UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C
(RULE 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant To Section 14(c) of the Securities Exchange
Act of 1934
(AMENDMENT NO. )
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)
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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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:
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NOTICE OF 2003
ANNUAL MEETING
& INFORMATION STATEMENT
WWW.ALABAMAPOWER.COM
(ALABAMA POWER LOGO)
(ALABAMA POWER LETTERHEAD)
March 21, 2003
Dear Shareholder:
You are cordially invited to attend our 2003 Annual Meeting of Shareholders at
8:00 a.m., Central Time, on April 25, 2003 at Watercolor Inn, 34 Goldenrod
Circle, Seagrove Beach, Florida.
At the meeting we will elect our board of directors and vote on a proposed
amendment to Alabama Power Company's Articles of Incorporation to increase our
authorized shares of common stock.
Sincerely yours,
/s/ CHARLES D McCRARY
Charles D. McCrary
President and Chief Executive Officer
ALABAMA POWER COMPANY
BIRMINGHAM, ALABAMA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 25, 2003
NOTICE IS HEREBY GIVEN that the annual meeting of the shareholders of Alabama
Power Company (the "Company") will be held at Watercolor Inn, 34 Goldenrod
Circle, Seagrove Beach, Florida on April 25, 2003 at 8:00 a.m., Central Time, to
elect 16 members of the board of directors, to amend the Company's Articles of
Incorporation to increase the number of authorized shares of common stock with a
par value of $40 per share which the Company may issue from 6,000,000 shares to
15,000,000 shares 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 10, 2003 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 21, 2003
TABLE OF CONTENTS
PAGE
----
General Information......................................... 1
Shareholder Proposals....................................... 1
Nominees for Election as Directors.......................... 2
Corporate Governance........................................ 4
Audit Committee Report...................................... 6
Compensation and Management Succession Committee Report..... 8
Compensation Committee Interlocks and Insider
Participation............................................. 10
Certain Relationships and Related Transactions.............. 10
Executive Compensation Information.......................... 11
Stock Ownership Table....................................... 15
Articles of Incorporation................................... 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
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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 2003 Annual Meeting of Shareholders and any adjournment
or postponement thereof. The meeting will be held April 25, 2003 at 8:00 a.m.,
at Watercolor Inn, 34 Goldenrod Circle, Seagrove Beach, Florida. This
Information Statement is initially being provided to shareholders on or about
March 21, 2003.
At the meeting, we will elect 16 members to the board of directors, amend the
Company's Articles of Incorporation to increase the number of authorized shares
of common stock from 6,000,000 shares to 15,000,000 shares 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 10, 2003 are entitled to
notice of and to vote at the meeting. On that date, there were 6,000,000 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 8,001,250 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 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 (Series 2003A), 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.
With respect to the proposed amendment to the Company's Articles of
Incorporation to increase the authorized number of shares of common stock, 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. Votes will
be tabulated based on the value of each share as described under "ARTICLES OF
INCORPORATION -- Vote Required" herein.
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 2004 Annual Meeting, shareholder proposals must
be received by the Company no later than January 22, 2004.
1
ITEM NO. 1 -- ELECTION OF DIRECTORS
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, 2002, with the exception of Drs. Portera and
Walker, whose ages are as of the date of their election in 2003.
CHARLES D. MCCRARY - Director since 2001
Mr. McCrary, 51, 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 Southern Power Company and AmSouth
Bancorporation.
WHIT ARMSTRONG - Director since 1982
Mr. Armstrong, 55, 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, 57, 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 and chairman of American Equity Underwriters,
Inc., Mobile, Alabama.
H. ALLEN FRANKLIN - Director since 1999
Mr. Franklin, 58, 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, Gulf Power and
Southern Power.
R. KENT HENSLEE - Director since 1999
Mr. Henslee, 67, is managing partner of the law firm of Henslee, Robertson,
Strawn & Knowles, L.L.C., Gadsden, Alabama.
CARL E. JONES, JR. - Director since 1988
Mr. Jones, 62, is chairman, president and chief executive officer of Regions
Financial Corporation (bank holding company), Birmingham, Alabama.
PATRICIA M. KING - Director since 1997
Ms. King, 57, 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, 53, is chairman of The Colonial Company (real estate development and
sales), Montgomery, Alabama.
WALLACE D. MALONE, JR. - Director since 1990
Mr. Malone, 66, is chairman and chief executive officer of SouthTrust
Corporation (bank holding company), Birmingham, Alabama.
2
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.
ROBERT D. POWERS - Director since 1992
Mr. Powers, 52, is president of The Eufaula Agency, Inc. (real estate and
insurance), Eufaula, Alabama.
C. DOWD RITTER - Director since 1997
Mr. Ritter, 55, is chairman, president and chief executive officer of AmSouth
Bancorporation and AmSouth Bank, Birmingham, Alabama.
JAMES H. SANFORD - Director since 1983
Mr. Sanford, 58, is chairman of HOME Place Farms, Inc. (diversified farmers),
Prattville, Alabama. He is also president of Autauga Quality Cotton Association,
Prattville, Alabama. He is chairman of Sylvest Farms of Georgia, Inc., College
Park, Georgia, and chairman of Sylvest Farms, Inc., Montgomery, Alabama.
WILLIAM F. WALKER - Director since 2003
Dr. Walker, 65, has served as president of Auburn University ("Auburn"), Auburn,
Alabama, since June 2002. He served as interim president of Auburn from June
2001 to June 2002, provost and vice president of academic affairs of Auburn from
August 1999 to June 2001, interim provost of Auburn from September 1998 to
August 1999 and Auburn's dean of engineering and professor of mechanical
engineering from 1988 to September 1998.
JOHN C. WEBB, IV - Director since 1977
Mr. Webb, 60, is president of Webb Lumber Company, Inc. (wholesale lumber and
wood products sales), Demopolis, Alabama.
JAMES W. WRIGHT - Director since 2000
Mr. Wright, 59, 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 owner of all of the Company's outstanding common
stock, will vote for all of the nominees above.
3
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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 2002 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, 2002 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 proposed new listing standards of the
New York Stock Exchange (the "NYSE") regarding corporate governance policies and
processes. In anticipation of the effectiveness or adoption of final rule
changes, the Company is reviewing its corporate governance policies and
practices. Based on the SEC's Proposed Rule: Standards Relating to Listed
Company Audit Committees, the Company would be exempt from the audit committee
requirements set forth in Section 301 of the Sarbanes-Oxley Act and, therefore,
would not be required to have an audit committee or an audit committee report on
whether it has an audit committee financial expert. The Southern Company Audit
Committee would perform such functions on behalf of the Company's board of
directors. The Southern Company board of directors has determined that all
members of the Southern Company Audit Committee are independent and that Mr. J.
Neal Purcell is the audit committee financial expert. (For more information,
please see the Southern Company Audit Committee Report on page 6.) The Company
will continue to monitor all actions taken by the SEC and the NYSE and will
amend, to the extent necessary, the standards, disclosures and charters
applicable to the board, its committees and the Company as a whole as final
rules impacting the Company are adopted and become effective.
COMMITTEES OF THE BOARD
AUDIT COMMITTEE:
- Members are Mr. Webb, Chairman; Mr. Henslee; and Mr. Lowder
- Met four times in 2002
- Oversees the Company's internal control and compliance matters
The Company's audit committee meets periodically with management, internal
auditors and independent auditors to discuss auditing, internal controls and
compliance matters.
4
The Southern Company Audit Committee provides a broad overview 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 new charter, the Southern Company Audit Committee has authority
to appoint, compensate and oversee the work of the independent auditors. The new
charter is attached to this Information Statement as Appendix A.
COMPENSATION COMMITTEE:
- Members are Mr. Malone, Chairman; Mr. Franklin, ex officio; and Mr.
Armstrong
- Met three times in 2002
- 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. Andreas
Renschler; and Mr. Sanford
- Met one time in 2002
- Considers and recommends nominees for election as directors
The Nominating Committee expects to identify from its own resources qualified
nominees and does not accept from shareholders recommendations of individuals to
be considered as nominees. The final selection of the board's nominees is within
the sole discretion of the board of directors.
EXECUTIVE COMMITTEE:
- Members are Mr. McCrary, Chairman; Mr. Jones; Mr. Malone; and Mr. Ritter
- Met two times in 2002
- Acts in place of full board on matters that require board action between
meetings of the board to the extent permitted by law and within certain
limits set by the board
NUCLEAR SAFETY COMMITTEE:
- Members are Mr. Cooper, Chairman; Ms. King; Mr. Mayer Mitchell; Mr.
Powers; and Mr. Wright
- Met three times in 2002
- Reviews nuclear operations activities
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The board of directors met six times in 2002. Average director attendance at all
board and committee meetings was 95 percent. Messrs. Renschler and Franklin
attended less than 75 percent of applicable meetings.
5
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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 boards of directors of the Company
and 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's review process included discussions of the
quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments 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. Such discussions also included reviews of critical
accounting policies and practices, acceptable alternative financial treatments,
proposed adjustments and control recommendations. In addition, the Committee has
discussed with the independent auditors their independence from management and
the Company including the matters in the written disclosures required by
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 held 14 meetings during 2002.
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, 2002 and filed with
the Securities and Exchange Commission. The Committee also reappointed Deloitte
& Touche LLP as the Company's independent auditors for 2003.
Members of the Committee:
L. G. Hardman III, Chairman
Dorrit J. Bern
Donald M. James
Zack T. Pate
J. Neal Purcell
6
PRINCIPAL PUBLIC ACCOUNTING FIRM FEES
The following represents the fees billed to the Company for the last fiscal year
by Deloitte & Touche LLP -- the Company's principal public accountant for 2002:
Audit Fees $553,322
Audit-Related Fees 32,471
Tax Fees 10,540
All Other Fees -
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Total $596,333
========
The Southern Company Audit Committee has adopted a Policy on Engagement of the
Independent Auditor for Audit and Non-Audit Services (see Appendix B) that
includes requirements for the Audit Committee to pre-approve audit and non-audit
services provided by Deloitte & Touche LLP.
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 and engaged
Deloitte & Touche LLP ("Deloitte & Touche") to serve as the Company's principal
public accountants for fiscal year 2002.
Arthur Andersen's reports on the financial statements of the Company for the two
fiscal years ended December 31, 2001 did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles. Such reports have 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, 2002.
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 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.
7
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COMPENSATION AND MANAGEMENT SUCCESSION COMMITTEE REPORT
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WHAT IS THE EXECUTIVE COMPENSATION PHILOSOPHY?
Southern Company's Compensation and Management Succession Committee's intent is
to provide an executive compensation program that is competitive and is tied to
Southern Company's and the Company's short- and long-term performance. With the
objective of maximizing Southern Company shareholder value over time, the
program aligns the interests of executives and Southern Company's shareholders.
TOTAL EXECUTIVE COMPENSATION
HOW IS TOTAL EXECUTIVE COMPENSATION ESTABLISHED?
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. Seventeen of these
companies are included in the 27 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.
WHAT ARE THE COMPONENTS OF TOTAL EXECUTIVE COMPENSATION?
- Base pay (salary);
- Short-term incentives (annual performance bonuses); and
- Long-term incentives.
These are the primary components of the executive compensation program. The
Company does provide 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 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.
ANNUAL PERFORMANCE BONUSES
Annual bonuses are paid through the Omnibus Incentive Compensation Plan. All
named executive officers participated in this plan in 2002.
PERFORMANCE GOALS
Maximum annual performance bonus levels are based on a percentage of Southern
Company's net income from operations. In addition, the annual performance
bonuses are reviewed in comparison to the attainment of other corporate
performance and short-term business unit goals and individual goals. All
performance goals were set at the beginning of the year.
8
For 2002, the corporate performance goals included specific targets for:
- Southern Company earnings - earnings per share ("EPS") and
- The Company's net income and return on equity ("ROE")
The Committee believes that accomplishing the corporate goals is essential for
the 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 short-term business unit goals related to capital
expenditures, cash flow, customer service, plant availability and diversity; and
also individual goals.
A target percentage of base pay is established for each executive officer based
on his or her position level for target-level performance. Annual performance
bonuses based on the achievement of the corporate performance goals, as adjusted
for the short-term business unit goals and individual performance, may range
from 0 percent of the target to 240 percent.
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 2002, 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% 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 2002 performance was based 30% on the degree of
achievement of the Southern Company EPS goal and 70% on the degree of
achievement of the Company's net income and ROE goal. Performance for both goals
exceeded the target, resulting in bonus payments 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 25 percent of Mr. McCrary's total target compensation
and 19 to 24 percent for the other executives. The size of prior grants was not
considered in determining the size of the grants made in 2002. These options
vest over a three-year period.
PERFORMANCE DIVIDENDS
Executives 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 common stock dividend paid during the year if 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. For eligible stock options held on December 31, 2002, all
executives received a payout of $1.355 per option for maximum performance under
the Omnibus Incentive Compensation Plan.
9
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 our policy is to maximize long-term shareholder value,
tax deductibility is only one factor considered in setting compensation.
SUMMARY
We believe that the policies and programs described in this report link pay and
performance and serve the best interest of Southern Company's shareholders. We
frequently review the various pay plans and policies and modify them as we deem
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
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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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 2002, 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.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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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 2002, 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. During 2002, Iris
Franklin, daughter-in-law of director H. Allen Franklin was employed by the
Company as a Market Specialist. Ms. Franklin received compensation of $63,592 in
2002.
10
--------------------------------------------------------------------------------
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 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,
- 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. Hutchins 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
$838,157 on his retirement date.
11
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the Chief Executive
Officer and the other four most highly compensated executive officers of the
Company serving during 2002.
LONG-TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION NUMBER OF
-------------------------------------------- RESTRICTED SECURITIES LONG-TERM
OTHER ANNUAL STOCK UNDERLYING INCENTIVE ALL OTHER
NAME AND PRINCIPAL COMPENSATION AWARDS STOCK OPTIONS PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($) ($) (SHARES) ($)(1) ($)(2)
---------------------------------------------------------------------------------------------------------------------------------
CHARLES D. MCCRARY(3) 2002 493,604 673,140 34,993 - 79,571 374,984 24,101
President, Chief Executive 2001 391,647 438,652 91,403 - 92,338 284,529 118,975
Officer, Director 2000 - - - - - -
---------------------------------------------------------------------------------------------------------------------------------
C. ALAN MARTIN 2002 332,846 330,083 14,221 - 46,113 254,790 16,879
Executive Vice President 2001 314,887 231,178 1,157 - 64,908 211,498 16,342
2000 293,490 279,905 64,498 - 25,395 55,803 95,488
---------------------------------------------------------------------------------------------------------------------------------
WILLIAM B. HUTCHINS, III 2002 301,663 271,958 24,520 - 35,362 243,179 39,179
Executive Vice President, 2001 290,103 180,167 37,141 - 75,124 238,231 53,847
Chief Financial Officer and 2000 279,392 258,657 38,240 - 24,167 75,884 18,159
Treasurer
---------------------------------------------------------------------------------------------------------------------------------
STEVE R. SPENCER(4) 2002 268,940 242,874 42,890 - 31,581 148,131 33,263
Executive 2001 250,082 180,049 46,695 - 47,289 128,869 61,735
Vice President 2000 - - - - - - -
---------------------------------------------------------------------------------------------------------------------------------
JERRY L. STEWART 2002 236,673 267,000 1,376 - 26,286 159,914 48,207
Senior Vice President 2001 210,870 178,418 112,574 - 44,789 138,332 111,280
2000 199,305 189,069 3,193 - 17,293 43,475 10,558
---------------------------------------------------------------------------------------------------------------------------------
(1) Payout of performance dividend equivalents on stock options granted after
1996 that were held by the executive at the end of the performance periods
under the Omnibus Incentive Compensation Plan for the four-year performance
periods ended December 31, 2000, 2001 and 2002, respectively. Dividend
equivalents can range from 25 percent of the common stock dividend paid
during the last year of the performance period if 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. For eligible stock options held on December
31, 2000, 2001 and 2002 all named executives received a payout of $.90,
$1.34 and $1.355 per option, respectively.
(2) Company contributions in 2002 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 $6,342 $701 $17,058 $ -
----------------------------------------------------------------------------------
C. Alan Martin 6,274 701 9,904 -
----------------------------------------------------------------------------------
William B. Hutchins, III 7,597 701 7,359 3,522
----------------------------------------------------------------------------------
Steve R. Spencer 6,251 701 6,311 -
----------------------------------------------------------------------------------
Jerry L. Stewart 8,250 701 4,256 -
----------------------------------------------------------------------------------
In 2002, Messrs. Hutchins, Spencer and Stewart received additional
incentive compensation of $20,000, $20,000 and $35,000, respectively.
In 2001, these amounts for Messrs. McCrary, Hutchins, Spencer and Stewart
also included additional incentive compensation of $100,000, $35,000,
$50,000 and $100,000, respectively. In 2000, for Mr. Martin this amount
also included additional relocation assistance of $80,000.
(3) Mr. McCrary was named an executive officer in April 2001.
(4) Mr. Spencer was named an executive officer in May 2001.
12
STOCK OPTION GRANTS IN 2002
The following table sets forth all stock option grants to the named executive
officers of the Company during the year ending December 31, 2002.
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR GRANT DATE
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR(2) ($/SH)(1) DATE(1) VALUE($)(3)
--------------------------------------------------------------------------------------------------------
Charles D. McCrary 79,571 6.0 25.26 02/15/2012 268,154
--------------------------------------------------------------------------------------------------------
C. Alan Martin 46,113 3.5 25.26 02/15/2012 155,401
--------------------------------------------------------------------------------------------------------
William B. Hutchins, III 35,362 2.7 25.26 02/15/2012 119,170
--------------------------------------------------------------------------------------------------------
Steve R. Spencer 31,581 2.4 25.26 02/15/2012 106,428
--------------------------------------------------------------------------------------------------------
Jerry L. Stewart 26,286 2.0 25.26 02/15/2012 88,584
--------------------------------------------------------------------------------------------------------
(1) Under the terms of the Omnibus Incentive Compensation Plan, stock option
grants were made on February 15, 2002 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 certain family members, family trusts
and family limited partnerships.
(2) A total of 1,324,391 stock options were granted in 2002.
(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 common stock at a future date. Significant assumptions are
shown below:
--------------------------------------------------
RISK-FREE DIVIDEND EXPECTED
VOLATILITY RATE OF RETURN YIELD TERM
--------------------------------------------------
26.34% 2.79% 4.63% 4.28 years
--------------------------------------------------
AGGREGATED STOCK OPTION EXERCISES IN 2002 AND YEAR-END OPTION VALUES
The following table sets forth information concerning options exercised during
the year ending December 31, 2002 by the named executive officers and the value
of unexercised options held by them as of December 31, 2002.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES VALUE OPTIONS AT YEAR-END(#) YEAR-END($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------------------------------------------------------------------------------------------------------------
Charles D. McCrary 15,165 218,479 120,187 156,554 1,377,475 912,081
----------------------------------------------------------------------------------------------------------------------
C. Alan Martin 21,237 289,189 85,238 102,799 955,364 658,336
----------------------------------------------------------------------------------------------------------------------
William B. Hutchins, III 33,678 477,285 81,258 98,210 886,823 652,938
----------------------------------------------------------------------------------------------------------------------
Steve R. Spencer 18,430 251,726 37,001 72,321 365,424 468,221
----------------------------------------------------------------------------------------------------------------------
Jerry L. Stewart 11,501 172,406 52,738 65,280 589,015 435,580
----------------------------------------------------------------------------------------------------------------------
(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 $28.39 per share, as of December 31, 2002, 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, 2002.
13
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
As of December 31, 2002, the applicable compensation levels and accredited
service for determination of pension benefits would have been:
ACCREDITED
NAME COMPENSATION YEARS OF SERVICE
---------------------------------------------------------------------------------------------
Charles D. McCrary $844,258 28
---------------------------------------------------------------------------------------------
C. Alan Martin 538,706 30
---------------------------------------------------------------------------------------------
William B. Hutchins, III 468,739 36
---------------------------------------------------------------------------------------------
Steve R. Spencer 412,502 23
---------------------------------------------------------------------------------------------
Jerry L. Stewart 392,866 29
---------------------------------------------------------------------------------------------
14
--------------------------------------------------------------------------------
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, 2002. 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,
2002.
SHARES BENEFICIALLY OWNED INCLUDE:
----------------------------------
SHARES
INDIVIDUALS
SHARES HAVE RIGHTS TO
NAME OF DIRECTORS, NOMINEES BENEFICIALLY ACQUIRE SHARES HELD BY
AND EXECUTIVE OFFICERS OWNED(1) WITHIN 60 DAYS FAMILY MEMBERS(2)
-------------------------------------------------------------------------------------------
Whit Armstrong 22,387
------------------------------------------------------------------------------------------------
David J. Cooper, Sr. 4,977
------------------------------------------------------------------------------------------------
H. Allen Franklin 786,517 747,185
------------------------------------------------------------------------------------------------
R. Kent Henslee 6,022
------------------------------------------------------------------------------------------------
Carl E. Jones, Jr. 14,958
------------------------------------------------------------------------------------------------
Patricia M. King 1,770
------------------------------------------------------------------------------------------------
James K. Lowder 9,549
------------------------------------------------------------------------------------------------
Wallace D. Malone, Jr. 1,413
------------------------------------------------------------------------------------------------
Charles D. McCrary 177,749 174,711
------------------------------------------------------------------------------------------------
Malcolm Portera 694
------------------------------------------------------------------------------------------------
Robert D. Powers 2,260
------------------------------------------------------------------------------------------------
C. Dowd Ritter 1,770
------------------------------------------------------------------------------------------------
James H. Sanford 2,181
------------------------------------------------------------------------------------------------
William F. Walker --
------------------------------------------------------------------------------------------------
John C. Webb, IV 12,150 362
------------------------------------------------------------------------------------------------
James W. Wright 2,540
------------------------------------------------------------------------------------------------
William B. Hutchins, III 124,779 116,022
------------------------------------------------------------------------------------------------
C. Alan Martin 128,311 124,753
------------------------------------------------------------------------------------------------
Steve R. Spencer 65,653 64,941
------------------------------------------------------------------------------------------------
Jerry L. Stewart 86,206 78,082
------------------------------------------------------------------------------------------------
Directors, Nominees, and Executive
Officers as a group 1,451,189 1,305,694 362
------------------------------------------------------------------------------------------------
(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 (i.e., the power to dispose of, or to direct the disposition of, a
security).
(2) Each director disclaims any interest in shares held by family members.
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).
15
--------------------------------------------------------------------------------
ARTICLES OF INCORPORATION
--------------------------------------------------------------------------------
ITEM NO. 2 -- PROPOSED AMENDMENT
The board has approved, and recommends to the shareholders that they adopt, an
amendment to the Company's Articles of Incorporation that would increase the
Company's authorized common stock from 6,000,000 shares to 15,000,000 shares. If
the amendment is adopted, Article IX of the Company's Articles of Amendment will
be amended to read as follows:
"ARTICLE IX
CAPITAL STOCK
The corporation is authorized to issue three classes of shares of capital
stock to be designated, respectively, "common stock", "preferred stock" and
"Class A preferred stock". The total number of shares of stock which the
corporation shall have authority to issue shall be 46,350,000 shares, of
which 15,000,000 shares shall be common stock with a par value of $40 per
share, 3,850,000 shares shall be preferred stock with a par value of $100
per share and 27,500,000 shares shall be Class A preferred stock with a par
value of $1 per share. The designations, preferences, voting powers or
restrictions or qualifications thereof, the rights of redemption,
retirement and conversion of the shares of capital stock of the
corporation, and the general provisions with respect thereto, shall be as
hereinafter set forth; provided, however, that the preferred stock and
Class A preferred stock may be divided into and issued from time to time in
one or more series, each such series being hereinafter for convenience
referred to as a "class" of preferred stock or Class A preferred stock, as
the case may be, and all such series being hereinafter for convenience
collectively referred to as "classes" of preferred stock or Class A
preferred stock, as the case may be. The board of directors shall have, and
is hereby granted the power and authority to divide the unissued shares of
preferred stock and Class A preferred stock into series (including the
power and authority to reclassify, in the manner provided by law, all or
any number of the unissued shares of preferred stock authorized at the time
of the adoption of the joint agreement between Alabama Power Company and
Birmingham Electric Company prescribing the terms and conditions of the
merger of Birmingham Electric Company into and with Alabama Power Company)
and to fix and determine the following relative rights and preferences of
any such series of preferred stock and Class A preferred stock, and the
number of shares constituting any such series and the designation thereof,
or any of them: (1) dividend rate, (2) the dividend payment dates, (3) the
redemption price thereof, (4) the amount payable in event of liquidation,
voluntary and involuntary and (5) the sinking fund provisions, if any, for
the redemption or purchase of shares; and to increase or decrease the
number of shares of any such series subsequent to the issue of shares of
that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall assume the status of
authorized but unissued shares of preferred stock or Class A preferred
stock, as the case may be. The board of directors may issue and sell such
shares of preferred stock and Class A preferred stock in series and any
other authorized shares provided for in this Article IX. Upon the issuance
of shares of Class A preferred stock, there shall be transferred to stated
capital represented by each such share of Class A preferred stock an amount
equal to the excess of the consideration received over the par value
thereof (up to an amount which, when added to such par value, shall not
exceed such share's preferential claim in the event of involuntary
liquidation) and the stated capital represented by each share so determined
shall be equal to such share's preferential claim in the event of
involuntary liquidation."
Of the 6,000,000 currently authorized shares of common stock, all 6,000,000
shares are outstanding. The additional shares of common stock for which
authorization is sought would be a part of the existing class of common stock
and, if and when issued, would have the same rights and privileges as the shares
of common stock presently outstanding.
16
PURPOSE AND EFFECT OF AMENDMENT
The board believes that an increase in the number of shares of authorized common
stock as contemplated by this proposal would benefit the Company and its
shareholders by giving the Company needed flexibility in its corporate planning
and its ability to raise additional capital and respond to developments in the
Company's business. The board has no present intention of issuing any shares of
common stock to any person other than Southern Company.
The additional shares of common stock will be issuable without further
authorization by vote or consent of the shareholders and on such terms and for
such consideration as may be determined by the board, subject to applicable law.
VOTE REQUIRED
The proposed increase in the authorized number of shares of common stock
requires the affirmative vote of the larger amount in total value of the common
stock and all classes of preferred stock and Class A preferred stock voting as a
single class. For voting purposes, the total value of preferred stock shall be
equal to the par value of all shares of preferred stock outstanding, the total
value of the Class A preferred stock shall be equal to the stated value of all
shares of Class A preferred stock outstanding and the total value of the common
stock shall be equal to the par value of all shares of common stock outstanding
plus Paid-in capital. The total value of the outstanding preferred stock is
$47,511,500, the total value of the outstanding Class A preferred stock is
$325,000,000 and the total value of the common stock using Paid-in capital as of
December 31, 2002 is $2,140,464,000. Southern Company, as owner of all of the
Company's common stock, will vote for the proposed amendment.
17
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
A-1
condition, results of operations, cash flows, plans and long-term
commitments of the Company 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
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