form10q1stqtr2010.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, 2010
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.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
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, 45,371,013 shares as of May 3, 2010.
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
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,
|
|
|
|
2010
|
|
|
2009
|
|
ASSETS
|
|
|
|
|
|
|
Utility
plant:
|
|
|
|
|
|
|
Gas
plant
|
|
$ |
4,452,297 |
|
|
$ |
4,418,286 |
|
Less:
accumulated depreciation
|
|
|
(1,460,799 |
) |
|
|
(1,431,106 |
) |
Acquisition
adjustments, net
|
|
|
1,406 |
|
|
|
1,451 |
|
Construction
work in progress
|
|
|
36,005 |
|
|
|
45,872 |
|
Net
utility plant
|
|
|
3,028,909 |
|
|
|
3,034,503 |
|
Other
property and investments
|
|
|
114,443 |
|
|
|
115,860 |
|
Restricted
cash
|
|
|
49,776 |
|
|
|
49,769 |
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
39,005 |
|
|
|
65,315 |
|
Accounts
receivable, net of allowances
|
|
|
176,207 |
|
|
|
157,722 |
|
Accrued
utility revenue
|
|
|
43,700 |
|
|
|
71,700 |
|
Income
taxes receivable, net
|
|
|
- |
|
|
|
8,549 |
|
Deferred
income taxes
|
|
|
23,513 |
|
|
|
22,410 |
|
Deferred
purchased gas costs
|
|
|
- |
|
|
|
3,251 |
|
Prepaids
and other current assets
|
|
|
76,780 |
|
|
|
88,685 |
|
Total
current assets
|
|
|
359,205 |
|
|
|
417,632 |
|
Deferred
charges and other assets
|
|
|
288,657 |
|
|
|
288,528 |
|
Total
assets
|
|
$ |
3,840,990 |
|
|
$ |
3,906,292 |
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION
AND LIABILITIES
|
|
|
|
|
|
|
|
|
Capitalization:
|
|
|
|
|
|
|
|
|
Common
stock, $1 par (authorized - 60,000,000 shares; issued
|
|
|
|
|
|
|
|
|
and
outstanding - 45,334,131 and 45,091,734 shares)
|
|
$ |
46,964 |
|
|
$ |
46,722 |
|
Additional
paid-in capital
|
|
|
798,918 |
|
|
|
792,339 |
|
Accumulated
other comprehensive income (loss), net
|
|
|
(22,521 |
) |
|
|
(22,250 |
) |
Retained
earnings
|
|
|
338,470 |
|
|
|
285,316 |
|
Total
Southwest Gas Corporation equity
|
|
|
1,161,831 |
|
|
|
1,102,127 |
|
Noncontrolling
interest
|
|
|
(229 |
) |
|
|
(41 |
) |
Total
equity
|
|
|
1,161,602 |
|
|
|
1,102,086 |
|
Subordinated
debentures due to Southwest Gas Capital II
|
|
|
- |
|
|
|
100,000 |
|
Long-term
debt, less current maturities
|
|
|
1,121,816 |
|
|
|
1,169,357 |
|
Total
capitalization
|
|
|
2,283,418 |
|
|
|
2,371,443 |
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
|
1,344 |
|
|
|
1,327 |
|
Accounts
payable
|
|
|
120,328 |
|
|
|
158,856 |
|
Customer
deposits
|
|
|
90,487 |
|
|
|
91,668 |
|
Income
taxes payable
|
|
|
30,541 |
|
|
|
- |
|
Accrued
general taxes
|
|
|
59,759 |
|
|
|
40,868 |
|
Accrued
interest
|
|
|
18,354 |
|
|
|
19,644 |
|
Deferred
purchased gas costs
|
|
|
93,344 |
|
|
|
93,226 |
|
Other
current liabilities
|
|
|
86,212 |
|
|
|
68,641 |
|
Total
current liabilities
|
|
|
500,369 |
|
|
|
474,230 |
|
Deferred
income taxes and other credits:
|
|
|
|
|
|
|
|
|
Deferred
income taxes and investment tax credits
|
|
|
438,249 |
|
|
|
436,113 |
|
Taxes
payable
|
|
|
2,980 |
|
|
|
3,079 |
|
Accumulated
removal costs
|
|
|
195,000 |
|
|
|
189,000 |
|
Other
deferred credits
|
|
|
420,974 |
|
|
|
432,427 |
|
Total
deferred income taxes and other credits
|
|
|
1,057,203 |
|
|
|
1,060,619 |
|
Total
capitalization and liabilities
|
|
$ |
3,840,990 |
|
|
$ |
3,906,292 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Operating
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
operating revenues
|
|
$ |
614,509 |
|
|
$ |
635,106 |
|
|
$ |
1,594,246 |
|
|
$ |
1,685,201 |
|
Construction
revenues
|
|
|
54,242 |
|
|
|
54,756 |
|
|
|
278,467 |
|
|
|
335,797 |
|
Total
operating revenues
|
|
|
668,751 |
|
|
|
689,862 |
|
|
|
1,872,713 |
|
|
|
2,020,998 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cost of gas sold
|
|
|
352,255 |
|
|
|
395,810 |
|
|
|
823,075 |
|
|
|
951,088 |
|
Operations
and maintenance
|
|
|
86,705 |
|
|
|
84,662 |
|
|
|
350,985 |
|
|
|
338,116 |
|
Depreciation
and amortization
|
|
|
47,696 |
|
|
|
48,522 |
|
|
|
189,256 |
|
|
|
194,971 |
|
Taxes
other than income taxes
|
|
|
9,766 |
|
|
|
10,111 |
|
|
|
36,973 |
|
|
|
36,697 |
|
Construction
expenses
|
|
|
50,597 |
|
|
|
48,028 |
|
|
|
245,030 |
|
|
|
294,220 |
|
Total
operating expenses
|
|
|
547,019 |
|
|
|
587,133 |
|
|
|
1,645,319 |
|
|
|
1,815,092 |
|
Operating
income
|
|
|
121,732 |
|
|
|
102,729 |
|
|
|
227,394 |
|
|
|
205,906 |
|
Other
income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest deductions
|
|
|
(18,175 |
) |
|
|
(18,590 |
) |
|
|
(74,855 |
) |
|
|
(81,641 |
) |
Net
interest deductions on subordinated debentures
|
|
|
(1,912 |
) |
|
|
(1,933 |
) |
|
|
(7,710 |
) |
|
|
(7,730 |
) |
Other
income (deductions)
|
|
|
(523 |
) |
|
|
(1,704 |
) |
|
|
7,826 |
|
|
|
(13,643 |
) |
Total
other income and (expenses)
|
|
|
(20,610 |
) |
|
|
(22,227 |
) |
|
|
(74,739 |
) |
|
|
(103,014 |
) |
Income
before income taxes
|
|
|
101,122 |
|
|
|
80,502 |
|
|
|
152,655 |
|
|
|
102,892 |
|
Income
tax expense (benefit)
|
|
|
36,662 |
|
|
|
30,521 |
|
|
|
51,058 |
|
|
|
41,090 |
|
Net
income
|
|
|
64,460 |
|
|
|
49,981 |
|
|
|
101,597 |
|
|
|
61,802 |
|
Net
income (loss) attributable to noncontrolling interest
|
|
|
(188 |
) |
|
|
- |
|
|
|
(552 |
) |
|
|
- |
|
Net
income attributable to Southwest Gas Corporation
|
|
$ |
64,648 |
|
|
$ |
49,981 |
|
|
$ |
102,149 |
|
|
$ |
61,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
1.43 |
|
|
$ |
1.13 |
|
|
$ |
2.27 |
|
|
$ |
1.41 |
|
Diluted
earnings per share
|
|
$ |
1.42 |
|
|
$ |
1.12 |
|
|
$ |
2.26 |
|
|
$ |
1.40 |
|
Dividends
declared per share
|
|
$ |
0.2500 |
|
|
$ |
0.2375 |
|
|
$ |
0.9625 |
|
|
$ |
0.9125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of common shares outstanding
|
|
|
45,221 |
|
|
|
44,424 |
|
|
|
44,948 |
|
|
|
43,825 |
|
Average
shares outstanding (assuming dilution)
|
|
|
45,595 |
|
|
|
44,680 |
|
|
|
45,287 |
|
|
|
44,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
CASH
FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
64,460 |
|
|
$ |
49,981 |
|
|
$ |
101,597 |
|
|
$ |
61,802 |
|
Adjustments
to reconcile net income to net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
47,696 |
|
|
|
48,522 |
|
|
|
189,256 |
|
|
|
194,971 |
|
Deferred
income taxes
|
|
|
1,198 |
|
|
|
9,477 |
|
|
|
34,519 |
|
|
|
40,801 |
|
Changes
in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net of allowances
|
|
|
(18,485 |
) |
|
|
(4,739 |
) |
|
|
(2,639 |
) |
|
|
48,754 |
|
Accrued
utility revenue
|
|
|
28,000 |
|
|
|
28,100 |
|
|
|
800 |
|
|
|
400 |
|
Deferred
purchased gas costs
|
|
|
3,369 |
|
|
|
(13,358 |
) |
|
|
73,629 |
|
|
|
3,579 |
|
Accounts
payable
|
|
|
(38,528 |
) |
|
|
(75,316 |
) |
|
|
4,210 |
|
|
|
(34,553 |
) |
Accrued
taxes
|
|
|
57,882 |
|
|
|
40,212 |
|
|
|
40,167 |
|
|
|
(23,349 |
) |
Other
current assets and liabilities
|
|
|
25,540 |
|
|
|
60,373 |
|
|
|
(2,100 |
) |
|
|
(5,704 |
) |
Gains
on sale
|
|
|
(232 |
) |
|
|
(1,065 |
) |
|
|
(2,458 |
) |
|
|
(2,428 |
) |
Changes
in undistributed stock compensation
|
|
|
2,687 |
|
|
|
2,215 |
|
|
|
4,414 |
|
|
|
3,963 |
|
AFUDC
and property-related changes
|
|
|
(278 |
) |
|
|
(470 |
) |
|
|
(1,029 |
) |
|
|
(706 |
) |
Changes
in other assets and deferred charges
|
|
|
(14,045 |
) |
|
|
(550 |
) |
|
|
(29,048 |
) |
|
|
(896 |
) |
Changes
in other liabilities and deferred credits
|
|
|
3,356 |
|
|
|
5,155 |
|
|
|
8,567 |
|
|
|
6,971 |
|
Net
cash provided by operating activities
|
|
|
162,620 |
|
|
|
148,537 |
|
|
|
419,885 |
|
|
|
293,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
expenditures and property additions
|
|
|
(34,152 |
) |
|
|
(52,445 |
) |
|
|
(198,692 |
) |
|
|
(291,562 |
) |
Change
in restricted cash
|
|
|
(7 |
) |
|
|
- |
|
|
|
(49,776 |
) |
|
|
- |
|
Changes
in customer advances
|
|
|
(1,264 |
) |
|
|
(1,768 |
) |
|
|
(1,972 |
) |
|
|
(2,461 |
) |
Receipt
of exchange fund deposit
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
28,000 |
|
Miscellaneous
inflows
|
|
|
957 |
|
|
|
2,423 |
|
|
|
6,467 |
|
|
|
18,736 |
|
Miscellaneous
outflows
|
|
|
- |
|
|
|
(1,172 |
) |
|
|
(2,448 |
) |
|
|
(3,850 |
) |
Net
cash used in investing activities
|
|
|
(34,466 |
) |
|
|
(52,962 |
) |
|
|
(246,421 |
) |
|
|
(251,137 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock, net
|
|
|
4,006 |
|
|
|
8,152 |
|
|
|
14,255 |
|
|
|
36,130 |
|
Dividends
paid
|
|
|
(10,742 |
) |
|
|
(9,998 |
) |
|
|
(42,694 |
) |
|
|
(39,449 |
) |
Issuance
of long-term debt, net
|
|
|
- |
|
|
|
- |
|
|
|
49,834 |
|
|
|
103,797 |
|
Retirement
of long-term debt
|
|
|
(328 |
) |
|
|
(5,346 |
) |
|
|
(10,636 |
) |
|
|
(200,573 |
) |
Redemption
of subordinated debentures
|
|
|
(100,000 |
) |
|
|
- |
|
|
|
(100,000 |
) |
|
|
- |
|
Change
in long-term portion of credit facility
|
|
|
(47,400 |
) |
|
|
(36,000 |
) |
|
|
(69,000 |
) |
|
|
64,000 |
|
Change
in short-term debt
|
|
|
- |
|
|
|
(55,000 |
) |
|
|
- |
|
|
|
- |
|
Net
cash used in financing activities
|
|
|
(154,464 |
) |
|
|
(98,192 |
) |
|
|
(158,241 |
) |
|
|
(36,095 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in cash and cash equivalents
|
|
|
(26,310 |
) |
|
|
(2,617 |
) |
|
|
15,223 |
|
|
|
6,373 |
|
Cash
at beginning of period
|
|
|
65,315 |
|
|
|
26,399 |
|
|
|
23,782 |
|
|
|
17,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$ |
39,005 |
|
|
$ |
23,782 |
|
|
$ |
39,005 |
|
|
$ |
23,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid, net of amounts capitalized
|
|
$ |
20,676 |
|
|
$ |
21,325 |
|
|
$ |
80,122 |
|
|
$ |
88,751 |
|
Income
taxes paid (received)
|
|
|
(3,655 |
) |
|
|
93 |
|
|
|
(25,364 |
) |
|
|
17,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
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, primarily in
Arizona, 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
expense 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 2009 Annual Report to
Shareholders, which is incorporated by reference into the 2009
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, 2010 and $5.3 million at December 31, 2009. 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 accounting treatment for
rate-regulated entities.
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
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in COLI policies
|
|
$ |
1,490 |
|
|
$ |
(1,594 |
) |
|
$ |
11,630 |
|
|
$ |
(11,535 |
) |
Interest
income
|
|
|
21 |
|
|
|
144 |
|
|
|
148 |
|
|
|
1,556 |
|
Miscellaneous
income and (expense)
|
|
|
(2,034 |
) |
|
|
(254 |
) |
|
|
(3,952 |
) |
|
|
(3,664 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (deductions)
|
|
$ |
(523 |
) |
|
$ |
(1,704 |
) |
|
$ |
7,826 |
|
|
$ |
(13,643 |
) |
Included
in the table above is the change in cash surrender values of company-owned life
insurance (“COLI”) policies. 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 change in the cash surrender value
components of COLI policies as they progress toward the ultimate death benefits
are also recorded without tax consequences. See the 2009 Annual
Report to Shareholders for additional information about the COLI
policies.
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
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
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
4,233 |
|
|
$ |
3,848 |
|
|
$ |
15,775 |
|
|
$ |
15,929 |
|
Interest
cost
|
|
|
8,904 |
|
|
|
8,631 |
|
|
|
34,800 |
|
|
|
33,000 |
|
Expected
return on plan assets
|
|
|
(9,135 |
) |
|
|
(8,805 |
) |
|
|
(35,551 |
) |
|
|
(34,841 |
) |
Amortization
of prior service costs (credits)
|
|
|
- |
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(10 |
) |
Amortization
of net loss
|
|
|
2,620 |
|
|
|
1,063 |
|
|
|
5,810 |
|
|
|
3,391 |
|
Net
periodic benefit cost
|
|
$ |
6,622 |
|
|
$ |
4,736 |
|
|
$ |
20,833 |
|
|
$ |
17,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP
|
|
|
|
Period
Ended March 31,
|
|
|
|
Three
Months
|
|
|
Twelve
Months
|
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
93 |
|
|
$ |
49 |
|
|
$ |
239 |
|
|
$ |
121 |
|
Interest
cost
|
|
|
511 |
|
|
|
516 |
|
|
|
2,060 |
|
|
|
2,047 |
|
Amortization
of net loss
|
|
|
289 |
|
|
|
227 |
|
|
|
971 |
|
|
|
975 |
|
Net
periodic benefit cost
|
|
$ |
893 |
|
|
$ |
792 |
|
|
$ |
3,270 |
|
|
$ |
3,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBOP
|
|
|
|
Period
Ended March 31,
|
|
|
|
Three
Months
|
|
|
Twelve
Months
|
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
214 |
|
|
$ |
182 |
|
|
$ |
761 |
|
|
$ |
729 |
|
Interest
cost
|
|
|
623 |
|
|
|
593 |
|
|
|
2,400 |
|
|
|
2,336 |
|
Expected
return on plan assets
|
|
|
(523 |
) |
|
|
(401 |
) |
|
|
(1,725 |
) |
|
|
(2,004 |
) |
Amortization
of transition obligation
|
|
|
217 |
|
|
|
217 |
|
|
|
867 |
|
|
|
867 |
|
Amortization
of net loss
|
|
|
122 |
|
|
|
108 |
|
|
|
448 |
|
|
|
108 |
|
Net
periodic benefit cost
|
|
$ |
653 |
|
|
$ |
699 |
|
|
$ |
2,751 |
|
|
$ |
2,036 |
|
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
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, 2010
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
614,509 |
|
|
$ |
42,157 |
|
|
$ |
656,666 |
|
Intersegment
revenues
|
|
|
- |
|
|
|
12,085 |
|
|
|
12,085 |
|
Total
|
|
$ |
614,509 |
|
|
$ |
54,242 |
|
|
$ |
668,751 |
|
Segment
net income (loss)
|
|
$ |
65,317 |
|
|
$ |
(669 |
) |
|
$ |
64,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
months ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
$ |
1,594,246 |
|
|
$ |
226,969 |
|
|
$ |
1,821,215 |
|
Intersegment
revenues
|
|
|
- |
|
|
|
51,498 |
|
|
|
51,498 |
|
Total
|
|
$ |
1,594,246 |
|
|
$ |
278,467 |
|
|
$ |
1,872,713 |
|
Segment
net income
|
|
$ |
94,885 |
|
|
$ |
7,264 |
|
|
$ |
102,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
Note
4 – Derivatives and Fair Value Measurements
Derivatives. In
managing its natural gas supply portfolios, Southwest has historically entered
into fixed- and variable-price contracts, which qualify as
derivatives. 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 and are exempt from fair
value reporting. The variable-price contracts have no significant
market value. The Swaps are 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 forecasted purchases of natural gas, during timeframes ranging from
April 2010 through October 2011. 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
11.6 million dekatherms at March 31, 2010 and 13.6 million dekatherms at
December 31, 2009). Southwest does not utilize derivative financial
instruments for speculative purposes, nor does it have trading
operations.
The
following table sets forth the gains and (losses) recognized on the Company's
Swaps (derivatives) for the three months and twelve months ended March 31, 2010
and 2009 and their location in the income statement (thousands of
dollars):
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
of Gain or (Loss) Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
Income on Derivative
|
|
Amount
of Gain or (Loss) Recognized in Income on Derivative
|
|
|
|
|
Three
Months Ended
|
|
|
Twelve
Months Ended
|
|
|
|
|
March
31
|
|
|
March
31
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Swaps
|
Net
cost of gas sold
|
|
$ |
(16,342 |
) |
|
|
$ |
(8,968 |
) |
|
|
$ |
(11,765 |
) |
|
|
$ |
(27,670 |
) |
|
Swaps
|
Net
cost of gas sold
|
|
|
16,342
|
|
* |
|
|
8,968
|
|
* |
|
|
11,765
|
|
* |
|
|
27,670
|
|
* |
Total
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
*
Represents the impact of regulatory deferral accounting treatment under U.S.
GAAP for rate-regulated entities.
In
January 2010, Southwest entered into two forward starting interest rate swaps
(“FSIRS”) to hedge the risk of interest rate variability during the period
leading up to the planned issuance of 10-year fixed-rate debt in December 2010
and March 2012, to replace $200 million of debt maturing in February 2011
and $200 million maturing in May 2012, respectively. The
counterparties to both agreements comprise four major banking
institutions. The first FSIRS has a notional amount of
$125 million (with Southwest as the fixed-rate payer at a rate of 4.26%)
and has a mandatory termination date on or before December 7,
2010. The second FSIRS has a notional amount of $100 million
(with Southwest as the fixed-rate payer at a rate of 4.78%) and has a mandatory
termination date on or before March 20, 2012.
Southwest
has designated the FSIRS agreements as cash flow hedges of forecasted future
interest payments. At the inception of the hedges, the terms of the
derivatives are the same as perfect hypothetical derivatives; thus, there is an
expectation that there will be no ineffectiveness, and that the effective
portion of unrealized gains and losses on the FSIRS leading up to the forecasted
debt issuances will be reported as a component of other comprehensive
income. At termination, the final values will be reclassified from
accumulated other comprehensive income into earnings over the terms of the debt
issuances which is the same period the hedged forecasted transaction affects
earnings. However, should conditions occur that indicate the
existence of ineffectiveness (e.g., deterioration of counterparty
creditworthiness, delay in the forecasted debt issuances, etc.), Southwest will
measure ineffectiveness by comparing changes in the fair value of each FSIRS
with changes in the fair value of a hypothetical swap (the hypothetical
derivative method). Gains and losses due to ineffectiveness will be
recognized immediately as part of interest expense. See Note 7 – Equity
and
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
Comprehensive Income for
additional information. At March 31, 2010, the FSIRS were effective
hedges. There was no gain or (loss) reclassified from accumulated
other comprehensive income (“AOCI”) into income (effective portion) and no gain
or (loss) recognized in income (ineffective portion) for the Company’s
derivatives designated as hedging instruments.
The
following table sets forth the gains and (losses) recognized on the Company's
FSIRS (thousands of dollars):
Derivatives
Designated as Hedging Instruments:
|
|
|
|
|
|
Amount
of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative
(Effective Portion)
|
|
|
|
|
|
Derivatives
in cash flow hedging relationships
|
|
March
31, 2010
|
|
|
|
|
|
|
|
|
|
Three
months ended:
|
|
|
|
Interest
rate swaps - FSIRS
|
|
$ |
(987 |
) |
|
|
|
|
|
Twelve
months ended:
|
|
|
|
|
Interest
rate swaps - FSIRS
|
|
$ |
(987 |
) |
The
following table sets forth the fair values of the Company's Swaps and FSIRS and
their location in the balance sheets (thousands of dollars):
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2010
|
|
|
Asset
|
|
|
Liability
|
|
|
|
|
|
Balance Sheet Location
|
|
Derivatives
|
|
|
Derivatives
|
|
|
Net
Total
|
|
Swaps
|
Other
current liabilities
|
|
$ |
- |
|
|
$ |
(12,970 |
) |
|
$ |
(12,970 |
) |
Swaps
|
Other
deferred credits
|
|
|
4 |
|
|
|
(366 |
) |
|
|
(362 |
) |
Total
|
|
|
$ |
4 |
|
|
$ |
(13,336 |
) |
|
$ |
(13,332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
Asset
|
|
|
Liability
|
|
|
|
|
|
|
Balance Sheet Location
|
|
Derivatives
|
|
|
Derivatives
|
|
|
Net
Total
|
|
Swaps
|
Deferred
charges and other assets
|
|
$ |
85 |
|
|
$ |
(27 |
) |
|
$ |
58 |
|
Swaps
|
Prepaids
and other current assets
|
|
|
2,921 |
|
|
|
(361 |
) |
|
|
2,560 |
|
Swaps
|
Other
current liabilities
|
|
|
309 |
|
|
|
(1,730 |
) |
|
|
(1,421 |
) |
Swaps
|
Other
deferred credits
|
|
|
25 |
|
|
|
(100 |
) |
|
|
(75 |
) |
Total
|
|
|
$ |
3,340 |
|
|
$ |
(2,218 |
) |
|
$ |
1,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2010
|
|
|
Asset
|
|
|
Liability
|
|
|
|
|
|
|
Balance Sheet Location
|
|
Derivatives
|
|
|
Derivatives
|
|
|
Net
Total
|
|
FSIRS
|
Other
current liabilities
|
|
$ |
- |
|
|
$ |
(792 |
) |
|
$ |
(792 |
) |
FSIRS
|
Other
deferred credits
|
|
|
- |
|
|
|
(195 |
) |
|
|
(195 |
) |
Total
|
|
|
$ |
- |
|
|
$ |
(987 |
) |
|
$ |
(987 |
) |
There
were no derivatives designated as hedging instruments at December 31,
2009.
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
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.
Pursuant
to regulatory deferral accounting treatment for rate-regulated entities,
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 three months ended March 31, 2010, Southwest paid counterparties
$2.7 million and received from counterparties $831,000 in settlements of
matured Swaps. Neither changes in the fair value of the Swaps nor
settled amounts have a direct effect on earnings or other comprehensive
income. At March 31, 2010, regulatory assets/liabilities offsetting
the amounts in the balance sheet were recorded in Prepaids and other current
assets ($13 million) and Deferred charges and other assets
($362,000). At December 31, 2009, regulatory assets/liabilities
offsetting the amounts in the balance sheet were recorded in Prepaids and other
current assets ($1.4 million), Other current liabilities ($2.6 million),
Other deferred credits ($58,000), and Deferred charges and other assets
($75,000).
Fair Value
Measurements. The estimated fair values of Southwest’s Swaps
were determined at March 31, 2010 and December 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
estimated fair values of Southwest’s FSIRS were determined using a discounted
cash flow model that utilizes forecasted interest rate curves. The
inputs to the model are the terms of the FSIRS. These Level 2 inputs
are observable in the marketplace throughout the full term of the FSIRS, 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 three-level fair value hierarchy
that ranks the inputs used to measure fair value by their reliability, the
Company's financial assets and liabilities that were accounted for at fair
value:
Level
2 - Significant other observable inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands
of dollars)
|
|
March
31, 2010
|
|
|
December
31, 2009
|
|
|
|
|
|
|
|
|
Assets
at fair value:
|
|
|
|
|
|
|
Prepaids
and other current assets - Swaps
|
|
$ |
- |
|
|
$ |
2,560 |
|
Deferred
charges and other assets - Swaps
|
|
|
- |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
Liabilities
at fair value:
|
|
|
|
|
|
|
|
|
Other
current liabilities - Swaps
|
|
|
(12,970 |
) |
|
|
(1,421 |
) |
Other
deferred credits - Swaps
|
|
|
(362 |
) |
|
|
(75 |
) |
Other
current liabilities - FSIRS
|
|
|
(792 |
) |
|
|
- |
|
Other
deferred credits - FSIRS
|
|
|
(195 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net
Assets (Liabilities)
|
|
$ |
(14,319 |
) |
|
$ |
1,122 |
|
No
financial assets or liabilities fell within Level 1 or Level 3 of the fair value
hierarchy.
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
Note
5 – Redemption of Subordinated Debentures
In June
2003, the Company created Southwest Gas Capital II (“Trust II”), a wholly owned
subsidiary, as a financing trust for the sole purpose of issuing preferred trust
securities for the benefit of the Company. In August 2003, Trust II
publicly issued $100 million of 7.70% Preferred Trust Securities
(“Preferred Trust Securities”). In connection with the Trust II
issuance of the Preferred Trust Securities and the related purchase by the
Company for $3.1 million of all of the Trust II common securities (“Common
Securities”), the Company issued $103.1 million principal amount of its
7.70% Junior Subordinated Debentures (“Subordinated Debentures”) to Trust
II. The Subordinated Debentures became redeemable at the option of
the Company in August 2008.
In
February 2010, the Company notified holders of the Subordinated Debentures that
all of these debentures (and the associated preferred and common securities)
would be redeemed (at par) by the Company in March 2010. All of the
outstanding Subordinated Debentures were redeemed in March 2010. The
Company accomplished the redemption using existing cash and borrowings under the
$300 million credit facility.
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
Note
6 – Long-Term Debt
Carrying
amounts of the Company’s long-term debt and their related estimated fair values
as of March 31, 2010 and December 31, 2009 are disclosed in the following
table. The fair value of the revolving credit facility and the
variable-rate IDRBs approximates carrying value. Market values for
the debentures, fixed-rate IDRBs, and other indebtedness were determined based
on dealer quotes using trading records for March 31, 2010 and December
31, 2009, as applicable, and other secondary sources which are customarily
consulted for data of this kind.
|
|
March
31, 2010
|
|
|
December
31, 2009
|
|
|
|
Carrying
|
|
|
Market
|
|
|
Carrying
|
|
|
Market
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes,
8.375%, due 2011
|
|
$ |
200,000 |
|
|
$ |
211,392 |
|
|
$ |
200,000 |
|
|
$ |
213,012 |
|
Notes,
7.625%, due 2012
|
|
|
200,000 |
|
|
|
220,922 |
|
|
|
200,000 |
|
|
|
219,240 |
|
8%
Series, due 2026
|
|
|
75,000 |
|
|
|
91,310 |
|
|
|
75,000 |
|
|
|
87,005 |
|
Medium-term
notes, 7.59% series, due 2017
|
|
|
25,000 |
|
|
|
28,895 |
|
|
|
25,000 |
|
|
|
27,858 |
|
Medium-term
notes, 7.78% series, due 2022
|
|
|
25,000 |
|
|
|
29,608 |
|
|
|
25,000 |
|
|
|
28,275 |
|
Medium-term
notes, 7.92% series, due 2027
|
|
|
25,000 |
|
|
|
30,293 |
|
|
|
25,000 |
|
|
|
28,848 |
|
Medium-term
notes, 6.76% series, due 2027
|
|
|
7,500 |
|
|
|
8,125 |
|
|
|
7,500 |
|
|
|
7,723 |
|
Unamortized
discount
|
|
|
(2,028 |
) |
|
|
|
|
|
|
(2,196 |
) |
|
|
|
|
|
|
|
555,472 |
|
|
|
|
|
|
|
555,304 |
|
|
|
|
|
Revolving
credit facility and commercial paper, due 2012
|
|
|
45,000 |
|
|
|
45,000 |
|
|
|
92,400 |
|
|
|
92,400 |
|
Industrial
development revenue bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate
bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
Series A, due 2028
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
50,000 |
|
2003
Series A, due 2038
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
50,000 |
|
2008
Series A, due 2038
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
50,000 |
|
2009
Series A, due 2039
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
50,000 |
|
Fixed-rate
bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.10%
1999 Series A, due 2038
|
|
|
12,410 |
|
|
|
11,840 |
|
|
|
12,410 |
|
|
|
11,443 |
|
5.95%
1999 Series C, due 2038
|
|
|
14,320 |
|
|
|
13,422 |
|
|
|
14,320 |
|
|
|
12,922 |
|
5.55%
1999 Series D, due 2038
|
|
|
8,270 |
|
|
|
7,343 |
|
|
|
8,270 |
|
|
|
7,038 |
|
5.45%
2003 Series C, due 2038 (rate resets in 2013)
|
|
|
30,000 |
|
|
|
31,885 |
|
|
|
30,000 |
|
|
|
31,422 |
|
5.25%
2003 Series D, due 2038
|
|
|
20,000 |
|
|
|
17,130 |
|
|
|
20,000 |
|
|
|
16,701 |
|
5.80%
2003 Series E, due 2038 (rate resets in 2013)
|
|
|
15,000 |
|
|
|
15,701 |
|
|
|
15,000 |
|
|
|
15,683 |
|
5.25%
2004 Series A, due 2034
|
|
|
65,000 |
|
|
|
58,309 |
|
|
|
65,000 |
|
|
|
55,979 |
|
5.00%
2004 Series B, due 2033
|
|
|
31,200 |
|
|
|
27,237 |
|
|
|
31,200 |
|
|
|
26,096 |
|
4.85%
2005 Series A, due 2035
|
|
|
100,000 |
|
|
|
83,214 |
|
|
|
100,000 |
|
|
|
79,469 |
|
4.75%
2006 Series A, due 2036
|
|
|
24,855 |
|
|
|
20,078 |
|
|
|
24,855 |
|
|
|
19,139 |
|
Unamortized
discount
|
|
|
(3,608 |
) |
|
|
|
|
|
|
(3,644 |
) |
|
|
|
|
|
|
|
517,447 |
|
|
|
|
|
|
|
517,411 |
|
|
|
|
|
Other
|
|
|
5,241 |
|
|
|
5,440 |
|
|
|
5,569 |
|
|
|
5,712 |
|
|
|
|
1,123,160 |
|
|
|
|
|
|
|
1,170,684 |
|
|
|
|
|
Less:
current maturities
|
|
|
(1,344 |
) |
|
|
|
|
|
|
(1,327 |
) |
|
|
|
|
Long-term
debt, less current maturities
|
|
$ |
1,121,816 |
|
|
|
|
|
|
$ |
1,169,357 |
|
|
|
|
|
As noted
in the table above, the Company has $200 million of 8.375% notes maturing
in February 2011. The Company currently intends to issue new
debentures in December 2010 to provide funding for this maturing
obligation. The Company also has a $300 million credit facility
that expires in May 2012 with sufficient current and forecasted capacity to
provide funding for the $200 million of maturing
debentures. Therefore, the $200 million of debentures due
February 2011 continue to be shown as long-term obligations.
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
Note
7 – Equity and Comprehensive Income
The table
below provides details of activity in equity during the first quarter of
2010.
|
|
Southwest
Gas Corporation Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
controlling
|
|
|
|
|
(In
thousands, except per share amounts)
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
(Loss)
|
|
|
Earnings
|
|
|
Interest
|
|
|
Total
|
|
DECEMBER
31, 2009
|
|
|
45,092 |
|
|
$ |
46,722 |
|
|
$ |
792,339 |
|
|
$ |
(22,250 |
) |
|
$ |
285,316 |
|
|
$ |
(41 |
) |
|
$ |
1,102,086 |
|
Common
stock issuances
|
|
|
242 |
|
|
|
242 |
|
|
|
6,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,821 |
|
Net
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,648 |
|
|
|
(188 |
) |
|
|
64,460 |
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss) arising during period,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
less amortization of unamortized benefit plan cost, net of
tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341 |
|
|
|
|
|
|
|
|
|
|
|
341 |
|
FSIRS unrealized gains (losses), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(612 |
) |
|
|
|
|
|
|
|
|
|
|
(612 |
) |
Dividends
declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common: $0.25 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,494 |
) |
|
|
|
|
|
|
(11,494 |
) |
MARCH
31, 2010
|
|
|
45,334 |
|
|
$ |
46,964 |
|
|
$ |
798,918 |
|
|
$ |
(22,521 |
) |
|
$ |
338,470 |
|
|
$ |
(229 |
) |
|
$ |
1,161,602 |
|
The
tables below are designed to provide details of comprehensive income and
year-to-date activity in AOCI. See Note 4 – Derivatives and Fair Value
Measurements for additional information on the FSIRS.
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Twelve
Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
64,460 |
|
|
$ |
49,981 |
|
|
$ |
101,597 |
|
|
$ |
61,802 |
|
Net
actuarial gain (loss) arising during period,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
less
amortization of unamortized benefit plan cost, net of tax
|
|
|
341 |
|
|
|
207 |
|
|
|
(2,690 |
) |
|
|
(6,571 |
) |
FSIRS
unrealized gains (losses), net of tax
|
|
|
(612 |
) |
|
|
- |
|
|
|
(612 |
) |
|
|
- |
|
Comprehensive
income
|
|
|
64,189 |
|
|
|
50,188 |
|
|
|
98,295 |
|
|
|
55,231 |
|
Comprehensive
income (loss) attributable to noncontrolling interest
|
|
|
(188 |
) |
|
|
- |
|
|
|
(552 |
) |
|
|
- |
|
Comprehensive
income attributable to Southwest Gas Corporation
|
|
$ |
64,377 |
|
|
$ |
50,188 |
|
|
$ |
98,847 |
|
|
$ |
55,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
(expense) benefit associated with net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
actuarial
gain (loss) arising during period
|
|
$ |
(210 |
) |
|
$ |
(126 |
) |
|
$ |
1,648 |
|
|
$ |
4,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
(expense) benefit associated with FSIRS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unrealized
gain (loss) recognized in other comprehensive income
|
|
$ |
375 |
|
|
$ |
- |
|
|
$ |
375 |
|
|
$ |
- |
|
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
AOCI
- Rollforward
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
Benefit Plans
|
|
FSIRS
|
|
|
|
|
|
|
|
|
Tax
|
|
|
|
|
|
|
|
|
|
Tax
|
|
|
|
|
|
|
AOCI
|
|
|
|
Before-
|
|
|
(Exense)
|
|
|
|
|
|
|
Before-
|
|
|
(Expense)
|
|
|
|
|
|
|
|
|
|
|
Tax
|
|
|
Benefit
|
|
|
After-Tax |
|
|
|
Tax
|
|
|
Benefit
|
|
|
After-Tax
|
|
|
|
|
|
Beginning
Balance AOCI December 31, 2009
|
|
$ |
(35,887 |
) |
|
$ |
13,637 |
|
|
$ |
(22,250 |
) |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
$ |
(22,250 |
) |
Current
period change
|
|
|
551 |
|
|
|
(210 |
) |
|
|
341
|
|
* |
|
|
(987 |
) |
|
|
375 |
|
|
|
(612 |
)
|
** |
|
|
(271 |
) |
Ending
Balance in AOCI March 31, 2010
|
|
$ |
(35,336 |
) |
|
$ |
13,427 |
|
|
$ |
(21,909 |
) |
|
|
$ |
(987 |
) |
|
$ |
375 |
|
|
$ |
(612 |
) |
|
|
$ |
(22,521 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Net
actuarial gain (loss), less amortization of unamortized benefit plan
cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
**
FSIRS unrealized gain (loss) recognized in other comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on
the current FSIRS position, an insignificant amount of the FSIRS existing gains
(losses) reported in AOCI at March 31, 2010 is expected to be reclassified into
earnings within the next twelve months.
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
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.
On a
seasonally adjusted basis as of March 31, 2010, Southwest had 1,830,000
residential, commercial, industrial, and other natural gas customers, of which
990,000 customers were located in Arizona, 658,000 in Nevada, and 182,000 in
California. Residential and commercial customers represented over
99 percent of the total customer base. During the twelve months
ended March 31, 2010, 54 percent of operating margin was earned in Arizona,
35 percent in Nevada, and 11 percent in California. During
this same period, Southwest earned 86 percent of operating margin from
residential and small commercial customers, 4 percent from other sales
customers, and 10 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, primarily in Arizona, can have a significant
impact on the margin and associated net income of the Company. A
decoupled rate structure adopted as part of the Nevada general rate case,
effective November 2009, is designed to mitigate the impact of weather
variability on margin in Nevada service territories. Weather impacts
are substantially offset by the margin tracking mechanism in Southwest’s
California service territories.
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 operates in 17 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 2009 Annual Report to Shareholders, which is incorporated by reference into
the 2009 Form 10-K.
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
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 91 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
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to net income
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas operations
|
|
$ |
65,317 |
|
|
$ |
49,852 |
|
|
$ |
94,885 |
|
|
$ |
54,266 |
|
Construction
services
|
|
|
(669 |
) |
|
|
129 |
|
|
|
7,264 |
|
|
|
7,536 |
|
Net
income
|
|
$ |
64,648 |
|
|
$ |
49,981 |
|
|
$ |
102,149 |
|
|
$ |
61,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
45,221 |
|
|
|
44,424 |
|
|
|
44,948 |
|
|
|
43,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$ |
1.43 |
|
|
$ |
1.13 |
|
|
$ |
2.27 |
|
|
$ |
1.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margin
|
|
$ |
262,254 |
|
|
$ |
239,296 |
|
|
$ |
771,171 |
|
|
$ |
734,113 |
|
Consolidated
results for the first quarter of 2010 increased compared to the same period in
2009 primarily due to a significant improvement in natural gas segment operating
results. The Company achieved net income of $64.6 million, a
record for any quarterly period in its history. Basic earnings per
share of $1.43 were the highest quarterly total in at least the past 25
years.
1st
Quarter 2010 Overview
Natural
gas operations highlights include the following:
·
|
Operating
margin increased approximately $23 million, or 10 percent, compared
to the prior-year’s quarter primarily due to improved weather ($13
million) and rate relief in Nevada ($9 million) and California
($1 million)
|
·
|
$100 million
of 7.70% Subordinated Debentures redeemed at par in March
2010
|
·
|
Paiute
rate case settlement approved by the FERC in April
2010
|
·
|
Quarterly
dividend increased from 23.75 cents to 25 cents per share,
effective with the June 2010
payment
|
·
|
Standard
& Poor’s revised the Company’s credit rating outlook to positive from
stable
|
·
|
Liquidity
position remains strong
|
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
Weather and
Conservation. 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 and conservation
efforts. Southwest’s exposure to these risks on operating margin is
largely limited to its Arizona operating areas as both Nevada and California
operations are now under decoupled rate structures. During the first
quarter of 2010, weather had a positive influence on operating margin as
temperatures in Arizona were relatively normal, whereas, in the first quarter of
2009, the estimated weather impact on operating margin was a reduction of
$13 million as Arizona experienced one of its warmest winters in
100 years.
Additionally,
throughout 2009 Southwest experienced a decline in consumption over and above
the more typical impacts of conservation from improvements in new construction
practices and energy efficient appliances. This excess decline was
attributed to the impact of the difficult economic environment and, in
particular, vacant homes. During the first quarter of 2010, Southwest
noted an overall increase in average residential customer consumption, but this
improvement was largely driven by cooler weather. Southwest continues
to note an excessive number of vacant homes as compared to historical
levels. Consequently, further economic-related declines are
possible. Southwest continues to work with Arizona regulators on
decoupling initiatives to mitigate the impacts of declining
consumption.
Customer
Growth. Southwest completed 17,000 first-time meter sets over
the last twelve months. These meter sets led to 9,000 net additional
active customers. Southwest continues to project sluggish net
customer growth (1% or less) for the year.
FERC General Rate
Case. In April 2010, the Federal Energy Regulatory Commission
(“FERC”) approved an offer of settlement from Paiute Pipeline Company, a
subsidiary of the Company, which resolved all issues related to its general rate
case. The settlement provides for an increase of approximately
$900,000 in annual operating income. See Rates and Regulatory Proceedings
for more information.
Credit Rating – Outlook
Revised. 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). In April
2010, S&P affirmed the BBB rating and revised the Company’s outlook to
“positive.” S&P cited the Company’s stronger financial
performance and an improved debt to capital ratio. S&P debt
ratings range from AAA (highest rating possible) to D (obligation is in
default). The S&P rating of BBB indicates the issuer of the debt
is regarded as having an adequate capacity to pay interest and repay
principal.
Liquidity. Southwest
believes its liquidity position remains strong. Southwest has a
$300 million credit facility maturing in May 2012, $150 million
of which is designated for working capital needs. The facility is
provided through a consortium of eight major banking
institutions. Usage of the facility in the first quarter of 2010 was
minimal. The outstanding balance at March 31 was $45 million
leaving $255 million available for long-term and working capital
needs. The lower usage was primarily due to improved profitability,
natural gas prices that were relatively stable, and gas-cost related rate
mechanisms that favorably impacted operating cash flows. In the first
quarter of 2010, cash and borrowings under the credit facility were used by the
Company to redeem $100 million in subordinated debentures. The
current slowdown in housing construction has also allowed Southwest to fund
construction expenditures primarily with internally generated cash.
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
Results
of Natural Gas Operations
Quarterly Analysis
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands
of dollars)
|
|
Gas
operating revenues
|
|
$ |
614,509 |
|
|
$ |
635,106 |
|
Net
cost of gas sold
|
|
|
352,255 |
|
|
|
395,810 |
|
Operating margin
|
|
|
262,254 |
|
|
|
239,296 |
|
Operations
and maintenance expense
|
|
|
86,705 |
|
|
|
84,662 |
|
Depreciation
and amortization
|
|
|
42,696 |
|
|
|
42,339 |
|
Taxes
other than income taxes
|
|
|
9,766 |
|
|
|
10,111 |
|
Operating income
|
|
|
123,087 |
|
|
|
102,184 |
|
Other
income (expense)
|
|
|
(531 |
) |
|
|
(1,786 |
) |
Net
interest deductions
|
|
|
18,024 |
|
|
|
18,182 |
|
Net
interest deductions on subordinated debentures
|
|
|
1,912 |
|
|
|
1,933 |
|
Income before income taxes
|
|
|
102,620 |
|
|
|
80,283 |
|
Income
tax expense
|
|
|
37,303 |
|
|
|
30,431 |
|
Contribution to consolidated net income
|
|
$ |
65,317 |
|
|
$ |
49,852 |
|
Contribution
to consolidated net income from natural gas operations improved $15.5 million in
the first quarter of 2010 compared to 2009. The improvement in
contribution reflects increased operating margin and improved other income,
partially offset by higher operating expenses.
Operating
margin increased $23 million in the first quarter of 2010 compared to the
first quarter of 2009. Differences in heating demand, caused
primarily by weather variations, provided $13 million of the operating
margin increase as temperatures in the current quarter were normal, while
temperatures were significantly warmer than normal in the first quarter of
2009. Rate relief provided $10 million of the operating margin
increase, consisting of $9 million in Nevada and $1 million in
California. Customer growth had a negligible impact as 9,000 net
new customers were added during the last twelve months.
Operations
and maintenance expense increased $2 million, or two percent, principally due to
higher employee-related and general costs.
Depreciation
expense increased $357,000, or one percent, as a result of additional plant
in service, partially offset by lower depreciation rates in the Nevada rate
jurisdictions, effective June 2009. Average gas plant in service for
the current period increased $153 million, or four percent, compared to the
corresponding period a year ago. This was attributable to new
business, reinforcement work, franchise requirements, routine pipe replacement
activities, and the addition of two new operations centers in southern Nevada in
the second quarter of 2009.
Other
income improved $1.3 million between quarters as the cash surrender values
of COLI policies increased by $1.5 million in the first quarter of 2010
compared to a decrease of $1.6 million in the prior-year quarter, partially
offset by a $1.3 million increase in costs associated with certain Arizona
non-recoverable pipe replacement work.
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
Twelve-Month Analysis
|
|
|
|
|
|
|
|
|
Twelve
Months Ended
|
|
|
|
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands
of dollars)
|
|
Gas
operating revenues
|
|
$ |
1,594,246 |
|
|
$ |
1,685,201 |
|
Net
cost of gas sold
|
|
|
823,075 |
|
|
|
951,088 |
|
Operating margin
|
|
|
771,171 |
|
|
|
734,113 |
|
Operations
and maintenance expense
|
|
|
350,985 |
|
|
|
338,116 |
|
Depreciation
and amortization
|
|
|
167,207 |
|
|
|
168,031 |
|
Taxes
other than income taxes
|
|
|
36,973 |
|
|
|
36,697 |
|
Operating income
|
|
|
216,006 |
|
|
|
191,269 |
|
Other
income (expense)
|
|
|
7,845 |
|
|
|
(13,729 |
) |
Net
interest deductions
|
|
|
73,933 |
|
|
|
79,926 |
|
Net
interest deductions on subordinated debentures
|
|
|
7,710 |
|
|
|
7,730 |
|
Income before income taxes
|
|
|
142,208 |
|
|
|
89,884 |
|
Income
tax expense
|
|
|
47,323 |
|
|
|
35,618 |
|
Contribution to consolidated net income
|
|
$ |
94,885 |
|
|
$ |
54,266 |
|
Contribution
to consolidated net income from natural gas operations increased by $40.6
million in the current twelve-month period as compared to the corresponding
period a year ago. The improvement in contribution was a result of
increased operating margin, a substantial improvement in other income, and
reduced financing costs, partially offset by an increase in operating
expenses.
Operating
margin increased $37 million between periods. Rate relief and
rate changes provided a net $18 million increase, consisting of rate relief
of $16 million in Arizona, $11 million in Nevada, and $3 million in
California, partially offset by a decrease of $12 million related to the return
to a seasonal margin methodology in California in 2009. Differences
in heating demand caused primarily by weather variations between periods
resulted in a $23 million operating margin increase as warmer-than-normal
temperatures were experienced during both periods (during the twelve-month
period of 2010, operating margin was negatively impacted by $5 million,
while the negative impact in the twelve-month period of 2009 was
$28 million). Customer growth contributed $1 million in
operating margin. Conservation resulting from current economic
conditions and energy efficiency negatively impacted operating margin by an
estimated $5 million.
Operations
and maintenance expense increased $12.9 million, or four percent, primarily due
to general cost increases and higher employee-related benefit
costs.
Depreciation
expense decreased $824,000 as a result of lower depreciation rates in the
California ($3 million annualized reduction) and Nevada ($2.3 million
annualized reduction) rate jurisdictions effective in January and June 2009,
respectively. Average gas plant in service for the current period
increased $178 million, or four percent, compared to the corresponding
period a year ago.
Other
income improved $21.6 million between the twelve-month periods of 2010 and
2009. This was primarily due to an $11.6 million increase in the
cash surrender values of COLI policies in the current period compared to cash
surrender value declines in the prior period of $11.5 million, partially offset
by a $1.4 million reduction in interest income between the twelve-month
periods.
Net
financing costs decreased $6 million between the twelve-month periods of 2010
and 2009 primarily due to a reduction in outstanding debt and lower interest
rates associated with Southwest’s commercial credit and other variable-rate
facilities.
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
Results
of Construction Services
Contribution
to consolidated net income from construction services for the three months ended
March 31, 2010 decreased $798,000 compared to the same period of
2009. Gains on sales of equipment were $232,000 and $1.1 million
for the first quarters of 2010 and 2009, respectively. NPL’s
operating results continue to be influenced by the general slowdown in the new
housing market. It is anticipated that the current economic
environment will continue to impact construction services results in
2010.
Revenues
decreased $514,000 primarily due to the impact of poor weather conditions in the
majority of NPL’s operating areas during the first quarter of 2010 as compared
to the first quarter of 2009. Construction expenses increased
$2.6 million due primarily to higher fuel and fuel-related expenses and a
decrease in gains on sales of equipment between the current and prior-year first
quarters. Depreciation expense declined $1.2 million between the
quarters.
Contribution
to consolidated net income from construction services for the twelve-month
period of 2010 decreased $272,000 compared to the same period of
2009. Gains on sales of equipment were $2.5 million and
$2.4 million for the twelve-month periods of 2010 and 2009,
respectively.
Revenues
decreased $57.3 million due primarily to a reduction in the volume of new
construction work resulting from the general slowdown in the new housing
market. Construction expenses decreased $49.2 million between
the twelve-month periods due to the reduction in work, while depreciation
expense declined $4.9 million. Interest expense decreased
$791,000 between the twelve-month periods due to a reduction in outstanding
debt.
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 approximately $100,000 per year for the
South Lake Tahoe rate jurisdiction. In October 2009, Southwest filed
for attrition increases which were approved effective January 2010 in the amount
of $2.7 million (including the $400,000 previously deferred).
FERC General Rate
Case. Paiute Pipeline Company (“Paiute”), a subsidiary of the
Company, filed a general rate case with the FERC in February
2009. The filing fulfilled an obligation from the settlement
agreement reached in the 2005 Paiute general rate case. The
application requested an increase in operating revenues of approximately
$3.9 million. In accordance with FERC requirements, the
requested new rates went into effect in September 2009, subject to
refund. In April 2010, the FERC approved an offer of settlement from
Paiute which resolved all issues related to its general rate
case. The settlement provides for an increase of approximately
$900,000 in Paiute’s annual operating income. Paiute has been
accruing a liability for the difference between the requested rates and the
anticipated settlement rates since September 2009. As of March 31,
2010, Paiute has accrued approximately $2 million for refunds to
customers.
Arizona energy efficiency and
decoupling proceeding. The Arizona Corporation Commission
(“ACC”) convened a series of workshops starting in 2009 to evaluate “rate and
regulatory incentives” and establish standards to promote energy efficiency and
conservation for utility customers. In conjunction with these
workshops, Southwest and other interested parties submitted proposed regulations
to the ACC in June 2009. Rate designs which would decouple revenues
from customer usage were the topic of much discussion in the proceeding, and
were incorporated in several of the parties’ draft
regulations. Additional workshops directly pertaining to revenue
decoupling were recently held and will continue through the second quarter with
a final decision outlining the related regulations expected by
year-end.
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
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, 2010, over-collections in all
service territories resulted in a liability of $93.3 million on the
Company’s balance sheet. 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, 2010, December 31, 2009, and March 31, 2009, Southwest had the
following outstanding PGA balances payable (millions of dollars):
|
|
March
31, 2010
|
|
|
December
31, 2009
|
|
|
March
31, 2009
|
|
Arizona
|
|
$ |
(30.9 |
) |
|
$ |
(33.2 |
) |
|
$ |
4.3 |
|
Northern
Nevada
|
|
|
(5.5 |
) |
|
|
1.2 |
|
|
|
1.5 |
|
Southern
Nevada
|
|
|
(53.1 |
) |
|
|
(60.0 |
) |
|
|
(20.5 |
) |
California
|
|
|
(3.8 |
) |
|
|
2.0 |
|
|
|
(5.0 |
) |
|
|
$ |
(93.3 |
) |
|
$ |
(90.0 |
) |
|
$ |
(19.7 |
) |
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 use cash inflows 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 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, if any, and presented in the applicable
prospectuses.
Cash
Flows
Operating Cash
Flows. Cash flows provided by consolidated operating
activities increased $14.1 million in the first quarter of 2010 as compared
to the same period in 2009. The primary drivers of the change were an increase
in net income between quarters and temporary fluctuations in working capital
components.
Investing Cash
Flows. Cash used in consolidated investing activities
decreased $18.5 million in the first quarter of 2010 as compared to the
same period in 2009. The decrease was primarily due to reductions in
construction expenditures and equipment purchases, a result of the new housing
market slowdown.
Financing Cash
Flows. Cash used in consolidated financing activities
increased $56.3 million during the first quarter of 2010 as compared to the
same period in 2009 primarily due to debt repayments, including the redemption
of the Subordinated Debentures. Dividends paid increased in the first
quarter of 2010 as compared to 2009 as a result of a quarterly dividend increase
and an increase in the number of shares outstanding.
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
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, Debt Maturities, and Financing
During
the twelve-month period ended March 31, 2010, construction expenditures for the
natural gas operations segment were $194 million (including the
construction of two new operations centers for the Southern Nevada Division
completed in the second quarter of 2009). Approximately
49 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 $396 million which provided
sufficient funding for construction expenditures and dividend requirements of
the natural gas operations segment.
Southwest
estimates natural gas segment construction expenditures during the three-year
period ending December 31, 2012 will be approximately
$570 million. Of this amount, approximately $200 million
are expected to be incurred in 2010. During the three-year period,
cash flows from operating activities of Southwest are expected to provide
sufficient funding for the gas operations total construction expenditures and
dividend requirements. During the three-year period, the Company
expects to raise $8 million to $10 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.
In March
2010, the Company redeemed the $100 million, 7.70% Subordinated Debentures
(Preferred Securities) at par. The Company facilitated the redemption
using existing cash and borrowings under the $300 million credit
facility.
Southwest
has $200 million of long-term debt maturing in February 2011 and
$200 million maturing in May 2012. The Company currently intends
to issue $250 million of new debentures in December 2010 and
$200 million of debentures in March 2012 to provide funding for the
maturing obligations (and a portion of the redeemed Subordinated
Debentures). In connection with these planned debt issuances, the
Company, in January 2010, entered into two forward-starting interest rate swap
(“FSIRS”) agreements to hedge the risk of interest rate variability during the
period leading up to the planned issuances. See Note 4 – Derivatives and Fair Value
Measurements for more information on the FSIRS.
During
the quarter ended March 31, 2010, the Company issued shares of common stock
through the Dividend Reinvestment and Stock Purchase Plan (“DRSPP”) and for
exercised stock options, raising approximately
$4 million. Beginning in the second quarter of 2010, the Company
plans to cease issuing new common stock under the DRSPP (the DRSPP will purchase
shares on the open market as needed).
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 2010, the Board of Directors increased the
quarterly dividend payout from 23.75 cents to 25 cents per share,
effective with the June 2010 payment.
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
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,
2010, the combined balance in the PGA accounts totaled an over-collection of
$93.3 million. See PGA Filings for more
information on recent regulatory filings.
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, 2010, $45 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, if any. 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,
|
|
|
2010
|
|
2009
|
|
|
|
|
|
Ratio
of earnings to fixed charges
|
|
2.70
|
|
2.46
|
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,” “forecast,” 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 and results of operations, 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
financing, the amount and form of any such financing, future financing cost
savings, the effectiveness of forward-starting interest rate swap agreements in
hedging against changing interest rates, liquidity, the impact of the
application of certain accounting standards, statements regarding future gas
prices, gas
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
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 and
Item 7A. Quantitative and
Qualitative Disclosures About Market Risk in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2009.
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 2009 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 (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) that are designed to provide reasonable assurance that
information required to be disclosed in reports filed or submitted under the
Exchange Act 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, 2010, 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
(as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the
first quarter of 2010 that have materially affected, or are likely to materially
affect, the Company’s internal controls over financial reporting.
SOUTHWEST GAS CORPORATION
|
Form
10-Q
|
March 31, 2010
|
|
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. REMOVED
AND RESERVED
ITEM
5. None.
ITEM
6. EXHIBITS
|
The
following documents are filed as part of this report on
Form 10-Q:
|
|
|
|
|
|
Exhibit
3(ii)
|
- |
Amended
Bylaws of Southwest Gas Corporation.
|
|
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, 2010
|
|
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
7, 2010
|
|
|
|
|
/s/
Roy R. Centrella
|
|
Roy
R. Centrella
|
|
Vice
President/Controller and Chief Accounting
Officer
|