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, 1998
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, 1998
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.
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 1
Condensed Consolidated Statements of Income
Three Months Ended March 31, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 3
Notes to Condensed Consolidated Financial
Statements 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 8-K 13
</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,
1998 1997
(In Thousands)
ASSETS
Current Assets:
<S> <C> <C>
Cash $ 4,175 $ 2,905
Notes receivable from affiliates 68,475 89,277
Accounts receivable 68,728 78,248
Inventories 19,527 21,529
Gas imbalance receivables 9,279 13,493
Other 6,309 4,250
---------- ----------
Total Current Assets 176,493 209,702
---------- ----------
Investments in Unconsolidated Affiliates and Other 118,780 97,054
---------- ----------
Plant, Property and Equipment 2,475,901 2,456,773
Less accumulated depreciation and amortization 1,494,254 1,497,827
---------- ----------
981,647 958,946
---------- ----------
Deferred Charges and Other 104,763 120,629
---------- ----------
$1,381,683 $1,386,331
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Long-term debt due within one year $ 5,000 $ 6,220
Accounts payable 23,698 49,364
Accrued income taxes 14,293 4,078
Other accrued taxes 4,011 9,150
Accrued interest 19,286 20,028
Gas imbalance payables 7,830 10,498
Other 9,356 10,493
---------- ----------
Total Current Liabilities 83,474 109,831
---------- ----------
Long-Term Debt 400,000 405,000
---------- ----------
Deferred Credits and Other:
Deferred income taxes 143,573 134,073
Other 67,568 85,734
---------- ----------
211,141 219,807
---------- ----------
Commitments and Contingencies
Stockholder's Equity:
Common stock and other capital 79,495 79,336
Retained earnings 607,573 572,357
---------- ----------
Total Stockholder's Equity 687,068 651,693
---------- ----------
$1,381,683 $1,386,331
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1998 1997
(In Thousands)
Revenues:
<S> <C> <C>
Transportation and storage $ 95,090 $93,764
Other 10,411 5,402
-------- -------
105,501 99,166
-------- -------
Costs and Expenses:
Operating and maintenance 19,558 17,631
General and administrative 15,472 18,043
Depreciation and amortization 5,491 11,653
Taxes, other than income 5,349 5,197
-------- -------
45,870 52,524
-------- -------
Operating Income 59,631 46,642
-------- -------
Other Income, Net:
Equity in earnings of unconsolidated affiliates 4,125 2,696
Other, net 653 3,957
-------- -------
4,778 6,653
-------- -------
Earnings Before Interest and Taxes 64,409 53,295
-------- -------
Interest:
Interest income, primarily from affiliates 1,399 146
Interest expense (9,066) (7,311)
Interest capitalized 473 508
-------- -------
(7,194) (6,657)
-------- -------
Income Before Income Taxes 57,215 46,638
Income Tax Expense 21,999 17,972
-------- -------
Net Income $ 35,216 $28,666
======== =======
</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,
1998 1997
(In Thousands)
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $ 35,216 $ 28,666
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 5,491 11,653
Deferred income taxes 9,500 2,197
Equity in earnings of unconsolidated
affiliates, less distributions (4,125) (2,696)
Reserves for regulatory matters (4,046) 288
Gas supply realignment costs 353 2,375
Change in:
Accounts receivable 9,520 21,379
Accounts payable (25,667) (22,101)
Accrued interest and income taxes, net 10,277 14,027
Other current assets and liabilities (5,590) (5,985)
Other (3,278) (4,148)
-------- --------
Net cash provided by operating activities 27,651 45,655
-------- --------
Cash Flows from Investing Activities:
Plant, property and equipment additions (25,619) (31,766)
Notes receivable, primarily from affiliates 20,802 (10,000)
Proceeds from disposal of assets and other (15,344) 1,030
-------- --------
Net cash used in investing activities (20,161) (40,736)
-------- --------
Cash Flows from Financing Activities:
Payments of long-term debt (6,220) (5,320)
Changes in short-term borrowings - (1,188)
-------- --------
Net cash used in financing activities (6,220) (6,508)
-------- --------
Net Increase (Decrease) in Cash 1,270 (1,589)
Cash at Beginning of Period 2,905 2,316
-------- --------
Cash at End of Period $ 4,175 $ 727
======== ========
Supplemental Disclosures of Cash Flow Information
Cash Paid for:
Interest (net of amount capitalized) $ 8,795 $ 8,421
Income taxes, net $ 1,321 $ 261
</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 is a wholly owned subsidiary of Sonat Inc.
The accompanying condensed consolidated financial statements of
Southern Natural Gas and its subsidiaries (Southern) 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 1997 condensed consolidated financial statements
and notes have been reclassified to conform with the 1998 presentation.
In the first quarter of 1998, Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income, which established
standards for reporting and display of comprehensive income and its components,
became effective for Southern. Southern has no items of other comprehensive
income that it is required to report under provisions of SFAS No. 130.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information also became effective for Southern in the first quarter of 1998.
SFAS No. 131 establishes standards for the way public enterprises are to report
information about operating segments and requires certain other disclosures.
Southern operates in one segment and implementation of SFAS No. 131 has minimal
affect on its reporting.
2. Unconsolidated Affiliates
Southern Natural Gas owns a one-third interest in Destin Pipeline Company,
L.L.C. and a subsidiary of Southern Natural Gas 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.
Three Months
Ended March 31,
1998 1997
(In Thousands)
Revenues $9,029 $9,346
Expenses:
Operating expenses 2,301 1,241
Depreciation 1,359 1,356
Other expenses, net 1,192 1,333
------ ------
Income Reported $4,177 $5,416
====== ======
<PAGE>
2. Unconsolidated Affiliates (Cont'd)
In April 1997, units of Shell Oil Company and Amoco Corporation joined
with Southern Natural Gas in the ownership of Destin Pipeline, a 1
billion-cubic-feet-per-day, $313 million pipeline designed to transport natural
gas from deep-water development in the eastern Gulf of Mexico. Construction of
the pipeline began in December 1997, and it is expected to be partially
completed and in service by July 1998 and fully in service by January 1999.
Destin's earnings of $6.2 million for the first quarter of 1998 primarily relate
to the allowance for funds used during construction capitalized on its pipeline.
3. Debt and Notes To and From Affiliates
As part of Sonat's cash management program, Southern Natural Gas 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.
At March 31, 1998, Southern Natural Gas had short-term lines of credit
of $50.0 million available 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 March 31, 1998, no amounts were
outstanding.
4. Rate Matters and Contingencies
Periodically, Southern makes 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 provides reserves relating to such amounts collected subject to
refund, as appropriate, and make refunds upon establishment of the final rates.
At March 31, 1998, Southern Natural Gas' rates are established by a settlement
that was approved by FERC orders issued in 1995 and 1996. All of its customers
are parties to the settlement.
SFAS No. 71, Accounting for the Effects of Certain Types of Regulation,
provides that rate-regulated entities account for and report assets and
liabilities consistent with the economic effect of the way in which regulators
establish rates, if the rates established are designed to recover costs of
providing the regulated service and if the competitive environment makes it
reasonable to assume such rates can be charged and collected. Certain expenses
and credits subject to rate determination normally reflected in income are
deferred in the balance sheet and are recognized in income as the
<PAGE>
4. Rate Matters and Contingencies (Cont'd)
related amounts are included in service rates and recovered from or refunded to
customers. Information regarding Southern's regulatory assets and liabilities is
shown below:
March 31, December 31,
1998 1997
(In Thousands)
Regulatory Assets:
SFAS No. 109 Tax Gross-Up $20,352 $19,801
Unrecovered Depreciation 13,903 13,853
Work Force Reduction 7,847 8,608
Charitable Donation 7,671 7,897
Cash Out Differential 7,236 12,449
Other 7,487 8,398
------- -------
$64,496 $71,006
======= =======
Regulatory Liabilities:
Excess Deferred Taxes Due
Customers $ 4,903 $ 5,291
======= =======
SFAS No. 109 tax gross up is recorded pursuant to FERC policies
allowing future recovery of taxes associated with the allowance for funds used
during construction (AFUDC). Unrecovered depreciation represents amounts to be
recovered in future rates pursuant to a 1992 FERC settlement. Cash out
differential is the reserve for price differential associated with storage
transactions recoverable pursuant to Southern Natural Gas' customer settlement.
Excess deferred tax due customers represents amounts due customers pursuant to
federal tax rate normalization.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The principal business of Southern Natural Gas Company and its
subsidiaries (Southern) is the transmission and storage of natural gas in
interstate commerce in the southeastern United States. Southern is actively
pursuing opportunities to expand its pipeline system in its traditional market
areas and to connect new gas supplies.
In April 1997, units of Shell Oil Company and Amoco Corporation joined
with Southern in the ownership of Destin Pipeline Company, L.L.C., a 1
billion-cubic-feet-per-day, $313 million pipeline designed to transport natural
gas from deep-water areas in the eastern Gulf of Mexico. Southern has a
one-third interest in this pipeline. Shell and Amoco have made substantial firm
transportation commitments to this pipeline. Three other shippers have also
dedicated their production from certain leases in the eastern Gulf of Mexico to
Destin for transportation and discussions are under way with other prospective
shippers. Construction of the pipeline began in December 1997, and it is
expected to be partially completed and in service by July 1998 and fully in
service by January 1999. In February 1998 Destin filed for Federal Energy
Regulatory Commission (FERC) approval to extend its pipeline system
approximately 14 miles to transport additional gas reserves committed to
Destin's system. This extension, which will cost approximately $19 million, is
expected to be in service in late 1998, subject to FERC approval.
Southern is moving forward on three expansions to eastern Tennessee,
northern Alabama, and central Alabama that have a total filed capital cost of
$126 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 that Southern filed in February 1998 to change the
route of the pipeline as it crosses the Wheeler National Wildlife Refuge. The
122-mile expansion will provide 76 million-cubic-feet-per-day capacity to the
participating customers. A second expansion to serve customers in eastern
Tennessee received FERC approval in April 1998 and is anticipated to go in
service in November 1998. Southern has firm transportation commitments totaling
65 million cubic feet of natural gas per day from customers in eastern
Tennessee, Georgia and Alabama related to this expansion. The expansion in
central Alabama received FERC approval in March 1998 and is also expected to go
in service in the fourth quarter of 1998. This expansion will provide 34 million
cubic feet per day of firm transportation to Alabama Power Company and two other
customers.
In December 1997, an affiliate of AGL Resources, Inc. and Southern
formed a new entity, Etowah LNG Company, L.L.C. (Etowah LNG), to jointly
construct, own and operate a new liquefied natural gas peaking facility in Polk
County, Georgia. Under the agreement, 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. Peaking services provide supplemental
gas supplies on days when demand is highest, typically during the winter. The
new facility will cost approximately $90 million with 300 million cubic feet per
day of deliverability capacity. Affiliates of AGL Resources will manage the
construction of the facility and operate it. Southern will provide
administrative services. Etowah LNG filed a certificate application with the
FERC in April 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
Three Months
Ended March 31,
1998 1997
(In Millions)
Revenues:
Market transportation and storage $ 83.5 $ 83.2
Supply transportation 11.6 10.5
Other 10.4 5.4
------ ------
Total Revenues 105.5 99.1
------ ------
Costs and Expenses:
Operating and maintenance 19.6 17.6
General and administrative 15.5 18.0
Depreciation and amortization 5.5 11.7
Taxes, other than income 5.3 5.2
------ ------
45.9 52.5
------ ------
Operating Income 59.6 46.6
------ ------
Other Income:
Equity in earnings of
unconsolidated affiliates 4.1 2.7
Other .7 4.0
------ ------
4.8 6.7
------ ------
Earnings Before Interest and Taxes $ 64.4 $ 53.3
====== ======
(Billion Cubic Feet)
Volumes:
Market transportation 185 170
Supply transportation 95 80
------ ------
Total Volumes 280 250
====== ======
Transition gas sales 3 18
====== ======
<PAGE>
First Quarter 1998 to First Quarter 1997 Analysis
Earnings before interest and taxes (EBIT) for the first quarter of 1998
increased $11.1 million compared with the prior year. The increase was due to
increased revenue from expansions, improved operations at Sea Robin Pipeline
Company and other quarter-to-quarter variances discussed below. Partially
offsetting the increase was lower other income in 1998.
Supply transportation revenues increased due to an expansion at
Southern and higher volumes at Sea Robin. Other revenue was up primarily due to
a reversal of certain reserves relating to Southern's obligation to indemnify
certain parties in connection with take-or-pay settlements entered into in the
1980's. Operation and maintenance expense increased primarily due to higher fuel
expense. General and administrative expense decreased primarily due to lower
stock-based compensation and employee benefit expenses. Depreciation expense
decreased primarily due to an adjustment of the salvage value on certain fixed
assets.
Equity in earnings of unconsolidated affiliates increased in 1998 due
to earnings of Destin Pipeline, primarily resulting from the allowance for funds
used during construction (AFUDC) capitalized. Other income was lower primarily
due to the recognition of a gain on the termination of a forward rate agreement
in the 1997 period.
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's remaining gas supply is sold on a
month-to-month basis. Gas sales revenue and natural gas cost are included in
other revenue.
Southern's annual purchase commitments total less than $25 million per
year for 1998 and subsequent years. Based on Southern's current expectations
with respect to natural gas prices in 1998 and the years following, only an
insignificant amount of gas volumes is expected to be at prices above market.
Rate Matters
Under terms of a settlement approved by the FERC, all of Southern's
previously pending rate proceedings and proceedings to recover gas supply
realignment and other transition costs associated with the implementation of
FERC Order No. 636 have been resolved. The settlement requires Southern to file
a new rate case no later than September 1, 1999.
---------------------
<PAGE>
Other Income Statement Items
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1998 1997
(In Millions)
<S> <C> <C>
Interest Expense, Net $ 7.2 $ 6.7
</TABLE>
Net interest expense increased in the 1998 period compared to the same
period last year due to higher average debt levels and higher interest expense
related to income taxes. The effect of lower interest rates on debt and higher
average loan balances to affiliates slightly offset the increase in interest
expense.
<TABLE>
<S> <C> <C>
Income Tax Expense $ 22.0 $ 18.0
</TABLE>
Income tax expense increased in the 1998 period compared to the 1997
period due to higher pretax income.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
<TABLE>
<S> <C> <C>
Operating Activities $ 27.7 $ 45.7
</TABLE>
Cash flow from operations decreased $18.0 million compared to the 1997
period. The change in depreciation is primarily due to an adjustment of the
salvage value on certain fixed assets. The change in regulatory reserves is
attributable to the reversal of royalty reserves discussed earlier. The change
in deferred taxes is primarily attributable to the depreciation adjustment and
reserve reversal discussed above, which were all non-cash. Lower transition gas
sales resulting from the expiration of gas purchase contracts was the primary
reason for the decrease in accounts receivable. Accounts payable decreased due
to lower gas purchases related to declining transition gas sales, and the timing
of storage gas purchases and intercompany settlements.
<TABLE>
<S> <C> <C>
Investing Activities $(20.2) $(40.7)
</TABLE>
Net cash used in investing activities was $20.5 million less in 1998
compared to 1997. The decrease was primarily attributable to repayments of
intercompany loans in the current period by Southern's parent, Sonat Inc.,
compared to borrowings on intercompany loans in the prior period. Partially
offsetting the change in intercompany loans were investments of $17.6 million to
the Destin Pipeline joint venture during 1998.
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1998 1997
(In Millions)
<S> <C> <C>
Financing Activities $ (6.2) $ (6.5)
</TABLE>
Net cash used in financing activities was essentially unchanged in 1998
compared to the 1997 period.
Capital Resources
At March 31, 1998, Southern had bank lines of credit with a total
capacity of $50.0 million, all of which was available. Southern has filed a
shelf registration statement with the Securities and Exchange Commission which,
when effective, will provide for the issuance of up to $500.0 million in debt
securities.
Southern's capital expenditures and other investing requirements for 1998
are budgeted to aggregate $260 million. This amount reflects investments in
unconsolidated affiliates, expansions and other projects.
Southern expects to continue to use cash from operations and borrowings
in either the public or private markets or loans from affiliates to finance its
capital and other corporate expenditures.
MARKET RISK
Financial instruments of Southern expose it to interest rate risk.
Southern's entire portfolio of interest rate risk instruments is classified as
non-trading.
Southern's interest income is sensitive to changes in the level of
short-term interest rates in the United States. In general, Southern either
loans excess funds to Sonat or repays its short-term borrowings. Excess cash
generated by or contributed to joint venture projects is invested on a
short-term basis pending distribution or expenditure on capital projects.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements regarding Southern's
business plans and prospects, objectives, expansion projects, proposed capital
expenditures and expected performance or results. These forward-looking
statements are based on assumptions that Southern believes are reasonable, but
are subject to a wide range of risks and uncertainties and, as a result, actual
results may differ materially from those expressed in such forward-looking
statements. Important factors that could cause actual results to differ include
the requirements to receive various governmental approvals to proceed with
expansion projects at Southern, Destin, and Etowah. Realization of Southern's
objectives and expected performance can also 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) Exhibits(1)
Exhibit
Number Exhibits
12* Computation of Ratio of Earnings to Fixed Charges
27.1* Financial Data Schedule for the period ended March 31, 1998
27.2* Restated Financial Data Schedule for the period ended
December 31, 1997
- -------------
* 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, 1998.
- -------------------
(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, 1998 By: /s/ Thomas W. Barker, Jr.
-------------------------- --------------------------
Thomas W. Barker, Jr.
Vice President-Finance
Date: May 13, 1998 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>
Three Months Ended March 31, Years Ended December 31,
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(In Thousands)
Earnings from Continuing Operations:
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes $55,156 $46,625 $171,503 $150,219 $134,124 $ 76,098 $127,618
Fixed charges (see computation below) 10,230 8,379 34,785 43,028 48,779 47,576 58,250
------- ------- -------- -------- -------- -------- --------
Total Earnings Available for Fixed
Charges $65,386 $55,004 $206,288 $193,247 $182,903 $123,674 $185,868
======= ======= ======== ======== ======== ======== ========
Fixed Charges:
Interest expense before deducting
interest capitalized $ 9,698 $ 8,019 $ 33,130 $ 41,147 $ 46,859 $ 45,900 $ 56,600
Rentals(b) 532 360 1,655 1,881 1,920 1,676 1,650
------- ------- -------- -------- -------- -------- --------
$10,230 $ 8,379 $ 34,785 $ 43,028 $ 48,779 $ 47,576 $ 58,250
======= ======= ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 6.4 6.6 5.9 4.5 3.7 2.6 3.2
======= ======= ======== ======== ======== ======== ========
</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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,175
<SECURITIES> 0
<RECEIVABLES> 68,728
<ALLOWANCES> 0
<INVENTORY> 19,527
<CURRENT-ASSETS> 176,493
<PP&E> 2,475,901
<DEPRECIATION> 1,494,254
<TOTAL-ASSETS> 1,381,683
<CURRENT-LIABILITIES> 83,474
<BONDS> 400,000
0
0
<COMMON> 4
<OTHER-SE> 687,064
<TOTAL-LIABILITY-AND-EQUITY> 1,381,683
<SALES> 0
<TOTAL-REVENUES> 105,501
<CGS> 0
<TOTAL-COSTS> 19,558
<OTHER-EXPENSES> 5,491
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,593
<INCOME-PRETAX> 57,215
<INCOME-TAX> 21,999
<INCOME-CONTINUING> 35,216
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,216
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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0
0
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</TABLE>
