10-QPeriod: Q1 FY2016

SOUTHERN CO Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 5, 2016For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

Southern Company (SO) reported its first quarter 2016 results, showcasing stable financial performance across its utility operations despite ongoing challenges with the Kemper IGCC project. The company continues to invest heavily in its construction program, including major generation facilities like Plant Vogtle Units 3 & 4 and the Kemper IGCC, funded through a mix of debt and equity. Key financial highlights include a slight decrease in net income for Alabama Power due to milder weather and increased interest expense, while Georgia Power saw an increase in net income driven by base rate adjustments and lower operating expenses. Mississippi Power's net income was significantly impacted by substantial pre-tax charges related to cost overruns on the Kemper IGCC project. Southern Power demonstrated strong growth in net income, largely due to increased renewable energy sales and tax benefits. Investors should monitor the progress and cost management of the large capital projects, particularly Kemper IGCC, and the pending AGL Resources merger for potential impacts on future earnings and financial flexibility.

Financial Highlights

45 data points
Beta

Revenue

$3.99B

Net Income

$501.00M

12.6% Net Margin

EPS (Diluted)

$0.53

Total Assets

$78.73B

Cash & Equivalents

$754.00M

Free Cash Flow

-$994.00M

Financial Statements
Beta
Revenue$3.99B
Operating Expenses$3.05B
Operating Income$940.00M
Net Income$501.00M
EPS (Basic)$0.53
EPS (Diluted)$0.53
Shares Outstanding (Basic)916.00M
Shares Outstanding (Diluted)922.00M

Key Highlights

  • 1Mississippi Power recorded substantial pre-tax charges of $53 million in Q1 2016 related to cost overruns on the Kemper IGCC project, bringing the aggregate charges to $2.47 billion.
  • 2Georgia Power's net income increased by 13.6% to $268 million, driven by rate increases and lower operating expenses, partially offset by milder weather impacting revenues.
  • 3Alabama Power's net income decreased by 8.3% to $155 million, primarily due to lower revenues from milder weather and increased interest expense.
  • 4Southern Power reported a 51.5% increase in net income to $50 million, benefiting from new solar and wind facilities and increased tax benefits from renewable energy credits.
  • 5Southern Company has a robust construction program, with total system capital expenditures estimated at $7.3 billion for 2016, $5.2 billion for 2017, and $5.5 billion for 2018.
  • 6The proposed acquisition of AGL Resources was approved by multiple state commissions, with closing conditions still pending, which is a significant strategic move for Southern Company.
  • 7Gulf Power faces a material negative impact on earnings from the expiration of wholesale capacity contracts for Plant Scherer Unit 3, with efforts underway to find alternative uses for the asset.

Frequently Asked Questions

The Kemper IGCC project continues to face significant cost overruns. Mississippi Power recorded $53 million in pre-tax charges in Q1 2016, bringing the aggregate charges to $2.47 billion. The company does not intend to seek rate recovery for costs exceeding the $2.88 billion cost cap. The project's estimated total cost is now $6.58 billion, and the in-service date is expected in Q3 2016. The SEC is also investigating accounting and internal controls related to the project.

Southern Company finances its capital needs through operating cash flows, short-term debt, term loans, and equity issuances. For the merger, the company expects to issue at least $8.0 billion in debt and $1.2 billion in equity during 2016 to fund the cash consideration and related expenses. A $8.1 billion bridge loan agreement is in place as a backstop for merger financing.

Construction of Plant Vogtle Units 3 & 4 continues, with Georgia Power owning a 45.7% interest. The estimated in-service capital cost forecast has been updated to $5.44 billion. Georgia Power is collecting financing costs through the NCCR tariff and expects to recover costs in excess of the certified amount if deemed reasonable and prudent by the Georgia PSC. A settlement agreement with the contractor was reached to resolve disputes and revise completion dates.

Gulf Power's earnings are significantly impacted by the expiration of wholesale capacity contracts for Plant Scherer Unit 3. As of June 2016, only 24% of the unit's capacity will remain contracted. Gulf Power is exploring alternatives such as rededicating the asset to retail customers or seeking replacement contracts, but the outcome is uncertain.