-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ta3y1AuFJWy02ziw4agAKyJE5Wk1yq4A7LMDh3xBJ/Hsf5LNKbRZoxv/STdS04LO n95YTOQeucsHheOAmzdViw== 0000092416-95-000027.txt : 19950814 0000092416-95-000027.hdr.sgml : 19950814 ACCESSION NUMBER: 0000092416-95-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWEST GAS CORP CENTRAL INDEX KEY: 0000092416 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 880085720 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07850 FILM NUMBER: 95561970 BUSINESS ADDRESS: STREET 1: 5241 SPRING MOUNTAIN RD STREET 2: PO BOX 98510 CITY: LAS VEGAS STATE: NV ZIP: 89193 BUSINESS PHONE: 7028767252 MAIL ADDRESS: STREET 1: 5241 SPRING MOUNTAIN RD STREET 2: PO BOX 98510 CITY: LAS VEGAS STATE: NV ZIP: 89193 10-Q 1 FORM 10-Q FOR QUARTER ENDED 6/30/95 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to __________ Commission File Number 1-7850 SOUTHWEST GAS CORPORATION (Exact name of registrant as specified in its charter) California 88-0085720 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5241 Spring Mountain Road Post Office Box 98510 Las Vegas, Nevada 89193-8510 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (702) 876-7237 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Common Stock, $1 Par Value 24,011,892 shares as of August 4, 1995 =============================================================================== 1 PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS The condensed consolidated financial statements included herein have been prepared by Southwest Gas Corporation (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments, consisting of normal recurring items necessary for a fair presentation of the results for the interim periods, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's 1994 Annual Report on Form 10-K, and 1995 first quarter report on Form 10-Q. 2
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Thousands of dollars) (Unaudited) JUNE 30, DECEMBER 31, 1995 1994 ---------- ---------- ASSETS Cash and cash equivalents $ 130,125 $ 129,998 Debt securities available for sale 496,134 529,400 Debt securities held to maturity (fair value of $89,082 and $99,403) 89,823 101,880 Loans receivable, net of allowance for estimated losses of $15,474 and $17,659 1,017,523 936,037 Loans receivable held for sale (fair value of $5,576 and $2,135) 5,483 2,114 Receivables, less reserves for uncollectibles 45,184 105,438 Gas utility property, net of accumulated depreciation 1,077,495 1,035,916 Other property, net of accumulated depreciation 36,671 35,605 Excess of cost over net assets acquired 63,709 65,640 Other assets 115,792 147,965 ---------- ---------- $3,077,939 $3,089,993 ========== ========== LIABILITIES & STOCKHOLDERS' EQUITY Deposits $1,253,276 $1,239,949 Securities sold under agreements to repurchase 182,184 281,935 Deferred income taxes and tax credits, net 119,330 133,531 Accounts payable and other accrued liabilities 221,037 208,691 Short-term debt 16,000 92,000 Long-term debt, including current maturities 901,688 790,798 ---------- ---------- 2,693,515 2,746,904 ---------- ---------- Preferred stock, including current maturities 4,000 4,000 ---------- ---------- Common stock Authorized--30,000,000 shares Issued and outstanding--23,898,709 shares and 21,281,717 shares 25,529 22,912 Additional paid-in capital 306,280 273,217 Unrealized gain (loss), net of tax, on debt securities available for sale 858 (9,467) Retained earnings 47,757 52,427 ---------- ---------- 380,424 339,089 ---------- ---------- $3,077,939 $3,089,993 ========== ========== The accompanying notes are an integral part of these statements.
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SOUTHWEST GAS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, --------------------- --------------------- --------------------- 1995 1994 1995 1994 1995 1994 --------- --------- --------- --------- --------- --------- Operating revenues: Gas operating revenues $ 122,189 $ 108,407 $ 325,710 $ 315,776 $ 609,345 $ 572,126 Financial services interest income 32,801 29,124 66,012 57,169 127,277 118,521 Other 3,513 2,646 5,669 6,387 9,464 19,994 --------- --------- --------- --------- --------- --------- 158,503 140,177 397,391 379,332 746,086 710,641 --------- --------- --------- --------- --------- --------- Operating expenses: Net cost of gas purchased 54,760 48,439 153,666 145,435 258,154 231,288 Financial services interest expense, net 18,347 14,200 36,776 28,249 68,317 60,179 Operating expense 45,333 41,751 88,901 82,982 175,727 166,274 Maintenance expense 8,269 7,324 16,161 14,063 32,295 28,393 Provision for estimated credit losses 2,057 1,908 3,767 3,756 7,404 8,220 Depreciation, depletion and amortization 17,674 16,340 34,738 32,402 67,377 64,241 Taxes other than income taxes 6,800 6,246 13,687 12,741 26,686 25,078 Other 4,367 4,296 8,858 8,577 17,687 18,799 --------- --------- --------- --------- --------- --------- 157,607 140,504 356,554 328,205 653,647 602,472 --------- --------- --------- --------- --------- --------- Operating income (loss) 896 (327) 40,837 51,127 92,439 108,169 --------- --------- --------- --------- --------- --------- Other income and (expenses): Net interest deductions (15,447) (13,795) (31,178) (27,410) (61,103) (52,897) Other income (deductions), net (278) (1,162) (131) (1,380) (121) (15,735) --------- --------- --------- --------- --------- --------- (15,725) (14,957) (31,309) (28,790) (61,224) (68,632) --------- --------- --------- --------- --------- --------- Income (loss) before income taxes (14,829) (15,284) 9,528 22,337 31,215 39,537 Income tax expense (benefit) (5,488) (5,503) 4,224 9,408 12,538 15,257 --------- --------- --------- --------- --------- --------- Net income (loss) (9,341) (9,781) 5,304 12,929 18,677 24,280 Preferred/preference stock dividend requirements 95 138 190 277 423 608 --------- --------- --------- --------- --------- --------- Net income (loss) applicable to common stock $ (9,436) $ (9,919) $ 5,114 $ 12,652 $ 18,254 $ 23,672 ========= ========= ========= ========= ========= ========= Earnings (loss) per share of common stock $ (0.41) $ (0.47) $ 0.23 $ 0.60 $ 0.84 $ 1.13 ========= ========= ========= ========= ========= ========= Dividends paid per share of common stock $ 0.205 $ 0.195 $ 0.41 $ 0.39 $ 0.82 $ 0.78 ========= ========= ========= ========= ========= ========= Average number of common shares outstanding 22,816 21,028 22,110 21,026 21,615 20,933 ========= ========= ========= ========= ========= ========= The accompanying notes are an integral part of these statements.
4
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of dollars) (Unaudited) SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 1995 1994 1995 1994 ---------- ---------- ---------- ---------- CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 5,304 $ 12,929 $ 18,677 $ 24,280 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 34,738 32,402 67,377 64,241 Provision for estimated losses 3,767 3,756 7,404 8,220 Change in unrecovered purchased gas costs 45,363 8,085 46,292 (20,523) Change in deferred income taxes (20,226) (9,547) (18,891) (1,101) Change in deferred charges and credits 3,672 (5,408) 8,108 (3,226) Change in noncash working capital 47,888 45,022 16,018 14,338 Other (2,107) 2,611 (3,504) 8,471 ---------- ---------- ---------- ---------- Net cash provided by operating activities 118,399 89,850 141,481 94,700 ---------- ---------- ---------- ---------- CASH FLOW FROM INVESTING ACTIVITIES: Construction expenditures (75,921) (63,780) (156,692) (128,448) Loan originations, net of repayments (92,681) (87,274) (160,431) (183,345) Sales of loans and loan servicing rights 10,042 31,308 24,824 72,290 Purchases of debt securities -- (75,929) (220,420) (121,817) Proceeds from sale of debt securities 7,538 3,559 9,053 344,575 Maturities and repayment of debt securities 50,711 120,512 221,946 286,437 Proceeds from sales of real estate acquired through foreclosure 3,585 2,048 5,585 19,718 Proceeds from sale of Arizona assets and services -- -- -- 6,718 Other 4,589 (540) 8,425 (6,861) ---------- ---------- ---------- ---------- Net cash provided by (used in) investing activities (92,137) (70,096) (267,710) 289,267 ---------- ---------- ---------- ---------- CASH FLOW FROM FINANCING ACTIVITIES: Issuance of common stock 35,680 511 39,941 5,451 Dividends paid (9,436) (8,444) (18,403) (16,960) Issuance of long-term debt 114,800 17,000 202,700 98,909 Retirement of long-term debt (3,910) (1,666) (9,211) (31,765) Issuance (repayment) of short-term debt (76,000) (30,000) (40,000) 41,000 Change in deposit accounts 13,327 19,382 26,042 (42,842) Sale and assumption of Arizona deposit liabilities -- -- -- (320,902) Proceeds from repos/other borrowings 477,555 309,041 449,847 911,979 Repayment of repos/other borrowings (577,306) (334,131) (501,614) (977,661) Other (845) (548) (5,189) (7,503) ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities (26,135) (28,855) 144,113 (340,294) ---------- ---------- ---------- ---------- Net change in cash and cash equivalents 127 (9,101) 17,884 43,673 Balance at beginning of period 129,998 121,342 112,241 68,568 ---------- ---------- ---------- ---------- Balance at end of period $ 130,125 $ 112,241 $ 130,125 $ 112,241 ========== ========== ========== ========== Supplemental disclosures of cash flow information Cash paid during the year for: Interest, net of amounts capitalized $ 44,364 $ 34,672 $ 79,380 $ 67,270 Income taxes, net of refunds 17,419 2,425 17,126 (2,713) The accompanying notes are an integral part of these statements.
5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- Note 1 - Summarized Consolidated Financial Statement Data Summarized consolidated financial statement data for PriMerit Bank is presented below:
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Thousands of dollars) (Unaudited) JUNE 30, DECEMBER 31, 1995 1994 ------------ ------------ ASSETS Cash and due from banks $ 35,478 $ 35,262 Cash equivalents 86,653 88,660 Debt securities available for sale 496,134 529,400 Debt securities held to maturity, net of allowance for estimated losses of $1,000 at June 30, 1995 (fair value of $89,082 and $99,403) 89,823 101,880 Loans receivable, net of allowance for estimated credit losses of $15,474 and $17,659 1,017,523 936,037 Loans receivable held for sale (fair value of $5,576 and $2,135) 5,483 2,114 Real estate acquired through foreclosure, net of allowance for estimated losses of $473 at June 30, 1995 3,557 7,631 Real estate held for sale or development, net of allowance for estimated losses of $736 and $476 409 771 FHLB stock, at cost 10,764 17,277 Excess of cost over net assets acquired 63,709 65,640 Other assets 27,785 31,649 ------------ ------------ $ 1,837,318 $ 1,816,321 ============ ============ LIABILITIES AND STOCKHOLDER'S EQUITY Deposits $ 1,253,276 $ 1,239,949 Securities sold under agreements to repurchase 182,184 281,935 Advances from FHLB 189,400 99,400 Notes payable 8,065 8,135 Other liabilities 24,150 20,514 ------------ ------------ 1,657,075 1,649,933 ------------ ------------ Stockholder's equity Common stock 57 57 Additional paid-in capital 160,442 160,442 Unrealized gain (loss), net of tax, on debt securities available for sale 858 (9,467) Retained earnings 18,886 15,356 ------------ ------------ 180,243 166,388 ------------ ------------ $ 1,837,318 $ 1,816,321 ============ ============
6 Note 1 - Summarized Consolidated Financial Statement Data (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Thousands of dollars) (Unaudited) THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, --------------------- --------------------- --------------------- 1995 1994 1995 1994 1995 1994 --------- --------- --------- --------- --------- --------- Interest income $ 32,801 $ 29,124 $ 66,012 $ 57,169 $ 127,277 $ 118,521 Interest expense 18,347 14,200 36,776 28,249 68,317 60,179 --------- --------- --------- --------- --------- --------- Net interest income 14,454 14,924 29,236 28,920 58,960 58,342 Provision for estimated credit losses (2,035) (2,275) (3,399) (3,709) (6,920) (7,618) --------- --------- --------- --------- --------- --------- Net interest income after provision for credit losses 12,419 12,649 25,837 25,211 52,040 50,724 --------- --------- --------- --------- --------- --------- Net income (loss) from real estate operations 116 595 (317) 110 (1,039) (431) --------- --------- --------- --------- --------- --------- Gain on sale of loans 231 116 303 364 537 1,216 Loss on sale of loans (1) (113) (1) (269) (83) (308) Net gain on sale of debt securities 970 -- 970 33 971 7,634 Gain (loss) on secondary marketing hedging activity (26) 191 (30) 322 37 108 Loan-related fees 234 429 551 666 1,050 1,056 Deposit-related fees 1,880 1,736 3,730 3,231 7,287 6,614 Gain (loss) on sale of credit cards -- -- -- 1,690 (1) 1,690 Loss on sale - Arizona branches -- -- -- -- -- (102) Other income 87 59 95 193 221 1,813 --------- --------- --------- --------- --------- --------- Total noninterest income 3,375 2,418 5,618 6,230 10,019 19,721 --------- --------- --------- --------- --------- --------- General and administrative expenses 11,175 10,773 22,326 21,761 44,073 45,882 Amortization of cost in excess of net assets acquired 966 965 1,931 1,931 3,861 3,862 --------- --------- --------- --------- --------- --------- Total noninterest expense 12,141 11,738 24,257 23,692 47,934 49,744 --------- --------- --------- --------- --------- --------- Income before income taxes 3,769 3,924 6,881 7,859 13,086 20,270 Income tax expense 1,667 1,748 3,101 3,494 5,998 8,246 --------- --------- --------- --------- --------- --------- Net income $ 2,102 $ 2,176 $ 3,780 $ 4,365 $ 7,088 $ 12,024 ========= ========= ========= ========= ========= ========= Contribution to consolidated net income (loss) (a) $ 610 $ 954 $ 806 $ 1,930 $ 1,653 $ 7,117 ========= ========= ========= ========= ========= ========= (a) Includes after-tax allocation of costs from parent.
7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company is comprised of two business segments: natural gas operations and financial services. The gas segment purchases, transports and distributes natural gas to residential, commercial and industrial customers in geographically diverse portions of Arizona, Nevada and California. The financial services segment consists of PriMerit Bank (the Bank), a wholly owned subsidiary, which is engaged in retail and commercial banking. The Bank's principal business is to attract deposits from the general public and make consumer and commercial loans secured by real estate and other collateral. For the twelve months ended June 30, 1995, the natural gas operations segment contributed $17 million and the financial services segment contributed $1.7 million, resulting in consolidated net income of $18.7 million. CONSOLIDATED CAPITAL RESOURCES AND LIQUIDITY The capital requirements and resources of the Company generally are determined independently for the natural gas operations and financial services segments. Each segment is generally responsible for securing its own financing sources. The Company's unsecured debt is rated Baa3 by Moody's Investors Service, BBB- by Standard and Poor's Ratings Group and BB+ by Duff and Phelps Credit Rating Company. See separate discussions of the capital resources and liquidity for each segment. RESULTS OF CONSOLIDATED OPERATIONS Quarterly Analysis - ------------------ Contribution to Consolidated Net Income Three Months Ended June 30, --------------------------------------- (Thousands of dollars) 1995 1994 -------- -------- Natural gas operations segment $ (9,951) $(10,735) Financial services segment 610 954 -------- -------- Consolidated net loss $ (9,341) $ (9,781) ======== ======== See separate discussions of each business segment for an analysis of these changes. Six-Month Analysis - ------------------ Contribution to Consolidated Net Income Six Months Ended June 30, --------------------------------------- (Thousands of dollars) 1995 1994 -------- -------- Natural gas operations segment $ 4,498 $ 10,999 Financial services segment 806 1,930 -------- -------- Consolidated net income $ 5,304 $ 12,929 ======== ======== See separate discussions of each business segment for an analysis of these changes. 8 Twelve-Month Analysis - --------------------- Contribution to Consolidated Net Income Twelve Months Ended June 30, --------------------------------------- (Thousands of dollars) 1995 1994 -------- -------- Natural gas operations segment $ 17,024 $ 17,163 Financial services segment 1,653 7,117 -------- -------- Consolidated net income $ 18,677 $ 24,280 ======== ======== See separate discussions of each business segment for an analysis of these changes. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement requires that long-lived assets and certain intangible assets to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. This statement is effective for financial statements for fiscal years beginning after December 15, 1995. The Company does not anticipate any material effect on its financial position or results of operations upon implementation of this statement. NATURAL GAS OPERATIONS SEGMENT The Company is engaged in the business of purchasing, transporting, and distributing natural gas in portions of Arizona, Nevada and California. Its service areas are geographically as well as economically diverse. The Company 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. The Company is also the largest distributor and transporter of natural gas in Nevada, and serves the Las Vegas metropolitan area and northern Nevada. In addition, the Company distributes and transports gas in portions of California, including the Lake Tahoe area in northern California and high desert and mountain areas in San Bernardino County. The Company purchases, transports and distributes natural gas to approximately 993,000 residential, commercial and industrial customers within its three-state service territory, of which 59 percent are in Arizona, 30 percent are in Nevada, and 11 percent are in California. During the twelve months ended June 30, 1995, the Company earned 60 percent of its operating margin from residential customers, 24 percent from commercial customers, and 16 percent from industrial and other customers. During this same period, 58 percent of operating margin was earned in Arizona, 31 percent in Nevada and 11 percent in California. This pattern is consistent with prior years and is expected to continue. For the twelve months ended June 30, 1995, the Company's natural gas construction expenditures totaled $153 million, a 21 percent increase when compared to $126 million of construction expenditures for the same period ended a year ago. The increase is attributed to the investment in new transmission and distribution plant in Arizona, Nevada, and California to meet the demand from the Company's growing customer base. CAPITAL RESOURCES AND LIQUIDITY The Company currently estimates that the total financing requirements for the gas segment for the three-year period ending December 31, 1997 will be approximately $425 million. Of this amount, construction expenditures will approximate $410 million and debt maturities and repayments and other cash requirements will approximate $15 million. It is currently estimated that 9 cash flow from operating activities (net of dividends) will generate approximately one-half of the gas segment's total financing requirements during the three-year period ending December 31, 1997. A portion of the remaining financing requirements will be provided by $83 million of funds held in trust at December 31, 1994, from the issuance of 1993 Clark County, Nevada, Series A and 1993 City of Big Bear Lake, California, Series A industrial development revenue bonds (IDRB). In May 1995, the Company completed an offering of 2.1 million primary shares of common stock. The net proceeds from this offering were $28.5 million after deducting underwriting discounts, commissions, and expenses. The proceeds were used to repay a portion of short-term borrowings incurred to finance utility construction, and to finance construction, completion, extension or improvement of the Company's facilities located in and around the communities it serves. The remaining cash requirements are expected to be provided by external financing sources. The timing, types, and amounts of these additional external financings will be dependent on a number of factors, including conditions in the capital markets, timing and amounts of rate relief, and growth factors in the Company's 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. RESULTS OF NATURAL GAS OPERATIONS Quarterly Analysis - ------------------ Three Months Ended June 30, -------------------------- (Thousands of dollars) 1995 1994 ---------- ---------- Gas operating revenues $ 122,189 $ 108,407 Net cost of gas 54,760 48,439 ---------- ---------- Operating margin 67,429 59,968 Operations and maintenance expense 47,855 43,673 Depreciation and amortization 15,741 14,381 Taxes other than income taxes 6,706 6,165 ---------- ---------- Operating loss (2,873) (4,251) Other income (expense), net (278) (1,162) ---------- ---------- Loss before interest and income taxes (3,151) (5,413) Net interest deductions 15,447 13,795 Income tax expense (benefit) (7,155) (7,251) ---------- ---------- Net loss before allocation to the Bank (11,443) (11,957) Carrying costs allocated to the Bank, net of tax 1,492 1,222 ---------- ---------- Contribution to consolidated net loss $ (9,951) $ (10,735) ========== ========== Contribution to consolidated net loss improved $784,000 compared to the second quarter of 1994. The improvement was principally the result of higher operating margin attributed to cooler weather throughout the Company's service territories when compared to the same period in 1994. The increase in margin was partially offset by higher operating costs and net interest deductions resulting from the continued expansion and upgrading of the gas system to accommodate customer growth. Operating margin increased 12 percent when compared to the same period ended a year ago. Cooler weather during the current quarter resulted in a $4.9 million increase in margin from weather-sensitive customers. Also contributing to the higher margin was customer growth in all of the Company's service territories and authorized rate relief in the Company's California and southern Arizona rate jurisdictions. 10 Operations and maintenance expenses increased $4.2 million, or ten percent, reflecting increases in labor and maintenance costs, including the incremental operating expenses associated with meeting the needs of the Company's growing customer base. Depreciation expense and general taxes increased $1.9 million, or nine percent, as a result of additional plant in service. Average gas plant in service increased $124 million, or nine percent, as compared to the second quarter of 1994. This increase reflects ongoing capital expenditures for the upgrade of existing operating facilities and the expansion of the system to accommodate continued customer growth. Net interest deductions increased $1.7 million, or 12 percent, over the second quarter of 1994. Average debt outstanding during the current quarter increased nine percent, and consisted of an $81 million increase in average long-term debt, partially offset by a $20 million decrease in average short-term debt, outstanding during the period. The increase in debt is attributed primarily to borrowings for construction expenditures, including the drawdown of a portion of IDRB funds previously held in trust. Higher interest rates on variable-rate debt also contributed to the increase in net interest deductions. Six-Month Analysis - ------------------ Six Months Ended June 30, -------------------------- (Thousands of dollars) 1995 1994 ---------- ---------- Gas operating revenues $ 325,710 $ 315,776 Net cost of gas 153,666 145,435 ---------- ---------- Operating margin 172,044 170,341 Operations and maintenance expense 93,722 86,108 Depreciation and amortization 30,878 28,429 Taxes other than income taxes 13,488 12,536 ---------- ---------- Operating income 33,956 43,268 Other income (expense), net (131) (1,380) ---------- ---------- Income before interest and income taxes 33,825 41,888 Net interest deductions 31,178 27,410 Income tax expense 1,123 5,914 ---------- ---------- Net income before allocation to the Bank 1,524 8,564 Carrying costs allocated to the Bank, net of tax 2,974 2,435 ---------- ---------- Contribution to consolidated net income $ 4,498 $ 10,999 ========== ========== Contribution to consolidated net income decreased $6.5 million as compared to the six months ended June 1994. This was the result of increased operating costs and net interest deductions incurred as a result of the continued expansion and upgrading of the gas system to accommodate the Company's growth. Operating margin increased only one percent during the six months ended June 1995 compared to the same period in 1994. Margin increases from continued customer growth and authorized rate relief in California and southern Arizona were virtually offset by the effects of unseasonably warm weather during the first quarter of 1995 in the Company's three largest operating areas: Phoenix, Las Vegas, and Tucson. Operations and maintenance expenses increased $7.6 million, or nine percent, reflecting increases in labor and maintenance costs along with incremental operating expenses associated with meeting the needs of the Company's growing customer base. 11 Depreciation expense and general taxes increased $3.4 million, or eight percent, resulting from an increase in average gas plant in service of $117 million, or nine percent. This increase reflects capital expenditures for the upgrade of existing operating facilities and the expansion of the system to accommodate continued customer growth within the Company's service area. Net interest deductions increased $3.8 million, or 14 percent, over the prior period. Average debt outstanding during the period increased 12 percent compared to the same period in 1994, and consisted of a $75 million increase in average long-term debt, net of funds held in trust, and a $2 million increase in average short-term debt. The increase in debt is attributed primarily to borrowings for construction expenditures and operating activities as well as the drawdown of IDRB funds previously held in trust. Higher interest rates on variable-rate debt also contributed to the increase in net interest deductions. Twelve-Month Analysis - --------------------- Twelve Months Ended June 30, -------------------------- (Thousands of dollars) 1995 1994 ---------- ---------- Gas operating revenues $ 609,345 $ 572,126 Net cost of gas 258,154 231,288 ---------- ---------- Operating margin 351,191 340,838 Operations and maintenance expense 185,839 172,174 Depreciation and amortization 59,711 56,203 Taxes other than income taxes 26,288 24,562 ---------- ---------- Operating income 79,353 87,899 Other income (expense), net (121) (15,735) ---------- ---------- Income before interest and income taxes 79,232 72,164 Net interest deductions 61,103 52,897 Income tax expense 6,540 7,011 ---------- ---------- Net income before allocation to the Bank 11,589 12,256 Carrying costs allocated to the Bank, net of tax 5,435 4,907 ---------- ---------- Contribution to consolidated net income $ 17,024 $ 17,163 ========== ========== Contribution to consolidated net income decreased $139,000 as compared to the twelve months ended June 1994. Increases in operating expenses and net interest deductions offset an increase in operating margin during the current twelve-month period. However, the recognition of the Arizona pipe replacement program disallowances had a significant negative impact on net income for the twelve months ended June 1994 (see discussion below). Operating margin increased $10.4 million, or three percent, during the twelve months ended June 1995. This increase was due to continued customer growth in the Company's service areas, combined with rate relief in the Company's Arizona and California rate jurisdictions. Operations and maintenance expenses increased $13.7 million, or eight percent, resulting primarily from increases in labor and materials over the same period ended a year ago. These increases reflect the incremental cost of providing service to the Company's growing customer base. Depreciation expense and general taxes increased $5.2 million, or six percent, as a result of additional plant in service. Average gas plant in service for the current twelve-month period increased $98 million, or seven percent, compared to the corresponding period a year ago. This was attributable to the upgrade of existing operating facilities and the expansion of the system to accommodate the number of new customers being added to the system. Other expenses for the twelve months ended June 1994 include a cumulative $19.1 million write-off in gross plant related to the central and southern Arizona pipe replacement programs, the result of a regulatory mandate. The 12 impact of these disallowances, net of accumulated depreciation, tax benefits and other related items, was a noncash reduction to net income of $9.6 million. Net interest deductions increased $8.2 million, or 16 percent during the twelve months ended June 1995 over the comparative period of the prior year. Average total debt outstanding during the period increased 12 percent compared to the corresponding period of the prior year, and consisted of a $58 million increase in average long-term debt and an $18 million increase in average short-term debt outstanding during the period. This increase is primarily attributed to borrowings for construction expenditures and operating activities as well as the drawdown of IDRB funds previously held in trust. Higher interest rates on variable-rate debt also contributed to the increase in net interest deductions. FINANCIAL SERVICES SEGMENT PriMerit Bank (the Bank) is a federally chartered stock savings bank conducting business through branch offices in Nevada. The Bank's deposit accounts are insured to the maximum extent permitted by law by the Federal Deposit Insurance Corporation (FDIC) through the Savings Association Insurance Fund (SAIF). The Bank is regulated by the Office of Thrift Supervision (OTS) and the FDIC, and is a member of the Federal Home Loan Bank (FHLB) system. The Bank's principal business is to attract deposits from the general public and make loans secured by real estate and other collateral to enable borrowers to purchase, refinance, construct or improve such property. Revenues are derived from interest on real estate loans and debt securities and, to a lesser extent, from interest on nonmortgage loans, gains on sales of loans and debt securities, and fees received in connection with loans and deposits. The Bank's major expense is the interest paid on deposits and borrowings. CAPITAL RESOURCES AND LIQUIDITY In accordance with OTS regulations, the Bank is required to maintain an average daily balance of liquid assets equal to at least five percent of its liquidity base (as defined in the OTS regulations) during the preceding calendar month. The liquidity ratio was 13 percent for the month of June 1995. The Bank maintains a ratio substantially higher than the requirement due to its increased level of transaction accounts relative to a traditional thrift. Management considers the Bank's liquidity position to be adequate. At June 30, 1995, the Bank maintained in excess of $348 million of unencumbered assets which could be borrowed against or sold to increase liquidity levels. The Bank's deposits decreased $2.7 million during the quarter while increasing $13.3 million year to date. The decrease in the second quarter of 1995 is principally due to a $5.8 million decrease in longer term certificate of deposit accounts, partially offset by a $3.1 million increase in transaction and other accounts. The Bank offered a new money market product at the beginning of the year which was the primary cause of the increase in transaction accounts. The net increase for the first half of 1995 is due primarily to an $18.4 million increase in transaction and other retail accounts partially offset by a $5.1 million decrease in certificates of deposit. FINANCIAL AND REGULATORY CAPITAL At June 30, 1995, the Bank exceeded all three capital ratios for a "well capitalized" institution as defined by the FDIC Improvement Act of 1991 (FDICIA), and all three fully phased-in FDICIA capital requirements which will be applicable at July 1, 1996 under current FDICIA capital standards. As required by the OTS, effective January 1995, all supervisory goodwill was excluded from regulatory capital, resulting in a decline in all three of the Bank's regulatory capital ratios. Growth in the asset base used in the capital computations also caused a reduction in the three regulatory capital ratios from year end. This reduction was offset partially by the Bank's year-to-date net income and goodwill amortization. The Bank continues to be classified as "well capitalized" under FDICIA. 13 A reconciliation of stockholder's equity to the three FDICIA regulatory capital standards and the Bank's resulting ratios are set forth in the table below (thousands of dollars):
June 30, 1995 December 31, 1994 -------------------------------------- -------------------------------------- Total Tier 1 Tier 1 Total Tier 1 Tier 1 Risk-Based Risk-Based Leverage Risk-Based Risk-Based Leverage ---------- ---------- ---------- ---------- ---------- ---------- Stockholder's equity $ 180,243 $ 180,243 $ 180,243 $ 166,388 $ 166,388 $ 166,388 Nonsupervisory goodwill (39,331) (39,331) (39,331) (40,376) (40,376) (40,376) Supervisory goodwill (24,378) (24,378) (24,378) (18,661) (18,661) (18,661) Real estate investments (581) -- -- (1,325) (194) (194) Unrealized loss (gain), net of tax, on debt securities available for sale (858) (858) (858) 9,467 9,467 9,467 Mortgage servicing rights adjustment (12) (12) (12) -- -- -- General loan loss reserves 12,201 -- -- 11,512 -- -- ---------- ---------- ---------- ---------- ---------- ---------- Regulatory capital $ 127,284 $ 115,664 $ 115,664 $ 127,005 $ 116,624 $ 116,624 ========== ========== ========== ========== ========== ========== Regulatory capital ratio 13.08% 11.89% 6.52% 13.88% 12.75% 6.62% Adequately capitalized ratio 8.00 4.00 4.00 8.00 4.00 4.00 ---------- ---------- ---------- ---------- ---------- ---------- Excess 5.08% 7.89% 2.52% 5.88% 8.75% 2.62% ========== ========== ========== ========== ========== ========== Asset base $ 972,825 $ 972,825 $1,773,152 $ 914,812 $ 914,812 $1,760,801 ========== ========== ========== ========== ========== ==========
At June 30, 1995, under fully phased-in FDICIA capital rules applicable at July 1, 1996, the Bank would have exceeded its fully phased-in adequately capitalized total risk-based, tier 1 risk-based, and tier 1 leverage capital requirements by $49.1 million, $76.8 million and $44.7 million, respectively. The Company, at the time that it acquired the Bank, stipulated in an agreement with the Federal Home Loan Bank Board (predecessor to the OTS) that it would assist the Bank in maintaining levels of regulatory capital required by the regulations in effect at the time or as they were amended thereafter, so long as it controlled the Bank. The Company also stipulated in connection with the acquisition, that dividends paid by the Bank to the Company would not exceed 50 percent of the Bank's cumulative net income after the date of acquisition, without prior approval by the regulators. In addition, the Company agreed that the Bank would not at any time declare a dividend that would reduce the Bank's regulatory capital below minimum regulatory requirements in effect at the time of the acquisition or thereafter. In June 1995, the Company and the Bank requested that the OTS lift these stipulations since laws and regulations have been enacted since the Company's acquisition of the Bank in conjunction with FIRREA and FDICIA, which govern capital distributions and prompt corrective action measures when the capitalization of a thrift is deficient. In July 1995, the OTS terminated these stipulations, such that capital distributions by the Bank and capitalization of the Bank are now governed by the laws and regulations governing all other thrifts. In June 1995, the Bank declared a $250,000 cash dividend payable to the Company during the third quarter of 1995, subject to notification of the OTS. The Bank has notified the OTS of its proposed dividend. The Bank enters into various interest rate swaps in managing its interest rate risk (IRR). In these swaps, the Bank agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated on an agreed-upon notional principal amount. Because the Bank's interest-earning assets tend to be long-term fixed-rate instruments while the Bank's interest-bearing liabilities tend to be shorter term or floating-rate obligations, interest rate swaps reduce the impact of market fluctuations on the Bank's net interest income. 14 The Bank only enters into interest rate swaps to hedge specific assets or liabilities, and not for speculative or trading purposes. Therefore, the Bank accounts for the swaps by accruing for the cash flows which are contractually receivable and payable under the agreements. These net costs are included as cost of hedging activities in the consolidated statements of income. The Bank mitigates the credit risk associated with interest rate swaps by limiting itself to transactions with counterparties who are U.S. Government Securities dealers registered with the Securities and Exchange Commission (SEC) and are in full compliance with the SEC's Net Capital Rule for Brokers and Dealers. Additionally, the Bank's policy limits the maximum notional amount outstanding per dealer and in total. The following table summarizes the terms of the Bank's outstanding interest rate swaps as of the dates indicated (thousands of dollars): June 30, December 31, 1995 1994 ------------ ------------ Notional principal $ 82,650 $ 72,450 Weighted average remaining term (months) 60 59 Weighted average fixed-rate payable 6.98% 6.95% Weighted average variable-rate receivable 6.45% 5.66% Unrealized gains $ 328 $ 2,991 Unrealized losses $ (2,474) $ (5) The increase in unrealized losses affiliated with the interest rate swaps is due entirely to the general decline in interest rates since year end. The assets hedged by these interest rate swaps have experienced corresponding increases in their fair values during the same time period. RESULTS OF FINANCIAL SERVICES OPERATIONS Adoption of SFAS No. 122 - ------------------------ In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights." The statement eliminates the previous distinction between purchased and originated mortgage servicing rights. The statement requires an allocation of the cost basis of a mortgage loan between the mortgage servicing rights and the loan when mortgage loans are sold or securitized and the servicing is retained. The Bank adopted SFAS No. 122 effective April 1, 1995. As a result of the implementation, earnings before taxes and net income for the second quarter increased $114,000 and $74,000, respectively. Quarterly Analysis - ------------------ The Bank recorded net income of $2.1 million for the three months ended June 30, 1995, compared to net income of $2.2 million for the same period in 1994. After-tax components of the Bank's 1995 second quarter net income were comprised of $3 million from core banking operations and $76,000 of real estate income, offset partially by $966,000 in goodwill amortization. After-tax components of the Bank's 1994 second quarter net income were comprised of $3 million from core banking operations and $391,000 of real estate income, offset partially by $965,000 in goodwill amortization expense and $187,000 from credit card charge-offs. 15 The following table sets forth information with respect to interest rate spread for the periods shown (thousands of dollars):
Three Months Ended June 30, --------------------------------------------------------------------------- 1995 1994 ------------------------------------ ------------------------------------ Average Average Average Average Balance Interest Yield Balance Interest Yield ---------- ---------- ---------- ---------- ---------- ---------- Interest-earning assets: Cash equivalents $ 27,659 $ 426 6.16% $ 50,587 $ 512 4.05% Debt securities held to maturity 97,016 1,847 7.62 66,553 1,061 6.38 Debt securities available for sale 501,623 8,450 6.74 560,282 8,380 5.98 Loans receivable 1,000,469 21,945 8.77 883,494 18,982 8.59 FHLB stock 12,487 133 4.26 16,795 189 4.50 ---------- ---------- ---------- ---------- ---------- ---------- Total interest-earning assets $1,639,254 32,801 8.00 $1,577,711 29,124 7.38 ========== ---------- ---------- ========== ---------- ---------- Interest-bearing liabilities: Deposits $1,249,142 13,183 4.22 $1,227,626 10,690 3.49 Securities sold under agreements to repurchase 149,946 2,411 6.43 213,925 2,466 4.62 Advances from FHLB 160,511 2,491 6.21 71,000 832 4.70 Notes payable 8,067 162 8.03 8,200 160 7.83 ---------- ---------- ---------- ---------- ---------- ---------- Total interest-bearing liabilities $1,567,666 18,247 4.66 $1,520,751 14,148 3.73 ========== ========== Cost of hedging activities 100 0.02 56 0.01 ---------- ---------- ---------- ---------- Cost of funds 18,347 4.68 14,204 3.74 ---------- ---------- ---------- ---------- Capitalized and transferred interest -- -- (4) -- ---------- ---------- ---------- ---------- Net interest income $ 14,454 3.32% $ 14,924 3.64% ========== ========== ========== ========== Net yield on interest-earning assets 3.53% 3.78% ========== ==========
Despite a flattening of the yield curve between periods, with increased short- term rates and decreased long-term rates, the Bank's net interest margin remained strong. Increases in the costs of interest-bearing liabilities have largely been offset by increases in loan and security yields as a result of the adjustable-rate features of a large portion of the asset portfolios and by new originations. The Bank redeemed $6.9 million of FHLB stock during the quarter in order to reinvest the proceeds at higher yields. The yield on interest-earning assets was also maintained by an increase in construction and consumer loans which have shorter terms and higher rates. In order to take advantage of the relatively attractive long-term rates and to improve the Bank's IRR posture, the Bank paid off $32 million of borrowings on securities under agreements to repurchase and increased the amount of its advances from the FHLB by $40 million. Noninterest income increased $957,000 in the second quarter of 1995 compared to 1994, principally due to a one-time $970,000 pretax gain on the sale of CMO residuals from its available for sale portfolio. The sale was executed in order to take advantage of favorable market conditions, eliminate an area of possible regulatory concern due to the volatile aspects of the securities, and enhance the credit quality of the investment portfolio. The $144,000 increase in deposit-related fees during 1995 was due primarily to increases in the fees charged on these accounts. The $227,000 increase in net gains on sale of loans from secondary marketing activities resulted from declining interest rates as the value of such loans increased during the period between origination and sale. General and administrative expenses were higher during the second quarter of 1995 compared to the same period in 1994, due primarily to increased expenses associated with the opening of a new branch and normal incremental increases in salaries. Six-Month Analysis - ------------------ Net income of $3.8 million was recorded for the first half of 1995 compared to net income of $4.4 million for the six months ended June 30, 1994. After-tax components of net income for the first half of 1995 were comprised of 16 $6 million from core banking operations, partially offset by $64,000 of credit card charge-offs, a $205,000 loss from real estate operations, and $1.9 million of goodwill amortization. After-tax components of the Bank's 1994 first half net income were comprised of $5.3 million from core banking operations, a gain of $912,000 from the Bank's credit card portfolio sale, net of charge-offs, and a $72,000 gain from real estate operations. Income was partially offset by $1.9 million of goodwill amortization. The following table sets forth information with respect to interest rate spread for the periods shown (thousands of dollars):
Six Months Ended June 30, --------------------------------------------------------------------------- 1995 1994 ------------------------------------ ------------------------------------ Average Average Average Average Balance Interest Yield Balance Interest Yield ---------- ---------- ---------- ---------- ---------- ---------- Interest-earning assets: Cash equivalents $ 55,401 $ 1,684 6.08% $ 60,122 $ 1,065 3.54% Debt securities held to maturity 98,818 3,670 7.43 67,165 2,162 6.44 Debt securities available for sale 508,812 17,108 6.72 574,133 16,804 5.85 Loans receivable 978,711 43,192 8.83 869,339 36,797 8.47 FHLB stock 14,973 358 4.78 16,708 341 4.08 ---------- ---------- ---------- ---------- ---------- ---------- Total interest-earning assets $1,656,715 66,012 7.97 $1,587,467 57,169 7.20 ========== ---------- ---------- ========== ---------- ---------- Interest-bearing liabilities: Deposits $1,244,085 25,587 4.15 $1,217,325 21,023 3.48 Securities sold under agreements to repurchase 205,594 6,444 6.32 235,236 5,176 4.44 Advances from FHLB 136,422 4,115 6.08 71,000 1,654 4.70 Notes payable 8,101 332 8.26 8,233 314 7.69 ---------- ---------- ---------- ---------- ---------- ---------- Total interest-bearing liabilities $1,594,202 36,478 4.62 $1,531,794 28,167 3.71 ========== ========== Cost of hedging activities 298 0.04 93 0.01 ---------- ---------- ---------- ---------- Cost of funds 36,776 4.66 28,260 3.72 ---------- ---------- ---------- ---------- Capitalized and transferred interest -- -- (11) -- ---------- ---------- ---------- ---------- Net interest income $ 29,236 3.31% $ 28,920 3.48% ========== ========== ========== ========== Net yield on interest-earning assets 3.53% 3.64% ========== ==========
During the first half of 1995, average interest-earning assets increased by $69 million compared to the first half of 1994. The increase was primarily due to increased loan originations and a decrease in payoffs. The loan originations were funded by paydowns on and sales of investment securities and borrowings from the FHLB. The borrowings caused average interest-bearing liabilities to increase by $62 million. The Bank's net interest margin remained strong despite the increased interest rate environment, as the Bank was able to lag somewhat the increased rates paid on deposits. General and administrative expenses were $565,000 higher during the first six months of 1995 than for the same period in 1994 primarily due to normal incremental salary increases, increased marketing expenses, and the opening of a new branch. Twelve-Month Analysis - --------------------- The Bank recorded net income of $7.1 million for the twelve months ended June 30, 1995, compared to net income of $12 million for the twelve months ended June 30, 1994. After-tax components of the Bank's net income for the twelve months ended June 30, 1995 were comprised of $12 million from core banking operations, offset partially by a loss of $149,000 from real estate operations, $347,000 from adjustments and charge-offs related to the sale of the credit card portfolio, $527,000 of real estate litigation costs, and $3.9 million of goodwill amortization. After-tax components of the Bank's net income for the twelve months ended June 30, 1994 were comprised of $9.3 million from core banking operations, a $400,000 benefit from a 1993 change in federal income tax rates, a gain of $912,000 on the sale of the Bank's credit card portfolio, a $780,000 gain from a legal settlement, and a gain of $4.8 million from the sale of debt securities used to fund the sale of Arizona-based deposit liabilities. Income for this period was partially offset by a $281,000 loss from real estate operations and $3.9 million of goodwill amortization. 17 The following table sets forth information with respect to interest rate spread for the periods shown (thousands of dollars):
Twelve Months Ended June 30, --------------------------------------------------------------------------- 1995 1994 ------------------------------------ ------------------------------------ Average Average Average Average Balance Interest Yield Balance Interest Yield ---------- ---------- ---------- ---------- ---------- ---------- Interest-earning assets: Cash equivalents $ 54,019 $ 3,051 5.65% $ 57,376 $ 1,859 3.24% Debt securities held to maturity 89,347 6,427 7.19 74,457 5,012 6.73 Debt securities available for sale 524,120 34,469 6.58 633,680 37,404 5.90 Loans receivable 941,388 82,475 8.76 843,449 73,565 8.72 FHLB stock 16,049 855 5.33 16,564 681 4.11 ---------- ---------- ---------- ---------- ---------- ---------- Total interest-earning assets $1,624,923 127,277 7.83 $1,625,526 118,521 7.29 ========== ---------- ---------- ========== ---------- ---------- Interest-bearing liabilities: Deposits $1,242,895 48,680 3.92 $1,250,614 44,900 3.59 Securities sold under agreements to repurchase 207,799 12,292 5.92 259,713 11,272 4.34 Advances from FHLB 106,221 6,003 5.65 66,842 3,137 4.69 Notes payable 8,137 654 8.04 9,058 707 7.81 Unsecured senior notes -- -- -- 1,277 81 6.34 ---------- ---------- ---------- ---------- ---------- ---------- Total interest-bearing liabilities $1,565,052 67,629 4.31 $1,587,504 60,097 3.78 ========== ========== Cost of hedging activities 690 0.04 117 0.01 ---------- ---------- ---------- ---------- Cost of funds 68,319 4.35 60,214 3.79 ---------- ---------- ---------- ---------- Capitalized and transferred interest (2) -- (35) -- ---------- ---------- ---------- ---------- Net interest income $ 58,960 3.48% $ 58,342 3.50% ========== ========== ========== ========== Net yield on interest-earning assets 3.63% 3.59% ========== ==========
The net decrease in total debt securities was due primarily to $334 million of MBS sold during August of 1993 to fund the sale of the Arizona-based deposit liabilities. Average deposits also declined as a result of the sale. Net loss from real estate operations of $1 million for the twelve months ended June 30, 1995 was primarily due to legal expenses related to an apartment complex which the Bank built and sold in 1989. The net loss from real estate operations of $431,000 for the comparable period ended June 30, 1994 included $602,000 in provisions for estimated losses on the Bank's real estate investments, partially offset by gains on the sale of a real estate development project in Nevada and a former branch facility in Arizona. The decrease in net gains on sale of loans resulted from lower levels of 30-year fixed-rate loan originations due to a higher interest rate environment during the twelve-month period ended June 30, 1995, compared to the prior twelve-month period. Deposit-related fees increased by $673,000 due to a higher deposit fee structure and an increased level of transaction accounts subject to fee assessment. Other income for the twelve months ended June 30, 1994 included the receipt of a legal settlement of $1.2 million ($780,000 net of tax). General and administrative expenses declined $1.8 million for the twelve months ended June 30, 1995 compared to the same period in 1994 due principally to the Arizona sale. ASSET QUALITY LOAN IMPAIRMENT. On January 1, 1995, the Bank adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures." SFAS No. 114 requires the measurement of loan impairment to be based on the present value of expected future cash flows discounted at the loan's original effective interest rate or the fair value of the underlying collateral on collateral-dependent loans. SFAS No. 118 allows a creditor to use existing methods for recognizing interest income on nonimpaired loans. 18 Upon adoption of SFAS No. 114 in the first quarter of 1995, $2.9 million of in-substance foreclosed assets were reclassified on the Bank's consolidated statement of financial condition from real estate acquired through foreclosure (REO-F) to loans receivable as SFAS No. 114 eliminated the in-substance designation. No other financial statement impact resulted from the Bank's adoption of SFAS No. 114. In general, under SFAS No. 114, interest income on impaired loans will continue to be recognized by the Bank on the accrual basis of accounting unless the loan is greater than 90 days delinquent with respect to principal or interest, or the loan has been partially or fully charged-off. Interest on loans greater than 90 days delinquent is generally recognized on a cash basis. Interest income on loans which have been fully or partially charged-off is generally recognized on a cost-recovery basis; that is, all proceeds from the loan payments are first applied as a reduction to principal before any income is recorded. Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful, at which time payments received are recorded as reductions of principal. Interest income recognized and balances of impaired loans are as follows (thousands of dollars): Three Months Six Months Ended Ended June 30, 1995 June 30, 1995 ------------- ------------- Interest income recognized: Accrual basis $ 477 $ 1,075 Cash basis $ 6 $ 8 Average balance outstanding on impaired loans* $ 21,200 $ 22,500 *The outstanding balance of impaired loans at June 30, 1995 was $20,900. NONPERFORMING ASSETS. Nonperforming assets are comprised of nonaccrual assets, restructured loans and REO-F. Nonaccrual assets are those on which management believes the timely collection of interest or principal is doubtful. Assets are transferred to nonaccrual status when payments of interest or principal are 90 days past due, or if, in management's opinion, the accrual of interest should be ceased sooner. There were no loans on accrual status which were over 90 days delinquent or past maturity as of June 30, 1995. The following table summarizes nonperforming assets as of the dates indicated (thousands of dollars): June 30, December 31, 1995 1994 ------------ ------------ Nonaccrual loans past due 90 days or more: Mortgage loans: Construction and land $ 471 $ 576 Permanent single-family residences 4,267 5,517 Other mortgage loans 5,053 5,696 ------------ ------------ 9,791 11,789 Nonmortgage loans 850 904 Restructured loans 10,297 16,768 ------------ ------------ Total nonperforming loans 20,938 29,461 Real estate acquired through foreclosure 4,030 7,631 ------------ ------------ Total nonperforming assets $ 24,968 $ 37,092 ============ ============ Allowance for estimated credit losses $ 15,947 $ 17,659 ============ ============ Allowance for estimated credit losses as a percentage of nonperforming loans 76.16% 59.94% ============ ============ Allowance for estimated credit losses as a percentage of nonperforming assets 63.87% 47.61% ============ ============ 19 Restructured loans include $5.7 million of single-family residential loan modifications made to borrowers with earthquake-related damage in California. Federal agencies encouraged financial institutions to modify loan terms for certain borrowers who were affected by the earthquake which occurred in January 1994. The terms of these modifications were generally three- to six- month payment extensions with no negative credit reporting regarding the borrower. The reduction of $6.5 million in restructured loans was primarily due to a recent change in OTS regulations allowing for the removal of loans that have been performing for the prior twelve months and were not modified below a normal market rate. CLASSIFIED ASSETS. OTS regulations require the Bank to classify certain assets and establish prudent valuation allowances. Classified assets are categorized as "substandard," "doubtful" and "loss." In addition, the Bank can designate an asset as "special mention." Impaired loans, as defined by SFAS No. 114, are included in substandard assets. The following table sets forth the amounts of the Bank's classified assets and ratio of classified assets to total assets, net of allowances and charge-offs, as of the dates indicated (thousands of dollars): June 30, 1995 December 31, 1994 ------------------ ------------------ % of Total % of Total Balance Assets Balance Assets -------- -------- -------- -------- Substandard assets: Loans: Single family residential $ 5,722 0.31% $ 6,882 0.38% Consumer 1,103 0.06 1,297 0.07 Commercial and multi-family mortgage 19,194 1.04 20,797 1.14 Construction and land 315 0.02 615 0.03 REO-F (net) 4,030 0.22 7,631 0.42 Real estate held for investment 1,146 0.06 1,191 0.07 Investment -- -- 21,972 1.21 -------- -------- -------- -------- Total $ 31,510 1.71% $ 60,385 3.32% ======== ======== ======== ======== Classified assets decreased $28.9 million from December 31, 1994 to June 30, 1995 primarily as a result of $1.8 million of repayments in the investment security, an upgrade of the remaining $20.2 million investment security, $3.4 million in payoffs and paydowns of commercial real estate, a $1.9 million decrease in foreclosed real estate due to sales, and $818,000 of paydowns on residential loans. The upgrade of the privately issued $20.2 million investment security from "substandard" to "special mention" is the result of the stabilization of delinquencies of the underlying loans and the market values of collateral supporting such loans, and management's analysis of the credit enhancement of the security versus loss estimates on the underlying loans. The Bank continues to receive scheduled monthly payments of principal and interest on this security. Special mention assets increased from $32.2 million at December 31, 1994 to $47 million at June 30, 1995, primarily due to the upgrade of the investment security from substandard and the addition of a $1.5 million secured corporate loan, partially offset by paydowns of California residential loans, commercial real estate loans and commercial loans. The largest substandard loan at June 30, 1995 was an $8.2 million apartment complex loan in Nevada. The Bank had three additional substandard loans at June 30, 1995 in excess of $1 million: two hotel loans and an apartment complex loan all located in Nevada. The largest foreclosed real estate asset held by the Bank at June 30, 1995 was a $1.4 million residential construction loan in California. The Bank's largest investment in real estate classified as substandard at June 30, 1995, was a former bank branch in Arizona with a current book value of $816,000. The Bank's remaining real estate development projects classified as substandard have current book values of $195,000 and $135,000. 20 The geographic concentration of the Bank's classified assets at June 30, 1995 was 73 percent in Nevada, 21 percent in California, and 6 percent in Arizona. It is the Bank's practice to charge-off all assets or portions the REO-F which it considers to be "loss." As a result, none of the Bank's assets, net of charge-offs, were classified as "loss" at June 30, 1995 and December 31, 1994. Also, none were classified as "doubtful" at either date. The following tables set forth the Bank's charge-off experience for loans receivable and REO-F as well as real estate held for investment and debt securities by loan type (thousands of dollars): Net Charge-Offs Recoveries Charge-Offs ----------- ----------- ----------- Six Months Ended June 30, 1995: - ------------------------------- Loans and REO-F: Single-family residential $ 501 $ (235) $ 266 Commercial and multi-family mortgage 126 -- 126 Construction/land 252 (35) 217 Nonmortgage 1,863 (438) 1,425 Real estate held for investment 108 -- 108 Debt securities 2,077 -- 2,077 ----------- ----------- ----------- Total net charge-offs $ 4,927 $ (708) $ 4,219 =========== =========== =========== Six Months Ended June 30, 1994: - ------------------------------- Loans and REO-F: Single-family residential $ 913 $ (368) $ 545 Commercial and multi-family mortgage 602 (99) 503 Construction/land 903 (11) 892 Nonmortgage 1,934 (357) 1,577 Real estate held for investment 811 (314) 497 ----------- ----------- ----------- Total net charge-offs $ 5,163 $ (1,149) $ 4,014 =========== =========== =========== PROVISIONS AND ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES. On a regular basis, management evaluates the adequacy of the allowances for estimated losses on loans, debt securities, and real estate and establishes additions to the allowances through provisions to expense. The Bank utilizes a comprehensive internal asset review system and general valuation allowance methodology. General valuation allowances are established for unforeseen losses for each of the loan, debt securities, and real estate portfolios. Factors taken into account in determining the adequacy of allowances include review of existing risks in the portfolios, prevailing and anticipated economic conditions, actual loss experience and delinquencies. Reviews of the quality of the Bank's loan, debt securities, and real estate portfolios by the Risk Management Committee, and examinations by regulatory authorities, are performed periodically. Charge-offs are recorded on particular assets when it is determined that the present value of expected cash flows or fair value of the underlying collateral of an asset is below its carrying value. When a loan is foreclosed, the asset is written down to fair value based on a current appraisal of the subject property. 21 Activity in the allowances for losses on loans, debt securities, investments in real estate, and foreclosed real estate is summarized as follows (thousands of dollars):
Foreclosed Real Estate and Investments Debt Impaired Nonimpaired In Securities Loans Loans Real Estate Total ----------- ----------- ----------- ----------- ----------- Balance at December 31, 1994* $ -- $ 3,038 $ 14,621 $ 476 $ 18,135 Transfer 3,077 -- (3,077) -- -- Provisions for estimated losses -- (691) 4,090 368 3,767 Charge-offs, net of recoveries (2,077) (80) (1,954) (108) (4,219) ----------- ----------- ----------- ----------- ----------- Balance at June 30, 1995 $ 1,000 $ 2,267 $ 13,680 $ 736 $ 17,683 =========== =========== =========== =========== =========== Balance at March 31, 1995 $ -- $ 2,754 $ 15,351 $ 799 $ 18,904 Transfer 3,077 -- (3,077) -- -- Provisions for estimated losses -- (452) 2,487 22 2,057 Charge-offs, net of recoveries (2,077) (35) (1,081) (85) (3,278) ----------- ----------- ----------- ----------- ----------- Balance at June 30, 1995 $ 1,000 $ 2,267 $ 13,680 $ 736 $ 17,683 =========== =========== =========== =========== ===========
Total Loans and Investments Debt Impaired Foreclosed In Securities Loans Real Estate Real Estate Total ----------- ----------- ----------- ----------- ----------- Balance at December 31, 1993 $ -- $ n/a $ 16,251 $ 935 $ 17,186 Provisions for estimated losses -- n/a 3,709 47 3,756 Charge-offs, net of recoveries -- n/a (3,517) (497) (4,014) ----------- ----------- ----------- ----------- ----------- Balance at June 30, 1994 $ -- $ n/a $ 16,443 $ 485 $ 16,928 =========== =========== =========== =========== =========== Balance at March 31, 1994 $ -- $ n/a $ 15,563 $ 541 $ 16,104 Provisions for estimated losses -- n/a 2,275 (367) 1,908 Charge-offs, net of recoveries -- n/a (1,395) 311 (1,084) ----------- ----------- ----------- ----------- ----------- Balance at June 30, 1994 $ -- $ n/a $ 16,443 $ 485 $ 16,928 =========== =========== =========== =========== =========== * Balances for impaired loans and foreclosed real estate and nonimpaired loans at December 31, 1994, have been reclassified to reflect adoption of SFAS No. 114.
During the second quarter of 1995, the Bank transferred $4.4 million of its allowance for estimated credit losses affiliated with loans to separate allowances for credit losses affiliated with REO-F and debt securities. Of this amount, $1.3 million was transferred to the REO-F allowance for losses and $3.1 million was transferred to the allowance for losses on debt securities. Prior to the second quarter, the evaluation of the adequacy of the Bank's allowance for estimated credit losses affiliated with loans receivable incorporated estimates for losses in the foreclosed real estate and debt security portfolios, but were not deemed material enough to be segregated as separate allowances. Additionally, prior to the second quarter, no credit losses had been experienced in the debt security portfolio. Losses in the foreclosed real estate portfolio subsequent to foreclosure had been accounted for as loan losses. In 1991, the Bank purchased $10 million of adjustable-rate mortgage-backed securities (MBS) issued by the Resolution Trust Corporation (RTC). The securities were rated AA by Standard & Poor's (S&P) and Aa2 by Moody's on the date of issuance and purchase. When the Bank implemented SFAS No. 115 on December 31, 1993, these securities were designated as held to maturity. The securities still were rated AA and Aa2 at that time. At December 31, 1994 and March 31, 1995, the securities were performing according to their contractual terms, and all realized losses from the disposition of REO-F were being absorbed by a credit enhancement feature. In April 1995, Moody's and S&P lowered their ratings on the securities to below investment grade ratings of Ba3 and BB, respectively. As a result of this deterioration, the Bank determined that the securities should be considered "other than temporarily" impaired under the provisions of SFAS No. 115. A pretax loss of $1.9 million was recorded as a credit-related charge-off through the general valuation allowance for debt securities. In June 1995, the Bank sold these securities. No additional loss was recorded at the time of the sale. 22 Also during the quarter, the Bank sold a $1.5 million security from its available for sale portfolio at a loss of $181,000. The security was a privately issued mortgage-backed security whose credit rating was downgraded to Baa3 during April 1995. As a result of the downgrade, the Bank sold the security and recorded the loss as a credit related charge-off to the general valuation allowance for debt securities. The loan and foreclosed real estate charge-offs were primarily attributable to consumer loan charge-offs of $1.4 million and $267,000 in single family residential loan charge-offs. The Bank's quarterly analysis required no significant change in the allowance for estimated credit losses at June 30, 1995 from December 31, 1994. Regulatory Matters - ------------------ The deposit accounts of savings associations, including those of PriMerit, are insured to the maximum extent permitted by law by the FDIC through the SAIF. The deposit accounts of commercial banks are separately insured by the FDIC through the bank insurance fund (BIF). Commercial banks and savings associations are separately assessed annual deposit insurance premiums ranging from 23 to 31 cents per $100 of deposits until each separate fund is capitalized at 1.25 percent of insured deposits. The BIF has reached this required level of capitalization, while the SAIF is not expected to reach this level of capitalization for several years. In August 1995, the FDIC reduced the deposit insurance premiums paid by most commercial banks insured by BIF to four cents per $100 of deposits. This regulatory change will give commercial banks a competitive advantage over savings associations and place additional pressure on the SAIF. A number of plans have been proposed in Congress to deal with the undercapitalization of the SAIF. Several proposals provide for a one-time special assessment on SAIF-insured deposits to fully capitalize the SAIF to 1.25 percent of insured deposits. These proposals would subsequently reduce annual premiums to levels similar to those of BIF-insured commercial banks and eventually merge the BIF and SAIF insurance funds. The Bank is unable to predict if these proposals, or other proposals, will ultimately be approved by Congress. Assuming a one-time special assessment was approved by Congress and became law in 1995 and was immediately charged against results of operations, the one-time assessment would, most likely, have a material impact on the Bank's 1995 results of operations. However, management believes the Bank would continue to be classified as "well-capitalized" under fully phased-in FDICIA capital rules. In addition, the Bank would not face any liquidity issues as a result of a one-time assessment. 23 PART II - OTHER INFORMATION --------------------------- ITEMS 1-3 None ITEM 4 Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Shareholders was held on May 11, 1995. Matters voted upon and the results of the voting were as follows: (1) The eleven directors nominated were reelected by shareholders. (2) The selection of Arthur Andersen LLP to audit the financial statements of the Company and its subsidiaries for 1995 was approved. Shareholders voted 18,134,696 shares in favor, 224,765 opposed, and 272,510 abstentions. ITEM 5 None ITEM 6 Exhibits and Reports on Form 8-K (a) The following document is filed as part of this report on Form 10-Q: Exhibit 27 - Financial Data Schedule (filed electronically only) Exhibit 99 - Financial Analyst Report - Second Quarter 1995 (b) Reports on Form 8-K - None 24 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Southwest Gas Corporation ----------------------------------- (Registrant) Date: August 11, 1995 /s/ Edward A. Janov --------------------------------------- Edward A. Janov Controller and Chief Accounting Officer 25 EX-27 2 EXHIBIT 27 FINANCIAL DATA SCHEDULE
9 1,000 6-MOS DEC-31-1995 JUN-30-1995 35,478 86,653 0 0 496,134 89,823 89,082 1,038,480 15,947 3,077,939 1,253,276 182,184 340,367 901,688 25,529 4,000 0 354,895 3,077,939 43,192 20,778 2,042 66,012 25,587 36,776 29,236 3,399 302 24,574 9,528 5,304 0 0 5,304 0.23 0.23 3.53 10,641 0 10,297 47,000 17,659 2,742 708 15,947 15,947 0 0 Balance specific to financial services segment Consolidated financial statement balance Includes gas plant in service, net: $1,077,495 Balance includes consolidated deferred income taxes, accounts payable and other accrued liabilities Bank specific items including general and administrative expense, goodwill amortization and loss from real estate operations Bank transferred $3.1 million of its allowance for estimated losses to a separate allowance for credit losses affiliated with debt securities Includes allowance for credit losses affiliated with real estate acquired through foreclosure
EX-99 3 FINANCIAL ANALYST REPORT - SECOND QUARTER 1995
EXHIBIT 99 SOUTHWEST GAS CORPORATION SUMMARY STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30, JUNE 30, ------------------------- ------------------------- 1995 1994 1995 1994 ---------- ---------- ---------- ---------- GAS OPERATIONS SEGMENT: Operating revenues $ 325,710 $ 315,634 $ 609,345 $ 571,170 Net cost of gas purchased 153,666 145,435 258,154 231,288 ---------- ---------- ---------- ---------- Operating margin 172,044 170,199 351,191 339,882 Operations and maintenance expenses 93,722 86,068 185,839 172,061 Depreciation, amortization, and general taxes 44,366 40,936 85,999 80,694 ---------- ---------- ---------- ---------- Operating income 33,956 43,195 79,353 87,127 Net interest deductions 26,361 23,478 52,348 45,108 ---------- ---------- ---------- ---------- Pre-tax utility income 7,595 19,717 27,005 42,019 Utility income tax expense 2,905 7,925 9,805 15,099 ---------- ---------- ---------- ---------- Net utility income 4,690 11,792 17,200 26,920 Other income (expense), net (192) (510) (176) (210) Arizona pipe replacement disallowance, net --- (283) --- (9,547) ---------- ---------- ---------- ---------- Contribution to net income - gas operations segment 4,498 10,999 17,024 17,163 ---------- ---------- ---------- ---------- FINANCIAL SERVICES SEGMENT: Net interest income after loan loss provision 25,837 25,211 52,040 50,724 Net income (loss) from real estate operations (317) 110 (1,039) (431) Other income, net 5,618 6,230 10,019 19,721 General and administrative expenses 24,257 23,692 47,934 49,744 ---------- ---------- ---------- ---------- Pre-tax income 6,881 7,859 13,086 20,270 Income tax expense 3,101 3,494 5,998 8,246 ---------- ---------- ---------- ---------- Net income before carrying cost allocation 3,780 4,365 7,088 12,024 Acquisition carrying costs, net of tax - NOTE 5 (2,974) (2,435) (5,435) (4,907) ---------- ---------- ---------- ---------- Contribution to net income - financial services segment 806 1,930 1,653 7,117 ---------- ---------- ---------- ---------- Net income 5,304 12,929 18,677 24,280 Preferred & preference dividends 190 277 423 608 ---------- ---------- ---------- ---------- Net income applicable to common stock $ 5,114 $ 12,652 $ 18,254 $ 23,672 ========== ========== ========== ========== Earnings per share $ 0.23 $ 0.60 $ 0.84 $ 1.13 ========== ========== ========== ========== Earnings per share excluding disallowances --- $ 0.61 --- $ 1.58 ========== ========== ========== ========== Average outstanding common shares 22,110 21,026 21,615 20,933 ========== ========== ========== ========== See Notes to Summary Financial Statements.
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SOUTHWEST GAS CORPORATION BALANCE SHEET AT JUNE 30, 1995 (In thousands) (Unaudited) ASSETS UTILITY PLANT Gas plant, net of accumulated depreciation $ 1,055,866 Construction work in progress 21,629 ------------ Net utility plant 1,077,495 ------------ OTHER PROPERTY AND INVESTMENTS PriMerit Bank - NOTE 2 179,385 Other 34,951 ------------ Total other property and investments 214,336 ------------ CURRENT AND ACCRUED ASSETS Cash, working funds and temporary cash investments 7,760 Receivables - less reserve of $1,236 for uncollectibles 25,873 Accrued utility revenue 18,624 Other 37,718 ------------ Total current and accrued assets 89,975 ------------ DEFERRED DEBITS Unamortized debt expense 13,849 Other deferred debits 39,323 ------------ Total deferred debits 53,172 ------------ TOTAL ASSETS $ 1,434,978 ============ CAPITALIZATION, LIABILITIES AND DEFERRED CREDITS CAPITALIZATION Common stockholders' equity Common stock equity, $1 par, 23,899 shares outstanding $ 331,808 Retained earnings 47,757 ------------ Total common stockholders' equity - NOTE 6 379,565 34.9% Preferred stock equity - NOTE 3 4,000 0.4 Long term debt - NOTE 4 704,223 64.7 ------------ ---------- Total capitalization 1,087,788 100.0% ------------ ========== CURRENT AND ACCRUED LIABILITIES Notes payable 16,000 Accounts payable 23,862 Customer deposits 21,840 Taxes accrued (including income taxes) 47,899 Deferred purchased gas costs 30,144 Other 48,719 ------------ Total current and accrued liabilities 188,464 ------------ DEFERRED CREDITS Deferred investment tax credits 20,307 Deferred income taxes 111,776 Other 26,643 ------------ Total deferred credits 158,726 ------------ TOTAL CAPITALIZATION, LIABILITIES AND DEFERRED CREDITS $ 1,434,978 ============ See Notes to Summary Financial Statements.
2 SOUTHWEST GAS CORPORATION STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1995 (In thousands) (Unaudited) CASH FLOWS FROM OPERATIONS: Net income $ 5,304 Adjustments to reconcile net income to net cash provided by operating activity: Depreciation and amortization 30,878 Change in receivables and payables 33,870 Change in accrued taxes (16,911) Undistributed earnings from subsidiaries (3,696) Change in gas cost related balancing items 50,832 Allowance for funds used during construction (692) Change in deferred taxes 1,707 Other 6,364 -------------- Net cash provided from operating activities 107,656 -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Change in notes payable (76,000) Dividends paid (9,436) Net change in long-term debt 20,653 Proceeds from stock issuance 35,680 Other (538) -------------- Net cash used in financing activities (29,641) -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Construction expenditures (74,029) Other (2,095) -------------- Net cash used in investing activities (76,124) -------------- Change in cash and temporary cash investments 1,891 Cash at beginning of period 5,869 -------------- Cash at end of period $ 7,760 ============== SUPPLEMENTAL INFORMATION: Interest paid, net of amount capitalized $ 31,019 Income taxes, net of refunds $ 17,419 See Notes to Summary Financial Statements. 3 SOUTHWEST GAS CORPORATION NOTES TO SUMMARY FINANCIAL STATEMENTS (In thousands, except par values) (Unaudited) NOTE 1 - BASIS OF PRESENTATION: The financial statements have been prepared by Southwest Gas Corporation (the Company) using the equity method of accounting for PriMerit Bank (PriMerit). Segmented information is presented within the income statement. The Financial Services segment includes the net income of PriMerit and its subsidiaries on a stand-alone basis, reduced by allocated carrying costs associated with the Company's investment in PriMerit (principally interest) net of taxes. This presentation is not in accordance with generally accepted accounting principles (GAAP), and certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted. The financial statement presentation in this report produces the same net income as the consolidated financial statements and, in management's opinion, is a fair representation of the operations and contributions to net income of the Company's two segments. NOTE 2 - INVESTMENT IN PRIMERIT BANK: The capital structure supports both the investment in PriMerit and the investment in the gas segment. Financing costs allocable to PriMerit are determined based on the investment in PriMerit under the equity method. NOTE 3 - PREFERRED STOCK:
Cumulative preferred stock, $100 par value, 9.5% series, 40 shares outstanding $ 4,000 ========== CURRENT REDEMPTION REQUIREMENTS $ 800 ========== NOTE 4 - LONG-TERM DEBT: Commercial paper facility $ 200,000 Debentures: Debentures, 9% series A, due 2011 26,900 Debentures, 9% series B, due 2011 31,213 Debentures, 8.75% series C, due 2011 18,373 Debentures, 9.375% series D, due 2017 120,000 Debentures, 10% series E, due 2013 23,069 Debentures, 9.75% series F, due 2002 100,000 Industrial revenue bonds - net of funds held in trust 194,950 Unamortized discount on long-term debt (10,282) ---------- TOTAL LONG-TERM DEBT $ 704,223 ========== CURRENT MATURITIES $ 5,000 ==========
NOTE 5 - ACQUISITION CARRYING COSTS, NET:
SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Interest expense $ (4,818) $ (3,937) $ (8,755) $ (7,873) Other intercompany expenses (139) (122) (303) (305) Income taxes 1,983 1,624 3,623 3,271 ---------- ---------- ---------- ---------- ACQUISITION CARRYING COSTS, NET $ (2,974) $ (2,435) $ (5,435) $ (4,907) ========== ========== ========== ==========
NOTE 6 - COMMON STOCKHOLDERS' EQUITY: For purposes of this report, common stockholders' equity excludes PriMerit's unrealized gain on debt securities available for sale since PriMerit is presented on the equity method of accounting. 4 SOUTHWEST GAS CORPORATION SELECTED STATISTICAL DATA JUNE 30, 1995 FINANCIAL STATISTICS Book value per share at quarter end - NOTE 6 $ 15.88 Market value to book value per share at quarter end 90% Twelve months to date return on equity -- total company 5.2% -- gas segment 5.9% Common stock dividend yield at quarter end 5.8%
GAS OPERATIONS SEGMENT Authorized Authorized Authorized Return on Rate Base Rate of Common Rate Jurisdiction (In thousands) Return Equity - ----------------------- -------------- -------------- -------------- Central Arizona $ 267,348 9.13% 10.75% Southern Arizona 157,620 9.12 11.00 Southern Nevada 184,673 8.89 11.55 Northern Nevada 47,695 9.16 11.55 Southern California 69,486 9.94 11.35 Northern California 8,357 10.02 11.35 Paiute Pipeline Company 61,057 10.09 12.50
SYSTEM THROUGHPUT BY CUSTOMER CLASS SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30, JUNE 30, --------------------------------- --------------------------------- (In dekatherms) 1995 1994 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Residential 28,889,283 29,019,180 45,836,876 44,548,144 Small commercial 13,919,969 13,752,100 23,740,156 22,844,113 Large commercial 4,570,048 5,671,288 9,204,993 10,954,100 Industrial / Other 4,092,423 3,834,650 8,599,301 7,879,319 Transportation 46,964,610 39,815,200 98,628,474 77,971,811 - ----------------------------------------------------------------------------------------------------------------------------------- Total system throughput 98,436,333 92,092,418 186,009,800 164,197,487 =================================================================================================================================== HEATING DEGREE DAY COMPARISON - ----------------------------------------------------------------------------------------------------------------------------------- Actual 1,538 1,560 2,418 2,361 Ten year average 1,598 1,636 2,350 2,392 ===================================================================================================================================
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