UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20222023
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Commission File Number | | Exact name of registrant as specified in its charter and principal office address and telephone number | | State of Incorporation | | I.R.S. Employer Identification No. |
001-37976 | | Southwest Gas Holdings, Inc. | | | | Delaware | | 81-3881866 |
| | 8360 S. Durango Drive | | | | | | |
| | Post Office Box 98510 | | | | | | |
| | Las Vegas, | Nevada | 89193-8510 | | | | |
| | (702) | 876-7237 | | | | | |
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1-7850 | | Southwest Gas Corporation | | | | California | | 88-0085720 |
| | 8360 S. Durango Drive | | | | | | |
| | Post Office Box 98510 | | | | | | |
| | Las Vegas, | Nevada | 89193-8510 | | | | |
| | (702) | 876-7237 | | | | | |
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Securities registered pursuant to Section 12(b) of the Act: |
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Southwest Gas Holdings, Inc. Common Stock, $1 Par Value | | SWX | | New York Stock Exchange |
Preferred Stock Purchase Rights | | N/A | | New York Stock Exchange |
Indicate by check mark whether each registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that each 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that each registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Southwest Gas Holdings, Inc.:
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Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
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Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
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Emerging growth company | | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Southwest Gas Corporation:
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Large accelerated filer | | ☐ | | Accelerated filer | | ☐ |
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Non-accelerated filer | | ☒ | | Smaller reporting company | | ☐ |
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Emerging growth company | | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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, 66,852,05071,336,035 shares as of April 29, 2022.28, 2023.
All of the outstanding shares of common stock ($1 par value) of Southwest Gas Corporation were held by Southwest Gas Holdings, Inc. as of April 29, 2022.28, 2023.
SOUTHWEST GAS CORPORATION MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1)(a) and (b) OF FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH THE REDUCED DISCLOSURE FORMAT AS PERMITTED BY GENERAL INSTRUCTION H(2).
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
FILING FORMAT
This quarterly report on Form 10-Q is a combined report being filed by two separate registrants: Southwest Gas Holdings, Inc. and Southwest Gas Corporation. Except where the content clearly indicates otherwise, any reference in the report to “we,” “us” or “our” is to the holding company or the consolidated entity of Southwest Gas Holdings, Inc. and all of its subsidiaries, including Southwest Gas Corporation, which is a distinct registrant that is a wholly owned subsidiary of Southwest Gas Holdings, Inc. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.
Part I—Financial information in this Quarterly Report on Form 10-Q includes separate financial statements (i.e., balance sheets, statements of income, statements of comprehensive income, statements of cash flows, and statements of equity) for Southwest Gas Holdings, Inc. and Southwest Gas Corporation, in that order. The Notes to the Condensed Consolidated Financial Statements are presented on a combined basis for both entities. All Items other than Part I – Item 1 are combined for the reporting companies.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
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)
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
ASSETS | ASSETS | | | | | ASSETS | | | | |
Regulated operations plant: | Regulated operations plant: | | Regulated operations plant: | |
Gas plant | Gas plant | | $ | 10,891,910 | | | $ | 10,789,690 | | Gas plant | | $ | 9,583,630 | | | $ | 9,453,907 | |
Less: accumulated depreciation | Less: accumulated depreciation | | (3,443,053) | | | (3,397,736) | | Less: accumulated depreciation | | (2,712,093) | | | (2,674,157) | |
Construction work in progress | Construction work in progress | | 216,262 | | | 202,068 | | Construction work in progress | | 250,892 | | | 244,750 | |
Net regulated operations plant | Net regulated operations plant | | 7,665,119 | | | 7,594,022 | | Net regulated operations plant | | 7,122,429 | | | 7,024,500 | |
Other property and investments, net | Other property and investments, net | | 1,313,291 | | | 1,316,479 | | Other property and investments, net | | 1,250,327 | | | 1,281,172 | |
Current assets: | Current assets: | | | | | Current assets: | | | | |
Cash and cash equivalents | Cash and cash equivalents | | 624,666 | | | 222,697 | | Cash and cash equivalents | | 82,085 | | | 123,078 | |
Accounts receivable, net of allowances | Accounts receivable, net of allowances | | 755,947 | | | 707,127 | | Accounts receivable, net of allowances | | 903,262 | | | 866,246 | |
Accrued utility revenue | Accrued utility revenue | | 52,000 | | | 84,900 | | Accrued utility revenue | | 56,900 | | | 88,100 | |
Income taxes receivable, net | Income taxes receivable, net | | 16,937 | | | 16,816 | | Income taxes receivable, net | | 8,136 | | | 8,738 | |
Deferred purchased gas costs | Deferred purchased gas costs | | 367,954 | | | 291,145 | | Deferred purchased gas costs | | 970,339 | | | 450,120 | |
Prepaid and other current assets | Prepaid and other current assets | | 229,072 | | | 292,082 | | Prepaid and other current assets | | 210,309 | | | 433,850 | |
Current assets held for sale | | Current assets held for sale | | 26,993 | | | 1,737,530 | |
Total current assets | Total current assets | | 2,046,576 | | | 1,614,767 | | Total current assets | | 2,258,024 | | | 3,707,662 | |
Noncurrent assets: | Noncurrent assets: | | | | | Noncurrent assets: | |
Goodwill | Goodwill | | 1,773,671 | | | 1,781,332 | | Goodwill | | 787,334 | | | 787,250 | |
Deferred income taxes | Deferred income taxes | | 44 | | | 121 | | Deferred income taxes | | 115 | | | 82 | |
Deferred charges and other assets | Deferred charges and other assets | | 450,786 | | | 458,536 | | Deferred charges and other assets | | 391,944 | | | 395,948 | |
Total noncurrent assets | Total noncurrent assets | | 2,224,501 | | | 2,239,989 | | Total noncurrent assets | | 1,179,393 | | | 1,183,280 | |
Total assets | Total assets | | $ | 13,249,487 | | | $ | 12,765,257 | | Total assets | | $ | 11,810,173 | | | $ | 13,196,614 | |
CAPITALIZATION AND LIABILITIES | CAPITALIZATION AND LIABILITIES | | | | | CAPITALIZATION AND LIABILITIES | | | | |
Capitalization: | Capitalization: | | Capitalization: | |
Common stock, $1 par (authorized - 120,000,000 shares; issued and outstanding - 66,849,225 and 60,422,081 shares) | | $ | 68,479 | | | $ | 62,052 | | |
Common stock, $1 par (authorized - 120,000,000 shares; issued and outstanding - 71,330,991 and 67,119,143 shares) | | Common stock, $1 par (authorized - 120,000,000 shares; issued and outstanding - 71,330,991 and 67,119,143 shares) | | $ | 72,961 | | | $ | 68,749 | |
Additional paid-in capital | Additional paid-in capital | | 2,273,837 | | | 1,824,216 | | Additional paid-in capital | | 2,524,631 | | | 2,287,183 | |
Accumulated other comprehensive loss, net | Accumulated other comprehensive loss, net | | (43,972) | | | (46,761) | | Accumulated other comprehensive loss, net | | (43,949) | | | (44,242) | |
Retained earnings | Retained earnings | | 1,190,738 | | | 1,114,313 | | Retained earnings | | 742,513 | | | 747,069 | |
Total equity | Total equity | | 3,489,082 | | | 2,953,820 | | Total equity | | 3,296,156 | | | 3,058,759 | |
Redeemable noncontrolling interests | Redeemable noncontrolling interests | | 135,984 | | | 196,717 | | Redeemable noncontrolling interests | | 127,026 | | | 159,349 | |
Long-term debt, less current maturities | Long-term debt, less current maturities | | 4,559,758 | | | 4,115,684 | | Long-term debt, less current maturities | | 4,577,600 | | | 4,403,299 | |
Total capitalization | Total capitalization | | 8,184,824 | | | 7,266,221 | | Total capitalization | | 8,000,782 | | | 7,621,407 | |
Current liabilities: | Current liabilities: | | | | | Current liabilities: | | | | |
Current maturities of long-term debt | Current maturities of long-term debt | | 291,069 | | | 297,324 | | Current maturities of long-term debt | | 41,907 | | | 44,557 | |
Short-term debt | Short-term debt | | 1,474,000 | | | 1,909,000 | | Short-term debt | | 467,500 | | | 1,542,806 | |
Accounts payable | Accounts payable | | 256,606 | | | 353,365 | | Accounts payable | | 310,748 | | | 662,090 | |
Customer deposits | Customer deposits | | 57,620 | | | 59,327 | | Customer deposits | | 50,350 | | | 51,182 | |
Income taxes payable, net | Income taxes payable, net | | 10,416 | | | 6,734 | | Income taxes payable, net | | 739 | | | 2,690 | |
Accrued general taxes | Accrued general taxes | | 83,897 | | | 53,473 | | Accrued general taxes | | 101,579 | | | 67,094 | |
Accrued interest | Accrued interest | | 42,421 | | | 30,964 | | Accrued interest | | 45,641 | | | 38,556 | |
Deferred purchased gas costs | | 297 | | | 5,736 | | |
| Other current liabilities | Other current liabilities | | 413,872 | | | 396,126 | | Other current liabilities | | 592,022 | | | 369,743 | |
Current liabilities held for sale | | Current liabilities held for sale | | — | | | 644,245 | |
Total current liabilities | Total current liabilities | | 2,630,198 | | | 3,112,049 | | Total current liabilities | | 1,610,486 | | | 3,422,963 | |
Deferred income taxes and other credits: | Deferred income taxes and other credits: | | | | | Deferred income taxes and other credits: | |
Deferred income taxes and investment tax credits, net | Deferred income taxes and investment tax credits, net | | 803,771 | | | 768,868 | | Deferred income taxes and investment tax credits, net | | 733,199 | | | 682,067 | |
Accumulated removal costs | Accumulated removal costs | | 488,908 | | | 480,583 | | Accumulated removal costs | | 450,000 | | | 445,000 | |
Other deferred credits and other long-term liabilities | Other deferred credits and other long-term liabilities | | 1,141,786 | | | 1,137,536 | | Other deferred credits and other long-term liabilities | | 1,015,706 | | | 1,025,177 | |
Total deferred income taxes and other credits | Total deferred income taxes and other credits | | 2,434,465 | | | 2,386,987 | | Total deferred income taxes and other credits | | 2,198,905 | | | 2,152,244 | |
Total capitalization and liabilities | Total capitalization and liabilities | | $ | 13,249,487 | | | $ | 12,765,257 | | Total capitalization and liabilities | | $ | 11,810,173 | | | $ | 13,196,614 | |
The accompanying notes are an integral part of these statements.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
| | | Three Months Ended March 31, | | | Twelve Months Ended March 31, | | Three Months Ended March 31, | | Twelve Months Ended March 31, |
| | | 2022 | | 2021 | | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 |
Operating revenues: | Operating revenues: | | | | | | | | | | Operating revenues: | | | | | | | | |
Regulated operations revenues | Regulated operations revenues | | $ | 743,532 | | | $ | 521,932 | | | | $ | 1,743,390 | | | $ | 1,369,690 | | Regulated operations revenues | | $ | 950,011 | | | $ | 743,532 | | | $ | 2,406,161 | | | $ | 1,743,390 | |
Utility infrastructure services revenues | Utility infrastructure services revenues | | 523,877 | | | 363,975 | | | | 2,318,563 | | | 1,978,770 | | Utility infrastructure services revenues | | 653,293 | | | 523,877 | | | 2,889,743 | | | 2,318,563 | |
Total operating revenues | Total operating revenues | | 1,267,409 | | | 885,907 | | | | 4,061,953 | | | 3,348,460 | | Total operating revenues | | 1,603,304 | | | 1,267,409 | | | 5,295,904 | | | 4,061,953 | |
Operating expenses: | Operating expenses: | | | | | | | | | | Operating expenses: | | | | | | | | |
Net cost of gas sold | Net cost of gas sold | | 298,918 | | | 156,021 | | | | 573,804 | | | 338,037 | | Net cost of gas sold | | 507,537 | | | 298,918 | | | 1,007,679 | | | 573,804 | |
Operations and maintenance | Operations and maintenance | | 149,303 | | | 106,690 | | | | 515,759 | | | 411,025 | | Operations and maintenance | | 148,908 | | | 149,303 | | | 636,371 | | | 515,759 | |
Depreciation and amortization | Depreciation and amortization | | 122,646 | | | 93,442 | | | | 400,245 | | | 337,816 | | Depreciation and amortization | | 112,520 | | | 122,646 | | | 460,329 | | | 400,245 | |
Taxes other than income taxes | Taxes other than income taxes | | 24,816 | | | 20,687 | | | | 84,472 | | | 67,769 | | Taxes other than income taxes | | 24,230 | | | 24,816 | | | 92,797 | | | 84,472 | |
Utility infrastructure services expenses | Utility infrastructure services expenses | | 503,232 | | | 335,614 | | | | 2,123,085 | | | 1,745,729 | | Utility infrastructure services expenses | | 603,680 | | | 503,232 | | | 2,629,766 | | | 2,123,085 | |
Goodwill impairment and loss on sale | | Goodwill impairment and loss on sale | | 71,230 | | | — | | | 526,655 | | | — | |
Total operating expenses | Total operating expenses | | 1,098,915 | | | 712,454 | | | | 3,697,365 | | | 2,900,376 | | Total operating expenses | | 1,468,105 | | | 1,098,915 | | | 5,353,597 | | | 3,697,365 | |
Operating income | | 168,494 | | | 173,453 | | | | 364,588 | | | 448,084 | | |
Operating income (loss) | | Operating income (loss) | | 135,199 | | | 168,494 | | | (57,693) | | | 364,588 | |
Other income and (expenses): | Other income and (expenses): | | | | | | | | | | Other income and (expenses): | | | | | | | | |
Net interest deductions | Net interest deductions | | (48,363) | | | (23,964) | | | | (143,597) | | | (107,061) | | Net interest deductions | | (77,334) | | | (48,363) | | | (271,721) | | | (143,597) | |
Other income (deductions) | Other income (deductions) | | 1,244 | | | 448 | | | | (2,703) | | | 14,429 | | Other income (deductions) | | 18,460 | | | 1,244 | | | 11,027 | | | (2,703) | |
Total other income and (expenses) | Total other income and (expenses) | | (47,119) | | | (23,516) | | | | (146,300) | | | (92,632) | | Total other income and (expenses) | | (58,874) | | | (47,119) | | | (260,694) | | | (146,300) | |
Income before income taxes | | 121,375 | | | 149,937 | | | | 218,288 | | | 355,452 | | |
Income tax expense | | 24,125 | | | 31,092 | | | | 32,681 | | | 70,627 | | |
Net income | | 97,250 | | | 118,845 | | | | 185,607 | | | 284,825 | | |
Income (loss) before income taxes | | Income (loss) before income taxes | | 76,325 | | | 121,375 | | | (318,387) | | | 218,288 | |
Income tax expense (benefit) | | Income tax expense (benefit) | | 28,675 | | | 24,125 | | | (71,103) | | | 32,681 | |
Net income (loss) | | Net income (loss) | | 47,650 | | | 97,250 | | | (247,284) | | | 185,607 | |
Net income attributable to noncontrolling interests | Net income attributable to noncontrolling interests | | 1,072 | | | 1,552 | | | | 5,943 | | | 7,750 | | Net income attributable to noncontrolling interests | | 1,739 | | | 1,072 | | | 6,273 | | | 5,943 | |
Net income attributable to Southwest Gas Holdings, Inc. | | $ | 96,178 | | | $ | 117,293 | | | | $ | 179,664 | | | $ | 277,075 | | |
Earnings per share: | | | | | | | | | | |
Net income (loss) attributable to Southwest Gas Holdings, Inc. | | Net income (loss) attributable to Southwest Gas Holdings, Inc. | | $ | 45,911 | | | $ | 96,178 | | | $ | (253,557) | | | $ | 179,664 | |
Earnings (loss) per share: | | Earnings (loss) per share: | | | | | | | | |
Basic | Basic | | $ | 1.58 | | | $ | 2.04 | | | | $ | 3.00 | | | $ | 4.90 | | Basic | | $ | 0.67 | | | $ | 1.58 | | | $ | (3.76) | | | $ | 3.00 | |
Diluted | Diluted | | $ | 1.58 | | | $ | 2.03 | | | | $ | 2.99 | | | $ | 4.89 | | Diluted | | $ | 0.67 | | | $ | 1.58 | | | $ | (3.76) | | | $ | 2.99 | |
Weighted average shares: | Weighted average shares: | | | | | | | | | | Weighted average shares: | | | | | | | | |
Basic | Basic | | 60,737 | | | 57,600 | | | | 59,919 | | | 56,564 | | Basic | | 68,265 | | | 60,737 | | | 67,413 | | | 59,919 | |
Diluted | Diluted | | 60,854 | | | 57,679 | | | | 60,044 | | | 56,649 | | Diluted | | 68,419 | | | 60,854 | | | 67,413 | | | 60,044 | |
The accompanying notes are an integral part of these statements.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands of dollars)
(Unaudited)
| | | Three Months Ended March 31, | | | Twelve Months Ended March 31, | | Three Months Ended March 31, | | Twelve Months Ended March 31, |
| | | 2022 | | 2021 | | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 |
Net income | | $ | 97,250 | | | $ | 118,845 | | | | $ | 185,607 | | | $ | 284,825 | | |
Net income (loss) | | Net income (loss) | | $ | 47,650 | | | $ | 97,250 | | | $ | (247,284) | | | $ | 185,607 | |
Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | | | | | | | | | | Other comprehensive income (loss), net of tax | | | | | | | | |
Defined benefit pension plans: | Defined benefit pension plans: | | | | Defined benefit pension plans: | |
Net actuarial gain (loss) | Net actuarial gain (loss) | | — | | | — | | | | 44,974 | | | (43,730) | | Net actuarial gain (loss) | | — | | | — | | | 3,099 | | | 44,974 | |
Amortization of prior service cost | Amortization of prior service cost | | 33 | | | 182 | | | | 580 | | | 840 | | Amortization of prior service cost | | 33 | | | 33 | | | 133 | | | 580 | |
Amortization of net actuarial loss | Amortization of net actuarial loss | | 6,616 | | | 8,474 | | | | 32,036 | | | 30,037 | | Amortization of net actuarial loss | | 253 | | | 6,616 | | | 20,098 | | | 32,036 | |
| Regulatory adjustment | Regulatory adjustment | | (5,523) | | | (7,277) | | | | (65,273) | | | 4,753 | | Regulatory adjustment | | (90) | | | (5,523) | | | (16,024) | | | (65,273) | |
Net defined benefit pension plans | Net defined benefit pension plans | | 1,126 | | | 1,379 | | | | 12,317 | | | (8,100) | | Net defined benefit pension plans | | 196 | | | 1,126 | | | 7,306 | | | 12,317 | |
Forward-starting interest rate swaps (“FSIRS”): | Forward-starting interest rate swaps (“FSIRS”): | | | | | | | | | | Forward-starting interest rate swaps (“FSIRS”): | | | | | | | | |
Amounts reclassified into net income | Amounts reclassified into net income | | 416 | | | 413 | | | | 1,655 | | | 2,244 | | Amounts reclassified into net income | | — | | | 416 | | | — | | | 1,655 | |
Net forward-starting interest rate swaps | Net forward-starting interest rate swaps | | 416 | | | 413 | | | | 1,655 | | | 2,244 | | Net forward-starting interest rate swaps | | — | | | 416 | | | — | | | 1,655 | |
Foreign currency translation adjustments | Foreign currency translation adjustments | | 1,247 | | | 823 | | | | 444 | | | 6,541 | | Foreign currency translation adjustments | | 97 | | | 1,247 | | | (7,283) | | | 444 | |
Total other comprehensive income, net of tax | Total other comprehensive income, net of tax | | 2,789 | | | 2,615 | | | | 14,416 | | | 685 | | Total other comprehensive income, net of tax | | 293 | | | 2,789 | | | 23 | | | 14,416 | |
Comprehensive income | | 100,039 | | | 121,460 | | | | 200,023 | | | 285,510 | | |
Comprehensive income (loss) | | Comprehensive income (loss) | | 47,943 | | | 100,039 | | | (247,261) | | | 200,023 | |
Comprehensive income attributable to noncontrolling interests | Comprehensive income attributable to noncontrolling interests | | 1,072 | | | 1,552 | | | | 5,943 | | | 7,750 | | Comprehensive income attributable to noncontrolling interests | | 1,739 | | | 1,072 | | | 6,273 | | | 5,943 | |
Comprehensive income attributable to Southwest Gas Holdings, Inc. | | $ | 98,967 | | | $ | 119,908 | | | | $ | 194,080 | | | $ | 277,760 | | |
Comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | Comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | $ | 46,204 | | | $ | 98,967 | | | $ | (253,534) | | | $ | 194,080 | |
The accompanying notes are an integral part of these statements.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
| | | Three Months Ended March 31, | | Twelve Months Ended March 31, | | Three Months Ended March 31, | | Twelve Months Ended March 31, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 |
CASH FLOW FROM OPERATING ACTIVITIES: | CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | | CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | |
Net income | | $ | 97,250 | | | $ | 118,845 | | | $ | 185,607 | | | $ | 284,825 | | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | |
Net income (loss) | | Net income (loss) | | $ | 47,650 | | | $ | 97,250 | | | $ | (247,284) | | | $ | 185,607 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |
Depreciation and amortization | Depreciation and amortization | | 122,646 | | | 93,442 | | | 400,245 | | | 337,816 | | Depreciation and amortization | | 112,520 | | | 122,646 | | | 460,329 | | | 400,245 | |
Impairment of assets and other charges | | Impairment of assets and other charges | | 71,230 | | | — | | | 526,655 | | | — | |
Deferred income taxes | Deferred income taxes | | 32,346 | | | 23,326 | | | 70,232 | | | 48,734 | | Deferred income taxes | | 36,712 | | | 32,346 | | | (67,682) | | | 70,232 | |
Gains on sale of property and equipment | | Gains on sale of property and equipment | | (661) | | | (1,916) | | | (6,610) | | | (7,313) | |
Changes in undistributed stock compensation | | Changes in undistributed stock compensation | | 3,436 | | | 4,180 | | | 8,702 | | | 9,816 | |
Equity AFUDC | | Equity AFUDC | | (82) | | | (258) | | | (289) | | | 723 | |
Changes in current assets and liabilities: | Changes in current assets and liabilities: | | Changes in current assets and liabilities: | |
Accounts receivable, net of allowances | Accounts receivable, net of allowances | | (44,971) | | | 42,892 | | | (139,417) | | | (51,717) | | Accounts receivable, net of allowances | | (40,185) | | | (44,971) | | | (188,989) | | | (139,417) | |
Accrued utility revenue | Accrued utility revenue | | 32,900 | | | 31,900 | | | (1,500) | | | (2,400) | | Accrued utility revenue | | 31,200 | | | 32,900 | | | (4,900) | | | (1,500) | |
Deferred purchased gas costs | Deferred purchased gas costs | | (82,248) | | | (291,469) | | | (134,507) | | | (265,385) | | Deferred purchased gas costs | | (535,224) | | | (82,248) | | | (600,191) | | | (134,507) | |
Accounts payable | Accounts payable | | (82,952) | | | (41,147) | | | 8,621 | | | 11,882 | | Accounts payable | | (305,272) | | | (82,952) | | | 71,589 | | | 8,621 | |
Accrued taxes | Accrued taxes | | 33,964 | | | 34,636 | | | (7,397) | | | 19,430 | | Accrued taxes | | 34,950 | | | 33,964 | | | 18,915 | | | (7,397) | |
Other current assets and liabilities | Other current assets and liabilities | | 79,680 | | | (5,255) | | | (4,274) | | | 25,719 | | Other current assets and liabilities | | 371,035 | | | 79,680 | | | 83,502 | | | (4,274) | |
Gains on sale of property and equipment | | (1,916) | | | (1,509) | | | (7,313) | | | (3,329) | | |
Changes in undistributed stock compensation | | 4,180 | | | 3,658 | | | 9,816 | | | 7,956 | | |
Equity AFUDC | | (258) | | | (981) | | | 723 | | | (4,644) | | |
Changes in deferred charges and other assets | Changes in deferred charges and other assets | | (297) | | | (10,379) | | | (3,459) | | | (49,465) | | Changes in deferred charges and other assets | | (1,565) | | | (297) | | | 15,618 | | | (3,459) | |
Changes in other liabilities and deferred credits | Changes in other liabilities and deferred credits | | (3,704) | | | (50,416) | | | (26,917) | | | (57,365) | | Changes in other liabilities and deferred credits | | (11,486) | | | (3,704) | | | (34,267) | | | (26,917) | |
Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | | 186,620 | | | (52,457) | | | 350,460 | | | 302,057 | | Net cash provided by (used in) operating activities | | (185,742) | | | 186,620 | | | 35,098 | | | 350,460 | |
CASH FLOW FROM INVESTING ACTIVITIES: | CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | | CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | |
Construction expenditures and property additions | Construction expenditures and property additions | | (162,796) | | | (152,709) | | | (725,713) | | | (767,159) | | Construction expenditures and property additions | | (219,124) | | | (162,796) | | | (915,749) | | | (725,713) | |
Acquisition of businesses, net of cash acquired | Acquisition of businesses, net of cash acquired | | — | | | — | | | (2,354,260) | | | — | | Acquisition of businesses, net of cash acquired | | — | | | — | | | (18,809) | | | (2,354,260) | |
Proceeds from the sale of business, net of cash sold | | Proceeds from the sale of business, net of cash sold | | 1,058,272 | | | — | | | 1,058,272 | | | — | |
Changes in customer advances | Changes in customer advances | | 7,693 | | | 4,286 | | | 19,381 | | | 12,885 | | Changes in customer advances | | (6,608) | | | 7,693 | | | 7,205 | | | 19,381 | |
Other | Other | | 893 | | | 3,563 | | | 15,586 | | | 8,136 | | Other | | 3,125 | | | 893 | | | 20,054 | | | 15,586 | |
Net cash used in investing activities | | (154,210) | | | (144,860) | | | (3,045,006) | | | (746,138) | | |
Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | | 835,665 | | | (154,210) | | | 150,973 | | | (3,045,006) | |
CASH FLOW FROM FINANCING ACTIVITIES: | CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | | CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | |
Issuance of common stock, net | Issuance of common stock, net | | 453,495 | | | 48,990 | | | 618,146 | | | 185,087 | | Issuance of common stock, net | | 239,337 | | | 453,495 | | | 247,670 | | | 618,146 | |
Centuri distribution to redeemable noncontrolling interest | Centuri distribution to redeemable noncontrolling interest | | (39,649) | | | — | | | (39,649) | | | — | | Centuri distribution to redeemable noncontrolling interest | | — | | | (39,649) | | | — | | | (39,649) | |
Dividends paid | Dividends paid | | (35,970) | | | (32,619) | | | (141,573) | | | (128,117) | | Dividends paid | | (41,631) | | | (35,970) | | | (166,224) | | | (141,573) | |
Issuance of long-term debt, net | Issuance of long-term debt, net | | 709,927 | | | 10,659 | | | 2,359,964 | | | 573,058 | | Issuance of long-term debt, net | | 305,896 | | | 709,927 | | | 663,774 | | | 2,359,964 | |
Retirement of long-term debt | Retirement of long-term debt | | (143,453) | | | (21,228) | | | (574,889) | | | (302,466) | | Retirement of long-term debt | | (84,224) | | | (143,453) | | | (440,685) | | | (574,889) | |
Change in credit facility and commercial paper | Change in credit facility and commercial paper | | (130,000) | | | — | | | (150,000) | | | — | | Change in credit facility and commercial paper | | (50,000) | | | (130,000) | | | — | | | (150,000) | |
Change in short-term debt | Change in short-term debt | | (435,000) | | | 203,000 | | | (686,000) | | | 153,000 | | Change in short-term debt | | (1,527,746) | | | (435,000) | | | (1,458,939) | | | (686,000) | |
Issuance of short-term debt | Issuance of short-term debt | | — | | | — | | | 1,850,000 | | | — | | Issuance of short-term debt | | 450,000 | | | — | | | 450,000 | | | 1,850,000 | |
Withholding remittance - share-based compensation | Withholding remittance - share-based compensation | | (1,978) | | | (1,242) | | | (2,000) | | | (1,242) | | Withholding remittance - share-based compensation | | (1,506) | | | (1,978) | | | (2,190) | | | (2,000) | |
Other | | (7,898) | | | (1,353) | | | (7,274) | | | (4,505) | | |
Net cash provided by financing activities | | 369,474 | | | 206,207 | | | 3,226,725 | | | 474,815 | | |
Other, including principal payments on finance leases | | Other, including principal payments on finance leases | | (4,949) | | | (7,898) | | | (21,223) | | | (7,274) | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | | (714,823) | | | 369,474 | | | (727,817) | | | 3,226,725 | |
Effects of currency translation on cash and cash equivalents | Effects of currency translation on cash and cash equivalents | | 85 | | | 103 | | | 142 | | | 646 | | Effects of currency translation on cash and cash equivalents | | 104 | | | 85 | | | (835) | | | 142 | |
Change in cash and cash equivalents | Change in cash and cash equivalents | | 401,969 | | | 8,993 | | | 532,321 | | | 31,380 | | Change in cash and cash equivalents | | (64,796) | | | 401,969 | | | (542,581) | | | 532,321 | |
Cash and cash equivalents included in current assets held for sale at beginning of period | | Cash and cash equivalents included in current assets held for sale at beginning of period | | 23,803 | | | — | | | — | | | — | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | | 222,697 | | | 83,352 | | | 92,345 | | | 60,965 | | Cash and cash equivalents at beginning of period | | 123,078 | | | 222,697 | | | 624,666 | | | 92,345 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 624,666 | | | $ | 92,345 | | | $ | 624,666 | | | $ | 92,345 | | Cash and cash equivalents at end of period | | $ | 82,085 | | | $ | 624,666 | | | $ | 82,085 | | | $ | 624,666 | |
SUPPLEMENTAL INFORMATION: | SUPPLEMENTAL INFORMATION: | | | | | | | | | SUPPLEMENTAL INFORMATION: | | | | | | | | |
Interest paid, net of amounts capitalized | Interest paid, net of amounts capitalized | | $ | 35,262 | | | $ | 8,303 | | | $ | 131,311 | | | $ | 100,412 | | Interest paid, net of amounts capitalized | | $ | 68,018 | | | $ | 35,262 | | | $ | 252,581 | | | $ | 131,311 | |
Income taxes paid (received), net | | $ | 1,408 | | | $ | 1,651 | | | $ | 3,965 | | | $ | 10,764 | | |
Income taxes paid, net | | Income taxes paid, net | | $ | 2,381 | | | $ | 1,408 | | | $ | 12,974 | | | $ | 3,965 | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except per share amounts)
(Unaudited)
| | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | 2022 | | 2021 | | | 2023 | | 2022 |
Common stock shares | Common stock shares | | | | | Common stock shares | | | |
| | Beginning balances | 60,422 | | | 57,193 | | | | Beginning balances | 67,119 | | | 60,422 | |
| | Common stock issuances | 6,427 | | | 802 | | | | Common stock issuances | 4,212 | | | 6,427 | |
| | Ending balances | 66,849 | | | 57,995 | | | | Ending balances | 71,331 | | | 66,849 | |
Common stock amount | Common stock amount | | | | | Common stock amount | | | |
| | Beginning balances | $ | 62,052 | | | $ | 58,823 | | | | Beginning balances | $ | 68,749 | | | $ | 62,052 | |
| | Common stock issuances | 6,427 | | | 802 | | | | Common stock issuances | 4,212 | | | 6,427 | |
| | Ending balances | 68,479 | | | 59,625 | | | | Ending balances | 72,961 | | | 68,479 | |
Additional paid-in capital | Additional paid-in capital | | | | | Additional paid-in capital | | | |
| | Beginning balances | 1,824,216 | | | 1,609,155 | | | | Beginning balances | 2,287,183 | | | 1,824,216 | |
| | Common stock issuances | 449,621 | | | 50,953 | | | | Common stock issuances | 237,448 | | | 449,621 | |
| | Ending balances | 2,273,837 | | | 1,660,108 | | | | Ending balances | 2,524,631 | | | 2,273,837 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | | | | | Accumulated other comprehensive loss | | | |
| | Beginning balances | (46,761) | | | (61,003) | | | | Beginning balances | (44,242) | | | (46,761) | |
| | Foreign currency exchange translation adjustment | 1,247 | | | 823 | | | | Foreign currency exchange translation adjustment | 97 | | | 1,247 | |
| | Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | 1,126 | | | 1,379 | | | | Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | 196 | | | 1,126 | |
| | FSIRS amounts reclassified to net income, net of tax | 416 | | | 413 | | | | FSIRS amounts reclassified to net income, net of tax | — | | | 416 | |
| | Ending balances | (43,972) | | | (58,388) | | | | Ending balances | (43,949) | | | (43,972) | |
Retained earnings | Retained earnings | | | | | Retained earnings | | | |
| | Beginning balances | 1,114,313 | | | 1,067,978 | | | | Beginning balances | 747,069 | | | 1,114,313 | |
| | Net income | 96,178 | | | 117,293 | | | | Net income | 45,911 | | | 96,178 | |
| | Dividends declared | (41,909) | | | (34,876) | | | | Dividends declared | (44,635) | | | (41,909) | |
| | Redemption value adjustments | 22,156 | | | (38,018) | | | | Redemption value adjustments | (5,832) | | | 22,156 | |
| | Ending balances | 1,190,738 | | | 1,112,377 | | | | Ending balances | 742,513 | | | 1,190,738 | |
Total equity ending balances | Total equity ending balances | $ | 3,489,082 | | | $ | 2,773,722 | | | Total equity ending balances | $ | 3,296,156 | | | $ | 3,489,082 | |
Dividends declared per common share | Dividends declared per common share | $ | 0.62 | | | $ | 0.595 | | | Dividends declared per common share | $ | 0.62 | | | $ | 0.62 | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
| | | March 31, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
ASSETS | ASSETS | | | | | ASSETS | | | | |
Regulated operations plant: | Regulated operations plant: | | Regulated operations plant: | |
Gas plant | Gas plant | | $ | 8,997,234 | | | $ | 8,901,575 | | Gas plant | | $ | 9,583,630 | | | $ | 9,453,907 | |
Less: accumulated depreciation | Less: accumulated depreciation | | (2,572,184) | | | (2,538,508) | | Less: accumulated depreciation | | (2,712,093) | | | (2,674,157) | |
Construction work in progress | Construction work in progress | | 196,574 | | | 183,485 | | Construction work in progress | | 250,892 | | | 244,750 | |
Net regulated operations plant | Net regulated operations plant | | 6,621,624 | | | 6,546,552 | | Net regulated operations plant | | 7,122,429 | | | 7,024,500 | |
Other property and investments, net | Other property and investments, net | | 151,168 | | | 153,093 | | Other property and investments, net | | 144,586 | | | 169,397 | |
Current assets: | Current assets: | | | | | Current assets: | | | | |
Cash and cash equivalents | Cash and cash equivalents | | 475,876 | | | 38,691 | | Cash and cash equivalents | | 63,099 | | | 51,823 | |
Accounts receivable, net of allowance | Accounts receivable, net of allowance | | 224,885 | | | 169,666 | | Accounts receivable, net of allowance | | 300,897 | | | 234,081 | |
Accrued utility revenue | Accrued utility revenue | | 52,000 | | | 84,900 | | Accrued utility revenue | | 56,900 | | | 88,100 | |
Income taxes receivable, net | Income taxes receivable, net | | 5,351 | | | 7,826 | | Income taxes receivable, net | | 115 | | | 103 | |
Deferred purchased gas costs | Deferred purchased gas costs | | 367,954 | | | 291,145 | | Deferred purchased gas costs | | 970,339 | | | 450,120 | |
Receivable from parent | Receivable from parent | | 271 | | | 1,031 | | Receivable from parent | | — | | | 2,130 | |
Prepaid and other current assets | Prepaid and other current assets | | 180,640 | | | 242,243 | | Prepaid and other current assets | | 183,455 | | | 401,789 | |
Current assets held for sale | | Current assets held for sale | | 26,993 | | | — | |
Total current assets | Total current assets | | 1,306,977 | | | 835,502 | | Total current assets | | 1,601,798 | | | 1,228,146 | |
Noncurrent assets: | Noncurrent assets: | | | | | Noncurrent assets: | | | | |
Goodwill | Goodwill | | 10,095 | | | 10,095 | | Goodwill | | 11,155 | | | 11,155 | |
Deferred charges and other assets | Deferred charges and other assets | | 394,454 | | | 405,021 | | Deferred charges and other assets | | 369,495 | | | 370,483 | |
Total noncurrent assets | Total noncurrent assets | | 404,549 | | | 415,116 | | Total noncurrent assets | | 380,650 | | | 381,638 | |
Total assets | Total assets | | $ | 8,484,318 | | | $ | 7,950,263 | | Total assets | | $ | 9,249,463 | | | $ | 8,803,681 | |
CAPITALIZATION AND LIABILITIES | CAPITALIZATION AND LIABILITIES | | | | | CAPITALIZATION AND LIABILITIES | | | | |
Capitalization: | Capitalization: | | Capitalization: | |
Common stock | Common stock | | $ | 49,112 | | | $ | 49,112 | | Common stock | | $ | 49,112 | | | $ | 49,112 | |
Additional paid-in capital | Additional paid-in capital | | 1,620,616 | | | 1,618,911 | | Additional paid-in capital | | 1,624,919 | | | 1,622,969 | |
Accumulated other comprehensive loss, net | Accumulated other comprehensive loss, net | | (45,371) | | | (46,913) | | Accumulated other comprehensive loss, net | | (38,065) | | | (38,261) | |
Retained earnings | Retained earnings | | 987,177 | | | 906,827 | | Retained earnings | | 1,030,164 | | | 935,355 | |
Total equity | Total equity | | 2,611,534 | | | 2,527,937 | | Total equity | | 2,666,130 | | | 2,569,175 | |
Long-term debt, less current maturities | Long-term debt, less current maturities | | 2,903,556 | | | 2,440,603 | | Long-term debt, less current maturities | | 3,497,977 | | | 3,251,296 | |
Total capitalization | Total capitalization | | 5,515,090 | | | 4,968,540 | | Total capitalization | | 6,164,107 | | | 5,820,471 | |
Current liabilities: | Current liabilities: | | | | | Current liabilities: | | | | |
Current maturities of long-term debt | | 250,000 | | | 275,000 | | |
| Short-term debt | Short-term debt | | 250,000 | | | 250,000 | | Short-term debt | | 450,000 | | | 225,000 | |
Accounts payable | Accounts payable | | 148,486 | | | 234,070 | | Accounts payable | | 176,682 | | | 497,046 | |
Customer deposits | Customer deposits | | 53,094 | | | 56,127 | | Customer deposits | | 50,350 | | | 51,182 | |
| Accrued general taxes | Accrued general taxes | | 81,423 | | | 53,064 | | Accrued general taxes | | 101,579 | | | 67,094 | |
Accrued interest | Accrued interest | | 34,676 | | | 22,926 | | Accrued interest | | 38,489 | | | 29,569 | |
| Payable to parent | | Payable to parent | | 993 | | | — | |
Other current liabilities | Other current liabilities | | 169,781 | | | 146,422 | | Other current liabilities | | 281,597 | | | 150,817 | |
Total current liabilities | Total current liabilities | | 987,460 | | | 1,037,609 | | Total current liabilities | | 1,099,690 | | | 1,020,708 | |
Deferred income taxes and other credits: | Deferred income taxes and other credits: | | | | | Deferred income taxes and other credits: | | | | |
Deferred income taxes and investment tax credits, net | Deferred income taxes and investment tax credits, net | | 673,874 | | | 638,828 | | Deferred income taxes and investment tax credits, net | | 723,205 | | | 683,948 | |
Accumulated removal costs | Accumulated removal costs | | 432,000 | | | 424,000 | | Accumulated removal costs | | 450,000 | | | 445,000 | |
Other deferred credits and other long-term liabilities | Other deferred credits and other long-term liabilities | | 875,894 | | | 881,286 | | Other deferred credits and other long-term liabilities | | 812,461 | | | 833,554 | |
Total deferred income taxes and other credits | Total deferred income taxes and other credits | | 1,981,768 | | | 1,944,114 | | Total deferred income taxes and other credits | | 1,985,666 | | | 1,962,502 | |
Total capitalization and liabilities | Total capitalization and liabilities | | $ | 8,484,318 | | | $ | 7,950,263 | | Total capitalization and liabilities | | $ | 9,249,463 | | | $ | 8,803,681 | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars)
(Unaudited)
| | | | Three Months Ended March 31, | | Twelve Months Ended March 31, | | Three Months Ended March 31, | | Twelve Months Ended March 31, |
| | | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 |
Regulated operations revenues | Regulated operations revenues | | | $ | 676,539 | | | $ | 521,932 | | | $ | 1,676,397 | | | $ | 1,369,690 | | Regulated operations revenues | | $ | 914,879 | | | $ | 676,539 | | | $ | 2,173,409 | | | $ | 1,676,397 | |
Operating expenses: | Operating expenses: | | | | | | | | | | Operating expenses: | | | | | | | | |
Net cost of gas sold | Net cost of gas sold | | | 297,121 | | | 156,021 | | | 572,007 | | | 338,037 | | Net cost of gas sold | | 501,169 | | | 297,121 | | | 993,264 | | | 572,007 | |
Operations and maintenance | Operations and maintenance | | | 119,636 | | | 106,135 | | | 452,051 | | | 409,429 | | Operations and maintenance | | 131,188 | | | 119,636 | | | 503,480 | | | 452,051 | |
Depreciation and amortization | Depreciation and amortization | | | 72,114 | | | 68,698 | | | 256,814 | | | 239,268 | | Depreciation and amortization | | 74,650 | | | 72,114 | | | 265,579 | | | 256,814 | |
Taxes other than income taxes | Taxes other than income taxes | | | 21,652 | | | 20,687 | | | 81,308 | | | 67,769 | | Taxes other than income taxes | | 22,740 | | | 21,652 | | | 84,285 | | | 81,308 | |
Total operating expenses | Total operating expenses | | | 510,523 | | | 351,541 | | | 1,362,180 | | | 1,054,503 | | Total operating expenses | | 729,747 | | | 510,523 | | | 1,846,608 | | | 1,362,180 | |
Operating income | Operating income | | | 166,016 | | | 170,391 | | | 314,217 | | | 315,187 | | Operating income | | 185,132 | | | 166,016 | | | 326,801 | | | 314,217 | |
Other income and (expenses): | Other income and (expenses): | | | | | | | | | | Other income and (expenses): | | | | | | | | |
Net interest deductions | Net interest deductions | | | (26,610) | | | (22,166) | | | (102,004) | | | (98,256) | | Net interest deductions | | (38,622) | | | (26,610) | | | (127,892) | | | (102,004) | |
Other income (deductions) | Other income (deductions) | | | 1,315 | | | 550 | | | (3,794) | | | 14,496 | | Other income (deductions) | | 18,443 | | | 1,315 | | | 10,244 | | | (3,794) | |
Total other income and (expenses) | Total other income and (expenses) | | | (25,295) | | | (21,616) | | | (105,798) | | | (83,760) | | Total other income and (expenses) | | (20,179) | | | (25,295) | | | (117,648) | | | (105,798) | |
Income before income taxes | Income before income taxes | | | 140,721 | | | 148,775 | | | 208,419 | | | 231,427 | | Income before income taxes | | 164,953 | | | 140,721 | | | 209,153 | | | 208,419 | |
Income tax expense | Income tax expense | | | 28,926 | | | 30,060 | | | 28,204 | | | 37,193 | | Income tax expense | | 30,257 | | | 28,926 | | | 31,872 | | | 28,204 | |
Net income | Net income | | | $ | 111,795 | | | $ | 118,715 | | | $ | 180,215 | | | $ | 194,234 | | Net income | | $ | 134,696 | | | $ | 111,795 | | | $ | 177,281 | | | $ | 180,215 | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands of dollars)
(Unaudited)
| | | | Three Months Ended March 31, | | Twelve Months Ended March 31, | | Three Months Ended March 31, | | Twelve Months Ended March 31, |
| | | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 |
Net income | Net income | | | $ | 111,795 | | | $ | 118,715 | | | $ | 180,215 | | | $ | 194,234 | | Net income | | $ | 134,696 | | | $ | 111,795 | | | $ | 177,281 | | | $ | 180,215 | |
Other comprehensive income (loss), net of tax | | | | | | | | | | |
Other comprehensive income, net of tax | | Other comprehensive income, net of tax | | | | | | | | |
Defined benefit pension plans: | Defined benefit pension plans: | | | | Defined benefit pension plans: | |
Net actuarial gain (loss) | Net actuarial gain (loss) | | | — | | | — | | | 44,974 | | | (43,730) | | Net actuarial gain (loss) | | — | | | — | | | 3,099 | | | 44,974 | |
Amortization of prior service cost | Amortization of prior service cost | | | 33 | | | 182 | | | 580 | | | 840 | | Amortization of prior service cost | | 33 | | | 33 | | | 133 | | | 580 | |
| Amortization of net actuarial loss | Amortization of net actuarial loss | | | 6,616 | | | 8,474 | | | 32,036 | | | 30,037 | | Amortization of net actuarial loss | | 253 | | | 6,616 | | | 20,098 | | | 32,036 | |
Regulatory adjustment | Regulatory adjustment | | | (5,523) | | | (7,277) | | | (65,273) | | | 4,753 | | Regulatory adjustment | | (90) | | | (5,523) | | | (16,024) | | | (65,273) | |
Net defined benefit pension plans | Net defined benefit pension plans | | | 1,126 | | | 1,379 | | | 12,317 | | | (8,100) | | Net defined benefit pension plans | | 196 | | | 1,126 | | | 7,306 | | | 12,317 | |
Forward-starting interest rate swaps (“FSIRS”): | Forward-starting interest rate swaps (“FSIRS”): | | | | | | | | | | Forward-starting interest rate swaps (“FSIRS”): | | | | | | | | |
Amounts reclassified into net income | | | 416 | | | 413 | | | 1,655 | | | 2,244 | | |
Amounts reclassified into net income (loss) | | Amounts reclassified into net income (loss) | | — | | | 416 | | | — | | | 1,655 | |
Net forward-starting interest rate swaps | Net forward-starting interest rate swaps | | | 416 | | | 413 | | | 1,655 | | | 2,244 | | Net forward-starting interest rate swaps | | — | | | 416 | | | — | | | 1,655 | |
Total other comprehensive income (loss), net of tax | | | 1,542 | | | 1,792 | | | 13,972 | | | (5,856) | | |
Total other comprehensive income, net of tax | | Total other comprehensive income, net of tax | | 196 | | | 1,542 | | | 7,306 | | | 13,972 | |
Comprehensive income | Comprehensive income | | | $ | 113,337 | | | $ | 120,507 | | | $ | 194,187 | | | $ | 188,378 | | Comprehensive income | | $ | 134,892 | | | $ | 113,337 | | | $ | 184,587 | | | $ | 194,187 | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
| | | Three Months Ended March 31, | | Twelve Months Ended March 31, | | Three Months Ended March 31, | | Twelve Months Ended March 31, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 |
CASH FLOW FROM OPERATING ACTIVITIES: | CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | | CASH FLOW FROM OPERATING ACTIVITIES: | | | | | | | | |
Net income | Net income | | $ | 111,795 | | | $ | 118,715 | | | $ | 180,215 | | | $ | 194,234 | | Net income | | $ | 134,696 | | | $ | 111,795 | | | $ | 177,281 | | | $ | 180,215 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |
Depreciation and amortization | Depreciation and amortization | | 72,114 | | | 68,698 | | | 256,814 | | | 239,268 | | Depreciation and amortization | | 74,650 | | | 72,114 | | | 265,579 | | | 256,814 | |
Deferred income taxes | Deferred income taxes | | 34,560 | | | 14,952 | | | 72,845 | | | 52,242 | | Deferred income taxes | | 39,194 | | | 34,560 | | | 47,021 | | | 72,845 | |
Gain on sale of property | | Gain on sale of property | | — | | | (1,503) | | | — | | | (1,503) | |
Changes in undistributed stock compensation | | Changes in undistributed stock compensation | | 2,955 | | | 3,239 | | | 5,492 | | | 6,723 | |
Equity AFUDC | | Equity AFUDC | | — | | | (76) | | | 76 | | | 905 | |
Changes in current assets and liabilities: | Changes in current assets and liabilities: | | Changes in current assets and liabilities: | |
Accounts receivable, net of allowance | Accounts receivable, net of allowance | | (55,219) | | | (27,631) | | | (50,394) | | | (25,673) | | Accounts receivable, net of allowance | | (66,816) | | | (55,219) | | | (76,011) | | | (50,394) | |
Accrued utility revenue | Accrued utility revenue | | 32,900 | | | 31,900 | | | (1,500) | | | (2,400) | | Accrued utility revenue | | 31,200 | | | 32,900 | | | (4,900) | | | (1,500) | |
Deferred purchased gas costs | Deferred purchased gas costs | | (76,809) | | | (291,469) | | | (129,068) | | | (265,385) | | Deferred purchased gas costs | | (520,219) | | | (76,809) | | | (602,385) | | | (129,068) | |
Accounts payable | Accounts payable | | (67,584) | | | (33,076) | | | 23,256 | | | 18,441 | | Accounts payable | | (286,164) | | | (67,584) | | | 24,696 | | | 23,256 | |
Accrued taxes | Accrued taxes | | 30,835 | | | 41,851 | | | (3,263) | | | (13,011) | | Accrued taxes | | 34,473 | | | 30,835 | | | 25,392 | | | (3,263) | |
Other current assets and liabilities | Other current assets and liabilities | | 90,558 | | | 41,018 | | | (20,731) | | | (9,694) | | Other current assets and liabilities | | 351,252 | | | 90,558 | | | 71,957 | | | (20,731) | |
Gain on sale of property | | (1,503) | | | — | | | (1,503) | | | — | | |
Changes in undistributed stock compensation | | 3,239 | | | 2,908 | | | 6,723 | | | 5,706 | | |
Equity AFUDC | | (76) | | | (981) | | | 905 | | | (4,644) | | |
Changes in deferred charges and other assets | Changes in deferred charges and other assets | | (6,439) | | | (13,535) | | | (21,647) | | | (61,484) | | Changes in deferred charges and other assets | | (12,891) | | | (6,439) | | | (8,146) | | | (21,647) | |
Changes in other liabilities and deferred credits | Changes in other liabilities and deferred credits | | (4,033) | | | (48,782) | | | (27,637) | | | (58,008) | | Changes in other liabilities and deferred credits | | (10,942) | | | (4,033) | | | (34,599) | | | (27,637) | |
Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | | 164,338 | | | (95,432) | | | 285,015 | | | 69,592 | | Net cash provided by (used in) operating activities | | (228,612) | | | 164,338 | | | (108,547) | | | 285,015 | |
CASH FLOW FROM INVESTING ACTIVITIES: | CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | | CASH FLOW FROM INVESTING ACTIVITIES: | | | | | | | | |
Construction expenditures and property additions | Construction expenditures and property additions | | (141,123) | | | (128,544) | | | (614,562) | | | (647,407) | | Construction expenditures and property additions | | (192,097) | | | (141,123) | | | (734,105) | | | (614,562) | |
Changes in customer advances | Changes in customer advances | | 7,693 | | | 4,285 | | | 19,381 | | | 12,885 | | Changes in customer advances | | (6,608) | | | 7,693 | | | 7,205 | | | 19,381 | |
Other | Other | | (918) | | | (121) | | | (829) | | | 681 | | Other | | 119 | | | (918) | | | 7,954 | | | (829) | |
| Net cash used in investing activities | Net cash used in investing activities | | (134,348) | | | (124,380) | | | (596,010) | | | (633,841) | | Net cash used in investing activities | | (198,586) | | | (134,348) | | | (718,946) | | | (596,010) | |
CASH FLOW FROM FINANCING ACTIVITIES: | CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | | CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | |
Contributions from parent | Contributions from parent | | — | | | 45,984 | | | 156,599 | | | 173,906 | | Contributions from parent | | — | | | — | | | — | | | 156,599 | |
Dividends paid | Dividends paid | | (29,200) | | | (26,000) | | | (114,600) | | | (105,300) | | Dividends paid | | (32,000) | | | (29,200) | | | (125,000) | | | (114,600) | |
Issuance of long-term debt, net | Issuance of long-term debt, net | | 593,862 | | | — | | | 891,180 | | | 446,508 | | Issuance of long-term debt, net | | 297,759 | | | 593,862 | | | 595,560 | | | 891,180 | |
Retirement of long-term debt | Retirement of long-term debt | | (25,000) | | | — | | | (25,000) | | | (125,000) | | Retirement of long-term debt | | — | | | (25,000) | | | (250,000) | | | (25,000) | |
Change in credit facility and commercial paper | Change in credit facility and commercial paper | | (130,000) | | | — | | | (150,000) | | | — | | Change in credit facility and commercial paper | | (50,000) | | | (130,000) | | | — | | | (150,000) | |
Change in short-term debt | Change in short-term debt | | — | | | 210,000 | | | (17,000) | | | 170,000 | | Change in short-term debt | | (225,000) | | | — | | | (250,000) | | | (17,000) | |
Issuance of short-term debt | | Issuance of short-term debt | | 450,000 | | | — | | | 450,000 | | | — | |
Withholding remittance - share-based compensation | Withholding remittance - share-based compensation | | (1,978) | | | (1,242) | | | (1,999) | | | (1,242) | | Withholding remittance - share-based compensation | | (1,292) | | | (1,978) | | | (1,883) | | | (1,999) | |
Other | Other | | (489) | | | (205) | | | (2,104) | | | (1,352) | | Other | | (993) | | | (489) | | | (3,961) | | | (2,104) | |
Net cash provided by financing activities | Net cash provided by financing activities | | 407,195 | | | 228,537 | | | 737,076 | | | 557,520 | | Net cash provided by financing activities | | 438,474 | | | 407,195 | | | 414,716 | | | 737,076 | |
| Change in cash and cash equivalents | Change in cash and cash equivalents | | 437,185 | | | 8,725 | | | 426,081 | | | (6,729) | | Change in cash and cash equivalents | | 11,276 | | | 437,185 | | | (412,777) | | | 426,081 | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | | 38,691 | | | 41,070 | | | 49,795 | | | 56,524 | | Cash and cash equivalents at beginning of period | | 51,823 | | | 38,691 | | | 475,876 | | | 49,795 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 475,876 | | | $ | 49,795 | | | $ | 475,876 | | | $ | 49,795 | | Cash and cash equivalents at end of period | | $ | 63,099 | | | $ | 475,876 | | | $ | 63,099 | | | $ | 475,876 | |
SUPPLEMENTAL INFORMATION: | SUPPLEMENTAL INFORMATION: | | | | | | | | | SUPPLEMENTAL INFORMATION: | | | | | | | | |
Interest paid, net of amounts capitalized | Interest paid, net of amounts capitalized | | $ | 15,757 | | | $ | 6,952 | | | $ | 99,045 | | | $ | 93,474 | | Interest paid, net of amounts capitalized | | $ | 29,007 | | | $ | 15,757 | | | $ | 121,230 | | | $ | 99,045 | |
Income taxes paid (received), net | Income taxes paid (received), net | | $ | — | | | $ | — | | | $ | (13,529) | | | $ | 3,359 | | Income taxes paid (received), net | | $ | — | | | $ | — | | | $ | 5 | | | $ | (13,529) | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(Unaudited)
| | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | 2022 | | 2021 | | | 2023 | | 2022 |
Common stock shares | Common stock shares | | | | | | Common stock shares | | | | |
| | Beginning and ending balances | | 47,482 | | | 47,482 | | | | Beginning and ending balances | | 47,482 | | | 47,482 | |
Common stock amount | Common stock amount | | | | | | Common stock amount | | | | |
| | Beginning and ending balances | | $ | 49,112 | | | $ | 49,112 | | | | Beginning and ending balances | | $ | 49,112 | | | $ | 49,112 | |
Additional paid-in capital | Additional paid-in capital | | | | | | Additional paid-in capital | | | | |
| | Beginning balances | | 1,618,911 | | | 1,410,345 | | | | Beginning balances | | 1,622,969 | | | 1,618,911 | |
| | Share-based compensation | | 1,705 | | | 2,015 | | | | Share-based compensation | | 1,950 | | | 1,705 | |
| | Contributions from Southwest Gas Holdings, Inc. | | — | | | 45,984 | | | |
| | Ending balances | | 1,620,616 | | | 1,458,344 | | | | Ending balances | | 1,624,919 | | | 1,620,616 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | | | | | | Accumulated other comprehensive loss | | | | |
| | Beginning balances | | (46,913) | | | (61,135) | | | | Beginning balances | | (38,261) | | | (46,913) | |
| | Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | | 1,126 | | | 1,379 | | | | Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | | 196 | | | 1,126 | |
| | FSIRS amounts reclassified to net income, net of tax | | 416 | | | 413 | | | | FSIRS amounts reclassified to net income, net of tax | | — | | | 416 | |
| | Ending balances | | (45,371) | | | (59,343) | | | | Ending balances | | (38,065) | | | (45,371) | |
Retained earnings | Retained earnings | | | | | | Retained earnings | | | | |
| | Beginning balances | | 906,827 | | | 835,146 | | | | Beginning balances | | 935,355 | | | 906,827 | |
| | Net income | | 111,795 | | | 118,715 | | | | Net income | | 134,696 | | | 111,795 | |
| | Share-based compensation | | (445) | | | (350) | | | | Share-based compensation | | (287) | | | (445) | |
| | Dividends declared to Southwest Gas Holdings, Inc. | | (31,000) | | | (27,500) | | | | Dividends declared to Southwest Gas Holdings, Inc. | | (39,600) | | | (31,000) | |
| | Ending balances | | 987,177 | | | 926,011 | | | | Ending balances | | 1,030,164 | | | 987,177 | |
Total Southwest Gas Corporation equity ending balances | Total Southwest Gas Corporation equity ending balances | | $ | 2,611,534 | | | $ | 2,374,124 | | | Total Southwest Gas Corporation equity ending balances | | $ | 2,666,130 | | | $ | 2,611,534 | |
The accompanying notes are an integral part of these statements.statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
Note 1 – Background, Organization, and Summary of Significant Accounting Policies
Nature of Operations. Southwest Gas Holdings, Inc. (together with its subsidiaries, the “Company”) is a holding company, owning all of the shares of common stock of Southwest Gas Corporation (“Southwest” or the “natural gas distribution” segment), all of the shares of common stock of Centuri Group, Inc. (“Centuri,” or the “utility infrastructure services” segment), and until February 14, 2023, all of the shares of common stock of MountainWest Pipelines Holding Company (“MountainWest,”MountainWest” or the “pipeline and storage” segment).
The Company completed the acquisition of Dominion Energy Questar Pipeline, LLC and related entities (“Questar Pipelines”) inIn December 2021. Following the completion of the acquisition, the Company formed MountainWest which owns all of the membership interests in Questar Pipelines. In April 2022, the Company completed a general rebrandingannounced that its Board of the Questar Pipelines entities under the MountainWest name. The acquired operations further diversifyDirectors (the “Board”) unanimously determined to take strategic actions to simplify the Company’s businessportfolio of businesses. These actions included entering into a definitive agreement to sell 100% of MountainWest to Williams Partners Operating LLC (“Williams”) for $1.5 billion in total enterprise value, subject to certain adjustments (collectively, the “MountainWest sale”). Additionally, the Company determined it will pursue a spin-off of Centuri (the “Centuri spin-off”), to form a new independent publicly traded utility infrastructure services company. The MountainWest sale closed on February 14, 2023. The Centuri spin-off is expected to be completed in the midstream sector, with an expansionfourth quarter of interstate natural gas pipelines2023 or the first quarter of 2024 and underground storage services, primarily composed of regulated operations underto be tax free to the jurisdiction of the Federal Energy Regulatory Commission (the “FERC”), thereby expanding natural gas transportation services into Utah, Wyoming,Company and Colorado.its stockholders for U.S. federal income tax purposes. See Note 8 - Business AcquisitionsDispositions for more information.
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. 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 distribution segment are higher during winter periods due to the seasonality incorporated in its regulatory rate structures.
Centuri is a strategic utility infrastructure services company dedicated to partnering with North America’s gas and electric providers to build and maintain the energy network that powers millions of homes across the United States (“U.S.”) and Canada. Centuri derives revenue primarily from installation, replacement, repair, and maintenance of energy networks. Centuri operates in the U.S., primarily as NPL, Neuco, Linetec, and Riggs Distler, and in Canada, primarily as NPL Canada. Utility infrastructure services activity is seasonal in many of Centuri’s operating areas. Peak periods are the summer and fall months in colder climate areas, such as the northeastern and midwestern U.S. and in Canada. In warmer climate areas, such as the southwestern and southeastern U.S., utility infrastructure services activity continues year round.
Centuri completed the acquisition of Drum Parent LLC (“Drum”), including Drum’s most significant operating subsidiary, Riggs Distler, in August 2021, thereby expanding Centuri’s electric infrastructure services footprint in the northeast and mid-Atlantic regions of the U.S. See Note 8 - Business Acquisitions for more information.
In March 2022, the Company announced that its Board of Directors (the “Board”) had determined to separate Centuri from the Company and authorized management to complete the separation within nine to twelve months. Management evaluated various alternatives to determine the optimal structure to maximize stockholder value and announced the separation structure was expected to be a tax-free spin-off in which stockholders of the Company would receive a prorated dividend of Centuri shares in association with the completion. Then, in April 2022, as a result of interest in the Company well in excess of a tender offer by an activist stockholder (Carl Icahn) to other stockholders, the Board authorized the review of a full range of strategic alternatives to maximize stockholder value. As part of this process, a strategic transactions committee of the Board (the “Strategic Transactions Committee”), consisting entirely of independent directors, will evaluate a sale of the Company, as well as a range of alternatives, including, but not limited to, a separate sale of its business units and/or pursuing the spin-off of Centuri.
Basis of Presentation. The condensed consolidated financial statements of Southwest Gas Holdings, Inc. and subsidiaries and Southwest (with its subsidiaries) included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The year-end 2022 condensed balance sheet data was derived from audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. No substantive change has occurred with regard to the Company’s business segments on the whole.whole during the recently completed quarter, other than the sale of MountainWest, discussed above.
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 as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring items and estimates necessary for a fair depictionstatement of results for the interim periods, have been made.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the 20212022 Annual Report to Stockholders, which is incorporated by reference into the 20212022 Form 10-K.
In the first quarter of 2023, management identified a misstatement related to its accounting for the cost of gas sold at Southwest, thereby determining that Net cost of gas sold was overstated in 2021 and 2022 by $2.3 million and $5.7 million, respectively. Southwest made an adjustment in the first quarter of 2023 to reduce Net cost of gas sold and to increase its asset balance for Deferred purchased gas cost by $8 million.
Also in the first quarter of 2023, the Company identified an approximately $21 million misstatement related to its initial estimation of the loss recorded upon reclassifying MountainWest as an asset held for sale during the year ended December 31, 2022. Consequently, the impairment loss for the year ended December 31, 2022 was understated by approximately $21 million, which was corrected in the first quarter of 2023.
The Company (and Southwest, with respect to Net cost of gas sold) assessed, both quantitatively and qualitatively, the impact of these items on previously issued financial statements, concluding they were not material to any prior period or the current period financial statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
0OtherOther Property and Investments. Other property and investments on Southwest’s and the Company’s Condensed Consolidated Balance Sheets includes:
| (Thousands of dollars) | (Thousands of dollars) | March 31, 2022 | | December 31, 2021 | (Thousands of dollars) | March 31, 2023 | | December 31, 2022 |
Net cash surrender value of COLI policies | Net cash surrender value of COLI policies | $ | 147,987 | | | $ | 149,947 | | Net cash surrender value of COLI policies | $ | 138,689 | | | $ | 136,245 | |
Other property | Other property | 3,181 | | | 3,146 | | Other property | 5,897 | | | 33,152 | |
Total Southwest Gas Corporation | Total Southwest Gas Corporation | 151,168 | | | 153,093 | | Total Southwest Gas Corporation | 144,586 | | | 169,397 | |
Non-regulated property, equipment, and intangibles | Non-regulated property, equipment, and intangibles | 1,645,159 | | | 1,616,392 | | Non-regulated property, equipment, and intangibles | 1,698,327 | | | 1,677,218 | |
Non-regulated accumulated provision for depreciation and amortization | Non-regulated accumulated provision for depreciation and amortization | (540,206) | | | (512,343) | | Non-regulated accumulated provision for depreciation and amortization | (624,693) | | | (596,518) | |
Other property and investments | Other property and investments | 57,170 | | | 59,337 | | Other property and investments | 32,107 | | | 31,075 | |
Total Southwest Gas Holdings, Inc. | Total Southwest Gas Holdings, Inc. | $ | 1,313,291 | | | $ | 1,316,479 | | Total Southwest Gas Holdings, Inc. | $ | 1,250,327 | | | $ | 1,281,172 | |
Included in the table above are the net cash surrender values of company-owned life insurance (“COLI”) policies. These life insurance policies on members of management and other key employees are used by Southwest to indemnify itself against the loss of talent, expertise, and knowledge, as well as to provide indirect funding for certain nonqualified benefit plans. The term non-regulated in regard to assets and related balances in the table above is in reference to the non-rate regulated operations of Centuri,Centuri.
Held for sale. The Company and to a more limited extent,Southwest have classified certain assets associated with its previous corporate headquarters as held for sale during the first quarter of MountainWest.2023. An agreement for sale was signed in May 2023, subject to certain closing conditions, including possible extension periods. Amounts to be realized above the carrying value are not expected to be material to the financial statements overall. Management determined that the assets met the criteria to be classified as held for sale as of March 31, 2023. As a result, the Company and Southwest reclassified approximately $27 million from Other property and investments to current assets held for sale on their respective Condensed Consolidated Balance Sheets at March 31, 2023.
Cash and Cash Equivalents. Cash and cash equivalents of the Company include$32.7 million and $30 million of money market fund investments totaling approximately $169 million and $231 million, for Southwest and the Company, respectively, at March 31, 2022,2023 and $20 million for the Company as of December 31, 2021.2022, respectively. The balancemoney market fund investments for Southwest as ofwere $29.6 million at March 31, 2023 and $17.6 million at December 31, 2021 was insignificant.2022, respectively. These investments fall within Level 2 of the fair value hierarchy, due to the asset valuation methods used by money market funds. The Company had $7 million in restricted cash included in Cash and cash equivalents at March 31, 2022, related to residual proceeds received from its March 2022 common stock offering to be applied against its 364-day Term Loan Facility, which occurred in April 2022. The restricted cash balance is included in Cash and cash equivalents within the Company’s Condensed Consolidated Statement of Cash Flows as of March 31, 2022.
Non-cashNoncash investing activities for the Company and Southwest include capital expenditures that were not yet paid, totalingthereby remaining in accounts payable, the amounts related to which declined by approximately $26.1$37.3 million atand $34.2 million during the three months ended March 31, 2022,2023, respectively, and $19.4increased $5.5 million at Decemberand $5.7 million during the twelve months ended March 31, 2021.2023, respectively.
Accounts Receivable, net of allowances. Southwest lifted theFollowing an earlier moratorium on disconnection of natural gas service for non-payment in Arizona and Nevada in September 2021, which was initiated (at the same time as a moratorium on late fees) in March 2020 in response toaccount disconnections amidst the COVID-19 pandemic. The moratoriumenvironment, account collection efforts resumed in 2021 in all jurisdictions in which Southwest operates. Ultimately, some accounts that are receivable at the end of any reporting date may not be collected, and if collection is unsuccessful, such accounts are written off. Estimates as to collectibility are made on disconnection in California ended in November 2021.an ongoing basis. However, Southwest recommenced assessing late fees on past-due balances in Arizona and Nevada in April 2021, and in California in August 2021. Southwest continues to actively work with customers experiencing financial hardship by means of flexible payment options and partnering with assistance agencies and participatingagencies. The cost of gas included in state-funded arrearage payment assistance programs.customer rates also influences account balances at each reporting date.
Deferred Purchased Gas Costs. The various regulatory commissions have established procedures to enable the rate-regulated companies to adjust billing rates for changes in the cost of natural gas purchased. The difference between the current cost of gas purchased and the cost of gas recovered in billed rates is deferred. Generally, these deferred amounts are recovered or refunded within one year.
In mid-February 2021, the central U.S. experienced extreme cold temperatures, which increased natural gas demand and caused supply issues due to wellhead freeze-offs, power outages, or other adverse operating conditions upstream of Southwest’s distribution systems. These conditions caused daily natural gas prices to reach unprecedented levels. During this time, Southwest secured natural gas supplies, albeit at substantially higher prices, maintaining service to its customers. The incremental cost for these supplies was approximately $250 million, funded using a 364-day $250 million term loan executed in March 2021. The incremental gas costs were included, for collection from customers, as part of the purchased gas adjustment (“PGA”) mechanisms. The term loan was amended in March 2022 to extend the maturity date to March 2023 due to gas prices that, while not at levels incurred during the 2021 freeze, continue to be elevated (see Note 5 – Debt).
Prepaid and other current assets. Prepaid and other current assets for Southwest include, among other things, materials and operating supplies of $6079 million at March 31, 20222023 and $62.977.3 million at December 31, 20212022 (carried at weighted average cost). For the Company, there were materials and operating supplies of $64.6 million and $67.4 million at March 31, 2022 and December 31, 2021, which included amounts for MountainWest. Also included in the balance for both Southwest and the Company was $52$207 million as of December 31, 20212022 in accrued purchased gas cost, with no corresponding asset balance as of March 31, 2023.
Goodwill. Goodwill is assessed as of October 1st each year for impairment, or more frequently, if circumstances indicate it may be more likely than not that the fair value of a reporting unit is less than its carrying value. The Company’s reporting units for goodwill are its operating segments, which are also its reportable segments. Since December 31, 2022, for either entity.management qualitatively assessed whether events during the first three months of 2023 indicated it was more likely than not that the fair value of our reporting units was less than their carrying value, which if the case, could be an indication of a goodwill impairment. Through management’s assessments during first quarter of 2023, no impairment was deemed to have occurred in the continuing segments of the Company. However, there can be no assurances that future assessments of goodwill will not
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
Goodwill. Goodwill is assessed as of October 1st each year for impairment, or more frequently, if circumstances indicateresult in an impairment, toand various factors, including changes in the carryingbusiness, strategic initiatives, economic conditions, governmental monetary policies, interest rates, or others, on their own or in combination with each other, could result in the fair value of goodwill may have occurred. Management of the Company and Southwest considered its reporting units and segments, determining that they remained consistent between periods presented below, and that no change was necessary with regard to the level at which goodwill is assessed for impairment. The acquisition of MountainWest resulted in a new reportable segment which is assessed for impairment beginning in 2022. Since December 31, 2021, management qualitatively assessed whether events during the first three months of 2022 may have resulted in conditions whereby thebeing lower than their carrying value of goodwill was higher than its fair value, which if the case, could be an indication of a permanent impairment. Through this assessment, no such condition was believed to have existed and therefore, no impairment was deemed to have occurred.values. Goodwill in Southwest’sthe Natural Gas Distribution and the Company’sUtility Infrastructure Services segments is included in their respective Condensed Consolidated Balance Sheets is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | | Natural Gas Distribution | | Utility Infrastructure Services | | Pipeline and Storage | | Total Company |
December 31, 2021 | | $ | 10,095 | | | $ | 785,058 | | | $ | 986,179 | | | $ | 1,781,332 | |
Measurement-period adjustments from Riggs Distler acquisition (a) | | — | | | (574) | | | — | | | (574) | |
Measurement-period adjustments from MountainWest acquisition (a) | | — | | | — | | | (8,690) | | | (8,690) | |
Foreign currency translation adjustment | | — | | | 1,603 | | | — | | | 1,603 | |
March 31, 2022 | | $ | 10,095 | | | $ | 786,087 | | | $ | 977,489 | | | $ | 1,773,671 | |
(a) See Note 8 - Business Acquisitions for details regarding measurement-period adjustments. | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | | Natural Gas Distribution | | Utility Infrastructure Services | | Total Company |
December 31, 2022 | | $ | 11,155 | | | $ | 776,095 | | | $ | 787,250 | |
Foreign currency translation adjustment | | — | | | 84 | | | 84 | |
March 31, 2023 | | $ | 11,155 | | | $ | 776,179 | | | $ | 787,334 | |
Other Current Liabilities. Management recognizes in its balance sheets various liabilities that are expected to be settled through future cash payment within the next twelve months, including amounts payable under regulatory mechanisms, customary accrued expenses for employee compensation and benefits, declared but unpaid dividends, and miscellaneous other accrued liabilities. Other current liabilities for the Company include $41.4$44.2 million and $36$41.6 million of dividends declared as of March 31, 20222023 and December 31, 2021,2022, respectively. Also included in the balance was $68 million as of March 31, 2023 in accrued purchased gas cost, with no corresponding liability balance as of December 31, 2022.
Other Income (Deductions). The following table provides the composition of significant items included in Other income (deductions) in Southwest’s and the Company’s Condensed Consolidated Statements of Income:
| | | Three Months Ended March 31, | | | Twelve Months Ended March 31, | | Three Months Ended March 31, | | Twelve Months Ended March 31, |
(Thousands of dollars) | (Thousands of dollars) | 2022 | | 2021 | | | 2022 | | 2021 | (Thousands of dollars) | 2023 | | 2022 | | 2023 | | 2022 |
Southwest Gas Corporation: | Southwest Gas Corporation: | | | | | | | | | Southwest Gas Corporation: | | | | | | | |
Change in COLI policies | Change in COLI policies | $ | (2,000) | | | $ | 2,700 | | | | $ | 4,100 | | | $ | 27,400 | | Change in COLI policies | $ | 2,400 | | | $ | (2,000) | | | $ | (1,000) | | | $ | 4,100 | |
Interest income | Interest income | 2,801 | | | 716 | | | | 7,198 | | | 3,343 | | Interest income | 12,471 | | | 2,801 | | | 25,853 | | | 7,198 | |
Equity AFUDC | Equity AFUDC | 76 | | | 981 | | | | (905) | | | 4,644 | | Equity AFUDC | — | | | 76 | | | (76) | | | (905) | |
Other components of net periodic benefit cost | Other components of net periodic benefit cost | (188) | | | (3,505) | | | | (10,704) | | | (18,522) | | Other components of net periodic benefit cost | 4,959 | | | (188) | | | 4,396 | | | (10,704) | |
Miscellaneous income and (expense) | Miscellaneous income and (expense) | 626 | | | (342) | | | | (3,483) | | | (2,369) | | Miscellaneous income and (expense) | (1,387) | | | 626 | | | (18,929) | | | (3,483) | |
Southwest Gas Corporation - total other income (deductions) | Southwest Gas Corporation - total other income (deductions) | 1,315 | | | 550 | | | | (3,794) | | | 14,496 | | Southwest Gas Corporation - total other income (deductions) | 18,443 | | | 1,315 | | | 10,244 | | | (3,794) | |
Centuri, MountainWest, and Southwest Gas Holdings, Inc.: | Centuri, MountainWest, and Southwest Gas Holdings, Inc.: | | | | Centuri, MountainWest, and Southwest Gas Holdings, Inc.: | |
| Foreign transaction gain (loss) | Foreign transaction gain (loss) | 3 | | | (3) | | | | (16) | | | (9) | | Foreign transaction gain (loss) | (690) | | | 3 | | | 284 | | | (16) | |
Equity AFUDC | Equity AFUDC | 182 | | | — | | | | 182 | | | — | | Equity AFUDC | 82 | | | 182 | | | 365 | | | 182 | |
Equity in earnings of unconsolidated investments | Equity in earnings of unconsolidated investments | 515 | | | (8) | | | | 749 | | | 121 | | Equity in earnings of unconsolidated investments | 360 | | | 515 | | | 2,474 | | | 749 | |
Miscellaneous income and (expense) | Miscellaneous income and (expense) | (771) | | | (91) | | | | 176 | | | (179) | | Miscellaneous income and (expense) | (5) | | | (651) | | | (2,467) | | | 303 | |
Corporate and administrative | | Corporate and administrative | 270 | | | (120) | | | 127 | | | (127) | |
Southwest Gas Holdings, Inc. - total other income (deductions) | Southwest Gas Holdings, Inc. - total other income (deductions) | $ | 1,244 | | | $ | 448 | | | | $ | (2,703) | | | $ | 14,429 | | Southwest Gas Holdings, Inc. - total other income (deductions) | $ | 18,460 | | | $ | 1,244 | | | $ | 11,027 | | | $ | (2,703) | |
Included in the table above is the change in cash surrender values of COLI policies (including net death benefits recognized). Current tax regulations provide for tax-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. Interest income primarily relates to Southwest’s regulatory asset balances, including its deferred purchased gas cost mechanisms. Interest income includes carrying charges on regulatory account balances, including deferred purchased gas cost balances, which increased from $368 million as of March 31, 2022 to $970 million as of March 31, 2023. Refer also to the discussion of Other Property and Investments above and to Note 2 – Components of Net Periodic Benefit Cost.
Redeemable Noncontrolling Interests.In connection with the acquisition of Linetec in November 2018, the previous owner initially retained a 20% equity interest in that entity, the reduction of whichwith redemption being subject to certain rights based on the passage of time or upon the occurrence of certain triggering events. Effective Januaryin 2022, the Company, through Centuri, had the right, but not the obligation, to purchase at fair value (subject to a floor) a portion of the interest held by the previous owner, and in incremental amounts each year thereafter. In March 2022, the parties agreed to a partial redemption, reducing the noncontrolling interest to 15%, and in March 2023, agreeing once again to a 5% redemption (of the 15% then remaining), and to thereby reduce the noncontrolling interest to 10% under the terms of the original agreement. As a result of this most recent election, Centuri accrued $39.9 million as of March 31, 2023, which was paid to the previous owner of Linetec in April 2023. The impact of this transaction has been excluded from the Company’s Condensed Consolidated Statement of Cash Flows for
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
not the obligation,2023 due to purchase at fair value (subject to a floor) a portionits noncash nature in advance of the interest held by the previous owner, and in incremental amounts each year thereafter. In March 2022, the parties agreed to a partial redemption based on these provisions, and as a result, Centuri paid $39.6 million to the previous owner of Linetec for a 5.0% equity interest in Linetec, thereby reducing theApril 2023 payment. The remaining balance continuing to be redeemable to 15%as of March 31, 2023 is 10% under the terms of the original agreement. In order to fund the redemption, Southwest Gas Holdings, Inc. contributed capital to Centuri.agreement, with Centuri now owning a 90% stake in Linetec.
Certain members of Riggs Distler management have a 1.42% interest in Drum, which is redeemable, subject to certain rights based on the passage of time or upon the occurrence of certain triggering events.
Significant changes in the value of the redeemable noncontrolling interests, above a floor determined at the establishment date, are recognized as they occur, and the carrying value is adjusted as necessary at each reporting date. The fair value is estimated using a market approach that utilizes certain financial metrics from guideline public companies of similar industry and operating characteristics. Based on the fair value model employed, the estimated redemption value of the Linetec redeemable noncontrolling interest decreased byincreased approximately $22$5.8 million during the three months ended March 31, 2022. Adjustment to2023, notwithstanding the change resulting from the partial redemption valuenoted above. Valuation adjustments also impactsimpact retained earnings, as reflected in the Company’s Condensed Consolidated Statement of Equity, but doesdo not impact net income. The following depicts changes to the balances of the redeemable noncontrolling interests:
| (Thousands of dollars): | (Thousands of dollars): | | Linetec | | Drum | | Total | (Thousands of dollars): | | Linetec | | Drum | | Total |
Balance, December 31, 2021 | | $ | 184,148 | | | $ | 12,569 | | | $ | 196,717 | | |
Balance, December 31, 2022 | | Balance, December 31, 2022 | | $ | 146,765 | | | $ | 12,584 | | | $ | 159,349 | |
Net income attributable to redeemable noncontrolling interests | Net income attributable to redeemable noncontrolling interests | | 1,103 | | | (31) | | | 1,072 | | Net income attributable to redeemable noncontrolling interests | | 1,683 | | | 56 | | | 1,739 | |
Redemption value adjustments | Redemption value adjustments | | (22,156) | | | — | | | (22,156) | | Redemption value adjustments | | 5,832 | | | — | | | 5,832 | |
Redemption of equity interest from noncontrolling party | Redemption of equity interest from noncontrolling party | | (39,649) | | | — | | | (39,649) | | Redemption of equity interest from noncontrolling party | | (39,894) | | | — | | | (39,894) | |
Balance, March 31, 2022 | | $ | 123,446 | | | $ | 12,538 | | | $ | 135,984 | | |
Balance, March 31, 2023 | | Balance, March 31, 2023 | | $ | 114,386 | | | $ | 12,640 | | | $ | 127,026 | |
Earnings Per Share. Basic earnings per share (“EPS”) in each period of this report were calculated by dividing net income attributable to Southwest Gas Holdings, Inc. by the weighted-average number of shares during those periods. Diluted EPS includes additional weighted-average common stock equivalents (performance shares and restricted stock units). Unless otherwise noted, the term “Earnings Per Share” refers to Basic EPS. A reconciliation of the denominator used in Basic and Diluted EPS calculations is shown in the following table:
| | | Three Months Ended March 31, | | | Twelve Months Ended March 31, | | Three Months Ended March 31, | | Twelve Months Ended March 31, |
(In thousands) | (In thousands) | | 2022 | | 2021 | | | 2022 | | 2021 | (In thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
Weighted average basic shares | Weighted average basic shares | | 60,737 | | | 57,600 | | | | 59,919 | | | 56,564 | | Weighted average basic shares | | 68,265 | | | 60,737 | | | 67,413 | | | 59,919 | |
Effect of dilutive securities: | Effect of dilutive securities: | | | | Effect of dilutive securities: | |
Restricted stock units (1)(2) | Restricted stock units (1)(2) | | 117 | | | 79 | | | | 125 | | | 85 | | Restricted stock units (1)(2) | | 154 | | | 117 | | | — | | | 125 | |
Weighted average diluted shares | Weighted average diluted shares | | 60,854 | | | 57,679 | | | | 60,044 | | | 56,649 | | Weighted average diluted shares | | 68,419 | | | 60,854 | | | 67,413 | | | 60,044 | |
(1) The number of anti-dilutive restricted stock units excluded from the calculation of diluted shares during the twelve months ended March 31, 2023 is 166,000.
(2) The number of securities included 132,000 and 112,000 and 75,000 performance shares during the three months endingended March 31, 2023 and 2022, and 2021,149,000 and 114,000 and 76,000 performance shares during the twelve months endingended March 31, 20222023 and 2021,2022, respectively, the total of which was derived by assuming that target performance will be achievedachieved during the relevant performance period.
Contingencies.
Income Taxes. Southwest maintains liability insuranceThe Company’s effective tax rate was 37.6% for various risks associated with the operationthree months ended March 31, 2023, compared to 19.9% for the corresponding period in 2022. The effective tax rate increase was primarily due to the MountainWest sale, and includes the impact of itsbook versus tax basis differences related to the transaction (See Note 8 - Dispositions).
Southwest’s effective tax rate was 18.3% for the three months ended March 31, 2023, compared to 20.6% in the prior year quarter. These amounts varied from the statutory rate primarily as the result of the amortization of excess deferred income taxes.
In April 2023, the Internal Revenue Service (“IRS”) issued Revenue Procedure 2023-15, which provides a safe harbor method of accounting that taxpayers may use to determine whether expenditures to repair, maintain, replace, or improve natural gas pipelinestransmission and facilities. In connection with these liability insurance policies,distribution property must be capitalized for tax purposes. The Company and Southwest is responsible for an initial deductible or self-insured retention amount per incident, after whichare currently reviewing this revenue procedure to determine the insurance carriers would be responsible for amounts up to the policy limits. For the policy year August 2021 to July 2022, these liability insurance policies require Southwest to be responsible for the first $1 million (self-insured retention)potential impact on their financial position, results of each incident plus the first $4 million in aggregate claims above its self-insured retention in the policy year. In August 2021, a natural gas pipe operated by Southwest was involved in an explosion that injured four individualsoperations, and damaged property. The explosion was caused by a leak in the pipe, and is under investigation. Individuals that were injured have each brought legal claims against Southwest and other parties. If Southwest is deemed fully or partially responsible, Southwest estimates its net exposure could be equal to the self-insured retention of $5 million (the maximum noted above). In 2021, pursuant to Accounting Standards Codification 450, Contingencies, Southwest recorded a $5 million liability related to this incident reflecting the maximum noted above; an estimate of actual loss greater than this exposure (to be covered by insurance) cannot be estimated as of the date these financial statements are issued.
On November 29, 2021, Icahn Partners LP and Icahn Master Fund LP (collectively, “Icahn”) commenced an action in the Court of Chancery for the State of Delaware. The action is captioned Icahn Partners LP, et al. v. John P. Hester, et al., C.A. No.cash flows.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
2021-1031-KSJM (Del. Ch.). The complaint names the Company and the individual members of the Board as defendants. The complaint seeks to allege breach of fiduciary duty claims and, among other things, seeks declaratory and injunctive relief to (1) limit the scope and manner of certain equity issuances by the Company; (2) allow Icahn to proceed with a Special Meeting proposal at the Company’s 2022 Annual Meeting; and (3) require the Board to approve Icahn’s slate of nominees as “continuing directors” under certain of the Company’s debt instruments. After filing the complaint, Icahn sought a temporary restraining order to prohibit defendants from making certain equity issuances. On December 21, 2021, the Court denied Icahn’s request. On January 19, 2022, the defendants filed a motion to dismiss the claims that were subject to Icahn’s motion for a temporary restraining order. The same day, the defendants filed an answer, denying the remaining claims in Icahn’s complaint. On February 11, 2022, defendants filed a motion for summary judgement on Icahn’s claims regarding a proposal for a special meeting. On April 5, 2022, following a hearing, the court granted defendants’ motion for summary judgment, finding that the Company properly rejected Icahn’s special meeting proposal. On April 27, 2022, the court entered an order dismissing Icahn’s special meeting proposal claims with prejudice and Icahn’s “continuing directors” claims without prejudice. In accordance with the Cooperation Agreement described in Note 9 - Subsequent Events, Icahn filed a stipulation of dismissal of the case with prejudice, which was entered by the court on May 9, 2022.
On November 18, 2021, the City Pension Fund for Firefighters and Police Officers in the City of Miami Beach (“City Pension Fund”) commenced a putative class action lawsuit in the Court of Chancery for the State of Delaware on behalf of a putative class of persons who purchased the Company’s stock. The action is captioned City Pension Fund for Firefighters and Police Officers in the City of Miami Beach v. Robert L. Boughner, et al., C.A. No. 2021-0990-KSJM (Del. Ch.). The complaint was later amended on November 30, 2021. The amended complaint names the Company and the individual members of the Board as defendants. The complaint seeks to assert breach of fiduciary duty claims, alleging that the Board’s recommendation that stockholders reject Icahn’s tender offer to purchase shares of the Company’s common stock omitted material information about the Company’s financial analysis; and seeks to have the Board approve Icahn’s slate of nominees as “continuing directors” under certain of the Company’s debt instruments. On March 9, 2022, City Pension Fund filed a motion for summary judgment on its claim that the Board omitted material information in its recommendation concerning Icahn’s tender offer. On April 19, 2022, City Pension Fund filed a notice of withdrawal of its motion for summary judgment. The Company believes that the claims lack merit and intends to vigorously defend against them.
Recent Accounting Standards Updates.
Accounting pronouncements effective or adopted in 2022:2023:
In March 2020, the FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The update provides optional guidance for a limited time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting, including when modifying a contract (during the eligibility period covered by the update to Topic 848)the topic) to replace a reference rate affected by suchreference rate reform. The update applies only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. In December 2022, the FASB issued ASU 2022-06 “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” The guidance was eligible to be applied upon issuance on March 12, 2020, and can generally be applied throughupdate provides deferral of the sunset date of Topic 848 from December 31, 2022 but to date, no further updates have occurred that would extend the optional guidance to the full tenor of LIBOR expiration dates occurring after 2022.December 31, 2024. Management will continue to monitor the impacts this update might have on the Company’s and Southwest’s consolidated financial statements and disclosures, and will reflect such appropriately, in the event that the optional guidance is elected. Management will also monitor further FASB action, if any, in regard to the full tenor of LIBOR expiration dates. See also LIBOR discussion in Note 5 – Debt.
In August 2020,There are no other recently issued accounting standards updates that are expected to be adopted or material to Southwest or the FASB issued ASU 2020-06 “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— ContractsCompany effective in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The update, amongst other amendments, improves the guidance related to the disclosures and earnings-per-share for convertible instruments and contracts in an entity’s own equity. The update is effective starting in the first quarter of 2022 in regard to relevant contracts.2023 or thereafter.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
Note 2 – Components of Net Periodic Benefit Cost
Southwest has a noncontributory qualified retirement plan with defined benefits covering substantially all employees for employees hired before 2022 and a separate unfunded supplemental retirement plan (“SERP”), which is limited to officers.officers also hired before 2022. Southwest also provides limited postretirement benefits other than pensions (“PBOP”) to its qualified retirees for health care, dental, and life insurance. The defined benefit qualified retirement plan, SERP and PBOP are not available to Southwest employees hired on or after January 1, 2022. Employees hired in 2022 or later periods are eligible for enhanced defined contributions as part of the Southwest 401(k) plan rather than participating in the defined benefit retirement plan.
The service cost component of net periodic benefit costs included in the table below is a component of an overhead loading process associated with the cost of labor. The overhead process ultimately results in allocation of service cost to the same accounts to which productive labor is charged. As a result, service costs become components of various accounts, primarily operations and maintenance expense, net regulated operations plant, and deferred charges and other assets for both the Company and Southwest. The other components of net periodic benefit cost are reflected in Other income (deductions) on the Condensed Consolidated Statements of Income of each entity. Variability in total net periodic benefit cost between periods, especially with regard to the Qualified Retirement Plan, is subject to changes in underlying actuarial assumptions between periods, notably the discount rate.
| | | Qualified Retirement Plan | | Qualified Retirement Plan |
| | March 31, | | March 31, |
| | Three Months | | | Twelve Months | | Three Months | | Twelve Months |
| | 2022 | | 2021 | | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
(Thousands of dollars) | (Thousands of dollars) | | | | | | | | | (Thousands of dollars) | | | | | | | |
Service cost | Service cost | $ | 11,028 | | | $ | 10,290 | | | | $ | 41,897 | | | $ | 36,015 | | Service cost | $ | 6,460 | | | $ | 11,028 | | | $ | 39,542 | | | $ | 41,897 | |
Interest cost | Interest cost | 11,251 | | | 10,108 | | | | 41,575 | | | 44,275 | | Interest cost | 14,791 | | | 11,251 | | | 48,546 | | | 41,575 | |
Expected return on plan assets | Expected return on plan assets | (19,978) | | | (18,088) | | | | (74,242) | | | (67,060) | | Expected return on plan assets | (21,015) | | | (19,978) | | | (80,950) | | | (74,242) | |
Amortization of net actuarial loss | Amortization of net actuarial loss | 8,117 | | | 10,489 | | | | 39,583 | | | 37,507 | | Amortization of net actuarial loss | 84 | | | 8,117 | | | 24,435 | | | 39,583 | |
Net periodic benefit cost | Net periodic benefit cost | $ | 10,418 | | | $ | 12,799 | | | | $ | 48,813 | | | $ | 50,737 | | Net periodic benefit cost | $ | 320 | | | $ | 10,418 | | | $ | 31,573 | | | $ | 48,813 | |
| | | SERP | | SERP |
| | March 31, | | March 31, |
| | Three Months | | | Twelve Months | | Three Months | | Twelve Months |
| | 2022 | | 2021 | | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
(Thousands of dollars) | (Thousands of dollars) | | | | | | | | | (Thousands of dollars) | | | | | | | |
Service cost | Service cost | $ | 106 | | | $ | 131 | | | | $ | 501 | | | $ | 422 | | Service cost | $ | 62 | | | $ | 106 | | | $ | 380 | | | $ | 501 | |
Interest cost | Interest cost | 360 | | | 358 | | | | 1,433 | | | 1,561 | | Interest cost | 531 | | | 360 | | | 1,612 | | | 1,433 | |
Amortization of net actuarial loss | Amortization of net actuarial loss | 588 | | | 660 | | | | 2,570 | | | 2,014 | | Amortization of net actuarial loss | 249 | | | 588 | | | 2,011 | | | 2,570 | |
Net periodic benefit cost | Net periodic benefit cost | $ | 1,054 | | | $ | 1,149 | | | | $ | 4,504 | | | $ | 3,997 | | Net periodic benefit cost | $ | 842 | | | $ | 1,054 | | | $ | 4,003 | | | $ | 4,504 | |
| | | PBOP | | PBOP |
| | March 31, | | March 31, |
| | Three Months | | | Twelve Months | | Three Months | | Twelve Months |
| | 2022 | | 2021 | | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
(Thousands of dollars) | (Thousands of dollars) | | | | | | | | | (Thousands of dollars) | | | | | | | |
Service cost | Service cost | $ | 485 | | | $ | 423 | | | | $ | 1,753 | | | $ | 1,608 | | Service cost | $ | 317 | | | $ | 485 | | | $ | 1,773 | | | $ | 1,753 | |
Interest cost | Interest cost | 613 | | | 548 | | | | 2,258 | | | 2,485 | | Interest cost | 825 | | | 613 | | | 2,664 | | | 2,258 | |
Expected return on plan assets | Expected return on plan assets | (807) | | | (810) | | | | (3,236) | | | (3,366) | | Expected return on plan assets | (606) | | | (807) | | | (3,027) | | | (3,236) | |
Amortization of prior service costs | Amortization of prior service costs | 44 | | | 240 | | | | 763 | | | 1,106 | | Amortization of prior service costs | 44 | | | 44 | | | 175 | | | 763 | |
| Net periodic benefit cost | Net periodic benefit cost | $ | 335 | | | $ | 401 | | | | $ | 1,538 | | | $ | 1,833 | | Net periodic benefit cost | $ | 580 | | | $ | 335 | | | $ | 1,585 | | | $ | 1,538 | |
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
Note 3 – Revenue
The following information about the Company’s revenues is presented by segment. Southwest encompasses the natural gas distribution segment,segment. Centuri encompasses the utility infrastructure services segment,segment. MountainWest, commencing January 2022 (following its acquisition) and MountainWest encompassesuntil its sale in mid-February 2023, encompassed the pipeline and storage segment. Certain disclosures, where materially consistent with those provided most recently in Southwest’s and the Company’s 2021 Annual Report on Form 10-K, are not repeated below.
Natural Gas Distribution Segment:
Southwest’s operating revenues included 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, in addition to other categories of revenue:
| | | Three Months Ended March 31, | | | Twelve Months Ended March 31, | | Three Months Ended March 31, | | Twelve Months Ended March 31, |
(Thousands of dollars) | (Thousands of dollars) | 2022 | | 2021 | | | 2022 | | 2021 | (Thousands of dollars) | 2023 | | 2022 | | 2023 | | 2022 |
Residential | Residential | $ | 514,586 | | | $ | 403,143 | | | | $ | 1,147,055 | | | $ | 983,108 | | Residential | $ | 739,313 | | | $ | 514,586 | | | $ | 1,549,521 | | | $ | 1,147,055 | |
Small commercial | Small commercial | 123,984 | | | 81,398 | | | | 312,800 | | | 220,476 | | Small commercial | 174,184 | | | 123,984 | | | 428,720 | | | 312,800 | |
Large commercial | Large commercial | 20,161 | | | 12,673 | | | | 64,859 | | | 44,639 | | Large commercial | 31,091 | | | 20,161 | | | 96,164 | | | 64,859 | |
Industrial/other | Industrial/other | 9,972 | | | 13,770 | | | | 38,515 | | | 33,310 | | Industrial/other | 21,114 | | | 9,972 | | | 62,036 | | | 38,515 | |
Transportation | Transportation | 26,632 | | | 24,536 | | | | 94,336 | | | 88,345 | | Transportation | 30,543 | | | 26,632 | | | 104,553 | | | 94,336 | |
Revenue from contracts with customers | Revenue from contracts with customers | 695,335 | | | 535,520 | | | | 1,657,565 | | | 1,369,878 | | Revenue from contracts with customers | 996,245 | | | 695,335 | | | 2,240,994 | | | 1,657,565 | |
Alternative revenue program revenues (deferrals) | Alternative revenue program revenues (deferrals) | (23,499) | | | (16,373) | | | | 6,055 | | | (468) | | Alternative revenue program revenues (deferrals) | (86,204) | | | (23,499) | | | (81,183) | | | 6,055 | |
Other revenues (1) | Other revenues (1) | 4,703 | | | 2,785 | | | | 12,777 | | | 280 | | Other revenues (1) | 4,838 | | | 4,703 | | | 13,598 | | | 12,777 | |
Total Regulated operations revenues | Total Regulated operations revenues | $ | 676,539 | | | $ | 521,932 | | | | $ | 1,676,397 | | | $ | 1,369,690 | | Total Regulated operations revenues | $ | 914,879 | | | $ | 676,539 | | | $ | 2,173,409 | | | $ | 1,676,397 | |
(1) Amounts include late fees and other miscellaneous revenues, and may also include the impact of certain regulatory mechanisms, such as cost-of-service components in customer rates expected to be returned to customers in future periods.mechanisms. Also includes the impacts of a temporary moratorium on late fees and disconnection for nonpayment during the COVID-19 pandemic.
Utility Infrastructure Services Segment:
The following tables display Centuri’s revenue, reflected as Utility infrastructure services revenues on the Condensed Consolidated Statements of Income of the Company, representing revenue from contracts with customers disaggregated by service and contract types:
| | | Three Months Ended March 31, | | | Twelve Months Ended March 31, | | Three Months Ended March 31, | | Twelve Months Ended March 31, |
(Thousands of dollars) | (Thousands of dollars) | 2022 | | 2021 | | | 2022 | | 2021 | (Thousands of dollars) | 2023 | | 2022 | | 2023 | | 2022 |
Service Types: | Service Types: | | | | | | | | | Service Types: | | | | | | | |
Gas infrastructure services | Gas infrastructure services | $ | 260,682 | | | $ | 221,837 | | | | $ | 1,341,185 | | | $ | 1,265,288 | | Gas infrastructure services | $ | 297,408 | | | $ | 260,682 | | | $ | 1,568,544 | | | $ | 1,341,185 | |
Electric power infrastructure services | Electric power infrastructure services | 181,968 | | | 93,961 | | | | 613,209 | | | 433,467 | | Electric power infrastructure services | 233,640 | | | 181,968 | | | 829,796 | | | 613,209 | |
Other | Other | 81,227 | | | 48,177 | | | | 364,169 | | | 280,015 | | Other | 122,245 | | | 81,227 | | | 491,403 | | | 364,169 | |
Total Utility infrastructure services revenues | Total Utility infrastructure services revenues | $ | 523,877 | | | $ | 363,975 | | | | $ | 2,318,563 | | | $ | 1,978,770 | | Total Utility infrastructure services revenues | $ | 653,293 | | | $ | 523,877 | | | $ | 2,889,743 | | | $ | 2,318,563 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Twelve Months Ended March 31, |
(Thousands of dollars) | 2023 | | 2022 * | | 2023 | | 2022* |
Contract Types: | | | | | | | |
Master services agreement | $ | 547,606 | | | $ | 445,345 | | | $ | 2,444,481 | | | $ | 1,804,643 | |
Bid contract | 105,687 | | | 78,532 | | | 445,262 | | | 513,920 | |
Total Utility infrastructure services revenues | $ | 653,293 | | | $ | 523,877 | | | $ | 2,889,743 | | | $ | 2,318,563 | |
| | | | | | | |
Unit price contracts | $ | 328,527 | | | $ | 302,523 | | | $ | 1,634,135 | | | $ | 1,437,156 | |
Fixed price contracts | 166,915 | | | 86,537 | | | 578,417 | | | 319,685 | |
Time and materials contracts | 157,851 | | | 134,817 | | | 677,191 | | | 561,722 | |
Total Utility infrastructure services revenues | $ | 653,293 | | | $ | 523,877 | | | $ | 2,889,743 | | | $ | 2,318,563 | |
*The Company identified a misstatement in the first quarter 2022 disclosure which resulted in an understatement of $88.8 million in the master services agreement category and an overstatement by the same amount in the bid contract category. Management concluded this
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Twelve Months Ended March 31, |
(Thousands of dollars) | 2022 | | 2021 | | | | | | 2022 | | 2021 |
Contract Types: | | | | | | | | | | | |
Master services agreement | $ | 356,543 | | | $ | 293,680 | | | | | | | $ | 1,715,841 | | | $ | 1,520,144 | |
Bid contract | 167,334 | | | 70,295 | | | | | | | 602,722 | | | 458,626 | |
Total Utility infrastructure services revenues | $ | 523,877 | | | $ | 363,975 | | | | | | | $ | 2,318,563 | | | $ | 1,978,770 | |
| | | | | | | | | | | |
Unit price contracts | $ | 302,523 | | | $ | 234,449 | | | | | | | $ | 1,437,156 | | | $ | 1,347,953 | |
Fixed price contracts | 86,537 | | | 34,594 | | | | | | | 319,685 | | | 164,750 | |
Time and materials contracts | 134,817 | | | 94,932 | | | | | | | 561,722 | | | 466,067 | |
Total Utility infrastructure services revenues | $ | 523,877 | | | $ | 363,975 | | | | | | | $ | 2,318,563 | | | $ | 1,978,770 | |
item was not material to the previously issued financial statements and revised the disclosures for the three- and twelve- months ended March 31, 2022.The following table provides information about contracts receivable and revenue earned on contracts in progress in excess of billings (contract assets), both of which are both included within Accounts receivable, net of allowances, as well as amounts billed in excess of revenue earned on contracts (contract liabilities), which are included in Other current liabilities as of March 31, 20222023 and December 31, 20212022 on the Company’s Condensed Consolidated Balance Sheets:
| (Thousands of dollars) | (Thousands of dollars) | March 31, 2022 | | December 31, 2021 | (Thousands of dollars) | March 31, 2023 | | December 31, 2022 |
Contracts receivable, net | Contracts receivable, net | $ | 309,876 | | | $ | 296,005 | | Contracts receivable, net | $ | 322,558 | | | $ | 394,022 | |
Revenue earned on contracts in progress in excess of billings | Revenue earned on contracts in progress in excess of billings | 197,620 | | | 214,774 | | Revenue earned on contracts in progress in excess of billings | 279,624 | | | 238,059 | |
Amounts billed in excess of revenue earned on contracts | Amounts billed in excess of revenue earned on contracts | 26,875 | | | 11,860 | | Amounts billed in excess of revenue earned on contracts | 39,595 | | | 35,769 | |
The revenue earned on contracts in progress in excess of billings (contract asset) primarily relates to Centuri’s rightsright to consideration for work completed but not billed and/or approved for billing at the reporting date. These contract assets are transferred to contracts receivable when the rights become unconditional. The amounts billed in excess of revenue earned (contract liability) primarily relate to the advance consideration received from customers for which work has not yet been completed. The change in this contract liability balance from December 31, 20212022 to March 31, 2022 is2023 increased due to increases in cashamounts received for services not yet performed, net of revenue recognized, from contracts that commenced during the period, offset by revenue recognized of approximately $11.9 million that was included in this balance as of January 1, 2022, after which time it became earned and the balance was reduced.recognized.
For contracts that have an original duration of one year or less, Centuri uses the practical expedient applicable to such contracts and does not consider/compute an interest component based on the time value of money. Furthermore, because of the short duration of these contracts, Centuri has not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period or when the Company expects to recognize the revenue.
As of March 31, 2022,2023, Centuri had 2962 fixed price contracts with an original duration of more than one year. The aggregate amount of the transaction price allocated to the unsatisfied performance obligations of these contracts as of March 31, 20222023 was $205.6$458.2 million. Centuri expects to recognize the remaining performance obligations over approximately the next threetwo years; however, the timing of that recognition is largely within the control of the customer, including when the necessary equipment and materials required to complete the work are provided by the customer.
Utility infrastructure services contracts receivable consists of the following:
| (Thousands of dollars) | (Thousands of dollars) | March 31, 2022 | | December 31, 2021 | (Thousands of dollars) | March 31, 2023 | | December 31, 2022 |
Billed on completed contracts and contracts in progress | Billed on completed contracts and contracts in progress | $ | 308,798 | | | $ | 292,770 | | Billed on completed contracts and contracts in progress | $ | 325,528 | | | $ | 395,771 | |
Other receivables | Other receivables | 1,430 | | | 3,492 | | Other receivables | 1,738 | | | 2,569 | |
Contracts receivable, gross | Contracts receivable, gross | 310,228 | | | 296,262 | | Contracts receivable, gross | 327,266 | | | 398,340 | |
Allowance for doubtful accounts | Allowance for doubtful accounts | (352) | | | (257) | | Allowance for doubtful accounts | (4,708) | | | (4,318) | |
Contracts receivable, net | Contracts receivable, net | $ | 309,876 | | | $ | 296,005 | | Contracts receivable, net | $ | 322,558 | | | $ | 394,022 | |
Pipeline and Storage Segment:
MountainWest derives revenueRegulated operations revenues on the basisCondensed Consolidated Statements of services rendered, commodities delivered, orIncome of the Company include revenue from contracts settledwith customers, which is shown below, disaggregated by categories of sales and includes amounts yet to be billed to customers. MountainWest generates revenue and earningsservice activities. The information for 2023 reflects activity from annual reservation payments under firm peaking storage and firm transportation contracts. Straight-fixed-variable rate designs are used to allow for recoveryJanuary 1, 2023 through February 13, 2023 (the last full day of ownership).
| | | | | | | | | | | |
| Three Months Ended March 31, |
(Thousands of dollars) | 2023 | | 2022 |
Regulated gas transportation and storage revenues | $ | 34,225 | | | $ | 61,977 | |
NGL revenues | 441 | | | 1,493 | |
Other revenues | 466 | | | 3,479 | |
Revenue from contracts with customers | 35,132 | | | 66,949 | |
Other revenues | — | | | 44 |
Total Regulated operations revenues | $ | 35,132 | | | $ | 66,993 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
substantially all fixed costs in demand or reservation charges, thereby reducing the earnings impact of volume changes on gas transportation and storage operations.
MountainWest receives upfront payment for certain storage services it provides to customers, which are considered to be contract liabilities. These payments are amortized to revenue over the term of the contract.
The primary types of sales and service activities reported as revenue from contracts with customers are FERC-regulated gas transportation and storage service, and to a lesser extent, natural gas liquid (“NGL”) revenues consisting primarily of NGL processing services, and other revenue (consisting of natural gas sales, as well as services related to gathering and processing activities and miscellaneous service revenue).
Transportation and storage contracts are primarily stand-ready service contracts that include fixed reservation and variable usage fees. Fixed fees are recognized ratably over the life of the contract as the stand-ready performance obligations are satisfied, while variable usage fees are recognized when MountainWest has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the performance obligation completed to date. Substantially all of MountainWest’s revenues are derived from performance obligations satisfied over time, rather than recognized at a single point in time. Payment for most sales and services varies by contract type, but is typically due within a month of billing.
MountainWest typically receives or retains NGLs and natural gas from customers when providing natural gas processing, transportation, or storage services. MountainWest records the fair value of NGLs received as service revenue recognized over time and recognizes revenue from the subsequent sale of the NGLs to customers upon delivery. MountainWest typically retains some natural gas under certain transportation service arrangements, intended to facilitate performance of the service and allow for natural losses that occur. As the intent of the retention amount is to enable fulfillment of the contract rather than to provide compensation for services, the fuel allowance is not included in revenue.
MountainWest Regulated operations revenues on the Condensed Consolidated Statements of Income of the Company include revenue from contracts with customers, which is shown below, disaggregated by categories of sales and service activities.
| | | | | |
| Three Months Ended March 31, |
(Thousands of dollars) | 2022 |
Regulated gas transportation and storage revenues | $ | 61,977 | |
NGL revenues | 1,493 | |
Other revenues | 3,479 | |
Revenue from contracts with customers | 66,949 | |
Other revenues | 44 | |
Total Regulated operations revenues | $ | 66,993 | |
MountainWest has certain multi-year contracts with fixed-price performance obligations that were unsatisfied (or partially unsatisfied) at the end of the reporting period, whereby revenue will be earned over time as MountainWest stands ready to provide service. These amounts are not material to the financial statements overall. MountainWest also has certain contract liabilities related to consideration received from customers with an obligation to transfer goods or services subsequent to the balance sheet date, amounts for which are generally consistent between December 31, 2021 and March 31, 2022 and are not material.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
Note 4 – Common Stock
Shares of the Company’s common stock are publicly traded on the New York Stock Exchange, under the ticker symbol “SWX.” Share-based compensation related to Southwest and Centuri is based on stock awards to be issued in shares of Southwest Gas Holdings, Inc.
On April 8, 2021, the Company entered into a Sales Agency Agreement between the Company and BNY Mellon Capital Markets, LLC and J.P. Morgan Securities LLC (the “Equity Shelf Program”) for the offer and sale of up to $500 million of common stock from time to time in an at-the-market offering program. The shares are issued pursuant to the Company’s automatic shelf registration statement on Form S-3 (File No. 333-251074), or “the Universal Shelf.” There waswas no activity inunder the Equity Shelf Program during the quarter ended March 31, 2022.2023. The following table provides the life-to-date activity under that program for the period endedthrough March 31, 2022:2023:
| | | | | | | | | |
| | | |
| | |
Gross proceeds | | | $ | 158,180,343 | |
Less: agent commissions | | | (1,581,803) | |
Net proceeds | | | $ | 156,598,540 | |
Number of shares sold | | | 2,302,407 | |
Weighted average price per share | | | $ | 68.70 | |
As of March 31, 2022,2023, the Company had approximately $341.8342 million in common stock available for sale under the program. Net proceeds from the sale of shares of common stock under the Equity Shelf Program are intended for general corporate purposes, including the acquisition of property for the construction, completion, extension, or improvement of pipeline systems and facilities located in and around the communities served by Southwest, as well as for the repayment or repurchase of indebtedness (including amounts outstanding from time to time under the credit facilities, senior notes, term loan, or future credit facilities), and to provide for working capital.
In March 2022,2023, the Company issued, through a separate prospectus supplement under the Universal Shelf, an aggregate of 6,325,0004.1 million shares of common stock, inat an underwritten public offering price of $74.00$60.12 per share, resulting in net proceeds to the Company of $452,253,312,$238.4 million, net of an underwriters’underwriter’s discount of $15,796,688.$8.3 million and estimated expenses of the offering. Approximately $140 million (2.3 million shares) of the offering was purchased by certain funds affiliated with Carl C. Icahn, a significant stockholder beneficially owning more that 10% of the outstanding stock of the Company. The Company used the net proceeds to repay a portion of the outstanding borrowingsamounts under the 364-day term loanCompany’s credit agreement that wasfacility, with the remaining proceeds used to initially fundpay off residual amounts outstanding under the loan entered into in November 2021 in connection with the acquisition of MountainWest acquisition.and the remainder, for working capital and general corporate purposes.
During the three months ended March 31, 2022,2023, the Company issued approximately 65,00054,000 shares of common stock through the Restricted Stock/Unit Plan and Omnibus Incentive Plan.
Additionally, during the three months ended March 31, 2022,2023, the Company issued 37,00046,000 shares of common stock through the Dividend Reinvestment and Stock Purchase Plan, raising approximately $2.52.7 million.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
Note 5 – Debt
Long-Term Debt
Long-term debt is recognized in the Company’s and Southwest’s Condensed Consolidated Balance Sheets generally at the carrying value of the obligations outstanding. Details surrounding the fair value and individual carrying values of instruments are provided in the table that follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
(Thousands of dollars) | | | | | | | | |
Southwest Gas Corporation: | | | | | | | | |
Debentures: | | | | | | | | |
Notes, 6.1%, due 2041 | | $ | 125,000 | | | $ | 146,293 | | | $ | 125,000 | | | $ | 166,380 | |
Notes, 4.05%, due 2032 | | 600,000 | | | 598,242 | | | — | | | — | |
Notes, 3.875%, due 2022 | | 250,000 | | | 249,993 | | | 250,000 | | | 250,603 | |
Notes, 4.875%, due 2043 | | 250,000 | | | 272,933 | | | 250,000 | | | 307,538 | |
Notes, 3.8%, due 2046 | | 300,000 | | | 276,144 | | | 300,000 | | | 329,055 | |
Notes, 3.7%, due 2028 | | 300,000 | | | 303,660 | | | 300,000 | | | 325,191 | |
Notes, 4.15%, due 2049 | | 300,000 | | | 296,361 | | | 300,000 | | | 342,030 | |
Notes, 2.2%, due 2030 | | 450,000 | | | 398,066 | | | 450,000 | | | 440,838 | |
Notes, 3.18%, due 2051 | | 300,000 | | | 246,813 | | | 300,000 | | | 292,116 | |
8% Series, due 2026 | | 75,000 | | | 86,880 | | | 75,000 | | | 92,623 | |
Medium-term notes, 7.78% series, due 2022 | | — | | | — | | | 25,000 | | | 25,122 | |
Medium-term notes, 7.92% series, due 2027 | | 25,000 | | | 28,987 | | | 25,000 | | | 31,555 | |
Medium-term notes, 6.76% series, due 2027 | | 7,500 | | | 8,230 | | | 7,500 | | | 8,949 | |
Unamortized discount and debt issuance costs | | (27,091) | | | | | (19,959) | | | |
| | 2,955,409 | | | | | 2,387,541 | | | |
Revolving credit facility and commercial paper | | — | | | — | | | 130,000 | | | 130,000 | |
Industrial development revenue 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 | | (1,853) | | | | | (1,938) | | | |
| | 198,147 | | | | | 198,062 | | | |
Less: current maturities | | (250,000) | | | | | (275,000) | | | |
Southwest Gas Corporation total long-term debt, less current maturities | | $ | 2,903,556 | | | | | $ | 2,440,603 | | | |
Southwest Gas Holdings, Inc.: | | | | | | | | |
Centuri secured term loan facility | | $ | 1,014,275 | | | $ | 1,000,329 | | | $ | 1,117,138 | | | $ | 1,117,841 | |
Centuri secured revolving credit facility | | 108,035 | | | 108,060 | | | 103,329 | | | 103,749 | |
MountainWest unsecured senior notes, 3.53%, due in 2028 | | 102,001 | | | 95,819 | | | 102,078 | | | 102,078 | |
MountainWest unsecured senior notes, 4.875%, due in 2041 | | 199,765 | | | 176,488 | | | 199,926 | | | 199,926 | |
MountainWest unsecured senior notes, 3.91%, due in 2038 | | 147,760 | | | 131,379 | | | 147,735 | | | 147,735 | |
Other debt obligations | | 148,981 | | | 142,712 | | | 51,665 | | | 50,003 | |
Unamortized discount and debt issuance costs | | (23,546) | | | | | (24,466) | | | |
Less: current maturities | | (41,069) | | | | | (22,324) | | | |
Southwest Gas Holdings, Inc. total long-term debt, less current maturities | | $ | 4,559,758 | | | | | $ | 4,115,684 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
(Thousands of dollars) | | | | | | | | |
Southwest Gas Corporation: | | | | | | | | |
Debentures: | | | | | | | | |
Notes, 6.1%, due 2041 | | $ | 125,000 | | | $ | 125,376 | | | $ | 125,000 | | | $ | 113,184 | |
Notes, 4.05%, due 2032 | | 600,000 | | | 552,972 | | | 600,000 | | | 527,052 | |
Notes, 4.875%, due 2043 | | 250,000 | | | 210,990 | | | 250,000 | | | 195,703 | |
Notes, 3.8%, due 2046 | | 300,000 | | | 229,644 | | | 300,000 | | | 209,169 | |
Notes, 3.7%, due 2028 | | 300,000 | | | 282,960 | | | 300,000 | | | 275,043 | |
Notes, 5.45%, due 2028 | | 300,000 | | | 303,159 | | | — | | | — | |
Notes, 4.15%, due 2049 | | 300,000 | | | 238,821 | | | 300,000 | | | 218,712 | |
Notes, 2.2%, due 2030 | | 450,000 | | | 372,380 | | | 450,000 | | | 353,763 | |
Notes, 3.18%, due 2051 | | 300,000 | | | 198,390 | | | 300,000 | | | 185,523 | |
Notes, 5.8%, due 2027 | | 300,000 | | | 310,653 | | | 300,000 | | | 305,913 | |
8% Series, due 2026 | | 75,000 | | | 80,121 | | | 75,000 | | | 80,027 | |
Medium-term notes, 7.92% series, due 2027 | | 25,000 | | | 27,069 | | | 25,000 | | | 26,840 | |
Medium-term notes, 6.76% series, due 2027 | | 7,500 | | | 7,803 | | | 7,500 | | | 7,662 | |
Unamortized discount and debt issuance costs | | (32,893) | | | | | (29,471) | | | |
| | 3,299,607 | | | | | 3,003,029 | | | |
Revolving credit facility and commercial paper | | — | | | — | | | 50,000 | | | 50,000 | |
Industrial development revenue 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 | | (1,630) | | | | | (1,733) | | | |
| | 198,370 | | | | | 198,267 | | | |
Less: current maturities | | — | | | | | — | | | |
Southwest Gas Corporation total long-term debt, less current maturities | | $ | 3,497,977 | | | | | $ | 3,251,296 | | | |
Southwest Gas Holdings, Inc.: | | | | | | | | |
Centuri secured term loan facility | | $ | 1,002,825 | | | $ | 997,832 | | | $ | 1,008,550 | | | $ | 995,852 | |
Centuri secured revolving credit facility | | 19,212 | | | 19,297 | | | 81,955 | | | 82,315 | |
Other debt obligations | | 119,362 | | | 112,863 | | | 126,844 | | | 118,314 | |
Unamortized discount and debt issuance costs | | (19,869) | | | | | (20,789) | | | |
Less: current maturities | | (41,907) | | | | | (44,557) | | | |
Southwest Gas Holdings, Inc. total long-term debt, less current maturities | | $ | 4,577,600 | | | | | $ | 4,403,299 | | | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
Southwest has a $400 million credit facility that is scheduled to expire in April 2025. Southwest designates $150 million of associated capacity as long-term debt and the remaining $250 million for working capital purposes. Interest rates for the credit facility are calculated at either the Secured Overnight Financing Rate (“SOFR”) or an “alternate base rate,” plus in each case an applicable margin that is determined based on Southwest’s senior unsecured debt rating. At March 31, 2022,2023, the applicable marginmargin is 1.125% for loans bearing interest with reference to SOFR and 0.125% for loans bearing interest with reference to the alternative base rate. At March 31, 2022,2023, no borrowings were outstanding on the long-termlong-term portion (including under the commercial paper program, discussed below) of the facility or onprogram), nor under the short-term portion of this credit facility discussed below.the facility.
Southwest has a $50 million commercial paper program. Issuances under the commercial paper program are supported by Southwest’s revolving credit facility and, therefore, do not represent additional borrowing capacity under the credit facility. Borrowings under the commercial paper program are designated as long-term debt. Interest rates for the program are calculated at the then current commercial paper rate. At March 31, 2022, as noted above, noborrowings were outstanding under the commercial paper program.
In March 2022, Southwest issued $600 million aggregate principal amount of 4.05% Senior Notes at a discount of 0.65%. The notes will mature in March 2032. Southwest used the net proceeds to redeem the $250 million 3.875% notes due in April 2022 and to repay outstanding amounts under its credit facility, with the remaining net proceeds used for general corporate purposes.
Centuri has a $1.545 billion secured revolving credit and term loan multi-currency facility. Amounts can be borrowed in either Canadian or U.S. dollars. The revolving credit facility matures on August 27, 2026 and the term loan facility matures on August 27, 2028. Interest rates for the revolving credit facility andare based on SOFR, plus an applicable margin; the term loan facility areis based on either a “base rate” or LIBOR, plus an applicable margin in either case.margin. The capacity of the line of credit portion of the facility is $400 million; related amounts borrowed and repaid are available to be re-borrowed. The term loan portion of the facility has a limit of $1.145 billion. The obligations under the credit agreement are secured by present and future ownership interests in substantially all direct and indirect subsidiaries of Centuri, substantially all of the tangible and intangible personal property of each borrower, certain of their direct and indirect subsidiaries, and all products, profits, and proceeds of the foregoing. Centuri’s assets securing the facility at March 31, 20222023 totaled $2.4 billion.$2.4 billion. At March 31, 2022, $1.1222023, $1.022 billion in borrowings were outstanding under Centuri’s combined secured revolving credit and term loan facility. During
In March 2022, Centuri utilized proceeds of approximately $1002023, Southwest issued $300 million in fixed-rate term loans secured by owned vehicles and equipment to repay a corresponding amount outstanding under the term loan facility.
MountainWest has 2 private placement unsecured senior notes and a public unsecured senior note, with a combined carrying value of $449.5 million and aggregate principal amount of $430 million.5.450% Senior Notes (the “March 2023 Notes”). The carrying value is higher thannotes will mature in March 2028. Southwest used the principal balance asnet proceeds to repay amounts outstanding were recorded at their fair values asunder its credit facility and the remainder for general corporate purposes.
In April 2023, Southwest Gas Holdings, Inc. entered into a $550 million Term Loan Credit Agreement that matures in October 2024. Southwest Gas Holdings, Inc. utilized a majority of the December 31, 2021 acquisition dateproceeds to make an equity contribution to Southwest. On April 17, 2023, Southwest utilized the equity contribution to repay, in full, amounts outstanding under its $450 million 364-day term loan entered into in January 2023 (discussed below), with the remainder of the MountainWest entities.equity contribution used for working capital and general corporate purposes.
Short-Term Debt
Southwest Gas Holdings, Inc. has a $200$300 million credit facility that is scheduled to expire in December 2026 and is primarily used for short-term financing needs. Interest rates for the credit facility are calculated at either SOFR or the “alternate base rate”rate,” plus in each case an applicable margin. There was $69$18 million outstanding under this credit facility as of March 31, 2022.2023.
As indicated above, under Southwest’s $400 million credit facility, no short-term borrowings were outstanding at March 31, 2022.2023.
In March 2022, Southwest amended itsits $250 million Term Loan (the “March 2021 Term Loan”), extending the maturity date to March 21, 2023 and replacing LIBOR interest rate benchmarks with SOFR interest rate benchmarks. The proceeds were originally used to fund the increased cost of natural gas supply during the month of February 2021, caused by extreme weather conditions in the central U.S. Management extendedDuring the maturity datefirst quarter of 2023, the March 2021 Term Loan was repaid in full by use of Southwest’s credit facility, prior to fund recent increases in gas purchase costs, as reflected in the PGA. Interest rates for the amended term loan are calculated at either SOFR or an “alternate base rate,” plus in each case an applicable margin that is determined based on Southwest’s senior unsecured long-term debt rating. The applicable margin ranges from 0.550% to 1.000% for loans bearing interest with reference to SOFR and 0.000% for loans bearing interest with reference to an alternate base rate. The amended agreement contains a financial covenant requiring Southwest to maintain a ratio of funded debt to total capitalization not to exceed 0.70 to 1.00 asissuance of the end of any quarter of any fiscal year.March 2023 Notes, proceeds from which were used to pay down indebtedness then outstanding under the credit facility, as indicated.
In November 2021,On September 26, 2022, Southwest Gas Holdings, Inc. entered into aAmendment No. 1 to the 364-day term loan credit agreement (the “Credit Agreement”)Term Loan Credit Agreement, initially borrowed to fund the acquisition of the equity interests in MountainWest, of which $1.147 billion was outstanding as of December 31, 2022. The Credit Agreement initially provided for a $1.6 billion delayed-draw term loan (the “Term Loan Facility”) to fund and. In connection with the close of the MountainWest sale on February 14, 2023, $1.075 billion of the proceeds were used to pay fees, commissions, and expenses related todown the Term Loan Facility. During the first quarter of 2023, the Company paid down the remaining balance of the Term Loan Facility andof approximately $72 million.
In January 2023, Southwest entered into a 364-day $450 million term loan agreement. Southwest initially used the acquisition of the equity interests in MountainWest (referproceeds to Note 8 - Business Acquisitions). The Term Loan Facility was funded on December 31, 2021, and matures on December 30, 2022. Interest ratesfund higher than expected natural gas costs for the Term Loan Facility are basedNovember 2022 through March 2023 winter period, caused by numerous market forces, including historically low storage levels, unexpected upstream pipeline maintenance events, and cold weather conditions across the western region. As indicated above, the term loan was repaid in full on either the “base rate” or LIBOR, plus an applicable margin. There was $1.16 billion outstanding under the Term Loan Facility as of March 31, 2022.April 17, 2023.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
The borrowings under the term loan facility to temporarily finance the acquisition of MountainWest created a negative working capital condition for the Company, which as of March 31, 2022 is approximately $584 million. As of May 10, 2022, the Company does not have sufficient liquidity or capital resources to repay the term loan facility without issuing new debt or equity. Management intends to issue long-term debt to permanently refinance the remaining portion of the term loan facility.
Management believes that its refinancing plan is probable based on the Company’s ability to generate consistent cash flows, its current credit ratings, its relationships with its lenders and its prior history of successfully raising debt and equity necessary to fund its acquisitions and operations. As such, management has concluded that the Company can satisfy its obligations for at least the next twelve months from the issuance date of these financial statements.
The Company’s ability to access capital markets or to otherwise obtain sufficient financing may be affected by future conditions. If the Company is unable to execute its plan to refinance debt obligations, the Company’s credit facility could be terminated, and amounts due under its revolver and other borrowing arrangements could be declared immediately due and payable.
LIBOR
Certain rates established at LIBOR arewere scheduled to be discontinued after 2021 as a benchmark orpart of reference rate after 2021,reform, while other LIBOR-based rates are scheduled to be discontinued after June 2023. As of March 31, 2022,2023, the Company had $2.17$1.003 billion in aggregate outstanding borrowings under Centuri’s combinedterm loan facility with reference to LIBOR. Southwest and Southwest Gas Holdings, Inc.’s Term Loan Facility. Southwest had no outstanding borrowings or variable rate debt agreements with reference to LIBOR as of March 31, 2022. In order to mitigate the impact on the financial condition and results of operations of the Company, management will monitor developments and work with lenders to determine the appropriate replacement/alternative reference rate for variable rate debt. At this time the Company can provide no assurances as to the impact a LIBOR discontinuance will have on their financial condition or results of operations. Any alternative rate may be less predictable or less attractive than LIBOR.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
Note 6 – Other Comprehensive Income and Accumulated Other Comprehensive Income
The following information presents the Company’s Other comprehensive income (loss), both before and after-tax impacts, within the Condensed Consolidated Statements of Comprehensive Income, which also impact Accumulated other comprehensive income (“AOCI”) in the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statements of Equity.
Related Tax Effects Allocated to Each Component of Other Comprehensive Income (Loss)
| | | Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2022 |
(Thousands of dollars) | (Thousands of dollars) | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount | (Thousands of dollars) | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount |
Defined benefit pension plans: | Defined benefit pension plans: | | | | | | | | | | | | | Defined benefit pension plans: | | | | | | | | | | | | |
Amortization of prior service cost | Amortization of prior service cost | | $ | 44 | | | $ | (11) | | | $ | 33 | | | $ | 240 | | | $ | (58) | | | $ | 182 | | Amortization of prior service cost | | $ | 44 | | | $ | (11) | | | $ | 33 | | | $ | 44 | | | $ | (11) | | | $ | 33 | |
Amortization of net actuarial (gain)/loss | Amortization of net actuarial (gain)/loss | | 8,705 | | | (2,089) | | | 6,616 | | | 11,149 | | | (2,675) | | | 8,474 | | Amortization of net actuarial (gain)/loss | | 333 | | | (80) | | | 253 | | | 8,705 | | | (2,089) | | | 6,616 | |
Regulatory adjustment | Regulatory adjustment | | (7,268) | | | 1,745 | | | (5,523) | | | (9,575) | | | 2,298 | | | (7,277) | | Regulatory adjustment | | (119) | | | 29 | | | (90) | | | (7,268) | | | 1,745 | | | (5,523) | |
Pension plans other comprehensive income (loss) | Pension plans other comprehensive income (loss) | | 1,481 | | | (355) | | | 1,126 | | | 1,814 | | | (435) | | | 1,379 | | Pension plans other comprehensive income (loss) | | 258 | | | (62) | | | 196 | | | 1,481 | | | (355) | | | 1,126 | |
FSIRS (designated hedging activities): | FSIRS (designated hedging activities): | | FSIRS (designated hedging activities): | |
Amounts reclassified into net income | Amounts reclassified into net income | | 545 | | | (129) | | | 416 | | | 544 | | | (131) | | | 413 | | Amounts reclassified into net income | | — | | | — | | | — | | | 545 | | | (129) | | | 416 | |
FSIRS other comprehensive income (loss) | FSIRS other comprehensive income (loss) | | 545 | | | (129) | | | 416 | | | 544 | | | (131) | | | 413 | | FSIRS other comprehensive income (loss) | | — | | | — | | | — | | | 545 | | | (129) | | | 416 | |
Total other comprehensive income (loss) - Southwest Gas Corporation | Total other comprehensive income (loss) - Southwest Gas Corporation | | 2,026 | | | (484) | | | 1,542 | | | 2,358 | | | (566) | | | 1,792 | | Total other comprehensive income (loss) - Southwest Gas Corporation | | 258 | | | (62) | | | 196 | | | 2,026 | | | (484) | | | 1,542 | |
Foreign currency translation adjustments: | Foreign currency translation adjustments: | | | | | | | | | | | | | Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | Translation adjustments | | 1,247 | | | — | | | 1,247 | | | 823 | | | — | | | 823 | | Translation adjustments | | 97 | | | — | | | 97 | | | 1,247 | | | — | | | 1,247 | |
Foreign currency other comprehensive income (loss) | Foreign currency other comprehensive income (loss) | | 1,247 | | | — | | | 1,247 | | | 823 | | | — | | | 823 | | Foreign currency other comprehensive income (loss) | | 97 | | | — | | | 97 | | | 1,247 | | | — | | | 1,247 | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | 3,273 | | | $ | (484) | | | $ | 2,789 | | | $ | 3,181 | | | $ | (566) | | | $ | 2,615 | | Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | 355 | | | $ | (62) | | | $ | 293 | | | $ | 3,273 | | | $ | (484) | | | $ | 2,789 | |
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| | | | Twelve Months Ended March 31, 2022 | | Twelve Months Ended March 31, 2021 | | | Twelve Months Ended March 31, 2023 | | Twelve Months Ended March 31, 2022 |
(Thousands of dollars) | (Thousands of dollars) | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount | (Thousands of dollars) | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount |
Defined benefit pension plans: | Defined benefit pension plans: | | | | | | | | | | | | | Defined benefit pension plans: | | | | | | | | | | | | |
Net actuarial gain/(loss) | Net actuarial gain/(loss) | | $ | 59,176 | | | $ | (14,202) | | | $ | 44,974 | | | $ | (57,539) | | | $ | 13,809 | | | $ | (43,730) | | Net actuarial gain/(loss) | | $ | 4,079 | | | $ | (980) | | | $ | 3,099 | | | $ | 59,176 | | | $ | (14,202) | | | $ | 44,974 | |
Amortization of prior service cost | Amortization of prior service cost | | 763 | | | (183) | | | 580 | | | 1,106 | | | (266) | | | 840 | | Amortization of prior service cost | | 175 | | | (42) | | | 133 | | | 763 | | | (183) | | | 580 | |
Amortization of net actuarial (gain)/loss | Amortization of net actuarial (gain)/loss | | 42,153 | | | (10,117) | | | 32,036 | | | 39,521 | | | (9,484) | | | 30,037 | | Amortization of net actuarial (gain)/loss | | 26,446 | | | (6,348) | | | 20,098 | | | 42,153 | | | (10,117) | | | 32,036 | |
| Regulatory adjustment | Regulatory adjustment | | (85,887) | | | 20,614 | | | (65,273) | | | 6,255 | | | (1,502) | | | 4,753 | | Regulatory adjustment | | (21,083) | | | 5,059 | | | (16,024) | | | (85,887) | | | 20,614 | | | (65,273) | |
Pension plans other comprehensive income (loss) | Pension plans other comprehensive income (loss) | | 16,205 | | | (3,888) | | | 12,317 | | | (10,657) | | | 2,557 | | | (8,100) | | Pension plans other comprehensive income (loss) | | 9,617 | | | (2,311) | | | 7,306 | | | 16,205 | | | (3,888) | | | 12,317 | |
FSIRS (designated hedging activities): | FSIRS (designated hedging activities): | | FSIRS (designated hedging activities): | |
Amounts reclassified into net income | Amounts reclassified into net income | | 2,175 | | | (520) | | | 1,655 | | | 2,954 | | | (710) | | | 2,244 | | Amounts reclassified into net income | | — | | | — | | | — | | | 2,175 | | | (520) | | | 1,655 | |
FSIRS other comprehensive income (loss) | FSIRS other comprehensive income (loss) | | 2,175 | | | (520) | | | 1,655 | | | 2,954 | | | (710) | | | 2,244 | | FSIRS other comprehensive income (loss) | | — | | | — | | | — | | | 2,175 | | | (520) | | | 1,655 | |
Total other comprehensive income (loss) - Southwest Gas Corporation | Total other comprehensive income (loss) - Southwest Gas Corporation | | 18,380 | | | (4,408) | | | 13,972 | | | (7,703) | | | 1,847 | | | (5,856) | | Total other comprehensive income (loss) - Southwest Gas Corporation | | 9,617 | | | (2,311) | | | 7,306 | | | 18,380 | | | (4,408) | | | 13,972 | |
Foreign currency translation adjustments: | Foreign currency translation adjustments: | | | | | | | | | | | | | Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | Translation adjustments | | 444 | | | — | | | 444 | | | 6,541 | | | — | | | 6,541 | | Translation adjustments | | (7,283) | | | — | | | (7,283) | | | 444 | | | — | | | 444 | |
Foreign currency other comprehensive income (loss) | Foreign currency other comprehensive income (loss) | | 444 | | | — | | | 444 | | | 6,541 | | | — | | | 6,541 | | Foreign currency other comprehensive income (loss) | | (7,283) | | | — | | | (7,283) | | | 444 | | | — | | | 444 | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | 18,824 | | | $ | (4,408) | | | $ | 14,416 | | | $ | (1,162) | | | $ | 1,847 | | | $ | 685 | | Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | 2,334 | | | $ | (2,311) | | | $ | 23 | | | $ | 18,824 | | | $ | (4,408) | | | $ | 14,416 | |
(1)Tax amounts are calculated using a 24% rate. The Company has elected to indefinitely reinvest, in Canada, the earnings of Centuri’s Canadian subsidiaries, thus precluding deferred taxes on such earnings. As a result of this assertion, and no repatriation of earnings anticipated, the Company is not recognizing a tax effect or presenting a tax expense or benefit for currency translation adjustments reported in Other comprehensive income (loss).
The remaining balance of realized losses (net of tax) related to Southwest’s previously settled forward-starting interest rate swap (“FSIRS”), included in AOCI at March 31, 2022, was reclassified into interest expense during the three months ended March 31, 2022.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 20222023 |
The following table represents a rollforward of AOCI, presented on the Company’s Condensed Consolidated Balance Sheets and its Condensed Consolidated Statements of Equity:
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| | Defined Benefit Plans | | FSIRS | | Foreign Currency Items | | |
(Thousands of dollars) | | Before-Tax | | Tax (Expense) Benefit (4) | | After-Tax | | Before-Tax | | Tax (Expense) Benefit (4) | | After-Tax | | Before-Tax | | Tax (Expense) Benefit | | After-Tax | | AOCI |
Beginning Balance AOCI December 31, 2021 | | $ | (61,182) | | | $ | 14,685 | | | $ | (46,497) | | | $ | (545) | | | $ | 129 | | | $ | (416) | | | $ | 152 | | | $ | — | | | $ | 152 | | | $ | (46,761) | |
Translation adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | 1,247 | | | — | | | 1,247 | | | 1,247 | |
Other comprehensive income (loss) before reclassifications | | — | | | — | | | — | | | — | | | — | | | — | | | 1,247 | | | — | | | 1,247 | | | 1,247 | |
FSIRS amount reclassified from AOCI (1) | | — | | | — | | | — | | | 545 | | | (129) | | | 416 | | | — | | | — | | | — | | | 416 | |
Amortization of prior service cost (2) | | 44 | | | (11) | | | 33 | | | — | | | — | | | — | | | — | | | — | | | — | | | 33 | |
Amortization of net actuarial loss (2) | | 8,705 | | | (2,089) | | | 6,616 | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,616 | |
Regulatory adjustment (3) | | (7,268) | | | 1,745 | | | (5,523) | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,523) | |
Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | 1,481 | | | (355) | | | 1,126 | | | 545 | | | (129) | | | 416 | | | 1,247 | | | — | | | 1,247 | | | 2,789 | |
Ending Balance AOCI March 31, 2022 | | $ | (59,701) | | | $ | 14,330 | | | $ | (45,371) | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,399 | | | $ | — | | | $ | 1,399 | | | $ | (43,972) | |
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| | Defined Benefit Plans | | | | Foreign Currency Items | | |
(Thousands of dollars) | | Before-Tax | | Tax (Expense) Benefit (3) | | After-Tax | | | | | | | | Before-Tax | | Tax (Expense) Benefit | | After-Tax | | AOCI |
Beginning Balance AOCI December 31, 2022 | | $ | (50,342) | | | $ | 12,081 | | | $ | (38,261) | | | | | | | | | $ | (5,981) | | | $ | — | | | $ | (5,981) | | | $ | (44,242) | |
Translation adjustments | | — | | | — | | | — | | | | | | | | | 97 | | | — | | | 97 | | | 97 | |
Other comprehensive income (loss) before reclassifications | | — | | | — | | | — | | | | | | | | | 97 | | | — | | | 97 | | | 97 | |
Amortization of prior service cost (1) | | 44 | | | (11) | | | 33 | | | | | | | | | — | | | — | | | — | | | 33 | |
Amortization of net actuarial loss (1) | | 333 | | | (80) | | | 253 | | | | | | | | | — | | | — | | | — | | | 253 | |
Regulatory adjustment (2) | | (119) | | | 29 | | | (90) | | | | | | | | | — | | | — | | | — | | | (90) | |
Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | 258 | | | (62) | | | 196 | | | | | | | | | 97 | | | — | | | 97 | | | 293 | |
Ending Balance AOCI March 31, 2023 | | $ | (50,084) | | | $ | 12,019 | | | $ | (38,065) | | | | | | | | | $ | (5,884) | | | $ | — | | | $ | (5,884) | | | $ | (43,949) | |
(1)The FSIRS reclassification amount is included in Net interest deductions on the Company’s Condensed Consolidated Statements of Income.
(2)These AOCI components are included in the computation of net periodic benefit cost (see Note 2 – Components of Net Periodic Benefit Cost for additional details).
(3)(2)The regulatory adjustment represents the portion of the activity above that is expected to be recovered through rates in the future (the related regulatory asset is included in Deferred charges and other assets on the Company’s Condensed Consolidated Balance Sheets).
(4)(3)Tax amounts are calculated using a 24% rate.
The following table represents a rollforward of AOCI, presented on Southwest’s Condensed Consolidated Balance Sheets:
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| | Defined Benefit Plans | | FSIRS | | |
(Thousands of dollars) | | Before-Tax | | Tax (Expense) Benefit (8) | | After-Tax | | Before-Tax | | Tax (Expense) Benefit (8) | | After-Tax | | AOCI |
Beginning Balance AOCI December 31, 2021 | | $ | (61,182) | | | $ | 14,685 | | | $ | (46,497) | | | $ | (545) | | | $ | 129 | | | $ | (416) | | | $ | (46,913) | |
FSIRS amount reclassified from AOCI (5) | | — | | | — | | | — | | | 545 | | | (129) | | | 416 | | | 416 | |
Amortization of prior service cost (6) | | 44 | | | (11) | | | 33 | | | — | | | — | | | — | | | 33 | |
Amortization of net actuarial loss (6) | | 8,705 | | | (2,089) | | | 6,616 | | | — | | | — | | | — | | | 6,616 | |
Regulatory adjustment (7) | | (7,268) | | | 1,745 | | | (5,523) | | | — | | | — | | | — | | | (5,523) | |
Net current period other comprehensive income attributable to Southwest Gas Corporation | | 1,481 | | | (355) | | | 1,126 | | | 545 | | | (129) | | | 416 | | | 1,542 | |
Ending Balance AOCI March 31, 2022 | | $ | (59,701) | | | $ | 14,330 | | | $ | (45,371) | | | $ | — | | | $ | — | | | $ | — | | | $ | (45,371) | |
(5) The FSIRS reclassification amount is included in Net interest deductions on Southwest’s Condensed Consolidated Statements of Income. | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans |
(Thousands of dollars) | | Before-Tax | | Tax (Expense) Benefit (6) | | After-Tax |
Beginning Balance AOCI December 31, 2022 | | $ | (50,342) | | | $ | 12,081 | | | $ | (38,261) | |
Amortization of prior service cost (4) | | 44 | | | (11) | | | 33 | |
Amortization of net actuarial loss (4) | | 333 | | | (80) | | | 253 | |
Regulatory adjustment (5) | | (119) | | | 29 | | | (90) | |
Net current period other comprehensive income attributable to Southwest Gas Corporation | | 258 | | | (62) | | | 196 | |
Ending Balance AOCI March 31, 2023 | | $ | (50,084) | | | $ | 12,019 | | | $ | (38,065) | |
(6)(4)These AOCI components are included in the computation of net periodic benefit cost (see Note 2 – Components of Net Periodic Benefit Cost for additional details).
(7)(5)The regulatory adjustment represents the portion of the activity above that is expected to be recovered through rates in the future (the related regulatory asset is included in Deferred charges and other assets on Southwest’s Condensed Consolidated Balance Sheets).
(8)(6)Tax amounts are calculated using a 24% rate.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
The following table represents amounts (before income tax impacts) included in AOCI (in the tables above), that have not yet been recognized in net periodic benefit cost:
| (Thousands of dollars) | (Thousands of dollars) | | March 31, 2022 | | December 31, 2021 | (Thousands of dollars) | | March 31, 2023 | | December 31, 2022 |
Net actuarial loss | Net actuarial loss | | $ | (390,305) | | | $ | (399,010) | | Net actuarial loss | | $ | (359,780) | | | $ | (360,113) | |
Prior service cost | Prior service cost | | (1,484) | | | (1,528) | | Prior service cost | | (1,309) | | | (1,353) | |
Less: amount recognized in regulatory assets | Less: amount recognized in regulatory assets | | 332,088 | | | 339,356 | | Less: amount recognized in regulatory assets | | 311,005 | | | 311,124 | |
Recognized in AOCI | Recognized in AOCI | | $ | (59,701) | | | $ | (61,182) | | Recognized in AOCI | | $ | (50,084) | | | $ | (50,342) | |
Note 7 – Segment Information
As a result ofThe Company had three reportable segments during the first quarter, prior to the MountainWest acquisition on December 31, 2021, management updated its segment reporting from the historical presentation of 2 reportable segments to 3 reportable segments, with MountainWest presented as the pipeline and storage segment.sale. Southwest comprises the natural gas distribution segment, and Centuri comprises the utility infrastructure services segment, and MountainWest comprised the pipeline and storage segment. As a result of the MountainWest sale in February 2023, the information for 2023 presented below for MountainWest reflects activity from January 1, 2023 through February 13, 2023 (the last full day of its ownership by the Company).
Centuri accounts for the services provided to Southwest at contractual prices at contract inception.prices. Accounts receivable for these services, which are not eliminated during consolidation, are presented in the table below:
| (Thousands of dollars) | (Thousands of dollars) | March 31, 2022 | | December 31, 2021 | (Thousands of dollars) | March 31, 2023 | | December 31, 2022 |
Centuri accounts receivable for services provided to Southwest | Centuri accounts receivable for services provided to Southwest | $ | 15,522 | | | $ | 15,166 | | Centuri accounts receivable for services provided to Southwest | $ | 14,966 | | | $ | 18,067 | |
In order to reconcile (below) to net income (loss) as disclosed in the Condensed Consolidated Statements of Income, an Other column is included associated with impacts of corporate and administrative activities related to Southwest Gas Holdings, Inc. The financial information pertaining to the natural gas distribution, utility infrastructure services, and pipeline and storage segments are as follows:
| (Thousands of dollars) | (Thousands of dollars) | Natural Gas Distribution | | Utility Infrastructure Services | | Pipeline and Storage | | Other | | Total | (Thousands of dollars) | Natural Gas Distribution | | Utility Infrastructure Services | | Pipeline and Storage | | Other | | Total |
Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2023 | | | | | | | | | |
Revenues from external customers | | Revenues from external customers | $ | 914,879 | | | $ | 624,489 | | | $ | 35,132 | | | $ | — | | | $ | 1,574,500 | |
Intersegment revenues | | Intersegment revenues | — | | | 28,804 | | | — | | | — | | | 28,804 | |
Total | | Total | $ | 914,879 | | | $ | 653,293 | | | $ | 35,132 | | | $ | — | | | $ | 1,603,304 | |
Segment net income (loss) | | Segment net income (loss) | $ | 134,696 | | | $ | (11,872) | | | $ | (16,288) | | | $ | (60,625) | | | $ | 45,911 | |
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2022 | | | | | | | | | | Three Months Ended March 31, 2022 | |
Revenues from external customers | Revenues from external customers | $ | 676,539 | | | $ | 495,544 | | | $ | 66,993 | | | $ | — | | | $ | 1,239,076 | | Revenues from external customers | $ | 676,539 | | | $ | 495,544 | | | $ | 66,993 | | | $ | — | | | $ | 1,239,076 | |
Intersegment revenues | Intersegment revenues | — | | | 28,333 | | | — | | | — | | | 28,333 | | Intersegment revenues | — | | | 28,333 | | | — | | | — | | | 28,333 | |
Total | Total | $ | 676,539 | | | $ | 523,877 | | | $ | 66,993 | | | $ | — | | | $ | 1,267,409 | | Total | $ | 676,539 | | | $ | 523,877 | | | $ | 66,993 | | | $ | — | | | $ | 1,267,409 | |
Segment net income (loss) | Segment net income (loss) | $ | 111,795 | | | $ | (23,486) | | | $ | 16,930 | | | $ | (9,061) | | | $ | 96,178 | | Segment net income (loss) | $ | 111,795 | | | $ | (23,486) | | | $ | 16,930 | | | $ | (9,061) | | | $ | 96,178 | |
| Three Months Ended March 31, 2021 | | |
Revenues from external customers | $ | 521,932 | | | $ | 339,772 | | | $ | — | | | $ | — | | | $ | 861,704 | | |
Intersegment revenues | — | | | 24,203 | | | — | | | — | | | 24,203 | | |
Total | $ | 521,932 | | | $ | 363,975 | | | $ | — | | | $ | — | | | $ | 885,907 | | |
Segment net income (loss) | $ | 118,715 | | | $ | (859) | | | $ | — | | | $ | (563) | | | $ | 117,293 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | Natural Gas Distribution | | Utility Infrastructure Services | | Pipeline and Storage | | Other | | Total |
Twelve Months Ended March 31, 2023 | | | | | | | | | |
Revenues from external customers | $ | 2,173,409 | | | $ | 2,754,614 | | | $ | 232,752 | | | $ | — | | | $ | 5,160,775 | |
Intersegment revenues | — | | | 135,129 | | | — | | | — | | | 135,129 | |
Total | $ | 2,173,409 | | | $ | 2,889,743 | | | $ | 232,752 | | | $ | — | | | $ | 5,295,904 | |
Segment net income (loss) | $ | 177,281 | | | $ | 13,679 | | | $ | (316,951) | | | $ | (127,566) | | | $ | (253,557) | |
| | | | | | | | | |
Twelve Months Ended March 31, 2022 | | | | | | | | | |
Revenues from external customers | $ | 1,676,397 | | | $ | 2,212,087 | | | $ | 66,993 | | | $ | — | | | $ | 3,955,477 | |
Intersegment revenues | — | | | 106,476 | | | — | | | — | | | 106,476 | |
Total | $ | 1,676,397 | | | $ | 2,318,563 | | | $ | 66,993 | | | $ | — | | | $ | 4,061,953 | |
Segment net income (loss) | $ | 180,215 | | | $ | 17,793 | | | $ | 16,930 | | | $ | (35,274) | | | $ | 179,664 | |
The corporate and administrative activities for Southwest Gas Holdings, Inc. in the three-month period ended March 31, 2023 include, among other things, additional amounts related to commitments under the sale agreement with Williams in regard to MountainWest, including a charge of $28.4 million from the post-closing rate case settlement agreement for MountainWest Overthrust Pipeline (pending Federal Energy Regulatory Commission (the “FERC” approval)); and an additional $21 million
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | Natural Gas Distribution | | Utility Infrastructure Services | | Pipeline and Storage | | Other | | Total |
Twelve Months Ended March 31, 2022 | | | | | | | | | |
Revenues from external customers | $ | 1,676,397 | | | $ | 2,212,087 | | | $ | 66,993 | | | $ | — | | | $ | 3,955,477 | |
Intersegment revenues | — | | | 106,476 | | | — | | | — | | | 106,476 | |
Total | $ | 1,676,397 | | | $ | 2,318,563 | | | $ | 66,993 | | | $ | — | | | $ | 4,061,953 | |
Segment net income (loss) | $ | 180,215 | | | $ | 17,793 | | | $ | 16,930 | | | $ | (35,274) | | | $ | 179,664 | |
| | | | | | | | | |
Twelve Months Ended March 31, 2021 | | | | | | | | | |
Revenues from external customers | $ | 1,369,690 | | | $ | 1,852,910 | | | $ | — | | | $ | — | | | $ | 3,222,600 | |
Intersegment revenues | — | | | 125,860 | | | — | | | — | | | 125,860 | |
Total | $ | 1,369,690 | | | $ | 1,978,770 | | | $ | — | | | $ | — | | | $ | 3,348,460 | |
Segment net income (loss) | $ | 194,234 | | | $ | 84,207 | | | $ | — | | | $ | (1,366) | | | $ | 277,075 | |
reflects the final accrued post-closing payment of $7.4 million related to cash and net working capital balances above/below a contract benchmark, with the remaining charge associated with other changes in the assets and liabilities that were not subject to post-closing payment true-up provisions. The post-closing payment of $7.4 million will effectively return approximately the same amount initially paid by Williams to the Company at closing. Other corporate and administrative activities foramounts during this same quarter also reflect residual costs associated with or as a result of the MountainWest sale, as well as $12 million of interest expense, primarily under the loan entered into by Southwest Gas Holdings, Inc. in November 2021 in connection with the three- andacquisition of MountainWest prior to it being paid in full in March 2023 (including $2.5 million in debt issuance costs written off when the debt was repaid). The twelve-month periodsperiod ended March 31, 2022 include expenses incurred related to shareholder activism, in addition to expenses and financing costs for2023 included more than $47 million of interest expense under the aforementioned MountainWest acquisition loan, the other items noted above, as well as expenses for services performed following December 31, 2021, but$35 million in combined costs associated with stockholder activism and the associated proxy contest, the May 2022 settlement with the Icahn group, and costs of a strategic review initiative initiated in 2022. The amounts related to the acquisition.MountainWest sale, including the rate case settlement, and post-closing adjustments, are included in Goodwill impairment and loss on sale on the Company’s Condensed Consolidated Statement of Income.
Note 8 - Business AcquisitionsDispositions
Dispositions
In August 2021,December 2022, the Company through its subsidiaries, led principally by Centuri, completedannounced that the acquisition of Drum, including its primary subsidiary, Riggs Distler. In November 2021, certain members of Riggs Distler management acquired a 1.42% interest in Drum. SeeBoard unanimously determined to take strategic actions to simplify the Company’s 2021 Form 10-Kportfolio of businesses. These actions included entering into a definitive agreement to sell 100% of MountainWest to Williams for $1.5 billion in total enterprise value, subject to certain adjustments. The MountainWest sale closed on February 14, 2023. The Company is expected to provide certain services to Williams under a transition services agreement for a brief period, generally not beyond six months from the sale closing date. Additionally, the Company determined it will pursue a spin-off of Centuri to form a new independent publicly traded utility infrastructure services company. The Centuri spin-off is currently expected to be completed by the fourth quarter of 2023 or the end of the first quarter of 2024 and to be tax free to the Company and its stockholders for U.S. federal income tax purposes. The separation of Centuri will be subject to, among other things, finalizing the transaction structure, final approval by the Board, approval by the Arizona Corporation Commission (the “ACC”), the receipt of a favorable private letter ruling by the IRS relating to the tax-free nature of the transaction, and the effectiveness of a registration statement to be filed with the SEC. The application for the private letter ruling was filed with the IRS in March 2023 and the application to the ACC was filed in April 2023.
The fair value of the MountainWest assets held-for-sale was previously estimated based on the preliminary closing statement and subject to certain adjustments, including a post-closing payment between the parties related to final working capital balances. The amount of the post-closing payment was finalized in May 2023, prior to the issuance of these financial statements. The Company recognized an additional information about this acquisition.
Assets acquiredloss on sale of approximately $21 million during the quarter ended March 31, 2023. This reflects the accrued post-closing payment of $7.4 million related to cash and net working capital balances above/below a contractual benchmark, with the remaining charge associated with other changes in the assets and liabilities assumedthat were not subject to post-closing payment true-up provisions. The post-closing payment of $7.4 million will effectively return approximately the same amount initially paid by Williams to the Company at closing.
As referred to in Note 7 – Segment Information, on September 22, 2022, the transactionFERC issued an order initiating an investigation, pursuant to section 5 of the Natural Gas Act, to determine whether rates charged by MountainWest Overthrust Pipeline, LLC, a subsidiary of MountainWest, were recorded at their acquisition date fair values. Transaction costs associatedjust and reasonable and setting the matter for hearing (the “Section 5 Rate Case”). Unless earlier settled by the parties, a hearing on the matter was to commence on August 1, 2023 with an initial decision from the acquisition were expensed as incurred. The Company’s allocationpresiding administrative law judge due by November 14, 2023. Under the terms of the purchase price was based on an evaluationand sale agreement entered into in connection with the MountainWest sale, the Company is obligated, for a period of four years following the closing of the appropriate fair valuesMountainWest sale, to indemnify Williams and represented management’s best estimate based on available data (including market data, data regarding customersMountainWest for any damages and liabilities resulting from the Section 5 Rate Case, including any reduction to the current applicable rate, up to a cap of $75 million. Williams agreed not to enter into any settlement of the acquired businesses, terms of acquisition-related agreements, analysis of historical and projected results, and other types of data). The analysis included consideration of types of intangiblesSection 5 Rate Case that were acquired, including customer relationships, trade name, and backlog. Certain payments were estimated aswould result in damages being paid by the Company under the indemnity arrangement without prior written consent of the acquisition date and were adjusted when amounts were finalized. Further adjustments may still occur. DueCompany. In March 2023, the parties agreed to a settlement, which is pending approval by the estimations made,FERC. As a result, the final purchase accounting has not yet been completed and further refinements may occur, including potential changes to income taxes.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
The preliminaryCompany recorded an additional estimated fair valuesloss of assets acquired and liabilities assumed as$28.4 million from the disposal of August 27, 2021, and as updated through March 31, 2022, are as follows:
| | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | | Acquisition Date | | Measurement Period Adjustments | | Revised Acquisition Date |
Cash and cash equivalents | | $ | 1.9 | | | $ | — | | | $ | 1.9 | |
Accounts receivable | | 69.1 | | | (8.6) | | | 60.5 | |
Contract assets | | 40.1 | | | 7.4 | | | 47.5 | |
Income taxes receivable, net | | 0.7 | | | — | | | 0.7 | |
Right of use assets under operating leases | | 1.5 | | | — | | | 1.5 | |
Prepaid expenses | | 5.2 | | | — | | | 5.2 | |
Property and equipment | | 118.1 | | | 1.2 | | | 119.3 | |
Intangible assets | | 335.0 | | | (31.5) | | | 303.5 | |
Goodwill | | 446.8 | | | 2.1 | | | 448.9 | |
Total assets acquired | | 1,018.4 | | | $ | (29.4) | | | $ | 989.0 | |
| | | | | | |
Trade and other payables | | 46.2 | | | — | | | 46.2 | |
Finance lease obligations | | 27.5 | | | 1.2 | | | 28.7 | |
Contract liabilities | | 12.7 | | | — | | | 12.7 | |
Operating lease obligations | | 1.5 | | | — | | | 1.5 | |
Other liabilities | | 5.3 | | | (0.9) | | | 4.4 | |
Deferred tax liabilities | | 94.8 | | | (23.4) | | | 71.4 | |
Total liabilities assumed and noncontrolling interest | | 188.0 | | | (23.1) | | | 164.9 | |
Net assets acquired | | $ | 830.4 | | | $ | (6.3) | | | $ | 824.1 | |
The Company incurred and expensed acquisition costsMountainWest in the first quarter of $14 million,2023, which is included in Utility infrastructure services expensesGoodwill impairment and loss on sale in the Company’s Condensed Consolidated Statement of Income for the twelve months ended March 31, 2022. No acquisition-related costsIncome. Other contingent commitments were incurred during the three months ended March 31, 2022, and no significant impacts to earnings resulted from the measurement-period adjustments reflected above.
In December 2021 Southwest Gas Holdings, Inc. completed the acquisition of Dominion Energy Questar Pipeline, LLC and related entities (subsequently rebranded as “MountainWest”), which resulted in MountainWest becoming a wholly owned subsidiarypart of the Company. See the Company’s 2021 Form 10-K for additional information about this acquisition.
Assets acquired and liabilities assumed in the transaction were recorded at their acquisition date fair values. Transaction costs associated with the acquisition were expensedagreement as incurred. The majority of the operations acquired are subject to FERC rate-regulation and therefore are accounted for pursuant to ASC 980, Regulated Operations. The fair values of MountainWest’s assets and liabilities, subject to rate making and cost recovery provisions, provide revenues derived from costs of service, including a return on investment of assets and liabilities included in rate base. Accordingly, the carrying values of such assets and liabilities were deemed to approximate their fair values. The fair value of the MountainWest assets and liabilities assumed that are not subject to the rate-regulation provisions discussed above include a 50% equity method investment, non-regulated property, plant and equipment, and long-term debt assumed; related fair values were determined using a market approach, income approach, or cost approach, as appropriate. Amounts related to post-closing payments were estimated as of the acquisition date and adjusted when determined during the period ended March 31, 2022. No other measurement period adjustments occurred during the period. However, the final purchase accounting has not yet been completed and further refinements may occur, including finalization of income tax-related amounts.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
The preliminary estimated fair values of assets acquired and liabilities assumed as of December 31, 2021, and as updated through March 31, 2022, are as follows:
| | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | | Acquisition Date | | Measurement Period Adjustments | | Revised Acquisition Date |
Gas plant, net | | $ | 1,047.4 | | | $ | — | | | $ | 1,047.4 | |
Other property and investments | | 51.3 | | | — | | | 51.3 | |
Cash and cash equivalents | | 17.6 | | | — | | | 17.6 | |
Accounts receivable, net of allowances | | 26.6 | | | 2.9 | | | 29.5 | |
Prepaid and other current assets | | 27.4 | | | — | | | 27.4 | |
Deferred charges and other assets | | 31.1 | | | — | | | 31.1 | |
Goodwill | | 986.2 | | | (8.7) | | | 977.5 | |
Deferred income taxes | | 15.4 | | | (1.3) | | | 14.1 | |
Total assets acquired | | 2,203.0 | | | (7.1) | | | 2,195.9 | |
| | | | | | |
Long-term debt | | 449.7 | | | — | | | 449.7 | |
Accounts payable | | 7.0 | | | — | | | 7.0 | |
Deferred purchased gas costs | | 5.7 | | | — | | | 5.7 | |
Customer deposits | | 3.2 | | | — | | | 3.2 | |
Accrued general taxes | | 0.4 | | | — | | | 0.4 | |
Accrued interest | | 4.7 | | | — | | | 4.7 | |
Other current liabilities | | 14.5 | | | — | | | 14.5 | |
Accumulated removal costs | | 56.6 | | | — | | | 56.6 | |
Other deferred credits | | 85.6 | | | — | | | 85.6 | |
Total liabilities assumed | | 627.4 | | | — | | | 627.4 | |
Net assets acquired | | $ | 1,575.6 | | | $ | (7.1) | | | $ | 1,568.5 | |
The Company incurred and expensed acquisition costs of $18.5 million for the twelve months ended March 31, 2022,well, which are included in Operations and maintenance expense on the Company’s Condensed Consolidated Statement of Income. No acquisition-related costs were incurred during the three months ended March 31, 2022 and no impacts to earnings resulted from the measurement-period adjustments reflected above. The Company has a transition services agreement with the sellers for a period of up to twelve months from the acquisition date of December 31, 2021, to continue certain corporate and administrative functions for the entities acquired while MountainWest is established as an independent enterprise.
Note 9 - Subsequent Events
On May 6, 2022, the Company entered into a Cooperation Agreement (the “Cooperation Agreement”) with Carl Icahn and the persons and entities listed therein (collectively, the “Icahn Group”). In accordance with the Cooperation Agreement, John P. Hester, the President and Chief Executive Officer of the Company and Southwest and a member of the Board and the Southwest Board (the “SWG Board” and, together with the Board, the “Southwest Boards”), retired as President and Chief Executive Officer of the Company and resigned from the Southwest Boards, effective as of May 6, 2022. Karen S. Haller, the Company’s former Executive Vice President / Chief Legal & Administrative Officer, was appointed as President and Chief Executive Officer of Southwest, effective as of May 6, 2022, and as a member of the Board, effective immediately following the completion of the Company’s 2022 annual meeting of stockholders (the “2022 Annual Meeting”).
In addition, pursuant to the Cooperation Agreement, the Company has agreed to appoint 3 new directors, Andrew W. Evans, H. Russell Frisby, Jr. and Henry P. Linginfelter (collectively, the “Icahn Designees”), to the Board, effective immediately following the 2022 Annual Meeting, and, unless within 90 days of the date of the Cooperation Agreement, the Board has determined to pursue a spin-off of Centuri to the exclusion of other strategic alternatives, the Icahn Group has the ability to designate a fourth director, Andrew J. Teno, unless Mr. Teno has previously replaced one of the other Icahn Designees, in which case the fourth director will be such Icahn Designee. The Icahn Group’s ability to designate directors to the Board is subject to certain ownership thresholds following the closing of the previously announced tender offer by the Icahn Group to purchase any and all shares of common stock of the Company (the “Offer”).
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
The Cooperation Agreement requires the Board to expand the Strategic Transactions Committee from 3 directors to 6 directors, comprised of the current members of the Strategic Transactions Committee and the 3 Icahn Designees. For so long as the Icahn Group has the ability to designate at least three members of the Board, three of such designees shall be included on the Strategic Transactions Committee. If the Icahn Group may only designate two members of the Board, then both of such designees shall serve on the Strategic Transactions Committee.
In addition, the Cooperation Agreement provides that the Icahn Group will amend the Offer, to (i) provide that the number of shares of common stockcurrently expected to be purchased in the Offer shall not exceed that number of shares of common stock which, together with the shares of Common Stock beneficially owned by the Icahn Group, would exceed 24.9% of the then outstanding shares of Common Stock, (ii) extend the expiration date of the Offer (the “Expiration Date”) to May 19, 2022 and that the Expiration Date shall not be further extended, and (iii) to waive any conditions to the Offer that have not been satisfied and consummate the Offer and pay for the tendered shares of Common Stock as promptly as practicable after the Expiration Date.
Pursuant to the Cooperation Agreement, the Icahn Group caused the parties to the action filed by Icahn Partners LP and Icahn Partners Master Fund LP in the Court of Chancery of the State of Delaware on November 29, 2021 (Civil Action No. 2021-1031-KSJM), naming as defendants the Company and certain directors and officers of the Company, to file a stipulation of dismissal with prejudice, which was entered by the court on May 9, 2022
In connection with the entry into the Cooperation Agreement, the Company entered into Amendment No. 1 to Rights Agreement (the “Rights Agreement Amendment”) by and between the Company and Equiniti Trust Company. The Rights Agreement Amendment amends the Rights Agreement, dated October 10, 2021, to increase the beneficial ownership percentage included in the definition of “Acquiring Person” from 10% to 24.9% and to delete the concept of a “Passive Institutional Investor.”
immaterial.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Southwest Gas Holdings, Inc. is a holding company that owns all of the shares of common stock of Southwest Gas Corporation (“Southwest” or the “natural gas distribution” segment), all of the shares of common stock of Centuri Group, Inc. (“Centuri,” or the “utility infrastructure services” segment), as well asand until February 14, 2023, all of the membership interests in the newly formedcommon stock of MountainWest Pipelines Holding Company (“MountainWest,” or the “pipeline and storage” segment). Southwest Gas Holdings, Inc. and its subsidiaries are collectively referred to as the “Company.”
The Company completed the acquisition of Dominion Energy Questar Pipeline, LLC (“Questar Pipelines”) and related entities inIn December 2021. Following the acquisition, the Company formed MountainWest which owns all of the membership interests of Questar Pipelines. In April 2022, the Company completed a general rebranding of the Questar Pipelines entities under the MountainWest name. The acquired operations further diversify the Company’s business including an essential Rocky Mountain energy hub with over 2,000 miles of highly contracted, FERC-regulated interstate natural gas pipelines providing transportation and underground storage services in Utah, Wyoming, and Colorado.
In October 2021, ourannounced that its Board of Directors (the “Board”) authorized and declaredunanimously determined to take strategic actions to simplify the Company’s portfolio of businesses. These actions included entering into a dividenddefinitive agreement to sell 100% of one preferred stock purchase rightMountainWest in an all-cash transaction to Williams Partners Operating LLC (“Williams”) for each share of common stock outstanding$1.5 billion in total enterprise value, subject to stockholders of record atcertain adjustments (collectively, the close of business“MountainWest sale”). The MountainWest sale closed on October 21, 2021.
In March 2022,February 14, 2023. Additionally, the Company announced thatdetermined it will pursue a spin-off of Centuri (the “Centuri spin-off”), to form a new independent publicly traded utility infrastructure services company. The Centuri spin-off is currently expected to be completed in the Board had determinedfourth quarter of 2023 or the first quarter of 2024 and to separate Centuri frombe tax free to the Company and authorized management to complete the separation within nine to twelve months from the date of such announcement. Management evaluated various alternatives to determine the optimal structure to maximize stockholder value and subsequently announced the separation structure is expected to be a tax-freeits stockholders for U.S. federal income tax purposes. The Centuri spin-off in which stockholders of the Company would receive a prorated dividend of Centuri shares in association with the completion. Then, in April 2022, as a result of interest in the Company well in excess of a tender offer by an activist stockholder (Carl Icahn) to other stockholders, the Board authorized the review of a full range of strategic alternatives intended to maximize stockholder value. As part of this process, a strategic review committee of the Board, consisting entirely of independent directors, will evaluate a sale of the Company, as well as a range of alternatives, including, but not limited to, a separate sale of its business units and/or pursuing the spin-off of Centuri. There can be no assurances that the Company will be ablesubject to, successfully separate Centuri on the anticipated timeline or at all, nor assurances that other strategic alternatives considered will be executed or maximize value as intended. See “Item 1A - Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q.
As described in Note 9 - Subsequent Events, on May 6, 2022, the Company entered into a Cooperation Agreement with Carl C. Icahn and the persons and entities named therein (the “Icahn Group”). In accordance with the Cooperation Agreement, among other things, (i) Karen S. Haller has replaced John C. Hester asfinalizing the Company’s President and Chief Executive Officer, (ii) the Icahn Group has certain board designation rights, (iii) the Icahn Group has agreed to terminate its previously announced tender offer, and (iv) the Icahn Group caused its affiliates to file a stipulation of dismissal with prejudice dismissing the action filed by them on November 29, 2021, which was enteredtransaction structure, final approval by the Delaware CourtBoard, approval by the Arizona Corporation Commission (the “ACC”), the receipt of Chancery on May 9, 2022.a favorable Internal Revenue Service (“IRS”) private letter ruling relating to the tax-free nature of the transaction, and the effectiveness of a registration statement that will be filed with the U.S. Securities and Exchange Commission (the “SEC”). The application for the private letter ruling was filed with the IRS in March 2023 and the application to the ACC was filed in April 2023. See Note 98 - Subsequent EventsDispositions for more information.
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 centralNevada, and southern Arizona, including the Phoenix and Tucson metropolitan areas. In January 2022, Southwest completed the purchase of the Graham County Utilities, Inc. (“GCU”) gas distribution system, located in Graham County, Arizona. Southwest is also the largest distributor of natural gas in Nevada, serving the majority of southern Nevada, including the Las Vegas metropolitan area, and portions of northern Nevada. In addition, Southwest distributes and transports natural gas for customers in portions of California, including the Lake Tahoe area and the high desert and mountain areas in San Bernardino County. ThroughCalifornia. Additionally, through its subsidiaries, Southwest operates two federally regulated interstate pipelines serving portions of the foregoing northern territories of Nevada and California.Southwest’s service territories.
As of March 31, 2022,2023, Southwest had 2,171,0002,206,000 residential, commercial, industrial, and other natural gas customers, of which 1,161,0001,182,000 customers were located in Arizona, 806,000819,000 in Nevada, and 204,000205,000 in California. In January 2022, approximately 5,300 customers became part of Southwest’s gas distribution operations that were formerly served by GCU. Over the past twelve months, first-time meter sets were approximately 38,000,42,000, compared to 37,00038,000 for the twelve months ended March 2021.2022. Residential and small commercial customers represented over 99% of the total customer base. During the twelve months ended March 31, 2022, 2023, 54% of operating margin (Regulated operations revenues less the net cost of gas sold) was earned in Arizona, 34%35% in Nevada, and 12%11% in Cal in California.ifornia. During this same period, Southwest earned 85%84% of its operating margin from residential and small commercial customers, 4%5% from other sales customers, and 11% fromfrom transportation customers. These patterns are expected to remain materially consistent for the foreseeableforeseeable future.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
Southwest recognizes operating revenues from the distribution and transportation of natural gas (and related services) to customers. Operating margin is a financial measure defined by management as Regulated operations revenues less the net cost of gas sold. However, operating margin is not specifically defined in accounting principles generally accepted in the United States (“U.S. GAAP”). Thus, operating margin is considered a non-GAAP measure. Management uses this financial measure because Regulated operations revenues include the net cost of gas sold, which is a tracked cost that is passed through to customers without markup under purchased gas adjustment (“PGA”) mechanisms. Fluctuations in the net cost of gas sold impact revenues on a dollar-for-dollar basis, but do not impact operating margin or operating income. Therefore, management believes operating margin provides investors and other interested parties with useful and relevant information to analyze Southwest’s financial performance in a rate-regulated environment. The principal factors affecting changes in operating margin are general rate relief (including impacts of infrastructure trackers) and customer growth. Commission decisions on the amount and timing of such relief may impact our earnings. Refer to the Summary Operating Results table below for a reconciliation of gross margin to operating margin, and refer to Rates and Regulatory Proceedings in this Management’s Discussion and Analysis, for details of various rate proceedings.
The demand for natural gas is seasonal, with greater demand in the colder winter months and decreased demand in the warmer summer months. All of Southwest’s service territories have decoupled rate structures (alternative revenue programs), which are designed to eliminate the direct link between volumetric sales and revenue, thereby mitigating the impacts of unusual weather variability and conservation on operating margin, allowing Southwest to pursue energy efficiency initiatives.
Centuri is a strategic infrastructure services company that partners with regulated utilities to build and maintain the energy network that powers millions of homes and businesses across the United States (“U.S.”) and Canada. With an unwavering commitment to serve as long-term partners to customers and communities, Centuri’s employees enable regulated utilities to safely and reliably deliver natural gas and electricity, as well as achieve their goals for environmental sustainability. Centuri
operates in 7083 primary locations across 4445 states and provinces in the U.S. and Canada. Centuri operates in the U.S., primarily as NPL, Neuco, Linetec, and Riggs Distler, and in Canada, primarily as NPL Canada.
Utility infrastructure services activity can be impacted by changes in infrastructure replacement programs of utilities, weather, and local and federal regulation (including tax rates and incentives). Utilities continue to implement or modify system integrity management programs to enhance safety pursuant to federal and state mandates. These programs have resulted in multi-year utility system replacement projects throughout the U.S. Likewise, there has been similar attention placed on electric grid modernization through national infrastructure legislation and related initiatives. The Department of Energy estimates more than 70% of the nation’s grid transmission lines and power transformers are over 25 years old, creating vulnerability exacerbated by seasonal storm and extreme weather events.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. In cases of severe weather, such as following a regional storm, Centuri may be engaged to perform restoration activities related to above-ground utility infrastructure, and related results impacts are not solely within the control of management. In addition, in certain circumstances, such as with large bid contracts (especially those of a longer duration), or unit-price contracts with revenue caps, results may be impacted by differences between costs incurred and those anticipated when the work was originally bid. Work awarded, or failing to be awarded, by individual large customers can impact operating results.
MountainWest, which was sold on February 14, 2023, is an interstate natural gas transmission pipeline company that provides transportation and underground storage services to customers in Utah, Wyoming, and Colorado. ADuring the period of ownership by the Company, its operations included a substantial portion of its revenue resultsbeing derived from reservation charges, butwith variable rates are also included as part of its primarily rate-regulated rate structures.
While the novel coronavirus (“COVID-19”) pandemic has been ongoing since the first quarterAll of 2020, the Company continues to facilitate administration, communication,our businesses may be impacted by economic conditions that impact businesses generally, such as inflationary impacts on goods and all critical functions. To date, there has not been a significant disruptionservices consumed in the Company’s supply chains, transportation network,business, rising interest rates, labor markets and costs (including in regard to contracted or abilityprofessional services), and the availability of those resources. Certain of these impacts may be more predominant in certain of our operations, such as with regard to serve customers. The extent to which COVID-19 may adversely impact the Company’s business depends on future developments; however, management does not currently expect impacts to be material to the Company’s liquidity or financial position overall.fuel costs for work equipment and skilled/trade labor costs at Centuri.
This Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto, as well as the MD&A included in the 20212022 Annual Report to Stockholders, which is incorporated by reference into Southwest’s and the 2021Company’s Annual Report on Form 10-K.10-K for the fiscal year ended December 31, 2022 (the “2022 Form 10-K), in addition to the Risk Factors included in these documents, and as updated from time to time.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
Executive Summary
The items discussed in this Executive Summary are intended to provide an overview of the results of the Company’s and Southwest’s operations and are covered in greater detail in later sections of the MD&A.
Summary Operating Results
| | | | Period Ended March 31, | | | Period Ended March 31, |
| | | Three Months | | | Twelve Months | | | Three Months | | Twelve Months |
(In thousands, except per share amounts) | (In thousands, except per share amounts) | | 2022 | | 2021 | | | 2022 | | 2021 | (In thousands, except per share amounts) | | 2023 | | 2022 | | 2023 | | 2022 |
Contribution to net income | | | | | | | | | | |
Contribution to net income (loss) | | Contribution to net income (loss) | | | | | | | | |
Natural gas distribution | Natural gas distribution | | $ | 111,795 | | | $ | 118,715 | | | | $ | 180,215 | | | $ | 194,234 | | Natural gas distribution | | $ | 134,696 | | | $ | 111,795 | | | $ | 177,281 | | | $ | 180,215 | |
Utility infrastructure services | Utility infrastructure services | | (23,486) | | | (859) | | | | 17,793 | | | 84,207 | | Utility infrastructure services | | (11,872) | | | (23,486) | | | 13,679 | | | 17,793 | |
Pipeline and storage | Pipeline and storage | | 16,930 | | | — | | | | 16,930 | | | — | | Pipeline and storage | | (16,288) | | | 16,930 | | | (316,951) | | | 16,930 | |
Corporate and administrative | Corporate and administrative | | (9,061) | | | (563) | | | | (35,274) | | | (1,366) | | Corporate and administrative | | (60,625) | | | (9,061) | | | (127,566) | | | (35,274) | |
Net income | | $ | 96,178 | | | $ | 117,293 | | | | $ | 179,664 | | | $ | 277,075 | | |
Net income (loss) | | Net income (loss) | | $ | 45,911 | | | $ | 96,178 | | | $ | (253,557) | | | $ | 179,664 | |
| Weighted average common shares | Weighted average common shares | | 60,737 | | | 57,600 | | | | 59,919 | | | 56,564 | | Weighted average common shares | | 68,265 | | | 60,737 | | | 67,413 | | | 59,919 | |
Basic earnings per share | | | | | | | | | | |
Basic earnings (loss) per share | | Basic earnings (loss) per share | | | | | | | | |
Consolidated | Consolidated | | $ | 1.58 | | | $ | 2.04 | | | | $ | 3.00 | | | $ | 4.90 | | Consolidated | | $ | 0.67 | | | $ | 1.58 | | | $ | (3.76) | | | $ | 3.00 | |
| Natural Gas Distribution | Natural Gas Distribution | | | | Natural Gas Distribution | |
Reconciliation of Gross Margin to Operating Margin (Non-GAAP measure) | Reconciliation of Gross Margin to Operating Margin (Non-GAAP measure) | | | | Reconciliation of Gross Margin to Operating Margin (Non-GAAP measure) | |
Utility Gross Margin | Utility Gross Margin | | $ | 233,882 | | | $ | 233,156 | | | | $ | 571,051 | | | $ | 546,171 | | Utility Gross Margin | | $ | 259,364 | | | $ | 233,882 | | | $ | 597,222 | | | $ | 571,051 | |
Plus: | Plus: | | | | Plus: | |
Operations and maintenance (excluding Admin. & General) expense | Operations and maintenance (excluding Admin. & General) expense | | 73,422 | | | 64,057 | | | | 276,525 | | | 246,214 | | Operations and maintenance (excluding Admin. & General) expense | | 79,696 | | | 73,422 | | | 317,344 | | | 276,525 | |
Depreciation and amortization expense | Depreciation and amortization expense | | 72,114 | | | 68,698 | | | | 256,814 | | | 239,268 | | Depreciation and amortization expense | | 74,650 | | | 72,114 | | | 265,579 | | | 256,814 | |
Operating margin | Operating margin | | $ | 379,418 | | | $ | 365,911 | | | | $ | 1,104,390 | | | $ | 1,031,653 | | Operating margin | | $ | 413,710 | | | $ | 379,418 | | | $ | 1,180,145 | | | $ | 1,104,390 | |
1st Quarter 20222023 Overview
Southwest Gas Holdings highlights include the following:
•AnnouncedCompleted the Board’s evaluation of strategic alternatives, including a potentialMountainWest sale and paid down the remaining balance of the Company, sale of business segments, and/or spin-off of Centuri
•Issued 6,325,000 shares of common stock, raising $452 million in net proceedsterm loan used to initially fund the MountainWest acquisition
•Corporate and administrative expenses include impactadditional loss on sale of MountainWest, including $28.4 million MountainWest Overthrust Pipeline settlement (pending FERC approval), and interest on $1.6 billionthe aforementioned MountainWest acquisition term loan and activism costs
•Issued 4.1 million shares of common stock for net proceeds of $238.4 million
Natural gas distribution highlights include the following:
•38,00042,000 first-time meters sets occurred over the past 12 months
•Operating margin increased $14 $34 millionin the first quarter of 2023, including Arizona rate relief
•Issued $600$192 million in 4.05% 10-year Notescapital investment during the quarter
•Nevada general rate case finalized with rate relief effective April 2022COLI results increased $4.4 million compared to the prior-year quarter
Utility infrastructure services highlights include the following:
•Record revenues of $524$653 million in the first quarter of 2022,2023, an increase of $160$129 million, or 44%25%, comparedcompared to the first quarter of 20212022
•Results impacted by inflationary pressuresSigned over $311 million of offshore wind and incremental interest and amortization associated with Riggs Distler
Pipeline and storage highlights include the following:
•Recognized revenue of $67 millionlarge gas customer contracts
•Contributed $17 millionCosts continued to consolidated net income, which is net of $8.7 million of one-time stand-upbe impacted by inflation, including higher fuel, subcontractor, and integrationequipment rental costs
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
Results of Natural Gas Distribution
Quarterly Analysis
| | | Three Months Ended March 31, | | Three Months Ended March 31, |
(Thousands of dollars) | (Thousands of dollars) | | 2022 | | 2021 | (Thousands of dollars) | | 2023 | | 2022 |
Regulated operations revenues | Regulated operations revenues | | $ | 676,539 | | | $ | 521,932 | | Regulated operations revenues | | $ | 914,879 | | | $ | 676,539 | |
Net cost of gas sold | Net cost of gas sold | | 297,121 | | | 156,021 | | Net cost of gas sold | | 501,169 | | | 297,121 | |
Operating margin | Operating margin | | 379,418 | | | 365,911 | | Operating margin | | 413,710 | | | 379,418 | |
Operations and maintenance expense | Operations and maintenance expense | | 119,636 | | | 106,135 | | Operations and maintenance expense | | 131,188 | | | 119,636 | |
Depreciation and amortization | Depreciation and amortization | | 72,114 | | | 68,698 | | Depreciation and amortization | | 74,650 | | | 72,114 | |
Taxes other than income taxes | Taxes other than income taxes | | 21,652 | | | 20,687 | | Taxes other than income taxes | | 22,740 | | | 21,652 | |
Operating income | Operating income | | 166,016 | | | 170,391 | | Operating income | | 185,132 | | | 166,016 | |
Other income (deductions) | Other income (deductions) | | 1,315 | | | 550 | | Other income (deductions) | | 18,443 | | | 1,315 | |
Net interest deductions | Net interest deductions | | 26,610 | | | 22,166 | | Net interest deductions | | (38,622) | | | (26,610) | |
Income before income taxes | Income before income taxes | | 140,721 | | | 148,775 | | Income before income taxes | | 164,953 | | | 140,721 | |
Income tax expense | Income tax expense | | 28,926 | | | 30,060 | | Income tax expense | | 30,257 | | | 28,926 | |
Contribution to consolidated net income | | $ | 111,795 | | | $ | 118,715 | | |
Contribution to consolidated results | | Contribution to consolidated results | | $ | 134,696 | | | $ | 111,795 | |
ContributionResults from natural gas distribution operations decreased $6.9improved $23 million between the first quarters of 20222023 and 2021.2022. The improvementdecline was primarily due to an increase in Operating margin and Other income (deductions), offset by an increase in Operations and maintenance, expense, higher Depreciation and amortization, and an increase in Net interest deductions, partially offset by an increase in Operating margin.deductions.
Operating margin increased $14$34.3 million quarter over quarter.quarter. Approximately $7$5 million of incremental margin was attributable to customer growth, including 38,00042,000 first-time meter sets during the last twelve months. RateCombined rate relief in California added $1approximately $14 million of combined margin. Also contributing to the increase were customer late fees that were $2.8 million greater in the current quarter due to the lifting of the moratorium in 2021 on such fees in Arizona, Nevada, and California. The moratorium was previously in place beginning in March 2020 to provide temporary relief to customers during the COVID-19 pandemic. Amounts collected from and returned to customers associated with regulatory account balances and programs, including $6.2 million in incremental (previously unrecovered) revenue associated withpreviously unrecovered Vintage Steel Pipe (“VSP”) and Customer-Owned Yard Line (“COYL”) programs in Arizona ($4 million) also contributed to the improvement. Refer to RatesAdditionally, an $8 million out-of-period adjusting entry in the current quarter was made, which reduced Net cost of gas sold (See Basis of Presentation in Note 1 – Background, Organization, and Regulatory Proceedings below.Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q). Other differences include customer-provided fuel required for pipeline operations (offset in Operations and maintenance expense), and miscellaneous revenue and margin from customers outside the decoupling mechanisms contributed to the remaining net variance between quarters.mechanisms.
Operations and maintenance expenseexpense increased $13.5$11.6 million between quarters. In addition to general inflationary impacts, other increases occurredbetween quarters, including approximately $4 million in the service-related componentfuel-related costs ($3 million of employee pensionwhich is customer-provided fuel for pipeline operations, discussed above), $1.7 million in combined leak survey and line locating costs, (see $775,000 increase reflected in service cost for the three plans in Note 2 - Components of Net Periodic Benefit Cost) and $3.5$2.6 million specificallyprimarily related to customer service, system support, and billing. Otheroutside services/contractor costs in various areas of the business, as well as increases included employee and benefit-related costsin insurance related claims ($1.21 million) and increased general business insurance ($800,000). The prior year period expense levels included more modest expense levels overall due to COVID-environment reduced training, travel and related amounts.
Depreciation and amortization expense increased $3.4$2.5 million, or 5%4%, between quarters, primarily due to a $564$533 million, or 7%6%, increase in average gas plant in service compared tosince the corresponding first quarter a year ago. Offsetting the increase, amortizationof 2022, offset by $647,000 in reduced amortization expense related to regulatory account recoveries decreased approximately $700,000 between quarters, which is also reflected in Operating margin above. Thebalances. The increase in plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled pipe replacement activities, and new infrastructure.
Other incomeincome increased $765,000. The current quarter reflects a $2$17 million. Interest income increased $9.7 million decline in COLI policy cash surrender values, while the prior-year quarter reflected a $2.7 million increase. These fluctuations primarily result from changes in the portion of the cash surrender values that arebetween quarters related to carrying charges associated with equity securities, and are directionally consistent with the broader securities markets. This decrease was offset byregulatory account balances, notably deferred purchased gas cost balances, which increased from $368 million existing as of March 31, 2022 to $970 million existing as of March 31, 2023. The non-service-related components of employee pension and other postretirement benefit costs which decreased $3.3$5.3 million between quarters. Interest income increased $2.1Southwest also recognized a $4.4 million between quarters dueincrease in COLI results in the current quarter compared to the comparable quarter in the prior year.
Net interest deductionsincreased receivable position of the Purchased Gas Adjustment. A gain of $1.5$12 million was recognized on the sale of non-regulated property in the first quarter of 2022.
Net interest deductions increased $4.4 million in the first quarter of 2022,2023, as compared to the prior-year quarter, primarily related due to lower interest associated with $600 million of Senior Notes issued in the prior-year quarter, asMarch 2022, $300 million of Senior Notes issued in December 2022, and $300 million of Senior Notes issued in March 2023. Additionally, increased interest resulted from an increase in short-term debt, including a carrying amount related to an annual excess accumulated deferred tax$450 million term loan issued in January 2023 (paid off in full in April 2023).
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
(“EADIT”) balance in Arizona was required to be returned to customers, thereby reducing interest when the carrying charge regulatory liability balance was amortized for the return ($1.5 million), and due to higher interest in the current period due to $300 million of Senior Notes issued in August 2021, and to a lesser extent, $600 million of Senior Notes issued in March 2022.
Results of Natural Gas Distribution
Twelve-Month Analysis
| | | Twelve Months Ended March 31, | | Twelve Months Ended March 31, |
(Thousands of dollars) | (Thousands of dollars) | | 2022 | | 2021 | (Thousands of dollars) | | 2023 | | 2022 |
Regulated operations revenues | Regulated operations revenues | | $ | 1,676,397 | | | $ | 1,369,690 | | Regulated operations revenues | | $ | 2,173,409 | | | $ | 1,676,397 | |
Net cost of gas sold | Net cost of gas sold | | 572,007 | | | 338,037 | | Net cost of gas sold | | 993,264 | | | 572,007 | |
Operating margin | Operating margin | | 1,104,390 | | | 1,031,653 | | Operating margin | | 1,180,145 | | | 1,104,390 | |
Operations and maintenance expense | Operations and maintenance expense | | 452,051 | | | 409,429 | | Operations and maintenance expense | | 503,480 | | | 452,051 | |
Depreciation and amortization | Depreciation and amortization | | 256,814 | | | 239,268 | | Depreciation and amortization | | 265,579 | | | 256,814 | |
Taxes other than income taxes | Taxes other than income taxes | | 81,308 | | | 67,769 | | Taxes other than income taxes | | 84,285 | | | 81,308 | |
Operating income | Operating income | | 314,217 | | | 315,187 | | Operating income | | 326,801 | | | 314,217 | |
Other income (deductions) | Other income (deductions) | | (3,794) | | | 14,496 | | Other income (deductions) | | 10,244 | | | (3,794) | |
Net interest deductions | Net interest deductions | | 102,004 | | | 98,256 | | Net interest deductions | | (127,892) | | | (102,004) | |
Income before income taxes | Income before income taxes | | 208,419 | | | 231,427 | | Income before income taxes | | 209,153 | | | 208,419 | |
Income tax expense | Income tax expense | | 28,204 | | | 37,193 | | Income tax expense | | 31,872 | | | 28,204 | |
Contribution to consolidated net income | | $ | 180,215 | | | $ | 194,234 | | |
Contribution to consolidated results | | Contribution to consolidated results | | $ | 177,281 | | | $ | 180,215 | |
Contribution to consolidated net income from natural gas distribution operations decreased $14approximately $3 million betweenbetween the twelve-month periods ended March 20222023 and 2021.2022. The decline was due primarily to increases in Operations and maintenance expense, Depreciation and amortization, and Taxes other than income taxes, and a decrease in Other income (deductions),Net interest deductions, offset by an increase in Operating margin.margin and Other income.
Operating marginmargin increased $73$76 million between periods. Customerperiods. Customer growth provided $14$15 million, and combined rate relief provided $44$27 million of incremental operating margin. Also contributing to the increase were customer late fees that were $8$2.4 million greater in the current period due to lifting the earlier moratorium on such fees in all jurisdictions, which was initially instituted in March 2020 to provide temporary relief to customers during the pandemic. Additionally, regulatory account balance returns and recoveries increased approximately $2.1 million between periods. Incremental (previously unrecovered)jurisdictions. Approved VSP and COYL revenue in Arizona ($5.2 million combined, between twelve-month periods) also contributed to the varianceimprovement between periods.periods ($21 million). The $8 million out-of-period adjustment to Net cost of gas sold, noted earlier, also contributed to the increase. Offsetting these increases were lower recoveries associated with regulatory account balances ($4 million); an associated comparable decrease is also reflected in amortization expense between periods (discussed below).
Operations and maintenance expenseexpense increased $43$51 million or 10%, between periods. In addition to general inflationary impacts Southwest also experienced $7 million of higher legal-claim relatedand labor market challenges overall, specific increases include pipeline integrity, reliability, line location, and engineering services costs (including a $5 million legal reserve as described in Note 1 – Background, Organization, and Summary of Significant Accounting Policies), higher levels of service-related pension costs ($6.1 million), customer service, system support, and billing costs ($7.912 million), increased expenditurescost of fuel (nearly $8 million, almost half of which is used in our operations), an increase in the reserve for pipeline damage prevention programscustomer accounts deemed uncollectible ($4 million) and general business insurance ($2.77.8 million), as well as increased medicalapproximately $8 million in contractor/professional services in various areas of the business, higher legal and otherclaim-related costs ($6 million), employee benefit costs. Prior year expense levels were uncharacteristically low due to COVID-period reduced training/travel and other cost savings.training costs ($2.5 million), and higher labor-related costs ($2.6 million).
Depreciation and amortization expense increased $17.5$8.8 million, or 7%3%, , betweenbetween periods primarily due to a $562$531 million, or 7%6%, increase in average gas plant in service since the corresponding period in the prior year.year, offset by a reduction ($4 million) in amortization of regulatory account balances, as discussed in regard to Operating margin above. The increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled pipe replacement activities, and new infrastructure, as well asinfrastructure.
Other income increased $14 million between the implementationtwelve-month periods of a new customer information system placed into production in the second quarter of 2021. Amortization of2023 and 2022. Interest income increased $18.7 million between periods related to carrying charges associated with regulatory account balances, impacted expensenotably deferred purchased gas cost balances, which have increased substantially since the comparable period in both periods, which is offset in Operating margin above.
Taxesthe the prior year. Non-service-related components of employee pension and other than income taxes increased $13.5postretirement benefit costs decreased $15.1 million between periods. Offsetting these impacts was a $5.1 million decline in COLI results between periods, a $9 million reserve for a software project deemed non-recoverable from utility operations, and a $3 million market adjustment on other property in 2022.
Net interest deductions increased $26 millionbetween periods primarily due to an increase$600 million of Senior Notes issued in property taxesMarch 2022, $300 million of Senior Notes issued in Arizona,December 2022, and, to a lesser extent, in California and Nevada jurisdictions.
Other income decreased $18.3 million between the twelve-month periods of 2022 and 2021, primarily due to current-period income of $4.1 million related to COLI policy cash surrender values and net death benefits recognized, compared to the twelve months ended March 31, 2021 which reflected an exceptionally large increase in values of $27.4 million (including $3.7$300 million of net death benefits). Additionally, equity AFUDC was lower by $5.6 million, due to the impactSenior Notes issued in March 2023. Other impacts include increased interest associated with a higher amount of short-term borrowings havedebt and higher rates on variable-rate debt overall, including under Southwest’s credit facility.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
on AFUDC rates. Offsetting these impacts were non-service cost components of employee pension and other postretirement benefit costs which were $7.8 million lower between periods, and interest income which increased $3.9 million between periods. A gain on sale of non-regulated property in the most recent twelve-month period also impacted the variance between periods.
Net interest deductions increased $3.7 million between periods primarily due to increased interest associated with $300 million of Senior Notes issued in August 2021, and to a lesser extent, $600 million of Senior Notes issued in March 2022.
Income tax expense decreased $9increased $3.7 million between the twelve-month periodperiods ended March 31, 20222023 and 2021,2022, primarily due to a reduction in pre-tax book income, additional amortization of EADITexcess accumulated deferred income taxes (“EADIT”) ($55.3 million), and to a lesser extent, changes in Arizona and California state apportionment percentages of $2.8$3.2 million, and return to provision differences of $5.1 million. Income tax expense in both periods reflects that COLI results are recognized without tax consequences.
Results of Utility Infrastructure Services
Quarterly Analysis
| | | Three Months Ended March 31, | | Three Months Ended March 31, |
(Thousands of dollars) | (Thousands of dollars) | | 2022 | | 2021 | (Thousands of dollars) | | 2023 | | 2022 |
Utility infrastructure services revenues | Utility infrastructure services revenues | | $ | 523,877 | | | $ | 363,975 | | Utility infrastructure services revenues | | $ | 653,293 | | | $ | 523,877 | |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Utility infrastructure services expenses | Utility infrastructure services expenses | | 503,232 | | | 335,614 | | Utility infrastructure services expenses | | 603,680 | | | 503,232 | |
Depreciation and amortization | Depreciation and amortization | | 37,612 | | | 24,744 | | Depreciation and amortization | | 37,870 | | | 37,612 | |
Operating income (loss) | Operating income (loss) | | (16,967) | | | 3,617 | | Operating income (loss) | | 11,743 | | | (16,967) | |
Other income (deductions) | Other income (deductions) | | (486) | | | (102) | | Other income (deductions) | | (680) | | | (486) | |
Net interest deductions | Net interest deductions | | 11,131 | | | 1,622 | | Net interest deductions | | 22,376 | | | 11,131 | |
Income (loss) before income taxes | | (28,584) | | | 1,893 | | |
Income tax expense (benefit) | | (6,170) | | | 1,200 | | |
Net income (loss) | | (22,414) | | | 693 | | |
Loss before income taxes | | Loss before income taxes | | (11,313) | | | (28,584) | |
Income tax benefit | | Income tax benefit | | (1,180) | | | (6,170) | |
Net loss | | Net loss | | (10,133) | | | (22,414) | |
Net income attributable to noncontrolling interests | Net income attributable to noncontrolling interests | | 1,072 | | | 1,552 | | Net income attributable to noncontrolling interests | | 1,739 | | | 1,072 | |
Contribution to consolidated results attributable to Centuri | | $ | (23,486) | | | $ | (859) | | |
Contribution to consolidated results | | Contribution to consolidated results | | $ | (11,872) | | | $ | (23,486) | |
Utility infrastructure services revenuesrevenues increased $159.9$129.4 million or 44%, inin the first quarter of 20222023 when compared to the prior-year quarter, including $113.8driven primarily by a $51.7 million from Riggs Distler. Revenues fromincrease in electric infrastructure services increasedrevenues and a $43.3 million increase in offshore wind revenue, which is reflected as a component of other revenues (refer to $88 millionNote 3 – Revenue in the first quarterthis Quarterly Report on Form 10-Q). Offshore wind revenue stems from three multi-year contracts whereby Riggs Distler provides materials, subcontracts manufacturing, and self performs fabrication and assembly of 2022 when compared to the prior-year quarter, of which $67.5 million was recorded by Riggs Distler. Includedsecondary steel components onshore, with delivery at a port facility. The increase in electric infrastructure services revenues overall was $14due to growth from both new and existing customers as well as revenues of $30.6 million from emergency restoration services performed by Linetec and Riggs Distler following tornado and other storm damage to customers’ above-ground utility infrastructure in and around the Gulf Coast and eastern regions of the U.S., compared to $9$14.1 million in thestorm restoration work in the prior-year quarter. Centuri’s revenues derived from storm-related services vary from period to period due to the unpredictable nature of weather-related events, and when this type of work is performed, it typically generates a higher profit margin than core infrastructure services, due to improved operating efficiencies related to equipment utilization and absorption of fixed costs. The current quarter increase also included approximately $38.8 million inincreased gas infrastructure services revenues including $13.6of $36.7 million recorded by Riggs Distler, primarily resulting from increased volumes under master service agreements. $29.7 million of revenue related to a new bid contract that commenced during the first quarter of 2023, as well as favorable weather in several operating locations, which allowed projects in those areas to be completed during an otherwise seasonally slow period.
Utility infrastructure services expensesexpenses increased $167.6$100.4 million in the first quarter of 20222023 when compared to the prior-year quarter. The overall increase includes $104.1 million incurredprior year quarter, driven primarily by Riggs Distler, and incremental costs related to thea higher volume of infrastructure services provided. Changeswork. Subcontractor costs increased during the first quarter of 2023 compared to the prior-year quarter primarily due to increased work under offshore wind projects. Despite continued inflationary pressures, operating margin in the first quarter of 2023 improved due to changes in the mix of work and inflationary pressures ledincreased operating efficiencies related to higher input costs including fuel and subcontractor expenses, while higher rental and tooling costs were incurred in support of growth in our electric infrastructure business. The incremental impact of fuel costs in the current environment is estimated at $5 million. These impacts are in contrast to the first quarter of 2021, whenemergency restoration services, as well as favorable weather and mix of work provided improved efficiencies and relative favorable results were uncustomary compared to first quarters that typically bring higher losses, given the seasonal nature of the business and winter-weather hampering effects on construction efforts.conditions in other locations. Also included in total Utility infrastructure services expenses were general and administrative costs, which increaseddecreased approximately $7.1$0.1 million between quarters including $4 million of general and administrative costs incurred by Riggs Distler. Other administrative costs increased due to the continued growthfull integration of Riggs Distler as well as the impact of cost saving measures implemented in the business.2022. Gains on sale of equipment in the first quarter of 20222023 and 20212022 (reflected as an offset to Utility infrastructure services expenses) were approximately $661,000 and $413,000, respectively.
The increase in net interest deductions of $11.2 million was primarily due to higher interest rates on outstanding variable-rate borrowings.
Income tax benefit decreased $5 million between quarters, primarily due to a reduction in pre-tax loss in 2023 and $1.5 million, respectively.changes in state apportionment rates.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
Depreciation and amortization expense increased $12.9 million between quarters, of which $12.3 million was recorded by Riggs Distler. The remaining increase was attributable to equipment and computer systems purchased to support the growing volume of infrastructure work.
The increase in Net interest deductions of $9.5 million was primarily due to incremental interest related to outstanding borrowings under Centuri’s $1.545 billion amended and restated secured revolving credit and term loan facility in conjunction with the acquisition of Riggs Distler.
Results of Utility Infrastructure Services
Twelve-Month Analysis
| | | Twelve Months Ended March 31, | | Twelve Months Ended March 31, |
(Thousands of dollars) | (Thousands of dollars) | | 2022 | | 2021 | (Thousands of dollars) | | 2023 | | 2022 |
Utility infrastructure services revenues | Utility infrastructure services revenues | | $ | 2,318,563 | | | $ | 1,978,770 | | Utility infrastructure services revenues | | $ | 2,889,743 | | | $ | 2,318,563 | |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Utility infrastructure services expenses | Utility infrastructure services expenses | | 2,123,085 | | | 1,745,729 | | Utility infrastructure services expenses | | 2,629,766 | | | 2,123,085 | |
Depreciation and amortization | Depreciation and amortization | | 130,511 | | | 98,548 | | Depreciation and amortization | | 155,611 | | | 130,511 | |
Operating income | Operating income | | 64,967 | | | 134,493 | | Operating income | | 104,366 | | | 64,967 | |
Other income (deductions) | Other income (deductions) | | 683 | | | (67) | | Other income (deductions) | | (1,081) | | | 683 | |
Net interest deductions | Net interest deductions | | 30,508 | | 7,992 | | Net interest deductions | | 72,616 | | 30,508 | |
Income before income taxes | Income before income taxes | | 35,142 | | | 126,434 | | Income before income taxes | | 30,669 | | | 35,142 | |
Income tax expense | Income tax expense | | 11,406 | | 34,477 | | Income tax expense | | 10,717 | | | 11,406 | |
Net income | Net income | | 23,736 | | | 91,957 | | Net income | | 19,952 | | | 23,736 | |
Net income attributable to noncontrolling interests | Net income attributable to noncontrolling interests | | 5,943 | | 7,750 | | Net income attributable to noncontrolling interests | | 6,273 | | 5,943 | |
Contribution to consolidated net income attributable to Centuri | | $ | 17,793 | | | $ | 84,207 | | |
Contribution to consolidated results | | Contribution to consolidated results | | $ | 13,679 | | | $ | 17,793 | |
Utility infrastructure services revenues increased $339.8$571.2 million or 17%, in the current twelve-month period compared to the corresponding period of 2021,2022, including $277.7 milliona recorded by$408.4 million increase at Riggs Distler subsequent(acquired in August 2021), of which $132.9 million related to its acquisition on August 27, 2021.offshore wind projects that are reflected as a component of other revenues. Revenues from electric infrastructure services overall increased $179.7$216.6 million in 2022the current twelve-month period when compared to the prior year, of whichwith $175.5125.6 million attributable to was recorded by Riggs Distler. IncludedIncluded in the incremental electric infrastructure revenues during the twelve-month period of 20222023 was $70.5$86.1 million from emergency restoration services performed by Linetec and Riggs Distler, following hurricane, tornado, and other storm damage to customers’ above-ground utility infrastructure in and around the Gulf Coast and eastern regions of the U.S., and Canada, as compared to $90.5$70.5 million in similar services during the twelve-month period in 2021. 2022. The remaining increase in revenue was attributable to continued growth with existing gas infrastructure customers under master service and bid agreements, partially offset by reduced work with two significant customers during the 2022 twelve-month period (totaling $60.6 million), due to the mix of projects under each customer’s multi-year capital spending programs.agreements.
Utility infrastructure services expenses increased $377.4$506.7 million or 22%, between periods (including $14. The overall increase included $373.7 million from Riggs Distler, and incremental costs related to the generally higher volume of work. Changes in the mix of work caused by customers’ supply chain challenges, as well as inflation, led to higher input costs including fuel and subcontractor expenses, as well as increased project-related travel and equipment rental costs incurred to fulfill electric infrastructure services. A loss of $7.5 million was incurred on a gas infrastructure bid project during the current twelve-month period due to higher costs than anticipated and scheduling delays. General and administrative costs, included in total Utility infrastructure services expenses, decreased approximately $3.4 million between comparative periods attributable to $13.9 million of professional fees related toincurred during the acquisitiontwelve-month period of Riggs Distler). The increase overall includes $249 million incurred by2022 in connection with the Riggs Distler subsequent to the acquisition as well as incrementalthat did not recur in 2023, offset by $6.1 million of strategic review and severance costs related to electric infrastructure services work and costs necessary for the completion of additional gas infrastructure work. Higher fuel costs, equipment rental expense, and subcontractor expenses were also incurred in support of growth in our electric infrastructure business. Expenses in relation to revenues, and therefore, profit margins, can be impacted by the mix of work and inefficiencies from equipment and facility utilization and under-absorption of other fixed costs, which occurred due to the reduced work from the two large customers and lower revenues from emergency restoration services as noted above. Also included in total Utility infrastructure services expenses were general and administrative costs, which increased approximately $26.5 million between comparative periods, including the noted current twelve-month period. O$14 million of acquisition-related professional fees and an additional $13.3 million of general and administrative costs incurred by Riggs Distler subsequent to the acquisition. Otherther administrative costs increased due to the growth in the business.business, including incremental costs incurred by Riggs Distler. Gains on sale of equipment (reflected as an offset to Utility infrastructure services expenses) were approximately approx$5.8imately $6.6 million and $3.3$5.8 million for the twelve-month periods of 20222023 and 2021,2022, respectively.
Depreciation and amortization expense increased increased $32$25.1 million bbetwetweeneen the current and prior-year twelve-month periods, of which $29.1$23.3 million was recorded byrelates to Riggs Distler.
Net interest deductions increased $42.1 million between periods due to incremental outstanding borrowings under Centuri’s $1.545 billion amended and restated secured revolving credit and term loan facility which funded the 2021 acquisition of Riggs Distler, subsequentin addition to the acquisition. The remaining increase was attributable to equipment and computer systems purchased to support the growing volume of infrastructure work.higher interest rates on outstanding variable-rate borrowings.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
Net interest deductions increased $22.5 millionbetween periods due to incremental interest related to outstanding borrowings under Centuri’s $1.545 billion amended and restated secured revolving credit and term loan facility in conjunction with the acquisition of Riggs Distler.
Results of Pipeline and Storage
Quarterly Analysis
The first quarter of 2022 was the first reporting period of post-acquisition operating | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
(Thousands of dollars) | | 2023 | | 2022 | | |
Regulated operations revenues | | $ | 35,132 | | | $ | 66,993 | | | |
Operating expenses: | | | | | | |
Net cost of gas sold | | 6,368 | | | 1,797 | | | |
Operations and maintenance expense | | 11,378 | | | 24,312 | | | |
Depreciation and amortization | | — | | | 12,920 | | | |
Taxes other than income taxes | | 1,490 | | | 3,164 | | | |
Goodwill impairment | | 21,215 | | | — | | | |
Operating income (loss) | | (5,319) | | | 24,800 | | | |
Other income (deductions) | | 486 | | | 543 | | | |
Net interest deductions | | 2,200 | | | 4,382 | | | |
Income (loss) before income taxes | | (7,033) | | | 20,961 | | | |
Income tax expense | | 9,255 | | | 4,031 | | | |
Contribution to consolidated results | | $ | (16,288) | | | $ | 16,930 | | | |
Operating results for the pipeline and storage segment.
| | | | | | | | | | |
| | Three Months Ended March 31, | | |
(Thousands of dollars) | | 2022 | | |
Regulated operations revenues | | $ | 66,993 | | | |
segment for the first quarter of 2023 reflect activity from January 1, 2023 through February 13, 2023 (the last full day of ownership by the Company). Operating expenses: | | | | |
Net cost of gas sold | | 1,797 | | | |
Operations and maintenance expense | | 24,312 | | | |
Depreciation and amortization | | 12,920 | | | |
Taxes other than income taxes | | 3,164 | | | |
Operating income | | 24,800 | | | |
Other income (deductions) | | 543 | | | |
Net interest deductions | | 4,382 | | | |
Income before income taxes | | 20,961 | | | |
Income tax expense | | 4,031 | | | |
Contribution to consolidated results attributable to MountainWest | | $ | 16,930 | | | |
Current period operating results includeincluded rate-regulated transmission and subscription storage revenues of $61.1 million.$34 million and $62 million during the three months ended March 31, 2023 and 2022, respectively. Operating expenses include $8.7$2.6 million during the current quarter related to integration/stand-up costs leading up to the sale date. Depreciation and amortization was not recorded in 2023 as MountainWest was classified as held for sale during the holding period. Income tax expense includes the impact of costs associated with integratingbook versus tax basis differences related to the sale completed in 2023. A discussion of the twelve months ended March 31, 2023 to the comparable prior-year period is omitted as the Company owned MountainWest including employee retention payments. Additional integration costs will be incurredfor only three months of the twelve-month period ended March 31, 2022. For further impacts from the sale on MountainWest to Southwest Gas Holdings, Inc. in future periods until integration efforts are completed.the post-closing period, refer to Note 7 – Segment Information.
Rates and Regulatory Proceedings
Southwest is subject to the regulation of the Arizona Corporation Commission (the “ACC”(“ACC”), the Public Utilities Commission of Nevada (the “PUCN”), the California Public Utilities Commission (the “CPUC”), and the Federal Energy Regulatory Commission (the “FERC”). Due to the size of Southwest’s regulated operations and the frequency of rate cases and other procedural activities with its commissions, the following discussion focuses primarily on the proceedings within its natural gas distribution operations.
General Rate Relief and Rate Design
Rates charged to customers vary according to customer class and rate jurisdiction and are set by the individual state and federal regulatory commissions that govern Southwest’s service territories. Southwest makes periodic filings for rate adjustments as the cost of providing service changes (including the cost of natural gas purchased), and as additional investments in new or replacement pipeline and related facilities are made. Rates are intended to provide for recovery of all commission-approved costs and a reasonable return on investment. The mix of fixed and variable components in rates assigned to various customer classes (rate design) can significantly impact the operating margin actually realized by Southwest. Management has worked with its regulatory commissions in designing rate structures that strive to provide affordable and reliable service to its customers while mitigating volatility in prices to customers and stabilizing returns to investors. Such rate structures were in place in all of Southwest’s operating areas during all periods for which results of natural gas distribution operations are disclosed above.
Arizona Jurisdiction
Arizona General Rate Case. In December 2021, Southwest filed a general rate case application proposing a revenue increase of approximately $90.7 million. Although updated rates related to the previous rate case became effective in JanuaryDecember 2021, the most significant driver for the new request is the necessityprimarily to reflect in rates the substantial capital investments that have beenwere made since the end of the test year in the previousan earlier case, including theinvestments in a customer information system implemented in May 2021. The current filing is based onAt a test year ended August 31, 2021hearing held in September 2022, Southwest, the Utilities Division Staff (the “Staff”), and proposesthe Residential Utility Consumer Office jointly stipulated to several issues, including a target capital structure consisting of 50% equity and 50% debt; a 9.30% return on common equity of 9.90% relative to a target equity ratio of 51%. Recovery (over three years) of the approximately $12 millionequity; and foregoing an acquisition premium related to the outstanding deferral
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
balance associated with the LNG facility (see below) is includedrecent Graham County acquisition as well as recovery of $12 million of waived late fees on customer account balances that would have otherwise applied to delinquent accounts in the request, along withabsence of a COVID-19 moratorium on such fees. Among the approximately $2.5 million (also over three years) in late payment charges thatuncontested issues identified prior to the hearing were suppressed from customer accounts during the COVID-19 pandemic. A request to continuecontinuation of the Delivery Charge Adjustment (“DCA”), Southwest’s full-revenuefull revenue decoupling mechanism, is also included, while no changes to Southwest’sthe continuation of the existing rate design are proposed. A decision is anticipated by(with the endexception of 2022,an updated year-round Low Income Ratepayer Assistance program), and Southwest’s alternate property tax expense calculation, reflecting actual incurred property tax expense in 2021, instead of a pro-forma adjustment reflecting forecasted property tax expense. Approximately $12 million in costs related to the Liquefied Natural Gas facility deferred in an authorized regulatory asset will be amortized over four years. The ACC’s final order authorized a $54.3 million increase, with new rates expected to be effective in the first quarter ofFebruary 1, 2023.
Delivery Charge Adjustment. The DCA is filed each April, which along with other reporting requirements, contemplates a rate to recoverrecover/return the over- or under-collected margin tracker (decoupling mechanism) amounts based on the balance at the end of the reporting period.balance. An April 2022 filing proposesrequest proposed a rate to return $10.5 million, the over-collected balance existing at the end of the first quarter 2022, which became effective July 1, 2022. A filing was made prior to the end of April 2023 to request a rate to address the over-collected balance of $53.5 million as of March 31, 2023.
Tax Reform.In the most recently concluded Arizona general rate proceeding, aA Tax Expense Adjustor Mechanism (“TEAM”) was approved in Southwest’s 2019 general rate case to timely recognize any future tax rate changes resulting from federal or state tax legislation.legislation following the TEAM implementation. In addition, the TEAM tracks and returns/recovers the revenue requirement impact of changes in amortization of EADIT amortization(including that which resulted from 2017 U.S. federal tax reform) compared to the amount authorized in the most recently concluded rate case. InFollowing inaugural surcredit rate establishment under the TEAM mechanism, in December 2021,2022, Southwest filed its inauguralmost recent TEAM rate application, forproposing to update the recoveryTEAM surcredit to refund $6.5 million of approximately $4.3 million associated withestimated net EADIT savings, which was approved by the mechanism. The commission staff is expected to issue its report on the filing in the secondquarter of 2022 for ACC consideration at a subsequent open meeting.
Liquefied Natural Gas (“LNG”) Facility. In 2014, Southwest sought ACC 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 related to natural gas deliveries in the southern Arizona area by providing a local storage option, connecting directly to Southwest’s distribution system. Southwest was ultimately granted approval for construction and deferral of costs. The facility was placed in service in December 2019. The capital costs and the operating expenses associated with plant operation were approved and considered as part of Southwest’s previous general rate case. Approximately $12 million in costs, incurred following the in-service date of the facility and after the period considered as part of the previous general rate case, were deferred in the previously authorized regulatory asset account and are included for consideration in the current general rate case application.will be effective May 1, 2023.
Customer-Owned Yard Line (“COYL”) Program. Southwest originally received approval, in connection with its 2010 Arizona general rate case, to implement a program to conduct leak surveys, and if leaks were present, to replace and relocate service lines and meters for Arizona customers whose meters were set off from the customer’s home, representing a non-traditional configuration. A filing in May 2021 proposed the recovery of previously unrecovered surcharge revenue from 2019 and 2020 (collectively, $13.7 million) over a one-year period.The COYL program has been subject to proceedings to recover investments since that time. In November 2021, the ACC approved full recovery within the proposed timeline, the rate for which was implemented the same month. In a February 2022 filing,2023, Southwest requested to increase its surcharge revenue by $3.4 millionapproval to recover the outstanding revenue requirement of approximately $4.3 million associated with previous2022 COYL investments, made since August 2020 and through calendar year 2021, with a proposedwhich will increase the COYL recovery rate. The new rate implementation ofis anticipated to become effective June 2022.1, 2023.
Vintage Steel Pipe (“VSP”) Program. Southwest received approval, in connection with its 2016 Arizona general rate case, to implement a VSP replacement program, due to having a substantial amount of pre-1970s vintage steel pipe in Arizona. However, as part of Southwest’s most recent2020 general rate case decision, in 2020, the ACC ultimately decided to discontinue the accelerated VSP program. A filing in May 2021 proposed the recovery of previously unrecovered surcharge revenue relating to investments during 2019 and 2020, with approximately $60 million to be recovered over a three-year period. In November 2021, the ACC approved full recovery over the proposed three-year timeline with updated rates, for which were implementedbecame effective in March 2022.
Graham County Utilities. In April 2021, Southwest and Graham County Utilities, Inc. (“GCU”) filed a joint application with the ACC for approval to transfer assets of GCU to Southwest and extend Southwest’s Certificate of Public Convenience and Necessity to serve the more than 5,000 associated customers, for a purchase price of $3.5 million. Approval of the application by the ACC was received in December 2021, with final transfer in mid-January 2022. Former GCU customers continueretained their existing rates while Southwest’s most recent rate case was processed; the customers moved to be served under existing GCU rates until such time as they are rolled into Southwest’s rates effective March 1, 2023.
PGA Modification. On March 1, 2023, Southwest filed a request to adjust the interest rate applicable to the outstanding Purchased Gas Adjustment (“PGA”) balance to more closely match the interest expense incurred to finance the balance. In the alternative, the filing requests an expansion of the current gas cost balancing account (“GCBA”) adjustment to clear the then existing $351 million balance over one year, which would result in an increase of the current GCBA adjustment rate of $0.10 per therm to more than $0.50 per therm until the balance drops below $10 million, at which time the GCBA adjustment rate would be set to $0.00 per therm. The GCBA is in addition to ongoing deferred energy rates updated monthly. Expedited treatment was requested with a proposed to take place in conjunction with the effective date of rates resulting from the currently pending Arizona general rate case.June 1, 2023 implementation.
California Jurisdiction
California General Rate Case. In August 2019, Southwest filed a general rate case based on a 2021 test year, seeking authority to increase rates in its California rate jurisdictions, after being granted earlier permission to extend the rate case cycle by two years and continue its 2.75% previously approved Post-Test Year (“PTY”) attrition adjustments for 2019 and 2020.
Southwest reached an agreement in principle with the Public Advocate’s Office, which was unanimously approved by the CPUC on March 25, 2021, including a $6.4 million total combined revenue increase with a 10% return on common equity, relative to a 52% equity ratio. Approximately $4 million of the original proposed increase was associated with a North Lake
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
Tahoe project that would not ultimately be completed by the beginning of 2021; consequently, the parties agreed to provide for recovery of the cost of service impacts of the project through a future surcharge. The rate case decision maintains Southwest’s existing 2.75% annual attrition adjustments and the continuation of the pension balancing account. It also includes cumulative expenditures totaling $119 million over the five-year rate cycle to implement risk-informed proposals, consisting of a school COYL replacement, meter protection, and pipe replacement programs. Although new rates were originally anticipated to be in place by January 1, 2021, in light of an administrative delay, Southwest was granted authority to establish a general rate case memorandum account to track the impacts related to the delay in the implementation of new rates for purposes of later recovery. New rates were ultimately implemented April 1, 2021.
Attrition Filing. Following the 2021 implementation of rates approved as part of the general rate case, Southwest is also authorized to implementand the continuing annual PTYPost Test Year (“PTY”) attrition increases of 2.75%, indicated above, the first annual adjustment of whichsuch increase following the rate case effective date began in January 2022.2022, with the most recent annual attrition increase effective January 1, 2023. The PTY increase associated with the North Lake Tahoe Lateral revenue requirement became effective February 1, 2023.
Customer Data Modernization Initiative (“CDMI”). In April 2019, Southwest filed an application with the CPUC seeking authority to establish a two-way, interest-bearing balancing account to record costs associated with the CDMI to mitigate adverse financial implications associated with thisrelated to the earlier multi-year project (including a new customer information system, ultimately implemented in May 2021). Effective October 2019, the CPUC granted a memorandum account, which allowed Southwest to track costs, including operations and maintenance costs and capital-related costs, such as depreciation, taxes, and return associated with California’s portion of the CDMI (initially estimated at $19 million). The balance tracked in the memorandum account was transferred to the two-way balancing account in July 2020. A rate to begin recovering the balance accumulated through June 30, 2020 was established and made effective September 1, 2020, and updated multiple times since, including in January 2021, August 2021, and January 2022.2023. This rate is expected to be updated at least annually.
Carbon Offset Program.In March 2022, Southwest filed an application to seek approval to offer a voluntary program to California customers to purchase carbon offsets in an effort to provide customers additional options to reduceoffset their respective GHGgreenhouse gas (“GHG”) emissions. A request to establish a two-way balancing account to track program-related costs and revenues was included as part of the application. The CPUC issued a decision dismissing Southwest’s application without prejudice. Southwest anticipates filing a new application in 2023 addressing concerns raised by third parties as part of the earlier request, which included a request to demonstrate that purchased offsets would result in GHG emissions reductions.
Building Decarbonization. A CPUC decision was issued regarding the elimination of monetary allowances for gas line extensions, a 10-year refundable payment option, and the 50% discount payment option for both residential and non-residential customers of all California gas utilities. This applies to new applications for gas line extensions submitted on or after July 1, 2023. Although this decision eliminates the various allowances related to line extensions, it does not preclude extending natural gas service to customers.
Residential Disconnection Protections. A decision was issued by the CPUC establishing disconnection protections for residential customers of small and multi-jurisdictional utilities, including Southwest. A similar decision was adopted for four large California utilities in 2023.2020. This decision imposes an annual disconnection cap and prohibits the utility from assessing credit deposits for residential customers establishing or re-establishing service, and prohibits the assessment of reconnection fees for residential customers, among other provisions. The decision, however, also provides authorization to establish a two-way balancing account to track residential uncollectible charges with the first rates expected to be implemented January 1, 2024. The decision also authorized a memorandum account to track uncollected reconnection charges for possible future recovery in Southwest’s next general rate case.
Nevada Jurisdiction
Nevada General Rate Case. On August 31, 2021, Southwest filedconcluded its most recent Nevada general rate case which was further updated by a certification filing on December 17, 2021. The request proposed a combined revenue increase of approximately $28.7 million (as of certification); the most significant driver for the new request is the necessity to reflect in rates the substantial capital investments that have been made since the end of the test year in the previous case, including the customer information system that was implemented in May 2021. The filing included a proposed return on common equity of 9.90% with a target equity ratio of 51%; recovery over two years of approximately $6.6 million in previously deferred late payment charges related to a regulatory asset associated with COVID-19; and continuation of full revenue decoupling under the General Revenues Adjustment (“GRA”) mechanism. The filing utilized a test year ended May 31, 2021 with certification-period adjustments through November 30, 2021. On February 7, 2022, the parties filed a stipulation with the PUCN, providing for a statewide revenue increase of $14.05 million, a return on common equity of 9.40% relative to a 50% target equity ratio, and continuation of Southwest’s full revenue decoupling mechanism.mechanism, the General Revenues Adjustment (“GRA”). The stipulation was approved by the commission,PUCN, and new rates became effective April 1, 2022. The commission’sPUCN’s order did not include recovery of the approximate $6.6 million in previously deferred late payment charges related to a regulatory asset associated with COVID 19 (as noted below).a COVID-19 moratorium on disconnections previously in place.
General Revenues Adjustment. As noted above, the continuation of the GRA was affirmed as part of Southwest’s most recent general rate case with an expansion to include a large customer class (with average monthly throughput requirements greater than 15,000 therms), effective April 2022. Southwest makes Annual Rate Adjustment (“ARA”) filings to update rates to recover or return amounts associated with various regulatory mechanisms, including the GRA. Southwest made its most recent ARA filing in November 20212022 related to balances as of September 30, 2021. New2022. Given the magnitude of the outstanding balances, further discussion with the parties resulted in a settlement of the issues and utilizing a more current balance as of January 2023 to better align the rates related to that filing will be effective July 1, 2022. While there is noimplemented with the existing balance. Recovery rates and adjustments thereto as part of the ARA primarily impact tocash flows but not net income overall from adjustments to recovery rates associated with the related regulatory balances, operating cash flows are impacted by such changes.overall.
COYL Program. In August 2021, Southwest filed a joint petition with the Regulatory Operations Staff of the PUCN proposing a Nevada COYL replacement program to include residential COYLs, public school COYLs, and any other COYLs that are identified to be a safety concern. The petition was approved in January 2022 and provides for capital investments up to $5 million per year for five years and the establishment of a regulatory asset to track the capital-related costs. After five years, the program will be reassessed to determine if it should be continued.
Infrastructure Replacement Mechanism. In 2014, the PUCN approved final rules for the Gas Infrastructure Replacement (“GIR”) mechanism, which provided for the deferral and recovery of certain costs associated with accelerated replacement of qualifying infrastructure that would not otherwise provide incremental revenues between general rate cases. Associated with the replacement of various types of pipe infrastructure under the mechanism (Early Vintage Plastic Pipe, COYL, and VSP), the
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
related regulations provide Southwest with the opportunity to file a GIR “Advance Application” annually to seek preapproval of qualifying replacement projects.
In cases where preapproval of projects is requested and granted, a GIR rate application is separately filed to reset the GIR recovery surcharge rate related to previously approved and completed projects. On September 30, 2021, Southwest filed its latest rate application to reset the recovery surcharge to include cumulative deferrals through August 31, 2021. The updated surcharge rate is expected to result in an annual revenue decrease of approximately $1.4 million in southern Nevada and an annual revenue increase of $66,000 in northern Nevada. The parties reached a stipulation that was approved by the commission and new rates became effective January 1, 2022.
Conservation and Energy Efficiency. The PUCN allows deferral (and later recovery) of approved conservation and energy efficiency costs, recovery rates for which are adjusted in association with ARA filings. In its November 20212022 ARA filing, Southwest proposed an annualized margin decreasesrevenue increase of $574,000$139,000 and $434,700a decrease of $290,000 for southern and northern Nevada, respectively, requestedrespectively. A stipulation related to become effective in July 2022. In May 2021, Southwest filed its Conservationthe conservation and Energy Efficiency plan for the years 2022 – 2024, with a proposed annual budget amount of approximately $3 million. A PUCN decision received in the fourth quarter 2021 authorized the continuation of Southwest’s currently authorized programsenergy efficiency costs and an annual budget of approximately $1.3 million.
Expansion and Economic Development Legislation. In January 2016, final regulations were approved by the PUCN associated with legislation (“SB 151”) previously introduced and signed into law in Nevada. The legislation authorized natural gas utilities to expand their infrastructure to provide service to unserved and underserved areas in Nevada.
In November 2017, Southwest filed for preapproval of a project to extend service to Mesquite, Nevada, in accordance with the SB 151 regulations. Ultimately, the PUCN issued an order approving Southwest’s proposal for the expansion, and Southwest provides periodic updates and adjusts the rates to recover the revenue requirement associated with the investments to serve customers as part of the ARA filings and rate case proceedings. As of March 2022, approximately 40 miles of natural gas infrastructure has been installed throughout the Mesquite expansion area.
In June 2019, Southwest filed for preapproval to construct the infrastructure necessary to expand natural gas service to Spring Creek, near Elko, Nevada, and to implement a cost recovery methodology to recover the associated revenue requirement consistent with the SB 151 regulations. The expansion facilities consist of a high-pressure approach main and associated regulator stations, an interior backbone, and an extension of the distribution system from the interior backbone. The total capital investment was estimated to be $61.9 million. A stipulationother ARA-related mechanisms was reached with the parties and approved by the PUCN with rates effective July 1, 2023. Separately, in December 2019, including in regardMay 2022, Southwest filed an application seeking approval of its annual Conservation and Energy Efficiency Plan Report for 2021, with no proposed modifications to the rate recovery allocation amongst northern Nevada, Elko, and Spring Creek expansion customers. Construction beganpreviously approved $1.3 million annual budget for years 2022-2024. The parties reached a stipulation that was approved by the PUCN in the third quarter of 2020, and service commenced to the first Spring Creek customers in December 2020. As of March 31, 2022, approximately 28 miles of natural gas infrastructure has been installed throughout the Spring Creek expansion area, and is anticipated to be completed in 2026.
Regulatory Asset Related to COVID-19. The PUCN issued an order directing utilities within the state to establish regulatory asset accounts, effective March 12, 2020, the date the Governor declared a state of emergency related to COVID-19, to track the financial impacts associated with maintaining service for customers affected by COVID-19, including those whose service would have been otherwise terminated/disconnected. These amounts, totaling approximately $6.6 million, were included in Southwest’s recently concluded general rate case request. The commission ultimately decided that the deferred late payment charges that made up the $6.6 million did not qualify as costs of maintaining service and denied recovery. However, this amount was previously fully reserved by management pending the outcome of the ultimate proceeding.July 2022.
Carbon Offset Program. In June 2021, Southwest filed an application to seek approval to offer a voluntary program to northern and southern Nevada customers to purchase carbon offsets in an effort to provide customers additional options to reduceoffset their
respective GHG emissions. A request to establish a regulatory asset to track program-related costs and revenues was included as part of the application. The parties reached a stipulation that was approved by the commissionPUCN in December 2021, approving Southwest’s proposal. Implementation of theThe program is expectedopened for customer participation in the secondfourth quarter of 2022.
FERC Jurisdiction
General Rate Case. In 2020, Great Basin Gas Transmission Company (“Great Basin”), a wholly owned subsidiary of Southwest, reached an agreement in principle with the FERC Staff providing that its three largest transportation customers and all storage customers would be required to have primary service agreement terms of at least five years, that term-differentiated rates would continue generally, and included a 9.90% pre-tax rate of return. Interim rates were made effective February 2020. As part of the settlement, Great Basin will not file a rate case later than May 31, 2025.
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SOUTHWEST GAS HOLDINGS, INC.MountainWest Overthrust Pipeline. On September 22, 2022, during the period of Southwest Gas Holdings’ ownership of the MountainWest entities, the FERC issued an order initiating an investigation, pursuant to section 5 of the Natural Gas Act, to determine whether rates charged by MountainWest Overthrust Pipeline, LLC, a subsidiary of MountainWest, were just and reasonable and setting the matter for hearing (the “Section 5 Rate Case”). Unless earlier settled by the parties, a hearing on the matter was to commence in August 2023 with an initial decision from the presiding administrative law judge due by November 14, 2023. Under the terms of the purchase and sale agreement entered into in connection with the MountainWest sale, the Company became obligated, for a period of four years following the closing of the MountainWest sale, to indemnify Williams and MountainWest for any damages and liabilities resulting from the Section 5 Rate Case, including any reduction to the current applicable rate, up to a cap of $75 million. Williams, in collaboration with the Company, agreed to a settlement of the Section 5 Rate Case, which is pending approval by the FERC. As a result of the settlement, the Company recorded a charge of $28.4 million, an amount for which it is now expected to be obligated, which is included in Goodwill impairment and loss on sale on the Company’s Consolidated Statements of Income for the three- and twelve- months ended March 31, 2023. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
PGA Filings
The rate schedules in all of Southwest’s service territories contain provisions that permit adjustment 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. Balances are recovered from or refunded to customers on an ongoing basis with interest. As of March 31, 2022,2023, under-collections in each of Southwest’s service territories resulted in an asset of $368$970 million on the Company’s and Southwest’s Condensed Consolidated Balance Sheets. The increase in the PGA balance during the first quarter of 2022 includes nearly $400 million in commodity and transmission costs incurred during this period. See also Deferred Purchased Gas Costs in Note 1 – Background, Organization, and Summary of Significant Accounting Policies in this quarterly report on Form 10-Q.
Filings to change rates in accordance with PGA clauses are subject to audit by state regulatory commission staffs. PGA changes impact cash flows but have no direct impact on operating margin. However, gas cost deferrals and recoveries can impact comparisons between periods of individual consolidated income statement components. These include Regulated operations revenues, Net cost of gas sold, Net interest deductions, and Other income (deductions).
The following table presents Southwest’s outstanding PGA balances receivable/(payable):
| | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | | March 31, 2022 | | December 31, 2021 | | March 31, 2021 |
Arizona | | $ | 255,472 | | | $ | 214,387 | | | $ | 194,446 | |
Northern Nevada | | 13,700 | | | 12,632 | | | 3,036 | |
Southern Nevada | | 93,153 | | | 55,967 | | | 31,849 | |
California | | 5,629 | | | 8,159 | | | 9,555 | |
| | $ | 367,954 | | | $ | 291,145 | | | $ | 238,886 | |
Not included in the PGA balances table above are $297,000 at March 31, 2022 and $5.7 million at December 31, 2021 in deferred purchased gas cost liabilities for MountainWest. | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | | March 31, 2023 | | December 31, 2022 | | March 31, 2022 |
Arizona | | $ | 417,931 | | | $ | 292,472 | | | $ | 255,472 | |
Northern Nevada | | 80,540 | | | 27,384 | | | 13,700 | |
Southern Nevada | | 415,146 | | | 122,959 | | | 93,153 | |
California | | 56,722 | | | 7,305 | | | 5,629 | |
| | $ | 970,339 | | | $ | 450,120 | | | $ | 367,954 | |
Capital Resources and Liquidity
Historically, cash on hand and cash flows from operations have provided a substantial portion of cash used in investing activities (primarily for construction expenditures and property additions). In recent years, Southwest has undertaken significant pipe replacement activities to fortify system integrity and reliability, including on an accelerated basis in association with certain gas infrastructure replacement programs. This activity has necessitated the issuance of both debt and equity securities to supplement cash flows from operations. The Company, in executing on its plansMore recently, a number of conditions, such as winter storms and market forces (including historically low storage levels) have caused gas prices to fund the MountainWest acquisition, initially funded the transaction through short-term borrowings, which would be refinanced through a multi-pronged permanent financing plan by the second quarter of 2022, some of which was executed during the first quarter of 2022 as the Company used $452 million in net proceeds from its underwritten offering of common stock to repay a portion of such short-term borrowings. In the interim, its working capital resources are necessarily low compared to its short-term obligations, which will be alleviated once management completes its execution on the remainder of its plan.spike and remain higher than previous historical levels. The
Company’s capitalization strategy is to maintain an appropriate balance of equity and debt to preserve investment-grade credit ratings, which help minimize interest costs. Investment-grade credit ratings have been maintained following the acquisition.
The Company’s Cash and cash equivalents as of March 31, 2022 and December 31, 2021 were $625 million and $223 million, respectively. The increase in Cash and cash equivalents between periods is largely attributable to Southwest’s net proceeds received from the $600 million 4.05% Senior Notes issuance in March 2022, which were partially used in March 2022 to pay down amounts then outstanding on the credit facility, and in April 2022, to redeem the $250 million 3.875% Senior Notes then maturing, in addition to funding interest payments on various debt ($23 million), with the remaining cash available for general corporate purposes. Additionally, the Company received a $34 million dividend from MountainWest in March 2022, which was partially used in April 2022 to pay a post-closing payment adjustment to the sellers in connection with the MountainWest acquisition (see Note 8 - Business Acquisitions).
Cash Flows
Southwest Gas Holdings, Inc.:
Operating Cash Flows. Cash flows from consolidated operating activities increased $239decreased $372 million in the first three months of 20222023 as compared to the same period of 2021.2022. The improvementdecline in cash flows primarily resulted from the change in purchased gas costs for Southwest, including amounts incurred and deferred, as well as impacts related to when amounts are incorporated in customer bills to recover or return deferred balances. The prior period included a $50 million incremental contributionGas costs recovered from customers were higher in both periods compared to earlier historical periods, but amounts expended for gas purchases substantially increased in the noncontributory qualified
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
retirement plan (reflectedfirst quarter of 2023, reflected also as a changehigher Deferred purchased gas cost balances in other liabilities and deferred credits).advance of rates to recover the balance. Other impacts include benefits from depreciation and changes in components of working capital overall, including collections of accounts receivable balances in the utility infrastructure services segment.overall.
The corporateCorporate and administrative expenses/outflows for Southwest Gas Holdings, Inc. in the three- and twelve-month periods ended March 31, 20222023 mainly include expenses incurred related to shareholder activism, in addition to expenses and financing costs for the MountainWest acquisition, as well as expenses for services performed following December 31, 2021, butcharges related to the acquisition.MountainWest sale that closed in February 2023.
Investing Cash Flows. Cash used inflows from consolidated investing activities increased $9 million$1 billion in the first three months of 20222023 as compared to the same period of 2021.2022. The change was primarily dueoverall increase related to $1.06 billion in proceeds received in connection with the MountainWest sale (which amount is net of cash sold), partially offset by an increase in capital expenditures in both the natural gas distribution segment.and utility infrastructure services segments.
Financing Cash Flows. Net cash provided byCash flows from consolidated financing activities increased $163 milliondecreased $1.1 billion in the first three months of 20222023 as compared to the same period of 2021.2022. The changeoverall decrease was primarily due to Southwest’s issuance of $600 million in notes, in addition to the Company’s $452 millionrepayment ($1.1 billion) of the term loan entered into by Southwest Gas Holdings, Inc. in netNovember 2021 in connection with the acquisition of MountainWest. Other impacts that offset this decrease were proceeds from the issuance of common stock in an underwritten public offering in March 2023 and debt proceeds by Southwest from the current period. Part364-day $450 million term loan to address an escalation in gas purchases (entered into in January 2023 and repaid in full in April 2023). The first quarter of 2023 also included $300 million of Senior Notes (the “March 2023 Notes”) issued by Southwest compared to $600 million in the proceedsfirst quarter of Southwest’s notes issuance was used2022. Other cash flows relate to pay down the amounts then outstandingborrowings and repayment under the long-term portion of itscompanies’ credit facility. The Company used the net proceeds from the common stock issuance to repay a portion of its 364-day Term Loan Facility that was funded in December 2021. In February 2022, Southwest also redeemed $25 million 7.78% series Medium-term notes then maturing. By comparison, the prior period included $203 million net proceeds from the short-term portion of Southwest’s credit facility and the Company’s credit facility, all of which is considered short-term.facilities.
The capital requirements and resources of the Company generally are determined independently for the individual business segments. Each business segment is generally responsible for securing its own debt financing sources. However, the holding company may raise funds through stock issuances or other external financing sources in support of each business segment.
Southwest Gas Corporation:
Operating Cash Flows. Cash flows provided byfrom operating activities increased $260decreased $393 million in the first three months of 20222023 as compared to the same period of 2021.2022. The improvementdecline in operating cash flows was primarily attributable to the impacts related to deferredDeferred purchased gas costs changes (as discussed above), as well as to other working capital changes.
Investing Cash Flows. Cash used in investing activities increased $10$64 million in the first three months of 20222023 as compared to the same period of 2021.2022. The change was primarily due to increases in capital expenditures in 20222023 and decreases related to customer advances for construction (amounts collected and/or returned) as compared to the same period in the prior year. See also Gas Segment Construction Expenditures, and Debt Maturities, and Financing below.
Financing Cash Flows. Net cash provided by financing activities increased $179$31 million in thethe first three months of 20222023 as compared to the same period of 2021. 2022. The increase was primarily due to Southwest’s $450 million term loan borrowing in January 2023 offset by $225 million payment of the term loan entered into in March 2021, along with the issuance of $600 million in notes in the first quarter of 2022 that was not used until April 2022 to redeem $250 million in maturing notes, but was used to repayMarch 2023 Notes noted above, and borrowing and repayment activity under the then outstanding amounts on its credit facility. Offsetting this increase was the redemption of $25 million 7.78% series Medium-term notes that matured in February 2022, parent contributions received in the first quarter of 2021 that did not recur in 2022, and proceeds in the prior year from a $250 million Term Loan issued to fund increased gas purchased costs during the 2021 freeze. See Note 5 – Debt.
Gas Segment Construction Expenditures, Debt Maturities, and Financing
During the twelve-month period ended March 31, 2022,2023, construction expenditures for the natural gas distribution segment were $615$734 million (not including amounts incurred for capital expenditures but not yet paid). The majority of these expenditures represented costs associated with the replacement of existing transmission and distribution and general plantpipeline facilities to fortify system integrity and reliability.reliability, as well as other general plant expenditures.
Management estimates natural gas segment construction expenditures during the five-yearthree-year period ending December 31, 20262025 will be approximately $2.5 to $3.5 billion.$2.0 billion. Of this amount, approximately $650$665 million to $700$685 million is scheduledexpected to be incurred in 2022.during calendar year 2023. Southwest plans to continue to request regulatory support to undertake projects, or to accelerate projects as necessary for the improvement of system flexibility and reliability, or to expand, where relevant, to unserved or underserved areas. Southwest may expand existing, or initiate new, programs. Significant replacement activities are expected to
continue well beyond the next few years. See also Rates and Regulatory Proceedings. During the three-year period ending December 31, 2025, cash flows from operating activities of Southwest are expected to provide approximately 69%77% of the funding for gas operations of Southwest and total construction expenditures and dividend requirements. As ofDuring the quarter ended March 31, 2022,2023, Southwest had $250entered into a 364-day $450 million 3.875% notes maturing (repaidterm loan agreement, and also fully paid off the March 2021 term loan, each of which were initiated to fund spikes in April 2022), and a $250 million Term Loan due in March 2023. Any additionalnatural gas purchases. Additional cash requirements, including construction-related, and pay down or refinancing of debt, are expected to be provided by existing credit facilities,
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
equity contributions from the Company, and/or other external financing sources. The timing, types, and amounts of additional external financings will be dependent on a number of factors, including the cost of gas purchases, conditions in the capital markets, timing and amountsamount of rate relief, timing and amountsamount of surcharge collections from, or amounts returned to, customers related to other regulatory mechanisms and programs, as well as growth levels in Southwest’s service areas and earnings. External financings may include the issuance of debt securities, bank and other short-term borrowings, and other forms of financing.
Bonus Depreciation
In 2017, with the enactment of U.S. tax reform, the bonus depreciation deduction percentage changed from 50% to 100% for “qualified property” placed in service after September 27, 2017 and before 2023. The bonus depreciation tax deduction phases out starting in 2023, by 20% for each of the five following years. Qualified property excludes public regulated operations property. The Company estimates bonus depreciation will defer the payment of approximately $27 million (which relates to utility infrastructure services operations) of federal income taxes for 2022.
Dividend Policy
Dividends are payable on the Company’s common stock at the discretion of the Board. In setting the dividend rate, the Board currently targets a payout ratio of 55% to 65% of consolidated earnings per share and considers, among other factors, current and expected future earnings levels, our ongoing capital expenditure plans, expected external funding needs, and our ability to maintain strong investment-grade 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 2022,2023, the Board electeddetermined to increasemaintain the quarterly dividend from at$0.595 to $0.62 per share representing a 4.2% increase,, effective with the June 20222023 payment.
Liquidity
Liquidity refers to the ability of an enterprise to generate sufficient amounts of cash through its operating activities and external financing to meet its cash requirements. Several factors (some of which are out of the control of the Company) that could significantly affect liquidity in the future include: variability of natural gas prices, changes in ratemaking policies of regulatory commissions, regulatory lag, customer growth in the natural gas distribution segment, the ability to access and obtain capital from external sources, interest rates, changes in income tax laws, pension funding requirements, inflation, and the level of earnings. Natural gas prices and related gas cost recovery rates, as well as plant investment, have historically had the most significant impact on liquidity.
On an interim basis, Southwest defers over- or under-collections of gas costs to PGA balancing accounts. In addition, Southwest uses this mechanism to either refund amounts over-collected or recoup amounts under-collected as compared to the price paid for natural gas during the period since the last PGA rate change went into effect. At March 31, 2022,2023, the combined balance in the PGA accounts totaled an under-collection of $368$970 million. See PGA Filings for more information.
In March 2022, Southwest amended its $250 million Term Loan, extending the maturity date to March 21, 2023. The proceeds were originally used to fund the increased costmarket price of natural gas supply during the month of February 2021 caused by extreme weather conditions in the central U.S. The Term Loan was extendedspiked as a result of numerous market forces including historically low storage levels, unexpected upstream pipeline maintenance events, and cold weather conditions across the currentwestern region in the latter part of 2022 and continuing into January 2023. As a result of this increase in pricing, in January 2023, Southwest entered into a 364-day $450 million term loan in order to fund the incremental cost. This indebtedness was repaid in April 2023 (refer to Note 5 – Debt in this Quarterly Report on Form 10-Q). We may be required to incur additional indebtedness in connection with future spikes in natural gas cost environment and management’s funding plans for purchases.prices as a result of extreme weather events or otherwise.
In March 2022,2023, Southwest issued $600$300 million aggregate principal amount of 4.05%5.450% Senior Notes at a discount of 0.65%.Notes. The notes will mature in March 2032.2028. Southwest used the net proceeds to redeem $250repay amounts outstanding under Southwest’s credit facility and the remainder for general corporate purposes.
In April 2023, Southwest Gas Holdings, Inc. entered into a $550 million 3.875% notes dueTerm Loan Credit Agreement that matures in October 2024. Southwest Gas Holdings, Inc. utilized a majority of the proceeds to make an equity contribution to Southwest. On April 2022 and17, 2023, Southwest utilized the equity contribution to repay, in full, amounts outstanding amounts under its$450 million 364-day term loan entered into in January 2023, with the remainder of the equity contribution used for working capital and general corporate purposes.
Southwest Gas Holdings, Inc. has a credit facility with the remaining net proceeds useda borrowing capacity of $300 million that expires in December 2026. This facility is intended for general corporate purposes.short-term financing needs. At March 31, 2023, $18 million was outstanding under this facility.
Southwest has a credit facility with a borrowing capacity of $400 million, which expires in April 2025. Southwest designates $150 million of the facility for long-term borrowing needs and the remaining $250 million for working capital purposes. The maximum amount outstanding on the long-term portion of the credit facility (including a commercial paper program) during the first three months of 2022 was 2023 wa$150 million.s $150 million. The maximum amount outstanding on the short-term portion of the credit facility during the first three months of 20222023 was $85$75 million. As ofAt March 31, 2022, 2023, no borrowings were outstanding on the long-term portion or the short-term or long-term portionsportion of this creditthe facility. The creditcredit facility can be used as necessary to meet liquidity requirements, including temporarily financing under-collected PGA balances, or meeting the refund needs of over-collected balances. The credit facility has generally been adequate for Southwest’s working capital needs outside of funds raised through operations and
other types of external financing. As indicated, anyAny additional cash requirements would include the existing credit facility, equity contributions from the Company, and/or other external financing sources.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
Southwest has a $50 million commercial paper program. Any issuance under the commercial paper program is supported by Southwest’s current revolving credit facility and, therefore, does not represent additional borrowing capacity. Any borrowing under the commercial paper program during 2022 will beis 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 March 31, 2022,2023, there were no borrowings outstanding under this program.
Centuri has a senior secured revolving credit and term loan multi-currency facility. The line of credit portion comprises $400 million; associated amounts borrowed and repaid are available to be re-borrowed. The term loan facility portion provided approximately $1.145 billion in financing. The term loan facility expires on August 27, 2028 and the revolving credit facility expires on August 27, 2026. This multi-currency facility allows the borrower to request loan advances in either Canadian dollars or U.S. dollars. The obligations under the credit agreement are secured by present and future ownership interests in substantially all direct and indirect subsidiaries of Centuri, substantially all of the tangible and intangible personal property of each borrower, certain of their direct and indirect subsidiaries, and all products, profits, and proceeds of the foregoing. Centuri assets securing the facility at March 31, 20222023 totaled $2.4 billion. The maximum amount outstanding on the combined facility during the first three months of 20222023 was $1.2$1.074 billion. As of March 31, 2022, $1082023, $19 million was outstanding on the revolving credit facility, in addition to $1.01$1.003 billion that was outstanding on the term loan portion of the facility. Also at March 31, 2022,2023, there was approximately $239312 million, net of letters of credit, available for borrowing under the line of credit.
Southwest Gas Holdings, Inc. has a credit facility with a borrowing capacityIn the first quarter of $200 million that expires in December 2026. This facility is intended for short-term financing needs. At March 31, 2022, $69 million was outstanding under this facility.
In November 2021,2023, the Company paid down (primarily with proceeds from the MountainWest sale) the remaining balance on the $1.6 billion term loan entered into a $1.6 billion delayed-draw Term Loan Facility that was funded on December 31,in November 2021 in connection with the acquisition of MountainWest. This term loan matures on December 30, 2022. There was $1.16 billion outstanding under this Term Loan Facility as of March 31, 2022, included in the total of $1.474 billion of total short-term debt and current maturities of $291 million. This contributed to a negative working capital position of $584 million as of March 31, 2022, and the Company does currently not have sufficient liquidity or capital resources to repay this debt at maturity without issuing new debt or equity. In April 2022, the Company used a portion of proceeds from the issuance of $600 million Senior Notes issued in March 2022 to redeem $250 million in Senior Notes then maturing and included in current maturities as of March 31, 2022. In March 2022, the Company used net proceeds from the issuance of a common stock offering (see below) to repay a portion of borrowings under the Term Loan Facility. Management intends to satisfy the remainder of this obligation through the issuance of long-term debt. However, management maintains the discretion to seek alternative sources, and can provide no assurances as to its ability to refinance this obligation with the intended method or on attractive terms.
In March 2022,2023, the Company sold,issued through a separate prospectus supplement under itsthe Universal Shelf, program, an aggregate of 6,325,0004.1 million shares of common stock, withat an underwritten public offering price of $74.00$60.12 per share, resulting in net proceeds to the Company of $452.2$238.4 million, net of the underwriters’an underwriter’s discount of $15.8 million.$8.3 million and estimated expenses of the offering. The Company used the net proceeds to repay outstanding amounts under the Company’s credit facility, with remaining amounts used to pay a residual portion of theamounts outstanding borrowings under the 364-day term loan credit agreement that was used to initially fundentered into in connection with the MountainWest acquisition.acquisition, and the remainder of the proceeds were used for working capital and other general corporate purposes.
In April 2021, the Company entered into a Sales Agency Agreement between the Company and BNY Mellon Capital Markets, LLC and J.P. Morgan Securities LLC (the “Equity Shelf Program”) for the offer and sale of up to $500 million of common stock from time to time in at-the-market offerings under the related prospectus supplement filed with the Securities and Exchange Commission (the “SEC”) the same month.SEC. There was no ac activitytivity under this multi-year program during the first quarter of 2022.2023. Net proceeds from the salessale of shares of common stock under the Equity Shelf Program are intended for general corporate purposes, including the acquisition of property for the construction, completion, extension, or improvement of pipeline systems and facilities located in and around the communities served by Southwest, as well as for repayment or repurchase of indebtedness (including amounts outstanding from time to time under the credit facilities, senior notes, Term Loan or future credit facilities)other indebtedness), and to provide for working capital. The Company had approximately $341.8$341.8 million available under the program as of March 31, 2022.
During the twelve months ended March 31, 2022, 2,302,407 shares were issued in at-the-market offerings under the foregoing program at an average price of $68.70 per share with gross proceeds of $158.2 million, agent commissions of $1.6 million, and net proceeds of $156.6 million under the equity shelf program noted above.2023. See Note 4 – Common Stock for more information.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
Interest rates for the Company’s Term Loan Facility and Centuri’s credit facilityterm loan contain LIBOR-based rates. Certain LIBOR-based rates are scheduled to bewere discontinued as a benchmark or reference rate after 2021, while other LIBOR-based rates are scheduled to be discontinued after June 2023. As of March 31, 2022,2023, the Company had $2.17 billion$1.003 billion in aggregate outstanding borrowings under Centuri’s credit facility and the Company’s Term Loan Facility. In orderterm loan facility. The conversion to mitigate thean alternate rate is not expected to have a material impact of a LIBOR discontinuance on the Company’s financial condition and results of operations, management will monitor developments and work with lenders, where relevant, to determine the appropriate replacement/alternative reference rate for variable rate debt. At this time the Company can provide no assurances as to the impact a LIBOR discontinuance will have on its financial condition or results of operations. Anyoperations; however, the alternative rate may be less predictable or less attractive than LIBOR.
Forward-Looking Statements
This quarterly report contains statements which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“Reform Act”). All statements other than statements of historical fact included or incorporated by reference in this quarterly report are forward-looking statements, including, without limitation, statements regarding the Company’s plans, objectives, goals, intentions, projections, strategies, future events or performance, negotiations, and underlying assumptions. The words “may,” “if,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “continue,” “forecast,” “intend,” “endeavor,” “promote,” “seek,” and similar words and expressions are generally used and intended to identify forward-looking statements. For example, statements regarding plans to review a full range of strategic alternatives to maximize stockholder value, refinance near-term maturities, to separatespin-off Centuri from the Company, those regarding operating margin patterns, customer growth, the composition of our customer base, price volatility, seasonal patterns, payment ofthe ability to pay debt, the Company’s COLI strategy, the magnitude of future acquisition or divestiture purchase price true-ups or post-closing payments and related impairments or losses related thereto, estimates regarding contractual commitments for the MountainWest Overthrust Pipeline
rate case settlement, replacement market and new construction market, our intent and ability to complete planned acquisitions and at amounts originally set out, impacts from the COVID-19 pandemic,pandemics, including on our employees, customers, or otherwise, ourbusiness, financial position, revenue, earnings, cash flows,bad debt covenants, operations, regulatory recovery,expense, work deployment or resumption and related uncertainties, stemming from this pandemic or otherwise, expected impacts of valuation adjustments associated with any redeemable noncontrolling interest,interests, the profitability of storm work, mix of work, or absorption of fixed costs by larger infrastructure services customers including Southwest, the impacts of U.S. tax reform including disposition in any regulatory proceeding and bonus depreciation tax deductions, the impact of recent Pipeline and Hazardous Materials Safety Administration rulemaking, the amounts and timing for completion of estimated future construction expenditures, plans to pursue infrastructure programs or programs under SB 151 legislation, forecasted operating cash flows and results of operations, net earnings impacts or recovery of costs from gas infrastructure replacement and COYLVSP programs and surcharges, funding sources of cash requirements, amounts generally expected to be reflected in future period revenues from regulatory rate proceedings including amounts requested or settled from recent and ongoing general rate cases or other regulatory proceedings, rates and surcharges, PGA administration, recovery and recovery,timing, and other rate adjustments, sufficiency of working capital and current credit facilities or the ability to cure negative working capital balances, 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 various financing instruments and stock under the existing at-the-market equity program or otherwise, future dividenddividends or increases and the Board’s current target dividend payout ratio,strategy, pension and postretirement benefits, certain impacts of tax acts, the effect of any other rate changes or regulatory proceedings, contract or construction change order negotiations, impacts of accounting standard updates, statements regarding future gas prices, gas purchase contracts and pipeline imbalance charges or claims related thereto, recoverability of regulatory assets, the impact of certain legal proceedings or claims, and the timing and results of future rate hearings, including any ongoing or future general rate cases and other proceedings, and the final resolution for recovery of the CDMI-related amounts and balances in any jurisdiction, and statements regarding pending approvals are forward-looking 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, inflation, interest rates and related government actions, sufficiency of labor markets and ability to timely hire qualified employees or similar resources, acquisition and divestiture decisions including prices paid or received, adjustments related thereto, and their impacts to impairments, write-downs, or losses generally, the impacts of COVID-19pandemics including that which may result from a continued or sustained restriction by government officials or otherwise, including impacts on employment in our territories, the health impacts to our customers and employees, due to the persistence of the virus or virus variants or efficacy of vaccines, the ability to collect on customer accounts due to the suspension or lifted moratorium on late fees or service disconnection or otherwise in any or all jurisdictions, the ability to obtain regulatory recovery of allrelated costs, and financial impacts resulting from this pandemic, the ability of the infrastructure services business to resume or continueconduct work with all customers and the impact of a delay or termination of work, as a result thereof, the impacts of future restrictions placed on our business by government regulation or otherwise (such as self-imposed restrictions for the safety of employees and customers), including related to personal distancing, investment in personal protective equipment and other protocols, the impact of a resurgence of the virus or its variants, and decisions of Centuri customers (including Southwest) as to whether to pursue capital projects due to economic impacts resulting from thea pandemic or otherwise, the ability to recover and timing thereof related to costs associated with the PGA mechanisms or other
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
regulatory assets or programs, the effects of regulation/deregulation, governmental or regulatory policy regarding pipeline safety, greenhouse gas emissions, natural gas, including potential prohibitions on the use of natural gas by customers or potential customers, including related to electric generation or natural gas appliances, or regarding alternative energy, the regulatory support for ongoing infrastructure programs or expansions, the timing and amount of rate relief, the impact of other regulatory proceedings, including with regard to the MountainWest Overthrust Section 5 rate case before the FERC, the timing and methods determined by regulators to refund amounts to customers resulting from U.S. tax reform, changes in rate design, variability in volume of gas or transportation service sold to customers, changes in gas procurement practices, changes in capital requirements and funding, the impact of credit rating actions and conditions in the capital markets on financing costs, the impact of variable rate indebtedness with or without a discontinuance of LIBOR including in relation to amounts of indebtedness then outstanding, changes in construction expenditures and financing, levels of or changes in operations and maintenance expenses, or other costs, including fuel costs and other costs impacted by inflation or otherwise, geopolitical influences on the business or its costs, effects of pension or other postretirement benefit expense forecasts or plan modifications, accounting changes and regulatory treatment related thereto, currently unresolved and future liability claims and disputes, changes in pipeline capacity for the transportation of gas and related costs, results of Centuri bid work, the impact of weather on Centuri’s operations, projections about acquired business’ earnings, or those that may be planned, (including accretion within the first twelve months or other periods) and future acquisition-related costs, differences between the timingactual experience and magnitude ofprojections in costs necessary to integrate and stand upor stand-up portions of newly acquired operations, administration, and systems, and the ability to complete stand-up for MountainWest prior to the expiration of the transition services agreement, the ability to attract, hire, and maintain necessary staff and management for our collectivebusiness operations, impacts of changes in the value of any redeemable noncontrolling interestinterests if at other than fair value, Centuri utility infrastructure expenses, differences between actual and originally expected outcomes of Centuri bid or other fixed-price construction agreements, outcomes from contract and change order negotiations, ability to successfully procure new work and impacts from work awarded or failing to be awarded from significant customers (collectively, including from Southwest), or related to significant projects, the mix of work awarded, the amount of work awarded to Centuri following the lifting of work stoppages or reduction, the result of productivity inefficiencies from regulatory requirements, customer supply chain challenges, or otherwise, delays or challenges in commissioning individual projects, acquisitions and management’s plans related thereto, the ability of management to
successfully finance, close, and assimilate any acquired businesses, the timing and ability of management to successfully consummate the Centuri spin-off, the impact on our stock price or our credit ratings due to undertaking or failing to undertake acquisition activityor divestiture activities or other strategic endeavors, the impact on our stock price, costs, or businesses from the stock rights program, actions or disruptions ofor continuation thereof related to significant shareholdersstockholders and costs related thereto,their activism, competition, our ability to raise capital in external financings, our ability to continue to remain within the ratios and other limits subject to our debt covenants, and ongoing evaluations in regard to goodwill and other intangible assets. In addition, the Company can provide no assurance that its discussions regarding certain trends or plans relating to its financing and operating expenses will continue, proceed as planned, or cease to continue, or fail to be alleviated, in future periods. For additional information on the risks associated with the Company’s business, see Item 1A. Risk Factors and Item 7A. Quantitative and Qualitative Disclosures About Market Risk in the Annual Report on Form 10-K for the year ended December 31, 2021.2022.
All forward-looking statements in this quarterly report are made as of the date hereof, based on information available to the Company and Southwest as of the date hereof, and the Company and Southwest assume no obligation to update or revise any of its forward-looking statements, even if experience or future changes show that the indicated results or events will not be realized. We caution you not to unduly rely on any forward-looking statement(s).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 7A. Quantitative and Qualitative Disclosures about Market Risk in the 20212022 Annual Report on Form 10-K filed with the SEC. No material changes have occurred related to the disclosures about market risk.
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 March 31, 2022,2023, management of Southwest Gas Holdings, Inc. and Southwest Gas Corporation, including the Chief Executive Officer and Chief Financial Officer, believes the Company’s and Southwest’s disclosure controls and procedures are effective at attaining the level of reasonable assurance noted above.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
There have been no changes in the Company’s or Southwest’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the first quarter of 20222023 that have materially affected, or are likely to materially affect the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and Southwest are named as a defendantdefendants 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 litigationthese legal proceedings individually or in the aggregate will have a material adverse impact on the Company’s or Southwest’s financial position or results of operations. See Contingency withinNote 1 – Background, Organization, and Summary of Significant Accounting Policies for ongoing litigation, including litigation filed by certain stockholders and by funds managed by Carl Icahn.
ITEM 1A.1A Described below is a risk factor that we have identified that may have a negative impact on our future financial performance or affect whether we achieve the goals or expectations expressed or implied in any forward-looking statements contained herein. This risk factor supplements, and does not replace, the Risk Factors and other disclosures made in our Annual Report on Form 10-K filed March 1, 2022.
General Risks
Our ongoing review of strategic alternatives could materially impact our strategic direction, business, and results of operations. We can provide no assurances as to the structure or timing of any strategic transaction or that one will be completed at all.
On April 18, 2022, we announced that our Board authorized a thorough review of a full range of strategic alternatives to maximize stockholder value. As part of this process, the Company will evaluate a sale of the Company, as well as a range of alternatives, including, but not limited to, a separate sale of its business units and/or pursuing the previously disclosed spin-off of Centuri. A committee of the Board, comprised entirely of independent directors, is overseeing the process. The timing, benefits, and outcome of the strategic review process or the structure, terms and specific risks and uncertainties associated with any particular strategic transaction are uncertain. Pursuit of any such strategic alternative could result in material disruptions in our business and otherwise have an adverse effect on the trading price of our common stock or our results of operations. We can provide no assurances as to the structure or timing of any potential strategic transaction or that one will be completed at all.
ITEMS 2 through 3. None.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable.
ITEM 5. OTHER INFORMATION None.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
ITEM 6. EXHIBITS
The following documents are filed, or furnished, as applicable, as part of this report on Form 10-Q: | | | | | | | | | | | | | | |
Exhibit 4.01 | - | | | |
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Exhibit 4.02 | - | | |
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Exhibit 4.03 | - | | |
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Exhibit 10.1 | - | Amendment No. 1, dated as of March 22, 2022, to the Term Loan Credit Agreement, dated as of March 23, 2021,April 17, 2023, by and among Southwest Gas Corporation,Holdings, Inc., the lenders book runners and syndication agentsfrom time to time party thereto, and TheJPMorgan Chase Bank, N.A., as Administrative Agent, Bank of New York Mellon,America, N.A. as Administrative Agent.Syndication Agent, JPMorgan Chase Bank, N.A., BofA Securities, Inc., Wells Fargo Bank, N.A. and U.S. Bank, National Association as Joint Lead Arrangers and Joint Bookrunners, and Wells Fargo Bank, N.A. and U.S. Bank, National Association as Co-Documentation Agents. Incorporated herein by reference to Exhibit 10.110.1 to Form 8-K dated MarchApril 17, 2022.2023. File Nos. 001-37976 and 001-07850. | | |
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Exhibit 31.01*10.2 | - | | | |
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Exhibit 10.3 | - | | | |
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Exhibit 10.4 | - | | | |
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Exhibit 10.5 | - | | | |
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Exhibit 10.6 | - | | | |
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Exhibit 10.7 | - | | | |
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Exhibit 31.01# | - | | | |
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Exhibit 31.02*31.02# | - | | | |
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Exhibit 32.01*32.01# | - | | | |
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Exhibit 32.02*32.02# | - | | | |
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Exhibit 101*101# | - | The following materials from the Quarterly Report on Form 10-Q of Southwest Gas Holdings, Inc. and Southwest Gas Corporation for the quarter ended March 31, 2022,2023, were formatted in Inline XBRL (Extensible Business Reporting Language): (1) Southwest Gas Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets, (ii) Southwest Gas Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Income, (iii) Southwest Gas Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income, (iv) Southwest Gas Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows, (v) Southwest Gas Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Equity, (vi) Southwest Gas Corporation and Subsidiaries Condensed Consolidated Balance Sheets, (vii) Southwest Gas Corporation and Subsidiaries Condensed Consolidated Statements of Income, (viii) Southwest Gas Corporation and Subsidiaries Condensed Consolidated Statements of Comprehensive Income, (ix) Southwest Gas Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows, (x) Southwest Gas Corporation and Subsidiaries Condensed Consolidated Statements of Equity. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | |
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104*104# | | Cover Page Interactive Data File (embedded within the Inline XBRL document). | | |
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*# Filed herewith. | | |
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | March 31, 2022 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Southwest Gas Holdings, Inc. |
(Registrant) |
Dated: May 10, 20229, 2023
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/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.
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Southwest Gas Corporation |
(Registrant) |
Dated: May 10, 20229, 2023
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/s/ LORI L. COLVIN |
Lori L. Colvin |
Vice President/Controller and Chief Accounting Officer |