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, 1995
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 1-7179
SONAT INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0647939
(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) 325-3800
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, $1.00 PAR VALUE:
86,057,296 SHARES OUTSTANDING ON OCTOBER 31, 1995
<PAGE>
SONAT INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--
September 30, 1995 and December 31, 1994 1
Condensed Consolidated Statements of Income--
Three Months and Nine Months Ended
September 30, 1995 and 1994 2
Condensed Consolidated Statements of Cash Flows--
Nine Months Ended September 30, 1995 and 1994 3
Notes to Condensed Consolidated Financial
Statements 4 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 28
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 29
</TABLE>
<PAGE>
29
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SONAT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
(In Thousands)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 58,143 $ 9,131
Accounts and note receivable 256,521 279,553
Inventories 26,116 26,722
Gas imbalance receivables 17,116 35,091
Other 46,179 36,344
---------- -------
Total Current Assets 404,075 386,841
---------- --------
Investments in Unconsolidated Affiliates and Other 427,466 704,308
---------- --------
Plant, Property and Equipment 4,720,041 4,741,296
Less accumulated depreciation, depletion
and amortization 2,478,258 2,497,691
---------- ----------
2,241,783 2,243,605
---------- ----------
Deferred Charges:
Gas supply realignment costs 211,169 160,850
Other 52,407 35,082
---------- ----------
263,576 195,932
---------- ----------
$3,336,900 $3,530,686
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Long-term debt due within one year $ 18,875 $ 19,250
Unsecured notes 100,000 200,000
Accounts payable 199,302 208,751
Accrued income taxes 41,689 22,029
Accrued interest 32,252 36,825
Gas imbalance payables 24,252 42,975
Other 45,691 40,371
---------- ----------
Total Current Liabilities 462,061 570,201
---------- ----------
Long-Term Debt 771,258 963,378
---------- ----------
Deferred Credits and Other:
Deferred income taxes 211,368 187,957
Reserves for regulatory matters 177,013 183,343
Other 213,633 233,921
---------- --------
602,014 605,221
---------- --------
Commitments and Contingencies
Stockholders' Equity:
Common stock and other capital 127,913 129,563
Retained earnings 1,402,887 1,287,339
---------- -----------
1,530,800 1,416,902
Less treasury stock (29,233) (25,016)
---------- ----------
Total Stockholders' Equity 1,501,567 1,391,886
---------- ----------
$3,336,900 $3,530,686
========== ==========
</TABLE>
See accompanying notes.
SONAT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
(In Thousands, Except Per-Share Amounts)
<S> <C> <C> <C> <C>
Revenues $514,047 $419,183 $1,425,672 $1,330,887
-------- -------- ---------- ----------
Costs and Expenses:
Natural gas cost 289,053 198,370 741,795 592,659
Transition cost recovery 32,259 22,656 40,665 93,105
Operating and maintenance 46,263 51,217 134,676 145,866
General and administrative 34,517 31,472 101,017 101,333
Depreciation, depletion
and amortization 67,110 55,903 208,161 188,547
Taxes, other than income 9,641 10,362 31,294 30,970
-------- -------- ---------- ----------
478,843 369,980 1,257,608 1,152,480
-------- -------- ---------- ----------
Operating Income 35,204 49,203 168,064 178,407
Other Income (Loss), Net:
Equity in earnings of
unconsolidated affiliates 11,037 13,230 35,920 29,612
Sale of subsidiary stock 188,012 - 188,012 -
Other 137 5,410 (35,587) 12,287
-------- -------- ---------- ----------
199,186 18,640 188,345 41,899
-------- -------- ---------- ----------
Interest:
Interest income 1,929 936 5,617 4,049
Interest expense (25,074) (24,665) (83,476) (69,726)
Interest capitalized 1,534 1,466 4,973 5,037
-------- -------- ---------- ----------
(21,611) (22,263) (72,886) (60,640)
-------- -------- ---------- ----------
Income before Income Taxes 212,779 45,580 283,523 159,666
Income Taxes 82,259 10,288 98,045 40,223
-------- -------- ---------- ----------
Net Income $130,520 $ 35,292 $ 185,478 $ 119,443
======== ======== ========== ==========
Earnings Per Share of Common Stock $ 1.51 $ .40 $ 2.15 $ 1.37
======== ======== ========== ==========
Weighted Average Shares Outstanding 86,273 87,192 86,332 87,187
Dividends Paid Per Share $ .27 $ .27 $ .81 $ .81
======== ======== ========== ==========
</TABLE>
See accompanying notes.
SONAT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1995 1994
(In Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 185,478 $ 119,443
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 208,161 188,547
Deferred income taxes 34,094 14,060
Equity in earnings of unconsolidated
affiliates, less distributions (28,184) (21,298)
Gain on sale of subsidiary stock and loss on
disposal of assets, net (147,807) (3,633)
Reserves for regulatory matters (6,330) 48,377
Gas supply realignment costs (50,319) 22,428
Natural gas purchase contract settlement costs (1,328) 18,360
Change in:
Accounts receivable 23,057 (26,774)
Inventories 606 777
Accounts payable (9,448) (20,920)
Accrued interest and income taxes, net 15,332 (17,566)
Other current assets and liabilities (4,179) 24,285
Other (58,018) 27,052
----------- -----------
Net cash provided by operating activities 161,115 373,138
----------- -----------
Cash Flows from Investing Activities:
Plant, property and equipment additions (357,441) (329,310)
Net proceeds from sale of subsidiary stock and
disposal of assets 593,213 18,206
Advances to unconsolidated affiliates and other (10,833) (265,377)
----------- -----------
Net cash provided by (used in)
investing activities 224,939 (576,481)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt 3,103,000 3,391,000
Payments of long-term debt (3,295,495) (3,270,765)
Changes in short-term borrowings (100,000) 154,978
----------- -----------
Net changes in debt (292,495) 275,213
Dividends paid (69,930) (70,606)
Other 25,383 (488)
----------- -----------
Net cash provided by (used in)
financing activities (337,042) 204,119
----------- -----------
Net Increase in Cash and Cash Equivalents 49,012 776
Cash and Cash Equivalents at Beginning of Period 9,131 10,822
----------- -----------
Cash and Cash Equivalents at End of Period $ 58,143 $ 11,598
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash Paid for:
Interest (net of amount capitalized) $ 65,812 $ 62,860
Income taxes (refunds received), net 77,150 35,607
</TABLE>
See accompanying notes.
<PAGE>
SONAT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements of Sonat
Inc. (Sonat) and its subsidiaries (the Company) 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.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, which will become effective for years beginning after December 15,
1995. The Company has not yet determined the effect of the new statement.
Certain amounts in the 1994 condensed consolidated financial statements
have been reclassified to conform with the 1995 presentation.
2. Changes in Operations
Sonat Marketing Company L.P. (Sonat Marketing) was formed in September
1995 and is jointly owned and operated by the Company and Atlanta Gas Light
Company (Atlanta). Sonat's wholly owned subsidiary, Sonat Marketing Company,
contributed all of its assets and liabilities except $32 million of accounts
receivable, while Atlanta contributed $32 million in cash to the new venture.
Atlanta, which owns 35 percent of the new entity, has certain rights to resell
to the Company its interest in the new entity, including a right for five years
to receive the greater of fair market value or a formula price. As a result, the
pre-tax gain on the transaction of approximately $23 million has been deferred.
In June 1995, the Company sold back to Baker Hughes Incorporated for
$167 million the four million shares of Baker Hughes convertible preferred stock
that Sonat received as partial consideration for its sale of Teleco Oilfield
Services Inc. to Baker Hughes in 1992. The sale resulted in an $8 million loss
after taxes, or $.09 per share.
3. Derivative Financial Instruments
At September 30, 1995, Sonat Exploration Company, the Company's wholly
owned subsidiary, had three oil price swap agreements to exchange payments based
on a total notional volume of 720,000 barrels, which represents approximately 71
percent of its remaining 1995 production. The average market price Sonat
Exploration was paying was $18.21 per barrel and the average fixed price Sonat
Exploration was receiving was $18.50 per barrel at September 30, 1995. These
agreements, which are hedges of Sonat Exploration's production of oil reserves,
are made for the purpose of reducing exposure to changes in spot-market prices
on the amount of production covered in the agreement.
<PAGE>
3. Derivative Financial Instruments (Cont'd)
At September 30, 1995, Sonat Marketing had a total of 47 natural gas
price and basis swap agreements to exchange payments based on a total notional
volume of 39,500,000 MMBtu of natural gas over periods ranging from one month to
seven years. At September 30, 1995, the average price the Company was paying was
$1.58 per MMBtu and the average price the Company was receiving was $1.55 per
MMBtu. These agreements, which are hedges of Sonat Marketing's spot market
natural gas transactions, are made for the purpose of locking in the margin on
the related transactions.
The Company's credit exposure on swaps is limited to the value of swaps
that are in a favorable position to the Company. At September 30, 1995, the
market value of the Company's fixed-price favorable swaps was $1.2 million. The
net position of all fixed-price swaps, both favorable and unfavorable, was also
$1.2 million favorable. The market value of the basis swaps is not material.
At September 30, 1995, Sonat Marketing had a total of 644 net futures
contracts open, with 2,661 purchase (long) contracts and 2,017 sales (short)
contracts. At that date, the net market value of its contracts was favorable by
$84,000.
<PAGE>
4. Unconsolidated Affiliates
The following table presents the components of equity in earnings of
unconsolidated affiliates.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
(In Thousands)
Company's Share of Reported Earnings (Loss):
<S> <C> <C> <C> <C>
Exploration and Production $ 140 $ (154) $ 475 $ 157
======= ======= ======= =======
Natural Gas Transmission and Marketing:
Citrus Corp. 7,290 9,771 19,475 17,455
Amortization of Citrus basis
difference 345 345 1,037 1,037
Bear Creek Storage 2,385 2,158 7,307 6,653
Other natural gas transmission
and marketing affiliates (69) (25) (155) (104)
------- ------- ------- -------
9,951 12,249 27,664 25,041
------- ------- ------- -------
Other:
Sonat Offshore Drilling 606 822 6,735 3,383
Other affiliates 340 313 1,046 1,031
------- ------- ------- -------
946 1,135 7,781 4,414
------- ------- ------- -------
$11,037 $13,230 $35,920 $29,612
======= ======= ======= =======
</TABLE>
Natural Gas Transmission and Marketing Affiliates - Sonat owns 50
percent of Citrus Corp. (Citrus), the parent of Florida Gas Transmission
Company. Southern Natural Gas Company (Southern), a wholly owned subsidiary of
the Company, owns 50 percent of Bear Creek Storage Company (Bear Creek), an
underground gas storage company.
<PAGE>
4. Unconsolidated Affiliates (Cont'd)
The following is summarized income statement information for Citrus:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
(In Thousands)
<S> <C> <C> <C> <C>
Revenues $186,104 $136,917 $505,959 $374,786
Expenses (Income):
Natural gas cost 102,930 87,946 272,480 240,243
Operating expenses 34,432 29,089 97,893 84,098
Depreciation and amortization 11,651 9,517 31,248 29,060
Allowance for funds used
during construction (12,144) (34,648) (32,441) (70,690)
Interest and other 25,471 13,309 73,327 35,310
Income taxes 9,184 12,162 24,502 21,856
-------- -------- -------- --------
Income Reported $ 14,580 $ 19,542 $ 38,950 $ 34,909
======== ======== ======== ========
</TABLE>
Allowance for funds used during construction decreased significantly
due to Florida Gas' Phase III expansion going into service on March 1, 1995.
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,
1995 1994 1995 1994
(In Thousands)
<S> <C> <C> <C> <C>
Revenues $8,885 $8,825 $27,113 $26,698
Expenses:
Operating expenses 1,206 1,385 3,732 3,950
Depreciation 1,350 1,350 4,049 4,050
Other expenses, net 1,560 1,774 4,718 5,393
------ ------ ------- -------
Income Reported $4,769 $4,316 $14,614 $13,305
====== ====== ======= =======
</TABLE>
On October 31, 1995, Southern executed a Capital Contribution Agreement
in connection with the project financing for Bear Creek from The Prudential
Insurance Company of America. In the event that Bear Creek does not refinance
the remaining principal, this agreement provides that Southern and its partner
will contribute $21 million each to Bear Creek on October 31, 2000, to provide
funds to enable Bear Creek to make a principal payment due under the financing.
<PAGE>
4. Unconsolidated Affiliates (Cont'd)
Other Affiliate - In June 1993, the Company reduced its ownership of
Sonat Offshore Drilling Inc., which provides offshore drilling services, from
100 percent to approximately 40 percent and subsequently has accounted for its
investment on the equity method.
In July 1995, the Company made a capital contribution of its remaining
shares of Sonat Offshore common stock to Sonat Exploration. On July 26, 1995,
Sonat Exploration sold in an underwritten public offering these shares of Sonat
Offshore common stock. The net proceeds after underwriters' discounts and
commissions were $326 million. The Company realized an after-tax gain of $110
million, or $1.27 per share on the transaction.
5. Debt and Lines of Credit
Long-Term Debt - During the first nine months of 1995, Sonat borrowed
$2.9 billion and repaid $3.3 billion under its long-term revolving credit
agreement, resulting in no amounts outstanding at September 30, 1995.
On June 12, 1995, Sonat issued $200 million of 6 7/8 Percent Notes due
June 1, 2005. The proceeds from the sale of the Notes were used to repay
floating rate debt.
Short-Term Debt - Loans outstanding under all short-term credit facilities
are for a duration of less than three months.
On July 30, 1995, Sonat's $300 million 364-day revolving credit
agreement with several banks expired in accordance with the terms of the
agreement and was not renewed. At September 30, 1995, Sonat had $100 million in
commercial paper borrowings outstanding at a rate of 6.27 percent.
On May 29, 1995, Sonat and Southern renewed their short-term lines of
credit with several banks to provide for borrowings of $200 million and $50
million, respectively. 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
September 30, 1995, no amounts were outstanding under either agreement.
6. 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. 6. Commitments and Contingencies (Cont'd)
Customer Settlement - 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 became effective on October 9, 1995, resolves, as to the parties
supporting the settlement, all of Southern's pending rate proceedings and
proceedings to recover gas supply realignment (GSR) and other transition costs
associated with the implementation of Order No. 636 (described below). The
Customer Settlement provides for reduced rates that became effective March 1,
1995, and a three-year rate moratorium on future rate increases by Southern. The
Customer Settlement was supported by Southern, the FERC staff, customers
representing approximately 95 percent of the firm transportation capacity on
Southern's system, and other parties.
Pursuant to the Customer Settlement, all issues in Southern's current
and prior rate cases have been settled as to the supporting parties. 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 on an interim basis effective
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. Southern's GSR costs are discussed below (see Order No. 636).
The Settlement Order also included authorizations for Southern to
construct approximately $27 million of additional facilities to improve its
existing level of transportation service and to expand service to Atlanta Gas
Light Company and South Carolina Pipeline Corporation and its affiliate under
firm contracts with terms of at least three years.
The Customer Settlement has been contested by firm customers
representing approximately five percent of Southern's firm contract demand and
by certain interruptible customers.
The Settlement Order permits the contesting parties to litigate the issue
of the recovery of Southern's GSR and other Order No. 636 transition costs and
to litigate various rate issues with respect to rate periods prior to March 1,
1995, with the results to be applied only to such parties. The Settlement Order
decided the level of Southern's rates to contesting parties for the period
beginning March 1, 1995, and ruled on numerous other rate issues for the
pre-March 1, 1995, periods. These rulings included a reversal of a 1994
administrative law judge determination that Southern could not include in its
rates any portion of the approximately $45 million cost of a pipeline that
Southern constructed in 1992 to connect gas reserves developed by Exxon
Corporation (Exxon) in the Mississippi Canyon and Ewing Bank Area Blocks,
offshore Louisiana. Certain of the contesting parties have sought rehearing of
the Settlement Order by the FERC. After rehearing, the Settlement Order will be
subject to appeal to the courts. Although there can be no assurances, the
Company believes that rehearing of the Settlement Order should be denied by the
FERC and that the Settlement Order should be upheld on any judicial appeal.
In the fourth quarter of 1994, the Company recognized a $29 million
charge associated with the Customer Settlement, which included anticipated
amounts for GSR costs that Southern would not recover from its customers, and a
$28 million charge for a provision relating to regulatory assets that may not be
recovered as a result of the Customer Settlement, including amounts for a
corporate restructuring undertaken in 1994.
Sea Robin - Several of the shippers on the pipeline system of Sea Robin
Pipeline Company, a subsidiary of Southern, 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. Any reduction in Sea Robin's
rates as a result of this complaint, however, could be implemented only on a
prospective basis. 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.
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.
Order No. 636 - 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 GSR costs. The Order provided for the recovery of 100 percent of the GSR
costs and other transition costs to the extent the pipeline can prove that they
are eligible, that is, incurred as a result of customers' service choices in the
implementation of the Order, and were incurred prudently. The prudence review
will extend both to the prudence of the underlying gas purchase contracts, based
on the circumstances that existed at the time the contracts were executed, and
to the prudence of the amendments or terminations of the contracts. Numerous
parties have appealed the Order to the Circuit Courts of Appeal.
As of September 30, 1995, Southern had either paid or accrued $200 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. On February 17, 1995, Southern reached an
agreement to resolve its remaining high-cost supply contracts with Exxon by
paying an additional $45 million in GSR costs and foregoing a claim against $19
million in price differential costs that have been paid to Exxon under an
interim agreement entered into between the parties pending resolution of
litigation contesting Southern's termination on March 1, 1994, of a gas purchase
contract with Exxon. This agreement became effective upon the Customer
Settlement becoming effective. Additionally, at September 30, 1995, Southern was
a party to an agreement under which another high-cost contract price would be
reduced in exchange for monthly payments having a present value of approximately
$42 million. Southern entered into a payment agreement on October 20, 1995, with
a financial institution, pursuant to which Southern made a one-time payment of
$42.3 million to the institution, which agreed to make these monthly payments.
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 September 30, 1995, Southern
had incurred $103 million in price differential costs.
As described above, Southern's Customer Settlement resolves as to
supporting parties all of the proceedings pursuant to which Southern is seeking
recovery of its GSR costs as well as all of its other outstanding rate
proceedings. Additionally, Southern will absorb an agreed-upon portion of its
total GSR costs, an estimate of which was reflected in the provision for the
Customer Settlement noted above.
In its Customer Settlement discussions, Southern has advised its
customers that the amount of GSR costs that it 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 September 30, 1995,
to be approximately $349 million on a present-value basis.
FERC Audit of Florida Gas - The FERC's Division of Audits (DOA) has
nearly completed a compliance review of Florida Gas' books and records for the
period January 1, 1991, through December 31, 1994. Among other things, the FERC
auditors have proposed adjustments to the capitalization by Florida Gas of AFUDC
during construction of its Phase III expansion facilities that, if made, would
result in a charge to earnings of approximately $40 million after-tax. Florida
Gas intends to file arguments as to why its accounting for such costs is proper
and to request the dismissal of the audit exception by the DOA. If not
dismissed, Florida Gas will request that resolution of this issue be deferred
until its next regular rate case, which will be filed in late 1996. Management
of Florida Gas has advised the Company that it believes that its method of
capitalizing AFUDC on Phase III was proper and does not believe that the outcome
of this matter will have a material adverse effect on Florida Gas' results of
operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SONAT INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating Income
Operating results for the Company's business segments are in the table
below. The table also shows the effect of four unusual items recorded in 1995
that affect operating income and net income comparisons. The sale of properties
and terminations of long-term gas sales contracts by Sonat Exploration and the
sale of the Company's investment in Baker Hughes Incorporated Preferred Stock
were recorded in the second quarter of 1995. The sale of the remaining
investment in Sonat Offshore common stock by Sonat Exploration was recorded in
the third quarter of 1995.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
(In Millions, Except Per-Share Amounts)
Operating Income (Loss):
<S> <C> <C> <C> <C>
Exploration and production $ (3) $ 16 $ 37 $ 60
Natural gas transmission
and marketing 37 32 131 114
Other 1 1 - 4
---- ---- ---- -----
Operating Income 35 49 168 178
Less Unusual Items:
Exploration and Production
Termination of gas
sales contracts - - 37 -
---- ---- ---- -----
Operating Income Excluding
Unusual Items $ 35 $ 49 $131 $ 178
==== ==== ==== =====
Net Income As Reported $131 $ 35 $185 $119
Less Unusual Items:
Exploration and Production
Termination of gas
sales contracts - - 24 -
Property sales - - (20) -
Sale of Offshore stock 110 - 110 -
Other
Sale of Baker Hughes Stock - - (8) -
---- ---- ---- -----
Net Income Excluding
Unusual Items $ 21 $ 35 $ 79 $ 119
==== ==== ==== =====
Earnings Per Share of Common
Stock Excluding Unusual
Items $.24 $.40 $.92 $1.37
==== ==== ==== =====
</TABLE>
<PAGE>
EXPLORATION AND PRODUCTION
The Company is engaged in the exploration for and the acquisition,
development, and production of oil and natural gas in the United States through
Sonat Exploration Company. Sonat Exploration's strategy is to acquire oil and
gas properties with significant development potential. Proved reserves have
grown to approximately 1.7 trillion cubic feet of natural gas equivalent at
September 30, 1995, from 250 billion cubic feet of natural gas equivalent since
implementing this strategy in 1988.
Sonat Exploration intends to continue to acquire domestic oil and gas
properties with significant development potential. During 1995, Sonat
Exploration has acquired oil and gas interests and properties for a total of
$169 million, which increased proved reserves by approximately 285 billion cubic
feet of natural gas equivalent. Through these acquisitions, Sonat Exploration
bolstered its position in north Louisiana and the Texas Panhandle area.
Developmental drilling programs continue to be very successful. In the
first nine months of 1995, Sonat Exploration completed 223 gross development
wells. These drilling programs added net proved reserves of approximately 145
billion cubic feet of natural gas equivalent.
In order to focus its exploration and production efforts and to
minimize administrative and other costs, thus far during 1995 Sonat Exploration
has disposed of certain non-strategic oil and gas interests for approximately
$105 million in the states of Arkansas, Colorado, Louisiana, and Texas and
offshore Louisiana. These sales, which included net proved reserves of
approximately 190 Bcf of natural gas equivalent, were substantially all closed
as of September 30, 1995. Sonat Exploration expects that it will continue to
dispose of non-strategic oil and gas interests in the future.
The decline in natural gas prices that began in 1994 has continued into
1995. As a consequence, Sonat Exploration's earnings and cash flow in the first
nine months of 1995 have been adversely impacted. This decline in natural gas
prices will continue to depress Sonat Explorations's earnings and cash flow in
the fourth quarter.
Total capital expenditures for Sonat Exploration are expected to
approximate $380 million in 1995, which would be down slightly from 1994.
Capital expenditures for 1995 are expected to include approximately $193 million
for producing property acquisitions.
In early August 1995, Sonat Exploration and Taurus Exploration Inc., a
wholly owned subsidiary of Energen Corporation, entered into an agreement
pursuant to which Taurus will join Sonat Exploration in its regular oil and gas
reserve acquisition program through December 31, 1998. Taurus has committed to
spend up to $30 million as its proportionate share of acquisitions that may be
made during the remainder of 1995 and expects to invest $25 million to $50
million annually in subsequent years. Development drilling on the acquired
properties will involve additional investment by Taurus. Sonat Exploration will
operate all properties acquired.
Natural gas production is marketed primarily in the spot-market by
Sonat Marketing Company L.P. (Sonat Marketing), a jointly owned subsidiary of
the Company operating in the Natural Gas Transmission and Marketing Segment.
Sonat Exploration, through Sonat Marketing, uses derivative financial
instruments to manage the risks associated with price volatility for its
production. (See Commodity Price Risk Management and Note 3 of the Notes to
Condensed Consolidated Financial Statements.)
Exploration and Production Operations
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
(In Millions)
<S> <C> <C> <C> <C>
Revenues:
Sales to others $31 $ 42 $140 $110
Intersegment sales 54 64 163 210
--- ---- ---- ----
Total Revenues 85 106 303 320
--- ---- ---- ----
Costs and Expenses:
Operating and maintenance 15 15 49 46
Exploration expense 3 3 6 8
General and administrative 13 11 34 36
Depreciation, depletion and
amortization 53 56 163 154
Taxes, other than income 4 5 14 16
--- ---- ---- ----
88 90 266 260
--- ---- ---- ----
Operating Income (Loss) $(3) $ 16 $ 37 $ 60
=== ==== ==== ====
Net Sales Volumes:
Gas (Bcf) 45 49 139 136
Oil and condensate (MBbls) 983 1,124 2,944 3,141
Natural gas liquids (MBbls) 302 380 1,158 916
--------------------------- --- --- ----- ---
Average Sales Prices:
Gas ($/Mcf) $ 1.41 $ 1.71 $ 1.46 $ 1.92
Oil and condensate ($/Bbl) 17.78 16.97 17.48 15.71
Natural gas liquids ($/Bbl) 9.28 8.53 8.82 8.77
--------------------------- ---- ---- ---- ----
</TABLE>
Quarter-to-Quarter Analysis
Sonat Exploration's operating income was down $19 million in the third
quarter of 1995 as compared to the same period in 1994 primarily due to lower
prices for natural gas and lower production.
Natural gas prices declined 18 percent to an average of $1.41 per
thousand cubic feet for the third quarter of 1995 compared to the same period in
1994. Oil and condensate prices improved from 1994, increasing five percent to
$17.78 per barrel. Natural gas production volumes were down 8 percent from
levels during the third quarter of 1994. The decline in production was due to
several factors, including producing property sales, involuntary interruptions
at two offshore production platforms, and a lower level of development drilling
in response to lower natural gas prices.
Operating and maintenance expenses remained flat while general and
administrative expenses increased $2 million, primarily due to an increase in
stock-based compensation.
Year-to-Date Analysis
Operating income decreased from $60 million for the first nine months
of 1994 to $37 million for the first nine months of 1995 due to lower prices for
natural gas offset by higher oil prices and a slight increase in natural gas
production.
The average price for natural gas has averaged 24 percent lower
year-to-date 1995 compared to the first nine months of 1994. Oil and condensate
prices improved 11 percent to an average price of $17.48 per barrel in 1995.
Production volumes for gas were higher in 1995 due to acquisitions.
Operating and maintenance expenses were higher due to the acquisition
of additional properties in early 1995. General and administrative expenses were
slightly lower than 1994 due to reduced employee benefit costs and an overall
effort to lower expenses. Depreciation, depletion and amortization increased
from 1994 due to slightly higher production and a production mix that includes a
greater percentage of oil production in the Company's Austin Chalk operations,
which have higher rates.
NATURAL GAS TRANSMISSION AND MARKETING
The Company participates in the natural gas transmission and marketing
business through Southern Natural Gas Company, Citrus Corp. (a 50 percent-owned
company), and Sonat Marketing (see Note 2 of the Notes to Condensed Consolidated
Financial Statements).
Southern continues to pursue growth opportunities to expand the level
of services in its traditional market area and to connect new gas supplies. On
April 26, 1995, Southern received authorization from the Federal Energy
Regulatory Commission (FERC) to construct a 21-mile pipeline extension to a
delivery point near Chattanooga, Tennessee, that will deliver natural gas to a
group of new customers who have signed 10-year contracts for firm transportation
volumes totaling approximately 11 million cubic feet per day. This project was
placed in service November 1, 1995. Southern also sought approval in a filing
with the FERC made on May 19, 1995, to expand its north main pipeline system to
provide approximately 27 million cubic feet per day of additional firm
transportation. This increase in capacity is supported by 10-year firm
transportation agreements with 15 customers in Alabama, Georgia, and Tennessee.
If FERC approval is received, the in-service date is expected to be November
1996.
In addition, on October 11, 1995, Southern received FERC approval for a
production area expansion project with a capital cost of $15 million. Southern
proposes to install 9,400 horsepower of additional compression at its Toca,
Louisiana compressor station south of New Orleans and to install certain receipt
and delivery point facilities in order to increase its capacity to transport gas
supplies on the east leg of its offshore Louisiana supply system through Toca by
140 million cubic feet per day. The FERC issued an initial determination on the
proposed project, which will become final upon Southern's filing of 10-year firm
transportation agreements for 100 percent of the increased capacity within 120
days from the initial determination. Southern presently is in discussion with
potential customers regarding such commitments, although there is no assurance
that such commitments will be obtained.
Southern has also initiated an open season to obtain customer
commitments to expand its system in order to meet the growing demand for natural
gas in the Southeast. In the open season, Southern is seeking requests for
additional firm transportation services and for a new liquefied natural gas
(LNG) service. The facilities to provide the firm transportation service will be
determined based on the service levels requested. The LNG service would be
provided at the existing LNG storage terminal near Savannah, Georgia, that is
owned by Southern Energy Company, a subsidiary of Southern. If sufficient
commitments are obtained and the necessary regulatory approvals are received,
the in-service date for the firm transportation service is expected to be
November 1997 and the in-service date for the LNG service is expected to be
sometime in 1998. The open season for the firm transportation service ended on
October 31, 1995, and requests for service are being evaluated. The open season
for the LNG service will continue through November 17, 1995.
Sea Robin Pipeline Company, a wholly owned subsidiary of Southern,
filed a petition with the FERC requesting it be declared an unregulated gas
gathering system. The FERC denied Sea Robin's petition in an order issued on
June 16, 1995. Sea Robin filed for rehearing of this denial on July 17, 1995,
but cannot predict the outcome of this proceeding.
Southern's parent, Sonat Inc., transferred to Southern its investments
in three small unregulated companies effective January 1, 1995.
Sonat Marketing's natural gas sales volumes have recently reached 2.4
billion cubic feet per day. Sonat Marketing is expanding its presence in Gulf
Coast, Midwest, and Northeast markets. Sonat Marketing markets almost all of the
natural gas production of Sonat Exploration that is not sold under pre-existing
term dedications, and has responsibility for the execution of Sonat
Exploration's risk management program. Sonat Marketing is seeking other
customers for a similar type of service.
Sonat Energy Services Company, a subsidiary of Sonat and parent of one
of the partners of Sonat Marketing, recently formed a new subsidiary, Sonat
Power Marketing Inc., to market electric power. Sonat Power Marketing has
received permission from the FERC to purchase and resell electricity at
market-based rates. It will offer services in electricity similar to those
offered by Sonat Marketing in natural gas.
Sonat Marketing uses natural gas futures contracts and options on gas
futures and oil and gas price swap agreements to hedge the effects of
spot-market price volatility on operating results. An additional benefit of this
hedging is that Sonat Marketing is able to offer fixed price contracts to its
suppliers and customers. (See Commodity Price Risk Management and Note 3 of the
Notes to Condensed Consolidated Financial Statements.)
Florida Gas, a subsidiary of Citrus, placed its Phase III expansion
project into service on March 1, 1995, increasing its system capacity by 530
million cubic feet per day to 1.5 billion cubic feet per day. As part of Phase
III, Florida Gas contracted for 100 million cubic feet per day of new firm
transportation to be delivered from Southern's system. Also in connection with
this expansion, Florida Gas acquired an interest in an existing pipeline
connected to its system in the Mobile Bay area that has been expanded to provide
over 300 million cubic feet per day to Florida Gas.
It has been announced that plans by other companies to build a
competitive pipeline into peninsular Florida, which would have been known as the
Sunshine Pipeline, had been abandoned at present. Florida Gas is currently
planning a Phase IV expansion of its system that would add approximately 38
million cubic feet per day of capacity at an estimated cost of $32 million.
Florida Gas has tentative commitments from two customers for almost all of the
proposed capacity.
<PAGE>
NATURAL GAS TRANSMISSION AND MARKETING
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
(In Millions)
<S> <C> <C> <C> <C>
Operating Income (Loss):
Southern Natural Gas Company $ 37 $ 29 $128 $105
Sonat Marketing Company 1 3 5 9
Other (1) - (2) -
---- ---- ---- ----
Total Operating Income $ 37 $ 32 $131 $114
==== ==== ==== ====
SOUTHERN NATURAL GAS COMPANY
Revenues:
Gas sales $ 45 $ 47 $139 $192
Market transportation and
storage 75 63 244 229
Supply transportation 13 8 39 25
Other 46 37 78 138
---- ---- ---- ----
Total Revenues 179 155 500 584
---- ---- ---- ----
Costs and Expenses:
Natural gas cost 45 47 137 187
Transition cost recovery 32 23 41 93
Operating and maintenance 28 34 78 97
General and administrative 20 18 61 57
Depreciation and amortization 12 (1) 40 31
Taxes, other than income 5 5 15 14
---- ---- ---- ----
142 126 372 479
---- ---- ---- ----
Operating Income $ 37 $ 29 $128 $105
==== ==== ==== ====
Equity in Earnings of
Unconsolidated Affiliates $ 2 $ 2 $ 7 $ 7
==== ==== ==== ====
(Billion Cubic Feet)
Volumes:
Intrastate gas sales 1 - 5 -
Market transportation 143 118 448 402
--- --- --- ---
Total Market Throughput 144 118 453 402
Supply transportation 101 87 288 249
--- --- --- ---
Total Volumes (1) 245 205 741 651
=== === === ===
Transition gas sales 21 23 67 80
=== === === ===
</TABLE>
(1) Volumes for the three months and nine months ended September 30, 1995,
include 8 and 28 billion cubic feet of gas, respectively, associated
with new subsidiaries of Southern which were not included in Southern's
1994 volumes. These companies were subsidiaries of Sonat Energy
Services in 1994.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
(In Millions)
SONAT MARKETING COMPANY
<S> <C> <C> <C> <C>
Gas Sales Revenues $318 $239 $845 $687
==== ==== ==== ====
Operating Income $ 1 $ 3 $ 5 $ 9
==== ==== ==== ====
(Billion Cubic Feet)
Gas Sales Volumes 201 132 519 341
==== ==== ==== ====
CITRUS CORP.
(In Millions)
Equity in Earnings of
Citrus Corp. $ 8 $ 10 $ 21 $ 18
==== ==== ==== ====
(Billion Cubic Feet)
Florida Gas Volumes (100%):
Market transportation 129 81 348 224
Supply transportation 6 6 20 15
---- ---- ---- ----
Total Volumes 135 87 368 239
==== ==== ==== ====
</TABLE>
Quarter-to-Quarter Analysis
Operating income for the Natural Gas Transmission and Marketing segment
increased 16 percent in the third quarter of 1995 compared with the third
quarter of 1994 due to the improved operating results at Southern discussed
below.
Southern Natural Gas - Operating results for the third quarter of 1995
were higher primarily due to lower operating expenses and the sale of previously
unsubscribed firm transportation capacity.
Market transportation and storage revenues for 1994 include a $16
million adjustment relating to a retroactive reduction in certain depreciation
rates. Supply transportation revenues increased 63 percent due to Southern's new
transportation contract with Florida Gas and increased volumes under existing
contracts at Sea Robin Pipeline Company. Other Revenue and Transition Cost
Recovery increased due to an $18 million adjustment related to the Customer
Settlement. This adjustment did not impact operating income.
Operating and maintenance expense decreased 18 percent in the 1995
period reflecting lower fuel costs and the impact of the 1994 fourth quarter
restructuring, which reduced Southern's staffing levels. General and
administrative expense increased 11 percent in the 1995 period, primarily due to
higher employee benefit expenses. Depreciation and amortization expense was
higher in 1995 due to a $16 million retroactive reduction in depreciation rates
in 1994.
Sonat Marketing - Sales volumes increased significantly due to
expanding activities on non-affiliated pipelines. Operating income was lower
than 1994 third quarter as the effect of higher sales volumes did not entirely
offset lower unit margins, reflecting the competitiveness of the business.
Citrus - Equity in earnings of Citrus declined from $10 million to $8
million. 1995 results reflect the operations of the Phase III expansion project
and the $3.7 million effect of an adjustment to AFUDC on Phase III, while 1994
results include AFUDC related to Phase III. Throughput on the Florida Gas
Pipeline system was up sharply, reflecting the Phase III expansion going in
service on March 1, 1995.
Year-to-Date Analysis
Operating income for the Natural Gas Transmission and Marketing segment
increased 15 percent in the nine-month period ended September 30, 1995, compared
with the prior year due to the improved operating results at Southern discussed
below.
Southern Natural Gas - Operating results for the nine-month period were
up primarily due to lower operating expenses and the sale of previously
unsubscribed firm transportation capacity. The 1995 period also reflected the
positive effect on revenue of a $6 million adjustment 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. The
1994 period included a favorable $6 million reduction in fuel gas liability.
Market transportation and storage revenues for 1994 include a $16
million adjustment relating to a retroactive reduction in certain depreciation
rates and the sale of firm transportation capacity. Supply transportation
revenues increased 56 percent due to increased volumes under existing contracts
at Sea Robin Pipeline Company and to Southern's new transportation contract with
Florida Gas. Other Revenue and Transition Cost Recovery decreased due to
declining billings and lower recovery rates for GSR costs during the 1995
period.
Operating and Maintenance expense decreased 20 percent in the 1995
period, reflecting lower fuel costs and the impact of the 1994 fourth quarter
restructuring. General and administrative expense increased 7 percent in the
1995 period, primarily due to higher employee benefit expenses. Depreciation and
Amortization expense increased in the 1995 period due to the $16 million revenue
reserve established in the 1994 period partially offset by lower depreciation
rates as a result of the Customer Settlement.
Sonat Marketing - Sales volumes increased significantly due to
expanding activities on non-affiliated pipelines. Operating income decreased
compared with the 1994 period as the effect of higher sales volumes was offset
by lower unit margins, reflecting the competitiveness of the business.
Citrus - Equity in earnings of Citrus were higher than in 1994 due
principally to higher margins on a gas supply contract with one of its major
customers that was restructured during the second quarter of 1994 and lower
depreciation from an increase in the useful life of the pre-Phase III pipeline
system, partially offset by lower earnings on the Phase III expansion project.
1995 results reflect the first seven months of operation of the Phase III
expansion project and the $3.7 million effect of an adjustment to AFUDC on Phase
III, while 1994 results include AFUDC related to Phase III.
Transportation Contracts
Pursuant to the Customer Settlement (described in Note 6 of the Notes
to Condensed Consolidated Financial Statements), Southern's largest customer,
Atlanta Gas Light Company, and its subsidiary, Chattanooga Gas Company, have
amended their firm transportation contracts for an aggregate of 682 million
cubic feet per day to extend their primary terms for a period of three years
beginning March 1, 1995. An additional 118 million cubic feet per day will
remain under its current term to April 30, 2007. Also pursuant to the Customer
Settlement, South Carolina Pipeline Corporation (SCPL) has amended its firm
transportation contract for 28 million cubic feet per day to extend its primary
term for a period of three years beginning March 1, 1995. Such extension will be
in addition to the remaining 160 million cubic feet per day of SCPL's firm
transportation services that remain in effect under terms extending from 1997
through 2003. Alabama Gas Corporation, Southern's second largest customer, had
earlier executed firm transportation contracts for 393 million cubic feet per
day under terms extending through October 31, 2008. Southern's other customers
have contracted for firm transportation services for terms ranging from one to
ten or more years. As a result, substantially all of the firm transportation
capacity currently available in Southern's largest market area is fully
subscribed.
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 Southern currently is incurring no take-or-pay liabilities
under these contracts, the annual weighted average cost of gas under these
contracts is in excess of current spot-market prices. 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
are being extended through November 30, 1997. The remainder of Southern's gas
supply will continue to be sold on a month-to-month basis.
<PAGE>
Southern's purchase commitments under its remaining gas supply
contracts for the remainder of 1995 and the years 1996 through 1999 are
estimated as follows:
Estimated
Purchase
Commitments
(In Millions)
1995 $ 30
1996 129
1997 127
1998 40
1999 36
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. These estimates include two new
contracts with Exxon with terms from November 1, 1995, to November 30, 1997, and
provide for market-based index prices.
See Note 6 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 all outstanding rate and Order No. 636
transition cost recovery proceedings with respect to the supporting parties. The
Customer Settlement will result in reducing Southern's filed rates to more
competitive levels, will reduce somewhat reported revenues, and will reduce
depreciation expense to approximately $40 million in 1995. Southern implemented
reduced settlement rates for parties that support the Customer Settlement
effective March 1, 1995. (See Note 6 of the Notes to Condensed Consolidated
Financial Statements for a discussion of the Customer Settlement and other rate
matters.)
Citrus Corp.
The operating results of the Florida Gas Phase III expansion project,
combined with Florida Gas' Order No. 636 restructuring and resultant conversion
to a SFV rate methodology and Citrus' successful renegotiation in 1994 of an
unfavorable contract with one of its major customers, should result in stable
revenues, earnings, and cash flow at Citrus. The results are expected to be at
somewhat lower levels than in 1994 due to the completion of the Phase III
expansion project and the resulting end of AFUDC recognition on the project.
Florida Gas has terminated substantially all of its gas purchase
contracts with a weighted average cost in excess of current spot-market prices
for aggregate costs that are less than the $160 million maximum amount that it
is entitled to recover from its customers pursuant to its 1993 restructuring
settlement under Order No. 636.
Citrus obtains its own financing independent of its parent companies.
Debt financing by Citrus with outside parties generally is nonrecourse to its
parent companies.
--------------------------------------------
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
(In Millions)
<S> <C> <C> <C> <C>
Other Income - Equity in
Earnings of Unconsolidated
Affiliates
Natural gas transmission
and marketing $10 $12 $ 28 $25
Other 1 1 8 5
--- --- ---- ---
$11 $13 $ 36 $30
=== === ==== ===
</TABLE>
Equity in Earnings of Unconsolidated Affiliates for the three-month
period was slightly lower than last year due to a decrease in equity of Citrus
(discussed earlier in the Natural Gas Transmission and Marketing section).
For the nine-month period, Equity in Earnings of Unconsolidated
Affiliates increased in 1995 primarily due to an increase in equity of earnings
of Citrus (discussed earlier in the Natural Gas Transmission and Marketing
section) and Sonat Offshore. On July 26, 1995, the remaining investment in Sonat
Offshore common stock was sold in an underwritten public offering. (See Note 4
of the Notes to Condensed Consolidated Financial Statements.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Other Income - Other $ - $ 5 $(36) $12
</TABLE>
For the three-month period, Other Income in 1994 includes a $3 million
dividend on the Baker Hughes Incorporated preferred stock, which, due to the
sale of this investment, will no longer be received. (See Note 2 of the Notes to
Condensed Consolidated Financial Statement.) 1994 also includes the recognition
of $2 million on gains from the sale of oil and gas properties.
The decrease in Other Income for the nine-month period is due to losses
of $29 million on the sale of oil and gas properties in 1995 versus gains of $3
million in 1994, and to a $13 million loss on the sale of the Company's
investment in Baker Hughes Incorporated preferred stock in June 1995. In
addition, the 1995 nine-month period reflects $6 million of dividends on the
Baker Hughes stock versus $9 million in 1994, which, due to the sale of this
investment, is no longer being received.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
(In Millions)
<S> <C> <C> <C> <C>
Interest
Interest income $ 2 $ 1 $ 6 $ 4
Interest expense (25) (25) (84) (70)
Interest capitalized 1 2 5 5
---- ---- ---- ----
$(22) $(22) $(73) $(61)
==== ==== ==== ====
</TABLE>
Net interest expense was level for the three-month period. A decrease
in interest expense on debt from the lower debt levels following the
monetization of the oilfield services assets was offset by increased interest
expense on federal income taxes and higher average rates on debt.
For the nine-month period interest expense increased due to higher debt
levels and higher average rates, increased interest expense on federal income
taxes, and higher revenue reserve balances.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Income Taxes $ 82 $ 10 $ 98 $ 40
</TABLE>
Income taxes increased for the three and nine-month periods due to
income taxes associated with the unusual items discussed earlier. Absent those
unusual items, the effective tax rate was essentially flat for the three-month
period, and decreased for the nine-month period due to a higher portion of
earnings in the current period derived from items that receive tax preferential
rates, including joint venture earnings.
FINANCIAL CONDITION
CASH FLOWS
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1995 1994
(In Millions)
<S> <C> <C>
Operating Activities $161 $373
</TABLE>
Net cash provided by operating activities in 1995 was $212 million
lower than in 1994 due to lower cash from operations at both Southern and Sonat
Exploration. Southern's GSR expenditures were $73 million higher in 1995. Sonat
Exploration's decrease in cash flow from operations was due to lower gas prices
in 1995, a gas prepayment received in 1994, and a large 1995 third quarter tax
payment related to the sale of the remaining shares of Sonat Offshore common
stock.
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1995 1994
(In Millions)
<S> <C> <C>
Investing Activities $ 225 $(576)
</TABLE>
Net cash from investing activities increased $801 million from 1994.
The increase was attributable to the receipt of $326 million from the sale of
the Company's remaining interest in Sonat Offshore stock, $167 million from the
sale of four million shares of Baker Hughes convertible preferred stock, and $99
million in proceeds from the sale of Sonat Exploration properties. Also
contributing to the increase were net advances made to Citrus in 1994 of $255
million. Partially offsetting the increase was an increase in capital
expenditures of $28 million. (See Capital Expenditures below.)
<TABLE>
<CAPTION>
<S> <C> <C>
Financing Activities $(337) $ 204
</TABLE>
Net cash used in financing activities increased $541 million primarily
due to repayments under Sonat's floating rate facilities. Proceeds from the
Sonat Offshore stock sale and the Baker Hughes stock sale were used in the
repayments.
Capital Expenditures
Capital expenditures for the Company's business segments (excluding
unconsolidated affiliates) were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Exploration and Production $ 315 $ 289
Natural Gas Transmission and Marketing 38 37
Other 4 3
----- -----
Total $ 357 $ 329
===== =====
</TABLE>
The Company's share of capital expenditures by its unconsolidated
affiliates was $100 million and $342 million in the first nine months of 1995
and 1994, respectively.
Liquidity and Capital Resources
At September 30, 1995, the Company had lines of credit and a revolving
credit agreement with a total capacity of $750 million. Of this, $650 million
was unborrowed and available. The amount available under the lines of credit has
been reduced by the amount of commercial paper outstanding of $100 million to
reflect the Company's policy that credit line and commercial paper borrowings in
the aggregate will not exceed the maximum amount available under its lines of
credit and revolving credit agreement.
On July 26, 1995, Sonat Exploration received net proceeds of $326
million for its remaining investment in Sonat Offshore (see Note 4 of the Notes
to Condensed Consolidated Financial Statements). The Company's after-tax net
cash flow from this transaction will be approximately $210 million. Proceeds
from this transaction were used to repay floating rate debt.
In 1993 Sonat filed a shelf registration with the Securities and
Exchange Commission (SEC) for up to $500 million in debt securities. On June 12,
1995, Sonat issued $200 million of 6 7/8 Percent Notes under this shelf
registration, leaving $300 million unissued. The proceeds from the sale of the
Notes were used to repay floating rate debt. Southern also has a shelf
registration with the SEC for up to $200 million in debt securities, of which
$100 million has been issued. Sonat expects to continue to use cash from
operations and borrowings on the public or private markets to finance its
capital and other corporate expenditures.
In October 1995, Southern monetized a GSR obligation for $42.3 million.
Funds for this transaction were obtained by commercial paper borrowings and
funds from operations.
In October 1995 the Board of Directors of the Company extended the
Company's stock repurchase program to April 30, 1997, and authorized the
purchase of an additional one million shares of the Company's common stock. This
brings the total number of shares authorized to approximately three million
shares. Through October 31, 1995, the Company has purchased approximately 1.5
million shares and will continue to purchase shares from time-to-time on the
open market or in privately negotiated transactions. Shares purchased under the
authorization are expected to be reissued in connection with employee stock
option and restricted stock programs.
Cash flow from operations and borrowings in the public or private
markets provide the Company with the means to fund operations and currently
planned investment and capital expenditures.
Capitalization Information
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
Debt to Capitalization 37% 46%
Book Value Per Share $17.41 $16.11
</TABLE>
COMMODITY PRICE RISK MANAGEMENT
Sonat Exploration and Sonat Marketing use natural gas futures contracts
and options on gas futures and oil and gas price swap agreements to hedge the
effects of spot-market price volatility on operating results.
The Company's use of these instruments is implemented under a set of
policies approved by the Board of Directors. These policies prohibit
speculation, determine approval levels for each transaction, and set limits
regarding volume relative to budgeted production or sales levels. All swap
counterparties are approved by the Board, and volume limits are set for any
single counterparty. Reports detailing each transaction are distributed to
management. In addition, all hedge activities are internally reviewed to ensure
compliance with all policies. (See Note 3 of the Notes to Condensed Consolidated
Financial Statements.)
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, which will become effective for years beginning after December 15,
1995. The Company has not yet determined the effect of the new statement.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits (1)
Exhibit
Number Exhibits
<S> <C>
3(b)* By-Laws of Sonat Inc. as amended and in effect October 26, 1995
10* Amendatory Agreement dated June 1, 1995, to Service Agreement No. 904460,
effective November 1, 1994 between Southern Natural Gas Company and
Atlanta Gas Light Company
11* Computation of Earnings per Share
12* Computation of Ratio of Earnings to Fixed Charges
27* Financial Data Schedule for the period ended September 30, 1995, filed
electronically with this Report
</TABLE>
* Filed with this Report
(b) Reports on Form 8-K
The Company did not file any Report on Form 8-K during the quarter ended
September 30, 1995.
(1) The Company will furnish to requesting security holders the exhibits on
this list upon the payment of a fee of 10(cent) per page up to a maximum of
$5.00 per exhibit. Requests must be in writing and should be addressed to
Beverley T. Krannich, Secretary, Sonat Inc., P. O. Box 2563, Birmingham, Alabama
35202-2563.
<PAGE>
SONAT INC. 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.
SONAT INC.
Date: November 13, 1995 By: /s/ James A. Rubright
------------------------- --------------------------
James A. Rubright
Senior Vice President and
General Counsel
Date: November 13, 1995 By: /s/ Thomas W. Barker, Jr.
------------------------- --------------------------
Thomas W. Barker, Jr.
Vice President-Finance and
Treasurer
EX 3(b)
BY-LAWS
OF
SONAT INC.
Amended and in Effect October 26, 1995
ARTICLE 1
STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of stockholders for the
purpose of electing directors and an Auditor and of transacting such other
business as may come before it shall be held at such time as may be specified by
resolution of the Board of Directors.
Section 2. Special Meetings. Special meetings of the stockholders may be
called in the manner provided in Section (6), Article FIFTH of the Certificate
of Incorporation.
Section 3. Place of Meeting. Every meeting of the stockholders shall be
held at the principal office of the Corporation in the City of Birmingham,
Alabama; except that the Board of Directors may provide for the holding of any
meeting of the stockholders at such other place, within or without the State of
Alabama, as the Board shall by resolution determine.
Section 4. Notice of Meetings. It shall be the duty of the Secretary or
an Assistant Secretary to cause a notice of each meeting of the stockholders of
the Corporation to be mailed at least ten and not sooner than fifty days before
the meeting, unless a different period is prescribed by law, to each stockholder
entitled to vote at such meeting at his address as it appears upon the books of
the Corporation.
Unless the Certificate of Incorporation otherwise provides, any
previously scheduled meeting of the stockholders may be postponed and any
special meeting of the stockholders may be cancelled, by resolution of the Board
of Directors upon public notice given prior to the date previously scheduled for
such meeting of stockholders.
Section 5. Quorum. At any meeting of the stockholders, the holders
present in person or by proxy of a majority of the outstanding shares of capital
stock entitled to vote shall constitute a quorum of the stockholders for all
purposes (unless the representation of a larger number of shares shall be
required by law or by the Certificate of Incorporation, in which case the
representation of the number of shares so required shall constitute a quorum).
The Chairman of the meeting or a majority of the shares so represented
may adjourn the meeting from time to time, whether or not there is such a
quorum. No notice of the time and place of adjourned meetings need be given
except as required by law.
Section 6. Organization and Conduct of Meetings. The Chairman of the
Board shall call meetings of stockholders to order and shall act as Chairman of
such meetings. In the absence of the Chairman of the Board at any meeting, the
President or, in his absence, any Vice President designated by the Board to
perform the duties of the Chairman of the Board shall act as Chairman. In the
absence of the Chairman of the Board, the President and any such Vice President
at any meeting, the holders of a majority of the shares of capital stock
entitled to vote present in person or by proxy at such meeting shall elect a
Chairman.
The Secretary of the Corporation shall act as Secretary of all meetings
of the stockholders; but, in the absence of the Secretary, the Chairman may
appoint any person to act as Secretary of the meeting.
It shall be the duty of the Secretary to prepare and make, at least ten
days before every meeting of stockholders, a complete list of stockholders
entitled to vote at said meeting, arranged in alphabetical order and showing the
address of each stockholder and the number of shares registered in his name.
Such list shall be open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, for the ten days
preceding the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Proceedings at every meeting of stockholders shall, at the election of
the Chairman, comply with Roberts' Rules of Order (latest published edition).
Section 7. Notice of Stockholder Business. All business properly
brought before an annual meeting shall be transacted at such meeting. Business
shall be deemed properly brought only if it is (i) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors or (iii) brought before the meeting by a
stockholder of record entitled to vote at such meeting if written notice of such
stockholder's intent to bring such business before such meeting is delivered to,
or mailed, postage prepaid, and received by, the Secretary of the Corporation at
the principal executive offices of the Corporation not later than the close of
business on the 60th day nor earlier than the close of business on the 90th day
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is more than 30
days before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of a meeting date is
first made by the Corporation (the "Notice Deadline"). For purposes of this
By-Law, and Section 2 of Article II hereof, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). In no event shall the public announcement of an adjournment of an annual
meeting commence a new time period for the giving of a stockholder's notice as
described above. Each notice given by such stockholder shall set forth: (A) a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and the beneficial owner, if
any, on whose behalf the proposal is made; (B) a representation that the
stockholder giving the notice is a holder of record of stock of the Corporation
entitled to vote at such meeting (or if the record date for such meeting is
subsequent to the date required for such stockholder notice, a representation
that the stockholder is a holder of record at the time of such notice and
intends to be a holder of record on the record date of such meeting) and intends
to appear in person or by proxy at such meeting to propose such business; (C)
any material interest of the stockholder or such beneficial owner in such
business; and (D) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the proposal is made (i) the name and address of
such stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (ii) the class and the number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner. The Chairman of the meeting may refuse to transact any
business at any meeting made without compliance with the foregoing procedure.
Section 8. Voting. Subject to the provisions of the Certificate of
Incorporation or of law, every holder of capital stock of the Corporation which
is entitled to vote shall be entitled to one vote in person or by proxy for each
share of such stock registered in the name of such stockholder upon the books of
the Corporation, but no proxy shall be voted on after three years from its date,
unless the proxy provides for a longer period. All elections for directors shall
be decided by plurality vote; all other questions shall be decided by majority
vote of the holders of shares of capital stock entitled to vote who are present
in person or by proxy, except as otherwise provided in Article VII of these
By-Laws, the Certificate of Incorporation or the laws of the State of Delaware.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Term of Office. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors,
the number of such directors to be determined solely by resolution of the Board
of Directors, acting by not less than a majority of the directors then in office
(subject to the provisions of Section (1), Article FIFTH of the Certificate of
Incorporation). Each director shall be elected to a three-year term of office
(subject to the provisions of Sections (2) and (7), Article FIFTH of the
Certificate of Incorporation and Section 3 of this Article) to serve until his
successor shall have been elected and shall have qualified (subject to the
provisions of Section (A)(7), Article FOURTH of the Certificate of
Incorporation).
Section 2. Notification of Nominations. Subject to the rights of the
holders of any one or more series of Serial Preference Stock then outstanding,
nominations for the election of directors may be made by the Board of Directors
or by any stockholder entitled to vote for the election of directors. Any
stockholder entitled to vote for the election of directors at an annual meeting
or a special meeting called for the purpose of electing directors may nominate
persons for election as directors at such meeting only if written notice of such
stockholder's intent to make such nomination is delivered to, or mailed, postage
prepaid, and received by, the Secretary of the Corporation at the principal
executive offices of the Corporation, in the case of an annual meeting, not
later than the Notice Deadline, and in the case of a special meeting of
stockholders at which directors are to be elected pursuant to the Corporation's
notice of meeting, not earlier than the close of business on the 90th day prior
to such special meeting and not later than the close of business on the later of
the 60th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting. Notwithstanding the immediately preceding sentence, in the event that
the number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement by the Corporation
naming all of the nominees for director or specifying the size of the increased
Board of Directors at least 70 days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by this By-Law
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation. In no event shall the public announcement of an
adjournment of an annual or special meeting commence a new time period for the
giving of a stockholder's notice as described above. Each notice given by such
stockholder shall set forth: (A) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nominations are made (i) the name
and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner and (ii) the class and number of shares of the
Corporation which are owned beneficially and of record by such stockholder and
such beneficial owner; (B) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at such meeting (or if the
record date for such meeting is subsequent to the date required for such
stockholder notice, a representation that the stockholder is a holder of record
at the time of such notice and intends to be a holder of record on the record
date for such meeting) and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (C) a
description of all arrangements or understandings between the stockholder or
beneficial owner and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder or beneficial owner; (D) as to each person whom the
stockholder proposes to nominate for election or re-election as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Exchange
Act and Rule 14a-11 thereunder; and (E) the consent of each nominee to be named
in the proxy statement as a nominee and to serve as a director of the
Corporation if so elected. The Chairman of the meeting may refuse to acknowledge
the nomination of any person made without compliance with the foregoing
procedure.
Section 3. Vacancies and Removal. Vacancies occurring in the Board of
Directors shall be filled as provided in Section (3), Article FIFTH of the
Certificate of Incorporation. The removal of any director or the entire Board of
Directors shall be as provided in Section (7), Article FIFTH of the Certificate
of Incorporation.
Section 4. Place of Meeting, etc. The Board of Directors may hold its
meetings and may have an office and keep the books of the Corporation (except as
may be otherwise provided by law) in such place or places in the State of
Delaware or outside the State of Delaware as the Board from time to time shall
determine.
Section 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as the Board shall determine. No notice
shall be required for any regular meeting of the Board of Directors; but a
notice of the fixing or changing of the time or place of regular meetings shall
be mailed to every director at least five days before the first meeting held
pursuant to the notice.
Section 6. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the direction of the Chairman of the Board, the
President, or by not less than one-third of the directors in office at the time.
The Secretary or an Assistant Secretary shall give notice to each
director of the time and place of holding each special meeting by mailing the
notice at least thirty-six hours before the meeting or by causing the same to be
transmitted by other means at least twenty-four hours before the meeting. Unless
otherwise indicated in the notice thereof, any and all business may be
transacted at any special meeting, subject to the provisions of Article VII of
these By-Laws.
Section 7. Quorum. A quorum for the transaction of business shall
consist of no fewer than one-half of the total number of directors, and except
as otherwise provided in the Certificate of Incorporation or in these By-Laws,
the act of a majority of the directors present at any meeting of the Board of
Directors at which a quorum is present shall be the act of the Board of
Directors. If at any meeting of said Board there be less than a quorum present,
a majority of those present may adjourn the meeting from time to time, and no
notice need be given of any such adjourned session of the meeting.
Section 8. Compensation of Directors. The amount, if any, which each
director shall be entitled to receive as compensation for his services as such
shall be fixed from time to time by resolution of the Board of Directors. If any
director shall serve as a member of any committee of the Board or perform
special services at the instance of the Board, such director may be paid such
additional compensation as the Board of Directors may determine. Each director
shall be entitled to reimbursement for traveling expenses incurred by him in
attending any meeting of the Board of Directors or of a committee. Such
compensation and reimbursement shall be payable even though there be an
adjournment because of the absence of a quorum.
Section 9. Conduct of Meetings. At all meetings of the Board of Directors
business shall be transacted in such order as the Board may determine.
The Chairman of the Board shall preside at all meetings of the Board of
Directors. In the absence of the Chairman of the Board, the President shall
preside at all meetings of the Board of Directors. In the absence of the
President, a Chairman of the meeting shall be elected from the directors
present. The Secretary of the Corporation shall act as Secretary of all meetings
of the directors, but in the absence of the Secretary, the Chairman of the
meeting may appoint any person to act as Secretary of the meeting.
Section 10. Action Without Meeting. Nothing contained in the By-Laws
shall be deemed to restrict the power of the directors or members of any
committee to take any action required or permitted to be taken by them, without
a meeting, in accordance with applicable provisions of law.
Section 11. Contracts. No contract or other transaction between the
Corporation and one or more of the directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if (1) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or the committee
in good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (2) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the shareholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the shareholders;
or (3) the contract or transaction is fair as to the Corporation as of the time
it is authorized, approved or ratified, by the Board of Directors, a committee
thereof, or the shareholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
The Board of Directors of the Corporation in its discretion may submit
for approval, ratification or confirmation by the stockholders any contract,
transaction or act of the Board of Directors or any committee thereof or of any
officer, agent or employee of the Corporation, and any such contract,
transaction or act which shall have been so approved, ratified or confirmed by
the holders of a majority of the issued and outstanding stock entitled to vote
shall be as valid and binding upon the Corporation and upon the stockholders
thereof as though it had been approved and ratified by each and every
stockholder of the Corporation.
ARTICLE III
COMMITTEES
The Board of Directors may by resolution or resolutions passed by a
majority of the whole Board designate one or more committees, each committee to
consist of two or more of the directors of the Corporation, which to the extent
provided in the resolution or resolutions shall have and may exercise the powers
of the Board of Directors in the management of the business and affairs of the
Corporation, and may have power to authorize the seal of the Corporation to be
affixed to all papers which may require it. Such committee or committees shall
have such name or names as may be determined from time to time by resolution or
resolutions adopted by the Board of Directors. If provision be made for any such
committee or committees, the members thereof shall be appointed by the Board of
Directors and shall serve during the pleasure of the Board of Directors. A
majority of the members of a committee shall constitute a quorum for the
transaction of business. The Board of Directors may designate one or more
directors of the Corporation as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee and
who, in such event, shall be counted in determining the presence of a quorum.
Vacancies in such committees shall be filled by the Board of Directors;
provided, however, that in the absence or disqualification of any member of such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The Board of
Directors may at its pleasure discontinue any such committee or committees.
ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the Corporation shall be a
Chairman of he Board, a President, a Chief Financial Officer, one or more Vice
Presidents (one President), a Treasurer and a Secretary, each of whom shall be
elected by the Board of Directors. The Board of Directors may from time to time
appoint such other officers, including Vice Chairmen, Assistant Vice Presidents,
Comptroller, Assistant Treasurers, Assistant Comptrollers, Assistant Secretaries
and officers of divisions of the Corporation, as the Board may deem advisable,
and such officers shall have such authority and shall perform such duties as
from time to time may be prescribed by the Board of Directors. In the event of
an office becoming vacant due to removal, resignation or other reason, the Board
of Directors may fill the vacancy at such time as it may determine. The Chairman
of the Board shall be a member of the Board of Directors; the other officers may
but need not be directors.
Except where otherwise expressly provided in a written contract duly
authorized by the Board of Directors, all officers, agents and employees shall
be subject to removal at any time by the affirmative vote of a majority of the
directors in office at the time. Any agent or employee other than one elected or
appointed by the Board of Directors shall also be subject to removal at any time
by the officer or by the committee appointing him.
In addition to the powers and duties of the officers of the Corporation
as set forth in these By-Laws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
Section 2. The Chairman of the Board. The Chairman of the Board shall
preside at all meetings of stockholders and at all meetings of the Board of
Directors. The Chairman of the Board shall perform such other duties as shall
from time to time be assigned to him by these By-Laws, the Board of Directors or
the President. In the absence of the Chairman of the Board or in the event that
the office is for any reason vacant, the President shall perform all duties of
the Chairman of the Board, including presiding at all meetings of stockholders
and at all meetings of the Board of Directors.
Section 3. The President. The President shall be the chief executive
officer of the Corporation and, subject only to the control of the Board of
Directors, shall have general management and control of its affairs and
business, shall perform all other duties and exercise all other powers commonly
incident to his office, or which are or may at any time be authorized or
required by law. In the event that the President is unavailable or
incapacitated, either the Chairman of the Board or, upon designation by the
Board of Directors, a Vice President designated by the Board, shall perform the
duties of the President.
Section 4. The Chief Financial Officer. The Chief Financial Officer
(who may have such additional titles as shall from time to time be assigned to
him by these By-Laws or by the Board of Directors) shall be the principal
financial officer of the Corporation and shall have such powers and perform such
duties as shall from time to time be assigned to him by these By-Laws, the Board
of Directors or the President.
Section 5. The Vice Presidents. Each Vice President shall have such
powers and perform such duties as shall from time to time be assigned to him by
these By-Laws or by the Board of Directors and shall have and may exercise such
powers of the President as may from time to time be assigned to him by the
President.
Section 6. The Treasurer. The Treasurer shall have custody of all the
funds and securities of the Corporation which may come into his hands, and shall
deposit the same with such bank or banks or other depositary or depositaries as
the Board of Directors from time to time shall determine; he may endorse on
behalf of the Corporation for collection checks, notes and other obligations and
shall deposit the same to the credit of the Corporation in such bank or banks or
depositary or depositaries as the Board of Directors may designate; he may sign
all receipts and vouchers for payments made to the Corporation; he may sign with
the Chairman of the Board or the President or a Vice President certificates for
shares of the capital stock; he shall enter or cause to be entered regularly in
the books of the Corporation kept for the purpose full and accurate accounts of
all moneys received and paid on account of the Corporation and whenever required
by the Board of Directors shall render statements of such accounts; he shall, at
all reasonable times, exhibit his books and accounts to the Auditor or to any
director of the Corporation upon application at the office of the Corporation
during business hours; and he shall perform all acts incident to the office of
Treasurer, subject to the control of the Board of Directors.
Section 7. The Secretary. The Secretary shall keep in books provided
for that purpose the minutes of all meetings of the Board of Directors and of
all committees of the Board of Directors and the minutes of all meetings of the
stockholders; he shall attend to the giving or serving of all notices of the
Corporation; he may sign with the Chairman of the Board or the President or a
Vice President, in the name of the Corporation, all contracts when authorized so
to do either generally or in specific instances by the Board of Directors or by
any committee of the Board of Directors having the requisite authority and, when
so ordered by the Board of Directors or such committee, he shall affix the seal
of the Corporation thereto; he may sign with the Chairman of the Board, the
President or a Vice President certificates for shares of the capital stock; he
shall have charge of the stock certificate books, transfer books and stock
ledgers and such other books and papers as the Board of Directors shall direct,
all of which shall at all reasonable times be open to the examination of the
Auditor or any director, upon application at the office of the Corporation
during business hours; and he shall in general perform all the duties incident
to the office of Secretary, subject to the control of the Board of Directors.
Section 8. Giving of Bond by Officers. Any officer of the Corporation,
if required to do so by the Board of Directors, shall furnish a bond to the
Corporation for the faithful performance of his duties, in such penalties and
with such conditions and security or surety or sureties as the Board shall
require.
Section 9. Voting Upon Stocks. Unless otherwise ordered by the Board of
Directors, the Chairman of the Board or the President, or any other officer of
the Corporation designated by the Chairman of the Board or the President, shall
have full power and authority on behalf of the Corporation to attend and to act
and to vote in person or by proxy at any meeting of the holders of securities of
any corporation in which the Corporation may own or hold stock or other
securities, and at any such meeting shall possess and may exercise in person or
by proxy any and all rights, powers and privileges incident to the ownership of
such stock or other securities which the Corporation, as the owner or holder
thereof, might have possessed and exercised if present. The Chairman of the
Board, the President or any other officer of the Corporation designated by the
Chairman of the Board or the President, may also execute and deliver on behalf
of the Corporation powers of attorney, proxies, waivers of notice and other
instruments relating to the stocks or securities owned or held by the
Corporation. The Board of Directors may, from time to time, by resolution confer
like powers upon any other person or persons.
Section 10. Compensation of Officers. The officers of the Corporation
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors.
ARTICLE V
CAPITAL STOCK - SEAL - FISCAL YEAR
Section 1. Certificates for Shares. The certificates for shares of the
capital stock of the Corporation shall be in such form as is prescribed by law
and approved by the Board of Directors.
Section 2. Lost, Stolen, or Destroyed Certificates. Any person claiming
a stock certificate in lieu of one alleged to have been lost, stolen or
destroyed shall give the Corporation or its agent an affidavit as to his
ownership of the certificate and of the facts which go to prove that it has been
lost, stolen or destroyed. If required by the Board of Directors, he also shall
give the Corporation a bond, in such form as may be approved by the Board of
Directors, sufficient to indemnify the Corporation against any claim that may be
made against it or on account of the alleged loss, theft or destruction of the
certificate or the issuance of a new certificate.
Section 3. Transfer of Shares. Shares of the capital stock of the
Corporation shall be transferred on the books of the Corporation by the holder
thereof in person or by his attorney duly authorized in writing, upon surrender
and cancellation of certificates for the number of shares to be transferred,
except as provided in the preceding section. Books for the transfer of shares of
the capital stock shall be kept by the Corporation or by one or more transfer
agents appointed by it.
Section 4. Regulations. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of the capital
stock of the Corporation.
Section 5. Fixing of Record Dates. The powers of the Board of Directors
with respect to the fixing of record dates shall be as provided by the laws of
the State of Delaware at the time in effect.
Section 6. Corporate Seal. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of Directors,
a duplicate of the seal may be kept and be used by any officer of the
Corporation designated by said Board.
Section 7. Fiscal Year. The fiscal year of the Corporation shall begin on
the first day of January in each year and terminate on the thirty-first day of
December in each year.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 1. Checks, Notes, Contracts, etc. Checks and other orders for
the payment of money shall be signed by such person or persons as the Board of
Directors shall from time to time by resolution determine. Contracts and other
instruments or documents may be signed in the name of the Corporation by the
Chairman of the Board or the President or by any other officer authorized to
sign such contract, instrument or document by the Board of Directors, and such
authority may be general or confined to specific instances.
Checks and other orders for the payment of money made payable to the
Corporation may be endorsed for deposit to the credit of the Corporation, with a
depositary authorized by resolution of the Board of Directors, by the Chief
Financial Officer or Treasurer or such other persons as the Board of Directors
may from time to time by resolution determine.
Section 2. Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do by the Board of Directors, any officer or
agent of the Corporation may effect loans and advances for the Corporation from
any bank, trust company or other institution or from any firm, corporation or
individual, and for such loans and advances may make, execute and deliver
promissory notes, bonds or other evidences of indebtedness of the Corporation.
When authorized so to do by the Board of Directors, any officer or agent of the
Corporation may pledge, hypothecate or transfer, as security for the payment of
any and all loans, advances, indebtedness and liabilities of the Corporation,
any and all stocks, securities and other personal property at any time held by
the Corporation, and to that end may endorse, assign and deliver the same. Such
authority may be general or confined to specific instances.
Section 3. Waivers of Notice. Whenever notice is required to be given
under any provision of law or of the Certificate of Incorporation or of these
By-Laws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting of stockholders or of directors or
of a committee shall constitute waiver of notice of such meeting, except where
otherwise provided by law.
ARTICLE VII
AMENDMENTS
The By-Laws and any amendments thereof may be altered, amended, changed
or repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of all the members of the
Board, or at any regular or special meeting the notice of which shall have
stated the amendment of the By-Laws as one of the purposes of the meeting, by
the affirmative vote of a majority of all the members of said Board; but these
By-Laws and any amendments thereof, including By-Laws adopted by the Board of
Directors, may be altered, amended, changed or repealed and other By-Laws may be
enacted by the stockholders in accordance with the provisions of Section (10),
Article FIFTH of the Certificate of Incorporation.
Amendatory Agreement
Page 2
EX 10
AMENDATORY AGREEMENT
This Amendment is entered into this 1st day of June, 1995, between
SOUTHERN NATURAL GAS COMPANY ("Company") and ATLANTA GAS LIGHT COMPANY
("Shipper").
W I T N E S S E T H:
WHEREAS, Company and Shipper are parties to a firm transportation
agreement dated November 1, 1994, (#904460) for 259,812 Mcf per day, as amended
March 1, 1995 ("FT Agreement"); and
WHEREAS, Shipper has released 4,000 Mcf per day of its capacity under
the FT Agreement on a permanent basis to the City of Lawrenceville, Georgia,
effective June 1, 1995; and
WHEREAS, the parties wish to memorialize such permanent release through
this amendment to the FT Agreement;
NOW THEREFORE, in consideration for the premises and the mutual
promises and covenants contained herein, the parties agree as follows:
1. The Transportation Demand set forth in Section 1.1 of the FT Agreement
shall be revised to be 255,812 Mcf per day effective June 1, 1995.
2. Section 4.1 of the FT Agreement shall be deleted in its entirety and the
following Section 4.1 substituted therefor:
4.1 Subject to the provisions hereof, this Agreement shall become
effective as of the date first hereinabove written and shall
be in full force and effect for a primary term through the
following dates: (a) April 30, 2007 for 110,905 Mcf per day of
Transportation Demand and June 30, 2007 for 1,000 Mcf per day
of Transportation Demand, and shall continue and remain in
force and effect for successive terms of one year each after
the end of each primary term for the specified volume, unless
and until cancelled with respect to the associated volume by
either party giving 180 days written notice to the other party
prior to the end of the specified primary term or any yearly
extension thereof; and (b) February 28, 1998, for 143,907 Mcf
per day of Transportation Demand, and shall continue and
remain in force and effect for successive terms of one year
each thereafter if the parties mutually agree in writing to
each such yearly extension at least 60 days prior to the end
of the primary term or subsequent yearly extension.
3. The current Exhibits A and B to the FT Agreement shall be deleted in
their entirety and the First Revised Exhibits A and B attached hereto effective
June 1, 1995, shall be substituted therefor.
4. Except as provided herein, the FT Agreement shall remain in full
force and effect as written and as amended effective March 1, 1995.
5. This Amendment is subject to all applicable, valid laws, orders,
rules and regulations of any governmental entity having jurisdiction over the
parties or the subject matter hereof.
WHEREFORE, the parties have executed this Amendment through their duly
authorized representatives to be effective as of the date first written above.
ATTEST: SOUTHERN NATURAL GAS COMPANY
By: R. David Hendrickson By: Joel A. Anderson
Title: Secretary Title: Vice President
ATTEST: ATLANTA GAS LIGHT COMPANY
By: Melanie M. Platt By: Stephen J. Gunther
Title: Corporate Secretary Title: Vice President
Exhibit 11
<TABLE>
<CAPTION>
SONAT INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
(In Thousands Except Per-Share Amounts)
Primary Earnings Per Share(1)
<S> <C> <C> <C> <C>
Net Income $130,520 $35,292 $185,478 $119,443
======== ======= ======== ========
Common Stock and Common Stock Equivalents:
Weighted Average Number of Shares
of Common Stock Outstanding 86,273 87,192 86,332 87,187
Common Stock Equivalents Applicable
to Outstanding Stock Options 929 1,058 843 959
-------- ------- -------- -------
Weighted Average Number of Shares
of Common Stock and Common Stock
Equivalents Outstanding 87,202 88,250 87,175 88,146
======== ======= ======== =======
Primary Earnings Per Share $ 1.50 $ .40 $ 2.13 $ 1.36
======== ======= ======== =======
</TABLE>
(1) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by Footnote 2 to Paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%. For this
reason, the primary earnings per share amounts shown may not agree with
primary earnings per share shown on the Condensed Consolidated Statements
of Income in Part I.
EXHIBIT 12
SONAT INC. 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,
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings from Continuing Operations:
Income (loss) before income taxes $278,139 $158,309 $154,871 $364,198 $133,728 $ 98,374 $127,811
Fixed charges (see computation below) 129,526 95,988 125,916 128,468 156,428 175,980 165,021
Less allowance for interest capitalized (4,973) (5,037) (6,692) (4,101) (8,422) (7,951) (6,184)
-------- -------- -------- -------- -------- -------- --------
Total Earnings Available for Fixed Charges $402,692 $249,260 $274,095 $488,565 $281,734 $266,403 $286,648
======== ======== ======== ======== ======== ======== ========
Fixed Charges:
Interest expense before deducting
interest capitalized $124,602 $ 91,550 $120,295 $122,204 $149,165 $168,510 $158,550
Rentals(b) 4,924 4,438 5,621 6,264 7,263 7,470 6,471
-------- -------- -------- -------- -------- -------- --------
$129,526 $ 95,988 $125,916 $128,468 $156,428 $175,980 $165,021
======== ======== ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 3.1 2.6 2.2 3.8 1.8 1.5 1.7
======== ======== ======== ======== ======== ======== ========
</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> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 58,143
<SECURITIES> 0
<RECEIVABLES> 256,521
<ALLOWANCES> 0
<INVENTORY> 26,116
<CURRENT-ASSETS> 404,075
<PP&E> 4,720,041
<DEPRECIATION> 2,478,258
<TOTAL-ASSETS> 3,336,900
<CURRENT-LIABILITIES> 462,061
<BONDS> 771,258
<COMMON> 87,252
0
0
<OTHER-SE> 1,414,315
<TOTAL-LIABILITY-AND-EQUITY> 3,336,900
<SALES> 938,952
<TOTAL-REVENUES> 1,425,672
<CGS> 741,795
<TOTAL-COSTS> 917,136
<OTHER-EXPENSES> 208,161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,503
<INCOME-PRETAX> 283,523
<INCOME-TAX> 98,045
<INCOME-CONTINUING> 185,478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 185,478
<EPS-PRIMARY> 2.15
<EPS-DILUTED> 2.15
</TABLE>
