10-QPeriod: Q3 FY2016

SOUTHERN CO Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 4, 2016For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

Southern Company (SO) reported a strong performance for the nine months ending September 29, 2016, with significant increases in net income driven by higher retail revenues across its operating companies, particularly Alabama Power and Georgia Power. These increases were bolstered by favorable weather conditions and rate adjustments. Southern Company's acquisition of Southern Company Gas in July 2016 was a major event, adding a new segment and diversifying the company's energy portfolio. While the integration is ongoing, the company noted that Southern Company Gas's operations are now included in consolidated financial statements. Across the subsidiaries, Southern Power showed substantial growth in operating revenues and net income, primarily due to new renewable energy project acquisitions and PPAs. Despite the overall positive financial results, Mississippi Power faced significant challenges due to its Kemper IGCC project, which continued to experience cost overruns and schedule delays, resulting in substantial charges to earnings. The company is actively managing these issues with regulatory bodies and has ongoing legal proceedings related to the project. Gulf Power's earnings were impacted by the expiration of wholesale contracts for Plant Scherer Unit 3, leading to a rate case filing to address cost recovery. Overall, the report highlights continued strategic investments in growth and renewable energy by Southern Power, alongside the integration of the natural gas business. However, investors should remain aware of the significant financial and operational challenges faced by Mississippi Power related to the Kemper IGCC project.

Financial Highlights

47 data points
Beta

Revenue

$6.26B

Net Income

$1.18B

18.8% Net Margin

EPS (Diluted)

$1.17

Total Assets

$106.36B

Cash & Equivalents

$2.67B

Free Cash Flow

$390.00M

Financial Statements
Beta
Revenue$6.26B
Operating Expenses$4.35B
Operating Income$1.92B
Net Income$1.18B
EPS (Basic)$1.18
EPS (Diluted)$1.17
Shares Outstanding (Basic)968.00M
Shares Outstanding (Diluted)975.00M

Key Highlights

  • 1Net income for the nine months ended September 30, 2016, increased significantly for Southern Company and its subsidiaries, driven by higher retail revenues and new renewable energy projects.
  • 2Southern Company completed the acquisition of Southern Company Gas on July 1, 2016, integrating a natural gas distribution business into its portfolio.
  • 3Southern Power demonstrated strong growth, with increased operating revenues and net income, attributed to the acquisition and construction of new solar and wind facilities.
  • 4Mississippi Power recorded substantial pre-tax charges related to cost revisions for the Kemper IGCC project, totaling $222 million for the nine months ended September 30, 2016.
  • 5Gulf Power's net income declined year-over-year, impacted by the expiration of wholesale capacity sales from Plant Scherer Unit 3, with a rate case filed to address cost recovery.
  • 6Alabama Power's net income increased by 18.6% in Q3 2016 compared to Q3 2015, driven by higher revenues and lower operating expenses.
  • 7Georgia Power's net income increased by 8.5% in Q3 2016 compared to Q3 2015, primarily due to higher base revenues and warmer weather.

Frequently Asked Questions

The acquisition of Southern Company Gas on July 1, 2016, was a significant event, adding a new natural gas distribution business segment to Southern Company's consolidated operations. While the integration is ongoing, the financial results of Southern Company Gas have been included in Southern Company's consolidated statements from the acquisition date, contributing to overall revenue and diversification.

Mississippi Power is facing significant challenges with the Kemper IGCC project, including substantial cost overruns and schedule delays. The company recorded pre-tax charges of $222 million for the nine months ended September 30, 2016, due to revisions in cost estimates exceeding the approved cost cap. The company is also subject to ongoing SEC investigations and legal proceedings related to the project's disclosures and costs.

Southern Power is actively pursuing a growth strategy focused on acquiring and constructing new solar and wind facilities. For the nine months ended September 30, 2016, it acquired or commenced construction on approximately 758 MWs of solar and wind facilities and has further commitments for approximately 674 MWs. This expansion is supported by long-term Power Purchase Agreements (PPAs), ensuring a high investment coverage ratio.

Gulf Power's financial performance was negatively impacted by the expiration of wholesale contracts for its ownership in Plant Scherer Unit 3, which had previously contributed significantly to its earnings. This led to a decline in net income and prompted Gulf Power to file a rate case with the Florida PSC to seek recovery of associated costs from its retail customers.