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8-K - CURRENT REPORT ON FORM 8-K - SOUTHWEST GAS CORPform8k11711.htm


November 7, 2011
Media Contact:  Cynthia Messina, Las Vegas, NV (702) 876-7132
Shareholder Contact:  Ken Kenny, Las Vegas, NV (702) 876-7237
For Immediate Release


SOUTHWEST GAS CORPORATION
REPORTS THIRD QUARTER 2011 RESULTS

Las Vegas, Nev. – Southwest Gas Corporation (NYSE: SWX) recorded a net loss of $0.34 per share for the third quarter of 2011, compared to a net loss of $0.11 per share recorded for the third quarter of 2010.  Consolidated net loss was $15.6 million for the third quarter of 2011, compared to a net loss of $4.8 million for the prior-year quarter.  The current quarter includes a $6.7 million ($0.15 per share) expense associated with decreases in cash surrender values of company-owned life insurance (“COLI”) policies (net of recognized death benefits).  The prior-year quarter includes $7.8 million ($0.17 per share) of income associated with increases in the cash surrender values (including net death benefits recognized) of COLI policies.  Due to the seasonal nature of the business, results for quarterly periods are not generally indicative of earnings for a complete twelve-month period.

According to Jeffrey W. Shaw, Chief Executive Officer, “Although net financial results declined between quarters due to COLI, consolidated operating income (which excludes COLI) showed improvement.  This occurred because of a strong contribution from NPL, our pipeline construction services subsidiary, which offset a reduction in gas operations results.  Lower financing costs were also a favorable factor.”  Shaw noted that, “NPL had a very strong quarter contributing $9.9 million in earnings, a $5.9 million increase as compared to the prior-year quarter.  The factors currently driving NPL operations,

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mainly the replacement of aging infrastructure, are likely to persist for a number of years.”  In conclusion, Shaw stated, “Our current Arizona general rate case continues to progress.  Hearings took place in August on a settlement agreement filed with the Arizona Corporation Commission that is supported by a majority of the interested parties.  We are optimistic that a decision on the rate case can be reached before the end of the year.”

For the twelve months ended September 30, 2011, consolidated net income was $102 million, or $2.23 per basic share, compared to $105 million, or $2.33 per basic share, during the twelve-month period ended September 30, 2010.  The decline between periods was primarily due to higher operating costs, a decrease in other income, and lower operating margin, partially offset by an $11.1 million increased contribution from construction services activities.  Other income in the current twelve-month period includes $2.3 million ($0.05 per share) associated with increases in cash surrender values of COLI policies (including recognized net death benefits).  The prior twelve-month period included $7.2 million ($0.16 per share) in income associated with net death benefits and increased COLI cash surrender values.

Natural Gas Operations Segment Results

Third Quarter
Operating margin, defined as operating revenues less the cost of gas sold, decreased $4 million in the third quarter of 2011 compared to the third quarter of 2010, primarily

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due to an isolated out-of-period adjustment of $3.7 million related to a regulatory deferral mechanism that overstated revenues for periods prior to the third quarter of 2011 (of which approximately $800,000 relates to the first half of 2011 and $2.9 million pertains to years prior to 2011).  Rate relief, weather, and customer growth were not significant components of the change in margin between the third quarters of 2011 and 2010.  Approximately 16,000 net new customers were added during the last twelve months.

Operating expenses for the quarter increased $4 million, or 3%, compared to the third quarter of 2010 primarily due to general cost increases, an increase in depreciation expense resulting from additional plant in service, and higher Arizona property tax rates.  Other income, which principally includes returns on COLI policies and non-utility expenses, decreased $14.8 million between quarters.  This was primarily due to a decline in income associated with COLI policies (including net death benefits recognized).  Net financing costs decreased $2 million between the comparative quarters, primarily due to cost savings from refinancing and reduced interest rates on variable-rate debt (including reductions relating to the interest tracking mechanism for certain Industrial Development Revenue Bonds).

Twelve Months to Date
Operating margin decreased $3 million between periods.  Margin increases due to rate relief totaled $5 million ($2 million in Nevada and $3 million in California).  Customer growth contributed $1 million of operating margin.  Differences in heating demand

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caused by weather variations between periods resulted in a decrease of $5 million.  The remaining decrease was due to the regulatory deferral mechanism adjustment in the third quarter of 2011.

Operating expenses rose $18 million, or 3%, between periods principally due to higher general costs, increases in employee-related costs including pension expense, an increase in depreciation expense resulting from additional plant in service, and an increase in Arizona property tax rates.  The increases were mitigated by cost containment efforts (including lower staffing levels).

Other income decreased $6.8 million between periods, primarily due to a decline in COLI-related income.  Net financing costs decreased $7.1 million between periods largely due to the redemption of $100 million of subordinated debentures in March 2010, cost savings from debt refinancing, and reduced interest rates on variable-rate debt.

Southwest Gas Corporation provides natural gas service to 1,836,000 customers in Arizona, Nevada, and California.

This press release may contain statements which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (Reform Act).  All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act.  A number of important factors affecting the business and financial results of the Company could cause actual results to differ materially from those stated in the forward-looking statements.  These factors include, but are not limited to, the impact of weather variations on customer usage, customer growth rates, conditions in the housing market, the effects of regulation/deregulation, the timing and amount of rate relief, changes in rate design, and the impacts of stock market volatility.

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SOUTHWEST GAS CONSOLIDATED EARNINGS DIGEST
(In thousands, except per share amounts)
 
QUARTER ENDED SEPTEMBER 30,
 
2011
   
2010
 
             
Consolidated Operating Revenues
  $ 352,592     $ 307,683  
                 
Net Income (Loss)
  $ (15,641 )   $ (4,823 )
                 
Average Number of Common Shares Outstanding
    45,881       45,447  
                 
Earnings (Loss) Per Share
  $ (0.34 )   $ (0.11 )
                 
                 
NINE MONTHS ENDED SEPTEMBER 30,
   2011      2010  
                 
Consolidated Operating Revenues
  $ 1,369,537     $ 1,362,259  
                 
Net Income
  $ 56,963     $ 58,892  
                 
Average Number of Common Shares Outstanding
    45,837       45,354  
                 
Basic Earnings Per Share
  $ 1.24     $ 1.30  
                 
Diluted Earnings Per Share
  $ 1.23     $ 1.29  
                 
TWELVE MONTHS ENDED SEPTEMBER 30,
   2011      2010  
                 
Consolidated Operating Revenues
  $ 1,837,649     $ 1,861,064  
                 
Net Income
  $ 101,948     $ 105,284  
                 
Average Number of Common Shares Outstanding
    45,766       45,262  
                 
Basic Earnings Per Share
  $ 2.23     $ 2.33  
                 
Diluted Earnings Per Share
  $ 2.21     $ 2.31  

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SOUTHWEST GAS CORPORATION
 
SUMMARY UNAUDITED OPERATING RESULTS
 
(In thousands, except per share amounts)
 
                                     
                                     
                                     
   
THREE MONTHS ENDED
   
NINE MONTHS ENDED
   
TWELVE MONTHS ENDED
 
   
SEPTEMBER 30,
   
SEPTEMBER 30,
   
SEPTEMBER 30,
 
   
2011
   
2010
   
2011
   
2010
   
2011
   
2010
 
                                     
Results of Consolidated Operations
                                   
  Contribution to net income (loss) - gas operations
  $ (25,566 )   $ (8,813 )   $ 42,648     $ 52,403     $ 81,627     $ 96,074  
  Contribution to net income - construction services
    9,925       3,990       14,315       6,489       20,321       9,210  
  Net income (loss)
  $ (15,641 )   $ (4,823 )   $ 56,963     $ 58,892     $ 101,948     $ 105,284  
                                                 
  Basic earnings (loss) per share
  $ (0.34 )   $ (0.11 )   $ 1.24     $ 1.30     $ 2.23     $ 2.33  
  Diluted earnings (loss) per share
  $ (0.34 )   $ (0.11 )   $ 1.23     $ 1.29     $ 2.21     $ 2.31  
                                                 
  Average outstanding common shares
    45,881       45,447       45,837       45,354       45,766       45,262  
  Average shares outstanding (assuming dilution)
    -       -       46,264       45,756       46,203       45,657  
                                                 
                                                 
                                                 
                                                 
Results of Natural Gas Operations
                                               
  Gas operating revenues
  $ 195,647     $ 213,893     $ 1,022,914     $ 1,133,671     $ 1,401,150     $ 1,561,644  
  Net cost of gas sold
    67,165       81,303       468,026       581,294       622,907       779,911  
  Operating margin
    128,482       132,590       554,888       552,377       778,243       781,733  
  Operations and maintenance expense
    89,087       86,746       268,745       260,386       363,302       352,047  
  Depreciation and amortization
    43,640       42,574       130,997       127,416       174,037       168,653  
  Taxes other than income taxes
    10,585       10,006       30,750       29,388       40,231       38,826  
  Operating income (loss)
    (14,830 )     (6,736 )     124,396       135,187       200,673       222,207  
  Other income (deductions)
    (8,093 )     6,704       (6,804 )     997       (3,785 )     2,998  
  Net interest deductions
    17,116       19,115       52,097       56,001       71,209       74,475  
  Net interest deductions on subordinated debentures
    -       -       -       1,912       -       3,845  
  Income (loss) before income taxes
    (40,039 )     (19,147 )     65,495       78,271       125,679       146,885  
  Income tax expense (benefit)
    (14,473 )     (10,334 )     22,847       25,868       44,052       50,811  
  Contribution to net income (loss) - gas operations
  $ (25,566 )   $ (8,813 )   $ 42,648     $ 52,403     $ 81,627     $ 96,074  



 
 

 

SOUTHWEST GAS CORPORATION
 
SELECTED STATISTICAL DATA
 
SEPTEMBER 30, 2011
 
                         
                         
FINANCIAL STATISTICS
                       
Market value to book value per share at quarter end
    140 %                  
Twelve months to date return on equity  -- total company
    8.6 %                  
                                                                        -- gas segment
    7.2 %                  
Common stock dividend yield at quarter end
    2.9 %                  
                           
                           
GAS OPERATIONS SEGMENT
                         
                 
Authorized
     
   
Authorized
   
Authorized
 
Return on
     
   
Rate Base
   
Rate of
 
Common
     
Rate Jurisdiction
 
(In thousands)
 
Return
 
Equity
     
Arizona
  $ 1,066,108       8.86 %     10.00 %
 
 
Southern Nevada
    819,717       7.40       10.15        
Northern Nevada
    116,584       8.29       10.15        
Southern California
    143,851       7.87       10.50        
Northern California
    52,285       8.99       10.50        
South Lake Tahoe
    11,815       8.99       10.50        
Paiute Pipeline Company (1)
    84,717       9.47       12.00        
                               
(1) Estimated amounts based on rate case settlement.
                       
                               
SYSTEM THROUGHPUT BY CUSTOMER CLASS
                       
   
NINE MONTHS ENDED
   
TWELVE MONTHS ENDED
 
   
SEPTEMBER 30,
   
SEPTEMBER 30,
 
(In dekatherms)
    2011       2010       2011       2010  
Residential
    53,725,340       54,112,309       70,082,331       70,938,044  
Small commercial
    22,795,163       22,708,979       30,180,185       30,278,902  
Large commercial
    8,463,944       8,398,127       11,249,112       11,115,230  
Industrial / Other
    3,703,507       4,209,420       5,386,300       5,839,319  
Transportation
    73,355,700       77,978,668       95,236,981       101,060,532  
Total system throughput
    162,043,654       167,407,503       212,134,909       219,232,027  
                                 
                                 
HEATING DEGREE DAY COMPARISON
                               
Actual
    1,414       1,475       1,936       2,018  
Ten-year average
    1,363       1,359       1,879       1,894  
                                 
                                 
Heating degree days for prior periods have been recalculated using the current period customer mix.