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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER 1-7850
SOUTHWEST GAS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
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)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (702) 876-7237
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $1 par value New York Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
9.125% Trust Originated Preferred Securities New York Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
Stock Purchase Rights New York Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT:
$557,303,693 at March 16, 1998
THE NUMBER OF SHARES OUTSTANDING OF COMMON STOCK:
Common Stock, $1 Par Value, 27,521,170 shares as of March 16, 1998
DOCUMENTS INCORPORATED BY REFERENCE
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<CAPTION>
DESCRIPTION PART INTO WHICH INCORPORATED
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<S> <C>
Annual Report to Shareholders for the Year Ended December Parts I, II and IV
31, 1997 Part III
Proxy Statement dated March 31, 1998
</TABLE>
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TABLE OF CONTENTS
PART I
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PAGE
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ITEM 1. BUSINESS....................................................
Natural Gas Operations......................................
General Description.........................................
Rates and Regulation........................................
Competition.................................................
Demand for Natural Gas......................................
Natural Gas Supply..........................................
Environmental Matters.......................................
Employees...................................................
Construction Services.......................................
ITEM 2. PROPERTIES..................................................
ITEM 3. LEGAL PROCEEDINGS...........................................
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.........................................
ITEM 6. SELECTED FINANCIAL DATA.....................................
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE....................................
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........
ITEM 11. EXECUTIVE COMPENSATION......................................
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..................................................
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.........................................................
List of Exhibits............................................
SIGNATURES............................................................
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PART I
ITEM 1. BUSINESS
The registrant, Southwest Gas Corporation (the Company), is incorporated
under the laws of the State of California effective March 1931. The executive
offices of the Company are located at 5241 Spring Mountain Road, P.O. Box 98510,
Las Vegas, Nevada, 89193-8510, telephone number (702) 876-7237.
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 (Southwest or the natural gas operations segment).
In April 1996, the Company acquired all of the outstanding stock of
Northern Pipeline Construction Co. (Northern or the construction services
segment) pursuant to a definitive agreement dated November 1995. The Company
issued approximately 1,439,000 shares of common stock valued at $24 million in
connection with the acquisition. The construction services segment provides
utility companies with trenching and installation, replacement, and maintenance
services for energy distribution systems.
In July 1996, the Company completed the sale of the assets and liabilities
of PriMerit Bank, Federal Savings Bank (PriMerit), a wholly owned subsidiary, to
Norwest Corporation (Norwest) for $191 million pursuant to a definitive
agreement dated January 1996. For consolidated financial reporting purposes, the
financial services activities are disclosed as discontinued operations.
Financial information with respect to industry segments is included in Note
13 of the Notes to Consolidated Financial Statements which is included in the
1997 Annual Report to Shareholders and is incorporated herein by reference.
NATURAL GAS OPERATIONS
GENERAL DESCRIPTION
Southwest is subject to regulation by the Arizona Corporation Commission
(ACC), the Public Utilities Commission of Nevada (PUCN), and the California
Public Utilities Commission (CPUC). These commissions regulate public utility
rates, practices, facilities, and service territories in their respective
states. The CPUC also regulates the issuance of all securities by the Company,
with the exception of short-term borrowings. Certain accounting practices,
transmission facilities, and rates are subject to regulation by the Federal
Energy Regulatory Commission (FERC).
Southwest purchases, transports, and distributes natural gas to 1,151,000
residential, commercial, and industrial customers in geographically diverse
portions of Arizona, Nevada, and California. There were 59,000 customers added
to the system during 1997.
The table below lists Southwest's percentage of operating margin (operating
revenues less net cost of gas) by major customer class for the years indicated:
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RESIDENTIAL AND OTHER
FOR THE YEAR ENDED SMALL COMMERCIAL SALES CUSTOMERS TRANSPORTATION
------------------ ---------------- -------------------- --------------
<S> <C> <C> <C>
December 31, 1997 83% 5% 12%
December 31, 1996 80 6 14
December 31, 1995 79 7 14
</TABLE>
Southwest is not dependent on any one or a few customers to the extent that
the loss of any one or several would have a significant adverse impact on
earnings.
Transportation of customer-secured gas to end-users on the Southwest system
accounted for 53 percent of total system throughput in 1997. Although the
volumes were significant, these customers provide a much smaller proportionate
share of operating margin. In 1997, customers who utilized this service
transported 103 million dekatherms.
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The demand for natural gas is seasonal. Variability in weather from normal
temperatures can materially impact results of operations. It is the opinion of
management that comparisons of earnings for interim periods do not reliably
reflect overall trends and changes in Southwest operations. Also, earnings for
interim periods can be significantly affected by the timing of general rate
relief.
RATES AND REGULATION
Rates that Southwest is authorized to charge its distribution system
customers are determined by the ACC, CPUC, and PUCN in general rate cases and
are derived using rate base, cost of service, and cost of capital experienced in
a historical test year, as adjusted in Arizona and Nevada, and projected for a
future test year in California. The FERC regulates the northern Nevada
transmission and liquefied natural gas (LNG) storage facilities of Paiute
Pipeline Company (Paiute), a wholly owned subsidiary, and the rates it charges
for transportation of gas directly to certain end-users and to various local
distribution companies (LDCs). The LDCs transporting on the Paiute system are:
Sierra Pacific Power Company (serving Reno and Sparks, Nevada), Washington Water
Power Company (serving South Lake Tahoe, California), and Southwest Gas
Corporation (serving North Lake Tahoe, California and various locations
throughout northern Nevada).
Rates charged to customers vary according to customer class and are set at
levels allowing for the recovery of all prudently incurred costs, including a
return on rate base sufficient to pay interest on debt, preferred securities
distributions, and a reasonable return on common equity. Rate base consists
generally of the original cost of utility plant in service, plus certain other
assets such as working capital and inventories, less accumulated depreciation on
utility plant in service, net deferred income tax liabilities, and certain other
deductions. Rate schedules in all of the Southwest service areas contain
purchased gas adjustment (PGA) clauses which allow Southwest to file for rate
adjustments as the cost of purchased gas changes. Generally, Southwest tariffs
provide for annual adjustment dates for changes in purchased gas costs. However,
Southwest may request to adjust its rates more often than once each year, if
conditions warrant. These changes have no direct impact on profit margin.
Filings to change rates in accordance with PGA clauses are subject to audit by
state regulatory commission staffs. Information with respect to recent PGA
filings is included in the Rates and Regulatory Proceedings section of
Management's Discussion and Analysis (MD&A), which is included in the 1997
Annual Report to Shareholders.
The table below lists the docketed general rate filings initiated and/or
completed within each ratemaking:
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MONTH
FINAL RATES
RATEMAKING AREA TYPE OF FILING MONTH FILED EFFECTIVE
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Arizona:
Central and Southern....... General rate case November 1996 September 1997
California:
Northern................... Operational attrition November 1997 January 1998
Nevada:
Northern and Southern...... General rate case December 1995 July 1996
FERC:
Paiute..................... General rate case July 1996 January 1997
</TABLE>
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Recent regulatory and legislative developments -- natural gas industry. In
1997, the Nevada Legislature passed, and the Governor signed into law, Assembly
Bill (AB) 366. AB 366 provides the statutory framework for restructuring both
the natural gas and electric industries in the State of Nevada to allow
competition. The legislature left most of the decision making on restructuring
to the PUCN. In addition to several organizational changes, AB 366 requires that
the PUCN create an alternative plan of regulation for natural gas utilities no
later than July 1, 1998. The alternative plan would allow the PUCN to determine
if a service is competitive, discretionary or potentially competitive and exempt
that service from normal pricing and ratemaking regulations. The PUCN has begun
the process of developing the regulations to implement the alternative plan of
regulation. Southwest, other utility companies, and many other interested
parties are participating in the rulemaking process.
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In January 1998, the CPUC opened a rulemaking proceeding designed to reform
the California natural gas industry by expanding opportunities for residential
and small commercial customers to have access to competing natural gas
suppliers. To accomplish this, the CPUC requested comments from interested
parties, such as Southwest, to assess the current market and regulatory
framework for the California natural gas industry and to develop reforms which
emphasize market-oriented policies to benefit all California natural gas
consumers. Southwest filed written comments with the CPUC in February 1998
addressing such issues as regulatory streamlining, unbundling, consumer
protection and other competitive issues. Hearings on these issues and additional
comment periods are scheduled by the CPUC throughout 1998.
In late 1996, the ACC unanimously voted to phase in electric supply
competition for investor-owned utilities starting in January 1999. Natural gas
utilities in Arizona are not directly impacted by this ruling. However, natural
gas related initiatives are expected to follow.
COMPETITION
Electric utilities are Southwest's principal competitors for the
residential and small commercial markets throughout its service areas.
Competition for space heating, general household, and small commercial energy
needs generally occurs at the initial installation phase when the
customer/builder typically makes the decision as to which type of equipment to
install and operate. The customer will generally continue to use the chosen
energy source for the life of the equipment. As a result of its success in these
markets, Southwest has experienced consistent growth among the residential and
small commercial customer classes.
Unlike residential and small commercial customers, certain large
commercial, industrial, and electric generation customers have the capability to
switch to alternative energy sources. Southwest has been successful in retaining
these customers by setting rates at levels competitive with alternative energy
sources such as electricity, fuel oils, and coal. As a result, management does
not anticipate any material adverse impact on its operating margin from fuel
switching.
Southwest continues to compete with interstate transmission pipeline
companies, such as El Paso Natural Gas Company (El Paso), Kern River Gas
Transmission Company (Kern River), and Tuscarora Gas Transmission Company, to
provide service to large end-users. End-use customers located in close proximity
to these interstate pipelines pose a potential bypass threat and, therefore,
require Southwest to closely monitor each customer situation and provide
competitive service in order to retain the customer.
Southwest has maintained an intensive effort to mitigate these competitive
threats through the use of discounted transportation contract rates, special
long-term contracts with electric generation and cogeneration customers, and new
tariff programs. One such program provides an opportunity for potential bypass
customers in Arizona and all transportation customers in Nevada to purchase
natural gas-related services as a bundled package, including the procurement of
gas supply. Southwest enters into gas supply contracts for eligible customers,
which are not included in its system supply portfolio, and provides nomination
and balancing services on behalf of the customer. This program, as well as other
competitive response initiatives and otherwise competitive rates, has helped
mitigate the financial impact from the threat of bypass and the potential loss
of margin currently earned from large customers.
DEMAND FOR NATURAL GAS
Deliveries of natural gas by Southwest are made under a priority system
established by each regulatory commission having jurisdiction over Southwest.
The priority system is intended to ensure that the gas requirements of
higher-priority customers, primarily residential customers and nonresidential
customers who use 500 therms of gas per day or less, are fully satisfied on a
daily basis before lower-priority customers, primarily electric utility and
large industrial customers able to use alternative fuels, are provided any
quantity of gas or capacity.
Demand for natural gas is greatly affected by temperature. On cold days,
use of gas by residential and commercial customers may be as much as eight times
greater than on warm days because of increased use of gas for space heating. To
fully satisfy this increased high-priority demand, gas is withdrawn from
storage, or
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peaking supplies are purchased from suppliers. If necessary, service to
interruptible lower-priority customers may be curtailed to provide the needed
delivery system capacity. Southwest maintains no backlog on its orders for gas
service.
Southwest has entered the residential cooling market by working with the
manufacturers of gas air conditioning units and the builders of new residential
units in the Arizona and southern Nevada service areas. Gas air conditioning
represents an emerging market with the long-term potential for Southwest to
smooth its currently seasonal earnings.
Natural gas vehicles (NGVs) represent another nontraditional source of
demand for natural gas. Southwest encourages the use of NGVs throughout its
service territories. As of December 31, 1997, there were 41 public- and
nonpublic-access fueling stations and approximately 5,000 NGVs in use throughout
Southwest service territories. As more public fueling stations come on-line and
stricter vehicle emission standards are adopted, the demand for NGVs should
increase.
NATURAL GAS SUPPLY
Southwest is responsible to acquire (purchase) and arrange delivery of
(transport) natural gas to its system for all sales customers. Southwest
believes that natural gas supplies and pipeline capacity for transportation will
remain plentiful and readily available.
The primary objective of Southwest with respect to gas supply is to ensure
that adequate, as well as economical, supplies of natural gas are available from
reliable sources. Gas is acquired from a wide variety of sources, including
suppliers on the spot market and those who provide firm supplies over short-term
and longer-term durations. During 1997, Southwest acquired gas supplies from
over 70 suppliers. This practice provides security against nonperformance by any
one supplier.
Balancing firm supply assurances against the associated costs dictates a
continually changing natural gas purchasing mix within the supply portfolios.
The current purchasing strategy of Southwest primarily involves
competitively-bid firm volumetric contracts with variable or index-based
pricing. This strategy allows Southwest to acquire gas at current market prices
but can result in price volatility. In managing its gas supply portfolio,
Southwest does not currently utilize derivative financial instruments, but may
do so in the future to hedge against possible price increases and help mitigate
the regulatory risk of gas cost disallowance during periods of rising prices.
Any such change would be undertaken only with regulatory commission
authorization.
Natural gas prices have historically demonstrated seasonal volatility with
higher prices in the heating season and lower prices during the summer or
off-peak consumption period. The latter part of 1996 and early 1997 witnessed
particularly steep price increases, whereas the most recent winter period
experienced more typical seasonal price volatility. See additional discussion
regarding the effect of changing natural gas prices included in the Capital
Resources and Liquidity section of MD&A, which is included in the 1997 Annual
Report to Shareholders.
Gas supplies for the Southwest southern system (Arizona, southern Nevada,
and southern California properties) are primarily obtained from producing
regions in New Mexico (San Juan basin), Texas (Permian basin), and Rocky
Mountain areas. For its northern system (northern Nevada and northern California
properties), Southwest primarily obtains gas from Rocky Mountain producing areas
and from Canada.
Southwest arranges for transportation of gas to its Arizona, Nevada, and
California service territories through the pipeline systems of El Paso, Kern
River, Northwest Pipeline Corporation, and Southern California Gas Company.
Supply and pipeline capacity availability on both short- and long-term bases are
continually monitored by Southwest to ensure the continued reliability of
service to its customers. Southwest currently receives firm transportation
service, both on a short- and long-term basis, for all of its service
territories on the four pipeline systems noted above, and has interruptible
contracts in place that allow additional capacity to be acquired as needed.
The current level of contracted firm interstate capacity is sufficient to
serve each of the service territories. As the need arises to acquire additional
capacity on one of the interstate pipeline transmission systems,
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primarily due to customer growth, Southwest considers available options to
obtain the capacity, either through the use of firm contracts with a pipeline
company or by purchasing capacity on the open market. While firm contracts
provide stability and guaranteed rights to capacity, they are generally a more
expensive alternative.
Southwest continues to evaluate natural gas storage as an option to enable
it to take advantage of seasonal price differentials in obtaining natural gas
from a variety of sources to meet the growing demand of its customers.
ENVIRONMENTAL MATTERS
Federal, state, and local laws and regulations governing the discharge of
materials into the environment have had little direct impact upon Southwest.
Environmental efforts, with respect to matters such as protection of endangered
species and archeological finds, have increased the complexity and time required
to obtain pipeline rights-of-way and construction permits. However, increased
environmental legislation and regulation are also beneficial to the natural gas
industry. Because natural gas is one of the most environmentally safe fossil
fuels currently available, its use helps energy users to comply with stricter
environmental standards.
EMPLOYEES
At December 31, 1997, the natural gas operations segment had 2,447 regular
full-time equivalent employees. Southwest believes it has a good relationship
with its employees. No employees are represented by a union.
Reference is hereby made to Item 10 in Part III of this report on Form 10-K
for information relative to the executive officers of the Company.
CONSTRUCTION SERVICES
Northern Pipeline Construction Co. (Northern or the construction services
segment) is a full-service underground piping contractor which provides utility
companies with trenching and installation, replacement, and maintenance services
for energy distribution systems. Northern contracts primarily with LDCs to
install, repair, and maintain energy distribution systems from the town border
station to the end-user meter. The primary focus of business operations is main
and service replacement as well as new business installations. Construction work
varies from relatively small projects to the piping of entire communities.
Construction activity is seasonal. Peak construction periods are the summer and
fall months in colder climate areas, such as the Midwest. In the warmer climate
areas, such as the southwestern United States, construction continues year
round.
Northern business activities are often concentrated in utility service
territories where existing gas lines are scheduled for replacement. An LDC will
typically contract with Northern to provide pipe replacement services and new
line installations. Contract terms generally specify unit price or fixed-price
arrangements. Unit price contracts establish prices for all of the various
services to be performed during the contract period. These contracts often have
annual pricing reviews. During 1997, more than 96 percent of revenue was earned
under unit price contracts. As of December 31, 1997 no significant backlog
exists with respect to outstanding construction contracts.
Competition within the industry is limited to several regional competitors
in what can be characterized as a largely fragmented industry. Northern
currently operates in approximately 15 major markets nationwide. Its customers
are the primary LDCs in those markets. Construction companies typically depend
on a few customers for their business. During 1997, Southwest accounted for 31
percent of Northern revenues. No other customers contributed more than 10
percent of revenues.
Employment fluctuates between seasonal construction periods, which are
normally heaviest in the summer and fall months. At December 31, 1997, Northern
had 862 regular full-time equivalent employees.
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Employment peaked in August 1997 when there were 1,508 employees. The majority
of the employees are represented by collective bargaining agreements which is
typical of the utility construction industry.
Operations are conducted from 17 field locations with corporate
headquarters located in Phoenix, Arizona. All buildings are leased from third
parties. The lease terms are typically two to three years. Field location
facilities consist of a small building for repairs and acreage to store
equipment.
Northern has acquired and professionally maintained state-of-the-art work
equipment required to ensure high quality performance and maximum efficiency.
Innovative technology is utilized to continuously improve productivity,
efficiency, and customer satisfaction. Northern has a strict policy for
maintaining its equipment and also adheres to a replacement program for the
majority of key equipment in order to minimize downtime and preserve resale
values.
ITEM 2. PROPERTIES
The plant investment of Southwest consists primarily of transmission and
distribution mains, compressor stations, peak shaving/storage plants, service
lines, meters, and regulators which comprise the pipeline systems and facilities
located in and around the communities served. Southwest also includes other
properties such as land, buildings, furnishings, work equipment, and vehicles in
plant investment. The northern Nevada and northern California properties of
Southwest are referred to as the northern system; the Arizona, southern Nevada,
and southern California properties are referred to as the southern system.
Several properties are leased by Southwest, including an LNG storage plant on
its northern Nevada system and a portion of the corporate headquarters office
complex located in Las Vegas, Nevada. Total gas plant, exclusive of leased
property, at December 31, 1997, was $1.9 billion, including construction work in
progress. It is the opinion of management that the properties of Southwest are
suitable and adequate for its purposes.
Substantially all gas main and service lines of Southwest are constructed
across property owned by others under right-of-way grants obtained from the
record owners thereof, on the streets and grounds of municipalities under
authority conferred by franchises or otherwise, or on public highways or public
lands under authority of various federal and state statutes. None of the
numerous county and municipal franchises are exclusive, and some are of limited
duration. These franchises are renewed regularly as they expire, and Southwest
anticipates no serious difficulties in obtaining future renewals.
With respect to the right-of-way grants, Southwest has had continuous and
uninterrupted possession and use of all such rights-of-way, and the associated
gas mains and service lines, commencing with the initial stages of the
construction of such facilities. Permits have been obtained from public
authorities in certain instances to cross, or to lay facilities along, roads and
highways. These permits typically are revocable at the election of the grantor,
and Southwest occasionally must relocate its facilities when requested to do so
by the grantor. Permits have also been obtained from railroad companies to cross
over or under railroad lands or rights-of-way, which in some instances require
annual or other periodic payments and are revocable at the grantors' elections.
Southwest operates two primary pipeline transmission systems: (i) a system
owned by Paiute, a wholly owned subsidiary, extending from the Idaho-Nevada
border to the Reno, Sparks, and Carson City areas and communities in the Lake
Tahoe area in both California and Nevada and other communities in northern and
western Nevada; and (ii) a system extending from the Colorado River at the
southern tip of Nevada to the Las Vegas distribution area.
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The map below shows the locations of Southwest's major facilities and major
transmission lines, and principal communities to which Southwest supplies gas
either as a wholesaler or distributor. The map also shows major supplier
transmission lines that are interconnected with Southwest's systems.
[MAP]
[DESCRIPTION: Map of Arizona, Nevada, and California indicating the
location of Southwest service areas. Service areas in Arizona include most of
the central and southern areas of the state including Phoenix, Tucson, Yuma, and
surrounding communities. Service areas in northern Nevada include Carson City,
Yerington, Fallon, Lovelock, Winnemucca, and Elko. Service areas in southern
Nevada include the Las Vegas valley (including Henderson and Boulder City) and
Laughlin. Service areas in southern California include Barstow, Big Bear,
Needles, and Victorville. Service areas in northern California include the north
shore of Lake Tahoe and portions of Truckee. Companies providing gas
transportation services for the Company are indicated by showing the location of
their pipelines. Major transporters include El Paso Natural Gas Company, Kern
River Gas Transmission Company, Northwest Pipeline Corporation, and Southern
California Gas Company. The location of the Paiute Pipeline Company transmission
corporation, and Southern California Gas Company. The location of the Paiute
Pipeline Company transmission pipeline (extending from the Idaho/Nevada border
to the Reno/Tahoe area) and Southwest's pipeline (extending from
Laughlin/Bullhead City to the Las Vegas valley) are indicated. The LNG facility
is located near Lovelock, Nevada.]
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The information appearing in Part I, Item 1, page 5 with respect to the
construction services segment is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
The Company has been named as defendant in various legal proceedings. The
ultimate dispositions of these proceedings are not presently determinable;
however, it is the opinion of management that no litigation to which the Company
is subject will have a material adverse impact on its financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal markets on which the common stock of the Company is traded
are the New York Stock Exchange and the Pacific Stock Exchange. At March 16,
1998, there were 25,723 holders of record of common stock, and the market price
of the common stock was $20.25. The quarterly market price of and dividends on
Company common stock required by this item are included in the 1997 Annual
Report to Shareholders and are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is included in the 1997 Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this item is included in the 1997 Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Southwest Gas Corporation and
Notes thereto, together with the report of Arthur Andersen LLP, Independent
Public Accountants, are included in the 1997 Annual Report to Shareholders and
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors. Information with respect to Directors is
set forth under the heading "Election of Directors" in the definitive Proxy
Statement dated March 31, 1998 which by this reference is incorporated herein.
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(b) Identification of Executive Officers. The name, age, position and
period position held during the last five years for each of the Executive
Officers of the Company are as follows:
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<CAPTION>
PERIOD POSITION
NAME AGE POSITION HELD
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<S> <C> <C> <C>
Michael O. Maffie 50 President and Chief Executive Officer 1993-Present
George C. Biehl 50 Senior Vice President/Chief Financial Officer and 1996-Present
Corporate Secretary
Senior Vice President and Chief Financial Officer 1993-1996
James P. Kane 51 Senior Vice President/Operations 1997-Present
Vice President/Southern Arizona Division 1993-1997
James F. Lowman 51 Senior Vice President/Central Arizona Division 1993-Present
Dudley J. Sondeno 45 Senior Vice President/Chief Knowledge and 1993-Present
Technology Officer
Edward S. Zub 49 Senior Vice President/Regulation and Product 1996-Present
Pricing
Vice President/Rates & Regulation 1993-1996
</TABLE>
(c) Identification of Certain Significant Employees. None.
(d) Family Relationships. None of the Directors or Executive Officers are
related to any other either by blood, marriage or adoption.
(e) Business Experience. Information with respect to Directors is set forth
under the heading "Election of Directors" in the definitive Proxy Statement
dated March 31, 1998, which by this reference is incorporated herein. All
Executive Officers have held responsible positions with the Company for at least
five years as described in (b) above.
(f) Involvement in Certain Legal Proceedings. None.
(g) Promoters and Control Persons. None.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of
the Securities Exchange Act of 1934 requires officers and directors, and persons
who own more than ten percent of a registered class of equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission (SEC) and the New York Stock Exchange. Officers, directors,
and beneficial owners of more than ten percent of any class of equity securities
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
The Company has adopted procedures to assist its directors and executive
officers in complying with Section 16(a) of the Securities and Exchange Act of
1934, as amended, which includes assisting in the preparation of forms for
filing. For 1997, all the required reports were filed timely. However, the Form
5 for Edward S. Zub identifies 105 shares of common stock held by his spouse
that were omitted from his Form 3 filing in September 1996.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is set forth under the
heading "Executive Compensation and Benefits" in the definitive Proxy Statement
dated March 31, 1998, which by this reference is incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners. Information with
respect to security ownership of certain beneficial owners is set forth under
the heading "Securities Ownership by Nominees and Executive Officers" in the
definitive Proxy Statement dated March 31, 1998, which by this reference is
incorporated herein.
9
<PAGE> 12
(b) Security Ownership of Management. Information with respect to security
ownership of management is set forth under the heading "Securities Ownership by
Nominees and Executive Officers" in the definitive Proxy Statement dated March
31, 1998, which by this reference is incorporated herein.
(c) Changes in Control. None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions
is set forth under the heading "Certain Relationships and Related Transactions"
in the definitive Proxy Statement dated March 31, 1998, which by this reference
is incorporated herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report on Form 10-K:
(1) The Consolidated Financial Statements of the Company (including the
Report of Independent Public Accountants)
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... 33
Consolidated Balance Sheets................................. 34
Consolidated Statements of Income........................... 35
Consolidated Statements of Cash Flows....................... 36
Consolidated Statements of Stockholders' Equity............. 37
Notes to Consolidated Financial Statements.................. 38
</TABLE>
(2) All schedules have been omitted because the required information is
either inapplicable or included in the Notes to Consolidated
Financial Statements.
(3) See List of exhibits.
(b) Reports on Form 8-K.
The Company filed a Form 8-K, dated February 10, 1998, reporting summary
financial information for the year ended December 31, 1997.
(c) See List of exhibits.
10
<PAGE> 13
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
<S> <C>
2.01(20) Agreement between Southwest Gas Corporation, The Southwest
Companies and PriMerit Bank, Federal Savings Bank, as
sellers and Norwest Corporation as buyer, dated April 10,
1996, regarding sale of assets and liabilities of PriMerit
Bank.
3(i)(26) Restated Articles of Incorporation, as amended.
3(ii) Amended Bylaws of Southwest Gas Corporation.
4.01(1) Indenture between the Company and Bank of America National
Trust and Savings Association, as successor by merger to
Security Pacific National Bank, as Trustee, dated August 1,
1986, with respect to 9% Series A and Series B and 8 3/4%
Series C Debentures.
4.02(6) First Supplemental Indenture of the Company to Bank of
America National Trust and Savings Association, as successor
by merger to Security Pacific National Bank, as Trustee,
dated as of October 1, 1986, supplementing and amending the
Indenture dated as of August 1, 1986, with respect to 9%
Debentures, Series A, due 2011.
4.03(6) Second Supplemental Indenture of the Company to Bank of
America National Trust and Savings Association, as successor
by merger to Security Pacific National Bank, as Trustee,
dated as of November 1, 1986, supplementing and amending the
Indenture dated as of August 1, 1986, with respect to 9%
Debentures, Series B, due 2011.
4.04(7) Third Supplemental Indenture of the Company to Bank of
America National Trust and Savings Association, as successor
by merger to Security Pacific National Bank, as Trustee,
dated as of December 1, 1986, supplementing and amending the
Indenture dated as of August 1, 1986, with respect to 8 3/4%
Debentures, Series C, due 2011.
4.05(7) Fourth Supplemental Indenture of the Company to Bank of
America National Trust and Savings Association, as successor
by merger to Security Pacific National Bank, as Trustee,
dated as of February 1, 1987, supplementing and amending the
Indenture dated as of August 1, 1986, with respect to 10%
Debentures, Series D, due 2017.
4.06(8) Fifth Supplemental Indenture of the Company to Bank of
America National Trust and Savings Association, as successor
by merger to Security Pacific National Bank, as Trustee,
dated as of August 1, 1988, supplementing and amending the
Indenture dated as of August 1, 1986, with respect to 10%
Debentures, Series E, due 2013.
4.07(9) Sixth Supplemental Indenture of the Company to Bank of
America National Trust and Savings Association, as successor
by merger to Security Pacific National Bank, as Trustee,
dated as of June 16, 1992, supplementing and amending the
Indenture dated as of August 1, 1986, with respect to 9 3/4%
Debentures, Series F, due 2002.
4.08(10) Indenture between Clark County, Nevada, and Bank of America
Nevada as Trustee, dated September 1, 1992, with respect to
the issuance of $130,000,000 Industrial Development Revenue
Bonds (Southwest Gas Corporation), $30,000,000 1992 Series
A, due 2027, and $100,000,000 1992 Series B, due 2032.
4.09(11) Indenture between Clark County, Nevada, and Harris Trust and
Savings Bank as Trustee, dated December 1, 1993, with
respect to the issuance of $75,000,000 Industrial
Development Revenue Bonds (Southwest Gas Corporation), 1993
Series A, due 2033.
4.10(11) Indenture between City of Big Bear Lake, California, and
Harris Trust and Savings Bank as Trustee, dated December 1,
1993, with respect to the issuance of $50,000,000 Industrial
Development Revenue Bonds (Southwest Gas Corporation
Project), 1993 Series A, due 2028.
4.11(21) Indenture between the Company and Harris Trust and Savings
Bank dated July 15, 1996, with respect to Debt Securities.
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
<S> <C>
4.12(22) First Supplement Indenture of the Company to Harris Trust
and Savings Bank dated August 1, 1996, supplementing and
amending the Indenture dated as of July 15, 1996, with
respect to 7 1/2% and 8% Debentures, due 2006 and 2026,
respectively.
4.13(24) Second Supplemental Indenture of the Company to Harris Trust
and Savings Bank dated December 30, 1996, supplementing and
amending the Indenture dated as of July 15, 1996, with
respect to Medium-Term Notes.
4.14(3) Certificate of Trust of Southwest Gas Capital I.
4.15(15) Amended and Restated Declaration of Trust of Southwest Gas
Capital I.
4.16(15) Form of Preferred Security (attached as Annex I to Exhibit A
to the Amended and Restated Declaration of Trust of
Southwest Gas Capital I included as Exhibit 4.15 hereto).
4.17(4) Form of Guarantee with respect to Preferred Securities.
4.18(14) Southwest Gas Capital I Preferred Securities Guarantee by
the Company and Harris Trust and Savings Bank, dated as of
October 31, 1995.
4.19(14) Form of Subordinated Debt Security (included in the First
Supplemental Indenture included as Exhibit 4.20 hereto).
4.20(14) Subordinated Debt Securities Indenture between the Company
and Harris Trust and Savings Bank, dated as of October 31,
1995.
4.21(14) First Supplemental Indenture between the Company and Harris
Trust and Savings Bank, dated as of October 31, 1995,
supplementing and amending the Indenture dated as of October
31, 1995, with respect to the 9.125% Subordinated Debt
Securities.
4.22(2) Form of Deposit Agreement.
4.23(2) Form of Depositary Receipt (attached as Exhibit A to Deposit
Agreement included as Exhibit 4.22 hereto).
4.24(17) Rights Agreement between the Company and Harris Trust
Company, as Rights Agent, dated as of March 5, 1996.
4.25 The Company hereby agrees to furnish to the SEC, upon
request, a copy of any instruments defining the rights of
holders of long-term debt issued by Southwest Gas
Corporation or its subsidiaries.
9.01 Not applicable.
10.01(5) Participation Agreement among the Company and General
Electric Credit Corporation, Prudential Insurance Company of
America, Aetna Life Insurance Company, Merrill Lynch
Interfunding, Bank of America through purchase of Valley
Bank of Nevada, Bankers Trust Company and First Interstate
Bank of Nevada, dated as of July 1, 1982.
10.02(23) Amended and Restated Lease Agreement between the Company and
Spring Mountain Road Associates, dated as of July 1, 1996.
10.03(11) Financing Agreement between the Company and Clark County,
Nevada, dated September 1, 1992.
10.04(11) Financing Agreement between the Company and Clark County,
Nevada, dated as of December 1, 1993.
10.05(11) Project Agreement between the Company and City of Big Bear
Lake, California, dated as of December 1, 1993.
10.06(12) Southwest Gas Corporation Executive Deferral Plan, amended
and restated May 10, 1994.
10.07(19) Southwest Gas Corporation Directors Deferral Plan, together
with first amendment dated March 5, 1996.
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
<S> <C>
10.08(11) Southwest Gas Corporation Board of Directors Retirement
Plan, amended and restated effective October 1, 1993.
10.09 Southwest Gas Corporation Management Incentive Plan, amended
and restated January 1, 1995.
10.10(12) Southwest Gas Corporation Supplemental Retirement Plan,
amended and restated as of May 10, 1994.
10.11(25) Form of Employment Agreement with Company officers.
10.12(13) $200 million Credit Agreement between the Company, Union
Bank of Switzerland, et al., dated as of January 27, 1995.
10.13(16) Merger Agreement among the Company and Northern Pipeline
Construction Co., dated as of November 13, 1995.
10.14(18) Southwest Gas Corporation 1996 Stock Incentive Plan.
10.15(27) $350 million Revolving Credit Agreement among the Company,
Union Bank of Switzerland, et al., dated as of June 12,
1997.
11.01 Not applicable.
12.01 Computation of Ratios of Earnings to Fixed Charges and
Ratios of Earnings to Combined Fixed Charges and Preferred
Stock Dividends of the Company.
13.01 Portions of 1997 Annual Report incorporated by reference to
the Form 10-K.
16.01 Not applicable.
18.01 Not applicable.
21.01 List of subsidiaries of Southwest Gas Corporation.
22.01 Not applicable.
23.01 Consent of Arthur Andersen LLP, Independent Public
Accountants.
24.01 Not applicable.
27.01 Financial Data Schedule (filed electronically only).
28.01 Not applicable.
</TABLE>
- ---------------
(1) Incorporated herein by reference to the Registration Statement on Form S-3,
No. 33-7931.
(2) Incorporated herein by reference to the Registration Statement on Form S-3,
No. 33-55621.
(3) Incorporated herein by reference to the Registration Statement on Form S-3,
No. 33-62143.
(4) Incorporated herein by reference to the Amendment No. 1 to Registration
Statement on Form S-3, No. 33-62143.
(5) Incorporated herein by reference to the report on Form 10-K for the year
ended December 31, 1982.
(6) Incorporated herein by reference to the report on Form 10-K for the year
ended December 31, 1986.
(7) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended March 31, 1987.
(8) Incorporated herein by reference to the report on Form 8-K dated August 23,
1988.
(9) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended June 30, 1992.
(10) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended September 30, 1992.
(11) Incorporated herein by reference to the Company's report on Form 10-K for
the year ended December 31, 1993.
(12) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended June 30, 1994.
(13) Incorporated herein by reference to the report on Form 10-K for the year
ended December 31, 1994.
(14) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended September 30, 1995.
13
<PAGE> 16
(15) Incorporated herein by reference to the report on Form 8-K dated October
26, 1995.
(16) Incorporated herein by reference to the report on Form 10-K for the year
ended December 31, 1995.
(17) Incorporated herein by reference to the report on Form 8-K dated March 5,
1996.
(18) Incorporated herein by reference to the Proxy Statement dated May 30, 1996.
(19) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended June 30, 1996.
(20) Incorporated herein by reference to the report on Form 8-K dated July 19,
1996.
(21) Incorporated herein by reference to the report on Form 8-K dated July 26,
1996.
(22) Incorporated herein by reference to the report on Form 8-K dated July 31,
1996.
(23) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended September 30, 1996.
(24) Incorporated herein by reference to the report on Form 8-K dated December
30, 1996.
(25) Incorporated herein by reference to the report on Form 10-K for the year
ended December 31, 1996.
(26) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended March 31, 1997.
(27) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended June 30, 1997.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 25, 1998 By /s/ MICHAEL O. MAFFIE
------------------------------------
Michael O. Maffie,
President and Chief Executive
Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ GEORGE C. BIEHL Senior Vice President, March 25, 1998
- ----------------------------------------------------- Chief Financial Officer and
(George C. Biehl) Corporate Secretary
/s/ EDWARD A. JANOV Vice President, Controller and March 25, 1998
- ----------------------------------------------------- Chief Accounting Officer
(Edward A. Janov)
</TABLE>
15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
Director
- -----------------------------------------------------
(Ralph C. Batastini)
/s/ GEORGE C. BIEHL Director, Senior Vice March 25, 1998
- ----------------------------------------------------- President, Chief Financial
(George C. Biehl) Officer and Corporate
Secretary
/s/ MANUEL J. CORTEZ Director March 25, 1998
- -----------------------------------------------------
(Manuel J. Cortez)
/s/ LLOYD T. DYER Director March 25, 1998
- -----------------------------------------------------
(Lloyd T. Dyer)
/s/ THOMAS Y. HARTLEY Chairman of the Board of March 25, 1998
- ----------------------------------------------------- Directors
(Thomas Y. Hartley)
/s/ MICHAEL B. JAGER Director March 25, 1998
- -----------------------------------------------------
(Michael B. Jager)
/s/ LEONARD R. JUDD Director March 25, 1998
- -----------------------------------------------------
(Leonard R. Judd)
/s/ JAMES J. KROPID Director March 25, 1998
- -----------------------------------------------------
(James J. Kropid)
/s/ JAMES R. LINCICOME Director March 25, 1998
- -----------------------------------------------------
(James R. Lincicome)
/s/ MICHAEL O. MAFFIE Director, President and Chief March 25, 1998
- ----------------------------------------------------- Executive Officer
(Michael O. Maffie)
/s/ CAROLYN M. SPARKS Director March 25, 1998
- -----------------------------------------------------
(Carolyn M. Sparks)
/s/ ROBERT S. SUNDT Director March 25, 1998
- -----------------------------------------------------
(Robert S. Sundt)
/s/ TERRANCE L. WRIGHT Director March 25, 1998
- -----------------------------------------------------
(Terrance L. Wright)
</TABLE>
16
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
3(ii) Amended Bylaws of Southwest Gas Corporation
10.09 Southwest Gas Corporation Management Incentive Plan, amended
and restated January 1, 1995
12.01 Computation of Ratios of Earnings to Fixed Charges and
Ratios of Earnings to Combined Fixed Charges and Preferred
Stock Dividends of the Company
13.01 Portions of 1997 Annual Report incorporated by reference to
Form 10-K
21.01 List of Subsidiaries of Southwest Gas Corporation
23.01 Consent of Arthur Andersen LLP, Independent Public
Accountants
27.01 Financial Data Schedule (filed electronically only)
</TABLE>
<PAGE> 1
EXHIBIT 3(ii)
BYLAWS
OF
SOUTHWEST GAS CORPORATION
ARTICLE I
SECTION 1. PRINCIPAL OFFICE
The principal office for the transaction of the business of the corporation is
hereby fixed and located at 5241 Spring Mountain Road, in the City of Las Vegas,
County of Clark, State of Nevada.
SECTION 2. OTHER OFFICES
Branch or subordinate offices may at any time be established by the Board of
Directors at any place or places where the corporation is qualified to do
business.
SECTION 3. TERMINOLOGY
All personal pronouns used herein are employed in a generic sense and are
intended and deemed to be neutral in gender.
ARTICLE II
MEETING OF SHAREHOLDERS
SECTION 1. REGULAR MEETING
Commencing in May, 1988, the regular annual meeting of the shareholders shall be
held at the principal office of the corporation, or at such other place within
or without the State of California as the officers of the corporation may deem
convenient and appropriate, at 10 a.m. on the second Thursday of May of each
year, if not a legal holiday, and if a legal holiday, then at 10 a.m. on the
next succeeding business day, for the purpose of electing a Board of Directors
and transacting such other business as properly may come before the meeting;
provided, however, that the Board of Directors may, by resolution, establish a
different date not more than 120 days thereafter if, in its sole discretion, it
deems such postponement appropriate.
1
<PAGE> 2
SECTION 2. SPECIAL MEETINGS
Except in those instances where a particular manner of calling a meeting of the
shareholders is prescribed by law or elsewhere in these Bylaws, a special
meeting of the shareholders may be called at any time by the Chief Executive
Officer or other officers acting for him or by the Board of Directors, or by the
holders of not less than one-third of the voting shares then issued and
outstanding. Each call for a special meeting of the shareholders shall state the
time, place, and the purpose of such meeting; if made by the Board of Directors,
it shall be by resolution duly adopted by a majority vote and entered in the
minutes; if made by an authorized officer or by the shareholders, it shall be in
writing and signed by the person or persons making the same, and unless the
office of Secretary be vacant, delivered to the Secretary. No business shall be
transacted at a special meeting other than as is stated in the call and the
notice based thereon.
SECTION 3. NOTICE OF REGULAR AND SPECIAL MEETINGS OF THE SHAREHOLDERS
Notice of each regular and special meeting of the shareholders of the
corporation shall be given by mailing to each shareholder a notice of the time,
place and purpose of such meeting addressed to him at his address as it appears
upon the books of the corporation. Each such notice shall be deposited in the
United States Mail with the postage thereon prepaid at least ten days prior to
the time fixed for such meeting. If the address of any such shareholder does not
appear on the books of the corporation and his post office address is unknown to
the person mailing such notices, the notice shall be addressed to him at the
principal office of the corporation.
SECTION 4. QUORUM
At any meeting of the shareholders, the presence in person or by proxy of the
holders of a majority of the shares entitled to vote at any meeting shall
constitute a quorum for the transaction of business, except when it is otherwise
provided by law. Any regular or special meeting of the shareholders may adjourn
from day to day or from time to time if, for any reason, there are not present
in person or by proxy the holders of a majority of the shares entitled to vote
at said meeting. Such adjournment and the reasons therefor shall be recorded in
the minutes of the proceedings.
SECTION 5. WAIVER OF NOTICE
When all the shareholders of the corporation are present at any meeting, or when
the shareholders not represented thereat give their written consent to the
holding thereof at the time and place the meeting is held, and such written
consent is made a part of the records of such meeting, the proceedings had at
such meeting are valid, irrespective of the manner in which the meeting is
called or the place where it is held.
2
<PAGE> 3
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. NUMBER--QUORUM
The business of the corporation shall be managed by a Board of Directors, whose
number shall be not fewer than eleven (11) nor greater than fourteen (14), as
the Board of Directors or the shareholders by amendment of these Bylaws may
establish, provided, however, that a reduction in the authorized number of
directors shall not remove any director prior to the expiration of his term of
office, and provided further that the shareholders may, pursuant to law,
establish a different and definite number of directors or different maximum and
minimum numbers of directors by amendment of the Articles of Incorporation or by
a duly adopted amendment to these Bylaws. A majority of the prescribed number of
directors shall be necessary to constitute a quorum for the trans- action of
business. At a meeting at which a quorum is present, every decision or act of a
majority of the directors present made or done when duly assembled shall be
valid as the act of the Board of Directors, provided that a minority of the
directors, in the absence of a quorum, may adjourn from day to day but may
transact no business.
SECTION 2. EXACT NUMBER OF DIRECTORS
The number of directors of the corporation is hereby established, pursuant to
the provisions of Section 1 of this Article III, as thirteen (13).
SECTION 3. ELECTION AND TERM OF OFFICE
The directors shall be elected at each annual meeting of shareholders, but if
any such annual meeting is not held, or the directors are not elected thereat,
the directors may be elected at any special meeting of shareholders held for
that purpose. All directors shall hold office until their respective successors
are elected and qualified.
SECTION 4. VACANCIES
Vacancies in the Board of Directors may be filled by a majority of the remaining
directors, though they be less than a quorum, and each director so elected shall
hold office until his successor is qualified following the election at the next
annual meeting of the shareholders or at any special meeting of shareholders
duly called for that purpose prior to such annual meeting. A vacancy shall be
deemed to exist in case the shareholders (or the Board of Directors, within the
provisions of Section 1 of this Article III) shall increase the authorized
number of directors, but shall fail, for a period of thirty days from the
effective date of such increase, to elect the additional directors so provided
for, or in case the shareholders fail at any time to elect the full number of
authorized directors. When one or more of the
3
<PAGE> 4
directors shall give notice to the Board of Directors of his or their
resignation from said Board, effective at a future date, the Board of Directors
shall have the power to fill such vacancy or vacancies to take effect when such
resignation or resignations become effective. Each director so appointed shall
hold office during the remainder of the term of office of the resigning director
or directors or until their successors are appointed and qualify.
SECTION 5. FIRST MEETING OF DIRECTORS
Immediately following each annual meeting of shareholders, the Board of
Directors shall hold a regular meeting for the purpose of organization, election
of officers, and the transaction of other business. Notice of such meeting is
hereby dispensed with.
SECTION 6. REGULAR MEETINGS
Commencing in 1991, the time for other regular meetings of the Board of
Directors, when held, shall be 8 a.m. on the third Tuesday of January, July,
September and November, the first Tuesday of March and the second Wednesday of
May, unless a different schedule is established by a resolution of the Board. If
any regular meeting date shall fall on a legal holiday, then the regular meeting
date shall be the business day next following.
SECTION 7. SPECIAL MEETINGS
A special meeting of the Board of Directors shall be held whenever called by the
Chief Executive Officer or other officer acting for him, or by three directors.
Any and all business may be transacted at a special meeting. Each call for a
special meeting shall be in writing, signed by the person or persons making the
same, addressed and delivered to the Secretary, and shall state the time and
place of such meeting.
SECTION 8. NOTICE OF REGULAR AND SPECIAL MEETINGS OF THE DIRECTORS
No notice shall be required to be given of any regular meeting of the Board of
Directors, but each director shall take notice thereof. Notice of each special
meeting of the Board of Directors shall be given to each of the directors by
mailing to each of them a copy of such notice at least five days prior to the
time affixed for such meeting to the address of such director as shown on the
books of the corporation. If his address does not appear on the books of the
corporation, then such notice shall be addressed to him at the principal office
of the corporation.
SECTION 9. WAIVER OF NOTICE
When all the directors of the corporation are present at any meeting of the
Board of Directors, however called or noticed, and sign a written consent
thereto on the record of such meeting, or if the majority of the directors are
present, and if those not present sign in writing a waiver of notice of such
4
<PAGE> 5
meeting, whether prior to or after the holding of such meeting, which waiver
shall be filed with the Secretary of the corporation, the transactions of such
meeting are as valid as if had at a meeting regularly called and noticed.
SECTION 10. ACTION BY UNANIMOUS CONSENT OF DIRECTORS
Any action required or permitted to be taken by the Board of Directors may be
taken without a meeting if all members of the Board shall individually or
collectively consent in writing to such action. Such written consent or consents
shall be filed with the minutes of the proceedings of the Board, and such action
by written consent shall have the same force and effect as if approved or taken
at a regular meeting duly held. Any certificate or other document which relates
to action so taken shall state that the action was taken by unanimous written
consent of the Board of Directors without a meeting, and that these Bylaws
authorize the directors to so act.
SECTION 11. TELEPHONIC PARTICIPATION IN MEETINGS
Members of the Board may participate in a meeting through use of conference
telephone or similar communications equipment, so long as all members
participating in such meeting can hear one another. Participation in a meeting
pursuant to this section shall constitute presence in person at such meeting.
ARTICLE IV
POWERS OF DIRECTORS
SECTION 1. The directors shall have power:
1. To call special meetings of the shareholders when they deem it necessary, and
they shall call a meeting at any time upon the written request of shareholders
holding one-third of all the voting shares:
2. To appoint and remove at pleasure all officers and agents of the corporation,
prescribe their duties, fix their compensation, and require from them as
necessary security for faithful service;
3. To create and appoint committees, offices, officers and agents of the
corporation, and to prescribe and from time to time change their duties and
compensation, but no committee shall be created and no member appointed thereto
except upon approval of a majority of the whole Board of Directors; and
4. To conduct, manage, and control the affairs and business of the corporation
and to make rules and regulations not inconsistent with the laws of the State of
California, or the Bylaws of the corporation, for the guidance of the officers
and management of the affairs of the corporation.
5
<PAGE> 6
ARTICLE V
DUTIES OF DIRECTORS
SECTION 1. It shall be the duty of the directors:
1. To cause to be kept a complete record of all their minutes and acts, and of
the proceedings of the shareholders, and present a full statement at the regular
annual meeting of the shareholders, showing in detail the assets and liabilities
of the corporation, and generally the condition of its affairs. A similar
statement shall be presented at any other meeting of the shareholders when
theretofore required by persons holding at least one-half of the voting shares
of the corporation;
2. To declare dividends out of the profits arising from the conduct of the
business, whenever such profits shall, in the opinion of the directors, warrant
the same;
3. To oversee the actions of all officers and agents of the corporation, see
that their duties are properly performed; and
4. To cause to be issued to the shareholders, in proportion to their several
interests, certificates of stock.
ARTICLE VI
OFFICERS
SECTION 1. The officers shall include a Chairman of the Board of Directors, a
Chief Executive Officer, who may be designated Chairman, a President, a
Secretary, a Treasurer, a Controller, and may include one or more Executive Vice
Presidents, Senior Vice Presidents, Vice Presidents, Assistant Vice Presidents,
Assistant Secretaries, and Assistant Treasurers. All such officers shall be
elected by and hold office at the pleasure of the Board of Directors, provided
that the Chief Executive Officer shall have authority to dismiss any other
officer. Any director shall be eligible to be the Chairman of the Board of
Directors and any two or more of such offices may be held by the same person,
except that the Chief Executive Officer or President may not also hold the
office of Secretary. Any officer may exercise any of the powers of any other
officer in the manner specified in these Bylaws, as specified from time to time
by the Board of Directors, and/or as specified from time to time by the Chief
Executive Officer or senior officer acting in his or her absence or incapacity,
and any such acting officer shall perform such duties as may be assigned to him
or her.
6
<PAGE> 7
ARTICLE VII
FEES AND COMPENSATION
SECTION 1. Directors shall be reimbursed for their expenses, and shall be
compensated for their services as directors in such amounts as the Board may fix
by resolution. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation therefor.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each person who was or is a party or is threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or proceeding,
formal or informal, whether brought in the name of the corporation or otherwise
and whether of a civil, criminal, administrative or investigative nature
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is an alleged
action or inaction in an official capacity or in any other capacity while
serving as a director or officer, shall, subject to the terms of any agreement
between the corporation and such person, be indemnified and held harmless by the
corporation to the fullest extent permissible under California law and the
corporation's Articles of Incorporation, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments, fines, ERISA
excise tax or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that (a) the corporation shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of the corporation, (b) the corporation shall indemnify
such person seeking indemnification in connection with a proceeding (or part
thereof) other than a proceeding by or in the name of the corporation to procure
a judgment in its favor only if any settlement of such a proceeding is approved
in writing by the corporation, and (c) that no such person shall be indemnified
(i) except to the extent that the aggregate of losses to be indemnified exceeds
the amount of such losses for which the director or officer is paid pursuant to
any directors' and officers' liability insurance policy maintained by the
corporation; (ii) on account of any suit in which judgment is rendered against
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such person for an accounting of profits made from the purchase or sale by such
person of securities of the corporation pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law; (iii) if a court of
competent jurisdiction finally determines that any indemnification hereunder is
unlawful; (iv) for acts or omissions involving intentional misconduct or knowing
and culpable violation of law; (v) for acts or omissions that the director or
officer believes to be contrary to the best interests of the corporation or its
shareholders or that involve the absence of good faith on the part of the
director or officer; (vi) for any transaction for which the director or officer
derived an improper personal benefit; (vii) for acts or omissions that show a
reckless disregard for the director's or officer's duty to the corporation or
its shareholders in circumstances in which the director or officer was aware, or
should have been aware, in the ordinary course of performing his or her duties,
of a risk of serious injury to the corporation or its shareholders; (viii) for
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's or officer's duties to the
corporation or its shareholders; (ix) for costs, charges, expenses, liabilities
and losses arising under Section 310 or 316 of the General Corporation Law of
California (the "Law"); and (x) as to circumstances in which indemnity is
expressly prohibited by Section 317 of the Law. The right to indemnification
conferred in this Article shall be a contract right and shall include the right
to be paid by the corporation expenses incurred in defending any proceeding in
advance of its final disposition; provided, however, that if the Law requires
the payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, such advances shall be made only upon
delivery to the corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts to the corporation if it shall be ultimately
determined that such person is not entitled to be indemnified.
SECTION 2. INDEMNIFICATION OF EMPLOYEES AND AGENTS
A person who was or is a party or is threatened to be made a party to or is
involved in any proceedings by reason of the fact that he or she is or was an
employee or agent of the corporation or is or was serving at the request of the
corporation as an employee or agent of another enterprise, including service
with respect to employee benefit plans, whether the basis of such action is an
alleged action or inaction in an official capacity or in any other capacity
while serving as an employee or agent, may, subject to the terms of any
agreement between the corporation and such person, be indemnified and held
harmless by the corporation to the fullest extent permitted by California law
and the corporation's Articles of Incorporation, against all costs, charges,
expenses, liabilities and losses (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement),
reasonably incurred or suffered by such person in connection therewith. The
immediately preceding sentence is not intended to be and shall not be considered
to confer a contract right on any employee or agent (other than directors and
officers) of the corporation.
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SECTION 3. RIGHT OF DIRECTORS AND OFFICERS TO BRING SUIT
If a claim under Section 1 of this Article is not paid in full by the
corporation within 30 days after a written claim has been received by the
corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall also be entitled to be paid the expense of
prosecuting such claim. Neither the failure of the corporation (including its
Board, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is permissible in the circumstances because he or she has met the
applicable standard of conduct, if any, nor an actual determination by the
corporation (including its Board, independent legal counsel, or its
shareholders) that the claimant has not met the applicable standard of conduct,
shall be a defense to the action or create a presumption for the purpose of an
action that the claimant has not met the applicable standard of conduct.
SECTION 4. SUCCESSFUL DEFENSE
Notwithstanding any other provision of this Article, to the extent that a
director or officer has been successful on the merits or otherwise (including
the dismissal of an action without prejudice or the settlement of a proceeding
or action without admission of liability) in defense of any proceeding referred
to in Section 1 or in defense of any claim, issue or matter therein, he or she
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred in connection therewith.
SECTION 5. NON-EXCLUSIVITY OF RIGHTS
The right to indemnification provided by this Article shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, bylaw, agreement, vote of shareholders or disinterested directors or
otherwise.
SECTION 6. INSURANCE
The corporation may maintain insurance, at its expense, to protect itself and
any director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the corporation would have the power
to indemnify such person against such expense, liability or loss under the law.
SECTION 7. EXPENSES AS A WITNESS
To the extent that any director, officer, employee or agent of the corporation
is by reason of such position, or a position with another entity at the
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request of the corporation, a witness in any action, suit or proceeding, he or
she shall be indemnified against all costs and expenses actually and reasonably
incurred by him or her on his or her behalf in connection therewith.
SECTION 8. INDEMNITY AGREEMENTS
The corporation may enter into agreements with any director, officer, employee
or agent of the corporation providing for indemnification to the fullest extent
permissible under the law and the corporation's Articles of Incorporation.
SECTION 9. SEPARABILITY
Each and every paragraph, sentence, term and provision of this Article is
separate and distinct so that if any paragraph, sentence, term or provision
hereof shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or unenforceability
of any other paragraph, sentence, term or provision hereof. To the extent
required, any paragraph, sentence, term or provision of this Article may be
modified by a court of competent jurisdiction to preserve its validity and to
provide the claimant with, subject to the limitations set forth in this Article
and any agreement between the corporation and claimant, the broadest possible
indemnification permitted under applicable law.
SECTION 10. EFFECT OF REPEAL OR MODIFICATION
Any repeal or modification of this Article shall not adversely affect any right
of indemnification of a director or officer existing at the time of such repeal
or modification with respect to any action or omission occurring prior to such
repeal or modification."
ARTICLE IX
CHAIRMAN OF THE BOARD
SECTION 1. If there shall be a Chairman of the Board of Directors, he shall,
when present, preside at all meetings of the stockholders and the Board of
Directors, and perform such other duties as the Bylaws or the Board of Directors
shall require of him.
ARTICLE X
CHIEF EXECUTIVE OFFICER; OTHER EXECUTIVE OFFICERS
SECTION 1. The Board of Directors shall, at their first regular meeting, elect
such officers as are required by Article VI hereof and such additional officers
authorized by Article VI hereof as the Board, in its discretion, may choose to
elect. If at any time the Chief Executive Officer shall be unable to
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act, the President (if there shall be one who is not also the Chief Executive
Officer) shall act in his place and perform his duties; if the President or next
most senior officer is unable to perform such duties, then the vice presidents,
in such sequence as the Board of Directors may specify, shall act. If all the
foregoing shall be unable to act, the senior officer among them shall appoint
some other person in whom shall be vested, for the time being, all the duties
and functions of Chief Executive Officer, to act until the Board of Directors
can be convened and elect appropriate officers. The Chief Executive Officer (or
person acting as such) shall:
1. Preside (if there shall be no Chairman of the Board of Directors or in his
absence) over all meetings of the shareholders and directors;
2. Sign in behalf of the corporation contracts and other instruments in writing
within the scope of his authority or if, when, and as directed so to do by the
Board of Directors, but nothing herein shall limit the power of the Board of
Directors to authorize such contracts and other instruments in writing to be
signed by any other officer or person or limit the power of the Chief Executive
Officer to delegate his authority in any such matter to another officer or other
officers of the corporation. The Chief Executive Officer or any other officer
specified by the Board of Directors may sign certificates of stock as provided
in Article XIII hereof;
3. Delegate duties and responsibilities to any other officers and/or employees
of the corporation in any manner not prohibited by these Bylaws or by the Board
of Directors, and change such duties and responsibilities so delegated from time
to time at will;
4. Call the directors together when he deems it necessary, and have, subject to
the advice of the directors, direction of the affairs of the corporation; and
5. Generally discharge such other duties as may be required of him by the Bylaws
of the corporation.
ARTICLE XI
SECRETARY
SECTION 1. The Board of Directors shall elect a Secretary:
1. It shall be the duty of the Secretary to keep a record of proceedings of the
Board of Directors and of the shareholders, and to keep the corporate seal of
the corporation. He shall be responsible for maintaining proper records showing
the number of shares of stock of all classes and series issued and transferred
by any shareholder, and the dates of such issuance and transfer;
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2. Whenever it is provided in these Bylaws that notice shall be given either of
regular or special meetings of the shareholders, regular or special meetings of
the directors, or otherwise, such notice shall be given by the Secretary or by
the Chief Executive Officer or by any person designated by either of them, or by
any authorized person who shall have signed the call for such meeting. Any
notice which the Secretary may give or serve, or act required to be done by him,
may with like effect be given or served or done by or under the direction of an
Assistant Secretary;
3. The Secretary shall discharge such other duties as pertain to his office or
which may be prescribed by the Board of Directors.
ARTICLE XII
TREASURER
SECTION 1. The Treasurer shall receive and keep all the funds of the corporation
and pay them out only on checks or otherwise, as directed by the Board of
Directors; provided, however, that the Board of Directors may provide for a
depository of the funds of the corporation, and may by resolution prescribe the
manner in which said funds shall be drawn from said depository.
ARTICLE XIII
CERTIFICATES OF STOCK
SECTION 1. Certificates of stock shall be of such form and device as the
Board of Directors may direct, and shall be signed by the genuine or facsimile
signatures of the Chairman and Chief Executive Officer or the President or any
authorized Vice President and the Secretary or an Assistant Secretary. Each
certificate shall express on its face its number, date of issuance, the number
of shares for which and the person to whom it is issued, the kind of shares
represented by said certificate, and such other matters as may be required by
law. Certificates of stock may be issued prior to full payment, in harmony
with all permits issued by regulatory authorities having jurisdiction in the
premises, or as is otherwise allowed by law, but any certificate issued prior
to full payment must show on its face what amount has been paid thereon.
ARTICLE XIV
TRANSFER OF STOCK
SECTION 1. Shares of stock of the corporation may be transferred at any time
by the holders, or by power of attorney, or by their legal representative, by
endorsement on the certificate of stock, but no transfer is valid until the
surrender of the endorsed certificate. A surrendered certificate shall be
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delivered up for cancellation before a new one is issued in lieu thereof, and
the Secretary shall preserve the certificate so cancelled or a suitable record
thereof. If, however, a certificate is lost or destroyed, the Board of
Directors may order a new certificate issued as is by law required or permitted.
ARTICLE XV
VOTING
SECTION 1. At all corporate meetings, each shareholder, either in person or by
proxy, shall be entitled to as many votes as he owns shares of stock; however,
every shareholder entitled to vote at any election for directors shall have the
right to cumulate his votes.
SECTION 2. PROXIES
Every person entitled to vote or execute consents shall have the right to do so
either in person or by one or more agents authorized by a written proxy
executed by such person or his duly authorized agent and filed with the
Secretary of the corporation; provided that no such proxy shall be valid after
the expiration of eleven (11) months from the date of its execution, unless the
person executing it specifies therein the length of time for which such proxy
is to continue in force, which in no case shall exceed seven (7) years from the
date of its execution.
ARTICLE XVI
INDEBTEDNESS
SECTION 1. The Board of Directors shall have power to incur indebtedness, and
the terms and amount thereof shall be entered in the minutes. The Board of
Directors shall have the power to secure said indebtedness, or any obligation
or obligations of the corporation, by pledge, mortgage, deed of trust, or other
security given upon any property owned by it or in which it has any interest.
ARTICLE XVII
REGISTRAR AND/OR TRANSFER AGENT
SECTION 1. The Board of Directors may designate and appoint one or more
registrars and/or transfer agents for the registration of the stock of the
corporation, and make such rules and regulations for the registrations of stock
at the office of such registrars and/or transfer agents as may to the Board of
Directors seem desirable. The corporation may act as its own transfer agent, at
the direction of the Board of Directors. The Board of Directors may, in its
discretion, fix a transfer fee for transfer of stock certificates.
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ARTICLE XVIII
MISCELLANEOUS
SECTION 1. MEETINGS. NOTICE. WHEN CONCLUSIVE.
An entry made in the minutes of the directors or shareholders, pursuant to
resolution or recital, to the effect that the notice of such meeting required
by these Bylaws to be given has been given, shall be conclusive upon the
corporation, its directors, shareholders, and all other persons that such
notice has been duly given in proper form and substance to the proper persons
and for the requisite length of time.
ARTICLE XIX
SEAL
SECTION 1. The Board of Directors shall provide a suitable seal containing the
name of the corporation, the years of its creation, and other appropriate
words, and may alter the same at pleasure.
ARTICLE XX
AMENDMENTS TO BYLAWS
SECTION 1. POWER OF SHAREHOLDERS
New Bylaws may be adopted or these Bylaws may be amended or repealed by the vote
of shareholders entitled to exercise a majority of the voting power of the
corporation or by the written assent of such shareholders, except as otherwise
provided by law or by the Articles of Incorporation.
SECTION 2. POWER OF DIRECTORS
Subject to the right of the shareholders as provided in Section 1 of this
Article XX to adopt, amend or repeal Bylaws, the Board of Directors may adopt,
amend or repeal any of the Bylaws of this corporation, except that the powers of
the Board of Directors to change, and/or establish the authorized number of
directors of this corporation shall be as set forth in Article III of these
Bylaws.
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I hereby certify that the foregoing is a full, true, and correct copy of the
Bylaws of Southwest Gas Corporation, a California corporation, as in effect on
the date hereof.
WITNESS my hand this 21st day of January, 1998.
----------------------------------
George C. Biehl
Senior Vice President/Chief Financial
Officer and Corporate Secretary
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EXHIBIT 10.09
SOUTHWEST GAS CORPORATION
MANAGEMENT INCENTIVE PLAN
Effective May 12, 1993
Amended and Restated May 10, 1994
Amended and Restated January 1, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. Purpose of the Plan............................................... 1
2. Definitions....................................................... 1
3. Administration.................................................... 4
4. Eligibility....................................................... 5
5. Incentive Award Opportunities..................................... 5
6. Procedures for Calculating and Paying Actual Awards............... 6
7. Performance Shares................................................ 7
8. Participant Terminations and Transfers............................ 9
9. Changes in Capital Structure and Other Events..................... 11
10. Provisions Regarding Withholding Taxes............................ 12
11. Provisions Applicable to Common Stock............................. 13
12. Effective Date; Stockholder Approval.............................. 15
13. Amendment and Termination of the Plan............................. 15
14. Benefit Claims Procedure.......................................... 15
15. General Provisions................................................. 16
</TABLE>
<PAGE> 3
SOUTHWEST GAS CORPORATION
1993 MANAGEMENT INCENTIVE PLAN
- --------------------------------------------------------------------------------
1. PURPOSE OF THE PLAN
This 1993 Management Incentive Plan, revised and restated effective January 1,
1995, is intended to both replace the existing Southwest Gas Corporation
Management Incentive Plan and encourage a selected group of highly compensated
or management employees of the Company to remain in its employment and to put
forth maximum efforts to achieve the Company's short- and long-term performance
goals.
2. DEFINITIONS
(a) "Actual Award" means the dollar amount earned by a Participant on
the basis of the performance of the Company during the annual
Performance Period.
(b) "Annual Base Salary" means the calendar year-end rate of
compensation paid to a Key Employee, including salary deferrals,
but excluding bonuses, incentives, commissions, overtime, monetary
and nonmonetary awards for employment service to the Company or
payments or Company contributions to or from this Plan or any other
Company retirement or deferred compensation, or similar plans.
(c) "Annual Performance Measures" shall mean the performance criteria
used by the Committee in determining the performance of the Company
for the purpose of calculating Actual Awards for Participants
earned under the Plan during a Performance Period.
(d) "Award Conversion" means the division of Actual Awards earned into
two portions:
(i) A portion payable in cash as soon as the Committee deems
practicable following the end of an annual Performance
Period.
(ii) A portion converted into Performance Shares and subject to
a Restriction Period.
(e) "Award Conversion Date" means the day that the Committee performs
the Award Conversion on Actual Awards for a Performance Period.
(f) "Board" or "Board of Directors" means the Board of Directors of
Southwest Gas Corporation.
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(g) "Committee" means the Nominating and Compensation Committee of the
Board of Directors, or any such other committee designated by the
Board to administer the Plan.
(h) "Common Stock" means the common stock of Southwest Gas Corporation.
(i) "Company" means Southwest Gas Corporation and its present and
future subsidiaries (other than PriMerit Bank and its subsidiaries)
and any successor thereto.
(j) "Disability" or "Disabled". A Participant shall be considered to be
"Disabled" or to have incurred a "Disability" if he or she
qualifies for a disability benefit under Southwest Gas
Corporation's group long-term disability plan. In the event a
Participant does not qualify for benefits under such disability
plan, the Committee, in its sole and absolute discretion, may
determine that a Participant is Disabled for purposes of this Plan.
(k) "Dividend Credits" means the additional Performance Shares
determined as set forth in Plan Section 7(d) calculated for each
Restriction Period for the Participant's Performance Shares subject
to such period.
(l) "Employee" means any person who is a regular full-time employee of
the Company, including those who are officers or Board members.
(m) "Fiscal Year" means the Fiscal Year of the Company beginning each
January 1st and ending the following December 31st.
(n) "Incentive Award Opportunity" means the range of an Actual Award
available to each Participant in this Plan for a given Performance
Period.
(o) "Involuntary Termination Without Cause" means a Participant's
termination of employment (i) due to reorganization, downsizing,
restructuring or layoff and (ii) not due to what the Committee
determines was, in its sole and absolute discretion, either the
Participant's inability to adequately perform his or her job, a
violation of Company work rules or policies, or misconduct that the
Committee determines is detrimental to the Company's best
interests.
(p) "Key Employee" means a management or highly compensated Employee of
the Company who the Committee determines to (i) have a direct and
significant impact on the performance of the Company, and (ii) has
a position or compensation that allows him or her to affect or
influence, through negotiation or otherwise, the design or
operation of this Plan so as to eliminate the Employee's need for
the substantive rights and protections of Title I of the Employee
Retirement Income Security Act of 1974.
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(q) "Long-Term Performance Measures" means the performance measures
developed and utilized by the Committee in determining the
performance of the Company for the purpose of calculating the
number of shares of Common Stock payable to the Participant
following the end of a Restriction Period.
(r) "Participant" means a Key Employee who in the Committee's sole and
absolute discretion is determined to be eligible to receive an
Incentive Award Opportunity under this Plan.
(s) "Peer Group" means the companies comprising the group against which
the Committee assesses the performance of the Company for the
purposes of determining Actual Awards earned, or for modifying the
number of shares of Common Stock that are payable to Participants
following the end of a Restriction Period.
(t) "Performance Period" means a period of twelve months corresponding
to the Company's Fiscal Year and for which the Company's
performance is assessed by the Committee for the purpose of its
determining Actual Awards earned.
(u) "Performance Share" means a hypothetical share of Common Stock that
will be converted into, and paid out, as a share of Common Stock
only if all restrictions and conditions set forth in this Plan have
been satisfied. The Performance Share carries no voting rights but
does entitle the Participant to receive Dividend Credits
determinable under Plan Section 7(d).
(v) "Plan" means the Southwest Gas Corporation 1993 Management
Incentive Plan as set forth herein and as amended from time to
time.
(w) "Restriction Period" means, with respect to each grant of
Performance Shares to a Participant, a period of at least thirty
six (36) consecutive calendar months beginning with the last day of
February prior to the Award Conversion Date applicable to such
shares.
(x) "Retire" or "Retirement" means the termination of a Participant's
employment with the Company on or after the Participant has
attained his or her early retirement date, normal retirement date,
or deferred retirement date as defined in the Retirement Plan for
Employees of Southwest Gas Corporation, as amended and in effect
from time to time.
(y) "Target Award" means the Incentive Award Opportunity available to
each Participant if all Performance Measures for a Performance
Period are fully met but not exceeded.
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3. ADMINISTRATION
(a) The Plan shall be administered by non-Employee members of the
Committee, which shall be composed of not less than three members
of the Board of Directors. The non-Employee members of the
Committee chosen to administer the Plan shall not have received an
award under this Plan or any plan preceding this Plan within the
last calendar year. The Board of Directors may designate alternate
members of the Committee from non-Employee Board members who
satisfy the above-criteria to act in the place and stead of any
absent member of the Committee.
(b) The Committee shall have full and final authority to operate,
manage, and administer the Plan on behalf of the Company. This
authority includes but is not limited to the following:
(i) Determination of eligibility for participation in the Plan;
(ii) Determination of Actual Awards earned and the Award
Conversion of the Actual Awards;
(iii) Payment of Actual Awards that have become nonforfeitable;
(iv) Directing the Company to make the accruals and payments
provided for by the Plan;
(v) Interpretation of the Plan and the resolution of any
inconsistent or conflicting Plan language as well as
factual or nonfactual questions regarding a Participant's
eligibility for, and the amount of, benefits payable under
the Plan;
(vi) Power to prescribe, amend, or rescind rules and
regulations relating to the Plan;
(vii) Power to determine the vesting schedules, if any, for all
awards; and
(viii) Powers prescribed to the Committee elsewhere in the Plan.
(c) With respect to Incentive Award Opportunities and Actual Awards
earned, the Committee shall have full and final authority in its
sole and absolute discretion to determine the Incentive Award
Opportunities for individual Participants; determine the time or
times at which Actual Awards may be calculated; determine the
length of all applicable Performance Periods and/or Restriction
Periods; determine the award schedule and the Annual and Long-Term
Performance Measures (and the Company's satisfaction or failure to
satisfy such measures) that will be used in calculating Actual
Awards and in determining the number of shares of Common Stock
payable to Participants at the end of the Restriction Period; and
determine the composition of the Peer Group to be used in assessing
the Company's performance.
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(d) A majority of the Committee shall constitute a quorum, and the acts
of a majority of the members present at any meeting at which a
quorum is present, or acts approved in writing by all the members
in the absence of a meeting, shall be the acts of the Committee.
All Committee interpretations, determinations, and actions will be
final, conclusive, and binding on all parties.
(e) No member of the Board or the Committee will be liable for any
action taken or determination made in good faith by the Board or
the Committee with respect to the Plan or any Actual Award
calculated and paid hereunder.
4. ELIGIBILITY
(a) In determining the Key Employees that will be Participants and the
Incentive Award Opportunity for each Participant, the Committee
shall take into account the duties of the respective Participant,
their present and potential contributions to the success of the
Company, and such other factors as the Committee shall deem
relevant in connection with accomplishing the purpose of the Plan.
(b) No Incentive Award Opportunity will be available to any person who,
at the beginning of the applicable Performance Period, is a member
of the Committee responsible for the administration of the Plan.
5. INCENTIVE AWARD OPPORTUNITIES
(a) The Committee will establish the Incentive Award Opportunity for
each Participant or class of Participants designated by the
Committee. The Incentive Award Opportunity will be expressed as
percentages of the Participant's Annual Base Salary.
(b) An Incentive Award Opportunity will range from zero to some
specific maximum percentage of the Participant's Annual Base Salary
(or maximum dollar amount).
(c) Before or during each Performance Period a Participant will be
assigned a specific Target Award that will fall within the range of
the Participant's Incentive Award Opportunity. The Target Award
will be awarded to the Participant if, in the judgement of the
Committee, all applicable Annual Performance Measures have been
fully met.
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(d) Actual Awards for each Participant in the Plan shall be determined
by the Committee following the end of the applicable Performance
Period, taking into account how the Company performed on the basis
of the Annual Performance Measures developed and utilized by the
Committee for the Performance Period. Notwithstanding the
foregoing, if Southwest Gas Corporation's Chief Executive Officer
(hereinafter the "CEO") or Chief Financial Officer (hereinafter the
"CFO") are Participants, the Committee may consider the performance
of PriMerit Bank during a Performance Period when examining the
Annual Performance Measures and determining the Actual Award for
the CEO and/or CFO for the period.
6. PROCEDURES FOR CALCULATING AND PAYING ACTUAL AWARDS
(a) The Committee shall establish the Annual Performance Measures that
will be utilized for one or more Performance Periods in assessing
the performance of the Company for the purpose of determining the
Actual Awards earned under this Plan. These measures and the
standards of performance associated with them may change from year
to year and may receive different emphasis or weight according to
the changing priorities of the Company. It is expected that the
Annual Performance Measures generally will be tied to the financial
performance of the Company and will be based on a combination of
(i) the Company's performance in relation to its own performance
standards and (ii) the Company's performance in relation to that of
its Peer Group. In addition to the Annual Performance Measures,
each Participant will be expected to meet individual performance
goals.
(b) Following the end of each Performance Period, the Committee will
compare the Company's actual performance during such period with
the Annual Performance Measures it established for the period, and
the Actual Award, if any, for a Participant will be calculated. For
each Performance Period the Committee will utilize an award
schedule for calculating the Actual Awards earned on the basis of
the Company's performance. The award schedule may be modified by
the Committee from year to year as Annual Performance Measures or
the standards of performance associated with such measures change.
(c) Following the calculation of Actual Awards, the Chief Executive
Officer will make an overall assessment of each Participant's
attainment of individual performance goals and may reduce a
Participant's Actual Award based upon such assessment. Further, the
Chief Executive Officer may recommend to the Committee that no
Actual Award be given to a Participant based on his assessment of
individual performance. The assessment of the individual
performance of the Chief Executive Officer will be made by the
Board of Directors.
6
<PAGE> 9
(d) Following the calculation of the Actual Awards, adjusted as
provided for in Plan Section 6 (c), an Award Conversion will be
made whereby the Actual Awards for each Participant will be split
into two components. The first component will be a dollar amount
that is payable to the Participant in cash as soon as the Committee
deems practical following the Award Conversion Date. The second
component will be a dollar amount that is converted into whole or
partial Performance Shares, which shall be restricted for a period
of at least thirty six consecutive calendar months beginning on the
Award Conversion Date applicable to such shares. The number of
Performance Shares allocable to each Participant shall be
determined by dividing (i) the dollar amount available for the
Participant's Performance Shares (determined by the Award
Conversion), by (ii) the closing per share value of the Common
Stock on the New York Stock Exchange on the last trading day on the
Exchange before the Award Conversion Date. Payment of Performance
Shares shall occur at the time provided in Plan Section 7(c).
(e) The Committee shall have the sole and absolute responsibility for
determining Actual Awards of Participants. Generally, the Actual
Awards generated by application of the award schedule established
by the Committee for one or more Performance Periods will be the
Actual Awards that will be payable to each Participant; provided,
however, that the Committee may, prior to the Award Conversion
Date, alter the Actual Awards generated by the awards schedule if,
in the opinion of the Committee, there have been exceptional
circumstances that have either created inappropriate windfalls or
shortfalls in the Company's performance (or the performance of
PriMerit Bank in the case of the CFO and CEO), which, in turn, have
resulted in inappropriately large or small Actual Awards.
(f) If, during a Performance Period, the Committee determines that the
established Annual Performance Measures are no longer suitable due
to a change in the Company's business, operations, corporate
structure, capital structure, or other conditions the Committee
deems to be material, the Committee may modify the Annual
Performance Measures as it considers appropriate and equitable.
7. PERFORMANCE SHARES
(a) On the Award Conversion Date, Participants who earned an Actual
Award during the preceding Performance Period will have an entry
made on the Company's books reflecting the Performance Shares
allocable to them as determined pursuant to Plan Section 6(c).
(b) A Participant's Performance Shares earned in a given Performance
Period will be subject to a Restriction Period of at least thirty
six consecutive calendar months beginning on the Award Conversion
Date applicable to such shares.
7
<PAGE> 10
During the Restriction Period, the Participant may not, except as
provided in Plan Section 8(d), receive payment for his or her
Performance Shares.
(c) For the Restriction Period applicable to each Performance Period,
the Committee shall establish certain Long-Term Performance
Measures that will be used to determine the number of Performance
Shares that shall be paid to the Participant on the date(s)
determined by the Committee which shall be within a reasonable
period following the end of the Restriction Period. Notwithstanding
anything in this Plan to the contrary, if the Committee determines
that the Company has satisfied or failed to satisfy the Long-Term
Performance Measures, it may, as provided in Plan Section 7(e),
increase or decrease the number of Performance Shares credited to
the Participant at the beginning, and over the course of the
Restriction Period. The Long-Term Performance Measures will be tied
to the performance of the Company (in the case of the CEO and CFO,
the Committee may also consider the performance of PriMerit Bank)
as measured against certain financial criteria and may be specified
in absolute terms or specified relative to the performance of a
Peer Group (in the case of the CEO and CFO the Committee may also
consider the performance of PriMerit Bank).
(d) During the Restriction Period, a Participant will receive cash
dividends on the Performance Shares then credited to the
Participant on the Company's records, equal to the quarterly
dividend paid per share of Common Stock. Such payments will occur
at the same time quarterly dividends are paid on Common Stock. The
Committee may, in lieu of cash dividends, provide to a Participant
Dividend Credits equal to the cash dividends paid per share of
Common Stock, multiplied by the number of Performance Shares then
credited to the Participant on the Company's records, and divided
by the closing per share value of the Common Stock on the New York
Stock Exchange on the date such dividends are paid or the last
trading day on the Exchange before such payment. If the Committee
determines to pay such dividends through Dividend Credits, these
additional Performance Shares will be subject to the same
restrictions as the Performance Shares that generated the Dividend
Credits, and such restrictions will lapse at the same time as the
restrictions lapse on such Performance Shares.
(e) Following the end of a Restriction Period, the Participant shall
receive a specific number of shares of Common Stock equal to the
total number of Performance Shares allocated to the Participant at
the beginning of such Restriction Period plus the Performance
Shares credited quarterly through Dividend Credits during the
Restriction Period. The total number of shares of Common Stock the
Participant is entitled to receive may be modified by up to plus or
minus 20% on the basis of how the Company performs (as to the CEO
and CFO, the Committee may also consider the performance of
PriMerit Bank) during the length of the Restriction Period against
the Long-Term Performance Measures established by the Committee for
the Restriction Period. Payment
8
<PAGE> 11
of Common Stock pursuant to this paragraph shall occur on the
date(s) determined by the Committee which shall be within a
reasonable period following the end of the Restriction Period
applicable to such Performance Shares.
(f) Notwithstanding anything else in this Plan to the contrary, if the
Plan is not approved by Southwest Gas Corporation shareholders
pursuant to Plan Section 12, the Performance Shares shall not
entitle the Participant to receive shares of Common Stock of the
Company following the end of the Restriction Period but shall
instead entitle the Participant to receive a cash payment following
the end of the Restriction Period. The cash payment shall equal the
fair market value of the shares of Common Stock the Participant
would have received hereunder. For this purpose, the fair market
value of the Common Stock shall be determined using closing per
share value of the stock on the New York Stock Exchange on the last
trading day on the Exchange of the applicable Restriction Period.
8. PARTICIPANT TERMINATIONS AND TRANSFERS
(a) Should a Participant's continuous employment with the Company
terminate for any reason other than death, Disability, Retirement,
or Involuntary Termination Without Cause during a Performance
Period, the Participant's right to receive an Actual Award for such
period will be forfeited by the Participant.
(b) Should a Participant's continuous employment with the Company
terminate for any reason other than death, Disability, Retirement,
or Involuntary Termination Without Cause during a Restriction
Period, the Participant's right to receive payments of his or her
outstanding Performance Shares will be forfeited by the
Participant.
(c) Should a Participant die, become Disabled, Retire, or have his or
her employment Involuntarily Terminated Without Cause during the
Performance Period, the Participant (or the Participant's
beneficiary in the case of a deceased Participant) will be entitled
to receive an Actual Award at the end of the Performance Period
determined on a pro rata basis according to the number of months of
the Performance Period actually worked while being a Participant in
the Plan.
(d) Should a Participant die, become Disabled, Retire, or have his or
her employment Involuntarily Terminated Without Cause during a
Restriction Period, the Participant (or the Participant's
beneficiary in the case of a deceased Participant) will receive a
distribution of Common Stock equal to the total number of
Performance Shares then credited to the Participant. If Plan
Section 7(f) applies, cash and not Common Stock shall be paid and
the amount of such payment shall be determined by multiplying the
Participant's
9
<PAGE> 12
Performance Shares by the closing per share value of the Common
Stock on the New York Stock Exchange on the date of such event or
the last trading day on the Exchange before such event. Payment of
Common Stock (or cash if Plan Section 7(f) applies) shall occur
within a reasonable period (as determined by the Committee)
following the date of the Participant's death, Disability,
Retirement, Disability, or Involuntary Termination Without Cause.
A Participant shall have the right to designate any person as his
or her Beneficiary to whom benefits determined under Plan Section
8(c) and the preceding paragraph ("Death Benefits") shall be paid
in the event of the Participant's death prior to the total
distribution of his/her Death Benefits. If greater than 50 percent
of the Death Benefits is designated to a beneficiary other than the
Participant's lawful spouse, such beneficiary designation must be
consented to by the Participant's lawful spouse. Each beneficiary
designation must be in written form prescribed by the Committee and
will be effective only when filed with the Committee, or its
designee, during the Participant's lifetime.
A Participant may change a beneficiary designation, subject to
spousal consent under the preceding paragraph, by filing a new
beneficiary designation with the Committee or its designee. The
filing of a new beneficiary designation form will cancel all
beneficiary designations previously filed. The Committee shall be
entitled to rely on the beneficiary designation last filed by the
Participant prior to his/her 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.
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 Death Benefits. Such
distribution shall completely discharge the Committee and the
Company from all liability with respect to such payments.
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
lawful spouse; (2) if there is no surviving lawful spouse, then
Participant's issue per stirpes; or (3) if no surviving lawful
spouse or issue, then Participant's estate.
(e) If a Participant changes jobs with the Company during the course of
a Performance Period and his or her new job has a different
Incentive Award Opportunity under the Plan, the Participant's
Incentive Award Opportunity for the Performance Period shall be the
sum of the products obtained by multiplying (i) the percentage of
the full Performance Period spent in each job
10
<PAGE> 13
by (ii) the Incentive Award Opportunity for each such job. In
special circumstances, which the Committee may identify from time
to time, the Participant may be assigned for the full Performance
Period the Incentive Award Opportunity that corresponds to any one
of the jobs held by the Participant during the Performance Period
rather than combining partial Incentive Award Opportunities for the
jobs.
(f) Should a Key Employee become eligible to participate in the Plan
after the beginning of a Performance Period, the Participant will
be entitled to an Incentive Award Opportunity on the basis of the
number of months of the full Performance Period the Key Employee is
a Participant in the Plan.
9. CHANGES IN CAPITAL STRUCTURE AND OTHER EVENTS
(a) Notwithstanding anything in the Plan to the contrary, upon
dissolution or liquidation of the Company (or upon a
reorganization, merger, or consolidation of the Company with one or
more corporations as a result of which the Company is not the
surviving corporation,) or upon the sale of all or substantially
all of the assets of the Company, Performance Shares then
outstanding under the Plan will, within a reasonable time period
following such change, be determined by the Committee and settled
and paid on the basis of the amount, and other terms, as determined
by the Committee, unless provisions are made for the continuance of
the Plan and the assumption or the substitution of such Performance
Shares with new awards by such successor employer corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to
the number and kind of units, prices, and Performance Share values.
(b) All determinations, decisions, and adjustments made by the
Committee pursuant to Plan Section 9(a) will be final, binding, and
conclusive. No fractional interest will be issued under the Plan on
account of such adjustments.
(c) In the event (i) a report on Schedule 13D is filed with the
Securities and Exchange Commission pursuant to Section 13(d) of the
Securities Exchange Act of 1934 (referred to as the "Act")
disclosing that any "person" (as defined in Section 13(d) of the
Act) other than the Company or one of its subsidiaries or an
employee benefit plan sponsored by the Corporation or one of its
subsidiaries is the beneficial owner, directly or indirectly, or
twenty percent (20%) or more of the combined voting power of the
then outstanding securities of the Company; (ii) any "person" (as
defined in Section 13(d) of the Act) other than the Company or one
of its subsidiaries, or an employee benefit plan sponsored by the
Company or one of its subsidiaries shall purchase securities
pursuant to a tender offer or exchange offer to acquire any Common
Stock of the Company (or securities convertible in Common Stock)
for cash,
11
<PAGE> 14
securities, or any other consideration, provided that after the
consummation of the offer, the person in question is the
"beneficial owner" (as such term is defined in Rule 13d-3 under the
Act), directly or indirectly or twenty percent (20%) or more of the
combined voting power of the then outstanding securities of the
Company (as determined under paragraph (d) of Rule 13d-3 under the
Act, in the case of rights to acquire Common Stock); (iii) the
stockholders of the Company shall approve (a) any consolidation or
merger of the Company (1) in which the Company is not the
continuing or surviving corporation, (2) pursuant to which shares
of Common Stock of the Company would be converted into cash
securities, or other property, or (3) with a corporation that prior
to such consolidation or merger owned twenty percent (20%) or more
of the cumulative voting power of the then outstanding securities
of the corporation, or (b) any sale, lease, exchange, or other
transfer (in one transaction or a series of related transactions)
of all or substantially all the assets of the Company; or (iv)
there shall have been a change in the majority of the Board of the
Company within a twelve-month period, unless the election or
nomination for election by the Company's stockholders of each
director during such twelve-month period was approved by the vote
of two-thirds (2/3) of the directors then in office who were
directors at the beginning of such twelve-month period, the
Committee may in its sole and absolute discretion, without
obtaining stockholder approval, at the time of any one or more of
the foregoing actions, to the extent permitted in Plan Section 7,
with respect to all Participants:
(i) Accelerate the settlement dates of some or all outstanding
Performance Shares;
(ii) Make any other adjustments or amendments to the Plan and
outstanding Incentive Award Opportunities and Performance
Shares; or
(iii) Substitute new Incentive Award Opportunities.
10. PROVISIONS REGARDING WITHHOLDING TAXES
(a) The Committee may require a Participant receiving Common Stock upon
conversion of Performance Shares awarded hereunder to reimburse the
Company for any taxes required by any government to be withheld or
otherwise deducted and paid by the Company in respect of the
issuance to or disposition of shares by the Participant (a "Taxable
Event"). Any payment on account of a tax obligation shall be in a
form acceptable to the Committee. If upon the occurrence of a
Taxable Event the Participant does not, in the time required by law
or designated by the Committee, reimburse the Company for taxes as
provided for above: (i) the Company shall have the right to
withhold some or all of the amount of such taxes from any other
sums due or to become
12
<PAGE> 15
due from the Company to the Participant upon such terms and
conditions as the Committee shall prescribe, and (ii) the Company
may satisfy some or all of the tax obligation of such Participant
by withholding shares of Common Stock acquired by the Participant
in the conversion of any Performance Shares and may in the same
manner satisfy some or all of any additional tax obligation
resulting from such withholding.
(b) At any time that the Company becomes subject to a withholding
obligation under applicable law with respect to the conversion of
Performance Shares, except as set forth below with respect to
persons subject to Section's 16(a) and (b) of the Exchange Act, a
Participant may elect to satisfy, in whole or in part, the
Participant's related estimated personal tax liabilities by
directing the Company to withhold from the shares of Common Stock
issuable in the related conversion of Performance Shares either (i)
a specified percentage of shares, (ii) a specified number of shares
or (iii) shares having a specified value, in each case with a value
not in excess of such estimated tax liabilities. Such an election
shall be irrevocable. The shares of Common Stock withheld in
payment shall be valued at their fair market value on the date that
the withholding obligation arises (the "Tax Date"). The Committee
may disapprove of any election, suspend or terminate the right to
make elections or provide that the right to make elections shall
not apply to particular conversions. If a Participant is a person
subject to Sections 16(a) and (b) of the Exchange Act then (A) any
election by such Participant must be made either (i) at least six
months prior to the relevant Tax Date or (ii) on or prior to the
relevant Tax Date and during a period that begins on the third
business day following the date of release for publication of the
Company's quarterly or annual summary statements of sales and
earnings and that ends on the twelfth business day following such
date and (B) the election may not be made with respect to shares of
Common Stock representing a conversion of a Performance Shares
grant, or the withholding obligation arising thereon, if the
relevant Performance Shares were granted six months or less prior
to the date of election. The Committee may impose any other
conditions or restrictions on the right to make an election as it
shall deem appropriate.
11. PROVISIONS APPLICABLE TO COMMON STOCK
(a) Shares of Common Stock to be delivered to Participants at the end
of the Restriction Period may be previously authorized but unissued
shares or may be previously issued and reacquired shares.
(b) If at any time the Board shall determine in its discretion that the
listing, registration or qualification upon any national securities
exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the sale,
purchase, issuance or delivery of Common Stock under the
13
<PAGE> 16
Plan, no Common Stock shall be sold, purchased, issued or
delivered, as the case may be, unless and until such listing,
registration, qualification, consent or approval shall have been
effected or obtained, or otherwise provided for, free of any
conditions not acceptable to the Board.
(c) Except as hereafter provided and if so required by the Committee,
the recipient of any Performance Share award shall, upon receipt of
any shares of Common Stock due to the Award Conversion of
Performance Shares represented by the award, execute and deliver to
the Company a written statement, in form satisfactory to the
Company, in which such Participant represents and warrants that
such Participant is acquiring the shares for such Participant's own
account, for investment only and not with a view to the resale or
distribution thereof, and agrees that any subsequent offer for sale
or sale or distribution of any such shares of Common Stock shall be
made only pursuant to either (a) a Registration Statement on an
appropriate form under the Securities Act of 1933, as amended (the
"Securities Act"), which Registration Statement has become
effective and is current with regard to the shares of Common Stock
being offered or sold, or (b) a specific exemption from the
registration requirements of the Securities Act, but in claiming
such exemption the holder or recipient shall, if required by the
Company, prior to any offer for sale or sale of such shares, obtain
a favorable written opinion, in form and substance satisfactory to
the Company, from counsel for or approved by the Company, as to the
applicability of such exemption thereto. The foregoing restriction
shall not apply to (i) issuances by the Company so long as the
shares being acquired are registered under the Securities Act and a
prospectus in respect thereof is current or (ii) reofferings of
shares by affiliates of the Company (as defined in Rule 405 or any
successor rule or regulation promulgated under the Securities Act)
if the shares being reoffered are registered under the Securities
Act and a prospectus in respect thereof is current.
(d) The Company may endorse such legend or legends upon the
certificates for shares of Common Stock issued upon conversion of
Performance Shares made hereunder and may issue such "stop
transfer" instructions to its transfer agent in respect of such
shares as, in its discretion, it determines to be necessary or
appropriate to (i) prevent a violation of, or to perfect an
exemption from, the registration requirements of the Securities
Act, or (ii) implement the provisions of the Plan and any agreement
between the Company and the Participant.
(e) The Company shall pay all issue taxes with respect to the issuance
of shares of Common Stock upon conversion of Performance Shares, as
well as all fees and expenses necessarily incurred by the Company
in connection with such issuance.
14
<PAGE> 17
12. EFFECTIVE DATE; STOCKHOLDER APPROVAL
The Plan shall become effective upon adoption by the Board, provided,
however, that unless and until the Plan is approved by a vote of the
shareholders of Southwest Gas Corporation at the 1994 annual shareholders'
meeting, all Performance Shares awarded hereunder shall, when otherwise
payable under the Plan, be, as provided in Plan Section 7(f), converted
into cash and not Common Stock.
13. AMENDMENT AND TERMINATION OF THE PLAN
The Board at any time and from time to time may, without prior notice to
Participants, suspend, terminate, modify, or amend the Plan. Except as
otherwise provided for in Plan Sections 5, 6, 7, 8 and 9, no suspension,
termination, modification, or amendment of the plan may adversely affect
any award previously granted, unless the written consent of the
Participant is obtained. Notwithstanding the authority granted to the
Board herein, if the shareholder's of Southwest Gas Corporation have
approved this Plan as contemplated in Plan Section 12 above, no amendment
to the Performance Share provisions of this Plan shall become effective
without shareholder approval if, as to executive officer Participants,
such amendment would:
(i) materially increase the benefits accruing to such Participants
under the Plan;
(ii) materially increase the number of Performance Shares which may be
issued to such Participants under the Plan; or
(iii) materially modify the requirements as to eligibility for executive
participation in the Plan.
14. BENEFIT CLAIMS PROCEDURE
(a) Any claim for money or stock awards under the Plan shall be made in
writing to the Committee. If such claim is wholly or partially
denied, the Committee shall, within ninety (90) days after receipt
of the claim, notify the Participant or Beneficiary of the denial
of the claim. Such notice of denial shall (i) be in writing, (ii)
be written in a manner calculated to be understood by the
Participant or Beneficiary, and (iii) contain the specific reason
or reasons for denial of the claim, a specific reference to the
pertinent Plan provisions upon which the denial is based, a
description of any additional material or information necessary to
perfect the claim, along with an explanation of why such material
or information is necessary, and an explanation of the claim review
procedure. The ninety (90) day period may, under special
circumstances, be extended up to an additional ninety (90) days
upon written of such extension to the Participant or Beneficiary
which notice shall specify the special circumstances and the
extended date of the decision. Notice of extension must be given
prior to expiration of the initial ninety (90) day period. If not
notice of decision
15
<PAGE> 18
is given within the periods specified above, the claim shall, on
the last day of the notice period, be deemed to have been denied
and the Participant or Beneficiary may file a request for review as
provided in the next paragraph.
(b) Within sixty (60) days after the receipt of the decision denying a
claim (or the occurrence of the date that a claim is deemed denied)
by the Participant or Beneficiary, the Participant or Beneficiary
may file a written request with the Committee that it conduct a
full and fair review of the denial of the claim. The Participant or
Beneficiary or his or her duly authorized representative may review
pertinent documents and submit issues and comments in writing to
the Committee in connection with the review.
(c) The Committee shall deliver to the Participant or Beneficiary a
written decision on the review of the denial within sixty (60) days
after receipt of the aforesaid request for review, except that if
there are special circumstances (such as the need to hold a
hearing, if necessary) which require an extension of time for
processing, the aforesaid sixty (60) day period shall, upon written
notice to the Participant or Beneficiary be extended an additional
sixty (60) days. Such decision shall (i) be in writing, (ii) be
written in a manner calculated to be understood by the Participant
or Beneficiary, (iii) include the specific reason or reasons for
the decision, and (iv) contain a specific reference to the
pertinent Plan provisions upon which the decision is based. If the
decision on review is not delivered to the Participant or
Beneficiary within the periods specified, the claim shall be
considered denied on the last day of the review period.
(d) Upon a Participant or Beneficiary filing a claim, the Committee
shall notify the party filing of the claim and review procedure
including the time periods involved.
15. GENERAL PROVISIONS
(a) Nothing in this Plan or in any award granted pursuant hereto shall
confer on an individual any right to continue in the employ of the
company or any of its subsidiaries or interfere in any way with the
right of the Company or any such subsidiary to terminate any
employment.
(b) Upon its adoption by the Board, this Plan shall replace the
existing Southwest Gas Corporation Management Incentive Plan with
respect to periods commencing January 1, 1993.
(c) Awards granted under the Plan shall not be transferable otherwise
than as provided for in Plan Section 8(d), by will or by the laws
of descent and distribution, and awards may be realized during the
lifetime of the Participant only by the Participant or by his
guardian or legal representative.
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<PAGE> 19
(d) The section and subsection heading are contained herein for
convenience only and shall not affect the construction hereof.
(e) A Participant's rights to Performance Shares and other Plan
benefits represent rights to merely an unfunded and unsecured
promise of a future payment of money or property. A Participant
shall look only to the Company for the payment of Performance
Shares and other Plan benefits and such shares and benefits shall,
until paid, be subject to the claims of Company creditors. A
Participant's rights under the Plan shall be only that of an
unsecured general creditor of the Company.
IN WITNESS WHEREOF, Southwest Gas Corporation has caused this Plan to be
executed this 15th day of January, 1995.
SOUTHWEST GAS CORPORATION
By Michael O. Maffie
----------------------------------
Signature
---------------------------
Its President/Chief Executive Officer
---------------------------------
17
<PAGE> 1
EXHIBIT 12.01
SOUTHWEST GAS CORPORATION
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS
1. Fixed charges:
A) Interest expense......................... $63,247 $54,674 $52,844 $48,688 $40,883
B) Amortization............................. 1,164 1,494 1,569 1,426 1,330
C) Interest portion of rentals.............. 6,973 6,629 4,435 4,743 4,556
D) Preferred securities distributions....... 5,475 5,475 913 -- --
------- ------- ------- ------- -------
Total fixed charges.................... $76,859 $68,272 $59,761 $54,857 $46,769
======= ======= ======= ======= =======
2. Earnings (as defined):
E) Pretax income from continuing
operations................................ $21,328 $10,448 $ 3,493 $38,119 $21,959
Fixed Charges (1. above).................... 76,859 68,272 59,761 54,857 46,769
------- ------- ------- ------- -------
Total earnings as defined.............. $98,187 $78,720 $63,254 $92,976 $68,728
======= ======= ======= ======= =======
3. Ratio of earnings to fixed charges.......... 1.28 1.15 1.06 1.69 1.47
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995 1994 1993
------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
ADJUSTED FOR INTEREST ALLOCATED TO DISCONTINUED
OPERATIONS
1. Fixed charges:
A) Interest expense....................... $63,247 $54,674 $ 52,844 $ 48,688 $40,883
B) Amortization........................... 1,164 1,494 1,569 1,426 1,330
C) Interest portion of rentals............ 6,973 6,629 4,435 4,743 4,556
D) Preferred securities distributions..... 5,475 5,475 913 -- --
E) Allocated interest(1).................. -- -- 9,636 7,874 7,874
------- ------- -------- -------- -------
Total fixed charges.................. $76,859 $68,272 $ 69,397 $ 62,731 $54,643
======= ======= ======== ======== =======
2. Earnings (as defined):
F) Pretax income from continuing
operations.............................. $21,328 $10,448 $ 3,493 $ 38,119 $21,959
Fixed Charges (1. above).................. 76,859 68,272 69,397 62,731 54,643
------- ------- -------- -------- -------
Total earnings as defined............ $98,187 $78,720 $ 72,890 $100,850 $76,602
======= ======= ======== ======== =======
3. Ratio of earnings to fixed charges........ 1.28 1.15 1.05 1.61 1.40
======= ======= ======== ======== =======
</TABLE>
- ---------------
(1) Represents allocated interest through the period ended December 31, 1995.
Carrying costs for the period subsequent to year end through the disposition
of the discontinued operations were accrued and recorded as disposal costs.
<PAGE> 2
EXHIBIT 12.01
SOUTHWEST GAS CORPORATION
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS
1. Combined fixed charges:
A) Total fixed charges.............. $76,859 $68,272 $59,761 $54,857 $46,769
B) Preferred dividends(1)........... -- -- 404 826 1,183
------- ------- ------- ------- -------
Total fixed charges and
preferred dividends.......... $76,859 $68,272 $60,165 $55,683 $47,952
======= ======= ======= ======= =======
2. Earnings............................ $98,187 $78,720 $63,254 $92,976 $68,728
======= ======= ======= ======= =======
3. Ratio of earnings to fixed charges
and preferred dividends............. 1.28 1.15 1.05 1.67 1.43
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
ADJUSTED FOR INTEREST ALLOCATED TO
DISCONTINUED OPERATIONS
1. Combined fixed charges:
A) Total fixed charges............ $76,859 $68,272 $ 69,397 $ 62,731 $54,643
B) Preferred dividends(1)......... -- -- 404 826 1,183
------- ------- -------- -------- -------
Total fixed charges and
preferred dividends........ $76,859 $68,272 $ 69,801 $ 63,557 $55,826
======= ======= ======== ======== =======
2. Earnings.......................... $98,187 $78,720 $ 72,890 $100,850 $76,602
======= ======= ======== ======== =======
3. Ratio of earnings to fixed charges
and preferred dividends........... 1.28 1.15 1.04 1.59 1.37
======= ======= ======== ======== =======
</TABLE>
- ---------------
(1) Preferred and preference dividends have been adjusted to represent the
pretax earnings necessary to cover such dividend requirements.
<PAGE> 1
CONSOLIDATED SELECTED FINANCIAL STATISTICS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
(Thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating revenues $ 732,010 $ 644,061 $ 563,502 $ 599,553 $ 539,105
Operating expenses 629,749 572,488 505,090 510,863 461,423
- ------------------------------------------------------------------------------------------------------
Operating income $ 102,261 $ 71,573 $ 58,412 $ 88,690 $ 77,682
======================================================================================================
Income from continuing operations $ 16,469 $ 6,574 $ 2,654 $ 23,524 $ 13,751
Income (loss) from discontinued
operations, net of tax (1) -- -- (17,536) 2,777 1,655
- ------------------------------------------------------------------------------------------------------
Net income (loss) $ 16,469 $ 6,574 $ (14,882) $ 26,301 $ 15,406
======================================================================================================
Net income (loss) applicable to
common stock $ 16,469 $ 6,574 $ (15,189) $ 25,791 $ 14,665
======================================================================================================
Total assets at year end $1,769,059 $1,560,269 $1,532,527 $1,453,582 $1,362,861
======================================================================================================
Capitalization at year end
Common equity $ 385,979 $ 379,616 $ 356,050 $ 348,556 $ 335,117
Preferred and preference stocks -- -- -- 4,000 8,058
Trust originated preferred securities 60,000 60,000 60,000 -- --
Long-term debt 778,693 665,221 607,945 678,263 568,600
- ------------------------------------------------------------------------------------------------------
$1,224,672 $1,104,837 $1,023,995 $1,030,819 $ 911,775
======================================================================================================
Common stock data
Return on average common equity 4.3% 1.8% (4.1)% 7.6% 4.4%
Earnings (loss) per share
Continuing operations $ 0.61 $ 0.25 $ 0.10 $ 1.09 $ 0.63
Discontinued operations -- -- (0.76) 0.13 0.08
- ------------------------------------------------------------------------------------------------------
Earnings (loss) per share $ 0.61 $ 0.25 $ (0.66) $ 1.22 $ 0.71
======================================================================================================
Dividends paid per share $ 0.82 $ 0.82 $ 0.82 $ 0.80 $ 0.74
Payout ratio N/A N/A N/A 66% 104%
Book value per share at year end $ 14.09 $ 14.20 $ 14.55 $ 16.38 $ 15.96
Market value per share at year end $ 18.69 $ 19.25 $ 17.63 $ 14.13 $ 16.00
Market value per share to book value
per share 133% 136% 121% 86% 100%
Common shares outstanding at year
end (000) 27,387 26,733 24,467 21,282 20,997
Number of common shareholders at
year end 25,833 26,371 25,133 20,765 21,851
Ratio of earnings to fixed charges
Continuing operations 1.28 1.15 1.06 1.69 1.47
Adjusted for interest allocated to
discontinued operations 1.28 1.15 1.05 1.61 1.40
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Contribution from the financial services segment, including the 1995 loss
on sale of the Bank.
21. Southwest Gas Corporation
<PAGE> 2
NATURAL GAS OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C>
Sales $ 569,542 $ 506,200 $ 524,914 $ 560,207 $ 503,789
Transportation 45,123 40,161 38,588 39,061 34,361
Other -- -- -- 285 955
- ------------------------------------------------------------------------------------------------------
Operating revenue 614,665 546,361 563,502 599,553 539,105
Net cost of gas sold 209,338 187,580 227,456 249,922 212,290
- ------------------------------------------------------------------------------------------------------
Operating margin 405,327 358,781 336,046 349,631 326,815
Expenses
Operations and maintenance 201,159 198,364 187,969 178,310 169,921
Depreciation and amortization 74,528 67,443 62,492 57,284 55,088
Other 29,393 28,156 27,173 25,347 24,124
- ------------------------------------------------------------------------------------------------------
Operating income $ 100,247 $ 64,818 $ 58,412 $ 88,690 $ 77,682
======================================================================================================
Contribution to consolidated net
income (loss) $ 15,825 $ 3,919 $ 2,654 $ 23,524 $ 13,751
======================================================================================================
Total assets at year end $1,717,025 $1,498,099 $1,357,034 $1,277,727 $1,194,679
======================================================================================================
Net gas plant at year end $1,360,294 $1,278,457 $1,137,750 $1,035,916 $ 954,488
======================================================================================================
Construction expenditures and
property additions $ 164,528 $ 210,743 $ 166,183 $ 141,390 $ 113,903
======================================================================================================
Cash flow, net
From operating activities $ 45,923 $ 47,931 $ 97,754 $ 84,074 $ 50,437
From investing activities (170,455) (41,804) (163,718) (141,547) (116,246)
From financing activities 132,349 (11,456) 71,056 61,422 67,488
- ------------------------------------------------------------------------------------------------------
Net change in cash $ 7,817 $ (5,329) $ 5,092 $ 3,949 $ 1,679
======================================================================================================
Total throughput (thousands of therms)
Sales 914,732 818,329 805,884 881,868 850,557
Transportation 1,030,857 968,208 1,016,011 914,791 725,023
- ------------------------------------------------------------------------------------------------------
Total throughput 1,945,589 1,786,537 1,821,895 1,796,659 1,575,580
======================================================================================================
Weighted average cost of gas
purchased ($/therm) $ 0.35 $ 0.27 $ 0.21 $ 0.30 $ 0.29
Customers at year end 1,151,000 1,092,000 1,029,000 980,000 932,000
Employees at year end 2,447 2,420 2,383 2,359 2,318
Degree days -- actual 1,976 1,896 1,781 2,091 2,097
Degree days -- ten-year average 2,022 2,033 2,021 2,068 2,064
</TABLE>
- --------------------------------------------------------------------------------
22. Southwest Gas Corporation
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of Southwest Gas Corporation and subsidiaries (the
Company) includes information related to its regulated natural gas transmission
and distribution activities and nonregulated activities. In 1996, the Company
completed the sale of PriMerit Bank, Federal Savings Bank (the Bank), which is
reported as discontinued operations. The loss on disposition was included in
the 1995 results of operations.
CONTINUING OPERATIONS
The Company is principally engaged in the business of purchasing, transporting,
and distributing natural gas (Southwest or natural gas operations segment).
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.
As of December 31, 1997, Southwest had 1,151,000 residential, commercial,
industrial, and other customers, of which 661,000 customers were located in
Arizona, 375,000 in Nevada, and 115,000 in California. Residential and
commercial customers represented over 99 percent of the total customer base.
During 1997, Southwest added 59,000 customers, a five percent increase, of
which 28,000 customers were added in Arizona, 29,000 in Nevada, and 2,000 in
California. Customer growth over the past three years averaged over five
percent annually. These additions are largely attributed to population growth
in the service areas. Based on current commitments from builders, customer
growth is expected to approximate five percent in 1998. During 1997, 55 percent
of operating margin was earned in Arizona, 35 percent in Nevada, and 10 percent
in California. During this same period, Southwest earned 83 percent of
operating margin from residential and small commercial customers, 5 percent
from other sales customers, and 12 percent from transportation customers. These
patterns are consistent with prior years and are expected to continue.
In April 1996, the Company acquired all of the outstanding stock of Northern
Pipeline Construction Co. (Northern or construction services segment) pursuant
to a definitive agreement dated November 1995. The Company issued approximately
1,439,000 shares of common stock valued at $24 million in connection with the
acquisition. The acquisition was accounted for as a purchase. Goodwill in the
amount of approximately $10 million was recorded by Northern and is being
amortized over 25 years. Northern 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 significant 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. For example, during the
three-year period ended December 31, 1997, total gas plant increased from
$1.5 billion to $1.9 billion, or at an annual rate of nine percent.
Approximately 76 percent of 1997 construction expenditures represent new
construction and the balance represents costs associated with routine
replacement of existing transmission, distribution, and general plant.
The investment in gas plant has required capital resources in excess of the
amount of cash flow generated from operating activities (net of dividends
paid). During 1997, capital expenditures were
23. Southwest Gas Corporation
<PAGE> 4
$164 million. Cash flow from operating activities (net of dividends) provided
$24 million of the required capital resources pertaining to these construction
expenditures. The remainder was provided from net external financing activities
including the issuances of medium-term notes totaling $100 million. Normally,
internally generated funds provide a larger proportionate share of capital
resources required for construction expenditures. However, cash flows from
operating activities were unfavorably impacted in 1997 by unusually high
working capital requirements resulting from gas costs that exceeded the rates
currently being recovered from customers.
Southwest estimates construction expenditures during the three-year period
ending December 31, 2000 will be approximately $510 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 $26 million of funds held in trust, at December 31, 1997,
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 levels 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. 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.
Liquidity refers to the ability of an enterprise to generate adequate
amounts of cash to meet its cash requirements. General factors that could
significantly affect capital resources and liquidity in future years include
inflation, growth in the economy, changes in income tax laws, the level of
natural gas prices, interest rates, and changes in the ratemaking policies of
regulatory commissions.
Cash flows from operating activities during the current year were negatively
affected by increases in the cost of gas during the first 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.
The rate schedules in all of the service territories of Southwest contain
purchased gas adjustment (PGA) clauses which permit adjustments to rates as the
cost of purchased gas changes. Southwest must first obtain regulatory approval
before changing the rates it charges for recovery of gas costs. The PGA
mechanism allows Southwest to change the gas cost component of the rates
charged to its customers to reflect increases or decreases in the price
expected to be paid to its suppliers and companies providing interstate
pipeline transportation service. In addition, Southwest uses this mechanism to
either refund amounts overcollected or recoup amounts undercollected as
compared to the price paid for natural gas during the period since the last PGA
rate change went into effect. Generally, tariffs for Southwest provide for
annual adjustment dates for changes in purchased gas costs. In addition,
Southwest may request to adjust rates more often than once each year, if
conditions warrant. These changes impact cash flows but have no direct impact
on profit margin.
Higher gas costs coupled with refunds to customers of previously
overcollected amounts shifted the deferred PGA balance from a $9 million
payable, at December 31, 1996, to an $87 million receivable, at December 31,
1997, a $96 million change. By January 1998, Southwest had filed for recovery
of the accumulated balances in all applicable rate jurisdictions. See RATES AND
REGULATORY PROCEEDINGS for details of these filings.
24. Southwest Gas Corporation
<PAGE> 5
The Company has established a common stock dividend policy which states that
common stock dividends will be paid at a prudent level that is within the
normal dividend payout range for its respective businesses, and that the
dividend will be established at a level considered sustainable in order to
minimize business risk and maintain a strong capital structure throughout all
economic cycles. The Company's quarterly common stock dividend was 20.5 cents
per share throughout 1997.
Securities ratings issued by nationally recognized ratings agencies provide
a method for determining the credit worthiness of an issuer. The Company's debt
ratings are important because long-term debt constitutes a significant portion
of total 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 January 1997, Moody's Investor Service rated the Company's unsecured
long-term debt at 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).
In September 1997, Duff & Phelps Credit Rating Co. rated the Company's
unsecured long-term debt at 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.
The Company's unsecured long-term debt rating from Standard and Poor's (S&P)
is BBB-. S&P debt ratings range from AAA (highest rating possible) to D
(obligation is in default). According to S&P, the BBB- rating indicates the
debt is regarded as having an adequate capacity to pay interest and repay
principal.
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.
The impact of inflation on results of operations has diminished in recent
years. Natural gas, labor, and construction costs are the categories most
significantly impacted by inflation. Changes to Southwest's cost of gas are
generally recovered through PGA mechanisms and do not significantly impact net
earnings when approved as filed. Labor is a component of the cost of service,
and construction costs are the primary component of rate base. In order to
recover increased costs, and earn a fair return on rate base, general rate
cases are filed by Southwest, when deemed necessary, for review and approval by
its regulatory authorities. Regulatory lag, that is, the time between the date
increased costs are incurred and the time such increases are recovered through
the ratemaking process, can impact earnings. See RATES AND REGULATORY
PROCEEDINGS for discussion of recent rate case proceedings.
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Contribution to Net Income
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Continuing operations:
Natural gas operations $15,825 $3,919 $ 2,654
Construction services 644 2,655 --
16,469 6,574 2,654
- ---------------------------------------------------------------------------------------------
Discontinued operations -- financial services -- -- (17,536)
- ---------------------------------------------------------------------------------------------
Net income (loss) $16,469 $6,574 $(14,882)
=============================================================================================
</TABLE>
1997 VS. 1996 Earnings per share for the year ended December 31, 1997 were
$0.61, a $0.36 increase from per share earnings of $0.25 recorded for the year
ended December 31, 1996. Current-year earnings were composed of $0.59 per share
from natural gas operations and $0.02 per share
25. Southwest Gas Corporation
<PAGE> 6
from construction services. Average shares outstanding increased by
1.2 million shares between years, primarily resulting from continuing issuances
under the Dividend Reinvestment and Stock Purchase Plan.
1996 VS. 1995 Earnings per share for the year ended December 31, 1996 were
$0.25, a $0.15 increase from per share earnings from continuing operations of
$0.10 recorded for the year ended December 31, 1995. The 1996 earnings were
composed of $0.15 per share from natural gas operations and $0.10 per share
from construction services. Average shares outstanding increased by 2.7 million
shares between years. This increase was the result of a 1.4 million share
issuance in April 1996 to acquire Northern, a public offering in May 1995 and
issuances under the Dividend Reinvestment and Stock Purchase Plan.
RESULTS OF NATURAL GAS OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996
(Thousands of dollars) 1995
<S> <C> <C> <C>
Gas operating revenues $614,665 $546,361 $563,502
Net cost of gas sold 209,338 187,580 227,456
- ------------------------------------------------------------------------------------------------
Operating margin 405,327 358,781 336,046
- ------------------------------------------------------------------------------------------------
Operations and maintenance expense 201,159 198,364 187,969
Depreciation and amortization 74,528 67,443 62,492
Taxes other than income taxes 29,393 28,156 27,173
- ------------------------------------------------------------------------------------------------
Operating income 100,247 64,818 58,412
- ------------------------------------------------------------------------------------------------
Other income (deductions), net (12,979) (760) (652)
- ------------------------------------------------------------------------------------------------
Income before interest and income taxes 87,268 64,058 57,760
- ------------------------------------------------------------------------------------------------
Net interest deductions 61,751 53,003 53,354
Preferred securities distributions 5,475 5,475 913
Income tax expense 4,217 1,661 839
- ------------------------------------------------------------------------------------------------
Contribution to consolidated net income $ 15,825 $ 3,919 $ 2,654
================================================================================================
</TABLE>
1997 VS. 1996 The gas segment contribution to consolidated net income increased
$11.9 million from 1996. The increase was the result of fundamental
improvements in operating margin coupled with more favorable weather conditions.
Operating margin increased $47 million, or 13 percent, due to customer
growth, rate relief, and the return to more normal winter season temperatures
following consecutive years of record-setting warm weather. Rate relief in
Nevada and Arizona accounted for approximately $20 million of the operating
margin increase. Colder-than-normal weather during the fourth quarter of 1997
partially offset the effects of first quarter warmer-than-normal temperatures
and, overall, weather-related factors resulted in $19 million of additional
operating margin. During 1997, Southwest added 59,000 customers, a five percent
increase, contributing $8 million towards the change in operating margin.
Depreciation expense and general taxes increased $8.3 million, or nine
percent, as a result of construction activities. Average gas plant in service
increased $162 million, or ten percent, during the period. This was attributed
to the upgrade of existing operating facilities and the expansion of the system
to accommodate customer growth.
Net interest deductions during the current year increased $8.7 million, or
17 percent, from 1996. 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 1997, and the drawdown of IDRB funds held in trust. The increase in
26. Southwest Gas Corporation
<PAGE> 7
short-term debt reflected the need for short-term financing to cover higher gas
costs experienced during the 1996/1997 winter heating season.
During the fourth quarter of 1997, Southwest recognized nonrecurring charges
to income related to cost overruns on two separate construction projects. These
charges are reflected in Other income (deductions), net. An $8 million
nonrecurring pretax charge resulted from cost overruns experienced during
expansion of the northern California service territory. The writeoff was part
of a January 1998 settlement agreement negotiated between Southwest and the
California Public Utilities Commission (CPUC) Office of Ratepayer Advocates.
This agreement must be approved by the CPUC to become effective. Management
expects approval of the settlement in the first half of 1998. A second pretax
charge, for $5 million, related to cost overruns on a nonutility construction
project. A subsidiary of the Company is building a liquefied natural gas (LNG)
storage and distribution system to serve several small towns. The project will
be completed in 1998. See Note 11 of the Notes to Consolidated Financial
Statements for additional disclosures related to these projects. Partially
offsetting these charges was the recognition of a $3.4 million income tax
benefit related to the successful settlement in November 1997 of open tax
issues dating back as far as 1988. The combined impact of these three
nonrecurring events was a $4.1 million, or $0.15 per share, after-tax reduction
to earnings.
1996 VS. 1995 Contribution to consolidated net income increased $1.3 million
from 1995. The increase was due to an increase of operating income, partially
offset by an increase in financing costs between periods.
Weather was the dominant factor affecting the financial performance of the
gas segment in both years. Nevada experienced its second hottest year on record
in 1996 while Arizona experienced one of its hottest years on record. Warm
weather was particularly prevalent in the fourth quarter of 1995 and the first
quarter of 1996. As a result, operating margin was approximately $23 million
less than anticipated during 1996, and $28 million less than anticipated during
1995.
Despite the warm weather, operating margin increased $22.7 million, or seven
percent, in 1996 when compared to 1995. Rate relief and record customer growth
contributed to the improvement between periods. Effective July 1996, Southwest
received a $13.8 million general rate increase applicable to its Nevada rate
jurisdictions, providing $5 million in additional operating margin in 1996.
During 1996, Southwest added 63,000 customers, resulting in approximately
$13 million of additional operating margin.
Operations and maintenance expenses increased $10.4 million, or six percent,
reflecting increases in labor and maintenance costs, including the incremental
expenses associated with meeting the needs of Southwest's growing customer base.
Depreciation expense and taxes other than income taxes increased
$5.9 million, or seven percent, as a result of additional plant in service.
Average gas plant in service increased $142 million, or nine percent, during
the current period. This is attributable to the upgrade of existing operating
facilities and the expansion of the system to accommodate customer growth.
Financing costs during the year increased $5.2 million from 1995. 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. Financing activities also included the refunding or
retirement of a significant portion of the Company's outstanding debentures
with the proceeds from the sale of $150 million of debentures and proceeds from
the Bank sale. During 1996, average debt outstanding decreased $18 million and
consisted of an $11 million decrease in long-term debt and a $7 million
decrease in short-term debt. Interest rates were generally lower on
variable-rate debt.
RATES AND REGULATORY PROCEEDINGS
CALIFORNIA GENERAL RATE CASES Southwest last filed general rate applications
for its California jurisdictions in 1994. Increased rates went into effect in
January 1995 and continue through 1998 as part of a settlement agreement. In
addition, annual operational attrition increases have been received
27. Southwest Gas Corporation
<PAGE> 8
in northern California. If the northern California expansion proposal,
described below, is approved as filed, existing rates would remain intact
through the year 2000.
NEVADA GENERAL RATE CASES In December 1995, Southwest filed general rate cases
for its northern and southern Nevada jurisdictions. Increased rates went into
effect in July 1996 as part of a settlement agreement. The settlement also
specified a moratorium on future general rate increase requests until April
1999.
ARIZONA GENERAL RATE CASE In November 1996, Southwest filed a general rate
application with the Arizona Corporation Commission (ACC) seeking approval to
increase revenues by $49.3 million annually for both of its Arizona rate
jurisdictions. Southwest was seeking rate relief for increased operating costs,
changes in financing costs, and improvements and additions to the distribution
system. In August 1997, the ACC approved a settlement of the general rate case
providing the Company with a $32 million general rate increase effective
September 1997. The settlement achieved a number of favorable rate design
improvements and tariff restructuring changes including consolidation of the
southern and central Arizona rate jurisdictions for ratemaking purposes and
better matching of rates with the costs of serving various customer classes.
The timing of the increase was important to the Company because it provided the
benefit of having new rates in place before the start of the 1997/1998 winter
heating season. As a result, approximately $10 million of rate relief was
realized in 1997 operating margin.
FERC GENERAL RATE CASE 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 was 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 was
issued. In June 1997, a settlement agreement was filed with the FERC which was
approved in November 1997 and authorized a $3.2 million general rate increase
effective January 1997. Paiute had accrued a liability to customers for the
difference between the rates collected since January 1997 and the amount of
rate relief ultimately granted. Refunds for the difference between rates
collected from customers and the rates granted were made to customers in
December 1997.
NORTHERN CALIFORNIA EXPANSION In 1995, Southwest initiated a multi-year,
three-phase construction project to expand its northern California service
territory and extend service into Truckee, California. The CPUC imposed a
$29.1 million cost cap on the project as a condition of granting Southwest a
certificate of public convenience and necessity to serve the expansion areas. In
1995, Southwest completed Phase I of the expansion project, which involved
transmission system reinforcement and distribution system expansion to
accommodate 940 additional customers. Construction costs of $7.1 million were
on target with the cost estimate approved by the CPUC.
Phase II of the project involved extending the transmission system to
Truckee, California and distribution system expansion to accommodate 4,200
customers. The cost cap apportioned to Phase II was approximately
$13.8 million. The incurred cost of Phase II through December 1996 was
$26.9 million, with additional work remaining to complete this phase in 1997.
Due to the cost overruns and difficult construction environment experienced in
1996, Phase III was postponed and 1997 construction was limited to
approximately $1.8 million of expenditures incurred to complete Phase II.
In July 1997, Southwest filed an application requesting authorization from
the California Public Utilities Commission (CPUC) to modify the terms and
conditions of the certificate of public convenience and necessity granted by
the CPUC in 1995. In this application, Southwest requested
28. Southwest Gas Corporation
<PAGE> 9
that the cost cap of $29.1 million, originally approved by the CPUC, be
increased to $46.8 million; that the scope of Phase III construction be revised
to include 2,900 of the initially proposed 4,200 customers; and that Southwest
be permitted to collect contributions or advances from customer applicants
desiring service in the expansion area who were not identified to receive
service during the expansion phases as modified within the new application.
Southwest proposed to recover the incremental costs above the original cost cap
through a surcharge mechanism. In August 1997, the Office of Ratepayer
Advocates (ORA) filed a protest to the Southwest application indicating that the
terms of the original agreement should be adhered to. In September, a hearing
was held to discuss the filing and related protest.
In January 1998, Southwest and the ORA executed a settlement agreement that,
if approved by the CPUC, will allow Southwest to commence the final phase of
the project. Under the settlement, Southwest agreed, among other things, to
absorb $8 million in cost overruns experienced in Phase II of the project.
Southwest also agreed to an $11 million cost cap (with a maximum of $3,800 per
customer) for Phase III of the project. The Phase III project scope will be
modified as requested in the July 1997 application. In addition, Southwest
agreed not to file its next general rate case until Phase III is complete. A
decision by the CPUC on the settlement agreement is expected during the first
half of 1998.
Based on the proposed settlement agreement, Southwest recognized an
$8 million nonrecurring pretax charge in the fourth quarter of 1997.
PGA FILINGS
The following table shows the most recent purchased gas adjustment (PGA)
changes authorized by rate jurisdiction (thousands of dollars):
<TABLE>
<CAPTION>
Annualized
Revenue
Jurisdiction Adjustment Percentage Effective Date
<S> <C> <C> <C>
Arizona:
Central and Southern $46,900 14% April 1998
California:
Northern 2,600 19 January 1998
Southern 10,000 19 December 1997
Nevada:
Northern 5,200 11 December 1997
Southern 17,300 14 December 1997
</TABLE>
ARIZONA PGA FILING. In March 1998, the Arizona Corporation Commission approved
a PGA filing submitted by Southwest in January 1998 to recover deferred
purchased gas costs in Arizona. This filing, which will become effective in
April 1998, will result in an annual increase of $46.9 million, or 14 percent.
The increase in rates is designed to recover the accumulated PGA balance
related to Arizona customers over a twelve-month period, and to eliminate the
refunds currently built into the rate structure.
NEVADA PGA FILING. In January 1997, Southwest submitted an out-of-period PGA
filing in Nevada, in response to a substantial run-up in the commodity cost of
natural gas during November and December of 1996. In September 1997, the PUCN
approved the filing providing annual increases of $10.1 million, or nine
percent, in the southern Nevada rate jurisdiction, and $6 million, or
14 percent, in the northern Nevada rate jurisdiction. In approving the
increase, the PUCN indicated
29. Southwest Gas Corporation
<PAGE> 10
the possibility that the current PGA mechanism should be replaced with a
mechanism providing a price incentive, which Southwest recommended during the
hearing process.
In June 1997, Southwest submitted its annual PGA filing in compliance with
the Nevada Gas Tariff. The filing covered the period from April 1996 through
March 1997. In September 1997, this filing was amended to reflect changes
necessary as a result of the September 1997 order on the previous PGA filing.
Southwest requested annual increases of $23.1 million, or 18 percent, in the
southern Nevada rate jurisdiction, and $8.4 million, or 17 percent, in the
northern Nevada rate jurisdiction. Hearings on this filing commenced in
October 1997.
Subsequent to the adjournment of the proceedings, the PUCN issued an order
re-opening the proceedings for the limited purpose of gathering evidence,
relative to a quantification of a gas cost disallowance recommended by the
Regulatory Operations Staff (Staff).
In an order issued in December 1997, the PUCN found that "Southwest failed
to mitigate the risk inherent in a portfolio of all indexed-priced contracts
and failed to reasonably quantify the costs of any risk mitigation." As a
result, Southwest was ordered to reduce its cost of gas by $3.8 million in
southern Nevada and $1.8 million in northern Nevada. The approved increase,
after consideration of the amounts disallowed, was $17.3 million, or 14 percent
in southern Nevada, and $5.2 million, or 11 percent in northern Nevada.
In December 1997, Southwest filed a Petition for Reconsideration (Petition)
of the decision with the PUCN on the grounds that the findings of fact and
conclusions of law are contrary to binding legislative enactments and judicial
decisions. Specifically, the Petition asserted, among other things, that the
PUCN violated its settled obligation in the previous PGA docket, which included
the same winter period, in finding Southwest to be imprudent. Effectively, the
PUCN allowed a previously settled claim to be relitigated. In addition,
management also believes that the PUCN failed to follow its previous rules and
practices surrounding a PGA proceeding, or changed those rules effective with
the disallowance order and sought to retroactively apply them, which would have
required compliance with formal rulemaking procedures mandated by Nevada
Statutes.
In January 1998, the PUCN voted unanimously to grant the Petition and
reexamine the record and order with regard to the issues on which
reconsideration was granted. In February 1998, the PUCN reaffirmed the original
order.
In March 1998, Southwest filed a petition for judicial review (appeal) of
the final order of the PUCN with the Nevada District Court. The appeal alleges
the same procedural irregularities as were included in the Petition. The PUCN
and other parties are allowed 30 days to file answers to the appeal and the
court can then schedule a hearing upon 20 days notice.
The judicial review is conducted by the Nevada District Court without a jury
and is confined to the record of the underlying proceeding. However, when
allegations of irregularities in procedure are before the court, proof may be
taken by the court, which Southwest will be prepared to provide. Management
anticipates that judicial review will take no less than six months from the
date of the filing and could take as long as two years depending on the civil
trial calendar of the Nevada District Court.
Ultimately, either party or any party to the action may, within 60 days
after the service of a copy of the Nevada District Court order or judgment,
appeal to the Nevada Supreme Court. If this occurs, an additional period of
time would be required to resolve the issue.
Management believes it is probable that the action taken to dispute the
findings of fact and conclusions of law in the order will result in the
successful outcome desired, specifically, that the order to exclude
$5.6 million in gas costs from the PGA will be reversed. As a result, the
financial statements do not reflect any charges to effect the disallowance.
RESULTS OF CONSTRUCTION SERVICES
Contribution to consolidated net income from construction services was $644,000
in 1997. In 1996, construction services contributed $2.7 million, however,
those results excluded the preacquisition months January through April which
are typically loss months. Construction activity is seasonal with
30. Southwest Gas Corporation
<PAGE> 11
work generally scheduled for the spring through fall months in colder climate
areas, such as the Midwest. In warmer climate areas, such as the southwestern
United States, construction occurs year round. The decline was primarily a
result of lower-than-anticipated revenues caused by various project
cancellations and curtailments in portions of California, Washington, Missouri,
and Kansas. Northern has reorganized and closed offices in some of these areas
and is pursuing new contracts in other areas to improve profitability.
Construction revenues during 1997 were $117 million. The related costs of
construction were $112 million, resulting in gross profit of approximately $5
million. Labor and equipment costs were the primary components of construction
costs. General and administrative expenses were $2.8 million and interest
expense was $1.5 million. Comparative information by major income statement
caption was not provided since 1996 results were only for a partial year.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued two
new accounting pronouncements. Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings per Share," revises standards for computing and
presenting earnings per share (EPS). This statement replaces the presentation
of primary EPS with basic EPS and fully diluted EPS with diluted EPS. It also
requires the presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. The Company
implemented the requirements of SFAS No. 128 for 1997 annual reporting.
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 Company adopted this standard in December 1997.
In June 1997, the FASB issued two new accounting pronouncements.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and displaying comprehensive income and its components in a full set
of general-purpose financial statements. The components are required to be
reported in a financial statement that is displayed with the same prominence as
other financial statements. This statement becomes effective January 1, 1998.
The Company has reviewed the requirements of SFAS No. 130 and does not expect
any material change to its current financial statement presentation format.
The second pronouncement issued was SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for the way that public companies report information about operating
segments in annual financial statements and requires that those companies
report selected information about operating segments in annual and interim
financial reports issued to shareholders. The statement becomes effective for
1998 annual financial statements. The Company early adopted the disclosure
requirements of this statement for 1997 year-end reporting. See Note 13 of the
Notes to Consolidated Financial Statements for segment disclosures.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits." SFAS No. 132 standardizes
the disclosure requirements for pensions and other postretirement benefits,
requires additional information to facilitate financial analysis, and
eliminates certain previously required disclosures. It does not change
measurement or recognition of amounts related to those plans. This statement is
effective for 1998 reporting. The disclosure requirements of this statement are
not expected to significantly change current reporting practices of the Company.
31. Southwest Gas Corporation
<PAGE> 12
YEAR 2000 COMPUTER SOFTWARE MODIFICATION. The Company has computer systems which
process transactions based on storing two digits for the year of a transaction
(e.g. "97" for 1997) rather than four digits. These systems must be programmed
to handle turn-of-the-century calculations. In 1994, the Company initiated a
comprehensive review of its computer systems to identify date-sensitive systems
that could be adversely affected by the year 2000. By January 1995, computer
systems requiring modification or replacement to be year 2000 compliant were
identified. Since that time, the Company has focused on converting all
business-critical systems. As of December 31, 1997, nearly two-thirds of
Company computer systems were compliant, with anticipated completion of
approximately 90 and 100 percent by the end of 1998 and 1999, respectively. The
total incremental costs associated with the year 2000 programming effort are
immaterial. The Company has evaluated the impact to it of other companies'
failure to comply and anticipates that the impact would be negligible.
COMMON STOCK PRICE AND DIVIDEND INFORMATION
<TABLE>
<CAPTION>
1997 1996 Dividends Paid
--------------- --------------- ----------------
HIGH LOW High Low 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $20 1/4 $17 1/4 $18 5/8 $15 5/8 $0.205 $0.205
Second Quarter 19 7/8 16 1/8 17 3/8 15 3/4 0.205 0.205
Third Quarter 20 1/8 17 3/4 18 3/8 14 7/8 0.205 0.205
Fourth Quarter 19 15/16 17 1/8 19 7/8 17 3/8 0.205 0.205
- ------------------------------------------------------------------------------------------------------------------------
$0.820 $0.820
========================================================================================================================
</TABLE>
The principal markets on which the common stock of the Company is traded are
the New York Stock Exchange and the Pacific Stock Exchange. At March 16, 1998
there were 25,723 holders of record of common stock and the market price of the
common stock was $20 1/4.
32. Southwest Gas Corporation
<PAGE> 13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF SOUTHWEST GAS CORPORATION:
We have audited the accompanying consolidated balance sheets of Southwest Gas
Corporation (a California corporation, hereinafter referred to as the Company)
and subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company and its
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 6, 1998
33. Southwest Gas Corporation
<PAGE> 14
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- --------------------------------------------------------------------------------------
(Thousands of dollars, except par value)
<S> <C> <C>
ASSETS
Utility plant:
Gas plant $1,867,824 $1,732,405
Less: accumulated depreciation (551,083) (505,984)
Acquisition adjustments 4,259 5,866
Construction work in progress 39,294 46,170
- --------------------------------------------------------------------------------------
Net utility plant (Note 2) 1,360,294 1,278,457
- --------------------------------------------------------------------------------------
Other property and investments 64,928 71,245
- --------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents 17,567 8,280
Accounts receivable, net of allowances (Note 3) 78,016 69,000
Accrued utility revenue 54,373 46,500
Income tax benefit 19,425 --
Deferred taxes (Note 10) -- 8,009
Deferred purchased gas costs (Note 4) 86,952 --
Prepaids and other current assets 32,211 28,029
- --------------------------------------------------------------------------------------
Total current assets 288,544 159,818
- --------------------------------------------------------------------------------------
Deferred charges and other assets (Note 4) 55,293 50,749
- --------------------------------------------------------------------------------------
Total assets $1,769,059 $1,560,269
======================================================================================
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock, $1 par (authorized -- 45,000,000 shares;
issued and outstanding -- 27,387,016 and 26,732,688
shares) $ 29,017 $ 28,363
Additional paid-in capital 360,683 349,132
Retained earnings (accumulated deficit) (3,721) 2,121
- --------------------------------------------------------------------------------------
Total common equity 385,979 379,616
Company-obligated mandatorily redeemable preferred
securities of the Company's subsidiary, Southwest Gas
Capital I,
holding solely $61.8 million principal amount of 9.125%
subordinated notes of the Company due 2025 (Note 5) 60,000 60,000
Long-term debt, less current maturities (Note 6) 778,693 665,221
- --------------------------------------------------------------------------------------
Total capitalization 1,224,672 1,104,837
- --------------------------------------------------------------------------------------
Commitments and contingencies (Note 8)
Current liabilities:
Current maturities of long-term debt (Note 6) 5,621 6,675
Short-term debt (Note 7) 142,000 121,000
Accounts payable 62,324 49,951
Customer deposits 21,945 21,133
Accrued taxes 21,125 9,977
Accrued interest 13,007 9,800
Deferred taxes (Note 10) 24,163 --
Deferred purchased gas costs (Note 4) -- 9,432
Other current liabilities 34,222 33,369
- --------------------------------------------------------------------------------------
Total current liabilities 324,407 261,337
- --------------------------------------------------------------------------------------
Deferred income taxes and other credits:
Deferred income taxes and investment tax credits (Note 10) 168,282 152,063
Other deferred credits (Note 4) 51,698 42,032
- --------------------------------------------------------------------------------------
Total deferred income taxes and other credits 219,980 194,095
- --------------------------------------------------------------------------------------
Total capitalization and liabilities $1,769,059 $1,560,269
======================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
34. Southwest Gas Corporation
<PAGE> 15
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
(In thousands, except per share amounts)
<S> <C> <C> <C>
Operating revenues:
Gas operating revenues $614,665 $546,361 $563,502
Construction revenues 117,345 97,700 --
- -----------------------------------------------------------------------------------------------
Total operating revenues 732,010 644,061 563,502
- -----------------------------------------------------------------------------------------------
Operating expenses:
Net cost of gas sold 209,338 187,580 227,456
Operations and maintenance 201,159 198,364 187,969
Depreciation and amortization 84,661 73,699 62,492
Taxes other than income taxes 29,393 28,156 27,173
Construction expenses 105,198 84,689 --
- -----------------------------------------------------------------------------------------------
Total operating expenses 629,749 572,488 505,090
- -----------------------------------------------------------------------------------------------
Operating income 102,261 71,573 58,412
- -----------------------------------------------------------------------------------------------
Other income and (expenses):
Net interest deductions (63,218) (54,913) (53,354)
Preferred securities distributions (Note 5) (5,475) (5,475) (913)
Other income (deductions), net (Note 11) (12,240) (737) (652)
- -----------------------------------------------------------------------------------------------
Total other income and (expenses) (80,933) (61,125) (54,919)
- -----------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 21,328 10,448 3,493
Income tax expense (Note 10) 4,859 3,874 839
- -----------------------------------------------------------------------------------------------
Net income from continuing operations 16,469 6,574 2,654
- -----------------------------------------------------------------------------------------------
Discontinued operations (Note 15):
Loss from discontinued segment, net of tax benefit of
$2,306 in 1995 -- -- (4,513)
Loss on disposal of discontinued segment,
including tax expense of $9,900 in 1995 -- -- (13,023)
- -----------------------------------------------------------------------------------------------
Net loss from discontinued operations -- -- (17,536)
- -----------------------------------------------------------------------------------------------
Net income (loss) 16,469 6,574 (14,882)
Preferred stock dividend requirements -- -- 307
- -----------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock $ 16,469 $ 6,574 $(15,189)
===============================================================================================
Earnings per share from continuing operations $ 0.61 $ 0.25 $ 0.10
Loss per share from discontinued operations -- -- (0.76)
- -----------------------------------------------------------------------------------------------
Earnings (loss) per share of common stock (Note 14) $ 0.61 $ 0.25 $ (0.66)
===============================================================================================
Average number of common shares outstanding 27,069 25,888 23,167
===============================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
35. Southwest Gas Corporation
<PAGE> 16
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 16,469 $ 6,574 $ (14,882)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 84,661 73,699 62,492
Deferred income taxes 47,476 17,453 (15,314)
Changes in current assets and liabilities:
Accounts receivable, net of allowances (7,913) (17,886) 19,719
Accrued utility revenue (7,873) (2,600) 3,633
Deferred purchased gas costs (96,384) (23,344) 47,995
Accounts payable 12,373 4,964 (7,101)
Accrued taxes (8,277) (19,139) (13,820)
Other current assets and liabilities 2,004 2,498 3,661
Other 13,889 9,976 (205)
Undistributed loss from discontinued operations -- -- 11,576
- -------------------------------------------------------------------------------------------------
Net cash provided by operating activities 56,425 52,195 97,754
- -------------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Construction expenditures and property additions (169,614) (218,835) (166,183)
Proceeds from bank sale -- 191,662 --
Other (1,308) (22,112) 2,465
- --------------------------------------------------------------------------------------------------
Net cash used in investing activities (170,922) (49,285) (163,718)
- --------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 12,205 18,110 44,844
Issuance of trust originated preferred
securities, net -- -- 57,713
Reacquisition of preferred stock -- -- (4,000)
Dividends paid (22,177) (21,311) (19,575)
Issuance of long-term debt, net 120,321 164,876 49,407
Retirement of long-term debt, net (7,565) (248,531) (2,285)
Issuance (repayment) of short-term debt 21,000 81,058 (55,000)
Other -- -- (48)
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 123,784 (5,798) 71,056
- -------------------------------------------------------------------------------------------------
Change in cash and temporary cash investments 9,287 (2,888) 5,092
Cash at beginning of period 8,280 11,168 6,076
- -------------------------------------------------------------------------------------------------
Cash at end of period $ 17,567 $ 8,280 $ 11,168
=================================================================================================
Supplemental information:
Interest paid, net of amounts capitalized $ 58,771 $ 60,008 $ 62,377
Income taxes, net of refunds $ (33,954) $ 18,682 $ 20,413
</TABLE>
The accompanying notes are an integral part of these statements.
36. Southwest Gas Corporation
<PAGE> 17
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- Paid-in Retained
(In thousands, except per share amounts) Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1994 21,282 $22,912 $273,217 $ 52,427 $348,556
Common stock issuances 3,185 3,185 41,659 44,844
Issuance costs, preferred securities (2,287) (2,287)
Net loss (14,882) (14,882)
Dividends declared
Preferred: $9.50 per share (307) (307)
Common: $0.82 per share (19,826) (19,826)
Redemption of preferred stock 42 (90) (48)
- --------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 24,467 26,097 312,631 17,322 356,050
Common stock issuances 2,266 2,266 36,501 38,767
Net income 6,574 6,574
Dividends declared
Common: $0.82 per share (21,775) (21,775)
- --------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 26,733 28,363 349,132 2,121 379,616
Common stock issuances 654 654 11,551 12,205
Net income 16,469 16,469
Dividends declared
Common: $0.82 per share (22,311) (22,311)
- --------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 27,387* $29,017 $360,683 $ (3,721) $385,979
====================================================================================================================
</TABLE>
*At December 31, 1997, 2.6 million common shares were registered and available
for issuance under provisions of the Employee Investment Plan, the Stock
Incentive Plan, and the Dividend Reinvestment and Stock Purchase Plan.
The accompanying notes are an integral part of these statements.
37. Southwest Gas Corporation
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Southwest's public utility rates, practices, facilities, and service
territories are subject to regulatory oversight. The timing and amount of rate
relief can materially impact results of operations. Natural gas sales are
seasonal, peaking during the winter months. 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.
BASIS OF PRESENTATION. The Company follows generally accepted accounting
principles (GAAP) in accounting for all of its businesses. Accounting for the
natural gas utility operations conforms with GAAP as applied to regulated
companies and as prescribed by federal agencies and the commissions of the
various states in which the utility operates. The preparation of financial
statements in conformity with GAAP 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.
CONSOLIDATION. The accompanying financial statements are presented on a
consolidated basis and include the accounts of Southwest Gas Corporation and
all wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated with the exception of transactions between
Southwest and Northern. 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 are being met. Financial
services activities are classified as discontinued operations.
NET UTILITY PLANT. Net utility plant includes gas plant at original cost, less
the accumulated provision for depreciation and amortization, plus the
unamortized balance of acquisition adjustments. Original cost includes
contracted services, material, payroll and related costs such as taxes and
benefits, general and administrative expenses, and an allowance for funds used
during construction less contributions in aid of construction.
DEFERRED PURCHASED GAS COSTS. The various regulatory commissions have
established procedures to enable Southwest to adjust its billing rates for
changes in the cost of gas purchased. The difference between the current cost
of gas purchased and the cost of gas recovered in billed rates is deferred.
Generally, these deferred amounts are recovered or refunded within one to two
years. Southwest must first obtain regulatory approval before changing the
rates it charges for recovery of gas costs.
INCOME TAXES. The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred
38. Southwest Gas Corporation
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
tax assets and liabilities of a change in tax rates is recognized in the period
that includes the enactment date.
For regulatory and financial reporting purposes, investment tax credits
(ITC) related to gas utility operations are deferred and amortized over the
life of related fixed assets.
GAS OPERATING REVENUES. Revenues are recorded when customers are billed.
Customer billings are based on monthly meter reads and are calculated in
accordance with applicable tariffs. Southwest also recognizes accrued utility
revenues for the estimated amount of services rendered between the
meter-reading dates in a particular month and the end of such month.
CONSTRUCTION REVENUES. The majority of Northern's contracts are performed under
unit price contracts. These contracts state prices per unit of installation.
Revenues are recorded as installations are completed. Fixed-price contracts use
the percentage of completion method of accounting and, therefore, take into
account the cost, estimated earnings, and revenue to date on contracts not yet
completed. The amount of revenue recognized is based on costs expended to date
relative to anticipated final contract costs. Revisions in estimates of cost
and earnings during the course of the work are reflected in the accounting
period in which the facts requiring revision become known. If a loss on a
contract becomes known or is anticipated, the entire amount of the estimated
ultimate loss is recognized at that time in the financial statements.
DEPRECIATION AND AMORTIZATION. Utility plant depreciation is computed on the
straight-line remaining life method at composite rates considered sufficient to
amortize costs over estimated service lives, including components which adjust
for salvage value and removal costs, as approved by the appropriate regulatory
agency. When plant is retired from service, the original cost of plant,
including costs of removal, less salvage, is charged to the accumulated
provision for depreciation. Acquisition adjustments are amortized, as ordered
by regulators, over periods which approximate the remaining estimated life of
the acquired properties. Costs related to refunding utility debt and debt
issuance expenses are deferred and amortized over the weighted average lives of
the new issues. Other regulatory assets, when appropriate, are amortized over
time periods authorized by regulators. Nonutility property and equipment are
depreciated on a straight-line method based on the estimated useful lives of
the related assets.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC). AFUDC represents the cost
of both debt and equity funds used to finance utility construction. AFUDC is
capitalized as part of the cost of utility plant. The Company capitalized
$1.6 million in 1997, $1.8 million in 1996, and $1.2 million in 1995 of AFUDC
related to natural gas utility operations. The debt portion of AFUDC is
reported in the consolidated statements of income as an offset to net interest
deductions and the equity portion is reported as other income. Utility plant
construction costs, including AFUDC, are recovered in authorized rates through
depreciation when completed projects are placed into operation, and general
rate relief is requested and granted.
EARNINGS PER SHARE. The Company implemented Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share," for 1997 financial reporting
purposes. Basic earnings per share (EPS) are calculated by dividing net income
(loss) applicable to common stock by the weighted average number of shares
outstanding during the period. Diluted EPS includes additional weighted-
average common stock equivalents (stock options and performance shares) of
66,000 shares in 1997, 37,000 shares in 1996, and 7,000 shares in 1995. Unless
otherwise noted, Basic EPS and Diluted EPS are the same.
39. Southwest Gas Corporation
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH FLOWS. For purposes of reporting consolidated cash flows, cash and cash
equivalents include cash on hand and financial instruments with a maturity of
three months or less, but exclude funds held in trust for industrial
development revenue bonds.
RECLASSIFICATIONS. Certain reclassifications have been made to amounts shown
for prior years to conform to the current-year presentation.
NOTE 2 -- NET UTILITY PLANT
Net utility plant as of December 31, 1997 and 1996 was as follows (thousands of
dollars):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Gas plant:
Storage $ 3,233 $ 3,216
Transmission 169,033 150,898
Distribution 1,458,707 1,349,270
General 178,838 179,795
Other 58,013 49,226
- --------------------------------------------------------------------------------------
1,867,824 1,732,405
Less: accumulated depreciation (551,083) (505,984)
Acquisition adjustments 4,259 5,866
Construction work in progress 39,294 46,170
- --------------------------------------------------------------------------------------
Net utility plant $1,360,294 $1,278,457
======================================================================================
</TABLE>
Depreciation expense on gas plant was $73.5 million, $66.9 million, and
$62 million during the years ended December 31, 1997, 1996, and 1995,
respectively.
LEASES AND RENTALS. Southwest leases the liquefied natural gas (LNG) facilities
on its northern Nevada system, a portion of its corporate headquarters office
complex in Las Vegas, and its administrative offices in Phoenix. The leases
provide for current terms which expire in 2003, 2017, and 2004, respectively,
with optional renewal terms available at the expiration dates. The rental
payments for the LNG facilities are $6.7 million annually and $36.7 million in
the aggregate. The rental payments for the corporate headquarters office
complex are $1.8 million for each year 1998 through 2002, and $30.1 million
cumulatively thereafter. The rental payments for the Phoenix administrative
offices are $1.2 million for each year 1998 through 2000, $1.3 million in 2001
and 2002, and $2.3 million cumulatively thereafter. In addition to the above,
the Company leases certain office and construction equipment. The majority of
these leases are short-term. These leases are accounted for as operating
leases, and for the gas segment are treated as such for regulatory purposes.
Rentals included in operating expenses for all operating leases were
$20.7 million in 1997, $19.9 million in 1996, and $13.3 million in 1995. These
amounts include Northern lease expenses of approximately $6.7 million in 1997
and $6 million in 1996 for various short-term leases of equipment and temporary
office sites.
40. Southwest Gas Corporation
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a schedule of future minimum lease payments for
noncancellable operating leases (with initial or remaining terms in excess of
one year) as of December 31, 1997 (thousands of dollars):
<TABLE>
<CAPTION>
Year Ending December 31,
- -----------------------------------------------------------------------
<S> <C>
1998 $10,958
1999 10,728
2000 9,807
2001 9,896
2002 9,896
Thereafter 35,600
- -----------------------------------------------------------------------
Total minimum lease payments $86,885
=======================================================================
</TABLE>
NOTE 3 -- RECEIVABLES AND RELATED ALLOWANCES
Business activity with respect to gas utility operations is conducted with
customers located within the three-state region of Arizona, Nevada, and
California. At December 31, 1997, gas segment receivables were $59.8 million.
Approximately 57 percent of the gas utility customers were in Arizona,
33 percent in Nevada, and 10 percent in California. Although the Company seeks
to minimize its credit risk related to utility operations by requiring security
deposits from new customers, imposing late fees, and actively pursuing
collection on certain accounts, some accounts are ultimately not collected.
Provisions for uncollectible accounts are recorded monthly, as needed, and are
included in the ratemaking process as a cost of service. Activity in the
allowance for uncollectibles is summarized as follows (thousands of dollars):
<TABLE>
<CAPTION>
Allowance for
Uncollectibles
<S> <C>
Balance, December 31, 1994 $ 1,553
Additions charged to expense 1,295
Accounts written off, less recoveries (1,621)
- ----------------------------------------------------------------------------
Balance, December 31, 1995 1,227
Additions charged to expense 1,285
Accounts written off, less recoveries (1,002)
- ----------------------------------------------------------------------------
Balance, December 31, 1996 1,510
Additions charged to expense 1,495
Accounts written off, less recoveries (1,427)
- ----------------------------------------------------------------------------
Balance, December 31, 1997 $ 1,578
============================================================================
</TABLE>
NOTE 4 -- REGULATORY ASSETS AND LIABILITIES
Natural gas operations are subject to the regulation of the Arizona Corporation
Commission (ACC), the Public Utilities Commission of Nevada (PUCN), the
California Public Utilities Commission (CPUC), and the Federal Energy
Regulatory Commission (FERC). The Company's accounting policies conform to
generally accepted accounting principles applicable to rate-regulated
enterprises and reflect the effects of the ratemaking process. Such effects
concern mainly the time at which various items enter into the determination of
net income in accordance with the principle of matching costs with related
revenues.
41. Southwest Gas Corporation
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table represents existing regulatory assets and liabilities
(thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Regulatory assets:
Deferred purchased gas costs $ 86,952 $ --
SFAS No. 109 -- Income taxes, net 9,651 11,431
Unamortized premium on reacquired debt 16,803 17,440
Other 23,048 16,601
- ---------------------------------------------------------------------------------
136,454 45,472
Regulatory liabilities:
Supplier and other rate refunds due customers (1,059) (3,828)
Deferred purchased gas costs -- (9,432)
Other (1,124) (2,204)
- ---------------------------------------------------------------------------------
Net regulatory assets $134,271 $30,008
=================================================================================
</TABLE>
NOTE 5 -- PREFERRED STOCK AND PREFERRED SECURITIES
In December 1995, the Company redeemed all remaining outstanding $100
Cumulative Preferred Stock, 9.5% Series. The stock was redeemed because other
less costly financing options were available.
PREFERRED SECURITIES OF SOUTHWEST GAS CAPITAL I. In October 1995, Southwest Gas
Capital I (the Trust), a consolidated wholly owned subsidiary of the Company,
issued $60 million of 9.125% Trust Originated Preferred Securities (the
Preferred Securities). In connection with the Trust's issuance of the Preferred
Securities and the related purchase by the Company of all of the Trust's common
securities (the Common Securities), the Company issued to the Trust
$61.8 million principal amount of its 9.125% Subordinated Deferrable Interest
Notes, due 2025 (the Subordinated Notes). The sole assets of the Trust are and
will be the Subordinated Notes. The interest and other payment dates on the
Subordinated Notes correspond to the distribution and other payment dates on the
Preferred Securities and Common Securities. Under certain circumstances, the
Subordinated Notes may be distributed to the holders of the Preferred
Securities and holders of the Common Securities in liquidation of the Trust.
The Subordinated Notes are redeemable at the option of the Company on or after
December 31, 2000, at a redemption price of $25 per Subordinated Note plus
accrued and unpaid interest. In the event that the Subordinated Notes are
repaid, the Preferred Securities and the Common Securities will be redeemed on
a pro rata basis at $25 per Preferred Security and Common Security plus
accumulated and unpaid distributions. The Company's obligations under the
Subordinated Notes, the Declaration of Trust (the agreement under which the
Trust was formed), the guarantee of payment of certain distributions,
redemption payments and liquidation payments with respect to the Preferred
Securities to the extent the Trust has funds available therefor and the
indenture governing the Subordinated Notes, including the Company's agreement
pursuant to such indenture to pay all fees and expenses of the Trust, other
than with respect to the Preferred Securities and Common Securities, taken
together, constitute a full and unconditional guarantee on a subordinated basis
by the Company of payments due on the Preferred Securities. As of December 31,
1997, 2.4 million Preferred Securities were outstanding.
The Company has the right to defer payments of interest on the Subordinated
Notes by extending the interest payment period at any time for up to
20 consecutive quarters (each, an Extension Period). If interest payments are
so deferred, distributions will also be deferred. During such Extension Period,
distributions will continue to accrue with interest thereon (to the extent
permitted by applicable law) at an annual rate of 9.125% per annum compounded
quarterly. There could be multiple Extension Periods of varying lengths
throughout the term of the Subordinated Notes. If the
42. Southwest Gas Corporation
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company exercises the right to extend an interest payment period, the Company
shall not during such Extension Period (i) declare or pay dividends on, or make
a distribution with respect to, or redeem, purchase or acquire or make a
liquidation payment with respect to, any of its capital stock, or (ii) make any
payment of interest, principal or premium, if any, on or repay, repurchase, or
redeem any debt securities issued by the Company that rank equal with or junior
to the Subordinated Notes; provided, however, that restriction (i) above does
not apply to any stock dividends paid by the Company where the dividend stock
is the same as that on which the dividend is being paid. The Company has no
present intention of exercising its right to extend the interest payment period.
NOTE 6 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
Carrying Market Carrying Market
DECEMBER 31, Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C> <C>
Debentures and Notes:
9 3/4% Series F, due 2002 $100,000 $112,120 $100,000 $112,960
7 1/2% Series, due 2006 75,000 78,116 75,000 76,740
8% Series, due 2026 75,000 82,028 75,000 78,600
Medium-term notes, 7.59% series, due 2017 25,000 26,214 -- --
Medium-term notes, 7.78% series, due 2022 25,000 26,735 -- --
Medium-term notes, 7.92% series, due 2027 25,000 27,121 -- --
Medium-term notes, 6.89% series, due 2007 17,500 17,327 -- --
Medium-term notes, 6.76% series, due 2027 7,500 7,079 -- --
Unamortized discount (3,592) -- (3,137) --
- ----------------------------------------------------------------------------------------------------------
346,408 246,863
- ----------------------------------------------------------------------------------------------------------
Term-loan facilities 200,000 200,000 184,000 184,000
- ----------------------------------------------------------------------------------------------------------
Industrial development revenue bonds:
Variable-rate bonds
Series A, due 2028 50,000 50,000 50,000 50,000
Less funds held in trust (25,926) -- (30,261) --
- ----------------------------------------------------------------------------------------------------------
24,074 19,739
- ----------------------------------------------------------------------------------------------------------
Fixed-rate bonds
7.30% 1992 Series A, due 2027 30,000 30,288 30,000 32,029
7.50% 1992 Series B, due 2032 100,000 102,883 100,000 107,232
6.50% 1993 Series A, due 2033 75,000 67,661 75,000 75,241
Unamortized discount (3,551) -- (3,654) --
- ----------------------------------------------------------------------------------------------------------
201,449 201,346
- ----------------------------------------------------------------------------------------------------------
Other 12,383 -- 19,948 --
- ----------------------------------------------------------------------------------------------------------
784,314 671,896
Less current maturities (5,621) (6,675)
- ----------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities $778,693 $665,221
==========================================================================================================
</TABLE>
In October 1996, the Company filed a $250 million shelf registration statement.
In connection with this registration statement, the Company may offer, up to
the registered amount, any combination of debt securities, preferred stock,
depositary shares, and common stock. This registration statement included a
carryforward of $60 million remaining from a prior shelf registration statement
declared
43. Southwest Gas Corporation
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
effective by the Securities and Exchange Commission in October 1995. The
Company filed a prospectus supplement in December 1996 identifying $150 million
of the shelf as medium-term notes. During 1997, the Company issued $100 million
of medium-term notes at various interest rates and maturity dates.
In June 1997, the Company entered into a $350 million revolving credit
agreement which replaced a previous $200 million term-loan facility and a
$150 million short-term credit line. Revolving credit loans bear interest at
either the London Interbank Offering Rate (LIBOR) plus or minus a competitive
margin or prime rate plus one half of one percent of the Federal Funds rate.
Any amounts borrowed under the revolving credit agreement become payable in
June 2002. The Company has designated $200 million of the total facility as
long-term debt and plans to use the remaining $150 million for working capital
purposes and has designated the related outstanding amounts as short-term debt.
The interest rate on the variable-rate industrial development revenue bonds
(IDRB) is established on a weekly basis and averaged 4.18 percent in 1997,
4.16 percent in 1996, and 4.80 percent in 1995. At the option of the Company,
the interest period can be converted from a weekly rate to a daily-term or
variable-term rate.
The fair value of the term-loan facilities approximates carrying value.
Market values for the debentures and fixed-rate IDRB were determined based on
dealer quotes using trading records for December 31, 1997 and 1996, as
applicable, and other secondary sources which are customarily consulted for
data of this kind. The carrying value of the IDRB Series due 2028 was used as
the estimate of fair value based upon the variable interest rate of the bonds.
Estimated maturities of long-term debt for the next five years are expected
to be $5.6 million, $4 million, $2.7 million, $71,000 and $300 million,
respectively.
In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. This statement became effective January 1,
1997. The adoption of this statement did not have a material effect on the
Company's financial position or results of operations.
NOTE 7 -- SHORT-TERM DEBT
A portion of the $350 million revolving credit facility, discussed in Note 6,
replaced the various credit lines which aggregated $150 million. Short-term
borrowings were $142 million and $121 million at December 31, 1997 and 1996,
respectively. The weighted average interest rates on these borrowings were
6.54 percent at December 31, 1997 and 6.83 percent at December 31, 1996.
In October 1997, the Company entered into a $50 million unsecured line of
credit agreement with various banks, for general working capital purposes which
expires in October 1998. Interest is payable monthly at competitive rates
similar to the Company's revolving credit agreement. During 1997, no amounts
were outstanding on this line of credit.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS. The Company has been named as defendant in various legal
proceedings. The ultimate dispositions of these proceedings are not presently
determinable; however, it is the opinion of management that no litigation to
which the Company is subject will have a material adverse impact on its
financial position or results of operations.
NEVADA PURCHASED GAS ADJUSTMENT (PGA) FILING. In January 1997, Southwest
submitted an out-of-period PGA filing in Nevada, in response to a substantial
run-up in the commodity cost of natural gas during November and December of
1996. In September 1997, the PUCN approved the filing providing annual
increases of $10.1 million, or nine percent, in the southern Nevada rate
jurisdiction, and $6 million, or 14 percent, in the northern Nevada rate
jurisdiction. In approving the
44. Southwest Gas Corporation
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
increase, the PUCN indicated the possibility that the current PGA mechanism
should be replaced with a mechanism providing a price incentive, which
Southwest recommended during the hearing process.
In June 1997, Southwest submitted its annual PGA filing in compliance with
the Nevada Gas Tariff. The filing covered the period from April 1996 through
March 1997. In September 1997, this filing was amended to reflect changes
necessary as a result of the September 1997 order on the previous PGA filing.
Southwest requested annual increases of $23.1 million, or 18 percent, in the
southern Nevada rate jurisdiction, and $8.4 million, or 17 percent, in the
northern Nevada rate jurisdiction. Hearings on this filing commenced in
October 1997.
Subsequent to the adjournment of the proceedings, the PUCN issued an order
re-opening the proceedings for the limited purpose of gathering evidence,
relative to a quantification of a gas cost disallowance recommended by the
Regulatory Operations Staff (Staff).
In an order issued in December 1997, the PUCN found that "Southwest failed
to mitigate the risk inherent in a portfolio of all indexed-priced contracts
and failed to reasonably quantify the costs of any risk mitigation." As a
result, Southwest was ordered to reduce its cost of gas by $3.8 million in
southern Nevada and $1.8 million in northern Nevada. The approved increase,
after consideration of the amounts disallowed, was $17.3 million, or 14 percent
in southern Nevada, and $5.2 million, or 11 percent in northern Nevada.
In December 1997, Southwest filed a Petition for Reconsideration (Petition)
of the decision with the PUCN on the grounds that the findings of fact and
conclusions of law are contrary to binding legislative enactments and judicial
decisions. Specifically, the Petition asserted, among other things, that the
PUCN violated its settled obligation in the previous PGA docket, which included
the same winter period, in finding Southwest to be imprudent. Effectively, the
PUCN allowed a previously settled claim to be relitigated. In addition,
management also believes that the PUCN failed to follow its previous rules and
practices surrounding a PGA proceeding, or changed those rules effective with
the disallowance order and sought to retroactively apply them, which would have
required compliance with formal rulemaking procedures mandated by Nevada
Statutes.
In January 1998, the PUCN voted unanimously to grant the Petition and
reexamine the record and order with regard to the issues on which
reconsideration was granted. In February 1998, the PUCN reaffirmed the original
order.
In March 1998, Southwest filed a petition for judicial review (appeal) of
the final order of the PUCN with the Nevada District Court. The appeal alleges
the same procedural irregularities as were included in the Petition. The PUCN
and other parties are allowed 30 days to file answers to the appeal and the
court can then schedule a hearing upon 20 days notice.
The judicial review is conducted by the Nevada District Court without a jury
and is confined to the record of the underlying proceeding. However, when
allegations of irregularities in procedure are before the court, proof may be
taken by the court, which Southwest will be prepared to provide. Management
anticipates that judicial review will take no less than six months from the
date of the filing and could take as long as two years depending on the civil
trial calendar of the Nevada District Court.
Ultimately, either party or any party to the action may, within 60 days
after the service of a copy of the Nevada District Court order or judgment,
appeal to the Nevada Supreme Court. If this occurs, an additional period of
time would be required to resolve the issue.
Management believes it is probable that the action taken to dispute the
findings of fact and conclusions of law in the order will result in the
successful outcome desired, specifically, that the order to exclude
$5.6 million in gas costs from the PGA will be reversed. As a result, the
financial statements do not reflect any charges to effect the disallowance.
NOTE 9 -- EMPLOYEE BENEFITS
Southwest has a qualified retirement plan covering its employees. The plan is
noncontributory with defined benefits, and covers substantially all employees.
Southwest's policy is to fund the plan at not
45. Southwest Gas Corporation
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
less than the minimum required contribution nor more than the tax deductible
limit. Plan assets are held in a trust whose investments consist of common
stock, corporate bonds, government obligations, real estate, a mutual fund
investing in foreign stocks, an insurance company contract, and cash or cash
equivalents.
The plan provides that an employee may earn benefits for a period of up to
30 years and will be vested after 5 years of service. Retirement plan costs
were $7.2 million in 1997, $7.2 million in 1996, and $6.8 million in 1995.
The following table sets forth the plan's funded status and amounts recognized
on the Consolidated Balance Sheets and Statements of Income.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- -------------------------------------------------------------------------------------
(Thousands of dollars)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $(128,464) and $(124,156), respectively $(137,871) $(133,752)
=====================================================================================
Projected benefit obligation for service rendered to date $(190,389) $(187,183)
Market value of plan assets 232,413 195,994
- -------------------------------------------------------------------------------------
Assets in excess of projected benefit obligation 42,024 8,811
Unrecognized net transition obligation being amortized
through 2004 4,979 5,816
Unrecognized net loss (gain) (48,647) (14,741)
Unrecognized prior service cost 352 409
- -------------------------------------------------------------------------------------
Prepaid (accrued) pension cost included in the Consolidated
Balance Sheets $ (1,292) $ 295
=====================================================================================
Assumptions used to develop pension obligations were:
Discount rate 7.50% 7.00%
Long-term rate of return on assets 9.00% 9.00%
Rate of increase in compensation levels 4.75% 4.75%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Net retirement plan costs include the following components:
Service cost $ 9,630 $ 8,762 $ 7,153
Interest cost 12,945 11,993 11,084
Actual return on plan assets (35,305) (23,511) (35,557)
Net amortization and deferrals 19,929 9,976 24,136
- -------------------------------------------------------------------------------------------------
Net periodic retirement plan cost $ 7,199 $ 7,220 $ 6,816
=================================================================================================
</TABLE>
In addition to the basic retirement plan, Southwest has a separate unfunded
supplemental retirement plan which is limited to certain officers. The plan is
noncontributory with defined benefits. Senior officers who retire with ten
years or more of service with Southwest are eligible to receive benefits. Other
officers who retire with 20 years or more of service with Southwest are
eligible to receive benefits. Plan costs were $2 million in 1997, $1.8 million
in 1996, and $2 million in 1995. The accumulated benefit obligation of the plan
was $16.4 million, including vested benefits of $15.1 million, at December 31,
1997. Southwest also has an unfunded retirement plan for directors not covered
by the employee retirement plan. The cost and liability for this plan are not
significant.
The Employees' Investment Plan provides for purchases of the Company's
common stock or certain other investments by eligible Southwest employees
through deductions of up to 16 percent
46. Southwest Gas Corporation
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of base compensation, subject to IRS limitations. Southwest matches one-half of
amounts deferred up to six percent of an employee's annual compensation. The
cost of the plan was $2.5 million in 1997, $2.6 million in 1996, and
$2.3 million in 1995. Northern has a separate plan, the cost and liability for
which are not significant.
Southwest has a deferred compensation plan for all officers and members of
the Board. The plan provides the opportunity to defer from a minimum of $2,000
up to 50 percent of annual compensation. Southwest matches one-half of amounts
deferred up to six percent of an officer's annual salary. Payments of
compensation deferred, plus interest, commence upon the participant's
retirement in equal monthly installments over 10, 15, or 20 years, as
determined by Southwest. Deferred compensation earns interest at a rate
determined each January. The interest rate represents 150 percent of Moody's
Seasoned Corporate Bond Index.
Southwest provides postretirement benefits other than pensions (PBOP) to its
qualified retirees for health care, dental, and life insurance. Southwest
accounts for PBOP on an accrual basis. The PUCN, CPUC, and FERC previously
approved the use of accrual accounting for ratemaking purposes, subject to
certain conditions, including funding. As part of the September 1997 settlement
agreement with the ACC in conjunction with the general rate case, Southwest
received approval to recover PBOP costs on an accrual basis in its Arizona rate
jurisdiction. Southwest began funding the non-Arizona portion of the PBOP
liability in 1994. Funding for the Arizona portion of the PBOP liability will
begin in 1998. Plan assets are pooled with the pension plan assets for
investment purposes.
The following table sets forth the PBOP funded status and amounts recognized on
the Company's Consolidated Balance Sheets and Statements of Income.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- --------------------------------------------------------------------------------------------------------
(Thousands of dollars)
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO)
Retirees $(12,831) $(14,291)
Fully eligible actives (2,447) (2,322)
Other active participants (6,420) (7,275)
- --------------------------------------------------------------------------------------------------------
Total (21,698) (23,888)
Market value of plan assets 3,581 2,408
- --------------------------------------------------------------------------------------------------------
APBO in excess of plan assets (18,117) (21,480)
Unrecognized transition obligation 13,004 13,871
Unrecognized prior service cost -- --
Unrecognized loss (gain) (1,151) 2,543
- --------------------------------------------------------------------------------------------------------
Accrued postretirement benefit liability $ (6,264) $ (5,066)
========================================================================================================
Assumptions used to develop postretirement benefit
obligations were:
Discount rate 7.50% 7.00%
Medical inflation 7.50% GRADED TO 5% 8% graded to 5%
Salary increases 4.75% 4.75%
</TABLE>
The Company makes fixed contributions, based on age and years of service, to
retiree spending accounts for the medical and dental costs of employees who
retire after 1988. The Company pays up to 100 percent of the medical coverage
costs for employees who retired prior to 1989. The medical inflation
assumptions in the table above apply to the benefit obligations for pre-1989
retirees only. The inflation assumption at December 31, 1997, was estimated at
7.5 percent for 1998, and
47. Southwest Gas Corporation
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
decreases one-half of one percent per year until 2003, at which time the
average annual increase is projected to be five percent. A one percent increase
in these assumptions would change the accumulated post retirement benefit
obligation by approximately $800,000 at December 31, 1997. Future annual
benefit costs would increase $120,000.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Net periodic postretirement benefit costs include the
following components:
Service cost $ 567 $ 521 $ 399
Interest cost 1,638 1,638 1,562
Actual return on plan assets (479) (252) (286)
Net amortization and deferrals 1,114 997 1,061
- -----------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 2,840 $2,904 $2,736
=========================================================================================
</TABLE>
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This new standard permits the continued use of accounting
methods prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," or use of the fair value based
method of accounting as encouraged by the statement. The following disclosure
complies with the requirements of the new standard.
At December 31, 1997, the Company had two stock-based compensation plans.
These plans are accounted for in accordance with APB Opinion No. 25. In
connection with the stock-based compensation plans, the Company recognized
compensation expense of $1 million in 1997, $571,000 in 1996, and $300,000 in
1995. Had compensation cost been determined based on the fair value of the
awards at the grant dates, net income and earnings per share would have
reflected the pro forma amounts indicated below (thousands of dollars, except
per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) As reported $16,469 $6,574 $(14,882)
Pro forma 16,318 6,535 (14,871)
Earnings (loss) per share As reported 0.61 0.25 (0.66)
Pro forma 0.60 0.25 (0.66)
</TABLE>
With respect to the first plan, the Company may grant options to purchase
shares of common stock to key employees and outside directors. Each option has
an exercise price equal to the market price of Company common stock on the date
of grant and a maximum term of 10 years. In 1997, 121,000 options were granted.
The options vest 40 percent at the end of year one and 30 percent at the end of
years two and three. The grant date fair value of the options was estimated
using the extended binomial option pricing model. The following assumptions
were used in the valuation calculation:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Dividend yield 4.09% 4.65%
Risk-free interest rate range 5.28 TO 5.38% 5.83 to 6.42%
Expected volatility range 22 TO 24% 22 to 25%
Expected life 1 TO 3 YEARS 1 to 3 years
- -----------------------------------------------------------------------------------------------
</TABLE>
48. Southwest Gas Corporation
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following tables summarize the Company's stock option plan activity and
related information (thousands of options):
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Options at beginning of year 380 --
Granted 121 380
Forfeited (29) --
- ------------------------------------------------------------------------------------------------
Options at end of year 472 380
================================================================================================
Weighted-average fair value of options at grant date $2.26 $1.79
================================================================================================
Weighted-average remaining contractual life (at
December 31, 1997) 9.5 YEARS 8.5 years
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Weighted
average
Outstanding options exercisable as of: Number exercise price
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
December 31, 1997 140 $15.00
</TABLE>
In addition to the option plan, the Company may issue restricted stock in the
form of performance shares to encourage key employees to remain in its
employment to achieve short-term and long-term performance goals. Plan
participants are eligible to receive a cash bonus (i.e., short-term incentive)
and performances shares (i.e., long-term incentive). The performance shares
vest over a period of three years and are subject to a final adjustment as
determined by the Board of Directors. The following table summarizes the
activity of this plan (thousands of shares):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonvested performance shares at beginning of year 93 41 18
Performance shares granted 59 64 25
Performance shares forfeited -- -- --
Shares vested and issued (26) (12) (2)
- ------------------------------------------------------------------------------------------------
Nonvested performance shares at end of year 126 93 41
================================================================================================
Grant date fair value of award $19.25 $17.63 $15.25
================================================================================================
</TABLE>
NOTE 10 -- INCOME TAXES
- -------------------------------------------------------------------------------
Income tax expense (benefit) consists of the following (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $(42,921) $(15,087) $ 13,588
State (2,227) (1,566) 1,985
- ------------------------------------------------------------------------------------------------
(45,148) (16,653) 15,573
- ------------------------------------------------------------------------------------------------
Deferred:
Federal 47,614 18,832 (13,752)
State 2,393 1,695 (982)
- ------------------------------------------------------------------------------------------------
50,007 20,527 (14,734)
- ------------------------------------------------------------------------------------------------
Total income tax expense $ 4,859 $ 3,874 $ 839
================================================================================================
</TABLE>
- -------------------------------------------------------------------------------
49. Southwest Gas Corporation
- ---------------------------------
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income tax expense (benefit) consists of the following significant
components (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred federal and state:
Property-related items $19,006 $11,586 $ 4,921
Purchased gas cost adjustments 37,156 8,437 (16,488)
All other deferred (5,287) 1,372 (2,299)
- ------------------------------------------------------------------------------------------------
Total deferred federal and state 50,875 21,395 (13,866)
Deferred investment tax credit, net (868) (868) (868)
- ------------------------------------------------------------------------------------------------
Total deferred income tax expense (benefit) $50,007 $20,527 $(14,734)
================================================================================================
</TABLE>
The consolidated effective income tax rate for the period ended December 31,
1997 and the two prior periods differs from the federal statutory income tax
rate. The sources of these differences and the effect of each are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 35.0% 35.0%
Net state tax liability 4.2 5.0 9.0
Property-related items 3.8 8.8 24.1
Effect of Internal Revenue Service Examination (16.0) -- --
Tax credits (4.0) (8.3) (22.7)
Tax exempt interest (1.7) (3.7) (13.8)
Corporate-owned life insurance (1.0) (4.0) (12.5)
All other differences 2.5 4.3 4.9
- ------------------------------------------------------------------------------------------------
Consolidated effective income tax rate 22.8% 37.1% 24.0%
================================================================================================
</TABLE>
50. Southwest Gas Corporation
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets and liabilities consist of the following (thousands of
dollars):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Deferred income taxes for future amortization of ITC $ 12,201 $ 12,729
Employee benefits 7,459 6,194
Regulatory balancing accounts -- 3,832
Other 9,278 4,415
Valuation allowance -- --
- -----------------------------------------------------------------------------------
28,938 27,170
- -----------------------------------------------------------------------------------
Deferred tax liabilities:
Property-related items, including accelerated depreciation 133,539 114,176
Regulatory balancing accounts 33,626 --
Property-related items previously flowed-through 21,851 24,160
Unamortized ITC 18,138 19,006
Debt-related costs 6,458 6,757
Other 7,771 7,125
- -----------------------------------------------------------------------------------
221,383 171,224
- -----------------------------------------------------------------------------------
Net deferred tax liabilities $192,445 $144,054
===================================================================================
Current $ 24,163 $ (8,009)
Noncurrent 168,282 152,063
- -----------------------------------------------------------------------------------
Net deferred tax liabilities $192,445 $144,054
===================================================================================
</TABLE>
At December 31, 1997, the Company has a federal net operating loss carryforward
of $29.1 million which expires in 2012. The Company also has state net
operating loss carryforwards of $73.8 million and $5.9 million for Arizona and
California, respectively, which expire in 2001 to 2002. Additionally, the
Company has an alternative minimum tax credit carryforward of approximately
$7.2 million which can be carried forward indefinitely.
NOTE 11 -- CALIFORNIA EXPANSION AND LNG CONSTRUCTION PROJECTS
NORTHERN CALIFORNIA EXPANSION. In 1995, Southwest initiated a multi-year,
three-phase construction project to expand its northern California service
territory and extend service into Truckee, California. The CPUC imposed a
$29.1 million cost cap on the project as a condition of granting Southwest a
certificate of public convenience and necessity to serve the expansion areas. In
1995, Southwest completed Phase I of the expansion project, which involved
transmission system reinforcement and distribution system expansion to
accommodate 940 additional customers. Construction costs of $7.1 million were
on target with the cost estimate approved by the CPUC.
Phase II of the project involved extending the transmission system to
Truckee, California and distribution system expansion to accommodate 4,200
customers. The cost cap apportioned to Phase II was approximately
$13.8 million. The incurred cost of Phase II through December 1996 was
$26.9 million, with additional work remaining to complete this phase in 1997.
Due to the cost overruns and difficult construction environment experienced in
1996, Phase III was postponed and 1997 construction was limited to
approximately $1.8 million of expenditures incurred to complete Phase II.
In July 1997, Southwest filed an application requesting authorization from
the California Public Utilities Commission (CPUC) to modify the terms and
conditions of the certificate of public convenience and necessity granted by
the CPUC in 1995. In this application, Southwest requested that the cost cap of
$29.1 million, originally approved by the CPUC, be increased to $46.8 million;
51. Southwest Gas Corporation
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
that the scope of Phase III construction be revised to include 2,900 of the
initially proposed 4,200 customers; and that Southwest be permitted to collect
contributions or advances from customer applicants desiring service in the
expansion area who were not identified to receive service during the expansion
phases as modified within the new application. Southwest proposed to recover the
incremental costs above the original cost cap through a surcharge mechanism. In
August 1997, the Office of Ratepayer Advocates (ORA) filed a protest to the
Southwest application indicating that the terms of the original agreement
should be adhered to. In September, a hearing was held to discuss the filing
and related protest.
In January 1998, Southwest and the ORA executed a settlement agreement that,
if approved by the CPUC, will allow Southwest to commence the final phase of
the project. Under the settlement, Southwest agreed, among other things, to
absorb $8 million in cost overruns experienced in Phase II of the project.
Southwest also agreed to an $11 million cost cap (with a maximum of $3,800 per
customer) for Phase III of the project. The Phase III project scope will be
modified as requested in the July 1997 application. In addition, Southwest
agreed not to file its next general rate case until Phase III is complete. A
decision by the CPUC on the settlement agreement is expected during the first
half of 1998.
Based on the proposed settlement agreement, Southwest recognized an
$8 million nonrecurring pretax charge in the fourth quarter of 1997.
LNG STORAGE AND DISTRIBUTION SYSTEM. A subsidiary of the Company entered into an
agreement to build Liquefied Natural Gas (LNG) storage and distribution systems
to serve several small towns. The subsidiary contracted to provide project
management services, materials, two gas distribution systems, and two LNG
storage and vaporization systems. The project was expected to be completed by
November 1997 but will extend into 1998. The total project cost at its
completion is estimated to exceed the contract price by approximately
$5 million. A pretax charge of $5 million was recorded in 1997 and is included
in Other income (deductions), net on the Consolidated Statements of Income.
NOTE 12 -- ACQUISITION OF NORTHERN PIPELINE CONSTRUCTION CO.
On April 29, 1996, the Company acquired all of the outstanding stock of
Northern Pipeline Construction Co. (Northern or the construction services
segment) pursuant to a definitive agreement dated November 1995. The Company
issued approximately 1,439,000 shares of common stock valued at $24 million in
connection with the acquisition. The acquisition was accounted for as a
purchase. Goodwill in the amount of approximately $10 million was recorded by
Northern and is being amortized over 25 years. Northern provides utility
companies with trenching and installation, replacement, and maintenance
services for energy distribution systems.
During 1997, Northern recognized $36 million of revenues generated from
contracts with Southwest. During the period from the acquisition date through
December 31, 1996, the construction services segment recognized $36 million of
revenues generated from contracts with Southwest. These revenues and associated
profits are included in the consolidated financial statements of the Company
and were not eliminated during consolidation. 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 are being met. At December 31, 1997 and 1996, consolidated
accounts receivable included $3.6 million and $6.4 million, respectively, which
were not eliminated during consolidation.
52. Southwest Gas Corporation
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------
The assets acquired and the liabilities assumed at the acquisition date were as
follows (thousands of dollars):
<TABLE>
<S> <C>
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 14,691
Short-term debt 2,942
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 1996 cash flow
statement 3,343
- -------------------------------------------------------------------------
Total common equity issued in acquisition $24,000
=========================================================================
</TABLE>
NOTE 13 -- SEGMENT INFORMATION
The Company's operating segments are determined based on the nature of their
activities. The natural gas operations segment is engaged in the business of
purchasing, transporting, and distributing natural gas. Revenues are generated
from the sale and transportation of natural gas. The construction services
segment is engaged in the business of providing utility companies with
trenching and installation, replacement, and maintenance services for energy
distribution systems.
The accounting policies of the reported segments are the same as those
described within Note 1 -- Summary of Significant Accounting Policies. Northern
accounts for the services provided to Southwest at contractual (market) prices.
The financial information pertaining to the Company's natural gas operations
and construction services segments for each of the three years in the period
ended December 31, 1997, is as follows (thousands of dollars):
<TABLE>
<CAPTION>
1997
-----------------------------------------------
GAS CONSTRUCTION
OPERATIONS SERVICES ADJUSTMENTS TOTAL
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from unaffiliated customers $ 614,665 $ 81,421 $ 696,086
Intersegment sales -- 35,924 35,924
- ----------------------------------------------------------------------------------------------------------------
Total $ 614,665 $117,345 $ 732,010
================================================================================================================
Interest expense $ 61,751 $ 1,467 $ 63,218
================================================================================================================
Depreciation and amortization $ 74,528 $ 10,133 $ 84,661
================================================================================================================
Income tax expense $ 4,217 $ 642 $ 4,859
================================================================================================================
Segment income $ 15,825 $ 644 $ 16,469
================================================================================================================
Segment assets $1,717,025 $ 52,919 $(885) $ 1,769,059
================================================================================================================
Capital expenditures $ 164,528 $ 5,086 $ 169,614
================================================================================================================
</TABLE>
------------------------------------------------------------------------------
53. Southwest Gas Corporation
- ---------------------------------
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996
----------------------------------------------
Gas Construction
Operations Services Adjustments Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from unaffiliated customers $ 546,361 $61,646 $ 608,007
Intersegment sales -- 36,054 36,054
- ------------------------------------------------------------------------------------------------------------------
Total $ 546,361 $97,700 $ 644,061
==================================================================================================================
Interest expense $ 53,003 $ 1,910 $ 54,913
==================================================================================================================
Depreciation and amortization $ 67,443 $ 6,256 $ 73,699
==================================================================================================================
Income tax expense $ 1,661 $ 2,213 $ 3,874
==================================================================================================================
Segment income $ 3,919 $ 2,655 $ 6,574
==================================================================================================================
Segment assets $1,498,099 $62,315 $(145) $1,560,269
==================================================================================================================
Capital expenditures $ 210,743 $ 8,092 $ 218,835
==================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------------
Gas Construction
Operations Services Adjustments Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from unaffiliated customers $ 563,502 $ -- $ 563,502
Intersegment sales -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total $ 563,502 $ -- $ 563,502
==================================================================================================================
Interest expense $ 53,354 $ -- $ 53,354
==================================================================================================================
Depreciation and amortization $ 62,492 $ -- $ 62,492
==================================================================================================================
Income tax expense $ 839 $ -- $ 839
==================================================================================================================
Segment income $ 2,654 $ -- $ 2,654
==================================================================================================================
Segment assets $1,357,034 $ -- $1,357,034
==================================================================================================================
Capital expenditures $ 166,183 $ -- $ 166,183
==================================================================================================================
</TABLE>
Construction services segment interest expense and income tax expense, for the
year ended December 31, 1996, include allocations of $968,000 and $(387,000),
respectively, from the gas operations segment. For the year ended December 31,
1997, no allocations from the gas operations segment to the construction
services segment were made.
Construction services segment assets, for the years ended December 31, 1997
and 1996, include deferred tax assets of $885,000 and $145,000 respectively,
which were netted against gas operations segment deferred tax liabilities
during consolidation.
- -------------------------------------------------------------------------------
54. Southwest Gas Corporation
- ----------------------------------
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------------
(Thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
1997
Operating revenues $235,231 $136,938 $128,698 $231,143
Operating income (loss) 51,515 (3,982) (7,248) 61,976
Net income (loss) 21,568 (12,748) (15,686) 23,335
Earnings (loss) per common share* 0.80 (0.47) (0.58) 0.85
- ----------------------------------------------------------------------------------------------------------------
1996
Operating revenues $188,352 $123,611 $125,255 $206,843
Operating income (loss) 38,539 (4,747) (8,404) 46,185
Net income (loss) 14,859 (11,943) (14,638) 18,296
Earnings (loss) per common share* 0.60 (0.46) (0.55) 0.69**
- ----------------------------------------------------------------------------------------------------------------
1995
Operating revenues $203,521 $122,189 $ 91,433 $146,359
Operating income (loss) 36,829 (2,873) (9,215) 33,671
Income (loss) from continuing operations 14,449 (9,951) (13,353) 11,509
Income (loss) from discontinued operations 196 610 522 (18,864)
Net income (loss) 14,645 (9,341) (12,831) (7,355)
Net income (loss) applicable to common stock 14,550 (9,436) (12,926) (7,377)
Earnings (loss) per share from continuing operations* 0.67 (0.44) (0.56) 0.47
Earnings (loss) per share from discontinued operations* 0.01 0.03 0.02 (0.77)
Earnings (loss) per common share* 0.68 (0.41) (0.54) (0.30)
</TABLE>
- ------------------------------
* The sum of quarterly earnings (loss) per average common share may not equal
the annual earnings (loss) per share due to the ongoing change in the
weighted average number of common shares outstanding.
** Basic EPS was $0.69 while Diluted EPS was $0.68.
The demand for natural gas is seasonal, and it is management's opinion that
comparisons of earnings for the interim periods do not reliably reflect overall
trends and changes in the Company's operations. Also, the timing of general
rate relief can have a significant impact on earnings for interim periods. See
Management's Discussion and Analysis for additional discussion of the Company's
operating results.
NOTE 15 -- DISCONTINUED OPERATIONS -- FINANCIAL SERVICES ACTIVITIES
In July 1996, the Company completed the sale of the assets and liabilities of
PriMerit Bank (the Bank) to Norwest Corporation for $191 million. Proceeds from
the sale were used by the Company to retire debt incurred in connection with
its investment in the Bank. The loss on the sale, recorded during the fourth
quarter of 1995, was $13 million, including taxes. Income tax expense resulted
from the loss due to the Company's investment in the Bank being lower for tax
purposes than book purposes. The results of operations of the Bank have been
included as discontinued operations in the accompanying financial statements.
55. Southwest Gas Corporation
<PAGE> 36
SHAREHOLDER INFORMATION
STOCK LISTING INFORMATION
DIVIDENDS
Southwest Gas Corporation's common stock is listed
on the New York Stock Exchange under the ticker
symbol "SWX." Quotes may be obtained in daily
financial newspapers or some local newspapers where
it is listed under "SoWestGas."
ANNUAL MEETING
The Annual Meeting of Shareholders will be held on
May 14, 1998 at 10:00 a.m. at the headquarters of
Southwest Gas Corporation, 5241 Spring Mountain Road,
Las Vegas, Nevada 89102.
DIVIDEND REINVESTMENT
AND STOCK PURCHASE PLAN
Southwest Gas Corporation's Dividend Reinvestment
and Stock Purchase Plan (DRSPP) provides common
shareholders, customers, employees and residents of
Arizona, California and Nevada with a simple and
convenient method of investing cash dividends in
additional shares of the Company's stock without
payment of any brokerage commission. The DRSPP
features include:
- - Initial investments of $100, up to $50,000 annually
- - Automatic investing
- - No commissions on purchases
- - Safekeeping for common stock certificates
For more information contact Shareholder Services,
Southwest Gas Corporation, P.O. Box 98511, Las
Vegas, Nevada 89193-8511 or call (702) 876-7280.
Dividends on common stock are declared quarterly by the
Board of Directors. As a general rule, they are payable
on the first day of March, June, September and December.
TRANSFER AGENT
Shareholder Services
Southwest Gas Corporation
P.O. Box 98511
Las Vegas, NV 89193-8511
REGISTRAR
Southwest Gas Corporation
P.O. Box 98510
Las Vegas, NV 89193-8510
INVESTOR RELATIONS
Southwest Gas is committed to providing relevant and
complete investment information to shareholders,
individual investors and members of the investment
community. Copies of the Company's 1997 Annual Report
on Form 10-K, without exhibits, as filed with the
Securities and Exchange Commission may be obtained upon
request free of charge. Additional financial
information may be obtained by contacting Laura Hobbs,
Investor Relations, Southwest Gas Corporation, P.O. Box
98510, Las Vegas, Nevada 89193-8510 or by calling (702)
876-7237.
AUDITORS
Arthur Andersen LLP
3773 Howard Hughes Pkwy.
Suite 500 South
Las Vegas, Nevada 89109
56. Southwest Gas Corporation
<PAGE> 1
EXHIBIT 21.01
SOUTHWEST GAS CORPORATION
LIST OF SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
STATE OF INCORPORATION
SUBSIDIARY NAME OR ORGANIZATION TYPE
--------------- ----------------------
<S> <C>
LNG Energy, Inc. Nevada
Paiute Pipeline Company Nevada
Northern Pipeline Construction Co. Nevada
Southwest Gas Transmission Company Partnership between
Southwest Gas Corporation
and Utility Financial Corp.
Southwest Gas Capital I Delaware
Utility Financial Corp. Nevada
</TABLE>
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 6, 1998, incorporated by reference in this Form
10-K, into Southwest Gas Corporation's previously filed registration statements
on Form S-8 (File No. 33-58135), Form S-3 (File No. 333-14605), Form S-3 (File
No. 333-17667), Form S-8 (File No. 333-31223), and Form S-8 (File No.
333-31267).
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHWEST
GAS CORPORATION'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,360,294
<OTHER-PROPERTY-AND-INVEST> 64,928
<TOTAL-CURRENT-ASSETS> 288,544
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 55,293
<TOTAL-ASSETS> 1,769,059
<COMMON> 29,017
<CAPITAL-SURPLUS-PAID-IN> 360,683
<RETAINED-EARNINGS> (3,721)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 385,979
0
0
<LONG-TERM-DEBT-NET> 778,693
<SHORT-TERM-NOTES> 142,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 5,621
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 456,766<F1>
<TOT-CAPITALIZATION-AND-LIAB> 1,769,059
<GROSS-OPERATING-REVENUE> 732,010
<INCOME-TAX-EXPENSE> 4,859
<OTHER-OPERATING-EXPENSES> 629,749
<TOTAL-OPERATING-EXPENSES> 629,749
<OPERATING-INCOME-LOSS> 102,261
<OTHER-INCOME-NET> (17,715)<F2>
<INCOME-BEFORE-INTEREST-EXPEN> 84,546
<TOTAL-INTEREST-EXPENSE> 63,218
<NET-INCOME> 16,469
0
<EARNINGS-AVAILABLE-FOR-COMM> 16,469
<COMMON-STOCK-DIVIDENDS> 22,177
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 56,425
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
<FN>
<F1>Includes: trust originated preferred securities of $60,000, current
liabilities, net of current long-term debt maturities and short-term debt, of
$176,786 and deferred income taxes and other credits of $219,980.
<F2>Includes distributions related to trust originated preferred securities of
$5,475 and other expense of $12,240.
</FN>
</TABLE>
