Southern Company reports third quarter earnings

Non-GAAP Financial Measures

Three Months Ended September

Year-to-Date September

Net Income - Excluding Items (in millions)

2016

2015

2016

2015

Net Income - As Reported

$1,145

$959

$2,242

$2,096

Estimated Loss on Kemper IGCC

63

150

197

182

  Tax Impact

(24)

(57)

(76)

(70)

Acquisition and Integration Costs

43

16

107

16

  Tax Impact

(14)

(4)

(34)

(4)

Additional MCAR Settlement Costs

-

-

-

7

  Tax Impact

-

-

-

(3)

Subtotal

$1,213

$1,064

$2,436

$2,224

Earnings Guidance Comparability Items:

Equity Return Related to Kemper IGCC

    Schedule Extension

(7)

-

(7)

-

       Tax Impact

(1)

-

(1)

-

Southern Company Gas Earnings,

(46)

-

(46)

-

net of Acquisition and Integration Costs

       Tax Impact

18

-

18

-

Acquisition Debt Financing Costs

68

-

107

-

       Tax Impact

(26)

-

(41)

-

Net Income – Excluding Items

$1,219

$1,064

$2,466

$2,224

Adjusted Average Shares Outstanding –                                                Acquisition Financing (in millions)

954

910

935

910

Basic Earnings Per Share – Excluding Items

$1.28

$1.17

$2.64

$2.45

Southern Company

Financial Highlights

(In Millions of Dollars Except Earnings Per Share)

Three Months EndedSeptember

Year-to-Date

September 

Net Income–As Reported (See Notes)

2016

2015

2016

2015

  Traditional Electric Operating Companies

$

1,033

$

874

$

2,092

$

1,912

  Southern Power

176

102

315

181

Southern Company Gas

4

—

4

—

  Total

1,213

976

2,411

2,093

  Parent Company and Other

(68)

(17)

(169)

3

  Net Income–As Reported

$

1,145

$

959

$

2,242

$

2,096

  Basic Earnings Per Share1

$

1.18

$

1.05

$

2.39

$

2.30

  Average Shares Outstanding (in millions)

968

910

940

910

  End of Period Shares Outstanding (in millions)

980

909

Non-GAAP Financial Measures

Three Months EndedSeptember

Year-to-DateSeptember

Net Income–Excluding Items (See Notes)

2016

2015

2016

2015

  Net Income–As Reported

$

1,145

$

959

$

2,242

$

2,096

Estimated Loss on Kemper IGCC2

63

150

197

182

Tax Impact

(24)

(57)

(76)

(70)

Acquisition and Integration Costs3

43

16

107

16

Tax Impact

(14)

(4)

(34)

(4)

Additional MCAR Settlement Costs4

—

—

—

7

Tax Impact

—

—

—

(3)

Subtotal

$

1,213

$

1,064

$

2,436

$

2,224

Earnings Guidance Comparability Items:

Equity Return Related to Kemper IGCC     Schedule Extension5

(7)

—

(7)

—

Tax Impact

(1)

—

(1)

—

Southern Company Gas Earnings,

   net of Acquisition and Integration Costs6

(46)

—

(46)

—

Tax Impact

18

—

18

—

Acquisition Debt Financing Costs6

68

—

107

—

Tax Impact

(26)

—

(41)

—

  Net Income–Excluding Items

$

1,219

$

1,064

$

2,466

$

2,224

Adjusted Average Shares Outstanding - Acquisition

   Financing6(in millions)

954

910

935

910

  Basic Earnings Per Share–Excluding Items

$

1.28

$

1.17

$

2.64

$

2.45

Notes

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

-See Notes on the following page.

Southern Company

Financial Highlights

Notes

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

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

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

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

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

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

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

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

Southern Company

Significant Factors Impacting EPS

Three Months EndedSeptember

Year-to-DateSeptember

2016

2015

Change

2016

2015

Change

Earnings Per Share–

As Reported1 (See Notes)

$

1.18

$

1.05

$

0.13

$

2.39

$

2.30

$

0.09

  Significant Factors:

  Traditional Electric Operating Companies

$

0.18

$

0.20

Southern Power

0.08

0.15

Southern Company Gas

0.01

0.01

Parent Company and Other

(0.06)

(0.19)

Increase in Shares

(0.08)

(0.08)

  Total–As Reported

$

0.13

$

0.09

Three Months EndedSeptember

Year-to-DateSeptember

Non-GAAP Financial Measures

2016

2015

Change

2016

2015

Change

Earnings Per Share–

Excluding Items (See Notes)

$

1.28

$

1.17

$

0.11

$

2.64

$

2.45

$

0.19

  Total–As Reported

$

0.13

$

0.09

Estimated Loss on Kemper IGCC2

(0.07)

—

Acquisition and Integration Costs3

0.02

0.07

Additional MCAR Settlement Costs4

—

(0.01)

Equity Return Related to Kemper IGCC     Schedule Extension5

(0.01)

(0.01)

Southern Company Gas Earnings,

   net of Acquisition and Integration Costs6

(0.03)

(0.03)

Acquisition Debt Financing Costs6

0.05

0.07

Additional Shares Issued for SNG Acquisition6

0.02

0.01

  Total–Excluding Items

$

0.11

$

0.19

Notes

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

- See Notes on the following page.

Southern Company

Significant Factors Impacting EPS

Notes

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

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

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

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

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

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

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

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

Southern Company

EPS Earnings Analysis

Three Months Ended September 2016 vs. September 2015

Description

(2)¢

Retail Sales

8

Retail Revenue Impacts

11

Weather

(1)

Wholesale Operations

1

Other Operating Revenues

(1)

Non-Fuel O&M

(1)

Depreciation and Amortization

(1)

Taxes Other Than Income Taxes

(2)

Other Income and Deductions

(1)

Interest Expense

11¢

Total Traditional Electric Operating Companies

8¢

Southern Power

(2)¢

Parent and Other (Excluding Items)1

(6)¢

Increase in Shares (Excluding Items)2

11¢

Total Change in QTD EPS (Excluding Items)

7

Estimated Loss on Kemper IGCC3

(2)

Acquisition and Integration Costs4

1

Equity Return Related to Kemper IGCC Schedule Extension5

3

Southern Company Gas Earnings, net of Acquisition and Integration Costs6

(5)

Acquisition Debt Financing Costs6

(2)

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

13¢

Total Change in QTD EPS (As Reported)

Notes

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

- See Notes on the following page.

Southern Company

EPS Earnings Analysis

Three Months Ended September 2016 vs. September 2015

Notes

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

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

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

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

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

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

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

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

Southern Company

Consolidated Earnings

As Reported

(In Millions of Dollars)

Three Months Ended

September

Year-to-Date

September

2016

2015

Change

2016

2015

Change

Income Account-

Retail Electric Revenues-

Fuel

$

1,296

$

1,432

$

(136)

$

3,169

$

3,651

$

(482)

Non-Fuel

3,512

3,269

243

8,763

8,307

456

Wholesale Electric Revenues

613

520

93

1,455

1,435

20

Other Electric Revenues

181

169

12

529

494

35

Natural Gas Revenues

518

—

518

518

—

518

Other Revenues

144

11

133

281

34

247

Total Revenues

6,264

5,401

863

14,715

13,921

794

Fuel and Purchased Power

1,627

1,713

(86)

3,915

4,439

(524)

Cost of Natural Gas

133

—

133

133

—

133

Cost of Other Sales

84

—

84

161

—

161

Non-Fuel O & M

1,411

1,097

314

3,616

3,320

296

Depreciation and Amortization

695

528

167

1,805

1,515

290

Taxes Other Than Income Taxes

309

264

45

821

761

60

Estimated Loss on Kemper IGCC

63

150

(87)

197

182

15

Total Operating Expenses

4,322

3,752

570

10,648

10,217

431

Operating Income

1,942

1,649

293

4,067

3,704

363

Allowance for Equity Funds Used During Construction

52

60

(8)

150

163

(13)

Interest Expense, Net of Amounts Capitalized

374

218

156

913

612

301

Other Income (Expense), net

21

(21)

42

(38)

(41)

3

Income Taxes

458

500

(42)

951

1,076

(125)

Net Income

1,183

970

213

2,315

2,138

177

Less:

Dividends on Preferred and Preference Stock of Subsidiaries

11

11

—

34

42

(8)

Net Income Attributable to Noncontrolling Interests

27

—

27

39

—

39

NET INCOME ATTRIBUTABLE TO SOUTHERN COMPANY

$

1,145

$

959

$

186

$

2,242

$

2,096

$

146

Notes

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

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

Southern Company

Kilowatt-Hour Sales

(In Millions of KWHs)

Three Months Ended September

Year-to-Date September

As Reported

2016

2015

Change

Weather Adjusted Change

2016

2015

Change

Weather Adjusted Change*

Kilowatt-Hour Sales-

Total Sales

58,051

54,921

5.7

%

151,099

149,044

1.4

%

Total Retail Sales-

47,071

45,614

3.2

%

(1.4)

%

124,535

124,895

(0.3)

%

(0.8)

%

Residential

17,213

15,801

8.9

%

(0.4)

%

42,257

41,925

0.8

%

0.2

%

Commercial

15,805

15,289

3.4

%

(0.7)

%

41,509

41,359

0.4

%

(0.6)

%

Industrial

13,833

14,305

(3.3)

%

(3.3)

%

40,102

40,938

(2.0)

%

(2.1)

%

Other

220

219

0.7

%

0.7

%

667

673

(1.0)

%

(0.9)

%

Total Wholesale Sales

10,980

9,307

18.0

%

N/A

26,564

24,149

10.0

%

N/A

Note

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

Southern Company

Financial Overview

As Reported

(In Millions of Dollars)

Three Months Ended

September

Year-to-Date

September

2016

2015

% Change

2016

2015

% Change

Southern Company –

Operating Revenues

$

6,264

$

5,401

16.0

%

$

14,715

$

13,921

5.7

%

Earnings Before Income Taxes

1,641

1,470

11.6

%

3,266

3,214

1.6

%

Net Income Available to Common

1,145

959

19.4

%

2,242

2,096

7.0

%

Alabama Power –

Operating Revenues

$

1,785

$

1,695

5.3

%

$

4,561

$

4,551

0.2

%

Earnings Before Income Taxes

575

491

17.1

%

1,196

1,113

7.5

%

Net Income Available to Common

350

295

18.6

%

717

665

7.8

%

Georgia Power –

Operating Revenues

$

2,698

$

2,691

0.3

%

$

6,621

$

6,685

(1.0)

%

Earnings Before Income Taxes

967

892

8.4

%

1,964

1,734

13.3

%

Net Income Available to Common

598

551

8.5

%

1,214

1,064

14.1

%

Gulf Power –

Operating Revenues

$

436

$

429

1.6

%

$

1,136

$

1,170

(2.9)

%

Earnings Before Income Taxes

77

81

(4.9)

%

189

202

(6.4)

%

Net Income Available to Common

45

48

(6.3)

%

108

120

(10.0)

%

Mississippi Power –

Operating Revenues

$

352

$

341

3.2

%

$

885

$

893

(0.9)

%

Earnings (Loss) Before Income Taxes

48

(52)

N/M

35

52

(32.7)

%

Net Income (Loss) Available to Common

41

(21)

N/M

54

62

(12.9)

%

Southern Power –

Operating Revenues

$

500

$

401

24.7

%

$

1,189

$

1,086

9.5

%

Earnings Before Income Taxes

101

112

(9.8)

%

187

210

(11.0)

%

Net Income Available to Common

176

102

72.5

%

315

181

74.0

%

Southern Company Gas –

Operating Revenues

$

543

$

—

N/A

$

543

$

—

N/A

Earnings Before Income Taxes

11

—

N/A

11

—

N/A

Net Income Available to Common

4

—

N/A

4

—

N/A

N/M - not meaningful

N/A - not applicable

Note

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