EX-99 2 exhibit99.htm THIRD QUARTER 2016 EARNINGS RELEASE

November 7, 2016
Media Contact:  Sonya Headen, Las Vegas, NV (702) 364-3411
Shareholder Contact:  Ken Kenny, Las Vegas, NV (702) 876-7237
For Immediate Release


SOUTHWEST GAS CORPORATION
ANNOUNCES THIRD QUARTER 2016 EARNINGS

Las Vegas, Nev. – Southwest Gas Corporation (NYSE: SWX) reported consolidated earnings of $0.05 per basic share for the third quarter of 2016, a $0.15 improvement from the consolidated loss of $0.10 per share for the third quarter of 2015.  Consolidated net income was $2.5 million for the third quarter of 2016, compared to a consolidated net loss of $4.7 million for the third quarter of 2015.  The current quarter includes $2.3 million, or $0.05 per share, in other income associated with increases in the cash surrender values of company-owned life insurance (“COLI”) policies and recognized net death benefits.  The prior-year quarter included a decline in COLI cash surrender values of $3.9 million, or $0.08 per share.  The natural gas segment experienced a net loss of $12.4 million in the third quarter of 2016 compared to a net loss of $18.9 million in the third quarter of 2015, while the construction services segment had net income of $14.9 million in the current quarter compared to net income of $14.2 million in the third quarter of 2015.  Due to the seasonal nature of the Company’s businesses, results for quarterly periods are not generally indicative of earnings for a complete twelve-month period.

According to John P. Hester, President and Chief Executive Officer, “We are pleased to report earnings per share of $0.05 for the third quarter of 2016, a $0.15 improvement over the prior-year quarter.  In our natural gas segment, seasonal conditions generally lead to net losses during the third quarter of each year; however, a $6.5 million improvement over
 
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the prior year was experienced due primarily to positive returns on COLI policies, compared to negative returns in the prior-year quarter.”  Hester added, “Construction services results improved slightly between quarters as Centuri recognized record quarterly revenues and profits.”  Hester concluded, “As we indicated in our 2015 Annual Shareholder Report, our aim for 2016 is to continue earning the trust of our investors by building on our track record of growth at both our utility and construction services business segments.  We are confident that execution on our business strategies will continue to create value for our shareholders.”

For the twelve months ended September 30, 2016, consolidated net income was $153 million, or $3.22 per basic share, compared to $130.9 million, or $2.80 per basic share, for the twelve-month period ended September 30, 2015.  The current twelve-month period includes a COLI-related increase of $7.5 million, or $0.16 per share, while the prior-year period includes a COLI-related decrease of $200,000.  Natural gas segment income increased by $6.6 million between periods and construction services segment income improved by $15.5 million between periods.

Natural Gas Operations Segment Results
Third Quarter
Operating margin, defined as operating revenues less the cost of gas sold, increased $6 million between quarters.  Combined rate relief in the California jurisdiction and Paiute Pipeline Company provided $2 million in operating margin.  New customers contributed $1 million of the operating margin increase in the third quarter of 2016, as approximately
 
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29,000 net new customers were added during the last twelve months.  Operating margin attributable to the Nevada conservation and energy efficiency (“Nevada CEE”) surcharge, which was implemented in January 2016, was $2 million.  Operating margin associated with infrastructure replacement mechanisms, customers outside the decoupling mechanisms, and other miscellaneous revenues collectively increased $1 million.

Operations and maintenance expenses increased $2.3 million, or 2%, between quarters due primarily to general cost increases.  On a combined basis, depreciation and general taxes increased $4.6 million, or 7%, between quarters primarily due to a 6% increase in average gas plant in service.

Other income and deductions improved $6 million between quarters primarily due to the changes in cash surrender values of COLI policies and associated net death benefits recognized.

Twelve Months to Date

Operating margin increased $28 million between periods including $8 million attributable to customer growth and a combined $8 million of rate relief in the California jurisdiction and Paiute Pipeline Company.  Operating margin attributable to the Nevada CEE surcharge implemented in January 2016 was $8 million (a corresponding increase is reflected in amortization expense).  Operating margin associated with infrastructure replacement mechanisms, customers outside the decoupling mechanisms, and other miscellaneous revenues collectively improved $4 million.
 
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Operations and maintenance expenses increased $15 million, or 4%, between periods primarily due to general cost increases and a $4 million increase in expenses associated with pipeline integrity management and damage prevention programs.  Depreciation expense and general taxes (combined) increased $19.5 million, or 7%, primarily due to a 6% increase in average gas plant in service and a $6 million increase in amortization related to the recovery of regulatory assets.

Other income and deductions improved $8 million between periods primarily due to the changes in cash surrender values of COLI policies and associated net death benefits recognized.
Construction Services Segment Results
Third Quarter
Revenues increased $54 million between quarters, primarily due to additional pipe replacement work with existing customers, incremental work from awarded bid contracts, and work with new customers.  Construction expenses increased $54 million between quarters primarily due to the additional pipe replacement and bid contract work and higher labor costs experienced due to changes in the mix of work with existing customers.  Contained within construction expenses were higher general and administrative costs to support the growth in operations, including approximately $1 million of incremental costs related to management realignment activities.

Depreciation and amortization expense declined $395,000 between quarters primarily due to a $2 million reduction in depreciation associated with a change in the estimated
 
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useful lives of certain depreciable equipment, substantially offset by depreciation on new equipment purchased to support the growing volume of work.  Net interest deductions decreased $348,000 between quarters primarily due to lower interest rates on outstanding borrowings during the current quarter.

Twelve Months to Date

Both comparative periods were impacted by a previous Canadian industrial construction project (the prior-year period includes a $7.7 million pretax loss reserve, while the current period includes an approximate $4 million pretax favorable settlement).  Revenues overall increased $179 million between periods primarily due to additional pipe replacement work.  Favorable weather conditions generally in the mid-western and north-eastern parts of the United States and in Canada from late 2015 into early 2016 provided an extended construction season.  Construction expenses increased $159 million between periods due to additional pipe replacement work during the twelve months ended September 30, 2016.

Depreciation and amortization expense increased $2.4 million between periods primarily due to depreciation of equipment purchased to support additional work.  Net interest deductions decreased $2.2 million between periods due to lower interest rates and lower average outstanding borrowings.
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Outlook for 2016 – 3rd Quarter 2016 Update

Natural Gas Segment:
·
Operating margin for 2016 is anticipated to benefit from customer growth (similar to 2015), infrastructure tracker mechanisms, expansion projects, and California attrition.  Combined, these items are expected to produce approximately 3% in incremental margin.  Additionally, new rates established to recover Nevada CEE program costs are expected to increase margin by approximately $11 million, but will be offset by a similar increase in amortization expense.
·
Operations and maintenance expense is expected to increase modestly as compared to 2015 due to increased general costs, pipeline integrity management and damage prevention programs, and costs associated with customer growth.  These increases will be mitigated by a decrease in pension costs.  Depreciation and general taxes should increase consistent with the growth in gas plant in service (approximately 5% to 6%) plus the amortization of Nevada CEE program costs noted above.
·
Operating income is expected to increase by 2% to 3% between years.
·
Net interest deductions for 2016 are expected to be approximately $2 million to $3 million higher than 2015, including the impact of $300 million of senior notes issued in September 2016.
·
Changes in cash surrender values of COLI policies will continue to be subject to volatility.  Management generally anticipates longer term normal increases in COLI cash surrender values to range from $3 million to $5 million on an annual basis.
 
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·
Capital expenditures in 2016 are estimated at $470 million, in support of customer growth, system improvements, and accelerated pipe replacement programs.

Construction Services Segment:
·
Centuri revenues for 2016 are anticipated to approximate $1.1 billion.
·
Operating income is expected to be approximately 5% of revenues.
·
Based on the current interest rate environment, net interest deductions for 2016 are expected to be between $6.5 million and $7.5 million.
·
These collective expectations are before consideration of the portion of earnings attributable to the noncontrolling interests.  Additionally, changes in foreign exchange rates could influence results.

Southwest Gas Corporation provides natural gas service to 1,967,000 customers in Arizona, Nevada, and California.

This press release may contain statements which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (Reform Act).  All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act.  A number of important factors affecting the business and financial results of the Company could cause actual results to differ materially from those stated in the forward-looking statements.  These factors include, but are not limited to, the timing and amount of rate relief, changes in rate design, customer growth rates, the effects of regulation/deregulation, the impacts of construction activity at Centuri, future earnings trends, seasonal patterns, and the impacts of stock market volatility.  In addition, the Company can provide no assurance that its discussions about future operating margin, operations and maintenance expenses, operating income, depreciation and general taxes, COLI cash surrender values, financing expenses, and capital expenditures of the natural gas segment will occur.  Likewise, the Company can provide no assurance that discussions regarding construction services segment revenues, operating income, and net interest deductions will transpire. The statements in this press release are made as of the date of this press release, even if subsequently made available by the Company on its Web site or otherwise.  The Company does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.
 
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SOUTHWEST GAS CONSOLIDATED EARNINGS DIGEST
(In thousands, except per share amounts)
 
QUARTER ENDED SEPTEMBER 30,
  
2016
    
2015
  
             
Consolidated Operating Revenues
  
$
539,969
    
$
505,396
  
                 
Net Income (Loss)
  
$
2,472
    
$
(4,734
)
                 
Average Number of Common Shares Outstanding
    
47,481
      
47,102
  
                 
Earnings (Loss) Per Share
  
$
0.05
    
$
(0.10
)
                 
Diluted Earnings (Loss) Per Share
  
$
0.05
    
$
(0.10
)
                 
NINE MONTHS ENDED SEPTEMBER 30,
    2016      2015  
                 
Consolidated Operating Revenues
  
$
1,818,965
    
$
1,778,220
  
                 
Net Income
  
$
86,861
    
$
72,198
  
                 
Average Number of Common Shares Outstanding
    
47,464
      
46,863
  
                 
Basic Earnings Per Share
  
$
1.83
    
$
1.54
  
                 
Diluted Earnings Per Share
  
$
1.82
    
$
1.53
  
                 
TWELVE MONTHS ENDED SEPTEMBER 30,
   2016      2015  
                 
Consolidated Operating Revenues
  
$
2,504,370
    
$
2,405,903
  
                 
Net Income
  
$
152,980
    
$
130,944
  
                 
Average Number of Common Shares Outstanding
    
47,442
      
46,777
  
                 
Basic Earnings Per Share
  
$
3.22
    
$
2.80
  
                 
Diluted Earnings Per Share
  
$
3.20
    
$
2.77
  

-end-
 
SOUTHWEST GAS CORPORATION
  
SUMMARY UNAUDITED OPERATING RESULTS
  
(In thousands, except per share amounts)
  
                                     
                                     
                                     
   
THREE MONTHS ENDED
    
NINE MONTHS ENDED
    
TWELVE MONTHS ENDED
  
   
SEPTEMBER 30,
    
SEPTEMBER 30,
    
SEPTEMBER 30,
  
   
2016
    
2015
    
2016
    
2015
    
2016
    
2015
  
                                     
Results of Consolidated Operations
                                    
    Contribution to net income (loss) - gas operations
  
$
(12,405
)
  
$
(18,939
)
  
$
67,536
    
$
59,325
    
$
119,836
    
$
113,252
  
    Contribution to net income - construction services
    
14,877
      
14,205
      
19,325
      
12,873
      
33,144
      
17,692
  
    Net income (loss)
  
$
2,472
    
$
(4,734
)
  
$
86,861
    
$
72,198
    
$
152,980
    
$
130,944
  
                                                 
    Basic earnings (loss) per share
  
$
0.05
    
$
(0.10
)
  
$
1.83
    
$
1.54
    
$
3.22
    
$
2.80
  
    Diluted earnings (loss) per share
  
$
0.05
    
$
(0.10
)
  
$
1.82
    
$
1.53
    
$
3.20
    
$
2.77
  
                                                 
    Average outstanding common shares
    
47,481
      
47,102
      
47,464
      
46,863
      
47,442
      
46,777
  
    Average shares outstanding (assuming dilution)
    
47,830
      
-
      
47,802
      
47,261
      
47,787
      
47,194
  
                                                 
                                                 
                                                 
                                                 
Results of Natural Gas Operations
                                                
    Gas operating revenues
  
$
200,179
    
$
219,420
    
$
980,927
    
$
1,059,178
    
$
1,376,388
    
$
1,457,266
  
    Net cost of gas sold
    
39,056
      
64,268
      
324,072
      
427,045
      
460,836
      
570,052
  
    Operating margin
    
161,123
      
155,152
      
656,855
      
632,133
      
915,552
      
887,214
  
    Operations and maintenance expense
    
102,438
      
100,102
      
301,979
      
294,956
      
400,222
      
385,271
  
    Depreciation and amortization
    
56,436
      
52,672
      
174,413
      
159,259
      
228,609
      
210,863
  
    Taxes other than income taxes
    
12,480
      
11,652
      
39,480
      
37,063
      
51,810
      
50,059
  
    Operating income (loss)
    
(10,231
)
    
(9,274
)
    
140,983
      
140,855
      
234,911
      
241,021
  
    Other income (deductions)
    
2,521
      
(3,525
)
    
6,712
      
(611
)
    
9,615
      
1,652
  
    Net interest deductions
    
16,364
      
16,259
      
49,155
      
48,104
      
65,146
      
64,958
  
    Income (loss) before income taxes
    
(24,074
)
    
(29,058
)
    
98,540
      
92,140
      
179,380
      
177,715
  
    Income tax expense (benefit)
    
(11,669
)
    
(10,119
)
    
31,004
      
32,815
      
59,544
      
64,463
  
    Contribution to net income (loss) - gas operations
  
$
(12,405
)
  
$
(18,939
)
  
$
67,536
    
$
59,325
    
$
119,836
    
$
113,252
  
 
 
SOUTHWEST GAS CORPORATION
SELECTED STATISTICAL DATA
SEPTEMBER 30, 2016
                 
                 
FINANCIAL STATISTICS
              
Market value to book value per share at quarter end
204%
            
Twelve months to date return on equity  -- total company
9.5%
            
                                                                 -- gas segment
7.8%
            
Common stock dividend yield at quarter end
2.6%
            
Customer to employee ratio at quarter end (gas segment)
881 to 1
            
                 
GAS OPERATIONS SEGMENT
              
           
Authorized
  
   
Authorized
  
Authorized
Return on
  
   
Rate Base
  
Rate of
Common
  
Rate Jurisdiction
(In thousands)
Return
Equity
  
Arizona
  
$     1,070,117
  
8.95
%
9.50
%
Southern Nevada
          825,190
  
6.46
  
10.00
    
Northern Nevada
          115,933
  
7.88
  
9.30
    
Southern California
          159,277
  
6.83
  
10.10
    
Northern California
            67,620
  
8.18
  
10.10
    
South Lake Tahoe
            25,389
  
8.18
  
10.10
    
Paiute Pipeline Company (1)
            87,158
  
8.46
  
11.00
    
                 
  (1)  Estimated amounts based on rate case settlement.
            
                 
SYSTEM THROUGHPUT BY CUSTOMER CLASS
            
   
NINE MONTHS ENDED
  
TWELVE MONTHS ENDED
   
SEPTEMBER 30,
  
SEPTEMBER 30,
(In dekatherms)
2016
  
2015
  
2016
  
2015
Residential
  
52,661,072
  
46,237,388
  
71,965,751
  
61,004,177
Small commercial
22,185,455
  
20,672,217
  
30,025,021
  
27,599,071
Large commercial
6,936,299
  
6,941,922
  
9,222,795
  
9,169,290
Industrial / Other
2,227,187
  
2,311,208
  
3,013,246
  
3,262,841
Transportation
75,088,713
  
75,365,415
  
103,294,038
  
98,166,327
Total system throughput
159,098,726
  
151,528,150
  
217,520,851
  
199,201,706
                 
                 
HEATING DEGREE DAY COMPARISON
              
Actual
  
1,177
  
924
  
1,763
  
1,335
Ten-year average
1,275
  
1,288
  
1,779
  
1,776
                 
                 
Heating degree days for prior periods have been recalculated using the current period customer mix.