Southern Company reports third-quarter 2018 earnings

Non-GAAP Financial Measures

Three Months Ended September

Year-to-Date September

Net Income - Excluding Items (in millions)

2018

2017

2018

2017

Net Income - As Reported

$1,164

$1,069

$1,948

$347

Estimated Loss on Plants Under Construction

2

34

1,108

3,155

  Tax Impact

(1)

(13)

(282)

(951)

Loss on Plant Scherer Unit 3

-

-

-

33

  Tax Impact

-

-

-

(13)

Acquisition, Disposition, and Integration Impacts

(326)

6

(93)

19

       Tax Impact

306

7

305

2

Wholesale Gas Services

24

38

(83)

(48)

       Tax Impact

(6)

(15)

18

20

Litigation Settlement

-

-

(24)

-

       Tax Impact

-

-

6

-

Earnings Guidance Comparability Items:

Equity Return Related to Kemper IGCC

    Schedule Extension

-

-

-

(47)

       Tax Impact

-

-

-

(9)

Adoption of Tax Reform

-

-

(31)

-

Net Income – Excluding Items

$1,163

$1,126

$2,872

$2,508

       Average Shares Outstanding – (in millions)

1,023

1,003

1,016

998

Basic Earnings Per Share – Excluding Items

$1.14

$1.12

$2.83

$2.51

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)

2018

2017

2018

2017

  Traditional Electric Operating Companies

$

1,148

$

1,008

$

1,711

$

—

  Southern Power

92

124

235

276

Southern Company Gas

46

15

294

303

  Total

1,286

1,147

2,240

579

  Parent Company and Other

(122)

(78)

(292)

(232)

  Net Income–As Reported

$

1,164

$

1,069

$

1,948

$

347

  Basic Earnings Per Share¹

$

1.14

$

1.07

$

1.92

$

0.35

  Average Shares Outstanding (in millions)

1,023

1,003

1,016

998

  End of Period Shares Outstanding (in millions)

1,029

1,004

Non-GAAP Financial Measures

Three Months Ended
September

Year-to-Date

September

Net Income–Excluding Items (See Notes)

2018

2017

2018

2017

  Net Income–As Reported

$

1,164

$

1,069

$

1,948

$

347

Estimated Loss on Plants Under Construction²

2

34

1,108

3,155

Tax Impact

(1)

(13)

(282)

(951)

Loss on Plant Scherer Unit 3³

—

—

—

33

Tax Impact

—

—

—

(13)

Acquisition, Disposition, and Integration Impacts⁴

(326)

6

(93)

19

Tax Impact

306

7

305

2

Wholesale Gas Services⁵

24

38

(83)

(48)

Tax Impact

(6)

(15)

18

20

Litigation Settlement⁶

—

—

(24)

—

Tax Impact

—

—

6

—

Earnings Guidance Comparability Items:

Equity Return Related to Kemper IGCC

   Schedule Extension⁷

—

—

—

(47)

Tax Impact

—

—

—

(9)

Adoption of Tax Reform⁸

—

—

(31)

—

  Net Income–Excluding Items

$

1,163

$

1,126

$

2,872

$

2,508

  Basic Earnings Per Share–Excluding Items

$

1.14

$

1.12

$

2.83

$

2.51

-See Notes on the following page.

Southern Company

Financial Highlights

Notes

(1) For the three and nine months ended September 30, 2018 and 2017, dilution does not change basic earnings per share by more than 1 cent and is not material.

(2) Earnings for the three and nine months ended September 30, 2018 and 2017 include charges and associated legal expenses related to Mississippi Power Company's integrated coal gasification combined cycle facility project in Kemper County, Mississippi (Kemper IGCC). Earnings for the nine months ended September 30, 2018 also include a $1.1 billion charge ($0.8 billion after tax) for an estimated probable loss on Georgia Power Company's construction of Plant Vogtle Units 3 and 4. These charges significantly impacted the presentation of earnings and earnings per share. Additional pre-tax cancellation costs of up to $30 million for Mississippi Power Company's Kemper IGCC may occur through the first half of 2020. Further charges for Georgia Power Company's Plant Vogtle Units 3 and 4 may occur; however, the amount and timing of any such charges is uncertain.

(3) Earnings for the nine months ended September 30, 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 its 2017 retail rate case settlement. Further charges are not expected.

(4) Earnings for three months ended September 30, 2018 primarily include: (i) a combined $351 million pre-tax ($38 million after-tax) gain on the sales of Elizabethtown Gas, Elkton Gas and Florida City Gas; and (ii) $25 million pre-tax ($18 million after-tax) of other acquisition, integration and disposition costs. Earnings for the nine months ended September 30, 2018 primarily include: (i) a net combined $317 million pre-tax gain ($35 million after-tax loss) on the sales of Elizabethtown Gas, Elkton Gas, Florida City Gas and Pivotal Home Solutions; (ii) a $42 million (pre-tax and after-tax) goodwill impairment charge associated with the sale of Pivotal Home Solutions; (iii) a $119 million pre-tax ($89 million after-tax) impairment charge associated with the disposition of Plants Stanton and Oleander; and (iv) $63 million pre-tax ($46 million after-tax) of other acquisition, integration and disposition costs. The gain/loss calculations for the four Southern Company Gas dispositions are expected to be finalized in the fourth quarter 2018. Further costs are expected to continue to occur prior to the expected closings of pending dispositions in the first quarter of 2019; however, the amount of such expenditures is uncertain. Further costs are also expected to continue to occur in connection with the integration of Southern Company Gas; however, the amount and duration of such expenditures is uncertain.

(5) Earnings for the three and nine months ended September 30, 2018 and 2017 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 nine months ended September 30, 2018 include the settlement proceeds of Mississippi Power Company's claim for lost revenue resulting from the 2010 Deepwater Horizon oil spill in the Gulf of Mexico. Further proceeds are not expected.

(7) Earnings for the nine months ended September 30, 2017 include allowance for funds used during construction (AFUDC) equity as a result of extending the Kemper IGCC construction schedule beyond November 30, 2016, as assumed when Southern Company issued its 2017 guidance. As a result, Southern Company believes presentation of earnings per share excluding these amounts provides investors with information comparable to guidance. Management also used such measures to evaluate Southern Company's 2017 performance. AFUDC equity ceased in connection with the project's suspension in June 2017.

(8) Earnings for the nine months ended September 30, 2018 include additional net tax benefits as a result of implementing federal tax reform legislation, which was signed into law on December 22, 2017. During this period, Southern Company obtained and analyzed additional information that was not initially available or reported as provisional amounts at December 31, 2017. Additional adjustments are expected until Southern Company's 2017 federal income tax return is complete and provisional estimates are actualized during the measurement period ending December 31, 2018. Southern Company believes presentation of earnings per share excluding these amounts provides investors with information comparable to guidance. Management also uses such measures to evaluate Southern Company's performance.

Southern Company

Significant Factors Impacting EPS

Three Months Ended
September

Year-to-Date
September

2018

2017

Change

2018

2017

Change

Earnings Per Share–

As Reported¹ (See Notes)

$

1.14

$

1.07

$

0.07

$

1.92

$

0.35

$

1.57

  Significant Factors:

  Traditional Electric Operating Companies

$

0.14

$

1.71

 Southern Power

(0.03)

(0.04)

 Southern Company Gas

0.03

(0.01)

 Parent Company and Other

(0.05)

(0.06)

 Increase in Shares

(0.02)

(0.03)

  Total–As Reported

$

0.07

$

1.57

Three Months Ended
September

Year-to-Date
September

Non-GAAP Financial Measures

2018

2017

Change

2018

2017

Change

Earnings Per Share–

Excluding Items (See Notes)

$

1.14

$

1.12

$

0.02

$

2.83

$

2.51

$

0.32

  Total–As Reported

$

0.07

$

1.57

 Estimated Loss on Plants Under Construction²

(0.02)

(1.34)

 Loss on Plant Scherer Unit 3³

—

(0.02)

 Acquisition, Disposition, and Integration

    Impacts⁴

(0.03)

0.19

 Wholesale Gas Services⁵

—

(0.03)

 Litigation Settlement⁶

—

(0.02)

 Adoption of Tax Reform⁷

—

(0.03)

  Total–Excluding Items

$

0.02

$

0.32

- See Notes on the following page.

Southern Company

Significant Factors Impacting EPS

Notes

(1) For the three and nine months ended September 30, 2018 and 2017, dilution does not change basic earnings per share by more than 1 cent and is not material.

(2) Earnings for the three and nine months ended September 30, 2018 and 2017 include charges and associated legal expenses related to Mississippi Power Company's integrated coal gasification combined cycle facility project in Kemper County, Mississippi (Kemper IGCC). Earnings for the nine months ended September 30, 2018 also include a $1.1 billion charge ($0.8 billion after tax) for an estimated probable loss on Georgia Power Company's construction of Plant Vogtle Units 3 and 4. These charges significantly impacted the presentation of earnings and earnings per share. Additional pre-tax cancellation costs of up to $30 million for Mississippi Power Company's Kemper IGCC may occur through the first half of 2020. Further charges for Georgia Power Company's Plant Vogtle Units 3 and 4 may occur; however, the amount and timing of any such charges is uncertain.

Earnings for the nine months ended September 30, 2017 include allowance for funds used during construction (AFUDC) equity as a result of extending the Kemper IGCC construction schedule beyond November 30, 2016, as assumed when Southern Company issued its 2017 guidance. As a result, Southern Company believes presentation of earnings per share excluding these amounts provides investors with information comparable to guidance. Management also used such measures to evaluate Southern Company's 2017 performance. AFUDC equity ceased in connection with the project's suspension in June 2017.

(3) Earnings for the nine months ended September 30, 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 its 2017 retail rate case settlement. Further charges are not expected.

(4) Earnings for three months ended September 30, 2018 primarily include: (i) a combined $351 million pre-tax ($38 million after-tax) gain on the sales of Elizabethtown Gas, Elkton Gas and Florida City Gas; and (ii) $25 million pre-tax ($18 million after-tax) of other acquisition, integration and disposition costs. Earnings for the nine months ended September 30, 2018 primarily include: (i) a net combined $317 million pre-tax gain ($35 million after-tax loss) on the sales of Elizabethtown Gas, Elkton Gas, Florida City Gas and Pivotal Home Solutions; (ii) a $42 million (pre-tax and after-tax) goodwill impairment charge associated with the sale of Pivotal Home Solutions; (iii) a $119 million pre-tax ($89 million after-tax) impairment charge associated with the disposition of Plants Stanton and Oleander; and (iv) $63 million pre-tax ($46 million after-tax) of other acquisition, integration and disposition costs. The gain/loss calculations for the four Southern Company Gas dispositions are expected to be finalized in the fourth quarter 2018. Further costs are expected to continue to occur prior to the expected closings of pending dispositions in the first quarter of 2019; however, the amount of such expenditures is uncertain. Further costs are also expected to continue to occur in connection with the integration of Southern Company Gas; however, the amount and duration of such expenditures is uncertain.

(5) Earnings for the three and nine months ended September 30, 2018 and 2017 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 nine months ended September 30, 2018 include the settlement proceeds of Mississippi Power Company's claim for lost revenue resulting from the 2010 Deepwater Horizon oil spill in the Gulf of Mexico. Further proceeds are not expected.

(7) Earnings for the nine months ended September 30, 2018 include additional net tax benefits as a result of implementing federal tax reform legislation, which was signed into law on December 22, 2017. During this period, Southern Company obtained and analyzed additional information that was not initially available or reported as provisional amounts at December 31, 2017. Additional adjustments are expected until Southern Company's 2017 federal income tax return is complete and provisional estimates are actualized during the measurement period ending December 31, 2018. Southern Company believes presentation of earnings per share excluding these amounts provides investors with information comparable to guidance. Management also uses such measures to evaluate Southern Company's performance.

Southern Company

EPS Earnings Analysis

Description

Three Months Ended
September
2018 vs. 2017

Retail Sales

$0.02

$0.04

Retail Revenue Impacts, Excluding Tax Reform Changes

0.01

0.02

Weather

0.05

0.18

Other Operating Revenues

0.01

—

Purchased Power Capacity Expense

—

0.01

Depreciation and Amortization

(0.02)

(0.06)

Taxes Other Than Income Taxes

(0.01)

(0.02)

Gain on Dispositions, Net

—

(0.01)

Interest Expense

(0.02)

(0.03)

Other Income and Deductions

0.01

0.01

Impacts of Tax Reform (Ongoing Basis), Net of Amounts
to be Returned to Customers

0.10

0.19

Income Taxes, Excluding Tax Reform

(0.03)

(0.03)

Dividends on Preferred and Preference Stock

—

0.02

Total Traditional Electric Operating Companies

$0.12

$0.32

Southern Power

(0.03)

0.04

Southern Company Gas

(0.01)

0.06

Parent and Other

(0.04)

(0.05)

Increase in Shares

(0.02)

(0.05)

Total Change in EPS (Excluding Items)

$0.02

$0.32

Estimated Loss on Plants Under Construction¹

0.02

1.34

Loss on Plant Scherer Unit 3²

—

0.02

Acquisition, Disposition, and Integration Impacts³

0.03

(0.19)

Wholesale Gas Services⁴

—

0.03

Litigation Settlement⁵

—

0.02

Adoption of Tax Reform⁶

—

0.03

Total Change in EPS (As Reported)

$0.07

$1.57

- See Notes on the following page.

Southern Company

EPS Earnings Analysis

Three and Nine Months Ended September 2018 vs. September 2017

Notes

(1) Earnings for the three and nine months ended September 30, 2018 and 2017 include charges and associated legal expenses related to Mississippi Power Company's integrated coal gasification combined cycle facility project in Kemper County, Mississippi (Kemper IGCC). Earnings for the nine months ended September 30, 2018 also include a $1.1 billion charge ($0.8 billion after tax) for an estimated probable loss on Georgia Power Company's construction of Plant Vogtle Units 3 and 4. These charges significantly impacted the presentation of earnings and earnings per share. Additional pre-tax cancellation costs of up to $30 million for Mississippi Power Company's Kemper IGCC may occur through the first half of 2020. Further charges for Georgia Power Company's Plant Vogtle Units 3 and 4 may occur; however, the amount and timing of any such charges is uncertain.

Earnings for the nine months ended September 30, 2017 include allowance for funds used during construction (AFUDC) equity as a result of extending the Kemper IGCC construction schedule beyond November 30, 2016, as assumed when Southern Company issued its 2017 guidance. As a result, Southern Company believes presentation of earnings per share excluding these amounts provides investors with information comparable to guidance. Management also used such measures to evaluate Southern Company's 2017 performance. AFUDC equity ceased in connection with the project's suspension in June 2017.

(2) Earnings for the nine months ended September 30, 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 its 2017 retail rate case settlement. Further charges are not expected.

(3) Earnings for three months ended September 30, 2018 primarily include: (i) a combined $351 million pre-tax ($38 million after-tax) gain on the sales of Elizabethtown Gas, Elkton Gas and Florida City Gas; and (ii) $25 million pre-tax ($18 million after-tax) of other acquisition, integration and disposition costs. Earnings for the nine months ended September 30, 2018 primarily include: (i) a net combined $317 million pre-tax gain ($35 million after-tax loss) on the sales of Elizabethtown Gas, Elkton Gas, Florida City Gas and Pivotal Home Solutions; (ii) a $42 million (pre-tax and after-tax) goodwill impairment charge associated with the sale of Pivotal Home Solutions; (iii) a $119 million pre-tax ($89 million after-tax) impairment charge associated with the disposition of Plants Stanton and Oleander; and (iv) $63 million pre-tax ($46 million after-tax) of other acquisition, integration and disposition costs. The gain/loss calculations for the four Southern Company Gas dispositions are expected to be finalized in the fourth quarter 2018. Further costs are expected to continue to occur prior to the expected closings of pending dispositions in the first quarter of 2019; however, the amount of such expenditures is uncertain. Further costs are also expected to continue to occur in connection with the integration of Southern Company Gas; however, the amount and duration of such expenditures is uncertain.

(4) Earnings for the three and nine months ended September 30, 2018 and 2017 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.

(5) Earnings for the nine months ended September 30, 2018 include the settlement proceeds of Mississippi Power Company's claim for lost revenue resulting from the 2010 Deepwater Horizon oil spill in the Gulf of Mexico. Further proceeds are not expected.

(6) Earnings for the nine months ended September 30, 2018 include additional net tax benefits as a result of implementing federal tax reform legislation, which was signed into law on December 22, 2017. During this period, Southern Company obtained and analyzed additional information that was not initially available or reported as provisional amounts at December 31, 2017. Additional adjustments are expected until Southern Company's 2017 federal income tax return is complete and provisional estimates are actualized during the measurement period ending December 31, 2018. Southern Company believes presentation of earnings per share excluding these amounts provides investors with information comparable to guidance. Management also uses such measures to evaluate Southern Company's performance.

Southern Company

Consolidated Earnings

As Reported

(In Millions of Dollars)

Three Months Ended
September

Year-to-Date

 September

2018

2017

Change

2018

2017

Change

Income Account-

Retail Electric Revenues-

Fuel

$

1,222

$

1,185

$

37

$

3,271

$

3,130

$

141

Non-Fuel

3,383

3,430

(47)

8,642

8,656

(14)

Wholesale Electric Revenues

693

718

(25)

1,923

1,867

56

Other Electric Revenues

170

168

2

509

510

(1)

Natural Gas Revenues

492

532

(40)

2,806

2,746

60

Other Revenues

199

168

31

1,007

494

513

Total Revenues

6,159

6,201

(42)

18,158

17,403

755

Fuel and Purchased Power

1,567

1,541

26

4,274

4,018

256

Cost of Natural Gas

104

134

(30)

1,053

1,085

(32)

Cost of Other Sales

120

90

30

688

293

395

Non-Fuel O & M

1,404

1,341

63

4,217

4,100

117

Depreciation and Amortization

787

767

20

2,338

2,236

102

Taxes Other Than Income Taxes

319

303

16

990

941

49

Estimated Loss on Plants Under Construction

1

34

(33)

1,105

3,155

(2,050)

Gain on Dispositions, net

(353)

—

(353)

(317)

(19)

(298)

Impairment Charges

36

—

36

197

—

197

Total Operating Expenses

3,985

4,210

(225)

14,545

15,809

(1,264)

Operating Income

2,174

1,991

183

3,613

1,594

2,019

Allowance for Equity Funds Used During
Construction

36

18

18

99

133

(34)

Earnings from Equity Method Investments

36

32

4

108

100

8

Interest Expense, Net of Amounts Capitalized

458

407

51

1,386

1,248

138

Other Income (Expense), net

57

65

(8)

195

165

30

Income Taxes

623

590

33

598

317

281

Net Income

1,222

1,109

113

2,031

427

1,604

Less:

Dividends on Preferred and Preference Stock
of Subsidiaries

4

10

(6)

12

32

(20)

Net Income Attributable to Noncontrolling
Interests

54

30

24

71

48

23

NET INCOME ATTRIBUTABLE TO
SOUTHERN COMPANY

$

1,164

$

1,069

$

95

$

1,948

$

347

$

1,601

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 September

Year-to-Date September

As Reported

2018

2017

Change

Weather
Adjusted
Change

2018

2017

Change

Weather
Adjusted
Change

Kilowatt-Hour Sales-

Total Sales

59,501

58,276

2.1

%

162,605

155,626

4.5

%

Total Retail Sales-

46,195

44,449

3.9

%

1.4

%

124,209

118,802

4.6

%

1.1

%

Residential

16,458

15,499

6.2

%

1.2

%

42,115

38,502

9.4

%

0.8

%

Commercial

15,445

14,969

3.2

%

0.8

%

41,105

40,007

2.7

%

0.6

%

Industrial

14,097

13,770

2.4

%

2.4

%

40,392

39,656

1.9

%

1.9

%

Other

195

211

(7.7)

%

(7.9)

%

597

637

(6.3)

%

(6.5)

%

Total Wholesale Sales

13,306

13,827

(3.8)

%

N/A

38,396

36,824

4.3

%

N/A

(In Thousands of Customers)

Period Ended September

2018

2017

Change

Regulated Utility Customers-

Total Utility Customers-

8,856

9,187

(3.6)

%

Total Traditional Electric

4,679

4,632

1.0

%

Southern Company Gas¹

4,177

4,555

(8.3)

%

Notes

(1) Includes total customers of approximately 404,000 at September 30, 2017 related to Elizabethtown Gas, Elkton Gas, and Florida City Gas, which were sold in July 2018.

Southern Company

Financial Overview

As Reported

(In Millions of Dollars)

Three Months Ended
September

Year-to-Date

September

2018

2017

% Change

2018

2017

% Change

Southern Company –

Operating Revenues

$

6,159

$

6,201

(0.7)

%

$

18,158

$

17,403

4.3

%

Earnings Before Income Taxes

1,845

1,699

8.6

%

2,629

744

N/M

Net Income Available to Common

1,164

1,069

8.9

%

1,948

347

N/M

Alabama Power –

Operating Revenues

$

1,740

$

1,740

—

%

$

4,716

$

4,606

2.4

%

Earnings Before Income Taxes

504

546

(7.7)

%

1,140

1,236

(7.8)

%

Net Income Available to Common

373

325

14.8

%

857

729

17.6

%

Georgia Power –

Operating Revenues

$

2,593

$

2,546

1.8

%

$

6,601

$

6,426

2.7

%

Earnings Before Income Taxes

926

934

(0.9)

%

833

1,906

(56.3)

%

Net Income Available to Common

664

580

14.5

%

621

1,188

(47.7)

%

Gulf Power –

Operating Revenues

$

414

$

437

(5.3)

%

$

1,106

$

1,144

(3.3)

%

Earnings Before Income Taxes

59

103

(42.7)

%

146

199

(26.6)

%

Net Income Available to Common