SOUTHERN CO - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - January 4, 2019

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Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

The Unaudited Pro Forma Condensed Consolidated Financial Statements (pro forma financial statements) have been derived from the historical consolidated financial statements of The Southern Company (Southern Company).

The Unaudited Pro Forma Condensed Consolidated Statements of Income for the nine months ended September 30, 2018 and the year ended December 31, 2017 (pro forma statements of income) give effect to the sale of the following four wholly-owned subsidiaries to a subsidiary of NextEra Energy, Inc. (Divestitures) as if they were completed on January 1, 2017:

•
Gulf Power Company (Gulf Power), sold on January 1, 2019;
•
Southern Company - Oleander LLC (Oleander) and Southern Company - Florida LLC (Stanton) (owned by Southern Power Company), sold on December 4, 2018; and
•
Pivotal Utility Holdings, Inc. (PUHI), including its Florida City Gas business (owned by Southern Company Gas), sold on July 31, 2018.

The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2018 (pro forma balance sheet) gives effect to the sales of Gulf Power, Oleander, and Stanton as if they were completed on September 30, 2018. Proceeds of $530 million received in the sale of PUHI and the related pay down of $276 million in debt are reflected in the historical balance sheet of Southern Company at September 30, 2018.

The historical consolidated financial information has been adjusted in the pro forma financial statements (A) to give effect to pro forma events that are: (1) directly attributable to the Divestitures; (2) factually supportable; and (3) with respect to the statements of income, expected to have a continuing impact on the results of Southern Company, and (B) to eliminate historical events directly attributable to the Divestitures that are not, with respect to the statements of income, expected to have a continuing impact on the results of Southern Company.

Assumptions and estimates underlying the pro forma adjustments are described in the accompanying note, which should be read in connection with the pro forma financial statements. While the pro forma financial statements have been prepared based on preliminary estimates for the sales of Gulf Power, Oleander, and Stanton and are subject to final working capital adjustments, the final amounts recorded are not expected to be materially different from the information presented herein.

The pro forma financial statements have been presented for illustrative purposes only and are not necessarily indicative of the results of operations and financial position that would have been achieved had the Divestitures taken place on the dates indicated, or the future consolidated results of operations or financial position of Southern Company.

The pro forma financial statements also should be read in conjunction with:

•
the consolidated financial statements of Southern Company as of and for the year ended December 31, 2017 included in Southern Company’s Annual Report on Form 10-K for the year ended December 31, 2017; and
•
the consolidated financial statements of Southern Company as of and for the nine months ended September 30, 2018 included in Southern Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.






Southern Company
Unaudited Pro Forma Condensed
Consolidated Statements of Income
For the Nine Months Ended September 30, 2018
 
Southern Company
 
Divestitures
 
Pro Forma Adjustments
 
Pro Forma
 
(in millions)
Operating Revenues:
 
 
 
 
 
 
 
Retail electric revenues
$
11,913

 
$
(932
)
 
$
—

 
$
10,981

Wholesale electric revenues
1,923

 
(183
)
 
—

 
1,740

Other electric revenues
509

 
(50
)
 
—

 
459

Natural gas revenues
2,806

 
(56
)
 
—

 
2,750

Other revenues
1,007

 
—

 
—

 
1,007

Total operating revenues
18,158

 
(1,221
)
 
—

 
16,937

Operating Expenses:
 
 
 
 
 
 
 
Fuel
3,514

 
(305
)
 
—

 
3,209

Purchased power
760

 
(135
)
 
—

 
625

Cost of natural gas
1,053

 
(16
)
 
—

 
1,037

Cost of other sales
688

 
—

 
—

 
688

Other operations and maintenance
4,217

 
(273
)
 
—

 
3,944

Depreciation and amortization
2,338

 
(156
)
 
—

 
2,182

Taxes other than income taxes
990

 
(97
)
 
—

 
893

Estimated loss on plants under construction
1,105

 
—

 
—

 
1,105

(Gain) loss on dispositions, net
(317
)
 
—

 
121

(a)
(196
)
Impairment charges
197

 
—

 
(119
)
(b)
78

Total operating expenses
14,545

 
(982
)
 
2

 
13,565

Operating Income
3,613

 
(239
)
 
(2
)
 
3,372

Other Income and (Expense):
 
 
 
 
 
 
 
Allowance for equity funds used during construction
99

 
—

 
—

 
99

Earnings from equity method investments
108

 
—

 
—

 
108

Interest expense, net of amounts capitalized
(1,386
)
 
42

 
79

(c)
(1,265
)
Other income (expense), net
195

 
2

 
—

 
197

Total other income and (expense)
(984
)
 
44

 
79

 
(861
)
Earnings Before Income Taxes
2,629

 
(195
)
 
77

 
2,511

Income taxes
598

 
(11
)
 
(51
)
(d)
536

Consolidated Net Income
2,031

 
(184
)
 
128

 
1,975

Dividends on preferred and preference stock of subsidiaries
12

 
—

 
—

 
12

Net income attributable to noncontrolling interests
71

 
—

 
—

 
71

Consolidated Net Income Attributable to
Southern Company
$
1,948

 
$
(184
)
 
$
128

 
$
1,892

Common Stock Data:
 
 
 
 
 
 
 
Earnings per share -
 
 
 
 
 
 
 
Basic
$
1.92

 
 
 
 
 
$
1.86

Diluted
$
1.91

 
 
 
 
 
$
1.85

Average number of shares of common stock outstanding (in millions)
 
 
 
 
 
 
 
Basic
1,016

 
 
 
 
 
1,016

Diluted
1,021

 
 
 
 
 
1,021






Southern Company
Unaudited Pro Forma Condensed
Consolidated Statements of Income
For the Year Ended December 31, 2017
 
Southern Company
 
Divestitures
 
Pro Forma Adjustments
 
Pro Forma
 
(in millions)
Operating Revenues:
 
 
 
 
 
 
 
Retail electric revenues
$
15,330

 
$
(1,281
)
 
$
—

 
$
14,049

Wholesale electric revenues
2,426

 
(243
)
 
—

 
2,183

Other electric revenues
681

 
(70
)
 
—

 
611

Natural gas revenues
3,791

 
(87
)
 
—

 
3,704

Other revenues
803

 
—

 
—

 
803

Total operating revenues
23,031

 
(1,681
)
 
—

 
21,350

Operating Expenses:
 
 
 
 
 
 
 
Fuel
4,400

 
(427
)
 
—

 
3,973

Purchased power
863

 
(156
)
 
—

 
707

Cost of natural gas
1,601

 
(32
)
 
—

 
1,569

Cost of other sales
513

 
—

 
—

 
513

Other operations and maintenance
5,481

 
(431
)
 
—

 
5,050

Depreciation and amortization
3,010

 
(167
)
 
—

 
2,843

Taxes other than income taxes
1,250

 
(123
)
 
—

 
1,127

Estimated loss on plants under construction
3,362

 
—

 
—

 
3,362

Total operating expenses
20,480

 
(1,336
)
 
—

 
19,144

Operating Income
2,551

 
(345
)
 
—

 
2,206

Other Income and (Expense):
 
 
 
 
 
 
 
Allowance for equity funds used during construction
160

 
—

 
—

 
160

Earnings from equity method investments
106

 
—

 
—

 
106

Interest expense, net of amounts capitalized
(1,694
)
 
55

 
106

(c)
(1,533
)
Other income (expense), net
(55
)
 
9

 
—

 
(46
)
Total other income and (expense)
(1,483
)
 
64

 
106

 
(1,313
)
Earnings Before Income Taxes
1,068

 
(281
)
 
106

 
893

Income taxes
142

 
(108
)
 
41

(d)
75

Consolidated Net Income
926

 
(173
)
 
65

 
818

Less:
 
 
 
 
 
 
 
Dividends on preferred and preference stock of subsidiaries
38

 
(4
)
 
—

 
34

Net income attributable to noncontrolling interests
46

 
—

 
—

 
46

Consolidated Net Income Attributable to
Southern Company
$
842

 
$
(169
)
 
$
65

 
$
738

Common Stock Data:
 
 
 
 
 
 
 
Earnings per share -
 
 
 
 
 
 
 
Basic
$
0.84

 
 
 
 
 
$
0.74

Diluted
$
0.84

 
 
 
 
 
$
0.73

Average number of shares of common stock outstanding (in millions)
 
 
 
 
 
 
 
Basic
1,000

 
 
 
 
 
1,000

Diluted
1,008

 
 
 
 
 
1,008






Southern Company
Unaudited Pro Forma Condensed
Consolidated Balance Sheet
As of September 30, 2018
 
 
 
Southern Company
 
Divestitures
 
Pro Forma Adjustments
 
Pro Forma
Assets
 
(in millions)
Current Assets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
1,847

 
$
4,619

(e)
$
(3,850
)
(g)
$
2,616

Receivables —
 
 
 
 
 
 
 
 
Customer accounts receivable
 
1,730

 
—

 
—

 
1,730

Energy marketing receivables
 
498

 
—

 
—

 
498

Unbilled revenues
 
738

 
—

 
—

 
738

Under recovered fuel clause revenues
 
105

 
—

 
—

 
105

Other accounts and notes receivable
 
690

 
—

 
—

 
690

Accumulated provision for uncollectible accounts
 
(33
)
 
—

 
—

 
(33
)
Materials and supplies
 
1,418

 
—

 
—

 
1,418

Fossil fuel for generation
 
390

 
—

 
—

 
390

Natural gas for sale
 
486

 
—

 
—

 
486

Prepaid expenses
 
354

 
—

 
—

 
354

Other regulatory assets, current
 
522

 
—

 
—

 
522

Assets held for sale, current
 
407

 
(407
)
 
—

 
—

Other current assets
 
232

 
75

(f)
—

 
307

Total current assets
 
9,384

 
4,287

 
(3,850
)
 
9,821

Property, Plant, and Equipment:
 
 
 
 
 
 
 
 
In service
 
100,672

 
—

 
—

 
100,672

Less: Accumulated depreciation
 
30,739

 
—

 
—

 
30,739

Plant in service, net of depreciation
 
69,933

 
—

 
—

 
69,933

Nuclear fuel, at amortized cost
 
844

 
—

 
—

 
844

Construction work in progress
 
7,655

 
—

 
—

 
7,655

Total property, plant, and equipment
 
78,432

 
—

 
—

 
78,432

Other Property and Investments:
 
 
 
 
 
 
 
 
Goodwill
 
5,315

 
—

 
—

 
5,315

Equity investments in unconsolidated subsidiaries
 
1,569

 
—

 
—

 
1,569

Other intangible assets, net of amortization
 
674

 
—

 
—

 
674

Nuclear decommissioning trusts, at fair value
 
1,872

 
—

 
—

 
1,872

Leveraged leases
 
794

 
—

 
—

 
794

Miscellaneous property and investments
 
258

 
—

 
—

 
258

Total other property and investments
 
10,482

 
—

 
—

 
10,482

Deferred Charges and Other Assets:
 
 
 
 
 
 
 
 
Deferred charges related to income taxes
 
792

 
—

 
—

 
792

Unamortized loss on reacquired debt
 
328

 
—

 
—

 
328

Other regulatory assets, deferred
 
6,196

 
—

 
—

 
6,196

Assets held for sale
 
4,667

 
(4,667
)
 
—

 
—

Other deferred charges and assets
 
1,436

 
—

 
—

 
1,436

Total deferred charges and other assets
 
13,419

 
(4,667
)
 
—

 
8,752

Total Assets
 
$
111,717

 
$
(380
)
 
$
(3,850
)
 
$
107,487







THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
As of September 30, 2018
 
 
 
Southern Company
 
Divestitures
 
Pro Forma Adjustments
 
Pro Forma
Liabilities and Stockholders' Equity
 
(in millions)
Current Liabilities:
 
 
 
 
 
 
 
 
Securities due within one year
 
$
3,013

 
$
—

 
$
—

 
$
3,013

Notes payable
 
2,564

 
—

 
—

 
2,564

Energy marketing trade payables
 
521

 
—

 
—

 
521

Accounts payable
 
2,246

 
—

 
—

 
2,246

Customer deposits
 
524

 
—

 
—

 
524

Accrued taxes
 
1,060

 
728

(h)
—

 
1,788

Accrued interest
 
422

 
—

 
—

 
422

Accrued compensation
 
800

 
—

 
—

 
800

Asset retirement obligations, current
 
348

 
—

 
—

 
348

Other regulatory liabilities, current
 
349

 
—

 
—

 
349

Liabilities held for sale, current
 
355

 
(355
)
 
—

 
—

Other current liabilities
 
763

 
—

 
—

 
763

Total current liabilities
 
12,965

 
373

 
—

 
13,338

Long-term Debt
 
41,425

 
—

 
(3,850
)
(g)
37,575

Deferred Credits and Other Liabilities:
 
 
 
 
 
 
 
 
Accumulated deferred income taxes
 
6,035

 
—

 
—

 
6,035

Deferred credits related to income taxes
 
6,651

 
—

 
—

 
6,651

Accumulated deferred ITCs
 
2,377

 
—

 
—

 
2,377

Employee benefit obligations
 
2,017

 
—

 
—

 
2,017

Asset retirement obligations, deferred
 
5,817

 
—

 
—

 
5,817

Accrued environmental remediation
 
269

 
—

 
—

 
269

Other cost of removal obligations
 
2,330

 
—

 
—

 
2,330

Other regulatory liabilities, deferred
 
153

 
—

 
—

 
153

Liabilities held for sale
 
2,835

 
(2,835
)
 
—

 
—

Other deferred credits and liabilities
 
454

 
—

 
—

 
454

Total deferred credits and other liabilities
 
28,938

 
(2,835
)
 
—

 
26,103

Total Liabilities
 
83,328

 
(2,462
)
 
(3,850
)
 
77,016

Redeemable Preferred Stock of Subsidiaries
 
324

 
—

 
—

 
324

Stockholders' Equity:
 
 
 
 
 
 
 
 
Common Stockholders' Equity:
 
 
 
 
 
 
 
 
Common stock
 
5,140

 
—

 
—

 
5,140

Paid-in capital
 
10,905

 
—

 
—

 
10,905

Treasury, at cost
 
(39
)
 
—

 
—

 
(39
)
Retained earnings
 
9,048

 
2,082

 
—

 
11,130

Accumulated other comprehensive loss
 
(177
)
 
—

 
—

 
(177
)
Total Common Stockholders' Equity
 
24,877

 
2,082

 
—

 
26,959

Noncontrolling Interests
 
3,188

 
—

 
—

 
3,188

Total Stockholders' Equity
 
28,065

 
2,082

 
—

 
30,147

Total Liabilities and Stockholders' Equity
 
$
111,717

 
$
(380
)
 
$
(3,850
)
 
$
107,487







Note 1. Adjustments to Pro Forma Financial Statements

Basis of Presentation. The pro forma financial statements have been prepared based on the amounts reported in the consolidated balance sheet of Southern Company as of September 30, 2018 and the consolidated statements of income of Southern Company for the nine months ended September 30, 2018 and the year ended December 31, 2017. Amounts reflected in the Divestitures column of the pro forma statements of income represent the historical operating results of the businesses disposed of through the Divestitures for the year ended December 31, 2017 and through the date of disposition (July 31, 2018) for PUHI and through September 30, 2018 for Gulf Power, Oleander, and Stanton.

Adjustments to Pro Forma Statements of Income

a.
Gain on dispositions, net–Reflects the elimination of the gain recognized on the sale of PUHI during the third quarter 2018.
b.
Impairment charges–Reflects the elimination of an asset impairment charge related to the sale of Oleander and Stanton recorded during the second quarter 2018.
c.
Interest expense, net of amounts capitalized–Reflects the use of an estimated $3.85 billion of sale proceeds to reduce certain outstanding debt obligations of Southern Company having a weighted-average interest rate of 2.74%.
d.
Income taxes (benefit)–Reflects the elimination of $101 million in income tax expense recognized on the gain on sale of PUHI along with the income tax effect of the remaining pro forma adjustments calculated using an estimated statutory rate of 25.2% for the nine months ended September 30, 2018 and 38.4% for the year ended December 31, 2017.

Adjustments to Pro Forma Balance Sheet

e.
Cash and cash equivalents–Reflects the net sales proceeds of $4.416 billion for Gulf Power and $203 million for Oleander and Stanton.
f.
Other current assets–Reflects consideration receivable of $75 million related to the sale of Gulf Power.
g.
Cash and cash equivalents and Long-term debt–Reflects the use of an estimated $3.85 billion of sale proceeds from the sale of Gulf Power, Oleander, and Stanton to retire existing debt of Southern Company.
h.
Accrued taxes–Reflects the estimated tax liability associated with the net gain on the sales of Gulf Power, Oleander, and Stanton.



SOUTHERN CO Reports