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SOUTHERN CO Annual Report, Year Ended Dec 31, 2005

Filing Date
Filed February 27, 2006
Period End
December 31, 2005
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 February 27, 2006. Cited figures are marked; the original filing is the authoritative source.

The Southern Company's 2005 Form 10-K, filed February 27, 2006, is a combined filing covering the parent and six operating subsidiaries (Alabama Power, Georgia Power, Gulf Power, Mississippi Power, Savannah Electric, and Southern Power).

Southern Company reported 2005 net income of $1.59 billiona, up 3.8% from $1.53 billion in 2004, with basic EPS of $2.14 versus $2.07, beating its $2.04–$2.09 target. Operating revenues rose to $13.55 billion (up about 15.6%), driven by higher fuel costs passed through to customers and base-rate increases in Georgia. The dividend was $1.475 per share for 2005, and the payout ratio was 69% overall and 73% excluding synthetic fuel earnings, against a target of about 70%.

The filing highlights several areas of risk for investors. Mirant's bankruptcy trustees and creditors filed a suit seeking more than $2 billionb in damages from Southern Company over alleged fraudulent transfers, which management says lacks merit. The EPA's New Source Review enforcement actions against Alabama Power, Georgia Power, and Savannah Electric remain unresolved.

Hurricanes Ivan, Dennis, and Katrina left storm-reserve deficits of about $366 millionc, and Mississippi Power alone estimates about $277 million in net Katrina costs. Fuel under-recoveries and the IRS challenge to SILO leases add further exposure.

Management also disclosed the planned merger of Savannah Electric into Georgia Power, expected by July 2006, and the sale of Southern Company Gas to Gas South for about $127 milliond. The Public Utility Holding Company Act was repealed effective February 8, 2006.

02—Key points

Key Highlights

  1. Net income of $1.59 billion in 2005, up 3.8%; basic EPS $2.14 versus $2.07 in 2004, above the $2.04–$2.09 target
  2. Electric operating revenues of $13.28 billion, up 15.8%, driven largely by fuel cost recovery and base-rate increases in Georgia
  3. Dividends of $1.475 per share in 2005; 233rd consecutive quarterly dividend equal to or higher than the prior quarter; payout ratio 69% overall, 73% excluding synthetic fuel
  4. Mirant bankruptcy estate and creditors seek more than $2 billion in damages from Southern Company over alleged fraudulent transfers, which Southern Company is vigorously contesting
  5. Storm-reserve deficits of about $366 million across the system after Hurricanes Ivan, Dennis, and Katrina, with recovery subject to state PSC approval
  6. Pending EPA New Source Review civil actions and Clean Air Act compliance costs; capital expenditures of $2.8 billion (2006) rising to $3.6 billion (2007)
  7. Planned merger of Savannah Electric into Georgia Power (expected by July 2006) and sale of Southern Company Gas to Gas South for approximately $127 million, completed January 4, 2006

03—Questions

Frequently Asked Questions

  1. How did Southern Company perform financially in 2005?

    Net income rose 3.8% to $1.59 billion and basic EPS reached $2.14, above the company's target range of $2.04–$2.09. Revenue growth came mainly from higher fuel recovery charges and Georgia base-rate increases, while non-fuel costs rose.

  2. What are the largest legal or financial risks disclosed?

    The biggest is the Mirant bankruptcy suit seeking over $2 billion in damages, along with EPA New Source Review actions, storm-cost recovery uncertainty totaling roughly $366 million in deficits, and the IRS challenge to SILO lease deductions with potential penalties and interest up to about $50 million.

  3. Is the dividend sustainable?

    Southern Company has paid dividends since 1948 and raised its quarterly rate to 37.25 cents in 2005. The payout ratio was 69% overall and 73% excluding synthetic fuel earnings, close to its 70% target, leaving limited room for growth without earnings gains.

  4. What corporate changes occurred in 2005–early 2006?

    Savannah Electric agreed to merge into Georgia Power, subject to FERC and Georgia PSC approval, with completion expected by July 2006. Southern Company Gas sold substantially all its assets to Gas South in January 2006, and the Public Utility Holding Company Act was repealed effective February 8, 2006.

04—Continue

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