UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form10-Q
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20172018
Commission File Number | Exact name of registrant as specified in its charter and principal office address and telephone number | State of Incorporation | I.R.S. Employer Identification No. | |||||||
001-37976 | Southwest Gas Holdings, Inc. | California | 81-3881866 | |||||||
5241 Spring Mountain Road | ||||||||||
Post Office Box 98510 | ||||||||||
Las Vegas, Nevada 89193-8510 | ||||||||||
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(702)876-7237 | ||||||||||
1-7850 | Southwest Gas Corporation | California | 88-0085720 | |||||||
5241 Spring Mountain Road | ||||||||||
Post Office Box 98510 | ||||||||||
Las Vegas, Nevada 89193-8510 | ||||||||||
(702)876-7237 |
Indicate by check mark whether each 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 ☒ No ☐
Indicate by check mark whether each registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated“non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.
Southwest Gas Holdings, Inc.:
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Southwest Gas Corporation:
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether each registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
Southwest Gas Holdings, Inc. Common Stock, $1 Par Value, 47,583,11949,133,829 shares as of July 28, 2017.31, 2018.
All of the outstanding shares of common stock ($1 par value) of Southwest Gas Corporation were held by Southwest Gas Holdings, Inc. as of January 1, 2017.
SOUTHWEST GAS CORPORATION MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1)(a) and (b) OFFORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH THE REDUCED DISCLOSURE FORMAT AS PERMITTED BY GENERAL INSTRUCTION H(2).
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
FILING FORMAT
This quarterly report onForm 10-Q is a combined report being filed by two separate registrants: Southwest Gas Holdings, Inc. and Southwest Gas Corporation. Except where the content clearly indicates otherwise, any reference in the report to “we,” “us” or “our” is to the holding company or the consolidated entity of Southwest Gas Holdings, Inc. and all of its subsidiaries, including Southwest Gas Corporation, which is a distinct registrant that is a wholly owned subsidiary of Southwest Gas Holdings, Inc. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.
Part I—Financial information in this Quarterly Report on Form10-Q includes separate financial statements (i.e., balance sheets, statements of income, statements of comprehensive income, and statements of cash flows) for Southwest Gas Holdings, Inc. and Southwest Gas Corporation, in that order. The Notes to Consolidated Financial Statements are presented on a combined basis for both entities. All Items other than Part I – Item 1 are combined for the reporting companies.
2
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except par value)
(Unaudited)
JUNE 30, | DECEMBER 31, | |||||||||||||||
JUNE 30, 2017 | DECEMBER 31, 2016 | 2018 | 2017 | |||||||||||||
ASSETS | ||||||||||||||||
Utility plant: | ||||||||||||||||
Gas plant | $ | 6,349,303 | $ | 6,193,564 | $ | 6,810,737 | $ | 6,629,644 | ||||||||
Less: accumulated depreciation | (2,202,909 | ) | (2,172,966 | ) | (2,260,793 | ) | (2,231,242 | ) | ||||||||
Acquisition adjustments, net | 119 | 196 | ||||||||||||||
Construction work in progress | 111,041 | 111,177 | 167,114 | 125,248 | ||||||||||||
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Net utility plant | 4,257,554 | 4,131,971 | 4,717,058 | 4,523,650 | ||||||||||||
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Other property and investments | 362,891 | 342,343 | 462,236 | 428,180 | ||||||||||||
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Current assets: | ||||||||||||||||
Cash and cash equivalents | 29,702 | 28,066 | 34,730 | 43,622 | ||||||||||||
Accounts receivable, net of allowances | 281,882 | 285,145 | 357,881 | 347,375 | ||||||||||||
Accrued utility revenue | 33,600 | 76,200 | 34,200 | 78,200 | ||||||||||||
Income taxes receivable, net | 6,253 | 4,455 | 18,256 | 7,960 | ||||||||||||
Deferred purchased gas costs | 5,956 | 2,608 | — | 14,581 | ||||||||||||
Prepaids and other current assets | 126,192 | 136,833 | 250,992 | 165,294 | ||||||||||||
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Total current assets | 483,585 | 533,307 | 696,059 | 657,032 | ||||||||||||
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Noncurrent assets: | ||||||||||||||||
Goodwill | 143,583 | 139,983 | 174,233 | 179,314 | ||||||||||||
Deferred income taxes | 1,365 | 1,288 | 1,252 | 1,480 | ||||||||||||
Deferred charges and other assets | 416,261 | 432,234 | 425,555 | 447,410 | ||||||||||||
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Total noncurrent assets | 561,209 | 573,505 | 601,040 | 628,204 | ||||||||||||
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Total assets | $ | 5,665,239 | $ | 5,581,126 | $ | 6,476,393 | $ | 6,237,066 | ||||||||
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CAPITALIZATION AND LIABILITIES | ||||||||||||||||
Capitalization: | ||||||||||||||||
Common stock, $1 par (authorized—60,000,000 shares; issued and outstanding—47,583,119 and 47,482,068 shares) | $ | 49,213 | $ | 49,112 | ||||||||||||
Common stock, $1 par (authorized - 60,000,000 shares; issued and outstanding - 49,126,254 and 48,090,470 shares) | $ | 50,756 | $ | 49,720 | ||||||||||||
Additional paid-in capital | 911,095 | 903,123 | 1,021,508 | 955,332 | ||||||||||||
Accumulated other comprehensive income (loss), net | (44,962 | ) | (48,008 | ) | (55,520 | ) | (47,682 | ) | ||||||||
Retained earnings | 801,222 | 759,263 | 916,275 | 857,398 | ||||||||||||
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Total Southwest Gas Holdings, Inc. equity | 1,716,568 | 1,663,490 | 1,933,019 | 1,814,768 | ||||||||||||
Noncontrolling interest | (2,312 | ) | (2,217 | ) | (452 | ) | (2,365 | ) | ||||||||
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Total equity | 1,714,256 | 1,661,273 | 1,932,567 | 1,812,403 | ||||||||||||
Redeemable noncontrolling interest | 20,149 | 22,590 | ||||||||||||||
Long-term debt, less current maturities | 1,685,698 | 1,549,983 | 2,037,743 | 1,798,576 | ||||||||||||
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Total capitalization | 3,420,103 | 3,233,846 | 3,970,310 | 3,610,979 | ||||||||||||
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Current liabilities: | ||||||||||||||||
Current maturities of long-term debt | 27,236 | 50,101 | 31,928 | 25,346 | ||||||||||||
Short-term debt | 2,500 | — | 22,500 | 214,500 | ||||||||||||
Accounts payable | 135,738 | 184,669 | 188,156 | 228,315 | ||||||||||||
Customer deposits | 71,195 | 72,296 | 69,247 | 69,781 | ||||||||||||
Income taxes payable | — | 1,909 | — | 5,946 | ||||||||||||
Accrued general taxes | 40,545 | 42,921 | 42,826 | 43,879 | ||||||||||||
Accrued interest | 17,150 | 17,939 | 20,512 | 17,870 | ||||||||||||
Deferred purchased gas costs | 20,628 | 90,476 | 26,365 | 6,841 | ||||||||||||
Other current liabilities | 175,043 | 168,064 | 262,113 | 203,403 | ||||||||||||
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Total current liabilities | 490,035 | 628,375 | 663,647 | 815,881 | ||||||||||||
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Deferred income taxes and other credits: | ||||||||||||||||
Deferred income taxes and investment tax credits | 891,217 | 840,653 | 510,536 | 476,960 | ||||||||||||
Accumulated removal costs | 310,000 | 308,000 | 319,000 | 315,000 | ||||||||||||
Other deferred credits and other long-term liabilities | 553,884 | 570,252 | 1,012,900 | 1,018,246 | ||||||||||||
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Total deferred income taxes and other credits | 1,755,101 | 1,718,905 | 1,842,436 | 1,810,206 | ||||||||||||
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Total capitalization and liabilities | $ | 5,665,239 | $ | 5,581,126 | $ | 6,476,393 | $ | 6,237,066 | ||||||||
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The accompanying notes are an integral part of these statements.
3
3
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED | SIX MONTHS ENDED | TWELVE MONTHS ENDED | THREE MONTHS ENDED | SIX MONTHS ENDED | TWELVE MONTHS ENDED | |||||||||||||||||||||||||||||||||||||||||||
JUNE 30, | JUNE 30, | JUNE 30, | JUNE 30, | JUNE 30, | JUNE 30, | |||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||
Operating revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||
Gas operating revenues | $ | 260,162 | $ | 255,648 | $ | 722,764 | $ | 780,748 | $ | 1,263,428 | $ | 1,395,629 | $ | 275,679 | $ | 260,162 | $ | 769,992 | $ | 722,764 | $ | 1,349,536 | $ | 1,263,428 | ||||||||||||||||||||||||
Construction revenues | 300,307 | 292,100 | 492,442 | 498,248 | 1,133,272 | 1,074,168 | 395,204 | 300,307 | 655,221 | 492,442 | 1,409,263 | 1,133,272 | ||||||||||||||||||||||||||||||||||||
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Total operating revenues | 560,469 | 547,748 | 1,215,206 | 1,278,996 | 2,396,700 | 2,469,797 | 670,883 | 560,469 | 1,425,213 | 1,215,206 | 2,758,799 | 2,396,700 | ||||||||||||||||||||||||||||||||||||
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Operating expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net cost of gas sold | 69,421 | 71,416 | 216,300 | 285,016 | 328,405 | 486,048 | 83,466 | 69,421 | 269,198 | 216,300 | 407,943 | 328,405 | ||||||||||||||||||||||||||||||||||||
Operations and maintenance | 103,060 | 98,744 | 212,210 | 199,541 | 414,393 | 397,886 | 105,435 | 98,203 | 207,786 | 202,498 | 398,051 | 394,802 | ||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 58,082 | 72,559 | 130,560 | 147,919 | 271,773 | 283,608 | 61,307 | 58,082 | 123,785 | 130,560 | 244,176 | 271,773 | ||||||||||||||||||||||||||||||||||||
Taxes other than income taxes | 14,497 | 12,987 | 29,279 | 27,000 | 54,655 | 50,982 | 14,666 | 14,497 | 29,923 | 29,279 | 58,590 | 54,655 | ||||||||||||||||||||||||||||||||||||
Construction expenses | 272,001 | 263,926 | 463,957 | 457,308 | 1,031,072 | 955,332 | 352,671 | 272,001 | 611,623 | 463,957 | 1,296,629 | 1,031,072 | ||||||||||||||||||||||||||||||||||||
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Total operating expenses | 517,061 | 519,632 | 1,052,306 | 1,116,784 | 2,100,298 | 2,173,856 | 617,545 | 512,204 | 1,242,315 | 1,042,594 | 2,405,389 | 2,080,707 | ||||||||||||||||||||||||||||||||||||
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Operating income | 43,408 | 28,116 | 162,900 | 162,212 | 296,402 | 295,941 | 53,338 | 48,265 | 182,898 | 172,612 | 353,410 | 315,993 | ||||||||||||||||||||||||||||||||||||
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Other income and (expenses): | ||||||||||||||||||||||||||||||||||||||||||||||||
Net interest deductions | (18,655 | ) | (18,221 | ) | (37,369 | ) | (35,942 | ) | (75,087 | ) | (72,127 | ) | (23,652 | ) | (18,655 | ) | (46,283 | ) | (37,369 | ) | (86,978 | ) | (75,087 | ) | ||||||||||||||||||||||||
Other income (deductions) | 2,047 | 2,470 | 5,912 | 4,191 | 11,190 | 4,636 | (2,706 | ) | (2,810 | ) | (7,040 | ) | (3,800 | ) | (9,270 | ) | (8,401 | ) | ||||||||||||||||||||||||||||||
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Total other income and (expenses) | (16,608 | ) | (15,751 | ) | (31,457 | ) | (31,751 | ) | (63,897 | ) | (67,491 | ) | (26,358 | ) | (21,465 | ) | (53,323 | ) | (41,169 | ) | (96,248 | ) | (83,488 | ) | ||||||||||||||||||||||||
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Income before income taxes | 26,800 | 12,365 | 131,443 | 130,461 | 232,505 | 228,450 | 26,980 | 26,800 | 129,575 | 131,443 | 257,162 | 232,505 | ||||||||||||||||||||||||||||||||||||
Income tax expense | 8,679 | 3,266 | 44,317 | 46,007 | 76,778 | 81,508 | 5,429 | 8,679 | 29,730 | 44,317 | 50,501 | 76,778 | ||||||||||||||||||||||||||||||||||||
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Net income | 18,121 | 9,099 | 87,126 | 84,454 | 155,727 | 146,942 | 21,551 | 18,121 | 99,845 | 87,126 | 206,661 | 155,727 | ||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to noncontrolling interests | 257 | 156 | (46 | ) | 65 | 903 | 1,168 | |||||||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to noncontrolling interest | — | 257 | (797 | ) | (46 | ) | (650 | ) | 903 | |||||||||||||||||||||||||||||||||||||||
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Net income attributable to Southwest Gas Holdings, Inc. | $ | 17,864 | $ | 8,943 | $ | 87,172 | $ | 84,389 | $ | 154,824 | $ | 145,774 | $ | 21,551 | $ | 17,864 | $ | 100,642 | $ | 87,172 | $ | 207,311 | $ | 154,824 | ||||||||||||||||||||||||
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Basic earnings per share | $ | 0.38 | $ | 0.19 | $ | 1.83 | $ | 1.78 | $ | 3.26 | $ | 3.08 | $ | 0.44 | $ | 0.38 | $ | 2.07 | $ | 1.83 | $ | 4.29 | $ | 3.26 | ||||||||||||||||||||||||
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Diluted earnings per share | $ | 0.37 | $ | 0.19 | $ | 1.82 | $ | 1.77 | $ | 3.24 | $ | 3.06 | $ | 0.44 | $ | 0.37 | $ | 2.07 | $ | 1.82 | $ | 4.28 | $ | 3.24 | ||||||||||||||||||||||||
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Dividends declared per share | $ | 0.495 | $ | 0.450 | $ | 0.990 | $ | 0.900 | $ | 1.890 | $ | 1.710 | $ | 0.520 | $ | 0.495 | $ | 1.040 | $ | 0.990 | $ | 2.030 | $ | 1.890 | ||||||||||||||||||||||||
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Average number of common shares outstanding | 47,571 | 47,473 | 47,550 | 47,455 | 47,516 | 47,347 | ||||||||||||||||||||||||||||||||||||||||||
Average shares outstanding (assuming dilution) | 47,884 | 47,811 | 47,874 | 47,787 | 47,857 | 47,693 | ||||||||||||||||||||||||||||||||||||||||||
Average number of common shares | 48,826 | 47,571 | 48,622 | 47,550 | 48,338 | 47,516 | ||||||||||||||||||||||||||||||||||||||||||
Average shares (assuming dilution) | 48,880 | 47,884 | 48,671 | 47,874 | 48,387 | 47,857 |
The accompanying notes are an integral part of these statements.
4
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands of dollars)
(Unaudited)
THREE MONTHS ENDED | SIX MONTHS ENDED | TWELVE MONTHS ENDED | THREE MONTHS ENDED | SIX MONTHS ENDED | TWELVE MONTHS ENDED | |||||||||||||||||||||||||||||||||||||||||||
JUNE 30, | JUNE 30, | JUNE 30, | JUNE 30, | JUNE 30, | JUNE 30, | |||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||
Net income | $ | 18,121 | $ | 9,099 | $ | 87,126 | $ | 84,454 | $ | 155,727 | $ | 146,942 | $ | 21,551 | $ | 18,121 | $ | 99,845 | $ | 87,126 | $ | 206,661 | $ | 155,727 | ||||||||||||||||||||||||
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Other comprehensive income (loss), net of tax | ||||||||||||||||||||||||||||||||||||||||||||||||
Defined benefit pension plans: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net actuarial gain (loss) | — | — | — | — | (14,118 | ) | (18,922 | ) | — | — | — | — | (32,701 | ) | (14,118 | ) | ||||||||||||||||||||||||||||||||
Amortization of prior service cost | 207 | 207 | 414 | 414 | 828 | 828 | 254 | 207 | 508 | 414 | 922 | 828 | ||||||||||||||||||||||||||||||||||||
Amortization of net actuarial loss | 3,944 | 4,194 | 7,888 | 8,390 | 16,279 | 19,048 | 6,387 | 3,944 | 12,774 | 7,888 | 20,662 | 16,279 | ||||||||||||||||||||||||||||||||||||
Regulatory adjustment | (3,556 | ) | (3,796 | ) | (7,112 | ) | (7,592 | ) | (2,982 | ) | (1,436 | ) | (5,744 | ) | (3,556 | ) | (11,490 | ) | (7,112 | ) | 8,212 | (2,982 | ) | |||||||||||||||||||||||||
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Net defined benefit pension plans | 595 | 605 | 1,190 | 1,212 | 7 | (482 | ) | 897 | 595 | 1,792 | 1,190 | (2,905 | ) | 7 | ||||||||||||||||||||||||||||||||||
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Forward-starting interest rate swaps: | ||||||||||||||||||||||||||||||||||||||||||||||||
Amounts reclassified into net income | 518 | 519 | 1,036 | 1,038 | 2,073 | 2,074 | 636 | 518 | 1,271 | 1,036 | 2,308 | 2,073 | ||||||||||||||||||||||||||||||||||||
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Net forward-starting interest rate swaps | 518 | 519 | 1,036 | 1,038 | 2,073 | 2,074 | 636 | 518 | 1,271 | 1,036 | 2,308 | 2,073 | ||||||||||||||||||||||||||||||||||||
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Foreign currency translation adjustments | 629 | 70 | 849 | 852 | 158 | (39 | ) | (690 | ) | 629 | (1,601 | ) | 849 | (679 | ) | 158 | ||||||||||||||||||||||||||||||||
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Total other comprehensive income, net of tax | 1,742 | 1,194 | 3,075 | 3,102 | 2,238 | 1,553 | ||||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income (loss), net of tax | 843 | 1,742 | 1,462 | 3,075 | (1,276 | ) | 2,238 | |||||||||||||||||||||||||||||||||||||||||
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Comprehensive income | 19,863 | 10,293 | 90,201 | 87,556 | 157,965 | 148,495 | 22,394 | 19,863 | 101,307 | 90,201 | 205,385 | 157,965 | ||||||||||||||||||||||||||||||||||||
Comprehensive income (loss) attributable to noncontrolling interests | 279 | 159 | (17 | ) | 94 | 908 | 1,166 | — | 279 | (797 | ) | (17 | ) | (668 | ) | 908 | ||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Comprehensive income attributable to Southwest Gas Holdings, Inc. | $ | 19,584 | $ | 10,134 | $ | 90,218 | $ | 87,462 | $ | 157,057 | $ | 147,329 | $ | 22,394 | $ | 19,584 | $ | 102,104 | $ | 90,218 | $ | 206,053 | $ | 157,057 | ||||||||||||||||||||||||
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|
The accompanying notes are an integral part of these statements.
5
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
SIX MONTHS ENDED | TWELVE MONTHS ENDED | SIX MONTHS ENDED | TWELVE MONTHS ENDED | |||||||||||||||||||||||||||||
JUNE 30 | JUNE 30 | JUNE 30, | JUNE 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||||||||||||||||||||||||||
Net income | $ | 87,126 | $ | 84,454 | $ | 155,727 | $ | 146,942 | $ | 99,845 | $ | 87,126 | $ | 206,661 | $ | 155,727 | ||||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 130,560 | 147,919 | 271,773 | 283,608 | 123,785 | 130,560 | 244,176 | 271,773 | ||||||||||||||||||||||||
Deferred income taxes | 47,836 | 45,916 | 70,652 | 90,805 | 33,318 | 47,836 | 48,871 | 70,652 | ||||||||||||||||||||||||
Changes in current assets and liabilities: | ||||||||||||||||||||||||||||||||
Accounts receivable, net of allowances | 3,545 | 52,907 | (19,266 | ) | 7,039 | (12,704 | ) | 3,545 | (57,196 | ) | (19,266 | ) | ||||||||||||||||||||
Accrued utility revenue | 42,600 | 42,200 | (1,100 | ) | (700 | ) | 44,000 | 42,600 | (600 | ) | (1,100 | ) | ||||||||||||||||||||
Deferred purchased gas costs | (73,196 | ) | 84,289 | (111,627 | ) | 102,834 | 34,105 | (73,196 | ) | 11,693 | (111,627 | ) | ||||||||||||||||||||
Accounts payable | (50,447 | ) | (33,358 | ) | 4,606 | 1,622 | (44,465 | ) | (50,447 | ) | 25,943 | 4,606 | ||||||||||||||||||||
Accrued taxes | (6,100 | ) | (12,121 | ) | 32,361 | (28,140 | ) | (17,350 | ) | (6,100 | ) | (9,138 | ) | 32,361 | ||||||||||||||||||
Other current assets and liabilities | 20,390 | 7,761 | (14,803 | ) | 22,696 | (16,806 | ) | 20,390 | (45,399 | ) | (14,803 | ) | ||||||||||||||||||||
Gains on sale | (1,427 | ) | (2,742 | ) | (5,833 | ) | (3,281 | ) | (250 | ) | (1,427 | ) | (3,019 | ) | (5,833 | ) | ||||||||||||||||
Changes in undistributed stock compensation | 7,731 | 3,514 | 9,673 | 4,916 | 3,300 | 7,731 | 6,457 | 9,673 | ||||||||||||||||||||||||
AFUDC | (1,109 | ) | (1,282 | ) | (2,116 | ) | (3,157 | ) | (586 | ) | (1,109 | ) | (1,773 | ) | (2,116 | ) | ||||||||||||||||
Changes in other assets and deferred charges | (11,521 | ) | 223 | 5,216 | 1,296 | (5,122 | ) | (11,521 | ) | (15,870 | ) | 5,216 | ||||||||||||||||||||
Changes in other liabilities and deferred credits | 2,204 | (2,502 | ) | (13,741 | ) | 5,407 | 5,952 | 2,204 | 7,979 | (13,741 | ) | |||||||||||||||||||||
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| |||||||||||||||||||||||||
Net cash provided by operating activities | 198,192 | 417,178 | 381,522 | 631,887 | 247,022 | 198,192 | 418,785 | 381,522 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||
CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||||||||||||
Construction expenditures and property additions | (262,234 | ) | (264,872 | ) | (526,893 | ) | (549,232 | ) | (339,011 | ) | (262,234 | ) | (700,426 | ) | (526,893 | ) | ||||||||||||||||
Acquisition of businesses, net of cash acquired | — | (17,000 | ) | — | (17,000 | ) | (4,209 | ) | — | (98,413 | ) | — | ||||||||||||||||||||
Changes in customer advances | (1,430 | ) | 2,152 | 4,318 | 10,763 | 8,158 | (1,430 | ) | 9,911 | 4,318 | ||||||||||||||||||||||
Miscellaneous inflows | 6,905 | 4,126 | 15,818 | 7,588 | 2,564 | 6,905 | 12,304 | 15,818 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||
Net cash used in investing activities | (256,759 | ) | (275,594 | ) | (506,757 | ) | (547,881 | ) | (332,498 | ) | (256,759 | ) | (776,624 | ) | (506,757 | ) | ||||||||||||||||
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| |||||||||||||||||||||||||
CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||||||||||||||||||||||||||
Issuance of common stock, net | (96 | ) | 487 | (111 | ) | 15,170 | 69,139 | (96 | ) | 110,390 | (111 | ) | ||||||||||||||||||||
Dividends paid | (44,949 | ) | (40,583 | ) | (87,683 | ) | (78,830 | ) | (48,985 | ) | (44,949 | ) | (96,166 | ) | (87,683 | ) | ||||||||||||||||
Centuri distribution to redeemable noncontrolling interest | (204 | ) | (99 | ) | (544 | ) | (198 | ) | — | (204 | ) | — | (544 | ) | ||||||||||||||||||
Issuance of long-term debt, net | 80,579 | 96,128 | 408,397 | 138,779 | 455,398 | 80,579 | 781,882 | 408,397 | ||||||||||||||||||||||||
Retirement of long-term debt | (60,041 | ) | (52,966 | ) | (262,348 | ) | (162,530 | ) | (100,776 | ) | (60,041 | ) | (379,704 | ) | (262,348 | ) | ||||||||||||||||
Change in credit facility and commercial paper | 87,000 | (147,500 | ) | 89,500 | (27,500 | ) | (102,000 | ) | 87,000 | (44,000 | ) | 89,500 | ||||||||||||||||||||
Change in short-term debt | 2,500 | (18,000 | ) | 2,500 | — | (192,000 | ) | 2,500 | 20,000 | 2,500 | ||||||||||||||||||||||
Principal payments on capital lease obligations | (573 | ) | (835 | ) | (1,092 | ) | (1,533 | ) | (316 | ) | (573 | ) | (723 | ) | (1,092 | ) | ||||||||||||||||
Withholding remittance—share-based compensation | (3,120 | ) | (1,968 | ) | (3,271 | ) | (3,766 | ) | ||||||||||||||||||||||||
Redemption of Centuri shares from noncontrolling parties | — | — | (23,000 | ) | — | |||||||||||||||||||||||||||
Withholding remittance - share-based compensation | (2,854 | ) | (3,120 | ) | (2,910 | ) | (3,271 | ) | ||||||||||||||||||||||||
Other | (1,036 | ) | (124 | ) | (2,481 | ) | 451 | (898 | ) | (1,036 | ) | (2,936 | ) | (2,481 | ) | |||||||||||||||||
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| |||||||||||||||||||||||||
Net cash provided by (used in) financing activities | 60,060 | (165,460 | ) | 142,867 | (119,957 | ) | ||||||||||||||||||||||||||
Net cash provided by financing activities | 76,708 | 60,060 | 362,833 | 142,867 | ||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||
Effects of currency translation on cash and cash equivalents | 143 | 5 | (56 | ) | (832 | ) | (124 | ) | 143 | 34 | (56 | ) | ||||||||||||||||||||
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|
|
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| |||||||||||||||||||||||||
Change in cash and cash equivalents | 1,636 | (23,871 | ) | 17,576 | (36,783 | ) | (8,892 | ) | 1,636 | 5,028 | 17,576 | |||||||||||||||||||||
Cash and cash equivalents at beginning of period | 28,066 | 35,997 | 12,126 | 48,909 | 43,622 | 28,066 | 29,702 | 12,126 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 29,702 | $ | 12,126 | $ | 29,702 | $ | 12,126 | $ | 34,730 | $ | 29,702 | $ | 34,730 | $ | 29,702 | ||||||||||||||||
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| |||||||||||||||||||||||||
Supplemental information: | ||||||||||||||||||||||||||||||||
Interest paid, net of amounts capitalized | $ | 35,182 | $ | 33,224 | $ | 69,398 | $ | 65,634 | $ | 40,082 | $ | 35,182 | $ | 76,843 | $ | 69,398 | ||||||||||||||||
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|
|
| |||||||||||||||||||||||||||||
Income taxes paid (received) | 3,043 | 4,737 | (20,726 | ) | 19,483 | $ | 16,507 | $ | 3,043 | $ | 19,137 | $ | (20,726 | ) | ||||||||||||||||||
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|
The accompanying notes are an integral part of these statements.
6
6
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
JUNE 30, | DECEMBER 31, | JUNE 30, | DECEMBER 31, | |||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
ASSETS | ||||||||||||||||
Utility plant: | ||||||||||||||||
Gas plant | $ | 6,349,303 | $ | 6,193,564 | $ | 6,810,737 | $ | 6,629,644 | ||||||||
Less: accumulated depreciation | (2,202,909 | ) | (2,172,966 | ) | (2,260,793 | ) | (2,231,242 | ) | ||||||||
Acquisition adjustments, net | 119 | 196 | ||||||||||||||
Construction work in progress | 111,041 | 111,177 | 167,114 | 125,248 | ||||||||||||
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|
| |||||||||||||
Net utility plant | 4,257,554 | 4,131,971 | 4,717,058 | 4,523,650 | ||||||||||||
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|
|
| |||||||||||||
Other property and investments | 113,326 | 108,569 | 120,476 | 119,114 | ||||||||||||
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|
| |||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | 22,444 | 19,024 | 20,900 | 37,946 | ||||||||||||
Accounts receivable, net of allowances | 74,361 | 111,845 | 83,645 | 119,748 | ||||||||||||
Accrued utility revenue | 33,600 | 76,200 | 34,200 | 78,200 | ||||||||||||
Income taxes receivable, net | 4,902 | 4,455 | 6,752 | — | ||||||||||||
Deferred purchased gas costs | 5,956 | 2,608 | — | 14,581 | ||||||||||||
Receivable from parent | 288 | — | ||||||||||||||
Prepaids and other current assets | 108,990 | 126,363 | 233,441 | 153,771 | ||||||||||||
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|
|
| |||||||||||||
Total current assets | 250,541 | 340,495 | 378,938 | 404,246 | ||||||||||||
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|
| |||||||||||||
Noncurrent assets: | ||||||||||||||||
Goodwill | 10,095 | 10,095 | 10,095 | 10,095 | ||||||||||||
Deferred charges and other assets | 399,628 | 410,625 | 410,553 | 425,564 | ||||||||||||
Discontinued operations—construction services—assets | — | 579,371 | ||||||||||||||
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|
|
| |||||||||||||
Total noncurrent assets | 409,723 | 1,000,091 | 420,648 | 435,659 | ||||||||||||
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|
|
| |||||||||||||
Total assets | $ | 5,031,144 | $ | 5,581,126 | $ | 5,637,120 | $ | 5,482,669 | ||||||||
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|
| |||||||||||||
CAPITALIZATION AND LIABILITIES | ||||||||||||||||
Capitalization: | ||||||||||||||||
Common stock | $ | 49,112 | $ | 49,112 | $ | 49,112 | $ | 49,112 | ||||||||
Additional paid-in capital | 904,715 | 897,346 | 1,006,065 | 948,767 | ||||||||||||
Accumulated other comprehensive income (loss), net | (43,413 | ) | (45,639 | ) | (53,310 | ) | (47,073 | ) | ||||||||
Retained earnings | 631,226 | 767,061 | 717,126 | 659,193 | ||||||||||||
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|
| |||||||||||||
Total Southwest Gas Corporation equity | 1,541,640 | 1,667,880 | 1,718,993 | 1,609,999 | ||||||||||||
Discontinued operations—construction services non-owner equity | — | 15,983 | ||||||||||||||
Long-term debt, less current maturities | 1,462,552 | 1,375,080 | 1,716,307 | 1,521,031 | ||||||||||||
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|
|
| |||||||||||||
Total capitalization | 3,004,192 | 3,058,943 | 3,435,300 | 3,131,030 | ||||||||||||
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|
| |||||||||||||
Current liabilities: | ||||||||||||||||
Current maturities of long-term debt | — | 25,000 | ||||||||||||||
Short-term debt | — | 191,000 | ||||||||||||||
Accounts payable | 82,522 | 138,229 | 102,579 | 158,474 | ||||||||||||
Customer deposits | 71,195 | 72,296 | 69,247 | 69,781 | ||||||||||||
Income taxes payable, net | — | 4,971 | ||||||||||||||
Accrued general taxes | 40,545 | 42,921 | 42,826 | 43,879 | ||||||||||||
Accrued interest | 16,826 | 17,395 | 20,441 | 17,171 | ||||||||||||
Deferred purchased gas costs | 20,628 | 90,476 | 26,365 | 6,841 | ||||||||||||
Payable to parent | 2,262 | — | 285 | 194 | ||||||||||||
Other current liabilities | 98,681 | 95,999 | 162,207 | 108,785 | ||||||||||||
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|
|
| |||||||||||||
Total current liabilities | 332,659 | 482,316 | 423,950 | 601,096 | ||||||||||||
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|
|
| |||||||||||||
Deferred income taxes and other credits: | ||||||||||||||||
Deferred income taxes and investment tax credits, net | 855,253 | 806,109 | 473,581 | 445,243 | ||||||||||||
Accumulated removal costs | 310,000 | 308,000 | 319,000 | 315,000 | ||||||||||||
Other deferred credits and other long-term liabilities | 529,040 | 545,143 | 985,289 | 990,300 | ||||||||||||
Discontinued operations—construction services—liabilities | — | 380,615 | ||||||||||||||
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|
|
| |||||||||||||
Total deferred income taxes and other credits | 1,694,293 | 2,039,867 | 1,777,870 | 1,750,543 | ||||||||||||
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|
|
| |||||||||||||
Total capitalization and liabilities | $ | 5,031,144 | $ | 5,581,126 | $ | 5,637,120 | $ | 5,482,669 | ||||||||
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|
The accompanying notes are an integral part of these statements.
7
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands)Thousands of dollars)
(Unaudited)
THREE MONTHS ENDED | SIX MONTHS ENDED | TWELVE MONTHS ENDED | THREE MONTHS ENDED | SIX MONTHS ENDED | TWELVE MONTHS ENDED | |||||||||||||||||||||||||||||||||||||||||||
JUNE 30, | JUNE 30, | JUNE 30, | JUNE 30, | JUNE 30, | JUNE 30, | |||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||
Continuing operations: | ||||||||||||||||||||||||||||||||||||||||||||||||
Gas operating revenues | $ | 260,162 | $ | 255,648 | $ | 722,764 | $ | 780,748 | $ | 1,263,428 | $ | 1,395,629 | $ | 275,679 | $ | 260,162 | $ | 769,992 | $ | 722,764 | $ | 1,349,536 | $ | 1,263,428 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net cost of gas sold | 69,421 | 71,416 | 216,300 | 285,016 | 328,405 | 486,048 | 83,466 | 69,421 | 269,198 | 216,300 | 407,943 | 328,405 | ||||||||||||||||||||||||||||||||||||
Operations and maintenance | 102,501 | 98,744 | 211,180 | 199,541 | 413,363 | 397,886 | 105,208 | 97,644 | 207,398 | 201,468 | 397,251 | 393,772 | ||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 46,254 | 57,232 | 107,449 | 117,977 | 222,935 | 224,845 | 47,664 | 46,254 | 97,625 | 107,449 | 192,098 | 222,935 | ||||||||||||||||||||||||||||||||||||
Taxes other than income taxes | 14,497 | 12,987 | 29,279 | 27,000 | 54,655 | 50,982 | 14,666 | 14,497 | 29,923 | 29,279 | 58,590 | 54,655 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Total operating expenses | 232,673 | 240,379 | 564,208 | 629,534 | 1,019,358 | 1,159,761 | 251,004 | 227,816 | 604,144 | 554,496 | 1,055,882 | 999,767 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Operating income | 27,489 | 15,269 | 158,556 | 151,214 | 244,070 | 235,868 | 24,675 | 32,346 | 165,848 | 168,268 | 293,654 | 263,661 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Other income and (expenses): | ||||||||||||||||||||||||||||||||||||||||||||||||
Net interest deductions | (16,991 | ) | (16,561 | ) | (34,201 | ) | (32,791 | ) | (68,407 | ) | (65,041 | ) | (20,149 | ) | (16,991 | ) | (39,404 | ) | (34,201 | ) | (74,936 | ) | (68,407 | ) | ||||||||||||||||||||||||
Other income (deductions) | 2,052 | 2,436 | 5,663 | 4,191 | 9,748 | 3,569 | (2,094 | ) | (2,805 | ) | (6,697 | ) | (4,049 | ) | (9,036 | ) | (9,843 | ) | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Total other income and (expenses) | (14,939 | ) | (14,125 | ) | (28,538 | ) | (28,600 | ) | (58,659 | ) | (61,472 | ) | (22,243 | ) | (19,796 | ) | (46,101 | ) | (38,250 | ) | (83,972 | ) | (78,250 | ) | ||||||||||||||||||||||||
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|
|
| |||||||||||||||||||||||||||||||||||||
Income from continuing operations before income taxes | 12,550 | 1,144 | 130,018 | 122,614 | 185,411 | 174,396 | 2,432 | 12,550 | 119,747 | 130,018 | 209,682 | 185,411 | ||||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 3,028 | (1,214 | ) | 43,558 | 42,673 | 59,469 | 61,094 | (190 | ) | 3,028 | 26,776 | 43,558 | 46,353 | 59,469 | ||||||||||||||||||||||||||||||||||
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|
|
|
| |||||||||||||||||||||||||||||||||||||
Income from continuing operations | 9,522 | 2,358 | 86,460 | 79,941 | 125,942 | 113,302 | 2,622 | 9,522 | 92,971 | 86,460 | 163,329 | 125,942 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Discontinued operations—construction services: | ||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued operations - construction services: | ||||||||||||||||||||||||||||||||||||||||||||||||
Income before income taxes | — | 11,221 | — | 7,847 | 45,669 | 54,054 | — | — | — | — | — | 45,669 | ||||||||||||||||||||||||||||||||||||
Income tax expense | — | 4,480 | — | 3,334 | 16,550 | 20,414 | — | — | — | — | — | 16,550 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Income | — | 6,741 | — | 4,513 | 29,119 | 33,640 | — | — | — | — | — | 29,119 | ||||||||||||||||||||||||||||||||||||
Noncontrolling interests | — | 156 | — | 65 | 949 | 1,168 | — | — | — | — | — | 949 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Income—discontinued operations | — | 6,585 | — | 4,448 | 28,170 | 32,472 | ||||||||||||||||||||||||||||||||||||||||||
Income - discontinued operations | — | — | — | — | — | 28,170 | ||||||||||||||||||||||||||||||||||||||||||
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| �� |
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| ||||||||||||||||||||||||||||||||||||
Net income | $ | 9,522 | $ | 8,943 | $ | 86,460 | $ | 84,389 | $ | 154,112 | $ | 145,774 | $ | 2,622 | $ | 9,522 | $ | 92,971 | $ | 86,460 | $ | 163,329 | $ | 154,112 | ||||||||||||||||||||||||
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The accompanying notes are an integral part of these statements.
8
8
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)Thousands of dollars)
(Unaudited)
THREE MONTHS ENDED | SIX MONTHS ENDED | TWELVE MONTHS ENDED | THREE MONTHS ENDED | SIX MONTHS ENDED | TWELVE MONTHS ENDED | |||||||||||||||||||||||||||||||||||||||||||
JUNE 30, | JUNE 30, | JUNE 30, | JUNE 30, | JUNE 30, | JUNE 30, | |||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||
Continuing operations: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income from continuing operations | $ | 9,522 | $ | 2,358 | $ | 86,460 | $ | 79,941 | $ | 125,942 | $ | 113,302 | $ | 2,622 | $ | 9,522 | $ | 92,971 | $ | 86,460 | $ | 163,329 | $ | 125,942 | ||||||||||||||||||||||||
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Other comprehensive income (loss), net of tax | ||||||||||||||||||||||||||||||||||||||||||||||||
Defined benefit pension plans: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net actuarial gain (loss) | — | — | — | — | (14,118 | ) | (18,922 | ) | — | — | — | — | (32,701 | ) | (14,118 | ) | ||||||||||||||||||||||||||||||||
Amortization of prior service cost | 207 | 207 | 414 | 414 | 828 | 828 | 254 | 207 | 508 | 414 | 922 | 828 | ||||||||||||||||||||||||||||||||||||
Amortization of net actuarial loss | 3,944 | 4,194 | 7,888 | 8,390 | 16,279 | 19,048 | 6,387 | 3,944 | 12,774 | 7,888 | 20,662 | 16,279 | ||||||||||||||||||||||||||||||||||||
Regulatory adjustment | (3,556 | ) | (3,796 | ) | (7,112 | ) | (7,592 | ) | (2,982 | ) | (1,436 | ) | (5,744 | ) | (3,556 | ) | (11,490 | ) | (7,112 | ) | 8,212 | (2,982 | ) | |||||||||||||||||||||||||
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Net defined benefit pension plans | 595 | 605 | 1,190 | 1,212 | 7 | (482 | ) | 897 | 595 | 1,792 | 1,190 | (2,905 | ) | 7 | ||||||||||||||||||||||||||||||||||
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Forward-starting interest rate swaps: | ||||||||||||||||||||||||||||||||||||||||||||||||
Amounts reclassified into net income | 518 | 519 | 1,036 | 1,038 | 2,073 | 2,074 | 636 | 518 | 1,271 | 1,036 | 2,308 | 2,073 | ||||||||||||||||||||||||||||||||||||
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Net forward-starting interest rate swaps | 518 | 519 | 1,036 | 1,038 | 2,073 | 2,074 | 636 | 518 | 1,271 | 1,036 | 2,308 | 2,073 | ||||||||||||||||||||||||||||||||||||
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Total other comprehensive income, net of tax from continuing operations | 1,113 | 1,124 | 2,226 | 2,250 | 2,080 | 1,592 | ||||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income (loss), net of tax from continuing operations | 1,533 | 1,113 | 3,063 | 2,226 | (597 | ) | 2,080 | |||||||||||||||||||||||||||||||||||||||||
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Comprehensive income from continuing operations | 10,635 | 3,482 | 88,686 | 82,191 | 128,022 | 114,894 | 4,155 | 10,635 | 96,034 | 88,686 | 162,732 | 128,022 | ||||||||||||||||||||||||||||||||||||
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Discontinued operations—construction services: | ||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued operations - construction services: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | 6,585 | — | 4,448 | 28,170 | 32,472 | — | — | — | — | — | 28,170 | ||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | 70 | — | 852 | (691 | ) | (39 | ) | — | — | — | — | — | (691 | ) | |||||||||||||||||||||||||||||||||
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Comprehensive income | — | 6,655 | — | 5,300 | 27,479 | 32,433 | — | — | — | — | — | 27,479 | ||||||||||||||||||||||||||||||||||||
Comprehensive income (loss) attributable to noncontrolling interests | — | 3 | — | 29 | (24 | ) | (2 | ) | — | — | — | — | — | (24 | ) | |||||||||||||||||||||||||||||||||
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Comprehensive income attributable to discontinued operations—construction services | — | 6,652 | — | 5,271 | 27,503 | 32,435 | ||||||||||||||||||||||||||||||||||||||||||
Comprehensive income attributable to discontinued operations - construction services | — | — | — | — | — | 27,503 | ||||||||||||||||||||||||||||||||||||||||||
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Comprehensive income | $ | 10,635 | $ | 10,134 | $ | 88,686 | $ | 87,462 | $ | 155,525 | $ | 147,329 | $ | 4,155 | $ | 10,635 | $ | 96,034 | $ | 88,686 | $ | 162,732 | $ | 155,525 | ||||||||||||||||||||||||
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The accompanying notes are an integral part of these statements.
9
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
SIX MONTHS ENDED | TWELVE MONTHS ENDED | SIX MONTHS ENDED | TWELVE MONTHS ENDED | |||||||||||||||||||||||||||||
JUNE 30 | JUNE 30 | JUNE 30, | JUNE 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||||||||||||||||||||||||||
Net Income | $ | 86,460 | $ | 84,454 | $ | 155,061 | $ | 146,942 | $ | 92,971 | $ | 86,460 | $ | 163,329 | $ | 155,061 | ||||||||||||||||
Income (loss) from discontinued operations | — | 4,513 | 29,119 | 33,640 | ||||||||||||||||||||||||||||
Income from discontinued operations | — | — | — | 29,119 | ||||||||||||||||||||||||||||
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Income from continuing operations | 86,460 | 79,941 | 125,942 | 113,302 | 92,971 | 86,460 | 163,329 | 125,942 | ||||||||||||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 107,449 | 117,977 | 222,935 | 224,845 | 97,625 | 107,449 | 192,098 | 222,935 | ||||||||||||||||||||||||
Deferred income taxes | 46,874 | 40,592 | 74,241 | 83,140 | 27,371 | 46,874 | 47,666 | 74,241 | ||||||||||||||||||||||||
Changes in current assets and liabilities: | ||||||||||||||||||||||||||||||||
Accounts receivable, net of allowances | 37,484 | 79,188 | (973 | ) | 22,324 | 36,104 | 37,484 | (9,282 | ) | (973 | ) | |||||||||||||||||||||
Accrued utility revenue | 42,600 | 42,200 | (1,100 | ) | (700 | ) | 44,000 | 42,600 | (600 | ) | (1,100 | ) | ||||||||||||||||||||
Deferred purchased gas costs | (73,196 | ) | 84,289 | (111,627 | ) | 102,834 | 34,105 | (73,196 | ) | 11,693 | (111,627 | ) | ||||||||||||||||||||
Accounts payable | (55,707 | ) | (42,681 | ) | 3,157 | (3,529 | ) | (52,095 | ) | (55,707 | ) | 8,157 | 3,157 | |||||||||||||||||||
Accrued taxes | (2,823 | ) | (6,456 | ) | 23,024 | (17,334 | ) | (12,776 | ) | (2,823 | ) | 430 | 23,024 | |||||||||||||||||||
Other current assets and liabilities | 24,265 | 4,791 | (14,022 | ) | 11,614 | (24,366 | ) | 24,265 | (62,357 | ) | (14,022 | ) | ||||||||||||||||||||
Changes in undistributed stock compensation | 6,931 | 3,514 | 8,873 | 4,916 | 3,220 | 6,931 | 5,577 | 8,873 | ||||||||||||||||||||||||
AFUDC | (1,109 | ) | (1,282 | ) | (2,116 | ) | (3,157 | ) | (586 | ) | (1,109 | ) | (1,773 | ) | (2,116 | ) | ||||||||||||||||
Changes in other assets and deferred charges | (11,801 | ) | 49 | 4,761 | 603 | (5,490 | ) | (11,801 | ) | (16,607 | ) | 4,761 | ||||||||||||||||||||
Changes in other liabilities and deferred credits | 1,695 | (2,502 | ) | (14,250 | ) | 5,407 | 5,477 | 1,695 | 7,323 | (14,250 | ) | |||||||||||||||||||||
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Net cash provided by operating activities | 209,122 | 399,620 | 318,845 | 544,265 | 245,560 | 209,122 | 345,654 | 318,845 | ||||||||||||||||||||||||
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CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||||||||||||
Construction expenditures and property additions | (224,085 | ) | (214,424 | ) | (466,780 | ) | (474,596 | ) | (285,999 | ) | (224,085 | ) | (622,362 | ) | (466,780 | ) | ||||||||||||||||
Changes in customer advances | (1,430 | ) | 2,152 | 4,318 | 10,763 | 8,158 | (1,430 | ) | 9,911 | 4,318 | ||||||||||||||||||||||
Miscellaneous inflows | 1,354 | 1,790 | 2,546 | 3,660 | 778 | 1,354 | 2,165 | 2,546 | ||||||||||||||||||||||||
Dividends received | — | 2,801 | 9,660 | 5,602 | — | — | — | 9,660 | ||||||||||||||||||||||||
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Net cash used in investing activities | (224,161 | ) | (207,681 | ) | (450,256 | ) | (454,571 | ) | (277,063 | ) | (224,161 | ) | (610,286 | ) | (450,256 | ) | ||||||||||||||||
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CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||||||||||||||||||||||||||
Issuance of common stock, net | — | 487 | (15 | ) | 15,170 | — | — | — | (15 | ) | ||||||||||||||||||||||
Contributions from parent | 56,596 | — | 97,955 | — | ||||||||||||||||||||||||||||
Dividends paid | (39,896 | ) | (40,583 | ) | (82,630 | ) | (78,830 | ) | (43,000 | ) | (39,896 | ) | (84,601 | ) | (82,630 | ) | ||||||||||||||||
Issuance of long-term debt, net | — | — | 296,469 | — | 297,495 | — | 297,495 | 296,469 | ||||||||||||||||||||||||
Retirement of long-term debt | (25,000 | ) | — | (149,855 | ) | (20,000 | ) | — | (25,000 | ) | — | (149,855 | ) | |||||||||||||||||||
Change in credit facility and commercial paper | 87,000 | (147,500 | ) | 89,500 | (27,500 | ) | (102,000 | ) | 87,000 | (44,000 | ) | 89,500 | ||||||||||||||||||||
Change in short-term debt | — | (18,000 | ) | — | — | (191,000 | ) | — | — | — | ||||||||||||||||||||||
Withholding remittance—share-based compensation | (3,120 | ) | (1,968 | ) | (3,271 | ) | (3,766 | ) | ||||||||||||||||||||||||
Withholding remittance - share-based compensation | (2,855 | ) | (3,120 | ) | (2,911 | ) | (3,271 | ) | ||||||||||||||||||||||||
Other | (525 | ) | (124 | ) | (1,970 | ) | 502 | (779 | ) | (525 | ) | (850 | ) | (1,970 | ) | |||||||||||||||||
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Net cash provided by (used in) financing activities | 18,459 | (207,688 | ) | 148,228 | (114,424 | ) | ||||||||||||||||||||||||||
Net cash provided by financing activities | 14,457 | 18,459 | 263,088 | 148,228 | ||||||||||||||||||||||||||||
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Net cash provided by discontinued operating activities | — | 17,558 | 73,607 | 87,622 | — | — | — | 73,607 | ||||||||||||||||||||||||
Net cash used in discontinued investing activities | — | (67,913 | ) | (23,903 | ) | (93,310 | ) | — | — | — | (23,903 | ) | ||||||||||||||||||||
Net cash provided by (used in) discontinued financing activities | — | 42,228 | (46,962 | ) | (5,533 | ) | ||||||||||||||||||||||||||
Net cash used in discontinued financing activities | — | — | — | (46,962 | ) | |||||||||||||||||||||||||||
Effects of currency translation on cash and cash equivalents | — | 5 | (199 | ) | (832 | ) | — | — | — | (199 | ) | |||||||||||||||||||||
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Change in cash and cash equivalents | 3,420 | (23,871 | ) | 19,360 | (36,783 | ) | (17,046 | ) | 3,420 | (1,544 | ) | 19,360 | ||||||||||||||||||||
Change in cash and cash equivalents of discontinued operations included in discontinued operations construction services assets | — | 8,122 | (2,543 | ) | 12,053 | — | — | — | (2,543 | ) | ||||||||||||||||||||||
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Change in cash and cash equivalents of continuing operations | 3,420 | (15,749 | ) | 16,817 | (24,730 | ) | (17,046 | ) | 3,420 | (1,544 | ) | 16,817 | ||||||||||||||||||||
Cash and cash equivalents at beginning of period | 19,024 | 21,376 | 5,627 | 30,357 | 37,946 | 19,024 | 22,444 | 5,627 | ||||||||||||||||||||||||
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Cash and cash equivalents at end of period | $ | 22,444 | $ | 5,627 | $ | 22,444 | $ | 5,627 | $ | 20,900 | $ | 22,444 | $ | 20,900 | $ | 22,444 | ||||||||||||||||
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Supplemental information: | ||||||||||||||||||||||||||||||||
Interest paid, net of amounts capitalized | $ | 32,205 | $ | 30,485 | $ | 63,221 | $ | 60,101 | $ | 33,452 | $ | 32,205 | $ | 66,037 | $ | 63,221 | ||||||||||||||||
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Income taxes paid (received) | $ | 19 | $ | 1,893 | $ | (32,885 | ) | $ | (3,063 | ) | $ | 10,886 | $ | 19 | $ | 3,013 | $ | (32,885 | ) | |||||||||||||
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The accompanying notes are an integral part of these statements.
10
10
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
Note 1 – Nature of Operations and Basis of Presentation
Nature of Operations. Southwest Gas Holdings, Inc., is a holding company, owning all of the shares of common stock of Southwest Gas Corporation and, prior to August 2017, 96.6% of the shares of common stock of Centuri Construction Group Inc. In January 2017, a previously contemplated and approved reorganization under a holding company structure was made effective. The reorganization is designed to provide further separation between regulated and unregulated businesses, and to provide additional financing flexibility. Coincident with the effective date of the reorganization, existing shareholders of Southwest Gas Corporation became shareholders of Southwest Gas Holdings, Inc., on aone-for-one basis, with the same number of shares and same ownership percentage as they held immediately prior to the reorganization. At the same time, Southwest Gas Corporation and Centuri Construction Group, Inc. (“Centuri” or the “construction services” segment) each became subsidiaries of the publicly traded holding company; whereas, historically, Centuri had been a direct subsidiary of. During August 2017, Southwest Gas Corporation.Holdings, Inc. acquired the remaining 3.4% equity interest in Centuri that was held by the previous owners.
Southwest Gas Corporation (“Southwest” or the “natural gas operations segment”) is engaged in the business of purchasing, distributing, and transporting natural gas for customers in portions of Arizona, Nevada, and California. Public utility rates, practices, facilities, and service territories of Southwest are subject to regulatory oversight. The timing and amount of rate relief can materially impact results of operations. Natural gas purchases and the timing of related recoveries can materially impact liquidity. Results for the natural gas operations segment are higher during winter periods due to the seasonality incorporated in its regulatory rate structures. Centuri is a comprehensive construction services enterprise dedicated to meeting the growing demands of North American utilities, energy, and industrial markets. Centuri derives revenue from installation, replacement, repair, and maintenance of energy distribution systems, and developing industrial construction solutions primarily for energy services utilities.solutions. Centuri operations are generally conducted under the business names of NPL Construction Co. (“NPL”), Canyon Pipeline Construction, Inc. (“Canyon”), NPL Canada Ltd. (“NPL Canada”, formerly Link-Line Contractors Ltd.), W.S. Nicholls Construction, Inc. and related companies (“W.S. Nicholls”), and Canyon Special Projects, Inc. (“Special Projects,” formerly Brigadier Pipelines Inc. (“Brigadier”). Typically, Centuri revenues are lowest during the first quarter of the year due to unfavorable winter weather conditions. Operating revenues typically improve as more favorable weather conditions occur during the summer and fall months. Centuri acquired New England Utility Constructors, Inc. (“Neuco”) in November 2017, thereby expanding its core services in the Northeast region of the United States. SeeNote 11 – Acquisition of Construction Services Business for more information.
Basis of Presentation. The condensed consolidated financial statements for Southwest Gas Holdings, Inc. and subsidiaries (the “Company”) and Southwest included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. As indicated above, inIn connection with thea holding company reorganization in January 2017, Centuri ceased to be a subsidiary of Southwest and became a subsidiary of Southwest Gas Holdings, Inc. To give effect to this change, the separate condensed consolidated financial statements related to Southwest Gas Corporation, which are included in thisForm 10-Q, depict Centuri-related amounts for periods prior to January 1, 2017 as discontinued operations. Because the transfer of Centuri from Southwest Gas Corporation to Southwest Gas Holdings, Inc. was effectuated as an equity transaction and not a sale, assets and liabilities subject to the discontinued operations presentation have been reflected as noncurrent on the Southwest Gas Corporation Balance Sheet. Those assets and liabilities are detailed inNote 10 – Reorganization Impacts – Discontinued Operations Solely Related to Southwest Gas Corporation, and include both current and non-current amounts.
No substantive change has occurred with regard to the Company’s business segments on the whole, or in the primary businesses comprising those segments.segments as a result of the foregoing organizational changes, or due to the acquisition of Neuco. Following the organizational changes, Centuri operations continue to be part of continuing operations and ofincluded in the consolidated financial statements of Southwest Gas Holdings, Inc.
The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring items and estimates necessary for a fair presentationstatement of results for the interim periods, have been made. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the 20162017 Annual Report to Shareholders, which is incorporated by reference into the 2016 2017Form 10-K.
Early Adoption of Accounting Standards Update (“ASU”) No. 2018-02. In January 2018, the Financial Accounting Standards Board (“FASB”) issued ASUNo. 2018-02 “Income Statement—Reporting Comprehensive Income (Topic 220)—Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” Early adoption of the amendments in this update is permitted, including adoption in any interim period. Therefore, the Company and Southwest chose to adopt the update early, as permitted, as of January 1, 2018. The adoption of this
11
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
update is considered a change in accounting principle. The update addresses issues resulting from the December 22, 2017 enactment of the Tax Cuts and Jobs Act (“TCJA”). Stakeholders raised a narrow-scope financial reporting issue that arose as a consequence of the TCJA related to the fact that when deferred tax balances were remeasured in December 2017, those deferred tax balances were to be reduced, but related amounts historically accumulated in Accumulated other comprehensive income (“AOCI”) prior to the enactment of the TCJA, were required to be recognized as income tax expense rather than being relieved from AOCI. The amendments in this update allow a reclassification from AOCI to retained earnings for those otherwise “stranded” tax effects in AOCI following enactment of the TCJA. Accordingly, approximately $9.3 million of previously stranded tax effects resulting from the TCJA were reclassified to retained earnings from AOCI on the Condensed Consolidated Balance Sheets of Southwest and the Company effective with the early adoption date. Also in association with the adoption, the Company and Southwest elected an accounting policy for releasing income tax effects from AOCI, such that the release of any income tax effects from AOCI will occur as individual items in AOCI are sold or liquidated, to the extent that the related income tax effects are material. SeeNote 9 – Equity, Other Comprehensive Income, and Accumulated Other Comprehensive Income for more information.
Prepaids and other current assets. Prepaids and other current assets includes gas pipe materials and operating supplies of $39$55 million at June 30, 20172018 and $30$33 million at December 31, 20162017 (carried at weighted average cost), as well as $69 million at June 30, 2018 and $40 million at December 31, 2017 related to a regulatory asset associated with the Arizona decoupling mechanism (an alternative revenue program). In May 2018, El Paso Natural Gas, L.L.C. (“EPNG”), was ordered to refund approximately $49 million to Southwest related to transmission services with EPNG. The refund (which was received by Southwest in July 2018) relates to rates authorized by the Federal Energy Regulatory Commission (“FERC”) to be in effect subject to refund provisions from EPNG’s 2010 rate case. Southwest will dispense the funds received through rate adjustments associated with its purchased gas adjustment (“PGA”) mechanisms. As the refund was outstanding at June 30, 2018, it did not impact cash flows; however, it is reflected in Prepaids and other current assets and a corresponding amount is reflected in a regulatory liability included within Other current liabilities in the balance sheets of both Southwest and the Company as of that date.
Income Taxes.On December 22, 2017, the TCJA legislation was enacted. Substantially all of the provisions of the TCJA are effective for taxable years beginning after December 31, 2017. The TCJA includes extensive changes which significantly impact the taxation of business entities, including specific provisions related to regulated public utilities. The more significant change that impacts the Company includes the reduction in the corporate federal income tax rate from 35% to 21%. The tax rate reduction created excess deferred taxes, resulting in the required remeasurement of deferred tax balances, which when remeasured during the fourth quarter of 2017, reduced income tax expense. The regulated operations of Southwest experienced other impacts due to its rate-regulation and the accounting treatment prescribed by U.S. GAAP to reflect the economics of that regulation. The remeasurement for Southwest reduced the net deferred income tax liability and caused the creation of a regulatory liability with appropriate taxgross-up. Both deferred tax liabilities and excess deferred tax liabilities (included within regulatory liabilities) reduce utility rate base. The TCJA includes provisions that stipulate how these excess deferred taxes are to be passed back to customers, and ultimate facilitation will occur in conjunction with appropriate regulatory commissions. During the six months ended June 30, 2018, tax expense for the Company and Southwest reflects the lower U.S. federal income tax rate now in effect (as applicable to earnings in 2018). Amounts recorded by the Company and Southwest associated with the measurement and accounting for the effects of the TCJA are provisional reasonable estimates. Management is continuing to evaluate and finalize all provisional items during the measurement period permitted by the SEC and the FASB, which is not to exceed one year from the enactment date.
In the first quarter of 2018, management recorded a regulatory liability and reduced utility revenues by approximately $14 million for potential regulatory rate reductions to customers resulting from the reduced cost-of-service levels during the period. Based on regulatory activity in the second quarter of 2018, management has updated its estimated reserve to approximately $12.5 million.
In July 2018, the Arizona Corporation Commission (“ACC”) staff issued a recommended opinion and order that would require Southwest to return to customers amounts related to excesscost-of-service rates as a result of customer rates having been authorized prior to the reduction in federal tax expense from tax reform. Also in July, the ACC issued a decision (the “Decision”) based on the staff recommendation. The Decision provides for bill credits for excess amounts experienced through July 2018. Additionally, starting in August 2018, surcredits applied to volumes would be implemented in consideration of lower tax rates impacting tax expense on an ongoing basis. Based on these recent
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
actions of the ACC, the $12.5 million reserve is reflected in Other current liabilities. During the first quarter of 2018, related amounts were included in Other deferred credits and other long-term liabilities pending resolution of regulatory outcome and timing.
Other current liabilities. Other current liabilities for both Southwest and the Company include the $49 million regulatory liability associated with the EPNG refund (noted previously) and the $12.5 million reserve associated with tax reform noted above. This caption on Southwest’s Condensed Consolidated Balance Sheets also includes natural gas stored underground and liquefied natural gas, in addition$22 million of dividends declared by Southwest Gas Corporation, but not yet paid to prepaid assets.Southwest Gas Holdings, Inc. at June 30, 2018.
Cash and Cash Equivalents. For purposes of reporting consolidated cash flows, cash and cash equivalents include cash on hand and financial instruments with a purchase-date maturity of three months or less. In general, cash and cash equivalents fall within Level 1 (quoted prices for identical financial instruments) of the three-level fair value hierarchy that ranks the inputs, used to measure fair value, by their reliability. However, cash and cash equivalents at June 30, 2017for Southwest and December 31, 2016the Company also includes money market fund investments oftotaling approximately $7.7$1.9 million and $5.3$13.2 million, respectively, which fallsfall within Level 2 (significant other observable inputs) of the fair value hierarchy, due to the asset valuation methods used by money market funds.
Significantnon-cash investing and financing activities for the natural gas operations segment included the following: Upon contract expiration, customer advances of approximately $1.6 million$512,000 and $2.5$1.6 million, during the first six months of 20172018 and 2016,2017, respectively, were applied as contributions toward utility construction activity and representnon-cash investing activity.
Adoption of Accounting Standards Update (“ASU”) No. 2016-09. As of January 1, 2017, the Company adopted Financial Accounting Standards Board (“FASB”) ASU No. 2016-09 “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The adoption of this update is considered a change in accounting principle. Among other things, the update clarifies that all cash payments made to taxing authorities on the employees’ behalf for withheld shares should be presented as financing activities on the statement of cash flows. This change is required to be presented in the cash flow statement retrospectively. A new category, Withholding remittance – share-based compensation has been added to the Cash Flow from Financing Activities section of the Condensed Consolidated Statements of Cash Flows for both Southwest Gas Holdings, Inc. and Southwest Gas Corporation. The withheld taxes were included in the Other current assets and liabilities line item of the Condensed Consolidated Statement of Cash Flows in previous periods. Therefore, upon adoption, amounts presented as cash inflows from Other current assets and liabilities under the Cash Flow from Operating Activities section of the Southwest Gas Holdings, Inc. Consolidated Cash Flow Statements were revised from $5.8 million to $7.8 million for the six months ended June 30, 2016 and inflows in the same category for the twelve months ended June 30, 2016 were revised from $18.9 million to $22.7 million. In addition, while standalone financial statements were not previously presented for natural gas operations, for reasons related to the holding company reorganization discussed above, they are now presented. Therefore, upon adoption of this standard, the Cash Flow from Operating Activities section of the Southwest Gas Corporation Cash Flow Statements reflects a reclassification of cash inflows from Other current assets and liabilities from $2.8 million to $4.8 million for the six months ended June 31, 2016 and cash inflows in the same category were revised from $7.8 million to $11.6 million for the twelve months ended June 30, 2016.
Under the new guidance, the Company can withhold any amount between the minimum and maximum individual statutory tax rates and still treat the entire award as equity. The Company intends to administer withholding such that awards under stock compensation programs will continue to be treated as equity awards.
In addition to the above, the update requires all income tax-related cash flows resulting from share-based payments (unrelated to employee withholding) be reported as operating activities on the statement of cash flows, a change from the previous requirement to present windfall tax benefits as an inflow from financing activities and an outflow from operating activities. The Company chose to apply this presentation requirement of the update prospectively as permitted. Therefore, prior periods were not impacted in implementing this provision of the update.
Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value are required to be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The Company had no previously unrecognized tax benefits as a result of these changes; therefore, no cumulative effect adjustment to the Company’s opening retained earnings was required.
Goodwill. Goodwill is assessed as of October 1steach Octoberyear for impairment, (required annually by U.S. GAAP), or otherwise, if circumstances indicate an impairment to the carrying value of goodwill may have occurred. In consideration of the holding company reorganization, management of the Company considered its reporting units and segments and determined that historic judgments regarding its segments and
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reporting units continue to apply, and that no change was necessary with regard to the level at which goodwill is assessed for impairment. No impairment was deemed to have occurred in the first six months of 2017.2018.
Goodwill:
(In thousands of dollars) | Natural Gas Operations | Construction Services | Consolidated | |||||||||
December 31, 2016 | $ | 10,095 | $ | 129,888 | $ | 139,983 | ||||||
Foreign currency translation adjustment | — | 3,600 | 3,600 | |||||||||
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June 30, 2017 | $ | 10,095 | $ | 133,488 | $ | 143,583 | ||||||
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(Thousands of dollars) | Natural Gas Operations | Construction Services | Consolidated | |||||||||
December 31, 2017 | $ | 10,095 | $ | 169,219 | $ | 179,314 | ||||||
Additional goodwill from Neuco acquisition | — | 182 | 182 | |||||||||
Foreign currency translation adjustment | — | (5,263 | ) | (5,263 | ) | |||||||
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June 30, 2018 | $ | 10,095 | $ | 164,138 | $ | 174,233 | ||||||
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Intercompany Transactions. Centuri recognizes revenues generated from contracts with Southwest (seeNote 3—4 -Segment Information). Centuri’s accounts receivable for these services are presented in the table below (thousands of dollars):
June 30, 2017 | December 31, 2016 | |||||||
Centuri accounts receivable for services provided to Southwest | $ | 10,265 | $ | 10,585 | ||||
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June 30, 2018 | December 31, 2017 | |||||||
Centuri accounts receivable for services provided to Southwest | $ | 13,899 | $ | 12,987 | ||||
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The accounts receivable balance, revenues, and associated profits are included in the condensed consolidated financial statements of the Company and were not eliminated during consolidation in accordance with accounting treatment for rate-regulated entities.
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
Other Property and Investments.Other property and investments on the Southwest Gas Holdings, Inc. Condensed Consolidated Balance Sheets includes (thousands of dollars):
June 30, 2017 | December 31, 2016 | |||||||
Centuri property and equipment | $ | 478,247 | $ | 451,114 | ||||
Centuri accumulated provision for depreciation and amortization | (240,182 | ) | (228,374 | ) | ||||
Net cash surrender value of COLI policies | 111,523 | 106,744 | ||||||
Other property | 13,303 | 12,859 | ||||||
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Total | $ | 362,891 | $ | 342,343 | ||||
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June 30, 2018 | December 31, 2017 | |||||||
Southwest Gas Corporation: | ||||||||
Net cash surrender value of COLI policies | $ | 118,733 | $ | 117,341 | ||||
Other property | 1,743 | 1,773 | ||||||
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Total Southwest Gas Corporation | 120,476 | 119,114 | ||||||
Centuri property, equipment, and intangibles | 606,750 | 554,730 | ||||||
Centuri accumulated depreciation/amortization | (278,209 | ) | (258,906 | ) | ||||
Other property | 13,219 | 13,242 | ||||||
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Total Southwest Gas Holdings, Inc. | $ | 462,236 | $ | 428,180 | ||||
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Other Income (Deductions).The following table provides the composition of significant items included in Other income (deductions) in the condensed consolidated statementsCondensed Consolidated Statements of incomeIncome (thousands of dollars):
Three Months Ended | Six Months Ended | Twelve Months Ended | Three Months Ended | Six Months Ended | Twelve Months Ended | |||||||||||||||||||||||||||||||||||||||||||
June 30 | June 30 | June 30 | June 30, | June 30, | June 30, | |||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||
Southwest Gas Corporation - natural gas operations segment: | ||||||||||||||||||||||||||||||||||||||||||||||||
Change in COLI policies | $ | 1,900 | $ | 2,200 | $ | 4,700 | $ | 3,100 | $ | 9,000 | $ | 1,300 | $ | 2,000 | $ | 1,900 | $ | 1,300 | $ | 4,700 | $ | 6,900 | $ | 9,000 | ||||||||||||||||||||||||
Interest income | 614 | 390 | 1,178 | 757 | 2,269 | 1,766 | 1,377 | 614 | 2,795 | 1,178 | 4,401 | 2,269 | ||||||||||||||||||||||||||||||||||||
Equity AFUDC | 633 | 750 | 1,109 | 1,282 | 2,116 | 3,157 | 357 | 633 | 586 | 1,109 | 1,773 | 2,116 | ||||||||||||||||||||||||||||||||||||
Other components of net periodic benefit cost | (5,264 | ) | (4,857 | ) | (10,529 | ) | (9,712 | ) | (20,241 | ) | (19,591 | ) | ||||||||||||||||||||||||||||||||||||
Miscellaneous income and (expense) | (1,095 | ) | (904 | ) | (1,324 | ) | (948 | ) | (3,637 | ) | (2,654 | ) | (564 | ) | (1,095 | ) | (849 | ) | (1,324 | ) | (1,869 | ) | (3,637 | ) | ||||||||||||||||||||||||
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Southwest Gas Corporation - total other income (deductions) | 2,052 | 2,436 | 5,663 | 4,191 | 9,748 | 3,569 | (2,094 | ) | (2,805 | ) | (6,697 | ) | (4,049 | ) | (9,036 | ) | (9,843 | ) | ||||||||||||||||||||||||||||||
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Interest income | 1 | 1 | 1 | 1 | 1 | 414 | 1 | 1 | 2 | 1 | 4 | 1 | ||||||||||||||||||||||||||||||||||||
Foreign transaction gain (loss) | (197 | ) | (9 | ) | (198 | ) | (19 | ) | (201 | ) | (271 | ) | 202 | (197 | ) | 349 | (198 | ) | (207 | ) | (201 | ) | ||||||||||||||||||||||||||
Miscellaneous income and (expense) | 190 | 42 | 445 | 18 | 1,641 | 924 | (835 | ) | 190 | (720 | ) | 445 | (69 | ) | 1,641 | |||||||||||||||||||||||||||||||||
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Centuri - total other income (deductions) | (6 | ) | 34 | 248 | — | 1,441 | 1,067 | (632 | ) | (6 | ) | (369 | ) | 248 | (272 | ) | 1,441 | |||||||||||||||||||||||||||||||
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Corporate and administrative | 1 | — | 1 | — | 1 | — | 20 | 1 | 26 | 1 | 38 | 1 | ||||||||||||||||||||||||||||||||||||
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Consolidated Southwest Gas Holdings, Inc. - total other income (deductions) | $ | 2,047 | $ | 2,470 | $ | 5,912 | $ | 4,191 | $ | 11,190 | $ | 4,636 | $ | (2,706 | ) | $ | (2,810 | ) | $ | (7,040 | ) | $ | (3,800 | ) | $ | (9,270 | ) | $ | (8,401 | ) | ||||||||||||||||||
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Included in the table above is the change in cash surrender values of company-owned life insurance (“COLI”) policies (including net death benefits recognized). These life insurance policies on members of management and other key employees are used by Southwest to indemnify itself against the loss of talent, expertise, and knowledge, as well as to provide indirect funding for certain nonqualified benefit plans. Current tax regulations provide fortax-free treatment of life insurance (death benefit) proceeds. Therefore, changes in the cash surrender values of COLI policies, as they progress towards the ultimate death benefits, are also recorded without tax consequences.
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Refer also toNote 2 – Components of Net Periodic Benefit Cost.
Recently Issued Accounting Standards Updates. In May 2014, the FASB issued the update “Revenue from Contracts with Customers (Topic 606).” The update replaces much of the current guidance regarding revenue recognition including most industry-specific guidance. In accordance with the update, an entity will be required to identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the entity satisfies a performance obligation. In addition to the new revenue recognition requirements, entities will be required to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Entities may choose between two retrospective transition methods when applying the update. In July 2015, the FASB approved a one-year deferral of the effective date (annual periods beginning after December 15, 2017). In March, April, May, and December of 2016, the FASB issued updates to Topic 606 related to “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, “Identifying Performance Obligations and Licensing,” “Narrow-Scope Improvements and Practical Expedients”, and certain “Technical Corrections and Improvements.” The amendments in the first two updates, respectively, provide guidance when another party, along with the entity, is involved in providing a good or service to a customer, and provide clarification with regard to identifying performance obligations and of the licensing implementation guidance in Topic 606. The third update includes improvements to the guidance on collectability, noncash consideration, and completed contracts at transition. In addition, a practical expedient is provided for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The fourth update affects narrow aspects of the guidance as issued to date. Management plans to adopt all of these updates at the required adoption date, which is for interim and annual reporting periods commencing January 2018.
Management has substantially completed the evaluation of the sources of revenue and is currently assessing the effect of the new guidance on its financial position, results of operations and cash flows. The final assessment is contingent, in part, upon the completion of reviews related to customers with negotiated and unique billing terms. Deliberations have been ongoing by the utility industry, notably in connection with efforts to produce an accounting guide intended to be developed by the American Institute of Certified Public Accountants (“AICPA”). In association with this undertaking, the AICPA formed a number of industry task forces, including a Power & Utilities (“P&U”) Task Force, on which Company personnel actively participate via formal membership. Industry representatives and organizations, the largest auditing firms, the AICPA’s Revenue Recognition Working Group and its Financial Reporting Executive Committee have undertaken, and continue to undertake, consideration of several items relevant to the utility industry. Where applicable or necessary, the FASB’s Transition Resource Group (“TRG”) is also participating. Through the P&U Task Force undertakings to date, general determinations have been made that contributions received in aid of construction (“CIAC”) efforts related to the industry’s pipe distribution and transmission systems are reimbursements of expenditures rather than revenue (consistent with current accounting practices). Furthermore, regarding the “collectibility” criterion in the update that must be met for revenue recognition, general determinations have been made that contracts for utility service (including service to lower income or lower credit quality customers) represent genuine and valid contracts for which revenue is able to be recognized when service is rendered (consistent with current accounting practices). These determinations by the P&U industry are based on the various measures the industry takes to help ensure collectibility (e.g., proof of creditworthiness, customer deposits, late fee assessment, disconnection, service re-establishment fees, collection processes, etc.), in addition to the regulatory mechanisms established under rate regulation to mitigate the impacts of individual customer nonpayment. A timeline for the resolution of all deliberations of P&U efforts has not been established. Southwest continues to actively work with its peers in the rate-regulated natural gas industry and with the public accounting profession to finalize the accounting treatment for several other issues that are not being separately addressed by the P&U Task Force.
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As of June 30, 2017, the construction services segment has substantially completed the evaluation of sources of revenue and continues to assess the effect of the new guidance on financial position, results of operations and cash flows. The principals of the new revenue recognition guidance are very similar to existing guidance for construction contractors. Similar to the P&U Task Force noted above, the AICPA formed the Engineering and Construction Contractors Task Force to assist the construction industry with implementing the new guidance. The accounting guide the AICPA intends to release is expected to provide implementation guidance related to several issues including 1) combining contracts and separating performance obligations; 2) estimating change orders, incentives, penalties, liquidated damages and other variable consideration items and 3) acceptable measures of progress when recognizing revenue over time.
Given the uncertainty with respect to the conclusions that might arise from the ongoing deliberations on issues associated with both the natural gas and construction services segments, the Company is currently unable to determine the effect the new guidance will have on its financial position, results of operations, cash flows, business processes, or the transition method it will utilize to adopt the new guidance. However, conclusions reached regarding CIAC and collectability criterion with regard to utility service are significant and are aligned with current practices and recognition.
In January 2016, the FASB issued the update “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” in order to improve the recognition and measurement of financial instruments. The update makes targeted improvements to existing U.S. GAAP by: 1) requiring equity investments to be measured at fair value with changes in fair value recognized in net income; 2) requiring the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; 3) requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; 4) eliminating the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and 5) requiring a reporting entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. All entities can early adopt the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. Management is evaluating what impact, if any, this update might have on its consolidated financial statements and disclosures.
In February 2016, the FASB issued the update “Leases (Topic 842).” Under the update, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:
A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and
Aright-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue“Revenue from Contracts with Customers.” Though companies have historically been required to make disclosures regarding leases and of associated contractual obligations, leases (withwith terms longer than a year)year will no longer existoff-balance sheet. Lessees (for capital
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Early application is permitted. Management currently plans to adopt the update at the required adoption date, which is for interim and annual reporting periods commencing January 1, 2019. Existing leases have been historically documented under traditional leasing arrangements by both segments and managementsegments. Management is in the process of determining if special software will be necessary to implement the standard. In addition, management is evaluating other types of arrangements that have the potential impactsto meet the definition of various natural gas industry-related issuesa lease under the new standard. The FASB recently issued guidance that will allow the election of a practical expedient to not apply the new standard to existing easement contracts that were not previously assessed as leases under historic guidance. However, the Company and Southwest would still be required to evaluate any new easements entered into after the effective date of the standard to determine if the arrangements should be accounted for as leases. In July 2018, the FASB issued narrow-scope improvements to the standard, which include, among other things, guidance on lease classification reassessments, that reference index changes, and on their own, do not constitute resolution of a contingency requiring remeasurement of lease payments, and clarification that lessor-controlled options to terminate a lease are considered in the lease term. Management is currently in the process of implementing a new software system to comply with Topic 842 including amendments thereto, and continues to evaluate the guidance in light of its customary leasing arrangements (and other arrangements in association with the leasing standard. Given the uncertainty with respect to
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the conclusions that might arise from these deliberations, management is currently unablenew guidance) to determine the effect the new guidancestandard, and its amendments, will have on its financial position, results of operations, cash flows, orand business processes.
In June 2016, the FASB issued the update “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The update amends guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, the update eliminates the “probable” threshold for initial recognition of credit losses in current U.S. GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current U.S. GAAP,GAAP; however, the update will require that credit losses be presented as an allowance rather than as a write-down. This update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The update affects loans, debt securities, trade receivables, net investments in leases,off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All entities may adopt the amendments in this update earlier as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management is evaluating what impact, if any, this update might have on its consolidated financial statements and disclosures.
In August 2016, the FASB issued the update “Classification of Certain Cash Receipts and Cash Payments.” This update addresses the following specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance (“COLI”) policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows, including identification of the predominant nature in cases where cash receipts and payments have aspects of more than one class of cash flows. The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Management is evaluating the impacts this update might have on its consolidated cash flow statements and disclosures.
In October 2016, the FASB issued the update “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory.” This update eliminates the current U.S. GAAP exception for all intra-entity sales of assets other than inventory. As a result, a reporting entity would recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. The update is effective for fiscal years beginning after December 15 2017, including interim periods within those fiscal years. Early adoption is permitted; however, the guidance can only be adopted in the first interim period of a fiscal year. No such election to adopt early was made by management. The modified retrospective approach will be required for transition to the new guidance, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. Management is evaluating the impacts this update might have on its consolidated financial statements.
In January 2017, the FASB issued the update “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The update eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The update also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments should be applied on a prospective basis. The update is effective for fiscal and interim periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Management has determined that this update would have had no impact on the consolidated financial statements for the periods presented if it had been effective during those periods.
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
In March 2017, the FASB issued the update “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The update applies to all employers that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715, Compensation – Retirement Benefits. The update requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented, and be appropriately described (or disclosed in the notes when one is not presented). The update also allows only the service cost component (and not the other components of periodic benefit costs) to be eligible for capitalization when applicable, making no exception for specialized industries, includingrate-regulated industries. Southwest is a rate-regulated utility offering pension and postretirement benefits to retired employees. Rate-regulated entities providing utility and transmission services have historically capitalized a portion of periodic benefit costs (including non-service cost components) in utility infrastructure (for instance, when productive labor is also charged to capital work orders). The portion capitalized becomes a component of depreciation rate development by efforts of companies and their regulatory commissions. The industry is currently evaluating whether this update could cause a difference (not currently existing), between accounting reflected in general purpose financial statements versus financial statements and information utilized for regulatory reporting and ratemaking purposes. Deliberations center on whether companies will be able to implement the provisions of the update for all purposes, only for general purpose financial reporting purposes, or whether regulatory reporting and economics will give effect to other related changes necessary in general purpose financial statements. If the provisions of the update cannot be implemented for all purposes, substantial effort could be required to maintain separate records and to provide reasonable reconciliation means for users of both. The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Due to the industry deliberations noted above, management has not fully completed its evaluation at this time. As efforts continue, management will be evaluating the various impacts this update will have on its consolidated financial statements and disclosures.
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Note 2 – Components of Net Periodic Benefit Cost
As of January 1, 2018, the Company and Southwest adopted “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The update requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations and be appropriately described. The update also allows only the service cost component (and not the other components of periodic benefit costs) to be eligible for capitalization when applicable, making no exception for specialized industries, includingrate-regulated industries. This guidance is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost and on a prospective basis for the capitalization of only the service cost component of net benefit cost. Amounts capitalized as part of assets prior to the date of adoption were not adjusted through a cumulative effect adjustment. The guidance allows a practical expedient for the retrospective application that permits use of the amounts disclosed for the various components of net benefit cost in the pension and other postretirement benefit plans footnote as the basis for the retrospective application. This is in lieu of determining how much of the various components of net benefit cost were actually reflected in the income statement each period as a result of capitalization of certain costs into assets and their subsequent amortization. The Company and Southwest have elected to utilize the practical expedient. Therefore, upon adoption, amounts presented in the Condensed Consolidated Statements of Income for operations and maintenance for the three-,six-, and twelve-month periods ended June 30, 2017 were reclassified. The Operations and maintenance line item of the Southwest Gas Holdings, Inc. Condensed Consolidated Statements of Income was revised from $103.1 million to $98.2 million for the three months ended June 30, 2017, from $212.2 million to $202.5 million for the six months ended June 30, 2017, and from $414.4 million to $394.8 million for the twelve months ended June 30, 2017. The Operations and maintenance line item of the Southwest Gas Corporation Condensed Consolidated Statements of Income was revised from $102.5 million to $97.6 million for the three months ended June 30, 2017, from $211.2 million to $201.5 million for the six months ended June 30, 2017, and from $413.4 million to $393.8 million for the twelve months ended June 30, 2017. The Other income (deductions) line item of the Southwest Gas Holdings, Inc. Condensed Consolidated Statements of Income was revised from $2.1 million to ($2.8) million for the three months ended June 30, 2017, from $5.9 million to ($3.8) million for the six months ended June 30, 2017, and from $11.2 million to ($8.4) million for the twelve months ended June 30, 2017. The Other income (deductions) line item of the Southwest Gas Corporation Condensed Consolidated Statements of Income was revised from $2.1 million to ($2.8) million for the three months ended June 30, 2017, from $5.7 million to ($4.0) million for the six months ended June 30, 2017, and from $9.8 million to ($9.8) million for the twelve months ended June 30, 2017. Net income overall was not impacted by this reclassification for either the Company or Southwest.
Southwest has a noncontributory qualified retirement plan with defined benefits covering substantially all employees and a separate unfunded supplemental retirement plan (“SERP”) which is limited to officers. Southwest also provides postretirement benefits other than pensions (“PBOP”) to its qualified retirees for health care, dental, and life insurance.
NetDuring the first quarter of 2018, qualifying term-vested participants were offered alump-sum present value payout of their pensions. The offer was primarily intended to reduce insurance and ongoing maintenance costs associated with qualifying participant balances. Aboutone-quarter of the approximate 385 eligible participants accepted the offer, resulting in an approximate $6.8 million payment from pension assets in July 2018. The lump sum payout will have no impact on net periodic benefit cost or pension funding requirements during 2018.
The service cost component of net periodic benefit costs included in the table below are components of an overhead loading process associated with the cost of labor.labor (refer to discussion above related to the update to Topic 715). The overhead process ultimately results in allocation of that portion of overall net periodic benefit costs to the same accounts to which productive labor is charged. As a result, net periodic benefitservice costs become components of various accounts, primarily operations and maintenance expense, net utility plant, and deferred charges and other assets for both the Company and Southwest. Refer also to the practical expedient elected related to amounts capitalized as part of assets prior to the adoption date.
Qualified Retirement Plan | ||||||||||||||||||||||||
Period Ended June 30, | ||||||||||||||||||||||||
Three Months | Six Months | Twelve Months | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
(Thousands of dollars) | ||||||||||||||||||||||||
Service cost | $ | 5,848 | $ | 5,708 | $ | 11,696 | $ | 11,417 | $ | 23,112 | $ | 23,979 | ||||||||||||
Interest cost | 11,521 | 11,507 | 23,041 | 23,013 | 46,055 | 45,127 | ||||||||||||||||||
Expected return on plan assets | (13,799 | ) | (14,139 | ) | (27,598 | ) | (28,279 | ) | (55,877 | ) | (57,183 | ) | ||||||||||||
Amortization of net actuarial loss | 6,001 | 6,316 | 12,002 | 12,633 | 24,635 | 29,005 | ||||||||||||||||||
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Net periodic benefit cost | $ | 9,571 | $ | 9,392 | $ | 19,141 | $ | 18,784 | $ | 37,925 | $ | 40,928 | ||||||||||||
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SERP | ||||||||||||||||||||||||
Period Ended June 30, | ||||||||||||||||||||||||
Three Months | Six Months | Twelve Months | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
(Thousands of dollars) | ||||||||||||||||||||||||
Service cost | $ | 77 | $ | 83 | $ | 155 | $ | 165 | $ | 321 | $ | 325 | ||||||||||||
Interest cost | 471 | 465 | 942 | 930 | 1,871 | 1,778 | ||||||||||||||||||
Amortization of net actuarial loss | 360 | 346 | 720 | 692 | 1,411 | 1,338 | ||||||||||||||||||
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Net periodic benefit cost | $ | 908 | $ | 894 | $ | 1,817 | $ | 1,787 | $ | 3,603 | $ | 3,441 | ||||||||||||
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PBOP | ||||||||||||||||||||||||
Period Ended June 30, | ||||||||||||||||||||||||
Three Months | Six Months | Twelve Months | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
(Thousands of dollars) | ||||||||||||||||||||||||
Service cost | $ | 367 | $ | 375 | $ | 734 | $ | 749 | $ | 1,484 | $ | 1,569 | ||||||||||||
Interest cost | 808 | 795 | 1,616 | 1,591 | 3,205 | 3,091 | ||||||||||||||||||
Expected return on plan assets | (839 | ) | (787 | ) | (1,679 | ) | (1,575 | ) | (3,253 | ) | (3,307 | ) | ||||||||||||
Amortization of prior service costs | 334 | 334 | 668 | 668 | 1,335 | 1,336 | ||||||||||||||||||
Amortization of net actuarial loss | — | 104 | — | 208 | 209 | 380 | ||||||||||||||||||
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Net periodic benefit cost | $ | 670 | $ | 821 | $ | 1,339 | $ | 1,641 | $ | 2,980 | $ | 3,069 | ||||||||||||
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16
18
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
Qualified Retirement Plan | ||||||||||||||||||||||||
Period Ended June 30, | ||||||||||||||||||||||||
Three Months | Six Months | Twelve Months | ||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
(Thousands of dollars) | ||||||||||||||||||||||||
Service cost | $ | 7,139 | $ | 5,848 | $ | 14,278 | $ | 11,696 | $ | 25,974 | $ | 23,112 | ||||||||||||
Interest cost | 11,044 | 11,521 | 22,087 | 23,041 | 45,129 | 46,055 | ||||||||||||||||||
Expected return on plan assets | (14,688 | ) | (13,799 | ) | (29,377 | ) | (27,598 | ) | (56,975 | ) | (55,877 | ) | ||||||||||||
Amortization of net actuarial loss | 8,028 | 6,001 | 16,057 | 12,002 | 28,059 | 24,635 | ||||||||||||||||||
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Net periodic benefit cost | $ | 11,523 | $ | 9,571 | $ | 23,045 | $ | 19,141 | $ | 42,187 | $ | 37,925 | ||||||||||||
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SERP | ||||||||||||||||||||||||
Period Ended June 30, | ||||||||||||||||||||||||
Three Months | Six Months | Twelve Months | ||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
(Thousands of dollars) | ||||||||||||||||||||||||
Service cost | $ | 61 | $ | 77 | $ | 122 | $ | 155 | $ | 276 | $ | 321 | ||||||||||||
Interest cost | 414 | 471 | 829 | 942 | 1,770 | 1,871 | ||||||||||||||||||
Amortization of net actuarial loss | 376 | 360 | 751 | 720 | 1,472 | 1,411 | ||||||||||||||||||
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Net periodic benefit cost | $ | 851 | $ | 908 | $ | 1,702 | $ | 1,817 | $ | 3,518 | $ | 3,603 | ||||||||||||
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PBOP | ||||||||||||||||||||||||
Period Ended June 30, | ||||||||||||||||||||||||
Three Months | Six Months | Twelve Months | ||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
(Thousands of dollars) | ||||||||||||||||||||||||
Service cost | $ | 369 | $ | 367 | $ | 737 | $ | 734 | $ | 1,471 | $ | 1,484 | ||||||||||||
Interest cost | 687 | 808 | 1,374 | 1,616 | 2,990 | 3,205 | ||||||||||||||||||
Expected return on plan assets | (930 | ) | (839 | ) | (1,860 | ) | (1,679 | ) | (3,539 | ) | (3,253 | ) | ||||||||||||
Amortization of prior service costs | 334 | 334 | 668 | 668 | 1,335 | 1,335 | ||||||||||||||||||
Amortization of net actuarial loss | — | — | — | — | — | 209 | ||||||||||||||||||
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Net periodic benefit cost | $ | 460 | $ | 670 | $ | 919 | $ | 1,339 | $ | 2,257 | $ | 2,980 | ||||||||||||
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17
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
Note 3 – Revenue
Effective January 2018, the Company and Southwest adopted the FASB Accounting Standards Codification update, Topic 606, “Revenue from Contracts with Customers”, using the modified retrospective transition method. Under the modified retrospective approach, the information for periods prior to the adoption date has not been restated and continues to be reported under the accounting standards in effect for those periods. As permitted under the standard, the Company and Southwest have elected to apply the guidance retrospectively only to those contracts that were not completed at January 1, 2018. Management assessed the effects the new guidance has on the Company’s (and Southwest’s, in the case of utility operations) financial position, results of operations, and cash flows. Based on these assessments, the adoption of Topic 606 had no material impact on any of the financial statements of Southwest or the Company.
The following information about the Company’s revenues is presented by segment. Southwest comprises one segment – natural gas operations.
Natural Gas Operations Segment:
Southwest is engaged in the business of purchasing, distributing, and transporting natural gas for customers in portions of Arizona, Nevada, and California. Public utility rates, practices, facilities, and service territories of Southwest are subject to regulatory oversight. Southwest recognizes revenue when it satisfies its performance by transferring gas to the customer. Revenues also include the net impacts of margin tracker/decoupling accruals based on criteria in U.S. GAAP for rate-regulated entities associated with alternative revenue programs. Revenues from customer arrangements and from alternative revenue programs are described below.
Southwest acts as an agent for state and local taxing authorities in the collection and remission of a variety of taxes, including sales and use taxes and surcharges. These taxes are not included in gas operating revenues. Management uses the net classification method to report taxes collected from customers to be remitted to governmental authorities.
Southwest generally has two types of services to its customers: tariff sales and transportation–only service. Tariff sales encompass sales to many types of customers (primarily residential) under various rate schedules, subjectto cost-of-service ratemaking, which is based on the rate-regulation of state commissions and the FERC. Southwest provides both the commodity and the related distribution service to nearly all of its approximate 2 million customers, and only several hundred customers (who are eligible to secure their own gas) subscribe to transportation-only service. Also, only a few hundred customers have contracts with stated periods. Southwest recognizes revenue when it satisfies its performance requirement by transferring volumes of gas to the customer. Natural gas is delivered and consumed by the customer simultaneously. The provision of service is represented by the turn of the meter dial and is the primary representation of the satisfaction of performance obligations of Southwest. The amount billable via regulated rates (both volumetric and fixed monthly rates as part of rate design) corresponds to the value to the customer, and management believes that the amount billable under the “invoice practical expedient” (amount Southwest has the right to invoice) is appropriate to utilize for purposes of recognizing revenue. Estimated amounts remaining unbilled since the last meter read date are restricted from being billed due only to the passage of time and therefore are also recognized for service provided through the balance sheet date. While natural gas service is typically recurring, there is generally not a contract term for utility service. Therefore, the contract term is not generally viewed to extend beyond the service provided to date, and customers can generally terminate service at will.
Transportation-only service is also governed by tariff rate provisions. Transportation-only service is generally only available to very large customers under requirements of Southwest’s various tariffs. With this service, customers secure their own gas supply and Southwest provides transportation services to move the customer-supplied gas to the intended location. Southwest concluded that transportation/transmission service is suitable to an “over time” model. Rate structures under Southwest’s regulation for transportation customers include a combination of volumetric charges and monthly “fixed” charges (including charges commonly referred to as capacity charges, demand charges, or reservation charges) as part of the rate design of regulated jurisdictions. These types of fixed charges represent a separate performance obligation associated with standing ready over the period of the month to deliver quantities of gas, regardless of whether the customer takes delivery of any quantity of gas. The performance obligations under these circumstances are satisfied over the course of the month under an output measure of progress based on time, which correlates to the period for which the charges are eligible to be invoiced.
18
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
Under its regulation, Southwest enters into negotiated rate contracts for those customers located in proximity to another pipeline, which pose a threat of bypassing its distribution system. Southwest may also enter into similar contracts for customers otherwise able to satisfy their energy needs by means of alternative fuel to natural gas. Less than two dozen customers are party to contracts with rate components subject to negotiation. Many rate provisions and terms of service for these less common types of contracts are also subject to regulatory oversight and tariff provisions. The performance obligations for these customers are satisfied similar to those for other customers by means of transporting/delivering natural gas to the customer. Many or most of the rate components, and structures, for these types of customers are the same as those for similar customers without negotiated rate components; and the negotiated rates are within the parameters of the tariff guidelines. Management determined that these arrangements qualify for the invoice practical expedient for recognizing revenue. Furthermore, while some of these contracts include contract periods extending over time, including multiple years, as amounts billable under the contract are based on rates in effect for the customer for service provided to date, no significant financing component is deemed to exist.
As indicated above, revenues also include the net impacts of margin tracker/decoupling accruals. All of Southwest’s service territories have decoupled rate structures (also referred to as alternative revenue programs) that are designed to eliminate the direct link between volumetric sales and revenue, thereby mitigating the impacts of unusual weather variability and conservation on margin. The primary alternative revenue programs involve permissible adjustments for differences between stated tariff benchmarks and amounts billable through revenue from contracts with customers via existing rates. Such adjustments are recognized monthly in revenue and in the associated regulatory asset/liability in advance of rate adjustments intended to collect or return amounts recognized. Revenues recognized for the adjustment to the benchmarks noted are required to be presented separately from revenues from contracts from customers, and as such, are provided below and identified as alternative revenue program revenue.
Gas operating revenues on the Condensed Consolidated Statements of Income of both the Company and Southwest include revenue from contracts with customers, which is shown below disaggregated by customer type, and various categories of revenue:
Three Months Ended | Six Months Ended | Twelve Months Ended | ||||||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||||||
(Thousands of dollars) | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Residential | $ | 166,702 | $ | 158,442 | $ | 511,313 | $ | 501,179 | $ | 867,338 | $ | 850,344 | ||||||||||||
Small commercial | 55,653 | 51,018 | 143,596 | 132,143 | 254,966 | 235,684 | ||||||||||||||||||
Large commercial | 13,134 | 12,781 | 28,574 | 26,376 | 54,577 | 49,561 | ||||||||||||||||||
Industrial/other | 5,491 | 5,043 | 12,001 | 10,494 | 23,533 | 20,157 | ||||||||||||||||||
Transportation | 20,719 | 20,958 | 44,773 | 43,690 | 88,842 | 86,457 | ||||||||||||||||||
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Revenue from contracts with customers | 261,699 | 248,242 | 740,257 | 713,882 | 1,289,256 | 1,242,203 | ||||||||||||||||||
Alternative revenue program revenues (deferrals) | 10,393 | 10,135 | 37,602 | 5,903 | 67,046 | 17,280 | ||||||||||||||||||
Other revenues (a) | 3,587 | 1,785 | (7,867 | ) | 2,979 | (6,766 | ) | 3,945 | ||||||||||||||||
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Total Gas operating revenues | $ | 275,679 | $ | 260,162 | $ | 769,992 | $ | 722,764 | $ | 1,349,536 | $ | 1,263,428 | ||||||||||||
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(a) | Includes various other revenues, including $1.6 million during the three months, and an offset of $12.5 million in both the six months and twelve months ending June 30, 2018 related to tax reform savings adjustments. Refer toIncome Taxes inNote 1 – Nature of Operations and Basis of Presentation. |
Construction Services Segment:
The majority of Centuri contracts are performed under unit-price contracts. Generally, these contracts state prices per unit of installation. Typical installations are accomplished in a few weeks or less. Revenues are recorded as installations are completed. Revenues are recorded for long-term fixed-price contracts in a pattern that reflects the transfer of control of promised goods and services to the customer over time. The amount of revenue recognized on fixed-price contracts is based on costs expended to date relative to anticipated final contract costs. Some unit-price contracts contain caps that if encroached, trigger revenue and loss recognition similar to a fixed-price contract model.
Centuri is required to collect taxes imposed by various governmental agencies on the work performed by Centuri for its customers. These taxes are not included in construction revenues. Management uses the net classification method to report taxes collected from customers to be remitted to governmental authorities.
19
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
Centuri derives revenue from the installation, replacement, repair, and maintenance of energy distribution systems, and in developing industrial construction solutions. Centuri has operations in the U.S. and Canada. The majority of Centuri’s revenues are related to construction contracts for natural gas pipeline replacement and installation work for natural gas utilities. In addition, Centuri performs certain industrial construction activities for various customers and industries. Centuri has two types of agreements with its customers: master services agreements (“MSAs”) and bid contracts. Most of Centuri’s customers supply many of their own materials in order for Centuri to complete its work under the contracts.
An MSA identifies most of the terms describing each party’s rights and obligations that will govern future work authorizations. An MSA is often effective for multiple years. A work authorization is issued by the customer to describe the location, timing, and any additional information necessary to complete the work for the customer. The combination of the MSA and the work authorization determines when a contract exists and revenue recognition may begin. Each work authorization is generally a single performance obligation as Centuri is performing a significant integration service. Centuri has elected to use the portfolio method practical expedient at the customer level as the terms and conditions of the work performed under MSAs are similar in nature with each customer but vary significantly between customers.
A bid contract is typicallya one-time agreement for a specific project that has all necessary terms defining each party’s rights and obligations. Each bid contract is evaluated for revenue recognition individually. Control of assets created under bid contracts generally passes to the customer over time. Bid contracts often have a single performance obligation as Centuri is providing a significant integration service.
Centuri’s MSA and bid contracts are characterized as either fixed-price contracts or unit-price contracts for revenue recognition purposes. Thecost-to-cost input method is used to measure progress towards the satisfaction of a performance obligation for fixed-price contracts. Input methods result in the recognition of revenue based on the entity’s effort to satisfy the performance obligation relative to the total expected effort to satisfy the performance obligation. For unit-price contracts, an output method is used to measure progress towards satisfaction of a performance obligation. Also with regard to unit-price contracts, the output measurement will be the completion of each unit that is required under the contract.
Actual revenues and project costs can vary, sometimes substantially, from previous estimates due to changes in a variety of factors including unforeseen circumstances not originally contemplated. These factors, along with other risks inherent in performing fixed-price contracts may cause actual revenues and gross profit for a project to differ from previous estimates and could result in reduced profitability or losses on projects. Changes in these factors may result in revisions to costs and earnings, the impacts for which are recognized in the period in which the changes are identified. Once identified, these types of conditions continue to be evaluated for each project throughout the project term and ongoing revisions in management’s estimates of contract value, contract cost, and contract profit are recognized as necessary in the period determined.
Centuri categorizes work performed under MSAs and bid contracts into three primary service types: replacement gas construction, new gas construction, and other construction. Replacement gas construction includes work involving previously existing gas pipelines. New gas construction involves the installation of new pipelines or service lines to areas that do not already have gas services. Other construction includes all other work and can include industrial construction, water infrastructure construction, electric infrastructure construction, etc.
Contracts can have compensation/consideration that is variable. For MSAs, variable consideration is evaluated at the customer level as the terms creating variability in pricing are included within the MSA and are not specific to a work authorization. For multi-year MSAs, variable consideration items are typically determined for each year of the contract and not for the full contract term. For bid contracts, variable consideration is evaluated at the individual contract level. The expected value method or most likely amount method is used based on the nature of the variable consideration. Types of variable consideration include liquidated damages, delay penalties, performance incentives, safety bonuses, payment discounts, and volume rebates. Centuri will typically estimate variable consideration and adjust financial information, as necessary.
20
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
Change orders involve the modification in scope, price, or both to the current contract, requiring approval by both parties. The existing terms of the contract continue to be accounted for under the current contract until such time as a change order is approved. Once approved, the change order is either treated as a separate contract or as part of the existing contract, as appropriate, under the circumstances. When the scope is agreed upon in the change order but not the price, Centuri estimates the change to the transaction price.
The following tables display Centuri’s revenue from contracts with customers disaggregated by service type and contract type:
(Thousands of dollars) | Three Months Ended | Six Months Ended | Twelve Months Ended | |||||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
Service Types: | ||||||||||||||||||||||||
Replacement gas construction | $256,070 | $181,512 | $413,421 | $301,950 | $899,537 | $733,927 | ||||||||||||||||||
New gas construction | 44,276 | 40,226 | 80,473 | 73,305 | 172,545 | 197,100 | ||||||||||||||||||
Other construction | 94,858 | 78,569 | 161,327 | 117,187 | 337,181 | 202,245 | ||||||||||||||||||
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Total Construction revenues | $395,204 | $300,307 | $655,221 | $492,442 | $1,409,263 | $1,133,272 | ||||||||||||||||||
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(Thousands of dollars) | Three Months Ended | Six Months Ended | Twelve Months Ended | |||||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
Contract Types: | ||||||||||||||||||||||||
Master services agreement | $290,075 | $208,361 | $484,539 | $355,553 | $1,014,517 | $825,980 | ||||||||||||||||||
Bid contract | 105,129 | 91,946 | 170,682 | 136,889 | 394,746 | 307,292 | ||||||||||||||||||
Total Construction revenues | $395,204 | $300,307 | $655,221 | $492,442 | $1,409,263 | $1,133,272 | ||||||||||||||||||
Unit priced contracts | $345,390 | $272,427 | $579,675 | $450,098 | $1,249,602 | $974,107 | ||||||||||||||||||
Fixed priced contracts | 49,814 | 27,880 | 75,546 | 42,344 | 159,661 | 159,165 | ||||||||||||||||||
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Total Construction revenues | $395,204 | $300,307 | $655,221 | $492,442 | $1,409,263 | $1,133,272 | ||||||||||||||||||
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The following table provides information about receivables, revenue earned on contracts in progress in excess of billings, which are included within accounts receivable, net of allowances, and amounts billed in excess of revenue earned on contracts, which is included in other current liabilities as of June 30, 2018 and December 31, 2017 on the Company’s Condensed Consolidated Balance Sheets:
(Thousands of dollars) | June 30, 2018 | December 31, 2017 | ||||||
Contracts receivable, net | $ | 187,485 | $ | 221,859 | ||||
Revenue earned on contracts in progress in excess of billings | 86,750 | 5,768 | ||||||
Amounts billed in excess of revenue earned on contracts | 8,592 | 9,602 |
The revenue earned on contracts in progress in excess of billings primarily relates to Centuri’s rights to consideration for work completed but not billed and/or approved at the reporting date. The revenue earned on contracts in progress in excess of billings are transferred to contracts receivable when the rights become unconditional. The amounts billed in excess of revenue earned on contracts primarily relates to the advance consideration received from customers for which work has not yet been completed. The amount of revenue recognized in 2018 from performance obligations satisfied (or partially satisfied) in previous periods under these contracts is $34.7 million for the three months ended June 30, 2018 and $88.7 million for the six months ended June 30, 2018.
For Centuri’s contracts that have an original duration of one year or less, Centuri uses the practical expedient applicable to such contracts and does not consider the time value of money. Further, because of the short duration of these contracts, Centuri has not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period or when the Company expects to recognize the revenue.
Centuri has sixteen contracts that had an original duration of more than one year. The aggregate amount of the transaction price allocated to the unsatisfied performance obligations of these contracts as of June 30, 2018 is $86 million. Centuri expects to recognize the remaining performance obligations over the next four years, however, the timing of that recognition is largely within the control of the customer, including when the necessary equipment and materials required to complete the work are provided by the customer.
21
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
Construction services contracts receivable consists of the following:
(Thousands of dollars) | June 30, 2018 | |||
Billed on completed contracts and contracts in progress | $ | 185,911 | ||
Other receivables | 1,660 | |||
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Contracts receivable, gross | 187,571 | |||
Allowance for doubtful accounts | (86 | ) | ||
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Contracts receivable, net | $ | 187,485 | ||
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The balance of contracts receivable above is included in Accounts Receivable, net of allowances in the Southwest Gas Holdings, Inc. Condensed Consolidated Balance Sheet at June 30, 2018.
Management recognizes revenue on contracts in progress in excess of billings (a contract asset) within Accounts receivable, net of allowances in the Company’s Condensed Consolidated Balance Sheets, and amounts billed in excess of revenue earned (a contract liability) in Other current liabilities. However, the following shows the significant changes in these asset and liability balances associated with Centuri since January 1, 2018:
(Thousands of dollars) | June 30, 2018 | |||||||
Revenue earned on contracts in progress in excess of billings | Amounts billed in excess of revenue earned on contracts | |||||||
Revenue recognized that was included in the amounts billed in excess of revenue earned on contracts balance at the beginning of the period | $ | — | $ | (9,602 | ) | |||
Increases due to amounts billed to customers in excess of revenue earned during the period | — | 8,592 | ||||||
Transferred to contracts receivable from revenue earned on contracts in progress in excess of billings recognized at the beginning of the period | (5,768 | ) | — | |||||
Increases from the reclassification of contract assets due to the adoption of topic 606 | 51,744 | — | ||||||
Increases from contract assets, contingent on a future event occurring | 35,006 | — |
In regards to the table above, prior to the adoption of ASC Topic 606, revenue earned on contracts in progress in excess of billings was only used to recognize contract assets related to fixed-price contracts under previous accounting guidance. This balance now includes any conditional contract assets for both fixed-price contracts and unit-price contracts. Centuri considers retention and unbilled amounts to customers to be conditional contract assets, as payment is contingent on the occurrence of a future event. Contracts receivable, net, included in Accounts receivable, net of allowances, includes only amounts that are unconditional in nature, which means only the passage of time remains and Centuri has invoiced the customer. Similarly, amounts billed in excess of revenue earned on contracts, which is included in the Other current liabilities line item on the Company’s Condensed Consolidated Balance Sheets, was only used to recognize contract liabilities related to fixed-price contracts under previous accounting guidance. This line item now includes contract liabilities related to both fixed-price contracts and unit-price contracts. In the event a contract asset or contract liability is expected to be recognized for greater than one year from the financial statement date, Centuri classifies those amounts as long-term contract assets or contract liabilities, included in Other deferred credits and other long-term liabilities on the Company’s Condensed Consolidated Balance Sheets.
22
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
Note 34 – Segment Information
The Company has two reportable segments: natural gas operations and construction services. Southwest has a single reportable segment that is referred to herein as the natural gas operations segment of the Company. In order to reconcile to net income as disclosed in the Condensed Consolidated Statements of Income, an Other column is included associated with impacts related to corporate and administrative activities related to Southwest Gas Holdings, Inc. The following tables present revenues from external customers, intersegment revenues, and segment net income for the two reportable segments (thousands of dollars):
Natural Gas Operations | Construction Services | Other | Total | |||||||||||||||||||||||||||||
Three months ended June 30, 2018 | ||||||||||||||||||||||||||||||||
Revenues from external customers | $ | 275,679 | $ | 362,132 | $ | — | $ | 637,811 | ||||||||||||||||||||||||
Intersegment revenues | — | 33,072 | — | 33,072 | ||||||||||||||||||||||||||||
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Total | $ | 275,679 | $ | 395,204 | $ | — | $ | 670,883 | ||||||||||||||||||||||||
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Segment net income (loss) | $ | 2,622 | $ | 19,236 | $ | (307 | ) | $ | 21,551 | |||||||||||||||||||||||
Natural Gas Operations | Construction Services | Other | Total |
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Three months ended June 30, 2017 | ||||||||||||||||||||||||||||||||
Revenues from external customers | $ | 260,162 | $ | 277,384 | $ | — | $ | 537,546 | $ | 260,162 | $ | 277,384 | $ | — | $ | 537,546 | ||||||||||||||||
Intersegment revenues | — | 22,923 | — | 22,923 | — | 22,923 | — | 22,923 | ||||||||||||||||||||||||
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Total | $ | 260,162 | $ | 300,307 | $ | — | $ | 560,469 | $ | 260,162 | $ | 300,307 | $ | — | $ | 560,469 | ||||||||||||||||
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Segment net income (loss) | $ | 9,522 | $ | 8,716 | $ | (374 | ) | $ | 17,864 | $ | 9,522 | $ | 8,716 | $ | (374 | ) | $ | 17,864 | ||||||||||||||
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Three months ended June 30, 2016 | ||||||||||||||||||||||||||||||||
Natural Gas Operations | Construction Services | Other | Total | |||||||||||||||||||||||||||||
Six months ended June 30, 2018 | ||||||||||||||||||||||||||||||||
Revenues from external customers | $ | 255,648 | $ | 266,343 | $ | — | $ | 521,991 | $ | 769,992 | $ | 594,991 | $ | — | $ | 1,364,983 | ||||||||||||||||
Intersegment revenues | — | 25,757 | — | 25,757 | — | 60,230 | — | 60,230 | ||||||||||||||||||||||||
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Total | $ | 255,648 | $ | 292,100 | $ | — | $ | 547,748 | $ | 769,992 | $ | 655,221 | $ | — | $ | 1,425,213 | ||||||||||||||||
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Segment net income | $ | 2,358 | $ | 6,585 | $ | — | $ | 8,943 | ||||||||||||||||||||||||
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Segment net income (loss) | $ | 92,971 | $ | 8,235 | $ | (564 | ) | $ | 100,642 | |||||||||||||||||||||||
Natural Gas Operations | Construction Services | Other | Total |
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Six months ended June 30, 2017 | ||||||||||||||||||||||||||||||||
Revenues from external customers | $ | 722,764 | $ | 448,223 | $ | — | $ | 1,170,987 | $ | 722,764 | $ | 448,223 | $ | — | $ | 1,170,987 | ||||||||||||||||
Intersegment revenues | — | 44,219 | — | 44,219 | — | 44,219 | — | 44,219 | ||||||||||||||||||||||||
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Total | $ | 722,764 | $ | 492,442 | $ | — | $ | 1,215,206 | $ | 722,764 | $ | 492,442 | $ | — | $ | 1,215,206 | ||||||||||||||||
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Segment net income (loss) | $ | 86,460 | $ | 1,382 | $ | (670 | ) | $ | 87,172 | $ | 86,460 | $ | 1,382 | $ | (670 | ) | $ | 87,172 | ||||||||||||||
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Six months ended June 30, 2016 | ||||||||||||||||||||||||||||||||
Natural Gas Operations | Construction Services | Other | Total | |||||||||||||||||||||||||||||
Twelve months ended June 30, 2018 | ||||||||||||||||||||||||||||||||
Revenues from external customers | $ | 780,748 | $ | 450,304 | $ | — | $ | 1,231,052 | $ | 1,349,536 | $ | 1,296,093 | $ | — | $ | 2,645,629 | ||||||||||||||||
Intersegment revenues | — | 47,944 | — | 47,944 | — | 113,170 | — | 113,170 | ||||||||||||||||||||||||
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Total | $ | 780,748 | $ | 498,248 | $ | — | $ | 1,278,996 | $ | 1,349,536 | $ | 1,409,263 | $ | — | $ | 2,758,799 | ||||||||||||||||
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Segment net income | $ | 79,941 | $ | 4,448 | $ | — | $ | 84,389 | ||||||||||||||||||||||||
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Segment net income (loss) | $ | 163,329 | $ | 45,213 | $ | (1,231 | ) | $ | 207,311 | |||||||||||||||||||||||
Natural Gas Operations | Construction Services | Other | Total |
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Twelve months ended June 30, 2017 | ||||||||||||||||||||||||||||||||
Revenues from external customers | $ | 1,263,428 | $ | 1,038,876 | $ | — | $ | 2,302,304 | $ | 1,263,428 | $ | 1,038,876 | $ | — | $ | 2,302,304 | ||||||||||||||||
Intersegment revenues | — | 94,396 | — | 94,396 | — | 94,396 | — | 94,396 | ||||||||||||||||||||||||
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Total | $ | 1,263,428 | $ | 1,133,272 | $ | — | $ | 2,396,700 | $ | 1,263,428 | $ | 1,133,272 | $ | — | $ | 2,396,700 | ||||||||||||||||
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Segment net income (loss) | $ | 125,942 | $ | 29,552 | $ | (670 | ) | $ | 154,824 | $ | 125,942 | $ | 29,552 | $ | (670 | ) | $ | 154,824 | ||||||||||||||
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Twelve months ended June 30, 2016 | ||||||||||||||||||||||||||||||||
Revenues from external customers | $ | 1,395,629 | $ | 964,973 | $ | — | $ | 2,360,602 | ||||||||||||||||||||||||
Intersegment revenues | — | 109,195 | — | 109,195 | ||||||||||||||||||||||||||||
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Total | $ | 1,395,629 | $ | 1,074,168 | $ | — | $ | 2,469,797 | ||||||||||||||||||||||||
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Segment net income | $ | 113,302 | $ | 32,472 | $ | — | $ | 145,774 | ||||||||||||||||||||||||
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Note 45 – Derivatives and Fair Value Measurements
Derivatives. In managing its natural gas supply portfolios, Southwest has historically entered into fixed- and variable-price contracts, which qualify as derivatives. Additionally, Southwest utilizesfixed-for-floating swap contracts (“Swaps”) to supplement its fixed-price contracts. The fixed-price contracts, firm commitments to purchase a fixed amount of gas in the future at a fixed price, qualify for the normal purchases and normal sales exception that is allowed for contracts that are probable of delivery in the normal course of business, and are exempt from fair value reporting.
1923
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
for contracts that are probable of delivery in the normal course of business, and are exempt from fair value reporting. The variable-price contracts have no significant market value. The Swaps are recorded at fair value.
The fixed-price contracts and Swaps are utilized by Southwest under its volatility mitigation programs to effectively fix the price on a portion (up to 25% in the Arizona and California jurisdictions) of its natural gas supply portfolios. The maturities of the Swaps highly correlate to forecasted purchases of natural gas, during time frames ranging from July 20172018 through MarchOctober 2019. Under such contracts, Southwest pays the counterparty a fixed rate and receives from the counterparty a floating rate per MMBtu (“dekatherm”) of natural gas. Only the net differential is actually paid or received. The differential is calculated based on the notional amounts under the contracts, which are detailed in the table below (thousands of dekatherms):
June 30, 2017 | December 31, 2016 | |||||||
Contract notional amounts | 11,035 | 10,543 | ||||||
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June 30, 2018 | December 31, 2017 | |||||||
Contract notional amounts | 13,035 | 10,929 | ||||||
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Southwest does not utilize derivative financial instruments for speculative purposes, nor does it have trading operations.
The following table sets forth the gains and (losses) recognized on the Swaps (derivatives) for the three-,six-, and twelve-month periods ended June 30, 20172018 and 20162017 and their location in the Condensed Consolidated Statements of Income for both the Company and Southwest:
Gains (losses) recognized in income for derivatives not designated as hedging instruments:
(Thousands of dollars)
(Thousands of dollars)
| (Thousands of dollars)
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Three Months Ended | Six Months Ended | Twelve Months Ended | Three Months Ended | Six Months Ended | Twelve Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
Location of Gain or (Loss) | June 30 | June 30 | June 30 | Location of Gain or (Loss) Recognized in Income on Derivative | June 30 | June 30 | June 30 | |||||||||||||||||||||||||||||||||||||||||||||
Instrument | Recognized in Income on Derivative | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||||
Swaps | Net cost of gas sold | $ | (1,168 | ) | $ | 5,537 | $ | (6,305 | ) | $ | 4,325 | $ | (5,624 | ) | $ | (1,866 | ) | Net cost of gas sold | $ | 870 | $ | (1,168 | ) | $ | (4,326 | ) | $(6,305) | $(9,593) | $ | (5,624 | ) | |||||||||||||||||||||
Swaps | Net cost of gas sold | 1,168 | * | (5,537 | )* | 6,305 | * | (4,325 | )* | 5,624 | * | 1,866 | * | Net cost of gas sold | (870 | )* | 1,168 | * | 4,326 | * | 6,305 | * | 9,593 | * | 5,624 | * | ||||||||||||||||||||||||||
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Total | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||
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* | Represents the impact of regulatory deferral accounting treatment under U.S. GAAP for rate-regulated entities. |
No gains (losses) were recognized in net income or other comprehensive income during the periods presented for derivatives designated as cash flow hedging instruments. Previously, Southwest entered into two forward-starting interest rate swaps (“FSIRS”), both of which were designated cash flow hedges, to partially hedge the risk of interest rate variability during the period leading up to the planned issuance of debt. The first FSIRS terminated in December 2010. The second FSIRS terminated in March 2012. Losses on both FSIRS are being amortized overten-year periods from Accumulated other comprehensive income (loss) into interest expense.
The following table sets forth the fair values of the Swaps and their location in the Condensed Consolidated Balance Sheets for both the Company and Southwest (thousands of dollars):
Fair values of derivatives not designated as hedging instruments:
June 30, 2017 Instrument | Balance Sheet Location | Asset Derivatives | Liability Derivatives | Net Total | ||||||||||||||||||||||||
June 30, 2018 Instrument | Balance Sheet Location | Asset Derivatives | Liability Derivatives | Net Total | ||||||||||||||||||||||||
Swaps | Other current liabilities | $ | 25 | $ | (1,575 | ) | $ | (1,550 | ) | Other current liabilities | $ | 654 | $ | (5,901 | ) | $ | (5,247 | ) | ||||||||||
Swaps | Other deferred credits | 29 | (681 | ) | (652 | ) | Other deferred credits | 83 | (1,016 | ) | (933 | ) | ||||||||||||||||
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Total | $ | 54 | $ | (2,256 | ) | $ | (2,202 | ) | $ | 737 | $ | (6,917 | ) | $ | (6,180 | ) | ||||||||||||
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December 31, 2016 Instrument | Balance Sheet Location | Asset Derivatives | Liability Derivatives | Net Total | ||||||||||||||||||||||||
December 31, 2017 Instrument | Balance Sheet Location | Asset Derivatives | Liability Derivatives | Net Total | ||||||||||||||||||||||||
Swaps | Deferred charges and other assets | $ | 899 | $ | (54 | ) | $ | 845 | Other current liabilities | $ | 11 | $ | (4,468 | ) | $ | (4,457 | ) | |||||||||||
Swaps | Prepaids and other current assets | 3,551 | (19 | ) | 3,532 | Other deferred credits | 19 | (1,342 | ) | (1,323 | ) | |||||||||||||||||
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Total | $ | 4,450 | $ | (73 | ) | $ | 4,377 | $ | 30 | $ | (5,810 | ) | $ | (5,780 | ) | |||||||||||||
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24
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
The estimated fair values of the natural gas derivatives were determined using future natural gas index prices (as more fully described below). Master netting arrangements exist with each counterparty that provide for the net settlement (in the settlement month) of all contracts through a single payment. As applicable, management has elected to reflect
20
the net amounts in its balance sheets. There was no outstanding collateral associated with the Swaps during either period shown in the above table.
Pursuant to regulatory deferral accounting treatment for rate-regulated entities, unrealized gains and losses in fair value of the Swaps are recorded as a regulatory asset and/or liability. When the Swaps mature, any prior positions held are reversed and the settled position is recorded as an increase or decrease of purchased gas under the related purchased gas adjustment (“PGA”)PGA mechanism in determining its deferred PGA balances. Neither changes in fair value nor settled amounts of Swaps have a direct effect on earnings or other comprehensive income.
The following table shows the amounts Southwest paid to and received from counterparties for settlements of matured Swaps.
Three Months Ended | Six Months Ended | Twelve Months Ended | Three Months Ended | Six Months Ended | Twelve Months Ended | |||||||||||||||||||
(Thousands of dollars) | June 30, 2017 | June 30, 2017 | June 30, 2017 | June 30, 2018 | June 30, 2018 | June 30, 2018 | ||||||||||||||||||
Paid to counterparties | $ | 111 | $ | 1,412 | $ | 2,512 | $ | 1,216 | $ | 3,931 | $ | 5,620 | ||||||||||||
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Received from counterparties | $ | — | $ | 1,685 | $ | 2,411 | $ | 6 | $ | 6 | $ | 6 | ||||||||||||
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The following table details the regulatory assets/(liabilities) offsetting the derivatives at fair value in the Condensed Consolidated Balance Sheets for both the Company and Southwest (thousands of dollars).
June 30, 2017 Instrument | Balance Sheet Location | Net Total | ||||||||||
June 30, 2018 Instrument | Balance Sheet Location | Net Total | ||||||||||
Swaps | Prepaids and other current assets | $ | 1,550 | Prepaids and other current assets | $ | 5,247 | ||||||
Swaps | Deferred charges and other assets | 652 | Deferred charges and other assets | 933 | ||||||||
December 31, 2016 | Balance Sheet Location | Net Total | ||||||||||
December 31, 2017 Instrument | Balance Sheet Location | Net Total | ||||||||||
Swaps | Other deferred credits | $ | (845 | ) | Prepaids and other current assets | $ | 4,457 | |||||
Swaps | Other current liabilities | (3,532 | ) | Deferred charges and other assets | 1,323 |
Fair Value Measurements. The estimated fair values of Southwest’s Swaps were determined at June 30, 20172018 and December 31, 20162017 using New York Mercantile Exchange (“NYMEX”) futures settlement prices, published by the CME Group, for the delivery of natural gas at Henry Hub adjusted by the price of NYMEX ClearPort basis Swaps,future settlement bases, which reflect the difference between the price of natural gas at a given delivery basin and the Henry Hub pricing points. These Level 2 inputs (inputs, other than quoted prices, for similar assets or liabilities) are observable in the marketplace throughout the full term of the Swaps, but have been credit-risk adjusted with no significant impact to the overall fair value measurement.
The following table sets forth, by level within the three-level fair value hierarchy that ranks the inputs used to measure fair value by their reliability, the financial assets and liabilities that were accounted for at fair value by both the Company and Southwest:
Level 2—2 - Significant other observable inputs
(Thousands of dollars) | June 30, 2017 | December 31, 2016 | June 30, 2018 | December 31, 2017 | ||||||||||||
Assets at fair value: | ||||||||||||||||
Prepaids and other current assets - Swaps | $ | — | $ | 3,532 | ||||||||||||
Deferred charges and other assets - Swaps | — | 845 | ||||||||||||||
Liabilities at fair value: | ||||||||||||||||
Other current liabilities - Swaps | (1,550 | ) | — | $ | (5,247 | ) | $ | (4,457 | ) | |||||||
Other deferred credits - Swaps | (652 | ) | — | (933 | ) | (1,323 | ) | |||||||||
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Net Assets (Liabilities) | $ | (2,202 | ) | $ | 4,377 | $ | (6,180 | ) | $ | (5,780 | ) | |||||
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2125
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
No financial assets or liabilities associated with the Swaps, which were accounted for at fair value, fell within Level 1 (quoted prices in active markets for identical financial assets) or Level 3 (significant unobservable inputs) of the fair value hierarchy.
With regard to the fair values of assets associated with pension and postretirement benefit plans, asset values were last updated as required as of December 2016.2017. Refer toNote 1011 – Pension and Other Post Retirement Benefits in the 20162017 Annual Report to Shareholders on Form10-K, which is incorporated by reference into the 2017 Form10-K.
Note 56 – Common Stock
In January 2017, the holding company reorganization was made effective and each outstanding share of Southwest Gas Corporation common stock was converted into a share of common stock in Southwest Gas Holdings, Inc., on a one-for-one basis. The ticker symbol of the stock, “SWX,” remained unchanged, and Southwest Gas Corporation became a wholly owned subsidiary of Southwest Gas Holdings, Inc.
On March 29, 2017, the Company filed with the Securities Exchange Commission (“SEC”)SEC an automatic shelf registration statement on FormS-3 (FileNo. 333-217018), which became effective upon filing, for the offer and sale of up to $150 million of common stock from time to time inat-the-market offerings under the prospectus included therein and in accordance with the Sales Agency Agreement, dated March 29, 2017, between the Company and BNY Mellon Capital Markets, LLC (the “Equity Shelf Program”). NoDuring the three months ending June 30, 2018, the Company sold, through the continuous equity offering program with BNY Mellon Capital Markets, LLC as agent, an aggregate of 748,932 shares of the Company’s common stock have beenin the open market at a weighted average price of $74.10 per share, resulting in proceeds to the Company of $54,940,503 net of $554,954 in agent commissions. During the six months ending June 30, 2018, the Company sold, through the continuous equity offering program with BNY Mellon Capital Markets, LLC as agent, an aggregate of 886,232 shares of the Company’s common stock in the open market at a weighted average price of $73.00 per share, resulting in proceeds to the Company of $64,048,167 net of $646,951 in agent commissions. During the twelve months ended June 30, 2018, the Company sold, through this continuous equity offering program with the same party acting as agent, an aggregate of 1,391,939 shares of the Company’s common stock in the open market at a weighted average price of $76.49 per share, resulting in proceeds to the Company of $105,407,194, net of $1,064,719 in agent commissions. As of June 30, 2018, the Company had up to $43,528,087 of common stock available for sale under that registration statement.the program. Net proceeds from the sale of shares of common stock under the Equity Shelf Program are intended for general corporate purposes, including the acquisition of property for the construction, completion, extension, or improvement of pipeline systems and facilities located in and around the communities served by Southwest.
During the six months ended June 30, 2017,2018, the Company issued approximately 101,00077,000 shares of common stock through the Restricted Stock/Unit Plan and Management Incentive Plan.
Also during the six months ended June 30, 2018, the Company issued 73,000 shares of common stock through the Dividend Reinvestment and Stock Purchase Plan (“DRSPP”), raising approximately $5 million.
Note 67 – Long-Term Debt
Carrying amounts of long-term debt and related estimated fair values as of June 30, 20172018 and December 31, 20162017 are disclosed in the following table. Southwest’s revolving credit facility (including commercial paper) and the variable-rate Industrial Development Revenue Bonds (“IDRBs”) approximate their carrying values, as they are repaid quickly (in the case of credit facility borrowings) and have interest rates that reset frequently. These are categorized as Level 1 due to Southwest’s ability to access similar debt arrangements at measurement dates with comparable terms, including variable/market rates. The fair values of Southwest’s debentures, senior notes, and fixed-rate IDRBs were determined utilizing a market-based valuation approach, where fair values are determined based on evaluated pricing data, such as broker quotes and yields for similar securities adjusted for observable differences. Significant inputs used in the valuation generally include benchmark yield curves, credit ratings and issuer spreads. The external credit rating, coupon rate, and maturity of each security are considered in the valuation, as applicable. The fair values of debentures and fixed-rate IDRBs are categorized as Level 2 (observable market inputs based on market prices of similar securities). The Centuri secured revolving credit and term loan facility and Centuri other debt obligations (not actively traded) are categorized as Level 3, based on significant unobservable inputs to their fair values. Because Centuri’s debt is not publicly traded, fair values for the secured revolving credit and term loan facility and other debt obligations were based on a conventional discounted cash flow methodology and utilized current market pricing yield curves, across Centuri’s debt maturity spectrum, of other industrial bonds with an assumed credit rating comparable to the Company’s.
2226
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
June 30, 2017 | December 31, 2016 | June 30, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||
Carrying | Fair | Carrying | Fair | Carrying | Fair | Carrying | Fair | |||||||||||||||||||||||||
Amount | Value | Amount | Value | Amount | Value | Amount | Value | |||||||||||||||||||||||||
(Thousands of dollars) | ||||||||||||||||||||||||||||||||
Southwest Gas Corporation: | ||||||||||||||||||||||||||||||||
Debentures: | ||||||||||||||||||||||||||||||||
Notes, 4.45%, due 2020 | $ | 125,000 | $ | 130,821 | $ | 125,000 | $ | 129,703 | $ | 125,000 | $ | 127,258 | $ | 125,000 | $ | 129,273 | ||||||||||||||||
Notes, 6.1%, due 2041 | 125,000 | 155,466 | 125,000 | 149,734 | 125,000 | 150,816 | 125,000 | 158,304 | ||||||||||||||||||||||||
Notes, 3.875%, due 2022 | 250,000 | 259,368 | 250,000 | 254,900 | 250,000 | 252,108 | 250,000 | 256,163 | ||||||||||||||||||||||||
Notes, 4.875%, due 2043 | 250,000 | 268,728 | 250,000 | 266,793 | 250,000 | 267,985 | 250,000 | 283,243 | ||||||||||||||||||||||||
Notes, 3.8%, due 2046 | 300,000 | 284,172 | 300,000 | 283,029 | 300,000 | 281,028 | 300,000 | 302,970 | ||||||||||||||||||||||||
Notes, 3.7%, due 2028 | 300,000 | 298,068 | — | — | ||||||||||||||||||||||||||||
8% Series, due 2026 | 75,000 | 96,783 | 75,000 | 94,691 | 75,000 | 95,789 | 75,000 | 96,063 | ||||||||||||||||||||||||
Medium-term notes, 7.59% series, due 2017 | — | — | 25,000 | 25,040 | ||||||||||||||||||||||||||||
Medium-term notes, 7.78% series, due 2022 | 25,000 | 29,356 | 25,000 | 29,290 | 25,000 | 27,984 | 25,000 | 28,714 | ||||||||||||||||||||||||
Medium-term notes, 7.92% series, due 2027 | 25,000 | 32,320 | 25,000 | 31,905 | 25,000 | 30,228 | 25,000 | 31,542 | ||||||||||||||||||||||||
Medium-term notes, 6.76% series, due 2027 | 7,500 | 8,914 | 7,500 | 8,769 | 7,500 | 8,740 | 7,500 | 8,882 | ||||||||||||||||||||||||
Unamortized discount and debt issuance costs | (9,644 | ) | (9,931 | ) | (12,259 | ) | (9,350 | ) | ||||||||||||||||||||||||
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1,172,856 | 1,197,569 | 1,470,241 | 1,173,150 | |||||||||||||||||||||||||||||
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Revolving credit facility and commercial paper | 92,000 | 92,000 | 5,000 | 5,000 | 48,000 | 48,000 | 150,000 | 150,000 | ||||||||||||||||||||||||
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Industrial development revenue bonds: | ||||||||||||||||||||||||||||||||
Variable-rate bonds: | ||||||||||||||||||||||||||||||||
Tax-exempt Series A, due 2028 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | ||||||||||||||||||||||||
2003 Series A, due 2038 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | ||||||||||||||||||||||||
2008 Series A, due 2038 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | ||||||||||||||||||||||||
2009 Series A, due 2039 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | ||||||||||||||||||||||||
Unamortized discount and debt issuance costs | (2,304 | ) | (2,489 | ) | (1,934 | ) | (2,119 | ) | ||||||||||||||||||||||||
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197,696 | 197,511 | 198,066 | 197,881 | |||||||||||||||||||||||||||||
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Less: current maturities | — | (25,000 | ) | — | — | |||||||||||||||||||||||||||
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Long-term debt, less current maturities - Southwest Gas Corporation | $ | 1,462,552 | $ | 1,375,080 | | $ | 1,716,307 | $ | 1,521,031 | |||||||||||||||||||||||
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Centuri: | ||||||||||||||||||||||||||||||||
Centuri term loan facility | $ | 105,559 | 105,641 | $ | 106,700 | 106,819 | $ | 189,876 | $ | 190,524 | $ | 199,578 | $ | 207,588 | ||||||||||||||||||
Unamortized debt issuance costs | (427 | ) | (516 | ) | (999 | ) | (1,111 | ) | ||||||||||||||||||||||||
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105,132 | 106,184 | 188,877 | 198,467 | |||||||||||||||||||||||||||||
Centuri secured revolving credit facility | 99,943 | 100,091 | 41,185 | 41,292 | 87,952 | 87,998 | 56,472 | 56,525 | ||||||||||||||||||||||||
Centuri other debt obligations | 45,307 | 45,589 | 52,635 | 52,840 | 76,535 | 76,419 | 47,952 | 48,183 | ||||||||||||||||||||||||
Less: current maturities | (27,236 | ) | (25,101 | ) | (31,928 | ) | (25,346 | ) | ||||||||||||||||||||||||
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Long-term debt, less current maturities - Centuri | $ | 223,146 | $ | 174,903 | $ | 321,436 | $ | 277,545 | ||||||||||||||||||||||||
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Consolidated Southwest Gas Holdings, Inc.: | ||||||||||||||||||||||||||||||||
Southwest Gas Corporation long-term debt | $ | 1,462,552 | $ | 1,400,080 | $ | 1,716,307 | $ | 1,521,031 | ||||||||||||||||||||||||
Centuri long-term debt | 250,382 | 200,004 | 353,364 | 302,891 | ||||||||||||||||||||||||||||
Less: current maturities | (27,236 | ) | (50,101 | ) | (31,928 | ) | (25,346 | ) | ||||||||||||||||||||||||
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Long-term debt, less current maturities - Southwest Gas Holdings, Inc. | $ | 1,685,698 | $ | 1,549,983 | | $ | 2,037,743 | $ | 1,798,576 | |||||||||||||||||||||||
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In March 2017, Southwest amended itshas a $400 million credit facility increasing the borrowing capacity from $300 million to $400 million. Also, the facility was previouslythat is scheduled to expire in March 2021 and was extended to March 2022. Southwest continues to designatedesignates $150 million of capacity related to the facility as long-term debt and with the total capacity now available, has designated the remaining $250 million for working capital purposes. Interest rates for the credit facility are calculated at either the London Interbank Offered Rate (“LIBOR”) or an “alternate base rate,” plus in each case an applicable margin that is determined based on the Southwest’s senior unsecured debt rating. At June 30, 2017,2018, the applicable margin is 1% for loans bearing interest with reference to LIBOR and 0% for loans bearing interest with reference to the alternative base rate. At June 30, 2017, $922018, $48 million was outstanding on the long-term portion (not including the commercial paper program, discussed below) and no borrowings were outstanding on the short-term portionsportion of this credit facility.
2327
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
Southwest has a $50 million commercial paper program. Any issuance under the commercial paper program is supported by Southwest’s current revolving credit facility and, therefore, does not represent additional borrowing capacity. Borrowings under the commercial paper program are designated as long-term debt. Interest rates for the program are calculated at the then current commercial paper rate. At June��30, 2018, no borrowings were outstanding under the commercial paper program.
In March 2018, Southwest issued $300 million in 3.7% Senior Notes at a discount of 0.185%. The notes will mature in April 2028. A portion of the proceeds were used to repay amounts then outstanding under the revolving portion of the credit facility and the remainder to repay amounts then outstanding under the commercial paper program.
Centuri has a $300$450 million senior secured revolving credit and term loan facility that is scheduled to expire in October 2019. At June 30, 2017, $206 million in borrowings were outstandingNovember 2022. This facility includes a revolving credit facility and a term loan facility. The line of credit portion of the facility is $250 million; amounts borrowed and repaid under the revolving credit facility are available to bere-borrowed. The term loan facility portion has a limit of approximately $200 million. The limit on the Centuriterm loan facility was reached in November 2017. No further borrowing is permitted under the term loan facility. The $450 million revolving credit and term loan facility is secured by substantially all of Centuri’s assets except those explicitly excluded under the terms of the agreement (including owned real estate and certain certificated vehicles). Centuri assets securing the facility at June 30, 20172018 totaled $501$659 million. At June 30, 2018, $278 million in borrowings were outstanding under the Centuri facility. Additionally, for the quarter ended June 30, 2018, Centuri entered into equipment loans for approximately $40 million with a maturity date of May 2023 under an existing agreement.
Note 78 – Short-Term Debt
In March 2017, Southwest Gas Holdings, Inc. entered intoThe Company has a $100 million credit facility with a borrowing capacity of $100 million that expiresis scheduled to expire in March 2022. The Company intends to utilize this facility forhad $22.5 million in short-term financing needs. Interest rates for this facility are calculatedborrowings outstanding at either the LIBOR or the “alternate base rate,” plus in each case an applicable margin that is determined based on the Company’s senior unsecured debt rating. The applicable margin ranges from 0.75% to 1.50% for loans bearing interest with reference to LIBOR and from 0% to 0.5% for loans bearing interest with reference to the alternative base rate. The Company is also required to pay a commitment fee on the unfunded portion of the commitments based on its senior unsecured long-term debt rating. The commitment fee ranges from 0.075% to 0.200% per annum. At June 30, 2017, $2.5 million was outstanding on2018 under this facility.
Note 89 – Equity, Other Comprehensive Income, and Accumulated Other Comprehensive Income
The table below provides details of activity in equity and the redeemable noncontrolling interest for Southwest Gas Holdings, Inc. on a consolidated basis during the six months ended June 30, 2017.2018.
Southwest Gas Holdings, Inc. Equity | ||||||||||||||||||||||||||||||||
Accumulated | Redeemable | |||||||||||||||||||||||||||||||
Additional | Other | Non- | Noncontrolling | |||||||||||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Retained | controlling | Interest | |||||||||||||||||||||||||||
(In thousands, except per share amounts) | Shares | Amount | Capital | Income (Loss) | Earnings | Interest | Total | (Temporary Equity) | ||||||||||||||||||||||||
DECEMBER 31, 2016 | 47,482 | $ | 49,112 | $ | 903,123 | $ | (48,008 | ) | $ | 759,263 | $ | (2,217 | ) | $ | 1,661,273 | $ | 22,590 | |||||||||||||||
Common stock issuances | 101 | 101 | 7,972 | 8,073 | ||||||||||||||||||||||||||||
Net income (loss) | 87,172 | (95 | ) | 87,077 | 49 | |||||||||||||||||||||||||||
Redemption value adjustments | 2,315 | 2,315 | (2,315 | ) | ||||||||||||||||||||||||||||
Foreign currency exchange translation adj. | 820 | 820 | 29 | |||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net actuarial gain (loss) arising during | ||||||||||||||||||||||||||||||||
period, less amortization of unamortized | ||||||||||||||||||||||||||||||||
benefit plan cost, net of tax | 1,190 | 1,190 | ||||||||||||||||||||||||||||||
Amounts reclassified to net income, | ||||||||||||||||||||||||||||||||
net of tax (FSIRS) | 1,036 | 1,036 | ||||||||||||||||||||||||||||||
Centuri dividend to redeemable | ||||||||||||||||||||||||||||||||
noncontrolling interest | (204 | ) | ||||||||||||||||||||||||||||||
Dividends declared | ||||||||||||||||||||||||||||||||
Common: $0.99 per share | (47,528 | ) | (47,528 | ) | ||||||||||||||||||||||||||||
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JUNE 30, 2017 | 47,583 | $ | 49,213 | $ | 911,095 | $ | (44,962 | ) | $ | 801,222 | $ | (2,312 | ) | $ | 1,714,256 | $ | 20,149 | |||||||||||||||
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Southwest Gas Holdings, Inc. Equity | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Non- | ||||||||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Retained | controlling | ||||||||||||||||||||||||
(In thousands, except per share amounts) | Shares | Amount | Capital | Income (Loss) | Earnings | Interest | Total | |||||||||||||||||||||
DECEMBER 31, 2017 | 48,090 | $ | 49,720 | $ | 955,332 | $ | (47,682 | ) | $ | 857,398 | $ | (2,365 | ) | $ | 1,812,403 | |||||||||||||
Common stock issuances | 1,036 | 1,036 | 68,886 | 69,922 | ||||||||||||||||||||||||
Net income (loss) | 100,642 | (797 | ) | 99,845 | ||||||||||||||||||||||||
Foreign currency exchange translation adj. | (1,601 | ) | (1,601 | ) | ||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||
Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | 1,792 | 1,792 | ||||||||||||||||||||||||||
Amounts reclassified to net income, net of tax (FSIRS) | 1,271 | 1,271 | ||||||||||||||||||||||||||
Reclassification of excess deferred taxes (a) | (9,300 | ) | 9,300 | — | ||||||||||||||||||||||||
Elimination of shares from noncontrolling interest (b) | (2,710 | ) | 2,710 | — | ||||||||||||||||||||||||
Dividends declared | ||||||||||||||||||||||||||||
Common: $0.52 per share | (51,065 | ) | (51,065 | ) | ||||||||||||||||||||||||
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JUNE 30, 2018 | 49,126 | $ | 50,756 | $ | 1,021,508 | $ | (55,520 | ) | $ | 916,275 | $ | (452 | ) | $ | 1,932,567 | |||||||||||||
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(a) | Release of excess deferred taxes accumulated prior to December 22, 2017 (date of enactment of the TCJA), as a result of the adoption of ASU2018-02, which permitted such release. |
(b) | Centuri, through its subsidiary, NPL, has historically held a 65% ownership interest in IntelliChoice Energy, LLC (“ICE”). A residual interest of 35% has been held by a third party. During the second quarter of 2018, an additional $1 million of capital was contributed by NPL, thereby increasing NPL’s ownership interest to 95%. The carrying amount |
2428
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
of the noncontrolling interest has been adjusted with a corresponding charge to Additionalpaid-in capital on the Company’s Condensed Consolidated Balance Sheet. |
The table below provides details of activity in equity for Southwest Gas Corporation during the six months ended June 30, 2017. Effective in January 2017, Southwest became a subsidiary of Southwest Gas Holdings, Inc., and only2018. Only equity shares of the latterCompany are publicly traded, under the ticker symbol “SWX.”
Southwest Gas Corporation Equity | ||||||||||||||||||||||||
Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Retained | |||||||||||||||||||||
(In thousands, except per share amounts) | Shares | Amount | Capital | Income (Loss) | Earnings | Total | ||||||||||||||||||
DECEMBER 31, 2016 | 47,482 | $ | 49,112 | $ | 897,346 | $ | (45,639 | ) | $ | 767,061 | $ | 1,667,880 | ||||||||||||
Net income | 86,460 | 86,460 | ||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Net actuarial gain (loss) arising during period, less amortization of unamortized ben efit plan cost, net of tax | 1,190 | 1,190 | ||||||||||||||||||||||
Amounts reclassified to net income,net of tax (FSIRS) | 1,036 | 1,036 | ||||||||||||||||||||||
Distribution to Southwest Gas Holdings, Inc. investment in discontinued operations | (182,773 | ) | (182,773 | ) | ||||||||||||||||||||
Stock-based compensation (a) | 7,369 | (392 | ) | 6,977 | ||||||||||||||||||||
Dividends declared to Southwest Gas Holdings, Inc. | (39,130 | ) | (39,130 | ) | ||||||||||||||||||||
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JUNE 30, 2017 | 47,482 | $ | 49,112 | $ | 904,715 | $ | (43,413 | ) | $ | 631,226 | $ | 1,541,640 | ||||||||||||
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Southwest Gas Corporation Equity | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Retained | |||||||||||||||||||||
(In thousands) | Shares | Amount | Capital | Income (Loss) | Earnings | Total | ||||||||||||||||||
DECEMBER 31, 2017 | 47,482 | $ | 49,112 | $ | 948,767 | $ | (47,073 | ) | $ | 659,193 | $ | 1,609,999 | ||||||||||||
Net income | 92,971 | 92,971 | ||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Net actuarial gain (loss) arising during period, less amortization of unamortized benefit plan cost, net of tax | 1,792 | 1,792 | ||||||||||||||||||||||
Amounts reclassified to net income, net of tax (FSIRS) | 1,271 | 1,271 | ||||||||||||||||||||||
Reclassification of excess deferred taxes (a) | (9,300 | ) | 9,300 | — | ||||||||||||||||||||
Stock-based compensation (b) | 702 | (338 | ) | 364 | ||||||||||||||||||||
Dividends declared to Southwest Gas Holdings, Inc. | (44,000 | ) | (44,000 | ) | ||||||||||||||||||||
Contributions from Southwest Gas Holdings, Inc. | 56,596 | 56,596 | ||||||||||||||||||||||
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JUNE 30, 2018 | 47,482 | $ | 49,112 | $ | 1,006,065 | $ | (53,310 | ) | $ | 717,126 | $ | 1,718,993 | ||||||||||||
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(a) | Release of excess deferred taxes accumulated prior to December 22, 2017 (date of enactment of the TCJA), as a result of the adoption of ASU2018-02, which permitted such release. |
(b) | Stock-based compensation is based on stock awards of Southwest Gas Corporation to be issued in shares of Southwest Gas Holdings, Inc. |
The table above gives effect to the holding company reorganization whereby Southwest and Centuri became subsidiaries of the Company. The historic investment in Centuri was distributed to the parent holding company. This presentation is only applicable to Southwest and not to the Company overall, as Centuri continues to be included in the continuing operations of the Company. Also in connection with the holding company creation, compensation plans of Southwest include programs that will be settled with equity shares issued by Southwest Gas Holdings, Inc. Management has determined that when no consideration is directly exchanged for these programs between Southwest and the Company, the accounting impact at Southwest for these programs is reflected both as compensation expense and as an equity contribution (of the parent) in Southwest.
The following information provides insight into amounts impacting the Company’s Other Comprehensive Income (Loss), both before andafter-tax impacts, within the Condensed Consolidated Statements of Comprehensive Income, which also impact Accumulated Other Comprehensive Incomeother comprehensive income in the Condensed Consolidated Balance Sheets and the associated column in the equity table above, as well as the Redeemable Noncontrolling Interest.above. SeeNote 45 – Derivatives and Fair Value Measurements for additional information on the FSIRS.
2529
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
Related Tax Effects Allocated to Each Component of Other Comprehensive Income (Loss)
(Thousands of dollars)
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2017 | Three Months Ended June 30, 2016 | June 30, 2018 | June 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||
Before- | Tax | Net-of- | Before- | Tax | Net-of- | Before- | Tax | Net-of- | Before- | Tax | Net-of- | |||||||||||||||||||||||||||||||||||||
Tax | (Expense) | Tax | Tax | (Expense) | Tax | Tax | (Expense) | Tax | Tax | (Expense) | Tax | |||||||||||||||||||||||||||||||||||||
Amount | or Benefit (1) | Amount | Amount | or Benefit (1) | Amount | Amount | or Benefit (1) | Amount | Amount | or Benefit (1) | Amount | |||||||||||||||||||||||||||||||||||||
Defined benefit pension plans: | ||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of prior service cost | $ | 334 | $ | (80 | ) | $ | 254 | $ | 334 | $ | (127 | ) | $ | 207 | ||||||||||||||||||||||||||||||||||
Amortization of net actuarial (gain)/loss | 8,404 | (2,017 | ) | 6,387 | 6,361 | (2,417 | ) | 3,944 | ||||||||||||||||||||||||||||||||||||||||
Regulatory adjustment | (7,559 | ) | 1,815 | (5,744 | ) | (5,735 | ) | 2,179 | (3,556 | ) | ||||||||||||||||||||||||||||||||||||||
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Pension plans other comprehensive income | 1,179 | (282 | ) | 897 | 960 | (365 | ) | 595 | ||||||||||||||||||||||||||||||||||||||||
FSIRS (designated hedging activities): | ||||||||||||||||||||||||||||||||||||||||||||||||
Amounts reclassifed into net income | 836 | (200 | ) | 636 | 836 | (318 | ) | 518 | ||||||||||||||||||||||||||||||||||||||||
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FSIRS other comprehensive income | 836 | (200 | ) | 636 | 836 | (318 | ) | 518 | ||||||||||||||||||||||||||||||||||||||||
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Total other comprehensive income - Southwest Gas Corporation | 2,015 | (482 | ) | 1,533 | 1,796 | (683 | ) | 1,113 | ||||||||||||||||||||||||||||||||||||||||
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Foreign currency translation adjustments: | ||||||||||||||||||||||||||||||||||||||||||||||||
Translation adjustments | (690 | ) | — | (690 | ) | 629 | — | 629 | ||||||||||||||||||||||||||||||||||||||||
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Foreign currency other comprehensive income (loss) | (690 | ) | — | (690 | ) | 629 | — | 629 | ||||||||||||||||||||||||||||||||||||||||
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Total other comprehensive income - Southwest Gas Holdings, Inc. | $ | 1,325 | $ | (482 | ) | $ | 843 | $ | 2,425 | $ | (683 | ) | $ | 1,742 | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Six Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2018 | June 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||
Before- | Tax | Net-of- | Before- | Tax | Net-of- | |||||||||||||||||||||||||||||||||||||||||||
Tax | (Expense) | Tax | Tax | (Expense) | Tax | |||||||||||||||||||||||||||||||||||||||||||
Amount | or Benefit (1) | Amount | Amount | or Benefit (1) | Amount | |||||||||||||||||||||||||||||||||||||||||||
Defined benefit pension plans: | ||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of prior service cost | $ | 668 | $ | (160 | ) | $ | 508 | $ | 668 | $ | (254 | ) | $ | 414 | ||||||||||||||||||||||||||||||||||
Amortization of net actuarial (gain)/loss | 16,808 | (4,034 | ) | 12,774 | 12,722 | (4,834 | ) | 7,888 | ||||||||||||||||||||||||||||||||||||||||
Regulatory adjustment | (15,119 | ) | 3,629 | (11,490 | ) | (11,470 | ) | 4,358 | (7,112 | ) | ||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Pension plans other comprehensive income | 2,357 | (565 | ) | 1,792 | 1,920 | (730 | ) | 1,190 | ||||||||||||||||||||||||||||||||||||||||
FSIRS (designated hedging activities): | ||||||||||||||||||||||||||||||||||||||||||||||||
Amounts reclassifed into net income | 1,673 | (402 | ) | 1,271 | 1,672 | (636 | ) | 1,036 | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
FSIRS other comprehensive income | 1,673 | (402 | ) | 1,271 | 1,672 | (636 | ) | 1,036 | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income - Southwest Gas Corporation | 4,030 | (967 | ) | 3,063 | 3,592 | (1,366 | ) | 2,226 | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments: | ||||||||||||||||||||||||||||||||||||||||||||||||
Translation adjustments | (1,601 | ) | — | (1,601 | ) | 849 | — | 849 | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Foreign currency other comprehensive income (loss) | (1,601 | ) | — | (1,601 | ) | 849 | — | 849 | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income - Southwest Gas Holdings, Inc. | $ | 2,429 | $ | (967 | ) | $ | 1,462 | $ | 4,441 | $ | (1,366 | ) | $ | 3,075 | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Twelve Months Ended | Twelve Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2018 | June 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||
Before- | Tax | Net-of- | Before- | Tax | Net-of- | |||||||||||||||||||||||||||||||||||||||||||
Tax | (Expense) | Tax | Tax | (Expense) | Tax | |||||||||||||||||||||||||||||||||||||||||||
Amount | or Benefit (1) | Amount | Amount | or Benefit (1) | Amount | |||||||||||||||||||||||||||||||||||||||||||
Defined benefit pension plans: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net actuarial gain/(loss) | $ | (43,027 | ) | $ | 10,326 | $ | (32,701 | ) | $ | (22,770 | ) | $ | 8,652 | $ | (14,118 | ) | ||||||||||||||||||||||||||||||||
Amortization of prior service cost | $ | 334 | $ | (127 | ) | $ | 207 | $ | 334 | $ | (127 | ) | $ | 207 | 1,335 | (413 | ) | 922 | 1,335 | (507 | ) | 828 | ||||||||||||||||||||||||||
Amortization of net actuarial (gain)/loss | 6,361 | (2,417 | ) | 3,944 | 6,766 | (2,572 | ) | 4,194 | 29,531 | (8,869 | ) | 20,662 | 26,255 | (9,976 | ) | 16,279 | ||||||||||||||||||||||||||||||||
Regulatory adjustment | (5,735 | ) | 2,179 | (3,556 | ) | (6,123 | ) | 2,327 | (3,796 | ) | 8,691 | (479 | ) | 8,212 | (4,808 | ) | 1,826 | (2,982 | ) | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Pension plans other comprehensive income (loss) | 960 | (365 | ) | 595 | 977 | (372 | ) | 605 | (3,470 | ) | 565 | (2,905 | ) | 12 | (5 | ) | 7 | |||||||||||||||||||||||||||||||
FSIRS (designated hedging activities): | ||||||||||||||||||||||||||||||||||||||||||||||||
Amounts reclassifed into net income | 836 | (318 | ) | 518 | 837 | (318 | ) | 519 | 3,345 | (1,037 | ) | 2,308 | 3,344 | (1,271 | ) | 2,073 | ||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
FSIRS other comprehensive income | 836 | (318 | ) | 518 | 837 | (318 | ) | 519 | 3,345 | (1,037 | ) | 2,308 | 3,344 | (1,271 | ) | 2,073 | ||||||||||||||||||||||||||||||||
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Total other comprehensive income (loss) - Southwest Gas Corporation | 1,796 | (683 | ) | 1,113 | 1,814 | (690 | ) | 1,124 | (125 | ) | (472 | ) | (597 | ) | 3,356 | (1,276 | ) | 2,080 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments: | ||||||||||||||||||||||||||||||||||||||||||||||||
Translation adjustments | 629 | — | 629 | 70 | — | 70 | (679 | ) | — | (679 | ) | 158 | — | 158 | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Foreign currency other comprehensive income (loss) | 629 | — | 629 | 70 | — | 70 | (679 | ) | — | (679 | ) | 158 | — | 158 | ||||||||||||||||||||||||||||||||||
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Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | $ | 2,425 | $ | (683 | ) | $ | 1,742 | $ | 1,884 | $ | (690 | ) | $ | 1,194 | $ | (804 | ) | $ | (472 | ) | $ | (1,276 | ) | $ | 3,514 | $ | (1,276 | ) | $ | 2,238 | ||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2017 | Six Months Ended June 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||
Before- | Tax | Net-of- | Before- | Tax | Net-of- | |||||||||||||||||||||||||||||||||||||||||||
Tax | (Expense) | Tax | Tax | (Expense) | Tax | |||||||||||||||||||||||||||||||||||||||||||
Amount | or Benefit (1) | Amount | Amount | or Benefit (1) | Amount | |||||||||||||||||||||||||||||||||||||||||||
Defined benefit pension plans: | ||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of prior service cost | $ | 668 | $ | (254 | ) | $ | 414 | $ | 668 | $ | (254 | ) | $ | 414 | ||||||||||||||||||||||||||||||||||
Amortization of net actuarial (gain)/loss | 12,722 | (4,834 | ) | 7,888 | 13,533 | (5,143 | ) | 8,390 | ||||||||||||||||||||||||||||||||||||||||
Regulatory adjustment | (11,470 | ) | 4,358 | (7,112 | ) | (12,246 | ) | 4,654 | (7,592 | ) | ||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Pension plans other comprehensive income (loss) | 1,920 | (730 | ) | 1,190 | 1,955 | (743 | ) | 1,212 | ||||||||||||||||||||||||||||||||||||||||
FSIRS (designated hedging activities): | ||||||||||||||||||||||||||||||||||||||||||||||||
Amounts reclassifed into net income | 1,672 | (636 | ) | 1,036 | 1,673 | (635 | ) | 1,038 | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
FSIRS other comprehensive income | 1,672 | (636 | ) | 1,036 | 1,673 | (635 | ) | 1,038 | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income (loss)—Southwest Gas Corporation | 3,592 | (1,366 | ) | 2,226 | 3,628 | (1,378 | ) | 2,250 | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments: | ||||||||||||||||||||||||||||||||||||||||||||||||
Translation adjustments | 849 | — | 849 | 852 | — | 852 | ||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Foreign currency other comprehensive income (loss) | 849 | — | 849 | 852 | — | 852 | ||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income (loss)—Southwest Gas Holdings, Inc. | $ | 4,441 | $ | (1,366 | ) | $ | 3,075 | $ | 4,480 | $ | (1,378 | ) | $ | 3,102 | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Twelve Months Ended June 30, 2017 | Twelve Months Ended June 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||
Before- | Tax | Net-of- | Before- | Tax | Net-of- | |||||||||||||||||||||||||||||||||||||||||||
Tax | (Expense) | Tax | Tax | (Expense) | Tax | |||||||||||||||||||||||||||||||||||||||||||
Amount | or Benefit (1) | Amount | Amount | or Benefit (1) | Amount | |||||||||||||||||||||||||||||||||||||||||||
Defined benefit pension plans: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net actuarial gain/(loss) | $ | (22,770 | ) | $ | 8,652 | $ | (14,118 | ) | $ | (30,519 | ) | $ | 11,597 | $ | (18,922 | ) | ||||||||||||||||||||||||||||||||
Amortization of prior service cost | 1,335 | (507 | ) | 828 | 1,336 | (508 | ) | 828 | ||||||||||||||||||||||||||||||||||||||||
Amortization of net actuarial (gain)/loss | 26,255 | (9,976 | ) | 16,279 | 30,723 | (11,675 | ) | 19,048 | ||||||||||||||||||||||||||||||||||||||||
Regulatory adjustment | (4,808 | ) | 1,826 | (2,982 | ) | (2,318 | ) | 882 | (1,436 | ) | ||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Pension plans other comprehensive income (loss) | 12 | (5 | ) | 7 | (778 | ) | 296 | (482 | ) | |||||||||||||||||||||||||||||||||||||||
FSIRS (designated hedging activities): | ||||||||||||||||||||||||||||||||||||||||||||||||
Amounts reclassifed into net income | 3,344 | (1,271 | ) | 2,073 | 3,345 | (1,271 | ) | 2,074 | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
FSIRS other comprehensive income (loss) | 3,344 | (1,271 | ) | 2,073 | 3,345 | (1,271 | ) | 2,074 | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income (loss)—Southwest Gas Corporation | 3,356 | (1,276 | ) | 2,080 | 2,567 | (975 | ) | 1,592 | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments: | ||||||||||||||||||||||||||||||||||||||||||||||||
Translation adjustments | 158 | — | 158 | (39 | ) | — | (39 | ) | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Foreign currency other comprehensive income (loss) | 158 | — | 158 | (39 | ) | — | (39 | ) | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income (loss)—Southwest Gas Holdings, Inc. | $ | 3,514 | $ | (1,276 | ) | $ | 2,238 | $ | 2,528 | $ | (975 | ) | $ | 1,553 | ||||||||||||||||||||||||||||||||||
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2630
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
(1) | Tax amounts are calculated using a 24% rate following the December 22, 2017 enactment date of the TCJA. For periods prior to the enactment date (and included in specific line items of the tables for the twelve months ended June 30, 2018 and 2017), tax amounts were calculated using a 38% rate. The tax effect ofbefore-tax amounts remaining in the balance of Accumulated other comprehensive income as of June 30, 2018 is effectively computed using a 24% tax rate overall after the reclassification of previously stranded excess deferred taxes existing as a result of the TCJA (see table for Accumulated other comprehensive income, including the balance, below). With regard to foreign currency translation adjustments, the Company has elected to indefinitely reinvest the earnings of Centuri’s Canadian subsidiaries in Canada, thus preventing deferred taxes on such earnings. As a result of this assertion, the Company is not recognizing any tax effect or presenting a tax expense or benefit for the currency translation adjustment amount reported in Other Comprehensive Income, as repatriation of earnings is not anticipated. |
Approximately $2.1$2.5 million of realized losses (net of tax) related to the FSIRS, reported in Accumulated other comprehensive income (“AOCI”) at June 30, 2017,2018, will be reclassified into interest expense within the next 12 months as the related interest payments on long-term debt occur.
The following table represents a rollforward of AOCI, presented on the Company’s Condensed Consolidated Balance Sheets:
AOCI—AOCI - Rollforward
(Thousands of dollars)
Defined Benefit Plans | FSIRS | Foreign Currency Items | ||||||||||||||||||||||||||||||||||||||
Before-Tax | Tax (Expense) Benefit (4) | After-Tax | Before-Tax | Tax (Expense) Benefit (4) | After-Tax | Before-Tax | Tax (Expense) Benefit | After-Tax | AOCI | |||||||||||||||||||||||||||||||
Beginning Balance AOCI December 31, 2016 | $ | (57,613 | ) | $ | 21,893 | $ | (35,720 | ) | $ | (15,999 | ) | $ | 6,080 | $ | (9,919 | ) | $ | (2,369 | ) | $ | — | $ | (2,369 | ) | $ | (48,008 | ) | |||||||||||||
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| |||||||||||||||||||||
Translation adjustments | — | — | — | — | — | — | 849 | — | 849 | 849 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||
Other comprehensive income before reclassifications | — | — | — | — | — | — | 849 | — | 849 | 849 | ||||||||||||||||||||||||||||||
FSIRS amounts reclassified from AOCI (1) | — | — | — | 1,672 | (636 | ) | 1,036 | — | — | — | 1,036 | |||||||||||||||||||||||||||||
Amortization of prior service cost (2) | 668 | (254 | ) | 414 | — | — | — | — | — | — | 414 | |||||||||||||||||||||||||||||
Amortization of net actuarial loss (2) | 12,722 | (4,834 | ) | 7,888 | — | — | — | — | — | — | 7,888 | |||||||||||||||||||||||||||||
Regulatory adjustment (3) | (11,470 | ) | 4,358 | (7,112 | ) | — | — | — | — | — | — | (7,112 | ) | |||||||||||||||||||||||||||
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Net current period other comprehensive income (loss) | 1,920 | (730 | ) | 1,190 | 1,672 | (636 | ) | 1,036 | 849 | — | 849 | 3,075 | ||||||||||||||||||||||||||||
Less: Translation adjustment attributable to redeemable noncontrolling interest | — | — | — | — | — | — | 29 | — | 29 | 29 | ||||||||||||||||||||||||||||||
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Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | 1,920 | (730 | ) | 1,190 | 1,672 | (636 | ) | 1,036 | 820 | — | 820 | 3,046 | ||||||||||||||||||||||||||||
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Ending Balance AOCI June 30, 2017 | $ | (55,693 | ) | $ | 21,163 | $ | (34,530 | ) | $ | (14,327 | ) | $ | 5,444 | $ | (8,883 | ) | $ | (1,549 | ) | $ | — | $ | (1,549 | ) | $ | (44,962 | ) | |||||||||||||
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Defined Benefit Plans | FSIRS | Foreign Currency Items | ||||||||||||||||||||||||||||||||||||||||||
Before-Tax | Tax (Expense) Benefit (5) | After-Tax | Before-Tax | Tax (Expense) Benefit (5) | After-Tax | Before-Tax | Tax (Expense) Benefit | After-Tax | Other | AOCI | ||||||||||||||||||||||||||||||||||
Beginning Balance AOCI | $ | (61,520 | ) | $ | 22,293 | $ | (39,227 | ) | $ | (12,655 | ) | $ | 4,809 | $ | (7,846 | ) | $ | (609 | ) | $ | — | $ | (609 | ) | $ | — | $ | (47,682 | ) | |||||||||||||||
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| |||||||||||||||||||||||
Translation adjustments | — | — | — | — | — | — | (1,601 | ) | — | (1,601 | ) | — | (1,601 | ) | ||||||||||||||||||||||||||||||
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Other comprehensive income before reclassifications | — | — | — | — | — | — | (1,601 | ) | — | (1,601 | ) | — | (1,601 | ) | ||||||||||||||||||||||||||||||
FSIRS amounts reclassified from AOCI (1) | — | — | — | 1,673 | (402 | ) | 1,271 | — | — | — | — | 1,271 | ||||||||||||||||||||||||||||||||
Amortization of prior service cost (2) | 668 | (160 | ) | 508 | — | — | — | — | — | — | — | 508 | ||||||||||||||||||||||||||||||||
Amortization of net actuarial loss (2) | 16,808 | (4,034 | ) | 12,774 | — | — | — | — | — | — | — | 12,774 | ||||||||||||||||||||||||||||||||
Regulatory adjustment (3) | (15,119 | ) | 3,629 | (11,490 | ) | — | — | — | — | — | — | — | (11,490 | ) | ||||||||||||||||||||||||||||||
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Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | 2,357 | (565 | ) | 1,792 | 1,673 | (402 | ) | 1,271 | (1,601 | ) | — | (1,601 | ) | — | 1,462 | |||||||||||||||||||||||||||||
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Reclassification of excess deferred taxes (4) | — | — | — | — | — | — | — | — | — | (9,300 | ) | (9,300 | ) | |||||||||||||||||||||||||||||||
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Ending Balance AOCI June 30, 2018 | $ | (59,163 | ) | $ | 21,728 | $ | (37,435 | ) | $ | (10,982 | ) | $ | 4,407 | $ | (6,575 | ) | $ | (2,210 | ) | $ | — | $ | (2,210 | ) | $ | (9,300 | ) | $ | (55,520 | ) | ||||||||||||||
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(1) | The FSIRS reclassification amounts are included in the Net interest deductions line item on the Company’s Condensed Consolidated Statements of Income. |
(2) | These AOCI components are included in the computation of net periodic benefit cost (seeNote 2 – Components of Net PeriodicBenefit Costfor additional details). |
(3) | The regulatory adjustment represents the portion of the activity above that is expected to be recovered through rates in the future (the related regulatory asset is included in the Deferred charges and other assets line item on the Company’s Condensed Consolidated Balance Sheets). |
(4) | Release of excess deferred taxes accumulated prior to December 22, 2017 (date of enactment of the TCJA), as a result of the adoption of ASU2018-02, which permitted such release. |
(5) | Tax amounts related to thebefore-tax balance at June 30, 2018 are calculated using a 24% rate after the release of previously stranded excess deferred taxes existing as a result of the TCJA; amounts prior to the December 22, 2017 enactment of the TCJA were calculated using a 38% rate. |
31
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
The following table represents a rollforward of AOCI, presented on Southwest’s Condensed Consolidated Balance Sheets:
AOCI—AOCI - Rollforward
(Thousands of dollars)
Defined Benefit Plans | FSIRS | |||||||||||||||||||||||||||
Before-Tax | Tax (Expense) Benefit (8) | After-Tax | Before-Tax | Tax (Expense) Benefit (8) | After-Tax | AOCI | ||||||||||||||||||||||
Beginning Balance AOCI December 31, 2016 | $ | (57,613 | ) | $ | 21,893 | $ | (35,720 | ) | $ | (15,999 | ) | $ | 6,080 | $ | (9,919 | ) | $ | (45,639 | ) | |||||||||
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FSIRS amounts reclassified from AOCI (5) | — | — | — | 1,672 | (636 | ) | 1,036 | 1,036 | ||||||||||||||||||||
Amortization of prior service cost (6) | 668 | (254 | ) | 414 | — | — | — | 414 | ||||||||||||||||||||
Amortization of net actuarial loss (6) | 12,722 | (4,834 | ) | 7,888 | — | — | — | 7,888 | ||||||||||||||||||||
Regulatory adjustment (7) | (11,470 | ) | 4,358 | (7,112 | ) | — | — | — | (7,112 | ) | ||||||||||||||||||
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Net current period other comprehensive income (loss) attributable to Southwest Gas Corporation | 1,920 | (730 | ) | 1,190 | 1,672 | (636 | ) | 1,036 | 2,226 | |||||||||||||||||||
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Ending Balance AOCI June 30, 2017 | $ | (55,693 | ) | $ | 21,163 | $ | (34,530 | ) | $ | (14,327 | ) | $ | 5,444 | $ | (8,883 | ) | $ | (43,413 | ) | |||||||||
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Defined Benefit Plans | FSIRS | |||||||||||||||||||||||||||||||
Before-Tax | Tax (Expense) Benefit (10) | After-Tax | Before-Tax | Tax (Expense) Benefit (10) | After-Tax | Other | AOCI | |||||||||||||||||||||||||
Beginning Balance AOCI | $ | (61,520 | ) | $ | 22,293 | $ | (39,227 | ) | $ | (12,655 | ) | $ | 4,809 | $ | (7,846 | ) | $ | — | $ | (47,073 | ) | |||||||||||
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FSIRS amounts reclassified from AOCI (6) | — | — | — | 1,673 | (402 | ) | 1,271 | — | 1,271 | |||||||||||||||||||||||
Amortization of prior service cost (7) | 668 | (160 | ) | 508 | — | — | — | — | 508 | |||||||||||||||||||||||
Amortization of net actuarial loss (7) | 16,808 | (4,034 | ) | 12,774 | — | — | — | — | 12,774 | |||||||||||||||||||||||
Regulatory adjustment (8) | (15,119 | ) | 3,629 | (11,490 | ) | — | — | — | — | (11,490 | ) | |||||||||||||||||||||
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Net current period other comprehensive income attributable to Southwest Gas Corporation | 2,357 | (565 | ) | 1,792 | 1,673 | (402 | ) | 1,271 | — | 3,063 | ||||||||||||||||||||||
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Reclassification of excess deferred taxes (9) | — | — | — | — | — | — | (9,300 | ) | (9,300 | ) | ||||||||||||||||||||||
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Ending Balance AOCI June 30, 2018 | $ | (59,163 | ) | $ | 21,728 | $ | (37,435 | ) | $ | (10,982 | ) | $ | 4,407 | $ | (6,575 | ) | $ | (9,300 | ) | $ | (53,310 | ) | ||||||||||
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The FSIRS reclassification amounts are included in the Net interest deductions line item on Southwest’s Condensed Consolidated Statements of Income. |
These AOCI components are included in the computation of net periodic benefit cost (seeNote 2 – Components of Net PeriodicBenefit Costfor additional details). |
The regulatory adjustment represents the portion of the activity above that is expected to be recovered through rates in the future (the related regulatory asset is included in the Deferred charges and other assets line item on Southwest’s Condensed Consolidated Balance Sheets). |
Release of excess deferred taxes accumulated prior to December 22, 2017 (date of enactment of the TCJA), as a result of the adoption of ASU2018-02, which permitted such release. |
(10) | Tax amounts related to thebefore-tax balance at June 30, 2018 are calculated using a 24% rate after the release of previously stranded excess deferred taxes existing as a result of the TCJA; amounts prior to the December 22, 2017 enactment of the TCJA were calculated using a 38% rate. |
27
The following table represents amounts (before income tax impacts) included in AOCI (in the tables above), that have not yet been recognized in net periodic benefit cost:
Amounts Recognized in AOCI (Before Tax)
June 30, 2017 | December 31, 2016 | |||||||
(Thousands of dollars) | ||||||||
Net actuarial (loss) gain | $ | (418,251 | ) | $ | (430,973 | ) | ||
Prior service cost | (5,035 | ) | (5,703 | ) | ||||
Less: amount recognized in regulatory assets | 367,593 | 379,063 | ||||||
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Recognized in AOCI | $ | (55,693 | ) | $ | (57,613 | ) | ||
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Note 9 – Construction Services Redeemable Noncontrolling Interest
In conjunction with the acquisition(Thousands of the Canadian construction businesses in October 2014, the previous owners of the acquired companies hold a 3.4% equity interest in Centuri as of June 30, 2017. The terms of the agreement subject to the 3.4% interest permit the previous owners (when eligible) to exit their investment retained by requiring (if elected) the purchase of a portion of their interest based on an eligibility timeline, with incremental amounts subject to the election each year. The redemption price of the redeemable noncontrolling interest in accordance with the terms of the agreement is at fair value. The shares subject to the election cumulate (if earlier elections are not made) such that 100% of their interest retained would be subject to the election beginning in July 2022.
Due to the ability of the noncontrolling parties to redeem their interest for cash under the eligibility timeline, their interest is presented on the Company’s Condensed Consolidated Balance Sheet at June 30, 2017 as a Redeemable noncontrolling interest, a category of mezzanine equity (temporary equity). The following depicts changes to the balance of the redeemable noncontrolling interest between the indicated periods.dollars)
Redeemable Noncontrolling Interest | ||||
(Thousands of dollars): | ||||
Balance, December 31, 2016 | $ | 22,590 | ||
Net income (loss) attributable to redeemable noncontrolling interest | 49 | |||
Foreign currency exchange translation adjustment | 29 | |||
Centuri dividend to redeemable noncontrolling interest | (204 | ) | ||
Adjustment to redemption value | (2,315 | ) | ||
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Balance, June 30, 2017 | $ | 20,149 | ||
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June 30, 2018 | December 31, 2017 | |||||||
Net actuarial (loss) gain | $ | (431,747 | ) | $ | (448,555 | ) | ||
Prior service cost | (3,700 | ) | (4,368 | ) | ||||
Less: amount recognized in regulatory assets | 376,284 | 391,403 | ||||||
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Recognized in AOCI | $ | (59,163 | ) | $ | (61,520 | ) | ||
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Note 10 – Reorganization Impacts – Discontinued Operations Solely Related to Southwest Gas Corporation
NoAs a result of a holding company structure in January 2017, no substantive change has occurred with regard to the Company’s business segments on the whole, or in the primary businesses comprising those segments (Centuri operations continue to be part of continuing operations of the controlled group of companies), and financial information related to Centuri continues to be included in condensed consolidated financial statements of Southwest Gas Holdings, Inc.
However, as part of the holding company reorganization effective January 2017, Centuri is no longer a subsidiary of Southwest; whereas historically, Centuri had been a direct subsidiary of Southwest. To give effect to this change, the condensed consolidated financial statements related to Southwest Gas Corporation, which are separately included in thisForm 10-Q, depict Centuri-related amounts as discontinued operations for periods prior to January 2017.
Due to the discontinued operations accounting reflection, the following disclosures provide additional information regarding the assets, liabilities, equity, revenues and expenses of Centuri which are shown as discontinued operations on the condensed consolidated financial statements of Southwest Gas Corporation for periods prior to the beginning of 2017.
2832
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
The following table presents the major categories of assets and liabilities within the amounts reported as discontinued operations – construction services in the Condensed Consolidated Balance Sheet of Southwest Gas Corporation:
(Thousands of dollars) | December 31, 2016 | |||
Assets: | ||||
Other property and investments | $ | 233,774 | ||
Cash and cash equivalents | 9,042 | |||
Accounts receivable, net of allowances | 173,300 | |||
Prepaids and other current assets | 10,470 | |||
Goodwill | 129,888 | |||
Other noncurrent assets | 22,897 | |||
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Discontinued operations - construction services - assets | $ | 579,371 | ||
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Liabilities: | ||||
Current maturities of long-term debt | $ | 25,101 | ||
Accounts payable | 46,440 | |||
Other current liabilities | 74,518 | |||
Long-term debt, less current maturities | 174,903 | |||
Deferred income taxes and other deferred credits | 59,653 | |||
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Discontinued operations—construction services—liabilities | $ | 380,615 | ||
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The following table presents the components of the Discontinued operations–construction services non-owner equity amount shown in the Southwest Gas Corporation Condensed Consolidated Balance Sheet:
(Thousands of dollars) | December 31, 2016 | |||
Construction services equity | $ | (4,390 | ) | |
Construction services noncontrolling interest | (2,217 | ) | ||
Construction services redeemable noncontrolling interest | 22,590 | |||
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Discontinued operations - construction services non - owner equity | $ | 15,983 | ||
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The following table presents the major income statement components of discontinued operations – construction services reported in the Condensed Consolidated Income Statements of Income Southwest Gas Corporation:
Results of Construction Services
Three | Six | Twelve | Twelve | |||||||||||||||||
Months Ended | Months Ended | Months Ended | Months Ended | |||||||||||||||||
(Thousands of dollars) | June 30, 2016 | June 30, 2016 | June 30, 2017 | June 30, 2016 | Twelve Months Ended June 30, 2017 | |||||||||||||||
Construction revenues | $ | 292,100 | $ | 498,248 | $ | 640,830 | $ | 1,074,168 | $ | 640,830 | ||||||||||
Operating expenses: | ||||||||||||||||||||
Construction expenses | 263,926 | 457,308 | 567,115 | 955,332 | 567,115 | |||||||||||||||
Depreciation and amortization | 15,327 | 29,942 | 25,727 | 58,763 | 25,727 | |||||||||||||||
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Operating income | 12,847 | 10,998 | 47,988 | 60,073 | 47,988 | |||||||||||||||
Other income (deductions) | 34 | — | 1,193 | 1,067 | 1,193 | |||||||||||||||
Net interest deductions | 1,660 | 3,151 | 3,512 | 7,086 | 3,512 | |||||||||||||||
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Income before income taxes | 11,221 | 7,847 | 45,669 | 54,054 | 45,669 | |||||||||||||||
Income tax expense (benefit) | 4,480 | 3,334 | 16,550 | 20,414 | ||||||||||||||||
Income tax expense | 16,550 | |||||||||||||||||||
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Net income | 6,741 | 4,513 | 29,119 | 33,640 | 29,119 | |||||||||||||||
Net income attributable to noncontrolling interests | 156 | 65 | 949 | 1,168 | 949 | |||||||||||||||
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Discontinued operations - construction services - net income | $ | 6,585 | $ | 4,448 | $ | 28,170 | $ | 32,472 | $ | 28,170 | ||||||||||
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Note 11 – Acquisition of Construction Services Business
29In November 2017, the Company, through its subsidiaries, led principally by Centuri, completed the acquisition of a privately held construction business, New England Utility Constructors, Inc. (“Neuco”) for approximately $99 million, less assumed debt. See the Company’s 2017 Form10-K for additional information about this acquisition. While refinements were made to the estimated fair values of assets acquired and liabilities assumed when the final purchase accounting was completed during the first quarter of 2018, no subsequent adjustments were made to acquisition-date values, and no acquisition-related costs were incurred during 2018.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Southwest Gas Holdings, Inc. is a holding company that owns all of the shares of common stock of Southwest Gas Corporation (“Southwest” or the “natural gas operations” segment) and 96.6%all of the shares of common stock of Centuri Construction Group Inc. (“Centuri” or the “construction services” segment). Prior to August 2017, only 96.6% of Centuri shares were owned. During August 2017, Southwest Gas Holdings, Inc. acquired the remaining 3.4% equity interest in Centuri that was held by the previous owners (and reflected as of June 30, 2017.a redeemable noncontrolling interest). As part of thea holding company reorganization effective January 2017, designed to provide further separation between regulated and unregulated businesses, Centuri and Southwest are now subsidiaries of Southwest Gas Holdings, Inc.; whereas historically, Centuri had been a direct subsidiary of Southwest. To give effect for this change, the separate consolidated financial statements of Southwest Gas Corporation depict Centuri-related amounts for periods prior to January 2017 as discontinued operations of Southwest. Southwest Gas Holdings, Inc. and its subsidiaries (the “Company”) have two business segments (natural gas operations and construction services), which are discussed below.
Southwest is engaged in the business of purchasing, distributing, and transporting natural gas for customers in portions of Arizona, Nevada, and California. Southwest is the largest distributor of natural gas in Arizona, selling and transporting natural gas in most of central and southern Arizona, including the Phoenix and Tucson metropolitan areas. Southwest is also the largest distributor of natural gas in Nevada, serving the Las Vegas metropolitan area and northern Nevada. In addition, Southwest distributes and transports natural gas for customers in portions of California, including the Lake Tahoe area and the high desert and mountain areas in San Bernardino County.
33
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
As of June 30, 2017,2018, Southwest had 1,994,0002,027,000 residential, commercial, industrial, and other natural gas customers, of which 1,063,0001,080,000 customers were located in Arizona, 738,000752,000 in Nevada, and 193,000195,000 in California. Residential and commercial customers represented over 99% of the total customer base. During the twelve months ended June 30, 2017,2018, 54% of operating margin was earned in Arizona, 35% in Nevada, and 11% in California. During this same period, Southwest earned 85% of its operating margin (gas operating revenues less the net cost of gas sold) from residential and small commercial customers, 3% from other sales customers, and 12% from transportation customers. These general patterns are expected to remain materially consistent for the foreseeable future.
Southwest recognizes operating revenues from the distribution and transportation of natural gas (and related services) to customers. Operating marginGas cost is a financial measuretracked cost, which is passed through to customers without markup under purchased gas adjustment (“PGA”) mechanisms, impacting revenues and net cost of gas sold on adollar-for-dollar basis, thereby having no impact on Southwest’s profitability. Therefore, management routinely uses operating margin, defined by management as gas operating revenues less the net cost of gas sold. However, operatingsold, in its analysis of Southwest’s financial performance. Operating margin also forms a basis for Southwest’s various regulatory decoupling mechanisms. Operating margin is not, however, specifically defined in accounting principles generally accepted in the United States (“U.S. GAAP”). Thus, operating margin and is considered anon-GAAP measure. Management uses this financial measure because natural gas operating revenues include the net cost of gas sold, which is a tracked cost that is passed through to customers without markup under purchased gas adjustment (“PGA”) mechanisms. Fluctuations in the net cost of gas sold impact revenues on a dollar-for-dollar basis, but do not impact operating margin or operating income. Therefore, management believes operating margin provides investors and other interested parties with useful and relevant information to analyze Southwest’s financial performance in a rate-regulated environment. (Refer to the Summary Operating Results table for a reconciliation of revenues to operating margin.)
The principal factors affecting changes in operating margin are general rate relief (including impacts of infrastructure trackers) and customer growth.
The demand for natural gas is seasonal, with greater demand in the colder winter months and decreased demand in the warmer summer months. All of Southwest’s service territories have decoupled rate structures (alternative revenue programs), which are designed to eliminate the direct link between volumetric sales and revenue, thereby mitigating the impacts of weather variability and conservation on operating margin, allowing Southwest to pursue energy efficiency initiatives.
Centuri is a comprehensive construction services enterprise dedicated to meeting the growing demands of North American utilities, energy, and industrial markets. Centuri derives revenue from installation, replacement, repair, and maintenance of energy distribution systems, and developing industrial construction solutions primarily for energy services utilities.solutions. Centuri operates in 2423 major markets in the United States (primarily as NPL) and in 32 major markets in Canada (as NPL Canada (formerly Link-Line Contractors Ltd.), and W.S. Nicholls).
Construction activity is cyclical and can be significantly impacted by changes in weather, general and local economic conditions (including the housing market), interest rates, employment levels, job growth, pipe replacement programs of utilities, and local and federal regulation (including tax rates and incentives). During the past few years, utilities have implemented or modified pipeline integrity management programs to enhance safety pursuant to federal and state mandates. These programs coupled with recent bonus depreciation tax deduction incentives, have resulted in a significant increase in multi-year pipeline replacement projects throughout the U.S. Centuri has focused its efforts on obtaining pipe replacement work under both blanket contracts and incremental bid projects. For both the twelve months ended June 30, 2018 and 2017, revenues from replacement work provided over 65% of total revenues. Generally, Centuri revenues are lowest during the first quarter of the year due to less favorable winter weather conditions. Revenues typically improve as more favorable weather
30
conditions occur during the summer and fall months. This is expected in both the U.S. and Canadian markets. In certain circumstances, such as with large bid contracts (especially those of a longer duration), or unit-price contracts with revenue caps, results may be impacted by differences between costs incurred and those anticipated when the work was originally bid. Work awarded or failing to benot awarded by individual large customers can significantly impact operating results.
This Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and the notes thereto, as well as MD&A included in the 20162017 Annual Report to Shareholders, which is incorporated by reference into the 20162017 Form10-K.
Executive Summary
The items discussed in this Executive Summary are intended to provide an overview of the results of the Company’s operations. As needed, certain items are covered in greater detail in later sections of management’s discussion and analysis. As reflected in the table below, the natural gas operations segment accounted for an average of 80% oftwelve-month-to-date consolidated net income over the past two years. As such, management’s discussion
34
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
and analysis is primarily focused on that segment. Natural gas sales are seasonal, peaking during the winter months; therefore, results of operations for interim periods are not necessarily indicative of results for a full year.
Summary Operating Results
Period Ended June 30, | Period Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
Three Months | Six Months | Twelve Months | Three Months | Six Months | Twelve Months | |||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||||||||||
(In thousands, except per share amounts) | (In thousands, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||
Contribution to net income | ||||||||||||||||||||||||||||||||||||||||||||||||
Natural gas operations | $ | 9,522 | $ | 2,358 | $ | 86,460 | $ | 79,941 | $ | 125,942 | $ | 113,302 | $ | 2,622 | $ | 9,522 | $ | 92,971 | $ | 86,460 | $ | 163,329 | $ | 125,942 | ||||||||||||||||||||||||
Construction services | 8,716 | 6,585 | 1,382 | 4,448 | 29,552 | 32,472 | 19,236 | 8,716 | 8,235 | 1,382 | 45,213 | 29,552 | ||||||||||||||||||||||||||||||||||||
Corporate and administrative | (374 | ) | — | (670 | ) | — | (670 | ) | — | (307 | ) | (374 | ) | (564 | ) | (670 | ) | (1,231 | ) | (670 | ) | |||||||||||||||||||||||||||
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Net income | $ | 17,864 | $ | 8,943 | $ | 87,172 | $ | 84,389 | $ | 154,824 | $ | 145,774 | $ | 21,551 | $ | 17,864 | $ | 100,642 | $ | 87,172 | $ | 207,311 | $ | 154,824 | ||||||||||||||||||||||||
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Average number of common shares outstanding | 47,571 | 47,473 | 47,550 | 47,455 | 47,516 | 47,347 | ||||||||||||||||||||||||||||||||||||||||||
Average number of common shares | 48,826 | 47,571 | 48,622 | 47,550 | 48,338 | 47,516 | ||||||||||||||||||||||||||||||||||||||||||
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Basic earnings per share | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated | $ | 0.38 | $ | 0.19 | $ | 1.83 | $ | 1.78 | $ | 3.26 | $ | 3.08 | $ | 0.44 | $ | 0.38 | $ | 2.07 | $ | 1.83 | $ | 4.29 | $ | 3.26 | ||||||||||||||||||||||||
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Natural Gas Operations | ||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Revenue to Operating Margin(Non-GAAP measure) | ||||||||||||||||||||||||||||||||||||||||||||||||
Gas operating revenues | $ | 260,162 | $ | 255,648 | $ | 722,764 | $ | 780,748 | $ | 1,263,428 | $ | 1,395,629 | $ | 275,679 | $ | 260,162 | $ | 769,992 | $ | 722,764 | $ | 1,349,536 | $ | 1,263,428 | ||||||||||||||||||||||||
Net cost of gas sold | 69,421 | 71,416 | 216,300 | 285,016 | 328,405 | 486,048 | ||||||||||||||||||||||||||||||||||||||||||
Less: Net cost of gas sold | 83,466 | 69,421 | 269,198 | 216,300 | 407,943 | 328,405 | ||||||||||||||||||||||||||||||||||||||||||
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Operating margin | $ | 190,741 | $ | 184,232 | $ | 506,464 | $ | 495,732 | $ | 935,023 | $ | 909,581 | $ | 192,213 | $ | 190,741 | $ | 500,794 | $ | 506,464 | $ | 941,593 | $ | 935,023 | ||||||||||||||||||||||||
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3135
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
2nd Quarter 20172018 Overview
Natural gas operations highlights:
Benefits of Arizona rate case reflected in quarterly operating results
32,00033,000 net new customers in last 12 months (1.6% growth rate)
Depreciation and amortization expense declined $11Filed Nevada general rate case, requesting approximately $33 million compared to the prior-year quarter
Filed Gas Infrastructure Replacement (“GIR”) Advance Application with annualized revenue requirement of $22 million
Received order from PUCN approving expansion into Mesquite, Nevada
Operating income increased $12.2 million compared to the prior-year quarter
Received approval to extend current rate case cycle in California
Proposed $66 millionmargin reflects estimated regulatory impacts of accelerated pipe replacement in Nevada GIR application
Targeting $27 million of vintage steel pipe replacement intax reform and associated Arizona during 2017
Received approval for a $1.8 million surcharge associated with Arizona COYL programCorporation Commission decision
Construction services highlights:
Revenues increased $8.2$94.9 million compared to the prior-year quarter; twelve-month revenues surpassed $1.4 billion
Construction expenses increased $80.7 million compared to the prior-year quarter
Depreciation and amortization expense increased $1.8 million compared to the prior-year quarter
Net interest deductions increased $1.7 million compared to the prior-year quarter
Construction expenses increased $8.1 million compared to the prior-year quarter36
Depreciation and amortization expense declined $3.5 million compared to the prior-year quarter
Completed requalification of employees affected by temporary work stoppage
32
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
Results of Natural Gas Operations
Quarterly Analysis
Three Months Ended | ||||||||||||||||
Three Months Ended June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
(Thousands of dollars) | (Thousands of dollars) | |||||||||||||||
Gas operating revenues | $ | 260,162 | $ | 255,648 | $ | 275,679 | $ | 260,162 | ||||||||
Net cost of gas sold | 69,421 | 71,416 | 83,466 | 69,421 | ||||||||||||
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Operating margin | 190,741 | 184,232 | 192,213 | 190,741 | ||||||||||||
Operations and maintenance expense | 102,501 | 98,744 | 105,208 | 97,644 | ||||||||||||
Depreciation and amortization | 46,254 | 57,232 | 47,664 | 46,254 | ||||||||||||
Taxes other than income taxes | 14,497 | 12,987 | 14,666 | 14,497 | ||||||||||||
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| |||||||||||||
Operating income | 27,489 | 15,269 | 24,675 | 32,346 | ||||||||||||
Other income (deductions) | 2,052 | 2,436 | (2,094 | ) | (2,805 | ) | ||||||||||
Net interest deductions | 16,991 | 16,561 | 20,149 | 16,991 | ||||||||||||
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| |||||||||||||
Income before income taxes | 12,550 | 1,144 | 2,432 | 12,550 | ||||||||||||
Income tax expense (benefit) | 3,028 | (1,214 | ) | (190 | ) | 3,028 | ||||||||||
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| |||||||||||||
Contribution to consolidated net income | $ | 9,522 | $ | 2,358 | $ | 2,622 | $ | 9,522 | ||||||||
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The contributionContribution to consolidated net income from natural gas operations increased $7.2decreased $6.9 million between the second quarters of 20172018 and 2016.2017. The improvementdecline was primarily due to higher operating marginexpenses and lower depreciationnet interest deductions, partially offset by a decrease in income tax expense. U.S. federal tax reform impacted both revenue and tax expense. The amounts above reflect a reclassification of $4.9 million for 2017 from Operations and maintenance expense both resulting fromto Other income (deductions) related to the recent Arizona general rate case decision.non-service cost components of net periodic benefit costs, as a result of the adoption of the update to FASB Topic 715 (refer to Note 2 to the condensed consolidated financial statements in this Form10-Q), with no impact to net income overall. The reclassification in the 2017 period is intended to make that information comparable to the current period presentation.
Operating margin increased nearly $7$1.5 million between quarters. Rate reliefquarters, due in Arizona (effective April 2017)part to a net $1.6 million decrease in the reserve related to U.S. tax reform, based on expectations in the rate jurisdictions in which Southwest and California provided $5 millionits subsidiaries operate. Refer to discussion ofIncome Taxes in operating margin (seeNote 1 – Nature of Operations and Basis of Presentationof thisForm10-Q andRates and Regulatory Proceedings). below. Approximately $2 million in increased operating margin was attributable to customer growth, as 32,00033,000 net new customers were added during the last twelve months.months, with another $500,000 attributable to rate relief in California. These increases were offset by an approximate $2.6 million reduction in miscellaneous revenues (including a $2 million reduction in surcharge recoveries associated with Nevada Conservation and Energy Efficiency (“CEE”) programs, offset in Depreciation and amortization expense).
Operations and maintenance expense increased $3.8$7.6 million or 4%, between quartersquarters. Approximately $2 million of the increase was due primarily to higher employee-related expensespension and employee medical costs. The remaining increase was primarily due to higher injuries and damages expense, incremental expenditures for pipeline integrity management and damage prevention programs, and general cost increases. Employee-related expenses reflect approximately $1.3 million of incremental costs recognized associated with the amount and timing of incentive plan grants (including accelerated recognition for retirement eligible employees).
Depreciation and amortization expense decreased $11increased $1.4 million between quarters primarily due to reduced depreciation rates in Arizona, a resultan increase of the recent Arizona general rate case decision. Partially offsetting the decline was increased depreciation associated with a $321$448 million, or 5%7%, increase in average gas plant in service for the current quarter as compared to the corresponding quarter a year ago. The increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure. See also discussion above regarding surcharge recoveries (including Nevada CEE programs), which provide offsetting impacts in this category.
Taxes other thanOther income taxes increased $1.5 million(deductions) improved $711,000 between quarters primarily due to higher property taxes associated with net plant additions and increased property taxesan increase in Arizona. Property taxes were also impacted by a property tax tracking mechanism enacted as part of the recently settled Arizona general rate case.
Otherinterest income which principally includes returns on company-owned life insurance (“COLI”) policies and non-utility expenses, decreased $384,000 between quarters. The current quarter reflects $1.9 million of COLI-related income associated with COLI policy cash surrender value increases, while the prior-year quarter reflected $2.2 million of COLI-related income.
Net interest deductions increased $430,000 between quarters, primarily duerelated to the September 2016 issuanceGIR mechanism in Nevada. See the Rates and Regulatory Proceedingssection for more information about the GIR. Amounts in both periods reflect thenon-service cost components of $300 million of senior notes, partially offset by reductions associated with the redemption of debt ($100 million of 4.85% IDRBs in July 2016,employee pension and $24.9 million of 4.75% IDRBs in September 2016) and lower interest expense associated with PGA balances as compared to the prior-year quarter.other post-retirement benefits.
3337
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
Net interest deductions increased $3.2 million in the second quarter of 2018, as compared to the prior-year quarter, primarily due to higher interest associated with credit facility borrowings during the current-year quarter and the issuance of $300 million of senior notes in March 2018.
Income taxes were impacted in 2018 by thepre-tax earnings impacts discussed above as well as by the December 2017 enactment of tax reform. Among other things, tax reform reduced the corporate federal income tax rate from 35% to 21%, effective January 2018.
38
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
Results of Natural Gas Operations
Six-Month Analysis
Six Months Ended | ||||||||||||||||
Six Months Ended June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
�� | (Thousands of dollars) | (Thousands of dollars) | ||||||||||||||
Gas operating revenues | $ | 722,764 | $ | 780,748 | $ | 769,992 | $ | 722,764 | ||||||||
Net cost of gas sold | 216,300 | 285,016 | 269,198 | 216,300 | ||||||||||||
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| |||||||||||||
Operating margin | 506,464 | 495,732 | 500,794 | 506,464 | ||||||||||||
Operations and maintenance expense | 211,180 | 199,541 | 207,398 | 201,468 | ||||||||||||
Depreciation and amortization | 107,449 | 117,977 | 97,625 | 107,449 | ||||||||||||
Taxes other than income taxes | 29,279 | 27,000 | 29,923 | 29,279 | ||||||||||||
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| |||||||||||||
Operating income | 158,556 | 151,214 | 165,848 | 168,268 | ||||||||||||
Other income (deductions) | 5,663 | 4,191 | (6,697 | ) | (4,049 | ) | ||||||||||
Net interest deductions | 34,201 | 32,791 | 39,404 | 34,201 | ||||||||||||
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| |||||||||||||
Income before income taxes | 130,018 | 122,614 | 119,747 | 130,018 | ||||||||||||
Income tax expense | 43,558 | 42,673 | 26,776 | 43,558 | ||||||||||||
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| |||||||||||||
Contribution to consolidated net income | $ | 86,460 | $ | 79,941 | $ | 92,971 | $ | 86,460 | �� | |||||||
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|
The contributionContribution to consolidated net income from natural gas operations increased $6.5 million between the first six months of 20172018 and 2016.2017. The improvement was primarily due to higher operating marginrate relief and customer growth, lower depreciation expense, and the combined impacts of tax reform, partially offset by an increaseincreases in operationsOperations and maintenance expenses.expense, and Net interest deductions. The amounts above for Operations and maintenance expense and Other income (deductions) for the 2017 period reflect a $9.7 million reclassification related to thenon-service cost components of employee pensions and other post-retirement benefits, as a result of the adoption of the update to FASB Topic 715. The reclassification is intended to make the prior period comparable to the current period, but did not impact net income overall.
Operating margin increased $11decreased $5.7 million between the comparativesix-month periods. Rate periods, due to a $12.5 million reserve recognized due to the enactment of U.S. tax reform in December 2017. The reserve contemplates a pending reduction in rates to reflect the reduced cost of service during 2018, resulting from tax reform (seeRates and Regulatory Proceedings below). However, the decline in applicable U.S. income tax rates also significantly reduced income tax expense (see discussion below). Operating margin was favorably impacted by rate relief in the Arizona and California jurisdictions, which collectively provided $5.6 million in operating margin. Approximately $6 million in increased operating margin (seeRates and Regulatory Proceedings). The remaining $5 million increase was attributable to customer growth. An approximate $5.5 million reduction in surcharge recoveries associated with Nevada CEE programs (offset in Depreciation and amortization expense below), as well as other surcharge variances and variability in other miscellaneous revenues and customers outside the decoupling mechanisms, comprise the residual variance.
Operations and maintenance expense increased $11.6$5.9 million or 6%, between periods due primarily to higher employee-relatedpension service-cost related and other employee benefit expenses, higher injuries and damages expenses, incremental expenditures for pipeline integrity management and damage prevention programs, and other general cost increases. Employee-related expenses reflect approximately $3.9 million of incremental costs recognized associated with the amount and timing ofincreases, partially offset by lower expense for incentive plan grants (including accelerated recognition for retirement-eligible employees).compensation programs.
Depreciation and amortization expense decreased $10.5$9.8 million between periods primarily due to reduced depreciation rates in Arizona, a result of the recentApril 2017 Arizona general rate case decision. The depreciation decrease also included a decline of approximately $3.5 million in amortization relateddecision, and to the recoveryimpacts of surcharge recoveries for regulatory assets.mechanisms, as discussed above. Partially offsetting the decline was additional depreciation associated with a $330$444 million, or 6%7%, increase in average gas plant in service for the current period as compared to the prior period. The increase was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.
Taxes other than income taxes increased $2.3 million, or 8%, between periods primarily due to higher property taxes in Arizona, including the impacts of the Arizona property tax tracking mechanism.
Other income, which principally includes returns on COLI policies and non-utility expenses, increased $1.5 million between periods. The current period reflects $4.7 million of COLI-related income associated with COLI policy cash surrender value increases, while the prior-year period reflected $3.1 million of COLI-related income.39
Net interest deductions increased $1.4 million between periods, primarily due to the September 2016 issuance of $300 million of senior notes, partially offset by reductions associated with debt redemptions and lower interest expense associated with PGA balances as compared to the prior-year period.
34
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
Taxes other than income taxes increased $644,000 between periods primarily due to higher property taxes in Arizona, including the impacts of the Arizona property tax tracking mechanism.
Other income decreased $2.6 million between periods primarily due to a decline in income from company-owned life insurance (“COLI”) policies. The current period reflects a $1.3 million increase in COLI policy cash surrender values, while the prior-year period reflected $4.7 million of COLI-related income. Additionally, amounts in both periods reflect thenon-service cost components of employee pension and post-retirement benefits.
Net interest deductions increased $5.2 million between periods, primarily due to higher interest associated with credit facility borrowings during the current period and the issuance of $300 million of senior notes in the first quarter of 2018. The increase was partially offset by reductions in interest expense associated with deferred purchased gas adjustments (“PGA”) balances as compared to the prior-year period.
Income taxes were favorably impacted in 2018 due to the December 2017 enactment of tax reform.
40
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
Results of Natural Gas Operations
Twelve-Month Analysis
Twelve Months Ended | ||||||||||||||||
Twelve Months Ended June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
(Thousands of dollars) | (Thousands of dollars) | |||||||||||||||
Gas operating revenues | $ | 1,263,428 | $ | 1,395,629 | $ | 1,349,536 | $ | 1,263,428 | ||||||||
Net cost of gas sold | 328,405 | 486,048 | 407,943 | 328,405 | ||||||||||||
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| |||||||||||||
Operating margin | 935,023 | 909,581 | 941,593 | 935,023 | ||||||||||||
Operations and maintenance expense | 413,363 | 397,886 | 397,251 | 393,772 | ||||||||||||
Depreciation and amortization | 222,935 | 224,845 | 192,098 | 222,935 | ||||||||||||
Taxes other than income taxes | 54,655 | 50,982 | 58,590 | 54,655 | ||||||||||||
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| |||||||||||||
Operating income | 244,070 | 235,868 | 293,654 | 263,661 | ||||||||||||
Other income (deductions) | 9,748 | 3,569 | (9,036 | ) | (9,843 | ) | ||||||||||
Net interest deductions | 68,407 | 65,041 | 74,936 | 68,407 | ||||||||||||
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| |||||||||||||
Income before income taxes | 185,411 | 174,396 | 209,682 | 185,411 | ||||||||||||
Income tax expense | 59,469 | 61,094 | 46,353 | 59,469 | ||||||||||||
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| |||||||||||||
Contribution to consolidated net income | $ | 125,942 | $ | 113,302 | $ | 163,329 | $ | 125,942 | ||||||||
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Contribution to consolidated net income from natural gas operations increased by $12.6$37.4 million between the twelve-month periods of 20172018 and 2016.2017. The improvement was primarily due to higher operating margin, lower Depreciation and an increase in other income,amortization expense, and lower Income tax expense, partially offset by an increase in operationsTaxes other than income taxes and higher Net interest deductions. The amounts above for Operations and maintenance expenses.expense and Other income (deductions) for the 2017 period reflect a $19.6 million reclassification related to thenon-service cost components of employee pensions and other post-retirement benefits, as a result of the adoption of the update to FASB Topic 715. The reclassification is intended to make the prior period comparable to the current period, but did not impact net income overall.
Operating margin increased $25$7 million between periods including a combined $11$15 million of rate relief in the Arizona and California jurisdictions, as well as Paiute Pipeline Company.jurisdictions. Customer growth provided $8$10 million in operating margin. Operatingmargin, while operating margin associated with recoveries of regulatory assets, infrastructure replacement mechanisms, customers outside the decoupling mechanisms, and other miscellaneous revenues improveddecreased $6 million. The $12.5 million reserve, described earlier, associated with tax reform, decreased operating margin in the current period. However, net income overall was not unfavorably impacted, as favorable impacts from tax reform are reflected in income tax expense.
Operations and maintenance expenses in the 2018 period were within 1% of the prior year period. The overall increase of $3.5 million primarily relates to higher service-cost-related pension expense increased $15.5 million, or 4%, between periods primarily due to general cost increases and higher employee-related expenses. In addition, expensesexpenditures for pipeline integrity management and damage prevention programs increased (collectively, $1 million).programs.
Depreciation and amortization expense decreased $1.9$30.8 million or 1%, between periods primarily due to reduced depreciation rates in Arizona, a result of the recentApril 2017 Arizona general rate case decision. LargelyPartially offsetting the decline was depreciation associated with a $345$391 million, or 6%, increase in average gas plant in service for the current period as compared to the prior period. The increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.
Taxes other than income taxes increased $3.7$3.9 million or 7%, between periods primarily due to higher property taxes associated primarily with net plant additions and increased property taxes in Arizona.Arizona, including the impact of the property tax regulatory tracking mechanism.
Other income increased $6.2 million(deductions) improved $807,000 between the twelve-month periods of 20172018 and 2016.2017. The current period reflects a $9$6.9 million increase in COLI policy cash surrender values, and recognized death benefits (combined), while the prior-year period reflected $1.3included $9 million of COLI-related income.
Net Interest income increased $2.1 million including interest deductions increased $3.4 million between periods, primarily duerelated to the September 2016 issuance of $300 million of senior notes. The increase was substantially offset by reductions associated withGIR mechanism in Nevada.See the redemption of debt ($20 million of 5.25% IDRBs in September 2015, $100 million of 4.85% IDRBs in July 2016, Rates and $24.9 million of 4.75% IDRBs in September 2016).Regulatory Proceedingssection for more information about the GIR
3541
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
Resultsmechanism. Amounts in both periods reflect thenon-service cost components of Construction Servicesemployee pension and post-retirement benefits, which increased between periods.
Quarterly Analysis
Three Months Ended June 30, | ||||||||
2017 | 2016 | |||||||
(Thousands of dollars) | ||||||||
Construction revenues | $ | 300,307 | $ | 292,100 | ||||
Operating expenses: | ||||||||
Construction expenses | 272,001 | 263,926 | ||||||
Depreciation and amortization | 11,828 | 15,327 | ||||||
|
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| |||||
Operating income | 16,478 | 12,847 | ||||||
Other income (deductions) | (6 | ) | 34 | |||||
Net interest deductions | 1,629 | 1,660 | ||||||
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|
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| |||||
Income before income taxes | 14,843 | 11,221 | ||||||
Income tax expense | 5,870 | 4,480 | ||||||
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| |||||
Net income | 8,973 | 6,741 | ||||||
Net income attributable to noncontrolling interests | 257 | 156 | ||||||
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| |||||
Contribution to consolidated net income attributable to Centuri | $ | 8,716 | $ | 6,585 | ||||
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|
Contribution to consolidated net income from construction services inNet interest deductions increased $6.5 million between the current quarter increased by $2.1 million when comparedand prior-year period, primarily due to the prior-year quarter. Increased revenues fromissuance of $300 million of senior notes in September 2016, higher volumeinterest associated with credit facility borrowings during late 2017 and early 2018, and the issuance of work and lower depreciation and amortization, as described below, contributed to the increase. Results were negatively impacted due to a temporary work stoppage by a significant customer that began$300 million senior notes in the first quarter of 20172018. The increase was substantially offset by reductions in interest expense associated with deferred PGA balances and continued through part of the second quarter of 2017. The temporary work stoppage was initiated due to state-mandated requalification of employees of all contractors working within the jurisdictional boundary of one state. Operations resumed gradually during the quarter following the requalification of Centuri’s employeesdebt redemptions during the second quarterhalf of 2017.2016.
Revenues increased $8.2Income taxes were favorably impacted during the twelve months ending June 30, 2018 due to the December 2017 enactment of tax reform, which reduced the corporate federal income tax rate from 35% to 21%, effective January 2018. Approximately $8 million or 3%,ofone-time tax benefits, related to the remeasurement of deferred tax liabilities, were recorded in the secondfourth quarter of 2017 when comparedin addition to the prior-year quarter, primarily due to an increase in pipe replacement work with existing customers, partially offset by a decrease in revenues associated with the temporary work stoppage noted above. During the second quarter of 2017, the suspension of work resulted in a $15.8 million reduction in revenue, compared to the prior-year quarter, and a $100,000 pre-tax losslower rate utilized in the current quarter.
Construction expenses increased $8.1 million, or 3%, between quarters due to additional pipe replacement work and higher labor costs related to the temporary work stoppage. Gains on salefirst half of equipment (reflected as an offset to construction expenses) were approximately $1.1 million and $1.4 million for the second quarters of 2017 and 2016, respectively.
Depreciation and amortization decreased $3.5 million between quarters, primarily due to a $2.7 million reduction associated with the extension of the estimated useful lives of certain depreciable equipment during the past 12 months.2018.
3642
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
Results of Construction Services
Six-MonthQuarterly Analysis
Three Months Ended | ||||||||||||||||
Six Months Ended June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
(Thousands of dollars) | (Thousands of dollars) | |||||||||||||||
Construction revenues | $ | 492,442 | $ | 498,248 | $ | 395,204 | $ | 300,307 | ||||||||
Operating expenses: | ||||||||||||||||
Construction expenses | 463,957 | 457,308 | 352,671 | 272,001 | ||||||||||||
Depreciation and amortization | 23,111 | 29,942 | 13,643 | 11,828 | ||||||||||||
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| |||||||||||||
Operating income | 5,374 | 10,998 | 28,890 | 16,478 | ||||||||||||
Other income (deductions) | 248 | — | (632 | ) | (6 | ) | ||||||||||
Net interest deductions | 3,133 | 3,151 | 3,308 | 1,629 | ||||||||||||
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| |||||||||||||
Income before income taxes | 2,489 | 7,847 | 24,950 | 14,843 | ||||||||||||
Income tax expense | 1,153 | 3,334 | 5,714 | 5,870 | ||||||||||||
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| |||||||||||||
Net income | 1,336 | 4,513 | 19,236 | 8,973 | ||||||||||||
Net income (loss) attributable to noncontrolling interests | (46 | ) | 65 | |||||||||||||
Net income attributable to noncontrolling interest | — | 257 | ||||||||||||||
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| |||||||||||||
Contribution to consolidated net income attributable to Centuri | $ | 1,382 | $ | 4,448 | $ | 19,236 | $ | 8,716 | ||||||||
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|
|
Contribution to consolidated net income from construction servicesIn November 2017, Centuri acquired New England Utility Constructors, Inc. (“Neuco”). Line items in the table above reflect the results of Neuco only for the first six months2018 period as the acquisition occurred in November 2017.
Revenues increased $94.9 million in the second quarter of 2017 declined by $3.1 million2018 when compared to the prior-year period. Results were negatively impactedquarter, primarily due to a higher volume of pipe replacement work under blanket and bid contracts, and $34 million of revenues contributed by the temporary work stoppage previously described. Poor weather during the first quarterNeuco. In addition, revenues reflect a $9 million negotiated settlement of an outstanding contract dispute from 2017 also negatively impacted current-period results. These impacts were partially offset by lower depreciation and amortization.associated with a water pipe replacement project.
Revenues decreased $5.8Construction expenses increased $80.7 million or 1%,between quarters. The increase in the first six months of 2017 when comparedConstruction expenses is due to the prior-year period. The suspension of work during the first six months of 2017 noted above resulted in a $26.3 million reduction in revenues, compared to the prior-year period, and a $3.7 million pre-tax loss in the current period. Additionally, inclement weather in several operating areas negatively impacted revenues and reduced productivity in the first quarter. Increased revenues from additional pipe replacement work partially offset the other decreases.
Constructionand greater operating expenses to support increased $6.6growth in operations. Approximately $30 million or 1%, between periods. The increase inof construction expenses is disproportionate to that noted aboveassociated with regard to revenues due in part to logistics surrounding the timing and length of the temporary work stoppage with the significant customer, and to higher labor costs incurred to complete work during inclement weather conditionsNeuco are included in the first quarter.three months ended June 30, 2018. Gains on sale of equipment (reflected as an offset to construction expenses) were approximately $1.4 million$20,000 and $2.7$1.1 million for the first six monthssecond quarters of 20172018 and 2016,2017, respectively.
Depreciation and amortization decreased $6.8expense increased $1.8 million between periods,quarters, primarily due to incremental amortization of finite-lived intangible assets recognized from the Neuco acquisition and to depreciation on additional equipment purchased to support the growing volume of work being performed, partially offset by a $6.2$1.9 million reduction in depreciation associated with the extension of the estimated useful lives of certain depreciable equipment duringequipment.
Net interest deductions increased by $1.7 million between quarters. The increase was due primarily to higher average debt outstanding under the past 12 months.existing $450 million secured revolving credit and term loan facility in 2018.
Income taxes were relatively flat between periods; however, 2018 tax expense reflects lower U.S. federal income tax rates following tax reform applied to an increased level of earnings.
3743
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
Results of Construction Services
Twelve-MonthSix-Month Analysis
Six Months Ended | ||||||||||||||||
Twelve Months Ended June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
(Thousands of dollars) | (Thousands of dollars) | |||||||||||||||
Construction revenues | $ | 1,133,272 | $ | 1,074,168 | $ | 655,221 | $ | 492,442 | ||||||||
Operating expenses: | ||||||||||||||||
Construction expenses | 1,031,072 | 955,332 | 611,623 | 463,957 | ||||||||||||
Depreciation and amortization | 48,838 | 58,763 | 26,160 | 23,111 | ||||||||||||
|
|
|
| |||||||||||||
Operating income | 53,362 | 60,073 | 17,438 | 5,374 | ||||||||||||
Other income (deductions) | 1,441 | 1,067 | (369 | ) | 248 | |||||||||||
Net interest deductions | 6,645 | 7,086 | 6,504 | 3,133 | ||||||||||||
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|
|
| |||||||||||||
Income before income taxes | 48,158 | 54,054 | 10,565 | 2,489 | ||||||||||||
Income tax expense | 17,703 | 20,414 | 3,127 | 1,153 | ||||||||||||
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| |||||||||||||
Net income | 30,455 | 33,640 | 7,438 | 1,336 | ||||||||||||
Net income attributable to noncontrolling interests | 903 | 1,168 | ||||||||||||||
Net income (loss) attributable to noncontrolling interest | (797 | ) | (46 | ) | ||||||||||||
|
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| |||||||||||||
Contribution to consolidated net income attributable to Centuri | $ | 29,552 | $ | 32,472 | $ | 8,235 | $ | 1,382 | ||||||||
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|
Contribution to consolidated net income from construction servicesLine items in the table above reflect the results of Neuco only for the twelve-month2018 period ended June 30, 2017 decreased $2.9as the acquisition occurred in November 2017.
Revenues increased $162.8 million during the first six months of 2018 when compared to the same period of 2016. The decrease is primarilyin the prior year due to higher construction costs relative toan increased revenues, resultingvolume of replacement work for many natural gas distribution customers, the contribution of $48 million in pre-tax losses on certain projects, partially offset byrevenue from Neuco in 2018, the absence of a declinecustomer’s temporary work stoppage that impacted prior-year performance, and the settlement of an outstanding contract dispute associated with a water pipe replacement project.
Construction expenses increased $147.7 million between periods. The increase in depreciation and amortization.
Revenues increased $59.1 million, or 6%, in the current twelve-month period compared to the same period of 2016 primarilyConstruction expenses is due to additional pipe replacement work for existing customers. Duringand higher labor costs incurred to complete work during inclement weather conditions during the past several years, Centuri has focused its efforts on obtaining replacement work under both blanket contracts and incremental bid projects. For eachfirst quarter. Approximately $44 million of construction expenses associated with Neuco are included in the twelve-month periodssix months ended June 30, 2017 and 2016, revenues from replacement work provided over 60% of total revenues. During the fourth quarter of 2016, Centuri began work on a multi-year water pipe replacement program for a new municipal customer.
Construction expenses increased $75.7 million, or 8% between periods, due to additional pipe replacement work, higher labor costs experienced due to changes in the mix of work with existing customers, start-up costs associated with new customer contracts, and increased operating expenses to support increased growth in operations. Additionally, the logistics surrounding the timing and length of a temporary work stoppage with a significant customer during the first six months of 2017 resulted in costs disproportionate to revenues.2018. Gains on sale of equipment (reflected as an offset to construction expenses) were $5.8 millionapproximately $250,000 and $3.3$1.4 million for the twelve-month periods ended June 30,first six months of 2018 and 2017, and 2016, respectively.
Depreciation and amortization decreased $9.9increased $3 million between the current and prior-year periods, primarily due to an $11.5incremental amortization of finite-lived intangible assets recognized from the Neuco acquisition and to depreciation on additional equipment purchased to support the growing volume of work being performed, partially offset by a $3.9 million reduction in depreciation associated with the extension of the estimated useful lives of certain depreciable equipment over the last twelve months.equipment.
Net interest deductions decreased $441,000increased by $3.4 million between periodsperiods. The increase was due primarily due to higher average debt outstanding under the existing $450 million secured revolving credit and term loan facility in 2018.
Income tax expense reflects both the impacts of lower interestincome tax rates in 2018 following U.S. federal tax reform and lower average outstanding borrowings.the changes in earnings, discussed above, on which new rates are applied.
3844
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
Results of Construction Services
Twelve-Month Analysis
Twelve Months Ended | ||||||||
June 30, | ||||||||
2018 | 2017 | |||||||
(Thousands of dollars) | ||||||||
Construction revenues | $ | 1,409,263 | $ | 1,133,272 | ||||
Operating expenses: | ||||||||
Construction expenses | 1,296,629 | 1,031,072 | ||||||
Depreciation and amortization | 52,078 | 48,838 | ||||||
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Operating income | 60,556 | 53,362 | ||||||
Other income (deductions) | (272 | ) | 1,441 | |||||
Net interest deductions | 11,357 | 6,645 | ||||||
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Income before income taxes | 48,927 | 48,158 | ||||||
Income tax expense | 4,364 | 17,703 | ||||||
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Net income | 44,563 | 30,455 | ||||||
Net income (loss) attributable to noncontrolling interest | (650 | ) | 903 | |||||
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Contribution to consolidated net income attributable to Centuri | $ | 45,213 | $ | 29,552 | ||||
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Line items in the table above reflect the results of Neuco only since the November 2017 acquisition date.
Revenues increased $276 million in the current twelve-month period compared to the same period of 2017, primarily due to a higher volume of pipe replacement work under blanket contracts and the contribution of approximately $65 million in revenue from Neuco since the November 2017 acquisition date. In addition, Centuri performed work on a multi-year water pipe replacement program, which began in late 2016, that contributed incremental revenues of $55.3 million and $30.8 million during the twelve-month periods ended June 30, 2018 and 2017, respectively.
Construction expenses increased $265.6 million between periods, primarily due to higher labor costs experienced due to changes in the mix of work with existing customers, lower relative productivity resulting from inclement weather, and greater operating expenses to support increased growth in operations. In addition, results were negatively impacted by higher construction costs and an unfavorable mix of work performed during the period related to the water pipe replacement program noted above. Approximately $57 million of construction expenses from Neuco are included in the twelve months ended June 30, 2018. Gains on sale of equipment (reflected as an offset to construction expenses) were $3 million and $5.8 million for the twelve-month periods of 2018 and 2017, respectively.
Depreciation and amortization expense increased $3.2 million between the current and prior-year periods primarily due to incremental amortization of finite-lived intangible assets recognized from the Neuco acquisition and to depreciation on additional equipment purchased to support the growing volume of work being performed, partially offset by a $5.9 million reduction in depreciation associated with the extension of the estimated useful lives of certain depreciable equipment.
Net interest deductions increased $4.7 million between periods. The increase was due primarily to higher average debt outstanding under the existing $450 million secured revolving credit and term loan facility in the current twelve-month period.
Income tax expense decreased $13.3 million between periods, primarily due to approximately $12 million ofone-time tax benefits related to the remeasurement of Centuri’s deferred tax liabilities that were recorded in the fourth quarter of 2017, and to lower income tax rates in effect in 2018 (collectively, the result of U.S. tax reform).
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
Rates and Regulatory Proceedings
Arizona Jurisdiction
Arizona General Rate Case.In May 2016, Southwest filed a general rate application with the Arizona Corporation Commission (“ACC”). Following undertakings associated with the filing, a settlement hearing was held in May 2016 requesting an increaseFebruary 2017, and the ACC approved the settlement in authorizedApril 2017 (with new rates effective the same month), providing for, among other things, rate changes that would result in a combined net annual operating revenuesincome increase of approximately $32$60.7 million or 4.2%, to reflect existing levels of expense(including $16 million in additional operating revenue and requested returns,a $44.7 million decrease in addition to reflecting capital investments made by Southwest since June 2010.depreciation expense). The application requested an overalldecision included a 7.82% rate of return of 7.82% on an original cost rate base of $1.336 billion, a 10.25%9.5% return on common equity, and a capital structure utilizing 52% common equity. The filing included a depreciation study that supported a proposal to reduce currently effective depreciation expense by approximately $42 million, which was considered in the overall requested amount. This expense reduction coupled with the requested revenue increase, resulted in a net annual operating income increase request of $74 million. A settlement was reached among several parties in December 2016 and a formal draft settlement was filed in January 2017. Hearings were held in February 2017, and the ACC approved the settlement agreement in April 2017. The settlement provides for an overall operating revenue increase of $16 million and the capital structure and cost of capital as proposed by Southwest, with the exception of the return on common equity, which was set at 9.50%. Depreciation expense is expected to be reduced by $44.7 million, for a combined net annual operating income increase of $60.7 million. Other key elements ofincluded the settlement include approval of the continuation and expansion of the current Customer-Owned Yard Line (“COYL”) program, (adding the ability to seek out COYLs through a targeted approach and mobilization of work crews for replacement), implementation of a vintage steel pipe (“VSP”) replacement program, and a continuation of the current decoupled rate design, excluding athe previous winter-period adjustment to rates, making the mechanism fundamentally similar to that which exists in Nevada. The settlement also included a property tax tracking mechanism, towhich will defer changes in property taxrelated expense for recovery in the next general rate case. For 2017, this is expectedIt also included a three-year moratorium on filing another general rate application prior to result inMay 2019.
Tax Reform. In January 2018, the ACC held a modest increaseworkshop specifically to propertyaddress U.S. tax reform with all jurisdictional public service corporations and directed ACC staff (“the Staff”) to prepare a recommended order for consideration at an open meeting. The Staff-recommended order provided that all utilities apply regulatory accounting treatment to address impacts from the enactment of tax reform beginning January 1, 2018. Additionally, the Staff recommended that all jurisdictional utilities file an application to address savings associated with tax reform within 60 days of the open meeting through a tax expense and then remain relatively flat until Southwest’s next Arizonaadjustor mechanism, a notice of intent to file a rate case within 90 days, or to file an application to address the impacts of tax reform. At the referenced open meeting in February, the ACC issued an order adopting the Staff’s recommendations. In April 2018, Southwest filed an application with the ACC, requesting approval for a tax refund process or, in the alternative, the authority to file a general rate case decision. Newto reflect tax reform. The tax refund process was designed to ensure customers receive the benefits from tax reform through anACC-approved earnings test whereby a tax refund application will be made annually to refund to customers any margin contributing to earnings above theACC-authorized rate of return. The Staff drafted another order (the “subsequent draft order”), recommending that Southwest refund customers aone-time credit to reflect the tax savings from January through July 2018, effective with Southwest’s August 2018 billing cycles and that, effective August 2018, surcredits be established on aper-therm basis until newcost-of-service rates werebecome effective Aprilfollowing the Company’s next general rate case. Other recommendations included supplemental compliance reports related to excess deferred income taxes and an annualtrue-up to account for differences between the actual tax savings and the amount authorized by the ACC. In July 2018 the ACC issued a decision (the “Decision”) approving the Staff’s subsequent draft order. While the ACC Decision addressed current tax reductions due to tax reform, it did not direct refunding to commence with regard to excess amounts from the remeasurement of deferred tax balances, which continue to be recognized in a regulatory liability since the enactment date of tax reform in December 2017. The settlement also includes a three-year rate case moratorium prohibiting a new application to adjust base rates from being filed prior to May 2019.
LNG (“Liquefied Natural Gas”) Facility. In January 2014, Southwest filed an application with the ACC seeking preapproval to construct, operate and maintain a 233,000 dekatherm LNG facility in southern Arizona. This facility is intended to enhance service reliability and flexibility in natural gas deliveries in the southern Arizona area by providing a local storage option, to be operated by Southwest and connected directly to its distribution system. In December 2014, Southwest received an order from the ACC grantingpre-approval of Southwest’s application to construct the LNG facility and the deferral of costs, up to $50 million. Following the December 2014 preapproval, Southwest purchased the site for the facilitymillion, which was later approved (December 2016) to be modified not to exceed $80 million, following land purchase and completed detailed engineering design specifications for the purpose of soliciting bidsbid solicitation for the engineering, procurement and construction (“EPC”) of the facility. Southwest solicited requests for proposals forConstruction commenced during the EPC phasethird quarter of the project,2017 and in October 2016 made a filing with the ACCis expected to modify the previously issued Order to update the pre-approved costs to reflect a not-to-exceed amount of $80 million, which was approvedbe completed by the ACC in December 2016.end of 2019. Through June 2017,2018, Southwest has incurred approximately $6.1$45 million in capital expenditures toward the project (including land acquisition costs). Construction is expected to commence in September 2017 and be completed by the end of 2019.
COYL Program. Southwest received approval, in connection with an earlier Arizona general rate case, to implement a program to conduct leak surveys, and if leaks were present, to replace and relocate service lines and meters for Arizona customers whose meters were set off from the customer’s home, which is not a traditional configuration. Customers with this configuration were previously responsible for“Phase II” of the costCOYL program included the replacement of maintaining these lines and were subject to the immediate cessation of natural gas service if low-pressure leaks occurred. Effective June 2013, the ACC authorized a surcharge to recover the costs of depreciation and pre-tax return on the costs incurred to replace and relocate service lines and meters.non-leaking COYLs. The surcharge is revised annually as the program progresses. In 2014, Southwest received approval to add a “Phase II” component to the COYL program to include the replacement of non-leaking COYLs. In the most recent annual COYL filing made in February 2017, Southwest requested to establish an annual surcharge to collect $1.8 million related to the revenue requirement associated with $12.1 million in capital
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
projects completed under both Phase I and Phase IIphases during 2016. In June 2017, the ACC issued a decision approving the surcharge application. All capital work completed in earlier years was incorporated in Southwest’s Arizona rate base in connection with the its recently completed general rate case proceeding, as discussed above.
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In the annual COYL filing made in February 2018, Southwest requested surcharge revenue of $4.2 million (an increase of $2.4 million from $1.8 million) related to 2017 expenditures of $18 million. ACC Staff issued a recommended order approving the proposed surcharge application, while modifying the surcharge revenue to $3.5 million (an increase of $1.7 million) to reflect the impact of tax reform on the revenue requirement calculation. ACC consideration is expected during the third quarter of 2018.
Vintage Steel Pipe ProgramVSP Program.. Southwest received approval, in connection with its most recent Arizona general rate case, to implement a vintage steel pipeVSP replacement program. Southwest currently has approximately 6,000 miles ofpre-1970s vintage steel pipe in Arizona. Southwest proposed to start replacing the pipe on an accelerated basis and to recover the costs through an annual surcharge filing that will be made in February of each year. The surcharge is designed to be revised annually as the program progresses. Southwest is currently targeting the replacement of nearlyreplaced approximately 40 miles of vintage steel pipeVSP during calendar-year 2017 totaling approximately $27 million and is targeting replacement projects during 2018 of approximately $100 million. In the annual VSP filing made in February 2018, Southwest requested an increase in surcharge revenue to collect $3.1 million related to 2017 expenditures. ACC Staff issued a recommended order approving the proposal surcharge application, while modifying the surcharge revenue to $2.4 million to reflect the impact of tax reform on the revenue requirement calculation. ACC consideration is expected during the third quarter of 2018.
California Jurisdiction
Attrition Filing. In November 2016, Southwest made its latest annual post-test year (“PTY”) attrition filing with the California Public Utilities Commission (“CPUC”), requesting annual revenue increases of $2.1 million in southern California, $513,000 in northern California, and $256,000 for South Lake Tahoe. This filing was approved in December 2016 and rates were made effective in January 2017. At the same time, rates were updated to recover the regulatory asset associated with the revenue decoupling mechanism, or margin tracker.
California General Rate CaseCase.. In December 2016, Southwest filed to modify the most recent general rate case decision to extend the current rate case cycle by two years, including extension of the annual PTYpost-test year (“PTY”) attrition adjustments through 2020 from 2018. That latest rate case decision would have otherwise required Southwest to file its next general rate application by September 2017. Expedited consideration was requested and in June 2017, the CPUCCalifornia Public Utilities Commission (“CPUC”) approved the request, thereby extending the rate case filing deadline.deadline to September 2019. Southwest believes this extension is in the public interest as it provides rate stability to customers for two additional years consistent with the current reasonable rates approved as part of the last general rate case, and the current revenue requirement and rate of return are not in need of adjustment (with the continuation of the currently approved 2.75% PTY attrition adjustment for the two additional years).years. Also seeAttrition Filing below.
Tax Reform. In its 2017 decision approving Southwest’s request to extend the filing date of its next general rate case, the CPUC directed Southwest to track income tax expenses resulting from mandatory or elective changes in tax law, procedure or policy. The purpose is to identify differences between Southwest’s authorized income tax expenses and its actual incurred income tax expenses, the result of which would be reviewed in Southwest’s next general rate case. Southwest does not currently anticipate making an ad hoc filing in advance of the next general rate case filing to implement any changes resulting from tax reform.
Attrition Filing. In November 2017, Southwest made its latest annual PTY attrition filing, requesting annual revenue increases of $2 million in southern California, $527,000 in northern California, and $263,000 for South Lake Tahoe. This filing was approved in December 2017 and rates were made effective in January 2018. At the same time, rates were updated to recover the regulatory asset associated with the revenue decoupling mechanism, or margin tracker.
Greenhouse Gas (“GHG”) Compliance.California Assembly Bill Number 32 and the regulations promulgated by the California Air Resources Board, require Southwest, as a covered entity, to comply with all applicable requirements associated with California GHG emissions reporting and the California Cap and Trade Program. The CPUC issued a decision in March 2018 adopting an allocation methodology to distribute the net revenues or costs for years2015-2017 beginning in the second quarter of 2018. Southwest has a net cost balance, which will be amortized over a12-month period in rates for all applicable rate schedules, effective July 2018. In addition, for years 2019-2020, the decision adopted an allocation methodology to distribute the revenue proceeds through a California Climate Credit to active residential customers in April of each year. GHG compliance costs will be recovered through rates (including transportation rates) as prescribed byDecision D.15-10-032. There is no impact on earnings.
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
Nevada Jurisdiction
Nevada General Revenues Adjustment.Rate Case. In June 2016, Southwest requested authorizationThe currently effective general rate case decision was received from the Public Utilities Commission of Nevada (“PUCN”) in November 2012 as amended in a Rehearing Decision in April 2013. Southwest filed its most recent general rate case with the PUCN in May 2018. The filing requests a statewide overall general rate increase of approximately $32.5 million to account for changes in the cost of service ($14.4 million) since the last general rate case, including those resulting from the TCJA, and another $18.1 million associated with the inclusion in rate base of GIR projects previously approved by the PUCN under the ongoing program. The application also requests a return on common equity of 10.30%, and a capital structure utilizing a 49.3% equity ratio. In association with the proposed changes, depreciation expense is expected to increase by approximately $4 million, for a net operating income impact of approximately $28 million. Southwest also seeks to adjust the GIR rate as part of the rate case process in lieu of filing a separate GIR rate application later this year. That adjustment would result in estimated incremental margin of $6.5 million for southern Nevada and $136,000 for northern Nevada.
In addition to the foregoing, Southwest is requesting to implement a pension tracker to account for the changes in pension expense between rate cases. Southwest also proposes to include two new tariff schedules (1) compression service and (2) biogas and renewable natural gas service. There are no changes to rate design overall, and a request to continue the general revenues adjustment (“GRA”) mechanism (revenue decoupling mechanism) is included. Management currently expects that an order will be received during the fourth quarter of 2018 and that new rates will become effective no later than January 1, 2019. See alsoTax ReformandInfrastructure Replacement Mechanisms below.
Tax Reform. The PUCN opened an investigation into the TCJA, requiring comments to be filed by April 2018. Southwest filed comments, whereby it described its plan to address the tax changes in its upcoming general rate case that was filed in May 2018. In addition, PUCN Staff and the Bureau of Consumer Protection (“BCP”) filed reply comments, whereby both the PUCN Staff and the BCP agreed that the pending Nevada rate case is the appropriate forum for addressing the impact of the TCJA on ratepayers, and recommended that the Company refrain from amortizing any excess accumulated deferred tax balances until the rate case is resolved.
General Revenues Adjustment.As part of the Annual Rate Adjustment (“ARA”) filing in 2016, the PUCN authorized rate adjustments associated with its revenue decoupling mechanism (General Revenues Adjustment, or “GRA”).the GRA. The filing was approvedrate adjustment collected $13.6 million from customers during 2017, a decrease in December 2016,collections of $11.8 million, as compared to 2016. For the 2017 filing, with rates effective January 2017. The2018, the PUCN authorized rate adjustment isadjustments that are expected to refund approximately $16.7result in a decrease in collections from customers of $15.4 million, during 2017.as compared to the 2017 levels. In association with the most recent annual submission in June 2017,2018, Southwest filed to adjust the GRA surcharge effective January 2018. This would2019, to result in a decreasean increase in revenuescollections from customers of $15.4 million, based on the overrecovered balance in the account at the end of April 2017. The filing is expected to be approved by year end.$5.6 million. While there is no impact to net income overall from this rate adjustment, operating cash flows will be reducedincreased as the associated regulatory liability balance is refunded.reduced.
Infrastructure Replacement Mechanisms.Mechanism.In January 2014, the PUCN approved final rules for a mechanism to defer and recover certain costs associated with accelerated replacement of infrastructure that doeswould not otherwise currently provide incremental revenues. Associated with suchthe replacement of various types of pipe infrastructure under the mechanism (Early Vintage Plastic Pipe, COYL and VSP), each year Southwest files a Gas Infrastructure Replacement (“GIR”) Advance ApplicationGIR “Advance Application” requesting authorityauthorization to replace qualifying infrastructure and files separately as partinfrastructure. Approximately $57.3 million of an annual GIR filing to reset the recovery surcharge, related to previouslyreplacement work was approved and completed projects. For projects approved in 2015 and completed in 2016, thefor 2017 with an annualized revenue wasrequirement estimated at approximately $4.5$5.3 million. In September 2016,May 2017, Southwest filed to adjust the GIR surcharge to recover the annual revenue requirement for amounts previously deferred. This filing was approved in December 2016 and new rates became effective January 2017. In June 2016, Southwest filed anits Advance Application for projects totaling approximately $66 million that are expected to be completed during 2017, proposing approximately $60 million of accelerated pipe replacement to include early vintage plastic, early vintage steel, and a COYL program. The COYL program, while not large in magnitude, represents the first of its kind in Nevada, modeled after the program in place in Southwest’s Arizona jurisdiction for several years.2018. The PUCN issued an Orderorder on thethat Advance Application in October 2016,September 2017, approving approximately $57.3$66 million of replacement work with an annualized revenue requirement estimated at approximately $5.3$6 million. With regard to the proposed COYL program, approval was granted for the northern Nevada rate jurisdiction, but consideration for the southern Nevada rate jurisdiction was deferred until 2020, at which time certain early vintage plastic pipe programs are expected
In June 2018, Southwest filed its Advance Application with projects totaling $228 million to be completed.completed over a three-year period, with a total annualized revenue requirement (following the three-year replacement period) of approximately $21.7 million. Historically, Southwest has requested approval of projects on an annual basis; however, it is requesting to move to a multi-year approval process for projects to improve operational flexibility and enhance coordination with contractors and governmental agencies. A final decision is expected during the fourth quarter of 2018.
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
Filed separately, as part of each GIR filing, Southwest requests authorization to reset the GIR recovery surcharge related to previously approved and completed projects, with new rates becoming effective each January. In MayNovember 2017, Southwest filed a GIR Advance Application with the PUCN for projects totaling approximately $66approved in 2016 and completed by July 2017, a deferred annualized revenue requirement of $8.7 million that arewas approved to be recovered from customers through updated rates effective January 2018. The updated surcharge is expected to be completed during 2018. Similarresult in incremental annual margin of $4.2 million. If the above noted transition to previous years, the proposed projects consist of early vintage plastic and early vintage steel pipe,a three-year project plan is approved as well as the continuation of the previously approved COYL program in northern Nevada. Southwest recently entered into a settlement agreement with the intervening parties and filed a proposed stipulation requesting the Commission approve the settlement agreement. The settlement agreement proposesrequested, management would continue to approve the request as filed, but also authorizes Southwest to start replacing COYLs in southern Nevada in certain situations, and to recover costs throughupdate surcharges annually under the GIR mechanism.
Subsequent to three GIR rate applications, the GIR regulations require Southwest to either file a general rate case or a request for waiver before it can file another GIR advance application. The October 2016 rate application was the third such filing by Southwest subject to these regulations, necessitating a request for waiver to permit Southwest to proceed with the GIR program without filing a general rate case in 2017. This waiver was approved by the PUCN in January 2017; however, in order to continue the GIR program in 2018, a general rate case will need to be filed before June 2018.program.
Conservation and Energy Efficiency(“CEE”). In June 2015, Southwest requested recovery of energy efficiency and conservation development and implementation costs, including promotions and incentives for various programs, as originally approved for deferral by the PUCN effective November 2009. While recovery of initial program costs was approved as part of the most recent general rate case, amounts incurred subsequent to May 2012 (the certification period) continued to be deferred. Approved rates for thepost-May 2012 costs deferred (including previously expected program expenditures for 2016) became effective January 2016 and resulted in annualized margin increases of $2 million in northern Nevada and $8.5 million in southern Nevada. Then, as part of the2016. The 2017 ARA filing approved in December 2016, SouthwestNovember 2017, with modified rates effective January 2017,2018, is expected to result in annualized margin decreases of $8.2 million in southern Nevada and $1.4 million in northern Nevada and $1.3to return over-collected balances. As part of the 2018 ARA filing, Southwest requested modified rates, effective January 2019, authorizing an annualized margin decrease of $4 million in southern Nevada to return over-collected balances.and $100,000 increase in northern Nevada. There is, however, no anticipated impact to net income overall from these decreases as amortization expense will also be reduced.
Expansion and Economic Development Legislation.In January 2016, final regulations were approved by the PUCN associated with legislation (“SB 151”) previously introduced and signed into law in Nevada. The legislation authorized natural gas utilities to expand their infrastructure. This includes providing gas service to unserved and underserved areas in Nevada.
In November 2017, Southwest filed for preapproval of a project to extend service to Mesquite, Nevada, in accordance with the SB 151 regulations. Hearings took place in April 2018, and in May, the PUCN issued an order approving the Southwest proposal to expand natural gas infrastructure to Mesquite. The order approves a capital investment of approximately $28 million and the construction of approximately 37 miles of distribution pipeline (including the approach main). The cost is expected to be recovered through volumetric rates from all southern Nevada customers (including new customers in Mesquite). The annual revenue requirement associated with the project is $2.8 million.
Federal Energy Regulatory Commission (“FERC”) Jurisdiction
General Rate Case.Paiute Pipeline Company (“Paiute”), a wholly owned subsidiary of Southwest, filed its most recent general rate case with the FERC in February 2014, and following settlement proceedings, tariff changes were filed in March 2015. The settlement implied an 11.5%pre-tax rate of return, and as part of the agreement, Paiute agreed to file a rate case no later than May 2019. SeeTax Reform below.
2018 Expansion. In response to growing demand in the Carson City and South Lake Tahoe areas of northern California and northern Nevada, Paiute Pipeline Company (“Paiute”) evaluated shipper interest in acquiring additional transportation capacity and executed precedent agreements for incremental transportation capacity with Southwest during the third quarter of 2016. In October 2016, Paiute initiated apre-filing review process with the FERC for an expansion project, which was approved during the same month. In July 2017, a certificate application was filed, which included an applicant environmental assessment. The project is anticipatedIn May 2018, the FERC issued a Certificate of Public Convenience and Necessity authorizing Paiute to construct the project. Construction work began in July 2018 and will consist of 8.48.5 miles of additional transmission pipeline infrastructureinfrastructure. The project is expected to be completed by the end of 2018 at an approximatea cost of $18approximately $22 million. If
Tax Reform. The FERC issued a Notice of Proposed Rulemaking (“NOPR”) on whether the process progresses as planned,federal income tax changes of the TCJA cause pipeline rates to no longer be just and reasonable. The NOPR provided for pipelines to file a decision should be received by April 2018 andFERC Form No.501-G to evaluate the additional facilities could be in placeimpact of tax reform on their revenue requirement. In addition to filing the form, pipelines would select one of the following four options: 1) make a limited “Section 4” filing to reduce its rates by the endpercentage reduction in its cost of service shown in its FERC Form No.501-G; 2) commit to file either a prepackaged uncontested rate settlement or a general Section 4 rate case; 3) file a statement explaining why no change in rates is necessary; or 4) file the new FERC form without taking any other action. The FERC would also ultimately consider whether to initiate an investigation of any pipeline that would not have submitted a limited Section 4 rate
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
reduction filing or committed to file a general rate case. In July 2018, the FERC issued a final rule (Order No. 849) adopting procedures for determining which jurisdictional pipelines may be collecting unjust and unreasonable rates in light of tax reform. The rule becomes effective 45 days after publication in the Federal Register. Paiute Pipeline Company and Southwest Gas Transmission Company, the Company’s FERC-regulated subsidiaries are each expected to file a Form No.501-G during the fourth quarter of 2018.
PGA Filings
The rate schedules in all of Southwest’s service territories contain provisions that permit adjustments to rates as the cost of purchased gas changes. These deferred energy provisions and purchased gas adjustment clauses are collectively referred to as “PGA” clauses. Differences between gas costs recovered from customers and amounts paid for gas by Southwest result in over- or under-collections. At June 30, 2017, under-collections in Arizona and Northern Nevada resulted in an asset of approximately $6 million and2018, over-collections in Southern Nevada and Californiaall jurisdictions resulted in a liability of $20.6$26.4 million on the Company’s and Southwest’s condensed consolidated balance sheets. Gas cost rates paid to suppliers have been higher than amounts recovered from customers during the first six months of 2017, resulting in fluctuations since December 31, 2016. Tariff rates have been adjusted in all jurisdictions during this period.Condensed Consolidated Balance Sheets. Filings to change rates in accordance with PGA clauses are subject to audit by state regulatory commission staffs. PGA changes impact cash flows but have no direct impact on profit margin. However, gas cost deferrals and recoveries can impact comparisons between periods of individual consolidated income statement components. These include Gas operating revenues, Net cost of gas sold, Net interest deductions, and Other income (deductions).
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The following table presents Southwest’s outstanding PGA balances receivable/(payable) (thousands of dollars)(in thousands):
June 30, 2017 | December 31, 2016 | June 30, 2016 | June 30, 2018 | December 31, 2017 | June 30, 2017 | |||||||||||||||||||
Arizona | $ | 4,822 | $ | (20,349 | ) | $ | (33,941 | ) | $ | (9,167 | ) | $ | 5,069 | $ | 4,822 | |||||||||
Northern Nevada | 1,134 | (3,339 | ) | (14,380 | ) | (4,555 | ) | 8,189 | 1,134 | |||||||||||||||
Southern Nevada | (17,741 | ) | (66,788 | ) | (75,440 | ) | (7,364 | ) | (6,841 | ) | (17,741 | ) | ||||||||||||
California | (2,887 | ) | 2,608 | (2,538 | ) | (5,279 | ) | 1,323 | (2,887 | ) | ||||||||||||||
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$ | (14,672 | ) | $ | (87,868 | ) | $ | (126,299 | ) | $ | (26,365 | ) | $ | 7,740 | $ | (14,672 | ) | ||||||||
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As discussed inNote 1 – Nature of Operations and Basis of Presentation in this Form10-Q, in July 2018, a refund of approximately $49 million was received by Southwest from El Paso Natural Gas, L.L.C. (“EPNG”), related to transmission services with EPNG. The refund (including applicable interest) relates to rates authorized by the FERC to have been in effect, and which were in effect, subject to refund provisions, from EPNG’s 2010 rate case, including subsequent procedural waivers thereto since 2011. Pursuant to Opinion No.528-B issued by the FERC in May 2018, refunds were determined for the period April 2011 through May 2018. As a result of these actions having taken place prior to the end of the second quarter of 2018, Southwest recorded its applicable refund in its records as of June 30, 2018. The amount is reflected in Prepaids and other current assets and as a regulatory liability included within Other current liabilities on the balance sheets of both Southwest and the Company. As Southwest expects to return to its customers all amounts that it received in July 2018, the June entry will be reversed, and the amount will then be reflected as part of the PGA balances associated with the respective jurisdictions to which the refund from EPNG relates. Refunding to Southwest’s customers will be subject to requirements of the individual states; however, management anticipates that amounts will be returned within twelve months or less. As the refund from EPNG was received after June 30, 2018, it did not impact Southwest’s, or the Company’s, cash balances as of that date.
Capital Resources and Liquidity
Cash on hand and cash flows from operations in the past twelve months have generally provided the majority of cash used in investing activities (primarily for construction expenditures and property additions). In recent years, certain pipe replacement has been accelerated to take advantage of bonus depreciation tax incentives and to fortify system integrity and reliability, notably in association with new gas infrastructure replacement programs as discussed above. During this same time, cost savingsbenefits were achievedderived from debt refinancingnew borrowings and strategic debt redemptions. The Company’s capitalization strategy is to maintain an appropriate balance of equity and debt to maintain strong investment-grade credit ratings, which should minimize interest costs.
Cash Flows
Southwest Gas Holdings, Inc.:
Operating Cash Flows.Cash flows provided by consolidated operating activities decreased $219increased $49 million in the first six months of 20172018 as compared to the same period of 2016. The decline2017. Changes in operating cash flows was primarily attributable toare typically influenced
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
significantly by the change in deferred purchased gas costs, noted above, lower depreciation,including amounts incurred and temporary changesdeferred, as well as when amounts are incorporated in other working capital components.customer bills to recover the deferred balances. Refer toResults of Natural Gas Operations andRates and Regulatory Proceedings.
Investing Cash Flows.Cash used in consolidated investing activities decreased $18.8increased $76 million in the first six months of 20172018 as compared to the same period of 2016.2017. The decreasechange was primarily due to a prior-period outflow of $17 million to facilitate aincreased construction services acquisition.expenditures in the natural gas operations segment, including scheduled and accelerated replacement activity.
Financing Cash Flows.Net cash provided by consolidated financing activities increased $225.5$17 million in the first six months of 20172018 as compared to the same period of 2016.2017. The increase was primarily due to activity under the issuance of $300 million in senior notes in March 2018, offset by the repayment of credit facility and commercial paper program (an increase in borrowings in the current-year currentsix-month period period. The Company also issued approximately $63 million during the first six months of 2018 in stock under its Equity Shelf Program. See alsoNote 6 – Common Stock, and the repayment of borrowings in the prior-year six-month period).discussion below. Dividends paid increased in the first six months of 20172018 as compared to the same period of 20162017 as a result of an increase in the quarterly dividend rate and an increase in the number of shares outstanding.
The Company issued approximately 101,00077,000 additional shares of common stock collectively through the Restricted Stock/Unit Plan and the Management Incentive Plan. Also during the six months ended June 30, 2018, the Company issued 73,000 shares of common stock through the Dividend Reinvestment and Stock Purchase Plan (“DRSPP”), raising approximately $5 million.
Southwest Gas Corporation:
Operating Cash Flows.Cash flows provided by operating activities decreased $190.5increased $36.5 million in the first six months of 20172018 as compared to the same period of 2016.2017. The declineincrease in operating cash flows was primarily attributable to the change in deferred purchased gas costs as discussed above, which favorably impacted the prior-year six-month period, but had the opposite impactand other changes in the current six-month period.working capital. Refer toResults of Natural Gas Operations andRates and Regulatory Proceedings.
Investing Cash Flows.Cash used in investing activities increased $16.5$53 million in the first six months of 20172018 as compared to the same period of 2016.2017. The increasechange was primarily due to additional construction expenditures, including scheduled and accelerated pipe replacement.as indicated above.
Financing Cash Flows.Net cash provided by financing activities increased $226.1decreased $4 million in the first six months of 20172018 as compared to the same period of 2016.2017. The increasedecrease was primarily due to activity underthe issuance of $300 million in senior notes in March 2018 offset by the repayment of the credit facility and commercial paper program (an increase in borrowings in the current-year six-month period and the repayment of borrowings in the prior-year six-month period).
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then outstanding.
The capital requirements and resources of the Company generally are determined independently for the natural gas operations and construction services segments. Each business activity is generally responsible for securing its own external financing sources.
Gas Segment Construction Expenditures and Financing
During the twelve-month period ended June 30, 2017,2018, construction expenditures for the natural gas operations segment were $467$622 million. The majority of these expenditures represented costs associated with scheduled and accelerated replacement of existing transmission, distribution, and general plant. Cash flows from operating activities of Southwest were $319$346 million during this time and provided approximately 58%49% of construction expenditures and dividend requirements.
SouthwestManagement estimates natural gas segment construction expenditures during the three-year period ending December 31, 20192020 will be between $1.6 billion and $1.8approximately $2 billion. Of this amount, approximately $570$670 million is expected to be incurred in 2017.2018. Southwest plans to continue as appropriate, to request regulatory support to accelerate projects that improve system flexibility and reliability (including replacement of early vintage plastic and steel pipe). This includes the recent approval to complete $57.3 million in accelerated replacement projects in Nevada in 2017 and the $66 million requested for 2018 in the Nevada GIR Advance Application, as well as programs included in the recently approved Arizona general rate case settlement (the continuation of the COYL program and implementation of a vintage steel pipe replacement program). Southwest may expand existing, or initiate new, programs. If efforts continue to be successful, significant replacement activities are expected to continue well beyond the next few years.reliability. See alsoRates and Regulatory Proceedings for discussion of Nevada infrastructure (including the recent filing to move to a multi-year approval program), Arizona COYL, and an LNG facility. During the three-year period, cash flows from operating activities of Southwest are expected to provide approximately 60%50% to 70%60% of the funding for gas operations total construction expenditures and dividend requirements. Any additional cash requirements are expected to be provided by existing credit facilities, equity contributions from Southwest Gas Holdings, Inc. and/or other external financing sources. The timing, types, and amounts of any additional external
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
financings will be dependent on a number of factors, including the cost of gas purchases, conditions in the capital markets, timing and amounts of rate relief, timing differences between U.S. federal taxes embedded in customer rates and amounts implemented under tax reform of 2017, growth levels in Southwest’s service areas, and earnings. External financings could include the issuance of debt securities, bank and other short-term borrowings, and other forms of financing. See additional discussion in the Notes to financial statements (specifically,Note6 – Common Stockand Note 7 – Long-Term Debt).
In March 2018, Southwest issued $300 million in 3.7% Senior Notes at a discount of 0.185%. The notes will mature in April 2028. The proceeds were used to repay amounts then outstanding under the revolving portion of its credit facility and under the commercial paper program.
In March 2017, the Company filed with the Securities and Exchange Commission (“SEC”) an automatic shelf registration statement for the offer and sale of up to $150 million of common stock from time to time inat-the-market offerings under the prospectus included therein and in accordance with the Sales Agency Agreement, dated March 29, 2017, between the Company and BNY Mellon Capital Markets, LLC (the “Equity Shelf Program”). Sales of the shares will continue to be made at market prices prevailing at the time of sale. Net proceeds from the sale of shares of common stock under the Equity Shelf Program are intended for general corporate purposes, including the acquisition of property for the construction, completion, extension or improvement of pipeline systems and facilities located in and around the communities Southwest serves.
During the six months ended June 30, 2018, 870,132 shares were issued inat-the-market offerings at an average price of $72.94 per share with gross proceeds of $63.5 million, agent commissions of $635,000, and net proceeds of $62.8 million. SeeNote 6 – Common Stock for more information. See also discussion above regarding the Company’s issuances under the DRSPP.
Bonus Depreciation
In December 2015,2017, with the Protecting Americans fromenactment of the Tax HikesCuts and Jobs Act, of 2015 (“PATH Act”) was enacted extending the 50% bonus depreciation tax deduction percentage changed from 50% to 100% for qualified property acquired or constructed“qualified property” placed in service after September 27, 2017 and placed in-service during 2015 (and additional years as noted below) as well as other tax deductions, credits, and incentives.before 2023. The bonus depreciation tax deduction will be phasedphases out over five years. The PATH Act providesstarting in 2023, by 20% for a 50% bonus depreciation tax deduction in 2015 through 2017, 40% in 2018, 30% in 2019, and no deduction after 2019. Based on forecasted qualifying construction expenditures, Southwest estimates the bonus depreciation provisioneach of the PATH Actfive following years. Qualified property excludes public utility property. The Company estimates bonus depreciation will defer the payment of approximately $21$14 million (none of which relates to utility operations) of federal income taxes for 2017.2018.
Dividend Policy
Dividends are payable on the Company’s common stock at the discretion of the Board of Directors (“Board”). In setting the dividend rate, the Board currently targets a payout ratio of 55% to 65% of consolidated earnings per share and considers, among other factors, current and expected future earnings levels, our ongoing capital expenditure plans and expected external funding needs, our payout ratio, and our ability to maintain strong credit ratings and liquidity. The Company has paid dividends on its common stock since 1956 and has increased that dividend each year since 2007. In February 2017,2018, the Board elected to increase the quarterly dividend from $0.45$0.495 to $0.495$0.52 per share, representing a 10%5% increase, effective with the June 20172018 payment. The Board currently targets a payout ratio of 55% to 65% of consolidated earnings per share.
Liquidity
Liquidity refers to the ability of an enterprise to generate sufficient amounts of cash through its operating activities and external financing to meet its cash requirements. Several general factors (some of which are out of the control of the Company) that could significantly affect liquidity in future years include: variability of natural gas prices, changes in the ratemaking policies of regulatory commissions, regulatory lag, customer growth in the natural gas segment’s
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service territories, the ability to access and obtain capital from external sources, interest rates, changes in income tax laws, pension funding requirements, inflation, and the level of earnings. Natural gas prices and related gas cost recovery rates have historically had the most significant impact on liquidity.
On an interim basis, Southwest defers over- or under-collections of gas costs to PGA balancing accounts. In addition, Southwest uses this mechanism to either refund amounts over-collected or recoup amounts under-collected as compared to the price paid for natural gas during the period since the last PGA rate change went into effect. At June 30, 2017,2018, the combined balance in the PGA accounts totaled an over-collection of $14.7$26.4 million. SeePGA Filingsfor
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
more information.
In March 2017, Southwest Gas Holdings, Inc. entered intoThe Company has a credit facility with a borrowing capacity of $100 million that expires in March 2022. The Company intends to utilize this facility for short-term financing needs. At June 30, 2017, $2.52018, $22.5 million was outstanding on this facility.
In March 2017, Southwest Gas Corporation amended itshas a credit facility, increasing thewith borrowing capacity from $300 million toof $400 million, and extended the term of the facility from March 2021 tothat expires in March 2022. Southwest continues to designatedesignates $150 million of the facility for long-term borrowing needs and the remaining $250 million for working capital purposes. The maximum amount outstanding on the credit facility (including a commercial paper program, as noted below) during the first six months of 20172018 was $92$150 million. At June 30, 2018, $48 million which was also the amount outstanding on the long-term portion and no borrowings were outstanding on the short-term portion of thethis credit facility at June 30, 2017.facility. Commercial paper borrowings are discussed below. The credit facility can be used as necessary to meet liquidity requirements, including temporarily financing under-collected PGA balances, if any, or meeting the refund needs of over-collected balances. This credit facility has been adequate for Southwest’s working capital needs outside of funds raised through operations and other types of external financing.
Southwest has a $50 million commercial paper program. Any issuance under the commercial paper program is supported by Southwest’s current revolving credit facility and, therefore, does not represent additional borrowing capacity. Any borrowing under the commercial paper program will be designated as long-term debt. Interest rates for the commercial paper program are calculated at the current commercial paper rate during the borrowing term. At June 30, 2017,2018, there were no borrowings were outstanding under this program.
Centuri has a $300 millionsenior secured revolving credit and term loan facility thatwith borrowing capacity of $450 million. The line of credit portion of the facility is scheduled$250 million; amounts borrowed and repaid under the revolving credit facility are available to expire in October 2019.bere-borrowed. The term loan facility portion, had an initialhas a limit of approximately $150 million, which$200 million. The limit on the term loan facility was reached in 2014 and is in the process of being repaid ($106 million was outstanding at June 30, 2017).November 2017. No further borrowing is permitted under this portionthe term loan facility. The $450 million credit and term loan facility expires in November 2022. The $450 million revolving credit and term loan facility is secured by substantially all of Centuri’s assets except those explicitly excluded under the terms of the facility. The secured revolving credit facility portion also has a limit of $150 million; amounts borrowedagreement (including owned real estate and repaid under this portion ofcertain certificated vehicles). Centuri assets securing the facility are available to be re-borrowed.at June 30, 2018 totaled $659 million. The maximum amount outstanding on the credit facility during the first six months of 20172018 was $100$293 million. At June 30, 2018, $88 million which was outstanding on the amount outstandingsecured revolving credit facility. Also at June 30, 2017. At June 30, 2017,2018, there was approximately $36$144 million, net of letters of credit, available under the line of credit.
The following table sets forth the ratios of earnings to fixed charges for the Company. Due to the seasonal nature of the Company’s business, these ratios are computed on a twelve-month basis:
For the Twelve Months Ended | ||||||||
June 30, | December 31, | |||||||
2017 | 2016 | |||||||
Ratio of earnings to fixed charges | 3.42 | 3.46 |
For the Twelve Months Ended | ||||||||
June 30, | December 31, | |||||||
2018 | 2017 | |||||||
Ratio of earnings to fixed charges | 3.28 | 3.54 |
Earnings are defined as the sum of pretax income plus fixed charges. Fixed charges consist of all interest expense including capitalized interest,one-third of rent expense (that approximates the interest component of such expense), and net amortized debt costs.
The following table sets forth the ratios of earnings to fixed charges for Southwest. Due to the seasonal nature of Southwest’s business, these ratios are computed on a twelve-month basis:
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For the Twelve Months Ended | ||||||||
June 30, | December 31, | |||||||
2018 | 2017 | |||||||
Ratio of earnings to fixed charges | 3.65 | 4.01 |
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
Earnings are defined as the sum of pretax income plus fixed charges. Fixed charges consist of all interest expense including capitalized interest,one-third of rent expense (that approximates the interest component of such expense), and net amortized debt costs.
Forward-Looking Statements
This quarterly report contains statements which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“Reform Act”). All statements other than statements of historical fact included or incorporated by reference in this quarterly report are forward-looking statements, including, without limitation, statements regarding the Company’s plans, objectives, goals, intentions, projections, strategies, future events or performance, negotiations, and underlying assumptions. The words “may,” “if,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “continue,” “forecast,” “intend,” “promote,” “seek,” and similar words and expressions are generally used and intended to identify forward-looking statements. For example, statements regarding operating margin patterns, customer growth, the composition of our customer base, price volatility, seasonal patterns, payment of debt, interest savings, the Company’s COLI strategy, replacement market and new construction market, the impacts of the Tax Cuts and Jobs Act legislation including disposition as to both timing and amounts in regulatory proceedings, bonus depreciation tax deductions, amount and timing for completion of estimated future construction expenditures, including the LNG facility in southern Arizona, the cost ofMesquite expansion in Nevada, and the Paiute 2018 Paiute expansion project in northern Nevada and northern California, forecasted operating cash flows and results of operations, net earnings impacts from gas infrastructure replacement programs and surcharges, funding sources of cash requirements, amounts generally expected to be reflected in 20172018 or future period revenues from regulatory rate proceedings including amounts resulting from the settled Arizona general rate case, the recently filed Nevada general rate case, rates and surcharges, PGA, and other rate adjustments, sufficiency of working capital and current credit facilities, bank lending practices, the Company’s views regarding its liquidity position, ability to raise funds and receive external financing capacity and the intent and ability to issue common stock under the Equity Shelf Program, the intent and ability to issue various financing instruments and stock under the December 2017 shelf registration statement, future dividend increases and the Board’s current target dividend payout ratio, pension and post-retirement benefits, certain benefitsimpacts of tax acts, the effect of any rate changescontract or regulatory proceedings,construction change order negotiations, impacts of accounting standard updates, infrastructure replacement mechanisms and the COYL program, statements regardingprograms, future gas prices, gas purchase contracts and derivative financial instruments, recoverability of regulatory assets, the time period and means for returning to customers proceeds from the recent EPNG refund, the impact of certain legal proceedings, and the timing and results of future rate hearings and approvals are forward-looking statements. All 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, customer growth rates, conditions in the housing market, the ability to recover costs through the PGA mechanisms or other regulatory assets, the effects of regulation/deregulation, the impacts of alternative energy sources to natural gas, the timing and amount of rate relief, the timing, amount, and methods determined by regulators to refund amounts to customers resulting from tax reform, changes in rate design, variability in volume of gas or transportation service sold to customers, changes in gas procurement practices, changes in capital requirements and funding, the impact of conditions in the capital markets on financing costs, changes in construction expenditures and financing, changes in operations and maintenance expenses, effects of pension expense forecasts, accounting changes and regulatory treatment related thereto, currently unresolved and future liability claims, changes in pipeline capacity for the transportation of gas and related costs, results of Centuri bid work, results of Neuco (including the ability to be accretive to earnings over the first twelve months), Centuri construction expenses, differences between actual and originally expected outcomes of Centuri bid or other fixed-price construction agreements, outcomes from contract and change order negotiations, ability to successfully procure new work, impacts from work awarded or failing to be awarded from significant customers, the mix of work awarded, the amount of work awarded to Centuri, following the lifting of the recent work stoppage, acquisitions and management’s plans related thereto, competition, our ability to raise capital in external financings, our ability to continue to remain within the ratios and other limits subject to our debt covenants, and ongoing evaluations in regard to goodwill and other intangible assets. In addition, the Company can provide no assurance that its discussions regarding certain trends relating to its financing and operating expenses will continue or cease to continue in future periods. For additional information on the risks associated with the Company’s business, seeItem 1A. Risk Factors
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
andItem 7A. Quantitative and Qualitative Disclosures About Market Risk in the Annual Report onForm 10-K for the year ended December 31, 2016.2017.
All forward-looking statements in this quarterly report are made as of the date hereof, based on information available to the Company as of the date hereof, and the Company assumes no obligation to update or revise any of its forward-looking statements even if experience or future changes show that the indicated results or events will not be realized.We caution you not to unduly rely on any forward-looking statement(s).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SeeItem 7A. Quantitative and Qualitative Disclosures about Market Risk in the 20162017 Annual Report on Form10-K filed with the SEC. No material changes have occurred related to the disclosures about market risk.
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ITEM 4. CONTROLS AND PROCEDURES
Management of Southwest Gas Holdings, Inc. and Southwest Gas Corporation has established disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in their respective reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to management of each company, including each respective Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and benefits of controls must be considered relative to their costs. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or management override of the control. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
Based on the most recent evaluation, as of June 30, 2017,2018, management of Southwest Gas Holdings, Inc., including the Chief Executive Officer and Chief Financial Officer, believe the Company’s disclosure controls and procedures are effective at attaining the level of reasonable assurance noted above.
There have been no changes in the Company’s internal controlscontrol over financial reporting (as defined in Rules13a-15(f) and15d-15(f) of the Exchange Act) during the second quarter of 20172018 that have materially affected, or are likely to materially affect, the Company’s internal controlscontrol over financial reporting.
Based on the most recent evaluation, as of June 30, 2017,2018, management of Southwest Gas Corporation, including the Chief Executive Officer and Chief Financial Officer, believe Southwest’s disclosure controls and procedures are effective at attaining the level of reasonable assurance noted above.
There have been no changes in Southwest’s internal controlscontrol over financial reporting (as defined in Rules13a-15(f) and15d-15(f) of the Exchange Act) during the second quarter of 20172018 that have materially affected, or are likely to materially affect Southwest’s internal controlscontrol over financial reporting.
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, 2018 |
PART II—II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is named as a defendant in various legal proceedings. The ultimate dispositions of these proceedings are not presently determinable; however, it is the opinion of management that none of this litigation individually or in the aggregate will have a material adverse impact on the Company’s financial position or results of operations.
46ITEM 4. MINE SAFETY DISCLOSURESNot applicable.
ITEM 6. EXHIBITS
The following documents are filed, or furnished, as applicable, as part of this report onForm 10-Q:
|
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SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | June 30, |
SIGNATURES
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 Holdings, Inc. |
(Registrant) |
Date: August 8, 20172018
/s/ |
Vice President/Controller and Chief Accounting Officer |
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 8, 20172018
/s/ |
Vice President/Controller and Chief Accounting Officer |
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