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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
COMMISSION FILE NUMBER 1-7850
SOUTHWEST GAS CORPORATION
(Exact name of registrant as specified in its charter)
California 88-0085720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5241 Spring Mountain Road
Post Office Box 98510
Las Vegas, Nevada 89193-8510
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 876-7237
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, $1 Par Value 26,451,061 shares as of August 5, 1996
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1
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by Southwest Gas Corporation (the Company), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. In
the opinion of management, all adjustments, consisting of normal recurring
items and estimates necessary for a fair presentation of the results for the
interim periods, have been made. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's 1995 Annual Report
on Form 10-K, and the 1996 first quarter report on Form 10-Q.
2
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
JUNE 30, DECEMBER 31,
1996 1995
----------- -----------
ASSETS
Utility plant
Gas plant $ 1,636,618 $ 1,579,665
Less: accumulated depreciation (480,512) (474,891)
Acquisition adjustments 6,081 6,298
Construction work in progress 27,287 26,678
----------- -----------
Net utility plant 1,189,474 1,137,750
----------- -----------
Other property and investments 66,209 35,128
----------- -----------
Current assets
Cash and cash equivalents 11,570 11,168
Accounts receivable, net of allowances 40,267 38,186
Accrued utility revenue 19,964 43,900
Deferred tax benefit 22,282 17,089
Prepaids and other current assets 28,401 31,386
Net assets of discontinued operations 175,118 175,493
----------- -----------
Total current assets 297,602 317,222
----------- -----------
Deferred charges and other assets 52,641 42,427
----------- -----------
Total assets $ 1,605,926 $ 1,532,527
=========== ===========
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock, $1 par (authorized - 30,000,000 shares;
issued and outstanding - 26,403,084 and 24,467,499 shares) $ 28,018 $ 26,097
Additional paid-in capital 342,680 312,631
Retained earnings 9,411 17,322
----------- -----------
Total common equity 380,109 356,050
Redeemable preferred securities of
Southwest Gas Capital I 60,000 60,000
Long-term debt, less current maturities 624,634 607,945
----------- -----------
Total capitalization 1,064,743 1,023,995
----------- -----------
Current liabilities
Current maturities of long-term debt 125,727 120,000
Short-term debt 45,000 37,000
Accounts payable 32,701 41,864
Accrued taxes 32,161 29,116
Deferred purchased gas costs 46,398 32,776
Other current liabilities 69,930 69,455
----------- -----------
Total current liabilities 351,917 330,211
----------- -----------
Deferred income taxes and other credits
Deferred income taxes and investment tax credits 146,973 138,893
Other deferred credits 42,293 39,428
----------- -----------
Total deferred income taxes and other credits 189,266 178,321
----------- -----------
Total capitalization and liabilities $ 1,605,926 $ 1,532,527
=========== ===========
The accompanying notes are an integral part of these statements.
3
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
--------------------- --------------------- ---------------------
1996 1995 1996 1995 1996 1995
--------- --------- --------- --------- --------- ---------
Operating revenues:
Gas operating revenues $ 102,713 $ 122,189 $ 291,065 $ 325,710 $ 528,857 $ 609,345
Construction revenues 20,898 -- 20,898 -- 20,898 --
--------- --------- --------- --------- --------- ---------
Total revenues 123,611 122,189 311,963 325,710 549,755 609,345
--------- --------- --------- --------- --------- ---------
Operating expenses:
Net cost of gas 36,688 54,760 115,157 153,666 188,947 258,154
Operations and maintenance 48,260 47,855 95,471 93,722 189,718 185,839
Depreciation and amortization 18,052 15,741 34,591 30,878 66,205 59,711
Taxes other than income taxes 7,269 6,706 14,863 13,488 28,548 26,288
Construction expenses 18,089 -- 18,089 -- 18,089 --
--------- --------- --------- --------- --------- ---------
128,358 125,062 278,171 291,754 491,507 529,992
--------- --------- --------- --------- --------- ---------
Operating income (loss) (4,747) (2,873) 33,792 33,956 58,248 79,353
--------- --------- --------- --------- --------- ---------
Other income and (expenses):
Net interest deductions (13,476) (13,038) (26,429) (26,360) (53,423) (52,348)
Preferred securities distributions (1,369) -- (2,738) -- (3,651) --
Other income (deductions), net (282) (199) (203) 9 (864) 182
--------- --------- --------- --------- --------- ---------
Total other income and (expenses) (15,127) (13,237) (29,370) (26,351) (57,938) (52,166)
--------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations before income taxes (19,874) (16,110) 4,422 7,605 310 27,187
Income tax expense (benefit) (7,931) (6,159) 1,506 3,107 (762) 10,163
--------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations (11,943) (9,951) 2,916 4,498 1,072 17,024
Net income (loss) from discontinued
operations -- 610 -- 806 (18,342) 1,653
--------- --------- --------- --------- --------- ---------
Net income (loss) (11,943) (9,341) 2,916 5,304 (17,270) 18,677
Preferred/preference stock dividend
requirements -- 95 -- 190 117 423
--------- --------- --------- --------- --------- ---------
Net income (loss) applicable to
common stock $ (11,943) $ (9,436) $ 2,916 $ 5,114 $ (17,387) $ 18,254
========= ========= ========= ========= ========= =========
Earnings (loss) per share from
continuing operations $ (0.46) $ (0.44) $ 0.12 $ 0.19 $ 0.04 $ 0.77
Earnings (loss) per share from
discontinued operations -- 0.03 -- 0.04 (0.74) 0.07
--------- --------- --------- --------- --------- ---------
Earnings (loss) per share of common stock $ (0.46) $ (0.41) $ 0.12 $ 0.23 $ (0.70) $ 0.84
========= ========= ========== ========= ========= =========
Dividends paid per share of common stock $ 0.205 $ 0.205 $ 0.41 $ 0.41 $ 0.82 $ 0.82
========= ========= ========= ========= ========= =========
Average number of common shares
outstanding 25,817 22,816 25,211 22,110 24,773 21,615
========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these statements.
4
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 2,916 $ 5,304 $ (17,270) $ 18,677
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 34,591 30,878 66,205 59,711
Deferred income taxes (1,850) 9,670 (26,834) 6,120
Changes in current assets and liabilities
Accounts receivable 10,847 31,345 (778) (1,004)
Accrued utility revenue 23,936 28,909 (1,340) (975)
Unrecovered purchased gas costs 13,622 45,363 16,253 46,292
Accounts payable (12,286) (25,037) 5,651 1,138
Accrued taxes 3,045 (24,917) 14,142 (21,486)
Other current assets and liabilities (2,238) 6,561 (5,138) 2,068
Other 2,543 1,175 1,163 (1,650)
Undistributed (income) loss from
discontinued operations -- (3,780) 5,356 (7,088)
--------- --------- --------- ---------
Net cash provided by operating activities 75,126 105,471 67,410 101,803
--------- --------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Construction expenditures (87,178) (74,045) (179,316) (153,554)
Other (2,802) (2,297) 1,960 1,057
--------- --------- --------- ---------
Net cash used in investing activities (89,980) (76,342) (177,356) 152,497)
--------- --------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 11,412 35,680 20,576 39,941
Issuance of trust originated preferred securities -- -- 57,713 --
Reacquisition of preferred/preference stocks -- -- (4,000) (4,058)
Dividends paid (10,427) (9,974) (20,029) (18,691)
Issuance of long-term debt 9,286 24,800 33,893 45,800
Retirement of long-term debt (1,519) (2,255) (1,549) (2,440)
Issuance (repayment) of short-term debt 5,234 (76,000) 26,234 (5,000)
Other 1,270 538 684 823
--------- --------- --------- ---------
Net cash provided by (used in) financing activities 15,256 (27,211) 113,522 56,375
--------- --------- --------- ---------
Change in cash and temporary cash investments 402 1,918 3,576 5,681
Cash at beginning of period 11,168 6,076 7,994 2,313
--------- --------- --------- ---------
Cash at end of period $ 11,570 $ 7,994 $ 11,570 $ 7,994
========= ========= ========= =========
Supplemental information:
Interest paid, net of amounts capitalized $ 30,142 $ 31,019 $ 61,500 $ 59,480
========= ========= ========= =========
Income taxes paid, net of refunds $ 4,428 $ 17,419 $ 7,422 $ 18,568
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
5
NOTE 1- DISCONTINUED OPERATIONS
In January 1996, the Company and its wholly owned subsidiaries: The Southwest
Companies and PriMerit Bank, Federal Savings Bank (PriMerit or the Bank),
entered into a definitive agreement with Norwest Corporation (Norwest) to sell
PriMerit to Norwest for $175 million. In April 1996, Norwest elected,
pursuant to an option in the original agreement, to structure the acquisition
as a purchase of substantially all of the assets and liabilities of the Bank
in exchange for consideration of $191 million. It is estimated that the
Company will be required to pay an additional $16 million in income taxes by
virtue of consummating the Bank sale as a purchase of assets and assumption of
liabilities. The consideration of $191 million therefore provides the
economic equivalent to the Company of a sale of stock of the Bank for
$175 million.
Shareholders of the Company voted on and approved the principal terms of the
sale at the annual shareholder meeting held in July. Various preclosing
regulatory approvals were obtained and other customary closing conditions were
satisfied. The sale closed in July 1996. Net proceeds of approximately
$163 million were initially used to pay down short-term debt and a portion of
the term-loan facilities. In August, the Company will retire debt incurred in
connection with its investment in the Bank.
NOTE 2 - ACQUISITION OF NORTHERN PIPELINE CONSTRUCTION CO.
On April 29, 1996, the Company acquired all of the outstanding stock of
Northern Pipeline Construction Co. (NPL) pursuant to a definitive agreement
dated November 1995. The Company issued approximately 1,439,000 shares of
common stock valued at $24 million. The acquisition was accounted for as a
purchase. In connection with the acquisition, goodwill in the amount of
approximately $12 million was recorded by NPL. This goodwill will be
amortized over a period of approximately 25 years.
NPL provides local gas distribution companies with installation, replacement,
and maintenance services for underground natural gas distribution systems.
During the period from the acquisition date through June 30, 1996, NPL
recognized revenues generated from contracts with the Company of $9.3 million.
This amount is included in the consolidated statements of income of the
Company and was not eliminated during consolidation. Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation," provides that intercompany profits on sales to regulated
affiliates should not be eliminated in consolidation if the sales price is
reasonable and if future revenues approximately equal to the sales price will
result from the rate-making process. Management believes these two criteria
will be met.
The acquisition of NPL had the following initial impact on the Company's
consolidated balance sheet (thousands of dollars):
Other property and investments $ 26,490
Receivables, net 12,928
Prepaids and other current assets 2,545
Deferred charges and other assets 11,340
---------
Total assets acquired 53,303
---------
Long-term debt and capital leases, including current maturities 14,867
Short-term debt 2,766
Accounts payable 3,123
Other current liabilities 6,759
Deferred income taxes 4,737
Other deferred credits 394
---------
Total liabilities assumed 32,646
---------
Net noncash assets acquired 20,657
Cash acquired in acquisition and included in cash flow statement 3,343
---------
Total common equity issued in acquisition $ 24,000
=========
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is principally engaged in the business of purchasing,
transporting, and distributing natural gas to residential, commercial, and
industrial customers in geographically diverse portions of Arizona, Nevada,
and California (natural gas operations segment). In April 1996, the Company
completed the acquisition of Northern Pipeline Construction Co. (NPL)
pursuant to a definitive agreement dated November 1995. The Company issued
approximately 1,439,000 shares of common stock, valued at $24 million, in
exchange for 100 percent of NPL common stock. NPL provides local gas
distribution companies with installation, replacement, and maintenance
services for underground natural gas distribution systems (construction
services segment).
Previously, the Company engaged in financial services activities through
PriMerit, a wholly owned subsidiary. In January 1996, the Company signed a
definitive agreement to sell PriMerit to Norwest. The sale closed
July 19, 1996, following receipt of shareholder and various governmental
approvals and satisfaction of other customary closing conditions. For
consolidated financial reporting purposes, the financial services activities
are disclosed as discontinued operations.
For the twelve months ended June 30, 1996, continuing operations contributed
income of $1 million, while discontinued operations experienced an
$18.3 million loss, resulting in a total net loss of $17.3 million.
CAPITAL RESOURCES AND LIQUIDITY
The Company estimates that construction expenditures for its natural gas
operations for the three-year period ending December 31, 1998 will be
approximately $470 million. It is estimated that cash flow from operating
activities (net of dividends) will fund approximately one-half of the gas
operation's total construction expenditures during the three-year period
ending December 31, 1998. A portion of the construction expenditure funding
will be provided by $31 million of funds held in trust, at June 30, 1996,
from the issuance of 1993 City of Big Bear Lake, California, Series A
industrial development revenue bonds (IDRB). The remaining cash requirements
are expected to be provided by external financing sources. The timing, types,
and amounts of these additional external financings will be dependent on a
number of factors, including conditions in the capital markets, timing and
amounts of rate relief, and growth factors in the Company's service areas.
These external financings may include the issuance of both debt and equity
securities, bank and other short-term borrowings, and other forms of
financing.
In early August 1996, the Company completed the sale of $150 million of
debt securities. These debt securities are composed of $75 million
7-1/2% debentures due 2006, and $75 million 8% debentures due 2026. Net
proceeds of $148 million as well as a portion of the $163 million net proceeds
from the Bank sale will be used to refund outstanding callable debentures with
the remaining amount to be used for general corporate purposes, including the
acquisition of property for the construction, completion, extension, or
improvement of the Company's pipeline systems and facilities located in and
around the communities it serves. The June 30, 1996 balance of the debt to be
refunded was (thousands of dollars):
Series A, 9% due 2011 $ 26,838
Series B, 9% due 2011 31,158
Series C, 8.75% due 2011 18,323
Series D, 9.375% due 2017 120,000
Series E, 10% due 2013 23,069
Securities ratings issued by nationally recognized ratings agencies provide a
method for determining the creditworthiness of an issuer. The Company's debt
ratings are influential since long-term debt constitutes a significant portion
7
of the Company's capitalization. These debt ratings are a factor considered
by lenders when determining the cost of debt for the Company (i.e., the better
the rating, the lower the cost to borrow funds).
In July 1996, Moody's upgraded the Company's unsecured long-term debt rating
from Baa3 to Baa2. Moody's debt ratings range from Aaa (best quality) to C
(lowest quality). Moody's applies a Baa2 rating to obligations which are
considered medium grade obligations, i.e., they are neither highly protected
nor poorly secured.
Also in July 1996, Duff & Phelps Credit Rating Co. upgraded the Company's
unsecured long-term debt rating to BBB from BBB-. Duff & Phelps debt ratings
range from AAA (highest rating possible) to DD (defaulted debt obligation).
The Duff & Phelps rating of BBB indicates that the Company's credit quality is
considered prudent for investment.
A securities rating is not a recommendation to buy, sell, or hold a security
and is subject to change or withdrawal at any time by the rating agency.
RESULTS OF CONSOLIDATED OPERATIONS
Quarterly Analysis
- ------------------
Contribution to Net Income
Three Months Ended June 30,
---------------------------
(Thousands of dollars)
1996 1995
---------- ----------
Continuing operations:
Natural gas operations $ (12,389) $ (9,951)
Construction services 446 --
Discontinued operations-financial services -- 610
---------- ---------
Net loss $ (11,943) $ (9,341)
========== ==========
Loss per share for the quarter ended June 30, 1996 was $0.46, a $0.05 decline
from a per share loss of $0.41 recorded during the corresponding quarter of
the prior year. Loss from continuing operations during the current quarter
was $0.46, a decline from the loss recorded during the quarter ended
June 30, 1995 of $0.44 per share. See separate discussion at NATURAL GAS
OPERATIONS SEGMENT of the changes as they relate to the natural gas operations
segment. Construction services earnings per share were $0.02 for the
two-month period since acquisition. Prior year loss per share included per
share earnings of $0.03 contributed from discontinued operations. Average
shares outstanding increased 3 million shares between years primarily
resulting from a 2.1 million share public offering in May 1995, a 1.4 million
share issuance in April 1996 to acquire NPL, and issuances under the Company's
Dividend Reinvestment and Stock Purchase Plan.
Six-Month Analysis
- ------------------
Contribution to Net Income
Six Months Ended June 30,
--------------------------
(Thousands of dollars)
1996 1995
---------- ----------
Continuing operations:
Natural gas operations $ 2,470 $ 4,498
Construction services 446 --
Discontinued operations-financial services -- 806
---------- ----------
Net income $ 2,916 $ 5,304
========== ==========
8
Earnings per share for the six months ended June 30, 1996 were $0.12, an $0.11
decline from per share earnings of $0.23 recorded during the corresponding six
months of the previous year. Earnings from continuing operations during the
current six-month period were $0.12 per share, a decline from earnings
recorded during the corresponding prior period of $0.19 per share. See
separate discussion at NATURAL GAS OPERATIONS SEGMENT of the changes as they
relate to the natural gas operations segment. Prior period earnings also
included $0.04 per share contributed from discontinued operations. Average
shares outstanding increased 3.1 million shares between years.
Twelve-Month Analysis
- ---------------------
Contribution to Net Income
Twelve Months Ended June 30,
----------------------------
(Thousands of dollars)
1996 1995
---------- ----------
Continuing operations:
Natural gas operations $ 626 $ 17,024
Construction services 446 --
Discontinued operations-financial services (18,342) 1,653
---------- ----------
Net income (loss) $ (17,270) $ 18,677
========== ==========
Loss per share for the twelve months ended June 30, 1996 was $0.70, a $1.54
decline from earnings per share recorded during the prior twelve month period
of $0.84. Earnings from continuing operations during the current period were
$0.04 per share compared to earnings of $0.77 per share for the prior period.
See separate discussion at NATURAL GAS OPERATIONS SEGMENT of the changes as
they relate to the natural gas operations segment. Loss from discontinued
operations for the current period was $0.74 per share compared to earnings of
$0.07 per share from the prior year. The current period loss occurred
primarily as a result of the disposal of the discontinued segment. Average
shares outstanding increased 3.2 million shares between years.
NATURAL GAS OPERATIONS SEGMENT
The Company is engaged in the business of purchasing, transporting, and
distributing natural gas in portions of Arizona, Nevada, and California. Its
service areas are geographically as well as economically diverse. The Company
is the largest distributor in Arizona, selling and transporting natural gas in
most of southern, central, and northwestern Arizona, including the Phoenix and
Tucson metropolitan areas. The Company is also the largest distributor and
transporter of natural gas in Nevada, and serves the Las Vegas metropolitan
area and northern Nevada. In addition, the Company distributes and transports
natural gas in portions of California, including the Lake Tahoe area in
northern California and high desert and mountain areas in San Bernardino
County.
The Company purchases, transports, and distributes natural gas to
approximately 1,051,000 residential, commercial, and industrial customers
within its three-state service territory, of which 59 percent are located in
Arizona, 31 percent are in Nevada, and 10 percent are in California. During
the twelve months ended June 30, 1996, the Company earned 58 percent of
operating margin in Arizona, 31 percent in Nevada, and 11 percent in
California. During this same period, the Company earned 59 percent of
operating margin from residential customers, 24 percent from commercial
customers, and 17 percent from industrial and other customers. These patterns
are consistent with prior years and are expected to continue.
For the twelve months ended June 30, 1996, the Company's natural gas
construction expenditures totaled $179 million, a 17 percent increase when
compared to $153 million of additions for the same period ended a year ago.
The increase is attributed to the investment in new transmission and
distribution plant in Arizona, Nevada, and California to meet the demand from
the Company's growing customer base.
9
RESULTS OF NATURAL GAS OPERATIONS
Quarterly Analysis
- ------------------
Three Months Ended
June 30,
------------------------
(Thousands of dollars)
1996 1995
---------- ----------
Gas operating revenues $ 102,713 $ 122,189
Net cost of gas 36,688 54,760
---------- ----------
Operating margin 66,025 67,429
Operations and maintenance expense 48,260 47,855
Depreciation and amortization 16,452 15,741
Taxes other than income taxes 7,269 6,706
---------- ----------
Operating income (loss) (5,956) (2,873)
Other income (expense), net (354) (199)
---------- ----------
Income (loss) before interest and income taxes (6,310) (3,072)
Net interest deductions 13,271 13,038
Preferred securities distribution 1,369 --
Income tax expense (benefit) (8,430 (6,159)
---------- ----------
Net income (loss) before allocations (12,520) (9,951)
Allocation of carrying costs, net of tax 131 --
---------- ----------
Contribution to consolidated net income $ (12,389) $ (9,951)
========== ==========
Contribution to consolidated net income decreased $2.4 million, compared to
the second quarter of 1995. The decrease was principally the result of higher
depreciation, general taxes, and financing costs incurred as a result of the
expansion and upgrading of the gas system to accommodate continued customer
growth.
Operating margin decreased two percent in the second quarter of 1996 when
compared to the second quarter of 1995. Temperatures during the second
quarter of 1995 were cooler than normal, with the second quarter of 1996
experiencing a return to normal temperatures. Customer growth in 1996
somewhat offset the weather-related margin decrease.
Depreciation expense and general taxes increased $1.3 million, or six percent,
as a result of additional plant in service. Average gas plant in service
increased $138 million, or nine percent, as compared to the second quarter of
1995. The increase reflects ongoing capital expenditures for the upgrade of
existing operating facilities and the expansion of the system to accommodate
continued customer growth.
Preferred securities distributions during the second quarter of 1996 were
$1.4 million. These distributions were generated from the original issuance
of preferred securities in October 1995.
10
Six-Month Analysis
- ------------------
Six Months Ended
June 30,
--------------------------
(Thousands of dollars)
1996 1995
----------- -----------
Gas operating revenues $ 291,065 $ 325,710
Net cost of gas 115,157 153,666
----------- -----------
Operating margin 175,908 172,044
Operations and maintenance expense 95,471 93,722
Depreciation and amortization 32,991 30,878
Taxes other than income taxes 14,863 13,488
----------- -----------
Operating income 32,583 33,956
Other income (expense), net (275) 9
----------- -----------
Income before interest and income taxes 32,308 33,965
Net interest deductions 26,224 26,360
Preferred securities distribution 2,738 --
Income tax expense 1,007 3,107
----------- -----------
Net income before allocations 2,339 4,498
Allocation of carrying costs, net of tax 131 --
----------- -----------
Contribution to consolidated net income $ 2,470 $ 4,498
=========== ===========
Contribution to consolidated net income decreased $2 million as compared to
the six months ended June 1995. This was the result of increased operating
costs and financing expenses incurred as a result of the continued expansion
and upgrading of the gas system to accommodate the Company's growth partially
offset by increased operating margin.
Operating margin increased two percent during the six months ended June 1996
compared to the same period in 1995 due primarily to continued customer
growth. However, the impact of record warm temperatures in the Southwest
region of the country during the first quarters of 1996 and 1995 reduced
operating margin in both periods from expected levels.
Operations and maintenance expenses increased $1.7 million, or two percent,
reflecting increases in labor and maintenance costs along with incremental
operating expenses associated with meeting the needs of the Company's growing
customer base.
Depreciation expense and general taxes increased $3.5 million, or eight
percent, resulting from an increase in average gas plant in service of
$143 million, or ten percent. This increase reflects capital expenditures for
the upgrade of existing operating facilities and the expansion of the system
to accommodate continued customer growth within the Company's service area.
Preferred securities distributions during the current period were
$2.7 million. These distributions were generated from the original issuance
of preferred securities in October 1995.
11
Twelve-Month Analysis
- ---------------------
Twelve Months Ended
June 30,
--------------------------
(Thousands of dollars)
1996 1995
----------- -----------
Gas operating revenues $ 528,857 $ 609,345
Net cost of gas 188,947 258,154
----------- -----------
Operating margin 339,910 351,191
Operations and maintenance expense 189,718 185,839
Depreciation and amortization 64,605 59,711
Taxes other than income taxes 28,548 26,288
----------- -----------
Operating income 57,039 79,353
Other income (expense), net (936) 182
----------- -----------
Income before interest and income taxes 56,103 79,535
Net interest deductions 53,218 52,348
Preferred securities distribution 3,651 --
Income tax expense (benefit) (1,261) 10,163
----------- -----------
Net income before allocations 495 17,024
Allocated carrying costs, net of tax 131 --
----------- -----------
Contribution to consolidated net income $ 626 $ 17,024
=========== ===========
Contribution to consolidated net income decreased $16.4 million as compared
to the corresponding twelve-month period of the prior year. Operating margin
decreased while operations and maintenance expense, depreciation expense,
general taxes, and net interest deductions increased.
Despite a five percent increase in the average number of customers billed
between the two periods, operating margin decreased $11.3 million due to
record warm weather experienced during the 1995/1996 winter heating season.
Unseasonably warm weather experienced during much of the fourth quarter of
1995 and the first quarter of 1996 caused operating margin to be approximately
$30 million less than expected and $24 million lower than the prior twelve-
month period. The addition of 58,000 new customers over the twelve-month
period partially mitigated the impact of weather, contributing approximately
$13 million to operating margin.
Operations and maintenance expenses increased $3.9 million, or two percent,
primarily as a result of general cost increases in labor and materials over
the same period a year ago. These increases reflect the incremental cost of
providing service to the Company's steadily growing customer base.
Depreciation expense and general taxes increased $7.2 million, or eight
percent, as a result of additional plant in service. Average gas plant in
service for the current twelve-month period increased $142 million, or ten
percent, compared to the corresponding period a year ago. This was
attributable to the upgrade of existing operating facilities and the expansion
of the system to accommodate the number of new customers being added to the
system.
Net interest deductions increased $870,000 during the twelve months ended
June 1996 over the comparative period of the prior year. Average total debt
outstanding during the period increased two percent and consisted of a
$57 million increase in average long-term debt, net of funds held in trust,
and a $44 million decrease in average short-term debt. The increase in debt
is attributed primarily to the drawdown of IDRB funds previously held in trust
and the refinancing of the $165 million term-loan facilities with a
$200 million term-loan facility in January 1995.
12
Preferred securities distributions during the current period were
$3.7 million. These distributions were generated from the original issuance
of preferred securities in October 1995.
RATES AND REGULATORY PROCEEDINGS
NEVADA
In December 1995, the Company filed general rate cases with the Public
Service Commission of Nevada (PSCN) seeking approval to increase revenues by
$15.8 million, or 12 percent, annually for its southern Nevada rate
jurisdiction and $5 million, or 10 percent, annually for its northern Nevada
rate jurisdiction. The Company was seeking recovery of increased operating
and maintenance costs, construction-related financing, tax, insurance, and
depreciation expenses associated with its expanding customer base. In
April 1996, the PSCN approved a settlement of the general rate cases which
provide the Company with a $10.6 million general rate increase in southern
Nevada and a $3.2 million increase in northern Nevada. The settlement
achieved a number of rate design and tariff restructuring changes resulting
in rates that are more cost-based. Over 86 percent of annual margin will now
be recoverable from core customer classes, those most responsible for the
increased operating costs. The settlement also adjusts rate design by
equalizing margins earned from sales and transportation customers, resulting
in consistent margin regardless of the type of service elected by a customer.
The settlement also specifies a moratorium on future general rate increase
requests until April 1999. The new rates became effective July 1, 1996.
FERC
In July 1996, Paiute Pipeline Company, a wholly owned subsidiary of the
Company, filed a general rate case with the Federal Energy Regulatory
Commission (FERC) seeking approval to increase revenues by $6.9 million
annually. Paiute is seeking recovery of cost increases associated with plant
and related items, depreciation rates, operational costs including labor, and
an increase in the required rate of return. Interim rates reflecting the
increased revenues are expected to become effective in January 1997, subject
to refund. The exact amount of rate relief that will ultimately be authorized
is not known.
13
PART II - OTHER INFORMATION
----------------------------
ITEMS 1-3 NONE
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on
July 16, 1996. Matters voted upon and the results of the voting were
as follows:
(1) The eleven directors nominated were reelected.
(2) The proposal to approve the principal terms of the sale of
PriMerit Bank, Federal Savings Bank, to Norwest Corporation
was approved. Shareholders voted 18,580,929 shares in favor,
301,381 opposed, and 385,356 abstentions.
(3) The proposal to approve the 1996 Stock Incentive Plan was
approved. Shareholders voted 13,942,808 shares in favor,
4,601,390 opposed, and 768,820 abstentions.
(4) The proposal to amend the Restated Articles of Incorporation of
the Company to increase the authorized shares of Common Stock
from 30,000,000 shares to 45,000,000 shares was approved.
Shareholders voted 19,561,462 shares in favor, 3,162,217
opposed, and 521,758 abstentions.
(5) The proposal to amend the Restated Articles of Incorporation of
the Company to authorize a new class of Preferred Stock and to
eliminate authority to issue shares of Preferred Stock ($50 par
value), Cumulative Preferred Stock ($100 par value), Second
Preference Stock ($100 par value) and Special Common Stock was
approved. Shareholders voted 13,264,972 shares in favor,
5,720,041 opposed, and 735,719 abstentions.
(6) The proposal to ratify the selection of Arthur Andersen LLP as
independent public accountants for the Company was approved.
Shareholders voted 22,472,397 shares in favor, 396,510 opposed,
and 376,531 abstentions.
ITEM 5 NONE
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report on
Form 10-Q:
Exhibit 10 -- Southwest Gas Corporation Directors Deferral Plan
together with first amendment dated March 5, 1996.
Exhibit 27 -- Financial Data Schedule (filed electronically
only)
Exhibit 99 -- Financial Analyst Report-Second Quarter 1996
14
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K - (CONTINUED)
(b) Reports on Form 8-K
The Company filed a Form 8-K, dated July 19, 1996, reporting
the closing of the sale of the Bank to Norwest Corporation.
The Company filed a Form 8-K, dated July 26, 1996, updating
exhibits in connection with its Registration Statement No.
33-62143.
The Company filed a Form 8-K, dated July 31, 1996, in
connection with the issuance of $150 million of debt
securities.
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 12, 1996
/s/ Edward A. Janov
--------------------------------------------------
Edward A. Janov
Vice President/Controller/Chief Accounting Officer
15
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10 Southwest Gas Corporation Directors Deferral Plan together with
first amendment dated March 5, 1996.
27 Financial Data Schedule (filed electronically only)
99 Financial Analyst Report - Second Quarter 1996
EXHIBIT 10
MASTER PLAN DOCUMENT
SOUTHWEST GAS CORPORATION
DIRECTORS DEFERRAL PLAN
TABLE OF CONTENTS
Article Subject Page
- ------- ------- ----
1 Definitions. . . . . . . . . . . . . . . . . . . . . 1
2 Eligibility. . . . . . . . . . . . . . . . . . . . . 3
3 Deferral Commitment. . . . . . . . . . . . . . . . . 3
4 Interest, Crediting and Vesting. . . . . . . . . . . 4
5 Plan Benefit Payments. . . . . . . . . . . . . . . . 4
6 Retirement Benefit Payments. . . . . . . . . . . . . 4
7 Pre-Retirement Survivor Benefit Payments . . . . . . 5
8 Post-Retirement Survivor Benefit Payments. . . . . . 5
9 Termination Benefit Payments . . . . . . . . . . . . 5
10 Disability Benefit Payments. . . . . . . . . . . . . 5
11 Beneficiaries. . . . . . . . . . . . . . . . . . . . 6
12 Company Liability. . . . . . . . . . . . . . . . . . 7
13 No Guarantee of Continuing Directorship. . . . . . . 7
14 Termination, Amendment or Modification of The Plan . 7
15 Restrictions on Alienation of Benefits . . . . . . . 8
16 Administration of the Plan . . . . . . . . . . . . . 8
17 Miscellaneous. . . . . . . . . . . . . . . . . . . . 9
DIRECTORS DEFERRAL PLAN
OF
SOUTHWEST GAS CORPORATION
PURPOSE
The purpose of this Plan is to provide specified benefits to Directors of
SOUTHWEST GAS CORPORATION.
ARTICLE 1
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the context, the
words and phrases listed below shall be defined as follows:
1.1 "Account Balance" means a Participant's individual fund comprised of
Deferrals and interest earnings credited thereon up to the time of
Benefit Distribution.
1.2 "Beneficiary" means the person or persons, or the estate of a
Participant, named to receive any benefits under the Plan upon the
death of a Participant.
1.3 "Benefit Account Balance" shall have the meaning set forth in
Article 5.3.
1.4 "Benefit Distribution" means the date benefits under the Plan commence
or are paid in full to a Participant, or because of his death, to his
Beneficiary, which will occur within 90 days of notification to the
Company of the event that gives rise to such distribution.
1.5 "Board Fees" means the annual compensation received by a Director for
serving on the Board of Directors of Southwest Gas Corporation, its
Subsidiaries and any committees of such boards.
1.6 "Board of Directors" means the Board of Directors of Southwest Gas
Corporation.
1.7 "Committee" means the administrative committee appointed by the Board
of Directors to manage and administer the Plan in accordance with the
provisions of the Plan.
1.8 "Company" means Southwest Gas Corporation.
1
1.9 "Deferral(s)" means the amount of Board Fees transferred to the Plan
accounts.
1.10 "Director" means any person on the Board of Directors of Southwest Gas
Corporation.
1.11 "Master Plan Document" means this legal instrument containing the
provisions of the Plan.
1.12 "Moody's Rate" means Moody's Seasoned Corporate Bond Rate which is an
economic indicator consisting of an arithmetic average of yields of
representative bonds (industrial and AAA, AA and A rated public
utilities) as of January 1 prior to each Plan Year as published by
Moody's Investors Service, Inc. (or any successor thereto), or, if such
index is no longer published, a substantially similar index selected by
the Board of Directors.
1.13 "Moody's Composite Rate" means the average of the Moody's Rate on
January 1 for the five years prior to Benefit Distribution.
1.14 "Participant" means any Director who executes a Plan Agreement.
1.15 "Plan" means the Director Deferral Plan of the Company evidenced by
this Master Plan Document.
1.16 "Plan Agreement" means the form of written agreement which is entered
into from time to time, by and between the Company and a Participant.
1.17 "Plan Year" means the year beginning on March 15 of each year.
1.18 "Retire" or "Retirement" means the cessation of service on the Board
of Directors of the Company after completing five (5) Years of Service,
other than by death, disability or Termination of Service.
1.19 "Subsidiaries" means any corporation, partnership, or other
organization which is at least 50 percent owned by the Company or a
Subsidiary of the Company.
1.20 "Terminates Service" or "Termination of Service" means the cessation
of service on the Board of Directors of the Company, either voluntarily
or involuntarily, excluding Retirement, disability or death.
1.21 "Years of Service" means the length of time, in discrete 12-month
periods, a Participant has served on the Board of Directors of the
Company.
2
ARTICLE 2
ELIGIBILITY
2.1 A Director shall become eligible to participate in the Plan as of the
effective date of his election as a Director.
2.2 Once eligible to participate in the Plan, a Director has to complete,
execute and return to the Committee a Plan Agreement to become a
Participant in the Plan. Continued participation in the Plan is
subject to compliance with any further conditions as may be established
by the Committee.
ARTICLE 3
DEFERRAL COMMITMENT
3.1 A Participant may defer up to 100 percent of his Board Fees received
during a Plan Year; provided, that such Deferral exceeds $2,000 per
Plan Year.
3.2 Prior to the commencement of each Plan Year, a Participant will advise
the Committee, in writing, of his deferral commitment for the upcoming
Plan Year. If a Participant fails to so advise the Committee, through
no fault of the Company, he will not be permitted to defer any of his
Board Fees during upcoming Plan Year.
3.3 A Participant's Deferral commitment will be exercised on a per pay
period basis.
3.4 In the event a Director becomes a Participant in the Plan during a
Plan Year, such Participant may defer up to 100 percent of the
remaining portion of his Board Fees for the Plan Year. Such
Participant must make his Deferral commitment by advising the
Committee, in writing, at the time he elects to become a Participant
in the Plan.
3.5 In the event a Participant defaults on his Deferral commitment, the
Participant will not be allowed to make any further Deferrals during
the current Plan Year and may not make any Deferrals for the subsequent
Plan Year.
3.6 The Committee may waive for good cause the default penalty specified
in Article 3.5 upon the request of the Participant.
3
ARTICLE 4
INTEREST, CREDITING AND VESTING
4.1 A Participant's Account Balance at the start of a Plan Year and any
Deferrals made during a Plan Year will earn, except as provided for
in Article 4.2, interest annually at 150 percent of the Moody's Rate.
Interest will be credited to a Participant's account for rollover
contributions, from the date such contributions are accepted by the
Plan.
4.2 If a Participant Terminates Service prior to completing five Years of
Service with the Company, interest credited for all Deferrals to a
Participant's Account Balance will be adjusted based on the Moody's
Rate during the period he participated in the Plan.
ARTICLE 5
PLAN BENEFIT PAYMENTS
5.1 A Participant's Account Balance will be paid to the Participant in a
lump-sum payment at the time of Benefit Distribution, unless the
Participant qualifies to receive benefit payments over a specific
benefit payment period.
5.2 A Participant's Account Balance will earn interest under the provisions
of Article 4.1 until the time of Benefit Distribution.
5.3 If a Participant is entitled to receive Plan benefit payments over
a specific benefit payment period, his Account Balance at the
commencement of Benefit Distribution will be credited with an amount
equal to the interest such balance would have earned assuming
distribution in equal monthly installments over the specific benefit
payment period, at a specified interest rate, thereby creating a
Benefit Account Balance. The Benefit Account Balance will then be
paid to the Participant in equal monthly installments over the specific
benefit payment period.
ARTICLE 6
RETIREMENT BENEFIT PAYMENTS
6.1 A Participant who Retires from the Company qualifies to receive his
Account Balance over a period of either 120, 180 or 240 months. The
Committee will have complete discretion to determine the retirement
benefit payment period that will be awarded to an individual
Participant.
4
6.2 The interest rate used to calculate the amount that will be credited
to a Participant's Account Balance, to determine his Benefit Account
Balance under the provisions of Article 5.3, will be 150 percent of
the Moody's Composite Rate.
ARTICLE 7
PRE-RETIREMENT SURVIVOR BENEFIT PAYMENTS
7.1 If a Participant dies while he is on the Board of Directors, his
Account Balance will be paid to his Beneficiary in a lump sum
distribution at the time of Benefit Distribution or in equal monthly
installments over the 180 month survivor benefit payment period.
The Committee will, in its sole discretion, determine whether the
Participant's Beneficiary will qualify for payment over the survivor
benefit payment period.
7.2 If the Committee determines to pay the Beneficiary over the survivor
benefit payment period, the interest rate used to determine the amount
that will be credited to a Participant's Account Balance, to determine
his Benefit Account Balance under the provisions of Article 5.3, will
be the Moody's Composite Rate.
ARTICLE 8
POST-RETIREMENT SURVIVOR BENEFIT PAYMENTS
8.1 If a Participant dies after the commencement of retirement or
disability benefit payments under Articles 6 or 10 but prior to such
benefits having been paid in full, the Participant's benefit payments
will continue to be paid to the Participant's Beneficiary through the
end of the originally awarded benefit payment period, except as
provided for in Article 11.7.
ARTICLE 9
TERMINATION BENEFIT PAYMENTS
9.1 A Participant who Terminates Service with the Company prior to
Retirement will receive his Account Balance in a lump sum payment at
Benefit Distribution.
ARTICLE 10
DISABILITY BENEFIT PAYMENTS
10.1 The Committee will, in its sole discretion, determine whether a
Participant is disabled under the provisions of the Plan.
10.2 If a Participant is disabled within the first 5 Years of Service with
the Company, he will receive his Account Balance in a lump sum payment
at Benefit Distribution.
5
10.3 If a Participant is disabled after 5 Years of Service with the
Company, his Account Balance will be paid to him in equal monthly
installments over the 180 month disability benefit payment period.
10.4 If a Participant qualifies to receive his Account Balance over the
disability benefit payment period, the interest rate used to calculate
the amount that will be credited to a Participant's Account Balance,
to determine his Benefit Account Balance under the provisions of
Article 5.3, will be 150 percent of the Moody's Composite Rate.
ARTICLE 11
BENEFICIARIES
11.1 A Participant shall have the right to designate any person as his
Beneficiary to whom benefits under this Plan shall be paid in the
event of the Participant's death prior to the total distribution of
his Benefit Account Balance under the Plan. If greater than
50 percent of the Benefit Account Balance is designated to a
Beneficiary other than the Participant's spouse, such Beneficiary
designation must be consented to by the Participant's spouse. Each
Beneficiary designation must be in written form prescribed by the
Committee and will be effective only when filed with the Committee
during the Participant's lifetime.
11.2 A Participant shall have the right to change the Beneficiary
designation, subject to spousal consent under the provisions of
Article 11.1, without the consent of any designated Beneficiary by
filing a new Beneficiary designation with the Committee. The filing of
a new Beneficiary designation form will cancel all Beneficiary
designations previously filed.
11.3 The Committee shall acknowledge, in writing, receipt of each
Beneficiary designation form.
11.4 The Committee shall be entitled to rely on the Beneficiary designation
last filed by the Participant prior to his death. Any payment made in
accordance with such designation shall fully discharge the Company from
all further obligations with respect to the amount of such payments.
11.5 If a Beneficiary entitled to receive benefits under the Plan is a minor
or a person declared incompetent, the Committee may direct payment of
such benefits to the guardian or legal representative of such minor or
incompetent person. The Committee may require proof of incompetency,
minority or guardianship as it may deem appropriate prior to
distribution of any Plan benefits. Such distribution shall completely
discharge the Committee and the Company from all liability with respect
to such payments.
6
11.6 If no Beneficiary designation is in effect at the time of the
Participant's death, or if the named Beneficiary predeceased the
Participant, then the Beneficiary shall be: (1) the surviving spouse;
(2) if there is no surviving spouse, then his issue per stirpes; or
(3) if no surviving spouse or issue, then his estate.
11.7 If a Beneficiary receiving benefit payments under the provisions of
Articles 7 or 8 of the Plan dies prior to the completion of the benefit
payment period, the total of the remaining benefit payments will be
paid, in a lump sum amount, to the contingent Beneficiary designated
by the Participant under the provisions of Article 11.1. If the
Participant has failed to designate a contingent Beneficiary, the
total of the remaining benefit payments will be paid, in lump sum
amount, to the Beneficiary's estate.
ARTICLE 12
COMPANY LIABILITY
12.1 Amounts payable to a Participant shall be paid exclusively from the
general assets of the Company.
12.2 The Company shall have no obligation under the Plan to a Participant
or a Participant's Beneficiary, except as provided in this Master Plan
Document.
12.3 The Participant shall cooperate with the Committee in furnishing all
information requested by the Company to facilitate the payment of his
Benefit Account Balance. Such information may include the results of a
physical examination if any is required for participation in the Plan.
ARTICLE 13
NO GUARANTEE OF CONTINUING DIRECTORSHIP
13.1 The Company is without power to lawfully assure a Participant continued
tenure as a Director, and nothing herein constitutes a contract of
continuing directorship between the Company and the Participant.
ARTICLE 14
TERMINATION, AMENDMENT OR MODIFICATION OF THE PLAN
14.1 The Board of Directors may at any time, without notice, amend the Plan
in whole or in part provided, however, that no amendment shall be
effective to decrease or restrict the amount of interest to be credited
under the provisions of Article 4.1 on an Account Balance as of the
date of such amendment.
7
14.2 The Board of Directors reserves the right to partially or completely
terminate the Plan at any time and for any reason.
14.3 The Board of Directors may partially terminate the Plan by instructing
the Committee not to accept any additional Deferral commitments. In
the event of a partial termination, the remaining provisions of the
Plan shall continue to operate and be effective for all Participants
in the Plan, as of the date of such partial termination.
14.4 In the event that the Board of Directors completely terminates the
Plan, the Plan shall cease to operate and the Committee shall pay out
to each Participant his Account Balance, plus interest to be credited
to the Account Balance, as of the date of the Plan's termination. The
Committee, in its sole discretion, may either make a lump sum
distribution at the time of Benefit Distribution or in equal monthly
installments over the 60 month Plan termination benefit payment period.
If the Committee determines to pay a Participant over the Plan
termination benefit payment period, the interest rate used to calculate
the amount that will be credited to a Participant's Account Balance,
to determine his Benefit Account Balance under the provisions of
Article 5.3, will be 150 percent of the Moody's Composite Rate.
14.5 Once benefits payments have commenced, termination of the Plan shall
not terminate the rights of a Participant or his Beneficiary to
continue to receive such payments. For all other Participants, the
termination of the Plan will limit benefits under the Plan to those
provided for in Article 14.4 herein.
ARTICLE 15
RESTRICTIONS ON ALIENATION OF BENEFITS
15.1 To the maximum extent permitted by law, no interest or benefit under
the Plan shall be assignable or subject in any manner to alienation,
sale, transfer, claims of creditors, pledge, attachment or encumbrances
of any kind.
ARTICLE 16
ADMINISTRATION OF THE PLAN
16.1 The general administration of the Plan, as well as construction and
interpretation thereof, shall be vested in the Committee. The number
of members of the Committee shall be established by, and the members
shall be appointed from time to time by, and shall serve at the
pleasure of, the Board of Directors of the Company.
16.2 Subject to the Plan, the Committee shall from time to time establish
rules, forms and procedures for the administration of the Plan. Except
8
as otherwise expressly provided, the Committee shall have the exclusive
right to interpret the Plan and to decide any and all matters arising
thereunder. The Committee's decisions shall be conclusive and binding
upon all persons having or claiming to have any right or interest under
the Plan.
16.3 The Committee may employ such consultants, advisors and managers as it
deems necessary or useful in carrying out its duties.
16.4 No member of the Committee shall be liable for any act or omission of
any other member of the Committee, nor for any act or omission on his
own part, excepting his own willful misconduct. The Company shall
indemnify and save harmless each member of the Committee against any
and all expenses and liabilities arising out of his membership on the
Committee, with the exception of expenses and liabilities arising out
of his own willful misconduct.
16.5 To enable the Committee to perform its functions, the Company shall
supply full and timely information to the Committee on all matters
relating to the compensation of all Participants, their retirement,
death or other cause for termination of employment, and such other
pertinent facts as the Committee may require.
16.6 The Committee shall have the power, in its sole discretion, to change
the manner and time of payments to be made to a Participant or
Beneficiary from that set forth herein, if requested to do so by such
Participant or Beneficiary.
ARTICLE 17
MISCELLANEOUS
17.1 Any notice given under the Plan shall be in writing and shall be mailed
or delivered to:
SOUTHWEST GAS CORPORATION
Directors Deferral Plan
Administrative Committee
5241 Spring Mountain Road
Las Vegas, NV 89102
17.2 The Plan shall be binding upon the Company and its respective
successors, and upon a Participant, Participant's Beneficiary,
assigns, heirs, executors and administrators.
17.3 The Plan shall be governed by and construed under the laws of the
State of Nevada.
9
17.4 Headings in this Master Plan Document are inserted for convenience of
reference only. Any conflict between such headings and the text shall
be resolved in favor of the text.
17.5 Masculine pronouns wherever used shall include feminine pronouns and
when the context dictates, the singular shall include the plural.
17.6 In case any provision of the Plan shall be held illegal or invalid for
any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but the Plan shall be construed and enforced
as if such illegal and invalid provisions had never been inserted
herein.
IN WITNESS WHEREOF the Company has executed this Master Plan Document
this 29th day of October, 1992.
SOUTHWEST GAS CORPORATION
By /s/ Michael O. Maffie
-----------------------
Title President and
Chief Operating Officer
-----------------------
10
FIRST AMENDMENT
TO THE SOUTHWEST GAS CORPORATION
DIRECTORS DEFERRAL PLAN
------------------------
Effective March 1, 1996, the Southwest Gas Corporation Directors Deferral Plan
is hereby amended pursuant to Article 14.1 of Plan, as follows:
1. Article 1.1 is hereby amended to read as follows:
1.1 "Account Balance" means a Participant's individual fund comprised of
Deferrals, rollover contributions from the PriMerit Bank, Federal
Saving Bank directors deferral plan and interest earnings credited
thereon up to the time of Benefit Distribution.
2. Article 3 is hereby amended to include a new Article 3.7, which reads as
follows:
3.7 The Plan will accept rollover contributions for Participants from
the PriMerit Bank, Federal Saving Bank directors deferral plan.
3. Article 4.1 is hereby amended to read as follows:
4.1 A Participant's Account Balance at the start of a Plan Year, any
Deferrals made during the Plan Year and rollover contributions from
the PriMerit Bank, Federal Saving Bank directors deferral plan will
earn, except as provided for in Article 4.2, interest annually at
150 percent of the Moody's Rate. Interest will be credited to a
Participant's account for Deferrals made during the Plan Year, as if
all Deferrals were made on the first day of the Plan Year. Interest
will be credited to a Participant's account for rollover
contributions, from the date such contributions are accepted by the
Plan.
IN WITNESS WHEREOF, the Board of Directors has adopted this amendment,
effective on the date stated above, on this 5th day of March, 1996.
SOUTHWEST GAS CORPORATION
By: /s/ Michael O. Maffie
-------------------------
Michael O. Maffie
President and
Chief Executive Officer
UT
1,000
6-MOS
DEC-31-1996
JUN-30-1996
PER-BOOK
1,189,474
66,209
297,602
52,641
0
1,605,926
28,018
342,680
9,411
380,109
0
0
624,634
45,000
0
0
125,727
0
0
0
430,456
1,605,926
311,963
1,506
278,171
278,171
33,792
(2,941)
30,851
26,429
2,916
0
2,916
10,427
0
75,126
0.12
0.12
Includes: trust originated preferred securities of $60,000, current
liabilities, net of current long-term debt maturities and short-term debt, of
$181,190 and deferred income taxes and other credits of $189,266.
Includes distributions related to trust originated preferred securities of
$2,738.
EXHIBIT 99
SOUTHWEST GAS CORPORATION
SUMMARY STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------
Gas operating revenues $ 291,065 $ 325,710 $ 528,857 $ 609,345
Net cost of gas purchased 115,157 153,666 188,947 258,154
- ------------------------------------------------------------------------------------------------------------
Operating margin 175,908 172,044 339,910 351,191
Operations and maintenance expenses 95,471 93,722 189,718 185,839
Depreciation, amortization, and general taxes 47,854 44,366 93,153 85,999
- ------------------------------------------------------------------------------------------------------------
Operating income 32,583 33,956 57,039 79,353
Net interest deductions 26,008 26,361 53,002 52,348
Preferred securities distribution 2,738 -- 3,651 --
- ------------------------------------------------------------------------------------------------------------
Pre-tax utility income 3,837 7,595 386 27,005
Utility income tax expense (benefit) 1,124 2,905 (923) 9,805
- ------------------------------------------------------------------------------------------------------------
Net utility income 2,713 4,690 1,309 17,200
Other income (expense), net (243) (192) (683) (176)
- ------------------------------------------------------------------------------------------------------------
Contribution to net income - gas operations 2,470 4,498 626 17,024
- ------------------------------------------------------------------------------------------------------------
Equity in earnings of Northern Pipeline 577 -- 577 --
Acquisition carrying costs, net of tax (131) -- (131) --
- ------------------------------------------------------------------------------------------------------------
Contribution to net income - Northern Pipeline 446 -- 446 --
- ------------------------------------------------------------------------------------------------------------
Discontinued operations - PriMerit Bank - NOTE 2 -- 806 (18,342) 1,653
- ------------------------------------------------------------------------------------------------------------
Net income (loss) 2,916 5,304 (17,270) 18,677
Preferred & preference dividends -- 190 117 423
- ------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock $ 2,916 $ 5,114 $ (17,387) $ 18,254
============================================================================================================
Earnings per share from gas segment $ 0.10 $ 0.19 $ 0.02 $ 0.77
Earnings per share from Northern Pipeline 0.02 -- 0.02 --
Earnings (loss) per share from discontinued operations -- 0.04 (0.74) 0.07
- ------------------------------------------------------------------------------------------------------------
Earnings (loss) per share of common stock $ 0.12 $ 0.23 $ (0.70) $ 0.84
============================================================================================================
Average outstanding common shares 25,211 22,110 24,773 21,615
============================================================================================================
See Notes to Summary Financial Statements.
/TABLE
SOUTHWEST GAS CORPORATION
SUMMARY BALANCE SHEET
AT JUNE 30, 1996
(In thousands)
(Unaudited)
ASSETS
UTILITY PLANT
Gas plant, net of accumulated depreciation $ 1,162,187
Construction work in progress 27,287
------------
Net utility plant 1,189,474
------------
OTHER PROPERTY AND INVESTMENTS
Investment in discontinued operations - PriMerit Bank - NOTE 2 175,118
Investment in Northern Pipeline Construction Co. 24,577
Other 36,532
------------
Total other property and investments 236,227
------------
CURRENT AND ACCRUED ASSETS
Cash, working funds and temporary cash investments 9,480
Receivables - less reserve of $1,486 for uncollectibles 23,446
Accrued utility revenue 19,964
Other 48,143
------------
Total current and accrued assets 101,033
------------
DEFERRED DEBITS
Unamortized debt expense 13,029
Other deferred debits 32,920
------------
Total deferred debits 45,949
------------
TOTAL ASSETS $ 1,572,683
============
CAPITALIZATION, LIABILITIES AND DEFERRED CREDITS
CAPITALIZATION
Common stockholders' equity
Common stock equity, $1 par, 26,403 shares outstanding $ 370,698
Retained earnings 9,411
------------
Total common stockholders' equity 380,109 32.4%
Preferred securities of Southwest Gas Capital I, 9.125% 60,000 5.1
Long-term debt - NOTE 3 733,576 62.5
------------ ----------
Total capitalization 1,173,685 100.0%
------------ ==========
CURRENT AND ACCRUED LIABILITIES
Notes payable 45,000
Accounts payable 29,631
Customer deposits 21,020
Taxes accrued (including income taxes) 31,696
Deferred purchased gas costs 46,398
Other 41,317
------------
Total current and accrued liabilities 215,062
------------
DEFERRED CREDITS
Deferred investment tax credits 19,440
Deferred income taxes 123,622
Other 40,874
------------
Total deferred credits 183,936
------------
TOTAL CAPITALIZATION, LIABILITIES AND DEFERRED CREDITS $ 1,572,683
============
See Notes to Summary Financial Statements.
/TABLE
SOUTHWEST GAS CORPORATION
SUMMARY STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996
(In thousands)
(Unaudited)
[S]
CASH FLOWS FROM OPERATIONS:
Net income $ 2,916
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 32,991
Change in receivables and payables 25,821
Change in gas cost related balancing items 15,174
Change in accrued taxes 4,095
Change in deferred taxes (2,882)
Allowance for funds used during construction (767)
Other (2,654)
----------
Net cash provided from operating activities 74,694
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from stock issuance 8,069
Stock issuance - Northern Pipeline acquisition 24,000
Dividends paid (10,427)
Change in notes payable 8,000
Long-term debt issuance, net 5,849
Other 1,269
----------
Net cash provided from financing activities 36,760
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (86,770)
Investment in Northern Pipeline (24,000)
Other (2,091)
----------
Net cash used in investing activities (112,861)
----------
Change in cash and temporary cash investments (1,407)
Cash at beginning of period 10,887
----------
Cash at end of period $ 9,480
==========
SUPPLEMENTAL INFORMATION:
Interest paid, net of amounts capitalized $ 29,937
Income taxes, net of refunds $ 4,301
See Notes to Summary Financial Statements.
SOUTHWEST GAS CORPORATION
NOTES TO SUMMARY FINANCIAL STATEMENTS
(In thousands, except par values)
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The financial statements have been prepared by Southwest Gas Corporation
(the Company) using the equity method of accounting for Northern Pipeline
Construction Co. This presentation is not in accordance with generally
accepted accounting principles (GAAP), and certain information and footnote
disclosures normally included in financial statements prepared in
accordance with GAAP have been omitted. The financial statement
presentation in this report produces the same net income as the
consolidated financial statements and, in management's opinion, is a fair
representation of the operations and contributions to net income of the
Company's operating segments.
NOTE 2 - DISCONTINUED OPERATIONS:
In January 1996, Southwest Gas Corporation (the Company) reached an agreement
to sell PriMerit Bank (PriMerit) to Norwest Corporation. Discontinued
operations includes the net income of PriMerit and its subsidiaries on a
stand-alone basis as adjusted, reduced by allocated carrying costs associated
with the Company's investment in PriMerit (principally interest) net of taxes.
The discontinued operations also includes the estimated loss on the
disposition. The sale of PriMerit to Norwest was completed in July 1996.
NOTE 3 - LONG-TERM DEBT:
Commercial paper facility $ 200,000
Debentures:
Debentures, 9% series A, due 2011 26,838
Debentures, 9% series B, due 2011 31,158
Debentures, 8.75% series C, due 2011 18,323
Debentures, 9.375% series D, due 2017 120,000
Debentures, 10% series E, due 2013 23,069
Debentures, 9.75% series F, due 2002 100,000
Industrial development revenue bonds - net of funds heldin trust 223,840
Unamortized discount on long-term debt (9,652)
----------
TOTAL LONG-TERM DEBT $ 733,576
==========
ESTIMATED CURRENT MATURITIES $ 120,000
==========
/TABLE
SOUTHWEST GAS CORPORATION
SELECTED STATISTICAL DATA
JUNE 30, 1996
FINANCIAL STATISTICS
Market value to book value per share at quarter end 112%
Twelve months to date return on equity -- total company (4.7)%
-- gas segment 0.2%
Common stock dividend yield at quarter end 5.1%
GAS OPERATIONS SEGMENT
Authorized
Authorized Authorized Return on
Rate Base Rate of Common
Rate Jurisdiction (In thousands) Return Equity
- ----------------------- -------------- -------------- --------------
Central Arizona $ 267,348 9.13% 10.75%
Southern Arizona 157,620 9.12 11.00
Southern Nevada 184,673 8.89 11.55
Northern Nevada 47,695 9.16 11.55
Southern California 69,486 9.94 11.35
Northern California 9,521 10.02 11.35
Paiute Pipeline Company 61,057 10.09 12.50
SYSTEM THROUGHPUT BY CUSTOMER CLASS
SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
(In dekatherms) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Residential 28,320,580 28,889,283 41,704,732 45,836,876
Small commercial 13,845,218 13,919,969 22,874,442 23,740,156
Large commercial 4,084,374 4,570,048 7,858,394 9,204,993
Industrial / Other 2,900,420 4,092,423 5,829,712 8,599,301
Transportation 42,930,403 46,964,610 97,566,915 98,628,474
- -------------------------------------------------------------------------------------------------------------------------
Total system throughput 92,080,995 98,436,333 175,834,195 186,009,800
=========================================================================================================================
HEATING DEGREE DAY COMPARISON
- -------------------------------------------------------------------------------------------------------------------------
Actual 1,249 1,538 1,684 2,418
Ten year average 1,414 1,598 2,035 2,350
=========================================================================================================================
/TABLE
