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SOUTHERN CO Annual Report, Year Ended Dec 31, 1999

Filing Date
Filed March 27, 2000
Period End
December 31, 1999
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 27, 2000. Cited figures are marked; the original filing is the authoritative source.

The Southern Company's 1999 Form 10-K reports a record consolidated net income of $1.276 billiona, or $1.86 per share, up from $977 million ($1.40 per share) in 1998.

Excluding non-recurring items such as a $78 millionb gain on an asset sale and a $69 million Mobile Energy write-down, adjusted earnings were $1.303 billion, or $1.90 per share, versus $1.76 in 1998. Southern Energy, the company's competitive generation and trading business outside the Southeast, contributed roughly 26% of 1999 reported net income, and the integrated Southeast utilities remained the core earnings base at about $1.07 billion of net income. The traditional regulated business faced a Georgia Power rate reduction effective January 1999 that cut retail revenues, though customer growth partly offset it.

Management also cut its dividend payout target from about 75% to 50% over time, keeping the quarterly dividend at 33.5 cents, which the company says will free more internal cash for reinvestment. Capital spending is budgeted at about $3.0 billionc in 2000, $3.8 billion in 2001 and $3.9 billion in 2002, with Southern Energy's growth funded by a request to invest up to nearly $6 billion, of which $2.7 billion had been invested by year-end 1999.

Key risks include an EPA civil action filed in November 1999 alleging Clean Air Act violations at several coal plants, with penalties and possible pollution-control capital costs that could not yet be quantified; the Mobile Energy Services Chapter 11 filing; the pending FERC requirement for Regional Transmission Organization filings by October 2000; and continued uncertainty over retail competition and stranded costs. Financial condition remained strong, with a 49.7% long-term debt share and $5.7 billiond of unused bank credit at the start of 2000.

02—Key points

Key Highlights

  1. Record 1999 consolidated net income of $1.276 billion ($1.86 per share), up from $977 million ($1.40 per share) in 1998; adjusted earnings of $1.90 per share versus $1.76 in 1998.
  2. Southern Energy contributed about 26% of 1999 net income, driven by acquisitions of roughly 4,859 MW in the U.S. (Pacific Gas & Electric California assets and Orange & Rockland/ConEd New York assets).
  3. Dividend policy changed in January 1999 to lower the target payout ratio from about 75% to 50% over time; quarterly dividend held at 33.5 cents ($1.34 annually).
  4. Share repurchase program of up to 50 million shares approved April 1999; 32.8 million shares repurchased through year-end 1999, with common stock repurchased totaling $862 million in cash flow.
  5. Construction budget of $3.0 billion (2000), $3.8 billion (2001) and $3.9 billion (2002), including about $1.0 billion of Southern Energy spending in 2001 and 2002.
  6. EPA civil action (November 1999) and notice of violation covering 10 coal-fired plants, with penalties of up to $27,500 per day per violation; outcome and capital costs cannot yet be determined.
  7. Georgia Power's 1998 retail rate order reduced rates by $262 million in 1999 and a further $24 million in 2000, with $79 million of revenue subject to refund recorded in 1999.

03—Questions

Frequently Asked Questions

  1. How much did Southern Company earn in 1999 and how does that compare with 1998?

    Reported 1999 net income was $1.276 billion, or $1.86 per share, compared with $977 million, or $1.40 per share, in 1998. Excluding non-recurring items, earnings were $1.303 billion, or $1.90 per share, versus $1.225 billion, or $1.76 per share, in 1998 (roughly 8% growth on an adjusted per-share basis).

  2. What is the contribution of Southern Energy to overall results, and what is its strategic direction?

    Southern Energy's 1999 net income was $328 million, including about 26% of consolidated reported earnings. Its adjusted earnings were $355 million. The company is focusing on key regions (China, India, the Philippines, Europe's North-South corridor, four U.S. regions) and is exiting Argentina and Chile. Management plans to acquire or access roughly 20,000 MW of U.S. capacity over several years. Southern Energy also holds a 60% interest in SCEM, a trading joint venture with Vastar.

  3. Is the dividend safe, and how has the payout policy changed?

    The quarterly dividend was maintained at 33.5 cents ($1.34 annually) for 1999 and into 2000. In January 1999 the board decided to reduce the target payout ratio from about 75% to 50% over time, which retains more cash for reinvestment. The 1999 payout ratio was 72.2% on reported EPS. Because the policy is a gradual target, future dividend increases may be slower than historical trends.

  4. What are the main legal and regulatory risks disclosed?

    The most significant is the EPA's November 1999 Clean Air Act lawsuit and notice of violation against the integrated utilities for alleged new source review violations at coal plants, which could require substantial capital and penalties. Other items include the Mobile Energy bankruptcy (a $69 million after-tax write-down), the Lake Martin litigation (judgments of nearly $53 million under appeal), FERC's RTO rule requiring filings by October 15, 2000, and uncertainty over state retail competition and stranded cost recovery.

04—Continue

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