UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant To Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[ ] Preliminary information statement
[ ] Confidential, for use of the Commission only (as permitted by Rule 14c-5(d)
(2))
[x] Definitive information statement
ALABAMA POWER COMPANY
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(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
NOTICE OF 2005
ANNUAL MEETING
& INFORMATION STATEMENT
WWW.ALABAMAPOWER.COM
(ALABAMA POWER LOGO)
ALABAMA POWER COMPANY
BIRMINGHAM, ALABAMA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 22, 2005
NOTICE IS HEREBY GIVEN that the annual meeting of the shareholders of Alabama
Power Company will be held at Alabama Power Company's corporate headquarters,
600 North 18th Street, Birmingham, Alabama 35291 on April 22, 2005 at 8:00 a.m.,
central time, to elect 16 members of the board of directors and to transact any
other business that may properly come before said meeting or any adjournment or
postponement thereof.
Only shareholders of record at the close of business on March 18, 2005 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
/s/William E. Zales, Jr.
William E. Zales, Jr.
Vice President and Corporate Secretary
Birmingham, Alabama
March 29, 2005
TABLE OF CONTENTS
PAGE
----
General Information......................................... 1
Shareholder Proposals....................................... 1
Nominees for Election as Directors.......................... 2
Corporate Governance........................................ 4
Communications to the Board................................. 6
Board Attendance at Annual Shareholders Meeting............. 6
Audit Committee Report...................................... 7
Compensation and Management Succession Committee Report..... 9
Compensation Committee Interlocks and Insider
Participation............................................. 11
Certain Relationships and Related Transactions.............. 11
Executive Compensation Information.......................... 12
Stock Ownership Table....................................... 16
INFORMATION STATEMENT
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GENERAL INFORMATION
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This Information Statement is furnished by Alabama Power Company (the "Company")
in connection with the 2005 Annual Meeting of Shareholders and any adjournment
or postponement thereof. The meeting will be held on April 22, 2005 at 8:00
a.m., central time, at the Company's corporate headquarters, 600 North 18th
Street, Birmingham, Alabama 35291. This Information Statement is initially being
provided to shareholders on or about March 29, 2005.
At the meeting, we will elect 16 members to the board of directors and transact
any other business that may properly come before the meeting. We are not aware
of any other matters to be presented at the meeting; however, the holder of the
Company's common stock will be entitled to vote on any other matters properly
presented.
All shareholders of record on the record date of March 18, 2005 are entitled to
notice of and to vote at the meeting. On that date, there were 8,250,000 common
shares outstanding and entitled to vote, all of which are held by The Southern
Company ("Southern Company"). There were also 475,115 shares of preferred stock
and 12,001,250 shares of Class A preferred stock outstanding on that date. With
respect to the election of directors, all of the outstanding shares of preferred
stock and Class A preferred stock are entitled to vote as a single class with
the Company's common stock. Each common share counts as one vote. Each share of
the 4.20% Series, the 4.52% Series, the 4.60% Series, the 4.64% Series, the
4.72% Series and the 4.92% Series of outstanding preferred stock, with par value
of $100 per share, counts as two-fifths vote, each share of the 5.20% Series,
the 5.30% Series and the 5.83% Series of outstanding Class A preferred stock,
with stated capital of $25 per share, counts as one-tenth vote and each share of
the Flexible Money Market Class A preferred stock, with stated capital of
$100,000 per share, counts as 400 votes. Neither the Company's charter nor
by-laws provides for cumulative voting rights.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
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SHAREHOLDER PROPOSALS
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Shareholders may present proper proposals for inclusion in the Company's
information statement and for consideration at the next annual meeting of its
shareholders by submitting their proposals to the Company in a timely manner. In
order to be so included for the 2006 Annual Meeting, shareholder proposals must
be received by the Company no later than January 28, 2006.
1
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NOMINEES FOR ELECTION AS DIRECTORS
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A board of 16 directors is to be elected at the annual meeting, each director to
hold office until the next annual meeting of shareholders and until the election
and qualification of a successor board. If any named nominee becomes unavailable
for election, the board may substitute another nominee.
On the following pages there is information concerning the nominees for director
stating, among other things, their names, ages, positions and offices held, and
brief descriptions of their business experience. The ages of the directors set
forth below are as of December 31, 2004.
CHARLES D. MCCRARY - Director since 2001
Mr. McCrary, 53, has served as President and Chief Executive Officer of the
Company since October 2001 and Executive Vice President of Southern Company
since February 2002. He previously 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 is a Director of AmSouth
Bancorporation, Birmingham, Alabama.
WHIT ARMSTRONG - Director since 1982
Mr. Armstrong, 57, is President, Chairman and Chief Executive Officer of The
Citizens Bank, Enterprise, Alabama, and President, Chairman and Chief Executive
officer of Enterprise Capital Corporation, Inc. He is a Director of Enstar
Group, Inc., Montgomery, Alabama.
DAVID J. COOPER, SR. - Director since 1998
Mr. Cooper, 59, 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 American Equity Underwriters, Inc.,
Mobile, Alabama.
R. KENT HENSLEE - Director since 1999
Mr. Henslee, 69, is Managing Partner of the law firm of Henslee, Robertson,
Strawn & Knowles, L.L.C., Gadsden, Alabama.
JOHN D. JOHNS - Director since 2004
Mr. Johns, 52, has served as Chairman, President and Chief Executive Officer of
Protective Life Corporation (holding company whose subsidiaries provide
insurance and other financial services), Birmingham, Alabama, since January
2003. He previously served as President and Chief Executive Officer of
Protective Life Corporation from January 2002 to January 2003 and President and
Chief Operating Officer of Protective Life Corporation from August 1996 until
December 2001. He is a Director of Alabama National BanCorporation, Birmingham,
Alabama, Genuine Parts Company, Atlanta, Georgia, and John H. Harland Company,
Decatur, Georgia.
CARL E. JONES, JR. - Director since 1988
Mr. Jones, 64, has served as Chairman and Chief Executive Officer of Regions
Financial Corporation (bank holding company), Birmingham, Alabama, since 2004.
He previously served as Chairman, President and Chief Executive Officer of
Regions Financial Corporation from 2001 to 2004 and President and Chief
Executive Officer of Regions Financial Corporation from 1998 to 2001.
PATRICIA M. KING - Director since 1997
Ms. King, 59, is President and Chief Executive Officer of Sunny King Automotive
Group (automobile dealerships), Anniston, Alabama.
JAMES K. LOWDER - Director since 1997
Mr. Lowder, 55, is Chairman of The Colonial Company (real estate development and
sales), Montgomery, Alabama. He is a Director of Colonial Properties Trust,
Birmingham, Alabama.
2
WALLACE D. MALONE, JR. - Director since 1990
Mr. Malone, 68, has served as Vice Chairman and Director of Wachovia Corporation
(banking services), Charlotte, North Carolina, since November 1, 2004. He
previously served as Chairman, President and Chief Executive Officer of
SouthTrust Corporation, Birmingham, Alabama.
MALCOLM PORTERA - Director since 2003
Dr. Portera, 58, has served as Chancellor of The University of Alabama System,
Tuscaloosa, Alabama, since January 2002. He previously served as President of
Mississippi State University from January 1998 to December 2001. He is a
Director of Protective Life Corporation, Birmingham, Alabama, and Regions
Financial Corporation, Birmingham, Alabama.
ROBERT D. POWERS - Director since 1992
Mr. Powers, 54, is President of The Eufaula Agency, Inc. (insurance and real
estate), Eufaula, Alabama.
DAVID M. RATCLIFFE - Director since 2004
Mr. Ratcliffe, 56, has served as President of Southern Company since April 2004
and Chairman and Chief Executive Officer of Southern Company since July 2004. He
previously served as Chief Executive Officer of Georgia Power from June 1999 to
April 2004 and President of Georgia Power from June 1999 to December 2003. He is
a Director of CSX Corporation, Jacksonville, Florida, and Southern Company
system companies, Georgia Power Company and Southern Power Company.
C. DOWD RITTER - Director since 1997
Mr. Ritter, 57, is Chairman, President and Chief Executive Officer of AmSouth
Bancorporation and AmSouth Bank, Birmingham, Alabama.
JAMES H. SANFORD - Director since 1983
Mr. Sanford, 60, is Chairman of HOME Place Farms, Inc. (agriculture, computer
services and land development), Prattville, Alabama. He also serves as President
of Autauga Quality Cotton Association, Prattville, Alabama, and Chairman of
Sylvest Farms, Inc., Montgomery, Alabama. He is a Director of Federal Reserve
Bank of Atlanta, Birmingham Branch.
JOHN C. WEBB IV - Director since 1977
Mr. Webb, 62, is President of Webb Lumber Company, Inc. (wholesale lumber and
wood products sales), Demopolis, Alabama.
JAMES W. WRIGHT - Director since 2000
Mr. Wright, 61, is Chairman, President and Chief Executive Officer of First
Tuskegee Bank, Tuskegee, Alabama. He is also Chairman, President and Chief
Executive Officer of Birthright Incorporated (bank holding company), Tuskegee,
Alabama.
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.
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 2004 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 and meeting fees may be payable in Southern Company common stock.
Also, at the election of the director, all or a portion of directors'
compensation, including the stock retainer, may be deferred under the
Company's deferred compensation plan for its directors until membership on
the board is terminated. If a director elects to defer the stock retainer,
it is payable in Southern Company common stock following termination from
the board.
Annual Cash Retainer Fee.............. $25,000 for directors serving as chair of a board
committee and $22,000 for other directors
Annual Stock Retainer Fee............. 520 shares of Southern Company common stock
Meeting Fees.......................... $1,800 for each board meeting attended and $1,200
for each committee meeting attended
- Other Arrangements. No director received other compensation for services as
a director during the year ending December 31, 2004 in addition to or in
lieu of that specified by the standard arrangements specified above.
GOVERNANCE POLICIES AND PROCESSES
Southern Company owns all of the Company's outstanding common stock, which
represents a substantial majority of the overall voting power of the Company's
equity securities, and the Company has listed only debt and preferred stock on
the New York Stock Exchange (the "NYSE"). Accordingly, under the rules of the
NYSE, the Company is exempt from most 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 was deemed to be in the best interests of the Company's shareholders.
In addition, under the rules of the Securities and Exchange Commission (the
"SEC"), the Company is exempt from the audit committee requirements of Section
301 of the Sarbanes-Oxley Act of 2002 and, therefore, is not required to have an
audit committee or an audit committee report on whether it has an audit
committee financial expert.
EXECUTIVE SESSIONS
It is the policy of the directors to hold an executive session of the
non-management directors without management participation at each scheduled
board of directors meeting. The chairman of the Controls and Compliance
Committee presides over such executive sessions. Information on how to
communicate with the chairman of the Controls and Compliance Committee or the
non-management directors is provided under "Communications to the Board" below.
COMMITTEES OF THE BOARD
CONTROLS AND COMPLIANCE COMMITTEE:
- Members are Mr. Webb, Chairman; Mr. Henslee and Mr. Lowder
- Met four times in 2004
- Oversees the Company's internal control and compliance matters
The Company's Controls and Compliance 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 broad oversight of the Company's
financial reporting and control functions. The Southern Company Audit Committee
reviews and discusses the Company's financial statements with management and the
independent auditors. Such discussions include critical accounting policies and
practices, alternative financial treatments, proposed adjustments and control
recommendations. Such discussions also include significant management judgments
and estimates, reporting or operational issues and changes in accounting
principles, as well as any disagreements with management.
The charter of the Southern Company Audit Committee is available on Southern
Company's website (www.southerncompany.com). The Southern Company Audit
Committee has authority to appoint, compensate and oversee the work of the
independent auditors.
COMPENSATION COMMITTEE:
- Members are Mr. Malone, Chairman; Mr. Ratcliffe, ex officio; Mr. Armstrong
and Dr. Portera
- Met two times in 2004
- Oversees the administration of the Company's compensation arrangements
The Company's Compensation Committee reviews and provides input to Southern
Company's Compensation and Management Succession Committee on the performance
and compensation of the Company's chief executive officer and makes
recommendations regarding the fees paid to members of the Company's 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. Ratcliffe, ex officio; Mr. Cooper; Mr.
Johns and Mr. Sanford
- Met two times in 2004
- Considers and recommends nominees for election as directors
The Nominating Committee, with input from the Company's chief executive officer,
identifies director nominees. The Nominating Committee evaluates candidates
based on the requirements set forth in the Company's by-laws and regulatory
requirements applicable to the Company.
Southern Company owns all of the Company's common stock, and, as a result,
Southern Company's affirmative vote is sufficient to elect director nominees.
Consequently, the Nominating Committee does not accept proposals from preferred
shareholders regarding potential candidates for director nominees. Southern
Company's chief executive officer is an ex officio member of the Nominating
Committee and may propose on behalf of Southern Company potential candidates for
director nominees at any meeting of the Nominating Committee.
EXECUTIVE COMMITTEE:
- Members are Mr. McCrary, Chairman; Mr. Jones; Mr. Malone and Mr. Ritter
- Met one time in 2004
- Acts in place of full board on matters that require board action between
scheduled meetings of the board to the extent permitted by law and within
certain limits set by the board
NUCLEAR OVERSIGHT COMMITTEE:
- Members are Mr. Powers, Chairman; Ms. King and Mr. Wright
- Met three times in 2004
- Reviews nuclear operations activities
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The board of directors met four times in 2004. Average director attendance at
all board and committee meetings was 96 percent. No nominee attended less than
75 percent of applicable meetings.
5
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COMMUNICATIONS TO THE BOARD
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Shareholders and other parties interested in communicating directly with the
Company's board of directors, the Chairman of the Controls and Compliance
Committee or the non-management directors can contact them by writing c/o
Corporate Secretary, Alabama Power Company, 600 North 18th Street, Birmingham,
Alabama 35291 or by sending an email to apcocorpsec@southernco.com. The
Corporate Secretary will receive the correspondence and forward it to the
individual director or directors to whom the correspondence is directed or the
Chairman of the Controls and Compliance Committee. The Corporate Secretary will
not forward any correspondence that is unduly hostile, threatening, illegal, not
reasonably related to the Company or its business or similarly inappropriate.
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BOARD ATTENDANCE AT ANNUAL SHAREHOLDERS MEETING
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The Company does not have a policy relating to attendance at the Company's
annual meeting of shareholders by directors. The Company does not solicit
proxies for the election of directors because the affirmative vote of Southern
Company is sufficient to elect the nominees and, therefore, holders of the
Company's preferred stock rarely attend the annual meeting. Consequently, a
policy encouraging directors to attend the annual meeting of shareholders is not
necessary. One of the Company's 16 directors attended the Company's 2004 annual
meeting of shareholders.
6
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AUDIT COMMITTEE REPORT
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The Southern Company Audit Committee (the "Audit 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 Audit
Committee reviewed the audited financial statements of the Company in the Annual
Report with management. The Audit Committee also reviews the Company's quarterly
and annual reports on Forms 10-Q and 10-K prior to filing with the SEC. The
Audit 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 Audit 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 Audit Committee under generally accepted
auditing standards, rules and regulations of the Public Company Accounting
Oversight Board ("PCAOB") and SEC and the NYSE corporate governance rules. In
addition, the Audit 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 PCAOB, which, on an interim
basis, has adopted Independence Standards Board Standard No. 1, "Independence
Discussions with Audit Committees." The Audit Committee has also considered
whether the independent auditors' provision of non-audit services to the Company
is compatible with maintaining their independence.
The Audit Committee discussed the overall scopes and plans with the Company's
internal and independent auditors for their respective audits. The Audit
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 Audit Committee also meets privately with Southern
Company's compliance officer. The Audit Committee held 14 meetings during 2004.
In reliance on the reviews and discussions referred to above, the Audit
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, 2004 and
filed with the SEC. The Audit Committee also reappointed Deloitte & Touche LLP
as the Company's independent auditors for 2005. At the 2005 annual meeting of
Southern Company's shareholders, its shareholders will be asked to ratify the
Audit Committee's selection of the independent auditors.
Members of the Committee:
J. Neal Purcell, Chair
Francis S. Blake
Donald M. James
Zack T. Pate
7
PRINCIPAL 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 2003 and 2004.
2003 2004
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(in thousands)
Audit Fees(1) $ 904 $2,546
Audit-Related Fees(2) 322 -
Tax Fees 5 16
All Other Fees - -
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Total $1,231 $2,562
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(1) Includes services performed in connection with financing transactions.
(2) Includes internal control review services and accounting consultations.
The 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 services provided by Deloitte & Touche. This
policy was initially adopted in July 2002 and since that time, all services
included in the chart above have been pre-approved by the Audit Committee.
Under the policy, the independent auditor delivers an annual arrangements letter
which provides a description of services anticipated to be rendered to the
Company by the independent auditor for the Audit Committee to approve. The Audit
Committee's approval of the independent auditor's annual arrangements letter
constitutes pre-approval of all services covered in the letter. In addition,
under the policy, the Audit Committee has pre-approved 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 services
related to consultation on routine accounting and tax matters. The Audit
Committee has delegated pre-approval authority to the Chair of the Audit
Committee with respect to permissible services up to a limit of $50,000 per
engagement. The Chair of the Audit Committee is required to report any
pre-approval decisions at the next scheduled Audit Committee meeting.
Under the policy, prohibited non-audit services are services prohibited by the
SEC to be performed by the Company's independent auditors. These services
include bookkeeping or other services related to the preparation of accounting
records of the Company, financial information systems design and implementation,
appraisal or valuation services, fairness opinions or contribution-in-kind
reports, actuarial services, internal audit outsourcing services, management
functions or human resources, broker-dealer, investment advisor or investment
banking services, legal services and expert services unrelated to the audit and
any other service that the PCAOB determines is impermissible. In addition,
officers of the Company may not engage the independent auditor to perform any
personal services, such as personal financial planning or personal income tax
services.
PRINCIPAL ACCOUNTING FIRM REPRESENTATION
No representative of Deloitte & Touche is expected to be present at the meeting
unless no later than three business days prior to the day of the meeting the
Company's Corporate Secretary has received written notice from a shareholder
addressed to the Corporate Secretary at Alabama Power Company, 600 North 18th
Street, Birmingham, Alabama 35291, that such shareholder will attend the meeting
and wishes to ask questions of a representative of Deloitte & Touche.
8
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COMPENSATION AND MANAGEMENT SUCCESSION COMMITTEE REPORT
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Southern Company's Compensation and Management Succession Committee (the
"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. Most of these companies
are included in the 20 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 (stock options and performance-based dividend
equivalents).
The Company also provides certain perquisites that the Committee reviews
periodically to determine if they are reasonable and appropriate. The primary
perquisites provided by the Company are financial planning services, club
memberships (for business use) and home security.
BASE PAY
A range for base pay is determined for each executive officer, including Mr.
McCrary, by comparing the base pay at the appropriate peer group of companies
described previously. Base pay is generally set at a level that is at or below
the size-adjusted median paid at those companies because of the emphasis on
incentive compensation in the executive compensation program. The 2004 base pay
level for the named executive officers, including Mr. McCrary, was at or near
the median.
ANNUAL PERFORMANCE BONUSES
Annual bonuses are paid through the Southern Company Omnibus Incentive
Compensation Plan. All executive officers participated in this plan in 2004.
PERFORMANCE GOALS
Annual performance bonuses are based on the attainment of corporate performance
goals and attainment of the Company's adjusting goals. All performance goals
were set in the first quarter of the year.
9
For 2004, the corporate performance goals included specific targets for:
- Southern Company earnings -- earnings per share ("EPS") and
- The Company's return on equity ("ROE").
The Committee believes that accomplishing the corporate goals is essential for
the Company's and Southern Company's continued success and sustained financial
performance. A target performance level is set for each corporate performance
goal. Performance above or below the targets results in proportionately higher
or lower bonus payments. The bonus amount is then adjusted, up or down, based on
the degree of achievement of the Company's adjusting goals related to such
measures as capital expenditures, cash flow, safety, customer satisfaction,
system reliability, plant availability and diversity.
A target percentage of base pay is established for each executive officer based
on his position level, for target-level performance. Annual performance bonuses
may range from 0 percent of the target to 240 percent based on actual corporate
performance.
No bonuses are paid if performance is below a threshold level or if a minimum
earnings level is not reached. Also, no bonuses are paid if Southern Company's
current earnings are not sufficient to fund the Southern Company common stock
dividend at the same level as the prior year. The Committee also capped the
maximum amount for the annual performance bonus for Mr. McCrary at 0.6 percent
of Southern Company's net income.
ANNUAL BONUS PAYMENTS
Performance met or exceeded the target levels in all areas in 2004, resulting in
bonuses that exceeded the target levels.
Mr. McCrary's annual performance bonus under the Southern Company Omnibus
Incentive Compensation Plan for target-level performance was 75 percent of his
base pay. The target percentage of base pay for the other executive officers
ranged from 50 to 55 percent. Each individual's bonus paid for 2004 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 were 155 percent of their respective target
bonuses.
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 Southern Company Omnibus Incentive Compensation Plan. The estimated
annualized value represented approximately 21 percent of Mr. McCrary's total
target compensation and 19 to 21 percent for the other executive officers. The
size of prior grants was not considered in determining the size of the grants
made in 2004. The options fully vest upon retirement and expire at the earlier
of five years from the date of retirement or the end of the ten-year term.
PERFORMANCE DIVIDENDS
The executive officers, including Mr. McCrary, also are paid performance-based
dividend equivalents on most stock options held at the end of the year. Dividend
equivalents can range from 25 percent of the Southern Company common stock
dividend paid during the year if Southern Company total shareholder return over
a four-year period, compared to a group of other utility companies, is at the
30th percentile to 100 percent of the dividend paid if it reaches the 90th
percentile. No dividend equivalents are paid if the total Southern Company
shareholder return over the period is below the 30th percentile. For eligible
stock options held on December 31, 2004, all participants, including the named
executive officers received a payout of $1.22 per option for above-target
performance under the Southern Company Omnibus Incentive Compensation Plan.
10
OTHER COMPENSATION
The Company participates in the Southern Company Deferred Compensation Plan for
eligible employees, including the executive officers. Participation is voluntary
and permits deferral of up to 50 percent of salary and up to 100 percent of
bonus awards. Except for certain prescribed hardship conditions, all amounts are
deferred until termination of employment. A participant has two investment
options under this plan -- a prime-rate investment option and an option that
tracks the performance of Southern Company common stock, neither of which
produce above-market earnings. This is an unfunded plan and all amounts deferred
are payable out of the general assets of the Company. The Committee has reviewed
the terms of this plan. The Committee does not consider earnings on deferred
compensation in establishing total compensation targets.
The Company also participates in additional non-qualified deferred compensation
plans and arrangements that provide post-retirement compensation. In addition,
the Committee reviews other benefit programs that are generally available to all
employees of the Company.
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
--------------------------------------------------------------------------------
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
--------------------------------------------------------------------------------
Southern Company's Compensation and Management Succession Committee is made up
of non-employee directors who have never served as executive officers of
Southern Company or the Company. During 2004, none of Southern Company's or the
Company's executive officers served on the board of directors of any entities
whose directors or officers serve on Southern Company's Compensation and
Management Succession Committee.
--------------------------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------------------------------
Mr. Whit Armstrong is President, Chairman and Chief Executive Officer of The
Citizens Bank, Enterprise, Alabama; Mr. Carl E. Jones, Jr. is Chairman and Chief
Executive Officer of Regions Financial Corporation, Birmingham, Alabama; Mr.
Wallace D. Malone previously served as Chairman, President and Chief Executive
Office of SouthTrust Corporation, Birmingham, Alabama, and currently serves as
Vice Chairman of Wachovia Corporation, Charlotte, North Carolina; 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, President and Chief Executive Officer of First Tuskegee Bank,
Tuskegee, Alabama. During 2004, these banks furnished a number of regular
banking services in the ordinary course of business to the Company. The Company
intends to maintain normal banking relations with all the aforesaid banks in the
future. In 2004, the Company paid to Webb Lumber Company, Inc. $126,552 for
specialty lumber needed for generating facility outage work. Mr. John C. Webb is
President of Webb Lumber Company, Inc.
11
--------------------------------------------------------------------------------
EXECUTIVE COMPENSATION INFORMATION
--------------------------------------------------------------------------------
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company has adopted Southern Company's Change in Control Program, which is
applicable to certain of its officers, and has entered into individual change in
control agreements with Messrs. McCrary and C. Alan Martin. If an executive is
involuntarily terminated, other than for cause, within two years following a
change in control of Southern Company or the Company, the agreements provide
for:
- lump sum payment of two or three times annual compensation,
- up to five years' coverage under group health and life insurance plans,
- immediate vesting of all stock options, stock appreciation rights and
restricted stock previously granted,
- payment of any accrued long-term and short-term bonuses and dividend
equivalents and
- payment of any excise tax liability incurred as a result of payments
made under any individual agreements.
A Southern Company change in control is defined under the agreements as:
- acquisition of at least 20 percent of Southern Company's stock,
- a change in the majority of the members of Southern Company's board of
directors in connection with an actual or threatened change in control,
- a merger or other business combination that results in Southern
Company's shareholders immediately before the merger owning less than 65
percent of the voting power after the merger or
- a sale of substantially all the assets of Southern Company.
A change in control of the Company is defined under the agreements as:
- acquisition of at least 50 percent of the Company's stock,
- a merger or other business combination unless Southern Company controls
the surviving entity or
- a sale of substantially all of the assets of the Company.
Southern Company also has amended its short- and long-term incentive plan to
provide for pro-rata payments at not less than target-level performance if a
change in control occurs and the plan is not continued or replaced with a
comparable plan or plans.
On August 22, 2002, the Company and Mr. William B. Hutchins, III entered into a
retention agreement which provided that if Mr. Hutchins remained employed as
Chief Financial Officer of the Company until April 1, 2004 or later, upon his
subsequent retirement from the Company, he would receive a severance payment of
$838,157 on his retirement date. Mr. Hutchins retired on February 1, 2005 and
the severance amount was paid to him.
12
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the Chief Executive
Officer and the other four most highly compensated executive officers of the
Company serving during 2004.
LONG-TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION NUMBER OF
-------------------------------------------- SECURITIES LONG-TERM
OTHER ANNUAL UNDERLYING INCENTIVE ALL OTHER
NAME AND PRINCIPAL COMPENSATION STOCK OPTIONS PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($)(1) (SHARES) ($)(2) ($)(3)
---------------------------------------------------------------------------------------------------------------------------------
CHARLES D. MCCRARY 2004 551,989 648,749 8,205 71,424 384,772 29,685
President, Chief Executive 2003 521,649 694,948 9,111 72,054 483,081 26,180
Officer and Director 2002 493,604 673,140 34,993 79,571 374,984 24,101
---------------------------------------------------------------------------------------------------------------------------------
C. ALAN MARTIN 2004 357,144 306,181 6,008 39,838 195,234 18,918
Executive Vice President 2003 346,112 337,538 9,987 41,359 261,977 21,857
2002 332,846 330,083 14,221 46,113 254,790 16,879
---------------------------------------------------------------------------------------------------------------------------------
WILLIAM B. HUTCHINS, III(4) 2004 326,786 254,686 2,703 30,843 119,837 17,783
Executive Vice President, 2003 316,131 280,769 4,287 32,022 197,374 17,554
Chief Financial Officer and 2002 301,663 271,958 24,520 35,362 243,179 39,179
Treasurer
---------------------------------------------------------------------------------------------------------------------------------
STEVE R. SPENCER 2004 330,196 257,343 35,930 31,165 86,749 90,677
Executive 2003 290,026 283,698 7,502 29,414 164,081 16,536
Vice President 2002 268,940 242,874 42,890 31,581 148,131 33,263
---------------------------------------------------------------------------------------------------------------------------------
JERRY L. STEWART 2004 286,863 311,581 9,925 32,224 163,090 35,635
Senior Vice President 2003 265,028 297,171 17,963 30,381 178,471 49,116
2002 236,673 267,000 1,376 26,286 159,914 48,207
---------------------------------------------------------------------------------------------------------------------------------
(1) This column reports tax reimbursements on certain perquisites and personal
benefits as well as on additional incentive compensation, if applicable.
Additional incentive compensation is reported in the "All Other
Compensation" column.
(2) Payout of performance dividend equivalents on stock options granted after
1996 that were held by the named executive officer at the end of the
performance periods under the Southern Company Omnibus Incentive
Compensation Plan for the four-year performance periods ended December 31,
2002, 2003 and 2004, respectively. Dividend equivalents can range from 25
percent of the Southern Company common stock dividend paid during the last
year of the performance period if Southern Company total shareholder return
over the four-year period, compared to a group of other large utility
companies, is at the 30th percentile to 100 percent of the dividend paid if
it reaches the 90th percentile. If Southern Company total shareholder return
is below the 30th percentile, no dividend equivalents are paid. For eligible
stock options held on December 31, 2002, 2003 and 2004, all named executive
officers earned a payout of $1.355, $1.385 and $1.22 per option,
respectively.
(3) Company contributions in 2004 to the Southern Company Employee Savings Plan
(ESP), Employee Stock Ownership Plan (ESOP) and non-pension related accruals
under the Southern Company Supplemental Benefit Plan (SBP) are provided in
the following table:
NAME ESP ESOP SBP
---------------------------------------------------------------------------------
Charles D. McCrary $7,454 $740 $21,491
---------------------------------------------------------------------------------
C. Alan Martin 8,297 740 9,881
---------------------------------------------------------------------------------
William B. Hutchins, III 9,225 740 7,818
---------------------------------------------------------------------------------
Steve R. Spencer 7,387 740 7,550
---------------------------------------------------------------------------------
Jerry L. Stewart 9,225 740 5,670
---------------------------------------------------------------------------------
In 2004, Messrs. Spencer and Stewart received additional incentive
compensation of $75,000 and $20,000, respectively.
In 2003, Messrs. Martin, Spencer and Stewart received additional incentive
compensation of $4,000, $4,000 and $35,000, respectively.
In 2002, Messrs. Hutchins, Spencer and Stewart received additional
incentive compensation of $20,000, $20,000 and $35,000, respectively.
(4) Mr. Hutchins retired from the Company on February 1, 2005.
13
STOCK OPTION GRANTS IN 2004
The following table sets forth all stock option grants to the named executive
officers of the Company during the year ending December 31, 2004.
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR GRANT DATE
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR(2) ($/SH)(1) DATE(1) VALUE($)(3)
----------------------------------------------------------------------------------------------------
Charles D. McCrary 71,424 6.1 29.50 02/13/2014 234,985
----------------------------------------------------------------------------------------------------
C. Alan Martin 39,838 3.4 29.50 02/13/2014 131,067
----------------------------------------------------------------------------------------------------
William B. Hutchins, III 30,843 2.6 29.50 02/01/2010 101,473
----------------------------------------------------------------------------------------------------
Steve R. Spencer 31,165 2.7 29.50 02/13/2014 102,533
----------------------------------------------------------------------------------------------------
Jerry L. Stewart 32,224 2.8 29.50 02/13/2014 106,017
----------------------------------------------------------------------------------------------------
(1) Under the terms of the Southern Company Omnibus Incentive Compensation Plan,
stock option grants to the named executive officers were made on February
13, 2004 and vest annually at a rate of one-third on the anniversary date of
the grant. Grants fully vest upon termination as a result of death, total
disability, or retirement and expire five years after retirement, three
years after death or total disability, or their normal expiration date if
earlier. The exercise price is the average of the high and low price of
Southern Company common stock on the date granted. Options may be
transferred to a revocable trust and for Mr. McCrary, options may also be
transferred to certain family members, family trusts and family limited
partnerships.
(2) A total of 1,168,140 stock options were granted in 2004 to employees of the
Company.
(3) Value was calculated using the Black-Scholes option valuation model. The
actual value, if any, ultimately realized depends on the market value of
Southern Company's common stock at a future date. Significant assumptions
are shown below:
------------------------------------------------
RISK-FREE DIVIDEND EXPECTED
VOLATILITY RATE OF RETURN YIELD TERM
------------------------------------------------
19.65% 3.08% 4.75% 5 years
------------------------------------------------
AGGREGATED STOCK OPTION EXERCISES IN 2004 AND YEAR-END OPTION VALUES
The following table sets forth information concerning options exercised during
the year ending December 31, 2004 by the named executive officers and the value
of unexercised options held by them as of December 31, 2004.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES VALUE YEAR-END(#) AT YEAR-END($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------------------------------------------------------------------------------------------------------
Charles D. McCrary 104,832 1,532,148 169,403 145,984 1,722,172 772,572
----------------------------------------------------------------------------------------------------------------
C. Alan Martin 68,963 783,179 77,247 82,781 693,384 440,000
----------------------------------------------------------------------------------------------------------------
William B. Hutchins, III 75,124 794,726 34,249 63,978 253,917 339,724
----------------------------------------------------------------------------------------------------------------
Steve R. Spencer 78,529 678,378 9,805 61,301 54,369 320,968
----------------------------------------------------------------------------------------------------------------
Jerry L. Stewart 27,404 425,062 72,440 61,240 772,652 314,223
----------------------------------------------------------------------------------------------------------------
(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 $33.52 per share, as of December 31, 2004, 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, 2004.
14
DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
The following table sets forth the estimated annual pension benefits payable at
normal retirement age under Southern Company's qualified Pension Plan, as well
as non-qualified supplemental benefits, based on the stated compensation and
years of service with the Southern Company system for the named executive
officers at the Company. Compensation for pension purposes is limited to the
average of the highest three of the final 10 years' compensation. Compensation
is base salary plus the excess of annual incentive compensation over 15 percent
of base salary. The compensation components are reported under columns titled
"Salary" and "Bonus" in the Summary Compensation Table detailed earlier in this
Information Statement.
The amounts shown in the table were calculated according to the final average
pay formula and are based on a single life annuity without reduction for joint
and survivor annuities or computation of the Social Security offset which would
apply in most cases.
YEARS OF ACCREDITED SERVICE
-----------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40
--------------------------------------------------------------------------------
$ 100,000 $ 25,500 $ 34,000 $ 42,500 $ 51,000 $ 59,500 $ 68,000
300,000 76,500 102,000 127,500 153,000 178,500 204,000
500,000 127,500 170,000 212,500 255,000 297,500 340,000
700,000 178,500 238,000 297,500 357,000 416,500 476,000
900,000 229,500 306,000 382,500 459,000 535,500 612,000
1,100,000 280,500 374,000 467,500 561,000 654,500 748,000
1,300,000 331,500 442,000 552,500 663,000 773,500 884,000
1,500,000 382,500 510,000 637,500 765,000 892,500 1,020,000
As of December 31, 2004, the applicable compensation levels and accredited
service for determination of pension benefits would have been:
ACCREDITED
NAME COMPENSATION YEARS OF SERVICE
---------------------------------------------------------------------------------------------
Charles D. McCrary $1,121,632 30
---------------------------------------------------------------------------------------------
C. Alan Martin 620,155 32
---------------------------------------------------------------------------------------------
William B. Hutchins, III 538,743 38
---------------------------------------------------------------------------------------------
Steve R. Spencer 523,617 25
---------------------------------------------------------------------------------------------
Jerry L. Stewart 520,278 31
---------------------------------------------------------------------------------------------
15
--------------------------------------------------------------------------------
STOCK OWNERSHIP TABLE
--------------------------------------------------------------------------------
Southern Company is the beneficial owner of 100 percent 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, 2004. 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, 2004.
SHARES BENEFICIALLY
OWNED INCLUDE:
-------------------
SHARES INDIVIDUALS
SHARES HAVE RIGHTS TO
NAME OF DIRECTORS, NOMINEES BENEFICIALLY ACQUIRE WITHIN 60
AND EXECUTIVE OFFICERS TITLE OF SECURITY OWNED(1) DAYS(2)
----------------------------------------------------------------------------------------------------
Whit Armstrong Southern Company Common Stock 25,649
----------------------------------------------------------------------------------------------------
David J. Cooper, Sr. Southern Company Common Stock 7,851
----------------------------------------------------------------------------------------------------
R. Kent Henslee Southern Company Common Stock 12,507
----------------------------------------------------------------------------------------------------
John D. Johns Southern Company Common Stock 1,307
----------------------------------------------------------------------------------------------------
Carl E. Jones, Jr. Southern Company Common Stock 17,589
----------------------------------------------------------------------------------------------------
Patricia M. King Southern Company Common Stock 3,037
----------------------------------------------------------------------------------------------------
James K. Lowder Southern Company Common Stock 12,223
----------------------------------------------------------------------------------------------------
Wallace D. Malone, Jr. Southern Company Common Stock 3,272
----------------------------------------------------------------------------------------------------
Charles D. McCrary Southern Company Common Stock 247,659 243,753
----------------------------------------------------------------------------------------------------
Malcolm Portera Southern Company Common Stock 2,695
----------------------------------------------------------------------------------------------------
Robert D. Powers Southern Company Common Stock 3,574
----------------------------------------------------------------------------------------------------
David M. Ratcliffe Southern Company Common Stock 436,693 422,501
----------------------------------------------------------------------------------------------------
C. Dowd Ritter Southern Company Common Stock 3,036
----------------------------------------------------------------------------------------------------
James H. Sanford Southern Company Common Stock 6,464
----------------------------------------------------------------------------------------------------
John C. Webb, IV Southern Company Common Stock 12,372
----------------------------------------------------------------------------------------------------
James W. Wright Southern Company Common Stock 4,552
----------------------------------------------------------------------------------------------------
William B. Hutchins, III Southern Company Common Stock 73,340 66,991
----------------------------------------------------------------------------------------------------
C. Alan Martin Southern Company Common Stock 124,227 119,684
----------------------------------------------------------------------------------------------------
Steve R. Spencer Southern Company Common Stock 42,337 40,525
----------------------------------------------------------------------------------------------------
Jerry L. Stewart Southern Company Common Stock 108,283 102,071
----------------------------------------------------------------------------------------------------
Directors, Nominees and
Executive Officers as a group
(21 people) Southern Company Common Stock 1,195,761 1,038,991
----------------------------------------------------------------------------------------------------
(1) "Beneficial ownership" means the sole or shared power to vote, or to direct
the voting of, a security, and/or investment power with respect to a
security or any combination thereof.
(2) Indicates shares of Southern Company's common stock that certain executive
officers have the right to acquire within 60 days. Shares indicated are
included in the Shares Beneficially Owned Column.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
No reporting person of the Company failed to file, on a timely basis, the
reports required by Section 16(a).
16
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