Southern Company reports third quarter earnings

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Oct 31, 2016, 07:10 ET

ATLANTA, Oct. 31, 2016 /PRNewswire/ -- Southern Company today reported third quarter 2016 earnings of $1.1 billion, or $1.18 per share, compared with earnings of $1.0 billion, or $1.05 per share, in the third quarter of 2015. For the nine months ended September 30, 2016, earnings were $2.2 billion, or $2.39 per share, compared with $2.1 billion, or $2.30 per share, for the same period in 2015.

Excluding the items described in the "Net Income – Excluding Items" table below, Southern Company earned $1.2 billion, or $1.28 per share, during the third quarter of 2016, compared with $1.1 billion, or $1.17 per share, during the third quarter of 2015. For the nine months ended September 30, 2016, excluding these items, Southern Company earned $2.5 billion, or $2.64 per share, compared with earnings of $2.2 billion, or $2.45 per share, for the same period in 2015.

Non-GAAP Financial Measures	Three Months Ended September		Year-to-Date September
Net Income - Excluding Items (in millions)	2016	2015	2016	2015
Net Income - As Reported	$1,145	$959	$2,242	$2,096
Estimated Loss on Kemper IGCC	63	150	197	182
Tax Impact	(24)	(57)	(76)	(70)
Acquisition and Integration Costs	43	16	107	16
Tax Impact	(14)	(4)	(34)	(4)
Additional MCAR Settlement Costs	-	-	-	7
Tax Impact	-	-	-	(3)
Subtotal	$1,213	$1,064	$2,436	$2,224
Earnings Guidance Comparability Items:
Equity Return Related to Kemper IGCC Schedule Extension	(7)	-	(7)	-
Tax Impact	(1)	-	(1)	-
Southern Company Gas Earnings,	(46)	-	(46)	-
net of Acquisition and Integration Costs	(46)	-	(46)	-
Tax Impact	18	-	18	-
Acquisition Debt Financing Costs	68	-	107	-
Tax Impact	(26)	-	(41)	-
Net Income – Excluding Items	$1,219	$1,064	$2,466	$2,224
Adjusted Average Shares Outstanding – Acquisition Financing (in millions)	954	910	935	910
Basic Earnings Per Share – Excluding Items	$1.28	$1.17	$2.64	$2.45

NOTE: For more information regarding these non-GAAP adjustments, see the footnotes accompanying the Financial Highlights page of the earnings package.

Earnings drivers for the third quarter of 2016 were positively influenced by warmer than normal weather, retail revenue effects at Southern Company's traditional electric operating companies and stronger-than-expected performance of its Southern Power subsidiary. Earnings were negatively influenced by increased shares outstanding.

"We are pleased with the performance of our electric and gas businesses so far this year, including the strong performance of our wholesale generation subsidiary, Southern Power," said Southern Company Chairman, President and CEO Thomas A. Fanning. "For the first time, our reported earnings include results from Southern Company Gas, including the recent investment in the Southern Natural Gas pipeline. With these investments and the recently announced strategic alliance between our PowerSecure subsidiary and Bloom Energy, Southern Company continues to build the future of energy for the benefit of the customers and communities we are privileged to serve."

Third quarter 2016 operating revenues were $6.3 billion, compared with $5.4 billion for the third quarter of 2015, an increase of 16.0 percent. Southern Company Gas accounted for $0.5 billion of the increase in operating revenues for the third quarter of 2016. For the nine months ended September 30, 2016, operating revenues were $14.7 billion, compared with $13.9 billion for the same period in 2015, an increase of 5.7 percent.

Southern Company's third quarter earnings slides with supplemental financial information, including its earnings estimate for the fourth quarter of 2016, earnings guidance for 2017 and the company's financial outlook for the next five years, are included in the October 31, 2016 Analyst Day materials available at http://investor.southerncompany.com.

Southern Company's Analyst Day presentation will begin at 8:45 a.m. Eastern Time today, during which Fanning, Chief Financial Officer Art P. Beattie and other members of the company's executive management team will discuss earnings, provide a general business update and discuss the company's long-term outlook. Investors, media and the public may listen to a live webcast of the call and view associated slides at http://investor.southerncompany.com/webcasts. A replay of the webcast will be available on the site for 12 months.

About Southern Company

Southern Company (NYSE: SO) is America's premier energy company, with 44,000 megawatts of generating capacity and 1,500 billion cubic feet of combined natural gas consumption and throughput volume serving 9 million electric and gas utility customers through its subsidiaries. The company provides clean, safe, reliable and affordable energy through electric utilities in four states, natural gas distribution utilities in seven states, a competitive generation company serving wholesale customers across America and a nationally recognized provider of customized energy solutions, as well as fiber optics and wireless communications. Southern Company brands are known for excellent customer service, high reliability and affordable prices that are below the national average. Through an industry-leading commitment to innovation, Southern Company and its subsidiaries are inventing America's energy future by developing the full portfolio of energy resources, including carbon-free nuclear, 21^st century coal, natural gas, renewables and energy efficiency, and creating new products and services for the benefit of customers. Southern Company has been named by the U.S. Department of Defense and G.I. Jobs magazine as a top military employer, recognized among the Top 50 Companies for Diversity by DiversityInc, listed by Black Enterprise magazine as one of the 40 Best Companies for Diversity and designated a Top Employer for Hispanics by Hispanic Network. The company has earned a National Award of Nuclear Science and History from the National Atomic Museum Foundation for its leadership and commitment to nuclear development and is continually ranked among the top utilities in Fortune's annual World's Most Admired Electric and Gas Utility rankings. Visit our website at www.southerncompany.com.



Southern Company
Financial Highlights
*(In Millions of Dollars Except Earnings Per Share)*

	Three Months Ended September				Year-to-Date September
Net Income–As Reported (See Notes)	2016		2015		2016		2015

Traditional Electric Operating Companies	$	1,033	$	874	$	2,092	$	1,912
Southern Power	176		102		315		181
Southern Company Gas	4		—		4		—
Total	1,213		976		2,411		2,093
Parent Company and Other	(68)		(17)		(169)		3
Net Income–As Reported	$	1,145	$	959	$	2,242	$	2,096

Basic Earnings Per Share¹	$	1.18	$	1.05	$	2.39	$	2.30

Average Shares Outstanding (in millions)	968		910		940		910
End of Period Shares Outstanding (in millions)					980		909

Non-GAAP Financial Measures	Three Months Ended September				Year-to-Date September
Net Income–Excluding Items (See Notes)	2016		2015		2016		2015

Net Income–As Reported	$	1,145	$	959	$	2,242	$	2,096
Estimated Loss on Kemper IGCC²	63		150		197		182
Tax Impact	(24)		(57)		(76)		(70)
Acquisition and Integration Costs³	43		16		107		16
Tax Impact	(14)		(4)		(34)		(4)
Additional MCAR Settlement Costs⁴	—		—		—		7
Tax Impact	—		—		—		(3)
Subtotal	$	1,213	$	1,064	$	2,436	$	2,224
Earnings Guidance Comparability Items:
Equity Return Related to Kemper IGCC Schedule Extension⁵		(7)	—			(7)	—
Tax Impact	(1)		—		(1)		—
Southern Company Gas Earnings, net of Acquisition and Integration Costs⁶	(46)		—		(46)		—
Tax Impact	18		—		18		—
Acquisition Debt Financing Costs⁶	68		—		107		—
Tax Impact	(26)		—		(41)		—
Net Income–Excluding Items	$	1,219	$	1,064	$	2,466	$	2,224

Adjusted Average Shares Outstanding - Acquisition Financing⁶(in millions)	954		910		935		910

Basic Earnings Per Share–Excluding Items	$	1.28	$	1.17	$	2.64	$	2.45

Notes

- All figures in this earnings release are preliminary and remain subject to the completion of normal quarter-end accounting procedures and adjustments, which could result in changes to these preliminary results. In addition, certain classifications and rounding may be different from final results published in the Form 10-Q.

-See Notes on the following page.

Southern Company

Financial Highlights

Notes

(1) For the three and nine months ended September 30, 2016 and 2015, dilution does not change basic earnings per share by more than 2 cents and is not material.

(2) The estimated probable losses relating to Mississippi Power Company's construction of the integrated coal gasification combined cycle facility in Kemper County, Mississippi (Kemper IGCC) significantly impacted the presentation of earnings and earnings per share for the three and nine months ended September 30, 2016 and 2015. Similar charges of uncertain amounts may occur with uncertain frequency in future periods.

(3) Earnings for the three and nine months ended September 30, 2016 and 2015 include costs related to the acquisition of Southern Company Gas and earnings for the three and nine months ended September 30, 2016 include costs related to the acquisitions of PowerSecure International, Inc. and the 50% interest in Southern Natural Gas Company, L.L.C. (SNG). Further costs are expected to continue to occur in connection with the related integration activities; however, the amount and duration of such expenditures is uncertain.

(4) Earnings for the nine months ended September 30, 2015 include additional costs related to the discontinued operations of Mirant Corporation and the March 2009 litigation settlement with MC Asset Recovery, LLC. Further charges are not expected to occur.

(5) Earnings for the three and nine months ended September 30, 2016 include additional allowance for funds used during construction (AFUDC) equity as a result of extending the schedule for the Kemper IGCC construction project. Southern Company's February 2016 earnings guidance assumed construction would be complete and AFUDC equity would cease by August 31, 2016. As a result, Southern Company believes presentation of earnings per share excluding these amounts provides investors with information comparable to the February guidance. Management also uses such measures to evaluate Southern Company's performance in 2016.

(6) Earnings for the three and nine months ended September 30, 2016 include the earnings of Southern Company Gas since July 1, 2016 (the date of acquisition), as well as debt financing costs related to the acquisition. Earnings of Southern Company Gas since September 1, 2016 include amounts related to its acquisition of a 50% ownership interest in SNG. In addition, earnings per share for the three and nine months ended September 30, 2016 include the impact of 22,312,373 shares ($1.1 billion) of common stock issued in August 2016 to finance a portion of the purchase price for the SNG acquisition.

The timing of completion of the acquisition of Southern Company Gas was uncertain at the time Southern Company issued earnings per share guidance in February 2016, and Southern Company's agreement to acquire a 50% interest in SNG did not occur until July 2016. Accordingly, Southern Company's February 2016 guidance did not reflect any earnings contribution from these acquisitions or the financing costs related to the acquisitions. As a result, Southern Company believes presentation of earnings per share excluding these items provides investors with information comparable to the February guidance. Management also uses such measures to evaluate Southern Company's performance in 2016.

In addition to earnings and earnings per share calculated in accordance with U.S. generally accepted accounting principles (GAAP), Southern Company intends to continue to present earnings and earnings per share excluding the impact of the Wholesale Gas Services business of Southern Company Gas in future periods. Presenting earnings and earnings per share excluding Wholesale Gas Services provides investors with an additional measure of operating performance that excludes volatility that results from mark-to-market and lower of weighted average cost or current market price accounting adjustments. Management also expects to use earnings and earnings per share excluding Wholesale Gas Services to evaluate Southern Company's performance. For the three and nine months ended September 30, 2016, the loss from Wholesale Gas Services and the related tax benefit were $18 million and $7 million, respectively.

Southern Company

Significant Factors Impacting EPS

Three Months Ended
September

Year-to-Date
September

2016

2015

Change

2016

2015

Change

Earnings Per Share–

As Reported¹(See Notes)

1.18

1.05

0.13

2.39

2.30

0.09

Significant Factors:

Traditional Electric Operating Companies

0.18

0.20

Southern Power

0.08

0.15

Southern Company Gas

0.01

Parent Company and Other

(0.06)

(0.19)

Increase in Shares

(0.08)

Total–As Reported

0.13

0.09

Three Months Ended
September

Year-to-Date
September

Non-GAAP Financial Measures

2016

2015

Change

2016

2015

Change

Earnings Per Share–

Excluding Items (See Notes)

1.28

1.17

0.11

2.64

2.45

0.19

Total–As Reported

0.13

0.09

Estimated Loss on Kemper IGCC²

(0.07)

—

Acquisition and Integration Costs³

0.02

0.07

Additional MCAR Settlement Costs⁴

—

(0.01)

Equity Return Related to Kemper IGCC
Schedule Extension⁵

(0.01)

Southern Company Gas Earnings,

net of Acquisition and Integration Costs⁶

(0.03)

Acquisition Debt Financing Costs⁶

0.05

0.07

Additional Shares Issued for SNG Acquisition⁶

0.02

0.01

Total–Excluding Items

0.11

0.19

Notes

- All figures in this earnings release are preliminary and remain subject to the completion of normal quarter-end accounting procedures and adjustments, which could result in changes to these preliminary results. In addition, certain classifications and rounding may be different from final results published in the Form 10-Q.

- See Notes on the following page.

Southern Company

Significant Factors Impacting EPS

Notes

(1) For the three and nine months ended September 30, 2016 and 2015, dilution does not change basic earnings per share by more than 2 cents and is not material.



	Southern Company
	EPS Earnings Analysis
	Three Months Ended September 2016 vs. September 2015

Cents	Description

(2)¢	Retail Sales

8	Retail Revenue Impacts

11	Weather

(1)	Wholesale Operations

1	Other Operating Revenues

(1)	Non-Fuel O&M

(1)	Depreciation and Amortization

(1)	Taxes Other Than Income Taxes

(2)	Other Income and Deductions

(1)	Interest Expense

11¢	Total Traditional Electric Operating Companies

8¢	Southern Power

(2)¢	Parent and Other (Excluding Items)¹

(6)¢	Increase in Shares (Excluding Items)²

11¢	Total Change in QTD EPS (Excluding Items)

7	Estimated Loss on Kemper IGCC³

(2)	Acquisition and Integration Costs⁴

1	Equity Return Related to Kemper IGCC Schedule Extension⁵

3	Southern Company Gas Earnings, net of Acquisition and Integration Costs⁶

(5)	Acquisition Debt Financing Costs⁶

(2)	Increase in Shares Issued for the Acquisition of a 50% Interest in SNG⁶

13¢	Total Change in QTD EPS (As Reported)

Notes

- All figures in this earnings release are preliminary and remain subject to the completion of normal quarter-end accounting procedures and adjustments, which could result in changes to these preliminary results. In addition, certain classifications and rounding may be different from final results published in the Form 10-Q.

- See Notes on the following page.



Southern Company
EPS Earnings Analysis
Three Months Ended September 2016 vs. September 2015
Notes

(1) Excludes Acquisition Debt Financing Costs, which are identified separately in the table.

(2) Excludes the impact of 22,312,373 shares ($1.1 billion) of common stock issued in August 2016 to finance a portion of the purchase price for the Southern Natural Gas Company, L.L.C. (SNG) acquisition which is identified separately in the table.

(3) The estimated probable losses relating to Mississippi Power Company's construction of the integrated coal gasification combined cycle facility in Kemper County, Mississippi (Kemper IGCC) significantly impacted the presentation of earnings and earnings per share for the three months ended September 30, 2016 and 2015. Similar charges of uncertain amounts may occur with uncertain frequency in future periods.

(4) Earnings for the three months ended September 30, 2016 and 2015 include costs related to the acquisition of Southern Company Gas and earnings for the three months ended September 30, 2016 include costs related to the acquisitions of PowerSecure International, Inc. and the 50% interest in SNG. Further costs are expected to continue to occur in connection with the related integration activities; however, the amount and duration of such expenditures is uncertain.

(5) Earnings for the three and nine months ended September 30, 2016 include additional allowance for funds used during construction (AFUDC) equity as a result of extending the schedule for the Kemper IGCC construction project. Southern Company's February 2016 earnings guidance assumed construction would be complete and AFUDC equity would cease by August 31, 2016. As a result, Southern Company believes presentation of earnings per share excluding these amounts provides investors with information comparable to the February guidance. Management also uses such measures to evaluate Southern Company's performance in 2016.

(6) Earnings for the three months ended September 30, 2016 include the earnings of Southern Company Gas since July 1, 2016 (the date of acquisition), as well as debt financing costs related to the acquisition. Earnings of Southern Company Gas since September 1, 2016 include amounts related to its acquisition of a 50% ownership interest in SNG. In addition, earnings per share for the three months ended September 30, 2016 include the impact of 22,312,373 shares ($1.1 billion) of common stock issued in August 2016 to finance a portion of the purchase price for the SNG acquisition. The timing of completion of the acquisition of Southern Company Gas was uncertain at the time Southern Company issued earnings per share guidance in February 2016, and Southern Company's agreement to acquire a 50% interest in SNG did not occur until July 2016. Accordingly, Southern Company's February 2016 guidance did not reflect any earnings contribution from these acquisitions or the financing costs related to the acquisitions. As a result, Southern Company believes presentation of earnings per share excluding these items provides investors with information comparable to the February guidance. Management also uses such measures to evaluate Southern Company's performance in 2016. In addition to earnings and earnings per share calculated in accordance with U.S. generally accepted accounting principles (GAAP), Southern Company intends to continue to present earnings and earnings per share excluding the impact of the Wholesale Gas Services business of Southern Company Gas in future periods. Presenting earnings and earnings per share excluding Wholesale Gas Services provides investors with an additional measure of operating performance that excludes the volatility that results from mark-to-market and lower of weighted average cost or current market price accounting adjustments. Management also expects to use earnings and earnings per share excluding Wholesale Gas Services to evaluate Southern Company's performance. For the three months ended September 30, 2016, the loss from Wholesale Gas Services and the related tax benefit were $18 million and $7 million, respectively.


Southern Company
Consolidated Earnings
As Reported
*(In Millions of Dollars)*

	Three Months Ended September						Year-to-Date September
	2016		2015		Change		2016		2015		Change
Income Account-
Retail Electric Revenues-
Fuel	$	1,296	$	1,432	$	(136)	$	3,169	$	3,651	$	(482)
Non-Fuel	3,512		3,269		243		8,763		8,307		456
Wholesale Electric Revenues	613		520		93		1,455		1,435		20
Other Electric Revenues	181		169		12		529		494		35
Natural Gas Revenues	518		—		518		518		—		518
Other Revenues	144		11		133		281		34		247
Total Revenues	6,264		5,401		863		14,715		13,921		794
Fuel and Purchased Power	1,627		1,713		(86)		3,915		4,439		(524)
Cost of Natural Gas	133		—		133		133		—		133
Cost of Other Sales	84		—		84		161		—		161
Non-Fuel O & M	1,411		1,097		314		3,616		3,320		296
Depreciation and Amortization	695		528		167		1,805		1,515		290
Taxes Other Than Income Taxes	309		264		45		821		761		60
Estimated Loss on Kemper IGCC	63		150		(87)		197		182		15
Total Operating Expenses	4,322		3,752		570		10,648		10,217		431
Operating Income	1,942		1,649		293		4,067		3,704		363
Allowance for Equity Funds Used During Construction	52		60		(8)		150		163		(13)
Interest Expense, Net of Amounts Capitalized	374		218		156		913		612		301
Other Income (Expense), net	21		(21)		42		(38)		(41)		3
Income Taxes	458		500		(42)		951		1,076		(125)
Net Income	1,183		970		213		2,315		2,138		177
Less:
Dividends on Preferred and Preference Stock of Subsidiaries	11		11		—		34		42		(8)
Net Income Attributable to Noncontrolling Interests	27		—		27		39		—		39
NET INCOME ATTRIBUTABLE TO SOUTHERN COMPANY	$	1,145	$	959	$	186	$	2,242	$	2,096	$	146

Notes
- Certain prior year data may have been reclassified to conform with current year presentation.

- All figures in this earnings release are preliminary and remain subject to the completion of normal quarter-end accounting procedures and adjustments, which could result in changes to these preliminary results. In addition, certain classifications and rounding may be different from final results published in the Form 10-Q.


Southern Company
Kilowatt-Hour Sales
*(In Millions of KWHs)*

	Three Months Ended September						Year-to-Date September
As Reported	2016	2015	Change		Weather Adjusted Change		2016	2015	Change		Weather Adjusted Change*
Kilowatt-Hour Sales-
Total Sales	58,051	54,921	5.7	%			151,099	149,044	1.4	%

Total Retail Sales-	47,071	45,614	3.2	%	(1.4)	%	124,535	124,895	(0.3)	%	(0.8)	%
Residential	17,213	15,801	8.9	%	(0.4)	%	42,257	41,925	0.8	%	0.2	%
Commercial	15,805	15,289	3.4	%	(0.7)	%	41,509	41,359	0.4	%	(0.6)	%
Industrial	13,833	14,305	(3.3)	%	(3.3)	%	40,102	40,938	(2.0)	%	(2.1)	%
Other	220	219	0.7	%	0.7	%	667	673	(1.0)	%	(0.9)	%

Total Wholesale Sales	10,980	9,307	18.0	%	N/A		26,564	24,149	10.0	%	N/A

Note
*Also reflects adjustment of 2015 KWH sales consistent with Mississippi Power's updated methodology to estimate the unbilled revenue allocation among customer classes implemented in the first quarter 2015.


Southern Company
Financial Overview
As Reported
*(In Millions of Dollars)*

	Three Months Ended September						Year-to-Date September
	2016		2015		% Change		2016		2015		% Change
Southern Company –
Operating Revenues	$	6,264	$	5,401	16.0	%	$	14,715	$	13,921	5.7	%
Earnings Before Income Taxes	1,641		1,470		11.6	%	3,266		3,214		1.6	%
Net Income Available to Common	1,145		959		19.4	%	2,242		2,096		7.0	%

Alabama Power –
Operating Revenues	$	1,785	$	1,695	5.3	%	$	4,561	$	4,551	0.2	%
Earnings Before Income Taxes	575		491		17.1	%	1,196		1,113		7.5	%
Net Income Available to Common	350		295		18.6	%	717		665		7.8	%

Georgia Power –
Operating Revenues	$	2,698	$	2,691	0.3	%	$	6,621	$	6,685	(1.0)	%
Earnings Before Income Taxes	967		892		8.4	%	1,964		1,734		13.3	%
Net Income Available to Common	598		551		8.5	%	1,214		1,064		14.1	%

Gulf Power –
Operating Revenues	$	436	$	429	1.6	%	$	1,136	$	1,170	(2.9)	%
Earnings Before Income Taxes	77		81		(4.9)	%	189		202		(6.4)	%
Net Income Available to Common	45		48		(6.3)	%	108		120		(10.0)	%

Mississippi Power –
Operating Revenues	$	352	$	341	3.2	%	$	885	$	893	(0.9)	%
Earnings (Loss) Before Income Taxes	48		(52)		N/M		35		52		(32.7)	%
Net Income (Loss) Available to Common	41		(21)		N/M		54		62		(12.9)	%

Southern Power –
Operating Revenues	$	500	$	401	24.7	%	$	1,189	$	1,086	9.5	%
Earnings Before Income Taxes	101		112		(9.8)	%	187		210		(11.0)	%
Net Income Available to Common	176		102		72.5	%	315		181		74.0	%

Southern Company Gas –
Operating Revenues	$	543	$	—	N/A		$	543	$	—	N/A
Earnings Before Income Taxes	11		—		N/A		11		—		N/A
Net Income Available to Common	4		—		N/A		4		—		N/A

N/M - not meaningful
N/A - not applicable

Note
- All figures in this earnings release are preliminary and remain subject to the completion of normal quarter-end accounting procedures and adjustments, which could result in changes to these preliminary results. In addition, certain classifications and rounding may be different from final results published in the Form 10-Q.