form10-q2ndqtr2008.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
Form
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended June 30, 2008
Commission
File Number 1-7850
SOUTHWEST
GAS CORPORATION
(Exact
name of registrant as specified in its charter)
California
|
|
88-0085720
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
|
|
|
5241
Spring Mountain Road
|
|
|
Post
Office Box 98510
|
|
|
Las
Vegas, Nevada
|
|
89193-8510
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (702) 876-7237
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 a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See
definition of “large accelerated filer,” “accelerated filer”, “non-accelerated
filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer X
|
Accelerated
filer __
|
Non-accelerated
filer __
|
Smaller
reporting company
__
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Indicate
the number of shares outstanding of each of the issuer’s classes of common stock
as of the latest practicable date.
Common
Stock, $1 Par Value, 43,532,836 shares as of August 1, 2008.
SOUTHWEST GAS
CORPORATION
|
|
|
|
|
Form
10-Q
|
|
June 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PART I - FINANCIAL
INFORMATION
|
|
|
|
|
|
|
|
|
ITEM
1. FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOUTHWEST
GAS CORPORATION AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(Thousands
of dollars, except par value)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
JUNE
30,
|
|
|
DECEMBER
31,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Utility
plant:
|
|
|
|
|
|
|
Gas
plant
|
|
$ |
4,177,855 |
|
|
$ |
4,043,936 |
|
Less:
accumulated depreciation
|
|
|
(1,309,729 |
) |
|
|
(1,261,867 |
) |
Acquisition
adjustments, net
|
|
|
1,722 |
|
|
|
1,812 |
|
Construction
work in progress
|
|
|
42,301 |
|
|
|
61,419 |
|
Net
utility plant
|
|
|
2,912,149 |
|
|
|
2,845,300 |
|
Other
property and investments
|
|
|
145,134 |
|
|
|
143,097 |
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
16,511 |
|
|
|
31,991 |
|
Accounts
receivable, net of allowances
|
|
|
139,628 |
|
|
|
203,660 |
|
Accrued
utility revenue
|
|
|
33,700 |
|
|
|
74,900 |
|
Income
taxes receivable, net
|
|
|
223 |
|
|
|
14,286 |
|
Deferred
income taxes
|
|
|
7,752 |
|
|
|
6,965 |
|
Deferred
purchased gas costs
|
|
|
- |
|
|
|
33,946 |
|
Prepaids
and other current assets
|
|
|
71,599 |
|
|
|
136,711 |
|
Total
current assets
|
|
|
269,413 |
|
|
|
502,459 |
|
Deferred
charges and other assets
|
|
|
165,534 |
|
|
|
179,332 |
|
Total
assets
|
|
$ |
3,492,230 |
|
|
$ |
3,670,188 |
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION
AND LIABILITIES
|
|
|
|
|
|
|
|
|
Capitalization:
|
|
|
|
|
|
|
|
|
Common
stock, $1 par (authorized - 60,000,000 shares; issued
|
|
|
|
|
|
|
|
|
and
outstanding - 43,462,193 and 42,805,706 shares)
|
|
$ |
45,092 |
|
|
$ |
44,436 |
|
Additional
paid-in capital
|
|
|
750,685 |
|
|
|
732,319 |
|
Accumulated
other comprehensive income (loss), net
|
|
|
(12,445 |
) |
|
|
(12,850 |
) |
Retained
earnings
|
|
|
246,617 |
|
|
|
219,768 |
|
Total
equity
|
|
|
1,029,949 |
|
|
|
983,673 |
|
Subordinated
debentures due to Southwest Gas Capital II
|
|
|
100,000 |
|
|
|
100,000 |
|
Long-term
debt, less current maturities
|
|
|
1,168,733 |
|
|
|
1,266,067 |
|
Total
capitalization
|
|
|
2,298,682 |
|
|
|
2,349,740 |
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
|
38,040 |
|
|
|
38,079 |
|
Short-term
debt
|
|
|
- |
|
|
|
9,000 |
|
Accounts
payable
|
|
|
98,047 |
|
|
|
220,731 |
|
Customer
deposits
|
|
|
79,047 |
|
|
|
75,019 |
|
Accrued
general taxes
|
|
|
38,361 |
|
|
|
44,637 |
|
Accrued
interest
|
|
|
20,682 |
|
|
|
21,290 |
|
Deferred
purchased gas costs
|
|
|
31,533 |
|
|
|
46,088 |
|
Other
current liabilities
|
|
|
80,596 |
|
|
|
73,088 |
|
Total
current liabilities
|
|
|
386,306 |
|
|
|
527,932 |
|
Deferred
income taxes and other credits:
|
|
|
|
|
|
|
|
|
Deferred
income taxes and investment tax credits
|
|
|
357,743 |
|
|
|
347,497 |
|
Taxes
payable
|
|
|
4,093 |
|
|
|
4,387 |
|
Accumulated
removal costs
|
|
|
157,000 |
|
|
|
146,000 |
|
Other
deferred credits
|
|
|
288,406 |
|
|
|
294,632 |
|
Total
deferred income taxes and other credits
|
|
|
807,242 |
|
|
|
792,516 |
|
Total
capitalization and liabilities
|
|
$ |
3,492,230 |
|
|
$ |
3,670,188 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
SOUTHWEST GAS
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Form
10-Q
|
|
June 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOUTHWEST
GAS CORPORATION AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
|
|
(In
thousands, except per share amounts)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE
MONTHS ENDED
|
|
|
SIX
MONTHS ENDED
|
|
|
TWELVE
MONTHS ENDED
|
|
|
|
JUNE
30,
|
|
|
JUNE
30,
|
|
|
JUNE
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Operating
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
operating revenues
|
|
$ |
353,003 |
|
|
$ |
344,233 |
|
|
$ |
1,094,303 |
|
|
$ |
1,071,248 |
|
|
$ |
1,837,821 |
|
|
$ |
1,836,332 |
|
Construction
revenues
|
|
|
94,301 |
|
|
|
82,304 |
|
|
|
166,608 |
|
|
|
149,005 |
|
|
|
354,925 |
|
|
|
300,836 |
|
Total
operating revenues
|
|
|
447,304 |
|
|
|
426,537 |
|
|
|
1,260,911 |
|
|
|
1,220,253 |
|
|
|
2,192,746 |
|
|
|
2,137,168 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cost of gas sold
|
|
|
204,580 |
|
|
|
198,417 |
|
|
|
705,279 |
|
|
|
692,628 |
|
|
|
1,098,845 |
|
|
|
1,114,296 |
|
Operations
and maintenance
|
|
|
83,603 |
|
|
|
83,090 |
|
|
|
168,809 |
|
|
|
167,625 |
|
|
|
332,392 |
|
|
|
333,158 |
|
Depreciation
and amortization
|
|
|
48,208 |
|
|
|
45,455 |
|
|
|
95,478 |
|
|
|
90,077 |
|
|
|
187,915 |
|
|
|
176,405 |
|
Taxes
other than income taxes
|
|
|
9,616 |
|
|
|
9,938 |
|
|
|
19,810 |
|
|
|
20,405 |
|
|
|
36,958 |
|
|
|
39,162 |
|
Construction
expenses
|
|
|
84,009 |
|
|
|
71,992 |
|
|
|
150,267 |
|
|
|
130,985 |
|
|
|
313,314 |
|
|
|
260,993 |
|
Total
operating expenses
|
|
|
430,016 |
|
|
|
408,892 |
|
|
|
1,139,643 |
|
|
|
1,101,720 |
|
|
|
1,969,424 |
|
|
|
1,924,014 |
|
Operating
income
|
|
|
17,288 |
|
|
|
17,645 |
|
|
|
121,268 |
|
|
|
118,533 |
|
|
|
223,322 |
|
|
|
213,154 |
|
Other
income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest deductions
|
|
|
(21,390 |
) |
|
|
(21,766 |
) |
|
|
(43,258 |
) |
|
|
(43,269 |
) |
|
|
(88,461 |
) |
|
|
(86,672 |
) |
Net
interest deductions on subordinated debentures
|
|
|
(1,932 |
) |
|
|
(1,932 |
) |
|
|
(3,864 |
) |
|
|
(3,863 |
) |
|
|
(7,728 |
) |
|
|
(7,725 |
) |
Other
income (deductions)
|
|
|
353 |
|
|
|
4,416 |
|
|
|
(409 |
) |
|
|
6,273 |
|
|
|
(46 |
) |
|
|
13,457 |
|
Total
other income and (expenses)
|
|
|
(22,969 |
) |
|
|
(19,282 |
) |
|
|
(47,531 |
) |
|
|
(40,859 |
) |
|
|
(96,235 |
) |
|
|
(80,940 |
) |
Income
(loss) before income taxes
|
|
|
(5,681 |
) |
|
|
(1,637 |
) |
|
|
73,737 |
|
|
|
77,674 |
|
|
|
127,087 |
|
|
|
132,214 |
|
Income
tax expense (benefit)
|
|
|
(2,956 |
) |
|
|
(1,300 |
) |
|
|
27,310 |
|
|
|
28,247 |
|
|
|
46,841 |
|
|
|
46,816 |
|
Net
income (loss)
|
|
$ |
(2,725 |
) |
|
$ |
(337 |
) |
|
$ |
46,427 |
|
|
$ |
49,427 |
|
|
$ |
80,246 |
|
|
$ |
85,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share
|
|
$ |
(0.06 |
) |
|
$ |
(0.01 |
) |
|
$ |
1.08 |
|
|
$ |
1.17 |
|
|
$ |
1.87 |
|
|
$ |
2.05 |
|
Diluted
earnings (loss) per share
|
|
$ |
(0.06 |
) |
|
$ |
(0.01 |
) |
|
$ |
1.07 |
|
|
$ |
1.16 |
|
|
$ |
1.86 |
|
|
$ |
2.03 |
|
Dividends
declared per share
|
|
$ |
0.225 |
|
|
$ |
0.215 |
|
|
$ |
0.45 |
|
|
$ |
0.43 |
|
|
$ |
0.88 |
|
|
$ |
0.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of common shares outstanding
|
|
|
43,324 |
|
|
|
42,226 |
|
|
|
43,168 |
|
|
|
42,103 |
|
|
|
42,865 |
|
|
|
41,691 |
|
Average
shares outstanding (assuming dilution)
|
|
|
- |
|
|
|
- |
|
|
|
43,466 |
|
|
|
42,516 |
|
|
|
43,186 |
|
|
|
42,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
SOUTHWEST GAS
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
Form
10-Q
|
|
June 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOUTHWEST
GAS CORPORATION AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Thousands
of dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIX
MONTHS ENDED
|
|
|
TWELVE
MONTHS ENDED
|
|
|
|
JUNE
30,
|
|
|
JUNE
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
CASH
FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
46,427 |
|
|
$ |
49,427 |
|
|
$ |
80,246 |
|
|
$ |
85,398 |
|
Adjustments
to reconcile net income to net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
95,478 |
|
|
|
90,077 |
|
|
|
187,915 |
|
|
|
176,405 |
|
Deferred
income taxes
|
|
|
9,211 |
|
|
|
(26,385 |
) |
|
|
51,664 |
|
|
|
(13,932 |
) |
Changes
in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net of allowances
|
|
|
64,032 |
|
|
|
84,328 |
|
|
|
1,972 |
|
|
|
(11,123 |
) |
Accrued
utility revenue
|
|
|
41,200 |
|
|
|
40,200 |
|
|
|
(600 |
) |
|
|
100 |
|
Deferred
purchased gas costs
|
|
|
19,391 |
|
|
|
59,923 |
|
|
|
48,617 |
|
|
|
71,859 |
|
Accounts
payable
|
|
|
(122,684 |
) |
|
|
(157,807 |
) |
|
|
(9,885 |
) |
|
|
25,230 |
|
Accrued
taxes
|
|
|
7,493 |
|
|
|
29,400 |
|
|
|
(38,444 |
) |
|
|
12,940 |
|
Other
current assets and liabilities
|
|
|
47,451 |
|
|
|
69,544 |
|
|
|
2,879 |
|
|
|
5,781 |
|
Other
|
|
|
(7,666 |
) |
|
|
(2,869 |
) |
|
|
(12,058 |
) |
|
|
(5,250 |
) |
Net
cash provided by operating activities
|
|
|
200,333 |
|
|
|
235,838 |
|
|
|
312,306 |
|
|
|
347,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
expenditures and property additions
|
|
|
(153,609 |
) |
|
|
(174,083 |
) |
|
|
(320,401 |
) |
|
|
(368,617 |
) |
Other
|
|
|
44,532 |
|
|
|
17,521 |
|
|
|
35,951 |
|
|
|
31,133 |
|
Net
cash used in investing activities
|
|
|
(109,077 |
) |
|
|
(156,562 |
) |
|
|
(284,450 |
) |
|
|
(337,484 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock, net
|
|
|
19,022 |
|
|
|
21,007 |
|
|
|
33,112 |
|
|
|
56,139 |
|
Dividends
paid
|
|
|
(19,003 |
) |
|
|
(17,688 |
) |
|
|
(37,586 |
) |
|
|
(34,867 |
) |
Issuance
of long-term debt
|
|
|
32,427 |
|
|
|
66,952 |
|
|
|
94,069 |
|
|
|
123,516 |
|
Retirement
of long-term debt
|
|
|
(30,182 |
) |
|
|
(55,589 |
) |
|
|
(116,684 |
) |
|
|
(135,538 |
) |
Change
in long-term portion of credit facility
|
|
|
(100,000 |
) |
|
|
(92,000 |
) |
|
|
(5,000 |
) |
|
|
(7,000 |
) |
Change
in short-term debt
|
|
|
(9,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
cash provided by (used in) financing activities
|
|
|
(106,736 |
) |
|
|
(77,318 |
) |
|
|
(32,089 |
) |
|
|
2,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in cash and cash equivalents
|
|
|
(15,480 |
) |
|
|
1,958 |
|
|
|
(4,233 |
) |
|
|
12,174 |
|
Cash
at beginning of period
|
|
|
31,991 |
|
|
|
18,786 |
|
|
|
20,744 |
|
|
|
8,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$ |
16,511 |
|
|
$ |
20,744 |
|
|
$ |
16,511 |
|
|
$ |
20,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid, net of amounts capitalized
|
|
$ |
46,207 |
|
|
$ |
43,705 |
|
|
$ |
95,837 |
|
|
$ |
90,470 |
|
Income
taxes paid
|
|
|
3,693 |
|
|
|
17,994 |
|
|
|
30,724 |
|
|
|
45,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
Note
1 – Nature of Operations and Basis of Presentation
Nature of
Operations. Southwest Gas Corporation and its subsidiaries
(the “Company”) is composed of two segments: natural gas operations (“Southwest”
or the “natural gas operations” segment) and construction services (Northern
Pipeline Construction Co. “NPL” or the “construction services”
segment). Southwest is engaged in the business of purchasing,
distributing, and transporting natural gas to customers in portions of Arizona,
Nevada, and California. The public utility rates, practices, facilities, and
service territories of Southwest are subject to regulatory oversight. The timing
and amount of rate relief can materially impact results of operations. Natural
gas sales are seasonal, peaking during the winter months; therefore, results of
operations for interim periods are not necessarily indicative of the results for
a full year. Variability in weather from normal temperatures can materially
impact results of operations. Natural gas purchases and the timing of related
recoveries can materially impact liquidity. NPL, a wholly owned
subsidiary, is a full-service underground piping contractor that provides
utility companies with trenching and installation, replacement, and maintenance
services for energy distribution systems.
Basis of
Presentation. The condensed consolidated financial statements
included herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
(“GAAP”) have been condensed or omitted pursuant to such rules and regulations.
The preparation of the condensed consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. In the opinion of management, all adjustments, consisting of normal
recurring items and estimates necessary for a fair presentation of the results
for the interim periods, have been made. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the 2007 Annual Report to
Shareholders, which is incorporated by reference into the 2007 Form 10-K,
and the first quarter 2008 Form 10-Q.
Intercompany
Transactions. NPL recognizes revenues generated from contracts
with Southwest (see Note
3 below). Accounts receivable for these services were $6.9 million at
June 30, 2008 and $6.1 million at December 31, 2007. The accounts
receivable balance, revenues, and associated profits are included in the
condensed consolidated financial statements of the Company and were not
eliminated during consolidation in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 71, “Accounting for the Effects of Certain
Types of Regulation.”
Recently Issued Accounting
Pronouncements. In December 2007, the
Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (revised
2007), “Business Combinations.” SFAS No. 141 (revised 2007) provides
guidelines for the presentation and measurement of assets and liabilities
acquired in a business combination and requires the disclosure of information
necessary to evaluate the nature and financial effect of a business
combination. The provisions of SFAS No. 141 (revised 2007) are
effective for the Company for acquisitions that occur on or after January 1,
2009. The Company is evaluating what impact, if any, this standard
might have on its financial position or results of operations.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51.” SFAS
No. 160 requires all entities to report minority interests in subsidiaries as
equity in the consolidated financial statements. The provisions of
SFAS No. 160 are effective for the Company beginning January 1,
2009. The Company is evaluating what impact, if any, this standard
might have on its financial position or results of operations.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities - An Amendment of FASB Statement No.
133.” SFAS No. 161 requires
enhanced disclosures about an entity’s derivative and hedging activities.
The provisions of SFAS No. 161 are effective for the Company beginning
January 1, 2009. The Company is evaluating what impact this
standard might have on its financial disclosures.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies (in accounting
literature instead of auditing literature) the sources of accounting principles
and the
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
framework
for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with GAAP in the
United States (the GAAP hierarchy). The provisions of SFAS No. 162
are effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. The
adoption of the standard is not expected to have a material impact on the
financial position or results of operations of the Company.
Note
2 – Components of Net Periodic Benefit Cost
Southwest
has a noncontributory qualified retirement plan with defined benefits covering
substantially all employees and a separate unfunded supplemental retirement plan
(“SERP”) which is limited to officers. Southwest also provides
postretirement benefits other than pensions (“PBOP”) to its qualified retirees
for health care, dental, and life insurance benefits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
Retirement Plan
|
|
|
|
Period
Ended June 30,
|
|
|
|
Three
Months
|
|
|
Six
Months
|
|
|
Twelve
Months
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
4,027 |
|
|
$ |
4,122 |
|
|
$ |
8,054 |
|
|
$ |
8,245 |
|
|
$ |
16,300 |
|
|
$ |
16,387 |
|
Interest
cost
|
|
|
8,123 |
|
|
|
7,311 |
|
|
|
16,245 |
|
|
|
14,622 |
|
|
|
30,867 |
|
|
|
28,025 |
|
Expected
return on plan assets
|
|
|
(8,678 |
) |
|
|
(8,258 |
) |
|
|
(17,356 |
) |
|
|
(16,516 |
) |
|
|
(33,870 |
) |
|
|
(31,820 |
) |
Amortization
of prior service costs (credits)
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(11 |
) |
|
|
(10 |
) |
Amortization
of net loss
|
|
|
776 |
|
|
|
1,252 |
|
|
|
1,552 |
|
|
|
2,503 |
|
|
|
4,056 |
|
|
|
5,179 |
|
Net
periodic benefit cost
|
|
$ |
4,245 |
|
|
$ |
4,424 |
|
|
$ |
8,490 |
|
|
$ |
8,849 |
|
|
$ |
17,342 |
|
|
$ |
17,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP
|
|
|
|
Period
Ended June 30,
|
|
|
Three
Months
|
|
Six
Months
|
|
Twelve
Months
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
24 |
|
|
$ |
38 |
|
|
$ |
49 |
|
|
$ |
77 |
|
|
$ |
125 |
|
|
$ |
183 |
|
Interest
cost
|
|
|
511 |
|
|
|
487 |
|
|
|
1,021 |
|
|
|
974 |
|
|
|
1,995 |
|
|
|
1,920 |
|
Amortization
of prior service costs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4 |
|
Amortization
of net loss
|
|
|
249 |
|
|
|
283 |
|
|
|
498 |
|
|
|
565 |
|
|
|
1,064 |
|
|
|
1,187 |
|
Net
periodic benefit cost
|
|
$ |
784 |
|
|
$ |
808 |
|
|
$ |
1,568 |
|
|
$ |
1,616 |
|
|
$ |
3,184 |
|
|
$ |
3,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBOP
|
|
|
Period
Ended June 30,
|
|
|
Three
Months
|
|
Six
Months
|
|
Twelve
Months
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
183 |
|
|
$ |
203 |
|
|
$ |
366 |
|
|
$ |
405 |
|
|
$ |
772 |
|
|
$ |
832 |
|
Interest
cost
|
|
|
581 |
|
|
|
576 |
|
|
|
1,162 |
|
|
|
1,152 |
|
|
|
2,314 |
|
|
|
2,211 |
|
Expected
return on plan assets
|
|
|
(535 |
) |
|
|
(536 |
) |
|
|
(1,070 |
) |
|
|
(1,072 |
) |
|
|
(2,142 |
) |
|
|
(1,981 |
) |
Amortization
of transition obligation
|
|
|
217 |
|
|
|
217 |
|
|
|
434 |
|
|
|
434 |
|
|
|
867 |
|
|
|
867 |
|
Amortization
of net loss
|
|
|
- |
|
|
|
14 |
|
|
|
- |
|
|
|
29 |
|
|
|
28 |
|
|
|
113 |
|
Net
periodic benefit cost
|
|
$ |
446 |
|
|
$ |
474 |
|
|
$ |
892 |
|
|
$ |
948 |
|
|
$ |
1,839 |
|
|
$ |
2,042 |
|
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
Note
3 – Segment Information
The
following tables list revenues from external customers, intersegment revenues,
and segment net income (thousands of dollars):
|
|
Natural
Gas
|
|
|
Construction
|
|
|
|
|
|
|
Operations
|
|
|
Services
|
|
|
Total
|
|
Three
months ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
353,003 |
|
|
$ |
78,194 |
|
|
$ |
431,197 |
|
Intersegment
revenues
|
|
|
-- |
|
|
|
16,107 |
|
|
|
16,107 |
|
Total
|
|
$ |
353,003 |
|
|
$ |
94,301 |
|
|
$ |
447,304 |
|
Segment
net income (loss)
|
|
$ |
(4,907 |
) |
|
$ |
2,182 |
|
|
$ |
(2,725 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
344,233 |
|
|
$ |
65,947 |
|
|
$ |
410,180 |
|
Intersegment
revenues
|
|
|
-- |
|
|
|
16,357 |
|
|
|
16,357 |
|
Total
|
|
$ |
344,233 |
|
|
$ |
82,304 |
|
|
$ |
426,537 |
|
Segment
net income (loss)
|
|
$ |
(2,855 |
) |
|
$ |
2,518 |
|
|
$ |
(337 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
1,094,303 |
|
|
$ |
137,524 |
|
|
$ |
1,231,827 |
|
Intersegment
revenues
|
|
|
-- |
|
|
|
29,084 |
|
|
|
29,084 |
|
Total
|
|
$ |
1,094,303 |
|
|
$ |
166,608 |
|
|
$ |
1,260,911 |
|
Segment
net income
|
|
$ |
44,426 |
|
|
$ |
2,001 |
|
|
$ |
46,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
1,071,248 |
|
|
$ |
115,157 |
|
|
$ |
1,186,405 |
|
Intersegment
revenues
|
|
|
-- |
|
|
|
33,848 |
|
|
|
33,848 |
|
Total
|
|
$ |
1,071,248 |
|
|
$ |
149,005 |
|
|
$ |
1,220,253 |
|
Segment
net income
|
|
$ |
45,773 |
|
|
$ |
3,654 |
|
|
$ |
49,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
months ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
1,837,821 |
|
|
$ |
288,304 |
|
|
$ |
2,126,125 |
|
Intersegment
revenues
|
|
|
-- |
|
|
|
66,621 |
|
|
|
66,621 |
|
Total
|
|
$ |
1,837,821 |
|
|
$ |
354,925 |
|
|
$ |
2,192,746 |
|
Segment
net income
|
|
$ |
71,147 |
|
|
$ |
9,099 |
|
|
$ |
80,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
months ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
1,836,332 |
|
|
$ |
225,137 |
|
|
$ |
2,061,469 |
|
Intersegment
revenues
|
|
|
-- |
|
|
|
75,699 |
|
|
|
75,699 |
|
Total
|
|
$ |
1,836,332 |
|
|
$ |
300,836 |
|
|
$ |
2,137,168 |
|
Segment
net income
|
|
$ |
75,160 |
|
|
$ |
10,238 |
|
|
$ |
85,398 |
|
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
Note
4 – Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
Twelve
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Thousands
of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(2,725 |
) |
|
$ |
(337 |
) |
|
$ |
46,427 |
|
|
$ |
49,427 |
|
|
$ |
80,246 |
|
|
$ |
85,398 |
|
Additional
minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment,
net of $20.3 million tax expense
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
33,047 |
|
Net
actuarial gain arising during period, less
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization
of unamortized benefit plan cost,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of tax
|
|
|
203 |
|
|
|
245 |
|
|
|
405 |
|
|
|
489 |
|
|
|
732 |
|
|
|
489 |
|
Comprehensive
income (loss)
|
|
$ |
(2,522 |
) |
|
$ |
(92 |
) |
|
$ |
46,832 |
|
|
$ |
49,916 |
|
|
$ |
80,978 |
|
|
$ |
118,934 |
|
Tax
expense related to the net actuarial gain arising during the period, less
amortization of unamortized benefit plan cost, for the three months, six months,
and twelve months ended June 30, 2008 was $124,000, $248,000, and $448,000,
respectively. Tax expense related to the net actuarial gain arising
during the period, less amortization of unamortized benefit plan cost for the
three months, six months, and twelve months ended June 30, 2007 was $150,000,
$300,000, and $300,000, respectively. Total accumulated other
comprehensive loss as of June 30, 2008 was $12.4 million, net of
$7.6 million of tax, and was composed entirely of unamortized benefit plan
costs.
Note
5 – Common Stock
During
the six months ended June 30, 2008, the Company issued approximately 656,000
shares of common stock through the Dividend Reinvestment and Stock Purchase Plan
(“DRSPP”), Employee Investment Plan, Management Incentive Plan, and Stock
Incentive Plan. No shares have been issued through the Equity Shelf
Program (“ESP”) in 2008.
Note
6 - Derivatives and Fair Value Measurements
In
managing its natural gas supply portfolios, Southwest has historically entered
into fixed and variable-price contracts, which qualify as derivatives under SFAS
No. 133 “Accounting for Derivative Instruments and Hedging Activities”, as
amended (“SFAS No. 133”). In 2008, Southwest also began utilizing
fixed-for-floating swap contracts (“Swaps”) to supplement its fixed-price
contracts. The fixed-price contracts, firm commitments to purchase a
fixed amount of gas in the future at a fixed price, qualify for the normal
purchases and normal sales exception that is allowed for contracts that are
probable of delivery in the normal course of business under
SFAS No. 133 and are exempt from its fair value
provisions. The variable-price contracts have no significant market
value and are likewise not affected by SFAS No. 133’s fair value
provisions. Swaps are subject to the fair value provisions and must
be recorded at fair value.
The
fixed-price contracts and Swaps are utilized by Southwest under its volatility
mitigation programs to effectively fix the price on approximately 50 percent of
its natural gas portfolios. The maturities of the Swaps highly
correlate to actual purchases of natural gas, during timeframes ranging from
November 2008 through October 2009. Under such contracts, Southwest
pays the counterparty at a fixed rate and receives from the counterparty a
floating rate per MMBtu (“dekatherm”) of natural gas. Only the net
differential is actually paid or received. The differential is
calculated based on the notional amounts under the contracts (approximately
3.5 million dekatherms at June 30, 2008). Southwest does not
utilize derivative financial instruments for speculative purposes, nor does it
have trading operations.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
Pursuant
to regulatory deferral accounting treatment under SFAS No. 71, Southwest records
the unrealized gains and losses in fair value of the Swaps as a regulatory asset
and/or liability. When the Swaps settle, Southwest reverses any prior
positions held and records the settled position as an increase or decrease of
purchased gas under the related purchased gas adjustment (“PGA”) mechanism in
determining its deferred PGA balances. In accordance with this
described treatment, at June 30, 2008, Southwest recorded the fair values of the
Swaps in Prepaids and other current assets ($7.2 million) and in Deferred
charges and other assets ($582,000). Corresponding offsetting amounts
were recorded in Other current liabilities ($7.2 million) and Other deferred
credits ($582,000). Due to the provisions of SFAS No. 71, neither
changes in the fair value of the contracts nor settled amounts have a direct
effect on earnings or other comprehensive income. The estimated fair
values of the derivatives were determined using future natural gas index prices
(as more fully described below).
In
January 2008, the Company adopted SFAS No. 157 “Fair Value Measurements” (“SFAS
No. 157”). SFAS No. 157 states that a fair value measurement should
be based on the assumptions that market participants would use in pricing the
asset or liability and establishes a fair value hierarchy that ranks the inputs
used to measure fair value by their reliability. The three levels of
the fair value hierarchy defined by SFAS No. 157 are as follows:
Level 1 - quoted prices
(unadjusted) in active markets for identical assets or liabilities that a
company has the ability to access at the measurement date.
Level 2 – inputs other than
quoted prices included within Level 1 that are observable for similar assets or
liabilities, either directly or indirectly.
Level 3 - unobservable inputs
for the asset or liability. Unobservable inputs are used to measure fair value
to the extent that observable inputs are not available, thereby allowing for
situations in which there is little, if any, market activity for the asset or
liability at the measurement date.
The
estimated fair values of Southwest’s Swaps were determined at June 30, 2008
using NYMEX futures settlement prices for delivery of natural gas at Henry Hub
adjusted by the price of NYMEX ClearPort basis Swaps, which reflect the
difference between the price of natural gas at a given delivery basin and the
Henry Hub pricing points. These Level 2 inputs are observable in the
marketplace throughout the full term of the Swaps.
The
following table sets forth, by level within the fair value hierarchy, the
Company's financial assets and liabilities that were accounted for at fair value
as of June 30, 2008.
|
|
|
|
|
Fair
Value Measurements Using:
|
|
|
|
|
|
Quoted
Prices in Active Markets for Identical Financial Assets and
Liabilities
|
|
|
Significant
Other Observable Inputs
|
|
|
Significant
Unobservable Inputs
|
|
(Thousands
of dollars)
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaids
and other current assets - swaps
|
|
$ |
7,209 |
|
|
$ |
- |
|
|
$ |
7,209 |
|
|
$ |
- |
|
Deferred
charges and other assets - swaps
|
|
|
582 |
|
|
|
- |
|
|
|
582 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
current liabilities - swaps
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
deferred credits - swaps
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Assets (Liabilities)
|
|
$ |
7,791 |
|
|
$ |
- |
|
|
$ |
7,791 |
|
|
$ |
- |
|
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Southwest
Gas Corporation and its subsidiaries (the “Company”) consists of two business
segments: natural gas operations (“Southwest” or the “natural gas operations”
segment) and construction services.
Southwest
is engaged in the business of purchasing, distributing, and transporting natural
gas in portions of Arizona, Nevada, and California. Southwest is the
largest distributor in Arizona, selling and transporting natural gas in most of
central and southern Arizona, including the Phoenix and Tucson metropolitan
areas. Southwest is also the largest distributor of natural gas in
Nevada, serving the Las Vegas metropolitan area and northern
Nevada. In addition, Southwest distributes and transports natural gas
in portions of California, including the Lake Tahoe area and the high desert and
mountain areas in San Bernardino County.
As of
June 30, 2008, Southwest had 1,819,000 residential, commercial, industrial, and
other natural gas customers, of which 984,000 customers were located in Arizona,
657,000 in Nevada, and 178,000 in California. Residential and
commercial customers represented over 99 percent of the total customer
base. During the twelve months ended June 30, 2008,
55 percent of operating margin was earned in Arizona, 35 percent in
Nevada, and 10 percent in California. During this same period,
Southwest earned 86 percent of operating margin from residential and small
commercial customers, 5 percent from other sales customers, and
9 percent from transportation customers. These general patterns
are expected to continue.
Southwest
recognizes operating revenues from the distribution and transportation of
natural gas (and related services) to customers. Operating margin is
the measure of gas operating revenues less the net cost of gas
sold. Management uses operating margin as a main benchmark in
comparing operating results from period to period. The three
principal factors affecting operating margin are general rate relief, weather,
and customer growth. Of these three, weather is the primary reason
for volatility in margin. Variances in temperatures from normal
levels, especially in Arizona where rates remain leveraged, have a significant
impact on the margin and associated net income of the Company.
Northern
Pipeline Construction Co. (“NPL” or the “construction services” segment), a
wholly owned subsidiary, is a full-service underground piping contractor that
provides utility companies with trenching and installation, replacement, and
maintenance services for energy distribution systems. NPL currently
operates in 19 major markets nationwide. Construction activity is
cyclical and can be significantly impacted by changes in general and local
economic conditions, including the housing market, interest rates, employment
levels, job growth, the equipment resale market, and local and federal tax
rates. Generally, revenues and profits are lowest during the first
quarter of the year due to less favorable winter weather
conditions. Operating results typically improve as more favorable
weather conditions occur during the summer and fall months.
This
Management’s Discussion and Analysis (“MD&A”) of Financial Condition and
Results of Operations should be read in conjunction with the consolidated
financial statements and the notes thereto, as well as the MD&A, included in
the 2007 Annual Report to Shareholders, which is incorporated by reference into
the 2007 Form 10-K, and the first quarter 2008 Form 10-Q.
Executive
Summary
The items discussed in this Executive
Summary are intended to provide an overview of the results of the Company’s
operations. As needed, certain items are covered in greater detail in
later sections of management’s discussion and analysis. As
reflected in the table below, the natural gas operations segment accounted for
an average of 88 percent of twelve-month-to-date consolidated net income
over the past two years. As such, management’s discussion and
analysis is primarily focused on that segment. Natural gas sales are
seasonal, peaking during the winter months; therefore, results of operations for
interim periods are not necessarily indicative of the results for a full
year.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
Ended June 30,
|
|
|
|
Three
Months
|
|
|
Six
Months
|
|
|
Twelve
Months
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Thousands
of dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to net
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas operations
|
|
$ |
(4,907 |
) |
|
$ |
(2,855 |
) |
|
$ |
44,426 |
|
|
$ |
45,773 |
|
|
$ |
71,147 |
|
|
$ |
75,160 |
|
Construction
services
|
|
|
2,182 |
|
|
|
2,518 |
|
|
|
2,001 |
|
|
|
3,654 |
|
|
|
9,099 |
|
|
|
10,238 |
|
Net
income (loss)
|
|
$ |
(2,725 |
) |
|
$ |
(337 |
) |
|
$ |
46,427 |
|
|
$ |
49,427 |
|
|
$ |
80,246 |
|
|
$ |
85,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss)
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas operations
|
|
$ |
(0.11 |
) |
|
$ |
(0.07 |
) |
|
$ |
1.03 |
|
|
$ |
1.09 |
|
|
$ |
1.66 |
|
|
$ |
1.80 |
|
Construction
services
|
|
|
0.05 |
|
|
|
0.06 |
|
|
|
0.05 |
|
|
|
0.08 |
|
|
|
0.21 |
|
|
|
0.25 |
|
Consolidated
|
|
$ |
(0.06 |
) |
|
$ |
(0.01 |
) |
|
$ |
1.08 |
|
|
$ |
1.17 |
|
|
$ |
1.87 |
|
|
$ |
2.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margin
|
|
$ |
148,423 |
|
|
$ |
145,816 |
|
|
$ |
389,024 |
|
|
$ |
378,620 |
|
|
$ |
738,976 |
|
|
$ |
722,036 |
|
The
decline in gas segment contribution during the second quarter of 2008 was due
primarily to a decrease in other income, which more than offset an improvement
in operating income. Other income (principally interest income,
long-term investment returns, and non-utility expenses) declined primarily as
the result of negative returns on long-term investments in the current quarter
versus positive returns in the prior-year quarter. NPL’s decline
resulted primarily from less profitable work due to the general slow down in the
housing industry, competitive pressures, and increased fuel and material
costs. The decline was partially offset by several favorable
replacement contracts.
2nd
Quarter 2008 Overview
Consolidated
results for the second quarter of 2008 declined compared to the second quarter
of 2007, due to declines in both the gas and construction services
segments. Basic earnings (loss) per share fell $0.05 per
share.
Gas
operations highlights include the following:
·
|
Operating
margin increased $2.6 million from the prior
period
|
·
|
Growth-related
margin was $2 million as Southwest’s customer growth level continues to
moderate in the face of a downturn in the housing
market
|
·
|
Southwest’s
project to expand its use of electronic meter reading technology continues
to progress and is over 90 percent
complete
|
·
|
Operating
expenses (operations and maintenance, depreciation and amortization, and
taxes other than income taxes) increased two percent between periods as
general cost increases were partially offset by labor efficiencies
primarily related to the meter reading
project
|
·
|
Arizona
and California rate cases remain on track with hearings completed in
Arizona and scheduled for California in
August
|
Moderating Customer
Growth. During the twelve months ended June 30, 2008,
Southwest completed 45,000 first-time meter sets. These meter sets
led to 19,000 additional active meters during the same time frame (10,000 in
Arizona, 8,000 in Nevada, and 1,000 in California). The difference
between first-time meter sets and incremental active meters indicates a
significant inventory of unoccupied homes. The risks/costs of having
non-performing assets associated with new homes are mitigated by Southwest’s
practice of taking construction advances from builders. These
advances are not returned until new homes are occupied. Once housing
supply and demand come back into balance, Southwest expects to experience a
correction in which customer additions exceed first-time meter
sets. Although management cannot predict the timing of the turn
around, it is likely to occur over an extended (multi-year) time
horizon.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
Meter
Reading Project
In 2006,
Southwest initiated a project to expand its use of electronic meter reading
technology. The efficiencies to be gained from this project more than
offset the investment in infrastructure. This technology eliminates
the need to gain physical access to meters in order to obtain monthly meter
readings, thereby reducing the time associated with each meter read while
improving their accuracy. At June 30, 2008, over 90 percent of
Southwest customers’ meters were being read electronically. The
electronic meter reading conversion project is expected to be completed later
this year.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
Results
of Natural Gas Operations
Quarterly
Analysis
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Thousands
of dollars)
|
|
Gas
operating revenues
|
|
$ |
353,003 |
|
|
$ |
344,233 |
|
Net
cost of gas sold
|
|
|
204,580 |
|
|
|
198,417 |
|
Operating margin
|
|
|
148,423 |
|
|
|
145,816 |
|
Operations
and maintenance expense
|
|
|
83,603 |
|
|
|
83,090 |
|
Depreciation
and amortization
|
|
|
41,297 |
|
|
|
39,076 |
|
Taxes
other than income taxes
|
|
|
9,616 |
|
|
|
9,938 |
|
Operating income
|
|
|
13,907 |
|
|
|
13,712 |
|
Other
income (expense)
|
|
|
(636 |
) |
|
|
3,648 |
|
Net
interest deductions
|
|
|
20,938 |
|
|
|
21,315 |
|
Net
interest deductions on subordinated debentures
|
|
|
1,932 |
|
|
|
1,932 |
|
Income (loss) before income taxes
|
|
|
(9,599 |
) |
|
|
(5,887 |
) |
Income
tax expense (benefit)
|
|
|
(4,692 |
) |
|
|
(3,032 |
) |
Contribution to consolidated net income (loss)
|
|
$ |
(4,907 |
) |
|
$ |
(2,855 |
) |
Contribution
from natural gas operations declined by $2.1 million in the second quarter of
2008 compared to the same period a year ago. The decrease in
contribution was primarily caused by a reduction in other income, which more
than offset a one percent improvement in operating income.
Operating
margin increased approximately $2.6 million, or two percent, in the
second quarter of 2008 compared to the second quarter of
2007. Customer growth contributed $2 million toward the
operating margin increase as the Company added 19,000 customers during the
last twelve months, an increase of one percent. Weather changes
between quarters accounted for the remaining increase.
Operations
and maintenance expense increased $513,000, or one percent, primarily due to
general cost increases and higher uncollectible expenses. Labor
efficiencies, primarily from the conversion to electronic meter reading,
mitigated the increase in operations and maintenance expense.
Depreciation
expense increased $2.2 million, or six percent, as a result of
construction activities. Average gas plant in service for the current
period increased $241 million, or six percent, compared to the
corresponding period a year ago. The increase reflects ongoing capital
expenditures for the upgrade of existing operating facilities and the expansion
of the system to accommodate customer growth.
Other
income (expense) declined $4.3 million during the second quarter of 2008
compared to the same period in 2007, primarily due to negative returns on
long-term investments in the current quarter versus positive returns in the
year-ago quarter and lower interest income due to the full recovery of
previously deferred purchased gas cost receivables. The prior-year
period also included nonrecurring gains on dispositions of miscellaneous
properties.
Net
financing costs decreased $377,000 between periods primarily due to lower
outstanding debt.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
Six-Month
Analysis
|
|
|
|
|
|
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Thousands
of dollars)
|
|
Gas
operating revenues
|
|
$ |
1,094,303 |
|
|
$ |
1,071,248 |
|
Net
cost of gas sold
|
|
|
705,279 |
|
|
|
692,628 |
|
Operating margin
|
|
|
389,024 |
|
|
|
378,620 |
|
Operations
and maintenance expense
|
|
|
168,809 |
|
|
|
167,625 |
|
Depreciation
and amortization
|
|
|
81,942 |
|
|
|
77,606 |
|
Taxes
other than income taxes
|
|
|
19,810 |
|
|
|
20,405 |
|
Operating income
|
|
|
118,463 |
|
|
|
112,984 |
|
Other
income (expense)
|
|
|
(2,162 |
) |
|
|
5,024 |
|
Net
interest deductions
|
|
|
42,290 |
|
|
|
42,463 |
|
Net
interest deductions on subordinated debentures
|
|
|
3,864 |
|
|
|
3,863 |
|
Income before income taxes
|
|
|
70,147 |
|
|
|
71,682 |
|
Income
tax expense
|
|
|
25,721 |
|
|
|
25,909 |
|
Contribution to consolidated net income
|
|
$ |
44,426 |
|
|
$ |
45,773 |
|
Contribution
from natural gas operations decreased $1.3 million in the first six months of
2008 compared to the same period a year ago. The decrease in contribution was
primarily caused by a decline in other income, which offset a five percent
improvement in operating income.
Operating
margin increased approximately $10 million, or three percent, in the first
six months of 2008 compared to the first six months of 2007. New
customers contributed an incremental $4 million in operating margin during
the current period. Rate relief in California resulted in a net
$1 million increase in operating margin. Differences in heating
demand primarily caused by weather variations between periods resulted in a
$5 million margin increase as the current period experienced somewhat
cooler temperatures while the prior period was slightly
warmer-than-normal.
Operations
and maintenance expense increased $1.2 million, or one percent,
principally due to the impact of general cost increases and higher uncollectible
expenses. Labor efficiencies, primarily from the conversion to
electronic meter reading, mitigated the increase in operations and maintenance
expense.
Depreciation
expense increased $4.3 million, or six percent, as a result of
construction activities. Average gas plant in service increased
$254 million, or seven percent, as compared to the first six months of
2007. The increase reflects ongoing capital expenditures for the upgrade of
existing operating facilities and the expansion of the system to accommodate
customer growth.
Other
income (expense) declined $7.2 million during the first six months of 2008
compared to the same period in 2007, primarily due to negative returns on
long-term investments in 2008 versus higher returns in 2007 and lower interest
income due to the full recovery of previously deferred purchased gas cost
receivables.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
Twelve-Month
Analysis
|
|
|
|
|
|
|
|
|
Twelve
Months Ended
|
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Thousands
of dollars)
|
|
Gas
operating revenues
|
|
$ |
1,837,821 |
|
|
$ |
1,836,332 |
|
Net
cost of gas sold
|
|
|
1,098,845 |
|
|
|
1,114,296 |
|
Operating margin
|
|
|
738,976 |
|
|
|
722,036 |
|
Operations
and maintenance expense
|
|
|
332,392 |
|
|
|
333,158 |
|
Depreciation
and amortization
|
|
|
161,426 |
|
|
|
152,144 |
|
Taxes
other than income taxes
|
|
|
36,958 |
|
|
|
39,162 |
|
Operating income
|
|
|
208,200 |
|
|
|
197,572 |
|
Other
income (expense)
|
|
|
(2,336 |
) |
|
|
10,192 |
|
Net
interest deductions
|
|
|
86,263 |
|
|
|
84,823 |
|
Net
interest deductions on subordinated debentures
|
|
|
7,728 |
|
|
|
7,725 |
|
Income before income taxes
|
|
|
111,873 |
|
|
|
115,216 |
|
Income
tax expense
|
|
|
40,726 |
|
|
|
40,056 |
|
Contribution to consolidated net income
|
|
$ |
71,147 |
|
|
$ |
75,160 |
|
Contribution
to consolidated net income from natural gas operations decreased $4 million
in the current twelve-month period compared to the same period a year ago. The
decline in contribution was primarily caused by lower other income, which offset
a five percent improvement in operating income.
Operating
margin increased $17 million, or two percent, between
periods. Customer growth contributed $8 million while rate
changes accounted for $9 million of the increase, including $3 million in
general rate relief and $6 million from implementing a California equalized
margin tracker mechanism in January 2007. Warmer-than-normal
temperatures were experienced during both twelve-month periods (each with
estimated negative impacts to operating margin of approximately
$7 million), resulting in no incremental impact between the
periods.
Operations
and maintenance expense decreased $766,000 between periods reflecting labor
efficiencies primarily from the ongoing electronic meter reading conversion,
partially offset by general cost increases and higher uncollectible
expenses.
Depreciation
expense increased $9.3 million, or six percent, as a result of
additional plant in service. Average gas plant in service for the current
twelve-month period increased $274 million, or seven percent, compared
to the corresponding period a year ago. This was attributable to the
upgrade of existing operating facilities and the expansion of the system to
accommodate customer growth.
General
taxes decreased $2.2 million due to a decline in property tax rates
recognized in the third quarter of 2007, which offset the higher property tax
base resulting from plant additions.
Other
income decreased $12.5 million between periods primarily due to negative
returns on long-term investments in the current twelve-month period (versus
favorable returns in the prior-year period) and lower interest income due to the
full recovery of previously deferred purchased gas cost
receivables. The prior-year period also included nonrecurring gains
on dispositions of miscellaneous properties.
Net
financing costs increased $1.4 million between periods primarily due to interest
expense associated with deferred PGA balance payables and higher rates on
variable-rate debt.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
Results
of Construction Services
Contribution
to consolidated net income for the three, six, and twelve months ended June 30,
2008 decreased $336,000, $1.7 million, and $1.1 million, respectively, compared
to the corresponding periods in 2007. Quarterly results declined
primarily due to lower profit margins on new construction work in the majority
of NPL’s operating areas, competitive pressures, and increased fuel and material
costs, partially offset by higher revenues from several favorable replacement
contracts. While revenues increased as a result of several large
replacement projects, operating results decreased in the six-month period of
2008 as compared to the same period in 2007 primarily due to lower profit
margins on new construction work, unfavorable weather conditions in the first
quarter of 2008, increased fuel and material costs, and a reduction in the
volume of work with existing customers. The decrease in the current
twelve-month period when compared to the same period in the prior year was due
primarily to unfavorable weather conditions during the first quarter of 2008,
and a reduction in the volume of new construction work resulting from the
general slow down in the new housing market.
Rates
and Regulatory Proceedings
Arizona General Rate
Case. Southwest filed a general rate application with the
Arizona Corporation Commission (“ACC”) in the third quarter of 2007 requesting
an increase in authorized operating revenues of
$50.2 million. The request is due to increases in Southwest’s
operating costs (including inflationary increases to labor and benefits),
investments in infrastructure, and the increased costs of
capital. Southwest is requesting a return on rate base of
9.45 percent and a return on equity of 11.25 percent.
In
addition, declining average residential usage has hindered Southwest’s ability
to earn the returns previously authorized by the ACC. A rate
structure that would encourage energy efficiency and also shield Southwest and
its customers from weather-related volatility has also been
proposed. Included in the new rate design proposal are a revenue
decoupling mechanism that would separate the recovery of fixed costs from
volumetric usage and a weather normalization mechanism that would protect
customers from higher bills in extreme cold weather and protect Southwest from
cost under-recoveries in unseasonably warmer weather. Southwest
requested an increase of $3.10 in the monthly residential basic service
charge.
In April
2008, the two primary intervening parties in the case, the ACC Staff and the
Residential Utility Consumer Office, filed testimony in the
case. Both parties are separately advocating revenue increases which
approximate 60 percent of the filed for amount, primarily through increases
in basic service charges, although their positions on a number of matters
differ. In addition, neither party supports all of Southwest's
proposed rate design changes or the revenue decoupling/weather normalization
mechanisms, both of which Southwest deems important components of its rate
filing if greater margin stability (for both Southwest and its customers) is to
be achieved. Hearings
concluded in June 2008, with a decision expected in the fourth quarter of
2008. Management cannot predict the amount or timing of rate relief
ultimately granted, or whether the ACC will adopt any of the new rate design
proposals. The last general rate increase received in Arizona was
effective in March 2006.
California Attrition
Filing. In October 2007, Southwest made its 2008 annual
attrition filing with the California Public Utilities Commission (“CPUC”)
requesting a $2 million increase in operating margin. The
increase in customer rates was approved and became effective January
2008.
California General Rate
Cases. Southwest filed general rate applications with the CPUC
in December 2007 requesting an increase in authorized operating revenues of
$9.1 million in its southern California, northern California, and South
Lake Tahoe rate jurisdictions with a proposed effective date of January
2009. The request is due to increases in Southwest’s operating costs,
investments in infrastructure, and the increased costs of capital. As
part of the filing, Southwest is also requesting that the authorized levels of
margin revert to being recognized on a seasonally adjusted basis rather than in
equal monthly amounts throughout the year to better reflect the seasonal nature
of Southwest’s revenue stream. In addition to the margin balancing
mechanism that has been in place since the last general rate case, this filing
proposes a Post Test Year (“PTY”) ratemaking mechanism for the period 2010
through 2013. The PTY mechanism is designed to recognize the effects
of inflation, certain capital expenditures and customer growth between general
rate cases. Hearings are scheduled to begin in
August 2008.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
PGA
Filings
All of
Southwest's state regulatory commissions have regulations that permit Southwest
to track and recover its actual costs of purchased gas. Deferred
energy provisions and purchased gas adjustment clauses are collectively referred
to as “PGA” clauses. Timing differences between changes in PGA rates
and the recovery/payment of PGA balances result in over and
under-collections. At June 30, 2008, over-collections in
Arizona, Nevada, and California resulted in a liability of $31.5 million on
the Company’s balance sheet. In May 2008, a temporary surcharge that
had been in place in Arizona since February 2006 to help accelerate the recovery
of an under-collected balance was removed. PGA filings are subject to
audit by state regulatory commissions. PGA rate changes impact cash
flows but have no direct impact on profit margin.
As of
June 30, 2008, December 31, 2007, and June 30, 2007, Southwest had the following
outstanding PGA balances receivable/(payable) (millions of
dollars):
|
|
June
30, 2008
|
|
|
December
31, 2007
|
|
|
June
30, 2007
|
|
Arizona
|
|
$ |
(4.6 |
) |
|
$ |
33.9 |
|
|
$ |
50.3 |
|
Northern
Nevada
|
|
|
(7.2 |
) |
|
|
(9.2 |
) |
|
|
(9.9 |
) |
Southern
Nevada
|
|
|
(17.6 |
) |
|
|
(36.7 |
) |
|
|
(20.1 |
) |
California
|
|
|
(2.1 |
) |
|
|
(0.1 |
) |
|
|
(3.2 |
) |
|
|
$ |
(31.5 |
) |
|
$ |
(12.1 |
) |
|
$ |
17.1 |
|
Capital
Resources and Liquidity
The
capital requirements and resources of the Company generally are determined
independently for the natural gas operations and construction services segments.
Each business activity is generally responsible for securing its own financing
sources. The capital requirements and resources of NPL are not material to the
overall capital requirements and resources of the Company.
Gas
Segment Construction Expenditures and Financing
Southwest
continues to experience customer growth, albeit at a slower pace than in the
recent past. This growth has required significant capital outlays
primarily to extend and reinforce its distribution systems. During
the twelve-month period ended June 30, 2008, construction expenditures for the
natural gas operations segment were $291 million. Approximately
73 percent of these current-period expenditures represented new
construction and the balance represented costs associated with routine
replacement of existing transmission, distribution, and general
plant. Cash flows from operating activities of Southwest (net of
dividends paid) provided $239 million, or 82 percent, of the required
capital resources pertaining to gas segment capital expenditures for the twelve
months ended June 30, 2008. The remainder was provided from external
financing activities, existing credit facilities, and refundable construction
advances. During the quarter, six months, and twelve months ended
June 30, 2008, Southwest partially offset capital outlays by collecting
approximately $7 million, $14 million, and $30 million, respectively,
in net advances and contributions from customers and third-party
contractors. At June 30, 2008, the balance of refundable construction
advances was $91 million.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
Southwest
estimates construction expenditures during the three-year period ending
December 31, 2010 will be approximately
$850 million. During the three-year period, cash flows from
operating activities (net of dividends) are estimated to fund over
80 percent of the gas operations’ total construction
expenditures. Southwest also has $25 million in long-term debt
maturities over the three-year period. During this time frame, the
Company expects to raise $70 million to $80 million from its various
common stock programs. Any remaining cash requirements are expected to be
provided by existing credit facilities and/or other external financing
sources. The timing, types, and amounts of these additional external
financings will be dependent on a number of factors, including conditions in the
capital markets, timing and amounts of rate relief, growth levels in Southwest
service areas, and earnings. These external sources may include the
issuance of both debt and equity securities, bank and other short-term
borrowings, customer contributions and advances, and other forms of
financing.
During
the six months ended June 30, 2008, the Company issued approximately 656,000
additional shares of common stock through the DRSPP, Employee Investment Plan,
Management Incentive Plan, and Stock Incentive Plan, raising approximately
$19 million. No shares have been issued through the ESP in
2008. The Company has $16.7 million of remaining capacity under the
ESP.
In
February 2008, the Economic Stimulus Act of 2008 (“Act”) was signed into
law. This Act provides a 50 percent bonus tax depreciation deduction
for qualified property acquired or constructed and placed in service in
2008. Based on forecasted qualifying construction expenditures,
Southwest estimates the bonus depreciation deduction will defer the payment of
approximately $30 million of federal income taxes during 2008.
Dividend
Increase
The
Company has a common stock dividend policy which states that common stock
dividends will be paid at a prudent level that is within the normal dividend
payout range for its respective businesses, and that the dividend will be
established at a level considered sustainable in order to minimize business risk
and maintain a strong capital structure throughout all economic
cycles. In February 2008, the Board of Directors increased the
quarterly dividend payout from 21.5 cents to 22.5 cents per share, effective
with the June 2008 payment.
Liquidity
Liquidity
refers to the ability of an enterprise to generate adequate amounts of cash to
meet its cash requirements. Several general factors that could
significantly affect liquidity in future years include inflation, growth in
Southwest’s service territories, changes in the ratemaking policies of
regulatory commissions, interest rates, variability of natural gas prices,
changes in income tax laws, and the level of Company earnings. Of
these factors natural gas prices and related gas cost recovery rates have had
the most significant impact on Company liquidity.
The rate
schedules in Southwest's service territories contain PGA clauses which permit
adjustments to rates as the cost of purchased gas changes. The PGA
mechanism allows Southwest to request to change the gas cost component of the
rates charged to its customers to reflect increases or decreases in the price
expected to be paid to its suppliers and companies providing interstate pipeline
transportation service.
On an
interim basis, Southwest generally defers over- or under-collections of gas
costs to PGA balancing accounts. In addition, Southwest uses this
mechanism to either refund amounts over-collected or recoup amounts
under-collected as compared to the price paid for natural gas during the period
since the last PGA rate change went into effect. At
June 30, 2008, the balances in PGA accounts totaled an over-collection
of $31.5 million versus an under-collection of $17.1 million at
June 30, 2007. Southwest has the ability to draw on its
$300 million credit facility to temporarily finance under-collected PGA
balances. Southwest has designated $150 million of the facility
as long-term debt and the remaining $150 million for working capital
purposes. Southwest currently believes the $150 million
designated for working capital purposes is adequate to meet liquidity
needs. At June 30, 2008, $50 million was outstanding on the
long-term portion and no borrowings were outstanding on the short-term portion
of the credit facility.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
The
following table sets forth the ratios of earnings to fixed charges for the
Company. Due to the seasonal nature of the Company’s business, these
ratios are computed on a twelve-month basis:
|
|
For
the Twelve Months Ended
|
|
|
June
30,
|
|
December
31,
|
|
|
2008
|
|
2007
|
|
|
|
|
|
Ratio
of earnings to fixed charges
|
|
2.21
|
|
2.25
|
|
|
|
|
|
Earnings
are defined as the sum of pretax income plus fixed charges. Fixed charges
consist of all interest expense including capitalized interest, one-third of
rent expense (which approximates the interest component of such expense), and
amortized debt costs.
IDRB
Supporting Credit Arrangements
The
Company utilizes insurance policies to support approximately $400 million
of its fixed and variable-rate Industrial Development Revenue Bonds
(“IDRBs”). Of this amount, approximately $350 million is fixed
to maturity and any change in the bond rating of the bond insurers will not
impose any additional costs on the Company. The remaining
$50 million in IDRBs, which is the 2003 Series B, carried a AAA
rating supported by insurance from Ambac Assurance Corporation
(“Ambac”). The 2003 Series B are designed to be repriced weekly in an
auction market. Credit rating agencies have been reassessing bond
insurers for their ability to absorb potential losses from their
subprime-related exposure to residential mortgage-backed securities and
collateralized debt obligations. In June 2008, Standard & Poor’s
and Moody’s Investors Service, the two largest ratings companies, downgraded
Ambac and assigned a “negative” outlook to the new rating. This
resulted in the Company’s 2003 Series B being downgraded to a AA
rating. The Company cannot predict whether Moody’s and Standard &
Poor’s will further downgrade Ambac, thereby affecting the outstanding AA rating
of the 2003 Series B. Since mid-February 2008, the 2003 Series B
weekly auctions have failed. As a result of the failed auctions, the
Company has been required to price the 2003 Series B at a predetermined maximum
auction-rate (currently 200 percent of the one-month LIBOR
rate). The Company has the ability to convert the 2003 Series B
to a fixed-rate mode, obtain incremental credit support, or refinance the
debt. The Company will remain watchful as to the developments in the
auction-rate market and the outcome of the rating agencies reviews, and take
appropriate actions to minimize the related interest cost of the
facility.
Forward-Looking
Statements
This
quarterly report contains statements which constitute “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995 (“Reform Act”). All statements other than statements of
historical fact included or incorporated by reference in this quarterly report
are forward-looking statements, including, without limitation, statements
regarding the Company’s plans, objectives, goals, projections, strategies,
future events or performance, and underlying assumptions. The words
“may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “predict,” “continue,” and similar words and expressions are
generally used and intended to identify forward-looking
statements. For example, statements regarding operating margin
earned, customer growth, risks and costs associated with having non-performing
assets associated with new homes, timing of improvements in the housing market,
estimated future construction expenditures, forecasted operating cash flows,
funding sources of cash requirements, sufficiency of working capital, ability to
raise funds and receive external financing, the amount and form of any such
financing, liquidity and statements regarding estimated bonus depreciation
deductions, and the timing and results of future rate hearings and approvals are
forward-looking statements. All forward-looking statements are intended to be
subject to the safe harbor protection provided by the Reform Act.
A number
of important factors affecting the business and financial results of the Company
could cause actual results to differ materially from those stated in the
forward-looking statements. These factors include, but are not
limited to, the impact of weather variations on customer usage, customer growth
rates, conditions in the housing market, interest rates, our ability to recover
costs through our PGA mechanisms, the effects of regulation/deregulation, the
timing and amount of rate relief, changes in rate design, changes in gas
procurement practices, changes in capital requirements and funding,
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
the
impact of conditions in the capital markets on financing costs, rating agency
actions, changes in construction expenditures and financing, renewal of
franchises, easements and rights-of-way, changes in operations and maintenance
expenses, effects of accounting changes, future liability claims, changes in
pipeline capacity for the transportation of gas and related costs, acquisitions
and management’s plans related thereto, competition, and our ability to raise
capital in external financings. In addition, the Company can provide
no assurance that its discussions regarding certain trends relating to its
financing, operations and maintenance expenses will continue in future
periods. For additional information on the risks associated with the
Company’s business, see Item 1A. Risk Factors in
the Company’s Annual Report on Form 10-K for the year ended December 31,
2007.
All
forward-looking statements in this quarterly report are made as of the date
hereof, based on information available to the Company as of the date hereof, and
the Company assumes no obligation to update or revise any of its forward-looking
statements even if experience or future changes show that the indicated results
or events will not be realized. We caution you not to unduly rely on
any forward-looking statement(s).
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 7A. Quantitative and Qualitative
Disclosures about Market Risk in the Company’s 2007 Annual Report on Form
10-K filed with the SEC. No material changes have occurred related to
the Company’s disclosures about market risk.
ITEM
4. CONTROLS
AND PROCEDURES
The
Company has established disclosure controls and procedures that are designed to
provide reasonable assurance that information required to be disclosed in
reports filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized, and reported within the time periods specified
in the SEC’s rules and forms and to provide reasonable assurance that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosures. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are
met. Further, the design of a control system must reflect the fact
that there are resource constraints, and benefits of controls must be considered
relative to their costs. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people, or
management override of the control. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and may not be detected.
Based on
the most recent evaluation, as of June 30, 2008, management of the Company,
including the Chief Executive Officer and Chief Financial Officer, believe the
Company’s disclosure controls and procedures are effective at attaining the
level of reasonable assurance noted above.
There
have been no changes in the Company’s internal controls over financial reporting
during the second quarter of 2008 that have materially affected, or are likely
to materially affect, the Company’s internal controls over financial
reporting.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
PART II - OTHER
INFORMATION
ITEM
1.
LEGAL PROCEEDINGS
The
Company is named as a defendant in various legal proceedings. The
ultimate dispositions of these proceedings are not presently determinable;
however, it is the opinion of management that none of this litigation
individually or in the aggregate will have a material adverse impact on the
Company’s financial position or results of operations.
ITEMS 1A. through
3. None.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
The
Annual Meeting of Shareholders was held on May 8, 2008 with the holders of
approximately 39 million shares of the Company’s common stock represented in
person or by proxy. Matters voted upon and the results of the voting
were as follows:
(1)
|
The
eleven directors nominated were
elected.
|
Name
|
|
Votes
For
|
|
Votes
Withheld
|
George
C. Biehl
|
|
36,077,206
|
|
|
2,878,551
|
|
Thomas
E. Chestnut
|
|
38,408,185
|
|
|
547,572
|
|
Stephen
C. Comer
|
|
38,286,782
|
|
|
668,975
|
|
Richard
M. Gardner
|
|
38,377,584
|
|
|
578,173
|
|
James
J. Kropid
|
|
37,583,702
|
|
|
1,372,055
|
|
Michael
O. Maffie
|
|
37,422,021
|
|
|
1,533,736
|
|
Anne
L. Mariucci
|
|
38,396,420
|
|
|
559,337
|
|
Michael
J. Melarkey
|
|
38,389,941
|
|
|
565,816
|
|
Jeffrey
W. Shaw
|
|
37,592,667
|
|
|
1,363,091
|
|
Carolyn
M. Sparks
|
|
37,568,138
|
|
|
1,387,619
|
|
Terrence
L. Wright
|
|
37,596,731
|
|
|
1,359,027
|
|
(2)
|
The
proposal to ratify the selection of PricewaterhouseCoopers LLP as the
independent registered public accounting firm for the Company was
approved. Shareholders voted 38,568,314 shares in favor,
223,587 against with 163,860
abstentions.
|
ITEM
5.
OTHER INFORMATION
On July
29, 2008, Robert L. Boughner was elected as a director of the
Company. Mr. Boughner’s election increases the number of directors
from eleven to twelve. As a director, he will serve on the
Compensation and Nominating and Corporate Governance committees of the Company’s
Board of Directors. At its July 29, 2008 meeting, the Board of
Directors also amended the Company’s Bylaws to reflect an increase in the number
of Directors from eleven (11) to twelve (12). The above
information was reported in a Form 8-K dated July 29, 2008 filed with the
SEC.
ITEM
6.
EXHIBITS
|
The
following documents are filed as part of this report on
Form 10-Q:
|
|
|
|
|
|
Exhibit
10.01
|
-
|
Amended
Southwest Gas Corporation 2006 Restricted Stock/Unit
Plan.
|
|
Exhibit
10.02
|
-
|
Southwest
Gas Corporation Management Incentive Plan, amended and restated effective
January
1, 2009
|
|
Exhibit
12.01
|
-
|
Computation
of Ratios of Earnings to Fixed Charges.
|
|
Exhibit
31.01
|
-
|
Section
302 Certifications.
|
|
Exhibit
32.01
|
-
|
Section
906 Certifications.
|
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
June 30, 2008
|
|
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.
|
Southwest
Gas Corporation
|
|
(Registrant)
|
|
|
Date: August
6, 2008
|
|
|
|
|
/s/
Roy R. Centrella
|
|
Roy
R. Centrella
|
|
Vice
President/Controller and Chief Accounting
Officer
|