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 September 30, 1997
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 OCTOBER 31, 1997
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
(Unaudited)--September 30, 1997 and
<S> <C>
December 31, 1996 1
Condensed Consolidated Statements of Income
(Unaudited)--Three Months and Nine Months Ended
September 30, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows
(Unaudited)--Nine Months Ended
September 30, 1997 and 1996 3
Notes to Condensed Consolidated Financial
Statements (Unaudited) 4 - 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7 - 12
PART II. Other Information
Item 6. Exhibits and Reports on Form 8K 13
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(In Thousands)
ASSETS
Current Assets:
<S> <C> <C>
Cash $ 1,724 $ 2,316
Notes receivable, primarily from affiliates 113,376 -
Accounts receivable 87,661 103,736
Inventories 24,773 24,197
Income taxes 2,255 902
Gas imbalance receivables 12,244 20,161
Other 899 5,210
---------- ----------
Total Current Assets 242,932 156,522
---------- ----------
Investments in Unconsolidated Affiliates and Other 74,741 50,367
---------- ----------
Plant, Property and Equipment 2,416,808 2,422,845
Less accumulated depreciation and amortization 1,507,488 1,539,984
---------- ----------
909,320 882,861
---------- ----------
Deferred Charges and Other:
Gas supply realignment costs 5,156 11,144
Other 129,557 130,251
---------- ----------
134,713 141,395
---------- ----------
$1,361,706 $1,231,145
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Long-term debt due within one year $ 6,004 $ 6,964
Notes payable to affiliates - 1,189
Accounts payable 40,557 62,516
Accrued income taxes 1,780 184
Other accrued taxes 13,551 8,031
Accrued interest 15,745 17,015
Gas imbalance payables 20,487 17,162
Other 7,247 8,217
---------- ----------
Total Current Liabilities 105,371 121,278
---------- ----------
Long-Term Debt 405,536 310,536
---------- ----------
Deferred Credits and Other:
Deferred income taxes 130,932 119,850
Reserves for regulatory matters 4,739 14,644
Other 91,109 97,656
---------- ----------
226,780 232,150
---------- ----------
Commitments and Contingencies
Stockholder's Equity:
Common stock and other capital 79,292 100,674
Retained earnings 544,727 466,507
---------- ----------
Total Stockholder's Equity 624,019 567,181
---------- ----------
$1,361,706 $1,231,145
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
(In Thousands)
Revenues:
<S> <C> <C> <C> <C>
Transportation and storage $87,675 $89,415 $268,389 $273,250
Other 5,479 6,312 27,312 23,559
------- ------- -------- --------
93,154 95,727 295,701 296,809
------- ------- -------- --------
Costs and Expenses:
Operating and maintenance 20,440 24,646 60,241 66,916
General and administrative 15,770 18,857 52,862 58,890
Depreciation and amortization 11,982 11,316 35,595 36,110
Taxes, other than income 5,005 4,716 14,975 14,029
------- ------- -------- --------
53,197 59,535 163,673 175,945
------- ------- -------- --------
Operating Income 39,957 36,192 132,028 120,864
Other Income, Net:
Equity in earnings of
unconsolidated affiliates 2,716 2,341 8,113 7,236
Other 986 4,861 5,911 5,750
------- ------- -------- --------
3,702 7,202 14,024 12,986
------- ------- -------- --------
Interest:
Interest income, primarily
from affiliates 326 1,311 515 4,566
Interest expense (7,151) (8,401) (21,525) (30,696)
Interest capitalized 462 303 1,318 599
------- ------- -------- --------
(6,363) (6,787) (19,692) (25,531)
------- ------- -------- --------
Income before Income Taxes 37,296 36,607 126,360 108,319
Income Tax Expense 14,206 13,729 48,582 41,356
------- ------- -------- --------
Net Income $23,090 $22,878 $ 77,778 $ 66,963
======= ======= ======== ========
</TABLE>
See accompanying notes.
<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1997 1996
(In Thousands)
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $ 77,778 $ 66,963
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 35,595 36,110
Deferred income taxes 16,395 43,537
Equity in earnings of unconsolidated
affiliates, less distributions (3,613) (2,086)
Reserves for regulatory matters (9,905) (167,440)
Gas supply realignment costs 5,988 177,958
Change in:
Accounts receivable 12,741 24,359
Inventories (816) (5,791)
Accounts payable (19,112) (9,579)
Accrued interest and income taxes, net (1,148) (8,167)
Other current assets and liabilities 20,519 7,236
Other (4,414) (73,035)
--------- ---------
Net cash provided by operating
activities 130,008 90,065
--------- ---------
Cash Flows from Investing Activities:
Plant, property and equipment additions (100,503) (94,900)
Notes receivable, primarily from affiliates (110,817) 62,872
Other (12,131) 2,003
--------- ---------
Net cash used in investing activities (223,451) (30,025)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt 100,000 -
Payments of long-term debt (5,960) (6,771)
Changes in short-term borrowings (1,189) (14,980)
--------- ---------
Net changes in debt 92,851 (21,751)
Dividends paid - (37,200)
--------- ---------
Net cash provided by (used in)
financing activities 92,851 (58,951)
--------- ---------
Net Increase (Decrease) in Cash (592) 1,089
Cash at Beginning of Period 2,316 711
--------- ---------
Cash at End of Period $ 1,724 $ 1,800
========= =========
Supplemental Disclosures of Cash Flow Information
Cash Paid for:
Interest (net of amount capitalized) $ 20,715 $ 22,113
Income taxes paid, net 29,841 3,648
</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.
The 1996 periods have been restated to reflect the reclassification of
natural gas sales, natural gas cost and transition cost recovery to other
revenues in the Condensed Consolidated Statements of Income. Certain other
amounts in the unaudited 1996 Condensed Consolidated Financial Statements have
been reclassified to conform with the 1997 presentation.
2. Changes in Operations
On January 1, 1997, Southern made a non-cash transfer of its investment
of $23,612,000 in Sonat Intrastate-Alabama Inc. to Sonat. For the three months
and nine months ended September 30, 1996, Sonat Intrastate-Alabama had revenues
of $4,905,000 and $17,411,000 and a net loss of $4,000 and $546,000,
respectively.
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 Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
(In Thousands)
<S> <C> <C> <C> <C>
Revenues $8,899 $8,924 $27,218 $27,117
Expenses:
Operating expenses 1,157 1,262 3,519 3,797
Depreciation 1,358 1,354 4,072 4,061
Other expenses, net 1,269 1,441 3,849 4,335
------ ------ ------- -------
Income Reported $5,115 $4,867 $15,778 $14,924
====== ====== ======= =======
</TABLE>
<PAGE>
4. Debt and Notes To and From Affiliates
Long-Term Debt - In September 1997, Southern issued $100.0 million of
6.70 percent Notes due October 1, 2007, at 99.891 percent to yield 6.715 percent
under its shelf registration statement. The net proceeds were loaned to Sonat.
Unsecured Notes - As part of Sonat's cash management program, Southern
can either loan funds to or borrow 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 available short-term lines of credit of $50 million
through May 26, 1998. Borrowings are available for a period of not more than 364
days and are in the form of unsecured promissory notes that bear interest at
rates based on the banks' prevailing prime, international or money-market
lending rates. At September 30, 1997, no amount was outstanding under Southern's
agreement.
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. At September 30, 1997, Southern's rates
are established by a settlement that was approved by a FERC order issued in
1995. All of its customers are parties to the settlement, except one
representing approximately 2 percent of Southern's firm transportation volumes.
The contesting party has appealed the FERC's approval of the settlement and
orders in the proceedings to the United States Circuit Court of Appeals. (See
Rate Matters in Item 2 of this report.)
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 was denied by the FERC on June 26, 1996.
Sea Robin filed on August 15, 1996, for judicial review of the orders denying
its petition. By order dated October 23, 1997, the United States Court of
Appeals for the Fifth Circuit vacated and remanded the FERC's decision to deny
Sea Robin's petition and found that the FERC did not give enough attention to
the physical and operational characteristics of Sea Robin in applying the
primary function test. The petition will return to the FERC for further
consideration.
<PAGE>
5. Commitments and Contingencies (Cont'd)
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. On August 2, 1996,
the FERC issued an order on the complaint, instituting an investigation and
hearing under Section 5 of the Natural Gas Act. On December 31, 1996, Sea Robin
filed a proposed settlement of the complaint proceeding pursuant to which it
would voluntarily reduce its transportation rates by $.0042 per decatherm (Dth),
calculated on a 100 percent load factor basis, effective January 1, 1997. On
October 29, 1997, the FERC issued an order on rehearing of the initial order in
the proceedings and found that Sea Robin's proposed settlement rates are just
and reasonable. The rates will become effective for consenting parties on
January 1, 1997, and for contesting parties on May 1, 1997.
<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).
In connection with Southern's Destin Pipeline project, the FERC issued
its Draft Environmental Impact Statement in July 1997. The pipeline, which is
still subject to final FERC approval, is expected to be partially completed and
in service in mid-1998.
In April 1997 the FERC issued an order that permitted Southern to begin
construction on a project with an estimated capital cost of $36 million that
would add 46 million cubic feet per day of firm capacity for customers in
Georgia and Tennessee. Construction began in late June, and this project was
placed in service on November 1, 1997. Southern is also moving forward on
expansions to eastern Tennessee and northern Alabama that have a total filed
capital cost of $105 million. The North Alabama expansion, which received FERC
approval in May 1997, is now anticipated to go in service in the fall of 1999,
subject to FERC approval of an application to change the route of the pipeline
as it crosses the Tennessee River. The East Tennessee expansion is anticipated
to go in service in November 1998, subject to FERC approval of an application
that Southern filed in May 1997.
In October 1997 AGL Resources Inc. and Southern entered into a letter
of intent to jointly construct, own and operate a new liquefied natural gas
peaking facility, Etowah LNG, in Polk County, Ga. Under the agreement, which is
subject to the execution of definitive documents, AGL Resources and Southern
each will own 50 percent of Etowah LNG, which will be regulated by the FERC. The
proposed plant will connect directly into AGL Resources' principal natural gas
distribution subsidiary, Atlanta Gas Light Company, and Southern's pipeline.
Etowah LNG will provide natural gas storage and peaking services to Atlanta Gas
Light and other Southeastern customers. The new facility will cost approximately
$90 million, with 3 billion cubic feet of natural gas storage capacity and 450
million cubic feet per day of vaporization capacity. Affiliates of AGL Resources
will manage the construction of the facility and operate it. Southern will
provide administrative services. The companies plan to hold an open season for
Etowah LNG subscriptions for peaking services in December 1997 and January 1998
and expect to file a certificate application with FERC in March 1998. Subject to
receiving timely FERC approval, construction will begin in early 1999 in order
to provide peaking services during the 2001-02 winter heating season.
<PAGE>
Operations
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
(In Millions)
Revenues (1):
Market transportation and
<S> <C> <C> <C> <C>
storage $74.9 $76.9 $232.7 $237.4
Supply transportation 12.8 12.5 35.7 35.8
Other 5.4 6.3 27.3 23.6
----- ----- ------ ------
Total Revenues 93.1 95.7 295.7 296.8
----- ----- ------ ------
Costs and Expenses (1):
Operating and maintenance 20.4 24.6 60.2 66.9
General and administrative 15.8 18.9 52.9 58.9
Depreciation and amortization 12.0 11.3 35.6 36.1
Taxes, other than income 5.0 4.7 15.0 14.0
----- ----- ------ ------
53.2 59.5 163.7 175.9
----- ----- ------ ------
Operating Income $39.9 $36.2 $132.0 $120.9
===== ===== ====== ======
Equity in Earnings of
Unconsolidated Affiliates $ 2.7 $ 2.3 $ 8.1 $ 7.2
===== ===== ====== ======
(Billion Cubic Feet)
Volumes:
Market transportation (2) 133 135 439 489
Supply transportation 109 77 289 242
---- ---- ---- ----
Total Volumes 242 212 728 731
==== ==== ==== ====
</TABLE>
Notes:
(1) The 1996 periods have been restated to reflect the reclassification of
natural gas sales, natural gas cost and transition cost recovery to
other revenues.
(2) Volumes for Southern for 1996 include 9 billion cubic feet of gas for
the three-month period and 28 billion cubic feet of gas for the
nine-month period associated with a small intrastate pipeline that was
transferred to Sonat on January 1, 1997, and are therefore not included
in Southern's 1997 volumes.
<PAGE>
Third Quarter 1997 to Third Quarter 1996 Analysis
Operating income for Southern was $39.9 million compared with $36.2
million in the comparable 1996 period. The improvement was primarily due to the
impact of recent expansions, lower operating expenses and improved results at
Sea Robin Pipeline Company.
Market transportation revenues decreased due primarily to a reduction
in interruptible volumes and the transfer of Southern's ownership of a small
intrastate pipeline to Sonat, which was immaterial to operating results, and a
favorable imbalance resolution in the 1996 period, partially offset by increased
revenue from expansions. Supply revenues increased due to higher volumes.
Operating and maintenance expense decreased primarily due to cost reduction
initiatives. General and administrative expenses decreased primarily due to
lower employee benefit expenses. Sea Robin's improved results were due to
increased throughput and lower operating and maintenance expense.
Nine Months 1997 to Nine Months 1996 Analysis
Operating income for Southern was $132.0 million for the nine months
ended September 30, 1997, compared with $120.9 million for the nine months ended
September 30, 1996. The improvement was due to the impact of recent expansions,
lower operating expenses and improved results at Sea Robin Pipeline Company.
Market transportation revenues decreased due to lower volumes resulting
primarily from warmer weather and the transfer of Southern's ownership of a
small intrastate pipeline to Sonat, which was immaterial to operating results,
partially offset by increased revenue from expansions. Supply transportation
revenues were flat as increased volumes offset the effect of lower rates at Sea
Robin. Operating and maintenance expense decreased primarily due to cost
reduction initiatives. General and administrative expenses decreased primarily
due to lower stock-based compensation and employee benefit expenses. Sea Robin's
improved results were primarily due to lower operating and maintenance expense.
Natural Gas Sales and Supply
As a result of FERC Order No. 636, Southern terminated or renegotiated
to market pricing substantially all of its gas supply contracts through which it
had historically obtained its long-term gas supply. Pending the termination of
the remaining supply contracts, Southern is selling a portion of its gas supply
to a number of its firm transportation customers under contracts that expire on
November 30, 1997, following which Southern's remaining gas supply will either
be used by Southern or sold on a month-to-month basis. Gas sales revenue and
natural gas cost are included in other revenue.
Southern currently is incurring no take-or-pay liabilities under any of
these contracts. Southern is a party to two market-priced contracts with Exxon
Corporation entered into in 1995 as part of a settlement of certain other gas
purchase contracts. These contracts, which terminate in November 1997, account
for 80 percent of Southern's estimated purchase commitments in the fourth
quarter of 1997, which total $40 million. Annual purchase commitments total less
than $25 million for each subsequent year. Based on Southern's current
expectations with respect to natural gas prices in the years following 1997,
only a small amount of gas volumes are expected to be at prices above market.
<PAGE>
Rate Matters
A settlement approved by the FERC in 1995 resolved all of Southern's
previously pending rate proceedings and proceedings to recover GSR and other
transition costs associated with the implementation of FERC Order No. 636,
except for one contesting party that represents approximately 2 percent of
Southern's firm transportation volumes. That party has appealed the FERC's
approval of the settlement and orders in the proceedings to the United States
Circuit Court of Appeals. As a contesting party under the settlement, that party
has also challenged at FERC the collection by Southern of approximately $6.3
million in GSR costs allocable to it under Order No. 636. The settlement
provides that, except in certain limited circumstances, Southern will not file a
general rate case to be effective prior to March 1, 1998, but requires Southern
to file a new rate case no later than September 1, 1999.
Other Income Statement Items
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
(In Millions)
<S> <C> <C> <C> <C>
Other Income-Other $ 1.0 $ 4.9 $ 5.9 $ 5.7
</TABLE>
Other Income-Other in both of the 1996 periods includes a $3.9 million
net gain on the partial termination of an interest rate swap. The nine-month
period of 1997 includes a $2.4 million net gain on the termination of the
remainder of the interest rate swap. In addition, the nine-month period of 1997
reflects higher levels of equity capitalized in Southern's construction programs
in the early part of the year.
<TABLE>
<S> <C> <C> <C> <C>
Interest Expense, Net $ 6.4 $ 6.8 $19.7 $25.5
</TABLE>
Net interest expense decreased in the three-month and nine-month
periods of 1997 due to lower interest expense, partially offset by lower
interest income. Interest expense decreased in both periods due to lower average
debt levels, and also decreased in the nine-month period due to much lower
average reserve balances. Interest income decreased in both periods due to lower
average balances of loans to affiliates. In addition, the nine-month period
reflected lower GSR related interest income due to the 1996 Customer Settlement.
<TABLE>
<S> <C> <C> <C> <C>
Income Tax Expense $14.2 $13.7 $48.6 $41.4
</TABLE>
Income tax expense increased in both periods due to higher levels of
income before income taxes.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1997 1996
(In Millions)
<S> <C> <C>
Operating Activities $ 130.0 $ 90.1
</TABLE>
Cash flow from operations increased $39.9 million compared to the 1996
period. The primary reasons for the increase were $34.0 million of cash refunds
paid to customers in the prior period and improved operating results in 1997.
Other than the refunds discussed above, the change in gas supply
realignment costs was attributable to the recording of the Customer Settlement
in the second quarter of 1996. The change in reserves for regulatory matters,
deferred income taxes, accrued income taxes, and other was also due to the
impact of the Customer Settlement, which was essentially offsetting among these
captions. The change in accounts payable was primarily due to the impact of
lower natural gas prices on gas purchases in the current period. The change in
other current assets and liabilities was primarily due to increases in gas
storage payables.
<TABLE>
<S> <C> <C>
Investing Activities $(223.5) $(30.0)
</TABLE>
Net cash used in investing activities was $193.5 million higher in 1997
compared to 1996. The increase was primarily attributable to increased loans by
Southern to its parent in the current period, including the net proceeds of the
issuance of $100.0 million in notes, compared to repayments in the prior period
to Southern from its parent. In addition, the current period includes
investments of $17.2 million in the Destin Pipeline joint venture.
<TABLE>
<S> <C> <C>
Financing Activities $ 92.9 $(59.0)
</TABLE>
Financing activities provided $92.9 million in 1997 compared to using
$59.0 million in 1996. The change was primarily due to the issuance of $100.0
million in notes in the current period and dividend payments in the prior
period.
Capital Resources
At September 30, 1997, Southern had lines of credit with a capacity of
$50 million.
Southern expects to continue to use cash from operations and borrowings
in the public or private markets or loans from affiliates to finance its capital
and other corporate expenditures.
<PAGE>
FORWARD LOOKING STATEMENTS
From time to time Southern may make or publish forward-looking
statements relating to such matters as anticipated financial performance,
business plans and prospects, objectives, future projects, and similar matters.
This report contains such forward-looking statements. These forward-looking
statements are based on assumptions that Southern believes are reasonable. A
variety of factors, however, could cause Southern's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in Southern's forward-looking statements.
The success of Southern's expansion projects is dependent on obtaining
both the necessary number of customer commitments for a project and regulatory
approval of the project, which may encounter opposition by the staff of the
FERC, environmental groups, local landowners, and customers of Southern or its
local distribution customers. There can be no assurance that Southern's pipeline
projects will receive timely regulatory approvals and be constructed and placed
into service on schedule.
<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 September 30, 1997
- ------------
* Filed herewith
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on September 29, 1997, reporting
certain information under Item 5, with respect to the issuance and sale by the
Company of $100,000,000 aggregate principal amount of its 6.70% Notes due
October 1, 2007, and furnishing certain related exhibits under Item 6.
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: November 10, 1997 By: /s/ Thomas W. Barker, Jr.
---------------------------- --------------------------
Thomas W. Barker, Jr.
Vice President-Finance
Date: November 10, 1997 By: /s/ Norman G. Holmes
---------------------------- ---------------------
Norman G. Holmes
Vice President & Controller
EXHIBIT 12
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
Computation of Ratios of Earnings
from Continuing Operations to Fixed Charges
Total Enterprise (a)
<TABLE>
<CAPTION>
Nine Months Ended Sept 30, Years Ended December 31,
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(In Thousands)
Earnings from Continuing Operations:
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes $126,360 $108,319 $150,219 $134,124 $ 76,098 $127,617 $126,691
Fixed charges (see computation below) 24,939 34,733 43,028 48,779 47,575 58,249 47,995
-------- -------- -------- -------- -------- -------- --------
Total Earnings Available for Fixed
Charges $151,299 $143,052 $193,247 $182,903 $123,673 $185,866 $174,686
======== ======== ======== ======== ======== ======== ========
Fixed Charges:
Interest expense before deducting
interest capitalized $ 23,649 $ 33,049 $ 41,147 $ 46,859 $ 45,900 $ 56,599 $ 46,298
Rentals(b) 1,290 1,684 1,881 1,920 1,675 1,650 1,697
-------- -------- -------- -------- -------- -------- --------
$ 24,939 $ 34,733 $ 43,028 $ 48,779 $ 47,575 $ 58,249 $ 47,995
======== ======== ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 6.1 4.1 4.5 3.7 2.6 3.2 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,724
<SECURITIES> 0
<RECEIVABLES> 87,661
<ALLOWANCES> 0
<INVENTORY> 24,773
<CURRENT-ASSETS> 242,932
<PP&E> 2,416,808
<DEPRECIATION> 1,507,488
<TOTAL-ASSETS> 1,361,706
<CURRENT-LIABILITIES> 105,371
<BONDS> 405,536
0
0
<COMMON> 4
<OTHER-SE> 624,015
<TOTAL-LIABILITY-AND-EQUITY> 1,361,706
<SALES> 0
<TOTAL-REVENUES> 295,701
<CGS> 0
<TOTAL-COSTS> 60,241
<OTHER-EXPENSES> 35,595
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,207
<INCOME-PRETAX> 126,360
<INCOME-TAX> 48,582
<INCOME-CONTINUING> 77,778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,778
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
