form10q1stqtr2009.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 March 31, 2009
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,
44,708,482 shares as of May 1, 2009.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
PART I - FINANCIAL
INFORMATION
|
|
|
|
|
|
|
|
|
ITEM
1. FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOUTHWEST
GAS CORPORATION AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(Thousands
of dollars, except par value)
|
(Unaudited)
|
|
|
MARCH
31,
|
|
|
DECEMBER
31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Utility
plant:
|
|
|
|
|
|
|
Gas
plant
|
|
$ |
4,309,835 |
|
|
$ |
4,258,727 |
|
Less:
accumulated depreciation
|
|
|
(1,374,261 |
) |
|
|
(1,347,093 |
) |
Acquisition
adjustments, net
|
|
|
1,587 |
|
|
|
1,632 |
|
Construction
work in progress
|
|
|
61,504 |
|
|
|
70,041 |
|
Net
utility plant
|
|
|
2,998,665 |
|
|
|
2,983,307 |
|
Other
property and investments
|
|
|
117,970 |
|
|
|
124,781 |
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
23,782 |
|
|
|
26,399 |
|
Accounts
receivable, net of allowances
|
|
|
173,568 |
|
|
|
168,829 |
|
Accrued
utility revenue
|
|
|
44,500 |
|
|
|
72,600 |
|
Income
taxes receivable, net
|
|
|
11,173 |
|
|
|
32,069 |
|
Deferred
income taxes
|
|
|
- |
|
|
|
14,902 |
|
Deferred
purchased gas costs
|
|
|
5,780 |
|
|
|
- |
|
Prepaids
and other current assets
|
|
|
70,697 |
|
|
|
123,277 |
|
Total
current assets
|
|
|
329,500 |
|
|
|
438,076 |
|
Deferred
charges and other assets
|
|
|
277,800 |
|
|
|
274,220 |
|
Total
assets
|
|
$ |
3,723,935 |
|
|
$ |
3,820,384 |
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION
AND LIABILITIES
|
|
|
|
|
|
|
|
|
Capitalization:
|
|
|
|
|
|
|
|
|
Common
stock, $1 par (authorized - 60,000,000 shares; issued
|
|
|
|
|
|
|
|
|
and
outstanding - 44,655,347 and 44,191,535 shares)
|
|
$ |
46,285 |
|
|
$ |
45,822 |
|
Additional
paid-in capital
|
|
|
780,471 |
|
|
|
770,463 |
|
Accumulated
other comprehensive income (loss), net
|
|
|
(19,219 |
) |
|
|
(19,426 |
) |
Retained
earnings
|
|
|
280,198 |
|
|
|
240,982 |
|
Total
equity
|
|
|
1,087,735 |
|
|
|
1,037,841 |
|
Subordinated
debentures due to Southwest Gas Capital II
|
|
|
100,000 |
|
|
|
100,000 |
|
Long-term
debt, less current maturities
|
|
|
1,147,109 |
|
|
|
1,185,474 |
|
Total
capitalization
|
|
|
2,334,844 |
|
|
|
2,323,315 |
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
|
5,049 |
|
|
|
7,833 |
|
Short-term
debt
|
|
|
- |
|
|
|
55,000 |
|
Accounts
payable
|
|
|
116,118 |
|
|
|
191,434 |
|
Customer
deposits
|
|
|
84,697 |
|
|
|
83,468 |
|
Accrued
general taxes
|
|
|
60,806 |
|
|
|
41,490 |
|
Accrued
interest
|
|
|
18,353 |
|
|
|
19,699 |
|
Deferred
income taxes
|
|
|
3,512 |
|
|
|
- |
|
Deferred
purchased gas costs
|
|
|
25,495 |
|
|
|
33,073 |
|
Other
current liabilities
|
|
|
86,441 |
|
|
|
77,898 |
|
Total
current liabilities
|
|
|
400,471 |
|
|
|
509,895 |
|
Deferred
income taxes and other credits:
|
|
|
|
|
|
|
|
|
Deferred
income taxes and investment tax credits
|
|
|
378,728 |
|
|
|
387,539 |
|
Taxes
payable
|
|
|
3,480 |
|
|
|
3,480 |
|
Accumulated
removal costs
|
|
|
174,000 |
|
|
|
169,000 |
|
Other
deferred credits
|
|
|
432,412 |
|
|
|
427,155 |
|
Total
deferred income taxes and other credits
|
|
|
988,620 |
|
|
|
987,174 |
|
Total
capitalization and liabilities
|
|
$ |
3,723,935 |
|
|
$ |
3,820,384 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
SOUTHWEST
GAS CORPORATION AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
|
|
(In
thousands, except per share amounts)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE
MONTHS ENDED
|
|
|
TWELVE
MONTHS ENDED
|
|
|
|
MARCH
31,
|
|
|
MARCH
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Operating
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
operating revenues
|
|
$ |
635,106 |
|
|
$ |
741,300 |
|
|
$ |
1,685,201 |
|
|
$ |
1,829,051 |
|
Construction
revenues
|
|
|
54,756 |
|
|
|
72,307 |
|
|
|
335,797 |
|
|
|
342,928 |
|
Total
operating revenues
|
|
|
689,862 |
|
|
|
813,607 |
|
|
|
2,020,998 |
|
|
|
2,171,979 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cost of gas sold
|
|
|
395,810 |
|
|
|
500,699 |
|
|
|
951,088 |
|
|
|
1,092,682 |
|
Operations
and maintenance
|
|
|
84,662 |
|
|
|
85,206 |
|
|
|
338,116 |
|
|
|
331,879 |
|
Depreciation
and amortization
|
|
|
48,522 |
|
|
|
47,270 |
|
|
|
194,971 |
|
|
|
185,162 |
|
Taxes
other than income taxes
|
|
|
10,111 |
|
|
|
10,194 |
|
|
|
36,697 |
|
|
|
37,280 |
|
Construction
expenses
|
|
|
48,028 |
|
|
|
65,553 |
|
|
|
294,220 |
|
|
|
299,316 |
|
Total
operating expenses
|
|
|
587,133 |
|
|
|
708,922 |
|
|
|
1,815,092 |
|
|
|
1,946,319 |
|
Operating
income
|
|
|
102,729 |
|
|
|
104,685 |
|
|
|
205,906 |
|
|
|
225,660 |
|
Other
income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest deductions
|
|
|
(18,590 |
) |
|
|
(21,868 |
) |
|
|
(81,641 |
) |
|
|
(88,837 |
) |
Net
interest deductions on subordinated debentures
|
|
|
(1,933 |
) |
|
|
(1,932 |
) |
|
|
(7,730 |
) |
|
|
(7,728 |
) |
Other
income (deductions)
|
|
|
(1,704 |
) |
|
|
(1,467 |
) |
|
|
(13,643 |
) |
|
|
2,036 |
|
Total
other income and (expenses)
|
|
|
(22,227 |
) |
|
|
(25,267 |
) |
|
|
(103,014 |
) |
|
|
(94,529 |
) |
Income
before income taxes
|
|
|
80,502 |
|
|
|
79,418 |
|
|
|
102,892 |
|
|
|
131,131 |
|
Income
tax expense
|
|
|
30,521 |
|
|
|
30,266 |
|
|
|
41,090 |
|
|
|
48,497 |
|
Net
income
|
|
$ |
49,981 |
|
|
$ |
49,152 |
|
|
$ |
61,802 |
|
|
$ |
82,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
1.13 |
|
|
$ |
1.14 |
|
|
$ |
1.41 |
|
|
$ |
1.94 |
|
Diluted
earnings per share
|
|
$ |
1.12 |
|
|
$ |
1.14 |
|
|
$ |
1.40 |
|
|
$ |
1.92 |
|
Dividends
declared per share
|
|
$ |
0.2375 |
|
|
$ |
0.225 |
|
|
$ |
0.9125 |
|
|
$ |
0.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of common shares outstanding
|
|
|
44,424 |
|
|
|
43,012 |
|
|
|
43,825 |
|
|
|
42,592 |
|
Average
shares outstanding (assuming dilution)
|
|
|
44,680 |
|
|
|
43,290 |
|
|
|
44,118 |
|
|
|
42,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
SOUTHWEST
GAS CORPORATION AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Thousands
of dollars)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE
MONTHS ENDED
|
|
|
TWELVE
MONTHS ENDED
|
|
|
|
MARCH
31,
|
|
|
MARCH
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
CASH
FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
49,981 |
|
|
$ |
49,152 |
|
|
$ |
61,802 |
|
|
$ |
82,634 |
|
Adjustments
to reconcile net income to net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
48,522 |
|
|
|
47,270 |
|
|
|
194,971 |
|
|
|
185,162 |
|
Deferred
income taxes
|
|
|
9,477 |
|
|
|
4,811 |
|
|
|
40,801 |
|
|
|
25,501 |
|
Changes
in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net of allowances
|
|
|
(4,739 |
) |
|
|
(18,662 |
) |
|
|
48,754 |
|
|
|
11,106 |
|
Accrued
utility revenue
|
|
|
28,100 |
|
|
|
30,000 |
|
|
|
400 |
|
|
|
(2,900 |
) |
Deferred
purchased gas costs
|
|
|
(13,358 |
) |
|
|
3,994 |
|
|
|
3,579 |
|
|
|
78,187 |
|
Accounts
payable
|
|
|
(75,316 |
) |
|
|
(70,060 |
) |
|
|
(34,553 |
) |
|
|
(40,459 |
) |
Accrued
taxes
|
|
|
40,212 |
|
|
|
41,724 |
|
|
|
(23,349 |
) |
|
|
(28,917 |
) |
Other
current assets and liabilities
|
|
|
60,373 |
|
|
|
62,441 |
|
|
|
(5,704 |
) |
|
|
8,525 |
|
Gains
on sale
|
|
|
(1,065 |
) |
|
|
(705 |
) |
|
|
(2,428 |
) |
|
|
(2,798 |
) |
Changes
in undistributed stock compensation
|
|
|
2,215 |
|
|
|
2,077 |
|
|
|
3,963 |
|
|
|
4,773 |
|
AFUDC
and property-related changes
|
|
|
(470 |
) |
|
|
(325 |
) |
|
|
(706 |
) |
|
|
(735 |
) |
Changes
in other assets and deferred charges
|
|
|
(550 |
) |
|
|
341 |
|
|
|
(896 |
) |
|
|
(3,150 |
) |
Changes
in other liabilities and deferred credits
|
|
|
5,155 |
|
|
|
2,622 |
|
|
|
6,971 |
|
|
|
1,862 |
|
Net
cash provided by operating activities
|
|
|
148,537 |
|
|
|
154,680 |
|
|
|
293,605 |
|
|
|
318,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
expenditures and property additions
|
|
|
(52,445 |
) |
|
|
(61,100 |
) |
|
|
(291,562 |
) |
|
|
(318,206 |
) |
Changes
in customer advances
|
|
|
(1,768 |
) |
|
|
4,737 |
|
|
|
(2,461 |
) |
|
|
21,202 |
|
Return
of exchange fund deposit
|
|
|
- |
|
|
|
- |
|
|
|
28,000 |
|
|
|
- |
|
Miscellaneous
inflows
|
|
|
2,423 |
|
|
|
1,343 |
|
|
|
18,736 |
|
|
|
5,076 |
|
Miscellaneous
outflows
|
|
|
(1,172 |
) |
|
|
(15 |
) |
|
|
(3,850 |
) |
|
|
(18,739 |
) |
Net
cash used in investing activities
|
|
|
(52,962 |
) |
|
|
(55,035 |
) |
|
|
(251,137 |
) |
|
|
(310,667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock, net
|
|
|
8,152 |
|
|
|
7,413 |
|
|
|
36,130 |
|
|
|
29,870 |
|
Dividends
paid
|
|
|
(9,998 |
) |
|
|
(9,254 |
) |
|
|
(39,449 |
) |
|
|
(36,638 |
) |
Issuance
of long-term debt
|
|
|
- |
|
|
|
78 |
|
|
|
103,797 |
|
|
|
123,199 |
|
Retirement
of long-term debt
|
|
|
(5,346 |
) |
|
|
(3,464 |
) |
|
|
(200,573 |
) |
|
|
(143,144 |
) |
Change
in long-term portion of credit facility
|
|
|
(36,000 |
) |
|
|
(100,000 |
) |
|
|
64,000 |
|
|
|
(18,011 |
) |
Change
in short-term debt
|
|
|
(55,000 |
) |
|
|
(9,000 |
) |
|
|
- |
|
|
|
- |
|
Net
cash used in financing activities
|
|
|
(98,192 |
) |
|
|
(114,227 |
) |
|
|
(36,095 |
) |
|
|
(44,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in cash and cash equivalents
|
|
|
(2,617 |
) |
|
|
(14,582 |
) |
|
|
6,373 |
|
|
|
(36,600 |
) |
Cash
at beginning of period
|
|
|
26,399 |
|
|
|
31,991 |
|
|
|
17,409 |
|
|
|
54,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$ |
23,782 |
|
|
$ |
17,409 |
|
|
$ |
23,782 |
|
|
$ |
17,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid, net of amounts capitalized
|
|
$ |
21,325 |
|
|
$ |
23,785 |
|
|
$ |
88,751 |
|
|
$ |
96,438 |
|
Income
taxes paid
|
|
|
93 |
|
|
|
5,521 |
|
|
|
17,044 |
|
|
|
50,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
Note
1 – Nature of Operations and Basis of Presentation
Nature of
Operations. Southwest Gas Corporation and its subsidiaries
(the “Company”) are composed of two 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. 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 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.
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 2008 Annual Report to
Shareholders, which is incorporated by reference into the 2008
Form 10-K.
Intercompany
Transactions. NPL recognizes revenues generated from contracts
with Southwest (see Note
3 below). Accounts receivable for these services were $5.1 million at
March 31, 2009 and $6.6 million at December 31, 2008. 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.”
Other Income
(Deductions). The following table provides the composition of
significant items included in Other income (deductions) on the consolidated
statements of income (thousands of dollars):
|
|
Three
Months Ended
|
|
|
Twelve
Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(loss)
on company-owned life insurance policies
|
|
$ |
(1,594 |
) |
|
$ |
(2,100 |
) |
|
$ |
(11,535 |
) |
|
$ |
(945 |
) |
Interest
income
|
|
|
144 |
|
|
|
800 |
|
|
|
1,556 |
|
|
|
3,665 |
|
Miscellaneous
income and (expense)
|
|
|
(254 |
) |
|
|
(167 |
) |
|
|
(3,664 |
) |
|
|
(684 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (deductions)
|
|
$ |
(1,704 |
) |
|
$ |
(1,467 |
) |
|
$ |
(13,643 |
) |
|
$ |
2,036 |
|
Included
in the table above is the gain/(loss) on company-owned life insurance policies
(“COLI”). These life insurance policies on members of management and
other key employees are used by Southwest to indemnify itself against the loss
of talent, expertise, and knowledge, as well as to provide indirect funding for
certain nonqualified benefit plans. Current tax regulations provide
for tax-free treatment of life insurance (death benefit)
proceeds. Therefore, the gain/(loss) in the cash surrender value
components of COLI policies as they progress toward the ultimate death benefits
are also recorded without tax consequences.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
Reclassifications. Certain
reclassifications have been made to the prior year’s financial information to
present it on a basis comparable with the current year’s
presentation. None of the reclassifications affected previously
reported net income.
Recently Issued Accounting
Pronouncements. In December 2008, the FASB issued FASB Staff
Position (“FSP”) SFAS No. 132(R)-1, “Employers’ Disclosures about Postretirement
Benefit Plan Assets.” FSP SFAS No. 132(R)-1 requires companies to
enhance disclosures about the plan assets of a defined benefit pension or other
postretirement plan. Companies will be required to disclose how
investment decisions are made, the major plan asset categories, the inputs and
valuation techniques used to measure the fair value of plan assets, the level
within the fair value hierarchy in which the fair value measurements in their
entirety fall, the effect of fair value measurements using significant
unobservable inputs (Level 3) on changes in plan assets for the period, and
significant concentrations of risk within plan assets. The provisions
of FSP SFAS No. 132(R)-1 are effective for the Company beginning with 2009
year-end financial statement reports. The Company is evaluating what
impact this standard might have on its disclosures.
In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments” to require disclosures about the fair value
of financial instruments for interim reporting periods. Starting in
the second quarter of 2009, companies will be required to disclose the fair
value of financial instruments for interim periods in addition to the currently
required annual period disclosure. Upon adoption of the FSP, the
Company will disclose the fair value of applicable financial instruments
(including its long-term debt) for interim periods beginning in the second
quarter of 2009.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
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 March 31,
|
|
|
|
Three
Months
|
|
|
Twelve
Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
3,848 |
|
|
$ |
4,027 |
|
|
$ |
15,929 |
|
|
$ |
16,395 |
|
Interest
cost
|
|
|
8,631 |
|
|
|
8,122 |
|
|
|
33,000 |
|
|
|
30,055 |
|
Expected
return on plan assets
|
|
|
(8,805 |
) |
|
|
(8,678 |
) |
|
|
(34,841 |
) |
|
|
(33,450 |
) |
Amortization
of prior service costs (credits)
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(10 |
) |
|
|
(11 |
) |
Amortization
of net loss
|
|
|
1,063 |
|
|
|
776 |
|
|
|
3,391 |
|
|
|
4,532 |
|
Net
periodic benefit cost
|
|
$ |
4,736 |
|
|
$ |
4,245 |
|
|
$ |
17,469 |
|
|
$ |
17,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP
|
|
|
|
Period
Ended March 31,
|
|
|
|
Three
Months
|
|
|
Twelve
Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
49 |
|
|
$ |
25 |
|
|
$ |
121 |
|
|
$ |
139 |
|
Interest
cost
|
|
|
516 |
|
|
|
510 |
|
|
|
2,047 |
|
|
|
1,971 |
|
Amortization
of net loss
|
|
|
227 |
|
|
|
249 |
|
|
|
975 |
|
|
|
1,098 |
|
Net
periodic benefit cost
|
|
$ |
792 |
|
|
$ |
784 |
|
|
$ |
3,143 |
|
|
$ |
3,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBOP
|
|
|
|
Period
Ended March 31,
|
|
|
|
Three
Months
|
|
|
Twelve
Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
182 |
|
|
$ |
183 |
|
|
$ |
729 |
|
|
$ |
792 |
|
Interest
cost
|
|
|
593 |
|
|
|
581 |
|
|
|
2,336 |
|
|
|
2,309 |
|
Expected
return on plan assets
|
|
|
(401 |
) |
|
|
(535 |
) |
|
|
(2,004 |
) |
|
|
(2,143 |
) |
Amortization
of transition obligation
|
|
|
217 |
|
|
|
217 |
|
|
|
867 |
|
|
|
867 |
|
Amortization
of net loss
|
|
|
108 |
|
|
|
- |
|
|
|
108 |
|
|
|
42 |
|
Net
periodic benefit cost
|
|
$ |
699 |
|
|
$ |
446 |
|
|
$ |
2,036 |
|
|
$ |
1,867 |
|
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
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 March 31, 2009
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
635,106 |
|
|
$ |
41,595 |
|
|
$ |
676,701 |
|
Intersegment
revenues
|
|
|
- |
|
|
|
13,161 |
|
|
|
13,161 |
|
Total
|
|
$ |
635,106 |
|
|
$ |
54,756 |
|
|
$ |
689,862 |
|
Segment
net income
|
|
$ |
49,852 |
|
|
$ |
129 |
|
|
$ |
49,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
741,300 |
|
|
$ |
59,330 |
|
|
$ |
800,630 |
|
Intersegment
revenues
|
|
|
- |
|
|
|
12,977 |
|
|
|
12,977 |
|
Total
|
|
$ |
741,300 |
|
|
$ |
72,307 |
|
|
$ |
813,607 |
|
Segment
net income (loss)
|
|
$ |
49,333 |
|
|
$ |
(181 |
) |
|
$ |
49,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
months ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
1,685,201 |
|
|
$ |
272,483 |
|
|
$ |
1,957,684 |
|
Intersegment
revenues
|
|
|
- |
|
|
|
63,314 |
|
|
|
63,314 |
|
Total
|
|
$ |
1,685,201 |
|
|
$ |
335,797 |
|
|
$ |
2,020,998 |
|
Segment
net income
|
|
$ |
54,266 |
|
|
$ |
7,536 |
|
|
$ |
61,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
months ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
1,829,051 |
|
|
$ |
276,057 |
|
|
$ |
2,105,108 |
|
Intersegment
revenues
|
|
|
- |
|
|
|
66,871 |
|
|
|
66,871 |
|
Total
|
|
$ |
1,829,051 |
|
|
$ |
342,928 |
|
|
$ |
2,171,979 |
|
Segment
net income
|
|
$ |
73,199 |
|
|
$ |
9,435 |
|
|
$ |
82,634 |
|
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
Note
4 – Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Twelve
Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands
of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
49,981 |
|
|
$ |
49,152 |
|
|
$ |
61,802 |
|
|
$ |
82,634 |
|
Net
actuarial gain (loss) arising during period,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
less
amortization of unamortized benefit plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cost,
net of tax
|
|
|
207 |
|
|
|
202 |
|
|
|
(6,571 |
) |
|
|
774 |
|
Comprehensive
income
|
|
$ |
50,188 |
|
|
$ |
49,354 |
|
|
$ |
55,231 |
|
|
$ |
83,408 |
|
Tax
expense related to the net actuarial gain (loss) arising during the period, less
amortization of unamortized benefit plan cost, for the three months and twelve
months ended March 31, 2009 was $126,000 and $4 million,
respectively. Tax expense related to the net actuarial gain arising
during the period, less amortization of unamortized benefit plan cost for the
three months and twelve months ended March 31, 2008 was $124,000 and $474,000,
respectively. Total accumulated other comprehensive loss as of March
31, 2009 was $19.2 million, net of $11.8 million of tax, and was
composed entirely of unamortized benefit plan costs.
Note
5 – Common Stock
During
the three months ended March 31, 2009, the Company issued approximately 463,000
shares of common stock through the Dividend Reinvestment and Stock Purchase Plan
(“DRSPP”), Employee Investment Plan, Restricted Stock/Unit Plan, and Management
Incentive Plan. The remaining capacity under the Equity Shelf Program
of $16.7 million expired unused in March 2009.
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
April 2009 through October 2010. 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
9.5 million dekatherms at March 31, 2009 and 6.5 million dekatherms at
December 31, 2008). Southwest does not utilize derivative financial
instruments for speculative purposes, nor does it have trading
operations.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
The
following table sets forth the gains and (losses) recognized on the Company's
Swaps (derivatives) for the three months ended March 31, 2009 and their
location in the income statement (thousands of dollars).
Derivatives
not designated as hedging instruments under SFAS 133:
|
|
|
|
|
|
|
|
|
|
|
|
Location
of Gain or (Loss) Recognized in
Income
on Derivative
|
|
Amount
of Gain or
(Loss)
Recognized in
Income
on Derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
Net
cost of gas sold
|
|
$ |
(8,968 |
) |
|
Swaps
|
Net
cost of gas sold
|
|
|
8,968
|
*
|
|
Total
|
|
|
$ |
- |
|
|
*
Represents the impact of regulatory deferral accounting treatment under SFAS No.
71.
The
estimated fair values of the derivatives were determined using future natural
gas index prices (as more fully described below). The Company has
master netting arrangements with each counterparty that provide for the net
settlement of all contracts through a single payment. As applicable,
the Company has elected to reflect the net amounts in its balance
sheets.
The
following table sets forth the fair values of the Company's Swaps (derivatives)
and their location in the balance sheets (thousands of dollars).
Derivatives
not designated as hedging instruments under SFAS 133:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009
|
|
|
Asset
|
|
|
Liability
|
|
|
|
|
|
Balance Sheet
Location
|
|
Derivatives
|
|
|
Derivatives
|
|
|
Net
Total
|
|
Swaps
|
Deferred
charges and other assets
|
|
$ |
303 |
|
|
$ |
(21 |
) |
|
$ |
282 |
|
Swaps
|
Other
current liabilities
|
|
|
- |
|
|
|
(10,889 |
) |
|
|
(10,889 |
) |
Swaps
|
Other
deferred credits
|
|
|
- |
|
|
|
(901 |
) |
|
|
(901 |
) |
Total
|
|
|
$ |
303 |
|
|
$ |
(11,811 |
) |
|
$ |
(11,508 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
Asset
|
|
|
Liability
|
|
|
|
|
|
|
Balance Sheet
Location
|
|
Derivatives
|
|
|
Derivatives
|
|
|
Net
Total
|
|
Swaps
|
Deferred
charges and other assets
|
|
$ |
380 |
|
|
$ |
(88 |
) |
|
$ |
292 |
|
Swaps
|
Other
current liabilities
|
|
|
- |
|
|
|
(14,440 |
) |
|
|
(14,440 |
) |
Total
|
|
|
$ |
380 |
|
|
$ |
(14,528 |
) |
|
$ |
(14,148 |
) |
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. During the first quarter of
2009, Southwest paid counterparties $11.6 million in settlements of matured
Swap contracts. 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. At March 31, 2009,
regulatory assets/liabilities offsetting the amounts in the above table were
recorded in Prepaids and other current assets ($10.9 million), Deferred
charges and other assets ($901,000), and Other deferred credits
($282,000). At December 31, 2008, regulatory assets/liabilities
offsetting the amounts in the above table were recorded in Prepaids and other
current assets ($14.4 million) and Other deferred credits
($292,000).
SFAS No.
157, “Fair Value Measurements” (“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 three-level fair value
hierarchy that ranks the inputs used to measure fair value by their
reliability.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
The
estimated fair values of Southwest’s Swaps were determined at March 31, 2009
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, but have been credit-risk
adjusted with no significant impact to the overall fair value
measure.
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 March 31, 2009.
|
|
|
|
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
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Deferred
charges and other assets - swaps
|
|
|
282 |
|
|
|
- |
|
|
|
282 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
current liabilities - swaps
|
|
|
(10,889 |
) |
|
|
- |
|
|
|
(10,889 |
) |
|
|
- |
|
Other
deferred credits - swaps
|
|
|
(901 |
) |
|
|
- |
|
|
|
(901 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Assets (Liabilities)
|
|
$ |
(11,508 |
) |
|
$ |
- |
|
|
$ |
(11,508 |
) |
|
$ |
- |
|
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Southwest
Gas Corporation and its subsidiaries (the “Company”) consist 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
March 31, 2009, Southwest had 1,821,000 residential, commercial, industrial, and
other natural gas customers, of which 984,000 customers were located in Arizona,
657,000 in Nevada, and 180,000 in California. Residential and
commercial customers represented over 99 percent of the total customer
base. During the twelve months ended March 31, 2009,
53 percent of operating margin was earned in Arizona, 35 percent in
Nevada, and 12 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 principal
factors affecting operating margin are general rate relief, weather,
conservation and efficiencies, and customer growth. Of these, weather
is the primary reason for volatility in margin. Variances in
temperatures from normal levels, especially in Arizona where rates are highly
leveraged, have a significant impact on the margin and associated net income of
the Company.
NPL
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
20 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 2008 Annual Report to Shareholders, which is incorporated by reference into
the 2008 Form 10-K.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
Ended March 31,
|
|
|
|
Three
Months
|
|
|
Twelve
Months
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas operations
|
|
$ |
49,852 |
|
|
$ |
49,333 |
|
|
$ |
54,266 |
|
|
$ |
73,199 |
|
Construction
services
|
|
|
129 |
|
|
|
(181 |
) |
|
|
7,536 |
|
|
|
9,435 |
|
Net
income
|
|
$ |
49,981 |
|
|
$ |
49,152 |
|
|
$ |
61,802 |
|
|
$ |
82,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
44,424 |
|
|
|
43,012 |
|
|
|
43,825 |
|
|
|
42,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$ |
1.13 |
|
|
$ |
1.14 |
|
|
$ |
1.41 |
|
|
$ |
1.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margin
|
|
$ |
239,296 |
|
|
$ |
240,601 |
|
|
$ |
734,113 |
|
|
$ |
736,369 |
|
Contribution
to consolidated net income from natural gas operations increased $519,000 in the
first quarter of 2009 compared to same period in 2008. The
improvement in contribution primarily resulted from lower financing costs
partially offset by a decrease in operating margin and increased operating
costs. The first quarter of 2009 contribution to consolidated net
income from construction services improved $310,000 from the same period in
2008. The improvement between periods was primarily due to lower
costs and increased gains on the sale of equipment.
1st
Quarter 2009 Overview
Despite a
small increase in net income, basic earnings per share declined between quarters
due to an increase in the number of common shares outstanding.
Gas
operations highlights include the following:
|
·
|
Operating
margin decreased approximately $1 million, or 1 percent,
compared to the prior-year’s quarter as negative impacts of weather
variations ($17 million) and conservation/energy efficiencies
($6 million) were substantially offset by rate relief
($10 million) and seasonal operating margin recognition changes
($12 million)
|
·
|
Operating
expenses increased just one percent between quarters
|
·
|
Net
financing costs decreased $3.2 million between quarterly
periods
|
·
|
Nevada
general rate case filed requesting $30.5 million and a decoupled rate
structure
|
·
|
Liquidity
position remains strong
|
·
|
In
April 2009, S&P upgraded the Company’s debt rating from BBB- to
BBB
|
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
Reduction in Customer
Growth. During the twelve months ended March 31, 2009,
Southwest completed 29,000 first-time meter sets. These meter sets
led to just 2,000 net additional active meters during the same time
frame. The difference between first-time meter sets and incremental
active meters indicates a significant inventory of unoccupied homes, continuing
a trend first experienced during 2007. Southwest is projecting
continued sluggish net growth (1% or less) for 2009 as high foreclosure rates
and recessionary conditions persist throughout its service
territories. 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 a turn around, it is not likely to occur in the near term.
Weather. The rate
structures in each of Southwest’s three states provide varying levels of
protection from risks that drive operating margin volatility, particularly
weather risk. During the first quarter of 2009, weather was extremely
warm in its service territories, especially in Arizona, which experienced one of
its warmest winters in 100 years. On a total Company basis, Southwest
estimates that the weather impact on operating margin was a reduction of
$13 million. Conversely, during the first quarter of 2008,
colder-than-normal temperatures resulted in a favorable margin impact of
$4 million.
In
Southwest’s California service territories, weather impacts were completely
offset by the margin tracking mechanism allowing margin to grow as authorized in
its most recent general rate case. In Nevada, the negative impacts
were mitigated by a declining block rate structure. Most of the
reduction occurred in Arizona, where rates are highly leveraged and a single
block rate structure is in effect. In addition, the heating season is
fairly condensed in Arizona, therefore variations from “normal” temperatures can
cause material volatility in operating margin as over 50 percent of Southwest’s
annual operating margin is normally earned in Arizona.
Conservation, Energy Efficiencies,
and Economic Impacts on Consumption. A significant portion of
Southwest’s operating margin (primarily in Arizona and partially in Nevada) is
recognized based on the volumetric usage of its customers. Historically the
impacts of this rate design methodology have been most pronounced when
temperatures varied from normal levels. Over the longer-term, average
usage has also declined due to new home construction practices and energy
efficient appliances. Recently, the continued downturn in the economy
and associated pro-active conservation efforts have resulted in an unprecedented
drop in per-customer usage. For the quarter ended March 31, 2009, the
estimated impact of these non-weather-related volumetric declines was a
reduction to operating margin of $6 million. The decoupling
methodology requested in the recent Nevada rate case, if approved as proposed,
would mitigate this impact in Nevada. Management continues to work
with regulators in Arizona to establish a decoupling methodology that would
allow the Company to support and encourage conservation efforts without
jeopardizing the recognition of authorized operating margin.
Company-Owned Life Insurance
(“COLI”). Southwest has life insurance policies on members of
management and other key employees to indemnify itself against the loss of
talent, expertise, and knowledge, as well as to provide indirect funding for
certain nonqualified benefit plans. The COLI policies have a combined
net death benefit value of approximately $137 million at March 31,
2009. The net cash surrender value of these policies (which is the
cash amount that would be received if Southwest voluntarily terminated the
policies) is approximately $45 million at March 31, 2009 and is included in
the caption “Other property and investments” on the balance
sheet. Cash surrender values are directly influenced by the
investment portfolio underlying the insurance policies. This
portfolio includes both equity and fixed income (mutual fund)
investments. As a result, generally the cash surrender value (but not
the net death benefit) moves up and down consistent with the movements in the
broader stock and bond markets. During the first quarter of 2009,
Southwest recognized a net decline in the cash surrender values of its COLI
policies of $1.6 million (compared to a net decline of $2.1 million in
the same period of 2008). During the twelve months ended March 31,
2009, Southwest recognized a net decline in the cash surrender values of its
COLI policies of $11.5 million (compared to a net decline of $945,000 in
the same period of 2008). Current tax regulations provide for
tax-free treatment of life insurance (death benefit)
proceeds. Therefore, the changes in the cash surrender value
components of COLI policies as they progress toward the ultimate death benefits
are also recorded without tax consequences. Currently, the Company
intends to hold the COLI policies for their duration and purchase additional
policies as necessary.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
Liquidity. During
2008, significant attention was paid to companies’ liquidity and credit
risks. Focus on these risks will likely continue given the current
national economic environment. The Company has experienced no
significant impacts to its liquidity position from the current credit
crisis. Southwest believes its liquidity position remains strong for
several reasons. First, Southwest has a $300 million credit
facility maturing in May 2012, $150 million of which is designated for
working capital needs. The facility is composed of eight major
banking institutions. Historically, usage of the facility has been
low and concentrated in the first half of the winter heating period when gas
purchases require temporary financing. Second, natural gas prices
have remained low and beneficial rate mechanisms have resulted in steady
gas-cost related operating cash flows. Third, Southwest has no
significant debt maturities prior to February 2011. Because of
Southwest’s strong liquidity position, in December 2008, Southwest was able to
take advantage of the current credit market by repurchasing $75 million of
IDRBs at a net deferred gain of $14 million.
Credit Ratings. In
April 2009, Standard & Poor’s Ratings Services (“S&P”) upgraded the
Company’s unsecured long-term debt ratings from BBB- (with a positive outlook)
to BBB (with a stable outlook). S&P cited the Company’s stronger
financial performance due to reduced debt leverage and the recent general rate
increase in the Company’s Arizona service territory as reasons for the upgrade.
The change in credit rating will result in an annualized estimated decrease of
$200,000 to $300,000 in interest expense and fees on existing variable-rate
debt.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
Results
of Natural Gas Operations
Quarterly
Analysis
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands
of dollars)
|
|
Gas
operating revenues
|
|
$ |
635,106 |
|
|
$ |
741,300 |
|
Net
cost of gas sold
|
|
|
395,810 |
|
|
|
500,699 |
|
Operating margin
|
|
|
239,296 |
|
|
|
240,601 |
|
Operations
and maintenance expense
|
|
|
84,662 |
|
|
|
85,206 |
|
Depreciation
and amortization
|
|
|
42,339 |
|
|
|
40,645 |
|
Taxes
other than income taxes
|
|
|
10,111 |
|
|
|
10,194 |
|
Operating income
|
|
|
102,184 |
|
|
|
104,556 |
|
Other
income (expense)
|
|
|
(1,786 |
) |
|
|
(1,526 |
) |
Net
interest deductions
|
|
|
18,182 |
|
|
|
21,352 |
|
Net
interest deductions on subordinated debentures
|
|
|
1,933 |
|
|
|
1,932 |
|
Income before income taxes
|
|
|
80,283 |
|
|
|
79,746 |
|
Income
tax expense
|
|
|
30,431 |
|
|
|
30,413 |
|
Contribution to consolidated net income
|
|
$ |
49,852 |
|
|
$ |
49,333 |
|
Contribution
to consolidated net income from natural gas operations increased $519,000 in the
first quarter of 2009 compared to 2008. The improvement in
contribution reflects the benefit of lower financing costs partially offset by a
slight reduction in operating margin.
Operating
margin decreased a net $1 million in the first quarter of 2009 compared to
the first quarter of 2008. The positive impacts to margin of rate
relief and rate changes were approximately $22 million, consisting of
$9 million in Arizona, $1 million of rate relief in California and
nearly $12 million related to the return to a seasonal margin methodology
in California. As a result of weather-related usage variations in
Arizona, new margin from rate relief during the first quarter was approximately
$3 million to $4 million less than expected. Differences in
heating demand, caused primarily by weather variations, negatively impacted
operating margin by approximately $17 million as overall temperatures in
the current quarter were significantly warmer than normal ($13 million),
while temperatures were somewhat colder than normal ($4 million) in the
first quarter of 2008. Energy efficiency and conservation resulting
from the sluggish economy negatively impacted operating margin by an estimated
$6 million. Customer growth had a negligible positive impact as
only 2,000 net new customers were added during the last twelve
months.
Operations
and maintenance expense decreased $544,000, or one percent, principally due to
labor efficiencies associated with cost containment efforts.
Depreciation
expense increased $1.7 million, or four percent, as a result of
additional plant in service. Average gas plant in service for the
current period increased $215 million, or five 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.
Net
financing costs decreased $3.2 million between the first quarters of 2009
and 2008 primarily due to lower average debt outstanding, including the
redemption of $75 million of long-term debt in December 2008, and reduced
interest rates associated with Southwest’s commercial credit and other
variable-rate facilities.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
Twelve-Month
Analysis
|
|
|
|
|
|
|
|
|
Twelve
Months Ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Thousands
of dollars)
|
|
Gas
operating revenues
|
|
$ |
1,685,201 |
|
|
$ |
1,829,051 |
|
Net
cost of gas sold
|
|
|
951,088 |
|
|
|
1,092,682 |
|
Operating margin
|
|
|
734,113 |
|
|
|
736,369 |
|
Operations
and maintenance expense
|
|
|
338,116 |
|
|
|
331,879 |
|
Depreciation
and amortization
|
|
|
168,031 |
|
|
|
159,205 |
|
Taxes
other than income taxes
|
|
|
36,697 |
|
|
|
37,280 |
|
Operating income
|
|
|
191,269 |
|
|
|
208,005 |
|
Other
income (expense)
|
|
|
(13,729 |
) |
|
|
1,948 |
|
Net
interest deductions
|
|
|
79,926 |
|
|
|
86,640 |
|
Net
interest deductions on subordinated debentures
|
|
|
7,730 |
|
|
|
7,728 |
|
Income before income taxes
|
|
|
89,884 |
|
|
|
115,585 |
|
Income
tax expense
|
|
|
35,618 |
|
|
|
42,386 |
|
Contribution to consolidated net income
|
|
$ |
54,266 |
|
|
$ |
73,199 |
|
Contribution
to consolidated net income from natural gas operations decreased
$18.9 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, higher operating expenses, and lower operating margin,
partially offset by reduced financing costs.
Operating
margin decreased a net $2 million between periods. Rate relief
and rate changes provided approximately $25 million of operating margin,
consisting of $11 million in Arizona, $2 million of rate relief in
California and nearly $12 million related to the return to a seasonal
margin methodology in California. Modest customer growth contributed
$4 million. Differences in heating demand caused primarily by
weather variations between periods resulted in an estimated $21 million
operating margin decrease as warmer-than-normal temperatures were experienced
during both periods (during the twelve-month period of 2009, operating margin
was negatively impacted by $28 million, while the negative impact in the
twelve-month period of 2008 was $7 million). Energy efficiency
and conservation resulting from current economic conditions negatively impacted
operating margin by an estimated $10 million.
Operations
and maintenance expense increased $6.2 million, or two percent, principally due
to the impact of general cost increases. Labor efficiencies,
primarily from the conversion to electronic meter reading and other cost
containment efforts, mitigated the increase in operations and maintenance
expense.
Depreciation
expense increased $8.8 million, or six percent, as a result of
additional plant in service. Average gas plant in service for the
twelve-month period of 2009 increased $232 million, or six percent,
compared to the twelve-month period of 2008. This was attributable to
the upgrade of existing operating facilities and the expansion of the system to
accommodate customer growth.
Other
income decreased $15.7 million between the twelve-month periods of 2009 and
2008. This was primarily due to negative returns on COLI policies in
the current period ($11.5 million) compared to negative returns in the prior
period ($945,000) and a $2.1 million reduction in interest income between
the twelve-month periods primarily due to the recovery of previously deferred
purchased gas cost receivables.
Net
financing costs decreased $6.7 million between the twelve-month periods of 2009
and 2008 primarily due to lower average debt outstanding and reduced interest
rates associated with Southwest’s commercial credit and other variable-rate
facilities.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
Results
of Construction Services
Contribution
to consolidated net income from construction services for the first quarter of
2009 increased $310,000 compared to the same period of 2008. The
improvement was primarily due to lower costs and increased gains on equipment
sales between periods. Gains on sales of equipment were
$1.1 million in the first quarter of 2009 and $705,000 in the first quarter
of 2008.
Revenues
decreased $17.6 million due primarily to a reduction in new construction
work. The reduced workload resulted in a corresponding decrease in
construction expenses ($17.5 million). Interest expense also
decreased between periods due to a reduction in long-term
borrowings.
Contribution
to consolidated net income from construction services for the twelve-month
period of 2009 decreased $1.9 million compared to the same period of
2008. This decrease was due primarily to a reduction in the volume of
new construction work. Higher fuel cost and fuel-related expenses in
the second and third quarters of 2008 also contributed to the decrease in net
income. Gains on sales of equipment were $2.4 million in the
twelve-month period of 2009 and $2 million in the twelve-month period of
2008.
Revenues
decreased $7.1 million due primarily to a reduction in the volume of
higher-margin new construction work resulting from the general slow down in the
new housing market. New construction work has been largely replaced
by infrastructure maintenance and improvement work, which generally yields lower
profit margins. There was also a decrease in the amount of work from
existing blanket contracts. Construction expenses decreased
$5.1 million due primarily to the reduction in construction work, partially
offset by the higher fuel and fuel-related expenses noted above.
NPL’s
revenues and operating profits are influenced by weather, customer requirements,
mix of work, local economic conditions, bidding results, and the equipment
resale market. Generally, revenues and profits are lowest during the
first quarter of the year due to unfavorable winter weather
conditions. Operating results typically improve as more favorable
weather conditions occur during the summer and fall months.
Rates
and Regulatory Proceedings
California General Rate
Cases. Effective January 2009 Southwest received general rate
relief in California. The California Public Utilities Commission
(“CPUC”) decision authorized an overall increase of $2.8 million in 2009
with an additional $400,000 deferred to 2010. In addition, attrition
increases were approved to be effective for the years 2010-2013 of 2.95% in
southern and northern California and $100,000 per year for the South Lake Tahoe
rate jurisdiction. The CPUC also authorized a return to a seasonal
margin methodology which will result in significant quarterly swings in reported
operating margin (2009 versus 2008). In addition to the comparative
operating margin increase of $12.8 million recognized in the first quarter
of 2009, a decrease of $2 million in the second quarter, a decrease of
$9 million in the third quarter, and an increase of $1 million for the
fourth quarter of 2009 are expected. The CPUC also authorized lower
depreciation rates which will reduce annualized depreciation expense by
$3 million.
Nevada General Rate
Case. Southwest filed a general rate application with the
Public Utilities Commission of Nevada (“PUCN”) in April 2009 requesting an
increase in authorized operating revenues of $28.8 million, or
5.9 percent in the Company’s southern Nevada rate jurisdiction and
$1.7 million, or 1.4 percent in the northern Nevada rate jurisdiction,
with an expected effective date of November 2009. The Company is also
seeking to implement a decoupled rate structure based on recently established
PUCN regulations that will help stabilize operating margin and allow the Company
to more aggressively pursue customer conservation opportunities through
implementation of substantive conservation and energy efficiency
programs. Southwest's last general rate increase occurred in
2004.
FERC General Rate
Case. Paiute Pipeline Company, a subsidiary of the Company,
filed a general rate case with the Federal Energy Regulatory Commission (“FERC”)
in February 2009. The filing fulfills an obligation from the
settlement agreement reached in the 2005 Paiute general rate
case. The application requests an increase in operating revenues of
approximately $3.9 million. New rates are anticipated to go into
effect subject to refund within 180 days of filing.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
PGA
Filings
The rate
schedules in all of Southwest’s service territories contain provisions that
permit adjustments to rates as the cost of purchased gas changes. These deferred
energy provisions and purchased gas adjustment clauses are collectively referred
to as “PGA” clauses. Differences between gas costs recovered from
customers and amounts paid for gas by Southwest result in over- and
under-collections. At March 31, 2009, over-collections in
California and Southern Nevada resulted in a liability of $25.5 million and
under-collections in Arizona and Northern Nevada resulted in an asset of
$5.8 million on the Company’s balance sheets. Filings to change
rates in accordance with PGA clauses are subject to audit by state regulatory
commission staffs. PGA changes impact cash flows but have no direct
impact on profit margin. However, gas cost deferrals and recoveries
can impact comparisons between periods of individual income statement
components. These include Gas operating revenues, Net cost of gas
sold, Net interest deductions, and Other income (deductions).
As of
March 31, 2009, December 31, 2008, and March 31, 2008, Southwest had the
following outstanding PGA balances receivable/(payable) (millions of
dollars):
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
March
31, 2008
|
|
Arizona
|
|
$ |
4.3 |
|
|
$ |
(9.6 |
) |
|
$ |
12.6 |
|
Northern
Nevada
|
|
|
1.5 |
|
|
|
(1.5 |
) |
|
|
(8.4 |
) |
Southern
Nevada
|
|
|
(20.5 |
) |
|
|
(19.9 |
) |
|
|
(15.9 |
) |
California
|
|
|
(5.0 |
) |
|
|
(2.1 |
) |
|
|
(4.4 |
) |
|
|
$ |
(19.7 |
) |
|
$ |
(33.1 |
) |
|
$ |
(16.1 |
) |
Capital
Resources and Liquidity
Cash on
hand and cash flows from operations have generally been sufficient over the past
two years to provide for net investing activities (primarily construction
expenditures and property additions). During the past two years, the
Company has been able to reduce the net amount of debt outstanding (including
short-term borrowings). The Company’s capitalization strategy is to
maintain an appropriate balance of equity and debt (including subordinated
debentures and short-term borrowings).
To
facilitate future financings, the Company has a universal shelf registration
statement providing for the issuance and sale of registered securities from time
to time, which may consist of secured debt, unsecured debt, preferred stock, or
common stock. The number and dollar amount of securities issued under
the universal shelf registration statement, which was filed with the SEC and
automatically declared effective in December 2008, will be determined at the
time of the offerings and presented in the applicable prospectuses.
Cash
Flows
Operating Cash Flows. Cash flows
provided by consolidated operating activities decreased $6.1 million in the
first quarter of 2009 as compared to the same period in 2008. The primary driver
of the change was temporary fluctuations in working capital
components. Operating cash flows were also impacted by an increase in
net income and depreciation and amortization between quarters.
In
February 2009, the American Recovery and Reinvestment Act of 2009 (“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 2009. Southwest estimates that the bonus depreciation
deduction will defer the payment of approximately $22 million of federal
income taxes during 2009 to future periods.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
Investing Cash Flows. Cash used in
consolidated investing activities decreased $2.1 million in the first
quarter of 2009 as compared to the same period in 2008 primarily due to
reductions in construction expenditures and equipment purchases, a result of the
new housing market slowdown, partially offset by changes in customer
advances.
Financing Cash Flows. Cash used in
consolidated financing activities decreased $16 million during the first
quarter of 2009 as compared to the same period in 2008 primarily due to
fluctuations in borrowings under Southwest’s commercial credit
facility. Dividends paid increased in the first quarter of 2009 as
compared to 2008 as a result of a quarterly dividend increase and an increase in
the number of shares outstanding.
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 the construction services segment 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 much slower pace than in
the recent past. The Company is also in the process of constructing
two new operations centers for its Southern Nevada Division (with total
estimated costs of $52 million), which are expected to be completed by the
third quarter of 2009. During the twelve-month period ended
March 31, 2009, construction expenditures for the natural gas operations
segment were $275 million. Approximately 63 percent of
these 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 were $250 million and provided approximately 79 percent
of construction expenditures and dividend requirements. Other
necessary funding was provided by external financing activities and existing
credit facilities.
Southwest
estimates natural gas segment construction expenditures during the three-year
period ending December 31, 2011 will be approximately
$720 million. Of this amount, approximately $260 million is
expected to be incurred in 2009. During the three-year period, cash
flows from operating activities of Southwest are estimated to fund over
85 percent of the gas operations total construction expenditures and
dividend requirements. Southwest also has $200 million in
long-term debt due in 2011. During the three-year period, the Company
expects to raise $40 million to $50 million from its various common
stock programs. Any cash requirements not met by operating activities
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
financings may include the issuance of both debt and equity securities, bank and
other short-term borrowings, and other forms of financing.
During
the first quarter of 2009, the Company issued shares of common stock through the
Dividend Reinvestment and Stock Purchase Plan (“DRSPP”) and Employee Investment
Plan, raising approximately $8 million. No other financing
activities were necessary during the period.
Dividend
Policy
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 2009, the Board of Directors increased the
quarterly dividend payout from 22.5 cents to 23.75 cents per share,
effective with the June 2009 payment.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
Liquidity
Liquidity
refers to the ability of an enterprise to generate sufficient amounts of cash
through its operating activities and external financing to meet its
cash requirements. Several general factors (some of which are out of
the control of the Company) that could significantly affect liquidity in future
years include variability of natural gas prices, changes in the ratemaking
policies of regulatory commissions, regulatory lag, customer growth in the
natural gas segment’s service territories, Southwest’s ability to access and
obtain capital from external sources, interest rates, changes in income tax
laws, pension funding requirements, inflation, and the level of Company
earnings. Natural gas prices and related gas cost recovery rates have
historically had the most significant impact on Company liquidity.
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 March 31,
2009, the combined balance in the PGA accounts totaled a net over-collection of
$20 million. See PGA Filings for more
information on recent regulatory filings.
In the
current challenging capital market environment, the Company has not to date
experienced significant impacts on its financing activities. Limited
availability of commercial paper and temporarily higher interest rates in 2008
are the most significant impacts the Company has experienced. The
Company has a $300 million credit facility that expires in
May 2012. Southwest has designated $150 million of the
$300 million facility as long-term debt and the remaining $150 million
for working capital purposes. At March 31, 2009, $114 million
was outstanding on the long-term portion and no borrowings were outstanding on
the short-term portion of the credit facility. The credit facility
can be used as necessary to meet liquidity requirements, including temporarily
financing under-collected PGA balances. This credit facility has
been, and is expected to continue to be, adequate for Southwest’s working
capital needs outside of funds raised through operations and other types of
external financing. Management believes the Company currently has a
solid liquidity position.
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
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Ratio
of earnings to fixed charges
|
|
|
2.06
|
|
|
|
2.01
|
|
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
net amortized debt costs.
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, the composition of our customer base, price volatility,
risks and costs associated with having non-performing assets associated with new
homes, timing of improvements in the housing market, amount and timing for
completion of estimated future construction expenditures, forecasted operating
cash flows, funding sources of cash requirements, sufficiency of working
capital, bank lending practices, the Company’s views regarding its liquidity
position, ability to raise funds and receive external
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
financing,
the amount and form of any such financing, liquidity, the recovery of
under-collected PGA balances, the impact of the application of certain
accounting standards, certain tax benefits from the American Recovery and
Reinvestment Act of 2009, statements regarding future gas prices, gas purchase
contracts and derivative financial interests, the impact of certain legal
proceedings, 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, 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, the impact of conditions
in the capital markets on financing costs, changes in construction expenditures
and financing, renewal of franchises, easements and rights-of-way, changes in
operations and maintenance expenses, effects of pension expense forecasts,
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 and
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, 2008.
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 2008 Annual Report on Form
10-K filed with the SEC. No material changes have occurred related to
the Company’s disclosures about market risk.
SOUTHWEST GAS
CORPORATION
|
Form
10-Q
|
March 31, 2009
|
|
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 March 31, 2009, 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 first quarter of 2009 that have materially affected, or are likely to
materially affect, the Company’s internal controls over financial
reporting.
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
5. None.
ITEM
6. EXHIBITS
|
The
following documents are filed as part of this report on
Form 10-Q:
|
|
|
|
|
|
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
|
March 31, 2009
|
|
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: May
8, 2009
|
|
|
|
|
/s/
Roy R. Centrella
|
|
Roy
R. Centrella
|
|
Vice
President/Controller and Chief Accounting
Officer
|