==============================================================================
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 March 31, 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.
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
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<PAGE>
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No____
<TABLE>
<CAPTION>
Description of Shares Outstanding
Registrant Common Stock at April 30, 1999
<S> <C> <C>
The Southern Company Par Value $5 Per Share 697,089,561
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
March 31, 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............................................... 39
Gulf Power Company
Condensed Statements of Income..................................................................... 41
Condensed Statements of Cash Flows................................................................. 42
Condensed Balance Sheets........................................................................... 43
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 45
Mississippi Power Company
Condensed Statements of Income..................................................................... 49
Condensed Statements of Cash Flows................................................................. 50
Condensed Balance Sheets........................................................................... 51
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 53
Savannah Electric and Power Company
Condensed Statements of Income..................................................................... 58
Condensed Statements of Cash Flows................................................................. 59
Condensed Balance Sheets........................................................................... 60
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 62
Notes to the Condensed Financial Statements........................................................... 65
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................................ 66
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................... 71
Item 2. Changes in Securities..................................................................................... Inapplicable
Item 3. Defaults Upon Senior Securities........................................................................... Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders....................................................... Inapplicable
Item 5. Other Information......................................................................................... Inapplicable
Item 6. Exhibits and Reports on Form 8-K.......................................................................... 71
Signatures ............................................................................................... 73
</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
Ended March 31,
------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
OPERATING REVENUES $2,441,565 $2,494,877
-------------- --------------
OPERATING EXPENSES:
Operation--
Fuel 512,466 474,328
Purchased power 274,426 307,999
Other 487,069 460,569
Maintenance 221,286 199,988
Depreciation and amortization 315,081 332,085
Taxes other than income taxes 146,262 147,332
Income taxes 108,608 135,922
-------------- --------------
Total operating expenses 2,065,198 2,058,223
-------------- --------------
OPERATING INCOME 376,367 436,654
OTHER INCOME:
Equity in earnings of subsidiaries 94,681 34,496
Interest income 29,486 37,905
Other, net 26,712 13,191
Income taxes applicable to other income (16,160) 7,024
-------------- --------------
INCOME BEFORE INTEREST CHARGES 511,086 529,270
-------------- --------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 166,353 174,277
Interest on notes payable 27,457 28,902
Amortization of debt discount, premium and expense, net 9,020 6,957
Other interest charges 13,197 19,108
Minority interests in subsidiaries 21,343 16,587
Distributions on capital and preferred
securities of subsidiary companies 43,767 35,097
Preferred dividends of subsidiary companies 5,633 6,640
-------------- --------------
Interest charges and other, net 286,770 287,568
-------------- --------------
CONSOLIDATED NET INCOME $ 224,316 $ 241,702
============== ==============
AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (Thousands) 698,527 695,051
BASIC AND DILUTED EARNINGS
PER SHARE OF COMMON STOCK $0.32 $0.35
CASH DIVIDENDS PAID PER SHARE $0.335 $0.335
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 Three Months
Ended March 31,
------------------------------
1999 1998
------------- ------------
OPERATING ACTIVITIES:
<S> <C> <C>
Consolidated net income $ 224,316 $ 241,702
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization 357,985 387,956
Deferred income taxes and investment tax credits 33,503 (10,980)
Gain on asset sales (8,814) (142)
Other, net (49,971) 35,213
Changes in certain current assets and liabilities
excluding effects from acquisitions --
Receivables, net 181,305 390,573
Fossil fuel stock (64,830) (68,431)
Materials and supplies (3,573) (255)
Prepayments (38,475) (46,615)
Accounts payable (321,441) (341,549)
Taxes accrued (59,004) 52,966
Other (61,738) (76,572)
------------- ------------
Net cash provided from operating activities 189,263 563,866
------------- ------------
INVESTING ACTIVITIES:
Gross property additions (504,592) (438,163)
Southern Energy business acquisitions, net of cash acquired (38,570) (154,625)
Sales of property 9,192 85
Other (63,126) (61,192)
------------- ------------
Net cash used for investing activities (597,096) (653,895)
------------- ------------
FINANCING ACTIVITIES:
Proceeds--
Common stock 23,705 89,372
Capital and preferred securities 250,000 45,000
Pollution control obligations - 89,990
Other long-term debt 348,271 523,300
Retirements/repurchases--
Preferred stock (85,679) (87)
First mortgage bonds (504,000) (234,740)
Other long-term debt (223,355) (46,106)
Special deposits-redemption funds 7 (89,989)
Notes payable, net 476,648 (218,465)
Payment of common stock dividends (233,879) (232,449)
Miscellaneous 38,857 40,643
------------- ------------
Net cash provided from (used for) financing activities 90,575 (33,531)
------------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (317,258) (123,560)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 871,353 600,820
============= ============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 554,095 $ 477,260
============= ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $286,368 $307,297
Income taxes $25,057 $45,480
Southern Energy business acquisitions--
Fair value of assets acquired $ 38,570 $ 154,625
Less cash paid for common stock 38,570 154,625
============= ============
Liabilities assumed $ - $ -
============= ============
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 March 31,
1999 At December 31,
(Unaudited) 1998
---------------- ----------------
UTILITY PLANT:
<S> <C> <C>
Plant in service $35,025,995 $35,363,533
Less accumulated provision for depreciation 13,447,110 13,239,008
---------------- ----------------
21,578,885 22,124,525
Nuclear fuel, at amortized cost 204,353 216,744
Construction work in progress 1,934,253 1,782,482
---------------- ----------------
Total 23,717,491 24,123,751
---------------- ----------------
OTHER PROPERTY AND INVESTMENTS:
Goodwill, net of accumulated amortization of
of $121,114 at March 31, 1999 and $105,755 at December 31, 1998 2,219,991 2,066,765
Property rights, net of accumulated amortization of
of $180,816 at March 31, 1999 and $169,339 at December 31, 1998 1,191,456 1,184,734
Equity investments in subsidiaries 1,443,120 1,560,293
Nuclear decommissioning trusts 573,614 516,719
Miscellaneous 679,323 643,743
---------------- ----------------
Total 6,107,504 5,972,254
---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 554,095 871,353
Special deposits 65,950 86,592
Receivables, less accumulated provisions for uncollectible accounts
of $103,324 at March 31, 1999 and $112,511 at December 31, 1998 1,519,115 1,797,913
Fossil fuel stock, at average cost 316,789 251,974
Materials and supplies, at average cost 515,865 515,715
Prepayments 137,213 101,843
Vacation pay deferred 79,708 80,752
---------------- ----------------
Total 3,188,735 3,706,142
---------------- ----------------
DEFERRED CHARGES AND OTHER ASSETS:
Deferred charges related to income taxes 1,022,509 1,035,724
Prepaid pension costs 516,027 489,572
Debt expense, being amortized 123,806 129,257
Premium on reacquired debt, being amortized 304,594 294,055
Miscellaneous 457,133 440,754
---------------- ----------------
Total 2,424,069 2,389,362
---------------- ----------------
TOTAL ASSETS $35,437,799 $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 March 31,
1999 At December 31,
(Unaudited) 1998
---------------- ----------------
CAPITALIZATION:
<S> <C> <C>
Common stock, par value $5 per share --
Authorized -- 1 billion shares
Issued -- March 31, 1999: 700,615,244 shares;
-- December 31, 1998: 699,772,723 shares $3,503,076 $3,498,864
Paid-in capital 2,480,408 2,462,116
Treasury, at cost -- March 31,1999: 1,989,215 shares;
-- December 31, 1998: 2,025,536 shares (56,809) (57,863)
Retained earnings 3,868,744 3,878,332
Accumulated other comprehensive income (91,289) 15,400
---------------- ----------------
9,704,130 9,796,849
Preferred stock of subsidiaries 369,061 369,084
Company or subsidiary obligated mandatorily redeemable
capital and preferred securities 2,426,965 2,179,440
Long-term debt 9,952,508 10,471,692
---------------- ----------------
Total 22,452,664 22,817,065
---------------- ----------------
CURRENT LIABILITIES:
Amount of securities due within one year 1,136,050 1,525,596
Notes payable 2,362,801 1,827,808
Accounts payable 689,686 1,026,869
Customer deposits 125,511 125,078
Taxes accrued--
Income taxes 78,363 49,923
Other 183,516 299,051
Interest accrued 179,536 233,355
Vacation pay accrued 112,771 111,611
Miscellaneous 485,493 542,836
---------------- ----------------
Total 5,353,727 5,742,127
---------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 4,406,144 4,480,970
Deferred credits related to income taxes 701,461 714,665
Accumulated deferred investment tax credits 715,700 723,393
Employee benefits provisions 486,317 473,734
Minority interests in subsidiaries 572,942 535,145
Prepaid capacity revenues 92,288 96,080
Department of Energy assessments 64,191 64,191
Disallowed Plant Vogtle capacity buyback costs 54,086 54,458
Storm damage reserves 27,028 23,980
Miscellaneous 511,251 465,701
---------------- ----------------
Total 7,631,408 7,632,317
---------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES $35,437,799 $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
Ended March 31,
-----------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Consolidated net income $ 224,316 $ 241,702
Other comprehensive income:
Foreign currency translation adjustments (164,137) 3,123
Less Applicable income taxes (57,448) 1,093
============== =============
CONSOLIDATED COMPREHENSIVE INCOME $ 117,627 $ 243,732
============== =============
</TABLE>
<TABLE>
<CAPTION>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME
(Stated in Thousands of Dollars)
At March 31, At December 31,
1999 1998
------------- --------------
<S> <C> <C>
Balance at beginning of period $15,400 $ 7,176
Change in current period (106,689) 8,224
============= ==============
BALANCE AT END OF PERIOD $(91,289) $15,400
============= ==============
</TABLE>
10
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 1999 vs. FIRST QUARTER 1998
RESULTS OF OPERATIONS
Earnings
SOUTHERN's consolidated net income for the first quarter of 1999 was $224
million ($0.32 per share) compared to $242 million ($0.35 per share) for the
corresponding period of 1998. Earnings for the traditional business were down
for this quarter due primarily to the timing of GEORGIA's earnings under a new
retail rate order, mild weather and maintenance expenses. 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 summer months. Earnings for the non-traditional business rose primarily
due to the improved earnings from CEPA as a result of gains related to
settlement of claims on construction of a power plant project and improved
financial performance.
SOUTHERN's traditional core business is primarily represented by its five
domestic electric utility operating companies, which provide electric service in
four Southeastern states. Another significant portion of SOUTHERN's business is
its non-traditional business primarily represented by Southern Energy, which
owns and manages international and domestic businesses for SOUTHERN. Businesses
acquired by Southern Energy have been included in the consolidated statements of
income since the date of acquisition. Certain changes in operating revenues and
expenses from the prior period result from such acquisitions.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
-------------------------------
First Quarter
(in thousands) %
Operating revenues........................... $(53,312) (2.1)
Fuel expense................................. 38,138 8.0
Purchased power expense...................... (33,573) (10.9)
Other operation expense...................... 26,500 5.8
Maintenance expense.......................... 21,298 10.6
Equity in earnings of unconsolidated
subsidiaries.............................. 60,185 174.5
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 core business
for the first quarter of 1999 decreased $73 million or 3.7% compared to the same
period of 1998. Despite a slight increase of 1.4% in retail energy sales,
traditional core business revenues decreased for this first quarter of 1999 due
primarily to 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 $46 million for the
first quarter of 1999. Operating revenues for Southern Energy increased
approximately $13 million or 2.6% during the first quarter of 1999 when compared
to the corresponding period in 1998. This increase in Southern Energy's
operating revenues is attributed to Southern Energy's acquisition of
Commonwealth Electric's generating business ("New England acquisition") in
December 1998 which was partially offset by 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. During the first quarter of 1999, $29 million of the increase
in fuel expenses is related to Southern Energy's New England acquisition in
December 1998 and the remainder of the increase resulted primarily from
increased generation.
Purchased power expense. Purchased power expenses for the traditional core
business dropped approximately $27 million or 36.3% for the first quarter of
1999. The decrease in these expenses for the traditional core business is mainly
attributed to a decrease in energy purchases related to power marketing
activities during this first quarter of 1999 when compared to the same period in
1998.
Other operation expense. The first quarter of 1999 increase is mainly
attributed to Southern Energy, which had a $17 million or 26% increase
principally due to Southern Energy's increased business development activities
and the New England acquisition.
Maintenance expense. The first quarter increase is primarily attributed to
the traditional business. Maintenance expenses in the traditional business
increased approximately $21 million or 12% due to maintenance being performed
during this quarter on generating facilities and transmission and distribution
lines.
Equity in earnings of unconsolidated subsidiaries. The major increase in
this item reflects the $54 million settlement of Southern Energy's claims
against a contractor relating to the Shajiao C construction project in China and
the improvement in profitability of the Shajiao C operations. The amount of the
settlement of contractor claims is partially offset by other related expenses
and income taxes included in other income accounts.
12
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from energy sales growth to a less regulated, more competitive
environment, with non-traditional business becoming more significant. For
information relating to non-traditional business activities, see Item 1 -
BUSINESS - "Non-Traditional Business" in the Form 10-K.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, SOUTHERN is positioning the
business to meet the challenge of increasing competition. For additional
information, see Item 1 BUSINESS - "Competition" and Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SOUTHERN in the Form
10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset. For additional information about the Clean Air Act and
other environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Environmental Matters" of SOUTHERN in the Form 10-K.
On April 15, 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.
For information relating to Year 2000 readiness, see "YEAR 2000 READINESS"
below.
The FASB has issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which must 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. 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.
13
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
YEAR 2000 READINESS
Year 2000 Challenge
In order to save storage space, computer programmers in the 1960s and 1970s
shortened the year portion of date entries to two digits. 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, intended to save processing time and storage space, was used until the
mid-1990s. Unless corrected before the Year 2000, affected software 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's goal is to
have critical devices or software that are required to maintain operations to be
Year 2000 ready by June 1999. 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 on a monthly basis by a steering
committee of SOUTHERN executives.
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 I 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 consists of testing and remediating high
priority systems and devices. Also, contingency planning is included in this
phase. Completion of Phase 2 is targeted for June 1999. The Millennium Project
will continue to monitor the affected computer systems, devices, and
applications into the Year 2000.
14
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
For the traditional business, SOUTHERN has completed more than 85% of the
activities contained in its work plan. The percentage of completion and
projected completion by function are as follows:
<TABLE>
<CAPTION>
Work Plan
Remediation Projected
Inventory Assessment Testing Completion
<S> <C> <C> <C> <C>
Generation 100% 100% 85% 6/99
Energy Management 100 100 90 6/99
Transmission and
Distribution 100 100 100 1/99
Telecommunications 100 100 82 6/99
Corporate Applications 100 100 100 3/99
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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. 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 repair
or replacement of impacted equipment, and verification that those repairs 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 March 31, 1999.
<TABLE>
<CAPTION>
North American Business Units:
Phase % Completed Status Projected Completion
- -------------------------------------------------- ------------------- -------------- ------------------------------
<S> <C> <C> <C>
Awareness and planning, inventory and 100 Complete November 30, 1998
assessment
Testing, remediation, and validation 63 In progress June 1, 1999
Contingency planning 10 In progress June 30, 1999
- -------------------------------------------------- ------------------- -------------- ------------------------------
</TABLE>
15
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
<TABLE>
<CAPTION>
International Business Units where Southern Energy has management control:
Phase % Completed Status Projected Completion
- ------------------------------------------------- -------------------- -------------- ------------------------------
<S> <C> <C> <C>
Awareness and planning, inventory and
assessment 100 Complete February 22, 1999
Testing, remediation, and validation 54 In progress July 31, 1999
Contingency planning 19 In progress July 31, 1999
- ------------------------------------------------- -------------------- -------------- ------------------------------
</TABLE>
<TABLE>
<CAPTION>
Other International Business Units:
Phase % Completed Status Projected Completion
- ------------------------------------------------- -------------------- -------------- ------------------------------
<S> <C> <C> <C>
Awareness and planning, inventory and
assessment 80 In progress May 31, 1999
Testing, remediation, and validation 20 In progress September 30, 1999
Contingency planning 18 In progress October 31, 1999
- ------------------------------------------------- -------------------- -------------- ------------------------------
</TABLE>
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 March 31, 1999, the Year 2000 program costs, recognized primarily as
expense, amounted to $70 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 $11 million has been spent
through March 31, 1999.
Year 2000 Risks
SOUTHERN is implementing a detailed process to minimize the possibility of
service interruptions related to the Year 2000. The company believes, based on
current tests, the system of the traditional business can provide customers with
electricity. These tests increase confidence, but do not guarantee error-free
operations. The company is taking 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.
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 are in progress.
SOUTHERN has prepared contingency plans as appropriate and is participating in
North American Electric Reliability Council-coordinated national drills during
1999.
SOUTHERN is currently reviewing 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 is
drawing on that experience to make risk assessments and is developing additional
plans to deal specifically with situations that could arise relative to 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 is participating in two North American Electric Reliability
Council-coordinated national drills during 1999, and is conducting additional
tests to validate its contingency plans. 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.
Contingency planning efforts for the non-traditional business are generally
in the initial phase.
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 three months of
1999 included $505 million used for gross property additions to utility plant.
The funds for these additions and other capital requirements were from
operations and sales of securities. See SOUTHERN's Condensed Statements of Cash
Flows for further details.
Reference is made to the Condensed Consolidated Statements of Comprehensive
Income enclosed herein for information relating to other comprehensive income
for the quarter ended March 31, 1999. In the quarter, Southern Energy recognized
$107 million of after-tax foreign exchange translation losses in other
comprehensive income which were principally related to normal 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 three months of 1999, retirements and redemptions of the
operating companies' first mortgage bonds and preferred stock totaled $504
million and $86 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. 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.
During the first three months of 1999, SOUTHERN raised $24 million from the
issuance of 883 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 March 31, 1999 was $23.3125 per share and
the book value was $13.89 per share, representing a market-to-book ratio of
168%, compared to $29.0625, $14.04 and 207%, respectively, at the end of 1998.
The dividend for the first 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 March 31, 2000, for present
sinking fund requirements, redemption of preferred
18
<PAGE>
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
stock and redemptions and maturities of long-term debt. Also, the operating
companies plan to continue, to the extent possible, a program to retire
higher-cost debt and preferred stock and replace these securities with
lower-cost capital.
Sources of Capital
In addition to the financing activities previously described, SOUTHERN may
require additional equity capital during the remainder of the year. The amounts
and timing of additional equity capital to be raised in 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
March 31, 1999, approximately $554 million of cash and cash equivalents and
approximately $4.6 billion of unused credit arrangements with banks (including
$1,368 million of such arrangements under which borrowings may be made only to
fund purchase obligations of the operating companies relating to variable rate
pollution control bonds). At March 31, 1999, the system companies had
outstanding approximately $950 million of short-term notes payable and $1,413
million of commercial paper. Management believes that the need for working
capital can be adequately met by utilizing lines of credit without maintaining
large cash balances.
See Note (D) in the "Notes to the Condensed Financial Statements" herein
for discussion of financial derivative contracts entered into by SOUTHERN.
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
Ended March 31,
---------------------------
1999 1998
------------ -------------
OPERATING REVENUES:
<S> <C> <C>
Revenues $667,223 $674,295
Revenues from affiliates 47,101 42,210
------------ -------------
Total operating revenues 714,324 716,505
------------ -------------
OPERATING EXPENSES:
Operation--
Fuel 188,014 193,022
Purchased power from non-affiliates 7,580 17,535
Purchased power from affiliates 27,427 18,632
Other 117,896 114,813
Maintenance 70,774 63,533
Depreciation and amortization 87,182 86,239
Taxes other than income taxes 53,061 49,439
Federal and state income taxes 38,700 42,557
------------ -------------
Total operating expenses 590,634 585,770
------------ -------------
OPERATING INCOME 123,690 130,735
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 1,988 285
Equity in earnings of subsidiaries 768 1,523
Interest income 9,446 13,670
Other, net (7,491) (8,917)
Income taxes applicable to other income 924 2,177
------------ -------------
INCOME BEFORE INTEREST CHARGES AND OTHER 129,325 139,473
------------ -------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 45,060 44,718
Allowance for debt funds used during construction (1,741) (652)
Interest on interim obligations 2,675 4,406
Amortization of debt discount, premium and expense, net 2,718 2,424
Other interest charges 7,832 13,620
Distributions on preferred securities of subsidiary companies 5,831 5,588
------------ -------------
Interest charges and other, net 62,375 70,104
------------ -------------
NET INCOME 66,950 69,369
DIVIDENDS ON PREFERRED STOCK 3,875 3,328
------------ -------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $63,075 $66,041
============ =============
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 Three Months
Ended March 31,
-------------------------------
1999 1998
------------- -------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 66,950 $ 69,369
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 102,538 102,837
Deferred income taxes and investment tax credits, net 2,526 (11,359)
Allowance for equity funds used during construction (1,988) (285)
Other, net 19,628 14,056
Changes in certain current assets and liabilities--
Receivables, net 73,983 82,947
Inventories (17,556) (18,734)
Prepayments (43,815) (37,195)
Payables (101,665) (74,852)
Taxes accrued 51,836 64,796
Energy cost recovery, retail 22,450 24,254
Other (40,398) (45,635)
------------- -------------
Net cash provided from operating activities 134,489 170,199
------------- -------------
INVESTING ACTIVITIES:
Gross property additions (142,065) (132,763)
Other (21,592) (18,781)
------------- -------------
Net cash used for investing activities (163,657) (151,544)
------------- -------------
FINANCING ACTIVITIES:
Proceeds--
Company obligated mandatorily redeemable preferred securities 50,000 -
Other long-term debt - 200,000
Retirements--
Preferred stock (50,000) -
First mortgage bonds (300,000) (74,345)
Other long-term debt (246) (238)
Interim obligations, net 322,653 (47,867)
Payment of preferred stock dividends (4,487) (3,350)
Payment of common stock dividends (98,000) (90,400)
Miscellaneous (3,096) (7,706)
------------- -------------
Net cash used for financing activities (83,176) (23,906)
------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (112,344) (5,251)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 134,248 23,957
============= =============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,904 $ 18,706
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $60,563 $65,401
Income taxes ($14,000) $2,990
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 March 31,
1999 At December 31,
(Unaudited) 1998
--------------- ----------------
UTILITY PLANT:
<S> <C> <C>
Plant in service, at original cost $11,444,205 $11,352,838
Less accumulated provision for depreciation 4,755,275 4,666,513
--------------- ----------------
6,688,930 6,686,325
Nuclear fuel, at amortized cost 88,963 95,575
Construction work in progress 558,006 525,359
--------------- ----------------
Total 7,335,899 7,307,259
--------------- ----------------
OTHER PROPERTY AND INVESTMENTS:
Equity investments in subsidiaries 33,813 34,298
Nuclear decommissioning trusts, at market 245,184 232,183
Miscellaneous 12,210 12,915
--------------- ----------------
Total 291,207 279,396
--------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 21,904 134,248
Receivables --
Customer accounts receivable 270,667 343,630
Other accounts and notes receivable 23,849 32,394
Affiliated companies 37,735 39,981
Accumulated provision for uncollectible accounts (534) (1,855)
Refundable income taxes 38,117 52,117
Fossil fuel stock, at average cost 100,469 83,238
Materials and supplies, at average cost 149,994 149,669
Prepayments 60,975 17,160
Vacation pay deferred 28,390 28,390
--------------- ----------------
Total 731,566 878,972
--------------- ----------------
DEFERRED CHARGES AND OTHER ASSETS:
Deferred charges related to income taxes 358,685 362,953
Debt expense, being amortized 8,374 8,602
Premium on reacquired debt, being amortized 86,010 83,440
Prepaid pension costs 180,561 169,393
Department of Energy assessments 31,088 31,088
Miscellaneous 105,496 104,595
--------------- ----------------
Total 770,214 760,071
--------------- ----------------
TOTAL ASSETS $9,128,886 $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 March 31,
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 1,190,016 1,224,965
--------------- ----------------
2,749,118 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 2,548,317 2,646,566
--------------- ----------------
Total 5,961,947 6,045,145
--------------- ----------------
CURRENT LIABILITIES:
Preferred stock due within one year - 50,000
Long-term debt due within one year 271,180 471,209
Commercial paper 322,653 -
Accounts payable --
Affiliated companies 62,739 79,844
Other 98,723 188,074
Customer deposits 29,385 29,235
Taxes accrued--
Federal and state income 97,414 82,219
Other 34,144 17,559
Interest accrued 29,572 38,166
Vacation pay accrued 28,390 28,390
Miscellaneous 46,553 79,095
--------------- ----------------
Total 1,020,753 1,063,791
--------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 1,226,707 1,202,971
Accumulated deferred investment tax credits 268,603 271,611
Prepaid capacity revenues, net 92,288 96,080
Department of Energy assessments 27,202 27,202
Deferred credits related to income taxes 310,311 315,735
Natural disaster reserve 20,052 19,385
Miscellaneous 201,023 183,778
--------------- ----------------
Total 2,146,186 2,116,762
--------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES $9,128,886 $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
FIRST QUARTER 1999 vs. FIRST QUARTER 1998
RESULTS OF OPERATIONS
Earnings
ALABAMA's net income after dividends on preferred stock for the first quarter of
1999 was $63.1 million compared to $66.0 million for the corresponding period of
1998. Earnings for this quarter decreased $2.9 million or 4.5% when compared to
the same period in 1998 due primarily to an increase in operating expenses.
Significant income statement items appropriate for discussion include the
following:
First Quarter
-----------------------------------
(in thousands) %
Revenues.................................... $(7,072) (1.0)
Revenues from affiliates.................... 4,891 11.6
Purchased power from non-affiliates ........ (9,955) (56.8)
Purchased power from affiliates............. 8,795 47.2
Maintenance expense......................... 7,241 11.4
Interest income............................. (4,224) (30.9)
Other interest charges...................... (5,788) (42.5)
Revenues. Revenues for the first quarter of 1999 were down from the same
period in 1998 due primarily to a 12.7% decrease in non-territorial energy sales
resulting in a $12.9 million decrease in non-territorial revenues which was
partially offset by a 2.3% increase in territorial energy sales or $8.9 million
increase in territorial revenues. Non-territorial energy sales were down due to
a decrease in unit power sales and a decrease in sales for resale outside
ALABAMA's service area. Territorial revenues increased primarily due to a 1.7%
increase in retail energy sales. Retail revenues, excluding those revenues which
represent the recovery of fuel expense and certain other expenses and do not
affect income, increased $1 million for the current quarter.
25
<PAGE>
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues from affiliates and Purchased power from affiliates. Revenues from
sales to affiliated companies within the Southern electric system, as well as
purchases of energy, will vary from period to period depending on demand, the
availability, and cost of generating resources at each company. These
transactions did not have a significant impact on earnings.
Purchased power from non-affiliates. These expenses dropped in the current
quarter of 1999 when compared to the same period 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.
Maintenance expense. These costs increased for the first quarter primarily
due to maintenance on steam and nuclear plants and transmission and distribution
lines.
Interest income. This item was lower for the first quarter of 1999 when
compared to the first quarter in 1998 due to a decrease in recognized gains on
investments held by the nuclear decommissioning trust. The decrease in interest
income related to the nuclear decommissioning trust was offset by a concurrent
recognition of other interest charges in accordance with FERC requirements.
Other interest charges. The change in these charges for the current quarter
when compared to the same period in 1998 is attributed to a decrease in interest
charges related to the nuclear decommissioning trust. The decrease was offset by
a concurrent recognition of interest income in accordance with FERC
requirements.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from energy sales growth to a less regulated, more competitive
environment.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional information, see Item 1 - BUSINESS - "Competition" and Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of ALABAMA in
the Form 10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset. For additional information about the Clean Air Act and
other environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Environmental Matters" of ALABAMA in the Form 10-K.
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 $29.6 million. From its inception
through March 31, 1999, the Year 2000 program costs, recognized primarily as
expense, amounted to $17.5 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 has issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which must 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. ALABAMA 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) 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 three months of
1999 included the addition of approximately $142.1 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 three 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 will invest the proceeds in Series C junior
subordinated notes. The net proceeds received by ALABAMA will be 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.
ALABAMA will continue to retire higher-cost debt and preferred stock and
replace these securities with lower-cost capital as market conditions permit.
27
<PAGE>
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of
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 March 31,
1999, approximately $21.9 million of cash and cash equivalents and had unused
committed lines of credit of approximately $786 million (including $315 million
of such lines under which borrowings may be made only to fund purchase
obligations relating to variable rate pollution control bonds) with regulatory
authority for up to $750 million of short-term borrowings. Reference is made to
"Financing Activities" above for information related to the planned redemptions
of certain First Mortgage Bonds. At March 31, 1999, ALABAMA had outstanding
$322.7 million of commercial paper.
28
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO ALABAMA POWER COMPANY:
We have reviewed the accompanying condensed balance sheet of ALABAMA POWER
COMPANY as of March 31, 1999, and the related condensed statements of income for
the three-month periods ended March 31, 1999 and 1998 and cash flows for the
three-month periods ended March 31, 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
May 10, 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
Ended March 31,
---------------------------
1999 1998
------------ ------------
OPERATING REVENUES:
<S> <C> <C>
Revenues $923,024 $979,334
Revenues from affiliates 7,906 4,809
------------ ------------
Total operating revenues 930,930 984,143
------------ ------------
OPERATING EXPENSES:
Operation--
Fuel 178,212 176,631
Purchased power from non-affiliates 32,158 45,474
Purchased power from affiliates 54,921 43,685
Other 168,282 169,425
Maintenance 91,536 80,949
Depreciation and amortization 132,435 158,594
Taxes other than income taxes 49,002 52,195
Federal and state income taxes 63,380 80,649
------------ ------------
Total operating expenses 769,926 807,602
------------ ------------
OPERATING INCOME 161,004 176,541
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction - 178
Equity in earnings of unconsolidated subsidiary 733 1,082
Interest income 250 553
Other, net (6,637) (5,123)
Income taxes applicable to other income 2,559 2,543
------------ ------------
INCOME BEFORE INTEREST CHARGES 157,909 175,774
------------ ------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 41,111 45,056
Allowance for debt funds used during construction (2,182) (1,828)
Interest on interim obligations 4,216 3,746
Amortization of debt discount, premium and expense, net 3,700 3,331
Other interest charges 3,311 4,014
Distributions on preferred securities of subsidiary companies 14,971 13,524
------------ ------------
Interest charges and other, net 65,127 67,843
------------ ------------
NET INCOME 92,782 107,931
DIVIDENDS ON PREFERRED STOCK 1,201 2,027
------------ ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $91,581 $105,904
============ ============
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 Three Months
Ended March 31,
-------------------------------
1999 1998
------------- -------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 92,782 $ 107,931
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 149,086 185,484
Deferred income taxes and investment tax credits, net (1,894) (7,602)
Other, net 7,003 (1,904)
Changes in certain current assets and liabilities--
Receivables, net 86,184 49,944
Inventories (37,748) (31,165)
Payables (90,358) (64,623)
Taxes accrued (30,086) 17,940
Energy cost recovery, retail 10,997 14,016
Other 1,600 (15,862)
------------- -------------
Net cash provided from operating activities 187,566 254,159
------------- -------------
INVESTING ACTIVITIES:
Gross property additions (163,030) (80,276)
Other (26,920) (42,479)
------------- -------------
Net cash used for investing activities (189,950) (122,755)
------------- -------------
FINANCING ACTIVITIES:
Proceeds--
Preferred securities 200,000 -
Pollution control bonds - 89,990
Senior notes 100,000 145,000
Retirements--
Preferred stock (35,679) -
First mortgage bonds (204,000) (120,460)
Special deposits - redemption funds - (89,990)
Interim obligations, net 97,308 (79,929)
Payment of preferred stock dividends 38 (4,354)
Payment of common stock dividends (133,100) (132,100)
Miscellaneous (20,576) (4,507)
------------- -------------
Net cash provided from (used for) financing activities 3,991 (196,350)
------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,607 (64,946)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,272 83,333
============= =============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,879 $ 18,387
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $65,971 $76,069
Income taxes (net of refunds) $18,929 $10,384
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 March 31,
1999 At December 31,
(Unaudited) 1998
--------------- ----------------
UTILITY PLANT:
<S> <C> <C>
Plant in service $15,511,121 $15,441,146
Less accumulated provision for depreciation 6,224,037 6,109,331
--------------- ----------------
9,287,084 9,331,815
Nuclear fuel, at amortized cost 115,390 121,169
Construction work in progress 247,377 189,849
--------------- ----------------
Total 9,649,851 9,642,833
--------------- ----------------
OTHER PROPERTY AND INVESTMENTS:
Southern Electric Generating Company, at equity 23,840 24,360
Nuclear decommissioning trusts, at market 328,430 284,536
Miscellaneous 34,322 34,781
--------------- ----------------
Total 386,592 343,677
--------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 17,879 16,272
Receivables --
Customer accounts receivable 363,914 439,420
Other accounts and notes receivable 70,366 99,574
Affiliated companies 21,151 16,817
Accumulated provision for uncollectible accounts (5,500) (5,500)
Fossil fuel stock, at average cost 141,268 104,133
Materials and supplies, at average cost 244,090 243,477
Prepayments 31,714 29,670
Vacation pay deferred 42,566 43,610
--------------- ----------------
Total 927,448 987,473
--------------- ----------------
DEFERRED CHARGES:
Deferred charges related to income taxes 600,321 604,488
Premium on reacquired debt, being amortized 182,697 173,858
Prepaid pension costs 114,269 103,606
Debt expense, being amortized 59,984 51,261
Miscellaneous 136,480 126,422
--------------- ----------------
Total 1,093,751 1,059,635
--------------- ----------------
TOTAL ASSETS $12,057,642 $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 March 31,
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 1,660,215 1,660,206
Premium on preferred stock 40 158
Retained earnings 1,738,039 1,779,558
--------------- ----------------
3,742,544 3,784,172
Preferred stock 15,504 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 2,746,025 2,744,362
--------------- ----------------
Total 7,393,323 7,233,311
--------------- ----------------
CURRENT LIABILITIES:
Preferred stock due within one year - 35,656
Long-term debt due within one year 295,510 399,429
Notes payable to banks 231,813 117,634
Commercial paper 206,347 223,218
Accounts payable --
Affiliated companies 48,426 75,774
Other 273,138 326,317
Customer deposits 70,033 69,584
Taxes accrued--
Federal and state income 59,586 15,801
Other 48,488 122,359
Interest accrued 55,644 60,187
Miscellaneous 106,117 100,793
--------------- ----------------
Total 1,395,102 1,546,752
--------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 2,246,714 2,249,613
Accumulated deferred investment tax credits 378,214 381,914
Deferred credits related to income taxes 279,111 284,017
Employee benefits provisions 181,802 177,148
Miscellaneous 183,376 160,863
--------------- ----------------
Total 3,269,217 3,253,555
--------------- ----------------
TOTAL CAPITALIZATION AND LIABILITIES $12,057,642 $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
FIRST QUARTER 1999 vs. FIRST QUARTER 1998
RESULTS OF OPERATIONS
Earnings
GEORGIA's net income after dividends on preferred stock for the first quarter of
1999 was $91.6 million compared to $105.9 million for the corresponding period
in 1998. Earnings decreased by $14.3 million or 13.5% for this first quarter due
primarily to the timing of earnings under a new retail rate order effective
January 1999. 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 summer 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:
Increase (Decrease)
----------------------------------
(in thousands) %
Revenues..................................... $(56,310) (5.7)
Revenues from affiliates..................... 3,097 64.4
Purchased power from non-affiliates ......... (13,316) (29.3)
Purchased power from affiliates.............. 11,236 25.7
Maintenance expense.......................... 10,587 13.1
Depreciation and amortization expense........ (26,159) (16.5)
Distributions on preferred securities of
subsidiary companies...................... 1,447 10.7
Dividends on preferred stock................. (826) (40.7)
Revenues. Revenues within the service area decreased by $40.9 million for
the first quarter when compared to the corresponding period in 1998. Retail
revenues, excluding fuel revenues which generally do not affect income,
decreased $47.4 million for the first quarter of 1999 when compared to the same
period in 1998 as a direct result of retail rate reductions ordered by the
Georgia PSC. Energy sales within the service area rose slightly due primarily to
a 1.7% increase in retail energy sales.
Wholesale revenues within the service area decreased $9.8 million during
the first quarter 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 decreased by $13.9 million for the
first quarter of 1999 when compared to the same period in 1998 primarily due to
a decrease in energy sales.
35
<PAGE>
GEORGIA 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 operating affiliates within SOUTHERN, 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. The decrease for this first quarter of
1999 when compared to the same period in 1998 was 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.
Maintenance expense. These costs for the first quarter 1999 increased
primarily due to scheduled outages at generating facilities.
Depreciation and amortization expense. The decrease in the first quarter as
compared to the same period in 1998 is primarily due to the decrease of
accelerated depreciation and amortization charges of $12.8 million pursuant to
the new retail rate order and the completion in 1998 of the amortization of
deferred Plant Vogtle costs. See Note (K) in the "Notes to the Condensed
Financial Statements" herein for details regarding the retail rate order.
Distributions on preferred securities of subsidiary companies.
Distributions for the first quarter 1999 increased primarily due to the issuance
of additional mandatorily redeemable preferred securities in February 1999.
Dividends on preferred stock. Dividends for the current quarter decreased
as a result of the redemption during 1998 of adjustable rate preferred stock.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including regulatory matters and energy sales.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional information, see Item 1 - BUSINESS - "Competition" and Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of GEORGIA in
the Form 10-K.
Effective January 1, 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.
36
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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. Under the amended 1995 Integrated Resource Plan approved by the
Georgia PSC in March 1997, 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.
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 $38 million. From
its inception through March 31, 1999, the Year 2000 program costs, recognized as
expense, amounted to $32 million. For additional information, see SOUTHERN's
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - "Future Earnings Potential" herein.
Reference is made to Notes (B), (C), (F), (G), (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.
FINANCIAL CONDITION
Overview
The major change in GEORGIA's financial condition during the first three months
of 1999 was the addition of approximately $163 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.
37
<PAGE>
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Financing Activities
During the first three months of 1999, redemptions of first mortgage bonds and
preferred stock by GEORGIA totaled $204 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.
GEORGIA plans to continue, to the extent possible, a program to retire
higher-cost debt and preferred stock and replace these securities with
lower-cost capital.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of GEORGIA
under "Liquidity and Capital Requirements" and "Environmental Issues" in the
Form 10-K for a description of GEORGIA's capital requirements for its
construction program and environmental compliance efforts.
Sources of Capital
In addition to the financing activities previously described herein, GEORGIA
plans to obtain the funds required for construction and other purposes from
sources similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. See Item 1
- - BUSINESS "Financing Programs" in the
Form 10-K for additional information.
To meet short-term cash needs and contingencies, GEORGIA had at March 31,
1999, approximately $17.9 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 March 31, 1999, GEORGIA had $231.8 million and $206.3 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.
38
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO GEORGIA POWER COMPANY:
We have reviewed the accompanying condensed balance sheet of GEORGIA POWER
COMPANY (a Georgia corporation) as of March 31, 1999, and the related condensed
statements of income for the three-month periods ended March 31, 1999 and 1998
and cash flows for the three-month periods ended March 31, 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
May 10, 1999
39
<PAGE>
GULF POWER COMPANY
40
<PAGE>
<TABLE>
<CAPTION>
GULF POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
------------ ------------
1999 1998
------------ ------------
OPERATING REVENUES:
<S> <C> <C>
Revenues $127,435 $134,553
Revenues from affiliates 7,071 6,397
------------ ------------
Total operating revenues 134,506 140,950
------------ ------------
OPERATING EXPENSES:
Operation--
Fuel 38,753 41,443
Purchased power from non-affiliates 4,156 4,733
Purchased power from affiliates 3,575 3,888
Other 27,142 31,281
Maintenance 16,593 12,896
Depreciation and amortization 16,078 14,703
Taxes other than income taxes 12,544 12,619
Federal and state income taxes 2,641 4,150
------------ ------------
Total operating expenses 121,482 125,713
------------ ------------
OPERATING INCOME 13,024 15,237
OTHER INCOME (EXPENSE):
Interest income 241 123
Other, net (812) (1,203)
Income taxes applicable to other income 161 357
------------ ------------
INCOME BEFORE INTEREST CHARGES 12,614 14,514
------------ ------------
INTEREST CHARGES AND OTHER:
Interest on long-term debt 4,950 4,877
Other interest charges 278 275
Interest on notes payable 485 338
Amortization of debt discount, premium and expense, net 498 578
Distributions on preferred securities of subsidiary companies 1,550 1,384
------------ ------------
Interest charges and other, net 7,761 7,452
------------ ------------
NET INCOME 4,853 7,062
DIVIDENDS ON PREFERRED STOCK 54 209
------------ ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 4,799 $ 6,853
============ ============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
----------------------------
1999 1998
------------ -----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 4,853 $ 7,062
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 17,026 18,518
Deferred income taxes (1,060) (1,918)
Other, net 6,015 (1,051)
Changes in certain current assets and liabilities--
Receivables, net 8,090 15,544
Inventories (17,392) (6,011)
Payables (5,832) (12,499)
Taxes accrued 2,903 3,431
Current costs of 1995 coal contract renegotiation - 812
Other (5,762) (5,412)
------------ -----------
Net cash provided from operating activities 8,841 18,476
------------ -----------
INVESTING ACTIVITIES:
Gross property additions (12,529) (11,148)
Other (9,962) (1,974)
------------ -----------
Net cash used for investing activities (22,491) (13,122)
------------ -----------
FINANCING ACTIVITIES:
Proceeds--
Preferred securities - 45,000
Retirements--
Other long-term debt - (5,754)
Notes payable, net 28,500 (20,500)
Payment of preferred stock dividends (54) (210)
Payment of common stock dividends (15,000) (24,100)
Miscellaneous (5) (2,373)
------------ -----------
Net cash provided from (used for) financing activities 13,441 (7,937)
------------ -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (209) (2,583)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 969 4,707
============ ===========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 760 $ 2,124
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $7,219 $6,997
Income taxes - $716
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 BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At March 31,
1999 At December 31,
(Unaudited) 1998
---------------------------------
UTILITY PLANT:
<S> <C> <C>
Plant in service $1,812,822 $1,809,901
Less accumulated provision for depreciation 791,301 784,111
-------------- --------------
1,021,521 1,025,790
Construction work in progress 35,411 34,863
-------------- --------------
Total 1,056,932 1,060,653
-------------- --------------
OTHER PROPERTY AND INVESTMENTS: 1,587 588
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 760 969
Receivables --
Customer accounts receivable 42,494 49,067
Other accounts and notes receivable 3,091 3,514
Affiliated companies 2,333 3,442
Accumulated provision for uncollectible accounts (981) (996)
Fossil fuel stock, at average cost 41,757 24,213
Materials and supplies, at average cost 27,873 28,025
Regulatory clauses under recovery 10,657 9,737
Prepayments 4,760 5,690
Vacation pay deferred 4,035 4,035
-------------- --------------
Total 136,779 127,696
-------------- --------------
DEFERRED CHARGES:
Deferred charges related to income taxes 25,297 25,308
Debt expense, being amortized 21,033 21,448
Prepaid pension costs 14,773 13,770
Miscellaneous 17,520 18,438
-------------- --------------
Total 78,623 78,964
-------------- --------------
TOTAL ASSETS $1,273,921 $1,267,901
============== ==============
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)
CAPITALIZATION AND LIABILITIES
At March 31,
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 160,419 170,620
-------------- --------------
417,451 427,652
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 317,420 317,341
-------------- --------------
Total 824,107 834,229
-------------- --------------
CURRENT LIABILITIES:
Long-term debt due within one year 27,000 27,000
Notes payable 60,000 31,500
Accounts payable --
Affiliated companies 11,949 19,756
Other 17,449 23,697
Customer deposits 12,600 12,560
Taxes accrued 6,795 7,432
Interest accrued 7,023 5,184
Regulatory clauses over recovery 4,424 6,037
Vacation pay accrued 4,035 4,035
Dividends declared 54 54
Miscellaneous 1,534 3,960
-------------- --------------
Total 152,863 141,215
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 165,668 166,118
Deferred credits related to income taxes 51,772 52,465
Accumulated provision for property damage 3,230 1,605
Accumulated deferred investment tax credits 29,152 29,632
Accumulated provision for postretirement benefits 24,608 23,534
Miscellaneous 22,521 19,103
-------------- --------------
Total 296,951 292,457
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $1,273,921 $1,267,901
============== ==============
The accompanying notes as they relate to GULF are an integral part of these condensed statements.
</TABLE>
44
<PAGE>
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 1999 vs. FIRST QUARTER 1998
RESULTS OF OPERATIONS
Earnings
GULF's net income after dividends on preferred stock for the first quarter of
1999 was $4.8 million, compared to $6.9 million for the corresponding period of
1998. The earnings decrease is attributed to higher maintenance expenses during
this quarter when compared to the same period in 1998.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
-----------------------------------
First Quarter
-----------------------------------
(in thousands) %
Revenues.................................. $ (7,118) (5.3)
Revenues from affiliates.................. 674 10.5
Fuel expense.............................. (2,690) (6.5)
Purchased power from non-affiliates ...... (577) (12.2)
Purchased power from affiliates........... (313) (8.1)
Other operation expense................... (4,139) (13.2)
Maintenance expense....................... 3,697 28.7
Revenues. Revenues for the first quarter decreased due primarily to the
recovery of lower fuel costs. The price per ton of coal, which is GULF's primary
fuel source, was lower in the first quarter of 1999 compared to the same period
in 1998 as the costs related to prior year coal contract renegotiations were
fully amortized by March 1998 and a major coal contract price was reduced.
Excluding recovery of fuel expense and certain other expenses that do not affect
income, retail revenues increased $1.1 million for the quarter. This increase
reflects slightly higher retail energy sales of 0.3%, which can be attributed to
customer growth in the residential and commercial classes. Revenues from
non-territorial wholesale energy sales decreased $2.6 million for the first
quarter of 1999 when compared to the corresponding period of 1998. The decrease
in non-territorial wholesale energy sales was primarily due to decreased sales
through power marketing activities. These sales were largely offset by purchases
from non-affiliates and, as a result, had no significant effect on net income.
Revenues from affiliates and Purchased power from affiliates. Revenues from
sales to affiliated companies within the Southern electric system, as well as
purchases of energy, will vary from period to period depending on demand and the
availability and cost of generating resources at each company. These
transactions do not have a significant impact on earnings.
Fuel expense. The decrease in fuel expense is attributed to lower fuel
costs, reflecting the reduction of a major coal contract price.
45
<PAGE>
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Purchased power from non-affiliates. Purchased power from non-affiliates
decreased this quarter when compared to the same period in 1998 due primarily to
a decrease in 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. This item decreased in this quarter when compared
to the same period in 1998 due to prior year payments related to renegotiations
of coal supply contracts being fully amortized by March 1998.
Maintenance expense. These costs for the first quarter of 1999 increased
primarily due to scheduled outages at production facilities.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from energy sales growth to a less regulated, more competitive
environment.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional information, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential" of GULF and Item 1 - BUSINESS "Competition" in the
Form 10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs are not fully recovered through GULF's Environmental Cost Recovery Clause.
For additional information about the Clean Air Act and other environmental
issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental
Matters" of GULF in the Form 10-K.
GULF'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 $4.9 million. From its inception through
March 31, 1999, the Year 2000 program costs, recognized as expense, amounted to
$3.7 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
countered with another proposal filed on April 8, 1999. At the agenda conference
on April 20, 1999, the Florida PSC approved the staff's plan with several
modifications. The changes approved by the Florida PSC include 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
14.0% ROE, revenue credits to customers and the write-off of regulatory assets
totaling $7.1 million per year from 1999 through 2001. An order outlining the
changes associated with earnings, revenue sharing, and other regulatory issues
will be issued by the Florida PSC. Any interested party will have the
opportunity to protest the order within 20 days from the date of the order. 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.
46
<PAGE>
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The FASB has issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which must 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. 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 three months of
1999 included the addition of approximately $12.5 million to utility plant. The
funds for these additions and other capital requirements were derived primarily
from operations. See GULF's Condensed Statements of Cash Flows for further
details.
Financing Activities
GULF plans to continue, to the extent possible, a program to retire
higher-cost debt and preferred stock and replace these securities with
lower-cost capital.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of GULF
under "Capital Requirements for Construction," "Environmental Matters" and
"Other Capital Requirements" in the Form 10-K for a description of GULF's
capital requirements for its construction program, environmental compliance
efforts and maturing debt.
Sources of Capital
In addition to the financing activities previously described herein, GULF plans
to obtain the funds required for construction and other purposes from sources
similar to those used in the past. The amount, type and timing of any
financings--if needed--will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. See Item 1
- - BUSINESS "Financing Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, GULF had at March 31,
1999, approximately $760 thousand 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 March 31, 1999,
GULF had $60.0 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.
47
<PAGE>
MISSISSIPPI POWER COMPANY
48
<PAGE>
<TABLE>
<CAPTION>
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
---------------------------
1999 1998
------------ ------------
OPERATING REVENUES:
<S> <C> <C>
Revenues $121,400 $121,281
Revenues from affiliates 1,035 875
------------ ------------
Total operating revenues 122,435 122,156
------------ ------------
OPERATING EXPENSES:
Operation--
Fuel 31,522 27,288
Purchased power from non-affiliates 2,345 4,300
Purchased power from affiliates 8,902 11,296
Other 27,047 23,846
Maintenance 11,601 11,394
Depreciation and amortization 11,789 11,653
Taxes other than income taxes 11,107 12,080
Federal and state income taxes 4,273 4,932
------------ ------------
Total operating expenses 108,586 106,789
------------ ------------
OPERATING INCOME 13,849 15,367
OTHER INCOME (EXPENSE):
Interest income 81 50
Other, net 634 233
Income taxes applicable to other income (309) (313)
------------ ------------
INCOME BEFORE INTEREST CHARGES 14,255 15,337
------------ ------------
INTEREST AND OTHER CHARGES:
Interest on long-term debt 5,010 4,798
Interest on notes payable 412 428
Amortization of debt discount, premium and expense, net 356 388
Other interest charges 82 141
Distributions on preferred securities of subsidiary companies 699 699
------------ ------------
Interest and other charges, net 6,559 6,454
------------ ------------
NET INCOME 7,696 8,883
DIVIDENDS ON PREFERRED STOCK 503 495
------------ ------------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 7,193 $ 8,388
============ ============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
MISSISSIPPI POWER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
----------------------------
1999 1998
------------ -----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 7,696 $ 8,883
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 12,801 12,680
Deferred income taxes (991) 72
Other, net (2,927) (492)
Changes in certain current assets and liabilities--
Receivables, net 2,570 3,604
Inventories (6,109) (5,457)
Payables (8,912) (5,732)
Taxes accrued (15,750) (16,612)
Other (3,582) (2,537)
------------ -----------
Net cash used for operating activities (15,204) (5,591)
------------ -----------
INVESTING ACTIVITIES:
Gross property additions (12,897) (12,886)
Other (6,314) (4,933)
------------ -----------
Net cash used for investing activities (19,211) (17,819)
------------ -----------
FINANCING ACTIVITIES:
Retirements--
Preferred stock - (87)
First mortgage bonds - (35,000)
Notes payable, net 48,500 69,000
Payment of preferred stock dividends (503) (495)
Payment of common stock dividends (13,800) (12,700)
Miscellaneous - (16)
------------ -----------
Net cash provided from financing activities 34,197 20,702
------------ -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (218) (2,708)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,327 4,432
============ ===========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,109 $ 1,724
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $4,543 $4,509
Income taxes $1,900 ($534)
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At March 31,
1999 At December 31,
(Unaudited) 1998
---------------------------------
UTILITY PLANT:
<S> <C> <C>
Plant in service, at original cost $1,556,279 $1,553,112
Less accumulated provision for depreciation 594,641 583,957
-------------- --------------
961,638 969,155
Construction work in progress 62,569 51,517
-------------- --------------
Total 1,024,207 1,020,672
-------------- --------------
OTHER PROPERTY AND INVESTMENTS: 978 979
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 1,109 1,327
Receivables --
Customer accounts receivable 23,309 29,829
Regulatory clauses under recovery 8,762 8,042
Other accounts and notes receivable 14,469 12,495
Affiliated companies 12,014 10,946
Accumulated provision for uncollectible accounts (433) (621)
Fossil fuel stock, at average cost 22,591 16,418
Materials and supplies, at average cost 18,671 18,735
Current portion of accumulated deferred income taxes 5,187 4,248
Prepayments 6,136 1,651
Vacation pay deferred 4,717 4,717
-------------- --------------
Total 116,532 107,787
-------------- --------------
DEFERRED CHARGES:
Debt expense and loss, being amortized 13,386 13,713
Deferred charges related to income taxes 21,110 22,697
Long-term notes receivable 1,846 2,072
Work force reduction plan 11,210 12,748
Miscellaneous 10,389 8,937
-------------- --------------
Total 57,941 60,167
-------------- --------------
TOTAL ASSETS $1,199,658 $1,189,605
============== ==============
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 BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At March 31,
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 179,473 179,474
Premium on preferred stock 326 326
Retained earnings 167,134 173,740
-------------- --------------
384,624 391,231
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 292,773 292,744
-------------- --------------
Total 744,206 750,784
-------------- --------------
CURRENT LIABILITIES:
Long-term debt due within one year 50,020 50,020
Notes payable 61,500 13,000
Accounts payable --
Affiliated companies 9,163 8,788
Regulatory clauses over recovery 5,802 4,412
Other 31,251 47,113
Customer deposits 3,366 3,272
Taxes accrued--
Federal and state income 4,844 1,124
Other 11,909 31,379
Interest accrued 4,616 2,955
Miscellaneous 10,758 11,753
-------------- --------------
Total 193,229 173,816
-------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 144,315 143,852
Accumulated deferred investment tax credits 25,605 25,913
Deferred credits related to income taxes 35,175 37,277
Postretirement benefits other than pension 26,050 25,869
Accumulated provision for property damage 1,291 910
Work force reduction plan 12,496 13,051
Miscellaneous 17,291 18,133
-------------- --------------
Total 262,223 265,005
-------------- --------------
TOTAL CAPITALIZATION AND LIABILITIES $1,199,658 $1,189,605
============== ==============
The accompanying notes as they relate to MISSISSIPPI are an integral part of these condensed statements.
</TABLE>
52
<PAGE>
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 1999 vs. FIRST QUARTER 1998
RESULTS OF OPERATIONS
Earnings
MISSISSIPPI's net income after dividends on preferred stock for the first
quarter of 1999 was $7.2 million compared to $8.4 million for the same period of
1998. The decrease in earnings is attributed to increased operating expenses.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
-------------------------------
First Quarter
-------------------------------
(in thousands) %
Revenues........................................ $ 119 0.1
Revenues from affiliates........................ 160 18.3
Fuel expense.................................... 4,234 15.5
Purchased power from non-affiliates ............ (1,955) (45.5)
Purchased power from affiliates................. (2,394) (21.2)
Other operation expense......................... 3,201 13.4
Revenues. The slight improvement in revenues for this quarter reflects
increased energy sales in the retail sector, in particular to commercial
customers. This revenue increase was partially offset by a decrease in
non-territorial energy sales. Revenues from territorial energy sales increased
$3.2 million and revenues from non-territorial energy sales decreased $2.3
million. Energy sales to commercial customers increased due to increased tourism
and continued growth in this sector. Retail revenues, excluding those revenues
which represent the recovery of fuel expense and certain other expenses and do
not affect income, decreased $650 thousand for the current quarter. Wholesale
territorial revenues, excluding fuel revenues which do not affect income,
increased $3.1 million for the current quarter.
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.
53
<PAGE>
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Fuel expense. These costs increased during the current quarter due to an
increase in generation resulting from a higher demand for energy.
Purchased power from non-affiliates. This item decreased when compared to
the same period in 1998 due primarily to increased availability of generation
from MISSISSIPPI's generating plants.
Other operation expense. The increase for this quarter compared to the same
period in 1998 is attributed primarily to increased administrative and general
expenses. The expenses rose due to higher amortization of deferred costs for the
work force reduction plan and increased Year 2000 expenses.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors ranging from energy sales growth to a less regulated, more competitive
environment. Operating revenues will be affected by any changes in rates under
the PEP and ECO plans. The PEP has proven to be a stabilizing force on electric
rates, with only moderate changes in rates taking place.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional information, see Item 1 - BUSINESS - "Competition" and Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of
MISSISSIPPI in the Form 10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be recovered. MISSISSIPPI's 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.
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 March 31, 1999, the Year 2000 program costs, recognized as
expense, amounted to $3.9 million. For additional information, see SOUTHERN's
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - "Future Earnings Potential" herein.
54
<PAGE>
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The FASB has issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which must 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. 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 three months
of 1999 included the addition of approximately $12.9 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 ("Escatawpa"), a limited
partnership, 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.
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.
55
<PAGE>
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
To meet short-term cash needs and contingencies, MISSISSIPPI had at March
31, 1999, approximately $1.1 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 March 31, 1999, MISSISSIPPI had short-term notes payable outstanding
of $61.5 million. Management believes that the need for working capital can be
adequately met by utilizing lines of credit without maintaining large cash
balances.
56
<PAGE>
SAVANNAH ELECTRIC
AND
POWER COMPANY
57
<PAGE>
<TABLE>
<CAPTION>
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
------------------------
1999 1998
----------- -----------
OPERATING REVENUES:
<S> <C> <C>
Revenues $46,732 $48,209
Revenues from Affiliates 366 172
----------- -----------
Total operating revenues 47,098 48,381
----------- -----------
OPERATING EXPENSES:
Operation--
Fuel 6,593 5,808
Purchased power from non-affiliates 1,092 1,213
Purchased power from affiliates 9,177 10,164
Other 11,279 11,145
Maintenance 4,439 3,678
Depreciation and amortization 5,977 5,258
Taxes other than income taxes 2,904 2,838
Federal and state income taxes 720 2,063
----------- -----------
Total operating expenses 42,181 42,167
----------- -----------
OPERATING INCOME 4,917 6,214
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 21 21
Interest income 36 68
Other, net (444) (429)
Income taxes applicable to other income 158 133
----------- -----------
INCOME BEFORE INTEREST CHARGES 4,688 6,007
----------- -----------
INTEREST AND OTHER CHARGES:
Interest on long-term debt 2,475 2,710
Allowance for debt funds used during construction (26) (26)
Interest on notes payable 21 26
Amortization of debt discount, premium and expense, net 233 187
Distributions on preferred securities of subsidiary trust 685 -
Other interest charges 91 103
----------- -----------
Interest and other charges, net 3,479 3,000
----------- -----------
NET INCOME 1,209 3,007
DIVIDENDS ON PREFERRED STOCK - 581
----------- -----------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $1,209 $2,426
=========== ===========
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
---------------------------
1999 1998
----------- -----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,209 $3,007
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 6,438 5,654
Deferred income taxes and investment tax credits, net (555) 20
Allowance for equity funds used during construction (21) (21)
Other, net 1,329 (691)
Changes in certain current assers and liabilities--
Receivables, net 2,913 4,917
Inventories (348) (1,778)
Payables (4,064) (3,049)
Taxes accrued (635) (1,143)
Other 627 (3,333)
----------- -----------
Net cash provided from operating activities 6,893 3,583
----------- -----------
INVESTING ACTIVITIES:
Gross property additions (9,398) (4,250)
Other 175 (703)
----------- -----------
Net cash used for investing activities (9,223) (4,953)
----------- -----------
FINANCING ACTIVITIES:
Proceeds--
Other long-term debt - 30,000
Retirements--
First mortgage bonds - (1,100)
Other long-term debt (182) (167)
Notes payable, net 6,500 3,000
Payment of preferred stock dividends - (581)
Payment of common stock dividends (6,200) (5,800)
Miscellaneous (12) (703)
----------- -----------
Net cash provided from financing activities 106 24,649
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,224) 23,279
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,962 6,144
=========== ===========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,738 $29,423
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $3,209 $3,332
Income taxes - $984
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At March 31,
1999 At December 31,
(Unaudited) 1998
------------------------------
UTILITY PLANT:
<S> <C> <C>
Plant in service, at original cost $788,416 $781,964
Less accumulated provision for depreciation 347,082 341,930
------------ -------------
441,334 440,034
Construction work in progress 5,123 2,908
------------ -------------
Total 446,457 442,942
------------ -------------
OTHER PROPERTY AND INVESTMENTS: 1,420 1,420
------------ -------------
CURRENT ASSETS:
Cash and cash equivalents 3,738 5,962
Receivables --
Customer accounts receivable 15,685 18,030
Other accounts and notes receivable 3,661 3,543
Affiliated companies 2,416 1,388
Accumulated provision for uncollectible accounts (209) (284)
Fuel cost under recovery 15,839 17,628
Fossil fuel stock, at average cost 4,789 4,984
Materials and supplies, at average cost 7,039 6,496
Prepayments 4,709 4,772
------------ -------------
Total 57,667 62,519
------------ -------------
DEFERRED CHARGES:
Deferred charges related to income taxes 17,096 17,130
Debt issue expense, being amortized 3,530 3,554
Premium on reacquired debt, being amortized 8,373 8,570
Prepaid pension costs 2,758 3,281
Cash surrender value of life insurance for deferred compensation plans 14,179 14,179
Miscellaneous 2,678 2,204
------------ -------------
Total 48,614 48,918
------------ -------------
TOTAL ASSETS $554,158 $555,799
============ =============
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 BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At March 31,
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 107,963 112,954
------------ -------------
170,874 175,865
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding Company Junior Subordinated Notes 40,000 40,000
Long-term debt 163,274 163,443
------------ -------------
Total 374,148 379,308
------------ -------------
CURRENT LIABILITIES:
Long-term debt due within one year 676 689
Notes payable 6,500 -
Accounts payable --
Affiliated companies 5,392 5,014
Other 6,533 10,833
Customer deposits 5,321 5,224
Taxes accrued--
Federal and state income 1,589 2,467
Other 2,256 2,891
Interest accrued 3,862 3,815
Vacation pay accrued 2,008 1,978
Miscellaneous 7,090 6,700
------------ -------------
Total 41,227 39,611
------------ -------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 83,098 82,778
Accumulated deferred investment tax credits 11,777 11,943
Deferred credits related to income taxes 21,318 21,349
Deferred compensation plans 9,976 9,788
Postretirement benefits 6,824 6,434
Miscellaneous 5,790 4,588
------------ -------------
Total 138,783 136,880
------------ -------------
TOTAL CAPITALIZATION AND LIABILITIES $554,158 $555,799
============ =============
The accompanying notes as they relate to SAVANNAH are an integral part of these condensed statements.
</TABLE>
61
<PAGE>
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 1999 vs. FIRST QUARTER 1998
RESULTS OF OPERATIONS
Earnings
SAVANNAH's net income after dividends on preferred stock for the first quarter
of 1999 was $1.2 million as compared to $2.4 million for the same period of
1998. The earnings decrease is attributed to lower operating revenues and
increased operating expenses, both reflecting the Georgia PSC's accounting
order. 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:
Increase (Decrease)
------------------------------
First Quarter
------------------------------
(in thousands) %
Revenues....................................... $(1,477) (3.1)
Fuel expense................................... 785 13.5
Maintenance expense............................ 761 20.7
Depreciation and amortization expense.......... 719 13.7
Interest on long-term debt..................... 450 16.6
Dividends on preferred stock................... (581) (100.0)
Revenues. The drop in first quarter 1999 revenues is primarily attributed
to a decrease in total energy sales primarily to territorial customers and the
tariff reduction implemented as a part of the Georgia PSC accounting order.
Territorial energy sales to residential and commercial customers were up 3.4%
and 1.3%, but were down 30.9% to industrial customers. Energy sales were down to
industrial customers due to low demand from one industrial customer and the
shut-down of another industrial customer's facilities. For additional
information, see "Future Earnings Potential" herein.
Fuel expenses. These costs rose from the same period in 1998 due to
higher generation and a change in fuel mix.
Maintenance expense. The first quarter of 1999 increase is attributed
primarily to the timing of maintenance expenses at steam generating facilities.
Depreciation and amortization expense. This item increased during this
quarter compared to the corresponding period in 1998 due mainly to additional
depreciation charges pursuant to the Georgia PSC accounting order.
Interest on long-term debt. During the first quarter of 1999, interest on
long-term debt increased when compared to the same period in 1998 due to a
higher level of debt.
Dividends on preferred stock. The change in this item is a direct result
of the redemption in November 1998 of all of SAVANNAH's outstanding preferred
stock.
62
<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 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 August, 1998, one of SAVANNAH's largest industrial customers added its
own steam turbine unit. The impact to SAVANNAH's revenues from one period to the
next will be determined by the reliability of the unit and market conditions.
Further, in October 1998, another of Savannah's largest customers shut-down its
Savannah operations indefinitely. Base revenues from this customer had averaged
$2 million annually or approximately $500 thousand per quarter. Under the terms
of SAVANNAH's contract this customer is obligated to pay $1.1 million annually
through 2004. In the first quarter of 1999, the impact on SAVANNAH's revenues
from this shut-down was $0.2 million.
With the enactment of the Energy Act and new legislation being discussed at
federal and state levels to expand customer choice, the Southern electric system
is positioning the business to meet the challenge of increasing competition. For
additional information, see Item 1 - BUSINESS - "Competition" and Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of SAVANNAH
in the Form 10-K.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be offset. For additional information about the Clean Air Act and
other environmental issues, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Environmental Matters" of SAVANNAH in the Form 10-K.
SAVANNAH'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 March 31, 1999, the Year 2000 program costs, recognized as expense,
amounted to $0.9 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 has issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which must 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. SAVANNAH 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 (N) in the "Notes to the Condensed
Financial Statements" herein for discussion of various contingencies and other
matters which may affect future earnings potential.
63
<PAGE>
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
Overview
Major changes in SAVANNAH's financial condition during the first three months of
1999 included the addition of approximately $9.4 million to utility plant. The
funds for these additions and other capital requirements were derived primarily
from operations. See SAVANNAH's Condensed Statements of Cash Flows for further
details.
Financing Activities
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 March 31,
1999, approximately $3.7 million of cash and cash equivalents and approximately
$54 million of unused credit arrangements with banks. At March 31, 1999,
SAVANNAH had $6.5 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.
64
<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
65
<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
March 31, 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 be read in conjunction with the financial statements
and the notes thereto included in each registrant's latest annual report on
Form 10-K. Certain prior period amounts have been reclassified to conform
with current period presentation.
The condensed financial statements of ALABAMA and GEORGIA included
herein have been reviewed by ALABAMA's and GEORGIA's independent public
accountants as set forth in their reports included herein as Exhibit 1 to
ALABAMA's and GEORGIA's condensed financial statements.
(B) SOUTHERN's operating affiliates are subject to the provisions of FASB
Statement No. 71, Accounting for the Effects of Certain Types of
Regulation. In the event that a portion of a company's operations is no
longer subject to these provisions, the company would be required to write
off related unrecoverable regulatory assets and liabilities, and determine
if any other assets have been impaired. For additional information, see
Note 1 to the financial statements of each registrant in Item 8 of the
Form 10-K.
(C) The staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry--including
SOUTHERN's--regarding the recognition, measurement and classification of
decommissioning costs for nuclear generating facilities in the financial
statements. In response to these questions, the FASB has decided to review
the accounting for obligations related to the retirement of long-lived
assets, including nuclear decommissioning. Reference is made to
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of
SOUTHERN, ALABAMA and GEORGIA in Item 7 and Note 1 to the financial
statements of SOUTHERN, ALABAMA and GEORGIA under "Depreciation and
Nuclear Decommissioning" in Item 8 of the Form 10-K.
(D) SOUTHERN engages in price risk management activities. Reference is made to
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Derivative Financial Instruments"
and Note 1 to the financial statements of SOUTHERN in Item 8 of the Form
10-K for a discussion of these activities. Activities for non-trading
purposes consist of transactions that are employed to mitigate SOUTHERN's
risk related to interest rate and foreign currency exchange rate
fluctuations. At March 31, 1999, the status of outstanding non-trading
related derivative contracts was as follows:
66
<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 $892,120 $(48,943)
2001-2012 (pound)600,000 $(129,376)
2002-2007 DM691,000 $(30,770)
Cross currency swaps 2001-2007 (pound)413,800 $31,556
Cross currency swaption 2003 DM555,000 $(2,377)
(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 jointly made guarantees to
certain counterparties regarding performance of contractual commitments by
the joint venture. At March 31, 1999, outstanding guarantees related to
the estimated fair value of net contractual commitments were approximately
$79 million. Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential" of SOUTHERN in Item 7 and Note 1 to the
financial statements of SOUTHERN under "Financial Instruments for Trading
Activities" in Item 8 of the Form 10-K.
(E) SOUTHERN's principal business segment -- or its traditional core business
-- is the five regulated electric utility operating companies that provide
electric service in four southeastern states. The other reportable
business segment is non-traditional energy services provided by Southern
Energy, which develops and manages electricity and other energy-related
projects both in the United States and abroad. 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 March 31, 1999: (in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $ 1,882 $ 461 $ 61 $ 522 $ 43 $ (5) $ 2,442
Segment net income (loss) 168 88 - 88 (33) 1 224
Total assets at 3/31/99 24,397 9,378 2,534 11,912 1,381 (2,252) 35,438
----------------------------------------- ------------ ---------- ---------- ---------- --------- ------------- ---------------
Three Months Ended March 31, 1998:
Operating revenues $ 1,954 $ 475 $ 33 $ 508 $ 35 $ (2) $ 2,495
Segment net income (loss) 190 57 6 63 (3) (8) 242
Total assets at 12/31/98 24,421 9,578 2,869 12,447 1,438 (2,114) 36,192
------------------------------------------ ----------- ----------- -------- ---------- --------- -------------- ---------------
</TABLE>
67
<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. On April 19, 1999, the FERC entered an order
dismissing the request for rehearing filed by customers under long-term
power sales agreements. The parties are engaged in discussions with a view
toward settlement of the proceedings which remain pending at FERC, but the
ultimate outcome of these discussions cannot now be determined.
(G) During the first three 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 for information relating to a judgment
against ALABAMA arising from discharges into Lake Martin. The trial court
has denied the defendants' motion for a new trial and for remittitur, and
ALABAMA has appealed to the Supreme Court of Alabama.
(J) In 1996, legal actions against ALABAMA were filed in several counties in
Alabama charging ALABAMA with fraud and non-compliance with regulatory
statutes relating to the offer, sale and financing of "extended service
contracts" in connection with the sale of electric appliances. See Note 3
to the financial statements of SOUTHERN and ALABAMA in Item 8 of the Form
10-K for additional information.
68
<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. Under the amended 1995 Integrated Resource Plan approved by
the Georgia PSC in March 1997, 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) Reference is made to Note 3 to the financial statements of SAVANNAH in
Item 8 of the Form 10-K for information concerning the four-year
accounting order approved by the Georgia PSC in June 1998.
(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 March 31,
1999. At March 31, 1999, Mobile Energy had total assets of $372 million and
senior debt outstanding of $203 million of first mortgage bonds and $77
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.
(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, 41,000 shares were sold in the quarter ended March 31,
1999.
69
<PAGE>
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
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, 4,116,800 shares have been repurchased through May 12,
1999, with funding provided from SOUTHERN's commercial paper program.
70
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
(1) Reference is made to the Notes to the Condensed Financial
Statements herein for information regarding certain legal and
administrative proceedings in which SOUTHERN and its reporting
subsidiaries are involved.
Item 6. Exhibits and Reports on Form 8-K.
<TABLE>
<CAPTION>
<S> <C>
(a) Exhibits.
Exhibits 15 - Letter re: unaudited interim financial information
(a) ALABAMA
(b) GEORGIA
Exhibit 24 - 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.)
Exhibits 27 - Financial Data Schedule
(a) SOUTHERN
(b) ALABAMA
(c) GEORGIA
(d) GULF
(e) MISSISSIPPI
(f) SAVANNAH
(b) Reports on Form 8-K.
SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI AND
SAVANNAH each filed a Current Report on Form 8-K dated
February 10, 1999:
Item reported: Item 7
Financial statements filed:
Each registrant's
audited financial
statements for the
year ended
December 31, 1998.
ALABAMA filed a Current Report on Form 8-K dated February 18, 1999:
Items reported: Item 5
Item 7
Financial statements filed: None
</TABLE>
71
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K. (Continued)
GEORGIA filed Current Reports on Form 8-K dated February
17, 1999 and March 3, 1999:
Items reported: Item 5
Item 7
Financial statements filed: None
72
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
THE SOUTHERN COMPANY
By A. W. Dahlberg
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
By W. L. Westbrook
Financial Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: May 13, 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: May 13, 1999
73
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
GEORGIA POWER COMPANY
By H. Allen Franklin
President and Chief Executive Officer
(Principal Executive Officer)
By David M. Ratcliffe
Executive Vice President, Treasurer and Chief Financial Officer
(Principal Financial Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: May 13, 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: May 13, 1999
74
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
MISSISSIPPI POWER COMPANY
By Dwight H. Evans
President and Chief Executive Officer
(Principal Executive Officer)
By Michael W. Southern
Vice President, Secretary, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: May 13, 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: May 13, 1999
75
ARTHUR ANDERSEN LLP
EXHIBIT 15(a)
May 10, 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 March 31,
1999 which includes our report on Alabama Power Company dated May 10, 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
ARTHUR ANDERSEN LLP
EXHIBIT 15(b)
May 10, 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 March 31,
1999 which includes our report on Georgia Power Company dated May 10, 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
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for March 31, 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> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 23,717,491
<OTHER-PROPERTY-AND-INVEST> 6,107,504
<TOTAL-CURRENT-ASSETS> 3,188,735
<TOTAL-DEFERRED-CHARGES> 2,424,069
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 35,437,799
<COMMON> 3,446,267
<CAPITAL-SURPLUS-PAID-IN> 2,480,408
<RETAINED-EARNINGS> 3,777,455
<TOTAL-COMMON-STOCKHOLDERS-EQ> 9,704,130
2,426,965
369,061
<LONG-TERM-DEBT-NET> 3,823,063
<SHORT-TERM-NOTES> 950,062
<LONG-TERM-NOTES-PAYABLE> 5,998,111
<COMMERCIAL-PAPER-OBLIGATIONS> 1,412,739
<LONG-TERM-DEBT-CURRENT-PORT> 1,133,884
0
<CAPITAL-LEASE-OBLIGATIONS> 131,334
<LEASES-CURRENT> 2,166
<OTHER-ITEMS-CAPITAL-AND-LIAB> 9,486,284
<TOT-CAPITALIZATION-AND-LIAB> 35,437,799
<GROSS-OPERATING-REVENUE> 2,441,565
<INCOME-TAX-EXPENSE> 108,608
<OTHER-OPERATING-EXPENSES> 1,956,590
<TOTAL-OPERATING-EXPENSES> 2,065,198
<OPERATING-INCOME-LOSS> 376,367
<OTHER-INCOME-NET> 134,719
<INCOME-BEFORE-INTEREST-EXPEN> 511,086
<TOTAL-INTEREST-EXPENSE> 281,137
<NET-INCOME> 229,949
5,633
<EARNINGS-AVAILABLE-FOR-COMM> 224,316
<COMMON-STOCK-DIVIDENDS> 233,879
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 189,263
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for March 31, 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> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 7,335,899
<OTHER-PROPERTY-AND-INVEST> 291,207
<TOTAL-CURRENT-ASSETS> 731,566
<TOTAL-DEFERRED-CHARGES> 770,214
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 9,128,886
<COMMON> 224,358
<CAPITAL-SURPLUS-PAID-IN> 1,334,744
<RETAINED-EARNINGS> 1,190,016
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,749,118
347,000
317,512
<LONG-TERM-DEBT-NET> 993,424
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 1,550,000
<COMMERCIAL-PAPER-OBLIGATIONS> 322,653
<LONG-TERM-DEBT-CURRENT-PORT> 270,200
0
<CAPITAL-LEASE-OBLIGATIONS> 4,893
<LEASES-CURRENT> 980
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,573,106
<TOT-CAPITALIZATION-AND-LIAB> 9,128,886
<GROSS-OPERATING-REVENUE> 714,324
<INCOME-TAX-EXPENSE> 38,700
<OTHER-OPERATING-EXPENSES> 551,934
<TOTAL-OPERATING-EXPENSES> 590,634
<OPERATING-INCOME-LOSS> 123,690
<OTHER-INCOME-NET> 5,635
<INCOME-BEFORE-INTEREST-EXPEN> 129,325
<TOTAL-INTEREST-EXPENSE> 62,375
<NET-INCOME> 66,950
3,875
<EARNINGS-AVAILABLE-FOR-COMM> 63,075
<COMMON-STOCK-DIVIDENDS> 98,000
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 134,489
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for March 31, 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> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 9,649,851
<OTHER-PROPERTY-AND-INVEST> 386,592
<TOTAL-CURRENT-ASSETS> 927,448
<TOTAL-DEFERRED-CHARGES> 1,093,751
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 12,057,642
<COMMON> 344,250
<CAPITAL-SURPLUS-PAID-IN> 1,660,255
<RETAINED-EARNINGS> 1,738,039
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,742,544
889,250
15,504
<LONG-TERM-DEBT-NET> 2,065,362
<SHORT-TERM-NOTES> 231,813
<LONG-TERM-NOTES-PAYABLE> 595,000
<COMMERCIAL-PAPER-OBLIGATIONS> 206,347
<LONG-TERM-DEBT-CURRENT-PORT> 295,000
0
<CAPITAL-LEASE-OBLIGATIONS> 85,663
<LEASES-CURRENT> 510
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,930,649
<TOT-CAPITALIZATION-AND-LIAB> 12,057,642
<GROSS-OPERATING-REVENUE> 930,930
<INCOME-TAX-EXPENSE> 63,380
<OTHER-OPERATING-EXPENSES> 706,546
<TOTAL-OPERATING-EXPENSES> 769,926
<OPERATING-INCOME-LOSS> 161,004
<OTHER-INCOME-NET> (3,095)
<INCOME-BEFORE-INTEREST-EXPEN> 157,909
<TOTAL-INTEREST-EXPENSE> 65,127
<NET-INCOME> 92,782
1,201
<EARNINGS-AVAILABLE-FOR-COMM> 91,581
<COMMON-STOCK-DIVIDENDS> 133,100
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 187,566
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for March 31, 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> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,056,932
<OTHER-PROPERTY-AND-INVEST> 1,587
<TOTAL-CURRENT-ASSETS> 136,779
<TOTAL-DEFERRED-CHARGES> 78,623
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,273,921
<COMMON> 38,060
<CAPITAL-SURPLUS-PAID-IN> 218,972
<RETAINED-EARNINGS> 160,419
<TOTAL-COMMON-STOCKHOLDERS-EQ> 417,451
85,000
4,236
<LONG-TERM-DEBT-NET> 247,420
<SHORT-TERM-NOTES> 60,000
<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> 362,814
<TOT-CAPITALIZATION-AND-LIAB> 1,273,921
<GROSS-OPERATING-REVENUE> 134,506
<INCOME-TAX-EXPENSE> 2,641
<OTHER-OPERATING-EXPENSES> 118,841
<TOTAL-OPERATING-EXPENSES> 121,482
<OPERATING-INCOME-LOSS> 13,024
<OTHER-INCOME-NET> (410)
<INCOME-BEFORE-INTEREST-EXPEN> 12,614
<TOTAL-INTEREST-EXPENSE> 7,761
<NET-INCOME> 4,853
54
<EARNINGS-AVAILABLE-FOR-COMM> 4,799
<COMMON-STOCK-DIVIDENDS> 15,000
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 8,841
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for March 31, 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> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,024,207
<OTHER-PROPERTY-AND-INVEST> 978
<TOTAL-CURRENT-ASSETS> 116,532
<TOTAL-DEFERRED-CHARGES> 57,941
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,199,658
<COMMON> 37,691
<CAPITAL-SURPLUS-PAID-IN> 179,799
<RETAINED-EARNINGS> 167,134
<TOTAL-COMMON-STOCKHOLDERS-EQ> 384,624
35,000
31,809
<LONG-TERM-DEBT-NET> 172,773
<SHORT-TERM-NOTES> 61,500
<LONG-TERM-NOTES-PAYABLE> 120,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 50,020
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 343,932
<TOT-CAPITALIZATION-AND-LIAB> 1,199,658
<GROSS-OPERATING-REVENUE> 122,435
<INCOME-TAX-EXPENSE> 4,273
<OTHER-OPERATING-EXPENSES> 104,313
<TOTAL-OPERATING-EXPENSES> 108,586
<OPERATING-INCOME-LOSS> 13,849
<OTHER-INCOME-NET> 406
<INCOME-BEFORE-INTEREST-EXPEN> 14,255
<TOTAL-INTEREST-EXPENSE> 6,559
<NET-INCOME> 7,696
503
<EARNINGS-AVAILABLE-FOR-COMM> 7,193
<COMMON-STOCK-DIVIDENDS> 13,800
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> (15,204)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for March 31, 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> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 446,457
<OTHER-PROPERTY-AND-INVEST> 1,420
<TOTAL-CURRENT-ASSETS> 57,667
<TOTAL-DEFERRED-CHARGES> 48,614
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 554,158
<COMMON> 54,223
<CAPITAL-SURPLUS-PAID-IN> 8,688
<RETAINED-EARNINGS> 107,963
<TOTAL-COMMON-STOCKHOLDERS-EQ> 170,874
40,000
0
<LONG-TERM-DEBT-NET> 97,955
<SHORT-TERM-NOTES> 6,500
<LONG-TERM-NOTES-PAYABLE> 60,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 5,319
<LEASES-CURRENT> 676
<OTHER-ITEMS-CAPITAL-AND-LIAB> 172,834
<TOT-CAPITALIZATION-AND-LIAB> 554,158
<GROSS-OPERATING-REVENUE> 47,098
<INCOME-TAX-EXPENSE> 720
<OTHER-OPERATING-EXPENSES> 41,461
<TOTAL-OPERATING-EXPENSES> 42,181
<OPERATING-INCOME-LOSS> 4,917
<OTHER-INCOME-NET> (229)
<INCOME-BEFORE-INTEREST-EXPEN> 4,688
<TOTAL-INTEREST-EXPENSE> 3,479
<NET-INCOME> 1,209
0
<EARNINGS-AVAILABLE-FOR-COMM> 1,209
<COMMON-STOCK-DIVIDENDS> 6,200
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 6,893
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
