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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-2745
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SOUTHERN NATURAL GAS COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 63-0196650
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
EL PASO BUILDING
1001 LOUISIANA STREET 77002
HOUSTON, TEXAS (Zip Code)
(Address of Principal Executive Offices)
Telephone Number: (713) 420-2600
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock, par value $1 per share. Shares outstanding on November 12,
2004: 1,000
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SOUTHERN NATURAL GAS COMPANY
TABLE OF CONTENTS
CAPTION PAGE
------- ----
PART I -- Financial Information
Item 1. Financial Statements........................................ 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995................................................... 17
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 17
Item 4. Controls and Procedures..................................... 17
PART II -- Other Information
Item 1. Legal Proceedings........................................... 18
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.................................................. 18
Item 3. Defaults Upon Senior Securities............................. 18
Item 4. Submission of Matters to a Vote of Security Holders......... 18
Item 5. Other Information........................................... 18
Item 6. Exhibits.................................................... 18
Signatures.................................................. 19
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Below is a list of terms that are common to our industry and used
throughout this document:
/d = per day
BBtu = billion British thermal units
Mcf = thousand cubic feet
MMcf = million cubic feet
When we refer to cubic feet measurements, all measurements are at a pressure
of 14.73 pounds per square inch.
When we refer to "us," "we," "our," or "ours," we are describing Southern
Natural Gas Company and/or our subsidiaries.
i
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHERN NATURAL GAS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
(IN MILLIONS)
(UNAUDITED)
NINE MONTHS
QUARTER ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
2004 2003 2004 2003
---- ---- ---- ----
Operating revenues...................................... $121 $111 $367 $342
---- ---- ---- ----
Operating expenses
Operation and maintenance............................. 53 49 147 138
Depreciation, depletion and amortization.............. 13 12 38 35
Taxes, other than income taxes........................ 7 5 19 16
---- ---- ---- ----
73 66 204 189
---- ---- ---- ----
Operating income........................................ 48 45 163 153
Earnings from unconsolidated affiliates................. 21 14 55 42
Other income, net....................................... 2 3 7 9
Interest and debt expense............................... (23) (24) (70) (63)
Affiliated interest income, net......................... 1 1 3 3
---- ---- ---- ----
Income before income taxes.............................. 49 39 158 144
Income taxes............................................ 16 11 50 46
---- ---- ---- ----
Net income.............................................. $ 33 $ 28 $108 $ 98
---- ---- ---- ----
Comprehensive income.................................... $ 33 $ 28 $108 $ 98
==== ==== ==== ====
See accompanying notes.
1
SOUTHERN NATURAL GAS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- ------------
ASSETS
Current assets
Cash and cash equivalents................................. $ -- $ --
Accounts and notes receivable
Customer, net of allowance of $3 in 2004 and 2003...... 58 83
Affiliates............................................. 1 --
Other.................................................. 2 1
Materials and supplies.................................... 11 12
Other..................................................... 14 12
------ ------
Total current assets.............................. 86 108
------ ------
Property, plant and equipment, at cost...................... 3,183 3,055
Less accumulated depreciation, depletion and
amortization........................................... 1,337 1,326
------ ------
Total property, plant and equipment, net.......... 1,846 1,729
------ ------
Other assets
Investments in unconsolidated affiliates.................. 844 788
Notes receivable from affiliate........................... 132 153
Other..................................................... 57 52
------ ------
1,033 993
------ ------
Total assets...................................... $2,965 $2,830
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable
Trade.................................................. $ 40 $ 34
Affiliates............................................. 11 8
Other.................................................. -- 1
Accrued interest.......................................... 10 30
Taxes payable............................................. 96 59
Contractual deposits...................................... 4 13
Other..................................................... 3 5
------ ------
Total current liabilities......................... 164 150
------ ------
Long-term debt.............................................. 1,194 1,194
------ ------
Other liabilities
Deferred income taxes..................................... 301 286
Other..................................................... 52 54
------ ------
353 340
------ ------
Commitments and contingencies
Stockholder's equity
Common stock, par value $1 per share; 1,000 shares
authorized, issued and outstanding..................... -- --
Additional paid-in capital................................ 340 340
Retained earnings......................................... 922 814
Accumulated other comprehensive loss...................... (8) (8)
------ ------
Total stockholder's equity........................ 1,254 1,146
------ ------
Total liabilities and stockholder's equity........ $2,965 $2,830
====== ======
See accompanying notes.
2
SOUTHERN NATURAL GAS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
2004 2003
----- ------
Cash flows from operating activities
Net income................................................ $108 $ 98
Adjustments to reconcile net income to net cash from
operating activities
Depreciation, depletion and amortization............... 38 35
Deferred income tax expense............................ 15 36
Earnings from unconsolidated affiliates, adjusted for
cash distributions.................................... (55) (42)
Other non-cash income items............................ (3) (1)
Asset and liability changes............................ 8 2
---- -----
Net cash provided by operating activities......... 111 128
---- -----
Cash flows from investing activities
Additions to property, plant and equipment................ (132) (181)
Net change in affiliate advances.......................... 21 (6)
Net proceeds from the disposal of assets.................. 4 8
Other..................................................... (4) --
---- -----
Net cash used in investing activities............. (111) (179)
---- -----
Cash flows from financing activities
Net proceeds from the issuance of long-term debt.......... -- 384
Dividends paid............................................ -- (290)
---- -----
Net cash provided by financing activities......... -- 94
---- -----
Net change in cash and cash equivalents..................... -- 43
Cash and cash equivalents
Beginning of period....................................... -- --
---- -----
End of period............................................. $ -- $ 43
==== =====
See accompanying notes.
3
SOUTHERN NATURAL GAS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We are a wholly owned subsidiary of El Paso Corporation (El Paso). We
prepared this Quarterly Report on Form 10-Q under the rules and regulations of
the United States Securities and Exchange Commission. Because this is an interim
period filing presented using a condensed format, it does not include all of the
disclosures required by generally accepted accounting principles. You should
read it along with our 2003 Annual Report on Form 10-K, which includes a summary
of our significant accounting policies and other disclosures. The financial
statements as of September 30, 2004 and for the quarters and nine months ended
September 30, 2004 and 2003, are unaudited. We derived the balance sheet as of
December 31, 2003, from the audited balance sheet filed in our 2003 Form 10-K.
In our opinion, we have made all adjustments which are of a normal, recurring
nature to fairly present our interim period results. Due to the seasonal nature
of our business, information for interim periods may not be indicative of our
results of operations for the entire year. In addition, prior period information
presented in these financial statements includes reclassifications which were
made to conform to the current period presentation. These reclassifications had
no effect on our previously reported net income or stockholder's equity.
Our accounting policies are consistent with those discussed in our 2003
Form 10-K.
2. LIQUIDITY
El Paso is a significant potential source of liquidity to us. We
participate in El Paso's cash management program whereby, depending on whether
we have short-term cash surpluses or requirements, we either provide cash to El
Paso or El Paso provides cash to us. We have historically provided cash advances
to El Paso and as of September 30, 2004, we had a cash advance receivable from
El Paso of $132 million, classified as a non-current asset in our balance sheet.
We believe that our cash flows from operating activities will be adequate to
meet our short term capital and debt service requirements for our existing
operations, therefore we do not believe we will need to seek repayment of these
advances within the next twelve months.
If El Paso were unable to meet its liquidity needs, we would not have
access to this source of liquidity and there is no assurance that El Paso could
repay the amounts owed to us. In that event, we could be required to write-off
some or all of these advances, which could have a material impact on our
stockholder's equity and we would still be required to repay affiliated company
payables, if demanded. Although increases in our debt to EBITDA (as defined in
our agreements) ratio that cause the ratio to exceed 6 to 1 could prohibit us
from incurring additional debt, the equity reduction that would result if we
wrote off these receivables would not result in an event of default under our
existing debt agreements.
During 2004, El Paso restated its historical financial statements to
reflect the accounting impact of revisions to its natural gas and oil reserve
estimates and for changes in the manner in which it accounted for certain
derivative contracts, primarily those related to the hedging of its natural gas
production. El Paso believes that the restatement of its historical financial
statements would have constituted events of default under its revolving credit
facility and various other financings; specifically under the provisions of
those agreements related to representations and warranties on the accuracy of
its historical financial statements and on El Paso's debt to total
capitalization ratio. During 2004, El Paso received a series of waivers on its
revolving credit facility and these other financing transactions to address
these issues. These waivers continue to be in effect. El Paso also received an
extension of time from various lenders until November 30, 2004 to file its
second quarter 2004 Form 10-Q which it expects to meet. If El Paso is unable to
file its second quarter 2004 Form 10-Q by that date and is not able to negotiate
an additional extension of the filing deadline, its revolving credit facility
and various other financings could be accelerated. As part of obtaining the
waivers, El Paso amended various provisions of the revolving credit facility,
including provisions related to events of default and limitations on the ability
of El Paso, as well as its subsidiaries, to prepay debt that matures after June
30, 2005.
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See Note 4 below for a further discussion of the revolving credit facility and
the potential refinancing of this facility.
Based upon a review of the covenants contained in our long-term debt
agreements, we believe that a default on El Paso's revolving credit facility
would not result in an event of default under our debt agreements.
Our equity investment in Bear Creek Storage Company (Bear Creek) serves as
collateral under El Paso's revolving credit facility and other of El Paso's
financing transactions. If El Paso's lenders under these facilities were to
exercise their rights to this collateral, our investment could be liquidated.
However, this liquidation would not constitute an event of default under our
existing debt agreements.
If, as a result of the events described above, El Paso were subject to
voluntary or involuntary bankruptcy proceedings, El Paso and its other
subsidiaries and their creditors could attempt to make claims against us,
including claims to substantively consolidate our assets and liabilities with
those of El Paso and its other subsidiaries. We believe that claims to
substantively consolidate us with El Paso and/or its other subsidiaries would be
without merit. However, there is no assurance that El Paso and/or its other
subsidiaries or their creditors would not advance such a claim in a bankruptcy
proceeding. If we were to be substantively consolidated in a bankruptcy
proceeding with El Paso and/or its other subsidiaries, there could be a material
adverse effect on our financial condition and our liquidity.
3. ACCOUNTING FOR HEDGING ACTIVITIES
As of September 30, 2004 and December 31, 2003, our equity interest in the
value of Citrus Corp.'s (Citrus) cash flow hedges included in accumulated other
comprehensive income was an unrealized loss of $8 million, net of income taxes.
This amount will be reclassified to earnings over the term of Citrus'
outstanding debt. We estimate that $1 million of this unrealized loss will be
reclassified from accumulated other comprehensive loss over the next twelve
months. For the quarters and nine months ended September 30, 2004, and 2003, no
ineffectiveness was recorded in earnings on these cash flow hedges.
4. CREDIT FACILITIES
El Paso maintains a revolving credit facility, with a $1.5 billion letter
of credit sublimit, which matures on June 30, 2005. El Paso liquidated a portion
of the collateral supporting the revolving credit facility, which reduced the
overall borrowing availability from $3 billion to $2.5 billion in October 2004.
We are not a borrower under El Paso's revolving credit facility; however, El
Paso's equity in several of its subsidiaries, including our equity in Bear
Creek, collateralizes the revolving credit facility and other financing
arrangements including leases, letters of credit and other credit facilities.
See Note 2 for a discussion regarding El Paso's waivers on the revolving credit
facility.
El Paso is in the process of negotiating the refinancing of this facility
as the combination of a three year revolving credit facility and a five year
term loan and currently expects to be successful in this refinancing by December
31, 2004.
Under our indentures, we are subject to a number of restrictions and
covenants. The most restrictive of these include (i) limitations on the
incurrence of additional debt, based on a ratio of debt to EBITDA (as defined in
the agreements), the most restrictive of which shall not exceed 6 to 1; (ii)
limitations on the use of proceeds from borrowings; (iii) limitations, in some
cases, on transactions with our affiliates; (iv) limitations on the incurrence
of liens; (v) potential limitations on our ability to declare and pay dividends;
and (vi) potential limitations on our ability to participate in El Paso's cash
management program discussed in Note 7.
5. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Grynberg. In 1997, we and a number of our affiliates were named defendants
in actions brought by Jack Grynberg on behalf of the U.S. Government under the
False Claims Act. Generally, these complaints allege
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an industry-wide conspiracy to underreport the heating value as well as the
volumes of the natural gas produced from federal and Native American lands,
which deprived the U.S. Government of royalties. The plaintiff in this case
seeks royalties that he contends the government should have received had the
volume and heating value been differently measured, analyzed, calculated and
reported, together with interest, treble damages, civil penalties, expenses and
future injunctive relief to require the defendants to adopt allegedly
appropriate gas measurement practices. No monetary relief has been specified in
this case. These matters have been consolidated for pretrial purposes (In re:
Natural Gas Royalties Qui Tam Litigation, U.S. District Court for the District
of Wyoming, filed June 1997). Discovery is proceeding. Our costs and legal
exposure related to these lawsuits and claims are not currently determinable.
Key. We were named as a defendant in Randall Key v. LDI Contractors, Inc.,
et al., filed in 2002 in the Circuit Court of Jefferson County, Alabama. The
plaintiff, an employee of a contractor, suffered paralysis as a result of a
coupling failure during a pipeline repressurization in May 2002. The plaintiff
is seeking compensatory and punitive damages against us and three other
defendants. In September 2004, we reached a settlement with the plaintiff and
two co-defendants. We are continuing to pursue contribution and indemnity claims
against the other co-defendant and their insurers.
Royalty Claim. In five contract settlements reached in the late 1980s with
Elf Aquitaine (Elf) pertaining to the pricing of gas produced from certain
federal offshore blocks, we indemnified Elf against royalty claims that
potentially could have been asserted by the Minerals Management Service (MMS).
Following its settlements with us, Elf received demands from MMS for royalty
payments related to the settlements. With our approval, Elf protested the
demands for over a decade while trying to reach a settlement with the MMS. Elf,
which is now Total E&P USA (Total), has recently advised us that it is now
renewing efforts to settle claims by the MMS for excess royalties attributable
to price reductions that we achieved in the gas contract settlements in the late
1980s. Total has informed us that the MMS is claiming $10.2 million in
royalties, including $7.3 million of interest, for the five settlements with us
and that Total is proposing to make a settlement offer to MMS. If Total cannot
resolve these claims administratively with MMS, then an appeal can be taken to
the federal courts. We have the right under a pre-existing settlement with our
customers to recover through a surcharge payable by our customers a portion of
the amount ultimately paid to MMS under the royalty indemnity with Total.
In addition to the above matters, we and our subsidiaries and affiliates
are named defendants in numerous lawsuits and governmental proceedings that
arise in the ordinary course of our business.
For each of our outstanding legal matters, we evaluate the merits of the
case, our exposure to the matter, possible legal or settlement strategies and
the likelihood of an unfavorable outcome. If we determine that an unfavorable
outcome is probable and can be estimated, we establish the necessary accruals.
As this information becomes available, or other relevant developments occur, we
will adjust our accrual amounts accordingly. While there are still uncertainties
related to the ultimate costs we may incur, based upon our evaluation and
experience to date, we believe our current reserves are adequate. As of
September 30, 2004, we had accrued approximately $1 million for our outstanding
legal matters.
Environmental Matters
We are subject to federal, state and local laws and regulations governing
environmental quality and pollution control. These laws and regulations require
us to remove or remedy the effect on the environment of the disposal or release
of specified substances at current and former operating sites. As of September
30, 2004, we had accrued approximately $2 million for expected remediation costs
and associated onsite, offsite and groundwater technical studies. Our accrual
was based on the most likely outcome that can be reasonably
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estimated. Below is a reconciliation of our environmental remediation
liabilities as of September 30, 2004 (in millions):
Balance as of January 1, 2004............................... $ 3
Additions/adjustments for remediation activity.............. 1
Payments for remediation activities......................... (2)
---
Balance as of September 30, 2004............................ $ 2
===
In addition, we expect to make capital expenditures for environmental
matters of approximately $9 million in the aggregate for the years 2004 through
2006, excluding the Toca Air Permit Violation discussed below. These
expenditures primarily relate to compliance with clean air regulations. For the
remainder of 2004, we estimate that our total remediation expenditures will be
approximately $1 million, which primarily will be expended under government
directed clean-up plans.
Toca Air Permit Violation. In June 2003, we notified the Louisiana
Department of Environmental Quality (LDEQ) that we had discovered possible
compliance issues with respect to operations at our Toca Compressor Station. In
response to a request from the LDEQ, we submitted a report in September 2003
documenting that there had been unpermitted emissions from nine condensate
storage tanks and a tank truck loading station. In December 2003, the LDEQ
issued an order requiring us to correct the existing operating permit and
achieve compliance with federal and state laws and regulations. We are investing
an estimated $6 million to upgrade the environmental controls at the Toca
Compressor Station by 2005. We filed a revised permit application and a plan for
compliance with the LDEQ in January 2004. The LDEQ and the Louisiana Attorney
General's office have agreed to assess a penalty of $66,000 to resolve this
matter.
It is possible that new information or future developments could require us
to reassess our potential exposure related to environmental matters. We may
incur significant costs and liabilities in order to comply with existing
environmental laws and regulations. It is also possible that other developments,
such as increasingly strict environmental laws and regulations and claims for
damages to property, employees, other persons and the environment resulting from
our current or past operations, could result in substantial costs and
liabilities in the future. As this information becomes available, or other
relevant developments occur, we will adjust our accrual amounts accordingly.
While there are still uncertainties relating to the ultimate costs we may incur,
based upon our evaluation and experience to date, we believe our reserves are
adequate.
Rates and Regulatory Matters Rate Case. In August 2004, we filed a new
rate proceeding with the Federal Energy Regulatory Commission (FERC) seeking an
annual rate increase of $35 million, or 11 percent in jurisdictional rates, no
changes to cost allocation, rate design or current fuel retention percentage,
and certain revisions to our effective tariff regarding terms and conditions of
service. In September 2004, the FERC issued a suspension order accepting certain
proposed tariff revisions, including the elimination of right of first refusal
matching term limitations, changes in the imbalance cash-out price calculations,
and permitting formularized discounting as a non-material deviation. These
revisions became effective in October 2004. The order established a technical
conference to assess other proposed tariff revisions, including notice to
exercise public service commission (PSC) outs, restrictions on firm receipt
point amendments, the application of the Storage Reconciliation Mechanism
Surcharge to additional services on our system, and the change in cash-out
pricing for imbalances of less than 2 percent, to become effective on the
earlier of a subsequent order of the FERC or March 2005. The FERC established a
hearing on our proposed rate increase, to become effective in March 2005,
subject to refund and conditions, for July 2005. The FERC staff has indicated
that it will convene the technical conference on remaining tariff issues in
December 2004.
Accounting for Pipeline Assessment Costs. In November 2004, the FERC
issued an industry-wide Proposed Accounting Release that, if enacted as written,
will disallow the capitalization of certain costs that are part of our pipeline
integrity program. The accounting release is proposed to be effective January
2005 following a period of public comment on the release. We are currently
reviewing the release and have not determined what impact this release will have
on our consolidated financial statements.
There are several regulatory rules and orders in various stages of
adoption, review and/or implementation, none of which we believe will have a
material impact on us.
7
While the outcome of our outstanding rates and regulatory matters cannot be
predicted with certainty, based on current information, we do not expect the
ultimate resolution of these matters to have a material adverse effect on our
financial position, operating results or cash flows. However, it is possible
that new information or future developments could require us to reassess our
potential exposure related to these matters.
Other Matters
Atlanta Gas Light. The majority of our contracts for firm transportation
service with our largest customer, Atlanta Gas Light Company (AGL), were due to
expire in 2005. In January 2004, we and AGL executed a Letter of Intent (LOI)
pursuant to which AGL agreed to extend its firm transportation service contracts
with us for 926,534 Mcf/d for a weighted average term of 6.5 years between 2008
and 2015 in exchange for the sale by us to AGL of approximately 250 miles of
certain pipeline facilities and nine measurement facilities in the metropolitan
Atlanta area at a transfer price now estimated at approximately $31 million. We
and AGL reached an agreement on terms for the contract extensions and facility
sales and executed the definitive agreements to implement the transactions
(Triangle Project) in April 2004, subject to approvals by the FERC and the
Georgia Public Service Commission (GPSC). We filed the FERC application in May
2004. That application was the subject of protests and comments by several
parties, including SCANA Energy Marketing. We have filed an answer to the
protests in the proceeding, and the matter is currently pending before the FERC.
AGL filed its Capacity Supply Plan with the GPSC in July 2004. We provided
testimony and briefs in support of AGL at hearings before the GPSC. The GPSC
issued an order in the proceeding in September 2004, generally approving the
Triangle Project, as negotiated between us and AGL. However, the GPSC required
that regulatory out language be included in service agreements between us and
AGL. We and AGL filed for rehearing of the order. In October 2004, the GPSC
approved an alternate ordering paragraph proposed by AGL which eliminated the
regulatory out language.
Enron Bankruptcy. In December 2001, Enron Corp. (Enron) and a number of
its subsidiaries, including Enron North America Corp. (ENA), filed for Chapter
11 bankruptcy protection in the United States Bankruptcy Court for the Southern
District of New York. We had contracts with ENA for, among other things, the
transportation of natural gas. Following the rejection of these contracts by
ENA, we filed a proof of claim totaling $1.9 million with the Bankruptcy Court.
We have fully reserved for the amounts due from ENA.
In addition, we own 50 percent of the outstanding stock of Citrus with
Enron owning the other 50 percent. El Paso and Enron are parties to a Capital
Stock Agreement that governs, among other things, the ownership of capital stock
in Citrus. The Capital Stock Agreement contains restrictions on the
transferability of the capital stock of Citrus. These restrictions include
rights of first refusal if either owner desires to sell its interest in Citrus.
Those shares must first be offered to the other stockholder before the shares
can be sold or transferred to a party other than a wholly-owned subsidiary.
In October 2003, Enron filed a motion with the Bankruptcy Court seeking
approval to assign the Capital Stock Agreement to CrossCountry Energy Corp.,
which would acquire Enron's stock in Citrus and then be distributed to Enron's
creditors. We objected to the motion on the basis that we must consent to the
assignment and that the assignment would effectively circumvent the
transferability restrictions under the Capital Stock Agreement, including our
right of first refusal. The Bankruptcy Court granted the motion to assign the
Capital Stock Agreement in December 2003. In March 2004, Enron gave notice that
this assignment would be effective in April 2004.
In September 2004, an auction was held in Houston, Texas, at which a joint
venture of Southern Union (SU) and General Electric (GE) was declared the
winning bidder for CrossCountry. On September 9, 2004, the Bankruptcy Court
approved a purchase agreement between Enron and SU/GE, in which SU/GE agreed to
acquire 100 percent of the equity interest in CrossCountry. The transaction is
valued at $2.5 billion, including the assumption of certain consolidated debt,
and is anticipated to close in December 2004.
8
Duke. In March 2003, Citrus Trading Corporation (CTC), a direct subsidiary
of Citrus, filed suit against Duke Energy LNG Sales, Inc. (Duke) titled Citrus
Trading Corp. v. Duke Energy LNG Sales, Inc. in the District Court of Harris
County, Texas seeking damages for breach of a gas supply contract.
In April 2003, Duke sent CTC notice of termination of the gas supply
contract alleging failure of CTC to increase the amount of an outstanding letter
of credit backstopping its purchase obligations; filed an answer to CTC's
complaint stating among other reasons that CTC had triggered the early
termination and breached the gas supply contract; and removed the case to
federal court, based on the existence of foreign arbitration with its LNG
supplier, Sonatrading Amsterdam B.V. Sonatrading was alleged to have repudiated
its supply contract with Duke.
In May 2003, CTC notified Duke that it was in default under the gas supply
contract, demanding cover damages for alternate supplies obtained by CTC, and
filed a motion to remand the case back to state court. Subsequently, CTC gave
Duke notice of early termination of the gas supply contract.
In August 2003, Duke filed a third-party petition against Sonatrading. In
October 2003, CTC filed an amended complaint, alleging wrongful contract
termination and specifying damages of $185 million. Also in October 2003, Duke
filed various petitions claiming that Sonatrading's breach of contract resulted
in its being responsible for any damages the court may ultimately find Duke owes
to Citrus. In October 2003, the case was once again removed to federal court. In
November 2003, pursuant to a judicial order, CTC filed an amended complaint
against Duke.
In March 2004, CTC sent a demand letter to PanEnergy Corp., the holding
company of Duke, insisting on a financial guarantee from Duke for the $185
million. In April 2004, CTC filed an amended complaint and counter-claim,
joining PanEnergy to the proceeding. Duke filed an answer and an amended
counter-claim joining Citrus. Following a hearing held on June 4, 2004, Duke's
third-party complaint against Sonatrading was dismissed. In July 2004, CTC filed
a Motion for Partial Summary Judgment, requesting that the court find that it
had not breached its obligations to post adequate security under its gas supply
contract with Duke. In August 2004, Duke filed a Cross Motion for Partial
Summary Judgment, requesting that the court find that it had the right to
terminate its gas sales contract with CTC. CTC filed an Answer on September 3,
2004. On September 16, 2004, Duke filed a reply brief in support of its motion.
An adverse outcome on these matters could impact our investment in Citrus. We do
not expect the ultimate resolution of this matter to have a material adverse
effect on us.
CFTC Investigation. In April 2004, ANR Storage Company and Blue Lake Gas
Storage Company, our affiliates, elected to voluntarily cooperate with the
Commodity Futures Trading Commission (CFTC) in connection with the CFTC's
industry-wide investigation of activities affecting the price of natural gas in
the fall of 2003. Specifically, the CFTC requested that the companies provide
information, on behalf of themselves and their affiliates, relating to storage
reports provided to the Energy Information Administration for the period of
October 2003 through December 2003. We cooperated with the CFTC's investigation
and provided requested information for the relevant time period regarding our
storage operations at Bear Creek and Muldon Field. In August 2004, the CFTC
announced that it had concluded its investigation and found no evidence of
wrongdoing.
While the outcome of these matters cannot be predicted with certainty,
based on current information, we do not expect the ultimate resolution of these
matters to have a material adverse effect on our financial position, operating
results or cash flows. However, it is possible that new information or future
developments could require us to reassess our potential exposure related to
these matters.
9
6. RETIREMENT BENEFITS
The components of our postretirement benefit costs for the periods ended
September 30 are as follows:
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ------------------
2004 2003 2004 2003
---- ---- ----- -----
(IN MILLIONS)
Interest costs....................................... $ 2 $1 $5 $4
Expected return on plan assets....................... (1) -- (2) (2)
Amortization of actuarial loss....................... -- -- 1 --
--- -- -- --
Net postretirement benefit cost...................... $ 1 $1 $4 $2
=== == == ==
7. INVESTMENTS IN UNCONSOLIDATED AFFILIATES AND TRANSACTIONS WITH AFFILIATES
Investments in Unconsolidated Affiliates
Our investments in unconsolidated affiliates consist of our equity
ownership interests in Citrus and Bear Creek. Summarized income statement
information of our proportionate share of our unconsolidated affiliates for the
periods ended September 30 are as follows:
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- -----------------
2004 2003 2004 2003
---- ---- ----- -----
(IN MILLIONS)
Operating results data:
Operating revenues.......................... $68 $63 $191 $183
Operating expenses.......................... 24 30 75 78
Income from continuing operations........... 18 17 50 38
Net income(1)............................... 18 17 52 38
- ---------------
(1) The difference between our proportionate share of our equity investments'
net income and our earnings from unconsolidated affiliates reflected in our
income statement is due primarily to timing differences between the
estimated and actual equity earnings from our investments.
Summarized income statement information of our proportionate share of
Citrus for the periods ended September 30 are as follows:
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- -----------------
2004 2003 2004 2003
---- ---- ----- -----
(IN MILLIONS)
Operating results data:
Operating revenues.......................... $64 $59 $178 $170
Operating expenses.......................... 21 28 69 73
Income from continuing operations........... 18 14 44 29
Net income(1)............................... 18 14 46 29
- ---------------
(1) The difference between our proportionate share of our equity investments'
net income and our earnings from unconsolidated affiliates reflected in our
income statement is due primarily to timing differences between the
estimated and actual equity earnings from our investments.
Transactions with Affiliates
We participate in El Paso's cash management program which matches
short-term cash surpluses and needs of participating affiliates, thus minimizing
total borrowings from outside sources. As of September 30, 2004 and December 31,
2003, we had advanced to El Paso $132 million and $153 million. The interest
rate at September 30, 2004 was 2.7% and at December 31, 2003 was 2.8%. These
receivables are due upon demand; however, as of September 30, 2004 and December
31, 2003, we have classified these advances
10
as non-current notes receivable from affiliates because we do not anticipate
settlement within the next twelve months. See Note 2 for a discussion regarding
our participation in and the collectibility of these receivables.
At September 30, 2004, we had other accounts receivable from affiliates of
$1 million. Also, at September 30, 2004 and December 31, 2003, we had accounts
payable to affiliates of $11 million and $8 million. These balances arose in the
normal course of business. We also received $2 million and $10 million in
deposits related to our transportation contracts with El Paso Marketing L.P.
(formerly El Paso Merchant Energy L.P.) which are included in our balance sheet
as current liabilities as of September 30, 2004 and December 31, 2003.
In the third quarter of 2004, we acquired assets from our affiliate with a
net book value of $4 million.
The following table shows revenues and charges from our affiliates for the
periods ended September 30:
NINE MONTHS
QUARTER ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
2004 2003 2004 2003
---- ---- ---- ----
(IN MILLIONS)
Revenues from affiliates........................ $ 2 $ 6 $ 8 $28
Operations and maintenance expenses from
affiliates.................................... 13 12 34 36
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in Item 2 updates, and should be read in
conjunction with, the information disclosed in our 2003 Annual Report on Form
10-K and the financial statements and notes presented in Item 1 of this
Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS
Our management, as well as El Paso's management, uses earnings before
interest expense and income taxes (EBIT) to assess the operating results and
effectiveness of our business. We define EBIT as net income adjusted for (i)
items that do not impact our income from continuing operations, such as the
impact of accounting changes, (ii) income taxes, (iii) interest and debt expense
and (iv) affiliated interest income. Our business consists of consolidated
operations as well as investments in unconsolidated affiliates. We exclude
interest and debt expense from this measure so that our management can evaluate
our operating results without regard to our financing methods. We believe the
discussion of our results of operations based on EBIT is useful to our investors
because it allows them to more effectively evaluate the operating performance of
both our consolidated business and our unconsolidated investments using the same
performance measure analyzed internally by our management. EBIT may not be
comparable to measurements used by other companies. Additionally, EBIT should be
considered in conjunction with net income and other performance measures such as
operating income or operating cash flow.
The following is a reconciliation of EBIT to net income.
NINE MONTHS
QUARTER ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
2004 2003 2004 2003
------- ------- ------- -------
(IN MILLIONS, EXCEPT VOLUME AMOUNTS)
Operating revenues.................................. $ 121 $ 111 $ 367 $ 342
Operating expenses.................................. (73) (66) (204) (189)
------ ------ ------ ------
Operating income.................................. 48 45 163 153
------ ------ ------ ------
Earnings from unconsolidated affiliates............. 21 14 55 42
Other income, net................................... 2 3 7 9
------ ------ ------ ------
Other............................................. 23 17 62 51
------ ------ ------ ------
EBIT.............................................. 71 62 225 204
Interest and debt expense........................... (23) (24) (70) (63)
Affiliated interest income, net..................... 1 1 3 3
Income taxes........................................ (16) (11) (50) (46)
------ ------ ------ ------
Net income........................................ 33 $ 28 $ 108 $ 98
====== ====== ====== ======
Throughput volumes (BBtu/d)(1)...................... 3,103 2,961 3,225 3,098
====== ====== ====== ======
- ---------------
(1) Throughput volumes include volumes associated with our proportionate share
of our 50 percent equity interest in Citrus and billable transportation
throughput volumes for storage injection.
12
OPERATING RESULTS (EBIT)
Third Quarter 2004 Compared to Third Quarter 2003
The following factors contributed to our overall EBIT increase of $9
million for the quarter ended September 30, 2004 as compared to the same period
in 2003:
REVENUE EXPENSE OTHER EBIT
IMPACT IMPACT IMPACT IMPACT
-------- ------- ------ ------
FAVORABLE/(UNFAVORABLE)
(IN MILLIONS)
Mainline expansions................................... $ 8 $(2) $(1) $ 5
Gas sales activities.................................. 2 (2) -- --
Higher overhead allocation............................ -- (6) -- (6)
Earnings from our equity investment in Citrus......... -- -- 6 6
Other items........................................... -- 3 1 4
--- --- --- ---
Total............................................ $10 $(7) $ 6 $ 9
=== === === ===
Nine Months Ended 2004 Compared to Nine Months Ended 2003
The following factors contributed to our overall EBIT increase of $21
million for the nine months ended September 30, 2004 as compared to the same
period in 2003:
REVENUE EXPENSE OTHER EBIT
IMPACT IMPACT IMPACT IMPACT
------- ------- ------ ------
FAVORABLE/(UNFAVORABLE)
(IN MILLIONS)
Mainline expansions.................................... $27 $ (5) $(4) $18
Interruptible revenue.................................. (2) -- -- (2)
Gas sale activities.................................... (1) 1 -- --
Higher overhead allocation............................. -- (9) -- (9)
Earnings from our equity investment in Citrus.......... -- -- 12 12
Other items............................................ 1 (2) 3 2
--- ---- --- ---
Total............................................. $25 $(15) $11 $21
=== ==== === ===
Our mainline expansions consist of three major projects that were phased
into service from June 2002 through August 2004. In addition, our EBIT increased
due to earnings from our equity investment in Citrus. During the second quarter
of 2004, Citrus sold one of its major trading contracts as a result of its
exiting the trading business. The impact of this sale on our year to date EBIT
is offset by gas sales activities of its trading business in 2003 versus 2004.
In November 2004, the FERC issued an industry-wide Proposed Accounting
Release that, if enacted as written, will disallow the capitalization of certain
costs that are part of our pipeline integrity program. The accounting release is
proposed to be effective January 2005 following a period of public comment on
the release. We are currently reviewing the release and have not determined what
impact this release will have on our consolidated financial statements.
INTEREST AND DEBT EXPENSE
Interest and debt expense for the nine months ended September 30, 2004, was
$7 million higher than the same periods in 2003 primarily due to the issuance in
March 2003 of $400 million senior unsecured notes with an annual interest rate
of 8.875%.
13
INCOME TAXES
NINE MONTHS
QUARTER ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
2004 2003 2004 2003
---- ---- ---- ----
(IN MILLIONS, EXCEPT FOR RATES)
Income taxes.................................... $16 $11 $50 $46
Effective tax rate.............................. 33% 28% 32% 32%
Our effective tax rates were different than the statutory rate of 35
percent in all periods, primarily due to the effect of state income taxes,
offset by the tax effect of earnings from unconsolidated affiliates where we
anticipate receiving dividends.
EXPANSION PROJECTS
During the third quarter of 2004, Phase II of our South System II expansion
project was placed in service. The South System II expansion has a design
capacity of 330 MMcf/d and will increase our firm transportation capacity along
our south mainline to Alabama, Georgia and South Carolina. Current cost
estimates are approximately $253 million, and current expenditures as of
September 30, 2004 are approximately $251 million.
In April 2003, the FERC approved the expansion of our Elba Island LNG
facility to increase the design sendout rate of the facility from 446 MMcf/d to
806 MMcf/d. Current cost estimates for the expansion are approximately $159
million, and current expenditures as of September 30, 2004 are approximately $67
million. Construction commenced in July 2003 with an in-service date expected to
be in February 2006.
OTHER
In September 2004, we incurred significant damage to sections of our
offshore pipeline facilities due to Hurricane Ivan. Cost estimates are currently
in the $40 to $45 million range with damage assessment still in progress. We
expect insurance reimbursement for the cost of the damage with the exception of
our share of a $2 million deductible applied on a corporate-wide basis.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Our liquidity needs have historically been provided through cash flows from
operating activities and the use of El Paso's cash management program. Under El
Paso's cash management program, depending on whether we have short-term cash
surpluses or requirements, we either provide cash to El Paso or El Paso provides
cash to us. We have historically provided cash advances to El Paso, and as of
September 30, 2004, we had a cash advance receivable from El Paso of $132
million classified as a non-current asset in our balance sheet. We believe that
our cash flows from operating activities will be adequate to meet our short term
capital and debt service requirements for our existing operations, therefore we
do not believe we will need to seek repayment of these advances within the next
twelve months.
If El Paso were unable to meet its liquidity needs, we would not have
access to this source of liquidity and there is no assurance that El Paso could
repay the amounts owed to us. In that event, we could be required to write-off
some or all of these advances, which could have a material impact on our
stockholder's equity and we would still be required to repay affiliated company
payables if demanded. Although increases in our debt to EBITDA (as defined in
our agreements) ratio that cause the ratio to exceed 6 to 1 could prohibit us
from incurring additional debt, the equity reduction that would result if we
wrote off these receivables would not result in an event of default under our
existing debt agreements.
During 2004, El Paso restated its historical financial statements to
reflect the accounting impact of revisions to its natural gas and oil reserve
estimates and for changes in the manner in which it accounted for
14
certain derivative contracts, primarily those related to the hedging of its
natural gas production. El Paso believes that the restatement of its historical
financial statements would have constituted events of default under its
revolving credit facility and various other financings; specifically under the
provisions of those agreements related to representations and warranties on the
accuracy of its historical financial statements and on El Paso's debt to total
capitalization ratio. During 2004, El Paso received a series of waivers on its
revolving credit facility and these other financing transactions to address
these issues. These waivers continue to be in effect. El Paso also received an
extension of time from various lenders until November 30, 2004 to file its
second quarter 2004 Form 10-Q which it expects to meet. If El Paso is unable to
file its second quarter 2004 Form 10-Q by that date and is not able to negotiate
an additional extension of the filing deadline, its revolving credit facility
and various other financings could be accelerated. As part of obtaining the
waivers, El Paso amended various provisions of the revolving credit facility,
including provisions related to events of default and limitations on the ability
of El Paso, as well as its subsidiaries, to prepay debt that matures after June
30, 2005. See Item 1, Financial Statements, Note 4, for a further discussion of
the revolving credit facility and the potential refinancing of this facility.
Based upon a review of the covenants contained in our long-term debt
agreements, we believe that a default on El Paso's revolving credit facility
would not result in an event of default under our debt agreements.
Our equity investment in Bear Creek serves as collateral under El Paso's
revolving credit facility and other of El Paso's financing transactions. If El
Paso's lenders under these facilities were to exercise their rights to this
collateral, our investment could be liquidated. However, this liquidation would
not constitute an event of default under our existing debt agreements.
If, as a result of the events described above, El Paso were subject to
voluntary or involuntary bankruptcy proceedings, El Paso and its other
subsidiaries and their creditors could attempt to make claims against us,
including claims to substantively consolidate our assets and liabilities with
those of El Paso and its other subsidiaries. We believe that claims to
substantively consolidate us with El Paso and/or its other subsidiaries would be
without merit. However, there is no assurance that El Paso and/or its other
subsidiaries or their creditors would not advance such a claim in a bankruptcy
proceeding. If we were to be substantively consolidated in a bankruptcy
proceeding with El Paso and/or its other subsidiaries, there could be a material
adverse effect on our financial condition and our liquidity.
Our cash flows for the nine months ended September 30 were as follows:
2004 2003
----- -----
(IN MILLIONS)
Cash flows from operating activities........................ $ 111 $ 128
Cash flows from investing activities........................ (111) (179)
Cash flows from financing activities........................ -- 94(1)
- ---------------
(1) Represents net proceeds from the issuance of $400 million of long-term debt
in March 2003, net of a dividend paid to our parent.
Cash Flows from Operating Activities
Net cash provided by operating activities was $111 million for the first
nine months of 2004 versus $128 million in the same period of 2003. This
decrease was primarily due to a $7 million cash outflow for the replacement of
stored gas and $10 million of customer deposits returned in 2004.
Cash Flows from Investing Activities
Net cash used in investing activities for the nine months ended September
30, 2004 consisted of $132 million in capital expenditures, primarily for our
pipeline and LNG terminal expansions, offset by a $21 million of net advances to
our affiliate.
15
CAPITAL EXPENDITURES
Our capital expenditures for the nine months ended September 30, 2004 were
approximately $132 million. We expect to spend $66 million for the remainder of
2004 for capital expenditures, consisting of $25 million to expand the capacity
of our system and $41 million for maintenance capital. We expect to fund our
maintenance and expansion capital expenditures through a combination of
internally generated funds and/or by recovering amounts advanced to El Paso
under its cash management program.
COMMITMENTS AND CONTINGENCIES
See Item 1, Financial Statements, Note 5, which is incorporated herein by
reference.
16
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Where any forward-looking statement includes a statement of the
assumptions or bases underlying the forward-looking statement, we caution that,
while we believe these assumptions or bases to be reasonable and to be made in
good faith, assumed facts or bases almost always vary from the actual results,
and the differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, we or our management express an expectation or belief as to future
results, that expectation or belief is expressed in good faith and is believed
to have a reasonable basis. We cannot assure you, however, that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect," "estimate," "anticipate" and similar expressions will
generally identify forward-looking statements.
With this in mind, you should consider the risks discussed elsewhere in
this report and other documents we file with the Securities and Exchange
Commission from time to time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information updates, and you should read it in conjunction with,
information disclosed in Part II, Item 7A in our Annual Report on Form 10-K for
the year ended December 31, 2003, in addition to the information presented in
Items 1 and 2 of this Quarterly Report on Form 10-Q.
There are no material changes in our quantitative and qualitative
disclosures about market risks from those reported in our Annual Report on Form
10-K for the year ended December 31, 2003.
ITEM 4. CONTROLS AND PROCEDURES
During 2003, we initiated a project to ensure compliance with Section 404
of the Sarbanes-Oxley Act of 2002 (SOX), which will apply to us at December 31,
2005. This project entailed a detailed review and documentation of the processes
that impact the preparation of our financial statements, an assessment of the
risk that could adversely affect the accurate and timely preparation of those
financial statements, and the identification of the controls in place to
mitigate the risks of untimely or inaccurate preparation of those financial
statements. Following the documentation of theses processes, we initiated an
internal review or "walk-through" of these financial processes by the financial
management responsible for those processes to evaluate the design effectiveness
of the controls identified to mitigate the risk of material misstatements
occurring in our financial statements. We also initiated a detailed process to
evaluate the operating effectiveness of our controls over financial reporting.
This process involves testing the controls for effectiveness, including a review
and inspection of the documentary evidence supporting the operation of the
controls on which we are placing reliance. While we have identified areas where
our processes and internal controls can be improved, we have not identified any
deficiencies we believe, individually or in the aggregate, would constitute a
material weakness in our controls over financial reporting. As we continue our
SOX 404 compliance efforts, we may identify matters which may need to be
reported or which may constitute material weaknesses in our internal controls
over financial reporting.
We did not make any changes to our internal controls over financial
reporting during the quarter ended September 30, 2004, that have had a material
adverse affect or are reasonably likely to have a material adverse effect on our
internal controls over financial reporting. However, we have made changes to
improve our internal controls during the quarter ended September 30, 2004.
We also undertook a review of our overall disclosure controls and
procedures. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our principal
executive and financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. Based on
our evaluation, we have concluded that our disclosure controls and procedures
were effective at September 30, 2004.
17
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I, Item 1, Financial Statements, Note 5, which is incorporated
herein by reference.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Each exhibit identified below is filed as a part of this report. Exhibits
not incorporated by reference to a prior filing are designated by an "*". All
exhibits not so designated are incorporated herein by reference to a prior
filing as indicated.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
*31.A Certification of Chief Executive Officer pursuant to
sec. 302 of the Sarbanes-Oxley Act of 2002.
*31.B Certification of Chief Financial Officer pursuant to
sec. 302 of the Sarbanes-Oxley Act of 2002.
*32.A Certification of Chief Executive Officer pursuant to 18
U.S.C. sec. 1350 as adopted pursuant to sec. 906 of the
Sarbanes-Oxley Act of 2002.
*32.B Certification of Chief Financial Officer pursuant to 18
U.S.C. sec. 1350 as adopted pursuant to sec. 906 of the
Sarbanes-Oxley Act of 2002.
Undertaking
We hereby undertake, pursuant to Regulation S-K, Item 601(b),
paragraph (4)(iii), to furnish to the U.S. Securities and Exchange
Commission, upon request, all constituent instruments defining the rights
of holders of our long-term debt not filed herewith for the reason that the
total amount of securities authorized under any of such instruments does
not exceed 10 percent of our total consolidated assets.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHERN NATURAL GAS COMPANY
Date: November 12, 2004 /s/ JOHN W. SOMERHALDER II
------------------------------------
John W. Somerhalder II
Chairman of the Board and Director
(Principal Executive Officer)
Date: November 12, 2004 /s/ GREG G. GRUBER
------------------------------------
Greg G. Gruber
Senior Vice President,
Chief Financial Officer, Treasurer
and Director
(Principal Financial and Accounting
Officer)
19
SOUTHERN NATURAL GAS COMPANY
EXHIBIT INDEX
Each exhibit identified below is filed as a part of this report. Exhibits
not incorporated by reference to a prior filing are designated by an "*". All
exhibits not so designated are incorporated herein by reference to a prior
filing as indicated.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
*31.A Certification of Chief Executive Officer pursuant to
sec. 302 of the Sarbanes-Oxley Act of 2002.
*31.B Certification of Chief Financial Officer pursuant to
sec. 302 of the Sarbanes-Oxley Act of 2002.
*32.A Certification of Chief Executive Officer pursuant to 18
U.S.C. sec. 1350 as adopted pursuant to sec. 906 of the
Sarbanes-Oxley Act of 2002.
*32.B Certification of Chief Financial Officer pursuant to 18
U.S.C. sec. 1350 as adopted pursuant to sec. 906 of the
Sarbanes-Oxley Act of 2002.