UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant To Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[ ] Preliminary information statement
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14c-5(d)(2))
[x] Definitive information statement
ALABAMA POWER COMPANY
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(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
NOTICE OF 2004
ANNUAL MEETING
& INFORMATION STATEMENT
WWW.ALABAMAPOWER.COM
(ALABAMA POWER LOGO)
ALABAMA POWER COMPANY
BIRMINGHAM, ALABAMA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 23, 2004
NOTICE IS HEREBY GIVEN that the annual meeting of the shareholders of Alabama
Power Company will be held at The Beach Club, 925 Beach Club Trail, Gulf Shores,
Alabama 36542 on April 23, 2004 at 8:00 a.m., central time, to elect 16 members
of the board of directors and to transact any other business that may properly
come before said meeting or any adjournment or postponement thereof.
Only shareholders of record at the close of business on March 19, 2004 will be
entitled to notice of and to vote at said meeting or any adjournment or
postponement thereof.
The Information Statement and the Annual Report are included in this mailing.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
BY ORDER OF THE BOARD OF DIRECTORS
William E. Zales, Jr.
Vice President and Corporate Secretary
Birmingham, Alabama
March 30, 2004
TABLE OF CONTENTS
PAGE
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General Information......................................... 1
Shareholder Proposals....................................... 1
Nominees for Election as Directors.......................... 2
Corporate Governance........................................ 4
Communications to the Board................................. 6
Board Attendance at Annual Shareholders Meeting............. 6
Audit Committee Report...................................... 7
Compensation and Management Succession Committee Report..... 9
Compensation Committee Interlocks and Insider
Participation............................................. 11
Certain Relationships and Related Transactions.............. 11
Executive Compensation Information.......................... 12
Stock Ownership Table....................................... 16
Appendix A -- Southern Company Audit Committee Charter...... A-1
Appendix B -- Policy on Engagement of Independent Auditor
For Audit and Non-Audit Services.......................... B-1
INFORMATION STATEMENT
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GENERAL INFORMATION
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This Information Statement is furnished by Alabama Power Company (the "Company")
in connection with the 2004 Annual Meeting of Shareholders and any adjournment
or postponement thereof. The meeting will be held on April 23, 2004 at 8:00
a.m., central time, at The Beach Club, 925 Beach Club Trail, Gulf Shores,
Alabama 36542. This Information Statement is initially being provided to
shareholders on or about March 30, 2004.
At the meeting, we will elect 16 members to the board of directors and transact
any other business that may properly come before the meeting. We are not aware
of any other matters to be presented at the meeting; however, the holder of the
Company's common stock will be entitled to vote on any other matters properly
presented.
All shareholders of record on the record date of March 19, 2004 are entitled to
notice of and to vote at the meeting. On that date, there were 7,750,000 common
shares outstanding and entitled to vote, all of which are held by The Southern
Company ("Southern Company"). There were also 475,115 shares of preferred stock
and 12,001,250 shares of Class A preferred stock outstanding on that date. With
respect to the election of directors, all of the outstanding shares of preferred
stock and Class A preferred stock are entitled to vote as a single class with
the Company's common stock. Each common share counts as one vote. Each share of
the 4.20% Series, the 4.52% Series, the 4.60% Series, the 4.64% Series, the
4.72% Series and the 4.92% Series of outstanding preferred stock, with par value
of $100 per share, counts as two-fifths vote, each share of the 5.20% Series,
the 5.30% Series and the 5.83% Series of outstanding Class A preferred stock,
with stated capital of $25 per share, counts as one-tenth vote and each share of
the Flexible Money Market Class A preferred stock, with stated capital of
$100,000 per share, counts as 400 votes. Neither the Company's charter nor
by-laws provides for cumulative voting rights.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
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SHAREHOLDER PROPOSALS
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Shareholders may present proper proposals for inclusion in the Company's
information statement and for consideration at the next annual meeting of its
shareholders by submitting their proposals to the Company in a timely manner. In
order to be so included for the 2005 Annual Meeting, shareholder proposals must
be received by the Company no later than January 28, 2005.
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NOMINEES FOR ELECTION AS DIRECTORS
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A board of 16 directors is to be elected at the annual meeting, each director to
hold office until the next annual meeting of shareholders and until the election
and qualification of a successor board. If any named nominee becomes unavailable
for election, the board may substitute another nominee.
On the following pages there is information concerning the nominees for director
stating, among other things, their names, ages, positions and offices held, and
brief descriptions of their business experience. The ages of the directors set
forth below are as of December 31, 2003, with the exception of Mr. Johns, whose
age is as of the date of his election in January 2004.
CHARLES D. MCCRARY - Director since 2001
Mr. McCrary, 52, is president and chief executive officer of the Company and
executive vice president of Southern Company. He served as president and chief
operating officer of the Company from April 2001 to October 2001 and vice
president of Southern Company from February 1998 to April 2001. He served as
executive vice president of external affairs of the Company from April 1994
through February 1998. He is a director of AmSouth Bancorporation and Southern
Company system company -- Southern Power Company.
WHIT ARMSTRONG - Director since 1982
Mr. Armstrong, 56, is president, chairman and chief executive officer of The
Citizens Bank, Enterprise, Alabama. He is also president, chairman and chief
executive officer of Enterprise Capital Corporation, Inc. He is a director of
Enstar Group, Inc.
DAVID J. COOPER, SR. - Director since 1998
Mr. Cooper, 58, is president of Cooper/T. Smith Corporation (a maritime company
with a core business of stevedoring and tugboats). He is a director of Cooper/T.
Smith Corporation and subsidiaries, American Equity Underwriters, Inc., Mobile,
Alabama, and SouthTrust Corporation.
H. ALLEN FRANKLIN - Director since 1999
Mr. Franklin, 59, is chairman, president and chief executive officer of Southern
Company. He served as president and chief executive officer of Southern Company
from March 2001 to April 2001 and president and chief operating officer from
June 1999 to March 2001. He served as executive vice president of Southern
Company and president and chief executive officer of Georgia Power from January
1994 to June 1999. He is a director of SouthTrust Corporation, Vulcan Materials
Company and Southern Company system companies -- Georgia Power Company, Gulf
Power Company and Southern Power Company.
R. KENT HENSLEE - Director since 1999
Mr. Henslee, 68, is managing partner of the law firm of Henslee, Robertson,
Strawn & Knowles, L.L.C., Gadsden, Alabama.
JOHN D. JOHNS - Director since 2004
Mr. Johns, 51, has served as chairman, president and chief executive officer of
Protective Life Corporation (holding company whose subsidiaries provide
insurance and other financial services), Birmingham, Alabama, since January
2003. He served as president and chief executive officer from January 2002 to
January 2003. He served as president and chief operating officer from August
1996 until December 2001. He is also a director of Alabama National
BanCorporation, Genuine Parts Company and John H. Harland Company.
CARL E. JONES, JR. - Director since 1988
Mr. Jones, 63, is chairman, president and chief executive officer of Regions
Financial Corporation (bank holding company), Birmingham, Alabama.
PATRICIA M. KING - Director since 1997
Ms. King, 58, is president and chief executive officer of King Motor Co., Inc.,
King's Highway, Inc. and King Imports, Inc. (automobile dealerships), Anniston,
Alabama.
JAMES K. LOWDER - Director since 1997
Mr. Lowder, 54, is chairman of The Colonial Company (real estate development and
sales), Montgomery, Alabama.
WALLACE D. MALONE, JR. - Director since 1990
Mr. Malone, 67, is chairman and chief executive officer of SouthTrust
Corporation (bank holding company), Birmingham, Alabama.
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MALCOLM PORTERA - Director since 2003
Dr. Portera, 57, has served as chancellor of The University of Alabama System,
Tuscaloosa, Alabama, since January 2002. He served as president of Mississippi
State University from January 1998 to December 2001. He is a director of
Protective Life Corporation and Regions Financial Corporation.
ROBERT D. POWERS - Director since 1992
Mr. Powers, 53, is president of The Eufaula Agency, Inc. (real estate and
insurance), Eufaula, Alabama.
C. DOWD RITTER - Director since 1997
Mr. Ritter, 56, is chairman, president and chief executive officer of AmSouth
Bancorporation and AmSouth Bank, Birmingham, Alabama.
JAMES H. SANFORD - Director since 1983
Mr. Sanford, 59, is chairman of HOME Place Farms, Inc. (diversified farmers and
data processing), Prattville, Alabama. He is also president of Autauga Quality
Cotton Association, Prattville, Alabama. He is chairman of Sylvest Farms, Inc.,
Montgomery, Alabama. He is a director of The Federal Reserve Bank of Atlanta,
Birmingham Branch.
JOHN C. WEBB, IV - Director since 1977
Mr. Webb, 61, is president of Webb Lumber Company, Inc. (wholesale lumber and
wood products sales), Demopolis, Alabama.
JAMES W. WRIGHT - Director since 2000
Mr. Wright, 60, is chairman and chief executive officer of First Tuskegee Bank,
Tuskegee, Alabama. He is also chairman and chief executive officer of Birthright
Incorporated (bank holding company).
Each nominee has served in his or her present position for at least the past
five years, unless otherwise noted.
VOTE REQUIRED
The majority of the votes cast by the shares outstanding and entitled to vote at
a meeting at which a quorum is present is required for the election of
directors. Southern Company, as the owner of all of the Company's outstanding
common stock, will vote for all of the nominees above.
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CORPORATE GOVERNANCE
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HOW IS THE COMPANY ORGANIZED?
The Company is managed by a core group of officers and governed by a board of
directors which has been set at a total not to exceed 25 members. The current
nominees for election as directors consist of 16 members -- 14 non-employees,
the chief executive officer of the Company and the chief executive officer of
Southern Company.
WHAT ARE DIRECTORS PAID FOR THEIR SERVICES?
- Standard Arrangements. The following compensation was paid to the Company's
directors during 2003 for service as a member of the board of directors and
any board committee(s), except that employee directors received no fees or
compensation for service as a member of the board of directors or any board
committee. At the election of the director, all or a portion of the cash
retainer may be payable in Southern Company common stock, and all or a
portion of the total fees may be deferred under the Deferred Compensation
Plan until membership on the board is terminated.
Cash Retainer Fee..................... $17,000
Stock Retainer Fee.................... 520 shares of Southern Company common stock
Meeting Fee........................... $900 for each board or committee meeting attended
- Pension Plan. There is no pension plan for non-employee directors.
- Other Arrangements. No director received other compensation for services as
a director during the year ending December 31, 2003 in addition to or in
lieu of that specified by the standard arrangements specified above.
NEW GOVERNANCE POLICIES AND PROCESSES
The Company has reviewed the provisions of the Sarbanes-Oxley Act of 2002 (the
"Sarbanes-Oxley Act"), the proposed and final rules of the U.S. Securities and
Exchange Commission (the "SEC") and the final listing standards of the New York
Stock Exchange (the "NYSE") relating to corporate governance. Based on the SEC's
Final Rule: Standards Relating to Listed Company Audit Committees, the Company
is exempt from the audit committee requirements set forth in Section 301 of the
Sarbanes-Oxley Act and, therefore, is not required to have an audit committee or
an audit committee report on whether it has an audit committee financial expert.
The Company is also exempt from a majority of the NYSE's listing standards
relating to corporate governance. The Company has voluntarily complied with
certain of the NYSE's listing standards relating to corporate governance where
such compliance is in the best interest of the Company's shareholders.
EXECUTIVE SESSIONS
It is the policy of the directors to hold an executive session of the
non-management directors without management participation at each scheduled
board of directors meeting. The chairman of the Controls and Compliance
Committee presides over such executive sessions. Information on how to
communicate with the chairman of the Controls and Compliance Committee or the
non-management directors is provided under "Communications to the Board" below.
COMMITTEES OF THE BOARD
CONTROLS AND COMPLIANCE COMMITTEE:
- Members are Mr. Webb, Chairman; Mr. Henslee and Mr. Lowder
- Met twice in 2003
- Oversees the Company's internal control and compliance matters
Prior to April 25, 2003, the Company had an Audit Committee composed of Messrs.
Webb, Henslee and Lowder. On April 25, 2003, the Board amended the Company's
By-laws to remove the provision requiring the Board to have an audit committee.
The Company's Audit Committee met twice prior to its dissolution.
The Company's Controls and Compliance Committee meets periodically with
management, internal auditors and independent auditors to discuss auditing,
internal controls and compliance matters.
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The Southern Company Audit Committee provides broad oversight of the Company's
financial reporting and control functions. The Southern Company Audit Committee
reviews and discusses the Company's financial statements with management and the
independent auditors. Such discussions include critical accounting policies and
practices, alternative financial treatments, proposed adjustments and control
recommendations. Such discussions also include significant management judgments
and estimates, reporting or operational issues and changes in accounting
principles, as well as any disagreements with management. The Southern Company
Audit Committee also is responsible for recommending the filing of the Company's
annual financial statements with the SEC.
The Southern Company board of directors amended its Audit Committee Charter in
2003. Under the charter, the Southern Company Audit Committee has authority to
appoint, compensate and oversee the work of the independent auditors. The
Southern Company Audit Committee charter is attached to this Information
Statement as Appendix A.
COMPENSATION COMMITTEE:
- Members are Mr. Malone, Chairman; Mr. Franklin, ex officio; Mr. Armstrong
and Dr. Portera
- Met three times in 2003
- Oversees the administration of the Company's compensation arrangements
The Company's Compensation Committee reviews and provides input to the Southern
Company Compensation and Management Succession Committee on the performance and
compensation of its chief executive officer and makes recommendations regarding
the fees paid to members of the board of directors.
Southern Company's Compensation and Management Succession Committee approves the
corporate performance goals used to determine incentive compensation and
establishes the mechanism for setting compensation levels for the Company's
executive officers. It also administers executive compensation plans and reviews
management succession plans.
NOMINATING COMMITTEE:
- Members are Mr. Ritter, Chairman; Mr. Franklin, ex officio; Mr. Cooper and
Mr. Sanford
- Met three times in 2003
- Considers and recommends nominees for election as directors
The Nominating Committee, with input from the Company's chief executive officer,
identifies director nominees. The Nominating Committee evaluates candidates
based on the requirements set forth in the Company's By-Laws and regulatory
requirements applicable to the Company.
Southern Company owns all the Company's common stock, and, as a result, Southern
Company's affirmative vote is sufficient to elect director nominees.
Consequently, the Nominating Committee does not accept proposals from preferred
shareholders regarding potential candidates for director nominees. Southern
Company's chief executive officer is an ex officio member of the Nominating
Committee and may propose on behalf of Southern Company potential candidates for
director nominees at any meeting of the Nominating Committee.
EXECUTIVE COMMITTEE:
- Members are Mr. McCrary, Chairman; Mr. Jones; Mr. Malone and Mr. Ritter
- Met one time in 2003
- Acts in place of full board on matters that require board action between
scheduled meetings of the board to the extent permitted by law and within
certain limits set by the board
NUCLEAR SAFETY COMMITTEE:
- Members are Mr. Powers, Chairman; Ms. King; Dr. William Walker and Mr.
Wright
- Met three times in 2003
- Reviews nuclear operations activities
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The board of directors met five times in 2003. Average director attendance at
all board and committee meetings was 90 percent. No nominee attended less than
75 percent of applicable meetings.
5
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COMMUNICATIONS TO THE BOARD
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Shareholders and other parties interested in communicating directly with the
Company's board of directors, the Chairman of the Controls and Compliance
Committee or the non-management directors can contact them by writing c/o
Corporate Secretary, Alabama Power Company, 600 North 18th Street, Birmingham,
Alabama 35291 or by sending an email to apcocorpsec@southernco.com. The
Corporate Secretary will receive the correspondence and forward it to the
individual director or directors to whom the correspondence is directed or the
Chairman of the Controls and Compliance Committee. The Corporate Secretary will
not forward any correspondence that is unduly hostile, threatening, illegal, not
reasonably related to the Company or its business or similarly inappropriate.
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BOARD ATTENDANCE AT ANNUAL SHAREHOLDERS MEETING
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The Company does not have a policy relating to attendance at the Company's
annual meeting of shareholders by directors. The Company does not solicit
proxies for the election of directors because the affirmative vote of Southern
Company is sufficient to elect the nominees and, therefore, holders of the
Company's preferred stock rarely attend the annual meeting. Consequently, a
policy encouraging directors to attend the annual meeting of shareholders is not
necessary. One of the Company's 16 directors attended the Company's 2003 annual
meeting of shareholders.
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AUDIT COMMITTEE REPORT
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The Audit Committee of Southern Company (the "Committee") oversees the Company's
financial reporting process on behalf of the board of directors of Southern
Company. The Company's management has the primary responsibility for the
financial statements and the reporting process including the systems of internal
controls. In fulfilling its oversight responsibilities, the Committee reviewed
the audited financial statements of the Company in the Annual Report with
management. The Committee also reviews the Company's quarterly and annual
reports on Forms 10-Q and 10-K prior to filing with the SEC. The Committee's
review process included discussions of the quality, not just the acceptability,
of the accounting principles, the reasonableness of significant judgments and
estimates and the clarity of disclosures in the financial statements.
The independent auditors are responsible for expressing an opinion on the
conformity of those audited financial statements with accounting principles
generally accepted in the United States. The Committee reviewed with the
independent auditors their judgments as to the quality, not just the
acceptability, of the Company's accounting principles and such other matters as
are required to be discussed with the Committee under generally accepted
auditing standards, rules and regulations of the SEC and the NYSE Corporate
Governance Rules. In addition, the Committee has discussed with the independent
auditors their independence from management and the Company including the
matters in the written disclosures made under Rule 3600T of the Public Company
Accounting Oversight Board, which, on an interim basis, has adopted Independence
Standards Board Standard No. 1, "Independence Discussions with Audit
Committees." The Committee has also considered whether the independent auditors'
provision of non-audit services to the Company is compatible with maintaining
their independence.
The Committee discussed the overall scopes and plans with the Company's internal
and independent auditors for their respective audits. The Committee meets with
the internal and independent auditors, with and without management present, to
discuss the results of their audits, their evaluations of the Company's internal
controls and the overall quality of the Company's financial reporting. The
Committee also meets privately with Southern Company's compliance officer. The
Committee held 12 meetings during 2003.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the board of directors of Southern Company (and the board
approved) that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003 and filed with
the Securities and Exchange Commission. The Committee also reappointed Deloitte
& Touche LLP as the Company's independent auditors for 2004. At the 2004 annual
meeting of Southern Company's shareholders, its shareholders will be asked to
ratify the Committee's selection of the independent auditors.
Members of the Committee:
J. Neal Purcell, Chairman
Dorrit J. Bern
Donald M. James
Zack T. Pate
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PRINCIPAL PUBLIC ACCOUNTING FIRM FEES
The following represents the fees billed to the Company for the two most recent
fiscal years by Deloitte & Touche LLP ("Deloitte & Touche") -- the Company's
principal public accountant for 2002 and 2003.
2002 2003
(IN THOUSANDS)
Audit Fees(1) $553 $ 904
Audit-Related Fees(2) 32 322
Tax Fees 11 5
All Other Fees -- --
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Total $596 $1,231
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(1) Includes services performed in connection with financing transactions.
(2) Includes internal control review services and accounting consultations.
The Southern Company Audit Committee (on behalf of Southern Company and all of
its subsidiaries, including the Company) has adopted a Policy on Engagement of
the Independent Auditor for Audit and Non-Audit Services that includes
requirements for the Audit Committee to pre-approve audit and non-audit services
provided by Deloitte & Touche. This policy was initially adopted in July 2002
and since that time, all audit-related and tax services included in the chart
above have been pre-approved by the Southern Company Audit Committee. The Policy
on Engagement of the Independent Auditor for Audit and Non-Audit Services is
attached to this Information Statement as Appendix B.
CHANGE IN PRINCIPAL PUBLIC ACCOUNTING FIRM
On March 28, 2002, the Board of Directors of Southern Company, upon
recommendation of its Audit Committee, decided not to engage Arthur Andersen LLP
("Arthur Andersen") as the Company's principal public accountants for fiscal
year 2002 and engaged Deloitte & Touche to serve as the Company's principal
public accountants.
Arthur Andersen's report on the financial statements of the Company for the
fiscal year ended December 31, 2001 did not contain any adverse opinion or
disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit
scope, or accounting principles. Such report has not been re-issued in
connection with the Company's financial statements included in the annual report
on Form 10-K for the year ended December 31, 2003.
During the Company's two fiscal years ended December 31, 2001, and the
subsequent interim period through March 28, 2002:
- there were no disagreements between the Company and Arthur Andersen on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not
resolved to Arthur Andersen's satisfaction, would have caused them to make
reference to the subject matter of the disagreement in connection with their
reports;
- there were no reportable events as described in Item 304(a)(1)(v) of
Regulation S-K; and
- the Company did not consult Deloitte & Touche with respect to the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered
on the Company's financial statements, or any other matters or reportable
events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
No representative of Deloitte & Touche is expected to be present at the meeting
unless no later than three business days prior to the day of the meeting the
Company's Corporate Secretary has received written notice from a shareholder
addressed to the Corporate Secretary at Alabama Power Company, 600 North 18th
Street, Birmingham, Alabama 35291, that such shareholder will attend the meeting
and wishes to ask questions of a representative of Deloitte & Touche.
8
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COMPENSATION AND MANAGEMENT SUCCESSION COMMITTEE REPORT
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Southern Company's Compensation and Management Succession Committee is
responsible for the oversight and administration of the Company's executive
compensation program. The Committee is composed entirely of independent,
non-employee directors and operates pursuant to a written charter.
TOTAL EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION PHILOSOPHY
The executive compensation program is based on a philosophy that total executive
compensation must be competitive and must be tied to the Company's and Southern
Company's short-and long-term performance. With the objective of maximizing
Southern Company shareholder value over time, our program aligns the interests
of our executives and the Company's and Southern Company's shareholders.
DETERMINATION OF TOTAL EXECUTIVE COMPENSATION
The Committee retains an independent executive compensation consultant who
provides information on total executive compensation paid at other large
companies in the electric and gas utility industries. Twelve of these companies
are included in the 22 companies that comprise the S&P Electric Utility Index.
Based on the market data, total executive compensation targets are set at an
appropriate size-adjusted level. This means that for target level performance,
the program is designed to pay executives an amount that is at or about the
median of the market. Total executive compensation is paid through an
appropriate mix of both fixed and performance-based (incentive) compensation.
Because the program focuses on incentive compensation, actual total compensation
paid can be above or below the targets based on actual corporate performance.
COMPONENTS OF TOTAL EXECUTIVE COMPENSATION
The primary components of the executive compensation program are:
- Base pay (salary);
- Short-term incentives (annual performance bonuses); and
- Long-term incentives.
The Company also provides certain perquisites that the Committee reviews
periodically to determine if they are reasonable and appropriate. The primary
perquisites provided by the Company are financial planning services, club
memberships (for business use) and home security.
BASE PAY
A range for base pay is determined for each executive, including Mr. McCrary, by
comparing the base pay at the appropriate peer group of companies described
previously. Base pay is generally set at a level that is at or below the
size-adjusted median paid at those companies because of the emphasis on
incentive compensation in the executive compensation program. The 2003 base pay
level for the named executive officers, including Mr. McCrary, was at or near
the median.
ANNUAL PERFORMANCE BONUSES
Annual bonuses are paid through the Omnibus Incentive Compensation Plan. All
named executive officers participated in this plan in 2003.
PERFORMANCE GOALS
Annual performance bonuses are based on the attainment of corporate performance
goals and attainment of the Company's adjusting goals. All performance goals
were set in the first quarter of the year.
9
For 2003, the corporate performance goals included specific targets for:
- Southern Company earnings -- earnings per share ("EPS") and
- The Company's return on equity ("ROE").
The Committee believes that accomplishing the corporate goals is essential for
the Company's and Southern Company's continued success and sustained financial
performance. A target performance level is set for each corporate performance
goal. Performance above or below the targets results in proportionately higher
or lower bonus payments. The bonus amount is then adjusted, up or down, based on
the degree of achievement of the Company's adjusting goals related to such
measures as capital expenditures, cash flow, customer service, plant
availability and diversity.
A target percentage of base pay is established for each named executive officer
based on his or her position level, for target-level performance. Annual
performance bonuses may range from 0 percent of the target to 240 percent based
on actual corporate performance.
No bonuses are paid if performance is below a threshold level or if a minimum
earnings level is not reached. Also, no bonuses are paid if Southern Company's
current earnings are not sufficient to fund the Southern Company common stock
dividend at the same level as the prior year. The Committee also capped the
maximum amount for the annual performance bonus for each named executive officer
at 0.6 percent of Southern Company's net income.
ANNUAL BONUS PAYMENTS
Performance met or exceeded the target levels in all areas in 2003, resulting in
bonuses that exceeded the target levels.
Mr. McCrary's annual performance bonus under the Omnibus Incentive Compensation
Plan for target-level performance was 75 percent of his base pay. The target
percentage of base pay for the other named executive officers ranged from 50 to
55 percent. Each individual's bonus paid for 2003 performance was based 30% on
the degree of achievement of Southern Company's EPS goal and 70% on the degree
of achievement of the Company's ROE goal. Performance for both goals exceeded
the target, resulting in bonus payouts to all named executive officers that
exceeded their respective targets.
LONG-TERM INCENTIVES
The Committee bases a significant portion of the total compensation program on
long-term incentives including Southern Company stock options and performance
dividend equivalents.
STOCK OPTIONS
Executives are granted options with ten-year terms to purchase Southern
Company's common stock at the market price on the date of the grant under the
terms of the Omnibus Incentive Compensation Plan. The estimated annualized value
represented approximately 22 percent of Mr. McCrary's total target compensation,
and 19 to 22 percent for the other named executive officers. The size of prior
grants was not considered in determining the size of the grants made in 2003.
These options vest over a three-year period.
PERFORMANCE DIVIDENDS
The named executive officers, including Mr. McCrary, also are paid
performance-based dividend equivalents on most stock options held at the end of
the year. Dividend equivalents can range from 25 percent of the Southern Company
common stock dividend paid during the year if Southern Company total shareholder
return over a four-year period, compared to a group of other utility companies,
is at the 30th percentile to 100 percent of the dividend paid if it reaches the
90th percentile. No dividend equivalents are paid if the total Southern Company
shareholder return over the period is below the 30th percentile. For eligible
stock options held on December 31, 2003, all named executive officers received a
payout of $1.385 per option for maximum performance under the Omnibus Incentive
Compensation Plan.
10
POLICY ON INCOME TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
limits the deductibility of certain executives' compensation that exceeds $1
million per year unless the compensation is paid under a performance-based plan
as defined in the Code and that has been approved by shareholders. Southern
Company has obtained shareholder approval of the Omnibus Incentive Compensation
Plan. However, because the policy is to maximize long-term shareholder value,
tax deductibility is only one factor considered in setting compensation.
SUMMARY
The Committee believes that the policies and programs described in this report
link pay and performance and serve the best interest of the Company's and
Southern Company's shareholders. The Committee frequently reviews the various
pay plans and policies and modifies them as it deems necessary to continue to
attract, retain and motivate talented executives.
Members of the Committee:
G.J. St. Pe, Chairman
D.P. Amos
T.F. Chapman
--------------------------------------------------------------------------------
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
--------------------------------------------------------------------------------
Southern Company's Compensation and Management Succession Committee is made up
of non-employee directors who have never served as executive officers of
Southern Company or the Company. During 2003, none of Southern Company's or the
Company's executive officers served on the board of directors of any entities
whose directors or officers serve on Southern Company's Compensation and
Management Succession Committee.
--------------------------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------------------------------
Mr. Whit Armstrong is president, chairman and chief executive officer of The
Citizens Bank, Enterprise, Alabama; Mr. Carl E. Jones, Jr. is chairman,
president and chief executive officer of Regions Financial Corporation,
Birmingham, Alabama; Mr. Wallace D. Malone is chairman and chief executive
officer of SouthTrust Corporation, Birmingham, Alabama; Mr. C. Dowd Ritter is
chairman, president and chief executive officer of AmSouth Bancorporation and
AmSouth Bank, Birmingham, Alabama; and Mr. James W. Wright is chairman and chief
executive officer of First Tuskegee Bank, Tuskegee, Alabama. During 2003, these
banks furnished a number of regular banking services in the ordinary course of
business to the Company. The Company intends to maintain normal banking
relations with all the aforesaid banks in the future. In 2003, the Company paid
to Webb Lumber Company, Inc. $73,925 for specialty lumber needed for generating
facility outage work. Mr. John C. Webb is president of Webb Lumber Company, Inc.
During 2003, Iris Franklin, daughter-in-law of director H. Allen Franklin, was
employed by the Company as a market specialist. Iris Franklin received
compensation from the Company of $61,398 in 2003. During 2003, Jeff Franklin,
son of H. Allen Franklin, was employed by the Company as an assistant to an
executive vice president. Jeff Franklin received compensation from the Company
of $92,227 in 2003.
11
--------------------------------------------------------------------------------
EXECUTIVE COMPENSATION INFORMATION
--------------------------------------------------------------------------------
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company has adopted Southern Company's Change in Control Plan, which is
applicable to certain of its officers, and has entered into individual change in
control agreements with Messrs. McCrary and C. Alan Martin. If an executive is
involuntarily terminated, other than for cause, within two years following a
change in control of Southern Company or the Company, the agreements provide
for:
- lump sum payment of two or three times annual compensation,
- up to five years' coverage under group health and life insurance plans,
- immediate vesting of all stock options, stock appreciation rights and
restricted stock previously granted,
- payment of any accrued long-term and short-term bonuses and dividend
equivalents and
- payment of any excise tax liability incurred as a result of payments
made under any individual agreements.
A Southern Company change in control is defined under the agreements as:
- acquisition of at least 20 percent of Southern Company's stock,
- a change in the majority of the members of Southern Company's board of
directors in connection with an actual or threatened change in control,
- a merger or other business combination that results in Southern
Company's shareholders immediately before the merger owning less than 65
percent of the voting power after the merger or
- a sale of substantially all the assets of Southern Company.
A change in control of the Company is defined under the agreements as:
- acquisition of at least 50 percent of the Company's stock,
- a merger or other business combination unless Southern Company controls
the surviving entity or
- a sale of substantially all of the assets of the Company.
Southern Company's Omnibus Incentive Compensation Plan provides for pro-rata
payments at not less than target-level performance if a change in control occurs
and the plan is not continued or replaced with a comparable plan or plans.
On August 22, 2002, the Company and Mr. William B. Hutchins, III entered into a
retention agreement which provides that if Mr. Hutchins remains employed as
chief financial officer of the Company until April 1, 2004 or later, upon his
subsequent retirement from the Company, he will receive a severance payment of
$838,157 on his retirement date.
12
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the Chief Executive
Officer and the other four most highly compensated executive officers of the
Company serving during 2003.
LONG-TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION NUMBER OF
-------------------------------------------- SECURITIES LONG-TERM
OTHER ANNUAL UNDERLYING INCENTIVE ALL OTHER
NAME AND PRINCIPAL COMPENSATION STOCK OPTIONS PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($) (SHARES) ($)(1) ($)(2)
---------------------------------------------------------------------------------------------------------------------------------
CHARLES D. MCCRARY 2003 521,649 694,948 9,111 72,054 483,081 26,180
President, Chief Executive 2002 493,604 673,140 34,993 79,571 374,984 24,101
Officer and Director 2001 391,647 438,652 91,403 92,338 284,529 118,975
---------------------------------------------------------------------------------------------------------------------------------
C. ALAN MARTIN 2003 346,112 337,538 9,987 41,359 261,977 21,857
Executive Vice President 2002 332,846 330,083 14,221 46,113 254,790 16,879
2001 314,887 231,178 1,157 64,908 211,498 16,342
---------------------------------------------------------------------------------------------------------------------------------
WILLIAM B. HUTCHINS, III 2003 316,131 280,769 4,287 32,022 197,374 17,554
Executive Vice President, 2002 301,663 271,958 24,520 35,362 243,179 39,179
Chief Financial Officer and 2001 290,103 180,167 37,141 75,124 238,231 53,847
Treasurer
---------------------------------------------------------------------------------------------------------------------------------
STEVE R. SPENCER 2003 290,026 283,698 7,502 29,414 164,081 16,536
Executive 2002 268,940 242,874 42,890 31,581 148,131 33,263
Vice President 2001 250,082 180,049 46,695 47,289 128,869 61,735
---------------------------------------------------------------------------------------------------------------------------------
JERRY L. STEWART 2003 265,028 297,171 17,963 30,381 178,471 49,116
Senior Vice President 2002 236,673 267,000 1,376 26,286 159,914 48,207
2001 210,870 178,418 112,574 44,789 138,332 111,280
---------------------------------------------------------------------------------------------------------------------------------
(1) Payout of performance dividend equivalents on stock options granted after
1996 that were held by the named executive officer at the end of the
performance periods under the Omnibus Incentive Compensation Plan for the
four-year performance periods ended December 31, 2001, 2002 and 2003,
respectively. Dividend equivalents can range from 25 percent of the Southern
Company common stock dividend paid during the last year of the performance
period if Southern Company total shareholder return over the four-year
period, compared to a group of other large utility companies, is at the 30th
percentile to 100 percent of the dividend paid if it reaches the 90th
percentile. If Southern Company total shareholder return is below the 30th
percentile, no dividend equivalents are paid. For eligible stock options
held on December 31, 2001, 2002 and 2003, all named executive officers
received a payout of $1.34, $1.355 and $1.385 per option, respectively.
(2) Company contributions in 2003 to the Employee Savings Plan (ESP), Employee
Stock Ownership Plan (ESOP), non-pension related accruals under the
Supplemental Benefit Plan (SBP) and tax sharing benefits paid to
participants who elected receipt of dividends on Southern Company's common
stock held in the ESP are provided in the following table:
ESP TAX
NAME ESP ESOP SBP SHARING BENEFITS
----------------------------------------------------------------------------------
Charles D. McCrary $6,946 $744 $18,490 $ --
----------------------------------------------------------------------------------
C. Alan Martin 8,063 744 9,050 --
----------------------------------------------------------------------------------
William B. Hutchins, III 8,613 744 7,303 894
----------------------------------------------------------------------------------
Steve R. Spencer 6,864 744 4,928 --
----------------------------------------------------------------------------------
Jerry L. Stewart 9,000 744 4,372 --
----------------------------------------------------------------------------------
In 2003, Messrs. Martin, Spencer and Stewart received additional incentive
compensation of $4,000, $4,000 and $35,000, respectively.
In 2002, Messrs. Hutchins, Spencer and Stewart received additional
incentive compensation of $20,000, $20,000 and $35,000, respectively.
In 2001, Messrs. McCrary, Hutchins, Spencer and Stewart received additional
incentive compensation of $100,000, $35,000, $50,000 and $100,000,
respectively.
13
STOCK OPTION GRANTS IN 2003
The following table sets forth all stock option grants to the named executive
officers of the Company during the year ending December 31, 2003.
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR GRANT DATE
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR(2) ($/SH)(1) DATE(1) VALUE($)(3)
----------------------------------------------------------------------------------------------------
Charles D. McCrary 72,054 6.0 27.98 02/14/2013 258,674
----------------------------------------------------------------------------------------------------
C. Alan Martin 41,359 3.4 27.98 02/14/2013 148,479
----------------------------------------------------------------------------------------------------
William B. Hutchins, III 32,022 2.7 27.98 02/14/2013 114,959
----------------------------------------------------------------------------------------------------
Steve R. Spencer 29,414 2.4 27.98 02/14/2013 105,596
----------------------------------------------------------------------------------------------------
Jerry L. Stewart 30,381 2.5 27.98 02/14/2013 109,068
----------------------------------------------------------------------------------------------------
(1) Under the terms of the Omnibus Incentive Compensation Plan, stock option
grants to the named executive officers were made on February 14, 2003 and
vest annually at a rate of one-third on the anniversary date of the grant.
Grants fully vest upon termination as a result of death, total disability,
or retirement and expire five years after retirement, three years after
death or total disability, or their normal expiration date if earlier. The
exercise price is the average of the high and low price of Southern Company
common stock on the date granted. Options may be transferred to a revocable
trust and for Mr. McCrary, options may also be transferred to certain family
members, family trusts and family limited partnerships.
(2) A total of 1,200,580 stock options were granted in 2003 to employees of the
Company.
(3) Value was calculated using the Black-Scholes option valuation model. The
actual value, if any, ultimately realized depends on the market value of
Southern Company's common stock at a future date. Significant assumptions
are shown below:
--------------------------------------------------
RISK-FREE DIVIDEND EXPECTED
VOLATILITY RATE OF RETURN YIELD TERM
--------------------------------------------------
23.59% 2.72% 4.90% 4.28 years
--------------------------------------------------
AGGREGATED STOCK OPTION EXERCISES IN 2003 AND YEAR-END OPTION VALUES
The following table sets forth information concerning options exercised during
the year ending December 31, 2003 by the named executive officers and the value
of unexercised options held by them as of December 31, 2003.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT YEAR-END(#) AT YEAR-END($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-----------------------------------------------------------------------------------------------------------------
Charles D. McCrary -- -- 192,915 155,880 2,256,633 711,584
-----------------------------------------------------------------------------------------------------------------
C. Alan Martin 40,243 649,251 95,416 93,737 977,887 452,729
-----------------------------------------------------------------------------------------------------------------
William B. Hutchins, III 68,982 949,995 61,870 80,638 519,100 420,633
-----------------------------------------------------------------------------------------------------------------
Steve R. Spencer 20,266 269,308 52,239 66,231 488,509 322,779
-----------------------------------------------------------------------------------------------------------------
Jerry L. Stewart 19,539 292,000 66,025 62,835 754,159 298,327
-----------------------------------------------------------------------------------------------------------------
(1) The "Value Realized" is ordinary income, before taxes, and represents the
amount equal to the excess of the fair market value of the shares at the
time of exercise above the exercise price.
(2) This column represents the excess of the fair market value of Southern
Company common stock of $30.25 per share, as of December 31, 2003, above the
exercise price of the options. The amounts under the Exercisable column
report the "value" of options that are vested and therefore could be
exercised. The amounts under the Unexercisable column report the "value" of
options that are not vested and therefore could not be exercised as of
December 31, 2003.
14
DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
The following table sets forth the estimated annual pension benefits payable at
normal retirement age under Southern Company's qualified Pension Plan, as well
as non-qualified supplemental benefits, based on the stated compensation and
years of service with the Southern Company system for the named executive
officers at the Company. Compensation for pension purposes is limited to the
average of the highest three of the final 10 years' compensation. Compensation
is base salary plus the excess of annual incentive compensation over 15 percent
of base salary. The compensation components are reported under columns titled
"Salary" and "Bonus" in the Summary Compensation Table detailed earlier in this
Information Statement.
The amounts shown in the table were calculated according to the final average
pay formula and are based on a single life annuity without reduction for joint
and survivor annuities or computation of the Social Security offset which would
apply in most cases.
YEARS OF ACCREDITED SERVICE
---------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40
-----------------------------------------------------------------------------
$ 100,000 $ 25,500 $ 34,000 $ 42,500 $ 51,000 $ 59,500 $ 68,000
300,000 76,500 102,000 127,500 153,000 178,500 204,000
500,000 127,500 170,000 212,500 255,000 297,500 340,000
700,000 178,500 238,000 297,500 357,000 416,500 476,000
900,000 229,500 306,000 382,500 459,000 535,500 612,000
1,100,000 280,500 374,000 467,500 561,000 654,500 748,000
1,300,000 331,500 442,000 552,500 663,000 773,500 884,000
As of December 31, 2003, the applicable compensation levels and accredited
service for determination of pension benefits would have been:
ACCREDITED
NAME COMPENSATION YEARS OF SERVICE
---------------------------------------------------------------------------------------------
Charles D. McCrary $1,017,144 29
---------------------------------------------------------------------------------------------
C. Alan Martin 584,734 31
---------------------------------------------------------------------------------------------
William B. Hutchins, III 509,889 37
---------------------------------------------------------------------------------------------
Steve R. Spencer 474,427 24
---------------------------------------------------------------------------------------------
Jerry L. Stewart 453,954 30
---------------------------------------------------------------------------------------------
15
--------------------------------------------------------------------------------
STOCK OWNERSHIP TABLE
--------------------------------------------------------------------------------
Southern Company is the beneficial owner of 100% of the outstanding common stock
of the Company. The following table shows the number of shares of Southern
Company common stock owned by directors, nominees and executive officers as of
December 31, 2003. It is based on information furnished by the directors,
nominees and executive officers. The shares owned by all directors, nominees and
executive officers as a group constitute less than one percent of the total
number of shares of Southern Company common stock outstanding on December 31,
2003.
SHARES BENEFICIALLY
OWNED INCLUDE:
-------------------
SHARES INDIVIDUALS
SHARES HAVE RIGHTS TO
NAME OF DIRECTORS, NOMINEES BENEFICIALLY ACQUIRE WITHIN 60
AND EXECUTIVE OFFICERS TITLE OF SECURITY OWNED(1) DAYS(2)
----------------------------------------------------------------------------------------------------
Whit Armstrong Southern Company Common Stock 23,989
----------------------------------------------------------------------------------------------------
David J. Cooper, Sr. Southern Company Common Stock 6,349
----------------------------------------------------------------------------------------------------
H. Allen Franklin Southern Company Common Stock 1,249,368 1,207,841
----------------------------------------------------------------------------------------------------
R. Kent Henslee Southern Company Common Stock 10,108
----------------------------------------------------------------------------------------------------
John D. Johns Southern Company Common Stock 0
----------------------------------------------------------------------------------------------------
Carl E. Jones, Jr. Southern Company Common Stock 16,759
----------------------------------------------------------------------------------------------------
Patricia M. King Southern Company Common Stock 2,389
----------------------------------------------------------------------------------------------------
James K. Lowder Southern Company Common Stock 10,651
----------------------------------------------------------------------------------------------------
Wallace D. Malone, Jr. Southern Company Common Stock 2,642
----------------------------------------------------------------------------------------------------
Charles D. McCrary Southern Company Common Stock 259,492 256,031
----------------------------------------------------------------------------------------------------
Malcolm Portera Southern Company Common Stock 1,150
----------------------------------------------------------------------------------------------------
Robert D. Powers Southern Company Common Stock 2,903
----------------------------------------------------------------------------------------------------
C. Dowd Ritter Southern Company Common Stock 2,389
----------------------------------------------------------------------------------------------------
James H. Sanford Southern Company Common Stock 5,477
----------------------------------------------------------------------------------------------------
William F. Walker Southern Company Common Stock 1,030
----------------------------------------------------------------------------------------------------
John C. Webb, IV Southern Company Common Stock 11,803
----------------------------------------------------------------------------------------------------
James W. Wright Southern Company Common Stock 3,196
----------------------------------------------------------------------------------------------------
William B. Hutchins, III Southern Company Common Stock 103,833 94,542
----------------------------------------------------------------------------------------------------
C. Alan Martin Southern Company Common Stock 139,343 135,304
----------------------------------------------------------------------------------------------------
Steve R. Spencer Southern Company Common Stock 89,481 80,770
----------------------------------------------------------------------------------------------------
Jerry L. Stewart Southern Company Common Stock 98,639 92,361
----------------------------------------------------------------------------------------------------
Directors, Nominees and
Executive Officers as a group Southern Company Common Stock 2,040,991 1,866,849
----------------------------------------------------------------------------------------------------
(1) "Beneficial ownership" means the sole or shared power to vote, or to direct
the voting of, a security, and/or investment power with respect to a
security or any combination thereof.
(2) Indicates shares of Southern Company's common stock that certain executive
officers have the right to acquire within 60 days. Shares indicated are
included in the Shares Beneficially Owned Column.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
No reporting person of the Company failed to file, on a timely basis, the
reports required by Section 16(a).
16
APPENDIX A
SOUTHERN COMPANY
AUDIT COMMITTEE CHARTER
This Charter identifies the composition, purpose, authority, meeting
requirements and responsibilities of the Southern Company (the Company) Audit
Committee (the Committee) as approved by the Southern Company Board of Directors
(the Board).
I. COMPOSITION
The Committee will be comprised of at least three independent members of the
Board, each of whom will be financially literate. A deliberate effort will
be made to include at least one Director who is a financial expert. The
selection of Committee members will be in accordance with requirements for
independence and financial literacy and expertise, as interpreted by the
Board in its best business judgment, giving full consideration to the rules
of the Securities and Exchange Commission (SEC) and the New York Stock
Exchange.
II. PURPOSE
To assist the Board of Directors in fulfilling its oversight
responsibilities for the following:
A. Integrity of the financial reporting process;
B. The system of internal control;
C. The independence and performance of the internal and independent audit
process; and
D. The Company's process for monitoring adherence with the spirit and
intent of its Code of Ethics and compliance with laws and regulations.
III. AUTHORITY
The Audit Committee has authority to conduct or authorize investigations
into any matters within its scope of responsibility. It is empowered to:
A. Appoint, compensate, and oversee the work of the independent auditors.
B. Resolve any disagreements between management and the independent
auditors regarding financial reporting.
C. Pre-approve all auditing and non-audit services provided by the
independent auditors.
D. Retain independent counsel, accountants, or others to advise the
committee or assist in the conduct of an investigation.
E. Seek any information it requires from employees -- all of whom are
directed to cooperate with the Committee's requests -- or external
parties.
F. Meet with Company officers, independent auditors, internal auditors,
inside counsel or outside counsel, as necessary. In the execution of
its duties, the Committee will report to the Board of Directors.
IV. MEETING REQUIREMENTS
The Committee shall meet a minimum of four times each year, or more often
if warranted, to receive reports and to discuss the quarterly and annual
financial statements, including disclosures and other related information.
The Committee shall meet separately, at least annually, with Company
management, the Director of Internal Auditing, the Compliance Officer, and
the independent auditors to discuss matters that the Committee or any of
these persons believe should be discussed privately. Meetings of the
Committee may utilize conference call, Internet or other similar electronic
communication technology.
V. RESPONSIBILITIES
A. Financial Reporting and Independent Audit Process -
The oversight responsibility of the Committee in the area of financial
reporting is to provide reasonable assurance that the Company's financial
disclosures and accounting practices accurately portray the financial
condition, results of operations, cash flows, plans and long-term
commitments of the Company
A-1
on a consolidated basis, as well as on a separate company basis for
each consolidated subsidiary that has publicly traded securities. To
accomplish this, the Committee will:
1. Provide oversight of the independent audit process, including
direct responsibility for:
a. Annual appointment of the independent auditors.
b. Compensation of the independent auditors.
c. Review and confirmation of the independence of the external
auditors by obtaining statements from the auditors on
relationships between the auditors and the Company, including
non-audit services, and discussing the relationships with the
auditors. Ensure that non-audit services provided by the
independent auditors comply with and are disclosed to investors
in periodic reports required by the Securities Exchange Act of
1934 and the Sarbanes-Oxley Act of 2002.
d. Review of the independent auditors' quarterly and annual work
plans, and results of audit engagements.
e. Review of the experience and qualifications of the senior
members of the independent audit team annually and ensure that
all partner rotation requirements are executed.
f. Evaluation of the independent auditors' performance.
g. Oversight of the coordination of the independent auditors'
activities with the Internal Auditing and Accounting functions.
2. Review and discuss with management the quarterly and annual
consolidated earnings announcements and earnings guidance provided
to analysts and rating agencies.
3. Review and discuss with management and the independent auditors the
quarterly and annual financial statements (including disclosures
under Management's Discussion and Analysis of Financial Condition
and Results of Operations) and recommend the reports for filing
with the SEC. The financial statements include the Southern Company
consolidated financial statements as well as the separate financial
statements for all consolidated subsidiaries with publicly traded
securities.
a. The review and discussion will be based on timely reports from
the independent auditors, including:
i. All critical accounting policies and practices to be used.
ii. All alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management; ramifications of the use of such
alternative disclosures and treatments, and the treatment
preferred by the independent auditors.
iii. Other material written communications between the
independent auditors and management, such as any management
letter or schedule of unadjusted differences.
b. In addition, the following items will also be reviewed and
discussed:
i. Significant judgments and estimates made by management.
ii. Significant reporting or operational issues identified
during the reporting period, including how they were
resolved.
iii. Issues on which management sought second accounting
opinions.
iv. Significant regulatory changes and accounting and reporting
developments proposed by Financial Accounting Standards
Board, SEC or other regulatory agency.
v. Any audit problems or difficulties and management's response.
4. Review the letter of management representations given to the
independent auditors in connection with the audit of the annual
financial statements.
A-2
B. Internal Control -- The responsibility of the Committee in the area of
internal control, in addition to the actions described in Section
(V).(A.)., is to:
1. Provide oversight of the internal audit function including:
a. Review of audit plans, budgets and staffing levels.
b. Review of audit results.
c. Review of management's appointment, appraisal of, and/or removal
of the Company's Director of Internal Auditing. At least every
two years, regardless of the performance of the incumbent, the
President and Chief Executive Officer will review with the
Committee the merits of reassigning the Director of Internal
Auditing.
2. Assess management's response to any reported weaknesses or
compliance deficiencies.
3. Provide oversight of the Company's Legal and Regulatory Compliance
and Ethics Programs, including:
a. Creation and maintenance of procedures for:
i. Receipt, retention and treatment of complaints received by
management regarding accounting, internal accounting controls
or audit matters.
ii. Confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.
b. Review of plans and activities of the Company's Corporate
Compliance Officer.
c. Review of results of auditing or other monitoring programs
designed to prevent or detect violations of laws or regulations.
d. Review of corporate policies relating to compliance with laws
and regulations, ethics, conflict of interest and the
investigation of misconduct or fraud.
e. Review of reported cases of employee fraud, conflict of
interest, unethical or illegal conduct.
4. Review the quality assurance practices of the internal auditing
function and the independent auditors.
5. Review and discuss significant risks facing the Company and the
guidelines and policies to govern the process by which risk
assessment and risk management is undertaken.
C. Conduct an annual self-assessment of the Committee's performance.
D. Other
1. Set clear employment policies for Southern Company's hiring of
employees or former employees of the independent auditors.
2. Report Committee activities and findings to the Board on a regular
basis.
3. Report Committee activities in the Company's annual proxy statement
to shareholders.
4. Review this charter at least annually and recommend appropriate
changes.
ADOPTED ON FEBRUARY 17, 2003
BY THE SOUTHERN COMPANY
BOARD OF DIRECTORS
A-3
APPENDIX B
SOUTHERN COMPANY
POLICY ON ENGAGEMENT OF THE INDEPENDENT AUDITOR
FOR AUDIT AND NON-AUDIT SERVICES
A. Southern Company (including its subsidiaries) will not engage the
independent auditor to perform any services that are prohibited by the
Sarbanes-Oxley Act of 2002. It shall further be the policy of the Company
not to retain the independent auditor for non-audit services unless there is
a compelling reason to do so and such retention is otherwise pre-approved
consistent with this policy. Non-audit services that are prohibited include:
1. Bookkeeping and other services related to the preparation of
accounting records or financial statements of the Company or its
subsidiaries.
2. Financial information systems design and implementation.
3. Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports.
4. Actuarial services.
5. Internal audit outsourcing services.
6. Management functions or human resources.
7. Broker or dealer, investment adviser, or investment banking services.
8. Legal services or expert services unrelated to financial statement
audits.
9. Any other service that the Public Company Accounting Oversight Board
determines, by regulation, is impermissible.
B. Effective January 1, 2003, officers of the Company (including its
subsidiaries) may not engage the independent auditor to perform any personal
services, such as personal financial planning or personal income tax
services.
C. All audit services (including providing comfort letters and consents in
connection with securities issuances) and permissible non-audit services
provided by the independent auditor must be pre-approved by the Southern
Company Audit Committee.
D. Under this Policy, the Audit Committee's approval of the independent
auditor's annual arrangements letter shall constitute pre-approval for all
services covered in the letter.
E. By adopting this Policy, the Audit Committee hereby pre-approves the
engagement of the independent auditor to provide services related to the
issuance of comfort letters and consents required for securities sales by
the Company and its subsidiaries and services related to consultation on
routine accounting and tax matters. The actual amounts expended for such
services each calendar quarter shall be reported to the Committee at a
subsequent Committee meeting.
F. The Audit Committee also delegates to its Chairman the authority to grant
pre-approvals for the engagement of the independent auditor to provide any
permissible service up to a limit of $50,000 per engagement. Any engagements
pre-approved by the Chairman shall be presented to the full Committee at its
next scheduled regular meeting.
G. The Southern Company Comptroller shall establish processes and procedures to
carry out this Policy.
Approved by the Southern Company Audit Committee
December 9, 2002
B-1
(RECYCLE LOGO)