10-QPeriod: Q1 FY2001

SOUTHERN CO Quarterly Report for Q1 Ended Mar 31, 2001

Filed May 15, 2001For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

Southern Company (SO) reported solid financial performance for the first quarter of 2001, with consolidated net income reaching $319.5 million, an increase of approximately 30% compared to the same period in 2000. Excluding discontinued operations related to the spin-off of Mirant, earnings from continuing operations also showed a significant rise, reflecting growth in retail and wholesale energy sales. The company is strategically repositioning itself to focus on its core Southeast utility businesses, competitive generation, and energy-related services. Despite an increase in operating expenses, particularly fuel and purchased power, the growth in revenues, driven by higher sales volumes and other revenue sources, more than offset these increases. Capital expenditures remained substantial, primarily for utility plant additions, funded through a combination of operating cash flows and long-term debt. The company also highlighted ongoing efforts to manage market risks and comply with evolving regulatory environments, including the adoption of new accounting standards for derivative instruments.

Key Highlights

  • 1Consolidated net income increased to $319.5 million from $245.4 million in the prior year's first quarter.
  • 2Earnings from continuing operations (excluding Mirant) rose to $179.5 million ($0.26/share) from $151.2 million ($0.23/share).
  • 3Total operating revenues increased by $217.9 million (10.6%) to $2,269.5 million, driven by higher retail, wholesale, and other revenues.
  • 4Operating expenses also increased, notably fuel costs by $83.4 million and purchased power by $39.6 million, reflecting higher energy demand and prices.
  • 5The company completed the spin-off of its remaining ownership in Mirant Corporation on April 2, 2001, with Mirant now reflected as discontinued operations.
  • 6Significant capital expenditures of $670.2 million were made for property additions, primarily for utility plant.
  • 7The company adopted FASB Statement No. 133, requiring derivative instruments to be recorded at fair value, with immaterial impact on net income for the quarter.

Frequently Asked Questions

The primary driver for the increase in Southern Company's net income was higher operating revenues, which outpaced the rise in operating expenses. This growth in revenue was largely attributed to increased retail and wholesale energy sales, alongside contributions from other revenue streams.

Southern Company completed the spin-off of its remaining Mirant shares on April 2, 2001. As a result, Mirant's financial results are reported as discontinued operations in Southern Company's first-quarter 2001 financial statements. This reclassification allows investors to better assess the performance of Southern Company's ongoing utility and energy-related businesses.

Following the Mirant spin-off, Southern Company is focusing on three core areas: its traditional integrated utility businesses in the Southeast, its growing competitive generation business across an eight-state region, and energy-related products and services for retail customers.

The adoption of FASB Statement No. 133, effective January 1, 2001, requires Southern Company and its subsidiaries to record derivative instruments on the balance sheet at fair market value, with changes in value recognized in earnings. While the cumulative effect of adoption was immaterial to net income for the quarter, it may lead to increased volatility in future earnings and comprehensive income as accounting for these instruments evolves.