SOUTHERN STAR CENTRAL CORP - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[ X

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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the QUARTERLY PERIOD ended September 30, 2004

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]

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 333-110979

SOUTHERN STAR CENTRAL CORP.

(Exact name of registrant as specified in its charter)

Delaware	04-3712210
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

599 Lexington Avenue, 25^th Floor New York, New York	10022
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (646) 735-0550

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

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 registrant’s classes of common stock, as of the latest practicable date. 79.367 shares as of November 5, 2004.

TABLE OF CONTENTS

SOUTHERN STAR CENTRAL CORP.

Page

PART I – Financial Information

Item 1.

Consolidated Financial Statements and Supplementary Data (Unaudited)

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II – Other Information

Item 1.

Legal Proceedings

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

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements and Supplementary Data

SOUTHERN STAR CENTRAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

		September 30, 2004			December 31, 2003
		(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	42,845		$	65,887
Receivables:
Trade		14,062			13,747
Kansas Ad Valorem tax reimbursement		4,217			42,391
Income taxes		169			163
Affiliates		-			250
Transportation and exchange gas		9,537			1,295
Other		1,415			2,436
Inventories		5,563			5,444
Deferred income taxes		2,175			205
Costs recoverable from customers		2,941			1,557
Prepaid expenses		2,537			4,461
Other		701			669
Total current assets		86,162			138,505

Property, Plant and Equipment, at cost:
Natural gas transmission plant		541,465			510,676
Other natural gas plant		27,445			30,225
		568,910			540,901
Less – Accumulated depreciation and amortization		(45,508	)		( 26,752	)
Property, plant and equipment, net		523, 402			514,149

Other Assets:
Goodwill		35,915			35,915
Costs recoverable from customers		42,329			45,832
Prepaid expenses		1,866			2,026
Other deferred and noncurrent assets		10,486			11,212
Total other assets		90,596			94,985
Total Assets	$	700,160		$	747,639

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

SOUTHERN STAR CENTRAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

		September 30, 2004			December 31, 2003
		(In thousands)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Payables:
Trade	$	2,085		$	1,653
Affiliates		-			127
Transportation and exchange gas		9,537			1,295
Dividends		-			12,500
Other		3,056			4,467
Accrued other taxes		6,797			4,592
Accrued Kansas Ad Valorem tax reimbursement		5,872			45,165
Accrued interest		7,793			7,790
Accrued payroll and employee benefits		12,930			16,035
Contract reformation		-			1,995
Costs refundable to customers		-			441
Other accrued liabilities		9,219			6,696
Capitalized leases due in one year		365			-
Total current liabilities		57,654			102,756

Long-Term Debt:
Capitalized lease obligation		8,635			-
Other long-term debt		404,802			404,740
Total long-term debt		413,437			404,740

Other Liabilities and Deferred Credits:
Deferred income taxes		12,896			5,278
Postretirement benefits other than pensions		6,880			14,061
Mandatorily redeemable preferred stock		49,919			48,265
Costs refundable to customers		1,361			1,864
Environmental remediation		4,791			5,549
Accrued pension		20,521			20,339
Derivative hedging instruments		323			524
Other		1,145			3,004
Total other liabilities and deferred credits		97,836			98,884

Stockholder’s Equity:
Common stock, $.01 par value, 101.587 shares issued,
79.367 shares outstanding, September 30, 2004 and December 31, 2003		-			-
Premium on capital stock and other paid-in capital		128,501			141,001
Accumulated other comprehensive income (loss)		(196	)		(319)
Retained earnings		2,928			577
Total stockholder’s equity		131,233			141,259
Total Liabilities and Stockholder’s Equity	$	700,160		$	747,639

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

SOUTHERN STAR CENTRAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

		Three Months Ended
		September 30, 2004			September 30, 2003

		(In thousands)
Operating Revenues:
Transportation	$	34,967		$	34,414
Storage		4,822			4,927
Other revenue		308			60
Total operating revenues		40,097			39,401

Operating Costs and Expenses:
Operations and maintenance		9,476			8,871
Administrative and general		9,270			9,937
Depreciation and amortization		7,501			6,499
Taxes, other than income taxes		2,767			1,320
Total operating costs and expenses		29,014			26,627

Operating Income		11,083			12,774

Other (Income) Deductions:
Interest expense		10,131			12,175
Interest income		(151	)		(219	)
Miscellaneous other income, net		(201	)		(2,991	)
Total other deductions		9,779			8,965

Income Before Income Taxes		1,304			3,809

Provision for Income Taxes		1,332			2,294

Net Income (Loss)	$	(28	)	$	1,515

Reconciliation of net income (loss) to total comprehensive income:

	September 30, 2004			September 30, 2003
Net income (loss)	$	(28	)	$	1,515
Change in value of interest rate swap		(419	)		(1,081	)
Related tax effect		165			433
Total comprehensive income	$	282		$	867

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

SOUTHERN STAR CENTRAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

		Nine Months Ended
		September 30, 2004			September 30, 2003

		(In thousands)
Operating Revenues:
Transportation	$	108,568		$	106,630
Storage		11,773			11,482
Other revenue		599			303
Total operating revenues		120,940			118,415

Operating Costs and Expenses:
Operations and maintenance		27,811			25,070
Administrative and general		27,381			31,602
Depreciation and amortization		21,981			21,880
Taxes, other than income taxes		8,096			8,224
Total operating costs and expenses		85,269			86,776

Operating Income		35,671			31,639

Other (Income) Deductions:
Interest expense		30,485			32,209
Interest income		(483	)		(479	)
Miscellaneous other income, net		(2,271	)		(3,226	)
Total other deductions		27,731			28,504

Income Before Income Taxes		7,940			3,135

Provision for Income Taxes		5,589			3,471

Net Income (Loss)	$	2,351		$	(336	)

Reconciliation of net income (loss) to total comprehensive income (loss):

	September 30, 2004		September 30, 2003
Net income (loss)	$	2,351	$	(336	)
Change in value of interest rate swap		201		(1,081	)
Related tax effect