SOUTHERN COMPANY
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
(Rule 14a-101)
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT of 1934
Filed by the Registrant |
x |
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e) (2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Materials Pursuant to Rule 14a-12 |
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THE SOUTHERN COMPANY
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11. |
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(1) |
Title of each class of securities to which transaction applies: |
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(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: |
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Fee paid previously with preliminary materials. |
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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.: |
Notice of
Annual Meeting
2007
& Proxy Statement
PROXY STATEMENT
Contents
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Letter to Stockholders
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David M. Ratcliffe |
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Chairman, President and |
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Chief Executive Officer |
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Dear Fellow Stockholder: |
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You are invited to attend the 2007 Annual Meeting of
Stockholders at 10:00 a.m., ET, on Wednesday, May 23,
2007 at The Lodge Conference Center at Callaway Gardens, Pine
Mountain, Georgia. |
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At the meeting, I will report on our business and our plans for
the future. Also, we will elect our Board of Directors and vote
on the other matters set forth in the accompanying Notice. |
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Your vote is important. Please review the proxy material and
return your proxy form as soon as possible. |
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We look forward to seeing you on May 23rd. |
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David M. Ratcliffe |
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Notice of Annual Meeting of Stockholders
May 23, 2007
TIME and DATE
10:00 a.m., ET, on Wednesday, May 23, 2007
PLACE
The Lodge Conference Center at Callaway Gardens
Highway 18
Pine Mountain, Georgia 31822
DIRECTIONS
From Atlanta, Georgia take I-85 south to I-185 (Exit
21). From I-185 south, take Exit 34, Georgia Highway 18. Take
Georgia Highway 18 east to Callaway.
From Birmingham, Alabama take U.S. Highway 280
east to Opelika. Take I-85 north to Georgia Highway 18 (Exit 2).
Take Georgia Highway 18 east to Callaway.
ITEMS of BUSINESS
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(1) |
Elect 10 members of the Board of Directors; |
(2) |
Ratify appointment of independent registered public accounting
firm; |
(3) |
Consider and vote on a stockholder proposal if presented at the
meeting as described in Item No. 3 of the Proxy
Statement; and |
(4) |
Transact other business properly coming before the meeting or
any adjournments thereof. |
RECORD DATE
Stockholders of record at the close of business on
March 26, 2007 are entitled to attend and vote at the
meeting.
ANNUAL REPORT to STOCKHOLDERS
The Southern Company Annual Report to Stockholders for 2006 is
enclosed but is not a part of this mailing.
VOTING
Even if you plan to attend the meeting in person, please provide
your voting instructions in one of the following ways as soon as
possible:
(1) Internet use the Internet address on the
proxy form
(2) Telephone use the toll-free number on the
proxy form
(3) Mail mark, sign and date the proxy form and
return it in the enclosed postage-paid envelope
By Order of the Board of Directors, G. Edison
Holland, Jr., Secretary, April 11, 2007
Proxy Statement
General Information
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Q: |
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How do I give voting instructions? |
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A: |
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You may attend the meeting and give instructions in person or
give instructions by the Internet, by telephone or by mail.
Information for giving instructions is on the proxy form. The
Proxies, named on the enclosed proxy form, will vote all
properly executed proxies that are delivered pursuant to this
solicitation and not subsequently revoked in accordance with the
instructions given by you. |
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Q: |
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Can I change my vote? |
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A: |
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Yes, you may revoke your proxy by submitting a subsequent proxy
or by written request received by the Companys corporate
secretary before the meeting. |
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Q: |
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Who can vote? |
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A: |
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All stockholders of record on the record date of March 26,
2007. On that date, there were 751,605,276 shares of
Southern Company common stock outstanding and entitled to vote. |
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How much does each share count? |
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A: |
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Each share counts as one vote, except votes for Directors may be
cumulative. Abstentions that are marked on the proxy form are
included for the purpose of determining a quorum, but shares
that a broker fails to vote are not counted toward a quorum.
Neither is counted for or against the matters being considered. |
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Q: |
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What does it mean if I get more than one proxy form? |
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A: |
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You will receive a proxy form for each account that you have.
Please vote proxies for all accounts to ensure that all your
shares are voted. If you wish to consolidate multiple registered
accounts, please contact Stockholder Services at
(800) 554-7626. |
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Q: |
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Can the Companys Proxy Statement and Annual Report be
accessed from the Internet? |
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A: |
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Yes. You can access the Companys website at
www.southerncompany.com to view these documents. |
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Q: |
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Does the Company offer electronic delivery of proxy
materials? |
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Yes. Most stockholders can elect to receive an
e-mail that will
provide electronic links to the Annual Report and Proxy
Statement. Opting to receive your proxy materials on-line will
save us the cost of producing and mailing documents and also
will give you an electronic link to the proxy voting site. |
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You may sign up for electronic delivery when you vote your proxy
via the Internet or: |
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n Go to our investor web
site at http://investor.southerncompany.com/; |
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n Click on the word
Enroll for Electronic Delivery of Proxy
Materials; and |
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n Follow the directions
provided to complete your enrollment. |
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Once you enroll for electronic delivery, you will receive proxy
materials electronically as long as your account remains active
or until you cancel your enrollment. If you consent to
electronic access, you will be responsible for your usual
Internet-related charges (e.g., on-line fees and
telephone charges) in connection with electronic viewing and
printing of proxy materials and annual reports. The Company will
continue to distribute printed materials to stockholders who do
not consent to access these materials electronically. |
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Q: |
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What is householding? |
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A: |
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Certain beneficial owners of the Companys common stock,
sharing a single address, may receive only one copy of the Proxy
Statement and Annual Report unless the broker, bank or nominee
has received contrary instructions from any beneficial owner at
that address. This practice known as
householding is designed to reduce printing and
mailing costs. If a beneficial owner does not wish to
participate in householding, he or she may contact Stockholder
Services at (800) 554-7626 or at 30 Ivan Allen Jr.
Boulevard NW, Atlanta, Georgia 30308 and ask to receive a Proxy
Statement or Annual Report. As noted earlier, beneficial owners
may view the Proxy Statement and Annual Report on the Internet. |
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Q: |
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When are stockholder proposals due for the 2008 Annual
Meeting of Stockholders? |
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A: |
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The deadline for the receipt of stockholder proposals to be
considered for inclusion in the Companys proxy materials
for the 2008 Annual Meeting of Stockholders is December 15,
2007. Proposals must be submitted in writing to Patricia L.
Roberts, Assistant Corporate Secretary, Southern Company, 30
Ivan Allen Jr. Boulevard NW, Atlanta, Georgia 30308.
Additionally, the proxy solicited by the Board of Directors for
next years meeting will confer discretionary authority to
vote on any stockholder proposal presented at that meeting that
is not included in the Companys proxy materials unless the
Company is provided written notice of such proposal no later
than February 28, 2008. |
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Who pays the expense of soliciting proxies? |
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The Company pays the cost of soliciting proxies. The officers or
other employees of the Company or its subsidiaries may solicit
proxies to have a larger representation at the meeting. The
Company has retained Georgeson Shareholder to assist with the
solicitation of proxies for a fee not to exceed $10,000, plus
reimbursement of
out-of-pocket expenses. |
The Companys 2006 Annual Report to the Securities and
Exchange Commission (the SEC) on
Form 10-K will be
provided without charge upon written request to Patricia L.
Roberts, Assistant Corporate Secretary, Southern Company, 30
Ivan Allen Jr. Boulevard NW, Atlanta, Georgia 30308.
2
Corporate Governance
COMPANY ORGANIZATION
Southern Company is a holding company managed by a core group of
officers and governed by a Board of Directors that is currently
comprised of 11 members.
The nominees for election as Directors consist of nine
non-employees and one executive officer of the Company.
The Board of Directors has adopted and operates under a set of
Corporate Governance Guidelines which are available on the
Companys website at www.southerncompany.com under
Investors/ Corporate Governance.
CORPORATE GOVERNANCE WEBSITE
In addition to the Corporate Governance Guidelines, other
information relating to corporate governance of the Company is
available on the Companys Corporate Governance webpage at
www.southerncompany.com under Investors/ Corporate Governance or
directly at http://investor.southerncompany.com/governance.cfm,
including:
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Code of Ethics |
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Political Contributions Policy and Report |
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By-Laws of the Company |
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Executive Stock Ownership Guidelines |
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Board Committee Charters |
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Board of Directors Background and Experience |
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Management Council Background and Experience |
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Securities and Exchange Commission filings |
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Composition of Board Committees |
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Link for online communication with Board of Directors |
The Corporate Governance documents also may be obtained by
requesting a copy from Patricia L. Roberts, Assistant Corporate
Secretary, Southern Company, 30 Ivan Allen Jr. Boulevard NW,
Atlanta, Georgia 30308.
DIRECTOR INDEPENDENCE
No Director will be deemed to be independent unless the Board of
Directors affirmatively determines that the Director has no
material relationship with the Company, directly, or as an
officer, shareowner or partner of an organization that has a
relationship with the Company. The Board of Directors has
adopted categorical guidelines which provide that a Director
will not be deemed to be independent if within the preceding
three years:
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The Director was employed by the Company or whose immediate
family member was an executive officer of the Company. |
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The Director received, or whose immediate family member
received, direct compensation from the Company, other than
director and committee fees. (Compensation received by an
immediate family member for services as a non- executive
employee of the Company need not be considered.) |
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The Director was affiliated with or employed by, or whose
immediate family member was affiliated or employed in a
professional capacity by, a present or former external auditor
of the Company. |
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The Director was employed, or whose immediate family member was
employed, as an executive officer of a company where any member
of the Companys present executives serve on that
companys compensation committee. |
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A company for which the Director currently serves as an
executive officer or an employee or whose immediate family
member currently serves as an executive officer that makes
payments to or receives payments from the Company for property
or services in an amount which in any single fiscal year exceeds
the greater of $1,000,000 or two percent of that companys
consolidated gross revenues. |
Additionally, a Director will be deemed not to be independent if
the Director or the Directors spouse serves as an
executive officer of a charitable organization to which the
Company made discretionary contributions exceeding the greater
of $1,000,000 or two percent of the organizations total
annual charitable receipts.
In determining independence, the Board reviews and considers all
commercial, consulting, legal, accounting, charitable or other
business relationships that a Director or the Directors
immediate family members have with the Company. This review
specifically included all ordinary course transactions with
entities with which the Directors are associated. In particular,
the Board reviewed transactions between subsidiaries of the
Company and The Home Depot and Vulcan Materials Company.
Messrs. Francis S. Blake and Donald M. James are the chief
executive officers of The Home Depot and Vulcan Materials
Company, respectively. Throughout 2006, the subsidiaries
purchased goods and services in the amount of $812,959 from The
Home Depot and $476,302 from Vulcan Materials Company. These
amounts represented over 5,000 individual purchases from The
Home Depot and several individual transactions with Vulcan
Materials Company. The Board determined that its subsidiaries
followed the Company procurement policies and procedures, that
the amounts were well under the thresholds under the Director
independence requirements and that neither Mr. Blake nor
Mr. James had a direct or indirect material interest in the
transactions.
While no Director or immediate family member serves in an
executive capacity for a charitable organization, the Board
reviewed all contributions made by the Company and its
subsidiaries to charitable organizations with which the
Directors are associated. The Board determined that the
contributions were consistent with similar contributions and
none were approved outside the Companys normal procedures.
As a result of its annual review of Director independence, the
Board affirmatively determined that none of the following
persons who are currently serving as a Director or are nominees
for election as Directors has a material relationship with the
Company and, as a result, such persons are determined to be
independent: Juanita Powell Baranco, Dorrit J. Bern, Francis S.
Blake, Thomas F. Chapman, H. William Habermeyer, Jr.,
Donald M. James, Zack T. Pate, J. Neal Purcell, William G.
Smith, Jr. and Gerald J. St. Pé. David M.
Ratcliffe, a current Director, is Chairman of the Board,
President and Chief Executive Officer of the Company. Also,
Daniel P. Amos and Bruce S. Gordon who served as Directors
during 2006 until their resignation date of February 21,
2006, were determined not to have a material relationship with
the Company and to be independent.
COMMUNICATING WITH THE BOARD
Communications may be sent to the Companys Board or to
specified Directors by regular mail or electronic mail. Regular
mail should be sent to the attention of Patricia L. Roberts,
Assistant Corporate Secretary, Southern Company, 30 Ivan
Allen Jr. Boulevard NW, Atlanta, Georgia 30308. The
electronic mail address is CORPGOV@southerncompany.com. The
electronic mail address also can be accessed from the Corporate
Governance webpage located under Investors on the Southern
Company website at www.southerncompany.com, under the link
entitled Governance Inquiries. With the exception of commercial
solicitations, all stockholder communications directed to the
Board or to specified Directors will be relayed to them.
DIRECTOR COMPENSATION
Only non-employee Directors are compensated for Board service.
The pay components are:
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Annual retainers: |
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$70,000 of which $30,000 is deferred in shares of Company common
stock until Board membership ends (1) |
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$10,000 if serving as chair of a standing Board committee with
the exception that the chair of the Audit Committee receives
$25,000 |
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Equity grants: |
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1,000 additional shares of Company common stock in quarterly
grants of 250 shares are deferred until Board membership
ends |
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Meeting fees: |
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$2,500 for participation in a meeting of the Board |
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$2,000 for participation in a meeting of a committee of the
Board other than a meeting of the Audit Committee |
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$4,000 for attendance in person at a meeting of the Audit
Committee |
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$2,000 for participation by telephone in a meeting of the Audit
Committee |
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$2,000 for each day of a visit to a plant or office of the
Company and for any other business meeting at which the Director
participates as a representative of the Company |
(1) Effective as of November 1, 2006. Prior to
November 1, 2006, $40,000 if first elected as a Director
before 1997, of which $10,000 was deferred in shares of Company
common stock; or $49,000 if first elected as a Director in 1997
or later, of which $19,000 was deferred in shares of Company
common stock.
DIRECTOR DEFERRED COMPENSATION PLAN
All quarterly equity grants and $30,000 of the annual retainer
are required to be deferred in the Deferred Compensation Plan
for Directors of The Southern Company (the Director
Deferred Compensation Plan) and are invested in Company
common stock units which earn dividends as if invested in
Company common stock. Earnings are reinvested in additional
stock units. Upon leaving the Board, distributions are made in
shares of Company common stock.
In addition, Directors may elect to defer up to 100% of their
remaining compensation in the Director Deferred Compensation
Plan until membership on the Board ends. Such deferred
compensation may be invested as follows, at the Directors
election:
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in Company common stock units which earn dividends as if
invested in Company common stock and are distributed in shares
of Company common stock upon leaving the Board |
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in Company common stock units which earn dividends as if
invested in Company common stock and are distributed in cash
upon leaving the Board |
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in prime interest which is paid in cash upon leaving the Board |
All investments and earnings in the Director Deferred
Compensation Plan are fully vested and at the election of the
Director, may be distributed in a lump-sum payment or in up to
10 annual distributions after leaving the Board. The Company has
established a grantor trust that primarily holds Company common
stock that funds the Company common stock units that are
distributed in shares of Company common stock. Directors have
voting rights in the shares held in the trust attributable to
these units.
5
DIRECTOR COMPENSATION TABLE
The following table reports all compensation to the
Companys non-employee Directors during 2006, including
amounts deferred in the Director Deferred Compensation Plan.
Non-employee Directors do not receive Option Awards or
Non-Equity Incentive Plan Compensation, and there is no pension
plan for non-employee Directors.
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Change in |
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Pension Value |
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Fees |
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and |
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Earned |
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Non-Equity |
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Nonqualified |
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or Paid |
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Incentive Plan |
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Deferred |
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All Other |
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in Cash |
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Awards |
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Awards |
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Compensation |
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Compensation |
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Compensation |
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($)(1) |
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($)(2)(3) |
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($) |
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Earnings ($) |
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($)(4) |
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Total ($) |
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Daniel P. Amos(5)
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13,500 |
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7,919 |
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21,419 |
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Juanita Powell Baranco(6)(7)
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84,366 |
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51,533 |
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52 |
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135,951 |
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Dorrit J. Bern
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100,666 |
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54,869 |
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155,535 |
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Francis S. Blake
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100,166 |
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54,869 |
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155,035 |
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Thomas F. Chapman
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100,999 |
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54,869 |
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155,868 |
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Bruce S. Gordon(5)
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20,834 |
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6,419 |
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27,253 |
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Donald M. James
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98,166 |
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54,869 |
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220 |
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153,255 |
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Zack T. Pate
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124,666 |
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54,869 |
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179,535 |
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J. Neal Purcell
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135,666 |
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54,869 |
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190,535 |
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William G. Smith, Jr.(6)
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82,666 |
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48,982 |
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|
|
|
|
|
|
|
|
|
282 |
|
|
|
131,930 |
|
|
Gerald J. St. Pé
|
|
|
105,666 |
|
|
|
47,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
865 |
|
|
|
153,900 |
|
|
|
|
(1) |
Includes amounts voluntarily deferred in the Director Deferred
Compensation Plan. |
|
(2) |
Includes fair market value of equity grants on grant dates and
retainer compensation required to be deferred in the Director
Deferred Compensation Plan. All such stock awards are vested
immediately upon grant. |
|
(3) |
The aggregate number of Company common stock units held at
year-end in the Director Deferred Compensation Plan for each
person except Messrs. Amos and Gordon is provided in the Stock
Ownership Table under the column Deferred Stock Units. At
year-end, Mr. Gordon held 2,797 common stock units and
Mr. Amos held no common stock units in the Director
Deferred Compensation Plan. |
|
(4) |
Consists of gross-ups for the reimbursement for
taxes on spousal air travel and gifts. |
|
(5) |
Messrs. Amos and Gordon resigned as Directors effective
February 21, 2006. |
|
(6) |
Ms. Baranco and Mr. Smith were first elected Directors of
the Company effective February 23, 2006. |
|
(7) |
Ms. Barancos compensation includes compensation
earned in 2006 as a Director of Georgia Power Company, a
wholly-owned subsidiary of the Company, as well as compensation
earned as a Director of the Company. Ms. Baranco resigned
as a Director of Georgia Power Company effective
February 21, 2006. |
DIRECTOR STOCK OWNERSHIP GUIDELINES
Under the Companys Corporate Governance Guidelines,
non-employee Directors are required to beneficially own, within
five years of their initial election to the Board, Company
common stock equal to at least four times the annual Director
retainer fee.
MEETINGS OF NON-EMPLOYEE DIRECTORS
Non-employee Directors meet in executive session with no member
of management present following each regularly-scheduled Board
meeting. There is a presiding Director at each of these
executive sessions. Dr. Zack T. Pate, chair of the Nuclear
Committee, served as presiding Director during the past two
years and will continue to serve until the Annual
6
Meeting of Stockholders on May 23, 2007. Mr. Thomas F.
Chapman will become the presiding Director on May 23, 2007
to serve a two-year term or until a successor is named by the
non-employee Directors.
COMMITTEES OF THE BOARD
Charters for each of the five standing committees can be found
at the Companys website
www.southerncompany.com under Investors/ Corporate Governance.
|
|
|
|
|
Audit Committee: |
|
n
|
|
Members are Mr. Purcell, Chair, Ms. Baranco,
Mr. Blake and Dr. Pate(1) |
|
n
|
|
Met 10 times in 2006 |
|
n
|
|
Oversees the Companys financial reporting, audit
processes, internal controls and legal, regulatory and ethical
compliance; appoints the Companys independent registered
public accounting firm, approves its services and fees and
establishes and reviews the scope and timing of its audits;
reviews and discusses the Companys financial statements
with management and the independent registered public accounting
firm, including 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, changes in accounting
principles, any disagreements with management and other material
written communications between the internal auditors and/or the
independent registered public accounting firm and management;
and recommends the filing of the Companys annual financial
statements with the SEC. |
The Board has determined that the members of the Audit Committee
are independent as defined by the New York Stock Exchange
corporate governance rules within its listing standards and
rules of the SEC promulgated pursuant to the Sarbanes-Oxley Act
of 2002. The Board has determined that Mr. Purcell
qualifies as an audit committee financial expert as
defined by the SEC.
|
|
(1) |
Dr. Pate will retire from the Board on his normal
retirement date, May 23, 2007. |
|
|
|
|
|
Compensation and Management Succession Committee: |
|
n
|
|
Members are Mr. St. Pé, Chair, Mr. Chapman,
Mr. James and Mr. Smith |
|
n
|
|
Met nine times in 2006 |
|
n
|
|
Evaluates performance of executive officers and establishes
their compensation, administers executive compensation plans and
reviews management succession plans. Annually reviews a tally
sheet of all components of the Chief Executive Officers
compensation and takes actions required of it under the Pension
Plan for Employees of the Company. |
The Board has determined that each member of the Compensation
and Management Succession Committee is independent.
The Committee focuses on good governance practices in its
operation. In late 2005 and during 2006, this included:
|
|
|
Considering compensation for the named executive officers in the
context of all of the components of total compensation. |
|
|
Considering annual adjustments to pay over the course of two
meetings and requiring more than one meeting to make other
important decisions. |
|
|
Receiving meeting materials several days in advance of meetings. |
|
|
Having regular executive sessions of Committee members only. |
|
|
Having direct access to an outside compensation consultant. |
7
|
|
|
Conducting a performance/payout analysis versus peer companies
for the short-term incentive plan to provide a check on the
Companys goal-setting process. |
Role of Executive Officers
The Chief Executive Officer, with input from the Human Resources
staff, recommends to the Committee base salary, target bonus
levels, actual bonus payouts and long-term incentive grants for
Company officers. The Committee considers, discusses, modifies
as appropriate and takes action on such proposals.
Role of Compensation Consultants
In 2006, the Committee directly retained Hewitt Associates
(Hewitt) as its outside compensation consultant. The
Committee informed Hewitt in writing that it expected Hewitt to
advise it if and when there were elements of management
proposals to the Committee that Hewitt believed the Committee
should not support, set expectations for Hewitt to be honest and
direct with the Committee at all times and stated that
Hewitts ongoing engagement would be determined by the
Committee.
During 2006, Hewitt assisted the Committee with comprehensive
market data and its implications for pay at the Company and
various other governance, design and compliance matters. The
consultant also advised the Governance Committee on Director pay
levels.
Compensation Committee Interlocks and Insider
Participation
The following Directors served on the Compensation and
Management Succession Committee during 2006: Mr. Dan P.
Amos (resigned February 21, 2006), Mr. Chapman,
Mr. James, Mr. Smith and Mr. St. Pé. None of
such persons was an officer or employee of the Company during
2006 or at any time in the past or had reportable transactions
with the Company.
|
|
|
|
|
Finance Committee: |
|
n
|
|
Members are Ms. Bern, Chair, Mr. James and
Mr. Smith |
|
n
|
|
Met eight times in 2006 |
|
n
|
|
Reviews the Companys financial matters, recommends actions
such as dividend philosophy to the Board and approves certain
capital expenditures |
The Board has determined that each member of the Finance
Committee is independent.
|
|
|
|
|
Governance Committee: |
|
n
|
|
Members are Mr. Chapman, Chair, Ms. Bern and
Mr. St. Pé |
|
n
|
|
Met four times in 2006 |
|
n
|
|
Oversees the composition of the Board and its committees,
determines non-employee Directors compensation, maintains
the Companys Corporate Governance Guidelines and
coordinates the performance evaluations of the Board and its
committees. |
The Board has determined that each member of the Governance
Committee is independent.
Nominees for Election to the Board
The Governance Committee, comprised entirely of independent
Directors, is responsible for identifying, evaluating and
recommending nominees for election to the Board. The Committee
solicits recommendations for candidates for consideration from
its current Directors and is authorized to engage third party
advisers to assist in the identification and evaluation of
candidates for consideration. Any stockholder may make
recommendations to the Governance Committee by sending a written
statement setting forth the candidates qualifications,
relevant biographical information and signed consent to serve.
These materials should be submitted in writing to the
Companys assistant corporate secretary and
8
received by that office by December 15, 2007 for
consideration by this Committee as a nominee for election at the
Annual Meeting of Stockholders to be held in 2008. Any
stockholder recommendation is reviewed in the same manner as
candidates identified by the Committee or recommended to the
Committee.
The Governance Committee only considers candidates with the
highest degree of integrity and ethical standards. The Committee
evaluates a candidates independence from management,
ability to provide sound and informed judgment, history of
achievement reflecting superior standards, willingness to commit
sufficient time, financial literacy and number of other board
memberships. The Board as a whole should be diverse and have
collective knowledge and experience in accounting, finance,
leadership, business operations, risk management, corporate
governance and the Companys industry. During 2006, the
Committee engaged the services of a third-party search firm to
aid in identifying prospective candidates and evaluating their
qualifications. The Committee recommends candidates to the Board
of Directors for consideration as nominees. Final selection of
the nominees is within the sole discretion of the Board of
Directors.
Mr. H. William Habermeyer, Jr. was recommended by the
Governance Committee for election to the Board and was elected
as a Director effective March 1, 2007. Mr. Habermeyer
was identified jointly by the members of the Governance
Committee and the third-party search firm.
|
|
|
|
|
Nuclear Committee: |
|
n
|
|
Members are Dr. Pate(1), Chair and Mr. Habermeyer |
|
n
|
|
Reviews and oversees the nuclear generating policies and
facilities of the Companys subsidiaries. The Chair serves
as Chair of the Nuclear Operating Committee for Southern Nuclear
Operating Company, Inc., a wholly-owned subsidiary of the
Company. |
|
n
|
|
Attended 14 meetings in 2006 |
|
|
(1) |
Dr. Pate will retire from the Board on his normal
retirement date, May 23, 2007. |
DIRECTOR ATTENDANCE
The Board of Directors met 13 times in 2006. The average
attendance for Directors at all Board and Committee meetings was
97 percent. No nominee attended less than 75 percent
of applicable meetings.
Directors are expected to attend the Annual Meeting of
Stockholders. Nine of the 10 members of the Board of Directors
serving during 2006 attended the 2006 Annual Meeting of
Stockholders.
9
Stock Ownership Table
STOCK OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE
OFFICERS
The following table shows the number of shares of Company common
stock owned by Directors, nominees and executive officers as of
December 31, 2006 with the exception of Mr. Habermeyer
whose shares are shown as of March 1, 2007, the date of his
election to the Board of Directors. 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 the class.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially Owned Include: |
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
Individuals |
|
|
|
|
Shares |
|
|
|
Have Rights to |
|
|
|
|
Beneficially |
|
Deferred Stock |
|
Acquire within |
|
Shares Held by |
Directors, Nominees and Executive Officers |
|
Owned(1) |
|
Units(2) |
|
60 days(3) |
|
Family Members(4) |
|
Juanita Powell Baranco
|
|
|
6,265 |
|
|
|
5,806 |
|
|
|
|
|
|
|
|
|
|
Dorrit J. Bern
|
|
|
35,399 |
|
|
|
33,899 |
|
|
|
|
|
|
|
|
|
|
Francis S. Blake
|
|
|
12,070 |
|
|
|
11,870 |
|
|
|
|
|
|
|
|
|
|
W. Paul Bowers
|
|
|
220,417 |
|
|
|
|
|
|
|
211,169 |
|
|
|
|
|
|
Thomas F. Chapman
|
|
|
21,126 |
|
|
|
21,126 |
|
|
|
|
|
|
|
|
|
|
Thomas A. Fanning
|
|
|
226,782 |
|
|
|
|
|
|
|
223,148 |
|
|
|
|
|
|
Michael D. Garrett
|
|
|
175,427 |
|
|
|
|
|
|
|
173,584 |
|
|
|
|
|
|
H. William Habermeyer, Jr.
|
|
|
70 |
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
Donald M. James
|
|
|
34,959 |
|
|
|
32,959 |
|
|
|
|
|
|
|
|
|
|
Charles D. McCrary
|
|
|
318,554 |
|
|
|
|
|
|
|
313,745 |
|
|
|
|
|
|
Zack T. Pate
|
|
|
39,206 |
|
|
|
34,833 |
|
|
|
|
|
|
|
|
|
|
J. Neal Purcell
|
|
|
22,214 |
|
|
|
15,990 |
|
|
|
|
|
|
|
224 |
|
|
David M. Ratcliffe
|
|
|
996,256 |
|
|
|
|
|
|
|
980,167 |
|
|
|
|
|
|
William G. Smith, Jr.
|
|
|
7,427 |
|
|
|
3,946 |
|
|
|
|
|
|
|
|
|
|
Gerald J. St. Pé
|
|
|
90,047 |
|
|
|
36,148 |
|
|
|
|
|
|
|
7,480 |
|
|
Directors, Nominees and Executive Officers as
a Group (20 people)
|
|
|
3,015,584 |
|
|
|
196,647 |
|
|
|
2,657,287 |
|
|
|
7,704 |
|
|
|
|
(1) |
Beneficial ownership means the sole or shared power
to vote, or to direct the voting of, a security, or investment
power with respect to a security, or any combination thereof. |
|
(2) |
Indicates the number of Deferred Stock Units held under the
Director Deferred Compensation Plan. |
|
(3) |
Indicates shares of Company common stock that certain executive
officers have the right to acquire within 60 days. Shares
indicated are included in the Shares Beneficially Owned column. |
|
(4) |
Each Director disclaims any interest in shares held by family
members. Shares indicated are included in the Shares
Beneficially Owned column. |
10
Matters to be Voted Upon
ITEM NO. 1 ELECTION OF DIRECTORS
Nominees for Election as Directors
The Proxies named on the proxy form will vote, unless otherwise
instructed, each properly executed proxy form for the election
of the following nominees as Directors. If any named nominee
becomes unavailable for election, the Board may substitute
another nominee. In that event, the proxy would be voted for the
substitute nominee unless instructed otherwise on the proxy
form. Each nominee, if elected, will serve until the 2008 Annual
Meeting of Stockholders.
|
|
|
|
|
|
|
|
|
|
|
Juanita Powell Baranco
Age:
Director since:
Board committees:
Principal occupation:
Other directorships: |
|
58
2006
Audit
Executive vice president and chief operating officer of Baranco
Automotive Group, automobile sales
Cox Radio Incorporated |
|
|
|
|
|
|
|
Dorrit J. Bern
Age:
Director since:
Board committees:
Principal occupation:
Other directorships: |
|
56
1999
Finance (chair), Governance
Chairman of the board, president and chief executive officer of
Charming Shoppes, Inc., multi-channel apparel, home, food and
retail
Charming Shoppes, Inc., OfficeMax, Inc. |
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Francis S. Blake
Age:
Director since:
Board committees:
Principal occupation:
Recent business experience:
Other directorships: |
|
57
2004
Audit
Chairman and chief executive officer of The Home Depot, home
improvement
Served as U.S. Deputy Secretary of Energy from May 2001 to
April 2002 and as executive vice president of The Home Depot
until January 2007 when he assumed his current position.
The Home Depot, Inc. |
|
|
|
|
|
|
|
Thomas F. Chapman
Age:
Director since:
Board committees:
Principal occupation:
Recent business experience:
Other directorships: |
|
63
2000
Governance (chair), Compensation and Management
Succession
Retired chairman of the board and chief executive officer of
Equifax, Inc., information services, data analytics, transaction
processing and consumer financial products
Served as chairman of the board and chief executive officer of
Equifax, Inc. until his retirement on December 12, 2005.
None |
|
|
|
|
|
|
|
H. William Habermeyer, Jr.
Age:
Director since:
Board committees:
Principal occupation:
Recent business experience:
Other directorships: |
|
64
2007
Nuclear
Retired president and chief executive officer of Progress Energy
Florida, Inc., electric utility
Served as president and chief executive officer of Progress
Energy Florida, Inc. from December 2000 until his retirement on
June 1, 2006.
Raymond James Financial Services, Inc. |
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
Donald M. James
Age:
Director since:
Board committees:
Principal occupation:
Other directorships: |
|
58
1999
Compensation and Management Succession, Finance
Chairman of the board and chief executive officer of Vulcan
Materials Company, construction materials
Vulcan Materials Company, Protective Life Corporation, Wachovia
Corporation |
|
|
|
|
|
|
|
J. Neal Purcell
Age:
Director since:
Board committees:
Principal occupation:
Recent business experience:
Other directorships: |
|
65
2003
Audit (chair)
Retired vice-chairman, audit operations, of KPMG, public
accounting
Served as KPMGs vice-chairman in charge of National Audit
Practice Operations from October 1998 until his retirement on
January 31, 2002.
Dollar General Corporation, Kaiser Permanente Healthcare and
Hospitals, Synovus |
|
|
|
|
|
|
|
David M. Ratcliffe
Age:
Director since:
Principal occupation:
Recent business experience:
Other directorships: |
|
58
2003
Chairman of the board, president and chief executive officer of
the Company
Served as president and chief executive officer of Georgia Power
Company from May 1999 until January 2004 and as chairman and
chief executive officer of Georgia Power Company from January
2004 until April 2004. He served as executive vice president of
the Company from May 1999 until April 2004, and as president of
the Company from April 2004 until July 2004, when he assumed his
current position.
CSX Corporation, Southern system companies Alabama
Power Company, Georgia Power Company and Southern Power Company |
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
William G. Smith, Jr.
Age:
Director since:
Board committees:
Principal occupation:
Other directorships: |
|
53
2006
Compensation and Management Succession, Finance
Chairman of the board, president and chief executive officer of
Capital City Bank Group, Inc.
Capital City Bank Group, Inc. |
|
|
|
|
|
|
Gerald J. St. Pé
Age:
Director since:
Board committees:
Principal occupation:
Recent business experience:
Other directorships: |
|
67
1995
Compensation and Management Succession (chair),
Governance
Former president of Ingalls Shipbuilding and retired executive
vice president of Litton Industries
Served as chief operating officer of Northrop-Grumman Ship
Systems from August 1999 to November 2001.
Merchants and Marine Bank |
|
|
|
Each nominee has served in his or her present position for at
least the past five years, unless otherwise noted.
The affirmative vote of a plurality of shares present and
entitled to vote is required for the election of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
NOMINEES LISTED IN ITEM NO. 1.
ITEM NO. 2 RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors has appointed
Deloitte & Touche LLP (Deloitte &
Touche) as the Companys independent registered
public accounting firm for 2007. This appointment is being
submitted to stockholders for ratification. Representatives of
Deloitte & Touche will be present at the Annual Meeting
to respond to appropriate questions from stockholders and will
have the opportunity to make a statement if they desire to do so.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM
NO. 2.
ITEM NO. 3 STOCKHOLDER PROPOSAL ON
ENVIRONMENTAL REPORT
The Company has been advised that The Sisters of Charity of
Saint Elizabeth, P. O. Box 476, Convent Station, New Jersey
07961, holder of 100 shares of Company common stock;
American Baptist Home Mission Society of The American Baptist
Churches, USA, P. O. Box 851, Valley Forge, Pennsylvania
19482, holder of 1,330 shares of Company common stock;
State of Connecticut Retirement Plans &
Trust Funds, 55 Elm Street, Hartford, Connecticut 06106,
holder of 196,000 shares of Company common stock; and
Sisters of St. Dominic of Caldwell New Jersey, 40 South
Fullerton Avenue, Montclair, New Jersey 07042, holder of
100 shares of Company common stock, propose to submit the
following resolution at the 2007 Annual Meeting of Stockholders.
14
Whereas:
Coal-burning power plants are responsible for 80% of the
carbon dioxide
(CO2)
emissions from all U.S. power plants and Southern Company
is the second-largest emitter of
CO2,
the principal greenhouse gas (GHG) linked to climate
change, among U.S. power generators.
http://www.nrdc.org/air/pollution/benchmarking/default.asp
Since 1990,
CO2
emissions from U.S. power plants have increased by 27%.
Moreover, the global rate of GHG emissions from burning fossil
fuels increased four-fold between 2000 and 2005 (Financial
Times 11/10/06).
Levels of
CO2,
which persists in the atmosphere for over 100 years, are
now higher than anytime in the past 400,000 years and they
will continue to rise as long as emissions from human activities
continue.
In order to avoid the most damaging effects of climate
change, scientists urge that global
CO2
emissions be kept at 2004 levels for the next 50 years
through a combination of measures, including conservation,
energy efficiency, switching to cleaner fuels and new low-carbon
technologies.
http://fire.pppl.gov/energy_socolow_081304.pdf
Claude Mandil, Executive Director of the International
Energy Agency, noted that ...the benefits of strong, early
action on climate change outweigh the costs. That conclusion is
one that the IEA fully endorses notably in its World
Energy Outlook 2006. The worlds energy economy
is on a pathway that is plainly not sustainable (FT
Energy Special 10/20/06).
While
CO2
is not now regulated federally, the in-coming chair of the
Senate environmental committee has indicated that
Californias new law requiring a 25% reduction in total
CO2
emissions by 2020 will be a model for federal legislation.
(AP 11/9/06)
Shareholders desire to understand how well our company
would be prepared to operate under mandatory 25%
CO2
emissions reduction mandates, were such carbon constraints
enacted by the U.S. Congress.
AEP, the nations largest electric generator, Entergy
and Exelon have set total GHG emissions reduction targets. Duke
Energy, Exelon, and several other major U.S. corporations
have also publicly endorsed adoption of federal policy to limit
CO2
emissions as a way to provide economic and regulatory certainty
needed for major investments in our energy future.
Southern Company however, opposes mandatory regulation of
CO2
and other GHG emissions in favor of voluntary action. While our
company has added cleaner coal burning capacity, is investing in
renewable energy and has reduced the intensity of its
CO2
emissions, it has yet to adopt a voluntary reduction goal for
its total
CO2
emissions. (Southern Company Response to CDP4)
http://www.cdproject.net/online_response.asp?cid=1269&id=4&exp=10desc=Electric+Utility&letter=S
RESOLVED: Shareholders request that the Board of Directors
report to shareholders actions the company would need to take to
reduce total
CO2
emissions, including quantitative goals for existing and
proposed plants based on current and emerging technologies, by
September 20, 2007. Such report shall omit proprietary
information and be prepared at reasonable cost.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
ITEM NO. 3 FOR THE FOLLOWING REASONS:
The Company issued in 2005 the Environmental Assessment:
Report to Shareholders, outlining options and actions the
Company is taking with regard to
CO2
and other emissions, including an extensive review of
CO2
price scenarios; issued in 2006 its Corporate Responsibility
Report, which included data on
CO2
emissions and actions being undertaken to address those
emissions; and in April 2007, issued a report Climate
Change A Summary of Southern Company Actions, on
specific current and long-term activities to address
CO2
emissions. All these reports are available either through the
Companys external website at www.southerncompany.com or by
contacting Patricia L. Roberts, Assistant Corporate Secretary,
Southern Company, 30 Ivan Allen Jr. Boulevard NW, Atlanta,
Georgia 30308 and requesting a copy.
The vote needed to pass the proposed stockholders
resolution is a majority of the shares represented at the
meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
ITEM NO. 3.
15
Audit Committee Report
The Audit Committee oversees the Companys financial
reporting process on behalf of the Board of Directors.
Management has the primary responsibility for establishing and
maintaining adequate internal controls over financial reporting,
including disclosure controls and procedures, and for preparing
the Companys consolidated financial statements. In
fulfilling its oversight responsibilities, the Committee
reviewed the audited consolidated financial statements of the
Company and its subsidiaries and managements report on the
Companys internal control over financial reporting in the
Annual Report to stockholders with management. The Committee
also reviews the Companys quarterly and annual reporting
on Forms 10-Q
and 10-K prior to
filing with the SEC. The Committees review process
includes 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 registered public accounting firm is responsible
for expressing opinions on the conformity of the consolidated
financial statements with accounting principles generally
accepted in the United States and on the conformity of
managements assessment of the effectiveness of the
Companys internal control over financial reporting and the
effectiveness of the Companys internal control over
financial reporting with the criteria established in
Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Committee reviewed with the independent
registered public accounting firm, the firms judgments as
to the quality, not just the acceptability, of the
Companys 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 Public
Company Accounting Oversight Board (the PCAOB) and
the SEC and the New York Stock Exchange corporate governance
rules. In addition, the Committee has discussed with the
independent registered public accounting firm its 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 No. 1, Independence Discussions with Audit
Committees. The Committee also has considered whether the
independent registered public accounting firms provision
of non-audit services to the Company is compatible with
maintaining the firms independence.
The Committee discussed the overall scopes and plans with the
Companys internal auditors and independent registered
public accounting firm for their respective audits. The
Committee meets with the internal auditors and independent
registered public accounting firm with and without management
present, to discuss the results of their audits, evaluations by
management and the independent registered public accounting firm
of the Companys internal control over financial reporting,
and the overall quality of the Companys financial
reporting. The Committee also meets privately with the
Companys compliance officer. The Committee held 10
meetings during 2006.
In reliance on the reviews and discussions referred to above,
the Committee recommended to the Board of Directors (and the
Board approved) that the audited consolidated financial
statements be included in the Companys Annual Report on
Form 10-K for the
year ended December 31, 2006 and filed with the SEC. The
Committee also reappointed Deloitte & Touche as the
Companys independent registered public accounting firm for
2007. Stockholders will be asked to ratify that selection at the
Annual Meeting of Stockholders.
Members of the Committee:
|
|
|
J. Neal Purcell, Chair |
|
Juanita Powell Baranco |
|
Francis S. Blake |
|
Zack T. Pate |
16
PRINCIPAL ACCOUNTING FIRM FEES
The following represents the fees billed to the Company for the
last two fiscal years by Deloitte & Touche
the Companys principal independent registered public
accounting firm:
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
| |
|
|
(In thousands) | |
Audit Fees(a)
|
|
$ |
12,994 |
|
|
$ |
12,270 |
|
Audit-Related Fees(b)
|
|
|
673 |
|
|
|
410 |
|
Tax Fees(c)
|
|
|
90 |
|
|
|
117 |
|
All Other Fees
|
|
|
0 |
|
|
|
0 |
|
|
|
Total
|
|
$ |
13,757 |
|
|
$ |
12,797 |
|
|
|
|
(a) |
Includes services performed in connection with financing
transactions |
|
(b) |
Includes benefit plan and other non-statutory audit services and
accounting consultations in both 2006 and 2005 |
|
(c) |
Includes review services in connection with the consolidated
federal tax return and tax compliance licensing and training
costs |
The Audit Committee has adopted a Policy on Engagement of the
Independent Auditor for Audit and Non-Audit Services (see
Appendix A) 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.
17
Executive Compensation
COMPENSATION DISCUSSION AND ANALYSIS
In this Compensation Discussion and Analysis (the
CD&A) and elsewhere in this Proxy Statement,
references to the Compensation Committee are to the
Compensation and Management Succession Committee of the
Companys Board of Directors.
GUIDING PRINCIPLES AND POLICIES
The Companys executive compensation program is based on a
philosophy that total executive compensation must be competitive
with the companies in our industry, must be tied to and motivate
our executives to meet our short- and long-term performance
goals and must foster and encourage alignment of executive
interests with the interests of our stockholders and our
customers. The program generally is designed to motivate all
employees, including executives, and to achieve operational
excellence while maintaining a safe work environment.
Our executive compensation program places significant focus on
rewarding performance. The program is performance-based in
several respects:
|
|
|
|
|
Our actual earnings per share (EPS) and business
unit performance, which includes return on equity
(ROE) or net income, compared to target
performance levels established early in the year, determine the
ultimate short-term (annual) incentive payouts. |
|
|
|
Company common stock price changes result in higher or lower
ultimate values of stock options. |
|
|
|
Our dividend payout and total shareholder return
(TSR) compared to those of our industry peers lead
to higher or lower payouts under the Performance Dividend
Program (the PDP). |
In support of our performance-based pay philosophy, we have no
employment contracts with our named executive officers or
guaranteed severance, except upon a change in control
(CIC), and no pay is conditioned solely upon
continued employment with any of the named executive officers,
other than base salary.
Our pay-for-performance principles apply not only to the named
executive officers, but to thousands of employees. Our
short-term incentive program covers nearly all of our 26,000
employees and our CIC protection program covers all employees
not part of a collective bargaining unit. Our stock options and
PDP cover approximately 5,800 employees. These programs engage
our people in our business, which ultimately is good not only
for them, but for our customers and our stockholders.
18
OVERVIEW OF EXECUTIVE COMPENSATION COMPONENTS
Our executive compensation program is composed of several
elements, each of which plays a different role. The table below
discusses the intended role of each material pay element, what
it rewards and why the Company uses it. Following the table is
additional information that describes how the Company made 2006
pay decisions.
|
|
|
|
|
|
|
Intended Role and What the Element |
|
|
|
|
Rewards |
|
Why We Use the Element |
Pay Element |
|
|
|
|
|
Base Salary
|
|
Base salary is pay for competence in the executive role, with a
focus on scope of responsibilities. |
|
Market
practice.
Provides
a threshold level of cash compensation for
job performance. |
|
Short-Term Incentive
|
|
The Companys Performance Pay Program (the PPP)
rewards achievement of operational, EPS and business unit
financial goals. |
|
Market
practice.
Focuses attention on achievement of short-term goals
that ultimately works to fulfill our mission to customers and
lead to increased stockholder value in the long term. |
|
Long-Term Incentive:
Stock Options
|
|
Stock options reward price increases in the Companys
common stock over the market price on date of grant, over a
10-year term. |
|
Represents
performance-based compensation.
Aligns executives interests with those of
stockholders. |
|
Long-Term Incentive:
PDP
|
|
The PDP provides cash compensation dependent on the number of
stock options held at year-end, the Companys declared
dividends during the year and four-year TSR versus industry
peers. |
|
Performance-based
compensation.
Enhances the value of stock options and focuses
executives on maintaining a significant dividend yield for
stockholders.
Aligns executives interests with stockholder
interests since payouts are dependent on performance, defined as
our stock performance versus industry peers.
Competitive
market practice. |
|
Retirement Benefits
|
|
The Southern Company Deferred Compensation Plan (the
DCP) provides the opportunity to defer to future
years all or part of base salary and bonus in either a prime
interest rate or Company common stock account.
Executives participate in employee benefit plans
available to all employees of the Company, including a 401(k)
savings plan and the Southern Company Pension Plan (the
Pension Plan).
The Supplemental Benefit Plan (the SBP)
counts pay ineligible to be counted under the Pension Plan and
the 401(k) plan due to Internal Revenue Service rules, including
deferred salary.
The Supplemental Executive Retirement Plan (the
SERP) counts short-term incentive pay above 15% of
base salary for pension purposes. |
|
The DCP is a cost-effective method of providing
additional cash flow to the Company while enhancing the
retirement savings of executives.
The purpose of the SBP and the SERP is to eliminate
the effect of tax limitations on the payment of retirement
benefits.
Represents market practice for companies in our peer
group and generally. |
|
19
|
|
|
|
|
|
|
Intended Role and What the Element |
|
|
Pay Element |
|
Rewards |
|
Why We Use the Element |
|
Perquisites and Other Personal Benefits
|
|
Personal financial planning maximizes the perceived
value of our executive compensation program to executives and
allows executives to focus on Company operations.
Home security systems lower our risk of harm to
executives.
Club memberships are provided primarily for business
use.
Limited personal use of Company aircraft allows the
CEO to meet both his business and personal commitments. |
|
Perquisites benefit both the Company and executives, at low cost
to us. |
|
Post-Termination Pay
|
|
CIC agreements provide severance pay, accelerated vesting and
payment of short- and long-term incentive awards upon a CIC of
the Company coupled with involuntary termination not for
Cause or a voluntary termination for Good
Reason. |
|
Providing protections to senior executives upon a
CIC minimizes disruption during a pending or anticipated
CIC.
Payment and vesting occur only upon the occurrence
of both an actual CIC and loss of the executives
position. |
|
MARKET DATA
For the named executive officers, the Compensation Committee
reviews compensation data from electric and gas utilities. The
data is developed and analyzed by Hewitt Associates, the
compensation consultant retained by the Compensation Committee.
The companies included each year in the primary peer group are
those whose data is available through the consultants
database. Those companies are drawn from this list of regulated
utilities of $2 billion in revenues and up. Proxy data for
the entire list of companies below also is used.
|
|
|
|
|
|
|
|
Allegheny Energy, Inc.
Alliant Energy Corporation
Ameren Corporation
American Electric Power Company, Inc.
CenterPoint Energy, Inc.
Cinergy Corp.
CMS Energy Corporation
Consolidated Edison, Inc.
Constellation Energy Group, Inc.
Dominion Resources Inc. |
|
DTE Energy Company
Duke Energy Corporation
Edison International
Energy East Corporation
Entergy Corporation
Exelon Corporation
FirstEnergy Corp.
FPL Group, Inc.
Great Plains Energy Incorporated
Hawaiian Electric Industries, Inc. |
|
KeySpan Corporation
NiSource Inc.
Northeast Utilities
NSTAR
OGE Energy Corp.
Pepco Holdings, Inc.
PG&E Corporation
Pinnacle West Capital Corporation
PNM Resources, Inc.
PPL Corporation |
|
Progress Energy, Inc.
Public Service Enterprise Group Incorporation
Puget Energy, Inc.
SCANA Corporation
Sempra Energy
Sierra Pacific Resources
TECO Energy, Inc.
TXU Corp.
Wisconsin Energy Corporation
WPS Resources Corporation
Xcel Energy Inc. |
|
The Company is one of the largest U.S. utility companies in
revenues and market capitalization, and its largest business
units are some of the largest in the industry as well. For that
reason, the consultant size-adjusts the market data in order to
fit it to the scope of our business.
In using market data, market is defined as the size-adjusted
50th percentile of the data, with a focus on pay
opportunities at target performance (rather than actual plan
payouts). We provide pay opportunities (base salary, target PPP
payouts, stock option awards and target PDP payouts) at market
and design our incentive plans to pay significantly more or less
than the target amount when actual performance is above or below
target performance levels. As a result, our plans are designed
to result in payouts that are market-appropriate given our
performance for that year or period.
20
The Company does not target a specified weight for base salary
or short-term or long-term incentives as a percent of total
compensation, nor did amounts realizable from prior compensation
serve to increase or decrease 2006 compensation amounts. The
competitive posture of one element of pay affects the targeted
competitive posture of other elements such that total
compensation opportunities for senior management as a group are
managed to be at the median of the market for companies our size
and in our industry. The market data influenced executive
officer base salary and incentive opportunities as follows for
2006:
|
|
|
|
|
Base salaries for senior executives were targeted at market,
though individual salaries may be above or below that level for
reasons of time in position, criticality to the business or
individual performance. |
|
|
|
Target PPP opportunities were somewhat higher than market
because in 2000, a long-term incentive plan (the Productivity
Improvement Plan) was terminated and its award opportunities
folded in with PPP. Target opportunities are set at a percentage
of base salary. |
|
|
|
To counterbalance the above-market PPP opportunities, stock
option award sizes were set to be somewhat below market after
taking into account the related PDP opportunity. |
For purposes of comparing the value of our program to the market
data, stock options are valued at 15%, and PDP targets at 10%,
of the average daily stock price for the year preceding the
grant, both of which represent risk-adjusted present values on
the date of grant and are consistent with the methodologies used
to develop the market data. For the 2006 grant of stock options
and the PDP targets established for the 2006 2009
performance period, this value was $8.53 per stock option
granted. The stock option value used for market data comparisons
exceeds the value reported in the Grants of Plan-Based Awards
Table because it assumes that the options are held for their
full 10-year term. The Black-Scholes value reported in the table
uses historical holding period averages of approximately five
years.
|
|
|
|
|
As discussed above, the Compensation Committee targets total
compensation opportunities for senior executives as a group at
market. Therefore, some senior executives may be paid somewhat
above and others somewhat below market. This practice allows for
minor differentiation based on time in the position, individual
performance and internal equity. The average total target
compensation opportunities for the named executive officers for
2006 were two percent above the market data described above. |
|
|
|
In 2004, the Compensation Committee received a detailed
comparison of our executive benefits program to the benefits of
a group of other large utilities and general industry companies.
The results indicated that the Companys executive benefits
program was slightly below market. |
DESCRIPTION OF KEY COMPENSATION COMPONENTS
2006 Base Salary
Base salaries for each of the named executive officers for 2006
were recommended for the Compensation Committees approval
by Mr. Ratcliffe, except for his own salary. Those
recommendations took the market data into account, as well as
the need to retain an experienced team, internal equity, time in
position and individual performance. This included the degree of
competence and initiative exhibited and the individuals
relative contribution to the results of operations in prior
years. The Compensation Committee approved the recommended
salaries in 2006.
Mr. Ratcliffes 2006 base salary was set by the
Compensation Committee and was influenced by the above-described
market data and Mr. Ratcliffes performance and time
in position.
2006 Incentive Compensation
Achieving Operational and Financial Goals Our
Guiding Principle for Incentive Compensation
Our number one priority is to provide our customers outstanding
reliability and superior service at low prices while achieving a
level of financial performance that benefits our stockholders in
the short and long term.
21
In 2006, we strove for and rewarded:
|
|
|
Continued industry-leading reliability and customer
satisfaction, while maintaining our low retail prices relative
to the national average; and |
|
|
Meeting increased energy demand with the best economic and
environmental choices. |
In 2006, we also focused on and rewarded:
|
|
|
EPS Growth A continuation of growing EPS an average
of five percent per year from a base, excluding synfuel
earnings, established in 2002. The target goal shown below is
five percent greater than the goal established for 2005. |
|
|
ROE in the top quartile of comparable electric utilities. |
|
|
Dividend Growth. |
|
|
Long-term, risk-adjusted TSR. |
|
|
Financial Integrity An attractive risk-adjusted
return, sound financial policy and a stable A credit
rating. |
The incentive compensation program is designed to encourage the
Company to achieve these goals.
Mr. Ratcliffe, with the assistance of our Human Resources
staff, recommends to the Compensation Committee program design
and award amounts for senior executives.
2006 PPP
Program Design
PPP is the Companys annual cash incentive plan. Most
employees of the Company are participants, including the named
executive officers, a total of about 26,000 participants.
The performance measured by the program uses goals set at the
beginning of each year by the Compensation Committee.
An illustration of the PPP goal structure for 2006 is provided
below.
|
|
|
|
|
Operational goals for 2006 were safety, customer service, plant
availability, transmission and distribution system reliability,
inclusion and capital expenditures. Each of these operational
goals is explained in more detail under Goal Details below. The
result of all operational goals is averaged and multiplied by
the bonus impact of the EPS and business unit financial goals.
The amount for each goal can range from 0.90 to 1.10, or 0 if a
threshold performance level is not achieved as more fully
described below. The level of achievement for each operational
goal is determined and the results are averaged. Each of our
business units has operational goals. For Messrs. Garrett
and McCrary, the PPP payout is adjusted up or down based on the
operational goal results for Georgia Power Company and Alabama
Power Company, respectively. For Messrs. Ratcliffe and
Fanning, it is calculated using the corporate-wide weighted
average of the operational goal results. For Mr. Bowers, it
is calculated using the operational goal results for our
generation business unit. |
22
|
|
|
|
|
EPS is weighted at 50% of the financial goals. EPS is defined as
earnings from continuing operations divided by average shares
outstanding during the year, excluding synthetic fuel earnings
(synfuel earnings). The EPS performance measure is
applicable to all participants in the PPP, including the named
executive officers. |
|
|
|
Business Unit Financial Performance is weighted at 50% of the
financial goals. For our traditional utility operating companies
(Alabama Power Company, Georgia Power Company, Gulf Power
Company and Mississippi Power Company), the business unit
financial performance goal is ROE, which is defined as the
operating companys net income divided by average equity
for the year. For our other business units, we establish
financial performance measures that are tailored to each
business unit. |
|
|
|
For Messrs. Garrett and McCrary, their PPP payout is
calculated using the ROE for Georgia Power Company and Alabama
Power Company, respectively. For Messrs. Ratcliffe and
Fanning, it is calculated using a corporate-wide weighted
average of all the business unit financial performance goals,
including primarily the operating companies ROE. And, for
Mr. Bowers, his business unit financial performance measure
is weighed one-half the corporate-wide weighted average and
one-half the financial performance measure for our generation
business unit. |
|
|
|
In addition, superior individual performance can increase an
individuals payout by up to 10% of base salary, at the
discretion of the Compensation Committee. |
The Compensation Committee may make adjustments, both positive
and negative, to goal achievement for purposes of determining
payouts. Such adjustments include the impact of items considered
one time or outside of normal operations or not anticipated in
the business plan when the earnings goal was established and of
sufficient magnitude to warrant recognition. For the payout
based on 2006 performance, adjustments were made as described
below under the heading 2006 Achievement. The maximum effect of
these adjustments for any of the named executive officers was
less than five percent.
Under the terms of the program, no payout can be made if the
Companys current earnings are not sufficient to fund the
Companys common stock dividend at the same level as the
prior year.
Goal Details
Operational Goals:
Customer Service The Company uses customer
satisfaction surveys to evaluate the Companys performance.
The survey results provide an overall ranking for each operating
company, as well as a ranking for each customer segment:
residential, commercial and industrial.
Reliability Transmission and distribution system
reliability performance is measured by the frequency and
duration of outages. Performance targets for reliability are set
internally based on historical performance, expected weather
conditions and expected capital expenditures.
Availability Peak season equivalent forced outage
rate is an indicator of fossil/hydro plant availability and
efficient generation fleet operations during the months when
generation needs are greatest. The rate is calculated by
dividing the number of hours of forced outages by total
generation hours.
Safety The Companys Target Zero program is
focused on continuous improvement in having a safe work
environment. The performance is measured by the Occupational
Safety and Health Administration recordable incident rate.
Inclusion/ Diversity The Companys inclusion
program seeks to improve its inclusive workplace. This goal
includes measures for work environment (employee satisfaction
survey), representation of minorities and females in leadership
roles and supplier diversity.
Capital expenditures We aim to manage capital
expenditures to meet customer commitments without sacrificing
financial integrity.
Southern Company capital expenditures gate or
threshold goal We strive to manage total capital
expenditures for the participating business units at or below
$2.7 billion for 2006, excluding nuclear fuel. If the
capital expenditure target is exceeded, total operational goal
performance is capped at 0.90 for all business units, regardless
of the actual operational
23
goal results. Adjustments to the goal may occur due to
significant events not anticipated in the business plan
established early in 2006, such as acquisitions or disposition
of assets, new capital projects and other events.
The range of performance levels established for the operational
goals are detailed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer |
|
|
|
|
|
|
|
|
|
|
Level of Performance |
|
Service |
|
Reliability |
|
Availability | |
|
Safety | |
|
Inclusion |
|
Capital |
|
Maximum (1.10)
|
|
Top Quartile |
|
Improve historical performance |
|
|
2.00% |
|
|
|
1.25 |
|
|
Significant improvement |
|
Below budget |
|
Target (1.00)
|
|
2nd quartile |
|
Maintain historical performance |
|
|
2.75% |
|
|
|
1.75 |
|
|
Improve |
|
Slightly above budget |
|
Threshold (0.90)
|
|
3rd quartile |
|
Below historical performance |
|
|
3.75% |
|
|
|
2.50 |
|
|
Below expectations |
|
Above budget |
|
0 Trigger
|
|
4th quartile |
|
Significant issues |
|
|
6.00% |
|
|
|
>2.50 |
|
|
Significant issues |
|
See gate goal |
|
EPS and Business Unit Financial Performance:
The range of EPS and business unit financial performance goals
for 2006 is shown below. ROE goals vary from the allowed retail
ROE range due to state regulatory accounting requirements,
wholesale activities, other non-jurisdictional revenues and
expenses and other activities not subject to state regulation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Unit Performance |
|
|
|
|
|
Payout Below |
|
|
|
|
|
|
|
|
Payout Factor at |
|
Threshold for |
|
|
|
|
|
|
Net Income |
|
|
|
Highest Level of |
|
Operational |
|
|
EPS Excluding |
|
|
|
(Southern |
|
Payout |
|
Operational Goal |
|
Goal |
Level of Performance |
|
Synfuel Earnings |
|
ROE |
|
Generation Only) |
|
Factor |
|
Achievement |
|
Achievement |
|
Maximum
|
|
|
$2.11 |
|
|
|
14.25% |
|
|
|
$310 million |
|
|
|
2.00 |
|
|
|
2.20 |
|
|
|
0 |
|
|
Target
|
|
|
$2.055 |
|
|
|
13.25% |
|
|
|
$285 million |
|
|
|
1.00 |
|
|
|
1.10 |
|
|
|
0 |
|
|
Threshold
|
|
|
$1.97 |
|
|
|
10.50% |
|
|
|
$226 million |
|
|
|
0.25 |
|
|
|
0.275 |
|
|
|
0 |
|
|
Below threshold
|
|
|
<$1.97 |
|
|
|
<10.50% |
|
|
< $226 million |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
24
2006 Achievement
Each named executive officer had a target PPP opportunity set by
the Compensation Committee at the beginning of 2006. Targets are
set as a percentage of base salary. Mr. Ratcliffes
target was set at 100%. For Messrs. Fanning, Garrett and
McCrary, it was set at 75% and for Mr. Bowers it was set at
60%. Actual PPP payouts were developed by adding the payouts
derived from EPS and business unit financial performance goal
achievement for 2006 and multiplying that sum by the result of
the operational goal achievement. The gate goal target was not
exceeded and therefore had no impact on payouts. Actual 2006
goal achievement is shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Unit | |
|
Total Weighted | |
|
|
|
|
Operational | |
|
EPS, | |
|
EPS Goal | |
|
|
|
Financial | |
|
Business Unit | |
|
|
|
|
Goal | |
|
Excluding | |
|
Performance | |
|
|
|
Performance | |
|
Financial | |
|
Total PPP | |
|
|
Multiplier | |
|
Synfuel | |
|
Factor | |
|
Business Unit | |
|
Factor | |
|
Performance | |
|
Factor | |
Name |
|
(A) | |
|
Earnings | |
|
(50% Weight) | |
|
Financial Performance | |
|
(50% Weight) | |
|
Factor (B) | |
|
(A x B) | |
| |
D. M. Ratcliffe
|
|
|
1.08 |
|
|
$ |
2.10 |
|
|
|
1.84 |
|
|
|
Corporate average |
|
|
|
1.53 |
|
|
|
1.68 |
|
|
|
1.82 |
|
|
T. A. Fanning
|
|
|
1.08 |
|
|
$ |
2.10 |
|
|
|
1.84 |
|
|
|
Corporate average |
|
|
|
1.53 |
|
|
|
1.68 |
|
|
|
1.82 |
|
|
M. D. Garrett
|
|
|
1.08 |
|
|
$ |
2.10 |
|
|
|
1.84 |
|
|
|
14.02% ROE |
|
|
|
1.77 |
|
|
|
1.80 |
|
|
|
1.95 |
|
|
C.D. McCrary
|
|
|
1.09 |
|
|
$ |
2.10 |
|
|
|
1.84 |
|
|
|
13.31% ROE |
|
|
|
1.06 |
|
|
|
1.45 |
|
|
|
1.58 |
|
|
W. P. Bowers
|
|
|
1.09 |
|
|
$ |
2.10 |
|
|
|
1.84 |
|
|
$305 million net income and corporate average |
|
|
1.68 |
|
|
|
1.76 |
|
|
|
1.92 |
|
|
Note that the Total PPP Factor may vary from the Total Weighted
Performance multiplied by the operational goal multiplier due to
rounding. To calculate a PPP payout, the target opportunity (PPP
target times base salary) is multiplied by the Total PPP Factor.
PPP payouts were determined using EPS and ROE performance
results that differ somewhat from the results reported in
Companys financial statements in the Companys 2006
Annual Report to Stockholders (the Financial
Statements). These differences are described below.
EPS excluding synfuel earnings The Companys
synthetic fuel investments generate tax credits as a result of
synthetic fuel production. Due to higher oil prices in 2006,
such tax credits were partially phased out and one synfuel
investment was terminated. As a result, the Companys
synthetic fuel investments did not contribute significantly to
earnings and EPS during 2006. These tax credits will no longer
be available after December 31, 2007. Company management
uses EPS, excluding synfuel earnings, to evaluate the
performance of the Companys ongoing business activities.
We believe the presentation of earnings and EPS, excluding the
results of the synthetic fuel investments, also is useful for
investors because it provides additional information for
purposes of comparing our performance for such periods. For
2006, reported EPS was $2.12 per share including synfuel
earnings, and $2.10 per share excluding synfuel earnings.
As established by the Compensation Committee in early 2006, the
PPP goal for 2006 measured the EPS performance, excluding
synfuel earnings.
ROE adjustments The following adjustments were made
to the business unit ROE goal performance due to system
decisions that should not impact the employees of the affected
business units.
Alabama Power Company The 2006 reported ROE was
13.23%. ROE performance for PPP was 13.31%, due to an adjustment
approved by the Compensation Committee to exclude the impact of
New Source Review litigation that was settled during 2006. (See
Note 3 to the Financial Statements for more information
about the New Source Review settlement.)
Georgia Power Company The 2006 reported ROE was
13.80%. ROE performance for PPP was 14.02%, due to an adjustment
made to mitigate the ROE impact of the merger of Georgia Power
Company and Savannah Electric and Power Company during 2006.
This adjustment was approved by the Compensation Committee at
the time the ROE goal for Georgia Power Company was established.
25
Pursuant to its discretion mentioned above, for superior
individual performance in 2006, the Compensation Committee
increased the payout for Messrs. Garrett and Bowers by five
percent of their base salaries. The actual amount of this
additional payout is reported in the Bonus column in the Summary
Compensation Table.
Stock Options
Stock options are granted annually and were granted in 2006 to
the named executive officers and about 5,800 other employees.
Options have a 10-year
term, vest over a three-year period, fully vest upon retirement
or termination of employment following a CIC and expire at the
earlier of five years from the date of retirement or the end of
the 10-year term.
Stock option award sizes for 2006 were calculated using
guidelines set as a dollar amount (for Mr. Ratcliffe) or a
percent of base salary (for the other named executive officers).
These guidelines, for all but Mr. Ratcliffe, are kept
stable from year to year unless the market data indicates a
clear need to change them. Mr. Ratcliffes guideline
is reset by the Compensation Committee each year in their
deliberations regarding his total pay package and is adjusted as
necessary to remain competitive with the market data for total
target compensation. In 2006, the dollar amount was
approximately five percent greater than the amount in 2005.
The number of options granted is the guideline amount divided by
the Companys average daily stock price for the year
preceding the grant. This is done to mitigate volatility in the
number of options granted and to provide a standard formula used
to determine the size of quarterly new-hire grants.
PDP
All option holders (about 5,800 employees), including the named
executive officers, can receive performance-based dividend
equivalents on stock options held at the end of the year.
Dividend equivalents can range from 0% to 100% of our common
stock dividend paid during the year per option held at the end
of the year. Actual payout will depend on our TSR over a
four-year performance measurement period compared to a group of
other electric and gas utility companies. The peer group is
determined at the beginning of each four-year performance period.
TSR is calculated by measuring the ending value of a
hypothetical $100 invested in each companys common stock
at the beginning of each of 16 quarters.
No PDP amounts are paid if the Companys earnings are not
sufficient to fund a common stock dividend at least equal to
that paid in the prior year.
2003-2006 Payout
The peer group used to determine the payout for the 2003-2006
performance measurement period was made up of utilities with
revenues of $2 billion or more with regulated revenues of
70% or more. Those companies are listed below.
|
|
|
|
|
|
Allegheny Energy, Inc. |
|
Exelon Corporation |
|
Progress Energy, Inc. |
Alliant Energy Corporation
|
|
FirstEnergy Corporation |
|
Public Service Enterprise Group |
Ameren Corporation
|
|
FPL Group, Inc. |
|
Incorporated |
American Electric Power Company, Inc.
|
|
NiSource Inc. |
|
Puget Energy, Inc. |
Avista Corporation
|
|
Northeast Utilities |
|
SCANA Corporation |
Cinergy Corp.
|
|
NorthWestern Corporation |
|
Sempra Energy |
Consolidated Edison, Inc.
|
|
NSTAR |
|
Sierra Pacific Resources |
DTE Energy Company
|
|
OGE Energy Corp. |
|
Westar Energy, Inc. |
Energy East Corporation
|
|
Pepco Holdings, Inc. |
|
Wisconsin Energy Corporation |
Entergy Corporation
|
|
Pinnacle West Capital Corporation |
|
Xcel Energy Inc. |
|
26
The scale below determined the percent of the full years
dividend paid on each option held at December 31, 2006
based on performance during 2003-2006. Payout for performance
between points was interpolated on a straight-line basis.
|
|
|
|
|
|
|
Payout (% of A Full | |
Performance vs. Peer Group |
|
Years Dividend Paid) | |
| |
90th percentile or higher
|
|
|
100% |
|
|
50th percentile
|
|
|
50% |
|
|
10th percentile or lower
|
|
|
0% |
|
|
The above payout scale, when established in 2003, paid 25% of
the dividend at the 30th percentile and zero below that.
The scale was extended to the 10th percentile on a
straight-line basis by the Compensation Committee in October
2005 in order to avoid the earnings volatility and employee
relations issues that the payout cliff created. (About 5,800
employees receive PDP awards.)
TSR was calculated by measuring the ending value of a
hypothetical $100 invested in each companys stock at the
beginning of each of 16 quarters.
For tax purposes, the Compensation Committee approved a scale of
two times the scale shown above (as originally established) and
used negative discretion to arrive at a payout commensurate with
the scale shown.
The Companys TSR performance during the four-year period
ending with 2006 was the 32nd percentile, resulting in a
payout of 27.5% of the full years dividend, or $0.42. This
figure was multiplied by each named executive officers
outstanding stock options at December 31, 2006 to calculate
the payout under the program. The amount paid is included in the
Non-Equity Incentive Plan Compensation column in the Summary
Compensation Table.
2006-2009 Opportunity
The peer group for the period 2006-2009 is made up of utility
companies with revenues of $1.2 billion or more with
regulated revenues of approximately 60% or more. Those companies
are listed below.
The guideline used to establish the peer group for the 2003-2006
performance measurement period was somewhat different from that
used in 2006 to establish the peer group for the 2006-2009
performance measurement period. The guideline for inclusion in
the peer group is reevaluated annually as needed to assist in
identifying 25 to 30 companies similar to the Company.
While the guideline does vary somewhat, 22 of the
29 companies in the peer group for the 2003-2006
performance measurement period also were in the peer group
established for the 2006-2009 period.
|
|
|
|
|
|
Allegheny Energy, Inc.
|
|
Edison International |
|
PG&E Corporation |
Alliant Energy Corporation
|
|
Energy East Corporation |
|
Pinnacle West Capital Corporation |
Ameren Corporation
|
|
Entergy Corporation |
|
Progress Energy, Inc. |
American Electric Power Company, Inc.
|
|
Exelon Corporation |
|
Puget Energy, Inc. |
Aquila, Inc.
|
|
FPL Group, Inc. |
|
SCANA Corporation |
Centerpoint Energy, Inc.
|
|
KeySpan Corporation |
|
Sempra Energy |
Cinergy Corp.
|
|
NiSource Inc. |
|
Sierra Pacific Resources |
CMS Energy Corporation
|
|
Northeast Utilities |
|
Westar Energy, Inc. |
Consolidated Edison, Inc.
|
|
NSTAR |
|
Wisconsin Energy Corporation |
DPL Inc.
|
|
Pepco Holdings, Inc. |
|
Xcel Energy Inc. |
|
27
The scale below will determine the percent of the full
years dividend paid on each option held at
December 31, 2009, based on performance during 2006-2009.
Payout for performance between points is interpolated on a
straight-line basis.
|
|
|
|
|
|
|
Payout (% of a Full | |
Performance vs. Peer Group |
|
Years Dividend Paid) | |
| |
90th percentile or higher
|
|
|
100% |
|
|
50th percentile
|
|
|
50% |
|
|
10th percentile or lower
|
|
|
0% |
|
|
See the Grants of Plan-Based Awards Table and the accompanying
information following it for more information about threshold,
target and maximum payout opportunities for the 2006-2009 PDP.
Timing of Incentive Compensation
As discussed above, EPS and business unit financial performance
goals for the 2006 PPP were established at the February 2006
Compensation Committee meeting. Annual stock option grants also
were made at that meeting. The establishment of incentive
compensation goals and the granting of stock options were not
timed with the release of non-public material information. This
procedure was consistent with prior practices. Stock option
grants are made to new hires or newly-eligible participants on
preset, regular quarterly dates that were approved by the
Compensation Committee. The exercise price of options granted to
employees in 2006, and in all prior years, was the average of
the high and low market price of our common stock on the date of
grant. Beginning with the grant made in February 2007, the
exercise price is or will be no lower than the closing market
price on the date of grant. The date of grant is the date the
Compensation Committee approved the stock option awards or the
last trading day prior to the approval date if the New York
Stock Exchange is closed on the approval date.
Post-Employment Compensation
As mentioned above, we provide certain post-employment
compensation to employees, including the named executive
officers.
Retirement Benefits
Generally, all full-time employees of the Company, including the
named executive officers, participate in our funded Pension Plan
after completing one year of service. Normal retirement benefits
become payable when participants both attain age 65 and
complete five years of participation. We also provide unfunded
benefits that count salary and short-term incentive pay that is
ineligible to be counted under the Pension Plan. (These plans
are the SBP and the SERP that are mentioned in the chart above.)
See the Pension Benefits Table and the information accompanying
it for more information about pension-related benefits.
The Company also provides the DCP which is an unfunded plan that
permits participants to defer income as well as certain federal,
state and local taxes until a specified date or their
retirement, disability, death or other separation from service.
Up to 50% of base salary and up to 100% of PPP and PDP may be
deferred, at the election of eligible employees. All of the
named executive officers are eligible to participate in the DCP.
See the Nonqualified Deferred Compensation Table and the
information accompanying it for more for more information about
the DCP.
CIC Protections
Providing certain protections to senior executives upon a CIC
allows them to negotiate aggressively with a prospective
purchaser. Providing such protections to our employees in
general minimizes disruption during a pending or anticipated
CIC. For all participants, payment and vesting occur only upon
the occurrence of both a true CIC and loss of the
individuals position.
CIC protections, including severance pay and, in some
situations, vesting or payment of long-term incentive awards,
are provided upon a CIC of the Company coupled with an
involuntary termination not for Cause or a voluntary
termination for Good Reason. This means there is a
double trigger before severance benefits are paid;
i.e., there must be both a CIC and a termination of
employment.
28
More information about post-employment compensation, including
severance arrangements under our CIC program, is included in the
section entitled Potential Payments upon Termination or Change
in Control.
Executive Stock Ownership Requirements
Effective January 1, 2006, the Compensation Committee
adopted stock ownership requirements for officers of the Company
and its subsidiaries that are in a position of Vice President or
above. All of the named executive officers are covered by the
requirements. The guidelines were implemented to further align
the interest of officers and stockholders by promoting a
long-term focus and long-term share ownership.
The types of ownership arrangements counted toward the
requirements are shares owned outright, those held in
Company-sponsored plans and Company stock accounts in the DCP
and SBP. One-third of vested Company stock options may be
counted, but if so, the ownership target is doubled.
The requirements are expressed as a multiple of base salary as
per the table below.
|
|
|
|
|
|
|
|
|
|
|
Multiple of Salary without |
|
Multiple of Salary Counting |
Name |
|
Counting Stock Options |
|
1/3 of Vested Options |
|
D. M. Ratcliffe
|
|
|
5 Times |
|
|
|
10 Times |
|
|
T. A Fanning |
|
|
3 Times |
|
|
|
6 Times |
|
|
C. D. McCrary
|
|
|
3 Times |
|
|
|
6 Times |
|
|
M. D. Garrett |
|
|
3 Times |
|
|
|
6 Times |
|
|
W. P. Bowers
|
|
|
3 Times |
|
|
|
6 Times |
|
|
Current officers have until September 30, 2011 to meet the
applicable ownership requirement. Newly-elected officers will
have five years to meet the applicable ownership requirement.
Impact of Accounting and Tax Treatments on Compensation
Section 162(m) of the Internal Revenue Code of 1986, as
amended (the Code), limits the tax deductibility of
each named executive officers 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 stockholders. The Company has obtained stockholder
approval of the Omnibus Incentive Compensation Plan, under which
all of our incentive compensation is paid. For tax purposes, in
order to ensure that PPP and PDP payouts are fully deductible
under Section 162(m) of the Code, the Compensation
Committee approved in February 2006 a formula that represented a
maximum PPP amount payable (defined as 0.6% of the
Companys net income) and the maximum 2006-2009 PDP amount
payable (also defined as 0.6% of the Companys net income).
In 2006, the Compensation Committee used (for PPP), or will use
(for PDP), negative discretion from those amounts to determine
the actual payouts pursuant to the methodologies described above.
Because our policy is to maximize long-term stockholder value,
as described fully in this CD&A, tax deductibility is not
the only factor considered in setting compensation.
Policy on Recovery of Awards
The Companys 2006 Omnibus Incentive Compensation Plan
provides that, if the Company is required to prepare an
accounting restatement due to material noncompliance as a result
of misconduct, and if an executive knowingly or grossly
negligently engaged in or failed to prevent the misconduct or is
subject to automatic forfeiture under the Sarbanes-Oxley Act of
2002, the executive will reimburse the Company the amount of any
payment in settlement of awards earned or accrued during the
12-month period
following the first public issuance or filing that was restated.
Company Policy Regarding Hedging the Economic Risk of Stock
Ownership
The Companys policy is that insiders, including outside
directors, will not trade in Company options on the options
market and will not engage in short sales.
29
COMPENSATION AND MANAGEMENT SUCCESSION COMMITTEE REPORT
The Compensation Committee met with management to review and
discuss the CD&A. Based on such review and discussion, the
Compensation Committee recommended to the Board of Directors
that the CD&A be included in the Companys Annual
Report on
Form 10-K covering
the 2006 fiscal year and in this proxy statement. The Board of
Directors approved that recommendation.
Members of the Committee:
Gerald J. St. Pé, Chair
Thomas F. Chapman
Donald M. James
William G. Smith, Jr.
SUMMARY COMPENSATION TABLE FOR 2006
The Summary Compensation Table shows the amount and type of
compensation received or earned in 2006 for the Chief Executive
Officer, the Chief Financial Officer and the next three most
highly-paid executive officers of the Company. Collectively,
these five officers are referred to as the named executive
officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
Option |
|
Plan |
|
Compensation |
|
All Other |
|
|
Name and Principal |
|
|
|
Salary |
|
Bonus |
|
Awards |
|
Awards |
|
Compensation |
|
Earnings |
|
Compensation |
|
Total |
Position |
|
Year |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
(a) |
|
(b) |
|
(c) |
|
(d) |
|
(e) |
|
(f) |
|
(g) |
|
(h) |
|
(i) |
|
(j) |
|
David M. Ratcliffe
|
|
|
2006 |
|
|
|
1,028,471 |
|
|
|
|
|
|
|
|
|
|
|
2,152,767 |
|
|
|
2,563,680 |
|
|
|
2,036,219 |
|
|
|
73,127 |
|
|
|
7,854,264 |
|
Chairman, President & CEO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas A. Fanning
|
|
|
2006 |
|
|
|
583,011 |
|
|
|
|
|
|
|
|
|
|
|
551,320 |
|
|
|
939,527 |
|
|
|
357,950 |
|
|
|
43,041 |
|
|
|
2,474,849 |
|
Executive Vice President, CFO & Treasurer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael D. Garrett
|
|
|
2006 |
|
|
|
575,100 |
|
|
|
29,288 |
|
|
|
|
|
|
|
391,843 |
|
|
|
967,002 |
|
|
|
880,636 |
|
|
|
47,183 |
|
|
|
2,891,052 |
|
President, Georgia Power Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles D. McCrary
|
|
|
2006 |
|
|
|
609,407 |
|
|
|
|
|
|
|
|
|
|
|
411,589 |
|
|
|
900,736 |
|
|
|
203,672 |
|
|
|
55,606 |
|
|
|
2,181,010 |
|
President, Alabama Power Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W. Paul Bowers
|
|
|
2006 |
|
|
|
480,371 |
|
|
|
24,249 |
|
|
|
|
|
|
|
465,036 |
|
|
|
674,784 |
|
|
|
140,705 |
|
|
|
38,201 |
|
|
|
1,823,346 |
|
President, Southern Company Generation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column (d)
The amounts reported in this column were for individual
performance during 2006 by Messrs. Garrett and Bowers.
These amounts were not based on achievement of pre-determined
performance goals. Please see the CD&A for more information
about the Compensation Committees discretion to make
awards of up to 10% of an individuals base salary. Payouts
under the Companys short- and long-term incentive
compensation programs (PPP and PDP) are reported in
column (g).
Column (e)
No equity-based compensation has been awarded to the named
executive officers, or any other employees of the Company, other
than Stock Option Awards which are reported in column (f).
Column (f)
This column reports the dollar amounts recognized for financial
statement reporting purposes with respect to 2006 in accordance
with Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 123 (revised 2004)
(FAS 123R) disregarding any estimates of
forfeitures relating to service-based vesting conditions. The
assumptions used in calculating these amounts are discussed in
Note 1 to the Financial Statements.
30
For Messrs. Ratcliffe, Garrett and McCrary, the amounts
shown equal the grant date fair value for the 2006 options
granted in 2006, as reported in the Grants of Plan-Based Awards
Table, because these named executive officers have been
retirement eligible for several years and therefore their
options will vest in full upon termination. Accordingly, under
FAS 123R, the full grant date fair value of their option
awards is expensed in the year of grant. However, for
Messrs. Fanning and Bowers, the amount reported reflects
the amounts expensed in 2006 attributable to the following stock
option grants made in 2006 and in prior years because they were
not retirement eligible on the grant dates. Therefore, the grant
date fair value for options granted to Messrs. Fanning and
Bowers is amortized over the vesting period of each option. The
grant date fair value for the grant made in 2006 is reported in
the Grants of Plan-Based Awards Table.
|
|
|
|
|
|
|
|
|
|
|
Amount Expensed |
|
Amount Expensed |
|
|
in 2006 |
|
in 2006 |
|
|
(T. A. Fanning) |
|
(W. P. Bowers) |
Grant Date |
|
($) |
|
($) |
|
2003
|
|
|
6,232 |
|
|
|
6,801 |
|
|
2004
|
|
|
69,199 |
|
|
|
56,304 |
|
|
2005
|
|
|
152,829 |
|
|
|
121,735 |
|
|
2006
|
|
|
323,060 |
|
|
|
280,196 |
|
|
Total
|
|
|
551,320 |
|
|
|
465,036 |
|
|
Column (g)
The amounts in this column are the aggregate of the payouts
under the PPP and the PDP that are discussed in detail in the
CD&A. The amounts paid under each program to the named
executive officers are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PPP |
|
PDP |
|
Total |
Name |
|
($) |
|
($) |
|
($) |
|
D. M. Ratcliffe
|
|
|
1,891,539 |
|
|
|
672,141 |
|
|
|
2,563,680 |
|
|
T. A. Fanning
|
|
|
807,777 |
|
|
|
131,750 |
|
|
|
939,527 |
|
|
M. D. Garrett
|
|
|
856,660 |
|
|
|
110,342 |
|
|
|
967,002 |
|
|
C. D. McCrary
|
|
|
729,090 |
|
|
|
171,646 |
|
|
|
900,736 |
|
|
W. P. Bowers
|
|
|
558,708 |
|
|
|
116,076 |
|
|
|
674,784 |
|
|
Column (h)
This column reports the aggregate change in the actuarial
present value of each named executive officers accumulated
benefit under the Pension Plan and the supplemental pension
plans (collectively, the Pension Benefits) that are
described more fully following the Pension Benefits Table.
The amounts reported are earned through September 30, 2006
over the comparable amounts computed as of September 30,
2005. September 30 was the measurement date used for the
Companys financial statement reporting purposes for fiscal
years 2005 and 2006. For information on the assumptions used to
calculate the actuarial present value of accumulated benefits as
of September 30, 2006, see the information following the
Pension Benefits Table. The amounts computed as of
September 30, 2005 used the same assumptions except that
the discount rate used was 5.5% per year, the rate used in
the Companys 2005 financial statements, rather than six
percent per year. The discount rate change was prompted by the
pension accounting standards which require this assumption to be
reselected each year based on fixed income investments
market yields. The assumptions used to calculate the
September 30, 2005 values differ from those used to derive
pension obligations reported in the 2005 financial statements in
one respect: the obligations were calculated assuming that a
portion of the pension benefits would be paid out through the
purchase of a third-party annuity. That program has been
eliminated and annuities were never purchased so that assumption
was not used when computing the benefit values above.
This column also reports above-market earnings on deferred
compensation. Above-market earnings are defined by the SEC as
any amount above 120% of the applicable federal long-term rate
as prescribed under Section 1274(d) of the Code.
31
Under the DCP, eligible employees are permitted to defer up to
50% of their salary and 100% of payments under the PPP or the
PDP. The deferred amounts are then treated as if invested in one
of two investment options at the election of the
participant. Amounts may be treated as if invested in the
Companys common stock (Stock Equivalent
Account) or the prime interest rate as published in the
Wall Street Journal as the base rate on corporate loans
posted as of the last business day of each month by at least 75%
of the United States largest banks (Prime Equivalent
Account).
The amounts invested in the Stock Equivalent Account are treated
as if dividends are paid and reinvested at the same rate as that
paid to the Companys stockholders. That amount is not
considered above-market as defined by the SEC.
In 2006, the prime interest rate used in the Prime Equivalent
Account exceeded 120% of the applicable long-term rate in effect
at the measurement point under the SECs rules. Therefore,
earnings that exceed the amount calculated at that rate are
reported here. The range of interest rates under the Prime
Equivalent Account was 7.25% to 8.25% in 2006 and the applicable
long-term rate was 7.14%.
The table below itemizes the amounts reported in this column.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Above-Market |
|
|
|
|
Change in |
|
Earnings on Deferred |
|
|
|
|
Pension Value |
|
Compensation |
|
Total |
Name |
|
($) |
|
($) |
|
($) |
|
D. M. Ratcliffe
|
|
|
2,002,835 |
|
|
|
33,384 |
|
|
|
2,036,219 |
|
|
T. A. Fanning
|
|
|
353,902 |
|
|
|
4,048 |
|
|
|
357,950 |
|
|
M. D. Garrett
|
|
|
872,674 |
|
|
|
7,962 |
|
|
|
880,636 |
|
|
C. D. McCrary
|
|
|
198,676 |
|
|
|
4,996 |
|
|
|
203,672 |
|
|
W. P. Bowers
|
|
|
136,681 |
|
|
|
4,024 |
|
|
|
140,705 |
|
|
Column (i)
This column reports the following items: perquisites; tax
reimbursements by the Company on certain perquisites; Company
contributions in 2006 to the Southern Company Employee Savings
Plan (the ESP), which is a tax-qualified defined
contribution plan intended to meet requirements of
Section 401(k) of the Code, and contributions in 2006 under
the Southern Company Supplemental Benefit Plan (Non-Pension
Related) (the SBP-N). The SBP-N is described more
fully in the information following the Nonqualified Deferred
Compensation Table.
The amounts reported are itemized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax |
|
|
|
|
|
|
|
|
Perquisites |
|
Reimbursements |
|
ESP |
|
SBP-N |
|
Total |
Name |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
D. M. Ratcliffe
|
|
|
18,419 |
|
|
|
7,467 |
|
|
|
9,213 |
|
|
|
38,028 |
|
|
|
73,127 |
|
|
T. A. Fanning
|
|
|
11,050 |
|
|
|
5,335 |
|
|
|
9,381 |
|
|
|
17,275 |
|
|
|
43,041 |
|
|
M. D. Garrett
|
|
|
10,437 |
|
|
|
10,326 |
|
|
|
9,900 |
|
|
|
16,520 |
|
|
|
47,183 |
|
|
C. D. McCrary
|
|
|
14,673 |
|
|
|
12,942 |
|
|
|
8,498 |
|
|
|
19,493 |
|
|
|
55,606 |
|
|
W. P. Bowers
|
|
|
7,728 |
|
|
|
8,528 |
|
|
|
9,746 |
|
|
|
12,199 |
|
|
|
38,201 |
|
|
Description of Perquisites
Personal Financial Planning is provided for most officers
of the Company, including all of the named executive officers.
The Company pays for the services of the financial planner on
behalf of the officers, up to a maximum amount of
$7,000 per year, after the initial year that the benefit is
first provided. The Company also provides a five-year allowance
of $6,000 for estate planning and tax return preparation fees.
The full cost paid by the Company in 2006 is reported here.
32
Home Security Monitoring is provided by the
Companys security personnel. The amount of the benefit
reported here represents the incremental cost of the
Company-provided monitoring. The incremental cost is the full
cost of providing security monitoring at Company-owned
facilities and covered employees residences divided by the
number of security systems monitored.
Personal Use of Company-Provided Club Memberships. The
Company provides club memberships to certain officers, including
all of the named executive officers. The memberships are
provided for business use; however, personal use is permitted.
The amount included reflects the pro-rata portion of the
membership fees paid by the Company that are attributable to the
named executive officers personal use. Direct costs
associated with any personal use, such as meals, are paid for or
reimbursed by the employee and therefore are not included.
Personal Use of Corporate-Owned Aircraft. The Company
owns aircraft that are used to facilitate business travel. All
flights on Company-owned aircraft must have a business purpose,
except Mr. Ratcliffe may use the aircraft for personal
travel if approved in advance by a member of the Compensation
Committee. In 2006, one personal trip was approved so that he
could attend a business meeting in Atlanta and meet a personal
commitment later the same day in another city. The amount
included reflects the incremental cost of that flight, including
the cost of returning the aircraft to its departure location.
The amount calculated is based on the variable operating costs
to the Company of the specific flight, principally fuel costs.
Fixed costs which do not change based on usage, such as pilot
salaries and the cost of maintenance not related to the trip,
are excluded. Also, if seating is available, the Company permits
a spouse or other family member to accompany an employee on a
flight. However, because in such cases the aircraft is being
used for a business purpose, there is no incremental cost
associated with the spousal travel and no amounts are included
for such travel. Any additional expenses incurred that are
related to spousal travel, are included.
Other Miscellaneous Perquisites. The amount included
reflects the full cost to the Company of providing the following
items: personal use of Company-provided tickets for sporting and
other entertainment events and gifts distributed to and
activities provided to attendees at Company-sponsored events.
33
GRANTS OF PLAN-BASED AWARDS MADE IN 2006
The Grants of Plan-Based Awards Table provides information on
stock option grants made and goals established for future
payouts under the Companys incentive compensation programs
during 2006 by the Compensation Committee.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts |
|
|
|
|
|
|
|
|
|
|
|
|
Under Non-Equity Incentive |
|
All Other Option |
|
|
|
Closing Price on |
|
Grant Date |
|
|
|
|
Plan Awards |
|
Awards: Number of |
|
Exercise or |
|
Last Trading |
|
Fair Value of |
|
|
|
|
|
|
Securities |
|
Base Price of |
|
Date Prior to |
|
Stock and |
|
|
Grant |
|
Threshold |
|
Target |
|
Maximum |
|
Underlying Options |
|
Option Awards |
|
Grant Date |
|
Option Awards |
Name |
|
Date |
|
$ |
|
($) |
|
($) |
|
(#) |
|
($/Sh) |
|
($/Sh) |
|
($) |
(a) |
|
(b) |
|
(c) |
|
(d) |
|
(e) |
|
(f) |
|
(g) |
|
(h) |
|
(i) |
|
D. M. Ratcliffe
|
|
|
2/20/2006 |
|
|
|
PPP 233,844 |
|
|
|
1,039,307 |
|
|
|
2,286,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PDP 122,826 |
|
|
|
1,228,259 |
|
|
|
2,456,516 |
|
|
|
518,739 |
|
|
|
33.81 |
|
|
|
33.86 |
|
|
|
2,152,767 |
|
|
T. A. Fanning
|
|
|
2/20/2006 |
|
|
|
PPP 99,863 |
|
|
|
443,834 |
|
|
|
976,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PDP 24,076 |
|
|
|
240,757 |
|
|
|
481,514 |
|
|
|
95,392 |
|
|
|
33.81 |
|
|
|
33.86 |
|
|
|
395,877 |
|
|
M. D. Garrett
|
|
|
2/20/2006 |
|
|
|
PPP 98,845 |
|
|
|
439,313 |
|
|
|
966,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PDP 20,164 |
|
|
|
201,636 |
|
|
|
403,272 |
|
|
|
94,420 |
|
|
|
33.81 |
|
|
|
33.86 |
|
|
|
391,843 |
|
|
C. D. McCrary
|
|
|
2/20/2006 |
|
|
|
PPP 103,826 |
|
|
|
461,450 |
|
|
|
1,015,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PDP 31,366 |
|
|
|
313,663 |
|
|
|
627,325 |
|
|
|
99,178 |
|
|
|
33.81 |
|
|
|
33.86 |
|
|
|
411,589 |
|
|
W. P. Bowers
|
|
|
2/20/2006 |
|
|
|
PPP 65,474 |
|
|
|
290,994 |
|
|
|
640,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PDP 21,212 |
|
|
|
212,116 |
|
|
|
424,231 |
|
|
|
67,517 |
|
|
|
33.81 |
|
|
|
33.86 |
|
|
|
280,196 |
|
|
Columns (c), (d) and (e)
The amounts reported as PPP reflect the amounts established by
the Compensation Committee in early 2006 to be paid for certain
levels of performance as of December 31, 2006 under the
PPP, the Companys short-term incentive program. The
Compensation Committee assigns each named executive officer a
target incentive opportunity, expressed as a percentage of base
salary, that is paid for target-level performance under the PPP.
The target incentive opportunities established for the named
executive officers for 2006 performance was 100% for
Mr. Ratcliffe, 75% for Messrs. Fanning, Garrett and
McCrary and 60% for Mr. Bowers. The payout for threshold
performance was set at 0.225 times the target incentive
opportunity and the maximum amount payable was set at 2.20 times
the target. The amount paid to each named executive officer
under the PPP for actual 2006 performance is included in the
Non-Equity Incentive Plan Compensation column in the Summary
Compensation Table and is itemized in the notes following that
table. More information about the PPP, including the applicable
performance criteria established by the Compensation Committee,
is provided in the CD&A.
The Company also has a long-term incentive program, the PDP,
that pays performance-based dividend equivalents based on the
Companys TSR compared with the TSR of its peer companies
over a four-year performance measurement period. The
Compensation Committee establishes the level of payout for
prescribed levels of performance over the measurement period.
In February 2006, the Compensation Committee established the PDP
goal for the four-year performance measurement period beginning
on January 1, 2006 and ending on December 31, 2009.
The amount earned based on performance over that period will be
paid following the end of the period. However, no amount is
earned and paid unless the Compensation Committee approves the
payment at the beginning of the final year of the performance
measurement period. Also, nothing is earned unless the
Companys earnings are sufficient to fund the
Companys common stock dividend at the same level as the
prior year.
The PDP pays to all option holders a percentage of the
Companys common stock dividend paid to stockholders in the
last year of the performance measurement period. It can range
from approximately five percent for performance above the
10th percentile compared with the performance of the peer
companies to 100% of the dividend if the Companys TSR is
at or above the 90th percentile. That amount is then paid
per option held at the end of the four-year period. The amount,
if any, ultimately paid to the option holders, including the
named executive officers, at the end of the 2006
2009 performance measurement period will be based on
(1) the Companys TSR compared to that of its peer
companies as of December 31, 2009, (2) the actual
dividend paid in 2009 to our stockholders, if any, and
(3) the number of options held by the named executive
officers on December 31, 2009.
34
The number of options held on December 31, 2009 will be
affected by the number of additional options granted to the
named executive officers prior to December 31, 2009, if
any, and the number of options exercised by the named executive
officers prior to December 31, 2009, if any. None of these
components necessary to calculate the range of payout under the
PDP for the 2006-2009 performance measurement period is known at
the time the goal is established.
The amounts reported as PDP in columns (c), (d) and
(e) were calculated based on the number of options held by
the named executive officers on December 31, 2006, as
reported in columns (b) and (c) of the Outstanding
Equity Awards at Fiscal Year-End Table and the Companys
common stock dividend of $1.535 per share paid to
stockholders in 2006. These factors are itemized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options | |
|
Performance Dividend | |
|
Performance Dividend | |
|
Performance Dividend | |
|
|
Held as of | |
|
Equivalent Per Option | |
|
Equivalent Per Option | |
|
Per Option Paid at | |
|
|
December 31, | |
|
Paid at Threshold | |
|
Paid at Target | |
|
Maximum | |
|
|
2006 | |
|
Performance | |
|
Performance | |
|
Performance | |
Name |
|
(#) | |
|
($) | |
|
($) | |
|
($) | |
| |
D. M. Ratcliffe
|
|
|
1,600,336 |
|
|
|
0.07675 |
|
|
|
0.7675 |
|
|
|
1.535 |
|
|
T. A. Fanning
|
|
|
313,690 |
|
|
|
0.07675 |
|
|
|
0.7675 |
|
|
|
1.535 |
|
|
M. D. Garrett
|
|
|
262,718 |
|
|
|
0.07675 |
|
|
|
0.7675 |
|
|
|
1.535 |
|
|
C. D. McCrary
|
|
|
408,681 |
|
|
|
0.07675 |
|
|
|
0.7675 |
|
|
|
1.535 |
|
|
W. P. Bowers
|
|
|
276,372 |
|
|
|
0.07675 |
|
|
|
0.7675 |
|
|
|
1.535 |
|
|
More information about the PDP is provided in the CD&A.
Columns (f), (g) and (h)
The stock options vest at the rate of one-third per year, on the
anniversary date of the grant. Also, 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.
Please see Potential Payments upon Termination or Change in
Control below for more information about the treatment of stock
options under different termination and CIC events.
The Compensation Committee granted these stock options to the
named executive officers at its regularly scheduled meeting on
February 20, 2006. February 20, 2006 was a holiday
(Presidents Day) and the New York Stock Exchange was
closed. Therefore, under the terms of the Omnibus Incentive
Compensation Plan, the exercise price was determined as of the
last trading day prior to the grant date. As has been the
long-standing practice of the Compensation Committee, the
exercise price was set at the average of the high and the low
price on that date ($33.81 per share), which was five cents
lower than the closing price on that date ($33.86 per
share).
Column (i)
The value of stock options granted in 2006 were derived using
the Black-Scholes stock option pricing model. The assumptions
used in calculating these amounts are discussed in Note 1
to the Financial Statements.
35
OUTSTANDING EQUITY AWARDS AT 2006 FISCAL YEAR-END
This table provides information pertaining to all outstanding
stock options held by the named executive officers as of
December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards | |
|
Stock Awards | |
|
|
| |
|
| |
|
|
|
|
|
|
Equity | |
|
|
|
|
|
|
Incentive | |
|
|
|
|
|
|
Plan | |
|
|
|
|
|
|
Equity | |
|
Awards: | |
|
|
|
|
Equity | |
|
|
|
|
|
Incentive | |
|
Market or | |
|
|
|
|
Incentive | |
|
|
|
|
|
Plan | |
|
Payout Value | |
|
|
|
|
Plan | |
|
|
|
|
|
Market | |
|
Awards: | |
|
of Unearned | |
|
|
|
|
Awards: | |
|
|
|
Number of | |
|
Value | |
|
Number of | |
|
Shares, | |
|
|
Number of | |
|
Number of | |
|
Number of | |
|
|
|
Shares or | |
|
of Shares | |
|
Unearned | |
|
Units | |
|
|
Securities | |
|
Securities | |
|
Securities | |
|
|
|
Units of | |
|
or Units | |
|
Shares, | |
|
or Other | |
|
|
Underlying | |
|
Underlying | |
|
Underlying | |
|
|
|
Stock | |
|
of Stock | |
|
Units or | |
|
Rights | |
|
|
Unexercised | |
|
Unexercised | |
|
Unexercised | |
|
Option | |
|
|
|
That | |
|
That Have | |
|
Other Rights | |
|
That Have | |
|
|
Options | |
|
Options | |
|
Unearned | |
|
Exercise | |
|
Option | |
|
Have Not | |
|
Not | |
|
That Have | |
|
Not | |
|
|
(#) | |
|
(#) | |
|
Options | |
|
Price | |
|
Expiration | |
|
Vested | |
|
Vested | |
|
Not Vested | |
|
Vested | |
Name |
|
Exercisable | |
|
Unexercisable | |
|
(#) | |
|
($) | |
|
Date | |
|
(#) | |
|
($) | |
|
(#) | |
|
($) | |
| |
D. M. Ratcliffe
|
|
|
92,521 |
|
|
|
0 |
|
|
|
|
|
|
|
25.26 |
|
|
|
02/15/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,780 |
|
|
|
0 |
|
|
|
|
|
|
|
27.975 |
|
|
|
02/14/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,843 |
|
|
|
27,422 |
|
|
|
|
|
|
|
29.50 |
|
|
|
02/13/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182,021 |
|
|
|
91,010 |
|
|
|
|
|
|
|
29.315 |
|
|
|
08/02/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183,334 |
|
|
|
366,666 |
|
|
|
|
|
|
|
32.70 |
|
|
|
02/18/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
518,739 |
|
|
|
|
|
|
|
33.81 |
|
|
|
02/02/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T. A. Fanning
|
|
|
31,126 |
|
|
|
0 |
|
|
|
|
|
|
|
25.26 |
|
|
|
02/15/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,314 |
|
|
|
0 |
|
|
|
|
|
|
|
27.975 |
|
|
|
02/14/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,143 |
|
|
|
21,072 |
|
|
|
|
|
|
|
29.50 |
|
|
|
02/13/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,948 |
|
|
|
53,895 |
|
|
|
|
|
|
|
32.70 |
|
|
|
02/18/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
95,392 |
|
|
|
|
|
|
|
33.81 |
|
|
|
02/02/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M. D. Garrett
|
|
|
36,314 |
|
|
|
0 |
|
|
|
|
|
|
|
27.975 |
|
|
|
02/14/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,613 |
|
|
|
17,806 |
|
|
|
|
|
|
|
29.50 |
|
|
|
02/13/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,189 |
|
|
|
52,376 |
|
|
|
|
|
|
|
32.70 |
|
|
|
02/18/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
94,420 |
|
|
|
|
|
|
|
33.81 |
|
|
|
02/02/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C. D. McCrary
|
|
|
79,571 |
|
|
|
0 |
|
|
|
|
|
|
|
25.26 |
|
|
|
02/15/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,054 |
|
|
|
0 |
|
|
|
|
|
|
|
27.975 |
|
|
|
02/14/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,616 |
|
|
|
23,808 |
|
|
|
|
|
|
|
29.50 |
|
|
|
02/13/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,818 |
|
|
|
57,636 |
|
|
|
|
|
|
|
32.70 |
|
|
|
02/18/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
99,178 |
|
|
|
|
|
|
|
33.81 |
|
|
|
02/02/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W. P. Bowers
|
|
|
50,046 |
|
|
|
0 |
|
|
|
|
|
|
|
25.26 |
|
|
|
02/15/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,181 |
|
|
|
0 |
|
|
|
|
|
|
|
27.975 |
|
|
|
02/14/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,701 |
|
|
|
17,351 |
|
|
|
|
|
|
|
29.50 |
|
|
|
02/13/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,192 |
|
|
|
40,384 |
|
|
|
|
|
|
|
32.70 |
|
|
|
02/18/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
67,517 |
|
|
|
|
|
|
|
33.81 |
|
|
|
02/02/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options vest one-third per year on the anniversary of the
grant date. Options granted in 2002 and 2003, with an expiration
date in 2012 and 2013, respectively, were fully vested as of
December 31, 2006. The options granted in 2004, 2005 and
2006 become fully vested as shown below.
|
|
|
Expiration Date |
|
Date Fully Vested |
|
February 13, 2014
|
|
February 13, 2007 |
|
August 2, 2014
|
|
August 2, 2007 |
|
February 18, 2015
|
|
February 18, 2008 |
|
February 20, 2016
|
|
February 20, 2009 |
|
Only Mr. Ratcliffe received a stock option grant in August
2004. This grant was made by the Compensation Committee and was
effective after he was named Chief Executive Officer and
represented a significant portion of the increase in his
compensation in 2004 upon assuming that position.
36
Options also fully vest upon death, total disability or
retirement and expire three years following death or total
disability or five years following retirement, or on the
original expiration date if earlier. Please see the section
entitled Potential Payments Upon Termination or Change in
Control for more information about the treatment of stock
options under different termination and CIC events.
OPTION EXERCISES AND STOCK VESTED IN FISCAL 2006
None of the named executive officers exercised stock options in
2006.
PENSION BENEFITS AT 2006 FISCAL YEAR-END
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Present Value of |
|
Payments |
|
|
|
|
Years Credited |
|
Accumulated |
|
During |
|
|
|
|
Service |
|
Benefit |
|
Last Fiscal Year |
Name |
|
Plan Name |
|
(#) |
|
($) |
|
($) |
(a) |
|
(b) |
|
(c) |
|
(d) |
|
(e) |
|
D. M. Ratcliffe
|
|
Pension Plan |
|
|
34.75 |
|
|
|
802,103 |
|
|
|
|
|
|
|
SBP-P |
|
|
34.75 |
|
|
|
6,683,107 |
|
|
|
|
|
|
|
SERP |
|
|
34.75 |
|
|
|
2,161,904 |
|
|
|
|
|
|
T. A. Fanning
|
|
Pension Plan |
|
|
24.92 |
|
|
|
355,044 |
|
|
|
|
|
|
|
SBP-P |
|
|
24.92 |
|
|
|
1,281,720 |
|
|
|
|
|
|
|
SERP |
|
|
24.92 |
|
|
|
422,160 |
|
|
|
|
|
|
M. D. Garrett
|
|
Pension Plan |
|
|
37.67 |
|
|
|
828,741 |
|
|
|
|
|
|
|
SBP-P |
|
|
37.67 |
|
|
|
2,875,057 |
|
|
|
|
|
|
|
SERP |
|
|
37.67 |
|
|
|
976,029 |
|
|
|
|
|
|
C. D. McCrary
|
|
Pension Plan |
|
|
31.92 |
|
|
|
616,547 |
|
|
|
|
|
|
|
SBP-P |
|
|
31.92 |
|
|
|
2,355,184 |
|
|
|
|
|
|
|
SERP |
|
|
31.92 |
|
|
|
757,614 |
|
|
|
|
|
|
W. P. Bowers
|
|
Pension Plan |
|
|
26.58 |
|
|
|
384,344 |
|
|
|
|
|
|
|
SBP-P |
|
|
26.58 |
|
|
|
976,621 |
|
|
|
|
|
|
|
SERP |
|
|
26.58 |
|
|
|
335,195 |
|
|
|
|
|
|
The named executive officers earn Company-paid pension benefits
from three integrated retirement plans. More information about
pension benefits is provided in the CD&A.
The Pension Plan
The Pension Plan is a funded, tax-qualified plan. It is the
Companys primary retirement plan. Generally, all full-time
employees participate in this funded plan after one year of
service. Normal retirement benefits become payable when
participants both attain age 65 and complete five years of
participation. The plan benefit equals the greater of amounts
computed using a 1.7% offset formula and a
1.25% formula, as described below. Benefits are
limited to a statutory maximum.
The 1.7% offset formula amount equals 1.7% of final average base
rate of pay times years of credited service less an offset
related to Social Security benefits. The offset equals a service
ratio times 50% of the anticipated Social Security benefits in
excess of $4,200. The service ratio adjusts the offset for the
portion of a full career that a participant has worked. To
determine final average base rate of pay for this formula, an
amount is associated with each of the last 10 calendar years of
a participants service, and the three largest amounts are
averaged. The amount associated with each calendar year is the
participants highest base salary rate during the calendar
year reduced for any voluntary deferrals under the DCP. A
statutory limit restricts the amount considered each year; the
limit for 2006 was $220,000.
37
The 1.25% formula amount equals 1.25% of final average pay level
times years of credited service. For this formula, the final
average pay computation is the same as described above for the
1.7% offset formula, but PPP amounts paid during each calendar
year are added to the base rates of pay.
Early retirement benefits become payable once plan participants
have during employment both attained age 50 and completed
10 years of credited service. Participants who retire early
from active service receive benefits equal to the amounts
computed using the same formulas employed at normal retirement.
However, a 0.3% reduction applies for each month (3.6% for each
year) prior to normal retirement that benefit payments commence.
For example, 64% of the formula benefits are payable starting at
age 55. As of December 31, 2006, all the named
executive officers, except Mr. Fanning, were eligible to
retire immediately.
At retirement, plan participants can choose to receive their
benefits in one of six alternative forms of payment. All six
forms pay benefits monthly over the lifetime of the retiree or
the joint lifetimes of the retiree and a spouse. A reduction
applies if a retiring participant chooses a payment form other
than a single life annuity which provides equal payments over a
participants post-retirement life. The reduction makes the
value of the benefits paid in the form chosen comparable to what
it would have been if benefits were paid as a single life
annuity.
Participants vest in the Pension Plan benefits after completing
five years of service. All the named executive officers are
vested in their Pension Plan benefits. Participants who
terminate employment after vesting are entitled to a pension
benefit commencing at age 65. Vested participants who earn
10 or more years of credited service can elect to have their
Pension Plan benefits commence as early as age 50. If such
an election is made, the early retirement reductions that apply
are actuarially determined factors and are larger than
0.3% per month.
If a vested participant dies while actively employed, benefits
will be paid to a surviving spouse. A survivors benefit
equals 45% of the monthly benefit that the participant had
earned before his or her death. Payments to a surviving spouse
of a participant who attained age 50 prior to death will
begin receiving benefits immediately; otherwise, survivor
payments begin when the deceased participant would have attained
age 50. After commencing, survivor benefits are payable
monthly for the remainder of a survivors life.
Participants who are age 50 or older may opt to have an
80%, instead of 45%, survivor benefit paid if they die; however,
there is a charge associated with this election. Surviving
spouses of vested participants who have terminated employment
and not yet elected to start receiving benefits, receive smaller
benefits.
If vested participants become totally disabled, periods that
Social Security Disability Income or Company disability income
benefits are paid will count as service for benefit calculation
purposes. The crediting of this additional service ceases at the
point a disabled participant dies, stops receiving disability
income benefits or elects to commence retirement payments.
Outside of the extra service crediting, the normal plan
provisions apply to disabled participants.
SBP-Pension Related (the SBP-P)
The same Supplemental Benefit Plan that provides for deferred
compensation related to contributions the Company can not make
to the ESP due to various limits under the Code also provides
for a supplemental defined benefit pension. Please see the
description of the non-pension component of the SBP following
the Nonqualified Deferred Compensation Table. The SBP-P is an
unfunded retirement plan that is not tax qualified. This plan
pays more highly compensated employees, including each of the
named executive officers, benefits that equal the excess of what
their Pension Plan benefits would be if statutory
compensation/benefit limits and voluntary pay deferrals under
the DCP were ignored over what their Pension Plan benefits
actually are. In 2006, the form of payment election made for
Pension Plan benefits also applies to SBP-P benefits. The
SBP-Ps vesting, early retirement, survivor benefit and
disability provisions mirror those of the Pension Plan.
SERP
The SERP also is an unfunded retirement plan that is not tax
qualified. This plan provides more highly compensated employees,
including each of the named executive officers, additional
benefits that the Pension Plan would pay if the 1.7% offset
formula calculations reflected a portion of annual cash
incentives under the PPP. To derive the SERP benefits, a final
average pay is determined reflecting participants base
salary level and their payouts under the PPP to the extent such
PPP payouts exceed 15% of those base salary levels (ignoring
statutory limits and voluntary pay deferrals under the DCP).
This final average pay is used in the 1.7% offset formula to
derive a gross benefit. The Pension Plan and
SBP-P benefits are
subtracted from the gross benefit to calculate the SERP benefit
payable. In 2006, the form of payment election made
38
for Pension Plan benefits also applies to SERP benefits. The
SERPs early retirement, survivor benefit and disability
provisions match the Pension Plans provisions. SERP
benefits do not vest until participants retire.
Changes Effective in 2007 to the SBP-P and the SERP
In early 2007, changes were made to the SBP-P and the SERP to
comply with Code Section 409A. One of the changes made
affects the form of payment for the SBP-P and the SERP.
Participants will elect to receive a lifetime of monthly
benefits, as is currently provided for, or the single-sum value
of those monthly payments for an average lifetime paid out in 10
annual installments.
Description of Assumptions in Calculating Present Value of
Accumulated Pension Benefits
The amounts in column (d) of this Pension Benefit Table
show the present values of accumulated benefits each named
executive officer has earned as of September 30, 2006.
September 30, 2006 is the measurement date used in the
Financial Statements.
Each present value of pension benefits is a weighted sum of the
present values of the full benefit paid monthly over the named
executive officers post-retirement lifetime and reduced
amounts payable over the joint lifetimes of the named executive
officer and a spouse. The weights are the form of payment
assumptions described below.
The present values of pension benefits in each form of payment
equals the sum of all the expected monthly payments after being
discounted to reflect the time value of money between the
measurement date and the expected payment dates. The expected
monthly payments are based on the benefits payable to the
executive, and to a spouse for forms paid over joint lifetimes,
times the probability that the named executive officer or spouse
will survive from the named executive officers normal
retirement age to the payment date. The probabilities of
survival were derived from a table of actuarial mortality rates.
The following assumptions were used in the present value
calculations:
|
|
|
Discount rate six percent as of September 30,
2006 |
|
Retirement date Normal retirement age (65 for all
named executive officers) |
|
Mortality after normal retirement RP2000 Combined
Healthy mortality rate table |
|
Mortality, withdrawal, disability and retirement rates prior to
normal retirement None |
|
Form of payment |
|
|
|
|
|
Unmarried retirees: 100% elect a single life annuity |
|
|
Married retirees: 20% elect a single life annuity; 40% elect a
joint and 50% survivor annuity; and 40% elect a joint and 100%
survivor annuity |
|
|
|
Percent married at retirement 80% of males and 70%
of females |
|
Spouse ages Wives two years younger than their
husbands |
|
Incentives earned but unpaid as of the measurement
date 130% of target percentages times base rate of
pay for year incentive is earned |
For all of the named executive officers, the number of years of
credited service is one year less than the number of years of
employment with the Company.
39
NONQUALIFIED DEFERRED COMPENSATION AS OF 2006 FISCAL
YEAR-END
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
Registrant |
|
|
|
Aggregate |
|
|
|
|
Contributions |
|
Contributions |
|
Aggregate Earnings |
|
Withdrawals/ |
|
Aggregate Balance |
|
|
in Last FY |
|
in Last FY |
|
in Last FY |
|
Distributions |
|
at Last FYE |
|
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
Name (a) |
|
(b) |
|
(c) |
|
(d) |
|
(e) |
|
(f) |
|
D. M. Ratcliffe
|
|
|
0 |
|
|
|
38,028 |
|
|
|
770,461 |
|
|
|
0 |
|
|
|
8,413,507 |
|
|
T. A. Fanning
|
|
|
208,234 |
|
|
|
17,725 |
|
|
|
59,042 |
|
|
|
0 |
|
|
|
713,555 |
|
|
M. D. Garrett
|
|
|
0 |
|
|
|
16,520 |
|
|
|
90,606 |
|
|
|
0 |
|
|
|
1,114,170 |
|
|
C. D. McCrary
|
|
|
0 |
|
|
|
19,493 |
|
|
|
85,330 |
|
|
|
0 |
|
|
|
972,672 |
|
|
W. P. Bowers
|
|
|
86,675 |
|
|
|
12,199 |
|
|
|
62,794 |
|
|
|
0 |
|
|
|
703,349 |
|
|
The Company provides the DCP which is designed to permit
participants to defer income as well as certain federal, state
and local taxes until a specified date or their retirement,
disability, death or other separation from service. Up to 50% of
base salary and up to 100% of PPP and PDP may be deferred, at
the election of eligible employees. All of the named executive
officers are eligible to participate in the DCP.
Participants have two options for the deemed investments of the
amounts deferred the Stock Equivalent Account and
the Prime Equivalent Account. Under the terms of the DCP,
participants are permitted to transfer between investments at
any time.
The amounts deferred in the Stock Equivalent Account are treated
as if invested at an equivalent rate of return to that of an
actual investment in the Companys common stock, including
the crediting of dividend equivalents as such are paid by the
Company from time to time. It provides participants with an
equivalent opportunity for the capital appreciation (or loss)
and income held by a Company stockholder. During 2006, the rate
of return in the Stock Equivalent Account was 11.7%, which was
the Companys TSR for 2006.
Alternatively, participants may elect to have their deferred
compensation invested in the Prime Equivalent Account which is
treated as if invested at a prime interest rate compounded
monthly, as published in the Wall Street Journal as the
base rate on corporate loans posted as of the last business day
of each month by at least 75% of the United States largest
banks. The range of interest rates earned on amounts deferred
during 2006 in the Prime Equivalent Account was 7.25% to 8.25%.
Column (b)
This column reports the actual amounts of compensation deferred
under the DCP by each named executive officer in 2006. The
amounts of salary deferred by the named executive officers, if
any, was included in the Salary column in the Summary
Compensation Table. The amount of incentive compensation
deferred in 2006 was the amount paid for performance under the
PPP and the PDP that were earned as of December 31, 2005
but not payable until the first quarter of 2006. This amount is
not reflected in the Summary Compensation Table because that
table reports incentive compensation that was earned in 2006,
but not payable until early 2007. These deferred amounts may be
distributed in a lump sum or in up to 10 annual installments at
termination of employment or in a lump sum at a specified date,
at the election of the participant.
Column (c)
This column reflects the Companys contributions under the
SBP-N. Under the Code, the Company is prohibited from making
matching contributions under the ESP on employee contributions
above stated limits in the ESP and, if applicable, above legal
limits set forth in the Code. The SBP-N is a nonqualified
deferred compensation plan under which the Company contributes
the amount of Company contributions that it is prohibited from
making in the ESP. The contributions are treated as if invested
in the Companys common stock and are payable in cash upon
termination of employment in a lump sum or in up to 20 annual
installments, at the election of the participant. The amounts
reported in this column also were reported in the All Other
Compensation column in the Summary Compensation Table.
40
Column (d)
This column reports earnings on both compensation the named
executive officers elected to defer and earnings on Company
contributions under the SBP-N. See the notes to column
(h) of the Summary Compensation Table for a discussion of
amounts of nonqualified deferred compensation earnings included
in the Summary Compensation Table.
Column (f)
This column includes amounts that were deferred under the DCP
and contributions under the SBP-N in prior years and reported in
prior years Proxy Statements. The chart below shows the
amounts reported in prior years Proxy Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Deferred under |
|
Amounts Contributed by the |
|
|
|
|
the DCP Prior to 2006 |
|
Company under the SBP-N |
|
|
|
|
and Reported in Prior |
|
Prior to 2006 and Reported in |
|
|
|
|
Years Proxy Statements |
|
Prior Years Proxy Statements |
|
Total |
Name |
|
($) |
|
($) |
|
($) |
|
D. M. Ratcliffe
|
|
|
5,381,881 |
|
|
|
165,113 |
|
|
|
5,546,994 |
|
|
T. A. Fanning
|
|
|
423,735 |
|
|
|
44,771 |
|
|
|
468,506 |
|
|
M. D. Garrett
|
|
|
0 |
|
|
|
33,651 |
|
|
|
33,651 |
|
|
C. D. McCrary
|
|
|
489,924 |
|
|
|
110,968 |
|
|
|
600,892 |
|
|
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
This section describes and estimates payments that could be made
to the named executive officers under different termination and
CIC events. The estimated payments would be made under the terms
of the Company compensation and benefits programs or the CIC
severance agreements with each of the named executive officers.
The amount of potential payments is calculated as if the
triggering events occurred as of December 31, 2006 and
assumes that the price of the Companys common stock is the
closing market price as of December 29, 2006.
Description of Termination and CIC Events
The following charts list different types of termination and CIC
events that can affect the treatment of payments under the
Companys compensation and benefit programs. These events
also affect payments to the named executive officers under their
CIC severance agreements. No payments are made under the
severance agreements unless within two years of the CIC, the
named executive officer is involuntarily terminated or he or she
voluntarily terminates for Good Reason. (See the description of
Good Reason below.)
Traditional Termination Events
|
|
|
Retirement or Retirement Eligible Termination of a
named executive officer who is at least 50 years old and
has at least 10 years of credited service. |
|
|
Resignation Voluntary termination of a named
executive officer who is not retirement eligible. |
|
|
Lay Off Involuntary termination of a named executive
officer not for cause, who is not retirement eligible. |
|
|
Involuntary Termination Involuntary termination of a
named executive officer for cause. Cause includes individual
performance below minimum performance standards and misconduct,
such as violation of the Companys Drug and Alcohol Policy. |
|
|
Death or Disability Termination of a named executive
officer due to death or disability. |
41
CIC-Related Events
At the parent company or subsidiary level:
|
|
|
Southern CIC I Acquisition by another entity of 20%
or more of the Companys common stock, or following a
merger with another entity the Companys stockholders own
65% or less of the company surviving the merger. |
|
|
Southern CIC II Acquisition by another entity
of 35% or more of the Companys common stock, or following
a merger with another entity the Companys stockholders own
less than 50% of the company surviving the merger. |
|
|
Southern Termination A merger or other event and the
Company is not the surviving company or the Companys
common stock is no longer publicly traded. |
|
|
Subsidiary CIC Acquisition by another entity, other
than another subsidiary of the Company, of 50% or more of the
stock of a subsidiary of the Company, a merger with another
entity and the subsidiary is not the surviving company or the
sale of substantially all the assets of the subsidiary. |
At the employee level:
|
|
|
Involuntary CIC Termination or Voluntary CIC Termination for
Good Reason Employment is terminated within two
years of a CIC, other than for cause, or the employee
voluntarily terminates for Good Reason. Good Reason for
voluntarily termination within two years of a CIC is generally
satisfied when there is a reduction in salary, incentive
compensation opportunity or benefits, relocation of over
50 miles or a diminution in duties and responsibilities. |
42
The following chart describes the treatment of different pay and
benefit elements in connection with the Traditional Termination
Events described above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lay Off |
|
|
|
|
|
|
|
|
|
|
(Involuntary |
|
|
|
|
|
Involuntary |
|
|
Retirement/ |
|
Termination |
|
|
|
|
|
Termination |
Program |
|
Retirement Eligible |
|
Not For Cause) |
|
Resignation |
|
Death or Disability |
|
(For Cause) |
|
Pension Benefits:
Pension Plan
SBP-P
SERP |
|
Lifetime of monthly benefits paid.
Reductions apply if payments start prior to age 65. |
|
SERP-related benefits forfeited. Other vested benefits paid
monthly for lifetime after executive reaches retirement
eligibility. Reductions apply if payments start prior to
age 65. |
|
Same as Lay Off. |
|
At death, surviving spouse receives a lifetime of monthly
payments equal to 45% (or 80% if participant has made that
election) of benefits earned. If vested under the Pension Plan,
all pension benefits continue to accumulate while disabled.
Lifetime of monthly payments after executive becomes retirement
eligible and elects commencement. |
|
Same as for retirement and resignation, as the case may be. |
|
PPP |
|
Pro-rated if terminate before 12/31. |
|
Pro-rated if terminate before 12/31. |
|
Forfeit. |
|
Pro-rated if terminate before 12/31. |
|
Forfeit. |
|
PDP |
|
Paid year of retirement plus two additional years. |
|
Forfeit. |
|
Forfeit. |
|
Payable until options expire or exercised. |
|
Forfeit. |
|
Stock Options |
|
Vest; expire earlier of original expiration date or five years. |
|
Vested options expire in 90 days; unvested are forfeited. |
|
Vested options expire in 90 days; unvested are forfeited. |
|
Vest; expire earlier of original expiration or three years. |
|
Forfeit. |
|
Financial Planning Perquisite |
|
Continues for one year. |
|
Terminates. |
|
Terminates. |
|
Continues for one year. |
|
Terminates. |
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lay Off |
|
|
|
|
|
|
|
|
|
|
(Involuntary |
|
|
|
|
|
Involuntary |
|
|
Retirement/ |
|
Termination |
|
|
|
|
|
Termination |
Program |
|
Retirement Eligible |
|
Not For Cause) |
|
Resignation |
|
Death or Disability |
|
(For Cause) |
|
DCP |
|
Payable per prior elections (lump sum or up to 10 annual
installments). |
|
Same as Retirement. |
|
Same as Retirement. |
|
Payable to beneficiary or disabled participant per prior
elections; amounts deferred prior to 2005 can be paid as a lump
sum at DCP administrative committees discretion. |
|
Same as Retirement. |
|
SBP-N |
|
Payable per prior elections (lump sum or up to 20 annual
installments). |
|
Same as Retirement. |
|
Same as Retirement. |
|
Same as the DCP, above. |
|
Same as Retirement. |
|
The chart below describes the treatment of payments under pay
and benefit programs under different CIC events, except the
Pension Plan (the CIC Chart). The Pension Plan is
not affected by CIC events.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary CIC-Related |
|
|
|
|
|
|
|
|
Termination or Voluntary |
|
|
|
|
|
|
Southern Termination or |
|
CIC-Related Termination |
Program |
|
Southern CIC I |
|
Southern CIC II |
|
Subsidiary CIC |
|
for Good Reason |
|
Nonqualified Pension Benefits:
SBP-P
SERP |
|
All SERP-related benefits vest if participant vested in Pension
Plan benefits; otherwise, no impact. |
|
Vesting as upon a Southern CIC I, and benefits paid as a
lump sum following termination or retirement. |
|
Same as Southern CIC II. |
|
Based on type of CIC event. |
|
PPP
|
|
No plan termination is paid at greater of target or actual
performance. If plan terminated within two years of CIC,
pro-rated at target performance level. |
|
Same as Southern CIC I. |
|
Pro-rated at target performance level. |
|
If not otherwise eligible for payment, if PPP still in effect,
pro-rated at target performance level. |
|
PDP
|
|
No plan termination is paid at greater of target or actual
performance. If plan terminated within two years of CIC,
pro-rated at greater of target or actual performance level. |
|
Same as Southern CIC I. |
|
Pro-rated at greater of actual or target performance level. |
|
If not otherwise eligible for payment, if PDP still in effect,
greater of actual or target performance level for year of
severance only. |
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary CIC-Related |
|
|
|
|
|
|
|
|
Termination or Voluntary |
|
|
|
|
|
|
Southern Termination or |
|
CIC-Related Termination |
Program |
|
Southern CIC I |
|
Southern CIC II |
|
Subsidiary CIC |
|
for Good Reason |
|
Stock Options
|
|
Not affected by CIC events. |
|
Not affected by CIC events. |
|
Vest and convert to surviving companys securities if there
is a Southern Termination; if can not convert, pay spread in
cash; not affected by a Subsidiary CIC. |
|
Vest. |
|
DCP
|
|
Not affected by CIC events. |
|
Payable in lump sum following termination. |
|
Same as Southern CIC II. |
|
Based on type of CIC event. |
|
SBP-N
|
|
Not affected by CIC events. |
|
Participant provided opportunity to elect lump sum payment. |
|
Participant provided opportunity to elect lump sum payment. |
|
Based on type of CIC event. |
|
Severance Benefits
|
|
Not applicable. |
|
Not applicable. |
|
Not applicable. |
|
Three times base salary plus target PPP plus tax gross up if
severance amounts exceed Code Section 280G excess
parachute payment by 10% or more. |
|
Health Benefits
|
|
Not applicable. |
|
Not applicable. |
|
Not applicable. |
|
Up to five years participation in group health plan plus payment
of three years premium amounts. |
|
Outplacement Services
|
|
Not applicable. |
|
Not applicable. |
|
Not applicable. |
|
Six months. |
|
Potential Payments
This section describes and estimates payments that would become
payable to the named executive officers upon a termination or
CIC as of December 31, 2006.
Pension Benefits
The monthly amounts that would have become payable to the named
executive officers if the Traditional Termination Events
occurred as of December 31, 2006 under the Pension Plan,
the SBP-P and the SERP are itemized in the chart below. The
amounts shown in the chart are monthly benefit amounts whereas
the pension values shown in the Summary Compensation and Pension
Benefit Tables are present values of all the monthly values
anticipated to be paid over the lifetimes of the named executive
officers and their spouses. These plans are described in the
notes following the Pension Benefits Table. All the named
executive officers, except Mr. Fanning, were retirement
eligible on December 31, 2006. Mr. Fanning became
retirement eligible in March 2007. The benefits were determined
using the same assumptions used to compute benefit values in the
Pension Benefit Table with three exceptions: the amounts have
been determined as of December 31, 2006 instead of as of
September 30, 2006; the benefit payments were assumed to
commence as soon as possible instead of at normal retirement
and, as such, appropriate early retirement reductions were
applied; and the benefits were not adjusted to reflect optional
forms of payment such that all benefits are the amounts that
would have been paid monthly over the named executive
officers life.
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resignation or |
|
Death |
|
|
Retirement |
|
Involuntary Retirement |
|
(monthly payments |
|
|
(monthly payments) |
|
(monthly payments) |
|
to a spouse) |
Name |
|
($) |
|
($) |
|
($) |
|
D. M. Ratcliffe
|
|
Pension Plan SBP-P SERP |
|
7,389 61,565 24,105 |
|
All plans treated as retiring |
|
|
4,410 36,743 14,386 |
|
|
T. A. Fanning
|
|
Pension Plan SBP-P SERP |
|
|
N/A N/A N/A |
|
|
|
1,943 7,013 0 |
|
|
|
3,191 11,518 3,794 |
|
|
M. D. Garrett
|
|
Pension Plan SBP-P SERP |
|
7,699 26,711 10,903 |
|
All plans treated as retiring |
|
|
4,806 16,671 6,805 |
|
|
C. D. McCrary
|
|
Pension Plan SBP-P SERP |
|
5,798 22,148 7,125 |
|
All plans treated as retiring |
|
|
4,058 15,501 4,986 |
|
|
W. P. Bowers
|
|
Pension Plan SBP-P SERP |
|
3,479 8,840 3,034 |
|
All plans treated as retiring |
|
|
3,403 8,648 2,968 |
|
|
As described in the CIC Chart, the only change in the form of
payment, acceleration or enhancement of the pension benefits is
the lump-sum payment of nonqualified pensions that normally
would have been paid monthly over the lifetimes of the named
executive officers and their spouses at termination following
certain CIC events and the vesting of SERP-related benefits.
Estimates of the lump-sum payments that would have been made to
the named executive officers, assuming termination as of
December 31, 2006 following a CIC event, other than a
Southern CIC I (which does not impact pension benefits), are
itemized below. These lump-sum amounts are not in addition to
the amounts shown in the Pension Benefits Table. These amounts
would have been in lieu of the monthly payments whose values are
represented in the Pension Benefits Table under the
circumstances described above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBP-P |
|
SERP |
|
Total |
Name |
|
($) |
|
($) |
|
($) |
|
D. M. Ratcliffe
|
|
|
9,446,128 |
|
|
|
3,698,512 |
|
|
|
13,144,640 |
|
|
T. A. Fanning
|
|
|
1,197,178 |
|
|
|
Not Applicable |
|
|
|
1,197,178 |
|
|
M. D. Garrett
|
|
|
4,165,085 |
|
|
|
1,700,121 |
|
|
|
5,865,206 |
|
|
C. D. McCrary
|
|
|
3,578,526 |
|
|
|
1,151,210 |
|
|
|
4,729,736 |
|
|
W. P. Bowers
|
|
|
1,530,481 |
|
|
|
525,281 |
|
|
|
2,055,762 |
|
|
The lump-sum amounts in the table above are calculated using the
same basic methodology used to compute the values in the Pension
Benefits Table. However, amounts were computed as of
December 31, 2006 instead of September 30, 2006. In
addition, certain assumptions were changed to those that have
been selected by the Company for lump-sum calculations following
a CIC. Benefit payments were assumed to commence at the earliest
date monthly payments would have been available instead of
deferred to the named executive officers normal retirement
dates; therefore, appropriate early retirement reductions apply.
Also, only the form of payment providing monthly benefits over
the named executive officers lifetime is considered. A
5.75% discount rate is assumed instead of six percent, and
mortality rates specified by the Internal Revenue Service in
Revenue Ruling 2001-62 were assumed instead of those disclosed
in the information following the Pension Benefits Table.
46
PPP
Because this section assumes that a termination or CIC event
occurred on December 31, 2006, there is no amount that
would be payable other than the amount reported and described in
the Summary Compensation Table because actual performance in
2006 exceeded target performance.
PDP
Because the assumed termination date is December 31, 2006,
there is no additional amount that would be payable other than
the amount reported in the Summary Compensation Table under the
Traditional Termination Events. As described in the Traditional
Termination Events Chart, there is some continuation of benefits
under the PDP for retirees.
However, under the CIC-Related Events, PDP is payable at the
greater of target performance or actual performance. For the
2003-2006 performance period, actual performance was less than
target performance. The table below estimates the additional
amount that would have been payable under the PDP if a CIC
occurred as of December 31, 2006.
|
|
|
|
|
|
|
Additional PDP |
Name |
|
($) |
|
D. M. Ratcliffe
|
|
|
594,977 |
|
|
T. A. Fanning
|
|
|
109,007 |
|
|
M. D. Garrett
|
|
|
91,294 |
|
|
C. D. McCrary
|
|
|
142,017 |
|
|
W. P. Bowers
|
|
|
96,040 |
|
|
Stock Options
Stock options would be treated as described in the Termination
and CIC Charts above. Under a Southern Termination, all stock
options vest. In addition, if there is an Involuntary CIC
Termination or Voluntary CIC Termination for Good Reason, stock
options vest. There is no payment associated with stock options
unless there is a Southern Termination and the
participants stock options can not be converted into
surviving company stock options. In that event, the excess of
the exercise price and the closing price of the Companys
common stock on December 29, 2006 would have been paid in
cash for all stock options held by the named executive officers.
The chart below shows the number of stock options for which
vesting would be accelerated under a Southern Termination and
the amount that would be payable under a Southern Termination if
there were no conversion to surviving company stock options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Total Payable in Cash |
|
|
Number of |
|
Options Following |
|
under a Southern |
|
|
Options with |
|
Accelerated Vesting |
|
Termination without |
|
|
Accelerated |
|
under a Southern |
|
Conversion of Stock |
Name |
|
Vesting (#) |
|
Termination (#) |
|
Options ($) |
|
D. M. Ratcliffe
|
|
|
1,003,837 |
|
|
|
1,600,336 |
|
|
|
8,353,272 |
|
|
T. A. Fanning
|
|
|
170,359 |
|
|
|
313,690 |
|
|
|
1,838,816 |
|
|
M. D. Garrett
|
|
|
164,602 |
|
|
|
262,718 |
|
|
|
1,330,625 |
|
|
C. D. McCrary
|
|
|
180,622 |
|
|
|
408,681 |
|
|
|
2,751,046 |
|
|
W. P. Bowers
|
|
|
125,252 |
|
|
|
276,372 |
|
|
|
1,831,878 |
|
|
DCP and SBP-N
The aggregate balances reported in the Nonqualified Deferred
Compensation Table would be payable to the named executive
officers as described in the Traditional Termination and
CIC-Related Events Charts above. There is no enhancement or
acceleration of payments under these plans associated with
termination or CIC events, other than the
47
lump-sum payment opportunity described in the above charts. The
lump sums that would be payable are those that are reported in
the Nonqualified Deferred Compensation Table.
Health Benefits
Because Messrs. Ratcliffe, Garrett, McCrary and Bowers are
retirement eligible and health care benefits are provided to
retirees, there is no incremental payment associated with the
termination or CIC events. At the end of 2006, Mr. Fanning
was not retirement eligible and thus health care benefits would
not become available until he reached age 50, except in the
case of a CIC-Related Termination, as described in the
CIC-Related Events Chart. The estimated cost of providing three
years of group health insurance premiums for Mr. Fanning is
$44,150.
Financial Planning Perquisite
Because Messrs. Ratcliffe, Garrett, McCrary and Bowers are
retirement eligible, an additional year of the Financial
Planning perquisite would be provided which is set at a maximum
of $7,000 per year. Mr. Fanning is not retirement
eligible.
There are no other perquisites provided to the named executive
officers under any of the Traditional Termination or CIC-Related
events.
Severance Benefits
The Company has entered into individual CIC Severance Agreements
with each of the named executive officers. In addition to the
treatment of Health Benefits, PPP and PDP described above, the
named executive officers are entitled to a severance benefit,
including outplacement services, if within two years of a CIC
they are involuntarily terminated, not for Cause, or they
voluntarily terminate for Good Reason. The severance benefits
are not paid unless the named executive officer releases the
Company from any claims he has against the Company.
The estimated cost of providing the six months of outplacement
services is $6,000 per named executive officer. The
severance payment is three times the named executive
officers base salary and target payout under the PPP. If
any portion of the severance payment is an excess
parachute payment as defined under Section 280G of
the Code, the Company will pay the named executive officer an
additional amount to cover the taxes that would be due on the
excess parachute payment a tax gross-up.
However, that additional amount will not be paid unless the
severance amount plus all other amounts that are considered
parachute payments under the Code exceed 110% of the severance
payment.
The table below estimates the severance payments that would be
made to the named executive officers if they were terminated as
of December 31, 2006 in connection with a CIC. There is no
estimated tax gross-up
included for any of the named executive officers because their
respective estimated severance amounts payable are below the
amounts considered excess parachute payments under the Code.
|
|
|
|
|
|
|
Severance Amount |
Name |
|
($) |
|
D. M. Ratcliffe
|
|
|
6,235,836 |
|
|
T. A. Fanning
|
|
|
3,108,000 |
|
|
M. D. Garrett
|
|
|
3,076,500 |
|
|
C. D. McCrary
|
|
|
3,228,750 |
|
|
W. P. Bowers
|
|
|
2,328,000 |
|
|
48
Other Information
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
No reporting person failed to file, on a timely basis, the
reports required by Section 16(a) of the Securities
Exchange Act of 1934, as amended.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2006, Messrs. William R. Allen and David M.
Huddleston, sons-in-law
of Mr. Michael D. Garrett, an executive officer of the
Company; and Ms. Donna D. Smith, sister of Mr. Andrew
J. Dearman, III, an executive officer of the Company, were
employed by subsidiaries of the Company. Mr. Allen was
employed by Southern Company Services, Inc. as a Sourcing Agent
and received compensation in 2006 of $134,113.
Mr. Huddleston was employed by Alabama Power Company as an
Engineering Supervisor and received compensation in 2006 of
$131,674. Ms. Smith was employed by Southern Company
Services, Inc. as a Human Resources Director and received
compensation in 2006 of $376,542.
The Company does not have a written policy pertaining solely to
the approval or ratification of related party
transactions. However, the Company has a Code of Ethics as
well as employment and compensation policies that govern the
hiring and compensating of all employees, including those named
above. The Company also has a Contract Guidance Manual and other
formal written procurement policies and procedures that guide
the purchase of goods and services, including requiring
competitive bids for most transactions above $10,000 or approval
based on documented business needs for sole sourcing
arrangements.
49
APPENDIX A
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: |
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1. |
Bookkeeping and other services related to the preparation of
accounting records or financial statements of the Company or its
subsidiaries. |
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2. |
Financial information systems design and implementation. |
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3. |
Appraisal or valuation services, fairness opinions, or
contribution-in-kind
reports. |
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4. |
Actuarial services. |
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5. |
Internal audit outsourcing services. |
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6. |
Management functions or human resources. |
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7. |
Broker or dealer, investment adviser, or investment banking
services. |
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8. |
Legal services or expert services unrelated to financial
statement audits. |
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9. |
Any other service that the Public Company Accounting Oversight
Board determines, by regulation, is impermissible. |
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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. |
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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. |
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D. |
Under this Policy, the Audit Committees approval of the
independent auditors annual arrangements letter shall
constitute pre-approval for all services covered in the letter. |
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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. |
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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. |
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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
i
Recycled Paper
Admission Ticket
(Not Transferable)
2007 Annual Meeting of Stockholders
10 a.m. ET, May 23, 2007
The Lodge Conference Center at Callaway Gardens
Highway 18
Pine Mountain, GA 31822 |
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Please present this Admission Ticket in order to gain admittance to the meeting. |
Ticket admits only the stockholder(s) listed on reverse side and is not transferable. |
Directions to Meeting Site:
From Atlanta, GA - Take I-85 south to I-185 (exit 21), then Exit 34, Georgia Highway 18. Take Georgia Highway 18 east to Callaway.
From Birmingham, AL - Take U.S. Highway 280 east to Opelika, AL, then I-85 north to Georgia Highway 18 (Exit 2). Take Georgia Highway 18 east to Callaway.
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FORM OF PROXY AND
TRUSTEE VOTING
INSTRUCTION FORM
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FORM OF PROXY AND
TRUSTEE VOTING
INSTRUCTION FORM |
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS AND ESP TRUSTEES |
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If a stockholder of record, the undersigned hereby appoints D. M. Ratcliffe, T. A. Fanning and G. E. Holland, Jr. or any of them, Proxies with full power of substitution in each,
to vote all shares the undersigned is entitled to vote at the Annual Meeting of Stockholders of The Southern Company, to be held at the Lodge Conference Center at Callaway Gardens
in Pine Mountain, Georgia, on May 23, 2007, at 10:00 a.m., ET, and any adjournments thereof, on all matters properly coming before the meeting, including, without limitation,
the items listed on the reverse side of this form.
If a beneficial owner holding shares through the Employee Savings Plan (ESP), the undersigned directs the Trustee of the Plan to vote all shares the undersigned is entitled to
vote at the Annual Meeting of Stockholders, and any adjournments thereof, on all matters properly coming before the meeting, including, without limitation, the items listed
on the
reverse side of this form.
This Form of Proxy/Trustee Voting Instruction Form is solicited jointly by the Board of Directors of The Southern Company and the Trustee of the Employee Savings Plan
pursuant to a separate Notice of Annual Meeting and Proxy Statement. If not voted electronically, this form should be mailed in the enclosed envelope to the Companys
proxy tabulator at 51 Mercedes Way, Edgewood, NY 11717. The deadline for receipt of Trustee Voting Instruction Forms for ESP is 5:00 p.m. on Monday, May 21,
2007.
The deadline for receipt of shares of record voted through the Form of Proxy is 9:00 a.m. on Wednesday, May 23, 2007. The deadline for receipt of instructions provided
electronically is 11:59 p.m. on Tuesday, May 22, 2007.
The proxy tabulator will report separately to the Proxies named above and to the Trustee as to proxies received and voting instructions provided, respectively.
THIS FORM OF PROXY/TRUSTEE VOTING INSTRUCTION FORM WILL BE VOTED AS
SPECIFIED BY THE UNDERSIGNED. IF NO CHOICE IS INDICATED, THE SHARES WILL BE VOTED
AS THE BOARD OF DIRECTORS RECOMMENDS.
Continued and to be voted and signed on reverse side.
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C/O PROXY SERVICES
P. O. BOX 9112
FARMINGDALE, NY 11735
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Please consider furnishing your voting instructions
electronically by Internet or phone. Processing paper forms
is more than twice as expensive as electronic instructions.
If you vote by Internet or phone, please do not mail this form.
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions until 11:59 p.m. ET the day
before the cut-off date or meeting date. Have your proxy card in hand when you
access the web site and follow the instructions to obtain your records and to create
an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by Southern Company in mailing
proxy materials, you can consent to receiving all future proxy statements, proxy
cards and annual reports electronically via the Internet.
To sign up for
electronic delivery, please follow the instructions above to vote using the Internet
and, when prompted, indicate that you agree to receive materials electronically in
future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your
voting instructions until 11:59 p.m.
ET the day before the cut-off date or meeting date. Have your proxy card in hand
when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date this form and return it in the postage-paid envelope we have
provided or return it to Southern Company, c/o Broadridge, 51 Mercedes
Way,
Edgewood, NY, 11717.
THANK YOU
VIEW ANNUAL REPORT AND PROXY STATEMENT ON THE INTERNET
www.southerncompany.com
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |
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SOUTH1 KEEP THIS PORTION FOR YOUR RECORDS |
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DETACH AND RETURN THIS PORTION ONLY
THIS FORM OF PROXY/TRUSTEE VOTING INSTRUCTION FORM IS VALID ONLY WHEN SIGNED AND DATED.
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SOUTHERN COMPANY
The Board of Directors recommends a vote FOR Items 1 and 2 and AGAINST Item 3.
1. ELECTION OF DIRECTORS:
01) J. P. Baranco
04) T. F. Chapman
07) J. N. Purcell
10) G. J. St. Pé |
02) D. J. Bern
05) H. W. Habermeyer, Jr.
08) D. M. Ratcliffe |
03) F. S. Blake
06) D. M. James
09) W. G. Smith, Jr. |
For
All
( ) |
Withhold
All
( ) |
For All
Except
( ) |
To withhold authority to vote, mark For All Except and write the nominees number on the line below.
_____________________________ |
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For |
Against |
Abstain |
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2. RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANYS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2007
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( ) |
( ) |
( ) |
3. STOCKHOLDER PROPOSAL ON ENVIRONMENTAL REPORT |
( ) |
( ) |
( ) |
UNLESS OTHERWISE SPECIFIED ABOVE, THE SHARES WILL BE VOTED FOR ITEMS 1 and 2 and AGAINST ITEM 3.
NOTE: |
The last instruction received either paper or electronic, prior to the deadline will be the instruction included in the final tabulation. |
Signature [PLEASE SIGN WITHIN BOX] |
Date |
Signature (Joint Owners) |
Date |