UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

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 incorporation or organization)		(I.R.S. Employer Identification No.)
5241 Spring Mountain Road Post Office Box 98510 Las Vegas, Nevada		89193-8510
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (702) 876-7237

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  X    No    

Indicate by check mark whether the registrant 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). Yes  X    No    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions 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). Yes        No  X 

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, 45,879,314 shares as of July 29, 2011.

 

 

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands of dollars, except par value)

(Unaudited)

 

			000000000000				000000000000
		JUNE 30, 2011				DECEMBER 31, 2010
ASSETS
Utility plant:
Gas plant		$	4,626,360			$	4,569,105
Less: accumulated depreciation			(1,586,724)				(1,535,429)
Acquisition adjustments, net			1,181				1,271
Construction work in progress			49,866				37,489
Net utility plant			3,090,683				3,072,436
Other property and investments			176,725				134,648
Restricted cash			37,782				37,781
Current assets:
Cash and cash equivalents			85,964				116,096
Accounts receivable, net of allowances			121,865				147,605
Accrued utility revenue			31,700				64,400
Income taxes receivable, net			7,461				21,514
Deferred income taxes			10,755				8,046
Deferred purchased gas costs			-				356
Prepaids and other current assets			68,337				87,877
Total current assets			326,082				445,894
Deferred charges and other assets			293,772				293,434
Total assets		$	3,925,044			$	3,984,193
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock, $1 par (authorized - 60,000,000 shares; issued and outstanding - 45,879,314 and 45,599,036 shares)		$	47,509			$	47,229
Additional paid-in capital			816,288				807,885
Accumulated other comprehensive income (loss), net			(31,731)				(30,784)
Retained earnings			391,079				343,131
Total Southwest Gas Corporation equity			1,223,145				1,167,461
Noncontrolling interest			(702)				(465)
Total equity			1,222,443				1,166,996
Long-term debt, less current maturities			941,551				1,124,681
Total capitalization			2,163,994				2,291,677
Current liabilities:
Current maturities of long-term debt			200,000				75,080
Accounts payable			95,460				165,536
Customer deposits			87,463				86,891
Accrued general taxes			35,104				40,438
Accrued interest			16,770				20,162
Deferred purchased gas costs			98,813				123,344
Other current liabilities			93,021				85,510
Total current liabilities			626,631				596,961
Deferred income taxes and other credits:
Deferred income taxes and investment tax credits			503,922				466,628
Taxes payable			2,476				1,234
Accumulated removal costs			222,000				211,000
Other deferred credits			406,021				416,693
Total deferred income taxes and other credits			1,134,419				1,095,555
Total capitalization and liabilities		$	3,925,044			$	3,984,193

The accompanying notes are an integral part of these statements.

 

		2

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 

			0000000000				0000000000				0000000000				0000000000				0000000000				0000000000
		THREE MONTHS ENDED JUNE 30,								SIX MONTHS ENDED JUNE 30,								TWELVE MONTHS ENDED JUNE 30,
		2011				2010				2011				2010				2011				2010
Operating revenues:
Gas operating revenues		$	273,414			$	305,269			$	827,267			$	919,778			$	1,419,396			$	1,582,771
Construction revenues			115,091				80,556				189,678				134,798				373,344				288,119
Total operating revenues			388,505				385,825				1,016,945				1,054,576				1,792,740				1,870,890
Operating expenses:
Net cost of gas sold			117,055				147,736				400,861				499,991				637,045				803,126
Operations and maintenance			88,708				86,935				179,658				173,640				360,961				351,074
Depreciation and amortization			49,415				47,160				98,277				94,856				193,884				188,689
Taxes other than income taxes			10,296				9,616				20,165				19,382				39,652				37,085
Construction expenses			102,463				70,347				171,081				120,944				327,941				254,176
Total operating expenses			367,937				361,794				870,042				908,813				1,559,483				1,634,150
Operating income			20,568				24,031				146,903				145,763				233,257				236,740
Other income and (expenses):
Net interest deductions			(17,355)				(19,003)				(35,314)				(37,178)				(73,813)				(75,074)
Net interest deductions on subordinated debentures			-				-				-				(1,912)				-				(5,778)
Other income (deductions)			1,551				(5,154)				1,273				(5,677)				10,800				220
Total other income and (expenses)			(15,804)				(24,157)				(34,041)				(44,767)				(63,013)				(80,632)
Income (loss) before income taxes			4,764				(126)				112,862				100,996				170,244				156,108
Income tax expense			751				867				40,495				37,529				57,891				54,910
Net income (loss)			4,013				(993)				72,367				63,467				112,353				101,198
Net income (loss) attributable to noncontrolling interest			(42)				(60)				(237)				(248)				(413)				(612)
Net income (loss) attributable to Southwest Gas Corporation		$	4,055			$	(933)			$	72,604			$	63,715			$	112,766			$	101,810
Basic earnings (loss) per share		$	0.09			$	(0.02)			$	1.58			$	1.41			$	2.47			$	2.26
Diluted earnings (loss) per share		$	0.09			$	(0.02)			$	1.57			$	1.39			$	2.45			$	2.24
Dividends declared per share		$	0.2650			$	0.2500			$	0.5300			$	0.5000			$	1.0300			$	0.9750
Average number of common shares outstanding			45,864				45,391				45,814				45,306				45,656				45,113
Average shares outstanding (assuming dilution)			46,299				-				46,239				45,698				46,091				45,484

The accompanying notes are an integral part of these statements.

 

		3

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)

 

			000000000000				000000000000				000000000000				000000000000
		SIX MONTHS ENDED JUNE 30,								TWELVE MONTHS ENDED JUNE 30,
		2011				2010				2011				2010
CASH FLOW FROM OPERATING ACTIVITIES:
Net income		$	72,367			$	63,467			$	112,353			$	101,198
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			98,277				94,856				193,884				188,689
Deferred income taxes			35,166				1,157				84,120				25,382
Changes in current assets and liabilities:
Accounts receivable, net of allowances			25,740				52,851				(16,994)				938
Accrued utility revenue			32,700				40,100				(100)				1,000
Deferred purchased gas costs			(24,175)				45,361				(36,523)				53,119
Accounts payable			(70,076)				(93,362)				29,966				(2,474)
Accrued taxes			9,961				22,278				(27,557)				42,730
Other current assets and liabilities			13,542				24,249				2,188				2,771
Gains on sale			(1,304)				(557)				(2,294)				(1,938)
Changes in undistributed stock compensation			3,660				3,320				4,769				4,414
AFUDC and property-related changes			(318)				(486)				(777)				(949)
Changes in other assets and deferred charges			(14,269)				4,617				(31,148)				(2,865)
Changes in other liabilities and deferred credits			7,015				741				(11,200)				2,951
Net cash provided by operating activities			188,286				258,592				300,687				414,966
CASH FLOW FROM INVESTING ACTIVITIES:
Construction expenditures and property additions			(139,103)				(94,114)				(260,428)				(194,501)
Change in restricted cash			(1)				11,991				(4)				(37,778)
Changes in customer advances			(1,815)				366				(3,011)				1,290
Miscellaneous inflows			2,617				1,648				5,044				4,990
Miscellaneous outflows			(2,719)				(2,800)				(2,719)				(2,934)
Net cash used in investing activities			(141,021)				(82,909)				(261,118)				(228,933)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock, net			4,728				6,461				9,365				13,690
Dividends paid			(23,602)				(22,093)				(46,355)				(43,423)
Interest rate swap settlement			-				-				(11,691)				-
Issuance of long-term debt, net			164,884				-				288,844				49,834
Retirement of long-term debt			(223,407)				(656)				(226,078)				(9,599)
Redemption of subordinated debentures			-				(100,000)				-				(100,000)
Change in long-term portion of credit facility			-				(92,400)				-				(91,000)
Net cash provided by (used in) financing activities			(77,397)				(208,688)				14,085				(180,498)
Change in cash and cash equivalents			(30,132)				(33,005)				53,654				5,535
Cash and cash equivalents at beginning of period			116,096				65,315				32,310				26,775
Cash and cash equivalents at end of period		$	85,964			$	32,310			$	85,964			$	32,310
Supplemental information:
Interest paid, net of amounts capitalized		$	37,019			$	37,985			$	86,034			$	78,080
Income taxes paid (received)			(14,591)				8,167				(3,558)				(14,540)

The accompanying notes are an integral part of these statements.

 

		4

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

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 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 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 2010 Annual Report to Shareholders, which is incorporated by reference into the 2010 Form 10-K, and the first quarter 2011 Form 10-Q.

Intercompany Transactions. NPL recognizes revenues generated from contracts with Southwest (see Note 3 below). Accounts receivable for these services are presented in the table below (thousands of dollars):

 

			0000000				0000000
		June 30, 2011				December 31, 2010
Accounts receivable for NPL services		$	9,644			$	8,111

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):

 

			0000000000				0000000000				0000000000				0000000000				0000000000				0000000000
		Three Months Ended								Six Months Ended								Twelve Months Ended
		June 30								June 30								June 30
		2011				2010				2011				2010				2011				2010
Change in COLI policies		$	2,600			$	(3,620)			$	4,800			$	(2,130)			$	16,700			$	4,343
Interest income			98				57				190				78				306				134
Pipe replacement costs			(962)				(1,422)				(1,847)				(2,991)				(3,879)				(4,103)
Miscellaneous income and (expense)			(185)				(169)				(1,870)				(634)				(2,327)				(154)
Total other income (deductions)		$	1,551			$	(5,154)			$	1,273			$	(5,677)			$	10,800			$	220

Reflected in the table above is the change in cash surrender values of company-owned life insurance (“COLI”) policies (including net death benefits recognized). 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, is also recorded without tax consequences.

 

		5

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

Reclassifications. A reclassification between two miscellaneous operating cash flow categories was made to the prior year’s financial information to present it on a basis comparable with the current year’s presentation with no impact on net cash provided by operating activities.

Recently Issued Accounting Standards Updates. In May 2011, the Financial Accounting Standards Board (“FASB”) issued the update “Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The amended guidance includes several new fair value disclosure requirements, including, among other things, information about transfers between Level 1 and Level 2 of the fair value hierarchy, enhanced information about valuation techniques and unobservable inputs used in Level 3 fair value measurements, and a narrative description of Level 3 measurements’ sensitivity to changes in unobservable inputs. For the Company, the update is effective prospectively beginning January 2012. The adoption of the update is not expected to significantly impact the disclosures of the Company.

In June 2011, The FASB issued the update “Comprehensive Income (Topic 220) Presentation of Comprehensive Income” which eliminates the current option to report the components of other comprehensive income in the statement of changes in equity. An entity will have the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in one continuous statement of comprehensive income or in two separate but consecutive statements. The update includes no changes to the components that are recognized in net income or other comprehensive income under current U.S. GAAP. The provisions of the update are effective for the Company beginning January 1, 2012 (however, early adoption is permitted). The Company is evaluating the update to determine which presentation option to adopt and the timing of adoption.

 

		6

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

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.

 

			0000				0000				0000				0000				0000				0000
		Qualified Retirement Plan
		Period Ended June 30,
		Three Months								Six Months								Twelve Months
		2011				2010				2011				2010				2011				2010
(Thousands of dollars)
Service cost		$	4,431			$	4,233			$	8,862			$	8,466			$	17,328			$	16,161
Interest cost			9,319				8,903				18,638				17,807				36,445				35,071
Expected return on plan assets			(10,028)				(9,134)				(20,057)				(18,269)				(38,326)				(35,879)
Amortization of prior service costs (credits)			-				-				-				-				-				(1)
Amortization of net loss			3,587				2,619				7,174				5,239				12,413				7,365
Net periodic benefit cost		$	7,309			$	6,621			$	14,617			$	13,243			$	27,860			$	22,717
		SERP
		Period Ended June 30,
		Three Months								Six Months								Twelve Months
		2011				2010				2011				2010				2011				2010
(Thousands of dollars)
Service cost		$	54			$	93			$	109			$	186			$	295			$	283
Interest cost			442				511				883				1,022				1,906				2,055
Amortization of net loss			158				289				315				578				892				1,033
Net periodic benefit cost		$	654			$	893			$	1,307			$	1,786			$	3,093			$	3,371
		PBOP
		Period Ended June 30,
		Three Months								Six Months								Twelve Months
		2011				2010				2011				2010				2011				2010
(Thousands of dollars)
Service cost		$	214			$	214			$	429			$	428			$	857			$	793
Interest cost			658				623				1,316				1,246				2,561				2,431
Expected return on plan assets			(595)				(523)				(1,190)				(1,046)				(2,237)				(1,848)
Amortization of transition obligation			217				217				433				434				866				867
Amortization of net loss			148				122				295				244				540				461
Net periodic benefit cost		$	642			$	653			$	1,283			$	1,306			$	2,587			$	2,704

 

		7

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

Note 3 – Segment Information

The following tables present revenues from external customers, intersegment revenues, and segment net income (thousands of dollars):

 

			0000000				0000000				0000000
		Natural Gas Operations				Construction Services				Total
Three months ended June 30, 2011
Revenues from external customers		$	273,414			$	96,162			$	369,576
Intersegment revenues			-				18,929				18,929
Total		$	273,414			$	115,091			$	388,505
Segment net income		$	199			$	3,856			$	4,055
Three months ended June 30, 2010
Revenues from external customers		$	305,269			$	65,593			$	370,862
Intersegment revenues			-				14,963				14,963
Total		$	305,269			$	80,556			$	385,825
Segment net income (loss)		$	(4,101)			$	3,168			$	(933)
Six months ended June 30, 2011
Revenues from external customers		$	827,267			$	157,939			$	985,206
Intersegment revenues			-				31,739				31,739
Total		$	827,267			$	189,678			$	1,016,945
Segment net income		$	68,214			$	4,390			$	72,604
Six months ended June 30, 2010
Revenues from external customers		$	919,778			$	107,750			$	1,027,528
Intersegment revenues			-				27,048				27,048
Total		$	919,778			$	134,798			$	1,054,576
Segment net income		$	61,216			$	2,499			$	63,715
Twelve months ended June 30, 2011
Revenues from external customers		$	1,419,396			$	307,402			$	1,726,798
Intersegment revenues			-				65,942				65,942
Total		$	1,419,396			$	373,344			$	1,792,740
Segment net income		$	98,380			$	14,386			$	112,766
Twelve months ended June 30, 2010
Revenues from external customers		$	1,582,771			$	235,373			$	1,818,144
Intersegment revenues			-				52,746				52,746
Total		$	1,582,771			$	288,119			$	1,870,890
Segment net income		$	93,520			$	8,290			$	101,810

 

		8

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

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. Additionally, Southwest utilizes 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 a portion (historically ranging from 25% to 50%, depending on the jurisdiction) of its natural gas supply portfolios. The maturities of the Swaps highly correlate to forecasted purchases of natural gas, during time frames ranging from July 2011 through October 2012. 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, which are detailed in the table below (thousands of dekatherms):

 

			000000				000000
		June 30, 2011				December 31, 2010
Swaps contracts			14,810				14,207

Southwest does not utilize derivative financial instruments for speculative purposes, nor does it have trading operations.

Gains (losses) recognized in income for derivatives not designated as hedging instruments:

(Thousands of dollars)

 

				Three Months Ended								Six Months Ended								Twelve Months Ended
		Location of Gain or (Loss)		June 30								June 30								June 30
Instrument		Recognized in Income on Derivative		2011				2010				2011				2010				2011				2010
Swaps		Net cost of gas sold		$	(2,258)			$	(1,626)			$	(1,969)			$	(17,968)			$	(11,691)			$	(15,076)
Swaps		Net cost of gas sold			2,258	*			1,626	*			1,969	*			17,968	*			11,691	*			15,076	*
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 fixed-rate debt to replace $200 million of debt that matured in February 2011 and $200 million maturing in May 2012. The counterparties to each agreement are four major banking institutions. The first FSIRS was a designated cash flow hedge and terminated in December 2010 concurrent with the related issuance of $125 million 4.45% 10-year Senior Notes. The terms of the second FSIRS are as follows:

 

Notional amount		$100 million
Fixed rate to be paid by Southwest		4.78%
Mandatory termination date (on or before)		March 20, 2012

Southwest previously designated the second FSIRS agreement as a cash flow hedge of forecasted future interest payments. At the inception of the hedge, the terms of the derivative were the same as a perfect hypothetical derivative; 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 issuance will be reported as a component of other comprehensive income. At termination, the final value will be reclassified from accumulated other comprehensive income into earnings over 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 issuance, etc.), Southwest will measure ineffectiveness by comparing the change in fair value of the FSIRS with the change in fair value of a hypothetical swap (the hypothetical derivative method). Gains and losses due to ineffectiveness will be recognized immediately in earnings. At June 30, 2011, the remaining FSIRS continued to qualify as an effective hedge. 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 remaining derivative designated as a hedging instrument. See Note 6 – Equity, Comprehensive Income, and Accumulated Other Comprehensive Income for additional information on both FSIRS contracts.

 

		9

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

			00000000				00000000				00000000				00000000				00000000				00000000
Gains (losses) recognized in other comprehensive income for derivatives designated as cash flow hedging instruments:
(Thousands of dollars)
		Three Months Ended								Six Months Ended								Twelve Months Ended
		June 30, 2011				June 30, 2010				June 30, 2011				June 30, 2010				June 30, 2011				June 30, 2010
Amount of gain (loss) on unrealized FSIRS recognized in other comprehensive income on derivative (effective portion)		$	(3,816)			$	(20,272)			$	(3,145)			$	(21,259)			$	11,359			$	(21,259)
Amount of loss on realized FSIRS recognized in other comprehensive income on derivative			-				-				-				-				(11,691)				-
		$	(3,816)			$	(20,272)			$	(3,145)			$	(21,259)			$	(332)			$	(21,259)

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):

 

		00000000			00000000				00000000				00000000
Fair values of derivatives not designated as hedging instruments:
June 30, 2011 Instrument		Balance Sheet Location		Asset Derivatives				Liability Derivatives				Net Total
Swaps		Deferred charges and other assets		$	225			$	(1)			$	224
Swaps		Other current liabilities			308				(5,134)				(4,826)
Swaps		Other deferred credits			-				(19)				(19)
Total				$	533			$	(5,154)			$	(4,621)
December 31, 2010 Instrument		Balance Sheet Location		Asset Derivatives				Liability Derivatives				Net Total
Swaps		Deferred charges and other assets		$	656			$	-			$	656
Swaps		Other current liabilities			65				(11,547)				(11,482)
Total				$	721			$	(11,547)			$	(10,826)
Fair values of derivatives designated as hedging instruments:
June 30, 2011 Instrument		Balance Sheet Location		Asset Derivatives				Liability Derivatives				Net Total
FSIRS		Other current liabilities		$	-			$	(9,900)			$	(9,900)
December 31, 2010 Instrument		Balance Sheet Location		Asset Derivatives				Liability Derivatives				Net Total
FSIRS		Other deferred credits		$	-			$	(6,755)			$	(6,755)

The estimated fair values of the natural gas 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 in purchased gas under the related purchased gas adjustment (“PGA”) mechanism in determining its deferred PGA balances. Neither changes in fair value, nor settled amounts, of Swaps have a direct effect on earnings or other comprehensive income.

 

		10

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

The following table shows the amounts Southwest paid to and received from counterparties for settlements of matured Swaps.

 

			0000000000				0000000000				0000000000
(Thousands of dollars)		Three Months Ended June 30, 2011				Six Months Ended June 30, 2011				Twelve Months Ended June 30, 2011
Paid to counterparties		$	4,194			$	8,173			$	17,460

No amounts were received from counterparties for settlements of matured Swaps for the three months, six months, and twelve months ended June 30, 2011.

The following table details the regulatory assets/(liabilities) offsetting the amounts in the balance sheets (thousands of dollars).

 

June 30, 2011 Instrument		Balance Sheet Location		Net Total
Swaps		Other deferred credits		$	(224)
Swaps		Prepaids and other current assets			4,826
Swaps		Deferred charges and other assets			19
December 31, 2010 Instrument		Balance Sheet Location		Net Total
Swaps		Other deferred credits		$	(656)
Swaps		Prepaids and other current assets			11,482

Fair Value Measurements. The estimated fair values of Southwest’s Swaps were determined at June 30, 2011 and December 31, 2010 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 forward 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

 

			0000000000				0000000000
(Thousands of dollars)		June 30, 2011				December 31, 2010
Assets at fair value:
Deferred charges and other assets - Swaps		$	224			$	656
Liabilities at fair value:
Other current liabilities - Swaps			(4,826)				(11,482)
Other deferred credits - Swaps			(19)				-
Other current liabilities - FSIRS			(9,900)				-
Other deferred credits - FSIRS			-				(6,755)
Net Assets (Liabilities)		$	(14,521)			$	(17,581)

No financial assets or liabilities accounted for at fair value fell within Level 1 or Level 3 of the fair value hierarchy.

 

		11

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

Related Tax Effects of Designated Hedging Activities Allocated to Each Component of Other Comprehensive Income

 

			0000000000				0000000000				0000000000				0000000000				0000000000				0000000000
		Three Months Ended June 30,
		2011												2010
		Before- Tax Amount				Tax (Expense) or Benefit (1)				Net-of- Tax Amount				Before- Tax Amount				Tax (Expense) or Benefit (1)				Net-of- Tax Amount
(Thousands of dollars)
FSIRS:
Realized/unrealized gain (loss)		$	(3,816)			$	1,450			$	(2,366)			$	(20,272)			$	7,703			$	(12,569)
Amounts reclassified into net income			293				(111)				182				-				-				-
Other comprehensive income (loss)		$	(3,523	)		$	1,339			$	(2,184	)		$	(20,272	)		$	7,703			$	(12,569	)
		Six Months Ended June 30,
		2011												2010
		Before- Tax Amount				Tax (Expense) or Benefit (1)				Net-of- Tax Amount				Before- Tax Amount				Tax (Expense) or Benefit (1)				Net-of- Tax Amount
(Thousands of dollars)
FSIRS:
Realized/unrealized gain (loss)		$	(3,145)			$	1,195			$	(1,950)			$	(21,259)			$	8,078			$	(13,181)
Amounts reclassified into net income			585				(222)				363				-				-				-
Other comprehensive income (loss)		$	(2,560	)		$	973			$	(1,587	)		$	(21,259	)		$	8,078			$	(13,181	)
		Twelve Months Ended June 30,
		2011												2010
		Before- Tax Amount				Tax (Expense) or Benefit (1)				Net-of- Tax Amount				Before- Tax Amount				Tax (Expense) or Benefit (1)				Net-of- Tax Amount
(Thousands of dollars)
FSIRS:
Realized/unrealized gain (loss)		$	(332)			$	127			$	(205)			$	(21,259)			$	8,078			$	(13,181)
Amounts reclassified into net income			682				(259)				423				-				-				-
Other comprehensive income (loss)		$	350			$	(132	)		$	218			$	(21,259	)		$	8,078			$	(13,181	)

(1)   Tax amounts are calculated using a 38% rate.

 

		12

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

Note 5 – Long-Term Debt

Carrying amounts of the Company’s long-term debt and their related estimated fair values as of June 30, 2011 and December 31, 2010 are disclosed in the following table. The fair values of the revolving credit facility and the variable-rate Industrial Development Revenue Bonds (“IDRBs”) approximate carrying value. Market values for the debentures, fixed-rate IDRBs, and other indebtedness were determined based on dealer quotes using trading records for June 30, 2011 and December 31, 2010, as applicable, and other secondary sources which are customarily consulted for data of this kind.

 

			00000000				00000000				00000000				00000000
		June 30, 2011								December 31, 2010
		Carrying Amount				Market Value				Carrying Amount				Market Value
(Thousands of dollars)
Debentures:
Notes, 8.375%, due 2011		$	-			$	-			$	200,000			$	201,560
Notes, 7.625%, due 2012			200,000				210,994				200,000				214,666
Notes, 4.45%, due 2020			125,000				121,551				125,000				125,325
Notes, 6.1%, due 2041			125,000				121,996				-				-
8% Series, due 2026			75,000				90,967				75,000				99,968
Medium-term notes, 7.59% series, due 2017			25,000				29,819				25,000				30,295
Medium-term notes, 7.78% series, due 2022			25,000				30,330				25,000				32,063
Medium-term notes, 7.92% series, due 2027			25,000				29,892				25,000				33,211
Medium-term notes, 6.76% series, due 2027			7,500				7,999				7,500				8,956
Unamortized discount			(2,293)								(2,534)
			605,207								679,966
Revolving credit facility and commercial paper, due 2012			-				-				-				-
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				12,265				12,410				11,968
5.95% 1999 Series C, due 2038			14,320				13,998				14,320				13,594
5.55% 1999 Series D, due 2038			8,270				7,754				8,270				7,468
5.45% 2003 Series C, due 2038 (rate resets in 2013)			30,000				31,703				30,000				31,547
5.25% 2003 Series D, due 2038			20,000				18,175				20,000				17,474
5.80% 2003 Series E, due 2038 (rate resets in 2013)			15,000				15,180				15,000				15,436
5.25% 2004 Series A, due 2034			65,000				60,375				65,000				58,574
5.00% 2004 Series B, due 2033			31,200				28,198				31,200				27,295
4.85% 2005 Series A, due 2035			100,000				87,299				100,000				84,485
4.75% 2006 Series A, due 2036			24,855				21,243				24,855				20,518
Unamortized discount			(3,431)								(3,502)
			517,624								517,553
Other			18,720				18,720				2,242				2,473
			1,141,551								1,199,761
Less: current maturities			(200,000)								(75,080)
Long-term debt, less current maturities		$	941,551							$	1,124,681

 

		13

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

Note 6 – Equity, Comprehensive Income, and Accumulated Other Comprehensive Income

The table below provides details of activity in equity during the six months ended June 30, 2011.

 

			00000000				00000000				00000000				00000000				00000000				00000000				00000000
		Southwest Gas Corporation Equity
		Common Stock								Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings				Non- controlling Interest				Total
(In thousands, except per share amounts)		Shares				Amount
DECEMBER 31, 2010			45,599			$	47,229			$	807,885			$	(30,784)			$	343,131			$	(465)			$	1,166,996
Common stock issuances			280				280				8,403																8,683
Net income (loss)																			72,604				(237)				72,367
Other comprehensive income (loss):
Net actuarial gain (loss) arising during period, less amortization of unamortized benefit plan cost, net of tax															640												640
FSIRS unrealized loss, net of tax															(1,950)												(1,950)
Amounts reclassified to net income, net of tax (Note 4)															363												363
Dividends declared
Common: $0.53 per share																			(24,656)								(24,656)
JUNE 30, 2011			45,879			$	47,509			$	816,288			$	(31,731)			$	391,079			$	(702)			$	1,222,443

The tables below 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, including reclassifications into net income.

 

			00000000				00000000				00000000				00000000				00000000				00000000
Comprehensive Income
(Thousands of dollars)		Three Months Ended								Six Months Ended								Twelve Months Ended
		June 30,								June 30,								June 30,
		2011				2010				2011				2010				2011				2010
Net income (loss)		$	4,013			$	(993)			$	72,367			$	63,467			$	112,353			$	101,198
Net actuarial gain (loss) arising during period, less amortization of unamortized benefit plan cost, net of tax			320				342				640				683				2,799				(2,554)
FSIRS realized and unrealized gains (losses), net of tax			(2,366)				(12,569)				(1,950)				(13,181)				(205)				(13,181)
Amounts reclassifed into net income, net of tax			182				-				363				-				423				-
Comprehensive income (loss)			2,149				(13,220)				71,420				50,969				115,370				85,463
Comprehensive loss attributable to noncontrolling interest			(42)				(60)				(237)				(248)				(413)				(612)
Comprehensive income (loss) attributable to Southwest Gas Corporation		$	2,191			$	(13,160)			$	71,657			$	51,217			$	115,783			$	86,075
Tax (expense) benefit associated with net actuarial gain (loss) arising during period		$	(196)			$	(209)			$	(392)			$	(419)			$	(1,714)			$	1,567
Tax benefit associated with FSIRS realized and unrealized gain (loss) recognized in other comprehensive income		$	1,450			$	7,703			$	1,195			$	8,078			$	127			$	8,078
Tax (expense) benefit associated with FSIRS reclassified out of AOCI to net income		$	(111)			$	-			$	(222)			$	-			$	(259)			$	-

AOCI - Rollforward

(Thousands of dollars)

 

			000000000				000000000				000000000				000000000				000000000				000000000				000000000
		Defined Benefit Plans												FSIRS
		Before- Tax				Tax (Expense) Benefit				After- Tax				Before - Tax				Tax (Expense) Benefit				After -Tax				AOCI
Beginning Balance AOCI December 31, 2010		$	(31,304)			$	11,896			$	(19,408)			$	(18,349)			$	6,973			$	(11,376)			$	(30,784)
Current period change			1,032				(392)				640	*			(2,560)				973				(1,587)	**			(947)
Ending Balance AOCI June 30, 2011		$	(30,272)			$	11,504			$	(18,768)			$	(20,909)			$	7,946			$	(12,963)			$	(31,731)

 

*	Net actuarial gain (loss), less amortization of unamortized benefit plan cost

**	FSIRS unrealized loss of $1,950,000 recognized in other comprehensive income less the portion of the previous FSIRS realized loss that was reclassified to net income in the current period ($363,000).

Approximately $904,000 of realized/unrealized losses (net of tax) related to the FSIRS reported in AOCI at June 30, 2011 will be reclassified into expense within the next 12 months as the related interest payments on long-term debt occur.

 

		14

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

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 June 30, 2011, Southwest had 1,839,000 residential, commercial, industrial, and other natural gas customers, of which 990,000 customers were located in Arizona, 667,000 in Nevada, and 182,000 in California. Residential and commercial customers represented over 99% of the total customer base. During the twelve months ended June 30, 2011, 54% of operating margin was earned in Arizona, 35% in Nevada, and 11% in California. During this same period, Southwest earned 86% of its operating margin from residential and small commercial customers, 4% from other sales customers, and 10% from transportation customers. These general patterns are expected to remain materially consistent for the foreseeable future.

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. See also Rates and Regulatory Proceedings. A decoupled rate structure designed to mitigate the impacts of weather variability and conservation on margin is utilized in the Nevada service territories. Weather impacts and conservation are also 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 18 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, pipe replacement programs of utilities, 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 2010 Annual Report to Shareholders, which is incorporated by reference into the 2010 Form 10-K, and the first quarter 2011 Form 10-Q.

 

		15

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

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 89% 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

 

			0000000000				0000000000				0000000000				0000000000				0000000000				0000000000
		Period Ended June 30,
		Three Months								Six Months								Twelve Months
		2011				2010				2011				2010				2011				2010
		(In thousands, except per share amounts)
Contribution to net income (loss)
Natural gas operations		$	199			$	(4,101)			$	68,214			$	61,216			$	98,380			$	93,520
Construction services			3,856				3,168				4,390				2,499				14,386				8,290
Net income (loss)		$	4,055			$	(933)			$	72,604			$	63,715			$	112,766			$	101,810
Average number of common shares outstanding			45,864				45,391				45,814				45,306				45,656				45,113
Basic earnings (loss) per share
Consolidated		$	0.09			$	(0.02)			$	1.58			$	1.41			$	2.47			$	2.26
Natural Gas Operations
Operating margin		$	156,359			$	157,533			$	426,406			$	419,787			$	782,351			$	779,645

Consolidated results for the second quarter of 2011 improved compared to the same period in 2010. The improvement primarily resulted from an increase in other income and lower financing costs, partially offset by decreased gas segment operating margin and increased operating costs.

2nd Quarter 2011 Overview

Natural gas operations highlights include the following:

•

Other income increased $6.7 million compared to the same period in 2010 primarily due to increases in the cash surrender values of the Company’s COLI policies (including net death benefits) in the current period while the prior-year period experienced a negative swing in the cash surrender values of the policies

•

Operating margin decreased approximately $1 million compared to the prior-year quarter primarily due to minor weather variations between periods

•

Net financing costs declined $1.7 million between quarters

•

Standard & Poors upgraded the Company’s credit rating from BBB to BBB+ in April 2011

•

Fitch upgraded the Company’s credit rating from BBB to BBB+ in June 2011

•

Liquidity position remains strong

Construction services highlights include the following:

•

Revenues increased 43% compared to the prior-year quarter

•

Contribution to consolidated net income improved $688,000 between quarters

 

		16

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

Company-Owned Life Insurance (“COLI”). Southwest has life insurance policies on members of management and other key employees to indemnify itself against the loss of talent, expertise, and knowledge, as well as to provide indirect funding for certain nonqualified benefit plans. The COLI policies have a combined net death benefit value of approximately $213 million at June 30, 2011. The net cash surrender value of these policies (which is the cash amount the Company would receive if it voluntarily terminated the policies) is approximately $77 million at June 30, 2011 and is included in the caption “Other property and investments” on the balance sheet. Cash surrender values are directly influenced by the investment portfolio underlying the insurance policies. This portfolio includes both equity and fixed income (mutual fund) investments. As a result, generally the cash surrender value (but not the net death benefit) moves up and down consistent with movements in the broader stock and bond markets. During the twelve months ended June 30, 2011, the cash surrender values of COLI policies grew by $11.2 million primarily due to the significant increases in the stock investments underlying the policies. Both the Dow Jones Industrial Average and S&P 500 indices increased over 25% during the same period. In addition to the market-related increase of $11.2 million, Southwest also recognized $5.5 million in incremental death benefits in excess of the cash surrender values. Management believes these COLI returns are significantly in excess of currently expected average returns of $2 million to $4 million annually. Based on the current investment mix, both positive and negative deviations from expected levels are likely to continue.

Weather. The rate structures in each of Southwest’s three states provide varying levels of protection from risks that drive operating margin volatility, particularly weather risk 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. Weather was not a significant factor in either the second quarter of 2010 or 2011.

Arizona Rate Proceedings. In December 2010, the Arizona Corporation Commission (“ACC”) issued a Policy Statement which allowed utilities to file proposals for alternative mechanisms, including revenue-per-customer decoupling, in general rate case filings, to address the financial disincentives to utilities of promoting energy efficiency. In anticipation of the Policy Statement, the Company’s recent Arizona rate case filing requested a rate structure to decouple recovery of the Company’s fixed costs from fluctuations in usage, both higher and lower, to enable the Company to aggressively advocate increased energy efficiency by its customers by eliminating the existing financial disincentive. A settlement agreement containing provisions to mitigate the impacts on operating margin of weather and conservation was filed with the ACC in July 2011. For more information see the Rates and Regulatory Proceedings discussion.

Customer Growth. Southwest added 14,000 net new customers over the last twelve months which approximates the number of first time meter sets. Southwest continues to project net customer growth of 1% or less for 2011.

Credit Rating Upgrades. In April 2011, Standard & Poor’s Ratings Services (“S&P”) upgraded the Company’s unsecured long-term debt ratings from BBB (with a positive outlook) to BBB+ (with a stable outlook). S&P cited the Company’s improved financial results and stable financial metrics. 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.

In June 2011, Fitch Ratings (“Fitch”) upgraded the Company’s long-term issuer default rating and its senior unsecured rating to BBB+ from BBB; the outlook has been revised to stable from positive. Fitch debt ratings range from AAA (highest credit quality) to D (defaulted debt obligation). The Fitch rating of BBB+ indicates a credit quality that is considered prudent for investment.

Liquidity. Southwest believes its liquidity position remains strong. Southwest has a $300 million credit facility maturing in May 2012. The facility is provided through a consortium of eight major banking institutions. The facility was not used during the first half of 2011 and there was no balance outstanding at June 30, 2011, leaving the entire $300 million available for borrowing. The lack of usage was primarily due to existing cash reserves and natural gas prices that were relatively stable. The current slowdown in housing construction has also allowed Southwest to fund construction expenditures primarily with internally generated cash. Management believes the Company currently has a solid liquidity position and will be able to replenish such borrowing capacity.

 

		17

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

Results of Natural Gas Operations

Quarterly Analysis

 

			0000000000				0000000000
		Three Months Ended June 30,
		2011				2010
		(Thousands of dollars)
Gas operating revenues		$	273,414			$	305,269
Net cost of gas sold			117,055				147,736
Operating margin			156,359				157,533
Operations and maintenance expense			88,708				86,935
Depreciation and amortization			43,476				42,146
Taxes other than income taxes			10,296				9,616
Operating income			13,879				18,836
Other income (deductions)			1,525				(5,176)
Net interest deductions			17,153				18,862
Income (loss) before income taxes			(1,749)				(5,202)
Income tax expense (benefit)			(1,948)				(1,101)
Contribution to consolidated net income (loss)		$	199			$	(4,101)

Contribution to consolidated net income from natural gas operations improved by $4.3 million in the second quarter of 2011 compared to the same period a year ago. The improvement was primarily due to an increase in other income and a decrease in financing costs, partially offset by a decrease in operating margin and higher operating expenses.

Operating margin decreased $1 million in the second quarter of 2011 compared to the second quarter of 2010. Weather changes between quarters accounted for a $2 million margin decrease as warmer-than-normal temperatures were experienced in the current quarter. Rate relief in California and customer growth combined for a $1 million increase in operating margin, partially offsetting the weather impact. Approximately 14,000 net new customers were added during the last twelve months.

Operations and maintenance expense increased $1.8 million, or 2%, between quarters primarily due to general cost increases, partially offset by lower uncollectible expenses.

Depreciation expense increased $1.3 million, or 3%, as a result of additional plant in service. Average gas plant in service for the current period increased $134 million, or 3%, compared to the corresponding period a year ago.

Taxes other than income taxes increased $680,000 primarily due to a change in Arizona property tax rates recognized in the current quarter, but retroactive to January 2011.

Other income increased $6.7 million between periods. This was primarily due to increases in the cash surrender values (including recognized net death benefits) of COLI policies. The current quarter includes $2.7 million in other income associated with net death benefits recognized. The prior year included a $3.6 million decrease in COLI cash surrender values.

Net financing costs decreased $1.7 million between periods primarily due to cost savings from refinancing and reduced interest rates associated with variable-rate debt.

 

		18

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

Six-Month Analysis

 

			0000000000				0000000000
		Six Months Ended June 30,
		2011				2010
		(Thousands of dollars)
Gas operating revenues		$	827,267			$	919,778
Net cost of gas sold			400,861				499,991
Operating margin			426,406				419,787
Operations and maintenance expense			179,658				173,640
Depreciation and amortization			87,357				84,842
Taxes other than income taxes			20,165				19,382
Operating income			139,226				141,923
Other income (deductions)			1,289				(5,707)
Net interest deductions			34,981				36,886
Net interest deductions on subordinated debentures			-				1,912
Income before income taxes			105,534				97,418
Income tax expense			37,320				36,202
Contribution to consolidated net income		$	68,214			$	61,216

Contribution to consolidated net income from natural gas operations increased by $7 million in the first six months of 2011 compared to the same period a year ago. The improvement was primarily due to an increase in other income, an increase in operating margin, and a decrease in financing costs, partially offset by higher operating expenses.

Operating margin increased $7 million between periods. Differences in heating demand, caused primarily by weather variations, provided $4 million of the operating margin increase. Unusually cold weather in Arizona in early February 2011 resulted in $6 million of incremental operating margin, but was partially offset by a $2 million decrease in the second quarter due to warmer-than-normal weather. Temperatures for the first six months of 2010, on average, were relatively normal. Rate relief in California provided $2 million of the operating margin increase and new customers contributed an additional $1 million.

Operations and maintenance expense increased $6 million, or 3%, between periods primarily due to general cost increases (including higher employee-related costs) and approximately $1 million of costs associated with restoring service to approximately 20,000 Arizona customers in early February 2011, following an outage due to extreme weather conditions.

Depreciation expense increased $2.5 million, or 3%, as a result of additional plant in service. Average gas plant in service for the current period increased $141 million, or 3%, compared to the corresponding period a year ago.

The $783,000 increase in taxes other than income taxes is primarily due to higher property tax rates in Arizona.

Other income, which principally includes returns on COLI policies and non-utility expenses, increased $7 million between the six-month periods of 2011 and 2010. The current period includes $2.1 million of COLI cash surrender value increases and $2.7 million of recognized net death benefits in excess of the cash surrender value. The prior-year period includes a decrease in COLI cash surrender values of $2.1 million.

Net financing costs decreased $3.8 million between periods primarily due to the redemption of $100 million of Subordinated Debentures in March 2010, cost savings from debt refinancing, and reduced interest rates associated with variable-rate debt.

 

		19

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

			0000000000				0000000000
Twelve-Month Analysis
		Twelve Months Ended June 30,
		2011				2010
		(Thousands of dollars)
Gas operating revenues		$	1,419,396			$	1,582,771
Net cost of gas sold			637,045				803,126
Operating margin			782,351				779,645
Operations and maintenance expense			360,961				351,074
Depreciation and amortization			172,971				167,480
Taxes other than income taxes			39,652				37,085
Operating income			208,767				224,006
Other income (deductions)			11,012				246
Net interest deductions			73,208				74,264
Net interest deductions on subordinated debentures			-				5,778
Income before income taxes			146,571				144,210
Income tax expense			48,191				50,690
Contribution to consolidated net income		$	98,380			$	93,520

Contribution to consolidated net income from natural gas operations increased by $4.9 million in the current twelve-month period as compared to the corresponding period a year ago. The improvement was primarily due to an increase in other income, an increase in operating margin, and a decrease in financing costs, partially offset by higher operating expenses.

Operating margin increased $3 million between periods. Rate relief provided $6 million of the operating margin increase, consisting of $3 million in Nevada and $3 million in California. Customer growth contributed $2 million in operating margin. Differences in heating demand caused primarily by weather variations between periods resulted in a decrease of $5 million.

Operations and maintenance expense increased $9.9 million, or 3%, primarily due to higher general costs and employee-related benefit costs including pension expense. The increases were mitigated by cost containment efforts (including lower staffing levels) and a decrease in uncollectible expense, partially due to the impact of a tracking mechanism in Nevada for the gas-cost portion of uncollectible accounts.

Depreciation expense increased $5.5 million, or 3%, as a result of additional plant in service. Average gas plant in service for the current period increased $134 million, or 3%, compared to the corresponding period a year ago. This was attributable to reinforcement work, franchise requirements, routine pipe replacement activities and new business.

Other income, which principally includes returns on COLI policies and non-utility expenses, increased $10.8 million between the twelve-month periods of 2011 and 2010. The current period includes $11.2 million of COLI cash surrender value increases and $5.5 million in recognized net death benefits in excess of the related cash surrender values, compared to $4.3 million of cash surrender value increases in the prior-year period. Both periods reflect above average returns on investments underlying the policies.

Net financing costs decreased $6.8 million between the twelve-month periods of 2011 and 2010 primarily due to the redemption of the Subordinated Debentures in March 2010, cost savings from debt refinancing, and reduced interest rates associated with variable-rate debt.

 

		20

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

Results of Construction Services

Quarter. Contribution to consolidated net income from construction services for the three months ended June 30, 2011 increased $688,000 compared to the same period of 2010.

Revenues increased $34.5 million, a 43% improvement, when compared to the same period of 2010. Revenue from replacement construction continues to be strong while revenue related to new construction remains at low levels, Gains on sale of equipment were $419,000 and $324,000 for the second quarters of 2011 and 2010, respectively.

Six Months-to-Date. Contribution to consolidated net income from construction services for the six months ended June 30, 2011 increased $1.9 million compared to the same period of 2010.

Revenues increased $54.9 million, a 41% improvement, when compared to the same period of 2010 primarily due to increased replacement construction. Construction expenses increased $50.1 million due to the increase in replacement construction work. Depreciation expense increased $907,000 between the current period and the prior-year period due to an increase in equipment purchases. Gains on sale of equipment were $1.3 million and $557,000 for the first six months of 2011 and 2010, respectively.

Twelve Months-to-Date. The contribution to consolidated net income from construction services for the twelve-month period ended June 30, 2011 increased $6.1 million compared to the same period of 2010.

Revenues increased $85.2 million due primarily to an increase in the volume of replacement work. Construction expenses increased $73.8 million between the twelve-month periods due primarily to costs associated with the increase in replacement construction work, while depreciation expense declined $293,000 due to the timing of equipment purchases. Gains on sale of equipment were $2.3 million and $1.9 million for the twelve-month periods of 2011 and 2010, respectively.

NPL’s revenues and operating profits are influenced by weather, customer requirements, mix of work, local economic conditions, bidding results, the equipment resale market, and the credit market. Typically, revenues and profit 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. Current low interest rates, the impact of bonus deprecation legislation, and the regulatory environment (encouraging the natural gas industry to replace aging pipeline infrastructure), are having a positive influence on NPL’s growth and resulting earnings.

Rates and Regulatory Proceedings

Arizona Energy Efficiency and Decoupling Proceeding. In August 2010, the ACC issued a Notice of Proposed Rulemaking on Gas Energy Efficiency, which adopted an energy efficiency requirement for Arizona’s gas utilities, including Southwest, to achieve cumulative annual energy savings of 6% by December 2020. In October 2010, the Chairman of the ACC issued a draft Policy Statement, which would allow utilities to file proposals for alternative mechanisms including revenue-per-customer decoupling, in connection with a general rate case to address the financial disincentives to utilities of promoting energy efficiency. The Policy Statement was approved by the ACC in December 2010.

Arizona General Rate Case. Southwest filed a general rate application with the ACC in November 2010 requesting an increase in authorized annual operating revenues of $73.2 million, or 9.26%, to reflect increased operating costs, investments in infrastructure, and costs of capital, as well as margin attrition due to decreased average usage by customers. The application requested an overall rate of return of 9.73% on original cost rate base of $1.074 billion, an 11% return on common equity, and a capital structure utilizing 52% common equity.

The rate case filing also requested a rate structure to decouple recovery of the Company’s fixed costs from natural gas usage and enable the Company to aggressively advocate for increased energy efficiency by its customers. The filed structure anticipated the approval of the Policy Statement discussed in the Arizona Energy Efficiency and Decoupling Proceeding section above. The proposed mechanism, referred to as the Energy Efficiency Enabling Provision (“EEEP”), is a revenue-per-customer decoupling mechanism designed to eliminate the link between volumetric sales and revenues that currently exists with traditional rate designs, such that

 

		21

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

the existing financial disincentive associated with the Company’s pursuit of cost-effective energy efficiency is eliminated. This will allow management to focus on customers and to concentrate its attention on the cost of providing service. The pursuit of increased energy efficiency by customers is supported by the requested approval of a detailed energy efficiency and renewable energy resource plan.

After several weeks of negotiations, a majority of the parties agreed to a settlement, which was filed with the ACC in July 2011. In addition to Southwest, parties supporting the settlement include the ACC Staff, the Arizona Community Action Association, the Arizona Investment Council, the Natural Resources Defense Council, and the Southwest Energy Efficiency Project. The Residential Utility Consumer Office and Tucson Electric Power Company are not parties to the agreement. Two options were presented in the settlement; one providing for partial decoupling (Alternative A) and one with a full decoupling provision (Alternative B). Alternative A would include a $54.9 million revenue increase, or 6.95%, with a 9.75% return on common equity. Rate design improvements would include adoption of a weather normalization provision along with a “lost fixed-cost recovery mechanism” which would hold the Company financially harmless from reduced sales associated with conservation and energy efficiency programs. Alternative B would include a $52.6 million revenue increase, or 6.66%, with a 9.5% return on common equity. This option would allow for monthly weather normalization and an annual true-up for any non-weather margin variances from authorized amounts per customer. If approved, Alternative B would also require a rate case moratorium, preventing Southwest from filing a general rate case prior to April 2016. Hearings on the proposed settlement are scheduled for August and a decision from the ACC is expected by the end of the year. The settlement recommends that new rates be placed in effect by January 2012. Management cannot predict whether either settlement alternative will be approved by the ACC or the timing of rate relief.

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- or under-collections. At June 30, 2011, over-collections in all service territories resulted in a liability of $98.8 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 June 30, 2011, December 31, 2010, and June 30, 2010, Southwest had the following outstanding PGA balances receivable/(payable) (millions of dollars):

 

			000000				000000				000000
		June 30, 2011				December 31, 2010				June 30, 2010
Arizona		$	(35.3)			$	(45.2)			$	(43.7)
Northern Nevada			(14.8)				(8.4)				(13.6)
Southern Nevada			(46.7)				(69.8)				(71.6)
California			(2.0)				0.4				(6.4)
		$	(98.8)			$	(123.0)			$	(135.3)

Nevada Annual Rate Adjustment (“ARA”) Application. In June 2011, Southwest filed its ARA application with the Public Utilities Commission of Nevada (“PUCN”) to establish revised Deferred Energy Account Adjustment (“DEAA”) rates (in addition to adjustments to the Variable Interest Expense Recovery, the Uncollectible Gas Cost Expense rates, and other rate-related items). Recently approved legislation will allow Southwest to make quarterly DEAA adjustments based upon a twelve-month rolling average. Southwest filed its first quarterly DEAA rate adjustment application under the new rules in July 2011.

 

		22

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

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. The Company’s capitalization strategy is to maintain an appropriate balance of equity and debt.

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 decreased $70.3 million in the first six months of 2011 as compared to the same period in 2010. The primary drivers of the change were temporary fluctuations in working capital components partially offset by an increase in net income between periods.

Investing Cash Flows. Net cash used in consolidated investing activities increased $58.1 million in the first six months of 2011 as compared to the same period in 2010. The increase was primarily due to additional construction expenditures, including routine and accelerated pipe replacement (to take advantage of bonus depreciation tax incentives), and equipment purchases by NPL due to increased replacement construction work of its customers. In addition, 2010 included a draw-down of funds, restricted for construction activities, associated with an industrial development revenue bond issuance in 2009. Similar draw-downs to fund construction did not occur in 2011.

Financing Cash Flows. Net cash used in consolidated financing activities decreased $131.3 million during the first six months of 2011 as compared to the same period in 2010 primarily due to the issuance of new debt ($125 million 6.1% Senior Notes), partially offset by debt repayments including the $200 million 8.375% Notes repaid in February 2011. The prior-year period included the redemption of the subordinated debentures as well as the repayment of other debt, primarily repayment of previous borrowings under Southwest’s credit facility. Dividends paid increased in the first half of 2011 as compared to 2010 as a result of a quarterly dividend increase and an increase in the number of shares outstanding.

The capital requirements and resources of the Company generally are determined independently for the natural gas operations and construction services segments. Each business activity is generally responsible for securing its own financing sources. The capital requirements and resources of the construction services segment are not material to the overall capital requirements and resources of the Company.

Gas Segment Construction Expenditures, Debt Maturities, and Financing

During the twelve-month period ended June 30, 2011, construction expenditures for the natural gas operations segment were $202 million. The majority of these expenditures represented costs associated with routine and accelerated replacement of existing transmission, distribution, and general plant (see also Bonus Depreciation below). Cash flows from operating activities of Southwest were $265 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, 2013 will be approximately $680 million (including $110 million of accelerated expenditures). During the three-year period, cash flows from operating activities of Southwest (including bonus depreciation benefits) are expected to provide approximately 80% of the gas operations total construction expenditures and dividend requirements. During the three-year period, the Company expects to raise approximately $15 million from its various common stock programs. Any cash requirements not met by operating activities are expected to be provided by cash on hand, 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’s 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.

 

		23

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

In December 2010, the Company issued $125 million in 4.45% Senior Notes, due December 2020 at a discount of 0.182%. A portion of the net proceeds was used to pay down borrowings under the credit facility. In February 2011, the Company used approximately $75 million of the remaining net proceeds in connection with its repayment of the 8.375% $200 million Notes that matured in February 2011. The remaining proceeds were used for general corporate purposes.

In February 2011, the Company issued $125 million of 6.1% Senior Notes to certain institutional investors pursuant to a November 2010 note purchase agreement. The Senior Notes are unsecured and unsubordinated obligations of the Company, due in February 2041. Funds from the issuance were used to partially repay the 8.375% $200 million Notes that matured in February 2011.

Southwest also has $200 million of long-term debt maturing in May 2012 and plans to fund that obligation by issuing $200 million of debentures by the maturity date. In connection with the planned 2012 debt issuance, the Company, in January 2010, entered into a forward-starting interest rate swap (“FSIRS”) agreement to partially hedge the risk of interest rate variability during the period leading up to the planned issuance. See Note 4 – Derivatives and Fair Value Measurements for more information on the FSIRS.

During the six months ended June 30, 2011, the Company issued shares of common stock through the Stock Incentive Plan, raising approximately $5 million.

Bonus Depreciation. As a result of two tax acts signed into law in 2010, a bonus depreciation tax deduction of 100% is available for qualified property acquired or constructed and placed in service from September 9, 2010 through December 31, 2011 and 50% bonus tax depreciation is available for qualified property acquired or constructed and placed in service from January 1, 2012 through December 31, 2012. Based on forecasted qualifying construction expenditures, Southwest estimates the bonus depreciation provisions of the two acts will defer the payment of approximately $55 million and $25 million of federal income taxes during 2011 and 2012, respectively.

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 2011, the Board of Directors increased the quarterly dividend payout from 25 cents to 26.5 cents per share, effective with the June 2011 payment.

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 June 30, 2011, the combined balance in the PGA accounts totaled an over-collection of $98.8 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 previously designated $150 million of the $300 million facility as long-term debt and the remaining $150 million for working capital purposes. At June 30, 2011, no borrowings were outstanding on the credit facility and the Company had $86 million of cash on hand. The facility was not used during the first six months of 2011. The credit facility can be used as necessary to meet liquidity requirements, including temporarily financing under-collected PGA balances, if any, or meeting the refund needs of over-collected balances. This credit facility has been, and is expected to continue to be, adequate for Southwest’s working capital needs outside of funds raised through operations and other types of external financing prior to its expiration. Management believes the Company currently has a solid liquidity position and will be able to replenish such borrowing capacity.

 

		24

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

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:

 

			0000				0000
		For the Twelve Months Ended
		June 30, 2011				December 31, 2010
Ratio of earnings to fixed charges			3.09				2.87

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 patterns, customer growth, the composition of our customer base, price volatility, seasonal patterns, the Company’s COLI strategy, annual COLI returns, 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 capacity, the amount and form of any such financing, plans to fund maturing obligations, the effectiveness of the forward-starting interest rate swap agreement in hedging against changing interest rates, liquidity, certain benefits of tax acts, statements regarding future gas prices, gas purchase contracts and derivative financial interests, the impact of certain legal proceedings, and the timing and results of future rate hearings and approvals (including the form of approved rate mechanisms) 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, the ability to recover costs through 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 the 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, 2010.

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).

 

		25

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Item 7A. Quantitative and Qualitative Disclosures about Market Risk in the Company’s 2010 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 June 30, 2011, 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 second quarter of 2011 that have materially affected, or are likely to materially affect, the Company’s internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.        LEGAL PROCEEDINGS

The Company is named as a defendant in various legal proceedings. The ultimate dispositions of these proceedings are not presently determinable; however, it is the opinion of management that none of this litigation individually or in the aggregate will have a material adverse impact on the Company’s financial position or results of operations.

ITEMS 1A. through 3.    None.

ITEM 4.        [REMOVED AND RESERVED]

ITEM 5.        OTHER INFORMATION        None.

ITEM 6.        EXHIBITS

The following documents are filed, or furnished, as applicable, 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.
Exhibit 101		-		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in Extensible Business Reporting Language (“XBRL”): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to the Condensed Consolidated Financial Statements.

 

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SOUTHWEST GAS CORPORATION		Form 10-Q
June 30, 2011

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		Southwest Gas Corporation (Registrant)
Date: August 8, 2011
		/s/ Gregory J. Peterson
		Gregory J. Peterson
		Vice President/Controller and Chief Accounting Officer

 

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Exhibit 3(ii)

 

Bylaws

of

SOUTHWEST GAS CORPORATION

 

........................................................

(As amended 08/02/11)

 

 

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BYLAWS

OF

SOUTHWEST GAS CORPORATION

 

 

ARTICLE I

Section 1.  Principal Office

The principal office for the transaction of the business of the Corporation is hereby fixed and located at 5241 Spring Mountain Road, in the City of Las Vegas, County of Clark, State of Nevada.

Section 2.  Other Offices

Branch or subordinate offices may at any time be established by the Board of Directors at any place or places where the Corporation is qualified to do business.

Section 3.  Terminology

All personal pronouns used herein are employed in a generic sense and are intended and deemed to be neutral in gender.

ARTICLE II

MEETING OF SHAREHOLDERS

Section 1.  Regular Meeting

Commencing in May 2009, the regular annual meeting of shareholders shall be held at the principal office of the Corporation, or at such other place within or without the State of California as the officers of the Corporation may deem convenient and appropriate, at 10:00 a.m. on the first Thursday after the third day of May of each year, if not a legal holiday, and if a legal holiday, then at 10:00 a.m. on the next succeeding business day, for the purpose of electing a Board of Directors and transacting such other business as properly may come before the meeting; provided, however, that the Board of Directors may, by resolution, establish a different date not more than 120 days thereafter if, in its sole discretion, it deems such postponement appropriate.

Section 2.  Special Meetings

Except in those instances where a particular manner of calling a meeting of the shareholders is prescribed by law or elsewhere in these Bylaws, a special meeting of

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the shareholders may be called at any time by the Chief Executive Officer or other officers acting for him or by the Board of Directors, or by the holders of not less than one-third of the voting shares then issued and outstanding. Each call for a special meeting of the shareholders shall state the time, place, and the purpose of such meeting; if made by the Board of Directors, it shall be by resolution duly adopted by a majority vote and entered in the minutes; if made by an authorized officer or by the shareholders, it shall be in writing and signed by the person or persons making the same, and unless the office of Secretary be vacant, delivered to the Secretary. No business shall be transacted at a special meeting other than as is stated in the call and the notice based thereon.

Section 3.  Notice of Regular and Special Meetings of the Shareholders

Notice of each regular and special meeting of the shareholders of the Corporation shall be given by mailing to each shareholder a notice of the time, place, and purpose of such meeting addressed to him at his address as it appears upon the books of the Corporation. Each such notice shall be deposited in the United States Mail with the postage thereon prepaid at least ten days prior to the time fixed for such meeting. If the address of any such shareholder does not appear on the books of the Corporation and his post office address is unknown to the person mailing such notices, the notice shall be addressed to him at the principal office of the Corporation.

Section 4.  Quorum

At any meeting of the shareholders, the presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting shall constitute a quorum for the transaction of business, except when it is otherwise provided by law. Any regular or special meeting of the shareholders may adjourn from day to day or from time to time if, for any reason, there are not present in person or by proxy the holders of a majority of the shares entitled to vote at said meeting. Such adjournment and the reasons therefor shall be recorded in the minutes of the proceedings.

Section 5.  Waiver of Notice

When all the shareholders of the Corporation are present at any meeting, or when the shareholders not represented thereat give their written consent to the holding thereof at the time and place the meeting is held, and such written consent is made a part of the records of such meeting, the proceedings had at such meeting are valid, irrespective of the manner in which the meeting is called or the place where it is held.

Section 6.  Proper Business for Shareholder Meetings

1.  At a meeting of the shareholders, only such business shall be proper as shall be brought before the meeting: (i) pursuant to the Corporation’s notice of meeting; (ii) by or at the direction of the Board of Directors of the Corporation; or (iii) by any shareholder of the Corporation who is a shareholder of record at the time of giving the notice provided for

 

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herein, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth herein.

2.  For business to be properly brought before a meeting by a shareholder pursuant to clause (iii) above, the shareholder must have given timely notice thereof in writing to the Secretary. To be timely as to an annual meeting of shareholders, a shareholder’s notice must be received at the principal executive office of the Corporation not less than 120 calendar days before the date of the Corporation’s proxy statement released to shareholders in connection with the previous year’s annual meeting; provided however, that if the date of the meeting is changed by more than 30 days from the date of the previous year’s meeting, notice by shareholder to be timely must be received no later than the close of business on the 10th day following the earlier of the day on which notice of the date of the meeting was mailed to shareholders or public disclosure of such date was made. To be timely as to a special meeting of shareholders, a shareholder notice must be received not later than the call of the meeting as provided for in Section 2 of this Article II. Such shareholder notice shall set forth as to each matter the shareholder proposes to bring before the meeting: (a) a brief description of and the reasons for proposing such matter at the meeting; (b) the name and address, as they appear on the Corporation’s books, and the name and address of the beneficial owner, if any, on whose behalf the proposal is made; (c) the class and number of shares of the Corporation which are owned beneficially and of record by such shareholder of record and by the beneficial owner, if any, on whose behalf the proposal is made; and (d) any material interest of such shareholder of record and the beneficial owner, if any, on whose behalf the proposal is made, in such proposal.

3.  Notwithstanding anything in these Bylaws to the contrary, no business shall be proper at a meeting unless brought before it in accordance with the procedures set forth herein. Further, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth herein.

4.  The Chairman of the Board of Directors of the Corporation or the individual designated as chairman of the meeting shall, if the facts warrant, determine, and declare to the meeting that business was not properly brought before the meeting and in accordance with the procedures proscribed herein, and if the chairman should so determine, that any such business not properly brought before the meeting shall not be transacted.

5.  Notwithstanding anything provided herein to the contrary, the procedures for submission of shareholder proposals have not expended, altered, or affected in any manner, whatever rights or limitations may exist regarding the ability of a shareholder of the Corporation to submit to a proposal for consideration by shareholders of the Corporation under California or federal law.

 

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ARTICLE III

BOARD OF DIRECTORS

Section 1.  Number – Quorum

The business of the Corporation shall be managed by a Board of Directors, whose number shall be not fewer than eleven (11) nor greater than fourteen (14), as the Board of Directors or the shareholders by amendment of these Bylaws may establish, provided, however, that a reduction in the authorized number of directors shall not remove any director prior to the expiration of his term of office, and provided further that the shareholders may, pursuant to law, establish a different and definite number of directors or different maximum and minimum numbers of directors by amendment of the Articles of Incorporation or by a duly adopted amendment to these Bylaws. A majority of the prescribed number of directors shall be necessary to constitute a quorum for the trans- action of business. At a meeting at which a quorum is present, every decision or act of a majority of the directors present made or done when duly assembled shall be valid as the act of the Board of Directors, provided that a minority of the directors, in the absence of a quorum, may adjourn from day to day but may transact no business.

Section 2.  Exact Number of Directors

The number of Directors of the Corporation is hereby established, pursuant to the provisions of Section 1 of this Article III, as twelve (12).

Section 3.  Director Nominating Procedure

1.  Except for the filling of vacancies, as provided for in Section 6 of this Article III, only persons who are nominated in accordance with the procedures set forth herein shall be qualified to serve as directors. Nominations of persons for election to the Board may be made at a meeting of shareholders: (a) by or at the direction of the Board or (b) by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Bylaw, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Bylaw.

2.  Nominations by shareholders shall be made pursuant to timely notice in writing to the Secretary. To be timely as to an annual meeting, a shareholder’s notice must be received at the principal executive offices of the Corporation not less than 20 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that if the date of the annual meeting is changed by more than 30 days from such anniversary date, notice by the shareholder to be timely must be so received not later than the close of business on

 

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the 10th day following the earlier of the day on which notice of the date of the meeting was mailed to shareholders or public disclosure of such date was made. To be timely as to a special meeting at which directors are to be elected, a shareholder’s notice must be received not later than the close of business on the 10th day following the earlier of the day on which notice of the date of the meeting was mailed to shareholders or public disclosure of such date was made. Such shareholder’s notice shall set forth: (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to the shareholder giving the notice, (i) the name and address, as they appear on the Corporation’s books, of such shareholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such shareholder and also which are owned of record by such shareholder; and (c) as to the beneficial owner, if any, on whose behalf the nomination is made, (i) the name and address of such person and (ii) the class and number of shares of the Corporation which are beneficially owned by such person. At the request of the Board, any person nominated by the Board for election as a director shall furnish to the Secretary that information required to be set forth in the shareholder’s notice of nomination which pertains to the nominee.

3.  Except for the filling of vacancies, as provided for in Section 6 of this Article III, no person shall be qualified to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this Bylaw. The Chairman of the Board of Directors of the Corporation or the individual designated as chairman of the meeting shall, if the facts warrant, determine, and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if the chairman should so determine, that the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Bylaw, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Bylaw.

Section 4.  Qualification of Directors

The majority of directors of the Board of Directors shall not be officers or employees of the Corporation or any of its subsidiaries and shall not have held such positions at any time during the three years prior to election or selection to the Board of Directors. Whether an individual, who is an officer or employee of the Corporation or any of its subsidiaries, satisfies this qualification requirement will be determined at the time of his or her election or selection.

Section 5.  Election and Term of Office

The directors shall be elected at each annual meeting of shareholders, but if any such annual meeting is not held, or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose. All directors shall hold office until their respective successors are elected and qualified.

 

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Section 6.  Vacancies

Vacancies on the Board of Directors may be filled by a majority of the remaining directors, though they be less than a quorum, and each director so elected shall hold office until his successor is qualified following the election at the next annual meeting of the shareholders or at any special meeting of shareholders duly called for that purpose prior to such annual meeting. A vacancy shall be deemed to exist in case the shareholders (or the Board of Directors, within the provisions of Section 1 of this Article III) shall increase the authorized number of directors, but shall fail, for a period of thirty days from the effective date of such increase, to elect the additional directors so provided for, or in case the shareholders fail at any time to elect the full number of authorized directors. When one or more of the directors shall give notice to the Board of Directors of his or their resignation from said Board, effective at a future date, the Board of Directors shall have the power to fill such vacancy or vacancies to take effect when such resignation or resignations become effective. Each director so appointed shall hold office during the remainder of the term of office of the resigning director or directors or until their successors are appointed and qualify.

Section 7.  First Meeting of Directors

Immediately following each annual meeting of shareholders, the Board of Directors shall hold a regular meeting for the purpose of organization, election of officers, and the transaction of other business. Notice of such meeting is hereby dispensed with.

Section 8.  Regular Meetings

Commencing in 2004, the time for other regular meetings of the Board of Directors, when held, shall be 8 a.m. on the third Tuesday of January, September, and November, the first Tuesday of March, the first Wednesday of May, and fourth Tuesday of July, unless a different schedule is established by a resolution of the Board. If any regular meeting date shall fall on a legal holiday, then the regular meeting date shall be the business day next following.

Section 9.  Special Meetings

A special meeting of the Board of Directors shall be held whenever called by the Chief Executive Officer or other officer acting for him, or by three directors. Any and all business may be transacted at a special meeting. Each call for a special meeting shall be in writing, signed by the person or persons making the same, addressed and delivered to the Secretary, and shall state the time and place of such meeting.

Section 10.  Notice of Regular and Special Meetings of the Directors

 

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No notice shall be required to be given of any regular meeting of the Board of Directors, but each director shall take notice thereof. Notice of each special meeting of the Board of Directors shall be given to each of the directors by: (i) mailing to each of them a copy of such notice at least five days; or (ii) delivering personally or by telephone, including voice messaging system or other system or technology designed to record and communicate messages, telegraph, facsimile, electronic mail, or other electronic means such notice at least 48 hours, prior to the time affixed for such meeting to the address of such director as shown on the books of the Corporation. If his address does not appear on the books of the Corporation, then such notice shall be addressed to him at the principal office of the Corporation.

Section 11.  Waiver of Notice

When all the directors of the Corporation are present at any meeting of the Board of Directors, however called or noticed, and sign a written consent thereto on the record of such meeting, or if the majority of the directors are present, and if those not present sign in writing a waiver of notice of such meeting, whether prior to or after the holding of such meeting, which waiver shall be filed with the Secretary of the Corporation, the transactions of such meeting are as valid as if had at a meeting regularly called and noticed.

Section 12.  Action by Unanimous Consent of Directors

Any action required or permitted to be taken by the Board of Directors may be taken without a meeting if all members of the Board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board, and such action by written consent shall have the same force and effect as if approved or taken at a regular meeting duly held. Any certificate or other document which relates to action so taken shall state that the action was taken by unanimous written consent of the Board of Directors without a meeting, and that these Bylaws authorize the directors to so act.

Section 13.  Telephonic Participation in Meetings

Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting.

ARTICLE IV

POWERS OF DIRECTORS

Section 1.  The directors shall have power:

 

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1.  To call special meetings of the shareholders when they deem it necessary, and they shall call a meeting at any time upon the written request of shareholders holding one-third of all the voting shares;

2.  To appoint and remove at pleasure all officers and agents of the Corporation, prescribe their duties, fix their compensation, and require from them as necessary security for faithful service;

3.  To create and appoint committees, offices, officers, and agents of the Corporation, and to prescribe and from time to time change their duties and compensation, but no committee shall be created and no member appointed thereto except upon approval of a majority of the whole Board of Directors; and

4.  To conduct, manage, and control the affairs and business of the Corporation and to make rules and regulations not inconsistent with the laws of the State of California, or the Bylaws of the Corporation, for the guidance of the officers and management of the affairs of the Corporation.

ARTICLE V

DUTIES OF DIRECTORS

Section 1.  It shall be the duty of the directors:

1.  To cause to be kept a complete record of all their minutes and acts, and of the proceedings of the shareholders, and present a full statement at the regular annual meeting of the shareholders, showing in detail the assets and liabilities of the Corporation, and generally the condition of its affairs. A similar statement shall be presented at any other meeting of the shareholders when theretofore required by persons holding at least one-half of the voting shares of the Corporation;

2.  To declare dividends out of the profits arising from the conduct of the business, whenever such profits shall, in the opinion of the directors, warrant the same;

3.  To oversee the actions of all officers and agents of the Corporation, see that their duties are properly performed; and

4.  To cause to be issued to the shareholders, in proportion to their several interests, certificates of stock.

ARTICLE VI

OFFICERS

Section 1.  The officers shall include a Chairman of the Board of Directors, a Chief Executive Officer, who may be designated Chairman, a President, a Secretary, a Treasurer, a Controller, and may include one or more Executive Vice Presidents, Senior

 

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Vice Presidents, Vice Presidents, Assistant Vice Presidents, Assistant Secretaries, and Assistant Treasurers. All such officers shall be elected by and hold office at the pleasure of the Board of Directors, provided that the Chief Executive Officer shall have authority to dismiss any other officer. Any director shall be eligible to be the Chairman of the Board of Directors and any two or more of such offices may be held by the same person, except that the Chief Executive Officer or President may not also hold the office of Secretary. Any officer may exercise any of the powers of any other officer in the manner specified in these Bylaws, as specified from time to time by the Board of Directors, and/or as specified from time to time by the Chief Executive Officer or senior officer acting in his or her absence or incapacity, and any such acting officer shall perform such duties as may be assigned to him or her.

ARTICLE VII

FEES AND COMPENSATION

Section 1.  Directors shall be reimbursed for their expenses, and shall be compensated for their services as directors in such amounts as the Board may fix by resolution. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation therefor.

ARTICLE VIII

INDEMNIFICATION

Section 1.  Indemnification of Directors and Officers

Each person who was or is a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, formal or informal, whether brought in the name of the Corporation or otherwise and whether of a civil, criminal, administrative, or investigative nature (hereinafter a “proceeding”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another Corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is an alleged action or inaction in an official capacity, or in any other capacity while serving as a director or officer, shall, subject to the terms of any agreement between the Corporation and such person, be indemnified and held harmless by the Corporation to the fullest extent permissible under California law and the Corporation’s Articles of Incorporation, against all costs, charges, expenses, liabilities, and losses (including attorneys’ fees, judgments, fines, ERISA excise tax or penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors, and administrators; provided,

 

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however, that: (a) the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of the Corporation, (b) the Corporation shall indemnify such person seeking indemnification in connection with a proceeding (or part thereof) other than a proceeding by or in the name of the Corporation to procure a judgment in its favor only if any settlement of such a proceeding is approved in writing by the Corporation, and (c) that no such person shall be indemnified (i) on account of any suit in which judgment is rendered against such person for an accounting of profits made from the purchase or sale by such person of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state, or local statutory law; (ii) if a court of competent jurisdiction finally determines that any indemnification hereunder is unlawful; (iii) for acts or omissions involving intentional misconduct or knowing and culpable violation of law; (iv) for acts or omissions that the director or officer believes to be contrary to the best interests of the Corporation or its shareholders or that involve the absence of good faith on the part of the director or officer; (v) for any transaction for which the director or officer derived an improper personal benefit; (vi) for acts or omissions that show a reckless disregard for the director’s or officer’s duty to the Corporation or its shareholders in circumstances in which the director or officer was aware, or should have been aware, in the ordinary course of performing his or her duties, of a risk of serious injury to the Corporation or its shareholders; (vii) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s or officer’s duties to the Corporation or its shareholders; (viii) for costs, charges, expenses, liabilities, and losses arising under Section 310 or 316 of the General Corporation Law of California (the “Law”); and (ix) as to circumstances in which indemnity is expressly prohibited by Section 317 of the Law. The right to indemnification conferred in this Article shall be a contract right and shall include the right to be paid by the Corporation expenses incurred in defending any proceeding in advance of its final disposition; provided, however, that if the Law requires the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, such advances shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts to the Corporation if it shall be ultimately determined that such person is not entitled to be indemnified.

Section 2.  Indemnification of Employees and Agents

A person who was or is a party or is threatened to be made a party to or is involved in any proceedings by reason of the fact that he or she is or was an employee or agent of the Corporation or is or was serving at the request of the Corporation as an employee or agent of another enterprise, including service with respect to employee benefit plans, whether the basis of such action is an alleged action or inaction in an official capacity or in any other capacity while serving as an employee or agent, may, subject to the terms

 

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of any agreement between the Corporation and such person, be indemnified and held harmless by the Corporation to the fullest extent permitted by California law and the Corporation’s Articles of Incorporation, against all costs, charges, expenses, liabilities, losses (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement), reasonably incurred or suffered by such person in connection therewith. The immediately preceding sentence is not intended to be and shall not be considered to confer a contract right on any employee or agent (other than directors and officers) of the Corporation.

Section 3.  Right of Directors and Officers to Bring Suit

If a claim under Section 1 of this Article is not paid in full by the Corporation within 30 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim. Neither the failure of the Corporation (including its Board, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he or she has met the applicable standard of conduct, if any, nor an actual determination by the Corporation (including its Board, independent legal counsel, or its shareholders) that the claimant has not met the applicable standard of conduct, shall be a defense to the action or create a presumption for the purpose of an action that the claimant has not met the applicable standard of conduct.

Section 4.  Successful Defense

Notwithstanding any other provision of this Article, to the extent that a director or officer has been successful on the merits or otherwise (including the dismissal of an action without prejudice or the settlement of a proceeding or action without admission of liability) in defense of any proceeding referred to in Section 1 or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred in connection therewith.

Section 5.  Non-Exclusivity of Rights

The right to indemnification provided by this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, bylaw, agreement, vote of shareholders, disinterested directors, or otherwise.

Section 6.  Insurance

The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of the Corporation or another Corporation, partnership, joint venture, trust, or other enterprise against any expense, liability or loss,

 

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whether or not the Corporation would have the power to indemnify such person against such expense, liability, or loss under the law.

Section 7.  Expenses as a Witness

To the extent that any director, officer, employee, or agent of the Corporation is by reason of such position, or a position with another entity at the request of the Corporation, a witness in any action, suit, or proceeding, he or she shall be indemnified against all costs and expenses actually and reasonably incurred by him or her on his or her behalf in connection therewith.

Section 8.  Indemnity Agreements

The Corporation may enter into agreements with any director, officer, employee, or agent of the Corporation providing for indemnification to the fullest extent permissible under the law and the Corporation’s Articles of Incorporation.

Section 9.  Separability

Each and every paragraph, sentence, term, and provision of this Article is separate and distinct so that if any paragraph, sentence, term, or provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or unenforceability of any other paragraph, sentence, term, or provision hereof. To the extent required, any paragraph, sentence, term, or provision of this Article may be modified by a court of competent jurisdiction to preserve its validity and to provide the claimant with, subject to the limitations set forth in this Article and any agreement between the Corporation and claimant, the broadest possible indemnification permitted under applicable law.

Section 10.  Effect of Repeal or Modification

Any repeal or modification of this Article shall not adversely affect any right of indemnification of a director or officer existing at the time of such repeal or modification with respect to any action or omission occurring prior to such repeal or modification.”

ARTICLE IX

CHAIRMAN OF THE BOARD

Section 1.  If there shall be a Chairman of the Board of Directors, he shall, when present, preside at all meetings of the shareholders and the Board of Directors, and perform such other duties as the Bylaws or the Board of Directors shall require of him.

 

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ARTICLE X

CHIEF EXECUTIVE OFFICER; OTHER EXECUTIVE OFFICERS

Section 1.  The Board of Directors shall, at their first regular meeting, elect such officers as are required by Article VI hereof and such additional officers authorized by Article VI hereof as the Board, in its discretion, may choose to elect. If at any time the Chief Executive Officer shall be unable to act, the President (if there shall be one who is not also the Chief Executive Officer) shall act in his place and perform his duties; if the President or next most senior officer is unable to perform such duties, then the vice presidents, in such sequence as the Board of Directors may specify, shall act. If all the foregoing shall be unable to act, the senior officer among them shall appoint some other person in whom shall be vested, for the time being, all the duties and functions of Chief Executive Officer, to act until the Board of Directors can be convened and elect appropriate officers. The Chief Executive Officer (or person acting as such) shall:

1.  Preside (if there shall be no Chairman of the Board of Directors or in his absence) over all meetings of the shareholders and directors;

2.  Sign on behalf of the Corporation contracts and other instruments in writing within the scope of his authority or if, when, and as directed to do so by the Board of Directors, but nothing herein shall limit the power of the Board of Directors to authorize such contracts and other instruments in writing to be signed by any other officer or person or limit the power of the Chief Executive Officer to delegate his authority in any such matter to another officer or other officers of the Corporation. The Chief Executive Officer or any other officer specified by the Board of Directors may sign certificates of stock as provided in Article XIII hereof;

3.  Delegate duties and responsibilities to any other officers and/or employees of the Corporation in any manner not prohibited by these Bylaws or by the Board of Directors, and change such duties and responsibilities so delegated from time to time at will;

4.  Call the directors together when he deems it necessary, and have, subject to the advice of the directors, direction of the affairs of the Corporation; and

5.  Generally discharge such other duties as may be required of him by the Bylaws of the Corporation.

 

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ARTICLE XI

SECRETARY

Section 1.  The Board of Directors shall elect a Secretary:

1.  It shall be the duty of the Secretary to keep a record of proceedings of the Board of Directors and of the shareholders, and to keep the corporate seal of the Corporation. He shall be responsible for maintaining proper records showing the number of shares of stock of all classes and series issued and transferred by any shareholder, and the dates of such issuance and transfer;

2.  Whenever it is provided in these Bylaws that notice shall be given either of regular or special meetings of the shareholders, regular or special meetings of the directors, or otherwise, such notice shall be given by the Secretary or by the Chief Executive Officer or by any person designated by either of them, or by any authorized person who shall have signed the call for such meeting. Any notice which the Secretary may give or serve, or act required to be done by him, may with like effect be given or served or done by or under the direction of an Assistant Secretary;

3.  The Secretary shall discharge such other duties as pertain to his office or which may be prescribed by the Board of Directors.

ARTICLE XII

TREASURER

Section 1.  The Treasurer shall receive and keep all the funds of the Corporation and pay them out only on checks or otherwise, as directed by the Board of Directors; provided, however, that the Board of Directors may provide for a depository of the funds of the Corporation, and may by resolution prescribe the manner in which said funds shall be drawn from said depository.

ARTICLE XIII

CERTIFICATES OF STOCK

Section 1.  Certificates of stock shall be of such form and device as the Board of Directors may lawfully direct, and shall be entitled to have a certificate signed by the genuine or facsimile signatures of the Chairman and Chief Executive Officer or the President or any authorized Vice President and the Secretary or an Assistant Secretary. Each certificate shall express on its face its number, date of issuance, the number of shares for which and the person to whom it is issued, the kind of shares represented by said certificate, and such other matters as may be required by law. Certificates of

 

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stock may be issued prior to full payment, in harmony with all permits issued by regulatory authorities having jurisdiction in the premises, or as is otherwise allowed by law, but any certificate issued prior to full payment must show on its face what amount has been paid thereon.

ARTICLE XIV

TRANSFER OF STOCK

Section 1.  Shares of stock of the Corporation may be transferred at any time by the holders, or by power of attorney, or by their legal representative, by endorsement on the certificate of stock, but no transfer is valid until the surrender of the endorsed certificate. A surrendered certificate shall be delivered up for cancellation before a new one is issued in lieu thereof, and the Secretary shall preserve the certificate so canceled or a suitable record thereof. If, however, a certificate is lost or destroyed, the Board of Directors may order a new certificate issued as is by law required or permitted.

ARTICLE XV

VOTING

Section 1.  At all corporate meetings, each shareholder, either in person or by proxy, shall be entitled to as many votes as he owns shares of stock; however, every shareholder entitled to vote at any election for directors shall have the right to cumulate his votes.

Section 2.  Proxies

Every person entitled to vote or execute consents shall have the right to do so either in person or by one or more agents authorized by a written proxy executed by such person or his duly authorized agent and filed with the Secretary of the Corporation; provided that no such proxy shall be valid after the expiration of eleven (11) months from the date of its execution, unless the person executing it specifies therein the length of time for which such proxy is to continue in force, which in no case shall exceed seven (7) years from the date of its execution.

ARTICLE XVI

INDEBTEDNESS

Section 1.  The Board of Directors shall have power to incur indebtedness, and the terms and amount thereof shall be entered in the minutes. The Board of Directors shall have the power to secure said indebtedness, or any obligation or obligations of the Corporation, by pledge, mortgage, deed of trust, or other security given upon any property owned by it or in which it has any interest.

 

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ARTICLE XVII

REGISTRAR AND/OR TRANSFER AGENT

Section 1.  The Board of Directors may designate and appoint one or more registrars and/or transfer agents for the registration of the stock of the Corporation, and make such rules and regulations for the registrations of stock at the office of such registrars and/or transfer agents as may to the Board of Directors seem desirable. The Corporation may act as its own transfer agent, at the direction of the Board of Directors. The Board of Directors may, in its discretion, fix a transfer fee for transfer of stock certificates.

ARTICLE XVIII

MISCELLANEOUS

Section 1.  Meetings. Notice. When Conclusive.

An entry made in the minutes of the directors or shareholders, pursuant to resolution or recital, to the effect that the notice of such meeting required by these Bylaws to be given has been given, shall be conclusive upon the Corporation, its directors, shareholders, and all other persons that such notice has been duly given in proper form and substance to the proper persons and for the requisite length of time.

ARTICLE XIX

SEAL

Section 1.  The Board of Directors shall provide a suitable seal containing the name of the Corporation, the year of its creation, and other appropriate words, and may alter the same at pleasure.

ARTICLE XX

AMENDMENTS TO BYLAWS

Section 1.  Power of Shareholders

New Bylaws may be adopted or these Bylaws may be amended or repealed by the vote of shareholders entitled to exercise a majority of the voting power of the Corporation or by the written assent of such shareholders, except as otherwise provided by law or by the Articles of Incorporation.

 

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Section 2.  Power of Directors

Subject to the right of the shareholders as provided in Section 1 of this Article XX to adopt, amend, or repeal Bylaws, the Board of Directors may adopt, amend, or repeal any of the Bylaws of this Corporation, except that the powers of the Board of Directors to change, and/or establish the authorized number of directors of this Corporation shall be as set forth in Article III of these Bylaws.

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I hereby certify that the foregoing is a full, true, and correct copy of the Bylaws of Southwest Gas Corporation, a California Corporation, as in effect on the date hereof.

WITNESS my hand this 2^nd day of August 2011.

 

 

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Exhibit 12.01

SOUTHWEST GAS CORPORATION

COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

(Thousands of dollars)

 

			000000000				000000000				000000000				000000000				000000000				000000000
		For the Twelve Months Ended
		Jun 30, 2011				December 31,
						2010				2009				2008				2007				2006
1. Fixed charges:
A) Interest expense		$	71,876			$	75,481			$	81,861			$	90,403			$	94,035			$	92,878
B) Amortization			2,393				2,620				2,097				2,880				2,783				3,467
C) Interest portion of rentals			7,191				6,455				6,644				7,802				7,952				6,412
Total fixed charges		$	81,460			$	84,556			$	90,602			$	101,085			$	104,770			$	102,757
2. Earnings (as defined):
D) Pretax income from continuing operations		$	170,244			$	158,378			$	132,035			$	101,808			$	131,024			$	128,357
Fixed Charges (1. above)			81,460				84,556				90,602				101,085				104,770				102,757
Total earnings as defined		$	251,704			$	242,934			$	222,637			$	202,893			$	235,794			$	231,114
			3.09				2.87				2.46				2.01				2.25				2.25

Exhibit 31.01

Certification

I, Jeffrey W. Shaw, certify that:

 

1.	I have reviewed this quarterly report on Form 10-Q of Southwest Gas Corporation;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2011

 

		/s/ JEFFREY W. SHAW
		Jeffrey W. Shaw
		Chief Executive Officer
		Southwest Gas Corporation

 

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Certification

I, Roy R. Centrella, certify that:

 

1.	I have reviewed this quarterly report on Form 10-Q of Southwest Gas Corporation;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2011

 

		/s/ ROY R. CENTRELLA
		Roy R. Centrella
		Senior Vice President/Chief Financial Officer
		Southwest Gas Corporation

Exhibit 32.01

SOUTHWEST GAS CORPORATION

CERTIFICATION

In connection with the periodic report of Southwest Gas Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2011 as filed with the Securities and Exchange Commission (the “Report”), I, Jeffrey W. Shaw, the Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

 

(1)

the Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

 

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

 

Dated: August 8, 2011
		/s/ Jeffrey W. Shaw
		Jeffrey W. Shaw
		Chief Executive Officer

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SOUTHWEST GAS CORPORATION

CERTIFICATION

In connection with the periodic report of Southwest Gas Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2011 as filed with the Securities and Exchange Commission (the “Report”), I, Roy R. Centrella, Senior Vice President/Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

 

(1)

the Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

 

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

 

Dated: August 8, 2011
		/s/ Roy R. Centrella
		Roy R. Centrella
		Senior Vice President/Chief Financial Officer