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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 (Mark One)
 þ
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2007
 OR
 o
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from          to
 Commission File Number 1-2745
 
 Southern Natural Gas Company
  Delaware
    
    63-0196650(State or Other Jurisdiction
    
    (I.R.S. Employerof Incorporation or Organization)
    
    Identification No.)
 El Paso Building1001 Louisiana StreetHouston, Texas
    
    77002(Address of Principal Executive Offices)
    
    (Zip Code)
 Telephone Number: (713) 420-2600
 þ o
  o o þ
 o þ
   SOUTHERN NATURAL GAS COMPANY MEETS THE CONDITIONS OF GENERAL INSTRUCTION H(1)(a) AND (b) TO
FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH A REDUCED DISCLOSURE FORMAT AS PERMITTED BY SUCH
INSTRUCTION.




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##### 



SOUTHERN NATURAL GAS COMPANY
TABLE OF CONTENTS
 Caption
    
    PagePART I  Financial InformationItem 1.

Financial Statements
    
    
    1Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    8Item 3.

Quantitative and Qualitative Disclosures About Market Risk
    
    
    *Item 4T.

Controls and Procedures
    
    
    11PART II  Other InformationItem 1.

Legal Proceedings
    
    
    12Item 1A.

Risk Factors
    
    
    12Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    *Item 3.

Defaults Upon Senior Securities
    
    
    *Item 4.

Submission of Matters to a Vote of Security Holders
    
    
    *Item 5.

Other Information
    
    
    12Item 6.

Exhibits
    
    
    12Signatures
    
    
    13Fourth Supplemental IndentureCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
  
 *
    
    We have not included a response to this item in this document since no response is required
pursuant to the reduced disclosure format permitted by General Instruction H to Form 10-Q.Below is a list of terms that are common to our industry and used throughout this document: /d
    = per day
    LNG
    = liquefied natural gasBBtu
    = billion British thermal units
    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.




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 SOUTHERN NATURAL GAS COMPANY
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions)
(Unaudited)
 Quarter EndedMarch 31,2007
    
    
    2006Operating revenues
    
    $
    137
    
    
    $
    135Operating expensesOperation and maintenance
    
    
    41
    
    
    
    47Depreciation and amortization
    
    
    14
    
    
    
    13Taxes, other than income taxes
    
    
    6
    
    
    
    861
    
    
    
    68Operating income
    
    
    76
    
    
    
    67Earnings from unconsolidated affiliates
    
    
    26
    
    
    
    13Other income, net
    
    
    7
    
    
    
    3Interest and debt expense
    
    
    (22
    )
    
    
    (23
    )Affiliated interest income
    
    
    4
    
    
    
    4Income before income taxes
    
    
    91
    
    
    
    64Income taxes
    
    
    28
    
    
    
    20Net income
    
    $
    63
    
    
    $
    44
  1




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SOUTHERN NATURAL GAS COMPANY
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
(Unaudited)
 March 31,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    
    
    
    $
    Accounts and notes receivableCustomer
    
    
    10
    
    
    
    9Affiliates
    
    
    31
    
    
    
    33Other
    
    
    9
    
    
    
    3Materials and supplies
    
    
    12
    
    
    
    12Deferred income taxes
    
    
    8
    
    
    
    9Other
    
    
    
    
    
    
    14Total current assets
    
    
    70
    
    
    
    80Property, plant and equipment, at cost
    
    
    3,681
    
    
    
    3,652Less accumulated depreciation and amortization
    
    
    1,355
    
    
    
    1,404Total property, plant and equipment, net
    
    
    2,326
    
    
    
    2,248Other assetsInvestments in unconsolidated affiliates
    
    
    674
    
    
    
    695Notes receivable from affiliate
    
    
    335
    
    
    
    307Other
    
    
    85
    
    
    
    631,094
    
    
    
    1,065Total assets
    
    $
    3,490
    
    
    $
    3,393LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payableTrade
    
    $
    14
    
    
    $
    36Affiliates
    
    
    37
    
    
    
    16Other
    
    
    20
    
    
    
    16Current maturities on long-term debt
    
    
    48
    
    
    
    100Taxes payable
    
    
    63
    
    
    
    51Accrued interest
    
    
    7
    
    
    
    30Other
    
    
    12
    
    
    
    8Total current liabilities
    
    
    201
    
    
    
    257Long-term debt, less current maturities
    
    
    1,198
    
    
    
    1,096Other liabilitiesDeferred income taxes
    
    
    342
    
    
    
    360Other
    
    
    52
    
    
    
    36394
    
    
    
    396Commitments and contingenciesStockholders equityCommon stock, par value $1 per share; 1,000 shares authorized, issued and
outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    340
    
    
    
    340Retained earnings
    
    
    1,362
    
    
    
    1,304Accumulated other comprehensive loss
    
    
    (5
    )
    
    
    Total stockholders equity
    
    
    1,697
    
    
    
    1,644Total liabilities and stockholders equity
    
    $
    3,490
    
    
    $
    3,393
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SOUTHERN NATURAL GAS COMPANY
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Quarter EndedMarch 31,2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    63
    
    
    $
    44Adjustments to reconcile net income to net cash from operating activitiesDepreciation and amortization
    
    
    14
    
    
    
    13Deferred income taxes
    
    
    9
    
    
    
    4Earnings from unconsolidated affiliates, adjusted for cash distributions
    
    
    22
    
    
    
    (1
    )Other non-cash income items
    
    
    (3
    )
    
    
    (1
    )Asset and liability changes
    
    
    (13
    )
    
    
    (47
    )Net cash provided by operating activities
    
    
    92
    
    
    
    12Cash flows from investing activitiesAdditions to property, plant and equipment
    
    
    (88
    )
    
    
    (49
    )Net change in notes receivable from affiliate
    
    
    (28
    )
    
    
    34Net change in restricted cash
    
    
    
    
    
    
    2Other
    
    
    
    
    
    
    1Net cash used in investing activities
    
    
    (116
    )
    
    
    (12
    )Cash flows from financing activitiesNet proceeds from the issuance of long-term debt
    
    
    494
    
    
    
    Payment to retire long-term debt
    
    
    (470
    )
    
    
    Net cash provided by financing activities
    
    
    24
    
    
    
    Net change in cash and cash equivalents
    
    
    
    
    
    
    Cash and cash equivalentsBeginning of period
    
    
    
    
    
    
    End of period
    
    $
    
    
    
    $
    
  3




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SOUTHERN NATURAL GAS COMPANY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Basis of Presentation and Significant Accounting Policies
 Basis of Presentation
  Significant Accounting Policies
  Accounting for Uncertainty in Income Taxes. Accounting for Uncertainty in Income
Taxes. Accounting
for Income Taxes,
 2. Income Taxes
    4




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3. Debt
  4. Commitments and Contingencies
 Legal Proceedings
 Gas Measurement Cases. re: Natural Gas Royalties Qui Tam
Litigation,
 Royalty Claim.
   Environmental Matters
  5




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Other Matter
 Duke Litigation.
 5. Retirement Benefits
 Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements No.
87, 88, 106, and 132(R) Employers Accounting for
Postretirement Benefits Other Than Pensions,
 6. Investments in Unconsolidated Affiliates and Transactions with Affiliates
 Investments in Unconsolidated Affiliates
  2007
    
    2006(in millions)Operating results data:Operating revenues
    
    $
    60
    
    
    $
    58Operating expenses
    
    
    28
    
    
    
    29Income from continuing operations and net income(1)
    
    
    24
    
    
    
    14
 
 (1)
    
    The difference between our proportionate share of our equity investments
net income and our earnings from unconsolidated affiliates is due primarily to the excess
purchase price amortization related to Citrus and differences between the estimated and actual
equity earnings on our investments.  6




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Transactions with Affiliates
 Cash Management Program.
 Notes Receivable
 Accounts Receivable Sales Program.
 Taxes.
  Other Affiliate Balances.
 Affiliate Revenues and Expenses.
 2007
    
    2006(In millions)Revenues from affiliates
    
    $
    2
    
    
    $
    2Operation and maintenance expenses from affiliates(1)
    
    
    17
    
    
    
    18
 
 (1)
    
    Includes expenses related to a
long-term storage contract with an affiliate. 7




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Results of Operations
   2007
    
    
    2006(In millions,except volumes)Operating revenues
    
    $
    137
    
    
    $
    135Operating expenses
    
    
    (61
    )
    
    
    (68
    )Operating income
    
    
    76
    
    
    
    67Earnings from unconsolidated affiliates
    
    
    26
    
    
    
    13Other income, net
    
    
    7
    
    
    
    3EBIT
    
    
    109
    
    
    
    83Interest and debt expense
    
    
    (22
    )
    
    
    (23
    )Affiliated interest income
    
    
    4
    
    
    
    4Income taxes
    
    
    (28
    )
    
    
    (20
    )Net income
    
    $
    63
    
    
    $
    44Throughput volumes (BBtu/d)(1)
    
    
    3,226
    
    
    
    3,043
 
 (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. EBITRevenue
    
    
    Expense
    
    
    Other
    
    
    ImpactFavorable/(Unfavorable)(In millions)Expansions
    
    $
    3
    
    
    $
    (1
    )
    
    $
    3
    
    
    $
    5Gas not used in operations and other natural gas sales
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    3Impact of Hurricane Katrina
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Earnings from Citrus
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    12Other(1)
    
    
    (3
    )
    
    
    3
    
    
    
    2
    
    
    
    2Total impact on EBIT
    
    $
    2
    
    
    $
    7
    
    
    $
    17
    
    
    $
    26
 
 (1)
    
    Consists of individually
insignificant items. Expansions.
 8




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Gas Not Used in Operations and Other Natural Gas Sales.
 Impact of Hurricane Katrina.
 Earnings from Citrus.
 Income Taxes
 Quarter EndedMarch 31,2007
    
    2006(In millions,except for rates)Income taxes
    
    $
    28
    
    
    $
    20Effective tax rate
    
    
    31
    %
    
    
    31
    %
  9




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Liquidity and Capital Expenditures
 Liquidity Overview
     Debt
   Capital Expenditures
 Quarter Ended
    
    
    2007March 31, 2007
    
    
    Remaining
    
    
    Total(In millions)Maintenance
    
    $
    16
    
    
    $
    67
    
    
    $
    83Expansions
    
    
    72
    
    
    
    143
    
    
    
    215$
    88
    
    
    $
    210
    
    
    $
    298
  Hurricanes
  10




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Commitments and Contingencies
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4T. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  11




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 CAUTIONARY
STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS
OFTHE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
 
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  12




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SIGNATURES
  SOUTHERN NATURAL GAS COMPANYDate: May 7, 2007
    /s/     JAMES C. YARDLEYJames C. YardleyChairman of the Board and President
(Principal Executive Officer)Date: May 7, 2007
    /s/     JOHN R. SULTJohn R. SultSenior Vice President,
Chief Financial Officer and Controller
(Principal Accounting and Financial Officer) 13




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SOUTHERN NATURAL GAS COMPANY
 EXHIBIT INDEX
  ExhibitNumber
    
    Description4.A
    
    Third Supplemental Indenture dated as of March 26, 2007 between Southern Natural Gas Company and
The Bank of New York Trust Company, N.A., as trustee (Exhibit 4.A to our Current Report on Form
8-K filed with the SEC on March 28, 2007).4.B
    
    Form of 5.90% Note due 2017 (included as Exhibit A to Exhibit 4.A of our Current Report on Form
8-K filed with the SEC on March 28, 2007).*4.C
    
    Fourth Supplemental Indenture dated as of May 4, 2007 among Southern Natural Gas Company,
Wilmington Trust Company (solely with respect to certain portions thereof) and The Bank of New
York Trust Company, N.A.10.A
    
    Registration Rights Agreement, dated as of March 26, 2007, among Southern Natural Gas Company and
Banc of America Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC,
BNP Paribas Securities Corp., HVB Capital Markets, Inc., Greenwich Capital Markets, Inc., Scotia
Capital (USA) Inc., and SG Americas Securities, LLC (Exhibit 10.A to our Current Report on Form
8-K filed with the SEC on March 28, 2007).*31.A
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*31.B
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.A
    
    Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*32.B
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 14