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SOUTHERN CO Annual Report, Year Ended Dec 31, 1993

Filing Date
Filed March 28, 1994
Period End
December 31, 1993
In the record · 2016–202610-K1110-Q328-K206

SO filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 206 current reports (8-K) between 2016 and 2026.

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01—Abstract

Summary

Summary of the 10-K filed March 28, 1994. Cited figures are marked; the original filing is the authoritative source.

The Southern Company's 1993 combined Form 10-K (filed March 28, 1994) covers the holding company and its five operating subsidiaries: Alabama Power, Georgia Power, Gulf Power, Mississippi Power and Savannah Electric.

SOUTHERN reported 1993 net income of $1,002 milliona, or $1.57 per share (after a two-for-one stock split declared in January 1994), up from $1.51 in 1992. Excluding special items, earnings from ongoing operations were $1,016 million, or $1.59 per share, a 6.7% increase. Operating revenues rose 5.2% to $8.5 billion, driven by a hot summer, with retail energy sales growing 5.3%, the fastest pace since 1986.

Return on average common equity was 13.43%, the highest since 1986, and the common dividend was raised 3.5% to an annualized $1.18b for 1994. The balance sheet shows total assets of $25.9 billion, up sharply from $20.0 billion in 1992, largely due to the adoption of FAS 109 and the acquisition of foreign utility interests (Freeport, Alicura, and Edelnor) for roughly $465 million of cash in 1993. Management notes that the financial condition is the strongest since the mid-1980s, with a common equity ratio of 43.5% including short-term debt and a market-to-book ratio of 184%.

Near-term capital needs are substantial: the operating companies budgeted about $1.5 billionc of construction for 1994, and SOUTHERN plans significant new-business investment over 1994-1996, which carries higher risk than rate-regulated operations. Key risks include a pending dispute over recoverability of Georgia Power's roughly $197 million investment in the Rocky Mountain pumped storage project (the auditors' report carries an uncertainty paragraph), the Georgia PSC's ruling that demand-side rate riders were unlawful (costs of about $60 million deferred), a FERC review of wholesale equity returns, Clean Air Act compliance costs of perhaps $450-800 million over 1996-2000, and the Energy Policy Act of 1992 opening the industry to competition. Several lawsuits are pending, including a derivative suit (Stepak) and a $40 million heat pump financing case at Alabama Power, but management does not expect material adverse outcomes.

02—Key points

Key Highlights

  1. Record 1993 earnings: net income of $1.0 billion ($1.57/share reported; $1.59/share excluding special items), up 6.7% on an adjusted basis.
  2. Operating revenues rose 5.2% to $8.5 billion, helped by hot summer weather and 5.3% growth in retail kilowatt-hour sales, the highest since 1986.
  3. Dividend increased to 29.5 cents quarterly ($1.18 annualized) in January 1994, the third consecutive annual increase, following a two-for-one stock split.
  4. Entered foreign and independent power markets with about $465 million invested in 1993 (Freeport, Bahamas; Alicura, Argentina; Edelnor, Chile), with further large investments expected 1994-1996.
  5. Major risks: Rocky Mountain project cost recoverability (about $197 million at Georgia Power), disallowed demand-side rate riders, and FERC review of wholesale equity returns of 13.75% or more.
  6. Clean Air Act Phase I (1995) and Phase II (2000) compliance could cost roughly $725 million to $1.1 billion combined across the system, with up to 3% revenue requirement increases possible.

03—Questions

Frequently Asked Questions

  1. How did SOUTHERN perform financially in 1993?

    Net income reached a record $1,002 million, or $1.57 per share, up from $1.51 in 1992. Excluding special items such as gains on Scherer Unit 4 sales and environmental cleanup charges, earnings from ongoing operations were $1.59 per share. Return on average common equity was 13.43%, the highest since 1986. Weather was a major tailwind, with the hot summer boosting retail revenues by about $500 million.

  2. Is the dividend safe, and what is the payout policy?

    The board raised the quarterly dividend to 29.5 cents in January 1994, from 28.5 cents, an annual rate of $1.18. The 1993 payout ratio was 72.4%, and cash coverage of dividends was 2.9 times. Subsidiary dividends to SOUTHERN are restricted by bond indentures and charters; about $1.6 billion of consolidated retained earnings was restricted at year-end 1993.

  3. What are the biggest regulatory and financial risks?

    The most significant items are: (1) Georgia Power's roughly $197 million Rocky Mountain pumped storage investment, where the Georgia PSC may require a write-off, which the auditors flagged with an uncertainty paragraph; (2) a Georgia court ruling that demand-side conservation rate riders were unlawful, with about $60 million of costs deferred; (3) a FERC review of wholesale contracts earning 13.75% or more on equity, which could lead to retroactive rate reductions; and (4) rising capital needs for Clean Air Act compliance and new international investments.

  4. How much will the company need to spend, and will it need new capital?

    The operating companies budgeted about $1.5 billion of construction spending for 1994, $1.3 billion for 1995, and $1.5 billion for 1996. Management said it may need additional equity in 1994 and will issue stock depending on investment opportunities; it sold $120 million of common stock in early 1994. The company expects construction to be financed mainly from internal sources, with debt used when necessary.

04—Continue

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