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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 March 31, 1997
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, 26,973,551 shares as of May 2, 1997
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1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except par value)
(Unaudited)
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
ASSETS
Utility plant
Gas plant $ 1,763,950 $ 1,732,405
Less: accumulated depreciation (520,296) (505,984)
Acquisition adjustments 5,758 5,866
Construction work in progress 47,086 46,170
----------- -----------
Net utility plant 1,296,498 1,278,457
----------- -----------
Other property and investments 72,317 71,245
----------- -----------
Current assets
Cash and cash equivalents 7,587 8,280
Accounts receivable, net of allowances 71,576 69,000
Accrued utility revenue 28,270 46,500
Deferred tax benefit -- 8,009
Deferred purchased gas costs 60,116 --
Prepaids and other current assets 28,555 28,029
----------- -----------
Total current assets 196,104 159,818
----------- -----------
Deferred charges and other assets 50,568 50,749
----------- -----------
Total assets $ 1,615,487 $ 1,560,269
=========== ===========
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock, $1 par (authorized -
45,000,000 shares; issued and
outstanding - 26,916,475 and
26,732,688 shares) $ 28,546 $ 28,363
Additional paid-in capital 352,099 349,132
Retained earnings 18,160 2,121
----------- -----------
Total common equity 398,805 379,616
Redeemable preferred securities of Southwest
Gas Capital I 60,000 60,000
Long-term debt, less current maturities 730,149 665,221
----------- -----------
Total capitalization 1,188,954 1,104,837
----------- -----------
Current liabilities
Current maturities of long-term debt 6,759 6,675
Short-term debt 86,000 121,000
Accounts payable 43,529 49,951
Customer deposits 21,542 21,133
Accrued taxes 11,837 9,977
Accrued interest 8,664 9,800
Deferred taxes 17,062 --
Deferred purchased gas costs -- 9,432
Other current liabilities 34,284 33,369
----------- -----------
Total current liabilities 229,677 261,337
----------- -----------
Deferred income taxes and other credits
Deferred income taxes and investment tax credits 153,911 152,063
Other deferred credits 42,945 42,032
----------- -----------
Total deferred income taxes and other credits 196,856 194,095
----------- -----------
Total capitalization and liabilities $ 1,615,487 $ 1,560,269
=========== ===========
The accompanying notes are an integral part of these statements.
2
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Operating revenues:
Gas operating revenues $ 211,564 $ 188,352 $ 569,573 $ 548,333
Construction revenues 23,667 -- 121,367 --
--------- --------- --------- ---------
Total operating revenues 235,231 188,352 690,940 548,333
--------- --------- --------- ---------
Operating expenses:
Net cost of gas sold 84,599 78,469 193,710 207,019
Operations and maintenance 48,448 47,211 199,601 189,313
Depreciation and amortization 20,631 16,539 77,791 63,894
Taxes other than income taxes 7,654 7,594 28,216 27,985
Construction expenses 22,384 -- 107,073 --
--------- --------- --------- ---------
Total operating expenses 183,716 149,813 606,391 488,211
--------- --------- --------- ---------
Operating income 51,515 38,539 84,549 60,122
--------- --------- --------- ---------
Other income and (expenses):
Net interest deductions (14,632) (12,953) (56,592) (52,986)
Preferred securities distributions (1,369) (1,369) (5,475) (2,281)
Other income (deductions), net (371) 79 (1,187) (781)
--------- --------- --------- ---------
Total other income and (expenses) (16,372) (14,243) (63,254) (56,048)
--------- --------- --------- ---------
Income from continuing operations before income taxes 35,143 24,296 21,295 4,074
Income tax expense 13,575 9,437 8,012 1,010
--------- --------- --------- ---------
Income from continuing operations 21,568 14,859 13,283 3,064
Net loss from discontinued operations -- -- -- (17,732)
--------- --------- --------- ---------
Net income (loss) 21,568 14,859 13,283 (14,668)
Preferred stock dividend requirements -- -- -- 212
--------- --------- --------- ---------
Net income (loss) applicable to common stock $ 21,568 $ 14,859 $ 13,283 $ (14,880)
========= ========= ========= =========
Earnings per share from continuing operations $ 0.80 $ 0.60 $ 0.50 $ 0.12
Loss per share from discontinued operations -- -- -- (0.74)
--------- --------- --------- ---------
Earnings (loss) per share of common stock $ 0.80 $ 0.60 $ 0.50 $ (0.62)
========= ========= ========= =========
Dividends paid per share of common stock $ 0.205 $ 0.205 $ 0.82 0.82
========= ========= ========= =========
Average number of common shares outstanding 26,816 24,604 26,437 24,025
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
3
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 21,568 $ 14,859 $ 13,283 $ (14,668)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 20,631 16,539 77,791 63,894
Deferred income taxes 26,919 1,218 43,154 (5,422)
Changes in current assets and liabilities
Accounts receivable (2,576) (5,260) (15,202) (1,208)
Accrued utility revenue 18,230 15,829 (199) 1,582
Deferred purchased gas costs (69,548) 2,124 (95,016) 28,687
Accounts payable (6,422) 7,430 (8,888) 17,473
Accrued taxes 1,860 16,750 (34,029) (14,147)
Other current assets and liabilities 1,523 (7,123) 11,144 (7,824)
Other 379 2,746 7,609 3,699
Undistributed loss from discontinued operations -- -- -- 13,254
--------- --------- --------- ---------
Net cash provided by (used in) operating activities 12,564 65,112 (353) 85,320
--------- --------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Construction expenditures and property additions (39,746) (38,774) (219,807) (171,029)
Proceeds from bank sale -- -- 191,662 --
Other (1,314) (105) (23,321) 4,023
--------- --------- --------- ---------
Net cash used in investing activities (41,060) (38,879) (51,466) (167,006)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 3,150 4,354 16,906 45,593
Issuance of trust originated preferred securities -- -- -- 57,713
Reacquisition of preferred stock -- -- -- (4,000)
Dividends paid (5,491) (5,044) (21,758) (20,097)
Issuance of long-term debt 67,059 4,986 226,949 47,393
Retirement of long-term debt (1,915) (127) (250,319) (351)
Issuance (repayment) of short-term debt (35,000) (37,000) 83,058 (70,000)
Other -- 1,362 (1,362) 1,269
--------- --------- --------- ---------
Net cash provided by (used in) financing activities 27,803 (31,469) 53,474 57,520
--------- --------- --------- ---------
Change in cash and temporary cash investments (693) (5,236) 1,655 (24,166)
Cash at beginning of period 8,280 11,168 5,932 30,098
--------- --------- --------- ---------
Cash at end of period $ 7,587 $ 5,932 $ 7,587 $ 5,932
========= ========= ========= =========
Supplemental information:
Interest paid, net of amounts capitalized $ 15,466 $ 16,289 $ 59,185 $ 61,900
Income taxes paid, net of refunds $ 86 $ -- $ 18,768 $ 15,234
The accompanying notes are an integral part of these statements.
4
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. Southwest Gas Corporation (the Company) is
comprised of two segments: natural gas operations (Southwest or the natural
gas operations segment) and construction services. Southwest purchases,
transports, and distributes natural gas to customers in portions of
Arizona, Nevada, and California. Natural gas sales are seasonal, peaking
during the winter months. Variability in weather from normal temperatures
can materially impact results of operations. Northern Pipeline Construction
Co. (Northern or the construction services segment), a wholly owned
subsidiary, is a full-service underground piping contractor which provides
utility companies with trenching and installation, replacement, and
maintenance services for energy distribution systems.
DISCONTINUED OPERATIONS. In July 1996, the Company completed the sale of
the assets and liabilities of PriMerit Bank (the Bank) to Norwest Corporation.
The results of operations of the Bank are shown as discontinued operations in
the accompanying financial statements.
BASIS OF PRESENTATION. The 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. 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. The preparation of the
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 expenses 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 the results for the interim
periods, have been made. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's 1996 Annual Report to Shareholders, which is
incorporated by reference into the Form 10-K.
INTERCOMPANY TRANSACTIONS. During the first quarter of 1997, the
construction services segment recognized $9 million of revenues generated from
contracts with Southwest. At March 31, 1997, accounts receivable for these
services was $5.2 million. The accounts receivable balance, revenues, and
associated profits are included in the consolidated financial statements of
the Company and were not eliminated during consolidation. Statement of
Financial Accounting Standards (SFAS) 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.
5
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. Southwest 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. Southwest is also the largest distributor and transporter
of natural gas in Nevada, and serves 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 in northern
California and high desert and mountain areas in San Bernardino County.
Southwest purchases, transports, and distributes natural gas to approximately
1,106,000 residential, commercial, industrial and other customers, of which
58 percent are located in Arizona, 32 percent are in Nevada, and 10 percent
are in California. During the twelve months ended March 31, 1997, Southwest
earned 55 percent of operating margin in Arizona, 35 percent in Nevada, and
10 percent in California. During this same period, Southwest earned
62 percent of operating margin from residential customers, 23 percent from
commercial customers, and 15 percent from industrial and other customers.
These patterns are consistent with prior years and are expected to continue.
Northern is a full-service underground piping contractor which provides
utility companies with trenching and installation, replacement, and
maintenance services for energy distribution systems.
CAPITAL RESOURCES AND LIQUIDITY
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.
Southwest continues to experience unprecedented population growth throughout
its service territories. This growth has required large amounts of capital to
finance the investment in infrastructure, in the form of new transmission and
distribution plant, to satisfy consumer demand. Southwest estimates
construction expenditures during the three-year period ending
December 31, 1999 will be approximately $468 million. During the three-year
period, cash flow from operating activities (net of dividends) is estimated to
fund approximately one-half of the gas operations total construction
expenditures. A portion of the construction expenditure funding will be
provided by $30 million of funds held in trust, at December 31, 1996, from the
issuance of 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 Southwest 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. Due to the significant size of the current construction program,
differences between estimated and actual results are expected to occur.
Actual events, and the timing of those events, frequently do not occur as
expected, and can impact, favorably or unfavorably, anticipated cash flows.
For the twelve months ended March 31, 1997, natural gas construction
expenditures totaled $209 million. Approximately 80 percent of these
current-period expenditures represents new construction and the balance
represents costs associated with routine replacement of existing transmission,
distribution and general plant. Financing for recent construction
expenditures and for other corporate purposes was provided primarily by the
issuances of medium-term notes in January and February 1997 totaling
$50 million and a $16 million issuance of commercial paper in February 1997.
Cash flows from operating activities were negatively affected by increases in
the cost of gas during the fourth quarter of 1996 and first quarter of 1997.
6
Higher gas costs coupled with refunds to customers of previously overcollected
amounts shifted the deferred purchased gas cost balance from a $34.9 million
payable, at March 31, 1996, to a $60.1 million receivable, at March 31, 1997,
a $95 million change. Southwest must first seek regulatory approval before
changing the rates it charges for recovery of gas costs. Southwest intends to
file for recovery of the accumulated balances in all applicable rate
jurisdictions. In January 1997, Southwest submitted a purchased gas cost
adjustment (PGA) filing with the Public Service Commission of Nevada (PSCN)
which, if approved as filed, would result in annual increases of $16.4 million,
or 16 percent, in the southern Nevada rate jurisdiction and $6 million, or
15 percent, in the northern Nevada rate jurisdiction. A final decision from
the PSCN is expected during the third quarter of 1997.
The increase in the cost of gas resulted from several factors including
reduced natural gas storage supplies nationwide following colder-than-normal
temperatures in the East and Midwest during the winter heating season of
1995/1996. Domestic storage supplies were not fully replenished during the
summer months of 1996 because natural gas prices did not fall as much as
expected, and companies were shifting to "just-in-time" delivery practices
in lieu of storage. Reduced availability coupled with increased weather-
related demand for supplies during the winter heating season of 1996/1997
were the primary reasons for the increased cost of natural gas. These
increases not only impacted Southwest, but local gas distribution companies
throughout the country.
RESULTS OF CONSOLIDATED OPERATIONS
Quarterly Analysis
- ------------------
Contribution to Net Income
Three Months Ended March 31,
----------------------------
(Thousands of dollars)
1997 1996
-------- --------
Natural gas operations $ 22,536 $ 14,859
Construction services (968) --
-------- --------
Net income $ 21,568 $ 14,859
======== ========
Earnings per share for the quarter ended March 31, 1997 were $0.80, compared
to $0.60 recorded during the corresponding quarter of the prior year.
Earnings contributed from natural gas operations increased $0.24 per share.
See separate discussion at RESULTS OF NATURAL GAS OPERATIONS for changes as
they relate to gas operations. Construction services activities incurred a
loss per share of $0.04 during the current period. These results were
expected based on the seasonal nature of construction activity in colder
climate areas. Average shares outstanding increased 2.2 million shares
between years primarily resulting from a 1.4 million share issuance in
April 1996 to acquire Northern and continuing issuances under the Company's
Dividend Reinvestment and Stock Purchase Plan.
7
Twelve-Month Analysis
- ---------------------
Contribution to Net Income (Loss)
Twelve Months Ended March 31,
---------------------------------
(Thousands of dollars)
1997 1996
--------- ---------
Continuing operations
Natural gas operations $ 11,596 $ 3,064
Construction services 1,687 --
--------- ---------
13,283 3,064
Discontinued operations - financial services -- (17,732)
--------- ---------
Net income (loss) $ 13,283 $ (14,668)
========= =========
Earnings per share for the twelve months ended March 31, 1997 were $0.50, a
$0.38 increase from the $0.12 per share earnings from continuing operations
recorded during the prior twelve-month period. Earnings contributed from
natural gas operations increased $0.32 per share. See separate discussion at
RESULTS OF NATURAL GAS OPERATIONS for changes as they relate to gas
operations. Construction services activities contributed per share earnings
of $0.06 representing eleven months of operations from acquisition through
March 31, 1997. Discontinued operations posted a $0.74 per share loss during
the prior year. Average shares outstanding increased 2.4 million shares
between periods.
The following table sets forth the ratios of earnings to fixed charges for
(a) continuing operations of the Company and (b) the continuing operations of
the Company adjusted for interest allocated to the discontinued operations of
PriMerit Bank.
For the Twelve Months Ended
---------------------------
March 31, December 31,
1997 1996
------------ ------------
Ratios of earnings to fixed charges:
Continuing operations 1.30 1.15
Adjusted for interest allocated to
discontinued operations 1.30 1.15
For the purposes of computing the ratios of earnings to fixed charges,
earnings are defined as the sum of pretax income from continuing operations
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), preferred securities distributions and
amortized debt costs.
8
RESULTS OF NATURAL GAS OPERATIONS
Quarterly Analysis
- ------------------
Three Months Ended
March 31,
----------------------
(Thousands of dollars)
1997 1996
---------- ----------
Gas operating revenues $ 211,564 $ 188,352
Net cost of gas sold 84,599 78,469
---------- ----------
Operating margin 126,965 109,883
Operations and maintenance expense 48,448 47,211
Depreciation and amortization 17,958 16,539
Taxes other than income taxes 7,654 7,594
---------- ----------
Operating income 52,905 38,539
Other income (expense), net (605) 79
---------- ----------
Income before interest and income taxes 52,300 38,618
Net interest deductions 14,261 12,953
Preferred securities distributions 1,369 1,369
Income tax expense 14,134 9,437
---------- ----------
Contribution to consolidated net income $ 22,536 $ 14,859
========== ==========
Contribution to consolidated net income increased $7.7 million compared to
the first quarter of 1996. The increase was principally the result of
improvements in operating margin, offset somewhat by higher operating and
financing expenses incurred as a result of the expansion and upgrading of
the gas system to accommodate continued customer growth.
Operating margin increased $17.1 million, or 16 percent, in the first quarter
of 1997 when compared to the first quarter of 1996. During the first quarter
of 1997, Southwest billed an average of 62,000, or six percent, more customers
per month than in the first quarter of 1996, resulting in approximately
$4 million of additional margin. General rate relief granted in Nevada
jurisdictions effective July 1996 increased operating margin by $5 million.
Weather-related variances between periods resulted in an $8 million increase
in operating margin from weather-sensitive customers. Even though there was
improvement, warmer-than-normal temperatures were experienced in both
reporting periods. On a weather-normalized basis, first quarter 1997
operating margin would have been approximately $8 million greater than
actually reported, and first quarter 1996 operating margin would have been
approximately $16 million, or 15 percent, higher than reported.
Operations and maintenance expenses increased $1.2 million, or three percent,
reflecting general increases in labor and maintenance costs.
Depreciation expense and general taxes increased $1.5 million, or six percent,
as a result of additional plant in service. Average gas plant in service
increased $154 million, or ten percent, as compared to the first quarter of
1996. The increase reflects ongoing capital expenditures for the upgrade of
existing operating facilities and the expansion of the system to accommodate
continued customer growth.
Financing costs increased $1.3 million, or nine percent, over the prior
period. This increase is primarily attributed to higher short-term borrowings
outstanding during the current quarter and an increase in long-term debt
reflecting $50 million medium-term note issuances during January and February
1997. The increase in short-term debt reflects the need for short-term
financing to cover higher gas costs experienced during the fourth quarter of
1996 and first quarter of 1997.
9
Twelve-Month Analysis
- ---------------------
Twelve Months Ended
March 31,
----------------------
(Thousands of dollars)
1997 1996
---------- ----------
Gas operating revenues $ 569,573 $ 548,333
Net cost of gas sold 193,710 207,019
---------- ----------
Operating margin 375,863 341,314
Operations and maintenance expense 199,601 189,313
Depreciation and amortization 68,862 63,894
Taxes other than income taxes 28,216 27,985
---------- ----------
Operating income 79,184 60,122
Other income (expense), net (1,444) (781)
---------- ----------
Income before interest and income taxes 77,740 59,341
Net interest deductions 54,311 52,986
Preferred securities distributions 5,475 2,281
Income tax expense 6,358 1,010
---------- ----------
Contribution to consolidated net income $ 11,596 $ 3,064
========== ==========
Contribution to consolidated net income increased $8.5 million compared to
the corresponding twelve-month period ended March 1996. The increase was the
result of improvement in operating margin, offset somewhat by higher
operating and financing expenses.
Operating margin increased $34.5 million due to continued customer growth,
rate relief, and improved, but warmer than normal, weather conditions. On a
weather-normalized basis, operating margin would have been approximately
$16 million greater than actually reported for the twelve months ended
March 31, 1997 and $29 million higher in the previous period.
Operations and maintenance expenses increased $10.3 million, or five percent,
reflecting increases in labor and maintenance costs along with incremental
operating expenses associated with providing service to the Company's steadily
growing customer base.
Depreciation expense and general taxes increased $5.2 million, or six percent,
as a result of additional plant in service. Average gas plant in service for
the current twelve-month period increased $144 million, or nine 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.
Financing costs increased $4.5 million, or eight percent, during the twelve
months ended March 1997 over the comparative prior period. The increase is
attributable primarily to the $60 million issuance of preferred securities in
October 1995. The current year reflects the full annual cost of these
securities. Additionally, average total debt outstanding during the period
increased due to the financing of construction expenditures and working
capital needs and included higher short-term debt, the issuance of medium-term
notes during January and February 1997, and the drawdown of IDRB funds held in
trust.
10
RATES AND REGULATORY PROCEEDINGS
ARIZONA
In November 1996, Southwest filed a general rate application with the Arizona
Corporation Commission seeking approval to increase revenues by $49.3 million
annually for both of its Arizona rate jurisdictions. Southwest is seeking
rate relief for increased operating costs, changes in financing costs, and
improvements and additions to the distribution system. The rate application
also proposes a number of rate design improvements including consolidation of
the southern and central Arizona rate jurisdictions and better matching of
rates with the costs of serving various customer classes. The exact amount of
rate relief that will ultimately be authorized is not known. Absent
successful negotiation of a settlement, the hearing process is scheduled to
begin in the third quarter of 1997 and no changes in rates are expected prior
to January 1998.
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 rate relief for increased costs associated with
transmission system additions and improvements, higher depreciation rates,
operating cost increases including labor, and an increase in the allowed rate
of return. Interim rates reflecting the increased revenues became effective
in January 1997, subject to refund until a final order is issued. The exact
amount of rate relief that will ultimately be authorized is not known. In the
event a settlement can be reached, a final order could be received by the end
of 1997. Under normal procedural schedules, final rates would become
effective by the second or third quarter of 1998.
CALIFORNIA
NORTHERN CALIFORNIA EXPANSION PROJECT. In 1995, Southwest initiated a
multi-year, three-phase construction project to expand its northern California
service territory and extend service into Truckee, California. (See Note 8 of
the Notes to Consolidated Financial Statements of the 1996 Annual Report to
Shareholders, incorporated by reference into the Form 10-K, for additional
background information.) For the remainder of 1997, construction work on this
project will be limited to the installation of services and meters off
existing mains for approximately 900 additional customers. The cost of
construction for this limited work is estimated to be approximately
$1 million. In light of cost overruns and the difficult construction
environment experienced in Phase II of the project, future construction
activity, if any, will be postponed to, at the earliest, the 1998 construction
season.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued two new
accounting pronouncements. Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings per Share," establishes standards for computing and
presenting earnings per share (EPS). This statement replaces the presentation
of primary EPS with basic EPS, which is calculated by dividing net income
applicable to common stock by the weighted average number of shares
outstanding. This statement becomes effective December 31, 1997. The Company
is in the process of reviewing the requirements of SFAS No. 128 and does not
anticipate any material changes in EPS amounts previously reported.
The second pronouncement issued was SFAS No. 129, "Disclosure of Information
about Capital Structure." SFAS No. 129 reaffirms standards for disclosing
information about an entity's capital structure. The statement becomes
effective December 31, 1997. The disclosure requirements of this standard
are not anticipated to significantly change current reporting practices of
the Company.
11
PART II - OTHER INFORMATION
---------------------------
ITEMS 1-5 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 3(i)- Restated Articles of Incorporation
Exhibit 12 - Computation of Ratios of Earnings to Fixed
Charges and Ratios of Earnings to Combined
Fixed Charges and Preferred Stock Dividends
Exhibit 27 - Financial Data Schedule (filed electronically
only)
(b) Reports on Form 8-K
The Company filed a Form 8-K, dated April 30, 1997, reporting
summary financial information for the quarter ended March 31,
1997.
12
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: May 14, 1997
/s/ Edward A. Janov
------------------------------------------------------
Edward A. Janov
Vice President/Controller and Chief Accounting Officer
13
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
3(i) Restated Articles of Incorporation
12 Computation of Ratios of Earnings to Fixed Charges and Ratios of
Earnings to Combined Fixed Charges and Preferred Stock Dividends
27 Financial Data Schedule (filed electronically only)