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
GULF 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.GULFPOWER.COM
(GULF POWER LOGO)
GULF POWER COMPANY
PENSACOLA, FLORIDA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 19, 2004
NOTICE IS HEREBY GIVEN that the 2004 Annual Meeting of Shareholders of Gulf
Power Company will be held on May 19, 2004 at 10:00 a.m., Eastern Time, at the
offices of the Company's affiliate, Georgia Power Company, 241 Ralph McGill
Boulevard, N.E., Atlanta, Georgia 30308, to elect six 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 April 12, 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
Susan D. Ritenour
Corporate Secretary
Pensacola, Florida
April 23, 2004
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
General Information......................................... 1
Shareholder Proposals....................................... 1
Nominees For Election as Directors.......................... 2
Corporate Governance........................................ 3
Director Nomination Process................................. 5
Communications to the Board................................. 5
Board Attendance at Annual Meeting of Shareholders.......... 5
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
Appendix A -- Southern Company Audit Committee Charter...... A-1
Appendix B -- Policy on Engagement of the Independent
Auditor For Audit and Non-Audit Services.................. B-1
</Table>
INFORMATION STATEMENT
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GENERAL INFORMATION
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This Information Statement is furnished by Gulf 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 May 19, 2004 at 10:00 a.m.,
Eastern Time, at the offices of the Company's affiliate, Georgia Power Company,
241 Ralph McGill Boulevard, N.E., Atlanta, Georgia 30308. This Information
Statement is initially being provided to shareholders on or about April 23,
2004.
At the meeting, we will elect six 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 April 12, 2004 are entitled to
notice of and to vote at the meeting. On that date, there were 992,717 shares of
common stock outstanding and entitled to vote, all of which are held by The
Southern Company ("Southern Company"). There were also 42,361 shares of
preferred stock outstanding on that date. With respect to the election of
directors, all of the outstanding shares of preferred stock are entitled to vote
as a single class with the Company's common stock. Each share of outstanding
common stock counts as one vote and each share of outstanding preferred stock
counts as one vote. 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 February 22, 2005.
1
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NOMINEES FOR ELECTION AS DIRECTORS
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A board of six directors is to be elected at the annual meeting, with each
director to hold office until the next annual meeting and until the election and
qualification of a successor. If any named nominee becomes unavailable for
election, the board may substitute another nominee.
Below 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 information is current as of the date of this
Information Statement.
SUSAN N. STORY - Director since 2003
Ms. Story, 44, is president and chief executive officer of the Company. She
served as executive vice president of Southern Company Services, Inc. from
January 2001 to April 2003; senior vice president of Southern Power Company from
November 2002 to April 2003; vice president of Southern Company Services, Inc.
from May 2000 to January 2001; and vice president of Alabama Power Company from
June 1993 to April 2000.
C. LEDON ANCHORS - Director since 2001
Mr. Anchors, 64, is an attorney and is president and director of Anchors,
Foster, McInnis & Keefe, Attorneys at Law, Fort Walton Beach, Florida. He is
chairman of Regions Bank of Okaloosa County.
WILLIAM C. CRAMER, JR. - Director since 2002
Mr. Cramer, 51, is president and owner of Tommy Thomas Chevrolet, Panama City,
Florida.
FRED C. DONOVAN, SR. - Director since 1991
Mr. Donovan, 63, is chairman and chief executive officer of Baskerville-Donovan,
Inc. (an architectural and engineering firm), Pensacola, Florida.
WILLIAM A. PULLUM - Director since 2001
Mr. Pullum, 56, is broker/president of Bill Pullum Realty, Inc., Navarre,
Florida, owner, president and director of Cowboy's Steakhouse, Navarre, Florida,
and owner of Comfort Inns in Navarre and Milton, Florida. He is a director of
Whitney National Bank, Pensacola, Florida.
WINSTON E. SCOTT - Director since 2003
Mr. Scott, 53, is executive director of the Florida Space Authority, Cape
Canaveral, Florida, a position he has held since 2003 . Prior to his appointment
to the Florida Space Authority, he served as a Professor and Associate Dean with
the Florida Agriculture and Mechanical University (FAMU) and Florida State
University (FSU) College of Engineering in 2003, as vice president for Student
Affairs at FSU from 2000 until 2003, as associate vice president with the
Division of Student Affairs from 1999 to 2000 and was selected in 1992 to be an
astronaut for the National Aeronautics and Space Administration (NASA).
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.
2
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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 that currently consists of six members. The current nominees for
election as directors consist of five non-employee directors and the president
and chief executive officer of the 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.
<Table>
Cash Retainer Fee..................... $10,000
Stock Retainer Fee.................... 340 shares of Southern Company common stock
Meeting Fee........................... $750 for each board or committee meeting attended
</Table>
- Pension Plan. There is no pension plan for non-employee directors.
- Other Arrangements. No director received compensation for services as a
director during the year ended 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 also is 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 practice of the directors to periodically hold executive sessions of
the non-employee directors without management participation at meetings of the
Controls and Compliance Committee. Information on how to communicate with the
chair of the Controls and Compliance Committee or the non-employee directors is
provided under "Communications to the Board" below.
COMMITTEES OF THE BOARD
CONTROLS AND COMPLIANCE COMMITTEE:
- Members are Mr. Donovan, Chair; Mr. Anchors; Mr. Cramer; Mr. Pullum; and Mr.
Scott
- Met four times in 2003
- Oversees the Company's internal controls and compliance matters
In July 2003, the board of directors changed the name of its audit committee to
the Controls and Compliance Committee and adopted a new charter to define the
duties and responsibilities of the Committee as restructured.
The Controls and Compliance Committee provides, on behalf of the board,
oversight of the Company's system of internal control, compliance, ethics and
employee concerns programs and activities. Its responsibilities include
3
review and assessment of such matters as the adequacy of internal controls, the
internal control environment, management risk assessment, response to reported
internal control weaknesses, internal auditing and ethics and compliance program
policies and practices. The Committee reports activities and findings to the
board and the Southern Company Audit Committee. The Committee meets periodically
with management, internal auditors and independent auditors to discuss auditing,
internal controls and compliance matters.
The Southern Company Audit Committee provides broad oversight of the Company's
financial reporting and audit processes, internal controls and legal, regulatory
and ethical compliance. The Southern Company Audit Committee appoints the
Company's independent auditors, approves their services and fees and reviews the
scope and timing of their audits. 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, material alternative financial treatments within generally accepted
accounting principles, proposed adjustments, control recommendations,
significant management judgments and accounting estimates, new accounting
policies and changes in accounting principles, any disagreements with management
and other material written communications between the auditors and 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 Audit Committee charter is attached to this Information
Statement as Appendix A.
COMPENSATION COMMITTEE:
- Members are Mr. Anchors, Chair; Mr. Cramer; Mr. Donovan; Mr. Pullum; and Mr.
Scott.
- Met one time 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.
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The board of directors met eight times in 2003. Average director attendance at
all board and committee meetings was 90 percent. No director nominee attended
less than 75 percent of applicable meetings.
4
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DIRECTOR NOMINATION PROCESS
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The Company does not have a Nominating Committee. The full board, with input
from the Company's chief executive officer, identifies director nominees. The
board 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 of the Company's common stock, and, as a result,
Southern Company's affirmative vote is sufficient to elect director nominees.
Consequently, the board does not accept proposals from preferred shareholders
regarding potential candidates for director nominees. Southern Company's
president also has input on behalf of Southern Company regarding potential
candidates for director nominees.
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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 chair of the Controls and Compliance Committee
or the non-employee directors can contact them by writing c/o Corporate
Secretary, Gulf Power Company, One Energy Place, Pensacola, Florida 32520-0786.
The Corporate Secretary will receive the correspondence and forward it to the
individual director or directors to whom the correspondence is directed or the
chair 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 MEETING OF SHAREHOLDERS
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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. None of the Company's current directors attended the Company's 2003
annual meeting of shareholders.
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 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 SEC. The Committee also reappointed Deloitte & Touche LLP as the Company's
independent auditors for 2004. At the 2004 annual meeting of Southern Company's
stockholders, its stockholders will be asked to ratify the Committee's selection
of the independent auditors.
Members of the Committee:
J. Neal Purcell, Chair
Dorrit J. Bern
Donald M. James
Zack T. Pate
6
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:
<Table>
<Caption>
2002 2003
---- ----
(IN THOUSANDS)
Audit Fees(1) $267 $392
Audit-Related Fees(2) 4 160
Tax Fees 12 2
All Other Fees -- --
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Total $283 $554
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</Table>
(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 2004
Annual Meeting of Shareholders 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 Gulf Power
Company, One Energy Place, Pensacola, Florida 32520-0786, 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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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 named executive officer 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 Ms. Story and Mr. Fanning, was at or near the
size-adjusted 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.
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").
8
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 230 percent based
on actual corporate and individual 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.
ANNUAL BONUS PAYMENTS
Performance met or exceeded the target levels in all areas in 2003, resulting in
bonuses that exceeded target levels.
Ms. Story and Mr. Fanning's annual performance bonuses under the Omnibus
Incentive Compensation Plan for target-level performance were 60 percent of
their respective base pay. The target percentage of base pay for the other named
executive officers ranged from 40 to 45 percent. Each individual's bonus paid
for 2003 performance was based 30 percent on the degree of achievement of
Southern Company's EPS goal and 70 percent 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 26 percent of Ms. Story's and 19 percent of Mr.
Fanning's total target compensation and 10 to 17 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 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 or if Southern
Company's earnings are not sufficient to fund the current Southern Company
common stock dividend. 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.
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 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, Chair
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 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.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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In 2003, the Company paid to Merrick Industries, Inc. and Merrick Environmental
Technology, Inc. $409,607 for coal handling equipment and pollution control
equipment. During 2003, Mr. Joseph K. Tannehill, a former director of the
Company who retired from the board in May 2003, was chairman and co-owner of
both companies.
10
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EXECUTIVE COMPENSATION INFORMATION
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EMPLOYMENT CHANGE IN CONTROL AND SEPARATION PLANS
The Company has adopted Southern Company's Change in Control Plans, which are
applicable to certain of its officers. 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 Plans 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 the Plans.
A Southern Company change in control is defined under the Plans 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 stockholders 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 Plans 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.
11
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning any chief executive
officer and the other four most highly compensated executive officers of the
Company serving during 2003.
<Table>
<Caption>
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($) ($)(1) (SHARES) ($)(2) ($)(3)
- -------------------------------------------------------------------------------------------------------------------------------
SUSAN N. STORY(4) 2003 297,771 245,241 3,572 24,978 138,695 14,203
President, Chief Executive
Officer, Director
- -------------------------------------------------------------------------------------------------------------------------------
THOMAS A. FANNING(4) 2003 375,820 522,396 110,691 42,314 223,482 156,405
President, Chief Executive 2002 296,875 240,396 1,231 31,926 192,241 15,397
Officer, Director
- -------------------------------------------------------------------------------------------------------------------------------
GENE L. USSERY, JR.(5) 2003 218,752 182,806 8,388 18,129 110,711 11,488
Vice President 2002 204,236 177,887 12,244 19,067 111,853 25,671
- -------------------------------------------------------------------------------------------------------------------------------
FRANCIS M. FISHER, JR. 2003 214,404 130,248 2,436 17,737 135,659 10,772
Vice President 2002 205,826 118,698 2,455 19,776 134,454 12,260
2001 196,069 126,574 2,803 37,298 120,274 11,314
- -------------------------------------------------------------------------------------------------------------------------------
RONNIE R. LABRATO 2003 183,716 108,945 21 11,530 57,461 9,217
Vice President, Chief Financial 2002 161,709 88,392 1,142 11,866 60,400 8,260
Officer and Comptroller 2001 149,587 88,944 951 18,092 57,190 7,702
- -------------------------------------------------------------------------------------------------------------------------------
P. BERNARD JACOB(6) 2003 167,967 94,904 2,471 6,678 22,150 7,734
Vice President
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Tax reimbursements by the Company and certain personal benefits.
(2) Payout of performance dividend equivalents on most 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. No dividend equivalents are paid if Southern Company total
shareholder return is below the 30th percentile or if Southern Company's
earnings are not sufficient to fund the current Southern Company common
stock dividend. 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.
(3) 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:
<Table>
<Caption>
ESP TAX
NAME ESP ESOP SBP SHARING BENEFITS
- ----------------------------------------------------------------------------------
Susan N. Story $9,000 $744 $4,459 $ --
- ----------------------------------------------------------------------------------
Thomas A. Fanning 7,600 744 9,912 --
- ----------------------------------------------------------------------------------
Gene L. Ussery, Jr. 9,000 744 1,744 --
- ----------------------------------------------------------------------------------
Francis M. Fisher, Jr. 7,952 744 1,638 438
- ----------------------------------------------------------------------------------
Ronnie R. Labrato 8,072 744 401 --
- ----------------------------------------------------------------------------------
P. Bernard Jacob 6,865 744 126 --
- ----------------------------------------------------------------------------------
</Table>
In 2002, the amount for Mr. Ussery also includes $15,000 of additional
incentive compensation. In 2003, the amount for Mr. Fanning also includes
additional relocation assistance of $138,149.
(4) Ms. Story became president and chief executive officer of the Company
effective April 11, 2003. Mr. Fanning became an executive officer of the
Company in May 2002 and resigned as president and chief executive officer of
the Company effective April 11, 2003 to become the executive vice president,
chief financial officer and treasurer of Southern Company.
(5) Mr. Ussery became an executive officer of the Company in May 2002.
(6) Mr. Jacob became an executive officer of the Company in June 2003.
12
STOCK OPTION GRANTS IN 2003
The following table sets forth all stock option grants to the named executive
officers of the Company during the year ending December 31, 2003.
<Table>
<Caption>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR GRANT DATE
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR(2) ($/SH)(1) DATE(1) VALUE($)(3)
- ----------------------------------------------------------------------------------------------------
Susan N. Story 24,978 9.1 27.975 02/14/2013 89,671
- ----------------------------------------------------------------------------------------------------
Thomas A. Fanning 42,314 15.4 27.975 02/14/2013 151,907
- ----------------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. 18,129 6.6 27.975 02/14/2013 65,083
- ----------------------------------------------------------------------------------------------------
Francis M. Fisher, Jr. 17,737 6.5 27.975 02/14/2013 63,676
- ----------------------------------------------------------------------------------------------------
Ronnie R. Labrato 11,530 4.2 27.975 02/14/2013 41,393
- ----------------------------------------------------------------------------------------------------
P. Bernard Jacob 6,678 2.4 27.975 02/14/2013 23,974
- ----------------------------------------------------------------------------------------------------
</Table>
(1) 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.
Exercise price is the average of the high and low price of Southern
Company's common stock on the date granted. Options may be transferred to a
revocable trust.
(2) A total of 274,307 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:
<Table>
<Caption>
- ---------------------------------------------------------------------
RISK-FREE DIVIDEND EXPECTED
VOLATILITY RATE OF RETURN YIELD TERM
- ---------------------------------------------------------------------
23.59% 2.72% 4.90% 4.28 years
- ---------------------------------------------------------------------
</Table>
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.
<Table>
<Caption>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
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
- -----------------------------------------------------------------------------------------------------------------
Susan N. Story 14,830 200,995 44,554 55,587 425,737 270,483
- -----------------------------------------------------------------------------------------------------------------
Thomas A. Fanning 22,830 332,827 78,236 83,123 801,883 386,126
- -----------------------------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. 20,741 272,816 37,712 42,224 434,101 213,281
- -----------------------------------------------------------------------------------------------------------------
Francis M. Fisher, Jr. 19,016 253,123 54,595 43,354 627,030 223,685
- -----------------------------------------------------------------------------------------------------------------
Ronnie R. Labrato 14,618 193,609 16,017 25,471 136,230 123,952
- -----------------------------------------------------------------------------------------------------------------
P. Bernard Jacob 8,786 81,455 980 15,013 7,669 74,196
- -----------------------------------------------------------------------------------------------------------------
</Table>
(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) These columns represent the excess of the fair market value of Southern
Company's 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.
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 of 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.
<Table>
<Caption>
YEARS OF ACCREDITED SERVICE
- ----------------------------------------------------------------------------------------
COMPENSATION 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
1,500,000 382,500 510,000 637,500 765,000 892,500 1,020,000
</Table>
As of December 31, 2003, the applicable compensation levels and accredited
service for determination of pension benefits would have been:
<Table>
<Caption>
COMPENSATION ACCREDITED
NAME LEVEL YEARS OF SERVICE
- ---------------------------------------------------------------------------------------------
Susan N. Story $426,447 21
- ---------------------------------------------------------------------------------------------
Thomas A. Fanning 613,396 22
- ---------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. 340,720 35
- ---------------------------------------------------------------------------------------------
Francis M. Fisher, Jr. 301,266 32
- ---------------------------------------------------------------------------------------------
Ronnie R. Labrato 241,587 24
- ---------------------------------------------------------------------------------------------
P. Bernard Jacob 211,260 20
- ---------------------------------------------------------------------------------------------
</Table>
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, 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.
<Table>
<Caption>
SHARES BENEFICIALLY
OWNED INCLUDE:
--------------------------------
SHARES INDIVIDUALS
SHARES HAVE RIGHTS TO SHARES HELD
NAME OF DIRECTORS, NOMINEES BENEFICIALLY ACQUIRE WITHIN 60 BY FAMILY
AND EXECUTIVE OFFICERS TITLE OF SECURITY OWNED(1) DAYS(2) MEMBERS(3)
- ----------------------------------------------------------------------------------------------------------------
C. LeDon Anchors Southern Company Common Stock 3,001 1,024
- ----------------------------------------------------------------------------------------------------------------
William C. Cramer, Jr. Southern Company Common Stock 1,364
- ----------------------------------------------------------------------------------------------------------------
Fred C. Donovan, Sr. Southern Company Common Stock 1,304
- ----------------------------------------------------------------------------------------------------------------
H. Allen Franklin Southern Company Common Stock 1,249,367 1,207,841
- ----------------------------------------------------------------------------------------------------------------
William A. Pullum Southern Company Common Stock 2,477
- ----------------------------------------------------------------------------------------------------------------
Winston E. Scott Southern Company Common Stock 301
- ----------------------------------------------------------------------------------------------------------------
Susan N. Story Southern Company Common Stock 72,815 68,967
- ----------------------------------------------------------------------------------------------------------------
Thomas A. Fanning Southern Company Common Stock 85,419 83,557
- ----------------------------------------------------------------------------------------------------------------
Francis M. Fisher, Jr. Southern Company Common Stock 66,348 63,480
- ----------------------------------------------------------------------------------------------------------------
P. Bernard Jacob Southern Company Common Stock 11,128 8,066
- ----------------------------------------------------------------------------------------------------------------
Ronnie R. Labrato Southern Company Common Stock 31,819 27,118
- ----------------------------------------------------------------------------------------------------------------
Gene L. Ussery, Jr. Southern Company Common Stock 58,666 55,942
- ----------------------------------------------------------------------------------------------------------------
Directors, Nominees and
Executive Officers as a group Southern Company Common Stock 1,584,009 1,515,071 1,024
- ----------------------------------------------------------------------------------------------------------------
</Table>
(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.
(3) Mr. Anchors 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) of the Securities Exchange Act of 1934.
15
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.
A-1
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 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.
A-2
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.
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)