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southern 2004 3rd

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southern 2004 3rd

  1. 1. Southern Company 3rd Quarter 2004 Earnings September 30, 2004 Contents Press Release 1 Business Outlook 4 Financial Highlights 8 Factors Affecting Earnings 8 Analysis of Consolidated Earnings 9 Kilowatt Hour Sales 9 Financial Overview 10
  2. 2. News Media Contact: Marc Rice 404-506-5333 or 1-866-506-5333 media@southerncompany.com www.southerncompany.com Investor Relations Contact: Glen Kundert 404-506-5135 gakunder2@southernco.com Oct. 21, 2004 Southern Company third quarter earnings meet expectations as increased industrial sales, customer growth continue ATLANTA – Southern Company today said its third quarter earnings were $644.5 million, or 87 cents per share, meeting expectations. The results compared with earnings of $618.8 million, or 85 cents per share, in the third quarter a year ago. Earnings for the first nine months of 2004 were $1.33 billion, or $1.80 per share. The nine-month results compared with earnings – excluding a one-time gain in 2003 – of $1.27 billion, or $1.75 per share in the same period a year ago. The results for the first nine months of 2003 included a one-time after-tax gain of $88 million related to the termination of all long-term wholesale power contracts with Dynegy, Inc. After adjusting for revenues that would have been recognized in 2003 had the contracts remained in place, the adjusted gain for 2003 was $83 million, or 11 cents per share. Including the impact of the Dynegy settlement, reported earnings for the first nine months of 2003 were $1.35 billion, or $1.86 per share. The solid earnings in the third quarter were achieved despite mild weather in the Southeast and extensive infrastructure damage, especially in northwest Florida and southwest Alabama, caused in September by Hurricane Ivan, the most destructive storm in the company’s history.
  3. 3. At its peak, Ivan left 1.6 million customers – nearly 40 percent of Southern Company’s total customer base – without power. However, electric service was restored within a week to 94 percent of customers, and within two weeks to all customers who were able to accept power. “Superior performance by Southern Company people and their commitment to serving customers were on full display as we dealt with this terrible storm,” said David M. Ratcliffe, chairman, president and chief executive officer. “From getting workers on site to securing huge amounts of equipment, our ability to respond quickly and efficiently helped millions of people cope with the storm’s devastation and also helped minimize the financial impact on the company.” The third quarter saw mild weather across Southern Company’s four-state service area, including the second-coolest August temperatures in 25 years. The impact on earnings from the cooler-than-normal summer weather was offset in part by increased energy use in the industrial sector, reflecting ongoing economic progress – most notably in the automotive, steel and chemical industries in Alabama – that began late last year and continued in the third quarter. Another primary factor contributing positively to earnings was continued customer growth. Southern Company served about 70,000 more customers as of Sept. 30 than it did at the same time a year earlier, an increase of 1.7 percent. “By successfully executing our conservative strategy centered on long-term performance, we continued to deliver solid results in the third quarter,” Ratcliffe said. Third quarter revenues were $3.44 billion, compared with $3.30 billion in the same period a year ago, an increase of 4.2 percent. Revenues for the first nine months of this year were $9.18 billion, compared with $8.67 billion in the same period of 2003, an increase of 6.0 percent. Kilowatt-hour sales to retail customers in Southern Company's four-state service area increased 0.8 percent in the third quarter, compared with the same period in 2003. Residential electricity use declined 0.9 percent. Electricity use by commercial customers -- offices, stores and other non-manufacturing firms – increased 0.8 percent. Industrial energy use increased 2.7 percent. Total sales of electricity to Southern Company's customers in the Southeast, including wholesale sales, decreased 2.7 percent, compared with the third quarter last year. In conjunction with this earnings announcement, Southern Company has posted on its Web site a package of detailed financial information on its third quarter performance. These materials are available at www.southerncompany.com. Southern Company's financial analyst call will be at 1 p.m. EDT Oct. 21, at which time Chief Financial Officer Tom Fanning will discuss earnings and earnings guidance as well
  4. 4. as provide a general business update. Investors, media and the public may listen to a live Webcast of the call at www.southerncompany.com. A replay of the Webcast will be available at the site for 12 months. With more than 4 million customers and nearly 39,000 megawatts of generating capacity, Atlanta-based Southern Company (NYSE: SO) is the premier super-regional energy company in the Southeast and a leading U.S. producer of electricity. Southern Company owns electric utilities in four states, a growing competitive generation company, an energy services business and a competitive retail natural gas business, as well as fiber optics and wireless communications. Southern Company brands are known for excellent customer service, high reliability and retail electric prices that are 15 percent below the national average. Southern Company has been named three consecutive years No. 1 on Fortune magazine’s “America’s Most Admired Companies” list in the Electric and Gas Utility industry. Southern Company has been ranked the nation’s top energy utility in the American Customer Satisfaction Index five years in a row. Southern Company has more than 500,000 shareholders, making its common stock one of the most widely held in the United States. Visit the Southern Company Web site at www.southerncompany.com. Forward Looking Statements Note: Certain information contained in this release is forward-looking information based on current expectations and plans that involve risks and uncertainties. Forward-looking information includes, among other things, statements concerning continued customer growth and Southern Company's strategies. Southern Company cautions that there are certain factors that can cause actual results to differ materially from the forward-looking information that has been provided. The reader is cautioned not to put undue reliance on this forward-looking information, which is not a guarantee of future performance and is subject to a number of uncertainties and other factors, many of which are outside the control of Southern Company; accordingly, there can be no assurance that such indicated results will be realized. The following factors, in addition to those discussed in Southern Company's Annual Report on Form 10-K for the year ended Dec. 31, 2003, and subsequent securities filings, could cause results to differ materially from management expectations as suggested by such forward-looking information: the impact of recent and future federal and state regulatory change, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry and also changes in environmental, tax and other laws and regulations to which Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and regulations; current and future litigation, regulatory investigations, proceedings or inquiries, including the pending EPA civil actions against certain Southern Company subsidiaries and current IRS audits; the effects, extent and timing of the entry of additional competition in the markets in which Southern Company's subsidiaries operate; the impact of fluctuations in commodity prices, interest rates and customer demand; available sources and costs of fuels; ability to control costs; investment performance of Southern Company's employee benefit plans; advances in technology; state and federal rate regulations and pending and future rate cases and negotiations; effects of, and changes in, political, legal and economic conditions and developments in the United States, including the current state of the economy; the performance of projects undertaken by the non-traditional business and the success of efforts to invest in and develop new opportunities; internal restructuring or other restructuring options that may be pursued; potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial to Southern Company or its subsidiaries; the ability of counterparties of Southern Company and its subsidiaries to make payments as and when due; the ability to obtain new short- and long-term contracts with neighboring utilities; the direct or indirect effect on Southern Company's business resulting from the terrorist incidents on Sept. 11, 2001, or any similar incidents or responses to such incidents; financial market conditions and the results of financing efforts, including Southern Company's and its subsidiaries' credit ratings; the ability of Southern Company and its subsidiaries to obtain additional generating capacity at competitive prices; weather and other natural phenomena; the direct and indirect effects on Southern Company's business resulting from incidents similar to the August 2003 power outage in the Northeast; and the effect of accounting pronouncements issued periodically by standard-setting bodies. ###
  5. 5. Page 4 Southern Company Business Outlook Strategy focused on the business, markets and customers we know best 1. Regulated retail business − Transmission, distribution and over 34,000 MW of regulated generation within our five operating companies. − More than 4 million utility customers in Alabama, Georgia, Florida and Mississippi. − Annual revenues of over $11 billion and approximately 26,000 employees. − Average long-term demand growth in our service territory projected to be 2 percent. − Average long-term customer growth projected to be 1.5 percent per year. 2. Competitive wholesale generation business − Strategically focused on competitive wholesale energy business in the Super Southeast. − Competitive wholesale generation net income includes Southern Power Company’s results in addition to the existing wholesale businesses in our five operating companies. − 4,777 MW of capacity owned by Southern Power Company. Goals for our Major Businesses 1. Lead the industry in service and customer satisfaction. 2. Earn superior risk adjusted returns. 3. Earn net income of at least $300 million from the company’s competitive wholesale generation business by 2007. See caution regarding forward looking statements on page seven of this document
  6. 6. Page 5 Financial Goals for the Company 1. Earnings per Share Growth – 5% average long-term growth 2. Return on Equity – top quartile of electric utilities 3. Dividend Payout – target 70% 4. Dividend Growth – consistent with our payout objectives 5. Capital Structure – maintain common equity ratio of approximately 40% 2004 EPS Guidance: $1.94 - $1.99 This range is based on our 5% average long-term growth target and provides for normal variability which might result from: • Moderate weather variances • Changes in energy prices • Economic recovery (reflected in industrial sales and customer growth) • Other items within the scope of normal operations Projected Sources and Uses of Funds from 2004 to 2006 Sources 2004-2006 ($ Billions) Funds from Operations $9.0 Equity Issuances 0.1 Net Debt and Preferred 1.1 $10.2 Uses Capital Expenditures: $7.0 Detailed Breakout Page 6 Common Dividends 3.2 $10.2 See caution regarding forward looking statements on page seven of this document
  7. 7. Page 6 Projected Capital Expenditures 2004 – 2006 ($ Billions) Regulated Infrastructure Fossil/Hydro Retrofits 0.7 Environmental 1.4 Nuclear Fuel & Retrofits 0.5 Transmission & Distribution 3.0 All Other 0.7 Total Regulated Infrastructure $6.3 0.6 Competitive Generation 0.1 Products/Services & Other $ 7.0 Total Capital Expenditures Credit Ratings S&P Moody’s Fitch Senior Commercial Senior Commercial Senior Commercial Unsecured Paper Unsecured Paper Unsecured Paper Alabama Power A A-1** A2 P-1** A F-1** Georgia Power A A-1* A2 P-1* A+ F-1* Gulf Power A A-1* A2 P-1* A F-1* Mississippi Power A A-1* A1 P-1* AA- F-1* Savannah Electric A A-1* A2 P-1* - - Southern Power BBB+ A-2 Baa1 P-2 - - Southern Company A- A-1 A3 P-1 A F-1 *Commercial Paper issued through Southern Company Funding Corporation **Alabama Power can issue commercial paper through the Southern Company Funding Corporation or through its own commercial paper program. See caution regarding forward looking statements on page seven of this document
  8. 8. Page 7 Forward Looking Statement Disclosure: All of the information contained in this Business Outlook is forward-looking information based on current expectations and plans that involve risks and uncertainties. Southern Company cautions that there are certain factors that can cause actual results to differ materially from the forward-looking information that has been provided. The reader is cautioned not to put undue reliance on this forward-looking information, which is not a guarantee of future performance and is subject to a number of uncertainties and other factors, many of which are outside the control of Southern Company; accordingly, there can be no assurance that such indicated results will be realized. The following factors, in addition to those discussed in Southern Company’s Annual Report on Form 10-K for the year ended Dec. 31, 2003, and subsequent securities filings, could cause results to differ materially from management expectations as suggested by such forward- looking information: the impact of recent and future federal and state regulatory change, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry and also changes in environmental, tax and other laws and regulations to which Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and regulations; current and future litigation, regulatory investigations, proceedings or inquiries, including the pending EPA civil actions against certain Southern Company subsidiaries and current IRS audits; the effects, extent and timing of the entry of additional competition in the markets in which Southern Company’s subsidiaries operate; the impact of fluctuations in commodity prices, interest rates and customer demand; available sources and costs of fuels; ability to control costs; investment performance of Southern Company’s employee benefit plans; advances in technology; state and federal rate regulations and pending and future rate cases and negotiations; effects of, and changes in, political, legal and economic conditions and developments in the United States, including the current state of the economy; the performance of projects undertaken by the non-traditional business and the success of efforts to invest in and develop new opportunities; internal restructuring or other restructuring options that may be pursued; potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial to Southern Company or its subsidiaries; the ability of counterparties of Southern Company and its subsidiaries to make payments as and when due; the ability to obtain new short- and long-term contracts with neighboring utilities; the direct or indirect effect on Southern Company’s business resulting from the terrorist incidents on September 11, 2001, or any similar incidents or responses to such incidents; financial market conditions and the results of financing efforts, including Southern Company’s and its subsidiaries’ credit ratings; the ability of Southern Company and its subsidiaries to obtain additional generating capacity at competitive prices; weather and other natural phenomena; the direct or indirect effects on Southern Company’s business resulting from incidents similar to the August 2003 power outage in the Northeast; and the effect of accounting pronouncements issued periodically by standard-setting bodies.
  9. 9. Page 8 Southern Company Financial Highlights (In Millions of Dollars Except Earnings Per Share) 3 Months Ended September 9 Months Ended September 2004 2003 2004 2003 (Notes) (Notes) (Notes) (Notes) Consolidated Earnings– (See Notes) $ 555 $ 525 $ 1,081 $ 1,036 Retail Business 74 177 78 194 Competitive Generation Total 629 603 1,258 1,230 Synthetic Fuels 20 14 62 42 Leasing Business 9 7 23 21 (13) (15) (5) (27) Parent Company and Other Net Income - Excluding One-Time Items (See Notes) $ 645 $ 619 $ 1,328 $ 1,266 $ 645 $ 619 $ 1,328 $ 1,349 - As Reported Basic Earnings Per Share–(Notes) $ 0.87 $ 0.85 $ 1.80 $ 1.75 - Excluding One-Time Items (See Notes) $ 0.87 $ 0.85 $ 1.80 $ 1.86 - As Reported $ 3,441 $ 3,301 $ 9,182 $ 8,666 Operating Revenues 739 730 738 724 Average Shares Outstanding(in millions) 740 731 End of Period Shares Outstanding(in millions) Significant Factors Impacting EPS (Notes) 3 Months Ended September 9 Months Ended September 2004 2003 Change 2004 2003 Change $ 0.87 $ 0.85 $ 0.02 $1.80 $1.75 $0.05 Consolidated Earnings- Significant Factors: 0.04 0.06 Retail Business (0.01) (0.03) Competitive Generation 0.01 0.03 Synthetic Fuels - - Leasing Business (0.01) 0.02 Parent Company and Other (0.01) (0.03) Impact of Additional Shares $ 0.02 $0.05 Total Notes - Excludes a one-time after tax gain of $88 million in May 2003 from the previously announced termination of all long-term wholesale power contracts between Southern Company and Dynegy, Inc. After adjusting for revenues that otherwise would have been recognized for the remainder of the year, the adjusted gain for 2003 is $83 million. - Quarterly Earnings Per Share (EPS) is computed by using the current year-to-date EPS less the previous period year-to-date EPS. As a result of using rounded numbers, the EPS for significant factors may not directly correspon to the variance in millions of dollars shown above - Diluted earnings per share are not more than 1 cent for any period reported above and are not materi - Certain prior year data has been reclassified to conform with current year presentation. - Information contained in this report is subject to review and adjustments and certain classifications may be different from final results published in the Form 10-Q.
  10. 10. Page 9 Southern Company Analysis of Consolidated Earnings (In Millions of Dollars) 3 Months Ended September 9 Months Ended September 2004 2003 Change 2004 2003 Change Income Account- Retail Revenue $ 2,757 $ 158 $ 6,907 $ 630 $ 2,915 $ 7,537 Wholesale Revenue 376 (33) 1,034 4 343 1,038 Other Electric Revenues 91 9 268 19 100 287 Contract Termination - - 142 (142) - - 83 320 77 6 315 5 Non-regulated Operating Revenues 3,441 9,182 3,301 140 8,666 516 Total Revenues Fuel and Purchased Power 1,074 96 2,770 447 1,170 3,217 Non-fuel O & M 716 40 2,221 124 756 2,345 Depreciation and Amortization 261 (20) 764 (49) 241 715 161 474 155 6 447 27 Taxes Other Than Income Taxes 2,328 6,751 2,206 122 6,202 549 Total Operating Expenses Operating Income 1,095 18 2,464 (33) 1,113 2,431 Other Income, net (26) 36 (10) 14 10 4 Interest Charges and Dividends 171 1 519 - 172 519 306 588 279 27 586 2 Income Taxes $ 619 $ 26 $ 1,349 $ (21) $ 645 $ 1,328 NET INCOME AS REPORTED (See Note) $ 619 $ 26 $ 1,266 $ 62 $ 645 $ 1,328 NET INCOME EXCLUDING DYNEGY Kilowatt-Hour Sales (In Millions of KWHs) 3 Months Ended September 9 Months Ended September 2004 2003 Change 2004 2003 Change Kilowatt-Hour Sales- 52,803 54,247 -2.7% 147,174 144,991 1.5% Total Sales 43,905 43,537 0.8% 120,087 116,144 3.4% Total Retail Sales- 15,074 15,211 -0.9% 38,955 37,558 3.7% Residential 13,995 13,878 0.8% 38,017 36,912 3.0% Commercial 14,580 14,193 2.7% 42,360 40,923 3.5% Industrial 8,898 10,710 -16.9% 27,087 28,847 -6.1% Total Wholesale Sales Note - Includes in 2003 a one-time after tax gain of $88 million in May 2003 from the termination of all long-term wholesale power contracts between Southern Company and Dynegy, Inc. After adjusting for revenues that otherwise would have been recognized for the remainder of the year, the adjusted gain for 2003 was $83 million.
  11. 11. Page 10 Southern Company Financial Overview (In Millions of Dollars) 3 Months Ended September 9 Months Ended September 2004 2003 % Change 2004 2003 % Change Consolidated – Operating Revenues $3,441 $3,301 4.2% $9,182 $8,666 6.0% Earnings Before Income Taxes 951 898 5.8% 1,916 1,935 -1.0% Net Income As Reported (See Note) 645 619 4.1% 1,328 1,349 -1.5% Alabama Power – Operating Revenues $1,246 $1,216 2.5% $3,265 $3,056 6.8% Earnings Before Income Taxes 372 357 4.2% 708 679 4.3% Net Income Available to Common 224 217 3.5% 419 415 1.0% Georgia Power – Operating Revenues $1,581 $1,487 6.4% $4,134 $3,803 8.7% Earnings Before Income Taxes 447 412 8.6% 932 876 6.4% Net Income Available to Common 287 265 8.5% 587 557 5.4% Gulf Power – Operating Revenues $269 $253 6.5% $725 $666 8.9% Earnings Before Income Taxes 50 53 -5.9% 107 106 1.5% Net Income Available to Common 32 33 -2.7% 68 66 3.3% Mississippi Power – Operating Revenues $259 $228 13.5% $701 $686 2.2% Earnings Before Income Taxes 58 56 3.7% 126 179 -29.3% Net Income Available to Common (See Note) 36 34 3.6% 75 109 -31.3% Savannah Electric – Operating Revenues $105 $99 6.3% $270 $246 9.8% Earnings Before Income Taxes 20 23 -15.0% 37 39 -5.7% Net Income Available to Common 12 14 -17.4% 22 24 -7.5% Southern Power – Operating Revenues $189 $209 -9.5% $547 $554 -1.3% Earnings Before Income Taxes 61 53 15.3% 142 220 -35.2% Net Income Available to Common (See Note) 37 40 -6.8% 87 143 -39.0% Note - Includes in 2003 a one-time after tax gain of $88 million in May 2003 from the termination of all long-term wholesale power contracts between Southern Company and Dynegy, Inc. After adjusting for revenues that otherwise would have been recognized for the remainder of the year, the adjusted gain in net income for 2003 was $83 million for consolidated, $37 million for Mississippi Power, and $46 million for Southern Power.

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