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Southwest Gas Corporation Announces 2007 Earnings
According to Jeffrey W. Shaw, Chief Executive Officer, "We are pleased to report earnings of $1.97 per share, our second best earnings performance in 15 years and a noteworthy result in a time when there is turbulence in the economy. Two main factors prevented us from having a record year: lost operating margin resulting from warmer-than-normal weather, and a decline in the rate of customer growth due to the downturn in the housing market. Warmer-than-normal weather had an estimated impact of $12 million on operating margin ($0.18 per share) as Arizona experienced its warmest November in 113 years of recorded history. We have included several proposed rate design changes in our most recently filed Arizona general rate case to address this weather-related volatility." Addressing growth, Shaw said, "For the first time in 15 years, our new customer growth rate was below 3% ... we have not been immune from the downturn in the housing markets. While we cannot predict precisely when conditions in the housing market may return to more normal levels, we believe they will do so in the next two years. Until then, we anticipate that our growth rate will remain in the range of 1.5% to 3%." Shaw concluded, "Based on current economic conditions, we expect that 2008 will present several challenges to address, but believe our strategy focuses our efforts to meet those challenges."
During the fourth quarter of 2007, consolidated net income was $43.1 million, or $1.01 per basic share, versus $46.7 million, or $1.12 per basic share, for the fourth quarter of 2006.
Natural Gas Operations Segment Results
Full Year 2007
Operating margin, defined as operating revenues less the cost of gas sold, increased $35 million between 2006 and 2007. The rate relief component of the increase was $18 million ($15 million in Arizona and $3 million in California). Customer growth contributed $14 million toward the operating margin increase as the Company added a net 29,000 customers during 2007, an increase of about two percent. Differences in heating demand, caused primarily by weather variations, accounted for the remaining $3 million increase in operating margin as warmer-than-normal temperatures were experienced during both years (during 2007 the estimated negative weather-related impact was about $12 million, while the negative impact during 2006 was approximately $15 million).
Operating expenses increased $23.4 million, or five percent, between years primarily due to general increases in labor and maintenance costs, and incremental operating costs (including depreciation and general taxes) associated with serving additional customers. Higher uncollectible expenses also contributed to the increase. A nonrecurring property tax settlement favorably affected operating expenses in 2006.
Other income decreased $5.2 million primarily as a result of a reduction in interest income due to the collection of previously deferred purchased gas adjustment (PGA) receivables and reduced returns on long-term investments. Net financing costs increased $872,000, or one percent, between years primarily due to interest expense associated with deferred PGA balance payables and higher rates on variable-rate debt, partially offset by lower average debt outstanding.
Fourth Quarter
Operating margin decreased a net $2 million in the fourth quarter of 2007 compared to the fourth quarter of 2006. Differences in heating demand caused by weather variations between periods accounted for a $5 million decrease as Arizona experienced its warmest November on record in 2007. System-wide temperatures in both periods were warmer than normal (during the current quarter the estimated negative impact was $8 million, while the negative impact during the prior-year quarter was $3 million). The weather-related decrease was partially offset by an increase of $3 million in margin attributable to new customers.
Operating expenses for the quarter decreased $3.6 million, or three percent, compared to the fourth quarter of 2006 primarily due to timing differences between periods for certain employee-related costs and lower customer-related expenses.
Other income decreased $4.1 million when compared to the same period in 2006 resulting from lower returns on long-term investments and a reduction in interest income associated with deferred PGA balances.
Southwest Gas Corporation provides natural gas service to approximately 1,813,000 customers in Arizona, Nevada, and California.
This press release may contain statements which constitute "forward-looking statements" within the meaning of the Securities Litigation Reform Act of 1995 (Reform Act). All such 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, the effects of regulation/deregulation, the timing and amount of rate relief, and changes in rate design.
SOUTHWEST GAS CONSOLIDATED EARNINGS DIGEST
(In thousands, except per share amounts)
YEAR ENDED DECEMBER 31, 2007 2006
Consolidated Operating Revenues $2,152,088 $2,024,758
Net Income $83,246 $83,860
Average Number of Common
Shares Outstanding 42,336 40,566
Basic Earnings Per Share $1.97 $2.07
Diluted Earnings Per Share $1.95 $2.05
QUARTER ENDED DECEMBER 31,
Consolidated Operating Revenues $560,311 $565,115
Net Income $43,137 $46,707
Average Number of Common
Shares Outstanding 42,683 41,587
Basic Earnings Per Share $1.01 $1.12
Diluted Earnings Per Share $1.00 $1.11
SOUTHWEST GAS CORPORATION
SUMMARY UNAUDITED OPERATING RESULTS
(In thousands, except per share amounts)
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006 2007 2006
Results of Consolidated
Operations
Contribution to net income -
gas operations $39,584 $43,167 $72,494 $71,473
Contribution to net income -
construction services 3,553 3,540 10,752 12,387
Net income $43,137 $46,707 $83,246 $83,860
Earnings per share - gas
operations $0.93 $1.04 $1.71 $1.76
Earnings per share -
construction services 0.08 0.08 0.26 0.31
Basic earnings per share $1.01 $1.12 $1.97 $2.07
Diluted earnings per share $1.00 $1.11 $1.95 $2.05
Average outstanding common
shares 42,683 41,587 42,336 40,566
Average shares outstanding
(assuming dilution) 43,030 42,058 42,714 40,975
Results of Natural Gas
Operations
Gas operating revenues $468,770 $492,043 $1,814,766 $1,727,394
Net cost of gas sold 251,741 273,141 1,086,194 1,033,988
Operating margin 217,029 218,902 728,572 693,406
Operations and maintenance
expense 80,361 86,087 331,208 320,803
Depreciation and
amortization 39,710 37,642 157,090 146,654
Taxes other than
income taxes 9,300 9,242 37,553 34,994
Operating income 87,658 85,931 202,721 190,955
Other income (expense) (652) 3,482 4,850 10,049
Net interest deductions 21,970 21,552 86,436 85,567
Net interest deductions on
subordinated debentures 1,932 1,931 7,727 7,724
Income before income taxes 63,104 65,930 113,408 107,713
Income tax expense 23,520 22,763 40,914 36,240
Contribution to net income -
gas operations $39,584 $43,167 $72,494 $71,473
SOURCE Southwest Gas Corporation
http://www.swgas.com