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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER 1-7850
SOUTHWEST GAS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $1 par value New York Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
9.125% Trust Originated Preferred Securities New York Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
Stock Purchase Rights New York Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT:
$557,303,693 at March 16, 1998
THE NUMBER OF SHARES OUTSTANDING OF COMMON STOCK:
Common Stock, $1 Par Value, 27,521,170 shares as of March 16, 1998
DOCUMENTS INCORPORATED BY REFERENCE
DESCRIPTION PART INTO WHICH INCORPORATED
----------- ----------------------------
Annual Report to Shareholders for the Year Ended December Parts I, II and IV
31, 1997 Part III
Proxy Statement dated March 31, 1998
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TABLE OF CONTENTS
PART I
PAGE
----
ITEM 1. BUSINESS....................................................
Natural Gas Operations......................................
General Description.........................................
Rates and Regulation........................................
Competition.................................................
Demand for Natural Gas......................................
Natural Gas Supply..........................................
Environmental Matters.......................................
Employees...................................................
Construction Services.......................................
ITEM 2. PROPERTIES..................................................
ITEM 3. LEGAL PROCEEDINGS...........................................
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.........................................
ITEM 6. SELECTED FINANCIAL DATA.....................................
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE....................................
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........
ITEM 11. EXECUTIVE COMPENSATION......................................
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..................................................
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.........................................................
List of Exhibits............................................
SIGNATURES............................................................
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PART I
ITEM 1. BUSINESS
The registrant, Southwest Gas Corporation (the Company), is incorporated
under the laws of the State of California effective March 1931. The executive
offices of the Company are located at 5241 Spring Mountain Road, P.O. Box 98510,
Las Vegas, Nevada, 89193-8510, telephone number (702) 876-7237.
The Company is principally engaged in the business of purchasing,
transporting, and distributing natural gas to residential, commercial, and
industrial customers in geographically diverse portions of Arizona, Nevada, and
California (Southwest or the natural gas operations segment).
In April 1996, the Company acquired all of the outstanding stock of
Northern Pipeline Construction Co. (Northern or the construction services
segment) pursuant to a definitive agreement dated November 1995. The Company
issued approximately 1,439,000 shares of common stock valued at $24 million in
connection with the acquisition. The construction services segment provides
utility companies with trenching and installation, replacement, and maintenance
services for energy distribution systems.
In July 1996, the Company completed the sale of the assets and liabilities
of PriMerit Bank, Federal Savings Bank (PriMerit), a wholly owned subsidiary, to
Norwest Corporation (Norwest) for $191 million pursuant to a definitive
agreement dated January 1996. For consolidated financial reporting purposes, the
financial services activities are disclosed as discontinued operations.
Financial information with respect to industry segments is included in Note
13 of the Notes to Consolidated Financial Statements which is included in the
1997 Annual Report to Shareholders and is incorporated herein by reference.
NATURAL GAS OPERATIONS
GENERAL DESCRIPTION
Southwest is subject to regulation by the Arizona Corporation Commission
(ACC), the Public Utilities Commission of Nevada (PUCN), and the California
Public Utilities Commission (CPUC). These commissions regulate public utility
rates, practices, facilities, and service territories in their respective
states. The CPUC also regulates the issuance of all securities by the Company,
with the exception of short-term borrowings. Certain accounting practices,
transmission facilities, and rates are subject to regulation by the Federal
Energy Regulatory Commission (FERC).
Southwest purchases, transports, and distributes natural gas to 1,151,000
residential, commercial, and industrial customers in geographically diverse
portions of Arizona, Nevada, and California. There were 59,000 customers added
to the system during 1997.
The table below lists Southwest's percentage of operating margin (operating
revenues less net cost of gas) by major customer class for the years indicated:
RESIDENTIAL AND OTHER
FOR THE YEAR ENDED SMALL COMMERCIAL SALES CUSTOMERS TRANSPORTATION
------------------ ---------------- -------------------- --------------
December 31, 1997 83% 5% 12%
December 31, 1996 80 6 14
December 31, 1995 79 7 14
Southwest is not dependent on any one or a few customers to the extent that
the loss of any one or several would have a significant adverse impact on
earnings.
Transportation of customer-secured gas to end-users on the Southwest system
accounted for 53 percent of total system throughput in 1997. Although the
volumes were significant, these customers provide a much smaller proportionate
share of operating margin. In 1997, customers who utilized this service
transported 103 million dekatherms.
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The demand for natural gas is seasonal. Variability in weather from normal
temperatures can materially impact results of operations. It is the opinion of
management that comparisons of earnings for interim periods do not reliably
reflect overall trends and changes in Southwest operations. Also, earnings for
interim periods can be significantly affected by the timing of general rate
relief.
RATES AND REGULATION
Rates that Southwest is authorized to charge its distribution system
customers are determined by the ACC, CPUC, and PUCN in general rate cases and
are derived using rate base, cost of service, and cost of capital experienced in
a historical test year, as adjusted in Arizona and Nevada, and projected for a
future test year in California. The FERC regulates the northern Nevada
transmission and liquefied natural gas (LNG) storage facilities of Paiute
Pipeline Company (Paiute), a wholly owned subsidiary, and the rates it charges
for transportation of gas directly to certain end-users and to various local
distribution companies (LDCs). The LDCs transporting on the Paiute system are:
Sierra Pacific Power Company (serving Reno and Sparks, Nevada), Washington Water
Power Company (serving South Lake Tahoe, California), and Southwest Gas
Corporation (serving North Lake Tahoe, California and various locations
throughout northern Nevada).
Rates charged to customers vary according to customer class and are set at
levels allowing for the recovery of all prudently incurred costs, including a
return on rate base sufficient to pay interest on debt, preferred securities
distributions, and a reasonable return on common equity. Rate base consists
generally of the original cost of utility plant in service, plus certain other
assets such as working capital and inventories, less accumulated depreciation on
utility plant in service, net deferred income tax liabilities, and certain other
deductions. Rate schedules in all of the Southwest service areas contain
purchased gas adjustment (PGA) clauses which allow Southwest to file for rate
adjustments as the cost of purchased gas changes. Generally, Southwest tariffs
provide for annual adjustment dates for changes in purchased gas costs. However,
Southwest may request to adjust its rates more often than once each year, if
conditions warrant. These changes have no direct impact on profit margin.
Filings to change rates in accordance with PGA clauses are subject to audit by
state regulatory commission staffs. Information with respect to recent PGA
filings is included in the Rates and Regulatory Proceedings section of
Management's Discussion and Analysis (MD&A), which is included in the 1997
Annual Report to Shareholders.
The table below lists the docketed general rate filings initiated and/or
completed within each ratemaking:
MONTH
FINAL RATES
RATEMAKING AREA TYPE OF FILING MONTH FILED EFFECTIVE
--------------- -------------- ----------- --------------
Arizona:
Central and Southern....... General rate case November 1996 September 1997
California:
Northern................... Operational attrition November 1997 January 1998
Nevada:
Northern and Southern...... General rate case December 1995 July 1996
FERC:
Paiute..................... General rate case July 1996 January 1997
- ---------------
Recent regulatory and legislative developments -- natural gas industry. In
1997, the Nevada Legislature passed, and the Governor signed into law, Assembly
Bill (AB) 366. AB 366 provides the statutory framework for restructuring both
the natural gas and electric industries in the State of Nevada to allow
competition. The legislature left most of the decision making on restructuring
to the PUCN. In addition to several organizational changes, AB 366 requires that
the PUCN create an alternative plan of regulation for natural gas utilities no
later than July 1, 1998. The alternative plan would allow the PUCN to determine
if a service is competitive, discretionary or potentially competitive and exempt
that service from normal pricing and ratemaking regulations. The PUCN has begun
the process of developing the regulations to implement the alternative plan of
regulation. Southwest, other utility companies, and many other interested
parties are participating in the rulemaking process.
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In January 1998, the CPUC opened a rulemaking proceeding designed to reform
the California natural gas industry by expanding opportunities for residential
and small commercial customers to have access to competing natural gas
suppliers. To accomplish this, the CPUC requested comments from interested
parties, such as Southwest, to assess the current market and regulatory
framework for the California natural gas industry and to develop reforms which
emphasize market-oriented policies to benefit all California natural gas
consumers. Southwest filed written comments with the CPUC in February 1998
addressing such issues as regulatory streamlining, unbundling, consumer
protection and other competitive issues. Hearings on these issues and additional
comment periods are scheduled by the CPUC throughout 1998.
In late 1996, the ACC unanimously voted to phase in electric supply
competition for investor-owned utilities starting in January 1999. Natural gas
utilities in Arizona are not directly impacted by this ruling. However, natural
gas related initiatives are expected to follow.
COMPETITION
Electric utilities are Southwest's principal competitors for the
residential and small commercial markets throughout its service areas.
Competition for space heating, general household, and small commercial energy
needs generally occurs at the initial installation phase when the
customer/builder typically makes the decision as to which type of equipment to
install and operate. The customer will generally continue to use the chosen
energy source for the life of the equipment. As a result of its success in these
markets, Southwest has experienced consistent growth among the residential and
small commercial customer classes.
Unlike residential and small commercial customers, certain large
commercial, industrial, and electric generation customers have the capability to
switch to alternative energy sources. Southwest has been successful in retaining
these customers by setting rates at levels competitive with alternative energy
sources such as electricity, fuel oils, and coal. As a result, management does
not anticipate any material adverse impact on its operating margin from fuel
switching.
Southwest continues to compete with interstate transmission pipeline
companies, such as El Paso Natural Gas Company (El Paso), Kern River Gas
Transmission Company (Kern River), and Tuscarora Gas Transmission Company, to
provide service to large end-users. End-use customers located in close proximity
to these interstate pipelines pose a potential bypass threat and, therefore,
require Southwest to closely monitor each customer situation and provide
competitive service in order to retain the customer.
Southwest has maintained an intensive effort to mitigate these competitive
threats through the use of discounted transportation contract rates, special
long-term contracts with electric generation and cogeneration customers, and new
tariff programs. One such program provides an opportunity for potential bypass
customers in Arizona and all transportation customers in Nevada to purchase
natural gas-related services as a bundled package, including the procurement of
gas supply. Southwest enters into gas supply contracts for eligible customers,
which are not included in its system supply portfolio, and provides nomination
and balancing services on behalf of the customer. This program, as well as other
competitive response initiatives and otherwise competitive rates, has helped
mitigate the financial impact from the threat of bypass and the potential loss
of margin currently earned from large customers.
DEMAND FOR NATURAL GAS
Deliveries of natural gas by Southwest are made under a priority system
established by each regulatory commission having jurisdiction over Southwest.
The priority system is intended to ensure that the gas requirements of
higher-priority customers, primarily residential customers and nonresidential
customers who use 500 therms of gas per day or less, are fully satisfied on a
daily basis before lower-priority customers, primarily electric utility and
large industrial customers able to use alternative fuels, are provided any
quantity of gas or capacity.
Demand for natural gas is greatly affected by temperature. On cold days,
use of gas by residential and commercial customers may be as much as eight times
greater than on warm days because of increased use of gas for space heating. To
fully satisfy this increased high-priority demand, gas is withdrawn from
storage, or
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peaking supplies are purchased from suppliers. If necessary, service to
interruptible lower-priority customers may be curtailed to provide the needed
delivery system capacity. Southwest maintains no backlog on its orders for gas
service.
Southwest has entered the residential cooling market by working with the
manufacturers of gas air conditioning units and the builders of new residential
units in the Arizona and southern Nevada service areas. Gas air conditioning
represents an emerging market with the long-term potential for Southwest to
smooth its currently seasonal earnings.
Natural gas vehicles (NGVs) represent another nontraditional source of
demand for natural gas. Southwest encourages the use of NGVs throughout its
service territories. As of December 31, 1997, there were 41 public- and
nonpublic-access fueling stations and approximately 5,000 NGVs in use throughout
Southwest service territories. As more public fueling stations come on-line and
stricter vehicle emission standards are adopted, the demand for NGVs should
increase.
NATURAL GAS SUPPLY
Southwest is responsible to acquire (purchase) and arrange delivery of
(transport) natural gas to its system for all sales customers. Southwest
believes that natural gas supplies and pipeline capacity for transportation will
remain plentiful and readily available.
The primary objective of Southwest with respect to gas supply is to ensure
that adequate, as well as economical, supplies of natural gas are available from
reliable sources. Gas is acquired from a wide variety of sources, including
suppliers on the spot market and those who provide firm supplies over short-term
and longer-term durations. During 1997, Southwest acquired gas supplies from
over 70 suppliers. This practice provides security against nonperformance by any
one supplier.
Balancing firm supply assurances against the associated costs dictates a
continually changing natural gas purchasing mix within the supply portfolios.
The current purchasing strategy of Southwest primarily involves
competitively-bid firm volumetric contracts with variable or index-based
pricing. This strategy allows Southwest to acquire gas at current market prices
but can result in price volatility. In managing its gas supply portfolio,
Southwest does not currently utilize derivative financial instruments, but may
do so in the future to hedge against possible price increases and help mitigate
the regulatory risk of gas cost disallowance during periods of rising prices.
Any such change would be undertaken only with regulatory commission
authorization.
Natural gas prices have historically demonstrated seasonal volatility with
higher prices in the heating season and lower prices during the summer or
off-peak consumption period. The latter part of 1996 and early 1997 witnessed
particularly steep price increases, whereas the most recent winter period
experienced more typical seasonal price volatility. See additional discussion
regarding the effect of changing natural gas prices included in the Capital
Resources and Liquidity section of MD&A, which is included in the 1997 Annual
Report to Shareholders.
Gas supplies for the Southwest southern system (Arizona, southern Nevada,
and southern California properties) are primarily obtained from producing
regions in New Mexico (San Juan basin), Texas (Permian basin), and Rocky
Mountain areas. For its northern system (northern Nevada and northern California
properties), Southwest primarily obtains gas from Rocky Mountain producing areas
and from Canada.
Southwest arranges for transportation of gas to its Arizona, Nevada, and
California service territories through the pipeline systems of El Paso, Kern
River, Northwest Pipeline Corporation, and Southern California Gas Company.
Supply and pipeline capacity availability on both short- and long-term bases are
continually monitored by Southwest to ensure the continued reliability of
service to its customers. Southwest currently receives firm transportation
service, both on a short- and long-term basis, for all of its service
territories on the four pipeline systems noted above, and has interruptible
contracts in place that allow additional capacity to be acquired as needed.
The current level of contracted firm interstate capacity is sufficient to
serve each of the service territories. As the need arises to acquire additional
capacity on one of the interstate pipeline transmission systems,
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primarily due to customer growth, Southwest considers available options to
obtain the capacity, either through the use of firm contracts with a pipeline
company or by purchasing capacity on the open market. While firm contracts
provide stability and guaranteed rights to capacity, they are generally a more
expensive alternative.
Southwest continues to evaluate natural gas storage as an option to enable
it to take advantage of seasonal price differentials in obtaining natural gas
from a variety of sources to meet the growing demand of its customers.
ENVIRONMENTAL MATTERS
Federal, state, and local laws and regulations governing the discharge of
materials into the environment have had little direct impact upon Southwest.
Environmental efforts, with respect to matters such as protection of endangered
species and archeological finds, have increased the complexity and time required
to obtain pipeline rights-of-way and construction permits. However, increased
environmental legislation and regulation are also beneficial to the natural gas
industry. Because natural gas is one of the most environmentally safe fossil
fuels currently available, its use helps energy users to comply with stricter
environmental standards.
EMPLOYEES
At December 31, 1997, the natural gas operations segment had 2,447 regular
full-time equivalent employees. Southwest believes it has a good relationship
with its employees. No employees are represented by a union.
Reference is hereby made to Item 10 in Part III of this report on Form 10-K
for information relative to the executive officers of the Company.
CONSTRUCTION SERVICES
Northern Pipeline Construction Co. (Northern or the construction services
segment) is a full-service underground piping contractor which provides utility
companies with trenching and installation, replacement, and maintenance services
for energy distribution systems. Northern contracts primarily with LDCs to
install, repair, and maintain energy distribution systems from the town border
station to the end-user meter. The primary focus of business operations is main
and service replacement as well as new business installations. Construction work
varies from relatively small projects to the piping of entire communities.
Construction activity is seasonal. Peak construction periods are the summer and
fall months in colder climate areas, such as the Midwest. In the warmer climate
areas, such as the southwestern United States, construction continues year
round.
Northern business activities are often concentrated in utility service
territories where existing gas lines are scheduled for replacement. An LDC will
typically contract with Northern to provide pipe replacement services and new
line installations. Contract terms generally specify unit price or fixed-price
arrangements. Unit price contracts establish prices for all of the various
services to be performed during the contract period. These contracts often have
annual pricing reviews. During 1997, more than 96 percent of revenue was earned
under unit price contracts. As of December 31, 1997 no significant backlog
exists with respect to outstanding construction contracts.
Competition within the industry is limited to several regional competitors
in what can be characterized as a largely fragmented industry. Northern
currently operates in approximately 15 major markets nationwide. Its customers
are the primary LDCs in those markets. Construction companies typically depend
on a few customers for their business. During 1997, Southwest accounted for 31
percent of Northern revenues. No other customers contributed more than 10
percent of revenues.
Employment fluctuates between seasonal construction periods, which are
normally heaviest in the summer and fall months. At December 31, 1997, Northern
had 862 regular full-time equivalent employees.
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Employment peaked in August 1997 when there were 1,508 employees. The majority
of the employees are represented by collective bargaining agreements which is
typical of the utility construction industry.
Operations are conducted from 17 field locations with corporate
headquarters located in Phoenix, Arizona. All buildings are leased from third
parties. The lease terms are typically two to three years. Field location
facilities consist of a small building for repairs and acreage to store
equipment.
Northern has acquired and professionally maintained state-of-the-art work
equipment required to ensure high quality performance and maximum efficiency.
Innovative technology is utilized to continuously improve productivity,
efficiency, and customer satisfaction. Northern has a strict policy for
maintaining its equipment and also adheres to a replacement program for the
majority of key equipment in order to minimize downtime and preserve resale
values.
ITEM 2. PROPERTIES
The plant investment of Southwest consists primarily of transmission and
distribution mains, compressor stations, peak shaving/storage plants, service
lines, meters, and regulators which comprise the pipeline systems and facilities
located in and around the communities served. Southwest also includes other
properties such as land, buildings, furnishings, work equipment, and vehicles in
plant investment. The northern Nevada and northern California properties of
Southwest are referred to as the northern system; the Arizona, southern Nevada,
and southern California properties are referred to as the southern system.
Several properties are leased by Southwest, including an LNG storage plant on
its northern Nevada system and a portion of the corporate headquarters office
complex located in Las Vegas, Nevada. Total gas plant, exclusive of leased
property, at December 31, 1997, was $1.9 billion, including construction work in
progress. It is the opinion of management that the properties of Southwest are
suitable and adequate for its purposes.
Substantially all gas main and service lines of Southwest are constructed
across property owned by others under right-of-way grants obtained from the
record owners thereof, on the streets and grounds of municipalities under
authority conferred by franchises or otherwise, or on public highways or public
lands under authority of various federal and state statutes. None of the
numerous county and municipal franchises are exclusive, and some are of limited
duration. These franchises are renewed regularly as they expire, and Southwest
anticipates no serious difficulties in obtaining future renewals.
With respect to the right-of-way grants, Southwest has had continuous and
uninterrupted possession and use of all such rights-of-way, and the associated
gas mains and service lines, commencing with the initial stages of the
construction of such facilities. Permits have been obtained from public
authorities in certain instances to cross, or to lay facilities along, roads and
highways. These permits typically are revocable at the election of the grantor,
and Southwest occasionally must relocate its facilities when requested to do so
by the grantor. Permits have also been obtained from railroad companies to cross
over or under railroad lands or rights-of-way, which in some instances require
annual or other periodic payments and are revocable at the grantors' elections.
Southwest operates two primary pipeline transmission systems: (i) a system
owned by Paiute, a wholly owned subsidiary, extending from the Idaho-Nevada
border to the Reno, Sparks, and Carson City areas and communities in the Lake
Tahoe area in both California and Nevada and other communities in northern and
western Nevada; and (ii) a system extending from the Colorado River at the
southern tip of Nevada to the Las Vegas distribution area.
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The map below shows the locations of Southwest's major facilities and major
transmission lines, and principal communities to which Southwest supplies gas
either as a wholesaler or distributor. The map also shows major supplier
transmission lines that are interconnected with Southwest's systems.
[MAP]
[DESCRIPTION: Map of Arizona, Nevada, and California indicating the
location of Southwest service areas. Service areas in Arizona include most of
the central and southern areas of the state including Phoenix, Tucson, Yuma, and
surrounding communities. Service areas in northern Nevada include Carson City,
Yerington, Fallon, Lovelock, Winnemucca, and Elko. Service areas in southern
Nevada include the Las Vegas valley (including Henderson and Boulder City) and
Laughlin. Service areas in southern California include Barstow, Big Bear,
Needles, and Victorville. Service areas in northern California include the north
shore of Lake Tahoe and portions of Truckee. Companies providing gas
transportation services for the Company are indicated by showing the location of
their pipelines. Major transporters include El Paso Natural Gas Company, Kern
River Gas Transmission Company, Northwest Pipeline Corporation, and Southern
California Gas Company. The location of the Paiute Pipeline Company transmission
corporation, and Southern California Gas Company. The location of the Paiute
Pipeline Company transmission pipeline (extending from the Idaho/Nevada border
to the Reno/Tahoe area) and Southwest's pipeline (extending from
Laughlin/Bullhead City to the Las Vegas valley) are indicated. The LNG facility
is located near Lovelock, Nevada.]
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The information appearing in Part I, Item 1, page 5 with respect to the
construction services segment is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
The Company has been named as defendant in various legal proceedings. The
ultimate dispositions of these proceedings are not presently determinable;
however, it is the opinion of management that no litigation to which the Company
is subject will have a material adverse impact on its financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal markets on which the common stock of the Company is traded
are the New York Stock Exchange and the Pacific Stock Exchange. At March 16,
1998, there were 25,723 holders of record of common stock, and the market price
of the common stock was $20.25. The quarterly market price of and dividends on
Company common stock required by this item are included in the 1997 Annual
Report to Shareholders and are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is included in the 1997 Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this item is included in the 1997 Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Southwest Gas Corporation and
Notes thereto, together with the report of Arthur Andersen LLP, Independent
Public Accountants, are included in the 1997 Annual Report to Shareholders and
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors. Information with respect to Directors is
set forth under the heading "Election of Directors" in the definitive Proxy
Statement dated March 31, 1998 which by this reference is incorporated herein.
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(b) Identification of Executive Officers. The name, age, position and
period position held during the last five years for each of the Executive
Officers of the Company are as follows:
PERIOD POSITION
NAME AGE POSITION HELD
---- --- -------- ---------------
Michael O. Maffie 50 President and Chief Executive Officer 1993-Present
George C. Biehl 50 Senior Vice President/Chief Financial Officer and 1996-Present
Corporate Secretary
Senior Vice President and Chief Financial Officer 1993-1996
James P. Kane 51 Senior Vice President/Operations 1997-Present
Vice President/Southern Arizona Division 1993-1997
James F. Lowman 51 Senior Vice President/Central Arizona Division 1993-Present
Dudley J. Sondeno 45 Senior Vice President/Chief Knowledge and 1993-Present
Technology Officer
Edward S. Zub 49 Senior Vice President/Regulation and Product 1996-Present
Pricing
Vice President/Rates & Regulation 1993-1996
(c) Identification of Certain Significant Employees. None.
(d) Family Relationships. None of the Directors or Executive Officers are
related to any other either by blood, marriage or adoption.
(e) Business Experience. Information with respect to Directors is set forth
under the heading "Election of Directors" in the definitive Proxy Statement
dated March 31, 1998, which by this reference is incorporated herein. All
Executive Officers have held responsible positions with the Company for at least
five years as described in (b) above.
(f) Involvement in Certain Legal Proceedings. None.
(g) Promoters and Control Persons. None.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of
the Securities Exchange Act of 1934 requires officers and directors, and persons
who own more than ten percent of a registered class of equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission (SEC) and the New York Stock Exchange. Officers, directors,
and beneficial owners of more than ten percent of any class of equity securities
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
The Company has adopted procedures to assist its directors and executive
officers in complying with Section 16(a) of the Securities and Exchange Act of
1934, as amended, which includes assisting in the preparation of forms for
filing. For 1997, all the required reports were filed timely. However, the Form
5 for Edward S. Zub identifies 105 shares of common stock held by his spouse
that were omitted from his Form 3 filing in September 1996.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is set forth under the
heading "Executive Compensation and Benefits" in the definitive Proxy Statement
dated March 31, 1998, which by this reference is incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners. Information with
respect to security ownership of certain beneficial owners is set forth under
the heading "Securities Ownership by Nominees and Executive Officers" in the
definitive Proxy Statement dated March 31, 1998, which by this reference is
incorporated herein.
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(b) Security Ownership of Management. Information with respect to security
ownership of management is set forth under the heading "Securities Ownership by
Nominees and Executive Officers" in the definitive Proxy Statement dated March
31, 1998, which by this reference is incorporated herein.
(c) Changes in Control. None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions
is set forth under the heading "Certain Relationships and Related Transactions"
in the definitive Proxy Statement dated March 31, 1998, which by this reference
is incorporated herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report on Form 10-K:
(1) The Consolidated Financial Statements of the Company (including the
Report of Independent Public Accountants)
Report of Independent Public Accountants.................... 33
Consolidated Balance Sheets................................. 34
Consolidated Statements of Income........................... 35
Consolidated Statements of Cash Flows....................... 36
Consolidated Statements of Stockholders' Equity............. 37
Notes to Consolidated Financial Statements.................. 38
(2) All schedules have been omitted because the required information is
either inapplicable or included in the Notes to Consolidated
Financial Statements.
(3) See List of exhibits.
(b) Reports on Form 8-K.
The Company filed a Form 8-K, dated February 10, 1998, reporting summary
financial information for the year ended December 31, 1997.
(c) See List of exhibits.
10
13
LIST OF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
2.01(20) Agreement between Southwest Gas Corporation, The Southwest
Companies and PriMerit Bank, Federal Savings Bank, as
sellers and Norwest Corporation as buyer, dated April 10,
1996, regarding sale of assets and liabilities of PriMerit
Bank.
3(i)(26) Restated Articles of Incorporation, as amended.
3(ii) Amended Bylaws of Southwest Gas Corporation.
4.01(1) Indenture between the Company and Bank of America National
Trust and Savings Association, as successor by merger to
Security Pacific National Bank, as Trustee, dated August 1,
1986, with respect to 9% Series A and Series B and 8 3/4%
Series C Debentures.
4.02(6) First Supplemental Indenture of the Company to Bank of
America National Trust and Savings Association, as successor
by merger to Security Pacific National Bank, as Trustee,
dated as of October 1, 1986, supplementing and amending the
Indenture dated as of August 1, 1986, with respect to 9%
Debentures, Series A, due 2011.
4.03(6) Second Supplemental Indenture of the Company to Bank of
America National Trust and Savings Association, as successor
by merger to Security Pacific National Bank, as Trustee,
dated as of November 1, 1986, supplementing and amending the
Indenture dated as of August 1, 1986, with respect to 9%
Debentures, Series B, due 2011.
4.04(7) Third Supplemental Indenture of the Company to Bank of
America National Trust and Savings Association, as successor
by merger to Security Pacific National Bank, as Trustee,
dated as of December 1, 1986, supplementing and amending the
Indenture dated as of August 1, 1986, with respect to 8 3/4%
Debentures, Series C, due 2011.
4.05(7) Fourth Supplemental Indenture of the Company to Bank of
America National Trust and Savings Association, as successor
by merger to Security Pacific National Bank, as Trustee,
dated as of February 1, 1987, supplementing and amending the
Indenture dated as of August 1, 1986, with respect to 10%
Debentures, Series D, due 2017.
4.06(8) Fifth Supplemental Indenture of the Company to Bank of
America National Trust and Savings Association, as successor
by merger to Security Pacific National Bank, as Trustee,
dated as of August 1, 1988, supplementing and amending the
Indenture dated as of August 1, 1986, with respect to 10%
Debentures, Series E, due 2013.
4.07(9) Sixth Supplemental Indenture of the Company to Bank of
America National Trust and Savings Association, as successor
by merger to Security Pacific National Bank, as Trustee,
dated as of June 16, 1992, supplementing and amending the
Indenture dated as of August 1, 1986, with respect to 9 3/4%
Debentures, Series F, due 2002.
4.08(10) Indenture between Clark County, Nevada, and Bank of America
Nevada as Trustee, dated September 1, 1992, with respect to
the issuance of $130,000,000 Industrial Development Revenue
Bonds (Southwest Gas Corporation), $30,000,000 1992 Series
A, due 2027, and $100,000,000 1992 Series B, due 2032.
4.09(11) Indenture between Clark County, Nevada, and Harris Trust and
Savings Bank as Trustee, dated December 1, 1993, with
respect to the issuance of $75,000,000 Industrial
Development Revenue Bonds (Southwest Gas Corporation), 1993
Series A, due 2033.
4.10(11) Indenture between City of Big Bear Lake, California, and
Harris Trust and Savings Bank as Trustee, dated December 1,
1993, with respect to the issuance of $50,000,000 Industrial
Development Revenue Bonds (Southwest Gas Corporation
Project), 1993 Series A, due 2028.
4.11(21) Indenture between the Company and Harris Trust and Savings
Bank dated July 15, 1996, with respect to Debt Securities.
11
14
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
4.12(22) First Supplement Indenture of the Company to Harris Trust
and Savings Bank dated August 1, 1996, supplementing and
amending the Indenture dated as of July 15, 1996, with
respect to 7 1/2% and 8% Debentures, due 2006 and 2026,
respectively.
4.13(24) Second Supplemental Indenture of the Company to Harris Trust
and Savings Bank dated December 30, 1996, supplementing and
amending the Indenture dated as of July 15, 1996, with
respect to Medium-Term Notes.
4.14(3) Certificate of Trust of Southwest Gas Capital I.
4.15(15) Amended and Restated Declaration of Trust of Southwest Gas
Capital I.
4.16(15) Form of Preferred Security (attached as Annex I to Exhibit A
to the Amended and Restated Declaration of Trust of
Southwest Gas Capital I included as Exhibit 4.15 hereto).
4.17(4) Form of Guarantee with respect to Preferred Securities.
4.18(14) Southwest Gas Capital I Preferred Securities Guarantee by
the Company and Harris Trust and Savings Bank, dated as of
October 31, 1995.
4.19(14) Form of Subordinated Debt Security (included in the First
Supplemental Indenture included as Exhibit 4.20 hereto).
4.20(14) Subordinated Debt Securities Indenture between the Company
and Harris Trust and Savings Bank, dated as of October 31,
1995.
4.21(14) First Supplemental Indenture between the Company and Harris
Trust and Savings Bank, dated as of October 31, 1995,
supplementing and amending the Indenture dated as of October
31, 1995, with respect to the 9.125% Subordinated Debt
Securities.
4.22(2) Form of Deposit Agreement.
4.23(2) Form of Depositary Receipt (attached as Exhibit A to Deposit
Agreement included as Exhibit 4.22 hereto).
4.24(17) Rights Agreement between the Company and Harris Trust
Company, as Rights Agent, dated as of March 5, 1996.
4.25 The Company hereby agrees to furnish to the SEC, upon
request, a copy of any instruments defining the rights of
holders of long-term debt issued by Southwest Gas
Corporation or its subsidiaries.
9.01 Not applicable.
10.01(5) Participation Agreement among the Company and General
Electric Credit Corporation, Prudential Insurance Company of
America, Aetna Life Insurance Company, Merrill Lynch
Interfunding, Bank of America through purchase of Valley
Bank of Nevada, Bankers Trust Company and First Interstate
Bank of Nevada, dated as of July 1, 1982.
10.02(23) Amended and Restated Lease Agreement between the Company and
Spring Mountain Road Associates, dated as of July 1, 1996.
10.03(11) Financing Agreement between the Company and Clark County,
Nevada, dated September 1, 1992.
10.04(11) Financing Agreement between the Company and Clark County,
Nevada, dated as of December 1, 1993.
10.05(11) Project Agreement between the Company and City of Big Bear
Lake, California, dated as of December 1, 1993.
10.06(12) Southwest Gas Corporation Executive Deferral Plan, amended
and restated May 10, 1994.
10.07(19) Southwest Gas Corporation Directors Deferral Plan, together
with first amendment dated March 5, 1996.
12
15
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
10.08(11) Southwest Gas Corporation Board of Directors Retirement
Plan, amended and restated effective October 1, 1993.
10.09 Southwest Gas Corporation Management Incentive Plan, amended
and restated January 1, 1995.
10.10(12) Southwest Gas Corporation Supplemental Retirement Plan,
amended and restated as of May 10, 1994.
10.11(25) Form of Employment Agreement with Company officers.
10.12(13) $200 million Credit Agreement between the Company, Union
Bank of Switzerland, et al., dated as of January 27, 1995.
10.13(16) Merger Agreement among the Company and Northern Pipeline
Construction Co., dated as of November 13, 1995.
10.14(18) Southwest Gas Corporation 1996 Stock Incentive Plan.
10.15(27) $350 million Revolving Credit Agreement among the Company,
Union Bank of Switzerland, et al., dated as of June 12,
1997.
11.01 Not applicable.
12.01 Computation of Ratios of Earnings to Fixed Charges and
Ratios of Earnings to Combined Fixed Charges and Preferred
Stock Dividends of the Company.
13.01 Portions of 1997 Annual Report incorporated by reference to
the Form 10-K.
16.01 Not applicable.
18.01 Not applicable.
21.01 List of subsidiaries of Southwest Gas Corporation.
22.01 Not applicable.
23.01 Consent of Arthur Andersen LLP, Independent Public
Accountants.
24.01 Not applicable.
27.01 Financial Data Schedule (filed electronically only).
28.01 Not applicable.
- ---------------
(1) Incorporated herein by reference to the Registration Statement on Form S-3,
No. 33-7931.
(2) Incorporated herein by reference to the Registration Statement on Form S-3,
No. 33-55621.
(3) Incorporated herein by reference to the Registration Statement on Form S-3,
No. 33-62143.
(4) Incorporated herein by reference to the Amendment No. 1 to Registration
Statement on Form S-3, No. 33-62143.
(5) Incorporated herein by reference to the report on Form 10-K for the year
ended December 31, 1982.
(6) Incorporated herein by reference to the report on Form 10-K for the year
ended December 31, 1986.
(7) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended March 31, 1987.
(8) Incorporated herein by reference to the report on Form 8-K dated August 23,
1988.
(9) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended June 30, 1992.
(10) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended September 30, 1992.
(11) Incorporated herein by reference to the Company's report on Form 10-K for
the year ended December 31, 1993.
(12) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended June 30, 1994.
(13) Incorporated herein by reference to the report on Form 10-K for the year
ended December 31, 1994.
(14) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended September 30, 1995.
13
16
(15) Incorporated herein by reference to the report on Form 8-K dated October
26, 1995.
(16) Incorporated herein by reference to the report on Form 10-K for the year
ended December 31, 1995.
(17) Incorporated herein by reference to the report on Form 8-K dated March 5,
1996.
(18) Incorporated herein by reference to the Proxy Statement dated May 30, 1996.
(19) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended June 30, 1996.
(20) Incorporated herein by reference to the report on Form 8-K dated July 19,
1996.
(21) Incorporated herein by reference to the report on Form 8-K dated July 26,
1996.
(22) Incorporated herein by reference to the report on Form 8-K dated July 31,
1996.
(23) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended September 30, 1996.
(24) Incorporated herein by reference to the report on Form 8-K dated December
30, 1996.
(25) Incorporated herein by reference to the report on Form 10-K for the year
ended December 31, 1996.
(26) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended March 31, 1997.
(27) Incorporated herein by reference to the report on Form 10-Q for the quarter
ended June 30, 1997.
14
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SOUTHWEST GAS CORPORATION
Date: March 25, 1998 By /s/ MICHAEL O. MAFFIE
------------------------------------
Michael O. Maffie,
President and Chief Executive
Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GEORGE C. BIEHL Senior Vice President, March 25, 1998
- ----------------------------------------------------- Chief Financial Officer and
(George C. Biehl) Corporate Secretary
/s/ EDWARD A. JANOV Vice President, Controller and March 25, 1998
- ----------------------------------------------------- Chief Accounting Officer
(Edward A. Janov)
15
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Director
- -----------------------------------------------------
(Ralph C. Batastini)
/s/ GEORGE C. BIEHL Director, Senior Vice March 25, 1998
- ----------------------------------------------------- President, Chief Financial
(George C. Biehl) Officer and Corporate
Secretary
/s/ MANUEL J. CORTEZ Director March 25, 1998
- -----------------------------------------------------
(Manuel J. Cortez)
/s/ LLOYD T. DYER Director March 25, 1998
- -----------------------------------------------------
(Lloyd T. Dyer)
/s/ THOMAS Y. HARTLEY Chairman of the Board of March 25, 1998
- ----------------------------------------------------- Directors
(Thomas Y. Hartley)
/s/ MICHAEL B. JAGER Director March 25, 1998
- -----------------------------------------------------
(Michael B. Jager)
/s/ LEONARD R. JUDD Director March 25, 1998
- -----------------------------------------------------
(Leonard R. Judd)
/s/ JAMES J. KROPID Director March 25, 1998
- -----------------------------------------------------
(James J. Kropid)
/s/ JAMES R. LINCICOME Director March 25, 1998
- -----------------------------------------------------
(James R. Lincicome)
/s/ MICHAEL O. MAFFIE Director, President and Chief March 25, 1998
- ----------------------------------------------------- Executive Officer
(Michael O. Maffie)
/s/ CAROLYN M. SPARKS Director March 25, 1998
- -----------------------------------------------------
(Carolyn M. Sparks)
/s/ ROBERT S. SUNDT Director March 25, 1998
- -----------------------------------------------------
(Robert S. Sundt)
/s/ TERRANCE L. WRIGHT Director March 25, 1998
- -----------------------------------------------------
(Terrance L. Wright)
16
19
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
3(ii) Amended Bylaws of Southwest Gas Corporation
10.09 Southwest Gas Corporation Management Incentive Plan, amended
and restated January 1, 1995
12.01 Computation of Ratios of Earnings to Fixed Charges and
Ratios of Earnings to Combined Fixed Charges and Preferred
Stock Dividends of the Company
13.01 Portions of 1997 Annual Report incorporated by reference to
Form 10-K
21.01 List of Subsidiaries of Southwest Gas Corporation
23.01 Consent of Arthur Andersen LLP, Independent Public
Accountants
27.01 Financial Data Schedule (filed electronically only)