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Southwest Gas Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 8, 2012 12:22PM
Southwest Gas Corp. (SWX) filed Quarterly Report for the period ended 2012-06-30.
Highlight of Business Operations:On a seasonally adjusted basis as of June 30, 2012, Southwest had 1,858,000 residential, commercial, industrial, and other natural gas customers, of which 999,000 customers were located in Arizona, 675,000 in Nevada, and 184,000 in California. Residential and commercial customers represented over 99% of the total customer base. During the twelve months ended June 30, 2012, 55% of operating margin was earned in Arizona, 34% in Nevada, and 11% in California. During this same period, Southwest earned 85% of its operating margin from residential and small commercial customers, 4% from other sales customers, and 11% from transportation customers. These general patterns are expected to remain materially consistent for the foreseeable future.
The items discussed in this Executive Summary are intended to provide an overview of the results of the Companys operations. As needed, certain items are covered in greater detail in later sections of managements discussion and analysis. As reflected in the table below, the natural gas operations segment accounted for an average of 87% of twelve-month-to-date consolidated net income over the past two years. As such, managements discussion and analysis is primarily focused on that segment. Natural gas sales are seasonal, peaking during the winter months; therefore, results of operations for interim periods are not necessarily indicative of the results for a full year.
Operating margin for 2012 is expected to increase primarily due to the additional revenue authorized in the Arizona rate case effective January 2012. However, the incremental margin in 2012 compared to 2011 is expected to be 10% to 20% lower than the $52.6 million approved because the average usage and margin per Arizona customer in 2011 were higher than the amounts used in calculating the deficiency when the rate case was filed in 2010. In April 2012, Southwest filed a general rate case in Nevada requesting a $27 million increase in revenue. Hearings are scheduled to be held in September 2012. Southwest has requested that the new rates become effective in November 2012. No assumption has been included in the margin projection about the amount of rate relief to be granted in this case.
During the past two years, NPL has focused its efforts on obtaining pipe replacement work under both blanket contracts and incremental bid projects. For the twelve months ended June 30, 2012, approximately 76% of revenues were from replacement work compared to 72% for the twelve months ended June 30, 2011. Federal and state pipeline safety-related programs and bonus depreciation incentives have resulted in many utilities undertaking multi-year distribution pipe replacement projects. NPL continues to bid on pipe replacement projects throughout the country and is making structural and transitional changes to match the increased size and complexity of the business including the recently announced appointment of a new chief executive officer at NPL.
Investing Cash Flows. Cash used in consolidated investing activities increased $32.3 million in the first six months of 2012 as compared to the same period of 2011. The increase was primarily due to additional construction expenditures, including scheduled and accelerated pipe replacement (to take advantage of bonus depreciation tax incentives), and equipment purchases by NPL due to the increased replacement construction work of its customers. Offsetting these cash outflows in the current-year period were draw-downs of funds, restricted to utilization for construction activities, associated with an industrial development revenue bond issuance in 2009.
Stocks Discussed: SWX,