<PAGE>
<TABLE>
===================================================================================================================
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, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____to_____
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
<S> <C> <C>
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, 1999
<S> <C> <C>
The Southern Company Par Value $5 Per Share 683,159,074
Alabama Power Company Par Value $40 Per Share 5,608,955
Georgia Power Company No Par Value 7,761,500
Gulf Power Company No Par Value 992,717
Mississippi Power Company Without Par Value 1,121,000
Savannah Electric and Power Company Par Value $5 Per Share 10,844,635
</TABLE>
This combined Form 10-Q is separately filed by The Southern Company,
Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi
Power Company and Savannah Electric and Power Company. Information contained
herein relating to any individual company is filed by such company on its own
behalf. Each company makes no representation as to information relating to the
other companies.
<PAGE>
<TABLE>
<CAPTION>
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 1999
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
Condensed Consolidated Statements of Comprehensive Income and
Accumulated Other Comprehensive Income.......................................................... 10
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 11
Alabama Power Company
Condensed Statements of Income..................................................................... 21
Condensed Statements of Cash Flows................................................................. 22
Condensed Balance Sheets........................................................................... 23
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 25
Exhibit 1 - Report of Independent Public Accountants............................................... 29
Georgia Power Company
Condensed Statements of Income..................................................................... 31
Condensed Statements of Cash Flows................................................................. 32
Condensed Balance Sheets........................................................................... 33
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 35
Exhibit 1 - Report of Independent Public Accountants............................................... 40
Gulf Power Company
Condensed Statements of Income..................................................................... 42
Condensed Statements of Cash Flows................................................................. 43
Condensed Balance Sheets........................................................................... 44
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 46
Mississippi Power Company
Condensed Statements of Income..................................................................... 51
Condensed Statements of Cash Flows................................................................. 52
Condensed Balance Sheets........................................................................... 53
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 55
Savannah Electric and Power Company
Condensed Statements of Income..................................................................... 60
Condensed Statements of Cash Flows................................................................. 61
Condensed Balance Sheets........................................................................... 62
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 64
Notes to the Condensed Financial Statements........................................................... 67
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................................ 68
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................... 73
Item 2. Changes in Securities..................................................................................... Inapplicable
Item 3. Defaults Upon Senior Securities........................................................................... Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders....................................................... 73
Item 5. Other Information......................................................................................... Inapplicable
Item 6. Exhibits and Reports on Form 8-K.......................................................................... 75
Signatures ............................................................................................... 76
</TABLE>
3
<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, 1998
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.
including SOUTHERN subsidiaries managed or controlled by Southern
Energy
SOUTHERN system............................. SOUTHERN, affiliates, Southern Energy, and other subsidiaries
SWEB........................................ South Western Electricity plc (United Kingdom)
TVA......................................... Tennessee Valley Authority
</TABLE>
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;
challenges related to Year 2000 readiness; 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.
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,
------------------------------- ------------------------------
1999 1998 1999 1998
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATING REVENUES $2,791,080 $2,913,381 $5,232,645 $5,408,258
-------------- --------------- -------------- --------------
OPERATING EXPENSES:
Operation--
Fuel 656,890 616,504 1,169,356 1,090,832
Purchased power 244,152 302,978 518,578 610,977
Other 518,564 533,114 1,005,633 993,683
Maintenance 233,945 234,681 455,231 434,669
Depreciation and amortization 325,163 434,201 640,244 766,286
Taxes other than income taxes 145,060 143,159 291,322 290,491
Income taxes 159,895 158,070 268,503 293,992
-------------- --------------- -------------- --------------
Total operating expenses 2,283,669 2,422,707 4,348,867 4,480,930
-------------- --------------- -------------- --------------
OPERATING INCOME 507,411 490,674 883,778 927,328
OTHER INCOME:
Equity in earnings of unconsolidated subsidiaries 48,242 10,640 142,923 45,136
Interest income 40,142 113,508 69,628 151,413
Other, net 10,954 (11,409) 37,666 1,782
Income taxes applicable to other income 7,306 (6,102) (8,854) 922
-------------- --------------- -------------- --------------
INCOME BEFORE INTEREST CHARGES 614,055 597,311 1,125,141 1,126,581
-------------- --------------- -------------- --------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 164,355 178,472 330,708 352,749
Interest on notes payable 44,058 32,534 71,515 61,436
Amortization of debt discount, premium and expense, net 9,991 33,515 19,011 40,472
Other interest charges 16,056 26,900 29,253 46,008
Minority interests in subsidiaries 14,841 13,123 36,184 29,710
Distributions on capital and preferred
securities of subsidiary companies 46,181 35,569 89,948 70,666
Preferred dividends of subsidiary companies 4,588 6,425 10,221 13,065
-------------- --------------- -------------- --------------
Interest charges and other, net 300,070 326,538 586,840 614,106
-------------- --------------- -------------- --------------
CONSOLIDATED NET INCOME $ 313,985 $ 270,773 $ 538,301 $ 512,475
============== =============== ============== ==============
AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (Thousands) 693,465 697,659 695,996 696,355
BASIC AND DILUTED EARNINGS
PER SHARE OF COMMON STOCK $0.45 $0.39 $0.77 $0.74
CASH DIVIDENDS PAID PER SHARE $0.335 $0.335 $0.67 $0.67
OF COMMON STOCK
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
</TABLE>
6
<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,
-----------------------------------
1999 1998
--------------- ---------------
OPERATING ACTIVITIES:
<S> <C> <C>
Consolidated net income $538,301 $512,475
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization 701,860 880,545
Deferred income taxes and investment tax credits 79,902 (25,900)
Gain on asset sales (9,278) (32,168)
Equity in earnings of unconsolidated subsidiaries (142,910) (43,571)
Other, net 62,301 64,349
Changes in certain current assets and liabilities
excluding effects from acquisitions --
Receivables, net (67,533) (147,655)
Special deposits-other 2,746 2,897
Fossil fuel stock (94,238) (57,242)
Materials and supplies (4,456) 6,481
Prepayments (21,383) (49,494)
Accounts payable (287,931) (214,387)
Taxes accrued 74,338 165,187
Other (3,749) 35,139
--------------- ---------------
Net cash provided from operating activities 827,970 1,096,656
--------------- ---------------
INVESTING ACTIVITIES:
Gross property additions (1,060,446) (957,924)
Southern Energy business acquisitions, net of cash acquired (1,476,990) (199,526)
Sales of property 9,586 186,577
Other (95,875) (21,407)
--------------- ---------------
Net cash used for investing activities (2,623,725) (992,280)
--------------- ---------------
FINANCING ACTIVITIES:
Proceeds--
Common stock 23,748 111,872
Capital and preferred securities 250,000 245,000
Pollution control obligations 339,650 210,300
Other long-term debt 585,265 1,073,532
Notes receivable 195,000 182,792
Retirements/repurchases--
Common stock repurchased (250,921) -
Preferred stock (85,732) (40,771)
First mortgage bonds (524,800) (502,795)
Pollution control obligations (51,000) (102,990)
Other long-term debt (347,281) (173,989)
Notes receivable (64,634) (79,000)
Special deposits-redemption funds (288,564) (90,707)
Notes payable, net 2,117,626 (323,463)
Payment of common stock dividends (467,324) (466,072)
Miscellaneous (57,861) (61,808)
--------------- ---------------
Net cash provided from (used for) financing activities 1,373,172 (18,099)
--------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (422,583) 86,277
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 871,353 600,820
=============== ===============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $448,770 $687,097
=============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $489,072 $503,311
Income taxes $139,130 $238,014
Southern Energy business acquisitions--
Fair value of assets acquired $1,509,815 $199,526
Less cash paid for common stock 1,476,990 199,526
=============== ===============
Liabilities assumed $32,825 -
=============== ===============
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At June 30,
1999 At December 31,
(Unaudited) 1998
---------------- ----------------
UTILITY PLANT:
<S> <C> <C>
Plant in service $36,201,673 $35,185,013
Less accumulated provision for depreciation 13,703,547 13,239,140
---------------- ----------------
22,498,126 21,945,873
Nuclear fuel, at amortized cost 207,407 216,744
Construction work in progress 2,187,583 1,782,482
---------------- ----------------
Total 24,893,116 23,945,099
---------------- ----------------
OTHER PROPERTY AND INVESTMENTS:
Equity investments in unconsolidated subsidiaries 1,518,768 1,548,951
Property rights, net of accumulated amortization
of $188,552 at June 30, 1999 and $169,339 at December 31, 1998 1,199,509 1,184,734
Goodwill, net of accumulated amortization
of $130,156 at June 30, 1999 and $105,755 at December 31, 1998 1,943,362 1,949,213
Other Intangibles, net of accumulated amortization
of $8,122 at June 30, 1999 and $791 at December 31, 1998 601,881 308,009
Nuclear decommissioning trusts 598,148 516,719
Miscellaneous 729,222 643,280
---------------- ----------------
Total 6,590,890 6,150,906
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 448,770 871,353
Special deposits 326,104 86,592
Receivables, less accumulated provisions for uncollectible accounts
of $93,306 at June 30, 1999 and $112,511 at December 31, 1998 1,731,996 1,797,913
Fossil fuel stock, at average cost 379,071 251,974
Materials and supplies, at average cost 539,442 515,715
Prepayments 126,348 101,843
Vacation pay deferred 79,829 80,752
---------------- ----------------
Total 3,631,560 3,706,142
---------------- ----------------
DEFERRED CHARGES AND OTHER ASSETS:
Deferred charges related to income taxes 1,016,448 1,035,724
Prepaid pension costs 539,808 489,572
Debt expense, being amortized 134,348 129,257
Premium on reacquired debt, being amortized 301,290 294,055
Miscellaneous 462,304 440,754
---------------- ----------------
Total 2,454,198 2,389,362
---------------- ----------------
TOTAL ASSETS $37,569,764 $36,191,509
================ ================
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At June 30,
1999 At December 31,
(Unaudited) 1998
---------------- ----------------
CAPITALIZATION:
<S> <C> <C>
Common stock, par value $5 per share --
Authorized -- 1 billion shares
Issued -- June 30, 1999: 700,617,076 shares;
-- December 31, 1998: 699,772,723 shares $3,503,085 $3,498,864
Paid-in capital 2,480,150 2,462,116
Treasury, at cost -- June 30, 1999: 11,105,556 shares;
-- December 31, 1998: 2,025,536 shares (307,595) (57,863)
Retained earnings 3,949,201 3,878,332
Accumulated other comprehensive income (100,294) 15,400
---------------- ----------------
9,524,547 9,796,849
Preferred stock of subsidiaries 369,008 369,084
Company or subsidiary obligated mandatorily redeemable
capital and preferred securities 2,425,120 2,179,440
Long-term debt 10,264,011 10,471,692
---------------- ----------------
Total 22,582,686 22,817,065
---------------- ----------------
CURRENT LIABILITIES:
Amount of securities due within one year 1,144,605 1,525,596
Notes payable 4,001,233 1,827,808
Accounts payable 698,153 1,026,869
Customer deposits 129,558 125,078
Taxes accrued--
Income taxes 147,458 49,923
Other 256,074 299,051
Interest accrued 232,400 233,355
Vacation pay accrued 112,751 111,611
Miscellaneous 481,387 542,836
---------------- ----------------
Total 7,203,619 5,742,127
---------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 4,429,055 4,480,970
Deferred credits related to income taxes 690,286 714,665
Accumulated deferred investment tax credits 708,403 723,393
Employee benefits provisions 516,081 473,734
Minority interests in subsidiaries 580,783 535,145
Prepaid capacity revenues 88,400 96,080
Department of Energy assessments 64,191 64,191
Disallowed Plant Vogtle capacity buyback costs 53,705 54,458
Storm damage reserves 25,586 23,980
Miscellaneous 626,969 465,701
---------------- ----------------
Total 7,783,459 7,632,317
---------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES $37,569,764 $36,191,509
================ ================
The accompanying notes as they relate to SOUTHERN are an integral part of these condensed statements.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Consolidated net income $313,985 $270,773 $538,301 $512,475
Other comprehensive income:
Foreign currency translation adjustments (13,853) (124) (177,991) 2,998
Less applicable income taxes (4,848) (43) (62,297) 1,049
-------------- -------------- -------------- --------------
CONSOLIDATED COMPREHENSIVE INCOME $304,980 $270,692 $422,607 $514,424
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME
(Stated in Thousands of Dollars)
At June 30, At December 31,
1999 1998
---------------- --------------
(Unaudited)
<S> <C> <C>
Balance at beginning of period $ 15,400 $ 7,176
Change in current period (115,694) 8,224
-------------- --------------
BALANCE AT END OF PERIOD $(100,294) $15,400
============== ==============
</TABLE>
10
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SECOND QUARTER 1999 vs. SECOND QUARTER 1998
AND
YEAR-TO-DATE 1999 vs. YEAR-TO-DATE 1998
RESULTS OF OPERATIONS
SOUTHERN's traditional 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.
Earnings
SOUTHERN's consolidated net income for the second quarter
and year-to-date 1999 was $314 million ($0.45 per share) and $538 million ($0.77
per share), respectively, compared to $270 million ($0.39 per share) and $512
million ($0.74 per share) for the corresponding periods of 1998. Earnings for
the traditional business were relatively flat in the second quarter.
Year-to-date earnings for the traditional business were down due primarily to
mild weather. Earnings for the non-traditional business rose primarily due to
profits from significant new investments in power-generation businesses in New
England and California, improved performance and continued growth of Southern
Company Energy Marketing's trading business and increased profitability from
Southern Energy's Asian business units.
<TABLE>
<CAPTION>
Significant income statement items appropriate for discussion include the following:
Increase (Decrease)
---------------------------------------------------------------
Second Quarter Year-To-Date
------------------------------- -------------------------------
(in thousands) % (in thousands) %
<S> <C> <C> <C> <C>
Operating revenues............................... $(122,301) (4.2) $(175,613) (3.2)
Fuel expense..................................... 40,386 6.6 78,524 7.2
Purchased power expense.......................... (58,826) (19.4) (92,399) (15.1)
Depreciation and amortization expense............ (109,038) (25.1) (126,042) (16.4)
Equity in earnings of unconsolidated
subsidiaries.................................. 37,602 353.4 97,787 216.6
Interest income.................................. (73,366) (64.6) (81,785) (54.0)
Other, net....................................... 22,363 196.0 35,884 N/M
Interest on notes payable........................ 11,524 35.4 10,079 16.4
Amortization of debt discount, premium and
expense, net.................................. (23,524) (70.2) (21,461) (53.0)
Other interest charges........................... (10,844) (40.3) (16,755) (36.4)
</TABLE>
N/M - Not meaningful
11
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Operating revenues. Operating revenues for the traditional business for the
second quarter and year-to-date 1999 decreased $188 million or 7.7% and $260
million or 5.9%, respectively, when compared to the corresponding periods of
1998. Traditional business revenues decreased for this second quarter and
year-to-date 1999 due primarily to mild weather which affected retail energy
sales and a retail rate reduction ordered by the Georgia PSC which affected
GEORGIA's revenues. Retail revenues, excluding fuel and any demand-side program
revenues which generally do not affect income, decreased $147 million for the
second quarter and $192 million year-to-date 1999. Operating revenues for
Southern Energy increased approximately $59 million or 13.3% and $72 million or
7.6%, respectively, during the second quarter and year-to-date 1999 when
compared to the corresponding periods in 1998. The increases in Southern
Energy's operating revenues are primarily attributed to its recent investments
in power-generation businesses in New England and California, which were
partially offset by a decrease in revenues at SWEB and the deconsolidation of
Mobile Energy. Effective with the bankruptcy filing in January 1999, Mobile
Energy is accounted for under the equity method, rather than being consolidated
as before. See Note (O) in the "Notes to the Condensed Financial Statements"
herein for further information regarding Mobile Energy. Reference is also made
to Item 1 - BUSINESS - "Non-Traditional Business" and Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SOUTHERN in the Form
10-K.
Fuel expense. The increases in this expense for the current quarter and
year-to-date 1999 are attributed to the acquisitions of power-generating
businesses in New England and California.
Purchased power expense. Purchased power expense for the traditional
business fell approximately $19 million or 18.1% and $45 million or 25.6%,
respectively, for the second quarter and year-to-date 1999. The decrease in
these expenses for the traditional business is mainly attributed to a decrease
in energy purchases related to power marketing activities during this second
quarter and year-to-date 1999 when compared to the same periods in 1998. For the
non-traditional business, these expenses decreased $40 million or 20.1% for the
quarter and $47 million or 10.8% year-to-date due mainly to a decrease in
purchased power at SWEB.
Depreciation and amortization expense. These decreases for the second
quarter and year-to-date 1999 when compared to the corresponding periods in 1998
are primarily attributed to higher depreciation charges recognized in 1998 under
the prior accounting order and the completion in 1998 of the amortization of
deferred Plant Vogtle costs. Under GEORGIA's new order, fixed rate reductions
and accelerated amortization are being recognized ratably throughout 1999.
During 1998, variable accelerated depreciation recorded under the previous
accounting order was primarily recognized during the higher revenue months.
Equity in earnings of unconsolidated subsidiaries. The second quarter
increase resulted from the continued improved profitability of Shajiao C
operations in China and Southern Company Energy Marketing. The year-to-date
increase in this item also reflects the $54 million settlement of Southern
Energy's claims against a contractor relating to the Shajiao C construction
project and the improvement in profitability of the Shajiao C operations. The
amount of the settlement of contractor claims was partially offset by other
related expenses and income taxes included in other income accounts.
Interest income. Second quarter and year-to-date decreases are directly
related to the 1998 settlement of tax issues between SOUTHERN and the Internal
Revenue Service.
Other, net. The changes in this item for the second quarter and
year-to-date are mainly due to reduced donations and contributions in these
periods when compared to the same periods in 1998.
12
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Interest on notes payable. The second quarter and year-to-date 1999
increases are attributed to the non-traditional business. These amounts
increased due to higher outstanding debt associated with Southern Energy's
acquisitions in late-1998 and the first half of 1999.
Amortization of debt discount, premium and expense, net. These decreases
are related to accelerated amortization in 1998 of premiums incurred to
refinance high-cost debt.
Other interest charges. These charges decreased in the second quarter and
year-to-date 1999 when compared to the same periods in 1998 due to the
recognition in 1998 of increased interest related to tax issues.
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 weather to energy sales growth to a less regulated, more
competitive environment, with non-traditional business becoming more
significant. For additional 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.
The U.S. Environmental Protection Agency is conducting an industry-wide
investigation concerning the compliance status of certain coal-fired generating
facilities, including certain units of the SOUTHERN system, under the new source
review provisions of the Clean Air Act. Although the outcome of this matter
cannot now be determined, if adverse it could result in substantial penalties
and additional capital costs.
In April 1999, SOUTHERN, through its subsidiary Southern Energy, completed
the purchase of 3,065 megawatts of generating assets in California from Pacific
Gas & Electric for approximately $801 million.
In June 1999, SOUTHERN, through its subsidiary Southern Energy, completed
its $484 million acquisition of 1,776 megawatts of generating capacity from
Orange and Rockland Utilities, Inc. and Consolidated Edison Company of New York.
Also, in June 1999, Southern Energy announced that it signed an agreement to
sell SWEB's supply business to London Electricity for $256 million or (pound)160
million and the assumption of certain liabilities. Further, Southern Energy
acquired a 9.99% interest in Shandong International Power Development Company
Limited for $104 million.
For information relating to Year 2000 readiness, see "YEAR 2000 READINESS"
below.
13
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The FASB issued Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, which was originally to be adopted by the year 2000.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In June 1999, the FASB issued Statement
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133, which amends FASB Statement No.
133 to be effective for all fiscal years beginning after June 15, 2000 (January
1, 2001 for companies with calendar-year fiscal years). SOUTHERN has not yet
quantified the impact of adopting this statement on its financial statements;
however, the adoption could increase volatility in earnings and other
comprehensive income.
Reference is made to Notes (B) through (F), (H) through (M), (O) and (P) in
the "Notes to the Condensed Financial Statements" herein for discussion of
various contingencies and other matters which may affect future earnings
potential. Reference is also made to Part II - Item 1 - "Legal Proceedings"
herein.
YEAR 2000 READINESS
Year 2000 Challenge
In recent decades, computer programmers shortened the year portion of date
entries to two digits to save processing time and storage space. Computers
assumed, in effect, that all years began with "19." This practice was widely
adopted and hard-coded into computer chips and processors found in some
equipment. This approach was used until the mid-1990s. Unless corrected before
the Year 2000, affected systems and devices containing a chip or microprocessor
with date and time functions could incorrectly process dates or the systems may
cease to function.
SOUTHERN depends on complex computer systems for many aspects of its
operations, which include generation, transmission, and distribution of
electricity, as well as other business support activities. SOUTHERN met its Year
2000 readiness goal, when in June 1999 it announced that systems critical to
generating and delivering electricity to its customers in the Southeast are
ready for 2000. Year 2000 ready means that a system or application is determined
suitable for continued use through the Year 2000 and beyond. Critical systems
include, but are not limited to, reactor control systems, safe shutdown systems,
turbine generator systems, control center computer systems, customer service
systems, energy management systems, and telephone switches and equipment.
Year 2000 Program and Status
SOUTHERN's executive management recognizes the seriousness of the Year 2000
challenge and has dedicated what it believes to be adequate resources to address
the issue. The Millennium Project is a team of employees, IBM consultants, and
other contractors whose progress is reviewed regularly by a steering committee
of SOUTHERN executives.
14
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SOUTHERN's traditional business refers to the integrated utility services
within Alabama, Florida, Georgia, and Mississippi. For this traditional
business, the work was divided into two phases. Phase 1 began in 1996 and
consisted of identifying and assessing corporate assets related to software
systems and devices that contain a computer chip or clock. The first phase was
completed in June 1997. Phase 2 consisted of testing and remediating high
priority systems and devices. Also, contingency planning is included in this
phase. The second phase was completed on schedule in June 1999. The Millennium
Project will continue to monitor the affected computer systems, devices, and
applications into the Year 2000.
For the traditional business, SOUTHERN completed the activities contained
in its work plan by function as follows:
Work Plan
-----------------------------------------------------
Remediation Completion
Inventory Assessment and Testing Date
Generation 100% 100% 100% 6/99
Energy Management 100 100 100 6/99
Transmission and
Distribution 100 100 100 1/99
Telecommunications 100 100 100 6/99
Corporate Applications 100 100 100 3/99
- -------------------------------------------------------------------------------
For the non-traditional business, Southern Energy has adopted a three-phase
plan to address the Year 2000 challenge at its North American and international
business units in which they have management control. The first phase consists
of awareness and planning, inventory and assessment, and it includes the
identification of potentially impacted systems and an assessment of their
individual Year 2000 readiness. The second phase, which includes testing,
remediation, and validation, consists of modification or replacement of impacted
equipment, and verification that those modifications have addressed the issue.
Contingency planning is the third phase, and it includes backup plans for
unexpected events with critical systems, staffing plans for critical date
rollovers, and plans to address external dependencies. Business units are using
Year 2000 readiness information received from suppliers, including fuel
suppliers, to determine if inventory adjustments are needed for the transition
period.
The following three tables summarize the status of progress of Southern
Energy's North American and international business units as of June 30, 1999.
North American Business Units:
Phase Status Completion Date
- ------------------------------------------ ---------------- -------------------
Awareness and planning, inventory and Complete November 30, 1998
assessment
Testing, remediation, and validation Complete June 30, 1999
Contingency planning Complete June 30, 1999
- ------------------------------------------ ---------------- -------------------
15
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
International Business Units where Southern Energy has management control:
Phase Status Projected Completion
- ------------------------------------------- -------------- --------------------
Awareness and planning, inventory and
assessment Complete February 22, 1999
Testing, remediation, and validation In progress September 30, 1999
Contingency planning In progress August 31, 1999
- ------------------------------------------- -------------- --------------------
Other International Business Units:
Phase Status Projected Completion
- ------------------------------------------ --------------- --------------------
Awareness and planning, inventory and
assessment Complete May 31, 1999
Testing, remediation, and validation In progress October 31, 1999
Contingency planning In progress September 30, 1999
- ------------------------------------------ --------------- --------------------
In a number of the international business units, Southern Energy is neither
the majority owner nor the managing concern. In these circumstances, Southern
Energy is providing technical assistance but does not control the schedule or
progress.
Year 2000 Costs
For the traditional business, current projected total costs for Year 2000
readiness are approximately $91 million, which includes $6 million of cost
billed to non-affiliated companies. These costs include labor necessary to
identify, test, and renovate affected devices and systems. From its inception
through June 30, 1999, the Year 2000 program costs, recognized primarily as
expense, amounted to $81 million based on SOUTHERN's ownership interest. In
addition to the traditional business costs, current projections for Year 2000
program costs are approximately $20 million for the non-traditional business -
based on SOUTHERN's ownership interest of which $14 million has been spent
through June 30, 1999.
Year 2000 Risks
SOUTHERN has implemented a detailed process to minimize the possibility of
service interruptions related to the Year 2000. Based on tests we have
conducted, we believe service interruptions related to Year 2000 challenges are
unlikely. These tests increase confidence, but do not guarantee error-free
operations. The company has taken what it believes to be prudent steps to
prepare for the Year 2000, and it expects any interruptions in service that may
occur within the traditional business service territory to be isolated and short
in duration, similar to service loss during a storm.
16
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SOUTHERN expects the risks associated with Year 2000 to be no more severe
than the scenarios that its electric system is routinely prepared to handle. The
most likely worst case scenario consists of the service loss of one of the
largest generating units and/or the service loss of any single bulk transmission
element in its traditional business service territory. There is a smaller risk
of sporadic and temporary fluctuations of power levels that would be aggravated
in the event of rapid and unscheduled changes to load patterns that resulted
from the activity of third parties. SOUTHERN has followed a proven methodology
for identifying and assessing software and devices containing potential Year
2000 challenges. Remediation and testing of those devices is complete. SOUTHERN
has prepared contingency plans as appropriate and has participated and will
continue to participate in North American Electric Reliability
Council-coordinated national drills during 1999.
SOUTHERN continues to review the Year 2000 readiness of material third
parties that provide goods and services crucial to SOUTHERN's operations. Among
such critical third parties are fuel, transportation, telecommunications, water,
chemical, and other suppliers. There is some risk associated with
representations by third parties regarding their readiness and completion of
their own Year 2000 related work. Contingency plans based on the assessment of
each third party's ability to continue supplying critical goods and services to
SOUTHERN have been developed and are being reviewed.
There is a potential for some earnings erosion caused by reduced electrical
demand by customers because of their own Year 2000 challenges. The risk
associated with the progress of some operations outside the United States is a
function of the local regulatory environment and the priorities of the entities
with management control. Year 2000 challenges are included in the list of due
diligence activities associated with acquisitions; there is some risk associated
with the subsequent validation of any given seller's representations.
Contingency Plans
Because of experience with hurricanes and other storms, the traditional business
is skilled at developing and using contingency plans in unusual circumstances.
As part of Year 2000 business continuity and contingency planning, SOUTHERN has
drawn on that experience to make risk assessments and develop additional plans
to deal specifically with Year 2000 challenges. SOUTHERN is identifying critical
operational locations, and scheduling key employees to be on duty at those
locations during the Year 2000 transition. SOUTHERN has already participated in
one of two North American Electric Reliability Council-coordinated national
drills during 1999, and has/is conducting additional drills to validate its
contingency plans. A successful drill focused on SOUTHERN's ability to maintain
critical voice and data exchange during partial loss of primary voice and data
communications systems. Because of the level of detail of the contingency
planning process, management feels that the contingency plans will keep any
service interruptions that may occur within the traditional business service
territory isolated and short in duration, similar to service loss during a
storm.
Contingency planning efforts for the non-traditional business are complete
for North American assets and are underway for international assets. These
contingency plans are being developed by utilizing consistent formats and
guidelines.
The material in this section constitutes forward-looking statements made
pursuant to the Private Securities Litigation Reform Act of 1995. There can be
no assurance that the actual results of SOUTHERN, its suppliers, or other third
party dependencies will not materially differ from expectations.
17
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
Overview
Major changes in SOUTHERN's financial condition during the first six months of
1999 included $1.1 billion used for gross property additions to utility plant,
and $1.5 billion used for Southern Energy acquisitions. The funds for these
additions and other capital requirements were from operations and sales of
securities. See SOUTHERN's Condensed Consolidated Statements of Cash Flows for
further details.
Reference is made to the SOUTHERN's Condensed Consolidated Statements of
Comprehensive Income herein for information relating to other comprehensive
income. During the first six months, Southern Energy recognized $116 million of
after-tax foreign exchange translation losses in other comprehensive income
which were principally related to shifts in exchange rates between the U.S.
dollar and the pound sterling and the Deutschemark, and to the 50% devaluation
of the Brazilian Real.
Financing Activities
During the first six months of 1999, retirements and redemptions of the
operating companies' first mortgage bonds and preferred stock totaled $525
million and $86 million, respectively. In February 1999, Alabama Power Capital
Trust III, a statutory business trust established for the purpose of holding
ALABAMA's junior subordinated notes and issuing trust preferred securities and
common securities, sold $50 million of its capital auction preferred securities
which are guaranteed by ALABAMA. Also, in February 1999, Georgia Power Capital
Trust IV, a statutory business trust established for the purpose of holding
GEORGIA's junior subordinated notes and issuing trust preferred securities and
common securities, sold $200 million of its 6.85% trust preferred securities,
which are guaranteed by GEORGIA. Additionally, in March 1999, GEORGIA issued
$100 million of 6 5/8% senior notes due March 31, 2039. The proceeds from this
issuance were used to repay a portion of GEORGIA's outstanding short-term
indebtedness.
In May 1999, ALABAMA issued $200 million of 6.75% senior notes due June 30,
2039. The proceeds were used to repay a portion of its outstanding short-term
indebtedness and for other general corporate purposes. Also, in May 1999,
GEORGIA sold, through public authorities, $53 million of 5.45% pollution control
revenue bonds due May 1, 2034; $85 million of 5.40% pollution control revenue
bonds due May 1, 2034; and $100 million of 5.25% pollution control revenue bonds
due May 1, 2034. The proceeds of these sales were used to redeem $50 million
aggregate principal amount of 6.35% pollution control revenue bonds in June
1999; $125 million aggregate principal amount of 6.60% pollution control revenue
bonds in July 1999; and $60 million aggregate principal amount of 6 3/8%
pollution control revenue bonds in August 1999. In June 1999, ALABAMA sold,
through public authorities, $101.6 million aggregate principal amount of
variable rate pollution control revenue refunding bonds due June 1, 2022. The
proceeds from the sale will be applied to the full redemption of the Series 1994
6 1/2% pollution control revenue refunding bonds on or about September 1, 1999.
In July 1999, Southern Energy issued $700 million aggregate principal
amount of senior notes which consisted of $200 million of 7.40% senior notes due
2004 and $500 million of 7.90% senior notes due 2009. Proceeds received from the
sales of these notes are being used for general corporate purposes, including
repayment of short-term debt.
18
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
During the first six months of 1999, SOUTHERN raised $24 million from the
issuance of 885 thousand shares of common stock under SOUTHERN's various stock
plans. See Note (P) in the "Notes to the Condensed Financial Statements" herein
for discussion of programs to repurchase SOUTHERN's common stock. The market
price of SOUTHERN's common stock at June 30, 1999 was $26.50 per share and the
book value was $13.81 per share, representing a market-to-book ratio of 192%,
compared to $29.0625, $14.04 and 207%, respectively, at the end of 1998. The
dividend for the second quarter of 1999 was $0.335 per share.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Capital
Requirements for Construction", "Other Capital Requirements" and "Environmental
Matters" of SOUTHERN in the Form 10-K for a description of the Southern electric
system's capital requirements for its construction program, sinking fund
requirements and maturing debt, and environmental compliance efforts.
Approximately $1.1 billion will be required by June 30, 2000, for 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 1999, 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, 1999, approximately $449 million of cash and cash equivalents and
approximately $6.1 billion of unused credit arrangements with banks of which
$124.7 million expired on July 14, 1999. Of the remaining $5.9 billion, $1.4
billion of such arrangements provide liquidity support to variable rate
pollution control bonds. At June 30, 1999, the system companies had outstanding
approximately $1.2 billion of short-term notes payable and $2.8 billion 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.
19
<PAGE>
ALABAMA POWER COMPANY
20
<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,
------------------------------- -------------------------------
1999 1998 1999 1998
------------- --------------- -------------- ---------------
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Revenues $ 800,433 $ 850,330 $1,467,656 $1,524,625
Revenues from affiliates 22,183 13,385 69,284 55,595
------------- --------------- -------------- ---------------
Total operating revenues 822,616 863,715 1,536,940 1,580,220
------------- --------------- -------------- ---------------
OPERATING EXPENSES:
Operation--
Fuel 211,820 215,623 399,834 408,645
Purchased power from non-affiliates 17,995 25,150 25,575 42,685
Purchased power from affiliates 36,091 43,617 63,518 62,249
Other 134,602 125,442 252,498 240,255
Maintenance 75,039 86,803 145,813 150,336
Depreciation and amortization 87,634 86,141 174,816 172,380
Taxes other than income taxes 50,601 46,121 103,662 95,560
Federal and state income taxes 55,880 56,096 94,580 98,653
------------- --------------- -------------- ---------------
Total operating expenses 669,662 684,993 1,260,296 1,270,763
------------- --------------- -------------- ---------------
OPERATING INCOME 152,954 178,722 276,644 309,457
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 2,445 610 4,433 895
Equity in earnings of subsidiaries 709 1,882 1,477 3,405
Interest income 14,322 24,828 23,768 38,498
Other, net (5,241) (8,090) (12,732) (17,007)
Income taxes applicable to other income 312 (4,493) 1,236 (2,316)
------------- --------------- -------------- ---------------
INCOME BEFORE INTEREST CHARGES AND OTHER 165,501 193,459 294,826 332,932
------------- --------------- -------------- ---------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 45,966 47,713 91,026 92,431
Allowance for debt funds used during construction (3,592) (900) (5,333) (1,552)
Interest on interim obligations 2,885 2,941 5,560 7,347
Amortization of debt discount, premium and expense, net 2,772 27,457 5,490 29,881
Other interest charges 14,379 12,615 22,211 26,235
Distributions on preferred securities of subsidiary companies 6,202 5,589 12,033 11,177
------------- --------------- -------------- ---------------
Interest charges and other, net 68,612 95,415 130,987 165,519
------------- --------------- -------------- ---------------
NET INCOME 96,889 98,044 163,839 167,413
DIVIDENDS ON PREFERRED STOCK 3,852 3,294 7,727 6,622
------------- --------------- -------------- ---------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $93,037 $94,750 $ 156,112 $ 160,791
============= =============== ============== ===============
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Six Months
Ended June 30,
-------------------------------
1999 1998
------------- -------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 163,839 $ 167,413
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 204,381 226,381
Deferred income taxes and investment tax credits, net 15,517 (5,789)
Allowance for equity funds used during construction (4,433) (895)
Other, net 42,999 12,129
Changes in certain current assets and liabilities--
Receivables, net (20,610) (35,656)
Inventories (37,859) (20,149)
Prepayments (27,540) (19,814)
Payables (71,378) (33,027)
Taxes accrued 49,419 46,385
Energy cost recovery, retail 4,653 (17,097)
Other (30,321) (28,146)
------------- -------------
Net cash provided from operating activities 288,667 291,735
------------- -------------
INVESTING ACTIVITIES:
Gross property additions (321,236) (301,276)
Other (46,039) (37,307)
------------- -------------
Net cash used for investing activities (367,275) (338,583)
------------- -------------
FINANCING ACTIVITIES:
Proceeds--
Capital contributions - 30,000
Company obligated mandatorily redeemable preferred securities 50,000 -
Pollution control bonds 101,650 106,790
Other long-term debt 200,000 390,000
Retirements--
Preferred stock (50,000) -
Pollution control bonds (1,000) -
First mortgage bonds (300,000) (198,500)
Other long-term debt (640) (510)
Interim obligations, net 276,751 30,638
Special deposits (101,650) (106,790)
Payment of preferred stock dividends (7,997) (6,705)
Payment of common stock dividends (196,400) (180,900)
Miscellaneous (10,653) (20,529)
------------- -------------
Net cash provided from (used for) financing activities (39,939) 43,494
------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (118,547) (3,354)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 134,248 23,957
============= =============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,701 $ 20,603
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $114,401 $112,584
Income taxes 41,660 98,756
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At June 30,
1999 At December 31,
(Unaudited) 1998
--------------- ----------------
UTILITY PLANT:
<S> <C> <C>
Plant in service, at original cost $11,484,932 $11,352,838
Less accumulated provision for depreciation 4,844,978 4,666,513
--------------- ----------------
6,639,954 6,686,325
Nuclear fuel, at amortized cost 87,476 95,575
Construction work in progress 673,678 525,359
--------------- ----------------
--------------- ----------------
Total 7,401,108 7,307,259
--------------- ----------------
OTHER PROPERTY AND INVESTMENTS:
Equity investments in subsidiaries 34,346 34,298
Nuclear decommissioning trusts, at market 267,113 232,183
Miscellaneous 11,943 12,915
--------------- ----------------
Total 313,402 279,396
--------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 15,701 134,248
Special deposits 101,650 -
Receivables --
Customer accounts receivable 366,575 343,630
Other accounts and notes receivable 39,347 32,394
Affiliated companies 45,447 39,981
Accumulated provision for uncollectible accounts (1,262) (1,855)
Refundable income taxes 32,117 52,117
Fossil fuel stock, at average cost 115,292 83,238
Materials and supplies, at average cost 155,474 149,669
Prepayments 44,700 17,160
Vacation pay deferred 28,390 28,390
--------------- ----------------
Total 943,431 878,972
--------------- ----------------
DEFERRED CHARGES AND OTHER ASSETS:
Deferred charges related to income taxes 354,378 362,953
Debt expense, being amortized 9,554 8,602
Premium on reacquired debt, being amortized 84,008 83,440
Prepaid pension costs 191,728 169,393
Department of Energy assessments 31,088 31,088
Miscellaneous 98,813 104,595
--------------- ----------------
Total 769,569 760,071
--------------- ----------------
TOTAL ASSETS $9,427,510 $9,225,698
=============== ================
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At June 30,
1999 At December 31,
(Unaudited) 1998
--------------- ----------------
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 1,334,645
Premium on preferred stock 99 99
Retained earnings 1,184,854 1,224,965
--------------- ----------------
2,743,956 2,784,067
Preferred stock 317,512 317,512
Company obligated mandatorily redeemable preferred securities of
subsidiary trusts holding Company Junior Subordinated Notes 347,000 297,000
Long-term debt 2,741,504 2,646,566
--------------- ----------------
Total 6,149,972 6,045,145
--------------- ----------------
CURRENT LIABILITIES:
Preferred stock due within one year - 50,000
Long-term debt due within one year 372,649 471,209
Commercial paper 276,751 -
Accounts payable --
Affiliated companies 86,313 79,844
Other 106,166 188,074
Customer deposits 30,039 29,235
Taxes accrued--
Federal and state income 78,694 82,219
Other 50,810 17,559
Interest accrued 28,709 38,166
Vacation pay accrued 28,390 28,390
Miscellaneous 56,979 79,095
--------------- ----------------
Total 1,115,500 1,063,791
--------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 1,240,163 1,202,971
Accumulated deferred investment tax credits 265,988 271,611
Prepaid capacity revenues, net 88,400 96,080
Department of Energy assessments 27,202 27,202
Deferred credits related to income taxes 305,176 315,735
Natural disaster reserve 17,466 19,385
Miscellaneous 217,643 183,778
--------------- ----------------
Total 2,162,038 2,116,762
--------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES $9,427,510 $9,225,698
=============== ================
The accompanying notes as they relate to ALABAMA are an integral part of these condensed statements.
</TABLE>
24
<PAGE>
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SECOND QUARTER 1999 vs. SECOND QUARTER 1998
AND
YEAR-TO-DATE 1999 vs. YEAR-TO-DATE 1998
RESULTS OF OPERATIONS
Earnings
ALABAMA's net income after dividends on preferred stock for the second quarter
and year-to-date 1999 was $93.0 million and $156.1 million, respectively,
compared to $94.8 million and $160.8 million for the corresponding periods of
1998. Earnings for the current quarter and year-to-date decreased $1.7 million
or 1.8% and $4.7 million or 2.9%, respectively, due primarily to decreases 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......................................... $(49,897) (5.9) $(56,969) (3.7)
Revenues from affiliates......................... 8,798 65.7 13,689 24.6
Purchased power from non-affiliates.............. (7,155) (28.4) (17,110) (40.1)
Purchased power from affiliates.................. (7,526) (17.3) 1,269 2.0
Other operation expense.......................... 9,160 7.3 12,243 5.1
Maintenance expense.............................. (11,764) (13.6) (4,523) (3.0)
Interest income.................................. (10,506) (42.3) (14,730) (38.3)
Amortization of debt discount, premium and
expense, net (24,685) (89.9) (24,391) (81.6)
</TABLE>
Revenues. Including fuel revenues, revenues for the second quarter and
year-to-date 1999 were down from the corresponding periods in 1998 due primarily
to decreases in retail energy sales and revenues from unit power sales. Retail
energy sales for the current quarter and year-to-date 1999 decreased by 3.6% and
1.1%, respectively, due to milder weather in the second quarter of 1999 as
compared to extremely hot weather in the second quarter of 1998 and lower
industrial sales. Revenues from unit power sales for the current quarter and
year-to-date 1999 decreased 22.3% and 18.4%, respectively, as a result of lower
energy sales and a lowering of the equity return under formula rate contracts.
See Note (F) in the "Notes to the Condensed Financial Statements" herein for
further details. Retail revenues, excluding those revenues which represent the
recovery of fuel expense and certain other expenses and do not affect income,
decreased $12.7 million for the current quarter and $10.6 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 depending on demand and the
availability and cost of generating resources at each company. These
transactions did not have a significant impact on earnings.
25
<PAGE>
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Purchased power from non-affiliates. These expenses dropped during this
quarter and year-to-date 1999 when compared to the corresponding periods of 1998
due primarily to increased purchases in 1998 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. Current quarter and year-to-date 1999 increases
are due primarily to higher administrative and general expenses.
Maintenance expense. These expenses decreased for the current quarter and
year-to-date 1999 due mainly to decreases in steam and distribution expenses.
For year-to-date 1999, the effect of these decreases was partially offset by an
increase in transmission expenses.
Interest income. The decreases for the current quarter and year-to-date
1999 are primarily attributed to the recording by ALABAMA during the second
quarter of 1998 of its portion of the tax settlement between SOUTHERN and the
Internal Revenue Service. For additional information, see Note 3 to the
financial statements of ALABAMA under the caption "Tax Litigation" in Item 8 of
the Form 10-K.
Amortization of debt discount, premium and expense, net. The decreases for
the current quarter and year-to-date when compared to the same periods in 1998
are directly related to accelerated amortization in 1998 of premiums incurred to
refinance high-cost debt. For additional information, see Note 3 to the
financial statements of ALABAMA under the caption "Retail Rate Adjustment
Procedures" in Item 8 of the Form 10-K.
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 weather to energy sales growth to a less regulated, more
competitive environment.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional information, see Item 1 - BUSINESS - "Competition" and Item 7
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of ALABAMA in
the Form 10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset. For additional information about the Clean Air Act and
other environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Environmental Matters" of ALABAMA in the Form 10-K.
The U.S. Environmental Protection Agency is conducting an industry-wide
investigation concerning the compliance status of certain coal-fired generating
facilities, including certain of ALABAMA's units, under the new source review
provisions of the Clean Air Act. Although the outcome of this matter cannot now
be determined, if adverse it could result in substantial penalties and
additional capital costs.
26
<PAGE>
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
ALABAMA's plans to achieve Year 2000 readiness have been implemented and
are included in the SOUTHERN system's Year 2000 Program. The costs related to
ALABAMA's Year 2000 program, including ALABAMA's share of costs of Southern
Nuclear Operating Company, are expected to be $37.0 million. From its inception
through June 30, 1999, the Year 2000 program costs, recognized primarily as
expense, amounted to $32.5 million. For additional information, see SOUTHERN's
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
Condition - "Future Earnings Potential" herein.
The FASB issued Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, which was originally to be adopted by the year 2000.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In June 1999, the FASB issued Statement
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133, which amends FASB Statement No.
133 to be effective for all fiscal years beginning after June 15, 2000 (January
1, 2001 for companies with calendar-year fiscal years). ALABAMA has not yet
quantified the impact of adopting this statement on its financial statements;
however, the adoption could increase volatility in reported earnings.
Reference is made to Notes (B), (C), and (F) through (J) 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
1999 included the addition of approximately $321.2 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 1999, redemptions of first mortgage bonds and
preferred stock by ALABAMA totaled $300 million and $50 million, respectively.
In February 1999, Alabama Power Capital Trust III (the "Trust"), a statutory
business trust established for the purpose of holding ALABAMA's junior
subordinated notes and issuing trust preferred securities and common securities,
sold $50 million of its capital auction preferred securities which are
guaranteed by ALABAMA. The Trust invested the proceeds in Series C junior
subordinated notes. The net proceeds received by ALABAMA were used to repay a
portion of ALABAMA's outstanding short-term indebtedness. See Note (G) in the "
Notes to the Condensed Financial Statements" herein for additional information.
In May 1999, ALABAMA issued $200 million of 6.75% senior notes due June 30,
2039. The proceeds were used to repay a portion of its outstanding short-term
indebtedness and for other general corporate purposes. In June 1999, ALABAMA
sold, through public authorities, $101.6 million aggregate principal amount of
variable rate pollution control revenue refunding bonds due June 1, 2022. The
proceeds from the sale will be applied to the full redemption of the Series 1994
6 1/2% pollution control revenue refunding bonds on or about September 1, 1999.
27
<PAGE>
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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,
1999, approximately $15.7 million of cash and cash equivalents and had unused
committed lines of credit of approximately $1 billion of which $124.7 million
expired on July 14, 1999. Of the remaining $899.7 million of committed lines,
$418.7 million may be borrowed upon only to fund purchase obligations relating
to variable rate pollution control bonds. Additionally, in July 1999, ALABAMA
entered into an Extendible Commercial Note program. ALABAMA has regulatory
authority for up to $750 million of short-term borrowings. At June 30, 1999,
ALABAMA had outstanding $276.8 million of commercial paper.
28
<PAGE>
ARTHUR ANDERSEN LLP
Exhibit 1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO ALABAMA POWER COMPANY:
We have reviewed the accompanying condensed balance sheet of ALABAMA POWER
COMPANY as of June 30, 1999, and the related condensed statements of income for
the three-month and six-month periods ended June 30, 1999 and 1998 and cash
flows for the six-month periods ended June 30, 1999 and 1998. 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, 1998
(not presented herein) and, in our report dated February 10, 1999, 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, 1998 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 9, 1999
29
<PAGE>
GEORGIA POWER COMPANY
30
<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,
------------------------------- -------------------------------
1999 1998 1999 1998
--------------- -------------- -------------- --------------
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Revenues $1,077,066 $1,206,151 $2,000,090 $2,185,485
Revenues from affiliates 14,482 20,163 22,388 24,972
--------------- -------------- -------------- --------------
Total operating revenues 1,091,548 1,226,314 2,022,478 2,210,457
--------------- -------------- -------------- --------------
OPERATING EXPENSES:
Operation--
Fuel 237,574 248,030 415,786 424,661
Purchased power from non-affiliates 47,752 58,754 79,910 104,228
Purchased power from affiliates 43,850 36,677 98,771 80,362
Other 184,321 194,267 352,603 363,692
Maintenance 90,937 91,089 182,473 172,038
Depreciation and amortization 139,289 255,840 271,724 414,434
Taxes other than income taxes 49,151 55,239 98,153 107,434
Federal and state income taxes 90,765 97,994 154,145 178,643
--------------- -------------- -------------- --------------
Total operating expenses 883,639 1,037,890 1,653,565 1,845,492
--------------- -------------- -------------- --------------
OPERATING INCOME 207,909 188,424 368,913 364,965
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction - - - 178
Equity in earnings of unconsolidated subsidiary 731 758 1,464 1,840
Interest income 2,115 64,358 2,365 64,911
Other, net (3,389) (23,376) (10,026) (28,499)
Income taxes applicable to other income 397 (15,755) 2,956 (13,212)
--------------- -------------- -------------- --------------
INCOME BEFORE INTEREST CHARGES 207,763 214,409 365,672 390,183
--------------- -------------- -------------- --------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 42,872 45,252 83,983 90,308
Allowance for debt funds used during construction (3,128) (2,174) (5,310) (4,002)
Interest on interim obligations 5,618 4,767 9,834 8,513
Amortization of debt discount, premium and expense, net 3,900 3,320 7,600 6,651
Other interest charges 2,726 11,120 6,037 15,134
Distributions on preferred securities of subsidiary companies 17,026 13,601 31,997 27,125
--------------- -------------- -------------- --------------
Interest charges and other, net 69,014 75,886 134,141 143,729
--------------- -------------- -------------- --------------
NET INCOME 138,749 138,523 231,531 246,454
DIVIDENDS ON PREFERRED STOCK 178 1,837 1,379 3,864
--------------- -------------- -------------- --------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 138,571 $ 136,686 $ 230,152 $ 242,590
=============== ============== ============== ==============
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Six Months
Ended June 30,
-------------------------------
1999 1998
------------- -------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 231,531 $ 246,454
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 280,856 450,537
Deferred income taxes and investment tax credits, net 6,396 (23,316)
Other, net 33,791 27,946
Changes in certain current assets and liabilities--
Receivables, net 9,255 (293,473)
Inventories (37,670) (5,854)
Payables (66,228) (1,764)
Taxes accrued 24,785 108,327
Energy cost recovery, retail (4,262) (11,196)
Other 16,133 19,240
------------- -------------
Net cash provided from operating activities 494,587 516,901
------------- -------------
INVESTING ACTIVITIES:
Gross property additions (353,516) (207,796)
Other (44,126) 15,641
------------- -------------
Net cash used for investing activities (397,642) (192,155)
------------- -------------
FINANCING ACTIVITIES:
Proceeds--
Preferred securities 200,000 -
Pollution control bonds 238,000 89,990
Senior notes 100,000 145,000
Retirements--
Preferred stock (35,732) (40,679)
First mortgage bonds (209,000) (220,460)
Pollution control bonds (50,000) (89,990)
Capital leases (215) -
Special deposits - redemption funds (186,785) -
Interim obligations, net 147,701 9,655
Payment of preferred stock dividends (378) (6,628)
Payment of common stock dividends (266,800) (264,400)
Miscellaneous (25,429) (6,703)
------------- -------------
Net cash used for financing activities (88,638) (384,215)
------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 8,307 (59,469)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,272 83,333
============= =============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,579 $ 23,864
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $126,412 $137,345
Income taxes (net of refunds) 88,524 98,165
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At June 30,
1999 At December 31,
(Unaudited) 1998
--------------- ----------------
UTILITY PLANT:
<S> <C> <C>
Plant in service $15,590,726 $15,441,146
Less accumulated provision for depreciation 6,327,358 6,109,331
--------------- ----------------
9,263,368 9,331,815
Nuclear fuel, at amortized cost 119,931 121,169
Construction work in progress 315,163 189,849
--------------- ----------------
Total 9,698,462 9,642,833
--------------- ----------------
OTHER PROPERTY AND INVESTMENTS:
Southern Electric Generating Company, at equity 24,394 24,360
Nuclear decommissioning trusts, at market 331,035 284,536
Miscellaneous 32,333 34,781
--------------- ----------------
Total 387,762 343,677
--------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 24,579 16,272
Receivables --
Customer accounts receivable 442,173 439,420
Other accounts and notes receivable 255,838 99,574
Affiliated companies 24,159 16,817
Accumulated provision for uncollectible accounts (5,000) (5,500)
Fossil fuel stock, at average cost 138,449 104,133
Materials and supplies, at average cost 246,831 243,477
Prepayments 23,025 29,670
Vacation pay deferred 42,687 43,610
--------------- ----------------
Total 1,192,741 987,473
--------------- ----------------
DEFERRED CHARGES:
Deferred charges related to income taxes 595,630 604,488
Premium on reacquired debt, being amortized 181,644 173,858
Prepaid pension costs 124,931 103,606
Debt expense, being amortized 61,872 51,261
Miscellaneous 137,013 126,422
--------------- ----------------
Total 1,101,090 1,059,635
--------------- ----------------
TOTAL ASSETS $12,380,055 $12,033,618
=============== ================
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At June 30,
1999 At December 31,
(Unaudited) 1998
--------------- ----------------
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 1,660,223 1,660,206
Premium on preferred stock 40 158
Retained earnings 1,742,907 1,779,558
--------------- ----------------
3,747,420 3,784,172
Preferred stock 15,451 15,527
Company obligated mandatorily redeemable preferred securities
of subsidiaries substantially all of whose assets are junior
subordinated debentures or notes 889,250 689,250
Long-term debt 2,743,575 2,744,362
--------------- ----------------
Total 7,395,696 7,233,311
--------------- ----------------
CURRENT LIABILITIES:
Preferred stock due within one year - 35,656
Long-term debt due within one year 480,550 399,429
Notes payable to banks 318,216 117,634
Commercial paper 170,337 223,218
Accounts payable --
Affiliated companies 66,576 75,774
Other 242,067 326,317
Customer deposits 72,968 69,584
Taxes accrued--
Federal and state income 72,069 15,801
Other 90,876 122,359
Interest accrued 60,315 60,187
Miscellaneous 109,554 100,793
--------------- ----------------
Total 1,683,528 1,546,752
--------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 2,248,726 2,249,613
Accumulated deferred investment tax credits 374,514 381,914
Deferred credits related to income taxes 273,911 284,017
Employee benefits provisions 187,659 177,148
Miscellaneous 216,021 160,863
--------------- ----------------
Total 3,300,831 3,253,555
--------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES $12,380,055 $12,033,618
=============== ================
The accompanying notes as they relate to GEORGIA are an integral part of these condensed statements.
</TABLE>
34
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SECOND QUARTER 1999 vs. SECOND QUARTER 1998
AND
YEAR-TO-DATE 1999 vs. YEAR-TO-DATE 1998
RESULTS OF OPERATIONS
Earnings
GEORGIA's net income after dividends on preferred stock for the second quarter
and year-to-date 1999 was $138.6 million and $230.2 million, respectively,
compared to $136.7 million and $242.6 million for the same periods in 1998.
Second quarter 1999 earnings increased slightly by $1.9 million or 1.4% while
year-to-date 1999 earnings decreased by $12.4 million or 5.1% due primarily to
lower operating revenues. Operating revenues were affected by fixed rate
reductions ordered by the 1998 Georgia PSC rate order and milder temperatures as
compared to 1998. Under the new order, fixed rate reductions and accelerated
amortization are being recognized ratably throughout 1999. During 1998, variable
accelerated depreciation recorded under the previous accounting order was
primarily recognized during the higher revenue months. See Note (K) in the
"Notes to the Condensed Financial Statements" herein for further details
regarding the retail rate order.
Significant income statement items appropriate for discussion include the
following:
<TABLE>
Increase (Decrease)
---------------------------------------------------------------
Second Quarter Year-To-Date
------------------------------- -------------------------------
(in thousands) % (in thousands) %
<S> <C> <C> <C> <C>
Revenues......................................... $(129,085) (10.7) $(185,395) (8.5)
Purchased power from non-affiliates.............. (11,002) (18.7) (24,318) (23.3)
Depreciation and amortization.................... (116,551) (45.6) (142,710) (34.4)
Interest income.................................. (62,243) (96.7) (62,546) (96.4)
Other, net....................................... 19,987 85.5 18,473 64.8
Income taxes applicable to other income.......... 16,152 102.5 16,168 122.4
Other interest charges........................... (8,394) (75.5) (9,097) (60.1)
Distributions on preferred securities
of subsidiary companies 3,425 25.2 4,872 18.0
</TABLE>
Revenues. Revenues within the service area decreased by $149.7 million and
$190.6 million, for the second quarter and year-to-date 1999, respectively, when
compared to the same periods in 1998. Retail revenues, excluding fuel revenues
which generally do not affect income, decreased $129.4 million and $176.8
million, respectively, for the second quarter and year-to-date 1999 when
compared to the corresponding periods in 1998 primarily due to retail rate
reductions ordered by the Georgia PSC and milder weather in 1999 compared to
1998. Energy sales in the second quarter and year-to-date 1999 decreased by 2.9%
for each of these periods when compared to the same periods in 1998 due to mild
temperatures. In particular, residential energy sales were down by 10.4% and
5.5%, respectively, for the second quarter and year-to-date.
35
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Wholesale revenues within the service area decreased $12.3 million and
$22.1 million, respectively, during the second quarter and year-to-date 1999
primarily as a result of a scheduled reduction in capacity revenues under a
power supply agreement with OPC and a decrease in energy sales. Wholesale
revenues outside the service area increased by $10.0 million for the second
quarter of 1999 and decreased by $3.9 million year-to-date 1999 when compared to
the corresponding periods in 1998. The second quarter increase in wholesale
revenues outside the service area is attributed to capacity adjustments under
long-term contracts recorded during the second quarter of 1998. The year-to-date
decrease was mainly due to lower energy sales.
Purchased power from non-affiliates. The decreases for this second quarter
and year-to-date 1999 when compared to the same periods in 1998 were mainly due
to higher demand in 1998 for energy and higher energy purchases in 1998 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.
Depreciation and amortization expense. This item decreased in the second
quarter and year-to-date 1999 when compared to the corresponding periods in 1998
due mainly to higher depreciation charges recognized in 1998 under the prior
accounting order and the completion in 1998 of the amortization of deferred
Plant Vogtle costs.
Interest income. The decreases in this item for the current quarter and
year-to-date 1999 are related to the recognition, in the corresponding periods
of 1998, of increased interest income resulting from the resolution of tax
issues between SOUTHERN and the Internal Revenue Service.
Other, net. The changes for the second quarter and year-to-date 1999 are
attributed to reduced donations and contributions in these periods when compared
to the corresponding periods in 1998.
Income taxes applicable to other income. The second quarter and
year-to-date 1999 decreases are attributed to taxes in 1998 on the additional
interest income discussed above.
Other interest charges. For the current quarter and year-to-date 1999,
these charges were lower when compared to the same periods in 1998 due to the
recognition in 1998 of increased interest related to tax issues.
Distributions on preferred securities of subsidiary companies. Second
quarter and year-to-date 1999 increases are attributed to the issuance of
additional mandatorily redeemable preferred securities in February 1999.
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 weather, 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.
36
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Effective January 1, 1999, GEORGIA began operating under a new three-year
retail rate order. Under the order, GEORGIA's earnings are evaluated against a
retail return on common equity range of 10% to 12.5%. In compliance with the
order, retail rates were decreased by $262 million on an annual basis effective
January 1, 1999. Reference is made to Note (K) in the "Notes to the Condensed
Financial Statements" herein and Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential" of GEORGIA in the Form 10-K for additional
information.
In September 1998, OPC decreased its purchases of capacity under a power
supply agreement by 250 megawatts, resulting in a $16 million reduction in 1999
revenues. The resources associated with the decreased purchases in 1998 will be
used to meet the needs of GEORGIA's retail customers through 2004. As a result
of additional reduction notices given by OPC under its agreement with GEORGIA,
GEORGIA's capacity revenues received from OPC were estimated to decrease by an
additional $7 million in 1999, $18 million in 2000 and $4 million in 2001.
Effective April 1, 1999, GEORGIA and OPC entered into a new agreement which will
delay, in part, planned purchase reductions by OPC. The new agreement has been
filed with the FERC under SOUTHERN's market-based rate authority. Based on the
above, GEORGIA's capacity revenues received from OPC are now estimated to
decrease by approximately $6 million in 1999, $15 million in 2000 and $7 million
in 2001.
Compliance costs related to the Clean Air Act and other environmental
issues could affect earnings. For additional information, see Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Issues" of GEORGIA in the
Form 10-K.
The U.S. Environmental Protection Agency is conducting an industry-wide
investigation concerning the compliance status of certain coal-fired generating
facilities, including certain of GEORGIA's units, under the new source review
provisions of the Clean Air Act. Although the outcome of this matter cannot now
be determined, if adverse it could result in substantial penalties and
additional capital costs.
GEORGIA's plans to achieve Year 2000 compliance have been implemented and
are included in the SOUTHERN system's Year 2000 Program. The costs related to
GEORGIA's Year 2000 program, including GEORGIA's share of costs of Southern
Nuclear Operating Company, are expected to be approximately $41 million. From
its inception through June 30, 1999, the Year 2000 program costs, recognized as
expense, amounted to $37 million. For additional information, see SOUTHERN's
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
Condition - "Future Earnings Potential" herein.
The FASB issued Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, which was originally to be adopted by the year 2000.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In June 1999, the FASB issued Statement
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133, which amends FASB Statement No.
133 to be effective for all fiscal years beginning after June 15, 2000 (January
1, 2001 for companies with calendar-year fiscal years). GEORGIA has not yet
quantified the impact of adopting this statement on its financial statements;
however, the adoption could increase volatility in earnings.
Reference is made to Notes (B), (C), (F), (G), and (K) through (M) in the
"Notes to the Condensed Financial Statements" herein for discussion of various
contingencies and other matters which may affect future earnings potential.
37
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
Overview
The major change in GEORGIA's financial condition during the first six months of
1999 was the addition of approximately $353.5 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 1999, redemptions of first mortgage bonds and
preferred stock by GEORGIA totaled $209 million and $35.7 million, respectively.
In February 1999, Georgia Power Capital Trust IV, a statutory business trust
established for the purpose of holding GEORGIA's junior subordinated notes and
issuing trust preferred securities and common securities, sold $200 million of
its 6.85% trust preferred securities, which are guaranteed by GEORGIA. (See Note
(G) in the " Notes to the Condensed Financial Statements" herein and Item 7
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Financing Activities" of GEORGIA in the
Form 10-K for further details.) In March 1999, GEORGIA issued $100 million of 6
5/8% senior notes due March 31, 2039. The proceeds from this issuance were used
to repay a portion of GEORGIA's outstanding short-term indebtedness. In May
1999, GEORGIA sold, through public authorities, $53 million of 5.45% pollution
control revenue bonds due May 1, 2034; $85 million of 5.40% pollution control
revenue bonds due May 1, 2034; and $100 million of 5.25% pollution control
revenue bonds due May 1, 2034. The proceeds of these sales were used to redeem
$50 million aggregate principal amount of 6.35% pollution control revenue bonds
in June 1999; $125 million aggregate principal amount of 6.60% pollution control
revenue bonds in July 1999; and $60 million aggregate principal amount of 6 3/8%
pollution control revenue bonds in August 1999.
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.
38
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
To meet short-term cash needs and contingencies, GEORGIA had at June 30,
1999, approximately $24.6 million of cash and cash equivalents and approximately
$1.3 billion of unused credit arrangements with banks. Of the $1.3 billion, $980
million provides liquidity support to GEORGIA's variable rate pollution control
bonds. At June 30, 1999, GEORGIA had $318.2 million and $170.3 million
outstanding in short-term notes payable to banks and commercial paper,
respectively. Management believes that the need for working capital can be
adequately met by utilizing lines of credit without maintaining large cash
balances.
39
<PAGE>
ARTHUR ANDERSEN LLP
Exhibit 1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO GEORGIA POWER COMPANY:
We have reviewed the accompanying condensed balance sheet of GEORGIA POWER
COMPANY (a Georgia corporation) as of June 30, 1999, and the related condensed
statements of income for the three-month and six-month periods ended June 30,
1999 and 1998 and cash flows for the six-month periods ended June 30, 1999 and
1998. 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, 1998
(not presented herein), and, in our report dated February 10, 1999, 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, 1998, 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 9, 1999
40
<PAGE>
GULF POWER COMPANY
41
<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,
--------------------------- ---------------------------
1999 1998 1999 1998
------------- ------------ ------------- ------------
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Revenues $153,205 $160,061 $280,640 $294,614
Revenues from affiliates 13,610 17,069 20,681 23,466
------------- ------------ ------------- ------------
Total operating revenues 166,815 177,130 301,321 318,080
------------- ------------ ------------- ------------
OPERATING EXPENSES:
Operation--
Fuel 53,208 55,443 91,961 96,886
Purchased power from non-affiliates 9,138 8,256 13,294 12,989
Purchased power from affiliates 3,100 2,545 6,675 6,433
Other 27,780 34,169 54,922 65,450
Maintenance 15,903 14,591 32,496 27,487
Depreciation and amortization 16,034 16,409 32,112 31,112
Taxes other than income taxes 12,399 12,485 24,943 25,104
Federal and state income taxes 7,695 9,490 10,336 13,640
------------- ------------ ------------- ------------
Total operating expenses 145,257 153,388 266,739 279,101
------------- ------------ ------------- ------------
OPERATING INCOME 21,558 23,742 34,582 38,979
OTHER INCOME (EXPENSE):
Interest income 260 194 501 317
Other, net (91) (203) (903) (1,406)
Income taxes applicable to other income (170) (57) (9) 300
------------- ------------ ------------- ------------
INCOME BEFORE INTEREST CHARGES 21,557 23,676 34,171 38,190
------------- ------------ ------------- ------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 5,032 4,725 9,982 9,602
Other interest charges 333 2,825 611 3,100
Interest on notes payable 871 481 1,356 819
Amortization of debt discount, premium and expense, net 491 522 989 1,100
Distributions on preferred securities of subsidiary companies 1,550 1,550 3,100 2,934
------------- ------------ ------------- ------------
Interest charges and other, net 8,277 10,103 16,038 17,555
------------- ------------ ------------- ------------
NET INCOME 13,280 13,573 18,133 20,635
DIVIDENDS ON PREFERRED STOCK 54 209 108 418
------------- ------------ ------------- ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $13,226 $13,364 $18,025 $20,217
============= ============ ============= ============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Six Months
Ended June 30,
----------------------------
1999 1998
------------ -----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 18,133 $ 20,635
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 34,100 35,747
Deferred income taxes (1,952) (6,173)
Other, net 5,824 10,570
Changes in certain current assets and liabilities--
Receivables, net (12,514) (10,355)
Inventories (23,700) (10,615)
Payables (4,082) (1,610)
Taxes accrued 15,425 16,894
Current costs of 1995 coal contract renegotiation - 812
Other (8,716) (5,662)
------------ -----------
Net cash provided from operating activities 22,518 50,243
------------ -----------
INVESTING ACTIVITIES:
Gross property additions (33,242) (26,091)
Other (10,221) (3,114)
------------ -----------
Net cash used for investing activities (43,463) (29,205)
------------ -----------
FINANCING ACTIVITIES:
Proceeds--
Preferred securities - 45,000
Other long-term debt - 50,000
Retirements--
Preferred stock - (5)
First mortgage bonds - (15,000)
Other long-term debt - (8,327)
Notes payable, net 53,500 (33,000)
Payment of preferred stock dividends (117) (419)
Payment of common stock dividends (30,100) (38,200)
Miscellaneous (4) (4,026)
------------ -----------
Net cash provided from (used for) financing activities 23,279 (3,977)
------------ -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,334 17,061
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 969 4,707
============ ===========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,303 $ 21,768
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $13,089 $12,463
Income taxes 2,412 5,442
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At June 30,
1999 At December 31,
(Unaudited) 1998
---------------------------------
UTILITY PLANT:
<S> <C> <C>
Plant in service $1,836,916 $1,809,901
Less accumulated provision for depreciation 801,855 784,111
-------------- --------------
1,035,061 1,025,790
Construction work in progress 26,669 34,863
-------------- --------------
Total 1,061,730 1,060,653
-------------- --------------
OTHER PROPERTY AND INVESTMENTS: 1,586 588
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 3,303 969
Receivables --
Customer accounts receivable 59,853 49,067
Other accounts and notes receivable 3,276 3,514
Affiliated companies 5,413 3,442
Accumulated provision for uncollectible accounts (1,001) (996)
Fossil fuel stock, at average cost 47,082 24,213
Materials and supplies, at average cost 28,856 28,025
Regulatory clauses under recovery 12,767 9,737
Prepayments 2,780 5,690
Vacation pay deferred 4,035 4,035
-------------- --------------
Total 166,364 127,696
-------------- --------------
DEFERRED CHARGES:
Deferred charges related to income taxes 25,286 25,308
Debt expense, being amortized 20,620 21,448
Prepaid pension costs 15,775 13,770
Miscellaneous 19,009 18,438
-------------- --------------
Total 80,690 78,964
-------------- --------------
TOTAL ASSETS $1,310,370 $1,267,901
============== ==============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At June 30,
1999 At December 31,
(Unaudited) 1998
---------------------------------
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 218,960 218,960
Premium on preferred stock 12 12
Retained earnings 158,546 170,620
-------------- --------------
415,578 427,652
Preferred stock 4,236 4,236
Company obligated mandatorily redeemable preferred securities of
subsidiary trusts holding Company Junior Subordinated Notes 85,000 85,000
Long-term debt 317,497 317,341
-------------- --------------
Total 822,311 834,229
-------------- --------------
CURRENT LIABILITIES:
Long-term debt due within one year 27,000 27,000
Notes payable 85,000 31,500
Accounts payable --
Affiliated companies 11,989 19,756
Other 20,032 23,697
Customer deposits 12,677 12,560
Taxes accrued 18,551 7,432
Interest accrued 5,938 5,184
Regulatory clauses over recovery 3,460 6,037
Vacation pay accrued 4,035 4,035
Dividends declared 45 54
Miscellaneous 1,577 3,960
-------------- --------------
Total 190,304 141,215
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 165,330 166,118
Deferred credits related to income taxes 51,079 52,465
Accumulated provision for property damage 4,956 1,605
Accumulated deferred investment tax credits 28,672 29,632
Accumulated provision for postretirement benefits 25,525 23,534
Miscellaneous 22,193 19,103
-------------- --------------
Total 297,755 292,457
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $1,310,370 $1,267,901
============== ==============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
</TABLE>
45
<PAGE>
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SECOND QUARTER 1999 vs. SECOND QUARTER 1998
AND
YEAR-TO-DATE 1999 vs. YEAR-TO-DATE 1998
RESULTS OF OPERATIONS
Earnings
GULF's net income after dividends on preferred stock for the second quarter and
year-to-date 1999 was $13.2 million and $18.0 million, respectively, compared to
$13.4 million and $20.2 million for the corresponding periods of 1998. While
earnings for the current quarter remained relatively flat when compared to the
same period in 1998, earnings year-to-date declined by 10.8%, primarily due to
higher maintenance expenses incurred during the first quarter of 1999.
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......................................... $(6,856) (4.3) $(13,974) (4.7)
Revenues from affiliates......................... (3,459) (20.3) (2,785) (11.9)
Fuel expense..................................... (2,235) (4.0) (4,925) (5.1)
Other operation expense.......................... (6,389) (18.7) (10,528) (16.1)
Maintenance expense.............................. 1,312 9.0 5,009 18.2
Other interest charges........................... (2,492) (88.2) (2,489) (80.3)
</TABLE>
Revenues. The decreases in revenues for the second quarter and year-to-date
1999 reflect, for the most part, the recovery of lower fuel costs. The price per
ton of coal, which is GULF's primary fuel source, was lower in the second
quarter and year-to-date 1999 compared to the same periods in 1998 due to full
amortization, by March 1998, of costs related to prior year coal contract
renegotiations and the reduction of a major coal contract price. Excluding
recovery of fuel expense and certain other expenses that do not affect income,
retail revenues decreased $6.6 million for the quarter and $5.5 million
year-to-date, primarily due to a decrease in energy sales to residential
customers reflecting the impact of milder-than-normal temperatures during the
first half of 1999 as compared to hotter-than-normal temperatures recorded in
the same periods in 1998. Revenues from non-territorial wholesale energy sales
decreased $1.3 million and $4.0 million for the second quarter and year-to-date
1999, respectively, when compared to the corresponding periods of 1998. The
decreases in non-territorial wholesale energy sales were primarily due to
decreased sales through power marketing activities.
Revenues from affiliates. Revenues from sales to affiliated companies
within the Southern electric system will vary from period to period depending on
demand and the availability and cost of generating resources at each company.
These transactions do not have a significant impact on earnings.
Fuel expense. The decreases in fuel expense reflect lower fuel costs,
resulting from the reduction of a major coal contract price.
46
<PAGE>
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Other operation expense. This item decreased in this quarter when compared
to the same period in 1998 due to lower administrative and general expenses.
Year-to-date 1999, this cost decreased due to lower administrative and general
expenses as well as prior year payments related to renegotiations of coal supply
contracts being fully amortized in 1998.
Maintenance expense. The increases in these expenses for the second quarter
and year-to-date 1999 reflect scheduled maintenance on steam plant facilities.
Other interest charges. The decreases for the current quarter and
year-to-date 1999 are primarily attributed to the recognition, in 1998, of
interest related to tax issues.
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 weather to 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.
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.
The U.S. Environmental Protection Agency is conducting an industry-wide
investigation concerning the compliance status of certain coal-fired generating
facilities, including certain of GULF's units, under the new source review
provisions of the Clean Air Act. Although the outcome of this matter cannot now
be determined, if adverse it could result in substantial penalties and
additional capital costs.
GULF's plans to achieve Year 2000 readiness have been implemented and are
included in the SOUTHERN system's Year 2000 Program. The costs related to GULF's
Year 2000 program are expected to be $5.2 million. From its inception through
June 30, 1999, the Year 2000 program costs, recognized as expense, amounted to
$4.2 million. For additional information, see SOUTHERN's MANAGEMENT'S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - "Future Earnings
Potential" herein.
In reference to the ongoing matters with the Florida PSC concerning GULF's
authorized return on equity (ROE) and the outstanding balances of certain
regulatory assets, GULF filed a revised plan on April 6, 1999. The staff of the
Florida PSC countered with another proposal on April 8, 1999. Both were
presented to the Commission at the April 20, 1999, agenda conference. The
Florida PSC approved the staff's proposal with several modifications. The
changes approved by the Florida PSC included the following: a reduction in the
authorized return mid-point from 12.0% to 11.5%, the sharing of revenues for a
period of 3 years above an earnings level of 12.5% ROE up to 14% ROE, revenue
credits to customers and the write-off of regulatory
47
<PAGE>
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
assets totaling $7.1 million per year from 1999 through 2001. The Commission
issued an order establishing the changes associated with earnings, revenue
sharing, and other regulatory issues on May 24, 1999. On June 14, 1999, the
Coalition for Equitable Rates filed a protest requesting a formal proceeding to
review the plan proposed by the Florida PSC order. Hearings in the docket are
expected later this year or early in 2000. On July 22, 1999, the Office of
Public Counsel petitioned the Florida PSC to initiate and conduct a full revenue
requirements base rate proceeding for GULF. No action has been taken by the
Florida PSC on the Office of Public Counsel's petition. For additional
information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future
Earnings Potential" and Item 1 - Business - "Regulation - State Commissions" of
GULF in the Form 10-K.
The FASB issued Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, which was originally to be adopted by the year 2000.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In June 1999, the FASB issued Statement
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133, which amends FASB Statement No.
133 to be effective for all fiscal years beginning after June 15, 2000 (January
1, 2001 for companies with calendar-year fiscal years). Adoption of this
statement is not expected to have a material impact on GULF's 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 1999
included the addition of approximately $33.2 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
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.
48
<PAGE>
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Sources of Capital
In addition to the financing activities previously described herein, GULF plans
to obtain the funds required for construction and other purposes from sources
similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. 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, 1999,
approximately $3.3 million of cash and cash equivalents and $31.5 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, 1999,
GULF had $85.0 million of short-term notes payable to banks. Management believes
that the need for working capital can be adequately met by utilizing lines of
credit without maintaining large cash balances.
49
<PAGE>
MISSISSIPPI POWER COMPANY
50
<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,
--------------------------- ---------------------------
1999 1998 1999 1998
------------- ------------ ------------- ------------
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Revenues $155,333 $148,064 $276,733 $269,345
Revenues from affiliates 3,257 8,548 4,292 9,423
------------- ------------ ------------- ------------
Total operating revenues 158,590 156,612 281,025 278,768
------------- ------------ ------------- ------------
OPERATING EXPENSES:
Operation--
Fuel 46,706 45,113 78,228 72,401
Purchased power from non-affiliates 7,162 8,988 9,507 13,288
Purchased power from affiliates 7,497 5,118 16,399 16,414
Other 27,683 33,102 54,730 56,948
Maintenance 14,265 11,564 25,866 22,958
Depreciation and amortization 11,780 11,441 23,569 23,094
Taxes other than income taxes 12,208 11,160 23,315 23,240
Federal and state income taxes 9,101 10,003 13,374 14,935
------------- ------------ ------------- ------------
Total operating expenses 136,402 136,489 244,988 243,278
------------- ------------ ------------- ------------
OPERATING INCOME 22,188 20,123 36,037 35,490
OTHER INCOME (EXPENSE):
Interest income 69 213 150 263
Other, net 587 630 1,221 863
Income taxes applicable to other income (323) (41) (632) (354)
------------- ------------ ------------- ------------
INCOME BEFORE INTEREST CHARGES 22,521 20,925 36,776 36,262
------------- ------------ ------------- ------------
INTEREST AND OTHER CHARGES:
Interest on long-term debt 5,034 5,123 10,044 9,921
Interest on notes payable 874 490 1,286 918
Amortization of debt discount, premium and expense, net 361 335 717 723
Other interest charges 96 62 178 203
Distributions on preferred securities of subsidiary companies 699 699 1,398 1,398
------------- ------------ ------------- ------------
Interest and other charges, net 7,064 6,709 13,623 13,163
------------- ------------ ------------- ------------
NET INCOME 15,457 14,216 23,153 23,099
DIVIDENDS ON PREFERRED STOCK 504 504 1,007 999
------------- ------------ ------------- ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $14,953 $13,712 $22,146 $22,100
============= ============ ============= ============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
MISSISSIPPI POWER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Six Months
Ended June 30,
----------------------------
1999 1998
------------ -----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 23,153 $ 23,099
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 25,637 25,112
Deferred income taxes 1,747 (1,687)
Other, net (1,226) 1,891
Changes in certain current assets and liabilities--
Receivables, net (15,694) (7,444)
Inventories (13,605) (9,047)
Payables (7,287) 1,682
Taxes accrued (161) 3,671
Other (3,329) (2,352)
------------ -----------
Net cash provided from operating activities 9,235 34,925
------------ -----------
INVESTING ACTIVITIES:
Gross property additions (26,700) (31,755)
Other (6,879) (5,131)
------------ -----------
Net cash used for investing activities (33,579) (36,886)
------------ -----------
FINANCING ACTIVITIES:
Proceeds--
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)
Senior Notes (57) -
Notes payable, net 56,000 -
Payment of preferred stock dividends (1,007) (999)
Payment of common stock dividends (27,600) (25,500)
Miscellaneous (243) (276)
------------ -----------
Net cash provided from financing activities 27,093 28,658
------------ -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,749 26,697
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,327 4,432
============ ===========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,076 $ 31,129
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $12,722 $11,482
Income taxes 97 (534)
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At June 30,
1999 At December 31,
(Unaudited) 1998
---------------------------------
UTILITY PLANT:
<S> <C> <C>
Plant in service, at original cost $1,571,317 $1,553,112
Less accumulated provision for depreciation 604,047 583,957
-------------- --------------
967,270 969,155
Construction work in progress 58,019 51,517
-------------- --------------
Total 1,025,289 1,020,672
-------------- --------------
OTHER PROPERTY AND INVESTMENTS: 1,400 979
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 4,076 1,327
Receivables --
Customer accounts receivable 40,279 29,829
Regulatory clauses under recovery 8,803 8,042
Other accounts and notes receivable 15,523 12,495
Affiliated companies 12,409 10,946
Accumulated provision for uncollectible accounts (500) (621)
Fossil fuel stock, at average cost 28,871 16,418
Materials and supplies, at average cost 19,887 18,735
Current portion of accumulated deferred income taxes 1,210 4,248
Prepayments 4,301 1,651
Vacation pay deferred 4,717 4,717
-------------- --------------
Total 139,576 107,787
-------------- --------------
DEFERRED CHARGES:
Debt expense and loss, being amortized 13,167 13,713
Deferred charges related to income taxes 21,313 22,697
Long-term notes receivable 1,660 2,072
Work force reduction plan 7,672 12,748
Miscellaneous 12,139 8,937
-------------- --------------
Total 55,951 60,167
-------------- --------------
TOTAL ASSETS $1,222,216 $1,189,605
============== ==============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At June 30,
1999 At December 31,
(Unaudited) 1998
---------------------------------
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 179,474 179,474
Premium on preferred stock 326 326
Retained earnings 168,286 173,740
-------------- --------------
385,777 391,231
Preferred stock 31,809 31,809
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding Company Junior Subordinated Notes 35,000 35,000
Long-term debt 292,744 292,744
-------------- --------------
Total 745,330 750,784
-------------- --------------
CURRENT LIABILITIES:
Long-term debt due within one year 50,020 50,020
Notes payable 69,000 13,000
Accounts payable --
Affiliated companies 11,120 8,788
Regulatory clauses over recovery - 4,412
Other 36,818 47,113
Customer deposits 3,477 3,272
Taxes accrued--
Federal and state income 11,518 1,124
Other 20,824 31,379
Interest accrued 3,133 2,955
Miscellaneous 10,494 11,753
-------------- --------------
Total 216,404 173,816
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 143,406 143,852
Accumulated deferred investment tax credits 25,301 25,913
Deferred credits related to income taxes 35,619 37,277
Postretirement benefits other than pension 26,255 25,869
Accumulated provision for property damage 334 910
Work force reduction plan 12,067 13,051
Miscellaneous 17,500 18,133
-------------- --------------
Total 260,482 265,005
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $1,222,216 $1,189,605
============== ==============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
</TABLE>
54
<PAGE>
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SECOND QUARTER 1999 vs. SECOND QUARTER 1998
AND
YEAR-TO-DATE 1999 vs. YEAR-TO-DATE 1998
RESULTS OF OPERATIONS
Earnings
MISSISSIPPI's net income after dividends on preferred stock for the second
quarter and year-to-date 1999 was $14.9 million and $22.1 million, respectively,
compared to $13.7 million and $22.1 million for the corresponding periods of
1998. Earnings for the current quarter increased $1.2 million or 9.1% due
primarily to an increase 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......................................... $7,269 4.9 $7,388 2.7
Revenues from affiliates......................... (5,291) (61.9) (5,131) (54.5)
Purchased power from non-affiliates.............. (1,826) (20.3) (3,781) (28.5)
Purchased power from affiliates.................. 2,379 46.5 (15) (0.1)
Other operation expense.......................... (5,419) (16.4) (2,218) (3.9)
Maintenance expense.............................. 2,701 23.4 2,908 12.7
</TABLE>
Revenues. Revenue increases for the second quarter and year-to-date 1999
result primarily from increased energy sales to territorial wholesale customers
and year-to-date, to a lesser extent, from increased retail energy sales. These
revenue increases were partially offset by decreases in non-territorial
wholesale energy sales for the quarter and year-to-date of 21.8% and 40.7%,
respectively. Territorial wholesale energy sales were up 11.6% for the quarter
and 11.4% year-to-date due to strong growth in the wholesale service areas. In
addition, for the quarter, retail energy sales to industrial customers were up
3.9%, while energy sales to residential and commercial customers were down by
6.9% and 0.2%. Year-to-date, retail energy sales to commercial and industrial
customers were up 4.3% and 2.2%, respectively, while energy sales to residential
customers were down 6.1%. Industrial energy sales were positively impacted by
increased production by several larger industrial customers, while commercial
energy sales were positively impacted by increased tourism and strong growth in
this sector. Residential energy sales were lower due to milder temperatures
during the current quarter and year-to-date when compared same periods in 1998.
Retail revenues, excluding those revenues which represent the recovery of fuel
expense and certain other expenses and do not affect income, increased $1.3
million for the current quarter and $0.6 million year-to-date. Wholesale
territorial revenues, excluding fuel revenues which do not affect income,
increased $2.6 million for the current quarter and $5.7 million year-to-date.
55
<PAGE>
MISSISSIPPI 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.
Purchased power from non-affiliates. This item decreased for the quarter
and year-to-date 1999 when compared to the corresponding periods in 1998
reflecting the decrease in the demand for energy.
Other operation expense. These costs decreased for the current quarter and
year-to-date due primarily to a decrease in administrative and general expenses.
Administrative and general expenses were down due to higher amortization of the
work force reduction plan in 1998.
Maintenance expense. These expenses were up for the quarter and
year-to-date due to increased maintenance on distribution lines.
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 weather to 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 1999 ECO Plan filing was approved, as
filed, by the Mississippi PSC on March 18, 1999 and resulted in a slight
increase 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.
The U.S. Environmental Protection Agency is conducting an industry-wide
investigation concerning the compliance status of certain coal-fired generating
facilities, including certain of MISSISSIPPI's units, under the new source
review provisions of the Clean Air Act. Although the outcome of this matter
cannot now be determined, if adverse it could result in substantial penalties
and additional capital costs.
MISSISSIPPI's plans to achieve Year 2000 readiness have been implemented
and are included in the SOUTHERN system's Year 2000 Program. The costs related
to MISSISSIPPI's Year 2000 program are expected to be $4.9 million. From its
inception through June 30, 1999, the Year 2000 program costs, recognized as
expense, amounted to $4.6 million. For additional information, see SOUTHERN's
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - "Future Earnings Potential" herein.
56
<PAGE>
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which was to be adopted by the year 2000.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In June 1999, the FASB issued Statement
No. 137, Accounting for Derivative Instruments and Hedging Activities Deferral
of the Effective Date of FASB Statement No. 133 - an amendment of FASB Statement
No. 133, which delayed adoption until the year 2001. MISSISSIPPI has not yet
quantified the impact of adopting this statement on its financial statements;
however, the adoption could increase volatility in earnings.
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 MISSISSIPPI's financial condition during the first six months
of 1999 included the addition of approximately $26.7 million to utility plant.
The funds for these additions and other capital requirements were derived
primarily from operations. See MISSISSIPPI's Condensed Statements of Cash Flows
for further details.
Financing Activities
MISSISSIPPI plans to continue, to the extent possible, a program to retire
higher-cost debt and replace these securities with lower-cost capital.
Capital Requirements
In April 1999, MISSISSIPPI and Escatawpa Funding, Limited Partnership
("Escatawpa"), entered into a lease agreement whereby MISSISSIPPI will design
and construct, as agent for Escatawpa, a 1,064 megawatt natural gas combined
cycle facility. It is expected that the project will cost approximately $406
million, and upon completion of the facility, MISSISSIPPI will lease the
facility from Escatawpa for an initial term of approximately 10 years. For
additional information, reference is made to Item 7 - MANAGEMENT'S DISCUSSION
AND ANALYSIS - "Capital Requirements for Construction" of MISSISSIPPI and Notes
3 and 4 to the financial statements of MISSISSIPPI in Item 8 of the Form 10-K.
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.
57
<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, 1999, approximately $4.1 million of cash and cash equivalents and
approximately $76.3 million of unused committed credit arrangements with banks
(including $10.8 million of such arrangements under which borrowings may be made
only to fund purchase obligations relating to variable rate pollution control
bonds). At June 30, 1999, MISSISSIPPI had short-term notes payable outstanding
of $69.0 million. Management believes that the need for working capital can be
adequately met by utilizing lines of credit without maintaining large cash
balances.
58
<PAGE>
SAVANNAH ELECTRIC
AND
POWER COMPANY
59
<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,
--------------------------- ---------------------------
1999 1998 1999 1998
------------- ------------ ------------- ------------
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Revenues $ 61,114 $ 68,482 $107,846 $116,691
Revenues from Affiliates 578 1,134 944 1,306
------------- ------------ ------------- ------------
Total operating revenues 61,692 69,616 108,790 117,997
------------- ------------ ------------- ------------
OPERATING EXPENSES:
Operation--
Fuel 10,951 15,446 17,544 21,254
Purchased power from non-affiliates 2,361 2,723 3,453 3,936
Purchased power from affiliates 10,276 9,216 19,453 19,380
Other 11,961 11,692 23,240 22,837
Maintenance 4,759 4,884 9,198 8,562
Depreciation and amortization 5,966 5,258 11,943 10,516
Taxes other than income taxes 2,923 3,128 5,827 5,966
Federal and state income taxes 3,383 5,663 4,103 7,726
------------- ------------ ------------- ------------
Total operating expenses 52,580 58,010 94,761 100,177
------------- ------------ ------------- ------------
OPERATING INCOME 9,112 11,606 14,029 17,820
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction (8) 24 13 45
Interest income 27 67 63 135
Other, net (488) (441) (932) (870)
Income taxes applicable to other income 178 145 336 278
------------- ------------ ------------- ------------
INCOME BEFORE INTEREST CHARGES 8,821 11,401 13,509 17,408
------------- ------------ ------------- ------------
INTEREST AND OTHER CHARGES:
Interest on long-term debt 2,463 2,608 4,938 5,318
Allowance for debt funds used during construction (101) (22) (127) (48)
Interest on notes payable 177 112 198 138
Amortization of debt discount, premium and expense, net 235 220 468 407
Distributions on preferred securities of subsidiary trust 685 - 1,370 -
Other interest charges 94 95 185 198
------------- ------------ ------------- ------------
Interest and other charges, net 3,553 3,013 7,032 6,013
------------- ------------ ------------- ------------
NET INCOME 5,268 8,388 6,477 11,395
DIVIDENDS ON PREFERRED STOCK - 581 - 1,162
------------- ------------ ------------- ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 5,268 $ 7,807 $ 6,477 $10,233
============= ============ ============= ============
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
</TABLE>
60
<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,
-----------------------------
1999 1998
------------ ------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 6,477 $ 11,395
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 12,757 11,348
Deferred income taxes and investment tax credits, net (775) 3,171
Allowance for equity funds used during construction (13) (45)
Other, net 559 (866)
Changes in certain current assets and liabilities--
Receivables, net (12,533) (17,467)
Inventories (2,173) 505
Payables 4,177 10,238
Taxes accrued (362) (950)
Other 1,032 (1,956)
------------ ------------
Net cash provided from operating activities 9,146 15,373
------------ ------------
INVESTING ACTIVITIES:
Gross property additions (17,019) (8,126)
Other (1,926) (832)
------------ ------------
Net cash used for investing activities (18,945) (8,958)
------------ ------------
FINANCING ACTIVITIES:
Proceeds--
Other long-term debt - 50,000
Retirements--
First mortgage bonds (15,800) (30,000)
Other long-term debt (254) (20,340)
Notes payable, net 35,400 10,000
Payment of preferred stock dividends - (1,162)
Payment of common stock dividends (12,400) (11,600)
Miscellaneous 319 (2,232)
------------ ------------
Net cash provided from (used for) financing activities 7,265 (5,334)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,534) 1,081
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,962 6,144
============ ============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,428 $ 7,225
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $6,670 $6,718
Income taxes 224 1,786
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At June 30,
1999 At December 31,
(Unaudited) 1998
------------------------------
UTILITY PLANT:
<S> <C> <C>
Plant in service, at original cost $794,676 $781,964
Less accumulated provision for depreciation 352,435 341,930
------------ -------------
442,241 440,034
Construction work in progress 6,488 2,908
------------ -------------
Total 448,729 442,942
------------ -------------
OTHER PROPERTY AND INVESTMENTS: 1,420 1,420
------------ -------------
CURRENT ASSETS:
Cash and cash equivalents 3,428 5,962
Receivables --
Customer accounts receivable 24,501 18,030
Other accounts and notes receivable 3,748 3,543
Affiliated companies 8,089 1,388
Accumulated provision for uncollectible accounts (239) (284)
Fuel cost under recovery 16,739 17,628
Fossil fuel stock, at average cost 6,902 4,984
Materials and supplies, at average cost 6,751 6,496
Prepayments 1,207 4,772
------------ -------------
Total 71,126 62,519
------------ -------------
DEFERRED CHARGES:
Deferred charges related to income taxes 16,751 17,130
Debt issue expense, being amortized 3,162 3,554
Premium on reacquired debt, being amortized 8,791 8,570
Prepaid pension costs 2,410 3,281
Cash surrender value of life insurance for deferred compensation plans 14,179 14,179
Miscellaneous 3,966 2,204
------------ -------------
Total 49,259 48,918
------------ -------------
TOTAL ASSETS $570,534 $555,799
============ =============
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At June 30,
1999 At December 31,
(Unaudited) 1998
------------------------------
CAPITALIZATION:
<S> <C> <C>
Common stock equity --
Common stock (par value 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 107,031 112,954
------------ -------------
169,942 175,865
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding Company Junior Subordinated Notes 40,000 40,000
Long-term debt 147,410 163,443
------------ -------------
Total 357,352 379,308
------------ -------------
CURRENT LIABILITIES:
Long-term debt due within one year 668 689
Notes payable 35,400 -
Accounts payable --
Affiliated companies 4,860 5,014
Other 13,614 10,833
Customer deposits 5,461 5,224
Taxes accrued--
Federal and state income 1,502 2,467
Other 2,071 2,891
Interest accrued 3,725 3,815
Vacation pay accrued 2,038 1,978
Miscellaneous 3,960 6,700
------------ -------------
Total 73,299 39,611
------------ -------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 83,621 82,778
Accumulated deferred investment tax credits 11,611 11,943
Deferred credits related to income taxes 20,775 21,349
Deferred compensation plans 10,042 9,788
Postretirement benefits 7,214 6,434
Miscellaneous 6,620 4,588
------------ -------------
Total 139,883 136,880
------------ -------------
TOTAL CAPITALIZATION AND LIABILITIES $570,534 $555,799
============ =============
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
</TABLE>
63
<PAGE>
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SECOND QUARTER 1999 vs. SECOND QUARTER 1998
AND
YEAR-TO-DATE 1999 vs. YEAR-TO-DATE 1998
RESULTS OF OPERATIONS
Earnings
SAVANNAH's net income after dividends on preferred stock for the second quarter
and year-to-date 1999 was $5.3 million and $6.5 million, respectively, as
compared to $7.8 million and $10.2 million for the corresponding periods of
1998. Earnings decreased due to lower operating revenues primarily reflecting
the Georgia PSC's accounting order and, to a lesser extent, mild weather. For
additional information, see Note (N) in the "Notes to the Condensed Financial
Statements" herein for details regarding the accounting order.
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......................................... $(7,368) (10.8) $(8,845) (7.6)
Fuel expense..................................... (4,495) (29.1) (3,710) (17.5)
Depreciation and amortization.................... 708 13.5 1,427 13.6
Maintenance expense.............................. (125) (2.6) 636 7.4
</TABLE>
Revenues. Revenues for the quarter and year-to-date 1999 fell primarily due
to lower total energy sales, particularly to the retail sector, and tariff
reductions implemented as a part of the Georgia PSC accounting order. Retail
energy sales to residential, commercial and industrial customers for the quarter
were down 8.3%, 1.8% and 9.2%, respectively. Year-to-date, retail energy sales
to these same customers were down 3.2%, 0.5% and 20.6%, respectively.
Residential and commercial energy sales were affected by the mild temperatures
while industrial energy sales were affected by reduced demand from one
industrial customer and the shut-down of another industrial customer's
facilities. In the second quarter and year-to-date 1999, the impacts on
SAVANNAH's revenues from this shut-down were $0.2 million and $0.4 million,
respectively. For additional information, see "Future Earnings Potential"
herein.
Fuel expenses. The decreases in these costs from the corresponding periods
in 1998 are attributed to lower demand for energy and lower coal prices.
Depreciation and amortization expense. This item increased during the
current quarter and year-to-date 1999 when compared to the corresponding periods
in 1998 due primarily to additional depreciation charges pursuant to the Georgia
PSC accounting order.
Maintenance expense. The year-to-date increase is primarily attributed to
increased distribution line clearance expenses and a turbine dismantle
inspection of SAVANNAH's largest coal unit.
64
<PAGE>
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from weather to energy sales growth to a less regulated, more
competitive environment.
In June 1998, the Georgia PSC approved a four-year accounting order for
SAVANNAH. Reference is made to Note (N) in the "Notes to the Condensed Financial
Statements" herein and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future
Earnings Potential" of SAVANNAH in the Form 10-K for additional information.
In mid-1998, one of SAVANNAH's largest industrial customers added an
additional steam turbine unit. The impact of this on SAVANNAH's revenues had
been planned for, and the customer is under contract for a minimum of 5
megawatts per year. In October 1998, another of SAVANNAH's largest customers
closed its Savannah operations. Base revenues from this customer had averaged $2
million annually. Under the terms of its contract with SAVANNAH, this customer
is obligated to pay $1 million annually through 2001.
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.
The U.S. Environmental Protection Agency is conducting an industry-wide
investigation concerning the compliance status of certain coal-fired generating
facilities, including certain of SAVANNAH's units, under the new source review
provisions of the Clean Air Act. Although the outcome of this matter cannot now
be determined, if adverse it could result in substantial penalties and
additional capital costs.
SAVANNAH's plans to achieve Year 2000 readiness have been implemented and
are included in the SOUTHERN system's Year 2000 Program. The costs related to
SAVANNAH's Year 2000 program are expected to be $1.2 million. From its inception
through June 30, 1999, the Year 2000 program costs, recognized as expense,
amounted to $1.0 million. For additional information, see SOUTHERN's
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - "Future Earnings Potential" herein.
The FASB issued Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, which was originally to be adopted by the year 2000.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In June 1999, the FASB issued Statement
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133, which amends FASB Statement No.
133 to be effective for all fiscal years beginning after June 15, 2000 (January
1, 2001 for companies with calendar-year fiscal years). SAVANNAH has not yet
quantified the impact of adopting this statement on its financial statements;
however, the adoption could increase volatility in earnings.
65
<PAGE>
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Reference is made to Notes (B) and (N) in the "Notes to the Condensed
Financial Statements" herein for discussion of various contingencies and other
matters which may affect future earnings potential.
FINANCIAL CONDITION
Overview
Major changes in SAVANNAH's financial condition during the first six months of
1999 included the addition of approximately $17 million to utility plant. The
funds for these additions and other capital requirements were derived primarily
from operations and credit arrangements with banks. See SAVANNAH's Condensed
Statements of Cash Flows for further details.
Financing Activities
In June 1999, SAVANNAH purchased on the open market all $15 million outstanding
of its 7 7/8% Series First Mortgage Bonds due May 1, 2025. This purchase was
financed with short-term debt. 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,
1999, approximately $3.4 million of cash and cash equivalents and approximately
$25.1 million of unused credit arrangements with banks. At June 30, 1999,
SAVANNAH had $35.4 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.
66
<PAGE>
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SAVANNAH ELECTRIC AND POWER COMPANY
INDEX TO APPLICABLE NOTES TO
FINANCIAL STATEMENTS BY REGISTRANT
Registrant Applicable Notes
SOUTHERN A, B, C, D, E, F, H, I, J, K, L, M, O, P
ALABAMA A, B, C, F, G, H, I, J
GEORGIA A, B, C, F, G, K, L, M
GULF A, B, F
MISSISSIPPI A, B, F
SAVANNAH A, B, N
67
<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, 1999 and 1998. 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 of each registrant be read in conjunction with the
financial statements of such registrant and the notes thereto included in
the 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, 1999, the status of outstanding non-trading
related derivative contracts was as follows:
68
<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 $773,523 $(23,882)
2001-2012 (pound)600,000 $(82,904)
2002-2007 DM691,000 $(19,449)
Cross currency swaps 2001-2007 (pound)413,800 $20,765
Cross currency swaption 2003 DM510,000 $6,456
(pound) - Denotes British pounds sterling.
DM - Denotes Deutschemark.
</TABLE>
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 made guarantees to certain
counterparties regarding performance of contractual commitments by the
joint venture. At June 30, 1999, outstanding guarantees related to the
estimated fair value of net contractual commitments were approximately
$115 million. Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential" of SOUTHERN in Item 7 and Notes 1 and 5 to the
financial statements of SOUTHERN under the captions "Financial Instruments
for Trading Activities" and "Energy Trading and Marketing Commitments",
respectively, in Item 8 of the Form 10-K.
(E) SOUTHERN's principal business segment -- or its traditional 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. 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 Southern Energy All
Electric Non-Traditional Services Other Reconciling
Utilities International Domestic Total (Note) Eliminations Consolidated
------------ -------------------------------- --------- ------------- ---------------
Three Months Ended June 30, 1999: (in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $ 2,243 $ 378 $ 125 $ 503 $ 55 $ (10) $ 2,791
Segment net income (loss) 264 58 19 77 (11) (16) 314
Six Months Ended June 30, 1999:
Operating revenues 4,125 840 185 1,025 97 (14) 5,233
Segment net income (loss) 432 146 19 165 (44) (15) 538
Total assets at June 30, 1999 25,077 9,236 4,045 13,281 1,466 (2,254) 37,570
----------------------------------------- ------------ ---------- ---------- ---------- --------- ------------- ---------------
Three Months Ended June 30, 1998:
Operating revenues $ 2,431 $ 411 $ 33 $ 444 $ 42 $ (4) $ 2,913
Segment net income (loss) 267 34 1 35 (30) (2) 270
Six Months Ended June 30, 1998:
Operating revenues 4,385 886 67 953 77 (7) 5,408
Segment net income (loss) 456 91 7 98 (37) (5) 512
Total assets at December 31, 1998 24,421 9,578 2,869 12,447 1,438 (2,114) 36,192
------------------------------------------ ----------- ----------- -------- ---------- --------- -------------- ---------------
</TABLE>
69
<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 FERC orders in proceedings 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
power sales agreements. A settlement agreement relating to the proceedings
pending at the FERC which provides for an equity return of 11% under the
formula rates has been filed with the FERC for its approval. If approved,
these rates will be effective as of January 5, 1999 for three unit power
sales contracts, and as of July 1, 1999 for the other contracts.
(G) During the first six months of 1999, statutory business trusts, formed by
ALABAMA and GEORGIA of which such companies own all the common securities,
issued mandatorily redeemable preferred securities as follows: (in
thousands)
<TABLE>
<CAPTION>
Maturity Date
Company Date of Issue Amount Rate Notes of Notes
<S> <C> <C> <C> <C> <C>
ALABAMA 2/25/99 $50,000 Auction $51,550 2/28/2029
GEORGIA 2/25/99 $200,000 6.85% $206,186 3/31/2029
</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. ALABAMA and GEORGIA consider that the mechanisms
and obligations relating to the preferred 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.
(H) 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.
(I) Reference is made to Note 3 to the financial statements of SOUTHERN and
ALABAMA in Item 8 of the Form 10-K and to Note (I) to each registrant's
quarterly report on Form 10-Q for the quarter ended March 31, 1999, for
information relating to a judgment against ALABAMA arising from discharges
into Lake Martin.
(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 a class
action 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. The class
of plaintiffs has been decertified on the joint motion of the plaintiffs
and ALABAMA, and it is expected that this action will be settled in the
near future for an immaterial amount.
70
<PAGE>
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(K) 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
rate order approved by the Georgia PSC effective January 1, 1999. The order
decreased annual retail rates by $262 million effective January 1, 1999 and
by an additional $24 million effective January 1, 2000. The order further
provides for $85 million each year, plus up to $50 million annually of any
earnings in excess of a 12.5% retail return on common equity during the
second and third years, to be applied to accelerated amortization or
depreciation of assets. Two-thirds of any additional earnings in excess of
the 12.5% return will be applied to rate reductions and the remaining
one-third retained by GEORGIA.
(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 regarding GEORGIA's
designation as a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act and other
environmental contingencies.
(M) In September 1998, OPC decreased its purchases of capacity under a power
supply agreement by 250 megawatts, resulting in a $16 million reduction in
1999 revenues. The resources associated with the decreased purchases in
1998 will be used to meet the needs of GEORGIA's retail customers through
2004. As a result of additional reduction notices given by OPC under its
agreement with GEORGIA, GEORGIA's capacity revenues received from OPC were
estimated to decrease by an additional $7 million in 1999, $18 million in
2000 and $4 million in 2001. Effective April 1, 1999, GEORGIA and OPC
entered into a new agreement which will delay, in part, planned purchase
reductions by OPC. The new agreement has been filed with the FERC under
SOUTHERN's market-based rate authority. Based on the above, GEORGIA's
capacity revenues received from OPC are now estimated to decrease by
approximately $6 million in 1999, $15 million in 2000 and $7 million in
2001.
(N) In 1998, the Georgia PSC approved a new accounting order for SAVANNAH.
Under this order, SAVANNAH will reduce electric rates to its small
business customers, expense additional storm damage accruals and accrue
additional depreciation on generating assets. For additional information
concerning the four-year accounting order approved by the Georgia PSC in
June 1998, reference is made to Note 3 to the financial statements of
SAVANNAH in Item 8 of the Form 10-K.
(O) Reference is made to Note 3 to the financial statements of SOUTHERN in Item
8 and to Legal Proceedings in Item 3 of the Form 10-K for information
relating to petitions for Chapter 11 bankruptcy relief which were filed in
the U. S. Bankruptcy Court for the Southern District of Alabama. Effective
with the bankruptcy filing in January 1999, Mobile Energy is accounted for
under the equity method, rather than being consolidated as before.
SOUTHERN's equity investment in Mobile Energy was $56 million at June 30,
1999. At June 30, 1999, Mobile Energy had total assets of $379 million and
senior debt outstanding of $201 million of first mortgage bonds and $76
million related to tax-exempt bonds. In connection with the bond
financings, SOUTHERN provided certain limited guarantees, in lieu of
funding debt service and maintenance reserve accounts with cash. In March
1999, under an agreement with the bondholders, SOUTHERN paid $36,144,000
pursuant to the guarantees. The bondholders reserved the right to seek an
additional $2,700,000, which SOUTHERN believes was satisfied by an earlier
transfer of funds. The ultimate outcome of this matter cannot now be
determined.
71
<PAGE>
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(P) In 1998, SOUTHERN's Board of Directors authorized SOUTHERN to make open
market purchases of its common stock in an aggregate amount not to exceed
$300 million through March 31, 1999. The purpose of the program was to
provide shares of common stock for the purchase requirements of SOUTHERN's
various stockholder, employee and outside director stock purchase plans.
Under the program, 4.4 million shares had been repurchased and 2.4 million
shares were reissued through June 30, 1999.
Also, in April 1999, SOUTHERN's board approved the repurchase of up to 50
million shares of SOUTHERN's common stock over the next two years through
open market or privately negotiated transactions. The program does not
establish a target stock price or timetable for specific repurchases.
Under this program, 18,756,500 shares have been repurchased through August
10, 1999, with funding provided from SOUTHERN's commercial paper program.
72
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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 26,
1999. Each nominee for director of SOUTHERN received the
requisite plurality of votes. The vote tabulation was as
follows:
Nominees Shares For Shares Withhold Vote
Dorrit J. Bern 578,455,494 8,194,383
Thomas J. Chapman 574,296,381 12,353,496
A. D. Correll 579,122,020 7,529,457
A. W. Dahlberg 578,774,016 7,878,261
H. Allen Franklin 579,178,347 7,473,130
Bruce S. Gordon 578,717,346 7,934,131
L. G. Hardman III 579,123,790 7,528,487
Elmer B. Harris 578,931,587 7,719,889
David J. Lesar 574,432,727 12,219,949
Zack T. Pate 579,029,105 7,624,305
Gloria M. Shatto* 578,536,622 8,116,388
Gerald J. St. Pe 574,685,364 11,965,332
ALABAMA
ALABAMA held its annual common stockholders meeting on April
23, 1999, and the following persons were elected to serve as
directors of ALABAMA:
Whit Armstrong Thomas C. Meredith
David J. Cooper William V. Muse
A. W. Dahlberg John T. Porter
Elmer B. Harris Robert D. Powers
Carl E. Jones, Jr. Andreas Renschler
Patricia M. King C. Dowd Ritter
James K. Lowder James H. Sanford
Wallace D. Malone, Jr. John Cox Webb, IV
All of the 5,608,955 outstanding shares of ALABAMA's common
stock are owned by SOUTHERN and were voted for the election of
such directors.
73
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.(Continued)
GEORGIA
By written consent, in lieu of the annual meeting of
stockholders of GEORGIA, effective May 19, 1999, the following
persons were elected to serve as directors of GEORGIA:
Daniel P. Amos James R. Lientz, Jr.
Juanita P. Baranco Zell Miller
A. W. Dahlberg G. Joseph Prendergast
William A. Fickling, Jr. Herman J. Russell
H. Allen Franklin Gloria M. Shatto*
L. G. Hardman III William Jerry Vereen
Warren Y. Jobe Carl Ware
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 29, 1999, the following
persons were elected to serve as directors of GULF:
Travis J. Bowden W. Deck Hull, Jr.
Fred C. Donovan Joseph K. Tannehill
H. Allen Franklin 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.
MISSISSIPPI
MISSISSIPPI held its annual stockholders meeting on April 6,
1999, and the following persons were elected to serve as
directors of MISSISSIPPI:
Paul J. DeNicola** Aubrey K. Lucas
Edwin E. Downer Malcolm Portera
Dwight H. Evans George A. Schloegel
Robert S. Gaddis Philip J. Terrell
Linda T. Howard N. Eugene Warr
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.
74
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.(Continued)
SAVANNAH
SAVANNAH held its annual stockholders meeting on May 18, 1999,
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.
* Dr. Shatto passed away on June 13, 1999.
** Mr. DeNicola resigned effective July 1, 1999.
Item 6. Exhibits and Reports on Form 8-K.
<TABLE>
<CAPTION>
(a) Exhibits.
<S> <C>
Exhibits 15 - Letter re: unaudited interim financial information
(a) ALABAMA
(b) GEORGIA
Exhibit 24 - (a) Powers of Attorney and resolutions. (Designated in the Form
10-K for the year ended December 31, 1998, File Nos. 1-3526,
1-3164, 1-6468, 0-2429, 0-6849 and 1-5072 as Exhibits 24(a),
24(b), 24(c), 24(d), 24(e) and 24(f), respectively, and
incorporated herein by reference.)
- (b) Power of Attorney for GEORGIA.
Exhibits 27 - Financial Data Schedule
(a) SOUTHERN
(b) ALABAMA
(c) GEORGIA
(d) GULF
(e) MISSISSIPPI
(f) SAVANNAH
</TABLE>
(b) Reports on Form 8-K.
ALABAMA filed a Current Report on Form 8-K
dated May 19, 1999:
Items reported: Item 5
Item 7
Financial statements filed: None
75
<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 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, 1999
- -------------------------------------------------------------------------------
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, 1999
76
<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 David M. Ratcliffe
President and Chief Executive Officer
(Principal Executive Officer)
By Thomas A. Fanning
Executive Vice President, Treasurer and Chief Financial Officer
(Principal Financial Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: August 12, 1999
- -------------------------------------------------------------------------------
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, 1999
77
<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, 1999
- -------------------------------------------------------------------------------
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, 1999
78
EXHIBIT 15(a)
ARTHUR ANDERSEN LLP
August 9, 1999
Alabama Power Company
600 North 18th Street
Birmingham, Alabama 35291
Ladies and Gentlemen:
We are aware that Alabama Power Company has incorporated by reference in
Registration Statement 333-67453 its Form 10-Q for the quarter ended June 30,
1999 which includes our report on Alabama Power Company dated August 9, 1999
covering the unaudited interim financial information contained therein. Pursuant
to Regulation C of the Securities Act of 1933 (the "Act"), such report is not
considered a part of the Registration Statement prepared or certified by our
firm or a report prepared or certified by our firm within the meaning of
Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
EXHIBIT 15(b)
ARTHUR ANDERSEN LLP
August 9, 1999
Georgia Power Company
241 Ralph McGill Boulevard, NE
Atlanta, Georgia 30308
Ladies and Gentlemen:
We are aware that Georgia Power Company has incorporated by reference in
Registration Statement 333-75193 its Form 10-Q for the quarter ended June 30,
1999 which includes our report on Georgia Power Company dated August 9, 1999
covering the unaudited interim financial information contained therein. Pursuant
to Regulation C of the Securities Act of 1933 (the "Act"), such report is not
considered a part of the Registration Statement prepared or certified by our
firm or a report prepared or certified by our firm within the meaning of
Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
Exhibit 24(b)
August 9, 1999
W. L. Westbrook and Wayne Boston
Dear Sirs:
Georgia Power Company proposes to file or join in the filing of
statements under the Securities Exchange Act of 1934 with the Securities and
Exchange Commission with respect to the filing of its quarterly reports on Form
10-Q during 1999.
Georgia Power Company and the undersigned director and officers of said
Company, individually as a director and/or as an officer of the Company, hereby
make, constitute and appoint each of you our true and lawful Attorney for each
of us and in each of our names, places and steads to sign and cause to be filed
with the Securities and Exchange Commission in connection with the foregoing
said quarterly reports on Form 10-Q and any appropriate amendment or amendments
thereto and any necessary exhibits.
Yours very truly,
GEORGIA POWER COMPANY
By /s/ David M. Ratcliffe
David M. Ratcliffe
President and Chief Executive
Officer
<PAGE>
- 2 -
/s/ David M. Ratcliffe /s/ Thomas A. Fanning
- ------------------------------ ------------------------------
David M. Ratcliffe Thomas A. Fanning
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27(a) Financial Data Schedule
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for June 30, 1999, 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-31-1999
<PERIOD-END> Jun-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 24,893,116
<OTHER-PROPERTY-AND-INVEST> 6,590,890
<TOTAL-CURRENT-ASSETS> 3,631,560
<TOTAL-DEFERRED-CHARGES> 2,454,198
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 37,569,764
<COMMON> 3,503,085
<CAPITAL-SURPLUS-PAID-IN> 2,172,555
<RETAINED-EARNINGS> 3,848,907
<TOTAL-COMMON-STOCKHOLDERS-EQ> 9,524,547
2,425,120
369,008
<LONG-TERM-DEBT-NET> 3,968,529
<SHORT-TERM-NOTES> 1,159,266
<LONG-TERM-NOTES-PAYABLE> 6,168,346
<COMMERCIAL-PAPER-OBLIGATIONS> 2,841,967
<LONG-TERM-DEBT-CURRENT-PORT> 1,139,364
0
<CAPITAL-LEASE-OBLIGATIONS> 127,136
<LEASES-CURRENT> 5,241
<OTHER-ITEMS-CAPITAL-AND-LIAB> 9,841,240
<TOT-CAPITALIZATION-AND-LIAB> 37,569,764
<GROSS-OPERATING-REVENUE> 5,232,645
<INCOME-TAX-EXPENSE> 268,503
<OTHER-OPERATING-EXPENSES> 4,080,364
<TOTAL-OPERATING-EXPENSES> 4,348,867
<OPERATING-INCOME-LOSS> 883,778
<OTHER-INCOME-NET> 241,363
<INCOME-BEFORE-INTEREST-EXPEN> 1,125,141
<TOTAL-INTEREST-EXPENSE> 576,619
<NET-INCOME> 548,522
10,221
<EARNINGS-AVAILABLE-FOR-COMM> 538,301
<COMMON-STOCK-DIVIDENDS> 467,324
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 827,970
<EPS-BASIC> 0.77
<EPS-DILUTED> 0.77
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for June 30, 1999, 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-31-1999
<PERIOD-END> Jun-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 7,401,108
<OTHER-PROPERTY-AND-INVEST> 313,402
<TOTAL-CURRENT-ASSETS> 943,431
<TOTAL-DEFERRED-CHARGES> 769,569
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 9,427,510
<COMMON> 224,358
<CAPITAL-SURPLUS-PAID-IN> 1,334,744
<RETAINED-EARNINGS> 1,184,854
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,743,956
347,000
317,512
<LONG-TERM-DEBT-NET> 987,024
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 1,749,881
<COMMERCIAL-PAPER-OBLIGATIONS> 276,751
<LONG-TERM-DEBT-CURRENT-PORT> 371,650
0
<CAPITAL-LEASE-OBLIGATIONS> 4,599
<LEASES-CURRENT> 999
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,628,138
<TOT-CAPITALIZATION-AND-LIAB> 9,427,510
<GROSS-OPERATING-REVENUE> 1,536,940
<INCOME-TAX-EXPENSE> 94,580
<OTHER-OPERATING-EXPENSES> 1,165,716
<TOTAL-OPERATING-EXPENSES> 1,260,296
<OPERATING-INCOME-LOSS> 276,644
<OTHER-INCOME-NET> 18,182
<INCOME-BEFORE-INTEREST-EXPEN> 294,826
<TOTAL-INTEREST-EXPENSE> 130,987
<NET-INCOME> 163,839
7,727
<EARNINGS-AVAILABLE-FOR-COMM> 156,112
<COMMON-STOCK-DIVIDENDS> 196,400
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 288,667
<EPS-BASIC> 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, 1999, 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-31-1999
<PERIOD-END> Jun-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 9,698,462
<OTHER-PROPERTY-AND-INVEST> 387,762
<TOTAL-CURRENT-ASSETS> 1,192,741
<TOTAL-DEFERRED-CHARGES> 1,101,090
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 12,380,055
<COMMON> 344,250
<CAPITAL-SURPLUS-PAID-IN> 1,660,263
<RETAINED-EARNINGS> 1,742,907
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,747,420
889,250
15,451
<LONG-TERM-DEBT-NET> 2,063,060
<SHORT-TERM-NOTES> 318,216
<LONG-TERM-NOTES-PAYABLE> 595,000
<COMMERCIAL-PAPER-OBLIGATIONS> 170,337
<LONG-TERM-DEBT-CURRENT-PORT> 480,000
0
<CAPITAL-LEASE-OBLIGATIONS> 85,515
<LEASES-CURRENT> 550
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,015,256
<TOT-CAPITALIZATION-AND-LIAB> 12,380,055
<GROSS-OPERATING-REVENUE> 2,022,478
<INCOME-TAX-EXPENSE> 154,145
<OTHER-OPERATING-EXPENSES> 1,499,420
<TOTAL-OPERATING-EXPENSES> 1,653,565
<OPERATING-INCOME-LOSS> 368,913
<OTHER-INCOME-NET> (3,241)
<INCOME-BEFORE-INTEREST-EXPEN> 365,672
<TOTAL-INTEREST-EXPENSE> 134,141
<NET-INCOME> 231,531
1,379
<EARNINGS-AVAILABLE-FOR-COMM> 230,152
<COMMON-STOCK-DIVIDENDS> 266,800
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 494,587
<EPS-BASIC> 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, 1999, 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-31-1999
<PERIOD-END> Jun-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,061,730
<OTHER-PROPERTY-AND-INVEST> 1,586
<TOTAL-CURRENT-ASSETS> 166,364
<TOTAL-DEFERRED-CHARGES> 80,690
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,310,370
<COMMON> 38,060
<CAPITAL-SURPLUS-PAID-IN> 218,972
<RETAINED-EARNINGS> 158,546
<TOTAL-COMMON-STOCKHOLDERS-EQ> 415,578
85,000
4,236
<LONG-TERM-DEBT-NET> 247,497
<SHORT-TERM-NOTES> 85,000
<LONG-TERM-NOTES-PAYABLE> 70,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 27,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 376,059
<TOT-CAPITALIZATION-AND-LIAB> 1,310,370
<GROSS-OPERATING-REVENUE> 301,321
<INCOME-TAX-EXPENSE> 10,336
<OTHER-OPERATING-EXPENSES> 256,403
<TOTAL-OPERATING-EXPENSES> 266,739
<OPERATING-INCOME-LOSS> 34,582
<OTHER-INCOME-NET> (411)
<INCOME-BEFORE-INTEREST-EXPEN> 34,171
<TOTAL-INTEREST-EXPENSE> 16,038
<NET-INCOME> 18,133
108
<EARNINGS-AVAILABLE-FOR-COMM> 18,025
<COMMON-STOCK-DIVIDENDS> 30,100
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 22,518
<EPS-BASIC> 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, 1999, 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-31-1999
<PERIOD-END> Jun-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,025,289
<OTHER-PROPERTY-AND-INVEST> 1,400
<TOTAL-CURRENT-ASSETS> 139,576
<TOTAL-DEFERRED-CHARGES> 55,951
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,222,216
<COMMON> 37,691
<CAPITAL-SURPLUS-PAID-IN> 179,800
<RETAINED-EARNINGS> 168,286
<TOTAL-COMMON-STOCKHOLDERS-EQ> 385,777
35,000
31,809
<LONG-TERM-DEBT-NET> 172,801
<SHORT-TERM-NOTES> 69,000
<LONG-TERM-NOTES-PAYABLE> 119,943
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 50,020
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 357,866
<TOT-CAPITALIZATION-AND-LIAB> 1,222,216
<GROSS-OPERATING-REVENUE> 281,025
<INCOME-TAX-EXPENSE> 13,374
<OTHER-OPERATING-EXPENSES> 231,614
<TOTAL-OPERATING-EXPENSES> 244,988
<OPERATING-INCOME-LOSS> 36,037
<OTHER-INCOME-NET> 739
<INCOME-BEFORE-INTEREST-EXPEN> 36,776
<TOTAL-INTEREST-EXPENSE> 13,623
<NET-INCOME> 23,153
1,007
<EARNINGS-AVAILABLE-FOR-COMM> 22,146
<COMMON-STOCK-DIVIDENDS> 27,600
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 9,235
<EPS-BASIC> 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, 1999, 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-31-1999
<PERIOD-END> Jun-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 448,729
<OTHER-PROPERTY-AND-INVEST> 1,420
<TOTAL-CURRENT-ASSETS> 71,126
<TOTAL-DEFERRED-CHARGES> 49,259
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 570,534
<COMMON> 54,223
<CAPITAL-SURPLUS-PAID-IN> 8,688
<RETAINED-EARNINGS> 107,031
<TOTAL-COMMON-STOCKHOLDERS-EQ> 169,942
40,000
0
<LONG-TERM-DEBT-NET> 82,155
<SHORT-TERM-NOTES> 35,400
<LONG-TERM-NOTES-PAYABLE> 60,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 5,255
<LEASES-CURRENT> 668
<OTHER-ITEMS-CAPITAL-AND-LIAB> 177,114
<TOT-CAPITALIZATION-AND-LIAB> 570,534
<GROSS-OPERATING-REVENUE> 108,790
<INCOME-TAX-EXPENSE> 4,103
<OTHER-OPERATING-EXPENSES> 90,658
<TOTAL-OPERATING-EXPENSES> 94,761
<OPERATING-INCOME-LOSS> 14,029
<OTHER-INCOME-NET> (520)
<INCOME-BEFORE-INTEREST-EXPEN> 13,509
<TOTAL-INTEREST-EXPENSE> 7,032
<NET-INCOME> 6,477
0
<EARNINGS-AVAILABLE-FOR-COMM> 6,477
<COMMON-STOCK-DIVIDENDS> 12,400
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 9,146
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
