===============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number 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 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 24,011,892 shares as of August 4, 1995
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1
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by Southwest Gas Corporation (the Company), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. In
the opinion of management, all adjustments, consisting of normal recurring
items necessary for a fair presentation of the results for the interim
periods, have been made. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's 1994 Annual Report
on Form 10-K, and 1995 first quarter report on Form 10-Q.
2
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Thousands of dollars)
(Unaudited)
JUNE 30, DECEMBER 31,
1995 1994
---------- ----------
ASSETS
Cash and cash equivalents $ 130,125 $ 129,998
Debt securities available for sale 496,134 529,400
Debt securities held to maturity (fair value of $89,082 and $99,403) 89,823 101,880
Loans receivable, net of allowance for estimated losses of
$15,474 and $17,659 1,017,523 936,037
Loans receivable held for sale (fair value of $5,576 and $2,135) 5,483 2,114
Receivables, less reserves for uncollectibles 45,184 105,438
Gas utility property, net of accumulated depreciation 1,077,495 1,035,916
Other property, net of accumulated depreciation 36,671 35,605
Excess of cost over net assets acquired 63,709 65,640
Other assets 115,792 147,965
---------- ----------
$3,077,939 $3,089,993
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits $1,253,276 $1,239,949
Securities sold under agreements to repurchase 182,184 281,935
Deferred income taxes and tax credits, net 119,330 133,531
Accounts payable and other accrued liabilities 221,037 208,691
Short-term debt 16,000 92,000
Long-term debt, including current maturities 901,688 790,798
---------- ----------
2,693,515 2,746,904
---------- ----------
Preferred stock, including current maturities 4,000 4,000
---------- ----------
Common stock
Authorized--30,000,000 shares
Issued and outstanding--23,898,709 shares and 21,281,717 shares 25,529 22,912
Additional paid-in capital 306,280 273,217
Unrealized gain (loss), net of tax, on debt securities available for sale 858 (9,467)
Retained earnings 47,757 52,427
---------- ----------
380,424 339,089
---------- ----------
$3,077,939 $3,089,993
========== ==========
The accompanying notes are an integral part of these statements.
3
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
--------------------- --------------------- ---------------------
1995 1994 1995 1994 1995 1994
--------- --------- --------- --------- --------- ---------
Operating revenues:
Gas operating revenues $ 122,189 $ 108,407 $ 325,710 $ 315,776 $ 609,345 $ 572,126
Financial services interest income 32,801 29,124 66,012 57,169 127,277 118,521
Other 3,513 2,646 5,669 6,387 9,464 19,994
--------- --------- --------- --------- --------- ---------
158,503 140,177 397,391 379,332 746,086 710,641
--------- --------- --------- --------- --------- ---------
Operating expenses:
Net cost of gas purchased 54,760 48,439 153,666 145,435 258,154 231,288
Financial services interest expense, net 18,347 14,200 36,776 28,249 68,317 60,179
Operating expense 45,333 41,751 88,901 82,982 175,727 166,274
Maintenance expense 8,269 7,324 16,161 14,063 32,295 28,393
Provision for estimated credit losses 2,057 1,908 3,767 3,756 7,404 8,220
Depreciation, depletion and amortization 17,674 16,340 34,738 32,402 67,377 64,241
Taxes other than income taxes 6,800 6,246 13,687 12,741 26,686 25,078
Other 4,367 4,296 8,858 8,577 17,687 18,799
--------- --------- --------- --------- --------- ---------
157,607 140,504 356,554 328,205 653,647 602,472
--------- --------- --------- --------- --------- ---------
Operating income (loss) 896 (327) 40,837 51,127 92,439 108,169
--------- --------- --------- --------- --------- ---------
Other income and (expenses):
Net interest deductions (15,447) (13,795) (31,178) (27,410) (61,103) (52,897)
Other income (deductions), net (278) (1,162) (131) (1,380) (121) (15,735)
--------- --------- --------- --------- --------- ---------
(15,725) (14,957) (31,309) (28,790) (61,224) (68,632)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes (14,829) (15,284) 9,528 22,337 31,215 39,537
Income tax expense (benefit) (5,488) (5,503) 4,224 9,408 12,538 15,257
--------- --------- --------- --------- --------- ---------
Net income (loss) (9,341) (9,781) 5,304 12,929 18,677 24,280
Preferred/preference stock dividend requirements 95 138 190 277 423 608
--------- --------- --------- --------- --------- ---------
Net income (loss) applicable to common stock $ (9,436) $ (9,919) $ 5,114 $ 12,652 $ 18,254 $ 23,672
========= ========= ========= ========= ========= =========
Earnings (loss) per share of common stock $ (0.41) $ (0.47) $ 0.23 $ 0.60 $ 0.84 $ 1.13
========= ========= ========= ========= ========= =========
Dividends paid per share of common stock $ 0.205 $ 0.195 $ 0.41 $ 0.39 $ 0.82 $ 0.78
========= ========= ========= ========= ========= =========
Average number of common shares outstanding 22,816 21,028 22,110 21,026 21,615 20,933
========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these statements.
4
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 5,304 $ 12,929 $ 18,677 $ 24,280
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 34,738 32,402 67,377 64,241
Provision for estimated losses 3,767 3,756 7,404 8,220
Change in unrecovered purchased gas costs 45,363 8,085 46,292 (20,523)
Change in deferred income taxes (20,226) (9,547) (18,891) (1,101)
Change in deferred charges and credits 3,672 (5,408) 8,108 (3,226)
Change in noncash working capital 47,888 45,022 16,018 14,338
Other (2,107) 2,611 (3,504) 8,471
---------- ---------- ---------- ----------
Net cash provided by operating activities 118,399 89,850 141,481 94,700
---------- ---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Construction expenditures (75,921) (63,780) (156,692) (128,448)
Loan originations, net of repayments (92,681) (87,274) (160,431) (183,345)
Sales of loans and loan servicing rights 10,042 31,308 24,824 72,290
Purchases of debt securities -- (75,929) (220,420) (121,817)
Proceeds from sale of debt securities 7,538 3,559 9,053 344,575
Maturities and repayment of debt securities 50,711 120,512 221,946 286,437
Proceeds from sales of real estate acquired through foreclosure 3,585 2,048 5,585 19,718
Proceeds from sale of Arizona assets and services -- -- -- 6,718
Other 4,589 (540) 8,425 (6,861)
---------- ---------- ---------- ----------
Net cash provided by (used in) investing activities (92,137) (70,096) (267,710) 289,267
---------- ---------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 35,680 511 39,941 5,451
Dividends paid (9,436) (8,444) (18,403) (16,960)
Issuance of long-term debt 114,800 17,000 202,700 98,909
Retirement of long-term debt (3,910) (1,666) (9,211) (31,765)
Issuance (repayment) of short-term debt (76,000) (30,000) (40,000) 41,000
Change in deposit accounts 13,327 19,382 26,042 (42,842)
Sale and assumption of Arizona deposit liabilities -- -- -- (320,902)
Proceeds from repos/other borrowings 477,555 309,041 449,847 911,979
Repayment of repos/other borrowings (577,306) (334,131) (501,614) (977,661)
Other (845) (548) (5,189) (7,503)
---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities (26,135) (28,855) 144,113 (340,294)
---------- ---------- ---------- ----------
Net change in cash and cash equivalents 127 (9,101) 17,884 43,673
Balance at beginning of period 129,998 121,342 112,241 68,568
---------- ---------- ---------- ----------
Balance at end of period $ 130,125 $ 112,241 $ 130,125 $ 112,241
========== ========== ========== ==========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest, net of amounts capitalized $ 44,364 $ 34,672 $ 79,380 $ 67,270
Income taxes, net of refunds 17,419 2,425 17,126 (2,713)
The accompanying notes are an integral part of these statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Note 1 - Summarized Consolidated Financial Statement Data
Summarized consolidated financial statement data for PriMerit Bank is presented
below:
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Thousands of dollars)
(Unaudited)
JUNE 30, DECEMBER 31,
1995 1994
------------ ------------
ASSETS
Cash and due from banks $ 35,478 $ 35,262
Cash equivalents 86,653 88,660
Debt securities available for sale 496,134 529,400
Debt securities held to maturity, net of allowance for estimated losses
of $1,000 at June 30, 1995 (fair value of $89,082 and $99,403) 89,823 101,880
Loans receivable, net of allowance for estimated credit losses
of $15,474 and $17,659 1,017,523 936,037
Loans receivable held for sale (fair value of $5,576 and $2,135) 5,483 2,114
Real estate acquired through foreclosure, net of allowance for
estimated losses of $473 at June 30, 1995 3,557 7,631
Real estate held for sale or development, net of allowance for
estimated losses of $736 and $476 409 771
FHLB stock, at cost 10,764 17,277
Excess of cost over net assets acquired 63,709 65,640
Other assets 27,785 31,649
------------ ------------
$ 1,837,318 $ 1,816,321
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits $ 1,253,276 $ 1,239,949
Securities sold under agreements to repurchase 182,184 281,935
Advances from FHLB 189,400 99,400
Notes payable 8,065 8,135
Other liabilities 24,150 20,514
------------ ------------
1,657,075 1,649,933
------------ ------------
Stockholder's equity
Common stock 57 57
Additional paid-in capital 160,442 160,442
Unrealized gain (loss), net of tax, on debt securities available
for sale 858 (9,467)
Retained earnings 18,886 15,356
------------ ------------
180,243 166,388
------------ ------------
$ 1,837,318 $ 1,816,321
============ ============
6
Note 1 - Summarized Consolidated Financial Statement Data (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
--------------------- --------------------- ---------------------
1995 1994 1995 1994 1995 1994
--------- --------- --------- --------- --------- ---------
Interest income $ 32,801 $ 29,124 $ 66,012 $ 57,169 $ 127,277 $ 118,521
Interest expense 18,347 14,200 36,776 28,249 68,317 60,179
--------- --------- --------- --------- --------- ---------
Net interest income 14,454 14,924 29,236 28,920 58,960 58,342
Provision for estimated credit losses (2,035) (2,275) (3,399) (3,709) (6,920) (7,618)
--------- --------- --------- --------- --------- ---------
Net interest income after provision for credit losses 12,419 12,649 25,837 25,211 52,040 50,724
--------- --------- --------- --------- --------- ---------
Net income (loss) from real estate operations 116 595 (317) 110 (1,039) (431)
--------- --------- --------- --------- --------- ---------
Gain on sale of loans 231 116 303 364 537 1,216
Loss on sale of loans (1) (113) (1) (269) (83) (308)
Net gain on sale of debt securities 970 -- 970 33 971 7,634
Gain (loss) on secondary marketing hedging activity (26) 191 (30) 322 37 108
Loan-related fees 234 429 551 666 1,050 1,056
Deposit-related fees 1,880 1,736 3,730 3,231 7,287 6,614
Gain (loss) on sale of credit cards -- -- -- 1,690 (1) 1,690
Loss on sale - Arizona branches -- -- -- -- -- (102)
Other income 87 59 95 193 221 1,813
--------- --------- --------- --------- --------- ---------
Total noninterest income 3,375 2,418 5,618 6,230 10,019 19,721
--------- --------- --------- --------- --------- ---------
General and administrative expenses 11,175 10,773 22,326 21,761 44,073 45,882
Amortization of cost in excess of net assets acquired 966 965 1,931 1,931 3,861 3,862
--------- --------- --------- --------- --------- ---------
Total noninterest expense 12,141 11,738 24,257 23,692 47,934 49,744
--------- --------- --------- --------- --------- ---------
Income before income taxes 3,769 3,924 6,881 7,859 13,086 20,270
Income tax expense 1,667 1,748 3,101 3,494 5,998 8,246
--------- --------- --------- --------- --------- ---------
Net income $ 2,102 $ 2,176 $ 3,780 $ 4,365 $ 7,088 $ 12,024
========= ========= ========= ========= ========= =========
Contribution to consolidated net income (loss) (a) $ 610 $ 954 $ 806 $ 1,930 $ 1,653 $ 7,117
========= ========= ========= ========= ========= =========
(a) Includes after-tax allocation of costs from parent.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is comprised of two business segments: natural gas operations and
financial services. The gas segment purchases, transports and distributes
natural gas to residential, commercial and industrial customers in
geographically diverse portions of Arizona, Nevada and California. The
financial services segment consists of PriMerit Bank (the Bank), a wholly
owned subsidiary, which is engaged in retail and commercial banking. The
Bank's principal business is to attract deposits from the general public and
make consumer and commercial loans secured by real estate and other
collateral. For the twelve months ended June 30, 1995, the natural gas
operations segment contributed $17 million and the financial services segment
contributed $1.7 million, resulting in consolidated net income of
$18.7 million.
CONSOLIDATED CAPITAL RESOURCES AND LIQUIDITY
The capital requirements and resources of the Company generally are determined
independently for the natural gas operations and financial services segments.
Each segment is generally responsible for securing its own financing sources.
The Company's unsecured debt is rated Baa3 by Moody's Investors Service, BBB-
by Standard and Poor's Ratings Group and BB+ by Duff and Phelps Credit Rating
Company.
See separate discussions of the capital resources and liquidity for each
segment.
RESULTS OF CONSOLIDATED OPERATIONS
Quarterly Analysis
- ------------------
Contribution to Consolidated Net Income
Three Months Ended June 30,
---------------------------------------
(Thousands of dollars)
1995 1994
-------- --------
Natural gas operations segment $ (9,951) $(10,735)
Financial services segment 610 954
-------- --------
Consolidated net loss $ (9,341) $ (9,781)
======== ========
See separate discussions of each business segment for an analysis of these
changes.
Six-Month Analysis
- ------------------
Contribution to Consolidated Net Income
Six Months Ended June 30,
---------------------------------------
(Thousands of dollars)
1995 1994
-------- --------
Natural gas operations segment $ 4,498 $ 10,999
Financial services segment 806 1,930
-------- --------
Consolidated net income $ 5,304 $ 12,929
======== ========
See separate discussions of each business segment for an analysis of these
changes.
8
Twelve-Month Analysis
- ---------------------
Contribution to Consolidated Net Income
Twelve Months Ended June 30,
---------------------------------------
(Thousands of dollars)
1995 1994
-------- --------
Natural gas operations segment $ 17,024 $ 17,163
Financial services segment 1,653 7,117
-------- --------
Consolidated net income $ 18,677 $ 24,280
======== ========
See separate discussions of each business segment for an analysis of these
changes.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This statement requires that long-lived assets and certain intangible
assets to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. This statement is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
does not anticipate any material effect on its financial position or results
of operations upon implementation of this statement.
NATURAL GAS OPERATIONS SEGMENT
The Company is engaged in the business of purchasing, transporting, and
distributing natural gas in portions of Arizona, Nevada and California. Its
service areas are geographically as well as economically diverse. The Company
is the largest distributor in Arizona, selling and transporting natural gas in
most of southern, central, and northwestern Arizona, including the Phoenix and
Tucson metropolitan areas. The Company is also the largest distributor and
transporter of natural gas in Nevada, and serves the Las Vegas metropolitan
area and northern Nevada. In addition, the Company distributes and transports
gas in portions of California, including the Lake Tahoe area in northern
California and high desert and mountain areas in San Bernardino County.
The Company purchases, transports and distributes natural gas to approximately
993,000 residential, commercial and industrial customers within its three-state
service territory, of which 59 percent are in Arizona, 30 percent are in Nevada,
and 11 percent are in California. During the twelve months ended June 30, 1995,
the Company earned 60 percent of its operating margin from residential
customers, 24 percent from commercial customers, and 16 percent from industrial
and other customers. During this same period, 58 percent of operating margin
was earned in Arizona, 31 percent in Nevada and 11 percent in California. This
pattern is consistent with prior years and is expected to continue.
For the twelve months ended June 30, 1995, the Company's natural gas
construction expenditures totaled $153 million, a 21 percent increase when
compared to $126 million of construction expenditures for the same period
ended a year ago. The increase is attributed to the investment in new
transmission and distribution plant in Arizona, Nevada, and California to meet
the demand from the Company's growing customer base.
CAPITAL RESOURCES AND LIQUIDITY
The Company currently estimates that the total financing requirements for the
gas segment for the three-year period ending December 31, 1997 will be
approximately $425 million. Of this amount, construction expenditures will
approximate $410 million and debt maturities and repayments and other cash
requirements will approximate $15 million. It is currently estimated that
9
cash flow from operating activities (net of dividends) will generate
approximately one-half of the gas segment's total financing requirements
during the three-year period ending December 31, 1997. A portion of the
remaining financing requirements will be provided by $83 million of funds held
in trust at December 31, 1994, from the issuance of 1993 Clark County, Nevada,
Series A and 1993 City of Big Bear Lake, California, Series A industrial
development revenue bonds (IDRB).
In May 1995, the Company completed an offering of 2.1 million primary shares
of common stock. The net proceeds from this offering were $28.5 million after
deducting underwriting discounts, commissions, and expenses. The proceeds
were used to repay a portion of short-term borrowings incurred to finance
utility construction, and to finance construction, completion, extension or
improvement of the Company's facilities located in and around the communities
it serves.
The remaining cash requirements are expected to be provided by 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, and
growth factors in the Company's service areas. These external financings may
include the issuance of both debt and equity securities, bank and other short-
term borrowings, and other forms of financing.
RESULTS OF NATURAL GAS OPERATIONS
Quarterly Analysis
- ------------------
Three Months Ended
June 30,
--------------------------
(Thousands of dollars)
1995 1994
---------- ----------
Gas operating revenues $ 122,189 $ 108,407
Net cost of gas 54,760 48,439
---------- ----------
Operating margin 67,429 59,968
Operations and maintenance expense 47,855 43,673
Depreciation and amortization 15,741 14,381
Taxes other than income taxes 6,706 6,165
---------- ----------
Operating loss (2,873) (4,251)
Other income (expense), net (278) (1,162)
---------- ----------
Loss before interest and income taxes (3,151) (5,413)
Net interest deductions 15,447 13,795
Income tax expense (benefit) (7,155) (7,251)
---------- ----------
Net loss before allocation to the Bank (11,443) (11,957)
Carrying costs allocated to the Bank, net of tax 1,492 1,222
---------- ----------
Contribution to consolidated net loss $ (9,951) $ (10,735)
========== ==========
Contribution to consolidated net loss improved $784,000 compared to the second
quarter of 1994. The improvement was principally the result of higher
operating margin attributed to cooler weather throughout the Company's service
territories when compared to the same period in 1994. The increase in margin
was partially offset by higher operating costs and net interest deductions
resulting from the continued expansion and upgrading of the gas system to
accommodate customer growth.
Operating margin increased 12 percent when compared to the same period ended a
year ago. Cooler weather during the current quarter resulted in a $4.9
million increase in margin from weather-sensitive customers. Also
contributing to the higher margin was customer growth in all of the Company's
service territories and authorized rate relief in the Company's California and
southern Arizona rate jurisdictions.
10
Operations and maintenance expenses increased $4.2 million, or ten percent,
reflecting increases in labor and maintenance costs, including the incremental
operating expenses associated with meeting the needs of the Company's growing
customer base.
Depreciation expense and general taxes increased $1.9 million, or nine
percent, as a result of additional plant in service. Average gas plant in
service increased $124 million, or nine percent, as compared to the second
quarter of 1994. This increase reflects ongoing capital expenditures for the
upgrade of existing operating facilities and the expansion of the system to
accommodate continued customer growth.
Net interest deductions increased $1.7 million, or 12 percent, over the second
quarter of 1994. Average debt outstanding during the current quarter
increased nine percent, and consisted of an $81 million increase in average
long-term debt, partially offset by a $20 million decrease in average short-term
debt, outstanding during the period. The increase in debt is attributed
primarily to borrowings for construction expenditures, including the drawdown
of a portion of IDRB funds previously held in trust. Higher interest rates on
variable-rate debt also contributed to the increase in net interest
deductions.
Six-Month Analysis
- ------------------
Six Months Ended
June 30,
--------------------------
(Thousands of dollars)
1995 1994
---------- ----------
Gas operating revenues $ 325,710 $ 315,776
Net cost of gas 153,666 145,435
---------- ----------
Operating margin 172,044 170,341
Operations and maintenance expense 93,722 86,108
Depreciation and amortization 30,878 28,429
Taxes other than income taxes 13,488 12,536
---------- ----------
Operating income 33,956 43,268
Other income (expense), net (131) (1,380)
---------- ----------
Income before interest and income taxes 33,825 41,888
Net interest deductions 31,178 27,410
Income tax expense 1,123 5,914
---------- ----------
Net income before allocation to the Bank 1,524 8,564
Carrying costs allocated to the Bank, net of tax 2,974 2,435
---------- ----------
Contribution to consolidated net income $ 4,498 $ 10,999
========== ==========
Contribution to consolidated net income decreased $6.5 million as compared to
the six months ended June 1994. This was the result of increased operating
costs and net interest deductions incurred as a result of the continued
expansion and upgrading of the gas system to accommodate the Company's growth.
Operating margin increased only one percent during the six months ended June
1995 compared to the same period in 1994. Margin increases from continued
customer growth and authorized rate relief in California and southern Arizona
were virtually offset by the effects of unseasonably warm weather during the
first quarter of 1995 in the Company's three largest operating areas:
Phoenix, Las Vegas, and Tucson.
Operations and maintenance expenses increased $7.6 million, or nine percent,
reflecting increases in labor and maintenance costs along with incremental
operating expenses associated with meeting the needs of the Company's growing
customer base.
11
Depreciation expense and general taxes increased $3.4 million, or eight
percent, resulting from an increase in average gas plant in service of
$117 million, or nine percent. This increase reflects capital expenditures
for the upgrade of existing operating facilities and the expansion of the
system to accommodate continued customer growth within the Company's service
area.
Net interest deductions increased $3.8 million, or 14 percent, over the prior
period. Average debt outstanding during the period increased 12 percent
compared to the same period in 1994, and consisted of a $75 million increase
in average long-term debt, net of funds held in trust, and a $2 million
increase in average short-term debt. The increase in debt is attributed
primarily to borrowings for construction expenditures and operating activities
as well as the drawdown of IDRB funds previously held in trust. Higher
interest rates on variable-rate debt also contributed to the increase in net
interest deductions.
Twelve-Month Analysis
- ---------------------
Twelve Months Ended
June 30,
--------------------------
(Thousands of dollars)
1995 1994
---------- ----------
Gas operating revenues $ 609,345 $ 572,126
Net cost of gas 258,154 231,288
---------- ----------
Operating margin 351,191 340,838
Operations and maintenance expense 185,839 172,174
Depreciation and amortization 59,711 56,203
Taxes other than income taxes 26,288 24,562
---------- ----------
Operating income 79,353 87,899
Other income (expense), net (121) (15,735)
---------- ----------
Income before interest and income taxes 79,232 72,164
Net interest deductions 61,103 52,897
Income tax expense 6,540 7,011
---------- ----------
Net income before allocation to the Bank 11,589 12,256
Carrying costs allocated to the Bank, net of tax 5,435 4,907
---------- ----------
Contribution to consolidated net income $ 17,024 $ 17,163
========== ==========
Contribution to consolidated net income decreased $139,000 as compared to the
twelve months ended June 1994. Increases in operating expenses and net
interest deductions offset an increase in operating margin during the current
twelve-month period. However, the recognition of the Arizona pipe replacement
program disallowances had a significant negative impact on net income for the
twelve months ended June 1994 (see discussion below).
Operating margin increased $10.4 million, or three percent, during the twelve
months ended June 1995. This increase was due to continued customer growth in
the Company's service areas, combined with rate relief in the Company's
Arizona and California rate jurisdictions.
Operations and maintenance expenses increased $13.7 million, or eight percent,
resulting primarily from increases in labor and materials over the same period
ended a year ago. These increases reflect the incremental cost of providing
service to the Company's growing customer base.
Depreciation expense and general taxes increased $5.2 million, or six percent,
as a result of additional plant in service. Average gas plant in service for
the current twelve-month period increased $98 million, or seven percent,
compared to the corresponding period a year ago. This was attributable to the
upgrade of existing operating facilities and the expansion of the system to
accommodate the number of new customers being added to the system.
Other expenses for the twelve months ended June 1994 include a cumulative
$19.1 million write-off in gross plant related to the central and southern
Arizona pipe replacement programs, the result of a regulatory mandate. The
12
impact of these disallowances, net of accumulated depreciation, tax benefits
and other related items, was a noncash reduction to net income of
$9.6 million.
Net interest deductions increased $8.2 million, or 16 percent during the
twelve months ended June 1995 over the comparative period of the prior year.
Average total debt outstanding during the period increased 12 percent compared
to the corresponding period of the prior year, and consisted of a $58 million
increase in average long-term debt and an $18 million increase in average
short-term debt outstanding during the period. This increase is primarily
attributed to borrowings for construction expenditures and operating
activities as well as the drawdown of IDRB funds previously held in trust.
Higher interest rates on variable-rate debt also contributed to the increase
in net interest deductions.
FINANCIAL SERVICES SEGMENT
PriMerit Bank (the Bank) is a federally chartered stock savings bank
conducting business through branch offices in Nevada. The Bank's deposit
accounts are insured to the maximum extent permitted by law by the Federal
Deposit Insurance Corporation (FDIC) through the Savings Association Insurance
Fund (SAIF). The Bank is regulated by the Office of Thrift Supervision (OTS)
and the FDIC, and is a member of the Federal Home Loan Bank (FHLB) system.
The Bank's principal business is to attract deposits from the general public
and make loans secured by real estate and other collateral to enable borrowers
to purchase, refinance, construct or improve such property. Revenues are
derived from interest on real estate loans and debt securities and, to a
lesser extent, from interest on nonmortgage loans, gains on sales of loans and
debt securities, and fees received in connection with loans and deposits. The
Bank's major expense is the interest paid on deposits and borrowings.
CAPITAL RESOURCES AND LIQUIDITY
In accordance with OTS regulations, the Bank is required to maintain an
average daily balance of liquid assets equal to at least five percent of its
liquidity base (as defined in the OTS regulations) during the preceding
calendar month. The liquidity ratio was 13 percent for the month of June
1995. The Bank maintains a ratio substantially higher than the requirement
due to its increased level of transaction accounts relative to a traditional
thrift. Management considers the Bank's liquidity position to be adequate.
At June 30, 1995, the Bank maintained in excess of $348 million of
unencumbered assets which could be borrowed against or sold to increase
liquidity levels.
The Bank's deposits decreased $2.7 million during the quarter while increasing
$13.3 million year to date. The decrease in the second quarter of 1995 is
principally due to a $5.8 million decrease in longer term certificate of
deposit accounts, partially offset by a $3.1 million increase in transaction
and other accounts. The Bank offered a new money market product at the
beginning of the year which was the primary cause of the increase in
transaction accounts. The net increase for the first half of 1995 is due
primarily to an $18.4 million increase in transaction and other retail
accounts partially offset by a $5.1 million decrease in certificates of
deposit.
FINANCIAL AND REGULATORY CAPITAL
At June 30, 1995, the Bank exceeded all three capital ratios for a "well
capitalized" institution as defined by the FDIC Improvement Act of 1991
(FDICIA), and all three fully phased-in FDICIA capital requirements which will
be applicable at July 1, 1996 under current FDICIA capital standards. As
required by the OTS, effective January 1995, all supervisory goodwill was
excluded from regulatory capital, resulting in a decline in all three of the
Bank's regulatory capital ratios. Growth in the asset base used in the
capital computations also caused a reduction in the three regulatory capital
ratios from year end. This reduction was offset partially by the Bank's
year-to-date net income and goodwill amortization. The Bank continues to be
classified as "well capitalized" under FDICIA.
13
A reconciliation of stockholder's equity to the three FDICIA regulatory
capital standards and the Bank's resulting ratios are set forth in the table
below (thousands of dollars):
June 30, 1995 December 31, 1994
-------------------------------------- --------------------------------------
Total Tier 1 Tier 1 Total Tier 1 Tier 1
Risk-Based Risk-Based Leverage Risk-Based Risk-Based Leverage
---------- ---------- ---------- ---------- ---------- ----------
Stockholder's equity $ 180,243 $ 180,243 $ 180,243 $ 166,388 $ 166,388 $ 166,388
Nonsupervisory goodwill (39,331) (39,331) (39,331) (40,376) (40,376) (40,376)
Supervisory goodwill (24,378) (24,378) (24,378) (18,661) (18,661) (18,661)
Real estate investments (581) -- -- (1,325) (194) (194)
Unrealized loss (gain), net of
tax, on debt securities
available for sale (858) (858) (858) 9,467 9,467 9,467
Mortgage servicing rights
adjustment (12) (12) (12) -- -- --
General loan loss reserves 12,201 -- -- 11,512 -- --
---------- ---------- ---------- ---------- ---------- ----------
Regulatory capital $ 127,284 $ 115,664 $ 115,664 $ 127,005 $ 116,624 $ 116,624
========== ========== ========== ========== ========== ==========
Regulatory capital ratio 13.08% 11.89% 6.52% 13.88% 12.75% 6.62%
Adequately capitalized ratio 8.00 4.00 4.00 8.00 4.00 4.00
---------- ---------- ---------- ---------- ---------- ----------
Excess 5.08% 7.89% 2.52% 5.88% 8.75% 2.62%
========== ========== ========== ========== ========== ==========
Asset base $ 972,825 $ 972,825 $1,773,152 $ 914,812 $ 914,812 $1,760,801
========== ========== ========== ========== ========== ==========
At June 30, 1995, under fully phased-in FDICIA capital rules applicable at
July 1, 1996, the Bank would have exceeded its fully phased-in adequately
capitalized total risk-based, tier 1 risk-based, and tier 1 leverage capital
requirements by $49.1 million, $76.8 million and $44.7 million, respectively.
The Company, at the time that it acquired the Bank, stipulated in an agreement
with the Federal Home Loan Bank Board (predecessor to the OTS) that it would
assist the Bank in maintaining levels of regulatory capital required by the
regulations in effect at the time or as they were amended thereafter, so long
as it controlled the Bank. The Company also stipulated in connection with the
acquisition, that dividends paid by the Bank to the Company would not exceed
50 percent of the Bank's cumulative net income after the date of acquisition,
without prior approval by the regulators. In addition, the Company agreed
that the Bank would not at any time declare a dividend that would reduce the
Bank's regulatory capital below minimum regulatory requirements in effect at
the time of the acquisition or thereafter. In June 1995, the Company and the
Bank requested that the OTS lift these stipulations since laws and regulations
have been enacted since the Company's acquisition of the Bank in conjunction
with FIRREA and FDICIA, which govern capital distributions and prompt
corrective action measures when the capitalization of a thrift is deficient.
In July 1995, the OTS terminated these stipulations, such that capital
distributions by the Bank and capitalization of the Bank are now governed by
the laws and regulations governing all other thrifts.
In June 1995, the Bank declared a $250,000 cash dividend payable to the
Company during the third quarter of 1995, subject to notification of the OTS.
The Bank has notified the OTS of its proposed dividend.
The Bank enters into various interest rate swaps in managing its interest rate
risk (IRR). In these swaps, the Bank agrees with other parties to exchange,
at specified intervals, the difference between fixed-rate and floating-rate
interest amounts calculated on an agreed-upon notional principal amount.
Because the Bank's interest-earning assets tend to be long-term fixed-rate
instruments while the Bank's interest-bearing liabilities tend to be shorter
term or floating-rate obligations, interest rate swaps reduce the impact of
market fluctuations on the Bank's net interest income.
14
The Bank only enters into interest rate swaps to hedge specific assets or
liabilities, and not for speculative or trading purposes. Therefore, the Bank
accounts for the swaps by accruing for the cash flows which are contractually
receivable and payable under the agreements. These net costs are included as
cost of hedging activities in the consolidated statements of income.
The Bank mitigates the credit risk associated with interest rate swaps by
limiting itself to transactions with counterparties who are U.S. Government
Securities dealers registered with the Securities and Exchange Commission
(SEC) and are in full compliance with the SEC's Net Capital Rule for Brokers
and Dealers. Additionally, the Bank's policy limits the maximum notional
amount outstanding per dealer and in total.
The following table summarizes the terms of the Bank's outstanding interest
rate swaps as of the dates indicated (thousands of dollars):
June 30, December 31,
1995 1994
------------ ------------
Notional principal $ 82,650 $ 72,450
Weighted average remaining term (months) 60 59
Weighted average fixed-rate payable 6.98% 6.95%
Weighted average variable-rate receivable 6.45% 5.66%
Unrealized gains $ 328 $ 2,991
Unrealized losses $ (2,474) $ (5)
The increase in unrealized losses affiliated with the interest rate swaps is
due entirely to the general decline in interest rates since year end. The
assets hedged by these interest rate swaps have experienced corresponding
increases in their fair values during the same time period.
RESULTS OF FINANCIAL SERVICES OPERATIONS
Adoption of SFAS No. 122
- ------------------------
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights." The statement eliminates the previous distinction between purchased
and originated mortgage servicing rights. The statement requires an
allocation of the cost basis of a mortgage loan between the mortgage servicing
rights and the loan when mortgage loans are sold or securitized and the
servicing is retained. The Bank adopted SFAS No. 122 effective April 1, 1995.
As a result of the implementation, earnings before taxes and net income for
the second quarter increased $114,000 and $74,000, respectively.
Quarterly Analysis
- ------------------
The Bank recorded net income of $2.1 million for the three months ended June
30, 1995, compared to net income of $2.2 million for the same period in 1994.
After-tax components of the Bank's 1995 second quarter net income were
comprised of $3 million from core banking operations and $76,000 of real
estate income, offset partially by $966,000 in goodwill amortization. After-tax
components of the Bank's 1994 second quarter net income were comprised of
$3 million from core banking operations and $391,000 of real estate income,
offset partially by $965,000 in goodwill amortization expense and $187,000
from credit card charge-offs.
15
The following table sets forth information with respect to interest rate spread
for the periods shown (thousands of dollars):
Three Months Ended June 30,
---------------------------------------------------------------------------
1995 1994
------------------------------------ ------------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
---------- ---------- ---------- ---------- ---------- ----------
Interest-earning assets:
Cash equivalents $ 27,659 $ 426 6.16% $ 50,587 $ 512 4.05%
Debt securities held to maturity 97,016 1,847 7.62 66,553 1,061 6.38
Debt securities available for sale 501,623 8,450 6.74 560,282 8,380 5.98
Loans receivable 1,000,469 21,945 8.77 883,494 18,982 8.59
FHLB stock 12,487 133 4.26 16,795 189 4.50
---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning assets $1,639,254 32,801 8.00 $1,577,711 29,124 7.38
========== ---------- ---------- ========== ---------- ----------
Interest-bearing liabilities:
Deposits $1,249,142 13,183 4.22 $1,227,626 10,690 3.49
Securities sold under agreements to repurchase 149,946 2,411 6.43 213,925 2,466 4.62
Advances from FHLB 160,511 2,491 6.21 71,000 832 4.70
Notes payable 8,067 162 8.03 8,200 160 7.83
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities $1,567,666 18,247 4.66 $1,520,751 14,148 3.73
========== ==========
Cost of hedging activities 100 0.02 56 0.01
---------- ---------- ---------- ----------
Cost of funds 18,347 4.68 14,204 3.74
---------- ---------- ---------- ----------
Capitalized and transferred interest -- -- (4) --
---------- ---------- ---------- ----------
Net interest income $ 14,454 3.32% $ 14,924 3.64%
========== ========== ========== ==========
Net yield on interest-earning assets 3.53% 3.78%
========== ==========
Despite a flattening of the yield curve between periods, with increased short-
term rates and decreased long-term rates, the Bank's net interest margin
remained strong. Increases in the costs of interest-bearing liabilities have
largely been offset by increases in loan and security yields as a result of the
adjustable-rate features of a large portion of the asset portfolios and by new
originations.
The Bank redeemed $6.9 million of FHLB stock during the quarter in order to
reinvest the proceeds at higher yields. The yield on interest-earning assets
was also maintained by an increase in construction and consumer loans which have
shorter terms and higher rates. In order to take advantage of the relatively
attractive long-term rates and to improve the Bank's IRR posture, the Bank paid
off $32 million of borrowings on securities under agreements to repurchase and
increased the amount of its advances from the FHLB by $40 million.
Noninterest income increased $957,000 in the second quarter of 1995 compared to
1994, principally due to a one-time $970,000 pretax gain on the sale of CMO
residuals from its available for sale portfolio. The sale was executed in order
to take advantage of favorable market conditions, eliminate an area of possible
regulatory concern due to the volatile aspects of the securities, and enhance
the credit quality of the investment portfolio.
The $144,000 increase in deposit-related fees during 1995 was due primarily to
increases in the fees charged on these accounts. The $227,000 increase in net
gains on sale of loans from secondary marketing activities resulted from
declining interest rates as the value of such loans increased during the period
between origination and sale.
General and administrative expenses were higher during the second quarter of
1995 compared to the same period in 1994, due primarily to increased expenses
associated with the opening of a new branch and normal incremental increases in
salaries.
Six-Month Analysis
- ------------------
Net income of $3.8 million was recorded for the first half of 1995 compared to
net income of $4.4 million for the six months ended June 30, 1994. After-tax
components of net income for the first half of 1995 were comprised of
16
$6 million from core banking operations, partially offset by $64,000 of credit
card charge-offs, a $205,000 loss from real estate operations, and $1.9 million
of goodwill amortization. After-tax components of the Bank's 1994 first half
net income were comprised of $5.3 million from core banking operations, a gain
of $912,000 from the Bank's credit card portfolio sale, net of charge-offs, and
a $72,000 gain from real estate operations. Income was partially offset by
$1.9 million of goodwill amortization.
The following table sets forth information with respect to interest rate spread
for the periods shown (thousands of dollars):
Six Months Ended June 30,
---------------------------------------------------------------------------
1995 1994
------------------------------------ ------------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
---------- ---------- ---------- ---------- ---------- ----------
Interest-earning assets:
Cash equivalents $ 55,401 $ 1,684 6.08% $ 60,122 $ 1,065 3.54%
Debt securities held to maturity 98,818 3,670 7.43 67,165 2,162 6.44
Debt securities available for sale 508,812 17,108 6.72 574,133 16,804 5.85
Loans receivable 978,711 43,192 8.83 869,339 36,797 8.47
FHLB stock 14,973 358 4.78 16,708 341 4.08
---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning assets $1,656,715 66,012 7.97 $1,587,467 57,169 7.20
========== ---------- ---------- ========== ---------- ----------
Interest-bearing liabilities:
Deposits $1,244,085 25,587 4.15 $1,217,325 21,023 3.48
Securities sold under agreements to repurchase 205,594 6,444 6.32 235,236 5,176 4.44
Advances from FHLB 136,422 4,115 6.08 71,000 1,654 4.70
Notes payable 8,101 332 8.26 8,233 314 7.69
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities $1,594,202 36,478 4.62 $1,531,794 28,167 3.71
========== ==========
Cost of hedging activities 298 0.04 93 0.01
---------- ---------- ---------- ----------
Cost of funds 36,776 4.66 28,260 3.72
---------- ---------- ---------- ----------
Capitalized and transferred interest -- -- (11) --
---------- ---------- ---------- ----------
Net interest income $ 29,236 3.31% $ 28,920 3.48%
========== ========== ========== ==========
Net yield on interest-earning assets 3.53% 3.64%
========== ==========
During the first half of 1995, average interest-earning assets increased by
$69 million compared to the first half of 1994. The increase was primarily due
to increased loan originations and a decrease in payoffs. The loan originations
were funded by paydowns on and sales of investment securities and borrowings
from the FHLB. The borrowings caused average interest-bearing liabilities to
increase by $62 million. The Bank's net interest margin remained strong despite
the increased interest rate environment, as the Bank was able to lag somewhat
the increased rates paid on deposits.
General and administrative expenses were $565,000 higher during the first six
months of 1995 than for the same period in 1994 primarily due to normal
incremental salary increases, increased marketing expenses, and the opening of
a new branch.
Twelve-Month Analysis
- ---------------------
The Bank recorded net income of $7.1 million for the twelve months ended June
30, 1995, compared to net income of $12 million for the twelve months ended
June 30, 1994. After-tax components of the Bank's net income for the twelve
months ended June 30, 1995 were comprised of $12 million from core banking
operations, offset partially by a loss of $149,000 from real estate
operations, $347,000 from adjustments and charge-offs related to the sale of
the credit card portfolio, $527,000 of real estate litigation costs, and
$3.9 million of goodwill amortization. After-tax components of the Bank's net
income for the twelve months ended June 30, 1994 were comprised of $9.3
million from core banking operations, a $400,000 benefit from a 1993 change in
federal income tax rates, a gain of $912,000 on the sale of the Bank's credit
card portfolio, a $780,000 gain from a legal settlement, and a gain of $4.8
million from the sale of debt securities used to fund the sale of Arizona-based
deposit liabilities. Income for this period was partially offset by a $281,000
loss from real estate operations and $3.9 million of goodwill amortization.
17
The following table sets forth information with respect to interest rate spread
for the periods shown (thousands of dollars):
Twelve Months Ended June 30,
---------------------------------------------------------------------------
1995 1994
------------------------------------ ------------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
---------- ---------- ---------- ---------- ---------- ----------
Interest-earning assets:
Cash equivalents $ 54,019 $ 3,051 5.65% $ 57,376 $ 1,859 3.24%
Debt securities held to maturity 89,347 6,427 7.19 74,457 5,012 6.73
Debt securities available for sale 524,120 34,469 6.58 633,680 37,404 5.90
Loans receivable 941,388 82,475 8.76 843,449 73,565 8.72
FHLB stock 16,049 855 5.33 16,564 681 4.11
---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning assets $1,624,923 127,277 7.83 $1,625,526 118,521 7.29
========== ---------- ---------- ========== ---------- ----------
Interest-bearing liabilities:
Deposits $1,242,895 48,680 3.92 $1,250,614 44,900 3.59
Securities sold under agreements to repurchase 207,799 12,292 5.92 259,713 11,272 4.34
Advances from FHLB 106,221 6,003 5.65 66,842 3,137 4.69
Notes payable 8,137 654 8.04 9,058 707 7.81
Unsecured senior notes -- -- -- 1,277 81 6.34
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities $1,565,052 67,629 4.31 $1,587,504 60,097 3.78
========== ==========
Cost of hedging activities 690 0.04 117 0.01
---------- ---------- ---------- ----------
Cost of funds 68,319 4.35 60,214 3.79
---------- ---------- ---------- ----------
Capitalized and transferred interest (2) -- (35) --
---------- ---------- ---------- ----------
Net interest income $ 58,960 3.48% $ 58,342 3.50%
========== ========== ========== ==========
Net yield on interest-earning assets 3.63% 3.59%
========== ==========
The net decrease in total debt securities was due primarily to $334 million of
MBS sold during August of 1993 to fund the sale of the Arizona-based deposit
liabilities. Average deposits also declined as a result of the sale.
Net loss from real estate operations of $1 million for the twelve months ended
June 30, 1995 was primarily due to legal expenses related to an apartment
complex which the Bank built and sold in 1989. The net loss from real estate
operations of $431,000 for the comparable period ended June 30, 1994 included
$602,000 in provisions for estimated losses on the Bank's real estate
investments, partially offset by gains on the sale of a real estate
development project in Nevada and a former branch facility in Arizona.
The decrease in net gains on sale of loans resulted from lower levels of
30-year fixed-rate loan originations due to a higher interest rate environment
during the twelve-month period ended June 30, 1995, compared to the prior
twelve-month period.
Deposit-related fees increased by $673,000 due to a higher deposit fee
structure and an increased level of transaction accounts subject to fee
assessment. Other income for the twelve months ended June 30, 1994 included
the receipt of a legal settlement of $1.2 million ($780,000 net of tax).
General and administrative expenses declined $1.8 million for the twelve
months ended June 30, 1995 compared to the same period in 1994 due principally
to the Arizona sale.
ASSET QUALITY
LOAN IMPAIRMENT. On January 1, 1995, the Bank adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosures." SFAS No. 114 requires the measurement of loan impairment to be
based on the present value of expected future cash flows discounted at the
loan's original effective interest rate or the fair value of the underlying
collateral on collateral-dependent loans. SFAS No. 118 allows a creditor to
use existing methods for recognizing interest income on nonimpaired loans.
18
Upon adoption of SFAS No. 114 in the first quarter of 1995, $2.9 million of
in-substance foreclosed assets were reclassified on the Bank's consolidated
statement of financial condition from real estate acquired through foreclosure
(REO-F) to loans receivable as SFAS No. 114 eliminated the in-substance
designation. No other financial statement impact resulted from the Bank's
adoption of SFAS No. 114.
In general, under SFAS No. 114, interest income on impaired loans will
continue to be recognized by the Bank on the accrual basis of accounting
unless the loan is greater than 90 days delinquent with respect to principal
or interest, or the loan has been partially or fully charged-off. Interest on
loans greater than 90 days delinquent is generally recognized on a cash basis.
Interest income on loans which have been fully or partially charged-off is
generally recognized on a cost-recovery basis; that is, all proceeds from the
loan payments are first applied as a reduction to principal before any income
is recorded.
Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful, at which
time payments received are recorded as reductions of principal. Interest
income recognized and balances of impaired loans are as follows (thousands of
dollars):
Three Months Six Months
Ended Ended
June 30, 1995 June 30, 1995
------------- -------------
Interest income recognized:
Accrual basis $ 477 $ 1,075
Cash basis $ 6 $ 8
Average balance outstanding on impaired loans* $ 21,200 $ 22,500
*The outstanding balance of impaired loans at June 30, 1995 was $20,900.
NONPERFORMING ASSETS. Nonperforming assets are comprised of nonaccrual
assets, restructured loans and REO-F. Nonaccrual assets are those on which
management believes the timely collection of interest or principal is
doubtful. Assets are transferred to nonaccrual status when payments of
interest or principal are 90 days past due, or if, in management's opinion,
the accrual of interest should be ceased sooner. There were no loans on
accrual status which were over 90 days delinquent or past maturity as of
June 30, 1995.
The following table summarizes nonperforming assets as of the dates indicated
(thousands of dollars):
June 30, December 31,
1995 1994
------------ ------------
Nonaccrual loans past due 90 days or more:
Mortgage loans:
Construction and land $ 471 $ 576
Permanent single-family residences 4,267 5,517
Other mortgage loans 5,053 5,696
------------ ------------
9,791 11,789
Nonmortgage loans 850 904
Restructured loans 10,297 16,768
------------ ------------
Total nonperforming loans 20,938 29,461
Real estate acquired through foreclosure 4,030 7,631
------------ ------------
Total nonperforming assets $ 24,968 $ 37,092
============ ============
Allowance for estimated credit losses $ 15,947 $ 17,659
============ ============
Allowance for estimated credit losses as a
percentage of nonperforming loans 76.16% 59.94%
============ ============
Allowance for estimated credit losses as a
percentage of nonperforming assets 63.87% 47.61%
============ ============
19
Restructured loans include $5.7 million of single-family residential loan
modifications made to borrowers with earthquake-related damage in California.
Federal agencies encouraged financial institutions to modify loan terms for
certain borrowers who were affected by the earthquake which occurred in
January 1994. The terms of these modifications were generally three- to six-
month payment extensions with no negative credit reporting regarding the
borrower. The reduction of $6.5 million in restructured loans was primarily
due to a recent change in OTS regulations allowing for the removal of loans
that have been performing for the prior twelve months and were not modified
below a normal market rate.
CLASSIFIED ASSETS. OTS regulations require the Bank to classify certain
assets and establish prudent valuation allowances. Classified assets are
categorized as "substandard," "doubtful" and "loss." In addition, the Bank
can designate an asset as "special mention." Impaired loans, as defined by
SFAS No. 114, are included in substandard assets.
The following table sets forth the amounts of the Bank's classified assets and
ratio of classified assets to total assets, net of allowances and charge-offs,
as of the dates indicated (thousands of dollars):
June 30, 1995 December 31, 1994
------------------ ------------------
% of Total % of Total
Balance Assets Balance Assets
-------- -------- -------- --------
Substandard assets:
Loans:
Single family residential $ 5,722 0.31% $ 6,882 0.38%
Consumer 1,103 0.06 1,297 0.07
Commercial and multi-family mortgage 19,194 1.04 20,797 1.14
Construction and land 315 0.02 615 0.03
REO-F (net) 4,030 0.22 7,631 0.42
Real estate held for investment 1,146 0.06 1,191 0.07
Investment -- -- 21,972 1.21
-------- -------- -------- --------
Total $ 31,510 1.71% $ 60,385 3.32%
======== ======== ======== ========
Classified assets decreased $28.9 million from December 31, 1994 to June 30,
1995 primarily as a result of $1.8 million of repayments in the investment
security, an upgrade of the remaining $20.2 million investment security, $3.4
million in payoffs and paydowns of commercial real estate, a $1.9 million
decrease in foreclosed real estate due to sales, and $818,000 of paydowns on
residential loans.
The upgrade of the privately issued $20.2 million investment security from
"substandard" to "special mention" is the result of the stabilization of
delinquencies of the underlying loans and the market values of collateral
supporting such loans, and management's analysis of the credit enhancement of
the security versus loss estimates on the underlying loans. The Bank
continues to receive scheduled monthly payments of principal and interest on
this security.
Special mention assets increased from $32.2 million at December 31, 1994 to
$47 million at June 30, 1995, primarily due to the upgrade of the investment
security from substandard and the addition of a $1.5 million secured corporate
loan, partially offset by paydowns of California residential loans, commercial
real estate loans and commercial loans.
The largest substandard loan at June 30, 1995 was an $8.2 million apartment
complex loan in Nevada. The Bank had three additional substandard loans at
June 30, 1995 in excess of $1 million: two hotel loans and an apartment
complex loan all located in Nevada. The largest foreclosed real estate asset
held by the Bank at June 30, 1995 was a $1.4 million residential construction
loan in California.
The Bank's largest investment in real estate classified as substandard at June
30, 1995, was a former bank branch in Arizona with a current book value of
$816,000. The Bank's remaining real estate development projects classified as
substandard have current book values of $195,000 and $135,000.
20
The geographic concentration of the Bank's classified assets at June 30, 1995
was 73 percent in Nevada, 21 percent in California, and 6 percent in Arizona.
It is the Bank's practice to charge-off all assets or portions the REO-F which
it considers to be "loss." As a result, none of the Bank's assets, net of
charge-offs, were classified as "loss" at June 30, 1995 and December 31, 1994.
Also, none were classified as "doubtful" at either date.
The following tables set forth the Bank's charge-off experience for loans
receivable and REO-F as well as real estate held for investment and debt
securities by loan type (thousands of dollars):
Net
Charge-Offs Recoveries Charge-Offs
----------- ----------- -----------
Six Months Ended June 30, 1995:
- -------------------------------
Loans and REO-F:
Single-family residential $ 501 $ (235) $ 266
Commercial and multi-family mortgage 126 -- 126
Construction/land 252 (35) 217
Nonmortgage 1,863 (438) 1,425
Real estate held for investment 108 -- 108
Debt securities 2,077 -- 2,077
----------- ----------- -----------
Total net charge-offs $ 4,927 $ (708) $ 4,219
=========== =========== ===========
Six Months Ended June 30, 1994:
- -------------------------------
Loans and REO-F:
Single-family residential $ 913 $ (368) $ 545
Commercial and multi-family mortgage 602 (99) 503
Construction/land 903 (11) 892
Nonmortgage 1,934 (357) 1,577
Real estate held for investment 811 (314) 497
----------- ----------- -----------
Total net charge-offs $ 5,163 $ (1,149) $ 4,014
=========== =========== ===========
PROVISIONS AND ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES. On a regular basis,
management evaluates the adequacy of the allowances for estimated losses on
loans, debt securities, and real estate and establishes additions to the
allowances through provisions to expense. The Bank utilizes a comprehensive
internal asset review system and general valuation allowance methodology.
General valuation allowances are established for unforeseen losses for each of
the loan, debt securities, and real estate portfolios. Factors taken into
account in determining the adequacy of allowances include review of existing
risks in the portfolios, prevailing and anticipated economic conditions, actual
loss experience and delinquencies. Reviews of the quality of the Bank's loan,
debt securities, and real estate portfolios by the Risk Management Committee,
and examinations by regulatory authorities, are performed periodically.
Charge-offs are recorded on particular assets when it is determined that the
present value of expected cash flows or fair value of the underlying collateral
of an asset is below its carrying value. When a loan is foreclosed, the asset
is written down to fair value based on a current appraisal of the subject
property.
21
Activity in the allowances for losses on loans, debt securities, investments in
real estate, and foreclosed real estate is summarized as follows (thousands of
dollars):
Foreclosed
Real Estate and Investments
Debt Impaired Nonimpaired In
Securities Loans Loans Real Estate Total
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1994* $ -- $ 3,038 $ 14,621 $ 476 $ 18,135
Transfer 3,077 -- (3,077) -- --
Provisions for estimated losses -- (691) 4,090 368 3,767
Charge-offs, net of recoveries (2,077) (80) (1,954) (108) (4,219)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1995 $ 1,000 $ 2,267 $ 13,680 $ 736 $ 17,683
=========== =========== =========== =========== ===========
Balance at March 31, 1995 $ -- $ 2,754 $ 15,351 $ 799 $ 18,904
Transfer 3,077 -- (3,077) -- --
Provisions for estimated losses -- (452) 2,487 22 2,057
Charge-offs, net of recoveries (2,077) (35) (1,081) (85) (3,278)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1995 $ 1,000 $ 2,267 $ 13,680 $ 736 $ 17,683
=========== =========== =========== =========== ===========
Total Loans and Investments
Debt Impaired Foreclosed In
Securities Loans Real Estate Real Estate Total
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1993 $ -- $ n/a $ 16,251 $ 935 $ 17,186
Provisions for estimated losses -- n/a 3,709 47 3,756
Charge-offs, net of recoveries -- n/a (3,517) (497) (4,014)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1994 $ -- $ n/a $ 16,443 $ 485 $ 16,928
=========== =========== =========== =========== ===========
Balance at March 31, 1994 $ -- $ n/a $ 15,563 $ 541 $ 16,104
Provisions for estimated losses -- n/a 2,275 (367) 1,908
Charge-offs, net of recoveries -- n/a (1,395) 311 (1,084)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1994 $ -- $ n/a $ 16,443 $ 485 $ 16,928
=========== =========== =========== =========== ===========
* Balances for impaired loans and foreclosed real estate and nonimpaired loans at December 31, 1994,
have been reclassified to reflect adoption of SFAS No. 114.
During the second quarter of 1995, the Bank transferred $4.4 million of its
allowance for estimated credit losses affiliated with loans to separate
allowances for credit losses affiliated with REO-F and debt securities. Of
this amount, $1.3 million was transferred to the REO-F allowance for losses
and $3.1 million was transferred to the allowance for losses on debt
securities. Prior to the second quarter, the evaluation of the adequacy of
the Bank's allowance for estimated credit losses affiliated with loans
receivable incorporated estimates for losses in the foreclosed real estate and
debt security portfolios, but were not deemed material enough to be segregated
as separate allowances. Additionally, prior to the second quarter, no credit
losses had been experienced in the debt security portfolio. Losses in the
foreclosed real estate portfolio subsequent to foreclosure had been accounted
for as loan losses.
In 1991, the Bank purchased $10 million of adjustable-rate mortgage-backed
securities (MBS) issued by the Resolution Trust Corporation (RTC). The
securities were rated AA by Standard & Poor's (S&P) and Aa2 by Moody's on the
date of issuance and purchase. When the Bank implemented SFAS No. 115 on
December 31, 1993, these securities were designated as held to maturity. The
securities still were rated AA and Aa2 at that time. At December 31, 1994 and
March 31, 1995, the securities were performing according to their contractual
terms, and all realized losses from the disposition of REO-F were being
absorbed by a credit enhancement feature. In April 1995, Moody's and S&P
lowered their ratings on the securities to below investment grade ratings of
Ba3 and BB, respectively. As a result of this deterioration, the Bank
determined that the securities should be considered "other than temporarily"
impaired under the provisions of SFAS No. 115. A pretax loss of $1.9 million
was recorded as a credit-related charge-off through the general valuation
allowance for debt securities. In June 1995, the Bank sold these securities.
No additional loss was recorded at the time of the sale.
22
Also during the quarter, the Bank sold a $1.5 million security from its
available for sale portfolio at a loss of $181,000. The security was a
privately issued mortgage-backed security whose credit rating was downgraded
to Baa3 during April 1995. As a result of the downgrade, the Bank sold the
security and recorded the loss as a credit related charge-off to the general
valuation allowance for debt securities.
The loan and foreclosed real estate charge-offs were primarily attributable to
consumer loan charge-offs of $1.4 million and $267,000 in single family
residential loan charge-offs. The Bank's quarterly analysis required no
significant change in the allowance for estimated credit losses at June 30,
1995 from December 31, 1994.
Regulatory Matters
- ------------------
The deposit accounts of savings associations, including those of PriMerit, are
insured to the maximum extent permitted by law by the FDIC through the SAIF.
The deposit accounts of commercial banks are separately insured by the FDIC
through the bank insurance fund (BIF). Commercial banks and savings
associations are separately assessed annual deposit insurance premiums ranging
from 23 to 31 cents per $100 of deposits until each separate fund is
capitalized at 1.25 percent of insured deposits. The BIF has reached this
required level of capitalization, while the SAIF is not expected to reach this
level of capitalization for several years.
In August 1995, the FDIC reduced the deposit insurance premiums paid by most
commercial banks insured by BIF to four cents per $100 of deposits. This
regulatory change will give commercial banks a competitive advantage over
savings associations and place additional pressure on the SAIF.
A number of plans have been proposed in Congress to deal with the
undercapitalization of the SAIF. Several proposals provide for a one-time
special assessment on SAIF-insured deposits to fully capitalize the SAIF to
1.25 percent of insured deposits. These proposals would subsequently reduce
annual premiums to levels similar to those of BIF-insured commercial banks and
eventually merge the BIF and SAIF insurance funds. The Bank is unable to
predict if these proposals, or other proposals, will ultimately be approved by
Congress.
Assuming a one-time special assessment was approved by Congress and became law
in 1995 and was immediately charged against results of operations, the one-time
assessment would, most likely, have a material impact on the Bank's 1995 results
of operations. However, management believes the Bank would continue to be
classified as "well-capitalized" under fully phased-in FDICIA capital rules.
In addition, the Bank would not face any liquidity issues as a result of a
one-time assessment.
23
PART II - OTHER INFORMATION
---------------------------
ITEMS 1-3 None
ITEM 4 Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on May 11,
1995. Matters voted upon and the results of the voting were as
follows:
(1) The eleven directors nominated were reelected by
shareholders.
(2) The selection of Arthur Andersen LLP to audit the financial
statements of the Company and its subsidiaries for 1995 was
approved. Shareholders voted 18,134,696 shares in favor,
224,765 opposed, and 272,510 abstentions.
ITEM 5 None
ITEM 6 Exhibits and Reports on Form 8-K
(a) The following document is filed as part of this report on
Form 10-Q:
Exhibit 27 - Financial Data Schedule (filed electronically
only)
Exhibit 99 - Financial Analyst Report - Second Quarter 1995
(b) Reports on Form 8-K - None
24
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Southwest Gas Corporation
-----------------------------------
(Registrant)
Date: August 11, 1995
/s/ Edward A. Janov
---------------------------------------
Edward A. Janov
Controller and Chief Accounting Officer
25
9
1,000
6-MOS
DEC-31-1995
JUN-30-1995
35,478
86,653
0
0
496,134
89,823
89,082
1,038,480
15,947
3,077,939
1,253,276
182,184
340,367
901,688
25,529
4,000
0
354,895
3,077,939
43,192
20,778
2,042
66,012
25,587
36,776
29,236
3,399
302
24,574
9,528
5,304
0
0
5,304
0.23
0.23
3.53
10,641
0
10,297
47,000
17,659
2,742
708
15,947
15,947
0
0
Balance specific to financial services segment
Consolidated financial statement balance
Includes gas plant in service, net: $1,077,495
Balance includes consolidated deferred income taxes, accounts payable and
other accrued liabilities
Bank specific items including general and administrative expense, goodwill
amortization and loss from real estate operations
Bank transferred $3.1 million of its allowance for estimated losses to a
separate allowance for credit losses affiliated with debt securities
Includes allowance for credit losses affiliated with real estate acquired
through foreclosure
EXHIBIT 99
SOUTHWEST GAS CORPORATION
SUMMARY STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
GAS OPERATIONS SEGMENT:
Operating revenues $ 325,710 $ 315,634 $ 609,345 $ 571,170
Net cost of gas purchased 153,666 145,435 258,154 231,288
---------- ---------- ---------- ----------
Operating margin 172,044 170,199 351,191 339,882
Operations and maintenance expenses 93,722 86,068 185,839 172,061
Depreciation, amortization, and general taxes 44,366 40,936 85,999 80,694
---------- ---------- ---------- ----------
Operating income 33,956 43,195 79,353 87,127
Net interest deductions 26,361 23,478 52,348 45,108
---------- ---------- ---------- ----------
Pre-tax utility income 7,595 19,717 27,005 42,019
Utility income tax expense 2,905 7,925 9,805 15,099
---------- ---------- ---------- ----------
Net utility income 4,690 11,792 17,200 26,920
Other income (expense), net (192) (510) (176) (210)
Arizona pipe replacement disallowance, net --- (283) --- (9,547)
---------- ---------- ---------- ----------
Contribution to net income - gas operations segment 4,498 10,999 17,024 17,163
---------- ---------- ---------- ----------
FINANCIAL SERVICES SEGMENT:
Net interest income after loan loss provision 25,837 25,211 52,040 50,724
Net income (loss) from real estate operations (317) 110 (1,039) (431)
Other income, net 5,618 6,230 10,019 19,721
General and administrative expenses 24,257 23,692 47,934 49,744
---------- ---------- ---------- ----------
Pre-tax income 6,881 7,859 13,086 20,270
Income tax expense 3,101 3,494 5,998 8,246
---------- ---------- ---------- ----------
Net income before carrying cost allocation 3,780 4,365 7,088 12,024
Acquisition carrying costs, net of tax - NOTE 5 (2,974) (2,435) (5,435) (4,907)
---------- ---------- ---------- ----------
Contribution to net income - financial services segment 806 1,930 1,653 7,117
---------- ---------- ---------- ----------
Net income 5,304 12,929 18,677 24,280
Preferred & preference dividends 190 277 423 608
---------- ---------- ---------- ----------
Net income applicable to common stock $ 5,114 $ 12,652 $ 18,254 $ 23,672
========== ========== ========== ==========
Earnings per share $ 0.23 $ 0.60 $ 0.84 $ 1.13
========== ========== ========== ==========
Earnings per share excluding disallowances --- $ 0.61 --- $ 1.58
========== ========== ========== ==========
Average outstanding common shares 22,110 21,026 21,615 20,933
========== ========== ========== ==========
See Notes to Summary Financial Statements.
1
SOUTHWEST GAS CORPORATION
BALANCE SHEET
AT JUNE 30, 1995
(In thousands)
(Unaudited)
ASSETS
UTILITY PLANT
Gas plant, net of accumulated depreciation $ 1,055,866
Construction work in progress 21,629
------------
Net utility plant 1,077,495
------------
OTHER PROPERTY AND INVESTMENTS
PriMerit Bank - NOTE 2 179,385
Other 34,951
------------
Total other property and investments 214,336
------------
CURRENT AND ACCRUED ASSETS
Cash, working funds and temporary cash investments 7,760
Receivables - less reserve of $1,236 for uncollectibles 25,873
Accrued utility revenue 18,624
Other 37,718
------------
Total current and accrued assets 89,975
------------
DEFERRED DEBITS
Unamortized debt expense 13,849
Other deferred debits 39,323
------------
Total deferred debits 53,172
------------
TOTAL ASSETS $ 1,434,978
============
CAPITALIZATION, LIABILITIES AND DEFERRED CREDITS
CAPITALIZATION
Common stockholders' equity
Common stock equity, $1 par, 23,899 shares outstanding $ 331,808
Retained earnings 47,757
------------
Total common stockholders' equity - NOTE 6 379,565 34.9%
Preferred stock equity - NOTE 3 4,000 0.4
Long term debt - NOTE 4 704,223 64.7
------------ ----------
Total capitalization 1,087,788 100.0%
------------ ==========
CURRENT AND ACCRUED LIABILITIES
Notes payable 16,000
Accounts payable 23,862
Customer deposits 21,840
Taxes accrued (including income taxes) 47,899
Deferred purchased gas costs 30,144
Other 48,719
------------
Total current and accrued liabilities 188,464
------------
DEFERRED CREDITS
Deferred investment tax credits 20,307
Deferred income taxes 111,776
Other 26,643
------------
Total deferred credits 158,726
------------
TOTAL CAPITALIZATION, LIABILITIES AND DEFERRED CREDITS $ 1,434,978
============
See Notes to Summary Financial Statements.
2
SOUTHWEST GAS CORPORATION
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995
(In thousands)
(Unaudited)
CASH FLOWS FROM OPERATIONS:
Net income $ 5,304
Adjustments to reconcile net income to net
cash provided by operating activity:
Depreciation and amortization 30,878
Change in receivables and payables 33,870
Change in accrued taxes (16,911)
Undistributed earnings from subsidiaries (3,696)
Change in gas cost related balancing items 50,832
Allowance for funds used during construction (692)
Change in deferred taxes 1,707
Other 6,364
--------------
Net cash provided from operating activities 107,656
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in notes payable (76,000)
Dividends paid (9,436)
Net change in long-term debt 20,653
Proceeds from stock issuance 35,680
Other (538)
--------------
Net cash used in financing activities (29,641)
--------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (74,029)
Other (2,095)
--------------
Net cash used in investing activities (76,124)
--------------
Change in cash and temporary cash investments 1,891
Cash at beginning of period 5,869
--------------
Cash at end of period $ 7,760
==============
SUPPLEMENTAL INFORMATION:
Interest paid, net of amount capitalized $ 31,019
Income taxes, net of refunds $ 17,419
See Notes to Summary Financial Statements.
3
SOUTHWEST GAS CORPORATION
NOTES TO SUMMARY FINANCIAL STATEMENTS
(In thousands, except par values)
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The financial statements have been prepared by Southwest Gas Corporation
(the Company) using the equity method of accounting for PriMerit Bank
(PriMerit). Segmented information is presented within the income
statement. The Financial Services segment includes the net income of
PriMerit and its subsidiaries on a stand-alone basis, reduced by
allocated carrying costs associated with the Company's investment in
PriMerit (principally interest) net of taxes. This presentation is not
in accordance with generally accepted accounting principles (GAAP), and
certain information and footnote disclosures normally included in
financial statements prepared in accordance with GAAP have been omitted.
The financial statement presentation in this report produces the same
net income as the consolidated financial statements and, in management's
opinion, is a fair representation of the operations and contributions to
net income of the Company's two segments.
NOTE 2 - INVESTMENT IN PRIMERIT BANK:
The capital structure supports both the investment in PriMerit and the
investment in the gas segment. Financing costs allocable to PriMerit
are determined based on the investment in PriMerit under the equity
method.
NOTE 3 - PREFERRED STOCK:
Cumulative preferred stock, $100 par value, 9.5% series, 40 shares outstanding $ 4,000
==========
CURRENT REDEMPTION REQUIREMENTS $ 800
==========
NOTE 4 - LONG-TERM DEBT:
Commercial paper facility $ 200,000
Debentures:
Debentures, 9% series A, due 2011 26,900
Debentures, 9% series B, due 2011 31,213
Debentures, 8.75% series C, due 2011 18,373
Debentures, 9.375% series D, due 2017 120,000
Debentures, 10% series E, due 2013 23,069
Debentures, 9.75% series F, due 2002 100,000
Industrial revenue bonds - net of funds held in trust 194,950
Unamortized discount on long-term debt (10,282)
----------
TOTAL LONG-TERM DEBT $ 704,223
==========
CURRENT MATURITIES $ 5,000
==========
NOTE 5 - ACQUISITION CARRYING COSTS, NET:
SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
Interest expense $ (4,818) $ (3,937) $ (8,755) $ (7,873)
Other intercompany expenses (139) (122) (303) (305)
Income taxes 1,983 1,624 3,623 3,271
---------- ---------- ---------- ----------
ACQUISITION CARRYING COSTS, NET $ (2,974) $ (2,435) $ (5,435) $ (4,907)
========== ========== ========== ==========
NOTE 6 - COMMON STOCKHOLDERS' EQUITY:
For purposes of this report, common stockholders' equity excludes
PriMerit's unrealized gain on debt securities available for sale since
PriMerit is presented on the equity method of accounting.
4
SOUTHWEST GAS CORPORATION
SELECTED STATISTICAL DATA
JUNE 30, 1995
FINANCIAL STATISTICS
Book value per share at quarter end - NOTE 6 $ 15.88
Market value to book value per share at quarter end 90%
Twelve months to date return on equity -- total company 5.2%
-- gas segment 5.9%
Common stock dividend yield at quarter end 5.8%
GAS OPERATIONS SEGMENT
Authorized
Authorized Authorized Return on
Rate Base Rate of Common
Rate Jurisdiction (In thousands) Return Equity
- ----------------------- -------------- -------------- --------------
Central Arizona $ 267,348 9.13% 10.75%
Southern Arizona 157,620 9.12 11.00
Southern Nevada 184,673 8.89 11.55
Northern Nevada 47,695 9.16 11.55
Southern California 69,486 9.94 11.35
Northern California 8,357 10.02 11.35
Paiute Pipeline Company 61,057 10.09 12.50
SYSTEM THROUGHPUT BY CUSTOMER CLASS SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ---------------------------------
(In dekatherms) 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Residential 28,889,283 29,019,180 45,836,876 44,548,144
Small commercial 13,919,969 13,752,100 23,740,156 22,844,113
Large commercial 4,570,048 5,671,288 9,204,993 10,954,100
Industrial / Other 4,092,423 3,834,650 8,599,301 7,879,319
Transportation 46,964,610 39,815,200 98,628,474 77,971,811
- -----------------------------------------------------------------------------------------------------------------------------------
Total system throughput 98,436,333 92,092,418 186,009,800 164,197,487
===================================================================================================================================
HEATING DEGREE DAY COMPARISON
- -----------------------------------------------------------------------------------------------------------------------------------
Actual 1,538 1,560 2,418 2,361
Ten year average 1,598 1,636 2,350 2,392
===================================================================================================================================
5
