Southern Company reports third-quarter 2019 earnings

Non-GAAP Financial Measures

Three Months Ended September

Year-to-Date September

Net Income - Excluding Items (in millions)

2019

2018

2019

2018

Net Income - As Reported

$1,316

$1,164

$4,298

$1,948

Acquisition, Disposition, and Integration Impacts

5

(326)

(2,477)

(93)

  Tax Impact

7

306

1,130

305

Estimated Loss on Plants Under Construction

3

2

16

1,108

  Tax Impact

(1)

(1)

(4)

(282)

Wholesale Gas Services

14

24

(79)

(83)

       Tax Impact

(5)

(6)

18

18

Asset Impairment

92

-

92

-

       Tax Impact

(27)

-

(27)

-

Litigation Settlement

-

-

-

(24)

       Tax Impact

-

-

-

6

Earnings Guidance Comparability Items:

Adoption of Tax Reform

-

-

-

(31)

Net Income – Excluding Items

$1,404

$1,163

$2,967

$2,872

       Average Shares Outstanding – (in millions)                     

1,048

1,023

1,043

1,016

Basic Earnings Per Share – Excluding Items

$1.34

$1.14

$2.84

$2.83

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)

2019

2018

2019

2018

  Traditional Electric Operating Companies

$

1,373

$

1,148

$

2,719

$

1,711

  Southern Power

86

92

316

235

Southern Company Gas

(29)

46

347

294

  Total

1,430

1,286

3,382

2,240

  Parent Company and Other

(114)

(122)

916

(292)

  Net Income–As Reported

$

1,316

$

1,164

$

4,298

$

1,948

  Basic Earnings Per Share¹

$

1.26

$

1.14

$

4.12

$

1.92

  Average Shares Outstanding (in millions)

1,048

1,023

1,043

1,016

  End of Period Shares Outstanding (in millions)

1,049

1,029

Non-GAAP Financial Measures

Three Months Ended
September

Year-to-Date
September

Net Income–Excluding Items (See Notes)

2019

2018

2019

2018

  Net Income–As Reported

$

1,316

$

1,164

$

4,298

$

1,948

Acquisition, Disposition, and Integration Impacts²

5

(326)

(2,477)

(93)

Tax Impact

7

306

1,130

305

Estimated Loss on Plants Under Construction³

3

2

16

1,108

Tax Impact

(1)

(1)

(4)

(282)

Wholesale Gas Services⁴

14

24

(79)

(83)

Tax Impact

(5)

(6)

18

18

Asset Impairment⁵

92

—

92

—

Tax Impact

(27)

—

(27)

—

Litigation Settlement⁶

—

—

—

(24)

Tax Impact

—

—

—

6

Earnings Guidance Comparability Items:

Adoption of Tax Reform⁷

—

—

—

(31)

  Net Income–Excluding Items

$

1,404

$

1,163

$

2,967

$

2,872

  Basic Earnings Per Share–Excluding Items

$

1.34

$

1.14

$

2.84

$

2.83

-See Notes on the following page.

Southern Company

Financial Highlights

Notes

(1)

For the three and nine months ended September 30, 2019 and 2018, dilutive impacts are immaterial ($0.03 or less per share). Diluted earnings per share was $1.25 and $4.09 in the third quarter and year-to-date 2019, respectively, and $1.13 and $1.91 in the third quarter and year-to-date 2018, respectively.

(2)

Earnings for the three months ended September 30, 2019 include an $18 million pre-tax and after-tax impairment charge in contemplation of the sale of PowerSecure Inc.'s lighting services business, partially offset by $13 million pre tax ($6 million after tax) of other acquisition, disposition, and integration impacts. Earnings for the nine months ended September 30, 2019 include a $2.5 billion pre-tax gain ($1.3 billion after tax) on the sale of Gulf Power Company, a $23 million pre-tax ($88 million after tax) gain on the sale of Southern Power Company's Plant Nacogdoches, and $17 million pre tax ($7 million after tax) of other acquisition, disposition, and integration impacts, partially offset by pre-tax and after-tax impairment charges totaling $50 million related to the sale and contemplated sale of PowerSecure Inc.'s utility infrastructure services and lighting businesses, respectively. Earnings for the 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, disposition, and integration 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 Pivotal Home Solutions transaction; (iii) a $119 million pre-tax ($89 million after tax) impairment charge associated with the sales of Plants Stanton and Oleander; and (iv) $63 million pre tax ($46 million after tax) of other acquisition, disposition, and integration costs. Further impacts are expected to be recorded in 2019 in connection with the sale of Gulf Power Company, as well as the pending sale of Plant Mankato. 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.

(3)

Earnings for the three and nine months ended September 30, 2019 and 2018 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. Additional pre-tax closure costs, including mine reclamation, of up to $20 million for Mississippi Power Company's Kemper IGCC may occur through 2020. Mississippi Power Company is also currently evaluating its options regarding the final disposition of the carbon dioxide pipeline and is in discussions with the Department of Energy regarding property closeout and disposition, for which the related costs could be material. 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.

(4)

Earnings for the three and nine months ended September 30, 2019 and 2018 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 three and nine months ended September 30, 2019 include a pre-tax impairment charge of $92 million ($65 million after tax) associated with Southern Company Gas' natural gas storage facility in Louisiana. Further charges associated with this facility are not expected. Southern Company Gas has two other natural gas storage facilities with a combined net book value of $328 million at September 30, 2019. These facilities could be impacted by ongoing U.S. natural gas storage market changes that may imply impacts to future rates and/or asset values, and, if sustained, could trigger impairment.

(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 in December 2017. During 2018, Southern Company obtained and analyzed additional information that was not initially available or reported as provisional amounts at December 31, 2017. Additional adjustments are not expected.

Southern Company

Significant Factors Impacting EPS

Three Months Ended
September

Year-to-Date
September

2019

2018

Change

2019

2018

Change

Earnings Per Share–

As Reported¹ (See Notes)

$

1.26

$

1.14

$

0.12

$

4.12

$

1.92

$

2.20

  Significant Factors:

  Traditional Electric Operating Companies

$

0.22

$

0.99

Southern Power

(0.01)

0.08

Southern Company Gas

(0.07)

0.05

Parent Company and Other

0.01

1.19

Increase in Shares

(0.03)

(0.11)

  Total–As Reported

$

0.12

$

2.20

Three Months Ended
September

Year-to-Date
September

Non-GAAP Financial Measures

2019

2018

Change

2019

2018

Change

Earnings Per Share–

Excluding Items (See Notes)

$

1.34

$

1.14

$

0.20

$

2.84

$

2.83

$

0.01

  Total–As Reported

$

0.12

$

2.20

Acquisition, Disposition, and Integration

    Impacts²

0.03

(1.50)

Estimated Loss on Plants Under Construction³

—

(0.80)

Wholesale Gas Services⁴

(0.01)

—

Asset Impairment⁵

0.06

0.06

Litigation Settlement⁶

—

0.02

Adoption of Tax Reform⁷

—

0.03

  Total–Excluding Items

$

0.20

$

0.01

- See Notes on the following page.

Southern Company

Significant Factors Impacting EPS

Notes

(1)

For the three and nine months ended September 30, 2019 and 2018, dilutive impacts are immaterial ($0.03 or less per share). Diluted earnings per share was $1.25 and $4.09 in the third quarter and year-to-date 2019, respectively, and $1.13 and $1.91 in the third quarter and year-to-date 2018, respectively.

(2)

Earnings for the three months ended September 30, 2019 include an $18 million pre-tax and after-tax impairment charge in contemplation of the sale of PowerSecure Inc.'s lighting services business, partially offset by $13 million pre tax ($6 million after tax) of other acquisition, disposition, and integration impacts. Earnings for the nine months ended September 30, 2019 include a $2.5 billion pre-tax gain ($1.3 billion after tax) on the sale of Gulf Power Company, a $23 million pre-tax ($88 million after tax) gain on the sale of Southern Power Company's Plant Nacogdoches, and $17 million pre tax ($7 million after tax) of other acquisition, disposition, and integration impacts, partially offset by pre-tax and after-tax impairment charges totaling $50 million related to the sale and contemplated sale of PowerSecure Inc.'s utility infrastructure services and lighting businesses, respectively. Earnings for the 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, disposition, and integration 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 Pivotal Home Solutions transaction; (iii) a $119 million pre-tax ($89 million after tax) impairment charge associated with the sales of Plants Stanton and Oleander; and (iv) $63 million pre tax ($46 million after tax) of other acquisition, disposition, and integration costs. Further impacts are expected to be recorded in 2019 in connection with the sale of Gulf Power Company, as well as the pending sale of Plant Mankato. 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.

(3)

Earnings for the three and nine months ended September 30, 2019 and 2018 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. Additional pre-tax closure costs, including mine reclamation, of up to $20 million for Mississippi Power Company's Kemper IGCC may occur through 2020. Mississippi Power Company is also currently evaluating its options regarding the final disposition of the carbon dioxide pipeline and is in discussions with the Department of Energy regarding property closeout and disposition, for which the related costs could be material. 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.

(4)

Earnings for the three and nine months ended September 30, 2019 and 2018 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 three and nine months ended September 30, 2019 include a pre-tax impairment charge of $92 million ($65 million after tax) associated with Southern Company Gas' natural gas storage facility in Louisiana. Further charges associated with this facility are not expected. Southern Company Gas has two other natural gas storage facilities with a combined net book value of $328 million at September 30, 2019. These facilities could be impacted by ongoing U.S. natural gas storage market changes that may imply impacts to future rates and/or asset values, and, if sustained, could trigger impairment.

(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 in December 2017. During 2018, Southern Company obtained and analyzed additional information that was not initially available or reported as provisional amounts at December 31, 2017. Additional adjustments are not expected.

Southern Company

EPS Earnings Analysis

Description

Three Months Ended
September
2019 vs. 2018

Retail Sales

$(0.05)

$(0.10)

Retail Revenue Impacts

0.18

0.33

Weather

0.09

0.05

Wholesale and Other Operating Revenues

0.02

0.05

Non-Fuel O&M

—

(0.03)

Interest Expense, Depreciation and Amortization, Other

(0.02)

(0.02)

Income Taxes

0.06

0.09

Gulf Power Earnings

(0.06)

(0.14)

Total Traditional Electric Operating Companies

$0.22

$0.23

Southern Power

(0.01)

(0.10)

Southern Company Gas

0.01

0.01

Parent and Other

0.01

(0.05)

Increase in Shares

(0.03)

(0.08)

Total Change in EPS (Excluding Items)

$0.20

$0.01

Acquisition, Disposition, and Integration Impacts¹

(0.03)

1.50

Estimated Loss on Plants Under Construction²

—

0.80

Wholesale Gas Services³

0.01

—

Asset Impairment⁴

(0.06)

(0.06)

Litigation Settlement⁵

—

(0.02)

Adoption of Tax Reform⁶

—

(0.03)

Total Change in EPS (As Reported)

$0.12

$2.20

- See Notes on the following page.

Southern Company

EPS Earnings Analysis

Three and Nine Months Ended September 2019 vs. September 2018

Notes

(1)

Earnings for the three months ended September 30, 2019 include an $18 million pre-tax and after-tax impairment charge in contemplation of the sale of PowerSecure Inc.'s lighting services business, partially offset by $13 million pre tax ($6 million after tax) of other acquisition, disposition, and integration impacts. Earnings for the nine months ended September 30, 2019 include a $2.5 billion pre-tax gain ($1.3 billion after tax) on the sale of Gulf Power Company, a $23 million pre-tax ($88 million after tax) gain on the sale of Southern Power Company's Plant Nacogdoches, and $17 million pre tax ($7 million after tax) of other acquisition, disposition, and integration impacts, partially offset by pre-tax and after-tax impairment charges totaling $50 million related to the sale and contemplated sale of PowerSecure Inc.'s utility infrastructure services and lighting businesses, respectively. Earnings for the 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, disposition, and integration 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 Pivotal Home Solutions transaction; (iii) a $119 million pre-tax ($89 million after tax) impairment charge associated with the sales of Plants Stanton and Oleander; and (iv) $63 million pre tax ($46 million after tax) of other acquisition, disposition, and integration costs. Further impacts are expected to be recorded in 2019 in connection with the sale of Gulf Power Company, as well as the pending sale of Plant Mankato. 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.

(2)

Earnings for the three and nine months ended September 30, 2019 and 2018 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. Additional pre-tax closure costs, including mine reclamation, of up to $20 million for Mississippi Power Company's Kemper IGCC may occur through 2020. Mississippi Power Company is also currently evaluating its options regarding the final disposition of the carbon dioxide pipeline and is in discussions with the Department of Energy regarding property closeout and disposition, for which the related costs could be material. 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 three and nine months ended September 30, 2019 and 2018 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.

(4)

Earnings for the three and nine months ended September 30, 2019 include a pre-tax impairment charge of $92 million ($65 million after tax) associated with Southern Company Gas' natural gas storage facility in Louisiana. Further charges associated with this facility are not expected. Southern Company Gas has two other natural gas storage facilities with a combined net book value of $328 million at September 30, 2019. These facilities could be impacted by ongoing U.S. natural gas storage market changes that may imply impacts to future rates and/or asset values, and, if sustained, could trigger impairment.

(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 in December 2017. During 2018, Southern Company obtained and analyzed additional information that was not initially available or reported as provisional amounts at December 31, 2017. Additional adjustments are not expected.

Southern Company

Consolidated Earnings

As Reported

(In Millions of Dollars)

Three Months Ended
September

Year-to-Date
September

2019

2018

Change

2019

2018

Change

Income Account-

Retail Electric Revenues-

Fuel

$

1,083

$

1,222

$

(139)

$

2,807

$

3,271

$

(464)

Non-Fuel

3,429

3,383

46

8,329

8,642

(313)

Wholesale Electric Revenues

625

698

(73)

1,667

1,937

(270)

Other Electric Revenues

163

165

(2)

492

495

(3)

Natural Gas Revenues

498

492

6

2,661

2,806

(145)

Other Revenues

197

199

(2)

549

1,007

(458)

Total Revenues

5,995

6,159

(164)

16,505

18,158

(1,653)

Fuel and Purchased Power

1,326

1,567

(241)

3,461

4,274

(813)

Cost of Natural Gas

79

104

(25)

956

1,053

(97)

Cost of Other Sales

114

120

(6)

316

688

(372)

Non-Fuel O & M

1,292

1,404

(112)

3,888

4,217

(329)

Depreciation and Amortization

760

787

(27)

2,267

2,338

(71)

Taxes Other Than Income Taxes

303

319

(16)

931

990

(59)

Estimated Loss on Plants Under Construction

4

1

3

10

1,105

(1,095)

Impairment Charges

110

36

74

142

197

(55)

(Gain) Loss on Dispositions, net

(6)

(353)

347

(2,512)

(317)

(2,195)

Total Operating Expenses

3,982

3,985

9,459

14,545

(5,086)

Operating Income

2,013

2,174

(161)

7,046

3,613

3,433

Allowance for Equity Funds Used During Construction

33

36

(3)

96

99

(3)

Earnings from Equity Method Investments

39

36

3

120

108

12

Interest Expense, Net of Amounts Capitalized

434

458

(24)

1,294

1,386

(92)

Other Income (Expense), net

61

57

4

239

195

44

Income Taxes

367

623

(256)

1,872

598

1,274

Net Income

1,345

1,222

123

4,335

2,031

2,304

Less:

Dividends on Preferred Stock of Subsidiaries

4

4

—

11

12

(1)

Net Income Attributable to Noncontrolling Interests

25

54

(29)

26

71

(45)

NET INCOME ATTRIBUTABLE TO SOUTHERN COMPANY

$

1,316

$

1,164

$

152

$

4,298

$

1,948

$

2,350

Notes

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

Southern Company

Kilowatt-Hour Sales

(In Millions of KWHs)

Three Months Ended September

As Reported

Adjusted¹

2019

2018

Change

Weather
Adjusted
Change

2018

Change

Weather
Adjusted
Change

Kilowatt-Hour Sales-

Total Sales

56,703

59,501

(4.7)

%

55,898

1.4

%

Total Retail Sales-

43,090

46,195

(6.7)

%

(9.6)

%

42,789

0.7

%

(2.4)

%

Residential

15,368

16,458

(6.6)

%

(12.4)

%

14,717

4.4

%

(1.9)

%

Commercial

14,404

15,445

(6.7)

%

(9.4)

%

14,298

0.7

%

(2.1)

%

Industrial

13,133

14,097

(6.8)

%

(6.8)

%

13,585

(3.3)

%

(3.3)

%

Other

185

195

(5.4)

%

(5.7)

%

189

(2.2)

%

(2.4)

%

Total Wholesale Sales

13,613

13,306

2.3

%

N/A

13,109

3.8

%

N/A

Year-to-Date September

As Reported

Adjusted¹

2019

2018

Change

Weather
Adjusted
Change

2018

Change

Weather
Adjusted
Change

Kilowatt-Hour Sales-

Total Sales

150,303

162,605

(7.6)

%

153,409

(2.0)

%

Total Retail Sales-

114,207

124,209

(8.1)

%

(8.5)

%

115,520

(1.1)

%

(1.7)

%

Residential

37,790

42,115

(10.3)

%

(11.0)

%

37,789

—

%

(0.9)

%

Commercial

37,776

41,105

(8.1)

%

(8.8)

%

38,112

(0.9)

%

(1.7)

%

Industrial

38,084

40,392

(5.7)

%

(5.7)

%

39,043

(2.5)

%

(2.5)

%

Other

557

597

(6.7)

%

(6.6)

%

576

(3.3)

%

(3.2)

%

Total Wholesale Sales

36,096

38,396

(6.0)

%

N/A

37,889

(4.7)

%

N/A

Notes

(1) Kilowatt-hour sales comparisons to the prior year were significantly impacted by the disposition of Gulf Power
Company on January 1, 2019. These 2018 kilowatt-hour sales and changes exclude Gulf Power Company.

Southern Company

Customers

(In Thousands of Customers)

Period Ended September

2019

2018

Regulated Utility Customers-

Total Utility Customers-

8,462

8,856

(4.4)%

Total Traditional Electric¹

4,254

4,679

(9.1)%

Southern Company Gas

4,208

4,177

0.7%

Notes

(1) Includes approximately 467,000 customers at September 30, 2018 related to Gulf Power Company, which was
sold on January 1, 2019.

Southern Company

Financial Overview

As Reported

(In Millions of Dollars)

Three Months Ended
September

Year-to-Date
September

2019

2018

% Change

2019

2018

% Change

Southern Company¹ –