southern 2006 3rd

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southern 2006 3rd

  1. 1. Southern Company 3rd Quarter 2006 Earnings September 30, 2006 Contents Press Release 1 Business Outlook 4 Financial Highlights 8 Significant Factors Impacting EPS 8 Analysis of Consolidated Earnings 9 Kilowatt-Hour Sales 9 Financial Overview 10
  2. 2. News Media Contact: Terri Cohilas 404-506-5333 or 1-866-506-5333 media@southerncompany.com www.southerncompany.com Investors: Jimmy Stewart, 404-506-0747 Oct. 26, 2006 Southern Company posts strong third quarter earnings; meets record demand as economic, customer growth continue ATLANTA – Southern Company reported third quarter earnings of $738 million, or 99 cents per share, as residential and commercial customer growth and a strong economy in the Southeast helped drive increased electricity usage. The earnings compared with $722.2 million, or 97 cents per share, in the third quarter of 2005. For the nine months ended Sept. 30, Southern Company’s earnings were $1.38 billion, or $1.86 per share, compared with $1.43 billion, or $1.92 per share, for the same period a year ago. Lower year-to-date earnings compared with the prior period were primarily the result of a reduction of tax credits related to the production of synthetic fuels. The economy in the Southeast continued to grow during the third quarter. The number of customers served by Southern Company grew 1.8 percent above a year ago. The positive earnings drivers in the third quarter were offset in part by higher non-fuel operation and maintenance expenses, and lower synthetic fuels tax credits. Chairman, President and CEO David M. Ratcliffe said the company remains focused on its strategy and meeting its targets. “Reliability is a cornerstone on which this company is built,” said Ratcliffe. “The fact that our employees helped Southern Company make history this summer by meeting all- time record demands for electricity, while continuing to provide low-priced, reliable service, is a testament to their hard work and dedication to operational excellence.”
  3. 3. Total revenues for the third quarter were $4.55 billion compared with $4.36 billion in the third quarter of 2005, a 4.4 percent increase. For the first nine months of the year, revenues totaled $11.2 billion, compared with $10.26 billion in the same period a year ago, an increase of 9.2 percent. In the third quarter, kilowatt-hour sales to retail customers in Southern Company’s four- state service area increased 2.3 percent compared with sales during the 2005 third quarter. Residential electricity use increased 2.6 percent. During 2005, some Georgia Power industrial customers were reclassified from the industrial class to the commercial class to be consistent with the rate structure approved by the Georgia Public Service Commission. Adjusting the 2005 numbers for comparison purposes, electricity use by commercial customers – offices, stores and other non-manufacturing firms – increased 1.8 percent and industrial energy sales increased 2.6 percent. As reported, without adjusting the 2005 kilowatt-hour sales, commercial sales increased 1.9 percent and industrial sales increased 2.5 percent. Total sales of electricity to Southern Company’s customers in the Southeast, including wholesale sales, increased 2.8 percent compared with the third quarter last year. With 4.3 million customers and more than 41,000 megawatts of generating capacity, Atlanta-based Southern Company (NYSE: SO) is the premier energy company serving the Southeast, one of America’s fastest-growing regions. A leading U.S. producer of electricity, Southern Company owns electric utilities in four states and a growing competitive generation company, 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 significantly below the national average. Southern Company has received the highest ranking in customer satisfaction among U.S. electric service providers for seven consecutive years by the American Customer Satisfaction Index (ACSI). Visit our 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 results of operations, customer and economic 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 suggested 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, 2005, 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 implementation of the Energy Policy Act of 2005, 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;
  4. 4. current and future litigation, regulatory investigations, proceedings or inquiries, including the pending EPA civil actions against certain Southern Company subsidiaries, FERC matters, IRS audits and Mirant-related matters; the effects, extent and timing of the entry of additional competition in the markets in which Southern Company’s subsidiaries operate; variations in demand for electricity, including those relating to weather, the general economy and population and business growth (and declines); 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 the impact of pending and future rate cases and negotiations, including rate actions relating to fuel and storm restoration cost recovery; the performance of projects undertaken by the non-utility businesses and the success of efforts to invest in and develop new opportunities; fluctuations in the level of oil prices; the level of production, if any, by the synthetic fuel operations at Carbontronics Synfuels Investors LP and Alabama Fuel Products LLC for the remainder of fiscal year 2006 and fiscal year 2007; 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 terrorist incidents and the threat of terrorist incidents; interest rate fluctuations and 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; catastrophic events such as fires, earthquakes, floods, hurricanes or other similar occurrences; 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. Southern Company and its subsidiaries expressly disclaim any obligation to update any forward-looking information. ###
  5. 5. Page 4 Southern Company 2006 Business Outlook Our goal is to provide regular, predictable, sustainable results by focusing on the business, markets and customers we know best 1. Regulated retail business − Transmission, distribution and over 35,000 MW of nameplate capacity of regulated generation within our four operating companies. − Approximately 4.3 million utility customers in Alabama, Georgia, Florida and Mississippi. − Annual revenues of approximately $13 billion and over 25,000 employees. − Average long-term demand growth in our service territory projected to be 2.0 percent. − Average long-term customer growth projected to be 1.8 percent. 2. Competitive wholesale generation business − Focused on competitive wholesale energy business. − Competitive generation net income includes Southern Power Company’s results in addition to the wholesale businesses embedded in our regulated operating companies. − Over 6,700 MW of nameplate capacity at 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% long-term growth target. 2. Return on Equity – top quartile of electric utilities. 3. Dividend Growth – consistent with our long-term earnings per share objectives. 4. Credit Quality – maintain a solid A credit rating and a 40 percent equity ratio. 2006 EPS Guidance: $2.03 - $2.08, excluding synfuel earnings This range is based on our 5% long-term growth target and provides for normal variability which might result from: • Moderate weather variances • Changes in energy prices • Changes in the economy • Other items within the scope of normal operations Projected Sources and Uses of Funds from 2006 to 2008 Sources 2006-2008 ($ Billions) Net Operating Cash Flow $10.1 Equity Issuances 0.5 Net Debt and Preferred 3.0 $13.6 Uses Capital Expenditures: $10.0 Detailed Breakout Page 6 Common Dividends 3.6 $13.6 See caution regarding forward looking statements on page seven of this document
  7. 7. Page 6 Projected Capital Expenditures 2006 – 2008 ($ Billions) Regulated Infrastructure Fossil/Hydro Retrofits $0.9 Environmental 3.1 Nuclear Fuel & Retrofits 0.6 Transmission & Distribution 3.3 All Other 0.6 Total Regulated Infrastructure $8.5 1.4 Competitive Generation 0.1 Products/Services & Other $10.0 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+ F1** Georgia Power A A-1* A2 P-1* A+ F1* Gulf Power A A-1* A2 P-1* A F1* Mississippi Power A A-1* A1 P-1* AA- F1* Southern Power BBB+ A-2 Baa1 P-2 BBB+ F2 Southern Company A- A-1 A3 P-1 A F1 Southern Co. Svcs A*** *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. *** Corporate Credit Rating 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 suggested 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, 2005, 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 implementation of the Energy Policy Act of 2005, 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, FERC matters, IRS audits and Mirant-related matters; the effects, extent and timing of the entry of additional competition in the markets in which Southern Company’s subsidiaries operate; variations in demand for electricity, including those relating to weather, the general economy and population and business growth (and declines); 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 the impact of pending and future rate cases and negotiations, including rate cases relating to fuel and storm restoration cost recovery; the performance of projects undertaken by the non-utility businesses and the success of efforts to invest in and develop new opportunities; fluctuations in the level of oil prices; the level of production, if any, by the synthetic fuel operations at Carbontronics Synfuels Investors LP and Alabama Fuel Products LLC for the remainder of fiscal year 2006 and fiscal year 2007; 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 terrorist incidents and the threat of terrorist incidents; interest rate fluctuations and 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; catastrophic events such as fires, earthquakes, explosions, floods, hurricanes or other similar occurrences; 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. Southern Company and its subsidiaries expressly disclaim any obligation to update any forward-looking information.
  9. 9. Page 8 Southern Company Financial Highlights (In Millions of Dollars Except Earnings Per Share) 3 Months Ended September Year-to-Date September 2006 2005 2006 2005 (Notes) (Notes) (Notes) (Notes) Consolidated Earnings–As Reported (See Notes) $ 650 $ 625 $ 1,165 $ 1,160 Retail Business Competitive Generation 89 92 233 209 Total 739 717 1,398 1,369 Synthetic Fuels 4 27 7 72 Leasing Business 5 6 16 20 (10) (28) (36) (29) Parent Company and Other $ 738 $ 1,385 $ 722 $ 1,432 Net Income–As Reported Basic Earnings Per Share–(See Notes) $ 0.99 $ 0.97 $ 1.86 $ 1.92 Operating Revenues $ 4,549 $ 4,358 $ 11,204 $ 10,265 Average Shares Outstanding (in millions) 743 743 743 745 End of Period Shares Outstanding (in millions) 743 742 3 Months Ended September Year-to-Date September 2006 2005 2006 2005 Consolidated Earnings–Excluding Synfuels (See Notes) $ 738 $ 1,385 $ 722 $ 1,432 Net Income - As Reported Less: Synthetic Fuels (4) (27) (7) (72) $ 734 $ 1,378 $ 695 $ 1,360 Net Income–Excluding Synthetic Fuels Basic Earnings Per Share–Excluding Synfuels $ 0.99 $ 0.94 $ 1.86 $ 1.83 Significant Factors Impacting EPS 3 Months Ended September Year-to-Date September 2006 2005 Change 2006 2005 Change $ 0.99 $ 0.97 $ 0.02 $ 1.86 $ 1.92 $ (0.06) Consolidated Earnings–As Reported (See Notes) Significant Factors: 0.03 0.01 Retail Business - 0.03 Competitive Generation (0.03) (0.09) Synthetic Fuels 0.02 (0.01) Parent Company and Other $ 0.02 $ (0.06) Total–As Reported 3 Months Ended September Year-to-Date September 2006 2005 Change 2006 2005 Change $ 0.99 $ 0.94 $ 0.05 $ 1.86 $ 1.83 $ 0.03 Consolidated Earnings–Excluding Synfuels (See Notes) 0.02 (0.06) Total–As Reported 0.03 0.09 Less: Synthetic Fuels $ 0.05 $ 0.03 Total–Excluding Synthetic Fuels Notes - Southern Company GAS completed the sale of substantially all of its assets on January 4, 2006 and is included in consolidated earnings in all periods as discontinued operations. - For the third quarter and year-to-date 2006, diluted earnings per share are not more than 1 cent for any period reported above and are not material. - As a result of tax credits generated from synthetic fuel production, Southern Company's synthetic fuel investments contributed significantly to Southern Company's earnings and earnings per share for the three months and nine months ended September 30, 2005. Due to higher levels of o prices, such tax credits are expected to be partially or completely phased out in 2006. - Certain prior year data has been reclassified to conform with current year presentation. - Information contained in this report is subject to audit 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 Year-to-Date September 2006 2005 Change 2006 2005 Change Income Account- Retail Revenue $ 3,672 $ 181 $ 8,496 $ 799 $ 3,853 $ 9,295 Wholesale Revenue 506 - 1,238 123 506 1,361 Other Electric Revenues 111 9 322 25 120 347 70 201 69 1 209 (8) Non-regulated Operating Revenues 4,549 11,204 4,358 191 10,265 939 Total Revenues Fuel and Purchased Power 1,756 109 3,835 629 1,865 4,464 Non-fuel O & M 848 (8) 2,491 56 840 2,547 Depreciation and Amortization 298 2 876 21 300 897 187 541 179 8 505 36 Taxes Other Than Income Taxes 3,192 8,449 3,081 111 7,707 742 Total Operating Expenses Operating Income 1,277 80 2,558 197 1,357 2,755 Other Income, net 7 4 26 - 11 26 Interest Charges and Dividends 202 23 573 87 225 660 Income Taxes 351 54 574 161 405 735 - (1) (9) 9 (5) 4 Discontinued Operations, net of tax $ 722 $ 16 $ 1,432 $ (47) $ 738 $ 1,385 NET INCOME (See Notes) Kilowatt-Hour Sales (In Millions of KWHs) 3 Months Ended September Year-to-Date September As Adjusted (See Notes) 2006 2005 Change 2006 2005 Change Kilowatt-Hour Sales- 58,735 57,144 2.8% 154,182 150,385 2.5% Total Sales 47,424 46,377 2.3% 124,459 121,558 2.4% Total Retail Sales- 17,228 16,791 2.6% 41,352 39,637 4.3% Residential 15,472 15,205 1.8% 40,640 39,710 2.3% Commercial 14,500 14,126 2.6% 41,770 41,458 0.8% Industrial 224 255 -12.1% 697 753 -7.5% Other 11,311 10,767 5.1% 29,723 28,827 3.1% Total Wholesale Sales 3 Months Ended September Year-to-Date September As Reported (See Notes) 2006 2005 Change 2006 2005 Change Kilowatt-Hour Sales- 58,735 57,144 2.8% 154,182 150,385 2.5% Total Sales 47,424 46,377 2.3% 124,459 121,558 2.4% Total Retail Sales- 17,228 16,791 2.6% 41,352 39,637 4.3% Residential 15,472 15,183 1.9% 40,640 39,503 2.9% Commercial 14,500 14,148 2.5% 41,770 41,665 0.3% Industrial 224 255 -12.1% 697 753 -7.5% Other 11,311 10,767 5.1% 29,723 28,827 3.1% Total Wholesale Sales Notes - Southern Company GAS completed the sale of substantially all of its assets on January 4, 2006 and is included in consolidated earnings in all periods as discontinued operations. - In 2005, some Georgia Power industrial customers were reclassified from industrial to commercial to be consistent with the rate structure approved by the Georgia Public Service Commission. For presentation purposes, the quot;As Adjustedquot; chart reclassifies the third quarter and year-to-date 2005 KWHs for commercial and industrial customers to be consistent with the 2006 presentation. - Certain prior year data has been reclassified to conform with current year presentation. - Information contained in this report is subject to audit and adjustments and certain classifications may be different from final results published in the Form 10-Q.
  11. 11. Page 10 Southern Company Financial Overview (In Millions of Dollars) 3 Months Ended September Year-to-Date September 2006 2005 % Change 2006 2005 % Change Consolidated – Operating Revenues $4,549 $4,358 4.4% $11,204 $10,265 9.2% Earnings Before Income Taxes 1,143 1,082 5.6% 2,120 2,011 5.4% Net Income 738 722 2.2% 1,385 1,432 -3.3% Alabama Power – Operating Revenues $1,572 $1,458 7.8% $3,895 $3,514 10.8% Earnings Before Income Taxes 393 392 0.4% 737 711 3.6% Net Income Available to Common 238 236 0.8% 438 451 -2.8% Georgia Power – Operating Revenues $2,275 $2,369 -4.0% $5,667 $5,382 5.3% Earnings Before Income Taxes 598 604 -0.9% 1,129 1,096 3.0% Net Income Available to Common 382 375 1.9% 711 683 4.2% Gulf Power – Operating Revenues $373 $344 8.4% $929 $820 13.3% Earnings Before Income Taxes 57 60 -4.8% 114 116 -1.7% Net Income Available to Common 35 37 -7.0% 69 73 -5.8% Mississippi Power – Operating Revenues $311 $278 11.8% $775 $742 4.4% Earnings Before Income Taxes 59 46 28.4% 121 117 4.1% Net Income Available to Common 37 28 29.7% 75 71 5.5% Southern Power – Operating Revenues $270 $266 1.7% $603 $568 6.3% Earnings Before Income Taxes 78 64 20.9% 163 143 14.1% Net Income Available to Common 46 39 16.9% 98 88 11.5% Notes - Southern Company GAS completed the sale of substantially all of its assets on January 4, 2006 and is included in consolidated earnings in all periods as discontinued operations. - Certain prior year data has been reclassified to conform with current year presentation. - Information contained in this report is subject to audit and adjustments and certain classifications may be different from final results published in the Form 10-Q.

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