UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-2745
SOUTHERN NATURAL GAS COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 63-0196650
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
AMSOUTH-SONAT TOWER
BIRMINGHAM, ALABAMA 35203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (205) 325-7410
NO CHANGE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK, $3.75 PAR VALUE:
1,000 SHARES OUTSTANDING ON APRIL 30, 1996
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH
THE REDUCED DISCLOSURE FORMAT.
<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
<S> <C>
March 31, 1996 and December 31, 1995 1
Condensed Consolidated Statements of Income
Three Months Ended March 31, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995 3
Notes to Condensed Consolidated Financial
Statements 4 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 13
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(In Thousands)
ASSETS
Current Assets:
<S> <C> <C>
Cash $ 763 $ 711
Notes receivable, primarily from affiliates 101,431 103,845
Accounts receivable 109,459 118,542
Inventories 29,211 21,625
Gas imbalance receivables 15,248 15,919
Federal income taxes 2,863 13,160
Other 26,757 25,835
---------- -------
Total Current Assets 285,732 299,637
-------- --------
Investments in Unconsolidated Affiliates and Other 52,301 49,535
------- -------
Plant, Property and Equipment 2,341,863 2,315,003
Less accumulated depreciation and amortization 1,516,726 1,504,087
---------- ----------
825,137 810,916
-------- --------
Deferred Charges and Other:
Gas supply realignment costs 208,757 199,073
Other 78,277 78,548
---------- -------
287,034 277,621
-------- --------
$1,450,204 $1,437,709
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Long-term debt due within one year $ 6,964 $ 6,964
Notes payable to affiliates 41,047 14,981
Accounts payable 43,563 56,787
Accrued income taxes 2,801 1,856
Accrued interest 13,359 15,404
Gas imbalance payables 16,278 17,196
Other 13,055 17,258
---------- -------
Total Current Liabilities 137,067 130,446
-------- --------
Long-Term Debt 312,307 317,627
---------- --------
Deferred Credits and Other:
Deferred income taxes 85,056 80,956
Reserves for regulatory matters 180,888 181,798
Other 147,367 152,784
---------- --------
413,311 415,538
-------- --------
Commitments and Contingencies
Stockholder's Equity:
Common stock and other capital 100,616 100,616
Retained earnings 486,903 473,482
-------- --------
Total Stockholder's Equity 587,519 574,098
-------- --------
$1,450,204 $1,437,709
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
(In Thousands)
Revenues:
<S> <C> <C>
Natural gas sales $ 60,224 $ 46,679
Transportation and storage 95,561 106,221
Other 1,477 26,339
------ --------
157,262 179,239
-------- --------
Costs and Expenses:
Natural gas cost 57,544 45,206
Transition cost recovery (5,383) 20,886
Operating and maintenance 19,860 19,273
General and administrative 19,509 20,811
Depreciation and amortization 12,401 14,858
Taxes, other than income 5,138 5,591
------ --------
109,069 126,625
-------- --------
Operating Income 48,193 52,614
Other Income, Net:
Equity in earnings of unconsolidated affiliates 2,555 2,501
Other 276 141
---- --------
2,831 2,642
------ --------
Interest:
Interest income, primarily from affiliates 1,924 2,060
Interest expense (11,136) (10,324)
Interest capitalized 85 40
--- --------
(9,127) (8,224)
------- --------
Income before Income Taxes 41,897 47,032
Income Taxes 16,076 18,113
------- --------
Net Income $ 25,821 $ 28,919
======== ========
</TABLE>
See accompanying notes.
<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
(In Thousands)
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $ 25,821 $ 28,919
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 12,401 14,858
Deferred income taxes 4,120 10,518
Equity in earnings of unconsolidated
affiliates, less distributions (2,555) (2,501)
Reserves for regulatory matters (910) (12,237)
Gas supply realignment costs (8,249) (35,770)
Change in:
Accounts receivable 9,083 20,534
Inventories (7,586) 83
Accounts payable (13,224) (6,927)
Accrued interest and income taxes, net 9,197 5,215
Other current assets and liabilities (5,372) (19,274)
Other (17,623) (7,799)
Net cash provided by (used in)
operating activities 5,103 (4,381)
------ --------
Cash Flows from Investing Activities:
Plant, property and equipment additions (15,517) (6,236)
Notes receivable, primarily from affiliates 2,414 28,813
Proceeds from disposal of assets and other (294) 81
----- --------
Net cash provided by (used in)
investing activities (13,397) 22,658
-------- --------
Cash Flows from Financing Activities:
Payments of long-term debt (5,320) (5,320)
Changes in short-term borrowings 26,066 -
------- --------
Net changes in debt 20,746 (5,320)
Dividends paid (12,400) (12,400)
Other - 73
-------- --------
Net cash provided by (used in)
financing activities 8,346 (17,647)
------ --------
Net Increase in Cash 52 630
Cash at Beginning of Period 711 975
---- --------
Cash at End of Period $ 763 $ 1,605
===== ========
Supplemental Disclosures of Cash Flow Information
Cash Paid for:
Interest (net of amount capitalized) $ 9,043 $ 9,961
Income taxes (refunds received), net 869 420
</TABLE>
See accompanying notes.
<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Southern Natural Gas Company (Southern) is a wholly owned subsidiary of
Sonat Inc.
The accompanying condensed consolidated financial statements of
Southern and its subsidiaries have been prepared in accordance with the
instructions to Form 10-Q and include the information and footnotes required by
such instructions. In the opinion of management, all adjustments including those
of a normal recurring nature have been made that are necessary for a fair
presentation of the results for the interim periods presented herein.
Certain amounts in the 1995 condensed consolidated financial statements
have been reclassified to conform with the 1996 presentation.
2. Derivative Financial Instruments
Financial Risk - On January 22, 1996, Southern entered into a forward
rate agreement to hedge the interest rate risk of an anticipated future
borrowing under an existing shelf registration statement. The base treasury rate
for this future borrowing has been hedged at approximately 5.78 percent on a
notional amount of $97 million. At March 31, 1996, this agreement had a fair
market value of $4.6 million.
3. Unconsolidated Affiliates
A subsidiary of Southern owns 50 percent of Bear Creek Storage Company,
an underground gas storage company. The following is summarized income statement
information for Bear Creek. No provision for income taxes has been included
since its income taxes are paid directly by the joint-venture participants.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
(In Thousands)
<S> <C> <C>
Revenues $9,241 $9,322
Expenses:
Operating expenses 1,166 1,275
Depreciation 1,353 1,350
Other expenses, net 1,486 1,633
------ ------
Income Reported $5,236 $5,064
====== ======
</TABLE>
<PAGE>
4. Debt and Notes To and From Affiliates
Unsecured Notes - As part of Sonat's cash management program, Southern
regularly loans funds to or borrows funds from Sonat. Notes receivable and
payable are in the form of demand notes with rates reflecting Sonat's return on
funds loaned to its subsidiaries, average short-term investment rates and cost
of borrowed funds. In certain circumstances, these notes are subordinated in
right of payment to amounts payable by Sonat under certain long-term credit
agreements.
Southern has short-term lines of credit with several banks to provide
for borrowings of $50 million. Borrowings are available through May 28, 1996, in
the form of unsecured promissory notes and bear interest at rates based on the
banks' prevailing prime, international or money-market lending rates. At March
31, 1996, no amounts were outstanding.
5. Commitments and Contingencies
Rate Matters - Periodically, Southern and its subsidiaries make general
rate filings with the Federal Energy Regulatory Commission (FERC) to provide for
the recovery of cost of service and a return on equity. The FERC normally allows
the filed rates to become effective, subject to refund, until it rules on the
approved level of rates. Southern and its subsidiaries provide reserves relating
to such amounts collected subject to refund, as appropriate, and make refunds
upon establishment of the final rates.
Customer Settlement - In 1992 the FERC issued its Order No. 636 (the
Order). The Order required significant changes in interstate natural gas
pipeline services. Interstate pipeline companies, including Southern, are
incurring certain costs (transition costs) as a result of the Order, the
principal one being costs related to amendment or termination of, or purchasing
gas at above-market prices under, existing gas purchase contracts, which are
referred to as gas supply realignment (GSR) costs.
In an order issued on September 29, 1995, (the Settlement Order), the
FERC approved a comprehensive settlement (the Customer Settlement) that Southern
had filed on March 15, 1995. The Customer Settlement, which is supported by
customers representing approximately 97 percent of the firm transportation
capacity on Southern's system, resolves, as to the parties supporting the
settlement, all of Southern's pending rate proceedings and proceedings to
recover GSR and other transition costs associated with the implementation of
Order No. 636. The four major rate cases resolved by the Customer Settlement
cover consecutive periods beginning September 1, 1989. Southern will credit in
the aggregate the full amount of Southern's rate reserves as of February 28,
1995, (approximately $155 million), less certain amounts withheld for potential
rate refunds to contesting parties, to reduce the GSR costs borne by Southern's
customers. Southern implemented reduced settlement rates for parties that
supported the Customer Settlement effective
<PAGE>
5. Commitments and Contingencies (Cont'd)
March 1, 1995. The Customer Settlement provides that, except in certain limited
circumstances, Southern will not file a general rate case to be effective prior
to March 1, 1998.
Several parties that opposed the Customer Settlement had filed with the
FERC requests for rehearing of the Settlement Order. On April 11, 1996, the FERC
denied those requests for rehearing of the Settlement Order and also decided
certain issues in prior rate proceedings that affect the contesting parties to
the Customer Settlement (April 11 Order). Pursuant to the April 11 Order,
Southern will make refunds to the contesting parties in May 1996 covering
various rate periods from January 1, 1991, through December 31, 1995. Southern
is adequately reserved for these refunds. The only issues remaining to be
litigated at the FERC by the contesting parties concern the recoverability of
certain GSR and other transition costs under Order No. 636, which would not be
material even if such issues were determined adversely to Southern. One
contesting party has now appealed the April 11 Order and the Settlement Order to
the D.C. Circuit Court of Appeals, and other contesting parties may also appeal
those FERC orders. Although there can be no assurances, the Company believes
that the Settlement Order and the April 11 Order should be upheld on any
judicial appeal.
As of March 31, 1996, Southern had either paid or accrued $263 million
in GSR costs (including interest) either to reduce significantly the price
payable under or to terminate a number of gas supply contracts providing for
payment of above-market prices. In addition to its GSR costs relating to
termination or amendment of its remaining gas purchase contracts, Southern has
incurred and expects to continue to incur certain price differential GSR costs
resulting from Southern's continued purchase of gas under its remaining supply
contracts that provide for prices in excess of current market prices. As of
March 31, 1996, Southern had incurred $85 million in price differential costs.
The amount of GSR costs that Southern actually incurs will depend on a
number of variables, including future natural gas and fuel oil prices, future
deliverability under Southern's existing gas purchase contracts, and Southern's
ability to renegotiate certain of these contracts. While the level of GSR costs
is impossible to predict with certainty because of these numerous variables,
based on current spot-market prices, a range of estimates of future oil and gas
prices, contract renegotiations that have occurred, and price differential costs
actually incurred, the amount of GSR costs was estimated at December 31, 1995,
to be approximately $366 million on a present-value basis. In accordance with
the cost-sharing mechanism adopted in the Customer Settlement, pursuant to which
Southern will absorb an agreed-upon portion of its total GSR costs, Southern is
now required to absorb 50 percent of all additional GSR costs incurred.
<PAGE>
5. Commitments and Contingencies (Cont'd)
Sea Robin - In January 1995, Sea Robin Pipeline Company, a subsidiary
of Southern, filed with the FERC a petition for a declaratory ruling that the
Sea Robin pipeline system is engaged in the gathering of natural gas and is,
therefore, exempt from FERC regulation under the Natural Gas Act. In June 1995,
the FERC denied Sea Robin's petition on the basis that the primary function of
the Sea Robin system is the interstate transportation of gas. Sea Robin's
request for rehearing of that ruling is pending before the FERC.
Following the filing of Sea Robin's petition for a gathering exemption,
several of the shippers on the Sea Robin system filed with the FERC in February
1995 a complaint against Sea Robin under Section 5 of the Natural Gas Act
claiming that Sea Robin's rates are unjust and unreasonable. In its answer, Sea
Robin asked the FERC to dismiss the complaint or to find that its rates continue
to be just and reasonable based on the data it presented. Sea Robin is unable to
predict the outcome of this proceeding, but any reduction in Sea Robin's rates
as a result of this complaint could be implemented only on a prospective basis.
Gas Purchase Contracts - Southern currently is incurring no take-or-pay
liabilities under its gas purchase contracts. Southern regularly evaluates its
position relative to gas purchase contract matters, including the likelihood of
loss from asserted or unasserted take-or-pay claims or above-market prices. When
a loss is probable and the amount can be reasonably estimated, it is accrued.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SOUTHERN NATURAL GAS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The principal business of Southern Natural Gas Company (Southern) and
its subsidiaries is the interstate transmission of natural gas in the
southeastern United States, which is regulated by the Federal Energy Regulatory
Commission (FERC).
Southern continues to pursue opportunities to expand its pipeline
system in its traditional market area and to connect new gas supplies. Southern
filed an application on January 24, 1996, with the FERC seeking approval to
extend its pipeline system to provide firm gas transportation service to
customers in North Alabama. The proposed 76-million-cubic-feet-per-day expansion
is supported by long-term firm transportation agreements with five customers,
including the cities of Huntsville and Decatur, which have executed 20-year
service agreements for 40 million cubic feet per day and 25 million cubic feet
per day, respectively. The $53 million project includes 118 miles of new
pipeline and additional compression on Southern's existing system. The proposed
expansion, which requires FERC approval, is scheduled to be in service by
November 1997. The company that currently provides transportation service to the
city of Huntsville has filed suit against Southern and Huntsville seeking to
have Southern's service agreement with Huntsville set aside as violative of
Alabama's competitive bid laws and the Alabama Constitution. This company has
also opposed the system expansion application at the FERC. Southern cannot
predict the outcome of this litigation or the FERC proceeding.
In early 1995, Southern initiated an open season to obtain customer
commitments to expand its system in order to meet growing demand in its market
area. In the open season, Southern sought requests for additional firm
transportation services and for a new liquefied natural gas (LNG) service.
Southern received requests for additional firm transportation services from 10
customers in Georgia and Tennessee totaling approximately 45 million cubic feet
per day. Southern plans to file an application with the FERC for this $36
million project in May. If FERC approval is received, the in-service date for
the firm transportation service is expected to be November 1997. Requests for
LNG service are still being evaluated. If sufficient commitments are obtained
and the necessary regulatory approvals are received, the in-service date for the
LNG service is expected to be in 1998. The LNG service would be provided at an
existing LNG storage terminal near Savannah, Georgia, that is owned by Southern
Energy Company, a wholly owned subsidiary of Southern. The LNG facility was
constructed in 1978 but was taken out of service in 1980.
<PAGE>
Operations
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
(In Millions)
Revenues:
<S> <C> <C>
Gas sales $ 60.2 $ 46.7
Market transportation and storage 84.4 93.5
Supply transportation 11.2 12.7
Other 1.5 26.3
---- ------
Total Revenues 157.3 179.2
------ ------
Costs and Expenses:
Natural gas cost 57.6 45.2
Transition cost recovery (5.4) 20.9
Operating and maintenance 19.9 19.3
General and administrative 19.5 20.8
Depreciation and amortization 12.4 14.8
Taxes, other than income 5.1 5.6
---- ------
109.1 126.6
------ ------
Operating Income $ 48.2 $ 52.6
====== ======
Equity in Earnings of
Unconsolidated Affiliates $ 2.6 $ 2.5
===== ======
(Billion Cubic Feet)
Volumes:
Intrastate gas sales 2 2
Market transportation 208 178
--- ---
Total Market Throughput 210 180
Supply transportation 85 87
--- ---
Total Volumes 295 267
=== ===
Transition gas sales 17 26
=== ===
</TABLE>
Quarter-to-Quarter Analysis
Operating income for the first quarter declined primarily because
incremental revenues from the sale of firm transportation capacity were
collected in the first quarter of 1995 prior to revised rates going into effect
on March 1, 1995. The 1995 first quarter also included positive adjustments to
reflect actual interruptible transportation revenue and cost recovery in the
first year of post Order No. 636 operations and the reduction of a take-or-pay
liability.
Gas sales revenues and natural gas cost increased as compared with the
1995 first quarter reflecting higher gas prices on transition gas sales from
supply remaining under contract. Market transportation revenues declined due to
the lower rates implemented March 1, 1995. Other revenue and transition cost
recovery declined due to the decrease in take-or-pay cost recovery. Market
transportation revenues and transition cost recovery were also reduced by a $16
million GSR cost refund. The refund did not affect operating income.
Depreciation and amortization decreased in 1996 due to lower rates implemented
in 1995.
Natural Gas Sales and Supply
Sales by Southern of natural gas are anticipated to continue only until
Southern's remaining supply contracts expire, are terminated, or are assigned.
As a result of Order No. 636, Southern is attempting to terminate its remaining
supply contracts through which it had traditionally obtained its long-term gas
supply. Some of these contracts contain clauses requiring Southern either to
purchase minimum volumes of gas under the contract or to pay for it (take-or-pay
clauses). Although the cost of gas under some of these contracts is in excess of
current spot-market prices, Southern currently is incurring no take-or-pay
liabilities under any of these contracts. Two market-priced contracts entered
into with Exxon Corporation in 1995 as part of a settlement of certain other gas
purchase contracts account for 76 percent and 72 percent in 1996 and 1997,
respectively, of the purchase commitments described below. Of such purchase
commitments, the percent that is priced in excess of current spot-market prices
is 19 percent in 1996, 23 percent in 1997, and substantially all of the volumes
for years thereafter. (See Note 5 of the Notes to Condensed Consolidated
Financial Statements for a discussion of price differential GSR costs.) Pending
the termination of these remaining supply contracts, Southern has sold a portion
of its remaining gas supply to a number of its firm transportation customers
under contracts that have been extended through November 30, 1997. The remainder
of Southern's gas supply will continue to be sold on a month-to-month basis.
Southern's purchase commitments under its remaining gas supply
contracts for the remainder of 1996 and years 1997 through 2000 are estimated as
follows:
Estimated
Purchase
Commitments
(In Millions)
1996 $102
1997 137
1998 38
1999 35
2000 31
These estimates are subject to significant uncertainty due both to the
number of assumptions inherent in these estimates and to the wide range of
possible outcomes for each assumption. None of the three major factors that
determine purchase commitments (underlying reserves, future deliverability and
future price) is known today with certainty.
See Note 5 of the Notes to Condensed Consolidated Financial Statements
for a discussion regarding Southern's rate proceedings to recover its GSR costs.
Rate Matters
The Customer Settlement resolves, as to the parties supporting the
settlement, all of Southern's pending rate proceedings and proceedings to
recover GSR and other transition costs associated with the implementation of
Order No. 636. Southern implemented reduced settlement rates for parties that
supported the Customer Settlement effective March 1, 1995. (See Note 5 of the
Notes to Condensed Consolidated Financial Statements for a discussion of the
Customer Settlement and other rate matters.)
---------------------
Other Income Statement Items
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
(In Millions)
<S> <C> <C>
Other Income, Other $ .3 $ .1
</TABLE>
The increase in other is attributable to AFUDC-Equity associated with
Southern's pipeline expansion projects.
<TABLE>
<S> <C> <C>
Interest Income (Expense), Net $(9.1) $(8.2)
</TABLE>
The change in net interest is due primarily to higher interest expense.
Interest expense on unaffiliated debt was marginally lower due to lower average
debt levels and lower average interest rates. Other interest expense was higher
due to higher average balances and higher interest rates established by the
FERC.
<TABLE>
<S> <C> <C>
Income Taxes $16.1 $18.1
</TABLE>
Income taxes decreased in 1996 compared to the same period in 1995 due
to lower pretax income.
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
(In Millions)
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
<S> <C> <C>
Operating Activities $ 5.1 $ (4.4)
</TABLE>
Cash flow from operations increased $9.5 million as compared with the
first quarter of 1995. A $45.0 million payment to Exxon in 1995 was the
principal expenditure responsible for the $27.5 million change in net payments
for gas supply realignment costs. The change in regulatory reserves reflects the
reduction in 1995 of amounts reserved for the volumetric take-or-pay surcharge
collected from December 18, 1993 through April 30, 1994, pursuant to the FERC's
acceptance in February 1995, of Southern's refund report. The change in
inventory represents Southern's purchase in 1996 of materials for the North
System expansion. The change in other results from the replacement of gas stored
underground in 1996.
<TABLE>
<S> <C> <C>
Investing Activities $(13.4) $ 22.7
</TABLE>
Investing activities required $13.4 million of net cash in 1996
compared to providing $22.7 million in 1995. The amount in 1996 reflects $2.4
million of intercompany loan repayments by Southern's parent, compared to $28.8
million of repayments in 1995. In addition, capital expenditures were $15.5 in
1996 versus $6.2 in the same period in 1995, primarily due to system expansion
projects.
<TABLE>
<S> <C> <C>
Financing Activities $ 8.3 $(17.6)
</TABLE>
Financing activities provided $8.3 million in 1996 compared to using
$17.6 million in 1995. The increase was primarily due to borrowings by Southern
from it's parent to supplement cash flow from operations used in investing
activities during the 1996 period.
Capital Resources
At March 31, 1995, Southern had available $50 million under lines of
credit. Southern also has a shelf registration with the Securities and Exchange
Commission for up to $200 million in debt securities, of which $100 million has
been issued. Southern expects to issue the $100 million remaining under its
shelf registration in either late 1996 or early 1997 to fund planned expansion
of its pipeline system.
Southern expects to use cash from operations, borrowings in the public
or private markets or loans from affiliates to finance future capital or other
corporate expenditures.
FINANCIAL RISK MANAGEMENT
Southern faces exposure to financial market risks, primarily interest
rate risk. Use of derivatives to manage this risk is governed by a set of
policies approved by the Sonat Board of Directors. These policies prohibit
speculative transactions and require all counterparties to be approved by the
Board. On January 22, 1996, Southern entered into a forward rate agreement to
hedge the interest rate risk of an anticipated future borrowing under its shelf
registration. The base treasury rate for this future borrowing has been hedged
at approximately 5.78 percent.
FORWARD LOOKING STATEMENTS
Disclosures provided in this Quarterly Report contain forward looking
statements regarding Southern's future plans, objectives, and expected
performance. These statements are based on assumptions that Southern believes
are reasonable, but are subject to a wide range of risks, and there is no
assurance that actual results may not differ materially. Realization of
Southern's objectives and expected performance can be adversely affected by the
actions of customers and competitors, changes in governmental regulation of
Southern's businesses, and changes in general economic conditions and the state
of domestic capital markets.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits1
Exhibit
Number Exhibits
12* Computation of Ratio of Earnings to Fixed Charges
27* Financial Data Schedules for the period ended March 31, 1996
- ------------
* Filed herewith
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the quarter
ended March 31, 1996.
1 The Company will furnish to requesting security holders the exhibits on
this list upon the payment of a fee of $.10 per page up to a maximum of $5.00
per exhibit. Requests must be in writing and should be addressed to R. David
Hendrickson, Secretary, Southern Natural Gas Company, P. O. Box 2563,
Birmingham, Alabama, 35202-2563.
<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Southern Natural Gas Company
Date: May 13, 1996 By: /s/ Thomas W. Barker, Jr.
--------------------------- --------------------------
Thomas W. Barker, Jr.
Treasurer
Date: May 13, 1996 By: /s/ Norman G. Holmes
--------------------------- ---------------------
Norman G. Holmes
Vice President & Controller
EXHIBIT 12
<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
Computation of Ratios of Earnings
from Continuing Operations to Fixed Charges
Total Enterprise (a)
<TABLE>
<CAPTION>
Three Months Ended March 31, Years Ended December 31,
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(In Thousands)
Earnings from Continuing Operations:
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes $41,898 $47,032 $134,124 $ 76,098 $127,617 $126,691 $119,326
Fixed charges (see computation below) 12,418 11,849 49,679 48,385 59,171 49,131 46,596
------- ------- ------- -------- -------- -------- --------
Total Earnings Available for Fixed Charges $54,316 $58,881 $183,803 $124,483 $186,788 $175,822 $165,922
======= ======= ======== ======== ======== ======== ========
Fixed Charges:
Interest expense before deducting
interest capitalized $11,920 $11,184 $ 46,859 $ 45,900 $ 56,599 $ 46,298 $ 42,957
Rentals(b) 498 665 2,820 2,485 2,572 2,833 3,639
---- ------- ------ -------- -------- -------- --------
$12,418 $11,849 $ 49,679 $ 48,385 $ 59,171 $ 49,131 $ 46,596
======= ======= ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 4.4 5.0 3.7 2.6 3.2 3.6 3.6
==== ======= ==== ======== ======== ======== ========
</TABLE>
- ----------------
(a) Amounts include the Company's portion of the captions as they relate to
persons accounted for by the equity method.
(b) These amounts represent 1/3 of rentals which approximate the interest
factor applicable to such rentals of the Company and its subsidiaries and
continuing unconsolidated affiliates.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 763
<SECURITIES> 0
<RECEIVABLES> 109,459
<ALLOWANCES> 0
<INVENTORY> 29,211
<CURRENT-ASSETS> 285,732
<PP&E> 2,341,863
<DEPRECIATION> 1,516,726
<TOTAL-ASSETS> 1,450,204
<CURRENT-LIABILITIES> 137,067
<BONDS> 312,307
0
0
<COMMON> 4
<OTHER-SE> 587,515
<TOTAL-LIABILITY-AND-EQUITY> 1,450,204
<SALES> 60,224
<TOTAL-REVENUES> 157,262
<CGS> 57,544
<TOTAL-COSTS> 72,021
<OTHER-EXPENSES> 12,401
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,051
<INCOME-PRETAX> 41,897
<INCOME-TAX> 16,076
<INCOME-CONTINUING> 25,821
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,821
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
