EXHIBIT 99.2
SOUTHWEST GAS CORPORATION
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
Southwest Gas Corporation historically consisted of two segments: natural gas utility operations and construction services. In 2015, the Board of Directors (“Board”) of Southwest Gas Corporation authorized management to evaluate and pursue a holding company reorganization (“Reorganization”) to provide further separation between regulated utility operations and unregulated construction services businesses, and to provide additional financing flexibility. In connection with the Reorganization plans, a new holding company, Southwest Gas Holdings, Inc. (“SWG Holdings”) was created. In January 2017, SWG Holdings implemented the Reorganization, which consisted of converting each outstanding share of Southwest Gas Corporation common stock into a share of common stock of SWG Holdings and adjusting the corporate structure hierarchy of construction services. Following the Reorganization, Southwest Gas Corporation became a wholly owned subsidiary of publicly traded SWG Holdings, and Southwest Gas Corporation’s 96.6% interest in Centuri Construction Group (“Centuri”) was transferred to SWG Holdings. Thus, Centuri and Southwest Gas Corporation became subsidiaries of SWG Holdings, but Centuri was no longer a subsidiary of Southwest Gas Corporation. Shareholders of Southwest Gas Corporation immediately prior to consummation of the Reorganization own the same relative percentages of SWG Holdings upon consummation of the Reorganization. All of Southwest Gas Corporation’s outstanding debt securities (not associated with Centuri) at the time of the Reorganization remained at the Southwest Gas Corporation utility entity (“Southwest Gas”). Construction services debt outstanding would continue to be obligations solely of Centuri. After the Reorganization, debt securities could be issued by SWG Holdings, Southwest Gas, or Centuri.
Regulatory applications for preapproval of the Reorganization were filed with the Arizona Corporation Commission, the California Public Utilities Commission, and the Public Utilities Commission of Nevada in 2015. Approvals were received from all three state regulatory commissions in the first half of 2016 and final Board approval was announced on December 28, 2016. The completion of the holding company component of the Reorganization became effective January 1, 2017, and the transfer of Centuri to SWG Holdings was effective on January 3, 2017. The consolidated financial statements of SWG Holdings will reflect the same consolidated activities as the predecessor company. However, the financial statements of Southwest Gas (utility operations) will no longer reflect the activities of Centuri, and the outstanding debt securities (not associated with Centuri) at the time of the Reorganization will be obligations of Southwest Gas and not separate obligations of Centuri or SWG Holdings.
The following unaudited pro forma condensed financial statements for Southwest Gas (utility operations) are based on historical consolidated financial statements of Southwest Gas Corporation, as adjusted to reflect the Reorganization (i.e., the transfer of Centuri to SWG Holdings and that Centuri is no longer a subsidiary of Southwest Gas). The unaudited pro forma condensed statements of income for the nine months ended September 30, 2016 and each of the three years ended December 31, 2015, 2014, and 2013 give effect to the Reorganization as if it had occurred on January 1, 2013. The unaudited pro forma condensed balance sheet as of September 30, 2016 gives effect to the Reorganization as if it had occurred as of September 30, 2016.
The assumptions underlying the unaudited adjustments to the pro forma condensed financial statements are described in the accompanying notes, which should be read together with the pro forma condensed financial statements.
1
Southwest Gas Corporation
Unaudited Pro Forma Condensed Balance Sheet
As of September 30, 2016
(Thousands of dollars, except par value)
Registrant Historical | Adjustments | Note 2 | Pro Forma | |||||||||||||
ASSETS | ||||||||||||||||
Utility plant: | ||||||||||||||||
Gas plant | $ | 6,118,900 | $ | — | $ | 6,118,900 | ||||||||||
Less: accumulated depreciation | (2,158,099 | ) | — | (2,158,099 | ) | |||||||||||
Acquisition adjustments, net | 234 | — | 234 | |||||||||||||
Construction work in progress | 105,847 | — | 105,847 | |||||||||||||
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Net utility plant | 4,066,882 | — | 4,066,882 | |||||||||||||
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Other property and investments | 348,565 | (241,786 | ) | (a) | 106,779 | |||||||||||
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Current assets: | ||||||||||||||||
Cash and cash equivalents | 85,154 | (7,082 | ) | (a) | 78,072 | |||||||||||
Accounts receivable, net of allowances | 286,696 | (225,799 | ) | (a) | 60,897 | |||||||||||
Accrued utility revenue | 33,000 | — | 33,000 | |||||||||||||
Income taxes receivable, net | 38,369 | (5,462 | ) | (a) | 32,907 | |||||||||||
Prepaids and other current assets | 101,081 | (13,410 | ) | (a) | 87,671 | |||||||||||
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Total current assets | 544,300 | (251,753 | ) | 292,547 | ||||||||||||
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Noncurrent assets: | ||||||||||||||||
Goodwill | 142,439 | (132,344 | ) | (a) | 10,095 | |||||||||||
Deferred income taxes | 783 | (783 | ) | (a) | — | |||||||||||
Deferred charges and other assets | 429,827 | (14,618 | ) | (a) | 415,209 | |||||||||||
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Total noncurrent assets | 573,049 | (147,745 | ) | 425,304 | ||||||||||||
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Total assets | $ | 5,532,796 | $ | (641,284 | ) | $ | 4,891,512 | |||||||||
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CAPITALIZATION AND LIABILITIES | ||||||||||||||||
Capitalization: | ||||||||||||||||
Common stock, $1 par (authorized - 60,000,000 shares; issued and outstanding - 47,482,068 shares) | $ | 49,112 | $ | — | $ | 49,112 | ||||||||||
Additional paid-in capital | 901,966 | (5,777 | ) | (a) | 896,189 | |||||||||||
Accumulated other comprehensive income (loss), net | (46,300 | ) | 1,932 | (a) | (44,368 | ) | ||||||||||
Retained earnings | 720,401 | (176,101 | ) | (a) | 544,300 | |||||||||||
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Total Southwest Gas Corporation equity | 1,625,179 | (179,946 | ) | 1,445,233 | ||||||||||||
Noncontrolling interest | (2,263 | ) | 2,263 | (a) | — | |||||||||||
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Total equity | 1,622,916 | (177,683 | ) | 1,445,233 | ||||||||||||
Redeemable noncontrolling interest | 17,379 | (17,379 | ) | (a) | — | |||||||||||
Long-term debt, less current maturities | 1,592,946 | (222,938 | ) | (a) | 1,370,008 | |||||||||||
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Total capitalization | 3,233,241 | (418,000 | ) | 2,815,241 | ||||||||||||
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Commitments and contingencies | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current maturities of long-term debt | 49,480 | (24,480 | ) | (a) | 25,000 | |||||||||||
Accounts payable | 138,810 | (63,823 | ) | (a) | 74,987 | |||||||||||
Customer deposits | 72,039 | — | 72,039 | |||||||||||||
Income taxes payable, net | 219 | (219 | ) | (a) | — | |||||||||||
Accrued general taxes | 46,323 | — | 46,323 | |||||||||||||
Accrued interest | 20,152 | (625 | ) | 19,527 | ||||||||||||
Deferred purchased gas costs | 123,399 | — | 123,399 | |||||||||||||
Other current liabilities | 162,622 | (74,635 | ) | (a) | 87,987 | |||||||||||
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Total current liabilities | 613,044 | (163,782 | ) | 449,262 | ||||||||||||
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Deferred income taxes and other credits: | ||||||||||||||||
Deferred income taxes and investment tax credits, net | 814,978 | (36,097 | ) | (a) | 778,881 | |||||||||||
Accumulated removal costs | 305,000 | — | 305,000 | |||||||||||||
Other deferred credits and other long-term liabilities | 566,533 | (23,405 | ) | (a) | 543,128 | |||||||||||
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Total deferred income taxes and other credits | 1,686,511 | (59,502 | ) | 1,627,009 | ||||||||||||
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Total capitalization and liabilities | $ | 5,532,796 | $ | (641,284 | ) | $ | 4,891,512 | |||||||||
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See the accompanying notes to the Unaudited Pro Forma Condensed Financial information.
2
Southwest Gas Corporation
Unaudited Pro Forma Condensed Statement of Income
For the nine months ended September 30, 2016
(In thousands, except per share amounts)
Registrant Historical | Adjustments | Note 2 | Pro Forma | |||||||||||||
Operating revenues: | ||||||||||||||||
Gas operating revenues | $ | 980,927 | $ | — | $ | 980,927 | ||||||||||
Construction revenues | 838,038 | (838,038 | ) | (a) | — | |||||||||||
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Total operating revenues | 1,818,965 | (838,038 | ) | 980,927 | ||||||||||||
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Operating expenses: | ||||||||||||||||
Net cost of gas sold | 324,072 | — | 324,072 | |||||||||||||
Operations and maintenance | 301,979 | — | 301,979 | |||||||||||||
Depreciation and amortization | 217,764 | (43,351 | ) | (a) | 174,413 | |||||||||||
Taxes other than income taxes | 39,480 | — | 39,480 | |||||||||||||
Construction expenses | 757,919 | (757,919 | ) | (a) | — | |||||||||||
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Total operating expenses | 1,641,214 | (801,270 | ) | 839,944 | ||||||||||||
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Operating income | 177,751 | (36,768 | ) | 140,983 | ||||||||||||
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Net interest deductions | (54,100 | ) | 4,945 | (a) | (49,155 | ) | ||||||||||
Other income (deductions) | 6,756 | (44 | ) | 6,712 | ||||||||||||
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Total other income and (expenses) | (47,344 | ) | 4,901 | (42,443 | ) | |||||||||||
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Income before income taxes | 130,407 | (31,867 | ) | 98,540 | ||||||||||||
Income tax expense | 43,046 | (12,042 | ) | (a) | 31,004 | |||||||||||
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Net income | 87,361 | (19,825 | ) | 67,536 | ||||||||||||
Net income attributable to noncontrolling interests | 500 | (500 | ) | (a) | — | |||||||||||
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Net income attributable to Southwest Gas Corporation | $ | 86,861 | $ | (19,325 | ) | $ | 67,536 | |||||||||
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Basic earnings per share | $ | 1.83 | N/A | N/A | ||||||||||||
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Diluted earnings per share | $ | 1.82 | N/A | N/A | ||||||||||||
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Average number of common shares outstanding | 47,464 | N/A | (b) | N/A | ||||||||||||
Average shares outstanding (assuming dilution) | 47,802 | N/A | (b) | N/A |
See the accompanying notes to the Unaudited Pro Forma Condensed Financial information.
3
Southwest Gas Corporation
Unaudited Pro Forma Condensed Statement of Income
For the year ended December 31, 2015
(In thousands, except per share amounts)
Registrant Historical | Adjustments | Note 2 | Pro Forma | |||||||||||
Operating revenues: | ||||||||||||||
Gas operating revenues | $ | 1,454,639 | $ | — | $ | 1,454,639 | ||||||||
Construction revenues | 1,008,986 | (1,008,986 | ) | (a) | — | |||||||||
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Total operating revenues | 2,463,625 | (1,008,986 | ) | 1,454,639 | ||||||||||
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Operating expenses: | ||||||||||||||
Net cost of gas sold | 563,809 | — | 563,809 | |||||||||||
Operations and maintenance | 393,199 | — | 393,199 | |||||||||||
Depreciation and amortization | 270,111 | (56,656 | ) | (a) | 213,455 | |||||||||
Taxes other than income taxes | 49,393 | — | 49,393 | |||||||||||
Construction expenses | 898,781 | (898,781 | ) | (a) | — | |||||||||
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Total operating expenses | 2,175,293 | (955,437 | ) | 1,219,856 | ||||||||||
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Operating income | 288,332 | (53,549 | ) | 234,783 | ||||||||||
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Net interest deductions | (71,879 | ) | 7,784 | (a) | (64,095 | ) | ||||||||
Other income (deductions) | 2,879 | (587 | ) | (a) | 2,292 | |||||||||
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Total other income and (expenses) | (69,000 | ) | 7,197 | (61,803 | ) | |||||||||
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Income before income taxes | 219,332 | (46,352 | ) | 172,980 | ||||||||||
Income tax expense | 79,902 | (18,547 | ) | (a) | 61,355 | |||||||||
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Net income | 139,430 | (27,805 | ) | 111,625 | ||||||||||
Net income attributable to noncontrolling interests | 1,113 | (1,113 | ) | (a) | — | |||||||||
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Net income attributable to Southwest Gas Corporation | $ | 138,317 | $ | (26,692 | ) | $ | 111,625 | |||||||
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Basic earnings per share | $ | 2.94 | N/A | N/A | ||||||||||
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Diluted earnings per share | $ | 2.92 | N/A | N/A | ||||||||||
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Average number of common shares outstanding | 46,992 | N/A | (b) | N/A | ||||||||||
Average shares outstanding (assuming dilution) | 47,383 | N/A | (b) | N/A |
See the accompanying notes to the Unaudited Pro Forma Condensed Financial information.
4
Southwest Gas Corporation
Unaudited Pro Forma Condensed Statement of Income
For the year ended December 31, 2014
(In thousands, except per share amounts)
Registrant Historical | Adjustments | Note 2 | Pro Forma | |||||||||||
Operating revenues: | ||||||||||||||
Gas operating revenues | $ | 1,382,087 | $ | — | $ | 1,382,087 | ||||||||
Construction revenues | 739,620 | (739,620 | ) | (a) | — | |||||||||
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Total operating revenues | 2,121,707 | (739,620 | ) | 1,382,087 | ||||||||||
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Operating expenses: | ||||||||||||||
Net cost of gas sold | 505,356 | — | 505,356 | |||||||||||
Operations and maintenance | 383,732 | — | 383,732 | |||||||||||
Depreciation and amortization | 253,027 | (48,883 | ) | (a) | 204,144 | |||||||||
Taxes other than income taxes | 47,252 | — | 47,252 | |||||||||||
Construction expenses | 647,857 | (647,857 | ) | (a) | — | |||||||||
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Total operating expenses | 1,837,224 | (696,740 | ) | 1,140,484 | ||||||||||
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Operating income | 284,483 | (42,880 | ) | 241,603 | ||||||||||
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Net interest deductions | (72,069 | ) | 3,770 | (a) | (68,299 | ) | ||||||||
Other income (deductions) | 7,107 | 58 | (a) | 7,165 | ||||||||||
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Total other income and (expenses) | (64,962 | ) | 3,828 | (61,134 | ) | |||||||||
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Income before income taxes | 219,521 | (39,052 | ) | 180,469 | ||||||||||
Income tax expense | 78,373 | (14,776 | ) | (a) | 63,597 | |||||||||
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Net income | 141,148 | (24,276 | ) | 116,872 | ||||||||||
Net income attributable to noncontrolling interests | 22 | (22 | ) | (a) | — | |||||||||
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Net income attributable to Southwest Gas Corporation | $ | 141,126 | $ | (24,254 | ) | $ | 116,872 | |||||||
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Basic earnings per share | $ | 3.04 | N/A | N/A | ||||||||||
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Diluted earnings per share | $ | 3.01 | N/A | N/A | ||||||||||
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Average number of common shares outstanding | 46,494 | N/A | (b) | N/A | ||||||||||
Average shares outstanding (assuming dilution) | 46,944 | N/A | (b) | N/A |
See the accompanying notes to the Unaudited Pro Forma Condensed Financial information.
5
Southwest Gas Corporation
Unaudited Pro Forma Condensed Statement of Income
For the year ended December 31, 2013
(In thousands, except per share amounts)
Registrant Historical | Adjustments | Note 2 | Pro Forma | |||||||||||||
Operating revenues: | ||||||||||||||||
Gas operating revenues | $ | 1,300,154 | $ | — | $ | 1,300,154 | ||||||||||
Construction revenues | 650,628 | (650,628 | ) | (a) | — | |||||||||||
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Total operating revenues | 1,950,782 | (650,628 | ) | 1,300,154 | ||||||||||||
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Operating expenses: | ||||||||||||||||
Net cost of gas sold | 436,001 | — | 436,001 | |||||||||||||
Operations and maintenance | 384,914 | — | 384,914 | |||||||||||||
Depreciation and amortization | 236,817 | (42,969 | ) | (a) | 193,848 | |||||||||||
Taxes other than income taxes | 45,551 | — | 45,551 | |||||||||||||
Construction expenses | 573,284 | (573,284 | ) | (a) | — | |||||||||||
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Total operating expenses | 1,676,567 | (616,253 | ) | 1,060,314 | ||||||||||||
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Operating income | 274,215 | (34,375 | ) | 239,840 | ||||||||||||
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Net interest deductions | (63,700 | ) | 1,145 | (a) | (62,555 | ) | ||||||||||
Other income (deductions) | 12,300 | (39 | ) | (a) | 12,261 | |||||||||||
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Total other income and (expenses) | (51,400 | ) | 1,106 | (50,294 | ) | |||||||||||
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Income before income taxes | 222,815 | (33,269 | ) | 189,546 | ||||||||||||
Income tax expense | 77,942 | (12,565 | ) | (a) | 65,377 | |||||||||||
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Net income | 144,873 | (20,704 | ) | 124,169 | ||||||||||||
Net income attributable to noncontrolling interests | (447 | ) | 447 | (a) | — | |||||||||||
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Net income attributable to Southwest Gas Corporation | $ | 145,320 | $ | (21,151 | ) | $ | 124,169 | |||||||||
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Basic earnings per share | $ | 3.14 | N/A | N/A | ||||||||||||
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Diluted earnings per share | $ | 3.11 | N/A | N/A | ||||||||||||
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Average number of common shares outstanding | 46,318 | N/A | (b) | N/A | ||||||||||||
Average shares outstanding (assuming dilution) | 46,758 | N/A | (b) | N/A |
See the accompanying notes to the Unaudited Pro Forma Condensed Financial information.
6
Note 1 — Basis of Presentation
The unaudited pro forma condensed financial statements for Southwest Gas (utility operations) are based on historical consolidated financial statements of Southwest Gas Corporation, as adjusted to reflect the Reorganization (i.e., the transfer of Centuri to SWG Holdings and that Centuri is no longer a subsidiary of Southwest Gas). The unaudited pro forma condensed statements of income for the nine months ended September 30, 2016 and each of the three years ended December 31, 2015, 2014, and 2013 give effect to the Reorganization as if it had occurred on January 1, 2013. The unaudited pro forma condensed balance sheet as of September 30, 2016 gives effect to the Reorganization as if it had occurred as of September 30, 2016. The historical consolidated financial statements have been adjusted in the pro forma condensed financial statements to reflect that Centuri will no longer be a subsidiary of Southwest Gas and that Southwest Gas will be a wholly owned subsidiary of Southwest Gas Holdings, Inc. The adjustments are directly attributable to the holding company reorganization.
The pro forma financial statements may not be useful in predicting the future financial condition and results of operations of Southwest Gas. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. Dividends historically paid by Southwest Gas through the Balance Sheet date presented above continue to be reflected in retained earnings on a pro forma basis for Southwest Gas, as management would expect that the process of holding company dividend declaration and payment (associated with holders of shares in the holding company subsequent to the one-for-one conversion) would occur coincident with comparable dividends paid by Southwest Gas to its sole shareholder (the parent holding company) in association with a holding company structure.
Note 2 – Pro Forma Adjustments
The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
(a) | Adjustment to reflect the elimination of Centuri as a subsidiary of Southwest Gas and elimination of the noncontrolling interests associated with construction services activities. |
(b) | Adjustment to reflect that Southwest Gas will be a wholly owned subsidiary of SWG Holdings and that Southwest Gas stock will not be publicly traded. |
7