SECURITIES AND EXCHANGE COMMISSION
Form10-QQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172019 |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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File Number | | Exact name of registrant as specified in its charter and
principal office address and telephone number | |
Incorporation | | |
Employer Identification No. | |
001-37976 | | Southwest Gas Holdings, Inc. | | | California | | | | 81-3881866 | |
Delaware | | 5241 Spring Mountain Road
| | | | | | | | |
| | Post Office Box 98510
| | | | | | | | |
| | Las Vegas, Nevada 89193-8510
| | | | | | | | 81-3881866 |
| | 5241 Spring Mountain Road | | | | | | |
| | Post Office Box 98510 | | | | | | |
| | Las Vegas, | Nevada | 89193-8510 | | | | |
| | (702) | 876-7237 | | | | | |
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1-7850 | | Southwest Gas Corporation | | | California
| | | | California | | 88-0085720 |
| | 5241 Spring Mountain Road | | | | | | |
| | 5241 Spring Mountain Road Post Office Box 98510 | | | | | | |
| | Las Vegas, | Nevada | 89193-8510 | | | | |
| | (702) | 876-7237 | | | | | |
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Securities registered pursuant to Section 12(b) of the Act: |
Title of each class | | Post Office Box 98510 Trading Symbol | | Name of each exchange on which registered |
| Southwest Gas Holdings, Inc. Common Stock, $1 Par Value | | | | |
SWX | | Las Vegas, Nevada 89193-8510
| | | | | | | | |
| | (702) 876-7237 | | | | | | | | New York Stock Exchange |
Indicate by check mark whether each registrantregistrant: (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 theeach 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 theeach 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, a
non-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 Rule
12b-2 of the Exchange Act.
Southwest Gas Holdings, Inc.:
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Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
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Non-accelerated filer
| | ☐
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Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
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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:
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Large accelerated filer | | ☐ | | Accelerated filer | | ☐ |
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Non-accelerated filer
| | ☒
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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,
47,731,84054,626,240 shares as of October
27, 2017.31, 2019.
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.October 31, 2019.
SOUTHWEST GAS CORPORATION MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1)(a) and (b) OF FORM
10-Q AND IS THEREFORE FILING THIS REPORT WITH THE REDUCED DISCLOSURE FORMAT AS PERMITTED BY GENERAL INSTRUCTION H(2).
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
This quarterly report on
Form 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 Form
10-Q includes separate financial statements (i.e.
, balance sheets, statements of income, statements of comprehensive income,
statements of cash flows, and statements of
cash flows)equity) for Southwest Gas Holdings, Inc. and Southwest Gas Corporation, in that order. The Notes to
the Condensed 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
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
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) | | | | | | | | |
| | SEPTEMBER 30, 2017 | | | DECEMBER 31, 2016 | |
ASSETS | | | | | | | | |
Utility plant: | | | | | | | | |
Gas plant | | $ | 6,440,547 | | | $ | 6,193,564 | |
Less: accumulated depreciation | | | (2,218,796 | ) | | | (2,172,966 | ) |
Acquisition adjustments, net | | | 81 | | | | 196 | |
Construction work in progress | | | 164,030 | | | | 111,177 | |
| | | | | | | | |
Net utility plant | | | 4,385,862 | | | | 4,131,971 | |
| | | | | | | | |
Other property and investments | | | 369,303 | | | | 342,343 | |
| | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | | 59,152 | | | | 28,066 | |
Accounts receivable, net of allowances | | | 301,792 | | | | 285,145 | |
Accrued utility revenue | | | 34,100 | | | | 76,200 | |
Income taxes receivable, net | | | 5,462 | | | | 4,455 | |
Deferred purchased gas costs | | | 6,230 | | | | 2,608 | |
Prepaids and other current assets | | | 132,182 | | | | 136,833 | |
| | | | | | | | |
Total current assets | | | 538,918 | | | | 533,307 | |
| | | | | | | | |
Noncurrent assets: | | | | | | | | |
Goodwill | | | 147,865 | | | | 139,983 | |
Deferred income taxes | | | 1,467 | | | | 1,288 | |
Deferred charges and other assets | | | 411,655 | | | | 432,234 | |
| | | | | | | | |
Total noncurrent assets | | | 560,987 | | | | 573,505 | |
| | | | | | | | |
Total assets | | $ | 5,855,070 | | | $ | 5,581,126 | |
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CAPITALIZATION AND LIABILITIES | | | | | | | | |
Capitalization: | | | | | | | | |
Common stock, $1 par (authorized—60,000,000 shares; issued and outstanding—47,731,840 and 47,482,068 shares) | | $ | 49,362 | | | $ | 49,112 | |
Additionalpaid-in capital | | | 924,213 | | | | 903,123 | |
Accumulated other comprehensive income (loss), net | | | (42,818 | ) | | | (48,008 | ) |
Retained earnings | | | 784,934 | | | | 759,263 | |
| | | | | | | | |
Total Southwest Gas Holdings, Inc. equity | | | 1,715,691 | | | | 1,663,490 | |
Noncontrolling interest | | | (2,295 | ) | | | (2,217 | ) |
| | | | | | | | |
Total equity | | | 1,713,396 | | | | 1,661,273 | |
Redeemable noncontrolling interest | | | — | | | | 22,590 | |
Long-term debt, less current maturities | | | 1,731,981 | | | | 1,549,983 | |
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Total capitalization | | | 3,445,377 | | | | 3,233,846 | |
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Current liabilities: | | | | | | | | |
Current maturities of long-term debt | | | 28,453 | | | | 50,101 | |
Short-term debt | | | 110,500 | | | | — | |
Accounts payable | | | 159,382 | | | | 184,669 | |
Customer deposits | | | 70,162 | | | | 72,296 | |
Income taxes payable | | | 1,543 | | | | 1,909 | |
Accrued general taxes | | | 48,998 | | | | 42,921 | |
Accrued interest | | | 24,543 | | | | 17,939 | |
Deferred purchased gas costs | | | 14,971 | | | | 90,476 | |
Other current liabilities | | | 197,854 | | | | 168,064 | |
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Total current liabilities | | | 656,406 | | | | 628,375 | |
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Deferred income taxes and other credits: | | | | | | | | |
Deferred income taxes and investment tax credits | | | 894,011 | | | | 840,653 | |
Accumulated removal costs | | | 312,000 | | | | 308,000 | |
Other deferred credits and other long-term liabilities | | | 547,276 | | | | 570,252 | |
| | | | | | | | |
Total deferred income taxes and other credits | | | 1,753,287 | | | | 1,718,905 | |
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| | | | | | | | |
Total capitalization and liabilities | | $ | 5,855,070 | | | $ | 5,581,126 | |
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| | September 30, 2019 | | December 31, 2018 |
ASSETS | | | | |
Utility plant: | | | | |
Gas plant | | $ | 7,550,855 |
| | $ | 7,134,239 |
|
Less: accumulated depreciation | | (2,303,864 | ) | | (2,234,029 | ) |
Construction work in progress | | 288,573 |
| | 193,028 |
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Net utility plant | | 5,535,564 |
| | 5,093,238 |
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Other property and investments | | 768,685 |
| | 623,551 |
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Current assets: | | | | |
Cash and cash equivalents | | 28,480 |
| | 85,361 |
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Accounts receivable, net of allowances | | 434,153 |
| | 413,926 |
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Accrued utility revenue | | 35,800 |
| | 77,200 |
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Income taxes receivable | | 26,611 |
| | 14,653 |
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Deferred purchased gas costs | | 49,804 |
| | 4,928 |
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Prepaid and other current assets | | 190,554 |
| | 243,701 |
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Total current assets | | 765,402 |
| | 839,769 |
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Noncurrent assets: | | | | |
Goodwill | | 339,948 |
| | 359,045 |
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Deferred income taxes | | 896 |
| | 1,264 |
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Deferred charges and other assets | | 429,716 |
| | 440,862 |
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Total noncurrent assets | | 770,560 |
| | 801,171 |
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Total assets | | $ | 7,840,211 |
| | $ | 7,357,729 |
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CAPITALIZATION AND LIABILITIES | | | | |
Capitalization: | | | | |
Common stock, $1 par (authorized - 120,000,000 shares; issued and outstanding - 54,624,090 and 53,026,848 shares) | | $ | 56,254 |
| | $ | 54,656 |
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Additional paid-in capital | | 1,437,733 |
| | 1,305,769 |
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Accumulated other comprehensive income (loss), net | | (47,775 | ) | | (52,668 | ) |
Retained earnings | | 977,498 |
| | 944,285 |
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Total Southwest Gas Holdings, Inc. equity | | 2,423,710 |
| | 2,252,042 |
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Noncontrolling interest | | — |
| | (452 | ) |
Total equity | | 2,423,710 |
| | 2,251,590 |
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Redeemable noncontrolling interest | | 84,354 |
| | 81,831 |
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Long-term debt, less current maturities | | 2,462,116 |
| | 2,107,258 |
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Total capitalization | | 4,970,180 |
| | 4,440,679 |
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Current liabilities: | | | | |
Current maturities of long-term debt | | 38,165 |
| | 33,060 |
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Short-term debt | | 30,000 |
| | 152,000 |
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Accounts payable | | 188,896 |
| | 248,993 |
|
Customer deposits | | 68,897 |
| | 67,940 |
|
Income taxes payable | | 1,319 |
| | 1,083 |
|
Accrued general taxes | | 52,361 |
| | 43,560 |
|
Accrued interest | | 34,745 |
| | 21,369 |
|
Deferred purchased gas costs | | 88,030 |
| | 79,762 |
|
Other current liabilities | | 279,931 |
| | 290,878 |
|
Total current liabilities | | 782,344 |
| | 938,645 |
|
Deferred income taxes and other credits: | | | | |
Deferred income taxes and investment tax credits | | 577,928 |
| | 529,201 |
|
Accumulated removal costs | | 392,000 |
| | 383,000 |
|
Other deferred credits and other long-term liabilities | | 1,117,759 |
| | 1,066,204 |
|
Total deferred income taxes and other credits | | 2,087,687 |
| | 1,978,405 |
|
Total capitalization and liabilities | | $ | 7,840,211 |
| | $ | 7,357,729 |
|
The accompanying notes are an integral part of these statements.
3
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | THREE MONTHS ENDED | | | NINE MONTHS ENDED | | | TWELVE MONTHS ENDED | |
| | SEPTEMBER 30, | | | SEPTEMBER 30, | | | SEPTEMBER 30, | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Operating revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
Gas operating revenues | | $ | 213,059 | | | $ | 200,179 | | | $ | 935,823 | | | $ | 980,927 | | | $ | 1,276,308 | | | $ | 1,376,388 | |
Construction revenues | | | 380,094 | | | | 339,790 | | | | 872,536 | | | | 838,038 | | | | 1,173,576 | | | | 1,127,982 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total operating revenues | | | 593,153 | | | | 539,969 | | | | 1,808,359 | | | | 1,818,965 | | | | 2,449,884 | | | | 2,504,370 | |
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Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Net cost of gas sold | | | 45,539 | | | | 39,056 | | | | 261,839 | | | | 324,072 | | | | 334,888 | | | | 460,836 | |
Operations and maintenance | | | 102,278 | | | | 102,438 | | | | 314,488 | | | | 301,979 | | | | 414,233 | | | | 400,222 | |
Depreciation and amortization | | | 58,529 | | | | 69,845 | | | | 189,089 | | | | 217,764 | | | | 260,457 | | | | 286,977 | |
Taxes other than income taxes | | | 14,046 | | | | 12,480 | | | | 43,325 | | | | 39,480 | | | | 56,221 | | | | 51,810 | |
Construction expenses | | | 342,629 | | | | 300,611 | | | | 806,586 | | | | 757,919 | | | | 1,073,090 | | | | 1,009,188 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 563,021 | | | | 524,430 | | | | 1,615,327 | | | | 1,641,214 | | | | 2,138,889 | | | | 2,209,033 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | | 30,132 | | | | 15,539 | | | | 193,032 | | | | 177,751 | | | | 310,995 | | | | 295,337 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other income and (expenses): | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest deductions | | | (19,494 | ) | | | (18,158 | ) | | | (56,863 | ) | | | (54,100 | ) | | | (76,423 | ) | | | (71,884 | ) |
Other income (deductions) | | | 2,876 | | | | 2,565 | | | | 8,788 | | | | 6,756 | | | | 11,501 | | | | 10,861 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other income and (expenses) | | | (16,618 | ) | | | (15,593 | ) | | | (48,075 | ) | | | (47,344 | ) | | | (64,922 | ) | | | (61,023 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | 13,514 | | | | (54 | ) | | | 144,957 | | | | 130,407 | | | | 246,073 | | | | 234,314 | |
Income tax expense (benefit) | | | 3,094 | | | | (2,961 | ) | | | 47,411 | | | | 43,046 | | | | 82,833 | | | | 80,255 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | 10,420 | | | | 2,907 | | | | 97,546 | | | | 87,361 | | | | 163,240 | | | | 154,059 | |
Net income attributable to noncontrolling interests | | | 216 | | | | 435 | | | | 170 | | | | 500 | | | | 684 | | | | 1,079 | |
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Net income attributable to Southwest Gas Holdings, Inc. | | $ | 10,204 | | | $ | 2,472 | | | $ | 97,376 | | | $ | 86,861 | | | $ | 162,556 | | | $ | 152,980 | |
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Basic earnings per share | | $ | 0.21 | | | $ | 0.05 | | | $ | 2.05 | | | $ | 1.83 | | | $ | 3.42 | | | $ | 3.22 | |
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Diluted earnings per share | | $ | 0.21 | | | $ | 0.05 | | | $ | 2.03 | | | $ | 1.82 | | | $ | 3.39 | | | $ | 3.20 | |
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Dividends declared per share | | $ | 0.495 | | | $ | 0.450 | | | $ | 1.485 | | | $ | 1.350 | | | $ | 1.935 | | | $ | 1.755 | |
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Average number of common shares outstanding | | | 47,628 | | | | 47,481 | | | | 47,577 | | | | 47,464 | | | | 47,553 | | | | 47,442 | |
Average shares outstanding (assuming dilution) | | | 47,986 | | | | 47,830 | | | | 47,912 | | | | 47,802 | | | | 47,896 | | | | 47,787 | |
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| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Operating revenues: | | | | | | | | | | | | |
Gas operating revenues | | $ | 209,980 |
| | $ | 217,523 |
| | $ | 989,368 |
| | $ | 987,515 |
| | $ | 1,359,581 |
| | $ | 1,354,000 |
|
Utility infrastructure services revenues | | 515,250 |
| | 450,623 |
| | 1,282,412 |
| | 1,105,844 |
| | 1,698,853 |
| | 1,479,792 |
|
Total operating revenues | | 725,230 |
| | 668,146 |
| | 2,271,780 |
| | 2,093,359 |
| | 3,058,434 |
| | 2,833,792 |
|
Operating expenses: | | | | | | | | | | | | |
Net cost of gas sold | | 35,068 |
| | 49,903 |
| | 292,854 |
| | 319,101 |
| | 393,141 |
| | 412,307 |
|
Operations and maintenance | | 109,652 |
| | 105,508 |
| | 321,190 |
| | 313,294 |
| | 414,289 |
| | 406,137 |
|
Depreciation and amortization | | 75,370 |
| | 62,156 |
| | 223,251 |
| | 185,941 |
| | 286,522 |
| | 247,803 |
|
Taxes other than income taxes | | 15,308 |
| | 15,036 |
| | 46,640 |
| | 44,959 |
| | 61,579 |
| | 59,580 |
|
Utility infrastructure services expenses | | 451,574 |
| | 395,862 |
| | 1,154,238 |
| | 1,007,485 |
| | 1,534,442 |
| | 1,349,862 |
|
Total operating expenses | | 686,972 |
| | 628,465 |
| | 2,038,173 |
| | 1,870,780 |
| | 2,689,973 |
| | 2,475,689 |
|
Operating income | | 38,258 |
| | 39,681 |
| | 233,607 |
| | 222,579 |
| | 368,461 |
| | 358,103 |
|
Other income and (expenses): | | | | | | | | | | | | |
Net interest deductions | | (27,434 | ) | | (24,548 | ) | | (80,662 | ) | | (70,831 | ) | | (106,502 | ) | | (92,032 | ) |
Other income (deductions) | | (1,158 | ) | | 889 |
| | 6,827 |
| | (6,151 | ) | | (4,448 | ) | | (6,401 | ) |
Total other income and (expenses) | | (28,592 | ) | | (23,659 | ) | | (73,835 | ) | | (76,982 | ) | | (110,950 | ) | | (98,433 | ) |
Income before income taxes | | 9,666 |
| | 16,022 |
| | 159,772 |
| | 145,597 |
| | 257,511 |
| | 259,670 |
|
Income tax expense | | 3,141 |
| | 3,691 |
| | 35,031 |
| | 33,421 |
| | 63,294 |
| | 51,098 |
|
Net income | | 6,525 |
| | 12,331 |
| | 124,741 |
| | 112,176 |
| | 194,217 |
| | 208,572 |
|
Net income (loss) attributable to noncontrolling interests | | 1,172 |
| | — |
| | 2,523 |
| | (797 | ) | | 2,695 |
| | (866 | ) |
Net income attributable to Southwest Gas Holdings, Inc. | | $ | 5,353 |
| | $ | 12,331 |
| | $ | 122,218 |
| | $ | 112,973 |
| | $ | 191,522 |
| | $ | 209,438 |
|
Basic earnings per share | | $ | 0.10 |
| | $ | 0.25 |
| | $ | 2.26 |
| | $ | 2.31 |
| | $ | 3.60 |
| | $ | 4.30 |
|
Diluted earnings per share | | $ | 0.10 |
| | $ | 0.25 |
| | $ | 2.26 |
| | $ | 2.31 |
| | $ | 3.59 |
| | $ | 4.29 |
|
Average number of common shares | | 54,670 |
| | 49,493 |
| | 53,996 |
| | 48,916 |
| | 53,219 |
| | 48,728 |
|
Average shares (assuming dilution) | | 54,748 |
| | 49,553 |
| | 54,063 |
| | 48,968 |
| | 53,287 |
| | 48,781 |
|
The accompanying notes are an integral part of these statements.
4
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | THREE MONTHS ENDED | | | NINE MONTHS ENDED | | | TWELVE MONTHS ENDED | |
| | SEPTEMBER 30, | | | SEPTEMBER 30, | | | SEPTEMBER 30, | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Net income | | $ | 10,420 | | | $ | 2,907 | | | $ | 97,546 | | | $ | 87,361 | | | $ | 163,240 | | | $ | 154,059 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | | | | | | | | | | | | |
Defined benefit pension plans: | | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial gain (loss) | | | — | | | | — | | | | — | | | | — | | | | (14,118 | ) | | | (18,922 | ) |
Amortization of prior service cost | | | 207 | | | | 207 | | | | 621 | | | | 621 | | | | 828 | | | | 828 | |
Amortization of net actuarial loss | | | 3,944 | | | | 4,196 | | | | 11,832 | | | | 12,586 | | | | 16,027 | | | | 17,915 | |
Regulatory adjustment | | | (3,555 | ) | | | (3,796 | ) | | | (10,667 | ) | | | (11,388 | ) | | | (2,741 | ) | | | (404 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net defined benefit pension plans | | | 596 | | | | 607 | | | | 1,786 | | | | 1,819 | | | | (4 | ) | | | (583 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Forward-starting interest rate swaps: | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts reclassified into net income | | | 518 | | | | 518 | | | | 1,554 | | | | 1,556 | | | | 2,073 | | | �� | 2,073 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net forward-starting interest rate swaps | | | 518 | | | | 518 | | | | 1,554 | | | | 1,556 | | | | 2,073 | | | | 2,073 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | 1,012 | | | | (238 | ) | | | 1,861 | | | | 614 | | | | 1,408 | | | | 233 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income, net of tax | | | 2,126 | | | | 887 | | | | 5,201 | | | | 3,989 | | | | 3,477 | | | | 1,723 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | 12,546 | | | | 3,794 | | | | 102,747 | | | | 91,350 | | | | 166,717 | | | | 155,782 | |
Comprehensive income attributable to noncontrolling interests | | | 198 | | | | 427 | | | | 181 | | | | 521 | | | | 679 | | | | 1,089 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income attributable to Southwest Gas Holdings, Inc. | | $ | 12,348 | | | $ | 3,367 | | | $ | 102,566 | | | $ | 90,829 | | | $ | 166,038 | | | $ | 154,693 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Net income | | $ | 6,525 |
| | $ | 12,331 |
| | $ | 124,741 |
| | $ | 112,176 |
| | $ | 194,217 |
| | $ | 208,572 |
|
Other comprehensive income (loss), net of tax | | | | | | | | | | | | |
Defined benefit pension plans: | | | | | | | | | | | | |
Net actuarial gain (loss) | | — |
| | — |
| | — |
| | — |
| | (15,524 | ) | | (32,701 | ) |
Amortization of prior service cost | | 241 |
| | 254 |
| | 724 |
| | 762 |
| | 977 |
| | 969 |
|
Amortization of net actuarial loss | | 4,442 |
| | 6,387 |
| | 13,325 |
| | 19,161 |
| | 19,713 |
| | 23,105 |
|
Regulatory adjustment | | (4,065 | ) | | (5,746 | ) | | (12,193 | ) | | (17,236 | ) | | (1,214 | ) | | 6,021 |
|
Net defined benefit pension plans | | 618 |
| | 895 |
| | 1,856 |
| | 2,687 |
| | 3,952 |
| | (2,606 | ) |
Forward-starting interest rate swaps (“FSIRS”): | | | | | | | | | | | | |
Amounts reclassified into net income | | 635 |
| | 636 |
| | 1,906 |
| | 1,907 |
| | 2,540 |
| | 2,426 |
|
Net forward-starting interest rate swaps | | 635 |
| | 636 |
| | 1,906 |
| | 1,907 |
| | 2,540 |
| | 2,426 |
|
Foreign currency translation adjustments | | (447 | ) | | 599 |
| | 1,131 |
| | (1,002 | ) | | (877 | ) | | (1,092 | ) |
Total other comprehensive income (loss), net of tax | | 806 |
| | 2,130 |
| | 4,893 |
| | 3,592 |
| | 5,615 |
| | (1,272 | ) |
Comprehensive income | | 7,331 |
| | 14,461 |
| | 129,634 |
| | 115,768 |
| | 199,832 |
| | 207,300 |
|
Comprehensive income (loss) attributable to noncontrolling interests | | 1,172 |
| | — |
| | 2,523 |
| | (797 | ) | | 2,695 |
| | (866 | ) |
Comprehensive income attributable to Southwest Gas Holdings, Inc. | | $ | 6,159 |
| | $ | 14,461 |
| | $ | 127,111 |
| | $ | 116,565 |
| | $ | 197,137 |
| | $ | 208,166 |
|
The accompanying notes are an integral part of these statements.
5
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | | | | | | |
| | NINE MONTHS ENDED | | | TWELVE MONTHS ENDED | |
| | SEPTEMBER 30 | | | SEPTEMBER 30 | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | |
CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | |
Net income | | $ | 97,546 | | | $ | 87,361 | | | $ | 163,240 | | | $ | 154,059 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 189,089 | | | | 217,764 | | | | 260,457 | | | | 286,977 | |
Deferred income taxes | | | 49,409 | | | | 43,702 | | | | 74,439 | | | | 86,526 | |
Changes in current assets and liabilities: | | | | | | | | | | | | | | | | |
Accounts receivable, net of allowances | | | (15,330 | ) | | | 28,531 | | | | (13,765 | ) | | | (17,889 | ) |
Accrued utility revenue | | | 42,100 | | | | 41,700 | | | | (1,100 | ) | | | (800 | ) |
Deferred purchased gas costs | | | (79,127 | ) | | | 81,389 | | | | (114,658 | ) | | | 79,460 | |
Accounts payable | | | (26,771 | ) | | | (24,942 | ) | | | 19,866 | | | | 10,445 | |
Accrued taxes | | | 4,689 | | | | (7,055 | ) | | | 38,084 | | | | (11,033 | ) |
Other current assets and liabilities | | | 43,044 | | | | 12,022 | | | | 3,590 | | | | 22,034 | |
Gains on sale | | | (1,452 | ) | | | (4,117 | ) | | | (4,483 | ) | | | (4,200 | ) |
Changes in undistributed stock compensation | | | 9,199 | | | | 4,347 | | | | 10,308 | | | | 5,142 | |
AFUDC | | | (2,077 | ) | | | (1,893 | ) | | | (2,473 | ) | | | (2,890 | ) |
Changes in other assets and deferred charges | | | (14,470 | ) | | | 3,926 | | | | (1,436 | ) | | | 4,183 | |
Changes in other liabilities and deferred credits | | | 3,395 | | | | (4,813 | ) | | | (10,239 | ) | | | 702 | |
| | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 299,244 | | | | 477,922 | | | | 421,830 | | | | 612,716 | |
| | | | | | | | | | | | | | | | |
CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | |
Construction expenditures and property additions | | | (449,998 | ) | | | (404,388 | ) | | | (575,141 | ) | | | (555,819 | ) |
Acquisition of businesses, net of cash acquired | | | — | | | | (17,000 | ) | | | — | | | | (17,000 | ) |
Changes in customer advances | | | (1,951 | ) | | | 5,445 | | | | 504 | | | | 9,445 | |
Miscellaneous inflows | | | 9,160 | | | | 7,965 | | | | 14,234 | | | | 4,726 | |
| | | | | | | | | | | | | | | | |
Net cash used in investing activities | | | (442,789 | ) | | | (407,978 | ) | | | (560,403 | ) | | | (558,648 | ) |
| | | | | | | | | | | | | | | | |
CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | |
Issuance of common stock, net | | | 11,563 | | | | 530 | | | | 11,505 | | | | 507 | |
Dividends paid | | | (68,503 | ) | | | (61,950 | ) | | | (89,870 | ) | | | (81,138 | ) |
Centuri distribution to redeemable noncontrolling interest | | | (204 | ) | | | (99 | ) | | | (544 | ) | | | (198 | ) |
Issuance of long-term debt, net | | | 104,308 | | | | 408,946 | | | | 119,308 | | | | 420,946 | |
Retirement of long-term debt | | | (100,240 | ) | | | (196,351 | ) | | | (159,162 | ) | | | (240,999 | ) |
Change in credit facility and commercial paper | | | 145,000 | | | | (150,000 | ) | | | 150,000 | | | | (97,000 | ) |
Change in short-term debt | | | 110,500 | | | | (18,000 | ) | | | 110,500 | | | | — | |
Principal payments on capital lease obligations | | | (796 | ) | | | (1,125 | ) | | | (1,025 | ) | | | (1,449 | ) |
Redemption of Centuri shares from noncontrolling parties | | | (23,000 | ) | | | — | | | | (23,000 | ) | | | — | |
Withholding remittance—share-based compensation | | | (3,176 | ) | | | (2,119 | ) | | | (3,176 | ) | | | (2,164 | ) |
Other | | | (1,104 | ) | | | (605 | ) | | | (2,068 | ) | | | (60 | ) |
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 174,348 | | | | (20,773 | ) | | | 112,468 | | | | (1,555 | ) |
| | | | | | | | | | | | | | | | |
Effects of currency translation on cash and cash equivalents | | | 283 | | | | (14 | ) | | | 103 | | | | (318 | ) |
| | | | | | | | | | | | | | | | |
Change in cash and cash equivalents | | | 31,086 | | | | 49,157 | | | | (26,002 | ) | | | 52,195 | |
Cash and cash equivalents at beginning of period | | | 28,066 | | | | 35,997 | | | | 85,154 | | | | 32,959 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 59,152 | | | $ | 85,154 | | | $ | 59,152 | | | $ | 85,154 | |
| | | | | | | | | | | | | | | | |
Supplemental information: | | | | | | | | | | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 45,771 | | | $ | 47,134 | | | $ | 66,077 | | | $ | 68,445 | |
Income taxes paid (received) | | | 3,687 | | | | 6,530 | | | | (21,875 | ) | | | 9,899 | |
|
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | |
Net income | | $ | 124,741 |
| | $ | 112,176 |
| | $ | 194,217 |
| | $ | 208,572 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | 223,251 |
| | 185,941 |
| | 286,522 |
| | 247,803 |
|
Deferred income taxes | | 46,099 |
| | 36,210 |
| | 60,930 |
| | 50,190 |
|
Changes in current assets and liabilities: | | | | | | | | |
Accounts receivable, net of allowances | | (19,615 | ) | | (1,659 | ) | | (33,818 | ) | | (27,276 | ) |
Accrued utility revenue | | 41,400 |
| | 43,600 |
| | (1,200 | ) | | (500 | ) |
Deferred purchased gas costs | | (36,608 | ) | | 100,763 |
| | (54,797 | ) | | 84,282 |
|
Accounts payable | | (46,079 | ) | | (48,618 | ) | | 14,317 |
| | (1,886 | ) |
Accrued taxes | | (2,841 | ) | | (9,840 | ) | | (4,956 | ) | | (12,417 | ) |
Other current assets and liabilities | | 74,048 |
| | 1,245 |
| | 18,730 |
| | (50,002 | ) |
Gains on sale | | (3,157 | ) | | (997 | ) | | (3,863 | ) | | (3,741 | ) |
Changes in undistributed stock compensation | | 6,067 |
| | 4,686 |
| | 7,492 |
| | 6,375 |
|
Equity AFUDC | | (3,179 | ) | | (1,034 | ) | | (5,772 | ) | | (1,253 | ) |
Changes in other assets and deferred charges | | (15,855 | ) | | (10,497 | ) | | (11,096 | ) | | (18,296 | ) |
Changes in other liabilities and deferred credits | | (9,786 | ) | | (4,583 | ) | | 33,243 |
| | (3,747 | ) |
Net cash provided by operating activities | | 378,486 |
| | 407,393 |
| | 499,949 |
| | 478,104 |
|
CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | |
Construction expenditures and property additions | | (719,386 | ) | | (560,165 | ) | | (925,135 | ) | | (733,816 | ) |
Acquisition of businesses, net of cash acquired | | (19,533 | ) | | (4,209 | ) | | (266,697 | ) | | (98,413 | ) |
Changes in customer advances | | 15,049 |
| | 11,051 |
| | 17,461 |
| | 13,325 |
|
Miscellaneous inflows | | 12,862 |
| | 3,827 |
| | 13,376 |
| | 11,312 |
|
Net cash used in investing activities | | (711,008 | ) | | (549,496 | ) | | (1,160,995 | ) | | (807,592 | ) |
CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | |
Issuance of common stock, net | | 129,341 |
| | 92,234 |
| | 391,509 |
| | 121,826 |
|
Dividends paid | | (86,345 | ) | | (74,535 | ) | | (112,050 | ) | | (98,162 | ) |
Issuance of long-term debt, net | | 482,614 |
| | 480,993 |
| | 566,793 |
| | 783,748 |
|
Retirement of long-term debt | | (127,175 | ) | | (143,757 | ) | | (221,176 | ) | | (382,486 | ) |
Change in short-term debt | | (122,000 | ) | | (183,000 | ) | | (1,500 | ) | | (79,000 | ) |
Principal payments on finance lease obligations | | (161 | ) | | (422 | ) | | (387 | ) | | (606 | ) |
Withholding remittance - share-based compensation | | (1,858 | ) | | (2,880 | ) | | (2,088 | ) | | (2,880 | ) |
Other | | 1,167 |
| | (1,121 | ) | | (456 | ) | | (3,091 | ) |
Net cash provided by financing activities | | 275,583 |
| | 167,512 |
| | 620,645 |
| | 339,349 |
|
Effects of currency translation on cash and cash equivalents | | 58 |
| | 139 |
| | (289 | ) | | 157 |
|
Change in cash and cash equivalents | | (56,881 | ) | | 25,548 |
| | (40,690 | ) | | 10,018 |
|
Cash and cash equivalents at beginning of period | | 85,361 |
| | 43,622 |
| | 69,170 |
| | 59,152 |
|
Cash and cash equivalents at end of period | | $ | 28,480 |
| | $ | 69,170 |
| | $ | 28,480 |
| | $ | 69,170 |
|
Supplemental information: | | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 62,165 |
| | $ | 49,568 |
| | $ | 99,159 |
| | $ | 75,740 |
|
Income taxes paid (received) | | $ | 371 |
| | $ | 18,261 |
| | $ | (16,669 | ) | | $ | 20,247 |
|
The accompanying notes are an integral part of these statements.
6
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
SOUTHWEST GAS
CORPORATIONHOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETSSTATEMENTS OF EQUITY
(
Thousands of dollars)In thousands, except per share amounts)
(Unaudited)
| | | | | | | | |
| | SEPTEMBER 30, | | | DECEMBER 31, | |
| | 2017 | | | 2016 | |
ASSETS | | | | | | | | |
Utility plant: | | | | | | | | |
Gas plant | | $ | 6,440,547 | | | $ | 6,193,564 | |
Less: accumulated depreciation | | | (2,218,796 | ) | | | (2,172,966 | ) |
Acquisition adjustments, net | | | 81 | | | | 196 | |
Construction work in progress | | | 164,030 | | | | 111,177 | |
| | | | | | | | |
Net utility plant | | | 4,385,862 | | | | 4,131,971 | |
| | | | | | | | |
Other property and investments | | | 115,841 | | | | 108,569 | |
| | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | | 46,467 | | | | 19,024 | |
Accounts receivable, net of allowances | | | 68,028 | | | | 111,845 | |
Accrued utility revenue | | | 34,100 | | | | 76,200 | |
Income taxes receivable, net | | | 6,440 | | | | 4,455 | |
Deferred purchased gas costs | | | 6,230 | | | | 2,608 | |
Prepaids and other current assets | | | 118,587 | | | | 126,363 | |
| | | | | | | | |
Total current assets | | | 279,852 | | | | 340,495 | |
| | | | | | | | |
Noncurrent assets: | | | | | | | | |
Goodwill | | | 10,095 | | | | 10,095 | |
Deferred charges and other assets | | | 393,942 | | | | 410,625 | |
Discontinued operations—construction services—assets | | | — | | | | 579,371 | |
| | | | | | | | |
Total noncurrent assets | | | 404,037 | | | | 1,000,091 | |
| | | | | | | | |
Total assets | | $ | 5,185,592 | | | $ | 5,581,126 | |
| | | | | | | | |
CAPITALIZATION AND LIABILITIES | | | | | | | | |
Capitalization: | | | | | | | | |
Common stock | | $ | 49,112 | | | $ | 49,112 | |
Additionalpaid-in capital | | | 917,581 | | | | 897,346 | |
Accumulated other comprehensive income (loss), net | | | (42,299 | ) | | | (45,639 | ) |
Retained earnings | | | 606,007 | | | | 767,061 | |
| | | | | | | | |
Total Southwest Gas Corporation equity | | | 1,530,401 | | | | 1,667,880 | |
Discontinued operations—construction servicesnon-owner equity | | | — | | | | 15,983 | |
Long-term debt, less current maturities | | | 1,520,790 | | | | 1,375,080 | |
| | | | | | | | |
Total capitalization | | | 3,051,191 | | | | 3,058,943 | |
| | | | | | | | |
Current liabilities: | | | | | | | | |
Current maturities of long-term debt | | | — | | | | 25,000 | |
Short-term debt | | | 83,000 | | | | — | |
Accounts payable | | | 92,257 | | | | 138,229 | |
Customer deposits | | | 70,162 | | | | 72,296 | |
Accrued general taxes | | | 48,998 | | | | 42,921 | |
Accrued interest | | | 24,406 | | | | 17,395 | |
Deferred purchased gas costs | | | 14,971 | | | | 90,476 | |
Payable to parent | | | 2,560 | | | | — | |
Other current liabilities | | | 109,705 | | | | 95,999 | |
| | | | | | | | |
Total current liabilities | | | 446,059 | | | | 482,316 | |
| | | | | | | | |
Deferred income taxes and other credits: | | | | | | | | |
Deferred income taxes and investment tax credits, net | | | 853,682 | | | | 806,109 | |
Accumulated removal costs | | | 312,000 | | | | 308,000 | |
Other deferred credits and other long-term liabilities | | | 522,660 | | | | 545,143 | |
Discontinued operations—construction services—liabilities | | | — | | | | 380,615 | |
| | | | | | | | |
Total deferred income taxes and other credits | | | 1,688,342 | | | | 2,039,867 | |
| | | | | | | | |
Total capitalization and liabilities | | $ | 5,185,592 | | | $ | 5,581,126 | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
Common stock shares | | | | | | | |
| Beginning balances | 54,321 |
| | 49,126 |
| | 53,026 |
| | 48,090 |
|
| | Common stock issuances | 303 |
| | 297 |
| | 1,598 |
| | 1,333 |
|
| Ending balances | 54,624 |
| | 49,423 |
| | 54,624 |
| | 49,423 |
|
Common stock amount | | | | | | | |
| Beginning balances | $ | 55,951 |
| | $ | 50,756 |
| | $ | 54,656 |
| | $ | 49,720 |
|
| | Common stock issuances | 303 |
| | 297 |
| | 1,598 |
| | 1,333 |
|
| Ending balances | 56,254 |
| | 51,053 |
| | 56,254 |
| | 51,053 |
|
Additional paid-in capital | | | | | | | |
| Beginning balances | 1,409,923 |
| | 1,021,508 |
| | 1,305,769 |
| | 955,332 |
|
| | Common stock issuances | 27,810 |
| | 24,332 |
| | 132,416 |
| | 93,218 |
|
| | Change in ownership of noncontrolling interest | — |
| | — |
| | (452 | ) | | (2,710 | ) |
| Ending balances | 1,437,733 |
| | 1,045,840 |
| | 1,437,733 |
| | 1,045,840 |
|
Accumulated other comprehensive income (loss) | | | | | | | |
| Beginning balances | (48,581 | ) | | (55,520 | ) | | (52,668 | ) | | (47,682 | ) |
| | Foreign currency exchange translation adjustment | (447 | ) | | 599 |
| | 1,131 |
| | (1,002 | ) |
| | Net actuarial gain (loss) arising during period, less amortization of unamortized benefit plan cost, net of tax | 618 |
| | 895 |
| | 1,856 |
| | 2,687 |
|
| | FSIRS amounts reclassified to net income, net of tax | 635 |
| | 636 |
| | 1,906 |
| | 1,907 |
|
| | Reclassification of excess deferred taxes | — |
| | — |
| | — |
| | (9,300 | ) |
| Ending balances | (47,775 | ) | | (53,390 | ) | | (47,775 | ) | | (53,390 | ) |
Retained earnings | | | | | | | |
| Beginning balances | 1,002,070 |
| | 916,275 |
| | 944,285 |
| | 857,398 |
|
| | Net income | 5,353 |
| | 12,331 |
| | 122,218 |
| | 112,973 |
|
| | Dividends declared | (29,925 | ) | | (25,876 | ) | | (89,005 | ) | | (76,941 | ) |
| | Reclassification of excess deferred taxes | — |
| | — |
| | — |
| | 9,300 |
|
| Ending balances | 977,498 |
| | 902,730 |
| | 977,498 |
| | 902,730 |
|
Total Southwest Gas Holdings, Inc. equity ending balances | 2,423,710 |
| | 1,946,233 |
| | 2,423,710 |
| | 1,946,233 |
|
Noncontrolling interest | | | | | | | |
| Beginning balances | — |
| | (452 | ) | | (452 | ) | | (2,365 | ) |
| | Net income (loss) | — |
| | — |
| | — |
| | (797 | ) |
| | Change in ownership of noncontrolling interest | — |
| | — |
| | 452 |
| | 2,710 |
|
| Ending balances | — |
| | (452 | ) | | — |
| | (452 | ) |
Total equity ending balances | $ | 2,423,710 |
| | $ | 1,945,781 |
| | $ | 2,423,710 |
| | $ | 1,945,781 |
|
Dividends declared per common share | $ | 0.545 |
| | $ | 0.52 |
| | $ | 1.635 |
| | $ | 1.56 |
|
The accompanying notes are an integral part of these statements.
7
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF INCOMEBALANCE SHEETS
(
In thousands)Thousands of dollars)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | THREE MONTHS ENDED | | | NINE MONTHS ENDED | | | TWELVE MONTHS ENDED | |
| | SEPTEMBER 30, | | | SEPTEMBER 30, | | | SEPTEMBER 30, | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Continuing operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Gas operating revenues | | $ | 213,059 | | | $ | 200,179 | | | $ | 935,823 | | | $ | 980,927 | | | $ | 1,276,308 | | | $ | 1,376,388 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Net cost of gas sold | | | 45,539 | | | | 39,056 | | | | 261,839 | | | | 324,072 | | | | 334,888 | | | | 460,836 | |
Operations and maintenance | | | 102,215 | | | | 102,438 | | | | 313,395 | | | | 301,979 | | | | 413,140 | | | | 400,222 | |
Depreciation and amortization | | | 46,194 | | | | 56,436 | | | | 153,643 | | | | 174,413 | | | | 212,693 | | | | 228,609 | |
Taxes other than income taxes | | | 14,046 | | | | 12,480 | | | | 43,325 | | | | 39,480 | | | | 56,221 | | | | 51,810 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 207,994 | | | | 210,410 | | | | 772,202 | | | | 839,944 | | | | 1,016,942 | | | | 1,141,477 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | | 5,065 | | | | (10,231 | ) | | | 163,621 | | | | 140,983 | | | | 259,366 | | | | 234,911 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other income and (expenses): | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest deductions | | | (17,421 | ) | | | (16,364 | ) | | | (51,622 | ) | | | (49,155 | ) | | | (69,464 | ) | | | (65,146 | ) |
Other income (deductions) | | | 3,081 | | | | 2,521 | | | | 8,744 | | | | 6,712 | | | | 10,308 | | | | 9,615 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other income and (expenses) | | | (14,340 | ) | | | (13,843 | ) | | | (42,878 | ) | | | (42,443 | ) | | | (59,156 | ) | | | (55,531 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before income taxes | | | (9,275 | ) | | | (24,074 | ) | | | 120,743 | | | | 98,540 | | | | 200,210 | | | | 179,380 | |
Income tax expense (benefit) | | | (5,251 | ) | | | (11,669 | ) | | | 38,307 | | | | 31,004 | | | | 65,887 | | | | 59,544 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations | | | (4,024 | ) | | | (12,405 | ) | | | 82,436 | | | | 67,536 | | | | 134,323 | | | | 119,836 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Discontinued operations—construction services: | | | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes | | | — | | | | 24,020 | | | | — | | | | 31,867 | | | | 21,649 | | | | 54,934 | |
Income tax expense | | | — | | | | 8,708 | | | | — | | | | 12,042 | | | | 7,842 | | | | 20,711 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income | | | — | | | | 15,312 | | | | — | | | | 19,825 | | | | 13,807 | | | | 34,223 | |
Noncontrolling interests | | | — | | | | 435 | | | | — | | | | 500 | | | | 514 | | | | 1,079 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income—discontinued operations | | | — | | | | 14,877 | | | | — | | | | 19,325 | | | | 13,293 | | | | 33,144 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (4,024 | ) | | $ | 2,472 | | | $ | 82,436 | | | $ | 86,861 | | | $ | 147,616 | | | $ | 152,980 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
ASSETS | | | | |
Utility plant: | | | | |
Gas plant | | $ | 7,550,855 |
| | $ | 7,134,239 |
|
Less: accumulated depreciation | | (2,303,864 | ) | | (2,234,029 | ) |
Construction work in progress | | 288,573 |
| | 193,028 |
|
Net utility plant | | 5,535,564 |
| | 5,093,238 |
|
Other property and investments | | 127,774 |
| | 116,146 |
|
Current assets: | | | | |
Cash and cash equivalents | | 16,811 |
| | 31,962 |
|
Accounts receivable, net of allowances | | 73,530 |
| | 140,057 |
|
Accrued utility revenue | | 35,800 |
| | 77,200 |
|
Income taxes receivable | | 26,663 |
| | 13,444 |
|
Deferred purchased gas costs | | 49,804 |
| | 4,928 |
|
Prepaid and other current assets | | 171,402 |
| | 229,562 |
|
Total current assets | | 374,010 |
| | 497,153 |
|
Noncurrent assets: | | | | |
Goodwill | | 10,095 |
| | 10,095 |
|
Deferred charges and other assets | | 410,512 |
| | 424,952 |
|
Total noncurrent assets | | 420,607 |
| | 435,047 |
|
Total assets | | $ | 6,457,955 |
| | $ | 6,141,584 |
|
CAPITALIZATION AND LIABILITIES | | | | |
Capitalization: | | | | |
Common stock | | $ | 49,112 |
| | $ | 49,112 |
|
Additional paid-in capital | | 1,194,745 |
| | 1,065,242 |
|
Accumulated other comprehensive income (loss), net | | (45,287 | ) | | (49,049 | ) |
Retained earnings | | 731,036 |
| | 717,155 |
|
Total equity | | 1,929,606 |
| | 1,782,460 |
|
Long-term debt, less current maturities | | 2,115,870 |
| | 1,818,669 |
|
Total capitalization | | 4,045,476 |
| | 3,601,129 |
|
Current liabilities: | | | | |
Short-term debt | | 30,000 |
| | 152,000 |
|
Accounts payable | | 94,130 |
| | 184,982 |
|
Customer deposits | | 68,897 |
| | 67,940 |
|
Accrued general taxes | | 52,361 |
| | 43,560 |
|
Accrued interest | | 34,623 |
| | 20,243 |
|
Deferred purchased gas costs | | 88,030 |
| | 79,762 |
|
Payable to parent | | 270 |
| | 472 |
|
Other current liabilities | | 114,893 |
| | 94,136 |
|
Total current liabilities | | 483,204 |
| | 643,095 |
|
Deferred income taxes and other credits: | | | | |
Deferred income taxes and investment tax credits, net | | 527,544 |
| | 490,458 |
|
Accumulated removal costs | | 392,000 |
| | 383,000 |
|
Other deferred credits and other long-term liabilities | | 1,009,731 |
| | 1,023,902 |
|
Total deferred income taxes and other credits | | 1,929,275 |
| | 1,897,360 |
|
Total capitalization and liabilities | | $ | 6,457,955 |
| | $ | 6,141,584 |
|
The accompanying notes are an integral part of these statements.
8
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(
In thousands)Thousands of dollars)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | THREE MONTHS ENDED | | | NINE MONTHS ENDED | | | TWELVE MONTHS ENDED | |
| | SEPTEMBER 30, | | | SEPTEMBER 30, | | | SEPTEMBER 30, | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Continuing operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) from continuing operations | | $ | (4,024 | ) | | $ | (12,405 | ) | | $ | 82,436 | | | $ | 67,536 | | | $ | 134,323 | | | $ | 119,836 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | | | | | | | | | | | | |
Defined benefit pension plans: | | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial gain (loss) | | | — | | | | — | | | | — | | | | — | | | | (14,118 | ) | | | (18,922 | ) |
Amortization of prior service cost | | | 207 | | | | 207 | | | | 621 | | | | 621 | | | | 828 | | | | 828 | |
Amortization of net actuarial loss | | | 3,944 | | | | 4,196 | | | | 11,832 | | | | 12,586 | | | | 16,027 | | | | 17,915 | |
Regulatory adjustment | | | (3,555 | ) | | | (3,796 | ) | | | (10,667 | ) | | | (11,388 | ) | | | (2,741 | ) | | | (404 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net defined benefit pension plans | | | 596 | | | | 607 | | | | 1,786 | | | | 1,819 | | | | (4 | ) | | | (583 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Forward-starting interest rate swaps: | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts reclassified into net income | | | 518 | | | | 518 | | | | 1,554 | | | | 1,556 | | | | 2,073 | | | | 2,073 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net forward-starting interest rate swaps | | | 518 | | | | 518 | | | | 1,554 | | | | 1,556 | | | | 2,073 | | | | 2,073 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income, net of tax from continuing operations | | | 1,114 | | | | 1,125 | | | | 3,340 | | | | 3,375 | | | | 2,069 | | | | 1,490 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income (loss) from continuing operations | | | (2,910 | ) | | | (11,280 | ) | | | 85,776 | | | | 70,911 | | | | 136,392 | | | | 121,326 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Discontinued operations—construction services: | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | 14,877 | | | | — | | | | 19,325 | | | | 13,293 | | | | 33,144 | |
Foreign currency translation adjustments | | | — | | | | (238 | ) | | | — | | | | 614 | | | | (453 | ) | | | 233 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | — | | | | 14,639 | | | | — | | | | 19,939 | | | | 12,840 | | | | 33,377 | |
Comprehensive income (loss) attributable to noncontrolling interests | | | — | | | | (8 | ) | | | — | | | | 21 | | | | (16 | ) | | | 10 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income attributable to discontinued operations—construction services | | | — | | | | 14,647 | | | | — | | | | 19,918 | | | | 12,856 | | | | 33,367 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income (loss) | | $ | (2,910 | ) | | $ | 3,367 | | | $ | 85,776 | | | $ | 90,829 | | | $ | 149,248 | | | $ | 154,693 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Gas operating revenues | | $ | 209,980 |
| | $ | 217,523 |
| | $ | 989,368 |
| | $ | 987,515 |
| | $ | 1,359,581 |
| | $ | 1,354,000 |
|
Operating expenses: | | | | | | | | | | | | |
Net cost of gas sold | | 35,068 |
| | 49,903 |
| | 292,854 |
| | 319,101 |
| | 393,141 |
| | 412,307 |
|
Operations and maintenance | | 109,039 |
| | 104,657 |
| | 319,572 |
| | 312,055 |
| | 412,330 |
| | 404,549 |
|
Depreciation and amortization | | 52,372 |
| | 47,924 |
| | 159,327 |
| | 145,549 |
| | 205,594 |
| | 193,828 |
|
Taxes other than income taxes | | 15,308 |
| | 15,036 |
| | 46,640 |
| | 44,959 |
| | 61,579 |
| | 59,580 |
|
Total operating expenses | | 211,787 |
| | 217,520 |
| | 818,393 |
| | 821,664 |
| | 1,072,644 |
| | 1,070,264 |
|
Operating income (loss) | | (1,807 | ) | | 3 |
| | 170,975 |
| | 165,851 |
| | 286,937 |
| | 283,736 |
|
Other income and (expenses): | | | | | | | | | | | | |
Net interest deductions | | (23,619 | ) | | (20,399 | ) | | (70,063 | ) | | (59,803 | ) | | (92,000 | ) | | (77,914 | ) |
Other income (deductions) | | (1,353 | ) | | 836 |
| | 6,185 |
| | (5,861 | ) | | (5,194 | ) | | (6,425 | ) |
Total other income and (expenses) | | (24,972 | ) | | (19,563 | ) | | (63,878 | ) | | (65,664 | ) | | (97,194 | ) | | (84,339 | ) |
Income (loss) before income taxes | | (26,779 | ) | | (19,560 | ) | | 107,097 |
| | 100,187 |
| | 189,743 |
| | 199,397 |
|
Income tax expense (benefit) | | (6,767 | ) | | (5,890 | ) | | 20,351 |
| | 20,886 |
| | 43,456 |
| | 45,714 |
|
Net income (loss) | | $ | (20,012 | ) | | $ | (13,670 | ) | | $ | 86,746 |
| | $ | 79,301 |
| | $ | 146,287 |
| | $ | 153,683 |
|
The accompanying notes are an integral part of these statements.
9
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWSCOMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | |
| | NINE MONTHS ENDED | | | TWELVE MONTHS ENDED | |
| | SEPTEMBER 30 | | | SEPTEMBER 30 | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | |
CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | |
Net Income | | $ | 82,436 | | | $ | 87,361 | | | $ | 148,130 | | | $ | 154,059 | |
Income (loss) from discontinued operations | | | — | | | | 19,825 | | | | 13,807 | | | | 34,223 | |
| | | | | | | | | | | | | | | | |
Income from continuing operations | | | 82,436 | | | | 67,536 | | | | 134,323 | | | | 119,836 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 153,643 | | | | 174,413 | | | | 212,693 | | | | 228,609 | |
Deferred income taxes | | | 44,621 | | | | 39,953 | | | | 72,627 | | | | 76,837 | |
Changes in current assets and liabilities: | | | | | | | | | | | | | | | | |
Accounts receivable, net of allowances | | | 43,818 | | | | 91,680 | | | | (7,131 | ) | | | 8,543 | |
Accrued utility revenue | | | 42,100 | | | | 41,700 | | | | (1,100 | ) | | | (800 | ) |
Deferred purchased gas costs | | | (79,127 | ) | | | 81,389 | | | | (114,658 | ) | | | 79,460 | |
Accounts payable | | | (45,972 | ) | | | (47,060 | ) | | | 17,271 | | | | 1,467 | |
Accrued taxes | | | 4,092 | | | | (5,660 | ) | | | 29,143 | | | | 4,567 | |
Other current assets and liabilities | | | 32,453 | | | | (819 | ) | | | (224 | ) | | | 9,135 | |
Changes in undistributed stock compensation | | | 7,999 | | | | 4,347 | | | | 9,108 | | | | 5,142 | |
AFUDC | | | (2,077 | ) | | | (1,893 | ) | | | (2,473 | ) | | | (2,890 | ) |
Changes in other assets and deferred charges | | | (14,861 | ) | | | 3,664 | | | | (1,914 | ) | | | 3,834 | |
Changes in other liabilities and deferred credits | | | 2,883 | | | | (4,813 | ) | | | (10,751 | ) | | | 702 | |
| | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 272,008 | | | | 444,437 | | | | 336,914 | | | | 534,442 | |
| | | | | | | | | | | | | | | | |
CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | |
Construction expenditures and property additions | | | (395,463 | ) | | | (337,921 | ) | | | (514,661 | ) | | | (485,665 | ) |
Changes in customer advances | | | (1,951 | ) | | | 5,445 | | | | 504 | | | | 9,445 | |
Miscellaneous inflows | | | 2,407 | | | | 2,464 | | | | 2,925 | | | | 3,506 | |
Dividends received | | | — | | | | 2,801 | | | | 9,660 | | | | 5,602 | |
| | | | | | | | | | | | | | | | |
Net cash used in investing activities | | | (395,007 | ) | | | (327,211 | ) | | | (501,572 | ) | | | (467,112 | ) |
| | | | | | | | | | | | | | | | |
CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | |
Issuance of common stock, net | | | — | | | | 530 | | | | (58 | ) | | | 507 | |
Contributions from parent | | | 11,659 | | | | — | | | | 11,659 | | | | — | |
Dividends paid | | | (60,497 | ) | | | (61,950 | ) | | | (81,864 | ) | | | (81,138 | ) |
Issuance of long-term debt, net | | | — | | | | 296,469 | | | | — | | | | 296,469 | |
Retirement of long-term debt | | | (25,000 | ) | | | (124,855 | ) | | | (25,000 | ) | | | (124,855 | ) |
Change in credit facility and commercial paper | | | 145,000 | | | | (150,000 | ) | | | 150,000 | | | | (97,000 | ) |
Change in short-term debt | | | 83,000 | | | | (18,000 | ) | | | 83,000 | | | | — | |
Withholding remittance—share-based compensation | | | (3,176 | ) | | | (2,119 | ) | | | (3,176 | ) | | | (2,164 | ) |
Other | | | (544 | ) | | | (605 | ) | | | (1,508 | ) | | | (9 | ) |
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 150,442 | | | | (60,530 | ) | | | 133,053 | | | | (8,190 | ) |
| | | | | | | | | | | | | | | | |
Net cash provided by discontinued operating activities | | | — | | | | 33,485 | | | | 57,680 | | | | 78,274 | |
Net cash used in discontinued investing activities | | | — | | | | (80,767 | ) | | | (11,049 | ) | | | (91,536 | ) |
Net cash provided by (used in) discontinued financing activities | | | — | | | | 39,757 | | | | (44,491 | ) | | | 6,635 | |
Effects of currency translation on cash and cash equivalents | | | — | | | | (14 | ) | | | (180 | ) | | | (318 | ) |
| | | | | | | | | | | | | | | | |
Change in cash and cash equivalents | | | 27,443 | | | | 49,157 | | | | (29,645 | ) | | | 52,195 | |
Change in cash and cash equivalents of discontinued operations included in discontinued operations construction services assets | | | — | | | | 7,539 | | | | (1,960 | ) | | | 6,945 | |
| | | | | | | | | | | | | | | | |
Change in cash and cash equivalents of continuing operations | | | 27,443 | | | | 56,696 | | | | (31,605 | ) | | | 59,140 | |
Cash and cash equivalents at beginning of period | | | 19,024 | | | | 21,376 | | | | 78,072 | | | | 18,932 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 46,467 | | | $ | 78,072 | | | $ | 46,467 | | | $ | 78,072 | |
| | | | | | | | | | | | | | | | |
Supplemental information: | | | | | | | | | | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 40,751 | | | $ | 42,804 | | | $ | 59,448 | | | $ | 63,031 | |
| | | | | | | | | | | | | | | | |
Income taxes paid (received) | | $ | 4 | | | $ | (3,055 | ) | | $ | (27,952 | ) | | $ | (16,600 | ) |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Net income (loss) | | $ | (20,012 | ) | | $ | (13,670 | ) | | $ | 86,746 |
| | $ | 79,301 |
| | $ | 146,287 |
| | $ | 153,683 |
|
Other comprehensive income (loss), net of tax | | | | | | | | | | | | |
Defined benefit pension plans: | | | | | | | | | | | | |
Net actuarial gain (loss) | | — |
| | — |
| | — |
| | — |
| | (15,524 | ) | | (32,701 | ) |
Amortization of prior service cost | | 241 |
| | 254 |
| | 724 |
| | 762 |
| | 977 |
| | 969 |
|
Amortization of net actuarial loss | | 4,442 |
| | 6,387 |
| | 13,325 |
| | 19,161 |
| | 19,713 |
| | 23,105 |
|
Regulatory adjustment | | (4,065 | ) | | (5,746 | ) | | (12,193 | ) | | (17,236 | ) | | (1,214 | ) | | 6,021 |
|
Net defined benefit pension plans | | 618 |
| | 895 |
| | 1,856 |
| | 2,687 |
| | 3,952 |
| | (2,606 | ) |
Forward-starting interest rate swaps (“FSIRS”): | | | | | | | | | | | | |
Amounts reclassified into net income | | 635 |
| | 636 |
| | 1,906 |
| | 1,907 |
| | 2,540 |
| | 2,426 |
|
Net forward-starting interest rate swaps | | 635 |
| | 636 |
| | 1,906 |
| | 1,907 |
| | 2,540 |
| | 2,426 |
|
Total other comprehensive income (loss), net of tax | | 1,253 |
| | 1,531 |
| | 3,762 |
| | 4,594 |
| | 6,492 |
| | (180 | ) |
Comprehensive income (loss) | | $ | (18,759 | ) | | $ | (12,139 | ) | | $ | 90,508 |
| | $ | 83,895 |
| | $ | 152,779 |
| | $ | 153,503 |
|
The accompanying notes are an integral part of these statements.
10
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
|
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | |
Net Income | | $ | 86,746 |
| | $ | 79,301 |
| | $ | 146,287 |
| | $ | 153,683 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | 159,327 |
| | 145,549 |
| | 205,594 |
| | 193,828 |
|
Deferred income taxes | | 35,899 |
| | 33,239 |
| | 45,659 |
| | 55,787 |
|
Changes in current assets and liabilities: | | | | | | | | |
Accounts receivable, net of allowances | | 66,527 |
| | 49,654 |
| | (3,436 | ) | | (2,066 | ) |
Accrued utility revenue | | 41,400 |
| | 43,600 |
| | (1,200 | ) | | (500 | ) |
Deferred purchased gas costs | | (36,608 | ) | | 100,763 |
| | (54,797 | ) | | 84,282 |
|
Accounts payable | | (77,311 | ) | | (53,217 | ) | | (686 | ) | | (2,700 | ) |
Accrued taxes | | (4,419 | ) | | (16,026 | ) | | (7,125 | ) | | (9,735 | ) |
Other current assets and liabilities | | 87,869 |
| | (35,154 | ) | | 31,579 |
| | (81,333 | ) |
Changes in undistributed stock compensation | | 4,710 |
| | 4,269 |
| | 5,796 |
| | 5,558 |
|
Equity AFUDC | | (3,179 | ) | | (1,034 | ) | | (5,772 | ) | | (1,253 | ) |
Changes in other assets and deferred charges | | (21,098 | ) | | (11,025 | ) | | (17,122 | ) | | (19,082 | ) |
Changes in other liabilities and deferred credits | | (10,357 | ) | | 7,550 |
| | 19,762 |
| | 8,208 |
|
Net cash provided by operating activities | | 329,506 |
| | 347,469 |
| | 364,539 |
| | 384,677 |
|
CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | |
Construction expenditures and property additions | | (587,405 | ) | | (486,037 | ) | | (784,237 | ) | | (651,022 | ) |
Changes in customer advances | | 15,049 |
| | 11,051 |
| | 17,461 |
| | 13,325 |
|
Miscellaneous inflows (outflows) | | (51 | ) | | 1,316 |
| | (1,353 | ) | | 1,650 |
|
Net cash used in investing activities | | (572,407 | ) | | (473,670 | ) | | (768,129 | ) | | (636,047 | ) |
CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | |
Contributions from parent | | 126,186 |
| | 90,644 |
| | 149,091 |
| | 120,344 |
|
Dividends paid | | (71,000 | ) | | (65,000 | ) | | (93,000 | ) | | (86,000 | ) |
Issuance of long-term debt, net | | 297,222 |
| | 297,495 |
| | 297,222 |
| | 297,495 |
|
Change in short-term debt | | (122,000 | ) | | (182,000 | ) | | 21,000 |
| | (74,000 | ) |
Withholding remittance - share-based compensation | | (1,857 | ) | | (2,880 | ) | | (2,087 | ) | | (2,880 | ) |
Other | | (801 | ) | | (939 | ) | | (890 | ) | | (991 | ) |
Net cash provided by financing activities | | 227,750 |
| | 137,320 |
| | 371,336 |
| | 253,968 |
|
| | | | | | | | |
Change in cash and cash equivalents | | (15,151 | ) | | 11,119 |
| | (32,254 | ) | | 2,598 |
|
Cash and cash equivalents at beginning of period | | 31,962 |
| | 37,946 |
| | 49,065 |
| | 46,467 |
|
Cash and cash equivalents at end of period | | $ | 16,811 |
| | $ | 49,065 |
| | $ | 16,811 |
| | $ | 49,065 |
|
Supplemental information: | | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 51,720 |
| | $ | 42,986 |
| | $ | 82,539 |
| | $ | 67,025 |
|
Income taxes paid (received) | | $ | (22 | ) | | $ | 11,286 |
| | $ | (17,164 | ) | | $ | 3,428 |
|
The accompanying notes are an integral part of these statements.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
Common stock shares | | | | | | | |
| Beginning and ending balances | 47,482 |
| | 47,482 |
| | 47,482 |
| | 47,482 |
|
Common stock amount | | | | | | | |
| Beginning and ending balances | $ | 49,112 |
| | $ | 49,112 |
| | $ | 49,112 |
| | $ | 49,112 |
|
Additional paid-in capital | | | | | | | |
| Beginning balances | 1,169,549 |
| | 1,006,065 |
| | 1,065,242 |
| | 948,767 |
|
| | Share-based compensation | 1,102 |
| | 1,197 |
| | 3,317 |
| | 1,899 |
|
| | Contributions from Southwest Gas Holdings, Inc. | 24,094 |
| | 34,048 |
| | 126,186 |
| | 90,644 |
|
| Ending balances | 1,194,745 |
| | 1,041,310 |
| | 1,194,745 |
| | 1,041,310 |
|
Accumulated other comprehensive income (loss) | | | | | | | |
| Beginning balances | (46,540 | ) | | (53,310 | ) | | (49,049 | ) | | (47,073 | ) |
| | Net actuarial gain (loss) arising during period, less amortization of unamortized benefit plan cost, net of tax | 618 |
| | 895 |
| | 1,856 |
| | 2,687 |
|
| | FSIRS amounts reclassified to net income, net of tax | 635 |
| | 636 |
| | 1,906 |
| | 1,907 |
|
| | Reclassification of excess deferred taxes | — |
| | — |
| | — |
| | (9,300 | ) |
| Ending balances | (45,287 | ) | | (51,779 | ) | | (45,287 | ) | | (51,779 | ) |
Retained earnings | | | | | | | |
| Beginning balances | 776,101 |
| | 717,126 |
| | 717,155 |
| | 659,193 |
|
| | Net income (loss) | (20,012 | ) | | (13,670 | ) | | 86,746 |
| | 79,301 |
|
| | Share-based compensation | (153 | ) | | (172 | ) | | (465 | ) | | (510 | ) |
| | Dividends declared to Southwest Gas Holdings, Inc. | (24,900 | ) | | (22,000 | ) | | (72,400 | ) | | (66,000 | ) |
| | Reclassification of excess deferred taxes | — |
| | — |
| | — |
| | 9,300 |
|
| Ending balances | 731,036 |
| | 681,284 |
| | 731,036 |
| | 681,284 |
|
Total Southwest Gas Corporation equity ending balances | $ | 1,929,606 |
| | $ | 1,719,927 |
| | $ | 1,929,606 |
| | $ | 1,719,927 |
|
The accompanying notes are an integral part of these statements.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
Note 1 – NatureBackground, Organization, and Summary of Operations and Basis of PresentationSignificant Accounting Policies
Nature of Operations. Southwest Gas Holdings, Inc. is a holding company, owning all of the shares of common stock of Southwest Gas Corporation (“Southwest” or the “natural gas operations” segment) and prior to August 2017, 96.6%all of the shares of common stock of Centuri Construction Group, Inc. During August 2017, Southwest Gas Holdings, Inc. acquired(“Centuri,” or the remaining 3.4% equity interest in Centuri Construction Group, Inc. that was held by“utility infrastructure services” segment). At the previous owners (and was previously reflected as a redeemable noncontrolling interest). Refer to Note 9 – Construction Services Redeemable Noncontrolling Interestfor additional information.In January 2017, a previously contemplated and approved reorganization under a holding company structure was made effective. The reorganization was designed to provide further separation between regulated and unregulated businesses, and to provide additional financing flexibility. Coincident with the effective dateannual meeting of the reorganization, existing shareholders of Southwest Gas Corporation became shareholders of Southwest Gas Holdings, Inc., held on aone-for-one basis, withMay 2, 2019, shareholders voted to approve changing the same numberstate of shares and same ownership percentage as they held immediately prior to the reorganization. At the same time,incorporation for Southwest Gas Corporation and Centuri Construction Group,Holdings, Inc. (“Centuri” or the “construction services” segment) eachfrom California to Delaware. The reincorporation became subsidiaries of the publicly traded holding company; whereas, historically, Centuri had been a direct subsidiary of effective September 20, 2019.
Southwest
Gas Corporation.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 constructionutility infrastructure services enterprise dedicated to meeting the growing demandsdelivering a diverse array of solutions to North American utilities, energyAmerica’s gas and industrial markets.electric providers. Centuri derives revenue from installation, replacement, repair, and maintenance of energy distribution systems, and developing industrial construction solutions. Centuri operations are generally conducted under the business names of NPL Construction Co. (“NPL”), NPL Canada Ltd. (“NPL Canada”, formerly Link-Line Contractors Ltd.), W.S. Nicholls Construction,New England Utility Constructors, Inc. (“W.S. Nicholls”Neuco”), and Brigadier Pipelines Inc.Linetec Services, LLC (“Brigadier”Linetec”). Typically, Centuri revenuesUtility infrastructure services activity is seasonal in most of Centuri’s operating areas. Peak periods 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.months in colder climate areas, such as the northeastern and midwestern United States (“U.S.”) and in Canada. In warmer climate areas, such as the southwestern and southeastern U.S., utility infrastructure services activity continues year round. In November 2017, Centuri acquired Neuco, thereby expanding its core services in the northeast region of the U.S. Additionally, in November 2018, Centuri expanded its operations in the southeast region of the U.S. through the acquisition of an 80% interest in Linetec. See
Note 12 – Business Acquisitions for more information. Basis of Presentation. The condensed consolidated financial statements forof 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”). The year-end condensed balance sheet data was derived from audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United StatesU.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. As indicated above, in connection with the holding company reorganization, 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 Condensed Consolidated Balance Sheet. Those assets and liabilities are detailed inNote 10 – Reorganization Impacts – Discontinued Operations Solely Related to Southwest Gas Corporation,and include both current andnon-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 as a result of the foregoing organizational changes. Centuri operations continue to be partacquisitions of continuing operationsNeuco and included in the consolidated financial statements of Southwest Gas Holdings, Inc.
Linetec.
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.
11
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
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 statementdepiction 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 20162018 Annual Report to Shareholders, which is incorporated by reference into the 20162018 Form 10-K.
Prepaids
Fair Value Measurements. Certain assets and other current assets. Prepaids and other current assets includes gas pipe materials and operating supplies of $36 millionliabilities are reported at September 30, 2017 and $30 million at December 31, 2016 (carried at weighted average cost) and $24 million at September 30, 2017 and $953,000 at December 31, 2016 relatedfair value, which is defined as the price that would be received to a regulatorysell an asset associated with the Arizona decoupling mechanism (an alternative revenue program).Other current liabilities. Other current liabilities of Southwest Gas Corporation include $21 million of dividends declared but not yetor paid to Southwest Gas Holdings, Inc.transfer a liability in an orderly transaction between market participants at September 30, 2017.
Cashthe measurement date.
U.S. GAAP states that a fair value measurement should be based on the assumptions that market participants would use in pricing the asset or liability and Cash Equivalents. For purposes of reporting consolidated cash flows, cash and cash equivalents include cash on hand and financial instruments withestablishes 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, cashThe hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and cash equivalents at September 30, 2017the lowest priority to fair values derived from unobservable inputs (Level 3 measurements). Financial assets and December 31, 2016 also includes money market fund investmentsliabilities are categorized in their entirety based on the lowest level of approximately $19.8 million and $5.3 million, respectively, which fall within Level 2 (significant other observable inputs)input that is significant to the fair value measurement. The three levels of the fair value hierarchy dueare as follows:
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that a company has the ability to access at the measurement date.
Level 2 – inputs other than quoted prices included within Level 1 that are observable for similar assets or liabilities, either directly or indirectly.
Level 3 – unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the
asset valuation methods used by moneyextent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market
funds.Significantnon-cash investing and financing activities included the following: Upon contract expiration, customer advances of approximately $1.9 million and $3.6 million, during the first nine months of 2017 and 2016, 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”) ASUNo. 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 Statements 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. Condensed Consolidated Statements of Cash Flows were revised from $9.9 million to $12 million for the nine months ended September 30, 2016 and inflows inasset or liability at the same category for the twelve months ended September 30, 2016 were revised from $19.9 million to $22 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 Condensed Consolidated Statements of Cash Flows reflects a reclassification of cash outflows from Other current assets and liabilities from $2.9 million to $819,000 for the nine months ended September 30, 2016 and cash inflows in the same category were revised from $7 million to $9.1 million for the twelve months ended September 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 incometax-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.
12
measurement date.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
Amendments related to
The Company primarily used quoted market prices and other observable market pricing information in valuing cash and cash equivalents, derivatives, long-term debt outstanding, and assets of the
timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures,qualified pension plan and
intrinsic value arepostretirement benefit plans 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 each year for impairment (required annually by U.S. GAAP), recorded and/or otherwise, if circumstances indicate 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 reporting units continue to apply, and that no change was necessary with regard to the leveldisclosed at which goodwill is assessed for impairment. No impairment was deemed to have occurred in the first nine months of 2017.
| | | | | | | | | | | | |
(In thousands of dollars) | | Natural Gas Operations | | | Construction Services | | | Consolidated | |
December 31, 2016 | | $ | 10,095 | | | $ | 129,888 | | | $ | 139,983 | |
Foreign currency translation adjustment | | | — | | | | 7,882 | | | | 7,882 | |
| | | | | | | | | | | | |
September 30, 2017 | | $ | 10,095 | | | $ | 137,770 | | | $ | 147,865 | |
| | | | | | | | | | | | |
Intercompany Transactions. Centuri recognizes revenues generated from contracts with Southwest (seeNote 3—Segment Information). Centuri’s accounts receivable for these services are presented in the table below (thousands of dollars):
| | | | | | | | |
| | September 30, 2017 | | | December 31, 2016 | |
Centuri accounts receivable for services provided to Southwest | | $ | 11,486 | | | $ | 10,585 | |
| | | | | | | | |
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.
fair value.
Other Property and Investments.Other property and investments on the Southwest Gas Holdings, Inc. Condensed Consolidated Balance Sheets includes (thousands of dollars): | | | | | | | | |
| | September 30, 2017 | | | December 31, 2016 | |
Centuri property and equipment | | $ | 493,599 | | | $ | 451,114 | |
Centuri accumulated provision for depreciation and amortization | | | (251,831 | ) | | | (228,374 | ) |
Net cash surrender value of COLI policies | | | 114,052 | | | | 106,744 | |
Other property | | | 13,483 | | | | 12,859 | |
| | | | | | | | |
Total | | $ | 369,303 | | | $ | 342,343 | |
| | | | | | | | |
13
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Other Income (Deductions).The following table provides the composition of significant items included in Other income (deductions) in the condensed consolidated statements of income (thousands of dollars):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | | | Twelve Months Ended | |
| | September 30 | | | September 30 | | | September 30 | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Southwest Gas Corporation—natural gas operations segment: | | | | | | | | | | | | | | | | | | | | | | | | |
Change in COLI policies | | $ | 2,100 | | | $ | 2,300 | | | $ | 6,800 | | | $ | 5,400 | | | $ | 8,800 | | | $ | 7,500 | |
Interest income | | | 670 | | | | 522 | | | | 1,848 | | | | 1,279 | | | | 2,417 | | | | 1,664 | |
Equity AFUDC | | | 968 | | | | 611 | | | | 2,077 | | | | 1,893 | | | | 2,473 | | | | 2,890 | |
Miscellaneous income and (expense) | | | (657 | ) | | | (912 | ) | | | (1,981 | ) | | | (1,860 | ) | | | (3,382 | ) | | | (2,439 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Southwest Gas Corporation—total other income (deductions) | | | 3,081 | | | | 2,521 | | | | 8,744 | | | | 6,712 | | | | 10,308 | | | | 9,615 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Construction services segment: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income | | | 1 | | | | — | | | | 2 | | | | 1 | | | | 2 | | | | 414 | |
Foreign transaction gain (loss) | | | (442 | ) | | | (3 | ) | | | (640 | ) | | | (22 | ) | | | (640 | ) | | | 28 | |
Miscellaneous income and (expense) | | | 231 | | | | 47 | | | | 676 | | | | 65 | | | | 1,825 | | | | 804 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Centuri—total other income (deductions) | | | (210 | ) | | | 44 | | | | 38 | | | | 44 | | | | 1,187 | | | | 1,246 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Corporate and administrative | | | 5 | | | | — | | | | 6 | | | | — | | | | 6 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated Southwest Gas Holdings, Inc.—total other income (deductions) | | $ | 2,876 | | | $ | 2,565 | | | $ | 8,788 | | | $ | 6,756 | | | $ | 11,501 | | | $ | 10,861 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
Southwest Gas Corporation: | | | |
Net cash surrender value of COLI policies | $ | 126,142 |
| | $ | 114,405 |
|
Other property | 1,632 |
| | 1,741 |
|
Total Southwest Gas Corporation | 127,774 |
| | 116,146 |
|
Centuri property, equipment, and intangibles | 968,013 |
| | 792,191 |
|
Centuri accumulated depreciation/amortization | (345,113 | ) | | (298,939 | ) |
Other property | 18,011 |
| | 14,153 |
|
Total Southwest Gas Holdings, Inc. | $ | 768,685 |
| | $ | 623,551 |
|
Included in the table above isare the change innet cash surrender values of company-owned life insurance (“COLI”) policies (including net death benefits recognized).policies. 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.
Cash and Cash Equivalents. For purposes of reporting consolidated cash flows, cash and cash equivalents include cash on hand and financial instruments with original maturities of three months or less. Such investments are carried at cost, which approximates market value. Cash and cash equivalents for Southwest and the Company also include money market fund investments totaling approximately $1.5 million and $10.2 million, respectively, at September 30, 2019, and $18 million and $59.9 million, respectively, at December 31, 2018, which fall within Level 2 of the fair value hierarchy, due to the asset valuation methods used by money market funds.
Typical non-cash investing activities for Southwest include customer advances applied as contributions toward utility construction activity and capital expenditures that were not paid as of quarter end that are included in accounts payable. Amounts related to such activities were immaterial for the periods presented herein. Non-cash investing activities for the twelve months ended September 30, 2019 included $26.2 million of purchase consideration related to the Linetec acquisition by Centuri, in the form of liabilities incurred that remained unpaid as of September 30, 2019; such amounts are included in Other current liabilities on the Condensed Consolidated Balance Sheets of the Company. Also, see Recent Accounting Standards Updates and Note 4 – Leases for information related to right-of-use assets obtained in exchange for lease liabilities, which are non-cash investing and financing activities.
Intercompany Transactions. Centuri recognizes revenues generated from contracts with Southwest (see Note 10 – Segment Information). Centuri’s accounts receivable for these services are presented in the table below (thousands of dollars):
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
Centuri accounts receivable for services provided to Southwest | $ | 16,757 |
| | $ | 18,830 |
|
The accounts receivable balance, revenues, and associated profits are included in the condensed consolidated financial statements of the Company and Southwest and were not eliminated during consolidation in accordance with accounting treatment for rate-regulated entities.
Income Taxes. In 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted. The TCJA had significant impacts on the taxation of business entities, including specific provisions related to regulated public utilities. The more significant changes that impacted the Company and Southwest include the reduction in the corporate federal income tax rate from 35% to 21%, and limiting the utilization of net operating losses (“NOLs”) to 80% of taxable income, with the ability to indefinitely carryforward unutilized NOLs to reduce future taxable income.
Prepaid and Other Current Assets. Prepaid and other current assets includes gas pipe materials and operating supplies of $59 million at September 30, 2019 and $56 million at December 31, 2018 (carried at weighted average cost), in addition to $47 million at September 30, 2019 and $74 million at December 31, 2018 related to a regulatory asset associated with the Arizona decoupling mechanism (an alternative revenue program).
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
Goodwill. Goodwill is assessed as of October 1st each year for impairment, or more frequently, if circumstances indicate an impairment to the carrying value of goodwill may have occurred. Management of the Company and Southwest considered its reporting units and segments and determined that its segments and reporting units remain consistent between periods presented below, and that no change was necessary with regard to the level at which goodwill is assessed for impairment. NaN impairment was deemed to have occurred in the first nine months of 2019.
|
| | | | | | | | | | | |
(Thousands of dollars) | Natural Gas Operations | | Utility Infrastructure Services | | Total Company |
December 31, 2018 | $ | 10,095 |
| | $ | 348,950 |
| | $ | 359,045 |
|
Measurement-period adjustments - Linetec acquisition (a) | — |
| | (22,179 | ) | | (22,179 | ) |
Foreign currency translation adjustment | — |
| | 3,082 |
| | 3,082 |
|
September 30, 2019 | $ | 10,095 |
| | $ | 329,853 |
| | $ | 339,948 |
|
(a) See Note 12 – Business Acquisitions for details regarding Linetec measurement-period adjustments.
Other Current Liabilities. Other current liabilities for Southwest include $24.9 million and $23.5 million of dividends declared by Southwest Gas Corporation, but not yet paid to Southwest Gas Holdings, Inc. at September 30, 2019 and December 31, 2018, respectively. In addition, the balances in both periods include amounts payable under regulatory mechanisms in the next twelve months and miscellaneous other accrued liabilities. Amounts included in the Condensed Consolidated Balance Sheets of Southwest Gas Holdings, Inc. for both periods reflect unremitted consideration then outstanding associated with the business acquisition of Linetec.
Other Income (Deductions). The following table provides the composition of significant items included in Other income (deductions) in the Condensed Consolidated Statements of Income (thousands of dollars):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | | Twelve Months Ended |
| September 30, | | September 30, | | September 30, |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Southwest Gas Corporation - natural gas operations segment: | | | | | | | | | | | |
Change in COLI policies | $ | 200 |
| | $ | 4,700 |
| | $ | 11,200 |
| | $ | 6,000 |
| | $ | 2,000 |
| | $ | 9,500 |
|
Interest income | 1,521 |
| | 1,506 |
| | 4,940 |
| | 4,301 |
| | 6,659 |
| | 5,237 |
|
Equity AFUDC | 1,212 |
| | 448 |
| | 3,179 |
| | 1,034 |
| | 5,772 |
| | 1,253 |
|
Other components of net periodic benefit cost | (3,765 | ) | | (5,265 | ) | | (11,295 | ) | | (15,794 | ) | | (16,560 | ) | | (20,650 | ) |
Miscellaneous income and (expense) | (521 | ) | | (553 | ) | | (1,839 | ) | | (1,402 | ) | | (3,065 | ) | | (1,765 | ) |
Southwest Gas Corporation - total other income (deductions) | (1,353 | ) | | 836 |
| | 6,185 |
| | (5,861 | ) | | (5,194 | ) | | (6,425 | ) |
Utility infrastructure services segment: | | | | | | | | | | | |
Interest income | — |
| | 4 |
| | — |
| | 6 |
| | 82 |
| | 7 |
|
Foreign transaction gain (loss) | (6 | ) | | (91 | ) | | 546 |
| | 258 |
| | 66 |
| | 144 |
|
Miscellaneous income and (expense) | 177 |
| | 125 |
| | 23 |
| | (595 | ) | | 514 |
| | (175 | ) |
Centuri - total other income (deductions) | 171 |
| | 38 |
| | 569 |
| | (331 | ) | | 662 |
| | (24 | ) |
Corporate and administrative | 24 |
| | 15 |
| | 73 |
| | 41 |
| | 84 |
| | 48 |
|
Consolidated Southwest Gas Holdings, Inc. - total other income (deductions) | $ | (1,158 | ) | | $ | 889 |
| | $ | 6,827 |
| | $ | (6,151 | ) | | $ | (4,448 | ) | | $ | (6,401 | ) |
Included in the table above is the change in cash surrender values of COLI policies (including net death benefits recognized). 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.Recently Issued Accounting Standards Updates. In May 2014, the FASB issued the update “Revenue from Contracts with Customers (Topic 606).” The update replaces much Refer also to
Note 2 – Components 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 aone-year deferral of the effective date (annual periods beginning after December 15, 2017)Net Periodic Benefit Cost. 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 collectibility, 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.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”) has also participated. Through the P&U Task Force undertakings, general determinations were 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)
14
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
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, servicere-establishment fees, collection processes, etc.),
Recent Accounting Standards Updates.
Accounting pronouncements adopted in
addition to the regulatory mechanisms established under rate regulation to mitigate the impacts of individual customer nonpayment. Southwest has also actively worked 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 not separately addressed by the P&U Task Force.With regard to the construction services segment, the principles 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.
Management of both segments of the Company has substantially completed assessments of sources of revenue and the effects that adoption of the new guidance will have on the Company’s (and Southwest’s in the case of utility operations) financial position, results of operations, and cash flows. Based on assessments completed to date, management believes that such impacts will not be material overall. Presentation and disclosure requirements of the new guidance will have the most impact on the Company’s financial statements and note disclosures. The Company is currently planning to adopt the new guidance in 2018 under the modified retrospective transition method, as permissible.
In January 2016, the FASB issued the update “Financial Instruments – Overall (Subtopic825-10): 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 believes this update will not have a material impact on its consolidated financial statements and disclosures.
2019:
In February 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued the update “Leases (Topic 842).” Under the update, lessees will bewere required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:Aa lease liability which is a lessee’sfor the obligation to make lease payments, arising from a lease, measured on a discounted basis; and
A a right-of-use asset which is an asset that representsfor the lessee’s right to use, or control the use of, a specified asset for the lease term.
Under The Company and Southwest adopted Topic 842 in the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting withfirst quarter of 2019 through an optional transition method, which was elected, permitting the lessee accounting model and Topic 606, Revenue from Contracts with Customers. Though companies have historically been required to make disclosures regarding leases and of associated contractual obligations, leases (with terms longer than a year) will no longer existoff-balance sheet. Lessees (for capital 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 beginningapplication 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
15
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
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. Management is in the process of evaluating other types of arrangements that have the potential to meet the definition of a lease under the new standard, and is also in the process of selecting software to efficiently implement the standard for its natural gas operations segment. The FASB recently issued proposed 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 would still be required to evaluate any new easements entered into after the effective dateprovisions of the standard at the adoption date, rather than to determine ifearlier comparative periods. As a result, the arrangements shouldCompany and Southwest have not recast prior periods to reflect the adoption of this standard. See
Note 4 – Leases. Accounting pronouncements that will be
accounted for as leases. Management is currently evaluating the new and proposed guidance in light of its customary leasing arrangements (and other arrangements in association with the new guidance) to determine the effect the new standard will have on its financial position, results of operations, cash flows, and business processes.effective after 2019:
In June 2016, the FASB issued
theAccounting Standards Update (“ASU”) 2016-13 update “Financial
Instruments—Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The update
amends guidance on reportingrequires the measurement of all expected credit losses for financial assets held at
amortized cost basisthe reporting date based on historical experience, current conditions, and
available for sale debt securities. For assets held at amortized cost basis, the update eliminates the “probable” threshold for initial recognition ofreasonable and supportable forecasts. The inputs currently used to estimate credit losses
in current U.S. GAAP and, instead, requires an entitywill still be used; however, they may be adapted to reflect
its current estimatethe full amount 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, 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
itsthe Company’s and Southwest’s 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 ofzero-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 believes this update will not have a material impact 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 thepre-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 believes this update will not have a material impact on its consolidated financial statements and disclosures.
In January 2017, the FASB issued
the update “Intangibles—ASU 2017-04 “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”
TheUnder the update,
eliminates Step 2 froman entity will apply a one-step quantitative test as opposed to a two-step test as currently required, and record the
amount of goodwill impairment
test. The annual, or interim, goodwill impairment test is performed by comparingas the
fair valueexcess of a reporting
unit with its carrying amount. An impairment charge should be recognized for the amount by which theunit's carrying amount
exceeds the reporting unit’s16
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
over its fair value; however, the loss recognized shouldvalue, not to exceed the total amount of goodwill allocated to thatthe reporting unit. In addition, income tax effectsThe new guidance does not amend the optional qualitative assessment. The amount of any goodwill impairment calculated under the update could vary from anytax-deductible goodwill on the calculation under existing guidance, largely due to the consideration to be given to unrecognized differences between the fair value and carrying amountvalues of the other assets and liabilities in the reporting unit should be considered when measuringunder 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.new guidance. 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 ishas been permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Management has determined thatis evaluating the impacts this update wouldmight have had no impact on the Company’s and Southwest’s consolidated financial statements for the periods presented if it had been effective during those periods.
and disclosures.
In March 2017,August 2018, the FASB issued ASU 2018-15 “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The update generally aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement (that is a service contract) with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Once capitalized, the update “Compensation – requires the entity to expense the amount capitalized over the term of the hosting arrangement, including reasonably certain renewal periods. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the amendments in this update is permitted for interim and related annual fiscal periods after December 15, 2018. Management is evaluating the impacts this update might have on the Company’s and Southwest’s consolidated financial statements and disclosures.
In August 2018, the FASB issued ASU 2018-14 “Compensation—Retirement Benefits (Topic 715)Benefits—Defined Benefit Plans—General (Subtopic 715-20): ImprovingDisclosure Framework—Changes to the PresentationDisclosure Requirements for Defined Benefit Plans.” This update removes disclosures that are no longer considered cost-beneficial, clarifies the specific requirements of Net Periodic Pension Costdisclosures, and Net Periodic Postretirement Benefit Cost.”adds disclosure requirements identified as relevant. The update applies to all employers that offer employee benefits undersponsor defined benefit pension plans,or other postretirement benefit plans, or other types of benefits accounted for under Topic 715, Compensation – Retirement Benefits.plans. The update requires that an employer reportis effective for fiscal years ending after December 15, 2020. Upon adoption, the service cost component inCompany and Southwest will modify their disclosures to conform to the same line item or items as other compensation costs arising from services rendered byrequirements of the employees duringupdate.
In August 2018, the
period. The other components of net benefit cost are requiredFASB issued ASU 2018-13 “Fair Value Measurement: Disclosure Framework—Changes 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.Disclosure Requirements for Fair Value Measurement.” The update
also allows onlymodifies the
service cost component (and notdisclosure requirements on fair value measurements in Topic 820. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Upon adoption, the
other components of periodic benefit costs)Company and Southwest will modify their disclosures 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 benefitsconform to retired employees. It is anticipated that Southwest would continue to request recoverythe requirements of the total costs of defined benefit plans in rate applications filed with its various regulatory bodies. Rate-regulated entities providing utility and transmission services have historically capitalized a portion of periodic benefit costs (includingnon-service cost components) in utility infrastructure (for instance, when productive labor is also charged to capital work orders). The portion capitalized has historically been a component of depreciation and related rate development through efforts of companies and their regulatory commissions. The Federal Energy Regulatory Commission (“FERC”) regulates interstate transmission pipelines and also establishes, via its Uniform System of Accounts, accounting practices of rate-regulated entities. Accounting guidelines by the FERC are typically also upheld by state commissions. Historically, those guidelines have been generally consistent with guidance in U.S. GAAP (including U.S. GAAP for rate-regulated entities). While formal guidance has not yet been published by the FERC, it is currently believed that the FERC will permit an election to either continue to capitalizenon-service benefit costs for regulatory reporting purposes or to cease capitalizing such costs and implement the Topic 715 update, capitalization provisions “as is,” for regulatory purposes. Assuming the FERC formalizes the above elections, Southwest currently anticipates adopting the provisions of Topic 715 for both SEC reporting and regulatory purposes. Industry deliberations continue and management will be evaluating the various impacts this update will have on its consolidated financial statements and disclosures. It is estimated that approximately $3 million innon-service costs were capitalized as a component of gas plant during 2016. Totalnon-service costs were approximately $20 million in 2016.
17
applicable.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
Note 2 – Components of Net Periodic Benefit Cost 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.
Net
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. 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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Qualified Retirement Plan | |
| | Period Ended September 30, | |
| | Three Months | | | Nine Months | | | Twelve Months | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
(Thousands of dollars) | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 5,848 | | | $ | 5,708 | | | $ | 17,544 | | | $ | 17,125 | | | $ | 23,252 | | | $ | 23,406 | |
Interest cost | | | 11,520 | | | | 11,507 | | | | 34,561 | | | | 34,520 | | | | 46,068 | | | | 45,577 | |
Expected return on plan assets | | | (13,799 | ) | | | (14,140 | ) | | | (41,397 | ) | | | (42,419 | ) | | | (55,536 | ) | | | (56,871 | ) |
Amortization of net actuarial loss | | | 6,001 | | | | 6,317 | | | | 18,003 | | | | 18,950 | | | | 24,319 | | | | 27,136 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net periodic benefit cost | | $ | 9,570 | | | $ | 9,392 | | | $ | 28,711 | | | $ | 28,176 | | | $ | 38,103 | | | $ | 39,248 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | SERP | |
| | Period Ended September 30, | |
| | Three Months | | | Nine Months | | | Twelve Months | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
(Thousands of dollars) | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 77 | | | $ | 83 | | | $ | 232 | | | $ | 248 | | | $ | 315 | | | $ | 328 | |
Interest cost | | | 471 | | | | 464 | | | | 1,413 | | | | 1,394 | | | | 1,878 | | | | 1,818 | |
Amortization of net actuarial loss | | | 361 | | | | 346 | | | | 1,081 | | | | 1,038 | | | | 1,426 | | | | 1,361 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net periodic benefit cost | | $ | 909 | | | $ | 893 | | | $ | 2,726 | | | $ | 2,680 | | | $ | 3,619 | | | $ | 3,507 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | PBOP | |
| | Period Ended September 30, | |
| | Three Months | | | Nine Months | | | Twelve Months | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
(Thousands of dollars) | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 367 | | | $ | 375 | | | $ | 1,101 | | | $ | 1,124 | | | $ | 1,476 | | | $ | 1,534 | |
Interest cost | | | 808 | | | | 795 | | | | 2,424 | | | | 2,386 | | | | 3,218 | | | | 3,136 | |
Expected return on plan assets | | | (839 | ) | | | (787 | ) | | | (2,518 | ) | | | (2,362 | ) | | | (3,305 | ) | | | (3,228 | ) |
Amortization of prior service costs | | | 333 | | | | 333 | | | | 1,001 | | | | 1,001 | | | | 1,335 | | | | 1,335 | |
Amortization of net actuarial loss | | | — | | | | 104 | | | | — | | | | 312 | | | | 105 | | | | 398 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net periodic benefit cost | | $ | 669 | | | $ | 820 | | | $ | 2,008 | | | $ | 2,461 | | | $ | 2,829 | | | $ | 3,175 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
18
The other components of net periodic benefit cost are reflected in Other income (deductions) on the Condensed Consolidated Statements of Income of each entity. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Qualified Retirement Plan |
| Period Ended September 30, |
| Three Months | | Nine Months | | Twelve Months |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
(Thousands of dollars) | | | | | | | | | | | |
Service cost | $ | 6,466 |
| | $ | 7,139 |
| | $ | 19,398 |
| | $ | 21,417 |
| | $ | 26,536 |
| | $ | 27,265 |
|
Interest cost | 12,252 |
| | 11,043 |
| | 36,755 |
| | 33,130 |
| | 47,799 |
| | 44,652 |
|
Expected return on plan assets | (15,061 | ) | | (14,689 | ) | | (45,183 | ) | | (44,066 | ) | | (59,872 | ) | | (57,865 | ) |
Amortization of net actuarial loss | 5,589 |
| | 8,029 |
| | 16,767 |
| | 24,086 |
| | 24,796 |
| | 30,087 |
|
Net periodic benefit cost | $ | 9,246 |
| | $ | 11,522 |
| | $ | 27,737 |
| | $ | 34,567 |
| | $ | 39,259 |
| | $ | 44,139 |
|
| | | | | | | | | | | |
| SERP |
| Period Ended September 30, |
| Three Months | | Nine Months | | Twelve Months |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
(Thousands of dollars) | | | | | | | | | | | |
Service cost | $ | 66 |
| | $ | 61 |
| | $ | 199 |
| | $ | 183 |
| | $ | 261 |
| | $ | 260 |
|
Interest cost | 440 |
| | 415 |
| | 1,320 |
| | 1,244 |
| | 1,734 |
| | 1,714 |
|
Amortization of net actuarial loss | 255 |
| | 375 |
| | 765 |
| | 1,126 |
| | 1,141 |
| | 1,486 |
|
Net periodic benefit cost | $ | 761 |
| | $ | 851 |
| | $ | 2,284 |
| | $ | 2,553 |
| | $ | 3,136 |
| | $ | 3,460 |
|
| | | | | | | | | | | |
| PBOP |
| Period Ended September 30, |
| Three Months | | Nine Months | | Twelve Months |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
(Thousands of dollars) | | | | | | | | | | | |
Service cost | $ | 319 |
| | $ | 368 |
| | $ | 957 |
| | $ | 1,105 |
| | $ | 1,325 |
| | $ | 1,472 |
|
Interest cost | 761 |
| | 687 |
| | 2,285 |
| | 2,061 |
| | 2,972 |
| | 2,869 |
|
Expected return on plan assets | (789 | ) | | (929 | ) | | (2,367 | ) | | (2,789 | ) | | (3,296 | ) | | (3,629 | ) |
Amortization of prior service costs | 318 |
| | 334 |
| | 953 |
| | 1,002 |
| | 1,286 |
| | 1,336 |
|
Net periodic benefit cost | $ | 609 |
| | $ | 460 |
| | $ | 1,828 |
| | $ | 1,379 |
| | $ | 2,287 |
| | $ | 2,048 |
|
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
Note 3 – Segment InformationRevenue
The Company has two reportable segments:following information about the Company’s revenues is presented by segment. Southwest encompasses 1 segment – 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 inoperations.
Natural Gas Operations Segment:
Gas operating revenues on the Condensed Consolidated Statements of Income an Other columnof both the Company and Southwest include revenue from contracts with customers, which is included associated withshown below, disaggregated by customer type, and various categories of revenue:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | | Twelve Months Ended |
| September 30, | | September 30, | | September 30, |
(Thousands of dollars) | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Residential | $ | 124,169 |
| | $ | 120,249 |
| | $ | 706,270 |
| | $ | 631,562 |
| | $ | 961,928 |
| | $ | 864,128 |
|
Small commercial | 39,725 |
| | 40,020 |
| | 179,519 |
| | 183,616 |
| | 250,986 |
| | 253,330 |
|
Large commercial | 10,945 |
| | 11,360 |
| | 36,030 |
| | 39,934 |
| | 49,288 |
| | 54,462 |
|
Industrial/other | 3,837 |
| | 5,390 |
| | 15,728 |
| | 17,391 |
| | 21,826 |
| | 23,899 |
|
Transportation | 21,580 |
| | 19,818 |
| | 68,297 |
| | 64,591 |
| | 90,696 |
| | 88,115 |
|
Revenue from contracts with customers | 200,256 |
| | 196,837 |
| | 1,005,844 |
| | 937,094 |
| | 1,374,724 |
| | 1,283,934 |
|
Alternative revenue program revenues (deferrals) | 7,957 |
| | 9,094 |
| | (23,196 | ) | | 46,696 |
| | (23,913 | ) | | 67,017 |
|
Other revenues (a) | 1,767 |
| | 11,592 |
| | 6,720 |
| | 3,725 |
| | 8,770 |
| | 3,049 |
|
Total Gas operating revenues | $ | 209,980 |
| | $ | 217,523 |
| | $ | 989,368 |
| | $ | 987,515 |
| | $ | 1,359,581 |
| | $ | 1,354,000 |
|
(a) Comprised of various other revenue impacts, including $(0.8) million during the three months, and $(3.7) million for the nine and twelve months ending September 30, 2019, respectively; and, $(1) million during the three months, and $(13.5) million in both the nine and twelve months ending September 30, 2018 related to corporate and administrative activities related to Southwest Gas Holdings, Inc. tax reform savings reserves/adjustments.
Utility Infrastructure Services Segment:
The following tables presentdisplay Centuri’s revenue, reflected as Utility infrastructure services revenues on the Condensed Consolidated Statements of Income of the Company, representing revenue from externalcontracts with customers intersegment revenues,disaggregated by service and segmentcontract types:
|
| | | | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | Three Months Ended | | Nine Months Ended | | Twelve Months Ended |
| September 30, | | September 30, | | September 30, |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Service Types: | | | | | | | | | | | |
Gas infrastructure services | $ | 364,241 |
| | $ | 355,721 |
| | $ | 885,950 |
| | $ | 849,615 |
| | $ | 1,160,017 |
| | $ | 1,145,629 |
|
Electric power infrastructure services | 70,610 |
| | 4,666 |
| | 184,277 |
| | 14,062 |
| | 202,844 |
| | 19,304 |
|
Other | 80,399 |
| | 90,236 |
| | 212,185 |
| | 242,167 |
| | 335,992 |
| | 314,859 |
|
Total Utility infrastructure services revenues | $ | 515,250 |
| | $ | 450,623 |
| | $ | 1,282,412 |
| | $ | 1,105,844 |
| | $ | 1,698,853 |
| | $ | 1,479,792 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | Three Months Ended | | Nine Months Ended | | Twelve Months Ended |
| September 30, | | September 30, | | September 30, |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Contract Types: | | | | | | | | | | | |
Master services agreement | $ | 410,283 |
| | $ | 348,274 |
| | $ | 1,021,798 |
| | $ | 832,813 |
| | $ | 1,291,397 |
| | $ | 1,101,216 |
|
Bid contract | 104,967 |
| | 102,349 |
| | 260,614 |
| | 273,031 |
| | 407,456 |
| | 378,576 |
|
Total Utility infrastructure services revenues | $ | 515,250 |
| | $ | 450,623 |
| | $ | 1,282,412 |
| | $ | 1,105,844 |
| | $ | 1,698,853 |
| | $ | 1,479,792 |
|
| | | | | | | | | | | |
Unit price contracts | $ | 415,404 |
| | $ | 368,918 |
| | $ | 1,006,577 |
| | $ | 948,593 |
| | $ | 1,316,404 |
| | $ | 1,286,059 |
|
Fixed price contracts | 37,539 |
| | 45,461 |
| | 80,503 |
| | 44,911 |
| | 152,890 |
| | 31,487 |
|
Time and materials contracts | 62,307 |
| | 36,244 |
| | 195,332 |
| | 112,340 |
| | 229,559 |
| | 162,246 |
|
Total Utility infrastructure services revenues | $ | 515,250 |
| | $ | 450,623 |
| | $ | 1,282,412 |
| | $ | 1,105,844 |
| | $ | 1,698,853 |
| | $ | 1,479,792 |
|
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
The following table provides information about contracts receivable and revenue earned on contracts in progress in excess of billings (contract asset), which are both included within Accounts receivable, net incomeof allowances, as well as amounts billed in excess of revenue earned on contracts (contract liability), which are included in Other current liabilities as of September 30, 2019 and December 31, 2018 on the Company’s Condensed Consolidated Balance Sheets:
|
| | | | | | | |
(Thousands of dollars) | September 30, 2019 | | December 31, 2018 |
Contracts receivable, net | $ | 238,678 |
| | $ | 186,249 |
|
Revenue earned on contracts in progress in excess of billings | 121,854 |
| | 87,520 |
|
Amounts billed in excess of revenue earned on contracts | 6,136 |
| | 4,211 |
|
The revenue earned on contracts in progress in excess of billings (contract asset) primarily relates to Centuri’s rights to consideration for work completed but not billed and/or approved at the reporting date. These contract assets are transferred to contracts receivable when the rights become unconditional. The amounts billed in excess of revenue earned (contract liability) primarily relates to the advance consideration received from customers for which work has not yet been completed. The change in this contract liability balance from December 31, 2018 to September 30, 2019 is due to revenue recognized of $4.2 million that was included in this item as of January 1, 2019, after which time it became earned and the balance was reduced, and to increases due to cash received, net of revenue recognized during the period related to contracts that commenced during the period.
For contracts that have an original duration of one year or less, Centuri uses the practical expedient applicable to such contracts and does not consider/compute an interest component based on 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.
As of September 30, 2019, Centuri has 53 contracts with 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 September 30, 2019 was $103.3 million. Centuri expects to recognize the remaining performance obligations over approximately the next two reportable segmentsyears; 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.
Utility infrastructure services contracts receivable consists of the following:
|
| | | | | | | |
(Thousands of dollars) | September 30, 2019 | | December 31, 2018 |
Billed on completed contracts and contracts in progress | $ | 238,117 |
| | $ | 184,100 |
|
Other receivables | 1,156 |
| | 2,588 |
|
Contracts receivable, gross | 239,273 |
| | 186,688 |
|
Allowance for doubtful accounts | (595 | ) | | (439 | ) |
Contracts receivable, net | $ | 238,678 |
| | $ | 186,249 |
|
| | | |
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
Note 4 – Leases
The Company and Southwest adopted FASB Topic 842 as of January 1, 2019. In association with the adoption, the Company recorded adjustments to its Condensed Consolidated Balance Sheet to record right-of-use (“ROU”) assets and lease liabilities of $58.4 million and $60.8 million, respectively. Included in those amounts, Southwest recorded $1.9 million related to both its ROU assets and lease liabilities. Neither the Company nor Southwest experienced a material impact to the Condensed Consolidated Statements of Income from the adoption and no cumulative-effect adjustment to the opening balance of retained earnings was recognized. Management elected to adopt the standard under the optional transition method (refer to Recent Accounting Standards Updates in Note 1 – Background, Organization, and Summary of Significant Accounting Policies), and elected the following Topic 842 practical expedients and accounting policy elections:
To use the “package”, which is a set of three practical expedients that must be elected as a package and applied consistently to all of Southwest’s and Centuri’s leases. These include: not reassessing whether any expired or existing contracts are or contain leases; not reassessing the lease classification for expired or existing leases (that is, existing operating and capital leases in accordance with current lease guidance will in each case be classified as operating and finance leases, respectively, under the updated guidance); and not reassessing initial direct costs for any existing leases.
To utilize the practical expedient to exclude all easements in place prior to January 1, 2019 from treatment under Topic 842. However, Southwest will evaluate new easements entered into after the effective date of the standard to determine if the arrangements should be accounted for as leases.
To make an accounting policy election by asset class to include both the lease and non-lease components (as defined in the guidance) as a single component.
To make an accounting policy election to not apply Topic 842 to short-term leases, as permitted.
To not elect to use hindsight in determining the lease term and in assessing impairment of ROU assets.
To utilize a portfolio approach to effectively account for the operating lease ROU assets and liabilities with regard to certain equipment leases at Centuri.
Southwest and Centuri determine if an arrangement is a lease at inception. ROU assets represent the right to use an underlying asset for the lease term; lease liabilities represent obligations to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of Southwest’s and Centuri’s leases do not provide an implicit interest rate, an incremental borrowing rate based on information available at commencement is used in determining the present value of lease payments; an implicit rate, if readily determinable, is used. Lease terms utilized in the computations may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised.
Southwest’s leases are comprised primarily of operating leases of buildings, land, and equipment. Southwest has no finance leases and no significant short-term leases. Southwest’s leases have a remaining term of 1 to 10 years, some of which include options to extend the lease up to 3 years. Southwest is currently not a lessor in any significant lease arrangements. Southwest’s ROU assets are included in Gas plant, and its lease liabilities are included in, depending upon maturity, Other current liabilities or Other deferred credits and other long-term liabilities on the Company’s and Southwest’s Condensed Consolidated Balance Sheets as of September 30, 2019.
Centuri has operating and finance leases for corporate and field offices, construction equipment, and transportation vehicles. Centuri is currently not a lessor in any significant lease arrangements. Centuri’s leases have remaining lease terms of up to 19 years. Some of these include options to extend the leases, generally for optional terms of up to 5 years, and some include options to terminate the leases within 1 year. Centuri’s equipment leases may include variable payment terms in addition to the fixed lease payments if machinery is used in excess of the standard work periods. These variable payments are not probable of occurring under the current operating environment and have not been included in consideration of lease payments. Short-term leases of Centuri are not accounted for under the provisions of Topic 842, as permitted. Due to the seasonality of Centuri’s business, expense for short-term leases will fluctuate throughout the year with higher expense incurred during the warmer months. As of September 30, 2019 Centuri executed lease agreements that had not yet commenced. These lease agreements primarily relate to real estate leases that have terms ranging from December 2019 through August 2032. Total future lease payments over the lease terms are approximately $13.2 million. Centuri’s ROU assets are included in Other property and investments, and its lease liabilities for operating and finance leases are included, depending upon maturity, in Other current liabilities or Other deferred credits and other long-term liabilities on the Company’s Condensed Consolidated Balance Sheet as of September 30, 2019.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
The components of lease expense were as follows:
|
| | | | | | |
(Thousands of dollars) | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 |
Southwest: | | |
Operating lease cost | $ | 350 |
| $ | 1,165 |
|
| | |
Centuri: | | |
Operating lease cost | $ | 3,026 |
| $ | 9,069 |
|
| | |
Finance lease cost: | | |
Amortization of ROU assets | $ | 34 |
| $ | 103 |
|
Interest on lease liabilities | 10 |
| 24 |
|
Total finance lease cost | 44 |
| 127 |
|
Short-term lease cost | 5,017 |
| 10,949 |
|
Total lease cost | $ | 8,437 |
| $ | 21,310 |
|
| | |
Supplemental cash flow information related to leases for the nine months ended September 30, 2019 is as follows:
|
| | | | | | | | | | | |
(Thousands of dollars) | Southwest | | Centuri | | Consolidated Total |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
Operating cash flows from operating leases | $ | 976 |
| | $ | 8,104 |
| | $ | 9,080 |
|
Operating cash flows from finance leases | — |
| | 24 |
| | 24 |
|
Financing cash flows from finance leases | — |
| | 161 |
| | 161 |
|
| | | | | |
ROU assets obtained in exchange for lease obligations: | | | | | |
Operating leases | $ | 1,143 |
| | $ | 21,653 |
| | $ | 22,796 |
|
Finance leases | — |
| | 386 |
| | 386 |
|
| | | | | |
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
Supplemental information related to leases, including location in the Condensed Consolidated Balance Sheets, is as follows:
|
| | | |
(Thousands of dollars) | September 30, 2019 |
Southwest: | |
Operating leases: | |
Net Utility Plant | $ | 2,008 |
|
| |
Other current liabilities | $ | 826 |
|
Other deferred credits and other long-term liabilities | 1,209 |
|
Total operating lease liabilities | $ | 2,035 |
|
| |
Weighted average remaining lease term (in years) | 3.77 |
|
Weighted average discount rate | 3.35 | % |
| |
Centuri: | |
Operating leases: | |
Other property and investments | $ | 71,377 |
|
| |
Other current liabilities | 8,183 |
|
Other deferred credits and other long-term liabilities | 65,791 |
|
Total operating lease liabilities | $ | 73,974 |
|
| |
Finance leases: | |
Other property and investments | $ | 788 |
|
| |
Other current liabilities | 256 |
|
Other deferred credits and other long-term liabilities | 400 |
|
Total finance lease liabilities | $ | 656 |
|
| |
Weighted average remaining lease term (in years) | |
Operating leases | 9.43 |
|
Finance leases | 1.79 |
|
| |
Weighted average discount rate | |
Operating leases | 4.08 | % |
Finance leases | 5.95 | % |
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
The following are schedules of maturities of lease liabilities as of September 30, 2019:
|
| | | |
(Thousands of dollars) | Operating leases |
Southwest: | |
2020 | $ | 946 |
|
2021 | 548 |
|
2022 | 244 |
|
2023 | 79 |
|
2024 | 79 |
|
Thereafter | 267 |
|
Total lease payments | 2,163 |
|
Less imputed interest | 128 |
|
Total | $ | 2,035 |
|
| |
|
| | | | | | | |
(Thousands of dollars) | Operating leases | | Finance leases |
Centuri: | | | |
2020 | $ | 11,336 |
| | $ | 289 |
|
2021 | 10,416 |
| | 174 |
|
2022 | 9,675 |
| | 165 |
|
2023 | 8,192 |
| | 95 |
|
2024 | 6,973 |
| | 3 |
|
Thereafter | 45,564 |
| | — |
|
Total lease payments | 92,156 |
| | 726 |
|
Less imputed interest | 18,182 |
| | 70 |
|
Total | $ | 73,974 |
| | $ | 656 |
|
| | | |
As the Company and Southwest adopted Topic 842 using the optional transition method referred to in Note 1 – Background, Organization, and Summary of Significant Accounting Policies, the recent annual disclosure of rental and lease payments as of December 31, 2018 in accordance with Topic 840 is presented in the table below (thousands of dollars): | | | | | | | | | | | | | | | | |
| | Natural Gas Operations | | | Construction Services | | | Other | | | Total | |
Three months ended September 30, 2017 | | | | | | | | | | | | | | | | |
Revenues from external customers | | $ | 213,059 | | | $ | 351,850 | | | $ | — | | | $ | 564,909 | |
Intersegment revenues | | | — | | | | 28,244 | | | | — | | | | 28,244 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 213,059 | | | $ | 380,094 | | | $ | — | | | $ | 593,153 | |
| | | | | | | | | | | | | | | | |
Segment net income (loss) | | $ | (4,024 | ) | | $ | 14,335 | | | $ | (107 | ) | | $ | 10,204 | |
| | | | | | | | | | | | | | | | |
Three months ended September 30, 2016 | | | | | | | | | | | | | | | | |
Revenues from external customers | | $ | 200,179 | | | $ | 312,531 | | | $ | — | | | $ | 512,710 | |
Intersegment revenues | | | — | | | | 27,259 | | | | — | | | | 27,259 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 200,179 | | | $ | 339,790 | | | $ | — | | | $ | 539,969 | |
| | | | | | | | | | | | | | | | |
Segment net income (loss) | | $ | (12,405 | ) | | $ | 14,877 | | | $ | — | | | $ | 2,472 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | Natural Gas Operations | | | Construction Services | | | Other | | | Total | |
Nine months ended September 30, 2017 | | | | | | | | | | | | | | | | |
Revenues from external customers | | $ | 935,823 | | | $ | 800,073 | | | $ | — | | | $ | 1,735,896 | |
Intersegment revenues | | | — | | | | 72,463 | | | | — | | | | 72,463 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 935,823 | | | $ | 872,536 | | | $ | — | | | $ | 1,808,359 | |
| | | | | | | | | | | | | | | | |
Segment net income (loss) | | $ | 82,436 | | | $ | 15,717 | | | $ | (777 | ) | | $ | 97,376 | |
| | | | | | | | | | | | | | | | |
Nine months ended September 30, 2016 | | | | | | | | | | | | | | | | |
Revenues from external customers | | $ | 980,927 | | | $ | 762,835 | | | $ | — | | | $ | 1,743,762 | |
Intersegment revenues | | | — | | | | 75,203 | | | | — | | | | 75,203 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 980,927 | | | $ | 838,038 | | | $ | — | | | $ | 1,818,965 | |
| | | | | | | | | | | | | | | | |
Segment net income | | $ | 67,536 | | | $ | 19,325 | | | $ | — | | | $ | 86,861 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | Natural Gas Operations | | | Construction Services | | | Other | | | Total | |
Twelve months ended September 30, 2017 | | | | | | | | | | | | | | | | |
Revenues from external customers | | $ | 1,276,308 | | | $ | 1,078,195 | | | $ | — | | | $ | 2,354,503 | |
Intersegment revenues | | | — | | | | 95,381 | | | | — | | | | 95,381 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,276,308 | | | $ | 1,173,576 | | | $ | — | | | $ | 2,449,884 | |
| | | | | | | | | | | | | | | | |
Segment net income (loss) | | $ | 134,323 | | | $ | 29,010 | | | $ | (777 | ) | | $ | 162,556 | |
| | | | | | | | | | | | | | | | |
Twelve months ended September 30, 2016 | | | | | | | | | | | | | | | | |
Revenues from external customers | | $ | 1,376,388 | | | $ | 1,022,416 | | | $ | — | | | $ | 2,398,804 | |
Intersegment revenues | | | — | | | | 105,566 | | | | — | | | | 105,566 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,376,388 | | | $ | 1,127,982 | | | $ | — | | | $ | 2,504,370 | |
| | | | | | | | | | | | | | | | |
Segment net income | | $ | 119,836 | | | $ | 33,144 | | | $ | — | | | $ | 152,980 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | |
| | 2018 | | 2017 |
Southwest Gas Corporation | | $ | 4,556 |
| | $ | 4,926 |
|
Centuri | | 59,491 |
| | 62,310 |
|
Consolidated rental payments/lease expense | | $ | 64,047 |
| | $ | 67,236 |
|
The following is a schedule of future minimum lease payments for operating leases (with initial or remaining terms in excess of one year) as of December 31, 2018 (thousands of dollars):
|
| | | | | | | | | | | | |
| | Southwest | | Centuri | | Consolidated Total |
2019 | | $ | 898 |
| | $ | 10,053 |
| | $ | 10,951 |
|
2020 | | 363 |
| | 7,656 |
| | 8,019 |
|
2021 | | 299 |
| | 5,760 |
| | 6,059 |
|
2022 | | 163 |
| | 5,163 |
| | 5,326 |
|
2023 | | 79 |
| | 3,681 |
| | 3,760 |
|
Thereafter | | 177 |
| | 10,511 |
| | 10,688 |
|
Total minimum lease payments | | $ | 1,979 |
| | $ | 42,824 |
| | $ | 44,803 |
|
| | | | | | |
As of December 31, 2018 Centuri leased certain construction equipment under capital leases arrangements which were not significant.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
Note 45 – Derivatives and Fair Value MeasurementsDerivatives.
In managing its natural gas supply portfolios, Southwest has historically entered into fixed- and variable-price contracts, which qualify as derivatives. Additionally, Southwest
utilizeshas utilized fixed-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.
19
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
The variable-price contracts qualify as derivative instruments; however, because the contract prices are the prevailing prices at the future transaction dates, the contracts have no significant marketdeterminable fair value. The SwapsSwap contract prices are determined at the beginning of each month to reflect that month’s published first of month index price and are recorded at fair value.
The Southwest does not utilize derivative financial instruments for speculative purposes, nor does it have trading operations.
Southwest historically utilized 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
outstanding Swaps highly correlate to forecasted purchases of natural gas,
during time frames ranging fromwith the longest maturity date of the Swaps being October
2017 through March 2019. Under such contracts,2020. Management does not currently anticipate entering into new Swaps in the near term. Regarding existing Swap arrangements, 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):
| | | | | | | | |
| | September 30, 2017 | | | December 31, 2016 | |
Contract notional amounts | | | 10,936 | | | | 10,543 | |
| | | | | | | | |
Southwest does not utilize derivative financial instruments for speculative purposes, nor does it have trading operations.
|
| | | | | |
| September 30, 2019 | | December 31, 2018 |
Contract notional amounts | 16,071 |
| | 13,387 |
|
The following table
sets forthshows the
gainsamounts Southwest paid to and
(losses) recognized on the Swaps (derivatives)received from counterparties for
the three-, nine-, and twelve-month periods ended September 30, 2017 and 2016 and their location in the Condensed Consolidated Statementssettlements of
Income for both the Company and Southwest:Gains (losses) recognized in income for derivatives not designated as hedging instruments:
(Thousands of dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | | Nine Months Ended | | | Twelve Months Ended | |
| | Location of Gain or (Loss) | | September 30 | | | September 30 | | | September 30 | |
Instrument | | Recognized in Income on Derivative | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Swaps | | Net cost of gas sold | | $ | (546 | ) | | $ | (2,072 | ) | | $ | (6,851 | ) | | $ | 2,253 | | | $ | (4,098 | ) | | $ | (656 | ) |
Swaps | | Net cost of gas sold | | | 546 | * | | | 2,072 | * | | | 6,851 | * | | | (2,253 | )* | | | 4,098 | * | | | 656 | * |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
* | 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:
| | | | | | | | | | | | | | |
September 30, 2017 Instrument | | Balance Sheet Location | | Asset Derivatives | | | Liability Derivatives | | | Net Total | |
Swaps | | Prepaids and other current assets | | $ | 56 | | | $ | (22 | ) | | $ | 34 | |
Swaps | | Other current liabilities | | | 27 | | | | (1,899 | ) | | | (1,872 | ) |
Swaps | | Other deferred credits | | | 1 | | | | (768 | ) | | | (767 | ) |
| | | | | | | | | | | | | | |
Total | | | | $ | 84 | | | $ | (2,689 | ) | | $ | (2,605 | ) |
| | | | | | | | | | | | | | |
| | | | |
December 31, 2016 Instrument | | Balance Sheet Location | | Asset Derivatives | | | Liability Derivatives | | | Net Total | |
Swaps | | Deferred charges and other assets | | $ | 899 | | | $ | (54 | ) | | $ | 845 | |
Swaps | | Prepaids and other current assets | | | 3,551 | | | | (19 | ) | | | 3,532 | |
| | | | | | | | | | | | | | |
Total | | | | $ | 4,450 | | | $ | (73 | ) | | $ | 4,377 | |
| | | | | | | | | | | | | | |
20
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
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 the net amounts in its balance sheets. There was no outstanding collateral associated with the Swaps during either period shown in the above table.
matured Swaps:
|
| | | | | | | | | | | |
(Thousands of dollars) | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | | Twelve Months Ended September 30, 2019 |
Paid to counterparties | $ | 2,191 |
| | $ | 8,338 |
| | $ | 10,322 |
|
Received from counterparties | $ | 10 |
| | $ | 1,057 |
| | $ | 1,657 |
|
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
purchasedpurchase gas adjustment (“PGA”) mechanism in determining
itsthe deferred PGA balances. Neither changes in fair value nor settled amounts of Swaps have a direct effect on earnings or other comprehensive
income.Theincome, since following table showssettlement, amounts are reflected in Net cost of gas sold at the amountssame time they are included in Gas operating revenues through updates to the PGA component of rates.
Previously, Southwest
paidentered into forward-starting interest rate swaps (“FSIRS”), the settled positions for which are immaterial and continue to
and receivedbe amortized from
counterparties for settlements of matured Swaps. | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | | | Twelve Months Ended | |
(Thousands of dollars) | | September 30, 2017 | | | September 30, 2017 | | | September 30, 2017 | |
Paid to counterparties | | $ | 143 | | | $ | 1,555 | | | $ | 2,655 | |
| | | | | | | | | | | | |
Received from counterparties | | $ | — | | | $ | 1,685 | | | $ | 2,060 | |
| | | | | | | | | | | | |
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).
| | | | | | |
September 30, 2017 Instrument | | Balance Sheet Location | | Net Total | |
Swaps | | Other current liabilities | | $ | (34 | ) |
Swaps | | Prepaids and other current assets | | | 1,872 | |
Swaps | | Deferred charges and other assets | | | 767 | |
| | |
December 31, 2016 Instrument | | Balance Sheet Location | | Net Total | |
Swaps | | Other deferred credits | | $ | (845 | ) |
Swaps | | Other current liabilities | | | (3,532 | ) |
Fair Value Measurements.Accumulated other comprehensive income (loss) into interest expense.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
The estimated fair
valuesvalue of Southwest’s Swaps were determined at September 30,
20172019 and December 31,
20162018 using
New York Mercantile Exchange (“NYMEX”) futures settlement prices 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
butand 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 ranksof the inputs used to measure fair value bySwaps and their reliability,location in the financial assets and liabilities that were accountedCondensed Consolidated Balance Sheets for at fair value by both the Company and Southwest:
21
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Level 2—Significant other observable inputs
| | | | | | | | |
(Thousands of dollars) | | September 30, 2017 | | | December 31, 2016 | |
Assets at fair value: | | | | | | | | |
Prepaids and other current assets—Swaps | | $ | 34 | | | $ | 3,532 | |
Deferred charges and other assets—Swaps | | | — | | | | 845 | |
Liabilities at fair value: | | | | | | | | |
Other current liabilities—Swaps | | | (1,872 | ) | | | — | |
Other deferred credits—Swaps | | | (767 | ) | | | — | |
| | | | | | | | |
Net Assets (Liabilities) | | $ | (2,605 | ) | | $ | 4,377 | |
| | | | | | | | |
No financialSouthwest (thousands of dollars). It also sets forth the location of regulatory assets or liabilities offsetting, dollar-for-dollar, the fair value of the Swaps (pursuant to Southwest’s rate-regulation):
Fair values of derivatives not designated as hedging instruments:
|
| | | | | | | | | | | | | | | |
September 30, 2019 | | | | | | | | | |
Swap Position | |
Instrument | | Balance Sheet Location | | Asset Derivatives | | Liability Derivatives | | Net Total | Offsetting Balance Sheet Location (Regulatory Asset/(Liability)) |
Swaps | | Deferred charges and other assets | | $ | 48 |
| | $ | (27 | ) | | $ | 21 |
| Other deferred credits |
Swaps | | Other current liabilities | | 103 |
| | (9,837 | ) | | (9,734 | ) | Prepaid and other current assets |
Swaps | | Other deferred credits | | — |
| | (335 | ) | | (335 | ) | Deferred charges and other assets |
Total | | | | $ | 151 |
| | $ | (10,199 | ) | | $ | (10,048 | ) | |
| | | | | | | | | |
December 31, 2018 | | | | | | | | | |
Swap Position | |
Instrument | | Balance Sheet Location | | Asset Derivatives | | Liability Derivatives | | Net Total | Offsetting Balance Sheet Location (Regulatory Asset/(Liability)) |
Swaps | | Prepaid and other current assets | | $ | 243 |
| | $ | (99 | ) | | $ | 144 |
| Other current liabilities |
Swaps | | Other current liabilities | | 1,595 |
| | (3,347 | ) | | (1,752 | ) | Prepaid and other current assets |
Swaps | | Other deferred credits | | 141 |
| | (251 | ) | | (110 | ) | Deferred charges and other assets |
Total | | | | $ | 1,979 |
| | $ | (3,697 | ) | | $ | (1,718 | ) | |
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 the net amounts in its balance sheets. There was 0 outstanding collateral associated with the Swaps which were accounted for at fair value, fell within Level 1 (quoted pricesduring either period shown in active markets for identical financial assets) or Level 3 (significant unobservable inputs)the above table.
Note 6 – Common Stock
Only shares 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. Refer to Note 10 – Pension and Other Post Retirement Benefits in the 2016 Annual Report to Shareholders on Form10-K.
Note 5 – Common Stock
In January 2017, the holding company reorganization was made effective and each outstanding share of Southwest Gas CorporationCompany’s common stock was converted into a share of common stock in Southwest Gas Holdings, Inc.,are publicly traded on aone-for-one basis. Thethe New York Stock Exchange, under the ticker symbol of the“SWX.” Share-based compensation related to Southwest and Centuri is based on stock “SWX,” remained unchanged, and Southwest Gas Corporation became a wholly owned subsidiaryawards to be issued in shares of Southwest Gas Holdings, Inc.
On March 29, 2017,May 8, 2019, the Company filed with the Securities Exchange Commission (“SEC”)SEC an automatic shelf registration statement on FormS-3 (FileNo. 333-217018)333-231297), which became effective upon filing, for the offer and sale of up to $150$300 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,May 8, 2019, between the Company and BNY Mellon Capital Markets, LLC (the “Equity Shelf Program”). DuringThe following table provides the three monthsactivity under the Equity Shelf Program for the quarter and nine months endinglife-to-date ended September 30, 2017, the Company sold, through the continuous equity offering program with BNY Mellon Capital Markets, LLC as agent, an aggregate of 147,077 shares of the Company’s common stock in the open market at a weighted average price of $80.07 per share, resulting in proceeds to the Company of $11,659,104, net of $117,769 in agent commissions. 2019:
|
| | | | | | | |
| Three Months Ended | | Life-To-Date Ended |
| September 30, |
�� | 2019 | | 2019 |
Gross proceeds | $ | 24,337,600 |
| | $ | 99,337,371 |
|
Less: agent commissions | (243,375 | ) | | (993,373 | ) |
Net proceeds | $ | 24,094,225 |
| | $ | 98,343,998 |
|
| | | |
Number of shares sold | 273,594 |
| | 1,146,955 |
|
Weighted average price per share | $ | 88.96 |
| | $ | 86.61 |
|
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
As of September 30, 2017,2019, the Company had up to $138,223,127$200,662,629 of common stock available for sale under the program. Net proceeds from the salesales 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. Commensurate with these intentions,Net proceeds during the 3rd quarter of 2017nine months ended September 30, 2019 were contributed to, and reflected in the records of, Southwest (as a capital contribution from Southwest Gas Holdings, Inc.).
During the
parent holding company).quarter ended March 31, 2019, the Company sold approximately 278,000 shares of common stock under a previously effective equity shelf program. Those issuances reflected the remaining shares available under that previous program.
During the nine months ended September 30,
2017,2019, the Company issued approximately
103,00076,000 shares of common stock through the Restricted Stock/Unit Plan and Management Incentive Plan.
Also during the nine months ended September 30, 2019, the Company issued 96,000 shares of common stock through the Dividend Reinvestment and Stock Purchase Plan (“DRSPP”), raising approximately $8.1 million.
On September 20, 2019, coincident with the reincorporation into Delaware, the Company increased the number of authorized shares of common stock available for issuance from 60,000,000 to 120,000,000.
Note 67 – Long-Term DebtCarrying amounts of long-term
Long-term debt and related estimated fair values as of September 30, 2017 and December 31, 2016 are disclosedis recognized in the following table. Company’s and Southwest’s Condensed Consolidated Balance Sheets generally at the carrying value of the obligations outstanding. However, details surrounding the fair value and individual carrying values of instruments are discussed below or provided in the table that follows.
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 ofvalues. The revolving credit facility borrowings) and have interest rates that reset frequently. TheseIDRBs 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. Additionally, the revolving credit facility is generally repaid quickly and the IDRBs have interest rates that reset frequently.
The fair values of Southwest’s debentures
(which include senior
notes, and
fixed-rate IDRBsmedium-term notes) were determined utilizing a market-based valuation approach, where fair values are determined based on evaluated
22
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
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). 2.
The Centuri secured revolving credit and term loan facility and
CenturiCenturi’s other debt obligations (not actively traded) are categorized as Level
3, based on significant unobservable inputs to their fair values.3. Because Centuri’s debt is not publicly traded, fair values for the secured revolving credit and term loan facility and
its other debt obligations were based on a conventional discounted cash flow methodology and
utilizedutilizing 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.
| | | | | | | | | | | | | | | | |
| | September 30, 2017 | | | December 31, 2016 | |
| | Carrying | | | Market | | | Carrying | | | Market | |
| | Amount | | | Value | | | Amount | | | Value | |
(Thousands of dollars) | | | | | | | | | | | | | | | | |
Southwest Gas Corporation: | | | | | | | | | | | | | | | | |
Debentures: | | | | | | | | | | | | | | | | |
Notes, 4.45%, due 2020 | | $ | 125,000 | | | $ | 130,325 | | | $ | 125,000 | | | $ | 129,703 | |
Notes, 6.1%, due 2041 | | | 125,000 | | | | 154,434 | | | | 125,000 | | | | 149,734 | |
Notes, 3.875%, due 2022 | | | 250,000 | | | | 258,943 | | | | 250,000 | | | | 254,900 | |
Notes, 4.875%, due 2043 | | | 250,000 | | | | 275,168 | | | | 250,000 | | | | 266,793 | |
Notes, 3.8%, due 2046 | | | 300,000 | | | | 292,578 | | | | 300,000 | | | | 283,029 | |
8% Series, due 2026 | | | 75,000 | | | | 97,218 | | | | 75,000 | | | | 94,691 | |
Medium-term notes, 7.59% series, due 2017 | | | — | | | | — | | | | 25,000 | | | | 25,040 | |
Medium-term notes, 7.78% series, due 2022 | | | 25,000 | | | | 29,174 | | | | 25,000 | | | | 29,290 | |
Medium-term notes, 7.92% series, due 2027 | | | 25,000 | | | | 31,964 | | | | 25,000 | | | | 31,905 | |
Medium-term notes, 6.76% series, due 2027 | | | 7,500 | | | | 8,920 | | | | 7,500 | | | | 8,769 | |
Unamortized discount and debt issuance costs | | | (9,498 | ) | | | | | | | (9,931 | ) | | | | |
| | | | | | | | | | | | | | | | |
| | | 1,173,002 | | | | | | | | 1,197,569 | | | | | |
| | | | | | | | | | | | | | | | |
Revolving credit facility and commercial paper | | | 150,000 | | | | 150,000 | | | | 5,000 | | | | 5,000 | |
| | | | | | | | | | | | | | | | |
Industrial development revenue bonds: | | | | | | | | | | | | | | | | |
Variable-rate bonds: | | | | | | | | | | | | | | | | |
Tax-exempt Series A, due 2028 | | | 50,000 | | | | 50,000 | | | | 50,000 | | | | 50,000 | |
2003 Series A, due 2038 | | | 50,000 | | | | 50,000 | | | | 50,000 | | | | 50,000 | |
2008 Series A, due 2038 | | | 50,000 | | | | 50,000 | | | | 50,000 | | | | 50,000 | |
2009 Series A, due 2039 | | | 50,000 | | | | 50,000 | | | | 50,000 | | | | 50,000 | |
Unamortized discount and debt issuance costs | | | (2,212 | ) | | | | | | | (2,489 | ) | | | | |
| | | | | | | | | | | | | | | | |
| | | 197,788 | | | | | | | | 197,511 | | | | | |
| | | | | | | | | | | | | | | | |
Less: current maturities | | | — | | | | | | | | (25,000 | ) | | | | |
| | | | | | | | | | | | | | | | |
Long-term debt, less current maturities - Southwest Gas Corporation | | $ | 1,520,790 | | | | | | | $ | 1,375,080 | | | | | |
| | | | | | | | | | | | | | | | |
Centuri: | | | | | | | | | | | | | | | | |
Centuri term loan facility | | $ | 107,250 | | | | 107,403 | | | $ | 106,700 | | | | 106,819 | |
Unamortized debt issuance costs | | | (383 | ) | | | | | | | (516 | ) | | | | |
| | | | | | | | | | | | | | | | |
| | | 106,867 | | | | | | | | 106,184 | | | | | |
Centuri secured revolving credit facility | | | 81,250 | | | | 81,402 | | | | 41,185 | | | | 41,292 | |
Centuri other debt obligations | | | 51,527 | | | | 51,978 | | | | 52,635 | | | | 52,840 | |
Less: current maturities | | | (28,453 | ) | | | | | | | (25,101 | ) | | | | |
| | | | | | | | | | | | | | | | |
Long-term debt, less current maturities - Centuri | | $ | 211,191 | | | | | | | $ | 174,903 | | | | | |
| | | | | | | | | | | | | | | | |
Consolidated Southwest Gas Holdings, Inc.: | | | | | | | | | | | | | | | | |
Southwest Gas Corporation long-term debt | | $ | 1,520,790 | | | | | | | $ | 1,400,080 | | | | | |
Centuri long-term debt | | | 239,644 | | | | | | | | 200,004 | | | | | |
Less: current maturities | | | (28,453 | ) | | | | | | | (50,101 | ) | | | | |
| | | | | | | | | | | | | | | | |
Long-term debt, less current maturities - Southwest Gas Holdings, Inc. | | $ | 1,731,981 | | | | | | | $ | 1,549,983 | | | | | |
| | | | | | | | | | | | | | | | |
23
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
In March 2017,
|
| | | | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
| | Carrying Amount | | Market Value | | Carrying Amount | | Market Value |
(Thousands of dollars) | | | | | | | | |
Southwest Gas Corporation: | | | | | | | | |
Debentures: | | | | | | | | |
Notes, 4.45%, due 2020 | | $ | 125,000 |
| | $ | 126,763 |
| | $ | 125,000 |
| | $ | 126,213 |
|
Notes, 6.1%, due 2041 | | 125,000 |
| | 167,619 |
| | 125,000 |
| | 150,728 |
|
Notes, 3.875%, due 2022 | | 250,000 |
| | 257,930 |
| | 250,000 |
| | 254,195 |
|
Notes, 4.875%, due 2043 | | 250,000 |
| | 303,955 |
| | 250,000 |
| | 268,985 |
|
Notes, 3.8%, due 2046 | | 300,000 |
| | 316,383 |
| | 300,000 |
| | 267,030 |
|
Notes, 3.7%, due 2028 | | 300,000 |
| | 323,034 |
| | 300,000 |
| | 298,926 |
|
Notes, 4.15%, due 2049 | | 300,000 |
| | 334,680 |
| | — |
| | — |
|
8% Series, due 2026 | | 75,000 |
| | 97,769 |
| | 75,000 |
| | 93,827 |
|
Medium-term notes, 7.78% series, due 2022 | | 25,000 |
| | 27,655 |
| | 25,000 |
| | 27,497 |
|
Medium-term notes, 7.92% series, due 2027 | | 25,000 |
| | 32,250 |
| | 25,000 |
| | 30,016 |
|
Medium-term notes, 6.76% series, due 2027 | | 7,500 |
| | 9,218 |
| | 7,500 |
| | 8,651 |
|
Unamortized discount and debt issuance costs | | (14,852 | ) | | | | (11,807 | ) | | |
| | 1,767,648 |
| | | | 1,470,693 |
| | |
Revolving credit facility and commercial paper | | 150,000 |
| | 150,000 |
| | 150,000 |
| | 150,000 |
|
Industrial development revenue bonds: | | | | | | | | |
Variable-rate bonds: | | | | | | | | |
Tax-exempt Series A, due 2028 | | 50,000 |
| | 50,000 |
| | 50,000 |
| | 50,000 |
|
2003 Series A, due 2038 | | 50,000 |
| | 50,000 |
| | 50,000 |
| | 50,000 |
|
2008 Series A, due 2038 | | 50,000 |
| | 50,000 |
| | 50,000 |
| | 50,000 |
|
2009 Series A, due 2039 | | 50,000 |
| | 50,000 |
| | 50,000 |
| | 50,000 |
|
Unamortized discount and debt issuance costs | | (1,778 | ) | | | | (2,024 | ) | | |
| | 198,222 |
| | | | 197,976 |
| | |
Less: current maturities | | — |
| | | | — |
| | |
Long-term debt, less current maturities - Southwest Gas Corporation | | $ | 2,115,870 |
| | | | $ | 1,818,669 |
| | |
Centuri: | | | | | | | | |
Centuri term loan facility | | $ | 248,043 |
| | $ | 257,475 |
| | $ | 255,959 |
| | $ | 260,135 |
|
Unamortized debt issuance costs | | (1,171 | ) | | | | (1,414 | ) | | |
| | 246,872 |
| | | | 254,545 |
| | |
Centuri secured revolving credit facility | | 89,140 |
| | 89,175 |
| | — |
| | — |
|
Centuri other debt obligations | | 48,399 |
| | 49,393 |
| | 67,104 |
| | 67,053 |
|
Less: current maturities | | (38,165 | ) | | | | (33,060 | ) | | |
Long-term debt, less current maturities - Centuri | | $ | 346,246 |
| | | | $ | 288,589 |
| | |
Consolidated Southwest Gas Holdings, Inc.: | | | | | | | | |
Southwest Gas Corporation long-term debt | | $ | 2,115,870 |
| | | | $ | 1,818,669 |
| | |
Centuri long-term debt | | 384,411 |
| | | | 321,649 |
| | |
Less: current maturities | | (38,165 | ) | | | | (33,060 | ) | | |
Long-term debt, less current maturities - Southwest Gas Holdings, Inc. | | $ | 2,462,116 |
| | | | $ | 2,107,258 |
| | |
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
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 September 30, 2017,2019, 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 September 30, 2017,2019, $150 million was outstanding on the long-term portion (including $50 million under the commercial paper program, discussed below) and $83$30 million wasof borrowings were outstanding on the short-term portion of this credit facility (See(see Note 78 – Short-Term Debt). 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 under the credit facility. 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 September 30, 2017,2019, as noted above, $50 million of borrowings were outstanding under the commercial paper program.
In May 2019, Southwest issued $300 million in 4.15% Senior Notes at a discount of 0.051%. The notes will mature in June 2049. The net proceeds were used to repay a portion of amounts then outstanding under its credit facility and commercial paper program.
In November 2018, Centuri,
has a $300 millionin association with the acquisition of Linetec, amended and restated its senior secured revolving credit and term loan facility,
thatincreasing the capacity from $450 million to $590 million; the amended facility is scheduled to expire in
October 2019.November 2023. This facility includes a revolving credit facility and a term loan facility. The
line of credit portion of the facility is $325 million; amounts borrowed and repaid under the revolving line of credit facility are available to be re-borrowed. The term loan facility portion
had an initialhas a limit of approximately
$150 million, which was reached in 2014 and had $107 million outstanding (after repayments) at September 30, 2017.$265 million. The
$300$590 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).
CenturiCenturi’s assets securing the facility at September 30,
20172019 totaled
$526 million.$1.3 billion. At September 30,
2017, $1892019, $337 million in borrowings were outstanding under the Centuri facility.
It is currently anticipated that LIBOR may be discontinued as a benchmark or reference rate after 2021. As of September 30, 2019, 0 borrowings were outstanding for the holding company under its credit facility (see Note 78 – Short-Term DebtIn March 2017, Southwest Gas Holdings, Inc. entered into a
), and therefore, there was no related indebtedness with reference to LIBOR. However, $130 million of Southwest’s outstanding borrowings under its credit facility with a borrowing capacity(other than from its commercial paper program) and $218 million of $100 million that expires in March 2022. The Company intends to utilize thisCenturi’s outstanding borrowings under its credit facility for short-term financing needs. Interesthave interest rates for this facility are calculated 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%maturity dates that extend beyond 2021. Southwest’s outstanding LIBOR referenced debt of $130 million is approximately 6% of Southwest’s total debt, and Southwest’s and Centuri’s combined outstanding LIBOR referenced debt of $348 million is approximately 14% of total debt (including current maturities) for the Company overall. In order to 0.5% for loans bearing interest with reference tomitigate the alternative base rate. The Company is also required to pay a commitment feeimpact of the discontinuation on the unfunded portionCompany’s financial condition and results of operations, Southwest and Centuri will continue to monitor developments with respect to alternative rates and work with lenders to determine the commitments based on its senior unsecured long-term debt rating. The commitment fee ranges from 0.075%appropriate alternative reference rate for variable rate indebtedness. Note 8 – Short-Term Debt
Southwest Gas Holdings, Inc. has a $100 million credit facility that is scheduled to
0.200% per annum. At September 30, 2017, $27.5 million wasexpire in March 2022. There were 0 borrowings outstanding under this
facility. credit facility at September 30, 2019.
As discussed inNote 67 – Long-Term Debt,, Southwest has a $400 million credit facility that is scheduled to expire in March 2022, of which $250 million has been designated by management for working capital purposes. Southwest had $83$30 million inof short-term borrowings outstanding at September 30, 20172019 under this facility.24
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| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
Note 89 – Equity, Other Comprehensive Income and Accumulated Other Comprehensive IncomeThe table below provides details of activity in equity and the redeemable noncontrolling interest for Southwest Gas Holdings, Inc. on a consolidated basis during the nine months ended September 30, 2017.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | | 250 | | | | 250 | | | | 21,090 | | | | | | | | | | | | | | | | 21,340 | | | | | |
Net income (loss) | | | | | | | | | | | | | | | | | | | 97,376 | | | | (78 | ) | | | 97,298 | | | | 248 | |
Redemption value adjustments | | | | | | | | | | | | | | | | | | | (355 | ) | | | | | | | (355 | ) | | | 355 | |
Foreign currency exchange translation adj. | | | | | | | | | | | | | | | 1,850 | | | | | | | | | | | | 1,850 | | | | 11 | |
Redemption of Centuri shares from noncontrolling parties | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (23,000 | ) |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial gain (loss) arising during period, less amortization of unamortized benefit plan cost, net of tax | | | | | | | | | | | | | | | 1,786 | | | | | | | | | | | | 1,786 | | | | | |
Amounts reclassified to net income, net of tax (FSIRS) | | | | | | | | | | | | | | | 1,554 | | | | | | | | | | | | 1,554 | | | | | |
Centuri dividend to redeemable noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (204 | ) |
Dividends declared | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common: $1.485 per share | | | | | | | | | | | | | | | | | | | (71,350 | ) | | | | | | | (71,350 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SEPTEMBER 30, 2017 | | | 47,732 | | | $ | 49,362 | | | $ | 924,213 | | | $ | (42,818 | ) | | $ | 784,934 | | | $ | (2,295 | ) | | $ | 1,713,396 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The table below provides details of activity in equity for Southwest Gas Corporation during the nine months ended September 30, 2017. Effective in January 2017, Southwest became a subsidiary of Southwest Gas Holdings, Inc., and only equity shares of the latter are publicly traded, under the ticker symbol “SWX.”
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Southwest Gas Corporation Equity | | | | |
| | | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | | Additional | | | Other | | | | | | | |
| | Common Stock | | | Paid-in | | | 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 | | | | | | | | | | | | | | | | | | | 82,436 | | | | 82,436 | |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial gain (loss) arising during period, less amortization of unamortized benefit plan cost, net of tax | | | | | | | | | | | | | | | 1,786 | | | | | | | | 1,786 | |
Amounts reclassified to net income, net of tax (FSIRS) | | | | | | | | | | | | | | | 1,554 | | | | | | | | 1,554 | |
Distribution to Southwest Gas Holdings, Inc. investment in discontinued operations | | | | | | | | | | | | | | | | | | | (182,773 | ) | | | (182,773 | ) |
Stock-based compensation (a) | | | | | | | | | | | 8,576 | | | | | | | | (587 | ) | | | 7,989 | |
Dividends declared to Southwest Gas Holdings, Inc. | | | | | | | | | | | | | | | | | | | (60,130 | ) | | | (60,130 | ) |
Contributions from Southwest Gas Holdings, Inc. | | | | | | | | | | | 11,659 | | | | | | | | | | | | 11,659 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
SEPTEMBER 30, 2017 | | | 47,482 | | | $ | 49,112 | | | $ | 917,581 | | | $ | (42,299 | ) | | $ | 606,007 | | | $ | 1,530,401 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(a) | 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
|
25
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
| 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)comprehensive income (loss), both before and after taxafter-tax impacts, within the Condensed Consolidated Statements of Comprehensive Income, which also impact Accumulated Other Comprehensive Incomeother comprehensive income (“AOCI”) in the Condensed Consolidated Balance Sheets and the associated column in the equity table above, as well as the Redeemable Noncontrolling Interest.Condensed Consolidated Statements of Equity. See Note 45 – Derivatives and Fair Value Measurements for additional information on the FSIRS. Related Tax Effects Allocated to Each Component of Other Comprehensive Income (Loss)
(Thousands of dollars)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 | | | Three Months Ended September 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 | | $ | 333 | | | $ | (126 | ) | | $ | 207 | | | $ | 333 | | | $ | (126 | ) | | $ | 207 | |
Amortization of net actuarial (gain)/loss | | | 6,362 | | | | (2,418 | ) | | | 3,944 | | | | 6,767 | | | | (2,571 | ) | | | 4,196 | |
Regulatory adjustment | | | (5,734 | ) | | | 2,179 | | | | (3,555 | ) | | | (6,122 | ) | | | 2,326 | | | | (3,796 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Pension plans other comprehensive income (loss) | | | 961 | | | | (365 | ) | | | 596 | | | | 978 | | | | (371 | ) | | | 607 | |
FSIRS (designated hedging activities): | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts reclassifed into net income | | | 835 | | | | (317 | ) | | | 518 | | | | 835 | | | | (317 | ) | | | 518 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
FSIRS other comprehensive income | | | 835 | | | | (317 | ) | | | 518 | | | | 835 | | | | (317 | ) | | | 518 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss) - Southwest Gas Corporation | | | 1,796 | | | | (682 | ) | | | 1,114 | | | | 1,813 | | | | (688 | ) | | | 1,125 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | |
Translation adjustments | | | 1,012 | | | | — | | | | 1,012 | | | | (238 | ) | | | — | | | | (238 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency other comprehensive income (loss) | | | 1,012 | | | | — | | | | 1,012 | | | | (238 | ) | | | — | | | | (238 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | 2,808 | | | $ | (682 | ) | | $ | 2,126 | | | $ | 1,575 | | | $ | (688 | ) | | $ | 887 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Nine Months Ended September 30, 2017 | | | Nine Months Ended September 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 | | $ | 1,001 | | | $ | (380 | ) | | $ | 621 | | | $ | 1,001 | | | $ | (380 | ) | | $ | 621 | |
Amortization of net actuarial (gain)/loss | | | 19,084 | | | | (7,252 | ) | | | 11,832 | | | | 20,300 | | | | (7,714 | ) | | | 12,586 | |
Regulatory adjustment | | | (17,204 | ) | | | 6,537 | | | | (10,667 | ) | | | (18,368 | ) | | | 6,980 | | | | (11,388 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Pension plans other comprehensive income (loss) | | | 2,881 | | | | (1,095 | ) | | | 1,786 | | | | 2,933 | | | | (1,114 | ) | | | 1,819 | |
FSIRS (designated hedging activities): | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts reclassifed into net income | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | 2,508 | | | | (952 | ) | | | 1,556 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
FSIRS other comprehensive income | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | 2,508 | | | | (952 | ) | | | 1,556 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss)—Southwest Gas Corporation | | | 5,388 | | | | (2,048 | ) | | | 3,340 | | | | 5,441 | | | | (2,066 | ) | | | 3,375 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | |
Translation adjustments | | | 1,861 | | | | — | | | | 1,861 | | | | 614 | | | | — | | | | 614 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency other comprehensive income (loss) | | | 1,861 | | | | — | | | | 1,861 | | | | 614 | | | | — | | | | 614 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss) | | $ | 7,249 | | | $ | (2,048 | ) | | $ | 5,201 | | | $ | 6,055 | | | $ | (2,066 | ) | | $ | 3,989 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
26
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2019 | | Three Months Ended September 30, 2018 |
| | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount |
Defined benefit pension plans: | | | | | | | | | | | | |
Amortization of prior service cost | | $ | 318 |
| | $ | (77 | ) | | $ | 241 |
| | $ | 334 |
| | $ | (80 | ) | | $ | 254 |
|
Amortization of net actuarial (gain)/loss | | 5,844 |
| | (1,402 | ) | | 4,442 |
| | 8,404 |
| | (2,017 | ) | | 6,387 |
|
Regulatory adjustment | | (5,348 | ) | | 1,283 |
| | (4,065 | ) | | (7,560 | ) | | 1,814 |
| | (5,746 | ) |
Pension plans other comprehensive income | | 814 |
| | (196 | ) | | 618 |
| | 1,178 |
| | (283 | ) | | 895 |
|
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | 836 |
| | (201 | ) | | 635 |
| | 836 |
| | (200 | ) | | 636 |
|
FSIRS other comprehensive income | | 836 |
| | (201 | ) | | 635 |
| | 836 |
| | (200 | ) | | 636 |
|
Total other comprehensive income - Southwest Gas Corporation | | 1,650 |
| | (397 | ) | | 1,253 |
| | 2,014 |
| | (483 | ) | | 1,531 |
|
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | (447 | ) | | — |
| | (447 | ) | | 599 |
| | — |
| | 599 |
|
Foreign currency other comprehensive income (loss) | | (447 | ) | | — |
| | (447 | ) | | 599 |
| | — |
| | 599 |
|
Total other comprehensive income - Southwest Gas Holdings, Inc. | | $ | 1,203 |
| | $ | (397 | ) | | $ | 806 |
| | $ | 2,613 |
| | $ | (483 | ) | | $ | 2,130 |
|
| | | | | | | | | | | | |
| | Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2018 |
| | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount |
Defined benefit pension plans: | | | | | | | | | | | | |
Amortization of prior service cost | | $ | 953 |
| | $ | (229 | ) | | $ | 724 |
| | $ | 1,002 |
| | $ | (240 | ) | | $ | 762 |
|
Amortization of net actuarial (gain)/loss | | 17,532 |
| | (4,207 | ) | | 13,325 |
| | 25,212 |
| | (6,051 | ) | | 19,161 |
|
Regulatory adjustment | | (16,043 | ) | | 3,850 |
| | (12,193 | ) | | (22,679 | ) | | 5,443 |
| | (17,236 | ) |
Pension plans other comprehensive income | | 2,442 |
| | (586 | ) | | 1,856 |
| | 3,535 |
| | (848 | ) | | 2,687 |
|
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | 2,508 |
| | (602 | ) | | 1,906 |
| | 2,509 |
| | (602 | ) | | 1,907 |
|
FSIRS other comprehensive income | | 2,508 |
| | (602 | ) | | 1,906 |
| | 2,509 |
| | (602 | ) | | 1,907 |
|
Total other comprehensive income - Southwest Gas Corporation | | 4,950 |
| | (1,188 | ) | | 3,762 |
| | 6,044 |
| | (1,450 | ) | | 4,594 |
|
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | 1,131 |
| | — |
| | 1,131 |
| | (1,002 | ) | | — |
| | (1,002 | ) |
Foreign currency other comprehensive income (loss) | | 1,131 |
| | — |
| | 1,131 |
| | (1,002 | ) | | — |
| | (1,002 | ) |
Total other comprehensive income - Southwest Gas Holdings, Inc. | | $ | 6,081 |
| | $ | (1,188 | ) | | $ | 4,893 |
| | $ | 5,042 |
| | $ | (1,450 | ) | | $ | 3,592 |
|
| | | | | | | | | | | | |
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended September 30, 2017 | | | Twelve Months Ended September 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 | | | | 1,335 | | | | (507 | ) | | | 828 | |
Amortization of net actuarial (gain)/loss | | | 25,850 | | | | (9,823 | ) | | | 16,027 | | | | 28,895 | | | | (10,980 | ) | | | 17,915 | |
Regulatory adjustment | | | (4,420 | ) | | | 1,679 | | | | (2,741 | ) | | | (653 | ) | | | 249 | | | | (404 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Pension plans other comprehensive income (loss) | | | (5 | ) | | | 1 | | | | (4 | ) | | | (942 | ) | | | 359 | | | | (583 | ) |
FSIRS (designated hedging activities): | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts reclassifed into net income | | | 3,344 | | | | (1,271 | ) | | | 2,073 | | | | 3,344 | | | | (1,271 | ) | | | 2,073 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
FSIRS other comprehensive income (loss) | | | 3,344 | | | | (1,271 | ) | | | 2,073 | | | | 3,344 | | | | (1,271 | ) | | | 2,073 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss)—Southwest Gas Corporation | | | 3,339 | | | | (1,270 | ) | | | 2,069 | | | | 2,402 | | | | (912 | ) | | | 1,490 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | |
Translation adjustments | | | 1,408 | | | | — | | | | 1,408 | | | | 233 | | | | — | | | | 233 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency other comprehensive income (loss) | | | 1,408 | | | | — | | | | 1,408 | | | | 233 | | | | — | | | | 233 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss)—Southwest Gas Holdings, Inc. | | $ | 4,747 | | | $ | (1,270 | ) | | $ | 3,477 | | | $ | 2,635 | | | $ | (912 | ) | | $ | 1,723 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended September 30, 2019 | | Twelve Months Ended September 30, 2018 |
| | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount |
Defined benefit pension plans: | | | | | | | | | | | | |
Net actuarial gain/(loss) | | $ | (20,426 | ) | | $ | 4,902 |
| | $ | (15,524 | ) | | $ | (43,027 | ) | | $ | 10,326 |
| | $ | (32,701 | ) |
Amortization of prior service cost | | 1,286 |
| | (309 | ) | | 977 |
| | 1,336 |
| | (367 | ) | | 969 |
|
Amortization of net actuarial (gain)/loss | | 25,937 |
| | (6,224 | ) | | 19,713 |
| | 31,573 |
| | (8,468 | ) | | 23,105 |
|
Regulatory adjustment | | (1,597 | ) | | 383 |
| | (1,214 | ) | | 6,865 |
| | (844 | ) | | 6,021 |
|
Pension plans other comprehensive income (loss) | | 5,200 |
| | (1,248 | ) | | 3,952 |
| | (3,253 | ) | | 647 |
| | (2,606 | ) |
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | 3,344 |
| | (804 | ) | | 2,540 |
| | 3,346 |
| | (920 | ) | | 2,426 |
|
FSIRS other comprehensive income | | 3,344 |
| | (804 | ) | | 2,540 |
| | 3,346 |
| | (920 | ) | | 2,426 |
|
Total other comprehensive income (loss) - Southwest Gas Corporation | | 8,544 |
| | (2,052 | ) | | 6,492 |
| | 93 |
| | (273 | ) | | (180 | ) |
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | (877 | ) | | — |
| | (877 | ) | | (1,092 | ) | | — |
| | (1,092 | ) |
Foreign currency other comprehensive income (loss) | | (877 | ) | | — |
| | (877 | ) | | (1,092 | ) | | — |
| | (1,092 | ) |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | 7,667 |
| | $ | (2,052 | ) | | $ | 5,615 |
| | $ | (999 | ) | | $ | (273 | ) | | $ | (1,272 | ) |
| |
(1) | Tax amounts are calculated using a 24% rate following the December 22, 2017 enactment date of U.S. tax reform. For periods prior to the enactment date (and included in specific line items of the tables for the twelve months ended September 30, 2018), tax amounts were calculated using a 38% rate. The tax effect of before-tax amounts remaining in the balance of Accumulated other comprehensive income (loss) as of September 30, 2019 is computed using a 24% tax rate overall. 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, and no repatriation of earnings anticipated, the Company is not recognizing anya tax effect or presenting a tax expense or benefit for the currency translation adjustment amountadjustments reported in Other Comprehensive Income, as repatriation of earnings is not anticipated. comprehensive income (loss). |
Approximately
$2.1$2.5 million of realized losses (net of tax) related to the FSIRS, reported in Accumulated other comprehensive income
(“AOCI”)(loss) at September 30,
2017,2019, 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—Rollforward
(ThousandsSheets (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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Translation adjustments | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,861 | | | | — | | | | 1,861 | | | | 1,861 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income before reclassifications | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,861 | | | | — | | | | 1,861 | | | | 1,861 | |
FSIRS amounts reclassified from AOCI (1) | | | — | | | | — | | | | — | | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | — | | | | — | | | | — | | | | 1,554 | |
Amortization of prior service cost (2) | | | 1,001 | | | | (380 | ) | | | 621 | | | | — | | | | — | | | | —�� | | | | — | | | | — | | | | — | | | | 621 | |
Amortization of net actuarial loss (2) | | | 19,084 | | | | (7,252 | ) | | | 11,832 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11,832 | |
Regulatory adjustment (3) | | | (17,204 | ) | | | 6,537 | | | | (10,667 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (10,667 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net current period other comprehensive income (loss) | | | 2,881 | | | | (1,095 | ) | | | 1,786 | | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | 1,861 | | | | — | | | | 1,861 | | | | 5,201 | |
Less: Translation adjustment attributable to redeemable noncontrolling interest | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11 | | | | — | | | | 11 | | | | 11 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | | 2,881 | | | | (1,095 | ) | | | 1,786 | | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | 1,850 | | | | — | | | | 1,850 | | | | 5,190 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance AOCI September 30, 2017 | | $ | (54,732 | ) | | $ | 20,798 | | | $ | (33,934 | ) | | $ | (13,492 | ) | | $ | 5,127 | | | $ | (8,365 | ) | | $ | (519 | ) | | $ | — | | | $ | (519 | ) | | $ | (42,818 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | FSIRS | | Foreign Currency Items | | |
| | Before-Tax | | Tax (Expense) Benefit (4,5) | | After-Tax (5) | | Before-Tax | | Tax (Expense) Benefit (4,5) | | After-Tax (5) | | Before-Tax | | Tax (Expense) Benefit | | After-Tax | | AOCI |
Beginning Balance AOCI December 31, 2018 | | $ | (55,227 | ) | | $ | 13,254 |
| | $ | (41,973 | ) | | $ | (9,310 | ) | | $ | 2,234 |
| | $ | (7,076 | ) | | $ | (3,619 | ) | | $ | — |
| | $ | (3,619 | ) | | $ | (52,668 | ) |
Translation adjustments | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,131 |
| | — |
| | 1,131 |
| | 1,131 |
|
Other comprehensive income (loss) before reclassifications | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,131 |
| | — |
| | 1,131 |
| | 1,131 |
|
FSIRS amounts reclassified from AOCI (1) | | — |
| | — |
| | — |
| | 2,508 |
| | (602 | ) | | 1,906 |
| |
|
| | — |
| | — |
| | 1,906 |
|
Amortization of prior service cost (2) | | 953 |
| | (229 | ) | | 724 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 724 |
|
Amortization of net actuarial loss (2) | | 17,532 |
| | (4,207 | ) | | 13,325 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 13,325 |
|
Regulatory adjustment (3) | | (16,043 | ) | | 3,850 |
| | (12,193 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (12,193 | ) |
Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | 2,442 |
| | (586 | ) | | 1,856 |
| | 2,508 |
| | (602 | ) | | 1,906 |
| | 1,131 |
| | — |
| | 1,131 |
| | 4,893 |
|
Ending Balance AOCI September 30, 2019 | | $ | (52,785 | ) | | $ | 12,668 |
| | $ | (40,117 | ) | | $ | (6,802 | ) | | $ | 1,632 |
| | $ | (5,170 | ) | | $ | (2,488 | ) | | $ | — |
| | $ | (2,488 | ) | | $ | (47,775 | ) |
| |
(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 Periodic Benefit 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). |
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
| |
(4) | Tax amounts are calculated using a 38%24% rate. |
27
| | |
SOUTHWEST GAS HOLDINGS, INC.(5) | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017The beginning balances depict amounts attributable to the individual components of AOCI (Defined Benefit Plans and FSIRS) following the adoption of ASU No. 2018-02, with no impact to the total balance of AOCI resulting from the depiction. |
The following table represents a rollforward of AOCI, presented on Southwest’s Condensed Consolidated Balance
Sheets:AOCI—Rollforward
(ThousandsSheets (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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
FSIRS amounts reclassified from AOCI (5) | | | — | | | | — | | | | — | | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | 1,554 | |
Amortization of prior service cost (6) | | | 1,001 | | | | (380 | ) | | | 621 | | | | — | | | | — | | | | — | | | | 621 | |
Amortization of net actuarial loss (6) | | | 19,084 | | | | (7,252 | ) | | | 11,832 | | | | — | | | | — | | | | — | | | | 11,832 | |
Regulatory adjustment (7) | | | (17,204 | ) | | | 6,537 | | | | (10,667 | ) | | | — | | | | — | | | | — | | | | (10,667 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net current period other comprehensive income (loss) attributable to Southwest Gas Corporation | | | 2,881 | | | | (1,095 | ) | | | 1,786 | | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | 3,340 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance AOCI September 30, 2017 | | $ | (54,732 | ) | | $ | 20,798 | | | $ | (33,934 | ) | | $ | (13,492 | ) | | $ | 5,127 | | | $ | (8,365 | ) | | $ | (42,299 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | FSIRS | | |
| | Before-Tax | | Tax (Expense) Benefit (9,10) | | After-Tax (10) | | Before-Tax | | Tax (Expense) Benefit (9,10) | | After-Tax (10) | | AOCI |
Beginning Balance AOCI December 31, 2018 | | $ | (55,227 | ) | | $ | 13,254 |
| | $ | (41,973 | ) | | $ | (9,310 | ) | | $ | 2,234 |
| | $ | (7,076 | ) | | $ | (49,049 | ) |
FSIRS amounts reclassified from AOCI (6) | | — |
| | — |
| | — |
| | 2,508 |
| | (602 | ) | | 1,906 |
| | 1,906 |
|
Amortization of prior service cost (7) | | 953 |
| | (229 | ) | | 724 |
| | — |
| | — |
| | — |
| | 724 |
|
Amortization of net actuarial loss (7) | | 17,532 |
| | (4,207 | ) | | 13,325 |
| | — |
| | — |
| | — |
| | 13,325 |
|
Regulatory adjustment (8) | | (16,043 | ) | | 3,850 |
| | (12,193 | ) | | — |
| | — |
| | — |
| | (12,193 | ) |
Net current period other comprehensive income attributable to Southwest Gas Corporation | | 2,442 |
| | (586 | ) | | 1,856 |
| | 2,508 |
| | (602 | ) | | 1,906 |
| | 3,762 |
|
Ending Balance AOCI September 30, 2019 | | $ | (52,785 | ) | | $ | 12,668 |
| | $ | (40,117 | ) | | $ | (6,802 | ) | | $ | 1,632 |
| | $ | (5,170 | ) | | $ | (45,287 | ) |
(5) | |
(6) | The FSIRS reclassification amounts are included in the Net interest deductions line item on Southwest’s Condensed Consolidated Statements of Income. |
(6) | |
(7) | These AOCI components are included in the computation of net periodic benefit cost (seeNote 2 – Components of Net Periodic Benefit Costfor additional details). |
(7) | |
(8) | 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). |
(8) | |
(9) | Tax amounts are calculated using a 38%24% rate. |
| |
(10) | The beginning balances depict amounts attributable to the individual components of AOCI (Defined Benefit Plans and FSIRS) following the adoption of ASU No. 2018-02, with no impact to the total balance of AOCI resulting from the depiction. |
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)
(Thousandscost (thousands of dollars)
| | | | | | | | |
| | September 30, 2017 | | | December 31, 2016 | |
Net actuarial (loss) gain | | $ | (411,889 | ) | | $ | (430,973 | ) |
Prior service cost | | | (4,702 | ) | | | (5,703 | ) |
Less: amount recognized in regulatory assets | | | 361,859 | | | | 379,063 | |
| | | | | | | | |
Recognized in AOCI | | $ | (54,732 | ) | | $ | (57,613 | ) |
| | | | | | | | |
Note 9 – Construction Services Redeemable Noncontrolling Interest
In conjunction with the acquisition of the Canadian construction businesses in October 2014, the previous owners of the acquired companies retained a 3.4% equity interest in Centuri, which, subject to an eligibility timeline, would have been redeemable at the election of the noncontrolling parties (in its entirety) beginning in July 2022. In August 2017, in advance of when otherwise eligible, the parties agreed to a current redemption. Southwest Gas Holdings, Inc. paid $23 million to the previous owners, thereby acquiring the remaining 3.4% equity interest in Centuri in accordance with an early redemption agreement. Accordingly, Centuri is now a wholly owned subsidiary of the Company.
28
: |
| | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
Net actuarial (loss) gain | | $ | (417,832 | ) | | $ | (435,364 | ) |
Prior service cost | | (2,080 | ) | | (3,033 | ) |
Less: amount recognized in regulatory assets | | 367,127 |
| | 383,170 |
|
Recognized in AOCI | | $ | (52,785 | ) | | $ | (55,227 | ) |
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
Note 10 – Segment Information
The Company has 2 reportable segments: natural gas operations and utility infrastructure 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 of 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 2 reportable segments (thousands of dollars):
|
| | | | | | | | | | | | | | | |
| Natural Gas Operations | | Utility Infrastructure Services | | Other | | Total |
Three Months Ended September 30, 2019 | | | | | | | |
Revenues from external customers | $ | 209,980 |
| | $ | 480,896 |
| | $ | — |
| | $ | 690,876 |
|
Intersegment revenues | — |
| | 34,354 |
| | — |
| | 34,354 |
|
Total | $ | 209,980 |
| | $ | 515,250 |
| | $ | — |
| | $ | 725,230 |
|
Segment net income (loss) | $ | (20,012 | ) | | $ | 25,838 |
| | $ | (473 | ) | | $ | 5,353 |
|
| | | | | | | |
Three Months Ended September 30, 2018 | | | | | | | |
Revenues from external customers | $ | 217,523 |
| | $ | 414,175 |
| | $ | — |
| | $ | 631,698 |
|
Intersegment revenues | — |
| | 36,448 |
| | — |
| | 36,448 |
|
Total | $ | 217,523 |
| | $ | 450,623 |
| | $ | — |
| | $ | 668,146 |
|
Segment net income (loss) | $ | (13,670 | ) | | $ | 26,798 |
| | $ | (797 | ) | | $ | 12,331 |
|
| | | | | | | |
| Natural Gas Operations | | Utility Infrastructure Services | | Other | | Total |
Nine Months Ended September 30, 2019 | | | | | | | |
Revenues from external customers | $ | 989,368 |
| | $ | 1,160,303 |
| | $ | — |
| | $ | 2,149,671 |
|
Intersegment revenues | — |
| | 122,109 |
| | — |
| | 122,109 |
|
Total | $ | 989,368 |
| | $ | 1,282,412 |
| | $ | — |
| | $ | 2,271,780 |
|
Segment net income (loss) | $ | 86,746 |
| | $ | 36,725 |
| | $ | (1,253 | ) | | $ | 122,218 |
|
| | | | | | | |
Nine Months Ended September 30, 2018 | | | | | | | |
Revenues from external customers | $ | 987,515 |
| | $ | 1,009,166 |
| | $ | — |
| | $ | 1,996,681 |
|
Intersegment revenues | — |
| | 96,678 |
| | — |
| | 96,678 |
|
Total | $ | 987,515 |
| | $ | 1,105,844 |
| | $ | — |
| | $ | 2,093,359 |
|
Segment net income (loss) | $ | 79,301 |
| | $ | 35,034 |
| | $ | (1,362 | ) | | $ | 112,973 |
|
| | | | | | | |
| Natural Gas Operations | | Utility Infrastructure Services | | Other | | Total |
Twelve Months Ended September 30, 2019 | | | | | | | |
Revenues from external customers | $ | 1,359,581 |
| | $ | 1,537,508 |
| | $ | — |
| | $ | 2,897,089 |
|
Intersegment revenues | — |
| | 161,345 |
| | — |
| | 161,345 |
|
Total | $ | 1,359,581 |
| | $ | 1,698,853 |
| | $ | — |
| | $ | 3,058,434 |
|
Segment net income (loss) | $ | 146,287 |
| | $ | 46,668 |
| | $ | (1,433 | ) | | $ | 191,522 |
|
| | | | | | | |
Twelve Months Ended September 30, 2018 | | | | | | | |
Revenues from external customers | $ | 1,354,000 |
| | $ | 1,358,418 |
| | $ | — |
| | $ | 2,712,418 |
|
Intersegment revenues | — |
| | 121,374 |
| | — |
| | 121,374 |
|
Total | $ | 1,354,000 |
| | $ | 1,479,792 |
| | $ | — |
| | $ | 2,833,792 |
|
Segment net income (loss) | $ | 153,683 |
| | $ | 57,677 |
| | $ | (1,922 | ) | | $ | 209,438 |
|
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
Note 11 – Redeemable Noncontrolling Interest
In connection with the acquisition of Linetec in November 2018, the previous owner retained a 20% equity interest in Linetec, the reduction of which is subject to certain rights based on the passage of time or upon the occurrence of certain triggering events. Effective January 2022, the Company has the right, but not the obligation, to purchase at fair value (subject to a floor) a portion of the interest held by the noncontrolling party, and in incremental amounts each year thereafter. The shares subject to the election accumulate (if earlier elections are not made) such that 100% of the interest retained by the noncontrolling party is subject to the election beginning in 2024. If the Company does not exercise its rights at each or any of the specified intervals, the noncontrolling party has the ability, but not the obligation, to exit their investment retained by requiring the Company to purchase a similar portion of their interest up to the maximum cumulative amounts specified at each interval discussed above. The Company has determined that this noncontrolling interest is a redeemable noncontrolling interest and, in accordance with SEC guidance, is classified as mezzanine equity (temporary equity) in the Company’s Condensed Consolidated Balance Sheets.
Significant changes in the value of the redeemable noncontrolling interest, above a floor established at the acquisition date, are recognized as they occur, and the carrying value is adjusted as necessary at each reporting date. The fair value is estimated using a market approach that utilizes certain financial metrics from guideline public companies of similar industry and operating characteristics. However, the carrying value of the redeemable noncontrolling interest was greater than its fair value as of September 30, 2019, and no previous upward redemption value adjustments were made following the acquisition date. SEC guidance indicates that a redemption value adjustment would not be made under these circumstances. The following depicts changesthe change to the balance of the redeemable noncontrolling interest:
|
| | | |
(Thousands of dollars): | Redeemable Noncontrolling Interest |
Balance, December 31, 2018 | $ | 81,831 |
|
Net income attributable to redeemable noncontrolling interest | 2,523 |
|
Balance, September 30, 2019 | $ | 84,354 |
|
Note 12 – Business Acquisitions
In November 2018, the Company, through its subsidiaries, led principally by Centuri, completed the acquisition of an 80% interest
betweenin a privately held infrastructure services business, Linetec, with the
indicated periods. | | | | |
| | Redeemable Noncontrolling Interest | |
(Thousands of dollars): | | | |
Balance, December 31, 2016 | | $ | 22,590 | |
Net income attributable to redeemable noncontrolling interest | | | 248 | |
Foreign currency exchange translation adjustment | | | 11 | |
Centuri dividend to redeemable noncontrolling interest | | | (204 | ) |
Adjustment to redemption value | | | 355 | |
Redemption of Centuri shares from noncontrolling parties | | | (23,000 | ) |
| | | | |
Balance, September 30, 2017 | | $ | — | |
| | | | |
Note 10 – Reorganization Impacts – Discontinued Operations Solely Relatedremaining 20% retained by the seller. See the Company’s 2018 Form 10-K for additional information about this acquisition.
Assets acquired and liabilities assumed in the transaction were recorded, generally, at their estimated acquisition date fair values. During the measurement period, which may be up to
Southwest Gas CorporationNo substantive change has occurred with regardone year from the acquisition date, the Company may continue to record adjustments to the Company’s business segments onfair value of tangible and intangible assets acquired and liabilities assumed. The Company continues to collect information and reevaluates these estimates and assumptions quarterly. Upon the whole,conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments may be recognized in the primary businesses comprising those segments (Centuri operations continue to be partCompany’s Consolidated Statement of continuing operationsIncome.
The Company’s allocation of the
controlled grouppurchase price was based on an evaluation of
companies),the appropriate fair values and
financial informationrepresented management’s best estimate based on available data (including market data, data regarding customers of the acquired business, terms of acquisition-related agreements, analysis of historical and projected results, and other types of data). The analysis included consideration of types of intangibles that were acquired, including customer relationships, trade names, and customer contracts. Certain payments were estimated as of the acquisition date and are adjusted when paid or as estimates change based on available data; the final purchase accounting has not yet been completed. Further adjustments may occur, including potential changes to final purchase consideration payments held back, such as the remaining amounts associated with unbilled customer accounts receivable balances recorded at their estimated realizable values as of the acquisition date. Subsequent to the acquisition date and through September 30, 2019, Centuri recorded a net reduction to the overall purchase price of $25.2 million related to
Centuri continues to be included in condensed consolidated financial statementsthe combined effects 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-relatedmutual tax election under Internal Revenue Code Section 338(h)(10), working capital adjustments, amounts as discontinued operations for periods prior to January 2017.
Dueassociated with certain unbilled customer receivable balances, and other refinements to the discontinued operations accounting reflection,valuation, which impacted the following disclosures provide additional information regardingremaining unremitted consideration. Approximately $19.5 million of previously unremitted consideration was paid during the assets, liabilities, equity, revenues, and expensesnine months ending September 30, 2019. As 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.
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:
that date, remaining unpaid consideration was $26.2 million.
| | | | |
(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 | |
| | | | |
Discontinued operations - construction services - assets
| | $ | 579,371 | |
| | | | |
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 | |
| | | | |
Discontinued operations—construction services—liabilities
| | $ | 380,615 | |
| | | | |
29
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
The following table presentspreliminary estimated fair values of assets acquired and liabilities assumed as of November 30, 2018, are as follows (millions of dollars):
|
| | | | | | | | | | | | |
| | Acquisition Date | | Measurement Period Adjustments | | Revised Acquisition Date |
Cash and cash equivalents | | $ | 3.9 |
| | $ | — |
| | $ | 3.9 |
|
Accounts receivable | | 32.8 |
| | (0.5 | ) | | 32.3 |
|
Revenue earned on contracts in progress in excess of billings | | 21.6 |
| | (0.2 | ) | | 21.4 |
|
Prepaid expenses and other current assets | | 1.1 |
| | 0.1 |
| | 1.2 |
|
Property and equipment | | 89.4 |
| | (0.8 | ) | | 88.6 |
|
Intangible assets | | 89.3 |
| | — |
| | 89.3 |
|
Goodwill | | 188.5 |
| | (22.2 | ) | | 166.3 |
|
Total assets acquired | | 426.6 |
| | (23.6 | ) | | 403.0 |
|
| | | | | | |
Accounts payable | | 8.0 |
| | — |
| | 8.0 |
|
Accrued liabilities | | 6.9 |
| | 1.6 |
| | 8.5 |
|
Deferred compensation and related accrued taxes | | 3.4 |
| | — |
| | 3.4 |
|
Redeemable noncontrolling interest | | 81.7 |
| | — |
| | 81.7 |
|
Total liabilities assumed and noncontrolling interest | | 100.0 |
| | 1.6 |
| | 101.6 |
|
Net assets acquired | | $ | 326.6 |
| | $ | (25.2 | ) | | $ | 301.4 |
|
| | | | | | |
The Company incurred and expensed acquisition costs of $6.9 million which are included in Utility infrastructure services expenses on the componentsCompany’s Consolidated Statement of Income for the year ended December 31, 2018. NaN acquisition-related costs were incurred during the three and nine months ended September 30, 2019, and no significant impacts to earnings resulted from the measurement-period adjustments reflected above.
The preliminary allocation of the
Discontinuedpurchase price of Linetec was accounted for in accordance with applicable accounting guidance. Goodwill consists of the value associated with the assembled workforce, consolidation of operations,
– construction servicesnon-owner equity amount shownand the estimated economic value attributable to future opportunities related to the transaction. As the business of Linetec was deemed an asset purchase for tax purposes, the tax-basis goodwill is expected to be deductible for tax purposes. During 2019, values at the acquisition date were adjusted, as reflected in the
Southwest Gas Corporationtable above, on the Company’s 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 | |
| | | | |
Discontinued operations - construction servicesnon-owner equity | | $ | 15,983 | |
| | | | |
The following table presents the major income statement components of discontinued operations – construction services reported in the Condensed Consolidated Income Statements of Southwest Gas Corporation:
Results of Construction Services
| | | | | | | | | | | | | | | | |
| | Three | | | Nine | | | Twelve | | | Twelve | |
| | Months Ended | | | Months Ended | | | Months Ended | | | Months Ended | |
(Thousands of dollars) | | September 30, 2016 | | | September 30, 2016 | | | September 30, 2017 | | | September 30, 2016 | |
Construction revenues | | $ | 339,790 | | | $ | 838,038 | | | $ | 301,040 | | | $ | 1,127,982 | |
Operating expenses: | | | | | | | | | | | | | | | | |
Construction expenses | | | 300,611 | | | | 757,919 | | | | 266,504 | | | | 1,009,188 | |
Depreciation and amortization | | | 13,409 | | | | 43,351 | | | | 12,318 | | | | 58,368 | |
| | | | | | | | | | | | | | | | |
Operating income | | | 25,770 | | | | 36,768 | | | | 22,218 | | | | 60,426 | |
Other income (deductions) | | | 44 | | | | 44 | | | | 1,149 | | | | 1,246 | |
Net interest deductions | | | 1,794 | | | | 4,945 | | | | 1,718 | | | | 6,738 | |
| | | | | | | | | | | | | | | | |
Income before income taxes | | | 24,020 | | | | 31,867 | | | | 21,649 | | | | 54,934 | |
Income tax expense | | | 8,708 | | | | 12,042 | | | | 7,842 | | | | 20,711 | |
| | | | | | | | | | | | | | | | |
Net income | | | 15,312 | | | | 19,825 | | | | 13,807 | | | | 34,223 | |
Net income attributable to noncontrolling interests | | | 435 | | | | 500 | | | | 514 | | | | 1,079 | |
| | | | | | | | | | | | | | | | |
Discontinued operations - construction services - net income | | $ | 14,877 | | | $ | 19,325 | | | $ | 13,293 | | | $ | 33,144 | |
| | | | | | | | | | | | | | | | |
30
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Sheets.
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
prior to August 2017, 96.6%all of the shares of common stock of Centuri
Construction Group, Inc. (“
Centuri”Centuri,” or the
“construction“utility infrastructure services” segment).
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 a redeemable noncontrolling interest). Therefore, Centuri is now a wholly owned subsidiary of Southwest Gas Holdings, Inc. Also, as part of the holding company reorganization effective January 2017, Centuri and Southwest are now subsidiaries of Southwest Gas Holdings, Inc.; whereas historically, Centuri had been a direct subsidiary of Southwest. Southwest Gas Holdings, Inc. and its subsidiaries
(the “Company”) have two business segments (natural gas operations and construction services)are collectively referred to as the “Company.” At the annual meeting of shareholders of Southwest Gas Holdings, Inc.,
which are discussed below.held on May 2, 2019, shareholders voted to approve changing the state of incorporation of Southwest Gas Holdings, Inc. from California to Delaware. The reincorporation was effective as of September 20, 2019.
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
majority of southern Nevada, including the Las Vegas metropolitan area, and
portions of 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.
As of September 30, 2017 (on a seasonally adjusted basis),2019, Southwest had 1,999,0002,066,000 residential, commercial, industrial, and other natural gas customers, of which 1,065,0001,101,000 customers were located in Arizona, 741,000768,000 in Nevada, and 193,000197,000 in California. Residential and small commercial customers represented over 99% of the total customer base. During the twelve months ended September 30, 2017, 54%2019, 53% of operating margin (gas operating revenues less the net cost of gas sold) was earned in Arizona, 35%36% in Nevada, and 11% in California. During this same period, Southwest earned 85%84% of its operating margin (gas operating revenues less the net cost of gas sold) from residential and small commercial customers, 3% from other
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
sales customers, and
12%13% 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 margin is a financial measure defined by management as gas operating revenues less the net cost of gas sold. However, operating margin is not specifically defined in accounting principles generally accepted in the United States (“U.S. GAAP”). Thus operating margin is considered a
non-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. The principal factors affecting changes in operating margin are general rate relief (including impacts of infrastructure trackers) and customer growth.
Refer to the Summary Operating Results table for a reconciliation of revenues to operating margin.
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
constructionutility infrastructure services enterprise dedicated to
meeting the growing demandsdelivering a diverse array of
solutions to North
American utilities, energyAmerica’s gas and
industrial markets.electric providers. Centuri derives revenue from installation, replacement, repair, and maintenance of energy distribution systems, and developing industrial construction solutions. Centuri operates in
24 major markets50 primary locations across 40 states and provinces in the United States
(primarily(“U.S.”) and Canada. In November 2017, Centuri expanded its operations in the northeast region of the U.S. through the acquisition of New England Utility Constructors, Inc. (“Neuco”), and again in November 2018, in the southeast region of the U.S. through the acquisition of an 80% interest in Linetec Services, LLC (“Linetec”). Both companies were privately owned utility infrastructure services businesses prior to their acquisition. Centuri operates in the U.S. primarily as
NPL)NPL, Neuco, and Linetec, and in
3 major markets in Canada
(asprimarily as NPL
Canada (formerly Link-Line Contractors Ltd.), and W.S. Nicholls).ConstructionCanada.
Utility infrastructure services 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, pipeinfrastructure replacement programs of utilities,
weather, and local and federal regulation (including tax rates and incentives). During the past few years, utilities
31
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
have implemented or modified pipelinesystem 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 pipelineutility system replacement projects throughout the U.S. 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 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 be 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
unaudited consolidated
financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial statements and the notes thereto, as well as MD&A, included in the
20162018 Annual Report to Shareholders, which is incorporated by reference into the
20162018 Form
10-K.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
The items discussed in this Executive Summary are intended to provide an overview of the results of the Company’s and Southwest’s operations. As needed, certain items are covered in greater detail in later sections of management’s discussion and analysis.MD&A. As reflected in the table below, the natural gas operations segment accounted for an average of 81%75% oftwelve-month-to-date consolidated net income over the past two years. As such, management’s discussion and analysisMD&A 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 September 30, | |
| | Three Months | | | Nine Months | | | Twelve Months | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| | (In thousands, except per share amounts) | |
Contribution to net income | | | | | | | | | | | | | | | | | | | | | | | | |
Natural gas operations | | $ | (4,024 | ) | | $ | (12,405 | ) | | $ | 82,436 | | | $ | 67,536 | | | $ | 134,323 | | | $ | 119,836 | |
Construction services | | | 14,335 | | | | 14,877 | | | | 15,717 | | | | 19,325 | | | | 29,010 | | | | 33,144 | |
Corporate and administrative | | | (107 | ) | | | — | | | | (777 | ) | | | — | | | | (777 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 10,204 | | | $ | 2,472 | | | $ | 97,376 | | | $ | 86,861 | | | $ | 162,556 | | | $ | 152,980 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Average number of common shares outstanding | | | 47,628 | | | | 47,481 | | | | 47,577 | | | | 47,464 | | | | 47,553 | | | | 47,442 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Basic earnings per share | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | $ | 0.21 | | | $ | 0.05 | | | $ | 2.05 | | | $ | 1.83 | | | $ | 3.42 | | | $ | 3.22 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Natural Gas Operations | | | | | | | | | | | | | | | | | | | | | | | | |
Gas operating revenues | | $ | 213,059 | | | $ | 200,179 | | | $ | 935,823 | | | $ | 980,927 | | | $ | 1,276,308 | | | $ | 1,376,388 | |
Net cost of gas sold | | | 45,539 | | | | 39,056 | | | | 261,839 | | | | 324,072 | | | | 334,888 | | | | 460,836 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating margin | | $ | 167,520 | | | $ | 161,123 | | | $ | 673,984 | | | $ | 656,855 | | | $ | 941,420 | | | $ | 915,552 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
32
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Period Ended September 30, |
| | Three Months | | Nine Months | | Twelve Months |
| | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | (In thousands, except per share amounts) |
Contribution to net income | | | | | | | | | | | | |
Natural gas operations | | $ | (20,012 | ) | | $ | (13,670 | ) | | $ | 86,746 |
| | $ | 79,301 |
| | $ | 146,287 |
| | $ | 153,683 |
|
Utility infrastructure services | | 25,838 |
| | 26,798 |
| | 36,725 |
| | 35,034 |
| | 46,668 |
| | 57,677 |
|
Corporate and administrative | | (473 | ) | | (797 | ) | | (1,253 | ) | | (1,362 | ) | | (1,433 | ) | | (1,922 | ) |
Net income | | $ | 5,353 |
| | $ | 12,331 |
| | $ | 122,218 |
| | $ | 112,973 |
| | $ | 191,522 |
| | $ | 209,438 |
|
| | | | | | | | | | | | |
Average number of common shares | | 54,670 |
| | 49,493 |
| | 53,996 |
| | 48,916 |
| | 53,219 |
| | 48,728 |
|
Basic earnings per share | | | | | | | | | | | | |
Consolidated | | $ | 0.10 |
| | $ | 0.25 |
| | $ | 2.26 |
| | $ | 2.31 |
| | $ | 3.60 |
| | $ | 4.30 |
|
Natural Gas Operations | | | | | | | | | | | | |
Reconciliation of Revenue to Operating Margin (Non-GAAP measure) | | | | | | | | | | | | |
Gas operating revenues | | $ | 209,980 |
| | $ | 217,523 |
| | $ | 989,368 |
| | $ | 987,515 |
| | $ | 1,359,581 |
| | $ | 1,354,000 |
|
Less: Net cost of gas sold | | 35,068 |
| | 49,903 |
| | 292,854 |
| | 319,101 |
| | 393,141 |
| | 412,307 |
|
Operating margin | | $ | 174,912 |
| | $ | 167,620 |
| | $ | 696,514 |
| | $ | 668,414 |
| | $ | 966,440 |
| | $ | 941,693 |
|
3rd Quarter 2019 Overview
Natural gas operations highlights:
34,000 net new customers (1.7% growth rate) during the last 12 months
Filed California rate case (requesting a revenue increase of $12.8 million)
In October, S&P upgraded Southwest’s issuer debt rating from BBB+ (with a negative outlook) to A- (outlook unchanged)
Utility infrastructure services highlights:
Utility infrastructure services revenues increased $65 million ($70.3 million from Linetec)
Utility infrastructure services expenses increased $56 million ($55.8 million from Linetec)
Southwest Gas Holdings highlights:
Completed reincorporation from California into Delaware
Increased the number of authorized shares of common stock available for issuance from 60,000,000 to 120,000,000
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
3rd Quarter 2017 Overview
Natural gas operations highlights:
Benefits of Arizona rate case reflected in quarterly operating results
32,000 net new customers in last 12 months (1.6% growth rate)
Depreciation and amortization expense declined $10 million compared to the prior-year quarter
Operating income increased $15.3 million compared to the prior-year quarter
Targeting $27 million of vintage steel pipe replacement in Arizona during 2017
Achieved 2 million natural gas utility customers in early November 2017
Construction services highlights:
Revenues increased $40.3 million compared to the prior-year quarter
Construction expenses increased $42 million compared to the prior-year quarter
Depreciation and amortization expense declined $1.1 million compared to the prior-year quarter
The Company acquired the residual 3.4% interest in Centuri in August 2017
Southwest Gas Holdings highlights:
Amended and restated bylaws to eliminate cumulative voting and enact majority voting
33
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Results of Natural Gas Operations
| | | | | | | | |
| | Three Months Ended September 30, | |
| | 2017 | | | 2016 | |
| | (Thousands of dollars) | |
Gas operating revenues | | $ | 213,059 | | | $ | 200,179 | |
Net cost of gas sold | | | 45,539 | | | | 39,056 | |
| | | | | | | | |
Operating margin | | | 167,520 | | | | 161,123 | |
Operations and maintenance expense | | | 102,215 | | | | 102,438 | |
Depreciation and amortization | | | 46,194 | | | | 56,436 | |
Taxes other than income taxes | | | 14,046 | | | | 12,480 | |
| | | | | | | | |
Operating income (loss) | | | 5,065 | | | | (10,231 | ) |
Other income (deductions) | | | 3,081 | | | | 2,521 | |
Net interest deductions | | | 17,421 | | | | 16,364 | |
| | | | | | | | |
Income (loss) before income taxes | | | (9,275 | ) | | | (24,074 | ) |
Income tax expense (benefit) | | | (5,251 | ) | | | (11,669 | ) |
| | | | | | | | |
Contribution to consolidated net income (loss) | | $ | (4,024 | ) | | $ | (12,405 | ) |
| | | | | | | | |
Quarterly Analysis
|
| | | | | | | | |
| | Three Months Ended |
| | September 30, |
| | 2019 | | 2018 |
| | (Thousands of dollars) |
Gas operating revenues | | $ | 209,980 |
| | $ | 217,523 |
|
Net cost of gas sold | | 35,068 |
| | 49,903 |
|
Operating margin | | 174,912 |
| | 167,620 |
|
Operations and maintenance expense | | 109,039 |
| | 104,657 |
|
Depreciation and amortization | | 52,372 |
| | 47,924 |
|
Taxes other than income taxes | | 15,308 |
| | 15,036 |
|
Operating income (loss) | | (1,807 | ) | | 3 |
|
Other income (deductions) | | (1,353 | ) | | 836 |
|
Net interest deductions | | 23,619 |
| | 20,399 |
|
Loss before income taxes | | (26,779 | ) | | (19,560 | ) |
Income tax benefit | | (6,767 | ) | | (5,890 | ) |
Contribution to consolidated net income (loss) | | $ | (20,012 | ) | | $ | (13,670 | ) |
Contribution from natural gas operations to consolidated net income decreased $6.3 million between the third quarters of 2019 and 2018. The decline was primarily due to increases in Operations and maintenance expense, Depreciation and amortization, and Net interest deductions, as well as reductions in Other income, partially offset by an increase in rate relief and customer growth.
Operating margin increased
$6 million between quarters. Rate relief in Arizona (effective April 2017) and California provided $4 million in operating margin (seeRates and Regulatory Proceedings).$7 million. Approximately $2 million
in increased operatingof incremental margin was attributable to customer growth, as
32,00034,000 net new customers were added during the last twelve months.
Rate relief, primarily in California and Nevada, contributed $2 million in incremental operating margin in the current period. Miscellaneous service revenue and revenue outside the decoupling mechanisms also increased between periods. Regulatory surcharge recoveries for California cap and trade and public purpose programs and Nevada infrastructure replacement programs (collectively, having an offsetting impact in amortization expense), compose the residual increase.
Operations and maintenance expense
was relatively flatincreased $4.4 million, or 4%, between quarters.
Decreases in employee-related benefitHigher general cost increases and legal costs
more than offset increases in other general costs.of $2.5 million contributed to the increase between periods.
Depreciation and amortization expense increased $4.4 million, or 9%, between quarters, primarily due to a $602 million, or 9%, increase in average gas plant in service compared to the corresponding quarter a year ago, and to an increase in regulatory account amortization, as discussed above. The increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.
Other income decreased $10$2.2 million between quarters primarily due to reduced depreciation ratesa decline in Arizona,income from company-owned life insurance (“COLI”) policies. The current quarter reflects a result$200,000 increase in COLI policy cash surrender values, while the prior-year quarter reflected $4.7 million of the recent Arizona general rate case decision.COLI-related income. Partially offsetting these impacts were the declinenon-service-related components of employee pension and other postretirement benefit costs, which decreased $1.5 million between quarters.
Net interest deductions increased $3.2 million in the third quarter of 2019, as compared to the prior-year quarter, primarily due to the issuance of $300 million of Senior Notes in May 2019.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
Results of Natural Gas Operations
Nine-Month Analysis
|
| | | | | | | | |
| | Nine Months Ended |
| | September 30, |
| | 2019 | | 2018 |
| | (Thousands of dollars) |
Gas operating revenues | | $ | 989,368 |
| | $ | 987,515 |
|
Net cost of gas sold | | 292,854 |
| | 319,101 |
|
Operating margin | | 696,514 |
| | 668,414 |
|
Operations and maintenance expense | | 319,572 |
| | 312,055 |
|
Depreciation and amortization | | 159,327 |
| | 145,549 |
|
Taxes other than income taxes | | 46,640 |
| | 44,959 |
|
Operating income | | 170,975 |
| | 165,851 |
|
Other income (deductions) | | 6,185 |
| | (5,861 | ) |
Net interest deductions | | 70,063 |
| | 59,803 |
|
Income before income taxes | | 107,097 |
| | 100,187 |
|
Income tax expense | | 20,351 |
| | 20,886 |
|
Contribution to consolidated net income | | $ | 86,746 |
| | $ | 79,301 |
|
Contribution from natural gas operations to consolidated net income increased $7.4 million between the first nine months of 2019 and 2018. The increase was primarily due to rate relief, customer growth, and higher Other income, partially offset by increases in Operations and maintenance expense, Depreciation and amortization, and Net interest deductions.
Operating margin increased depreciation associated with a $317$28 million, including an $8 million increase attributable to customer growth. Rate relief, primarily in California and Nevada, contributed an additional $8 million in operating margin. Regulatory surcharge recoveries, including for those programs in California and Nevada noted earlier, were $5.5 million higher overall in the current period, after giving effect for climate credits returned to California customers from the cap and trade program. Other changes in operating margin included miscellaneous revenues and margin from customers outside the decoupling mechanisms and reductions for the regulatory impacts of U.S. tax reform in the current period.
Operations and maintenance expense increased $7.5 million, or 5%2%, between periods. Higher pipeline integrity management and damage prevention programs, as well as other general cost increases, contributed to the increase. Lower service-related pension and other postretirement benefit costs mitigated the increases from the other items.
Depreciation and amortization expense increased $13.8 million, or 9%, between periods primarily due to a $568 million, or 8%, increase in average gas plant in service for the
current quarterperiod as compared to the corresponding
quarterperiod 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.
Taxes other than income taxes increased $1.6 million between quarters primarily due to higher property taxes associated with net plant additions and increased property taxes Regulatory account surcharges, as noted above, also resulted in Arizona, includingincreases in amortization expense in the impact of a property tax tracking mechanism enacted as part of the recently settled Arizona general rate case.
current period.
Other income
increased $560,000(deductions) improved $12 million overall between
quarters primarily due toperiods. The current period included income from COLI policy cash surrender value changes and net death benefits of $11.2 million, while the prior-year period reflected $6 million of COLI-related income. The non-service cost components of employee pension and other postretirement benefit costs were $4.5 million lower between periods. Additionally, an improvement in income of $2.1 million resulted from an increase in the equity
portioncomponent of the allowance for funds used during construction (“AFUDC”)
associated with, due to both a higher
construction expenditures. The equity portionrate and level of
AFUDC representscapital expenditures in the
cost of equity funds used to finance utility construction. The equity AFUDC improvement was partially offset by a decline between quarters in income from company-owned life insurance (“COLI”) policies. The current
quarter reflects $2.1 million of income associated with COLI policy cash surrender value increases, while the prior-year quarter reflected $2.3 million of COLI-related income. COLI amounts in each quarter were greater than expected.period.
Net interest deductions increased
$1.1$10.3 million between
quarters,periods, primarily due to the
September 2016 issuance of $300 million of
senior notes, partially offset by reductions associated withSenior Notes in March 2018 and $300 million in May 2019, in addition to higher interest rates and borrowings outstanding under the
redemptionrevolving credit and term-loan facility throughout much of
debt ($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.34
current period.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
Results of Natural Gas Operations
Nine-Month
Twelve-Month Analysis
| | | | | | | | |
| | Nine Months Ended September 30, | |
| | 2017 | | | 2016 | |
| | (Thousands of dollars) | |
Gas operating revenues | | $ | 935,823 | | | $ | 980,927 | |
Net cost of gas sold | | | 261,839 | | | | 324,072 | |
| | | | | | | | |
Operating margin | | | 673,984 | | | | 656,855 | |
Operations and maintenance expense | | | 313,395 | | | | 301,979 | |
Depreciation and amortization | | | 153,643 | | | | 174,413 | |
Taxes other than income taxes | | | 43,325 | | | | 39,480 | |
| | | | | | | | |
Operating income | | | 163,621 | | | | 140,983 | |
Other income (deductions) | | | 8,744 | | | | 6,712 | |
Net interest deductions | | | 51,622 | | | | 49,155 | |
| | | | | | | | |
Income before income taxes | | | 120,743 | | | | 98,540 | |
Income tax expense | | | 38,307 | | | | 31,004 | |
| | | | | | | | |
Contribution to consolidated net income | | $ | 82,436 | | | $ | 67,536 | |
| | | | | | | | |
The contribution
|
| | | | | | | | |
| | Twelve Months Ended |
| | September 30, |
| | 2019 | | 2018 |
| | (Thousands of dollars) |
Gas operating revenues | | $ | 1,359,581 |
| | $ | 1,354,000 |
|
Net cost of gas sold | | 393,141 |
| | 412,307 |
|
Operating margin | | 966,440 |
| | 941,693 |
|
Operations and maintenance expense | | 412,330 |
| | 404,549 |
|
Depreciation and amortization | | 205,594 |
| | 193,828 |
|
Taxes other than income taxes | | 61,579 |
| | 59,580 |
|
Operating income | | 286,937 |
| | 283,736 |
|
Other income (deductions) | | (5,194 | ) | | (6,425 | ) |
Net interest deductions | | 92,000 |
| | 77,914 |
|
Income before income taxes | | 189,743 |
| | 199,397 |
|
Income tax expense | | 43,456 |
| | 45,714 |
|
Contribution to consolidated net income | | $ | 146,287 |
| | $ | 153,683 |
|
Contribution to consolidated net income from natural gas operations
increased $14.9decreased by $7.4 million between the
first nine months of 2017twelve-month periods ended September 2019 and
2016.September 2018. The
improvementdecrease was primarily due to higher
Operations and maintenance expense, Depreciation and amortization expense, and Net interest deductions, partially offset by increases in operating margin and
lower depreciation expense, partially offset by an increase in operations and maintenance expenses.Other income.
Operating margin increased
$17$25 million between
the comparative nine-month periods.
RateCustomer growth provided $11 million, and combined rate relief,
primarily in
the ArizonaNevada and California,
jurisdictions provided
$10$9 million
inof incremental operating
margin (seeRates and Regulatory Proceedings).margin. The remaining
$7 millionnet increase
was attributable to customer growth.resulted from recoveries of regulatory assets, net of the return of California climate credits from the cap and trade program, infrastructure replacement mechanisms, customers outside the decoupling mechanisms, and other miscellaneous revenues, net of the regulatory impacts of U.S. tax reform.
Operations and maintenance expense increased
$11.4$7.8 million, or
4%2%,
between periods due primarily to higher general cost increases. Approximately $5 million of the incremental costs recognized were associated with the amount and timing of employee incentive plan grants (including accelerated recognition for retirement eligible employees).Depreciation and amortization expense decreased $20.8 million between periods primarily due to reduced depreciation rateshigher general costs and expenditures for pipeline damage prevention programs, offset by a reduction in Arizona, a resultthe service-related component of the recent Arizona general rate case decision. The depreciation decrease also included a decline of approximately $3.7 million inpension and other postretirement benefit costs.
Depreciation and amortization
related to the recovery of regulatory assets. Partially offsetting these declines was depreciation associated with a $325expense increased $11.8 million, or
5%6%, between periods primarily due to a $550 million, or 8%, increase in average gas plant in service for the current period as compared to the prior period. The
expense increase
reflects an offsetting reduction in
gas plant was attributableregulatory amortization between periods, including the impacts of climate credits returned to
pipeline capacity reinforcement work, franchise requirements, scheduledCalifornia customers under the cap and
accelerated pipe replacement activities, and new infrastructure.trade program.
Taxes other than income taxes increased
$3.8$2 million,
or 3%, between periods primarily due to higher property taxes associated with net plant additions,
Nevada commerce taxes, and
increased property taxes in Arizona, including the impact of the Arizona property tax tracking mechanism.California franchise taxes.
Other income
which principally includes returns on COLI policies andnon-utility expenses, increased $2 million between periods. The current period reflects $6.8 million of income associated with COLI policy cash surrender value increases, while the prior-year period reflected $5.4 million of COLI-related income. COLI amounts in each period were greater than expected.Net interest deductions increased $2.5 million between periods, primarily due to the September 2016 issuance of $300 million of senior notes, partially offset by reductions associated with debt redemptions ($100 million of 4.85% IDRBs in July 2016 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 period.
35
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Results of Natural Gas Operations
Twelve-Month Analysis
| | | | | | | | |
| | Twelve Months Ended September 30, | |
| | 2017 | | | 2016 | |
| | (Thousands of dollars) | |
Gas operating revenues | | $ | 1,276,308 | | | $ | 1,376,388 | |
Net cost of gas sold | | | 334,888 | | | | 460,836 | |
| | | | | | | | |
Operating margin | | | 941,420 | | | | 915,552 | |
Operations and maintenance expense | | | 413,140 | | | | 400,222 | |
Depreciation and amortization | | | 212,693 | | | | 228,609 | |
Taxes other than income taxes | | | 56,221 | | | | 51,810 | |
| | | | | | | | |
Operating income | | | 259,366 | | | | 234,911 | |
Other income (deductions) | | | 10,308 | | | | 9,615 | |
Net interest deductions | | | 69,464 | | | | 65,146 | |
| | | | | | | | |
Income before income taxes | | | 200,210 | | | | 179,380 | |
Income tax expense | | | 65,887 | | | | 59,544 | |
| | | | | | | | |
Contribution to consolidated net income | | $ | 134,323 | | | $ | 119,836 | |
| | | | | | | | |
Contribution to consolidated net income from natural gas operations increased by $14.5(deductions) improved $1.2 million between the twelve-month periods ended September 2019 and September 2018. Equity AFUDC contributed $4.5 million as a result of 2017increased construction expenditures and 2016. The improvementhigher underlying rates. Additionally, the non-service components of employee pension and other postretirement benefits costs improved in the current period by $4 million. Offsetting these increases was primarily due to higher operating margin and lower depreciation expense, partially offset by an increase in operations and maintenance expenses and interest expense.
Operating margin increased $26a decline of $7.5 million between periods including a combined $13 million of rate relief in the Arizona and California jurisdictions, as well as Paiute Pipeline Company. Customer growth provided $9 million in operating margin, while operating margin associated with recoveries of regulatory assets, infrastructure replacement mechanisms, customers outside the decoupling mechanisms, and other miscellaneous revenues improved $4 million.
Operations and maintenance expense increased $12.9 million, or 3%, between periods primarily due to general cost increases, partially offset by lower pension expense. Approximately $5.6 millionthe combined effects of the incremental costs recognized were associated with the amountchanges in cash surrender values of COLI policies and timing of employee incentive plan grants (including accelerated recognition for retirement-eligible employees). Pipeline integrity management and damage prevention programs collectivelynet death benefits.
Net interest deductions increased
$500,000.Depreciation and amortization expense decreased $15.9 million between periods primarily due to reduced depreciation rates in Arizona, a result of the recent Arizona general rate case decision. Partially offsetting the decline was depreciation associated with a $335 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 $4.4$14.1 million between periods primarily due to higher property taxesinterest associated primarily with net plant additions and increased property taxes in Arizona, including the impact of a property tax regulatory tracking mechanism resulting from the recent Arizona general rate case.
Other income increased $693,000 between the twelve-month periods of 2017 and 2016. The current period reflects an $8.8 million increase in COLI policy cash surrender values, while the prior-year period reflected $7.5 million of combined COLI-related income and recognized death benefits. COLI amounts in each period were greater than expected.
Net interest deductions increased $4.3 million between periods, primarily due to the September 2016 issuance of $300 million of senior notes. The increase was partially offset by reductions associated with the redemption of debt ($100Senior Notes in March 2018 and $300 million of 4.85% IDRBs in July 2016May 2019, higher interest rates and $24.9 million of 4.75% IDRBs in September 2016)average outstanding balances under Southwest’s credit facility, and lower interest expense associated withcarrying costs on PGA balances as compared toin the prior-yearcurrent period.
36
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
Results of
ConstructionUtility Infrastructure Services
Quarterly Analysis
| | | | | | | | |
| | Three Months Ended September 30, | |
| | 2017 | | | 2016 | |
| | (Thousands of dollars) | |
Construction revenues | | $ | 380,094 | | | $ | 339,790 | |
Operating expenses: | | | | | | | | |
Construction expenses | | | 342,629 | | | | 300,611 | |
Depreciation and amortization | | | 12,335 | | | | 13,409 | |
| | | | | | | | |
Operating income | | | 25,130 | | | | 25,770 | |
Other income (deductions) | | | (210 | ) | | | 44 | |
Net interest deductions | | | 1,962 | | | | 1,794 | |
| | | | | | | | |
Income before income taxes | | | 22,958 | | | | 24,020 | |
Income tax expense | | | 8,407 | | | | 8,708 | |
| | | | | | | | |
Net income | | | 14,551 | | | | 15,312 | |
Net income attributable to noncontrolling interests | | | 216 | | | | 435 | |
| | | | | | | | |
Contribution to consolidated net income attributable to Centuri | | $ | 14,335 | | | $ | 14,877 | |
| | | | | | | | |
Contribution to consolidated
|
| | | | | | | | |
| | Three Months Ended |
| | September 30, |
| | 2019 | | 2018 |
| | (Thousands of dollars) |
Utility infrastructure services revenues | | $ | 515,250 |
| | $ | 450,623 |
|
Operating expenses: | |
| |
|
Utility infrastructure services expenses | | 451,574 |
| | 395,862 |
|
Depreciation and amortization | | 22,998 |
| | 14,232 |
|
Operating income | | 40,678 |
| | 40,529 |
|
Other income (deductions) | | 171 |
| | 38 |
|
Net interest deductions | | 3,788 |
| | 3,945 |
|
Income before income taxes | | 37,061 |
| | 36,622 |
|
Income tax expense | | 10,051 |
| | 9,824 |
|
Net income | | 27,010 |
| | 26,798 |
|
Net income attributable to noncontrolling interest | | 1,172 |
| | — |
|
Contribution to consolidated net income attributable to Centuri | | $ | 25,838 |
| | $ | 26,798 |
|
In November 2018, Centuri acquired Linetec. The table above, therefore, includes results for Linetec in the 2019 period only, including $70.3 million of revenue and approximately $3.7 million of net income from constructionattributable to Linetec during the three months ended September 30, 2019.
Utility infrastructure services
revenues increased $64.6 million in the
currentthird quarter
decreased by $542,000of 2019 when compared to the prior-year
quarter. The decrease isquarter, primarily due to
higher construction costs relative to increasedthe incremental revenues
resulting from apre-tax loss on a project described below, partiallycontributed by Linetec. These increases were offset by
the July 2019 expiration of a
decline in depreciation and amortization.Revenues increased $40.3 million, or 12%, between quarters primarily due to an increase in pipe replacement work with existing customers. A significant portion of the increase relates to bid jobs that are expected to be substantially complete by year end.
Construction expenses increased $42 million, or 14%, between quarters due to additional pipe replacement work. Results were negatively impacted by higher construction costs for amulti-year water pipe replacement project for which Centuri has requestedwas not renewed. The prior-year quarter also included revenue from certain non-routine customer-requested support during a strike-related event.
Utility infrastructure services expenses increased
cost recovery. No additional work orders will be accepted on the project pending resolution of Centuri’s request. Gains on sale of equipment (reflected as an offset to construction expenses) were approximately $25,000 and $1.4$55.7 million
forin the third
quartersquarter of
20172019 when compared to the prior-year quarter, due primarily to $55.8 million of Linetec expenses. Implementation of new regulatory requirements for operating locations within certain eastern states in the U.S. resulted in lower revenues and
2016, respectively.productivity inefficiencies totaling an estimated $4 million during the current quarter as Centuri works with customers to adopt the new requirements. Efforts to complete an industrial construction project in Canada resulted in additional costs of approximately $2 million during the current quarter as a result of delays in commissioning the project. Additionally, changes in the mix of work requested in 2019 by certain customers under unit-priced multi-year master services contracts resulted in higher labor and equipment costs compared to the work anticipated.
Depreciation and amortization
decreased $1.1expense increased $8.8 million between
quarters, primarily due to a $2quarters. Approximately $7.5 million
reduction associated with the extension of the
estimated useful livesincrease was attributable to the Linetec acquisition, including amortization of
certain depreciablefinite-lived intangible assets ($1.2 million) and depreciation of property and equipment
($6.3 million) during the
past 12 months, partially offset by anthird quarter of 2019. The remaining increase
in depreciation forwas attributable to additional equipment purchased to support the growing volume of work being performed.
37
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
Results of
ConstructionUtility Infrastructure Services
Nine-Month Analysis
| | | | | | | | |
| | Nine Months Ended September 30, | |
| | 2017 | | | 2016 | |
| | (Thousands of dollars) | |
Construction revenues | | $ | 872,536 | | | $ | 838,038 | |
Operating expenses: | | | | | | | | |
Construction expenses | | | 806,586 | | | | 757,919 | |
Depreciation and amortization | | | 35,446 | | | | 43,351 | |
| | | | | | | | |
Operating income | | | 30,504 | | | | 36,768 | |
Other income (deductions) | | | 38 | | | | 44 | |
Net interest deductions | | | 5,095 | | | | 4,945 | |
| | | | | | | | |
Income before income taxes | | | 25,447 | | | | 31,867 | |
Income tax expense | | | 9,560 | | | | 12,042 | |
| | | | | | | | |
Net income | | | 15,887 | | | | 19,825 | |
Net income attributable to noncontrolling interests | | | 170 | | | | 500 | |
| | | | | | | | |
Contribution to consolidated net income attributable to Centuri | | $ | 15,717 | | | $ | 19,325 | |
| | | | | | | | |
Contribution to consolidated
|
| | | | | | | | |
| | Nine Months Ended |
| | September 30, |
| | 2019 | | 2018 |
| | (Thousands of dollars) |
Utility infrastructure services revenues | | $ | 1,282,412 |
| | $ | 1,105,844 |
|
Operating expenses: | | | | |
Utility infrastructure services expenses | | 1,154,238 |
| | 1,007,485 |
|
Depreciation and amortization | | 63,924 |
| | 40,392 |
|
Operating income | | 64,250 |
| | 57,967 |
|
Other income (deductions) | | 569 |
| | (331 | ) |
Net interest deductions | | 10,514 |
| | 10,448 |
|
Income before income taxes | | 54,305 |
| | 47,188 |
|
Income tax expense | | 15,057 |
| | 12,951 |
|
Net income | | 39,248 |
| | 34,237 |
|
Net income (loss) attributable to noncontrolling interest | | 2,523 |
| | (797 | ) |
Contribution to consolidated net income attributable to Centuri | | $ | 36,725 |
| | $ | 35,034 |
|
As noted earlier, in November 2018, Centuri acquired Linetec. The table above, therefore, includes results for Linetec in the 2019 period only, including $174.6 million of revenue and approximately $8.5 million of net income from construction services forattributable to Linetec during the first nine months of 2017 declined by $3.62019.
Utility infrastructure services revenues increased $176.6 million
when compared to the prior-year period. The decrease is primarily due to higher construction costs relative to increased revenues, partially offset by a decline in depreciation and amortization.Revenues increased $34.5 million, or 4%, induring the first nine months of 20172019 when compared to the prior-yearsame period in the prior year, primarily due to increasedthe incremental revenues contributed by Linetec. These increases were offset by the July 2019 expiration of a multi-year water pipe replacement work. Partially offsetting increases in revenuesproject which was a temporary work stoppage by a significant customer that began innot renewed. During the first quarternine months of 2017 and continued through part2018, Centuri recorded revenue of $9 million on a negotiated settlement of an outstanding dispute under this contract. The prior-year period also included revenue from certain non-routine customer-requested support during a strike-related event.
Utility infrastructure services expenses increased $146.8 million during the second quarterfirst nine months of 2017 resulting in a $26.3 million reduction in revenues,2019 when compared to the prior-yearsame period in the prior year, due primarily to $139.7 million of Linetec expenses. Additionally, inclement weather conditions impacted costs, as well as the mix of work requested in 2019 by certain customers under unit-priced multi-year master services contracts, as previously discussed. Efforts to complete an industrial construction project in Canada resulted in additional costs during the current period. Net gains on sale of equipment (reflected as an offset to Utility infrastructure services expenses) were $3.2 million and a $3.7$1 millionpre-tax loss for the nine-month periods of 2019 and 2018, respectively.
Depreciation and amortization expense increased $23.5 million between periods. Approximately $19.3 million of the increase is due to the Linetec acquisition, including amortization of finite-lived intangible assets ($3 million) and depreciation of property and equipment ($16 million) in the current nine-month period. The temporaryremaining increase in depreciation was attributable to additional equipment purchased to support the growing volume of work stoppage was initiatedbeing performed.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
Results of Utility Infrastructure Services
Twelve-Month Analysis
|
| | | | | | | | |
| | Twelve Months Ended |
| | September 30, |
| | 2019 | | 2018 |
| | (Thousands of dollars) |
Utility infrastructure services revenues | | $ | 1,698,853 |
| | $ | 1,479,792 |
|
Operating expenses: | |
| |
|
Utility infrastructure services expenses | | 1,534,442 |
| | 1,349,862 |
|
Depreciation and amortization | | 80,928 |
| | 53,975 |
|
Operating income | | 83,483 |
| | 75,955 |
|
Other income (deductions) | | 662 |
| | (24 | ) |
Net interest deductions | | 14,256 |
| | 13,339 |
|
Income before income taxes | | 69,889 |
| | 62,592 |
|
Income tax expense | | 20,526 |
| | 5,781 |
|
Net income | | 49,363 |
| | 56,811 |
|
Net income (loss) attributable to noncontrolling interest | | 2,695 |
| | (866 | ) |
Contribution to consolidated net income attributable to Centuri | | $ | 46,668 |
| | $ | 57,677 |
|
Results for Linetec have been included in the table above during the period following the November 2018 acquisition date, including $188.7 million of revenue and approximately $9.2 million of net income reflected in the twelve-month period ended September 2019.
Utility infrastructure services revenues increased $219.1 million overall in the twelve-month period ended September 2019 compared to the twelve-month period ended September 2018, primarily due to
state-mandated requalificationincremental revenue noted above for Linetec. The remaining revenue increase is due to a higher volume of
employees of all contractors working within the jurisdictional boundary of one state. Operations resumed gradually following the requalification of Centuri’s employees during the second quarter of 2017. Additionally, inclement weather in several operating areas negatively impacted revenuespipe replacement work under new and
reduced productivityexisting blanket and bid contracts, primarily in the
first quartercentral U.S., and certain non-routine projects (including customer-requested support during strike-related and emergency response situations). Revenue for the twelve-month period in 2018 included a $9 million negotiated settlement of
2017.Constructionan outstanding contract dispute from 2017 associated with a water pipe replacement project.
Utility infrastructure services expenses increased
$48.7$184.6 million
or 6%, between
periods. The increase in constructionperiods, primarily due to related expenses
is disproportionate to revenues noted above due in part to logistics surrounding the timingfor Linetec of $149.8 million and
length of the temporary work stoppage with the significant customeradditional labor and
to higher laborequipment costs incurred to complete work during inclement weather conditions in the
first quarter. In addition, results were negatively impacted by highercurrent period. The industrial construction
andstart-upproject in Canada also resulted in additional costs
relatedduring the current period. The mix of work requested to be completed in the current period, as discussed earlier, also contributed to the
water pipe replacement project, forincrease in costs overall. Included in total Utility infrastructure services expenses are general and administrative costs, which
Centuri is pursuing cost recovery. Gainsincreased $12.3 million in the current period, including $6.9 million of deal costs from the acquisition of Linetec. Net gains on sale of equipment (reflected as an offset to
constructionUtility infrastructure services expenses) were
approximately $1.5$3.9 million and
$4.1$3.7 million for the
first nine monthstwelve-month periods of
20172019 and
2016,2018, respectively.
Depreciation and amortization
decreased $7.9expense increased $27 million between
periods, primarily duethe current and prior-year periods. Approximately $22 million of this increase was attributable to
an $8.2 million reduction inLinetec amortization of finite-lived asset amortization ($4.1 million) and property and equipment depreciation
associated with the extension of the estimated useful lives of certain depreciable equipment during the past 12 months, partially offset by an($17.8 million). The remaining increase in depreciation
forwas attributable to additional equipment purchased to support the growing volume of work being performed.
38
Net interest deductions increased $917,000 between periods due primarily to interest expense associated with incremental borrowings, and amortization of debt issue costs, related to the $590 million secured revolving credit and term loan facility (largely resulting from the Linetec acquisition). Lower rates on variable-rate debt mitigated the increases.
Income tax expense during the twelve-month period ended September 30, 2018 was favorably impacted by approximately $12 million of one-time tax benefits related to the remeasurement of Centuri’s deferred tax liabilities when U.S. tax reform was enacted in December 2017.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
Results of Construction Services
Twelve-Month Analysis
| | | | | | | | |
| | Twelve Months Ended September 30, | |
| | 2017 | | | 2016 | |
| | (Thousands of dollars) | |
Construction revenues | | $ | 1,173,576 | | | $ | 1,127,982 | |
Operating expenses: | | | | | | | | |
Construction expenses | | | 1,073,090 | | | | 1,009,188 | |
Depreciation and amortization | | | 47,764 | | | | 58,368 | |
| | | | | | | | |
Operating income | | | 52,722 | | | | 60,426 | |
Other income (deductions) | | | 1,187 | | | | 1,246 | |
Net interest deductions | | | 6,813 | | | | 6,738 | |
| | | | | | | | |
Income before income taxes | | | 47,096 | | | | 54,934 | |
Income tax expense | | | 17,402 | | | | 20,711 | |
| | | | | | | | |
Net income | | | 29,694 | | | | 34,223 | |
Net income attributable to noncontrolling interests | | | 684 | | | | 1,079 | |
| | | | | | | | |
Contribution to consolidated net income attributable to Centuri | | $ | 29,010 | | | $ | 33,144 | |
| | | | | | | | |
Contribution to consolidated net income from construction services for the twelve-month period ended September 30, 2017 decreased $4.1 million compared to the same period of 2016. The decrease is primarily due to higher construction costs relative to increased revenues, resulting inpre-tax losses on certain projects, partially offset by a decline in depreciation and amortization.
Revenues increased $45.6 million, or 4%, in the current twelve-month period compared to the same period of 2016 primarily due to additional pipe replacement work for existing natural gas distribution customers. During the past several years, Centuri has focused its efforts on obtaining replacement work under both blanket contracts and incremental bid projects. For both twelve-month periods ended September 30, 2017 and 2016, revenues from replacement work provided over 60% of total revenues.
Construction expenses increased $63.9 million, or 6%, between periods, due to additional pipe replacement work, higher labor costs experienced due to changes in the mix of work with existing customers, and higher operating expenses to support increased growth in operations. The logistics surrounding the timing and length of a temporary work stoppage with a significant customer during the first six months of 2017 and higher labor costs incurred to complete work during inclement weather conditions in the first quarter of 2017 resulted in costs disproportionate to revenues. Results were negatively impacted by higherstart-up and construction costs for a water pipe replacement project, for which Centuri has requested increased cost recovery. No additional work orders will be accepted on the project pending resolution of Centuri’s request. Gains on sale of equipment (reflected as an offset to construction expenses) were $4.5 million and $4.2 million for the twelve-month periods ended September 30, 2017 and 2016, respectively.
Depreciation and amortization decreased $10.6 million between the current and prior-year periods primarily due to an $11.1 million reduction associated with the extension of the estimated useful lives of certain depreciable equipment over the last twelve months, partially offset by an increase in depreciation for additional equipment purchased to support the growing volume of work being performed.
39
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Rates and Regulatory Proceedings
Southwest is subject to the regulation of the Arizona Corporation Commission (the “ACC”), the Public Utilities Commission of Nevada (the “PUCN”), the California Public Utilities Commission (the “CPUC”), and the Federal Energy Regulatory Commission (the “FERC”).
General Rate Relief and Rate Design
Rates charged to customers vary according to customer class and rate jurisdiction and are set by the individual state and federal regulatory commissions that govern Southwest’s service territories. Southwest makes periodic filings for rate adjustments as the cost of providing service (including the cost of natural gas purchased) changes, and as additional investments in new or replacement pipeline and related facilities are made. Rates are intended to provide for recovery of all commission-approved costs and a reasonable return on investment. The mix of fixed and variable components in rates assigned to various customer classes (rate design) can significantly impact cash flows of Southwest. Management has worked with its regulatory commissions in designing rate structures that strive to provide affordable and reliable service to its customers while mitigating the volatility in prices to them and that endeavor to stabilize returns to investors. Such rate structures were in place in all of Southwest’s operating areas during all periods for which results of natural gas operations are disclosed above.
Arizona General Rate Case. On May 1, 2019, Southwest filed a general rate case application requesting to increase revenue by approximately $57 million to update the cost of service to reflect recent U.S. tax reform changes, including the return of excess deferred income taxes to customers, and to reflect capital investments of approximately $670 million, including certain post-test year additions, which include the southern Arizona LNG facility discussed below. At the time of the filing, the Company estimated the return of approximately $20.6 million of excess deferred income taxes. Since then, the Company finalized its 2018 tax return which allowed it to calculate the actual amortization amount of $5.7 million based on the prescribed methodology for calculating the excess amount to be returned to customers. The difference in estimated deferred taxes of $20.6 million and the actual amortization of $5.7 million would result in an increase in revenue and income tax expense, thereby having no impact to earnings. The revenue increase included a proposed 10.3% return on equity relative to a capital structure of 51.1% equity. The request also includes the retention of a fully decoupled rate design, other previously approved regulatory mechanisms, and a new infrastructure tracking mechanism for specific plastic pipe. The request includes a proposal for a renewable natural gas program that authorizes Southwest to purchase renewable natural gas for its customers and to recover the cost as part of its purchased gas adjustment mechanism. In October, Southwest filed a supplement to its post-test year plant request to include an additional $124.5 million of investments associated with its COYL and VSP programs. If approved, this could result in additional margin of approximately $17 million. A hearing in this matter is scheduled for February 2020.
Delivery Charge Adjustment. The annual Delivery Charge Adjustment (“DCA”) is filed each April, which along with other reporting requirements, contemplates a rate to recover the over- or under-collected margin tracker amounts based on the balance at the end of the preceding calendar year. The DCA that was filed in April 2018 reflected the December 31, 2017 balance of approximately $40 million. Following a brief administrative delay, Southwest updated its request to instead include the balance at December 31, 2018 of $73 million. The ACC approved a surcharge to recover approximately $69 million, the difference of which relates to a one-time modification to reflect benefits attributable to the impact of recent landmark U.S. tax reform on the decoupled balance existing at the enactment date of such reform. The updated rate became effective in May 2019.
Tax Reform. In February 2018, the ACC directed all Arizona utilities to address tax savings from the enactment of U.S. tax reform beginning January 1, 2018, through one of various means. In April 2018, Southwest filed an application with the Arizona Corporation Commission (“ACC”)ACC, requesting approval for a tax refund process or, in May 2016 requesting an increase in authorized annual operating revenues of approximately $32 million, or 4.2%,the alternative, the authority to file a general rate case to reflect existing levelstax reform. Ultimately, Southwest was instructed to refund customers a one-time credit to reflect the tax savings from January through July 2018, effective with Southwest’s August 2018 billing cycles. In addition, effective August 2018, per-therm surcredits were established and are effective until new cost-of-service rates are implemented following the conclusion of expense and requested returns, in addition to reflecting capital investments made by Southwest since June 2010. The application requested an overallthe general rate of return of 7.82% on an original cost rate base of $1.336 billion, a 10.25% 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,case, 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 heldMay 2019. These undertakings are expected to refund $20 million annually, as compared to rate levels established in February 2017, and the ACC approved the settlement agreement inpreviously concluded general rate case effective April 2017. The settlement provides for an overall operating revenue increase of $16 million and the capital structure and cost of capital as proposed byThrough September 2019, Southwest has reflected relevant proportional amounts associated with the exception of the return on common equity, which was set at 9.50%. Depreciation expenseannualized $20 million as a reduction in revenue and is tracking monthly differences between amounts expected to be reduced by $44.7 million, for a combined net annual operating income increasereturned and amounts actually returned to customers, which has resulted in an asset balance of $60.7 million. Other key elementsapproximately $287,000 as of September 30, 2019. See related discussion above with regard to 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 replacement program, and a continuation of the current decoupled rate design, excluding a 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 to defer changes in property tax expense for recovery or return in the next general rate case. New rates were effective April 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 (“DCA.
Liquefied Natural Gas”Gas (“LNG”) 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 inrelated to 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. InA modified ACC order in December 2014, Southwest received an order from the ACC grantingpre-approval of Southwest’s application to construct the LNG facility2016, following land purchase and the deferral of costs, up to $50 million. Following the December 2014 preapproval, Southwest purchased the site for the facility 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 requestsfacility, granted approval for proposals forconstruction
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
and deferral of costs not to exceed $80 million. Construction began during the
EPC phasethird quarter of 2017 and the structures were completed in the third quarter of 2019. Testing of the
project,facility is in progress and
in October 2016 made a filing withis expected to be completed during the
ACC to modify the previously issued Order to update thepre-approved costs to reflect anot-to-exceed amountwinter of
$80 million, which was approved by the ACC in December 2016.2019/2020. Through September
2017,2019, Southwest has incurred approximately
$21.7$72 million in capital expenditures toward the project (including land acquisition costs).
Construction commenced during the third quarter of 2017 and is expected to be completed by the end of 2019.
COYL Program. Southwest received approval, in connection with an earlierits 2010 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 notrepresenting a traditionalnon-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 iflow-pressure leaks occurred. Effective June 2013, the ACC authorized a surcharge to recover the costs of depreciation andpre-tax return on the costs incurred to replace and relocate service lines and meters.non-leaking COYLs. The surcharge is designed to be 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 ofnon-leaking COYLs. In the most recent annual COYL filing made in February 2017,2019, Southwest requested to establish an annualincrease its surcharge to collect $1.8revenue by $3.2 million (to $6.7 million overall) related to the revenue requirement associated with $12.1$26.6 million in capital projects completed under both Phase Iphases during 2018. The Staff issued a report and Phase II during 2016. In June 2017,recommendation to the ACC issued a decision approvingthat the current COYL program surcharge application. All capital work completedrevenue be suspended, and that the program be reviewed in earlier years was incorporated inconjunction with Southwest’s Arizona rate base in connection with the recently completedpending general rate case, proceeding,resolution of which is expected in the second quarter of 2020. The ACC issued an Order in October authorizing Southwest to retain the existing annual surcharge revenue of $3.5 million and to review the program as part of the pending rate case. ACC review of the $26.6 million of capital investment from 2018, including potential cost recovery, will now occur as part of the pending general rate case. With the supplemental filing discussed above.40
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
earlier, Southwest is proposing to have the ACC review the estimated $21.1 million of COYL capital projects scheduled to be completed in 2019, including any decision regarding potential cost recovery, as part of the pending rate case as well.
Vintage Steel Pipe Program.(“VSP”) Program. Southwest received approval, in connection with its most recent2016 Arizona general rate case, to implement a vintage steel pipe (“VSP”)VSP 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 beis made in February of each year. The surcharge is designed to be revised annually as the program progresses. A PlanSouthwest replaced approximately 119 miles of Administration (“POA”), which was filed in March of 2017vintage steel pipe during 2018 totaling approximately $100 million. In the February 2019 VSP filing, Southwest requested to increase its surcharge revenue by $9.5 million (to $11.9 million) related to 2018 expenditures. The Staff issued a report and was approvedrecommendation to the ACC that the current VSP program surcharge revenue be suspended and that the program be reviewed in conjunction with theSouthwest’s pending general rate case, outlinedresolution of which is expected in the VSPsecond quarter of 2020. The ACC issued an Order in October authorizing Southwest to retain the current annual surcharge revenue of $2.4 million and to review the program requirements and establishedas part of the timeline for future project plans and surcharge requests.pending rate case. ACC review of the $100 million of capital investment from 2018, including consideration of potential cost recovery, will now occur as part of the pending general rate case. With the supplemental filing discussed earlier, Southwest is currently targetingproposing to have the replacement of nearly 40 milesACC review the estimated $103.4 million of VSP duringcapital projects scheduled to be completed in 2019, including potential cost recovery, as part of the pending rate case.
Customer Data Modernization Initiative. Southwest is embarking on an initiative to replace its customer service system and its gas transaction system, each of which is utilized to support all Southwest service territories. Combined, these undertakings are referred to as the Customer Data Modernization Initiative (the “CDMI”). In March 2019, Southwest filed an application with the ACC seeking an accounting order which, if approved, would authorize Southwest to track and defer all costs associated with the CDMI to mitigate adverse financial implications associated with this multi-year initiative. The total cost for the CDMI is estimated at $174 million, approximately $96 million of which would be allocable to the Arizona rate jurisdiction. The initiative is currently expected to be completed in the first half of 2021. A hearing in this matter is scheduled in the first quarter of 2020.
California Jurisdiction
California General Rate Case. Southwest’s existing rates became effective June 2014, and included a Post-Test Year (“PTY”) Ratemaking Mechanism, which allowed for attrition increases of 2.75% annually for 2015 through 2018, after which new rates from a subsequent rate case cycle would have been expected to be in effect. In December 2016, Southwest filed to modify the earlier (2014) general rate case decision to extend the rate case cycle by two years, and received CPUC approval in June 2017, totaling approximately $27including extension of the annual 2.75% PTY attrition adjustments for 2019 and 2020.
On August 30, 2019 Southwest filed the previously deferred California general rate case, based on a test year of 2021, seeking authority to increase rates in its California rate jurisdictions. The proposed combined revenue increase of $12.8 million
is net of a $10.9 million revenue reduction associated with changes from recent U.S. tax reform, which includes the amortization of $9.8 million (approximately $2 million annually over five years) associated with the difference in authorized income tax expense and
actual incurred income tax expense for years 2019 and 2020, which when returned will impact cash flows but is not expected to have an impact on earnings overall. The overall revenue request also includes $1.6 million of excess accumulated deferred income taxes that are proposed to be returned to customers each year until the amount is reset as part of a future rate case. Southwest’s proposal includes a return on common equity of 10.5%, relative to a 53% equity ratio; continuation of the post-test year margin adjustments of 2.75%; implementation of various safety-related programs including a targeted pipe replacement
projects during 2018program, a meter protection program, including a combination of
approximately $100 million.California Jurisdiction
measures, such as snow sheds, excess flow valves, upgraded meter set piping and
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
upgraded Encoder Receiver Transmitter (“ERT”) protocol; as well as an expansion of the COYL replacement program. The case will be processed throughout 2020, with rates requested to be effective January 2021.
Tax Reform. In its 2017 decision approving Southwest’s request to extend the filing date of its next general rate case, the CPUC also directed Southwest to track income tax expenses resulting from mandatory or elective changes in tax law, procedure, or policy as a result of the extension. The purpose is to identify differences between Southwest’s authorized income tax expenses and its actual incurred income tax expenses. Through the third quarter of 2019, Southwest reflected $3.7 million as a reserve for amounts attributable to the impact of U.S. tax reform on the ratemaking revenue requirement.
Attrition Filing. In November 2016,2018, Southwest made its latest annual post-test year (“PTY”)PTY attrition filing, with the California Public Utilities Commission (“CPUC”), requesting annual revenue increases of $2.1$2 million in southern California, $513,000$542,000 in northern California, and $256,000$271,000 for South Lake Tahoe. This filing was approved in December 20162018 and rates were made effective in January 2017.2019. 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 years 2015-2017 beginning in the second quarter of 2018. Southwest began amortizing its then existing net cost balance over a 12-month period with recovery rates effective July 2018 for all applicable rate schedules. In addition, for years 2019-2020, the decision directed the adoption of an allocation methodology to distribute the revenue proceeds through a California Climate Credit to active residential customers in April of each year, following initial required credits in October 2018. GHG compliance costs recovered through rates (including transportation customer rates) have no impact on earnings overall.
Customer Data Modernization Initiative. On April 26, 2019, Southwest filed an application with the CPUC seeking authority to establish a two-way, interest bearing balancing account to record costs associated with the CDMI to mitigate adverse financial implications associated with this multi-year project. Approximately $19 million of the total cost for the CDMI would be allocable to the California rate jurisdiction. Southwest filed a separate request to establish a memorandum account while the CPUC considers its application request to establish a two-way balancing account. Effective October 2019, the CPUC granted Southwest’s request, which will allow Southwest to track costs, including operations and maintenance costs and capital-related costs, such as depreciation, taxes, and return associated with California’s portion of the CMDI. The balance tracked will be recorded in a two-way balancing account if Southwest’s original application is approved. Resolution of the application request is expected in the fourth quarter of 2019.
Nevada Jurisdiction
Nevada General Rate Case. In December 2016,Case. Southwest filed to modify theits most recent general rate case decision to extendwith the current rate case cycle by two years, including extensionPUCN in May 2018 and updated the request following the certification period ending in July 2018. The filing requested a statewide overall revenue increase of the annual PTY attrition adjustments through 2020 from 2018. That latestapproximately $29.7 million.
The PUCN issued a rate case decision would have required Southwestin December 2018, which authorized a return on equity (“ROE”) of 9.25% relative to filethe Company’s proposed capital structure of 49.66% equity applicable to both southern and northern Nevada, and provided for an overall revenue increase of $9.5 million in southern Nevada and a revenue decrease in northern Nevada of $2 million. New rates associated with the PUCN’s decision became effective in January 2019.
The rate relief was lower than the amounts requested due to several factors, including the 9.25% granted return on equity, as opposed to a requested 10.3%, and the exclusion from rates at this time of costs attributable to several software applications, albeit allowing the Company to request recovery in its next general rate application by September 2017. Expedited consideration was requested andcase filing. In response to the PUCN’s decision, management filed a Petition for Reconsideration (the “Petition”) of several rate case issues in June 2017, the CPUC approved the request, thereby extendingJanuary 2019. The PUCN Staff also filed a Petition for Reconsideration requesting several technical clarifications on the rate case decision with respect to how to calculate the intended results of the decision. The PUCN, in turn, issued a decision regarding both petitions in February 2019 that modified certain parts of the original order, but granted no further rate relief. The modified final decision resulted in a revenue increase of $9.2 million in southern Nevada and a revenue decrease in northern Nevada of $2.1 million. The decision included a reduction in depreciation expense of $800,000 and overall, resulted in a net increase in revenues of $7.1 million and an increase in operating income of $7.9 million. The resulting modified rates became effective March 2019. Management decided to seek judicial review of the PUCN’s rate order, the resolution of which is expected by the end of 2019.
General Revenues Adjustment. As part of the Annual Rate Adjustment (“ARA”) filing deadline. Southwest believes this extension is in 2018, the public interest as it providesPUCN authorized rate stability to customers for two additional years consistentadjustments associated with the current reasonable rates approvedGeneral Revenues Adjustment (“GRA”), to recover $5.6 million from customers during 2019. The continuation of the GRA was affirmed as part of the last generalDecember 2018 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).Nevada Jurisdiction
General Revenues Adjustment.In June 2016, Southwest requested authorization from the Public Utilities Commission of Nevada (“PUCN”) to adjust rates associated with its revenue decoupling mechanism (General Revenues Adjustment, or “GRA”). The filing was approved in December 2016, with rates effective January 2017. The rate adjustment is expected to refund approximately $16.7 million during 2017. In June 2017, Southwest filed to adjust the GRA surcharge effective January 2018, which was approved by the PUCN during the third quarter of 2017. This will result in a decrease in collections from customers of $15.4 million, based on the over-recovered balance in the account at the end of April 2017.decision. While there is no impact to net income overall from this rate adjustment, operating cash flows will be reducedincrease as the associated regulatory liabilityasset balance is refunded.
recovered. In
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
June 2019, Southwest made its 2019 ARA filing in which it requested to update the GRA to reflect the current over-collected balances in both southern and northern Nevada. The proposal would provide a decrease in cash flows of approximately $8 million in southern Nevada and an increase of approximately $2 million in northern Nevada, but have no impact to operating margin or earnings overall. Proposed changes related to the 2019 ARA will be considered by the PUCN during the fourth quarter 2019, with rates expected to be effective January 2020.
Infrastructure Replacement Mechanisms.Mechanism.In January 2014, the PUCN approved final rules for athe GIR mechanism to deferwhich defers and recoverrecovers certain costs associated with accelerated replacement of qualifying infrastructure that doeswould not otherwise currently provide incremental revenues. Associated with suchthe replacement of various types of pipe infrastructure under the mechanism each year,(Early Vintage Plastic Pipe (“EVPP”), COYL, and VSP), generally on an annual basis, Southwest files a Gas Infrastructure Replacement (“GIR”)GIR “Advance Application” in May and a “Rate Application,” generally in October. In June 2018, Southwest filed its Advance Application requesting authorityauthorization to replace qualifying infrastructure and files separately as partwith projects totaling $228 million to be completed over a three-year period (2019-2021), 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 GIR filingbasis; however, it requested to move to a multi-year approval process for projects to improve operational flexibility and enhance coordination with contractors and governmental agencies. The PUCN issued a decision limiting its approval to the 2019 projects, resulting in an approval of $34.3 million for projects to be completed in 2019 (EVPP $9.3 million, COYL $1.3 million, and VSP $23.7 million).
The Rate Application is generally filed each October to reset the
GIR recovery surcharge related to previously approved and completed
projects. For projects,
approved in 2015 and completed in 2016,with new rates becoming effective each January. During the
annualized revenue was approximately $4.5 million. In September 2016, Southwest filedthird quarter of 2018, management proposed to adjust the GIR surcharge
to recoverrate as part of the
annual revenue requirement for amounts previously deferred. Thisrate case in lieu of filing
a separate application, which was approved
and implemented in
December 2016 and new rates became effective January
2017. In June 2016, Southwest filed an Advance Application for projects 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 for several years in Southwest’s Arizona jurisdiction. The PUCN issued an Order on the Advance Application in October 2016, approving approximately $57.3 million of replacement work with an annualized revenue requirement estimated at approximately $5.3 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 to be completed. In September 2017, Southwest filed to adjust the GIR surcharge to recover the annual revenue requirement for amounts previously deferred. For projects approved in 2016 and completed by July of 201741
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
, the deferred annualized revenue requirement is approximately $8.7 million. This filing2019. It is expected to be approvedresult in December 2017 with rates becoming effective January 2018.
In May 2017,incremental annual margin of approximately $6 million. On October 1, 2019, Southwest filed a GIR AdvanceRate Application withto reset the PUCN for projects totaling approximately $66 million that arerecovery surcharge to include cumulative deferrals through August 31, 2019. This surcharge rate is expected to be completed during 2018. Similar to previous years, the proposed projects consistbecome effective January 2020 and result in a reduction in annual margin of early vintage plastic and early vintage steel pipe, as well as the continuation of the previously approved COYL program in northern Nevada. Southwest entered into a settlement agreement with the intervening parties and filed a proposed stipulation requesting the Commission approve the settlement agreement. The settlement agreement proposed that the request be approved as filed and that Southwest be authorized to start replacing COYLsapproximately $7.6 million in southern Nevada and $35,000 in certain situations, and to recover costs through the GIR mechanism. The PUCN issued an Order on the GIR Advance Application in September 2017, approving approximately $65.7 million of replacement work (with an annualized revenue requirement estimated at approximately $6 million) and the COYL provisions in southernnorthern Nevada.
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 approved 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 (for projects recommended for completion under the program after 2018), a general rate case will need to be filed before June 2018.
Conservation and Energy Efficiency (“CEE”). In June 2015, Southwest requested recovery The PUCN allows deferral (and later recovery) of approved conservation and energy efficiency and conservation development and implementation costs, including promotions and incentivesrecovery rates for various programs, as originally approved for deferral bywhich are adjusted in the PUCN effective November 2009. While recovery of initial program costs was approved asannual rate adjustment filing. 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 the2018 ARA filing, approved in December 2016, Southwest requested and received modified rates, effective January 2017,2019, which are expected to result in annualized margin decreases of $1.4 million in northern Nevada and $1.3$4.1 million in southern Nevada to return over-collected balances.and $58,000 in northern Nevada. There is, however, no anticipated impact to net income overall from these decreaseschanges as amortization expense is reduced by approximately the same amounts. In June 2019, Southwest made its 2019 ARA filing which proposes annualized margin increases of $3.2 million and $880,000 in southern and northern Nevada, respectively. Southwest recently entered into a stipulation and agreement to modify these amounts to $6.2 million and $1.1 million in southern and northern Nevada, respectively, which reflect the recovery of a related but separate program balance to be rolled into customer rates with the effective date. These changes, if approved, would have no impact on earnings overall, as described above. Proposed changes related to the 2019 ARA will also be reduced.considered by the PUCN during the fourth quarter 2019, with rates expected to be effective in January 2020.
Expansion and Economic Development Legislation.In February 2015,January 2016, final regulations were approved by the PUCN associated with legislation (“SB 151”) waspreviously introduced and signed into law in Nevada directing the PUCN to adopt regulations authorizingNevada. The legislation authorized natural gas utilities to expand their infrastructure consistent with a program of economic development. This includes providing gasto provide service to unserved and underserved areas in Nevada, as well as attracting and retaining utility customers and accommodating the expansion of existing business customers. SB 151 was signed into law in May 2015. The draft regulations were reviewed by the Legislative Council Bureau and final regulations were approved by the PUCN in January 2016.Nevada.
In November 2017, Southwest filed for preapproval of a project to extend service to include the service territory of Mesquite, Nevada, in accordance with the SB 151 regulations. This project proposesUltimately, the extension of existing facilitiesPUCN issued an order approving Southwest’s proposal to expand natural gas infrastructure to Mesquite, at an estimated costincluding a capital investment of approximately $30 million.$28 million and the construction of approximately 37 miles of distribution pipeline (including the approach main). The cost is proposedexpected to be recovered through a volumetric surcharge onrates from all southern Nevada customers. A second phasecustomers (including new customers in Mesquite). The annual revenue requirement associated with the project is then proposedapproximately $2.8 million. Southwest conducted preliminary design work and began serving certain customers with an approved virtual pipeline network in February 2019, which provides temporary natural gas supply using portions of the approved distribution system and compressed natural gas tanks. It is estimated that permitting and construction of the approach main to convert existing homesbring the permanent supply to Mesquite and construction of the remaining approved distribution system could take approximately two years to complete.
In June 2019, Southwest filed for preapproval to construct the infrastructure necessary to expand natural gas service which willto Spring Creek, Nevada, and implement a cost recovery methodology to timely recover the associated revenue requirement consistent with the SB 151 regulations. Proposed expansion to the Spring Creek area near Elko, Nevada, consists of an approach main, two regulator stations, and interior backbone plus the extension of the distribution system from the interior backbone system. This area has a population of approximately 16,500, with approximately 20% of the existing 5,000 potential customers expressing interest in taking natural gas service, if available. The total capital investment is estimated to be charged as$61.9 million. Resolution of this request is expected in the first quarter of 2020.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
Customer Data Modernization Initiative. In March 2019, Southwest filed a separate surchargerequest seeking authority to Mesquite customers only.establish a regulatory asset to defer the revenue requirement related to the CDMI to mitigate the financial attrition associated with this multi-year project. Of the total estimated cost of the CDMI, approximately $59 million would be allocable to the Nevada rate jurisdictions. A decisionhearing on this proposalmatter was held in August 2019 and the PUCN issued its decision in September 2019 denying the Company’s request for regulatory asset treatment, finding that a general rate case is expected within the required210-day time periodmost appropriate venue to address such costs. In response to the PUCN’s decision, Southwest filed a Petition for filings of this type.Reconsideration in October 2019 for which the PUCN has 40 days to issue a decision; otherwise, the petition is deemed denied.
Federal Energy Regulatory Commission (“FERC”) Jurisdiction
2018 Expansion. In response to growing demand in the Carson City and South Lake Tahoe areas of northern California and northern Nevada,
General Rate Case. Paiute Pipeline Company (“Paiute”) evaluated shipper interest in acquiring additional transportation capacity and executed precedent agreements for incremental transportation capacity with, a wholly owned subsidiary of Southwest, during the third quarter of 2016. In October 2016, Paiute initiatedfiled apre-filing review process general rate case application with the FERC for an expansion project, which was approved duringon May 31, 2019 to update the same month. In July 2017, a certificate application was filed, which included an applicant environmental assessment. The project is anticipated to consist of 8.5 miles of additional transmission pipeline infrastructure at an approximate cost of $18 million. Ifservice to reflect recent U.S. tax reform changes, capital investments and other changes in its cost of service since its last general rate case. The request includes an increase in revenue of approximately $7 million, including a proposed 14.84% return on equity relative to a hypothetical capital structure of 56% equity. Paiute is also proposing to continue its current rate structure for its customer categories. Paiute requested rates associated with this filing to be made effective on July 1, 2019; however, the process progresses as planned, a decision should be received by April 2018rate increase request was suspended until December 2019. It is not uncommon for suspension/delay to occur related to requests for increases, in order to permit the FERC time to review the proposed changes. Rate decreases associated with the Elko Incremental Facilities Charge; 2010 Expansion Incremental Facilities Surcharge; and the additional facilities could be in place by2015 Elko Area Expansion Incremental Facilities Surcharge were placed into effect July 1, 2019. Hearings have been scheduled for June 2020, with a final decision expected before the end of 2018.42
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
2020.
The rate schedules in all of Southwest’s service territories contain provisions that permit adjustmentsadjustment 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 September 30, 2017,2019, under-collections in Arizonanorthern and Northernsouthern Nevada resulted in an asset of approximately $6.2$49.8 million and over-collections in Southern NevadaArizona and California resulted in a liability of $15$88.0 million on the Company’s and Southwest’s condensed consolidatedCondensed Consolidated Balance Sheets. The balance sheets. Gas cost rates paid to suppliers have been higher than amounts recovered from customersin Arizona reflects the majority (portion associated with interstate transmission into Arizona) of a $49 million refund received during the first nine monthsthird quarter of 2017, resulting2018 by Southwest from El Paso Natural Gas, L.L.C. (“EPNG”), as part of a rate case settlement. Effective May 2019, the ACC approved the return of the EPNG rate case settlement dollars as a special per-therm PGA credit, which resulted in fluctuations$12.6 million in credits to Arizona customers since December 31, 2016. Tariff rates have been adjustedits establishment and is expected to be in all jurisdictions during this period. place for approximately twelve months.
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).
The following table presents Southwest’s outstanding PGA balances receivable/(payable) (thousands of dollars):
| | | | | | | | | | | | |
| | September 30, 2017 | | | December 31, 2016 | | | September 30, 2016 | |
Arizona | | $ | 1,324 | | | $ | (20,349 | ) | | $ | (34,425 | ) |
Northern Nevada | | | 4,906 | | | | (3,339 | ) | | | (10,326 | ) |
Southern Nevada | | | (13,711 | ) | | | (66,788 | ) | | | (77,402 | ) |
California | | | (1,260 | ) | | | 2,608 | | | | (1,246 | ) |
| | | | | | | | | | | | |
| | $ | (8,741 | ) | | $ | (87,868 | ) | | $ | (123,399 | ) |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 | | September 30, 2018 |
Arizona | | $ | (84,438 | ) | | $ | (72,878 | ) | | $ | (70,863 | ) |
Northern Nevada | | 11,909 |
| | 4,928 |
| | (1,287 | ) |
Southern Nevada | | 37,895 |
| | (5,951 | ) | | (16,125 | ) |
California | | (3,592 | ) | | (933 | ) | | (4,748 | ) |
| | $ | (38,226 | ) | | $ | (74,834 | ) | | $ | (93,023 | ) |
Capital Resources and Liquidity
Cash
Historically, cash on hand and cash flows from operations
in the past twelve months have
generally provided
the majoritya substantial portion of cash used in investing activities (primarily for construction expenditures and property additions). In recent years,
certainthe Company has accelerated pipe replacement
has been accelerated to take advantage of bonus depreciation tax incentives andactivities to fortify system integrity and reliability, notably in association with
new gas infrastructure replacement programs as discussed
above. During this same time, benefits were derivedpreviously. This accelerated activity has necessitated the issuance of both debt and equity securities to supplement cash flows from
debt refinancing and strategic debt redemptions.operations. The
Company’s capitalization strategy isCompany endeavors to maintain an appropriate balance of equity and debt to maintain strong investment-grade credit ratings, which should minimize interest costs.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
Southwest Gas Holdings, Inc.:
Operating Cash Flows.Cash flows provided by consolidated operating activities decreased $179$29 million in the first nine months of 20172019 as compared to the same period of 2016.2018. The decline in operating cash flows was primarily attributable to the change in deferredresulted from a reduction/return of amounts under purchased gas costs noted above. Refer toResultsadjustment mechanisms, offset by increases in net income, benefits from depreciation, and impacts of Natural Gas Operations andRates and Regulatory Proceedingsworking capital components overall (including regulatory balances, such as the Arizona DCA, that are recovered or returned over twelve months or less).
Investing Cash Flows.Cash used in consolidated investing activities increased $35$162 million in the first nine months of 20172019 as compared to the same period of 2016.2018. The change was primarily due to increased construction expenditures in the natural gas operations segment, including scheduled and accelerated replacement activity. The prior period included an outflowactivity, as well as the remittance of $17 million to facilitate a construction services acquisition.portion of purchase consideration previously held back in association with the acquisition of Linetec (see
Note 12 – Business Acquisitions). Financing Cash Flows.Net cash provided by consolidated financing activities increased $195$108 million in the first nine months of 20172019 as compared to the same period of 2016.2018. The increase was primarily due to activity under the credit facility and commercial paper program (an increase in borrowings in the current-year nine-month period and the repayment of borrowings in the prior-year nine-month period). The prior period included proceeds in utility operations from the issuance of $300common stock under both an earlier equity registration and a recent Equity Shelf Program initiated in May 2019, in addition to higher payments in the prior year by Southwest of short-term balances under its revolving credit facility. Additionally, retirements of long-term debt arrangements were higher in the prior period; whereas, dividends were higher in the current period due to both an increase in the dividend rate and the number of shares outstanding in the current period. See Note 6 – Common Stock and Note 7 – Long-Term Debt.
The Company received approximately $121 million in
senior notes. The Company also issued approximately $12 millionstock proceeds during
2017 in stock under its Equity Shelf Program. See alsoNote 5 – Common Stock, and the discussion below. The first nine months of 2017 includes the August 2017 $23 million purchase of the previous owners’ interest in Centuri. See alsoNote 9 – Construction Services Redeemable Noncontrolling Interest for additional information.43
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Dividends paid increased in the first nine months of 2017 as compared to the same period of 2016 as a result of an increase in the quarterly dividend rate2019 under its Equity Shelf programs and an increase in the number of shares outstanding.
The Company issued approximately 103,000 additional96,000 shares of common stock collectively through the Restricted Stock/UnitDividend Reinvestment and Stock Purchase Plan and the Management Incentive Plan.
Southwest Gas Corporation:
Operating Cash Flows.Cash flows provided by operating activities decreased $172 million in the first nine months of 2017 as compared to the same period of 2016. The decline in operating cash flows was primarily attributable to the change in deferred purchased gas costs as discussed above. Refer toResults of Natural Gas Operations andRates and Regulatory Proceedings.
Investing Cash Flows.Cash used in investing activities increased $68 million in the first nine months of 2017 as compared to the same period of 2016. The change was primarily due to additional construction expenditures, as indicated above.
Financing Cash Flows.Net cash provided by financing activities increased $211 million in the first nine months of 2017 as compared to the same period of 2016. The increase was primarily due to activity under the credit facility and commercial paper program (an increase in borrowings in the current-year nine-month period and the repayment of borrowings in the prior-year nine-month period). The prior period included proceeds(“DRSPP”), from the issuance of $300 million in senior notes as discussed above. The current period included capital contributions from Southwest Gas Holdings, Inc.
which it raised approximately $8.1 million.
The capital requirements and resources of the Company generally are determined independently for the natural gas operations and constructionutility infrastructure services segments. Each business activity is generally responsible for securing its own external debt financing sources. However, the holding company may raise funds through stock issuance or other external financing sources in support of each business segment, as discussed in
Note 6 – Common Stock. Southwest Gas Corporation:
Operating Cash Flows. Cash flows provided by operating activities decreased $18 million in the first nine months of 2019 as compared to the same period of 2018. The decline in operating cash flows was attributable to impacts related to deferred purchased gas costs noted above, offset by an increase in net income, benefits from depreciation, and the impacts of working capital components overall.
Investing Cash Flows. Cash used in investing activities increased $99 million in the first nine months of 2019 as compared to the same period of 2018. The change was primarily due to additional construction expenditures, as indicated above.
Financing Cash Flows. Net cash provided by financing activities increased $90 million in the first nine months of 2019 as compared to the same period of 2018. The increase was primarily due to an increase in capital contributions from Southwest Gas Holdings, Inc. compared to the prior period, and higher payments in the prior year related to short-term balances under Southwest’s revolving credit facility. As indicated above, Southwest utilized funds from the $300 million of Senior Notes issued in May 2019 to reduce amounts then outstanding under its revolving credit facility and commercial paper program. Dividends to the parent holding company were greater in the current period.
Gas Segment Construction Expenditures and Financing
During the twelve-month period ended September 30,
2017,2019, construction expenditures for the natural gas operations segment were
$515$784 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
$337$365 million during this time, and provided approximately
57%42% of construction expenditures and dividend requirements.
Southwest
Management estimates natural gas segment construction expenditures during the three-year period ending December 31, 20192021 will be between $1.6 billion and $1.8approximately $2.1 billion. Of this amount, approximately $570$730 million is expectedscheduled to be incurred in 2017.2019. Southwest plans to continue as appropriate, to request regulatory support as necessary and appropriate 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 accelerated replacement projects in Nevada of $57.3 million and $65.7 million in 2017 and 2018, respectively. It also incorporates 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, significantSignificant replacement activities are expected to continue well beyond the next few years. See alsoRates and Regulatory Proceedings for discussion of Nevada infrastructure, Arizona COYL and anVSP programs, the Arizona LNG facility.facility, and Spring Creek in Nevada. During the three-year period, cash flows from operating activities of Southwest are expected to provide approximately 60%45% to 70%50% of the funding for gas operations total construction expenditures and dividend requirements.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
Any additional cash requirements are expected to be provided by existing credit facilities,
equity contributions from the Company, and/or other external financing sources. The timing, types, and amounts of any additional external 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, as well as 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.
In March 2017,May 2019, Southwest issued $300 million in 4.15% Senior Notes at a discount of 0.051%. The notes will mature in June 2049. A portion of the proceeds were used to repay amounts then outstanding under Southwest’s credit facility and commercial paper program.
In May 2019, the Company filed with the
Securities Exchange Commission (“SEC”)SEC an automatic shelf registration statement for the offer and sale of up to
$150$300 million of common stock from time to time in
at-the-market offerings under the prospectus included therein
and in accordance with the Sales Agency Agreement, dated
March 29, 2017,May 8, 2019, between the Company and BNY Mellon Capital Markets, LLC (the
“EquityEquity Shelf
Program”)Program discussed above).
SalesThe Company issued $99.3 million under this multi-year program during the second and third quarters of
the shares will44
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
continue to be made at market prices prevailing at the time of sale.2019. Net proceeds from the salesales 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.
In March 2018, Southwest
serves.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 an earlier automatic shelf registration statement with the SEC for the offer and sale of up to $150 million of common stock from time to time in at-the-market offerings under the related prospectus and sales agency agreement. The Company issued the full capacity of this equity program, concluding during the quarter ended March 31, 2019.
During the ninetwelve months ended September 30, 2017, 147,0772019, 1,424,784 shares were issued inat-the-market offerings at an average price of $80.07$85.92 per share with gross proceeds of $11.8$122.4 million, agent commissions of $118,000,$1.2 million, and net proceeds of $11.7 million.$121.2 million under the Company’s equity shelf programs noted above. SeeNote 56 – Common Stock for more information.
In
December 2015,2017, with the
Protecting Americans from Tax Hikes Actenactment of
2015 (“PATH Act”) was enacted extendingU.S. tax reform, 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
placedin-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 most public utility property. The Company estimates bonus depreciation will defer the payment of approximately
$29$30 million
($4 million of which relates to utility operations) of federal income taxes for
2017, resulting in a minimal amount of federal income tax being paid.2019.
Dividends are payable on the Company’s common stock at the discretion of the Board of Directors
(“Board”(the “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, andin addition to 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
2017,2019, the Board elected to increase the quarterly dividend from
$0.45$0.52 to
$0.495$0.545 per share, representing a
10%4.8% increase, effective with the June
20172019 payment.
The Board currently targets a payout ratio of 55% to 65% of consolidated earnings per share.
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 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,
as well as plant investment, 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 September 30, 2017,2019, the combined balance in the PGA accounts totaled an over-collection of $8.7$38 million. SeePGA Filingsfor more information.In March 2017,
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
Southwest Gas Holdings, Inc.
entered intohas 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 September 30,
2017, $27.5 million was2019, no borrowings were outstanding
onunder 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 towhich 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
long-term portion of the credit facility (including a commercial paper program, as noted below) during the first nine months of
20172019 was $150 million.
AtAs of September 30,
2017,2019, $150 million was outstanding
under the long-term portion of the facility. The maximum amount outstanding on the
long-term and $83short-term portion of the credit facility during the first nine months of 2019 was $216 million. As of September 30, 2019, $30 million
wasof borrowings were outstanding on the short-term portion of this credit facility. 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 facilityIt has been
45
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
adequate for Southwest’s working capital needs outside of funds raised through operations and other types of external financing.
As indicated, any additional cash requirements would include the existing credit facility, equity contributions from the Company, and/or other external financing sources.
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
during 2019 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 September 30,
2017, no borrowings were2019, there was $50 million outstanding under this program.
Centuri has a $300 millionsenior secured revolving credit and term loan facility thatwith borrowing capacity of $590 million (refer to Note 7 – Long-Term Debt). The line of credit portion of the facility is scheduled to expire in October 2019. The term loan facility portion had an initial limit of approximately $150 million, which was reached in 2014 and; $107 million was outstanding (after repayments) at September 30, 2017. The secured revolving credit facility portion also has a limit of $150$325 million; amounts borrowed and repaid under this portion of the revolving credit facility are available to bere-borrowed. The term loan facility portion has a limit of approximately $265 million. The $590 million credit and term loan facility expires in November 2023. It 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 September 30, 2019 totaled $1.3 billion. The maximum amount outstanding on the revolving credit facility during the first nine months of 20172019 was $104$99 million. AtAs of September 30, 2017, $81.32019, $89 million was outstanding on the secured revolving credit facility. As of September 30, 2019, there was $248 million outstanding on the term loan portion of the facility. Also at September 30, 2017,2019, there was approximately $52$215 million, net of letters of credit, available under the line of credit.The following table sets forth the ratios
It is currently anticipated that LIBOR may be discontinued as a benchmark or reference rate after 2021. As of earnings to fixed chargesSeptember 30, 2019, no borrowings were outstanding for the Company. Dueholding company under its credit facility (see Note 8 – Short-Term Debt), and therefore, there was no related indebtedness with reference to LIBOR. However, all of Southwest’s outstanding borrowings of $130 million under its credit facility (other than from its commercial paper program) and $218 million of Centuri’s indebtedness under its facility have interest rates with reference to LIBOR and maturity dates that extend beyond 2021. The outstanding amounts reflect approximately 6% of Southwest’s total debt and 14% of total debt (including current maturities) for the Company overall. In order to mitigate the impact of the discontinuation on the Company’s financial condition and results of operations, Southwest and Centuri will continue to monitor developments with respect to alternative rates and work with lenders to determine the appropriate alternative reference rate for variable rate indebtedness. However, at this time the Company and Southwest can provide no assurances as to the seasonal natureimpact a LIBOR discontinuation will have on their financial condition or results of the Company’s business, these ratios are computed on a twelve-month basis: | | | | | | | | |
| | For the Twelve Months Ended | |
| | September 30, 2017 | | | December 31, 2016 | |
Ratio of earnings to fixed charges | | | 3.50 | | | | 3.46 | |
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.
operations. Any alternative rate may be less predictable or less attractive than LIBOR.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
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,”
“endeavor,” “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,
expected impacts of valuation adjustments associated with the redeemable noncontrolling interest in Linetec, the impacts of the U.S. tax reform including disposition in regulatory proceedings and bonus depreciation tax deductions,
amountthe impact of recent PHMSA rulemaking, the amounts and timing for completion of estimated future construction expenditures, including the LNG facility in southern Arizona,
the cost of the 2018 Paiute expansion project in northern Nevada and northern California,plans to pursue infrastructure programs or programs under SB151 legislation, forecasted operating cash flows and results of operations, net earnings impacts from gas infrastructure replacement surcharges, funding sources of cash requirements, amounts generally expected to be reflected in
20172019 or future period revenues from regulatory rate proceedings including amounts
resultingrequested from the
settledrecently filed Arizona general
rate case, the approved recovery of the Arizona DCA balance, the outcome of judicial review of the recently concluded Nevada 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
commonvarious financing instruments and stock under the Equity Shelf Program
or otherwise, future dividend increases and the Board’s current target dividend payout ratio, pension and
post-retirementpostretirement benefits, certain
benefitsimpacts of tax acts, the effect of any rate changes or regulatory proceedings, contract or construction change order negotiations, impacts of accounting standard updates, infrastructure replacement mechanisms and
the COYL
program,programs, statements regarding future gas prices, gas purchase contracts and derivative financial instruments, recoverability of regulatory assets, the impact of certain legal proceedings, and the timing and results of future rate hearings,
including final resolution for recovery of the CDMI in all jurisdictions, and approvals are forward-looking
46
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
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, governmental or regulatory policy regarding natural gas or alternative energy, the regulatory support for ongoing infrastructure programs, the timing and amount of rate relief, the timing and methods determined by regulators to refund amounts to customers resulting from U.S. 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, the impact of variable rate indebtedness associated with a discontinuance of LIBOR including in relation to amounts of indebtedness then outstanding, 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, the impact of weather on Centuri’s operations, Centuri’s projections about the acquired business’ earnings (including accretion within the first twelve months) and future acquisition-related costs, impacts of changes in value of the redeemable noncontrolling interest if at other than fair value, resolution of events subject to cash consideration held back associated with representations, warranties, and other estimates including working capital adjustments related to the Linetec acquisition and impacts from final purchase accounting related thereto, Centuri constructionutility infrastructure expenses, differences between actual and originally expected outcomes of Centuri bid or other fixed-price construction agreements, outcomes from contract and change order negotiations, and 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 work stoppages or reduction, the recent work stoppage,result of productivity inefficiencies from regulatory requirements or otherwise, delays in commissioning individual projects, 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 andItem 7A. Quantitative and Qualitative Disclosures About Market Risk in the Annual Report onForm 10-K10‑K for the year ended December 31, 2016.2018.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
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 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SeeItem 7A. Quantitative and Qualitative Disclosures about Market Risk in the 20162018 Annual Report on Form10-K filed with the SEC. No material changes have occurred related to the disclosures about market risk.ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 4. CONTROLS AND PROCEDURES
Management of Southwest Gas Holdings, Inc. and Southwest Gas Corporation has established disclosure controls and procedures (as defined in Rules
13a-15(e) and
15d-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 September 30, 2017,2019, management of Southwest Gas Holdings, Inc., including the Chief Executive Officer and Chief Financial Officer, believebelieves the Company’s disclosure controls and procedures are effective at attaining the level of reasonable assurance noted above.47
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
There have been no changes in the Company’s internal
controlscontrol over financial reporting (as defined in Rules
13a-15(f) and
15d-15(f) of the Exchange Act) during the third quarter of
20172019 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 September 30,
2017,2019, management of Southwest Gas Corporation, including the Chief Executive Officer and Chief Financial Officer,
believebelieves 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 Rules
13a-15(f) and
15d-15(f) of the Exchange Act) during the third quarter of
20172019 that have materially affected, or are likely to materially affect Southwest’s internal
controlscontrol over financial reporting.
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.
ITEMS 1A through 3. None.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable.
ITEM 5. OTHER INFORMATION None.
ITEMS 1A through 3. None. |
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| 52 | |
ITEM 4. |
| MINE SAFETY DISCLOSURESNot applicable. | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2019 |
ITEM 5. | OTHER INFORMATIONNone. |
ITEM 6. EXHIBITS
The following documents are filed, or furnished, as applicable, as part of this report on
Form 10-Q:
* | Management Incentive Plan
|
48
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172019 |
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: November 7, 20176, 2019 |
/s/ GREGORY J. PETERSON
|
Gregory J. Peterson |
/s/ LORI L. COLVIN |
Lori L. Colvin |
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: November 7, 20176, 2019 |
/s/ GREGORY J. PETERSON
|
Gregory J. Peterson |
/s/ LORI L. COLVIN |
Lori L. Colvin |
Vice President/Controller and Chief Accounting Officer |
49