Southwest Gas Holdings, Inc. - Quarter Report: 2020 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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 | |||||
5241 Spring Mountain Road | ||||||||
Post Office Box 98510 | ||||||||
Las Vegas, | Nevada | 89193-8510 | ||||||
(702) | 876-7237 | |||||||
1-7850 | Southwest Gas Corporation | California | 88-0085720 | |||||
5241 Spring Mountain Road | ||||||||
Post Office Box 98510 | ||||||||
Las Vegas, | Nevada | 89193-8510 | ||||||
(702) | 876-7237 |
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 |
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, or 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.:
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Southwest Gas Corporation:
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether each registrant is a shell company (as defined in 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, 55,129,976 shares as of April 30, 2020.
All of the outstanding shares of common stock ($1 par value) of Southwest Gas Corporation were held by Southwest Gas Holdings, Inc. as of April 30, 2020.
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).
1 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
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.
2 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except par value)
(Unaudited)
March 31, 2020 | December 31, 2019 | |||||||
ASSETS | ||||||||
Utility plant: | ||||||||
Gas plant | $ | 7,949,283 | $ | 7,813,221 | ||||
Less: accumulated depreciation | (2,341,561 | ) | (2,313,050 | ) | ||||
Construction work in progress | 202,935 | 185,026 | ||||||
Net utility plant | 5,810,657 | 5,685,197 | ||||||
Other property and investments | 785,522 | 784,173 | ||||||
Current assets: | ||||||||
Cash and cash equivalents | 60,965 | 49,539 | ||||||
Accounts receivable, net of allowances | 423,013 | 474,097 | ||||||
Accrued utility revenue | 48,100 | 79,100 | ||||||
Income taxes receivable, net | 7,503 | 31,751 | ||||||
Deferred purchased gas costs | — | 44,412 | ||||||
Prepaid and other current assets | 133,338 | 180,957 | ||||||
Total current assets | 672,919 | 859,856 | ||||||
Noncurrent assets: | ||||||||
Goodwill | 333,943 | 343,023 | ||||||
Deferred income taxes | 765 | 856 | ||||||
Deferred charges and other assets | 489,419 | 496,943 | ||||||
Total noncurrent assets | 824,127 | 840,822 | ||||||
Total assets | $ | 8,093,225 | $ | 8,170,048 | ||||
CAPITALIZATION AND LIABILITIES | ||||||||
Capitalization: | ||||||||
Common stock, $1 par (authorized - 120,000,000 shares; issued and outstanding - 55,126,386 and 55,007,433 shares) | $ | 56,756 | $ | 56,637 | ||||
Additional paid-in capital | 1,470,411 | 1,466,937 | ||||||
Accumulated other comprehensive loss, net | (59,073 | ) | (56,732 | ) | ||||
Retained earnings | 1,079,801 | 1,039,072 | ||||||
Total equity | 2,547,895 | 2,505,914 | ||||||
Redeemable noncontrolling interest | 85,005 | 84,542 | ||||||
Long-term debt, less current maturities | 2,310,084 | 2,300,482 | ||||||
Total capitalization | 4,942,984 | 4,890,938 | ||||||
Current liabilities: | ||||||||
Current maturities of long-term debt | 169,574 | 163,512 | ||||||
Short-term debt | 157,000 | 211,000 | ||||||
Accounts payable | 182,182 | 238,921 | ||||||
Customer deposits | 69,938 | 69,165 | ||||||
Income taxes payable, net | — | 2,069 | ||||||
Accrued general taxes | 73,105 | 48,160 | ||||||
Accrued interest | 34,755 | 21,329 | ||||||
Deferred purchased gas costs | 26,498 | 60,755 | ||||||
Other current liabilities | 266,763 | 264,950 | ||||||
Total current liabilities | 979,815 | 1,079,861 | ||||||
Deferred income taxes and other credits: | ||||||||
Deferred income taxes and investment tax credits, net | 624,888 | 599,840 | ||||||
Accumulated removal costs | 399,000 | 395,000 | ||||||
Other deferred credits and other long-term liabilities | 1,146,538 | 1,204,409 | ||||||
Total deferred income taxes and other credits | 2,170,426 | 2,199,249 | ||||||
Total capitalization and liabilities | $ | 8,093,225 | $ | 8,170,048 |
The accompanying notes are an integral part of these statements.
3 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31, | Twelve Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Operating revenues: | ||||||||||||||||
Gas operating revenues | $ | 502,827 | $ | 520,677 | $ | 1,351,089 | $ | 1,384,092 | ||||||||
Utility infrastructure services revenues | 333,493 | 312,862 | 1,771,609 | 1,575,130 | ||||||||||||
Total operating revenues | 836,320 | 833,539 | 3,122,698 | 2,959,222 | ||||||||||||
Operating expenses: | ||||||||||||||||
Net cost of gas sold | 160,821 | 192,604 | 353,381 | 426,260 | ||||||||||||
Operations and maintenance | 103,781 | 106,245 | 421,686 | 410,287 | ||||||||||||
Depreciation and amortization | 87,653 | 77,539 | 313,351 | 264,273 | ||||||||||||
Taxes other than income taxes | 16,378 | 16,206 | 62,500 | 60,847 | ||||||||||||
Utility infrastructure services expenses | 319,314 | 300,465 | 1,592,076 | 1,429,202 | ||||||||||||
Total operating expenses | 687,947 | 693,059 | 2,742,994 | 2,590,869 | ||||||||||||
Operating income | 148,373 | 140,480 | 379,704 | 368,353 | ||||||||||||
Other income and (expenses): | ||||||||||||||||
Net interest deductions | (28,380 | ) | (26,397 | ) | (111,209 | ) | (100,437 | ) | ||||||||
Other income (deductions) | (20,770 | ) | 6,839 | (17,524 | ) | (6,253 | ) | |||||||||
Total other income and (expenses) | (49,150 | ) | (19,558 | ) | (128,733 | ) | (106,690 | ) | ||||||||
Income before income taxes | 99,223 | 120,922 | 250,971 | 261,663 | ||||||||||||
Income tax expense | 26,218 | 25,538 | 56,703 | 62,921 | ||||||||||||
Net income | 73,005 | 95,384 | 194,268 | 198,742 | ||||||||||||
Net income attributable to noncontrolling interests | 463 | 575 | 2,599 | 747 | ||||||||||||
Net income attributable to Southwest Gas Holdings, Inc. | $ | 72,542 | $ | 94,809 | $ | 191,669 | $ | 197,995 | ||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 1.31 | $ | 1.78 | $ | 3.50 | $ | 3.91 | ||||||||
Diluted | $ | 1.31 | $ | 1.77 | $ | 3.50 | $ | 3.91 | ||||||||
Weighted average shares: | ||||||||||||||||
Basic | 55,310 | 53,369 | 54,726 | 50,640 | ||||||||||||
Diluted | 55,363 | 53,424 | 54,792 | 50,701 |
The accompanying notes are an integral part of these statements.
4 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands of dollars)
(Unaudited)
Three Months Ended March 31, | Twelve Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net income | $ | 73,005 | $ | 95,384 | $ | 194,268 | $ | 198,742 | ||||||||
Other comprehensive income (loss), net of tax | ||||||||||||||||
Defined benefit pension plans: | ||||||||||||||||
Net actuarial loss | — | — | (54,026 | ) | (15,524 | ) | ||||||||||
Amortization of prior service cost | 220 | 241 | 945 | 1,002 | ||||||||||||
Amortization of net actuarial loss | 7,188 | 4,441 | 20,513 | 23,603 | ||||||||||||
Prior service cost | — | — | (1,426 | ) | — | |||||||||||
Regulatory adjustment | (6,380 | ) | (4,063 | ) | 25,760 | (4,574 | ) | |||||||||
Net defined benefit pension plans | 1,028 | 619 | (8,234 | ) | 4,507 | |||||||||||
Forward-starting interest rate swaps (“FSIRS”): | ||||||||||||||||
Amounts reclassified into net income | 636 | 635 | 2,542 | 2,541 | ||||||||||||
Net forward-starting interest rate swaps | 636 | 635 | 2,542 | 2,541 | ||||||||||||
Foreign currency translation adjustments | (4,005 | ) | 791 | (2,758 | ) | (1,308 | ) | |||||||||
Total other comprehensive income (loss), net of tax | (2,341 | ) | 2,045 | (8,450 | ) | 5,740 | ||||||||||
Comprehensive income | 70,664 | 97,429 | 185,818 | 204,482 | ||||||||||||
Comprehensive income attributable to noncontrolling interests | 463 | 575 | 2,599 | 747 | ||||||||||||
Comprehensive income attributable to Southwest Gas Holdings, Inc. | $ | 70,201 | $ | 96,854 | $ | 183,219 | $ | 203,735 |
The accompanying notes are an integral part of these statements.
5 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
Three Months Ended March 31, | Twelve Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net income | $ | 73,005 | $ | 95,384 | $ | 194,268 | $ | 198,742 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 87,653 | 77,539 | 313,351 | 264,273 | ||||||||||||
Deferred income taxes | 25,309 | 24,923 | 54,548 | 52,736 | ||||||||||||
Changes in current assets and liabilities: | ||||||||||||||||
Accounts receivable, net of allowances | 45,837 | (15,562 | ) | 7,154 | (40,282 | ) | ||||||||||
Accrued utility revenue | 31,000 | 30,200 | (1,100 | ) | 300 | |||||||||||
Deferred purchased gas costs | 10,155 | (67,863 | ) | 19,527 | 25,339 | |||||||||||
Accounts payable | (60,723 | ) | (12,643 | ) | (49,945 | ) | 47,632 | |||||||||
Accrued taxes | 30,377 | 25,400 | 10,220 | (5,331 | ) | |||||||||||
Other current assets and liabilities | 76,453 | 47,848 | 102,742 | (5,582 | ) | |||||||||||
Gains on sale of equipment | (28 | ) | (233 | ) | (5,268 | ) | (1,706 | ) | ||||||||
Changes in undistributed stock compensation | 2,816 | 3,188 | 6,524 | 7,438 | ||||||||||||
Equity AFUDC | (1,061 | ) | (960 | ) | (4,262 | ) | (4,358 | ) | ||||||||
Changes in deferred charges and other assets | 6,495 | (16,328 | ) | 1,772 | (20,221 | ) | ||||||||||
Changes in other liabilities and deferred credits | (55,722 | ) | (2,782 | ) | (65,704 | ) | 17,420 | |||||||||
Net cash provided by operating activities | 271,566 | 188,111 | 583,827 | 536,400 | ||||||||||||
CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||||||||||
Construction expenditures and property additions | (210,655 | ) | (210,662 | ) | (938,141 | ) | (822,034 | ) | ||||||||
Acquisition of businesses, net of cash acquired | — | — | (47,638 | ) | (247,164 | ) | ||||||||||
Changes in customer advances | 5,434 | 3,078 | 21,357 | 13,503 | ||||||||||||
Other | 4,430 | 262 | 19,321 | 3,200 | ||||||||||||
Net cash used in investing activities | (200,791 | ) | (207,322 | ) | (945,101 | ) | (1,052,495 | ) | ||||||||
CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||||||||||
Issuance of common stock, net | 3,148 | 25,879 | 135,215 | 369,061 | ||||||||||||
Dividends paid | (30,006 | ) | (27,602 | ) | (118,531 | ) | (104,003 | ) | ||||||||
Issuance of long-term debt, net | 99,978 | 29,666 | 601,908 | 259,456 | ||||||||||||
Retirement of long-term debt | (75,168 | ) | (31,160 | ) | (257,797 | ) | (247,816 | ) | ||||||||
Change in credit facility and commercial paper | — | — | — | 111,000 | ||||||||||||
Change in short-term debt | (54,000 | ) | 36,000 | (31,000 | ) | 165,500 | ||||||||||
Principal payments on finance lease obligations | (51 | ) | (70 | ) | (193 | ) | (553 | ) | ||||||||
Withholding remittance - share-based compensation | (2,736 | ) | (1,838 | ) | (2,756 | ) | (2,096 | ) | ||||||||
Other | (199 | ) | (53 | ) | (1,422 | ) | (2,460 | ) | ||||||||
Net cash provided by (used in) financing activities | (59,034 | ) | 30,822 | 325,424 | 548,089 | |||||||||||
Effects of currency translation on cash and cash equivalents | (315 | ) | 65 | (222 | ) | (72 | ) | |||||||||
Change in cash and cash equivalents | 11,426 | 11,676 | (36,072 | ) | 31,922 | |||||||||||
Cash and cash equivalents at beginning of period | 49,539 | 85,361 | 97,037 | 65,115 | ||||||||||||
Cash and cash equivalents at end of period | $ | 60,965 | $ | 97,037 | $ | 60,965 | $ | 97,037 | ||||||||
SUPPLEMENTAL INFORMATION: | ||||||||||||||||
Interest paid, net of amounts capitalized | $ | 13,073 | $ | 15,850 | $ | 99,481 | $ | 89,118 | ||||||||
Income taxes paid (received), net | $ | (20,064 | ) | $ | 454 | $ | (17,766 | ) | $ | (2,743 | ) |
The accompanying notes are an integral part of these statements.
6 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31, | |||||||||
2020 | 2019 | ||||||||
Common stock shares | |||||||||
Beginning balances | 55,007 | 53,026 | |||||||
Common stock issuances | 119 | 365 | |||||||
Ending balances | 55,126 | 53,391 | |||||||
Common stock amount | |||||||||
Beginning balances | $ | 56,637 | $ | 54,656 | |||||
Common stock issuances | 119 | 365 | |||||||
Ending balances | 56,756 | 55,021 | |||||||
Additional paid-in capital | |||||||||
Beginning balances | 1,466,937 | 1,305,769 | |||||||
Common stock issuances | 3,474 | 27,024 | |||||||
Ending balances | 1,470,411 | 1,332,793 | |||||||
Accumulated other comprehensive loss | |||||||||
Beginning balances | (56,732 | ) | (52,668 | ) | |||||
Foreign currency exchange translation adjustment | (4,005 | ) | 791 | ||||||
Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | 1,028 | 619 | |||||||
FSIRS amounts reclassified to net income, net of tax | 636 | 635 | |||||||
Ending balances | (59,073 | ) | (50,623 | ) | |||||
Retained earnings | |||||||||
Beginning balances | 1,039,072 | 944,285 | |||||||
Net income | 72,542 | 94,809 | |||||||
Dividends declared | (31,813 | ) | (29,285 | ) | |||||
Ending balances | 1,079,801 | 1,009,809 | |||||||
Total Southwest Gas Holdings, Inc. equity ending balances | 2,547,895 | 2,347,000 | |||||||
Noncontrolling interest | |||||||||
Beginning balances | — | (452 | ) | ||||||
Ending balances | — | (452 | ) | ||||||
Total equity ending balances | $ | 2,547,895 | $ | 2,346,548 | |||||
Dividends declared per common share | $ | 0.570 | $ | 0.545 |
The accompanying notes are an integral part of these statements.
7 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
March 31, 2020 | December 31, 2019 | |||||||
ASSETS | ||||||||
Utility plant: | ||||||||
Gas plant | $ | 7,949,283 | $ | 7,813,221 | ||||
Less: accumulated depreciation | (2,341,561 | ) | (2,313,050 | ) | ||||
Construction work in progress | 202,935 | 185,026 | ||||||
Net utility plant | 5,810,657 | 5,685,197 | ||||||
Other property and investments | 118,547 | 133,787 | ||||||
Current assets: | ||||||||
Cash and cash equivalents | 56,524 | 40,489 | ||||||
Accounts receivable, net of allowance | 148,817 | 150,793 | ||||||
Accrued utility revenue | 48,100 | 79,100 | ||||||
Income taxes receivable, net | — | 25,901 | ||||||
Deferred purchased gas costs | — | 44,412 | ||||||
Prepaid and other current assets | 119,264 | 165,639 | ||||||
Total current assets | 372,705 | 506,334 | ||||||
Noncurrent assets: | ||||||||
Goodwill | 10,095 | 10,095 | ||||||
Deferred charges and other assets | 456,684 | 463,333 | ||||||
Total noncurrent assets | 466,779 | 473,428 | ||||||
Total assets | $ | 6,768,688 | $ | 6,798,746 | ||||
CAPITALIZATION AND LIABILITIES | ||||||||
Capitalization: | ||||||||
Common stock | $ | 49,112 | $ | 49,112 | ||||
Additional paid-in capital | 1,279,208 | 1,229,083 | ||||||
Accumulated other comprehensive loss, net | (53,487 | ) | (55,151 | ) | ||||
Retained earnings | 839,443 | 782,108 | ||||||
Total equity | 2,114,276 | 2,005,152 | ||||||
Long-term debt, less current maturities | 1,991,624 | 1,991,333 | ||||||
Total capitalization | 4,105,900 | 3,996,485 | ||||||
Current liabilities: | ||||||||
Current maturities of long-term debt | 125,000 | 125,000 | ||||||
Short-term debt | 97,000 | 194,000 | ||||||
Accounts payable | 108,569 | 149,368 | ||||||
Customer deposits | 69,938 | 69,165 | ||||||
Income taxes payable | 19,241 | — | ||||||
Accrued general taxes | 73,105 | 48,160 | ||||||
Accrued interest | 34,714 | 21,256 | ||||||
Deferred purchased gas costs | 26,498 | 60,755 | ||||||
Payable to parent | 174 | 844 | ||||||
Other current liabilities | 147,950 | 126,573 | ||||||
Total current liabilities | 702,189 | 795,121 | ||||||
Deferred income taxes and other credits: | ||||||||
Deferred income taxes and investment tax credits, net | 547,281 | 539,050 | ||||||
Accumulated removal costs | 399,000 | 395,000 | ||||||
Other deferred credits and other long-term liabilities | 1,014,318 | 1,073,090 | ||||||
Total deferred income taxes and other credits | 1,960,599 | 2,007,140 | ||||||
Total capitalization and liabilities | $ | 6,768,688 | $ | 6,798,746 |
The accompanying notes are an integral part of these statements.
8 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars)
(Unaudited)
Three Months Ended March 31, | Twelve Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Gas operating revenues | $ | 502,827 | $ | 520,677 | $ | 1,351,089 | $ | 1,384,092 | ||||||||
Operating expenses: | ||||||||||||||||
Net cost of gas sold | 160,821 | 192,604 | 353,381 | 426,260 | ||||||||||||
Operations and maintenance | 103,088 | 105,542 | 419,720 | 408,165 | ||||||||||||
Depreciation and amortization | 64,725 | 57,612 | 222,733 | 199,467 | ||||||||||||
Taxes other than income taxes | 16,378 | 16,206 | 62,500 | 60,847 | ||||||||||||
Total operating expenses | 345,012 | 371,964 | 1,058,334 | 1,094,739 | ||||||||||||
Operating income | 157,815 | 148,713 | 292,755 | 289,353 | ||||||||||||
Other income and (expenses): | ||||||||||||||||
Net interest deductions | (25,058 | ) | (23,099 | ) | (96,985 | ) | (85,584 | ) | ||||||||
Other income (deductions) | (20,536 | ) | 5,946 | (16,965 | ) | (6,691 | ) | |||||||||
Total other income and (expenses) | (45,594 | ) | (17,153 | ) | (113,950 | ) | (92,275 | ) | ||||||||
Income before income taxes | 112,221 | 131,560 | 178,805 | 197,078 | ||||||||||||
Income tax expense | 28,622 | 28,171 | 35,424 | 45,196 | ||||||||||||
Net income | $ | 83,599 | $ | 103,389 | $ | 143,381 | $ | 151,882 |
The accompanying notes are an integral part of these statements.
9 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands of dollars)
(Unaudited)
Three Months Ended March 31, | Twelve Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net income | $ | 83,599 | $ | 103,389 | $ | 143,381 | $ | 151,882 | ||||||||
Other comprehensive income (loss), net of tax | ||||||||||||||||
Defined benefit pension plans: | ||||||||||||||||
Net actuarial loss | — | — | (54,026 | ) | (15,524 | ) | ||||||||||
Amortization of prior service cost | 220 | 241 | 945 | 1,002 | ||||||||||||
Prior service cost | — | — | (1,426 | ) | — | |||||||||||
Amortization of net actuarial loss | 7,188 | 4,441 | 20,513 | 23,603 | ||||||||||||
Regulatory adjustment | (6,380 | ) | (4,063 | ) | 25,760 | (4,574 | ) | |||||||||
Net defined benefit pension plans | 1,028 | 619 | (8,234 | ) | 4,507 | |||||||||||
Forward-starting interest rate swaps (“FSIRS”): | ||||||||||||||||
Amounts reclassified into net income | 636 | 635 | 2,542 | 2,541 | ||||||||||||
Net forward-starting interest rate swaps | 636 | 635 | 2,542 | 2,541 | ||||||||||||
Total other comprehensive income (loss), net of tax | 1,664 | 1,254 | (5,692 | ) | 7,048 | |||||||||||
Comprehensive income | $ | 85,263 | $ | 104,643 | $ | 137,689 | $ | 158,930 |
The accompanying notes are an integral part of these statements.
10 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
Three Months Ended March 31, | Twelve Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net income | $ | 83,599 | $ | 103,389 | $ | 143,381 | $ | 151,882 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 64,725 | 57,612 | 222,733 | 199,467 | ||||||||||||
Deferred income taxes | 7,707 | 26,270 | 15,118 | 50,593 | ||||||||||||
Changes in current assets and liabilities: | ||||||||||||||||
Accounts receivable, net of allowance | 1,975 | (30,414 | ) | 21,652 | (22,522 | ) | ||||||||||
Accrued utility revenue | 31,000 | 30,200 | (1,100 | ) | 300 | |||||||||||
Deferred purchased gas costs | 10,155 | (67,863 | ) | 19,527 | 25,339 | |||||||||||
Accounts payable | (41,899 | ) | (39,574 | ) | (29,798 | ) | 18,398 | |||||||||
Accrued taxes | 53,335 | 28,704 | 33,526 | (17,504 | ) | |||||||||||
Other current assets and liabilities | 99,257 | 81,625 | 106,803 | (12,982 | ) | |||||||||||
Changes in undistributed stock compensation | 2,496 | 2,597 | 5,045 | 5,834 | ||||||||||||
Equity AFUDC | (1,061 | ) | (960 | ) | (4,262 | ) | (4,358 | ) | ||||||||
Changes in deferred charges and other assets | 3,658 | (18,238 | ) | (9,871 | ) | (23,289 | ) | |||||||||
Changes in other liabilities and deferred credits | (55,910 | ) | (2,977 | ) | (66,294 | ) | 16,805 | |||||||||
Net cash provided by operating activities | 259,037 | 170,371 | 456,460 | 387,963 | ||||||||||||
CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||||||||||
Construction expenditures and property additions | (173,353 | ) | (163,636 | ) | (788,465 | ) | (714,762 | ) | ||||||||
Changes in customer advances | 5,433 | 3,078 | 21,356 | 13,503 | ||||||||||||
Other | (31 | ) | (78 | ) | (48 | ) | (357 | ) | ||||||||
Net cash used in investing activities | (167,951 | ) | (160,636 | ) | (767,157 | ) | (701,616 | ) | ||||||||
CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||||||||||
Contributions from parent | 50,000 | 22,842 | 187,094 | 136,391 | ||||||||||||
Dividends paid | (25,200 | ) | (23,500 | ) | (97,600 | ) | (89,500 | ) | ||||||||
Issuance of long-term debt, net | — | — | 297,222 | — | ||||||||||||
Change in credit facility and commercial paper | — | — | — | 111,000 | ||||||||||||
Change in short-term debt | (97,000 | ) | 36,000 | (91,000 | ) | 188,000 | ||||||||||
Withholding remittance - share-based compensation | (2,736 | ) | (1,838 | ) | (2,756 | ) | (2,096 | ) | ||||||||
Other | (115 | ) | (53 | ) | (887 | ) | (783 | ) | ||||||||
Net cash provided by (used in) financing activities | (75,051 | ) | 33,451 | 292,073 | 343,012 | |||||||||||
Change in cash and cash equivalents | 16,035 | 43,186 | (18,624 | ) | 29,359 | |||||||||||
Cash and cash equivalents at beginning of period | 40,489 | 31,962 | 75,148 | 45,789 | ||||||||||||
Cash and cash equivalents at end of period | $ | 56,524 | $ | 75,148 | $ | 56,524 | $ | 75,148 | ||||||||
SUPPLEMENTAL INFORMATION: | ||||||||||||||||
Interest paid, net of amounts capitalized | $ | 10,204 | $ | 11,585 | $ | 87,277 | $ | 75,094 | ||||||||
Income taxes paid (received), net | $ | (22,962 | ) | $ | (22 | ) | $ | 700 | $ | (5,878 | ) |
The accompanying notes are an integral part of these statements.
11 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(Unaudited)
Three Months Ended March 31, | ||||||||||
2020 | 2019 | |||||||||
Common stock shares | ||||||||||
Beginning and ending balances | 47,482 | 47,482 | ||||||||
Common stock amount | ||||||||||
Beginning and ending balances | $ | 49,112 | $ | 49,112 | ||||||
Additional paid-in capital | ||||||||||
Beginning balances | 1,229,083 | 1,065,242 | ||||||||
Share-based compensation | 125 | 918 | ||||||||
Contributions from Southwest Gas Holdings, Inc. | 50,000 | 22,842 | ||||||||
Ending balances | 1,279,208 | 1,089,002 | ||||||||
Accumulated other comprehensive loss | ||||||||||
Beginning balances | (55,151 | ) | (49,049 | ) | ||||||
Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | 1,028 | 619 | ||||||||
FSIRS amounts reclassified to net income, net of tax | 636 | 635 | ||||||||
Ending balances | (53,487 | ) | (47,795 | ) | ||||||
Retained earnings | ||||||||||
Beginning balances | 782,108 | 717,155 | ||||||||
Net income | 83,599 | 103,389 | ||||||||
Share-based compensation | (364 | ) | (160 | ) | ||||||
Dividends declared to Southwest Gas Holdings, Inc. | (25,900 | ) | (22,800 | ) | ||||||
Ending balances | 839,443 | 797,584 | ||||||||
Total Southwest Gas Corporation equity ending balances | $ | 2,114,276 | $ | 1,887,903 |
The accompanying notes are an integral part of these statements.
12 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
Note 1 – Background, Organization, and Summary of Significant Accounting Policies
Nature of Operations. Southwest Gas Holdings, Inc. is a holding company, owning all of the shares of common stock of Southwest Gas Corporation (“Southwest” or the “natural gas operations” segment) and all of the shares of common stock of Centuri Group, Inc. (“Centuri,” or the “utility infrastructure services” segment).
Southwest is engaged in the business of purchasing, distributing, and transporting natural gas for customers in portions of Arizona, Nevada, and California. Public utility rates, practices, facilities, and service territories of Southwest are subject to regulatory oversight. The timing and amount of rate relief can materially impact results of operations. Natural gas purchases and the timing of related recoveries can materially impact liquidity. Results for the natural gas operations segment are higher during winter periods due to the seasonality incorporated in its regulatory rate structures.
Centuri is a comprehensive utility infrastructure services enterprise dedicated to delivering a diverse array of solutions to North America’s gas and electric providers. Centuri derives revenue from installation, replacement, repair, and maintenance of energy distribution systems, and developing industrial construction solutions. Centuri operations are generally conducted under the business names of NPL Construction Co. (“NPL”), NPL Canada Ltd. (“NPL Canada”), New England Utility Constructors, Inc. (“Neuco”), and Linetec Services, LLC (“Linetec”). Utility infrastructure services activity is seasonal in most of Centuri’s operating areas. Peak periods are the summer and fall months in colder climate areas, such as the northeastern and midwestern United States (“U.S.”) and in Canada. In warmer climate areas, such as the southwestern and southeastern U.S., utility infrastructure services activity continues year round.
Basis of Presentation. The condensed consolidated financial statements of Southwest Gas Holdings, Inc. and subsidiaries (the “Company”) and Southwest included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The year-end condensed balance sheet data was derived from audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with 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.
The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. 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 depiction of results for the interim periods, have been made. Globally, the novel Coronavirus (“COVID-19”) pandemic has created volatility, uncertainty, and economic disruption. Utility operations have been deemed “essential services” and utility infrastructure services have, to a large extent, been similarly characterized by government officials. Management has considered the impact of the pandemic and adjusted certain estimates, where relevant, used in the preparation of the condensed consolidated financial statements.
It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the 2019 Annual Report to Stockholders, which is incorporated by reference into the 2019 Form 10-K.
Fair Value Measurements. Certain assets and liabilities are reported at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
U.S. GAAP states that a fair value measurement should be based on the assumptions that market participants would use in pricing the asset or liability and establishes a fair value hierarchy that ranks the inputs used to measure fair value by their reliability. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to fair values derived from unobservable inputs (Level 3 measurements). Financial assets and liabilities are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy are as follows:
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that a company has the ability to access at the measurement date.
Level 2 – inputs other than quoted prices included within Level 1 that are observable for similar assets or liabilities, either directly or indirectly.
Level 3 – unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
13 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
The Company primarily used quoted market prices and other observable market pricing information in valuing cash and cash equivalents, derivatives, long-term debt outstanding, and assets of the qualified pension plan and postretirement benefit plans required to be recorded and/or disclosed at fair value.
Other Property and Investments. Other property and investments on the Condensed Consolidated Balance Sheets includes:
(Thousands of dollars) | March 31, 2020 | December 31, 2019 | |||||
Southwest Gas Corporation: | |||||||
Net cash surrender value of COLI policies | $ | 116,615 | $ | 132,072 | |||
Other property | 1,932 | 1,715 | |||||
Total Southwest Gas Corporation | 118,547 | 133,787 | |||||
Centuri property, equipment, and intangibles | 1,009,351 | 983,905 | |||||
Centuri accumulated provision for depreciation and amortization | (363,074 | ) | (352,333 | ) | |||
Other property | 20,698 | 18,814 | |||||
Total Southwest Gas Holdings, Inc. | $ | 785,522 | $ | 784,173 |
Included in the table above are the net cash surrender values of company-owned life insurance (“COLI”) policies. These life insurance policies on members of management and other key employees are used by Southwest to indemnify itself against the loss of talent, expertise, and knowledge, as well as to provide indirect funding for certain nonqualified benefit plans. Balances reflect impacts of equity and fixed-income securities underlying the cash surrender values at each reporting date; however, ultimately, only the insurance proceeds are ever actually received, due to management’s intent to hold the policies to maturity.
Cash and Cash Equivalents. For purposes of reporting consolidated cash flows, cash and cash equivalents include cash on hand and financial instruments with original maturities of three months or less. Such investments are carried at cost, which approximates market value. Cash and cash equivalents for Southwest and the Company also include money market fund investments totaling approximately $40,000 and $49,000, respectively, at March 31, 2020, and $23.5 million and $26.7 million, respectively, at December 31, 2019, which fall within Level 2 of the fair value hierarchy, due to the asset valuation methods used by money market funds.
Typical non-cash investing activities for Southwest include customer advances applied as contributions toward utility construction activity, capital expenditures that were not paid as of period end reporting dates but rather included in accounts payable, and right-of use assets obtained in exchange for lease liabilities, which are non-cash investing and financing activities. Amounts related to such activities were immaterial for the periods presented herein.
Intercompany Transactions. Centuri recognizes revenues generated from contracts with Southwest (see Note 7 – Segment Information). The accounts receivable balance, revenues, and associated profits are included in the condensed consolidated financial statements of the Company and Southwest and were not eliminated during consolidation in accordance with accounting treatment for rate-regulated entities.
Accounts Receivable, net of allowances. On January 2, 2020, the Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update (“ASU”) 2016-13 “Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss, or CECL, methodology. The Company adopted ASU 2016-13 using the modified retrospective method, and therefore, results for reporting periods beginning prior to January 1, 2020 are presented under previously accepted U.S. GAAP. See Recent Accounting Standards Updates below.
Business activity with respect to natural gas utility operations is conducted with customers located within the three-state region of Arizona, Nevada, and California. Southwest’s Accounts receivable are short-term in nature with no billing due dates customarily extending beyond one month, with customers’ credit worthiness assessed upon account creation by evaluation of other utility service and related payments history. Although Southwest seeks to minimize its credit risk related to utility operations by requiring security deposits from new customers, imposing late fees, and actively pursuing collection on overdue accounts, some accounts are ultimately not collected. Customer accounts are subject to collection procedures that vary by jurisdiction (late fee assessment, noticing requirements for disconnection of service, and procedures for actual disconnection and/or reestablishment of service). After disconnection of service, accounts are customarily written off approximately two months after inactivation. Dependent upon the jurisdiction, reestablishment of service requires both payment of previously unpaid balances and additional deposit requirements. Provisions for uncollectible accounts are recorded monthly based on experience, consideration of current and expected future conditions, customer and rate composition, and write-off processes. They are included in the ratemaking process as a cost of service. The Nevada jurisdictions have a regulatory mechanism associated with the gas cost-related portion of uncollectible accounts. Such amounts are deferred and collected through a surcharge in the ratemaking process. Due to the
14 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
COVID-19 pandemic, and as utility service is an essential service to the residents in the states in which Southwest operates, Southwest implemented a temporary moratorium on disconnection of natural gas service for non-payment and it also ceased charging late fees until further notice. Southwest is also actively working with customers experiencing financial hardship by means of flexible payment options. Management is monitoring expected credit losses in light of the evolving financial impact of COVID-19, and has adjusted the allowance for uncollectibles as of March 31, 2020 as a result of the anticipated impact on Southwest’s customers’ ability to pay amounts due both currently and when the moratorium is lifted. The adjustment was not material to the financial statements overall, and entering the summer season, during which time monthly billing amounts are substantially reduced, management does not expect a material increase to the allowance for uncollectibles.
Utility infrastructure services contracts receivable are recorded at face amounts less an allowance for doubtful accounts. Centuri’s customers are generally investment-grade gas and electric utility companies for which Centuri has historically recognized an insignificant amount of write-offs. Centuri’s trade accounts receivable balances carry standard payment terms of up to 60 days. Centuri maintains an allowance that is an estimate based on historical collection experience, current and forward-looking estimated economic and market conditions, and a review of the current status of each customer's trade accounts receivable balance. Account balances are monitored at least monthly, and are charged-off against the allowance when management determines it is probable the balance will not be recovered. Centuri has not been significantly impacted, nor does it anticipate it will experience significant difficulty in collecting amounts due as a result of COVID-19 given the nature of its customers.
Activity in the allowance for uncollectibles and the balances as of the periods presented within the Company’s and Southwest’s financial statements are not material to the condensed consolidated financial statements.
Income Taxes. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted. The CARES Act provides a number of tax provisions and stimulus measures, including changes to prior and future limitations on interest deductions, the ability to accelerate refund of Alternative Minimum Tax credits, elective deferment of payment related to the employer portion of Social Security taxes, and the creation of certain refundable employee retention credits, among other things. Management does not anticipate the impacts, if any, related to the CARES Act to have a material effect on the Company’s or Southwest’s results of operations, financial position, or liquidity.
Prepaid and other current assets. Prepaid and other current assets includes gas pipe materials and operating supplies of $53 million at March 31, 2020 and $57 million at December 31, 2019 (carried at weighted average cost), in addition to $33 million at December 31, 2019 related to a regulatory asset associated with the Arizona decoupling mechanism (an alternative revenue program), with no corresponding asset balance at March 31, 2020.
Goodwill. Goodwill is assessed as of October 1st each year for impairment, or more frequently, if circumstances indicate an impairment to the carrying value of goodwill may have occurred. Management of the Company and Southwest considered its reporting units and segments and determined that its segments and reporting units remain consistent between periods presented below, and that no change was necessary with regard to the level at which goodwill is assessed for impairment. Since December 31, 2019, management also qualitatively assessed whether events during the 1st quarter of 2020 may have resulted in conditions whereby the carrying value of goodwill was higher than its fair value, which if the case, could be an indication of a permanent impairment. Through this assessment, no such condition was believed to have existed and therefore, no impairment was deemed to have occurred in the first three months of 2020.
(Thousands of dollars) | Natural Gas Operations | Utility Infrastructure Services | Total Company | |||||||||
December 31, 2019 | $ | 10,095 | $ | 332,928 | $ | 343,023 | ||||||
Foreign currency translation adjustment | — | (9,080 | ) | (9,080 | ) | |||||||
March 31, 2020 | $ | 10,095 | $ | 323,848 | $ | 333,943 |
Other Current Liabilities. Management recognizes in its balance sheets various liabilities that are expected to be settled through future cash payment with the next twelve months, including amounts payable under regulatory mechanisms, customary accrued expenses for employee compensation and benefits, declared but unpaid dividends, and miscellaneous other accrued liabilities. Other current liabilities for Southwest include $25.9 million and $25.2 million of dividends declared by Southwest Gas Corporation, but not yet paid to Southwest Gas Holdings, Inc. as of March 31, 2020 and December 31, 2019, respectively.
15 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
Other Income (Deductions). The following table provides the composition of significant items included in Other income (deductions) in the Condensed Consolidated Statements of Income:
Three Months ended March 31, | Twelve Months Ended March 31, | ||||||||||||||
(Thousands of dollars) | 2020 | 2019 | 2020 | 2019 | |||||||||||
Southwest Gas Corporation - natural gas operations segment: | |||||||||||||||
Change in COLI policies | $ | (15,500 | ) | $ | 7,600 | $ | (5,700 | ) | $ | 5,100 | |||||
Interest income | 1,388 | 1,597 | 6,147 | 6,199 | |||||||||||
Equity AFUDC | 1,061 | 960 | 4,262 | 4,358 | |||||||||||
Other components of net periodic benefit cost | (5,005 | ) | (3,765 | ) | (16,299 | ) | (19,560 | ) | |||||||
Miscellaneous income and (expense) | (2,480 | ) | (446 | ) | (5,375 | ) | (2,788 | ) | |||||||
Southwest Gas Corporation - total other income (deductions) | (20,536 | ) | 5,946 | (16,965 | ) | (6,691 | ) | ||||||||
Utility infrastructure services segment: | |||||||||||||||
Interest income | — | — | — | 87 | |||||||||||
Foreign transaction gain (loss) | (10 | ) | 531 | 5 | 162 | ||||||||||
Miscellaneous income and (expense) | (232 | ) | 344 | (656 | ) | 125 | |||||||||
Centuri - total other income (deductions) | (242 | ) | 875 | (651 | ) | 374 | |||||||||
Corporate and administrative | 8 | 18 | 92 | 64 | |||||||||||
Consolidated Southwest Gas Holdings, Inc. - total other income (deductions) | $ | (20,770 | ) | $ | 6,839 | $ | (17,524 | ) | $ | (6,253 | ) |
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. Refer to Other Property and Investments above and also to Note 2 – Components of Net Periodic Benefit Cost.
Derivatives. In managing its natural gas supply portfolios, Southwest has historically entered into fixed- and variable-price contracts, which qualify as derivatives. Additionally, Southwest has utilized fixed-for-floating swap contracts (“Swaps”) to supplement its fixed-price contracts. The fixed-price contracts, firm commitments to purchase a fixed amount of gas in the future at a fixed price, qualify for the normal purchases and normal sales exception that is allowed for contracts that are probable of delivery in the normal course of business, and are exempt from fair value reporting. The variable-price contracts qualify as derivative instruments; however, because the contract prices are the prevailing prices at the future transaction dates, the contracts have no determinable fair value. The Swap contract prices are determined at the beginning of each month to reflect that month’s published first of month index price and are recorded at fair value (Level 2). Southwest does not utilize derivative financial instruments for speculative purposes, nor does it have trading operations.
Management does not currently anticipate entering into new Swaps in the near term; the longest maturity date of the Swaps as of March 31, 2020 is October 2020.
Pursuant to regulatory deferral accounting treatment for rate-regulated entities, unrealized gains and losses in fair value of the Swaps are recorded as a regulatory asset and/or liability. When the Swaps mature, any prior positions held are reversed and the settled position is recorded as an increase or decrease of purchased gas under the related purchase gas adjustment (“PGA”) mechanism in determining the deferred PGA balances. Neither changes in fair value nor settled amounts of Swaps have a direct effect on earnings or other comprehensive income, since following settlement, amounts are reflected in Net cost of gas sold at the same time they are included in Gas operating revenues through updates to the PGA component of rates.
Master netting arrangements exist with each counterparty that provide for the net settlement (in the settlement month) of all contracts through a single payment. As applicable, management has elected to reflect the net amounts in its balance sheets, which were immaterial at March 31, 2020. There was no outstanding collateral associated with the Swaps during any period reflected on the Condensed Consolidated Balance Sheets.
Previously, Southwest entered into forward-starting interest rate swaps (“FSIRS”), the settled positions for which are immaterial and continue to be amortized from Accumulated other comprehensive income (loss) into interest expense.
Redeemable Noncontrolling Interest. In connection with the acquisition of Linetec in November 2018, the previous owner retained a 20% equity interest in Linetec, the reduction of which is subject to certain rights based on the passage of time or upon the occurrence of certain triggering events.
Significant changes in the value of the redeemable noncontrolling interest, above a floor established at the acquisition date, are recognized as they occur, and the carrying value is adjusted as necessary at each reporting date. The fair value is estimated using
16 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
a market approach that utilizes certain financial metrics from guideline public companies of similar industry and operating characteristics. However, the carrying value was greater than the fair value as of March 31, 2020, and no previous upward redemption value adjustments were made following the acquisition date. SEC guidance indicates that a redemption value adjustment would not be made under these circumstances. The following depicts the change to the balance of the redeemable noncontrolling interest:
(Thousands of dollars): | Redeemable Noncontrolling Interest | ||
Balance, December 31, 2019 | $ | 84,542 | |
Net income attributable to redeemable noncontrolling interest | 463 | ||
Balance, March 31, 2020 | $ | 85,005 |
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 the Basic and Diluted EPS calculations is shown in the following table:
Three Months Ended March 31, | Twelve Months Ended March 31, | |||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||
Average basic shares | 55,310 | 53,369 | 54,726 | 50,640 | ||||||||
Effect of dilutive securities: | ||||||||||||
Management Incentive Plan shares | — | 11 | 9 | 22 | ||||||||
Restricted stock units (1) | 53 | 44 | 57 | 39 | ||||||||
Average diluted shares | 55,363 | 53,424 | 54,792 | 50,701 |
(1) The number of securities granted included 50,000 and 40,000 performance shares during the three months ending March 31, 2020 and 2019 and 48,000 and 29,000 performance shares during the twelve months ending March 31, 2020 and 2019, respectively, the total of which was derived by assuming that target performance will be achieved during the relevant performance period.
Recent Accounting Standards Updates.
Accounting pronouncements adopted in 2020:
In June 2016, the FASB issued ASU 2016-13 update “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The update requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The Company and Southwest adopted the update in the first quarter of 2020, and concluded the impact was not material to the condensed consolidated financial statements of the Company or Southwest. See Accounts receivable, net of allowances above.
In January 2017, the FASB issued ASU 2017-04 “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” Under the update, an entity will apply a one-step quantitative test as opposed to a two-step test as currently required, and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment. The Company and Southwest adopted the update in the first quarter of 2020 and will apply the update prospectively in any future goodwill impairment tests.
In August 2018, the FASB issued ASU 2018-15 “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The update generally aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement (that is a service contract) with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software, with the exception that such costs are to be included in the same line item in the balance sheet that a prepayment of the fees associated with the arrangement would be presented. Once capitalized, the update requires the entity to expense the amount capitalized over the term of the hosting arrangement, including reasonably certain renewal periods. The Company and Southwest adopted the update in the first quarter of 2020 using the prospective transition method. There were no material implementation costs related to cloud computing arrangements for the Company and Southwest in the first quarter of 2020.
17 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
Recently issued accounting pronouncements that will be effective after 2020:
In August 2018, the FASB issued ASU 2018-14 “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” This update removes disclosures that are no longer considered cost-beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant. The update applies to all employers that sponsor defined benefit pension or other postretirement plans. The update is effective for fiscal years ending after December 15, 2020. Upon adoption, the Company and Southwest will modify their disclosures to conform to the requirements of the update.
In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The update simplifies the accounting for income taxes by removing certain exceptions to the general principles, as well as improving consistent application in Topic 740 by clarifying and amending existing guidance. The update is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted for periods for which financial statements have not yet been made available for issuance. Management is evaluating the impacts this update might have on the Company’s and Southwest’s consolidated financial statements and disclosures.
In March 2020, the FASB 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. The update applies only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made or entered into after December 31, 2022. Management is evaluating the impacts this update might have on the Company’s and Southwest’s consolidated financial statements and disclosures. See also LIBOR discussion in Note 5 – Debt.
18 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
Note 2 – Components of Net Periodic Benefit Cost
Southwest has a noncontributory qualified retirement plan with defined benefits covering substantially all employees and a separate unfunded supplemental retirement plan (“SERP”) which is limited to officers. Southwest also provides postretirement benefits other than pensions (“PBOP”) to its qualified retirees for health care, dental, and life insurance.
The service cost component of net periodic benefit costs included in the table below are components of an overhead loading process associated with the cost of labor. The overhead process ultimately results in allocation of that portion of overall net periodic benefit costs to the same accounts to which productive labor is charged. As a result, service costs become components of various accounts, primarily operations and maintenance expense, net utility plant, and deferred charges and other assets for both the Company and Southwest. The other components of net periodic benefit cost are reflected in Other income (deductions) on the Condensed Consolidated Statements of Income of each entity.
Qualified Retirement Plan | |||||||||||||||
March 31, | |||||||||||||||
Three Months | Twelve Months | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(Thousands of dollars) | |||||||||||||||
Service cost | $ | 8,574 | $ | 6,466 | $ | 27,972 | $ | 27,882 | |||||||
Interest cost | 11,388 | 12,252 | 48,142 | 45,383 | |||||||||||
Expected return on plan assets | (16,324 | ) | (15,061 | ) | (61,507 | ) | (59,127 | ) | |||||||
Amortization of net actuarial loss | 9,007 | 5,589 | 25,774 | 29,675 | |||||||||||
Net periodic benefit cost | $ | 12,645 | $ | 9,246 | $ | 40,381 | $ | 43,813 | |||||||
SERP | |||||||||||||||
March 31, | |||||||||||||||
Three Months | Twelve Months | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(Thousands of dollars) | |||||||||||||||
Service cost | $ | 98 | $ | 66 | $ | 298 | $ | 250 | |||||||
Interest cost | 401 | 440 | 1,721 | 1,683 | |||||||||||
Amortization of net actuarial loss | 451 | 255 | 1,216 | 1,382 | |||||||||||
Net periodic benefit cost | $ | 950 | $ | 761 | $ | 3,235 | $ | 3,315 | |||||||
PBOP | |||||||||||||||
March 31, | |||||||||||||||
Three Months | Twelve Months | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(Thousands of dollars) | |||||||||||||||
Service cost | $ | 396 | $ | 319 | $ | 1,353 | $ | 1,424 | |||||||
Interest cost | 645 | 762 | 2,929 | 2,823 | |||||||||||
Expected return on plan assets | (852 | ) | (789 | ) | (3,219 | ) | (3,577 | ) | |||||||
Amortization of prior service costs | 289 | 317 | 1,243 | 1,318 | |||||||||||
Net periodic benefit cost | $ | 478 | $ | 609 | $ | 2,306 | $ | 1,988 |
19 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
Note 3 – Revenue
The following information about the Company’s revenues is presented by segment. Southwest encompasses the natural gas operations segment and Centuri encompasses the utility infrastructure services segment.
Natural Gas Operations Segment:
Gas operating revenues on the Condensed Consolidated Statements of Income of both the Company and Southwest include revenue from contracts with customers, which is shown below, disaggregated by customer type, and various categories of revenue:
Three Months Ended March 31, | Twelve Months Ended March 31, | ||||||||||||||
(Thousands of dollars) | 2020 | 2019 | 2020 | 2019 | |||||||||||
Residential | $ | 378,555 | $ | 417,228 | $ | 934,115 | $ | 959,837 | |||||||
Small commercial | 82,463 | 89,610 | 241,970 | 256,750 | |||||||||||
Large commercial | 12,667 | 13,962 | 47,640 | 51,714 | |||||||||||
Industrial/other | 6,702 | 6,478 | 22,298 | 23,457 | |||||||||||
Transportation | 24,406 | 24,902 | 91,884 | 87,838 | |||||||||||
Revenue from contracts with customers | 504,793 | 552,180 | 1,337,907 | 1,379,596 | |||||||||||
Alternative revenue program revenues (deferrals) | (3,765 | ) | (34,545 | ) | 5,668 | (15,775 | ) | ||||||||
Other revenues | 1,799 | 3,042 | 7,514 | 20,271 | |||||||||||
Total Gas operating revenues | $ | 502,827 | $ | 520,677 | $ | 1,351,089 | $ | 1,384,092 |
Utility Infrastructure Services Segment:
The following tables display Centuri’s revenue, reflected as Utility infrastructure services revenues on the Condensed Consolidated Statements of Income of the Company, representing revenue from contracts with customers disaggregated by service and contract types:
Three Months Ended March 31, | Twelve Months Ended March 31, | ||||||||||||||
(Thousands of dollars) | 2020 | 2019 | 2020 | 2019 | |||||||||||
Service Types: | |||||||||||||||
Gas infrastructure services | $ | 217,709 | $ | 197,893 | $ | 1,258,790 | $ | 1,128,048 | |||||||
Electric power infrastructure services | 72,320 | 52,301 | 267,736 | 79,528 | |||||||||||
Other | 43,464 | 62,668 | 245,083 | 367,554 | |||||||||||
Total Utility infrastructure services revenues | $ | 333,493 | $ | 312,862 | $ | 1,771,609 | $ | 1,575,130 |
Three Months Ended March 31, | Twelve Months Ended March 31, | ||||||||||||||
(Thousands of dollars) | 2020 | 2019 | 2020 | 2019 | |||||||||||
Contract Types: | |||||||||||||||
Master services agreement | $ | 263,545 | $ | 235,655 | $ | 1,411,267 | $ | 1,143,603 | |||||||
Bid contract | 69,948 | 77,207 | 360,342 | 431,527 | |||||||||||
Total Utility infrastructure services revenues | $ | 333,493 | $ | 312,862 | $ | 1,771,609 | $ | 1,575,130 | |||||||
Unit price contracts | $ | 243,136 | $ | 235,686 | $ | 1,387,706 | $ | 1,296,783 | |||||||
Fixed price contracts | 27,545 | 38,538 | 101,931 | 130,295 | |||||||||||
Time and materials contracts | 62,812 | 38,638 | 281,972 | 148,052 | |||||||||||
Total Utility infrastructure services revenues | $ | 333,493 | $ | 312,862 | $ | 1,771,609 | $ | 1,575,130 |
20 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
The following table provides information about contracts receivable and revenue earned on contracts in progress in excess of billings (contract asset), which are both included within Accounts receivable, net of allowances, as well as amounts billed in excess of revenue earned on contracts (contract liability), which are included in Other current liabilities as of March 31, 2020 and December 31, 2019 on the Company’s Condensed Consolidated Balance Sheets:
(Thousands of dollars) | March 31, 2020 | December 31, 2019 | |||||
Contracts receivable, net | $ | 174,228 | $ | 223,904 | |||
Revenue earned on contracts in progress in excess of billings | 99,967 | 99,399 | |||||
Amounts billed in excess of revenue earned on contracts | 4,716 | 4,525 |
The revenue earned on contracts in progress in excess of billings (contract asset) primarily relates to Centuri’s rights to consideration for work completed but not billed and/or approved for billing at the reporting date. These contract assets are transferred to contracts receivable when the rights become unconditional. The amounts billed in excess of revenue earned (contract liability) primarily relate to the advance consideration received from customers for which work has not yet been completed. The change in this contract liability balance from December 31, 2019 to March 31, 2020 is due to revenue recognized of $4.5 million that was included in this item as of January 1, 2020, after which time it became earned and the balance was reduced, and to increases due to cash received, net of revenue recognized during the period related to contracts that commenced during the period.
For contracts that have an original duration of one year or less, Centuri uses the practical expedient applicable to such contracts and does not consider/compute an interest component based on the time value of money. Further, because of the short duration of these contracts, Centuri has not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period or when the Company expects to recognize the revenue.
As of March 31, 2020, Centuri had 23 contracts with an original duration of more than one year. The aggregate amount of the transaction price allocated to the unsatisfied performance obligations of these contracts as of March 31, 2020 was $68.2 million. Centuri expects to recognize the remaining performance obligations over approximately the next two years; however, the timing of that recognition is largely within the control of the customer, including when the necessary equipment and materials required to complete the work are provided by the customer.
Utility infrastructure services contracts receivable consists of the following:
(Thousands of dollars) | March 31, 2020 | December 31, 2019 | |||||
Billed on completed contracts and contracts in progress | $ | 169,023 | $ | 216,268 | |||
Other receivables | 5,644 | 8,456 | |||||
Contracts receivable, gross | 174,667 | 224,724 | |||||
Allowance for doubtful accounts | (439 | ) | (820 | ) | |||
Contracts receivable, net | $ | 174,228 | $ | 223,904 |
21 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
Note 4 – Common Stock
Only 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 May 8, 2019, the Company filed with the SEC an automatic shelf registration statement on Form S-3 (File No. 333-231297), which became effective upon filing, for the offer and sale of up to $300 million of common stock from time to time in at-the-market offerings under the prospectus included therein and in accordance with the Sales Agency Agreement, dated May 8, 2019, between the Company and BNY Mellon Capital Markets, LLC (the “Equity Shelf Program”). The Company sold no shares under the Equity Shelf Program during the three months ended March 31, 2020. The following table provides the activity under the Equity Shelf Program for the life-to-date period ended March 31, 2020:
Life-To-Date Ended | |||
March 31, 2020 | |||
Gross proceeds | $ | 124,337,247 | |
Less: agent commissions | (1,243,372 | ) | |
Net proceeds | $ | 123,093,875 | |
Number of shares sold | 1,478,945 | ||
Weighted average price per share | $ | 84.07 |
As of March 31, 2020, the Company had up to $175,662,753 of common stock available for sale under the program. Net proceeds from the sale of shares of common stock under the Equity Shelf Program are intended for general corporate purposes, including the acquisition of property for the construction, completion, extension, or improvement of pipeline systems and facilities located in and around the communities served by Southwest.
During the three months ended March 31, 2020, the Company issued approximately 72,000 shares of common stock through the Restricted Stock/Unit Plan and Management Incentive Plan.
Additionally, during the three months ended March 31, 2020, the Company issued 47,000 shares of common stock through the Dividend Reinvestment and Stock Purchase Plan, raising approximately $3.1 million.
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. However, details surrounding the fair value and individual carrying values of instruments are discussed below or provided in the table that follows.
Southwest’s revolving credit facility (including commercial paper) and the variable-rate Industrial Development Revenue Bonds (“IDRBs”) approximate their carrying values. The fair values of the revolving credit facility and IDRBs are categorized as Level 1 based on the FASB’s fair value hierarchy, due to Southwest’s ability to access similar debt arrangements at measurement dates with comparable terms, including variable/market rates. Additionally, the borrowings by Southwest under its revolving credit facility are generally repaid quickly and the IDRBs have interest rates that reset frequently.
The fair values of Southwest’s debentures (which include senior and medium-term notes) were determined utilizing a market-based valuation approach, where fair values are determined based on evaluated pricing data, such as broker quotes and yields for similar securities adjusted for observable differences. Significant inputs used in the valuation generally include benchmark yield curves, credit ratings, and issuer spreads. The external credit rating, coupon rate, and maturity of each security are considered in the valuation, as applicable. The fair values of debentures are categorized as Level 2.
The Centuri secured revolving credit and term loan facility and Centuri’s other debt obligations (not actively traded) are categorized as Level 3. Because Centuri’s debt is not publicly traded, fair values for its secured revolving credit and term loan facility and other debt obligations were based on a conventional discounted cash flow methodology utilizing current market pricing yield curves, across Centuri’s debt maturity spectrum, of other industrial bonds with an assumed credit rating comparable to the Company’s.
22 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
March 31, 2020 | December 31, 2019 | |||||||||||||||
Carrying Amount | Market Value | Carrying Amount | Market Value | |||||||||||||
(Thousands of dollars) | ||||||||||||||||
Southwest Gas Corporation: | ||||||||||||||||
Debentures: | ||||||||||||||||
Notes, 4.45%, due 2020 | $ | 125,000 | $ | 125,975 | $ | 125,000 | $ | 126,673 | ||||||||
Notes, 6.1%, due 2041 | 125,000 | 178,950 | 125,000 | 162,666 | ||||||||||||
Notes, 3.875%, due 2022 | 250,000 | 252,688 | 250,000 | 258,550 | ||||||||||||
Notes, 4.875%, due 2043 | 250,000 | 290,645 | 250,000 | 291,928 | ||||||||||||
Notes, 3.8%, due 2046 | 300,000 | 278,106 | 300,000 | 308,307 | ||||||||||||
Notes, 3.7%, due 2028 | 300,000 | 311,565 | 300,000 | 320,685 | ||||||||||||
Notes, 4.15%, due 2049 | 300,000 | 297,987 | 300,000 | 330,138 | ||||||||||||
8% Series, due 2026 | 75,000 | 96,435 | 75,000 | 96,905 | ||||||||||||
Medium-term notes, 7.78% series, due 2022 | 25,000 | 27,293 | 25,000 | 27,500 | ||||||||||||
Medium-term notes, 7.92% series, due 2027 | 25,000 | 32,621 | 25,000 | 32,543 | ||||||||||||
Medium-term notes, 6.76% series, due 2027 | 7,500 | 9,185 | 7,500 | 9,156 | ||||||||||||
Unamortized discount and debt issuance costs | (14,220 | ) | (14,450 | ) | ||||||||||||
1,768,280 | 1,768,050 | |||||||||||||||
Revolving credit facility and commercial paper | 150,000 | 150,000 | 150,000 | 150,000 | ||||||||||||
Industrial development revenue bonds: | ||||||||||||||||
Variable-rate bonds: | ||||||||||||||||
Tax-exempt Series A, due 2028 | 50,000 | 50,000 | 50,000 | 50,000 | ||||||||||||
2003 Series A, due 2038 | 50,000 | 50,000 | 50,000 | 50,000 | ||||||||||||
2008 Series A, due 2038 | 50,000 | 50,000 | 50,000 | 50,000 | ||||||||||||
2009 Series A, due 2039 | 50,000 | 50,000 | 50,000 | 50,000 | ||||||||||||
Unamortized discount and debt issuance costs | (1,656 | ) | (1,717 | ) | ||||||||||||
198,344 | 198,283 | |||||||||||||||
Less: current maturities | (125,000 | ) | (125,000 | ) | ||||||||||||
Long-term debt, less current maturities - Southwest Gas Corporation | $ | 1,991,624 | $ | 1,991,333 | ||||||||||||
Centuri: | ||||||||||||||||
Centuri term loan facility | $ | 232,642 | $ | 228,304 | $ | 244,812 | $ | 252,182 | ||||||||
Unamortized debt issuance costs | (1,031 | ) | (1,101 | ) | ||||||||||||
231,611 | 243,711 | |||||||||||||||
Centuri secured revolving credit facility | 42,666 | 42,658 | 60,021 | 60,057 | ||||||||||||
Centuri other debt obligations | 88,757 | 87,758 | 43,929 | 44,787 | ||||||||||||
Less: current maturities | (44,574 | ) | (38,512 | ) | ||||||||||||
Long-term debt, less current maturities - Centuri | $ | 318,460 | $ | 309,149 | ||||||||||||
Consolidated Southwest Gas Holdings, Inc.: | ||||||||||||||||
Southwest Gas Corporation long-term debt | $ | 2,116,624 | $ | 2,116,333 | ||||||||||||
Centuri long-term debt | 363,034 | 347,661 | ||||||||||||||
Less: current maturities | (169,574 | ) | (163,512 | ) | ||||||||||||
Long-term debt, less current maturities - Southwest Gas Holdings, Inc. | $ | 2,310,084 | $ | 2,300,482 |
Southwest has a $400 million credit facility, for which it has designated $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 London Interbank Offered Rate (“LIBOR”) or an “alternate base rate,” plus in each case an applicable margin that is determined based on Southwest’s senior unsecured debt rating. At March 31, 2020, the applicable margin is 1% for loans bearing interest with reference to LIBOR and 0% for loans bearing interest with reference to the alternative base rate. At March 31, 2020, the full $150 million was outstanding on the long-term portion of the facility.
23 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
On April 10, 2020, Southwest amended its credit facility agreement; total borrowing capacity under the amended agreement remains $400 million. The amended agreement extends the maturity date from March 2022 to April 2025. Interest rates for the facility are calculated at either LIBOR or an “alternate base rate,” plus in each case an applicable margin determined based on Southwest’s senior unsecured long-term debt rating. The applicable margin ranges from 0.750% to 1.500% for loans bearing interest with reference to LIBOR and from 0.000% to 0.500% for loans bearing interest with reference to an alternate base rate. Upon the occurrence of certain events providing for a transition away from LIBOR, or if LIBOR is no longer a widely recognized benchmark rate, Southwest may amend the credit facility with a replacement rate as set forth in the amended agreement. Southwest is also required to pay a commitment fee on the unfunded portion of the commitments based on its senior unsecured long-term debt rating. The commitment fee ranges from 0.075% to 0.200% per annum. The amended agreement contains certain representations and warranties and affirmative and negative covenants similar to those contained in the previous agreement. In addition, the amended agreement contains a financial covenant requiring Southwest to maintain a ratio of funded debt to total capitalization not to exceed 0.70 to 1.00 as of the end of any quarter of any fiscal year.
Southwest has a $50 million commercial paper program. Issuances under the commercial paper program are supported by Southwest’s revolving credit facility and, therefore, do not represent additional borrowing capacity under the credit facility. Borrowings under the commercial paper program are designated as long-term debt. Interest rates for the program are calculated at the then current commercial paper rate. At March 31, 2020, no borrowings were outstanding under the commercial paper program.
Centuri has a $590 million senior secured revolving credit and term loan facility, scheduled to expire in November 2023. The capacity of the line of credit portion of the facility is $325 million; amounts borrowed and repaid are available to be re-borrowed. The term loan portion of the facility has a limit of approximately $265 million. The $590 million facility is secured by substantially all of Centuri’s assets except those explicitly excluded under the terms of the agreement (including owned real estate and certain certificated vehicles). Centuri’s assets securing the facility at March 31, 2020 totaled $1.2 billion. At March 31, 2020, $275 million in borrowings were outstanding under the Centuri’s combined secured revolving credit and term loan facility. Centuri also received proceeds of $50 million in equipment loans in 2020, which were used for repayment of outstanding borrowings on the line of credit.
Short-Term Debt
Southwest Gas Holdings, Inc. has a $100 million credit facility that is primarily used for short-term financing needs. There was $60 million outstanding under this credit facility as of March 31, 2020.
On April 10, 2020, Southwest Gas Holdings, Inc. amended its existing credit facility, extending the maturity date to April 2025. The revolving borrowing capacity under the amended agreement remains at $100 million. Interest rates for the amended facility are calculated at either LIBOR or an “alternate base rate,” plus in each case an applicable margin that is determined based on Southwest Gas Holdings, Inc.’s senior unsecured long-term debt rating. The applicable margin ranges from 0.750% to 1.500% for loans bearing interest with reference to LIBOR and from 0.000% to 0.500% for loans bearing interest with reference to the alternate base rate. Upon the occurrence of certain events providing for a transition away from LIBOR, or if LIBOR is no longer a widely recognized benchmark rate, Southwest Gas Holdings, Inc. may amend the credit facility agreement with a replacement rate, as set forth in the amended agreement. Southwest Gas Holdings, Inc. is also required to pay a commitment fee on the unfunded portion of the commitments based on its senior unsecured long-term debt rating. The commitment fee ranges from 0.075% to 0.200% per annum. The amended agreement contains certain representations and warranties and affirmative and negative covenants similar to those contained in the previous agreement. In addition, the amended agreement contains a financial covenant requiring Southwest Gas Holdings, Inc. to maintain a ratio of funded debt to total capitalization not to exceed 0.70 to 1.00 as of the end of any quarter of any fiscal year.
As discussed previously, under Southwest’s $400 million credit facility, $250 million has been designated by management for working capital purposes. Southwest had $97 million of short-term borrowings outstanding at March 31, 2020 under this facility.
LIBOR
It is currently anticipated that LIBOR may be discontinued as a benchmark or reference rate after 2021. As of March 31, 2020, $60 million, $247 million, and $177 million, respectively, for the holding company, Southwest, and Centuri was outstanding under their credit facilities whereby interest was with reference to LIBOR and for which maturity dates extend beyond 2021. These amounts reflect approximately 11% of Southwest’s total debt, and 18% of total debt (including current maturities) for the Company overall. Southwest and Southwest Gas Holdings, Inc. (see above) in amending their respective facilities in April 2020 may make further amendments with replacement rates if LIBOR is discontinued. However, replacement rates are not currently determinable. In order to mitigate the impact of a discontinuance on the Company’s and Southwest’s financial condition and results of operations, management will continue to monitor developments and work with lenders to determine the appropriate replacement/alternative reference rate for variable rate debt. At this time the Company and Southwest can provide no assurances as to the impact a LIBOR
24 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |
SOUTHWEST GAS CORPORATION | March 31, 2020 |
discontinuance will have on their financial condition or results of operations. Any alternative rate may be less predicable or less attractive than LIBOR.
Note 6 – Other Comprehensive Income and Accumulated Other Comprehensive Income
The following information provides insight into amounts impacting the Company’s Other comprehensive income (loss), both before and after-tax impacts, within the Condensed Consolidated Statements of Comprehensive Income, which also impact Accumulated other comprehensive income (“AOCI”) in the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statements of Equity.
Related Tax Effects Allocated to Each Component of Other Comprehensive Income (Loss)
Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |||||||||||||||||||||||
(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 | $ | 289 | $ | (69 | ) | $ | 220 | $ | 317 | $ | (76 | ) | $ | 241 | ||||||||||
Amortization of net actuarial (gain)/loss | 9,458 | (2,270 | ) | 7,188 | 5,844 | (1,403 | ) | 4,441 | ||||||||||||||||
Regulatory adjustment | (8,395 | ) | 2,015 | (6,380 | ) | (5,347 | ) | 1,284 | (4,063 | ) | ||||||||||||||
Pension plans other comprehensive income (loss) | 1,352 | (324 | ) | 1,028 | 814 | (195 | ) | 619 | ||||||||||||||||
FSIRS (designated hedging activities): | ||||||||||||||||||||||||
Amounts reclassified into net income | 837 | (201 | ) | 636 | 836 | (201 | ) | 635 | ||||||||||||||||
FSIRS other comprehensive income (loss) | 837 | (201 | ) | 636 | 836 | (201 | ) | 635 | ||||||||||||||||
Total other comprehensive income (loss) - Southwest Gas Corporation | 2,189 | (525 | ) | 1,664 | 1,650 | (396 | ) | 1,254 | ||||||||||||||||
Foreign currency translation adjustments: | ||||||||||||||||||||||||
Translation adjustments | (4,005 | ) | — | (4,005 | ) | 791 | — | 791 | ||||||||||||||||
Foreign currency other comprehensive income (loss) | (4,005 | ) | — | (4,005 | ) | 791 | — | 791 | ||||||||||||||||
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | $ | (1,816 | ) | $ | (525 | ) | $ | (2,341 | ) | $ | 2,441 | $ | (396 | ) | $ | 2,045 |
Twelve Months Ended March 31, 2020 | Twelve Months Ended March 31, 2019 | |||||||||||||||||||||||
(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) | $ | (71,087 | ) | $ | 17,061 | $ | (54,026 | ) | $ | (20,426 | ) | $ | 4,902 | $ | (15,524 | ) | ||||||||
Amortization of prior service cost | 1,243 | (298 | ) | 945 | 1,318 | (316 | ) | 1,002 | ||||||||||||||||
Amortization of net actuarial (gain)/loss | 26,990 | (6,477 | ) | 20,513 | 31,057 | (7,454 | ) | 23,603 | ||||||||||||||||
Prior service cost | (1,878 | ) | 452 | (1,426 | ) | — | — | — | ||||||||||||||||
Regulatory adjustment | 33,896 | (8,136 | ) | 25,760 | (6,020 | ) | 1,446 | (4,574 | ) | |||||||||||||||
Pension plans other comprehensive income (loss) | (10,836 | ) | 2,602 | (8,234 | ) | 5,929 | (1,422 | ) | 4,507 | |||||||||||||||
FSIRS (designated hedging activities): | ||||||||||||||||||||||||
Amounts reclassified into net income | 3,345 | (803 | ) | 2,542 | 3,344 | (803 | ) | 2,541 | ||||||||||||||||
FSIRS other comprehensive income (loss) | 3,345 | (803 | ) | 2,542 | 3,344 | (803 | ) | 2,541 | ||||||||||||||||
Total other comprehensive income (loss) - Southwest Gas Corporation | (7,491 | ) | 1,799 | (5,692 | ) | 9,273 | (2,225 | ) | 7,048 | |||||||||||||||
Foreign currency translation adjustments: | ||||||||||||||||||||||||
Translation adjustments | (2,758 | ) | — | (2,758 | ) | (1,308 | ) | — | (1,308 | ) | ||||||||||||||
Foreign currency other comprehensive income (loss) | (2,758 | ) | — | (2,758 | ) | (1,308 | ) | — | (1,308 | ) | ||||||||||||||
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | $ | (10,249 | ) | $ | 1,799 | $ | (8,450 | ) | $ | 7,965 |