<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 16, 1994
GULF POWER COMPANY
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(Exact name of registrant as specified in its charter)
Maine 0-2429 59-0276810
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
500 Bayfront Parkway, Pensacola, Florida 32501
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (904) 444-6111
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N/A
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(Former name or former address, if changed since last report.)
<PAGE> 2
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
23 - Consent of Arthur Andersen & Co.
99 - Audited Financial Statements of Gulf
Power Company as of December 31, 1993.
SIGNATURE
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.
GULF POWER COMPANY
By /s/ Wayne Boston
-------------------------------
Wayne Boston
Assistant Secretary
Date: March 1, 1994
<PAGE> 1
EXHIBIT 23
ARTHUR ANDERSEN & CO.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 16, 1994, included in this Form 8-K, into Gulf Power
Company's previously filed Registration Statement File No. 33-50165.
/s/ Arthur Andersen & Co.
-------------------------
ARTHUR ANDERSEN & CO.
Atlanta, Georgia
March 1, 1994
<PAGE> 1
EXHIBIT 99
MANAGEMENT'S REPORT
Gulf Power Company 1993 Annual Report
The management of Gulf Power Company has prepared and is responsible for the
financial statements and related information included in this report. These
statements were prepared in accordance with generally accepted accounting
principles appropriate in the circumstances and necessarily include amounts
that are based on the best estimates and judgments of management. Financial
information throughout this annual report is consistent with the financial
statements.
The Company maintains a system of internal accounting controls to
provide reasonable assurance that assets are safeguarded and that books and
records reflect only authorized transactions of the Company. Limitations exist
in any system of internal controls, however, based on a recognition that the
cost of the system should not exceed its benefits. The Company believes its
system of internal accounting controls maintains an appropriate cost/benefit
relationship.
The Company's system of internal accounting controls is evaluated on
an ongoing basis by the Company's internal audit staff. The Company's
independent public accountants also consider certain elements of the internal
control system in order to determine their auditing procedures for the purpose
of expressing an opinion on the financial statements.
The audit committee of the board of directors, composed of the
directors who are not employees, provides a broad overview of management's
financial reporting and control functions. Periodically, this committee meets
with management, the internal auditors, and the independent public accountants
to ensure that these groups are fulfilling their obligations and to discuss
auditing, internal controls, and financial reporting matters. The internal
auditors and independent public accountants have access to the members of the
audit committee at any time.
Management believes that its policies and procedures provide
reasonable assurance that the Company's operations are conducted according to a
high standard of business ethics.
In management's opinion, the financial statements present fairly, in
all material respects, the financial position, results of operations, and cash
flows of Gulf Power Company in conformity with generally accepted accounting
principles.
/s/ D. L. McCrary /s/ A. E. Scarbrough
- -------------------------- ------------------------
Douglas L. McCrary Arlan E. Scarbrough
Chairman of the Board Vice President - Finance
and Chief Executive Officer
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS
OF GULF POWER COMPANY:
We have audited the accompanying balance sheets and statements of
capitalization of Gulf Power Company (a Maine corporation and a wholly owned
subsidiary of The Southern Company) as of December 31, 1993 and 1992, and the
related statements of income, retained earnings, paid-in capital, and cash
flows for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements (pages 10 through 27)
referred to above present fairly, in all material respects, the financial
position of Gulf Power Company as of December 31, 1993 and 1992, and the
results of its operations and its cash flows for the periods stated, in
conformity with generally accepted accounting principles.
As explained in Notes 2 and 8 to the financial statements, effective
January 1, 1993, Gulf Power Company changed its methods of accounting for
postretirement benefits other than pensions and for income taxes.
/s/ Arthur Andersen & Co.
Atlanta, Georgia
February 16, 1994
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION Gulf Power Company 1993 Annual Report
RESULTS OF OPERATIONS
EARNINGS
Gulf Power Company's net income after preferred stock dividends was $54.3
million for 1993, a $0.2 million increase over 1992 net income. Earnings
reflect a $2.3 million gain on the sale of Gulf States Utilities Company (Gulf
States) stock and the reversal of a $1.7 million wholesale rate refund as the
result of a court order which is further discussed in Note 3 to the financial
statements under "Recovery of Contract Buyout Costs". The company also
experienced growth in residential and commercial sales and a decrease in
interest expense on long-term debt as a result of security refinancings, offset
by higher operation and maintenance expense, and decreased industrial sales
reflecting the loss of the Company's largest industrial customer, Monsanto,
which began cogeneration in August of 1993.
The Company's 1992 net income after dividends on preferred stock
decreased $3.7 million compared to the prior year. The 1991 earnings included
an after-tax gain of $12.7 million representing the settlement of litigation
with Gulf States. See Note 7 to the financial statements under "Gulf States
Settlement Completed" for further details. Excluding this settlement from
1991, earnings for 1992 increased $8.4 million -- or approximately -- 18.7
percent over 1991. This improvement was due to increased energy sales; lower
interest expense and preferred dividends as a result of security refinancings;
and continued emphasis on cost controls.
The Company's return on average common equity was 13.29 percent for
1993, a slight decrease from the 13.62 percent return earned in 1992, which was
up from the 12.03 percent earned in 1991 (excluding the Gulf States
settlement).
REVENUES
Changes in operating revenues over the last three years are the result of the
following factors:
<TABLE>
<CAPTION>
Increase (Decrease)
From Prior Year
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Retail --
Change in base rates $ 1,571 $ 722 $ 3,137
Sales growth 7,671 12,965 2,387
Weather 4,049 (6,448) 1,845
Regulatory cost
recovery and other (3,079) (1,839) 13,947
Total retail 10,212 5,400 21,316
Sales for resale--
Non-affiliates 2,131* 442 (4,219)
Affiliates (909) (5,268) (9,220)
Total Sales for resale 1,222 (4,826) (13,439)
Other operating
revenues 806 5,121 (10,495)
Total operating
revenues $12,240 $ 5,695 $ (2,618)
Percent change 2.1% 1.0% (0.5)%
</TABLE>
* Includes the non-interest portion of the wholesale rate refund
reversal discussed in "Earnings."
Retail revenues of $471.7 million in 1993 increased $10.2 million or
2.2 percent from last year, compared with an increase of 1.2 percent in 1992
and 4.9 percent in 1991. Revenues increased in the residential and commercial
classes primarily due to customer growth, and favorable weather and economic
conditions. Revenues in the industrial class declined due to the loss of the
Company's largest industrial customer, Monsanto, which began operating its
cogeneration facility in August 1993. See "Future Earnings Potential" for
further details. The change in base rates for 1993 and 1992 reflects the
expiration of a retail rate penalty in September 1992.
Sales for resale were $95.4 million in 1993, increasing $1.2 million or
1.3 percent over 1992. Sales to affiliated companies vary from year to year
depending on demand and the availability and cost of generating resources at
each company. The majority of non-affiliated energy sales arise from long-term
contractual agreements. Non-affiliated long-term contracts include capacity
and energy components. Capacity revenues reflect the recovery of
3
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1993 Annual Report
fixed costs and return on investment. Energy is sold at its variable cost.
The capacity and energy components under these long-term contracts were
as follows:
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Capacity $33,805 $34,180 $32,651
Energy 21,202 22,933 23,311
Total $55,007 $57,113 $55,962
</TABLE>
Beginning in June 1992, all the capacity from the Company's ownership
portion of Plant Scherer Unit No. 3 was sold through unit power sales,
resulting in increased capacity revenues.
In 1993, changes in other operating revenues are primarily due to the
recognition of $2.6 million under the Environmental Cost Recovery (ECR) clause
which is fully discussed in Note 3 to the financial statements under
"Environmental Cost Recovery", which is offset by true-ups of other regulatory
cost recovery clauses. The increase in other operating revenues in 1992 was
primarily due to true-ups of regulatory cost recovery clauses and the changes
in franchise fee collections and Florida gross receipts taxes (discussed under
"Expenses") which had no effect on earnings.
Energy sales for 1993 and percent changes in sales since 1991 are
reported below.
<TABLE>
<CAPTION>
Amount Percent Change
(millions of
kilowatt-hours) 1993 1993 1992 1991
<S> <C> <C> <C> <C>
Residential 3,713 3.2% 4.1% 2.8%
Commercial 2,433 2.7 4.2 2.5
Industrial 2,030 (6.9) 2.9 (2.8)
Other 17 - (2.7) (9.3)
Total retail 8,193 0.4 3.8 1.1
Sales for resale
Non-affiliates 1,460 2.0 (7.7) (12.7)
Affiliates 1,030 (14.8) (2.2) (13.9)
Total 10,683 (1.1) 1.4 (3.1)
</TABLE>
Overall retail sales remained relatively flat in 1993. Increases in
residential and commercial sales -- reflecting customer growth, favorable
weather and an improving economy -- were offset by the decreased sales in the
industrial class reflecting the loss of Monsanto. Retail sales increased 3.8
percent in 1992 primarily due to an increase in the number of customers served
and a moderately improving economy.
Energy sales for resale to non-affiliates increased 2.0 percent and are
predominantly unit power sales under long-term contracts to Florida utilities
which are discussed above. Energy sales to affiliated companies vary from year
to year as mentioned above.
EXPENSES
Total operating expenses for 1993 increased $16.6 million or 3.5 percent over
1992 primarily due to increased operation and maintenance expenses and higher
taxes. Other operation expenses increased $10.9 million or 11.1 percent from
the 1992 level. The increase is attributable to additional costs of $7.4
million related to increases in the buyout of coal supply contracts and $1.4
million of environmental clean-up costs. Also, higher employee benefit costs
and the costs of an automotive fleet reduction program increased expenses by
$2.1 million. Operating expenses for 1992 increased by approximately $16
million over 1991. Excluding the Gulf States settlement, an after-tax
reduction of $0.6 million in 1992 and $12.7 million in 1991, 1992 total
operating expenses increased $4.3 million or 0.9 percent over 1991.
Fuel and purchased power expenses decreased $3.8 million or 1.8 percent
from 1992 reflecting the lower cost of fuel. Total 1992 fuel and purchased
power increased $1.4 million or 0.7 percent from 1991.
Maintenance expense increased $4.1 million or 9.7 percent over 1992 due
to scheduled maintenance of production facilities. The 1992 maintenance
expense was down $3.5 million or 7.7 percent from 1991 due to a decrease in
scheduled maintenance.
Federal income taxes increased $0.7 million primarily due to a
corporate federal income tax rate increase from 34 percent to 35 percent
effective January 1993. Taxes other than income taxes increased $2.3 million
in 1993, an increase of 6.1 percent over the 1992 expense
4
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1993 Annual Report
primarily due to increases in property taxes and gross receipt taxes. Taxes
other than income taxes decreased $4.5 million, or 10.5 percent in 1992
compared to 1991 due primarily to the Company discontinuing the collection of
franchise fees for two Florida counties which was partially offset by an
increase in gross receipt taxes. Changes in franchise fee collections and
gross receipt taxes had no impact on earnings.
Interest expense decreased $3.2 million or 8.1 percent from the 1992
level and 1992 interest expense decreased $5.6 million or 12.5 percent from
1991. The decrease in both years is primarily attributable to refinancing some
of the Company's higher cost securities.
EFFECTS OF INFLATION
The Company is subject to rate regulation and income tax laws that are based on
the recovery of historical costs. Therefore, inflation creates an economic
loss because the Company is recovering its cost of investments in dollars that
have less purchasing power. While the inflation rate has been relatively low
in recent years, it continues to have an adverse effect on the Company because
of the large investment in long-lived utility plant. Conventional accounting
for historical cost does not recognize this economic loss nor the partially
offsetting gain that arises through financing facilities with fixed-money
obligations, such as long-term debt and preferred stock. Any recognition of
inflation by regulatory authorities is reflected in the rate of return allowed.
FUTURE EARNINGS POTENTIAL
The results of operations for the past three years are not necessarily
indicative of future earnings potential. The level of future earnings depends
on a number of factors. It is expected that higher operating costs and
carrying charges on increased investment in plant, if not offset by
proportionate increases in operating revenues (either by periodic rate
increases or increases in sales), will adversely affect future earnings. Growth
in energy sales will be subject to a number of factors, including the volume of
sales to neighboring utilities, energy conservation practiced by customers, the
elasticity of demand, customer growth, weather, competition, and the rate of
economic growth in the service area.
In addition to the traditional factors discussed above, the Energy
Policy Act of 1992 (Energy Act) will have a profound effect on the future of
the electric utility industry. The Energy Act promotes energy efficiency,
alternative fuel use, and increased competition for electric utilities. The
Company is preparing to meet the challenges of a major change in the
traditional business practices of selling electricity. The Energy Act allows
independent power producers (IPPs) to access the Company's transmission network
in order to sell electricity to other utilities, and this may enhance the
incentive for IPPs to build cogeneration plants for the Company's large
industrial and commercial customers and sell excess energy generation to the
Company or other utilities. Although the Energy Act does not require
transmission access to retail customers, pressure for legislation to allow
retail wheeling will continue. If the Company does not remain a low-cost
producer and provide quality service, the Company's retail energy sales growth,
its ability to retain large industrial and commercial customers, and obtain new
long-term contracts for energy sales outside the Company's service area, could
be limited, and this could significantly erode earnings.
The future effect of cogeneration and small-power production facilities
cannot be fully determined at this time, but may be adverse. One effect of
cogeneration which the Company has experienced is the loss of its largest
industrial customer, Monsanto, in August of 1993. The loss of the Monsanto
load reduced revenues, and will result in a reduction in net income of
approximately $3 million in the first twelve months.
The Federal Energy Regulatory Commission (FERC) regulates wholesale
rate schedules and power sales contracts that the Company has with its sales
for resale customers. The FERC is currently reviewing the rate of return on
common equity included in these schedules and contracts that have a return on
common equity of 13.75 percent or greater, and may require such returns to be
lowered, possibly retroactively. See Note 3 to the financial statements under
"FERC Reviews Equity Returns" for additional information.
Compliance costs related to the Clean Air Act Amendments of 1990 (Clean
Air Act) could reduce earnings if such costs are not fully recovered. The
Clean Air Act is discussed later under "Environmental Matters".
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1993 Annual Report
Also, recently enacted legislation that provides for recovery of prudent
environmental compliance costs is discussed in Note 3 to the financial
statements under "Environmental Cost Recovery."
The Company filed a notice with the Florida Public Service Commission
(FPSC) of its intent to obtain rate relief in February 1993. On May 4, 1993,
the FPSC approved a stipulation between the Company, the Office of Public
Counsel, and the Florida Industrial Power Users Group to cancel the filing of
the rate case. The stipulation also allowed the Company to retain, for the
next four years, its existing method for calculating accruals for future power
plant dismantlement costs. The existing method provides a more even allocation
of expenses over the life of the plants and results in an avoided increase in
expenses of about $6 million annually over the next four years when compared to
the FPSC method. The stipulation also provided for the reduction of the
Company's allowed return on equity midpoint from 12.55 percent to 12.0 percent.
After the February 1993 filing date, interest rates continued to remain low,
resulting in lower cost of capital. Also, the Florida legislature adopted
legislation which allows utilities to petition the FPSC for recovery of
environmental costs through an adjustment clause if these costs are not being
recovered in base rates. See Note 3 to the financial statements under
"Environmental Cost Recovery" for further details. The combination of the
circumstances discussed above, placed the Company in a better position to
manage its finances without an increase in base rates while still providing a
fair return for the Company's investors. Consequently, the Company agreed, as
a part of this stipulation, to cancel the filing of the rate case.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement No. 112,
Employers' Accounting for Postemployment Benefits, which must be effective by
1994. The new standard requires that all types of benefits provided to former
or inactive employees and their families prior to retirement be accounted for
on an accrual basis. These benefits include salary continuation, severance
pay, supplemental benefits, disability-related benefits, job training, and
health and life insurance coverage. In 1993, the Company adopted Statement No.
112, which resulted in a decrease in earnings of $0.3 million.
The FASB has issued Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities, which is effective in 1994.
Statement No. 115 supersedes FASB Statement No. 12, Accounting for Certain
Marketable Securities. The Company does not have any investments that qualify
for FASB Statement No. 115 treatment.
FINANCIAL CONDITION
OVERVIEW
The principal changes in the Company's financial condition during 1993 were
gross property additions of $79 million. Funds for these additions were
provided by internal sources. The Company continued to refinance higher cost
securities to lower the Company's cost of capital. See "Financing Activities"
below and the Statements of Cash Flows for further details.
On January 1, 1993, the Company changed its method of calculating the
accruals for postretirement benefits other than pensions and its method of
accounting for income taxes. See Notes 2 and 8 to the financial statements,
regarding the impact of these changes.
FINANCING ACTIVITIES
As mentioned above, the Company continued to lower its financing costs by
issuing new securities and other debt, and retiring higher-cost issues in 1993.
The Company sold $75 million of first mortgage bonds and, through public
authorities, $53.4 million of pollution control revenue bonds, issued $35
million of preferred stock, and obtained $25 million with a long-term bank
note. Retirements, including maturities during 1993, totaled $88.8 million of
first mortgage bonds, $40.7 million of pollution control revenue bonds, and
$21.1 million of preferred stock. (See the Statements of Cash Flows for
further details.)
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1993 Annual Report
Composite financing rates for the years 1991 through 1993 as of year
end were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Composite interest rate on 7.1% 8.0% 8.4%
long-term debt
Composite preferred stock 6.5% 7.3% 8.0%
dividend rate
</TABLE>
CAPITAL REQUIREMENTS FOR CONSTRUCTION
The Company's gross property additions, including those amounts related to
environmental compliance, are budgeted at $200 million for the three years
beginning 1994 ($77 million in 1994, $55 million in 1995, and $68 million in
1996). The estimates of property additions for the three-year period include
$25 million committed to meeting the requirements of the Clean Air Act, the
cost of which is expected to be recovered through the ECR clause which is
discussed in Note 3 to the financial statements under "Environmental Cost
Recovery". Actual construction costs may vary from this estimate because of
factors such as the granting of timely and adequate rate increases; changes in
environmental regulations; revised load projections; the cost and efficiency of
construction labor, equipment, and materials; and the cost of capital.
The Company does not have any baseload generating plants under
construction. However, the Company plans to construct two 80 megawatt
combustion turbine peaking units. The first is scheduled to be completed in
1998, and the second in 1999. Significant construction of transmission and
distribution facilities and upgrading of generating plants will be continuing.
OTHER CAPITAL REQUIREMENTS
In addition to the funds needed for the construction program, approximately $86
million will be required by the end of 1996 in connection with maturities of
long-term debt and preferred stock subject to mandatory redemption. Also, the
Company plans to continue a program to retire higher-cost debt and preferred
stock and replace these obligations with lower-cost capital.
ENVIRONMENTAL MATTERS
In November 1990, the Clean Air Act was signed into law. Title IV of the Clean
Air Act -- the acid rain compliance provision of the law -- will have a
significant impact on the Company. Specific reductions in sulfur dioxide and
nitrogen oxide emissions from fossil-fired generating plants will be required
in two phases. Phase I compliance must be implemented in 1995 and affects
eight generating plants -- some 10,000 megawatts of capacity or 35 percent of
total capacity -- in the Southern electric system. Phase II compliance is
required in 2000, and all fossil-fired generating plants in the Southern
electric system will be affected.
Beginning in 1995, the Environmental Protection Agency (EPA) will
allocate annual sulfur dioxide emission allowances through the newly
established allowance trading program. An emission allowance is the authority
to emit one ton of sulfur dioxide during a calendar year. The method for
allocating allowances is based on the fossil fuel consumed from 1985 through
1987 for each affected generating unit. Emission allowances are transferable
and can be bought, sold, or banked and used in the future.
The sulfur dioxide emission allowance program is expected to minimize
the cost of compliance. The market for emission allowances is developing
slower than expected. However, The Southern Company's sulfur dioxide
compliance strategy is designed to take advantage of allowances as the market
develops.
The Southern Company expects to achieve Phase I sulfur dioxide
compliance at the eight affected plants by switching to low-sulfur coal, and
this has required some equipment upgrades. This compliance strategy is
expected to result in unused emission allowances being banked for later use.
Additional construction expenditures are required to install equipment for the
control of nitrogen oxide emissions at these eight plants. Also, continuous
emissions monitoring equipment would be installed on all fossil-fired units.
Under this Phase I compliance approach, additional construction expenditures
are estimated to total approximately $275 million for The Southern Company
including $34 million for Gulf Power Company through 1995.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1993 Annual Report
Phase II compliance costs are expected to be higher because
requirements are stricter and all fossil-fired generating plants are affected.
For sulfur dioxide compliance, The Southern Company could use emission
allowances banked during Phase I, increase fuel switching, install flue gas
desulfurization equipment at selected plants, and/or purchase more allowances
depending on the price and availability of allowances. Also, in Phase II,
equipment to control nitrogen oxide emissions will be installed on additional
system fossil-fired plants as required to meet anticipated Phase II limits.
Therefore, during the period 1996 to 2000, compliance could require total
construction expenditures ranging from approximately $450 million to $800
million for The Southern Company including approximately $30 million to $40
million for Gulf Power Company. However, the full impact of Phase II
compliance cannot now be determined with certainty, pending the development of
a market for emission allowances, the completion of EPA regulations, and the
possibility of new emission reduction technologies.
Following adoption of legislation in April of 1992, allowing electric
utilities in Florida to seek FPSC approval of their Clean Air Act Compliance
Plans, the Company filed its petition for approval. The Commission approved
the Company's plan for Phase I compliance, deferring until a later date
approval of its Phase II Plan.
An average increase of up to 4 percent in annual revenue requirements
from Gulf Power Company customers could be necessary to fully recover the cost
of compliance for both Phase I and Phase II of the Clean Air Act. Compliance
costs include construction expenditures, increased costs for switching to
low-sulfur coal, and costs related to emission allowances.
The Florida Legislature recently adopted legislation that allows a
utility to petition the FPSC for recovery of prudent environmental compliance
costs through an ECR clause without lengthy regulatory full revenue
requirements rate proceedings. The legislation is discussed in Note 3 to the
financial statements under "Environmental Cost Recovery".
Title III of the Clean Air Act requires a multi-year EPA study of power
plant emissions of hazardous air pollutants. The study will serve as the basis
for a decision on whether additional regulatory control of these substances is
warranted. Compliance with any new control standards could result in
significant additional costs. The impact of new standards -- if any -- will
depend on the development and implementation of applicable regulations.
The EPA continues to evaluate the need for a new short-term ambient air
quality standard for sulfur dioxide. Preliminary results from an EPA study on
the impact of a new standard indicate that a number of plants could be required
to install sulfur dioxide controls. These controls would be in addition to the
controls already required to meet the acid rain provision of the Clean Air Act.
The EPA is expected to take some action on this issue in 1994. The impact of
any new standard will depend on the level chosen for the standard and cannot be
determined at this time.
In addition, the EPA is evaluating the need to revise the ambient air
quality standards for particulate matter, nitrogen oxides, and ozone. The
impact of any new standard will depend on the level chosen for the standard and
cannot be determined at this time.
In 1994 or 1995, the EPA is expected to issue revised rules on air
quality control regulations related to stack height requirements of the Clean
Air Act. The full impact of the final rules cannot be determined at this time,
pending their development and implementation.
In 1993, the EPA issued a ruling confirming the non-hazardous status of
coal ash. However, the EPA has until 1998 to classify co-managed utility
wastes -- coal ash and other utility wastes -- as either non-hazardous or
hazardous. If the EPA classifies the co-managed wastes as hazardous, then
substantial additional costs for the management of such wastes may be required.
The full impact of any change in the regulatory status will depend on the
subsequent development of co-managed waste requirements.
Gulf Power Company must comply with other environmental laws and
regulations that cover the handling and disposal of hazardous waste. Under
these various laws and regulations, the Company could incur costs to clean up
properties currently or previously owned. The Company conducts studies to
determine the extent of any required clean-up costs and has recognized in the
financial statements costs to clean up known sites.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Gulf Power Company 1993 Annual Report
Several major pieces of environmental legislation are in the process of
being reauthorized or amended by Congress. These include: the Clean Water
Act; the Comprehensive Environmental Response, Compensation, and Liability Act;
and the Resource Conservation and Recovery Act. Changes to these laws could
affect many areas of Gulf Power Company's operations. The full impact of these
requirements cannot be determined at this time, pending the development and
implementation of applicable regulations.
Compliance with possible new legislation related to global climate
change, electromagnetic fields, and other environmental and health concerns
could significantly affect Gulf Power Company. The impact of new legislation
- -- if any -- will depend on the subsequent development and implementation of
applicable regulations. In addition, the potential for lawsuits alleging
damages caused by electromagnetic fields exists.
COAL STOCKPILE DECREASES
To reduce the working capital invested in the coal stockpile inventory, the
Company implemented a coal stockpile reduction program in 1992. The Company's
actual year end inventory at December 31, 1993 was $20.7 million which is
considerably lower than the desired level of $31.4 million. This situation
exists because a limited supply of coal was available at competitive prices
primarily due to the United Mine Workers strike from July to December 1993. In
addition, barge transportation was stranded due to floods in the Midwest. As a
result of these circumstances, management chose to allow the existing coal
inventory to decline until coal prices stabilized. Current market conditions
indicate that substantial coal supplies at competitive prices are now
available. Therefore, the Company plans to increase purchases and return the
coal stockpile inventory to the desired level by the end of the third quarter,
1994.
SOURCES OF CAPITAL
At December 31, 1993, the Company had $5.6 million of cash and cash equivalents
to meet its short-term cash needs.
It is anticipated that the funds required for construction and other
purposes, including compliance with environmental regulations, will be derived
from operations; the sale of additional first mortgage bonds, pollution control
bonds, and preferred stock; and capital contributions from The Southern
Company. The Company is required to meet certain coverage requirements
specified in its mortgage indenture and corporate charter to issue new first
mortgage bonds and preferred stock. The Company's coverage ratios are
sufficient to permit, at present interest and preferred dividend levels, any
foreseeable security sales. The amount of securities which the Company will be
permitted to issue in the future will depend upon market conditions and other
factors prevailing at that time.
9
<PAGE> 10
STATEMENTS OF INCOME
For the Years Ended December 31, 1993, 1992, and 1991
Gulf Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
OPERATING REVENUES:
Revenues $ 559,976 $ 546,827 $ 535,864
Revenues from affiliates 23,166 24,075 29,343
Total operating revenues 583,142 570,902 565,207
OPERATING EXPENSES:
Operation-
Fuel 170,485 182,754 176,038
Purchased power from non-affiliates 4,386 1,394 896
Purchased power from affiliates 32,273 26,788 32,579
Proceeds from settlement of disputed contracts (Note 7) - (920) (20,385)
Other 109,164 98,230 94,411
Maintenance 46,004 41,947 45,468
Depreciation and amortization 55,309 53,758 52,195
Taxes other than income taxes 40,204 37,898 42,359
Federal and state income taxes (Note 8) 32,730 32,078 33,893
Total operating expenses 490,555 473,927 457,454
OPERATING INCOME 92,587 96,975 107,753
OTHER INCOME (EXPENSE):
Allowance for equity funds used during
construction (Note 1) 512 14 54
Interest income 1,328 2,733 2,427
Other, net (1,238) (1,487) (3,484)
Gain on sale of investment securities 3,820 - -
Income taxes applicable to other income (921) 187 1,104
INCOME BEFORE INTEREST CHARGES 96,088 98,422 107,854
INTEREST CHARGES:
Interest on long-term debt 31,344 35,792 41,665
Allowance for debt funds used during
construction (Note 1) (454) (46) (95)
Interest on notes payable 870 1,041 280
Amortization of debt discount, premium, and expense, net 1,412 1,032 699
Other interest charges 2,877 1,410 2,272
Net interest charges 36,049 39,229 44,821
NET INCOME 60,039 59,193 63,033
DIVIDENDS ON PREFERRED STOCK 5,728 5,103 5,237
NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 54,311 $ 54,090 $ 57,796
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE> 11
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1993, 1992, and 1991
Gulf Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 60,039 $ 59,193 $ 63,033
Adjustments to reconcile net income to net
cash provided by operating activities --
Depreciation and amortization 72,111 68,021 65,584
Deferred income taxes and investment tax credits 5,347 3,322 (3,392)
Allowance for equity funds used during construction (512) (14) (54)
Non-cash proceeds from settlement of disputed contracts (Note 7) - (920) (19,734)
Other, net (864) 185 3,079
Changes in certain current assets and liabilities --
Receivables, net 12,867 (11,041) 12,421
Inventories 5,574 23,560 (2,397)
Payables 5,386 1,580 (2,003)
Other (9,504) (13,637) 8,012
Net cash provided from operating activities 150,444 130,249 124,549
INVESTING ACTIVITIES:
Gross property additions (78,562) (64,671) (64,323)
Other (5,328) 3,970 (8,097)
Net cash used for investing activities (83,890) (60,701) (72,420)
FINANCING ACTIVITIES AND CAPITAL CONTRIBUTIONS:
Proceeds:
Preferred stock 35,000 29,500 -
First mortgage bonds 75,000 25,000 50,000
Pollution control bonds 53,425 8,930 21,200
Capital contributions from parent 11 121 -
Other long-term debt 25,000 - -
Retirements:
Preferred stock (21,060) (15,500) (2,500)
First mortgage bonds (88,809) (117,693) (32,807)
Pollution control bonds (40,650) (9,205) (21,250)
Other long-term debt (7,736) (5,783) (7,981)
Notes payable, net (37,947) 44,000 -
Payment of preferred stock dividends (5,728) (5,103) (5,237)
Payment of common stock dividends (41,800) (39,900) (38,000)
Miscellaneous (6,888) (8,760) (3,715)
Net cash used for financing activities (62,182) (94,393) (40,290)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,372 (24,845) 11,839
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,204 26,049 14,210
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,576 $ 1,204 $ 26,049
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for --
Interest (net of amount capitalized) $28,470 $38,164 $39,814
Income taxes $27,865 $37,569 $26,915
</TABLE>
( ) Denotes use of cash.
The accompanying notes are an integral part of these statements.
11
<PAGE> 12
BALANCE SHEETS
At December 31, 1993 and 1992
Gulf Power Company 1993 Annual Report
<TABLE>
<CAPTION>
ASSETS 1993 1992
(in thousands)
<S> <C> <C>
UTILITY PLANT:
Plant in service (Notes 1 and 6) $ 1,611,704 $ 1,561,491
Less accumulated provision for depreciation 610,542 578,851
1,001,162 982,640
Construction work in progress 34,591 29,564
Total 1,035,753 1,012,204
Less property-related accumulated deferred income taxes (Note 8) - 200,904
Total 1,035,753 811,300
OTHER PROPERTY AND INVESTMENTS 13,242 7,074
CURRENT ASSETS:
Cash and cash equivalents 5,576 1,204
Investment securities (Notes 1 and 7) - 22,322
Receivables-
Customer accounts receivable 57,226 55,103
Other accounts and notes receivable 5,904 3,237
Affiliated companies 1,241 2,063
Accumulated provision for uncollectible accounts (447) (356)
Fossil fuel stock, at average cost 20,652 29,492
Materials and supplies, at average cost 36,390 33,124
Current portion of deferred coal contract costs (Note 5) 12,535 3,071
Regulatory clauses under recovery (Note 1) 3,244 1,680
Prepayments 2,160 1,395
Vacation pay deferred (Note 1) 4,022 3,779
Total 148,503 156,114
DEFERRED CHARGES:
Deferred charges related to income taxes (Note 8) 31,334 -
Debt expense, being amortized 3,693 3,253
Premium on reacquired debt, being amortized 17,554 15,319
Deferred coal contract costs (Note 5) 52,884 63,723
Miscellaneous 4,846 5,916
Total 110,311 88,211
TOTAL ASSETS $ 1,307,809 $ 1,062,699
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE> 13
BALANCE SHEETS (continued)
At December 31, 1993 and 1992
Gulf Power Company 1993 Annual Report
<TABLE>
<CAPTION>
CAPITALIZATION AND LIABILITIES 1993 1992
(in thousands)
<S> <C> <C>
CAPITALIZATION (SEE ACCOMPANYING STATEMENTS):
Common stock equity (Note 11) $ 414,196 $ 403,190
Preferred stock 89,602 74,662
Preferred stock subject to mandatory redemption 1,000 2,000
Long-term debt 369,259 382,047
Total 874,057 861,899
CURRENT LIABILITIES:
Preferred stock due within one year 1,000 1,000
Long-term debt due within one year (Note 10) 41,552 13,820
Notes payable 6,053 44,000
Accounts payable-
Affiliated companies 18,560 5,323
Other 20,139 28,138
Customer deposits 15,082 15,532
Taxes accrued-
Federal and state income 10,330 3,326
Other 2,685 8,093
Interest accrued 5,420 6,370
Regulatory clauses over recovery (Note 1) 840 -
Vacation pay accrued (Note 1) 4,022 3,779
Miscellaneous 8,527 3,950
Total 134,210 133,331
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes (Note 8) 151,743 -
Deferred credits related to income taxes (Note 8) 76,876 -
Accumulated deferred investment tax credits 40,770 43,117
Accumulated provision for property damage (Note 1) 10,509 9,692
Accumulated provision for postretirement benefits (Note 2) 10,749 7,662
Miscellaneous 8,895 6,998
Total 299,542 67,469
COMMITMENTS AND CONTINGENT MATTERS (NOTES 1, 2, 3, 4, 5, AND 7)
TOTAL CAPITALIZATION AND LIABILITIES $ 1,307,809 $ 1,062,699
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE> 14
STATEMENTS OF CAPITALIZATION
At December 31, 1993 and 1992
Gulf Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1993 1992 1993 1992
(in thousands) (percent of total)
<S> <C> <C> <C> <C>
COMMON STOCK EQUITY:
Common stock, without par value --
Authorized and outstanding --
992,717 shares in 1993 and 1992 $ 38,060 $ 38,060
Paid-in capital 218,282 218,271
Premium on preferred stock 81 88
Retained earnings (Note 11) 157,773 146,771
Total common stock equity 414,196 403,190 47.4 % 46.8 %
CUMULATIVE PREFERRED STOCK:
$10 par value, authorized 10,000,000 shares,
Outstanding 2,580,000 shares at December 31, 1993
$25 stated capital --
7.00% 14,500 14,500
7.30% 15,000 15,000
6.72% 20,000 -
Adjustable Rate -- at January 1, 1994: 4.80% 15,000 -
$100 par value --
Authorized -- 781,626 shares
Outstanding -- 251,026 shares at December 31, 1993
4.64% 5,102 5,102
5.16% 5,000 5,000
5.44% 5,000 5,000
7.52% 5,000 5,000
7.88% 5,000 5,000
8.28% - 15,000
8.52% - 5,060
Total (annual dividend requirement -- $5,711,000) 89,602 74,662 10.3 8.7
CUMULATIVE PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION:
$100 par value --
Authorized -- 20,000 shares
Outstanding -- 20,000 shares at December 31, 1993
11.36% Series 2,000 3,000
Total (annual dividend requirement -- $227,000) 2,000 3,000
Less amount due within one year 1,000 1,000
Total excluding amount due within one year 1,000 2,000 0.1 0.2
</TABLE>
14
<PAGE> 15
STATEMENTS OF CAPITALIZATION (CONTINUED)
At December 31, 1993 and 1992
Gulf Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1993 1992 1993 1992
(in thousands) (percent of total)
<S> <C> <C> <C> <C>
First mortgage bonds --
Maturity Interest Rates
October 1, 1994 4 5/8% 12,000 12,000
June 1, 1996 6% 15,000 15,000
August 1, 1997 5 7/8% 25,000 25,000
April 1, 1998 9.20% 19,486 22,845
April 1, 1998 5.55% 15,000 -
July 1, 1998 5.00% 30,000 -
1999 through 2003 6.125% to 8.875% 30,000 83,000
September 1, 2008 9% 5,050 7,500
December 1, 2021 8 3/4% 50,000 50,000
Total first mortgage bonds 201,536 215,345
Pollution control obligations (Note 9) 169,855 157,080
Other long-term debt (Note 9) 42,520 25,256
Unamortized debt premium (discount), net (3,100) (1,814)
Total long-term debt (annual interest
requirement -- $29,378,000) 410,811 395,867
Less amount due within one year (Note 10) 41,552 13,820
Long-term debt excluding amount due within one year 369,259 382,047 42.2 44.3
TOTAL CAPITALIZATION $ 874,057 $ 861,899 100.0 % 100.0 %
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE> 16
STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31, 1993, 1992, and 1991
Gulf Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $ 146,771 $ 134,372 $ 114,576
Net income after dividends on preferred stock 54,311 54,090 57,796
Cash dividends on common stock (41,800) (39,900) (38,000)
Preferred stock transactions, net (1,509) (1,791) -
BALANCE AT END OF YEAR (NOTE 11) $ 157,773 $ 146,771 $ 134,372
</TABLE>
STATEMENTS OF PAID-IN CAPITAL
For the Years Ended December 31, 1993, 1992, and 1991
Gulf Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $ 218,271 $ 218,150 $ 218,150
Contributions to capital by parent company 11 121 -
BALANCE AT END OF YEAR $ 218,282 $ 218,271 $ 218,150
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
At December 31, 1993, 1992 and 1991
Gulf Power Company 1993 Annual Report
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
Gulf Power Company is a wholly owned subsidiary of The Southern Company, which
is the parent company of five operating companies, Southern Company Services,
Inc. (SCS), Southern Electric International (Southern Electric), Southern
Nuclear Operating Company (Southern Nuclear) and various other subsidiaries
related to foreign utility operations and domestic non-utility operations. At
this time, the operations of the other subsidiaries are not material. The
operating companies (Alabama Power Company, Georgia Power Company, Gulf Power
Company, Mississippi Power Company, and Savannah Electric and Power Company)
provide electric service in four Southeastern states. Contracts among the
companies -- dealing with jointly owned generating facilities, interconnecting
transmission lines, and the exchange of electric power -- are regulated by the
Federal Energy Regulatory Commission (FERC) or the Securities and Exchange
Commission. SCS provides, at cost, specialized services to The Southern
Company and to the subsidiary companies. Southern Electric designs, builds,
owns and operates power production facilities and provides a broad range of
technical services to industrial companies and utilities in the United States
and a number of international markets. Southern Nuclear provides services to
The Southern Company's nuclear power plants.
The Southern Company is registered as a holding company under the
Public Utility Holding Company Act of 1935 (PUHCA). Both The Southern Company
and its subsidiaries are subject to the regulatory provisions of the PUHCA.
The Company is also subject to regulation by the FERC and the Florida Public
Service Commission (FPSC). The Company follows generally accepted accounting
principles and complies with the accounting policies and practices prescribed
by these commissions.
Certain prior years' data presented in the financial statements have
been reclassified to conform with current year presentation.
REVENUES AND FUEL COSTS
The Company accrues revenues for service rendered but unbilled at the end of
each fiscal period. Fuel costs are expensed as fuel is used. The Company's
electric rates include provisions to periodically adjust billings for
fluctuations in fuel and the energy component of purchased power costs.
Revenues are adjusted for differences between recoverable fuel costs and
amounts actually recovered in current rates. The FPSC has also approved the
recovery of purchased power capacity costs, energy conservation costs, and
environmental compliance costs in cost recovery clauses that are similar to the
method used to recover fuel costs.
DEPRECIATION AND AMORTIZATION
Depreciation of the original cost of depreciable utility plant in service is
provided primarily using composite straight-line rates which approximated 3.8
percent in 1993, 1992, and 1991. When property subject to depreciation is
retired or otherwise disposed of in the normal course of business, its cost --
together with the cost of removal, less salvage -- is charged to the
accumulated provision for depreciation. Minor items of property included in
the original cost of the plant are retired when the related property unit is
retired.
INCOME TAXES
The Company provides deferred income taxes for all significant income tax
temporary differences. Investment tax credits utilized are deferred and
amortized to income over the average lives of the related property.
In years prior to 1993, income taxes were accounted for and reported
under Accounting Principles Board Opinion No. 11. Effective January 1, 1993,
the Company adopted FASB Statement No. 109, Accounting for Income Taxes.
Statement No. 109 required, among other things, conversion to the liability
method of accounting for accumulated deferred income taxes. See Note 8 for
additional information about Statement No. 109. The Company is included in the
consolidated federal income tax return of The Southern Company.
17
<PAGE> 18
NOTES (CONTINUED)
Gulf Power Company 1993 Annual Report
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
AFUDC represents the estimated debt and equity costs of capital funds that are
necessary to finance the construction of certain new facilities. While cash is
not realized currently from such allowance, it increases the revenue
requirement over the service life of plant through a higher rate base and
higher depreciation expense. The FPSC-approved composite rate used to
calculate AFUDC was 7.27 percent effective on July 1, 1993 and 8.03 percent for
the first half of 1993, and for 1992, and 1991. AFUDC amounts for 1993, 1992,
and 1991 were $966 thousand, $60 thousand, and $149 thousand, respectively.
The increase in 1993 is due to an increase in construction projects at Plant
Daniel.
UTILITY PLANT
Utility plant is stated at original cost. Original cost includes: materials;
labor; minor items of property; appropriate administrative and general costs;
payroll-related costs such as taxes, pensions, and other benefits; and the
estimated cost of funds used during construction. The cost of maintenance,
repairs, and replacement of minor items of property is charged to maintenance
expense. The cost of replacements of property (exclusive of minor items of
property) is charged to utility plant.
CASH AND CASH EQUIVALENTS
For purposes of the Statements of Cash Flows, temporary cash investments are
considered cash equivalents. Temporary cash investments are securities with
original maturities of 90 days or less.
FINANCIAL INSTRUMENTS
In accordance with FASB Statement No. 107, Disclosure About Fair Value of
Financial Instruments, all financial instruments of the Company -- for which
the carrying amount does not approximate fair value -- are shown in the table
below as of December 31:
<TABLE>
<CAPTION>
1993
Carrying Fair
Amount Value
(in thousands)
<S> <C> <C>
Long-term debt $410,811 $431,251
Preferred stock subject to
mandatory redemption 2,000 2,040
</TABLE>
<TABLE>
<CAPTION>
1992
Carrying Fair
Amount Value
(in thousands)
<S> <C> <C>
Investment securities $ 22,322 $ 26,387
Long-term debt 395,867 410,724
Preferred stock subject to
mandatory redemption 3,000 3,060
</TABLE>
The fair values of investment securities were based on listed closing
market prices. The fair values for long-term debt and preferred stock subject
to mandatory redemption were based on either closing market prices or closing
prices of comparable instruments.
MATERIALS AND SUPPLIES
Generally, materials and supplies include the cost of transmission,
distribution, and generating plant materials. Materials are charged to
inventory when purchased and then expensed or capitalized to plant, as
appropriate, when installed.
VACATION PAY
The Company's employees earn their vacation in one year and take it in the
subsequent year. However, for ratemaking purposes, vacation pay is recognized
as an allowable expense only when paid. Consistent with this ratemaking
treatment, the Company accrues a current liability for earned vacation pay and
records a current asset representing the future recoverability of this cost.
The amount was $4.0 million and $3.8 million at December 31, 1993 and 1992,
respectively. In 1994, an estimated 84 percent of the 1993 deferred vacation
cost
18
<PAGE> 19
NOTES (CONTINUED)
Gulf Power Company 1993 Annual Report
will be expensed and the balance will be charged to construction.
PROVISION FOR INJURIES AND DAMAGES
The Company is subject to claims and suits arising in the ordinary course of
business. As permitted by regulatory authorities, the Company is providing for
the uninsured costs of injuries and damages by charges to income amounting to
$1.2 million annually. The expense of settling claims is charged to the
provision to the extent available. The accumulated provision of $2.2 million
and $2.5 million at December 31, 1993 and 1992, respectively, is included in
miscellaneous current liabilities in the accompanying Balance Sheets.
PROVISION FOR PROPERTY DAMAGE
Due to a significant increase in the cost of traditional insurance, effective
in 1993, the Company became self-insured for the full cost of storm and other
damage to its transmission and distribution property. As permitted by
regulatory authorities, the Company provides for the estimated cost of
uninsured property damage by charges to income amounting to $1.2 million
annually. At December 31, 1993 and 1992, the accumulated provision for
property damage amounted to $10.5 million and $9.7 million, respectively. The
expense of repairing such damage as occurs from time to time is charged to the
provision to the extent it is available.
2. RETIREMENT BENEFITS:
PENSION PLAN
The Company has a defined benefit, trusteed, non-contributory pension plan that
covers substantially all regular employees. Benefits are based on the greater
of amounts resulting from two different formulas: years of service and final
average pay or years of service and a flat-dollar benefit. The Company uses
the "entry age normal method with a frozen initial liability" actuarial method
for funding purposes, subject to limitations under federal income tax
regulations. Amounts funded to the pension trust fund are primarily invested
in equity and fixed-income securities. FASB Statement No. 87, Employers'
Accounting for Pensions, requires use of the "projected unit credit" actuarial
method for financial reporting purposes.
POSTRETIREMENT BENEFITS
The Company also provides certain medical care and life insurance benefits for
retired employees. Substantially all employees may become eligible for these
benefits when they retire. A qualified trust for medical benefits has been
established for funding amounts to the extent deductible under federal income
tax regulations. Amounts funded are primarily invested in debt and equity
securities. Accrued costs of life insurance benefits, other than current cash
payments for retirees, currently are not being funded.
Effective January 1, 1993, the Company adopted FASB Statement No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, on a
prospective basis. Statement No. 106 requires that medical care and life
insurance benefits for retired employees be accounted for on an accrual basis
using a specified actuarial method, "benefit/years-of-service." Prior to the
adoption of Statement No. 106, Gulf Power Company recognized these benefit
costs on an accrual basis using the "aggregate cost" actuarial method, which
spreads the expected cost of such benefits over the remaining periods of
employees' service as a level percentage of payroll costs. The costs of such
benefits recognized by the Company in 1993, 1992, and 1991 were $3.9 million,
$3.1 million, and $2.7 million, respectively.
STATUS AND COST OF BENEFITS
Shown in the following tables are actuarial results and assumptions for pension
and postretirement medical and life insurance benefits as computed under the
requirements of Statement Nos. 87 and 106, respectively. Retiree medical and
life insurance information is shown only for 1993 because Statement No. 106 was
adopted as of January 1, 1993, on a prospective basis.
19
<PAGE> 20
NOTES (CONTINUED)
Gulf Power Company 1993 Annual Report
The funded status of the plans at December 31 was as follows:
<TABLE>
<CAPTION>
Pension
1993 1992
(in thousands)
<S> <C> <C>
Actuarial present value of
benefit obligation:
Vested benefits $ 73,925 $ 63,459
Non-vested benefits 3,217 2,900
Accumulated benefit obligation 77,142 66,359
Additional amounts related to
projected salary increases 25,648 28,719
Projected benefit obligation 102,790 95,078
Less:
Fair value of plan assets 159,192 142,614
Unrecognized net gain (49,376) (40,764)
Unrecognized prior service cost 3,152 3,346
Unrecognized transition asset (8,765) (9,495)
Prepaid asset recognized in
the Balance Sheets $ 1,413 $ 623
</TABLE>
<TABLE>
<CAPTION>
Postretirement
Medical Life
1993 1993
(in thousands)
<S> <C> <C>
Actuarial present value of
benefit obligation:
Retirees and dependents $ 7,857 $ 2,929
Employees eligible to retire 4,054 -
Other employees 14,927 5,058
Accumulated benefit obligation 26,838 7,987
Less:
Fair value of plan assets 5,638 52
Unrecognized net loss (gain) 2,653 (641)
Unrecognized transition
obligation 13,420 2,954
Accrued liability recognized
in the Balance Sheets $ 5,127 $ 5,622
</TABLE>
The weighted average rates assumed in the actuarial calculations were:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Discount 7.5% 8.0% 8.0%
Annual salary increase 5.0% 6.0% 6.0%
Long-term return on plan
assets 8.5% 8.5% 8.5%
</TABLE>
An additional assumption used in measuring the accumulated
postretirement medical benefit obligation was a weighted average medical care
cost trend rate of 11.3 percent for 1993, decreasing to 6.0 percent through the
year 2000 and remaining at that level thereafter. An annual increase in the
assumed medical care cost trend rate by 1.0 percent would increase the
accumulated medical benefit obligation as of December 31, 1993, by $4.8 million
and the aggregate of the service and interest cost components of the net
retiree medical cost by $543 thousand.
Components of the plans' net cost are shown below:
<TABLE>
<CAPTION>
Pension
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Benefits earned during
the year $ 3,710 $ 3,550 $ 3,396
Interest cost on projected
benefit obligation 7,319 6,939 6,516
Actual return on plan
assets (20,672) (6,431) (35,560)
Net amortization and
deferral 8,853 (4,054) 26,322
Net pension cost (income) $ (790) $ 4 $ 674
</TABLE>
Of the above net pension amounts, $(601) thousand in 1993, $3 thousand
in 1992, and $518 thousand in 1991, were recorded in operating expenses, and
the remainder was recorded in construction and other accounts.
<TABLE>
<CAPTION>
Postretirement
Medical Life
1993 1993
(in thousands)
<S> <C> <C>
Benefits earned during the year $ 874 $ 292
Interest cost on accumulated
benefit obligation 1,714 625
Amortization of transition
obligation over 20 years 706 148
Actual return on plan assets (726) (5)
Net amortization and deferral 309 1
Net postretirement cost $2,877 $1,061
</TABLE>
Of the above net postretirement medical and life insurance amounts
recorded in 1993, $3.0 million was recorded in operating expenses, and the
remainder was recorded in construction and other accounts.
20
<PAGE> 21
NOTES (CONTINUED)
Gulf Power Company 1993 Annual Report
3. LITIGATION AND REGULATORY MATTERS:
COAL BARGE TRANSPORTATION SUIT
On August 19, 1993, a complaint against the Company and Southern Company
Services, an affiliate, was filed in federal district court in Ohio by two
companies with which the Company had contracted for the transportation by barge
for certain of the Company's coal supplies. The complaint alleges breach of
the contract by the Company and seeks damages estimated by the plaintiffs to be
in excess of $85 million.
The final outcome of this matter cannot now be determined; however, in
management's opinion the final outcome will not have a material adverse effect
on the Company's financial statements.
FPSC APPROVES STIPULATION
In February 1993, the Company filed a notice with the FPSC of its intent to
obtain rate relief. On May 4, 1993, the FPSC approved a stipulation between
the Company, the Office of Public Counsel, and the Florida Industrial Power
Users Group to cancel the filing of the rate case and to allow the Company to
retain for the next four years its existing method for calculating accruals for
future power plant dismantlement costs. The stipulation also required the
reduction of the Company's allowed return on equity midpoint from 12.55 percent
to 12.0 percent. See Management's Discussion and Analysis under "Future
Earnings Potential" for further details of circumstances that contributed to
the company canceling the rate case.
FERC REVIEWS EQUITY RETURNS
In May 1991, the FERC ordered that hearings be conducted concerning the
reasonableness of the Southern electric system's wholesale rate schedules and
contracts that have a return on common equity of 13.75 percent or greater. The
contracts that could be affected by the hearings include substantially all of
the transmission, unit power, long-term power and other similar contracts. Any
changes in the rate of return on common equity that may occur as a result of
this proceeding would be effective 60 days after a proper notice of the
proceeding is published. A notice was published on May 10, 1991.
In August 1992, a FERC administrative law judge issued an opinion that
changes in rate schedules and contracts were not necessary and that the FERC
staff failed to show how any changes were in the public interest. The FERC
staff has filed exceptions to the administrative law judge's opinion, and the
matter remains pending before the FERC.
The final outcome of this matter cannot now be determined; however, in
management's opinion, the final outcome will not have a material adverse effect
on the Company's financial statements.
RECOVERY OF CONTRACT BUYOUT COSTS
In July 1990, the Company filed a request for waiver of FERC's fuel adjustment
charge regulation to permit recovery of coal contract buyout costs from
wholesale customers. On April 4, 1991, the FERC issued an order granting
recovery of the buyout costs from wholesale customers from July 19, 1990,
forward, but denying retroactive recovery of the buyout costs from January 1,
1987 through July 18, 1990. The Company's request for rehearing was denied by
the FERC. The Company refunded $2.7 million (including interest) in June 1991
to its wholesale customers. On July 31, 1991, the Company filed a petition for
review of the FERC's decision to the U.S. Court of Appeals for the District of
Columbia Circuit. On January 22, 1993, the Court vacated the Commission's
order, finding FERC's denial of the Company's request for a retroactive waiver
to be arbitrary and capricious. The Court remanded the matter to FERC for
consideration consistent with its opinion. Management expects that the
commission will ultimately allow the Company to recover the amount refunded
plus interest. Accordingly, the Company recorded the reversal of the $2.7
million refund to income in 1993.
ENVIRONMENTAL COST RECOVERY
In April 1993, the Florida Legislature adopted legislation for an Environmental
Cost Recovery (ECR) clause, which allows a utility to petition the FPSC for
recovery of all prudent environmental compliance costs that are not being
recovered through base rates or any other rate-adjustment clause. Such
environmental costs include operation and maintenance expense, depreciation,
and a return on invested capital.
21
<PAGE> 22
NOTES (CONTINUED)
Gulf Power Company 1993 Annual Report
On January 12, 1994, the FPSC approved the Company's petition under
the ECR clause for recovery of environmental costs that were projected to be
incurred from July 1993 through September 1994. The order allows the recovery
from customers of such costs amounting to $7.8 million during the period,
February through September 1994. Thereafter, recovery under ECR will be
determined semi-annually and will include a true-up of the prior period and a
projection of the ensuing six-month period. In December 1993, the Company
recorded $2.6 million as additional revenue for the portion of costs incurred
during 1993.
4. CONSTRUCTION PROGRAM:
The Company is engaged in a continuous construction program, the cost of which
is currently estimated to total $77 million in 1994, $55 million in 1995, and
$68 million in 1996. These estimates include AFUDC of approximately $0.7
million, $0.3 million, and $0.2 million, in 1994, 1995, and 1996, respectively.
The construction program is subject to periodic review and revision, and actual
construction costs may vary from the above estimates because of numerous
factors. These factors include changes in business conditions; revised load
growth estimates; changes in environmental regulations; increasing costs of
labor, equipment and materials; and cost of capital. The Company does not have
any new baseload generating plants under construction. However, the Company
plans to construct two 80 megawatt combustion turbine peaking units. The first
is scheduled to be completed in 1998, and the second in 1999. In addition,
significant construction will continue related to transmission and distribution
facilities and the upgrading and extension of the useful lives of generating
plants.
See Management's Discussion and Analysis under "Environmental Matters"
for information on the impact of the Clean Air Act Amendments of 1990 and other
environmental matters.
5. FINANCING AND COMMITMENTS:
GENERAL
Current projections indicate that funds required for construction and other
purposes, including compliance with environmental regulations will be derived
primarily from internal sources. Requirements not met from internal sources
will be financed from the sale of additional first mortgage bonds, preferred
stock, and capital contributions from The Southern Company. In addition, the
Company may issue additional long-term debt and preferred stock primarily for
the purposes of debt maturities and redemptions of higher-cost securities.
Because of the attractiveness of current short term interest rates, the Company
may maintain a higher level of short term indebtedness than has historically
been true.
At December 31, 1993, the Company had $49 million of lines of credit
with banks of which $6.1 million was committed to cover checks presented for
payment. These credit arrangements are subject to renewal June 1 of each year.
In connection with these committed lines of credit, the Company has agreed to
pay certain fees and/or maintain compensating balances with the banks. The
compensating balances, which represent substantially all the cash of the
Company except for daily working funds and like items, are not legally
restricted from withdrawal. In addition, the Company has bid-loan facilities
with eight major money center banks that total $180 million, of which, none was
committed at December 31, 1993.
ASSETS SUBJECT TO LIEN
The Company's mortgage, which secures the first mortgage bonds issued by the
Company, constitutes a direct first lien on substantially all of the Company's
fixed property and franchises.
FUEL COMMITMENTS
To supply a portion of the fuel requirements of its generating plants, the
Company has entered into long-term commitments for the procurement of fuel. In
most cases, these contracts contain provisions for price escalations, minimum
purchase levels and other financial commitments. Total estimated long-term
obligations were approximately $1.4 billion at December 31, 1993. Additional
commitments will be required in the future to supply the Company's fuel needs.
To take advantage of lower-cost coal supplies, agreements were reached
in 1986 to terminate two long-term contracts for the supply of coal to Plant
Daniel, which is jointly owned by the Company and Mississippi Power, an
operating affiliate. The Company's portion of
22
<PAGE> 23
NOTES (CONTINUED)
Gulf Power Company 1993 Annual Report
this payment was some $60 million. This amount is being amortized to expense
on a per ton basis over a nine-year period. The remaining unamortized amount
included in deferred charges, including the current portion, was $18 million at
December 31, 1993.
In 1988, the Company made an advance payment of $60 million to another
coal supplier under an arrangement to lower the cost of future coal purchased
under an existing contract. This amount is being amortized to expense on a per
ton basis over a ten-year period. The remaining unamortized amount included in
deferred charges, including the current portion, was $36 million at December
31, 1993.
Also, in 1993 the Company made a payment of $16.4 million to a coal
supplier under an arrangement to suspend the purchase of coal under an existing
contract for one year. This amount is being amortized to expense on a per ton
basis over a one year period. The remaining unamortized amount, which is
included in current assets, was $11 million at December 31, 1993.
The amortization of these payments is being recovered through the fuel
cost recovery clause discussed under "Revenues and Fuel Costs" in Note 1.
LEASE AGREEMENT
In 1989, the Company entered into a twenty-two year operating lease agreement
for the use of 495 aluminum railcars to transport coal to Plant Daniel.
Mississippi Power, as joint owner of Plant Daniel, is responsible for one half
of the lease costs. The Company's share of the lease is charged to fuel
inventory and allocated to fuel expense as the fuel is used. The lease costs
charged to inventory were $1.2 million in 1993, $1.2 million in 1992 and $1.3
million in 1991. For the year 1994, the Company's annual lease payment will be
$1.2 million. The Company's annual lease payment for 1995 will be $2.4 million
and for 1996, 1997, and 1998 the payment will be $1.2 million. Lease payments
after 1998 total approximately $17.4 million. The Company has the option,
after three years from the date of the original contract, to purchase the
railcars at the greater of termination value or fair market value.
Additionally, at the end of the lease term, the Company has the option to renew
the lease.
6. JOINT OWNERSHIP AGREEMENTS:
The Company and Mississippi Power jointly own Plant Daniel, a steam-electric
generating plant, located in Jackson County, Mississippi. In accordance with
an operating agreement, Mississippi Power acts as the Company's agent with
respect to the construction, operation, and maintenance of the plant.
The Company and Georgia Power jointly own Plant Scherer Unit No. 3, a
steam-electric generating plant, located near Forsyth, Georgia. In accordance
with an operating agreement, Georgia Power acts as the Company's agent with
respect to the construction, operation, and maintenance of the unit.
The Company's pro rata share of expenses related to both plants is
included in the corresponding operating expense accounts in the Statements of
Income.
At December 31, 1993, the Company's percentage ownership and its
amount of investment in these jointly owned facilities were as follows:
<TABLE>
<CAPTION>
Plant Plant
Scherer Unit Daniel
No. 3 (coal-
(coal-fired) fired)
(in thousands)
<S> <C> <C>
Plant-In-Service $185,725(1) $208,956
Accumulated Depreciation $ 41,970 $ 91,730
Construction Work in Progress $ 643 $ 10,356
Nameplate Capacity (2)
(in megawatts) 205 500
Ownership 25% 50%
</TABLE>
(1) Includes net plant acquisition adjustment.
(2) Total megawatt nameplate capacity:
Plant Scherer Unit No. 3: 818
Plant Daniel: 1,000
23
<PAGE> 24
NOTES (CONTINUED)
Gulf Power Company 1993 Annual Report
7. LONG-TERM POWER SALES AGREEMENTS:
GENERAL
The Company and the other operating affiliates of The Southern Company have
contractual agreements for the sale of capacity and energy to certain
non-affiliated utilities located outside of the system's service area. Certain
of these agreements are non-firm and are based on the capacity of the system in
general. Other agreements are firm and pertain to capacity related to specific
generating units. Because the energy is generally sold at cost under these
agreements, the capacity revenues from these sales primarily affect
profitability. The Company's capacity revenues have been as follows:
<TABLE>
<CAPTION>
Unit Other
Year Power Long-Term Total
(in thousands)
<S> <C> <C> <C>
1993 $31,162 $2,643 $33,805
1992 32,679 1,501 34,180
1991 31,288 1,363 32,651
</TABLE>
Long-term non-firm power of 400 megawatts was sold in 1993 to Florida
Power Corporation (FPC) by the Southern electric system. In 1994, this amount
decreased to 200 megawatts, and the contract will expire at year-end 1994.
Capacity and energy sales under these long-term non-firm power sales agreements
are made from available power pool capacity, and the revenues from the sales
are shared by the operating affiliates.
Unit power from specific generating plants is currently being sold to
FPC, Florida Power & Light Company (FP&L), Jacksonville Electric Authority
(JEA), and the City of Tallahassee, Florida. Under these agreements, 209
megawatts of net dependable capacity were sold by the Company during 1993, and
sales will remain at that approximate level until the expiration of the
contracts in 2010, unless reduced by FPC, FP&L and JEA after 1999.
Capacity and energy sales to FP&L, the Company's largest single
customer, provided revenues of $39.5 million in 1993, $46.2 million in 1992,
and $42.1 million in 1991, or 6.8 percent, 8.1 percent, and 7.5 percent of
operating revenues, respectively.
GULF STATES SETTLEMENT COMPLETED
On November 7, 1991, the subsidiaries of The Southern Company entered into a
settlement agreement with Gulf States Utilities Company (Gulf States) that
resolved litigation between the companies that had been pending since 1986 and
arose out of a dispute over certain unit power and other long-term power sales
contracts. In 1993, all remaining terms and obligations of the settlement
agreement were satisfied.
Based on the value of the settlement proceeds received - less the
amounts previously included in income - the Company recorded increases in net
income of approximately $0.6 million in 1992 and $12.7 million in 1991. In
1993, the Company sold all of its remaining Gulf States common stock received
in the settlement, resulting in a gain of $2.3 million after tax.
8. INCOME TAXES:
Effective January 1, 1993, Gulf Power Company adopted FASB Statement No. 109,
Accounting for Income Taxes. The adoption of Statement No. 109 resulted in
cumulative adjustments that had no effect on net income. The adoption also
resulted in the recording of additional deferred income taxes and related
assets and liabilities. The related assets of $31.3 million are revenues to be
received from customers. These assets are attributable to tax benefits flowed
through to customers in prior years and to taxes applicable to capitalized
AFUDC. The related liabilities of $76.9 million are revenues to be refunded to
customers. These liabilities are attributable to deferred taxes previously
recognized at rates higher than current enacted tax law and to unamortized
investment tax credits. Additionally, deferred income taxes related to
accelerated tax depreciation previously shown as a reduction to utility plant
were reclassified.
24
<PAGE> 25
NOTES (CONTINUED)
Gulf Power Company 1993 Annual Report
Details of the federal and state income tax provisions are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Total provision for income taxes:
Federal --
Currently payable $24,354 $24,287 $30,721
Deferred:
Current year 26,396 18,173 18,141
Reversal of prior years (22,102) (15,506) (21,404)
28,648 26,954 27,458
State
Currently payable 3,950 4,282 5,460
Deferred:
Current year 3,838 2,662 2,688
Reversal of prior years (2,785) (2,007) (2,817)
5,003 4,937 5,331
Total 33,651 31,891 32,789
Less income taxes charged
(credited) to other
income 921 (187) (1,104)
Federal and state income
taxes charged to
operations $32,730 $32,078 $33,893
</TABLE>
The tax effects of temporary differences between the carrying amounts
of assets and liabilities in the financial statements and their respective tax
bases, which give rise to deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1993
(in thousands)
<S> <C>
Deferred tax liabilities:
Accelerated depreciation $146,657
Property basis differences 15,140
Coal contract buyout 15,427
Other 6,724
Total 183,948
Deferred tax assets:
Federal effect of state deferred taxes 10,136
Pension and other benefits 3,406
Property insurance 4,730
Other 6,500
Total 24,772
Net deferred tax liabilities 159,176
Portion included in current liabilities, net 7,433
Accumulated deferred income
taxes in the Balance Sheets $151,743
</TABLE>
Deferred investment tax credits are amortized over the life of the
related property with such amortization normally applied as a credit to reduce
depreciation in the Statements of Income. Credits amortized in this manner
amounted to $2.3 million in 1993, 1992 and 1991. At December 31, 1993, all
investment tax credits available to reduce federal income taxes payable had
been utilized.
A reconciliation of the federal statutory income tax rate to the
effective income tax rate is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Federal statutory rate 35% 34% 34%
State income tax,
net of federal deduction 3 4 4
Non-deductible book
depreciation 1 1 1
Differences in prior years'
deferred and current tax rate (2) (2) (3)
Other (1) (2) (2)
Effective income tax rate 36% 35% 34%
</TABLE>
Gulf Power Company and the other subsidiaries of The Southern Company
file a consolidated federal tax return. Under a joint consolidated income tax
agreement, each company's current and deferred tax expense is computed on a
stand-alone basis, and consolidated tax savings are allocated to each company
based on its ratio of taxable income to total consolidated taxable income.
25
<PAGE> 26
NOTES (CONTINUED)
Gulf Power Company 1993 Annual Report
9. LONG-TERM DEBT:
POLLUTION CONTROL OBLIGATIONS
Obligations incurred in connection with the sale by public
authorities of tax-exempt pollution control revenue bonds are as follows:
<TABLE>
<CAPTION>
December 31
1993 1992
(in thousands)
<S> <C> <C>
Collateralized -
6 3/4% due 2006 $ - $ 12,675
6% due 2006* 12,300 12,400
10% due 2013 - 20,000
8 1/4% due 2017 32,000 32,000
7 1/8% due 2021 21,200 21,200
6 3/4% due 2022 8,930 8,930
5.70% due 2023 7,875 -
5.80% due 2023 32,550 -
6.20% due 2023 13,000 -
Non-collateralized
5.9% due 1992-2003 - 7,875
10 1/2% due 2014 42,000 42,000
Total $169,855 $157,080
</TABLE>
* Sinking fund requirement applicable to the 6 percent pollution
control bonds is $100 thousand for 1994 with increasing increments thereafter
through 2005, with the remaining balance due in 2006.
With respect to the collateralized pollution control revenue bonds,
the Company has authenticated and delivered to trustees a like principal amount
of first mortgage bonds as security for obligations under collateralized
installment agreements. The principal and interest on the first mortgage bonds
will be payable only in the event of default under the agreements.
OTHER LONG-TERM DEBT
Long-term debt also includes $17.5 million for the Company's portion of notes
payable issued in connection with the termination of Plant Daniel coal
contracts (see Note 5 for information on fuel commitments). The notes bear
interest at 8.25 percent with the principal being amortized through 1995. Also
included in long-term debt is a 30-month note payable for $25 million which was
obtained to refinance higher cost securities. The principal is due in June
1996 and bears interest at 4.69 percent which is payable quarterly beginning
March 1994. The estimated annual maturities of the notes payable through 1996
are as follows: $8.4 million in 1994, $9.1 million in 1995, and $25 million in
1996.
10. LONG-TERM DEBT DUE WITHIN ONE YEAR:
A summary of the improvement fund requirement and scheduled maturities and
redemptions of long-term debt due within one year is as follows:
<TABLE>
<CAPTION>
December 31
1993 1992
(in thousands)
<S> <C> <C>
Bond improvement fund requirement $ 2,370 $ 2,450
Less: Portion to be satisfied by
bonding property additions - -
Cash improvement fund requirement 2,370 2,450
Maturities of first mortgage bonds 3,676 3,359
Redemptions of first mortgage bonds 27,000 -
Current portion of notes payable 8,406 7,736
(Note 9)
Pollution control bond maturity 100 275
(Note 9)
Total $41,552 $13,820
</TABLE>
The first mortgage bond improvement (sinking) fund requirement amounts
to 1 percent of each outstanding series of bonds authenticated under the
indenture prior to January 1 of each year, other than those issued to
collateralize pollution control obligations. The requirement may be satisfied
by depositing cash, reacquiring bonds, or by pledging additional property equal
to 1 and 2/3 times the requirement. In 1994, $12 million of 4 5/8 percent
First Mortgage Bonds due October 1, 1994 and $15 million of 6 percent First
Mortgage Bonds due June 1, 1996 are scheduled to be redeemed.
26
<PAGE> 27
NOTES (CONTINUED)
Gulf Power Company 1993 Annual Report
11. COMMON STOCK DIVIDEND RESTRICTIONS:
The Company's first mortgage bond indenture contains various common stock
dividend restrictions which remain in effect as long as the bonds are
outstanding. At December 31, 1993, $101 million of retained earnings was
restricted against the payment of cash dividends on common stock under the
terms of the mortgage indenture.
The Company's charter limits cash dividends on common stock to 50
percent of net income available for such stock during a prior period if the
capitalization ratio is below 20 percent and to 75 percent of such net income
if such ratio is 20 percent or more but less than 25 percent. The
capitalization ratio is defined as the ratio of common stock equity to total
capitalization, including retained earnings, adjusted to reflect the payment of
the proposed dividend. At December 31, 1993, the ratio was 44.4 percent.
12. QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
Net Income
After
Dividends
Operating Operating on Preferred
Quarter Ended Revenues Income Stock
(in thousands)
<S> <C> <C> <C>
MARCH 31, 1993 $127,036 $17,646 $10,426
JUNE 30, 1993 138,863 19,562 7,312
SEPT. 30, 1993 175,964 32,783 22,366
DEC. 31, 1993 141,279 22,596 14,207
March 31, 1992 $126,536 $20,684 $ 9,576
June 30, 1992 137,123 22,914 12,120
Sept. 30, 1992 162,785 32,446 21,442
Dec. 31, 1992 144,458 20,931 10,952
</TABLE>
The Company's business is influenced by seasonal weather conditions
and the timing of rate changes, among other factors.
27
<PAGE> 28
SELECTED FINANCIAL AND OPERATING DATA
Gulf Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
OPERATING REVENUES (IN THOUSANDS) $ 583,142 $ 570,902 $ 565,207
NET INCOME AFTER DIVIDENDS
ON PREFERRED STOCK (IN THOUSANDS) $ 54,311 $ 54,090 $ 57,796
CASH DIVIDENDS ON COMMON STOCK (IN THOUSANDS) $ 41,800 $ 39,900 $ 38,000
RETURN ON AVERAGE COMMON EQUITY (PERCENT) 13.29 13.62 15.17
TOTAL ASSETS (IN THOUSANDS) $1,307,809 $1,062,699 $1,095,736
GROSS PROPERTY ADDITIONS (IN THOUSANDS) $ 78,562 $ 64,671 $ 64,323
CAPITALIZATION (IN THOUSANDS):
Common stock equity $ 414,196 $ 403,190 $ 390,981
Preferred stock 89,602 74,662 55,162
Preferred stock subject to mandatory redemption 1,000 2,000 7,500
Long-term debt 369,259 382,047 434,648
Total (excluding amounts due within one year) $ 874,057 $ 861,899 $ 888,291
CAPITALIZATION RATIOS (PERCENT):
Common stock equity 47.4 46.8 44.0
Preferred stock 10.4 8.9 7.1
Long-term debt 42.2 44.3 48.9
Total (excluding amounts due within one year) 100.0 100.0 100.0
FIRST MORTGAGE BONDS (IN THOUSANDS):
Issued 75,000 25,000 50,000
Retired 88,809 117,693 32,807
PREFERRED STOCK (IN THOUSANDS):
Issued 35,000 29,500 -
Retired 21,060 15,500 2,500
SECURITY RATINGS:
First Mortgage Bonds -
Moody's A2 A2 A2
Standard and Poor's A A A
Duff & Phelps A+ A A
Preferred Stock -
Moody's a2 a2 a2
Standard and Poor's A- A- A-
Duff & Phelps A A- A-
CUSTOMERS (YEAR-END):
Residential 274,194 267,591 261,210
Commercial 39,253 37,105 34,685
Industrial 274 270 264
Other 86 74 72
Total 313,807 305,040 296,231
EMPLOYEES (YEAR-END) 1,565 1,613 1,598
</TABLE>
28
<PAGE> 29
SELECTED FINANCIAL AND OPERATING DATA (CONTINUED)
Gulf Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984 1983
<S> <C> <C> <C> <C> <C> <C> <C>
$ 567,825 $ 527,821 $ 550,827 $ 587,860 $ 542,919 $ 562,068 $ 505,812 $ 469,696
$ 38,714 $ 37,361 $ 45,698 $ 42,217 $ 46,421 $ 45,484 $ 40,336 $ 35,511
$ 37,000 $ 37,200 $ 35,400 $ 34,200 $ 33,100 $ 30,800 $ 27,200 $ 24,900
10.51 10.32 13.41 13.23 15.06 15.61 15.11 14.70
$ 1,084,579 $1,093,430 $1,097,225 $1,051,182 $1,028,864 $ 921,635 $ 892,924 $ 841,628
$ 62,462 $ 70,726 $ 67,042 $ 97,511 $ 90,160 $ 92,541 $ 156,443 $ 51,131
$ 371,185 $ 365,471 $ 358,310 $ 323,012 $ 314,995 $ 301,674 $ 280,990 $ 252,831
55,162 55,162 55,162 55,162 55,162 55,162 55,162 55,162
9,250 11,000 12,750 14,000 16,500 18,250 19,000 21,250
475,284 484,608 497,069 474,640 482,869 410,917 394,859 382,293
$ 910,881 $ 916,241 $ 923,291 $ 866,814 $ 869,526 $ 786,003 $ 750,011 $ 711,536
40.8 39.9 38.8 37.2 36.2 38.4 37.5 35.5
7.1 7.2 7.4 8.0 8.3 9.3 9.9 10.8
52.1 52.9 53.8 54.8 55.5 52.3 52.6 53.7
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
- - 35,000 - 50,000 - - -
6,455 9,344 9,369 - 46,640 2,860 10,415 -
- - - - - - - -
1,750 1,250 1,750 2,500 750 750 1,500 858
A2 A1 A1 A1 A1 A1 A1 A2
A A A A A+ A+ A+ A+
A AA- 4 4 4 4 4 4
a2 a1 a1 a1 a1 a1 a1 a2
A- A- A- A- A A A A-
A- A+ 5 5 5 5 5 5
256,111 251,341 246,450 241,138 235,329 227,845 217,138 205,292
34,019 33,678 33,030 32,139 31,142 29,603 27,939 26,217
252 240 206 206 197 183 177 179
67 67 61 61 62 62 63 62
290,449 285,326 279,747 273,544 266,730 257,693 245,317 231,750
1,615 1,614 1,601 1,603 1,544 1,509 1,460 1,463
</TABLE>
29
<PAGE> 30
SELECTED FINANCIAL AND OPERATING DATA (CONTINUED)
Gulf Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
OPERATING REVENUES (IN THOUSANDS):
Residential $ 244,967 $ 235,296 $ 231,220
Commercial 137,308 133,071 130,691
Industrial 87,526 91,320 92,300
Other 1,882 1,784 1,860
Total retail 471,683 461,471 456,071
Sales for resale - non-affiliates 72,209 70,078 69,636
Sales for resale - affiliates 23,166 24,075 29,343
Total revenues from sales of electricity 567,058 555,624 555,050
Other revenues 16,084 15,278 10,157
Total $ 583,142 $ 570,902 $ 565,207
KILOWATT-HOUR SALES (IN THOUSANDS):
Residential 3,712,980 3,596,515 3,455,100
Commercial 2,433,382 2,369,236 2,272,690
Industrial 2,029,936 2,179,435 2,117,408
Other 16,944 16,649 17,118
Total retail 8,193,242 8,161,835 7,862,316
Sales for resale - non-affiliates 1,460,105 1,430,908 1,550,018
Sales for resale - affiliates 1,029,787 1,208,771 1,236,223
Total 10,683,134 10,801,514 10,648,557
AVERAGE REVENUE PER KILOWATT-HOUR (CENTS):
Residential 6.60 6.54 6.69
Commercial 5.64 5.62 5.75
Industrial 4.31 4.19 4.36
Total retail 5.76 5.65 5.80
Sales for resale 3.83 3.57 3.55
Total sales 5.31 5.14 5.21
AVERAGE ANNUAL KILOWATT-HOUR USE PER RESIDENTIAL CUSTOMER 13,671 13,553 13,320
AVERAGE ANNUAL REVENUE PER RESIDENTIAL CUSTOMER $ 901.96 $ 886.66 $ 891.38
PLANT NAMEPLATE CAPACITY RATINGS (YEAR-END) (MEGAWATTS) 2,174 2,174 2,174
MAXIMUM PEAK-HOUR DEMAND (MEGAWATTS):
Winter 1,571 1,533 1,418
Summer 1,898 1,828 1,740
ANNUAL LOAD FACTOR (PERCENT) 54.5 55.0 57.0
PLANT AVAILABILITY - FOSSIL-STEAM (PERCENT) 88.9 91.2 92.2
SOURCE OF ENERGY SUPPLY (PERCENT):
Coal 84.5 87.7 82.0
Oil and gas 0.5 0.1 0.1
Purchased power -
From non-affiliates 1.5 0.8 0.5
From affiliates 13.5 11.4 17.4
Total 100.0 100.0 100.0
TOTAL FUEL ECONOMY DATA:
BTU per net kilowatt-hour generated 10,390 10,347 10,636
Cost of fuel per million BTU (cents) 197.37 200.30 203.60
Average cost of fuel per net kilowatt-hour generated (cents) 2.05 2.07 2.17
</TABLE>
30
<PAGE> 31
SELECTED FINANCIAL AND OPERATING DATA (CONTINUED)
Gulf Power Company 1993 Annual Report
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984 1983
<S> <C> <C> <C> <C> <C> <C> <C>
$ 217,843 $ 203,781 $ 184,036 $ 199,701 $ 200,725 $ 186,415 $ 174,302 $ 169,127
124,066 118,897 107,615 116,057 116,253 109,631 98,408 95,426
91,041 84,671 72,634 80,295 79,873 81,621 83,538 77,035
1,805 1,586 1,402 1,357 1,343 1,346 1,334 1,334
434,755 408,935 365,687 397,410 398,194 379,013 357,582 342,922
73,855 67,554 117,466 134,456 106,892 126,789 106,802 84,334
38,563 39,244 48,277 55,955 27,113 43,844 35,712 36,286
547,173 515,733 531,430 587,821 532,199 549,646 500,096 463,542
20,652 12,088 19,397 39 10,720 12,422 5,716 6,154
$ 567,825 $ 527,821 $ 550,827 $ 587,860 $ 542,919 $ 562,068 $ 505,812 $ 469,696
3,360,838 3,293,750 3,154,541 3,055,041 2,963,502 2,736,432 2,560,648 2,471,714
2,217,568 2,169,497 2,088,598 1,986,332 1,913,139 1,777,418 1,559,344 1,498,762
2,177,872 2,094,670 1,968,091 1,839,931 1,745,074 1,770,587 1,771,100 1,612,393
18,866 17,209 16,257 15,241 14,903 14,702 14,555 14,637
7,775,144 7,575,126 7,227,487 6,896,545 6,636,618 6,299,139 5,905,647 5,597,506
1,775,703 1,640,355 1,911,759 2,138,390 1,609,146 2,388,591 2,183,631 1,570,598
1,435,558 1,461,036 2,326,238 2,689,487 1,078,500 1,562,452 1,308,410 1,272,906
10,986,405 10,676,517 11,465,484 11,724,422 9,324,264 10,250,182 9,397,688 8,441,010
6.48 6.19 5.83 6.54 6.77 6.81 6.81 6.84
5.59 5.48 5.15 5.84 6.08 6.17 6.31 6.37
4.18 4.04 3.69 4.36 4.58 4.61 4.72 4.78
5.59 5.40 5.06 5.76 6.00 6.02 6.05 6.13
3.50 3.44 3.91 3.94 4.99 4.32 4.08 4.24
4.98 4.83 4.64 5.01 5.71 5.36 5.32 5.49
13,173 13,173 12,883 12,763 12,729 12,221 12,057 12,254
$ 853.86 $ 815.00 $ 751.60 $ 834.31 $ 862.16 $ 832.55 $ 820.71 $ 838.45
2,174 2,174 2,174 2,174 1,969 1,969 1,969 1,969
1,310 1,814 1,395 1,354 1,406 1,517 1,209 1,292
1,778 1,691 1,613 1,617 1,678 1,448 1,381 1,341
55.2 52.6 56.5 54.4 50.5 53.4 54.9 53.2
89.2 89.1 88.2 92.8 90.5 84.8 87.7 85.8
69.8 78.3 93.2 93.5 85.8 79.7 83.9 87.1
0.5 0.2 0.4 0.4 0.5 0.2 0.2 0.6
0.6 0.4 0.4 0.4 1.9 0.4 (1.4) (2.2)
29.1 21.1 6.0 5.7 11.8 19.7 17.3 14.5
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
10,765 10,621 10,461 10,512 10,639 10,609 10,639 10,721
206.06 193.70 178.00 197.53 239.26 254.53 240.40 240.14
2.22 2.06 1.86 2.08 2.55 2.70 2.60 2.57
</TABLE>
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