is evaluating the
announced closure of the mill to determine its options and the potential
impact on its business. In the event that a sufficient alternative revenue
source is not obtained, the mill closure will have a material adverse
effect on Mobile Energy's revenues, and, thereafter, it will not have
sufficient cash flows to pay principal and interest on its senior debt,
including $238 million of first mortgage bonds and $85 million related to
tax-exempt bonds. There can be no assurance that any available alternative
will permit Mobile Energy to pay its debt service. At June 30, 1998, Mobile
Energy had total assets of $396 million and equity of $18 million. The
ultimate outcome of this situation cannot now be determined.
68
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
(1) In August 1998, the U.S. Court of Appeals for the Eleventh
Circuit denied a consumer group's petition for review of the
order of the SEC which in effect permits SOUTHERN to use the
proceeds from financings for investment in "exempt wholesale
generators" and "foreign utility companies" (each as defined in
the Public Utility Holding Company Act of 1935) up to an amount
not exceeding 100% of SOUTHERN's consolidated retained
earnings. See Item 1 - BUSINESS - "Non-Traditional Business" in
the Form 10-K.
(2) Reference is made to the Notes to the Condensed Financial
Statements herein for information regarding certain legal and
administrative proceedings in which SOUTHERN and its reporting
subsidiaries are involved.
Item 4. Submission of Matters to a Vote of Security Holders.
SOUTHERN
SOUTHERN held its annual meeting of stockholders on May 27,
1998. Each nominee for director of SOUTHERN received the
requisite plurality of votes. The vote tabulation was as
follows:
<TABLE>
<CAPTION>
Nominees Shares For Shares Withhold Vote
<S> <C> <C>
John C. Adams 541,643,682 5,590,839
A. D. Correll 541,691,927 5,555,918
A. W. Dahlberg 541,387,609 5,851,914
Paul J. DeNicola 541,550,939 5,688,584
Jack Edwards 535,510,463 11,724,058
H. Allen Franklin 541,551,459 5,683,062
Bruce S. Gordon 541,049,275 6,186,900
L. G. Hardman III 541,613,517 5,654,188
Elmer B. Harris 541,466,352 5,768,170
Zack T. Pate 537,387,707 9,846,814
William J. Rushton, III 541,124,532 6,109,989
Gloria M. Shatto 541,158,880 6,075,641
Gerald J. St. Pe 541,682,142 5,554,032
Herbert Stockham 541,137,839 6,096,682
</TABLE>
69
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.(Continued)
ALABAMA
ALABAMA held its annual common stockholders meeting on April
24, 1998, and the following persons were elected to serve as
directors of ALABAMA:
Whit Armstrong Wallace D. Malone, Jr.
David C. Cooper William V. Muse
A. W. Dahlberg John T. Porter
Peter V. Gregerson, Sr. Robert D. Powers
Bill M. Guthrie Andreas Renschler
Elmer B. Harris C. Dowd Ritter, III
Carl E. Jones, Jr. William J. Rushton, III
Patricia M. King James H. Sanford
James K. Lowder John Cox Webb, IV
All of the 5,608,955 outstanding shares of ALABAMA's common
stock are owned by SOUTHERN and were voted for the election of
such directors.
GEORGIA
By written consent, in lieu of the annual meeting of
stockholders of GEORGIA, effective May 20, 1998, the following
persons were elected to serve as directors of GEORGIA:
Daniel P. Amos James R. Lientz, Jr.
Juanita P. Baranco G. Joseph Prendergast
A. W. Dahlberg Herman J. Russell
William A. Fickling, Jr. Gloria M. Shatto
H. Allen Franklin William Jerry Vereen
L. G. Hardman III Carl Ware
Warren Y. Jobe Thomas R. Williams
All of the 7,761,500 outstanding shares of GEORGIA's common
stock are owned by SOUTHERN and were voted for the election of
such directors.
GULF
By written consent, in lieu of the annual meeting of
stockholders of GULF, effective June 30, 1998, the following
persons were elected to serve as directors of GULF:
Travis J. Bowden W. Deck Hull, Jr.
Paul J. DeNicola Joseph K. Tannehill
Fred C. Donovan Barbara H. Thames
All of the 992,717 outstanding shares of GULF's common stock
are owned by SOUTHERN and were voted for the election of such
directors.
70
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
(Continued)
MISSISSIPPI
MISSISSIPPI held its annual stockholders meeting on April 7,
1998, and the following persons were elected to serve as
directors of MISSISSIPPI:
Paul J. DeNicola Aubrey K. Lucas
Edwin E. Downer George A. Schloegel
Dwight H. Evans Philip J. Terrell
Robert S. Gaddis N. Eugene Warr
Walter H. Hurt, III*
*Mr. Hurt passed away July 14, 1998.
All of the 1,121,000 outstanding shares of MISSISSIPPI's common
stock are owned by SOUTHERN and were voted for the election of
such directors.
SAVANNAH
SAVANNAH held its annual stockholders meeting on May 19, 1998,
and the following persons were elected to serve as directors of
SAVANNAH:
Archie H. Davis G. Edison Holland, Jr.
Paul J. DeNicola Robert B. Miller, III
Walter D. Gnann Arnold M. Tenenbaum
All of the 10,844,635 outstanding shares of SAVANNAH's common
stock are owned by SOUTHERN and were voted for the election of
such directors.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 24 - Powers of Attorney and resolutions.
(Designated in the Form 10-K for the year
ended December 31, 1997,
File Nos. 1-3526, 1-3164, 1-6468, 0-2429, 0-6849 and
1-5072 as Exhibits 24(a), 24(b), 24(c), 24(d), 24(e)
and 24(f), respectively, and incorporated herein by
reference.)
Exhibits 27 - Financial Data Schedules
(a) SOUTHERN
(b) ALABAMA
(c) GEORGIA
(d) GULF
(e) MISSISSIPPI
(f) SAVANNAH
71
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K.
ALABAMA filed a Current Report on Form 8-K dated April 7, 1998:
Items reported: Item 5
Item 7
Financial statements filed: None
MISSISSIPPI filed Current Reports on Form 8-K dated May
7, 1998 and May 14, 1998:
Items reported: Item 5
Item 7
Financial statements filed: None
GULF filed Current Reports on Form 8-K dated June 10, 1998
and June 17, 1998:
Items reported: Item 5
Item 7
Financial statements filed: None
SOUTHERN filed a Current Report on Form 8-K dated June 18, 1998:
Items reported: Item 5
Item 7
Financial statements filed: None
72
<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, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: August 12, 1998
- - - - - - - ------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
ALABAMA POWER COMPANY
By Elmer B. Harris
President and Chief Executive Officer
(Principal Executive Officer)
By William B. Hutchins, III
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: August 12, 1998
73
<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 David M. Ratcliffe
Executive Vice President, Treasurer and Chief Financial Officer
(Principal Financial Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: August 12, 1998
- - - - - - - -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
GULF POWER COMPANY
By Travis J. Bowden
President and Chief Executive Officer
(Principal Executive Officer)
By A. E. Scarbrough
Vice President - Finance
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: August 12, 1998
74
<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
(Principal Executive Officer)
By Michael W. Southern
Vice President, Secretary, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: August 12, 1998
- - - - - - - -------------------------------------------------------------------------------
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 G. Edison Holland, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
By Kirby R. Willis
Vice President, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: August 12, 1998
75
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for June 30, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000092122
<NAME> THE SOUTHERN COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 23,743,355
<OTHER-PROPERTY-AND-INVEST> 5,785,389
<TOTAL-CURRENT-ASSETS> 3,853,622
<TOTAL-DEFERRED-CHARGES> 2,372,588
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 35,754,954
<COMMON> 3,488,988
<CAPITAL-SURPLUS-PAID-IN> 2,418,469
<RETAINED-EARNINGS> 3,895,275
<TOTAL-COMMON-STOCKHOLDERS-EQ> 9,802,732
1,989,675
443,914
<LONG-TERM-DEBT-NET> 6,218,098
<SHORT-TERM-NOTES> 744,809
<LONG-TERM-NOTES-PAYABLE> 4,577,159
<COMMERCIAL-PAPER-OBLIGATIONS> 1,094,131
<LONG-TERM-DEBT-CURRENT-PORT> 553,761
8,661
<CAPITAL-LEASE-OBLIGATIONS> 134,349
<LEASES-CURRENT> 4,624
<OTHER-ITEMS-CAPITAL-AND-LIAB> 10,183,041
<TOT-CAPITALIZATION-AND-LIAB> 35,754,954
<GROSS-OPERATING-REVENUE> 5,427,096
<INCOME-TAX-EXPENSE> 300,183
<OTHER-OPERATING-EXPENSES> 4,188,089
<TOTAL-OPERATING-EXPENSES> 4,488,272
<OPERATING-INCOME-LOSS> 938,824
<OTHER-INCOME-NET> 187,757
<INCOME-BEFORE-INTEREST-EXPEN> 1,126,581
<TOTAL-INTEREST-EXPENSE> 601,041
<NET-INCOME> 525,540
13,065
<EARNINGS-AVAILABLE-FOR-COMM> 512,475
<COMMON-STOCK-DIVIDENDS> 466,072
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 1,096,656
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for June 30, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000003153
<NAME> ALABAMA POWER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 7,185,415
<OTHER-PROPERTY-AND-INVEST> 269,106
<TOTAL-CURRENT-ASSETS> 933,292
<TOTAL-DEFERRED-CHARGES> 717,183
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 9,104,996
<COMMON> 224,358
<CAPITAL-SURPLUS-PAID-IN> 1,334,744
<RETAINED-EARNINGS> 1,199,270
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,758,372
297,000
255,512
<LONG-TERM-DEBT-NET> 2,140,037
<SHORT-TERM-NOTES> 30,000
<LONG-TERM-NOTES-PAYABLE> 583,800
<COMMERCIAL-PAPER-OBLIGATIONS> 307,520
<LONG-TERM-DEBT-CURRENT-PORT> 106,790
0
<CAPITAL-LEASE-OBLIGATIONS> 5,593
<LEASES-CURRENT> 1,002
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,619,370
<TOT-CAPITALIZATION-AND-LIAB> 9,104,996
<GROSS-OPERATING-REVENUE> 1,580,220
<INCOME-TAX-EXPENSE> 98,653
<OTHER-OPERATING-EXPENSES> 1,172,110
<TOTAL-OPERATING-EXPENSES> 1,270,763
<OPERATING-INCOME-LOSS> 309,457
<OTHER-INCOME-NET> 23,475
<INCOME-BEFORE-INTEREST-EXPEN> 332,932
<TOTAL-INTEREST-EXPENSE> 165,519
<NET-INCOME> 167,413
6,622
<EARNINGS-AVAILABLE-FOR-COMM> 160,791
<COMMON-STOCK-DIVIDENDS> 180,900
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 291,735
<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 June 30, 1998, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 9,828,795
<OTHER-PROPERTY-AND-INVEST> 310,204
<TOTAL-CURRENT-ASSETS> 1,235,645
<TOTAL-DEFERRED-CHARGES> 1,108,473
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 12,483,117
<COMMON> 344,250
<CAPITAL-SURPLUS-PAID-IN> 1,930,239
<RETAINED-EARNINGS> 1,724,136
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,998,625
689,250
116,568
<LONG-TERM-DEBT-NET> 2,897,241
<SHORT-TERM-NOTES> 151,850
<LONG-TERM-NOTES-PAYABLE> 145,000
<COMMERCIAL-PAPER-OBLIGATIONS> 224,035
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 86,065
<LEASES-CURRENT> 412
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,174,071
<TOT-CAPITALIZATION-AND-LIAB> 12,483,117
<GROSS-OPERATING-REVENUE> 2,210,457
<INCOME-TAX-EXPENSE> 178,643
<OTHER-OPERATING-EXPENSES> 1,666,849
<TOTAL-OPERATING-EXPENSES> 1,845,492
<OPERATING-INCOME-LOSS> 364,965
<OTHER-INCOME-NET> 25,218
<INCOME-BEFORE-INTEREST-EXPEN> 390,183
<TOTAL-INTEREST-EXPENSE> 143,729
<NET-INCOME> 246,454
3,864
<EARNINGS-AVAILABLE-FOR-COMM> 242,590
<COMMON-STOCK-DIVIDENDS> 264,400
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 516,901
<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 June 30, 1998, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000044545
<NAME> GULF POWER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,049,473
<OTHER-PROPERTY-AND-INVEST> 637
<TOTAL-CURRENT-ASSETS> 171,402
<TOTAL-DEFERRED-CHARGES> 72,021
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,293,533
<COMMON> 38,060
<CAPITAL-SURPLUS-PAID-IN> 218,450
<RETAINED-EARNINGS> 163,326
<TOTAL-COMMON-STOCKHOLDERS-EQ> 419,836
85,000
5,025
<LONG-TERM-DEBT-NET> 247,187
<SHORT-TERM-NOTES> 14,000
<LONG-TERM-NOTES-PAYABLE> 97,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 30,000
8,661
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 386,824
<TOT-CAPITALIZATION-AND-LIAB> 1,293,533
<GROSS-OPERATING-REVENUE> 318,080
<INCOME-TAX-EXPENSE> 13,640
<OTHER-OPERATING-EXPENSES> 265,461
<TOTAL-OPERATING-EXPENSES> 279,101
<OPERATING-INCOME-LOSS> 38,979
<OTHER-INCOME-NET> (789)
<INCOME-BEFORE-INTEREST-EXPEN> 38,190
<TOTAL-INTEREST-EXPENSE> 17,555
<NET-INCOME> 20,635
418
<EARNINGS-AVAILABLE-FOR-COMM> 20,217
<COMMON-STOCK-DIVIDENDS> 38,200
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 50,243
<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 June 30, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000066904
<NAME> MISSISSIPPI POWER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,008,838
<OTHER-PROPERTY-AND-INVEST> 649
<TOTAL-CURRENT-ASSETS> 150,149
<TOTAL-DEFERRED-CHARGES> 57,269
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,216,905
<COMMON> 37,691
<CAPITAL-SURPLUS-PAID-IN> 179,715
<RETAINED-EARNINGS> 167,017
<TOTAL-COMMON-STOCKHOLDERS-EQ> 384,423
35,000
31,809
<LONG-TERM-DEBT-NET> 172,505
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 170,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 40,020
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 383,148
<TOT-CAPITALIZATION-AND-LIAB> 1,216,905
<GROSS-OPERATING-REVENUE> 278,768
<INCOME-TAX-EXPENSE> 14,935
<OTHER-OPERATING-EXPENSES> 228,343
<TOTAL-OPERATING-EXPENSES> 243,278
<OPERATING-INCOME-LOSS> 35,490
<OTHER-INCOME-NET> 772
<INCOME-BEFORE-INTEREST-EXPEN> 36,262
<TOTAL-INTEREST-EXPENSE> 13,163
<NET-INCOME> 23,099
999
<EARNINGS-AVAILABLE-FOR-COMM> 22,100
<COMMON-STOCK-DIVIDENDS> 25,500
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 34,925
<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 June 30, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000086940
<NAME> SAVANNAH ELECTRIC AND POWER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 443,917
<OTHER-PROPERTY-AND-INVEST> 1,782
<TOTAL-CURRENT-ASSETS> 68,488
<TOTAL-DEFERRED-CHARGES> 47,676
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 561,863
<COMMON> 54,223
<CAPITAL-SURPLUS-PAID-IN> 8,688
<RETAINED-EARNINGS> 111,353
<TOTAL-COMMON-STOCKHOLDERS-EQ> 174,264
0
35,000
<LONG-TERM-DEBT-NET> 97,955
<SHORT-TERM-NOTES> 10,000
<LONG-TERM-NOTES-PAYABLE> 60,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 5,611
<LEASES-CURRENT> 704
<OTHER-ITEMS-CAPITAL-AND-LIAB> 178,329
<TOT-CAPITALIZATION-AND-LIAB> 561,863
<GROSS-OPERATING-REVENUE> 117,997
<INCOME-TAX-EXPENSE> 7,726
<OTHER-OPERATING-EXPENSES> 92,451
<TOTAL-OPERATING-EXPENSES> 100,177
<OPERATING-INCOME-LOSS> 17,820
<OTHER-INCOME-NET> (412)
<INCOME-BEFORE-INTEREST-EXPEN> 17,408
<TOTAL-INTEREST-EXPENSE> 6,013
<NET-INCOME> 11,395
1,162
<EARNINGS-AVAILABLE-FOR-COMM> 10,233
<COMMON-STOCK-DIVIDENDS> 11,600
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 15,373
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
