Southern Company reports second-quarter 2019 earnings

Non-GAAP Financial Measures

Three Months Ended June

Year-to-Date June

Net Income - Excluding Items (in millions)

2019

2018

2019

2018

Net Income (Loss) - As Reported

$899

$(154)

$2,982

$784

Acquisition, Disposition, and Integration Impacts

18

172

(2,481)

233

  Tax Impact

(67)

4

1,122

(1)

Estimated Loss on Plants Under Construction

8

1,060

13

1,105

  Tax Impact

(2)

(270)

(3)

(281)

Wholesale Gas Services

(29)

32

(93)

(108)

       Tax Impact

6

(11)

23

25

Litigation Settlement

-

(24)

-

(24)

       Tax Impact

-

6

-

6

Earnings Guidance Comparability Items:

Adoption of Tax Reform

-

-

-

(31)

Net Income – Excluding Items

$833

$815

$1,563

$1,708

       Average Shares Outstanding – (in millions)                     

1,044

1,014

1,041

1,012

Basic Earnings Per Share – Excluding Items

$0.80

$0.80

$1.50

$1.69

Southern Company

Financial Highlights

(In Millions of Dollars Except Earnings Per Share)

Three Months Ended
June

Year-to-Date
June

Net Income–As Reported (See Notes)

2019

2018

2019

2018

  Traditional Electric Operating Companies

$

782

$

(48)

$

1,346

$

563

  Southern Power

174

22

230

143

Southern Company Gas

106

(31)

376

248

  Total

1,062

(57)

1,952

954

  Parent Company and Other

(163)

(97)

1,030

(170)

  Net Income (Loss)–As Reported

$

899

$

(154)

$

2,982

$

784

  Basic Earnings (Loss) Per Share¹

$

0.86

$

(0.15)

$

2.86

$

0.77

  Average Shares Outstanding (in millions)

1,044

1,014

1,041

1,012

  End of Period Shares Outstanding (in millions)

1,045

1,014

Non-GAAP Financial Measures

Three Months Ended
June

Year-to-Date
June

Net Income–Excluding Items (See Notes)

2019

2018

2019

2018

  Net Income (Loss)–As Reported

$

899

$

(154)

$

2,982

$

784

Acquisition, Disposition, and Integration Impacts²

18

172

(2,481)

233

Tax Impact

(67)

4

1,122

(1)

Estimated Loss on Plants Under Construction³

8

1,060

13

1,105

Tax Impact

(2)

(270)

(3)

(281)

Wholesale Gas Services⁴

(29)

32

(93)

(108)

Tax Impact

6

(11)

23

25

Litigation Settlement⁵

—

(24)

—

(24)

Tax Impact

—

6

—

6

Earnings Guidance Comparability Items:

Adoption of Tax Reform⁶

—

—

—

(31)

  Net Income–Excluding Items

$

833

$

815

$

1,563

$

1,708

  Basic Earnings Per Share–Excluding Items

$

0.80

$

0.80

$

1.50

$

1.69

-See Notes on the following page.

Southern Company

Financial Highlights

Notes

(1)

For the three and six months ended June 30, 2019 and 2018, dilution does not change basic earnings per share by more than 2 cents and is not material.

(2)

Earnings for the three months ended June 30, 2019 primarily include a $23 million pre-tax ($88 million after tax) gain on the sale of Southern Power Company's Plant Nacogdoches and a $32 million pre-tax and after-tax goodwill impairment charge in contemplation of the sale of the utility infrastructure services business unit at PowerSecure, Inc. Earnings for the six months ended June 30, 2019 also include a $2.5 billion pre-tax gain ($1.3 billion after tax) on the sale of Gulf Power Company. Earnings for the three months ended June 30, 2018 include: (i) a pre-tax loss of $36 million ($76 million after tax) associated with the sale of Pivotal Home Solutions; (ii) a $119 million pre-tax ($89 million after tax) impairment charge associated with the disposition of Plants Stanton and Oleander; and (iii) $17 million pre-tax ($11 million after tax) of other acquisition, disposition, and integration costs. Earnings for the six months ended June 30, 2018 also include a $42 million (pre tax and after tax) goodwill impairment charge associated with the Pivotal Home Solutions transaction and (ii) an additional $19 million pre tax ($14 million after tax) of other acquisition, disposition, and integration costs. Further impacts are expected to be recorded in 2019 in connection with the sales of Gulf Power Company and Plant Nacogdoches, 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 six months ended June 30, 2019 and for the six months ended June 30, 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 three and six months ended June 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. All of these charges significantly impacted the presentation of earnings and earnings per share. Additional pre-tax closure costs, including mine reclamation, of up to $25 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 six months ended June 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 six months ended June 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 six months ended June 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
June

Year-to-Date
June

2019

2018

2019

2018

Change

Earnings (Loss) Per Share–

As Reported¹ (See Notes)

$

0.86

$

(0.15)

$

1.01

$

2.86

$

0.77

$

2.09

  Significant Factors:

  Traditional Electric Operating Companies

$

0.82

$

0.77

Southern Power

0.15

0.09

Southern Company Gas

0.13

0.13

Parent Company and Other

(0.06)

1.18

Increase in Shares

(0.03)

(0.08)

  Total–As Reported

$

1.01

$

2.09

Three Months Ended
June

Year-to-Date
June

Non-GAAP Financial Measures

2019

2018

Change

2019

2018

Change

Earnings Per Share–

Excluding Items (See Notes)

$

0.80

$

0.80

$

—

$

1.50

$

1.69

$

(0.19)

  Total–As Reported

$

1.01

$

2.09

Acquisition, Disposition, and Integration

    Impacts²

(0.22)

(1.53)

Estimated Loss on Plants Under Construction³

(0.77)

(0.81)

Wholesale Gas Services⁴

(0.04)

0.01

Litigation Settlement⁵

0.02

0.02

Adoption of Tax Reform⁶

—

0.03

  Total–Excluding Items

$

—

$

(0.19)

- See Notes on the following page.

Southern Company

Significant Factors Impacting EPS

Notes

(1)

For the three and six months ended June 30, 2019 and 2018, dilution does not change basic earnings per share by more than 2 cents and is not material.

(2)

Earnings for the three months ended June 30, 2019 primarily include a $23 million pre-tax ($88 million after tax) gain on the sale of Southern Power Company's Plant Nacogdoches and a $32 million pre-tax and after-tax goodwill impairment charge in contemplation of the sale of the utility infrastructure services business unit at PowerSecure, Inc. Earnings for the six months ended June 30, 2019 also include a $2.5 billion pre-tax gain ($1.3 billion after tax) on the sale of Gulf Power Company. Earnings for the three months ended June 30, 2018 include: (i) a pre-tax loss of $36 million ($76 million after tax) associated with the sale of Pivotal Home Solutions; (ii) a $119 million pre-tax ($89 million after tax) impairment charge associated with the disposition of Plants Stanton and Oleander; and (iii) $17 million pre-tax ($11 million after tax) of other acquisition, disposition, and integration costs. Earnings for the six months ended June 30, 2018 also include a $42 million (pre tax and after tax) goodwill impairment charge associated with the Pivotal Home Solutions transaction and (ii) an additional $19 million pre tax ($14 million after tax) of other acquisition, disposition, and integration costs. Further impacts are expected to be recorded in 2019 in connection with the sales of Gulf Power Company and Plant Nacogdoches, 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 six months ended June 30, 2019 and for the six months ended June 30, 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 three and six months ended June 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. All of these charges significantly impacted the presentation of earnings and earnings per share. Additional pre-tax closure costs, including mine reclamation, of up to $25 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 six months ended June 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 six months ended June 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 six months ended June 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
June
2019 vs. 2018

Year-to-Date

June
2019 vs. 2018

Retail Sales

$(0.03)

$(0.04)

Retail Revenue Impacts

0.10

0.14

Weather

0.03

(0.04)

Wholesale and Other Operating Revenues

0.01

0.03

Non-Fuel O&M

(0.02)

(0.03)

Interest Expense, Depreciation and Amortization, Other

—

—

Income Taxes

0.01

0.03

Gulf Power Earnings

(0.04)

(0.08)

Total Traditional Electric Operating Companies

$0.06

$0.01

Southern Power

(0.03)

(0.10)

Southern Company Gas

0.01

—

Parent and Other

(0.02)

(0.06)

Increase in Shares

(0.02)

(0.04)

Total Change in EPS (Excluding Items)

$—

$(0.19)

Acquisition, Disposition, and Integration Impacts¹

0.22

1.53

Estimated Loss on Plants Under Construction²

0.77

0.81

Wholesale Gas Services³

0.04

(0.01)

Litigation Settlement⁴

(0.02)

(0.02)

Adoption of Tax Reform⁵

—

(0.03)

Total Change in EPS (As Reported)

$1.01

$2.09

- See Notes on the following page.

Southern Company

EPS Earnings Analysis

Three and Six Months Ended June 2019 vs. June 2018

Notes

(1)

Earnings for the three months ended June 30, 2019 primarily include a $23 million pre-tax ($88 million after tax) gain on the sale of Southern Power Company's Plant Nacogdoches and a $32 million pre-tax and after-tax goodwill impairment charge in contemplation of the sale of the utility infrastructure services business unit at PowerSecure, Inc. Earnings for the six months ended June 30, 2019 also include a $2.5 billion pre-tax gain ($1.3 billion after tax) on the sale of Gulf Power Company. Earnings for the three months ended June 30, 2018 include: (i) a pre-tax loss of $36 million ($76 million after tax) associated with the sale of Pivotal Home Solutions; (ii) a $119 million pre-tax ($89 million after tax) impairment charge associated with the disposition of Plants Stanton and Oleander; and (iii) $17 million pre-tax ($11 million after tax) of other acquisition, disposition, and integration costs. Earnings for the six months ended June 30, 2018 also include a $42 million (pre tax and after tax) goodwill impairment charge associated with the Pivotal Home Solutions transaction and (ii) an additional $19 million pre tax ($14 million after tax) of other acquisition, disposition, and integration costs. Further impacts are expected to be recorded in 2019 in connection with the sales of Gulf Power Company and Plant Nacogdoches, 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 six months ended June 30, 2019 and for the six months ended June 30, 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 three and six months ended June 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. All of these charges significantly impacted the presentation of earnings and earnings per share. Additional pre-tax closure costs, including mine reclamation, of up to $25 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 six months ended June 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 six months ended June 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.

(5)

Earnings for the six months ended June 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
June

Year-to-Date
June

2019

2018

Change

2019

2018

Change

Income Account-

Retail Electric Revenues-

Fuel

$

919

$

1,022

$

(103)

$

1,723

$

2,049

$

(326)

Non-Fuel

2,621

2,718

(97)

4,900

5,259

(359)

Wholesale Electric Revenues

542

616

(74)

1,041

1,239

(198)

Other Electric Revenues

161

170

(9)

331

330

1

Natural Gas Revenues

689

706

(17)

2,163

2,314

(151)

Other Revenues

166

395

(229)

352

808

(456)

Total Revenues

5,098

5,627

(529)

10,510

11,999

(1,489)

Fuel and Purchased Power

1,115

1,339

(224)

2,135

2,707

(572)

Cost of Natural Gas

191

228

(37)

877

949

(72)

Cost of Other Sales

84

279

(195)

203

568

(365)

Non-Fuel O & M

1,316

1,523

(207)

2,628

2,972

(344)

Depreciation and Amortization

755

783

(28)

1,506

1,552

(46)

Taxes Other Than Income Taxes

299

316

(17)

628

671

(43)

Estimated Loss on Plants Under Construction

4

1,060

(1,056)

6

1,105

(1,099)

(Gain) Loss on Dispositions, net

(8)

36

(44)

(2,506)

36

(2,542)

Total Operating Expenses

3,756

5,564

5,477

10,560

(5,083)

Operating Income

1,342

63

1,279

5,033

1,439

3,594

Allowance for Equity Funds Used During Construction

31

32

(1)

63

63

—

Earnings from Equity Method Investments

33

31

2

81

72

9

Interest Expense, Net of Amounts Capitalized

429

470

(41)

859

928

(69)

Other Income (Expense), net

99

78

21

176

138

38

Income Taxes (Benefit)

145

(139)

284

1,505

(25)

1,530

Net Income (Loss)

931

(127)

1,058

2,989

809

2,180

Less:

Dividends on Preferred Stock of Subsidiaries

3

4

(1)

7

8

(1)

Net Income Attributable to Noncontrolling
Interests

29

23

6

—

17

(17)

NET INCOME (LOSS) ATTRIBUTABLE TO
SOUTHERN COMPANY

$

899

$

(154)

$

1,053

$

2,982

$

784

$

2,198

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 June

As Reported

Adjusted¹

2019

2018

Change

Weather
Adjusted
Change

2018

Change

Weather
Adjusted
Change

Kilowatt-Hour Sales-

Total Sales

48,434

52,260

(7.3)

%

49,289

(1.7)

%

Total Retail Sales-

36,752

39,624

(7.2)

%

(8.5)

%

36,809

(0.2)

%

(1.5)

%

Residential

11,520

12,691

(9.2)

%

(11.9)

%

11,321

1.8

%

(1.0)

%

Commercial

12,386

13,373

(7.4)

%

(8.6)

%

12,373

0.1

%

(1.3)

%

Industrial

12,662

13,363

(5.2)

%

(5.2)

%

12,925

(2.0)

%

(2.0)

%

Other

184

197

(6.2)

%

(6.2)

%

190

(3.0)

%

(3.0)

%

Total Wholesale Sales

11,682

12,636

(7.6)

%

N/A

12,480

(6.4)

%

N/A

Year-to-Date June

As Reported

Adjusted¹

2019

2018

Change

Weather
Adjusted
Change

2018

Change

Weather
Adjusted
Change

Kilowatt-Hour Sales-

Total Sales

93,601

103,104

(9.2)

%

97,511

(4.0)

%

Total Retail Sales-

71,117

78,014

(8.8)

%

(7.9)

%

72,731

(2.2)

%

(1.3)

%

Residential

22,421

25,657

(12.6)

%

(10.1)

%

23,072

(2.8)

%

(0.3)

%

Commercial

23,372

25,660

(8.9)

%

(8.5)

%

23,814

(1.9)

%

(1.6)

%

Industrial

24,951

26,295

(5.1)

%

(5.1)

%

25,458

(2.0)

%

(2.0)

%

Other

373

402

(7.3)

%

(7.1)

%

387

(3.8)

%

(3.6)

%

Total Wholesale Sales

22,484

25,090

(10.4)

%

N/A

24,780

(9.3)

%

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 June

2019

2018

Change

Regulated Utility Customers-

Total Utility Customers-

8,477

9,276

Total Traditional Electric¹

4,246

4,667

(9.0)%

Southern Company Gas²

4,231

4,609

(8.2)%

Notes

(1) Includes approximately 466,000 customers at June 30, 2018 related to Gulf Power Company, which was sold on January 1, 2019.

(2) Includes approximately 407,000 total customers at June 30, 2018 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
June

Year-to-Date
June

2019

2018

% Change

2019

2018

% Change

Southern Company¹ –

Operating Revenues

$

5,098

$

5,627

(9.4)

%

$

10,510

$

11,999

(12.4)

%

Earnings (Loss) Before Income Taxes

1,076

(266)

N/M

4,494

784

N/M

Net Income (Loss) Available to Common

899

(154)

N/M

2,982

784

N/M

Alabama Power –

Operating Revenues

$

1,513

$

1,503

0.7

%

$

2,921

$

2,976

(1.8)

%

Earnings Before Income Taxes

388

326

19.0

%

671

636

5.5

%

Net Income Available to Common

296

259

14.3

%

513

484

6.0

%

Georgia Power –

Operating Revenues

$

2,117

$

2,048

3.4

%

$

3,951

$

4,008

(1.4)

%

Earnings (Loss) Before Income Taxes

577

(539)

N/M

970

(94)

N/M

Net Income (Loss) Available to Common

448

(396)

N/M

759

(44)

N/M

Mississippi Power –

Operating Revenues

$

313

$

297

5.4

%

$

600

$

598

0.3

%

Earnings Before Income Taxes

42

60

(30.0)

%

86

49

75.5

%

Net Income Available to Common

37

46

(19.6)

%

74

39

89.7

%

Southern Power¹ –

Operating Revenues

$

510

$

555

(8.1)

%

$

953

$

1,064

(10.4)

%

Earnings (Loss) Before Income Taxes

152

(28)

N/M

170

(12)

N/M

Net Income Available to Common

174

22

N/M

230

143

60.8

%

Southern Company Gas¹ –

Operating Revenues

$

689

$

730

(5.6)

%

$

2,163

$

2,369

(8.7)

%

Earnings Before Income Taxes

112

24

N/M

459

407

12.8

%

Net Income (Loss) Available to Common

106

(31)

N/M

376

248

51.6

%

N/M - not meaningful

Notes

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

(1)

Financial comparisons to the prior year were impacted by (i) Southern Company Gas' disposition of: (a) Pivotal Home Solutions on June 4, 2018, (b) Elizabethtown Gas and Elkton Gas on July 1, 2018, and (c) Florida City Gas on July 29, 2018; (ii) the disposition of Southern Power Company's ownership interest in Plants Oleander and Stanton on December 4, 2018; (iii) Southern Power Company's sale of (a) a 33% equity interest in a limited partnership indirectly owning substantially all of its solar facilities on May 22, 2018 and (b) a noncontrolling interest in its subsidiary owning eight operating wind facilities on December 11, 2018; and (iv) the disposition of Gulf Power Company on January 1, 2019.