Southern Company reports fourth-quarter and full-year 2017 earnings

Non-GAAP Financial Measures

Three Months Ended December

Year-to-Date December

Net Income - Excluding Items (in millions)

2017

2016

2017

2016

Net Income - As Reported

$496

$197

$842

$2,448

Estimated Loss on Kemper IGCC

211

206

3,366

428

  Tax Impact

(25)

(79)

(975)

(164)

Loss on Plant Scherer Unit 3

-

-

33

-

  Tax Impact

-

-

(13)

-

Acquisition and Integration Costs

16

12

35

120

  Tax Impact

10

(4)

12

(38)

Wholesale Gas Services

105

(15)

57

4

  Tax Impact

(20)

4

-

(4)

Earnings Guidance Comparability Items:

Equity Return Related to Kemper IGCC

    Schedule Extension

-

(22)

(47)

(29)

       Tax Impact

-

(4)

(9)

(5)

Tax Reform

(284)

-

(284)

-

Net Income – Excluding Items

$509

$295

$3,017

$2,760

         Average Shares Outstanding – (in millions)                       

1,007

986

1,000

951

Basic Earnings Per Share – Excluding Items

$0.51

$0.30

$3.02

$2.90

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

Southern Company

Financial Highlights

(In Millions of Dollars Except Earnings Per Share)

Three Months Ended
December

Year-to-Date

December

Net Income–As Reported (See Notes)

2017

2016

2017

2016

  Traditional Electric Operating Companies

$

(191)

$

147

$

(193)

$

2,233

  Southern Power

795

23

1,071

338

Southern Company Gas¹

(60)

110

243

114

  Total

544

280

1,121

2,685

  Parent Company and Other

(48)

(83)

(279)

(237)

  Net Income–As Reported

$

496

$

197

$

842

$

2,448

  Basic Earnings Per Share²

$

0.49

$

0.20

$

0.84

$

2.57

  Average Shares Outstanding (in millions)

1,007

986

1,000

951

  End of Period Shares Outstanding (in millions)

1,008

990

Non-GAAP Financial Measures

Three Months Ended
December

Year-to-Date
December

Net Income–Excluding Items (See Notes)

2017

2016

2017

2016

  Net Income–As Reported

$

496

$

197

$

842

$

2,448

Estimated Loss on Kemper IGCC³

211

206

3,366

428

Tax Impact

(25)

(79)

(975)

(164)

Loss on Plant Scherer Unit 3⁴

—

—

33

—

Tax Impact

—

—

(13)

—

Acquisition and Integration Costs⁵

16

12

35

120

Tax Impact

10

(4)

12

(38)

Wholesale Gas Services⁶

105

(15)

57

4

Tax Impact

(20)

4

—

(4)

Earnings Guidance Comparability Items:

Equity Return Related to Kemper IGCC

   Schedule Extension⁷

—

(22)

(47)

(29)

Tax Impact

—

(4)

(9)

(5)

Tax Reform⁸

(284)

—

(284)

—

  Net Income–Excluding Items

$

509

$

295

$

3,017

$

2,760

  Basic Earnings Per Share–Excluding Items

$

0.51

$

0.30

$

3.02

$

2.90

-See Notes on the following page.

Southern Company

Financial Highlights

Notes

- For comparative purposes, Net Income - Excluding Items and Basic Earnings Per Share - Excluding Items in prior year periods do not reflect any adjustments to exclude (1) Southern Company Gas earnings, net of acquisition and integration costs and Wholesale Gas Services ($0.10 and $0.15 per share for the three and twelve months ended December 31, 2016, respectively), (2) acquisition debt financing costs related to the acquisition of Southern Company Gas ($0.04 and $0.11 per share for the three and twelve months ended December 31, 2016, respectively), and (3) the impact of additional shares of common stock issued to finance a portion of the purchase price for the 50% interest in Southern Natural Gas Company, L.L.C. ($0.01 and $0.03 per share for the three and twelve months ended December 31, 2016, respectively). These items were not contemplated in Southern Company's February 2016 guidance and, therefore, were previously excluded in the periods through December 31, 2016.

(1) On July 1, 2016, Southern Company completed the acquisition of Southern Company Gas.

(2) For the three and twelve months ended December 31, 2017 and 2016, dilution does not change basic earnings per share by more than 2 cents and is not material.

(3) Earnings for the three and twelve months ended December 31, 2017 and 2016 include charges related to Mississippi Power Company's integrated coal gasification combined cycle facility construction project in Kemper County, Mississippi (Kemper IGCC) which significantly impacted the presentation of earnings and earnings per share. These charges for the three and twelve months ended December 31, 2017 include $4 million of related legal expenses, recorded as operations and maintenance expenses. Additional cancellation costs of approximately $50 million to $100 million pretax are expected to occur in future periods.

(4) Earnings for the twelve months ended December 31, 2017 include a $32.5 million write-down ($20 million after tax) of Gulf Power Company's ownership of Plant Scherer Unit 3 as a result of the retail rate case settlement approved by the Florida Public Service Commission on April 4, 2017. Further charges are not expected to occur.

(5) Earnings for the three and twelve months ended December 31, 2017 and 2016 include costs related to the acquisition and integration of Southern Company Gas and earnings for the three and twelve months ended December 31, 2017 include costs related to the pending dispositions of Elizabethtown Gas and Elkton Gas. Further costs are expected to continue to occur in connection with integration activities and closing the dispositions; however, the amount and duration of such expenditures is uncertain.

(6) Earnings for the three and twelve months ended December 31, 2017 and 2016 include the Wholesale Gas Services business of Southern Company Gas. Presenting earnings and earnings per share excluding Wholesale Gas Services provides investors with an additional measure of operating performance that excludes the volatility resulting from mark-to-market and lower of weighted average cost or current market price accounting adjustments.

(7) Earnings for the twelve months ended December 31, 2017 and the three and twelve months ended December 31, 2016 include additional allowance for funds used during construction (AFUDC) equity as a result of extending the schedule for the Kemper IGCC construction project. AFUDC equity ceased in connection with the project's suspension in June 2017. Southern Company's 2017 earnings guidance, initially presented in October 2016, assumed construction would be complete and AFUDC equity would cease by November 30, 2016. Southern Company's 2016 earnings guidance, initially presented in February 2016, 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 AFUDC equity subsequent to August 31, 2016 provides investors with information comparable to guidance. Management also uses such measures to evaluate Southern Company's performance.

(8) Earnings for the three and twelve months ended December 31, 2017 include the net tax benefit as a result of federal tax reform legislation, which was signed into law on December 22, 2017. Southern Company's 2017 earnings guidance, initially presented in October 2016, assumed no changes to tax laws. As a result, Southern Company believes presentation of earnings per share excluding this net tax benefit provides investors with information comparable to guidance. Management also uses such measures to evaluate Southern Company's performance. The impact of federal tax reform legislation ($21 million) on the Wholesale Gas Services business of Southern Company Gas is included in the adjustment above for Wholesale Gas Services.

Southern Company

Significant Factors Impacting EPS

Three Months Ended
December

Year-to-Date
December

2017

2016

Change

2017

2016

Change

Earnings Per Share–

As Reported¹ (See Notes)

$

0.49

$

0.20

$

0.29

$

0.84

$

2.57

$

(1.73)

  Significant Factors:

  Traditional Electric Operating Companies

$

(0.34)

$

(2.55)

Southern Power

0.78

0.77

Southern Company Gas²

(0.17)

0.13

Parent Company and Other

0.03

(0.04)

Increase in Shares

(0.01)

(0.04)

  Total–As Reported

$

0.29

$

Three Months Ended
December

Year-to-Date
December

Non-GAAP Financial Measures

2017

2016

Change

2017

2016

Change

Earnings Per Share–

Excluding Items (See Notes)

$

0.51

$

0.30

$

0.21

$

3.02

$

2.90

$

0.12

  Total–As Reported

$

0.29

$

(1.73)

Kemper IGCC Impacts³

0.09

2.09

Loss on Plant Scherer Unit 3⁴

—

0.02

Acquisition and Integration Costs⁵

0.02

(0.04)

Wholesale Gas Services⁶

0.09

0.06

Tax Reform⁷

(0.28)

(0.28)

  Total–Excluding Items

$

0.21

$

0.12

- See Notes on the following page.

Southern Company

Significant Factors Impacting EPS

Notes

- For comparative purposes, Net Income - Excluding Items and Basic Earnings Per Share - Excluding Items in prior year periods do not reflect any adjustments to exclude (1) Southern Company Gas earnings, net of acquisition and integration costs and Wholesale Gas Services ($0.10 and $0.15 per share for the three and twelve months ended December 31, 2016, respectively), (2) acquisition debt financing costs related to the acquisition of Southern Company Gas ($0.04 and $0.11 per share for the three and twelve months ended December 31, 2016, respectively), and (3) the impact of additional shares of common stock issued to finance a portion of the purchase price for the 50% interest in Southern Natural Gas Company, L.L.C. ($0.01 and $0.03 per share for the three and twelve months ended December 31, 2016, respectively). These items were not contemplated in Southern Company's February 2016 guidance and, therefore, were previously excluded in the periods through December 31, 2016.

(1) For the three and twelve months ended December 31, 2017 and 2016, dilution does not change basic earnings per share by more than 2 cents and is not material.

(2) On July 1, 2016, Southern Company completed the acquisition of Southern Company Gas.

(3) Earnings for the three and twelve months ended December 31, 2017 and 2016 include charges related to Mississippi Power Company's integrated coal gasification combined cycle facility construction project in Kemper County, Mississippi (Kemper IGCC) which significantly impacted the presentation of earnings and earnings per share. These charges for the three and twelve months ended December 31, 2017 include $4 million of related legal expenses, recorded as operations and maintenance expenses. Additional cancellation costs of approximately $50 million to $100 million pretax are expected to occur in future periods.

Earnings for the twelve months ended December 31, 2017 and the three and twelve months ended December 31, 2016 include additional allowance for funds used during construction (AFUDC) equity as a result of extending the schedule for the Kemper IGCC construction project. AFUDC equity ceased in connection with the project's suspension in June 2017. Southern Company's 2017 earnings guidance, initially presented in October 2016, assumed construction would be complete and AFUDC equity would cease by November 30, 2016. Southern Company's 2016 earnings guidance, initially presented in February 2016, 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 AFUDC equity subsequent to August 31, 2016 provides investors with information comparable to guidance. Management also uses such measures to evaluate Southern Company's performance.

(4) Earnings for the twelve months ended December 31, 2017 include a $32.5 million write-down ($20 million after tax) of Gulf Power Company's ownership of Plant Scherer Unit 3 as a result of the retail rate case settlement approved by the Florida Public Service Commission on April 4, 2017. Further charges are not expected to occur.

(5) Earnings for the three and twelve months ended December 31, 2017 and 2016 include costs related to the acquisition and integration of Southern Company Gas and earnings for the three and twelve months ended December 31, 2017 include costs related to the pending dispositions of Elizabethtown Gas and Elkton Gas. Further costs are expected to continue to occur in connection with integration activities and closing the dispositions; however, the amount and duration of such expenditures is uncertain.

(6) Earnings for the three and twelve months ended December 31, 2017 and 2016 include the Wholesale Gas Services business of Southern Company Gas. Presenting earnings and earnings per share excluding Wholesale Gas Services provides investors with an additional measure of operating performance that excludes the volatility resulting from mark-to-market and lower of weighted average cost or current market price accounting adjustments.

(7) Earnings for the three and twelve months ended December 31, 2017 include the net tax benefit as a result of federal tax reform legislation, which was signed into law on December 22, 2017. Southern Company's 2017 earnings guidance, initially presented in October 2016, assumed no changes to tax laws. As a result, Southern Company believes presentation of earnings per share excluding this net tax benefit provides investors with information comparable to guidance. Management also uses such measures to evaluate Southern Company's performance. The impact of federal tax reform legislation ($21 million) on the Wholesale Gas Services business of Southern Company Gas is included in the adjustment above for Wholesale Gas Services.

Southern Company

EPS Earnings Analysis

Description

Three Months Ended
December 
2017 vs. 2016

Retail Sales

$

0.02

Retail Revenue Impacts

0.09

0.32

Weather

0.04

(0.18)

Wholesale Operations

—

(0.01)

Other Operating Revenues

0.01

—

Non-Fuel O&M

0.04

0.15

Purchased Power Capacity Expense

—

0.01

Depreciation and Amortization

(0.02)

(0.05)

Taxes Other Than Income Taxes

(0.01)

—

Other Income and Deductions

(0.02)

(0.08)

Income Taxes

(0.01)

(0.03)

Total Traditional Electric Operating Companies

$

0.14

$

0.09

Southern Power

0.04

—

Southern Company Gas¹

0.04

0.31

Parent and Other

—

(0.12)

Increase in Shares

(0.01)

(0.16)

Total Change in EPS (Excluding Items)

$

0.21

$

0.12

Kemper IGCC Impacts²

(0.09)

(2.09)

Loss on Plant Scherer Unit 3³

—

(0.02)

Acquisition and Integration Costs⁴

(0.02)

0.04

Wholesale Gas Services⁵

(0.09)

(0.06)

Tax Reform⁶

0.28

0.28

Total Change in EPS (As Reported)

$

0.29

$

- See Notes on the following page.

Southern Company

EPS Earnings Analysis

Three and Twelve Months Ended December 2017 vs. December 2016

Notes

- For comparative purposes, Net Income - Excluding Items and Basic Earnings Per Share - Excluding Items in prior year periods do not reflect any adjustments to exclude (1) Southern Company Gas earnings, net of acquisition and integration costs and Wholesale Gas Services ($0.10 and $0.15 per share for the three and twelve months ended December 31, 2016, respectively), (2) acquisition debt financing costs related to the acquisition of Southern Company Gas ($0.04 and $0.11 per share for the three and twelve months ended December 31, 2016, respectively), and (3) the impact of additional shares of common stock issued to finance a portion of the purchase price for the 50% interest in Southern Natural Gas Company, L.L.C. ($0.01 and $0.03 per share for the three and twelve months ended December 31, 2016, respectively). These items were not contemplated in Southern Company's February 2016 guidance and, therefore, were previously excluded in the periods through December 31, 2016.

(1) On July 1, 2016, Southern Company completed the acquisition of Southern Company Gas.

(2) Earnings for the three and twelve months ended December 31, 2017 and 2016 include charges related to Mississippi Power Company's integrated coal gasification combined cycle facility construction project in Kemper County, Mississippi (Kemper IGCC) which significantly impacted the presentation of earnings and earnings per share. These charges for the three and twelve months ended December 31, 2017 include $4 million of related legal expenses, recorded as operations and maintenance expenses. Additional cancellation costs of approximately $50 million to $100 million pretax are expected to occur in future periods.

Earnings for the twelve months ended December 31, 2017 and the three and twelve months ended December 31, 2016 include additional allowance for funds used during construction (AFUDC) equity as a result of extending the schedule for the Kemper IGCC construction project. AFUDC equity ceased in connection with the project's suspension in June 2017. Southern Company's 2017 earnings guidance, initially presented in October 2016, assumed construction would be complete and AFUDC equity would cease by November 30, 2016. Southern Company's 2016 earnings guidance, initially presented in February 2016, 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 AFUDC equity subsequent to August 31, 2016 provides investors with information comparable to guidance. Management also uses such measures to evaluate Southern Company's performance.

(3) Earnings for the twelve months ended December 31, 2017 include a $32.5 million write-down ($20 million after tax) of Gulf Power Company's ownership of Plant Scherer Unit 3 as a result of the retail rate case settlement approved by the Florida Public Service Commission on April 4, 2017. Further charges are not expected to occur.

(4) Earnings for the three and twelve months ended December 31, 2017 and 2016 include costs related to the acquisition and integration of Southern Company Gas and earnings for the three and twelve months ended December 31, 2017 include costs related to the pending dispositions of Elizabethtown Gas and Elkton Gas. Further costs are expected to continue to occur in connection with integration activities and closing the dispositions; however, the amount and duration of such expenditures is uncertain.

(5) Earnings for the three and twelve months ended December 31, 2017 and 2016 include the Wholesale Gas Services business of Southern Company Gas. Presenting earnings and earnings per share excluding Wholesale Gas Services provides investors with an additional measure of operating performance that excludes the volatility resulting from mark-to-market and lower of weighted average cost or current market price accounting adjustments.

(6) Earnings for the three and twelve months ended December 31, 2017 include the net tax benefit as a result of federal tax reform legislation, which was signed into law on December 22, 2017. Southern Company's 2017 earnings guidance, initially presented in October 2016, assumed no changes to tax laws. As a result, Southern Company believes presentation of earnings per share excluding this net tax benefit provides investors with information comparable to guidance. Management also uses such measures to evaluate Southern Company's performance. The impact of federal tax reform legislation ($21 million) on the Wholesale Gas Services business of Southern Company Gas is included in the adjustment above for Wholesale Gas Services.

Southern Company

Consolidated Earnings

As Reported

(In Millions of Dollars)

Three Months Ended
December

Year-to-Date

December

2017

2016

Change

2017

2016

Change

Income Account-

Retail Electric Revenues-

Fuel

$

966

$

952

$

14

$

4,095

$

4,121

$

(26)

Non-Fuel

2,578

2,350

228

11,235

11,113

122

Wholesale Electric Revenues

559

471

88

2,426

1,926

500

Other Electric Revenues

171

169

2

681

698

(17)

Natural Gas Revenues

1,045

1,078

(33)

3,791

1,596

2,195

Other Revenues

310

161

149

803

442

361

Total Revenues

5,629

5,181

448

23,031

19,896

3,135

Fuel and Purchased Power

1,245

1,196

49

5,263

5,111

152

Cost of Natural Gas

515

480

35

1,601

613

988

Cost of Other Sales

220

99

121

513

260

253

Non-Fuel O & M

1,565

1,624

(59)

5,481

5,240

241

Depreciation and Amortization

774

697

77

3,010

2,502

508

Taxes Other Than Income Taxes

309

292

17

1,250

1,113

137

Estimated Loss on Kemper IGCC

207

206

1

3,362

428

2,934

Total Operating Expenses

4,835

4,594

241

20,480

15,267

5,213

Operating Income

794

587

207

2,551

4,629

(2,078)

Allowance for Equity Funds Used During
Construction

27

52

(25)

160

202

(42)

Earnings from Equity Method Investments

6

31

(25)

106

59

47

Interest Expense, Net of Amounts Capitalized

446

404

42

1,694

1,317

377

Other Income (Expense), net

(56)

(27)

(29)

(55)

(93)

38

Income Taxes

(175)

34

(209)

142

951

(809)

Net Income

500

205

295

926

2,529

(1,603)

Less:

Dividends on Preferred and Preference
Stock of Subsidiaries

6

11

(5)

38

45

(7)

Net Income Attributable to Noncontrolling
Interests

(2)

(3)

1

46

36

10

NET INCOME ATTRIBUTABLE TO
SOUTHERN COMPANY

$

496

$

197

$

299

$

842

$

2,448

$

(1,606)

Notes

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

Southern Company

Kilowatt-Hour Sales and Customers

(In Millions of KWHs)

Three Months Ended December

Year-to-Date December

As Reported

2017

2016

Change

Weather
Adjusted
Change

2017

2016

Change

Weather
Adjusted
Change

Kilowatt-Hour Sales-

Total Sales

49,915

45,162

10.5

%

205,541

197,788

3.9

%

Total Retail Sales-

37,705

36,209

4.1

%

1.4

%

156,507

160,745

(2.6)

%

(0.4)

%

Residential

12,034

11,080

8.6

%

0.8

%

50,536

53,337

(5.3)

%

(0.3)

%

Commercial

12,333

12,224

0.9

%

(0.1)

%

52,340

53,733

(2.6)

%

(0.9)

%

Industrial

13,130

12,690

3.5

%

3.5

%

52,785

52,792

—

%

—

%

Other

208

215

(2.9)

%

(3.1)

%

846

883

(4.0)

%

(3.9)

%

Total Wholesale Sales

12,210

8,953

36.4

%

N/A

49,034

37,043

32.4

%

N/A

(In Thousands of Customers)

Period Ended December

2017

2016

Change

Regulated Utility Customers-

Total Utility Customers-

9,263

9,179

0.9

%

Total Traditional Electric

4,640

4,593

1.0

%

Southern Company Gas

4,623

4,586

0.8

%

Southern Company

Financial Overview

As Reported

(In Millions of Dollars)

Three Months Ended
December

Year-to-Date

December

2017

2016

% Change

2017

2016

% Change

Southern Company –

Operating Revenues

$

5,629

$

5,181

8.6

%

$

23,031

$

19,896

15.8

%

Earnings Before Income Taxes

325

239

36.0

%

1,068

3,480

(69.3)

%

Net Income Available to Common

496

197

151.8

%

842

2,448

(65.6)

%

Alabama Power –

Operating Revenues

$

1,433

$

1,329

7.8

%

$

6,039

$

5,889

2.5

%

Earnings Before Income Taxes

198

174

13.8

%

1,434

1,370

4.7

%

Net Income Available to Common

119

102

16.7

%

848

822

3.2

%

Georgia Power –

Operating Revenues

$

1,884

$

1,762

6.9

%

$

8,310

$

8,383

(0.9)

%

Earnings Before Income Taxes

352

163

116.0

%

2,258

2,127

6.2

%

Net Income Available to Common

227

113

100.9

%

1,414

1,330

6.3

%

Gulf Power –

Operating Revenues

$

372

$

349

6.6

%

$

1,516

$

1,485

2.1

%

Earnings Before Income Taxes

30

42

(28.6)

%

229

231

(0.9)

%

Net Income Available to Common

19

23

(17.4)

%

135

131

3.1

%

Mississippi Power –

Operating Revenues

$

271

$

277

(2.2)

%

$

1,187

$

1,163

2.1

%

Earnings (Loss) Before Income Taxes

(202)

(162)

24.7

%

(3,120)

(152)

N/M

Net Income (Loss) Available to Common

(556)

(89)

N/M

(2,590)

(50)

N/M

Southern Power –

Operating Revenues

$

478

$

389

22.9

%

$

2,075

$

1,577

31.6

%

Earnings (Loss) Before Income Taxes

(17)

(8)

112.5

%

178

179

(0.6)

%

Net Income Available to Common

795

23

N/M

1,071

338

216.9

%

Southern Company Gas¹ –

Operating Revenues

$

1,079

$

1,109

(2.7)

%

$

3,920

$

1,652

137.3

%

Earnings Before Income Taxes

74

178

(58.4)

%

610

190

221.1

%

Net Income (Loss) Available to Common

(60)

110

(154.5)

%

243

114

113.2

%

N/M - not meaningful

Notes

- See Financial Highlights pages for discussion of certain significant items occurring during the periods presented.