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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) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from
                                    to
 Commission File Number 1-2745
 
 Southern Natural Gas Company
  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
    
    
    13Amendment No. 2 to the Receivables Purchase AgreementCertification of Principal Executive Officer Pursuant to Section 302Certification of Chief Financial Officer Pursuant to Section 302Certification of Principal Executive Officer Pursuant to Section 906Certification of Chief Financial Officer 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 feetBcf
    
    = billion cubic feet
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 SOUTHERN NATURAL GAS COMPANY
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 Quarter Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Operating revenues
    
    $
    138
    
    
    $
    130
    
    
    $
    406
    
    
    $
    392Operating expensesOperation and maintenance
    
    
    52
    
    
    
    49
    
    
    
    142
    
    
    
    143Depreciation and amortization
    
    
    15
    
    
    
    14
    
    
    
    44
    
    
    
    41Taxes, other than income taxes
    
    
    8
    
    
    
    7
    
    
    
    22
    
    
    
    2175
    
    
    
    70
    
    
    
    208
    
    
    
    205Operating income
    
    
    63
    
    
    
    60
    
    
    
    198
    
    
    
    187Earnings from unconsolidated affiliates
    
    
    26
    
    
    
    22
    
    
    
    77
    
    
    
    58Other income, net
    
    
    1
    
    
    
    3
    
    
    
    12
    
    
    
    6Interest and debt expense
    
    
    (22
    )
    
    
    (24
    )
    
    
    (65
    )
    
    
    (71
    )Affiliated interest income
    
    
    7
    
    
    
    5
    
    
    
    16
    
    
    
    14Income before income taxes
    
    
    75
    
    
    
    66
    
    
    
    238
    
    
    
    194Income taxes
    
    
    23
    
    
    
    21
    
    
    
    73
    
    
    
    61Net income
    
    
    52
    
    
    
    45
    
    
    
    165
    
    
    
    133Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Comprehensive income
    
    $
    52
    
    
    $
    45
    
    
    $
    166
    
    
    $
    134
  1




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SOUTHERN NATURAL GAS COMPANY
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
(Unaudited)
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    
    
    
    $
    Accounts and notes receivableCustomer
    
    
    2
    
    
    
    9Affiliates
    
    
    78
    
    
    
    33Other
    
    
    8
    
    
    
    3Materials and supplies
    
    
    14
    
    
    
    12Deferred income taxes
    
    
    5
    
    
    
    9Other
    
    
    10
    
    
    
    14Total current assets
    
    
    117
    
    
    
    80Property, plant and equipment, at cost
    
    
    3,814
    
    
    
    3,652Less accumulated depreciation and amortization
    
    
    1,398
    
    
    
    1,404Total property, plant and equipment, net
    
    
    2,416
    
    
    
    2,248Other assetsInvestments in unconsolidated affiliates
    
    
    642
    
    
    
    695Notes receivable from affiliate
    
    
    366
    
    
    
    307Other
    
    
    85
    
    
    
    631,093
    
    
    
    1,065Total assets
    
    $
    3,626
    
    
    $
    3,393LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payableTrade
    
    $
    13
    
    
    $
    36Affiliates
    
    
    11
    
    
    
    16Other
    
    
    22
    
    
    
    16Current maturities of long-term debt
    
    
    148
    
    
    
    100Taxes payable
    
    
    103
    
    
    
    51Accrued interest
    
    
    21
    
    
    
    30Other
    
    
    10
    
    
    
    8Total current liabilities
    
    
    328
    
    
    
    257Long-term debt, less current maturities
    
    
    1,098
    
    
    
    1,096Other liabilitiesDeferred income taxes
    
    
    351
    
    
    
    360Other
    
    
    49
    
    
    
    36400
    
    
    
    396Commitments and contingencies (Note 4)Stockholders equityCommon stock, par value $1 per share; 1,000 shares authorized, issued and
outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    340
    
    
    
    340Retained earnings
    
    
    1,464
    
    
    
    1,304Accumulated other comprehensive loss
    
    
    (4
    )
    
    
    Total stockholders equity
    
    
    1,800
    
    
    
    1,644Total liabilities and stockholders equity
    
    $
    3,626
    
    
    $
    3,393
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SOUTHERN NATURAL GAS COMPANY
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    165
    
    
    $
    133Adjustments to reconcile net income to net cash from operating activitiesDepreciation and amortization
    
    
    44
    
    
    
    41Deferred income taxes
    
    
    25
    
    
    
    10Earnings from unconsolidated affiliates, adjusted for cash distributions
    
    
    54
    
    
    
    8Other non-cash income items
    
    
    (6
    )
    
    
    (1
    )Asset and liability changes
    
    
    13
    
    
    
    2Net cash provided by operating activities
    
    
    295
    
    
    
    193Cash flows from investing activitiesAdditions to property, plant and equipment
    
    
    (210
    )
    
    
    (186
    )Net change in notes receivable from affiliate
    
    
    (109
    )
    
    
    (15
    )Other
    
    
    
    
    
    
    8Net cash used in investing activities
    
    
    (319
    )
    
    
    (193
    )Cash flows from financing activitiesNet proceeds from 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.
 Calpine Corporation (Calpine)
  5




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Environmental Matters
   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
  Quarter Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006(In millions)Operating results data:Operating revenues
    
    $
    73
    
    
    $
    69
    
    
    $
    202
    
    
    $
    197Operating expenses
    
    
    28
    
    
    
    29
    
    
    
    84
    
    
    
    86Income from continuing operations and net income(1)
    
    
    24
    
    
    
    21
    
    
    
    74
    
    
    
    57
 
 (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
 El Paso Master Limited
Partnership (MLP).
 Cash Management Program.
 Other Notes Receivable
 Accounts Receivable Sales Program.
 Taxes.
  Affiliate Revenues and Expenses.
 Quarter Ended
    
    Nine Months EndedSeptember 30,
    

September 30,2007
    
    2006
    
    2007
    
    2006(In millions)Revenues from affiliates
    
    $
    2
    
    
    $
    2
    
    
    $
    5
    
    
    $
    7Operation and maintenance expenses from affiliates
    
    
    18
    
    
    
    15
    
    
    
    53
    
    
    
    49
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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
    
    $
    406
    
    
    $
    392Operating expenses
    
    
    (208
    )
    
    
    (205
    )Operating income
    
    
    198
    
    
    
    187Earnings from unconsolidated affiliates
    
    
    77
    
    
    
    58Other income, net
    
    
    12
    
    
    
    6EBIT
    
    
    287
    
    
    
    251Interest and debt expense
    
    
    (65
    )
    
    
    (71
    )Affiliated interest income
    
    
    16
    
    
    
    14Income taxes
    
    
    (73
    )
    
    
    (61
    )Net income
    
    $
    165
    
    
    $
    133Throughput volumes (BBtu/d)(1)
    
    
    3,364
    
    
    
    3,224
 
 (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
    
    $
    20
    
    
    $
    (2
    )
    
    $
    5
    
    
    $
    23Gas not used in operations and other natural gas sales
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Impact of Hurricane Katrina
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    10Earnings from Citrus
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    18Service revenues
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )Project costs
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Other(1)
    
    
    
    
    
    
    (7
    )
    
    
    2
    
    
    
    (5
    )Total impact on EBIT
    
    $
    14
    
    
    $
    (3
    )
    
    $
    25
    
    
    $
    36
 
 (1)
    
    Consists of individually insignificant items. Expansions.
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Gas Not Used in Operations and Other Natural Gas Sales.
 Impact of Hurricane Katrina.
 Earnings from Citrus.
 Service Revenues.
 Project Costs.
 Interest and Debt Expense
  Income Taxes
  9




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Liquidity and Capital Expenditures
 Liquidity Overview.
   Debt.
   10




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Capital Expenditures.
 Nine Months Ended
    
    
    2007September 30, 2007
    
    
    Remaining(1)
    
    
    Total(In millions)Maintenance
    
    $
    57
    (2)
    
    $
    29
    
    
    $
    86Expansions
    
    
    153
    
    
    
    52
    
    
    
    205$
    210
    
    
    $
    81
    
    
    $
    291
 
 (1)
    
    Amount includes maintenance and expansion capital of approximately $1 million and
$20 million respectively related to SLNG.(2)
    
    Amount includes $3 million of insurance proceeds received in excess of capital
expenditures related to hurricanes. Hurricanes.
 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 OF
THE 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: November 5, 2007
    
    /s/            JAMES C. YARDLEYJames C. YardleyChairman of the Board and President(Principal Executive Officer)Date: November 5, 2007
    
    /s/            JOHN R. SULTJohn R. SultSenior Vice President,Chief Financial Officer and Controller(Principal Accounting and Financial Officer)
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SOUTHERN NATURAL GAS COMPANY
 EXHIBIT INDEX
  ExhibitNumber
    
    Description10.A
    
    Amendment No. 2, dated as of October 4, 2007, to the Receivables Purchase Agreement dated as of
October 6, 2006 among SNG Funding Company, L.L.C., Southern Natural Gas Company, as initial
Servicer, Starbird Funding Corporation and other funding entities from time to time party hereto
as Investors, BNP Paribas, New York Branch, and the other financial institutions from time to time
party hereto as Managing Agents, and BNP Paribas, New York Branch, as Program Agent.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