The Southern CompanySO

Market and investment · Investment portfolio performance

Volatility in the securities markets, interest rates, and other factors could substantially increase defined benefit pension and other postretirement plan costs and the funding available for nuclear decommissioning. The costs of providing pension and other postretirement benefit plans are dependent on a number of factors, such as the rates of return on plan assets, discount rates, the level of interest rates used to measure the required minimum funding levels of the plan.

Credit and liquidity · Debt service and covenant compliance

Failure to comply with debt covenants or conditions could adversely affect the ability of the Registrants, SEGCO, Southern Company Gas Capital, or Nicor Gas to execute future borrowings. The debt and credit agreements of the Registrants, SEGCO, Southern Company Gas Capital, and Nicor Gas contain various financial and other covenants.

Capital structure and performance · Credit rating and cost of capital

A downgrade in the credit ratings of any of the Registrants, Southern Company Gas Capital, or Nicor Gas could negatively affect their ability to access capital at reasonable costs and/or could require posting of collateral or replacing certain indebtedness.

Market and investment · Asset valuation and impairment

Future impairments of goodwill or long-lived assets could have a material adverse effect on the Registrants' results of operations. Goodwill is not amortized, but is evaluated for impairment at least annually or more frequently if impairment indicators are present. At December 31, 2022, goodwill was $5.2 billion and $5.0 billion for Southern Company and Southern Company Gas, respectively.

Market and investment · Investment portfolio performance

Volatility in the securities markets, interest rates, and other factors could substantially increase defined benefit pension and other postretirement plan costs and the funding available for nuclear decommissioning. The costs of providing pension and other postretirement benefit plans are dependent on a number of factors, such as the rates of return on plan assets, discount rates, the level of interest rates used to measure the required minimum funding levels of the plan.

Credit and liquidity · Debt service and covenant compliance

Failure to comply with debt covenants or conditions could adversely affect the ability of the Registrants, SEGCO, Southern Company Gas Capital, or Nicor Gas to execute future borrowings. The debt and credit agreements of the Registrants, SEGCO, Southern Company Gas Capital, and Nicor Gas contain various financial and other covenants.

Capital structure and performance · Credit rating and cost of capital

A downgrade in the credit ratings of any of the Registrants, Southern Company Gas Capital, or Nicor Gas could negatively affect their ability to access capital at reasonable costs and/or could require posting of collateral or replacing certain indebtedness.

Corporate governance · Shareholder rights and activism

Shareholder activism could cause Southern Company to incur significant expense, hinder execution of Southern Company's business strategy, and impact Southern Company's stock price. Shareholder activism, which can take many forms and arise in a variety of situations, could result in substantial costs and divert management's and Southern Company's board's attention and resources.

Human capital and workforce · Skills shortage and training requirements

The Subsidiary Registrants are subject to workforce factors that could affect operations. The Southern Company system must attract, train, and retain a workforce to meet current and future needs. Events such as an aging workforce without appropriate replacements, increased cost or reduced supply of labor, mismatch of skill sets to future needs, or unavailability of contract resources may lead to operating challenges.

Core operations · Operational disruption and business continuity

Supply chain disruptions and inflation could negatively impact operations. The Southern Company system's operations and business plans depend on the global supply chain to procure equipment, materials, and other resources. Supply chain disruptions have contributed to higher prices of components, materials, equipment, and other needed commodities, and these inflationary increases may continue.

Core operations · Operational disruption and business continuity

Supply chain disruptions and inflation could negatively impact operations. The Southern Company system's operations and business plans depend on the global supply chain to procure equipment, materials, and other resources. Supply chain disruptions have contributed to higher prices of components, materials, equipment, and other needed commodities, and these inflationary increases may continue.

Human capital and workforce · Skills shortage and training requirements

The Subsidiary Registrants are subject to workforce factors that could affect operations. The Southern Company system must attract, train, and retain a workforce to meet current and future needs. Events such as an aging workforce without appropriate replacements, increased cost or reduced supply of labor, mismatch of skill sets to future needs, or unavailability of contract resources may lead to operating challenges.

Strategic execution · Merger acquisition and divestiture risks

Acquisitions, dispositions, or other strategic ventures or investments may not result in anticipated benefits and may present risks, including risks not originally contemplated. Southern Company and its subsidiaries have made significant acquisitions, dispositions, and investments in the past and may continue to do so. Such actions cannot be assured to be completed or beneficial to Southern Company or its subsidiaries.

Customer and revenue · Changing customer preferences and behavior

The Registrants are subject to risks associated with a changing economic environment, customer behaviors, including increased energy conservation, and adoption patterns of technologies by the customers of the Subsidiary Registrants. The consumption and use of energy are linked to economic activity. Any economic downturn could negatively impact customer growth and usage per customer.

Customer and revenue · Changing customer preferences and behavior

The Registrants are subject to risks associated with a changing economic environment, customer behaviors, including increased energy conservation, and adoption patterns of technologies by the customers of the Subsidiary Registrants. The consumption and use of energy are linked to economic activity. Any economic downturn could negatively impact customer growth and usage per customer.

Strategic execution · Merger acquisition and divestiture risks

Acquisitions, dispositions, or other strategic ventures or investments may not result in anticipated benefits and may present risks, including risks not originally contemplated. Southern Company and its subsidiaries have made significant acquisitions, dispositions, and investments in the past and may continue to do so. Such actions cannot be assured to be completed or beneficial to Southern Company or its subsidiaries.

Natural and catastrophic events · Pandemic and public health crises

The impacts of the COVID-19 pandemic continue. The effects of the continued COVID-19 pandemic and related global, federal, state, and local responses could include new or extended disruptions to capital markets, further reduced labor availability and productivity, and new or prolonged reductions in economic activity.

Natural and catastrophic events · Natural disasters and extreme weather

The operating results of the Registrants are affected by weather conditions and may fluctuate on a seasonal basis. In addition, catastrophic events could result in substantial damage to or limit the operation of the properties of a Subsidiary Registrant. Volatile or significant weather events could result in substantial damage to the transmission and distribution lines of the traditional electric operating companies, the generating facilities of the traditional electric operating companies and Southern Power, and the natural gas distribution and underground storage facilities of Southern Company Gas.

Cybersecurity and data protection · Data breaches and cyber attacks

An information security incident, including a cybersecurity breach, or the failure of, or inability to remotely access, one or more key technology systems, networks, or processes could impact the ability of the Registrants to operate. The Subsidiary Registrants operate in highly regulated industries that require the continued operation of sophisticated technology systems and network infrastructure, which are part of interconnected systems. Because of the critical nature of the infrastructure and the technology systems' inherent vulnerability to disability or failures due to hacking, viruses, denial of service, ransomware, acts of war or terrorism, or other types of data security breaches, the Southern Company system faces a heightened risk of cyberattack.

Cybersecurity and data protection · Data breaches and cyber attacks

An information security incident, including a cybersecurity breach, or the failure of, or inability to remotely access, one or more key technology systems, networks, or processes could impact the ability of the Registrants to operate. The Subsidiary Registrants operate in highly regulated industries that require the continued operation of sophisticated technology systems and network infrastructure, which are part of interconnected systems. Because of the critical nature of the infrastructure and the technology systems' inherent vulnerability to disability or failures due to hacking, viruses, denial of service, ransomware, acts of war or terrorism, or other types of data security breaches, the Southern Company system faces a heightened risk of cyberattack.