SECURITIES AND EXCHANGE COMMISSION
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172018 | | | |
| | | | | | |
File Number | | Exact name of registrant as specified in its charter and
principal office address and telephone number | |
Incorporation | | |
Employer Identification No. | |
001-37976 | | Southwest Gas Holdings, Inc. | | | California | | | | 81-3881866 | |
| | 5241 Spring Mountain Road
| | | | | | | | |
| | Post Office Box 98510
| | | | | | | | |
| | Las Vegas, Nevada 89193-8510
| | | | | | | | |
| | (702) 876-7237 5241 Spring Mountain Road | | | | |
| | Post Office Box 98510 | | | | |
| | Las Vegas, Nevada 89193-8510 | | | | |
| | (702) 876-7237 | | | | |
| | | | | | |
1-7850 | | Southwest Gas Corporation | | California | | 88-0085720 |
| | California 5241 Spring Mountain Road | | | | 88-0085720
|
| | Post Office Box 98510 | | | | |
| | 5241 Spring Mountain Road
| | | | | | | | |
| | Post Office Box 98510
| | | | | | | | |
| | Las Vegas, Nevada 89193-8510 | | | | | | | | |
| | (702) 876-7237 | | | | | | | | |
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 Regulation
S-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.:
|
| | | | | | |
Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
| | | |
Non-accelerated filer
| | ☐
| |
Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | |
Emerging growth company | | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Southwest Gas Corporation:
|
| | | | | | |
Large accelerated filer | | ☐ | | Accelerated filer | | ☐ |
| | | |
Non-accelerated filer
| | ☒
| |
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 Rule
12b-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,
47,731,84049,431,933 shares as of October
27, 2017.31, 2018.
All of the outstanding shares of common stock ($1 par value) of Southwest Gas Corporation were held by Southwest Gas Holdings, Inc. as of January 1, 2017.
SOUTHWEST GAS CORPORATION MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1)(a) and (b) OF FORM
10-Q AND IS THEREFORE FILING THIS REPORT WITH THE REDUCED DISCLOSURE FORMAT AS PERMITTED BY GENERAL INSTRUCTION H(2).
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
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, and statements of cash flows) 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
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except par value)
(Unaudited) | | | | | | | | |
| | SEPTEMBER 30, 2017 | | | DECEMBER 31, 2016 | |
ASSETS | | | | | | | | |
Utility plant: | | | | | | | | |
Gas plant | | $ | 6,440,547 | | | $ | 6,193,564 | |
Less: accumulated depreciation | | | (2,218,796 | ) | | | (2,172,966 | ) |
Acquisition adjustments, net | | | 81 | | | | 196 | |
Construction work in progress | | | 164,030 | | | | 111,177 | |
| | | | | | | | |
Net utility plant | | | 4,385,862 | | | | 4,131,971 | |
| | | | | | | | |
Other property and investments | | | 369,303 | | | | 342,343 | |
| | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | | 59,152 | | | | 28,066 | |
Accounts receivable, net of allowances | | | 301,792 | | | | 285,145 | |
Accrued utility revenue | | | 34,100 | | | | 76,200 | |
Income taxes receivable, net | | | 5,462 | | | | 4,455 | |
Deferred purchased gas costs | | | 6,230 | | | | 2,608 | |
Prepaids and other current assets | | | 132,182 | | | | 136,833 | |
| | | | | | | | |
Total current assets | | | 538,918 | | | | 533,307 | |
| | | | | | | | |
Noncurrent assets: | | | | | | | | |
Goodwill | | | 147,865 | | | | 139,983 | |
Deferred income taxes | | | 1,467 | | | | 1,288 | |
Deferred charges and other assets | | | 411,655 | | | | 432,234 | |
| | | | | | | | |
Total noncurrent assets | | | 560,987 | | | | 573,505 | |
| | | | | | | | |
Total assets | | $ | 5,855,070 | | | $ | 5,581,126 | |
| | | | | | | | |
CAPITALIZATION AND LIABILITIES | | | | | | | | |
Capitalization: | | | | | | | | |
Common stock, $1 par (authorized—60,000,000 shares; issued and outstanding—47,731,840 and 47,482,068 shares) | | $ | 49,362 | | | $ | 49,112 | |
Additionalpaid-in capital | | | 924,213 | | | | 903,123 | |
Accumulated other comprehensive income (loss), net | | | (42,818 | ) | | | (48,008 | ) |
Retained earnings | | | 784,934 | | | | 759,263 | |
| | | | | | | | |
Total Southwest Gas Holdings, Inc. equity | | | 1,715,691 | | | | 1,663,490 | |
Noncontrolling interest | | | (2,295 | ) | | | (2,217 | ) |
| | | | | | | | |
Total equity | | | 1,713,396 | | | | 1,661,273 | |
Redeemable noncontrolling interest | | | — | | | | 22,590 | |
Long-term debt, less current maturities | | | 1,731,981 | | | | 1,549,983 | |
| | | | | | | | |
Total capitalization | | | 3,445,377 | | | | 3,233,846 | |
| | | | | | | | |
Current liabilities: | | | | | | | | |
Current maturities of long-term debt | | | 28,453 | | | | 50,101 | |
Short-term debt | | | 110,500 | | | | — | |
Accounts payable | | | 159,382 | | | | 184,669 | |
Customer deposits | | | 70,162 | | | | 72,296 | |
Income taxes payable | | | 1,543 | | | | 1,909 | |
Accrued general taxes | | | 48,998 | | | | 42,921 | |
Accrued interest | | | 24,543 | | | | 17,939 | |
Deferred purchased gas costs | | | 14,971 | | | | 90,476 | |
Other current liabilities | | | 197,854 | | | | 168,064 | |
| | | | | | | | |
Total current liabilities | | | 656,406 | | | | 628,375 | |
| | | | | | | | |
Deferred income taxes and other credits: | | | | | | | | |
Deferred income taxes and investment tax credits | | | 894,011 | | | | 840,653 | |
Accumulated removal costs | | | 312,000 | | | | 308,000 | |
Other deferred credits and other long-term liabilities | | | 547,276 | | | | 570,252 | |
| | | | | | | | |
Total deferred income taxes and other credits | | | 1,753,287 | | | | 1,718,905 | |
| | |
| | | | | | | | |
Total capitalization and liabilities | | $ | 5,855,070 | | | $ | 5,581,126 | |
| | | | | | | | |
|
| | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
ASSETS | | | | |
Utility plant: | | | | |
Gas plant | | $ | 6,928,471 |
| | $ | 6,629,644 |
|
Less: accumulated depreciation | | (2,275,376 | ) | | (2,231,242 | ) |
Construction work in progress | | 216,735 |
| | 125,248 |
|
Net utility plant | | 4,869,830 |
| | 4,523,650 |
|
Other property and investments | | 466,500 |
| | 428,180 |
|
Current assets: | | | | |
Cash and cash equivalents | | 69,170 |
| | 43,622 |
|
Accounts receivable, net of allowances | | 347,571 |
| | 347,375 |
|
Accrued utility revenue | | 34,600 |
| | 78,200 |
|
Income taxes receivable | | 49,603 |
| | 7,960 |
|
Deferred purchased gas costs | | — |
| | 14,581 |
|
Prepaids and other current assets | | 220,249 |
| | 165,294 |
|
Total current assets | | 721,193 |
| | 657,032 |
|
Noncurrent assets: | | | | |
Goodwill | | 176,059 |
| | 179,314 |
|
Deferred income taxes | | 1,185 |
| | 1,480 |
|
Deferred charges and other assets | | 419,829 |
| | 447,410 |
|
Total noncurrent assets | | 597,073 |
| | 628,204 |
|
Total assets | | $ | 6,654,596 |
| | $ | 6,237,066 |
|
CAPITALIZATION AND LIABILITIES | | | | |
Capitalization: | | | | |
Common stock, $1 par (authorized - 60,000,000 shares; issued and outstanding - 49,422,938 and 48,090,470 shares) | | $ | 51,053 |
| | $ | 49,720 |
|
Additional paid-in capital | | 1,045,840 |
| | 955,332 |
|
Accumulated other comprehensive income (loss), net | | (53,390 | ) | | (47,682 | ) |
Retained earnings | | 902,730 |
| | 857,398 |
|
Total Southwest Gas Holdings, Inc. equity | | 1,946,233 |
| | 1,814,768 |
|
Noncontrolling interest | | (452 | ) | | (2,365 | ) |
Total equity | | 1,945,781 |
| | 1,812,403 |
|
Long-term debt, less current maturities | | 2,123,641 |
| | 1,798,576 |
|
Total capitalization | | 4,069,422 |
| | 3,610,979 |
|
Current liabilities: | | | | |
Current maturities of long-term debt | | 33,429 |
| | 25,346 |
|
Short-term debt | | 31,500 |
| | 214,500 |
|
Accounts payable | | 172,237 |
| | 228,315 |
|
Customer deposits | | 68,100 |
| | 69,781 |
|
Income taxes payable | | 2,572 |
| | 5,946 |
|
Accrued general taxes | | 51,734 |
| | 43,879 |
|
Accrued interest | | 30,594 |
| | 17,870 |
|
Deferred purchased gas costs | | 93,023 |
| | 6,841 |
|
Other current liabilities | | 229,521 |
| | 203,403 |
|
Total current liabilities | | 712,710 |
| | 815,881 |
|
Deferred income taxes and other credits: | | | | |
Deferred income taxes and investment tax credits | | 519,146 |
| | 476,960 |
|
Accumulated removal costs | | 322,000 |
| | 315,000 |
|
Other deferred credits and other long-term liabilities | | 1,031,318 |
| | 1,018,246 |
|
Total deferred income taxes and other credits | | 1,872,464 |
| | 1,810,206 |
|
Total capitalization and liabilities | | $ | 6,654,596 |
| | $ | 6,237,066 |
|
The accompanying notes are an integral part of these statements.
3
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
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, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Operating revenues: | | | | | | | | | | | | |
Gas operating revenues | | $ | 217,523 |
| | $ | 213,059 |
| | $ | 987,515 |
| | $ | 935,823 |
| | $ | 1,354,000 |
| | $ | 1,276,308 |
|
Construction revenues | | 450,623 |
| | 380,094 |
| | 1,105,844 |
| | 872,536 |
| | 1,479,792 |
| | 1,173,576 |
|
Total operating revenues | | 668,146 |
| | 593,153 |
| | 2,093,359 |
| | 1,808,359 |
| | 2,833,792 |
| | 2,449,884 |
|
Operating expenses: | | | | | | | | | | | | |
Net cost of gas sold | | 49,903 |
| | 45,539 |
| | 319,101 |
| | 261,839 |
| | 412,307 |
| | 334,888 |
|
Operations and maintenance | | 105,508 |
| | 97,422 |
| | 313,294 |
| | 299,920 |
| | 406,137 |
| | 394,725 |
|
Depreciation and amortization | | 62,156 |
| | 58,529 |
| | 185,941 |
| | 189,089 |
| | 247,803 |
| | 260,457 |
|
Taxes other than income taxes | | 15,036 |
| | 14,046 |
| | 44,959 |
| | 43,325 |
| | 59,580 |
| | 56,221 |
|
Construction expenses | | 395,862 |
| | 342,629 |
| | 1,007,485 |
| | 806,586 |
| | 1,349,862 |
| | 1,073,090 |
|
Total operating expenses | | 628,465 |
| | 558,165 |
| | 1,870,780 |
| | 1,600,759 |
| | 2,475,689 |
| | 2,119,381 |
|
Operating income | | 39,681 |
| | 34,988 |
| | 222,579 |
| | 207,600 |
| | 358,103 |
| | 330,503 |
|
Other income and (expenses): | | | | | | | | | | | | |
Net interest deductions | | (24,548 | ) | | (19,494 | ) | | (70,831 | ) | | (56,863 | ) | | (92,032 | ) | | (76,423 | ) |
Other income (deductions) | | 889 |
| | (1,980 | ) | | (6,151 | ) | | (5,780 | ) | | (6,401 | ) | | (8,007 | ) |
Total other income and (expenses) | | (23,659 | ) | | (21,474 | ) | | (76,982 | ) | | (62,643 | ) | | (98,433 | ) | | (84,430 | ) |
Income before income taxes | | 16,022 |
| | 13,514 |
| | 145,597 |
| | 144,957 |
| | 259,670 |
| | 246,073 |
|
Income tax expense | | 3,691 |
| | 3,094 |
| | 33,421 |
| | 47,411 |
| | 51,098 |
| | 82,833 |
|
Net income | | 12,331 |
| | 10,420 |
| | 112,176 |
| | 97,546 |
| | 208,572 |
| | 163,240 |
|
Net income (loss) attributable to noncontrolling interest | | — |
| | 216 |
| | (797 | ) | | 170 |
| | (866 | ) | | 684 |
|
Net income attributable to Southwest Gas Holdings, Inc. | | $ | 12,331 |
| | $ | 10,204 |
| | $ | 112,973 |
| | $ | 97,376 |
| | $ | 209,438 |
| | $ | 162,556 |
|
Basic earnings per share | | $ | 0.25 |
| | $ | 0.21 |
| | $ | 2.31 |
| | $ | 2.05 |
| | $ | 4.30 |
| | $ | 3.42 |
|
Diluted earnings per share | | $ | 0.25 |
| | $ | 0.21 |
| | $ | 2.31 |
| | $ | 2.03 |
| | $ | 4.29 |
| | $ | 3.39 |
|
Dividends declared per share | | $ | 0.520 |
| | $ | 0.495 |
| | $ | 1.560 |
| | $ | 1.485 |
| | $ | 2.055 |
| | $ | 1.935 |
|
Average number of common shares | | 49,493 |
| | 47,628 |
| | 48,916 |
| | 47,577 |
| | 48,728 |
| | 47,553 |
|
Average shares (assuming dilution) | | 49,553 |
| | 47,986 |
| | 48,968 |
| | 47,912 |
| | 48,781 |
| | 47,896 |
|
The accompanying notes are an integral part of these statements.
4
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
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, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Net income | | $ | 12,331 |
| | $ | 10,420 |
| | $ | 112,176 |
| | $ | 97,546 |
| | $ | 208,572 |
| | $ | 163,240 |
|
Other comprehensive income (loss), net of tax | | | | | | | | | | | | |
Defined benefit pension plans: | | | | | | | | | | | | |
Net actuarial gain (loss) | | — |
| | — |
| | — |
| | — |
| | (32,701 | ) | | (14,118 | ) |
Amortization of prior service cost | | 254 |
| | 207 |
| | 762 |
| | 621 |
| | 969 |
| | 828 |
|
Amortization of net actuarial loss | | 6,387 |
| | 3,944 |
| | 19,161 |
| | 11,832 |
| | 23,105 |
| | 16,027 |
|
Regulatory adjustment | | (5,746 | ) | | (3,555 | ) | | (17,236 | ) | | (10,667 | ) | | 6,021 |
| | (2,741 | ) |
Net defined benefit pension plans | | 895 |
| | 596 |
| | 2,687 |
| | 1,786 |
| | (2,606 | ) | | (4 | ) |
Forward-starting interest rate swaps: | | | | | | | | | | | | |
Amounts reclassified into net income | | 636 |
| | 518 |
| | 1,907 |
| | 1,554 |
| | 2,426 |
| | 2,073 |
|
Net forward-starting interest rate swaps | | 636 |
| | 518 |
| | 1,907 |
| | 1,554 |
| | 2,426 |
| | 2,073 |
|
Foreign currency translation adjustments | | 599 |
| | 1,012 |
| | (1,002 | ) | | 1,861 |
| | (1,092 | ) | | 1,408 |
|
Total other comprehensive income (loss), net of tax | | 2,130 |
| | 2,126 |
| | 3,592 |
| | 5,201 |
| | (1,272 | ) | | 3,477 |
|
Comprehensive income | | 14,461 |
| | 12,546 |
| | 115,768 |
| | 102,747 |
| | 207,300 |
| | 166,717 |
|
Comprehensive income (loss) attributable to noncontrolling interests | | — |
| | 198 |
| | (797 | ) | | 181 |
| | (866 | ) | | 679 |
|
Comprehensive income attributable to Southwest Gas Holdings, Inc. | | $ | 14,461 |
| | $ | 12,348 |
| | $ | 116,565 |
| | $ | 102,566 |
| | $ | 208,166 |
| | $ | 166,038 |
|
The accompanying notes are an integral part of these statements.
5
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
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, |
| | 2018 | | 2017 | | 2018 | | 2017 |
CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | |
Net income | | $ | 112,176 |
| | $ | 97,546 |
| | $ | 208,572 |
| | $ | 163,240 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | 185,941 |
| | 189,089 |
| | 247,803 |
| | 260,457 |
|
Deferred income taxes | | 36,210 |
| | 49,409 |
| | 50,190 |
| | 74,439 |
|
Changes in current assets and liabilities: | | | | | | | | |
Accounts receivable, net of allowances | | (1,659 | ) | | (15,330 | ) | | (27,276 | ) | | (13,765 | ) |
Accrued utility revenue | | 43,600 |
| | 42,100 |
| | (500 | ) | | (1,100 | ) |
Deferred purchased gas costs | | 100,763 |
| | (79,127 | ) | | 84,282 |
| | (114,658 | ) |
Accounts payable | | (48,618 | ) | | (26,771 | ) | | (1,886 | ) | | 19,866 |
|
Accrued taxes | | (9,840 | ) | | 4,689 |
| | (12,417 | ) | | 38,084 |
|
Other current assets and liabilities | | 1,245 |
| | 43,044 |
| | (50,002 | ) | | 3,590 |
|
Gains on sale | | (997 | ) | | (1,452 | ) | | (3,741 | ) | | (4,483 | ) |
Changes in undistributed stock compensation | | 4,686 |
| | 9,199 |
| | 6,375 |
| | 10,308 |
|
AFUDC | | (1,034 | ) | | (2,077 | ) | | (1,253 | ) | | (2,473 | ) |
Changes in other assets and deferred charges | | (10,497 | ) | | (14,470 | ) | | (18,296 | ) | | (1,436 | ) |
Changes in other liabilities and deferred credits | | (4,583 | ) | | 3,395 |
| | (3,747 | ) | | (10,239 | ) |
Net cash provided by operating activities | | 407,393 |
| | 299,244 |
| | 478,104 |
| | 421,830 |
|
CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | |
Construction expenditures and property additions | | (560,165 | ) | | (449,998 | ) | | (733,816 | ) | | (575,141 | ) |
Acquisition of businesses, net of cash acquired | | (4,209 | ) | | — |
| | (98,413 | ) | | — |
|
Changes in customer advances | | 11,051 |
| | (1,951 | ) | | 13,325 |
| | 504 |
|
Miscellaneous inflows | | 3,827 |
| | 9,160 |
| | 11,312 |
| | 14,234 |
|
Net cash used in investing activities | | (549,496 | ) | | (442,789 | ) | | (807,592 | ) | | (560,403 | ) |
CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | |
Issuance of common stock, net | | 92,234 |
| | 11,563 |
| | 121,826 |
| | 11,505 |
|
Dividends paid | | (74,535 | ) | | (68,503 | ) | | (98,162 | ) | | (89,870 | ) |
Centuri distribution to redeemable noncontrolling interest | | — |
| | (204 | ) | | — |
| | (544 | ) |
Issuance of long-term debt, net | | 480,993 |
| | 104,308 |
| | 783,748 |
| | 119,308 |
|
Retirement of long-term debt | | (143,757 | ) | | (100,240 | ) | | (382,486 | ) | | (159,162 | ) |
Change in credit facility and commercial paper | | — |
| | 145,000 |
| | — |
| | 150,000 |
|
Change in short-term debt | | (183,000 | ) | | 110,500 |
| | (79,000 | ) | | 110,500 |
|
Principal payments on capital lease obligations | | (422 | ) | | (796 | ) | | (606 | ) | | (1,025 | ) |
Redemption of Centuri shares from noncontrolling parties | | — |
| | (23,000 | ) | | — |
| | (23,000 | ) |
Withholding remittance - share-based compensation | | (2,880 | ) | | (3,176 | ) | | (2,880 | ) | | (3,176 | ) |
Other | | (1,121 | ) | | (1,104 | ) | | (3,091 | ) | | (2,068 | ) |
Net cash provided by financing activities | | 167,512 |
| | 174,348 |
| | 339,349 |
| | 112,468 |
|
Effects of currency translation on cash and cash equivalents | | 139 |
| | 283 |
| | 157 |
| | 103 |
|
Change in cash and cash equivalents | | 25,548 |
| | 31,086 |
| | 10,018 |
| | (26,002 | ) |
Cash and cash equivalents at beginning of period | | 43,622 |
| | 28,066 |
| | 59,152 |
| | 85,154 |
|
Cash and cash equivalents at end of period | | $ | 69,170 |
| | $ | 59,152 |
| | $ | 69,170 |
| | $ | 59,152 |
|
Supplemental information: | | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 49,568 |
| | $ | 45,771 |
| | $ | 75,740 |
| | $ | 66,077 |
|
Income taxes paid (received) | | $ | 18,261 |
| | $ | 3,687 |
| | $ | 20,247 |
| | $ | (21,875 | ) |
The accompanying notes are an integral part of these statements.
6
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(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 | |
| | | | | | | | |
|
| | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
ASSETS | | | | |
Utility plant: | | | | |
Gas plant | | $ | 6,928,471 |
| | $ | 6,629,644 |
|
Less: accumulated depreciation | | (2,275,376 | ) | | (2,231,242 | ) |
Construction work in progress | | 216,735 |
| | 125,248 |
|
Net utility plant | | 4,869,830 |
| | 4,523,650 |
|
Other property and investments | | 125,204 |
| | 119,114 |
|
Current assets: | | | | |
Cash and cash equivalents | | 49,065 |
| | 37,946 |
|
Accounts receivable, net of allowances | | 70,094 |
| | 119,748 |
|
Accrued utility revenue | | 34,600 |
| | 78,200 |
|
Income taxes receivable | | 46,250 |
| | — |
|
Deferred purchased gas costs | | — |
| | 14,581 |
|
Prepaids and other current assets | | 202,705 |
| | 153,771 |
|
Total current assets | | 402,714 |
| | 404,246 |
|
Noncurrent assets: | | | | |
Goodwill | | 10,095 |
| | 10,095 |
|
Deferred charges and other assets | | 403,505 |
| | 425,564 |
|
Total noncurrent assets | | 413,600 |
| | 435,659 |
|
Total assets | | $ | 5,811,348 |
| | $ | 5,482,669 |
|
CAPITALIZATION AND LIABILITIES | | | | |
Capitalization: | | | | |
Common stock | | $ | 49,112 |
| | $ | 49,112 |
|
Additional paid-in capital | | 1,041,310 |
| | 948,767 |
|
Accumulated other comprehensive income (loss), net | | (51,779 | ) | | (47,073 | ) |
Retained earnings | | 681,284 |
| | 659,193 |
|
Total Southwest Gas Corporation equity | | 1,719,927 |
| | 1,609,999 |
|
Long-term debt, less current maturities | | 1,818,621 |
| | 1,521,031 |
|
Total capitalization | | 3,538,548 |
| | 3,131,030 |
|
Current liabilities: | | | | |
Short-term debt | | 9,000 |
| | 191,000 |
|
Accounts payable | | 98,956 |
| | 158,474 |
|
Customer deposits | | 68,100 |
| | 69,781 |
|
Income taxes payable | | — |
| | 4,971 |
|
Accrued general taxes | | 51,734 |
| | 43,879 |
|
Accrued interest | | 30,481 |
| | 17,171 |
|
Deferred purchased gas costs | | 93,023 |
| | 6,841 |
|
Payable to parent | | 380 |
| | 194 |
|
Other current liabilities | | 111,658 |
| | 108,785 |
|
Total current liabilities | | 463,332 |
| | 601,096 |
|
Deferred income taxes and other credits: | | | | |
Deferred income taxes and investment tax credits, net | | 485,072 |
| | 445,243 |
|
Accumulated removal costs | | 322,000 |
| | 315,000 |
|
Other deferred credits and other long-term liabilities | | 1,002,396 |
| | 990,300 |
|
Total deferred income taxes and other credits | | 1,809,468 |
| | 1,750,543 |
|
Total capitalization and liabilities | | $ | 5,811,348 |
| | $ | 5,482,669 |
|
The accompanying notes are an integral part of these statements.
7
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF 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: | | | | | | | | | | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Continuing operations: | | | | | | | | | | | | |
Gas operating revenues | | $ | 217,523 |
| | $ | 213,059 |
| | $ | 987,515 |
| | $ | 935,823 |
| | $ | 1,354,000 |
| | $ | 1,276,308 |
|
Operating expenses: | | | | | | | | | | | | |
Net cost of gas sold | | 49,903 |
| | 45,539 |
| | 319,101 |
| | 261,839 |
| | 412,307 |
| | 334,888 |
|
Operations and maintenance | | 104,657 |
| | 97,359 |
| | 312,055 |
| | 298,827 |
| | 404,549 |
| | 393,632 |
|
Depreciation and amortization | | 47,924 |
| | 46,194 |
| | 145,549 |
| | 153,643 |
| | 193,828 |
| | 212,693 |
|
Taxes other than income taxes | | 15,036 |
| | 14,046 |
| | 44,959 |
| | 43,325 |
| | 59,580 |
| | 56,221 |
|
Total operating expenses | | 217,520 |
| | 203,138 |
| | 821,664 |
| | 757,634 |
| | 1,070,264 |
| | 997,434 |
|
Operating income | | 3 |
| | 9,921 |
| | 165,851 |
| | 178,189 |
| | 283,736 |
| | 278,874 |
|
Other income and (expenses): | | | | | | | | | | | | |
Net interest deductions | | (20,399 | ) | | (17,421 | ) | | (59,803 | ) | | (51,622 | ) | | (77,914 | ) | | (69,464 | ) |
Other income (deductions) | | 836 |
| | (1,775 | ) | | (5,861 | ) | | (5,824 | ) | | (6,425 | ) | | (9,200 | ) |
Total other income and (expenses) | | (19,563 | ) | | (19,196 | ) | | (65,664 | ) | | (57,446 | ) | | (84,339 | ) | | (78,664 | ) |
Income (loss) from continuing operations before income taxes | | (19,560 | ) | | (9,275 | ) | | 100,187 |
| | 120,743 |
| | 199,397 |
| | 200,210 |
|
Income tax expense (benefit) | | (5,890 | ) | | (5,251 | ) | | 20,886 |
| | 38,307 |
| | 45,714 |
| | 65,887 |
|
Income (loss) from continuing operations | | (13,670 | ) | | (4,024 | ) | | 79,301 |
| | 82,436 |
| | 153,683 |
| | 134,323 |
|
Discontinued operations - construction services: | | | | | | | | | | | | |
Income before income taxes | | — |
| | — |
| | — |
| | — |
| | — |
| | 21,649 |
|
Income tax expense | | — |
| | — |
| | — |
| | — |
| | — |
| | 7,842 |
|
Income | | — |
| | — |
| | — |
| | — |
| | — |
| | 13,807 |
|
Noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | 514 |
|
Income - discontinued operations | | — |
| | — |
| | — |
| | — |
| | — |
| | 13,293 |
|
Net income (loss) | | $ | (13,670 | ) | | $ | (4,024 | ) | | $ | 79,301 |
| | $ | 82,436 |
| | $ | 153,683 |
| | $ | 147,616 |
|
The accompanying notes are an integral part of these statements.
8
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
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, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Continuing operations: | | | | | | | | | | | | |
Net income (loss) from continuing operations | | $ | (13,670 | ) | | $ | (4,024 | ) | | $ | 79,301 |
| | $ | 82,436 |
| | $ | 153,683 |
| | $ | 134,323 |
|
Other comprehensive income (loss), net of tax | | | | | | | | | | | | |
Defined benefit pension plans: | | | | | | | | | | | | |
Net actuarial gain (loss) | | — |
| | — |
| | — |
| | — |
| | (32,701 | ) | | (14,118 | ) |
Amortization of prior service cost | | 254 |
| | 207 |
| | 762 |
| | 621 |
| | 969 |
| | 828 |
|
Amortization of net actuarial loss | | 6,387 |
| | 3,944 |
| | 19,161 |
| | 11,832 |
| | 23,105 |
| | 16,027 |
|
Regulatory adjustment | | (5,746 | ) | | (3,555 | ) | | (17,236 | ) | | (10,667 | ) | | 6,021 |
| | (2,741 | ) |
Net defined benefit pension plans | | 895 |
| | 596 |
| | 2,687 |
| | 1,786 |
| | (2,606 | ) | | (4 | ) |
Forward-starting interest rate swaps: | | | | | | | | | | | | |
Amounts reclassified into net income | | 636 |
| | 518 |
| | 1,907 |
| | 1,554 |
| | 2,426 |
| | 2,073 |
|
Net forward-starting interest rate swaps | | 636 |
| | 518 |
| | 1,907 |
| | 1,554 |
| | 2,426 |
| | 2,073 |
|
Total other comprehensive income (loss), net of tax from continuing operations | | 1,531 |
| | 1,114 |
| | 4,594 |
| | 3,340 |
| | (180 | ) | | 2,069 |
|
Comprehensive income (loss) from continuing operations | | (12,139 | ) | | (2,910 | ) | | 83,895 |
| | 85,776 |
| | 153,503 |
| | 136,392 |
|
Discontinued operations - construction services: | | | | | | | | | | | | |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 13,293 |
|
Foreign currency translation adjustments | | — |
| | — |
| | — |
| | — |
| | — |
| | (453 | ) |
Comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | 12,840 |
|
Comprehensive income (loss) attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | (16 | ) |
Comprehensive income attributable to discontinued operations - construction services | | — |
| | — |
| | — |
| | — |
| | — |
| | 12,856 |
|
Comprehensive income (loss) | | $ | (12,139 | ) | | $ | (2,910 | ) | | $ | 83,895 |
| | $ | 85,776 |
| | $ | 153,503 |
| | $ | 149,248 |
|
The accompanying notes are an integral part of these statements.
9
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
SOUTHWEST GAS CORPORATION 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 | | $ | 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 | ) |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | |
Net Income | | $ | 79,301 |
| | $ | 82,436 |
| | $ | 153,683 |
| | $ | 148,130 |
|
Income from discontinued operations | | — |
| | — |
| | — |
| | 13,807 |
|
Income from continuing operations | | 79,301 |
| | 82,436 |
| | 153,683 |
| | 134,323 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | 145,549 |
| | 153,643 |
| | 193,828 |
| | 212,693 |
|
Deferred income taxes | | 33,239 |
| | 44,621 |
| | 55,787 |
| | 72,627 |
|
Changes in current assets and liabilities: | | | | | | | | |
Accounts receivable, net of allowances | | 49,654 |
| | 43,818 |
| | (2,066 | ) | | (7,131 | ) |
Accrued utility revenue | | 43,600 |
| | 42,100 |
| | (500 | ) | | (1,100 | ) |
Deferred purchased gas costs | | 100,763 |
| | (79,127 | ) | | 84,282 |
| | (114,658 | ) |
Accounts payable | | (53,217 | ) | | (45,972 | ) | | (2,700 | ) | | 17,271 |
|
Accrued taxes | | (16,026 | ) | | 4,092 |
| | (9,735 | ) | | 29,143 |
|
Other current assets and liabilities | | (35,154 | ) | | 32,453 |
| | (81,333 | ) | | (224 | ) |
Changes in undistributed stock compensation | | 4,269 |
| | 7,999 |
| | 5,558 |
| | 9,108 |
|
AFUDC | | (1,034 | ) | | (2,077 | ) | | (1,253 | ) | | (2,473 | ) |
Changes in other assets and deferred charges | | (11,025 | ) | | (14,861 | ) | | (19,082 | ) | | (1,914 | ) |
Changes in other liabilities and deferred credits | | 7,550 |
| | 2,883 |
| | 8,208 |
| | (10,751 | ) |
Net cash provided by operating activities | | 347,469 |
| | 272,008 |
| | 384,677 |
| | 336,914 |
|
CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | |
Construction expenditures and property additions | | (486,037 | ) | | (395,463 | ) | | (651,022 | ) | | (514,661 | ) |
Changes in customer advances | | 11,051 |
| | (1,951 | ) | | 13,325 |
| | 504 |
|
Miscellaneous inflows | | 1,316 |
| | 2,407 |
| | 1,650 |
| | 2,925 |
|
Dividends received | | — |
| | — |
| | — |
| | 9,660 |
|
Net cash used in investing activities | | (473,670 | ) | | (395,007 | ) | | (636,047 | ) | | (501,572 | ) |
CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | |
Issuance of common stock, net | | — |
| | — |
| | — |
| | (58 | ) |
Contributions from parent | | 90,644 |
| | 11,659 |
| | 120,344 |
| | 11,659 |
|
Dividends paid | | (65,000 | ) | | (60,497 | ) | | (86,000 | ) | | (81,864 | ) |
Issuance of long-term debt, net | | 297,495 |
| | — |
| | 297,495 |
| | — |
|
Retirement of long-term debt | | — |
| | (25,000 | ) | | — |
| | (25,000 | ) |
Change in credit facility and commercial paper | | — |
| | 145,000 |
| | — |
| | 150,000 |
|
Change in short-term debt | | (182,000 | ) | | 83,000 |
| | (74,000 | ) | | 83,000 |
|
Withholding remittance - share-based compensation | | (2,880 | ) | | (3,176 | ) | | (2,880 | ) | | (3,176 | ) |
Other | | (939 | ) | | (544 | ) | | (991 | ) | | (1,508 | ) |
Net cash provided by financing activities | | 137,320 |
| | 150,442 |
| | 253,968 |
| | 133,053 |
|
Net cash provided by discontinued operating activities | | — |
| | — |
| | — |
| | 57,680 |
|
Net cash used in discontinued investing activities | | — |
| | — |
| | — |
| | (11,049 | ) |
Net cash used in discontinued financing activities | | — |
| | — |
| | — |
| | (44,491 | ) |
Effects of currency translation on cash and cash equivalents | | — |
| | — |
| | — |
| | (180 | ) |
Change in cash and cash equivalents | | 11,119 |
| | 27,443 |
| | 2,598 |
| | (29,645 | ) |
Change in cash and cash equivalents of discontinued operations included in discontinued operations construction services assets | | — |
| | — |
| | — |
| | (1,960 | ) |
Change in cash and cash equivalents of continuing operations | | 11,119 |
| | 27,443 |
| | 2,598 |
| | (31,605 | ) |
Cash and cash equivalents at beginning of period | | 37,946 |
| | 19,024 |
| | 46,467 |
| | 78,072 |
|
Cash and cash equivalents at end of period | | $ | 49,065 |
| | $ | 46,467 |
| | $ | 49,065 |
| | $ | 46,467 |
|
Supplemental information: | | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 42,986 |
| | $ | 40,751 |
| | $ | 67,025 |
| | $ | 59,448 |
|
Income taxes paid (received) | | $ | 11,286 |
| | $ | 4 |
| | $ | 3,428 |
| | $ | (27,952 | ) |
The accompanying notes are an integral part of these statements.
10
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
Note 1 – Nature of Operations and Basis of Presentation
Nature of Operations. Southwest Gas Holdings, Inc. is a holding company, owning all of the shares of common stock of Southwest Gas Corporation (“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,” the “construction services” or “infrastructure services” segment). Prior to August 2017, only 96.6% of Centuri shares were owned by Southwest Gas Holdings, Inc. During August 2017, Southwest Gas Holdings, Inc. acquired the remaining 3.4% equity interest in Centuri Construction Group, Inc. that was held by the previous owners (and was previously reflected as a redeemable noncontrolling interest). Refer to Note 9 – Construction Services Redeemable Noncontrolling Interestfor additional information.In January 2017, a previously contemplated and approved reorganization under a holding company structure was made effective. The reorganization was designed to provide further separation between regulated and unregulated businesses, and to provide additional financing flexibility. Coincident with the effective date of the reorganization, existing shareholders of owners.
Southwest Gas Corporation
became shareholders of Southwest Gas Holdings, Inc., on aone-for-one basis, with the same number of shares and same ownership percentage as they held immediately prior to the reorganization. At the same time, Southwest Gas Corporation and Centuri Construction Group, Inc. (“Centuri” or the “construction services” segment) each became subsidiaries of the publicly traded holding company; whereas, historically, Centuri had been a direct subsidiary of 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 constructioninfrastructure services enterprise dedicated to meeting the growing demands of North American utilities, energy, and industrial markets. Centuri derives revenue from installation, replacement, repair, and maintenance of energy distribution systems, and developing industrial constructioninfrastructure solutions. Centuri operations are generally conducted under the business names of NPL Construction Co. (“NPL”), Canyon Pipeline Construction, Inc. (“Canyon”), NPL Canada Ltd. (“NPL Canada”, formerly Link-Line Contractors Ltd.), W.S. Nicholls Construction, Inc. (“W.S. Nicholls”), and Canyon Special Projects, Inc. (“Special Projects,” formerly Brigadier Pipelines Inc. (“Brigadier”). Typically, Centuri revenues are lowest during the first quarter of the year due to unfavorable winter weather conditions. Operating revenues typically improve as more favorable weather conditions occur during the summer and fall months.
In November 2017, Centuri acquired New England Utility Constructors, Inc. (“Neuco”) for $99 million, less assumed debt, thereby expanding its core services in the Northeast region of the United States. See the Southwest Gas Holdings, Inc. March 31, 2018 Form 10-Q for additional information about this acquisition, including final purchase accounting.
Basis of Presentation. The condensed consolidated financial statements for Southwest Gas Holdings, Inc. and subsidiaries (the “Company”) and Southwest included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. As indicated above, inIn connection with thea holding company reorganization in January 2017, Centuri ceased to be a subsidiary of Southwest and became a subsidiary of Southwest Gas Holdings, Inc. To give effect to this change, the separate condensed consolidated financial statements related to Southwest Gas Corporation, which are included in thisForm 10-Q, depict Centuri-related amounts for periods prior to January 1, 2017 as discontinued operations. Because the transfer of Centuri from Southwest Gas Corporation to Southwest Gas Holdings, Inc. was effectuated as an equity transaction and not a sale, assets and liabilities subject to the discontinued operations presentation have been reflected as noncurrent on the Southwest Gas Corporation 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.changes, or due to the acquisition of Neuco. Following the organizational changes, Centuri operations continue to be part of continuing operations and included in the consolidated financial statements of
Southwest Gas Holdings, Inc.the Company.
The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
11
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring items and estimates necessary for a fair statement of results for the interim periods, have been made. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the 20162017 Annual Report to Shareholders, which is incorporated by reference into the 20162017 Form 10-K.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Early Adoption of Accounting Standards Update (“ASU”) No. 2018-02. In January 2018, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2018-02 “Income Statement—Reporting Comprehensive Income—Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” Early adoption of the amendments in this update was permitted, including adoption in any interim period. Therefore, the Company and Southwest chose to adopt the update early, as permitted, as of January 1, 2018. The adoption of this update is considered a change in accounting principle. The update addressed issues resulting from the December 22, 2017 enactment of the Tax Cuts and Jobs Act (the “TCJA”). Stakeholders raised a narrow-scope financial reporting issue that arose as a consequence of the TCJA related to the fact that when deferred tax balances were remeasured in December 2017, those deferred tax balances were to be reduced, but related amounts historically accumulated in Accumulated other comprehensive income (“AOCI”) prior to the enactment of the TCJA, were required to be recognized as income tax expense rather than being relieved from AOCI. The amendments in this update allowed a reclassification from AOCI to retained earnings for those otherwise “stranded” tax effects in AOCI following enactment of the TCJA. Accordingly, approximately $9.3 million of previously stranded tax effects resulting from the TCJA were reclassified to retained earnings from AOCI on the Condensed Consolidated Balance Sheets of Southwest and the Company effective with the early adoption date. Also in association with the adoption, the Company and Southwest elected an accounting policy for releasing income tax effects from AOCI, such that the release of any income tax effects from AOCI will occur as individual items in AOCI are sold or liquidated, to the extent that the related income tax effects are material. See Note 9 – Equity, Other Comprehensive Income, and Accumulated Other Comprehensive Income for more information.
Prepaids and other current assets. Prepaids and other current assets includes gas pipe materials and operating supplies of $36$53 million at September 30, 20172018 and $30$33 million at December 31, 20162017 (carried at weighted average cost) and $24, as well as $73 million at September 30, 20172018 and $953,000$40 million at December 31, 20162017 related to a regulatory asset associated with the Arizona decoupling mechanism (an alternative revenue program).
Income Taxes. On December 22, 2017, as indicated above, the TCJA legislation was enacted. Substantially all of the provisions of the TCJA are effective for taxable years beginning after December 31, 2017. The TCJA includes extensive changes which significantly impact the taxation of business entities, including specific provisions related to regulated public utilities. A significant change that impacts the Company and Southwest includes the reduction in the corporate federal income tax rate from 35% to 21%. The tax rate reduction created excess deferred taxes, resulting in the required remeasurement of deferred tax balances, which when remeasured during the fourth quarter of 2017, reduced income tax expense. The regulated operations of Southwest experienced other impacts due to the applicable rate-regulation and the accounting treatment prescribed by U.S. GAAP to reflect the economics of that regulation. The remeasurement for Southwest reduced the net deferred income tax liability and caused the creation of a regulatory liability with appropriate tax gross-up. Both the deferred tax liabilities and excess deferred tax liabilities (included within regulatory liabilities) reduce utility rate base. The TCJA includes provisions that stipulate how these excess deferred taxes are to be passed back to customers, and ultimate facilitation will occur in conjunction with appropriate regulatory commissions. During the nine months ended September 30, 2018, tax expense for the Company and Southwest reflects the lower U.S. federal income tax rate now in effect (as applicable to earnings in 2018). Amounts recorded by the Company and Southwest associated with the measurement and accounting for the effects of the TCJA are provisional reasonable estimates. Management is continuing to evaluate and finalize all provisional items during the measurement period permitted by the SEC and the FASB, and will complete its assessment in the fourth quarter of 2018.
In July 2018, the Arizona Corporation Commission (the “ACC”) staff issued a recommended opinion and order, and the ACC issued a decision (the “Decision”) based on the staff recommendation, requiring Southwest to return the difference in excess cost-of-service rates due to tax reform. The Decision required Southwest to provide a bill credit in August 2018 for excess taxes collected from January through July 2018. Also as required by the Decision, Southwest began tracking, in a regulatory account, the difference between amounts expected to be returned and the actual amounts returned by these means. As of September 30, 2018, this difference of $2.4 million is reflected in Other current liabilities on the balance sheets of both Southwest and the Company.
Other current liabilities. Other current liabilities offor Southwest Gas Corporation include $21$22 million of dividends declared by Southwest Gas Corporation, but not yet paid to Southwest Gas Holdings, Inc. at September 30, 2017.2018.
Cash and Cash Equivalents. For purposes of reporting consolidated cash flows, cash and cash equivalents include cash on hand and financial instruments with a purchase-date maturity of three months or less. In general, cash and cash equivalents fall within Level 1 (quoted prices for identical financial instruments) of the three-level fair value hierarchy that ranks the inputs used to measure fair value by their reliability. However, cash and cash equivalents at September 30, 2017for Southwest and December 31, 2016the Company also includesinclude money market fund investments oftotaling approximately $19.8$38.8 million and $5.3$39.6 million, respectively, which fall within Level 2 (significant other observable inputs) of the fair value hierarchy, due to the asset valuation methods used by money market funds.Significantnon-cash investing and financing activities included the following: Upon contract expiration, customer advances of approximately $1.9 million and $3.6 million, during the first nine months of 2017 and 2016, respectively, were applied as contributions toward utility construction activity and representnon-cash investing activity.
Adoption of Accounting Standards Update (“ASU”) No. 2016-09. As of January 1, 2017, the Company adopted Financial Accounting Standards Board (“FASB”) ASUNo. 2016-09 “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The adoption of this update is considered a change in accounting principle. Among other things, the update clarifies that all cash payments made to taxing authorities on the employees’ behalf for withheld shares should be presented as financing activities on the statement of cash flows. This change is required to be presented in the cash flow statement retrospectively. A new category, Withholding remittance – share-based compensation has been added to the Cash Flow from Financing Activities section of the Condensed Consolidated Statements of Cash Flows for both Southwest Gas Holdings, Inc. and Southwest Gas Corporation. The withheld taxes were included in the Other current assets and liabilities line item of the Condensed Consolidated Statements of Cash Flows in previous periods. Therefore, upon adoption, amounts presented as cash inflows from Other current assets and liabilities under the Cash Flow from Operating Activities section of the Southwest Gas Holdings, Inc. Condensed Consolidated Statements of Cash Flows were revised from $9.9 million to $12 million for the nine months ended September 30, 2016 and inflows 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
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| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value are required to be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The Company had no previously unrecognized tax benefits as a result of these changes; therefore, no cumulative effect adjustment to the Company’s opening retained earnings was required.
Goodwill. Goodwill is assessed as of October 1steach year for impairment, (required annually by U.S. GAAP), or otherwise,more frequently, if circumstances indicate an impairment to the carrying value of goodwill may have occurred. In consideration of the holding company reorganization, management of the Company considered its reporting units and segments and determined that historic judgments regarding its segments and reporting units continue to apply, and that no change was necessary with regard to the level at which goodwill is assessed for impairment. No impairment was deemed to have occurred in the first 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 | |
| | | | | | | | | | | | |
2018.
|
| | | | | | | | | | | |
(Thousands of dollars) | Natural Gas Operations | | Infrastructure Services | | Consolidated |
December 31, 2017 | $ | 10,095 |
| | $ | 169,219 |
| | $ | 179,314 |
|
Additional goodwill from Neuco acquisition | — |
| | 182 |
| | 182 |
|
Foreign currency translation adjustment | — |
| | (3,437 | ) | | (3,437 | ) |
September 30, 2018 | $ | 10,095 |
| | $ | 165,964 |
| | $ | 176,059 |
|
Intercompany Transactions. Centuri recognizes revenues generated from contracts with Southwest (seeNote 3—4 – Segment Information). Centuri’s accounts receivable for these services are presented in the table below (thousands of dollars): | | | | | | | | |
| | September 30, 2017 | | | December 31, 2016 | |
Centuri accounts receivable for services provided to Southwest | | $ | 11,486 | | | $ | 10,585 | |
| | | | | | | | |
|
| | | | | | | |
| September 30, 2018 | | December 31, 2017 |
Centuri accounts receivable for services provided to Southwest | $ | 13,566 |
| | $ | 12,987 |
|
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.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
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 |
|
| | | | | | | |
| September 30, 2018 | | December 31, 2017 |
Southwest Gas Corporation: | | | |
Net cash surrender value of COLI policies | $ | 123,476 |
| | $ | 117,341 |
|
Other property | 1,728 |
| | 1,773 |
|
Total Southwest Gas Corporation | 125,204 |
| | 119,114 |
|
Centuri property, equipment, and intangibles | 613,365 |
| | 554,730 |
|
Centuri accumulated depreciation/amortization | (287,396 | ) | | (258,906 | ) |
Other property | 15,327 |
| | 13,242 |
|
Total Southwest Gas Holdings, Inc. | $ | 466,500 |
| | $ | 428,180 |
|
Other Income (Deductions).The following table provides the composition of significant items included in Other income (deductions) in the condensed consolidated statementsCondensed Consolidated Statements of incomeIncome (thousands of dollars): | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | | Twelve Months Ended |
| September 30, | | September 30, | | September 30, |
| 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Southwest Gas Corporation - natural gas operations segment: | | | | | | | | | | | |
Change in COLI policies | $ | 4,700 |
| | $ | 2,100 |
| | $ | 6,000 |
| | $ | 6,800 |
| | $ | 9,500 |
| | $ | 8,800 |
|
Interest income | 1,506 |
| | 670 |
| | 4,301 |
| | 1,848 |
| | 5,237 |
| | 2,417 |
|
Equity AFUDC | 448 |
| | 968 |
| | 1,034 |
| | 2,077 |
| | 1,253 |
| | 2,473 |
|
Other components of net periodic benefit cost | (5,265 | ) | | (4,856 | ) | | (15,794 | ) | | (14,568 | ) | | (20,650 | ) | | (19,508 | ) |
Miscellaneous income and (expense) | (553 | ) | | (657 | ) | | (1,402 | ) | | (1,981 | ) | | (1,765 | ) | | (3,382 | ) |
Southwest Gas Corporation - total other income (deductions) | 836 |
| | (1,775 | ) | | (5,861 | ) | | (5,824 | ) | | (6,425 | ) | | (9,200 | ) |
Infrastructure services segment: | | | | | | | | | | | |
Interest income | 4 |
| | 1 |
| | 6 |
| | 2 |
| | 7 |
| | 2 |
|
Foreign transaction gain (loss) | (91 | ) | | (442 | ) | | 258 |
| | (640 | ) | | 144 |
| | (640 | ) |
Miscellaneous income and (expense) | 125 |
| | 231 |
| | (595 | ) | | 676 |
| | (175 | ) | | 1,825 |
|
Centuri - total other income (deductions) | 38 |
| | (210 | ) | | (331 | ) | | 38 |
| | (24 | ) | | 1,187 |
|
Corporate and administrative | 15 |
| | 5 |
| | 41 |
| | 6 |
| | 48 |
| | 6 |
|
Consolidated Southwest Gas Holdings, Inc. - total other income (deductions) | $ | 889 |
| | $ | (1,980 | ) | | $ | (6,151 | ) | | $ | (5,780 | ) | | $ | (6,401 | ) | | $ | (8,007 | ) |
Included in the table above is the change in cash surrender values of company-owned life insurance (“COLI”) policies (including net death benefits recognized). These life insurance policies on members of management and other key employees are used by Southwest to indemnify itself against the loss of talent, expertise, and knowledge, as well as to provide indirect funding for certain nonqualified benefit plans. Current tax regulations provide fortax-free treatment of life insurance (death benefit) proceeds. Therefore, changes in the cash surrender values of COLI policies, as they progress towards the ultimate death benefits, are also recorded without tax consequences. Refer also to
Note 2 – Components of Net Periodic Benefit Cost. Recently Issued Accounting Standards Updates.
In May 2014, the FASB issued the update “Revenue from Contracts with Customers (Topic 606).” The update replaces much of the current guidance regarding revenue recognition including most industry-specific guidance. In accordance with the update, an entity will be required to identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the entity satisfies a performance obligation. In addition to the new revenue recognition requirements, entities will be required to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Entities may choose between two retrospective transition methods when applying the update. In July 2015, the FASB approved 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 by the utility industry, notably in connection with efforts to produce an accounting guide intended to be developed by the American Institute of Certified Public Accountants (“AICPA”). In association with this undertaking, the AICPA formed a number of industry task forces, including a Power & Utilities (“P&U”) Task Force, on which Company personnel actively participate via formal membership. Industry representatives and organizations, the largest auditing firms, the AICPA’s Revenue Recognition Working Group and its Financial Reporting Executive Committee have undertaken, and continue to undertake, consideration of several items relevant to the utility industry. Where applicable or necessary, the FASB’s Transition Resource Group (“TRG”) has also participated. Through the P&U Task Force undertakings, general determinations were made that contributions received in aid of construction (“CIAC”) efforts related to the industry’s pipe distribution and transmission systems are reimbursements of expenditures rather than revenue (consistent with current accounting practices). Furthermore, regarding the “collectibility” criterion in the update that must be met for revenue recognition, general determinations have been made that contracts for utility service (including service to lower income or lower credit quality customers)
14
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
represent genuine and valid contracts for which revenue is able to be recognized when service is rendered (consistent with current accounting practices). These determinations by the P&U industry are based on the various measures the industry takes to help ensure collectibility (e.g., proof of creditworthiness, customer deposits, late fee assessment, disconnection, servicere-establishment fees, collection processes, etc.), in addition to the regulatory mechanisms established under rate regulation to mitigate the impacts of individual customer nonpayment. Southwest has also actively worked with its peers in the rate-regulated natural gas industry and with the public accounting profession to finalize the accounting treatment for several other issues not separately addressed by the P&U Task Force.
With regard to the construction services segment, the principles of the new revenue recognition guidance are very similar to existing guidance for construction contractors. Similar to the P&U Task Force noted above, the AICPA formed the Engineering and Construction Contractors Task Force to assist the construction industry with implementing the new guidance. The accounting guide the AICPA intends to release is expected to provide implementation guidance related to several issues including 1) combining contracts and separating performance obligations; 2) estimating change orders, incentives, penalties, liquidated damages and other variable consideration items and 3) acceptable measures of progress when recognizing revenue over time.
Management of both segments of the Company has substantially completed assessments of sources of revenue and the effects that adoption of the new guidance will have on the Company’s (and Southwest’s in the case of utility operations) financial position, results of operations, and cash flows. Based on assessments completed to date, management believes that such impacts will not be material overall. Presentation and disclosure requirements of the new guidance will have the most impact on the Company’s financial statements and note disclosures. The Company is currently planning to adopt the new guidance in 2018 under the modified retrospective transition method, as permissible.
In January 2016, the FASB issued the update “Financial Instruments – Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” in order to improve the recognition and measurement of financial instruments. The update makes targeted improvements to existing U.S. GAAP by: 1) requiring equity investments to be measured at fair value with changes in fair value recognized in net income; 2) requiring the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; 3) requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; 4) eliminating the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and 5) requiring a reporting entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. All entities can early adopt the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. Management believes this update will not have a material impact on its consolidated financial statements and disclosures.
In February 2016, the FASB issued the update “Leases (Topic 842).” Under the update, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:
A lease liability which is a lessee’sfor the obligation to make lease payments, arising from a lease, measured on a discounted basis; and
Aright-of-use asset which is an asset that representsfor the lessee’s right to use, or control the use of, a specified asset for the lease term.
Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606,
Revenue“Revenue from Contracts with Customers.
” Though companies have historically been required to make disclosures regarding leases and
of associated contractual obligations, leases
(withwith terms longer than a
year)year will no longer exist
off-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 beginningEarly application 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 apply15
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
a full retrospective transition approach. Early applicationupdate is permitted. Management currently plans towill 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 is2019 (the required adoption date). In July 2018,
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
the FASB issued narrow-scope improvements to the standard, which include, among other things, guidance on lease classification reassessment and certain circumstances surrounding remeasurement. Also included was clarification that lessor-controlled options to terminate a lease are considered in the processlease term.
Management expects to elect various practical expedients and accounting policies regarding the transition method used to implement Topic 842. The Company and Southwest plan to elect the new optional transition method included within the recent FASB update “Leases—Targeted Improvements”, also issued in July 2018, which allows for comparative periods not to be restated. In conjunction with this decision, management currently expects that no retained earnings adjustment will be necessary due to the adoption of evaluating other typesTopic 842. At a minimum, management expects the following regarding Topic 842 practical expedients and accounting policy elections:
To elect to use the “package”, which is a set of arrangementsthree practical expedients that havemust be elected as a package and applied consistently to all of the potential to meetCompany’s and Southwest’s leases. These include: not reassessing whether any expired or existing contracts are or contain leases; not reassessing the definition of a lease classification for expired or existing leases (that is, existing operating and capital leases in accordance with current lease guidance will in each case be classified as operating and finance leases, respectively, under the new standard,updated guidance); and is also innot reassessing initial direct costs for any existing leases.
To elect to adopt 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 standardexclude all easements in place prior to existing easement contracts that were not previously assessed as leasesJanuary 1, 2019 from treatment under historic guidance.Topic 842. However, the Company would still be required toand Southwest will evaluate any new easements entered into after the effective date of the standard to determine if the arrangements should be accounted for as leases.
To make an accounting policy election by asset class to include both the lease and non-lease components (as defined in the guidance) as a single component.
To make an accounting policy election to not apply Topic 842 to short-term leases, as permitted.
Management is
currently evaluatingcontinuing to implement new software systems (one for Southwest and one for Centuri) to facilitate compliance with Topic 842. Management continues to evaluate 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,
and amendments, 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):Losses: Measurement of Credit Losses on Financial Instruments.” The update amends guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, the update eliminates the “probable” threshold for initial recognition of credit losses in current U.S. GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current U.S.
GAAP,GAAP; however, the update will require that credit losses be presented as an allowance rather than as a write-down. This update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The update affects loans, debt securities, trade receivables, net investments in leases,
off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.
All entities may adoptEarly adoption of the amendments in this update
earlier as ofis permitted for interim and related annual fiscal
years beginningperiods after December 15,
2018, including interim periods within those fiscal years.2018. Management is evaluating what impact, if any, this update might have on its consolidated financial statements and disclosures.
In August
2016,2018, the FASB issued the update
“Classification“Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The update generally aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement (that is a service contract) with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update also requires the entity to expense the capitalized implementation costs of
Certain Cash Receipts and Cash Payments.” This update addressessuch hosting arrangements over 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 rateterm 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,hosting arrangement, including
identification of the predominant nature in cases where cash receipts and payments have aspects of more than one class of cash flows.reasonably certain renewal periods. The update is effective for fiscal years beginning after December 15,
2017,2019, including interim periods within those fiscal years. Early adoption
is permitted. Management believesof the amendments in this update
will notis permitted for interim and related annual fiscal periods after December 15, 2018. Management is evaluating the impacts this update might have
a material impact on its consolidated
cash flowfinancial statements and disclosures.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
In
October 2016,August 2018, the FASB issued the update
“Accounting“Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for
Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory.Defined Benefit Plans.” This update
eliminatesremoves disclosures that are no longer considered cost-beneficial, clarifies the
current U.S. GAAP exception forspecific requirements of disclosures, and adds disclosure requirements identified as relevant. The update applies to all
intra-entity sales of assetsemployers that sponsor defined benefit pension or 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.post-retirement plans. The update is effective for fiscal years
beginningending after December 15,
2017, including interim periods within those fiscal years.2020. Early adoption is
permitted; however,permitted. Management is evaluating 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 believesimpacts this update
will notmight have
a material impact on its
consolidated financial statements and disclosures.
In
January 2017,August 2018, the FASB issued the update
“Intangibles—Goodwill and Other (Topic 350): Simplifying“Fair Value Measurement: Disclosure Framework—Changes to the
TestDisclosure Requirements for
Goodwill Impairment.Fair Value Measurement.” The update
eliminates Stepis intended to improve the effectiveness of fair value measurement disclosures and removes the following disclosure requirements: the amount of and reasons for transfers between Level 1 and Level 2
from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparingof the fair value
hierarchy; the policy for timing of
transfers between levels; and the valuation processes for Level 3 fair value measurements. The update also modifies or clarifies for investments in certain entities that calculate net asset value, a
reporting unit with its carrying amount. An impairment charge should be recognized forrequirement to disclose the
amount by whichtiming of liquidation of an investee’s assets and the
carrying amount exceedsdate when restrictions from redemption might lapse (in cases when the timing has been communicated or announced publicly). It also clarifies communication requirements about measurement uncertainty as of the reporting
unit’s16
date. Furthermore, the update added requirements to disclose changes in unrealized gains/losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, as well as the range and weighted average value of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if it would be a more reasonable and rational method to reflect the distribution of inputs to the measurements. Management is evaluating the impacts this update might have on its disclosures.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
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
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Note 2 – Components of Net Periodic Benefit Cost As of January 1, 2018, the Company and Southwest adopted “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The update requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations and be appropriately described. The update also allows only the service cost component (and not the other components of periodic benefit costs) to be eligible for capitalization when applicable, making no exception for specialized industries, including rate-regulated industries. This guidance is required to be applied on a retrospective basis for the presentation of the service cost and other components of net benefit cost, and on a prospective basis for the capitalization of only the service cost component of net benefit cost. Amounts capitalized as part of assets prior to the date of adoption were not adjusted through a cumulative effect adjustment. The guidance allows a practical expedient for the retrospective application that permits use of the amounts disclosed for the various components of net benefit cost in the pension and other postretirement benefit plans footnote as the basis for the retrospective application. This is in lieu of determining how much of the various components of net benefit cost were actually reflected in the income statement each period as a result of capitalization of certain costs into assets and their subsequent amortization. The Company and Southwest have elected to utilize the practical expedient.
Therefore, upon adoption, amounts presented in the Condensed Consolidated Statements of Income for operations and maintenance for the three-, nine-, and twelve-month periods ended September 30, 2017 were reclassified. The Operations and maintenance line item of the Company’s Condensed Consolidated Statements of Income was revised from $102.3 million to $97.4 million for the three months ended September 30, 2017, from $314.5 million to $299.9 million for the nine months ended September 30, 2017, and from $414.2 million to $394.7 million for the twelve months ended September 30, 2017. The Operations and maintenance line item of Southwest’s Condensed Consolidated Statements of Income was revised from $102.2 million to $97.4 million for the three months ended September 30, 2017, from $313.4 million to $298.8 million for the nine months ended September 30, 2017, and from $413.1 million to $393.6 million for the twelve months ended September 30, 2017. The Other income (deductions) line item of the Company’s Condensed Consolidated Statements of Income was revised from $2.9 million to $(2.0) million for the three months ended September 30, 2017, from $8.8 million to $(5.8) million for the nine months ended September 30, 2017, and from $11.5 million to $(8.0) million for the twelve months ended September 30, 2017. The Other income (deductions) line item of Southwest’s Condensed Consolidated Statements of Income was revised from $3.1 million to $(1.8) million for the three months ended September 30, 2017, from $8.7 million to $(5.8) million for the nine months ended September 30, 2017, and from $10.3 million to $(9.2) million for the twelve months ended September 30, 2017. Net income overall was not impacted by this reclassification for either the Company or Southwest.
Southwest has a noncontributory qualified retirement plan with defined benefits covering substantially all employees and a separate unfunded supplemental retirement plan (“SERP”) which is limited to officers. Southwest also provides postretirement benefits other than pensions (“PBOP”) to its qualified retirees for health care, dental, and life insurance.
Net
During the first quarter of 2018, qualifying “term-vested” participants were offered a lump-sum present value payout of their pensions. The offer was primarily intended to reduce insurance and ongoing maintenance costs associated with qualifying participant balances. About one-quarter of the approximate 385 eligible participants accepted the offer, resulting in an approximate $6.8 million payment from pension assets in the third quarter of 2018. The lump sum payout will have no impact on net periodic benefit cost or pension funding requirements during 2018.
The service cost component of net periodic benefit costs included in the table below are components of an overhead loading process associated with the cost of
labor.labor (refer to discussion above related to the update to Topic 715). The overhead process ultimately results in allocation of
that portion of overall net periodic benefit costs to the same accounts to which productive labor is charged. As a result,
net periodic benefitservice costs become components of various accounts, primarily operations and maintenance expense, net utility plant, and deferred charges and other assets for both the Company and Southwest.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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
Refer also to the practical expedient elected related to amounts capitalized as part of assets prior to the adoption date.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Qualified Retirement Plan |
| Period Ended September 30, |
| Three Months | | Nine Months | | Twelve Months |
| 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
(Thousands of dollars) | | | | | | | | | | | |
Service cost | $ | 7,139 |
| | $ | 5,848 |
| | $ | 21,417 |
| | $ | 17,544 |
| | $ | 27,265 |
| | $ | 23,252 |
|
Interest cost | 11,043 |
| | 11,520 |
| | 33,130 |
| | 34,561 |
| | 44,652 |
| | 46,068 |
|
Expected return on plan assets | (14,689 | ) | | (13,799 | ) | | (44,066 | ) | | (41,397 | ) | | (57,865 | ) | | (55,536 | ) |
Amortization of net actuarial loss | 8,029 |
| | 6,001 |
| | 24,086 |
| | 18,003 |
| | 30,087 |
| | 24,319 |
|
Net periodic benefit cost | $ | 11,522 |
| | $ | 9,570 |
| | $ | 34,567 |
| | $ | 28,711 |
| | $ | 44,139 |
| | $ | 38,103 |
|
| | | | | | | | | | | |
| SERP |
| Period Ended September 30, |
| Three Months | | Nine Months | | Twelve Months |
| 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
(Thousands of dollars) | | | | | | | | | | | |
Service cost | $ | 61 |
| | $ | 77 |
| | $ | 183 |
| | $ | 232 |
| | $ | 260 |
| | $ | 315 |
|
Interest cost | 415 |
| | 471 |
| | 1,244 |
| | 1,413 |
| | 1,714 |
| | 1,878 |
|
Amortization of net actuarial loss | 375 |
| | 361 |
| | 1,126 |
| | 1,081 |
| | 1,486 |
| | 1,426 |
|
Net periodic benefit cost | $ | 851 |
| | $ | 909 |
| | $ | 2,553 |
| | $ | 2,726 |
| | $ | 3,460 |
| | $ | 3,619 |
|
| | | | | | | | | | | |
| PBOP |
| Period Ended September 30, |
| Three Months | | Nine Months | | Twelve Months |
| 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
(Thousands of dollars) | | | | | | | | | | | |
Service cost | $ | 368 |
| | $ | 367 |
| | $ | 1,105 |
| | $ | 1,101 |
| | $ | 1,472 |
| | $ | 1,476 |
|
Interest cost | 687 |
| | 808 |
| | 2,061 |
| | 2,424 |
| | 2,869 |
| | 3,218 |
|
Expected return on plan assets | (929 | ) | | (839 | ) | | (2,789 | ) | | (2,518 | ) | | (3,629 | ) | | (3,305 | ) |
Amortization of prior service costs | 334 |
| | 333 |
| | 1,002 |
| | 1,001 |
| | 1,336 |
| | 1,335 |
|
Amortization of net actuarial loss | — |
| | — |
| | — |
| | — |
| | — |
| | 105 |
|
Net periodic benefit cost | $ | 460 |
| | $ | 669 |
| | $ | 1,379 |
| | $ | 2,008 |
| | $ | 2,048 |
| | $ | 2,829 |
|
Note 3 – Revenue
Effective January 2018, the Company and Southwest adopted the FASB Accounting Standards Codification update, Topic 606, “Revenue from Contracts with Customers”, using the modified retrospective transition method. Under the modified retrospective approach, the information for periods prior to the adoption date has not been restated and continues to be reported under the accounting standards in effect for those periods. As permitted under the standard, the Company and Southwest have elected to apply the guidance retrospectively only to those contracts that were not completed at January 1, 2018. Management assessed the effects the new guidance has on the Company’s (and Southwest’s, in the case of utility operations) financial position, results of operations, and cash flows. Based on these assessments, the adoption of Topic 606 had no material impact on any of the financial statements of Southwest or the Company.
The following information about the Company’s revenues is presented by segment. Southwest encompasses one segment – natural gas operations.
Natural Gas Operations Segment:
Southwest is engaged in the business of purchasing, distributing, and transporting natural gas for customers in portions of Arizona, Nevada, and California. Public utility rates, practices, facilities, and service territories of Southwest are subject to regulatory oversight. Southwest recognizes revenue when it satisfies its performance by transferring gas to the customer. Revenues also include the net impacts of margin tracker/decoupling accruals based on criteria in U.S. GAAP for rate-regulated entities associated with alternative revenue programs. Revenues from customer arrangements and from alternative revenue programs are described below.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Southwest acts as an agent for state and local taxing authorities in the collection and remission of a variety of taxes, including sales and use taxes and surcharges. These taxes are not included in Gas operating revenues. Management uses the net classification method to report taxes collected from customers to be remitted to governmental authorities.
Southwest generally offers two types of services to its customers: tariff sales and transportation–only service. Tariff sales encompass sales to many types of customers (primarily residential) under various rate schedules, subject to cost-of-service ratemaking, which is based on the rate-regulation of state commissions and the FERC. Southwest provides both the commodity and the related distribution service to nearly all of its approximate 2 million customers, and only several hundred customers (who are eligible to secure their own gas) subscribe to transportation-only service. Also, only a few hundred customers have contracts with stated periods. Southwest recognizes revenue when it satisfies its performance requirement by transferring volumes of gas to the customer. Natural gas is delivered and consumed by the customer simultaneously. The provision of service is represented by the turn of the meter dial and is the primary representation of the satisfaction of performance obligations of Southwest. The amount billable via regulated rates (both volumetric and fixed monthly rates as part of rate design) corresponds to the value to the customer, and management believes that the amount billable under the “invoice practical expedient” (amount Southwest has the right to invoice) is appropriate to utilize for purposes of recognizing revenue. Estimated amounts remaining unbilled since the last meter read date are restricted from being billed due only to the passage of time and therefore are also recognized for service provided through the balance sheet date. While natural gas service is typically recurring, there is generally not a contract term for utility service. Therefore, the contract term is not generally viewed to extend beyond the service provided to date, and customers can generally terminate service at will.
Transportation-only service is also governed by tariff rate provisions. Transportation-only service is generally only available to very large customers under requirements of Southwest’s various tariffs. With this service, customers secure their own gas supply and Southwest provides transportation services to move the customer-supplied gas to the intended location. Southwest concluded that transportation/transmission service is suitable to an “over time” model. Rate structures under Southwest’s regulation for transportation customers include a combination of volumetric charges and monthly “fixed” charges (including charges commonly referred to as capacity charges, demand charges, or reservation charges) as part of the rate design of regulated jurisdictions. These types of fixed charges represent a separate performance obligation associated with standing ready over the period of the month to deliver quantities of gas, regardless of whether the customer takes delivery of any quantity of gas. The performance obligations under these circumstances are satisfied over the course of the month under an output measure of progress based on time, which correlates to the period for which the charges are eligible to be invoiced.
Under its regulation, Southwest enters into negotiated rate contracts for those customers located in proximity to another pipeline, which pose a threat of bypassing its distribution system. Southwest may also enter into similar contracts for customers otherwise able to satisfy their energy needs by means of alternative fuel to natural gas. Less than two dozen customers are party to contracts with rate components subject to negotiation. Many rate provisions and terms of service for these less common types of contracts are also subject to regulatory oversight and tariff provisions. The performance obligations for these customers are satisfied similarly to those for other customers by means of transporting/delivering natural gas to the customer. Many or most of the rate components, and structures, for these types of customers are the same as those for similar customers without negotiated rate components; and the negotiated rates are within the parameters of the tariff guidelines. Management determined that these arrangements qualify for the invoice practical expedient for recognizing revenue. Furthermore, while some of these contracts include contract periods extending over time, including multiple years, as amounts billable under the contract are based on rates in effect for the customer for service provided to date, no significant financing component is deemed to exist.
As indicated above, revenues also include the net impacts of margin tracker/decoupling accruals. All of Southwest’s service territories have decoupled rate structures (also referred to as alternative revenue programs) that are designed to eliminate the direct link between volumetric sales and revenue, thereby mitigating the impacts of unusual weather variability and conservation on margin. The primary alternative revenue programs involve permissible adjustments for differences between stated tariff benchmarks and amounts billable through revenue from contracts with customers via existing rates. Such adjustments are recognized monthly in revenue and in the associated regulatory asset/liability accounts in advance of rate adjustments intended to collect or return amounts recognized. Revenues recognized for the adjustment to the benchmarks noted are required to be presented separately from revenues from contracts from customers, and as such, are provided below and identified as alternative revenue program revenue.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
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 | | Nine Months Ended | | Twelve Months Ended |
| September 30, | | September 30, | | September 30, |
(Thousands of dollars) | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Residential | $ | 120,249 |
| | $ | 123,459 |
| | $ | 631,562 |
| | $ | 624,638 |
| | $ | 864,128 |
| | $ | 854,840 |
|
Small commercial | 40,020 |
| | 41,656 |
| | 183,616 |
| | 173,799 |
| | 253,330 |
| | 237,430 |
|
Large commercial | 11,360 |
| | 11,475 |
| | 39,934 |
| | 37,851 |
| | 54,462 |
| | 50,397 |
|
Industrial/other | 5,390 |
| | 5,024 |
| | 17,391 |
| | 15,518 |
| | 23,899 |
| | 20,946 |
|
Transportation | 19,818 |
| | 20,545 |
| | 64,591 |
| | 64,235 |
| | 88,115 |
| | 86,528 |
|
Revenue from contracts with customers | 196,837 |
| | 202,159 |
| | 937,094 |
| | 916,041 |
| | 1,283,934 |
| | 1,250,141 |
|
Alternative revenue program revenues (deferrals) | 9,094 |
| | 9,123 |
| | 46,696 |
| | 15,026 |
| | 67,017 |
| | 21,300 |
|
Other revenues (a) | 11,592 |
| | 1,777 |
| | 3,725 |
| | 4,756 |
| | 3,049 |
| | 4,867 |
|
Total Gas operating revenues | $ | 217,523 |
| | $ | 213,059 |
| | $ | 987,515 |
| | $ | 935,823 |
| | $ | 1,354,000 |
| | $ | 1,276,308 |
|
| |
(a) | Includes various other revenues, and during the first six months of 2018, included $12.5 million as a reserve against revenue associated with a tax reform savings adjustment. During the third quarter of 2018, amounts previously recognized were reclassified to the various categories of revenue from contracts with customers when incorporated in tariff rates. Refer to Income Taxes in Note 1 – Nature of Operations and Basis of Presentation. |
Infrastructure Services Segment:
The majority of Centuri contracts are performed under unit-price contracts. Generally, these contracts state prices per unit of installation. Typical installations are accomplished in a few weeks or less. Revenues are recorded as installations are completed. Revenues are recorded for long-term fixed-price contracts in a pattern that reflects the transfer of control of promised goods and services to the customer over time. The amount of revenue recognized on fixed-price contracts is based on costs expended to date relative to anticipated final contract costs. Some unit-price contracts contain caps that if encroached, trigger revenue and loss recognition similar to a fixed-price contract model.
Centuri is required to collect taxes imposed by various governmental agencies on the work performed by Centuri for its customers. These taxes are not included in Construction revenues. Management uses the net classification method to report taxes collected from customers to be remitted to governmental authorities.
Centuri derives revenue from the installation, replacement, repair, and maintenance of energy distribution systems, and in developing industrial construction solutions. Centuri has operations in the U.S. and Canada. The majority of Centuri’s revenues are related to contracts for natural gas pipeline replacement and installation work for natural gas utilities. In addition, Centuri performs certain industrial construction activities for various customers and industries. Centuri has two types of agreements with its customers: master services agreements (“MSAs”) and bid contracts. Most of Centuri’s customers supply many of their own materials in order for Centuri to complete its work under the contracts.
An MSA identifies most of the terms describing each party’s rights and obligations that will govern future work authorizations. An MSA is often effective for multiple years. A work authorization is issued by the customer to describe the location, timing, and any additional information necessary to complete the work for the customer. The combination of the MSA and the work authorization determines when a contract exists and revenue recognition may begin. Each work authorization is generally a single performance obligation as Centuri is performing a significant integration service. Centuri has elected to use the portfolio method practical expedient at the customer level as the terms and conditions of the work performed under MSAs are similar in nature with each customer but vary significantly between customers.
A bid contract is typically a one-time agreement for a specific project that has all necessary terms defining each party’s rights and obligations. Each bid contract is evaluated for revenue recognition individually. Control of assets created under bid contracts generally passes to the customer over time. Bid contracts often have a single performance obligation as Centuri is providing a significant integration service.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Centuri’s MSA and bid contracts are characterized as either fixed-price contracts or unit-price contracts for revenue recognition purposes. The cost-to-cost input method is used to measure progress towards the satisfaction of a performance obligation for fixed-price contracts. Input methods result in the recognition of revenue based on the entity’s effort to satisfy the performance obligation relative to the total expected effort to satisfy the performance obligation. For unit-price contracts, an output method is used to measure progress towards satisfaction of a performance obligation. Also with regard to unit-price contracts, the output measurement will be the completion of each unit that is required under the contract.
Actual revenues and project costs can vary, sometimes substantially, from previous estimates due to changes in a variety of factors, including unforeseen circumstances not originally contemplated. These factors, along with other risks inherent in performing fixed-price contracts may cause actual revenues and gross profit for a project to differ from previous estimates and could result in reduced profitability or losses on projects. Changes in these factors may result in revisions to costs and earnings, the impacts for which are recognized in the period in which the changes are identified. Once identified, these types of conditions continue to be evaluated for each project throughout the project term and ongoing revisions in management’s estimates of contract value, contract cost, and contract profit are recognized as necessary in the period determined.
Centuri categorizes work performed under MSAs and bid contracts into three primary service types: replacement gas construction, new gas construction, and other construction. Replacement gas construction includes work involving previously existing gas pipelines. New gas construction involves the installation of new pipelines or service lines to areas that do not already have gas services. Other construction includes all other work and can include industrial installation, water infrastructure installation, electric infrastructure installation, etc.
Contracts can have consideration that is variable. For MSAs, variable consideration is evaluated at the customer level as the terms creating variability in pricing are included within the MSA and are not specific to a work authorization. For multi-year MSAs, variable consideration items are typically determined for each year of the contract and not for the full contract term. For bid contracts, variable consideration is evaluated at the individual contract level. The expected value method or most likely amount method is used based on the nature of the variable consideration. Types of variable consideration include liquidated damages, delay penalties, performance incentives, safety bonuses, payment discounts, and volume rebates. Centuri will typically estimate variable consideration and adjust financial information, as necessary.
Change orders involve the modification in scope, price, or both to the current contract, requiring approval by both parties. The existing terms of the contract continue to be accounted for under the current contract until such time as a change order is approved. Once approved, the change order is either treated as a separate contract or as part of the existing contract, as appropriate, under the circumstances. When the scope is agreed upon in the change order but not the price, Centuri estimates the change to the transaction price.
The following tables display Centuri’s revenue from contracts with customers disaggregated by service type and contract type:
|
| | | | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | Three Months Ended | | Nine Months Ended | | Twelve Months Ended |
| September 30, | | September 30, | | September 30, |
| 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Service Types: | | | | | | | | | | | |
Replacement gas construction | $ | 305,177 |
| | $ | 238,957 |
| | $ | 718,598 |
| | $ | 540,907 |
| | $ | 965,757 |
| | $ | 765,068 |
|
New gas construction | 50,544 |
| | 43,216 |
| | 131,017 |
| | 116,521 |
| | 179,872 |
| | 180,093 |
|
Other construction | 94,902 |
| | 97,921 |
| | 256,229 |
| | 215,108 |
| | 334,163 |
| | 228,415 |
|
Total Construction revenues | $ | 450,623 |
| | $ | 380,094 |
| | $ | 1,105,844 |
| | $ | 872,536 |
| | $ | 1,479,792 |
| | $ | 1,173,576 |
|
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | Three Months Ended | | Nine Months Ended | | Twelve Months Ended |
| September 30, | | September 30, | | September 30, |
| 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Contract Types: | | | | | | | | | | | |
Master services agreement | $ | 348,274 |
| | $ | 261,576 |
| | $ | 832,813 |
| | $ | 617,129 |
| | $ | 1,101,216 |
| | $ | 831,465 |
|
Bid contract | 102,349 |
| | 118,518 |
| | 273,031 |
| | 255,407 |
| | 378,576 |
| | 342,111 |
|
Total Construction revenues | $ | 450,623 |
| | $ | 380,094 |
| | $ | 1,105,844 |
| | $ | 872,536 |
| | $ | 1,479,792 |
| | $ | 1,173,576 |
|
| | | | | | | | | | | |
Unit priced contracts | $ | 368,918 |
| | $ | 332,462 |
| | $ | 948,593 |
| | $ | 782,560 |
| | $ | 1,286,059 |
| | $ | 993,294 |
|
Fixed priced contracts | 81,705 |
| | 47,632 |
| | 157,251 |
| | 89,976 |
| | 193,733 |
| | 180,282 |
|
Total Construction revenues | $ | 450,623 |
| | $ | 380,094 |
| | $ | 1,105,844 |
| | $ | 872,536 |
| | $ | 1,479,792 |
| | $ | 1,173,576 |
|
The following table provides information about contracts receivable and revenue earned on contracts in progress in excess of billings (contract asset), which are both included within Accounts receivable, net of allowances, and amounts billed in excess of revenue earned on contracts (contract liability), which are included in Other current liabilities as of September 30, 2018 and December 31, 2017 on the Company’s Condensed Consolidated Balance Sheets:
|
| | | | | | | |
(Thousands of dollars) | September 30, 2018 | | December 31, 2017 |
Contracts receivable, net | $ | 191,923 |
| | $ | 221,859 |
|
Revenue earned on contracts in progress in excess of billings | 85,554 |
| | 5,768 |
|
Amounts billed in excess of revenue earned on contracts | 7,192 |
| | 9,602 |
|
The revenue earned on contracts in progress in excess of billings (contract asset) primarily relates to Centuri’s rights to consideration for work completed but not billed and/or approved at the reporting date. These contract assets are transferred to contracts receivable when the rights become unconditional. Upon adoption of Topic 606, the Company reclassified $51.7 million to revenue earned on contracts in progress in excess of billings, and during the nine months ended September 30, 2018, recognized an increase of $33.8 million, excluding the impact from the adoption, primarily related to normal operating and billing activities. The amounts billed in excess of revenue earned (contract liability) primarily relates to the advance consideration received from customers for which work has not yet been completed. The change in this contract liability balance from January 1, 2018 to September 30, 2018 is due to revenue recognized of $9.6 million that was included in this item as of January 1, 2018, and to increases due to cash received, net of revenue recognized during the period related to contracts that commenced during the period.
Prior to the adoption of Topic 606, revenue earned on contracts in progress in excess of billings was only used to recognize contract assets related to fixed-price contracts under previous accounting guidance. This balance now includes any conditional contract assets for both fixed-price contracts and unit-price contracts. Centuri considers retention and unbilled amounts to customers to be conditional contract assets, as payment is contingent on the occurrence of a future event. Contracts receivable, net, includes only amounts that are unconditional in nature, which means only the passage of time remains and Centuri has invoiced the customer. Similarly, amounts billed in excess of revenue earned on contracts was only used to recognize contract liabilities related to fixed-price contracts under previous accounting guidance. This line item now includes contract liabilities related to both fixed-price contracts and unit-price contracts. In the event a contract asset or contract liability is expected to be recognized for greater than one year from the financial statement date, Centuri classifies those amounts as long-term contract assets or contract liabilities, included in Deferred charges and other assets or Other deferred credits and other long-term liabilities on the Company’s Condensed Consolidated Balance Sheets.
For Centuri’s contracts that have an original duration of one year or less, Centuri uses the practical expedient applicable to such contracts and does not consider the time value of money. Further, because of the short duration of these contracts, Centuri has not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period or when the Company expects to recognize the revenue.
Centuri has sixteen contracts that had an original duration of more than one year. The aggregate amount of the transaction price allocated to the unsatisfied performance obligations of these contracts as of September 30, 2018 is $71 million. Centuri expects to recognize the remaining performance obligations over the next four years; however, the timing of that recognition is largely within the control of the customer, including when the necessary equipment and materials required to complete the work are provided by the customer.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Construction services contracts receivable consists of the following:
|
| | | |
| |
(Thousands of dollars) | September 30, 2018 |
Billed on completed contracts and contracts in progress | $ | 189,619 |
|
Other receivables | 2,424 |
|
| |
Contracts receivable, gross | 192,043 |
|
Allowance for doubtful accounts | (120 | ) |
| |
Contracts receivable, net | $ | 191,923 |
|
| |
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Note
34 – Segment Information
The Company has two reportable segments: natural gas operations and
constructioninfrastructure services. Southwest has a single reportable segment that is referred to herein as the natural gas operations segment of the Company. In order to reconcile to net income as disclosed in the Condensed Consolidated Statements of Income, an Other column is included associated with impacts related to corporate and administrative activities related to Southwest Gas Holdings, Inc. The following tables present revenues from external customers, intersegment revenues, and segment net income for the two reportable segments (thousands of dollars):
| | | | | | | | | | | | | | | | |
| | Natural Gas Operations | | | Construction Services | | | Other | | | Total | |
Three months ended 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 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Natural Gas Operations | | Infrastructure Services | | Other | | Total |
Three Months Ended September 30, 2018 | | | | | | | |
Revenues from external customers | $ | 217,523 |
| | $ | 414,175 |
| | $ | — |
| | $ | 631,698 |
|
Intersegment revenues | — |
| | 36,448 |
| | — |
| | 36,448 |
|
Total | $ | 217,523 |
| | $ | 450,623 |
| | $ | — |
| | $ | 668,146 |
|
Segment net income (loss) | $ | (13,670 | ) | | $ | 26,798 |
| | $ | (797 | ) | | $ | 12,331 |
|
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 |
|
| | | | | | | |
| Natural Gas Operations | | Infrastructure Services | | Other | | Total |
Nine Months Ended September 30, 2018 | | | | | | | |
Revenues from external customers | $ | 987,515 |
| | $ | 1,009,166 |
| | $ | — |
| | $ | 1,996,681 |
|
Intersegment revenues | — |
| | 96,678 |
| | — |
| | 96,678 |
|
Total | $ | 987,515 |
| | $ | 1,105,844 |
| | $ | — |
| | $ | 2,093,359 |
|
Segment net income (loss) | $ | 79,301 |
| | $ | 35,034 |
| | $ | (1,362 | ) | | $ | 112,973 |
|
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 |
|
| | | | | | | |
| Natural Gas Operations | | Infrastructure Services | | Other | | Total |
Twelve Months Ended September 30, 2018 | | | | | | | |
Revenues from external customers | $ | 1,354,000 |
| | $ | 1,358,418 |
| | $ | — |
| | $ | 2,712,418 |
|
Intersegment revenues | — |
| | 121,374 |
| | — |
| | 121,374 |
|
Total | $ | 1,354,000 |
| | $ | 1,479,792 |
| | $ | — |
| | $ | 2,833,792 |
|
Segment net income (loss) | $ | 153,683 |
| | $ | 57,677 |
| | $ | (1,922 | ) | | $ | 209,438 |
|
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 |
|
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Note
45 – Derivatives and Fair Value Measurements
Derivatives. In managing its natural gas supply portfolios, Southwest has historically entered into fixed- and variable-price contracts, which qualify as derivatives. Additionally, Southwest utilizesfixed-for-floating swap contracts (“Swaps”) to supplement its fixed-price contracts. The fixed-price contracts, firm commitments to purchase a fixed amount of gas in the future at a fixed price, qualify for the normal purchases and normal sales exception that is allowed for contracts that are probable of delivery in the normal course of business, and are exempt from fair value reporting.19
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
The variable-price contracts havequalify as derivative instruments; however, because the contract price is the prevailing price at the future transaction date, the contract has no significant marketdeterminable fair value. The SwapsSwaps’ contract prices are determined at the beginning of each month to reflect that month’s published first of month index price and are recorded at fair value.
Southwest does not utilize derivative financial instruments for speculative purposes, nor does it have trading operations.
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
201731, 2018 through
MarchOctober 31, 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.
|
| | | | | |
| September 30, 2018 | | December 31, 2017 |
Contract notional amounts | 14,157 |
| | 10,929 |
|
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,
20172018 and
20162017 and their location in the Condensed Consolidated Statements of Income for both the Company and Southwest:
Gains (losses) recognized in income for derivatives not designated as hedging instruments:
(Thousands of dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 | | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | | | | | | | | | | | | | |
| | | | Three Months Ended | | Nine Months Ended | | Twelve Months Ended | |
| | Location of Gain or (Loss) Recognized in Income on Derivative | | September 30, | | September 30, | | September 30, | |
Instrument | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | |
Swaps | | Net cost of gas sold | | $ | 511 |
| | $ | (546 | ) | | $ | (3,815 | ) | | $ | (6,851 | ) | | $ | (8,536 | ) | | $ | (4,098 | ) | |
Swaps | | Net cost of gas sold | | (511 | ) | * | 546 |
| * | 3,815 |
| * | 6,851 |
| * | 8,536 |
| * | 4,098 |
| * |
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 over
ten-year periods from Accumulated other comprehensive income (loss) into interest expense.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
The following table sets forth the fair values of the Swaps and their location in the Condensed Consolidated Balance Sheets for both the Company and Southwest (thousands of dollars):
Fair values of derivatives not designated as hedging instruments:
| | | | | | | | | | | | | | |
September 30, 2017 Instrument | | Balance Sheet Location | | Asset Derivatives | | | Liability Derivatives | | | Net Total | |
Swaps | | Prepaids and other current assets | | $ | 56 | | | $ | (22 | ) | | $ | 34 | |
Swaps | | Other current liabilities | | | 27 | | | | (1,899 | ) | | | (1,872 | ) |
Swaps | | Other deferred credits | | | 1 | | | | (768 | ) | | | (767 | ) |
| | | | | | | | | | | | | | |
Total | | | | $ | 84 | | | $ | (2,689 | ) | | $ | (2,605 | ) |
| | | | | | | | | | | | | | |
| | | | |
December 31, 2016 Instrument | | Balance Sheet Location | | Asset Derivatives | | | Liability Derivatives | | | Net Total | |
Swaps | | Deferred charges and other assets | | $ | 899 | | | $ | (54 | ) | | $ | 845 | |
Swaps | | Prepaids and other current assets | | | 3,551 | | | | (19 | ) | | | 3,532 | |
| | | | | | | | | | | | | | |
Total | | | | $ | 4,450 | | | $ | (73 | ) | | $ | 4,377 | |
| | | | | | | | | | | | | | |
20
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
|
| | | | | | | | | | | | | | |
September 30, 2018 | | | | Asset | | Liability | | |
Instrument | | Balance Sheet Location | | Derivatives | | Derivatives | | Net Total |
Swaps | | Deferred charges and other assets | | $ | 24 |
| | $ | — |
| | $ | 24 |
|
Swaps | | Other current liabilities | | 1,038 |
| | (5,735 | ) | | (4,697 | ) |
Swaps | | Other deferred credits and other long-term liabilities | | 57 |
| | (188 | ) | | (131 | ) |
Total | | | | $ | 1,119 |
| | $ | (5,923 | ) | | $ | (4,804 | ) |
| | | | | | | | |
December 31, 2017 | | | | Asset | | Liability | | |
Instrument | | Balance Sheet Location | | Derivatives | | Derivatives | | Net Total |
Swaps | | Other current liabilities | | $ | 11 |
| | $ | (4,468 | ) | | $ | (4,457 | ) |
Swaps | | Other deferred credits and other long-term liabilities | | 19 |
| | (1,342 | ) | | (1,323 | ) |
Total | | | | $ | 30 |
| | $ | (5,810 | ) | | $ | (5,780 | ) |
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
purchasedpurchase gas adjustment (“PGA”) mechanism in determining
itsthe deferred PGA balances. Neither changes in fair value nor settled amounts of Swaps have a direct effect on earnings or other comprehensive income.
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 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | | Twelve Months Ended |
(Thousands of dollars) | September 30, 2018 | | September 30, 2018 | | September 30, 2018 |
Paid to counterparties | $ | 866 |
| | $ | 4,797 |
| | $ | 6,343 |
|
Received from counterparties | $ | — |
| | $ | 6 |
| | $ | 6 |
|
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 | ) |
|
| | | | | | |
September 30, 2018 | | | | |
Instrument | | Balance Sheet Location | | Net Total |
Swaps | | Other deferred credits and other long-term liabilities | | $ | (24 | ) |
Swaps | | Prepaids and other current assets | | 4,697 |
|
Swaps | | Deferred charges and other assets | | 131 |
|
| | | | |
December 31, 2017 | | | | |
Instrument | | Balance Sheet Location | | Net Total |
Swaps | | Prepaids and other current assets | | $ | 4,457 |
|
Swaps | | Deferred charges and other assets | | 1,323 |
|
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Fair Value Measurements. The estimated fair values of Southwest’s Swaps were determined at September 30, 20172018 and December 31, 20162017 using New York Mercantile Exchange (“NYMEX”) futures settlement prices, published by the CME Group, for the delivery of natural gas at Henry Hub adjusted by the price of NYMEX ClearPort basis Swaps,future settlement bases, which reflect the difference between the price of natural gas at a given delivery basin and the Henry Hub pricing points. These Level 2 inputs (inputs, other than quoted prices, for similar assets or liabilities) are observable in the marketplace throughout the full term of the Swaps, but have been credit-risk adjusted with no significant impact to the overall fair value measurement. The following table sets forth, by level within the three-level fair value hierarchy that ranks the inputs used to measure fair value by their reliability, the financial assets and liabilities that were accounted for at fair value by both the Company and Southwest:
21
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Level 2—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 | |
| | | | | | | | |
|
| | | | | | | |
(Thousands of dollars) | September 30, 2018 | | December 31, 2017 |
Assets at fair value: | | | |
Deferred charges and other assets - Swaps | $ | 24 |
| | $ | — |
|
Liabilities at fair value: | | | |
Other current liabilities - Swaps | (4,697 | ) | | (4,457 | ) |
Other deferred credits and other long-term liabilities - Swaps | (131 | ) | | (1,323 | ) |
Net Assets (Liabilities) | $ | (4,804 | ) | | $ | (5,780 | ) |
No financial assets or liabilities associated with the Swaps, which were accounted for at fair value, fell within Level 1 (quoted prices in active markets for identical financial assets) or Level 3 (significant unobservable inputs) of the fair value hierarchy.
With regard to the fair values of assets associated with pension and postretirement benefit plans, asset values were last updated as required as of December 2016.2017. Refer to Note 1011 – Pension and Other Post Retirement Benefits in the 20162017 Annual Report to Shareholders, onwhich is incorporated by reference into the 2017 Form10-K. Note
56 – Common Stock
In January 2017, the holding company reorganization was made effective and each outstanding share of Southwest Gas Corporation common stock was converted into a share of common stock in Southwest Gas Holdings, Inc., on 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”)SEC an automatic shelf registration statement on Form
S-3 (File
No. 333-217018), which became effective upon filing, for the offer and sale of up to $150 million of common stock from time to time in
at-the-market offerings under the prospectus included therein and in accordance with the Sales Agency Agreement, dated March 29, 2017, between the Company and BNY Mellon Capital Markets, LLC (the “Equity Shelf Program”). During the three months
and nine months endingended September 30,
2017,2018, the Company sold, through the
continuous equity offering program with BNY Mellon Capital Markets, LLC as agent,Equity Shelf Program, an aggregate of
147,077259,473 shares of the Company’s common stock in the open market at a weighted average price of
$80.07$78.83 per share, resulting in proceeds to the Company of
$11,659,104,$20,250,309 net of
$117,769$204,549 in agent commissions. During the nine months ended September 30, 2018, the Company sold, through the Equity Shelf Program, an aggregate of 1,145,705 shares of the Company’s common stock in the open market at a weighted average price of $74.32 per share, resulting in proceeds to the Company of $84,298,476 net of $851,500 in agent commissions. During the twelve months ended September 30, 2018, the Company sold, through the Equity Shelf Program, an aggregate of 1,504,335 shares of the Company’s common stock in the open market at a weighted average price of $76.55 per share, resulting in proceeds to the Company of $113,998,400, net of $1,151,499 in agent commissions. As of September 30,
2017,2018, the Company had up to
$138,223,127$23,073,229 of common stock available for sale under the program. Net proceeds from the sale of shares of common stock under the Equity Shelf Program are intended for general corporate purposes, including the acquisition of property for the construction, completion, extension, or improvement of pipeline systems and facilities located in and around the communities served by Southwest.
Commensurate with these intentions, proceeds during the 3rd quarter of 2017 were contributed to, and reflected in the records of, Southwest (as a capital contribution from the parent holding company).During the nine months ended September 30,
2017,2018, the Company issued approximately
103,00078,000 shares of common stock through the Restricted Stock/Unit Plan and Management Incentive Plan.
Also during the nine months ended September 30, 2018, the Company issued 109,000 shares of common stock through the Dividend Reinvestment and Stock Purchase Plan (“DRSPP”), raising approximately $7.8 million.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Carrying amounts of long-term debt and related estimated fair values as of September 30,
20172018 and December 31,
20162017 are disclosed in the following table. Southwest’s revolving credit facility (including commercial paper) and the variable-rate Industrial Development Revenue Bonds (“IDRBs”) approximate their carrying values, as they are repaid quickly (in the case of credit facility borrowings) and have interest rates that reset frequently. These are categorized as Level 1 due to Southwest’s ability to access similar debt arrangements at measurement dates with comparable terms, including variable/market rates. The fair values of Southwest’s debentures, senior notes, and fixed-rate IDRBs were determined utilizing a market-based valuation approach, where fair values are determined based on evaluated
22
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
pricing data, such as broker quotes and yields for similar securities adjusted for observable differences. Significant inputs used in the valuation generally include benchmark yield curves, credit ratings and issuer spreads. The external credit rating, coupon rate, and maturity of each security are considered in the valuation, as applicable. The fair values of debentures and fixed-rate IDRBs are categorized as Level 2 (observable market inputs based on market prices of similar securities). 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, 20172018 |
In March 2017,
|
| | | | | | | | | | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
(Thousands of dollars) | | | | | | | | |
Southwest Gas Corporation: | | | | | | | | |
Debentures: | | | | | | | | |
Notes, 4.45%, due 2020 | | $ | 125,000 |
| | $ | 126,808 |
| | $ | 125,000 |
| | $ | 129,273 |
|
Notes, 6.1%, due 2041 | | 125,000 |
| | 147,874 |
| | 125,000 |
| | 158,304 |
|
Notes, 3.875%, due 2022 | | 250,000 |
| | 251,003 |
| | 250,000 |
| | 256,163 |
|
Notes, 4.875%, due 2043 | | 250,000 |
| | 262,023 |
| | 250,000 |
| | 283,243 |
|
Notes, 3.8%, due 2046 | | 300,000 |
| | 273,843 |
| | 300,000 |
| | 302,970 |
|
Notes, 3.7%, due 2028 | | 300,000 |
| | 293,304 |
| | — |
| | — |
|
8% Series, due 2026 | | 75,000 |
| | 93,836 |
| | 75,000 |
| | 96,063 |
|
Medium-term notes, 7.78% series, due 2022 | | 25,000 |
| | 27,686 |
| | 25,000 |
| | 28,714 |
|
Medium-term notes, 7.92% series, due 2027 | | 25,000 |
| | 29,693 |
| | 25,000 |
| | 31,542 |
|
Medium-term notes, 6.76% series, due 2027 | | 7,500 |
| | 8,596 |
| | 7,500 |
| | 8,882 |
|
Unamortized discount and debt issuance costs | | (12,037 | ) | | | | (9,350 | ) | | |
| | 1,470,463 |
| | | | 1,173,150 |
| | |
Revolving credit facility and commercial paper | | 150,000 |
| | 150,000 |
| | 150,000 |
| | 150,000 |
|
Industrial development revenue bonds: | | | | | | | | |
Variable-rate bonds: | | | | | | | | |
Tax-exempt Series A, due 2028 | | 50,000 |
| | 50,000 |
| | 50,000 |
| | 50,000 |
|
2003 Series A, due 2038 | | 50,000 |
| | 50,000 |
| | 50,000 |
| | 50,000 |
|
2008 Series A, due 2038 | | 50,000 |
| | 50,000 |
| | 50,000 |
| | 50,000 |
|
2009 Series A, due 2039 | | 50,000 |
| | 50,000 |
| | 50,000 |
| | 50,000 |
|
Unamortized discount and debt issuance costs | | (1,842 | ) | | | | (2,119 | ) | | |
| | 198,158 |
| | | | 197,881 |
| | |
Less: current maturities | | — |
| | | | — |
| | |
Long-term debt, less current maturities - Southwest Gas Corporation | | $ | 1,818,621 |
| | | | $ | 1,521,031 |
| | |
Centuri: | | | | | | | | |
Centuri term loan facility | | $ | 189,002 |
| | $ | 195,247 |
| | $ | 199,578 |
| | $ | 207,588 |
|
Unamortized debt issuance costs | | (941 | ) | | | | (1,111 | ) | | |
| | 188,061 |
| | | | 198,467 |
| | |
Centuri secured revolving credit facility | | 78,217 |
| | 78,277 |
| | 56,472 |
| | 56,525 |
|
Centuri other debt obligations | | 72,171 |
| | 71,966 |
| | 47,952 |
| | 48,183 |
|
Less: current maturities | | (33,429 | ) | | | | (25,346 | ) | | |
Long-term debt, less current maturities - Centuri | | $ | 305,020 |
| | | | $ | 277,545 |
| | |
Consolidated Southwest Gas Holdings, Inc.: | | | | | | | | |
Southwest Gas Corporation long-term debt | | $ | 1,818,621 |
| | | | $ | 1,521,031 |
| | |
Centuri long-term debt | | 338,449 |
| | | | 302,891 |
| | |
Less: current maturities | | (33,429 | ) | | | | (25,346 | ) | | |
Long-term debt, less current maturities - Southwest Gas Holdings, Inc. | | $ | 2,123,641 |
| | | | $ | 1,798,576 |
| | |
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Southwest amended itshas a $400 million credit facility increasing the borrowing capacity from $300 million to $400 million. Also, the facility was previouslythat is scheduled to expire in March 2021 and was extended to March 2022. Southwest continues to designatedesignates $150 million of capacity related to the facility as long-term debt and with the total capacity now available, has designated the remaining $250 million for working capital purposes. Interest rates for the credit facility are calculated at either the London Interbank Offered Rate (“LIBOR”) or an “alternate base rate,” plus in each case an applicable margin that is determined based on the Southwest’s senior unsecured debt rating. At September 30, 2017,2018, the applicable margin is 1% for loans bearing interest with reference to LIBOR and 0% for loans bearing interest with reference to the alternative base rate. At September 30, 2017,2018, $150 million was outstanding on the long-term portion (including the commercial paper program, discussed below) and $83$9 million was outstanding on the short-term portion of this credit facility (See(see Note 78 – Short-Term Debt). Southwest has a $50 million commercial paper program. Any issuance under the commercial paper program is supported by Southwest’s current revolving credit facility and, therefore, does not represent additional borrowing capacity. Borrowings under the commercial paper program are designated as long-term debt. Interest rates for the program are calculated at the then current commercial paper rate. At September 30, 2017, 2018, as noted above, $50 million was outstanding under the commercial paper program.
In March 2018, Southwest issued $300 million in 3.7% Senior Notes at a discount of 0.185%. The notes will mature in April 2028. A portion of the proceeds were used to repay amounts then outstanding under the revolving portion of the credit facility and the remainder to repay amounts then outstanding under the commercial paper program.
Centuri has a
$300$450 million
senior secured revolving credit and term loan facility that is scheduled to expire in
October 2019.November 2022. This facility includes a revolving credit facility and a term loan facility. The
line of credit portion of the facility is $250 million; amounts borrowed and repaid under the revolving credit facility are available to be re-borrowed. The term loan facility portion
had an initialhas a limit of approximately
$150 million, which$200 million. The limit on the term loan facility was reached in
2014 and had $107 million outstanding (after repayments) at September 30, 2017.November 2017; therefore, no further borrowing is permitted under this term loan facility. The
$300$450 million revolving credit and term loan facility is secured by substantially all of Centuri’s assets except those explicitly excluded under the terms of the agreement (including owned real estate and certain certificated vehicles). Centuri assets securing the facility at September 30,
20172018 totaled
$526$675 million. At September 30,
2017, $1892018, $267 million in borrowings were outstanding under the Centuri facility.
Additionally, for the nine months ended September 30, 2018, Centuri entered into equipment loans for approximately $40 million with a maturity date of May 2023 under an existing agreement.
Note 78 – Short-Term DebtIn March 2017, Southwest Gas Holdings, Inc. entered into
The Company has a
$100 million credit facility
with a borrowing capacity of $100 million that
expiresis scheduled to expire in March 2022. The Company
intends to utilize this facility forhad $22.5 million in short-term
financing needs. Interest rates for this facility are calculatedborrowings outstanding at
either the LIBOR or the “alternate base rate,” plus in each case an applicable margin that is determined based on the Company’s senior unsecured debt rating. The applicable margin ranges from 0.75% to 1.50% for loans bearing interest with reference to LIBOR and from 0% to 0.5% for loans bearing interest with reference to the alternative base rate. The Company is also required to pay a commitment fee on the unfunded portion of the commitments based on its senior unsecured long-term debt rating. The commitment fee ranges from 0.075% to 0.200% per annum. At September 30,
2017, $27.5 million was outstanding2018 under this facility.
As discussed inNote 67 – Long-Term Debt,, Southwest has a $400 million credit facility that is scheduled to expire in March 2022, of which $250 million has been designated by management for working capital purposes. Southwest had $83$9 million in short-term borrowings outstanding at September 30, 20172018 under this facility.24
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
Note 89 – Equity, Other Comprehensive Income, and Accumulated Other Comprehensive Income The table below provides details of activity in equity and the
redeemable noncontrolling interest for
Southwest Gas Holdings, Inc.the Company 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 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2018.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Southwest Gas Holdings, Inc. Equity | | | | |
| | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Non-controlling Interest | | |
(In thousands, except per share amounts) | | Shares | | Amount | | | | | | Total |
December 31, 2017 | | 48,090 |
| | $ | 49,720 |
| | $ | 955,332 |
| | $ | (47,682 | ) | | $ | 857,398 |
| | $ | (2,365 | ) | | $ | 1,812,403 |
|
Common stock issuances | | 1,333 |
| | 1,333 |
| | 93,218 |
| | — |
| | — |
| | — |
| | 94,551 |
|
Net income (loss) | | — |
| | — |
| | — |
| | — |
| | 112,973 |
| | (797 | ) | | 112,176 |
|
Foreign currency exchange translation adjustment | | — |
| | — |
| | — |
| | (1,002 | ) | | — |
| | — |
| | (1,002 | ) |
Other comprehensive income (loss): | | | | | | | | | | | | | | |
Net actuarial gain (loss) arising during period, less amortization of unamortized benefit plan cost, net of tax | | — |
| | — |
| | — |
| | 2,687 |
| | — |
| | — |
| | 2,687 |
|
Amounts reclassified to net income, net of tax (FSIRS) | | — |
| | — |
| | — |
| | 1,907 |
| | — |
| | — |
| | 1,907 |
|
Reclassification of excess deferred taxes (a) | | — |
| | — |
| | — |
| | (9,300 | ) | | 9,300 |
| | — |
| | — |
|
Change in ownership of noncontrolling interest (b) | | — |
| | — |
| | (2,710 | ) | | — |
| | — |
| | 2,710 |
| | — |
|
Dividends declared | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Common: $1.56 per share | | — |
| | — |
| | — |
| | — |
| | (76,941 | ) | | — |
| | (76,941 | ) |
September 30, 2018 | | 49,423 |
| | $ | 51,053 |
| | $ | 1,045,840 |
| | $ | (53,390 | ) | | $ | 902,730 |
| | $ | (452 | ) | | $ | 1,945,781 |
|
| |
(a) | Release of excess deferred taxes accumulated prior to December 22, 2017 (date of enactment of the TCJA), as a result of the adoption of ASU 2018-02, which permitted such release. |
| |
(b) | Centuri, through its subsidiary, NPL, has historically held a 65% ownership interest in IntelliChoice Energy, LLC (“ICE”). A residual interest of 35% has been held by a third party. During the second quarter of 2018, an additional $1 million of capital was contributed by NPL, thereby increasing NPL’s ownership interest to 95%. The carrying amount of the noncontrolling interest has been adjusted with a corresponding charge to Additional paid-in capital on the Company’s Condensed Consolidated Balance Sheet. |
The table below provides details of activity in equity for Southwest
Gas Corporation during the nine months ended September 30,
2017. Effective in January 2017, Southwest became a subsidiary of Southwest Gas Holdings, Inc., and only2018. Only equity shares of the
latterCompany are publicly traded, under the ticker symbol “SWX.”
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Southwest Gas Corporation Equity | | | | |
| | | | | | | | | | | 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Southwest Gas Corporation Equity | | |
| | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | |
(In thousands) | | Shares | | Amount | | | | | Total |
December 31, 2017 | | 47,482 |
| | $ | 49,112 |
| | $ | 948,767 |
| | $ | (47,073 | ) | | $ | 659,193 |
| | $ | 1,609,999 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 79,301 |
| | 79,301 |
|
Other comprehensive income (loss): | | | | | | | | | | | | |
Net actuarial gain (loss) arising during period, less amortization of unamortized benefit plan cost, net of tax | | — |
| | — |
| | — |
| | 2,687 |
| | — |
| | 2,687 |
|
Amounts reclassified to net income, net of tax (FSIRS) | | — |
| | — |
| | — |
| | 1,907 |
| | — |
| | 1,907 |
|
Reclassification of excess deferred taxes (a) | | — |
| | — |
| | — |
| | (9,300 | ) | | 9,300 |
| | — |
|
Stock-based compensation (b) | | — |
| | — |
| | 1,899 |
| | — |
| | (510 | ) | | 1,389 |
|
Dividends declared to Southwest Gas Holdings, Inc. | | — |
| | — |
| | — |
| | — |
| | (66,000 | ) | | (66,000 | ) |
Contributions from Southwest Gas Holdings, Inc. | | — |
| | — |
| | 90,644 |
| | — |
| | — |
| | 90,644 |
|
September 30, 2018 | | 47,482 |
| | $ | 49,112 |
| | $ | 1,041,310 |
| | $ | (51,779 | ) | | $ | 681,284 |
| | $ | 1,719,927 |
|
| |
(a) | Release of excess deferred taxes accumulated prior to December 22, 2017 (date of enactment of the TCJA), as a result of the adoption of ASU 2018-02, which permitted such release. |
| |
(b) | Stock-based compensation is based on stock awards of Southwest Gas Corporation to be issued in shares of Southwest Gas Holdings, Inc. The table above gives effect to the holding company reorganization whereby Southwest and Centuri became subsidiaries of the Company. The historic investment in Centuri was distributed to the parent holding company. This presentation is only applicable to Southwest and not to the Company overall, as Centuri continues to be included in |
25
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
| the continuing operations of the Company. Also in connection with the holding company creation, compensation plans of Southwest include programs that will be settled with equity shares issued by Southwest Gas Holdings, Inc. Management has determined that when no consideration is directly exchanged for these programs between Southwest and the Company, the accounting impact at Southwest for these programs is reflected both as compensation expense and as an equity contribution (of the parent) in Southwest.
|
The following information provides insight into amounts impacting the Company’s Other Comprehensive Income (Loss)comprehensive income (loss), both before and after taxafter-tax impacts, within the Condensed Consolidated Statements of Comprehensive Income, which also impact Accumulated Other Comprehensive Incomeother comprehensive income in the Condensed Consolidated Balance Sheets and the associated column in the equity table above, as well as the Redeemable Noncontrolling Interest.above. See Note 45 – Derivatives and Fair Value Measurements for additional information on the FSIRS. Related Tax Effects Allocated to Each Component of Other Comprehensive Income (Loss)
(Thousands of dollars)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 | | | Three Months Ended September 30, 2016 | |
| | Before- | | | Tax | | | Net-of- | | | Before- | | | Tax | | | Net-of- | |
| | Tax | | | (Expense) | | | Tax | | | Tax | | | (Expense) | | | Tax | |
| | Amount | | | or Benefit (1) | | | Amount | | | Amount | | | or Benefit (1) | | | Amount | |
Defined benefit pension plans: | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of prior service cost | | $ | 333 | | | $ | (126 | ) | | $ | 207 | | | $ | 333 | | | $ | (126 | ) | | $ | 207 | |
Amortization of net actuarial (gain)/loss | | | 6,362 | | | | (2,418 | ) | | | 3,944 | | | | 6,767 | | | | (2,571 | ) | | | 4,196 | |
Regulatory adjustment | | | (5,734 | ) | | | 2,179 | | | | (3,555 | ) | | | (6,122 | ) | | | 2,326 | | | | (3,796 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Pension plans other comprehensive income (loss) | | | 961 | | | | (365 | ) | | | 596 | | | | 978 | | | | (371 | ) | | | 607 | |
FSIRS (designated hedging activities): | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts reclassifed into net income | | | 835 | | | | (317 | ) | | | 518 | | | | 835 | | | | (317 | ) | | | 518 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
FSIRS other comprehensive income | | | 835 | | | | (317 | ) | | | 518 | | | | 835 | | | | (317 | ) | | | 518 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss) - Southwest Gas Corporation | | | 1,796 | | | | (682 | ) | | | 1,114 | | | | 1,813 | | | | (688 | ) | | | 1,125 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | |
Translation adjustments | | | 1,012 | | | | — | | | | 1,012 | | | | (238 | ) | | | — | | | | (238 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency other comprehensive income (loss) | | | 1,012 | | | | — | | | | 1,012 | | | | (238 | ) | | | — | | | | (238 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | 2,808 | | | $ | (682 | ) | | $ | 2,126 | | | $ | 1,575 | | | $ | (688 | ) | | $ | 887 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Nine Months Ended September 30, 2017 | | | Nine Months Ended September 30, 2017 | |
| | Before- | | | Tax | | | Net-of- | | | Before- | | | Tax | | | Net-of- | |
| | Tax | | | (Expense) | | | Tax | | | Tax | | | (Expense) | | | Tax | |
| | Amount | | | or Benefit (1) | | | Amount | | | Amount | | | or Benefit (1) | | | Amount | |
Defined benefit pension plans: | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of prior service cost | | $ | 1,001 | | | $ | (380 | ) | | $ | 621 | | | $ | 1,001 | | | $ | (380 | ) | | $ | 621 | |
Amortization of net actuarial (gain)/loss | | | 19,084 | | | | (7,252 | ) | | | 11,832 | | | | 20,300 | | | | (7,714 | ) | | | 12,586 | |
Regulatory adjustment | | | (17,204 | ) | | | 6,537 | | | | (10,667 | ) | | | (18,368 | ) | | | 6,980 | | | | (11,388 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Pension plans other comprehensive income (loss) | | | 2,881 | | | | (1,095 | ) | | | 1,786 | | | | 2,933 | | | | (1,114 | ) | | | 1,819 | |
FSIRS (designated hedging activities): | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts reclassifed into net income | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | 2,508 | | | | (952 | ) | | | 1,556 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
FSIRS other comprehensive income | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | 2,508 | | | | (952 | ) | | | 1,556 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss)—Southwest Gas Corporation | | | 5,388 | | | | (2,048 | ) | | | 3,340 | | | | 5,441 | | | | (2,066 | ) | | | 3,375 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | |
Translation adjustments | | | 1,861 | | | | — | | | | 1,861 | | | | 614 | | | | — | | | | 614 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency other comprehensive income (loss) | | | 1,861 | | | | — | | | | 1,861 | | | | 614 | | | | — | | | | 614 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss) | | $ | 7,249 | | | $ | (2,048 | ) | | $ | 5,201 | | | $ | 6,055 | | | $ | (2,066 | ) | | $ | 3,989 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
26
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended |
| | September 30, 2018 | | September 30, 2017 |
| | 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 | | $ | 334 |
| | $ | (80 | ) | | $ | 254 |
| | $ | 333 |
| | $ | (126 | ) | | $ | 207 |
|
Amortization of net actuarial (gain)/loss | | 8,404 |
| | (2,017 | ) | | 6,387 |
| | 6,362 |
| | (2,418 | ) | | 3,944 |
|
Regulatory adjustment | | (7,560 | ) | | 1,814 |
| | (5,746 | ) | | (5,734 | ) | | 2,179 |
| | (3,555 | ) |
Pension plans other comprehensive income | | 1,178 |
| | (283 | ) | | 895 |
| | 961 |
| | (365 | ) | | 596 |
|
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | 836 |
| | (200 | ) | | 636 |
| | 835 |
| | (317 | ) | | 518 |
|
FSIRS other comprehensive income | | 836 |
| | (200 | ) | | 636 |
| | 835 |
| | (317 | ) | | 518 |
|
Total other comprehensive income - Southwest Gas Corporation | | 2,014 |
| | (483 | ) | | 1,531 |
| | 1,796 |
| | (682 | ) | | 1,114 |
|
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | 599 |
| | — |
| | 599 |
| | 1,012 |
| | — |
| | 1,012 |
|
Foreign currency other comprehensive income (loss) | | 599 |
| | — |
| | 599 |
| | 1,012 |
| | — |
| | 1,012 |
|
Total other comprehensive income - Southwest Gas Holdings, Inc. | | $ | 2,613 |
| | $ | (483 | ) | | $ | 2,130 |
| | $ | 2,808 |
| | $ | (682 | ) | | $ | 2,126 |
|
| | | | | | | | | | | | |
| | Nine Months Ended | | Nine Months Ended |
| | September 30, 2018 | | September 30, 2017 |
| | 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 | | $ | 1,002 |
| | $ | (240 | ) | | $ | 762 |
| | $ | 1,001 |
| | $ | (380 | ) | | $ | 621 |
|
Amortization of net actuarial (gain)/loss | | 25,212 |
| | (6,051 | ) | | 19,161 |
| | 19,084 |
| | (7,252 | ) | | 11,832 |
|
Regulatory adjustment | | (22,679 | ) | | 5,443 |
| | (17,236 | ) | | (17,204 | ) | | 6,537 |
| | (10,667 | ) |
Pension plans other comprehensive income | | 3,535 |
| | (848 | ) | | 2,687 |
| | 2,881 |
| | (1,095 | ) | | 1,786 |
|
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | 2,509 |
| | (602 | ) | | 1,907 |
| | 2,507 |
| | (953 | ) | | 1,554 |
|
FSIRS other comprehensive income | | 2,509 |
| | (602 | ) | | 1,907 |
| | 2,507 |
| | (953 | ) | | 1,554 |
|
Total other comprehensive income - Southwest Gas Corporation | | 6,044 |
| | (1,450 | ) | | 4,594 |
| | 5,388 |
| | (2,048 | ) | | 3,340 |
|
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | (1,002 | ) | | — |
| | (1,002 | ) | | 1,861 |
| | — |
| | 1,861 |
|
Foreign currency other comprehensive income (loss) | | (1,002 | ) | | — |
| | (1,002 | ) | | 1,861 |
| | — |
| | 1,861 |
|
Total other comprehensive income - Southwest Gas Holdings, Inc. | | $ | 5,042 |
| | $ | (1,450 | ) | | $ | 3,592 |
| | $ | 7,249 |
| | $ | (2,048 | ) | | $ | 5,201 |
|
| | | | | | | | | | | | |
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended September 30, 2017 | | | Twelve Months Ended September 30, 2016 | |
| | Before- | | | Tax | | | Net-of- | | | Before- | | | Tax | | | Net-of- | |
| | Tax | | | (Expense) | | | Tax | | | Tax | | | (Expense) | | | Tax | |
| | Amount | | | or Benefit (1) | | | Amount | | | Amount | | | or Benefit (1) | | | Amount | |
Defined benefit pension plans: | | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial gain/(loss) | | $ | (22,770 | ) | | $ | 8,652 | | | $ | (14,118 | ) | | $ | (30,519 | ) | | $ | 11,597 | | | $ | (18,922 | ) |
Amortization of prior service cost | | | 1,335 | | | | (507 | ) | | | 828 | | | | 1,335 | | | | (507 | ) | | | 828 | |
Amortization of net actuarial (gain)/loss | | | 25,850 | | | | (9,823 | ) | | | 16,027 | | | | 28,895 | | | | (10,980 | ) | | | 17,915 | |
Regulatory adjustment | | | (4,420 | ) | | | 1,679 | | | | (2,741 | ) | | | (653 | ) | | | 249 | | | | (404 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Pension plans other comprehensive income (loss) | | | (5 | ) | | | 1 | | | | (4 | ) | | | (942 | ) | | | 359 | | | | (583 | ) |
FSIRS (designated hedging activities): | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts reclassifed into net income | | | 3,344 | | | | (1,271 | ) | | | 2,073 | | | | 3,344 | | | | (1,271 | ) | | | 2,073 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
FSIRS other comprehensive income (loss) | | | 3,344 | | | | (1,271 | ) | | | 2,073 | | | | 3,344 | | | | (1,271 | ) | | | 2,073 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss)—Southwest Gas Corporation | | | 3,339 | | | | (1,270 | ) | | | 2,069 | | | | 2,402 | | | | (912 | ) | | | 1,490 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | |
Translation adjustments | | | 1,408 | | | | — | | | | 1,408 | | | | 233 | | | | — | | | | 233 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency other comprehensive income (loss) | | | 1,408 | | | | — | | | | 1,408 | | | | 233 | | | | — | | | | 233 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total other comprehensive income (loss)—Southwest Gas Holdings, Inc. | | $ | 4,747 | | | $ | (1,270 | ) | | $ | 3,477 | | | $ | 2,635 | | | $ | (912 | ) | | $ | 1,723 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended | | Twelve Months Ended |
| | September 30, 2018 | | September 30, 2017 |
| | 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) | | $ | (43,027 | ) | | $ | 10,326 |
| | $ | (32,701 | ) | | $ | (22,770 | ) | | $ | 8,652 |
| | $ | (14,118 | ) |
Amortization of prior service cost | | 1,336 |
| | (367 | ) | | 969 |
| | 1,335 |
| | (507 | ) | | 828 |
|
Amortization of net actuarial (gain)/loss | | 31,573 |
| | (8,468 | ) | | 23,105 |
| | 25,850 |
| | (9,823 | ) | | 16,027 |
|
Regulatory adjustment | | 6,865 |
| | (844 | ) | | 6,021 |
| | (4,420 | ) | | 1,679 |
| | (2,741 | ) |
Pension plans other comprehensive income (loss) | | (3,253 | ) | | 647 |
| | (2,606 | ) | | (5 | ) | | 1 |
| | (4 | ) |
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | 3,346 |
| | (920 | ) | | 2,426 |
| | 3,344 |
| | (1,271 | ) | | 2,073 |
|
FSIRS other comprehensive income | | 3,346 |
| | (920 | ) | | 2,426 |
| | 3,344 |
| | (1,271 | ) | | 2,073 |
|
Total other comprehensive income (loss) - Southwest Gas Corporation | | 93 |
| | (273 | ) | | (180 | ) | | 3,339 |
| | (1,270 | ) | | 2,069 |
|
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | (1,092 | ) | | — |
| | (1,092 | ) | | 1,408 |
| | — |
| | 1,408 |
|
Foreign currency other comprehensive income (loss) | | (1,092 | ) | | — |
| | (1,092 | ) | | 1,408 |
| | — |
| | 1,408 |
|
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | (999 | ) | | $ | (273 | ) | | $ | (1,272 | ) | | $ | 4,747 |
| | $ | (1,270 | ) | | $ | 3,477 |
|
| |
(1) | Tax amounts are calculated using a 24% rate following the December 22, 2017 enactment date of the TCJA. For periods prior to the enactment date (and included in specific line items of the tables for the twelve months ended September 30, 2018 and 2017), tax amounts were calculated using a 38% rate. The tax effect of before-tax amounts remaining in the balance of Accumulated other comprehensive income (loss) as of September 30, 2018 is effectively computed using a 24% tax rate overall after the reclassification of previously stranded excess deferred taxes existing as a result of the TCJA (see table for Accumulated other comprehensive income (loss), including the balance, below). With regard to foreign currency translation adjustments, the Company has elected to indefinitely reinvest the earnings of Centuri’s Canadian subsidiaries in Canada, thus preventing deferred taxes on such earnings. As a result of this assertion, the Company is not recognizing any tax effect or presenting a tax expense or benefit for the currency translation adjustment amount reported in Other Comprehensive Income,comprehensive income (loss), as repatriation of earnings is not anticipated. |
Approximately
$2.1$2.5 million of realized losses (net of tax) related to the FSIRS, reported in Accumulated other comprehensive income
(“AOCI”)(loss) at September 30,
2017,2018, will be reclassified into interest expense within the next 12 months as the related interest payments on long-term debt occur.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
The following table represents a rollforward of AOCI, presented on the Company’s Condensed Consolidated Balance Sheets:
AOCI—
(Thousands of dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | | FSIRS | | | Foreign Currency Items | | | | |
| | Before-Tax | | | Tax (Expense) Benefit (4) | | | After-Tax | | | Before-Tax | | | Tax (Expense) Benefit (4) | | | After-Tax | | | Before-Tax | | | Tax (Expense) Benefit | | | After-Tax | | | AOCI | |
Beginning Balance AOCI December 31, 2016 | | $ | (57,613 | ) | | $ | 21,893 | | | $ | (35,720 | ) | | $ | (15,999 | ) | | $ | 6,080 | | | $ | (9,919 | ) | | $ | (2,369 | ) | | $ | — | | | $ | (2,369 | ) | | $ | (48,008 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Translation adjustments | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,861 | | | | — | | | | 1,861 | | | | 1,861 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income before reclassifications | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,861 | | | | — | | | | 1,861 | | | | 1,861 | |
FSIRS amounts reclassified from AOCI (1) | | | — | | | | — | | | | — | | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | — | | | | — | | | | — | | | | 1,554 | |
Amortization of prior service cost (2) | | | 1,001 | | | | (380 | ) | | | 621 | | | | — | | | | — | | | | —�� | | | | — | | | | — | | | | — | | | | 621 | |
Amortization of net actuarial loss (2) | | | 19,084 | | | | (7,252 | ) | | | 11,832 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11,832 | |
Regulatory adjustment (3) | | | (17,204 | ) | | | 6,537 | | | | (10,667 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (10,667 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net current period other comprehensive income (loss) | | | 2,881 | | | | (1,095 | ) | | | 1,786 | | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | 1,861 | | | | — | | | | 1,861 | | | | 5,201 | |
Less: Translation adjustment attributable to redeemable noncontrolling interest | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11 | | | | — | | | | 11 | | | | 11 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | | 2,881 | | | | (1,095 | ) | | | 1,786 | | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | 1,850 | | | | — | | | | 1,850 | | | | 5,190 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance AOCI September 30, 2017 | | $ | (54,732 | ) | | $ | 20,798 | | | $ | (33,934 | ) | | $ | (13,492 | ) | | $ | 5,127 | | | $ | (8,365 | ) | | $ | (519 | ) | | $ | — | | | $ | (519 | ) | | $ | (42,818 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | FSIRS | | Foreign Currency Items | | | | |
| | Before-Tax | | Tax (Expense) Benefit (5) | | After-Tax | | Before-Tax | | Tax (Expense) Benefit (5) | | After-Tax | | Before-Tax | | Tax (Expense) Benefit | | After-Tax | | Other | | AOCI |
Beginning Balance AOCI December 31, 2017 | | $ | (61,520 | ) | | $ | 22,293 |
| | $ | (39,227 | ) | | $ | (12,655 | ) | | $ | 4,809 |
| | $ | (7,846 | ) | | $ | (609 | ) | | $ | — |
| | $ | (609 | ) | | $ | — |
| | $ | (47,682 | ) |
Translation adjustments | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,002 | ) | | — |
| | (1,002 | ) | | — |
| | (1,002 | ) |
Other comprehensive income (loss) before reclassifications | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,002 | ) | | — |
| | (1,002 | ) | | — |
| | (1,002 | ) |
FSIRS amounts reclassified from AOCI (1) | | — |
| | — |
| | — |
| | 2,509 |
| | (602 | ) | | 1,907 |
| | — |
| | — |
| | — |
| | — |
| | 1,907 |
|
Amortization of prior service cost (2) | | 1,002 |
| | (240 | ) | | 762 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 762 |
|
Amortization of net actuarial loss (2) | | 25,212 |
| | (6,051 | ) | | 19,161 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 19,161 |
|
Regulatory adjustment (3) | | (22,679 | ) | | 5,443 |
| | (17,236 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (17,236 | ) |
Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | 3,535 |
| | (848 | ) | | 2,687 |
| | 2,509 |
| | (602 | ) | | 1,907 |
| | (1,002 | ) | | — |
| | (1,002 | ) | | — |
| | 3,592 |
|
Reclassification of excess deferred taxes (4) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (9,300 | ) | | (9,300 | ) |
Ending Balance AOCI September 30, 2018 | | $ | (57,985 | ) | | $ | 21,445 |
| | $ | (36,540 | ) | | $ | (10,146 | ) | | $ | 4,207 |
| | $ | (5,939 | ) | | $ | (1,611 | ) | | $ | — |
| | $ | (1,611 | ) | | $ | (9,300 | ) | | $ | (53,390 | ) |
| |
(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) | Release of excess deferred taxes accumulated prior to December 22, 2017 (date of enactment of the TCJA), as a result of the adoption of ASU 2018-02, which permitted such release. |
| |
(5) | Tax amounts related to the before-tax balance at September 30, 2018 are calculated using a 24% rate after the release of previously stranded excess deferred taxes existing as a result of the TCJA; amounts prior to the December 22, 2017 enactment of the TCJA were calculated using a 38% rate. |
27
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
The following table represents a rollforward of AOCI, presented on Southwest’s Condensed Consolidated Balance Sheets:
AOCI—
(Thousands of dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | | FSIRS | | | | |
| | Before-Tax | | | Tax (Expense) Benefit (8) | | | After-Tax | | | Before-Tax | | | Tax (Expense) Benefit (8) | | | After-Tax | | | AOCI | |
Beginning Balance AOCI December 31, 2016 | | $ | (57,613 | ) | | $ | 21,893 | | | $ | (35,720 | ) | | $ | (15,999 | ) | | $ | 6,080 | | | $ | (9,919 | ) | | $ | (45,639 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
FSIRS amounts reclassified from AOCI (5) | | | — | | | | — | | | | — | | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | 1,554 | |
Amortization of prior service cost (6) | | | 1,001 | | | | (380 | ) | | | 621 | | | | — | | | | — | | | | — | | | | 621 | |
Amortization of net actuarial loss (6) | | | 19,084 | | | | (7,252 | ) | | | 11,832 | | | | — | | | | — | | | | — | | | | 11,832 | |
Regulatory adjustment (7) | | | (17,204 | ) | | | 6,537 | | | | (10,667 | ) | | | — | | | | — | | | | — | | | | (10,667 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net current period other comprehensive income (loss) attributable to Southwest Gas Corporation | | | 2,881 | | | | (1,095 | ) | | | 1,786 | | | | 2,507 | | | | (953 | ) | | | 1,554 | | | | 3,340 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Balance AOCI September 30, 2017 | | $ | (54,732 | ) | | $ | 20,798 | | | $ | (33,934 | ) | | $ | (13,492 | ) | | $ | 5,127 | | | $ | (8,365 | ) | | $ | (42,299 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | FSIRS | | | | |
| | Before-Tax | | Tax (Expense) Benefit (10) | | After-Tax | | Before-Tax | | Tax (Expense) Benefit (10) | | After-Tax | | Other | | AOCI |
Beginning Balance AOCI December 31, 2017 | | $ | (61,520 | ) | | $ | 22,293 |
| | $ | (39,227 | ) | | $ | (12,655 | ) | | $ | 4,809 |
| | $ | (7,846 | ) | | $ | — |
| | $ | (47,073 | ) |
FSIRS amounts reclassified from AOCI (6) | | — |
| | — |
| | — |
| | 2,509 |
| | (602 | ) | | 1,907 |
| | — |
| | 1,907 |
|
Amortization of prior service cost (7) | | 1,002 |
| | (240 | ) | | 762 |
| | — |
| | — |
| | — |
| | — |
| | 762 |
|
Amortization of net actuarial loss (7) | | 25,212 |
| | (6,051 | ) | | 19,161 |
| | — |
| | — |
| | — |
| | — |
| | 19,161 |
|
Regulatory adjustment (8) | | (22,679 | ) | | 5,443 |
| | (17,236 | ) | | — |
| | — |
| | — |
| | — |
| | (17,236 | ) |
Net current period other comprehensive income attributable to Southwest Gas Corporation | | 3,535 |
| | (848 | ) | | 2,687 |
| | 2,509 |
| | (602 | ) | | 1,907 |
| | — |
| | 4,594 |
|
Reclassification of excess deferred taxes (9) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (9,300 | ) | | (9,300 | ) |
Ending Balance AOCI September 30, 2018 | | $ | (57,985 | ) | | $ | 21,445 |
| | $ | (36,540 | ) | | $ | (10,146 | ) | | $ | 4,207 |
| | $ | (5,939 | ) | | $ | (9,300 | ) | | $ | (51,779 | ) |
(5) | |
(6) | The FSIRS reclassification amounts are included in the Net interest deductions line item on Southwest’s Condensed Consolidated Statements of Income. |
(6) | |
(7) | These AOCI components are included in the computation of net periodic benefit cost (seeNote 2 – Components of Net Periodic Benefit Costfor additional details). |
(7) | |
(8) | The regulatory adjustment represents the portion of the activity above that is expected to be recovered through rates in the future (the related regulatory asset is included in the Deferred charges and other assets line item on Southwest’s Condensed Consolidated Balance Sheets). |
(8) | |
(9) | Release of excess deferred taxes accumulated prior to December 22, 2017 (date of enactment of the TCJA), as a result of the adoption of ASU 2018-02, which permitted such release. |
| |
(10) | Tax amounts related to the before-tax balance at September 30, 2018 are calculated using a 24% rate after the release of previously stranded excess deferred taxes existing as a result of the TCJA; amounts prior to the December 22, 2017 enactment of the TCJA were calculated using a 38% rate. |
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 | | $ | — | |
| | | | |
|
| | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
Net actuarial (loss) gain | | $ | (423,343 | ) | | $ | (448,555 | ) |
Prior service cost | | (3,366 | ) | | (4,368 | ) |
Less: amount recognized in regulatory assets | | 368,724 |
| | 391,403 |
|
Recognized in AOCI | | $ | (57,985 | ) | | $ | (61,520 | ) |
Note 10 – Reorganization Impacts – Discontinued Operations Solely Related to Southwest Gas CorporationNo
As a result of adopting a holding company structure in January 2017, no substantive change
has occurred with regard to the Company’s business segments on the whole, or in the primary businesses comprising those segments (Centuri operations continue to be part of continuing operations of the controlled group of companies), and financial information related to Centuri continues to be included in
the 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 this
Form 10-Q, depict Centuri-related amounts as discontinued operations for periods prior to January 2017.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
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 | |
Assets:
| | | | |
Other property and investments
| | $ | 233,774 | |
Cash and cash equivalents
| | | 9,042 | |
Accounts receivable, net of allowances
| | | 173,300 | |
Prepaids and other current assets
| | | 10,470 | |
Goodwill
| | | 129,888 | |
Other noncurrent assets
| | | 22,897 | |
| | | | |
Discontinued operations - construction services - assets
| | $ | 579,371 | |
| | | | |
Liabilities:
| | | | |
Current maturities of long-term debt
| | $ | 25,101 | |
Accounts payable
| | | 46,440 | |
Other current liabilities
| | | 74,518 | |
Long-term debt, less current maturities
| | | 174,903 | |
Deferred income taxes and other deferred credits
| | | 59,653 | |
| | | | |
Discontinued operations—construction services—liabilities
| | $ | 380,615 | |
| | | | |
29
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
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
Statements of Income
Statements of Southwest Gas Corporation:
Results of
ConstructionInfrastructure 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 |
|
| | | |
(Thousands of dollars) | Twelve Months Ended September 30, 2017 |
Construction revenues | $ | 301,040 |
|
Operating expenses: | |
Construction expenses | 266,504 |
|
Depreciation and amortization | 12,318 |
|
| |
Operating income | 22,218 |
|
Other income (deductions) | 1,149 |
|
Net interest deductions | 1,718 |
|
| |
Income before income taxes | 21,649 |
|
Income tax expense | 7,842 |
|
| |
Net income | 13,807 |
|
Net income attributable to noncontrolling interests | 514 |
|
| |
Discontinued operations - construction services - income | $ | 13,293 |
|
| |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Southwest Gas Holdings, Inc.
(the “Company”) 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” orCenturi,” the “construction services”
or “infrastructure services” segment).
Prior to August 2017, only 96.6% of Centuri shares were owned by the Company. During August 2017,
Southwest Gas Holdings, Inc.the Company 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, asAs part of
thea holding company reorganization effective January 2017,
designed to provide further separation between regulated and unregulated businesses, Centuri and Southwest are now subsidiaries of
Southwest Gas Holdings, Inc.;the Company; whereas historically, Centuri had been a direct subsidiary of Southwest.
To give effect for this change, the separate consolidated financial statements of Southwest
Gas Holdings, Inc.depict Centuri-related amounts for periods prior to January 2017 as discontinued operations of Southwest. As noted, the Company and its subsidiaries
(the “Company”) have two business segments (natural gas operations and
constructioninfrastructure services), which are discussed
further below.
Southwest is engaged in the business of purchasing, distributing, and transporting natural gas for customers in portions of Arizona, Nevada, and California. Southwest is the largest distributor of natural gas in Arizona, selling and transporting natural gas in most of central and southern Arizona, including the Phoenix and Tucson metropolitan areas. Southwest is also the largest distributor of natural gas in Nevada, serving the Las Vegas metropolitan area and
portions of northern Nevada. In addition, Southwest distributes and transports natural gas for customers in portions of California, including the Lake Tahoe area and the high desert and mountain areas in San Bernardino County.
As of September 30,
2017 (on a seasonally adjusted basis),2018, Southwest had
1,999,0002,032,000 residential, commercial, industrial, and other natural gas customers, of which
1,065,0001,082,000 customers were located in Arizona,
741,000755,000 in Nevada, and
193,000195,000 in California. Residential and commercial customers represented over 99% of the total customer base. During the twelve months ended September 30,
2017,2018, 54% of operating margin
(gas operating revenues less the net cost of gas sold) was earned in Arizona, 35% in Nevada, and 11% in California. During this same period, Southwest earned 85% of its operating margin
(gas operating revenues less the net cost of gas sold) from residential and small commercial customers, 3% from other sales customers, and 12% from transportation customers. These general patterns are expected to remain materially consistent for the foreseeable future.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Southwest recognizes operating revenues from the distribution and transportation of natural gas (and related services) to customers. Operating marginGas cost is a financial measuretracked cost, which is passed through to customers without markup under purchased gas adjustment (“PGA”) mechanisms, impacting revenues and net cost of gas sold on a dollar-for-dollar basis, thereby having no impact on Southwest’s profitability. Therefore, management routinely uses operating margin, defined by management as gasindicated, as operating revenues less the net cost of gas sold. However, operatingsold, in its analysis of Southwest’s financial performance. Operating margin also forms a basis for Southwest’s various regulatory decoupling mechanisms. Operating margin is not, however, specifically defined in accounting principles generally accepted in the United States (“U.S. GAAP”). Thus, operating margin and is considered anon-GAAP measure. Management uses this financial measure because natural gas operating revenues include the net cost of gas sold, which is a tracked cost that is passed through to customers without markup under purchased gas adjustment (“PGA”) mechanisms. Fluctuations in the net cost of gas sold impact revenues on adollar-for-dollar basis, but do not impact operating margin or operating income. Therefore, management believes operating margin provides investors and other interested parties with useful and relevant information to analyze Southwest’s financial performance in a rate-regulated environment. Refer to the Summary Operating Results table for a reconciliation of revenues to operating margin.
The principal factors affecting changes in operating margin are general rate relief (including impacts of infrastructure trackers) and customer growth.
The demand for natural gas is seasonal, with greater demand in the colder winter months and decreased demand in the warmer summer months. All of Southwest’s service territories have decoupled rate structures (alternative revenue programs), which are designed to eliminate the direct link between volumetric sales and revenue, thereby mitigating the impacts of weather variability and conservation on operating margin, allowing Southwest to pursue energy efficiency initiatives.
Centuri is a comprehensive
constructioninfrastructure services enterprise dedicated to meeting the growing demands of North American utilities, energy, and industrial markets. Centuri derives revenue from installation, replacement, repair, and maintenance of energy distribution systems, and developing industrial
constructioninfrastructure solutions. Centuri operates in
2423 major markets in the United States (primarily as NPL) and in
32 major markets in Canada (as NPL Canada
(formerly Link-Line Contractors Ltd.), and W.S. Nicholls).
Construction activity is cyclical and can be significantly impacted by changes in weather, general and local economic conditions (including the housing market), interest rates, employment levels, job growth, pipe replacement programs of utilities, and local and federal regulation (including tax rates and incentives). During the past few years, utilities
31
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
have implemented or modified pipeline integrity management programs to enhance safety pursuant to federal and state mandates. These programs coupled with recent bonus depreciation tax deduction incentives, have resulted in a significant increase in multi-year pipeline replacement projects throughout the U.S. Centuri has focused its efforts on obtaining pipe replacement work under both blanket contracts and incremental bid projects. For both the twelve months ended September 30, 2018 and 2017, revenues from replacement work provided over 65% of total revenues. Generally, Centuri revenues are lowest during the first quarter of the year due to less favorable winter weather conditions. Revenues typically improve as more favorable weather conditions occur during the summer and fall months. This is expected in both the U.S. and Canadian markets. In certain circumstances, such as with large bid contracts (especially those of a longer duration), or unit-price contracts with revenue caps, results may be impacted by differences between costs incurred and those anticipated when the work was originally bid. Work awarded or failing to benot awarded by individual large customers can significantly impact operating results.
This Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and the notes thereto, as well as MD&A included in the
20162017 Annual Report to Shareholders, which is incorporated by reference into the
20162017 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%77% oftwelve-month-to-date consolidated net income over the past two years. As such, management’s discussion and analysisMD&A is primarily focused on that segment. Natural gas sales are seasonal, peaking during the winter months; therefore, results of operations for interim periods are not necessarily indicative of results for a full year.Summary Operating Results
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Period Ended September 30, | |
| | Three Months | | | Nine Months | | | Twelve Months | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| | (In thousands, except per share amounts) | |
Contribution to net income | | | | | | | | | | | | | | | | | | | | | | | | |
Natural gas operations | | $ | (4,024 | ) | | $ | (12,405 | ) | | $ | 82,436 | | | $ | 67,536 | | | $ | 134,323 | | | $ | 119,836 | |
Construction services | | | 14,335 | | | | 14,877 | | | | 15,717 | | | | 19,325 | | | | 29,010 | | | | 33,144 | |
Corporate and administrative | | | (107 | ) | | | — | | | | (777 | ) | | | — | | | | (777 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 10,204 | | | $ | 2,472 | | | $ | 97,376 | | | $ | 86,861 | | | $ | 162,556 | | | $ | 152,980 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Average number of common shares outstanding | | | 47,628 | | | | 47,481 | | | | 47,577 | | | | 47,464 | | | | 47,553 | | | | 47,442 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Basic earnings per share | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated | | $ | 0.21 | | | $ | 0.05 | | | $ | 2.05 | | | $ | 1.83 | | | $ | 3.42 | | | $ | 3.22 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Natural Gas Operations | | | | | | | | | | | | | | | | | | | | | | | | |
Gas operating revenues | | $ | 213,059 | | | $ | 200,179 | | | $ | 935,823 | | | $ | 980,927 | | | $ | 1,276,308 | | | $ | 1,376,388 | |
Net cost of gas sold | | | 45,539 | | | | 39,056 | | | | 261,839 | | | | 324,072 | | | | 334,888 | | | | 460,836 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating margin | | $ | 167,520 | | | $ | 161,123 | | | $ | 673,984 | | | $ | 656,855 | | | $ | 941,420 | | | $ | 915,552 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
32
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
Summary Operating Results
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Period Ended September 30, |
| | Three Months | | Nine Months | | Twelve Months |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| | (In thousands, except per share amounts) |
Contribution to net income | | | | | | | | | | | | |
Natural gas operations | | $ | (13,670 | ) | | $ | (4,024 | ) | | $ | 79,301 |
| | $ | 82,436 |
| | $ | 153,683 |
| | $ | 134,323 |
|
Infrastructure services | | 26,798 |
| | 14,335 |
| | 35,034 |
| | 15,717 |
| | 57,677 |
| | 29,010 |
|
Corporate and administrative | | (797 | ) | | (107 | ) | | (1,362 | ) | | (777 | ) | | (1,922 | ) | | (777 | ) |
Net income | | $ | 12,331 |
| | $ | 10,204 |
| | $ | 112,973 |
| | $ | 97,376 |
| | $ | 209,438 |
| | $ | 162,556 |
|
| | | | | | | | | | | | |
Average number of common shares | | 49,493 |
| | 47,628 |
| | 48,916 |
| | 47,577 |
| | 48,728 |
| | 47,553 |
|
Basic earnings per share | | | | | | | | | | | | |
Consolidated | | $ | 0.25 |
| | $ | 0.21 |
| | $ | 2.31 |
| | $ | 2.05 |
| | $ | 4.30 |
| | $ | 3.42 |
|
Natural Gas Operations | | | | | | | | | | | | |
Reconciliation of Revenue to Operating Margin (Non-GAAP measure) | | | | | | | | | | | | |
Gas operating revenues | | $ | 217,523 |
| | $ | 213,059 |
| | $ | 987,515 |
| | $ | 935,823 |
| | $ | 1,354,000 |
| | $ | 1,276,308 |
|
Less: Net cost of gas sold | | 49,903 |
| | 45,539 |
| | 319,101 |
| | 261,839 |
| | 412,307 |
| | 334,888 |
|
Operating margin | | $ | 167,620 |
| | $ | 167,520 |
| | $ | 668,414 |
| | $ | 673,984 |
| | $ | 941,693 |
| | $ | 941,420 |
|
3rd Quarter
20172018 Overview
Natural gas operations highlights:
Benefits of Arizona rate case reflected in quarterly operating results
32,00033,000 net new customers in last 12 months (1.6% growth rate)
Depreciation and amortization expense declined $10Received $49 million refund from El Paso Natural Gas rate settlement
Operating margin reflects regulatory impacts of tax reform
Infrastructure services highlights:
Record quarterly earnings
Revenues increased $71 million compared to the prior-year quarter
Operating incomeConstruction expenses increased $15.3$53 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, 20172018 |
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, |
| | 2018 | | 2017 |
| | (Thousands of dollars) |
Gas operating revenues | | $ | 217,523 |
| | $ | 213,059 |
|
Net cost of gas sold | | 49,903 |
| | 45,539 |
|
Operating margin | | 167,620 |
| | 167,520 |
|
Operations and maintenance expense | | 104,657 |
| | 97,359 |
|
Depreciation and amortization | | 47,924 |
| | 46,194 |
|
Taxes other than income taxes | | 15,036 |
| | 14,046 |
|
Operating income | | 3 |
| | 9,921 |
|
Other income (deductions) | | 836 |
| | (1,775 | ) |
Net interest deductions | | 20,399 |
| | 17,421 |
|
Income (loss) before income taxes | | (19,560 | ) | | (9,275 | ) |
Income tax expense (benefit) | | (5,890 | ) | | (5,251 | ) |
Contribution to consolidated net income (loss) | | $ | (13,670 | ) | | $ | (4,024 | ) |
Contribution from natural gas operations decreased $9.7 million between the third quarters of 2018 and 2017. The decline was primarily due to higher Operations and maintenance expense and Net interest deductions, partially offset by an increase in Other income (deductions) and customer growth. U.S. federal tax reform impacted both revenue and tax expense. The amounts above reflect a reclassification of $4.9 million for 2017 from Operations and maintenance expense to Other income (deductions) related to the non-service cost components of net periodic benefit costs, as a result of the adoption of the update to FASB Topic 715 (refer to Note 2 – Components of Net Periodic Benefit Cost to the condensed consolidated financial statements in this Form 10-Q), with no impact to net income overall. The reclassification in the 2017 period is intended to make that information comparable to the current period presentation.
Operating margin
increased $6 million between quarters. Rate relief in Arizona (effective April 2017) and California provided $4 million in operating margin (seeRates and Regulatory Proceedings). Approximatelyincludes a $2 million
in increased operating margin wasincrease attributable to customer growth, as
32,00033,000 net new customers were added during the last twelve months.
Rate relief in California and other miscellaneous revenues added $1 million in operating margin. These increases were offset by a $3 million decrease in the current quarter related to U.S. tax reform.
Operations and maintenance expense
was relatively flatincreased $7.3 million between quarters.
Decreases in employee-related benefitApproximately $2 million of the increase was due to higher pension and employee medical costs. Pipeline integrity management and damage prevention programs accounted for approximately $1 million of the increase. The remaining increase was primarily associated with higher information technology related costs
more than offset increases in otherand general
costs.cost increases.
Depreciation and amortization expense
decreased $10increased $1.7 million between quarters primarily due 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$480 million, or
5%8%, increase in average gas plant in service for the current quarter as compared to the corresponding quarter a year ago. The increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.
Taxes other than Increases in depreciation were mitigated by decreases in regulatory account amortization, notably related to Nevada Conservation and Energy Efficiency (“CEE”) programs.
Other income
taxes increased $1.6(deductions) improved $2.6 million between quarters primarily due to
higher property taxes associated with net plant additions and increased property taxes in Arizona, including the impact of a property tax tracking mechanism enacted as part of the recently settled Arizona general rate case.Other income increased $560,000 between quarters primarily due to an increase in the equity portion of the allowance for funds used during construction (“AFUDC”) associated with higher construction expenditures. The equity portion of AFUDC represents the cost of equity funds used to finance utility construction. The equity AFUDC improvement was partially offset by a decline between quarters in income from company-owned life insurance (“COLI”) policies. The current quarter reflects $2.1a $4.7 million of income associated withincrease in COLI policy cash surrender value increases,values and incremental net death benefits, while the prior-year quarter reflected $2.3$2.1 million of COLI-related income. COLI amountsAmounts in each quarter were greater than expected.
both periods reflect the non-service cost components of employee pension and other post-retirement benefits.
Net interest deductions increased
$1.1$3 million
between quarters,in the third quarter of 2018, as compared to the prior-year quarter, primarily due to the
September 2016 issuance 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 balances as compared to the prior-year quarter.34
March 2018.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
Income taxes were impacted in 2018 by the pre-tax earnings impacts discussed above as well as by the December 2017 enactment of tax reform. Among other things, tax reform reduced the corporate federal income tax rate from 35% to 21%, which provides a reduced benefit during periods when seasonal losses are encountered.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
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
|
| | | | | | | | |
| | Nine Months Ended |
| | September 30, |
| | 2018 | | 2017 |
| | (Thousands of dollars) |
Gas operating revenues | | $ | 987,515 |
| | $ | 935,823 |
|
Net cost of gas sold | | 319,101 |
| | 261,839 |
|
Operating margin | | 668,414 |
| | 673,984 |
|
Operations and maintenance expense | | 312,055 |
| | 298,827 |
|
Depreciation and amortization | | 145,549 |
| | 153,643 |
|
Taxes other than income taxes | | 44,959 |
| | 43,325 |
|
Operating income | | 165,851 |
| | 178,189 |
|
Other income (deductions) | | (5,861 | ) | | (5,824 | ) |
Net interest deductions | | 59,803 |
| | 51,622 |
|
Income before income taxes | | 100,187 |
| | 120,743 |
|
Income tax expense | | 20,886 |
| | 38,307 |
|
Contribution to consolidated net income | | $ | 79,301 |
| | $ | 82,436 |
|
Contribution to consolidated net income from natural gas operations
increased $14.9decreased $3.1 million between the first nine months of
20172018 and
2016.2017. The
improvementdecrease was primarily due to higher
operating marginOperations and
lower depreciationmaintenance expense
and Net interest deductions, partially offset by
an increase in operationscustomer growth and rate relief. The amounts above for Operations and maintenance
expenses.expense and Other income (deductions) for the 2017 period reflect a $14.6 million reclassification related to the non-service cost components of employee pensions and other post-retirement benefits, as a result of the adoption of the update to FASB Topic 715. The reclassification is intended to make the prior period comparable to the current period, but did not impact net income overall.
Operating margin
increased $17declined $5.6 million between the comparative nine-month
periods. Rateperiods, due to a $15 million decrease related to the enactment of U.S. tax reform in December 2017. The decrease relates to a reduction in rates to reflect the reduced cost of service during 2018 resulting from tax reform. The decline in applicable U.S. income tax rates also significantly reduced income tax expense. Operating margin was favorably impacted by rate relief in the Arizona and California jurisdictions,
which collectively provided
$10$5 million in operating
margin. Customer growth provided approximately $8 million in additional operating margin. The residual variance relates to the combined impacts of reduced surcharge recoveries including Nevada CEE programs (offset in Depreciation and amortization expense below), as well as variability in other miscellaneous revenues and margin
(seeRates and Regulatory Proceedings). The remaining $7 million increase was attributable to customer growth.from customers outside the decoupling mechanisms.
Operations and maintenance expense increased
$11.4$13.2 million
or 4%, between periods due primarily to
$5 million associated with higher
pension service cost and other employee benefit cost and $2.5 million in incremental expenditures for pipeline integrity management and damage prevention programs. Residual increases are attributable to higher information technology related costs and other general cost increases.
Approximately $5 million of the incremental costs recognized were associated with the amount and timing of employee incentive plan grants (including accelerated recognition for retirement eligible employees).Depreciation and amortization expense decreased $20.8$8.1 million between periods primarily due to reduced depreciation rates in Arizona, a result of the recentApril 2017 Arizona general rate case decision.decision, and to the impacts of surcharge recoveries for regulatory mechanisms, as discussed above. Partially offsetting the decline was additional depreciation expense associated with a $456 million, or 7%, increase in average gas plant in service for the current period as compared to the prior period. The depreciation decrease alsoincrease was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.
Taxes other than income taxes increased $1.6 million between periods primarily due to higher property taxes associated with plant additions.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Other income (deductions) was flat between periods. The current period included a declinean increase in interest income of approximately $3.7$2.5 million in amortization related to the recoveryGas Infrastructure Replacement (“GIR”) mechanism in Nevada. (See the Rates and Regulatory Proceedings section for more information about the GIR mechanism.) This was offset by a $1 million decrease in equity AFUDC due to a lower rate in the current period as compared to the prior period, and an increase in non-service cost components of employee pension and post-retirement benefits costs of $1.3 million.
Net interest deductions increased $8.2 million between periods, primarily due to higher interest associated with credit facility borrowings during the current period and the issuance of $300 million of senior notes in the first quarter of 2018.
Income taxes were favorably impacted in 2018 due to the December 2017 enactment of tax reform.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Results of Natural Gas Operations
Twelve-Month Analysis
|
| | | | | | | | |
| | Twelve Months Ended |
| | September 30, |
| | 2018 | | 2017 |
| | (Thousands of dollars) |
Gas operating revenues | | $ | 1,354,000 |
| | $ | 1,276,308 |
|
Net cost of gas sold | | 412,307 |
| | 334,888 |
|
Operating margin | | 941,693 |
| | 941,420 |
|
Operations and maintenance expense | | 404,549 |
| | 393,632 |
|
Depreciation and amortization | | 193,828 |
| | 212,693 |
|
Taxes other than income taxes | | 59,580 |
| | 56,221 |
|
Operating income | | 283,736 |
| | 278,874 |
|
Other income (deductions) | | (6,425 | ) | | (9,200 | ) |
Net interest deductions | | 77,914 |
| | 69,464 |
|
Income before income taxes | | 199,397 |
| | 200,210 |
|
Income tax expense | | 45,714 |
| | 65,887 |
|
Contribution to consolidated net income | | $ | 153,683 |
| | $ | 134,323 |
|
Contribution to consolidated net income from natural gas operations increased by $19.4 million between the twelve-month periods of 2018 and 2017. The improvement was primarily due to rate relief and Income tax expense, partially offset by increases in Operations and maintenance expense, Taxes other than income taxes, and Net interest deductions. The amounts above for Operations and maintenance expense and Other income (deductions) for the 2017 period reflect a $19.5 million reclassification related to the non-service cost components of employee pensions and other post-retirement benefits, as a result of the adoption of the update to FASB Topic 715. The reclassification is intended to make the prior period comparable to the current period, but did not impact net income overall.
Operating margin remained relatively flat between periods. Combined rate relief in the Arizona and California jurisdictions provided $11 million of operating margin. Customer growth provided another $10 million in operating margin, while operating margin associated with recoveries of regulatory assets.assets, infrastructure replacement mechanisms, customers outside the decoupling mechanisms, and other miscellaneous revenues decreased $6 million. The impacts of tax reform, described earlier, decreased operating margin by $15 million in the current period. However, net income overall was not unfavorably impacted, as favorable impacts from tax reform are reflected in income tax expense.
Operations and maintenance expense increased $10.9 million, or 3%, between periods primarily due to a $4 million increase in service-cost-related pension expense and $3 million in expenditures for pipeline damage prevention programs.
Depreciation and amortization expense decreased $18.9 million between periods primarily due to reduced depreciation rates in Arizona, a result of the April 2017 Arizona general rate case decision, in addition to the impact from changes in regulatory surcharge recoveries on amortization. Partially offsetting
these declinesthe decline was depreciation associated with a
$325$430 million, or
5%7%, increase in average gas plant in service for the current period as compared to the prior period. The increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.
Taxes other than income taxes increased
$3.8$3.4 million,
or 6%, between periods primarily due to higher property taxes associated with net plant
additions and increased property taxes in Arizona, including the impact of the Arizona property tax tracking mechanism.additions.
Other income
which principally includes returns on(deductions) improved $2.8 million between the twelve-month periods of 2018 and 2017 primarily due to an increase in interest income related to the GIR mechanism in Nevada. Income resulting from increases in the cash surrender value of COLI policies and
non-utility expenses, increased $2 net death benefits recognized was $9.5 million
between periods. Thein the current period
reflects $6.8and $8.8 million
of income associated with COLI policy cash surrender value increases, whilein the prior-year
periodperiod. The non-service cost components of employee pension and post-retirement benefits are reflected
$5.4 million of COLI-related income. COLI amounts in
each period were greater than expected.Net interest deductions increased $2.5 million between periods, primarily due to the September 2016 issuance of $300 million of senior notes, partially offset by reductions associated with debt redemptions ($100 million of 4.85% IDRBs in July 2016 and $24.9 million of 4.75% IDRBs in September 2016) and lower interest expense associated with PGA balances as compared to the prior-year period.
35
both periods.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
Results of Natural Gas Operations
Twelve-Month Analysis
| | | | | | | | |
| | Twelve Months Ended September 30, | |
| | 2017 | | | 2016 | |
| | (Thousands of dollars) | |
Gas operating revenues | | $ | 1,276,308 | | | $ | 1,376,388 | |
Net cost of gas sold | | | 334,888 | | | | 460,836 | |
| | | | | | | | |
Operating margin | | | 941,420 | | | | 915,552 | |
Operations and maintenance expense | | | 413,140 | | | | 400,222 | |
Depreciation and amortization | | | 212,693 | | | | 228,609 | |
Taxes other than income taxes | | | 56,221 | | | | 51,810 | |
| | | | | | | | |
Operating income | | | 259,366 | | | | 234,911 | |
Other income (deductions) | | | 10,308 | | | | 9,615 | |
Net interest deductions | | | 69,464 | | | | 65,146 | |
| | | | | | | | |
Income before income taxes | | | 200,210 | | | | 179,380 | |
Income tax expense | | | 65,887 | | | | 59,544 | |
| | | | | | | | |
Contribution to consolidated net income | | $ | 134,323 | | | $ | 119,836 | |
| | | | | | | | |
Contribution to consolidated net income from natural gas operations
Net interest deductions increased
by $14.5$8.5 million between the
twelve-month periods of 2017current and
2016. The improvement wasprior-year period primarily due to higher
operating margin and lower depreciation expense, partially offset by an increase in operations and maintenance expenses and interest
expense.Operating margin increased $26 million between periods including a combined $13 million of rate relief in the Arizona and California jurisdictions, as well as Paiute Pipeline Company. Customer growth provided $9 million in operating margin, while operating margin associated with recoveries of regulatory assets, infrastructure replacement mechanisms, customers outside the decoupling mechanisms, and other miscellaneous revenues improved $4 million.
Operations and maintenance expense increased $12.9 million, or 3%, between periods primarily due to general cost increases, partially offset by lower pension expense. Approximately $5.6 million of the incremental costs recognized were associated with the amount and timing of employee incentive plan grants (including accelerated recognition for retirement-eligible employees). Pipeline integrity management and damage prevention programs collectively increased $500,000.
Depreciation and amortization expense decreased $15.9 million between periods primarily due to reduced depreciation rates in Arizona, a result of the recent Arizona general rate case decision. Partially offsetting the decline was depreciation associated with a $335 million, or 6%, increase in average gas plant in service for the current period as compared to the prior period. The increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.
Taxes other than income taxes increased $4.4 million between periods primarily due to higher property taxes associated primarily with net plant additions and increased property taxes in Arizona, including the impact of a property tax regulatory tracking mechanism resulting from the recent Arizona general rate case.
Other income increased $693,000 between the twelve-month periods ofcredit facility borrowings during late 2017 and 2016. The current period reflects an $8.8 million increase in COLI policy cash surrender values, whileearly 2018 and the prior-year period reflected $7.5 millionissuance of combined COLI-related income and recognized death benefits. COLI amounts in each period were greater than expected.
Net interest deductions increased $4.3 million between periods, primarily due to the September 2016 issuance of $300 million of senior notes. The increase was partially offset by reductions associated withnotes in the redemptionfirst quarter of debt ($1002018.
Income taxes were favorably impacted during the twelve months ending September 30, 2018 due to the December 2017 enactment of tax reform, which reduced the corporate federal income tax rate from 35% to 21%, effective January 2018. Approximately $8 million 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 comparedone-time tax benefits related to the
prior-year period.36
remeasurement of deferred tax liabilities were recorded in the fourth quarter of 2017, in addition to the lower rate utilized in 2018.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
Results of
ConstructionInfrastructure 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 services
|
| | | | | | | | |
| | Three Months Ended |
| | September 30, |
| | 2018 | | 2017 |
| | (Thousands of dollars) |
Construction revenues | | $ | 450,623 |
| | $ | 380,094 |
|
Operating expenses: | |
| |
|
Construction expenses | | 395,862 |
| | 342,629 |
|
Depreciation and amortization | | 14,232 |
| | 12,335 |
|
Operating income | | 40,529 |
| | 25,130 |
|
Other income (deductions) | | 38 |
| | (210 | ) |
Net interest deductions | | 3,945 |
| | 1,962 |
|
Income before income taxes | | 36,622 |
| | 22,958 |
|
Income tax expense | | 9,824 |
| | 8,407 |
|
Net income | | 26,798 |
| | 14,551 |
|
Net income attributable to noncontrolling interest | | — |
| | 216 |
|
Contribution to consolidated net income attributable to Centuri | | $ | 26,798 |
| | $ | 14,335 |
|
In November 2017, Centuri acquired New England Utility Constructors, Inc. (“Neuco”). Line items in the currenttable above reflect the results of Neuco only for the 2018 period due to the date of acquisition.
Construction revenues increased $70.5 million in the third quarter
decreased by $542,000of 2018 when compared to the prior-year
quarter. The decrease isquarter, primarily due to
$50.4 million of revenues contributed by Neuco and a higher
construction costs relative to increased revenues, resulting from apre-tax loss on a project described below, partially offset by a decline in depreciation and amortization.Revenues increased $40.3 million, or 12%, between quarters primarily due to an increase involume of pipe replacement work with existing customers. A significant portion of the increase relates tounder blanket and bid jobs that are expected to be substantially complete by year end.
contracts.
Construction expenses increased $42$53.2 million or 14%, between quarters due to additional pipe replacement work. work and higher labor-related and operating expenses to support increased growth. Approximately $34.8 million of construction expenses associated with Neuco are included in the three months ended September 30, 2018.
Depreciation and amortization expense increased $1.9 million between quarters, primarily due to incremental amortization of finite-lived intangible assets recognized from the Neuco acquisition and to depreciation on additional equipment purchased to support the growing volume of work being performed, partially offset by a $1.6 million reduction in depreciation associated with an extension (in the first quarter of 2018) of the estimated useful lives of certain depreciable equipment.
Net interest deductions increased by $2 million between quarters due primarily to higher average debt outstanding under the existing $450 million secured revolving credit and term loan facility in 2018 and higher rates on variable-rate debt.
Income taxes increased $1.4 million between quarters; however, the 2018 quarter reflects lower U.S. federal income tax rates following tax reform applied to an increased level of earnings.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Results were negativelyof Infrastructure Services
Nine-Month Analysis
|
| | | | | | | | |
| | Nine Months Ended |
| | September 30, |
| | 2018 | | 2017 |
| | (Thousands of dollars) |
Construction revenues | | $ | 1,105,844 |
| | $ | 872,536 |
|
Operating expenses: | |
| |
|
Construction expenses | | 1,007,485 |
| | 806,586 |
|
Depreciation and amortization | | 40,392 |
| | 35,446 |
|
Operating income | | 57,967 |
| | 30,504 |
|
Other income (deductions) | | (331 | ) | | 38 |
|
Net interest deductions | | 10,448 |
| | 5,095 |
|
Income before income taxes | | 47,188 |
| | 25,447 |
|
Income tax expense | | 12,951 |
| | 9,560 |
|
Net income | | 34,237 |
| | 15,887 |
|
Net income (loss) attributable to noncontrolling interest | | (797 | ) | | 170 |
|
Contribution to consolidated net income attributable to Centuri | | $ | 35,034 |
| | $ | 15,717 |
|
Line items in the table above reflect the results of Neuco only for the 2018 period as the acquisition occurred in November 2017.
Construction revenues increased $233.3 million during the first nine months of 2018 when compared to the same period in the prior year due to an increased volume of replacement work for many natural gas distribution customers, the contribution of $98.6 million in revenue from Neuco in 2018, the resumption of work following a customer’s temporary work stoppage that impacted by higher construction costs forprior-year performance, and the settlement of an outstanding contract dispute associated with a water pipe replacement project, for which Centuri has requestedproject.
Construction expenses increased
cost recovery. No$200.9 million between periods. The increase is due to additional
pipe replacement work
orders will be accepted onand higher labor costs incurred to complete work during inclement weather conditions during the
project pending resolutionfirst quarter of
Centuri’s request.2018. Approximately $78.6 million of construction expenses associated with Neuco are included in the nine months ended September 30, 2018. Gains on sale of equipment (reflected as an offset to construction expenses) were approximately
$25,000$1 million and
$1.4$1.5 million for the
third quartersfirst nine months of
2018 and 2017,
and 2016, respectively.
Depreciation and amortization decreased $1.1increased $4.9 million between quarters,periods, primarily due to incremental amortization of finite-lived intangible assets recognized from the Neuco acquisition and to depreciation on additional equipment purchased to support the growing volume of work being performed, partially offset by a $2$5.5 million reduction in depreciation expense associated with the extension of the estimated useful lives of certain depreciable equipment duringequipment.
Net interest deductions increased by $5.4 million between periods due primarily to higher average debt outstanding under the past 12 months, partially offset byexisting $450 million secured revolving credit and term loan facility in 2018 and higher rates on variable-rate debt.
Income taxes increased $3.4 million between periods; however, the 2018 period reflects lower U.S. federal income tax rates following tax reform applied to an
increase in depreciation for additional equipment purchased to support the growing volumeincreased level of
work being performed.37
earnings.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
Results of Infrastructure Services
Twelve-Month Analysis
|
| | | | | | | | |
| | Twelve Months Ended |
| | September 30, |
| | 2018 | | 2017 |
| | (Thousands of dollars) |
Construction revenues | | $ | 1,479,792 |
| | $ | 1,173,576 |
|
Operating expenses: | |
| |
|
Construction expenses | | 1,349,862 |
| | 1,073,090 |
|
Depreciation and amortization | | 53,975 |
| | 47,764 |
|
Operating income | | 75,955 |
| | 52,722 |
|
Other income (deductions) | | (24 | ) | | 1,187 |
|
Net interest deductions | | 13,339 |
| | 6,813 |
|
Income before income taxes | | 62,592 |
| | 47,096 |
|
Income tax expense | | 5,781 |
| | 17,402 |
|
Net income | | 56,811 |
| | 29,694 |
|
Net income (loss) attributable to noncontrolling interest | | (866 | ) | | 684 |
|
Contribution to consolidated net income attributable to Centuri | | $ | 57,677 |
| | $ | 29,010 |
|
Line items in the table above reflect the results of Neuco only since the November 2017 acquisition date.
Construction
ServicesNine-Month Analysis
| | | | | | | | |
| | Nine Months Ended September 30, | |
| | 2017 | | | 2016 | |
| | (Thousands of dollars) | |
Construction revenues | | $ | 872,536 | | | $ | 838,038 | |
Operating expenses: | | | | | | | | |
Construction expenses | | | 806,586 | | | | 757,919 | |
Depreciation and amortization | | | 35,446 | | | | 43,351 | |
| | | | | | | | |
Operating income | | | 30,504 | | | | 36,768 | |
Other income (deductions) | | | 38 | | | | 44 | |
Net interest deductions | | | 5,095 | | | | 4,945 | |
| | | | | | | | |
Income before income taxes | | | 25,447 | | | | 31,867 | |
Income tax expense | | | 9,560 | | | | 12,042 | |
| | | | | | | | |
Net income | | | 15,887 | | | | 19,825 | |
Net income attributable to noncontrolling interests | | | 170 | | | | 500 | |
| | | | | | | | |
Contribution to consolidated net income attributable to Centuri | | $ | 15,717 | | | $ | 19,325 | |
| | | | | | | | |
Contribution to consolidated net income from construction services forrevenues increased $306.2 million in the first nine months of 2017 declined by $3.6 million whencurrent twelve-month period compared to the prior-year period. The decrease issame period of 2017, primarily due to a higher construction costs relative tovolume of pipe replacement work under blanket contracts and the contribution of approximately $115.8 million in revenue from Neuco since the November 2017 acquisition date. In addition, Centuri performed work on a multi-year water pipe replacement program, which began in late 2016, that contributed incremental revenues of $61.7 million and $38.2 million during the twelve-month periods ended September 30, 2018 and 2017, respectively.
Construction expenses increased
revenues, partially offset by a decline in depreciation and amortization.Revenues increased $34.5$276.8 million or 4%, in the first nine months of 2017 when compared to the prior-year periodbetween periods, primarily due to increasedadditional pipe replacement work. Partially offsetting increaseswork and greater operating expenses to support growth in revenues was a temporary work stoppage by a significant customer that began in the first quarter of 2017 and continued through part of the second quarter of 2017 resulting in a $26.3 million reduction in revenues, compared to the prior-year period, 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 of 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.operations. In addition, results were negatively impacted by higher construction andstart-upcosts related to the water pipe replacement project, for which Centuri is pursuing cost recovery.program noted above. Approximately $94.6 million of construction expenses from Neuco are included in the twelve months ended September 30, 2018. Gains on sale of equipment (reflected as an offset to construction expenses) were approximately $1.5$3.7 million and $4.1$4.5 million for the first nine monthstwelve-month periods of 2018 and 2017, and 2016, respectively.
Depreciation and amortization decreased $7.9expense increased $6.2 million between the current and prior-year periods primarily due to an $8.2incremental amortization of finite-lived intangible assets recognized from the Neuco acquisition and to depreciation on additional equipment purchased to support the growing volume of work being performed, partially offset by a $6.4 million reduction in depreciation associated with the extension of the estimated useful lives of certain depreciable equipment duringequipment.
Net interest deductions increased $6.5 million between periods due primarily to higher average debt outstanding under the past 12 months, partially offset by an increaseexisting $450 million secured revolving credit and term loan facility in depreciation for additional equipment purchasedthe current twelve-month period and higher rates on variable-rate debt.
Income tax expense decreased $11.6 million between periods, primarily due to
supportapproximately $12 million of one-time tax benefits related to the
growing volumeremeasurement of
work being performed.38
Centuri’s deferred tax liabilities that were recorded in the fourth quarter of 2017, and to lower income tax rates in effect in 2018. These impacts collectively resulted from U.S. tax reform.
|
| | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
Results of Construction Services
Twelve-Month Analysis
| | | | | | | | |
| | Twelve Months Ended September 30, | |
| | 2017 | | | 2016 | |
| | (Thousands of dollars) | |
Construction revenues | | $ | 1,173,576 | | | $ | 1,127,982 | |
Operating expenses: | | | | | | | | |
Construction expenses | | | 1,073,090 | | | | 1,009,188 | |
Depreciation and amortization | | | 47,764 | | | | 58,368 | |
| | | | | | | | |
Operating income | | | 52,722 | | | | 60,426 | |
Other income (deductions) | | | 1,187 | | | | 1,246 | |
Net interest deductions | | | 6,813 | | | | 6,738 | |
| | | | | | | | |
Income before income taxes | | | 47,096 | | | | 54,934 | |
Income tax expense | | | 17,402 | | | | 20,711 | |
| | | | | | | | |
Net income | | | 29,694 | | | | 34,223 | |
Net income attributable to noncontrolling interests | | | 684 | | | | 1,079 | |
| | | | | | | | |
Contribution to consolidated net income attributable to Centuri | | $ | 29,010 | | | $ | 33,144 | |
| | | | | | | | |
Contribution to consolidated net income from construction services for the twelve-month period ended September 30, 2017 decreased $4.1 million compared to the same period of 2016. The decrease is primarily due to higher construction costs relative to increased revenues, resulting inpre-tax losses on certain projects, partially offset by a decline in depreciation and amortization.
Revenues increased $45.6 million, or 4%, in the current twelve-month period compared to the same period of 2016 primarily due to additional pipe replacement work for existing natural gas distribution customers. During the past several years, Centuri has focused its efforts on obtaining replacement work under both blanket contracts and incremental bid projects. For both twelve-month periods ended September 30, 2017 and 2016, revenues from replacement work provided over 60% of total revenues.
Construction expenses increased $63.9 million, or 6%, between periods, due to additional pipe replacement work, higher labor costs experienced due to changes in the mix of work with existing customers, and higher operating expenses to support increased growth in operations. The logistics surrounding the timing and length of a temporary work stoppage with a significant customer during the first six months of 2017 and higher labor costs incurred to complete work during inclement weather conditions in the first quarter of 2017 resulted in costs disproportionate to revenues. Results were negatively impacted by higherstart-up and construction costs for a water pipe replacement project, for which Centuri has requested increased cost recovery. No additional work orders will be accepted on the project pending resolution of Centuri’s request. Gains on sale of equipment (reflected as an offset to construction expenses) were $4.5 million and $4.2 million for the twelve-month periods ended September 30, 2017 and 2016, respectively.
Depreciation and amortization decreased $10.6 million between the current and prior-year periods primarily due to an $11.1 million reduction associated with the extension of the estimated useful lives of certain depreciable equipment over the last twelve months, partially offset by an increase in depreciation for additional equipment purchased to support the growing volume of work being performed.
39
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Rates and Regulatory Proceedings
Arizona General Rate Case. In May 2016, Southwest filed a general rate application with the Arizona Corporation Commission (“ACC”(the “ACC”). Following undertakings associated with the filing, a settlement hearing was held in May 2016 requesting an increaseFebruary 2017, and the ACC approved the settlement in authorizedApril 2017 (with new rates effective the same month), providing for, among other things, rate changes that would result in a combined net annual operating revenuesincome increase of approximately $32$60.7 million or 4.2%, to reflect existing levels of expense(including $16 million in additional operating revenue and requested returns,a $44.7 million decrease in addition to reflecting capital investments made by Southwest since June 2010.depreciation expense). The application requested an overalldecision included a 7.82% rate of return of 7.82% on an original cost rate base of $1.336 billion, a 10.25%9.5% return on common equity, and a capital structure utilizing 52% common equity. The filing included a depreciation study that supported a proposal to reduce currently effective depreciation expense by approximately $42 million, which was considered in the overall requested amount. This expense reduction coupled with the requested revenue increase, resulted in a net annual operating income increase request of $74 million. A settlement was reached among several parties in December 2016 and a formal draft settlement was filed in January 2017. Hearings were held in February 2017, and the ACC approved the settlement agreement in April 2017. The settlement provides for an overall operating revenue increase of $16 million and the capital structure and cost of capital as proposed by Southwest, with the exception of the return on common equity, which was set at 9.50%. Depreciation expense is expected to be reduced by $44.7 million, for a combined net annual operating income increase of $60.7 million. Other key elements ofincluded the settlement include approval of the continuation and expansion of the current Customer-Owned Yard Line (“COYL”) program, (adding the ability to seek out COYLs through a targeted approach and mobilization of work crews for replacement), implementation of a vintage steel pipe (“VSP”) replacement program, and a continuation of the current decoupled rate design, excluding athe previous winter-period adjustment to rates, making the mechanism fundamentally similar to that which exists in Nevada. The settlement also included a property tax tracking mechanism, towhich will defer changes in property taxrelated expense for recovery or return in the next general rate case. New rates were effective April 2017. The settlementIt also includesincluded a three-year moratorium on filing another general rate case moratorium prohibiting a new application to adjust base rates from being filed prior to May 2019.LNG (“
Tax Reform. In February 2018, the ACC directed all Arizona utilities to address tax savings from the enactment of tax reform pursuant to the Tax Cut and Jobs Act (the “TCJA”) beginning January 1, 2018 through a tax expense adjuster mechanism, a notice of intent to file a rate case, or through a separate application. In April 2018, Southwest filed an application with the ACC, requesting approval for a tax refund process or, in the alternative, the authority to file a general rate case to reflect tax reform. The requested tax refund process was designed to ensure customers receive the benefits from tax reform through an ACC-approved earnings test, whereby a tax refund application would be made annually to refund to customers any margin contributing to earnings above the ACC-authorized rate of return. The ACC staff (the “Staff”) recommended that Southwest refund customers a one-time credit to reflect the tax savings from January through July 2018, effective with Southwest’s August 2018 billing cycles and that, effective August 2018, surcredits be established on a per-therm basis until new cost-of-service rates become effective following the Company’s next general rate case. Other recommendations included supplemental compliance reports related to excess deferred income taxes and an annual true-up to account for differences between the actual tax savings and the amount authorized by the ACC. In July 2018, the ACC issued a decision (the “Decision”) approving the Staff’s recommendations. The Decision addressed current tax reductions due to tax reform through refunding customers approximately $20 million annually (as compared to rate levels established in the most recent general rate case effective April 2017) until new general rates are approved. However, it did not direct refunding to commence with regard to excess amounts from the remeasurement of deferred tax balances, which continue to be recognized as a regulatory liability beginning with the enactment date of tax reform (see Note 1 – Nature of Operations and Basis of Presentation). Through September 2018, Southwest reflected approximately $15 million of the $20 million annual amount as a reduction in revenue and is tracking monthly differences between amounts expected to be returned and amounts actually returned to customers, resulting in a liability balance of $2.4 million as of September 30, 2018.
Liquefied Natural Gas”Gas (“LNG”) Facility. In January 2014, Southwest filed an application with the ACC seeking preapproval to construct, operate, and maintain a 233,000 dekatherm LNG facility in southern Arizona. This facility is intended to enhance service reliability and flexibility in natural gas deliveries in the southern Arizona area by providing a local storage option, to be operated by Southwest and connected directly to its distribution system. In December 2014, Southwest received an order from the ACC grantingpre-approval preapproval of Southwest’s application to construct the LNG facility and the deferral of costs, up to $50 million. Following the December 2014 preapproval, Southwest purchased the site for the facilitymillion, which was later approved (December 2016) to be modified not to exceed $80 million, following land purchase and completed detailed engineering design specifications for the purpose of soliciting bidsbid solicitation for the engineering, procurement, and construction (“EPC”) of the facility. Southwest solicited requests for proposals for the EPC phase of the project, and in October 2016 made a filing with the ACC to modify the previously issued Order to update thepre-approved costs to reflect anot-to-exceed amount of $80 million, which was approved by the 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. Through September 2018, Southwest has incurred approximately $51 million in capital expenditures toward the project (including land acquisition costs).
COYL Program. Southwest received approval, in connection with an earlier Arizona general rate case, to implement a program to conduct leak surveys, and if leaks were present, to replace and relocate service lines and meters for Arizona customers whose meters were set off from the customer’s home, which is not a traditional configuration. Customers with this configuration were previously responsible for“Phase II” of the costCOYL program included the replacement of maintaining these lines and were subject to the immediate cessation of natural gas service iflow-pressure leaks occurred. Effective June 2013, the ACC authorized a surcharge to recover the costs of depreciation andpre-tax return on the costs incurred to replace and relocate service lines and meters.non-leaking COYLs. The surcharge is revised annually as the program progresses. In 2014, Southwest received approval to add a “Phase II” component to the COYL program to include the replacement ofnon-leaking COYLs. In the most recent annual COYL filing made in February 2017, Southwest requested to establish an annual surcharge to collect $1.8 million related to the revenue requirement associated with $12.1 million in capital projects completed under both Phase I and Phase IIphases during 2016. In June 2017, the ACC issued a decision approving the surcharge application. All capital work completed in earlier years was incorporated in Southwest’s Arizona rate base in connection with the recently completed general rate case proceeding, as discussed above.40
In the annual COYL filing made in February 2018, Southwest requested surcharge revenue of $4.2 million (an increase of $2.4 million from $1.8 million) related to 2017 expenditures of $18 million. In September 2018, the ACC approved the proposed surcharge application, while modifying the surcharge revenue to $3.5 million (an increase of $1.7 million) to reflect the impact of tax reform on the revenue requirement calculation.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
Vintage Steel Pipe Program.
VSP Program. Southwest received approval, in connection with its most recent Arizona general rate case, to implement a vintage steel pipe (“VSP”)VSP replacement program. Southwest currently has approximately 6,000 miles ofpre-1970s vintage steel pipe in Arizona. Southwest proposed to start replacing the pipe on an accelerated basis and to recover the costs through an annual surcharge filing that will be made in February of each year. The surcharge is designed to be revised annually as the program progresses. A Plan of Administration (“POA”), which was filed in March of 2017 and was approved in conjunction with the general rate case, outlined the VSP program requirements and established the timeline for future project plans and surcharge requests. Southwest is currently targeting the replacement of nearlyreplaced approximately 40 miles of VSP during 2017 totaling approximately $27 million and is targeting replacement projects during 2018 of approximately $100 million.California Jurisdiction
Attrition Filing. In November 2016,the annual VSP filing made in February 2018, Southwest made its latest annual post-test year (“PTY”) attrition filing withrequested to establish a surcharge to collect $3.1 million related to 2017 expenditures. In September 2018, the California Public Utilities Commission (“CPUC”), requesting annualACC approved the proposed surcharge application, while modifying the surcharge revenue increasesto $2.4 million to reflect the impact of $2.1 million in southern California, $513,000 in northern California, and $256,000 for South Lake Tahoe. This filing was approved in December 2016 and rates were made effective in January 2017. At the same time, rates were updated to recover the regulatory asset associated withtax reform on the revenue decoupling mechanism, or margin tracker.
requirement calculation.
California Jurisdiction
California General Rate Case.Case. In December 2016, Southwest filed to modify the most recent general rate case decision to extend the current rate case cycle by two years, including extension of the annual PTYpost-test year (“PTY”) attrition adjustments through 2020 from 2018. That latest rate case decision would have otherwise required Southwest to file its next general rate application by September 2017. Expedited consideration was requested and in June 2017, the CPUCCalifornia Public Utilities Commission (the “CPUC”) approved the request, thereby extending the rate case filing deadline.deadline to September 2019. Southwest believes this extension is in the public interest as it provides rate stability to customers for two additional years consistent with the current reasonable rates approved as part of the last general rate case, and the current revenue requirement and rate of return are not in need of adjustment (with the continuation of the currently approved 2.75% PTY attrition adjustment for the two additional years).years. Also see
Attrition Filing below. Tax Reform. In its 2017 decision approving Southwest’s request to extend the filing date of its next general rate case, the CPUC directed Southwest to track income tax expense resulting from mandatory or elective changes in tax law, procedure, or policy during the period of the rate case extension. The purpose is to identify differences between Southwest’s authorized income tax expense and its actual incurred income tax expense during calendar years 2019 and 2020, the result of which would be reviewed in Southwest’s next general rate case. Southwest does not currently anticipate making an ad hoc filing in advance of the next general rate case filing to implement any changes resulting from tax reform.
Attrition Filing. In November 2017, Southwest made its latest annual PTY attrition filing, requesting annual revenue increases of $2 million in southern California, $527,000 in northern California, and $263,000 for South Lake Tahoe. This filing was approved in December 2017 and rates were made effective in January 2018. At the same time, rates were updated to recover the regulatory asset associated with the revenue decoupling mechanism, or margin tracker.
Greenhouse Gas (“GHG”) Compliance. California Assembly Bill Number 32 and the regulations promulgated by the California Air Resources Board, require Southwest, as a covered entity, to comply with all applicable requirements associated with California GHG emissions reporting and the California Cap and Trade Program. The CPUC issued a decision in March 2018 adopting an allocation methodology to distribute the net revenues or costs for years 2015-2017 beginning in the second quarter of 2018. Southwest began amortizing its then existing net cost balance over a 12-month period with recovery rates effective July 2018 for all applicable rate schedules. In addition, for years 2019-2020, the decision adopted an allocation methodology to distribute the revenue proceeds through a California Climate Credit to active residential customers in April of each year. GHG compliance costs recovered through rates (including transportation customer rates) have no impact on earnings.
Nevada General Revenues Adjustment.In June 2016, Southwest requested authorizationRate Case. The currently effective general rate case decision was received from the Public Utilities Commission of Nevada (“PUCN”(the “PUCN”) in November 2012 as amended in a Rehearing Decision in April 2013. Southwest filed its most recent general rate case with the PUCN in May 2018 and updated the request following the certification period ending in July 2018. The filing requests a statewide overall general rate increase of approximately $29.7 million to account for changes in the cost of service ($12.1 million) since the last general rate case, including those resulting from the TCJA, and another $17.6 million associated with the inclusion in rate base of GIR projects previously approved by the PUCN under the ongoing program. The application also requests a return on common equity of 10.3%, and a capital structure utilizing a 49.3% equity ratio. In association with the proposed changes, depreciation expense is expected to increase by approximately $4 million, for a net operating income impact of approximately $25 million. Southwest also seeks to adjust the GIR rate as part of the rate case process in lieu of filing a separate GIR rate application later this year. That adjustment would result in estimated incremental operating margin of $6 million.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
In addition to the foregoing, Southwest is requesting to implement a pension tracker to account for the changes in pension expense between rate cases. Southwest also proposes to include two new tariff schedules (1) compression service and (2) biogas and renewable natural gas service. There are no changes to rate design overall, and a request to continue the general revenues adjustment (the “GRA”) mechanism (revenue decoupling mechanism) is included. The PUCN Staff and the Bureau of Consumer Protection (the “BCP”) each filed testimony requesting various changes to the proposed cost of service, including recommending a return on common equity of 9.4% and 9.3%, respectively. The PUCN Staff proposed an overall annual increase of approximately $13.9 million, but proposed to offset that with approximately $16.5 million of imputed revenue on contracts for service the Company has with several of its large customers. The BCP has proposed an annual increase of approximately $2.2 million, with a smaller offset for imputed revenues on the large customer contracts. Management cannot predict how these proposals will impact the ultimate decision of the PUCN, but currently expects that an order will be received during the fourth quarter of 2018 and that new rates will become effective no later than January 1, 2019. See also Tax Reform and Infrastructure Replacement Mechanisms below.
Tax Reform. The PUCN opened an investigation into the TCJA, requiring comments to be filed by April 2018. Southwest filed comments, whereby it described its plan to address the tax changes in its general rate case that was filed in May 2018. The PUCN issued a decision in October 2018 affirming that the pending Nevada rate case is the appropriate forum for addressing the impact of the TCJA on ratepayers, and recommended that the Company refrain from amortizing any excess accumulated deferred tax balances until the rate case is resolved.
General Revenues Adjustment. As part of the Annual Rate Adjustment (“ARA”) filing in 2016, the PUCN authorized rate adjustments associated with its revenue decoupling mechanism (General Revenues Adjustment, or “GRA”).the GRA. The filing was approvedrate adjustment resulted in December 2016,$13.6 million of collections from customers during 2017, a decrease in collections of $11.8 million, as compared to 2016. For the 2017 filing, with rates effective January 2017. The rate adjustment is expected to refund approximately $16.7 million during 2017. In June 2017, Southwest filed to adjust the GRA surcharge effective January 2018, which was approved by the PUCN during the third quarter of 2017. This willauthorized rate adjustments that are expected to result in a decrease in collections from customers of $15.4 million, based onas compared to the over-recovered balance2017 levels. In association with the most recent annual submission in June 2018, Southwest filed to adjust the account atGRA surcharge effective January 2019, to result in an increase in collections from customers of $5.6 million. Following a settlement agreement submitted to the end of April 2017.PUCN, which was approved in October, the surcharge revenue was authorized to be implemented as requested. While there is no impact to net income overall from this rate adjustment, operating cash flows will be reducedexpected to increase as the associated regulatory liability balance is refunded.reduced.
Infrastructure Replacement Mechanisms.Mechanism.In January 2014, the PUCN approved final rules for a mechanism to defer and recover certain costs associated with accelerated replacement of infrastructure that doeswould not otherwise currently provide incremental revenues. Associated with suchthe replacement of various types of pipe infrastructure under the mechanism (Early Vintage Plastic Pipe (“EVPP”), COYL and VSP), each year Southwest files a Gas Infrastructure Replacement (“GIR”) Advance ApplicationGIR “Advance Application” requesting authorityauthorization to replace qualifying infrastructure and files separately as part of an annual GIR filing to reset the recovery surcharge, related to previously approved and completed projects. For projects approved in 2015 and completed in 2016, the annualized revenue was approximately $4.5 million. In September 2016, Southwest filed to adjust the GIR surcharge to recover the annual revenue requirement for amounts previously deferred. This filing was approved in December 2016 and new rates became effective January 2017. In June 2016, Southwest filed an Advance Application for projects expected to be completed during 2017, proposing approximately $60 million of accelerated pipe replacement to include early vintage plastic, early vintage steel, and a COYL program. The COYL program, while not large in magnitude, represents the first of its kind in Nevada, modeled after the program in place for several years in Southwest’s Arizona jurisdiction. The PUCN issued an Order on the Advance Application in October 2016, approving approximatelyinfrastructure. Approximately $57.3 million of replacement work was approved for 2017 with an annualized revenue requirement estimated at approximately $5.3 million. With regard to the proposed COYL program, approval was granted for the northern Nevada rate jurisdiction, but consideration for the southern Nevada rate jurisdiction was deferred until 2020, at which time certain early vintage plastic pipe programs are expected to be completed. In September 2017, Southwest filed to adjust the GIR surcharge to recover the annual revenue requirement for amounts previously deferred. For projects approved in 2016 and completed by July of 201741
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
, the deferred annualized revenue requirement is approximately $8.7 million. This filing is expected to be approved in December 2017 with rates becoming effective January 2018.
In May 2017, Southwest filed a GIRits Advance Application with 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 as the continuation of the previously approved COYL program in northern Nevada. Southwest entered into a settlement agreement with the intervening parties and filed a proposed stipulation requesting the Commission approve the settlement agreement. The settlement agreement proposed that the request be approved as filed and that Southwest be authorized to start replacing COYLs in southern Nevada in certain situations, and to recover costs through the GIR mechanism. The PUCN issued an Orderorder on the GIRthat Advance Application in September 2017, approving approximately $65.7$66 million of replacement work (withwith an annualized revenue requirement estimated at $6 million.
In June 2018, Southwest filed its Advance Application with projects totaling $228 million to be completed over a three-year period, with a total annualized revenue requirement (following the three-year replacement period) of approximately
$6$21.7 million. Historically, Southwest has requested approval of projects on an annual basis; however, it requested to move to a multi-year approval process for projects to improve operational flexibility and enhance coordination with contractors and governmental agencies. The PUCN issued a decision limiting its approval to the 2019 projects, resulting in an annual approval of $35.3 million for projects to be completed in 2019 (EVPP $9.3 million, COYL $1.3 million, and VSP $24.7 million)
and the COYL provisions in southern Nevada.Subsequent.
Filed separately, as part of each GIR filing, Southwest requests authorization to
three GIR rate applications,reset the GIR
regulations require Southwestrecovery surcharge related to
either filepreviously approved and completed projects, with new rates becoming effective each January. In November 2017, for projects approved in 2016 and completed by July 2017, a
deferred annualized revenue requirement of $8.7 million was approved to be recovered from customers through updated rates effective January 2018. Included as part of the 2018 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(noted above), management proposed to
these regulations, necessitating a request for waiver to permit Southwest to proceed withadjust the GIR
program without filing a generalsurcharge rate as part of the rate case in
2017. This waiver was approved bylieu of filing a separate application during the
PUCNthird quarter, which would be expected to result in
January 2017; however, in order to continueincremental annual margin of approximately $6 million. A decision is expected during 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 Junefourth quarter of 2018.
Conservation and Energy Efficiency (“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 recentrecently completed general rate case, amounts incurred subsequent to May 2012 (the related certification period) continued to be deferred. Approved rates for thepost-May 2012 costs deferred (including previously expected program expenditures for 2016) became
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
effective January
2016 and resulted in annualized margin increases of $2 million in northern Nevada and $8.5 million in southern Nevada. Then, as part of the2016. The 2017 ARA filing approved in
December 2016, SouthwestNovember 2017, with modified rates effective January
2017,2018, is expected to result in annualized margin decreases of
$8.2 million in southern Nevada and $1.4 million in northern Nevada
and $1.3to return over-collected balances. As part of the 2018 ARA filing, Southwest requested modified rates, effective January 2019, which would authorize an annualized margin decrease of $4 million in southern Nevada
to return over-collected balances.and a $100,000 increase in northern Nevada. There is, however, no anticipated impact to net income overall from these
decreaseschanges as amortization expense will
also be
reduced.impacted directionally the same and by the same amounts.
Expansion and Economic Development Legislation.In February 2015,January 2016, final regulations were approved by the PUCN associated with legislation (“SB 151”) waspreviously introduced and signed into law in Nevada directing the PUCN to adopt regulations authorizingNevada. The legislation authorized natural gas utilities to expand their infrastructure consistent with a program of economic development. This includes providing gasto provide service to unserved and underserved areas in Nevada, as well as attracting and retaining utility customers and accommodating the expansion of existing business customers. SB 151 was signed into law in May 2015. The draft regulations were reviewed by the Legislative Council Bureau and final regulations were approved by the PUCN in January 2016.Nevada.
In November 2017, Southwest filed for preapproval of a project to extend service to
include the service territory of Mesquite, Nevada, in accordance with the SB 151 regulations.
This project proposesHearings took place in April 2018, and in May, the
extension of existing facilitiesPUCN issued an order approving Southwest’s proposal to
Mesquite at an estimated costexpand natural gas infrastructure to Mesquite. The order approves a capital investment of approximately
$30 million.$28 million and the construction of approximately 37 miles of distribution pipeline (including the approach main). The cost is
proposedexpected to be recovered through
a volumetric
surcharge onrates from all southern Nevada
customers. A second phasecustomers (including new customers in Mesquite). The annual revenue requirement associated with the project is
then proposed$2.8 million. Southwest has begun preliminary design work and is currently targeting the first quarter of 2019 to
convert existing homes tostart serving certain customers with an approved virtual pipeline network, which is a temporary natural gas
service, which will be charged assupply using a
separate surchargelimited distribution system and compressed natural gas tanks. It is estimated that permitting and construction of the approach main to bring the permanent supply to Mesquite
customers only. A decision on this proposal is expected withinand construction of the
required210-day time period for filings of this type.remaining approved distribution system could take up to two years to complete.
Federal Energy Regulatory Commission (“FERC”) Jurisdiction
General Rate Case. Paiute Pipeline Company (“Paiute”), a wholly owned subsidiary of Southwest, filed its most recent general rate case with the FERC in February 2014, and following settlement proceedings, tariff changes were filed in March 2015. The settlement implied an 11.5% pre-tax rate of return, and as part of the agreement, Paiute agreed to file a rate case no later than May 2019. See Tax Reform below.
2018 Expansion. In response to growing demand in the Carson City and South Lake Tahoe areas of northern California and northern Nevada, Paiute Pipeline Company (“Paiute”) evaluated shipper interest in acquiring additional transportation capacity and executed precedent agreements for incremental transportation capacity with Southwest during the third quarter of 2016. In October 2016, Paiute initiated apre-filing review process with the FERC for an expansion project, which was approved during the same month. In July 2017, a certificate application was filed, which included an applicant environmental assessment. TheIn May 2018, the FERC issued a Certificate of Public Convenience and Necessity authorizing Paiute to construct the $18 million project. Following receipt of contractor pricing for the project, is anticipatedPaiute updated the project costs to reflect approximately $22 million and made a filing with FERC requesting to amend the certificate order to reflect the updated cost estimates. In October 2018, the FERC issued an order amending the certificate to reflect updated costs of the project. Construction work began in July 2018 and will consist of 8.5 miles of additional transmission pipeline infrastructure at an approximateinfrastructure. The project is expected to be completed and placed in service in November 2018.
Tax Reform. The FERC issued a Notice of Proposed Rulemaking (“NOPR”) on whether the federal income tax changes of the TCJA cause pipeline rates to no longer be just and reasonable. The NOPR provided for pipelines to file a FERC Form No. 501-G to evaluate the impact of tax reform on their revenue requirement. In addition to filing the form, pipelines would select one of the following four options: (1) make a limited “Section 4” filing to reduce its rates by the percentage reduction in its cost of $18 million. Ifservice shown in its FERC Form No. 501-G; (2) commit to file either a prepackaged uncontested rate settlement or a general Section 4 rate case; (3) file a statement explaining why no change in rates is necessary; or (4) file the process progresses as planned,new FERC form without taking any other action. The FERC would also ultimately consider whether to initiate an investigation of any pipeline that would not have submitted a decision shouldlimited Section 4 rate reduction filing or committed to file a general rate case. In July 2018, the FERC issued a final rule (Order No. 849) adopting procedures for determining which jurisdictional pipelines may be received by April 2018collecting unjust and unreasonable rates in light of tax reform. The rule became effective in September 2018. Paiute and Southwest Gas Transmission Company (“SGTC”), both of which are FERC-regulated subsidiaries of Southwest and the additional facilities could be in place byCompany, are each expected to file a Form No. 501-G during the endfourth quarter of 2018.42
In advance of its Form No. 501-G filing, Paiute has initiated discussions with its shippers regarding adjusting rates to reflect impacts of the TCJA as well as settlement of Paiute’s obligation to file a general rate case no later than May 31, 2019. SGTC has also initiated discussions with its shipper on adjusting its rates to reflect the impact of the TCJA.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
The rate schedules in all of Southwest’s service territories contain provisions that permit adjustments to rates as the cost of purchased gas changes. These deferred energy provisions and purchased gas adjustment clauses are collectively referred to as “PGA” clauses. Differences between gas costs recovered from customers and amounts paid for gas by Southwest result in over- or under-collections.
At September 30, 2017, under-collectionsOver-collections in
Arizona and Northern Nevada resulted in an assetall jurisdictions, coupled with a refund of
approximately $6.2$49 million
and over-collections in Southern Nevada and Californiareceived during the third quarter of 2018 due to the El Paso Natural Gas, L.L.C. (“EPNG”) rate case settlement, resulted in a liability of
$15$93 million
included in Deferred purchased gas costs on the Company’s and Southwest’s
condensed consolidated balance sheets. Gas cost rates paid to suppliers have been higher than amounts recovered from customers during the first nine monthsCondensed Consolidated Balance Sheets as of
2017, resulting in fluctuations since December 31, 2016. Tariff rates have been adjusted in all jurisdictions during this period.September 30, 2018. Filings to change rates in accordance with PGA clauses are subject to audit by state regulatory commission staffs. PGA changes impact cash flows but have no direct impact on profit margin. However, gas cost deferrals and recoveries can impact comparisons between periods of individual consolidated income statement components. These include Gas operating revenues, Net cost of gas sold, Net interest deductions, and Other income (deductions).
As the majority of the $49 million EPNG refund noted above related to Southwest’s transmission service into Arizona, in October 2018, Southwest filed an application with the ACC requesting an alternate methodology for refunding the EPNG funds allocated to the Arizona rate jurisdiction customers, which would involve offsetting sizable amounts currently receivable from Arizona customers under a different mechanism (the margin decoupling mechanism). A decision is expected during the fourth quarter of 2018.
The following table presents Southwest’s outstanding PGA balances receivable/(payable)
(thousands of dollars)(in thousands):
| | | | | | | | | | | | |
| | September 30, 2017 | | | December 31, 2016 | | | September 30, 2016 | |
Arizona | | $ | 1,324 | | | $ | (20,349 | ) | | $ | (34,425 | ) |
Northern Nevada | | | 4,906 | | | | (3,339 | ) | | | (10,326 | ) |
Southern Nevada | | | (13,711 | ) | | | (66,788 | ) | | | (77,402 | ) |
California | | | (1,260 | ) | | | 2,608 | | | | (1,246 | ) |
| | | | | | | | | | | | |
| | $ | (8,741 | ) | | $ | (87,868 | ) | | $ | (123,399 | ) |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | September 30, 2018 | | December 31, 2017 | | September 30, 2017 |
Arizona | | $ | (70,863 | ) | | $ | 5,069 |
| | $ | 1,324 |
|
Northern Nevada | | (1,287 | ) | | 8,189 |
| | 4,906 |
|
Southern Nevada | | (16,125 | ) | | (6,841 | ) | | (13,711 | ) |
California | | (4,748 | ) | | 1,323 |
| | (1,260 | ) |
| | $ | (93,023 | ) | | $ | 7,740 |
| | $ | (8,741 | ) |
Capital Resources and Liquidity
Cash on hand and cash flows from operations in the past twelve months have generally provided the majority of cash used in investing activities (primarily for construction expenditures and property additions). In recent years, certain pipe replacement has been accelerated to
take advantage of bonus depreciation tax incentives and to fortify system integrity and reliability, notably in association with
new gas infrastructure replacement programs as discussed
above.previously. During this same time, benefits were derived from
debt refinancingnew borrowings and strategic debt redemptions. The Company’s capitalization strategy is to maintain an appropriate balance of equity and debt to maintain strong investment-grade credit ratings, which should minimize interest costs.
Southwest Gas Holdings, Inc.:
Operating Cash Flows.Cash flows provided by consolidated operating activities decreased $179increased $108 million in the first nine months of 20172018 as compared to the same period of 2016. The decline2017. Changes in operating cash flows was primarily attributable toare typically influenced significantly by the change in deferred purchased gas costs, noted above. Referincluding amounts incurred and deferred, as well as when amounts are incorporated in customer bills toResults recover the deferred balances. For example, during the third quarter of Natural Gas Operations andRates and Regulatory Proceedings.2018, EPNG refunded to Southwest, as ordered by the FERC, $49 million previously billed to Southwest for transmission services, subject to refund, in association with its 2010 rate case.
Investing Cash Flows.Cash used in consolidated investing activities increased $35$107 million in the first nine months of 20172018 as compared to the same period of 2016.2017. The change was primarily due to increased construction expenditures in the natural gas operations segment, including scheduled and accelerated replacement activity. The prior period included an outflow of $17 million to facilitate a construction services acquisition.
Financing Cash Flows.Net cash provided by consolidated financing activities increased $195decreased $7 million in the first nine months of 20172018 as compared to the same period of 2016.2017. The increasedecrease was primarily due to activity under the credit facility and commercial paper program (an increase in borrowings in the current-year nine-month period and the repayment of borrowings in the prior-year nine-month period). The prior period included proceeds in utility operations from the issuance of $300 million in senior notes. The Company also issued approximately $12 million during 2017 in stock under its Equity Shelf Program. See alsoNote 5 – Common Stock, and the discussion below. The first nine months of 2017 includes the August 2017 $23 million purchase of the previous owners’ interest in Centuri. See alsoNote 9 – Construction Services Redeemable Noncontrolling Interest for additional information.43
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
Dividendsdividends paid, which increased in the first nine months of 20172018 as compared to the same period of 20162017 as a result of an increase in the quarterly dividend rate and an increase in the number of shares outstanding.
The Company issued approximately 103,000$84 million in stock during the first nine months of 2018 under its Equity Shelf Program and approximately 78,000 additional shares of common stock collectively through the Restricted Stock/Unit Plan and the Management
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Incentive Plan.
Southwest Gas Corporation:
Operating Cash Flows.Cash flows provided by operating activities decreased $172 million in Also during the first nine months ended September 30, 2018, the Company issued 109,000 shares of 2017 as compared tocommon stock through 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 OperationsDividend Reinvestment 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.
Stock Purchase Plan (“DRSPP”), raising approximately $7.8 million.
The capital requirements and resources of the Company generally are determined independently for the natural gas operations and constructioninfrastructure services segments. Each business activity is generally responsible for securing its own external debt financing sources. However, the holding company may raise funds through stock issuance or other external financing sources in support of each business segment, as discussed in
Note 6 – Common Stock. Southwest Gas Corporation:
Operating Cash Flows. Cash flows provided by operating activities increased $75 million in the first nine months of 2018 as compared to the same period of 2017. The increase in operating cash flows was primarily attributable to the change in Deferred purchased gas costs, including the EPNG refund as discussed above, net of other changes in working capital.
Investing Cash Flows. Cash used in investing activities increased $79 million in the first nine months of 2018 as compared to the same period of 2017. The change was primarily due to additional construction expenditures, as indicated above.
Financing Cash Flows. Net cash provided by financing activities decreased $13 million in the first nine months of 2018 as compared to the same period of 2017. The decrease was primarily due to repayment of the credit facility and commercial paper program borrowings following the issuance of $300 million in senior notes in March 2018 and to an increase in dividends paid. Capital contributions increased from Southwest Gas Holdings, Inc.
Gas Segment Construction Expenditures and Financing
During the twelve-month period ended September 30,
2017,2018, construction expenditures for the natural gas operations segment were
$515$651 million. The majority of these expenditures represented costs associated with scheduled and accelerated replacement of existing transmission, distribution, and general plant. Cash flows from operating activities of Southwest were
$337$385 million during this time and provided approximately
57%52% of construction expenditures and dividend requirements.
Southwest
Management estimates natural gas segment construction expenditures during the three-year period ending December 31, 20192020 will be between $1.6 billion and $1.8approximately $2 billion. Of this amount, approximately $570$670 million is expected to be incurred in 2017.2018. Southwest plans to continue as appropriate, to request regulatory support to accelerate projects that improve system flexibility and reliability (including replacement of early vintage plastic and steel pipe). This includes the recent approval to complete accelerated replacement projects in Nevada of $57.3 million and $65.7 million in 2017 and 2018, respectively. Itreliability. See also incorporates programs included in the recently approved Arizona general rate case settlement (the continuation of the COYL program and implementation of a vintage steel pipe replacement program). Southwest may expand existing, or initiate new, programs. If efforts continue to be successful, significant 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%50% to 70%60% of the funding for gas operations total construction expenditures and dividend requirements. Any additional cash requirements are expected to be provided by existing credit facilities, equity contributions from Southwest Gas Holdings, Inc. and/or other external financing sources. The timing, types, and amounts of any additional external financings will be dependent on a number of factors, including the cost of gas purchases, conditions in the capital markets, timing and amounts of rate relief, timing differences between U.S. federal taxes embedded in customer rates and amounts implemented under tax reform, growth levels in Southwest’s service areas, and earnings. External financings could include the issuance of debt securities, bank and other short-term borrowings, and other forms of financing. See additional discussion in the Notes to financial statements (specifically,
Note 6 – Common Stock and Note 7 – Long-Term Debt). In March 2018, Southwest issued $300 million in 3.7% Senior Notes at a discount of 0.185%. The notes will mature in April 2028. The proceeds were used to repay amounts then outstanding under the revolving portion of its credit facility and under the commercial paper program.
In March 2017, the Company filed with the Securities
and Exchange Commission
(“SEC”(the “SEC”) an automatic shelf registration statement for the offer and sale of up to $150 million of common stock from time to time in
at-the-market offerings under the prospectus included therein and in accordance with the Sales Agency Agreement, dated March 29, 2017, between the Company and BNY Mellon Capital Markets, LLC (the “Equity Shelf Program”).
SalesAs the Company deems appropriate, sales of the shares will
44
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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 at the time of sale. Net proceeds from the sale of shares of common stock under the Equity Shelf Program are intended for general corporate purposes, including the acquisition of property for the construction, completion, extension or improvement of pipeline systems and facilities located in and around the communities Southwest serves.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
During the nine months ended September 30, 2017, 147,0772018, 1,145,705 shares were issued inat-the-market offerings at an average price of $80.07$74.32 per share with gross proceeds of $11.8$85.2 million, agent commissions of $118,000,$851,500, and net proceeds of $11.7$84.3 million. SeeNote 56 – Common Stock for more information. See also discussion above regarding the Company’s issuances under the DRSPP.
In
December 2015,2017, with the
Protecting Americans from Tax Hikes Actenactment of
2015 (“PATH Act”) was enacted extending the
50%TCJA, the 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 public utility property; however, in August 2018 the Treasury Department and Internal Revenue Service issued proposed regulations clarifying the appropriate calculation of certain 2017 bonus depreciation. The Company estimates bonus depreciation will defer the payment of approximately
$29$14 million
(none of which relates to utility operations) of federal income taxes for
2017, resulting in a minimal amount of federal income tax being paid.2018.
Dividends are payable on the Company’s common stock at the discretion of the Board of Directors (“Board”). In setting the dividend rate, the Board
currently targets a payout ratio of 55% to 65% of consolidated earnings per share and considers, among other factors, current and expected future earnings levels, our ongoing capital expenditure plans and expected external funding needs,
our payout ratio, and our ability to maintain strong credit ratings and liquidity. The Company has paid dividends on its common stock since 1956 and has increased that dividend each year since 2007. In February
2017,2018, the Board elected to increase the quarterly dividend from
$0.45$0.495 to
$0.495$0.52 per share, representing a
10%5% increase, effective with the June
20172018 payment.
The Board currently targets a payout ratio of 55% to 65% of consolidated earnings per share.
Liquidity refers to the ability of an enterprise to generate sufficient amounts of cash through its operating activities and external financing to meet its cash requirements. Several general factors (some of which are out of the control of the Company) that could significantly affect liquidity in future years include: variability of natural gas prices, changes in the ratemaking policies of regulatory commissions, regulatory lag, customer growth in the natural gas segment’s service territories, the ability to access and obtain capital from external sources, interest rates, changes in income tax laws, pension funding requirements, inflation, and the level of earnings. Natural gas prices and related gas cost recovery rates 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, 2017,2018, the combined balance in the PGA accounts totaled an over-collection of $8.7$93 million, which included the EPNG rate case settlement of $49 million. SeePGA Filingsfor more information.In March 2017, Southwest Gas Holdings, Inc. entered intoinformation, including a proposal to offset other amounts due from Arizona customers with proceeds from the EPNG refund.
The Company has a credit facility with a borrowing capacity of $100 million that expires in March 2022. The Company intends to utilize this facility for short-term financing needs. At September 30,
2017, $27.52018, $22.5 million was outstanding on this facility.
In March 2017,
Southwest
Gas Corporation amended itshas a credit facility,
increasing thewith borrowing capacity
from $300 million toof $400 million,
and extended the term of the facility from March 2021 towhich expires in March 2022. Southwest
continues to designatedesignates $150 million of the facility for long-term borrowing needs and the remaining $250 million for working capital purposes. The maximum amount outstanding on the credit facility (including a commercial paper program, as noted below) during the first nine months of
20172018 was $150 million. At September 30,
2017,2018, $150 million was outstanding on the long-term
portion (including the commercial paper program) and
$83$9 million was outstanding on the short-term portion of this credit facility.
Commercial paper borrowings are discussed below. The credit facility can be used as necessary to meet liquidity requirements, including temporarily financing under-collected PGA balances, if any, or meeting the refund needs of over-collected balances. This credit facility has been
45
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
adequate for Southwest’s working capital needs outside of funds raised through operations and other types of external financing.
Southwest has a $50 million commercial paper program. Any issuance under the commercial paper program is supported by Southwest’s current revolving credit facility and, therefore, does not represent additional borrowing capacity. Any borrowing under the commercial paper program will be designated as long-term debt. Interest rates for the commercial paper program are calculated at the current commercial paper rate during the borrowing term. At September 30,
2017, no borrowings were2018, there was $50 million outstanding under this program.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Centuri has a
$300 millionsenior secured revolving credit and term loan facility
thatwith borrowing capacity of $450 million. The line of credit portion of the facility is
scheduled to expire in October 2019. The term loan facility portion had an initial limit of approximately $150 million, which was reached in 2014 and; $107 million was outstanding (after repayments) at September 30, 2017. The secured revolving credit facility portion also has a limit of $150$250 million; amounts borrowed and repaid under
this portion of the
revolving credit facility are available to be
re-borrowed. The term loan facility portion, has a limit of approximately $200 million. The limit on the term loan facility was reached in November 2017; therefore, no further borrowing is permitted under this term loan facility. The $450 million credit and term loan facility expires in November 2022. The $450 million revolving credit and term loan facility is secured by substantially all of Centuri’s assets except those explicitly excluded under the terms of the agreement (including owned real estate and certain certificated vehicles). Centuri assets securing the facility at September 30, 2018 totaled $675 million. The maximum amount outstanding on the credit facility during the first nine months of
20172018 was
$104$294 million. At September 30,
2017, $81.32018, $78 million was outstanding on the secured revolving credit facility. Also at September 30,
2017,2018, there was approximately
$52$154 million, net of letters of credit, available under the line of credit.
The following table sets forth the ratios of earnings to fixed charges for the Company. Due to the seasonal nature of the Company’s business, these ratios are computed on a twelve-month basis:
| | | | | | | | |
| | For the Twelve Months Ended | |
| | September 30, 2017 | | | December 31, 2016 | |
Ratio of earnings to fixed charges | | | 3.50 | | | | 3.46 | |
Earnings are defined as the sum of pretax income plus fixed charges. Fixed charges consist of all interest expense including capitalized interest,one-third of rent expense (that approximates the interest component of such expense), and net amortized debt costs.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
Forward-Looking Statements
This quarterly report contains statements which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“Reform Act”). All statements other than statements of historical fact included or incorporated by reference in this quarterly report are forward-looking statements, including, without limitation, statements regarding the Company’s plans, objectives, goals, intentions, projections, strategies, future events or performance, negotiations, and underlying assumptions. The words “may,” “if,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “continue,” “forecast,” “intend,” “promote,” “seek,” and similar words and expressions are generally used and intended to identify forward-looking statements. For example, statements regarding operating margin patterns, customer growth, the composition of our customer base, price volatility, seasonal patterns, payment of debt, interest savings, the Company’s COLI strategy, replacement market and new construction market,
the impacts of the Tax Cuts and Jobs Act legislation including disposition as to both timing and amounts in regulatory proceedings, bonus depreciation tax deductions, amount and timing for completion of estimated future construction expenditures, including the LNG facility in southern Arizona, the
cost ofMesquite expansion in Nevada, and the
Paiute 2018
Paiute expansion project in northern Nevada and northern California, forecasted operating cash flows and results of operations,
net earnings impacts from gas infrastructure replacement
programs and surcharges, funding sources of cash requirements, amounts generally expected to be reflected in
20172018 or future period revenues from regulatory rate proceedings including amounts resulting from the settled Arizona
general rate case, the recently filed Nevada general rate case, rates and surcharges, PGA, and other rate adjustments, sufficiency of working capital and current credit facilities, bank lending practices, the Company’s views regarding its liquidity position, ability to raise funds and receive external financing capacity and the intent and ability to issue common stock under the Equity Shelf Program,
the intent and ability to issue various financing instruments and stock under the December 2017 shelf registration statement, future dividend increases and the Board’s current target dividend payout ratio, pension and post-retirement benefits, certain
benefitsimpacts of tax acts,
the effect of any rate changes or regulatory proceedings, contract or construction change order negotiations, impacts of accounting standard updates, infrastructure replacement mechanisms and
the COYL
program, statements regardingprograms, future gas prices, gas purchase contracts and derivative financial instruments, recoverability of regulatory assets,
the time period and means for returning to customers proceeds from the recent EPNG refund, the impact of certain legal proceedings, and the timing and results of future rate hearings and approvals are forward-looking
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 ability to recover costs through the PGA mechanisms or other regulatory assets, the effects of regulation/deregulation, the impacts of alternative energy sources to natural gas, the timing and amount of rate relief, the timing, amount, and methods determined by regulators to refund amounts to customers resulting from tax reform, changes in rate design, variability in volume of gas or transportation service sold to customers, changes in gas procurement practices, changes in capital requirements and funding, the impact of conditions in the capital markets on financing costs, changes in construction expenditures and financing, changes in operations and maintenance expenses, effects of pension expense forecasts, accounting changes and regulatory treatment related thereto, currently unresolved and future liability claims, changes in pipeline capacity for the transportation of gas and related costs, results of Centuri bid work, results of Neuco (including the ability to be accretive to earnings over the first twelve months), Centuri construction expenses, differences between actual and originally expected outcomes of Centuri bid or other fixed-price construction agreements, outcomes from contract and change order negotiations, and ability to successfully procure new work, impacts from work awarded or failing to be awarded from significant customers, the mix of work awarded, the amount of work awarded to Centuri, following the lifting of the recent work stoppage, acquisitions and management’s plans related thereto, competition, our ability to raise capital in external financings, our ability to continue to remain within the ratios and other limits subject to our debt covenants, and ongoing evaluations in regard to goodwill and other intangible assets. In addition, the Company can provide no assurance that its discussions regarding certain trends relating to its financing and operating expenses will continue or cease to continue in future periods. For additional information on the risks associated with the Company’s business, seeItem 1A. Risk Factors andItem 7A. Quantitative and Qualitative Disclosures About Market Risk in the Annual Report onForm 10-K for the year ended December 31, 2016.2017.
All forward-looking statements in this quarterly report are made as of the date hereof, based on information available to the Company as of the date hereof, and the Company assumes no obligation to update or revise any of its forward-looking statements even if experience or future changes show that the indicated results or events will not be realized.We caution you not to unduly rely on any forward-looking statement(s).
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
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 20162017 Annual Report on Form10-K filed with the SEC. No material changes have occurred related to the disclosures about market risk. ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 4. CONTROLS AND PROCEDURES
Management of Southwest Gas Holdings, Inc. and Southwest Gas Corporation has established disclosure controls and procedures (as defined in Rules
13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in their respective reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to management of each company, including each respective Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and benefits of controls must be considered relative to their costs. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or management override of the control. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
Based on the most recent evaluation, as of September 30,
2017,2018, management of Southwest Gas Holdings, Inc., including the Chief Executive Officer and Chief Financial Officer, believe the Company’s disclosure controls and procedures are effective at attaining the level of reasonable assurance noted above.
47
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2017 |
There have been no changes in the Company’s internal
controlscontrol over financial reporting (as defined in Rules
13a-15(f) and
15d-15(f) of the Exchange Act) during the third quarter of
20172018 that have materially affected, or are likely to materially affect, the Company’s internal
controlscontrol over financial reporting.
Based on the most recent evaluation, as of September 30,
2017,2018, management of Southwest Gas Corporation, including the Chief Executive Officer and Chief Financial Officer, believe Southwest’s disclosure controls and procedures are effective at attaining the level of reasonable assurance noted above.
There have been no changes in Southwest’s internal
controlscontrol over financial reporting (as defined in Rules
13a-15(f) and
15d-15(f) of the Exchange Act) during the third quarter of
20172018 that have materially affected, or are likely to materially affect Southwest’s internal
controlscontrol over financial reporting.
PART
II—II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is named as a defendant in various legal proceedings. The ultimate dispositions of these proceedings are not presently determinable; however, it is the opinion of management that none of this litigation individually or in the aggregate will have a material adverse impact on the Company’s financial position or results of operations.
ITEMS 1A through 3. None.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable.
ITEM 5. OTHER INFORMATION None.
ITEMS 1A through 3. None. |
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| 57 | |
ITEM 4. |
| MINE SAFETY DISCLOSURESNot applicable. | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2018 |
ITEM 5. | OTHER INFORMATIONNone. |
ITEM 6. EXHIBITS
The following documents are filed, or furnished, as applicable, as part of this report on
Form 10-Q:
* | Management Incentive Plan
|
48
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20172018 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
Southwest Gas Holdings, Inc. |
(Registrant) |
Date: November 7,
20172018 |
/s/ GREGORY J. PETERSON
|
Gregory J. Peterson |
/s/ LORI L. COLVIN |
Lori L. Colvin |
Vice President/Controller and Chief Accounting Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
Southwest Gas Corporation |
(Registrant) |
|
Date: November 7,
20172018 |
/s/ GREGORY J. PETERSON
|
Gregory J. Peterson |
/s/ LORI L. COLVIN |
Lori L. Colvin |
Vice President/Controller and Chief Accounting Officer |
49