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Southwest Gas Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 9, 2010 05:31PM
Southwest Gas Corp. (SWX) filed Quarterly Report for the period ended 2010-09-30. Southwest Gas Corp. has a market cap of $1.63 billion; its shares were traded at around $35.87 with a P/E ratio of 13.8 and P/S ratio of 0.9. The dividend yield of Southwest Gas Corp. stocks is 2.8%. Southwest Gas Corp. had an annual average earning growth of 2.2% over the past 10 years.SWX is in the portfolios of Mario Gabelli of GAMCO Investors, Jim Simons of Renaissance Technologies LLC, George Soros of Soros Fund Management LLC, Kenneth Fisher of Fisher Asset Management, LLC.
Highlight of Business Operations:
Company-Owned Life Insurance (COLI). Southwest has life insurance policies on members of management and other key employees to indemnify itself against the loss of talent, expertise, and knowledge, as well as to provide indirect funding for certain nonqualified benefit plans. The COLI policies have a combined net death benefit value of approximately $193 million at September 30, 2010. The net cash surrender value of these policies (which is the cash amount the Company would receive if it voluntarily terminated the policies) is approximately $66 million at September 30, 2010 and is included in the caption Other property and investments on the balance sheet. Cash surrender values are directly influenced by the investment portfolio underlying the insurance policies. This portfolio includes both equity and fixed income (mutual fund) investments. As a result, generally the cash surrender value (but not the net death benefit) moves up and down consistent with the movements in the broader stock and bond markets. Current tax regulations provide for tax-free treatment of life insurance (death benefit) proceeds. Therefore, the changes in the cash surrender value components of COLI policies as they progress towards the ultimate death benefits are also recorded without tax consequences. Currently, the Company intends to hold the COLI policies for their duration and purchase additional policies as necessary.
Liquidity. Southwest believes its liquidity position remains strong. Southwest has a $300 million credit facility maturing in May 2012, $150 million of which is designated for working capital needs. The facility is provided through a consortium of eight major banking institutions. Usage of the facility was minimal during the third quarter of 2010 and there was no balance outstanding at September 30, leaving the entire $300 million available for long-term and working capital needs. The lower usage was primarily due to existing cash reserves, typical reduced third quarter gas purchase requirements, natural gas prices that were relatively stable, and gas cost related rate mechanisms that favorably impacted operating cash flows. The current slowdown in housing construction has also allowed Southwest to fund construction expenditures primarily with internally generated cash.
Operating margin increased $2 million in the third quarter of 2010 compared to the third quarter of 2009. Rate relief in Nevada provided $1 million of the operating margin increase and customer growth provided $1 million as 17,000 net new customers were added during the last twelve months.
Operating margin increased $33 million between periods. Rate relief provided approximately $15 million of the increase, consisting of $13 million in Nevada and $2 million in California. Differences in heating demand caused primarily by weather variations in Arizona between periods resulted in a $17 million operating margin increase as temperatures in the current nine-month period were relatively normal, while temperatures were significantly warmer than normal in the same period of 2009. Customer growth contributed $1 million toward the operating margin increase.
Other income decreased $3.6 million between the nine-month periods of 2010 and 2009. Income related to changes in the values of COLI policies (including recognized death benefits) contributed $5.6 million in the current-year period, while increases in cash surrender values of COLI policies during the nine-month period of 2009 contributed $6.9 million in income, a decline of $1.3 million. In addition, costs associated with certain Arizona non-recoverable pipe replacement work increased $1.6 million between periods.
Operating margin increased $51 million between periods. Rate relief provided $23 million of the increase, consisting of $15 million in Nevada, $5 million in Arizona, and $3 million in California. Differences in heating demand caused primarily by weather variations between periods contributed $29 million toward the operating margin increase as temperatures in the current period were relatively normal, while temperatures were significantly warmer than normal in the prior-year period. Customer growth contributed $2 mill
Stocks Discussed: SWX,