01—Abstract
Summary
Summary of the 10-K filed March 27, 1995. Cited figures are marked; the original filing is the authoritative source.
The Southern Company's combined 1994 Form 10-K covers the parent holding company and its five operating utilities (Alabama Power, Georgia Power, Gulf Power, Mississippi Power, Savannah Electric).
Consolidated 1994 earnings were $989 milliona, or $1.52 per share, down from $1.57 in 1993. Excluding non-operating items, including a $61 million after-tax charge for work force reduction programs, earnings from ongoing operations were $1.58 per share. Operating revenues fell 2.3% to $8.3 billion on milder weather and lower sales for resale, while the dividend was raised to 30.5 cents per quarter in early 1995.
Management describes the financial condition as the strongest since the mid-1980s, with a common equity ratio of 44.4% and a stated goal of 40% to 45%. The company is shifting strategy toward non-utility growth through Southern Electric International, which holds international and independent power investments of about $436 millionb at year-end, including Argentina, Chile, Trinidad and Tobago, and the Bahamas, plus a $350 million acquisition of a Scott Paper energy complex. A new wireless subsidiary, Southern Communications, is authorized to invest up to $179 million and is expected to dilute earnings in its early years.
Management also expects to invest substantially in these new businesses over 1995 to 1997, and it has warned that these efforts carry higher risk than rate-regulated operations. Key risks include the Rocky Mountain pumped storage project, where recovery of Georgia Power's roughly $200 millionc investment is uncertain pending Georgia PSC review, and the Energy Act's move toward retail competition, which could erode earnings for companies that are not low-cost producers.
Construction spending is budgeted at about $1.4 billiond per year for 1995 to 1997, largely funded internally, and Clean Air Act compliance adds costs that management expects to recover through rates. Pending litigation includes a derivative stockholder suit and FERC review of wholesale equity returns, and management does not expect either to have a material adverse effect.
02—Key points
Key Highlights
- 1994 EPS of $1.52 (down 5 cents), or $1.58 excluding non-operating items such as a $61 million work force reduction charge; ongoing earnings rose 1.1% to $1.0 billion
- Operating revenues fell 2.3% to $8.3 billion on mild summer weather and lower sales for resale, while fuel and operating expenses declined 2.1%
- Common equity ratio of 44.4% and market-to-book of 160%; dividend raised to 30.5 cents per quarter ($1.22 annualized) in January 1995
- Non-utility growth push via Southern Electric International ($436M invested in power projects in Argentina, Chile, Trinidad and Tobago, and the Bahamas) and a new wireless subsidiary authorized for up to $179M
- Rocky Mountain pumped storage project (about $200M Georgia Power investment) faces uncertain cost recovery pending Georgia PSC review; no write-down recorded
- Construction budget of about $1.4B in 1995 and $1.3B in each of 1996 and 1997, primarily funded internally; $1.4B of unused bank credit lines at year start
03—Questions
Frequently Asked Questions
How did Southern Company's 1994 earnings compare with 1993?
Reported net income was $989 million, or $1.52 per share, versus $1,002 million, or $1.57 per share, in 1993. The decline reflects a $61 million after-tax work force reduction charge. Excluding non-operating items, earnings from ongoing operations were $1.0 billion, or $1.58 per share, up $11 million from 1993.
What is the main risk to the Rocky Mountain project investment?
Georgia Power's investment of roughly $200 million at completion depends on the Georgia PSC allowing full recovery of costs and on how the project's output is treated. If the commission disallows part of the cost, that portion may have to be written off. Auditors included an explanatory paragraph noting this uncertainty, and no write-down has been recorded.
How much is the company investing in new, non-regulated businesses?
Southern Electric International had roughly $436 million invested in domestic and foreign power facilities at year-end 1994, including a $350 million Scott Paper energy complex in Alabama and stakes in Argentina's Alicura hydro project and Chile's Edelnor. The company expects substantial investment in these and related businesses during 1995 to 1997. Management notes these opportunities may earn more than rate-regulated operations but carry higher risk.
Will the company need to raise new equity capital?
Possibly. The company raised about $103 million through a public common stock offering in early 1995 and may need more equity during the rest of 1995, depending on investment opportunities. Operating subsidiaries expect to fund construction mainly from internal cash flow, with short-term debt if needed.
How could industry competition and the Energy Act affect earnings?
The Energy Policy Act of 1992 allows independent power producers to use utility transmission to sell power to other utilities, and retail wheeling is being debated in several states. Management says that unless the company remains a low-cost producer, retail sales growth could be limited and earnings could be significantly eroded. Being a low-cost producer, it adds, could increase market share and profitability.
04—Continue