Southwest Gas Holdings, Inc. - Quarter Report: 2021 September (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 |
For the quarterly period ended September 30, 2021
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 | |||||||||||||||||||||||
8360 S. Durango Drive | ||||||||||||||||||||||||||
Post Office Box 98510 | ||||||||||||||||||||||||||
Las Vegas, | Nevada | 89193-8510 | ||||||||||||||||||||||||
(702) | 876-7237 | |||||||||||||||||||||||||
1-7850 | Southwest Gas Corporation | California | 88-0085720 | |||||||||||||||||||||||
8360 S. Durango Drive | ||||||||||||||||||||||||||
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 | ||||||||||||
Preferred Stock Purchase Rights | N/A | New York Stock Exchange |
Indicate by check mark whether each registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that each registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether each registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that each registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Southwest Gas Holdings, Inc.:
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, 60,385,084 shares as of October 29, 2021.
All of the outstanding shares of common stock ($1 par value) of Southwest Gas Corporation were held by Southwest Gas Holdings, Inc. as of October 29, 2021.
SOUTHWEST GAS CORPORATION MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1)(a) and (b) OF FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH THE REDUCED DISCLOSURE FORMAT AS PERMITTED BY GENERAL INSTRUCTION H(2).
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
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 | September 30, 2021 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except par value)
(Unaudited)
September 30, 2021 | December 31, 2020 | |||||||||||||
ASSETS | ||||||||||||||
Utility plant: | ||||||||||||||
Gas plant | $ | 8,742,806 | $ | 8,384,000 | ||||||||||
Less: accumulated depreciation | (2,499,488) | (2,419,348) | ||||||||||||
Construction work in progress | 153,100 | 211,429 | ||||||||||||
Net utility plant | 6,396,418 | 6,176,081 | ||||||||||||
Other property and investments | 1,305,334 | 834,245 | ||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | 186,690 | 83,352 | ||||||||||||
Accounts receivable, net of allowances | 692,135 | 522,172 | ||||||||||||
Accrued utility revenue | 39,700 | 82,400 | ||||||||||||
Income taxes receivable, net | 32,554 | 10,884 | ||||||||||||
Deferred purchased gas costs | 240,827 | 2,053 | ||||||||||||
Prepaid and other current assets | 200,700 | 170,152 | ||||||||||||
Total current assets | 1,392,606 | 871,013 | ||||||||||||
Noncurrent assets: | ||||||||||||||
Goodwill | 791,902 | 345,184 | ||||||||||||
Deferred income taxes | 268 | 455 | ||||||||||||
Deferred charges and other assets | 483,107 | 508,875 | ||||||||||||
Total noncurrent assets | 1,275,277 | 854,514 | ||||||||||||
Total assets | $ | 10,369,635 | $ | 8,735,853 | ||||||||||
CAPITALIZATION AND LIABILITIES | ||||||||||||||
Capitalization: | ||||||||||||||
Common stock, $1 par (authorized - 120,000,000 shares; issued and outstanding - 60,378,684 and 57,192,925 shares) | $ | 62,009 | $ | 58,823 | ||||||||||
Additional paid-in capital | 1,823,889 | 1,609,155 | ||||||||||||
Accumulated other comprehensive loss, net | (55,951) | (61,003) | ||||||||||||
Retained earnings | 1,079,869 | 1,067,978 | ||||||||||||
Total equity | 2,909,816 | 2,674,953 | ||||||||||||
Redeemable noncontrolling interest | 183,547 | 165,716 | ||||||||||||
Long-term debt, less current maturities | 3,573,783 | 2,732,200 | ||||||||||||
Total capitalization | 6,667,146 | 5,572,869 | ||||||||||||
Current liabilities: | ||||||||||||||
Current maturities of long-term debt | 297,271 | 40,433 | ||||||||||||
Short-term debt | 272,000 | 107,000 | ||||||||||||
Accounts payable | 222,959 | 231,301 | ||||||||||||
Customer deposits | 51,816 | 67,920 | ||||||||||||
Income taxes payable, net | 27,490 | 12,556 | ||||||||||||
Accrued general taxes | 60,656 | 48,640 | ||||||||||||
Accrued interest | 38,600 | 20,536 | ||||||||||||
Deferred purchased gas costs | — | 54,636 | ||||||||||||
Other current liabilities | 384,442 | 328,945 | ||||||||||||
Total current liabilities | 1,355,234 | 911,967 | ||||||||||||
Deferred income taxes and other credits: | ||||||||||||||
Deferred income taxes and investment tax credits, net | 789,141 | 647,453 | ||||||||||||
Accumulated removal costs | 419,000 | 404,000 | ||||||||||||
Other deferred credits and other long-term liabilities | 1,139,114 | 1,199,564 | ||||||||||||
Total deferred income taxes and other credits | 2,347,255 | 2,251,017 | ||||||||||||
Total capitalization and liabilities | $ | 10,369,635 | $ | 8,735,853 |
The accompanying notes are an integral part of these statements.
3 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | Twelve Months Ended September 30, | ||||||||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
Operating revenues: | ||||||||||||||||||||||||||||||||||||||
Gas operating revenues | $ | 255,848 | $ | 210,834 | $ | 1,070,576 | $ | 976,095 | $ | 1,445,066 | $ | 1,355,666 | ||||||||||||||||||||||||||
Utility infrastructure services revenues | 632,848 | 580,392 | 1,525,448 | 1,408,698 | 2,065,038 | 1,877,264 | ||||||||||||||||||||||||||||||||
Total operating revenues | 888,696 | 791,226 | 2,596,024 | 2,384,793 | 3,510,104 | 3,232,930 | ||||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||
Net cost of gas sold | 63,710 | 36,321 | 296,227 | 264,615 | 374,449 | 356,925 | ||||||||||||||||||||||||||||||||
Operations and maintenance | 122,927 | 101,764 | 334,450 | 304,964 | 437,602 | 407,924 | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 91,380 | 80,139 | 267,670 | 245,009 | 354,688 | 324,995 | ||||||||||||||||||||||||||||||||
Taxes other than income taxes | 20,109 | 15,787 | 60,134 | 47,507 | 76,087 | 63,195 | ||||||||||||||||||||||||||||||||
Utility infrastructure services expenses | 567,270 | 502,951 | 1,381,524 | 1,252,489 | 1,858,464 | 1,671,478 | ||||||||||||||||||||||||||||||||
Total operating expenses | 865,396 | 736,962 | 2,340,005 | 2,114,584 | 3,101,290 | 2,824,517 | ||||||||||||||||||||||||||||||||
Operating income | 23,300 | 54,264 | 256,019 | 270,209 | 408,814 | 408,413 | ||||||||||||||||||||||||||||||||
Other income and (expenses): | ||||||||||||||||||||||||||||||||||||||
Net interest deductions | (31,298) | (28,311) | (81,201) | (83,141) | (109,537) | (111,705) | ||||||||||||||||||||||||||||||||
Other income (deductions) | (3,112) | 1,799 | (3,975) | (11,046) | 282 | (7,788) | ||||||||||||||||||||||||||||||||
Total other income and (expenses) | (34,410) | (26,512) | (85,176) | (94,187) | (109,255) | (119,493) | ||||||||||||||||||||||||||||||||
Income (loss) before income taxes | (11,110) | 27,752 | 170,843 | 176,022 | 299,559 | 288,920 | ||||||||||||||||||||||||||||||||
Income tax expense (benefit) | (1,816) | 6,689 | 34,818 | 42,073 | 58,498 | 63,065 | ||||||||||||||||||||||||||||||||
Net income (loss) | (9,294) | 21,063 | 136,025 | 133,949 | 241,061 | 225,855 | ||||||||||||||||||||||||||||||||
Net income attributable to noncontrolling interest | 2,282 | 2,790 | 5,189 | 5,169 | 6,681 | 5,357 | ||||||||||||||||||||||||||||||||
Net income (loss) attributable to Southwest Gas Holdings, Inc. | $ | (11,576) | $ | 18,273 | $ | 130,836 | $ | 128,780 | $ | 234,380 | $ | 220,498 | ||||||||||||||||||||||||||
Earnings (loss) per share: | ||||||||||||||||||||||||||||||||||||||
Basic | $ | (0.19) | $ | 0.32 | $ | 2.23 | $ | 2.31 | $ | 4.03 | $ | 3.97 | ||||||||||||||||||||||||||
Diluted | $ | (0.19) | $ | 0.32 | $ | 2.23 | $ | 2.31 | $ | 4.02 | $ | 3.97 | ||||||||||||||||||||||||||
Weighted average shares: | ||||||||||||||||||||||||||||||||||||||
Basic | 59,688 | 56,271 | 58,639 | 55,683 | 58,209 | 55,508 | ||||||||||||||||||||||||||||||||
Diluted | 59,816 | 56,357 | 58,742 | 55,753 | 58,312 | 55,577 |
The accompanying notes are an integral part of these statements.
4 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands of dollars)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | Twelve Months Ended September 30, | ||||||||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
Net income (loss) | $ | (9,294) | $ | 21,063 | $ | 136,025 | $ | 133,949 | $ | 241,061 | $ | 225,855 | ||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | ||||||||||||||||||||||||||||||||||||||
Defined benefit pension plans: | ||||||||||||||||||||||||||||||||||||||
Net actuarial loss | — | — | — | — | (43,730) | (54,026) | ||||||||||||||||||||||||||||||||
Amortization of prior service cost | 183 | 220 | 547 | 659 | 766 | 901 | ||||||||||||||||||||||||||||||||
Amortization of net actuarial loss | 8,474 | 7,187 | 25,420 | 21,563 | 32,608 | 26,004 | ||||||||||||||||||||||||||||||||
Prior service cost | — | — | — | — | — | (1,426) | ||||||||||||||||||||||||||||||||
Regulatory adjustment | (7,277) | (6,380) | (21,831) | (19,140) | 2,959 | 21,130 | ||||||||||||||||||||||||||||||||
Net defined benefit pension plans | 1,380 | 1,027 | 4,136 | 3,082 | (7,397) | (7,417) | ||||||||||||||||||||||||||||||||
Forward-starting interest rate swaps (“FSIRS”): | ||||||||||||||||||||||||||||||||||||||
Amounts reclassified into net income (loss) | 413 | 783 | 1,240 | 2,054 | 1,653 | 2,689 | ||||||||||||||||||||||||||||||||
Net forward-starting interest rate swaps | 413 | 783 | 1,240 | 2,054 | 1,653 | 2,689 | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | (2,056) | 1,024 | (324) | (1,187) | 2,576 | (280) | ||||||||||||||||||||||||||||||||
Total other comprehensive income (loss), net of tax | (263) | 2,834 | 5,052 | 3,949 | (3,168) | (5,008) | ||||||||||||||||||||||||||||||||
Comprehensive income (loss) | (9,557) | 23,897 | 141,077 | 137,898 | 237,893 | 220,847 | ||||||||||||||||||||||||||||||||
Comprehensive income attributable to noncontrolling interest | 2,282 | 2,790 | 5,189 | 5,169 | 6,681 | 5,357 | ||||||||||||||||||||||||||||||||
Comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | $ | (11,839) | $ | 21,107 | $ | 135,888 | $ | 132,729 | $ | 231,212 | $ | 215,490 |
The accompanying notes are an integral part of these statements.
5 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
Nine Months Ended September 30, | Twelve Months Ended September 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||||||||||||||||||||
Net income | $ | 136,025 | $ | 133,949 | $ | 241,061 | $ | 225,855 | ||||||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||||||||
Depreciation and amortization | 267,670 | 245,009 | 354,688 | 324,995 | ||||||||||||||||||||||
Deferred income taxes | 45,374 | 37,752 | 58,339 | 45,815 | ||||||||||||||||||||||
Changes in current assets and liabilities: | ||||||||||||||||||||||||||
Accounts receivable, net of allowances | (62,081) | (42,139) | (68,714) | (76,769) | ||||||||||||||||||||||
Accrued utility revenue | 42,700 | 42,600 | (3,200) | (700) | ||||||||||||||||||||||
Deferred purchased gas costs | (293,410) | 59,899 | (317,070) | 38,016 | ||||||||||||||||||||||
Accounts payable | (51,086) | (59,031) | 251 | (14,817) | ||||||||||||||||||||||
Accrued taxes | 5,954 | 17,991 | 3,134 | 26,075 | ||||||||||||||||||||||
Other current assets and liabilities | 23,289 | 121,185 | 9,531 | 121,274 | ||||||||||||||||||||||
Gains on sale of equipment | (5,365) | (581) | (6,632) | (2,897) | ||||||||||||||||||||||
Changes in undistributed stock compensation | 7,676 | 5,789 | 9,001 | 6,618 | ||||||||||||||||||||||
Equity AFUDC | — | (3,413) | (1,311) | (4,395) | ||||||||||||||||||||||
Changes in deferred charges and other assets | (7,956) | (19,174) | (21,373) | (24,370) | ||||||||||||||||||||||
Changes in other liabilities and deferred credits | (57,269) | (52,018) | (67,922) | (54,996) | ||||||||||||||||||||||
Net cash provided by operating activities | 51,521 | 487,818 | 189,783 | 609,704 | ||||||||||||||||||||||
CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||||||
Construction expenditures and property additions | (506,737) | (632,474) | (699,368) | (851,236) | ||||||||||||||||||||||
Acquisition of businesses, net of cash acquired | (830,395) | (250) | (830,145) | (28,355) | ||||||||||||||||||||||
Changes in customer advances | 7,940 | 7,691 | 14,282 | 11,643 | ||||||||||||||||||||||
Other | 14,755 | 6,520 | 17,238 | 8,811 | ||||||||||||||||||||||
Net cash used in investing activities | (1,314,437) | (618,513) | (1,497,993) | (859,137) | ||||||||||||||||||||||
CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||||||||||||||||||||
Issuance of common stock, net | 210,812 | 90,635 | 259,422 | 119,240 | ||||||||||||||||||||||
Dividends paid | (102,292) | (93,317) | (134,479) | (123,099) | ||||||||||||||||||||||
Issuance of long-term debt, net | 1,654,960 | 650,619 | 1,666,718 | 699,601 | ||||||||||||||||||||||
Retirement of long-term debt | (406,815) | (289,295) | (473,926) | (375,909) | ||||||||||||||||||||||
Change in credit facility and commercial paper | (150,000) | (92,000) | (58,000) | (92,000) | ||||||||||||||||||||||
Change in short-term debt | 165,000 | (157,000) | 218,000 | 24,000 | ||||||||||||||||||||||
Withholding remittance - share-based compensation | (1,254) | (2,736) | (1,254) | (2,736) | ||||||||||||||||||||||
Other | (4,355) | (1,596) | (6,161) | (4,090) | ||||||||||||||||||||||
Net cash provided by financing activities | 1,366,056 | 105,310 | 1,470,320 | 245,007 | ||||||||||||||||||||||
Effects of currency translation on cash and cash equivalents | 198 | (209) | 635 | (109) | ||||||||||||||||||||||
Change in cash and cash equivalents | 103,338 | (25,594) | 162,745 | (4,535) | ||||||||||||||||||||||
Cash and cash equivalents at beginning of period | 83,352 | 49,539 | 23,945 | 28,480 | ||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 186,690 | $ | 23,945 | $ | 186,690 | $ | 23,945 | ||||||||||||||||||
SUPPLEMENTAL INFORMATION: | ||||||||||||||||||||||||||
Interest paid, net of amounts capitalized | $ | 57,128 | $ | 63,743 | $ | 98,567 | $ | 103,836 | ||||||||||||||||||
Income taxes paid (received), net | $ | 7,665 | $ | (16,006) | $ | 12,720 | $ | (13,625) |
The accompanying notes are an integral part of these statements.
6 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||
Common stock shares | |||||||||||||||||||||||||||||
Beginning balances | 59,088 | 55,910 | 57,193 | 55,007 | |||||||||||||||||||||||||
Common stock issuances | 1,291 | 549 | 3,186 | 1,452 | |||||||||||||||||||||||||
Ending balances | 60,379 | 56,459 | 60,379 | 56,459 | |||||||||||||||||||||||||
Common stock amount | |||||||||||||||||||||||||||||
Beginning balances | $ | 60,718 | $ | 57,540 | $ | 58,823 | $ | 56,637 | |||||||||||||||||||||
Common stock issuances | 1,291 | 549 | 3,186 | 1,452 | |||||||||||||||||||||||||
Ending balances | 62,009 | 58,089 | 62,009 | 58,089 | |||||||||||||||||||||||||
Additional paid-in capital | |||||||||||||||||||||||||||||
Beginning balances | 1,733,572 | 1,523,630 | 1,609,155 | 1,466,937 | |||||||||||||||||||||||||
Common stock issuances | 90,317 | 36,184 | 214,734 | 92,877 | |||||||||||||||||||||||||
Ending balances | 1,823,889 | 1,559,814 | 1,823,889 | 1,559,814 | |||||||||||||||||||||||||
Accumulated other comprehensive loss | |||||||||||||||||||||||||||||
Beginning balances | (55,688) | (55,617) | (61,003) | (56,732) | |||||||||||||||||||||||||
Foreign currency exchange translation adjustment | (2,056) | 1,024 | (324) | (1,187) | |||||||||||||||||||||||||
Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | 1,380 | 1,027 | 4,136 | 3,082 | |||||||||||||||||||||||||
FSIRS amounts reclassified to net income, net of tax | 413 | 783 | 1,240 | 2,054 | |||||||||||||||||||||||||
Ending balances | (55,951) | (52,783) | (55,951) | (52,783) | |||||||||||||||||||||||||
Retained earnings | |||||||||||||||||||||||||||||
Beginning balances | 1,108,279 | 1,085,742 | 1,067,978 | 1,039,072 | |||||||||||||||||||||||||
Net income (loss) | (11,576) | 18,273 | 130,836 | 128,780 | |||||||||||||||||||||||||
Dividends declared | (36,098) | (32,324) | (106,303) | (96,161) | |||||||||||||||||||||||||
Redemption value adjustments | 19,264 | (17,573) | (12,642) | (17,573) | |||||||||||||||||||||||||
Ending balances | 1,079,869 | 1,054,118 | 1,079,869 | 1,054,118 | |||||||||||||||||||||||||
Total equity ending balances | $ | 2,909,816 | $ | 2,619,238 | $ | 2,909,816 | $ | 2,619,238 | |||||||||||||||||||||
Dividends declared per common share | $ | 0.595 | $ | 0.57 | $ | 1.785 | $ | 1.71 |
The accompanying notes are an integral part of these statements.
7 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
September 30, 2021 | December 31, 2020 | |||||||||||||
ASSETS | ||||||||||||||
Utility plant: | ||||||||||||||
Gas plant | $ | 8,742,806 | $ | 8,384,000 | ||||||||||
Less: accumulated depreciation | (2,499,488) | (2,419,348) | ||||||||||||
Construction work in progress | 153,100 | 211,429 | ||||||||||||
Net utility plant | 6,396,418 | 6,176,081 | ||||||||||||
Other property and investments | 149,926 | 143,611 | ||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | 122,758 | 41,070 | ||||||||||||
Accounts receivable, net of allowance | 103,430 | 146,861 | ||||||||||||
Accrued utility revenue | 39,700 | 82,400 | ||||||||||||
Income taxes receivable, net | 17,775 | 11,155 | ||||||||||||
Deferred purchased gas costs | 240,827 | 2,053 | ||||||||||||
Prepaid and other current assets | 170,470 | 152,748 | ||||||||||||
Total current assets | 694,960 | 436,287 | ||||||||||||
Noncurrent assets: | ||||||||||||||
Goodwill | 10,095 | 10,095 | ||||||||||||
Deferred charges and other assets | 461,212 | 490,562 | ||||||||||||
Total noncurrent assets | 471,307 | 500,657 | ||||||||||||
Total assets | $ | 7,712,611 | $ | 7,256,636 | ||||||||||
CAPITALIZATION AND LIABILITIES | ||||||||||||||
Capitalization: | ||||||||||||||
Common stock | $ | 49,112 | $ | 49,112 | ||||||||||
Additional paid-in capital | 1,617,796 | 1,410,345 | ||||||||||||
Accumulated other comprehensive loss, net | (55,759) | (61,135) | ||||||||||||
Retained earnings | 851,645 | 835,146 | ||||||||||||
Total equity | 2,462,794 | 2,233,468 | ||||||||||||
Long-term debt, less current maturities | 2,309,857 | 2,438,206 | ||||||||||||
Total capitalization | 4,772,651 | 4,671,674 | ||||||||||||
Current liabilities: | ||||||||||||||
Current maturities of long-term debt | 275,000 | — | ||||||||||||
Short-term debt | 250,000 | 57,000 | ||||||||||||
Accounts payable | 113,810 | 161,646 | ||||||||||||
Customer deposits | 51,816 | 67,920 | ||||||||||||
Accrued general taxes | 60,656 | 48,640 | ||||||||||||
Accrued interest | 34,938 | 20,495 | ||||||||||||
Deferred purchased gas costs | — | 54,636 | ||||||||||||
Payable to parent | 207 | 142 | ||||||||||||
Other current liabilities | 155,490 | 146,046 | ||||||||||||
Total current liabilities | 941,917 | 556,525 | ||||||||||||
Deferred income taxes and other credits: | ||||||||||||||
Deferred income taxes and investment tax credits, net | 618,597 | 581,100 | ||||||||||||
Accumulated removal costs | 419,000 | 404,000 | ||||||||||||
Other deferred credits and other long-term liabilities | 960,446 | 1,043,337 | ||||||||||||
Total deferred income taxes and other credits | 1,998,043 | 2,028,437 | ||||||||||||
Total capitalization and liabilities | $ | 7,712,611 | $ | 7,256,636 |
The accompanying notes are an integral part of these statements.
8 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | Twelve Months Ended September 30, | ||||||||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
Gas operating revenues | $ | 255,848 | $ | 210,834 | $ | 1,070,576 | $ | 976,095 | $ | 1,445,066 | $ | 1,355,666 | ||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||
Net cost of gas sold | 63,710 | 36,321 | 296,227 | 264,615 | 374,449 | 356,925 | ||||||||||||||||||||||||||||||||
Operations and maintenance | 119,708 | 101,159 | 328,980 | 303,567 | 431,795 | 406,169 | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 61,359 | 55,942 | 187,688 | 173,865 | 249,118 | 230,158 | ||||||||||||||||||||||||||||||||
Taxes other than income taxes | 20,109 | 15,787 | 60,134 | 47,507 | 76,087 | 63,195 | ||||||||||||||||||||||||||||||||
Total operating expenses | 264,886 | 209,209 | 873,029 | 789,554 | 1,131,449 | 1,056,447 | ||||||||||||||||||||||||||||||||
Operating income (loss) | (9,038) | 1,625 | 197,547 | 186,541 | 313,617 | 299,219 | ||||||||||||||||||||||||||||||||
Other income and (expenses): | ||||||||||||||||||||||||||||||||||||||
Net interest deductions | (24,922) | (26,103) | (71,263) | (75,152) | (97,259) | (100,115) | ||||||||||||||||||||||||||||||||
Other income (deductions) | (4,287) | 1,751 | (4,902) | (10,947) | (545) | (7,615) | ||||||||||||||||||||||||||||||||
Total other income and (expenses) | (29,209) | (24,352) | (76,165) | (86,099) | (97,804) | (107,730) | ||||||||||||||||||||||||||||||||
Income (loss) before income taxes | (38,247) | (22,727) | 121,382 | 100,442 | 215,813 | 191,489 | ||||||||||||||||||||||||||||||||
Income tax expense (benefit) | (10,703) | (6,754) | 18,798 | 20,874 | 33,679 | 35,496 | ||||||||||||||||||||||||||||||||
Net income (loss) | $ | (27,544) | $ | (15,973) | $ | 102,584 | $ | 79,568 | $ | 182,134 | $ | 155,993 |
The accompanying notes are an integral part of these statements.
9 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands of dollars)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | Twelve Months Ended September 30, | ||||||||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
Net income (loss) | $ | (27,544) | $ | (15,973) | $ | 102,584 | $ | 79,568 | $ | 182,134 | $ | 155,993 | ||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | ||||||||||||||||||||||||||||||||||||||
Defined benefit pension plans: | ||||||||||||||||||||||||||||||||||||||
Net actuarial loss | — | — | — | — | (43,730) | (54,026) | ||||||||||||||||||||||||||||||||
Amortization of prior service cost | 183 | 220 | 547 | 659 | 766 | 901 | ||||||||||||||||||||||||||||||||
Prior service cost | — | — | — | — | — | (1,426) | ||||||||||||||||||||||||||||||||
Amortization of net actuarial loss | 8,474 | 7,187 | 25,420 | 21,563 | 32,608 | 26,004 | ||||||||||||||||||||||||||||||||
Regulatory adjustment | (7,277) | (6,380) | (21,831) | (19,140) | 2,959 | 21,130 | ||||||||||||||||||||||||||||||||
Net defined benefit pension plans | 1,380 | 1,027 | 4,136 | 3,082 | (7,397) | (7,417) | ||||||||||||||||||||||||||||||||
Forward-starting interest rate swaps (“FSIRS”): | ||||||||||||||||||||||||||||||||||||||
Amounts reclassified into net income (loss) | 413 | 783 | 1,240 | 2,054 | 1,653 | 2,689 | ||||||||||||||||||||||||||||||||
Net forward-starting interest rate swaps | 413 | 783 | 1,240 | 2,054 | 1,653 | 2,689 | ||||||||||||||||||||||||||||||||
Total other comprehensive income (loss), net of tax | 1,793 | 1,810 | 5,376 | 5,136 | (5,744) | (4,728) | ||||||||||||||||||||||||||||||||
Comprehensive income (loss) | $ | (25,751) | $ | (14,163) | $ | 107,960 | $ | 84,704 | $ | 176,390 | $ | 151,265 |
The accompanying notes are an integral part of these statements.
10 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
Nine Months Ended September 30, | Twelve Months Ended September 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||||||||||||||||||||
Net income | $ | 102,584 | $ | 79,568 | $ | 182,134 | $ | 155,993 | ||||||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||||||||
Depreciation and amortization | 187,688 | 173,865 | 249,118 | 230,158 | ||||||||||||||||||||||
Deferred income taxes | 35,800 | 25,633 | 55,164 | 23,415 | ||||||||||||||||||||||
Changes in current assets and liabilities: | ||||||||||||||||||||||||||
Accounts receivable, net of allowance | 43,430 | 70,129 | (22,766) | (7,135) | ||||||||||||||||||||||
Accrued utility revenue | 42,700 | 42,600 | (3,200) | (700) | ||||||||||||||||||||||
Deferred purchased gas costs | (293,410) | 59,899 | (317,070) | 38,016 | ||||||||||||||||||||||
Accounts payable | (42,536) | (50,314) | 17,396 | (476) | ||||||||||||||||||||||
Accrued taxes | 5,396 | 15,914 | (12,045) | 29,228 | ||||||||||||||||||||||
Other current assets and liabilities | 18,608 | 74,892 | (7,739) | 76,194 | ||||||||||||||||||||||
Changes in undistributed stock compensation | 5,437 | 4,492 | 6,239 | 4,928 | ||||||||||||||||||||||
Equity AFUDC | — | (3,413) | (1,311) | (4,395) | ||||||||||||||||||||||
Changes in deferred charges and other assets | (18,726) | (27,688) | (35,329) | (38,357) | ||||||||||||||||||||||
Changes in other liabilities and deferred credits | (55,905) | (52,532) | (68,509) | (55,536) | ||||||||||||||||||||||
Net cash provided by operating activities | 31,066 | 413,045 | 42,082 | 451,333 | ||||||||||||||||||||||
CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||||||
Construction expenditures and property additions | (415,398) | (525,221) | (582,393) | (716,564) | ||||||||||||||||||||||
Changes in customer advances | 7,940 | 7,691 | 14,282 | 11,643 | ||||||||||||||||||||||
Other | 65 | 183 | 653 | 139 | ||||||||||||||||||||||
Net cash used in investing activities | (407,393) | (517,347) | (567,458) | (704,782) | ||||||||||||||||||||||
CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||||||||||||||||||||
Contributions from parent | 202,583 | 131,961 | 248,544 | 165,711 | ||||||||||||||||||||||
Dividends paid | (82,000) | (77,500) | (109,000) | (102,400) | ||||||||||||||||||||||
Issuance of long-term debt, net | 297,318 | 446,508 | 297,318 | 446,508 | ||||||||||||||||||||||
Retirement of long-term debt | — | (125,000) | — | (125,000) | ||||||||||||||||||||||
Change in credit facility and commercial paper | (150,000) | (92,000) | (58,000) | (92,000) | ||||||||||||||||||||||
Change in short-term debt | 193,000 | (194,000) | 250,000 | (30,000) | ||||||||||||||||||||||
Withholding remittance - share-based compensation | (1,254) | (2,736) | (1,254) | (2,737) | ||||||||||||||||||||||
Other | (1,632) | (1,186) | (1,708) | (1,210) | ||||||||||||||||||||||
Net cash provided by financing activities | 458,015 | 86,047 | 625,900 | 258,872 | ||||||||||||||||||||||
Change in cash and cash equivalents | 81,688 | (18,255) | 100,524 | 5,423 | ||||||||||||||||||||||
Cash and cash equivalents at beginning of period | 41,070 | 40,489 | 22,234 | 16,811 | ||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 122,758 | $ | 22,234 | $ | 122,758 | $ | 22,234 | ||||||||||||||||||
SUPPLEMENTAL INFORMATION: | ||||||||||||||||||||||||||
Interest paid, net of amounts capitalized | $ | 53,220 | $ | 57,168 | $ | 92,778 | $ | 94,106 | ||||||||||||||||||
Income taxes paid (received), net | $ | — | $ | (22,962) | $ | 3,359 | $ | (22,262) |
The accompanying notes are an integral part of these statements.
11 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
Common stock shares | ||||||||||||||||||||||||||||||||
Beginning and ending balances | 47,482 | 47,482 | 47,482 | 47,482 | ||||||||||||||||||||||||||||
Common stock amount | ||||||||||||||||||||||||||||||||
Beginning and ending balances | $ | 49,112 | $ | 49,112 | $ | 49,112 | $ | 49,112 | ||||||||||||||||||||||||
Additional paid-in capital | ||||||||||||||||||||||||||||||||
Beginning balances | 1,529,419 | 1,329,843 | 1,410,345 | 1,229,083 | ||||||||||||||||||||||||||||
Share-based compensation | 1,435 | 1,137 | 4,868 | 2,397 | ||||||||||||||||||||||||||||
Contributions from Southwest Gas Holdings, Inc. | 86,942 | 32,461 | 202,583 | 131,961 | ||||||||||||||||||||||||||||
Ending balances | 1,617,796 | 1,363,441 | 1,617,796 | 1,363,441 | ||||||||||||||||||||||||||||
Accumulated other comprehensive loss | ||||||||||||||||||||||||||||||||
Beginning balances | (57,552) | (51,825) | (61,135) | (55,151) | ||||||||||||||||||||||||||||
Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax | 1,380 | 1,027 | 4,136 | 3,082 | ||||||||||||||||||||||||||||
FSIRS amounts reclassified to net income, net of tax | 413 | 783 | 1,240 | 2,054 | ||||||||||||||||||||||||||||
Ending balances | (55,759) | (50,015) | (55,759) | (50,015) | ||||||||||||||||||||||||||||
Retained earnings | ||||||||||||||||||||||||||||||||
Beginning balances | 908,757 | 824,847 | 835,146 | 782,108 | ||||||||||||||||||||||||||||
Net income (loss) | (27,544) | (15,973) | 102,584 | 79,568 | ||||||||||||||||||||||||||||
Share-based compensation | (168) | (139) | (685) | (641) | ||||||||||||||||||||||||||||
Dividends declared to Southwest Gas Holdings, Inc. | (29,400) | (27,000) | (85,400) | (79,300) | ||||||||||||||||||||||||||||
Ending balances | 851,645 | 781,735 | 851,645 | 781,735 | ||||||||||||||||||||||||||||
Total Southwest Gas Corporation equity ending balances | $ | 2,462,794 | $ | 2,144,273 | $ | 2,462,794 | $ | 2,144,273 |
The accompanying notes are an integral part of these statements.
12 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
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).
In October 2021, Southwest Gas Holdings, Inc. (the “Company”) entered into an agreement with Dominion Energy Questar Corporation, a wholly owned subsidiary of Dominion Energy, Inc., to acquire all equity interests in Dominion Energy Questar Pipeline, LLC and related entities (“Questar Pipelines”). Upon closing, Questar Pipelines will operate as part of a standalone subsidiary of the Company, and will undergo new branding at or subsequent to close. The agreement provides for consideration of $1.545 billion in cash (subject to certain adjustments) and assumption of approximately $430 million of existing long-term debt. The agreement contains certain termination rights, including a mutual termination right exercisable at any time and a unilateral termination right exercisable by either party if certain conditions have not been met by December 31, 2021 (the initial termination date), subject to an extension unilaterally exercisable by either party if certain conditions have not been met, subsequently extending the initial termination date through June 30, 2022. The completion of this transaction is subject to closing conditions, including the expiration or termination of any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and approval of certain aspects of the transaction by the Federal Communications Commission. The operations to be acquired would further diversify the Company’s business with an expansion of regulated interstate natural gas pipelines and underground storage services as part of the jurisdiction of the Federal Energy Regulatory Commission (the “FERC”), thereby expanding transportation services into Utah, Wyoming, and Colorado. The Company plans to initially fund this acquisition with a new 364-day term loan, followed by permanent financing. See Note 5 – Debt for more information.
Southwest is engaged in the business of purchasing, distributing, and transporting natural gas for customers in portions of Arizona, Nevada, and California. Public utility rates, practices, facilities, and service territories of Southwest are subject to regulatory oversight. The timing and amount of rate relief can materially impact results of operations. Natural gas purchases and the timing of related recoveries can materially impact liquidity. Results for the natural gas 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 primarily from installation, replacement, repair, and maintenance of energy distribution systems. 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”), Linetec Services, LLC (“Linetec”), and Riggs Distler & Company, Inc. (“Riggs Distler”). 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. Centuri completed the acquisition of Drum Parent, Inc. (“Drum”), including Drum’s most significant operating subsidiary, Riggs Distler, in August 2021, thereby expanding Centuri’s electric services footprint in the Northeast and Mid-Atlantic regions of the U.S. See Note 8 - Business Acquisitions for more information.
Basis of Presentation. The condensed consolidated financial statements of Southwest Gas Holdings, Inc. and subsidiaries 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 as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring items and estimates necessary for a fair depiction of results for the interim periods, have been made. In association with the novel Coronavirus (“COVID-19”) pandemic environment, utility operations, and to a large extent, utility infrastructure services, were deemed “essential services.” Management has considered the impact of the pandemic and adjusted certain estimates, where relevant, in the preparation of the condensed consolidated financial statements.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the 2020 Annual Report to Stockholders, which is incorporated by reference into the 2020 Form 10-K.
13 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
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.
The Company primarily used quoted market prices and other observable market pricing information in valuing cash and cash equivalents, 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) | September 30, 2021 | December 31, 2020 | |||||||||
Southwest Gas Corporation: | |||||||||||
Net cash surrender value of COLI policies | $ | 147,187 | $ | 140,874 | |||||||
Other property | 2,739 | 2,737 | |||||||||
Total Southwest Gas Corporation | 149,926 | 143,611 | |||||||||
Centuri property, equipment, and intangibles | 1,592,461 | 1,089,414 | |||||||||
Centuri accumulated provision for depreciation and amortization | (468,206) | (422,741) | |||||||||
Other property and investments | 31,153 | 23,961 | |||||||||
Total Southwest Gas Holdings, Inc. | $ | 1,305,334 | $ | 834,245 |
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 of the Company include $55 million of money market fund investments at September 30, 2021, and an insignificant amount at December 31, 2020. The money market fund investments for Southwest were insignificant at both balance sheet dates. These investments fall within Level 2 of the fair value hierarchy, due to the asset valuation methods used by money market funds.
Typical non-cash investing activities include customer advances applied as contributions toward utility construction activity, and capital expenditures that were not yet paid as of period-end reporting dates, but rather were included in accounts payable. Typical activities that represent aspects of both non-cash investing and non-cash financing activities relate to right-of-use assets obtained in exchange for lease liabilities (including, at times, lease terminations and modifications). Amounts related to these collective activities were immaterial for the periods presented herein. See also Prepaid and other current assets below.
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.
14 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
Accounts Receivable, net of allowances. 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 payment history. Southwest lifted the moratorium on disconnection of natural gas service for non-payment in Arizona and Nevada in September 2021, which was initiated (at the same time as a moratorium on late fees) in March 2020 in response to the COVID-19 pandemic. The moratorium on disconnection continues to be in place for California, and is expected to be lifted in the fourth quarter of 2021. Southwest recommenced assessing late fees on past-due balances in Arizona and Nevada in April 2021, and expects to recommence late fees in California in the fourth quarter of 2021. Southwest is actively working with customers experiencing financial hardship by means of flexible payment options. Management continues to monitor expected credit losses in light of the impact of COVID-19. The allowance for uncollectible accounts receivable balances as of September 30, 2021 reflects the expected impact from the pandemic on balances as of that date, including consideration of customers’ ability to pay those amounts that are due.
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 has not been significantly impacted, nor does it anticipate it will experience significant difficulty in collecting amounts due, as a result of the current environment surrounding COVID-19 given the nature of its customers.
Activity between periods in the allowance for uncollectible accounts and the balances as of the periods presented within the Company’s and Southwest’s financial statements were not material to the condensed consolidated financial statements overall.
Deferred Purchased Gas Costs. The various regulatory commissions have established procedures to enable Southwest to adjust its billing rates for changes in the cost of natural gas purchased. The difference between the current cost of gas purchased and the cost of gas recovered in billed rates is deferred. Generally, these deferred amounts are recovered or refunded within one year.
In mid-February 2021, the central U.S. (from south Texas to North Dakota and the eastern Rocky Mountains) experienced extreme cold temperatures, which increased natural gas demand and caused supply issues due to wellhead freeze-offs, power outages, or other adverse operating conditions upstream of Southwest’s distribution systems. These conditions caused daily natural gas prices to reach unprecedented levels. During this time, Southwest secured natural gas supplies, albeit at substantially higher prices, maintaining service to its customers. The incremental cost for these supplies was approximately $250 million, funded using a 364-day $250 million term loan executed in March 2021 (see Note 5 – Debt). The incremental gas costs are expected to continue to be collected from customers through the purchased gas adjustment (“PGA”) mechanisms.
Following the extreme weather event, an interstate transmission pipeline company billed Southwest, in addition to customary transmission costs, $65 million (later reduced to approximately $55 million) for pipeline imbalance charges, allegedly incurred during the period of the pipeline’s critical operation condition. However, Southwest formally disputed the imbalance charges, in addition to interest on that amount, believing that no amounts were due to the pipeline. In June 2021, the interstate transmission pipeline company requested approval from the Federal Energy Regulatory Commission (the “FERC”) to waive these imbalance charges and interest, affirming that they had the authority to elect the option to waive the underlying charges based on their tariff, but were seeking approval by the FERC for purposes of transparency and regulatory certainty. In August 2021, FERC approval was received. Consequently, no amounts were recognized by Southwest related to the original charge from the pipeline.
Prepaid and other current assets. Prepaid and other current assets includes gas pipe materials and operating supplies of $55 million at September 30, 2021 and $50 million at December 31, 2020 (carried at weighted average cost).
In the third quarter of 2021, the Company and Southwest classified certain assets associated with its previous corporate headquarters as held for sale. As a result, the Company and Southwest reclassified approximately $31 million from Net utility plant to Prepaid and other current assets on their respective Condensed Consolidated Balance Sheets during the third quarter of 2021; this was a non-cash item and therefore did not impact the Company’s or Southwest’s respective Condensed Consolidated Statements of Cash Flows.
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 they remained consistent between periods presented below, and that no change was necessary with regard to the level at which goodwill is assessed for impairment. Since December 31, 2020, management also qualitatively assessed whether events during the first nine months of 2021 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
15 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
impairment. Through this assessment, no such condition was believed to have existed and therefore, no impairment was deemed to have occurred. The Riggs Distler acquisition in August 2021 (see further discussion in Note 8 - Business Acquisitions) was deemed a stock purchase for tax purposes, and as a result, only pre-acquisition goodwill that was historically tax-deductible by Riggs Distler will continue to be deductible for tax purposes by the Company. Goodwill on Southwest’s and the Company’s Condensed Consolidated Balance Sheets includes:
(Thousands of dollars) | Natural Gas Operations | Utility Infrastructure Services | Total Company | |||||||||||||||||
December 31, 2020 | $ | 10,095 | $ | 335,089 | $ | 345,184 | ||||||||||||||
Additional goodwill from Riggs Distler acquisition | — | 446,794 | 446,794 | |||||||||||||||||
Foreign currency translation adjustment | — | (76) | (76) | |||||||||||||||||
September 30, 2021 | $ | 10,095 | $ | 781,807 | $ | 791,902 |
Other Current Liabilities. Management recognizes in its balance sheets various liabilities that are expected to be settled through future cash payment within the next twelve months, including amounts payable under regulatory mechanisms, customary accrued expenses for employee compensation and benefits, declared but unpaid dividends, and miscellaneous other accrued liabilities. Other current liabilities for the Company includes $35.9 million and $32.6 million of dividends declared as of September 30, 2021 and December 31, 2020, respectively, as well as liabilities included as part of the Riggs Distler acquisition.
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 September 30, | Nine Months Ended September 30, | Twelve Months Ended September 30, | |||||||||||||||||||||||||||||||||
(Thousands of dollars) | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
Southwest Gas Corporation - natural gas operations segment: | |||||||||||||||||||||||||||||||||||
Change in COLI policies | $ | — | $ | 4,500 | $ | 5,800 | $ | 1,000 | $ | 14,000 | $ | 7,200 | |||||||||||||||||||||||
Interest income | 1,365 | 1,412 | 3,312 | 3,214 | 4,113 | 4,630 | |||||||||||||||||||||||||||||
Equity AFUDC | — | 1,232 | — | 3,413 | 1,311 | 4,395 | |||||||||||||||||||||||||||||
Other components of net periodic benefit cost | (3,506) | (5,005) | (10,516) | (15,016) | (15,522) | (18,780) | |||||||||||||||||||||||||||||
Miscellaneous income and (expense) | (2,146) | (388) | (3,498) | (3,558) | (4,447) | (5,060) | |||||||||||||||||||||||||||||
Southwest Gas Corporation - total other income (deductions) | (4,287) | 1,751 | (4,902) | (10,947) | (545) | (7,615) | |||||||||||||||||||||||||||||
Utility infrastructure services segment: | |||||||||||||||||||||||||||||||||||
Foreign transaction gain (loss) | (7) | — | (19) | (16) | (19) | (16) | |||||||||||||||||||||||||||||
Miscellaneous income and (expense) | 1,182 | 48 | 946 | (91) | 846 | (194) | |||||||||||||||||||||||||||||
Centuri - total other income (deductions) | 1,175 | 48 | 927 | (107) | 827 | (210) | |||||||||||||||||||||||||||||
Corporate and administrative | — | — | — | 8 | — | 37 | |||||||||||||||||||||||||||||
Consolidated Southwest Gas Holdings, Inc. - total other income (deductions) | $ | (3,112) | $ | 1,799 | $ | (3,975) | $ | (11,046) | $ | 282 | $ | (7,788) |
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 also to the discussion of Other Property and Investments above and to Note 2 – Components of Net Periodic Benefit Cost.
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.
16 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
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 a market approach that utilizes certain financial metrics from guideline public companies of similar industry and operating characteristics. Adjustment to the redemption value also impacts retained earnings, as reflected in the Company’s Condensed Consolidated Statement of Equity, but does not impact net income. The following depicts the change to the balance of the redeemable noncontrolling interest:
(Thousands of dollars): | Redeemable Noncontrolling Interest | ||||
Balance, December 31, 2020 | $ | 165,716 | |||
Net income attributable to redeemable noncontrolling interest | 5,189 | ||||
Redemption value adjustment | 12,642 | ||||
Balance, September 30, 2021 | $ | 183,547 |
Earnings Per Share. Basic earnings per share (“EPS”) in each period of this report were calculated by dividing net income attributable to Southwest Gas Holdings, Inc. by the weighted-average number of shares during those periods. Diluted EPS includes additional weighted-average common stock equivalents (performance shares and restricted stock units). Unless otherwise noted, the term “Earnings Per Share” refers to Basic EPS. A reconciliation of the denominator used in Basic and Diluted EPS calculations is shown in the following table:
Three Months Ended September 30, | Nine Months Ended September 30, | Twelve Months Ended September 30, | ||||||||||||||||||||||||||||||||||||
(In thousands) | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||
Weighted average basic shares | 59,688 | 56,271 | 58,639 | 55,683 | 58,209 | 55,508 | ||||||||||||||||||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||||||||||||||||
Management Incentive Plan shares | — | — | — | — | — | 3 | ||||||||||||||||||||||||||||||||
Restricted stock units (1) | 128 | 86 | 103 | 70 | 103 | 66 | ||||||||||||||||||||||||||||||||
Weighted average diluted shares | 59,816 | 56,357 | 58,742 | 55,753 | 58,312 | 55,577 |
(1) The number of securities included 115,000 and 76,000 performance shares during the three months ending September 30, 2021 and 2020, 95,000 and 63,000 performance shares during the nine months ending September 30, 2021 and 2020, and 93,000 and 57,000 performance shares during the twelve months ending September 30, 2021 and 2020, respectively, the total of which was derived by assuming that target performance will be achieved during the relevant performance period.
Contingency. Southwest maintains liability insurance for various risks associated with the operation of its natural gas pipelines and facilities. In connection with these liability insurance policies, Southwest is responsible for an initial deductible or self-insured retention amount per incident, after which the insurance carriers would be responsible for amounts up to the policy limits. For the policy year August 2021 to July 2022, these liability insurance policies require Southwest to be responsible for the first $1 million (self-insured retention) of each incident plus the first $4 million in aggregate claims above its self-insured retention in the policy year. In August 2021, a natural gas pipe was involved in an explosion that injured four individuals and damaged property. The explosion was caused by a leak in the pipe, and is under investigation. Claims are expected to be filed against Southwest. If Southwest is deemed fully or partially responsible, Southwest estimates its exposure could be as much as $5 million (the maximum noted above). As of September 30, 2021, pursuant to Accounting Standards Codification 450, Contingencies, Southwest recorded a $5 million liability related to this incident reflecting the maximum noted above; an estimate of actual loss greater than this exposure (to be covered by insurance) cannot be estimated as of the date these financial statements are issued.
Recent Accounting Standards Updates.
Accounting pronouncements adopted in 2021:
In December 2019, the Financial Accounting Standards Board (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 Company and Southwest adopted the update in the first quarter of 2021, the impact of which was not material to the condensed consolidated financial statements of the Company or Southwest.
17 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
Recently issued accounting pronouncements that will be effective after 2021:
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, including when modifying a contract (during the eligibility period covered by the update to Topic 848) to replace a reference rate affected by such reform. The update applies only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another rate expected to be discontinued due to reference rate reform. The guidance was eligible to be applied upon issuance on March 12, 2020, and can generally be applied through December 31, 2022, but to date, no further updates have occurred that would extend the optional guidance to the full tenor of LIBOR expiration dates occurring after 2022. Management will monitor the impacts this update might have on the Company’s and Southwest’s consolidated financial statements and disclosures, and will reflect such appropriately, in the event that the optional guidance is elected. It will also monitor further FASB action, if any, in regard to the full tenor of LIBOR expiration dates. See also LIBOR discussion in Note 5 – Debt.
In August 2020, the FASB issued ASU 2020-06 “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The update, amongst other amendments, improves the guidance related to the disclosures and earnings-per-share for convertible instruments and contracts in an entity’s own equity. The update is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years; early adoption is permitted. Management is evaluating what impacts, if any, this update might have on the Company’s consolidated financial statements and disclosures.
18 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
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 is a component of an overhead loading process associated with the cost of labor. The overhead process ultimately results in allocation of service cost to the same accounts to which productive labor is charged. As a result, service costs become components of various accounts, primarily operations and maintenance expense, net 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 | |||||||||||||||||||||||||||||||||||
September 30, | |||||||||||||||||||||||||||||||||||
Three Months | Nine Months | Twelve Months | |||||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||
(Thousands of dollars) | |||||||||||||||||||||||||||||||||||
Service cost | $ | 10,289 | $ | 8,576 | $ | 30,869 | $ | 25,725 | $ | 39,443 | $ | 32,191 | |||||||||||||||||||||||
Interest cost | 10,108 | 11,388 | 30,324 | 34,165 | 41,714 | 46,416 | |||||||||||||||||||||||||||||
Expected return on plan assets | (18,088) | (16,324) | (54,264) | (48,972) | (70,588) | (64,033) | |||||||||||||||||||||||||||||
Amortization of net actuarial loss | 10,489 | 9,006 | 31,467 | 27,019 | 40,473 | 32,608 | |||||||||||||||||||||||||||||
Net periodic benefit cost | $ | 12,798 | $ | 12,646 | $ | 38,396 | $ | 37,937 | $ | 51,042 | $ | 47,182 | |||||||||||||||||||||||
SERP | |||||||||||||||||||||||||||||||||||
September 30, | |||||||||||||||||||||||||||||||||||
Three Months | Nine Months | Twelve Months | |||||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||
(Thousands of dollars) | |||||||||||||||||||||||||||||||||||
Service cost | $ | 131 | $ | 97 | $ | 394 | $ | 292 | $ | 491 | $ | 359 | |||||||||||||||||||||||
Interest cost | 358 | 401 | 1,074 | 1,204 | 1,474 | 1,644 | |||||||||||||||||||||||||||||
Amortization of net actuarial loss | 661 | 451 | 1,981 | 1,353 | 2,433 | 1,608 | |||||||||||||||||||||||||||||
Net periodic benefit cost | $ | 1,150 | $ | 949 | $ | 3,449 | $ | 2,849 | $ | 4,398 | $ | 3,611 | |||||||||||||||||||||||
PBOP | |||||||||||||||||||||||||||||||||||
September 30, | |||||||||||||||||||||||||||||||||||
Three Months | Nine Months | Twelve Months | |||||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||
(Thousands of dollars) | |||||||||||||||||||||||||||||||||||
Service cost | $ | 423 | $ | 395 | $ | 1,269 | $ | 1,186 | $ | 1,664 | $ | 1,505 | |||||||||||||||||||||||
Interest cost | 549 | 646 | 1,645 | 1,936 | 2,291 | 2,697 | |||||||||||||||||||||||||||||
Expected return on plan assets | (810) | (852) | (2,430) | (2,556) | (3,282) | (3,345) | |||||||||||||||||||||||||||||
Amortization of prior service costs | 239 | 289 | 719 | 867 | 1,007 | 1,185 | |||||||||||||||||||||||||||||
Net periodic benefit cost | $ | 401 | $ | 478 | $ | 1,203 | $ | 1,433 | $ | 1,680 | $ | 2,042 |
For new employees hired on or after January 1, 2022, the defined benefit retirement plan will be replaced with enhanced contributions to the 401(k) plan. The change is not applicable to existing employees, nor to employees hired during the remainder of 2021. Current employees will continue to be eligible to receive employer 401(k) matching contributions on one-half of amounts deferred by them, up to a maximum matching contribution of 3.5% of their eligible annual compensation. Employees hired after 2021 will be eligible for enhanced employer 401(k) contributions of 3% plus a matching contribution (dollar-for-dollar) up to 7% of eligible compensation.
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.
19 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
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 September 30, | Nine Months Ended September 30, | Twelve Months Ended September 30, | |||||||||||||||||||||||||||||||||
(Thousands of dollars) | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
Residential | $ | 147,326 | $ | 131,008 | $ | 743,791 | $ | 690,861 | $ | 1,011,450 | $ | 957,379 | |||||||||||||||||||||||
Small commercial | 48,283 | 35,204 | 185,774 | 159,122 | 248,193 | 228,720 | |||||||||||||||||||||||||||||
Large commercial | 14,199 | 9,942 | 40,030 | 32,588 | 52,075 | 45,493 | |||||||||||||||||||||||||||||
Industrial/other | 9,608 | 5,888 | 30,352 | 19,089 | 37,505 | 25,435 | |||||||||||||||||||||||||||||
Transportation | 21,884 | 21,040 | 68,217 | 65,281 | 91,151 | 89,364 | |||||||||||||||||||||||||||||
Revenue from contracts with customers | 241,300 | 203,082 | 1,068,164 | 966,941 | 1,440,374 | 1,346,391 | |||||||||||||||||||||||||||||
Alternative revenue program revenues (deferrals) | 12,569 | 9,199 | (5,335) | 9,545 | (2,740) | 7,629 | |||||||||||||||||||||||||||||
Other revenues (1) | 1,979 | (1,447) | 7,747 | (391) | 7,432 | 1,646 | |||||||||||||||||||||||||||||
Total Gas operating revenues | $ | 255,848 | $ | 210,834 | $ | 1,070,576 | $ | 976,095 | $ | 1,445,066 | $ | 1,355,666 |
(1) Amounts include late fees and other miscellaneous revenues, and may also include the impact of certain regulatory mechanisms, such as cost-of-service components in customer rates expected to be returned to customers in future periods. Also includes the impacts of a temporary moratorium on late fees and disconnection for nonpayment during the COVID-19 pandemic.
Utility Infrastructure Services Segment:
The following tables display Centuri’s revenue, reflected as Utility infrastructure services revenues on the Condensed Consolidated Statements of Income of the Company, representing revenue from contracts with customers disaggregated by service and contract types:
Three Months Ended September 30, | Nine Months Ended September 30, | Twelve Months Ended September 30, | |||||||||||||||||||||||||||||||||
(Thousands of dollars) | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
Service Types: | |||||||||||||||||||||||||||||||||||
Gas infrastructure services | $ | 393,122 | $ | 387,578 | $ | 961,836 | $ | 935,444 | $ | 1,287,552 | $ | 1,288,468 | |||||||||||||||||||||||
Electric power infrastructure services | 155,456 | 115,386 | 347,061 | 282,992 | 475,895 | 346,432 | |||||||||||||||||||||||||||||
Other | 84,270 | 77,428 | 216,551 | 190,262 | 301,591 | 242,364 | |||||||||||||||||||||||||||||
Total Utility infrastructure services revenues | $ | 632,848 | $ | 580,392 | $ | 1,525,448 | $ | 1,408,698 | $ | 2,065,038 | $ | 1,877,264 |
Three Months Ended September 30, | Nine Months Ended September 30, | Twelve Months Ended September 30, | |||||||||||||||||||||||||||||||||
(Thousands of dollars) | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
Contract Types: | |||||||||||||||||||||||||||||||||||
Master services agreement | $ | 467,869 | $ | 437,914 | $ | 1,160,199 | $ | 1,076,961 | $ | 1,573,247 | $ | 1,438,540 | |||||||||||||||||||||||
Bid contract | 164,979 | 142,478 | 365,249 | 331,737 | 491,791 | 438,724 | |||||||||||||||||||||||||||||
Total Utility infrastructure services revenues | $ | 632,848 | $ | 580,392 | $ | 1,525,448 | $ | 1,408,698 | $ | 2,065,038 | $ | 1,877,264 | |||||||||||||||||||||||
Unit price contracts | $ | 406,404 | $ | 377,284 | $ | 1,002,779 | $ | 985,673 | $ | 1,373,746 | $ | 1,359,352 | |||||||||||||||||||||||
Fixed price contracts | 64,632 | 46,379 | 149,681 | 109,935 | 197,447 | 142,356 | |||||||||||||||||||||||||||||
Time and materials contracts | 161,812 | 156,729 | 372,988 | 313,090 | 493,845 | 375,556 | |||||||||||||||||||||||||||||
Total Utility infrastructure services revenues | $ | 632,848 | $ | 580,392 | $ | 1,525,448 | $ | 1,408,698 | $ | 2,065,038 | $ | 1,877,264 |
20 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
The following table provides information about contracts receivable and revenue earned on contracts in progress in excess of billings (contract assets), which are both included within Accounts receivable, net of allowances; the table also includes amounts billed in excess of revenue earned on contracts (contract liabilities), which are included in Other current liabilities as of September 30, 2021 and December 31, 2020 on the Company’s Condensed Consolidated Balance Sheets:
(Thousands of dollars) | September 30, 2021 | December 31, 2020 | |||||||||
Contracts receivable, net | $ | 381,387 | $ | 278,316 | |||||||
Revenue earned on contracts in progress in excess of billings | 207,318 | 96,996 | |||||||||
Amounts billed in excess of revenue earned on contracts | 19,954 | 4,507 |
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, 2020 to September 30, 2021 is due to revenue recognized of approximately $4.5 million that was included in this item as of January 1, 2021, after which time it became earned and the balance was reduced; the change also includes 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. Furthermore, because of the short duration of these contracts, Centuri has not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period or when the Company expects to recognize the revenue.
As of September 30, 2021, Centuri had 18 contracts with an original duration of more than one year. The aggregate amount of the transaction price allocated to the unsatisfied performance obligations of these contracts as of September 30, 2021 was $53.8 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) | September 30, 2021 | December 31, 2020 | |||||||||
Billed on completed contracts and contracts in progress | $ | 380,484 | $ | 273,778 | |||||||
Other receivables | 2,844 | 6,692 | |||||||||
Contracts receivable, gross | 383,328 | 280,470 | |||||||||
Allowance for doubtful accounts | (1,941) | (2,154) | |||||||||
Contracts receivable, net | $ | 381,387 | $ | 278,316 |
21 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
Note 4 – Common Stock
Shares of the Company’s common stock are publicly traded on the New York Stock Exchange, under the ticker symbol “SWX.” Share-based compensation related to Southwest and Centuri is based on stock awards to be issued in shares of Southwest Gas Holdings, Inc.
On April 8, 2021, the Company entered into a Sales Agency Agreement between the Company and BNY Mellon Capital Markets, LLC and J.P. Morgan Securities LLC (the “Equity Shelf Program”) for the offer and sale of up to $500 million of common stock from time to time in an at-the-market offering program. The shares are issued pursuant to the Company’s automatic shelf registration statement on Form S-3 (File No. 333-251074). The following table provides the activity under the Equity Shelf Program for the three-month and life-to-date periods ended September 30, 2021:
Three Months Ended | Life-To-Date Ended | ||||||||||
September 30, 2021 | |||||||||||
Gross proceeds | $ | 87,819,931 | $ | 158,180,343 | |||||||
Less: agent commissions | (878,199) | (1,581,803) | |||||||||
Net proceeds | $ | 86,941,732 | $ | 156,598,540 | |||||||
Number of shares sold | 1,251,810 | 2,302,407 | |||||||||
Weighted average price per share | $ | 70.15 | $ | 68.70 |
As of September 30, 2021, the Company had up to $341,819,657 in common stock available for sale under the program. Net proceeds from the sale of shares of common stock under the Equity Shelf Program are intended for general corporate purposes, including the acquisition of property for the construction, completion, extension, or improvement of pipeline systems and facilities located in and around the communities served by Southwest, as well as for the repayment or repurchase of indebtedness (including amounts outstanding from time to time under the credit facilities, senior notes, term loan, or future credit facilities), and to provide for working capital.
During the quarter ended March 31, 2021, the Company sold essentially all of the remaining common stock available for sale under a previously effective equity shelf program.
During the nine months ended September 30, 2021, the Company issued approximately 47,500 shares of common stock through the Restricted Stock/Unit Plan and Omnibus Incentive Plan.
Additionally, during the nine months ended September 30, 2021, the Company issued 130,000 shares of common stock through the Dividend Reinvestment and Stock Purchase Plan, raising approximately $8.5 million.
On October 10, 2021, the Company’s Board of Directors (the “Board”) authorized and declared a dividend of one preferred stock purchase right (a “Right”) for each share of common stock outstanding, $1 par value per share, of the Company to stockholders of record at the close of business on October 21, 2021. Each right entitles the registered holder to purchase from the Company one ten-thousandth (a “unit”) of a share of Series A Junior Participating Preferred Stock, no par value per share, of the Company at a purchase price of $321.70 per unit, subject to adjustment. Generally, the Rights become exercisable in the event any person or group of affiliated or associated persons acquires beneficial ownership of 10% (20% in the case of a passive institutional investor) or more of the Company’s common stock without the approval of the Board, and until such time, are inseparable from and trade with the Company’s common stock. The Rights were issued pursuant to the Rights Agreement dated October 10, 2021 (the “Rights Agreement”), between the Company and Equiniti Trust Company, as rights agent. The Rights expire at the close of business on October 9, 2022 or upon an earlier merger or other acquisition transaction involving the Company, redemption, or exchange as provided in the Rights Agreement.
22 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
Note 5 – Debt
Long-Term Debt
Long-term debt is recognized in the Company’s and Southwest’s Condensed Consolidated Balance Sheets generally at the carrying value of the obligations outstanding. Details surrounding the fair value, as described in Note 1 – Background, Organization, and Summary of Significant Accounting Policies, and individual carrying values of instruments are provided in the table that follows.
September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||||||
(Thousands of dollars) | ||||||||||||||||||||||||||
Southwest Gas Corporation: | ||||||||||||||||||||||||||
Debentures: | ||||||||||||||||||||||||||
Notes, 6.1%, due 2041 | $ | 125,000 | $ | 167,755 | $ | 125,000 | $ | 174,858 | ||||||||||||||||||
Notes, 3.875%, due 2022 | 250,000 | 252,208 | 250,000 | 258,825 | ||||||||||||||||||||||
Notes, 4.875%, due 2043 | 250,000 | 307,385 | 250,000 | 317,190 | ||||||||||||||||||||||
Notes, 3.8%, due 2046 | 300,000 | 326,058 | 300,000 | 347,046 | ||||||||||||||||||||||
Notes, 3.7%, due 2028 | 300,000 | 331,536 | 300,000 | 344,553 | ||||||||||||||||||||||
Notes, 4.15%, due 2049 | 300,000 | 343,950 | 300,000 | 370,278 | ||||||||||||||||||||||
Notes, 2.2%, due 2030 | 450,000 | 447,287 | 450,000 | 474,552 | ||||||||||||||||||||||
Notes, 3.18%, due 2051 | 300,000 | 291,351 | — | — | ||||||||||||||||||||||
8% Series, due 2026 | 75,000 | 94,752 | 75,000 | 99,723 | ||||||||||||||||||||||
Medium-term notes, 7.78% series, due 2022 | 25,000 | 25,513 | 25,000 | 26,663 | ||||||||||||||||||||||
Medium-term notes, 7.92% series, due 2027 | 25,000 | 31,936 | 25,000 | 33,802 | ||||||||||||||||||||||
Medium-term notes, 6.76% series, due 2027 | 7,500 | 9,116 | 7,500 | 9,613 | ||||||||||||||||||||||
Unamortized discount and debt issuance costs | (20,727) | (17,822) | ||||||||||||||||||||||||
2,386,773 | 2,089,678 | |||||||||||||||||||||||||
Revolving credit facility and commercial paper | — | — | 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 | (1,916) | (1,472) | ||||||||||||||||||||||||
198,084 | 198,528 | |||||||||||||||||||||||||
Less: current maturities | (275,000) | — | ||||||||||||||||||||||||
Long-term debt, less current maturities - Southwest Gas Corporation | $ | 2,309,857 | $ | 2,438,206 | ||||||||||||||||||||||
Centuri: | ||||||||||||||||||||||||||
Centuri term loan facility | $ | 1,145,000 | $ | 1,146,431 | $ | 226,648 | $ | 230,824 | ||||||||||||||||||
Unamortized debt issuance costs | (25,385) | (820) | ||||||||||||||||||||||||
1,119,615 | 225,828 | |||||||||||||||||||||||||
Centuri secured revolving credit facility | 112,236 | 112,348 | 26,626 | 26,645 | ||||||||||||||||||||||
Centuri other debt obligations | 54,346 | 52,682 | 81,973 | 84,246 | ||||||||||||||||||||||
Less: current maturities | (22,271) | (40,433) | ||||||||||||||||||||||||
Long-term debt, less current maturities - Centuri | $ | 1,263,926 | $ | 293,994 | ||||||||||||||||||||||
Consolidated Southwest Gas Holdings, Inc.: | ||||||||||||||||||||||||||
Southwest Gas Corporation long-term debt | $ | 2,584,857 | $ | 2,438,206 | ||||||||||||||||||||||
Centuri long-term debt | 1,286,197 | 334,427 | ||||||||||||||||||||||||
Less: current maturities | (297,271) | (40,433) | ||||||||||||||||||||||||
Long-term debt, less current maturities - Southwest Gas Holdings, Inc. | $ | 3,573,783 | $ | 2,732,200 |
23 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
The fair values of Southwest's and Centuri’s revolving credit facilities and Southwest’s IDRBs are categorized as Level 1 based on the FASB’s fair value hierarchy, due to the ability to access similar debt arrangements at measurement dates with comparable terms, including variable/market rates. The fair values of Southwest’s debentures (which include senior and medium-term notes) and Centuri's term loan facility as of September 30, 2021 were determined utilizing a market-based valuation approach, where fair values are determined based on evaluated pricing data, and as such are categorized as Level 2 in the hierarchy. Prior to amending its secured revolving credit and term loan facility in the third quarter 2021 (see below), the Centuri credit facility was categorized as Level 3, as fair values were based on a conventional discounted cash flow methodology utilizing current market pricing yield curves.
Southwest has a $400 million credit facility that is scheduled to expire in April 2025. Southwest designates $150 million of associated capacity as long-term debt and the remaining $250 million for working capital purposes. Interest rates for the credit facility are calculated at either 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 September 30, 2021, the applicable margin is 1.125% for loans bearing interest with reference to LIBOR and 0.125% for loans bearing interest with reference to the alternative base rate. At September 30, 2021, no borrowings were outstanding on the long-term portion (including under the commercial paper program, discussed below) of the facility or on the short-term portion of this credit facility discussed below.
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 September 30, 2021, as noted above, no borrowings were outstanding under the commercial paper program.
In August 2021, Southwest issued $300 million aggregate principal amount of 3.18% Senior Notes at a discount of 0.019%. The notes will mature in August 2051. Southwest used the net proceeds from the offering to repay the outstanding balance under its credit facility, with the remaining net proceeds used for general corporate purposes.
As referred to above, on August 27, 2021, Centuri, in association with the acquisition of Riggs Distler (see Note 8 - Business Acquisitions), entered into an amended and restated credit agreement. The agreement provided for a $1.145 billion secured term loan facility, at a discount of 1.00%, and a $400 million secured revolving credit facility, which in addition to funding the Riggs Distler acquisition, refinanced the previous $590 million loan facility. This multi-currency facility allows the borrower to request loan advances in either Canadian dollars or U.S. dollars. Amounts borrowed and repaid under the revolving line of credit portion of the facility are available to be re-borrowed. The obligations under the credit agreement are secured by present and future ownership interests in substantially all direct and indirect subsidiaries of Centuri, substantially all of the tangible and intangible personal property of each borrower, certain of their direct and indirect subsidiaries, and all products, profits, and proceeds of the foregoing. The term loan facility matures on August 27, 2028 and the revolving credit facility matures on August 27, 2026.
Interest rates for the term loan facility and the revolving credit facility are based on either a “base rate” or LIBOR, plus an applicable margin in either case. The term loan facility is also subject to a LIBOR floor of 0.50%. Furthermore, Centuri Canada Division Inc. may borrow under the revolving credit facility with interest rates based on either a “base rate” or the Canadian Dealer Offered Rate (“CDOR”) plus the applicable margin, at the borrower’s option. The margin for the term loan facility will be 1.50% for base rate loans and 2.50% for LIBOR loans. The margin for the revolving credit facility ranges from 0.0% to 1.25% for base rate loans and from 1.00% to 2.25% for LIBOR loans, depending on Centuri’s net leverage ratio. Upon the occurrence of certain events providing for a transition away from LIBOR, or if LIBOR is no longer a widely recognized benchmark rate, Centuri may further amend the credit agreement with a replacement rate as set forth in the amended agreement. Centuri is also required to pay a commitment fee on the unused portion of the commitments. The commitment fee ranges from 0.15% to 0.35% per annum. The credit agreement contains certain customary representations and warranties, affirmative and negative covenants and events of default. There are no financial covenants related to the term loan facility. The revolving credit facility requires Centuri to maintain a maximum total net leverage ratio of 5.50 to 1.00 with a step-down to 4.75 to 1.0 on December 31, 2022, and a step-down to 4.00 to 1.00 on December 31, 2023; provided, however, Centuri may elect to increase the maximum total net leverage ratio up to 4.50 to 1.00 in connection with certain material acquisitions, with such increase being applicable for one year following such acquisition; and the agreement also requires Centuri to maintain a minimum interest coverage ratio of 2.50 to 1.00. Centuri’s assets securing the facility at September 30, 2021 totaled $2.6 billion. At September 30, 2021, $1.257 billion in borrowings were outstanding under Centuri’s combined secured revolving credit and term loan facility.
24 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
Short-Term Debt
Southwest Gas Holdings, Inc. has a $100 million credit facility that is scheduled to expire in April 2025 and is primarily used for short-term financing needs. There was $22 million outstanding under this credit facility as of September 30, 2021.
As indicated above, under Southwest’s $400 million credit facility, no short-term borrowings were outstanding at September 30, 2021.
In March 2021, Southwest entered into a $250 million Term Loan that matures March 22, 2022. The proceeds were used to fund the increased cost of natural gas supply during the month of February 2021, caused by extreme weather conditions in the central U.S. (see Deferred Purchased Gas Costs in Note 1 – Background, Organization, and Summary of Significant Accounting Policies). Interest rates for the term loan are calculated at either LIBOR or an “alternate base rate,” plus in each case an applicable margin that is determined based on Southwest’s senior unsecured long-term debt rating. The applicable margin ranges from 0.550% to 1.000% for loans bearing interest with reference to LIBOR and 0.000% for loans bearing interest with reference to an alternate base rate. The 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.
On November 1, 2021, the Company entered into a 364-day term loan credit agreement (the “Credit Agreement”). The Credit Agreement provides for a $1.6 billion delayed-draw term loan (the “Term Loan Facility”) to fund and to pay fees, commissions, and expenses related to the Term Loan Facility and the acquisition by the Company of the equity interests in Questar Pipelines. The Term Loan Facility matures 364 days from the date of the funding of the Term Loan Facility.
The interest rate for the Term Loan Facility is based on either “base rate” or LIBOR, plus an applicable margin in either case. The applicable margin for the Term Loan Facility will be 0% to 0.50% for base rate loans and 0.75% to 1.50% for LIBOR loans, depending on the applicable pricing level in effect. Each of the interest rate spreads will increase by 0.25% at certain time intervals after the funding date. The commitment fee ranges from 0.060% to 0.175% per calendar quarter commencing January 3, 2022, depending on the applicable pricing level in effect. The pricing levels are based on the Company’s senior debt ratings. The interest rate is subject to customary benchmark replacement provisions.
The Credit Agreement contains representations and warranties, affirmative, negative, and financial covenants and events of default substantially similar to the Company’s existing credit facility. Subject to certain exceptions, after the funding date, the Company must make a mandatory prepayment from 100% of the net cash proceeds received by the Company or any of its subsidiaries from any debt offerings or equity issuances and/or 100% of the committed amount under any specified acquisition financings.
LIBOR
Certain rates established at LIBOR are scheduled to be discontinued as a benchmark or reference rate after 2021, while other LIBOR-based rates are scheduled to be discontinued after June 2023. In order to mitigate the impact of a discontinuance on the Company’s and Southwest’s financial condition and results of operations, management will monitor developments and work with lenders to determine the appropriate replacement/alternative reference rate for variable rate debt. At this time the Company and Southwest can provide no assurances as to the impact a LIBOR discontinuance will have on their financial condition or results of operations. Any alternative rate may be less predictable or less attractive than LIBOR.
25 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
Note 6 – Other Comprehensive Income and Accumulated Other Comprehensive Income
The following information presents the Company’s Other comprehensive income (loss), both before and after-tax impacts, within the Condensed Consolidated Statements of Comprehensive Income, which also impact Accumulated other comprehensive income (“AOCI”) in the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statements of Equity.
Related Tax Effects Allocated to Each Component of Other Comprehensive Income (Loss)
Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||
(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 | $ | 239 | $ | (56) | $ | 183 | $ | 289 | $ | (69) | $ | 220 | ||||||||||||||||||||||||||
Amortization of net actuarial (gain)/loss | 11,151 | (2,677) | 8,474 | 9,457 | (2,270) | 7,187 | ||||||||||||||||||||||||||||||||
Regulatory adjustment | (9,575) | 2,298 | (7,277) | (8,394) | 2,014 | (6,380) | ||||||||||||||||||||||||||||||||
Pension plans other comprehensive income (loss) | 1,815 | (435) | 1,380 | 1,352 | (325) | 1,027 | ||||||||||||||||||||||||||||||||
FSIRS (designated hedging activities): | ||||||||||||||||||||||||||||||||||||||
Amounts reclassified into net income | 544 | (131) | 413 | 1,030 | (247) | 783 | ||||||||||||||||||||||||||||||||
FSIRS other comprehensive income (loss) | 544 | (131) | 413 | 1,030 | (247) | 783 | ||||||||||||||||||||||||||||||||
Total other comprehensive income (loss) - Southwest Gas Corporation | 2,359 | (566) | 1,793 | 2,382 | (572) | 1,810 | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments: | ||||||||||||||||||||||||||||||||||||||
Translation adjustments | (2,056) | — | (2,056) | 1,024 | — | 1,024 | ||||||||||||||||||||||||||||||||
Foreign currency other comprehensive income (loss) | (2,056) | — | (2,056) | 1,024 | — | 1,024 | ||||||||||||||||||||||||||||||||
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | $ | 303 | $ | (566) | $ | (263) | $ | 3,406 | $ | (572) | $ | 2,834 | ||||||||||||||||||||||||||
Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||
(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 | $ | 719 | $ | (172) | $ | 547 | $ | 867 | $ | (208) | $ | 659 | ||||||||||||||||||||||||||
Amortization of net actuarial (gain)/loss | 33,448 | (8,028) | 25,420 | 28,372 | (6,809) | 21,563 | ||||||||||||||||||||||||||||||||
Regulatory adjustment | (28,725) | 6,894 | (21,831) | (25,184) | 6,044 | (19,140) | ||||||||||||||||||||||||||||||||
Pension plans other comprehensive income (loss) | 5,442 | (1,306) | 4,136 | 4,055 | (973) | 3,082 | ||||||||||||||||||||||||||||||||
FSIRS (designated hedging activities): | ||||||||||||||||||||||||||||||||||||||
Amounts reclassified into net income | 1,632 | (392) | 1,240 | 2,703 | (649) | 2,054 | ||||||||||||||||||||||||||||||||
FSIRS other comprehensive income (loss) | 1,632 | (392) | 1,240 | 2,703 | (649) | 2,054 | ||||||||||||||||||||||||||||||||
Total other comprehensive income (loss) - Southwest Gas Corporation | 7,074 | (1,698) | 5,376 | 6,758 | (1,622) | 5,136 | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments: | ||||||||||||||||||||||||||||||||||||||
Translation adjustments | (324) | — | (324) | (1,187) | — | (1,187) | ||||||||||||||||||||||||||||||||
Foreign currency other comprehensive income (loss) | (324) | — | (324) | (1,187) | — | (1,187) | ||||||||||||||||||||||||||||||||
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | $ | 6,750 | $ | (1,698) | $ | 5,052 | $ | 5,571 | $ | (1,622) | $ | 3,949 |
26 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
Twelve Months Ended September 30, 2021 | Twelve Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||
(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) | $ | (57,539) | $ | 13,809 | $ | (43,730) | $ | (71,087) | $ | 17,061 | $ | (54,026) | ||||||||||||||||||||||||||
Amortization of prior service cost | 1,007 | (241) | 766 | 1,185 | (284) | 901 | ||||||||||||||||||||||||||||||||
Amortization of net actuarial (gain)/loss | 42,906 | (10,298) | 32,608 | 34,216 | (8,212) | 26,004 | ||||||||||||||||||||||||||||||||
Prior service cost | — | — | — | (1,878) | 452 | (1,426) | ||||||||||||||||||||||||||||||||
Regulatory adjustment | 3,894 | (935) | 2,959 | 27,803 | (6,673) | 21,130 | ||||||||||||||||||||||||||||||||
Pension plans other comprehensive income (loss) | (9,732) | 2,335 | (7,397) | (9,761) | 2,344 | (7,417) | ||||||||||||||||||||||||||||||||
FSIRS (designated hedging activities): | ||||||||||||||||||||||||||||||||||||||
Amounts reclassified into net income | 2,176 | (523) | 1,653 | 3,539 | (850) | 2,689 | ||||||||||||||||||||||||||||||||
FSIRS other comprehensive income (loss) | 2,176 | (523) | 1,653 | 3,539 | (850) | 2,689 | ||||||||||||||||||||||||||||||||
Total other comprehensive income (loss) - Southwest Gas Corporation | (7,556) | 1,812 | (5,744) | (6,222) | 1,494 | (4,728) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments: | ||||||||||||||||||||||||||||||||||||||
Translation adjustments | 2,576 | — | 2,576 | (280) | — | (280) | ||||||||||||||||||||||||||||||||
Foreign currency other comprehensive income (loss) | 2,576 | — | 2,576 | (280) | — | (280) | ||||||||||||||||||||||||||||||||
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. | $ | (4,980) | $ | 1,812 | $ | (3,168) | $ | (6,502) | $ | 1,494 | $ | (5,008) |
(1)Tax amounts are calculated using a 24% rate. The Company has elected to indefinitely reinvest, in Canada, the earnings of Centuri’s Canadian subsidiaries, thus precluding deferred taxes on such earnings. As a result of this assertion, and no repatriation of earnings anticipated, the Company is not recognizing a tax effect or presenting a tax expense or benefit for currency translation adjustments reported in Other comprehensive income (loss).
Approximately $828,000 of realized losses (net of tax) related to the remaining balance of Southwest’s previously settled forward-starting interest rate swap (“FSIRS”), included in AOCI at September 30, 2021, will be reclassified into interest expense within the next 6 months (the remainder of the amortization period for the balance) as the related interest payments on long-term debt occur.
The following table represents a rollforward of AOCI, presented on the Company’s Condensed Consolidated Balance Sheets and its Condensed Consolidated Statements of Equity:
Defined Benefit Plans | FSIRS | Foreign Currency Items | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Thousands of dollars) | Before-Tax | Tax (Expense) Benefit (4) | After-Tax | Before-Tax | Tax (Expense) Benefit (4) | After-Tax | Before-Tax | Tax (Expense) Benefit | After-Tax | AOCI | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning Balance AOCI December 31, 2020 | $ | (77,720) | $ | 18,653 | $ | (59,067) | $ | (2,719) | $ | 651 | $ | (2,068) | $ | 132 | $ | — | $ | 132 | $ | (61,003) | ||||||||||||||||||||||||||||||||||||||||||
Translation adjustments | — | — | — | — | — | — | (324) | — | (324) | (324) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) before reclassifications | — | — | — | — | — | — | (324) | — | (324) | (324) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
FSIRS amount reclassified from AOCI (1) | — | — | — | 1,632 | (392) | 1,240 | — | — | — | 1,240 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of prior service cost (2) | 719 | (172) | 547 | — | — | — | — | — | — | 547 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of net actuarial loss (2) | 33,448 | (8,028) | 25,420 | — | — | — | — | — | — | 25,420 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Regulatory adjustment (3) | (28,725) | 6,894 | (21,831) | — | — | — | — | — | — | (21,831) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc. | 5,442 | (1,306) | 4,136 | 1,632 | (392) | 1,240 | (324) | — | (324) | 5,052 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending Balance AOCI September 30, 2021 | $ | (72,278) | $ | 17,347 | $ | (54,931) | $ | (1,087) | $ | 259 | $ | (828) | $ | (192) | $ | — | $ | (192) | $ | (55,951) |
(1)The FSIRS reclassification amount is included in Net interest deductions on the Company’s Condensed Consolidated Statements of Income.
(2)These AOCI components are included in the computation of net periodic benefit cost (see Note 2 – Components of Net Periodic Benefit Cost for additional details).
(3)The regulatory adjustment represents the portion of the activity above that is expected to be recovered through rates in the future (the related regulatory asset is included in Deferred charges and other assets on the Company’s Condensed Consolidated Balance Sheets).
(4)Tax amounts are calculated using a 24% rate.
27 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
The following table represents a rollforward of AOCI, presented on Southwest’s Condensed Consolidated Balance Sheets:
Defined Benefit Plans | FSIRS | |||||||||||||||||||||||||||||||||||||||||||
(Thousands of dollars) | Before-Tax | Tax (Expense) Benefit (8) | After-Tax | Before-Tax | Tax (Expense) Benefit (8) | After-Tax | AOCI | |||||||||||||||||||||||||||||||||||||
Beginning Balance AOCI December 31, 2020 | $ | (77,720) | $ | 18,653 | $ | (59,067) | $ | (2,719) | $ | 651 | $ | (2,068) | $ | (61,135) | ||||||||||||||||||||||||||||||
FSIRS amount reclassified from AOCI (5) | — | — | — | 1,632 | (392) | 1,240 | 1,240 | |||||||||||||||||||||||||||||||||||||
Amortization of prior service cost (6) | 719 | (172) | 547 | — | — | — | 547 | |||||||||||||||||||||||||||||||||||||
Amortization of net actuarial loss (6) | 33,448 | (8,028) | 25,420 | — | — | — | 25,420 | |||||||||||||||||||||||||||||||||||||
Regulatory adjustment (7) | (28,725) | 6,894 | (21,831) | — | — | — | (21,831) | |||||||||||||||||||||||||||||||||||||
Net current period other comprehensive income attributable to Southwest Gas Corporation | 5,442 | (1,306) | 4,136 | 1,632 | (392) | 1,240 | 5,376 | |||||||||||||||||||||||||||||||||||||
Ending Balance AOCI September 30, 2021 | $ | (72,278) | $ | 17,347 | $ | (54,931) | $ | (1,087) | $ | 259 | $ | (828) | $ | (55,759) |
(5) The FSIRS reclassification amount is included in Net interest deductions on Southwest’s Condensed Consolidated Statements of Income.
(6)These AOCI components are included in the computation of net periodic benefit cost (see Note 2 – Components of Net Periodic Benefit Cost for additional details).
(7)The regulatory adjustment represents the portion of the activity above that is expected to be recovered through rates in the future (the related regulatory asset is included in Deferred charges and other assets on Southwest’s Condensed Consolidated Balance Sheets).
(8)Tax amounts are calculated using a 24% rate.
The following table represents amounts (before income tax impacts) included in AOCI (in the tables above), that have not yet been recognized in net periodic benefit cost:
(Thousands of dollars) | September 30, 2021 | December 31, 2020 | ||||||||||||
Net actuarial loss | $ | (469,335) | $ | (502,783) | ||||||||||
Prior service cost | (1,768) | (2,487) | ||||||||||||
Less: amount recognized in regulatory assets | 398,825 | 427,550 | ||||||||||||
Recognized in AOCI | $ | (72,278) | $ | (77,720) |
Note 7 – Segment Information
The Company has two reportable segments: natural gas operations and utility infrastructure services. Southwest has a single reportable segment that is referred to herein as the natural gas operations segment of the Company.
Centuri accounts for the services provided to Southwest at contractual prices at contract inception. Accounts receivable for these services, which are not eliminated during consolidation, are presented in the table below:
(Thousands of dollars) | September 30, 2021 | December 31, 2020 | |||||||||
Centuri accounts receivable for services provided to Southwest | $ | 15,376 | $ | 13,956 |
Utility infrastructure services total assets increased significantly since December 31, 2020, primarily due to Centuri’s acquisition of Riggs Distler (see Note 8 - Business Acquisitions), as follows:
(Thousands of dollars) | September 30, 2021 | December 31, 2020 | |||||||||
Centuri segment assets | $ | 2,671,974 | $ | 1,475,237 |
28 |
SOUTHWEST GAS HOLDINGS, INC. | Form 10-Q | |||||||
SOUTHWEST GAS CORPORATION | September 30, 2021 |
In order to reconcile (below) to net income as disclosed in the Condensed Consolidated Statements of Income, an Other column is included associated with impacts of corporate and administrative activities related to Southwest Gas Holdings, Inc. The financial information pertaining to the natural gas operations and utility infrastructure services segments is as follows:
(Thousands of dollars) | Natural Gas Operations | Utility Infrastructure Services | Other | Total | |||||||||||||||||||
Three Months Ended September 30, 2021 | |||||||||||||||||||||||
Revenues from external customers | $ | 255,848 | $ | 606,006 | $ | — | $ | 861,854 | |||||||||||||||
Intersegment revenues | — | 26,842 | — | 26,842 | |||||||||||||||||||
Total | $ | 255,848 | $ | 632,848 | $ | — | $ | 888,696 | |||||||||||||||
Segment net income (loss) | $ | (27,544) | $ | 18,540 | $ | (2,572) | $ | (11,576) | |||||||||||||||
Three Months Ended September 30, 2020 | |||||||||||||||||||||||
Revenues from external customers | $ | 210,834 | $ | 548,300 |