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 September 30, 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, 67,067,82271,519,025 shares as of October 31, 2022.2023.
All of the outstanding shares of common stock ($1 par value) of Southwest Gas Corporation were held by Southwest Gas Holdings, Inc. as of October 31, 2022.2023.
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 | | September 30, 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 | | September 30, 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)
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
ASSETS | ASSETS | | | | | ASSETS | | | | |
Regulated operations plant: | Regulated operations plant: | | Regulated operations plant: | |
Gas plant | Gas plant | | $ | 11,166,691 | | | $ | 10,789,690 | | Gas plant | | $ | 9,892,766 | | | $ | 9,453,907 | |
Less: accumulated depreciation | Less: accumulated depreciation | | (3,536,274) | | | (3,397,736) | | Less: accumulated depreciation | | (2,780,482) | | | (2,674,157) | |
Construction work in progress | Construction work in progress | | 273,662 | | | 202,068 | | Construction work in progress | | 272,969 | | | 244,750 | |
Net regulated operations plant | Net regulated operations plant | | 7,904,079 | | | 7,594,022 | | Net regulated operations plant | | 7,385,253 | | | 7,024,500 | |
Other property and investments, net | Other property and investments, net | | 1,311,334 | | | 1,316,479 | | Other property and investments, net | | 1,254,065 | | | 1,281,172 | |
Current assets: | Current assets: | | | | | Current assets: | | | | |
Cash and cash equivalents | Cash and cash equivalents | | 175,272 | | | 222,697 | | Cash and cash equivalents | | 104,939 | | | 123,078 | |
Accounts receivable, net of allowances | Accounts receivable, net of allowances | | 779,558 | | | 707,127 | | Accounts receivable, net of allowances | | 903,365 | | | 866,246 | |
Accrued utility revenue | Accrued utility revenue | | 41,300 | | | 84,900 | | Accrued utility revenue | | 44,600 | | | 88,100 | |
Income taxes receivable, net | Income taxes receivable, net | | 15,580 | | | 16,816 | | Income taxes receivable, net | | 4,268 | | | 8,738 | |
Deferred purchased gas costs | Deferred purchased gas costs | | 381,351 | | | 291,145 | | Deferred purchased gas costs | | 687,137 | | | 450,120 | |
Prepaid and other current assets | Prepaid and other current assets | | 316,578 | | | 292,082 | | Prepaid and other current assets | | 229,696 | | | 433,850 | |
Current assets held for sale | | Current assets held for sale | | 24,480 | | | 1,737,530 | |
Total current assets | Total current assets | | 1,709,639 | | | 1,614,767 | | Total current assets | | 1,998,485 | | | 3,707,662 | |
Noncurrent assets: | Noncurrent assets: | | | | | Noncurrent assets: | |
Goodwill | Goodwill | | 1,742,967 | | | 1,781,332 | | Goodwill | | 787,433 | | | 787,250 | |
Deferred income taxes | Deferred income taxes | | 322 | | | 121 | | Deferred income taxes | | 253 | | | 82 | |
Deferred charges and other assets | Deferred charges and other assets | | 434,236 | | | 458,536 | | Deferred charges and other assets | | 410,793 | | | 395,948 | |
Total noncurrent assets | Total noncurrent assets | | 2,177,525 | | | 2,239,989 | | Total noncurrent assets | | 1,198,479 | | | 1,183,280 | |
Total assets | Total assets | | $ | 13,102,577 | | | $ | 12,765,257 | | Total assets | | $ | 11,836,282 | | | $ | 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 - 67,063,730 and 60,422,081 shares) | | $ | 68,694 | | | $ | 62,052 | | |
Common stock, $1 par (authorized - 120,000,000 shares; issued and outstanding - 71,515,428 and 67,119,143 shares) | | Common stock, $1 par (authorized - 120,000,000 shares; issued and outstanding - 71,515,428 and 67,119,143 shares) | | $ | 73,145 | | | $ | 68,749 | |
Additional paid-in capital | Additional paid-in capital | | 2,283,250 | | | 1,824,216 | | Additional paid-in capital | | 2,539,759 | | | 2,287,183 | |
Accumulated other comprehensive loss, net | Accumulated other comprehensive loss, net | | (50,232) | | | (46,761) | | Accumulated other comprehensive loss, net | | (43,523) | | | (44,242) | |
Retained earnings | Retained earnings | | 1,111,203 | | | 1,114,313 | | Retained earnings | | 669,364 | | | 747,069 | |
Total equity | Total equity | | 3,412,915 | | | 2,953,820 | | Total equity | | 3,238,745 | | | 3,058,759 | |
Redeemable noncontrolling interests | Redeemable noncontrolling interests | | 114,692 | | | 196,717 | | Redeemable noncontrolling interests | | 145,157 | | | 159,349 | |
Long-term debt, less current maturities | Long-term debt, less current maturities | | 5,865,591 | | | 4,115,684 | | Long-term debt, less current maturities | | 5,235,539 | | | 4,403,299 | |
Total capitalization | Total capitalization | | 9,393,198 | | | 7,266,221 | | Total capitalization | | 8,619,441 | | | 7,621,407 | |
Current liabilities: | Current liabilities: | | | | | Current liabilities: | | | | |
Current maturities of long-term debt | Current maturities of long-term debt | | 41,485 | | | 297,324 | | Current maturities of long-term debt | | 42,335 | | | 44,557 | |
Short-term debt | Short-term debt | | 381,000 | | | 1,909,000 | | Short-term debt | | 57,500 | | | 1,542,806 | |
Accounts payable | Accounts payable | | 308,824 | | | 353,365 | | Accounts payable | | 255,251 | | | 662,090 | |
Customer deposits | Customer deposits | | 55,033 | | | 59,327 | | Customer deposits | | 47,206 | | | 51,182 | |
Income taxes payable, net | Income taxes payable, net | | 4,516 | | | 6,734 | | Income taxes payable, net | | 267 | | | 2,690 | |
Accrued general taxes | Accrued general taxes | | 72,941 | | | 53,473 | | Accrued general taxes | | 75,932 | | | 67,094 | |
Accrued interest | Accrued interest | | 41,484 | | | 30,964 | | Accrued interest | | 46,837 | | | 38,556 | |
Deferred purchased gas costs | | 3,742 | | | 5,736 | | |
| Other current liabilities | Other current liabilities | | 404,703 | | | 396,126 | | Other current liabilities | | 527,201 | | | 369,743 | |
Current liabilities held for sale | | Current liabilities held for sale | | — | | | 644,245 | |
Total current liabilities | Total current liabilities | | 1,313,728 | | | 3,112,049 | | Total current liabilities | | 1,052,529 | | | 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 | | 774,465 | | | 768,868 | | Deferred income taxes and investment tax credits, net | | 742,078 | | | 682,067 | |
Accumulated removal costs | Accumulated removal costs | | 500,052 | | | 480,583 | | Accumulated removal costs | | 454,000 | | | 445,000 | |
Other deferred credits and other long-term liabilities | Other deferred credits and other long-term liabilities | | 1,121,134 | | | 1,137,536 | | Other deferred credits and other long-term liabilities | | 968,234 | | | 1,025,177 | |
Total deferred income taxes and other credits | Total deferred income taxes and other credits | | 2,395,651 | | | 2,386,987 | | Total deferred income taxes and other credits | | 2,164,312 | | | 2,152,244 | |
Total capitalization and liabilities | Total capitalization and liabilities | | $ | 13,102,577 | | | $ | 12,765,257 | | Total capitalization and liabilities | | $ | 11,836,282 | | | $ | 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 | | September 30, 20222023 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Operating revenues: | Operating revenues: | | | | | | | | | | | | | Operating revenues: | | | | | | | | | | | | |
Regulated operations revenues | Regulated operations revenues | | $ | 367,122 | | | $ | 255,848 | | | $ | 1,550,684 | | | $ | 1,070,576 | | | $ | 2,001,898 | | | $ | 1,445,066 | | Regulated operations revenues | | $ | 394,603 | | | $ | 367,122 | | | $ | 1,832,480 | | | $ | 1,550,684 | | | $ | 2,481,478 | | | $ | 2,001,898 | |
Utility infrastructure services revenues | Utility infrastructure services revenues | | 758,466 | | | 632,848 | | | 1,988,433 | | | 1,525,448 | | | 2,621,646 | | | 2,065,038 | | Utility infrastructure services revenues | | 774,889 | | | 758,466 | | | 2,233,961 | | | 1,988,433 | | | 3,005,855 | | | 2,621,646 | |
Total operating revenues | Total operating revenues | | 1,125,588 | | | 888,696 | | | 3,539,117 | | | 2,596,024 | | | 4,623,544 | | | 3,510,104 | | Total operating revenues | | 1,169,492 | | | 1,125,588 | | | 4,066,441 | | | 3,539,117 | | | 5,487,333 | | | 4,623,544 | |
Operating expenses: | Operating expenses: | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | |
Net cost of gas sold | Net cost of gas sold | | 100,991 | | | 63,710 | | | 547,769 | | | 296,227 | | | 682,449 | | | 374,449 | | Net cost of gas sold | | 170,056 | | | 100,991 | | | 908,646 | | | 547,769 | | | 1,159,937 | | | 682,449 | |
Operations and maintenance | Operations and maintenance | | 154,236 | | | 122,927 | | | 479,330 | | | 334,450 | | | 618,026 | | | 437,602 | | Operations and maintenance | | 126,851 | | | 154,236 | | | 404,554 | | | 479,330 | | | 561,990 | | | 618,026 | |
Depreciation and amortization | Depreciation and amortization | | 116,933 | | | 91,380 | | | 347,589 | | | 267,670 | | | 450,960 | | | 354,688 | | Depreciation and amortization | | 105,520 | | | 116,933 | | | 329,745 | | | 347,589 | | | 452,611 | | | 450,960 | |
Taxes other than income taxes | Taxes other than income taxes | | 23,356 | | | 20,109 | | | 70,778 | | | 60,134 | | | 90,987 | | | 76,087 | | Taxes other than income taxes | | 21,147 | | | 23,356 | | | 66,981 | | | 70,778 | | | 89,586 | | | 90,987 | |
Utility infrastructure services expenses | Utility infrastructure services expenses | | 680,135 | | | 567,270 | | | 1,829,560 | | | 1,381,524 | | | 2,403,503 | | | 1,858,464 | | Utility infrastructure services expenses | | 685,687 | | | 680,135 | | | 2,005,084 | | | 1,829,560 | | | 2,704,842 | | | 2,403,503 | |
Goodwill impairment and loss on sale | | Goodwill impairment and loss on sale | | — | | | — | | | 71,230 | | | — | | | 526,655 | | | — | |
Total operating expenses | Total operating expenses | | 1,075,651 | | | 865,396 | | | 3,275,026 | | | 2,340,005 | | | 4,245,925 | | | 3,101,290 | | Total operating expenses | | 1,109,261 | | | 1,075,651 | | | 3,786,240 | | | 3,275,026 | | | 5,495,621 | | | 4,245,925 | |
Operating income | | 49,937 | | | 23,300 | | | 264,091 | | | 256,019 | | | 377,619 | | | 408,814 | | |
Operating income (loss) | | Operating income (loss) | | 60,231 | | | 49,937 | | | 280,201 | | | 264,091 | | | (8,288) | | | 377,619 | |
Other income and (expenses): | Other income and (expenses): | | | | | | | | | | | | | Other income and (expenses): | | | | | | | | | | | | |
Net interest deductions | Net interest deductions | | (64,373) | | | (31,298) | | | (165,942) | | | (81,201) | | | (203,939) | | | (109,537) | | Net interest deductions | | (71,998) | | | (64,373) | | | (218,679) | | | (165,942) | | | (295,487) | | | (203,939) | |
Other income (deductions) | | 1,593 | | | (3,112) | | | 2 | | | (3,975) | | | 478 | | | 282 | | |
Other income | | Other income | | 14,464 | | | 1,593 | | | 52,528 | | | 2 | | | 46,337 | | | 478 | |
Total other income and (expenses) | Total other income and (expenses) | | (62,780) | | | (34,410) | | | (165,940) | | | (85,176) | | | (203,461) | | | (109,255) | | Total other income and (expenses) | | (57,534) | | | (62,780) | | | (166,151) | | | (165,940) | | | (249,150) | | | (203,461) | |
Income (loss) before income taxes | Income (loss) before income taxes | | (12,843) | | | (11,110) | | | 98,151 | | | 170,843 | | | 174,158 | | | 299,559 | | Income (loss) before income taxes | | 2,697 | | | (12,843) | | | 114,050 | | | 98,151 | | | (257,438) | | | 174,158 | |
Income tax expense (benefit) | Income tax expense (benefit) | | (1,525) | | | (1,816) | | | 18,300 | | | 34,818 | | | 23,130 | | | 58,498 | | Income tax expense (benefit) | | (1,270) | | | (1,525) | | | 32,174 | | | 18,300 | | | (61,779) | | | 23,130 | |
Net income (loss) | Net income (loss) | | (11,318) | | | (9,294) | | | 79,851 | | | 136,025 | | | 151,028 | | | 241,061 | | Net income (loss) | | 3,967 | | | (11,318) | | | 81,876 | | | 79,851 | | | (195,659) | | | 151,028 | |
Net income attributable to noncontrolling interests | Net income attributable to noncontrolling interests | | 991 | | | 2,282 | | | 2,557 | | | 5,189 | | | 3,791 | | | 6,681 | | Net income attributable to noncontrolling interests | | 736 | | | 991 | | | 3,856 | | | 2,557 | | | 6,905 | | | 3,791 | |
Net income (loss) attributable to Southwest Gas Holdings, Inc. | Net income (loss) attributable to Southwest Gas Holdings, Inc. | | $ | (12,309) | | | $ | (11,576) | | | $ | 77,294 | | | $ | 130,836 | | | $ | 147,237 | | | $ | 234,380 | | Net income (loss) attributable to Southwest Gas Holdings, Inc. | | $ | 3,231 | | | $ | (12,309) | | | $ | 78,020 | | | $ | 77,294 | | | $ | (202,564) | | | $ | 147,237 | |
Earnings (loss) per share: | Earnings (loss) per share: | | | | | | | | | | | | | Earnings (loss) per share: | | | | | | | | | | | | |
Basic | Basic | | $ | (0.18) | | | $ | (0.19) | | | $ | 1.19 | | | $ | 2.23 | | | $ | 2.30 | | | $ | 4.03 | | Basic | | $ | 0.05 | | | $ | (0.18) | | | $ | 1.11 | | | $ | 1.19 | | | $ | (2.91) | | | $ | 2.30 | |
Diluted | Diluted | | $ | (0.18) | | | $ | (0.19) | | | $ | 1.19 | | | $ | 2.23 | | | $ | 2.30 | | | $ | 4.02 | | Diluted | | $ | 0.04 | | | $ | (0.18) | | | $ | 1.10 | | | $ | 1.19 | | | $ | (2.91) | | | $ | 2.30 | |
Weighted average shares: | Weighted average shares: | | | | | | | | | | | | | Weighted average shares: | | | | | | | | | | | | |
Basic | Basic | | 67,157 | | | 59,688 | | | 65,004 | | | 58,639 | | | 63,905 | | | 58,209 | | Basic | | 71,626 | | | 67,157 | | | 70,488 | | | 65,004 | | | 69,660 | | | 63,905 | |
Diluted | Diluted | | 67,325 | | | 59,816 | | | 65,148 | | | 58,742 | | | 64,051 | | | 58,312 | | Diluted | | 71,851 | | | 67,157 | | | 70,676 | | | 65,148 | | | 69,660 | | | 64,051 | |
The accompanying notes are an integral part of these statements.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20222023 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands of dollars)
(Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Net income (loss) | Net income (loss) | | $ | (11,318) | | | $ | (9,294) | | | $ | 79,851 | | | $ | 136,025 | | | $ | 151,028 | | | $ | 241,061 | | Net income (loss) | | $ | 3,967 | | | $ | (11,318) | | | $ | 81,876 | | | $ | 79,851 | | | $ | (195,659) | | | $ | 151,028 | |
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) | | — | | | — | | | — | | | — | | | 44,974 | | | (43,730) | | |
Net actuarial gain | | Net actuarial gain | | — | | | — | | | — | | | — | | | 3,099 | | | 44,974 | |
Amortization of prior service cost | Amortization of prior service cost | | 34 | | | 183 | | | 100 | | | 547 | | | 282 | | | 766 | | Amortization of prior service cost | | 33 | | | 34 | | | 99 | | | 100 | | | 132 | | | 282 | |
Amortization of net actuarial loss | Amortization of net actuarial loss | | 6,616 | | | 8,474 | | | 19,847 | | | 25,420 | | | 28,321 | | | 32,608 | | Amortization of net actuarial loss | | 253 | | | 6,616 | | | 760 | | | 19,847 | | | 7,374 | | | 28,321 | |
| Regulatory adjustment | Regulatory adjustment | | (5,524) | | | (7,277) | | | (16,571) | | | (21,831) | | | (61,767) | | | 2,959 | | Regulatory adjustment | | (90) | | | (5,524) | | | (270) | | | (16,571) | | | (5,156) | | | (61,767) | |
Net defined benefit pension plans | Net defined benefit pension plans | | 1,126 | | | 1,380 | | | 3,376 | | | 4,136 | | | 11,810 | | | (7,397) | | Net defined benefit pension plans | | 196 | | | 1,126 | | | 589 | | | 3,376 | | | 5,449 | | | 11,810 | |
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 | | — | | | 413 | | | 416 | | | 1,240 | | | 828 | | | 1,653 | | Amounts reclassified into net income | | — | | | — | | | — | | | 416 | | | — | | | 828 | |
Net forward-starting interest rate swaps | Net forward-starting interest rate swaps | | — | | | 413 | | | 416 | | | 1,240 | | | 828 | | | 1,653 | | Net forward-starting interest rate swaps | | — | | | — | | | — | | | 416 | | | — | | | 828 | |
Foreign currency translation adjustments | Foreign currency translation adjustments | | (5,830) | | | (2,056) | | | (7,263) | | | (324) | | | (6,919) | | | 2,576 | | Foreign currency translation adjustments | | (2,261) | | | (5,830) | | | 130 | | | (7,263) | | | 1,260 | | | (6,919) | |
Total other comprehensive income (loss), net of tax | | (4,704) | | | (263) | | | (3,471) | | | 5,052 | | | 5,719 | | | (3,168) | | |
Total other comprehensive income, net of tax | | Total other comprehensive income, net of tax | | (2,065) | | | (4,704) | | | 719 | | | (3,471) | | | 6,709 | | | 5,719 | |
Comprehensive income (loss) | Comprehensive income (loss) | | (16,022) | | | (9,557) | | | 76,380 | | | 141,077 | | | 156,747 | | | 237,893 | | Comprehensive income (loss) | | 1,902 | | | (16,022) | | | 82,595 | | | 76,380 | | | (188,950) | | | 156,747 | |
Comprehensive income attributable to noncontrolling interests | Comprehensive income attributable to noncontrolling interests | | 991 | | | 2,282 | | | 2,557 | | | 5,189 | | | 3,791 | | | 6,681 | | Comprehensive income attributable to noncontrolling interests | | 736 | | | 991 | | | 3,856 | | | 2,557 | | | 6,905 | | | 3,791 | |
Comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | Comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | $ | (17,013) | | | $ | (11,839) | | | $ | 73,823 | | | $ | 135,888 | | | $ | 152,956 | | | $ | 231,212 | | Comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | $ | 1,166 | | | $ | (17,013) | | | $ | 78,739 | | | $ | 73,823 | | | $ | (195,855) | | | $ | 152,956 | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20222023 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
| | | Nine Months Ended September 30, | | Twelve Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | | 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 | | $ | 79,851 | | | $ | 136,025 | | | $ | 151,028 | | | $ | 241,061 | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | |
Net income (loss) | | Net income (loss) | | $ | 81,876 | | | $ | 79,851 | | | $ | (195,659) | | | $ | 151,028 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | | 347,589 | | | 267,670 | | | 450,960 | | | 354,688 | | Depreciation and amortization | | 329,745 | | | 347,589 | | | 452,611 | | | 450,960 | |
Impairment of assets and other charges | | Impairment of assets and other charges | | 71,230 | | | — | | | 526,655 | | | — | |
Deferred income taxes | Deferred income taxes | | 22,955 | | | 45,374 | | | 38,793 | | | 58,339 | | Deferred income taxes | | 45,317 | | | 22,955 | | | (49,686) | | | 38,793 | |
Gains on sale of property and equipment | | Gains on sale of property and equipment | | (3,090) | | | (5,215) | | | (5,740) | | | (6,756) | |
Changes in undistributed stock compensation | | Changes in undistributed stock compensation | | 8,557 | | | 7,855 | | | 10,148 | | | 9,473 | |
Equity AFUDC | | Equity AFUDC | | (82) | | | (912) | | | 365 | | | (912) | |
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 | | (78,719) | | | (62,081) | | | (68,192) | | | (68,714) | | Accounts receivable, net of allowances | | (40,232) | | | (78,719) | | | (155,288) | | | (68,192) | |
Accrued utility revenue | Accrued utility revenue | | 43,600 | | | 42,700 | | | (1,600) | | | (3,200) | | Accrued utility revenue | | 43,500 | | | 43,600 | | | (3,300) | | | (1,600) | |
Deferred purchased gas costs | Deferred purchased gas costs | | (92,200) | | | (293,410) | | | (142,518) | | | (317,070) | | Deferred purchased gas costs | | (252,022) | | | (92,200) | | | (307,037) | | | (142,518) | |
Accounts payable | Accounts payable | | (29,353) | | | (51,086) | | | 72,159 | | | 251 | | Accounts payable | | (360,554) | | | (29,353) | | | (37,292) | | | 72,159 | |
Accrued taxes | Accrued taxes | | 18,352 | | | 5,954 | | | 5,673 | | | 3,134 | | Accrued taxes | | 12,687 | | | 18,352 | | | 12,264 | | | 5,673 | |
Other current assets and liabilities | Other current assets and liabilities | | (1,039) | | | 23,289 | | | (113,537) | | | 9,531 | | Other current assets and liabilities | | 315,728 | | | (1,039) | | | 108,914 | | | (113,537) | |
Gains on sale of property and equipment | | (5,215) | | | (5,365) | | | (6,756) | | | (6,632) | | |
Changes in undistributed stock compensation | | 7,855 | | | 7,676 | | | 9,473 | | | 9,001 | | |
Equity AFUDC | | (912) | | | — | | | (912) | | | (1,311) | | |
Changes in deferred charges and other assets | Changes in deferred charges and other assets | | 16,417 | | | (7,956) | | | 10,832 | | | (21,373) | | Changes in deferred charges and other assets | | 1,243 | | | 16,417 | | | 1,712 | | | 10,832 | |
Changes in other liabilities and deferred credits | Changes in other liabilities and deferred credits | | (25,826) | | | (57,269) | | | (42,186) | | | (67,922) | | Changes in other liabilities and deferred credits | | (55,469) | | | (25,826) | | | (56,128) | | | (42,186) | |
Net cash provided by operating activities | Net cash provided by operating activities | | 303,355 | | | 51,521 | | | 363,217 | | | 189,783 | | Net cash provided by operating activities | | 198,434 | | | 303,355 | | | 302,539 | | | 363,217 | |
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 | | (612,516) | | | (506,737) | | | (821,405) | | | (699,368) | | Construction expenditures and property additions | | (664,590) | | | (612,516) | | | (911,495) | | | (821,405) | |
Acquisition of businesses, net of cash acquired | Acquisition of businesses, net of cash acquired | | (18,809) | | | (830,395) | | | (1,542,674) | | | (830,145) | | Acquisition of businesses, net of cash acquired | | — | | | (18,809) | | | — | | | (1,542,674) | |
Proceeds from the sale of business, net of cash sold | | Proceeds from the sale of business, net of cash sold | | 1,022,483 | | | — | | | 1,022,483 | | | — | |
Changes in customer advances | Changes in customer advances | | 23,222 | | | 7,940 | | | 31,256 | | | 14,282 | | Changes in customer advances | | (6,974) | | | 23,222 | | | (8,690) | | | 31,256 | |
Other | Other | | 4,005 | | | 14,755 | | | 7,506 | | | 17,238 | | Other | | 6,147 | | | 4,005 | | | 19,964 | | | 7,506 | |
Net cash used in investing activities | | (604,098) | | | (1,314,437) | | | (2,325,317) | | | (1,497,993) | | |
Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | | 357,066 | | | (604,098) | | | 122,262 | | | (2,325,317) | |
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 | | 459,051 | | | 210,812 | | | 461,880 | | | 259,422 | | Issuance of common stock, net | | 249,238 | | | 459,051 | | | 252,015 | | | 461,880 | |
Centuri distribution to redeemable noncontrolling interest | Centuri distribution to redeemable noncontrolling interest | | (39,649) | | | — | | | (39,649) | | | — | | Centuri distribution to redeemable noncontrolling interest | | (39,894) | | | (39,649) | | | (39,894) | | | (39,649) | |
Dividends paid | Dividends paid | | (118,980) | | | (102,292) | | | (154,910) | | | (134,479) | | Dividends paid | | (130,232) | | | (118,980) | | | (171,815) | | | (154,910) | |
Issuance of long-term debt, net | Issuance of long-term debt, net | | 770,240 | | | 1,654,960 | | | 775,976 | | | 1,666,718 | | Issuance of long-term debt, net | | 1,043,602 | | | 770,240 | | | 1,341,167 | | | 775,976 | |
Retirement of long-term debt | Retirement of long-term debt | | (422,356) | | | (406,815) | | | (468,205) | | | (473,926) | | Retirement of long-term debt | | (168,127) | | | (422,356) | | | (245,685) | | | (468,205) | |
Change in credit facility and commercial paper | | 8,000 | | | (150,000) | | | 138,000 | | | (58,000) | | |
Change in short-term debt | | (380,253) | | | 165,000 | | | (593,253) | | | 218,000 | | |
Change in long-term credit facility and commercial paper | | Change in long-term credit facility and commercial paper | | (50,000) | | | 8,000 | | | (138,000) | | | 138,000 | |
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 | |
Other changes in short-term debt | | Other changes in short-term debt | | (1,937,747) | | | (380,253) | | | (1,923,687) | | | (593,253) | |
Withholding remittance - share-based compensation | Withholding remittance - share-based compensation | | (2,105) | | | (1,254) | | | (2,115) | | | (1,254) | | Withholding remittance - share-based compensation | | (1,742) | | | (2,105) | | | (2,299) | | | (2,115) | |
Other | | (19,929) | | | (4,355) | | | (16,303) | | | (6,161) | | |
Net cash provided by financing activities | | 254,019 | | | 1,366,056 | | | 1,951,421 | | | 1,470,320 | | |
Other, including principal payments on finance leases | | Other, including principal payments on finance leases | | (12,642) | | | (19,929) | | | (16,885) | | | (16,303) | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | | (597,544) | | | 254,019 | | | (495,083) | | | 1,951,421 | |
Effects of currency translation on cash and cash equivalents | Effects of currency translation on cash and cash equivalents | | (701) | | | 198 | | | (739) | | | 635 | | Effects of currency translation on cash and cash equivalents | | 102 | | | (701) | | | (51) | | | (739) | |
Change in cash and cash equivalents | Change in cash and cash equivalents | | (47,425) | | | 103,338 | | | (11,418) | | | 162,745 | | Change in cash and cash equivalents | | (41,942) | | | (47,425) | | | (70,333) | | | (11,418) | |
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 | | | 186,690 | | | 23,945 | | Cash and cash equivalents at beginning of period | | 123,078 | | | 222,697 | | | 175,272 | | | 186,690 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 175,272 | | | $ | 186,690 | | | $ | 175,272 | | | $ | 186,690 | | Cash and cash equivalents at end of period | | $ | 104,939 | | | $ | 175,272 | | | $ | 104,939 | | | $ | 175,272 | |
SUPPLEMENTAL INFORMATION: | SUPPLEMENTAL INFORMATION: | | | | | | | | | SUPPLEMENTAL INFORMATION: | | | | | | | | |
Interest paid, net of amounts capitalized | Interest paid, net of amounts capitalized | | $ | 146,792 | | | $ | 57,128 | | | $ | 194,016 | | | $ | 98,567 | | Interest paid, net of amounts capitalized | | $ | 196,609 | | | $ | 146,792 | | | $ | 269,642 | | | $ | 194,016 | |
Income taxes paid, net | Income taxes paid, net | | $ | 10,317 | | | $ | 7,665 | | | $ | 6,860 | | | $ | 12,720 | | Income taxes paid, net | | $ | 5,957 | | | $ | 10,317 | | | $ | 7,641 | | | $ | 6,860 | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20222023 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except per share amounts)
(Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Common stock shares | Common stock shares | | | | | | | | Common stock shares | | | | | | | |
| | Beginning balances | 67,004 | | | 59,088 | | | 60,422 | | | 57,193 | | | Beginning balances | 71,473 | | | 67,004 | | | 67,119 | | | 60,422 | |
| | Common stock issuances | 60 | | | 1,291 | | | 6,642 | | | 3,186 | | | Common stock issuances | 42 | | | 60 | | | 4,396 | | | 6,642 | |
| | Ending balances | 67,064 | | | 60,379 | | | 67,064 | | | 60,379 | | | Ending balances | 71,515 | | | 67,064 | | | 71,515 | | | 67,064 | |
Common stock amount | Common stock amount | | | | | | | | Common stock amount | | | | | | | |
| | Beginning balances | $ | 68,634 | | | $ | 60,718 | | | $ | 62,052 | | | $ | 58,823 | | | Beginning balances | $ | 73,103 | | | $ | 68,634 | | | $ | 68,749 | | | $ | 62,052 | |
| | Common stock issuances | 60 | | | 1,291 | | | 6,642 | | | 3,186 | | | Common stock issuances | 42 | | | 60 | | | 4,396 | | | 6,642 | |
| | Ending balances | 68,694 | | | 62,009 | | | 68,694 | | | 62,009 | | | Ending balances | 73,145 | | | 68,694 | | | 73,145 | | | 68,694 | |
Additional paid-in capital | Additional paid-in capital | | | | | | | | Additional paid-in capital | | | | | | | |
| | Beginning balances | 2,279,493 | | | 1,733,572 | | | 1,824,216 | | | 1,609,155 | | | Beginning balances | 2,534,223 | | | 2,279,493 | | | 2,287,183 | | | 1,824,216 | |
| | Common stock issuances | 3,757 | | | 90,317 | | | 459,034 | | | 214,734 | | | Common stock issuances | 5,536 | | | 3,757 | | | 252,576 | | | 459,034 | |
| | Ending balances | 2,283,250 | | | 1,823,889 | | | 2,283,250 | | | 1,823,889 | | | Ending balances | 2,539,759 | | | 2,283,250 | | | 2,539,759 | | | 2,283,250 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | | | | | | | | Accumulated other comprehensive loss | | | | | | | |
| | Beginning balances | (45,528) | | | (55,688) | | | (46,761) | | | (61,003) | | | Beginning balances | (41,458) | | | (45,528) | | | (44,242) | | | (46,761) | |
| | Foreign currency exchange translation adjustment | (5,830) | | | (2,056) | | | (7,263) | | | (324) | | | Foreign currency exchange translation adjustment | (2,261) | | | (5,830) | | | 130 | | | (7,263) | |
| | Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | 1,126 | | | 1,380 | | | 3,376 | | | 4,136 | | | Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | 196 | | | 1,126 | | | 589 | | | 3,376 | |
| | FSIRS amounts reclassified to net income, net of tax | — | | | 413 | | | 416 | | | 1,240 | | | FSIRS amounts reclassified to net income, net of tax | — | | | — | | | — | | | 416 | |
| | Ending balances | (50,232) | | | (55,951) | | | (50,232) | | | (55,951) | | | Ending balances | (43,523) | | | (50,232) | | | (43,523) | | | (50,232) | |
Retained earnings | Retained earnings | | | | | | | | Retained earnings | | | | | | | |
| | Beginning balances | 1,156,253 | | | 1,108,279 | | | 1,114,313 | | | 1,067,978 | | | Beginning balances | 696,958 | | | 1,156,253 | | | 747,069 | | | 1,114,313 | |
| | Net income (loss) | (12,309) | | | (11,576) | | | 77,294 | | | 130,836 | | | Net income (loss) | 3,231 | | | (12,309) | | | 78,020 | | | 77,294 | |
| | Dividends declared | (41,696) | | | (36,098) | | | (125,337) | | | (106,303) | | | Dividends declared | (44,584) | | | (41,696) | | | (133,879) | | | (125,337) | |
| | Redemption value adjustments | 8,955 | | | 19,264 | | | 44,933 | | | (12,642) | | | Redemption value adjustments | 13,759 | | | 8,955 | | | (21,846) | | | 44,933 | |
| | Ending balances | 1,111,203 | | | 1,079,869 | | | 1,111,203 | | | 1,079,869 | | | Ending balances | 669,364 | | | 1,111,203 | | | 669,364 | | | 1,111,203 | |
Total equity ending balances | Total equity ending balances | $ | 3,412,915 | | | $ | 2,909,816 | | | $ | 3,412,915 | | | $ | 2,909,816 | | Total equity ending balances | $ | 3,238,745 | | | $ | 3,412,915 | | | $ | 3,238,745 | | | $ | 3,412,915 | |
Dividends declared per common share | Dividends declared per common share | $ | 0.62 | | | $ | 0.595 | | | $ | 1.86 | | | $ | 1.785 | | Dividends declared per common share | $ | 0.62 | | | $ | 0.62 | | | $ | 1.86 | | | $ | 1.86 | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20222023 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
ASSETS | ASSETS | | | | | ASSETS | | | | |
Regulated operations plant: | Regulated operations plant: | | Regulated operations plant: | |
Gas plant | Gas plant | | $ | 9,259,486 | | | $ | 8,901,575 | | Gas plant | | $ | 9,892,766 | | | $ | 9,453,907 | |
Less: accumulated depreciation | Less: accumulated depreciation | | (2,641,407) | | | (2,538,508) | | Less: accumulated depreciation | | (2,780,482) | | | (2,674,157) | |
Construction work in progress | Construction work in progress | | 241,457 | | | 183,485 | | Construction work in progress | | 272,969 | | | 244,750 | |
Net regulated operations plant | Net regulated operations plant | | 6,859,536 | | | 6,546,552 | | Net regulated operations plant | | 7,385,253 | | | 7,024,500 | |
Other property and investments, net | Other property and investments, net | | 145,561 | | | 153,093 | | Other property and investments, net | | 147,461 | | | 169,397 | |
Current assets: | Current assets: | | | | | Current assets: | | | | |
Cash and cash equivalents | Cash and cash equivalents | | 25,151 | | | 38,691 | | Cash and cash equivalents | | 70,970 | | | 51,823 | |
Accounts receivable, net of allowance | Accounts receivable, net of allowance | | 103,619 | | | 169,666 | | Accounts receivable, net of allowance | | 167,805 | | | 234,081 | |
Accrued utility revenue | Accrued utility revenue | | 41,300 | | | 84,900 | | Accrued utility revenue | | 44,600 | | | 88,100 | |
Income taxes receivable, net | Income taxes receivable, net | | 2,619 | | | 7,826 | | Income taxes receivable, net | | 159 | | | 103 | |
Deferred purchased gas costs | Deferred purchased gas costs | | 381,351 | | | 291,145 | | Deferred purchased gas costs | | 687,137 | | | 450,120 | |
Receivable from parent | Receivable from parent | | 95 | | | 1,031 | | Receivable from parent | | — | | | 2,130 | |
Prepaid and other current assets | Prepaid and other current assets | | 243,297 | | | 242,243 | | Prepaid and other current assets | | 191,212 | | | 401,789 | |
Current assets held for sale | | Current assets held for sale | | 24,480 | | | — | |
Total current assets | Total current assets | | 797,432 | | | 835,502 | | Total current assets | | 1,186,363 | | | 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 | | 381,145 | | | 405,021 | | Deferred charges and other assets | | 388,529 | | | 370,483 | |
Total noncurrent assets | Total noncurrent assets | | 391,240 | | | 415,116 | | Total noncurrent assets | | 399,684 | | | 381,638 | |
Total assets | Total assets | | $ | 8,193,769 | | | $ | 7,950,263 | | Total assets | | $ | 9,118,761 | | | $ | 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 | | 1,622,620 | | | 1,618,911 | | Additional paid-in capital | | 2,157,274 | | | 1,622,969 | |
Accumulated other comprehensive loss, net | Accumulated other comprehensive loss, net | | (43,121) | | | (46,913) | | Accumulated other comprehensive loss, net | | (37,672) | | | (38,261) | |
Retained earnings | Retained earnings | | 900,428 | | | 906,827 | | Retained earnings | | 966,582 | | | 935,355 | |
Total equity | Total equity | | 2,529,039 | | | 2,527,937 | | Total equity | | 3,135,296 | | | 2,569,175 | |
Long-term debt, less current maturities | Long-term debt, less current maturities | | 3,042,082 | | | 2,440,603 | | Long-term debt, less current maturities | | 3,500,684 | | | 3,251,296 | |
Total capitalization | Total capitalization | | 5,571,121 | | | 4,968,540 | | Total capitalization | | 6,635,980 | | | 5,820,471 | |
Current liabilities: | Current liabilities: | | | | | Current liabilities: | | | | |
Current maturities of long-term debt | | — | | | 275,000 | | |
Short-term debt | Short-term debt | | 225,000 | | | 250,000 | | Short-term debt | | — | | | 225,000 | |
Accounts payable | Accounts payable | | 150,572 | | | 234,070 | | Accounts payable | | 115,267 | | | 497,046 | |
Customer deposits | Customer deposits | | 51,833 | | | 56,127 | | Customer deposits | | 47,206 | | | 51,182 | |
| Accrued general taxes | Accrued general taxes | | 66,582 | | | 53,064 | | Accrued general taxes | | 75,932 | | | 67,094 | |
Accrued interest | Accrued interest | | 30,685 | | | 22,926 | | Accrued interest | | 38,120 | | | 29,569 | |
| Payable to parent | | Payable to parent | | 1,822 | | | — | |
Other current liabilities | Other current liabilities | | 139,217 | | | 146,422 | | Other current liabilities | | 256,365 | | | 150,817 | |
Total current liabilities | Total current liabilities | | 663,889 | | | 1,037,609 | | Total current liabilities | | 534,712 | | | 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 | | 666,604 | | | 638,828 | | Deferred income taxes and investment tax credits, net | | 727,483 | | | 683,948 | |
Accumulated removal costs | Accumulated removal costs | | 442,000 | | | 424,000 | | Accumulated removal costs | | 454,000 | | | 445,000 | |
Other deferred credits and other long-term liabilities | Other deferred credits and other long-term liabilities | | 850,155 | | | 881,286 | | Other deferred credits and other long-term liabilities | | 766,586 | | | 833,554 | |
Total deferred income taxes and other credits | Total deferred income taxes and other credits | | 1,958,759 | | | 1,944,114 | | Total deferred income taxes and other credits | | 1,948,069 | | | 1,962,502 | |
Total capitalization and liabilities | Total capitalization and liabilities | | $ | 8,193,769 | | | $ | 7,950,263 | | Total capitalization and liabilities | | $ | 9,118,761 | | | $ | 8,803,681 | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20222023 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars)
(Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Regulated operations revenues | Regulated operations revenues | | $ | 303,944 | | | $ | 255,848 | | | $ | 1,358,425 | | | $ | 1,070,576 | | | $ | 1,809,639 | | | $ | 1,445,066 | | Regulated operations revenues | | $ | 394,603 | | | $ | 303,944 | | | $ | 1,797,348 | | | $ | 1,358,425 | | | $ | 2,373,992 | | | $ | 1,809,639 | |
Operating expenses: | Operating expenses: | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | |
Net cost of gas sold | Net cost of gas sold | | 100,441 | | | 63,710 | | | 544,216 | | | 296,227 | | | 678,896 | | | 374,449 | | Net cost of gas sold | | 170,056 | | | 100,441 | | | 902,278 | | | 544,216 | | | 1,147,278 | | | 678,896 | |
Operations and maintenance | Operations and maintenance | | 121,537 | | | 119,708 | | | 368,984 | | | 328,980 | | | 478,554 | | | 431,795 | | Operations and maintenance | | 122,270 | | | 121,537 | | | 378,189 | | | 368,984 | | | 501,133 | | | 478,554 | |
Depreciation and amortization | Depreciation and amortization | | 64,390 | | | 61,359 | | | 192,434 | | | 187,688 | | | 258,144 | | | 249,118 | | Depreciation and amortization | | 69,268 | | | 64,390 | | | 218,763 | | | 192,434 | | | 289,372 | | | 258,144 | |
Taxes other than income taxes | Taxes other than income taxes | | 20,693 | | | 20,109 | | | 62,443 | | | 60,134 | | | 82,652 | | | 76,087 | | Taxes other than income taxes | | 21,147 | | | 20,693 | | | 65,491 | | | 62,443 | | | 86,245 | | | 82,652 | |
Total operating expenses | Total operating expenses | | 307,061 | | | 264,886 | | | 1,168,077 | | | 873,029 | | | 1,498,246 | | | 1,131,449 | | Total operating expenses | | 382,741 | | | 307,061 | | | 1,564,721 | | | 1,168,077 | | | 2,024,028 | | | 1,498,246 | |
Operating income (loss) | Operating income (loss) | | (3,117) | | | (9,038) | | | 190,348 | | | 197,547 | | | 311,393 | | | 313,617 | | Operating income (loss) | | 11,862 | | | (3,117) | | | 232,627 | | | 190,348 | | | 349,964 | | | 311,393 | |
Other income and (expenses): | Other income and (expenses): | | | | | | | | | | | | | Other income and (expenses): | | | | | | | | | | | | |
Net interest deductions | Net interest deductions | | (29,417) | | | (24,922) | | | (84,660) | | | (71,263) | | | (110,957) | | | (97,259) | | Net interest deductions | | (35,772) | | | (29,417) | | | (111,498) | | | (84,660) | | | (142,718) | | | (110,957) | |
Other income (deductions) | Other income (deductions) | | 1,678 | | | (4,287) | | | (440) | | | (4,902) | | | (97) | | | (545) | | Other income (deductions) | | 14,537 | | | 1,678 | | | 51,722 | | | (440) | | | 45,278 | | | (97) | |
Total other income and (expenses) | Total other income and (expenses) | | (27,739) | | | (29,209) | | | (85,100) | | | (76,165) | | | (111,054) | | | (97,804) | | Total other income and (expenses) | | (21,235) | | | (27,739) | | | (59,776) | | | (85,100) | | | (97,440) | | | (111,054) | |
Income (loss) before income taxes | Income (loss) before income taxes | | (30,856) | | | (38,247) | | | 105,248 | | | 121,382 | | | 200,339 | | | 215,813 | | Income (loss) before income taxes | | (9,373) | | | (30,856) | | | 172,851 | | | 105,248 | | | 252,524 | | | 200,339 | |
Income tax expense (benefit) | Income tax expense (benefit) | | (8,657) | | | (10,703) | | | 17,918 | | | 18,798 | | | 28,458 | | | 33,679 | | Income tax expense (benefit) | | (6,122) | | | (8,657) | | | 22,286 | | | 17,918 | | | 34,909 | | | 28,458 | |
Net income (loss) | Net income (loss) | | $ | (22,199) | | | $ | (27,544) | | | $ | 87,330 | | | $ | 102,584 | | | $ | 171,881 | | | $ | 182,134 | | Net income (loss) | | $ | (3,251) | | | $ | (22,199) | | | $ | 150,565 | | | $ | 87,330 | | | $ | 217,615 | | | $ | 171,881 | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20222023 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands of dollars)
(Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Net income (loss) | Net income (loss) | | $ | (22,199) | | | $ | (27,544) | | | $ | 87,330 | | | $ | 102,584 | | | $ | 171,881 | | | $ | 182,134 | | Net income (loss) | | $ | (3,251) | | | $ | (22,199) | | | $ | 150,565 | | | $ | 87,330 | | | $ | 217,615 | | | $ | 171,881 | |
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) | | — | | | — | | | — | | | — | | | 44,974 | | | (43,730) | | |
Net actuarial gain | | Net actuarial gain | | — | | | — | | | — | | | — | | | 3,099 | | | 44,974 | |
Amortization of prior service cost | Amortization of prior service cost | | 34 | | | 183 | | | 100 | | | 547 | | | 282 | | | 766 | | Amortization of prior service cost | | 33 | | | 34 | | | 99 | | | 100 | | | 132 | | | 282 | |
| Amortization of net actuarial loss | Amortization of net actuarial loss | | 6,616 | | | 8,474 | | | 19,847 | | | 25,420 | | | 28,321 | | | 32,608 | | Amortization of net actuarial loss | | 253 | | | 6,616 | | | 760 | | | 19,847 | | | 7,374 | | | 28,321 | |
Regulatory adjustment | Regulatory adjustment | | (5,524) | | | (7,277) | | | (16,571) | | | (21,831) | | | (61,767) | | | 2,959 | | Regulatory adjustment | | (90) | | | (5,524) | | | (270) | | | (16,571) | | | (5,156) | | | (61,767) | |
Net defined benefit pension plans | Net defined benefit pension plans | | 1,126 | | | 1,380 | | | 3,376 | | | 4,136 | | | 11,810 | | | (7,397) | | Net defined benefit pension plans | | 196 | | | 1,126 | | | 589 | | | 3,376 | | | 5,449 | | | 11,810 | |
Forward-starting interest rate swaps (“FSIRS”): | Forward-starting interest rate swaps (“FSIRS”): | | | | | | | | | | | | | Forward-starting interest rate swaps (“FSIRS”): | | | | | | | | | | | | |
Amounts reclassified into net income (loss) | Amounts reclassified into net income (loss) | | — | | | 413 | | | 416 | | | 1,240 | | | 828 | | | 1,653 | | Amounts reclassified into net income (loss) | | — | | | — | | | — | | | 416 | | | — | | | 828 | |
Net forward-starting interest rate swaps | Net forward-starting interest rate swaps | | — | | | 413 | | | 416 | | | 1,240 | | | 828 | | | 1,653 | | Net forward-starting interest rate swaps | | — | | | — | | | — | | | 416 | | | — | | | 828 | |
Total other comprehensive income (loss), net of tax | | 1,126 | | | 1,793 | | | 3,792 | | | 5,376 | | | 12,638 | | | (5,744) | | |
Total other comprehensive income, net of tax | | Total other comprehensive income, net of tax | | 196 | | | 1,126 | | | 589 | | | 3,792 | | | 5,449 | | | 12,638 | |
Comprehensive income (loss) | Comprehensive income (loss) | | $ | (21,073) | | | $ | (25,751) | | | $ | 91,122 | | | $ | 107,960 | | | $ | 184,519 | | | $ | 176,390 | | Comprehensive income (loss) | | $ | (3,055) | | | $ | (21,073) | | | $ | 151,154 | | | $ | 91,122 | | | $ | 223,064 | | | $ | 184,519 | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20222023 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
| | | Nine Months Ended September 30, | | Twelve Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
| | | 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 | | $ | 87,330 | | | $ | 102,584 | | | $ | 171,881 | | | $ | 182,134 | | Net income | | $ | 150,565 | | | $ | 87,330 | | | $ | 217,615 | | | $ | 171,881 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | | 192,434 | | | 187,688 | | | 258,144 | | | 249,118 | | Depreciation and amortization | | 218,763 | | | 192,434 | | | 289,372 | | | 258,144 | |
Deferred income taxes | Deferred income taxes | | 26,579 | | | 35,800 | | | 44,016 | | | 55,164 | | Deferred income taxes | | 43,348 | | | 26,579 | | | 59,156 | | | 44,016 | |
Gain on sale of property | | Gain on sale of property | | (136) | | | (1,503) | | | (136) | | | (1,503) | |
Changes in undistributed stock compensation | | Changes in undistributed stock compensation | | 5,395 | | | 4,993 | | | 6,178 | | | 5,948 | |
Equity AFUDC | | Equity AFUDC | | — | | | (248) | | | 248 | | | (248) | |
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 | | 66,048 | | | 43,430 | | | (188) | | | (22,766) | | Accounts receivable, net of allowance | | 66,275 | | | 66,048 | | | (64,187) | | | (188) | |
Accrued utility revenue | Accrued utility revenue | | 43,600 | | | 42,700 | | | (1,600) | | | (3,200) | | Accrued utility revenue | | 43,500 | | | 43,600 | | | (3,300) | | | (1,600) | |
Deferred purchased gas costs | Deferred purchased gas costs | | (90,206) | | | (293,410) | | | (140,524) | | | (317,070) | | Deferred purchased gas costs | | (237,017) | | | (90,206) | | | (305,786) | | | (140,524) | |
Accounts payable | Accounts payable | | (71,899) | | | (42,536) | | | 28,401 | | | 17,396 | | Accounts payable | | (346,579) | | | (71,899) | | | (31,404) | | | 28,401 | |
Accrued taxes | Accrued taxes | | 18,725 | | | 5,396 | | | 21,082 | | | (12,045) | | Accrued taxes | | 8,782 | | | 18,725 | | | 11,811 | | | 21,082 | |
Other current assets and liabilities | Other current assets and liabilities | | (5,908) | | | 18,608 | | | (94,787) | | | (7,739) | | Other current assets and liabilities | | 291,863 | | | (5,908) | | | 109,034 | | | (94,787) | |
Gain on sale of property | | (1,503) | | | — | | | (1,503) | | | — | | |
Changes in undistributed stock compensation | | 4,993 | | | 5,437 | | | 5,948 | | | 6,239 | | |
Equity AFUDC | | (248) | | | — | | | (248) | | | (1,311) | | |
Changes in deferred charges and other assets | Changes in deferred charges and other assets | | 1,112 | | | (18,726) | | | (8,905) | | | (35,329) | | Changes in deferred charges and other assets | | (21,750) | | | 1,112 | | | (24,556) | | | (8,905) | |
Changes in other liabilities and deferred credits | Changes in other liabilities and deferred credits | | (26,467) | | | (55,905) | | | (42,948) | | | (68,509) | | Changes in other liabilities and deferred credits | | (54,894) | | | (26,467) | | | (56,117) | | | (42,948) | |
Net cash provided by operating activities | Net cash provided by operating activities | | 244,590 | | | 31,066 | | | 238,769 | | | 42,082 | | Net cash provided by operating activities | | 168,115 | | | 244,590 | | | 207,928 | | | 238,769 | |
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 | | (485,825) | | | (415,398) | | | (672,410) | | | (582,393) | | Construction expenditures and property additions | | (581,190) | | | (485,825) | | | (778,496) | | | (672,410) | |
Changes in customer advances | Changes in customer advances | | 23,222 | | | 7,940 | | | 31,255 | | | 14,282 | | Changes in customer advances | | (6,974) | | | 23,222 | | | (8,690) | | | 31,255 | |
Other | Other | | (1,005) | | | 65 | | | (1,102) | | | 653 | | Other | | 670 | | | (1,005) | | | 8,592 | | | (1,102) | |
| Net cash used in investing activities | Net cash used in investing activities | | (463,608) | | | (407,393) | | | (642,257) | | | (567,458) | | Net cash used in investing activities | | (587,494) | | | (463,608) | | | (778,594) | | | (642,257) | |
CASH FLOW FROM FINANCING ACTIVITIES: | CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | | CASH FLOW FROM FINANCING ACTIVITIES: | | | | | | | | |
Contributions from parent | Contributions from parent | | — | | | 202,583 | | | — | | | 248,544 | | Contributions from parent | | 530,000 | | | — | | | 530,000 | | | — | |
Dividends paid | Dividends paid | | (92,200) | | | (82,000) | | | (121,600) | | | (109,000) | | Dividends paid | | (111,200) | | | (92,200) | | | (141,200) | | | (121,600) | |
Issuance of long-term debt, net | Issuance of long-term debt, net | | 593,862 | | | 297,318 | | | 593,862 | | | 297,318 | | Issuance of long-term debt, net | | 297,759 | | | 593,862 | | | 595,560 | | | 593,862 | |
Retirement of long-term debt | Retirement of long-term debt | | (275,000) | | | — | | | (275,000) | | | — | | Retirement of long-term debt | | — | | | (275,000) | | | — | | | (275,000) | |
Change in credit facility and commercial paper | | 8,000 | | | (150,000) | | | 138,000 | | | (58,000) | | |
Change in short-term debt | | (25,000) | | | 193,000 | | | (25,000) | | | 250,000 | | |
Change in long-term credit facility and commercial paper | | Change in long-term credit facility and commercial paper | | (50,000) | | | 8,000 | | | (138,000) | | | 138,000 | |
Issuance of short-term debt | | Issuance of short-term debt | | 450,000 | | | — | | | 450,000 | | | — | |
Other changes in short-term debt | | Other changes in short-term debt | | (675,000) | | | (25,000) | | | (675,000) | | | (25,000) | |
Withholding remittance - share-based compensation | Withholding remittance - share-based compensation | | (2,011) | | | (1,254) | | | (2,020) | | | (1,254) | | Withholding remittance - share-based compensation | | (1,528) | | | (2,011) | | | (2,086) | | | (2,020) | |
Other | Other | | (2,173) | | | (1,632) | | | (2,361) | | | (1,708) | | Other | | (1,505) | | | (2,173) | | | (2,789) | | | (2,361) | |
Net cash provided by financing activities | Net cash provided by financing activities | | 205,478 | | | 458,015 | | | 305,881 | | | 625,900 | | Net cash provided by financing activities | | 438,526 | | | 205,478 | | | 616,485 | | | 305,881 | |
| Change in cash and cash equivalents | Change in cash and cash equivalents | | (13,540) | | | 81,688 | | | (97,607) | | | 100,524 | | Change in cash and cash equivalents | | 19,147 | | | (13,540) | | | 45,819 | | | (97,607) | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | | 38,691 | | | 41,070 | | | 122,758 | | | 22,234 | | Cash and cash equivalents at beginning of period | | 51,823 | | | 38,691 | | | 25,151 | | | 122,758 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 25,151 | | | $ | 122,758 | | | $ | 25,151 | | | $ | 122,758 | | Cash and cash equivalents at end of period | | $ | 70,970 | | | $ | 25,151 | | | $ | 70,970 | | | $ | 25,151 | |
SUPPLEMENTAL INFORMATION: | SUPPLEMENTAL INFORMATION: | | | | | | | | | SUPPLEMENTAL INFORMATION: | | | | | | | | |
Interest paid, net of amounts capitalized | Interest paid, net of amounts capitalized | | $ | 76,141 | | | $ | 53,220 | | | $ | 113,161 | | | $ | 92,778 | | Interest paid, net of amounts capitalized | | $ | 99,425 | | | $ | 76,141 | | | $ | 131,264 | | | $ | 113,161 | |
Income taxes paid (received), net | Income taxes paid (received), net | | $ | 5 | | | $ | — | | | $ | (13,524) | | | $ | 3,359 | | Income taxes paid (received), net | | $ | — | | | $ | 5 | | | $ | — | | | $ | (13,524) | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20222023 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Common stock shares | Common stock shares | | | | | | | | | Common stock shares | | | | | | | |
| | Beginning and ending balances | | 47,482 | | | 47,482 | | | 47,482 | | | 47,482 | | | Beginning and ending balances | 47,482 | | | 47,482 | | | 47,482 | | | 47,482 | |
Common stock amount | Common stock amount | | | | | | | | | Common stock amount | | | | | | | |
| | Beginning and ending balances | | $ | 49,112 | | | $ | 49,112 | | | $ | 49,112 | | | $ | 49,112 | | | Beginning and ending balances | $ | 49,112 | | | $ | 49,112 | | | $ | 49,112 | | | $ | 49,112 | |
Additional paid-in capital | Additional paid-in capital | | | | | | | | | Additional paid-in capital | | | | | | | |
| | Beginning balances | | 1,622,006 | | | 1,529,419 | | | 1,618,911 | | | 1,410,345 | | | Beginning balances | 2,156,026 | | | 1,622,006 | | | 1,622,969 | | | 1,618,911 | |
| | Share-based compensation | | 614 | | | 1,435 | | | 3,709 | | | 4,868 | | | Share-based compensation | 1,248 | | | 614 | | | 4,305 | | | 3,709 | |
| | Contributions from Southwest Gas Holdings, Inc. | | — | | | 86,942 | | | — | | | 202,583 | | | Contributions from Southwest Gas Holdings, Inc. | — | | | — | | | 530,000 | | | — | |
| | Ending balances | | 1,622,620 | | | 1,617,796 | | | 1,622,620 | | | 1,617,796 | | | Ending balances | 2,157,274 | | | 1,622,620 | | | 2,157,274 | | | 1,622,620 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | | | | | | | | | Accumulated other comprehensive loss | | | | | | | |
| | Beginning balances | | (44,247) | | | (57,552) | | | (46,913) | | | (61,135) | | | Beginning balances | (37,868) | | | (44,247) | | | (38,261) | | | (46,913) | |
| | Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | | 1,126 | | | 1,380 | | | 3,376 | | | 4,136 | | | Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | 196 | | | 1,126 | | | 589 | | | 3,376 | |
| | FSIRS amounts reclassified to net income, net of tax | | — | | | 413 | | | 416 | | | 1,240 | | | FSIRS amounts reclassified to net income, net of tax | — | | | — | | | — | | | 416 | |
| | Ending balances | | (43,121) | | | (55,759) | | | (43,121) | | | (55,759) | | | Ending balances | (37,672) | | | (43,121) | | | (37,672) | | | (43,121) | |
Retained earnings | Retained earnings | | | | | | | | | Retained earnings | | | | | | | |
| | Beginning balances | | 952,725 | | | 908,757 | | | 906,827 | | | 835,146 | | | Beginning balances | 1,009,608 | | | 952,725 | | | 935,355 | | | 906,827 | |
| | Net income (loss) | | (22,199) | | | (27,544) | | | 87,330 | | | 102,584 | | | Net income (loss) | (3,251) | | | (22,199) | | | 150,565 | | | 87,330 | |
| | Share-based compensation | | (98) | | | (168) | | | (729) | | | (685) | | | Share-based compensation | (75) | | | (98) | | | (438) | | | (729) | |
| | Dividends declared to Southwest Gas Holdings, Inc. | | (30,000) | | | (29,400) | | | (93,000) | | | (85,400) | | | Dividends declared to Southwest Gas Holdings, Inc. | (39,700) | | | (30,000) | | | (118,900) | | | (93,000) | |
| | Ending balances | | 900,428 | | | 851,645 | | | 900,428 | | | 851,645 | | | Ending balances | 966,582 | | | 900,428 | | | 966,582 | | | 900,428 | |
Total Southwest Gas Corporation equity ending balances | Total Southwest Gas Corporation equity ending balances | | $ | 2,529,039 | | | $ | 2,462,794 | | | $ | 2,529,039 | | | $ | 2,462,794 | | Total Southwest Gas Corporation equity ending balances | $ | 3,135,296 | | | $ | 2,529,039 | | | $ | 3,135,296 | | | $ | 2,529,039 | |
The accompanying notes are an integral part of these statements.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 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).
In December 2022, the Company announced that its Board of Directors (the “Board”) unanimously determined to take strategic actions to simplify the Company’s portfolio 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”). The MountainWest sale closed on February 14, 2023.
As part of this simplification strategy, the Company previously communicated that it would pursue a separation of Centuri and has continued to undertake significant efforts toward a near-term separation, including submitting a confidential draft registration statement on Form S-1 to the U.S. Securities and Exchange Commission (the “SEC”). See Note 8 - Dispositions 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.
The Company completed the acquisition of Dominion Energy Questar Pipeline, LLC and related entities (“Questar Pipelines”) in December 2021 and formed MountainWest, which owns all of the membership interests in 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 in the midstream sector, with an expansion of interstate natural gas pipelines and underground storage services, primarily composed of regulated operations under the jurisdiction of the Federal Energy Regulatory Commission (the “FERC”), thereby expanding natural gas transportation services into Utah, Wyoming, and Colorado. See Note 8 - Business Acquisitions for more information.
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. Initially it was contemplated that the Centuri separation would take the form of a spin-off. Then, in April 2022, as a result of interest in the Company well in excess of an earlier tender offer to other shareholders by an activist stockholder (affiliates of Carl C. Icahn), 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, began evaluating 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 (collectively, the “Strategic Review”). On August 3, 2022, the Company announced that the Board had unanimously determined that the best path forward to maximize value for all stockholders is to (i) focus on its strategic plan while concluding the strategic review process for Southwest Gas Holdings, Inc. and Southwest Gas Corporation; (ii) continue to review strategic alternatives for MountainWest; and (iii) continue to review strategic alternatives for Centuri, including a sale or spin-off of Centuri, among others.
On May 6, 2022, the Company entered into a Cooperation Agreement (the “Cooperation Agreement”) with Carl C. Icahn and the persons and entities referenced therein (collectively, the “Icahn Group”). In accordance with the Cooperation Agreement, among other things, John P. Hester, then President and Chief Executive Officer of the Company and Southwest, retired from his positions with the Company and Southwest and resigned from the Board. Karen S. Haller, the Company’s former Executive Vice President/Chief Legal and Administrative Officer, was appointed President and Chief Executive Officer of the Company and Chief Executive Officer of Southwest, and was appointed as a member of the Board effective immediately following the completion of the Company’s 2022 annual meeting of stockholders (the “2022 Annual Meeting”). Justin L. Brown, formerly Southwest’s Senior Vice President/General Counsel, was appointed as President of Southwest.
In addition, pursuant to the Cooperation Agreement, the Company agreed to appoint three new directors, Andrew W. Evans, H. Russell Frisby, Jr., and Henry P. Linginfelter (collectively, the “Initial Icahn Designees”), to the Board, which became effective immediately following the 2022 Annual Meeting. Also pursuant to the Cooperation Agreement, on May 27, 2022, the Icahn group informed the Company that it would cause Mr. Frisby to resign from the Board and requested that Andrew J. Teno be appointed to the Board to fill the vacancy created by Mr. Frisby’s resignation. As a result, on May 27, Mr. Frisby resigned from
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
the Board, effective immediately, and the Board appointed Mr. Teno to fill the vacancy created by Mr. Frisby’s resignation, effective immediately. The Icahn Group’s ability to designate directors to the Board is subject to certain ownership thresholds. Consistent with the terms of the Cooperation Agreement and pursuant to the terms of that certain Letter Agreement, dated as of August 3, 2022 (the “Letter Agreement” and together with the Cooperation Agreement, the “Initial Cooperation Agreement”), by and between the Company and the Icahn Group, the Company agreed to extend the date by which the Icahn Group was permitted to appoint a director other than Mr. Frisby to replace Mr. Cárdenas on the Board. On August 9, 2022, in accordance with the terms of the Initial Cooperation Agreement, Ruby Sharma was appointed to the Board to replace Mr. Cárdenas.
The Initial Cooperation Agreement required the Board to expand the Strategic Transactions Committee from three directors to six directors, comprised of the existing members of the Strategic Transactions Committee in addition to the three Initial Icahn Designees. Also, as the Icahn Group has the ability to designate at least three members of the Board, such individuals are to be included on the Strategic Transactions Committee. If the Icahn Group may only designate two members of the Board, then both would serve on the Strategic Transactions Committee.
On May 9, 2022, the Company also entered into Amendment No. 1 to the Rights Agreement dated October 10, 2021 (the “Original Rights Agreement” and as amended, the “Amended Rights Agreement”), to increase the triggering percentage from 10% to 24.9% pursuant to the terms of the Initial Cooperation Agreement and permit the subsequent consummation of the Offer. The Amended Rights Agreement expired on October 9, 2022. See details in the Company’s and Southwest’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”) regarding the Original Rights Agreement, as well as Note 4 – Common Stock in this current report on Form 10-Q.
An earlier civil suit (initiated in November 2021) by Icahn entities against the Company and certain directors and officers of the Company was subject to a stipulation of dismissal as part of the Initial Cooperation Agreement. The Initial Cooperation Agreement also provided for the reimbursement by the Company of certain out-of-pocket third-party expenses, including certain legal fees, incurred by the Icahn Group.
On October 24, 2022, the Company and the Icahn Group entered into an Amended and Restated Cooperation Agreement (the “Amended Cooperation Agreement”), which amended, restated, superseded, and replaced in its entirety the Initial Cooperation Agreement. Please see Note 9 - Subsequent Events for additional information about the Amended Cooperation Agreement.
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”).SEC. The year-end 20212022 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 during the recently completed quarter.
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, andas well as 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 2021 Form 10-K.
Other Property and Investments. Other property and investments on Southwest’s and the Company’s Condensed Consolidated Balance Sheets includes:2022 Annual Report on Form 10-K.
| | | | | | | | | | | |
(Thousands of dollars) | September 30, 2022 | | December 31, 2021 |
Net cash surrender value of COLI policies | $ | 141,705 | | | $ | 149,947 | |
Other property | 3,856 | | | 3,146 | |
Total Southwest Gas Corporation | 145,561 | | | 153,093 | |
Non-regulated property, equipment, and intangibles | 1,704,354 | | | 1,616,392 | |
Non-regulated accumulated provision for depreciation and amortization | (595,393) | | | (512,343) | |
Other property and investments | 56,812 | | | 59,337 | |
Total Southwest Gas Holdings, Inc. | $ | 1,311,334 | | | $ | 1,316,479 | |
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.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20222023 |
IncludedOther Property and Investments. Other property and investments on Southwest’s and the Company’s Condensed Consolidated Balance Sheets includes:
| | | | | | | | | | | |
(Thousands of dollars) | September 30, 2023 | | December 31, 2022 |
Net cash surrender value of COLI policies | $ | 141,321 | | | $ | 136,245 | |
Other property | 6,140 | | | 33,152 | |
Total Southwest Gas Corporation | 147,461 | | | 169,397 | |
Non-regulated property, equipment, and intangibles | 1,748,625 | | | 1,677,218 | |
Non-regulated accumulated provision for depreciation and amortization | (677,442) | | | (596,518) | |
Other property and investments | 35,421 | | | 31,075 | |
Total Southwest Gas Holdings, Inc. | $ | 1,254,065 | | | $ | 1,281,172 | |
Held for sale. In the first quarter of 2023, the Company and Southwest concluded certain assets associated with its previous corporate headquarters met the criteria to be classified as held for sale. 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 in the table above arefirst quarter of 2023. In September 2023, the net cash surrender values of company-owned life insurance (“COLI”) policies. These life insurance policies on members of managementCompany and other key employees are used by Southwest to indemnify itself against therecorded an estimated loss of talent, expertise, and knowledge, as well as$2.1 million on the assets based upon an updated fair value less costs to provide indirect funding for certain nonqualified benefit plans. The term non-regulatedsell, which is recorded in regard to assets and related balances in the table above is in reference to the non-rate regulated operations of Centuri, and to a more limited extent, certain assets of MountainWest.Other income (deductions).
Cash and Cash Equivalents. Cash and cash equivalents of the Company include $5667.7 million and $20$30 million of money market fund investments at September 30, 20222023 and December 31, 2021,2022, respectively. The money market fund investments for Southwest were insignificant$66 million at both balance sheet dates. These investments fall within Level 2 of the fair value hierarchy, due to the asset valuation methods used by money market funds.September 30, 2023 and $17.6 million at December 31, 2022, respectively.
Noncash investing activities for the Company and Southwest include capital expenditures that were not yet paid, thereby remaining in accounts payable, the amounts related to which declined by approximately $4.8$39.6 million and $11.6$35.2 million during the nine months ended September 30, 2022,2023, for the Company and Southwest, respectively, and increased $16.1decreased $10.5 million and $9.4$2.9 million for each of these entities during the twelve months ended September 30, 2022, respectively.2023.
Accounts Receivable, netThe Other change in short-term debt as presented on the Company’s and Southwest’s Condensed Consolidated Statements of allowances. Following an earlier moratorium on account disconnections amidst the COVID-19 environment, account collection efforts resumed in 2021 in all jurisdictions in which Southwest operates. Ultimately, some accounts may not be collected,Cash Flows is comprised of repayments of short-term debt and if collection is unsuccessful, such accounts are written off. Estimates as to collectibility are made on an ongoing basis. However, Southwest continues to actively work with customers experiencing financial hardship by means of flexible payment options and partnering with assistance agencies. The cost of gas included in 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 current portion of the credit facility.
Deferred purchased gas costs. In July 2023, the Arizona Corporation Commission approved an increase in the gas cost balancing account (“GCBA”) rate, over a two-year period, as an enhancement to the existing gas cost recovery mechanism, given the $358 million Arizona account balance existing as of naturalMay 31, 2023. The increased GCBA rate of $0.20 per therm will support timely recovery of the existing balance. Based on the design of base tariff gas purchased. The difference betweencost rates in Arizona and surcharges, the account balance existing as of that date is deemed generally recoverable over the next twelve months, and is therefore classified as a current costasset on the balance sheets of gas purchasedthe Company and the cost of gas recovered in billed rates is deferred. Generally, these deferred amounts are recovered or refunded within one year.Southwest.
Prepaid and other current assets. Prepaid and other current assets for the Company and Southwest include, among other things, materials and operating supplies of $76.586.6 million at September 30, 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 $80.8 million and $67.4 million at September 30, 2022 and December 31, 2021, respectively, which included amounts for MountainWest. Also included in the balance for both Southwest and the Company was $15.5$207 million and $51.6 millionas of December 31, 2022 in unrecovered purchased gas costs, with no corresponding asset balance as of September 30, 2022 and December 31, 2021, respectively, in accrued purchased gas cost.2023.
Goodwill. Goodwill isSince December 31, 2022, management qualitatively 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. The acquisition of MountainWest resulted in a new reportable segment, which was assessed for impairment forwhether events during the first time in 2022. Management considered whether the resultsnine months of strategic initiatives in 20222023 indicated it was more likely than not that the fair value of the Company’sour reporting units werewas less than their carrying amounts.value, which if the case, could be an indication of a goodwill impairment. Through management’s assessments, no impairment was deemed to have occurred. However, there can be no assurances that future assessments of goodwill will not result in an impairment, and various factors, including changesoccurred in the business, strategic initiatives, economic conditions, governmental monetary policies, interest rates, or others, on their own or in combination with each other, could result incontinuing segments of the fair value of reporting units being lower than their carrying values.Company. Goodwill in the Natural Gas Distribution operations of Southwest, and across all operations of the Company,Utility Infrastructure Services segments is included in theirthe respective Condensed Consolidated Balance Sheets as follows:
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(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) | | — | | | (1,924) | | | — | | | (1,924) | |
Measurement-period adjustments from MountainWest acquisition (a) | | — | | | — | | | (28,177) | | | (28,177) | |
Foreign currency translation adjustment | | — | | | (8,264) | | | — | | | (8,264) | |
September 30, 2022 | | $ | 10,095 | | | $ | 774,870 | | | $ | 958,002 | | | $ | 1,742,967 | |
(a) See Note 8 - Business Acquisitions for details regarding measurement-period adjustments.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
| | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | | Natural Gas Distribution | | Utility Infrastructure Services | | Total Company |
December 31, 2022 | | $ | 11,155 | | | $ | 776,095 | | | $ | 787,250 | |
Foreign currency translation adjustment | | — | | | 183 | | | 183 | |
September 30, 2023 | | $ | 11,155 | | | $ | 776,278 | | | $ | 787,433 | |
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
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2023 |
accrued liabilities. Other current liabilities for the Company include $41.6$44.3 million and $36$41.6 million of dividends declared as of September 30, 20222023 and December 31, 2021,2022, respectively. Also included in the balance for the Company and Southwest was $36.6 million and $7.5 million related to a regulatory liability associated with the Arizona decoupling mechanism as of September 30, 2023 and December 31, 2022, respectively, as well as $41.5 million as of September 30, 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 September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
(Thousands of dollars) | (Thousands of dollars) | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | (Thousands of dollars) | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Southwest Gas Corporation: | Southwest Gas Corporation: | | | | | | | | | | | | Southwest Gas Corporation: | | | | | | | | | | | |
Change in COLI policies | Change in COLI policies | $ | (1,500) | | | $ | — | | | $ | (8,700) | | | $ | 5,800 | | | $ | (5,700) | | | $ | 14,000 | | Change in COLI policies | $ | (1,500) | | | $ | (1,500) | | | $ | 4,800 | | | $ | (8,700) | | | $ | 8,100 | | | $ | (5,700) | |
Interest income | Interest income | 4,356 | | | 1,365 | | | 10,355 | | | 3,312 | | | 12,156 | | | 4,113 | | Interest income | 13,249 | | | 4,356 | | | 40,235 | | | 10,355 | | | 46,063 | | | 12,156 | |
Equity AFUDC | Equity AFUDC | 91 | | | — | | | 248 | | | — | | | 248 | | | 1,311 | | Equity AFUDC | — | | | 91 | | | — | | | 248 | | | (248) | | | 248 | |
Other components of net periodic benefit cost | Other components of net periodic benefit cost | (188) | | | (3,506) | | | (563) | | | (10,516) | | | (4,068) | | | (15,522) | | Other components of net periodic benefit cost | 5,097 | | | (188) | | | 15,290 | | | (563) | | | 15,102 | | | (4,068) | |
Miscellaneous income and (expense) | (1,081) | | | (2,146) | | | (1,780) | | | (3,498) | | | (2,733) | | | (4,447) | | |
Miscellaneous expense | | Miscellaneous expense | (2,309) | | | (1,081) | | | (8,603) | | | (1,780) | | | (23,739) | | | (2,733) | |
Southwest Gas Corporation - total other income (deductions) | Southwest Gas Corporation - total other income (deductions) | 1,678 | | | (4,287) | | | (440) | | | (4,902) | | | (97) | | | (545) | | Southwest Gas Corporation - total other income (deductions) | 14,537 | | | 1,678 | | | 51,722 | | | (440) | | | 45,278 | | | (97) | |
Centuri, MountainWest, and Southwest Gas Holdings, Inc.: | | |
Centuri and Southwest Gas Holdings, Inc.: | | Centuri and Southwest Gas Holdings, Inc.: | |
| Foreign transaction gain (loss) | Foreign transaction gain (loss) | (182) | | | (7) | | | 35 | | | (19) | | | 32 | | | (19) | | Foreign transaction gain (loss) | 18 | | | (182) | | | (399) | | | 35 | | | 543 | | | 32 | |
Equity AFUDC | Equity AFUDC | 246 | | | — | | | 664 | | | — | | | 664 | | | — | | Equity AFUDC | — | | | 246 | | | 82 | | | 664 | | | (117) | | | 664 | |
Equity in earnings of unconsolidated investments | Equity in earnings of unconsolidated investments | 624 | | | 67 | | | 1,867 | | | 168 | | | 1,925 | | | 159 | | Equity in earnings of unconsolidated investments | 142 | | | 624 | | | 591 | | | 1,867 | | | 1,353 | | | 1,925 | |
Miscellaneous income and (expense) | Miscellaneous income and (expense) | (773) | | | 1,115 | | | (2,124) | | | 778 | | | (2,046) | | | 687 | | Miscellaneous income and (expense) | (50) | | | (523) | | | 466 | | | (1,746) | | | (901) | | | (1,661) | |
Corporate and administrative | | Corporate and administrative | (183) | | | (250) | | | 66 | | | (378) | | | 181 | | | (385) | |
Southwest Gas Holdings, Inc. - total other income (deductions) | Southwest Gas Holdings, Inc. - total other income (deductions) | $ | 1,593 | | | $ | (3,112) | | | $ | 2 | | | $ | (3,975) | | | $ | 478 | | | $ | 282 | | Southwest Gas Holdings, Inc. - total other income (deductions) | $ | 14,464 | | | $ | 1,593 | | | $ | 52,528 | | | $ | 2 | | | $ | 46,337 | | | $ | 478 | |
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.mechanisms, the combined balance of which increased from $381 million as of September 30, 2022 to $687 million as of September 30, 2023. Refer also to the discussion of Other Property and Investments above and to Note 2 – Components of Net Periodic Benefit Cost. Miscellaneous expense for Southwest includes a variety of items, including reserves for uncompleted software projects and held-for-sale assets (discussed above) at Southwest deemed non-recoverable from its utility operations.
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 which iswith 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, based on these provisions,reducing the noncontrolling interest to 15%, and asin March 2023, agreeing once again to a result,partial 5% redemption (of the 15% then remaining). Centuri paid $39.6$39.9 million to the previous owner of Linetec for a 5% equity interest in Linetec,April 2023, thereby reducing the balance continuing to be redeemable as of September 30, 2023 to 15%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.
CertainFurthermore, 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.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
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 $45$21.8 million during the nine months ended September 30, 2022. Adjustment to2023 (notwithstanding the change resulting from the partial redemption noted above), and the estimated redemption value of the Drum redeemable noncontrolling interest did not change from the balance at December 31, 2022. Valuation adjustments also impacts
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2023 |
impact 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 | | |
Net income (loss) attributable to redeemable noncontrolling interests | | 2,582 | | | (25) | | | 2,557 | | |
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 | | 3,714 | | | 142 | | | 3,856 | |
Redemption value adjustments | Redemption value adjustments | | (44,933) | | | — | | | (44,933) | | Redemption value adjustments | | 21,846 | | | — | | | 21,846 | |
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, September 30, 2022 | | $ | 102,148 | | | $ | 12,544 | | | $ | 114,692 | | |
Balance, September 30, 2023 | | Balance, September 30, 2023 | | $ | 132,431 | | | $ | 12,726 | | | $ | 145,157 | |
Earnings Per Share. Basic earnings per share (“EPS”) in each period of this report were calculated by dividing net income attributable to Southwest Gas Holdings, Inc. by the weighted-average number of shares during those periods. Diluted EPS includes additional weighted-average common stock equivalents (performance shares and restricted stock units). Unless otherwise noted, the term “Earnings Per Share” refers to Basic EPS. A reconciliation of the denominator used in Basic and Diluted EPS calculations is shown in the following table:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
(In thousands) | (In thousands) | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | (In thousands) | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Weighted average basic shares | Weighted average basic shares | | 67,157 | | | 59,688 | | | 65,004 | | | 58,639 | | | 63,905 | | | 58,209 | | Weighted average basic shares | | 71,626 | | | 67,157 | | | 70,488 | | | 65,004 | | | 69,660 | | | 63,905 | |
Effect of dilutive securities: | Effect of dilutive securities: | | Effect of dilutive securities: | |
Restricted stock units (1)(2) | Restricted stock units (1)(2) | | 168 | | | 128 | | | 144 | | | 103 | | | 146 | | | 103 | | Restricted stock units (1)(2) | | 225 | | | — | | | 188 | | | 144 | | | — | | | 146 | |
Weighted average diluted shares | Weighted average diluted shares | | 67,325 | | | 59,816 | | | 65,148 | | | 58,742 | | | 64,051 | | | 58,312 | | Weighted average diluted shares | | 71,851 | | | 67,157 | | | 70,676 | | | 65,148 | | | 69,660 | | | 64,051 | |
(1) The number of anti-dilutive restricted stock units excluded from the calculation of diluted shares during the three months ended September 30, 2022 is 168,000, and 192,000 during the twelve months ended September 30, 2023.
(2) The number of securities included 156,000 and 115,000189,000 performance shares during the three months endingended September 30, 20222023, 160,000 and 2021, 135,000 and 95,000 performance shares during the nine months ending September 30, 2023 and 2022, and 2021, and 135,000 and 93,000 performance shares during the twelve months endingended September 30, 2022, and 2021, respectively, the total of which was derived by assuming that target performance will be achievedachieved during the relevant performance period.
Income Taxes. The Company’s effective tax rate was (47.1)% for the three months ended September 30, 2023, compared to 11.9% for the corresponding period in 2022 primarily due to pre-tax income differences and the amortization of excess deferred income taxes. The Company’s effective tax rate was 28.2% for the nine months ended September 30, 2023, compared to 18.6% for the corresponding period in 2022 primarily due to amortization of excess deferred income taxes, company-owned life insurance (“COLI”), which is non-taxable and non-deductible, and the MountainWest sale, and also includes the impact of book versus tax basis differences related to the transaction (See Note 8 - Dispositions).
Contingencies.Southwest’s effective tax rate Southwest maintains liability insurancewas 65.3% for various risks associated with the operationthree months ended September 30, 2023, compared to 28.1% for the corresponding period in 2022 primarily due to pre-tax income differences, the amortization of itsexcess deferred income taxes, and corporate-owned life insurance. Southwest’s effective tax rate was 12.9% for the nine months ended September 30, 2023, compared to 17.0% in the corresponding period in 2022, primarily due to the amortization of excess accumulated deferred income taxes and corporate-owned life insurance.
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, Southwest is responsibledistribution property must be capitalized for an initial deductible or self-insured retention amount per incident, after which the insurance carriers would be responsible for amounts up to the policy limits. For the policy year August 2022 to July 2023, these liability insurance policies require Southwest to be responsible for the first $1 million (self-insured retention) of each incident plus the first $4 million in aggregate claims above its self-insured retention in the policy year. In August 2021, a natural gas pipe operated by Southwest was involved in an explosion that injured four individuals and damaged property.tax purposes. 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.
Other contingencies are also recognized where appropriate, if claims are brought, or expected to be brought, against the Company or Southwest, where management expects it may settle (or be required to settle) claims in cash, or in some cases, by means of insurance indemnification. For instance, the balance of such reserves was updated in the second quarter of 2022 for $6.2 million related to a contract dispute. The amount was paid in the third quarter of 2022 and the matter is now closed.
As described above, the November 2021 civil suit filed by the Icahn Group against the Company and certain officersSouthwest are currently reviewing this revenue procedure to determine the potential impact on their financial position, results of operations, and directors was subject to a stipulation of dismissal with prejudice in May 2022, pursuant to the terms of the Initial Cooperation Agreement.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 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 complaint was later amended on November 30, 2021. The amended complaint named the Company and the individual members of the Board as defendants. The complaint sought to assert breach of fiduciary duty claims, alleging that the Board’s recommendation that stockholders reject Icahn’s Offer to purchase shares of the Company’s common stock omitted material information about the Company’s financial analysis; and sought to have the Board approve Icahn’s slate of nominees as “continuing directors” under certain of the Company’s debt instruments. In March 2022, the City Pension Fund filed a motion for summary judgment on its claim; however, in April 2022, the 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.cash flows.
Recent Accounting Standards Updates.
Accounting pronouncements effective or adopted in 2022:
In March 2020, the Financial Accounting Standards Board (the “FASB”)There are no recently issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The update provides optional guidance for a limited time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting, including when modifying a contract (during the eligibility period covered by the update to Topic 848) to replace a reference rate affected by such reform. The update applies only to contracts and hedging relationshipsstandards updates that reference the London Interbank Offered Rate (“LIBOR”) or another rateare expected to be discontinued due to reference rate reform. The guidance was eligible to be applied upon issuance on March 12, 2020, and can generally be applied through December 31, 2022, and while a proposal by the FASB has occurred to extend the optional guidance to the full tenor of LIBOR expiration dates occurring after 2022, to date, no such update has been made effective. Management will 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, the FASB issued ASU 2020-06 “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments 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 Company and Southwest adopted the update in the first quarter of 2022, the impact of which was notor material to the consolidated financial statements ofSouthwest or the Company effective in 2023 or Southwest.thereafter.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20222023 |
Note 2 – Components of Net Periodic Benefit Cost
Southwest has a noncontributory qualified retirement plan with defined benefits covering substantially all employees (those hired before 2022) and a separate unfunded supplemental retirement plan (“SERP”), which is limited to officers.officers 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 |
| | September 30, | | September 30, |
| | Three Months | | Nine Months | | Twelve Months | | Three Months | | Nine Months | | Twelve Months |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
(Thousands of dollars) | (Thousands of dollars) | | | | | | | | | | | | (Thousands of dollars) | | | | | | | | | | | |
Service cost | Service cost | $ | 11,028 | | | $ | 10,289 | | | $ | 33,084 | | | $ | 30,869 | | | $ | 43,374 | | | $ | 39,443 | | Service cost | $ | 6,460 | | | $ | 11,028 | | | $ | 19,380 | | | $ | 33,084 | | | $ | 30,406 | | | $ | 43,374 | |
Interest cost | Interest cost | 11,251 | | | 10,108 | | | 33,753 | | | 30,324 | | | 43,861 | | | 41,714 | | Interest cost | 14,791 | | | 11,251 | | | 44,373 | | | 33,753 | | | 55,626 | | | 43,861 | |
Expected return on plan assets | Expected return on plan assets | (19,978) | | | (18,088) | | | (59,934) | | | (54,264) | | | (78,022) | | | (70,588) | | Expected return on plan assets | (21,015) | | | (19,978) | | | (63,045) | | | (59,934) | | | (83,024) | | | (78,022) | |
Amortization of net actuarial loss | Amortization of net actuarial loss | 8,117 | | | 10,489 | | | 24,351 | | | 31,467 | | | 34,839 | | | 40,473 | | Amortization of net actuarial loss | 84 | | | 8,117 | | | 252 | | | 24,351 | | | 8,369 | | | 34,839 | |
Net periodic benefit cost | Net periodic benefit cost | $ | 10,418 | | | $ | 12,798 | | | $ | 31,254 | | | $ | 38,396 | | | $ | 44,052 | | | $ | 51,042 | | Net periodic benefit cost | $ | 320 | | | $ | 10,418 | | | $ | 960 | | | $ | 31,254 | | | $ | 11,377 | | | $ | 44,052 | |
| | | SERP | | SERP |
| | September 30, | | September 30, |
| | Three Months | | Nine Months | | Twelve Months | | Three Months | | Nine Months | | Twelve Months |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
(Thousands of dollars) | (Thousands of dollars) | | | | | | | | | | | | (Thousands of dollars) | | | | | | | | | | | |
Service cost | Service cost | $ | 106 | | | $ | 131 | | | $ | 318 | | | $ | 394 | | | $ | 450 | | | $ | 491 | | Service cost | $ | 62 | | | $ | 106 | | | $ | 186 | | | $ | 318 | | | $ | 292 | | | $ | 450 | |
Interest cost | Interest cost | 360 | | | 358 | | | 1,080 | | | 1,074 | | | 1,437 | | | 1,474 | | Interest cost | 531 | | | 360 | | | 1,593 | | | 1,080 | | | 1,954 | | | 1,437 | |
Amortization of net actuarial loss | Amortization of net actuarial loss | 588 | | | 661 | | | 1,763 | | | 1,981 | | | 2,424 | | | 2,433 | | Amortization of net actuarial loss | 249 | | | 588 | | | 748 | | | 1,763 | | | 1,335 | | | 2,424 | |
Net periodic benefit cost | Net periodic benefit cost | $ | 1,054 | | | $ | 1,150 | | | $ | 3,161 | | | $ | 3,449 | | | $ | 4,311 | | | $ | 4,398 | | Net periodic benefit cost | $ | 842 | | | $ | 1,054 | | | $ | 2,527 | | | $ | 3,161 | | | $ | 3,581 | | | $ | 4,311 | |
| | | PBOP | | PBOP |
| | September 30, | | September 30, |
| | Three Months | | Nine Months | | Twelve Months | | Three Months | | Nine Months | | Twelve Months |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
(Thousands of dollars) | (Thousands of dollars) | | | | | | | | | | | | (Thousands of dollars) | | | | | | | | | | | |
Service cost | Service cost | $ | 485 | | | $ | 423 | | | $ | 1,455 | | | $ | 1,269 | | | $ | 1,877 | | | $ | 1,664 | | Service cost | $ | 317 | | | $ | 485 | | | $ | 951 | | | $ | 1,455 | | | $ | 1,437 | | | $ | 1,877 | |
Interest cost | Interest cost | 613 | | | 549 | | | 1,839 | | | 1,645 | | | 2,387 | | | 2,291 | | Interest cost | 825 | | | 613 | | | 2,475 | | | 1,839 | | | 3,088 | | | 2,387 | |
Expected return on plan assets | Expected return on plan assets | (807) | | | (810) | | | (2,421) | | | (2,430) | | | (3,230) | | | (3,282) | | Expected return on plan assets | (606) | | | (807) | | | (1,818) | | | (2,421) | | | (2,625) | | | (3,230) | |
Amortization of prior service costs | Amortization of prior service costs | 44 | | | 239 | | | 132 | | | 719 | | | 372 | | | 1,007 | | Amortization of prior service costs | 44 | | | 44 | | | 132 | | | 132 | | | 175 | | | 372 | |
| Net periodic benefit cost | Net periodic benefit cost | $ | 335 | | | $ | 401 | | | $ | 1,005 | | | $ | 1,203 | | | $ | 1,406 | | | $ | 1,680 | | Net periodic benefit cost | $ | 580 | | | $ | 335 | | | $ | 1,740 | | | $ | 1,005 | | | $ | 2,075 | | | $ | 1,406 | |
Note 3 – Revenue
The following information about the Company’s revenues is presented by segment. Southwest encompasses the natural gas distribution segment and Centuri encompasses the utility infrastructure services segment.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20222023 |
Note 3 – Revenue
The following information about the Company’s revenues is presented by segment. Southwest encompasses the natural gas distribution segment, Centuri encompasses the utility infrastructure services segment, and MountainWest encompasses the pipeline and storage segment. Certain disclosures, where materially consistent with those provided most recently in the 2021 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 September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
(Thousands of dollars) | (Thousands of dollars) | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | (Thousands of dollars) | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Residential | Residential | $ | 170,196 | | | $ | 147,326 | | | $ | 913,355 | | | $ | 743,791 | | | $ | 1,205,176 | | | $ | 1,011,450 | | Residential | $ | 215,376 | | | $ | 170,196 | | | $ | 1,277,363 | | | $ | 913,355 | | | $ | 1,688,802 | | | $ | 1,205,176 | |
Small commercial | Small commercial | 61,780 | | | 48,283 | | | 264,494 | | | 185,774 | | | 348,934 | | | 248,193 | | Small commercial | 85,955 | | | 61,780 | | | 366,667 | | | 264,494 | | | 480,693 | | | 348,934 | |
Large commercial | Large commercial | 19,590 | | | 14,199 | | | 60,740 | | | 40,030 | | | 78,081 | | | 52,075 | | Large commercial | 27,888 | | | 19,590 | | | 84,021 | | | 60,740 | | | 108,515 | | | 78,081 | |
Industrial/other | Industrial/other | 13,319 | | | 9,608 | | | 34,064 | | | 30,352 | | | 46,025 | | | 37,505 | | Industrial/other | 16,596 | | | 13,319 | | | 52,165 | | | 34,064 | | | 68,995 | | | 46,025 | |
Transportation | Transportation | 22,936 | | | 21,884 | | | 74,034 | | | 68,217 | | | 98,057 | | | 91,151 | | Transportation | 23,278 | | | 22,936 | | | 77,558 | | | 74,034 | | | 104,166 | | | 98,057 | |
Revenue from contracts with customers | Revenue from contracts with customers | 287,821 | | | 241,300 | | | 1,346,687 | | | 1,068,164 | | | 1,776,273 | | | 1,440,374 | | Revenue from contracts with customers | 369,093 | | | 287,821 | | | 1,857,774 | | | 1,346,687 | | | 2,451,171 | | | 1,776,273 | |
Alternative revenue program revenues (deferrals) | Alternative revenue program revenues (deferrals) | 13,609 | | | 12,569 | | | 1,132 | | | (5,335) | | | 19,648 | | | (2,740) | | Alternative revenue program revenues (deferrals) | 21,840 | | | 13,609 | | | (72,251) | | | 1,132 | | | (91,861) | | | 19,648 | |
Other revenues (1) | Other revenues (1) | 2,514 | | | 1,979 | | | 10,606 | | | 7,747 | | | 13,718 | | | 7,432 | | Other revenues (1) | 3,670 | | | 2,514 | | | 11,825 | | | 10,606 | | | 14,682 | | | 13,718 | |
Total Regulated operations revenues | Total Regulated operations revenues | $ | 303,944 | | | $ | 255,848 | | | $ | 1,358,425 | | | $ | 1,070,576 | | | $ | 1,809,639 | | | $ | 1,445,066 | | Total Regulated operations revenues | $ | 394,603 | | | $ | 303,944 | | | $ | 1,797,348 | | | $ | 1,358,425 | | | $ | 2,373,992 | | | $ | 1,809,639 | |
(1) Amounts include late fees and other miscellaneous revenues, and may also include the impact of certain regulatory mechanisms, such as cost-of-service components in customer rates expected to be returned to customers in future periods. Also includes the impacts of a temporary moratorium on late fees and disconnection for nonpayment during the COVID-19 pandemic.mechanisms.
Utility Infrastructure Services Segment:
The following tables display Centuri’s revenue, reflected as Utility infrastructure services revenues on the Condensed Consolidated Statements of Income of the Company, representing revenue from contracts with customers disaggregated by service and contract types:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
(Thousands of dollars) | (Thousands of dollars) | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | (Thousands of dollars) | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Service Types: | Service Types: | | | | | | | | | | | | Service Types: | | | | | | | | | | | |
Gas infrastructure services | Gas infrastructure services | $ | 467,751 | | | $ | 393,122 | | | $ | 1,147,302 | | | $ | 961,836 | | | $ | 1,487,806 | | | $ | 1,287,552 | | Gas infrastructure services | $ | 443,083 | | | $ | 467,751 | | | $ | 1,173,960 | | | $ | 1,147,302 | | | $ | 1,558,476 | | | $ | 1,487,806 | |
Electric power infrastructure services | Electric power infrastructure services | 189,209 | | | 155,456 | | | 550,926 | | | 347,061 | | | 729,067 | | | 475,895 | | Electric power infrastructure services | 200,547 | | | 189,209 | | | 668,681 | | | 550,926 | | | 895,879 | | | 729,067 | |
Other | Other | 101,506 | | | 84,270 | | | 290,205 | | | 216,551 | | | 404,773 | | | 301,591 | | Other | 131,259 | | | 101,506 | | | 391,320 | | | 290,205 | | | 551,500 | | | 404,773 | |
Total Utility infrastructure services revenues | Total Utility infrastructure services revenues | $ | 758,466 | | | $ | 632,848 | | | $ | 1,988,433 | | | $ | 1,525,448 | | | $ | 2,621,646 | | | $ | 2,065,038 | | Total Utility infrastructure services revenues | $ | 774,889 | | | $ | 758,466 | | | $ | 2,233,961 | | | $ | 1,988,433 | | | $ | 3,005,855 | | | $ | 2,621,646 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Twelve Months Ended September 30, |
(Thousands of dollars) | (Thousands of dollars) | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | (Thousands of dollars) | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Contract Types: | Contract Types: | | | | | | | | | | | | Contract Types: | | | | | | | | | | | |
Master services agreement | Master services agreement | $ | 637,582 | | | $ | 467,869 | | | $ | 1,700,416 | | | $ | 1,160,199 | | | $ | 2,193,195 | | | $ | 1,573,247 | | Master services agreement | $ | 631,913 | | | $ | 637,582 | | | $ | 1,830,242 | | | $ | 1,700,416 | | | $ | 2,472,046 | | | $ | 2,193,195 | |
Bid contract | Bid contract | 120,884 | | | 164,979 | | | 288,017 | | | 365,249 | | | 428,451 | | | 491,791 | | Bid contract | 142,976 | | | 120,884 | | | 403,719 | | | 288,017 | | | 533,809 | | | 428,451 | |
Total Utility infrastructure services revenues | Total Utility infrastructure services revenues | $ | 758,466 | | | $ | 632,848 | | | $ | 1,988,433 | | | $ | 1,525,448 | | | $ | 2,621,646 | | | $ | 2,065,038 | | Total Utility infrastructure services revenues | $ | 774,889 | | | $ | 758,466 | | | $ | 2,233,961 | | | $ | 1,988,433 | | | $ | 3,005,855 | | | $ | 2,621,646 | |
| Unit price contracts | Unit price contracts | $ | 453,718 | | | $ | 406,404 | | | $ | 1,178,168 | | | $ | 1,002,779 | | | $ | 1,544,471 | | | $ | 1,373,746 | | Unit price contracts | $ | 440,787 | | | $ | 453,718 | | | $ | 1,191,889 | | | $ | 1,178,168 | | | $ | 1,621,852 | | | $ | 1,544,471 | |
Fixed price contracts | Fixed price contracts | 117,983 | | | 64,632 | | | 333,313 | | | 149,681 | | | 451,374 | | | 197,447 | | Fixed price contracts | 165,637 | | | 117,983 | | | 521,722 | | | 333,313 | | | 686,448 | | | 451,374 | |
Time and materials contracts | Time and materials contracts | 186,765 | | | 161,812 | | | 476,952 | | | 372,988 | | | 625,801 | | | 493,845 | | Time and materials contracts | 168,465 | | | 186,765 | | | 520,350 | | | 476,952 | | | 697,555 | | | 625,801 | |
Total Utility infrastructure services revenues | Total Utility infrastructure services revenues | $ | 758,466 | | | $ | 632,848 | | | $ | 1,988,433 | | | $ | 1,525,448 | | | $ | 2,621,646 | | | $ | 2,065,038 | | Total Utility infrastructure services revenues | $ | 774,889 | | | $ | 758,466 | | | $ | 2,233,961 | | | $ | 1,988,433 | | | $ | 3,005,855 | | | $ | 2,621,646 | |
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 included within Accounts receivable, net of allowances, as well as amounts billed in
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2023 |
excess of revenue earned on contracts (contract liabilities), at Centuri, which are included in Other current liabilities as of September 30, 20222023 and December 31, 20212022 on the Company’s Condensed Consolidated Balance Sheets:
| (Thousands of dollars) | (Thousands of dollars) | September 30, 2022 | | December 31, 2021 | (Thousands of dollars) | September 30, 2023 | | December 31, 2022 |
Contracts receivable, net | Contracts receivable, net | $ | 398,345 | | | $ | 296,005 | | Contracts receivable, net | $ | 452,728 | | | $ | 394,022 | |
Revenue earned on contracts in progress in excess of billings | Revenue earned on contracts in progress in excess of billings | 253,966 | | | 214,774 | | Revenue earned on contracts in progress in excess of billings | 282,759 | | | 238,059 | |
Amounts billed in excess of revenue earned on contracts | Amounts billed in excess of revenue earned on contracts | 31,877 | | | 11,860 | | Amounts billed in excess of revenue earned on contracts | 51,710 | | | 35,769 | |
The revenue earned on contracts in progress in excess of billings (contract asset) primarily relates to Centuri’s right 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. Contract assets increased $44.7 million during 2023 due primarily to continued revenue growth. 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 September 30, 2022 is2023 increased $15.9 million 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 September 30, 2022,2023, Centuri had h61ad 57 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 September 30, 20222023 was $430.3 million.$383 million. Centuri expects to recognize the remaining performance obligations over approximately the nenext xt 2.7two years;years; however, the timing of that recognition is largely within the control of the customer, including when the necessary 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) | September 30, 2022 | | December 31, 2021 | (Thousands of dollars) | September 30, 2023 | | December 31, 2022 |
Billed on completed contracts and contracts in progress | Billed on completed contracts and contracts in progress | $ | 400,831 | | | $ | 292,770 | | Billed on completed contracts and contracts in progress | $ | 453,434 | | | $ | 395,771 | |
Other receivables | Other receivables | 1,885 | | | 3,492 | | Other receivables | 3,906 | | | 2,569 | |
Contracts receivable, gross | Contracts receivable, gross | 402,716 | | | 296,262 | | Contracts receivable, gross | 457,340 | | | 398,340 | |
Allowance for doubtful accounts | Allowance for doubtful accounts | (4,371) | | | (257) | | Allowance for doubtful accounts | (4,612) | | | (4,318) | |
Contracts receivable, net | Contracts receivable, net | $ | 398,345 | | | $ | 296,005 | | Contracts receivable, net | $ | 452,728 | | | $ | 394,022 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
Pipeline and Storage Segment:
MountainWest derives revenue on the basis of services rendered, commodities delivered, or contracts settled and includes amounts yet to be billed to customers. MountainWest generates revenue and earnings from annual reservation payments under firm peaking storage and firm transportation contracts. Straight-fixed-variable rate designs are used to allow for recovery of 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 services, and to a lesser extent, natural gas liquid (“NGL”) revenues consisting primarily of NGL processing services, and other revenue (including natural gas sales, and services related to gathering and processing activities, as well as 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 September 30, | | Nine Months Ended September 30, |
(Thousands of dollars) | 2022 |
Regulated gas transportation and storage revenues | $ | 59,283 | | | $ | 179,046 | |
NGL revenues | 1,469 | | | 4,838 | |
Other revenues | 2,385 | | | 8,244 | |
Revenue from contracts with customers | 63,137 | | | 192,128 | |
Other revenues | 41 | | | 131 |
Total Regulated operations revenues | $ | 63,178 | | | $ | 192,259 | |
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 Company’s 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 September 30, 2022 and are not material.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
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 was no activity activity under the Equity Shelf Program during the quarter ended September 30, 2022.2023. The following table provides the life-to-date activity under that program through September 30, 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 September 30, 2022,2023, the Company had approximately $341.8$342 million in common stock available for saleissuance under the program.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2023 |
In March 2022,2023, the Company issued, through a separate prospectus supplement under the Universal Shelf, an aggregate of 6.3254.1 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 $452.3$238.4 million, net of an underwriters’underwriter’s discount of $15.8 million.$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 than 15% of the outstanding stock of the Company as of September 30, 2023. 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 nine months ended September 30, 2022,2023, the Company issued approximately 216,00061,000 shares of common stock through the Restricted Stock/Unit Plan and Omnibus Incentive Plan.
Additionally, during the nine months ended September 30, 2022,2023, the Company issued 100,000222,000 shares of common stock through the Dividend Reinvestment and Stock Purchase Plan, raising approximately $7.8 million.$12.7 million.
In connection with the entry into the Initial Cooperation Agreement (see Note 1 – Background, Organization, and Summary of Significant Accounting Policies),the Company entered into the Amended Rights Agreement 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” to permit the Icahn Group to consummate the Offer. The Amended Rights Agreement expired on October 9, 2022.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 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.
| | | | September 30, 2022 | | December 31, 2021 | | | September 30, 2023 | | December 31, 2022 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
(Thousands of dollars) | (Thousands of dollars) | | | | | | | | | (Thousands of dollars) | | | | | | | | |
Southwest Gas Corporation: | Southwest Gas Corporation: | | Southwest Gas Corporation: | |
Debentures: | Debentures: | | Debentures: | |
8% Series, due 2026 | | 8% Series, due 2026 | | $ | 75,000 | | | $ | 77,489 | | | $ | 75,000 | | | $ | 80,027 | |
Medium-term notes, 7.92% series, due 2027 | | Medium-term notes, 7.92% series, due 2027 | | 25,000 | | | 26,063 | | | 25,000 | | | 26,840 | |
Medium-term notes, 6.76% series, due 2027 | | Medium-term notes, 6.76% series, due 2027 | | 7,500 | | | 7,533 | | | 7,500 | | | 7,662 | |
Notes, 5.8%, due 2027 | | Notes, 5.8%, due 2027 | | 300,000 | | | 300,300 | | | 300,000 | | | 305,913 | |
Notes, 3.7%, due 2028 | | Notes, 3.7%, due 2028 | | 300,000 | | | 274,884 | | | 300,000 | | | 275,043 | |
Notes, 5.45%, due 2028 | | Notes, 5.45%, due 2028 | | 300,000 | | | 295,212 | | | — | | | — | |
Notes, 2.2%, due 2030 | | Notes, 2.2%, due 2030 | | 450,000 | | | 353,831 | | | 450,000 | | | 353,763 | |
Notes, 4.05%, due 2032 | | Notes, 4.05%, due 2032 | | 600,000 | | | 518,934 | | | 600,000 | | | 527,052 | |
Notes, 6.1%, due 2041 | Notes, 6.1%, due 2041 | | $ | 125,000 | | | $ | 113,398 | | | $ | 125,000 | | | $ | 166,380 | | Notes, 6.1%, due 2041 | | 125,000 | | | 113,156 | | | 125,000 | | | 113,184 | |
Notes, 4.05%, due 2032 | | 600,000 | | | 506,346 | | | — | | | — | | |
Notes, 3.875%, due 2022 | | — | | | — | | | 250,000 | | | 250,603 | | |
Notes, 4.875%, due 2043 | Notes, 4.875%, due 2043 | | 250,000 | | | 202,383 | | | 250,000 | | | 307,538 | | Notes, 4.875%, due 2043 | | 250,000 | | | 193,110 | | | 250,000 | | | 195,703 | |
Notes, 3.8%, due 2046 | Notes, 3.8%, due 2046 | | 300,000 | | | 203,559 | | | 300,000 | | | 329,055 | | Notes, 3.8%, due 2046 | | 300,000 | | | 203,553 | | | 300,000 | | | 209,169 | |
Notes, 3.7%, due 2028 | | 300,000 | | | 267,903 | | | 300,000 | | | 325,191 | | |
Notes, 4.15%, due 2049 | Notes, 4.15%, due 2049 | | 300,000 | | | 213,972 | | | 300,000 | | | 342,030 | | Notes, 4.15%, due 2049 | | 300,000 | | | 210,048 | | | 300,000 | | | 218,712 | |
Notes, 2.2%, due 2030 | | 450,000 | | | 340,763 | | | 450,000 | | | 440,838 | | |
Notes, 3.18%, due 2051 | Notes, 3.18%, due 2051 | | 300,000 | | | 182,976 | | | 300,000 | | | 292,116 | | Notes, 3.18%, due 2051 | | 300,000 | | | 172,647 | | | 300,000 | | | 185,523 | |
8% Series, due 2026 | | 75,000 | | | 80,108 | | | 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 | | | 26,413 | | | 25,000 | | | 31,555 | | |
Medium-term notes, 6.76% series, due 2027 | | 7,500 | | | 7,494 | | | 7,500 | | | 8,949 | | |
Unamortized discount and debt issuance costs | Unamortized discount and debt issuance costs | | (26,701) | | | (19,959) | | | Unamortized discount and debt issuance costs | | (30,357) | | | (29,471) | | |
| | 2,705,799 | | | 2,387,541 | | | | 3,302,143 | | | 3,003,029 | | |
Revolving credit facility and commercial paper | Revolving credit facility and commercial paper | | 138,000 | | | 138,000 | | | 130,000 | | | 130,000 | | Revolving credit facility and commercial paper | | — | | | — | | | 50,000 | | | 50,000 | |
Industrial development revenue bonds: | Industrial development revenue bonds: | | | | | | Industrial development revenue bonds: | | | | | |
Tax-exempt Series A, due 2028 | Tax-exempt Series A, due 2028 | | 50,000 | | | 50,000 | | | 50,000 | | | 50,000 | | Tax-exempt Series A, due 2028 | | 50,000 | | | 50,000 | | | 50,000 | | | 50,000 | |
2003 Series A, due 2038 | 2003 Series A, due 2038 | | 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 | 2008 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 | 2009 Series A, due 2039 | | 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 | Unamortized discount and debt issuance costs | | (1,717) | | | (1,938) | | | Unamortized discount and debt issuance costs | | (1,459) | | | (1,733) | | |
| | 198,283 | | | 198,062 | | | | 198,541 | | | 198,267 | | |
Less: current maturities | Less: current maturities | | — | | | (275,000) | | | Less: current maturities | | — | | | — | | |
Southwest Gas Corporation total long-term debt, less current maturities | Southwest Gas Corporation total long-term debt, less current maturities | | $ | 3,042,082 | | | $ | 2,440,603 | | | Southwest Gas Corporation total long-term debt, less current maturities | | 3,500,684 | | | 3,251,296 | | |
Southwest Gas Holdings, Inc.: | Southwest Gas Holdings, Inc.: | | | | | | Southwest Gas Holdings, Inc.: | | | | | |
SWH term loan facility | SWH term loan facility | | $ | 1,147,747 | | | 1,148,057 | | | $ | — | | | $ | — | | SWH term loan facility | | 550,000 | | | 550,000 | | | — | | | — | |
Centuri secured term loan facility | Centuri secured term loan facility | | 1,008,550 | | | 977,033 | | | 1,117,138 | | | 1,117,841 | | Centuri secured term loan facility | | 997,100 | | | 994,607 | | | 1,008,550 | | | 995,852 | |
Centuri secured revolving credit facility | Centuri secured revolving credit facility | | 150,571 | | | 150,740 | | | 103,329 | | | 103,749 | | Centuri secured revolving credit facility | | 143,881 | | | 143,918 | | | 81,955 | | | 82,315 | |
MountainWest unsecured senior notes, 3.53%, due in 2028 | | 101,843 | | | 86,345 | | | 102,078 | | | 102,078 | | |
MountainWest unsecured senior notes, 4.875%, due in 2041 | | 199,431 | | | 152,581 | | | 199,926 | | | 199,926 | | |
MountainWest unsecured senior notes, 3.91%, due in 2038 | | 147,812 | | | 103,398 | | | 147,735 | | | 147,735 | | |
Other debt obligations | Other debt obligations | | 134,274 | | | 122,980 | | | 51,665 | | | 50,003 | | Other debt obligations | | 104,240 | | | 97,261 | | | 126,844 | | | 118,314 | |
Unamortized discount and debt issuance costs | Unamortized discount and debt issuance costs | | (25,234) | | | (24,466) | | | Unamortized discount and debt issuance costs | | (18,031) | | | (20,789) | | |
Less: current maturities | Less: current maturities | | (41,485) | | | (22,324) | | | Less: current maturities | | (42,335) | | | (44,557) | | |
Southwest Gas Holdings, Inc. total long-term debt, less current maturities | Southwest Gas Holdings, Inc. total long-term debt, less current maturities | | $ | 5,865,591 | | | $ | 4,115,684 | | | Southwest Gas Holdings, Inc. total long-term debt, less current maturities | | $ | 5,235,539 | | | $ | 4,403,299 | | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 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 September 30, 2022,2023, the applicable margin 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 September 30, 2022, $138 million was outstanding on the long-term portion of the facility (no borrowings were outstanding under the commercial paper program, discussed below). No2023, no borrowings were outstanding on the short-termlong-term portion (including under the commercial paper program), nor under the short-term portion of 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, if any, are designated as long-term debt. Interest rates for the program are calculated at the then current commercial paper rate. At September 30, 2022, as noted above, no borrowings 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.
On September 26, 2022 (the “Amendment Date”), Southwest Gas Holdings, Inc., entered into Amendment No. 1 (“Amended Credit Agreement”) to the 364-day Term Loan Credit Agreement (the “Credit Agreement”). The Credit Agreement initially provided for a $1.6 billion delayed-draw term loan (the “Term Loan Facility”) to primarily fund the acquisition of the equity interests in MountainWest. As of the Amendment Date, approximately $1.15 billion in aggregate principal was outstanding under the Term Loan Facility, the same as that which was outstanding as of September 30, 2022. The Amended Credit Agreement, among other things, (1) extends the maturity date of the Term Loan to December 30, 2023, making the outstanding borrowings long-term as of September 30, 2022, and (2) replaces London Interbank Offered Rate (“LIBOR”) interest rate benchmarks with SOFR interest rate benchmarks. As part of the Amended Credit Agreement, the Company paid a non-refundable upfront fee in an amount equal to 0.10% of the aggregate principal amount outstanding as of the Amendment Date, and will pay additional fees based on any principal balance outstanding as of March 31, 2023, June 30, 2023, and September 30, 2023 of 0.10%, 0.15%, and 0.20%, respectively.
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, 2028.2028. Interest rates for the revolving credit facility and term loan facility are based on either a “base rate,” LIBORSOFR or CDOR,the Canadian Dollar Offered Rate (“CDOR”), 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.$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 September 30, 20222023 totaled $2.6 billion.$2.6 billion. At September 30, 2022, $1.1592023, $1.141 billion in borrowings were outstanding under Centuri’s combined secured revolving credit and term loan facility. On November 4, 2022, Centuri amended the financial covenants of the revolving credit facility to increase the maximum total net leverage ratio during the period from December 31, 2022 through December 31, 2023. See Note 9 - Subsequent Events for additional information about the amended credit facility.
MountainWest has two private placement unsecured senior notes and a public unsecured senior note, with a combined carrying value of $449.1In March 2023, Southwest issued $300 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 recordedunder 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 (the “Term Loan”) that matures in October 2024. Interest rates for the Term Loan are calculated, at their fair values asthe Company’s option, at either SOFR plus an adjustment of 0.100% or the “alternate base rate,” plus in each case an applicable margin. Loans bearing interest with reference to SOFR have an applicable margin of 1.300% and loans bearing interest with reference to the alternate base rate have an applicable margin of 0.300%. SOFR is calculated with a floor of 0.000% and alternative base rate is calculated with a floor of 1.000%. 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 then existing $450 million 364-day term loan, 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 $156$57.5 million outstanding under this credit facility as of September 30, 2022.2023.
As indicated above, under Southwest’s $400 million credit facility, no short-term borrowings were outstanding at September 30, 2022.
In March 2022, Southwest amended its $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
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
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. There was $225 million outstanding under the March 2021 Term Loan as of September 30, 2022.
As disclosed in Note 1 – Background, Organization, and Summary of Significant Accounting Policies,the Company is exploring strategic alternatives, including a potential sale of MountainWest and/or Centuri. If MountainWest and/or Centuri is sold as part of the Strategic Review process, the proceeds will be used to repay the amounts borrowed to fund the acquisition. Otherwise, management intends to either issue long-term debt or equity securities to refinance 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 were scheduled to be discontinued after 2021 as part of reference rate reform, while other LIBOR-based rates are scheduled to be discontinued after June 2023. As of September 30, 2022, the Company had $1.009 billion in outstanding borrowings under Centuri’s term loan facility. Southwest, MountainWest, and Southwest Gas Holdings, Inc. had no outstanding borrowings or variable rate debt agreements with reference to LIBOR as of September 30, 2022.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 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)
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| | Three Months Ended September 30, 2022 | | Three Months Ended September 30, 2021 |
(Thousands of dollars) | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount |
Defined benefit pension plans: | | | | | | | | | | | | |
Amortization of prior service cost | | $ | 44 | | | $ | (10) | | | $ | 34 | | | $ | 239 | | | $ | (56) | | | $ | 183 | |
Amortization of net actuarial (gain)/loss | | 8,705 | | | (2,089) | | | 6,616 | | | 11,151 | | | (2,677) | | | 8,474 | |
Regulatory adjustment | | (7,268) | | | 1,744 | | | (5,524) | | | (9,575) | | | 2,298 | | | (7,277) | |
Pension plans other comprehensive income (loss) | | 1,481 | | | (355) | | | 1,126 | | | 1,815 | | | (435) | | | 1,380 | |
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | — | | | — | | | — | | | 544 | | | (131) | | | 413 | |
FSIRS other comprehensive income (loss) | | — | | | — | | | — | | | 544 | | | (131) | | | 413 | |
Total other comprehensive income (loss) - Southwest Gas Corporation | | 1,481 | | | (355) | | | 1,126 | | | 2,359 | | | (566) | | | 1,793 | |
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | (5,830) | | | — | | | (5,830) | | | (2,056) | | | — | | | (2,056) | |
Foreign currency other comprehensive income (loss) | | (5,830) | | | — | | | (5,830) | | | (2,056) | | | — | | | (2,056) | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | (4,349) | | | $ | (355) | | | $ | (4,704) | | | $ | 303 | | | $ | (566) | | | $ | (263) | |
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| | Nine Months Ended September 30, 2022 | | Nine Months Ended September 30, 2021 |
(Thousands of dollars) | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount |
Defined benefit pension plans: | | | | | | | | | | | | |
Amortization of prior service cost | | $ | 132 | | | $ | (32) | | | $ | 100 | | | $ | 719 | | | $ | (172) | | | $ | 547 | |
Amortization of net actuarial (gain)/loss | | 26,114 | | | (6,267) | | | 19,847 | | | 33,448 | | | (8,028) | | | 25,420 | |
Regulatory adjustment | | (21,804) | | | 5,233 | | | (16,571) | | | (28,725) | | | 6,894 | | | (21,831) | |
Pension plans other comprehensive income (loss) | | 4,442 | | | (1,066) | | | 3,376 | | | 5,442 | | | (1,306) | | | 4,136 | |
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | 545 | | | (129) | | | 416 | | | 1,632 | | | (392) | | | 1,240 | |
FSIRS other comprehensive income (loss) | | 545 | | | (129) | | | 416 | | | 1,632 | | | (392) | | | 1,240 | |
Total other comprehensive income (loss) - Southwest Gas Corporation | | 4,987 | | | (1,195) | | | 3,792 | | | 7,074 | | | (1,698) | | | 5,376 | |
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | (7,263) | | | — | | | (7,263) | | | (324) | | | — | | | (324) | |
Foreign currency other comprehensive income (loss) | | (7,263) | | | — | | | (7,263) | | | (324) | | | — | | | (324) | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | (2,276) | | | $ | (1,195) | | | $ | (3,471) | | | $ | 6,750 | | | $ | (1,698) | | | $ | 5,052 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20222023 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended September 30, 2022 | | Twelve Months Ended September 30, 2021 |
(Thousands of dollars) | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount |
Defined benefit pension plans: | | | | | | | | | | | | |
Net actuarial gain/(loss) | | $ | 59,176 | | | $ | (14,202) | | | $ | 44,974 | | | $ | (57,539) | | | $ | 13,809 | | | $ | (43,730) | |
Amortization of prior service cost | | 372 | | | (90) | | | 282 | | | 1,007 | | | (241) | | | 766 | |
Amortization of net actuarial (gain)/loss | | 37,263 | | | (8,942) | | | 28,321 | | | 42,906 | | | (10,298) | | | 32,608 | |
| | | | | | | | | | | | |
Regulatory adjustment | | (81,273) | | | 19,506 | | | (61,767) | | | 3,894 | | | (935) | | | 2,959 | |
Pension plans other comprehensive income (loss) | | 15,538 | | | (3,728) | | | 11,810 | | | (9,732) | | | 2,335 | | | (7,397) | |
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | 1,087 | | | (259) | | | 828 | | | 2,176 | | | (523) | | | 1,653 | |
FSIRS other comprehensive income (loss) | | 1,087 | | | (259) | | | 828 | | | 2,176 | | | (523) | | | 1,653 | |
Total other comprehensive income (loss) - Southwest Gas Corporation | | 16,625 | | | (3,987) | | | 12,638 | | | (7,556) | | | 1,812 | | | (5,744) | |
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | (6,919) | | | — | | | (6,919) | | | 2,576 | | | — | | | 2,576 | |
Foreign currency other comprehensive income (loss) | | (6,919) | | | — | | | (6,919) | | | 2,576 | | | — | | | 2,576 | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | 9,706 | | | $ | (3,987) | | | $ | 5,719 | | | $ | (4,980) | | | $ | 1,812 | | | $ | (3,168) | |
Related Tax Effects Allocated to Each Component of Other Comprehensive Income (Loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2023 | | Three Months Ended September 30, 2022 |
(Thousands of dollars) | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount |
Defined benefit pension plans: | | | | | | | | | | | | |
Amortization of prior service cost | | $ | 44 | | | $ | (11) | | | $ | 33 | | | $ | 44 | | | $ | (10) | | | $ | 34 | |
Amortization of net actuarial (gain)/loss | | 333 | | | (80) | | | 253 | | | 8,705 | | | (2,089) | | | 6,616 | |
Regulatory adjustment | | (118) | | | 28 | | | (90) | | | (7,268) | | | 1,744 | | | (5,524) | |
Total other comprehensive income (loss) - Southwest Gas Corporation | | 259 | | | (63) | | | 196 | | | 1,481 | | | (355) | | | 1,126 | |
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | (2,261) | | | — | | | (2,261) | | | (5,830) | | | — | | | (5,830) | |
Foreign currency other comprehensive income (loss) | | (2,261) | | | — | | | (2,261) | | | (5,830) | | | — | | | (5,830) | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | (2,002) | | | $ | (63) | | | $ | (2,065) | | | $ | (4,349) | | | $ | (355) | | | $ | (4,704) | |
| | | | | | | | | | | | |
| | Nine Months Ended September 30, 2023 | | Nine Months Ended September 30, 2022 |
(Thousands of dollars) | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount |
Defined benefit pension plans: | | | | | | | | | | | | |
Amortization of prior service cost | | $ | 132 | | | $ | (33) | | | $ | 99 | | | $ | 132 | | | $ | (32) | | | $ | 100 | |
Amortization of net actuarial (gain)/loss | | 1,000 | | | (240) | | | 760 | | | 26,114 | | | (6,267) | | | 19,847 | |
Regulatory adjustment | | (356) | | | 86 | | | (270) | | | (21,804) | | | 5,233 | | | (16,571) | |
Pension plans other comprehensive income (loss) | | 776 | | | (187) | | | 589 | | | 4,442 | | | (1,066) | | | 3,376 | |
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | — | | | — | | | — | | | 545 | | | (129) | | | 416 | |
FSIRS other comprehensive income (loss) | | — | | | — | | | — | | | 545 | | | (129) | | | 416 | |
Total other comprehensive income (loss) - Southwest Gas Corporation | | 776 | | | (187) | | | 589 | | | 4,987 | | | (1,195) | | | 3,792 | |
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | 130 | | | — | | | 130 | | | (7,263) | | | — | | | (7,263) | |
Foreign currency other comprehensive income (loss) | | 130 | | | — | | | 130 | | | (7,263) | | | — | | | (7,263) | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | 906 | | | $ | (187) | | | $ | 719 | | | $ | (2,276) | | | $ | (1,195) | | | $ | (3,471) | |
| | | | | | | | | | | | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2023 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended September 30, 2023 | | Twelve Months Ended September 30, 2022 |
(Thousands of dollars) | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount | | Before- Tax Amount | | Tax (Expense) or Benefit (1) | | Net-of- Tax Amount |
Defined benefit pension plans: | | | | | | | | | | | | |
Net actuarial gain/(loss) | | $ | 4,079 | | | $ | (980) | | | $ | 3,099 | | | $ | 59,176 | | | $ | (14,202) | | | $ | 44,974 | |
Amortization of prior service cost | | 175 | | | (43) | | | 132 | | | 372 | | | (90) | | | 282 | |
Amortization of net actuarial (gain)/loss | | 9,704 | | | (2,330) | | | 7,374 | | | 37,263 | | | (8,942) | | | 28,321 | |
| | | | | | | | | | | | |
Regulatory adjustment | | (6,784) | | | 1,628 | | | (5,156) | | | (81,273) | | | 19,506 | | | (61,767) | |
Pension plans other comprehensive income (loss) | | 7,174 | | | (1,725) | | | 5,449 | | | 15,538 | | | (3,728) | | | 11,810 | |
FSIRS (designated hedging activities): | | | | | | | | | | | | |
Amounts reclassified into net income | | — | | | — | | | — | | | 1,087 | | | (259) | | | 828 | |
FSIRS other comprehensive income (loss) | | — | | | — | | | — | | | 1,087 | | | (259) | | | 828 | |
Total other comprehensive income (loss) - Southwest Gas Corporation | | 7,174 | | | (1,725) | | | 5,449 | | | 16,625 | | | (3,987) | | | 12,638 | |
Foreign currency translation adjustments: | | | | | | | | | | | | |
Translation adjustments | | 1,260 | | | — | | | 1,260 | | | (6,919) | | | — | | | (6,919) | |
Foreign currency other comprehensive income (loss) | | 1,260 | | | — | | | 1,260 | | | (6,919) | | | — | | | (6,919) | |
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | | $ | 8,434 | | | $ | (1,725) | | | $ | 6,709 | | | $ | 9,706 | | | $ | (3,987) | | | $ | 5,719 | |
(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 following table represents a rollforward of AOCI, presented on the Company’s Condensed Consolidated Balance Sheets and its Condensed Consolidated Statements of Equity:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | FSIRS | | Foreign Currency Items | | |
(Thousands of dollars) | | Before-Tax | | Tax (Expense) Benefit (4) | | After-Tax | | Before-Tax | | Tax (Expense) Benefit (4) | | After-Tax | | Before-Tax | | Tax (Expense) Benefit | | After-Tax | | AOCI |
Beginning Balance AOCI December 31, 2021 | | $ | (61,182) | | | $ | 14,685 | | | $ | (46,497) | | | $ | (545) | | | $ | 129 | | | $ | (416) | | | $ | 152 | | | $ | — | | | $ | 152 | | | $ | (46,761) | |
Translation adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | (7,263) | | | — | | | (7,263) | | | (7,263) | |
Other comprehensive income (loss) before reclassifications | | — | | | — | | | — | | | — | | | — | | | — | | | (7,263) | | | — | | | (7,263) | | | (7,263) | |
FSIRS amount reclassified from AOCI (1) | | — | | | — | | | — | | | 545 | | | (129) | | | 416 | | | — | | | — | | | — | | | 416 | |
Amortization of prior service cost (2) | | 132 | | | (32) | | | 100 | | | — | | | — | | | — | | | — | | | — | | | — | | | 100 | |
Amortization of net actuarial loss (2) | | 26,114 | | | (6,267) | | | 19,847 | | | — | | | — | | | — | | | — | | | — | | | — | | | 19,847 | |
Regulatory adjustment (3) | | (21,804) | | | 5,233 | | | (16,571) | | | — | | | — | | | — | | | — | | | — | | | — | | | (16,571) | |
Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | 4,442 | | | (1,066) | | | 3,376 | | | 545 | | | (129) | | | 416 | | | (7,263) | | | — | | | (7,263) | | | (3,471) | |
Ending Balance AOCI September 30, 2022 | | $ | (56,740) | | | $ | 13,619 | | | $ | (43,121) | | | $ | — | | | $ | — | | | $ | — | | | $ | (7,111) | | | $ | — | | | $ | (7,111) | | | $ | (50,232) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | — | | | — | | | — | | | | | | | | | 130 | | | — | | | 130 | | | 130 | |
Amortization of prior service cost (1) | | 132 | | | (33) | | | 99 | | | | | | | | | — | | | — | | | — | | | 99 | |
Amortization of net actuarial loss (1) | | 1,000 | | | (240) | | | 760 | | | | | | | | | — | | | — | | | — | | | 760 | |
Regulatory adjustment (2) | | (356) | | | 86 | | | (270) | | | | | | | | | — | | | — | | | — | | | (270) | |
Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | | 776 | | | (187) | | | 589 | | | | | | | | | 130 | | | — | | | 130 | | | 719 | |
Ending Balance AOCI September 30, 2023 | | $ | (49,566) | | | $ | 11,894 | | | $ | (37,672) | | | | | | | | | $ | (5,851) | | | $ | — | | | $ | (5,851) | | | $ | (43,523) | |
(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.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 20222023 |
The following table represents a rollforward of AOCI, presented on Southwest’s Condensed Consolidated Balance Sheets:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Defined Benefit Plans | | FSIRS | | |
(Thousands of dollars) | | Before-Tax | | Tax (Expense) Benefit (8) | | After-Tax | | Before-Tax | | Tax (Expense) Benefit (8) | | After-Tax | | AOCI |
Beginning Balance AOCI December 31, 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) | | 132 | | | (32) | | | 100 | | | — | | | — | | | — | | | 100 | |
Amortization of net actuarial loss (6) | | 26,114 | | | (6,267) | | | 19,847 | | | — | | | — | | | — | | | 19,847 | |
Regulatory adjustment (7) | | (21,804) | | | 5,233 | | | (16,571) | | | — | | | — | | | — | | | (16,571) | |
Net current period other comprehensive income attributable to Southwest Gas Corporation | | 4,442 | | | (1,066) | | | 3,376 | | | 545 | | | (129) | | | 416 | | | 3,792 | |
Ending Balance AOCI September 30, 2022 | | $ | (56,740) | | | $ | 13,619 | | | $ | (43,121) | | | $ | — | | | $ | — | | | $ | — | | | $ | (43,121) | |
(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) | | 132 | | | (33) | | | 99 | |
Amortization of net actuarial loss (4) | | 1,000 | | | (240) | | | 760 | |
Regulatory adjustment (5) | | (356) | | | 86 | | | (270) | |
Net current period other comprehensive income attributable to Southwest Gas Corporation | | 776 | | | (187) | | | 589 | |
Ending Balance AOCI September 30, 2023 | | $ | (49,566) | | | $ | 11,894 | | | $ | (37,672) | |
(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.
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) | | September 30, 2022 | | December 31, 2021 | (Thousands of dollars) | | September 30, 2023 | | December 31, 2022 |
Net actuarial loss | Net actuarial loss | | $ | (372,896) | | | $ | (399,010) | | Net actuarial loss | | $ | (359,113) | | | $ | (360,113) | |
Prior service cost | Prior service cost | | (1,396) | | | (1,528) | | Prior service cost | | (1,221) | | | (1,353) | |
Less: amount recognized in regulatory assets | Less: amount recognized in regulatory assets | | 317,552 | | | 339,356 | | Less: amount recognized in regulatory assets | | 310,768 | | | 311,124 | |
Recognized in AOCI | Recognized in AOCI | | $ | (56,740) | | | $ | (61,182) | | Recognized in AOCI | | $ | (49,566) | | | $ | (50,342) | |
Note 7 – Segment Information
As a result of the MountainWest acquisition on December 31, 2021, management updated its segment reporting from the historical presentation ofThe Company has two reportable segments to three reportable segments, with MountainWest presented as the pipeline and storage segment.segments. Southwest comprises the natural gas distribution segment and Centuri comprises the utility infrastructure services segment. As a result of the MountainWest sale in February 2023 (previously comprising the pipeline and storage segment), the information for the nine and twelve months ended September 30, 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 services provided to Southwest at contractual prices. Accounts receivable for these services, which are not eliminated during consolidation, are presented in the table below:
| | | | | | | | | | | |
(Thousands of dollars) | September 30, 2022 | | December 31, 2021 |
Centuri accounts receivable for services provided to Southwest | $ | 14,393 | | | $ | 15,166 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
| | | | | | | | | | | |
(Thousands of dollars) | September 30, 2023 | | December 31, 2022 |
Centuri accounts receivable for services provided to Southwest | $ | 11,764 | | | $ | 18,067 | |
In order to reconcile (below)the table 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 September 30, 2023 | | Three Months Ended September 30, 2023 | | | | | | | | | |
Revenues from external customers | | Revenues from external customers | $ | 394,603 | | | $ | 745,639 | | | $ | — | | | $ | — | | | $ | 1,140,242 | |
Intersegment revenues | | Intersegment revenues | — | | | 29,250 | | | — | | | — | | | 29,250 | |
Total | | Total | $ | 394,603 | | | $ | 774,889 | | | $ | — | | | $ | — | | | $ | 1,169,492 | |
Segment net income (loss) | | Segment net income (loss) | $ | (3,251) | | | $ | 17,956 | | | $ | — | | | $ | (11,474) | | | $ | 3,231 | |
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2022 | | | | | | | | | | Three Months Ended September 30, 2022 | |
Revenues from external customers | Revenues from external customers | $ | 303,944 | | | $ | 721,910 | | | $ | 63,178 | | | $ | — | | | $ | 1,089,032 | | Revenues from external customers | $ | 303,944 | | | $ | 721,910 | | | $ | 63,178 | | | $ | — | | | $ | 1,089,032 | |
Intersegment revenues | Intersegment revenues | — | | | 36,556 | | | — | | | — | | | 36,556 | | Intersegment revenues | — | | | 36,556 | | | — | | | — | | | 36,556 | |
Total | Total | $ | 303,944 | | | $ | 758,466 | | | $ | 63,178 | | | $ | — | | | $ | 1,125,588 | | Total | $ | 303,944 | | | $ | 758,466 | | | $ | 63,178 | | | $ | — | | | $ | 1,125,588 | |
Segment net income (loss) | Segment net income (loss) | $ | (22,199) | | | $ | 14,345 | | | $ | 12,320 | | | $ | (16,775) | | | $ | (12,309) | | Segment net income (loss) | $ | (22,199) | | | $ | 14,345 | | | $ | 12,320 | | | $ | (16,775) | | | $ | (12,309) | |
| Three Months Ended September 30, 2021 | | |
Revenues from external customers | $ | 255,848 | | | $ | 606,006 | | | $ | — | | | $ | — | | | $ | 861,854 | | |
Intersegment revenues | — | | | 26,842 | | | — | | | — | | | 26,842 | | |
Total | $ | 255,848 | | | $ | 632,848 | | | $ | — | | | $ | — | | | $ | 888,696 | | |
Segment net income (loss) | $ | (27,544) | | | $ | 18,540 | | | $ | — | | | $ | (2,572) | | | $ | (11,576) | | |
| (Thousands of dollars) | Natural Gas Operations | | Utility Infrastructure Services | | Pipeline and Storage | | Other | | Total | |
Nine Months Ended September 30, 2022 | | | | | | | | | | |
Revenues from external customers | $ | 1,358,425 | | | $ | 1,889,573 | | | $ | 192,259 | | | $ | — | | | $ | 3,440,257 | | |
Intersegment revenues | — | | | 98,860 | | | — | | | — | | | 98,860 | | |
Total | $ | 1,358,425 | | | $ | 1,988,433 | | | $ | 192,259 | | | $ | — | | | $ | 3,539,117 | | |
Segment net income (loss) | $ | 87,330 | | | $ | (4,400) | | | $ | 44,326 | | | $ | (49,962) | | | $ | 77,294 | | |
| Nine Months Ended September 30, 2021 | | |
Revenues from external customers | $ | 1,070,576 | | | $ | 1,450,719 | | | $ | — | | | $ | — | | | $ | 2,521,295 | | |
Intersegment revenues | — | | | 74,729 | | | — | | | — | | | 74,729 | | |
Total | $ | 1,070,576 | | | $ | 1,525,448 | | | $ | — | | | $ | — | | | $ | 2,596,024 | | |
Segment net income (loss) | $ | 102,584 | | | $ | 32,797 | | | $ | — | | | $ | (4,545) | | | $ | 130,836 | | |
| (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 |
Twelve Months Ended September 30, 2022 | | | | | | | | | | |
Nine Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 | | | | | | | | | |
Revenues from external customers | Revenues from external customers | $ | 1,809,639 | | | $ | 2,495,169 | | | $ | 192,259 | | | $ | — | | | $ | 4,497,067 | | Revenues from external customers | $ | 1,797,348 | | | $ | 2,145,601 | | | $ | 35,132 | | | $ | — | | | $ | 3,978,081 | |
Intersegment revenues | Intersegment revenues | — | | | 126,477 | | | — | | | — | | | 126,477 | | Intersegment revenues | — | | | 88,360 | | | — | | | — | | | 88,360 | |
Total | Total | $ | 1,809,639 | | | $ | 2,621,646 | | | $ | 192,259 | | | $ | — | | | $ | 4,623,544 | | Total | $ | 1,797,348 | | | $ | 2,233,961 | | | $ | 35,132 | | | $ | — | | | $ | 4,066,441 | |
Segment net income (loss) | Segment net income (loss) | $ | 171,881 | | | $ | 3,223 | | | $ | 44,326 | | | $ | (72,193) | | | $ | 147,237 | | Segment net income (loss) | $ | 150,565 | | | $ | 24,902 | | | $ | (16,288) | | | $ | (81,159) | | | $ | 78,020 | |
| Twelve Months Ended September 30, 2021 | | |
Nine Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 | |
Revenues from external customers | Revenues from external customers | $ | 1,445,066 | | | $ | 1,957,667 | | | $ | — | | | $ | — | | | $ | 3,402,733 | | Revenues from external customers | $ | 1,358,425 | | | $ | 1,889,573 | | | $ | 192,259 | | | $ | — | | | $ | 3,440,257 | |
Intersegment revenues | Intersegment revenues | — | | | 107,371 | | | — | | | — | | | 107,371 | | Intersegment revenues | — | | | 98,860 | | | — | | | — | | | 98,860 | |
Total | Total | $ | 1,445,066 | | | $ | 2,065,038 | | | $ | — | | | $ | — | | | $ | 3,510,104 | | Total | $ | 1,358,425 | | | $ | 1,988,433 | | | $ | 192,259 | | | $ | — | | | $ | 3,539,117 | |
Segment net income (loss) | Segment net income (loss) | $ | 182,134 | | | $ | 56,723 | | | $ | — | | | $ | (4,477) | | | $ | 234,380 | | Segment net income (loss) | $ | 87,330 | | | $ | (4,400) | | | $ | 44,326 | | | $ | (49,962) | | | $ | 77,294 | |
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | Natural Gas Distribution | | Utility Infrastructure Services | | Pipeline and Storage | | Other | | Total |
Twelve Months Ended September 30, 2023 | | | | | | | | | |
Revenues from external customers | $ | 2,373,992 | | | $ | 2,881,697 | | | $ | 107,486 | | | $ | — | | | $ | 5,363,175 | |
Intersegment revenues | — | | | 124,158 | | | — | | | — | | | 124,158 | |
Total | $ | 2,373,992 | | | $ | 3,005,855 | | | $ | 107,486 | | | $ | — | | | $ | 5,487,333 | |
Segment net income (loss) | $ | 217,615 | | | $ | 31,367 | | | $ | (344,347) | | | $ | (107,199) | | | $ | (202,564) | |
| | | | | | | | | |
Twelve Months Ended September 30, 2022 | | | | | | | | | |
Revenues from external customers | $ | 1,809,639 | | | $ | 2,495,169 | | | $ | 192,259 | | | $ | — | | | $ | 4,497,067 | |
Intersegment revenues | — | | | 126,477 | | | — | | | — | | | 126,477 | |
Total | $ | 1,809,639 | | | $ | 2,621,646 | | | $ | 192,259 | | | $ | — | | | $ | 4,623,544 | |
Segment net income (loss) | $ | 171,881 | | | $ | 3,223 | | | $ | 44,326 | | | $ | (72,193) | | | $ | 147,237 | |
The corporate and administrative activities for Southwest Gas Holdings, Inc. in the three-, nine-,three months ending September 30, 2023 include approximately $10 million of interest expense, including amounts incurred under the $550 million Term Loan entered into in April 2023, along with $3 million in costs associated with the planned separation of Centuri, offset by tax benefits experienced during the quarter.
The nine-month and twelve-month periods ended September 30, 20222023 incrementally include, expenses incurredamong other things, additional amounts related to shareholder activismthe 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; and an additional $21 million reflecting the final post-closing payment of $7.4 million related settlement activities, expenses incurredto cash and net working capital balances above/below a contract benchmark, with the remaining charge associated with other changes in conducting the Strategic Review,assets and expensesliabilities that were not subject to post-closing payment true-up provisions. The post-closing payment of $7.4 million returned approximately the same amount initially paid by Williams to the Company at closing. Other corporate and financingadministrative amounts during the year-to-date period also reflect residual costs forassociated with or as a result of the MountainWest acquisition.
Note 8 - Business Acquisitions
In Augustsale, as well as $32 million of interest expense, including amounts noted above in the third quarter of 2023 and amounts under the loan entered into by Southwest Gas Holdings, Inc. in November 2021 the Company, through its subsidiaries, led principally by Centuri, completedin connection with the acquisition of Drum,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 period ended September 30, 2023 included $52 million of interest expense including its primary subsidiary, Riggs Distler. In November 2021, certain members of Riggs Distler management acquired a 1.42% interestthe aforementioned MountainWest acquisition loan, $7.3 million in Drum. 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 expensedplanned separation of Centuri, as incurred. The Company’s allocation ofwell as $5.7 million in combined costs associated with stockholder activism and the purchase price was based on an evaluation of the appropriate fair valuesassociated proxy contest, and represented management’s best estimate based on available data (including market data, data regarding customers of the acquired businesses, terms of acquisition-related agreements, analysis of historical and projected results, and other types of data). The analysis included consideration of types of intangibles that were acquired, including customer relationships, trade name, and backlog. Certain payments were estimated as of the acquisition date and were adjusted when amounts were finalized.
The final estimated fair values of assets acquired and liabilities assumed as of August 27, 2021, and as updated through August 27, 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 | | | (0.3) | | | 0.4 | |
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 | | | 0.8 | | | 447.6 | |
Total assets acquired | | 1,018.4 | | | (31.0) | | | 987.4 | |
| | | | | | |
Trade and other payables | | 46.2 | | | — | | | 46.2 | |
Finance lease obligations | | 27.5 | | | 1.2 | | | 28.7 | |
Contract liabilities | | 12.7 | | | 0.1 | | | 12.8 | |
Operating lease obligations | | 1.5 | | | — | | | 1.5 | |
Other liabilities | | 5.3 | | | (1.2) | | | 4.1 | |
Deferred tax liabilities | | 94.8 | | | (24.8) | | | 70.0 | |
Total liabilities assumed and noncontrolling interest | | 188.0 | | | (24.7) | | | 163.3 | |
Net assets acquired | | $ | 830.4 | | | $ | (6.3) | | | $ | 824.1 | |
The Company incurred and expensed acquisition costs of $14 million,a strategic review initiative initiated in 2022. The amounts related to the MountainWest sale, including the rate case settlement, and post-closing adjustments, are included in Utility infrastructure services expenses inGoodwill impairment and loss on sale on the Company’s Condensed Consolidated Statement of Income for the twelve months ended September 30, 2022. No acquisition-related costs were incurred during the three and nine months ended September 30, 2022, and no significant impacts to earnings resulted from the measurement-period adjustments reflected above.Income.Note 8 - Dispositions
Dispositions
In December 2021, Southwest Gas2022, the Company announced that the Board unanimously determined to take strategic actions to simplify the Company’s portfolio 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. As part of this simplification strategy, the Company previously communicated that it would pursue a separation of Centuri. In September 2023, the Company announced that Centuri 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 subsidiary of the Company. SeeCompany formed for purposes of completing the Company’s 2021separation (“Centuri Holdings”), had confidentially submitted a draft Registration Statement on 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 associatedS-1 with the acquisition were expensed as incurred.SEC for a proposed initial public offering (“IPO”) of newly issued shares of Centuri Holdings common stock. The majorityIPO is subject to market and other conditions, the completion of the operations acquired areSEC's review process, and the Board’s approval to proceed with the transaction. In the event an IPO is executed, the Company expects to maintain the option to either spin Centuri on a tax-free or taxable basis or sell down any remaining stake in a series of taxable sell downs following the IPO once the applicable lock-up period expires. The Company will continue to evaluate options for the separation following any IPO.
The fair value of the MountainWest assets held-for-sale was previously estimated based on the preliminary closing statement and 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,certain adjustments, including a returnpost-closing payment between the parties related to final working capital balances. The amount of the post-closing payment was finalized in May 2023. The Company recognized an additional loss on investment of assets and liabilities included in rate base. Accordingly, the carrying values of such assets
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
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 liabilities were deemed to approximate their fair values. The fair value ofnet working capital balances above/below a contractual benchmark, with the MountainWestremaining charge associated with other changes in the assets and liabilities assumed that arewere not subject to post-closing payment true-up provisions. The post-closing payment of $7.4 million effectively returned approximately 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 relatedsame amount initially paid by Williams to post-closing payments and deferred taxes were estimated asthe Company at closing. The $7.4 million reduced Proceeds from the sale of businesses, net of cash acquired in the Company’s Condensed Consolidated Statements of Cash Flows.
As referred to in Note 7 – Segment Information, in September 2022, the Federal Energy Regulatory Commission (the “FERC”) issued an order initiating an investigation, pursuant to section 5 of the acquisition dateNatural Gas Act, to determine whether rates charged by MountainWest Overthrust Pipeline, LLC, a subsidiary of MountainWest, were just and adjusted when determined duringreasonable and setting the period ended September 30, 2022. No other measurement period adjustments occurred duringmatter for hearing (the “Section 5 Rate Case”). In March 2023, the period. However,parties agreed to a settlement, and as a result the final purchase accounting has not yet been completed and further refinements may occur.
The Company recorded an additional estimated fair valuesloss of assets acquired and liabilities assumed as$28.4 million from the disposal of December 31, 2021, as updated through September 30, 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 | | | (28.2) | | | 958.0 | |
Deferred income taxes, net | | 15.4 | | | 20.9 | | | 36.3 | |
Total assets acquired | | 2,203.0 | | | (4.4) | | | 2,198.6 | |
| | | | | | |
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 | | | $ | (4.4) | | | $ | 1,571.2 | |
The Company incurred and expensed acquisition costsMountainWest in the first quarter of $18.5 million for the twelve months ended September 30, 2022, 2023, which areis included in OperationsGoodwill impairment and maintenance expenseloss on sale in the Company’s Condensed Consolidated Statement of Income. No acquisition-related costs were incurred duringThe $28.4 million was paid in the nine months ended September 30, 2022third quarter of 2023 and no impacts to earnings resultedthe matter is now deemed closed. The $28.4 million reduced Proceeds from the measurement-period adjustments reflected above. The Company has a transition servicessale of businesses, net of cash sold in the Company’s Condensed Consolidated Statements of Cash Flows. Other contingent commitments were part of the agreement with the sellersas well, expenses for a period of upwhich have been immaterial to twelve months from the acquisition date of December 31, 2021,and are expected to continue certain corporate and administrative functions for the entities acquired while MountainWest is established as an independent enterprise. The Company currently expects that a limited number of activities under the transition services agreement willto be extended, and of those extended, certain will occur through the second quarter of 2023.immaterial overall.
Note 9 - Subsequent Events
On October 24, 2022,November 3, 2023, the Board authorized a dividend of one preferred stock purchase right (a “Right”) for each outstanding share of common stock, $1 par value per share, of the Company (the “Common Stock”). The dividend is payable on November 17, 2023 (the “Record Date”) to holders of record of Common Stock as of 5:00 P.M., New York City time, on the Record Date. The description and terms of the Rights are set forth in a Tax-Free Spin Protection Plan, dated as of November 5, 2023 (as may be amended from time to time, the “Plan”), between the Company and Equiniti Trust Company, LLC, as rights agent. Each Right entitles the Icahn Group entered intoregistered holder to purchase from the Amended Cooperation Agreement,Company one ten-thousandth of a share of Series A Junior Participating Preferred Stock, no par value per share, of the Company (the “Series A Preferred”), at a purchase price of $300.00 per one ten-thousandth of a share of Series A Preferred, subject to adjustment.
By adopting the Plan, the Board is seeking to preserve the Company’s ability to effectuate a separation of Centuri Holdings (the “Spin-Off Transaction”) that would be tax-free to the Company (the “Tax-Free Status”). While the Company intends that any Spin-Off Transaction, if effected, would qualify as a tax-free transaction to the Company’s stockholders, the ability to effect a spin-off that is tax-free to the Company (as opposed to its stockholders) could be lost if certain stock purchases (including by existing or new holders in the open market) are treated as part of a plan pursuant to which amended, restated, superseded,one or more persons directly or indirectly acquire a 50% or greater interest in the Company (a “355 Ownership Change”) within applicable time periods for purposes of Section 355(e) of the Internal Revenue Code. The Company believes that there is minimal capacity for changes in the ownership of its stock before a 355 Ownership Change could occur. The Plan is intended to restrict acquisitions of Company stock that could cause a 355 Ownership Change and replacedcould impair the Company’s ability to effectuate a Spin-Off Transaction that has Tax-Free Status. The Board believes it is in the best interest of the Company and its entiretystockholders to preserve the Initial Cooperation Agreement.Company’s ability to effectuate a Spin-Off Transaction with Tax-Free Status.
In accordanceFor additional information regarding the Plan, refer to our current report on Form 8-K, as filed with the terms of the Amended Cooperation Agreement, the Company agreed with the Icahn Group, among other things, to nominate each of Andrew W. Evans, Henry P. Linginfelter, Ruby Sharma, and Andrew J. Teno (each, an “Icahn Designee” and, collectively, the “Icahn Designees”) for election at the Company’s 2023 annual meeting of stockholders (the “2023 Annual Meeting”). In addition, subject to qualifications set forth in the Amended Cooperation Agreement, the Amended Cooperation Agreement provides that the standstill restrictions on the Icahn Group will remain in effect until, and the Amended Cooperation Agreement will terminate upon, the later of (x) the conclusion of the 2023 Annual Meeting and (y) the earlier of
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
(1) immediately following the time at which Andrew J. Teno (or any Replacement Designee for Mr. Teno, as such term is defined in the Amended Cooperation Agreement) is no longer serving on the Board and (2) thirty (30) days prior to the expiration of the advance notice deadline for the submission of director nominees in connection with the Company’s 2024 Annual Meeting of Stockholders (as such term is defined in the Amended Cooperation Agreement); provided, however, that the Amended Cooperation Agreement will terminate automatically on the date on which the Board re-appoints as a director any former director of the Board (i.e., any person who was a director of the Board prior to the 2022 Annual Meeting, but was not a director of the Board immediately after the 2022 Annual Meeting), without the approval of a majority of the Icahn Designees.
Pursuant to the terms of the Amended Cooperation Agreement, the Company further agreed with the Icahn Group (i) to maintain one-year terms and annual elections for all directors serving on the Board through the term of the Amended Cooperation Agreement, (ii) to establish the record date for the 2023 Annual Meeting for a time within thirty (30) days of March 21, 2023, and (iii) that in the event that the Strategic Transactions Committee approves any separation of the Company’s businesses into two or more independent, publicly traded companies (any such separation, a “Spinoff” and each such resulting independent, publicly traded company, a “SpinCo”) during the term of the Amended Cooperation Agreement and while Icahn Group owns a Net Long Position of a number of shares of Common Stock that is at least 50% of the Tender Offer Closing Amount (each such term, as defined in the Amended Cooperation Agreement), any such SpinCo will be organized in Delaware, any such SpinCo’s board of directors will be annually elected for one-year terms and the first meeting of stockholders for such SpinCo will be held no earlier than the nine-month anniversary of the consummation of the Spinoff and no later than the twelve-month anniversary of the Spinoff, subject to certain exceptions set forth in the Amended Cooperation Agreement.
Additionally,SEC on November 4, 2022, Centuri amended the financial covenants of its revolving credit facility to increase the maximum total net leverage ratio during the period from December 31, 2022 through December 31, 2023 (the “Credit Facility Amendment”). The Credit Facility Amendment also transitioned the interest rate benchmark for the revolving credit facility from LIBOR to SOFR. The applicable margin for the revolving credit facility now ranges from 1.0% to 2.5% for SOFR loans and from 0.0% to 1.5% for CDOR and “base rate” loans, depending on Centuri’s total net leverage ratio. Further, the Credit Facility Amendment increases a letter of credit sub-facility from $100 million to $125 million. The Credit Facility Amendment did not modify any terms of the term loan facility.6, 2023.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 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 MD&A.
Summary Operating Results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Period Ended September 30, |
| | Three Months | | Nine Months | | Twelve Months |
(In thousands, except per share amounts) | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Contribution to net income | | | | | | | | | | | | |
Natural gas distribution | | $ | (22,199) | | | $ | (27,544) | | | $ | 87,330 | | | $ | 102,584 | | | $ | 171,881 | | | $ | 182,134 | |
Utility infrastructure services | | 14,345 | | | 18,540 | | | (4,400) | | | 32,797 | | | 3,223 | | | 56,723 | |
Pipeline and storage | | 12,320 | | | — | | | 44,326 | | | — | | | 44,326 | | | — | |
Corporate and administrative | | (16,775) | | | (2,572) | | | (49,962) | | | (4,545) | | | (72,193) | | | (4,477) | |
Net income (loss) | | $ | (12,309) | | | $ | (11,576) | | | $ | 77,294 | | | $ | 130,836 | | | $ | 147,237 | | | $ | 234,380 | |
| | | | | | | | | | | | |
Weighted average common shares | | 67,157 | | | 59,688 | | | 65,004 | | | 58,639 | | | 63,905 | | | 58,209 | |
Basic earnings (loss) per share | | | | | | | | | | | | |
Consolidated | | $ | (0.18) | | | $ | (0.19) | | | $ | 1.19 | | | $ | 2.23 | | | $ | 2.30 | | | $ | 4.03 | |
| | | | | | | | | | | | |
Natural Gas Distribution | | | | | | | | | | | | |
Reconciliation of Gross Margin to Operating Margin (Non-GAAP measure) | | | | | | | | | | | | |
Utility Gross Margin | | $ | 58,021 | | | $ | 62,681 | | | $ | 391,540 | | | $ | 392,190 | | | $ | 569,675 | | | $ | 566,065 | |
Plus: | | | | | | | | | | | | |
Operations and maintenance (excluding Admin. & General) expense | | 81,092 | | | 68,098 | | | 230,235 | | | 194,471 | | | 302,924 | | | 255,434 | |
Depreciation and amortization expense | | 64,390 | | | 61,359 | | | 192,434 | | | 187,688 | | | 258,144 | | | 249,118 | |
Operating margin | | $ | 203,503 | | | $ | 192,138 | | | $ | 814,209 | | | $ | 774,349 | | | $ | 1,130,743 | | | $ | 1,070,617 | |
3rd Quarter 2022 Overview
Southwest Gas Holdings highlights include the following:
•Corporate and administrative expenses include impact of interest on remaining $1.1 billion term loan ($12.7 million), and shareholder activism/settlement, as well as Strategic Review costs
•Amended 364-day Term Loan Credit Agreement in connection with the MountainWest acquisition extending maturity date to December 2023
Natural gas distribution highlights include the following:
•40,000 first-time meters sets occurred over the past 12 months
•Operating margin increased $11 million in the third quarter of 2022 compared to the prior year quarter
•$193 million capital investment during the quarter
•Operations and maintenance expense overall increased a modest 1.5%
•COLI results declined $1.5 million compared to the prior-year quarter
Utility infrastructure services highlights include the following:
•Record revenues of $758 million in the third quarter of 2022, an increase of $126 million, or 20%, compared to the third quarter of 2021
•Costs continued to be impacted by inflation, including higher fuel, subcontractor, and equipment rental costs
Pipeline and storage highlights include the following:
•Recognized revenue of $63 million in the third quarter of 2022
•Contributed $12.3 million to consolidated net income, net of $5.7 million of stand-up and integration costs
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 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), and all of the shares of common stock of Centuri Group, Inc. (“Centuri,” or the “utility infrastructure services” segment), as well as all of the common stock of the recently formed 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 and related entities (“Questar Pipelines”) 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”) authorizedunanimously determined to take strategic actions to simplify the Company’s portfolio of businesses. These actions included entering into a definitive agreement to sell 100% of MountainWest in an all-cash transaction that closed on February 14, 2023. Additionally, the Company determined it would pursue a spin-off of Centuri (the “Centuri spin-off”), to form a new independent publicly traded utility infrastructure services company. In September 2023, the Company announced that Centuri Holdings, Inc., a wholly owned subsidiary of the Company formed for purposes of completing the separation of Centuri (“Centuri Holdings”), had confidentially submitted a draft registration statement on Form S-1 with the U.S. Securities and declaredExchange Commission (the “SEC”) for the proposed initial public offering of newly issued shares of Centuri Holdings common stock. The Company remains committed to
separating Centuri and continues to assess the value of a potential tax-free spin-off of Centuri, either following, or in lieu of, a potential initial public offering by Centuri as well as other transaction alternatives. See “Item1A - Risk Factors” and Note 8 - Dispositions in this Quarterly Report on Form 10-Q for more information.
On November 3, 2023, the Board authorized a dividend of one preferred stock purchase right (a “Right”) for each outstanding share of common stock, outstanding$1 par value per share, of the Company (the “Common Stock”). The dividend is payable on November 17, 2023 (the “Record Date”) to stockholdersthe holders of record atof Common Stock as of 5:00 P.M., New York City time, on the closeRecord Date. The description and terms of business on October 21, 2021, in accordance with the terms and conditionsRights are set forth in a Tax-Free Spin Protection Plan, dated as of November 5, 2023 (as may be amended from time to time, the Rights Agreement. The Amended Rights Agreement expired on October 9, 2022, in accordance with its terms.
In March 2022, the Company announced that the Board had determined to separate Centuri from“Plan”), between the Company and authorized management to complete the separation within nine to twelve months from the date of such announcement. In April 2022,Equiniti Trust Company, LLC, as a result of interest in the Company well in excess of a tender offer to other of our stockholders by an activist stockholder (affiliates of Carl C. Icahn), the Board authorized the review of a full range of strategic alternatives intended to maximize stockholder value. As part of this process, a strategic transactions committee of the Board, consisting entirely of independent directors, would 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 (collectively, the “Strategic Review”). On August 3, 2022, the Company announced that the Board had unanimously determined that the best path forward to maximize value for all stockholders is to (i) focus on the strategic plan and while concluding the strategic review process for Southwest Gas Holdings, Inc. and Southwest Gas Corporation; (ii) continue to review strategic alternatives for MountainWest; and (iii) continue to review strategic alternatives for Centuri, including a sale or spin-off of Centuri, among others. There can be no assurances that the strategic alternatives considered will be executed or maximize value as intended. See “Item 1A - Risk Factors” included in the Company’s Quarterly Report on Form 10-Q filed May 10, 2022.
As described in Note 1 – Background, Organization, and Summary of Significant Accounting Policies, on May 6, 2022, the Company entered into the Initial Cooperation Agreement with the Icahn Group. Pursuant to the Initial Cooperation Agreement, the Company, among other things, made certain previously disclosed changes to the Board of Directors and management team. On October 24, 2022, the Company and the Icahn Group entered into the Amended Cooperation Agreement, which amended, restated, superseded, and replaced in its entirety the Initial Cooperation Agreement. Under the Amended Cooperation Agreement, certain of the standstill provisions in the Initial Cooperation Agreement were extended, the Ichan Group’s governance rights were amended and the Company agreed to certain actions in connection with the 2023 Annual Meeting. Please seeagent. See Note 9 - Subsequent Events in this Quarterly Report on Form 10-Q for additional information about the Amended Cooperation Agreement.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 and Nevada, and distributes and transports natural gas for customers in portions of California. Additionally, through its subsidiaries, Southwest operates two regulated interstate pipelines serving portions of the northern territories of Nevada and California.Southwest’s service territories.
As of September 30, 2022,2023, Southwest had 2,180,000had 2,211,000 residential, commercial, industrial, and other natural gas customers, of which 1,166,0001,184,000 customers were located in Arizona, 810,000822,000 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 Graham County Utilities (“GCU”). Over the past twelve months, first-time meter sets were approximately 40,000,41,000, compared to 37,00040,000 for the twelve months ended September 2021.2022. Residential and small commercial customers represented over 99% of the total customer base. During the twelve months ended September 30, 2022, 2023, 54% of operating margin (Regulated operations revenues less the net cost of gas sold) was earned in Arizona, 34% in Nevada, and 12% in California. During this same period, Southwest earnSouthweed 85%st earned 84% of its operating margin from residential and small commercial customers, 4%5% from other sales customers, and 11% frfromom transportation customers. These patterns are expected to remain materially consistent for the foreseeableforeseeable future.
Southwest recognizes operating revenues from the distribution and transportation of natural gas (and related services) to customers. Operating margin is a financial measure defined by management as Regulated operations revenues less the net cost
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
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 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 7182 primary locations across 45 states and provinces in the U.S. and Canada. CenturiIt 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 is an interstate natural gas transmission pipeline company that provides transportation and underground storage services to customers in Utah, Wyoming, and Colorado. A substantial portion of its revenue results from reservation charges, but 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 quarter of 2020, to date, there has not been a significant disruption in the Company’s supply chains, transportation network, or ability 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.
All of our businesses may be impacted by economic conditions that impact businesses generally, such as inflationary impacts on goods and services consumed in the business, rising interest rates, labor markets and costs (including in regard to contracted or professional 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 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 for the fiscal year ended December 31, 2022, in addition to the Risk Factors included in these documents, and as updated from time to time.
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 MD&A.
Summary Operating Results
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| | Period Ended September 30, |
| | Three Months | | Nine Months | | Twelve Months |
(In thousands, except per share amounts) | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Contribution to net income (loss) | | | | | | | | | | | | |
Natural gas distribution | | $ | (3,251) | | | $ | (22,199) | | | $ | 150,565 | | | $ | 87,330 | | | $ | 217,615 | | | $ | 171,881 | |
Utility infrastructure services | | 17,956 | | | 14,345 | | | 24,902 | | | (4,400) | | | 31,367 | | | 3,223 | |
Pipeline and storage | | — | | | 12,320 | | | (16,288) | | | 44,326 | | | (344,347) | | | 44,326 | |
Corporate and administrative | | (11,474) | | | (16,775) | | | (81,159) | | | (49,962) | | | (107,199) | | | (72,193) | |
Net income (loss) | | $ | 3,231 | | | $ | (12,309) | | | $ | 78,020 | | | $ | 77,294 | | | $ | (202,564) | | | $ | 147,237 | |
| | | | | | | | | | | | |
Weighted average common shares | | 71,626 | | | 67,157 | | | 70,488 | | | 65,004 | | | 69,660 | | | 63,905 | |
Basic earnings (loss) per share | | | | | | | | | | | | |
Consolidated | | $ | 0.05 | | | $ | (0.18) | | | $ | 1.11 | | | $ | 1.19 | | | $ | (2.91) | | | $ | 2.30 | |
| | | | | | | | | | | | |
Natural Gas Distribution | | | | | | | | | | | | |
Reconciliation of Gross Margin to Operating Margin (Non-GAAP measure) | | | | | | | | | | | | |
Utility Gross Margin | | $ | 80,852 | | | $ | 58,021 | | | $ | 443,005 | | | $ | 391,540 | | | $ | 623,205 | | | $ | 569,675 | |
Plus: | | | | | | | | | | | | |
Operations and maintenance (excluding Admin. & General) expense | | 74,427 | | | 81,092 | | | 233,302 | | | 230,235 | | | 314,137 | | | 302,924 | |
Depreciation and amortization expense | | 69,268 | | | 64,390 | | | 218,763 | | | 192,434 | | | 289,372 | | | 258,144 | |
Operating margin | | $ | 224,547 | | | $ | 203,503 | | | $ | 895,070 | | | $ | 814,209 | | | $ | 1,226,714 | | | $ | 1,130,743 | |
3rd Quarter 2023 Overview
Southwest Gas Holdings highlights include the following:
•Centuri Holdings confidentially filed a draft Registration Statement on Form S-1 with the SEC
•Corporate and administrative expenses include $10 million in interest expense related to borrowings and $3 million in Centuri separation costs, offset by certain tax benefits
Natural gas distribution highlights include the following:
•41,000 first-time meters sets occurred over the past 12 months
•Operating margin increased $21 million in the third quarter of 2023, including Arizona rate relief
•Filed $70 million general rate case in Nevada
•Operations and maintenance expenses were relatively flat between comparative periods
•$200 million capital investment during the quarter
Utility infrastructure services highlights include the following:
•Revenues of $775 million in the third quarter of 2023, an increase of $16.4 million, or 2%, compared to the third quarter of 2022
•Operating income of $53 million in the third quarter of 2023, an increase of $14 million, or 37%, compared to the third quarter of 2022
•$83 million storm restoration services revenue earned in the first nine months of 2023, an increase of $47 million over the first nine months of 2022
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SOUTHWEST GAS HOLDINGS, INC.
| 31 | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
Results of Natural Gas Distribution
Quarterly Analysis
| | | Three Months Ended September 30, | | Three Months Ended September 30, |
(Thousands of dollars) | (Thousands of dollars) | | 2022 | | 2021 | (Thousands of dollars) | | 2023 | | 2022 |
Regulated operations revenues | Regulated operations revenues | | $ | 303,944 | | | $ | 255,848 | | Regulated operations revenues | | $ | 394,603 | | | $ | 303,944 | |
Net cost of gas sold | Net cost of gas sold | | 100,441 | | | 63,710 | | Net cost of gas sold | | 170,056 | | | 100,441 | |
Operating margin | Operating margin | | 203,503 | | | 192,138 | | Operating margin | | 224,547 | | | 203,503 | |
Operations and maintenance expense | Operations and maintenance expense | | 121,537 | | | 119,708 | | Operations and maintenance expense | | 122,270 | | | 121,537 | |
Depreciation and amortization | Depreciation and amortization | | 64,390 | | | 61,359 | | Depreciation and amortization | | 69,268 | | | 64,390 | |
Taxes other than income taxes | Taxes other than income taxes | | 20,693 | | | 20,109 | | Taxes other than income taxes | | 21,147 | | | 20,693 | |
Operating loss | | (3,117) | | | (9,038) | | |
Other income (deductions) | | 1,678 | | | (4,287) | | |
Operating income (loss) | | Operating income (loss) | | 11,862 | | | (3,117) | |
Other income | | Other income | | 14,537 | | | 1,678 | |
Net interest deductions | Net interest deductions | | 29,417 | | | 24,922 | | Net interest deductions | | 35,772 | | | 29,417 | |
Loss before income taxes | Loss before income taxes | | (30,856) | | | (38,247) | | Loss before income taxes | | (9,373) | | | (30,856) | |
Income tax benefit | Income tax benefit | | (8,657) | | | (10,703) | | Income tax benefit | | (6,122) | | | (8,657) | |
Contribution to consolidated results | Contribution to consolidated results | | $ | (22,199) | | | $ | (27,544) | | Contribution to consolidated results | | $ | (3,251) | | | $ | (22,199) | |
Results from natural gas distribution operationsoperations improved $5 $18.9 million between between the third quarters of 20222023 and 2021.2022. The improvement was primarily due to an increase in Operating margin and Other income (deductions), offset by an increaseincreases in Depreciation and amortization and Net interest deductions and a decrease in Income tax benefit.deductions.
Operating margin increased $11.4 $21 million quarterquarter over quarter. Approximately $2 million of incremental margin was attributable to customer growth, including 40,00041,000 first-time meter sets during the last twelve months. RateCombined rate relief primarily in Nevada, and to a lesser extent in California, added approximately $4$14 million of combined margin. Amounts collected from customersmargin, nearly all of which relates to our recently concluded Arizona rate case. Additionally, a $1.8 million increase in recovery/return associated with previously unrecovered Vintage Steel Pipe (“VSP”) and Customer-Owned Yard Line (“COYL”) programs in Arizona ($5.2 million) alsoregulatory account balances contributed to the improvement. Referincrease; an associated comparable increase is also reflected in amortization expense between periods. The remaining variance primarily relates to Rates and Regulatory Proceedings later in this MD&A for more information. Other differences in miscellaneous revenue and margin from customers outside of the decoupling mechanisms contributed to the remaining net variance between quarters.mechanism.
Operations and maintenance expense increased $1.8$0.7 million between(less than 1%) between quarters, primarily due toas increases in external contractor and professional services costs in various areas of the business, including a consulting arrangement for event-driven pipeline integrity, reliabilitythe identification, benchmarking, and engineering services ($2.8 million), costs for temporary/contractor services for customer and technology support ($800,000), and an increase in the reserve for customer accounts deemed uncollectible ($2.5 million). These costsassessment of utility business optimization opportunities, were mostly offset by a reductiondecreases in legal-claim relatedother costs, (the prior-year quarter reflected a $5 million legal reserve)including pension service cost and a reductionthe cost of fuel used in labor and miscellaneous employee benefits.operations.
Depreciation and amortization expense increased $3$4.9 million, or 5%8%, between quarters, primarily due to a $513$585 million, or 6%, increase in average gas plant in service compared tosince the corresponding third quarter a year ago.of 2022, in addition to $1.8 million of increased amortization related to regulatory account balances. The increase in plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled pipe replacement activities, and new infrastructure. Regulatory amortization was comparable between periods.
Other incincome increased ome increased $6$12.9 million. TheInterest income increased $8.9 million between quarters related to carrying charges associated with regulatory account balances, notably deferred purchased gas cost balances, which increased from $381 million as of September 30, 2022 to $687 million as of September 30, 2023. The non-service-related components of employee pension and other postretirement benefit costs were $3.3decreased $5.3 million lower betweenbetween quarters. Interest income increased $3 million between quarters primarily due to the increased receivable position related to the PGA mechanisms. Offsetting these and other improvements was a $1.5 million decline in COLI policy cash surrender values, while the prior-year quarter reflected no change.
Net interest deductions increased $4.5$6.4 million in the third quarter of 2022,2023, as compared to the prior-year quarter, primarily due to interest associated with the issuance of $600$300 million of Senior Notes issued in December 2022 and $300 million of Senior Notes issued in March 2022.
2023.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
Results of Natural Gas OperationsDistribution
Nine-Month Analysis
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
(Thousands of dollars) | (Thousands of dollars) | | 2022 | | 2021 | (Thousands of dollars) | | 2023 | | 2022 |
Gas operating revenues | Gas operating revenues | | $ | 1,358,425 | | | $ | 1,070,576 | | Gas operating revenues | | $ | 1,797,348 | | | $ | 1,358,425 | |
Net cost of gas sold | Net cost of gas sold | | 544,216 | | | 296,227 | | Net cost of gas sold | | 902,278 | | | 544,216 | |
Operating margin | Operating margin | | 814,209 | | | 774,349 | | Operating margin | | 895,070 | | | 814,209 | |
Operations and maintenance expense | Operations and maintenance expense | | 368,984 | | | 328,980 | | Operations and maintenance expense | | 378,189 | | | 368,984 | |
Depreciation and amortization | Depreciation and amortization | | 192,434 | | | 187,688 | | Depreciation and amortization | | 218,763 | | | 192,434 | |
Taxes other than income taxes | Taxes other than income taxes | | 62,443 | | | 60,134 | | Taxes other than income taxes | | 65,491 | | | 62,443 | |
Operating income | Operating income | | 190,348 | | | 197,547 | | Operating income | | 232,627 | | | 190,348 | |
Other income (deductions) | Other income (deductions) | | (440) | | | (4,902) | | Other income (deductions) | | 51,722 | | | (440) | |
Net interest deductions | Net interest deductions | | 84,660 | | | 71,263 | | Net interest deductions | | 111,498 | | | 84,660 | |
Income before income taxes | Income before income taxes | | 105,248 | | | 121,382 | | Income before income taxes | | 172,851 | | | 105,248 | |
Income tax expense | Income tax expense | | 17,918 | | | 18,798 | | Income tax expense | | 22,286 | | | 17,918 | |
Contribution to consolidated results | Contribution to consolidated results | | $ | 87,330 | | | $ | 102,584 | | Contribution to consolidated results | | $ | 150,565 | | | $ | 87,330 | |
ContributionContribution from natural gas distribution operations to consolidated net incomeincreased decreased $15.3$63.2 million between the first nine months of 20222023 and 2021.2022. The declineincrease was primarily due toto increases in Operations and maintenance expense, Depreciation and amortization, and Net interest deductions, partially offset by an increase in Operating margin and Other income (deductions)., offset by an increase in Depreciation and amortization, Operations and maintenance, and Net interest deductions.
Operating margin increased $39.9$80.9 million, including $13approximately $10 million attributable to customer growth. Rate relief contributed an additional $14$42 million. Also contributing to the increase were customer late fees that were $4 million greater in the current period due to the lifting (in 2021) of a moratorium on such fees. The moratorium was previously in place beginning in March 2020 to provide temporary relief to customers during the COVID-19 pandemic. Amounts collected in the current period from customers associated with previously unrecovered VSP and COYL programs in Arizona totaled $16.9 million. Partially offsetting these improvements were amounts related to the recovery/return associated with other regulatory programs; however,programs of $17 million also contributed to the increase; such amounts also reducedincrease amortization expense. The residual differenceAdditionally, an $8 million out-of-period adjusting entry was made in Operating margin primarily relates to miscellaneous service revenuethe first quarter of 2023, which reduced Net cost of gas sold (See Basis of Presentation in Note 1 – Background, Organization, and customers that are not partSummary of the decoupling mechanisms.Significant Accounting Policies in this Quarterly Report on Form 10-Q).
Operations and maintenance expeexpense increased nse increased $40$9.2 million between(or 2%) between periods, primarily due to general inflationary impacts, including specific$5 million of increases related toin external contractor and professional services expenses in various areas of the business (including $3.6 million for the utility optimization initiative noted earlier), $6 million in higher direct labor charges, increases from leak survey and related pension and benefit costsline locating activities ($15 million)2.6 million, combined), temporary/contractor services for customer and technology supportincreased fuel used in operations ($5 million), contractor costs for pipeline integrity, reliability, and engineering, some of which were event driven ($6.5 million), an increase in the reserve for customer accounts deemed uncollectible ($4.53.2 million), and higher legalother general and employee-related costs, which were collectively offset by a decrease in the service component of postretirement benefit and legal/claim-related costs ($2.8 million).costs.
Depreciation and amortization eexpense increased xpense increased $4.7$26.3 million, or 3%14%, between periods primarily due to the increase in regulatory account amortization, discussed above ($17 million). The remaining increase was a $540result of a $557 million,, or 6%, incre, increasease in average gas plant in service between periods, the impact of which was offset by reduced amounts ($6.2 million) associated with the return/recovery of regulatory account balances, compared to the first nine months of 2021.periods. The increase in plant was attributable to pipeline reinforcement work, franchise requirements, scheduled pipe replacement activities, and new infrastructure, as well as the implementation of the customer information system, which occurred in May 2021.
Taxes other than income taxes increased $2.3 million, or 4%, between periods primarily due to an increase in property taxes in Nevada and California.infrastructure.
Other income (deductions) improved $4.5increased $52.2 million o. Interest income increased $30 million between periods related to carrying charges associated with regulatory account balances, notably deferred purchased gas cost balances, which have increased substantially since the comparable period in the prior year. Furthermore, tverall between periods. The current period reflects an $8.7 million decline in COLI policy cash surrender values, while the prior-year period reflected $5.8 million in income from the combined effects of an increase in hvalues and recognized death benefits. Offsetting these impacts were non-service coste non-service-related components of employee pension and other postretirement benefit costs decreased $15.9 million between periods. Southwest also recognized a $13.5 million increase in COLI policy cash surrender values and recognized death benefits which decreased $10in the current period compared to the comparable period in the prior year. The prior period included decreases in the investment values underlying the insurance, while the current period reflected positive returns.
Net interest deductions increased $27 million between periods and interest income, which increased $7 million between periodsprimarily due to the increased receivable position of the PGA mechanisms. Additionally, a gain of $1.5 million was recognized on the sale of non-regulated property in the first quarter of 2022.
Net interest deductions increased $13.4 million between periods, primarily due to higher interest associated with $300 million of Senior Notes issued in August 2021, $600 million of Senior Notes issued in March 2022.2022, $300 million of Senior Notes issued in December 2022, and $300 million of Senior Notes issued in March 2023. Additionally, increased interest resulted from short-term debt, primarily a $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 | | September 30, 2022 |
Results of Natural Gas Distribution
Twelve-Month Analysis
| | | Twelve Months Ended September 30, | | Twelve Months Ended September 30, |
(Thousands of dollars) | (Thousands of dollars) | | 2022 | | 2021 | (Thousands of dollars) | | 2023 | | 2022 |
Regulated operations revenues | Regulated operations revenues | | $ | 1,809,639 | | | $ | 1,445,066 | | Regulated operations revenues | | $ | 2,373,992 | | | $ | 1,809,639 | |
Net cost of gas sold | Net cost of gas sold | | 678,896 | | | 374,449 | | Net cost of gas sold | | 1,147,278 | | | 678,896 | |
Operating margin | Operating margin | | 1,130,743 | | | 1,070,617 | | Operating margin | | 1,226,714 | | | 1,130,743 | |
Operations and maintenance expense | Operations and maintenance expense | | 478,554 | | | 431,795 | | Operations and maintenance expense | | 501,133 | | | 478,554 | |
Depreciation and amortization | Depreciation and amortization | | 258,144 | | | 249,118 | | Depreciation and amortization | | 289,372 | | | 258,144 | |
Taxes other than income taxes | Taxes other than income taxes | | 82,652 | | | 76,087 | | Taxes other than income taxes | | 86,245 | | | 82,652 | |
Operating income | Operating income | | 311,393 | | | 313,617 | | Operating income | | 349,964 | | | 311,393 | |
Other income (deductions) | Other income (deductions) | | (97) | | | (545) | | Other income (deductions) | | 45,278 | | | (97) | |
Net interest deductions | Net interest deductions | | 110,957 | | | 97,259 | | Net interest deductions | | 142,718 | | | 110,957 | |
Income before income taxes | Income before income taxes | | 200,339 | | | 215,813 | | Income before income taxes | | 252,524 | | | 200,339 | |
Income tax expense | Income tax expense | | 28,458 | | | 33,679 | | Income tax expense | | 34,909 | | | 28,458 | |
Contribution to consolidated results | Contribution to consolidated results | | $ | 171,881 | | | $ | 182,134 | | Contribution to consolidated results | | $ | 217,615 | | | $ | 171,881 | |
ContributionContribution from natural gas distribution operations to consolidated net income from natural gas distribution operationsincreased approximately $46 million decreased $10 million betweenbetween the twelve-month periods ended September 20222023 and 2021.2022. The declineincrease was due primarily to increases in Operating margin and Other income (deductions), offset by an increase in Operations and maintenance expense, Depreciation and amortization, Taxes other than income taxes, and Net interest deductions, offset by an increase in Operating margin and a reduction to Income tax expense.deductions.
Operating margin increased $60$96 million between periods. Customer growth provided $16$14 million, and combined rate relief provided $29$42 million of incremental operating margin. Also contributing to the increase were customer late fees that were $5.8 million greater in the current period due to lifting the earlier moratorium on such fees in all jurisdictions.margin. Approved VSPVintage Steel Pipe (“VSP”) and COYLCustomer-owned Yard Line (“COYL”) revenue in Arizona also contributed to the improvement between periods ($17.56 million). Offsetting these increases were lower recoveries, as did recovery surcharges associated with regulatory account balances ($619 million), which is mitigated by a comparable decrease in amortization expense between periods (discussed below). The $8 million out-of-period adjustment to Net cost of gas sold during the first quarter of 2023 also contributed to the increase.
Operations and maintenance expense increased $47$23 million between periods. In addition to general inflationary impacts, specificGeneral cost increases include temporary/contractor services for customer and technology support serviceswere experienced in a variety of areas, including in direct labor charges ($7.98 million), employee laborexternal contractor and related pensionprofessional services in various areas of the business ($8 million), leak survey and benefit costsline locating activities ($17.83 million), contractor costs for pipeline integrity, reliability, and engineering services, some of which were event driven ($8.3 million), an increase in the reservereserves for customer accounts deemed uncollectible ($4.73 million), and higherin the cost of fuel used in operations ($5 million). These increases were partially offset by a reduction in legal and claim-related costs ($3 million). The prior year expense levels were uncharacteristically low due to COVID-period reduced training/travel and other cost savings.expenses.
Depreciation and amortization expense increased $9$31 million, or 4%12%, betwbeteen periodsween periods primarily due partially to a $546$550 million, or 6%, increase in average gas plant in service since the corresponding period in the prior year, offset by a reduction ($6 million) in amortization of regulatory account balances, as discussed in regard to Operating margin above.year. The increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled pipe replacement activities, and new infrastructure,infrastructure. An increase in amortization of regulatory account balances of $19 million, as well asdiscussed in regard to Operating margin above, also contributed to the implementation of a new customer information system placed into production in the second quarter of 2021.increase.
Taxes other thanOther income taxesincreased increased $6.6$45 million between periods primarily due to an increase in property taxes in Arizona, and to a lesser extent, in California and Nevada.
Other income increased $448,000 between the twelve-month periods of 20222023 and 2021. The current-period reflects a $5.72022. Interest income increased $34 million decline in COLI policy cash surrender values, comparedbetween periods related to carrying charges associated with the twelve months ended September 30, 2021, which reflected ansignificant increase in values of $14 million including net death benefits. Offsetting these impacts were non-servicedeferred purchased gas cost balances and interest on other regulatory account balances. Additionally, non-service-related components of employee pension and other postretirement benefit costs which were $11.5decreased $19.2 million lower between periods,between periods. Southwest also recognized a $13.8 million increase in COLI results between periods. Offsetting these impacts was $12 million related to uncompleted software projects deemed non-recoverable from utility operations, and interest income, which increased $8$5 million between periods.in market adjustments on other property.
Net interest deductionsdeductions increased $14$32 millionbetween 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 2022.2022, $300 million of Senior Notes issued in December 2022, and $300 million of Senior Notes issued in March 2023. Other impacts include increased interest associated with a higher amount of short-term debt and higher rates on variable-debt overall, including under Southwest’s credit facility, during the period of outstanding indebtedness.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
Income tax expense decreased $5.2 million between the twelve-month periods ended September 30, 2022 and 2021, primarily due to a reduction in pre-tax book income, amortization of excess accumulated deferred income taxes (“EADIT”) ($2.3 million), and changes in Arizona and California state apportionment percentages of $3.1 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 September 30, | | Three Months Ended September 30, |
(Thousands of dollars) | (Thousands of dollars) | | 2022 | | 2021 | (Thousands of dollars) | | 2023 | | 2022 |
Utility infrastructure services revenues | Utility infrastructure services revenues | | $ | 758,466 | | | $ | 632,848 | | Utility infrastructure services revenues | | $ | 774,889 | | | $ | 758,466 | |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Utility infrastructure services expenses | Utility infrastructure services expenses | | 680,135 | | | 567,270 | | Utility infrastructure services expenses | | 685,687 | | | 680,135 | |
Depreciation and amortization | Depreciation and amortization | | 39,811 | | | 30,021 | | Depreciation and amortization | | 36,252 | | | 39,811 | |
Operating income | Operating income | | 38,520 | | | 35,557 | | Operating income | | 52,950 | | | 38,520 | |
Other income (deductions) | Other income (deductions) | | (110) | | | 1,175 | | Other income (deductions) | | 108 | | | (110) | |
Net interest deductions | Net interest deductions | | 16,608 | | | 6,257 | | Net interest deductions | | 26,131 | | | 16,608 | |
Income before income taxes | Income before income taxes | | 21,802 | | | 30,475 | | Income before income taxes | | 26,927 | | | 21,802 | |
Income tax expense | Income tax expense | | 6,466 | | | 9,653 | | Income tax expense | | 8,235 | | | 6,466 | |
Net income | Net income | | 15,336 | | | 20,822 | | Net income | | 18,692 | | | 15,336 | |
Net income attributable to noncontrolling interests | Net income attributable to noncontrolling interests | | 991 | | | 2,282 | | Net income attributable to noncontrolling interests | | 736 | | | 991 | |
Contribution to consolidated results | Contribution to consolidated results | | $ | 14,345 | | | $ | 18,540 | | Contribution to consolidated results | | $ | 17,956 | | | $ | 14,345 | |
Utility infrastructure services revenues increased $125.6$16.4 million in the third quarter of 20222023 when compared to the prior-year quarter, includingdriven primarily by a $45 million increase in offshore wind revenue and an increase of $89 million from Riggs Distler, which was acquired on August 27, 2021. Revenues fromin electric infrastructure services increased $33.8revenue of $11.3 million, partially offset by a decrease in the third quartergas infrastructure services revenue (discussed below). Offshore wind revenue is reflected as a component of 2022 when comparedother revenues (refer to the prior-year quarter,Note 3 – Revenue in this Quarterly Report on Form 10-Q). The increase in offshore wind revenue was offset in part by a $15.2 million decline in other revenues due to timing of which $27.9 million was recorded by Riggs Distler. Includedwork completed. This revenue stems from four multi-year contracts whereby Centuri provides materials, subcontracts manufacturing, and self-performs fabrication and assembly of secondary steel components onshore, with delivery at a port facility. The increase in electric infrastructure services revenues was due to higher volumes under certain existing customer master service agreements. Included in the third quarter of 2022electric infrastructure revenue was $17.5$18.9 million from emergency restoration services performed by Linetec, Riggs Distler,following tornado and National Powerline followingother storm damage to customers’ above-ground utility infrastructure in and around the Gulf Coast and eastern regions of the U.S. and Canada,, compared to $45.7$17.5 million in storm restoration work in the same quarter in the prior year period.year. 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 quarterDespite an increase also includes approximately $74.6in bid revenue of $24.4 million inwith a U.S. gas infrastructure services revenues, including $14customer, gas infrastructure services revenue overall decreased $24.7 million recorded by Riggs Distler,during the third quarter of 2023 primarily from increaseddue to a net decrease in volumes under existing customer master service agreements. Work mix and volume were otherwise negatively impacted during the current quarter due to certain customers’ supply chain challengesagreements, primarily in procuring necessary materials.Canada.
Utility infrastructure services expenses increased $112.9$5.6 million in the third quarter of 20222023 when compared to the prior-year quarter, including increasesprimarily as a result of $83.8increased costs to complete a higher volume of work and due to higher incentive compensation from improved results. General and administrative costs that are included in Utility infrastructure services expense overall increased $4.3 million incurred by Riggs Distler in 2022 whenbetween comparative quarters, and include incentive compensation. Subcontractor costs increased during the third quarter of 2023 compared to the prior-year quarter, and incremental costs related toin association with the higher volume of work otherwise. Changesnoted, and the increased revenues related to offshore wind projects. Despite continued inflationary pressures, margin on work completed in the third quarter of 2023 improved due to changes in the mix of work includingand lower volumes of storm related activities, and inflation led to higher input costs, including fuel and subcontractor expenses, as well as increased project related travel and equipment rental costs incurred by the electric infrastructure business. Fuel costs alone increased $9.5 million in the current quarter, including $1.6 million incurred by Riggs Distler. A loss of $5.7 million was incurred on a gas infrastructure bid project during the current quarter due to higher costs than anticipated. This project is anticipated to reach substantial completion by the end of 2022, and additional compensation is being pursued with the customer. Increased project-related travel expenses of $4.5 million were incurred during the period. Also included in total Utility infrastructure services expenses were general and administrative costs, which decreased approximately $18 million between quarters, primarily due to acquisition costs of $13 million incurred in the prior year quarter in connection with the acquisition of Riggs Distler in addition to lower incentive compensation incurred during the current quarter.prices. Gains on sale of equipment in the third quarter of 20222023 and 20212022 (reflected as an offset to Utility infrastructure services expenses) were approximately $1.1 million and $1.7 million, and $1.3 million, respectively.
Depreciation and amortization eexpense levels are contingent upon timing of equipment purchases, retirements, and replacements, and remained largely consistent as a percentage of revenue between quarters.
The increase in net interest deductions of xpense increased $9.8$9.5 million included higher interest rates on outstanding variable-rate borrowings.
Income tax expense increased $1.8 millionbetween quarters, of which $8.7 million was recorded by Riggs Distler. The remainingprimarily due to an increase was attributable to equipment purchased to support the growing volume of infrastructure work.in pre-tax income in 2023.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
The increase in Net interest deductions of $10.4 million was primarily due to incremental 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, in addition to higher interest rates on outstanding variable-rate borrowings.
Income tax expense decreased $3.2 million between quarters, primarily due to reduced profitability in 2022.
Results of Utility Infrastructure Services
Nine-Month Analysis
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
(Thousands of dollars) | (Thousands of dollars) | | 2022 | | 2021 | (Thousands of dollars) | | 2023 | | 2022 |
Utility infrastructure services revenues | Utility infrastructure services revenues | | $ | 1,988,433 | | | $ | 1,525,448 | | Utility infrastructure services revenues | | $ | 2,233,961 | | | $ | 1,988,433 | |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Utility infrastructure services expenses | Utility infrastructure services expenses | | 1,829,560 | | | 1,381,524 | | Utility infrastructure services expenses | | 2,005,084 | | | 1,829,560 | |
Depreciation and amortization | Depreciation and amortization | | 116,286 | | | 79,982 | | Depreciation and amortization | | 110,982 | | | 116,286 | |
Operating income | Operating income | | 42,587 | | | 63,942 | | Operating income | | 117,895 | | | 42,587 | |
Other income (deductions) | Other income (deductions) | | (743) | | | 927 | | Other income (deductions) | | 311 | | | (743) | |
Net interest deductions | Net interest deductions | | 40,337 | | | 9,511 | | Net interest deductions | | 73,032 | | | 40,337 | |
Income before income taxes | | 1,507 | | | 55,358 | | |
Income (loss) before income taxes | | Income (loss) before income taxes | | 45,174 | | | 1,507 | |
Income tax expense (benefit) | Income tax expense (benefit) | | 3,350 | | | 17,372 | | Income tax expense (benefit) | | 16,416 | | | 3,350 | |
Net income (loss) | Net income (loss) | | (1,843) | | | 37,986 | | Net income (loss) | | 28,758 | | | (1,843) | |
Net income attributable to noncontrolling interest | Net income attributable to noncontrolling interest | | 2,557 | | | 5,189 | | Net income attributable to noncontrolling interest | | 3,856 | | | 2,557 | |
Contribution to consolidated results | Contribution to consolidated results | | $ | (4,400) | | | $ | 32,797 | | Contribution to consolidated results | | $ | 24,902 | | | $ | (4,400) | |
UtilityUtility infrastructure services revenues increased $463$245.5 million in the first nine months of 20222023 when compared to the same period in the prior year, including andriven primarily by a $117.8 million increase of $353.2 million recorded by Riggs Distler, which was acquired on August 27, 2021 . Revenues fromin electric infrastructure services increased $203.9revenues and a $114.3 million increase in 2022 when compared to the prior year,offshore wind revenue, which is reflected as a component of which $163.2 million was recorded by Riggs Distler. Includedother revenues. The increase in electric infrastructure services revenues overall during the first nine months of 20222023 was $36.5due to growth from both new and existing customers, as well as revenues of $83.4 million in 2023 from emergency restoration services performed by Linetec, Riggs Distler,following tornado and National Powerline followingother storm damage to customers’ above-ground utility infrastructure in and around the Gulf Coast and eastern regions of the U.S. and Canada, compared, compared to $57.9$36.5 million in storm restoration work during the first nine months of the prior year.same period in 2022. The current year increasenine month period also includes approximately $185.5$26.7 million inof increased gas infrastructure services revenues, including $45.4primarily due to increased revenue from bid work of $88.8 million recordedwith a U.S. customer, partially offset by Riggs Distler, primarily from increased volumesa net decrease related to reduced volume under master service agreements. Partially offsetting these improvements were impacts from work mix and volume that were negatively impacted during the first nine months of 2022 due toservices agreements with certain customers’ supply chain challengesexisting customers, primarily in procuring necessary materials.Canada.
Utility infrastructure services expenses increased $448$175.5 million in the first nine months of 20222023 when compared to the same period in the prior year, including increases of $322.9 million incurreddriven primarily by Riggs Distler in 2022, and incremental costs related to the higher volume of work otherwise. Changesnoted above. Subcontractor costs increased during the first nine months of 2023 compared to the prior year primarily in association with offshore wind projects and resulting revenue generation. Despite continued inflationary pressures, operating margin in the first nine months of 2023 improved due to changes in the mix of work and inflation ledincreased operating efficiencies related to higher input costs includingemergency restoration services, and lower fuel and subcontractor expenses, as well as increased project-related travel and equipment rental costs incurred by the electric infrastructure business. Fuel costs increased $27.6 million in the current year, including $6.4 million incurred by Riggs Distler. Increased project-related travel expenses of $10.4 million were incurred during the current year.prices. Also included in total Utility infrastructure services expenses were general and administrative costs, which decreased $5.6increased approximately $6.7 million in 2022 comparedbetween periods, primarily due to 2021, primarily attributable to $13.8 million incurred in the prior year period in connection with the acquisition of Riggs Distler, in addition to lowerincreased incentive compensation costs in the current year, partially offset by increased general and administrative costs incurred by Riggs Distler of $8.8 million.compensation. Gains on sale of equipment (reflected as an offset to Utility infrastructure services expenses) were approximately $3 million and $3.7 million, during the first nine months of 2023 and $5.4 million in the nine-month periods in 2022, and 2021, respectively.
Depreciation and amortization expense remained largely consistent as a percentage of revenue between periods.
The increase in net interest deductions of $32.7 million was primarily due to higher interest rates on outstanding variable-rate borrowings.
Income tax expense increased $36.3$13.1 million between periods,during the first nine months of which $34.2 million was recorded by Riggs Distler2023, primarily due to increased pre-tax income in 2022. The remaining increase was attributable to equipment purchased to support the growing volume of infrastructure work overall.2023.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
The increase in Net interest deductions of $30.8 million during the first nine months of 2022was primarily due to incremental 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, in addition to higher interest rates on outstanding variable-rate borrowings.
Income tax decreased $14 million between periods, primarily due to reduced profitability in 2022.
Results of Utility Infrastructure Services
Twelve-Month Analysis
| | | Twelve Months Ended September 30, | | Twelve Months Ended September 30, |
(Thousands of dollars) | (Thousands of dollars) | | 2022 | | 2021 | (Thousands of dollars) | | 2023 | | 2022 |
Utility infrastructure services revenues | Utility infrastructure services revenues | | $ | 2,621,646 | | | $ | 2,065,038 | | Utility infrastructure services revenues | | $ | 3,005,855 | | | $ | 2,621,646 | |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Utility infrastructure services expenses | Utility infrastructure services expenses | | 2,403,503 | | | 1,858,464 | | Utility infrastructure services expenses | | 2,704,842 | | | 2,403,503 | |
Depreciation and amortization | Depreciation and amortization | | 153,947 | | | 105,570 | | Depreciation and amortization | | 150,049 | | | 153,947 | |
Operating income | Operating income | | 64,196 | | | 101,004 | | Operating income | | 150,964 | | | 64,196 | |
Other income (deductions) | Other income (deductions) | | (603) | | | 827 | | Other income (deductions) | | 167 | | | (603) | |
Net interest deductions | Net interest deductions | | 51,825 | | 11,642 | | Net interest deductions | | 94,066 | | 51,825 | |
Income before income taxes | Income before income taxes | | 11,768 | | | 90,189 | | Income before income taxes | | 57,065 | | | 11,768 | |
Income tax expense | Income tax expense | | 4,754 | | | 26,785 | | Income tax expense | | 18,793 | | | 4,754 | |
Net income | Net income | | 7,014 | | | 63,404 | | Net income | | 38,272 | | | 7,014 | |
Net income attributable to noncontrolling interests | Net income attributable to noncontrolling interests | | 3,791 | | 6,681 | | Net income attributable to noncontrolling interests | | 6,905 | | 3,791 | |
Contribution to consolidated results | Contribution to consolidated results | | $ | 3,223 | | | $ | 56,723 | | Contribution to consolidated results | | $ | 31,367 | | | $ | 3,223 | |
Utility infrastructure services revenues increased $556.6$384.2 million in the current twelve-month period compared to the corresponding period of 2021, including $467.52022, driven primarily by a $166.8 million of increases recorded by Riggs Distler, which was acquired on August 27, 2021. Revenues fromincrease in electric infrastructure services increased $253.2revenue and a $165.2 million increase in 2022 when compared to the prior twelve-month period,offshore wind projects that are reflected as a component of which $237.1 million was recorded by Riggs Distler. Includedother revenues. Included in the incremental electric infrastructure revenues during the twelve-month period of 20222023 was $43.9$116.6 million from emergency restoration services performed by Linetec, Riggs Distler, and National Powerline, 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 $83.5$43.9 million in similar services during the twelve-month period in 2022. The current twelve-month period also included $70.7 million of 2021. The remaining increase in revenue was attributable to continued growth with existingincreased gas infrastructure customers under master service andservices revenues, including increased bid agreements,revenue of $91.9 million with a U.S. customer, partially offset by reduced worka net decrease in volume under master services agreements with a significant customer during the twelve-month period ending September 30, 2022 (totaling $30 million), due to the mix of projects under its multi-year capital spending program. Work mix and volume were otherwise negatively impacted during the current twelve-month period due to certain customers’ supply chain challengesexisting customers in procuring necessary materials.Canada.
Utility infrastructure services expenses increased $545$301.3 million between periods. The increase overall includes $425.3 million incurred, driven primarily by Riggs Distler subsequenta higher volume of work. Subcontractor costs increased during the current twelve-month period compared to the acquisition, as well as incremental costscorresponding period of 2022 in association with offshore wind projects and 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 incurredrevenue generation. Despite continued inflationary pressures, operating margin improved due to inflation,changes in the mix of work and in support of growth in our electric infrastructure business. Expenses in relationincreased operating efficiencies related to revenues, and therefore, profit margins, can be impacted by inefficiencies from equipment and facility utilization and under-absorption of other fixed costs, which occurred due to the reduced work from the noted large customer and lower revenues from emergency restoration services, lower fuel prices, as noted above.well as favorable weather conditions in certain locations between comparative twelve-month periods. Also included in total Utility infrastructure services expenses were general and administrative costs, which decreased approximately $4.8increased approximately $16.2 million between comparativebetween periods, primarily attributabledue to $14 millionincurred in the prior period in connection with the acquisition of Riggs Distler, in addition to lowerhigher incentive compensation costs incurred in the current year; these were partially offset by higher other general and administrative costs incurred by Riggs Distler of $14.8 million in the current period.compensation. Gains on sale of equipment (reflected as an offset to Utility infrastructure services expenses) were approximatelyapproximately $5.7 million and $5.3 million and $6.6 million for the twelve-month periods of 20222023 and 2021,2022, respectively.
Depreciation and amortization expense increased $48.4 million between the current and prior-year twelve-month periods,remained largely consistent as a percentage of which $46.3 million relates to Riggs Distler.
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
revenue between periods.Net interest deductions increased $40.2$42.2 million between periods primarily due to incremental 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, in addition to higher interest rates on outstanding variable-rate borrowings.
IncomeThe increase in income tax expense decreased $22of $14 million between periods,the current and prior-year twelve-month period was primarily due to reduced profitability in 2022.
Results of Pipeline and Storage
Quarterly and Nine-Month Analysis
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | |
(Thousands of dollars) | | 2022 | | |
Regulated operations revenues | | $ | 63,178 | | | $ | 192,259 | | | |
Operating expenses: | | | | | | |
Net cost of gas sold | | 550 | | | 3,553 | | | |
Operations and maintenance expense | | 25,198 | | | 74,251 | | | |
Depreciation and amortization | | 12,732 | | | 38,869 | | | |
Taxes other than income taxes | | 2,663 | | | 8,335 | | | |
Operating income | | 22,035 | | | 67,251 | | | |
Other income (deductions) | | 353 | | | 1,691 | | | |
Net interest deductions | | 4,553 | | | 13,449 | | | |
Income before income taxes | | 17,835 | | | 55,493 | | | |
Income tax expense | | 5,515 | | | 11,167 | | | |
Contribution to consolidated results | | $ | 12,320 | | | $ | 44,326 | | | |
Operating results for the Pipeline and Storage segment included rate-regulated transmission and subscription storage revenues of $59.3 million and $179 million during the three- and nine-months ended September 30, 2022. Operating expenses include $5.7 million and $18.9 million, during the three- and nine-month periods, respectively, ended September 30, 2022, related to integrating MountainWest, including employee retention payments incurred. Additional integration costs will be incurred in future periods until integration efforts are completed.increased pre-tax income.
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 two of Southwest’s subsidiaries are subject to regulation by 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 service to 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 January 2021, the most significant driver for the December 2021, request was 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 the customer information system implementedinvestments in a
| | | | | | | | |
SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
customer information system implemented in May 2021. The filing was based on a test year ended August 31, 2021 and proposed a return on common equity of 9.90% relative to a target equity ratio of 51%. Southwest also proposed a twelve-month post-test year adjustment to reflect otherwise non-revenue producing plant in service as of August 31, 2022 and certain expense adjustments. Recovery (over three years) of the approximately $12 million related to the outstanding deferral balance associated with the LNG facility (see below) was included in the request, along with the approximate $2.1 million (also over three years) in late payment charges that were suppressed from customer accounts during the COVID-19 pandemic. A request to continue the Delivery Charge Adjustment (“DCA”), Southwest’s full-revenue decoupling mechanism, was also included, while no changes to Southwest’s existing rate design are proposed.
At a hearing held in September 2022, Southwest, the ACC’s Utilities Division Staff (the “Staff”), and the 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 equity; and foregoing recovery of the requested COVID-19 moratorium waived late fees, as well as an acquisitiona premium related to the recent Graham County acquisition. Amongacquisition as well as the uncontested issues identified priorrecovery of $12 million of waived late fees on customer account balances that would have otherwise applied to delinquent accounts in the absence of a COVID-19 moratorium on such fees. Approximately $12 million in costs related to the hearing were the continuation of the DCA mechanism, the continuation of the existing rate design, and Southwest’s alternate property tax expense calculation, reflecting actual incurred property tax expenseLiquefied Natural Gas facility deferred in 2021, instead ofan authorized regulatory asset was approved to be amortized over four years. The ACC’s final order authorized a pro-forma adjustment reflecting forecasted property tax expense. Although these issues were resolved amongst the parties, these and other items in the case are still subject to the Administrative Law Judge’s recommended order and opinion that will be considered by the ACC. A decision and resulting$54.3 million increase, with new rates are anticipated in the first quartereffective February 1, 2023.
Delivery Charge Adjustment. The DCADelivery Charge Adjustment (“DCA”) is filed each April, which along with other reporting requirements, contemplates a rate to return/recover the over- or under-collected margin tracker (decoupling mechanism) balance. AnThe most recent filing was made in April 20222023 to request proposed a rate to return $10.5 million,address the over-collected balance of $53.5 million existing atas of March 31, 2023. The requested rate to return the end of the first quarter 2022, whichover-collected balance was approved and new rates became effective JulyAugust 1, 2022.2023.
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 tax rate changes resulting from federal or state tax legislation following the TEAM implementation. In addition, the TEAM tracks and returns/recovers the revenue requirement impact of changes in amortization of EADIT (includingexcess accumulated deferred income taxes (“EADIT”), including that which resulted from 2017 U.S. federal tax reform)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, which proposed an approximate $4.7 million refund, comprised of an approximate $9 million decrease in revenue requirement offset by an under-collected balance of approximately $4.3 million. Staff issued a proposed order supportingproposing to update the TEAM credit,surcredit to refund $6.5 million of estimated net EADIT savings, which was approved by the ACC with rateseffective May 1, 2023 and will be further updated effective November 1, 2022.
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 as part of the previously authorized regulatory asset account, and are included for consideration in the current general rate case application.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. AThe COYL program has been subject to proceedings to recover investments since that time. In February 2023, Southwest requested approval to recover the outstanding revenue requirement of approximately $4.3 million associated with 2022 COYL investments, which increased the COYL recovery rate. The new rate became effective July 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 in May 2021 proposedrequested an expansion of the recovery of previously unrecovered surcharge revenue from 2019 and 2020 (collectively, $13.7 million) over a one-year period. Such amounts relatedcurrent gas cost balancing account (“GCBA”) adjustment to plant investments that were made in advance of those periods.clear the then existing $351 million balance. In November 2021,July, the ACC approved fullan increase to the GCBA rate (over a two-year period) effective August 1, 2023, to support the timely recovery withinof the proposed timeline, the rate for which was implemented the same month. In a February 2022 filing, Southwest requested and received approval to increase its surcharge revenue by $3.4approximately $358 million to recover the revenue requirement associated with investments made since August 2020 and through calendar year 2021.balance as of May 31, 2023. The rate was implemented in June 2022. A decrease in the COYLincreased GCBA rate will become effective in November 2022remain for up to reflecttwo years or until the expiration ofbalance drops below $10 million, at which point the collection period associated withGCBA rate will be set to $0.00 per therm, where it will remain until the 2019 and 2020 COYL program revenue referred to above. Recovery ofunder- or over-collected balance exceeds $10 million. The ongoing deferred energy rates, separate from the remaining investments is ongoing.
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 recent 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
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
2021, the ACC approved full recovery over the proposed three-year timeline with updatedGCBA rates, which became 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 continue to be served under existing GCU rates until such time as they are rolled into Southwest’s rates, which is proposed to take place in conjunction with the effective date of rates resulting from the currently pending Arizona general rate case. Resolution is expected in the first quarter of 2023. See also Arizona General Rate Case above and the discussion of stipulation by the parties to the pending case in regard to GCU.
California Jurisdiction
California General Rate Case. Southwest’s most recent general rate case was concluded following 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 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 the annual attrition filing. 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. New rates were ultimately implemented April 1, 2021, with Southwest permitted to establish a general rate case memorandum account to track the impacts of a delay in the implementation of new rates (between January 1, 2021 and the date rates were implementation) for purposes of later recovery.
Attrition Filing. Following the 2021 implementation of rates approved as part of the general rate case, Southwest is also authorized to continue annual Post Test Year (“PTY”) attrition increases of 2.75%, the first of which began in January 2022.
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 related to the 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 2022. This rate is expected to be updated at least annually.monthly.
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 reduce their respective 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 Decision 22-09-010 dismissing Southwest’s application without prejudice. Southwest intends to file a new application in the fourth quarter 2022 addressing the concerns raised by third parties, which included a request to demonstrate that purchased offsets would result in GHG emissions reductions.
Building Decarbonization. CPUC Decision 22-09-026 was issued regarding the elimination of gas line extension monetary allowances, a 10-year refundable payment option, and the 50% discount payment option for both residential and non-residential customers of all 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. Decision 22-08-037 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 2020. This decision 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 for future recovery in a general rate case subject to relevant cap.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
Nevada Jurisdiction
Nevada General Rate Case. Southwest filed its most recently concluded Nevadarecent general rate case in August 2021, which was further updated bySeptember 2023 proposing a certification filing in December 2021. The request proposed a combined statewide revenue increase of approximately $28.7$69.8 million (as of the certification date); the most significant driver for which was the substantial capital investments that were made since the end ofbased on the test year in the previous case, including the customer information system that was implemented inended May 2021.2023. The filing includedrequest includes a proposed return on common equity of 9.90% with10.0% relative to a 50% target equity ratio of 51%; recoveryratio; an increase in rate base of approximately $6.6 million in previously deferred late payment charges related to a regulatory asset associated with COVID-19; and$250 million; continuation of full revenue decoupling under the General Revenues Adjustment (“GRA”) mechanism. Onmechanism; recovery of approximately $4 million in incremental leak survey costs; the inclusion of new depreciation rates supported by a depreciation study that proposes to increase depreciation rates by $7.8 million; and to reflect in rates a level of operations and maintenance expense representative of current costs. New rates are anticipated in April 2024. Southwest’s previous general rate case concluded in 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. The stipulation was approved by the PUCN, and new rates became effective April 1, 2022. The PUCN’s order did not include recovery of the approximate $6.6 million in deferred late payment charges related to a regulatory asset associated with COVID-19, which had previously been reserved.
General Revenues Adjustment. As noted above, the continuation of theThe GRA was affirmed as part of Southwest’s most recentrecently concluded 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 2021 related to balances as of September 30, 2021. New rates related to that filing became effective July 1, 2022. The next ARA filing will be made in November 2022 related to balances as of September 2022, with new rates expected to become effective July 1, 2023. While there is no impact to net income overall from adjustments to recovery rates associated with the related regulatory balances, operating cash flows are impacted by such changes.
COYL Program. In August 2021, Southwest filed a joint petition with the Regulatory Operations Staff of the PUCN proposing a Nevada COYL replacement program to include residential COYLs, public 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 $5approximate $19 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 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 has been requested and granted, a GIR rate application has been separately filed to reset the GIR recovery surcharge rate related to previously approved and completed projects. On September 27, 2022, Southwest filed its latest rate application to reset the recovery surcharge in January 2023 to include cumulative deferrals through August 31, 2022. However, in November 2022, Southwest reached a settlement with parties (stipulation expected to be filed the same month) to discontinue the GIR, with no further ratemaking following the current year. An immaterial GIR balance existed as of September 30, 2022. Commission approvalGiven the magnitude of the stipulation is anticipated to be received in December 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 2021 ARA filing, Southwest proposed annualized margin decreases of $574,000 and $434,700 for southern and northern Nevada, respectively, which became effective in July 2022. Separately, in May 2022, Southwest filed an application seeking approval of its annual Conservation and Energy Efficiency Plan Report for 2021, with no proposed modifications to the previously approved $1.3 million annual budget for years 2022-2024. The parties reached a stipulation that was approved by the PUCN in July 2022.
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 accordanceoutstanding balances, further discussion with the SB 151 regulations. Ultimately,parties resulted in a settlement of the PUCN issued an order approving Southwest’s proposal for the expansion,issues and Southwest provides periodic updates and adjustsutilizing a more current GRA balance of approximately $12 million as of January 2023 to more closely align the rates to recover the revenue requirement associatedimplemented with the investments to serve customersexisting balance. Recovery rates and adjustments thereto as part of Southwest’sthe ARA filingsprimarily impact cash flows but not net income overall. Updated rates for the GRA and rate case proceedings. As of September 2022, more than 42 miles of natural gas infrastructure have been installed throughoutother regulatory mechanisms included in the Mesquite expansion area.ARA became effective July 1, 2023.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
Nevada Leak Survey.In June 2019, Southwest filed for preapprovalthe PUCN opened an Investigation and Rulemaking action to constructconsider certain amendments to the infrastructure necessary to expandNevada Administrative Code requiring annual leak surveys of distribution pipelines transporting natural gas serviceor liquid petroleum. The increased survey activity was to Spring Creek, near Elko, Nevada,focus on business districts and to implementbe conducted generally on an annual basis (not exceeding 15-month survey intervals). The proposed regulations were permanently adopted with a cost recovery methodology to recoverJanuary 1, 2023 effective date. Regulatory asset treatment was approved for the purpose of tracking incremental costs associated revenue requirement consistent with implementing 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 stipulation was reached with the parties and approved by the PUCN in December 2019, including a rate recovery allocation amongst northern Nevada, Elko, and Spring Creek expansion customers. Construction beganincreased leak surveys, which resulted in the third quarterinclusion of 2020, and service commenced toapproximately $4 million in Southwest’s pending general rate case.
California Jurisdiction
Attrition Filing. Following the first Spring Creek customers in December 2020. As2021 implementation of September 2022, approximately 48 miles of natural gas infrastructure have been installed throughout the Spring Creek expansion area, and is anticipated to be completed in 2026.
Carbon Offset Program. In June 2021, Southwest filed an application seeking 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 reduce their respective GHG emissions. A request to establish a regulatory asset to track program-related costs and revenues was includedrates approved as part of the application.most recent general rate case, the continuation of annual Post Test Year (“PTY”) margin attrition increases of 2.75% began in January 2022, with the latest annual margin attrition increase of approximately $2.2 million effective January 1, 2023. The parties reached a stipulation that was approved by the PUCN in December 2021 approving Southwest’s proposal. The program is offered for customer participation startingannual attrition adjustments are intended to reflect changes in the fourth quartercost of 2022.service between general rate cases, thereby stabilizing customer bill impact by implementing gradual changes in rates. The recent order also approved the inclusion of the revenue requirement associated with Southwest’s North Lake Tahoe Lateral project in rates as a PTY margin adjustment, as phases of the project are placed into service and become operational. The PTY margin increase of approximately $1.3 million associated with the project became effective February 1, 2023.
FERC Jurisdiction
Great Basin 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 file a rate case no later than May 31, 2025.
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 currently charged by MountainWest Overthrust Pipeline, LLC, (“Overthrust Pipeline”) area subsidiary of MountainWest, were just and reasonable and setting the matter for hearing.hearing (the “Section 5 Rate Case”). A settlement was reached whereby the Company recorded a charge of $28.4 million in the first quarter of 2023, which was included in Goodwill impairment and loss on sale on the Company’s Condensed Consolidated Statements of Income. The FERC directed Overthrust Pipeline to file a costsettlement was approved and revenue study by December 6, 2022. Provided Overthrust Pipeline does not settle the $28.4 million was paid in the third quarter of 2023. The matter earlier, a hearing would be held on July 18, 2023, an initial decision from the FERC administrative law judge would be due October 31, 2023, and an order from the FERC would be expected in mid to late 2024. Any rate impact from this proceeding would be applied prospectively following the FERC’s order.is now closed.
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 September 30, 2022,2023, under-collections in each of Southwest’s service territories resulted in an asset of $381$687 million on the Company’s and Southwest’s Condensed Consolidated Balance Sheets. 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) | (Thousands of dollars) | | September 30, 2022 | | December 31, 2021 | | September 30, 2021 | (Thousands of dollars) | | September 30, 2023 | | December 31, 2022 | | September 30, 2022 |
Arizona | Arizona | | $ | 269,811 | | | $ | 214,387 | | | $ | 191,907 | | Arizona | | $ | 301,321 | | | $ | 292,472 | | | $ | 269,811 | |
Northern Nevada | Northern Nevada | | 15,619 | | | 12,632 | | | 4,924 | | Northern Nevada | | 56,975 | | | 27,384 | | | 15,619 | |
Southern Nevada | Southern Nevada | | 94,707 | | | 55,967 | | | 38,964 | | Southern Nevada | | 294,624 | | | 122,959 | | | 94,707 | |
California | California | | 1,214 | | | 8,159 | | | 5,032 | | California | | 34,217 | | | 7,305 | | | 1,214 | |
| | $ | 381,351 | | | $ | 291,145 | | | $ | 240,827 | | | $ | 687,137 | | | $ | 450,120 | | | $ | 381,351 | |
Not included in the PGA balances table above are $3.7 million at September 30, 2022 and $5.7 million at December 31, 2021 in deferred purchased gas cost liabilities for MountainWest.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
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 was expectedspike and remain higher during extended periods as
compared to be refinanced through a multi-pronged permanent financing plan, 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. The term loan for the MountainWest acquisition was amended in September 2022 to extend the maturity date to December 2023.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.
Cash Flows
Southwest Gas Holdings, Inc.:
Operating Cash Flows. Cash flows from consolidated operating activities increased $252decreased $105 million in the first nine months of 20222023 as compared to the same period of 2021.2022. The improvement in cash flowsdecline was primarily resulted fromdriven by 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. Amounts were greatly impacted due to higher than expected natural gas costs during the most recent winter period, which was reflected in higher Deferred purchased gas cost balances in advance of rates to recover the balance. The prior perioddecline in cash flows also included a $50 million discretionary supplemental contribution toresulted from the noncontributory qualified retirement plan (reflected as a change in other liabilities and deferred credits). Other impacts includeof changes in components of working capital overall.overall, including the timing and amount of accounts payable and other current asset and liability balances.
The corporateCorporate and administrative expenses/outflows for Southwest Gas Holdings, Inc. in the nine- and twelve-month periods ended September 30, 20222023 mainly include outlayscharges related to shareholder activism and the Strategic Review, in addition to outlays related to expenditures/financing costs for the MountainWest acquisition.sale that closed in February 2023, interest paid on borrowings, and costs associated with the Centuri separation.
Investing Cash Flows. Cash used inflows from consolidated investing activities decreased $710increased $961 million in the first nine months of 20222023 as compared to the same period of 2021. The change was primarily due to Centuri’s acquisition of Riggs Distler in 2021 (see Note 8 - Business Acquisitions).2022. The overall decreaseincrease was driven by $1.02 billion in proceeds received in connection with the MountainWest sale (which is net of cash sold), including impacts of post-closing true-ups and commitments, partially offset by an increase in capital expenditures in both the natural gas distribution and utility infrastructure services segments. The current period also included a post-closing payment of $18.8 million in association with the Mountain West acquisition.segment.
Financing Cash Flows. Net cash provided byCash flows from consolidated financing activities decreased $1.1 billion$852 million in the first nine months of 20222023 as compared to the same period of 2021.2022. The changeoverall decrease was primarily due to borrowings associatedthe first quarter 2023 repayment ($1.1 billion) of the then remaining balance of the term loan entered into by Southwest Gas Holdings, Inc. in November 2021 in connection with Centuri’sthe acquisition of Riggs Distler in 2021. The agreement provided for a $1.145 billion secured term loan facility and a $400 million secured revolving credit facility, which in addition to funding the Riggs Distler acquisition, refinanced Centuri’s previous $590 million loan facility.
Additionally contributing to the change were borrowings by Southwest, including the March 2021 Term Loan to initially finance a gas cost runup caused by the 2021 freeze event in and around the central U.S. due to Winter Storm Uri and the August 2021 issuance of $300 million in notes, as well as borrowings under the Company’s credit facility, offset by repayment of amounts under Southwest’s facility in 2021; by comparison, in the first nine months of 2022, financing activities were largely undertaken in concert with reductions in other borrowings. The Company reduced its 364-day Term Loan facility (utilized to finance the MountainWest acquisition) through netMountainWest. Other impacts included proceeds of $452 million from the issuance of common stock in an underwritten public offeringofferings in each period ($200 million lower than in the current year. Proceeds2022 period), and proceeds from other equity issuances bySouthwest Gas Holdings entering into a $550 million Term Loan Credit Agreement in April 2023. A substantial portion of the holding company were nominal in 2022 (and those in 2021term loan proceeds were contributed to Southwest). Furthermore, while debt proceeds were receivedSouthwest as equity, which in turn was primarily used by Southwest’s March 2022 issuance of $600 million in notes, it also redeemed, in February 2022, $25 million 7.78% series Medium-term notes then maturing, as well as $250 million in notes maturing in April 2022. Southwest also repaid (during 2022) $25 million of amounts outstanding on the March 2021 Term Loan utilizedto repay term loan indebtedness entered into to finance an escalation in purchased gas costs. Other financing cash flows include borrowings and repayments, including under the gas cost runup in 2021, and paid down the balance existing at the time under itscompanies’ credit facility. The Company had higher borrowings under its credit facility in the current period given its expenditures for shareholder activism and settlement activities, along with the Strategic Review. Centuri’s line of credit and term loan facility borrowings during the first nine months of 2021 exceeded amounts in the current period. Dividends paid in 2022 were higher than during the comparative period in 2021.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.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
Southwest Gas Corporation:
Operating Cash Flows. Cash flows provided byfrom operating activities increased $214decreased $76 million in the first nine 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 togas purchases, including amounts incurred and deferred purchased gas costs (described above), as well as toand other working capital changes. Gas costs incurred were higher in both periods compared to earlier recent historical periods, and while gas costs incurred in the first nine months of 2022 were higher than during 2021, collections from customers in the 2022 period were substantially higher than collections during the nine-month period of 2021, which includes the effects of when gas costs are incorporated into customer rates.balances (as discussed above).
Investing Cash Flows. Cash used in investing activities increased $56$124 million in the first nine months of 20222023 as compared to the same period of 2021.2022. The change was primarily due to increases in capital expenditures in 2022, partly offset by an increase in collection of2023 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, Debt Maturities, and Financing below.
Financing Cash Flows. Net cash provided by financing activities decreased $253activities increased $233 million in the first nine months of 20222023 as compared to the same period of 2021.2022. The declineincrease was primarily due to the impacts cited above, including that the 2021 period included proceeds to finance gas purchases during Winter Storm Uri; by comparison, in 2022, financing proceeds were utilized to repay other amounts due. As indicated, Southwest issued $600$530 million in notes inparent capital contributions, offset by the first quarter$225 million repayment of 2022, and paid down amounts then outstanding under its credit facility and redeemed $250 million in notes maturing in April 2022. Southwest also redeemed $25 million 7.78% series Medium-term notes that matured in February 2022, and $25 million of amounts outstanding under the March 2021 Term Loan usedLoan. A $450 million term loan in January 2023 to fund increasedfinance the escalation in purchased gas purchased costs duringcost (noted above) was repaid following the 2021 freeze event. It also borrowed additional amounts under its credit facility during 2022 (after having paid down amounts earlierparent capital contribution in the year), whereas it repaid amounts in 2021. However, during the first nine months of 2021, Southwest issued $300 million in notes.2023. Dividends paid and borrowing and repayment activity, aside from the foregoing, including under the credit facility, comprise the remaining activity between periods. See Note 5 – Debt. Furthermore, parent capital contributions from equity issuances in 2021 have not recurred in 2022, while dividends paid to the parent holding company were higher in the current period.
Natural Gas Distribution Segment Construction Expenditures, Debt Maturities, and Financing
During the twelve-month period ended September 30, 2022,2023, construction expenditures for the natural gas distribution segment were $672$778 million (not including amounts incurred for capital expenditures not yet paid). The majority of these expenditures, represented costsapproximately 55%, were 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, with the remainder related to new construction.
Management estimates natural gas segment construction expenditures during the five-yearthree-year period ending December 31, 20262025 will be approximately $2.5 billion to $3.5$2.0 billion. Of this amount, approximately $650$720 million to $675$740 million is expected to be incurred during calendar year 2022.2023. 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%75% of the funding for gas operations of Southwest and total construction expenditures and dividend requirements. As of September 30, 2022, Southwest had the March 2021 Term Loan with an outstanding balance of $225 million, due in March 2023. Any additionalAdditional cash requirements, including construction-related, and pay down or refinancing of debt, are expected to be provided by existing credit facilities, parent 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 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.
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 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. InIn February 2022,2023, the Board electeddetermined to increasemaintain the quarterly dividend from $0.595 toat $0.62 per share, representing a 4.2% increase, effective with the June 20222023 payment.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
Liquidity
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 September 30, 2022,2023, the combined balance in the PGA accounts totaled an under-collection of $381687 million. See PGA Filings for more information.
In March 2022, Southwest amended the $250 million March 2021 Term Loan, extending the maturity date to March 21, 2023. As noted above, the proceeds were originally used to fund the increased cost The market price of natural gas supply during the month of February 2021 caused by extreme weather conditions in the central U.S. The March 2021 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. At September 30, 2022, there was $225 million outstanding under the March 2021 Term Loan.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 September 30, 2023, $57.5 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 nine months of 2022 was2023 was $150 million. The maximum amount outstanding on the short-term portion of the credit facility
during the first nine months of 20222023 was $85 million. As of$75 million. At September 30, 2022, $138 million was2023, no borrowings were outstanding on either the long-term portionlong-term or short-term portions of this credit facility and none was outstanding on the short-term portion.facility. The credit 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.
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 September 30, 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.financing. The term loanloan 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 September 30, 20222023 totaled $2.6 billion. The maximum amount outstanding on the combined facility during the first nine months of 20222023 was $1.21.184 billion. As of September 30, 2022,2023, $151144 million was outstanding on the revolving credit facility, in addition to $1.0091 billion that was outstanding on the term loan portion of the facility. Also at September 30, 2022,2023, there was approximately $186$180 million, net ofof letters of credit, availableavailable for borrowing under the line of credit.
On November 4, 2022, Centuri amendedIn the financial covenantsfirst quarter of 2023, the revolving credit facility to increaseCompany paid off (primarily with proceeds from the maximum total net leverage ratio duringMountainWest sale) the period from December 31, 2022 through December 31, 2023. The Credit Facility Amendment also transitionedremaining balance on the interest rate benchmark for the revolving credit facility from LIBOR to SOFR. The applicable margin for the revolving credit facility now ranges from 1.0% to 2.5% for SOFR loans and from 0.0% to 1.5% for CDOR and “base rate” loans, depending on Centuri’s total net leverage ratio. Further, the Credit Facility Amendment increases a letter of credit sub-facility from $100 million to $125 million. The Credit Facility Amendment did not modify any terms of the$1.6 billion term loan facility.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
Southwest Gas Holdings, Inc. has a credit facility with a borrowing capacity of $200 million that expires in December 2026. This facility is intended for short-term financing needs. At September 30, 2022, $156 million was outstanding under this facility.
In November 2021, the Company 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. In March 2022, the Company used net proceeds from the issuance of common stock (see below) to repay a portion of borrowings under the Term Loan Facility. On September 26, 2022 (the “Amendment Date”), the Company entered into Amendment No. 1 to the Term Loan Facility. The Amendment, among other things, (1) extended the maturity date of the Term Loan to December 30, 2023, and (2) replaced LIBOR interest rate benchmarks with SOFR interest rate benchmarks. There was $1.15 billion outstanding under this Term Loan Facility as of September 30, 2022. As part of the Amendment, the Company paid a non-refundable upfront fee in an amount equal to 0.10% of the aggregate principal amount outstanding as of the Amendment Date, and will pay additional fees based on any principal balance outstanding on March 31, 2023, June 30, 2023, and September 30, 2023 of 0.10%, 0.15%, and 0.20%, respectively. Management intends to pay off the remainder of the Term Loan Facility through the issuance of long-term debt or equity securities or using the proceeds from a sale of MountainWest and/or Centuri. 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 6.3254.1 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 Facility that was used to initially fundterm loan entered into in connection with the MountainWest acquisition.acquisition, and 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 was no activity under this multi-year program during the third 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 million available under the program as of September 30, 2022.2023. See Note 4 – Common Stock for more information.
Interest rates for Centuri’s term loan contain LIBOR-based rates. Certain LIBOR-based rates were discontinued as a benchmark or reference rate after 2021, while other LIBOR-based rates are scheduled to be discontinued after June 2023. As of September 30, 2022, the Company had $1.009 billion in aggregate outstanding borrowings under Centuri’s term loan facility. In order to mitigate the 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. Any 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,” “pursue,” and similar words and expressions are generally used and intended to identify forward-looking statements. For example, statements regarding plans to review strategic alternatives to maximize stockholder value, refinance near-term maturities, to separate from Centuri, by means of an IPO or other entitiesa spin-off from the Company, other means or at all, including regarding the timing of any separation of Centuri, 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, replacement market and new construction market, our intent and ability to complete planned acquisitionsthe magnitude of future acquisition or divestitures and at amounts originally set out, impacts from the COVID-19 pandemic, including on our employees, customers,divestiture purchase price true-ups or otherwise, our financial position, revenue, earnings, cash flows, debt covenants, operations, regulatory recovery, work deployment or resumption and related uncertainties stemming from this pandemic or otherwise, expected impacts of valuation adjustments associated with any redeemable noncontrollingpost-closing payments
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
interest,and related impairments or losses related thereto, replacement market and new construction market, impacts from pandemics, including on our employees, customers, business, financial position, earnings, bad debt expense, work deployment and related uncertainties, expected impacts of valuation adjustments associated with any redeemable noncontrolling interests, the profitability of storm work, mix of work, or absorption of fixed costs by larger infrastructure services customers including Southwest,(including Southwest), the impacts of U.S. tax reform including disposition in any regulatory proceeding and bonus depreciation tax deductions, plans and expectations regarding the tax treatment of a separation of Centuri, the impact of recentany 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 COYL 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, indemnifications, or commitments related thereto, and their impacts to impairments, write-downs, or losses or expenses generally, the impacts of COVID-19pandemics including that which may result from a continued or resumed restriction by government officials or otherwise, including impacts on employment in our territories, impacts related to supply chains, the health impacts to our customers and employees, due to 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 related costs, 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, 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 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 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, impacts of other tax regulations, variability in volume of gas or transportation service sold to customers, changes in gas procurement practices, and prices, impacts of inflation, 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 divestitures 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 separation, the impact on our stock price or our credit ratings due to undertaking or failing to undertake acquisition or divestiture activityactivities or other strategic endeavors, impacts by divestiture or otherwise in the event the fair value of one or more reporting units/segments, components thereof, or other assets, are below their carrying values, the impact on our stock price, costs, or businesses from agreements,
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
actions or disruptions or 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.assets, and optimization initiatives. 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, and as updated in quarterly reports, including in association with this Quarterly Report on Form 10-Q.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 September 30, 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.
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 third 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 and dismissed litigation, including litigation filed by certain stockholders and by funds managed by Carl C. Icahn.
ITEM 1A. RISK FACTORS
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, andbut does not replace, the Risk Factors and other disclosures made in our Annual Report on Form 10-K filed March 1, 2022 andFebruary 28, 2023 or in our Quarterly Reports on Form 10-Q filed May 10, 20229, 2023 and August 9, 2022.2023.
Operational Risks
CertainOur options for separating Centuri may be limited by market conditions and tax considerations.Any separation transaction of our costs, such as operating expenses (including labor, fuel,Centuri may not occur on the anticipated timeline and materials) at Southwest, Centuri, and MountainWest, and interest and general and administrative expenses at all three segments andmay not have the Company could be adversely impacted by periods of heightened inflation, which could have an adverse impact on our results of operations.anticipated benefits.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
In recent months,On December 15, 2022, we announced our intention to pursue a spin-off of Centuri into an independent publicly-traded company, subject to the consumer price index has increased substantiallysatisfaction of certain conditions, including receipt of favorable rulings from the IRS and mayreceipt of other regulatory approvals. On September 22, 2023, we announced that Centuri Holdings had confidentially submitted a draft registration statement with respect to an initial public offering of its shares of common stock (the “Centuri IPO”). On November 6, 2023, we announced that the IRS had advised us that it had exercised its discretion not to rule on certain tax questions related to a potential spin-off of Centuri due to the fact-intensive nature of the questions presented. We remain committed to separating Centuri and continue to remain at elevated levelsassess the value of a potential tax-free spin-off of Centuri, either following, or in lieu of, a potential initial public offering by Centuri. Following a Centuri IPO, if one occurs, we intend to maintain the flexibility to dispose of our interests in a number of ways, including through a spin-off transaction, open market sales of Centuri Holdings common stock or an exchange offer of our common stock for an extended periodCenturi Holdings common stock.
A Centuri IPO may not occur for a number of time. Federal policiesreasons, including, but not limited to, adverse market conditions, negative investor feedback or declines in business performance.If the Centuri IPO does not occur, our options for separating Centuri will be limited, and recent global events,we may be forced to pursue a spin-off of Centuri even if such spin-off may be taxable to us.
While we intend that any spin-off transaction, if effected, will qualify as a tax-free transaction to our stockholders, the volatility in pricesability to effect a tax-free spin-off to the Company (as opposed to our stockholders) could be lost if a 355 Ownership Change occurs within applicable time periods for purposes of oilSection 355(e) of the Internal Revenue Code. We have taken certain actions, including the adoption of the Plan, to help preserve the tax-free nature of any spin-off transaction. However, we can provide no assurance that such actions will ultimately permit us to complete a spin-off that is tax-free to us or that our existing net operating losses will fully offset the impact of any spin-off that is taxable to us.
In addition, if we pursue a spin-off of Centuri without a Centuri IPO, we or Centuri may not realize any cash proceeds from a separation, which may cause us to pay transaction expenses and natural gas,taxes, if applicable, out of cash on hand, to the extent available, or to incur additional indebtedness, and the conflict between Russia and Ukraine, may have exacerbated, and maywould likely cause Centuri to continue to exacerbate, increases in the consumer price index. In addition, during periods of rising inflation, variable interest rates and the interest rates of any debt securitieshave significant outstanding indebtedness. If we Southwest, MountainWest,are required to seek additional third-party financing either for us or for Centuri issue will likely be higher than more recent debt issuances, which will further tend to reduce returns to our stockholders. A sustained or further increase in inflation could have a material adverse impact on our operating expenses incurred in connection with among others,a spin-off, it may delay the costtiming of natural gas supply, labor, products,the transaction.
Executing the proposed separation also requires significant time and services required for operations, maintenanceattention from management, which could distract them from other tasks in operating our business and capital improvements at Southwestdisrupt our operations. We cannot provide assurances that the Centuri IPO and MountainWest,the other transactions described above, if consummated, will yield greater net benefits to the Company and fuel, labor, and materials costs atits shareholders than if the Centuri as well as general administrative expenses for all three segments.
With regard to Southwest, rate schedules in each of its service territories contain purchased gas adjustment clauses which permit Southwest to file for rate adjustments to recover increases in the cost of purchased gas. Increases in the cost of purchased gas have no direct impact on our profit margins but do affect cash flows and can therefore impact the amount of our capital resources. In order to help cope with the effects of inflation on its operations, Southwest may file requests for rate increases to cover the increased cost of purchased gas IPO and/or other typestransactions described above had not occurred. If we fail to achieve some or all of expenditures noted above. However, there can be no assurance that Southwest will be ablethe benefits expected to obtain adequate and timely rate relief to offsetresult from the effects of inflation and any non-recovery of costs or regulatory lag will reduce our cash flows and earnings. As a result, during inflationary periods in which the inflation rate exceeds the rate increases applicable to purchased gas, Centuri IPO and/or other types of expenditures, we may not adequately mitigate the impact of inflation, which may adversely affectpotential separation transactions described above, or if such benefits are delayed, our business, operating results and financial condition results of operations, and cash flows.
Additionally, inflationary pricing has had and may continue to have a negative effect on the construction costs necessary to complete projects at Centuri, particularly with respect to fuel, labor, and materials costs discussed above. Centuri is experiencing pressures on fuel, materials, and certain labor costs as a result of the inflationary environment and current general labor shortage, which has resulted in increased competition for skilled labor and wage inflation. Centuri has not been able to, and may not be able to, fully adjust its contract pricing to compensate for these cost increases, which has affected, and may continue to affect, Centuri’s profitability and cash flows. Inflationary pressures and related recessionary concerns in light of governmental and central bank efforts to mitigate inflation could also cause uncertainty for Centuri’s customers and affect the level of their project activity, which could also adversely affect Centuri’s profitability and cash flows.
As inflation persists, the Federal Reserve has and may continue to raise benchmark interest rates, which likely will cause our borrowing costs to increase over time. As a result of the inflationary factors discussed above affecting the Company, Southwest, MountainWest, and Centuri, our business, financial condition, results of operations, cash flows, and liquidity could be materially and adversely affected over time.affected.
ITEMSITEM 2through 3. None.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable.
ITEM 5. OTHER INFORMATION None.
During the fiscal quarter ended September 30, 2023, none of our directors or Section 16 officers informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.
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SOUTHWEST GAS HOLDINGS, INC. | | Form 10-Q |
SOUTHWEST GAS CORPORATION | | September 30, 2022 |
ITEM 6. EXHIBITS
The following documents are filed, or furnished, as applicable, as part of this report on Form 10-Q: | | | | | | | | | | | | | | |
Exhibit 10.13.1 | - | Amendment No. 1 to the 364-Day Term Loan Credit Agreement, dated November 1, 2021, Amended and Restated Bylaws of Southwest Gas Holdings, Inc., effective Octoberwith the lenders party thereto, JPMorgan Chase Bank, N.A, as Administrative Agent, Bank of America, N.A. as Syndication Agent, JPMorgan Chase Bank, N.A. and BofA Securities, Inc. as Joint Lead Arranger and Joint Bookrunner, and MUFG Bank, Ltd. as Documentation Agent. Incorporated 20,2023. Incorporated herein by reference to Exhibit 10.1 to Form 8-K dated September 29, 2022, File No. 001-37976. | | |
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Exhibit 10.2 | - | | | |
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Exhibit 10.3 | - | |
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Exhibit 3.2 | | |
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Exhibit 10.4#4.1 | - | |
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Exhibit 10.01# | | |
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Exhibit 10.02# | | |
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Exhibit 31.01# | - | | | |
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Exhibit 31.02# | - | | | |
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Exhibit 32.01# | - | | | |
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Exhibit 32.02# | - | | | |
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Exhibit 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 September 30, 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# | | 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 | | September 30, 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: November 9, 20228, 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: November 9, 20228, 2023
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/s/ LORI L. COLVIN |
Lori L. Colvin |
Vice President/Controller and Chief Accounting Officer |