Filed Pursuant to Rule 424(b)(5)
Registration Nos. 333-100721
333-100721-01
333-100721-02
333-100721-03
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 6, 2002)
$170,000,000
(ALABAMA POWER LOGO)
SERIES U 2.65% SENIOR NOTES DUE FEBRUARY 15, 2006
------------------------
Interest payable on February 15 and August 15
------------------------
THIS IS A PUBLIC OFFERING BY ALABAMA POWER COMPANY OF $170,000,000 OF ITS
SERIES U 2.65% SENIOR NOTES DUE FEBRUARY 15, 2006.
ALABAMA POWER COMPANY MAY NOT REDEEM THE SERIES U SENIOR NOTES PRIOR TO
MATURITY.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-3 FOR A DESCRIPTION OF CERTAIN RISKS
ASSOCIATED WITH INVESTING IN THE SERIES U SENIOR NOTES.
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PRICE 99.90% AND ACCRUED INTEREST, IF ANY
------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND ALABAMA POWER
PUBLIC COMMISSIONS COMPANY
--------------- ---------------- -------------
Per Series U Senior Note................. 99.90% .35% 99.55%
Total.................................... $169,830,000 $595,000 $169,235,000
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Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this Prospectus Supplement or the accompanying Prospectus. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the Series U Senior Notes to purchasers
on February 19, 2003.
------------------------
MORGAN STANLEY THE WILLIAMS CAPITAL GROUP, L.P.
February 11, 2003
In making your investment decision, you should rely only on the information
contained or incorporated by reference in this Prospectus Supplement and the
attached Prospectus. We have not authorized anyone to provide you with any other
information. If you receive any unauthorized information, you must not rely on
it.
We are offering to sell the Series U Senior Notes only in places where
sales are permitted.
You should not assume that the information contained or incorporated by
reference in this Prospectus Supplement or the attached Prospectus, including
information incorporated by reference, is accurate as of any date other than its
respective date.
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
Risk Factors S-3
The Company S-8
Selected Financial Information S-8
Recent Results of Operations S-9
Use of Proceeds S-9
Description of the Series U Senior
Notes S-9
Underwriting S-13
PAGE
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PROSPECTUS
About this Prospectus 2
Available Information 2
Incorporation of Certain Documents by
Reference 2
Selected Information 4
Alabama Power Company 4
The Trusts 5
Accounting Treatment of Trusts 6
Use of Proceeds 6
Description of the New Bonds 6
Description of the New Stock 9
Description of the Senior Notes 11
Description of the Junior Subordinated
Notes 15
Description of the Preferred
Securities 20
Description of the Guarantees 21
Relationship Among the Preferred
Securities, the Junior Subordinated
Notes and the Guarantees 23
Plan of Distribution 24
Legal Matters 25
Experts 25
S-2
RISK FACTORS
Investors should carefully consider the risks described below as well as
other information contained or incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus before buying the securities
described in this Prospectus Supplement. These are risks the Company considers
to be material to your decision whether to invest in the Company's Series U
Senior Notes at this time. If any of the following risks occur, the Company's
business, financial condition or results of operations could be materially
harmed. In that case, the value or trading price of the Series U Senior Notes
described in this Prospectus Supplement could decline, and you may lose all or
part of your investment.
Risks Related to the Energy Industry
THE COMPANY IS SUBJECT TO SUBSTANTIAL GOVERNMENTAL REGULATION. COMPLIANCE WITH
CURRENT AND FUTURE REGULATORY REQUIREMENTS AND PROCUREMENT OF NECESSARY
APPROVALS, PERMITS AND CERTIFICATES MAY RESULT IN SUBSTANTIAL COSTS TO THE
COMPANY.
The Company is subject to substantial regulation from federal, state and
local regulatory agencies. The Company is required to comply with numerous laws
and regulations and to obtain permits, approvals and certificates from the
governmental agencies that regulate various aspects of its business, including
customer rates, service regulations, retail service territories, sales of
securities, asset acquisitions and sales, accounting policies and practices, and
the operation of fossil-fuel, hydroelectric and nuclear generating facilities.
For example, the rates charged by the Company to wholesale customers must be
approved by the Federal Energy Regulatory Commission (the "FERC"). Additionally,
the Alabama Public Service Commission has broad powers of supervision and
regulation over the Company and must approve the rates charged by the Company to
retail customers. The Company believes the necessary permits, approvals and
certificates have been obtained for its existing operations and that its
business is conducted in accordance with applicable laws; however, the Company
is unable to predict the impact on its operating results from future regulatory
activities of these agencies.
The Company is also subject to regulation by the Securities and Exchange
Commission (the "Commission") under the Public Utility Holding Company Act of
1935, as amended (the "1935 Act"). The rules and regulations promulgated under
the 1935 Act impose a number of restrictions on the operations of registered
utility holding companies and their subsidiaries and such rules apply to the
Company as a subsidiary of a registered utility holding company. These
restrictions include a requirement that, subject to a number of exceptions, the
Commission approve in advance securities issuances, acquisitions and
dispositions of utility assets or of securities of utility companies, and
acquisitions of other businesses. The 1935 Act also generally limits the
operations of a registered holding company to a single integrated public utility
system, plus additional energy-related businesses. The 1935 Act requires that
transactions between affiliated companies in a registered holding company system
be performed at cost, with limited exceptions.
The impact of any future revision or changes in interpretations of existing
regulations or the adoption of new laws and regulations applicable to the
Company cannot now be predicted. Changes in regulation or the imposition of
additional regulations could influence the Company's operating environment and
may result in substantial costs to the Company.
General Risks Related to the Company's Operations
THE REGIONAL POWER MARKET IN WHICH THE COMPANY COMPETES HAS CHANGING
TRANSMISSION REGULATORY STRUCTURES, WHICH COULD AFFECT THE OWNERSHIP OF THESE
ASSETS AND RELATED REVENUES AND EXPENSES.
The Company currently owns and operates transmission facilities as part of
a vertically integrated utility. Transmission revenues are not separated from
generation and distribution revenues in its approved retail rates. Federal
governmental authorities are advocating the formation of regional transmission
organizations and are proposing the adoption of new regulations that would
impact electric markets, including the transmission regulatory structure. Under
this new transmission regulatory structure, the Company would transfer
functional control (but not ownership) of its transmission facilities to an
independent third party. Because it remains
S-3
unclear how regional transmission organizations will develop or what new market
rules will be established, the Company is unable to assess fully the impact that
these developments may have on its business. The Company's revenues, expenses,
assets and liabilities could be adversely affected by changes in the
transmission regulatory structure in its regional power market.
RECENT EVENTS IN THE ENERGY MARKETS THAT ARE BEYOND THE COMPANY'S CONTROL HAVE
INCREASED THE LEVEL OF PUBLIC AND REGULATORY SCRUTINY IN THE ENERGY INDUSTRY
AND IN THE CAPITAL MARKETS. THE REACTION TO THESE EVENTS MAY RESULT IN NEW
LAWS OR REGULATIONS RELATED TO THE COMPANY'S BUSINESS OPERATIONS OR THE
ACCOUNTING TREATMENT OF ITS EXISTING OPERATIONS WHICH COULD HAVE A NEGATIVE
IMPACT ON THE COMPANY'S NET INCOME OR ACCESS TO CAPITAL.
As a result of the energy crisis in California during the summer of 2001,
the filing of bankruptcy by Enron Corporation and investigations by governmental
authorities into energy trading activities, companies generally in the regulated
and unregulated utility businesses have been under an increased amount of public
and regulatory scrutiny. The capital markets and ratings agencies also have
increased their level of scrutiny. This increased scrutiny could lead to
substantial changes in laws and regulations affecting the Company, including new
accounting standards that could change the way the Company is required to record
revenues, expenses, assets and liabilities. These types of disruptions in the
industry and any resulting regulations may have a negative impact on the
Company's net income or access to capital.
DEREGULATION OR RESTRUCTURING IN THE ELECTRIC INDUSTRY MAY RESULT IN INCREASED
COMPETITION AND UNRECOVERED COSTS WHICH COULD NEGATIVELY IMPACT THE COMPANY'S
EARNINGS.
Increased competition which may result from restructuring efforts could
have a significant adverse financial impact on the Company. Increased
competition could result in increased pressure to lower the cost of electricity.
Any adoption of retail competition and the unbundling of regulated energy
service in the State of Alabama could have a significant adverse financial
impact on the Company due to an impairment of assets, a loss of retail
customers, lower profit margins or increased costs of capital. The Company
cannot predict if or when it will be subject to changes in legislation or
regulation, nor can the Company predict the impact of these changes.
Additionally, the electric utility industry has experienced a substantial
increase in competition at the wholesale level, caused by changes in federal law
and regulatory policy. As a result of the Public Utility Regulatory Policies Act
of 1978 and the Energy Policy Act of 1992, competition in the wholesale
electricity market has greatly increased due to a greater participation by
traditional electricity suppliers, non-utility generators, independent power
producers, wholesale power marketers and brokers, and due to the trading of
energy futures contracts on various commodities exchanges. In 1996, the FERC
issued new rules on transmission service to facilitate competition in the
wholesale market on a nationwide basis. The rules give greater flexibility and
more choices to wholesale power customers. Also, in July 2002, the FERC issued a
notice of proposed rulemaking (which has not yet been adopted) related to open
access transmission service and standard electricity market design. As a result
of the changing regulatory environment and the relatively low barriers to entry
(which include, in addition to open access transmission service, relatively low
construction costs for new generating facilities), the Company expects
competition to steadily increase. This increased competition could affect the
Company's load forecasts, plans for power supply and wholesale energy sales and
related revenues. The effect on the Company's net income and financial condition
could vary depending on the extent to which: (i) additional generation is built
to compete in the wholesale market; (ii) new opportunities are created for the
Company to expand its wholesale load; or (iii) current wholesale customers elect
to purchase from other suppliers after existing contracts expire.
S-4
Risks Related to Environmental Regulation
THE COMPANY'S COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS ARE SIGNIFICANT. THE
COSTS OF COMPLIANCE WITH FUTURE ENVIRONMENTAL LAWS AND THE INCURRENCE OF
ENVIRONMENTAL LIABILITIES COULD HARM THE COMPANY'S CASH FLOW AND PROFITABILITY.
The Company is subject to extensive federal, state and local environmental
requirements which, among other things, regulate air emissions, water discharges
and the management of hazardous and solid waste in order to adequately protect
the environment. Compliance with these legal requirements requires the Company
to commit significant capital toward environmental monitoring, installation of
pollution control equipment, emissions fees and permits at all of its
facilities. These expenditures are significant and the Company expects that they
will increase in the future. For example, construction expenditures for
achieving compliance with Phase I and Phase II of the Clean Air Act totaled
approximately $88,000,000. Construction expenditures for compliance with
one-hour ozone non-attainment standards in Birmingham are expected to total
approximately $240,000,000 when completed in 2003.
If the Company fails to comply with environmental laws and regulations,
even if caused by factors beyond its control, that failure may result in the
assessment of civil or criminal penalties and fines against the Company. The
Environmental Protection Agency has filed a civil action against the Company
alleging violations of the new source review provisions of the Clean Air Act. An
adverse outcome could require substantial capital expenditures that cannot be
determined at this time and could require payment of substantial penalties.
Existing environmental laws and regulations may be revised, or new laws and
regulations seeking to protect the environment may be adopted or become
applicable to the Company. Revised or additional laws and regulations could
result in additional operating restrictions on the Company's facilities or
increased compliance costs which may not be fully recoverable from the Company's
customers and would therefore reduce the Company's net income.
Risks Related to the Company and its Business
THE COMPANY'S FINANCIAL PERFORMANCE MAY BE ADVERSELY AFFECTED IF IT IS UNABLE
TO SUCCESSFULLY OPERATE ITS ELECTRIC GENERATING FACILITIES.
The Company's financial performance depends on the successful operation of
its electric generating facilities. Operating electric generating facilities
involves many risks, including:
- operator error and breakdown or failure of equipment or processes;
- operating limitations that may be imposed by environmental or other
regulatory requirements;
- labor disputes;
- fuel supply interruptions; and
- catastrophic events such as fires, earthquakes, explosions, floods or
other similar occurrences.
A decrease or elimination of revenues from power produced by the Company's
electric generating facilities or an increase in the cost of operating the
facilities would reduce the Company's net income.
CHANGES IN TECHNOLOGY MAY MAKE THE COMPANY'S ELECTRIC GENERATING FACILITIES
LESS COMPETITIVE.
A key element of the Company's business model is that generating power at
central power plants achieves economies of scale and produces power at
relatively low cost. There are other technologies that produce power, most
notably fuel cells, microturbines, windmills and solar cells. It is possible
that advances in technology will reduce the cost of alternative methods of
producing power to a level that is competitive with that of most central power
station electric production. If this were to happen and if these technologies
achieved economies of scale, the Company's market share could be eroded, and the
value of its electric generating facilities could be reduced. Changes in
technology could also alter the channels through which retail electric customers
buy power, which could reduce the Company's revenues or increase expenses.
S-5
OPERATION OF NUCLEAR FACILITIES INVOLVES INHERENT RISKS, INCLUDING
ENVIRONMENTAL, HEALTH, REGULATORY, TERRORISM AND FINANCIAL RISKS THAT COULD
RESULT IN FINES OR THE CLOSURE OF THE COMPANY'S NUCLEAR UNITS, AND WHICH MAY
PRESENT POTENTIAL EXPOSURES IN EXCESS OF THE COMPANY'S INSURANCE COVERAGE.
The Company owns two nuclear units that represent approximately 1,720
megawatts, or 14% of the Company's generation capacity. The Company's nuclear
facilities are subject to environmental, health and financial risks such as the
ability to dispose of spent nuclear fuel, the ability to maintain adequate
reserves for decommissioning, potential liabilities arising out of the operation
of these facilities and the costs of securing the facilities against possible
terrorist attacks. The Company maintains decommissioning trusts and external
insurance coverage to minimize the financial exposure to these risks; however,
it is possible that damages could exceed the amount of the Company's insurance
coverage.
The Nuclear Regulatory Commission (the "NRC") has broad authority under
federal law to impose licensing and safety-related requirements for the
operation of nuclear generation facilities. In the event of non-compliance, the
NRC has the authority to impose fines or shut down a unit, or both, depending
upon its assessment of the severity of the situation, until compliance is
achieved. Recent NRC orders related to increased security measures and any
future safety requirements promulgated by the NRC could require the Company to
make substantial capital expenditures at its nuclear plants. In addition,
although the Company has no reason to anticipate a serious nuclear incident at
its plants, if an incident did occur, it could result in substantial costs to
the Company. A major incident at a nuclear facility anywhere in the world could
cause the NRC to limit or prohibit the operation or licensing of any domestic
nuclear unit.
The Company's facilities require licenses that need to be renewed or
extended in order to continue operating. As a result of potential terrorist
threats and increased public scrutiny of utilities, the licensing process could
result in increased licensing or compliance costs that are difficult or
impossible to predict.
THE COMPANY MAY NOT BE ABLE TO OBTAIN ADEQUATE FUEL SUPPLIES, WHICH COULD
LIMIT ITS ABILITY TO OPERATE ITS FACILITIES.
The Company purchases fuel from a number of suppliers. Disruption in the
delivery of fuel, including disruptions as a result of, among other things,
weather, labor relations or environmental regulations affecting the Company's
fuel suppliers, could limit the Company's ability to operate its facilities, and
thus, reduce its net income.
DEMAND FOR POWER COULD EXCEED THE COMPANY'S SUPPLY CAPACITY, RESULTING IN
INCREASED COSTS TO THE COMPANY FOR PURCHASING CAPACITY IN THE OPEN MARKET OR
BUILDING ADDITIONAL GENERATION CAPABILITIES.
The Company is currently obligated to supply power to regulated retail and
wholesale customers. At peak times, the demand for power required to meet this
obligation could exceed the Company's available generation capacity. Market or
competitive forces may require that the Company purchase capacity on the open
market or build additional generation capabilities. Because regulators may not
permit the Company to pass all of these purchase or construction costs on to its
customers, the Company may not recover any of these costs or may have exposure
to regulatory lag associated with the time between the incurrence of costs of
purchased or constructed capacity and its recovery in customers' rates.
THE COMPANY'S OPERATING RESULTS ARE AFFECTED BY WEATHER CONDITIONS AND MAY
FLUCTUATE ON A SEASONAL AND QUARTERLY BASIS.
Electric power generation is generally a seasonal business. In the
Company's service territory, demand for power peaks during the hot summer
months, with market prices also peaking at that time. As a result, the Company's
overall operating results in the future may fluctuate substantially on a
seasonal basis. In addition, the Company has historically sold less power, and
consequently earned less income, when weather conditions are milder. Unusually
mild weather in the future could reduce the Company's revenues, net income,
available cash and borrowing ability.
S-6
Risks Related to Market and Economic Volatility
THE COMPANY'S BUSINESS IS DEPENDENT ON ITS ABILITY TO SUCCESSFULLY ACCESS
CAPITAL MARKETS. THE COMPANY'S INABILITY TO ACCESS CAPITAL MAY LIMIT ITS
ABILITY TO EXECUTE ITS BUSINESS PLAN OR PURSUE IMPROVEMENTS.
The Company relies on access to both short-term money markets and
longer-term capital markets as a significant source of liquidity for capital
requirements not satisfied by the cash flow from its operations. If the Company
is not able to access capital at competitive rates, its ability to implement its
business plan or pursue improvements will be limited. The Company believes that
it will maintain sufficient access to these financial markets based upon current
credit ratings. However, certain market disruptions or a downgrade of the
Company's credit rating may increase its cost of borrowing or adversely affect
its ability to raise capital through the issuance of securities or other
borrowing arrangements. Such disruptions could include:
- an economic downturn;
- the bankruptcy of an unrelated energy company;
- capital market conditions generally;
- market prices for electricity and gas;
- terrorist attacks or threatened attacks on the Company's facilities or
unrelated energy companies;
- war or threat of war; or
- the overall health of the utility industry.
THE COMPANY IS SUBJECT TO RISKS ASSOCIATED WITH A CHANGING ECONOMIC
ENVIRONMENT, INCLUDING THE COMPANY'S ABILITY TO OBTAIN INSURANCE, THE
FINANCIAL STABILITY OF ITS CUSTOMERS AND THE COMPANY'S ABILITY TO RAISE
CAPITAL.
Due to the September 11, 2001 terrorist attacks and the resulting ongoing
war against terrorism by the United States, the nation's economy and financial
markets have been disrupted in general. Additionally, the bankruptcy of Enron
Corporation and events related to the California electric market crisis have
both limited the availability and increased the cost of capital for the
Company's business and that of the Company's competitors. The insurance industry
has also been disrupted by these events. The availability of insurance covering
risks the Company and its competitors typically insure against may decrease, and
the insurance that the Company is able to obtain may have higher deductibles,
higher premiums and more restrictive policy terms. The continuation of the
current economic downturn and disruption of financial markets could also
constrain the capital available to the Company's industry and could reduce the
Company's access to funding for its operations, as well as the financial
stability of its customers and counterparties. These factors could adversely
affect the Company's ability to achieve energy sales growth, thereby decreasing
the Company's level of future earnings.
S-7
THE COMPANY
Alabama Power Company (the "Company") is a corporation organized under the
laws of the State of Alabama on November 10, 1927, by the consolidation of a
predecessor Alabama Power Company, Gulf Electric Company and Houston Power
Company. The Company has its principal office at 600 North 18th Street,
Birmingham, Alabama 35291, telephone (205) 257-1000. The Company is a wholly
owned subsidiary of The Southern Company ("Southern").
The Company is a regulated public utility engaged in the generation,
transmission, distribution and sale of electric energy within an approximately
44,500 square mile service area comprising most of the State of Alabama.
SELECTED FINANCIAL INFORMATION
The following data is qualified in its entirety by reference to and,
therefore, should be read together with the detailed information and financial
statements appearing in the documents incorporated herein by reference.
NINE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ -------------
1997 1998 1999 2000 2001 2002
------ ------ ------ ------ ------ -------------
(MILLIONS, EXCEPT RATIOS) (UNAUDITED)
Operating Revenues........................ $3,149 $3,386 $3,385 $3,667 $3,586 $2,846
Earnings Before Interest and Income
Taxes................................... 836 892 900 959 922 834
Net Income After Dividends on Preferred
Stock................................... 376 377 400 420 387 389
Ratio of Earnings to Fixed Charges(1)..... 3.46 3.12 3.59 3.46 3.31 4.36
CAPITALIZATION
AS OF SEPTEMBER 30, 2002
-------------------------------
(UNAUDITED)
ACTUAL AS ADJUSTED(2)
------ ----------------------
(MILLIONS, EXCEPT PERCENTAGES)
Common Stock Equity......................................... $3,379 $3,379 44.3%
Cumulative Preferred Stock.................................. 248 373 4.9
Company Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trusts Holding Company Junior
Subordinated Notes........................................ 347 300 3.9
Senior Notes................................................ 2,814 3,050 40.0
Other Long-Term Debt........................................ 519 519 6.9
------ ------ -----
Total, excluding amounts due within one year of $488
million................................................ $7,307 $7,621 100.0%
====== ====== =====
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(1) This ratio is computed as follows: (i) "Earnings" have been calculated by
adding to "Earnings Before Interest and Income Taxes" the debt portion of
allowance for funds used during construction; and (ii) "Fixed Charges"
consist of "Net Interest Charges" plus the debt portion of allowance for
funds used during construction.
(2) Reflects (i) the issuance in October 2002 of $100,000,000 aggregate
liquidation amount of Alabama Power Capital Trust IV Flexible Trust
Preferred Securities (Five Year Initial Fixed Rate Period) for the benefit
of the Company; (ii) the issuance in October 2002 of $200,000,000 aggregate
liquidation amount of Alabama Power Capital Trust V Flexible Trust Preferred
Securities (Seven Year Initial Fixed Rate Period) for the benefit of the
Company; (iii) the redemption in October 2002 of $97,000,000 aggregate
liquidation amount of Alabama Power Capital Trust I 7.375% Trust Preferred
Securities; (iv) the redemption in October 2002 of $200,000,000 aggregate
liquidation amount of Alabama Power Capital Trust II 7.60% Trust Preferred
Securities; (v) the issuance in October 2002 of $225,000,000 aggregate
principal amount of Series Q 5.50% Senior Notes due October 15, 2017; (vi)
the redemption in November 2002 of $217,875,000 aggregate principal amount
of Series D 6.50% Senior Insured Quarterly Notes due September 30, 2018;
(vii) the redemption in November 2002 of $50,000,000 aggregate liquidation
amount of Alabama Power Capital Trust III Capital Auction Preferred
Securities; (viii) the
S-8
issuance in November 2002 of $100,000,000 aggregate principal amount of
Series Q 5.50% Senior Notes due October 15, 2017; (ix) the issuance in
November 2002 of $100,000,000 aggregate principal amount of Series R 4.70%
Senior Notes due December 1, 2010; (x) the redemption in December 2002 of
$99,562,000 aggregate principal amount of Series E 6.25% Senior Notes due
September 30, 2010; (xi) the redemption in December 2002 of $96,791,000
aggregate principal amount of Series F 6.375% Senior Insured Quarterly Notes
due September 30, 2018; (xii) the issuance in December 2002 of $200,000,000
aggregate principal amount of Series S 5 7/8% Senior Notes due December 1,
2022; (xiii) the redemption in January 2003 of $193,800,000 aggregate
principal amount of Series A 7 1/8% Senior Notes due December 1, 2047; (xiv)
the issuance in February 2003 of 1,250 shares ($125,000,000 aggregate stated
capital) of Flexible Money Market Class A Preferred Stock (Series 2003A),
Cumulative, Par Value $1 Per Share (Stated Capital $100,000 Per Share); (xv)
the proposed issuance in February 2003 of $250,000,000 aggregate principal
amount of Series T 5.70% Senior Notes due February 15, 2033; (xvi) the
proposed redemption in March 2003 of $200,000,000 aggregate principal amount
of Series B 7% Senior Quarterly Interest Notes due December 31, 2047; and
(xvii) the issuance of the Series U Senior Notes.
RECENT RESULTS OF OPERATIONS
For the year ended December 31, 2002, the unaudited amounts of "Operating
Revenues," "Earnings Before Interest and Income Taxes" and "Net Income After
Dividends on Preferred Stock" were $3,710,533,000, $1,018,535,000 and
$461,355,000, respectively. In the opinion of management of the Company, the
above amounts for the year ended December 31, 2002 reflect all adjustments
necessary to present fairly the results of operations for such period. The
"Ratio of Earnings to Fixed Charges" for the year ended December 31, 2002 was
3.98.
USE OF PROCEEDS
The proceeds from the sale of the Series U Senior Notes will be applied by
the Company to repay at maturity all of its Series O Floating Rate Senior Notes
due March 3, 2003 currently outstanding in the aggregate principal amount of
$167,000,000 and for other general corporate purposes, including the Company's
continuous construction program. The Company's current estimate of construction
costs for 2003 is approximately $643,000,000 and for 2004 is approximately
$787,000,000.
DESCRIPTION OF THE SERIES U SENIOR NOTES
Set forth below is a description of the specific terms of the Series U
2.65% Senior Notes due February 15, 2006 (the "Series U Senior Notes"). This
description supplements, and should be read together with, the description of
the general terms and provisions of the Senior Notes set forth in the
accompanying Prospectus under the caption "Description of the Senior Notes." The
following description does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the description in the accompanying
Prospectus and the Senior Note Indenture (the "Senior Note Indenture") dated as
of December 1, 1997, as supplemented, between the Company and JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank), as trustee (the "Senior Note
Indenture Trustee").
GENERAL
The Series U Senior Notes will be issued as a series of senior notes under
the Senior Note Indenture. The Series U Senior Notes will be initially issued in
the aggregate principal amount of $170,000,000. The Company may, without the
consent of the holders of the Series U Senior Notes, issue additional notes
having the same ranking and interest rate, maturity and other terms (except for
the issue price and issue date) as the Series U Senior Notes. Any additional
notes having such similar terms, together with the Series U Senior Notes, will
constitute a single series of senior notes under the Senior Note Indenture.
S-9
The entire principal amount of the Series U Senior Notes will mature and
become due and payable, together with any accrued and unpaid interest thereon,
on February 15, 2006. The Series U Senior Notes are not subject to any sinking
fund provision. The Series U Senior Notes are available for purchase in
denominations of $1,000 and any integral multiple thereof.
INTEREST
Each Series U Senior Note shall bear interest at the rate of 2.65% per
annum (the "Securities Rate") from the date of original issuance, payable
semiannually in arrears on February 15 and August 15 of each year (each, an
"Interest Payment Date") to the person in whose name such Series U Senior Note
is registered at the close of business on the fifteenth calendar day prior to
such payment date (whether or not a Business Day). The initial Interest Payment
Date is August 15, 2003. The amount of interest payable will be computed on the
basis of a 360-day year of twelve 30-day months. In the event that any date on
which interest is payable on the Series U Senior Notes is not a Business Day,
then payment of the interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), with the same force and effect as if made
on such date.
RANKING
The Series U Senior Notes will be direct, unsecured and unsubordinated
obligations of the Company and will rank equally with all other unsecured and
unsubordinated obligations of the Company. The Series U Senior Notes will be
effectively subordinated to all secured debt of the Company, including its first
mortgage bonds, aggregating approximately $302,000,000 outstanding at September
30, 2002. The Senior Note Indenture contains no restrictions on the amount of
additional indebtedness that may be incurred by the Company.
REDEMPTION
The Series U Senior Notes will not be redeemable prior to maturity.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as the initial securities
depository for the Series U Senior Notes. The Series U Senior Notes will be
issued only as fully registered securities registered in the name of Cede & Co.,
DTC's nominee or such other name as may be requested by an authorized
representative of DTC. One or more fully registered global Series U Senior Notes
certificates will be issued, representing in the aggregate the total principal
amount of the Series U Senior Notes, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds and provides asset servicing for over 2
million issues of U.S. and non-U.S. equity issues, corporate and municipal debt
issues and money market instruments from over 85 countries that DTC's
participants ("Direct Participants") deposit with DTC. DTC also facilitates the
post-trade settlement among Direct Participants of sales and other securities
transactions in deposited securities, through electronic computerized book-entry
transfers and pledges between Direct Participants' accounts. This eliminates the
need for physical movement of securities certificates. Direct Participants
include both U.S. and non-U.S. securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. DTC is a
wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC").
DTCC, in turn, is owned by a number of Direct Participants of DTC and members of
the National Securities Clearing Corporation, Government Securities Clearing
Corporation, MBS Clearing Corporation and Emerging Markets Clearing Corporation
(NSCC, GSCC, MBSCC and EMCC, also subsidiaries of DTCC), as well as by the New
York Stock Exchange, Inc., the American Stock Exchange LLC and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as both U.S. and non-U.S.
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securities brokers and dealers, banks, trust companies and clearing corporations
that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The DTC
rules applicable to its Participants are on file with the Securities and
Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Series U Senior Notes under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Series U Senior
Notes on DTC's records. The ownership interest of each actual purchaser of
Series U Senior Notes ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Series U Senior
Notes. Transfers of ownership interests in the Series U Senior Notes are to be
accomplished by entries made on the books of Direct and Indirect Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in Series U Senior Notes,
except in the event that use of the book-entry system for the Series U Senior
Notes is discontinued.
To facilitate subsequent transfers, all Series U Senior Notes deposited by
Direct Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co., or such other name as may be requested by an authorized
representative of DTC. The deposit of Series U Senior Notes with DTC and their
registration in the name of Cede & Co. or such other DTC nominee do not effect
any changes in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Series U Senior Notes. DTC's records reflect only the
identity of the Direct Participants to whose accounts such Series U Senior Notes
are credited, which may or may not be the Beneficial Owners. The Direct and
Indirect Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Although voting with respect to the Series U Senior Notes is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. (nor any other
DTC nominee) will consent or vote with respect to Series U Senior Notes. Under
its usual procedures, DTC mails an Omnibus Proxy to the Company as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Series U Senior Notes are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
Payments on the Series U Senior Notes will be made to Cede & Co., or such
other nominee as may be requested by an authorized representative of DTC. DTC's
practice is to credit Direct Participants' accounts upon DTC's receipt of funds
and corresponding detail information from the Company or the Senior Note
Indenture Trustee on the relevant payment date in accordance with their
respective holdings shown on DTC's records. Payments by Direct or Indirect
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers registered in "street name," and will be the responsibility of such
Direct or Indirect Participant and not of DTC or the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment to Cede & Co. (or such other nominee as may be requested by an
authorized representative of DTC) is the responsibility of the Company,
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner of a global Series U Senior
Note will not be entitled to receive physical delivery of Series U Senior Notes.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Series U Senior Notes. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of securities in definitive form. Such laws may impair the ability to
transfer beneficial interests in a global Series U Senior Note.
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DTC may discontinue providing its services as securities depository with
respect to the Series U Senior Notes at any time by giving reasonable notice to
the Company. Under such circumstances, in the event that a successor securities
depository is not obtained, Series U Senior Notes certificates will be printed
and delivered to the holders of record. Additionally, the Company may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depository) with respect to the Series U Senior Notes. In that event,
certificates for the Series U Senior Notes will be printed and delivered to the
holders of record.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof. The Company has no
responsibility for the performance by DTC or its Direct or Indirect Participants
of their respective obligations as described herein or under the rules and
procedures governing their respective operations.
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UNDERWRITING
Subject to the terms and conditions of an underwriting agreement (the
"Underwriting Agreement"), the Company has agreed to sell to the underwriters
named below (the "Underwriters") and each of the Underwriters has severally
agreed to purchase from the Company the principal amount of the Series U Senior
Notes set forth opposite its name below:
PRINCIPAL AMOUNT OF
SERIES U SENIOR
NAME NOTES
---- -------------------
Morgan Stanley & Co. Incorporated .......................... $136,000,000
The Williams Capital Group, L.P. ........................... 34,000,000
------------
Total............................................. $170,000,000
============
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Series U Senior
Notes offered hereby, if any, of the Series U Senior Notes are purchased.
The Underwriters propose to offer the Series U Senior Notes directly to the
public at the initial public offering prices set forth on the cover page of this
Prospectus Supplement, and may offer them to certain securities dealers at such
price less a concession not in excess of 0.200% of the principal amount per
Series U Senior Note. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of 0.125% of the principal amount per Series U Senior
Note to certain brokers and dealers. After the Series U Senior Notes are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Underwriters.
It is expected that delivery of the Series U Senior Notes will be made
against payment therefor on or about the fifth business day following the date
hereof. Trades in the secondary market generally are required to settle in three
business days, unless the parties to any such trade expressly agree otherwise.
Accordingly, purchasers who wish to trade the Series U Senior Notes before final
settlement will be required, by virtue of the fact that the Series U Senior
Notes will settle in T+5, to specify an alternative settlement cycle at the time
of any such trade to prevent a failed settlement.
Prior to this offering, there has been no public market for the Series U
Senior Notes. The Underwriters have advised the Company that they intend to make
a market in the Series U Senior Notes. The Underwriters will have no obligation
to make a market in the Series U Senior Notes, however, and may cease market
making activities, if commenced, at any time.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Company's expenses associated with the offer and sale of the Series U
Senior Notes are estimated to be $275,000.
The Company has agreed with the Underwriters, that during the period 15
days from the date of the Underwriting Agreement, it will not sell, offer to
sell, grant any option for the sale of, or otherwise dispose of any Series U
Senior Notes, any security convertible into, exchangeable into or exercisable
for the Series U Senior Notes or any debt securities substantially similar to
the Series U Senior Notes (except for the Series U Senior Notes issued pursuant
to the Underwriting Agreement and $250,000,000 aggregate principal amount of the
Company's Series T 5.70% Senior Notes due February 15, 2033), without the prior
written consent of Morgan Stanley & Co. Incorporated. This agreement does not
apply to issuances of commercial paper or other debt securities with scheduled
maturities of less than one year.
In order to facilitate the offering of the Series U Senior Notes, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Series U Senior Notes. Specifically, the Underwriters
may over-allot in connection with the offering, creating short positions in the
Series U Senior Notes for their own account. In addition, to cover
over-allotments or to stabilize the price of the Series U
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Senior Notes, the Underwriters may bid for, and purchase, Series U Senior Notes
in the open market. The Underwriters may reclaim selling concessions allowed to
an Underwriter or dealer for distributing Series U Senior Notes in the offering,
if the Underwriters repurchase previously distributed Series U Senior Notes in
transactions to cover short positions, in stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market price of
the Series U Senior Notes above independent market levels. The Underwriters are
not required to engage in these activities, and may end any of these activities
at any time.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Series U Senior Notes. In addition,
neither the Company nor the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions once
commenced will not be discontinued without notice.
The Underwriters and their affiliates engage in transactions with, and,
from time to time, have performed investment banking and/or commercial banking
services for, the Company and its affiliates in the ordinary course of business
and may do so in the future.
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