Southern Company. 3rd Quarter 2003 Earnings. September 30, 2003

Transcription

1 Southern Company 3rd Quarter 2003 Earnings September 30, 2003 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 News Media Contact: Marc Rice or Investor Relations Contact: Glen Kundert Oct. 21, 2003 Despite unusually mild summer weather, Southern Company earnings increase in third quarter ATLANTA Southern Company today reported third quarter earnings of $619 million, or 85 cents per share, compared with $595 million, or 84 cents per share, in the third quarter of Earnings for the first nine months of including a one-time item reported in the second quarter with a positive impact of 11 cents per share -- were $1.35 billion, or $1.86 per share. Earnings for the first nine months of 2002 were $1.15 billion, or $1.63 per share. The nine-month earnings for 2003 include a one-time after-tax gain of $88 million in the second quarter from the termination of all long-term wholesale power contracts between Southern Company and Dynegy, Inc. After adjusting for revenues that would have been recognized for the remainder of this year had the contracts remained in place, the adjusted gain for 2003 is $83 million, or 11 cents per share. CEO Allen Franklin said continued mild weather during the summer reduced third quarter demand for electricity among retail customers. The impact on earnings from the weather-related decline in retail sales was offset by a number of positive factors, including the ongoing influx of people and businesses into the Southeast. Southern Company is serving 1.6 percent more customers now than at the end of the third quarter a year ago.

3 Successful efforts to control costs also contributed positively to earnings, as did stronger results from Southern Company s competitive generation business, in part because capacity from low-cost generation was available for sale in the wholesale market, Franklin added. We remain focused on the fundamentals of running our business successfully for the long term, Franklin said. We re operating our generating plants at record high levels of efficiency, continually upgrading our transmission and distribution system so that customers get their power safely and reliably, keeping prices low and building on our position as the industry leader in customer satisfaction. Third quarter revenues were $3.34 billion, compared with $3.25 billion in the same period a year ago. Revenues for the first nine months of 2003 were $8.75 billion, compared with $8.09 billion in the first nine months of Reviewing operations, Franklin said kilowatt-hour sales to retail customers in Southern Company's four-state service area decreased 1.4 percent during the third quarter, compared with the same period in In-home electricity needs, reflecting the unusually mild weather this summer, decreased 3.2 percent. Electricity use by commercial customers -- offices, stores and other non-manufacturing firms increased 0.1 percent. Industrial energy use decreased 0.8 percent. Total sales of electricity to Southern Company's customers in the Southeast, including wholesale sales, increased 3.4 percent in the third quarter. 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 7:30 a.m. EDT Oct. 21 at Southern Company's financial analyst call will be at 1 p.m. EDT Oct. 21, at which time Franklin and Chief Financial Officer Tom Fanning will discuss earnings and earnings guidance and provide a general business update. Investors, media and the public may listen to a live Webcast of the call at A replay of the Webcast will be available at the site for 12 months. With 4 million customers and nearly 39,000 megawatts of generating capacity, Atlantabased 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 two 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

4 Customer Satisfaction Index four years in a row, and in the latest survey tied for the highest score among all service industry companies. 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 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 ability to achieve long-term success. 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, 2002, 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 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, including the EPA civil action against certain subsidiaries of Southern Company; the effects, extent and timing 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; state and federal rate regulation; political and legal conditions and developments in the United States; 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 effects of, and changes in, economic conditions in the areas in which Southern Company's subsidiaries operate, including the current soft economy; the direct or indirect effects on Southern Company s business resulting from the terrorist incidents on Sept. 11, 2001, or any similar such incidents or responses to such incidents; financial market conditions and the results of financing efforts; the timing and acceptance of Southern Company's new product and service offerings; the ability of Southern Company to obtain additional generating capacity at competitive prices; and weather and other natural phenomena. # # #

5 Southern Company Business Outlook Page 4 We will be focused on three Major Businesses: 1. Regulated infrastructure businesses Transmission, distribution, and over 30,000 MW of regulated generation within our traditional operating companies. Annual Demand growth in our service territory expected to be 2 percent Strong customer growth of approximately 1.5 percent per year 2. Competitive generation We currently have approximately 4,777 MW of capacity in service at Southern Power. Our current construction schedule includes 1,240 MW of capacity scheduled to be in service in June This is in addition to our existing wholesale business that generated approximately $100 million in net income for our operating companies in Products and services for energy consumers We will leverage our existing infrastructure and customer base to deliver additional products and services. Currently this includes Southern Company Energy Solutions, Appliance Sales, Unregulated Outdoor Lighting, Southern Company Gas, Southern Telecom, and Southern LINC. Examples of current products offered include energy services, outdoor lighting, and access to dark optical fiber. Goals for our Major Businesses 1. Double the earnings contribution from the company s competitive generation business (from $100 million in 2000) to more than $200 million by Produce $50 million net income from energy-related products and services by Lead the industry in service and customer satisfaction. See caution regarding forward looking statements on page seven of this document

6 Page 5 Financial Goals for the Company 1. Earnings per Share Growth at least 5% annual growth 2. Return on equity top quartile of electric utilities 3. Dividend Payout target a range of 70 75% 4. Dividend Growth consistent with our payout objectives 5. Capital Structure maintain a minimum 38% equity ratio We are targeting strong earnings results in Projected Earnings per Share 2003 Regulated Infrastructure 1.54 Competitive Generation 0.31 Products and Services 0.02 Synthetic Fuels Leasing Business Holding Company (0.07) Total $1.91 Expected Sources and Uses of Funds from 2003 to 2006 All Values in Billions Sources Funds from Operations $11.3 Equity Issuances 0.4 Net Debt and Preferred 1.8 $13.5 Uses Investments* $ 9.3 Detailed Breakout Page 6 Common Dividends 4.2 $13.5 See caution regarding forward looking statements on page seven of this document

7 Page 6 Investments Regulated Infrastructure Fossil/Hydro Retrofits 0.8 Environmental 1.5 Nuclear Fuel & Retrofits 0.7 Transmission & Distribution 4.4 All Other 0.5 Total Regulated Infrastructure $7.9 Competitive Generation 1.3 Products/Services & Other 0.1 Total Investments $ 9.3 Credit Ratings Senior Unsecured S & P Moody s Fitch Commercial Senior Commercial Senior Paper Unsecured Paper Unsecured Commercial 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* A+ F-1* Savannah Electric A A-1* A2 P-1* - - Southern Power BBB+ A-2 Baa1 P 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 Forward Looking Statement Disclosure: Page 7 NOTE: 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 December 31, 2002, 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 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, including the EPA civil action against certain subsidiaries of Southern Company and the diversity litigation against certain subsidiaries of Southern Company; the effects, extent and timing 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; state and federal rate regulation in the United States; political and legal conditions and developments in the United States; 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 effects of, and changes in, economic conditions in the areas in which Southern Company's subsidiaries operate, including the current soft economy; the direct or indirect effects on Southern Company's business resulting from the terrorist incidents on September 11, 2001, or any similar such incidents or responses to such incidents; financial market conditions and the results of financing efforts; the timing and acceptance of Southern Company's new product and service offerings; the ability of Southern Company to obtain additional generating capacity at competitive prices; and weather and other natural phenomena. See caution regarding forward looking statements on page seven of this document

9 Southern Company Financial Highlights (In Millions of Dollars Except Earnings Per Share) Page 8 3 Months Ended September 9 Months Ended September (Notes) (Notes) (Notes) (Notes) Consolidated Earnings Southern Company Regulated Retail Business $ 519 $ 523 $ 1,019 $ 1,016 Competitive Generation Total ,217 1,150 Synthetic Fuels Products and Services Leasing Business Parent Company and Other (4) (10) (34) (46) Net Income - Excluding Dynegy (See Notes) $ 619 $ 595 $ 1,266 $ 1,151 - As Reported $ 619 $ 595 $ 1,349 $ 1,151 Basic Earnings Per Share (Notes) - Excluding Dynegy (See Notes) $ 0.85 $ 0.84 $ 1.75 $ As Reported $ 0.85 $ 0.84 $ 1.86 $ 1.63 Operating Revenues $ 3,337 $ 3,248 $ 8,749 $ 8,092 Average Shares Outstanding (in millions) End of Period Shares Outstanding (in millions) Significant Factors Impacting EPS (Notes) 3 Months Ended September 9 Months Ended September Change Change Consolidated Earnings Excluding Dynegy- $ 0.85 $ 0.84 $ 0.01 $1.75 $1.63 $0.12 Significant Factors: Regulated Retail Business (0.01) - Competitive Generation Synthetic Fuels Products and Services Leasing Business Parent Company and Other Impact of Additional Shares (0.02) (0.05) Total $ 0.01 $0.12 Notes - Excludes a one-time gain of $88 million in May 2003 from the previously announced termination of long-term wholesale power contracts between Southern Company and Dynegy, Inc. After adjusting for revenu that otherwise would have been recognized for the remainder of the year, the adjusted gain for 2003 is $83 milli - Diluted earnings per share are not more than 1 cent for any period reported above and are not material. - Certain prior year data has been reclassified to conform with current year presentatio - Information contained in this report is subject to review and adjustments and certain classifications may be differe from final results published in the Form 10-Q

10 Southern Company Analysis of Consolidated Earnings (In Millions of Dollars) Page 9 3 Months Ended September 9 Months Ended September Change Change Income Account- Retail Revenue $ 2,757 $ 2,749 $ 8 $ 6,907 $ 6,778 $ 129 Wholesale Revenue , Other Electric Revenues Non-regulated Operating Revenues Total Revenues 3,337 3, ,749 8, Fuel and Purchased Power 1,094 1, ,809 2, Non-fuel O & M (1) 2,269 2, Depreciation and Amortization (7) (4) Taxes Other Than Income Taxes Total Operating Expenses 2,243 2, ,286 5, Operating Income 1,094 1, ,463 2, Other Income, net (25) (29) 4 (9) (40) 31 Interest Charges and Dividends (3) Income Taxes NET INCOME AS REPORTED $ 619 $ 595 $ 24 $ 1,349 $ 1,151 $ 198 NET INCOME EXCLUDING DYNEGY $ 619 $ 595 $ 24 $ 1,266 $ 1,151 $ 115 Kilowatt-Hour Sales (In Millions of KWHs) 3 Months Ended September 9 Months Ended September Change Change Kilowatt-Hour Sales- Total Sales 54,974 53, % 146, , % Total Retail Sales- 43,536 44, % 116, , % Residential 15,211 15, % 37,558 38, % Commercial 13,878 13, % 36,912 36, % Industrial 14,193 14, % 40,923 40, % Total Wholesale Sales 11,438 9, % 30,481 23, %

11 Southern Company Financial Overview (In Millions of Dollars) Page 10 3 Months Ended September 9 Months Ended September % Change % Change Consolidated Operating Revenues $3,337 $3, % $8,749 $8, % Earnings Before Income Taxes % 1,935 1, % Net Income As Reported % 1,349 1, % Net Income Excluding Dynegy (Note) % 1,266 1, % Alabama Power Operating Revenues $1,234 $1, % $3,093 $2, % Earnings Before Income Taxes % % Net Income Available to Common % % Georgia Power Operating Revenues $1,486 $1, % $3,803 $3, % Earnings Before Income Taxes % % Net Income Available to Common % % Gulf Power Operating Revenues $253 $ % $666 $ % Earnings Before Income Taxes % % Net Income Available to Common % % Mississippi Power Operating Revenues $228 $ % $686 $ % Earnings Before Income Taxes % % Net Income Available to Common % % Savannah Electric Operating Revenues $100 $97 3.4% $248 $ % Earnings Before Income Taxes % % Net Income Available to Common % % Southern Power Operating Revenues $208 $136 - $554 $213 - Earnings Before Income Taxes Net Income Available to Common Note: Excludes a one-time 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.