SECURITIES AND EXCHANGE COMMISSION
Form
10-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
SeptemberJune 30,
20172020OR
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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
| |
| | State of Incorporation
| | | I.R.S. Employer Identification No.
| |
001-37976 | | Southwest Gas Holdings, Inc. | | | California | Delaware | | | 81-3881866 | |
| | 5241 Spring Mountain Road | | | | | | |
| | Post Office Box 98510 | | | | | | |
| | Las Vegas, | Nevada | 89193-8510 | | | | |
| | (702) | 876-7237 | | | | | |
| | | | | | | | |
1-7850 | | Southwest Gas Corporation | | | | California | | 88-0085720 |
| | 5241 Spring Mountain Road | | | | | | |
| | Post Office Box 98510 | | | | | | |
| | Las Vegas, | Nevada | 89193-8510 | | | | |
| | (702) | 876-7237 | | | | | |
| | | | | | | | | | | | | | |
Securities registered pursuant to Section 12(b) of the Act: | | Post Office Box 98510
| | | | | | | | |
| | Las Vegas, Nevada 89193-8510
| Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Southwest Gas Holdings, Inc. Common Stock, $1 Par Value | | | |
| | (702) 876-7237
| | | | | | | | |
1-7850
| | Southwest Gas Corporation
| | | California
| | | | 88-0085720
| |
| | 5241 Spring Mountain Road
| SWX | | | | | | | |
| | Post Office Box 98510
| | | | | | | | |
| | 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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Large acceleratedNon-accelerated filer
| | ☒ ☐ | | Accelerated filer Smaller reporting company | | ☐ |
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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. ☐ Southwest Gas Corporation:
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Large accelerated filer | | ☐ | | Accelerated filer | | ☐ |
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Large acceleratedNon-accelerated filer
| | ☐ ☒ | | Accelerated filer Smaller reporting company | | ☐ |
| | | |
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,
47,731,84055,914,516 shares as of
October 27, 2017.July 31, 2020.
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.July 31, 2020.
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 | | SeptemberJune 30, 20172020 |
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 | | SeptemberJune 30, 20172020 |
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 | |
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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 | |
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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 | |
| | | | | | | | |
Total capitalization | | | 3,445,377 | | | | 3,233,846 | |
| | | | | | | | |
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 | |
| | | | | | | | |
Total current liabilities | | | 656,406 | | | | 628,375 | |
| | | | | | | | |
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 | |
| | |
| | | | | | | | |
Total capitalization and liabilities | | $ | 5,855,070 | | | $ | 5,581,126 | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 |
ASSETS | | | | |
Utility plant: | | | | |
Gas plant | | $ | 8,086,597 | | | $ | 7,813,221 | |
Less: accumulated depreciation | | (2,367,836) | | | (2,313,050) | |
Construction work in progress | | 217,616 | | | 185,026 | |
Net utility plant | | 5,936,377 | | | 5,685,197 | |
Other property and investments | | 809,111 | | | 784,173 | |
Current assets: | | | | |
Cash and cash equivalents | | 199,591 | | | 49,539 | |
Accounts receivable, net of allowances | | 480,077 | | | 474,097 | |
Accrued utility revenue | | 35,800 | | | 79,100 | |
Income taxes receivable, net | | 4,077 | | | 31,751 | |
Deferred purchased gas costs | | — | | | 44,412 | |
Prepaid and other current assets | | 147,655 | | | 180,957 | |
Total current assets | | 867,200 | | | 859,856 | |
Noncurrent assets: | | | | |
Goodwill | | 337,978 | | | 343,023 | |
Deferred income taxes | | 632 | | | 856 | |
Deferred charges and other assets | | 474,737 | | | 496,943 | |
Total noncurrent assets | | 813,347 | | | 840,822 | |
Total assets | | $ | 8,426,035 | | | $ | 8,170,048 | |
CAPITALIZATION AND LIABILITIES | | | | |
Capitalization: | | | | |
Common stock, $1 par (authorized - 120,000,000 shares; issued and outstanding - 55,909,903 and 55,007,433 shares) | | $ | 57,540 | | | $ | 56,637 | |
Additional paid-in capital | | 1,523,630 | | | 1,466,937 | |
Accumulated other comprehensive loss, net | | (55,617) | | | (56,732) | |
Retained earnings | | 1,085,742 | | | 1,039,072 | |
Total equity | | 2,611,295 | | | 2,505,914 | |
Redeemable noncontrolling interest | | 86,921 | | | 84,542 | |
Long-term debt, less current maturities | | 2,639,317 | | | 2,300,482 | |
Total capitalization | | 5,337,533 | | | 4,890,938 | |
Current liabilities: | | | | |
Current maturities of long-term debt | | 171,668 | | | 163,512 | |
Short-term debt | | 58,000 | | | 211,000 | |
Accounts payable | | 189,373 | | | 238,921 | |
Customer deposits | | 69,898 | | | 69,165 | |
Income taxes payable, net | | — | | | 2,069 | |
Accrued general taxes | | 48,220 | | | 48,160 | |
Accrued interest | | 21,525 | | | 21,329 | |
Deferred purchased gas costs | | 69,938 | | | 60,755 | |
Other current liabilities | | 289,395 | | | 264,950 | |
Total current liabilities | | 918,017 | | | 1,079,861 | |
Deferred income taxes and other credits: | | | | |
Deferred income taxes and investment tax credits, net | | 631,388 | | | 599,840 | |
Accumulated removal costs | | 401,000 | | | 395,000 | |
Other deferred credits and other long-term liabilities | | 1,138,097 | | | 1,204,409 | |
Total deferred income taxes and other credits | | 2,170,485 | | | 2,199,249 | |
Total capitalization and liabilities | | $ | 8,426,035 | | | $ | 8,170,048 | |
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 | | SeptemberJune 30, 20172020 |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per share | | $ | 0.21 | | | $ | 0.05 | | | $ | 2.03 | | | $ | 1.82 | | | $ | 3.39 | | | $ | 3.20 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Dividends declared per share | | $ | 0.495 | | | $ | 0.450 | | | $ | 1.485 | | | $ | 1.350 | | | $ | 1.935 | | | $ | 1.755 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | Twelve Months Ended June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Operating revenues: | | | | | | | | | | | | |
Gas operating revenues | | $ | 262,434 | | | $ | 258,711 | | | $ | 765,261 | | | $ | 779,388 | | | $ | 1,354,812 | | | $ | 1,367,124 | |
Utility infrastructure services revenues | | 494,813 | | | 454,300 | | | 828,306 | | | 767,162 | | | 1,812,122 | | | 1,634,226 | |
Total operating revenues | | 757,247 | | | 713,011 | | | 1,593,567 | | | 1,546,550 | | | 3,166,934 | | | 3,001,350 | |
Operating expenses: | | | | | | | | | | | | |
Net cost of gas sold | | 67,473 | | | 65,182 | | | 228,294 | | | 257,786 | | | 355,672 | | | 407,976 | |
Operations and maintenance | | 99,419 | | | 105,293 | | | 203,200 | | | 211,538 | | | 415,812 | | | 410,145 | |
Depreciation and amortization | | 77,217 | | | 70,342 | | | 164,870 | | | 147,881 | | | 320,226 | | | 273,308 | |
Taxes other than income taxes | | 15,342 | | | 15,126 | | | 31,720 | | | 31,332 | | | 62,716 | | | 61,307 | |
Utility infrastructure services expenses | | 430,224 | | | 402,199 | | | 749,538 | | | 702,664 | | | 1,620,101 | | | 1,478,730 | |
Total operating expenses | | 689,675 | | | 658,142 | | | 1,377,622 | | | 1,351,201 | | | 2,774,527 | | | 2,631,466 | |
Operating income | | 67,572 | | | 54,869 | | | 215,945 | | | 195,349 | | | 392,407 | | | 369,884 | |
Other income and (expenses): | | | | | | | | | | | | |
Net interest deductions | | (26,450) | | | (26,831) | | | (54,830) | | | (53,228) | | | (110,828) | | | (103,616) | |
Other income (deductions) | | 7,925 | | | 1,146 | | | (12,845) | | | 7,985 | | | (10,745) | | | (2,401) | |
Total other income and (expenses) | | (18,525) | | | (25,685) | | | (67,675) | | | (45,243) | | | (121,573) | | | (106,017) | |
Income before income taxes | | 49,047 | | | 29,184 | | | 148,270 | | | 150,106 | | | 270,834 | | | 263,867 | |
Income tax expense | | 9,166 | | | 6,352 | | | 35,384 | | | 31,890 | | | 59,517 | | | 63,844 | |
Net income | | 39,881 | | | 22,832 | | | 112,886 | | | 118,216 | | | 211,317 | | | 200,023 | |
Net income attributable to noncontrolling interests | | 1,916 | | | 776 | | | 2,379 | | | 1,351 | | | 3,739 | | | 1,523 | |
Net income attributable to Southwest Gas Holdings, Inc. | | $ | 37,965 | | | $ | 22,056 | | | $ | 110,507 | | | $ | 116,865 | | | $ | 207,578 | | | $ | 198,500 | |
Earnings per share: | | | | | | | | | | | | |
Basic | | $ | 0.68 | | | $ | 0.41 | | | $ | 2.00 | | | $ | 2.18 | | | $ | 3.77 | | | $ | 3.82 | |
Diluted | | $ | 0.68 | | | $ | 0.41 | | | $ | 1.99 | | | $ | 2.18 | | | $ | 3.76 | | | $ | 3.82 | |
Weighted average shares: | | | | | | | | | | | | |
Basic | | 55,462 | | | 53,935 | | | 55,386 | | | 53,654 | | | 55,105 | | | 51,914 | |
Diluted | | 55,532 | | | 54,003 | | | 55,448 | | | 53,716 | | | 55,171 | | | 51,977 | |
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 | | SeptemberJune 30, 20172020 |
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 June 30, | | | | Six Months Ended June 30, | | | | Twelve Months Ended June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Net income | | $ | 39,881 | | | $ | 22,832 | | | $ | 112,886 | | | $ | 118,216 | | | $ | 211,317 | | | $ | 200,023 | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | |
Defined benefit pension plans: | | | | | | | | | | | | |
Net actuarial loss | | — | | | — | | | — | | | — | | | (54,026) | | | (15,524) | |
Amortization of prior service cost | | 220 | | | 242 | | | 440 | | | 483 | | | 923 | | | 990 | |
Amortization of net actuarial loss | | 7,187 | | | 4,441 | | | 14,375 | | | 8,883 | | | 23,258 | | | 21,658 | |
Prior service cost | | — | | | — | | | — | | | — | | | (1,426) | | | — | |
Regulatory adjustment | | (6,380) | | | (4,064) | | | (12,760) | | | (8,128) | | | 23,445 | | | (2,895) | |
Net defined benefit pension plans | | 1,027 | | | 619 | | | 2,055 | | | 1,238 | | | (7,826) | | | 4,229 | |
Forward-starting interest rate swaps (“FSIRS”): | | | | | | | | | | | | |
Amounts reclassified into net income | | 635 | | | 636 | | | 1,271 | | | 1,271 | | | 2,541 | | | 2,541 | |
Net forward-starting interest rate swaps | | 635 | | | 636 | | | 1,271 | | | 1,271 | | | 2,541 | | | 2,541 | |
Foreign currency translation adjustments | | 1,794 | | | 787 | | | (2,211) | | | 1,578 | | | (1,751) | | | 169 | |
Total other comprehensive income (loss), net of tax | | 3,456 | | | 2,042 | | | 1,115 | | | 4,087 | | | (7,036) | | | 6,939 | |
Comprehensive income | | 43,337 | | | 24,874 | | | 114,001 | | | 122,303 | | | 204,281 | | | 206,962 | |
Comprehensive income attributable to noncontrolling interests | | 1,916 | | | 776 | | | 2,379 | | | 1,351 | | | 3,739 | | | 1,523 | |
Comprehensive income attributable to Southwest Gas Holdings, Inc. | | $ | 41,421 | | | $ | 24,098 | | | $ | 111,622 | | | $ | 120,952 | | | $ | 200,542 | | | $ | 205,439 | |
The accompanying notes are an integral part of these statements.
5
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | | | Twelve Months Ended June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | |
Net income | | $ | 112,886 | | | $ | 118,216 | | | $ | 211,317 | | | $ | 200,023 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | 164,870 | | | 147,881 | | | 320,226 | | | 273,308 | |
Deferred income taxes | | 31,121 | | | 31,831 | | | 53,452 | | | 49,554 | |
Changes in current assets and liabilities: | | | | | | | | |
Accounts receivable, net of allowances | | (9,746) | | | (2,612) | | | (61,379) | | | (5,770) | |
Accrued utility revenue | | 43,300 | | | 42,300 | | | (900) | | | (700) | |
Deferred purchased gas costs | | 53,595 | | | (43,341) | | | 38,445 | | | 5,128 | |
Accounts payable | | (47,198) | | | (48,155) | | | (908) | | | 8,088 | |
Accrued taxes | | 9,019 | | | (2,272) | | | 16,534 | | | 3,123 | |
Other current assets and liabilities | | 78,538 | | | 54,988 | | | 97,687 | | | 17,721 | |
Gains on sale of equipment | | (309) | | | (831) | | | (4,951) | | | (2,284) | |
Changes in undistributed stock compensation | | 4,332 | | | 4,702 | | | 6,526 | | | 7,513 | |
Equity AFUDC | | (2,181) | | | (1,967) | | | (4,375) | | | (5,008) | |
Changes in deferred charges and other assets | | (8,268) | | | (15,870) | | | (13,449) | | | (16,486) | |
Changes in other liabilities and deferred credits | | (54,819) | | | (6,454) | | | (61,129) | | | 26,040 | |
Net cash provided by operating activities | | 375,140 | | | 278,416 | | | 597,096 | | | 560,250 | |
CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | |
Construction expenditures and property additions | | (423,435) | | | (471,578) | | | (890,005) | | | (898,481) | |
Acquisition of businesses, net of cash acquired | | (250) | | | (19,533) | | | (28,355) | | | (266,697) | |
Changes in customer advances | | 4,098 | | | 9,483 | | | 13,616 | | | 14,788 | |
Other | | 5,045 | | | 1,159 | | | 19,039 | | | 2,936 | |
Net cash used in investing activities | | (414,542) | | | (480,469) | | | (885,705) | | | (1,147,454) | |
CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | |
Issuance of common stock, net | | 55,498 | | | 102,743 | | | 110,701 | | | 388,006 | |
Dividends paid | | (61,445) | | | (56,738) | | | (120,834) | | | (107,993) | |
| | | | | | | | |
Issuance of long-term debt, net | | 620,303 | | | 421,594 | | | 730,305 | | | 531,368 | |
Retirement of long-term debt | | (117,536) | | | (53,604) | | | (277,721) | | | (190,586) | |
Change in credit facility and commercial paper | | (150,000) | | | (104,000) | | | (46,000) | | | (2,000) | |
Change in short-term debt | | (153,000) | | | (152,000) | | | 58,000 | | | (22,500) | |
Principal payments on finance lease obligations | | (102) | | | (107) | | | (207) | | | (439) | |
Withholding remittance - share-based compensation | | (2,736) | | | (1,856) | | | (2,738) | | | (2,112) | |
Other | | (1,358) | | | (966) | | | (1,668) | | | (2,812) | |
Net cash provided by financing activities | | 189,624 | | | 155,066 | | | 449,838 | | | 590,932 | |
Effects of currency translation on cash and cash equivalents | | (170) | | | 72 | | | (84) | | | (12) | |
Change in cash and cash equivalents | | 150,052 | | | (46,915) | | | 161,145 | | | 3,716 | |
Cash and cash equivalents at beginning of period | | 49,539 | | | 85,361 | | | 38,446 | | | 34,730 | |
Cash and cash equivalents at end of period | | $ | 199,591 | | | $ | 38,446 | | | $ | 199,591 | | | $ | 38,446 | |
SUPPLEMENTAL INFORMATION: | | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 51,430 | | | $ | 49,996 | | | $ | 103,692 | | | $ | 96,476 | |
Income taxes paid (received), net | | $ | (19,410) | | | $ | 1,832 | | | $ | (18,490) | | | $ | (13,454) | |
The accompanying notes are an integral part of these statements.
6
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
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 June 30, | | | | Six Months Ended June 30, | | |
| | | 2020 | | 2019 | | 2020 | | 2019 |
Common stock shares | | | | | | | | | |
| Beginning balances | | 55,126 | | | 53,391 | | | 55,007 | | | 53,026 | |
| | Common stock issuances | 784 | | | 930 | | | 903 | | | 1,295 | |
| Ending balances | | 55,910 | | | 54,321 | | | 55,910 | | | 54,321 | |
Common stock amount | | | | | | | | | |
| Beginning balances | | $ | 56,756 | | | $ | 55,021 | | | $ | 56,637 | | | $ | 54,656 | |
| | Common stock issuances | 784 | | | 930 | | | 903 | | | 1,295 | |
| Ending balances | | 57,540 | | | 55,951 | | | 57,540 | | | 55,951 | |
Additional paid-in capital | | | | | | | | | |
| Beginning balances | | 1,470,411 | | | 1,332,793 | | | 1,466,937 | | | 1,305,769 | |
| | Common stock issuances | 53,219 | | | 77,582 | | | 56,693 | | | 104,606 | |
| | Change in ownership of noncontrolling interest | — | | | (452) | | | — | | | (452) | |
| Ending balances | | 1,523,630 | | | 1,409,923 | | | 1,523,630 | | | 1,409,923 | |
Accumulated other comprehensive loss | | | | | | | | | |
| Beginning balances | | (59,073) | | | (50,623) | | | (56,732) | | | (52,668) | |
| | Foreign currency exchange translation adjustment | 1,794 | | | 787 | | | (2,211) | | | 1,578 | |
| | Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | 1,027 | | | 619 | | | 2,055 | | | 1,238 | |
| | FSIRS amounts reclassified to net income, net of tax | 635 | | | 636 | | | 1,271 | | | 1,271 | |
| | | | | | | | | |
| Ending balances | | (55,617) | | | (48,581) | | | (55,617) | | | (48,581) | |
Retained earnings | | | | | | | | | |
| Beginning balances | | 1,079,801 | | | 1,009,809 | | | 1,039,072 | | | 944,285 | |
| | Net income | 37,965 | | | 22,056 | | | 110,507 | | | 116,865 | |
| | Dividends declared | (32,024) | | | (29,795) | | | (63,837) | | | (59,080) | |
| | | | | | | | | |
| Ending balances | | 1,085,742 | | | 1,002,070 | | | 1,085,742 | | | 1,002,070 | |
Total Southwest Gas Holdings, Inc. equity ending balances | | | 2,611,295 | | | 2,419,363 | | | 2,611,295 | | | 2,419,363 | |
Noncontrolling interest | | | | | | | | | |
| Beginning balances | | — | | | (452) | | | — | | | (452) | |
| | | | | | | | | |
| | Change in ownership of noncontrolling interest | — | | | 452 | | | — | | | 452 | |
| Ending balances | | — | | | — | | | — | | | — | |
Total equity ending balances | | | $ | 2,611,295 | | | $ | 2,419,363 | | | $ | 2,611,295 | | | $ | 2,419,363 | |
Dividends declared per common share | | | $ | 0.57 | | | $ | 0.545 | | | $ | 1.14 | | | $ | 1.09 | |
The accompanying notes are an integral part of these statements.
7
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 |
ASSETS | | | | |
Utility plant: | | | | |
Gas plant | | $ | 8,086,597 | | | $ | 7,813,221 | |
Less: accumulated depreciation | | (2,367,836) | | | (2,313,050) | |
Construction work in progress | | 217,616 | | | 185,026 | |
Net utility plant | | 5,936,377 | | | 5,685,197 | |
Other property and investments | | 130,634 | | | 133,787 | |
Current assets: | | | | |
Cash and cash equivalents | | 190,784 | | | 40,489 | |
Accounts receivable, net of allowance | | 93,746 | | | 150,793 | |
Accrued utility revenue | | 35,800 | | | 79,100 | |
Income taxes receivable, net | | — | | | 25,901 | |
Deferred purchased gas costs | | — | | | 44,412 | |
Prepaid and other current assets | | 123,829 | | | 165,639 | |
Total current assets | | 444,159 | | | 506,334 | |
Noncurrent assets: | | | | |
Goodwill | | 10,095 | | | 10,095 | |
Deferred charges and other assets | | 454,478 | | | 463,333 | |
Total noncurrent assets | | 464,573 | | | 473,428 | |
Total assets | | $ | 6,975,743 | | | $ | 6,798,746 | |
CAPITALIZATION AND LIABILITIES | | | | |
Capitalization: | | | | |
Common stock | | $ | 49,112 | | | $ | 49,112 | |
Additional paid-in capital | | 1,329,843 | | | 1,229,083 | |
Accumulated other comprehensive loss, net | | (51,825) | | | (55,151) | |
Retained earnings | | 824,847 | | | 782,108 | |
Total equity | | 2,151,977 | | | 2,005,152 | |
Long-term debt, less current maturities | | 2,287,418 | | | 1,991,333 | |
Total capitalization | | 4,439,395 | | | 3,996,485 | |
Current liabilities: | | | | |
Current maturities of long-term debt | | 125,000 | | | 125,000 | |
Short-term debt | | — | | | 194,000 | |
Accounts payable | | 91,482 | | | 149,368 | |
Customer deposits | | 69,898 | | | 69,165 | |
Income taxes payable | | 8,538 | | | — | |
Accrued general taxes | | 48,220 | | | 48,160 | |
Accrued interest | | 21,470 | | | 21,256 | |
Deferred purchased gas costs | | 69,938 | | | 60,755 | |
Payable to parent | | 309 | | | 844 | |
Other current liabilities | | 139,324 | | | 126,573 | |
Total current liabilities | | 574,179 | | | 795,121 | |
Deferred income taxes and other credits: | | | | |
Deferred income taxes and investment tax credits, net | | 558,285 | | | 539,050 | |
Accumulated removal costs | | 401,000 | | | 395,000 | |
Other deferred credits and other long-term liabilities | | 1,002,884 | | | 1,073,090 | |
Total deferred income taxes and other credits | | 1,962,169 | | | 2,007,140 | |
Total capitalization and liabilities | | $ | 6,975,743 | | | $ | 6,798,746 | |
The accompanying notes are an integral part of these statements.
8
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
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 June 30, | | | | Six Months Ended June 30, | | | | Twelve Months Ended June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Gas operating revenues | | $ | 262,434 | | | $ | 258,711 | | | $ | 765,261 | | | $ | 779,388 | | | $ | 1,354,812 | | | $ | 1,367,124 | |
Operating expenses: | | | | | | | | | | | | |
Net cost of gas sold | | 67,473 | | | 65,182 | | | 228,294 | | | 257,786 | | | 355,672 | | | 407,976 | |
Operations and maintenance | | 99,320 | | | 104,991 | | | 202,408 | | | 210,533 | | | 414,049 | | | 407,948 | |
Depreciation and amortization | | 53,198 | | | 49,343 | | | 117,923 | | | 106,955 | | | 226,588 | | | 201,146 | |
Taxes other than income taxes | | 15,342 | | | 15,126 | | | 31,720 | | | 31,332 | | | 62,716 | | | 61,307 | |
Total operating expenses | | 235,333 | | | 234,642 | | | 580,345 | | | 606,606 | | | 1,059,025 | | | 1,078,377 | |
Operating income | | 27,101 | | | 24,069 | | | 184,916 | | | 172,782 | | | 295,787 | | | 288,747 | |
Other income and (expenses): | | | | | | | | | | | | |
Net interest deductions | | (23,991) | | | (23,345) | | | (49,049) | | | (46,444) | | | (97,631) | | | (88,780) | |
Other income (deductions) | | 7,838 | | | 1,592 | | | (12,698) | | | 7,538 | | | (10,719) | | | (3,005) | |
Total other income and (expenses) | | (16,153) | | | (21,753) | | | (61,747) | | | (38,906) | | | (108,350) | | | (91,785) | |
Income before income taxes | | 10,948 | | | 2,316 | | | 123,169 | | | 133,876 | | | 187,437 | | | 196,962 | |
Income tax expense (benefit) | | (994) | | | (1,053) | | | 27,628 | | | 27,118 | | | 35,483 | | | 44,333 | |
Net income | | $ | 11,942 | | | $ | 3,369 | | | $ | 95,541 | | | $ | 106,758 | | | $ | 151,954 | | | $ | 152,629 | |
The accompanying notes are an integral part of these statements.
9
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
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 June 30, | | | | Six Months Ended June 30, | | | | Twelve Months Ended June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Net income | | $ | 11,942 | | | $ | 3,369 | | | $ | 95,541 | | | $ | 106,758 | | | $ | 151,954 | | | $ | 152,629 | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | |
Defined benefit pension plans: | | | | | | | | | | | | |
Net actuarial loss | | — | | | — | | | — | | | — | | | (54,026) | | | (15,524) | |
Amortization of prior service cost | | 220 | | | 242 | | | 440 | | | 483 | | | 923 | | | 990 | |
Prior service cost | | — | | | — | | | — | | | — | | | (1,426) | | | — | |
Amortization of net actuarial loss | | 7,187 | | | 4,441 | | | 14,375 | | | 8,883 | | | 23,258 | | | 21,658 | |
Regulatory adjustment | | (6,380) | | | (4,064) | | | (12,760) | | | (8,128) | | | 23,445 | | | (2,895) | |
Net defined benefit pension plans | | 1,027 | | | 619 | | | 2,055 | | | 1,238 | | | (7,826) | | | 4,229 | |
Forward-starting interest rate swaps (“FSIRS”): | | | | | | | | | | | | |
Amounts reclassified into net income | | 635 | | | 636 | | | 1,271 | | | 1,271 | | | 2,541 | | | 2,541 | |
Net forward-starting interest rate swaps | | 635 | | | 636 | | | 1,271 | | | 1,271 | | | 2,541 | | | 2,541 | |
Total other comprehensive income (loss), net of tax | | 1,662 | | | 1,255 | | | 3,326 | | | 2,509 | | | (5,285) | | | 6,770 | |
Comprehensive income | | $ | 13,604 | | | $ | 4,624 | | | $ | 98,867 | | | $ | 109,267 | | | $ | 146,669 | | | $ | 159,399 | |
The accompanying notes are an integral part of these statements.
10
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | | | Twelve Months Ended June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | |
Net income | | $ | 95,541 | | | $ | 106,758 | | | $ | 151,954 | | | $ | 152,629 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | 117,923 | | | 106,955 | | | 226,588 | | | 201,146 | |
Deferred income taxes | | 18,186 | | | 28,183 | | | 23,684 | | | 43,811 | |
Changes in current assets and liabilities: | | | | | | | | |
Accounts receivable, net of allowance | | 57,047 | | | 46,626 | | | (316) | | | (9,787) | |
Accrued utility revenue | | 43,300 | | | 42,300 | | | (900) | | | (700) | |
Deferred purchased gas costs | | 53,595 | | | (43,341) | | | 38,445 | | | 5,128 | |
Accounts payable | | (53,712) | | | (74,787) | | | (6,398) | | | 716 | |
Accrued taxes | | 17,746 | | | (52) | | | 26,693 | | | (6,008) | |
Other current assets and liabilities | | 71,512 | | | 74,589 | | | 86,094 | | | 7,511 | |
Changes in undistributed stock compensation | | 3,494 | | | 3,760 | | | 4,880 | | | 5,895 | |
Equity AFUDC | | (2,181) | | | (1,967) | | | (4,375) | | | (5,008) | |
Changes in deferred charges and other assets | | (13,689) | | | (20,336) | | | (25,120) | | | (21,895) | |
Changes in other liabilities and deferred credits | | (55,173) | | | (6,836) | | | (61,698) | | | 25,356 | |
Net cash provided by operating activities | | 353,589 | | | 261,852 | | | 459,531 | | | 398,794 | |
CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | |
Construction expenditures and property additions | | (354,501) | | | (365,251) | | | (767,998) | | | (762,121) | |
Changes in customer advances | | 4,098 | | | 9,483 | | | 13,616 | | | 14,788 | |
Other | | 100 | | | (49) | | | 54 | | | (813) | |
| | | | | | | | |
Net cash used in investing activities | | (350,303) | | | (355,817) | | | (754,328) | | | (748,146) | |
CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | |
| | | | | | | | |
Contributions from parent | | 99,500 | | | 102,092 | | | 157,344 | | | 159,045 | |
Dividends paid | | (51,100) | | | (46,300) | | | (100,700) | | | (90,300) | |
Issuance of long-term debt, net | | 446,508 | | | 297,222 | | | 446,508 | | | 297,222 | |
| | | | | | | | |
Change in credit facility and commercial paper | | (150,000) | | | (104,000) | | | (46,000) | | | (2,000) | |
Change in short-term debt | | (194,000) | | | (152,000) | | | — | | | — | |
Withholding remittance - share-based compensation | | (2,736) | | | (1,856) | | | (2,738) | | | (2,111) | |
Other | | (1,163) | | | (712) | | | (1,276) | | | (961) | |
Net cash provided by financing activities | | 147,009 | | | 94,446 | | | 453,138 | | | 360,895 | |
| | | | | | | | |
Change in cash and cash equivalents | | 150,295 | | | 481 | | | 158,341 | | | 11,543 | |
Cash and cash equivalents at beginning of period | | 40,489 | | | 31,962 | | | 32,443 | | | 20,900 | |
Cash and cash equivalents at end of period | | $ | 190,784 | | | $ | 32,443 | | | $ | 190,784 | | | $ | 32,443 | |
SUPPLEMENTAL INFORMATION: | | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 46,576 | | | $ | 42,853 | | | $ | 92,381 | | | $ | 83,206 | |
Income taxes paid (received), net | | $ | (22,962) | | | $ | (22) | | | $ | (22,262) | | | $ | (16,764) | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| | | | 2020 | | 2019 | | 2020 | | 2019 |
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 | | | 1,279,208 | | | 1,089,002 | | | 1,229,083 | | | 1,065,242 | |
| | Share-based compensation | | 1,135 | | | 1,297 | | | 1,260 | | | 2,215 | |
| | Contributions from Southwest Gas Holdings, Inc. | | 49,500 | | | 79,250 | | | 99,500 | | | 102,092 | |
| Ending balances | | | 1,329,843 | | | 1,169,549 | | | 1,329,843 | | | 1,169,549 | |
Accumulated other comprehensive loss | | | | | | | | | | |
| Beginning balances | | | (53,487) | | | (47,795) | | | (55,151) | | | (49,049) | |
| | Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | | 1,027 | | | 619 | | | 2,055 | | | 1,238 | |
| | FSIRS amounts reclassified to net income, net of tax | | 635 | | | 636 | | | 1,271 | | | 1,271 | |
| | | | | | | | | | |
| Ending balances | | | (51,825) | | | (46,540) | | | (51,825) | | | (46,540) | |
Retained earnings | | | | | | | | | | |
| Beginning balances | | | 839,443 | | | 797,584 | | | 782,108 | | | 717,155 | |
| | Net income | | 11,942 | | | 3,369 | | | 95,541 | | | 106,758 | |
| | Share-based compensation | | (138) | | | (152) | | | (502) | | | (312) | |
| | Dividends declared to Southwest Gas Holdings, Inc. | | (26,400) | | | (24,700) | | | (52,300) | | | (47,500) | |
| Ending balances | | | 824,847 | | | 776,101 | | | 824,847 | | | 776,101 | |
Total Southwest Gas Corporation equity ending balances | | | | $ | 2,151,977 | | | $ | 1,948,222 | | | $ | 2,151,977 | | | $ | 1,948,222 | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
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 the remaining 3.4% equity interest in Centuri Construction Group, Inc. that was held by 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 date of the reorganization, existing shareholders of Southwest Gas Corporation became shareholders of Southwest Gas Holdings, Inc., on aone-for-one basis, with the same number of shares and same ownership percentage as they held immediately prior to the reorganization. At the same time, Southwest Gas Corporation and Centuri Construction Group, Inc. (“Centuri”Centuri,” or the “construction“utility infrastructure services” segment) each became subsidiaries of the publicly traded holding company; whereas, historically, Centuri had been a direct subsidiary of .
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
primarily from installation, replacement, repair, and maintenance of energy distribution
systems, and developing industrial construction solutions.systems. 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.
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 part of continuing operations and included in the consolidated financial statements of Southwest Gas Holdings, Inc.
whole.
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 theseGlobally, the novel Coronavirus (“COVID-19”) pandemic has created volatility, uncertainty, and economic disruption. Utility operations have been deemed “essential services” and utility infrastructure services have, to a large extent, been similarly characterized by government officials. Management has considered the impact of the pandemic and adjusted certain estimates, where relevant, used in the preparation of the condensed consolidated financial statements.
These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and the notes thereto included in the
20162019 Annual Report to
Shareholders,Stockholders, which is incorporated by reference into the
20162019 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 | | SeptemberJune 30, 20172020 |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
includes:
| | | | | | | | | | | |
(Thousands of dollars) | June 30, 2020 | | December 31, 2019 |
Southwest Gas Corporation: | | | |
Net cash surrender value of COLI policies | $ | 128,659 | | | $ | 132,072 | |
Other property | 1,975 | | | 1,715 | |
Total Southwest Gas Corporation | 130,634 | | | 133,787 | |
Centuri property, equipment, and intangibles | 1,041,528 | | | 983,905 | |
Centuri accumulated provision for depreciation and amortization | (384,108) | | | (352,333) | |
Other property | 21,057 | | | 18,814 | |
Total Southwest Gas Holdings, Inc. | $ | 809,111 | | | $ | 784,173 | |
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. Balances reflect impacts of equity and fixed-income securities underlying the cash surrender values at each reporting date; however, ultimately, only the insurance proceeds are ever actually received, due to management’s intent to hold the policies to maturity.
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 of Southwest and the Company include money market fund investments totaling approximately $40,000 for both entities at June 30, 2020, and $23.5 million and $26.7 million, for each, respectively, at December 31, 2019, 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, capital expenditures that were not paid as of period-end reporting dates but rather included in accounts payable, and right-of use assets obtained in exchange for lease liabilities, which are non-cash investing and financing activities. Amounts related to such activities were immaterial for the periods presented herein.
Intercompany Transactions. Centuri recognizes revenues generated from contracts with Southwest (see Note 7 – Segment Information). 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.
Accounts Receivable, net of allowances. Business activity with respect to natural gas utility operations is conducted with customers located within the 3-state region of Arizona, Nevada, and California. Southwest’s Accounts receivable are short-term in nature with no billing due dates customarily extending beyond one month, with customers’ credit worthiness assessed upon account creation by evaluation of other utility service and related payment history. Although Southwest seeks to minimize its credit risk related to utility operations by requiring security deposits from new customers, imposing late fees, and actively pursuing collection on overdue accounts, some accounts are ultimately not collected. Customer accounts are subject to collection procedures that vary by jurisdiction (late fee assessment, noticing requirements for disconnection of service, and procedures for actual disconnection and/or reestablishment of service). After disconnection of service, accounts are customarily written off approximately two months after inactivation. Dependent upon the jurisdiction, reestablishment of service requires both payment of previously unpaid balances and additional deposit requirements. Provisions for uncollectible accounts are recorded monthly based on experience, consideration of current and expected future conditions, customer and rate composition, and write-off processes. They are included in the ratemaking process as a cost of service. The Nevada jurisdictions have a regulatory mechanism associated with the gas cost-related portion of uncollectible accounts. Such amounts are deferred and collected through a surcharge in the ratemaking process. Due to the continued COVID-19 pandemic, and as utility service is an essential service to the residents in the states in which Southwest operates, in March 2020, Southwest implemented a temporary moratorium on disconnection of natural gas service for non-payment and also ceased charging late fees until further notice. While the moratorium continues to be in place, Southwest is actively working with customers experiencing financial hardship by means of flexible payment options. Management continues to monitor expected credit losses in light of the evolving financial impact of COVID-19. The allowance as of June 30, 2020 reflects the expected impact of COVID-19 on balances as of
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
that date, including consideration of customers’ ability to pay currently and once the moratorium is lifted. The allowance was not materially adjusted as a result of the pandemic.
Utility infrastructure services contracts receivable are recorded at face amounts less an allowance for doubtful accounts. Centuri’s customers are generally investment-grade gas and electric utility companies for which Centuri has historically recognized an insignificant amount of write-offs. Centuri’s trade accounts receivable balances carry standard payment terms of up to 60 days. Centuri maintains an allowance that is an estimate based on historical collection experience, current and forward-looking estimated economic and market conditions, and a review of the current status of each customer's trade accounts receivable balance. Account balances are monitored at least monthly, and are charged off against the allowance when management determines it is probable the balance will not be recovered. Centuri has not been significantly impacted, nor does it anticipate it will experience significant difficulty in collecting amounts due, as a result of the current environment surrounding COVID-19 given the nature of its customers.
Activity between periods in the allowance for uncollectibles and the balances as of the periods presented within the Company’s and Southwest’s financial statements were not material to the condensed consolidated financial statements.
Income Taxes. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted. The CARES Act provides a number of tax provisions and stimulus measures, including changes to prior and future limitations on interest deductions, the ability to accelerate refund of Alternative Minimum Tax credits, elective deferment of payment related to the employer portion of Social Security taxes, and the creation of certain refundable employee retention credits, among other things. Management does not anticipate the impacts related to the CARES Act to have a material effect on the Company’s or Southwest’s results of operations, financial position, or liquidity.
Prepaid and other current assets. Prepaid and other current assets includes gas pipe materials and operating supplies of $57 million at both June 30, 2020 and December 31, 2019 (carried at weighted average cost), in addition to $33 million at December 31, 2019 related to a regulatory asset associated with the Arizona decoupling mechanism (an alternative revenue program), with no corresponding asset balance at June 30, 2020.
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. Since December 31, 2019, management also qualitatively assessed whether events during the first six months of 2020 may have resulted in conditions whereby the carrying value of goodwill was higher than its fair value, which if the case, could be an indication of a permanent impairment. Through this assessment, no such condition was believed to have existed and therefore, 0 impairment was deemed to have occurred.
| | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | | Natural Gas Operations | | Utility Infrastructure Services | | Total Company |
December 31, 2019 | | $ | 10,095 | | | $ | 332,928 | | | $ | 343,023 | |
Foreign currency translation adjustment | | — | | | (5,045) | | | (5,045) | |
June 30, 2020 | | $ | 10,095 | | | $ | 327,883 | | | $ | 337,978 | |
Other Current Liabilities. Management recognizes in its balance sheets various liabilities that are expected to be settled through future cash payment within the next twelve months, including amounts payable under regulatory mechanisms, customary accrued expenses for employee compensation and benefits, declared but unpaid dividends, and miscellaneous other accrued liabilities. Other current liabilities for Southwest includes $26.4 million and $25.2 million of dividends declared by Southwest Gas Corporation, but not yet paid to Southwest Gas Holdings, Inc. as of June 30, 2020 and December 31, 2019, respectively.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
Other Income (Deductions). The following table provides the composition of significant items included in Other income (deductions) in the Condensed Consolidated Statements of Income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | Twelve Months Ended June 30, | | |
(Thousands of dollars) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Southwest Gas Corporation - natural gas operations segment: | | | | | | | | | | | |
Change in COLI policies | $ | 12,000 | | | $ | 3,400 | | | $ | (3,500) | | | $ | 11,000 | | | $ | 2,900 | | | $ | 6,500 | |
Interest income | 414 | | | 1,822 | | | 1,802 | | | 3,419 | | | 4,739 | | | 6,644 | |
Equity AFUDC | 1,120 | | | 1,007 | | | 2,181 | | | 1,967 | | | 4,375 | | | 5,008 | |
Other components of net periodic benefit cost | (5,006) | | | (3,765) | | | (10,011) | | | (7,530) | | | (17,540) | | | (18,060) | |
Miscellaneous income and (expense) | (690) | | | (872) | | | (3,170) | | | (1,318) | | | (5,193) | | | (3,097) | |
Southwest Gas Corporation - total other income (deductions) | 7,838 | | | 1,592 | | | (12,698) | | | 7,538 | | | (10,719) | | | (3,005) | |
Utility infrastructure services segment: | | | | | | | | | | | |
Interest income | — | | | — | | | — | | | — | | | — | | | 86 | |
Foreign transaction gain (loss) | (6) | | | 21 | | | (16) | | | 552 | | | (22) | | | (19) | |
Miscellaneous income and (expense) | 93 | | | (498) | | | (139) | | | (154) | | | (65) | | | 462 | |
Centuri - total other income (deductions) | 87 | | | (477) | | | (155) | | | 398 | | | (87) | | | 529 | |
Corporate and administrative | — | | | 31 | | | 8 | | | 49 | | | 61 | | | 75 | |
Consolidated Southwest Gas Holdings, Inc. - total other income (deductions) | $ | 7,925 | | | $ | 1,146 | | | $ | (12,845) | | | $ | 7,985 | | | $ | (10,745) | | | $ | (2,401) | |
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. Refer to
Other Property and Investments above and also to Note 2 – Components of Net Periodic Benefit Cost. Derivatives. In May 2014,managing its natural gas supply portfolios, Southwest has historically entered into fixed- and variable-price contracts, which qualify as derivatives. Additionally, Southwest has 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 FASB issuedfuture at a fixed price, qualify for the update “Revenuenormal 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 Contracts with Customers (Topic 606).”fair value reporting. The update replaces muchvariable-price contracts qualify as derivative instruments; however, because the contract prices are the prevailing prices at the future transaction dates, the contracts have no determinable fair value. The Swap 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 (Level 2). Southwest does not utilize derivative financial instruments for speculative purposes, nor does it have trading operations.
Management does not currently anticipate entering into new Swaps in the near term; the longest maturity date of the current guidance regarding revenue recognition including most industry-specific guidance. In accordanceSwaps as of June 30, 2020 is October 2020.
Master netting arrangements exist with each counterparty that provide for the update, an entity will be requirednet settlement of all contracts through a single payment. Management has elected to identifyreflect the contract withnet amounts in its balance sheets, which were immaterial at June 30, 2020.
Previously, Southwest entered into forward-starting interest rate swaps (“FSIRS”), 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). 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 providedsettled positions 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,are immaterial and continue to undertake, considerationbe amortized from Accumulated other comprehensive income (loss) into interest expense.
Redeemable Noncontrolling Interest. In connection with the acquisition of several items relevantLinetec 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 utility industry. Where applicablepassage of time or necessary,upon 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 aidoccurrence 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
certain triggering events.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | 16 | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
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.), 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.
In February 2016, the FASB issued the update “Leases (Topic 842).” Under the update, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:
A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and
Aright-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue 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 beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply
15
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
Significant changes in the value of the redeemable noncontrolling interest, above a full retrospective transition approach. Early application is permitted. Management currently plans to adopt the updatefloor established at the required adoptionacquisition date, whichare recognized as they occur, and the carrying value is for interimadjusted 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 annual reporting periods commencing January 1, 2019. Existing leases have been historically documentedoperating characteristics. However, the carrying value was greater than the fair value as of June 30, 2020, 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 traditional leasing arrangementsthese circumstances. The following depicts the change to the balance of the redeemable noncontrolling interest:
| | | | | |
(Thousands of dollars): | Redeemable Noncontrolling Interest |
Balance, December 31, 2019 | $ | 84,542 | |
Net income attributable to redeemable noncontrolling interest | 2,379 | |
Balance, June 30, 2020 | $ | 86,921 | |
Earnings Per Share. Basic earnings per share (“EPS”) in each period of this report were calculated by both segments. Management isdividing net income attributable to Southwest Gas Holdings, Inc. by the weighted-average number of shares during those periods. Diluted EPS includes additional weighted-average common stock equivalents (performance shares and restricted stock units). Unless otherwise noted, the term “Earnings Per Share” refers to Basic EPS. A reconciliation of the denominator used in the process of evaluating other types of arrangements that have the potential to meet the definition of a lease under the new standard,Basic and Diluted EPS calculations is alsoshown in the processfollowing table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | Twelve Months Ended June 30, | | |
(In thousands) | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Average basic shares | | 55,462 | | | 53,935 | | | 55,386 | | | 53,654 | | | 55,105 | | | 51,914 | |
Effect of dilutive securities: | | | | | | | | | | | | |
Management Incentive Plan shares | | — | | | 11 | | | — | | | 11 | | | 6 | | | 18 | |
Restricted stock units (1) | | 70 | | | 57 | | | 62 | | | 51 | | | 60 | | | 45 | |
Average diluted shares | | 55,532 | | | 54,003 | | | 55,448 | | | 53,716 | | | 55,171 | | | 51,977 | |
(1) The number of selecting software to efficiently implementsecurities granted included 63,000 and 49,000 performance shares during the standard for its natural gas operations segment. The FASB recently issued proposed guidancethree months ending June 30, 2020 and 2019, 57,000 and 45,000 performance shares during the six months ending June 30, 2020 and 2019, and 51,000 and 36,000 performance shares during the twelve months ending June 30, 2020 and 2019, respectively, the total of which was derived by assuming that target performance will allowbe achieved during 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 date of the standard to determine if the arrangements should be accounted for as leases. Management is currently evaluating the new and proposed guidancerelevant performance period.
Recent Accounting Standards Updates.
Accounting pronouncements adopted 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.2020:
In June 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued theASU 2016-13 update “Financial 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,reasonable and supportable forecasts. The Company and Southwest adopted the update eliminatesin the “probable” threshold for initial recognitionfirst quarter of credit losses in current U.S. GAAP2020, and instead, requires an entityconcluded the impact was not material to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current U.S. GAAP, 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 itscondensed 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 settlementCompany or Southwest. See
Accounts receivable, net 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.
allowances
above. In January 2017, the FASB issued
the updateASU 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 previously 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 effects fromThe new guidance does not amend the optional qualitative assessment. The Company and Southwest adopted the update in the first quarter of 2020 and will apply the update prospectively in anytax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the future goodwill impairment loss, if applicable.tests.
In 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 also eliminatesgenerally aligns the requirements for any reporting unitcapitalizing 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, with the exception that such costs are to be included in the same line item in the balance sheet that a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2prepayment of the goodwill impairment test. Anfees associated with the arrangement would be presented. Once capitalized, the update requires the entity still hasto expense the optionamount capitalized over the term of the hosting arrangement, including reasonably certain renewal periods. The Company and
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
Southwest adopted the update in the first quarter of 2020 using the prospective transition method. The Company and Southwest have no material implementation costs related to performcloud computing arrangements.
Recently issued accounting pronouncements that will be effective after 2020:
In December 2019, the
qualitative assessmentFASB issued ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for
a reporting unitIncome Taxes.” The update simplifies the accounting for income taxes by removing certain exceptions to
determine if the
quantitative impairment test is necessary. The amendments should be applied on a prospective basis.general principles, as well as improving consistent application in Topic 740 by clarifying and amending existing guidance. The update is effective for fiscal
and interim periodsyears beginning after December 15,
2019.2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted for
interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Management has determined that this update would have had no impact on the consolidatedperiods for which financial statements
for the periods presented if it had been effective during those periods.In March 2017, the FASB issued the update “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The update applies to all employers that offer employee benefits under defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715, Compensation – Retirement Benefits. The update requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, and be appropriately described. The update also allows only the service cost component (and not the other components of periodic benefit costs) to be eligible for capitalization when applicable, making no exception for specialized industries, includingrate-regulated industries.
Southwest is a rate-regulated utility offering pension and postretirement benefits to retired employees. It is anticipated that Southwest would continue to request recovery 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, itmade available for issuance. Management 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 willmight have on itsthe Company’s and Southwest’s consolidated financial statements and disclosures. It
In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The update provides optional guidance for a limited time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. The update applies only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made or entered into after December 31, 2022. Management is estimated that approximately $3 millionevaluating the impacts this update might have on the Company’s and Southwest’s consolidated financial statements and disclosures. See also LIBOR discussion innon-service costs were capitalized as a component of gas plant during 2016. Totalnon-service costs were approximately $20 million in 2016.17
Note 5 – Debt.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
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 componentsis a component 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
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Note 3 – Segment Information
The Company has two reportable segments: natural gas operations and construction services. Southwest has a single reportable segment that is referred to herein as the natural gas operations segmentother components of the Company. In order to reconcile to net periodic benefit cost are reflected in Other income as disclosed in(deductions) on the Condensed Consolidated Statements of Income an Other column is included associated with impacts related to corporate and administrative activities related to Southwest Gas Holdings, Inc. The following tables present revenues from external customers, intersegment revenues, and segment net income for the two reportable segments (thousands of dollars):
| | | | | | | | | | | | | | | | |
| | Natural Gas Operations | | | Construction Services | | | Other | | | Total | |
Three months ended 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 | |
| | | | | | | | | | | | | | | | |
Note 4 – Derivatives and Fair Value Measurements
Derivatives. In managing its natural gas supply portfolios, Southwest has historically entered into fixed- and variable-price contracts, which qualify as derivatives. Additionally, Southwest utilizesfixed-for-floating swap contracts (“Swaps”) to supplement its fixed-price contracts. The fixed-price contracts, firm commitments to purchase a fixed amount of gas in the future at a fixed price, qualify for the normal purchases and normal sales exception that is allowed for contracts that are probable of delivery in the normal course of business, and are exempt from fair value reporting.
19
each entity. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Qualified Retirement Plan | | | | | | | | | | |
| June 30, | | | | | | | | | | |
| Three Months | | | | Six Months | | | | Twelve Months | | |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
(Thousands of dollars) | | | | | | | | | | | |
Service cost | $ | 8,575 | | | $ | 6,466 | | | $ | 17,149 | | | $ | 12,932 | | | $ | 30,081 | | | $ | 27,209 | |
Interest cost | 11,389 | | | 12,251 | | | 22,777 | | | 24,503 | | | 47,280 | | | 46,590 | |
Expected return on plan assets | (16,324) | | | (15,061) | | | (32,648) | | | (30,122) | | | (62,770) | | | (59,500) | |
Amortization of net actuarial loss | 9,006 | | | 5,589 | | | 18,013 | | | 11,178 | | | 29,191 | | | 27,236 | |
Net periodic benefit cost | $ | 12,646 | | | $ | 9,245 | | | $ | 25,291 | | | $ | 18,491 | | | $ | 43,782 | | | $ | 41,535 | |
| | | | | | | | | | | |
| SERP | | | | | | | | | | |
| June 30, | | | | | | | | | | |
| Three Months | | | | Six Months | | | | Twelve Months | | |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
(Thousands of dollars) | | | | | | | | | | | |
Service cost | $ | 97 | | | $ | 67 | | | $ | 195 | | | $ | 133 | | | $ | 328 | | | $ | 256 | |
Interest cost | 402 | | | 440 | | | 803 | | | 880 | | | 1,683 | | | 1,709 | |
Amortization of net actuarial loss | 451 | | | 255 | | | 902 | | | 510 | | | 1,412 | | | 1,261 | |
Net periodic benefit cost | $ | 950 | | | $ | 762 | | | $ | 1,900 | | | $ | 1,523 | | | $ | 3,423 | | | $ | 3,226 | |
| | | | | | | | | | | |
| PBOP | | | | | | | | | | |
| June 30, | | | | | | | | | | |
| Three Months | | | | Six Months | | | | Twelve Months | | |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
(Thousands of dollars) | | | | | | | | | | | |
Service cost | $ | 395 | | | $ | 319 | | | $ | 791 | | | $ | 638 | | | $ | 1,429 | | | $ | 1,374 | |
Interest cost | 645 | | | 762 | | | 1,290 | | | 1,524 | | | 2,812 | | | 2,898 | |
Expected return on plan assets | (852) | | | (789) | | | (1,704) | | | (1,578) | | | (3,282) | | | (3,436) | |
Amortization of prior service costs | 289 | | | 318 | | | 578 | | | 635 | | | 1,214 | | | 1,302 | |
| | | | | | | | | | | |
Net periodic benefit cost | $ | 477 | | | $ | 610 | | | $ | 955 | | | $ | 1,219 | | | $ | 2,173 | | | $ | 2,138 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
Note 3 – Revenue
The
variable-price contracts have no significant market value. The Swaps are recorded at fair value.The fixed-price contracts and Swaps are utilizedfollowing information about the Company’s revenues is presented by segment. Southwest under its volatility mitigation programs to effectively fixencompasses the price on a portion (up to 25% in the Arizona and California jurisdictions) of its natural gas supply portfolios. The maturities ofoperations segment and Centuri encompasses the Swaps highly correlate to forecasted purchases of natural gas, during time frames ranging from October 2017 through March 2019. Under such contracts, Southwest pays the counterparty a fixed rate and receives from the counterparty a floating rate per MMBtu (“dekatherm”) of natural gas. Only the net differential is actually paid or received. The differential is calculated basedutility infrastructure services segment.
Natural Gas Operations Segment:
Gas operating revenues 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.
The following table sets forth the gains and (losses) recognized on the Swaps (derivatives) for the three-, nine-, and twelve-month periods ended September 30, 2017 and 2016 and their location in the Condensed Consolidated Statements of Income for both the Company and Southwest:
Gains (losses) recognized in income for derivatives not designated as hedging instruments:
(Thousands of dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 (thousandsinclude revenue from contracts with customers, which is shown below, disaggregated by customer type, and various categories of dollars):
Fair valuesrevenue:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | Twelve Months Ended June 30, | | |
(Thousands of dollars) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Residential | $ | 181,298 | | | $ | 164,873 | | | $ | 559,853 | | | $ | 582,101 | | | $ | 950,540 | | | $ | 958,008 | |
Small commercial | 41,455 | | | 50,184 | | | 123,918 | | | 139,794 | | | 233,241 | | | 251,281 | |
Large commercial | 9,979 | | | 11,123 | | | 22,646 | | | 25,085 | | | 46,496 | | | 49,703 | |
Industrial/other | 6,499 | | | 5,413 | | | 13,201 | | | 11,891 | | | 23,384 | | | 23,379 | |
Transportation | 19,835 | | | 21,815 | | | 44,241 | | | 46,717 | | | 89,904 | | | 88,934 | |
Revenue from contracts with customers | 259,066 | | | 253,408 | | | 763,859 | | | 805,588 | | | 1,343,565 | | | 1,371,305 | |
Alternative revenue program revenues (deferrals) | 4,111 | | | 3,392 | | | 346 | | | (31,153) | | | 6,387 | | | (22,776) | |
Other revenues (1) | (743) | | | 1,911 | | | 1,056 | | | 4,953 | | | 4,860 | | | 18,595 | |
Total Gas operating revenues | $ | 262,434 | | | $ | 258,711 | | | $ | 765,261 | | | $ | 779,388 | | | $ | 1,354,812 | | | $ | 1,367,124 | |
(1) Amounts include late fees and other miscellaneous revenues, and may also include the impact of
derivatives not designatedcertain regulatory mechanisms, such 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
cost-of-service components in current customer rates that are expected to be returned to customers in future periods. Utility Infrastructure Services Segment:
The following tables display Centuri’s revenue, reflected as Utility infrastructure services revenues on the Condensed Consolidated Statements of Income of the Company, representing revenue from contracts with customers disaggregated by service and contract types:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | Twelve Months Ended June 30, | | |
(Thousands of dollars) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Service Types: | | | | | | | | | | | |
Gas infrastructure services | $ | 330,157 | | | $ | 323,817 | | | $ | 547,866 | | | $ | 521,709 | | | $ | 1,265,131 | | | $ | 1,205,197 | |
Electric power infrastructure services | 95,286 | | | 61,366 | | | 167,606 | | | 113,667 | | | 301,656 | | | 136,900 | |
Other | 69,370 | | | 69,117 | | | 112,834 | | | 131,786 | | | 245,335 | | | 292,129 | |
Total Utility infrastructure services revenues | $ | 494,813 | | | $ | 454,300 | | | $ | 828,306 | | | $ | 767,162 | | | $ | 1,812,122 | | | $ | 1,634,226 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | | | Twelve Months Ended June 30, | | |
(Thousands of dollars) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Contract Types: | | | | | | | | | | | |
Master services agreement | $ | 375,502 | | | $ | 375,860 | | | $ | 639,047 | | | $ | 611,515 | | | $ | 1,410,909 | | | $ | 1,229,388 | |
Bid contract | 119,311 | | | 78,440 | | | 189,259 | | | 155,647 | | | 401,213 | | | 404,838 | |
Total Utility infrastructure services revenues | $ | 494,813 | | | $ | 454,300 | | | $ | 828,306 | | | $ | 767,162 | | | $ | 1,812,122 | | | $ | 1,634,226 | |
| | | | | | | | | | | |
Unit price contracts | $ | 365,253 | | | $ | 355,487 | | | $ | 608,389 | | | $ | 591,172 | | | $ | 1,397,473 | | | $ | 1,323,034 | |
Fixed price contracts | 36,011 | | | 4,426 | | | 63,556 | | | 42,965 | | | 133,515 | | | 107,697 | |
Time and materials contracts | 93,549 | | | 94,387 | | | 156,361 | | | 133,025 | | | 281,134 | | | 203,495 | |
Total Utility infrastructure services revenues | $ | 494,813 | | | $ | 454,300 | | | $ | 828,306 | | | $ | 767,162 | | | $ | 1,812,122 | | | $ | 1,634,226 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | 20 | 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.
Pursuant to regulatory deferral accounting treatment for rate-regulated entities, unrealized gains and losses in fair value of the Swaps are recorded as a regulatory asset and/or liability. When the Swaps mature, any prior positions held are reversed and the settled position is recorded as an increase or decrease of purchased gas under the related purchased gas adjustment (“PGA”) mechanism in determining its deferred PGA balances. Neither changes in fair value, nor settled amounts, of Swaps have a direct effect on earnings or other comprehensive income.
The following table shows the amounts Southwest paid to and received from counterparties for settlements of matured Swaps.
| | | | | | | | | | | | |
| | Three Months Ended | | | 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. The estimated fair values of Southwest’s Swaps were determined at September 30, 2017 and December 31, 2016 using New York Mercantile Exchange (“NYMEX”) futures settlement prices for delivery of natural gas at Henry Hub adjusted by the price of NYMEX ClearPort basis Swaps, which reflect the difference between the price of natural gas at a given delivery basin and the Henry Hub pricing points. These Level 2 inputs (inputs, other than quoted prices, for similar assets or liabilities) are observable in the marketplace throughout the full term of the Swaps, but have been credit-risk adjusted with no significant impact to the overall fair value measurement.
The following table sets forth, by level within the three-level fair value hierarchy that ranks the inputs used to measure fair value by their reliability, the financial assets and liabilities that were accounted for at fair value by both the Company and Southwest:
21
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
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 financial
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 of allowances, as well as amounts billed in excess of revenue earned on contracts (contract liability), which are included in Other current liabilities as of June 30, 2020 and December 31, 2019 on the Company’s Condensed Consolidated Balance Sheets:
| | | | | | | | | | | |
(Thousands of dollars) | June 30, 2020 | | December 31, 2019 |
Contracts receivable, net | $ | 240,917 | | | $ | 223,904 | |
Revenue earned on contracts in progress in excess of billings | 145,414 | | | 99,399 | |
Amounts billed in excess of revenue earned on contracts | 6,633 | | | 4,525 | |
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 for billing 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 relate 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, 2019 to June 30, 2020 is due to revenue recognized of $4.5 million that was included in this item as of January 1, 2020, 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
liabilities associated withless, Centuri uses the
Swaps, which were accounted for at fairpractical expedient applicable to such contracts and does not consider/compute an interest component based on the time value
fell within Level 1 (quoted prices in active markets for identical financial assets) or Level 3 (significant unobservable inputs)of money. Further, because of the
fair value hierarchy.With regardshort 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 June 30, 2020, Centuri had 26 contracts with an original duration of more than one year. The aggregate amount of the transaction price allocated to the fair valuesunsatisfied performance obligations of assets associated with pension and postretirement benefit plans, asset values were last updated as requiredthese contracts as of December 2016. ReferJune 30, 2020 was $60.1 million. Centuri expects to recognize the remaining performance obligations over approximately the next two years; however, the timing of that recognition is largely within the control of the customer, including when the necessary equipment and materials required to complete the work are provided by the customer.
Utility infrastructure services contracts receivable consists of the following:
| | | | | | | | | | | |
(Thousands of dollars) | June 30, 2020 | | December 31, 2019 |
Billed on completed contracts and contracts in progress | $ | 235,971 | | | $ | 216,268 | |
Other receivables | 5,389 | | | 8,456 | |
Contracts receivable, gross | 241,360 | | | 224,724 | |
Allowance for doubtful accounts | (443) | | | (820) | |
Contracts receivable, net | $ | 240,917 | | | $ | 223,904 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
Note
10 – Pension and Other Post Retirement Benefits in the 2016 Annual Report to Shareholders on Form10-K.Note 54 – Common Stock
In January 2017,
Only shares of 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 three-month and nine months ending Septemberlife-to-date periods ended June 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. 2020:
| | | | | | | | | | | |
| Three Months Ended | | Life-To-Date Ended |
| June 30, 2020 | | |
Gross proceeds | $ | 49,999,986 | | | $ | 174,337,234 | |
Less: agent commissions | (499,999) | | | (1,743,372) | |
Net proceeds | $ | 49,499,987 | | | $ | 172,593,862 | |
Number of shares sold | 720,212 | | | 2,199,157 | |
Weighted average price per share | $ | 69.42 | | | $ | 79.27 | |
As of SeptemberJune 30, 2017,2020, the Company had up to $138,223,127$125,662,766 of common stock available for sale under the program. Net proceeds from the sale of shares of common stock under the Equity Shelf Program are intended for general corporate purposes, including the acquisition of property for the construction, completion, extension, or improvement of pipeline systems and facilities located in and around the communities served by Southwest. Commensurate with these intentions, proceeds during the 3rd quarter of 2017 were contributed to, and reflected in the records of, Southwest (as a capital contribution from the parent holding company). During the ninesix months ended SeptemberJune 30, 2017,2020, the Company issued approximately 103,00096,000 shares of common stock through the Restricted Stock/Unit Plan and Management Incentive Plan. Additionally, during the six months ended June 30, 2020, the Company issued 86,000 shares of common stock through the Dividend Reinvestment and Stock Purchase Plan, raising approximately $6 million.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
Note 65 – Debt
Long-Term Debt
Carrying amounts
Long-term debt is recognized in the Company’s and Southwest’s Condensed Consolidated Balance Sheets generally at the carrying value of long-term debtthe obligations outstanding. However, details surrounding the fair value and related estimatedindividual carrying values of instruments are discussed below or provided in the table that follows.
The fair values as of September 30, 2017 and December 31, 2016 are disclosed in the following table. Southwest’s revolving credit facility (including commercial paper) and the variable-rate Industrial Development Revenue Bonds (“IDRBs”) approximate their carrying values. The fair values as they are repaid quickly (inof the case ofrevolving credit facility borrowings) and have interest rates that reset frequently. TheseIDRBs are categorized as Level 1 based on the FASB’s fair value hierarchy, due to Southwest’s ability to access similar debt arrangements at measurement dates with comparable terms, including variable/market rates. Additionally, the borrowings by Southwest under its revolving credit facility are 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
theits secured revolving credit and term loan facility and 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 | | SeptemberJune 30, 20172020 |
In March 2017,
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | | | December 31, 2019 | | |
| | Carrying Amount | | Market Value | | Carrying Amount | | Market Value |
(Thousands of dollars) | | | | | | | | |
Southwest Gas Corporation: | | | | | | | | |
Debentures: | | | | | | | | |
Notes, 4.45%, due 2020 | | $ | 125,000 | | | $ | 125,591 | | | $ | 125,000 | | | $ | 126,673 | |
Notes, 6.1%, due 2041 | | 125,000 | | | 170,349 | | | 125,000 | | | 162,666 | |
Notes, 3.875%, due 2022 | | 250,000 | | | 261,013 | | | 250,000 | | | 258,550 | |
Notes, 4.875%, due 2043 | | 250,000 | | | 311,565 | | | 250,000 | | | 291,928 | |
Notes, 3.8%, due 2046 | | 300,000 | | | 328,707 | | | 300,000 | | | 308,307 | |
Notes, 3.7%, due 2028 | | 300,000 | | | 336,504 | | | 300,000 | | | 320,685 | |
Notes, 4.15%, due 2049 | | 300,000 | | | 325,410 | | | 300,000 | | | 330,138 | |
Notes, 2.2%, due 2030 | | 450,000 | | | 462,708 | | | — | | | — | |
8% Series, due 2026 | | 75,000 | | | 99,588 | | | 75,000 | | | 96,905 | |
Medium-term notes, 7.78% series, due 2022 | | 25,000 | | | 27,224 | | | 25,000 | | | 27,500 | |
Medium-term notes, 7.92% series, due 2027 | | 25,000 | | | 33,720 | | | 25,000 | | | 32,543 | |
Medium-term notes, 6.76% series, due 2027 | | 7,500 | | | 9,549 | | | 7,500 | | | 9,156 | |
Unamortized discount and debt issuance costs | | (18,488) | | | | | (14,450) | | | |
| | 2,214,012 | | | | | 1,768,050 | | | |
Revolving credit facility and commercial paper | | — | | | — | | | 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 | | (1,594) | | | | | (1,717) | | | |
| | 198,406 | | | | | 198,283 | | | |
Less: current maturities | | (125,000) | | | | | (125,000) | | | |
Long-term debt, less current maturities - Southwest Gas Corporation | | $ | 2,287,418 | | | | | $ | 1,991,333 | | | |
Centuri: | | | | | | | | |
Centuri term loan facility | | $ | 230,991 | | | $ | 235,906 | | | $ | 244,812 | | | $ | 252,182 | |
Unamortized debt issuance costs | | (960) | | | | | (1,101) | | | |
| | 230,031 | | | | | 243,711 | | | |
Centuri secured revolving credit facility | | 66,645 | | | 66,672 | | | 60,021 | | | 60,057 | |
Centuri other debt obligations | | 101,891 | | | 104,500 | | | 43,929 | | | 44,787 | |
Less: current maturities | | (46,668) | | | | | (38,512) | | | |
Long-term debt, less current maturities - Centuri | | $ | 351,899 | | | | | $ | 309,149 | | | |
Consolidated Southwest Gas Holdings, Inc.: | | | | | | | | |
Southwest Gas Corporation long-term debt | | $ | 2,412,418 | | | | | $ | 2,116,333 | | | |
Centuri long-term debt | | 398,567 | | | | | 347,661 | | | |
Less: current maturities | | (171,668) | | | | | (163,512) | | | |
Long-term debt, less current maturities - Southwest Gas Holdings, Inc. | | $ | 2,639,317 | | | | | $ | 2,300,482 | | | |
Southwest amended itshas a $400 million credit facility, increasing the borrowing capacity from $300 million to $400 million. Also, the facility was previously scheduled to expire in March 2021 and was extended to March 2022. Southwest continues to designatefor which it has designated $150 million of associated 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”)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 SeptemberJune 30, 2017,2020, the applicable margin is 1% for loans bearing interest with reference to LIBOR and
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
0% for loans bearing interest with reference to the alternative base rate. At SeptemberJune 30, 2017, $150 million was2020, there were 0 outstanding amounts on the long-term portion and $83 million was outstanding onof the short-term portion of thisfacility.
On April 10, 2020, Southwest amended its credit facility
(SeeNote 7 – Short-Term Debt).At September 30, 2017, Centuri has a $300 million secured revolving credit and term loan facility that is scheduled to expire in October 2019. This facility includes a revolving credit facility and a term loan facility. The term loan facility portion had an initial limit of approximately $150 million, which was reached in 2014 and had $107 million outstanding (after repayments) at September 30, 2017. The $300 million revolving credit and term loan facility is secured by substantially all of Centuri’s assets except those explicitly excludedagreement; total borrowing capacity under the terms ofamended agreement remains $400 million. The amended agreement extended the maturity date from March 2022 to April 2025. Under the amended agreement, (including owned real estate and certain certificated vehicles). Centuri assets securing the facility at September 30, 2017 totaled $526 million. At September 30, 2017, $189 million in borrowings were outstanding under the Centuri facility.
Note 7 – Short-Term Debt
In March 2017, Southwest Gas Holdings, Inc. entered into 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. 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 rangeswill range from 0.75%0.750% to 1.50%1.500% for loans bearing interest with reference to LIBOR and from 0%0.000% to 0.5%0.500% for loans bearing interest with reference to the alternativean alternate base rate. The CompanyUpon the occurrence of certain events providing for a transition away from LIBOR, or if LIBOR is no longer a widely recognized benchmark rate, Southwest may further amend the credit facility with a replacement rate as set forth in the amended agreement. Southwest is also required to pay a commitment fee on the unfunded portion of the commitments based on its senior unsecured long-term debt rating. The commitment fee ranges from 0.075% to 0.200% per annum. At September 30, 2017, $27.5 million was outstanding under this facility.
As discussedThe amended agreement contains certain representations and warranties and affirmative and negative covenants similar to those contained inNote 6 – Long-Term Debt, the previous agreement. In addition, the amended agreement contains a financial covenant requiring Southwest to maintain a ratio of funded debt to total capitalization not to exceed 0.70 to 1.00 as of the end of any quarter of any fiscal year.
Southwest has a $400$50 million commercial paper program. Issuances under the commercial paper program are supported by Southwest’s revolving credit facility and, therefore, do 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 June 30, 2020, 0 borrowings were outstanding under the commercial paper program.
In June 2020, Southwest issued $450 million aggregate principal amount of 2.20% Senior Notes at a discount of 0.126%. The notes will mature in June 2030. A portion of the net proceeds was used to reduce borrowings under Southwest’s credit facility. Additionally, Southwest intends to use a portion of the net proceeds from the issuance of the 2.20% Senior Notes to redeem the 4.45% $125 million Notes due in December 2020. On July 31, 2020, Southwest provided notice to the holders of the 4.45% Notes of Southwest’s intention to redeem the notes in full on September 1, 2020 at a redemption price of 100% plus accrued and unpaid interest.
Centuri has a $590 million senior secured revolving credit and term loan facility, scheduled to expire in November 2023. The capacity of the line of credit portion of the facility is $325 million; related amounts borrowed and repaid are available to be re-borrowed. The term loan portion of the facility has a limit of approximately $265 million. The $590 million facility is secured by substantially all of Centuri’s assets except those explicitly excluded under the terms of the agreement (including owned real estate and certain certificated vehicles). Centuri’s assets securing the facility at June 30, 2020 totaled $1.3 billion. At June 30, 2020, $298 million in borrowings were outstanding under Centuri’s combined secured revolving credit and term loan facility. Centuri also received proceeds of $70 million in equipment loans in 2020, which were used for repayment of outstanding borrowings on the line of credit.
Short-Term Debt
Southwest Gas Holdings, Inc. has a $100 million credit facility that is scheduledprimarily used for short-term financing needs. There was $58 million outstanding under this credit facility as of June 30, 2020.
On April 10, 2020, Southwest Gas Holdings, Inc. amended its existing credit facility, extending the maturity date to expireApril 2025. The revolving borrowing capacity under the amended agreement remains at $100 million. Interest rates for the amended facility are calculated at either LIBOR or an “alternate base rate,” plus in March 2022,each case an applicable margin that is determined based on Southwest Gas Holdings, Inc.’s senior unsecured long-term debt rating. The applicable margin under the amended agreement ranges from 0.750% to 1.500% for loans bearing interest with reference to LIBOR and from 0.000% to 0.500% for loans bearing interest with reference to the alternate base rate. Upon the occurrence of whichcertain events providing for a transition away from LIBOR, or if LIBOR is no longer a widely recognized benchmark rate, Southwest Gas Holdings, Inc. may amend the credit facility agreement with a replacement rate, as set forth in the amended agreement. Southwest Gas Holdings, Inc. is also required to pay a commitment fee on the unfunded portion of the commitments based on its senior unsecured long-term debt rating. The commitment fee ranges from 0.075% to 0.200% per annum. The amended agreement contains certain representations and warranties and affirmative and negative covenants similar to those contained in the previous agreement. In addition, the amended agreement contains a financial covenant requiring Southwest Gas Holdings, Inc. to maintain a ratio of funded debt to total capitalization not to exceed 0.70 to 1.00 as of the end of any quarter of any fiscal year.
As discussed previously, under Southwest’s $400 million credit facility, $250 million has been designated by management for working capital purposes. Southwest had
$83 million in0 short-term borrowings outstanding at
SeptemberJune 30,
20172020 under this facility.
24
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
LIBOR
It is currently anticipated that LIBOR may be discontinued as a benchmark or reference rate after 2021. As of June 30, 2020, $58 million and $188 million, respectively, for the holding company and Centuri, was outstanding under credit facilities whereby interest was with reference to LIBOR and for which maturity dates extend beyond 2021; no such borrowings were outstanding for Southwest. As of June 30, 2020, these LIBOR-based borrowings approximately 9% of total debt (including current maturities) for the Company overall. Southwest and Southwest Gas Holdings, Inc., in accordance with the April 2020 amendments to their respective facilities, may make further amendments with replacement rates if LIBOR is discontinued. However, replacement rates are not currently determinable. In order to mitigate the impact of a discontinuance on the Company’s and Southwest’s financial condition and results of operations, management will continue to monitor developments and work with lenders to determine the appropriate replacement/alternative reference rate for variable rate debt. At this time the Company and Southwest can provide no assurances as to the impact a LIBOR discontinuance will have on their financial condition or results of operations. Any alternative rate may be less predictable or less attractive than LIBOR.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
Note
86 –
Equity, Other Comprehensive Income and Accumulated Other Comprehensive Income
The table below provides details of activity in equity and the redeemable noncontrolling interest for Southwest Gas Holdings, Inc. on a consolidated basis during the 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 impactingpresents 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. See Note 4 – Derivatives and Fair Value Measurements for additional information on the FSIRS.Condensed Consolidated Statements of Equity.
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 June 30, 2020 | | | | | | Three Months Ended June 30, 2019 | | | | |
(Thousands of dollars) | | 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 | | $ | 289 | | | $ | (69) | | | $ | 220 | | | $ | 318 | | | $ | (76) | | | $ | 242 | |
Amortization of net actuarial (gain)/loss | | 9,457 | | | (2,270) | | | 7,187 | | | 5,844 | | | (1,403) | | | 4,441 | |
Regulatory adjustment | | (8,395) | | | 2,015 | | | (6,380) | | | (5,348) | | | 1,284 | | | (4,064) | |
Pension plans other comprehensive income (loss) | | 1,351 | | | (324) | | | 1,027 | | | 814 | | | (195) | | | 619 | |
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | 836 | | | (201) | | | 635 | | | 836 | | | (200) | | | 636 | |
FSIRS other comprehensive income (loss) | | 836 | | | (201) | | | 635 | | | 836 | | | (200) | | | 636 | |
Total other comprehensive income (loss) - Southwest Gas Corporation | | 2,187 | | | (525) | | | 1,662 | | | 1,650 | | | (395) | | | 1,255 | |
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | 1,794 | | | — | | | 1,794 | | | 787 | | | — | | | 787 | |
Foreign currency other comprehensive income (loss) | | 1,794 | | | — | | | 1,794 | | | 787 | | | — | | | 787 | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | 3,981 | | | $ | (525) | | | $ | 3,456 | | | $ | 2,437 | | | $ | (395) | | | $ | 2,042 | |
| | | | | | | | | | | | |
| | Six Months Ended June 30, 2020 | | | | | | Six Months Ended June 30, 2019 | | | | |
| | 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 | | $ | 578 | | | $ | (138) | | | $ | 440 | | | $ | 635 | | | $ | (152) | | | $ | 483 | |
Amortization of net actuarial (gain)/loss | | 18,915 | | | (4,540) | | | 14,375 | | | 11,688 | | | (2,805) | | | 8,883 | |
Regulatory adjustment | | (16,790) | | | 4,030 | | | (12,760) | | | (10,695) | | | 2,567 | | | (8,128) | |
Pension plans other comprehensive income (loss) | | 2,703 | | | (648) | | | 2,055 | | | 1,628 | | | (390) | | | 1,238 | |
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | 1,673 | | | (402) | | | 1,271 | | | 1,672 | | | (401) | | | 1,271 | |
FSIRS other comprehensive income (loss) | | 1,673 | | | (402) | | | 1,271 | | | 1,672 | | | (401) | | | 1,271 | |
Total other comprehensive income (loss) - Southwest Gas Corporation | | 4,376 | | | (1,050) | | | 3,326 | | | 3,300 | | | (791) | | | 2,509 | |
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | (2,211) | | | — | | | (2,211) | | | 1,578 | | | — | | | 1,578 | |
Foreign currency other comprehensive income (loss) | | (2,211) | | | — | | | (2,211) | | | 1,578 | | | — | | | 1,578 | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | 2,165 | | | $ | (1,050) | | | $ | 1,115 | | | $ | 4,878 | | | $ | (791) | | | $ | 4,087 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Tax amounts are calculated using a 38% rate. The Company has elected to indefinitely reinvest the earnings of Centuri’s Canadian subsidiaries in Canada, thus preventing deferred taxes on such earnings. As a result of this assertion, the Company is not recognizing any tax effect or presenting a tax expense or benefit for the currency translation adjustment amount reported in Other Comprehensive Income, as repatriation of earnings is not anticipated.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended June 30, 2020 | | | | | | Twelve Months Ended June 30, 2019 | | | | |
(Thousands of dollars) | | 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) | | $ | (71,087) | | | $ | 17,061 | | | $ | (54,026) | | | $ | (20,426) | | | $ | 4,902 | | | $ | (15,524) | |
Amortization of prior service cost | | 1,214 | | | (291) | | | 923 | | | 1,302 | | | (312) | | | 990 | |
Amortization of net actuarial (gain)/loss | | 30,603 | | | (7,345) | | | 23,258 | | | 28,497 | | | (6,839) | | | 21,658 | |
Prior service cost | | (1,878) | | | 452 | | | (1,426) | | | — | | | — | | | — | |
Regulatory adjustment | | 30,849 | | | (7,404) | | | 23,445 | | | (3,809) | | | 914 | | | (2,895) | |
Pension plans other comprehensive income (loss) | | (10,299) | | | 2,473 | | | (7,826) | | | 5,564 | | | (1,335) | | | 4,229 | |
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | 3,345 | | | (804) | | | 2,541 | | | 3,344 | | | (803) | | | 2,541 | |
FSIRS other comprehensive income (loss) | | 3,345 | | | (804) | | | 2,541 | | | 3,344 | | | (803) | | | 2,541 | |
Total other comprehensive income (loss) - Southwest Gas Corporation | | (6,954) | | | 1,669 | | | (5,285) | | | 8,908 | | | (2,138) | | | 6,770 | |
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | (1,751) | | | — | | | (1,751) | | | 169 | | | — | | | 169 | |
Foreign currency other comprehensive income (loss) | | (1,751) | | | — | | | (1,751) | | | 169 | | | — | | | 169 | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | (8,705) | | | $ | 1,669 | | | $ | (7,036) | | | $ | 9,077 | | | $ | (2,138) | | | $ | 6,939 | |
(1)Tax amounts are calculated using a 24% rate. The Company has elected to indefinitely reinvest the earnings of Centuri’s Canadian subsidiaries in Canada, thus precluding deferred taxes on such earnings. As a result of this assertion, and no repatriation of earnings anticipated, the Company is not recognizing a tax effect or presenting a tax expense or benefit for currency translation adjustments reported in Other comprehensive income (loss).
Approximately
$2.1$2 million of realized losses (net of tax) related to
the FSIRS, reportedSouthwest’s forward-starting interest rate swaps (“FSIRS”), included in
Accumulated other comprehensive income (“AOCI”)AOCI at
SeptemberJune 30,
2017,2020, 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 and its Condensed Consolidated Statements 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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | | | | | FSIRS | | | | | | Foreign Currency Items | | | | | | |
(Thousands of dollars) | | 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, 2019 | | $ | (66,601) | | | $ | 15,985 | | | $ | (50,616) | | | $ | (5,966) | | | $ | 1,431 | | | $ | (4,535) | | | $ | (1,581) | | | $ | — | | | $ | (1,581) | | | $ | (56,732) | |
Translation adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | (2,211) | | | — | | | (2,211) | | | (2,211) | |
Other comprehensive income (loss) before reclassifications | | — | | | — | | | — | | | — | | | — | | | — | | | (2,211) | | | — | | | (2,211) | | | (2,211) | |
FSIRS amounts reclassified from AOCI (1) | | — | | | — | | | — | | | 1,673 | | | (402) | | | 1,271 | | | — | | | — | | | — | | | 1,271 | |
Amortization of prior service cost (2) | | 578 | | | (138) | | | 440 | | | — | | | — | | | — | | | — | | | — | | | — | | | 440 | |
Amortization of net actuarial loss (2) | | 18,915 | | | (4,540) | | | 14,375 | | | — | | | — | | | — | | | — | | | — | | | — | | | 14,375 | |
Regulatory adjustment (3) | | (16,790) | | | 4,030 | | | (12,760) | | | — | | | — | | | — | | | — | | | — | | | — | | | (12,760) | |
Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | 2,703 | | | (648) | | | 2,055 | | | 1,673 | | | (402) | | | 1,271 | | | (2,211) | | | — | | | (2,211) | | | 1,115 | |
Ending Balance AOCI June 30, 2020 | | $ | (63,898) | | | $ | 15,337 | | | $ | (48,561) | | | $ | (4,293) | | | $ | 1,029 | | | $ | (3,264) | | | $ | (3,792) | | | $ | — | | | $ | (3,792) | | | $ | (55,617) | |
(1)The FSIRS reclassification amounts are included in Net interest deductions on the Company’s Condensed Consolidated Statements of Income.
(2)These AOCI components are included in the computation of net periodic benefit cost (see Note 2 – Components of Net Periodic Benefit Cost for 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 Deferred charges and other assets on the Company’s Condensed Consolidated Balance Sheets).
(4)Tax amounts are calculated using a 24% rate.
(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).
|
(4) | Tax amounts are calculated using a 38% rate.
|
27
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
The following table represents a rollforward of AOCI, presented on Southwest’s Condensed Consolidated Balance Sheets:
AOCI—Rollforward
(Thousands
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | | | | | FSIRS | | | | | | |
(Thousands of dollars) | | Before-Tax | | Tax (Expense) Benefit (8) | | After-Tax | | Before-Tax | | Tax (Expense) Benefit (8) | | After-Tax | | AOCI |
Beginning Balance AOCI December 31, 2019 | | $ | (66,601) | | | $ | 15,985 | | | $ | (50,616) | | | $ | (5,966) | | | $ | 1,431 | | | $ | (4,535) | | | $ | (55,151) | |
FSIRS amounts reclassified from AOCI (5) | | — | | | — | | | — | | | 1,673 | | | (402) | | | 1,271 | | | 1,271 | |
Amortization of prior service cost (6) | | 578 | | | (138) | | | 440 | | | — | | | — | | | — | | | 440 | |
Amortization of net actuarial loss (6) | | 18,915 | | | (4,540) | | | 14,375 | | | — | | | — | | | — | | | 14,375 | |
Regulatory adjustment (7) | | (16,790) | | | 4,030 | | | (12,760) | | | — | | | — | | | — | | | (12,760) | |
Net current period other comprehensive income attributable to Southwest Gas Corporation | | 2,703 | | | (648) | | | 2,055 | | | 1,673 | | | (402) | | | 1,271 | | | 3,326 | |
Ending Balance AOCI June 30, 2020 | | $ | (63,898) | | | $ | 15,337 | | | $ | (48,561) | | | $ | (4,293) | | | $ | 1,029 | | | $ | (3,264) | | | $ | (51,825) | |
(5) The FSIRS reclassification amounts are included in Net interest deductions on Southwest’s Condensed Consolidated Statements 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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(5) | The FSIRS reclassification amounts are included in the Net interest deductions line item on Southwest’s Condensed Consolidated Statements of Income.
|
(6) | These AOCI components are included in the computation of net periodic benefit cost (seeNote 2 – Components of Net Periodic Benefit Costfor additional details).
|
(7) | 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) | Tax amounts are calculated using a 38% rate.
|
Income.
(6)These AOCI components are included in the computation of net periodic benefit cost (see Note 2 – Components of Net Periodic Benefit Cost for additional details).
(7)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 Deferred charges and other assets on Southwest’s Condensed Consolidated Balance Sheets).
(8)Tax amounts are calculated using a 24% rate.
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)
(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
| | | | | | | | | | | | | | |
(Thousands of dollars) | | June 30, 2020 | | December 31, 2019 |
Net actuarial (loss) gain | | $ | (464,159) | | | $ | (483,074) | |
Prior service cost | | (3,063) | | | (3,641) | |
Less: amount recognized in regulatory assets | | 403,324 | | | 420,114�� | |
Recognized in AOCI | | $ | (63,898) | | | $ | (66,601) | |
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
The following depicts changes to the balance of the redeemable noncontrolling interest between 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 Related to Southwest Gas Corporation
No substantive change has occurred with regard to the Company’s business segments on the whole, or in the primary businesses comprising those segments (Centuri operations continue to be part of continuing operations of the controlled group of companies), and financial information related to Centuri continues to be included in condensed consolidated financial statements of Southwest Gas Holdings, Inc.
However, as part of the holding company reorganization effective January 2017, Centuri is no longer a subsidiary of Southwest; whereas historically, Centuri had been a direct subsidiary of Southwest. To give effect to this change, the condensed consolidated financial statements related to Southwest Gas Corporation, which are separately included in thisForm 10-Q, depict Centuri-related amounts as discontinued operations for periods prior to January 2017.
Due to the discontinued operations accounting reflection, the following disclosures provide additional information regarding the assets, liabilities, equity, revenues, and expenses of Centuri which are shown as discontinued operations on the condensed consolidated financial statements of Southwest Gas Corporation for periods prior to the beginning of 2017.
The following table presents the major categories of assets and liabilities within the amounts reported as discontinued operations – construction services in the Condensed Consolidated Balance Sheet of Southwest Gas Corporation:
| | | | |
(Thousands of dollars) | 29 | December 31, 2016 |
| |
Assets:
| | | | | | | |
Other property and investments SOUTHWEST GAS HOLDINGS, INC. | | $ | 233,774 | Form 10-Q |
Cash and cash equivalents SOUTHWEST GAS CORPORATION | | | 9,042 | June 30, 2020 |
Accounts receivable, net of allowances
| | | 173,300 | |
Prepaids and other current assets
| | | 10,470 | |
Goodwill
| | | 129,888 | |
Other noncurrent assets
| | | 22,897 | |
Note 7 – Segment Information
Centuri accounts for the services provided to Southwest at contractual prices at contract inception. Accounts receivable for these services, which are not eliminated during consolidation, are presented in the table below:
| | | | | | | | | | | |
(Thousands of dollars) | June 30, 2020 | | December 31, 2019 |
Centuri accounts receivable for services provided to Southwest | $ | 17,364 | | | $ | 15,235 | |
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 financial information pertaining to the natural gas operations and utility infrastructure services segments is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | Natural Gas Operations | | Utility Infrastructure Services | | Other | | Total |
Three Months Ended June 30, 2020 | | | | | | | |
Revenues from external customers | $ | 262,434 | | | $ | 457,890 | | | $ | — | | | $ | 720,324 | |
Intersegment revenues | — | | | 36,923 | | | — | | | 36,923 | |
Total | $ | 262,434 | | | $ | 494,813 | | | $ | — | | | $ | 757,247 | |
Segment net income (loss) | $ | 11,942 | | | $ | 26,267 | | | $ | (244) | | | $ | 37,965 | |
| | | | | | | |
Three Months Ended June 30, 2019 | | | | | | | |
Revenues from external customers | $ | 258,711 | | | $ | 405,218 | | | $ | — | | | $ | 663,929 | |
Intersegment revenues | — | | | 49,082 | | | — | | | 49,082 | |
Total | $ | 258,711 | | | $ | 454,300 | | | $ | — | | | $ | 713,011 | |
Segment net income (loss) | $ | 3,369 | | | $ | 18,918 | | | $ | (231) | | | $ | 22,056 | |
| | | | | | | |
(Thousands of dollars) | Natural Gas Operations | | Utility Infrastructure Services | | Other | | Total |
Six Months Ended June 30, 2020 | | | | | | | |
Revenues from external customers | $ | 765,261 | | | $ | 758,181 | | | $ | — | | | $ | 1,523,442 | |
Intersegment revenues | — | | | 70,125 | | | — | | | 70,125 | |
Total | $ | 765,261 | | | $ | 828,306 | | | $ | — | | | $ | 1,593,567 | |
Segment net income (loss) | $ | 95,541 | | | $ | 16,063 | | | $ | (1,097) | | | $ | 110,507 | |
| | | | | | | |
Six Months Ended June 30, 2019 | | | | | | | |
Revenues from external customers | $ | 779,388 | | | $ | 679,407 | | | $ | — | | | $ | 1,458,795 | |
Intersegment revenues | — | | | 87,755 | | | — | | | 87,755 | |
Total | $ | 779,388 | | | $ | 767,162 | | | $ | — | | | $ | 1,546,550 | |
Segment net income (loss) | $ | 106,758 | | | $ | 10,887 | | | $ | (780) | | | $ | 116,865 | |
| | | | |
Discontinued operations - construction services - assets
| | $ | 579,371 | |
| | | | |
Liabilities:
| | | | |
Current maturities of long-term debt
| 30 | $ | 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 | | SeptemberJune 30, 20172020 |
The following table presents the components of the Discontinued operations – construction servicesnon-owner equity amount shown in the Southwest Gas Corporation Condensed Consolidated Balance Sheet:
| | | | |
(Thousands of dollars) | | December 31, 2016 | |
Construction services equity | | $ | (4,390 | ) |
Construction services noncontrolling interest | | | (2,217 | ) |
Construction services redeemable noncontrolling interest | | | 22,590 | |
| | | | |
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
| | | | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | Natural Gas Operations | | Utility Infrastructure Services | | Other | | Total |
Twelve Months Ended June 30, 2020 | | | | | | | |
Revenues from external customers | $ | 1,354,812 | | | $ | 1,671,026 | | | $ | — | | | $ | 3,025,838 | |
Intersegment revenues | — | | | 141,096 | | | — | | | 141,096 | |
Total | $ | 1,354,812 | | | $ | 1,812,122 | | | $ | — | | | $ | 3,166,934 | |
Segment net income (loss) | $ | 151,954 | | | $ | 57,581 | | | $ | (1,957) | | | $ | 207,578 | |
| | | | | | | |
Twelve Months Ended June 30, 2019 | | | | | | | |
Revenues from external customers | $ | 1,367,124 | | | $ | 1,470,787 | | | $ | — | | | $ | 2,837,911 | |
Intersegment revenues | — | | | 163,439 | | | — | | | 163,439 | |
Total | $ | 1,367,124 | | | $ | 1,634,226 | | | $ | — | | | $ | 3,001,350 | |
Segment net income (loss) | $ | 152,629 | | | $ | 47,629 | | | $ | (1,758) | | | $ | 198,500 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
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), which are
discussed below.collectively referred to as the “Company.”
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 SeptemberJune 30, 2017 (on a seasonally adjusted basis),2020, Southwest had 1,999,0002,102,000 residential, commercial, industrial, and other natural gas customers, of which 1,065,0001,121,000 customers were located in Arizona, 741,000781,000 in Nevada, and 193,000200,000 in California. Over the past twelve months, first time meter sets were approximately 36,000, compared to 33,000 for the twelve months ending June 2019. The remaining increase in active customer accounts compared to the June 30, 2019 total of 2,061,000 was primarily due to a management-initiated moratorium on disconnections as a result of the COVID-19 pandemic. As utility service is an essential service to the residents in the states in which Southwest operates, it implemented the temporary moratorium in March 2020 and also ceased charging late fees until further notice. We can provide no assurances as to when the moratorium will be lifted. Residential and small commercial customers represented over 99% of thethe total customer base. During the twelve months ended SeptemberJune 30, 2017, 54%2020, 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% of its operating margin (gas operating revenues less the net cost of gas sold) from residential and small commercial customers,customers, 3% from other sales customers, and 12% fromfrom transportation customers. TheseWhile these general patterns are expected to remain materially consistent for the foreseeable future.future, the global COVID-19 pandemic, as discussed further below, could impact these statistics and associated patterns in the short term.
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 anon-GAAP measure. Management uses this financial measure because natural gas operating revenues include the net cost of gas sold, which is a tracked cost that is passed through to customers without markup under purchased gas adjustment (“PGA”) mechanisms. Fluctuations in the net cost of gas sold impact revenues on adollar-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. Commission decisions on the amount and timing of such relief may impact our earnings, such as with the current Arizona general rate case, whereby hearings were deferred amidst the current pandemic, and both a decision and new rate establishment are expected to occur later than originally expected. Refer to the Summary Operating Results table for a reconciliation of revenues to operating margin, and refer to
Rates and Regulatory Proceedings in this Management’s Discussion and Analysis. 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
unusual 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
primarily from installation, replacement, repair, and maintenance of energy distribution
systems, and developing industrial construction solutions.systems. Centuri operates in
24 major markets54 primary locations across 40 states and provinces in the United States
(primarily(“U.S.”) and Canada. 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.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
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 following those mandates 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.
COVID-19 Pandemic
In March 2020, the World Health Organization categorized the novel coronavirus (“COVID-19”) as a pandemic, and President Donald Trump declared the COVID-19 outbreak a national emergency. The outbreak resulted in government officials implementing stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures. Certain jurisdictions have begun re-opening only to return to further restrictions in the face of new COVID-19 cases. In addition, governments and central banks in several parts of the world enacted fiscal and monetary stimulus measures to mitigate financial impacts of COVID-19 on individuals and businesses.
Our utility operations are considered an essential service and Southwest continues to provide services to meet the demand of its customers, even while many other types of businesses were or are closed. Consistent with federal and state guidelines, Southwest has continued to operate across its territories. Similarly, the majority of Centuri’s largest clients issued essential service letters to Centuri businesses in keeping with the federal definition of “essential” set out by the Department of Homeland Security. This allowed Centuri to similarly continue nearly all operations from the outset of the pandemic in the U.S., and demand has not significantly diminished. The ability to work may be impacted by individuals contracting or being exposed to COVID-19, governmental requirements to postpone certain non-essential services, or by management imposed restrictions for safety precautions; to date, these factors have not had a significant impact on the Company’s ability to maintain operations. The Company has instructed employees at many offices (including corporate headquarters) to work from home on a temporary basis and implemented travel restrictions. Both segments implemented business continuity plans, including the deployment of technology to conduct administrative and critical functions remotely, where possible, and employees and management teams have been in place to communicate and respond to changes quickly and effectively. To date, there has not been a significant disruption in the Company’s supply chains, transportation network, or ability to serve customers.
As an essential service provider, Southwest implemented several important measures with regard to its customers. As noted above, it initiated a temporary moratorium on natural gas disconnections for non-payment; it is working with customers who are experiencing financial hardship through flexible payment arrangements; and it also ceased charging late fees until further notice. Management does not expect a material increase to the allowance for uncollectibles from such measures as during warmer months, such as the summer season, monthly utility bills for natural gas are substantially reduced. Should the pandemic continue into the winter season, the potential impact could be more significant. See Accounts receivable, net of allowances in Note 1 – Background, Organization, and Summary of Significant Accounting Policies. In the utility infrastructure services segment, a limited number of Centuri customers delayed some projects primarily in response to local governmental restrictions. Project delays, whether due to governmental restrictions or reassessments of timing by Centuri’s customers, resulted in temporary reductions of workforce crews. Some crew reductions are ongoing in specific areas and the associated revenue impacts have not been significant. Management is monitoring the dynamic nature of these circumstances, the full future impacts of which are not currently known, including the impact from business curtailments, weak market conditions, or governmental restrictions, including any restrictions which could limit the fulfillment by Centuri of its contractual obligations.
The Company has incurred additional expenses in connection with its response to these conditions, including costs of disinfecting work locations and equipment, costs related to enabling employees to support customers while working remotely, and impacts from the moratorium on customer disconnection and late fee assessment. These additional costs were not material to the Company’s fiscal 2020 results to date, and certain of Southwest’s regulatory commissions have implemented measures to mitigate impacts of these conditions on Southwest. See Rates and Regulatory Proceedings below for additional detail.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted, as discussed in Note 1 – Background, Organization, and Summary of Significant Accounting Policies. The CARES Act to date has not, and management anticipates that it will not, have a material effect on the Company’s or Southwest’s results of operations, financial position, or liquidity. In Canada, Centuri received $3.4 million of wage subsidies from the Canadian government as part of a COVID-19 relief program. Management does not expect these subsidies, if any, to be significant in future periods.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
The extent to which COVID-19 may adversely impact the Company’s business depends on future developments, including the timing of, or continued deferment by government officials related to, the resumption of commerce across the service territories of all our businesses, the magnitude of further spread of the virus in advance of and following such resumption, impacts of these conditions on our customers, the state of the North American economy following that resumption, and possibly other unmitigated effects related to the virus. Management does not currently expect the impact of these conditions to be material to the Company’s liquidity and financial position; however, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be fully estimated at this time, and management cannot predict whether future periods will be impacted differently than the impacts reflected in the six months ended June 30, 2020. In anticipation of a redeployment of employees to their normal work locations, management has created a multi-phase reintegration plan to safeguard the well-being of our teams, including hygiene, sanitization, and social distancing practices, as well as the use of personal protective equipment for employees and visitors. Management will continue to monitor developments affecting the Company’s employees, customers, and operations, and take additional steps to address the COVID-19 pandemic and its impacts, as necessary. Events and changes in circumstances arising after June 30, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.
This Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations should be read in conjunction with the
unaudited condensed 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
20162019 Annual Report to Shareholders, which is incorporated by reference into the
20162019 Form
10-K.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
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 June 30, | | | | | | | | | | |
| | Three Months | | | | Six Months | | | | Twelve Months | | |
(In thousands, except per share amounts) | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Contribution to net income | | | | | | | | | | | | |
Natural gas operations | | $ | 11,942 | | | $ | 3,369 | | | $ | 95,541 | | | $ | 106,758 | | | $ | 151,954 | | | $ | 152,629 | |
Utility infrastructure services | | 26,267 | | | 18,918 | | | 16,063 | | | 10,887 | | | 57,581 | | | 47,629 | |
Corporate and administrative | | (244) | | | (231) | | | (1,097) | | | (780) | | | (1,957) | | | (1,758) | |
Net income | | $ | 37,965 | | | $ | 22,056 | | | $ | 110,507 | | | $ | 116,865 | | | $ | 207,578 | | | $ | 198,500 | |
| | | | | | | | | | | | |
Weighted average common shares | | 55,462 | | | 53,935 | | | 55,386 | | | 53,654 | | | 55,105 | | | 51,914 | |
Basic earnings per share | | | | | | | | | | | | |
Consolidated | | $ | 0.68 | | | $ | 0.41 | | | $ | 2.00 | | | $ | 2.18 | | | $ | 3.77 | | | $ | 3.82 | |
Natural Gas Operations | | | | | | | | | | | | |
Reconciliation of Revenue to Operating Margin (Non-GAAP measure) | | | | | | | | | | | | |
Gas operating revenues | | $ | 262,434 | | | $ | 258,711 | | | $ | 765,261 | | | $ | 779,388 | | | $ | 1,354,812 | | | $ | 1,367,124 | |
Less: Net cost of gas sold | | 67,473 | | | 65,182 | | | 228,294 | | | 257,786 | | | 355,672 | | | 407,976 | |
Operating margin | | $ | 194,961 | | | $ | 193,529 | | | $ | 536,967 | | | $ | 521,602 | | | $ | 999,140 | | | $ | 959,148 | |
2nd Quarter 2020 Overview
Natural gas operations highlights include the following:
•36,000 first-time meters sets (1.7% growth rate) occurred over the past 12 months
•Operations and maintenance expense decreased $5.7 million
•Company-Owned Life Insurance (“COLI”) income increased $8.6 million between quarters
•Issued $450 million in 2.2% 10-year Notes (a record low fixed rate for Southwest)
Utility infrastructure services highlights include the following:
•Record second quarter net income of $26.3 million
•Utility infrastructure services revenues increased $41 million, or 8.9%
•Utility infrastructure services expenses increased $28 million, or 7.0%
•Equipment purchases during the past 12 months resulted in a $3 million increase in depreciation
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | 35 | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
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 | | SeptemberJune 30, 20172020 |
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 June 30, | | |
(Thousands of dollars) | | 2020 | | 2019 |
Gas operating revenues | | $ | 262,434 | | | $ | 258,711 | |
Net cost of gas sold | | 67,473 | | | 65,182 | |
Operating margin | | 194,961 | | | 193,529 | |
Operations and maintenance expense | | 99,320 | | | 104,991 | |
Depreciation and amortization | | 53,198 | | | 49,343 | |
Taxes other than income taxes | | 15,342 | | | 15,126 | |
Operating income | | 27,101 | | | 24,069 | |
Other income (deductions) | | 7,838 | | | 1,592 | |
Net interest deductions | | 23,991 | | | 23,345 | |
Income before income taxes | | 10,948 | | | 2,316 | |
Income tax benefit | | (994) | | | (1,053) | |
Contribution to consolidated net income | | $ | 11,942 | | | $ | 3,369 | |
Contribution from natural gas operations to consolidated net income increased $8.6 million between the second quarters of 2020 and 2019. The increase was primarily due to an increase in Other income, customer growth, and lower Operations and maintenance expense, offset by an increase in Depreciation and amortization.
Operating margin increased
$6$1.4 million. Customer growth provided approximately $2.5 million
between quarters. Rate relief in Arizona (effective April 2017) and California provided $4 million in operatingof incremental margin
(seeRates and Regulatory Proceedings). Approximately $2 million in increased operating margin was attributable to customer growth, as 32,000 net new customers were addedfrom 36,000 first-time meter sets during the last twelve months.
Rate relief contributed approximately $400,000 in incremental operating margin. Offsetting the increase were other items, including the impact of the temporary moratorium on late fees and lower connection/re-connection charges during the COVID-19 pandemic.
Operations and maintenance expense
was relatively flat between quarters. Decreases in employee-related benefit costs more than offset increases in other general costs.Depreciation and amortization expense decreased $10$5.7 million between quarters primarily due to reduced depreciation ratesthe impacts of COVID-19 on training and travel costs and reductions in Arizona, a resultother service and maintenance costs. Overall, the variance between 2019 and 2020 is expected to narrow in the second half of the recent Arizona general rate case decision. Partially offsetting the decline was2020.
Depreciation and amortization expense increased
depreciation associated with a $317$3.9 million, or
5%8%, between quarters, primarily due to a $684 million, or 9%, increase in average gas plant in service
for the current quarter as compared to the corresponding quarter a year
ago.ago, offset by a decrease in regulatory account amortization. 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
Other income taxes increased $1.6improved $6.2 million between quarters primarily due to higher property taxes associated with net plant additions and increased property taxes in Arizona, including the impact of a property tax tracking mechanism enacted as part of the recently settled Arizona general rate case.Other income increased $560,000 between quarters primarily due to an increase in the equity portion of the allowance for funds used during construction (“AFUDC”) associated with higher construction expenditures. The equity portion of AFUDC represents 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 $2.1a $12 million of income associated withincrease in COLI policy cash surrender value increases,values, while the prior-year quarter reflected $2.3refle
cted a $3.4 million increase in COLI policy cash surrender values. These values are significantly impacted by fluctuations in the values of COLI-related income. COLI amounts in each quarter were greater than expected.Net interest deductions increased $1.1 million between quarters, primarily due to the September 2016 issuance of $300 million of senior notes, partially offset by reductionsequity securities associated with the redemption of debt ($24.9 million of 4.75% IDRBscash surrender values, and values in September 2016)both periods were impacted directionally consistent with the broader securities markets. Offsetting these impacts were higher non-service-related costs associated with employee pension and other postretirement benefits and lower interest expense associated with PGA balances as compared to the prior-year quarter.
34
income on regulatory account balances.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
Results of Natural Gas Operations
Nine-Month
Six-Months 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
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | |
(Thousands of dollars) | | 2020 | | 2019 |
Gas operating revenues | | $ | 765,261 | | | $ | 779,388 | |
Net cost of gas sold | | 228,294 | | | 257,786 | |
Operating margin | | 536,967 | | | 521,602 | |
Operations and maintenance expense | | 202,408 | | | 210,533 | |
Depreciation and amortization | | 117,923 | | | 106,955 | |
Taxes other than income taxes | | 31,720 | | | 31,332 | |
Operating income | | 184,916 | | | 172,782 | |
Other income (deductions) | | (12,698) | | | 7,538 | |
Net interest deductions | | 49,049 | | | 46,444 | |
Income before income taxes | | 123,169 | | | 133,876 | |
Income tax expense | | 27,628 | | | 27,118 | |
Contribution to consolidated net income | | $ | 95,541 | | | $ | 106,758 | |
Contribution from natural gas operations to consolidated net income
from natural gas operations increased $14.9decreased $11.2 million between the first
ninesix months of
20172020 and
2016.2019. The
improvementdecline was primarily due to
higher operating margina decrease in Other income and
lower depreciation expense,increases in Depreciation and amortization, partially offset by an increase in
operationsOperating margin and lower Operations and maintenance
expenses.expense.
Operating margin increased $17 $15 million between the comparative nine-month periods., including $8 million attributable to customer growth. Rate relief, primarily in the Arizona and California, jurisdictions provided $10contributed an additional $1 million in operating margin. The prior-year period included an approximate $5 million reduction in margin (seeRates and Regulatory Proceedings).resulting from a one-time adjustment by the Arizona Corporation Commission to reflect the impacts of U.S. tax reform on the Arizona decoupling mechanism. The remaining $7 million increase was attributableprimarily resulted from the net recovery of regulatory program balances (collectively, having an offsetting impact in amortization expense), in addition to customer growth.margin from customers outside the decoupling mechanisms, offset by lower late fees and connect/re-connect charges during the current moratorium noted previously.
Operations and maintenance expense increased $11.4decreased $8.1 million, or 4%, between periodsperiods. Reductions in training and travel costs due primarily to higher general cost increases. Approximately $5 millionthe COVID-19 environment, as well as lower legal claims-related costs, and decreases in other service and maintenance costs contributed to the decline between periods. Overall, the variance between 2019 and 2020 is expected to narrow in the second half of the incremental costs recognized were associated with the amount and timing of employee incentive plan grants (including accelerated recognition for retirement eligible employees).2020.
Depreciation and amortization expense decreased $20.8increased $11 million, or 10%, between periods primarily due to reduced depreciation rates in Arizona, a result of the recent Arizona general rate case decision. The depreciation decrease also included a decline of approximately $3.7 million in amortization related to the recovery of regulatory assets. Partially offsetting these declines was depreciation associated with a $325$684 million, or 5%9%, increase in average gas plant in service for the current period as compared to the prior period.between periods. The increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.Taxes Regulatory account surcharges, as noted above, also resulted in increases in amortization expense in the current period.
Other income decreased $20.2 million overall between periods. The current period reflects a $3.5 million declinein COLI policy cash surrender values, while the prior-year period reflected $11 million of COLI-related income. The non-service cost components of employee pension and other than income taxespostretirement benefits costs were $2.5 million higher between periods. Additionally, lower interest on regulatory balances contributed to the decrease between periods.
Net interest deductions increased $3.8$2.6 million between periods, primarily due to higher property taxesinterest associated with net plant additions and increased property taxes in Arizona, including the impact of the Arizona property tax tracking mechanism.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 withSenior Notes in May 2019 and higher debt redemptions ($100 million of 4.85% IDRBsbalances outstanding 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-yearcurrent period.
35
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
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 | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| | Twelve Months Ended June 30, | | |
(Thousands of dollars) | | 2020 | | 2019 |
Gas operating revenues | | $ | 1,354,812 | | | $ | 1,367,124 | |
Net cost of gas sold | | 355,672 | | | 407,976 | |
Operating margin | | 999,140 | | | 959,148 | |
Operations and maintenance expense | | 414,049 | | | 407,948 | |
Depreciation and amortization | | 226,588 | | | 201,146 | |
Taxes other than income taxes | | 62,716 | | | 61,307 | |
Operating income | | 295,787 | | | 288,747 | |
Other income (deductions) | | (10,719) | | | (3,005) | |
Net interest deductions | | 97,631 | | | 88,780 | |
Income before income taxes | | 187,437 | | | 196,962 | |
Income tax expense | | 35,483 | | | 44,333 | |
Contribution to consolidated net income | | $ | 151,954 | | | $ | 152,629 | |
Contribution to consolidated net income from natural gas operations
increased by $14.5 milliondecreased $700,000 between the twelve-month periods
of 2017ended June 2020 and
2016.2019. The
improvementdecline was primarily due to higher
operating marginDepreciation and amortization expense, Net interest deductions, and lower
depreciation expense,Other income, partially offset by an increase in
operations and maintenance expenses and interest expense.operating margin.
Operating margin increased
$26$40 million between
periods including a combined $13 million of rate relief in the Arizona and California jurisdictions, as well as Paiute Pipeline Company.periods. Customer growth provided
$9$13 million,
and combined rate relief, primarily in
Nevada and California, provided $7 million of incremental operating
margin. The prior-year period included an approximate $5 million reduction in margin
while operating margin associated withresulting from a one-time adjustment to reflect the impacts of U.S. tax reform on the Arizona decoupling mechanism. The remaining net increase resulted from recoveries of regulatory assets
(approximately $10 million, offset in amortization expense below), infrastructure replacement mechanisms,
and customers outside the decoupling
mechanisms, and other miscellaneous revenues improved $4 million.mechanisms.
Operations and maintenance expense increased $12.9$6.1 million (or 1%) between periods primarily due to incremental expenditures for pipeline damage prevention programs and higher legal claim-related costs, partially offset by lower training and travel costs due to the current COVID-19 environment.
Depreciation and amortization expense increased $25.4 million, or
3%13%, between periods primarily due to
general cost increases, partially offset by lower pension expense. Approximately $5.6 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). Pipeline integrity management and damage prevention programs collectively 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$651 million, or 6%9%, increase in average gas plant in service forsince the currentcorresponding period as compared toin the prior period. The increase in gas plant was attributableyear. Amortization related to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.
Taxes other than income taxesregulatory account recoveries increased $4.4approximately $10 million between periods primarily due to higher property taxes 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.
periods.
Other income
increased $693,000decreased $7.7 million between the twelve-month periods of
20172020 and
2016.2019 primarily due to a decline in COLI policy values. The current period reflects
an $8.8a $2.9 million increase in COLI policy cash surrender values, while the
prior-yearprior year period reflected
$7.5a $6.5 million
of combined COLI-related incomeincrease. Lower interest on regulatory account balances and
recognized death benefits. COLIlower amounts
in each period were greater than expected.associated with the allowance for equity funds applied to projects during construction also impacted the variance between periods.
Net interest deductions increased $4.3$8.9 million between periods primarily due to interest associated with the September 2016 issuance of $300 million of senior notes. Senior Notes in May 2019.
The
increase was partially offset by reductions associated with the redemptionreduction in income taxes between periods reflects lower earnings, as well as lower state income taxes (due to apportionment changes) and an additional $1.2 million in amortization of
debt ($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.36
excess accumulated deferred income taxes following U.S. tax reform, which reduces tax expense.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
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 net income from construction
| | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | |
(Thousands of dollars) | | 2020 | | 2019 |
Utility infrastructure services revenues | | $ | 494,813 | | | $ | 454,300 | |
Operating expenses: | | | | |
Utility infrastructure services expenses | | 430,224 | | | 402,199 | |
Depreciation and amortization | | 24,019 | | | 20,999 | |
Operating income | | 40,570 | | | 31,102 | |
Other income (deductions) | | 86 | | | (477) | |
Net interest deductions | | 2,239 | | | 3,457 | |
Income before income taxes | | 38,417 | | | 27,168 | |
Income tax expense | | 10,234 | | | 7,474 | |
Net income | | 28,183 | | | 19,694 | |
Net income attributable to noncontrolling interest | | 1,916 | | | 776 | |
Contribution to consolidated net income attributable to Centuri | | $ | 26,267 | | | $ | 18,918 | |
Utility infrastructure services revenues increased $40.5 million in the currentsecond quarter decreased by $542,000of 2020 when compared to the prior-year quarter. The decrease is primarilyquarter, due to a higher constructionvolume of electric infrastructure and pipe replacement work under blanket and bid contracts. Included in this improvement were revenues of $7.3 million in the second quarter of 2020 from storm-related electric services work that did not occur during the same quarter in the prior year. Centuri achieved the overall increase in revenues despite a temporary shut-down for certain crews in response to local government requirements to postpone non-essential business services and precautions to ensure employee safety during the COVID-19 outbreak.
Utility infrastructure services expenses increased $28 million in the second quarter of 2020 when compared to the prior-year quarter, due primarily to costs
relative to
increased revenues, resulting from apre-tax loss on a project described below,complete additional electric infrastructure and pipe replacement work, partially offset by
a decline in depreciationincreased productivity and
amortization.Revenues increased $40.3 million, or 12%, between quarters primarilyefficiencies on electrical infrastructure projects and lower fuel and overtime costs. Additionally, Centuri’s mix of work was favorably impacted by certain restrictions on service-line related work due to COVID-19, which allowed for an increase in pipemain line replacement work, and resulted in greater production efficiency and reduced travel time. Centuri also benefited from $3.4 million in wage subsidies from the Canadian government amidst the COVID-19 environment. These funds were recorded as a reduction in wage-related expenses, included within this line item. Offsetting some of these improvements were certain increased costs and workforce inefficiencies associated with existing customers. A significant portionthe continued impact 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 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 approximately $25,000 and $1.4 million for the third quarters of 2017 and 2016, respectively.
COVID-19 pandemic.
Depreciation and amortization
decreased $1.1expense increased $3 million between quarters
primarily dueattributable to
a $2 million reduction associated with the extension of the estimated useful lives of certain depreciable equipment during the past 12 months, partially offset by an increase in depreciation for additional equipment purchased to support the growing volume of work being
performed.37
performed, primarily at Linetec.Net interest deductions decreased $1.2 million between periods due primarily to lower rates associated with outstanding borrowings under the $590 million secured revolving credit and term loan facility.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
Results of
ConstructionUtility Infrastructure Services
Nine-Month
Six-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 net income from construction
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | |
(Thousands of dollars) | | 2020 | | 2019 |
Utility infrastructure services revenues | | $ | 828,306 | | | $ | 767,162 | |
Operating expenses: | | | | |
Utility infrastructure services expenses | | 749,538 | | | 702,664 | |
Depreciation and amortization | | 46,947 | | | 40,926 | |
Operating income | | 31,821 | | | 23,572 | |
Other income (deductions) | | (156) | | | 398 | |
Net interest deductions | | 5,138 | | | 6,726 | |
Income before income taxes | | 26,527 | | | 17,244 | |
Income tax expense | | 8,085 | | | 5,006 | |
Net income | | 18,442 | | | 12,238 | |
Net income attributable to noncontrolling interest | | 2,379 | | | 1,351 | |
Contribution to consolidated net income attributable to Centuri | | $ | 16,063 | | | $ | 10,887 | |
Utility infrastructure services forrevenues increased $61.1 million during the first ninesix months of 2017 declined by $3.6 million2020 when compared to the prior-year period. The decrease is primarilysame period in the prior year due to a higher construction costs relativevolume of electric infrastructure and pipe replacement work under blanket and bid contracts. Electric infrastructure work composed $53.9 million of that increase, including the storm-related work noted earlier. The improvement was achieved despite a temporary shut-down for certain crews in response to increased revenues, partially offset by a decline in depreciationlocal government requirements to postpone non-essential business services and amortization.Revenues increased $34.5 million, or 4%, inprecautions to ensure employee safety during the COVID-19 outbreak.
Results during the first ninesix months of 20172019 reflected incremental profit from customer requested strike support that did not recur in 2020. Utility infrastructure services expenses increased $46.9 million during the first six months of 2020 when compared to the prior-yearsame period in the prior year, due primarily due to increased costs to complete additional electric infrastructure and pipe replacement work. Partially offsetting increases in revenues was a temporary work, stoppagepartially offset by a significant customer that began in the first quarter of 2017increased productivity and continued through part ofefficiencies on electrical infrastructure projects and lower fuel and overtime costs noted for the second quarter of 2017 resulting in a $26.3 million reduction in revenues, compared to2020. Additionally, the prior-year period, and a $3.7 millionpre-tax loss in the current nine-month period. The temporaryimproved mix of work stoppage was initiated due to state-mandated requalification of employees of all contractors working within the jurisdictional boundary of one state. Operations resumed gradually following the requalification of Centuri’s employees during the second quarter of 2017. Additionally, inclement weather in several operating areas negatively impacted revenuesfor main line replacements provided cost efficiencies. Offsetting these favorable impacts were certain increased costs and reduced productivity inworkforce inefficiencies associated with the first quarter of 2017.Construction expenses increased $48.7 million, or 6%, between periods. The increase in construction expenses is disproportionate to revenues noted above due in part to logistics surrounding the timing and lengthcontinued impact of the temporary work stoppage with the significant customer and to higher labor costs incurred to complete work during inclement weather conditions in the first quarter. In addition, results were negatively impacted by higher construction andstart-up costs related to the water pipe replacement project, for which Centuri is pursuing cost recovery. Gains on sale of equipment (reflected as an offset to construction expenses) were approximately $1.5 million and $4.1 million for the first nine months of 2017 and 2016, respectively.
COVID-19 pandemic.
Depreciation and amortization decreased $7.9expense increased $6 million between periods primarily dueattributable to an $8.2 million reduction in depreciation associated with the extension of the estimated useful lives of certain depreciable equipment during the past 12 months, partially offset by an increase in depreciation for additional equipment purchased to support the growing volume of work being performed.38
performed, primarily at Linetec. Net interest deductions were lower during 2020 due to lower rates associated with outstanding borrowings under the $590 million secured revolving credit and term loan facility.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
Results of
ConstructionUtility Infrastructure 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
| | | | | | | | | | | | | | |
| | Twelve Months Ended June 30, | | |
(Thousands of dollars) | | 2020 | | 2019 |
Utility infrastructure services revenues | | $ | 1,812,122 | | | $ | 1,634,226 | |
Operating expenses: | | | | |
Utility infrastructure services expenses | | 1,620,101 | | | 1,478,730 | |
Depreciation and amortization | | 93,638 | | | 72,162 | |
Operating income | | 98,383 | | | 83,334 | |
Other income (deductions) | | (88) | | | 529 | |
Net interest deductions | | 12,498 | | 14,412 | |
Income before income taxes | | 85,797 | | | 69,451 | |
Income tax expense | | 24,477 | | 20,299 | |
Net income | | 61,320 | | | 49,152 | |
Net income attributable to noncontrolling interest | | 3,739 | | 1,523 | |
Contribution to consolidated net income attributable to Centuri | | $ | 57,581 | | | $ | 47,629 | |
Utility infrastructure services
for the twelve-month period ended September 30, 2017 decreased $4.1revenues increased $177.9 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%,overall in the current twelve-month period compared to the samecorresponding period of 20162019, primarily due to incremental revenues from Linetec (acquired in November 2018) of $165.5 million, as well as continued growth with existing customers under master service and bid agreements. Partially offsetting these increases were decreased revenues from certain non-routine or non-recurring projects, including customer-requested support in 2018 and early 2019 during strike-related and emergency response situations, in addition to a multi-year water pipe replacement project that expired in July 2019 and was not renewed. The prior-year period also included the settlement of an earlier contract dispute related to that project ($9 million). Implementation of new professional engineering stamp requirements for operating locations within certain eastern states in the U.S. resulted in lower revenues during the current period as Centuri worked with customers to adopt the new requirements.
Utility infrastructure services expenses increased $141.4 million between periods, primarily due to incremental expenses related to Linetec of $137.7 million, along with additional
electric infrastructure and 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 labor-related operating expenses to support growth. Included in total Utility infrastructure services expenses were general and administrative costs, which 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$2 million in the first quartertwelve-month period ended June 2020 when compared to the corresponding period ended June 2019. Offsetting impacts include deal costs from the acquisition 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. GainsLinetec during 2018 ($6.9 million). Net gains on sale of equipment (reflected as an offset to constructionUtility infrastructure services expenses) were $4.5$4.9 million and $4.2$2.3 million for the twelve-month periods ended September 30, 2017of 2020 and 2016,2019, respectively.
Depreciation and amortization
decreased $10.6expense increased $21.5 million between the current and prior-year
periodsperiod. The increase was primarily
dueattributable to
an $11.1the incremental assets related to the acquisition of Linetec, providing $15.5 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 forthis category. Depreciation on additional
property and equipment purchased to support the growing volume of work being
performed.39
performed composes the remainder of the increase.Net interest deductions decreased $1.9 million between periods due primarily to lower rates associated with outstanding borrowings under the $590 million secured revolving credit and term loan facility.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
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 the operating margin actually realized by 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 volatility in prices to customers and stabilizing 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, including the southern Arizona LNG facility discussed below. The application also includes a proposed 10.3% return on equity (“ROE”) relative to a capital structure of 51.1% equity. At the time of the filing, the Company estimated the return of approximately $20.6 million of excess accumulated deferred income taxes. Following the original filing, in October 2019, Southwest filed an amendment to its application, updating for $5.7 million in actual amortization of accumulated excess deferred income taxes known after the Company’s 2018 federal income tax return was filed in 2019. It was at such point that the actual amount could be computed based on the prescribed methodology for determining the amount that could be returned to customers. The difference of $14.9 million would result in an increase in revenue and income tax expense, thereby having no impact on earnings overall. In association with the amendment, Southwest also included additional post-test year plant in the amount of $124.5 million associated with its COYL and VSP programs, discussed further below. The amendment overall increased the deficiency by $36 million, to $93 million. Through the discovery and testimony exchanges, Southwest updated certain aspects of its cost of service, including a revised proposed ROE of 10.15%, resulting in an updated proposed increase of $90.6 million. The request overall includes the retention of a fully decoupled rate design, other previously approved regulatory mechanisms, and a new infrastructure tracking mechanism for specific plastic pipe. It also 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. A hearing in this matter was previously scheduled for April 2020; however, due to the COVID-19 pandemic, the hearing was conducted during June and July. Prior to the start of the hearing, Southwest entered into a stipulation with the parties to the case on a number of issues. As part of the stipulation, the parties agreed to continue the COYL program; to establish a Tax Expense Adjustor Mechanism to track annual changes in the amortization of excess accumulated deferred income taxes (“EADIT”) as well as any future changes in the federal tax rate; to incorporate various tariff proposals; and to include a resolution for a 10-year amortization period for EADIT associated with deemed “unprotected” plant. EADIT associated with “protected” plant relates to timing differences from using accelerated depreciation for tax purposes and another method for book purposes and “unprotected” amounts relate to all other timing differences. Legal briefs will continue through mid-September, with a Commission decision expected during the fourth quarter.
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 rate adjustment request filed in April 2018 reflected the December 31, 2017 balance, but was later updated to include the balance at December 31, 2018. After a one-time modification to reflect benefits attributable to the impact of U.S. tax reform on the balance then existing, the ACC approved an annualized recovery of $69 million, with the associated rate effective in May 2019. In the process to address the 2019 activity, in April 2020, Southwest filed a request to adjust the existing rate to consider the 14-month period of January 1, 2019 through February 29, 2020, proposing a rate of $0.00655 per therm based on an ending balance of approximately $3.5 million. Although Commission Staff concurred with Southwest’s proposed rate, the ACC ultimately elected to reduce the rate to zero in an effort to provide some measure of customer relief in light of current issues related to the COVID-19 pandemic, and at the time of both the April filing and the ACC decision, the balance was a liability (in an over-recovered status). Any over-or under-collection will be addressed in Southwest’s next annual filing.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
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 existingthe impacts of tax reform. Ultimately, Southwest was instructed to refund customers $20 million annually, as compared to rate levels of expense and requested returns, in addition to reflecting capital investments made by Southwest since June 2010. The application requested an overall 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, which was consideredestablished in the overall requested amount. This expense reduction coupledpreviously concluded general rate case, until cost-of-service rates are updated in association with the requested revenue increase, resulted in a net annual operating income increase request of $74 million. A settlement was reached among several parties in December 2016 and a formal draft settlement was filed in January 2017. Hearings were held in February 2017, and the ACC approved the settlement agreement in April 2017.pending general rate case. The settlement provides for an overall operating revenue increase of $16 million and the capital structure and cost of capital as proposed by Southwest, with the exceptioncurrent method to return this amount (in advance of the return on common equity, which was set at 9.50%. Depreciation expenseconclusion of the current general rate proceeding) is through a per-therm surcredit. Southwest has been tracking monthly differences between amounts expected to be reduced by $44.7returned and amounts actually returned to customers during 2018 and 2019, and continuing in 2020, which has resulted in an asset balance of $1.6 million for a combined net annual operating income increaseas of $60.7 million. Other key elements of 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 (“June 30, 2020.
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. In December 2014, Southwest received an order from the ACC grantingpre-approval of Southwest’s application to construct the LNG facilitywas ultimately granted approval for construction and the deferral of costs upnot to $50exceed $80 million. FollowingConstruction began during the December 2014 preapproval, Southwest purchased the site forthird quarter of 2017 and the facility and completed detailed engineering design specifications for the purpose of soliciting bids for the engineering, procurement and construction (“EPC”) of the facility. Southwest solicited requests for proposals for the EPC phase of the project, andwas placed in October 2016 made a filing with the ACC to modify the previously issued Order to update thepre-approved costs to reflect anot-to-exceed amount of $80 million, which was approved by the ACCservice in December 2016. Through September 2017,2019. Southwest has incurred approximately $21.7$75.3 million in capital expenditures toward the project (including land acquisition costs). Construction commenced during, which are considered as part of Southwest’s pending rate case. In addition to tracking the third quarter of 2017 and is expectedrevenue requirement associated with the capital investment in a regulatory asset, operating expenses associated with the plant are also authorized to be completed byincluded in a regulatory asset, which is also being addressed as part of the end of 2019.COYLpending general rate case.
Customer-Owned Yard Line (“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 revised annuallydesigned to collect the annual revenue requirement 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 $1.8recover a revenue requirement of $6.7 million (an increase of $3.2 million) related to the revenue requirement associated with $12.1$26.6 million in capital projects completed under both Phase Iin 2018. The ACC ultimately issued an Order in October 2019 authorizing Southwest to retain the existing annual surcharge of $3.5 million and Phase II during 2016. In June 2017,indicating it would review the program as part of the pending general rate case. As discussed above, the parties to the pending rate case stipulated to continue the COYL program. Southwest also proposed to have the ACC issuedreview an estimated $21.1 million of 2019 COYL capital projects, and if authorized, to also render a decision approvingregarding cost recovery as part of the surcharge application. All capital work completedpending rate case. As part of their filed testimony in earlier years was incorporatedthe current case, the ACC Staff and the consumer advocate recommended recovery of this plant as part of Southwest’s filed post-test year plant adjustment, with inclusion of related amounts in Southwest’s Arizona rate base in connection withrates, and also support the recently completed general rate case proceeding, as discussed above.40
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
continuation of the COYL program.
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 milesa substantial amount ofpre-1970s vintage steel pipe in Arizona. As part of the program, Southwest proposed to start replacing the pipe on an accelerated basis and to recover the costs through an annual surcharge filing that will be made in February of each year. Thefiling. A surcharge isrelated thereto has been customarily designed to be revised annually as the program progresses.progresses to collect the annual revenue requirement associated with the related capital expenditures. In the most recent VSP filing, in February 2019, Southwest requested to increase its surcharge revenue by $9.5 million (to $11.9 million) related to 2018 expenditures. Southwest replaced approximately $100 million of VSP in connection with 2018 VSP capital projects. The ACC issued an Order in October 2019 authorizing Southwest to retain the current annual surcharge of $2.4 million and indicated it would review the program as part of the pending rate general case. Southwest also proposed to have the ACC review an estimated $103.4 million of 2019 VSP capital projects, and if authorized, to also render a decision regarding cost recovery as part of the pending rate case. As part of their filed testimony in the current case, the ACC Staff and the consumer advocate recommended recovery of this plant as part of Southwest’s filed post-test year plan adjustment, with inclusion of related amounts in base rates. The continuation of the VSP is pending a decision in the current general rate proceeding.
Customer Data Modernization Initiative. Southwest has embarked on an initiative to replace its customer service system and gas transaction systems, 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 Planhearing in this matter was held in June 2020. Legal briefs will continue through mid-September, with a Commission decision expected in the fourth quarter.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 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 Administration (“POA”)2.75% annually for 2015 through 2018, after which time 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, including extension of the annual 2.75% PTY attrition adjustments for 2019 and 2020.
On August 30, 2019, Southwest filed the previously deferred 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 was net of a $10.9 million revenue reduction associated with changes from U.S. tax reform, which included 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 would not be expected to have an impact on earnings overall. Southwest has been tracking those amounts, as directed, and reserving them for return to customers. The overall revenue request also included $1.6 million of excess accumulated deferred income taxes proposed to be returned to customers each year until the amount is reset as part of a future rate case. Southwest’s proposal included an ROE of 10.5%, relative to a 53% equity ratio; continuation of annual post-test year margin adjustments of 2.75%; implementation of various safety-related programs, including a targeted pipe replacement program and a meter protection program (with a combination of measures, such as snow sheds, excess flow valves, upgraded meter set piping and upgraded Encoder Receiver Transmitter protocol); as well as an expansion of the COYL replacement program. Ahead of hearings scheduled to begin in late June, Southwest reached an agreement in principle with the Public Advocate’s Office for settlement of the pending general rate case.
The agreement in principle includes a $6.4 million total combined revenue increase with a 10% ROE, relative to a 52% equity ratio. Approximately $4 million of the original proposed increase of $12.8 million is associated with a North Lake Tahoe project that will not be completed by the beginning of 2021; consequently, the parties agreed to remove it from the base rate increase and instead Southwest will recover the cost of the project through a surcharge as described below. The agreement also maintains Southwest’s existing 2.75% annual attrition adjustments, the continuation of the pension balancing account, and approves the proposed increase in the residential basic service charge from the existing $5.00 to $5.75 per month. The parties also agreed to a cumulative total of $119 million over the five-year rate cycle to implement the proposed risk-informed decision making proposals, which
consist of a COYL replacement, meter protection and pipe replacement programs. Southwest is also authorized to implement a surcharge annually to recover the cost of these programs. The agreement in principle was filed in
March of 2017early August 2020, and
wasif approved,
new rates would be expected to become effective in
conjunction with the general rate case, outlined the VSP program requirements and established the timeline for future project plans and surcharge requests. Southwest is currently targeting the replacement of nearly 40 miles of VSP during 2017 totaling approximately $27 million and replacement projects during 2018 of approximately $100 million.California Jurisdiction
January 2021.
Attrition Filing. In November 2016,2019, 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$2.06 million in southern California, $513,000$556,000 in northern California, and $256,000$278,000 for South Lake Tahoe. This filing was approved in December 20162019 and rates were made effective in January 2017.2020. 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 adopted 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. Amounts distributed in April 2019 and 2020 were comparable. GHG compliance costs recovered through rates (including transportation customer rates) have no impact on earnings.
Renewable Natural Gas. In February 2019, Southwest filed an application that, among other provisions, seeks to formally allow the inclusion of renewable natural gas (or biomethane) as a potential component of Southwest’s gas supply portfolio through the Biomethane Gas Program (“BGP”). This proposal is designed to further the goals of the California Global Warming Solutions Act of 2006, the California Low Carbon Fuel Standard, Senate Bills 1383 and 1440, as well as current or future legislative or regulatory efforts to reduce greenhouse gas emissions. Implementation of the BGP addresses cost recovery as part of Southwest’s existing Gas Cost Incentive Mechanism related to the purchase or sale of biomethane. The CPUC issued a final decision approving the proposal in March 2020.
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 estimated $174 million cost for the
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
CDMI would be allocable to the California rate jurisdiction. Southwest filed a separate request to establish a memorandum account while the CPUC considered its application request to establish a two-way balancing account. Effective October 2019, the CPUC granted Southwest’s memorandum account request, which would 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 CDMI. The balance tracked in the memorandum account would be transferred to the two-way balancing account, if approved. In January 2020, Southwest and the Public Advocates Office reached a settlement agreement to adopt Southwest’s Application for Authority to Implement the CDMI. The CPUC issued a final decision approving the settlement agreement as filed in July 2020.
Emergency Relief Program Related to COVID-19. On March 25, 2020, Southwest filed an Advice Letter to establish a memorandum account to track costs related to customer protections under Emergency Relief regulations implemented in 2019 in the event of a state or federal declared emergency or disaster. The CPUC passed an emergency resolution on April 16, 2020 authorizing and directing utilities to implement customer protections and to establish memorandum accounts to track the financial impacts of complying with the resolution. On May 1, 2020, Southwest filed an Advice Letter to establish a COVID-19 Pandemic Protections Memorandum Account (“CPPMA”) to record all incremental costs and lost revenues incurred by Southwest associated with its implementation of the COVID-19 customer protections as outlined in the CPUC resolution. The customer protections were retroactively applied to March 4, 2020, the date Governor Gavin Newsom declared a state of emergency related to COVID-19. The CPPMA is effective March 4, 2020 through April 16, 2021. These customer protections focus on flexible payment plan options, additional protections for income-qualified customers, as well as the suspension of disconnections for non-payment and the waiver of deposit and late fee requirements. Tracked amounts will be considered by the CPUC for future recovery.
Nevada Jurisdiction
Nevada General Rate Case. In December 2016,Case. Southwest filed to modify the most recenta general rate case decisionapplication with the PUCN on February 28, 2020, which requested a statewide overall general rate increase of approximately $38.3 million. The request seeks an ROE of 10% relative to extend the current rate case cycle by two years, including extensiona proposed capital structure of 50% equity and continuation of the annual PTY attrition adjustmentsGeneral Revenues Adjustment (“GRA”) mechanism (full revenue decoupling). The request also proposes the recovery of previously excluded costs attributable to several software applications. On June 26, 2020, Southwest submitted its certification filing to update certain balances through May 31, 2020, from 2018. That latestwhich increased its overall proposed rate increase to $38.5 million. Commission Staff and the Bureau of Consumer Protection filed testimony on July 24, 2020, recommending an overall increase of approximately $21.6 million and approximately $20 million, respectively. A substantial portion of the difference between Southwest’s request and the proposals of these parties relates to differences in the recommended ROE. No party contested the recovery of the remaining balances of the previously excluded software applications or the continuation of the GRA. Included in the Commission’s Staff recommended increase is approximately $585,000 related to incremental operation and maintenance expenses related to Southwest’s CDMI (discussed below), providing an opportunity for recovery of these costs following the denial of Southwest’s request for deferred accounting treatment in 2019. A hearing in this matter is scheduled for August 2020.
In December 2018, the PUCN issued a rate case decision would have required Southwest to file its nextin the previous general rate case application, by September 2017. Expedited consideration was requestedwhich authorized a ROE of 9.25% relative to the 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 June 2017, the CPUC approved thesouthern Nevada and a revenue decrease in northern Nevada of $2 million. Rates from this proceeding originally became effective in January 2019.
As part of that proceeding, management filed a request thereby extending thefor reconsideration of several rate case filing deadline.issues during the same month of effective rates, and the PUCN Staff also filed for reconsideration, related to technical clarifications on the calculation of the intended results of the decision. The PUCN 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 an increase in operating income of $7.9 million. The modified rates became effective in March 2019. Management decided to seek judicial review of the PUCN’s rate order, which was considered in January 2020. The District Court Judge deferred to the PUCN’s original findings. In March 2020, Southwest believes this extension is in the public interest as it provides rate stability to customers for two additional years consistentfiled an appeal with the current reasonable rates approvedNevada Supreme Court, the resolution of which will likely take 12-24 months. Southwest expects consideration of the appeal to occur concurrently with the proceedings of the 2020 general rate case, a decision which is currently pending.
General Revenues Adjustment. The continuation of the GRA was affirmed as part of the lastDecember 2018 rate case decision and is again being requested as part of Southwest’s pending general rate case andapplication filed in February 2020. In June 2019, Southwest made its 2019 Annual Rate Adjustment (“ARA”) filing in which it requested to update the GRA to reflect the current revenue requirementbalances in both southern and ratenorthern Nevada. This filing provided for a decrease of return are notapproximately $8 million for an over-collected balance in needsouthern Nevada and an increase of adjustment (with the continuation of the currentlyapproximately $2 million in northern Nevada. The proposed changes were 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 2017.2020. While there is no impact to net income overall from this rate adjustment,adjustments to recovery
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
rates associated with the related regulatory balances, operating cash flows
will be reduced as the regulatory liability balance is refunded.are impacted by such changes. In May 2020, Southwest made its 2020 ARA filing, which proposes annualized margin decreases of $5.3 million in southern Nevada and an increase of $1.6 million in northern Nevada.
Infrastructure Replacement Mechanisms.Mechanism.In January 2014, the PUCN approved final rules for athe Gas Infrastructure Replacement (“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 (Early Vintage Plastic Pipe, COYL, and VSP), the related regulations provide Southwest with the opportunity to file a GIR “Advance Application” annually, generally in May, to seek preapproval of qualifying replacement projects.
Furthermore, a GIR Rate Application is generally filed each
year, Southwest files a Gas Infrastructure Replacement (“GIR”) Advance Application requesting authority to replace qualifying infrastructure and files separately as part of an annual GIR filingOctober to reset the
GIR recovery surcharge
rate related to previously approved and completed
projects. For projects,
approved in 2015 and completed in 2016, the annualized revenue was approximately $4.5 million. In September 2016,with new rates typically becoming effective each January. On October 1, 2019, Southwest filed
a Rate Application to
adjustreset the
GIRrecovery surcharge to
recover the annual revenue requirement for amounts previously deferred.include cumulative deferrals through August 31, 2019. This
filing was approved in December 2016 and new ratessurcharge rate 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,February 1, 2020 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 filing is expected to be approvedresult in December 2017 with rates becoming effective January 2018.
In May 2017, Southwest filed a GIR Advance Application with the PUCN for projects totalingreduction in annual revenue of approximately $66$5.3 million that are expected to be completed during 2018. Similar to previous years, the proposed projects consist 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 COYLs in southern Nevada and no incremental revenue 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 southern 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.
northern Nevada
Conservation and Energy Efficiency (“CEE”). The PUCN allows deferral (and later recovery) of approved conservation and energy efficiency costs, recovery rates for which are adjusted in association with ARA filings. In June 2015,2019, Southwest requested recovery of energy efficiency and conservation development and implementation costs, including promotions and incentives for various programs, as originally approved for deferral by the PUCN effective November 2009. While recovery of initial program costs was approved as part of the most recent general rate case, amounts incurred subsequent to May 2012 (the certification period) continued to be deferred. Approved rates for thepost-May 2012 costs deferred (including previously expected program expenditures for 2016) became effective January 2016 and resulted inmade its 2019 ARA filing, which proposed annualized margin increases of $2$3.2 million and $880,000 in southern and northern Nevada, respectively. However, Southwest entered into a stipulation and $8.5agreement to modify these amounts to $6.2 million and $1.1 million in southern Nevada. Then, as partand northern Nevada, respectively, which reflected the recovery of a related but separate program balance to be rolled into customer rates with the same effective date. The modification was approved, and rates became effective January 2020. In May 2020, Southwest made its 2020 ARA filing approved in December 2016, Southwest modified rates, effective January 2017, expected to result inwhich proposes annualized margin decreases of $1.4 million in$313,000 and $55,000 for southern and northern Nevada, and $1.3 million in southern Nevada to return over-collected balances. There is, however, no anticipated impact to net income overall from these decreases as amortization expense will also be reduced.respectively.
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. ThisUltimately, the PUCN issued an order approving Southwest’s proposal to expand natural gas infrastructure and service to Mesquite. The order approved a capital investment of approximately $28 million and the construction of approximately 37 miles of distribution pipeline (including the approach main). The annual revenue requirement associated with the project is $2.8 million. A volumetric rate was implemented October 1, 2019 to recover the cost and is applicable to all southern Nevada customers (including new customers in Mesquite). In May 2020, Southwest made its 2020 ARA filing, which proposes an annualized margin increase of $185,000, which reflects the cumulative deferred revenue requirement associated with the Mesquite facilities that have been placed in service through April 30, 2020. Following preliminary design, in February 2019, Southwest began serving certain customers with an approved virtual pipeline network, providing temporary natural gas supply using portions of the approved distribution system and compressed natural gas. It is estimated that construction of the remaining approved distribution system to bring the permanent supply to Mesquite will be placed in service in the first quarter of 2021.
In June 2019, Southwest filed for preapproval to construct the infrastructure necessary to expand natural gas service to Spring Creek, Nevada, and to implement a cost recovery methodology to timely recover the associated revenue requirement consistent with the SB 151 regulations. Expansion to the Spring Creek area near Elko, Nevada consists of a high-pressure approach main and associated regulator stations, an interior backbone, and the extension of existing facilitiesthe distribution system from the interior backbone system. The total capital investment is estimated to Mesquite at anbe $61.9 million. A stipulation in this matter was reached with the parties and approved by the PUCN in December 2019, which largely accepted Southwest’s proposal with modifications reflected in the rate recovery allocations split amongst northern Nevada, Elko, and Spring Creek expansion customers. Initial ground-breaking is expected in the summer of 2020.
Customer Data Modernization Initiative. In March 2019, Southwest filed a request seeking authority to establish a regulatory asset to defer the revenue requirement related to the CDMI to mitigate the financial attrition associated with this multi-year project. Approximately $59 million of the estimated $174 million cost of approximately $30 million. The cost is proposedthe CDMI would be allocable to be recovered through a volumetric surcharge on all southernthe Nevada customers.rate jurisdictions. A second phase is then proposed to convert existing homes to natural gas service, which will be charged as a separate surcharge to Mesquite customers only. A decisionhearing on this proposalmatter was held in August 2019 and the PUCN issued its decision in September 2019, denying Southwest’s request for regulatory asset treatment, finding that a general rate case is expected within the required210-day time period for filings of this type.Federal Energy Regulatory Commission (“FERC”) Jurisdiction
2018 Expansion.most appropriate venue to address such costs. In response to growing demandthe PUCN’s decision, Southwest filed a Petition for Reconsideration in October 2019, which was denied. Southwest proposed to establish a level of expense of approximately $1.2 million in rates as part of its pending general rate case
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
filing. The project is expected to be moved to production in 2021. As described above, Southwest has a proposal to provide an opportunity to recover these costs as part of its pending rate case.
Regulatory Asset Related to COVID-19. The PUCN issued an order directing utilities within the Carson City and South Lake Tahoe areasstate to establish regulatory asset accounts to track the financial impacts associated with maintaining service for customers affected by COVID-19, including those whose service would have been otherwise terminated/disconnected, effective March 12, 2020, the date Governor Steve Sisolak declared a state of northern California and northern Nevada,emergency related to COVID-19. These costs will be considered by the PUCN for future recovery.
FERC Jurisdiction
General Rate Case. Paiute Pipeline Company (“Paiute”) evaluated shipper interest, a wholly owned subsidiary of Southwest, filed a general rate case with the FERC in acquiring additionalMay 2019. The filing fulfilled an obligation from the settlement agreement reached in the 2014 Paiute general rate case. In January 2020, Paiute reached an agreement in principle with the FERC Staff and intervenors to settle its general rate case. In addition to continuing the term-differentiated rate structures with its shippers, the agreement requires Paiute’s three largest transportation capacitycustomers and executed precedentall of its storage customers to extend their service agreements for incremental transportation capacity with Southwest duringto have primary terms of at least five years. The settlement will result in a revenue reduction of approximately $700,000 and is based on a 9.90% pre-tax rate of return. Also, as part of this agreement, Paiute agreed not to file a rate case prior to January 1, 2022, but no later than May 31, 2025.
In January 2020, Paiute requested, and was granted, the
third quarter of 2016. In October 2016,authority to place the settlement rates into effect on an interim basis effective February 2020. On March 30, 2020, Paiute
initiated apre-filing review processfiled the proposed settlement agreement with the FERC for
an expansion project, which was approved duringreview and approval. On July 6, 2020, the
same month. In July 2017,FERC issued 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.letter order approving the settlement. If
no party requests rehearing within 30 days, the
process progresses as planned, a decision should be received by April 2018 and the additional facilities could be in place by the end of 2018.42
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
order will become final on August 5, 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 SeptemberAs of June 30, 2017, under-collections in Arizona and Northern Nevada resulted in an asset of approximately $6.2 million and2020, over-collections in Southern Nevada and Californiaeach of Southwest’s service territories resulted in a liability of $15$69.9 million on the Company’s and Southwest’s condensed consolidated balance sheets. Gas cost rates paid to suppliers have been higher than amounts recovered from customers during the first nine months of 2017, resulting in fluctuations since December 31, 2016. Tariff rates have been adjusted in all jurisdictions during this period. Condensed Consolidated Balance Sheets.
Filings to change rates in accordance with PGA clauses are subject to audit by state regulatory commission staffs. PGA changes impact cash flows but have no direct impact on profit margin. However, gas cost deferrals and recoveries can impact comparisons between periods of individual consolidated income statement components. These include Gas operating revenues, Net cost of gas sold, Net interest deductions, and Other income (deductions).
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 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | | June 30, 2020 | | December 31, 2019 | | June 30, 2019 |
Arizona | | $ | (18,598) | | | $ | (59,259) | | | $ | (87,692) | |
Northern Nevada | | (13,648) | | | 11,894 | | | 9,967 | |
Southern Nevada | | (32,867) | | | 32,518 | | | 48,273 | |
California | | (4,825) | | | (1,496) | | | (2,041) | |
| | $ | (69,938) | | | $ | (16,343) | | | $ | (31,493) | |
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.:
Operating Cash Flows.Cash flows provided by consolidated operating activities decreased $179increased $97 million in the first ninesix months of 20172020 as compared to the same period of 2016.2019. The declineimprovement in cash flows primarily resulted from collections of amounts under purchased gas adjustment mechanisms (compared to amounts refunded in the prior year), an increase in
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
collections ($39 million) related to the Arizona decoupling mechanism balance between six-month periods, as well as increases from other working capital components. These impacts were partially offset by a $50 million supplemental contribution for pension funding made in January 2020 (included in Changes in other liabilities and deferred credits in the Condensed Consolidated Statements of Cash Flows of both the Company and Southwest). Customarily, differences between amounts Southwest pays to gas suppliers and amount included in customer rates to recover the cost of purchased gas under the purchased gas cost mechanisms has provided significant variability in operating cash flows
was primarily attributable to the change in deferred purchased gas costs noted above. Refer toResults of Natural Gas Operations andRates and Regulatory Proceedings.between periods.
Investing Cash Flows.Cash used in consolidated investing activities increased $35activities decreased $66 million in the first ninesix months of 20172020 as compared to the same period of 2016.2019. The change was primarily due to increased constructiona decrease in capital expenditures in both reportable segments in the natural gas operations segment, including scheduled and accelerated replacement activity. The priorfirst six months of 2020. Additionally, the prior-year period included an outflow$19.5 million for the remittance of $17 million to facilitate a construction servicespurchase consideration previously held back in association with the 2018 Linetec acquisition.
Financing Cash Flows.Net cash provided by consolidated financing activities increased $195$35 million in the first ninesix months of 20172020 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 in utility operations from the issuance of $300 million in senior notes. The Company also issued approximately $12 million 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
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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 rate and an increase in the number of shares outstanding.
The Company issued approximately 103,000 additional shares of common stock collectively through the Restricted Stock/Unit 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 2016.2019. The change was primarily due to additional construction expenditures, as indicated above.
Financing Cash Flows.Net cash providednet proceeds of $447 million (after discount and fees) from the issuance of $450 million Senior Notes in June 2020 by financing activities increased $211 millionSouthwest, in which the funds were partially used to reduce the amounts then outstanding under its credit facility ($309 million); and in the first nine monthsprior year, Southwest used a portion of 2017 as comparedthe net proceeds from the $300 million Senior Notes issued in May 2019 to the same period of 2016. The increase was primarily due to activityreduce amounts then outstanding under theits credit facility and commercial paper program (an increaseprogram. Additionally, there was a decrease ($48 million) in borrowingsissuances of common stock under the Company’s Equity Shelf Program in the current-year nine-month period and the repaymentfirst half of borrowings2020 compared to issuances under programs in the prior-year nine-month period)period. See
Note 4 – Common Stock and Note 5 – Debt. The prior period included proceeds fromOther outflows include the issuancecombined impacts of $300repayment and borrowings by Centuri under its secured credit and revolving credit facility, offset by $70 million in senior notes as discussed above. The current period included capital contributions from Southwest Gas Holdings, Inc.equipment loan proceeds.
During the six months ended June 30, 2020, the Company issued 86,000 shares of common stock through the Dividend Reinvestment and Stock Purchase Plan, raising approximately $6 million, similar to amounts raised in the prior year period.
The capital requirements and resources of the Company generally are determineddetermined 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. See
Note 4 – Common Stock. Southwest Gas Corporation:
Operating Cash Flows. Cash flows provided by operating activities increased $92 million in the first six months of 2020 as compared to the same period of 2019. The improvement in operating cash flows was attributable to collections of deferred purchased gas costs and recoveries related to the Arizona decoupling mechanism noted above, as well as other working capital components overall, partially offset by the supplemental contribution for pension funding described earlier.
Investing Cash Flows. Cash used in investing activities decreased $6 million in the first six months of 2020 as compared to the same period of 2019. The change was primarily due to a decrease in capital expenditures in 2020 offset by a decrease in utility customer advances toward capital projects.
Financing Cash Flows. Net cash provided by financing activities increased $53 million in the first six months of 2020 as compared to the same period of 2019. The increase was primarily due to the issuance of $450 million Senior Notes in the current period, net of amounts used to reduce the amounts outstanding under Southwest’s credit facility, compared to the prior year $300 million Senior Notes issuance and related credit facility and commercial paper program repayments. See Note 5 – Debt. The combined impact of dividends and contributions to/from the parent holding company resulted in a reduction in financing cash flows.
Gas Segment Construction Expenditures and Financing
During the twelve-month period ended
SeptemberJune 30,
2017,2020, construction expenditures for the natural gas operations segment were
$515$768 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$460 million during this time, and provided approximately
57%53% of construction expenditures and dividend requirements.
Southwest
Management estimates natural gas segment construction expenditures during the three-year period ending December 31, 20192022 will be between $1.6 billion and $1.8approximately $2.1 billion. Of this amount, approximately $570$700 million is expectedscheduled to be incurred in 2017.2020. 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).reliability. Southwest may expand existing, or initiate new, programs. If efforts continue to be successful, significantSignificant replacement activities are currently expected to continue well beyond the next few years. See alsoRates and Regulatory Proceedings for discussion of Nevada infrastructure, Arizona COYL and an LNG facility.VSP programs, and Spring Creek in Nevada. During the three-year period, cash flows from operating activities of Southwest are expected to provide approximately 60% to 70%50% of the funding for gas operations total
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
construction expenditures and dividend requirements. 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.
As noted earlier, in June 2020, Southwest issued $450 million aggregate principal amount of 2.20% Senior Notes at a discount of 0.126%. The notes will mature in June 2030. A portion of the net proceeds was used to reduce borrowings under Southwest’s credit facility. Additionally, Southwest intends to use a portion of the net proceeds from the issuance to redeem the 4.45% Notes. On July 31, 2020, holders of the 4.45% Notes due in December 2020 were notified of Southwest’s intention to redeem the notes in full on September 1, 2020 at a redemption price of 100% plus accrued and unpaid interest.
In
March 2017,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 “Equity Shelf Program”).
SalesThe Company issued $50 million under this multi-year program during the second quarter of
2020; approximately $126 million is available under 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 timeprogram as of sale.June 30, 2020. 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 Southwest serves.
served by Southwest.
During the ninetwelve months ended SeptemberJune 30, 2017, 147,077 shares2020, 1,325,796 shares were issued inat-the-market offerings at an average price of $80.07 per$74.93 per share with gross proceeds of $11.8$99.3 million, agentagent commissions of $118,000,$993,000, and net proceeds of $11.7 million. SeeNote 5 – Common Stock for more information.$98.3 million under the Company’s Equity Shelf Program.
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 $29approximately $10 million of federalfederal income taxes for 2017, resulting in a minimal amount2020, none of federal income tax being paid.which relates to utility operations.
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 2007.2007. In February 2017,2020, the Board elected to increase the quarterly dividend from $0.45$0.545 to $0.495$0.570 per share, representing a 10%4.6% increase, effective with the June 20172020 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.
The Company remains focused on the safety and well-being of our employees and on the service to our customers. The Company continues to review and assess the ongoing impacts of the COVID-19 pandemic, including those on our customers, suppliers, and business. As of June 30, 2020, the Company’s Cash and cash equivalents were $200 million (which is intended to redeem Southwest’s $125 million 4.45% Notes on September 1, 2020), and the Company had access to $679 million of borrowing capacity under the Company’s various credit facilities, which management believes will help manage the impacts of the COVID-19 pandemic on its business and address related liquidity needs if they should arise.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
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 SeptemberJune 30, 2017,2020, the combined balance in the PGA accounts totaled an over-collection of $8.7$70 million. SeePGA Filingsfor more information.In March 2017,
Southwest Gas Holdings, Inc.
entered intohas a credit facility with a borrowing capacity of $100
million that expires in March 2022.million; on April 10, 2020, the existing credit facility was amended to extend the maturity date to April 10, 2025, while maintaining the borrowing capacity at $100 million. The Company intends to utilize this facility for short-term financing needs. At
SeptemberJune 30,
2017, $27.52020, $58 million was outstanding
onunder this facility.
In March 2017,
Southwest
Gas Corporation amended itshas a credit facility,
increasing thewith a borrowing capacity
from $300 millionof $400 million; on April 10, 2020, Southwest amended the credit facility agreement which extended the maturity date to
April 10, 2025. The revolving borrowing capacity under the amended credit facility agreement remains at $400 million
and extended the term of the facility from March 2021 to March 2022.following that amendment. Southwest
continues to designatedesignated $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
ninesix months of
20172020 was $150 million.
At SeptemberAs of June 30,
2017, $150 million2020, no amount was
outstanding under the long-term portion of the facility. Additionally, the maximum amount outstanding on the
long-term and $83 millionshort-term portion of the credit facility during the first six months of 2020 was $161 million. As of June 30, 2020, no amount was 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
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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 2020 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
SeptemberJune 30,
2017,2020, there were no borrowings
were outstanding under this program.
Centuri has a $300 millionsenior secured revolving credit and term loan facility thatwith borrowing capacity of $590 million (refer to Note 5 – 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 30, 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 June 30, 2020 totaled $1.3 billion. The maximum amount outstanding on the credit facility during the first ninesix months of 20172020 was $104 million. At September 30, 2017, $81.3$312 million, of which $235 million was outstanding on the securedterm portion. As of June 30, 2020, $77 million was outstanding on the revolving credit facility and $231 million was outstanding on the term loan portion of the facility. Also at SeptemberJune 30, 2017,2020, there was approximately $52$237 million, net of letters of credit, available under the line of credit.The following table sets forth
On April 10, 2020, the ratios of earnings to fixed chargesholding company and Southwest amended their respective credit facility agreements (see above). Interest rates for the Company. Dueamended credit facilities are calculated at either LIBOR or an “alternate base rate,” plus in each case an applicable margin that is determined based on each entities’ respective senior unsecured long-term debt rating. Upon the occurrence of certain events providing for a transition away from LIBOR, or if LIBOR is no longer a widely recognized benchmark rate, each entity may amend their respective credit facility with a replacement rate as set forth in the amended credit facility agreement. It is currently anticipated that LIBOR may be discontinued as a benchmark or reference rate after 2021. As of June 30, 2020, $58 million borrowings were outstanding for the holding company under its credit facility (see Note 5 – Debt), and $188 million of Centuri’s indebtedness under its facility have interest rates with reference to LIBOR and maturity dates that extend beyond 2021. Southwest had no borrowings outstanding under its amended credit facility as of June 30, 2020. The above amounts that were outstanding for the holding company and for Centuri reflect approximately 9% 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, management 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.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
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,
impacts from the novel Coronavirus (COVID-19), including on our employees, customers, supply chain, transportation network, our financial position, revenue, earnings, cash flows, debt covenants, operations, regulatory recovery, work deployment or resumption and related uncertainties stemming from this pandemic, expected impacts of valuation adjustments associated with the redeemable noncontrolling interest in Linetec, the impacts of 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
20172020 or future period revenues from regulatory rate proceedings including amounts
resultingrequested or preliminarily settled from the
settled Arizonarecently filed and ongoing general
rate cases, the outcome of judicial review of the previous 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 the ongoing general rate cases and
the final resolution for recovery of the CDMI in all jurisdictions, and statements regarding approvals are forward-looking
46
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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 impacts of COVID-19 including that which may result from a sustained restriction on commerce by government officials or otherwise, including impacts on employment in our territories, the health impacts to our customers and employees due to the persistence of the virus, the ability to collect on customer accounts due to the current or an extended moratorium on late fees or service disconnection, the ability to obtain regulatory recovery of all costs and financial impacts resulting from this pandemic, the ability of infrastructure services business to resume work with all customers and the impact of a delay or termination of work as a result thereof, the impacts of future restrictions placed on our business by government regulation or otherwise (such as self-imposed restrictions for the safety of employees and customers), including related to personal distancing, investment in personal protective equipment and other protocols, the impact of a resurgence of the virus following the resumption of commerce in our territories, and decisions of Centuri customers as to whether to pursue capital projects due to economic impacts resulting from the pandemic or otherwise, 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, future acquisition-related costs, impacts of changes in value of the redeemable noncontrolling interest if at other than fair value, 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
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
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-K for the year ended December 31, 2016.2019, and
Item 1A. Risk Factors, as updated in association with the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. 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 20162019 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
SeptemberJune 30,
2017,2020, 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
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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
thirdsecond quarter of
20172020 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
SeptemberJune 30,
2017,2020, 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
thirdsecond quarter of
20172020 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. | | | | | | | | |
| 52 | |
ITEM 4. | MINE SAFETY DISCLOSURESNot applicable. | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | June 30, 2020 |
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
| | |
Exhibit 101.INS | - | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | |
Exhibit 101SCH | - | XBRL Schema Document |
| | |
Exhibit 101.CAL | - | XBRL Calculation Linkbase Document |
| | |
Exhibit 101.DEF | - | XBRL Definition Linkbase Document |
| | |
Exhibit 101.LAB | - | XBRL Label Linkbase Document |
| | |
Exhibit 101.PRE | - | XBRL Presentation Linkbase Document |
| | |
Exhibit 104 | - | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | SeptemberJune 30, 20172020 |
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, 2017August 6, 2020 | | |
|
/s/ GREGORY J. PETERSON LORI L. COLVIN |
Gregory J. PetersonLori 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: August 6, 2020
Date: November 7, 2017
/s/ LORI L. COLVIN |
/s/ GREGORY J. PETERSON Lori L. Colvin |
Gregory J. Peterson |
Vice President/Controller and Chief Accounting Officer |
49