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 September 30,
20172021OR
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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 | | | | 81-3881866 | |
| | 5241 Spring Mountain Road
| | | | | Delaware | | 81-3881866 |
| | 8360 S. Durango Drive | | | | | | |
| | Post Office Box 98510 | | | | | | | | |
| | Las Vegas, Nevada 89193-8510 | Nevada | 89193-8510 | | | | | | |
| | (702) 876-7237
| | | | | | | | |
1-7850
| | Southwest Gas Corporation
| | | California
| | | | 88-0085720
| |
| | 5241 Spring Mountain Road
| | | | | | | | |
| | Post Office Box 98510 (702) | 876-7237 | | | | | | | |
| | Las Vegas, Nevada 89193-8510
| | | | | | | | |
1-7850 | | Southwest Gas Corporation | | | | California | | 88-0085720 |
| | 8360 S. Durango Drive | | | | | | |
| | (702) 876-7237 | Post Office Box 98510 | | | | | | |
| | Las Vegas, | Nevada | 89193-8510 | | | | |
| | (702) | 876-7237 | | | | | |
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Securities registered pursuant to Section 12(b) of the Act: |
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Southwest Gas Holdings, Inc. Common Stock, $1 Par Value | | SWX | | New York Stock Exchange |
Preferred Stock Purchase Rights | | N/A | | 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 | | ☐ |
| | | |
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 | | ☐ |
| | | |
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,
47,731,84060,385,084 shares as of October
27, 2017.29, 2021.
All of the outstanding shares of common stock ($1 par value) of Southwest Gas Corporation were held by Southwest Gas Holdings, Inc. as of
January 1, 2017.October 29, 2021.
SOUTHWEST GAS CORPORATION MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1)(a) and (b) OF FORM
10-Q AND IS THEREFORE FILING THIS REPORT WITH THE REDUCED DISCLOSURE FORMAT AS PERMITTED BY GENERAL INSTRUCTION H(2).
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
This quarterly report on
Form 10-Q is a combined report being filed by two separate registrants: Southwest Gas Holdings, Inc. and Southwest Gas Corporation. Except where the content clearly indicates otherwise, any reference in the report to “we,” “us” or “our” is to the holding company or the consolidated entity of Southwest Gas Holdings, Inc. and all of its subsidiaries, including Southwest Gas Corporation, which is a distinct registrant that is a wholly owned subsidiary of Southwest Gas Holdings, Inc. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.
Part I—Financial information in this Quarterly Report on Form
10-Q includes separate financial statements (i.e.
, balance sheets, statements of income, statements of comprehensive income,
statements of cash flows, and statements of
cash flows)equity) for Southwest Gas Holdings, Inc. and Southwest Gas Corporation, in that order. The Notes to
the Condensed Consolidated Financial Statements are presented on a combined basis for both entities. All Items other than Part I – Item 1 are combined for the reporting companies.
2
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except par value)
(Unaudited)
| | | | | | | | |
| | SEPTEMBER 30, 2017 | | | DECEMBER 31, 2016 | |
ASSETS | | | | | | | | |
Utility plant: | | | | | | | | |
Gas plant | | $ | 6,440,547 | | | $ | 6,193,564 | |
Less: accumulated depreciation | | | (2,218,796 | ) | | | (2,172,966 | ) |
Acquisition adjustments, net | | | 81 | | | | 196 | |
Construction work in progress | | | 164,030 | | | | 111,177 | |
| | | | | | | | |
Net utility plant | | | 4,385,862 | | | | 4,131,971 | |
| | | | | | | | |
Other property and investments | | | 369,303 | | | | 342,343 | |
| | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | | 59,152 | | | | 28,066 | |
Accounts receivable, net of allowances | | | 301,792 | | | | 285,145 | |
Accrued utility revenue | | | 34,100 | | | | 76,200 | |
Income taxes receivable, net | | | 5,462 | | | | 4,455 | |
Deferred purchased gas costs | | | 6,230 | | | | 2,608 | |
Prepaids and other current assets | | | 132,182 | | | | 136,833 | |
| | | | | | | | |
Total current assets | | | 538,918 | | | | 533,307 | |
| | | | | | | | |
Noncurrent assets: | | | | | | | | |
Goodwill | | | 147,865 | | | | 139,983 | |
Deferred income taxes | | | 1,467 | | | | 1,288 | |
Deferred charges and other assets | | | 411,655 | | | | 432,234 | |
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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 | |
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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 | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
ASSETS | | | | |
Utility plant: | | | | |
Gas plant | | $ | 8,742,806 | | | $ | 8,384,000 | |
Less: accumulated depreciation | | (2,499,488) | | | (2,419,348) | |
Construction work in progress | | 153,100 | | | 211,429 | |
Net utility plant | | 6,396,418 | | | 6,176,081 | |
Other property and investments | | 1,305,334 | | | 834,245 | |
Current assets: | | | | |
Cash and cash equivalents | | 186,690 | | | 83,352 | |
Accounts receivable, net of allowances | | 692,135 | | | 522,172 | |
Accrued utility revenue | | 39,700 | | | 82,400 | |
Income taxes receivable, net | | 32,554 | | | 10,884 | |
Deferred purchased gas costs | | 240,827 | | | 2,053 | |
Prepaid and other current assets | | 200,700 | | | 170,152 | |
Total current assets | | 1,392,606 | | | 871,013 | |
Noncurrent assets: | | | | |
Goodwill | | 791,902 | | | 345,184 | |
Deferred income taxes | | 268 | | | 455 | |
Deferred charges and other assets | | 483,107 | | | 508,875 | |
Total noncurrent assets | | 1,275,277 | | | 854,514 | |
Total assets | | $ | 10,369,635 | | | $ | 8,735,853 | |
CAPITALIZATION AND LIABILITIES | | | | |
Capitalization: | | | | |
Common stock, $1 par (authorized - 120,000,000 shares; issued and outstanding - 60,378,684 and 57,192,925 shares) | | $ | 62,009 | | | $ | 58,823 | |
Additional paid-in capital | | 1,823,889 | | | 1,609,155 | |
Accumulated other comprehensive loss, net | | (55,951) | | | (61,003) | |
Retained earnings | | 1,079,869 | | | 1,067,978 | |
Total equity | | 2,909,816 | | | 2,674,953 | |
Redeemable noncontrolling interest | | 183,547 | | | 165,716 | |
Long-term debt, less current maturities | | 3,573,783 | | | 2,732,200 | |
Total capitalization | | 6,667,146 | | | 5,572,869 | |
Current liabilities: | | | | |
Current maturities of long-term debt | | 297,271 | | | 40,433 | |
Short-term debt | | 272,000 | | | 107,000 | |
Accounts payable | | 222,959 | | | 231,301 | |
Customer deposits | | 51,816 | | | 67,920 | |
Income taxes payable, net | | 27,490 | | | 12,556 | |
Accrued general taxes | | 60,656 | | | 48,640 | |
Accrued interest | | 38,600 | | | 20,536 | |
Deferred purchased gas costs | | — | | | 54,636 | |
Other current liabilities | | 384,442 | | | 328,945 | |
Total current liabilities | | 1,355,234 | | | 911,967 | |
Deferred income taxes and other credits: | | | | |
Deferred income taxes and investment tax credits, net | | 789,141 | | | 647,453 | |
Accumulated removal costs | | 419,000 | | | 404,000 | |
Other deferred credits and other long-term liabilities | | 1,139,114 | | | 1,199,564 | |
Total deferred income taxes and other credits | | 2,347,255 | | | 2,251,017 | |
Total capitalization and liabilities | | $ | 10,369,635 | | | $ | 8,735,853 | |
The accompanying notes are an integral part of these statements.
3
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Operating revenues: | | | | | | | | | | | | |
Gas operating revenues | | $ | 255,848 | | | $ | 210,834 | | | $ | 1,070,576 | | | $ | 976,095 | | | $ | 1,445,066 | | | $ | 1,355,666 | |
Utility infrastructure services revenues | | 632,848 | | | 580,392 | | | 1,525,448 | | | 1,408,698 | | | 2,065,038 | | | 1,877,264 | |
Total operating revenues | | 888,696 | | | 791,226 | | | 2,596,024 | | | 2,384,793 | | | 3,510,104 | | | 3,232,930 | |
Operating expenses: | | | | | | | | | | | | |
Net cost of gas sold | | 63,710 | | | 36,321 | | | 296,227 | | | 264,615 | | | 374,449 | | | 356,925 | |
Operations and maintenance | | 122,927 | | | 101,764 | | | 334,450 | | | 304,964 | | | 437,602 | | | 407,924 | |
Depreciation and amortization | | 91,380 | | | 80,139 | | | 267,670 | | | 245,009 | | | 354,688 | | | 324,995 | |
Taxes other than income taxes | | 20,109 | | | 15,787 | | | 60,134 | | | 47,507 | | | 76,087 | | | 63,195 | |
Utility infrastructure services expenses | | 567,270 | | | 502,951 | | | 1,381,524 | | | 1,252,489 | | | 1,858,464 | | | 1,671,478 | |
Total operating expenses | | 865,396 | | | 736,962 | | | 2,340,005 | | | 2,114,584 | | | 3,101,290 | | | 2,824,517 | |
Operating income | | 23,300 | | | 54,264 | | | 256,019 | | | 270,209 | | | 408,814 | | | 408,413 | |
Other income and (expenses): | | | | | | | | | | | | |
Net interest deductions | | (31,298) | | | (28,311) | | | (81,201) | | | (83,141) | | | (109,537) | | | (111,705) | |
Other income (deductions) | | (3,112) | | | 1,799 | | | (3,975) | | | (11,046) | | | 282 | | | (7,788) | |
Total other income and (expenses) | | (34,410) | | | (26,512) | | | (85,176) | | | (94,187) | | | (109,255) | | | (119,493) | |
Income (loss) before income taxes | | (11,110) | | | 27,752 | | | 170,843 | | | 176,022 | | | 299,559 | | | 288,920 | |
Income tax expense (benefit) | | (1,816) | | | 6,689 | | | 34,818 | | | 42,073 | | | 58,498 | | | 63,065 | |
Net income (loss) | | (9,294) | | | 21,063 | | | 136,025 | | | 133,949 | | | 241,061 | | | 225,855 | |
Net income attributable to noncontrolling interest | | 2,282 | | | 2,790 | | | 5,189 | | | 5,169 | | | 6,681 | | | 5,357 | |
Net income (loss) attributable to Southwest Gas Holdings, Inc. | | $ | (11,576) | | | $ | 18,273 | | | $ | 130,836 | | | $ | 128,780 | | | $ | 234,380 | | | $ | 220,498 | |
Earnings (loss) per share: | | | | | | | | | | | | |
Basic | | $ | (0.19) | | | $ | 0.32 | | | $ | 2.23 | | | $ | 2.31 | | | $ | 4.03 | | | $ | 3.97 | |
Diluted | | $ | (0.19) | | | $ | 0.32 | | | $ | 2.23 | | | $ | 2.31 | | | $ | 4.02 | | | $ | 3.97 | |
Weighted average shares: | | | | | | | | | | | | |
Basic | | 59,688 | | | 56,271 | | | 58,639 | | | 55,683 | | | 58,209 | | | 55,508 | |
Diluted | | 59,816 | | | 56,357 | | | 58,742 | | | 55,753 | | | 58,312 | | | 55,577 | |
The accompanying notes are an integral part of these statements.
4
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | THREE MONTHS ENDED | | | NINE MONTHS ENDED | | | TWELVE MONTHS ENDED | |
| | SEPTEMBER 30, | | | SEPTEMBER 30, | | | SEPTEMBER 30, | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Net income | | $ | 10,420 | | | $ | 2,907 | | | $ | 97,546 | | | $ | 87,361 | | | $ | 163,240 | | | $ | 154,059 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | | | | | | | | | | | | |
Defined benefit pension plans: | | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial gain (loss) | | | — | | | | — | | | | — | | | | — | | | | (14,118 | ) | | | (18,922 | ) |
Amortization of prior service cost | | | 207 | | | | 207 | | | | 621 | | | | 621 | | | | 828 | | | | 828 | |
Amortization of net actuarial loss | | | 3,944 | | | | 4,196 | | | | 11,832 | | | | 12,586 | | | | 16,027 | | | | 17,915 | |
Regulatory adjustment | | | (3,555 | ) | | | (3,796 | ) | | | (10,667 | ) | | | (11,388 | ) | | | (2,741 | ) | | | (404 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net defined benefit pension plans | | | 596 | | | | 607 | | | | 1,786 | | | | 1,819 | | | | (4 | ) | | | (583 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Forward-starting interest rate swaps: | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts reclassified into net income | | | 518 | | | | 518 | | | | 1,554 | | | | 1,556 | | | | 2,073 | | | �� | 2,073 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net forward-starting interest rate swaps | | | 518 | | | | 518 | | | | 1,554 | | | | 1,556 | | | | 2,073 | | | | 2,073 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | 1,012 | | | | (238 | ) | | | 1,861 | | | | 614 | | | | 1,408 | | | | 233 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income, net of tax | | | 2,126 | | | | 887 | | | | 5,201 | | | | 3,989 | | | | 3,477 | | | | 1,723 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | 12,546 | | | | 3,794 | | | | 102,747 | | | | 91,350 | | | | 166,717 | | | | 155,782 | |
Comprehensive income attributable to noncontrolling interests | | | 198 | | | | 427 | | | | 181 | | | | 521 | | | | 679 | | | | 1,089 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income attributable to Southwest Gas Holdings, Inc. | | $ | 12,348 | | | $ | 3,367 | | | $ | 102,566 | | | $ | 90,829 | | | $ | 166,038 | | | $ | 154,693 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Net income (loss) | | $ | (9,294) | | | $ | 21,063 | | | $ | 136,025 | | | $ | 133,949 | | | $ | 241,061 | | | $ | 225,855 | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | |
Defined benefit pension plans: | | | | | | | | | | | | |
Net actuarial loss | | — | | | — | | | — | | | — | | | (43,730) | | | (54,026) | |
Amortization of prior service cost | | 183 | | | 220 | | | 547 | | | 659 | | | 766 | | | 901 | |
Amortization of net actuarial loss | | 8,474 | | | 7,187 | | | 25,420 | | | 21,563 | | | 32,608 | | | 26,004 | |
Prior service cost | | — | | | — | | | — | | | — | | | — | | | (1,426) | |
Regulatory adjustment | | (7,277) | | | (6,380) | | | (21,831) | | | (19,140) | | | 2,959 | | | 21,130 | |
Net defined benefit pension plans | | 1,380 | | | 1,027 | | | 4,136 | | | 3,082 | | | (7,397) | | | (7,417) | |
Forward-starting interest rate swaps (“FSIRS”): | | | | | | | | | | | | |
Amounts reclassified into net income (loss) | | 413 | | | 783 | | | 1,240 | | | 2,054 | | | 1,653 | | | 2,689 | |
Net forward-starting interest rate swaps | | 413 | | | 783 | | | 1,240 | | | 2,054 | | | 1,653 | | | 2,689 | |
Foreign currency translation adjustments | | (2,056) | | | 1,024 | | | (324) | | | (1,187) | | | 2,576 | | | (280) | |
Total other comprehensive income (loss), net of tax | | (263) | | | 2,834 | | | 5,052 | | | 3,949 | | | (3,168) | | | (5,008) | |
Comprehensive income (loss) | | (9,557) | | | 23,897 | | | 141,077 | | | 137,898 | | | 237,893 | | | 220,847 | |
Comprehensive income attributable to noncontrolling interest | | 2,282 | | | 2,790 | | | 5,189 | | | 5,169 | | | 6,681 | | | 5,357 | |
Comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | $ | (11,839) | | | $ | 21,107 | | | $ | 135,888 | | | $ | 132,729 | | | $ | 231,212 | | | $ | 215,490 | |
The accompanying notes are an integral part of these statements.
5
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | | | | | | |
| | NINE MONTHS ENDED | | | TWELVE MONTHS ENDED | |
| | SEPTEMBER 30 | | | SEPTEMBER 30 | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | |
CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | |
Net income | | $ | 97,546 | | | $ | 87,361 | | | $ | 163,240 | | | $ | 154,059 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 189,089 | | | | 217,764 | | | | 260,457 | | | | 286,977 | |
Deferred income taxes | | | 49,409 | | | | 43,702 | | | | 74,439 | | | | 86,526 | |
Changes in current assets and liabilities: | | | | | | | | | | | | | | | | |
Accounts receivable, net of allowances | | | (15,330 | ) | | | 28,531 | | | | (13,765 | ) | | | (17,889 | ) |
Accrued utility revenue | | | 42,100 | | | | 41,700 | | | | (1,100 | ) | | | (800 | ) |
Deferred purchased gas costs | | | (79,127 | ) | | | 81,389 | | | | (114,658 | ) | | | 79,460 | |
Accounts payable | | | (26,771 | ) | | | (24,942 | ) | | | 19,866 | | | | 10,445 | |
Accrued taxes | | | 4,689 | | | | (7,055 | ) | | | 38,084 | | | | (11,033 | ) |
Other current assets and liabilities | | | 43,044 | | | | 12,022 | | | | 3,590 | | | | 22,034 | |
Gains on sale | | | (1,452 | ) | | | (4,117 | ) | | | (4,483 | ) | | | (4,200 | ) |
Changes in undistributed stock compensation | | | 9,199 | | | | 4,347 | | | | 10,308 | | | | 5,142 | |
AFUDC | | | (2,077 | ) | | | (1,893 | ) | | | (2,473 | ) | | | (2,890 | ) |
Changes in other assets and deferred charges | | | (14,470 | ) | | | 3,926 | | | | (1,436 | ) | | | 4,183 | |
Changes in other liabilities and deferred credits | | | 3,395 | | | | (4,813 | ) | | | (10,239 | ) | | | 702 | |
| | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 299,244 | | | | 477,922 | | | | 421,830 | | | | 612,716 | |
| | | | | | | | | | | | | | | | |
CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | |
Construction expenditures and property additions | | | (449,998 | ) | | | (404,388 | ) | | | (575,141 | ) | | | (555,819 | ) |
Acquisition of businesses, net of cash acquired | | | — | | | | (17,000 | ) | | | — | | | | (17,000 | ) |
Changes in customer advances | | | (1,951 | ) | | | 5,445 | | | | 504 | | | | 9,445 | |
Miscellaneous inflows | | | 9,160 | | | | 7,965 | | | | 14,234 | | | | 4,726 | |
| | | | | | | | | | | | | | | | |
Net cash used in investing activities | | | (442,789 | ) | | | (407,978 | ) | | | (560,403 | ) | | | (558,648 | ) |
| | | | | | | | | | | | | | | | |
CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | |
Issuance of common stock, net | | | 11,563 | | | | 530 | | | | 11,505 | | | | 507 | |
Dividends paid | | | (68,503 | ) | | | (61,950 | ) | | | (89,870 | ) | | | (81,138 | ) |
Centuri distribution to redeemable noncontrolling interest | | | (204 | ) | | | (99 | ) | | | (544 | ) | | | (198 | ) |
Issuance of long-term debt, net | | | 104,308 | | | | 408,946 | | | | 119,308 | | | | 420,946 | |
Retirement of long-term debt | | | (100,240 | ) | | | (196,351 | ) | | | (159,162 | ) | | | (240,999 | ) |
Change in credit facility and commercial paper | | | 145,000 | | | | (150,000 | ) | | | 150,000 | | | | (97,000 | ) |
Change in short-term debt | | | 110,500 | | | | (18,000 | ) | | | 110,500 | | | | — | |
Principal payments on capital lease obligations | | | (796 | ) | | | (1,125 | ) | | | (1,025 | ) | | | (1,449 | ) |
Redemption of Centuri shares from noncontrolling parties | | | (23,000 | ) | | | — | | | | (23,000 | ) | | | — | |
Withholding remittance—share-based compensation | | | (3,176 | ) | | | (2,119 | ) | | | (3,176 | ) | | | (2,164 | ) |
Other | | | (1,104 | ) | | | (605 | ) | | | (2,068 | ) | | | (60 | ) |
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 174,348 | | | | (20,773 | ) | | | 112,468 | | | | (1,555 | ) |
| | | | | | | | | | | | | | | | |
Effects of currency translation on cash and cash equivalents | | | 283 | | | | (14 | ) | | | 103 | | | | (318 | ) |
| | | | | | | | | | | | | | | | |
Change in cash and cash equivalents | | | 31,086 | | | | 49,157 | | | | (26,002 | ) | | | 52,195 | |
Cash and cash equivalents at beginning of period | | | 28,066 | | | | 35,997 | | | | 85,154 | | | | 32,959 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 59,152 | | | $ | 85,154 | | | $ | 59,152 | | | $ | 85,154 | |
| | | | | | | | | | | | | | | | |
Supplemental information: | | | | | | | | | | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 45,771 | | | $ | 47,134 | | | $ | 66,077 | | | $ | 68,445 | |
Income taxes paid (received) | | | 3,687 | | | | 6,530 | | | | (21,875 | ) | | | 9,899 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | |
Net income | | $ | 136,025 | | | $ | 133,949 | | | $ | 241,061 | | | $ | 225,855 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | 267,670 | | | 245,009 | | | 354,688 | | | 324,995 | |
Deferred income taxes | | 45,374 | | | 37,752 | | | 58,339 | | | 45,815 | |
Changes in current assets and liabilities: | | | | | | | | |
Accounts receivable, net of allowances | | (62,081) | | | (42,139) | | | (68,714) | | | (76,769) | |
Accrued utility revenue | | 42,700 | | | 42,600 | | | (3,200) | | | (700) | |
Deferred purchased gas costs | | (293,410) | | | 59,899 | | | (317,070) | | | 38,016 | |
Accounts payable | | (51,086) | | | (59,031) | | | 251 | | | (14,817) | |
Accrued taxes | | 5,954 | | | 17,991 | | | 3,134 | | | 26,075 | |
Other current assets and liabilities | | 23,289 | | | 121,185 | | | 9,531 | | | 121,274 | |
Gains on sale of equipment | | (5,365) | | | (581) | | | (6,632) | | | (2,897) | |
Changes in undistributed stock compensation | | 7,676 | | | 5,789 | | | 9,001 | | | 6,618 | |
Equity AFUDC | | — | | | (3,413) | | | (1,311) | | | (4,395) | |
Changes in deferred charges and other assets | | (7,956) | | | (19,174) | | | (21,373) | | | (24,370) | |
Changes in other liabilities and deferred credits | | (57,269) | | | (52,018) | | | (67,922) | | | (54,996) | |
Net cash provided by operating activities | | 51,521 | | | 487,818 | | | 189,783 | | | 609,704 | |
CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | |
Construction expenditures and property additions | | (506,737) | | | (632,474) | | | (699,368) | | | (851,236) | |
Acquisition of businesses, net of cash acquired | | (830,395) | | | (250) | | | (830,145) | | | (28,355) | |
Changes in customer advances | | 7,940 | | | 7,691 | | | 14,282 | | | 11,643 | |
Other | | 14,755 | | | 6,520 | | | 17,238 | | | 8,811 | |
Net cash used in investing activities | | (1,314,437) | | | (618,513) | | | (1,497,993) | | | (859,137) | |
CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | |
Issuance of common stock, net | | 210,812 | | | 90,635 | | | 259,422 | | | 119,240 | |
Dividends paid | | (102,292) | | | (93,317) | | | (134,479) | | | (123,099) | |
Issuance of long-term debt, net | | 1,654,960 | | | 650,619 | | | 1,666,718 | | | 699,601 | |
Retirement of long-term debt | | (406,815) | | | (289,295) | | | (473,926) | | | (375,909) | |
Change in credit facility and commercial paper | | (150,000) | | | (92,000) | | | (58,000) | | | (92,000) | |
Change in short-term debt | | 165,000 | | | (157,000) | | | 218,000 | | | 24,000 | |
Withholding remittance - share-based compensation | | (1,254) | | | (2,736) | | | (1,254) | | | (2,736) | |
Other | | (4,355) | | | (1,596) | | | (6,161) | | | (4,090) | |
Net cash provided by financing activities | | 1,366,056 | | | 105,310 | | | 1,470,320 | | | 245,007 | |
Effects of currency translation on cash and cash equivalents | | 198 | | | (209) | | | 635 | | | (109) | |
Change in cash and cash equivalents | | 103,338 | | | (25,594) | | | 162,745 | | | (4,535) | |
Cash and cash equivalents at beginning of period | | 83,352 | | | 49,539 | | | 23,945 | | | 28,480 | |
Cash and cash equivalents at end of period | | $ | 186,690 | | | $ | 23,945 | | | $ | 186,690 | | | $ | 23,945 | |
SUPPLEMENTAL INFORMATION: | | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 57,128 | | | $ | 63,743 | | | $ | 98,567 | | | $ | 103,836 | |
Income taxes paid (received), net | | $ | 7,665 | | | $ | (16,006) | | | $ | 12,720 | | | $ | (13,625) | |
The accompanying notes are an integral part of these statements.
6
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
SOUTHWEST GAS
CORPORATIONHOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETSSTATEMENTS OF EQUITY
(
Thousands of dollars)In thousands, except per share amounts)
(Unaudited)
| | | | | | | | |
| | SEPTEMBER 30, | | | DECEMBER 31, | |
| | 2017 | | | 2016 | |
ASSETS | | | | | | | | |
Utility plant: | | | | | | | | |
Gas plant | | $ | 6,440,547 | | | $ | 6,193,564 | |
Less: accumulated depreciation | | | (2,218,796 | ) | | | (2,172,966 | ) |
Acquisition adjustments, net | | | 81 | | | | 196 | |
Construction work in progress | | | 164,030 | | | | 111,177 | |
| | | | | | | | |
Net utility plant | | | 4,385,862 | | | | 4,131,971 | |
| | | | | | | | |
Other property and investments | | | 115,841 | | | | 108,569 | |
| | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | | 46,467 | | | | 19,024 | |
Accounts receivable, net of allowances | | | 68,028 | | | | 111,845 | |
Accrued utility revenue | | | 34,100 | | | | 76,200 | |
Income taxes receivable, net | | | 6,440 | | | | 4,455 | |
Deferred purchased gas costs | | | 6,230 | | | | 2,608 | |
Prepaids and other current assets | | | 118,587 | | | | 126,363 | |
| | | | | | | | |
Total current assets | | | 279,852 | | | | 340,495 | |
| | | | | | | | |
Noncurrent assets: | | | | | | | | |
Goodwill | | | 10,095 | | | | 10,095 | |
Deferred charges and other assets | | | 393,942 | | | | 410,625 | |
Discontinued operations—construction services—assets | | | — | | | | 579,371 | |
| | | | | | | | |
Total noncurrent assets | | | 404,037 | | | | 1,000,091 | |
| | | | | | | | |
Total assets | | $ | 5,185,592 | | | $ | 5,581,126 | |
| | | | | | | | |
CAPITALIZATION AND LIABILITIES | | | | | | | | |
Capitalization: | | | | | | | | |
Common stock | | $ | 49,112 | | | $ | 49,112 | |
Additionalpaid-in capital | | | 917,581 | | | | 897,346 | |
Accumulated other comprehensive income (loss), net | | | (42,299 | ) | | | (45,639 | ) |
Retained earnings | | | 606,007 | | | | 767,061 | |
| | | | | | | | |
Total Southwest Gas Corporation equity | | | 1,530,401 | | | | 1,667,880 | |
Discontinued operations—construction servicesnon-owner equity | | | — | | | | 15,983 | |
Long-term debt, less current maturities | | | 1,520,790 | | | | 1,375,080 | |
| | | | | | | | |
Total capitalization | | | 3,051,191 | | | | 3,058,943 | |
| | | | | | | | |
Current liabilities: | | | | | | | | |
Current maturities of long-term debt | | | — | | | | 25,000 | |
Short-term debt | | | 83,000 | | | | — | |
Accounts payable | | | 92,257 | | | | 138,229 | |
Customer deposits | | | 70,162 | | | | 72,296 | |
Accrued general taxes | | | 48,998 | | | | 42,921 | |
Accrued interest | | | 24,406 | | | | 17,395 | |
Deferred purchased gas costs | | | 14,971 | | | | 90,476 | |
Payable to parent | | | 2,560 | | | | — | |
Other current liabilities | | | 109,705 | | | | 95,999 | |
| | | | | | | | |
Total current liabilities | | | 446,059 | | | | 482,316 | |
| | | | | | | | |
Deferred income taxes and other credits: | | | | | | | | |
Deferred income taxes and investment tax credits, net | | | 853,682 | | | | 806,109 | |
Accumulated removal costs | | | 312,000 | | | | 308,000 | |
Other deferred credits and other long-term liabilities | | | 522,660 | | | | 545,143 | |
Discontinued operations—construction services—liabilities | | | — | | | | 380,615 | |
| | | | | | | | |
Total deferred income taxes and other credits | | | 1,688,342 | | | | 2,039,867 | |
| | | | | | | | |
Total capitalization and liabilities | | $ | 5,185,592 | | | $ | 5,581,126 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 |
Common stock shares | | | | | | | |
| Beginning balances | 59,088 | | | 55,910 | | | 57,193 | | | 55,007 | |
| | Common stock issuances | 1,291 | | | 549 | | | 3,186 | | | 1,452 | |
| Ending balances | 60,379 | | | 56,459 | | | 60,379 | | | 56,459 | |
Common stock amount | | | | | | | |
| Beginning balances | $ | 60,718 | | | $ | 57,540 | | | $ | 58,823 | | | $ | 56,637 | |
| | Common stock issuances | 1,291 | | | 549 | | | 3,186 | | | 1,452 | |
| Ending balances | 62,009 | | | 58,089 | | | 62,009 | | | 58,089 | |
Additional paid-in capital | | | | | | | |
| Beginning balances | 1,733,572 | | | 1,523,630 | | | 1,609,155 | | | 1,466,937 | |
| | Common stock issuances | 90,317 | | | 36,184 | | | 214,734 | | | 92,877 | |
| Ending balances | 1,823,889 | | | 1,559,814 | | | 1,823,889 | | | 1,559,814 | |
Accumulated other comprehensive loss | | | | | | | |
| Beginning balances | (55,688) | | | (55,617) | | | (61,003) | | | (56,732) | |
| | Foreign currency exchange translation adjustment | (2,056) | | | 1,024 | | | (324) | | | (1,187) | |
| | Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | 1,380 | | | 1,027 | | | 4,136 | | | 3,082 | |
| | FSIRS amounts reclassified to net income, net of tax | 413 | | | 783 | | | 1,240 | | | 2,054 | |
| Ending balances | (55,951) | | | (52,783) | | | (55,951) | | | (52,783) | |
Retained earnings | | | | | | | |
| Beginning balances | 1,108,279 | | | 1,085,742 | | | 1,067,978 | | | 1,039,072 | |
| | Net income (loss) | (11,576) | | | 18,273 | | | 130,836 | | | 128,780 | |
| | Dividends declared | (36,098) | | | (32,324) | | | (106,303) | | | (96,161) | |
| | Redemption value adjustments | 19,264 | | | (17,573) | | | (12,642) | | | (17,573) | |
| Ending balances | 1,079,869 | | | 1,054,118 | | | 1,079,869 | | | 1,054,118 | |
Total equity ending balances | $ | 2,909,816 | | | $ | 2,619,238 | | | $ | 2,909,816 | | | $ | 2,619,238 | |
Dividends declared per common share | $ | 0.595 | | | $ | 0.57 | | | $ | 1.785 | | | $ | 1.71 | |
The accompanying notes are an integral part of these statements.
7
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF INCOMEBALANCE SHEETS
(
In thousands)Thousands of dollars)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | THREE MONTHS ENDED | | | NINE MONTHS ENDED | | | TWELVE MONTHS ENDED | |
| | SEPTEMBER 30, | | | SEPTEMBER 30, | | | SEPTEMBER 30, | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Continuing operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Gas operating revenues | | $ | 213,059 | | | $ | 200,179 | | | $ | 935,823 | | | $ | 980,927 | | | $ | 1,276,308 | | | $ | 1,376,388 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Net cost of gas sold | | | 45,539 | | | | 39,056 | | | | 261,839 | | | | 324,072 | | | | 334,888 | | | | 460,836 | |
Operations and maintenance | | | 102,215 | | | | 102,438 | | | | 313,395 | | | | 301,979 | | | | 413,140 | | | | 400,222 | |
Depreciation and amortization | | | 46,194 | | | | 56,436 | | | | 153,643 | | | | 174,413 | | | | 212,693 | | | | 228,609 | |
Taxes other than income taxes | | | 14,046 | | | | 12,480 | | | | 43,325 | | | | 39,480 | | | | 56,221 | | | | 51,810 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | | 207,994 | | | | 210,410 | | | | 772,202 | | | | 839,944 | | | | 1,016,942 | | | | 1,141,477 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | | 5,065 | | | | (10,231 | ) | | | 163,621 | | | | 140,983 | | | | 259,366 | | | | 234,911 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other income and (expenses): | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest deductions | | | (17,421 | ) | | | (16,364 | ) | | | (51,622 | ) | | | (49,155 | ) | | | (69,464 | ) | | | (65,146 | ) |
Other income (deductions) | | | 3,081 | | | | 2,521 | | | | 8,744 | | | | 6,712 | | | | 10,308 | | | | 9,615 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other income and (expenses) | | | (14,340 | ) | | | (13,843 | ) | | | (42,878 | ) | | | (42,443 | ) | | | (59,156 | ) | | | (55,531 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before income taxes | | | (9,275 | ) | | | (24,074 | ) | | | 120,743 | | | | 98,540 | | | | 200,210 | | | | 179,380 | |
Income tax expense (benefit) | | | (5,251 | ) | | | (11,669 | ) | | | 38,307 | | | | 31,004 | | | | 65,887 | | | | 59,544 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations | | | (4,024 | ) | | | (12,405 | ) | | | 82,436 | | | | 67,536 | | | | 134,323 | | | | 119,836 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Discontinued operations—construction services: | | | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes | | | — | | | | 24,020 | | | | — | | | | 31,867 | | | | 21,649 | | | | 54,934 | |
Income tax expense | | | — | | | | 8,708 | | | | — | | | | 12,042 | | | | 7,842 | | | | 20,711 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income | | | — | | | | 15,312 | | | | — | | | | 19,825 | | | | 13,807 | | | | 34,223 | |
Noncontrolling interests | | | — | | | | 435 | | | | — | | | | 500 | | | | 514 | | | | 1,079 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income—discontinued operations | | | — | | | | 14,877 | | | | — | | | | 19,325 | | | | 13,293 | | | | 33,144 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (4,024 | ) | | $ | 2,472 | | | $ | 82,436 | | | $ | 86,861 | | | $ | 147,616 | | | $ | 152,980 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
ASSETS | | | | |
Utility plant: | | | | |
Gas plant | | $ | 8,742,806 | | | $ | 8,384,000 | |
Less: accumulated depreciation | | (2,499,488) | | | (2,419,348) | |
Construction work in progress | | 153,100 | | | 211,429 | |
Net utility plant | | 6,396,418 | | | 6,176,081 | |
Other property and investments | | 149,926 | | | 143,611 | |
Current assets: | | | | |
Cash and cash equivalents | | 122,758 | | | 41,070 | |
Accounts receivable, net of allowance | | 103,430 | | | 146,861 | |
Accrued utility revenue | | 39,700 | | | 82,400 | |
Income taxes receivable, net | | 17,775 | | | 11,155 | |
Deferred purchased gas costs | | 240,827 | | | 2,053 | |
Prepaid and other current assets | | 170,470 | | | 152,748 | |
Total current assets | | 694,960 | | | 436,287 | |
Noncurrent assets: | | | | |
Goodwill | | 10,095 | | | 10,095 | |
Deferred charges and other assets | | 461,212 | | | 490,562 | |
Total noncurrent assets | | 471,307 | | | 500,657 | |
Total assets | | $ | 7,712,611 | | | $ | 7,256,636 | |
CAPITALIZATION AND LIABILITIES | | | | |
Capitalization: | | | | |
Common stock | | $ | 49,112 | | | $ | 49,112 | |
Additional paid-in capital | | 1,617,796 | | | 1,410,345 | |
Accumulated other comprehensive loss, net | | (55,759) | | | (61,135) | |
Retained earnings | | 851,645 | | | 835,146 | |
Total equity | | 2,462,794 | | | 2,233,468 | |
Long-term debt, less current maturities | | 2,309,857 | | | 2,438,206 | |
Total capitalization | | 4,772,651 | | | 4,671,674 | |
Current liabilities: | | | | |
Current maturities of long-term debt | | 275,000 | | | — | |
Short-term debt | | 250,000 | | | 57,000 | |
Accounts payable | | 113,810 | | | 161,646 | |
Customer deposits | | 51,816 | | | 67,920 | |
| | | | |
Accrued general taxes | | 60,656 | | | 48,640 | |
Accrued interest | | 34,938 | | | 20,495 | |
Deferred purchased gas costs | | — | | | 54,636 | |
Payable to parent | | 207 | | | 142 | |
Other current liabilities | | 155,490 | | | 146,046 | |
Total current liabilities | | 941,917 | | | 556,525 | |
Deferred income taxes and other credits: | | | | |
Deferred income taxes and investment tax credits, net | | 618,597 | | | 581,100 | |
Accumulated removal costs | | 419,000 | | | 404,000 | |
Other deferred credits and other long-term liabilities | | 960,446 | | | 1,043,337 | |
Total deferred income taxes and other credits | | 1,998,043 | | | 2,028,437 | |
Total capitalization and liabilities | | $ | 7,712,611 | | | $ | 7,256,636 | |
The accompanying notes are an integral part of these statements.
8
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(
In thousands)Thousands of dollars)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | THREE MONTHS ENDED | | | NINE MONTHS ENDED | | | TWELVE MONTHS ENDED | |
| | SEPTEMBER 30, | | | SEPTEMBER 30, | | | SEPTEMBER 30, | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Continuing operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) from continuing operations | | $ | (4,024 | ) | | $ | (12,405 | ) | | $ | 82,436 | | | $ | 67,536 | | | $ | 134,323 | | | $ | 119,836 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | | | | | | | | | | | | |
Defined benefit pension plans: | | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial gain (loss) | | | — | | | | — | | | | — | | | | — | | | | (14,118 | ) | | | (18,922 | ) |
Amortization of prior service cost | | | 207 | | | | 207 | | | | 621 | | | | 621 | | | | 828 | | | | 828 | |
Amortization of net actuarial loss | | | 3,944 | | | | 4,196 | | | | 11,832 | | | | 12,586 | | | | 16,027 | | | | 17,915 | |
Regulatory adjustment | | | (3,555 | ) | | | (3,796 | ) | | | (10,667 | ) | | | (11,388 | ) | | | (2,741 | ) | | | (404 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net defined benefit pension plans | | | 596 | | | | 607 | | | | 1,786 | | | | 1,819 | | | | (4 | ) | | | (583 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Forward-starting interest rate swaps: | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts reclassified into net income | | | 518 | | | | 518 | | | | 1,554 | | | | 1,556 | | | | 2,073 | | | | 2,073 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net forward-starting interest rate swaps | | | 518 | | | | 518 | | | | 1,554 | | | | 1,556 | | | | 2,073 | | | | 2,073 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income, net of tax from continuing operations | | | 1,114 | | | | 1,125 | | | | 3,340 | | | | 3,375 | | | | 2,069 | | | | 1,490 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income (loss) from continuing operations | | | (2,910 | ) | | | (11,280 | ) | | | 85,776 | | | | 70,911 | | | | 136,392 | | | | 121,326 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Discontinued operations—construction services: | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | 14,877 | | | | — | | | | 19,325 | | | | 13,293 | | | | 33,144 | |
Foreign currency translation adjustments | | | — | | | | (238 | ) | | | — | | | | 614 | | | | (453 | ) | | | 233 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | — | | | | 14,639 | | | | — | | | | 19,939 | | | | 12,840 | | | | 33,377 | |
Comprehensive income (loss) attributable to noncontrolling interests | | | — | | | | (8 | ) | | | — | | | | 21 | | | | (16 | ) | | | 10 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income attributable to discontinued operations—construction services | | | — | | | | 14,647 | | | | — | | | | 19,918 | | | | 12,856 | | | | 33,367 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income (loss) | | $ | (2,910 | ) | | $ | 3,367 | | | $ | 85,776 | | | $ | 90,829 | | | $ | 149,248 | | | $ | 154,693 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Gas operating revenues | | $ | 255,848 | | | $ | 210,834 | | | $ | 1,070,576 | | | $ | 976,095 | | | $ | 1,445,066 | | | $ | 1,355,666 | |
Operating expenses: | | | | | | | | | | | | |
Net cost of gas sold | | 63,710 | | | 36,321 | | | 296,227 | | | 264,615 | | | 374,449 | | | 356,925 | |
Operations and maintenance | | 119,708 | | | 101,159 | | | 328,980 | | | 303,567 | | | 431,795 | | | 406,169 | |
Depreciation and amortization | | 61,359 | | | 55,942 | | | 187,688 | | | 173,865 | | | 249,118 | | | 230,158 | |
Taxes other than income taxes | | 20,109 | | | 15,787 | | | 60,134 | | | 47,507 | | | 76,087 | | | 63,195 | |
Total operating expenses | | 264,886 | | | 209,209 | | | 873,029 | | | 789,554 | | | 1,131,449 | | | 1,056,447 | |
Operating income (loss) | | (9,038) | | | 1,625 | | | 197,547 | | | 186,541 | | | 313,617 | | | 299,219 | |
Other income and (expenses): | | | | | | | | | | | | |
Net interest deductions | | (24,922) | | | (26,103) | | | (71,263) | | | (75,152) | | | (97,259) | | | (100,115) | |
Other income (deductions) | | (4,287) | | | 1,751 | | | (4,902) | | | (10,947) | | | (545) | | | (7,615) | |
Total other income and (expenses) | | (29,209) | | | (24,352) | | | (76,165) | | | (86,099) | | | (97,804) | | | (107,730) | |
Income (loss) before income taxes | | (38,247) | | | (22,727) | | | 121,382 | | | 100,442 | | | 215,813 | | | 191,489 | |
Income tax expense (benefit) | | (10,703) | | | (6,754) | | | 18,798 | | | 20,874 | | | 33,679 | | | 35,496 | |
Net income (loss) | | $ | (27,544) | | | $ | (15,973) | | | $ | 102,584 | | | $ | 79,568 | | | $ | 182,134 | | | $ | 155,993 | |
The accompanying notes are an integral part of these statements.
9
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWSCOMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | |
| | NINE MONTHS ENDED | | | TWELVE MONTHS ENDED | |
| | SEPTEMBER 30 | | | SEPTEMBER 30 | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | |
CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | |
Net Income | | $ | 82,436 | | | $ | 87,361 | | | $ | 148,130 | | | $ | 154,059 | |
Income (loss) from discontinued operations | | | — | | | | 19,825 | | | | 13,807 | | | | 34,223 | |
| | | | | | | | | | | | | | | | |
Income from continuing operations | | | 82,436 | | | | 67,536 | | | | 134,323 | | | | 119,836 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 153,643 | | | | 174,413 | | | | 212,693 | | | | 228,609 | |
Deferred income taxes | | | 44,621 | | | | 39,953 | | | | 72,627 | | | | 76,837 | |
Changes in current assets and liabilities: | | | | | | | | | | | | | | | | |
Accounts receivable, net of allowances | | | 43,818 | | | | 91,680 | | | | (7,131 | ) | | | 8,543 | |
Accrued utility revenue | | | 42,100 | | | | 41,700 | | | | (1,100 | ) | | | (800 | ) |
Deferred purchased gas costs | | | (79,127 | ) | | | 81,389 | | | | (114,658 | ) | | | 79,460 | |
Accounts payable | | | (45,972 | ) | | | (47,060 | ) | | | 17,271 | | | | 1,467 | |
Accrued taxes | | | 4,092 | | | | (5,660 | ) | | | 29,143 | | | | 4,567 | |
Other current assets and liabilities | | | 32,453 | | | | (819 | ) | | | (224 | ) | | | 9,135 | |
Changes in undistributed stock compensation | | | 7,999 | | | | 4,347 | | | | 9,108 | | | | 5,142 | |
AFUDC | | | (2,077 | ) | | | (1,893 | ) | | | (2,473 | ) | | | (2,890 | ) |
Changes in other assets and deferred charges | | | (14,861 | ) | | | 3,664 | | | | (1,914 | ) | | | 3,834 | |
Changes in other liabilities and deferred credits | | | 2,883 | | | | (4,813 | ) | | | (10,751 | ) | | | 702 | |
| | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 272,008 | | | | 444,437 | | | | 336,914 | | | | 534,442 | |
| | | | | | | | | | | | | | | | |
CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | |
Construction expenditures and property additions | | | (395,463 | ) | | | (337,921 | ) | | | (514,661 | ) | | | (485,665 | ) |
Changes in customer advances | | | (1,951 | ) | | | 5,445 | | | | 504 | | | | 9,445 | |
Miscellaneous inflows | | | 2,407 | | | | 2,464 | | | | 2,925 | | | | 3,506 | |
Dividends received | | | — | | | | 2,801 | | | | 9,660 | | | | 5,602 | |
| | | | | | | | | | | | | | | | |
Net cash used in investing activities | | | (395,007 | ) | | | (327,211 | ) | | | (501,572 | ) | | | (467,112 | ) |
| | | | | | | | | | | | | | | | |
CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | |
Issuance of common stock, net | | | — | | | | 530 | | | | (58 | ) | | | 507 | |
Contributions from parent | | | 11,659 | | | | — | | | | 11,659 | | | | — | |
Dividends paid | | | (60,497 | ) | | | (61,950 | ) | | | (81,864 | ) | | | (81,138 | ) |
Issuance of long-term debt, net | | | — | | | | 296,469 | | | | — | | | | 296,469 | |
Retirement of long-term debt | | | (25,000 | ) | | | (124,855 | ) | | | (25,000 | ) | | | (124,855 | ) |
Change in credit facility and commercial paper | | | 145,000 | | | | (150,000 | ) | | | 150,000 | | | | (97,000 | ) |
Change in short-term debt | | | 83,000 | | | | (18,000 | ) | | | 83,000 | | | | — | |
Withholding remittance—share-based compensation | | | (3,176 | ) | | | (2,119 | ) | | | (3,176 | ) | | | (2,164 | ) |
Other | | | (544 | ) | | | (605 | ) | | | (1,508 | ) | | | (9 | ) |
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 150,442 | | | | (60,530 | ) | | | 133,053 | | | | (8,190 | ) |
| | | | | | | | | | | | | | | | |
Net cash provided by discontinued operating activities | | | — | | | | 33,485 | | | | 57,680 | | | | 78,274 | |
Net cash used in discontinued investing activities | | | — | | | | (80,767 | ) | | | (11,049 | ) | | | (91,536 | ) |
Net cash provided by (used in) discontinued financing activities | | | — | | | | 39,757 | | | | (44,491 | ) | | | 6,635 | |
Effects of currency translation on cash and cash equivalents | | | — | | | | (14 | ) | | | (180 | ) | | | (318 | ) |
| | | | | | | | | | | | | | | | |
Change in cash and cash equivalents | | | 27,443 | | | | 49,157 | | | | (29,645 | ) | | | 52,195 | |
Change in cash and cash equivalents of discontinued operations included in discontinued operations construction services assets | | | — | | | | 7,539 | | | | (1,960 | ) | | | 6,945 | |
| | | | | | | | | | | | | | | | |
Change in cash and cash equivalents of continuing operations | | | 27,443 | | | | 56,696 | | | | (31,605 | ) | | | 59,140 | |
Cash and cash equivalents at beginning of period | | | 19,024 | | | | 21,376 | | | | 78,072 | | | | 18,932 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 46,467 | | | $ | 78,072 | | | $ | 46,467 | | | $ | 78,072 | |
| | | | | | | | | | | | | | | | |
Supplemental information: | | | | | | | | | | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 40,751 | | | $ | 42,804 | | | $ | 59,448 | | | $ | 63,031 | |
| | | | | | | | | | | | | | | | |
Income taxes paid (received) | | $ | 4 | | | $ | (3,055 | ) | | $ | (27,952 | ) | | $ | (16,600 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Net income (loss) | | $ | (27,544) | | | $ | (15,973) | | | $ | 102,584 | | | $ | 79,568 | | | $ | 182,134 | | | $ | 155,993 | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | |
Defined benefit pension plans: | | | | | | | | | | | | |
Net actuarial loss | | — | | | — | | | — | | | — | | | (43,730) | | | (54,026) | |
Amortization of prior service cost | | 183 | | | 220 | | | 547 | | | 659 | | | 766 | | | 901 | |
Prior service cost | | — | | | — | | | — | | | — | | | — | | | (1,426) | |
Amortization of net actuarial loss | | 8,474 | | | 7,187 | | | 25,420 | | | 21,563 | | | 32,608 | | | 26,004 | |
Regulatory adjustment | | (7,277) | | | (6,380) | | | (21,831) | | | (19,140) | | | 2,959 | | | 21,130 | |
Net defined benefit pension plans | | 1,380 | | | 1,027 | | | 4,136 | | | 3,082 | | | (7,397) | | | (7,417) | |
Forward-starting interest rate swaps (“FSIRS”): | | | | | | | | | | | | |
Amounts reclassified into net income (loss) | | 413 | | | 783 | | | 1,240 | | | 2,054 | | | 1,653 | | | 2,689 | |
Net forward-starting interest rate swaps | | 413 | | | 783 | | | 1,240 | | | 2,054 | | | 1,653 | | | 2,689 | |
Total other comprehensive income (loss), net of tax | | 1,793 | | | 1,810 | | | 5,376 | | | 5,136 | | | (5,744) | | | (4,728) | |
Comprehensive income (loss) | | $ | (25,751) | | | $ | (14,163) | | | $ | 107,960 | | | $ | 84,704 | | | $ | 176,390 | | | $ | 151,265 | |
The accompanying notes are an integral part of these statements.
10
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | |
Net income | | $ | 102,584 | | | $ | 79,568 | | | $ | 182,134 | | | $ | 155,993 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | 187,688 | | | 173,865 | | | 249,118 | | | 230,158 | |
Deferred income taxes | | 35,800 | | | 25,633 | | | 55,164 | | | 23,415 | |
Changes in current assets and liabilities: | | | | | | | | |
Accounts receivable, net of allowance | | 43,430 | | | 70,129 | | | (22,766) | | | (7,135) | |
Accrued utility revenue | | 42,700 | | | 42,600 | | | (3,200) | | | (700) | |
Deferred purchased gas costs | | (293,410) | | | 59,899 | | | (317,070) | | | 38,016 | |
Accounts payable | | (42,536) | | | (50,314) | | | 17,396 | | | (476) | |
Accrued taxes | | 5,396 | | | 15,914 | | | (12,045) | | | 29,228 | |
Other current assets and liabilities | | 18,608 | | | 74,892 | | | (7,739) | | | 76,194 | |
Changes in undistributed stock compensation | | 5,437 | | | 4,492 | | | 6,239 | | | 4,928 | |
Equity AFUDC | | — | | | (3,413) | | | (1,311) | | | (4,395) | |
Changes in deferred charges and other assets | | (18,726) | | | (27,688) | | | (35,329) | | | (38,357) | |
Changes in other liabilities and deferred credits | | (55,905) | | | (52,532) | | | (68,509) | | | (55,536) | |
Net cash provided by operating activities | | 31,066 | | | 413,045 | | | 42,082 | | | 451,333 | |
CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | |
Construction expenditures and property additions | | (415,398) | | | (525,221) | | | (582,393) | | | (716,564) | |
Changes in customer advances | | 7,940 | | | 7,691 | | | 14,282 | | | 11,643 | |
Other | | 65 | | | 183 | | | 653 | | | 139 | |
| | | | | | | | |
Net cash used in investing activities | | (407,393) | | | (517,347) | | | (567,458) | | | (704,782) | |
CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | |
Contributions from parent | | 202,583 | | | 131,961 | | | 248,544 | | | 165,711 | |
Dividends paid | | (82,000) | | | (77,500) | | | (109,000) | | | (102,400) | |
Issuance of long-term debt, net | | 297,318 | | | 446,508 | | | 297,318 | | | 446,508 | |
Retirement of long-term debt | | — | | | (125,000) | | | — | | | (125,000) | |
Change in credit facility and commercial paper | | (150,000) | | | (92,000) | | | (58,000) | | | (92,000) | |
Change in short-term debt | | 193,000 | | | (194,000) | | | 250,000 | | | (30,000) | |
Withholding remittance - share-based compensation | | (1,254) | | | (2,736) | | | (1,254) | | | (2,737) | |
Other | | (1,632) | | | (1,186) | | | (1,708) | | | (1,210) | |
Net cash provided by financing activities | | 458,015 | | | 86,047 | | | 625,900 | | | 258,872 | |
| | | | | | | | |
Change in cash and cash equivalents | | 81,688 | | | (18,255) | | | 100,524 | | | 5,423 | |
Cash and cash equivalents at beginning of period | | 41,070 | | | 40,489 | | | 22,234 | | | 16,811 | |
Cash and cash equivalents at end of period | | $ | 122,758 | | | $ | 22,234 | | | $ | 122,758 | | | $ | 22,234 | |
SUPPLEMENTAL INFORMATION: | | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 53,220 | | | $ | 57,168 | | | $ | 92,778 | | | $ | 94,106 | |
Income taxes paid (received), net | | $ | — | | | $ | (22,962) | | | $ | 3,359 | | | $ | (22,262) | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | | 2021 | | 2020 | | 2021 | | 2020 |
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 | | 1,529,419 | | | 1,329,843 | | | 1,410,345 | | | 1,229,083 | |
| | Share-based compensation | | 1,435 | | | 1,137 | | | 4,868 | | | 2,397 | |
| | Contributions from Southwest Gas Holdings, Inc. | | 86,942 | | | 32,461 | | | 202,583 | | | 131,961 | |
| Ending balances | | 1,617,796 | | | 1,363,441 | | | 1,617,796 | | | 1,363,441 | |
Accumulated other comprehensive loss | | | | | | | | |
| Beginning balances | | (57,552) | | | (51,825) | | | (61,135) | | | (55,151) | |
| | Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | | 1,380 | | | 1,027 | | | 4,136 | | | 3,082 | |
| | FSIRS amounts reclassified to net income, net of tax | | 413 | | | 783 | | | 1,240 | | | 2,054 | |
| Ending balances | | (55,759) | | | (50,015) | | | (55,759) | | | (50,015) | |
Retained earnings | | | | | | | | |
| Beginning balances | | 908,757 | | | 824,847 | | | 835,146 | | | 782,108 | |
| | Net income (loss) | | (27,544) | | | (15,973) | | | 102,584 | | | 79,568 | |
| | Share-based compensation | | (168) | | | (139) | | | (685) | | | (641) | |
| | Dividends declared to Southwest Gas Holdings, Inc. | | (29,400) | | | (27,000) | | | (85,400) | | | (79,300) | |
| Ending balances | | 851,645 | | | 781,735 | | | 851,645 | | | 781,735 | |
Total Southwest Gas Corporation equity ending balances | | $ | 2,462,794 | | | $ | 2,144,273 | | | $ | 2,462,794 | | | $ | 2,144,273 | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
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,(“Centuri,” or the “utility infrastructure services” segment).
In October 2021, Southwest Gas Holdings, Inc. acquired(the “Company”) entered into an agreement with Dominion Energy Questar Corporation, a wholly owned subsidiary of Dominion Energy, Inc., to acquire all equity interests in Dominion Energy Questar Pipeline, LLC and related entities (“Questar Pipelines”). Upon closing, Questar Pipelines will operate as part of a standalone subsidiary of the remaining 3.4% equity interestCompany, and will undergo new branding at or subsequent to close. The agreement provides for consideration of $1.545 billion in Centuri Construction Group, Inc. that was heldcash (subject to certain adjustments) and assumption of approximately $430 million of existing long-term debt. The agreement contains certain termination rights, including a mutual termination right exercisable at any time and a unilateral termination right exercisable by either party if certain conditions have not been met by December 31, 2021 (the initial termination date), subject to an extension unilaterally exercisable by either party if certain conditions have not been met, subsequently extending the initial termination date through June 30, 2022. The completion of this transaction is subject to closing conditions, including the expiration or termination of any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and approval of certain aspects of the transaction by the previous owners (and was previously reflectedFederal Communications Commission. The operations to be acquired would further diversify the Company’s business with an expansion of regulated interstate natural gas pipelines and underground storage services 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 datepart of the reorganization, existing shareholders of Southwest Gas Corporation became shareholders of Southwest Gas Holdings, Inc., on aone-for-one basis, with the same number of shares and same ownership percentage as they held immediately prior to the reorganization. At the same time, Southwest Gas Corporation and Centuri Construction Group, Inc. (“Centuri” or the “construction services” segment) each became subsidiariesjurisdiction of the publicly traded holding company; whereas, historically, Centuri had beenFederal Energy Regulatory Commission (the “FERC”), thereby expanding transportation services into Utah, Wyoming, and Colorado. The Company plans to initially fund this acquisition with a direct subsidiary of new 364-day term loan, followed by permanent financing. See
Note 5 – Debt for more information. 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”), Linetec Services, LLC (“Linetec”), and Brigadier PipelinesRiggs Distler & Company, Inc. (“Brigadier”Riggs Distler”). 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. Centuri completed the acquisition of Drum Parent, Inc. (“Drum”), including Drum’s most significant operating subsidiary, Riggs Distler,
in August 2021, thereby expanding Centuri’s electric services footprint in the Northeast and Mid-Atlantic regions of the U.S. See Note 8 - Business Acquisitions for more information. Basis of Presentation. The condensed consolidated financial statements forof Southwest Gas Holdings, Inc. and subsidiaries (the “Company”) and Southwest included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The year-end condensed balance sheet data was derived from audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United StatesU.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. As indicated above, in connection with the holding company reorganization, Centuri ceased to be a subsidiary of Southwest and became a subsidiary of Southwest Gas Holdings, Inc. To give effect to this change, the separate condensed consolidated financial statements related to Southwest Gas Corporation, which are included in thisForm 10-Q, depict Centuri-related amounts for periods prior to January 1, 2017 as discontinued operations. Because the transfer of Centuri from Southwest Gas Corporation to Southwest Gas Holdings, Inc. was effectuated as an equity transaction and not a sale, assets and liabilities subject to the discontinued operations presentation have been reflected as noncurrent on the Southwest Gas Corporation Condensed Consolidated Balance Sheet. Those assets and liabilities are detailed inNote 10 – Reorganization Impacts – Discontinued Operations Solely Related to Southwest Gas Corporation,and include both current andnon-current amounts.No substantive change has occurred with regard to the Company’s business segments on the whole, or in the primary businesses comprising those segments as a result of the foregoing organizational changes. Centuri operations continue to be 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
atas of 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 theseIn association with the novel Coronavirus (“COVID-19”) pandemic environment, utility operations, and to a large extent, utility infrastructure services, were deemed “essential services.” Management has considered the impact of the pandemic and adjusted certain estimates, where relevant, 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
20162020 Annual Report to
Shareholders,Stockholders, which is incorporated by reference into the
20162020 Form 10-K.Prepaids
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
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 extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset valuation methodsor liability at the measurement date.
The Company primarily used
by moneyquoted market
funds.Significantnon-cash investingprices and financing activities includedother observable market pricing information in valuing cash and cash equivalents, long-term debt outstanding, and assets of the following: Upon contract expiration, customer advances of approximately $1.9 millionqualified pension plan 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 ispostretirement benefit plans 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 in 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
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value are required to be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The Company had no previously unrecognized tax benefits as a result of these changes; therefore, no cumulative effect adjustment to the Company’s opening retained earnings was required.
Goodwill. Goodwill is assessed as of October 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) | September 30, 2021 | | December 31, 2020 |
Southwest Gas Corporation: | | | |
Net cash surrender value of COLI policies | $ | 147,187 | | | $ | 140,874 | |
Other property | 2,739 | | | 2,737 | |
Total Southwest Gas Corporation | 149,926 | | | 143,611 | |
Centuri property, equipment, and intangibles | 1,592,461 | | | 1,089,414 | |
Centuri accumulated provision for depreciation and amortization | (468,206) | | | (422,741) | |
Other property and investments | 31,153 | | | 23,961 | |
Total Southwest Gas Holdings, Inc. | $ | 1,305,334 | | | $ | 834,245 | |
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 the Company include $55 million of money market fund investments at September 30, 2021, and an insignificant amount at December 31, 2020. The money market fund investments for Southwest were insignificant at both balance sheet dates. These investments 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 include customer advances applied as contributions toward utility construction activity, and capital expenditures that were not yet paid as of period-end reporting dates, but rather were included in accounts payable. Typical activities that represent aspects of both non-cash investing and non-cash financing activities relate to right-of-use assets obtained in exchange for lease liabilities (including, at times, lease terminations and modifications). Amounts related to these collective activities were immaterial for the periods presented herein. See also Prepaid and other current assets below.
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.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
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. Southwest lifted the moratorium on disconnection of natural gas service for non-payment in Arizona and Nevada in September 2021, which was initiated (at the same time as a moratorium on late fees) in March 2020 in response to the COVID-19 pandemic. The moratorium on disconnection continues to be in place for California, and is expected to be lifted in the fourth quarter of 2021. Southwest recommenced assessing late fees on past-due balances in Arizona and Nevada in April 2021, and expects to recommence late fees in California in the fourth quarter of 2021. 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 impact of COVID-19. The allowance for uncollectible accounts receivable balances as of September 30, 2021 reflects the expected impact from the pandemic on balances as of that date, including consideration of customers’ ability to pay those amounts that are due.
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 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 uncollectible accounts 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 overall.
Deferred Purchased Gas Costs. The various regulatory commissions have established procedures to enable Southwest to adjust its billing rates for changes in the cost of natural gas purchased. The difference between the current cost of gas purchased and the cost of gas recovered in billed rates is deferred. Generally, these deferred amounts are recovered or refunded within one year.
In mid-February 2021, the central U.S. (from south Texas to North Dakota and the eastern Rocky Mountains) experienced extreme cold temperatures, which increased natural gas demand and caused supply issues due to wellhead freeze-offs, power outages, or other adverse operating conditions upstream of Southwest’s distribution systems. These conditions caused daily natural gas prices to reach unprecedented levels. During this time, Southwest secured natural gas supplies, albeit at substantially higher prices, maintaining service to its customers. The incremental cost for these supplies was approximately $250 million, funded using a 364-day $250 million term loan executed in March 2021 (see Note 5 – Debt).The incremental gas costs are expected to continue to be collected from customers through the purchased gas adjustment (“PGA”) mechanisms.
Following the extreme weather event, an interstate transmission pipeline company billed Southwest, in addition to customary transmission costs, $65 million (later reduced to approximately $55 million) for pipeline imbalance charges, allegedly incurred during the period of the pipeline’s critical operation condition. However, Southwest formally disputed the imbalance charges, in addition to interest on that amount, believing that no amounts were due to the pipeline. In June 2021, the interstate transmission pipeline company requested approval from the Federal Energy Regulatory Commission (the “FERC”) to waive these imbalance charges and interest, affirming that they had the authority to elect the option to waive the underlying charges based on their tariff, but were seeking approval by the FERC for purposes of transparency and regulatory certainty. In August 2021, FERC approval was received. Consequently, no amounts were recognized by Southwest related to the original charge from the pipeline.
Prepaid and other current assets. Prepaid and other current assets includes gas pipe materials and operating supplies of $55 million at September 30, 2021 and $50 million at December 31, 2020 (carried at weighted average cost).
In the third quarter of 2021, the Company and Southwest classified certain assets associated with its previous corporate headquarters as held for sale. As a result, the Company and Southwest reclassified approximately $31 million from Net utility plant to Prepaid and other current assets on their respective Condensed Consolidated Balance Sheets during the third quarter of 2021; this was a non-cash item and therefore did not impact the Company’s or Southwest’s respective Condensed Consolidated Statements of Cash Flows.
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 they remained 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, 2020, management also qualitatively assessed whether events during the first nine months of 2021 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
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
impairment. Through this assessment, no such condition was believed to have existed and therefore, no impairment was deemed to have occurred. The Riggs Distler acquisition in August 2021 (see further discussion in Note 8 - Business Acquisitions) was deemed a stock purchase for tax purposes, and as a result, only pre-acquisition goodwill that was historically tax-deductible by Riggs Distler will continue to be deductible for tax purposes by the Company. Goodwill on Southwest’s and the Company’s Condensed Consolidated Balance Sheets includes:
| | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | | Natural Gas Operations | | Utility Infrastructure Services | | Total Company |
December 31, 2020 | | $ | 10,095 | | | $ | 335,089 | | | $ | 345,184 | |
Additional goodwill from Riggs Distler acquisition | | — | | | 446,794 | | | 446,794 | |
Foreign currency translation adjustment | | — | | | (76) | | | (76) | |
September 30, 2021 | | $ | 10,095 | | | $ | 781,807 | | | $ | 791,902 | |
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 the Company includes $35.9 million and $32.6 million of dividends declared as of September 30, 2021 and December 31, 2020, respectively, as well as liabilities included as part of the Riggs Distler acquisition.
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 September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
(Thousands of dollars) | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Southwest Gas Corporation - natural gas operations segment: | | | | | | | | | | | |
Change in COLI policies | $ | — | | | $ | 4,500 | | | $ | 5,800 | | | $ | 1,000 | | | $ | 14,000 | | | $ | 7,200 | |
Interest income | 1,365 | | | 1,412 | | | 3,312 | | | 3,214 | | | 4,113 | | | 4,630 | |
Equity AFUDC | — | | | 1,232 | | | — | | | 3,413 | | | 1,311 | | | 4,395 | |
Other components of net periodic benefit cost | (3,506) | | | (5,005) | | | (10,516) | | | (15,016) | | | (15,522) | | | (18,780) | |
Miscellaneous income and (expense) | (2,146) | | | (388) | | | (3,498) | | | (3,558) | | | (4,447) | | | (5,060) | |
Southwest Gas Corporation - total other income (deductions) | (4,287) | | | 1,751 | | | (4,902) | | | (10,947) | | | (545) | | | (7,615) | |
Utility infrastructure services segment: | | | | | | | | | | | |
| | | | | | | | | | | |
Foreign transaction gain (loss) | (7) | | | — | | | (19) | | | (16) | | | (19) | | | (16) | |
Miscellaneous income and (expense) | 1,182 | | | 48 | | | 946 | | | (91) | | | 846 | | | (194) | |
Centuri - total other income (deductions) | 1,175 | | | 48 | | | 927 | | | (107) | | | 827 | | | (210) | |
Corporate and administrative | — | | | — | | | — | | | 8 | | | — | | | 37 | |
Consolidated Southwest Gas Holdings, Inc. - total other income (deductions) | $ | (3,112) | | | $ | 1,799 | | | $ | (3,975) | | | $ | (11,046) | | | $ | 282 | | | $ | (7,788) | |
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 also to the discussion of
Other Property and Investments above and to Note 2 – Components of Net Periodic Benefit Cost. Redeemable Noncontrolling Interest. In May 2014, the FASB issued the update “Revenue from Contracts with Customers (Topic 606).” The update replaces much of the current guidance regarding revenue recognition including most industry-specific guidance. In accordanceconnection with the update, an entity will be required to identifyacquisition of Linetec in November 2018, the contract withprevious owner retained a 20% equity interest in Linetec, 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 usersreduction 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 provided for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The fourth update affects narrow aspects of the guidance as issued to date. Management plans to adopt all of these updates at the required adoption date, which is for interim and annual reporting periods commencing January 2018.Deliberations have been ongoing bysubject to certain rights based on the utility industry, notably in connection with efforts to produce an accounting guide intended to be developed bypassage of time or upon the American Instituteoccurrence of Certified Public Accountants (“AICPA”). In association with this undertaking, the AICPA formed a number of industry task forces, including a Power & Utilities (“P&U”) Task Force, on which Company personnel actively participate via formal membership. Industry representatives and organizations, the largest auditing firms, the AICPA’s Revenue Recognition Working Group and its Financial Reporting Executive Committee have undertaken, and continue to undertake, consideration of several items relevant to the utility industry. Where applicable or necessary, the FASB’s Transition Resource Group (“TRG”) has also participated. Through the P&U Task Force undertakings, general determinations were made that contributions received in aid of construction (“CIAC”) efforts related to the industry’s pipe distribution and transmission systems are reimbursements of expenditures rather than revenue (consistent with current accounting practices). Furthermore, regarding the “collectibility” criterion in the update that must be met for revenue recognition, general determinations have been made that contracts for utility service (including service to lower income or lower credit quality customers)
14
certain triggering events.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
represent genuine
Significant changes in the value of the redeemable noncontrolling interest, above a floor established at the acquisition date, are recognized as they occur, and valid contractsthe carrying value is adjusted as necessary at each reporting date. The fair value is estimated using a market approach that utilizes certain financial metrics from guideline public companies of similar industry and operating characteristics. Adjustment to the redemption value also impacts retained earnings, as reflected in the Company’s Condensed Consolidated Statement of Equity, but does not impact net income. The following depicts the change to the balance of the redeemable noncontrolling interest:
| | | | | |
(Thousands of dollars): | Redeemable Noncontrolling Interest |
Balance, December 31, 2020 | $ | 165,716 | |
Net income attributable to redeemable noncontrolling interest | 5,189 | |
Redemption value adjustment | 12,642 | |
Balance, September 30, 2021 | $ | 183,547 | |
Earnings Per Share. Basic earnings per share (“EPS”) in each period of this report were calculated by dividing 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 Basic and Diluted EPS calculations is shown in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
(In thousands) | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Weighted average basic shares | | 59,688 | | | 56,271 | | | 58,639 | | | 55,683 | | | 58,209 | | | 55,508 | |
Effect of dilutive securities: | | | | | | | | | | | | |
Management Incentive Plan shares | | — | | | — | | | — | | | — | | | — | | | 3 | |
Restricted stock units (1) | | 128 | | | 86 | | | 103 | | | 70 | | | 103 | | | 66 | |
Weighted average diluted shares | | 59,816 | | | 56,357 | | | 58,742 | | | 55,753 | | | 58,312 | | | 55,577 | |
(1) The number of securities included 115,000 and 76,000 performance shares during the three months ending September 30, 2021 and 2020, 95,000 and 63,000 performance shares during the nine months ending September 30, 2021 and 2020, and 93,000 and 57,000 performance shares during the twelve months ending September 30, 2021 and 2020, respectively, the total of which was derived by assuming that target performance will be achieved during the relevant performance period.
Contingency. Southwest maintains liability insurance for various risks associated with the operation of its natural gas pipelines and facilities. In connection with these liability insurance policies, Southwest is responsible for an initial deductible or self-insured retention amount per incident, after which revenue is ablethe insurance carriers would be responsible for amounts up to the policy limits. For the policy year August 2021 to July 2022, these liability insurance policies require Southwest to be recognized when serviceresponsible for the first $1 million (self-insured retention) of each incident plus the first $4 million in aggregate claims above its self-insured retention in the policy year. In August 2021, a natural gas pipe was involved in an explosion that injured four individuals and damaged property. The explosion was caused by a leak in the pipe, and is rendered (consistent with currentunder investigation. Claims are expected to be filed against Southwest. If Southwest is deemed fully or partially responsible, Southwest estimates its exposure could be as much as $5 million (the maximum noted above). As of September 30, 2021, pursuant to Accounting Standards Codification 450, Contingencies, Southwest recorded a $5 million liability related to this incident reflecting the maximum noted above; an estimate of actual loss greater than this exposure (to be covered by insurance) cannot be estimated as of the date these financial statements are issued.
Recent Accounting Standards Updates.
Accounting pronouncements adopted in 2021:
In December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The update simplifies the accounting
practices). These determinationsfor income taxes 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 additionremoving certain exceptions to the
regulatory mechanisms established under rate regulation to mitigategeneral principles, as well as improving consistent application in Topic 740 by clarifying and amending existing guidance. The Company and Southwest adopted the
impacts of individual customer nonpayment. Southwest has also actively worked with its peersupdate in the
rate-regulated natural gas industry and withfirst quarter of 2021, the
public accounting profession to finalize the accounting treatment for several other issuesimpact of which was not
separately addressed by the P&U Task Force.With regardmaterial 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 segmentscondensed consolidated financial statements of the Company has substantially completed assessmentsor Southwest.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
Recently issued accounting pronouncements that will be effective after 2021:
In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of sourcesthe Effects of revenue andReference 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, including when modifying a contract (during the eligibility period covered by the update to Topic 848) to replace a reference rate affected by such reform. The update applies only to contracts and hedging relationships that adoptionreference the London Interbank Offered Rate (“LIBOR”) or another rate expected to be discontinued due to reference rate reform. The guidance was eligible to be applied upon issuance on March 12, 2020, and can generally be applied through December 31, 2022, but to date, no further updates have occurred that would extend the optional guidance to the full tenor of LIBOR expiration dates occurring after 2022. Management will monitor the new guidance willimpacts this update might have on the Company’s (andand 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’sconsolidated financial statements and note disclosures. The Companydisclosures, and will reflect such appropriately, in the event that the optional guidance is currently planningelected. It will also monitor further FASB action, if any, in regard to adopt the new guidancefull tenor of LIBOR expiration dates. See also LIBOR discussion in 2018 under the modified retrospective transition method, as permissible.Note 5 – Debt. In
January 2016,August 2020, the FASB issued
the update “FinancialASU 2020-06 “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
– Overall (Subtopic825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities”Contracts in
order to improve the recognition and measurement of financial instruments.an Entity’s Own Equity.” 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) requiringamongst other amendments, improves 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 notesguidance related to the
financial statements; 4) eliminating the requirement to disclose the method(s)disclosures and
significant assumptions used to estimate the fair value that is required to be disclosedearnings-per-share for
financialconvertible instruments
measured at amortized cost on the balance sheet; and
5) requiring a reporting entity to present separatelycontracts 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.an entity’s own equity. The update is effective for fiscal years beginning after December 15,
2017,2021, including interim periods within those fiscal
years. All entities canyears; 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, whichadoption 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 | | September 30, 2017 |
a full retrospective transition approach. Early application is permitted. Management currently plans to adopt the update at the required adoption date, which is for interim and annual reporting periods commencing January 1, 2019. Existing leases have been historically documented under traditional leasing arrangements by both segments. Management is in the process of evaluating other types of arrangements that have the potential to meet the definition of a lease under the new standard, and is also in the process of selecting software to efficiently implement the standard for its natural gas operations segment. The FASB recently issued proposed guidance that will allow the election of a practical expedient to not apply the new standard to existing easement contracts that were not previously assessed as leases under historic guidance. However, the Company would still be required to evaluate any new easements entered into after the effective date of the standard to determine if the arrangements should be accounted for as leases. Management is currently evaluating the new and proposed guidance in light of its customary leasing arrangements (and other arrangements in association with the new guidance) to determine the effect the new standard will have on its financial position, results of operations, cash flows, and business processes.
In June 2016, the FASB issued the update “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The update amends guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, the update eliminates the “probable” threshold for initial recognition of credit losses in current U.S. GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current U.S. GAAP, 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,impacts, if any, this update might have on itsthe Company’s consolidated financial statements and disclosures.
In August 2016, the FASB issued the update “Classification of Certain Cash Receipts and Cash Payments.” This update addresses the following specific cash flow issues: debt prepayment or debt extinguishment costs; settlement ofzero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance (“COLI”) policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows, including identification of the predominant nature in cases where cash receipts and payments have aspects of more than one class of cash flows. The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Management believes this update will not have a material impact on its consolidated cash flow statements and disclosures.
In October 2016, the FASB issued the update “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory.” This update eliminates the current U.S. GAAP exception for all intra-entity sales of assets other than inventory. As a result, a reporting entity would recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though thepre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted; however, the guidance can only be adopted in the first interim period of a fiscal year. No such election to adopt early was made by management. The modified retrospective approach will be required for transition to the new guidance, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. Management believes this update will not have a material impact on its consolidated financial statements and disclosures.
In January 2017, the FASB issued the update “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The update eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s
16
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SOUTHWEST GAS HOLDINGS, INC. | 18 | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from anytax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The update also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments should be applied on a prospective basis. The update is effective for fiscal and interim periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Management has determined that this update would have had no impact on the consolidated financial statements for the periods presented if it had been effective during those periods.
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, it is currently believed that the FERC will permit an election to either continue to capitalizenon-service benefit costs for regulatory reporting purposes or to cease capitalizing such costs and implement the Topic 715 update capitalization provisions “as is,” for regulatory purposes. Assuming the FERC formalizes the above elections, Southwest currently anticipates adopting the provisions of Topic 715 for both SEC reporting and regulatory purposes. Industry deliberations continue and management will be evaluating the various impacts this update will have on its consolidated financial statements and disclosures. It is estimated that approximately $3 million innon-service costs were capitalized as a component of gas plant during 2016. Totalnon-service costs were approximately $20 million in 2016.
17
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
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
net periodic benefit costsservice cost to the same accounts to which productive labor is charged. As a result,
net periodic benefitservice costs become components of various accounts, primarily operations and maintenance expense, net utility plant, and deferred charges and other assets for both the Company and Southwest.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Qualified Retirement Plan | |
| | Period Ended September 30, | |
| | Three Months | | | Nine Months | | | Twelve Months | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
(Thousands of dollars) | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 5,848 | | | $ | 5,708 | | | $ | 17,544 | | | $ | 17,125 | | | $ | 23,252 | | | $ | 23,406 | |
Interest cost | | | 11,520 | | | | 11,507 | | | | 34,561 | | | | 34,520 | | | | 46,068 | | | | 45,577 | |
Expected return on plan assets | | | (13,799 | ) | | | (14,140 | ) | | | (41,397 | ) | | | (42,419 | ) | | | (55,536 | ) | | | (56,871 | ) |
Amortization of net actuarial loss | | | 6,001 | | | | 6,317 | | | | 18,003 | | | | 18,950 | | | | 24,319 | | | | 27,136 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net periodic benefit cost | | $ | 9,570 | | | $ | 9,392 | | | $ | 28,711 | | | $ | 28,176 | | | $ | 38,103 | | | $ | 39,248 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | SERP | |
| | Period Ended September 30, | |
| | Three Months | | | Nine Months | | | Twelve Months | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
(Thousands of dollars) | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 77 | | | $ | 83 | | | $ | 232 | | | $ | 248 | | | $ | 315 | | | $ | 328 | |
Interest cost | | | 471 | | | | 464 | | | | 1,413 | | | | 1,394 | | | | 1,878 | | | | 1,818 | |
Amortization of net actuarial loss | | | 361 | | | | 346 | | | | 1,081 | | | | 1,038 | | | | 1,426 | | | | 1,361 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net periodic benefit cost | | $ | 909 | | | $ | 893 | | | $ | 2,726 | | | $ | 2,680 | | | $ | 3,619 | | | $ | 3,507 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | PBOP | |
| | Period Ended September 30, | |
| | Three Months | | | Nine Months | | | Twelve Months | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
(Thousands of dollars) | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 367 | | | $ | 375 | | | $ | 1,101 | | | $ | 1,124 | | | $ | 1,476 | | | $ | 1,534 | |
Interest cost | | | 808 | | | | 795 | | | | 2,424 | | | | 2,386 | | | | 3,218 | | | | 3,136 | |
Expected return on plan assets | | | (839 | ) | | | (787 | ) | | | (2,518 | ) | | | (2,362 | ) | | | (3,305 | ) | | | (3,228 | ) |
Amortization of prior service costs | | | 333 | | | | 333 | | | | 1,001 | | | | 1,001 | | | | 1,335 | | | | 1,335 | |
Amortization of net actuarial loss | | | — | | | | 104 | | | | — | | | | 312 | | | | 105 | | | | 398 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net periodic benefit cost | | $ | 669 | | | $ | 820 | | | $ | 2,008 | | | $ | 2,461 | | | $ | 2,829 | | | $ | 3,175 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
18
The other components of net periodic benefit cost are reflected in Other income (deductions) on the Condensed Consolidated Statements of Income of each entity. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Qualified Retirement Plan |
| September 30, |
| Three Months | | Nine Months | | Twelve Months |
| 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
(Thousands of dollars) | | | | | | | | | | | |
Service cost | $ | 10,289 | | | $ | 8,576 | | | $ | 30,869 | | | $ | 25,725 | | | $ | 39,443 | | | $ | 32,191 | |
Interest cost | 10,108 | | | 11,388 | | | 30,324 | | | 34,165 | | | 41,714 | | | 46,416 | |
Expected return on plan assets | (18,088) | | | (16,324) | | | (54,264) | | | (48,972) | | | (70,588) | | | (64,033) | |
Amortization of net actuarial loss | 10,489 | | | 9,006 | | | 31,467 | | | 27,019 | | | 40,473 | | | 32,608 | |
Net periodic benefit cost | $ | 12,798 | | | $ | 12,646 | | | $ | 38,396 | | | $ | 37,937 | | | $ | 51,042 | | | $ | 47,182 | |
| | | | | | | | | | | |
| SERP |
| September 30, |
| Three Months | | Nine Months | | Twelve Months |
| 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
(Thousands of dollars) | | | | | | | | | | | |
Service cost | $ | 131 | | | $ | 97 | | | $ | 394 | | | $ | 292 | | | $ | 491 | | | $ | 359 | |
Interest cost | 358 | | | 401 | | | 1,074 | | | 1,204 | | | 1,474 | | | 1,644 | |
Amortization of net actuarial loss | 661 | | | 451 | | | 1,981 | | | 1,353 | | | 2,433 | | | 1,608 | |
Net periodic benefit cost | $ | 1,150 | | | $ | 949 | | | $ | 3,449 | | | $ | 2,849 | | | $ | 4,398 | | | $ | 3,611 | |
| | | | | | | | | | | |
| PBOP |
| September 30, |
| Three Months | | Nine Months | | Twelve Months |
| 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
(Thousands of dollars) | | | | | | | | | | | |
Service cost | $ | 423 | | | $ | 395 | | | $ | 1,269 | | | $ | 1,186 | | | $ | 1,664 | | | $ | 1,505 | |
Interest cost | 549 | | | 646 | | | 1,645 | | | 1,936 | | | 2,291 | | | 2,697 | |
Expected return on plan assets | (810) | | | (852) | | | (2,430) | | | (2,556) | | | (3,282) | | | (3,345) | |
Amortization of prior service costs | 239 | | | 289 | | | 719 | | | 867 | | | 1,007 | | | 1,185 | |
| | | | | | | | | | | |
Net periodic benefit cost | $ | 401 | | | $ | 478 | | | $ | 1,203 | | | $ | 1,433 | | | $ | 1,680 | | | $ | 2,042 | |
For new employees hired on or after January 1, 2022, the defined benefit retirement plan will be replaced with enhanced contributions to the 401(k) plan. The change is not applicable to existing employees, nor to employees hired during the remainder of 2021. Current employees will continue to be eligible to receive employer 401(k) matching contributions on one-half of amounts deferred by them, up to a maximum matching contribution of 3.5% of their eligible annual compensation. Employees hired after 2021 will be eligible for enhanced employer 401(k) contributions of 3% plus a matching contribution (dollar-for-dollar) up to 7% of eligible compensation.
Note 3 – Revenue
The following information about the Company’s revenues is presented by segment. Southwest encompasses the natural gas operations segment and Centuri encompasses the utility infrastructure services segment.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
Natural Gas Operations Segment:
Gas operating revenues on the Condensed Consolidated Statements of Income of both the Company and Southwest include revenue from contracts with customers, which is shown below, disaggregated by customer type, and various categories of revenue:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
(Thousands of dollars) | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Residential | $ | 147,326 | | | $ | 131,008 | | | $ | 743,791 | | | $ | 690,861 | | | $ | 1,011,450 | | | $ | 957,379 | |
Small commercial | 48,283 | | | 35,204 | | | 185,774 | | | 159,122 | | | 248,193 | | | 228,720 | |
Large commercial | 14,199 | | | 9,942 | | | 40,030 | | | 32,588 | | | 52,075 | | | 45,493 | |
Industrial/other | 9,608 | | | 5,888 | | | 30,352 | | | 19,089 | | | 37,505 | | | 25,435 | |
Transportation | 21,884 | | | 21,040 | | | 68,217 | | | 65,281 | | | 91,151 | | | 89,364 | |
Revenue from contracts with customers | 241,300 | | | 203,082 | | | 1,068,164 | | | 966,941 | | | 1,440,374 | | | 1,346,391 | |
Alternative revenue program revenues (deferrals) | 12,569 | | | 9,199 | | | (5,335) | | | 9,545 | | | (2,740) | | | 7,629 | |
Other revenues (1) | 1,979 | | | (1,447) | | | 7,747 | | | (391) | | | 7,432 | | | 1,646 | |
Total Gas operating revenues | $ | 255,848 | | | $ | 210,834 | | | $ | 1,070,576 | | | $ | 976,095 | | | $ | 1,445,066 | | | $ | 1,355,666 | |
(1) Amounts include late fees and other miscellaneous revenues, and may also include the impact of certain regulatory mechanisms, such as cost-of-service components in customer rates expected to be returned to customers in future periods. Also includes the impacts of a temporary moratorium on late fees and disconnection for nonpayment during the COVID-19 pandemic.
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 September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
(Thousands of dollars) | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Service Types: | | | | | | | | | | | |
Gas infrastructure services | $ | 393,122 | | | $ | 387,578 | | | $ | 961,836 | | | $ | 935,444 | | | $ | 1,287,552 | | | $ | 1,288,468 | |
Electric power infrastructure services | 155,456 | | | 115,386 | | | 347,061 | | | 282,992 | | | 475,895 | | | 346,432 | |
Other | 84,270 | | | 77,428 | | | 216,551 | | | 190,262 | | | 301,591 | | | 242,364 | |
Total Utility infrastructure services revenues | $ | 632,848 | | | $ | 580,392 | | | $ | 1,525,448 | | | $ | 1,408,698 | | | $ | 2,065,038 | | | $ | 1,877,264 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
(Thousands of dollars) | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Contract Types: | | | | | | | | | | | |
Master services agreement | $ | 467,869 | | | $ | 437,914 | | | $ | 1,160,199 | | | $ | 1,076,961 | | | $ | 1,573,247 | | | $ | 1,438,540 | |
Bid contract | 164,979 | | | 142,478 | | | 365,249 | | | 331,737 | | | 491,791 | | | 438,724 | |
Total Utility infrastructure services revenues | $ | 632,848 | | | $ | 580,392 | | | $ | 1,525,448 | | | $ | 1,408,698 | | | $ | 2,065,038 | | | $ | 1,877,264 | |
| | | | | | | | | | | |
Unit price contracts | $ | 406,404 | | | $ | 377,284 | | | $ | 1,002,779 | | | $ | 985,673 | | | $ | 1,373,746 | | | $ | 1,359,352 | |
Fixed price contracts | 64,632 | | | 46,379 | | | 149,681 | | | 109,935 | | | 197,447 | | | 142,356 | |
Time and materials contracts | 161,812 | | | 156,729 | | | 372,988 | | | 313,090 | | | 493,845 | | | 375,556 | |
Total Utility infrastructure services revenues | $ | 632,848 | | | $ | 580,392 | | | $ | 1,525,448 | | | $ | 1,408,698 | | | $ | 2,065,038 | | | $ | 1,877,264 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
The following table provides information about contracts receivable and revenue earned on contracts in progress in excess of billings (contract assets), which are both included within Accounts receivable, net of allowances; the table also includes amounts billed in excess of revenue earned on contracts (contract liabilities), which are included in Other current liabilities as of September 30, 2021 and December 31, 2020 on the Company’s Condensed Consolidated Balance Sheets:
| | | | | | | | | | | |
(Thousands of dollars) | September 30, 2021 | | December 31, 2020 |
Contracts receivable, net | $ | 381,387 | | | $ | 278,316 | |
Revenue earned on contracts in progress in excess of billings | 207,318 | | | 96,996 | |
Amounts billed in excess of revenue earned on contracts | 19,954 | | | 4,507 | |
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, 2020 to September 30, 2021 is due to revenue recognized of approximately $4.5 million that was included in this item as of January 1, 2021, after which time it became earned and the balance was reduced; the change also includes increases due to cash received, net of revenue recognized during the period, related to contracts that commenced during the period.
For contracts that have an original duration of one year or less, Centuri uses the practical expedient applicable to such contracts and does not consider/compute an interest component based on the time value of money. Furthermore, because of the short duration of these contracts, Centuri has not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period or when the Company expects to recognize the revenue.
As of September 30, 2021, Centuri had 18 contracts with an original duration of more than one year. The aggregate amount of the transaction price allocated to the unsatisfied performance obligations of these contracts as of September 30, 2021 was $53.8 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) | September 30, 2021 | | December 31, 2020 |
Billed on completed contracts and contracts in progress | $ | 380,484 | | | $ | 273,778 | |
Other receivables | 2,844 | | | 6,692 | |
Contracts receivable, gross | 383,328 | | | 280,470 | |
Allowance for doubtful accounts | (1,941) | | | (2,154) | |
Contracts receivable, net | $ | 381,387 | | | $ | 278,316 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
Note 4 – Common Stock
Shares of the Company’s common stock are publicly traded on the New York Stock Exchange, under the ticker symbol “SWX.” Share-based compensation related to Southwest and Centuri is based on stock awards to be issued in shares of Southwest Gas Holdings, Inc.
On April 8, 2021, the Company entered into a Sales Agency Agreement between the Company and BNY Mellon Capital Markets, LLC and J.P. Morgan Securities LLC (the “Equity Shelf Program”) for the offer and sale of up to $500 million of common stock from time to time in an at-the-market offering program. The shares are issued pursuant to the Company’s automatic shelf registration statement on Form S-3 (File No. 333-251074). The following table provides the activity under the Equity Shelf Program for the three-month and life-to-date periods ended September 30, 2021:
| | | | | | | | | | | |
| Three Months Ended | | Life-To-Date Ended |
| September 30, 2021 |
Gross proceeds | $ | 87,819,931 | | | $ | 158,180,343 | |
Less: agent commissions | (878,199) | | | (1,581,803) | |
Net proceeds | $ | 86,941,732 | | | $ | 156,598,540 | |
Number of shares sold | 1,251,810 | | | 2,302,407 | |
Weighted average price per share | $ | 70.15 | | | $ | 68.70 | |
As of September 30, 2021, the Company had up to $341,819,657 in 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, as well as for the repayment or repurchase of indebtedness (including amounts outstanding from time to time under the credit facilities, senior notes, term loan, or future credit facilities), and to provide for working capital.
During the quarter ended March 31, 2021, the Company sold essentially all of the remaining common stock available for sale under a previously effective equity shelf program.
During the nine months ended September 30, 2021, the Company issued approximately 47,500 shares of common stock through the Restricted Stock/Unit Plan and Omnibus Incentive Plan.
Additionally, during the nine months ended September 30, 2021, the Company issued 130,000 shares of common stock through the Dividend Reinvestment and Stock Purchase Plan, raising approximately $8.5 million.
On October 10, 2021, the Company’s Board of Directors (the “Board”) authorized and declared a dividend of 1 preferred stock purchase right (a “Right”) for each share of common stock outstanding, $1 par value per share, of the Company to stockholders of record at the close of business on October 21, 2021. Each right entitles the registered holder to purchase from the Company one ten-thousandth (a “unit”) of a share of Series A Junior Participating Preferred Stock, no par value per share, of the Company at a purchase price of $321.70 per unit, subject to adjustment. Generally, the Rights become exercisable in the event any person or group of affiliated or associated persons acquires beneficial ownership of 10% (20% in the case of a passive institutional investor) or more of the Company’s common stock without the approval of the Board, and until such time, are inseparable from and trade with the Company’s common stock. The Rights were issued pursuant to the Rights Agreement dated October 10, 2021 (the “Rights Agreement”), between the Company and Equiniti Trust Company, as rights agent. The Rights expire at the close of business on October 9, 2022 or upon an earlier merger or other acquisition transaction involving the Company, redemption, or exchange as provided in the Rights Agreement.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
Note 5 – Debt
Long-Term Debt
Long-term debt is recognized in the Company’s and Southwest’s Condensed Consolidated Balance Sheets generally at the carrying value of the obligations outstanding. Details surrounding the fair value, as described in Note 1 – Background, Organization, and Summary of Significant Accounting Policies, and individual carrying values of instruments are provided in the table that follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
(Thousands of dollars) | | | | | | | | |
Southwest Gas Corporation: | | | | | | | | |
Debentures: | | | | | | | | |
Notes, 6.1%, due 2041 | | $ | 125,000 | | | $ | 167,755 | | | $ | 125,000 | | | $ | 174,858 | |
Notes, 3.875%, due 2022 | | 250,000 | | | 252,208 | | | 250,000 | | | 258,825 | |
Notes, 4.875%, due 2043 | | 250,000 | | | 307,385 | | | 250,000 | | | 317,190 | |
Notes, 3.8%, due 2046 | | 300,000 | | | 326,058 | | | 300,000 | | | 347,046 | |
Notes, 3.7%, due 2028 | | 300,000 | | | 331,536 | | | 300,000 | | | 344,553 | |
Notes, 4.15%, due 2049 | | 300,000 | | | 343,950 | | | 300,000 | | | 370,278 | |
Notes, 2.2%, due 2030 | | 450,000 | | | 447,287 | | | 450,000 | | | 474,552 | |
Notes, 3.18%, due 2051 | | 300,000 | | | 291,351 | | | — | | | — | |
8% Series, due 2026 | | 75,000 | | | 94,752 | | | 75,000 | | | 99,723 | |
Medium-term notes, 7.78% series, due 2022 | | 25,000 | | | 25,513 | | | 25,000 | | | 26,663 | |
Medium-term notes, 7.92% series, due 2027 | | 25,000 | | | 31,936 | | | 25,000 | | | 33,802 | |
Medium-term notes, 6.76% series, due 2027 | | 7,500 | | | 9,116 | | | 7,500 | | | 9,613 | |
Unamortized discount and debt issuance costs | | (20,727) | | | | | (17,822) | | | |
| | 2,386,773 | | | | | 2,089,678 | | | |
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 | | (1,916) | | | | | (1,472) | | | |
| | 198,084 | | | | | 198,528 | | | |
Less: current maturities | | (275,000) | | | | | — | | | |
Long-term debt, less current maturities - Southwest Gas Corporation | | $ | 2,309,857 | | | | | $ | 2,438,206 | | | |
Centuri: | | | | | | | | |
Centuri term loan facility | | $ | 1,145,000 | | | $ | 1,146,431 | | | $ | 226,648 | | | $ | 230,824 | |
Unamortized debt issuance costs | | (25,385) | | | | | (820) | | | |
| | 1,119,615 | | | | | 225,828 | | | |
Centuri secured revolving credit facility | | 112,236 | | | 112,348 | | | 26,626 | | | 26,645 | |
Centuri other debt obligations | | 54,346 | | | 52,682 | | | 81,973 | | | 84,246 | |
Less: current maturities | | (22,271) | | | | | (40,433) | | | |
Long-term debt, less current maturities - Centuri | | $ | 1,263,926 | | | | | $ | 293,994 | | | |
Consolidated Southwest Gas Holdings, Inc.: | | | | | | | | |
Southwest Gas Corporation long-term debt | | $ | 2,584,857 | | | | | $ | 2,438,206 | | | |
Centuri long-term debt | | 1,286,197 | | | | | 334,427 | | | |
Less: current maturities | | (297,271) | | | | | (40,433) | | | |
Long-term debt, less current maturities - Southwest Gas Holdings, Inc. | | $ | 3,573,783 | | | | | $ | 2,732,200 | | | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
The fair values of Southwest's and Centuri’s revolving credit facilities and Southwest’s IDRBs are categorized as Level 1 based on the FASB’s fair value hierarchy, due to the ability to access similar debt arrangements at measurement dates with comparable terms, including variable/market rates. The fair values of Southwest’s debentures (which include senior and medium-term notes) and Centuri's term loan facility as of September 30, 2021 were determined utilizing a market-based valuation approach, where fair values are determined based on evaluated pricing data, and as such are categorized as Level 2 in the hierarchy. Prior to amending its secured revolving credit and term loan facility in the third quarter 2021 (see below), the Centuri credit facility was categorized as Level 3, as fair values were based on a conventional discounted cash flow methodology utilizing current market pricing yield curves.
Southwest has a $400 million credit facility that is scheduled to expire in April 2025. Southwest designates $150 million of associated capacity as long-term debt and the remaining $250 million for working capital purposes. Interest rates for the credit facility are calculated at either LIBOR or an “alternate base rate,” plus in each case an applicable margin that is determined based on Southwest’s senior unsecured debt rating. At September 30, 2021, the applicable margin is 1.125% for loans bearing interest with reference to LIBOR and 0.125% for loans bearing interest with reference to the alternative base rate. At September 30, 2021, no borrowings were outstanding on the long-term portion (including under the commercial paper program, discussed below) of the facility or on the short-term portion of this credit facility discussed below.
Southwest has a $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 September 30, 2021, as noted above, no borrowings were outstanding under the commercial paper program.
In August 2021, Southwest issued $300 million aggregate principal amount of 3.18% Senior Notes at a discount of 0.019%. The notes will mature in August 2051. Southwest used the net proceeds from the offering to repay the outstanding balance under its credit facility, with the remaining net proceeds used for general corporate purposes.
As referred to above, on August 27, 2021, Centuri, in association with the acquisition of Riggs Distler (see Note 8 - Business Acquisitions), entered into an amended and restated credit agreement. The agreement provided for a $1.145 billion secured term loan facility, at a discount of 1.00%, and a $400 million secured revolving credit facility, which in addition to funding the Riggs Distler acquisition, refinanced the previous $590 million loan facility. This multi-currency facility allows the borrower to request loan advances in either Canadian dollars or U.S. dollars. Amounts borrowed and repaid under the revolving line of credit portion of the facility are available to be re-borrowed. The obligations under the credit agreement are secured by present and future ownership interests in substantially all direct and indirect subsidiaries of Centuri, substantially all of the tangible and intangible personal property of each borrower, certain of their direct and indirect subsidiaries, and all products, profits, and proceeds of the foregoing. The term loan facility matures on August 27, 2028 and the revolving credit facility matures on August 27, 2026.
Interest rates for the term loan facility and the revolving credit facility are based on either a “base rate” or LIBOR, plus an applicable margin in either case. The term loan facility is also subject to a LIBOR floor of 0.50%. Furthermore, Centuri Canada Division Inc. may borrow under the revolving credit facility with interest rates based on either a “base rate” or the Canadian Dealer Offered Rate (“CDOR”) plus the applicable margin, at the borrower’s option. The margin for the term loan facility will be 1.50% for base rate loans and 2.50% for LIBOR loans. The margin for the revolving credit facility ranges from 0.0% to 1.25% for base rate loans and from 1.00% to 2.25% for LIBOR loans, depending on Centuri’s net leverage ratio. Upon the occurrence of certain events providing for a transition away from LIBOR, or if LIBOR is no longer a widely recognized benchmark rate, Centuri may further amend the credit agreement with a replacement rate as set forth in the amended agreement. Centuri is also required to pay a commitment fee on the unused portion of the commitments. The commitment fee ranges from 0.15% to 0.35% per annum. The credit agreement contains certain customary representations and warranties, affirmative and negative covenants and events of default. There are no financial covenants related to the term loan facility. The revolving credit facility requires Centuri to maintain a maximum total net leverage ratio of 5.50 to 1.00 with a step-down to 4.75 to 1.0 on December 31, 2022, and a step-down to 4.00 to 1.00 on December 31, 2023; provided, however, Centuri may elect to increase the maximum total net leverage ratio up to 4.50 to 1.00 in connection with certain material acquisitions, with such increase being applicable for one year following such acquisition; and the agreement also requires Centuri to maintain a minimum interest coverage ratio of 2.50 to 1.00. Centuri’s assets securing the facility at September 30, 2021 totaled $2.6 billion. At September 30, 2021, $1.257 billion in borrowings were outstanding under Centuri’s combined secured revolving credit and term loan facility.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
Short-Term Debt
Southwest Gas Holdings, Inc. has a $100 million credit facility that is scheduled to expire in April 2025 and is primarily used for short-term financing needs. There was $22 million outstanding under this credit facility as of September 30, 2021.
As indicated above, under Southwest’s $400 million credit facility, no short-term borrowings were outstanding at September 30, 2021.
In March 2021, Southwest entered into a $250 million Term Loan that matures March 22, 2022. The proceeds were used to fund the increased cost of natural gas supply during the month of February 2021, caused by extreme weather conditions in the central U.S. (see Deferred Purchased Gas Costs in Note 1 – Background, Organization, and Summary of Significant Accounting Policies). Interest rates for the term loan are calculated at either LIBOR or an “alternate base rate,” plus in each case an applicable margin that is determined based on Southwest’s senior unsecured long-term debt rating. The applicable margin ranges from 0.550% to 1.000% for loans bearing interest with reference to LIBOR and 0.000% for loans bearing interest with reference to an alternate base rate. The 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.
On November 1, 2021, the Company entered into a 364-day term loan credit agreement (the “Credit Agreement”). The Credit Agreement provides for a $1.6 billion delayed-draw term loan (the “Term Loan Facility”) to fund and to pay fees, commissions, and expenses related to the Term Loan Facility and the acquisition by the Company of the equity interests in Questar Pipelines. The Term Loan Facility matures 364 days from the date of the funding of the Term Loan Facility.
The interest rate for the Term Loan Facility is based on either “base rate” or LIBOR, plus an applicable margin in either case.The applicable margin for the Term Loan Facility will be 0% to 0.50% for base rate loans and 0.75% to 1.50% for LIBOR loans, depending on the applicable pricing level in effect.Each of the interest rate spreads will increase by 0.25% at certain time intervals after the funding date. The commitment fee ranges from 0.060% to 0.175% per calendar quarter commencing January 3, 2022, depending on the applicable pricing level in effect. The pricing levels are based on the Company’s senior debt ratings. The interest rate is subject to customary benchmark replacement provisions.
The Credit Agreement contains representations and warranties, affirmative, negative, and financial covenants and events of default substantially similar to the Company’s existing credit facility. Subject to certain exceptions, after the funding date, the Company must make a mandatory prepayment from 100% of the net cash proceeds received by the Company or any of its subsidiaries from any debt offerings or equity issuances and/or 100% of the committed amount under any specified acquisition financings.
LIBOR
Certain rates established at LIBOR are scheduled to be discontinued as a benchmark or reference rate after 2021, while other LIBOR-based rates are scheduled to be discontinued after June 2023. In order to mitigate the impact of a discontinuance on the Company’s and Southwest’s financial condition and results of operations, management will 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.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
Note 6 – Other Comprehensive Income and Accumulated Other Comprehensive Income
The following information presents the Company’s Other comprehensive income (loss), both before and after-tax impacts, within the Condensed Consolidated Statements of Comprehensive Income, which also impact Accumulated other comprehensive income (“AOCI”) in the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statements of Equity.
Related Tax Effects Allocated to Each Component of Other Comprehensive Income (Loss)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2020 |
(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 | | $ | 239 | | | $ | (56) | | | $ | 183 | | | $ | 289 | | | $ | (69) | | | $ | 220 | |
Amortization of net actuarial (gain)/loss | | 11,151 | | | (2,677) | | | 8,474 | | | 9,457 | | | (2,270) | | | 7,187 | |
Regulatory adjustment | | (9,575) | | | 2,298 | | | (7,277) | | | (8,394) | | | 2,014 | | | (6,380) | |
Pension plans other comprehensive income (loss) | | 1,815 | | | (435) | | | 1,380 | | | 1,352 | | | (325) | | | 1,027 | |
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | 544 | | | (131) | | | 413 | | | 1,030 | | | (247) | | | 783 | |
FSIRS other comprehensive income (loss) | | 544 | | | (131) | | | 413 | | | 1,030 | | | (247) | | | 783 | |
Total other comprehensive income (loss) - Southwest Gas Corporation | | 2,359 | | | (566) | | | 1,793 | | | 2,382 | | | (572) | | | 1,810 | |
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | (2,056) | | | — | | | (2,056) | | | 1,024 | | | — | | | 1,024 | |
Foreign currency other comprehensive income (loss) | | (2,056) | | | — | | | (2,056) | | | 1,024 | | | — | | | 1,024 | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | 303 | | | $ | (566) | | | $ | (263) | | | $ | 3,406 | | | $ | (572) | | | $ | 2,834 | |
| | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2020 |
(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 | | $ | 719 | | | $ | (172) | | | $ | 547 | | | $ | 867 | | | $ | (208) | | | $ | 659 | |
Amortization of net actuarial (gain)/loss | | 33,448 | | | (8,028) | | | 25,420 | | | 28,372 | | | (6,809) | | | 21,563 | |
Regulatory adjustment | | (28,725) | | | 6,894 | | | (21,831) | | | (25,184) | | | 6,044 | | | (19,140) | |
Pension plans other comprehensive income (loss) | | 5,442 | | | (1,306) | | | 4,136 | | | 4,055 | | | (973) | | | 3,082 | |
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | 1,632 | | | (392) | | | 1,240 | | | 2,703 | | | (649) | | | 2,054 | |
FSIRS other comprehensive income (loss) | | 1,632 | | | (392) | | | 1,240 | | | 2,703 | | | (649) | | | 2,054 | |
Total other comprehensive income (loss) - Southwest Gas Corporation | | 7,074 | | | (1,698) | | | 5,376 | | | 6,758 | | | (1,622) | | | 5,136 | |
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | (324) | | | — | | | (324) | | | (1,187) | | | — | | | (1,187) | |
Foreign currency other comprehensive income (loss) | | (324) | | | — | | | (324) | | | (1,187) | | | — | | | (1,187) | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | 6,750 | | | $ | (1,698) | | | $ | 5,052 | | | $ | 5,571 | | | $ | (1,622) | | | $ | 3,949 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended September 30, 2021 | | Twelve Months Ended September 30, 2020 |
(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) | | $ | (57,539) | | | $ | 13,809 | | | $ | (43,730) | | | $ | (71,087) | | | $ | 17,061 | | | $ | (54,026) | |
Amortization of prior service cost | | 1,007 | | | (241) | | | 766 | | | 1,185 | | | (284) | | | 901 | |
Amortization of net actuarial (gain)/loss | | 42,906 | | | (10,298) | | | 32,608 | | | 34,216 | | | (8,212) | | | 26,004 | |
Prior service cost | | — | | | — | | | — | | | (1,878) | | | 452 | | | (1,426) | |
Regulatory adjustment | | 3,894 | | | (935) | | | 2,959 | | | 27,803 | | | (6,673) | | | 21,130 | |
Pension plans other comprehensive income (loss) | | (9,732) | | | 2,335 | | | (7,397) | | | (9,761) | | | 2,344 | | | (7,417) | |
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | 2,176 | | | (523) | | | 1,653 | | | 3,539 | | | (850) | | | 2,689 | |
FSIRS other comprehensive income (loss) | | 2,176 | | | (523) | | | 1,653 | | | 3,539 | | | (850) | | | 2,689 | |
Total other comprehensive income (loss) - Southwest Gas Corporation | | (7,556) | | | 1,812 | | | (5,744) | | | (6,222) | | | 1,494 | | | (4,728) | |
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | 2,576 | | | — | | | 2,576 | | | (280) | | | — | | | (280) | |
Foreign currency other comprehensive income (loss) | | 2,576 | | | — | | | 2,576 | | | (280) | | | — | | | (280) | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | (4,980) | | | $ | 1,812 | | | $ | (3,168) | | | $ | (6,502) | | | $ | 1,494 | | | $ | (5,008) | |
(1)Tax amounts are calculated using a 24% rate. The Company has elected to indefinitely reinvest, in Canada, the earnings of Centuri’s Canadian subsidiaries, 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 $828,000 of realized losses (net of tax) related to the remaining balance of Southwest’s previously settled forward-starting interest rate swap (“FSIRS”), included in AOCI at September 30, 2021, will be reclassified into interest expense within the next 6 months (the remainder of the amortization period for the balance) 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 and its Condensed Consolidated Statements of 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, 2020 | | $ | (77,720) | | | $ | 18,653 | | | $ | (59,067) | | | $ | (2,719) | | | $ | 651 | | | $ | (2,068) | | | $ | 132 | | | $ | — | | | $ | 132 | | | $ | (61,003) | |
Translation adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | (324) | | | — | | | (324) | | | (324) | |
Other comprehensive income (loss) before reclassifications | | — | | | — | | | — | | | — | | | — | | | — | | | (324) | | | — | | | (324) | | | (324) | |
FSIRS amount reclassified from AOCI (1) | | — | | | — | | | — | | | 1,632 | | | (392) | | | 1,240 | | | — | | | — | | | — | | | 1,240 | |
Amortization of prior service cost (2) | | 719 | | | (172) | | | 547 | | | — | | | — | | | — | | | — | | | — | | | — | | | 547 | |
Amortization of net actuarial loss (2) | | 33,448 | | | (8,028) | | | 25,420 | | | — | | | — | | | — | | | — | | | — | | | — | | | 25,420 | |
Regulatory adjustment (3) | | (28,725) | | | 6,894 | | | (21,831) | | | — | | | — | | | — | | | — | | | — | | | — | | | (21,831) | |
Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | 5,442 | | | (1,306) | | | 4,136 | | | 1,632 | | | (392) | | | 1,240 | | | (324) | | | — | | | (324) | | | 5,052 | |
Ending Balance AOCI September 30, 2021 | | $ | (72,278) | | | $ | 17,347 | | | $ | (54,931) | | | $ | (1,087) | | | $ | 259 | | | $ | (828) | | | $ | (192) | | | $ | — | | | $ | (192) | | | $ | (55,951) | |
(1)The FSIRS reclassification amount is 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.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
The following table represents a rollforward of AOCI, presented on Southwest’s Condensed Consolidated Balance Sheets:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2020 | | $ | (77,720) | | | $ | 18,653 | | | $ | (59,067) | | | $ | (2,719) | | | $ | 651 | | | $ | (2,068) | | | $ | (61,135) | |
FSIRS amount reclassified from AOCI (5) | | — | | | — | | | — | | | 1,632 | | | (392) | | | 1,240 | | | 1,240 | |
Amortization of prior service cost (6) | | 719 | | | (172) | | | 547 | | | — | | | — | | | — | | | 547 | |
Amortization of net actuarial loss (6) | | 33,448 | | | (8,028) | | | 25,420 | | | — | | | — | | | — | | | 25,420 | |
Regulatory adjustment (7) | | (28,725) | | | 6,894 | | | (21,831) | | | — | | | — | | | — | | | (21,831) | |
Net current period other comprehensive income attributable to Southwest Gas Corporation | | 5,442 | | | (1,306) | | | 4,136 | | | 1,632 | | | (392) | | | 1,240 | | | 5,376 | |
Ending Balance AOCI September 30, 2021 | | $ | (72,278) | | | $ | 17,347 | | | $ | (54,931) | | | $ | (1,087) | | | $ | 259 | | | $ | (828) | | | $ | (55,759) | |
(5) The FSIRS reclassification amount is included in Net interest deductions on Southwest’s Condensed Consolidated Statements of 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:
| | | | | | | | | | | | | | |
(Thousands of dollars) | | September 30, 2021 | | December 31, 2020 |
Net actuarial loss | | $ | (469,335) | | | $ | (502,783) | |
Prior service cost | | (1,768) | | | (2,487) | |
Less: amount recognized in regulatory assets | | 398,825 | | | 427,550 | |
Recognized in AOCI | | $ | (72,278) | | | $ | (77,720) | |
Note
37 – Segment Information
The Company has two2 reportable segments: natural gas operations and constructionutility infrastructure services. Southwest has a single reportable segment that is referred to herein as the natural gas operations segment of the Company.
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) | September 30, 2021 | | December 31, 2020 |
Centuri accounts receivable for services provided to Southwest | $ | 15,376 | | | $ | 13,956 | |
Utility infrastructure services total assets increased significantly since December 31, 2020, primarily due to Centuri’s acquisition of Riggs Distler (see Note 8 - Business Acquisitions), as follows:
| | | | | | | | | | | |
(Thousands of dollars) | September 30, 2021 | | December 31, 2020 |
Centuri segment assets | $ | 2,671,974 | | | $ | 1,475,237 | |
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
In order to reconcile (below) to net income as disclosed in the Condensed Consolidated Statements of Income, an Other column is included associated with impacts related toof corporate and administrative activities related to Southwest Gas Holdings, Inc. The following tables present revenues from external customers, intersegment revenues,financial information pertaining to the natural gas operations and segment net incomeutility infrastructure services segments is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | Natural Gas Operations | | Utility Infrastructure Services | | Other | | Total |
Three Months Ended September 30, 2021 | | | | | | | |
Revenues from external customers | $ | 255,848 | | | $ | 606,006 | | | $ | — | | | $ | 861,854 | |
Intersegment revenues | — | | | 26,842 | | | — | | | 26,842 | |
Total | $ | 255,848 | | | $ | 632,848 | | | $ | — | | | $ | 888,696 | |
Segment net income (loss) | $ | (27,544) | | | $ | 18,540 | | | $ | (2,572) | | | $ | (11,576) | |
| | | | | | | |
Three Months Ended September 30, 2020 | | | | | | | |
Revenues from external customers | $ | 210,834 | | | $ | 548,300 | | | $ | — | | | $ | 759,134 | |
Intersegment revenues | — | | | 32,092 | | | — | | | 32,092 | |
Total | $ | 210,834 | | | $ | 580,392 | | | $ | — | | | $ | 791,226 | |
Segment net income (loss) | $ | (15,973) | | | $ | 34,873 | | | $ | (627) | | | $ | 18,273 | |
| | | | | | | |
(Thousands of dollars) | Natural Gas Operations | | Utility Infrastructure Services | | Other | | Total |
Nine Months Ended September 30, 2021 | | | | | | | |
Revenues from external customers | $ | 1,070,576 | | | $ | 1,450,719 | | | $ | — | | | $ | 2,521,295 | |
Intersegment revenues | — | | | 74,729 | | | — | | | 74,729 | |
Total | $ | 1,070,576 | | | $ | 1,525,448 | | | $ | — | | | $ | 2,596,024 | |
Segment net income (loss) | $ | 102,584 | | | $ | 32,797 | | | $ | (4,545) | | | $ | 130,836 | |
| | | | | | | |
Nine Months Ended September 30, 2020 | | | | | | | |
Revenues from external customers | $ | 976,095 | | | $ | 1,306,481 | | | $ | — | | | $ | 2,282,576 | |
Intersegment revenues | — | | | 102,217 | | | — | | | 102,217 | |
Total | $ | 976,095 | | | $ | 1,408,698 | | | $ | — | | | $ | 2,384,793 | |
Segment net income (loss) | $ | 79,568 | | | $ | 50,936 | | | $ | (1,724) | | | $ | 128,780 | |
| | | | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | Natural Gas Operations | | Utility Infrastructure Services | | Other | | Total |
Twelve Months Ended September 30, 2021 | | | | | | | |
Revenues from external customers | $ | 1,445,066 | | | $ | 1,957,667 | | | $ | — | | | $ | 3,402,733 | |
Intersegment revenues | — | | | 107,371 | | | — | | | 107,371 | |
Total | $ | 1,445,066 | | | $ | 2,065,038 | | | $ | — | | | $ | 3,510,104 | |
Segment net income (loss) | $ | 182,134 | | | $ | 56,723 | | | $ | (4,477) | | | $ | 234,380 | |
| | | | | | | |
Twelve Months Ended September 30, 2020 | | | | | | | |
Revenues from external customers | $ | 1,355,666 | | | $ | 1,738,430 | | | $ | — | | | $ | 3,094,096 | |
Intersegment revenues | — | | | 138,834 | | | — | | | 138,834 | |
Total | $ | 1,355,666 | | | $ | 1,877,264 | | | $ | — | | | $ | 3,232,930 | |
Segment net income (loss) | $ | 155,993 | | | $ | 66,615 | | | $ | (2,110) | | | $ | 220,498 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
Note 8 - Business Acquisitions
On August 27, 2021, the Company, through its subsidiaries, led principally by Centuri, completed the acquisition of a privately held regional infrastructure services business, Drum Parent, Inc. (“Drum”), for $830.4 million in cash consideration, and also assumed a long-term financing lease obligation. Drum, and its primary subsidiary Riggs Distler & Company, Inc. (“Riggs Distler”), are now wholly owned subsidiaries of the Company.
The acquisition extended the utility services operations in the northeastern region of the U.S. and provides additional opportunities for expansion of the amount of work Centuri performs for electric and gas utilities. Funding for the two reportable segments (thousandsacquisition was provided by proceeds from Centuri’s new term loan facility, as described in Note 5 – Debt.
The Company is currently performing a detailed valuation analysis of the assets and liabilities of the acquired company, which was substantially completed during the third quarter of 2021. Certain payments were estimated as of the acquisition date and will be adjusted when paid. The necessary analysis will consider acquired intangibles (including customer relationships, trademarks, and backlog). Based on preliminary results, a substantial portion of the purchase price will be allocated to goodwill and other finite-lived intangible assets.
Assets acquired and liabilities assumed in the transaction were recorded at their acquisition date fair values. Transaction costs associated with the acquisition were expensed as incurred. The Company’s allocation of the purchase price was based on an evaluation of the appropriate fair values and represented management’s best estimate based on available data (including market data, data regarding customers of the acquired businesses, terms of acquisition-related agreements, analysis of historical and projected results, and other types of data). The analysis included consideration of types of intangibles that were acquired, including those indicated above. The gross contractual receivable is $81 million, exclusive of $12 million representing specific customer accounts that were deemed uncollectible. Of the $12 million, any amounts subsequently collected prior to December 31, 2021 would pass to the sellers. Due to the estimations made, the final purchase accounting has not yet been completed. Further refinement is expected to occur, including potential changes to income taxes, fixed assets, and intangibles.
The preliminary estimated fair values of assets acquired and liabilities assumed as of August 27, 2021, are as follows (in millions 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
| | | | | | | | |
Cash and cash equivalents | | $ | 1.9 | |
Accounts receivable | | 69.1 | |
Contract assets | | 40.1 | |
Income taxes receivable, net | | 0.7 | |
Right of use assets under operating leases | | 1.5 | |
Prepaid expenses | | 5.2 | |
Property and equipment | | 118.1 | |
Intangible assets | | 335.0 | |
Goodwill | | 446.8 | |
Total assets acquired | | 1,018.4 | |
| | |
SOUTHWEST GAS HOLDINGS, INC.Trade and other payables | | Form 10-Q46.2 | |
SOUTHWEST GAS CORPORATIONFinance lease obligations | | September 30, 201727.5 | |
Contract liabilities | | 12.7 | |
Operating lease obligations | | 1.5 | |
Other liabilities | | 5.3 | |
Deferred tax liabilities | | 94.8 | |
Total liabilities assumed | | 188.0 | |
Net assets acquired | | $ | 830.4 | |
The variable-price contracts have no significant market value. The Swaps are recorded at fair value.
The fixed-price contracts and Swaps are utilized by Southwest under its volatility mitigation programs to effectively fix the price on a portion (up to 25% in the Arizona and California jurisdictions) of its natural gas supply portfolios. The maturities of the Swaps highly correlate to forecasted purchases of natural gas, during time frames ranging from 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 based on the notional amounts under the contracts, which are detailed in the table below (thousands of dekatherms):
| | | | | | | | |
| | September 30, 2017 | | | December 31, 2016 | |
Contract notional amounts | | | 10,936 | | | | 10,543 | |
| | | | | | | | |
Southwest does not utilize derivative financial instruments for speculative purposes, nor does it have trading operations.
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 (thousands of dollars):
Fair values of derivatives not designated as hedging instruments:
| | | | | | | | | | | | | | |
September 30, 2017 Instrument | | Balance Sheet Location | | Asset Derivatives | | | Liability Derivatives | | | Net Total | |
Swaps | | Prepaids and other current assets | | $ | 56 | | | $ | (22 | ) | | $ | 34 | |
Swaps | | Other current liabilities | | | 27 | | | | (1,899 | ) | | | (1,872 | ) |
Swaps | | Other deferred credits | | | 1 | | | | (768 | ) | | | (767 | ) |
| | | | | | | | | | | | | | |
Total | | | | $ | 84 | | | $ | (2,689 | ) | | $ | (2,605 | ) |
| | | | | | | | | | | | | | |
| | | | |
December 31, 2016 Instrument | | Balance Sheet Location | | Asset Derivatives | | | Liability Derivatives | | | Net Total | |
Swaps | | Deferred charges and other assets | | $ | 899 | | | $ | (54 | ) | | $ | 845 | |
Swaps | | Prepaids and other current assets | | | 3,551 | | | | (19 | ) | | | 3,532 | |
| | | | | | | | | | | | | | |
Total | | | | $ | 4,450 | | | $ | (73 | ) | | $ | 4,377 | |
| | | | | | | | | | | | | | |
20
| | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | 30 | 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 | | September 30, 20172021 |
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 assets or liabilities
The amounts allocated to major classes of intangibles are as follows:
| | | | | | | | | | | | | | |
(Thousands of dollars) | | Estimated fair Value | | Estimated Weighted Average Useful Life in Years |
Backlog | | $ | 5,000 | | | 1 |
Trade names | | 60,000 | | | 15 |
Customer relationships | | 270,000 | | | 19 |
| | $ | 335,000 | | | |
The Company incurred and expensed acquisition costs of $14 million which were included in Utility infrastructure services expenses on the Company’s Condensed Consolidated Statement of Income. Acquisition-related costs of $13.2 million and $14 million were incurred during the three and nine months ended September 30, 2021, respectively.
The preliminary allocation of the purchase price of Drum was accounted for in accordance with applicable accounting guidance. Goodwill consists of the value associated with the Swaps, which were accountedassembled workforce, consolidation of operations, and the estimated economic value attributable to future opportunities related to the transaction. As the business of Drum was deemed a stock purchase for at fair value, fell within Level 1 (quoted prices in active marketstax purposes, only pre-acquisition goodwill of $76 million that was historically tax-deductible by Riggs will continue to be deductible for identicaltax purposes by the Company.
The following unaudited pro forma financial
assets) or Level 3 (significant unobservable inputs)information reflects the consolidated results of operations of the
fair value hierarchy.With regard to the fair values of assets associated with pension and postretirement benefit plans, asset values were last updated as required as of December 2016. Refer to Note 10 – Pension and Other Post Retirement Benefits in the 2016 Annual Report to Shareholders on Form10-K.
Note 5 – Common Stock
In January 2017, the holding company reorganization was made effective and each outstanding share of Southwest Gas Corporation common stock was converted into a share of common stock in Southwest Gas Holdings, Inc., on aone-for-one basis. The ticker symbol of the stock, “SWX,” remained unchanged, and Southwest Gas Corporation became a wholly owned subsidiary of Southwest Gas Holdings, Inc.
On March 29, 2017, the Company filed with the Securities Exchange Commission (“SEC”) an automatic shelf registration statement on FormS-3 (FileNo. 333-217018), which became effective upon filing, for the offer and sale of up to $150 million of common stock from time to time inat-the-market offerings under the prospectus included therein and in accordance with the Sales Agency Agreement, dated March 29, 2017, between the Company and BNY Mellon Capital Markets, LLC (the “Equity Shelf Program”). During the three months and nine months ending September 30, 2017, the Company sold, through the continuous equity offering program with BNY Mellon Capital Markets, LLC as agent, an aggregate of 147,077 shares of the Company’s common stock in the open market at a weighted average price of $80.07 per share, resulting in proceeds to the Company of $11,659,104, net of $117,769 in agent commissions. As of September 30, 2017, the Company had up to $138,223,127 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, includingassuming the acquisition of property for the construction, completion, extension or improvement of pipeline systemshad taken place on January 1, 2020. The most significant pro forma adjustments relate to: (i) reflecting approximately $30 million in transaction costs (incurred by Centuri and facilities locatedRiggs Distler) 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 nine months ended September 30, 2017,2020, and excluding such costs from the Company issued approximately 103,000 shares of common stock through the Restricted Stock/Unit Planthree and Management Incentive Plan.
Note 6 – Long-Term Debt
Carrying amounts of long-term debt and related estimated fair values as ofnine month periods ended September 30, 20172021, and December 31, 2016 are disclosed(ii) reflecting incremental interest expense related to the new loan facility of $7 million and $27 million in the following table. Southwest’s revolving credit facility (including commercial paper)three and nine month periods, respectively, ended September 30, 2021, and approximately $9 million and $24.5 million in the variable-rate Industrial Development Revenue Bonds (“IDRBs”) approximate their carrying values,comparable periods in 2020. This information is preliminary in nature and subject to change based upon final purchase price adjustments. Amounts are in thousands of dollars, except per share amounts.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Total operating revenues | $ | 956,120 | | | $ | 907,512 | | | $ | 2,903,658 | | | $ | 2,702,062 | |
Net income (loss) attributable to Southwest Gas Holdings, Inc. | $ | (8,918) | | | $ | 12,688 | | | $ | 120,828 | | | $ | 84,049 | |
Basic earnings (loss) per share | $ | (0.15) | | | $ | 0.23 | | | $ | 2.06 | | | $ | 1.51 | |
Diluted earnings (loss) per share | $ | (0.15) | | | $ | 0.23 | | | $ | 2.06 | | | $ | 1.51 | |
Actual results from operations for Riggs Distler, excluding transaction costs and interest expense on acquisition related debt incurred by Centuri, included in the Consolidated Statements of Income since the date of acquisition are as
they are repaid quicklyfollows (in
the casethousands of
credit facility borrowings) and have interest rates that reset frequently. These are categorized as Level 1 due to Southwest’s ability to access similar debt arrangements at measurement dates with comparable terms, including variable/market rates. The fair values of Southwest’s debentures, senior notes, and fixed-rate IDRBs were determined utilizing a market-based valuation approach, where fair values are determined based on evaluated22
dollars): | | |
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). The Centuri secured revolving credit and term loan facility and Centuri other debt obligations (not actively traded) are categorized as Level 3, based on significant unobservable inputs to their fair values. Because Centuri’s debt is not publicly traded, fair values for the secured revolving credit and term loan facility and other debt obligations were based on a conventional discounted cash flow methodology and utilized current market pricing yield curves, across Centuri’s debt maturity spectrum, of other industrial bonds with an assumed credit rating comparable to the Company’s.
| | | | | | | | | | | | | | | | |
| | September 30, 2017 | | | December 31, 2016 | |
| | Carrying | | | Market | | | Carrying | | | Market | |
| | Amount | | | Value | | | Amount | | | Value | |
(Thousands of dollars) | | | | | | | | | | | | | | | | |
Southwest Gas Corporation: | | | | | | | | | | | | | | | | |
Debentures: | | | | | | | | | | | | | | | | |
Notes, 4.45%, due 2020 | | $ | 125,000 | | | $ | 130,325 | | | $ | 125,000 | | | $ | 129,703 | |
Notes, 6.1%, due 2041 | | | 125,000 | | | | 154,434 | | | | 125,000 | | | | 149,734 | |
Notes, 3.875%, due 2022 | | | 250,000 | | | | 258,943 | | | | 250,000 | | | | 254,900 | |
Notes, 4.875%, due 2043 | | | 250,000 | | | | 275,168 | | | | 250,000 | | | | 266,793 | |
Notes, 3.8%, due 2046 | | | 300,000 | | | | 292,578 | | | | 300,000 | | | | 283,029 | |
8% Series, due 2026 | | | 75,000 | | | | 97,218 | | | | 75,000 | | | | 94,691 | |
Medium-term notes, 7.59% series, due 2017 | | | — | | | | — | | | | 25,000 | | | | 25,040 | |
Medium-term notes, 7.78% series, due 2022 | | | 25,000 | | | | 29,174 | | | | 25,000 | | | | 29,290 | |
Medium-term notes, 7.92% series, due 2027 | | | 25,000 | | | | 31,964 | | | | 25,000 | | | | 31,905 | |
Medium-term notes, 6.76% series, due 2027 | | | 7,500 | | | | 8,920 | | | | 7,500 | | | | 8,769 | |
Unamortized discount and debt issuance costs | | | (9,498 | ) | | | | | | | (9,931 | ) | | | | |
| | | | | | | | | | | | | | | | |
| | | 1,173,002 | | | | | | | | 1,197,569 | | | | | |
| | | | | | | | | | | | | | | | |
Revolving credit facility and commercial paper | | | 150,000 | | | | 150,000 | | | | 5,000 | | | | 5,000 | |
| | | | | | | | | | | | | | | | |
Industrial development revenue bonds: | | | | | | | | | | | | | | | | |
Variable-rate bonds: | | | | | | | | | | | | | | | | |
Tax-exempt Series A, due 2028 | | | 50,000 | | | | 50,000 | | | | 50,000 | | | | 50,000 | |
2003 Series A, due 2038 | | | 50,000 | | | | 50,000 | | | | 50,000 | | | | 50,000 | |
2008 Series A, due 2038 | | | 50,000 | | | | 50,000 | | | | 50,000 | | | | 50,000 | |
2009 Series A, due 2039 | | | 50,000 | | | | 50,000 | | | | 50,000 | | | | 50,000 | |
Unamortized discount and debt issuance costs | | | (2,212 | ) | | | | | | | (2,489 | ) | | | | |
| | | | | | | | | | | | | | | | |
| | | 197,788 | | | | | | | | 197,511 | | | | | |
| | | | | | | | | | | | | | | | |
Less: current maturities | | | — | | | | | | | | (25,000 | ) | | | | |
| | | | | | | | | | | | | | | | |
Long-term debt, less current maturities - Southwest Gas Corporation | | $ | 1,520,790 | | | | | | | $ | 1,375,080 | | | | | |
| | | | | | | | | | | | | | | | |
Centuri: | | | | | | | | | | | | | | | | |
Centuri term loan facility | | $ | 107,250 | | | | 107,403 | | | $ | 106,700 | | | | 106,819 | |
Unamortized debt issuance costs | | | (383 | ) | | | | | | | (516 | ) | | | | |
| | | | | | | | | | | | | | | | |
| | | 106,867 | | | | | | | | 106,184 | | | | | |
Centuri secured revolving credit facility | | | 81,250 | | | | 81,402 | | | | 41,185 | | | | 41,292 | |
Centuri other debt obligations | | | 51,527 | | | | 51,978 | | | | 52,635 | | | | 52,840 | |
Less: current maturities | | | (28,453 | ) | | | | | | | (25,101 | ) | | | | |
| | | | | | | | | | | | | | | | |
Long-term debt, less current maturities - Centuri | | $ | 211,191 | | | | | | | $ | 174,903 | | | | | |
| | | | | | | | | | | | | | | | |
Consolidated Southwest Gas Holdings, Inc.: | | | | | | | | | | | | | | | | |
Southwest Gas Corporation long-term debt | | $ | 1,520,790 | | | | | | | $ | 1,400,080 | | | | | |
Centuri long-term debt | | | 239,644 | | | | | | | | 200,004 | | | | | |
Less: current maturities | | | (28,453 | ) | | | | | | | (50,101 | ) | | | | |
| | | | | | | | | | | | | | | | |
Long-term debt, less current maturities - Southwest Gas Holdings, Inc. | | $ | 1,731,981 | | | | | | | $ | 1,549,983 | | | | | |
| | | | | | | | | | | | | | | | |
23
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
In March 2017, Southwest amended its 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 designate $150 million of capacity related to the facility as long-term debt and with the total capacity now available, has designated the remaining $250 million for working capital purposes. Interest rates for the credit facility are calculated at either the London Interbank Offered Rate (“LIBOR”) or an “alternate base rate,” plus in each case an applicable margin that is determined based on the Southwest’s senior unsecured debt rating. At September 30, 2017, the applicable margin is 1% for loans bearing interest with reference to LIBOR and 0% for loans bearing interest with reference to the alternative base rate. At September 30, 2017, $150 million was outstanding on the long-term portion and $83 million was outstanding on the short-term portion of this 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 excluded under the terms of the 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 ranges from 0.75% to 1.50% for loans bearing interest with reference to LIBOR and from 0% to 0.5% for loans bearing interest with reference to the alternative base rate. The Company is also required to pay a commitment fee on the unfunded portion of the commitments based on its senior unsecured long-term debt rating. The commitment fee ranges from 0.075% to 0.200% per annum. At September 30, 2017, $27.5 million was outstanding under this facility.
As discussed inNote 6 – Long-Term Debt, Southwest has a $400 million credit facility that is scheduled to expire in March 2022, of which $250 million has been designated by management for working capital purposes. Southwest had $83 million in short-term borrowings outstanding at September 30, 2017 under this facility.
24
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Note 8 – 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 impacting the Company’s Other Comprehensive Income (Loss), both before and after tax impacts, within the Condensed Consolidated Statements of Comprehensive Income, which also impact Accumulated Other Comprehensive Income 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.
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
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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.
|
Approximately $2.1 million of realized losses (net of tax) related to the FSIRS, reported in Accumulated other comprehensive income (“AOCI”) at September 30, 2017, 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
(Thousands of dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | | FSIRS | | | Foreign Currency Items | | | | |
| | Before-Tax | | | Tax (Expense) Benefit (4) | | | After-Tax | | | Before-Tax | | | Tax (Expense) Benefit (4) | | | After-Tax | | | Before-Tax | | | Tax (Expense) Benefit | | | After-Tax | | | AOCI | |
Beginning Balance AOCI December 31, 2016 | | $ | (57,613 | ) | | $ | 21,893 | | | $ | (35,720 | ) | | $ | (15,999 | ) | | $ | 6,080 | | | $ | (9,919 | ) | | $ | (2,369 | ) | | $ | — | | | $ | (2,369 | ) | | $ | (48,008 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Translation adjustments | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,861 | | | | — | | | | 1,861 | | | | 1,861 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income before reclassifications | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,861 | | | | — | | | | 1,861 | | | | 1,861 | |
FSIRS amounts reclassified from AOCI (1) | | | — | | | | — | | | | — | | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | — | | | | — | | | | — | | | | 1,554 | |
Amortization of prior service cost (2) | | | 1,001 | | | | (380 | ) | | | 621 | | | | — | | | | — | | | | —�� | | | | — | | | | — | | | | — | | | | 621 | |
Amortization of net actuarial loss (2) | | | 19,084 | | | | (7,252 | ) | | | 11,832 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11,832 | |
Regulatory adjustment (3) | | | (17,204 | ) | | | 6,537 | | | | (10,667 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (10,667 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net current period other comprehensive income (loss) | | | 2,881 | | | | (1,095 | ) | | | 1,786 | | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | 1,861 | | | | — | | | | 1,861 | | | | 5,201 | |
Less: Translation adjustment attributable to redeemable noncontrolling interest | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11 | | | | — | | | | 11 | | | | 11 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | | 2,881 | | | | (1,095 | ) | | | 1,786 | | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | 1,850 | | | | — | | | | 1,850 | | | | 5,190 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance AOCI September 30, 2017 | | $ | (54,732 | ) | | $ | 20,798 | | | $ | (33,934 | ) | | $ | (13,492 | ) | | $ | 5,127 | | | $ | (8,365 | ) | | $ | (519 | ) | | $ | — | | | $ | (519 | ) | | $ | (42,818 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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 | | September 30, 2017 |
The following table represents a rollforward of AOCI, presented on Southwest’s Condensed Consolidated Balance Sheets:
AOCI—Rollforward
(Thousands of dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | | FSIRS | | | | |
| | Before-Tax | | | Tax (Expense) Benefit (8) | | | After-Tax | | | Before-Tax | | | Tax (Expense) Benefit (8) | | | After-Tax | | | AOCI | |
Beginning Balance AOCI December 31, 2016 | | $ | (57,613 | ) | | $ | 21,893 | | | $ | (35,720 | ) | | $ | (15,999 | ) | | $ | 6,080 | | | $ | (9,919 | ) | | $ | (45,639 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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.
|
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
| | |
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) | | December 31, 2016 | Nine Months Ended September 30, 2021 |
Assets: Utility infrastructure services revenues | | $ | 49,520 | |
Net income attributable to Southwest Gas Holdings, Inc. | | $ | 1,646 | |
| | | | | | | | |
Other property and investments
| 31 | $ | 233,774 | |
Cash and cash equivalents
| | | 9,042 | |
Accounts receivable, net of allowances
| | | 173,300 | |
Prepaids and other current assets
| | | 10,470 | |
Goodwill
| | | 129,888 | |
Other noncurrent assets
| | | 22,897 | |
| | | | |
Discontinued operations - construction services - assets
| | $ | 579,371 | |
| | | | |
Liabilities:
| | | | |
Current maturities of long-term debt
| | $ | 25,101 | |
Accounts payable
| | | 46,440 | |
Other current liabilities
| | | 74,518 | |
Long-term debt, less current maturities
| | | 174,903 | |
Deferred income taxes and other deferred credits
| | | 59,653 | |
| | | | |
Discontinued operations—construction services—liabilities
| | $ | 380,615 | |
| | | | |
29
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
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
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
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 are collectively referred to as the “Company.”
In October 2021, the Company entered into an agreement for the acquisition of Dominion Energy Questar Pipeline, LLC and related entities (“Questar Pipelines”), including an essential Rocky Mountain energy hub with 2,160-miles of highly contracted, FERC-regulated interstate natural gas pipelines providing transportation and underground storage services in Utah, Wyoming, and Colorado. The operations to be acquired would further diversify the Company’s business with an expansion of FERC-regulated interstate natural gas pipelines and underground storage services, thereby expanding transportation services into Utah, Wyoming, and Colorado. The Company plans to initially fund this acquisition with a new 364-day term loan, followed by permanent financing. The transaction is expected to be completed near year-end 2021. The acquisition remains subject to certain conditions and approvals, and we can provide no assurances that it will be completed within the anticipated timeline or at all. See Note 1 – Background, Organization, and Summary of Significant Accounting Policies for additional information.
On October 10, 2021, our Board of Directors (the “Company”“Board”) have twoauthorized and declared a dividend of one preferred stock purchase right for each share of common stock outstanding to stockholders of record at the close of business segments (natural gas operations and construction services), which are discussed below.on October 21, 2021. See
Note 4 – Common Stock. 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.
Through its subsidiaries, Southwest operates two federally regulated interstate pipelines serving portions of the foregoing northern territories of Nevada and California.
As of September 30, 2017 (on a seasonally adjusted basis),2021, Southwest had 1,999,0002,147,000 residential, commercial, industrial, and other natural gas customers, of which 1,065,0001,146,000 customers were located in Arizona, 741,000799,000 in Nevada, and 193,000202,000 in California. ResidentialOver the past twelve months, first-time meter sets were approximately 37,000, the same as for the twelve months ended September 2020. In comparison to the September 30, 2020 total of 2,112,000 customers, there was an offsetting decrease related to management’s lifting its moratorium on disconnection of service for non-payment. Southwest implemented the moratorium in March 2020 and also ceased charging late fees due to the COVID-19 pandemic. Southwest recommenced assessing late fees in Nevada and Arizona in April 2021, and expects to recommence late fees in California in the fourth quarter of 2021. The moratorium on disconnections for non-payment was lifted in September 2021 for Arizona and Nevada. The moratorium continues to be in place for California, which is expected to be lifted in the fourth quarter 2021. Residential and small commercial customers represented over 99% of thethe total customer base. During the twelve months ended September 30, 2017, 54%2021, 53% of operating margin was earned in Arizona, 35% in Nevada, and 11% in California. During this same period, Southwest earned 85% of its operating margin (gas operating revenues less the net cost of gas sold) was earned in Arizona, 35% in Nevada, and 12% in California. During this same period, Southwest earned 85% of its operating margin from residential and small commercial customers, 3%4% from other sales customers, and 12% from11% from transportation customers. TheseWhile these general patterns are expected to remain materially consistent for the foreseeable future.foreseea
ble future, the continuing 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 a
non-GAAP measure. Management uses this financial measure because natural gas operating revenues include the net cost of gas sold, which is a tracked cost that is passed through to customers without markup under purchased gas adjustment (“PGA”) mechanisms. Fluctuations in the net cost of gas sold impact revenues on a
dollar-for-dollar basis, but do not impact operating margin or operating income. Therefore, management believes operating margin provides investors and other interested parties with useful and relevant information to analyze Southwest’s financial performance in a rate-regulated environment. The principal factors affecting changes in operating margin are general rate relief (including impacts of infrastructure trackers) and customer growth.
Commission decisions on the amount and timing of such relief may impact our earnings. Refer to the Summary Operating Results table below for a reconciliation of Gross margin to
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
operating margin, and refer to Rates and Regulatory Proceedings in this Management’s Discussion and Analysis, for details of various rate proceedings.
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 markets69 primary locations across 45 states and provinces in the United States (primarily(“U.S.”) and Canada. Centuri operates in the U.S., primarily as NPL)NPL, Neuco, Linetec, and Riggs Distler, Inc. (“Riggs Distler”), and in 3 major marketsCanada, primarily as NPL Canada. In June 2021, Centuri entered into an agreement for the acquisition of Drum Parent, Inc. (“Drum”) and its U.S. operations, consisting principally of the utility infrastructure services operations of Drum’s primary subsidiary, Riggs Distler, serving utility customers in Canada (as NPL Canada (formerly Link-Line Contractors Ltd.),the Northeast and W.S. Nicholls).Construction activity is cyclical andMid-Atlantic regions. The transaction was completed in August 2021.
Information surrounding this acquisition can be significantlyfound in Note 8 - Business Acquisitions. Utility infrastructure services activity can be 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, utilities31
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
have implementedUtilities continue to implement or modified pipelinemodify system integrity management programs to enhance safety pursuant to federal and state mandates. These programs coupled with recent bonus depreciation tax deduction incentives, have resulted in a significant increase in multi-year pipelineutility system replacement projects throughout the U.S. Generally, Centuri revenues are lowest during the first quarter of the year due to less favorable winter weather conditions. Revenues typically improve as more favorable weather conditions occur during the summer and fall months. This is expected in both the U.S. and Canadian markets.In cases of severe weather, such as following a regional storm, Centuri may be engaged to perform restoration activities related to above-ground utility infrastructure. 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
While the novel coronavirus (“COVID-19”) pandemic has been ongoing since the first quarter of 2020, management has remained focused on the impacts to local and U.S. economies, including the breadth of vaccine deployment, the level of commerce/employment, as well as impacts from new virus variants on these economies. Our utility operations, as essential services, have been ongoing during this time and Southwest has continued to provide services to meet the demand of its customers. Consistent with federal and state guidelines and protocols, Southwest has continued to operate across its territories. Similarly, Centuri has continued nearly all operations from the outset of the pandemic in the U.S., and demand has not significantly diminished. For the duration of the pandemic, the ability to work may nonetheless be impacted by individuals contracting or being exposed to COVID-19, governmental requirements or restrictions in some of the Company’s jurisdictions, 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. Employees at some offices (including corporate headquarters) continue to work from home on a temporary basis; Southwest has introduced plans for employees to begin returning to the office environment at the safest, most appropriate time, which is currently anticipated in the first quarter of 2022, while Centuri employees have resumed work in the office. At the same time, management is also focused on the need for adaptability in an environment of virus variants and governmental actions related thereto. Both segments continue to facilitate administration, communication, and all critical functions, supported by deployed technology whenever employees are working remotely. To date, there has not been a significant disruption in the Company’s supply chains, transportation network, or ability to serve customers.
As noted earlier, management had a moratorium on natural gas disconnections for non-payment that was lifted in our Nevada and Arizona jurisdictions in the third quarter of 2021, with the expectation to lift the moratorium in California in the fourth quarter of 2021. Southwest continues to work with customers experiencing financial hardship through flexible payment arrangements. Management also continues to coordinate with certain governmental and nonprofit entities for customer payment assistance. Management has increased the allowance for uncollectibles; however, neither this nor other measures associated with the moratorium have had a material impact on our financial position overall. 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 at the outset of the pandemic delayed some projects, and crews were temporarily reduced; however, most work continued, while following appropriate government protocols. Some crew reductions are ongoing in specific areas; however, the associated revenue impacts have not been significant. Management continues to monitor these circumstances, the future impacts of which are not currently known, such as the impact from business curtailments, weak market conditions, or any restrictions that may limit the timing of fulfillment by Centuri of its contractual obligations.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
The extent to which COVID-19 may adversely impact the Company’s business depends on future developments, including the timing of full resumption of commerce across our service territories, the deployment of vaccines and population immunity, the state of local and North American economies, and impacts of these collective conditions on our customers, in addition to other unmitigated effects related to the virus and its variants. Management does not currently expect the impact of these conditions to be material to the Company’s liquidity or financial position overall; however, continued uncertainty of economic and operational impacts means management cannot predict whether the related financial impact in future periods will be different from impacts reflected for the three, nine, and twelve months ended September 30, 2021. In anticipation of a redeployment of employees to their normal work locations, management created a multi-phase reintegration plan to safeguard the well-being of our teams. Management will continue to monitor developments by government officials, and those affecting employees, customers, and operations, and will take additional steps as necessary to address impacts from the pandemic. Events and circumstances arising after September 30, 2021, including those resulting from 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
notes thereto included in this Quarterly Report on Form 10-Q and the
audited financial statements and notes thereto, as well as MD&A, included in the
20162020 Annual Report to
Shareholders,Stockholders, which is incorporated by reference into the
20162020 Form
10-K.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%74% oftwelve-month-to-date twelve-month-to-date consolidated net income over the past two years. As such, management’s discussion and analysis is primarily focused on that segment. Natural gas sales are seasonal, peaking during the winter months; therefore, results of operations for interim periods are not necessarily indicative of results for a full year.
Summary Operating Results
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Period Ended September 30, | |
| | Three Months | | | Nine Months | | | Twelve Months | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| | (In thousands, except per share amounts) | |
Contribution to net income | | | | | | | | | | | | | | | | | | | | | | | | |
Natural gas operations | | $ | (4,024 | ) | | $ | (12,405 | ) | | $ | 82,436 | | | $ | 67,536 | | | $ | 134,323 | | | $ | 119,836 | |
Construction services | | | 14,335 | | | | 14,877 | | | | 15,717 | | | | 19,325 | | | | 29,010 | | | | 33,144 | |
Corporate and administrative | | | (107 | ) | | | — | | | | (777 | ) | | | — | | | | (777 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 10,204 | | | $ | 2,472 | | | $ | 97,376 | | | $ | 86,861 | | | $ | 162,556 | | | $ | 152,980 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Average number of common shares outstanding | | | 47,628 | | | | 47,481 | | | | 47,577 | | | | 47,464 | | | | 47,553 | | | | 47,442 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Basic earnings per share | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | $ | 0.21 | | | $ | 0.05 | | | $ | 2.05 | | | $ | 1.83 | | | $ | 3.42 | | | $ | 3.22 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Natural Gas Operations | | | | | | | | | | | | | | | | | | | | | | | | |
Gas operating revenues | | $ | 213,059 | | | $ | 200,179 | | | $ | 935,823 | | | $ | 980,927 | | | $ | 1,276,308 | | | $ | 1,376,388 | |
Net cost of gas sold | | | 45,539 | | | | 39,056 | | | | 261,839 | | | | 324,072 | | | | 334,888 | | | | 460,836 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating margin | | $ | 167,520 | | | $ | 161,123 | | | $ | 673,984 | | | $ | 656,855 | | | $ | 941,420 | | | $ | 915,552 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
32
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Period Ended September 30, |
| | Three Months | | Nine Months | | Twelve Months |
(In thousands, except per share amounts) | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Contribution to net income | | | | | | | | | | | | |
Natural gas operations | | $ | (27,544) | | | $ | (15,973) | | | $ | 102,584 | | | $ | 79,568 | | | $ | 182,134 | | | $ | 155,993 | |
Utility infrastructure services | | 18,540 | | | 34,873 | | | 32,797 | | | 50,936 | | | 56,723 | | | 66,615 | |
Corporate and administrative | | (2,572) | | | (627) | | | (4,545) | | | (1,724) | | | (4,477) | | | (2,110) | |
Net income (loss) | | $ | (11,576) | | | $ | 18,273 | | | $ | 130,836 | | | $ | 128,780 | | | $ | 234,380 | | | $ | 220,498 | |
| | | | | | | | | | | | |
Weighted average common shares | | 59,688 | | | 56,271 | | | 58,639 | | | 55,683 | | | 58,209 | | | 55,508 | |
Basic earnings (loss) per share | | | | | | | | | | | | |
Consolidated | | $ | (0.19) | | | $ | 0.32 | | | $ | 2.23 | | | $ | 2.31 | | | $ | 4.03 | | | $ | 3.97 | |
| | | | | | | | | | | | |
Natural Gas Operations | | | | | | | | | | | | |
Reconciliation of Gross Margin to Operating Margin (Non-GAAP measure) | | | | | | | | | | | | |
Utility Gross Margin | | $ | 62,681 | | | $ | 57,188 | | | $ | 392,190 | | | $ | 354,854 | | | $ | 566,065 | | | $ | 524,010 | |
Plus: | | | | | | | | | | | | |
Operations and maintenance (excluding Admin. & General) expense | | 68,098 | | | 61,383 | | | 194,471 | | | 182,761 | | | 255,434 | | | 244,573 | |
Depreciation and amortization expense | | 61,359 | | | 55,942 | | | 187,688 | | | 173,865 | | | 249,118 | | | 230,158 | |
Operating margin | | $ | 192,138 | | | $ | 174,513 | | | $ | 774,349 | | | $ | 711,480 | | | $ | 1,070,617 | | | $ | 998,741 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | 34 | 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 | | September 30, 20172021 |
3rd Quarter 2021 Overview
Natural gas operations highlights include the following:
•37,000 first-time meters sets occurred over the past 12 months
•Operating margin increased $18 million
•Issued $300 million in 3.18% 30-year Notes
Utility infrastructure services highlights include the following:
•Utility infrastructure services revenues increased $52 million, or 9%
•Completed the acquisition of Riggs Distler for $830 million in August 2021
•$13 million of acquisition costs incurred
•Amended and restated credit agreement in connection with the Riggs Distler acquisition; $1.145 billion secured term loan facility and $400 million secured revolving credit facility
Southwest Gas Holdings highlights include the following:
•Announced planned acquisition of Questar Pipelines for $1.545 billion in cash (subject to certain adjustments) and assumption of approximately $430 million of existing long-term debt
•Authorized a preferred stock purchase right for each outstanding common share
•Amended and Restated Bylaws
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
Results of Natural Gas Operations
| | | | | | | | |
| | Three Months Ended September 30, | |
| | 2017 | | | 2016 | |
| | (Thousands of dollars) | |
Gas operating revenues | | $ | 213,059 | | | $ | 200,179 | |
Net cost of gas sold | | | 45,539 | | | | 39,056 | |
| | | | | | | | |
Operating margin | | | 167,520 | | | | 161,123 | |
Operations and maintenance expense | | | 102,215 | | | | 102,438 | |
Depreciation and amortization | | | 46,194 | | | | 56,436 | |
Taxes other than income taxes | | | 14,046 | | | | 12,480 | |
| | | | | | | | |
Operating income (loss) | | | 5,065 | | | | (10,231 | ) |
Other income (deductions) | | | 3,081 | | | | 2,521 | |
Net interest deductions | | | 17,421 | | | | 16,364 | |
| | | | | | | | |
Income (loss) before income taxes | | | (9,275 | ) | | | (24,074 | ) |
Income tax expense (benefit) | | | (5,251 | ) | | | (11,669 | ) |
| | | | | | | | |
Contribution to consolidated net income (loss) | | $ | (4,024 | ) | | $ | (12,405 | ) |
| | | | | | | | |
Quarterly Analysis
| | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
(Thousands of dollars) | | 2021 | | 2020 |
Gas operating revenues | | $ | 255,848 | | | $ | 210,834 | |
Net cost of gas sold | | 63,710 | | | 36,321 | |
Operating margin | | 192,138 | | | 174,513 | |
Operations and maintenance expense | | 119,708 | | | 101,159 | |
Depreciation and amortization | | 61,359 | | | 55,942 | |
Taxes other than income taxes | | 20,109 | | | 15,787 | |
Operating income (loss) | | (9,038) | | | 1,625 | |
Other income (deductions) | | (4,287) | | | 1,751 | |
Net interest deductions | | 24,922 | | | 26,103 | |
Loss before income taxes | | (38,247) | | | (22,727) | |
Income tax benefit | | (10,703) | | | (6,754) | |
Contribution to consolidated results | | $ | (27,544) | | | $ | (15,973) | |
Contribution from natural gas operations decreased $11.6 million between the third quarters of 2021 and 2020. The decline was primarily due to an increase in Operations and maintenance expense, higher Depreciation and amortization, and a decrease in Other income, offset by an increase in Operating margin.
Operating margin increased $6 million between quarters. Rate relief in Arizona (effective April 2017) and California provided $4 million in operating margin (seeRates and Regulatory Proceedings).$18 million. Approximately $2 million in increased operatingof incremental margin was attributable to customer growth as 32,000 net new customers were addedfrom 37,000 first-time meter sets during the last twelve months. Rate relief in Arizona, Nevada, and California added $13 million of margin. Also contributing to the increase were late fees that were $1.5 million greater in the current quarter due to lifting the moratorium on such fees in Arizona and Nevada that had been in place since March 2020. Amounts collected from and returned to customers associated with regulatory account balances, as well as differences in miscellaneous revenue and margin from customers outside the decoupling mechanisms, also impacted the variance between quarters.
Operations and maintenance expense was relatively flatincreased $18.5 million between quarters. Decreasesquarters reflecting a $5 million legal reserve (as described in employee-related benefitNote 1 – Background, Organization, and Summary of Significant Accounting Policies), a $1.7 million increase in the service-related component of employee pension costs, more than offsetand $2.2 million of incremental temporary staffing, training, and stabilization costs associated with a new customer information system implemented in May 2021. In addition, the timing of vacation, other time-off, and miscellaneous employee benefits resulted in an increase of $2.5 million when compared to the COVID-impacted third quarter of 2020. Increased expenditures for pipeline damage prevention programs, higher travel and training costs, and general cost increases were also recognized in other general costs.the current quarter.
Depreciation and amortization expense decreased $10increased $5.4 million, or 10%, between quarters, primarily duedue to reduced depreciation rates in Arizona, a result of the recent Arizona general rate case decision. Partially offsetting the decline was increased depreciation associated with a $317$574 million, or 5%7%, increase in average gas plant in service for the current quarter as compared to the corresponding quarter a year ago.year ago, including the replacement of the customer information system, which occurred in May 2021. Software/systems have shorter useful lives than pipeline assets. Amortization related to regulatory account recoveries increased approximately $1.5 million between quarters and is also reflected as an increase in Operating margin above. The increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure. Taxes other than income taxes increased
$1.6$4 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 Arizona property taxes.
Other income decreased $6 million, including a decline in income from COLI policies. The current quarter reflects no change in COLI policy cash surrender values, while the equityprior-year quarter reflected a $4.5 million increase. These fluctuations primarily result from changes in the portion of the cash surrender values that are associated with equity securities, and are directionally consistent with the broader securities markets. Amounts associated with the allowance for funds used during construction (“AFUDC”) associated with higher construction expenditures. The equity portion of AFUDC representsdecreased $1.2 million in the cost of equity funds used to finance utility construction. The equity AFUDC improvement was partially offset by a decline between quarters in income from company-owned life insurance (“COLI”) policies. The current quarter reflects $2.1 millioncompared to the prior year quarter due to an update to the assumptions related to the impact short-term borrowings have on AFUDC. Partially offsetting these combined impacts is a decrease in the non-service-related components of income associated with COLI policy cash surrender value increases, while the prior-year quarter reflected $2.3 million of COLI-related income. COLI amounts in each quarter were greater than expected.employee pension and other postretirement benefit costs between quarters.
Net interest deductions
increased $1.1decreased $1 million
between quarters, primarily due toin the
September 2016 issuancethird quarter of
$300 million of senior notes, partially offset by reductions associated with the redemption of debt ($24.9 million of 4.75% IDRBs in September 2016) and lower interest expense associated with PGA balances2021, as compared to the prior-year
quarter.34
quarter, primarily dueto a decrease in the amortization of an interest-related regulatory balance in Arizona.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
Results of Natural Gas Operations
Nine-Month Analysis
| | | | | | | | |
| | Nine Months Ended September 30, | |
| | 2017 | | | 2016 | |
| | (Thousands of dollars) | |
Gas operating revenues | | $ | 935,823 | | | $ | 980,927 | |
Net cost of gas sold | | | 261,839 | | | | 324,072 | |
| | | | | | | | |
Operating margin | | | 673,984 | | | | 656,855 | |
Operations and maintenance expense | | | 313,395 | | | | 301,979 | |
Depreciation and amortization | | | 153,643 | | | | 174,413 | |
Taxes other than income taxes | | | 43,325 | | | | 39,480 | |
| | | | | | | | |
Operating income | | | 163,621 | | | | 140,983 | |
Other income (deductions) | | | 8,744 | | | | 6,712 | |
Net interest deductions | | | 51,622 | | | | 49,155 | |
| | | | | | | | |
Income before income taxes | | | 120,743 | | | | 98,540 | |
Income tax expense | | | 38,307 | | | | 31,004 | |
| | | | | | | | |
Contribution to consolidated net income | | $ | 82,436 | | | $ | 67,536 | |
| | | | | | | | |
The contribution to consolidated net income
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
(Thousands of dollars) | | 2021 | | 2020 |
Gas operating revenues | | $ | 1,070,576 | | | $ | 976,095 | |
Net cost of gas sold | | 296,227 | | | 264,615 | |
Operating margin | | 774,349 | | | 711,480 | |
Operations and maintenance expense | | 328,980 | | | 303,567 | |
Depreciation and amortization | | 187,688 | | | 173,865 | |
Taxes other than income taxes | | 60,134 | | | 47,507 | |
Operating income | | 197,547 | | | 186,541 | |
Other income (deductions) | | (4,902) | | | (10,947) | |
Net interest deductions | | 71,263 | | | 75,152 | |
Income before income taxes | | 121,382 | | | 100,442 | |
Income tax expense | | 18,798 | | | 20,874 | |
Contribution to consolidated net income | | $ | 102,584 | | | $ | 79,568 | |
Contribution from natural gas operations to consolidated net income increased $14.9$23 million between the first nine months of 20172021 and 2016.2020. The improvementincrease was primarily due to higher operatingan improvement in Operating margin and lower depreciation expense, partiallyOther income (deductions) and a decline in Net interest deductions, offset by an increaseincreases in operationsDepreciation and maintenance expenses.Operating margin increased $17 million between the comparative nine-month periods. Rate relief in the Arizona and California jurisdictions provided $10 million in operating margin (seeRates and Regulatory Proceedings). The remaining $7 million increase was attributable to customer growth.
amortization, Operations and maintenance expense, and Taxes other than income taxes.
Operating margin increased $11.4$62.9 million, including $10 million attributable to customer growth. Rate relief contributed an additional $46 million in operating margin. Late fees also increased (approximately $725,000), as the moratorium due to COVID was lifted and charges re-commenced, as described earlier. Residual impacts include those related to regulatory mechanisms, including recovery/return of regulatory program balances (primarily offset in amortization expense), in addition to margin from customers outside the decoupling mechanisms.
Operations and maintenance expense increased $25.4 million, or 4%8%, between periods, due primarily to higher general cost increases. Approximatelyincluding a $5 million legal reserve in the third quarter of 2021 and a $5 million increase in the incremental costs recognized wereservice-related component of pension cost. Other increases include expenditures for pipeline integrity management and damage prevention programs associated with the amounta growing infrastructure and timing of employee incentive plan grants (including accelerated recognition for retirement eligible employees).customer base, and increases in customer service-related and information technology costs.
Depreciation and amortization expense decreased $20.8increased $13.8 million, or 8%, 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$557 million, or 5%7%, 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 attributableattributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.infrastructure, as well as the implementation of the customer information system in May 2021. Recoveries associated with regulatory program balances, as noted above, resulted in a $3 million increase in amortization expense compared to the first nine months of 2020.
Taxes other than income taxes increased
$3.8$12.6 million between periods primarily due to
higher property taxes associated with net plant additions and increasedan increase in property taxes in Arizona,
includingand to a lesser extent, in the
impact of the Arizona property tax tracking mechanism.California and Nevada jurisdictions.
Other income which principally includes returns on COLI policies andnon-utility expenses, increased $2(deductions) improved $6 million overall between periods. The current period reflects $6.8$5.8 million in income from the combined effects of income associated withan increase in COLI policy cash surrender value increases, whilevalues and recognized death benefits, while the prior-year period reflected $5.4$1 million ofin COLI-related income. COLI amountsThe non-service cost components of employee pension and other postretirement benefit costs were $4.5 million lower between periods. Lower equity AFUDC partially offset the improvements in each period were greater than expected.the current period.
Net interest deductions increased $2.5deductions decreased $3.9 million between periods primarily due to amortization of an interest-related regulatory balance in Arizona.
The income tax amount in both quarters includes the
September 2016 issuanceamortization of
$300 millionExcess Accumulated Deferred Income Tax (“EADIT”) balances and the impacts of
senior notes, partially offset by reductions associated with debt redemptions ($100 million of 4.85% IDRBs in July 2016 and $24.9 million of 4.75% IDRBs in September 2016) and lower interest expense associated with PGA balances as compared to the prior-year period.35
COLI cash surrender value increases, which are recognized without tax consequences.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
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 September 30, |
(Thousands of dollars) | | 2021 | | 2020 |
Gas operating revenues | | $ | 1,445,066 | | | $ | 1,355,666 | |
Net cost of gas sold | | 374,449 | | | 356,925 | |
Operating margin | | 1,070,617 | | | 998,741 | |
Operations and maintenance expense | | 431,795 | | | 406,169 | |
Depreciation and amortization | | 249,118 | | | 230,158 | |
Taxes other than income taxes | | 76,087 | | | 63,195 | |
Operating income | | 313,617 | | | 299,219 | |
Other income (deductions) | | (545) | | | (7,615) | |
Net interest deductions | | 97,259 | | | 100,115 | |
Income before income taxes | | 215,813 | | | 191,489 | |
Income tax expense | | 33,679 | | | 35,496 | |
Contribution to consolidated net income | | $ | 182,134 | | | $ | 155,993 | |
Contribution to consolidated net income from natural gas operations increased
by $14.5$26 million between the twelve-month periods
of 2017ended September 2021 and
2016.2020. The
improvementincrease was
due primarily
due to
higher operating margin and lower depreciation expense, partially offset by an increase in
operationsOperating margin and Other income, offset by increases in Operations and maintenance
expensesexpense, Depreciation and
interest expense.amortization, and Taxes other than income taxes.
Operating marginmargin increased $26 $72 million between periods including a combinedperiods. Customer growth provided $13 million, ofand combined rate relief provided $52 million of incremental operating margin. Offsetting these impacts was a reduction in late fees ($817,000) due to the pandemic-period moratorium on these fees from March 2020 through March 2021 (resuming in Arizona and California jurisdictions, as well as Paiute Pipeline Company. Customer growth provided $9 millionNevada in operatingApril 2021). Regulatory account balance return/recoveries impacted both periods, in addition to margin while operating margin associated with recoveries of regulatory assets, infrastructure replacement mechanisms,from customers outside the decoupling mechanisms, and other miscellaneous revenues improved $4 million.mechanisms.
Operations and maintenance expenseexpense increased $12.9$26 million, or 3%6%, between periods primarily due to general cost increases, partially offset by lowerhigher legal-claim related costs as noted earlier, higher levels of service-related 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($7.3 million), expenditures for retirement-eligible employees). Pipeline integrity management andpipeline damage prevention programs collectivelyassociated with a growing infrastructure and customer base, increased $500,000.customer-related and information technology costs, and higher reserves for customer accounts deemed uncollectible.
Depreciation and amortization expense decreased $15.9increased $19 million, or 8%, between periods primarilyprimarily 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$579 million, or 6%7%, increase in average gas plant in service forsince the currentcorresponding period as compared toin the prior period. Theyear and due to a $3.8 million increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.regulatory account amortization.
Taxes other than income taxes increased $4.4$12.9 million betweenbetween periods primarily duedue to higher property taxes associated primarily with net plant additions and increasedan increase in property taxes in Arizona, including the impact ofand to a property tax regulatory tracking mechanism resulting from the recent Arizona general rate case.lesser extent, in Southwest’s California and Nevada jurisdictions.
Other incomeincome increased $693,000$7.1 million between the twelve-month periods of 20172021 and 2016. The current period reflects an $8.82020, primarily due to a current-period $14 million increase in COLI policy cash surrender values while the prior-year period reflected $7.5 million of combined COLI-related income and recognized death benefits. COLI amounts in each periodbenefits, compared to the twelve months ended September 30, 2020, which reflected a $7.2 million increase. The non-service cost components of employee pension and other postretirement benefit costs were greater than expected.$3.3 million lower between periods, which was offset by lower equity AFUDC.
Net interest deductions increased $4.3decreased $2.9 million between periods primarily due to decreases in the September 2016 issuanceamortization of $300 millionan interest-related regulatory balance in Arizona.
Income tax expense in both periods reflects that COLI results are recognized without tax consequences, and also reflects the amortization of
senior notes. The increase was partially offset by reductions associated with the redemption 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
EADIT balances.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
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 September 30, |
(Thousands of dollars) | | 2021 | | 2020 |
Utility infrastructure services revenues | | $ | 632,848 | | | $ | 580,392 | |
Operating expenses: | | | | |
Utility infrastructure services expenses | | 567,270 | | | 502,951 | |
Depreciation and amortization | | 30,021 | | | 24,197 | |
Operating income | | 35,557 | | | 53,244 | |
Other income (deductions) | | 1,175 | | | 48 | |
Net interest deductions | | 6,257 | | | 2,000 | |
Income before income taxes | | 30,475 | | | 51,292 | |
Income tax expense | | 9,653 | | | 13,629 | |
Net income | | 20,822 | | | 37,663 | |
Net income attributable to noncontrolling interest | | 2,282 | | | 2,790 | |
Contribution to consolidated results attributable to Centuri | | $ | 18,540 | | | $ | 34,873 | |
Utility infrastructure services revenues increased $52.5 million in the currentthird quarter decreased by $542,000of 2021 when compared to the prior-year quarter.quarter, including $49.5 million from Riggs Distler subsequent to the August 27, 2021 acquisition date. Revenues specific to electric infrastructure services work increased $40.1 million in the third quarter of 2021 when compared to the prior-year quarter, of which $34.1 million related to Riggs Distler. Included in electric services revenues overall was $45.7 million from emergency restoration services performed by Linetec and Riggs Distler following hurricane, tornado, and other storm damage to customers’ above-ground utility infrastructure in and around the Gulf Coast and eastern regions of the U.S., compared to $48.7 million in the third quarter of the prior year in regard to Linetec. Storm restoration work typically generates a higher profit margin than core infrastructure services, due to improved operating efficiencies related to equipment utilization and absorption of fixed costs. Partially offsetting the improved revenues overall was reduced work with two significant gas infrastructure services customers during the third quarter of 2021 (totaling $17.1 million), due to timing and mix of projects under each customer’s multi-year capital spending programs.
Utility infrastructure services expenses increased $64.3 million (including $13 million of professional fees related to the acquisition of Riggs Distler) in the third quarter of 2021, compared to the prior-year quarter, and also included $42.4 million in expenses (including storm-related) recorded by Riggs Distler subsequent to the acquisition, as well as other incremental costs related to electric infrastructure services (inclusive of storm-related work) and costs necessary for the completion of additional gas infrastructure work. Higher fuel costs and equipment rental expense were also incurred due to the mix of work and in support of growth in our electric infrastructure business. Included in total Utility infrastructure services expenses were general and administrative costs, which increased approximately $18 million between comparative periods, including $13 million of professional fees previously noted, $3 million of other administrative costs incurred by Riggs Distler subsequent to the acquisition, and other costs resulting from general growth in the business. The decrease isreduction in revenues with two large customers, as noted earlier, resulted in an unfavorable impact on profit margins during the third quarter of 2021, due to reduced operating efficiencies from equipment and facility utilization and under-absorption of other fixed costs.
Other income increased $1.1 million between quarters attributable to proceeds from life insurance policies of $1.7 million, partially offset by $700,000 of unamortized loan fees that were expensed in connection with Centuri’s debt refinancing.
Depreciation and amortization expense increased $5.8 million between quarters, of which $4.7 million was recorded by Riggs Distler subsequent to the acquisition. The remaining increase was attributable to equipment and computer systems purchased to support the growing volume of infrastructure work.
The increase in Net interest deductions of $4.3 million was primarily due to higher construction costs relativeincremental interest related to increased revenues, resulting from apre-tax loss on a project described below, partially offset by a declineoutstanding borrowings under Centuri’s $1.545 billion amended and restated secured revolving credit and term loan facility in depreciation and amortization.Revenues increased $40.3conjunction with the acquisition of Riggs Distler.
Income tax expense decreased $4 million or 12%, between quarters, primarily due to anreduced profitability in 2021. Certain costs related to the Riggs Distler acquisition were non-deductible for U.S. federal income tax purposes, impacting the recorded Income tax expense during the third quarter of 2021.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
Results of Utility Infrastructure Services
Nine-Month Analysis
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
(Thousands of dollars) | | 2021 | | 2020 |
Utility infrastructure services revenues | | $ | 1,525,448 | | | $ | 1,408,698 | |
Operating expenses: | | | | |
Utility infrastructure services expenses | | 1,381,524 | | | 1,252,489 | |
Depreciation and amortization | | 79,982 | | | 71,144 | |
Operating income | | 63,942 | | | 85,065 | |
Other income (deductions) | | 927 | | | (107) | |
Net interest deductions | | 9,511 | | | 7,138 | |
Income before income taxes | | 55,358 | | | 77,820 | |
Income tax expense | | 17,372 | | | 21,715 | |
Net income | | 37,986 | | | 56,105 | |
Net income attributable to noncontrolling interest | | 5,189 | | | 5,169 | |
Contribution to consolidated net income attributable to Centuri | | $ | 32,797 | | | $ | 50,936 | |
Utility infrastructure services revenues increased $116.8 million in the first nine months of 2021 when compared to the same period in the prior year primarily due to incremental electric infrastructure revenues of $64.1 million. Included in the incremental electric infrastructure revenues during the first nine months of 2021 was $57.9 million from emergency restoration services performed by Linetec and Riggs Distler following hurricane, tornado, and other storm damage to customers’ above-ground utility infrastructure in and around the Gulf Coast and eastern regions of the U.S., compared to $55.9 million in the first nine months of the prior year in regard to Linetec. The remaining increase in pipe replacementrevenues was attributable to increased work under existing master service agreements and bid projects for gas infrastructure services in the central and eastern U.S. regions and Canada, partially offset by reduced work with existing customers. Atwo significant portioncustomers ($61.1 million) during the first nine months of 2021, due to the timing and mix of projects under each customer’s multi-year capital spending programs.
Utility infrastructure services expenses increased $129 million (including $14 million of acquisition costs) in the first nine months of 2021 as compared to the same period in 2020, primarily due to costs to complete additional electric and gas infrastructure work. Operating efficiencies during the first nine months of 2021 from favorable weather conditions were offset by higher fuel, equipment rental, payroll, and subcontractor costs caused by changes in the mix of work and continued growth in our electric infrastructure business. The significant reduction in revenues with two large customers noted above, resulted in an unfavorable impact on profit margins during the first nine months of 2021, due to reduced operating efficiencies from equipment and facility utilization and under-absorption of other fixed costs. Centuri recognized $2.5 million in wage and rent subsidies from the Canadian government amidst the COVID-19 environment during 2021, compared to $4.1 million in the prior nine-month period, in each case, recorded as a reduction in Utility infrastructure services expense. Included in total Utility infrastructure services expenses were general and administrative costs, which increased $21.9 million in 2021 compared to 2020, associated with growth of the
increase relatesbusiness (including $14 million of professional fees related to
bid jobs that are expectedthe acquisition of Riggs Distler and $3 million of administrative costs incurred by Riggs Distler subsequent 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.acquisition). Gains on sale of equipment (reflected as an offset to constructionUtility infrastructure services expenses) were approximately $25,000$5.4 million and $1.4 million for$600,000 in the third quarters of 2017nine-month periods in 2021 and 2016,2020, respectively.
Depreciation and amortization decreased $1.1expense increased approximately $8.8 million between quarters, primarily dueperiods, of which $4.7 million was recorded by Riggs Distler subsequent to a $2 million reduction associated with the extension of the estimated useful lives of certain depreciableacquisition. The remaining increase was attributable to equipment during the past 12 months, partially offset by an increase in depreciation for additional equipmentand computer systems purchased to support the growing volume of work being performed.37
infrastructure work. The increase in Net interest deductions of $2.4 million was due to incremental interest from outstanding borrowings under Centuri’s $1.545 billion amended and restated secured revolving credit and term loan facility discussed earlier, partially offset by lower interest from lower borrowings in 2021 compared to 2020 on Centuri’s facility prior to the 2021 refinancing.
Income tax expense in 2021 was impacted by the combined effects of reduced profitability and certain non-deductible costs related to the Riggs Distler acquisition in 2021.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
Results of
ConstructionUtility Infrastructure Services
Nine-Month
Twelve-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
| | | | | | | | | | | | | | |
| | Twelve Months Ended September 30, |
(Thousands of dollars) | | 2021 | | 2020 |
Utility infrastructure services revenues | | $ | 2,065,038 | | | $ | 1,877,264 | |
Operating expenses: | | | | |
Utility infrastructure services expenses | | 1,858,464 | | | 1,671,478 | |
Depreciation and amortization | | 105,570 | | | 94,837 | |
Operating income | | 101,004 | | | 110,949 | |
Other income (deductions) | | 827 | | | (210) | |
Net interest deductions | | 11,642 | | 10,710 | |
Income before income taxes | | 90,189 | | | 100,029 | |
Income tax expense | | 26,785 | | 28,057 | |
Net income | | 63,404 | | | 71,972 | |
Net income attributable to noncontrolling interest | | 6,681 | | 5,357 | |
Contribution to consolidated net income attributable to Centuri | | $ | 56,723 | | | $ | 66,615 | |
Utility infrastructure services revenues increased $187.8 million, or 10%, in the current twelve-month period compared to consolidated net incomethe corresponding period of 2020, primarily due to incremental electric infrastructure revenues of $129.5 million from constructionexpansion of work with existing customers and securing work with new customers. Included in the incremental electric infrastructure revenues during the twelve-month period of 2021 was $83.5 million from emergency restoration services performed by Linetec and Riggs Distler following hurricane, tornado, and other storm damage to customers’ above-ground utility infrastructure in and around the Gulf Coast and eastern regions of the U.S., compared to $55.9 million in the twelve-month period of the prior year. Centuri’s revenues derived from storm-related services vary from period to period due to the unpredictable nature of weather-related events. The remaining increase in revenue was attributable to continued growth with existing gas infrastructure customers under master service and bid agreements.
Utility infrastructure services expenses increased $187 million (including $14 million of acquisition costs) between periods, largely due to incremental costs related to electric infrastructure work, including costs associated with storm restoration work overall and other costs incurred by Riggs Distler following its acquisition in August 2021, as well as costs necessary for the
first nine monthscompletion of
2017 declined by $3.6additional gas infrastructure work. Storm restoration work typically generates a higher profit margin than core infrastructure services, due to improved operating efficiencies related to equipment utilization and absorption of fixed costs. Also included in Utility infrastructure services expenses were general and administrative costs, which increased $30.5 million
during the twelve-month period in 2021 when compared to
the prior-year period. The decrease is primarily2020, due to
higher construction$14 million in professional fees incurred related to Centuri’s acquisition of Riggs Distler, $3 million of costs
relative to increased revenues, partially offsetincurred by
a decline in depreciation and amortization.Revenues increased $34.5 million, or 4%, in the first nine months of 2017 when comparedRiggs Distler subsequent to the prior-year period primarily due to increased pipe replacement work. Partially offsetting increases in revenues was a temporary work stoppage by a significant customer that began in the first quarter of 2017acquisition, higher payroll and operating costs associated with continued through partgrowth of the second quarter of 2017 resulting in a $26.3 million reduction in revenues, compared to the prior-year period,business, and a $3.7 millionpre-tax loss in the current nine-month period. The temporary work stoppage was initiated due to state-mandated requalification of employees of all contractors working within the jurisdictional boundary of one state. Operations resumed gradually following the requalification ofhigher profit-based incentive compensation. Offsetting these increases were lower insurance costs from favorable claims experience under Centuri’s employees during the second quarter of 2017. Additionally, inclement weather in several operating areas negatively impacted revenues and reduced productivity in 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 length 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.self-insurance programs. Gains on sale of equipment (reflected as an offset to constructionUtility infrastructure services expenses) were approximately $1.5$6.6 million and $4.1$2.9 million for the first nine months of 2017twelve-month periods in 2021 and 2016,2020, respectively.
Depreciation and amortization decreased $7.9expense increased $10.7 million between periods,the current and prior-year twelve-month periods. The increase was primarily dueattributable to an $8.2incremental costs related to electric infrastructure depreciation of $6.3 million, reduction in depreciation associated with the extension of the estimated useful lives of certain depreciableincluding $4.7 million from Riggs Distler. The remaining increase is attributable to equipment during the past 12 months, partially offset by an increase in depreciation for additional equipment purchasedand computer systems implemented to support the growing volume of work being performed.38
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Results
The increase in Net interest deductions of Construction ServicesTwelve-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$932,000 w
as primarily due to consolidated net income from construction services forincremental interest related to outstanding borrowings under Centuri’s $1.545 billion amended and restated secured revolving credit and term loan facility that was entered into during August 2021 in conjunction with the twelve-month period ended September 30, 2017 decreased $4.1 millionacquisition of Riggs Distler. This increase was partially offset by lower interest associated with reduced borrowings in 2021, compared to the same period of 2016. The decrease is primarily due to higher construction costs relative to increased revenues, resulting inpre-tax losses on certain projects, partially offset by a decline in depreciation and amortization.Revenues increased $45.6 million, or 4%, in the current twelve-month period compared2020, under Centuri’s credit facility existing prior to the same period of 2016 primarily due to additional pipe replacement work for existing natural gas distribution customers. During the past several years, Centuri has focused its efforts on obtaining replacement work under both blanket contracts and incremental bid projects. For both twelve-month periods ended September 30, 2017 and 2016, revenues from replacement work provided over 60% of total revenues.
Construction expenses increased $63.9 million, or 6%, between periods, due to additional pipe replacement work, higher labor costs experienced due to changes in the mix of work with existing customers, and higher operating expenses to support increased growth in operations. The logistics surrounding the timing and length of a temporary work stoppage with a significant customer during the first six months of 2017 and higher labor costs incurred to complete work during inclement weather conditions in the first quarter of 2017 resulted in costs disproportionate to revenues. Results were negatively impacted by higherstart-up and construction costs for a water pipe replacement project, for which Centuri has requested increased cost recovery. No additional work orders will be accepted on the project pending resolution of Centuri’s request. Gains on sale of equipment (reflected as an offset to construction expenses) were $4.5 million and $4.2 million for the twelve-month periods ended September 30, 2017 and 2016, respectively.
Depreciation and amortization decreased $10.6 million between the current and prior-year periods primarily due to an $11.1 million reduction associated with the extension of the estimated useful lives of certain depreciable equipment over the last twelve months, partially offset by an increase in depreciation for additional equipment purchased to support the growing volume of work being performed.
39
2021 refinancing.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
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 changes (including the cost of natural gas purchased), 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. In May 2019, Southwest filed a general rate case application withrequesting to increase revenue by approximately $57 million to update the Arizona Corporation Commission (“ACC”) in May 2016 requesting an increase in authorized annual operating revenuescost of approximately $32 million, or 4.2%,service to reflect existing levelsrecent U.S. tax reform changes, incorporating the return of expenseexcess deferred income taxes to customers, and requested returns, in addition to reflectingreflect capital investments, made by Southwest since June 2010.including certain post-test year additions and the southern Arizona liquefied natural gas (“LNG”) facility. The application requested an overall rate of return of 7.82% on an original cost rate base of $1.336 billion,included a 10.25%proposed 10.3% return on common equity and(“ROE”) relative to a capital structure utilizing 52% commonof 51.1% equity. The filing included a depreciation study that supported a proposalSouthwest later updated its request multiple times, in order to reduce currently effective depreciation expense by approximately $42 million, which was considered inreflect the overall requested amount. This expense reduction coupledactual amortization of EADIT resulting from U.S. tax reform and to include additional post-test year plant associated with the requested revenue increase, resulted in a net annual operating income increase request of $74 million. A settlement was reached among several parties in December 2016 and a formal draft settlement was filed in January 2017. Hearings were held in February 2017, and the ACC approved the settlement agreement in April 2017. The settlement provides for an overall operating revenue increase of $16 million and the capital structure and cost of capital as proposed by Southwest, with the exception of the return on common equity, which was set at 9.50%. Depreciation expense is expected to be reduced by $44.7 million, for a combined net annual operating income increase of $60.7 million. Other key elements of the settlement include approval of the continuation and expansion of the current Customer-Ownedits Customer-owned Yard Line (“COYL”) program (addingand Vintage Steel Pipe (“VSP”) programs, and to reflect certain other aspects of cost of service, including a revised proposed ROE of 10.15%. The request and amendments included the ability to seek out COYLs through a targeted approach and mobilization of work crews for replacement), implementationretention of a vintage steelfully decoupled rate design, other previously approved regulatory mechanisms, and a new infrastructure tracking mechanism for specific plastic pipe, replacementin addition to a proposal for a renewable natural gas (“RNG”) program as part of its PGA mechanism. Southwest entered into a stipulation for certain aspects of the case, including continuing the COYL program; establishing a Tax Expense Adjustor Mechanism to track annual changes in the amortization of EADIT, as well as any future changes in the federal tax rate; including a 10-year amortization of EADIT associated with deemed “unprotected” plant; addressing other aspects regarding EADIT; incorporating various tariff proposals; and incorporating other ratemaking adjustments. 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. Following the hearing and the legal briefing process, the updated proposal reflected a request to increase rates by $80.7 million.
A final decision was issued in December 2020, with new rates becoming effective in January 2021, resulting in an overall annual revenue increase of $36.8 million, and the continuation of both full revenue decoupling and the COYL program. The overall increase reflects the inclusion of six months (as compared to eleven months previously contemplated) of post-test year plant additions. An ROE of 9.1% was approved with a capital structure comprised of 48.9% long-term debt and 51.1% common equity. See additional discussion related to the LNG facility, in addition to the COYL and VSP programs below. The 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 returntracker was supported in the next generalfinal decision, as was the Tax Expense Adjustor Mechanism (noted above). While the RNG proposal was not approved as part of the decision, the ACC conducted a workshop in May 2021 to further explore the role of RNG in Arizona.
Delivery Charge Adjustment. The Delivery Charge Adjustment (“DCA”) is filed each April, which along with other reporting requirements, contemplates a rate case. New rates were effectiveto recover the over- or under-collected margin tracker (decoupling mechanism) amounts based on the balance at the end of the preceding calendar year. In April 2017. The settlement also includes a three-year rate case moratorium prohibiting a new application2020, Southwest filed to adjust basethe existing rate to consider, instead, the modest balance existing at the end of February 2020. Ultimately, the ACC elected to set the rate to zero in an effort to provide some measure of customer relief in light of 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). For 2021, once again, the balance at the end of the preceding calendar year was a modest positive balance, but in an over-collected status by the time rates from being filed priorwould be requested to May 2019.be re-set. Therefore, the zero rate will be maintained until the next annual filing date.
LNG (“Liquefied Natural Gas”) Facility. In January 2014, Southwest filed an application with thesought 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, and to be operated by Southwest and connected directly to itsSouthwest’s distribution system. InSouthwest was ultimately granted approval for construction and deferral of costs. The facility was placed in service in December 2014, Southwest received an order from2019. The capital costs and the ACC grantingpre-approvaloperating expenses associated with plant operation were considered and
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
approved as part of Southwest’s
application to constructrecently approved general rate case. Approximately $12 million in costs, incurred following the
LNG facility and the deferralin-service date of
costs, up to $50 million. Following the December 2014 preapproval, Southwest purchased the site for the facility and
completed detailed engineering design specifications forafter the
purpose of soliciting bids for the engineering, procurement and construction (“EPC”)period considered as part of the
facility. Southwest solicited requests for proposals for the EPC phase of the project, andrecently concluded general rate case, were deferred in
October 2016 made a filing with the ACC to modify the previously
issued Order to updateauthorized regulatory asset and will be included for consideration in the
pre-approved costs to reflect anot-to-exceed amount of $80 million, which was approved by the ACC in December 2016. Through September 2017, Southwest has incurred approximately $21.7 million in capital expenditures toward the project (including land acquisition costs). Construction commenced during the third quarter of 2017 and is expected to be completed by the end of 2019. next Arizona general rate case application.
COYL Program. Southwest originally 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 the cost of maintaining these lines and were subject to the immediate cessation of natural gas service iflow-pressure leaks occurred. Effective June 2013,In 2014, 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. The surcharge is revised annually as the program progresses. In 2014, Southwest received approval to add aapproved “Phase II” component toof the COYL program, to includewhich included the replacement ofnon-leaking COYLs. In the most recent annual COYL filing made in February 2017, Southwest requestedAnnual surcharges are designed to establish an annual surcharge to collect $1.8 million related to the revenue requirement associated with $12.1the program. In a February 2019 filing, Southwest requested to increase its surcharge to recover a revenue requirement of $6.7 million (an increase of $3.2 million) associated with $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 in place, while it reviewed the program as part of the general rate case. As indicated earlier, parties to the rate case stipulated to continue the COYL program and Phase II during 2016.recommended recovery of certain plant as part of a post-test year plant adjustment, with inclusion of related amounts in base rates. The ACC final rate case decision limited post-test year plant to six months (inclusive of COYL plant), and limited future COYL activity to the replacement of leaking COYLs, or in cases when other replacement activity is taking place in the vicinity. A filing in May 2021 proposed the recovery of the remaining 2019 and 2020 revenue requirement associated with prior COYL program activity. The filing proposed the associated revenue requirement (approximately $13.7 million) be recovered over one year. In June 2017,November 2021, the ACC issued a decision approvingapproved full recovery over the surcharge application. All capital work completed in earlier years was incorporated in Southwest’s Arizona rate base in connectionproposed one-year timeline, with the recently completed generalassociated rate case proceeding, as discussed above.40
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Vintage Steel Pipe Program. Southwest received approval, in connection withexpected to be implemented during that same month.
VSP Program. As part of a settlement agreement from its most recent2016 Arizona general rate case, Southwest received approval to implement a vintage steel pipe (“VSP”)VSP replacement program. Southwest currently has approximately 6,000 milesAs part ofpre-1970s vintage steel pipe in Arizona. the program, Southwest proposed to startbegin replacing the pipe on an accelerated basis and to recover the costs through an annual surcharge filing that will be made in February of each year. The surcharge isfiling. Once implemented, surcharges to collect the annual revenue requirement associated with the capital expenditures were designed to be revised annually asunder the program. In February 2019, Southwest requested to increase its surcharge revenue by $9.5 million (to $11.9 million) associated with the replacement of approximately $100 million in 2018 VSP capital projects. The ACC’s October 2019 Order authorizing Southwest to retain the existing annual surcharge indicated the program progresses. A Planwould be subject to review as part of Administration (“POA”), which was filed in March of 2017 and was approved in conjunction with the general rate case, outlinedcase. As noted above, 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
Attrition Filing. In November 2016, Southwest made its latest annual post-test year (“PTY”) attrition filing with the California Public Utilities Commission (“CPUC”), requesting annual revenue increases of $2.1 milliondecision in southern California, $513,000 in northern California, and $256,000 for South Lake Tahoe. This filing was approved in December 2016 and rates were made effective in January 2017. At the same time, rates were updated to recover the regulatory asset associated with the revenue decoupling mechanism, or margin tracker.
California General Rate Case. In December 2016, Southwest filed to modify the most recent general rate case provided for a post-test year plant adjustment period of six months (including for VSP). However, the ACC ultimately decided to discontinue the accelerated VSP program at this time. A filing in May 2021 proposed the recovery of the otherwise unrecovered revenue requirement (associated with years 2019 through 2022), related to VSP plant investment during 2019 and 2020, which was not included as part of the recently concluded rate case. The filing proposed the associated revenue requirement (approximately $60 million) be recovered over a three-year period. In November 2021, the ACC approved full recovery over the proposed three-year timeline, electing to permit the recovery rate to be implemented in March 2022.
Customer Data Modernization Initiative. Southwest embarked on an initiative to replace its customer information system and gas transaction systems, each to be utilized to support all Southwest service territories. Combined, these undertakings were referred to as the Customer Data Modernization Initiative (the “CDMI”). In March 2019, Southwest filed an application with the ACC seeking an accounting order to track and defer all costs associated with the CDMI to mitigate adverse financial implications associated with this multi-year initiative. The ACC issued a decision in this matter in early April 2021 denying Southwest’s request for a regulatory asset, indicating that the requested recovery mechanism was not warranted, and that Southwest could, instead, seek to recover the costs as part of a future rate case. The total CDMI costs were estimated at approximately $174 million, of which $96 million would be allocable to the Arizona rate jurisdiction. The customer information system was placed in service in May 2021.
Graham County Utilities. In April 2021, Southwest and Graham County Utilities, Inc. (“GCU”) filed a joint application with the ACC for approval to transfer assets of GCU to Southwest and extend Southwest’s Certificate of Public Convenience and Necessity to serve the associated customers. Approval of the application would provide for transfer of the natural gas system of GCU to Southwest for the purchase price of $3.5 million and the addition of more than 5,000 customers. A decision is expected in the fourth quarter of 2021.
California Jurisdiction
California General Rate Case. In August 2019, Southwest filed a general rate case based on a 2021 test year, seeking authority to increase rates in its California rate jurisdictions, after being granted earlier permission to extend the current rate case cycle by two years and continue its 2.75% previously approved Post-Test Year (“PTY”) attrition adjustments for 2019 and 2020. 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. The overall revenue request also included $1.6 million of EADIT proposed to be returned to customers
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
each year until the amount is reset again later 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 extensiona 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 annual PTY attrition adjustmentsschool COYL replacement program.
Southwest reached an agreement in principle with the Public Advocate’s Office, which was unanimously approved by the CPUC on March 25, 2021, including 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 was associated with a North Lake Tahoe project that would not ultimately be completed by the beginning of 2021; consequently, the parties agreed to provide for recovery of the cost of service impacts of the project through 2020 from 2018. That latesta future surcharge. The rate case decision would have requiredmaintains Southwest’s existing 2.75% annual attrition adjustments, the continuation of the pension balancing account, and a proposed increase in the residential basic service charge from $5.00 to $5.75 per month. It also includes cumulative expenditures totaling $119 million over the five-year rate cycle to implement risk-informed proposals, consisting of the school COYL replacement, meter protection, and pipe replacement programs. Although new rates were originally anticipated to be in place by January 1, 2021, in light of an administrative delay, Southwest was granted authority to file its nextestablish a general rate application by September 2017. Expedited consideration was requested and in June 2017,case memorandum account to track the CPUC approvedimpacts related to the request, thereby extending the rate case filing deadline. Southwest believes this extension isdelay in the public interest as it provides rate stability to customersimplementation of new rates for two additional years consistent withpurposes of later recovery. New rates were ultimately implemented April 1, 2021.
Attrition Filing. Following the current reasonable2021 implementation of new rates approved as part of the lastrecently concluded general rate case, Southwest is also authorized to implement annual PTY attrition increases of 2.75% starting in 2022.
Greenhouse Gas (“GHG”) Compliance. California Assembly Bill Number 32 and regulations promulgated by the California Air Resources Board, require Southwest, as a covered entity, to comply with applicable requirements associated with California GHG emissions reporting and the California Cap and Trade Program. The CPUC issued a decision in 2018 adopting an allocation methodology to distribute the net revenues or costs. 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, which has continued in the current year. GHG compliance costs recovered through rates have no impact on earnings.
Renewable Natural Gas. In February 2019, Southwest filed an application that, among other things, sought to formally allow renewable natural gas (or biomethane) as an includible component of Southwest’s gas supply portfolio through the Biomethane Gas Program (“BGP”). This proposal was 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. In April 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 total for the 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 the two-way balancing account. Effective October 2019, the CPUC granted Southwest’s memorandum account request, which allowed 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 was transferred to the two-way balancing account in July 2020. A rate to begin recovering the balance accumulated through June 30, 2020 was established and made effective September 1, 2020, updated in January 2021, and updated further in August 2021. This rate is expected to be updated at least annually. As noted earlier, the customer information system, the largest of the two systems associated with the CDMI, was placed in service in May 2021.
Emergency Relief Program Related to COVID-19. In March 2020, in light of the COVID-19 pandemic, Southwest requested to establish a memorandum account to track costs as part of customer protections under Emergency Relief regulations implemented in California 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 requested to establish a COVID-19 Pandemic Protections Memorandum Account (“CPPMA”) to record incremental costs and lost revenues incurred by Southwest associated with its implementation of the protections outlined in the CPUC resolution. The protections were retroactively applied to March 4, 2020, the date Governor Gavin Newsom declared a state of emergency
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
related to COVID-19. The CPPMA was originally effective March 4, 2020 through April 16, 2021, but was extended through September 30, 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 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 June 2021, Southwest filed a Notice of Intent to file a general rate case, and on August 31, 2021 filed its most recent general rate case, which proposes a combined revenue increase of approximately $30.5 million. This request also proposes a return on common equity of 9.90% with a target equity ratio of 51%; a request to recover approximately $6.6 million in previously deferred late payment charges related to a regulatory asset associated with COVID-19 (as noted below); and a continuation of full-revenue decoupling with the currentGeneral Revenues Adjustment (“GRA”) mechanism. The filing utilizes a May 31, 2021 test year with certification of certain adjustments through November 30, 2021. A decision is expected in the first quarter of 2022 with new rates effective April 2022.
Southwest’s previous general rate case application was filed with the PUCN in February 2020, which requested a statewide overall general rate increase of approximately $38.3 million. The request sought an ROE of 10% relative to a proposed capital structure of 50% equity and continuation of the GRA mechanism. The PUCN issued its final order in September 2020, which provided for an authorized combined revenue requirementincrease of approximately $23 million for northern and southern Nevada and continuation of the previously authorized 9.25% ROE, with a capital structure of 49.26% equity and 50.74% debt. Southwest’s GRA was authorized to continue without modification. Full cost recovery of the unamortized balance of excluded software projects from the previous general rate case was authorized in this case, along with the inclusion of return are notall proposed Gas Infrastructure Replacement (“GIR”) and Mesquite Expansion projects in needrate base, as well as full recovery of adjustment (withtest year and certification operations and maintenance expenses associated with the CDMI. Rates became effective in October 2020.
In association with an earlier Nevada rate case decision in December 2018, management requested reconsideration of several issues in the case; however, the PUCN ultimately granted no further relief. 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 filed an appeal with the Nevada Supreme Court, which remains active; the resolution will likely take up to 24 months from the date of the appeal.
General Revenues Adjustment. As noted above, the continuation of the currently approved 2.75% PTY attrition adjustment forGRA was affirmed as part of Southwest’s previous general rate case, effective October 2020, and a request to continue the two additional years).Nevada Jurisdiction
General Revenues Adjustment.In June 2016,GRA is included in the most recently filed general rate case request. Southwest requested authorization from the Public Utilities Commission of Nevadamakes Annual Rate Adjustment (“PUCN”ARA”) filings to adjustupdate rates to recover or return amounts associated with various regulatory mechanisms, including the GRA. In May 2020, Southwest made its revenue decoupling mechanism (General Revenues Adjustment, or “GRA”).most recent ARA filing, which proposed an annualized margin decrease of $5.3 million in southern Nevada and an increase of $1.6 million in northern Nevada. The ARA filing was resolved through a settlement of the parties, in which the proposed changes associated with the GRA were approved, effective January 2021. With timing changes approved in December 2016,the most recent ARA, the next ARA filing will be made in November 2021 with a test year ended September 30, 2021. New rates related to that filing will be 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.July 1, 2022. While there is no impact to net income overall from this rate adjustment,adjustments to recovery rates associated with the related regulatory balances, operating cash flows are impacted by such changes.
COYL Program. In August 2021, Southwest filed a joint petition with the Regulatory Operations Staff of the PUCN proposing a Nevada COYL replacement program to include residential COYLs, public schools, and any other COYLs that are identified to be a safety concern. The proposal contemplates capital investments of $5 million per year for five years, with $2 million allocated to northern Nevada and $3 million allocated to southern Nevada, and the establishment of a regulatory asset to track the capital- related costs. After five years, the program will be reduced asreassessed to determine if it should be continued. Southwest anticipates a decision by the regulatory liability balance is refunded.end of the year.
RNG. In January 2021, Southwest filed an application seeking approval to purchase RNG for incorporation into its gas supply portfolio pursuant to Senate Bill 154 (2019). Southwest sought authority to purchase up to 3% of 2035 forecasted demands in an effort to reach the established legislative goals of 1% or more by 2025, 2% or more by 2030 and 3% or more by 2035. In October 2021, the PUCN issued an order authorizing Southwest to purchase up to 1.99% of annual forecasted demand each year between 2021 and year end 2029.
Infrastructure Replacement Mechanisms.Mechanism.In January 2014, the PUCN approved final rules for athe GIR mechanism, to deferwhich provided for the deferral and recoverrecovery of certain costs associated with accelerated replacement of qualifying infrastructure that doeswould not otherwise currently provide incremental revenues.revenues between general rate cases. Associated with suchthe replacement of various types of pipe infrastructure under the mechanism each year,(Early Vintage Plastic Pipe, COYL, and VSP), the related regulations provide Southwest fileswith the opportunity to file a Gas Infrastructure Replacement (“GIR”) Advance Application requesting authorityGIR “Advance Application” annually to replaceseek preapproval of qualifying infrastructurereplacement projects.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
In cases where preapproval of projects is requested and
filesgranted, a GIR rate application is separately
as part of an annual GIR filingfiled 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. InOn September
2016,30, 2021, Southwest filed
its latest rate application to
adjustreset the
GIRrecovery surcharge to
recover the annual revenue requirement for amounts previously deferred. This filing was approved in December 2016 and new rates became effective January 2017. In June 2016, Southwest filed an Advance Application for projects expected to be completed during 2017, proposing approximately $60 million of accelerated pipe replacement to include
early vintage plastic, early vintage steel, and a COYL program.cumulative deferrals through August 31, 2021. 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 Nevadaupdated surcharge 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 beresult in an annual revenue decrease of approximately $1.4 million in southern Nevada and an annual revenue increase of $66,000 in northern Nevada. A decision is expected in the fourth quarter 2021 with new rates anticipated January 1, 2022.
Conservation and Energy Efficiency. The PUCN allows deferral (and later recovery) of approved conservation and energy efficiency costs, recovery rates for which are adjusted in December 2017association with rates becomingARA filings. In its May 2020 ARA filing, Southwest proposed annualized margin decreases of $313,000 and $55,000 for southern and northern Nevada, respectively, which were approved and became effective in January 2018.2021. In May 2017,2021, Southwest filed its proposed Conservation and Energy Efficiency plan for the years 2022 – 2024, with a GIR Advance Application withproposed annual budget amount of approximately $3 million. In October 2021, the PUCN for projects totaling approximately $66 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 asapproved the continuation of the previously approved COYLSouthwest’s currently authorized commercial incentives program, in northern Nevada. Southwest entered into a settlement agreementresidential incentives program and energy education with the intervening partiesan annual budget of approximately $1.4 million.
Expansion 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 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 GIREconomic Development Legislation.
In January 2016, final 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 waswere approved by the PUCN in January 2017; however, in order to continue the GIR program in 2018 (for projects recommended for completion under the program after 2018), a general rate case will need to be filed before June 2018.Conservation and Energy Efficiency (“CEE”). In June 2015, Southwest requested recovery of energy efficiency and conservation development and implementation costs, including promotions and incentives for various programs, as originally approved for deferral by the PUCN effective November 2009. While recovery of initial program costs was approved as part of the most recent general rate case, amounts incurred subsequent to May 2012 (the certification period) continued to be deferred. Approved rates for thepost-May 2012 costs deferred (including previously expected program expenditures for 2016) became effective January 2016 and resulted in annualized margin increases of $2 million in northern Nevada and $8.5 million in southern Nevada. Then, as part of the ARA filing approved in December 2016, Southwest modified rates, effective January 2017, expected to result in annualized margin decreases of $1.4 million in 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.
Expansion and Economic Development Legislation.In February 2015,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 for the expansion, including 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 proposesis $2.8 million. A volumetric rate, applicable to all southern Nevada customers (including new customers in Mesquite), was implemented in October 2019 to recover the cost. Southwest’s May 2020 ARA filing, which proposed an annualized margin increase of $185,000, reflects the cumulative deferred revenue requirement associated with the Mesquite facilities that were placed in service through April 30, 2020. During 2020, Southwest continued serving certain customers in Mesquite from an approved “virtual” pipeline network, providing temporary natural gas supply using portions of the approved distribution system and compressed natural gas. Construction of the tap site, approach main, as well as distribution mains was completed and facilities were placed in service in December 2020. A distribution loop, included in the initial estimated cost, is expected to be in service later this year.
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 facilities to Mesquite at anthe distribution system from the interior backbone system. The total capital investment was estimated
cost of approximately $30 million. The cost is proposed to be
recovered through a volumetric surcharge on all southern Nevada customers.$61.9 million. 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 decision on thisstipulation was reached with the parties and approved by the PUCN in December 2019, largely accepting Southwest’s proposal
is expected within the required210-day time period for filings of this type.Federal Energy Regulatory Commission (“FERC”) Jurisdiction
2018 Expansion. In response to growing demandwith modifications in the Carson City and South Lake Tahoe areas of northern California andrate recovery allocations amongst northern Nevada, Paiute Pipeline Company (“Paiute”) evaluated shipper interestElko, and Spring Creek expansion customers. Construction of the initial phase of the expansion began in acquiring additional transportation capacity and executed precedent agreements for incremental transportation capacity with Southwest during the third quarter of 2016. In October 2016, Paiute initiated apre-filing review process with2020, and service commenced to the FERC for anfirst Spring Creek customers in December 2020. The expansion project, which was approved duringoverall, as part of the same month. In July 2017, a certificate application was filed, which included an applicant environmental assessment. The projectearlier estimate, is anticipated to consistbe completed in 2026.
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 the multi-year project. Approximately $59 million of 8.5 miles of additional transmission pipeline infrastructure at an approximatethe estimated $174 million cost of $18 million. If the process progresses as planned,CDMI would be allocable to the Nevada rate jurisdictions. A hearing was held in August 2019 and the PUCN issued a decision shouldin September 2019, denying Southwest’s request for regulatory asset treatment, finding a general rate case to be received by April 2018the most appropriate avenue to address such costs. In response to the PUCN’s decision, Southwest filed a Petition for Reconsideration in October 2019, which was denied. As part of its 2020 general rate case filing, Southwest was authorized to include CDMI operations and maintenance costs since the beginning of the associated test year as part of its revenue requirement in the case. The customer information system portion of the CDMI was placed in service in May 2021 and the related capital costs, as well as ongoing operations and maintenance expenses, are included in Southwest’s recent general rate case request.
Regulatory Asset Related to COVID-19. The PUCN issued an order directing utilities within the state to establish regulatory asset accounts, effective March 12, 2020, the date that Governor Steve Sisolak declared a state of emergency related to COVID-19, 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. These costs, totaling approximately $6.6 million, are included in Southwest’s recent general rate case request and have a proposed two-year recovery period.
Proposed Carbon Offset Program. In June 2021, Southwest filed an application to seek approval to offer a voluntary program to northern and southern Nevada customers to purchase carbon offsets in an effort to provide customers additional facilities could be in place by the end of 2018.42
options to
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
reduce their respective GHG emissions. A request to establish a regulatory asset to track program-related costs and revenues was included as part of the application. A decision is expected in the first quarter of 2022.
FERC Jurisdiction
General Rate Case. Great Basin Gas Transmission Company (“Great Basin”), formerly Paiute Pipeline Company, a wholly owned subsidiary of Southwest, filed a general rate case with the FERC in May 2019. The filing fulfilled an obligation from the settlement agreement reached in an earlier general rate case. In January 2020, an agreement in principle was reached with the FERC Staff and intervenors to settle the case, the results of which would not significantly impact revenues overall. The agreement required the three largest transportation customers and all storage customers to have primary terms remaining of at least five years under their agreements, provided for the continuance of term-differentiated rates generally, and included a 9.90% pre-tax rate of return. Interim rates were made effective February 2020, and in August 2020 a FERC letter order approving the settlement became final. As part of the settlement, it was agreed that a future rate case would not be filed prior to January 1, 2022, but would be filed no later than May 31, 2025.
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 Balances are recovered from or refunded to customers on an ongoing basis with interest. As of September 30, 2017,2021, under-collections in Arizona and Northern Nevadaeach of Southwest’s service territories resulted in an asset of approximately $6.2$240.8 million and over-collections in Southern Nevada and California resulted in a liability of $15 million on the Company’s and Southwest’s condensed consolidatedCondensed Consolidated Balance Sheets. The significant change in the PGA balance sheets.was primarily due to incremental natural gas costs associated with an extreme weather event in the central U.S. in mid-February 2021. See also Deferred Purchased Gas cost rates paid to suppliers have been higher than amounts recovered from customers during the first nine monthsCosts in Note 1 – Background, Organization, and Summary of 2017, resultingSignificant Accounting Policies in fluctuations since December 31, 2016. Tariff rates have been adjusted in all jurisdictions during this period. quarterly report on Form 10-Q.
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
profitoperating 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) | | September 30, 2021 | | December 31, 2020 | | September 30, 2020 |
Arizona | | $ | 191,907 | | | $ | (3,901) | | | $ | (14,674) | |
Northern Nevada | | 4,924 | | | (8,601) | | | (12,724) | |
Southern Nevada | | 38,964 | | | (42,134) | | | (45,506) | |
California | | 5,032 | | | 2,053 | | | (3,338) | |
| | $ | 240,827 | | | $ | (52,583) | | | $ | (76,242) | |
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,
certainSouthwest has undertaken significant pipe replacement
has been accelerated to take advantage of bonus depreciation tax incentives andactivities to fortify system integrity and reliability,
notablyincluding on an accelerated basis in association with
newcertain gas infrastructure replacement
programs as discussed above. During this same time, benefits were derivedprograms. This 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 strongpreserve investment-grade credit ratings, which should minimize interest costs.
Southwest Gas Holdings, Inc.:
Operating Cash Flows.Cash flows provided byfrom consolidated operating activities decreased $179$436 million in the first nine months of 20172021 as compared to the same period of 2016.2020. The decline in operating cash flows was primarily attributableresulted from amounts under purchased gas adjustment mechanisms, including amounts resulting from the temporary escalation in gas commodity prices during the first quarter of 2021 associated with the extreme cold temperatures in the central U.S. (see Note 1 – Background, Organization, and Summary of Significant Accounting Policies). Other impacts include a decrease ($45 million) in recoveries related to the changeArizona decoupling mechanism balance between nine-month periods, and the impact of changes in deferred purchased gas costs noted above. Refer toResultscomponents of Natural Gas Operations andRates and Regulatory Proceedings.working capital overall.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
Investing Cash Flows.Cash used in consolidated investing activities increased $35$696 million in the first nine months of 20172021 as compared to the same period of 2016.2020. The change was primarily due to increased constructionCenturi’s acquisition of Riggs Distler (see Note 8 - Business Acquisitions). The overall increase was offset by a decrease in capital expenditures in the natural gas operations segment, including scheduled and accelerated replacement activity. The prior period included an outflow of $17 million to facilitate a construction services acquisition.segment.
Financing Cash Flows.Net cash provided by consolidated financing activities increased $195 million$1.3 billion in the first nine months of 20172021 as compared to the same period of 2016.2020. The increasechange was primarily due to Centuri, in association with the acquisition of Riggs Distler, entering into an amended and restated credit agreement. The agreement provided for a $1.145 billion secured term loan facility and a $400 million secured revolving credit facility, which in addition to activityfunding the Riggs Distler acquisition, refinanced the previous $590 million loan facility. Approximately $1.26 billion was outstanding under the creditcombined facility and commercial paper program (an increase in borrowings inas of September 30, 2021. Additionally, 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$120 million during 2017more in common 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 increasedequity shelf programs in the first nine months of 2017 as2021 compared to the same period of 2016 as a result of an increaseissuances in the quarterly dividend rateprior year, and an increase inalso increased its dividend.
During the number of shares outstanding.Thenine months ended September 30, 2021, the Company also issued approximately 103,000 additional130,000 shares of common stock collectively through the Restricted Stock/UnitDividend Reinvestment and Stock Purchase Plan, and the Management Incentive Plan.
Southwest Gas Corporation:
Operating Cash Flows.Cash flows provided by operating activities decreased $172raising approximately $8.5 million in the first nine months of 2017 as compared to the same period of 2016. The decline in operating cash flows was primarily attributable to the change in deferred purchased gas costs as discussed above. Refer toResults of Natural Gas Operations andRates and Regulatory Proceedings
.Investing Cash Flows.Cash used in investing activities increased $68 million in the first nine months of 2017 as compared to the same period of 2016. The change was primarily due to additional construction expenditures, as indicated above.
Financing Cash Flows.Net cash provided by financing activities increased $211 million in the first nine months of 2017 as compared to the same period of 2016. The increase was primarily due to activity under the credit facility and commercial paper program (an increase in borrowings in the current-year nine-month period and the repayment of borrowings in the prior-year nine-month period). The prior period included proceeds from the issuance of $300 million in senior notes as discussed above. The current period included capital contributions from Southwest Gas Holdings, Inc.
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 issuances or other external financing sources. See
Note 4 – Common Stock. Southwest Gas Corporation:
Operating Cash Flows. Cash flows from operating activities decreased $382 million in the first nine months of 2021 as compared to the same period of 2020. The decline in operating cash flows was primarily attributable to the impacts related to deferred purchased gas costs and the Arizona decoupling mechanism noted above, and other working capital changes.
Investing Cash Flows. Cash used in investing activities decreased $110 million in the first nine months of 2021 as compared to the same period of 2020. The change was primarily due to a decrease in capital expenditures in 2021 as compared the same period in the prior year. See also Gas Segment Construction Expenditures and Financing below. Financing Cash Flows. Net cash provided by financing activities increased $372 million in the first nine months of 2021 as compared to the same period of 2020. The increase was primarily due to Southwest’s $250 million Term Loan issued in the first quarter of 2021 to fund the increased cost of natural gas supply during the extreme cold weather event. Additionally, Southwest issued $300 million in notes during the current period, compared to $450 million in notes issued in the prior period, and also redeemed $125 million in notes in September 2020 that were otherwise due in December 2020. Borrowings and repayments between periods under Southwest’s credit facility, as well as and increase in dividends paid, comprised the remainder of the change. See Note 5 – Debt.
Gas Segment Construction Expenditures and Financing
During the twelve-month period ended September 30,
2017,2021, construction expenditures for the natural gas operations segment were
$515$582 million. The majority of these expenditures represented costs associated with
scheduled and acceleratedthe replacement of existing transmission, distribution, and general
plant. Cash flows from operating activities of Southwest were $337 million during this time and provided approximately 57% of construction expenditures and dividend requirements.Southwestplant (including costs to implement our customer information system).
Management estimates natural gas segment construction expenditures during the three-year period ending December 31, 20192023 will be between $1.6 billion and $1.8approximately $2.1 billion. Of this amount, approximately $570$650 million to $675 million is expectedscheduled to be incurred in 2017.2021. Southwest plans to continue as appropriate, to request regulatory support to undertake projects, or to accelerate projects that improveas necessary, for the improvement of system flexibility and reliability, (including replacement of early vintage plastic and steel pipe). This includes the recent approvalor 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).expand, where relevant, to unserved or underserved areas. Southwest may expand existing, or initiate new, programs. If efforts continue to be successful, significantSignificant replacement activities are expected to continue well beyond the next few years. See alsoRates and Regulatory Proceedings for discussion of Nevada infrastructure, Arizona COYL, and an LNG facility.. 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 of Southwest and total construction expenditures and dividend requirements. Any additional cash requirements, including construction-related, and paydown or refinancing of debt, 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 and amounts of surcharge collections from, or amounts returned to, customers related to other regulatory mechanisms and programs, as well as growth levels in Southwest’s service areas and earnings. External financings couldmay include the issuance of debt securities, bank and other short-term borrowings, and other forms of financing.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
As noted earlier, in August 2021, Southwest issued $300 million aggregate principal amount of 3.18% Senior Notes at a discount of 0.019%. The notes will mature in August 2051. Southwest used the net proceeds from the offering to repay the outstanding balance under its credit facility, with the remaining net proceeds used for general corporate purposes.
In March 2017,April 2021, the Company filed with the Securities Exchange Commission (“SEC”) an automatic shelf registration statement for the offer and sale of up to $150 million of common stock from time to time inat-the-market offerings under the prospectus included therein and in accordance with theentered into a Sales Agency Agreement dated March 29, 2017, between the Company and BNY Mellon Capital Markets, LLC and J.P. Morgan Securities LLC (the “Equity Shelf Program”). Sales for the offer and sale of up to $500 million of common stock from time to time in at-the-market offerings under the shares will44
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
continue to be made at market prices prevailing atrelated prospectus supplement filed with the timeSecurities and Exchange Commission (the “SEC”) the same month. The Company issued $88 million
under this multi-year program during the third quarter of sale.2021. Net proceeds from the salesales of shares of common stock under the Equity Shelf Program are intended for general corporate purposes, including the acquisition of property for the construction, completion, extension, or improvement of pipeline systems and facilities located in and around the communities served by Southwest, serves.as well as for repayment or repurchase of indebtedness (including amounts outstanding from time to time under the credit facilities, senior notes, Term Loan or future credit facilities), and to provide for working capital.
In May 2019, the Company filed an earlier automatic shelf registration statement with the SEC for the offer and sale of up to $300 million of common stock from time to time in at-the-market offerings under the related prospectus and sales agency agreement. The Company issued the remaining capacity ($46 million) of this equity program during the quarter ended March 31, 2021.
During the ninetwelve months ended September 30, 2017, 147,0772021, 3,699,445 shares were issued inat-the-market offerings at an average price of $80.07$67.86 per share with gross proceeds of $11.8$251 million, agent commissions of $118,000,$2.5 million, and net proceeds of $11.7 million.$248.5 million under the equity shelf programs noted above. SeeNote 54 – Common Stock for more information.
In
December 2015,2017, with the
Protecting Americans from Tax Hikes Actenactment of
2015 (“PATH Act”) was enacted extendingU.S. tax reform, the
50% bonus depreciation
tax deduction
percentage changed from 50% to 100% for
qualified property acquired or constructed“qualified property” placed in service after September 27, 2017 and
placedin-service during 2015 (and additional years as noted below) as well as other tax deductions, credits, and incentives.before 2023. The bonus depreciation tax deduction
will be phasedphases out
over five years. The PATH Act providesstarting in 2023, by 20% for
a 50% bonus depreciation tax deduction in 2015 through 2017, 40% in 2018, 30% in 2019, and no deduction after 2019. Based on forecasted qualifying construction expenditures, Southwest estimates the bonus depreciation provisioneach of the
PATH Actfive following years. Qualified property excludes most public utility property. The Company estimates bonus depreciation will defer the payment of approximately
$29$20 million of federal income taxes for
2017, resulting in a minimal amount2021, none of
federal income tax being paid.which relates to natural gas operations.
Dividends are payable on the Company’s common stock at the discretion of the Board of Directors (“Board”).Board. In setting the dividend rate, the Board currently targets a payout ratio of 55% to 65% of consolidated earnings per share and considers, among other factors, current and expected future earnings levels, our ongoing capital expenditure plans, and expected external funding needs, our payout ratio, and our ability to maintain strong credit ratings and liquidity. The Company has paid dividends on its common stock since 1956 and has increased that dividend each year since 2007.2007. In February 2017,2021, the Board elected to increase the quarterly dividend from $0.45$0.57 to $0.495$0.595 per share, representing a 10%4.4% increase, effective with the June 20172021 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
the 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,segment, the ability to access and obtain capital from external sources, interest rates, changes in income tax laws, pension funding requirements, inflation, and the level of earnings. Natural gas prices and related gas cost recovery rates,
as well as plant investment, have historically had the most significant impact on liquidity.
On an interim basis, Southwest defers over- or under-collections of gas costs to PGA balancing accounts. In addition, Southwest uses this mechanism to either refund amounts over-collected or recoup amounts under-collected as compared to the price paid for natural gas during the period since the last PGA rate change went into effect. At September 30, 2017,2021, the combined balance in the PGA accounts totaled an over-collectionunder-collection of $8.7$241 million. SeeSee PGA Filingsfor more information. In March 2017, 2021, Southwest issued a $250 million Term Loan that will mature in March 22, 2022, or 364 days after issuance. The proceeds were used to fund the increased cost of natural gas supply during the month of February 2021 caused by extreme weather conditions in the central U.S.
Southwest Gas Holdings, Inc. entered intohas a credit facility with a borrowing capacity of $100$100 million that expires in March 2022. The Company intends to utilize thisApril 2025. This facility is intended for short-term financing needs. At September 30, 2017, $27.52021, $22 million was outstanding onunder this facility.In March 2017,
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
Southwest Gas Corporation amended itshas a credit facility, increasing thewith a borrowing capacity from $300 million toof $400 million, and extended the term of the facility from March 2021 to March 2022.which expires in April 2025. Southwest continues to designatedesignates $150 million of the facility for long-term borrowing needs and the remaining $250 million for working capital purposes. The maximum amount outstanding on the long-term portion of the credit facility (including a commercial paper program, as noted below)program) during the first nine months of 20172021 was $150 million. At September 30, 2017, $150 million wasThe maximum amount outstanding on the long-term and $83short-term portion of the credit facility during the first nine months of 2021 was $125 million was. As of September 30, 2021, no borrowings were outstanding on the short-term portion of this credit facility. The credit facility can be used as necessary to meet liquidityliquidity requirements, including temporarily financing under-collected PGA balances, if any, or meeting the refund needs of over-collected balances. ThisThe credit facility has been45
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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 2021 will be designated as long-term debt. Interest rates for the commercial paper program are calculated at the current commercial paper rate during the borrowing term. At September 30,
2017,2021, there were no borrowings
were outstanding under this program.
In August 2021, in association with the acquisition of Riggs Distler (refer to Note 8 - Business Acquisitions), Centuri has a $300 million secured revolvingentered into an amended and restated credit agreement (refer to Note 5 – Debt). The line of credit portion comprises $400 million; associated amounts borrowed and term loan facility that is scheduledrepaid are available to expire in October 2019.be re-borrowed. The term loan facility portion had provided approximately $1.145 billion. The term loan initial limitfacility expires on August 27, 2028 and the revolving credit facility expires on August 27, 2026. The obligations under the credit agreement are secured by present and future ownership interests in substantially all direct and indirect subsidiaries of approximately $150 million, which was reached in 2014 and; $107 million was outstanding (after repayments)Centuri, substantially all of the tangible and intangible personal property of each borrower, and certain of their direct and indirect subsidiaries, and all products, profits, and proceeds of the foregoing. Centuri assets securing the facility at September 30, 2017. The secured revolving credit facility portion also has a limit of $150 million; amounts borrowed and repaid under this portion of the facility are available to bere-borrowed.2021 totaled $2.6 billion. The maximum amount outstanding on the creditcombined facility during the first nine months of 20172021 was $104 million. At$1.3 billion. As of September 30, 2017, $81.32021, $112 million was outstanding on the secured revolving credit facility, in addition to $1.145 billion that was outstanding on the term loan portion of the facility. Also at September 30, 2017,2021, there was approximately $52$235 million, net ofof letters of credit, available for borrowing under the line of credit.The following table sets forth the ratios of earnings to fixed charges
Interest rates for the Company. Duecredit facilities of the holding company, Southwest, and Centuri, and for Southwest’s Term Loan contain LIBOR-based rates. Upon the occurrence of certain events providing for a transition away from LIBOR, or when LIBOR is no longer a widely recognized benchmark rate, the holding company and Southwest each may amend their respective credit facility as set forth in their credit facility agreement, which is also the case of Southwest’s Term Loan, in order to accommodate a replacement benchmark as set forth in the agreements. Certain LIBOR-based rates are scheduled to be discontinued as a benchmark or reference rate after 2021, while other LIBOR-based rates are scheduled to be discontinued after June 2023. In order to mitigate the impact of a discontinuance on the Company’s and Southwest’s financial condition and results of operations, management will monitor developments and work with lenders, where relevant, 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 seasonal natureimpact 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.
The Company has a Sales Agency Agreement with BNY Mellon Capital Markets, LLC and J.P. Morgan Securities LLC for the Company’s business, these ratios are computed onoffer and sale of up to $500 million of common stock from time to time in at-the-market offerings, which is an additional source of liquidity. The Company had approximately $341.8 million available under the program as of September 30, 2021.
On October 5, 2021, the Company and Dominion Energy Questar Corporation, 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 definedwholly owned subsidiary of Dominion Energy, Inc., entered into a Purchase and Sale Agreement pursuant to which the Company would acquire the equity interests in Questar Pipelines. Pursuant to the Purchase and Sale Agreement, the purchase price is $1.545 billion in cash and the assumption of approximately $430 million in existing long-term debt. The Company has entered into an agreement for a new 364-day term loan that will provide the necessary consideration. If the acquisition closes as planned by the sumend of pretax income plus fixed charges. Fixed charges consist of all interest expense including capitalized interest,one-third of rent expense (that approximates2021, the interest component of such expense), and net amortized debt costs.
Company expects this will be followed by permanent financing. See
Note 5 – Debt. 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
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
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,
our intent and ability to complete planned acquisitions and at amounts originally set out, impacts from the COVID-19 pandemic, including on our employees, customers, or otherwise, our financial position, revenue, earnings, cash flows, debt covenants, operations, regulatory recovery, work deployment or resumption and related uncertainties stemming from this pandemic or otherwise, expected impacts of valuation adjustments associated with any redeemable noncontrolling interest, the profitability of storm work, mix of work, or absorption of fixed costs by larger infrastructure services customers including Southwest, the impacts of U.S. tax reform including disposition in any regulatory proceeding 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
or recovery of costs from gas infrastructure replacement
and COYL programs and surcharges, funding sources of cash requirements, amounts generally expected to be reflected in
2017 or future period revenues from regulatory rate proceedings including amounts
resultingrequested or settled from
recent and ongoing general rate cases or other regulatory proceedings, the
settled Arizona generaloutcome of judicial review of the previous Nevada rate case, rates and surcharges, PGA
administration and recovery, 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,existing at-the-market equity 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
other rate changes or regulatory proceedings, contract or construction change order negotiations, impacts of accounting standard updates,
infrastructure replacement mechanisms and the COYL program, statements regarding future gas prices, gas purchase contracts and
derivative financial instruments,pipeline imbalance charges or claims related thereto, recoverability of regulatory assets, the impact of certain legal proceedings
or claims, and the timing and results of future rate hearings,
including any ongoing or future general rate cases and
other proceedings, and the final resolution for recovery of the CDMI-related amounts and balances in any jurisdiction, and statements regarding pending 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 continued or sustained restriction 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 or virus variants or efficacy of vaccines, the ability to collect on customer accounts due to the suspension or lifted moratorium on late fees or service disconnection in any or all jurisdictions, the ability to obtain regulatory recovery of all costs and financial impacts resulting from this pandemic, the ability of the infrastructure services business to resume or continue 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 or its variants following the ongoing resumption of commerce in our territories, and decisions of Centuri customers (including Southwest) as to whether to pursue capital projects due to economic impacts resulting from the pandemic or otherwise, the ability to recover and timing thereof related to costs throughassociated with the PGA mechanisms or other regulatory assets or programs, the effects of regulation/deregulation, governmental or regulatory policy regarding pipeline safety, greenhouse gas emissions, natural gas or alternative energy, the regulatory support for ongoing infrastructure programs or expansions, 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 credit rating actions and 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, levels of or changes in operations and maintenance expenses, effects of pension or other postretirement benefit expense forecasts or plan modifications, accounting changes and regulatory treatment related thereto, currently unresolved and future liability claims and disputes, 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, projections about acquired business’ earnings or those planned (including accretion within the first twelve months) and future acquisition-related costs, impacts of changes in value of any 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 and impacts from work awarded or failing to be awarded from significant customers (collectively, including from Southwest), the mix of work awarded, the amount of work awarded to Centuri following the lifting of work stoppages or
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
reduction, the recent work stoppage,result of productivity inefficiencies from regulatory requirements or otherwise, delays in commissioning individual projects, acquisitions and management’s plans related thereto, the ability of management to successfully finance, close, and assimilate acquired businesses, the impact on our stock price or our credit ratings due to undertaking or failing to undertake acquisition activity or other strategic endeavors, the impact on our stock price, costs, or businesses from the stock rights program, actions or disruptions of significant shareholders, 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 or plans relating to its financing and operating expenses will continue, proceed as planned, 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, 2016.2020, as updated in association with the Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and in this quarterly report on Form 10-Q.
All forward-looking statements in this quarterly report are made as of the date hereof, based on information available to the Company and Southwest as of the date hereof, and the Company assumesand Southwest assume 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 20162020 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.
In August 2021, the Company, through its utility infrastructure services subsidiaries, completed the acquisition of Drum Parent, Inc. (“Drum”) and its U.S. operations consisting principally of the utility infrastructure services operations of Drum’s primary subsidiary, Riggs Distler & Company, Inc. (“Riggs Distler”), a privately held infrastructure services business. Existing assets of the acquired business represents 2% of consolidated total assets and 2% of consolidated revenues for the period ended September 30, 2021 and is not significant to the Company’s consolidated financial statements. As permitted by SEC guidance for newly acquired businesses, the Company’s management elected to exclude Riggs Distler from its evaluation of disclosure controls and procedures and management’s report on changes in internal control over financial reporting from the date of the acquisition through September 30, 2021. The Company’s management is in the process of reviewing the operations of Riggs Distler and implementing the Company’s internal control structure over the acquired operations. This review will be completed in 2022.
Based on the most recent evaluation, as of September 30,
2017,2021, management of Southwest Gas Holdings, Inc.
, including the Chief Executive Officer and
Chief Financial Officer, believe the Company’s disclosure controls and procedures are effective at attaining the level of reasonable assurance noted above.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 controls over financial reporting (as defined in Rules13a-15(f) and15d-15(f) of the Exchange Act) during the third quarter of 2017 that have materially affected, or are likely to materially affect, the Company’s internal controls over financial reporting.
Based on the most recent evaluation, as of September 30, 2017, management of Southwest Gas Corporation, including the Chief Executive Officer and Chief Financial Officer, believebelieves the Company’s and Southwest’s disclosure controls and procedures are effective at attaining the level of reasonable assurance noted above.
There have been no changes in
the Company’s or Southwest’s internal
controlscontrol over financial reporting (as defined in Rules
13a-15(f) and
15d-15(f) of the Exchange Act) during the third quarter of
20172021 that have materially affected, or are likely to materially affect
Southwest’sthe Company’s internal
controlscontrol over financial reporting.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
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. See Contingency withinNote 1 – Background, Organization, and Summary of Significant Accounting Policies for potential future liability claims. ITEM 1A. Described below are risk factors that we have identified that may have a negative impact on our future financial performance or affect whether we achieve the goals or expectations expressed or implied in any forward-looking statements contained herein. These risk factors supplement, and do not replace, the Risk Factors and other disclosures made in our Annual Report on Form 10-K filed February 25, 2021 or Quarterly Report on Form 10-Q for the quarter ended June 30, 2021.
Financial, Economic, and Market Risks
There may be unexpected delays in the completion of the acquisition of Questar Pipelines, or it may not be completed at all.
As mentioned above in Note 1 to Part I Item 1, in October 2021 the Company entered into an agreement to purchase Dominion Energy Questar Pipeline, LLC and related entities (“Questar Pipelines”), a FERC-regulated interstate natural gas pipeline group that provides transportation and underground storage services in Utah, Wyoming, and Colorado. The acquisition is currently expected to close near year-end 2021, conditioned on the satisfaction or waiver (where legally permissible) of conditions in the Purchase and Sale Agreement (“Agreement”). The Agreement provides that either the Company or Questar Pipelines may terminate the Agreement if the acquisition has not occurred before December 31, 2021, subject to an extension if certain conditions have not been met, subsequently extending the termination date through June 30, 2022. Certain events may delay the completion of the acquisition or result in a termination of the Agreement. Some of these events are outside the control of either party. In particular, we are obligated to obtain various other third-party consents and approvals, and we can provide no assurances that such clearances, consents, or approvals will be obtained on terms acceptable to us, or at all. We may incur significant additional costs in connection with any delay in completing the acquisition or termination of the Agreement, in addition to significant transaction costs, including legal, financial advisory, accounting, and other costs beyond that which we have already incurred. We cannot provide assurance that the conditions to the completion of the acquisition will be satisfied or waived or that any adverse change, effect, event, circumstance, occurrence, or statement of facts that could give rise to the termination of the Agreement will not occur, and we cannot provide any assurances as to whether or when the acquisition will be completed on the terms set forth in the Agreement or at all.
Failure to complete the acquisition of Questar Pipelines in a timely manner or at all could negatively affect our stock price. Completion of the acquisition could negatively impact our credit ratings.
We can provide no assurance that an acquisition will occur or that the conditions to it will be satisfied or waived in a timely manner, or at all. Also, we can provide no assurance that an event, change, or other circumstance that could give rise to the termination of an Agreement will not occur. Delays in completing an acquisition or the failure to complete one at all could negatively impact the market price of our common stock and it could decline significantly, particularly to the extent that the current market price reflects a market assumption that an acquisition will be completed. If an acquisition is delayed for any reason, we will be subject to several risks, including the diversion of management focus and resources from operational matters and other strategic opportunities while working to complete the acquisition. In addition, certain credit ratings agencies have indicated that an acquisition could have a negative impact on our current credit ratings. We can provide no assurances as to the final determination as to any downgrade in our (or Southwest’s) ratings and what impact such a downgrade would have on our businesses.
Our business could be negatively affected as a result of actions of activist shareholders.
In October 2021, certain funds affiliated with Carl Icahn initiated a tender offer for shares of our common stock and threatened a proxy contest with respect to the election of directors at our 2022 Annual Meeting of Stockholders. Responding to actions such as these and other actions by activist shareholders can be costly and time-consuming, disrupt our operations, and divert the attention of management and our employees. Perceived uncertainties among current and potential customers, employees, and other parties as to our future direction may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners. These actions could also cause our stock price to experience periods of volatility.
ITEMS 1A through 3. None. | | | | | | | | |
| 53 | |
ITEM 4. | MINE SAFETY DISCLOSURESNot applicable. | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
Following the completion of the acquisition of Questar Pipelines, we may be unable to successfully integrate Questar Pipelines into our business and realize the anticipated benefits of the acquisition.
We may not be able to achieve the anticipated benefits of the acquisition of Questar Pipelines. We may not be able to integrate Questar Pipeline’s business without increases in costs or other difficulties. We and Questar are expecting to enter into a transition services agreement for a period of time following closing of the transaction. Upon the expiration of the anticipated transition services agreement, we may not be able to hire or retain sufficient staff to operate the Questar Pipelines business efficiently. Any unexpected costs or delays incurred in connection with the integration of Questar Pipelines could have a material adverse effect on our business, results of operations, financial condition, as well as the market price of our common stock.
ITEMS 2 through 3. None.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable.
ITEM 5. OTHER INFORMATION None.
ITEM 5. | OTHER INFORMATIONNone. | | | | | | | |
| 54 | |
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2021 |
ITEM 6. EXHIBITS
The following documents are filed, or furnished, as applicable, as part of this report onForm 10-Q: | | | | | | | | |
Exhibit 3(i)2.02* | - | —
| | |
| | |
Exhibit 3(ii)3(i) | - | —
|
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Exhibit 3.01 | - | |
Exhibit 10.01* | | —
| | Centuri 2017 Short-Term Incentive Plan. |
Exhibit 12.014.01 | - | —
|
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Exhibit 4.02 | - | |
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Exhibit 4.03 | - | |
| | |
Exhibit 4.04 | - | |
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Exhibit 10.01 | - | Credit Agreement with Wells Fargo Securities, LLC and BofA Securities, Inc., as joint lead arrangers, Wells Fargo Bank, National Association, as administrative agent, Bank of America, N.A., as syndication agent, and the other lenders and agents party thereto. Incorporated herein by reference to Exhibit 10.1 to Form 8-K dated August 27, 2021, File No. 001-37976. |
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Exhibit 31.01 | - | —
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Exhibit 31.02 | - | —
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Exhibit 32.01 | - | —
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Exhibit 32.02 | - | —
| | |
Exhibit 101.INS | | —
| | XBRL Instance 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 |
Exhibit101.PRE | | —
| | XBRL Presentation Linkbase Document |
* | Management Incentive Plan
|
48
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| | |
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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 101.SCH | - | 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 |
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Exhibit 104 | - | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
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*The Company has omitted schedules and other similar attachments to such agreement pursuant to Item 601(b) of Regulation S-K. The Company will furnish a copy of such omitted document to the SEC upon request. |
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172021 |
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:
Dated: November
7, 20179, 2021 | | |
|
/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) |
Dated: November 9, 2021
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