ITEM 1. FINANCIAL STATEMENTS
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except par value)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
JUNE 30,
2017
|
|
|
DECEMBER 31,
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Utility plant:
|
|
|
|
|
|
|
|
|
Gas plant
|
|
$
|
6,349,303
|
|
|
$
|
6,193,564
|
|
Less: accumulated depreciation
|
|
|
(2,202,909
|
)
|
|
|
(2,172,966
|
)
|
Acquisition adjustments, net
|
|
|
119
|
|
|
|
196
|
|
Construction work in progress
|
|
|
111,041
|
|
|
|
111,177
|
|
|
|
|
|
|
|
|
|
|
Net utility plant
|
|
|
4,257,554
|
|
|
|
4,131,971
|
|
|
|
|
|
|
|
|
|
|
Other property and investments
|
|
|
362,891
|
|
|
|
342,343
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
29,702
|
|
|
|
28,066
|
|
Accounts receivable, net of allowances
|
|
|
281,882
|
|
|
|
285,145
|
|
Accrued utility revenue
|
|
|
33,600
|
|
|
|
76,200
|
|
Income taxes receivable, net
|
|
|
6,253
|
|
|
|
4,455
|
|
Deferred purchased gas costs
|
|
|
5,956
|
|
|
|
2,608
|
|
Prepaids and other current assets
|
|
|
126,192
|
|
|
|
136,833
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
483,585
|
|
|
|
533,307
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
143,583
|
|
|
|
139,983
|
|
Deferred income taxes
|
|
|
1,365
|
|
|
|
1,288
|
|
Deferred charges and other assets
|
|
|
416,261
|
|
|
|
432,234
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent assets
|
|
|
561,209
|
|
|
|
573,505
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,665,239
|
|
|
$
|
5,581,126
|
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION AND LIABILITIES
|
|
|
|
|
|
|
|
|
Capitalization:
|
|
|
|
|
|
|
|
|
Common stock, $1 par (authorized60,000,000 shares; issued and outstanding47,583,119
and 47,482,068 shares)
|
|
$
|
49,213
|
|
|
$
|
49,112
|
|
Additional paid-in capital
|
|
|
911,095
|
|
|
|
903,123
|
|
Accumulated other comprehensive income (loss), net
|
|
|
(44,962
|
)
|
|
|
(48,008
|
)
|
Retained earnings
|
|
|
801,222
|
|
|
|
759,263
|
|
|
|
|
|
|
|
|
|
|
Total Southwest Gas Holdings, Inc. equity
|
|
|
1,716,568
|
|
|
|
1,663,490
|
|
Noncontrolling interest
|
|
|
(2,312
|
)
|
|
|
(2,217
|
)
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,714,256
|
|
|
|
1,661,273
|
|
Redeemable noncontrolling interest
|
|
|
20,149
|
|
|
|
22,590
|
|
Long-term debt, less current maturities
|
|
|
1,685,698
|
|
|
|
1,549,983
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
|
3,420,103
|
|
|
|
3,233,846
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
|
27,236
|
|
|
|
50,101
|
|
Short-term debt
|
|
|
2,500
|
|
|
|
|
|
Accounts payable
|
|
|
135,738
|
|
|
|
184,669
|
|
Customer deposits
|
|
|
71,195
|
|
|
|
72,296
|
|
Income taxes payable
|
|
|
|
|
|
|
1,909
|
|
Accrued general taxes
|
|
|
40,545
|
|
|
|
42,921
|
|
Accrued interest
|
|
|
17,150
|
|
|
|
17,939
|
|
Deferred purchased gas costs
|
|
|
20,628
|
|
|
|
90,476
|
|
Other current liabilities
|
|
|
175,043
|
|
|
|
168,064
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
490,035
|
|
|
|
628,375
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes and other credits:
|
|
|
|
|
|
|
|
|
Deferred income taxes and investment tax credits
|
|
|
891,217
|
|
|
|
840,653
|
|
Accumulated removal costs
|
|
|
310,000
|
|
|
|
308,000
|
|
Other deferred credits and other long-term liabilities
|
|
|
553,884
|
|
|
|
570,252
|
|
|
|
|
|
|
|
|
|
|
Total deferred income taxes and other credits
|
|
|
1,755,101
|
|
|
|
1,718,905
|
|
|
|
|
|
|
|
|
|
|
Total capitalization and liabilities
|
|
$
|
5,665,239
|
|
|
$
|
5,581,126
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
3
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
|
SIX MONTHS ENDED
|
|
|
TWELVE MONTHS ENDED
|
|
|
|
JUNE 30,
|
|
|
JUNE 30,
|
|
|
JUNE 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas operating revenues
|
|
$
|
260,162
|
|
|
$
|
255,648
|
|
|
$
|
722,764
|
|
|
$
|
780,748
|
|
|
$
|
1,263,428
|
|
|
$
|
1,395,629
|
|
Construction revenues
|
|
|
300,307
|
|
|
|
292,100
|
|
|
|
492,442
|
|
|
|
498,248
|
|
|
|
1,133,272
|
|
|
|
1,074,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
560,469
|
|
|
|
547,748
|
|
|
|
1,215,206
|
|
|
|
1,278,996
|
|
|
|
2,396,700
|
|
|
|
2,469,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cost of gas sold
|
|
|
69,421
|
|
|
|
71,416
|
|
|
|
216,300
|
|
|
|
285,016
|
|
|
|
328,405
|
|
|
|
486,048
|
|
Operations and maintenance
|
|
|
103,060
|
|
|
|
98,744
|
|
|
|
212,210
|
|
|
|
199,541
|
|
|
|
414,393
|
|
|
|
397,886
|
|
Depreciation and amortization
|
|
|
58,082
|
|
|
|
72,559
|
|
|
|
130,560
|
|
|
|
147,919
|
|
|
|
271,773
|
|
|
|
283,608
|
|
Taxes other than income taxes
|
|
|
14,497
|
|
|
|
12,987
|
|
|
|
29,279
|
|
|
|
27,000
|
|
|
|
54,655
|
|
|
|
50,982
|
|
Construction expenses
|
|
|
272,001
|
|
|
|
263,926
|
|
|
|
463,957
|
|
|
|
457,308
|
|
|
|
1,031,072
|
|
|
|
955,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
517,061
|
|
|
|
519,632
|
|
|
|
1,052,306
|
|
|
|
1,116,784
|
|
|
|
2,100,298
|
|
|
|
2,173,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
43,408
|
|
|
|
28,116
|
|
|
|
162,900
|
|
|
|
162,212
|
|
|
|
296,402
|
|
|
|
295,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest deductions
|
|
|
(18,655
|
)
|
|
|
(18,221
|
)
|
|
|
(37,369
|
)
|
|
|
(35,942
|
)
|
|
|
(75,087
|
)
|
|
|
(72,127
|
)
|
Other income (deductions)
|
|
|
2,047
|
|
|
|
2,470
|
|
|
|
5,912
|
|
|
|
4,191
|
|
|
|
11,190
|
|
|
|
4,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and (expenses)
|
|
|
(16,608
|
)
|
|
|
(15,751
|
)
|
|
|
(31,457
|
)
|
|
|
(31,751
|
)
|
|
|
(63,897
|
)
|
|
|
(67,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
26,800
|
|
|
|
12,365
|
|
|
|
131,443
|
|
|
|
130,461
|
|
|
|
232,505
|
|
|
|
228,450
|
|
Income tax expense
|
|
|
8,679
|
|
|
|
3,266
|
|
|
|
44,317
|
|
|
|
46,007
|
|
|
|
76,778
|
|
|
|
81,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
18,121
|
|
|
|
9,099
|
|
|
|
87,126
|
|
|
|
84,454
|
|
|
|
155,727
|
|
|
|
146,942
|
|
Net income (loss) attributable to noncontrolling interests
|
|
|
257
|
|
|
|
156
|
|
|
|
(46
|
)
|
|
|
65
|
|
|
|
903
|
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Southwest Gas Holdings, Inc.
|
|
$
|
17,864
|
|
|
$
|
8,943
|
|
|
$
|
87,172
|
|
|
$
|
84,389
|
|
|
$
|
154,824
|
|
|
$
|
145,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.38
|
|
|
$
|
0.19
|
|
|
$
|
1.83
|
|
|
$
|
1.78
|
|
|
$
|
3.26
|
|
|
$
|
3.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.37
|
|
|
$
|
0.19
|
|
|
$
|
1.82
|
|
|
$
|
1.77
|
|
|
$
|
3.24
|
|
|
$
|
3.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share
|
|
$
|
0.495
|
|
|
$
|
0.450
|
|
|
$
|
0.990
|
|
|
$
|
0.900
|
|
|
$
|
1.890
|
|
|
$
|
1.710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding
|
|
|
47,571
|
|
|
|
47,473
|
|
|
|
47,550
|
|
|
|
47,455
|
|
|
|
47,516
|
|
|
|
47,347
|
|
Average shares outstanding (assuming dilution)
|
|
|
47,884
|
|
|
|
47,811
|
|
|
|
47,874
|
|
|
|
47,787
|
|
|
|
47,857
|
|
|
|
47,693
|
|
4
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
|
SIX MONTHS ENDED
|
|
|
TWELVE MONTHS ENDED
|
|
|
|
JUNE 30,
|
|
|
JUNE 30,
|
|
|
JUNE 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net income
|
|
$
|
18,121
|
|
|
$
|
9,099
|
|
|
$
|
87,126
|
|
|
$
|
84,454
|
|
|
$
|
155,727
|
|
|
$
|
146,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,118
|
)
|
|
|
(18,922
|
)
|
Amortization of prior service cost
|
|
|
207
|
|
|
|
207
|
|
|
|
414
|
|
|
|
414
|
|
|
|
828
|
|
|
|
828
|
|
Amortization of net actuarial loss
|
|
|
3,944
|
|
|
|
4,194
|
|
|
|
7,888
|
|
|
|
8,390
|
|
|
|
16,279
|
|
|
|
19,048
|
|
Regulatory adjustment
|
|
|
(3,556
|
)
|
|
|
(3,796
|
)
|
|
|
(7,112
|
)
|
|
|
(7,592
|
)
|
|
|
(2,982
|
)
|
|
|
(1,436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net defined benefit pension plans
|
|
|
595
|
|
|
|
605
|
|
|
|
1,190
|
|
|
|
1,212
|
|
|
|
7
|
|
|
|
(482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward-starting interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified into net income
|
|
|
518
|
|
|
|
519
|
|
|
|
1,036
|
|
|
|
1,038
|
|
|
|
2,073
|
|
|
|
2,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net forward-starting interest rate swaps
|
|
|
518
|
|
|
|
519
|
|
|
|
1,036
|
|
|
|
1,038
|
|
|
|
2,073
|
|
|
|
2,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
629
|
|
|
|
70
|
|
|
|
849
|
|
|
|
852
|
|
|
|
158
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income, net of tax
|
|
|
1,742
|
|
|
|
1,194
|
|
|
|
3,075
|
|
|
|
3,102
|
|
|
|
2,238
|
|
|
|
1,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
19,863
|
|
|
|
10,293
|
|
|
|
90,201
|
|
|
|
87,556
|
|
|
|
157,965
|
|
|
|
148,495
|
|
Comprehensive income (loss) attributable to noncontrolling interests
|
|
|
279
|
|
|
|
159
|
|
|
|
(17
|
)
|
|
|
94
|
|
|
|
908
|
|
|
|
1,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Southwest Gas Holdings, Inc.
|
|
$
|
19,584
|
|
|
$
|
10,134
|
|
|
$
|
90,218
|
|
|
$
|
87,462
|
|
|
$
|
157,057
|
|
|
$
|
147,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
5
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED
|
|
|
TWELVE MONTHS ENDED
|
|
|
|
JUNE 30
|
|
|
JUNE 30
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
CASH FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
87,126
|
|
|
$
|
84,454
|
|
|
$
|
155,727
|
|
|
$
|
146,942
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
130,560
|
|
|
|
147,919
|
|
|
|
271,773
|
|
|
|
283,608
|
|
Deferred income taxes
|
|
|
47,836
|
|
|
|
45,916
|
|
|
|
70,652
|
|
|
|
90,805
|
|
Changes in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of allowances
|
|
|
3,545
|
|
|
|
52,907
|
|
|
|
(19,266
|
)
|
|
|
7,039
|
|
Accrued utility revenue
|
|
|
42,600
|
|
|
|
42,200
|
|
|
|
(1,100
|
)
|
|
|
(700
|
)
|
Deferred purchased gas costs
|
|
|
(73,196
|
)
|
|
|
84,289
|
|
|
|
(111,627
|
)
|
|
|
102,834
|
|
Accounts payable
|
|
|
(50,447
|
)
|
|
|
(33,358
|
)
|
|
|
4,606
|
|
|
|
1,622
|
|
Accrued taxes
|
|
|
(6,100
|
)
|
|
|
(12,121
|
)
|
|
|
32,361
|
|
|
|
(28,140
|
)
|
Other current assets and liabilities
|
|
|
20,390
|
|
|
|
7,761
|
|
|
|
(14,803
|
)
|
|
|
22,696
|
|
Gains on sale
|
|
|
(1,427
|
)
|
|
|
(2,742
|
)
|
|
|
(5,833
|
)
|
|
|
(3,281
|
)
|
Changes in undistributed stock compensation
|
|
|
7,731
|
|
|
|
3,514
|
|
|
|
9,673
|
|
|
|
4,916
|
|
AFUDC
|
|
|
(1,109
|
)
|
|
|
(1,282
|
)
|
|
|
(2,116
|
)
|
|
|
(3,157
|
)
|
Changes in other assets and deferred charges
|
|
|
(11,521
|
)
|
|
|
223
|
|
|
|
5,216
|
|
|
|
1,296
|
|
Changes in other liabilities and deferred credits
|
|
|
2,204
|
|
|
|
(2,502
|
)
|
|
|
(13,741
|
)
|
|
|
5,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
198,192
|
|
|
|
417,178
|
|
|
|
381,522
|
|
|
|
631,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction expenditures and property additions
|
|
|
(262,234
|
)
|
|
|
(264,872
|
)
|
|
|
(526,893
|
)
|
|
|
(549,232
|
)
|
Acquisition of businesses, net of cash acquired
|
|
|
|
|
|
|
(17,000
|
)
|
|
|
|
|
|
|
(17,000
|
)
|
Changes in customer advances
|
|
|
(1,430
|
)
|
|
|
2,152
|
|
|
|
4,318
|
|
|
|
10,763
|
|
Miscellaneous inflows
|
|
|
6,905
|
|
|
|
4,126
|
|
|
|
15,818
|
|
|
|
7,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(256,759
|
)
|
|
|
(275,594
|
)
|
|
|
(506,757
|
)
|
|
|
(547,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock, net
|
|
|
(96
|
)
|
|
|
487
|
|
|
|
(111
|
)
|
|
|
15,170
|
|
Dividends paid
|
|
|
(44,949
|
)
|
|
|
(40,583
|
)
|
|
|
(87,683
|
)
|
|
|
(78,830
|
)
|
Centuri distribution to redeemable noncontrolling interest
|
|
|
(204
|
)
|
|
|
(99
|
)
|
|
|
(544
|
)
|
|
|
(198
|
)
|
Issuance of long-term debt, net
|
|
|
80,579
|
|
|
|
96,128
|
|
|
|
408,397
|
|
|
|
138,779
|
|
Retirement of long-term debt
|
|
|
(60,041
|
)
|
|
|
(52,966
|
)
|
|
|
(262,348
|
)
|
|
|
(162,530
|
)
|
Change in credit facility and commercial paper
|
|
|
87,000
|
|
|
|
(147,500
|
)
|
|
|
89,500
|
|
|
|
(27,500
|
)
|
Change in short-term debt
|
|
|
2,500
|
|
|
|
(18,000
|
)
|
|
|
2,500
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(573
|
)
|
|
|
(835
|
)
|
|
|
(1,092
|
)
|
|
|
(1,533
|
)
|
Withholding remittanceshare-based compensation
|
|
|
(3,120
|
)
|
|
|
(1,968
|
)
|
|
|
(3,271
|
)
|
|
|
(3,766
|
)
|
Other
|
|
|
(1,036
|
)
|
|
|
(124
|
)
|
|
|
(2,481
|
)
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
60,060
|
|
|
|
(165,460
|
)
|
|
|
142,867
|
|
|
|
(119,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of currency translation on cash and cash equivalents
|
|
|
143
|
|
|
|
5
|
|
|
|
(56
|
)
|
|
|
(832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
1,636
|
|
|
|
(23,871
|
)
|
|
|
17,576
|
|
|
|
(36,783
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
28,066
|
|
|
|
35,997
|
|
|
|
12,126
|
|
|
|
48,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
29,702
|
|
|
$
|
12,126
|
|
|
$
|
29,702
|
|
|
$
|
12,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized
|
|
$
|
35,182
|
|
|
$
|
33,224
|
|
|
$
|
69,398
|
|
|
$
|
65,634
|
|
Income taxes paid (received)
|
|
|
3,043
|
|
|
|
4,737
|
|
|
|
(20,726
|
)
|
|
|
19,483
|
|
The accompanying notes are an integral part of these statements.
6
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
JUNE 30,
|
|
|
DECEMBER 31,
|
|
|
|
2017
|
|
|
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Utility plant:
|
|
|
|
|
|
|
|
|
Gas plant
|
|
$
|
6,349,303
|
|
|
$
|
6,193,564
|
|
Less: accumulated depreciation
|
|
|
(2,202,909
|
)
|
|
|
(2,172,966
|
)
|
Acquisition adjustments, net
|
|
|
119
|
|
|
|
196
|
|
Construction work in progress
|
|
|
111,041
|
|
|
|
111,177
|
|
|
|
|
|
|
|
|
|
|
Net utility plant
|
|
|
4,257,554
|
|
|
|
4,131,971
|
|
|
|
|
|
|
|
|
|
|
Other property and investments
|
|
|
113,326
|
|
|
|
108,569
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
22,444
|
|
|
|
19,024
|
|
Accounts receivable, net of allowances
|
|
|
74,361
|
|
|
|
111,845
|
|
Accrued utility revenue
|
|
|
33,600
|
|
|
|
76,200
|
|
Income taxes receivable, net
|
|
|
4,902
|
|
|
|
4,455
|
|
Deferred purchased gas costs
|
|
|
5,956
|
|
|
|
2,608
|
|
Receivable from parent
|
|
|
288
|
|
|
|
|
|
Prepaids and other current assets
|
|
|
108,990
|
|
|
|
126,363
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
250,541
|
|
|
|
340,495
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
10,095
|
|
|
|
10,095
|
|
Deferred charges and other assets
|
|
|
399,628
|
|
|
|
410,625
|
|
Discontinued operationsconstruction servicesassets
|
|
|
|
|
|
|
579,371
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent assets
|
|
|
409,723
|
|
|
|
1,000,091
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,031,144
|
|
|
$
|
5,581,126
|
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION AND LIABILITIES
|
|
|
|
|
|
|
|
|
Capitalization:
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
49,112
|
|
|
$
|
49,112
|
|
Additional paid-in capital
|
|
|
904,715
|
|
|
|
897,346
|
|
Accumulated other comprehensive income (loss), net
|
|
|
(43,413
|
)
|
|
|
(45,639
|
)
|
Retained earnings
|
|
|
631,226
|
|
|
|
767,061
|
|
|
|
|
|
|
|
|
|
|
Total Southwest Gas Corporation equity
|
|
|
1,541,640
|
|
|
|
1,667,880
|
|
Discontinued operationsconstruction services non-owner equity
|
|
|
|
|
|
|
15,983
|
|
Long-term debt, less current maturities
|
|
|
1,462,552
|
|
|
|
1,375,080
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
|
3,004,192
|
|
|
|
3,058,943
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
|
|
|
|
|
25,000
|
|
Accounts payable
|
|
|
82,522
|
|
|
|
138,229
|
|
Customer deposits
|
|
|
71,195
|
|
|
|
72,296
|
|
Accrued general taxes
|
|
|
40,545
|
|
|
|
42,921
|
|
Accrued interest
|
|
|
16,826
|
|
|
|
17,395
|
|
Deferred purchased gas costs
|
|
|
20,628
|
|
|
|
90,476
|
|
Payable to parent
|
|
|
2,262
|
|
|
|
|
|
Other current liabilities
|
|
|
98,681
|
|
|
|
95,999
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
332,659
|
|
|
|
482,316
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes and other credits:
|
|
|
|
|
|
|
|
|
Deferred income taxes and investment tax credits, net
|
|
|
855,253
|
|
|
|
806,109
|
|
Accumulated removal costs
|
|
|
310,000
|
|
|
|
308,000
|
|
Other deferred credits and other long-term liabilities
|
|
|
529,040
|
|
|
|
545,143
|
|
Discontinued operationsconstruction servicesliabilities
|
|
|
|
|
|
|
380,615
|
|
|
|
|
|
|
|
|
|
|
Total deferred income taxes and other credits
|
|
|
1,694,293
|
|
|
|
2,039,867
|
|
|
|
|
|
|
|
|
|
|
Total capitalization and liabilities
|
|
$
|
5,031,144
|
|
|
$
|
5,581,126
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
7
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
|
SIX MONTHS ENDED
|
|
|
TWELVE MONTHS ENDED
|
|
|
|
JUNE 30,
|
|
|
JUNE 30,
|
|
|
JUNE 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas operating revenues
|
|
$
|
260,162
|
|
|
$
|
255,648
|
|
|
$
|
722,764
|
|
|
$
|
780,748
|
|
|
$
|
1,263,428
|
|
|
$
|
1,395,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cost of gas sold
|
|
|
69,421
|
|
|
|
71,416
|
|
|
|
216,300
|
|
|
|
285,016
|
|
|
|
328,405
|
|
|
|
486,048
|
|
Operations and maintenance
|
|
|
102,501
|
|
|
|
98,744
|
|
|
|
211,180
|
|
|
|
199,541
|
|
|
|
413,363
|
|
|
|
397,886
|
|
Depreciation and amortization
|
|
|
46,254
|
|
|
|
57,232
|
|
|
|
107,449
|
|
|
|
117,977
|
|
|
|
222,935
|
|
|
|
224,845
|
|
Taxes other than income taxes
|
|
|
14,497
|
|
|
|
12,987
|
|
|
|
29,279
|
|
|
|
27,000
|
|
|
|
54,655
|
|
|
|
50,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
232,673
|
|
|
|
240,379
|
|
|
|
564,208
|
|
|
|
629,534
|
|
|
|
1,019,358
|
|
|
|
1,159,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
27,489
|
|
|
|
15,269
|
|
|
|
158,556
|
|
|
|
151,214
|
|
|
|
244,070
|
|
|
|
235,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest deductions
|
|
|
(16,991
|
)
|
|
|
(16,561
|
)
|
|
|
(34,201
|
)
|
|
|
(32,791
|
)
|
|
|
(68,407
|
)
|
|
|
(65,041
|
)
|
Other income (deductions)
|
|
|
2,052
|
|
|
|
2,436
|
|
|
|
5,663
|
|
|
|
4,191
|
|
|
|
9,748
|
|
|
|
3,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and (expenses)
|
|
|
(14,939
|
)
|
|
|
(14,125
|
)
|
|
|
(28,538
|
)
|
|
|
(28,600
|
)
|
|
|
(58,659
|
)
|
|
|
(61,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
12,550
|
|
|
|
1,144
|
|
|
|
130,018
|
|
|
|
122,614
|
|
|
|
185,411
|
|
|
|
174,396
|
|
Income tax expense (benefit)
|
|
|
3,028
|
|
|
|
(1,214
|
)
|
|
|
43,558
|
|
|
|
42,673
|
|
|
|
59,469
|
|
|
|
61,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
9,522
|
|
|
|
2,358
|
|
|
|
86,460
|
|
|
|
79,941
|
|
|
|
125,942
|
|
|
|
113,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operationsconstruction services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
11,221
|
|
|
|
|
|
|
|
7,847
|
|
|
|
45,669
|
|
|
|
54,054
|
|
Income tax expense
|
|
|
|
|
|
|
4,480
|
|
|
|
|
|
|
|
3,334
|
|
|
|
16,550
|
|
|
|
20,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
6,741
|
|
|
|
|
|
|
|
4,513
|
|
|
|
29,119
|
|
|
|
33,640
|
|
Noncontrolling interests
|
|
|
|
|
|
|
156
|
|
|
|
|
|
|
|
65
|
|
|
|
949
|
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incomediscontinued operations
|
|
|
|
|
|
|
6,585
|
|
|
|
|
|
|
|
4,448
|
|
|
|
28,170
|
|
|
|
32,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,522
|
|
|
$
|
8,943
|
|
|
$
|
86,460
|
|
|
$
|
84,389
|
|
|
$
|
154,112
|
|
|
$
|
145,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
8
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
|
SIX MONTHS ENDED
|
|
|
TWELVE MONTHS ENDED
|
|
|
|
JUNE 30,
|
|
|
JUNE 30,
|
|
|
JUNE 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
9,522
|
|
|
$
|
2,358
|
|
|
$
|
86,460
|
|
|
$
|
79,941
|
|
|
$
|
125,942
|
|
|
$
|
113,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,118
|
)
|
|
|
(18,922
|
)
|
Amortization of prior service cost
|
|
|
207
|
|
|
|
207
|
|
|
|
414
|
|
|
|
414
|
|
|
|
828
|
|
|
|
828
|
|
Amortization of net actuarial loss
|
|
|
3,944
|
|
|
|
4,194
|
|
|
|
7,888
|
|
|
|
8,390
|
|
|
|
16,279
|
|
|
|
19,048
|
|
Regulatory adjustment
|
|
|
(3,556
|
)
|
|
|
(3,796
|
)
|
|
|
(7,112
|
)
|
|
|
(7,592
|
)
|
|
|
(2,982
|
)
|
|
|
(1,436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net defined benefit pension plans
|
|
|
595
|
|
|
|
605
|
|
|
|
1,190
|
|
|
|
1,212
|
|
|
|
7
|
|
|
|
(482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward-starting interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified into net income
|
|
|
518
|
|
|
|
519
|
|
|
|
1,036
|
|
|
|
1,038
|
|
|
|
2,073
|
|
|
|
2,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net forward-starting interest rate swaps
|
|
|
518
|
|
|
|
519
|
|
|
|
1,036
|
|
|
|
1,038
|
|
|
|
2,073
|
|
|
|
2,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income, net of tax from continuing operations
|
|
|
1,113
|
|
|
|
1,124
|
|
|
|
2,226
|
|
|
|
2,250
|
|
|
|
2,080
|
|
|
|
1,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income from continuing operations
|
|
|
10,635
|
|
|
|
3,482
|
|
|
|
88,686
|
|
|
|
82,191
|
|
|
|
128,022
|
|
|
|
114,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operationsconstruction services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
6,585
|
|
|
|
|
|
|
|
4,448
|
|
|
|
28,170
|
|
|
|
32,472
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
852
|
|
|
|
(691
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
6,655
|
|
|
|
|
|
|
|
5,300
|
|
|
|
27,479
|
|
|
|
32,433
|
|
Comprehensive income (loss) attributable to noncontrolling interests
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
29
|
|
|
|
(24
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to discontinued operationsconstruction services
|
|
|
|
|
|
|
6,652
|
|
|
|
|
|
|
|
5,271
|
|
|
|
27,503
|
|
|
|
32,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
10,635
|
|
|
$
|
10,134
|
|
|
$
|
88,686
|
|
|
$
|
87,462
|
|
|
$
|
155,525
|
|
|
$
|
147,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
9
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED
|
|
|
TWELVE MONTHS ENDED
|
|
|
|
JUNE 30
|
|
|
JUNE 30
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
CASH FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
86,460
|
|
|
$
|
84,454
|
|
|
$
|
155,061
|
|
|
$
|
146,942
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
4,513
|
|
|
|
29,119
|
|
|
|
33,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
86,460
|
|
|
|
79,941
|
|
|
|
125,942
|
|
|
|
113,302
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
107,449
|
|
|
|
117,977
|
|
|
|
222,935
|
|
|
|
224,845
|
|
Deferred income taxes
|
|
|
46,874
|
|
|
|
40,592
|
|
|
|
74,241
|
|
|
|
83,140
|
|
Changes in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of allowances
|
|
|
37,484
|
|
|
|
79,188
|
|
|
|
(973
|
)
|
|
|
22,324
|
|
Accrued utility revenue
|
|
|
42,600
|
|
|
|
42,200
|
|
|
|
(1,100
|
)
|
|
|
(700
|
)
|
Deferred purchased gas costs
|
|
|
(73,196
|
)
|
|
|
84,289
|
|
|
|
(111,627
|
)
|
|
|
102,834
|
|
Accounts payable
|
|
|
(55,707
|
)
|
|
|
(42,681
|
)
|
|
|
3,157
|
|
|
|
(3,529
|
)
|
Accrued taxes
|
|
|
(2,823
|
)
|
|
|
(6,456
|
)
|
|
|
23,024
|
|
|
|
(17,334
|
)
|
Other current assets and liabilities
|
|
|
24,265
|
|
|
|
4,791
|
|
|
|
(14,022
|
)
|
|
|
11,614
|
|
Changes in undistributed stock compensation
|
|
|
6,931
|
|
|
|
3,514
|
|
|
|
8,873
|
|
|
|
4,916
|
|
AFUDC
|
|
|
(1,109
|
)
|
|
|
(1,282
|
)
|
|
|
(2,116
|
)
|
|
|
(3,157
|
)
|
Changes in other assets and deferred charges
|
|
|
(11,801
|
)
|
|
|
49
|
|
|
|
4,761
|
|
|
|
603
|
|
Changes in other liabilities and deferred credits
|
|
|
1,695
|
|
|
|
(2,502
|
)
|
|
|
(14,250
|
)
|
|
|
5,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
209,122
|
|
|
|
399,620
|
|
|
|
318,845
|
|
|
|
544,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction expenditures and property additions
|
|
|
(224,085
|
)
|
|
|
(214,424
|
)
|
|
|
(466,780
|
)
|
|
|
(474,596
|
)
|
Changes in customer advances
|
|
|
(1,430
|
)
|
|
|
2,152
|
|
|
|
4,318
|
|
|
|
10,763
|
|
Miscellaneous inflows
|
|
|
1,354
|
|
|
|
1,790
|
|
|
|
2,546
|
|
|
|
3,660
|
|
Dividends received
|
|
|
|
|
|
|
2,801
|
|
|
|
9,660
|
|
|
|
5,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(224,161
|
)
|
|
|
(207,681
|
)
|
|
|
(450,256
|
)
|
|
|
(454,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock, net
|
|
|
|
|
|
|
487
|
|
|
|
(15
|
)
|
|
|
15,170
|
|
Dividends paid
|
|
|
(39,896
|
)
|
|
|
(40,583
|
)
|
|
|
(82,630
|
)
|
|
|
(78,830
|
)
|
Issuance of long-term debt, net
|
|
|
|
|
|
|
|
|
|
|
296,469
|
|
|
|
|
|
Retirement of long-term debt
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
(149,855
|
)
|
|
|
(20,000
|
)
|
Change in credit facility and commercial paper
|
|
|
87,000
|
|
|
|
(147,500
|
)
|
|
|
89,500
|
|
|
|
(27,500
|
)
|
Change in short-term debt
|
|
|
|
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
Withholding remittanceshare-based compensation
|
|
|
(3,120
|
)
|
|
|
(1,968
|
)
|
|
|
(3,271
|
)
|
|
|
(3,766
|
)
|
Other
|
|
|
(525
|
)
|
|
|
(124
|
)
|
|
|
(1,970
|
)
|
|
|
502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
18,459
|
|
|
|
(207,688
|
)
|
|
|
148,228
|
|
|
|
(114,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by discontinued operating activities
|
|
|
|
|
|
|
17,558
|
|
|
|
73,607
|
|
|
|
87,622
|
|
Net cash used in discontinued investing activities
|
|
|
|
|
|
|
(67,913
|
)
|
|
|
(23,903
|
)
|
|
|
(93,310
|
)
|
Net cash provided by (used in) discontinued financing activities
|
|
|
|
|
|
|
42,228
|
|
|
|
(46,962
|
)
|
|
|
(5,533
|
)
|
Effects of currency translation on cash and cash equivalents
|
|
|
|
|
|
|
5
|
|
|
|
(199
|
)
|
|
|
(832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
3,420
|
|
|
|
(23,871
|
)
|
|
|
19,360
|
|
|
|
(36,783
|
)
|
Change in cash and cash equivalents of discontinued operations included in discontinued operations
construction services assets
|
|
|
|
|
|
|
8,122
|
|
|
|
(2,543
|
)
|
|
|
12,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents of continuing operations
|
|
|
3,420
|
|
|
|
(15,749
|
)
|
|
|
16,817
|
|
|
|
(24,730
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
19,024
|
|
|
|
21,376
|
|
|
|
5,627
|
|
|
|
30,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
22,444
|
|
|
$
|
5,627
|
|
|
$
|
22,444
|
|
|
$
|
5,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized
|
|
$
|
32,205
|
|
|
$
|
30,485
|
|
|
$
|
63,221
|
|
|
$
|
60,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid (received)
|
|
$
|
19
|
|
|
$
|
1,893
|
|
|
$
|
(32,885
|
)
|
|
$
|
(3,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
10
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
Note 1 Nature of Operations and Basis of Presentation
Nature of Operations.
Southwest Gas Holdings, Inc. is a holding company, owning all of the shares of common stock of Southwest Gas
Corporation and 96.6% of the common stock of Centuri Construction Group Inc. In January 2017, a previously contemplated and approved reorganization under a holding company structure was made effective. The reorganization is designed to provide
further separation between regulated and unregulated businesses, and to provide additional financing flexibility. Coincident with the effective date of the reorganization, existing shareholders of Southwest Gas Corporation became shareholders of
Southwest Gas Holdings, Inc., on a
one-for-one
basis, with the same number of shares and same ownership percentage as they held immediately prior to the reorganization. At the same time, Southwest Gas
Corporation and Centuri Construction Group Inc. (Centuri or the construction services segment) each became subsidiaries of the publicly traded holding company; whereas, historically, Centuri had been a direct subsidiary of
Southwest Gas Corporation.
Southwest Gas Corporation (Southwest or the natural gas operations segment) 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 construction services enterprise dedicated to meeting the growing demands of North American utilities, energy and industrial markets.
Centuri derives revenue from installation, replacement, repair, and maintenance of energy distribution systems, and developing industrial construction solutions primarily for energy services utilities. Centuri operations are generally conducted
under the business names of NPL Construction Co. (NPL), NPL Canada Ltd. (NPL Canada, formerly Link-Line Contractors Ltd.), W.S. Nicholls Construction, Inc. and related companies (W.S. Nicholls), and Brigadier
Pipelines Inc. (Brigadier). Typically, Centuri revenues are lowest during the first quarter of the year due to unfavorable winter weather conditions. Operating revenues typically improve as more favorable weather conditions occur during
the summer and fall months.
Basis of Presentation.
The condensed consolidated financial statements for Southwest Gas Holdings,
Inc. and subsidiaries (the Company) and Southwest included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. As indicated above, in
connection with the holding company reorganization, Centuri ceased to be a subsidiary of Southwest and became a subsidiary of Southwest Gas Holdings, Inc. To give effect to this change, the separate condensed consolidated financial statements
related to Southwest Gas Corporation, which are included in this Form 10-Q, depict Centuri-related amounts for periods prior to January 1, 2017 as discontinued operations. Because the transfer of Centuri from Southwest Gas Corporation to
Southwest Gas Holdings, Inc. was effectuated as an equity transaction and not a sale, assets and liabilities subject to the discontinued operations presentation have been reflected as noncurrent on the Southwest Gas Corporation Balance Sheet. Those
assets and liabilities are detailed in
Note 10 Reorganization Impacts Discontinued Operations Solely Related to Southwest Gas Corporation
, and include both current and non-current amounts.
No substantive change has occurred with regard to the Companys business segments on the whole, or in the primary businesses comprising
those segments. Centuri operations continue to be part of continuing operations and of the consolidated financial statements of Southwest Gas Holdings, Inc.
The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates. In the opinion of management, all adjustments, consisting of normal recurring items and estimates necessary for a fair presentation of results for the interim periods, have been made. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the 2016 Annual Report to Shareholders, which is incorporated by reference into the 2016 Form 10-K.
11
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
Prepaids and other current assets.
Prepaids and other current assets includes gas pipe
materials and operating supplies of $39 million at June 30, 2017 and $30 million at December 31, 2016 (carried at weighted average cost), and also includes natural gas stored underground and liquefied natural gas, in addition to prepaid
assets.
Cash and Cash Equivalents.
For purposes of reporting consolidated cash flows, cash and cash equivalents
include cash on hand and financial instruments with a purchase-date maturity of three months or less. In general, cash and cash equivalents fall within Level 1 (quoted prices for identical financial instruments) of the three-level fair value
hierarchy that ranks the inputs, used to measure fair value, by their reliability. However, cash and cash equivalents at June 30, 2017 and December 31, 2016 also includes money market fund investments of approximately
$7.7 million and $5.3 million, respectively, which falls within Level 2 (significant other observable inputs) of the fair value hierarchy, due to the asset valuation methods used by money market funds.
Significant non-cash investing and financing activities for the natural gas operations segment included the following: Upon contract
expiration, customer advances of approximately $1.6 million and $2.5 million, during the first six months of 2017 and 2016, respectively, were applied as contributions toward utility construction activity and represent non-cash investing activity.
Adoption of Accounting Standards Update (ASU) No. 2016-09.
As of January 1, 2017, the Company adopted
Financial Accounting Standards Board (FASB) ASU No. 2016-09 CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The adoption of this update is considered a change in
accounting principle. Among other things, the update clarifies that all cash payments made to taxing authorities on the employees behalf for withheld shares should be presented as financing activities on the statement of cash flows. This
change is required to be presented in the cash flow statement retrospectively. A new category, Withholding remittance share-based compensation has been added to the Cash Flow from Financing Activities section of the Condensed Consolidated
Statements of Cash Flows for both Southwest Gas Holdings, Inc. and Southwest Gas Corporation. The withheld taxes were included in the Other current assets and liabilities line item of the Condensed Consolidated Statement of Cash Flows in previous
periods. Therefore, upon adoption, amounts presented as cash inflows from Other current assets and liabilities under the Cash Flow from Operating Activities section of the Southwest Gas Holdings, Inc. Consolidated Cash Flow Statements were
revised from $5.8 million to $7.8 million for the six months ended June 30, 2016 and inflows in the same category for the twelve months ended June 30, 2016 were revised from $18.9 million to $22.7 million. In addition, while
standalone financial statements were not previously presented for natural gas operations, for reasons related to the holding company reorganization discussed above, they are now presented. Therefore, upon adoption of this standard, the Cash Flow
from Operating Activities section of the Southwest Gas Corporation Cash Flow Statements reflects a reclassification of cash inflows from Other current assets and liabilities from $2.8 million to $4.8 million for the six months ended June 31,
2016 and cash inflows in the same category were revised from $7.8 million to $11.6 million for the twelve months ended June 30, 2016.
Under the new guidance, the Company can withhold any amount between the minimum and maximum individual statutory tax rates and still treat the
entire award as equity. The Company intends to administer withholding such that awards under stock compensation programs will continue to be treated as equity awards.
In addition to the above, the update requires all income tax-related cash flows resulting from share-based payments (unrelated to employee
withholding) be reported as operating activities on the statement of cash flows, a change from the previous requirement to present windfall tax benefits as an inflow from financing activities and an outflow from operating activities. The Company
chose to apply this presentation requirement of the update prospectively as permitted. Therefore, prior periods were not impacted in implementing this provision of the update.
Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and
intrinsic value are required to be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The Company had no previously
unrecognized tax benefits as a result of these changes; therefore, no cumulative effect adjustment to the Companys opening retained earnings was required.
Goodwill.
Goodwill is assessed each October for impairment (required annually by U.S. GAAP), or otherwise, if circumstances indicate
impairment to the carrying value of goodwill may have occurred. In consideration of the holding company reorganization, management of the Company considered its reporting units and segments and determined that historic judgments regarding its
segments and
12
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
reporting units continue to apply, and that no change was necessary with regard to the level at which goodwill is assessed for impairment. No impairment was deemed to have occurred in the first
six months of 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of dollars)
|
|
Natural Gas
Operations
|
|
|
Construction
Services
|
|
|
Consolidated
|
|
December 31, 2016
|
|
$
|
10,095
|
|
|
$
|
129,888
|
|
|
$
|
139,983
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
3,600
|
|
|
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
$
|
10,095
|
|
|
$
|
133,488
|
|
|
$
|
143,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany Transactions
. Centuri recognizes revenues generated from contracts with Southwest (see
Note 3Segment Information
). Centuris accounts receivable for these services are presented in the table below (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Centuri accounts receivable for services provided to Southwest
|
|
$
|
10,265
|
|
|
$
|
10,585
|
|
|
|
|
|
|
|
|
|
|
The accounts receivable balance, revenues, and associated profits are included in the condensed consolidated
financial statements of the Company and were not eliminated during consolidation in accordance with accounting treatment for rate-regulated entities.
Other Property and Investments.
Other property and investments on the Southwest Gas Holdings, Inc. Condensed Consolidated Balance
Sheets includes (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Centuri property and equipment
|
|
$
|
478,247
|
|
|
$
|
451,114
|
|
Centuri accumulated provision for depreciation and amortization
|
|
|
(240,182
|
)
|
|
|
(228,374
|
)
|
Net cash surrender value of COLI policies
|
|
|
111,523
|
|
|
|
106,744
|
|
Other property
|
|
|
13,303
|
|
|
|
12,859
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
362,891
|
|
|
$
|
342,343
|
|
|
|
|
|
|
|
|
|
|
Other Income (Deductions).
The following table provides the composition of significant items included
in Other income (deductions) in the condensed consolidated statements of income (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
Twelve Months Ended
|
|
|
|
June 30
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Southwest Gas Corporation - natural gas operations segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in COLI policies
|
|
$
|
1,900
|
|
|
$
|
2,200
|
|
|
$
|
4,700
|
|
|
$
|
3,100
|
|
|
$
|
9,000
|
|
|
$
|
1,300
|
|
Interest income
|
|
|
614
|
|
|
|
390
|
|
|
|
1,178
|
|
|
|
757
|
|
|
|
2,269
|
|
|
|
1,766
|
|
Equity AFUDC
|
|
|
633
|
|
|
|
750
|
|
|
|
1,109
|
|
|
|
1,282
|
|
|
|
2,116
|
|
|
|
3,157
|
|
Miscellaneous income and (expense)
|
|
|
(1,095
|
)
|
|
|
(904
|
)
|
|
|
(1,324
|
)
|
|
|
(948
|
)
|
|
|
(3,637
|
)
|
|
|
(2,654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest Gas Corporation - total other income (deductions)
|
|
|
2,052
|
|
|
|
2,436
|
|
|
|
5,663
|
|
|
|
4,191
|
|
|
|
9,748
|
|
|
|
3,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction services segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
414
|
|
Foreign transaction gain (loss)
|
|
|
(197
|
)
|
|
|
(9
|
)
|
|
|
(198
|
)
|
|
|
(19
|
)
|
|
|
(201
|
)
|
|
|
(271
|
)
|
Miscellaneous income and (expense)
|
|
|
190
|
|
|
|
42
|
|
|
|
445
|
|
|
|
18
|
|
|
|
1,641
|
|
|
|
924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centuri - total other income (deductions)
|
|
|
(6
|
)
|
|
|
34
|
|
|
|
248
|
|
|
|
|
|
|
|
1,441
|
|
|
|
1,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and administrative
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Southwest Gas Holdings, Inc. - total other income (deductions)
|
|
$
|
2,047
|
|
|
$
|
2,470
|
|
|
$
|
5,912
|
|
|
$
|
4,191
|
|
|
$
|
11,190
|
|
|
$
|
4,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the table above is the change in cash surrender values of company-owned life insurance
(COLI) policies (including net death benefits recognized). 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. 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.
13
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
Recently Issued Accounting Standards Updates.
In May 2014, the FASB issued the update
Revenue from Contracts with Customers (Topic 606). The update replaces much of the current guidance regarding revenue recognition including most industry-specific guidance. In accordance with the update, an entity will be required to
identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the
entity satisfies a performance obligation. In addition to the new revenue recognition requirements, entities will be required to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with customers. Entities may choose between two retrospective transition methods when applying the update. In July 2015, the FASB approved a one-year deferral of the effective date (annual
periods beginning after December 15, 2017). In March, April, May, and December of 2016, the FASB issued updates to Topic 606 related to Principal versus Agent Considerations (Reporting Revenue Gross versus Net),
Identifying Performance Obligations and Licensing, Narrow-Scope Improvements and Practical Expedients, and certain Technical Corrections and Improvements. The amendments in the first two updates, respectively,
provide guidance when another party, along with the entity, is involved in providing a good or service to a customer, and provide clarification with regard to identifying performance obligations and of the licensing implementation guidance in Topic
606. The third update includes improvements to the guidance on collectability, noncash consideration, and completed contracts at transition. In addition, a practical expedient is provided for contract modifications at transition and an accounting
policy election related to the presentation of sales taxes and other similar taxes collected from customers. The fourth update affects narrow aspects of the guidance as issued to date. Management plans to adopt all of these updates at the required
adoption date, which is for interim and annual reporting periods commencing January 2018.
Management has substantially completed the
evaluation of the sources of revenue and is currently assessing the effect of the new guidance on its financial position, results of operations and cash flows. The final assessment is contingent, in part, upon the completion of reviews related to
customers with negotiated and unique billing terms. Deliberations have been ongoing by the utility industry, notably in connection with efforts to produce an accounting guide intended to be developed by the American Institute of Certified Public
Accountants (AICPA). In association with this undertaking, the AICPA formed a number of industry task forces, including a Power & Utilities (P&U) Task Force, on which Company personnel actively participate via
formal membership. Industry representatives and organizations, the largest auditing firms, the AICPAs Revenue Recognition Working Group and its Financial Reporting Executive Committee have undertaken, and continue to undertake, consideration
of several items relevant to the utility industry. Where applicable or necessary, the FASBs Transition Resource Group (TRG) is also participating. Through the P&U Task Force undertakings to date, general determinations have
been made that contributions received in aid of construction (CIAC) efforts related to the industrys pipe distribution and transmission systems are reimbursements of expenditures rather than revenue (consistent with current
accounting practices). Furthermore, regarding the collectibility criterion in the update that must be met for revenue recognition, general determinations have been made that contracts for utility service (including service to lower
income or lower credit quality customers) represent genuine and valid contracts for which revenue is able to be recognized when service is rendered (consistent with current accounting practices). These determinations by the P&U industry are
based on the various measures the industry takes to help ensure collectibility (e.g., proof of creditworthiness, customer deposits, late fee assessment, disconnection, service re-establishment fees, collection processes, etc.), in addition to the
regulatory mechanisms established under rate regulation to mitigate the impacts of individual customer nonpayment. A timeline for the resolution of all deliberations of P&U efforts has not been established. Southwest continues to actively work
with its peers in the rate-regulated natural gas industry and with the public accounting profession to finalize the accounting treatment for several other issues that are not being separately addressed by the P&U Task Force.
14
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
As of June 30, 2017, the construction services segment has substantially completed the
evaluation of sources of revenue and continues to assess the effect of the new guidance on financial position, results of operations and cash flows. The principals of the new revenue recognition guidance are very similar to existing guidance for
construction contractors. Similar to the P&U Task Force noted above, the AICPA formed the Engineering and Construction Contractors Task Force to assist the construction industry with implementing the new guidance. The accounting guide the AICPA
intends to release is expected to provide implementation guidance related to several issues including 1) combining contracts and separating performance obligations; 2) estimating change orders, incentives, penalties, liquidated damages and
other variable consideration items and 3) acceptable measures of progress when recognizing revenue over time.
Given the uncertainty with
respect to the conclusions that might arise from the ongoing deliberations on issues associated with both the natural gas and construction services segments, the Company is currently unable to determine the effect the new guidance will have on its
financial position, results of operations, cash flows, business processes, or the transition method it will utilize to adopt the new guidance. However, conclusions reached regarding CIAC and collectability criterion with regard to utility service
are significant and are aligned with current practices and recognition.
In January 2016, the FASB issued the update Financial
Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities in order to improve the recognition and measurement of financial instruments. The update makes targeted improvements to
existing U.S. GAAP by: 1) requiring equity investments to be measured at fair value with changes in fair value recognized in net income; 2) requiring the use of the exit price notion when measuring the fair value of financial instruments for
disclosure purposes; 3) requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; 4) eliminating the
requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and 5) requiring a reporting entity to
present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in instrument-specific credit risk when the organization has elected to measure the liability at fair value in
accordance with the fair value option for financial instruments. The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. All entities can early adopt the provision to
record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. Management is evaluating what impact, if any, this update might have on its consolidated
financial statements and disclosures.
In February 2016, the FASB issued the update Leases (Topic 842). Under the update,
lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:
|
|
|
A lease liability, which is a lessees obligation to make lease payments arising from a lease, measured
on a discounted basis; and
|
|
|
|
A right-of-use asset, which is an asset that represents the lessees right to use, or control the use of,
a specified asset for the lease term.
|
Under the new guidance, lessor accounting is largely unchanged. Certain targeted
improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. Though companies have historically been required to make disclosures regarding leases and of
contractual obligations, leases (with terms longer than a year) will no longer exist off-balance sheet. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified
retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting
for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Early application is permitted. Management currently plans to adopt the update at the required
adoption date, which is for interim and annual reporting periods commencing January 1, 2019. Existing leases have been documented by both segments and management is in the process of determining if special software will be necessary to
implement the standard. In addition, management is evaluating the potential impacts of various natural gas industry-related issues in light of the leasing standard. Given the uncertainty with respect to
15
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
the conclusions that might arise from these deliberations, management is currently unable to determine the effect the new guidance will have on its financial position, results of operations, cash
flows, or business processes.
In June 2016, the FASB issued the update Financial InstrumentsCredit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments. The update amends guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, the
update eliminates the probable threshold for initial recognition of credit losses in current U.S. GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a
valuation account that is deducted from the amortized cost basis of the financial asset to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current U.S.
GAAP, however the update will require that credit losses be presented as an allowance rather than as a write-down. This update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through
net income. The update affects loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual
right to receive cash. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All entities may adopt the amendments in this update earlier as of fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years. Management is evaluating what impact, if any, this update might have on its consolidated financial statements and disclosures.
In August 2016, the FASB issued the update Classification of Certain Cash Receipts and Cash Payments. This update addresses the
following specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of
the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance (COLI) policies; distributions received
from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows, including identification of the predominant nature in cases where cash receipts and payments have aspects of more than one
class of cash flows. The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Management is evaluating the impacts this update might have
on its consolidated cash flow statements and disclosures.
In October 2016, the FASB issued the update Accounting for Income Taxes:
Intra-Entity Asset Transfers of Assets Other than Inventory. This update eliminates the current U.S. GAAP exception for all intra-entity sales of assets other than inventory. As a result, a reporting entity would recognize the tax expense from
the sale of the asset in the sellers tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyers jurisdiction would also
be recognized at the time of the transfer. The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted; however, the guidance can only be
adopted in the first interim period of a fiscal year. No such election to adopt early was made by management. The modified retrospective approach will be required for transition to the new guidance, with a cumulative-effect adjustment recorded in
retained earnings as of the beginning of the period of adoption. Management is evaluating the impacts this update might have on its consolidated financial statements.
In January 2017, the FASB issued the update IntangiblesGoodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment. The update eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be
recognized for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from
any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The update also eliminates the requirements for any reporting unit with a zero or negative
carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if
the quantitative impairment test is necessary. The amendments should be applied on a prospective basis. The update is effective for fiscal and interim periods beginning after December 15, 2019. Early adoption is permitted for interim or annual
goodwill impairment tests performed on testing dates after January 1, 2017. Management has determined that this update would have had no impact on the consolidated financial statements for the periods presented if it had been effective during
those periods.
16
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
In March 2017, the FASB issued the update Compensation Retirement Benefits
(Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update applies to all employers that offer to their employees defined benefit pension plans, other postretirement benefit
plans, or other types of benefits accounted for under Topic 715, Compensation Retirement Benefits. The update requires that an employer report the service cost component in the same line item or items as other compensation costs arising from
services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from
operations, if one is presented, and be appropriately described (or disclosed in the notes when one is not presented). The update also allows only the service cost component (and not the other components of periodic benefit costs) to be eligible for
capitalization when applicable, making no exception for specialized industries, including
rate-regulated
industries. Southwest is a rate-regulated utility offering pension and postretirement benefits to
retired employees. Rate-regulated entities providing utility and transmission services have historically capitalized a portion of periodic benefit costs (including non-service cost components) in utility infrastructure (for instance, when productive
labor is also charged to capital work orders). The portion capitalized becomes a component of depreciation rate development by efforts of companies and their regulatory commissions. The industry is currently evaluating whether this update could
cause a difference (not currently existing), between accounting reflected in general purpose financial statements versus financial statements and information utilized for regulatory reporting and ratemaking purposes. Deliberations center on whether
companies will be able to implement the provisions of the update for all purposes, only for general purpose financial reporting purposes, or whether regulatory reporting and economics will give effect to other related changes necessary in general
purpose financial statements. If the provisions of the update cannot be implemented for all purposes, substantial effort could be required to maintain separate records and to provide reasonable reconciliation means for users of both. The update is
effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Due to the industry deliberations noted above, management has not fully completed its
evaluation at this time. As efforts continue, management will be evaluating the various impacts this update will have on its consolidated financial statements and disclosures.
17
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
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.
Net periodic benefit costs included in the table below are components of an overhead loading process associated with the cost of labor. The
overhead process ultimately results in allocation of net periodic benefit costs to the same accounts to which productive labor is charged. As a result, net periodic benefit 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified Retirement Plan
|
|
|
|
Period Ended June 30,
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Twelve Months
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
5,848
|
|
|
$
|
5,708
|
|
|
$
|
11,696
|
|
|
$
|
11,417
|
|
|
$
|
23,112
|
|
|
$
|
23,979
|
|
Interest cost
|
|
|
11,521
|
|
|
|
11,507
|
|
|
|
23,041
|
|
|
|
23,013
|
|
|
|
46,055
|
|
|
|
45,127
|
|
Expected return on plan assets
|
|
|
(13,799
|
)
|
|
|
(14,139
|
)
|
|
|
(27,598
|
)
|
|
|
(28,279
|
)
|
|
|
(55,877
|
)
|
|
|
(57,183
|
)
|
Amortization of net actuarial loss
|
|
|
6,001
|
|
|
|
6,316
|
|
|
|
12,002
|
|
|
|
12,633
|
|
|
|
24,635
|
|
|
|
29,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
9,571
|
|
|
$
|
9,392
|
|
|
$
|
19,141
|
|
|
$
|
18,784
|
|
|
$
|
37,925
|
|
|
$
|
40,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP
|
|
|
|
Period Ended June 30,
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Twelve Months
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
77
|
|
|
$
|
83
|
|
|
$
|
155
|
|
|
$
|
165
|
|
|
$
|
321
|
|
|
$
|
325
|
|
Interest cost
|
|
|
471
|
|
|
|
465
|
|
|
|
942
|
|
|
|
930
|
|
|
|
1,871
|
|
|
|
1,778
|
|
Amortization of net actuarial loss
|
|
|
360
|
|
|
|
346
|
|
|
|
720
|
|
|
|
692
|
|
|
|
1,411
|
|
|
|
1,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
908
|
|
|
$
|
894
|
|
|
$
|
1,817
|
|
|
$
|
1,787
|
|
|
$
|
3,603
|
|
|
$
|
3,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBOP
|
|
|
|
Period Ended June 30,
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Twelve Months
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
367
|
|
|
$
|
375
|
|
|
$
|
734
|
|
|
$
|
749
|
|
|
$
|
1,484
|
|
|
$
|
1,569
|
|
Interest cost
|
|
|
808
|
|
|
|
795
|
|
|
|
1,616
|
|
|
|
1,591
|
|
|
|
3,205
|
|
|
|
3,091
|
|
Expected return on plan assets
|
|
|
(839
|
)
|
|
|
(787
|
)
|
|
|
(1,679
|
)
|
|
|
(1,575
|
)
|
|
|
(3,253
|
)
|
|
|
(3,307
|
)
|
Amortization of prior service costs
|
|
|
334
|
|
|
|
334
|
|
|
|
668
|
|
|
|
668
|
|
|
|
1,335
|
|
|
|
1,336
|
|
Amortization of net actuarial loss
|
|
|
|
|
|
|
104
|
|
|
|
|
|
|
|
208
|
|
|
|
209
|
|
|
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
670
|
|
|
$
|
821
|
|
|
$
|
1,339
|
|
|
$
|
1,641
|
|
|
$
|
2,980
|
|
|
$
|
3,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
Note 3 Segment Information
The Company has two reportable segments: natural gas operations and construction services. Southwest has a single reportable segment that is
referred to herein as the natural gas operations segment of the Company. In order to reconcile to net income as disclosed in the Condensed Consolidated Statements of Income, an Other column is included associated with impacts related to corporate
and administrative activities related to Southwest Gas Holdings, Inc. The following tables present revenues from external customers, intersegment revenues, and segment net income for the two reportable segments (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas
Operations
|
|
|
Construction
Services
|
|
|
Other
|
|
|
Total
|
|
Three months ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
260,162
|
|
|
$
|
277,384
|
|
|
$
|
|
|
|
$
|
537,546
|
|
Intersegment revenues
|
|
|
|
|
|
|
22,923
|
|
|
|
|
|
|
|
22,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
260,162
|
|
|
$
|
300,307
|
|
|
$
|
|
|
|
$
|
560,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net income (loss)
|
|
$
|
9,522
|
|
|
$
|
8,716
|
|
|
$
|
(374
|
)
|
|
$
|
17,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
255,648
|
|
|
$
|
266,343
|
|
|
$
|
|
|
|
$
|
521,991
|
|
Intersegment revenues
|
|
|
|
|
|
|
25,757
|
|
|
|
|
|
|
|
25,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
255,648
|
|
|
$
|
292,100
|
|
|
$
|
|
|
|
$
|
547,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net income
|
|
$
|
2,358
|
|
|
$
|
6,585
|
|
|
$
|
|
|
|
$
|
8,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas
Operations
|
|
|
Construction
Services
|
|
|
Other
|
|
|
Total
|
|
Six months ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
722,764
|
|
|
$
|
448,223
|
|
|
$
|
|
|
|
$
|
1,170,987
|
|
Intersegment revenues
|
|
|
|
|
|
|
44,219
|
|
|
|
|
|
|
|
44,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
722,764
|
|
|
$
|
492,442
|
|
|
$
|
|
|
|
$
|
1,215,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net income (loss)
|
|
$
|
86,460
|
|
|
$
|
1,382
|
|
|
$
|
(670
|
)
|
|
$
|
87,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
780,748
|
|
|
$
|
450,304
|
|
|
$
|
|
|
|
$
|
1,231,052
|
|
Intersegment revenues
|
|
|
|
|
|
|
47,944
|
|
|
|
|
|
|
|
47,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
780,748
|
|
|
$
|
498,248
|
|
|
$
|
|
|
|
$
|
1,278,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net income
|
|
$
|
79,941
|
|
|
$
|
4,448
|
|
|
$
|
|
|
|
$
|
84,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas
Operations
|
|
|
Construction
Services
|
|
|
Other
|
|
|
Total
|
|
Twelve months ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
1,263,428
|
|
|
$
|
1,038,876
|
|
|
$
|
|
|
|
$
|
2,302,304
|
|
Intersegment revenues
|
|
|
|
|
|
|
94,396
|
|
|
|
|
|
|
|
94,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,263,428
|
|
|
$
|
1,133,272
|
|
|
$
|
|
|
|
$
|
2,396,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net income (loss)
|
|
$
|
125,942
|
|
|
$
|
29,552
|
|
|
$
|
(670
|
)
|
|
$
|
154,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
1,395,629
|
|
|
$
|
964,973
|
|
|
$
|
|
|
|
$
|
2,360,602
|
|
Intersegment revenues
|
|
|
|
|
|
|
109,195
|
|
|
|
|
|
|
|
109,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,395,629
|
|
|
$
|
1,074,168
|
|
|
$
|
|
|
|
$
|
2,469,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net income
|
|
$
|
113,302
|
|
|
$
|
32,472
|
|
|
$
|
|
|
|
$
|
145,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4 Derivatives and Fair Value Measurements
Derivatives.
In managing its natural gas supply portfolios, Southwest has historically entered into fixed- and variable-price contracts,
which qualify as derivatives. Additionally, Southwest utilizes fixed-for-floating swap contracts (Swaps) to supplement its fixed-price contracts. The fixed-price contracts, firm commitments to purchase a fixed amount of gas in the future
at a fixed price, qualify for the normal purchases and normal sales exception that is allowed for contracts that are probable of delivery in the normal course of business, and are exempt from fair value reporting.
19
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
The variable-price contracts have no significant market value. The Swaps are recorded at fair value.
The fixed-price contracts and Swaps are utilized by Southwest under its volatility mitigation programs to effectively fix the price on a
portion (up to 25% in the Arizona and California jurisdictions) of its natural gas supply portfolios. The maturities of the Swaps highly correlate to forecasted purchases of natural gas, during time frames ranging from July 2017 through March 2019.
Under such contracts, Southwest pays the counterparty a fixed rate and receives from the counterparty a floating rate per MMBtu (dekatherm) of natural gas. Only the net differential is actually paid or received. The differential is
calculated based on the notional amounts under the contracts, which are detailed in the table below (thousands of dekatherms):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Contract notional amounts
|
|
|
11,035
|
|
|
|
10,543
|
|
|
|
|
|
|
|
|
|
|
Southwest does not utilize derivative financial instruments for speculative purposes, nor does it have trading
operations.
The following table sets forth the gains and (losses) recognized on the Swaps (derivatives) for the three-, six-, and
twelve-month periods ended June 30, 2017 and 2016 and their location in the Condensed Consolidated Statements of Income for both the Company and Southwest:
Gains (losses) recognized in income for derivatives not designated as hedging instruments:
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
Twelve Months Ended
|
|
|
|
Location of Gain or (Loss)
|
|
June 30
|
|
|
June 30
|
|
|
June 30
|
|
Instrument
|
|
Recognized in Income on Derivative
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Swaps
|
|
Net cost of gas sold
|
|
$
|
(1,168
|
)
|
|
$
|
5,537
|
|
|
$
|
(6,305
|
)
|
|
$
|
4,325
|
|
|
$
|
(5,624
|
)
|
|
$
|
(1,866
|
)
|
Swaps
|
|
Net cost of gas sold
|
|
|
1,168
|
*
|
|
|
(5,537
|
)*
|
|
|
6,305
|
*
|
|
|
(4,325
|
)*
|
|
|
5,624
|
*
|
|
|
1,866
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Represents the impact of regulatory deferral accounting treatment under U.S. GAAP for rate-regulated entities.
|
No gains (losses) were recognized in net income or other comprehensive income during the periods presented for
derivatives designated as cash flow hedging instruments. Previously, Southwest entered into two forward-starting interest rate swaps (FSIRS), both of which were designated cash flow hedges, to partially hedge the risk of interest rate
variability during the period leading up to the planned issuance of debt. The first FSIRS terminated in December 2010. The second FSIRS terminated in March 2012. Losses on both FSIRS are being amortized over ten-year periods from Accumulated other
comprehensive income (loss) into interest expense.
The following table sets forth the fair values of the Swaps and their location in the
Condensed Consolidated Balance Sheets for both the Company and Southwest (thousands of dollars):
Fair values of derivatives not designated as
hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
Instrument
|
|
Balance Sheet Location
|
|
Asset
Derivatives
|
|
|
Liability
Derivatives
|
|
|
Net Total
|
|
Swaps
|
|
Other current liabilities
|
|
$
|
25
|
|
|
$
|
(1,575
|
)
|
|
$
|
(1,550
|
)
|
Swaps
|
|
Other deferred credits
|
|
|
29
|
|
|
|
(681
|
)
|
|
|
(652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
54
|
|
|
$
|
(2,256
|
)
|
|
$
|
(2,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
Instrument
|
|
Balance Sheet Location
|
|
Asset
Derivatives
|
|
|
Liability
Derivatives
|
|
|
Net Total
|
|
Swaps
|
|
Deferred charges and other assets
|
|
$
|
899
|
|
|
$
|
(54
|
)
|
|
$
|
845
|
|
Swaps
|
|
Prepaids and other current assets
|
|
|
3,551
|
|
|
|
(19
|
)
|
|
|
3,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
4,450
|
|
|
$
|
(73
|
)
|
|
$
|
4,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated fair values of the natural gas derivatives were determined using future natural gas index prices
(as more fully described below). Master netting arrangements exist with each counterparty that provide for the net settlement (in the settlement month) of all contracts through a single payment. As applicable, management has elected to reflect
20
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
the net amounts in its balance sheets. There was no outstanding collateral associated with the Swaps during either period shown in the above table.
Pursuant to regulatory deferral accounting treatment for rate-regulated entities, unrealized gains and losses in fair value of the Swaps are
recorded as a regulatory asset and/or liability. When the Swaps mature, any prior positions held are reversed and the settled position is recorded as an increase or decrease of purchased gas under the related purchased gas adjustment
(PGA) mechanism in determining its deferred PGA balances. Neither changes in fair value, nor settled amounts, of Swaps have a direct effect on earnings or other comprehensive income.
The following table shows the amounts Southwest paid to and received from counterparties for settlements of matured Swaps.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
Twelve Months Ended
|
|
(Thousands of dollars)
|
|
June 30, 2017
|
|
|
June 30, 2017
|
|
|
June 30, 2017
|
|
Paid to counterparties
|
|
$
|
111
|
|
|
$
|
1,412
|
|
|
$
|
2,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Received from counterparties
|
|
$
|
|
|
|
$
|
1,685
|
|
|
$
|
2,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table details the regulatory assets/(liabilities) offsetting the derivatives at fair value in
the Condensed Consolidated Balance Sheets for both the Company and Southwest (thousands of dollars).
|
|
|
|
|
|
|
June 30, 2017
Instrument
|
|
Balance Sheet Location
|
|
Net Total
|
|
Swaps
|
|
Prepaids and other current assets
|
|
$
|
1,550
|
|
Swaps
|
|
Deferred charges and other assets
|
|
|
652
|
|
|
|
|
December 31, 2016
Instrument
|
|
Balance Sheet Location
|
|
Net Total
|
|
Swaps
|
|
Other deferred credits
|
|
$
|
(845
|
)
|
Swaps
|
|
Other current liabilities
|
|
|
(3,532
|
)
|
Fair Value Measurements.
The estimated fair values of Southwests Swaps were determined at
June 30, 2017 and December 31, 2016 using New York Mercantile Exchange (NYMEX) futures settlement prices for delivery of natural gas at Henry Hub adjusted by the price of NYMEX ClearPort basis Swaps, which reflect the
difference between the price of natural gas at a given delivery basin and the Henry Hub pricing points. These Level 2 inputs (inputs, other than quoted prices, for similar assets or liabilities) are observable in the marketplace throughout the full
term of the Swaps, but have been credit-risk adjusted with no significant impact to the overall fair value measurement.
The following
table sets forth, by level within the three-level fair value hierarchy that ranks the inputs used to measure fair value by their reliability, the financial assets and liabilities that were accounted for at fair value by both the Company and
Southwest:
Level 2Significant other observable inputs
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
Assets at fair value:
|
|
|
|
|
|
|
|
|
Prepaids and other current assets - Swaps
|
|
$
|
|
|
|
$
|
3,532
|
|
Deferred charges and other assets - Swaps
|
|
|
|
|
|
|
845
|
|
Liabilities at fair value:
|
|
|
|
|
|
|
|
|
Other current liabilities - Swaps
|
|
|
(1,550
|
)
|
|
|
|
|
Other deferred credits - Swaps
|
|
|
(652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets (Liabilities)
|
|
$
|
(2,202
|
)
|
|
$
|
4,377
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
No financial assets or liabilities associated with the Swaps, which were accounted for at
fair value, fell within Level 1 (quoted prices in active markets for identical financial assets) or Level 3 (significant unobservable inputs) of the fair value hierarchy.
With regard to the fair values of assets associated with pension and postretirement benefit plans, asset values were last updated as required
as of December 2016. Refer to Note 10 Pension and Other Post Retirement Benefits in the 2016 Annual Report to Shareholders on Form 10-K.
Note 5
Common Stock
In January 2017, the holding company reorganization was made effective and each outstanding share of Southwest Gas
Corporation common stock was converted into a share of common stock in Southwest Gas Holdings, Inc., on a one-for-one basis. The ticker symbol of the stock, SWX, remained unchanged, and Southwest Gas Corporation became a wholly owned
subsidiary of Southwest Gas Holdings, Inc.
On March 29, 2017, the Company filed with the Securities Exchange Commission
(SEC) an automatic shelf registration statement on Form S-3 (File No. 333-217018), which became effective upon filing, for the offer and sale of up to $150 million of common stock from time to time in at-the-market offerings under
the prospectus included therein and in accordance with the Sales Agency Agreement, dated March 29, 2017, between the Company and BNY Mellon Capital Markets, LLC (the Equity Shelf Program). No shares of the Companys common
stock have been sold under that registration statement.
During the six months ended June 30, 2017, the Company issued approximately
101,000 shares of common stock through the Restricted Stock/Unit Plan and Management Incentive Plan.
Note 6 Long-Term Debt
Carrying amounts of long-term debt and related estimated fair values as of June 30, 2017 and December 31, 2016 are disclosed in the
following table. Southwests revolving credit facility (including commercial paper) and the variable-rate Industrial Development Revenue Bonds (IDRBs) approximate their carrying values, as they are repaid quickly (in the case
of credit facility borrowings) and have interest rates that reset frequently. These are categorized as Level 1 due to Southwests ability to access similar debt arrangements at measurement dates with comparable terms, including
variable/market rates. The fair values of Southwests debentures, senior notes, and fixed-rate IDRBs were determined utilizing a market-based valuation approach, where fair values are determined based on evaluated pricing data, such as
broker quotes and yields for similar securities adjusted for observable differences. Significant inputs used in the valuation generally include benchmark yield curves, credit ratings and issuer spreads. The external credit rating, coupon rate, and
maturity of each security are considered in the valuation, as applicable. The fair values of debentures and fixed-rate IDRBs are categorized as Level 2 (observable market inputs based on market prices of similar securities). The Centuri secured
revolving credit and term loan facility and Centuri other debt obligations (not actively traded) are categorized as Level 3, based on significant unobservable inputs to their fair values. Because Centuris debt is not publicly traded, fair
values for the secured revolving credit and term loan facility and other debt obligations were based on a conventional discounted cash flow methodology and utilized current market pricing yield curves, across Centuris debt maturity spectrum,
of other industrial bonds with an assumed credit rating comparable to the Companys.
22
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest Gas Corporation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes, 4.45%, due 2020
|
|
$
|
125,000
|
|
|
$
|
130,821
|
|
|
$
|
125,000
|
|
|
$
|
129,703
|
|
Notes, 6.1%, due 2041
|
|
|
125,000
|
|
|
|
155,466
|
|
|
|
125,000
|
|
|
|
149,734
|
|
Notes, 3.875%, due 2022
|
|
|
250,000
|
|
|
|
259,368
|
|
|
|
250,000
|
|
|
|
254,900
|
|
Notes, 4.875%, due 2043
|
|
|
250,000
|
|
|
|
268,728
|
|
|
|
250,000
|
|
|
|
266,793
|
|
Notes, 3.8%, due 2046
|
|
|
300,000
|
|
|
|
284,172
|
|
|
|
300,000
|
|
|
|
283,029
|
|
8% Series, due 2026
|
|
|
75,000
|
|
|
|
96,783
|
|
|
|
75,000
|
|
|
|
94,691
|
|
Medium-term notes, 7.59% series, due 2017
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
25,040
|
|
Medium-term notes, 7.78% series, due 2022
|
|
|
25,000
|
|
|
|
29,356
|
|
|
|
25,000
|
|
|
|
29,290
|
|
Medium-term notes, 7.92% series, due 2027
|
|
|
25,000
|
|
|
|
32,320
|
|
|
|
25,000
|
|
|
|
31,905
|
|
Medium-term notes, 6.76% series, due 2027
|
|
|
7,500
|
|
|
|
8,914
|
|
|
|
7,500
|
|
|
|
8,769
|
|
Unamortized discount and debt issuance costs
|
|
|
(9,644
|
)
|
|
|
|
|
|
|
(9,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,172,856
|
|
|
|
|
|
|
|
1,197,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility and commercial paper
|
|
|
92,000
|
|
|
|
92,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(2,304
|
)
|
|
|
|
|
|
|
(2,489
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197,696
|
|
|
|
|
|
|
|
197,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current maturities
|
|
|
|
|
|
|
|
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities - Southwest Gas Corporation
|
|
$
|
1,462,552
|
|
|
|
|
|
|
$
|
1,375,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centuri:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Centuri term loan facility
|
|
$
|
105,559
|
|
|
|
105,641
|
|
|
$
|
106,700
|
|
|
|
106,819
|
|
Unamortized debt issuance costs
|
|
|
(427
|
)
|
|
|
|
|
|
|
(516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,132
|
|
|
|
|
|
|
|
106,184
|
|
|
|
|
|
Centuri secured revolving credit facility
|
|
|
99,943
|
|
|
|
100,091
|
|
|
|
41,185
|
|
|
|
41,292
|
|
Centuri other debt obligations
|
|
|
45,307
|
|
|
|
45,589
|
|
|
|
52,635
|
|
|
|
52,840
|
|
Less: current maturities
|
|
|
(27,236
|
)
|
|
|
|
|
|
|
(25,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities - Centuri
|
|
$
|
223,146
|
|
|
|
|
|
|
$
|
174,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Southwest Gas Holdings, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest Gas Corporation long-term debt
|
|
$
|
1,462,552
|
|
|
|
|
|
|
$
|
1,400,080
|
|
|
|
|
|
Centuri long-term debt
|
|
|
250,382
|
|
|
|
|
|
|
|
200,004
|
|
|
|
|
|
Less: current maturities
|
|
|
(27,236
|
)
|
|
|
|
|
|
|
(50,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities - Southwest Gas Holdings, Inc.
|
|
$
|
1,685,698
|
|
|
|
|
|
|
$
|
1,549,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In March 2017, Southwest amended its credit facility, increasing the borrowing capacity from $300 million to
$400 million. Also, the facility was previously scheduled to expire in March 2021 and was extended to March 2022. Southwest continues to designate $150 million of capacity related to the facility as long-term debt and with the total
capacity now available, has designated the remaining $250 million for working capital purposes. Interest rates for the credit facility are calculated at either the London Interbank Offered Rate (LIBOR) or an alternate base
rate, plus in each case an applicable margin that is determined based on the Southwests senior unsecured debt rating. At June 30, 2017, the applicable margin is 1% for loans bearing interest with reference to LIBOR and 0% for loans
bearing interest with reference to the alternative base rate. At June 30, 2017, $92 million was outstanding on the long-term and no borrowings were outstanding on the short-term portions of this credit facility.
23
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
Centuri has a $300 million secured revolving credit and term loan facility that is scheduled
to expire in October 2019. At June 30, 2017, $206 million in borrowings were outstanding on the Centuri facility. Centuri assets securing the facility at June 30, 2017 totaled $501 million.
Note 7 Short-Term Debt
In March
2017, Southwest Gas Holdings, Inc. entered into a credit facility with a borrowing capacity of $100 million that expires in March 2022. The Company intends to utilize this facility for short-term financing needs. Interest rates for this
facility are calculated at either the LIBOR or the alternate base rate, plus in each case an applicable margin that is determined based on the Companys senior unsecured debt rating. The applicable margin ranges from 0.75% to 1.50%
for loans bearing interest with reference to LIBOR and from 0% to 0.5% for loans bearing interest with reference to the alternative base rate. The Company is also required to pay a commitment fee on the unfunded portion of the commitments based on
its senior unsecured long-term debt rating. The commitment fee ranges from 0.075% to 0.200% per annum. At June 30, 2017, $2.5 million was outstanding on this facility.
Note 8 Equity, Other Comprehensive Income, and Accumulated Other Comprehensive Income
The table below provides details of activity in equity and the redeemable noncontrolling interest for Southwest Gas Holdings, Inc. on a
consolidated basis during the six months ended June 30, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest Gas Holdings, Inc. Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Non-
|
|
|
|
|
|
Noncontrolling
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
controlling
|
|
|
|
|
|
Interest
|
|
(In thousands, except per share amounts)
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Interest
|
|
|
Total
|
|
|
(Temporary
Equity)
|
|
DECEMBER 31, 2016
|
|
|
47,482
|
|
|
$
|
49,112
|
|
|
$
|
903,123
|
|
|
$
|
(48,008
|
)
|
|
$
|
759,263
|
|
|
$
|
(2,217
|
)
|
|
$
|
1,661,273
|
|
|
$
|
22,590
|
|
Common stock issuances
|
|
|
101
|
|
|
|
101
|
|
|
|
7,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,073
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,172
|
|
|
|
(95
|
)
|
|
|
87,077
|
|
|
|
49
|
|
Redemption value adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,315
|
|
|
|
|
|
|
|
2,315
|
|
|
|
(2,315
|
)
|
Foreign currency exchange translation adj.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
820
|
|
|
|
|
|
|
|
|
|
|
|
820
|
|
|
|
29
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss) arising during
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period, less amortization of unamortized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit plan cost, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,190
|
|
|
|
|
|
|
|
|
|
|
|
1,190
|
|
|
|
|
|
Amounts reclassified to net income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax (FSIRS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,036
|
|
|
|
|
|
|
|
|
|
|
|
1,036
|
|
|
|
|
|
Centuri dividend to redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(204
|
)
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common: $0.99 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,528
|
)
|
|
|
|
|
|
|
(47,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JUNE 30, 2017
|
|
|
47,583
|
|
|
$
|
49,213
|
|
|
$
|
911,095
|
|
|
$
|
(44,962
|
)
|
|
$
|
801,222
|
|
|
$
|
(2,312
|
)
|
|
$
|
1,714,256
|
|
|
$
|
20,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
The table below provides details of activity in equity for Southwest Gas Corporation during
the six months ended June 30, 2017. Effective in January 2017, Southwest became a subsidiary of Southwest Gas Holdings, Inc., and only equity shares of the latter are publicly traded, under the ticker symbol SWX.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southwest Gas Corporation Equity
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Retained
|
|
|
|
|
(In thousands, except per share amounts)
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Total
|
|
DECEMBER 31, 2016
|
|
|
47,482
|
|
|
$
|
49,112
|
|
|
$
|
897,346
|
|
|
$
|
(45,639
|
)
|
|
$
|
767,061
|
|
|
$
|
1,667,880
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,460
|
|
|
|
86,460
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss) arising during period, less amortization of unamortized ben efit plan
cost, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,190
|
|
|
|
|
|
|
|
1,190
|
|
Amounts reclassified to net income,net of tax (FSIRS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,036
|
|
|
|
|
|
|
|
1,036
|
|
Distribution to Southwest Gas Holdings, Inc. investment in discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(182,773
|
)
|
|
|
(182,773
|
)
|
Stock-based compensation (a)
|
|
|
|
|
|
|
|
|
|
|
7,369
|
|
|
|
|
|
|
|
(392
|
)
|
|
|
6,977
|
|
Dividends declared to Southwest Gas Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,130
|
)
|
|
|
(39,130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JUNE 30, 2017
|
|
|
47,482
|
|
|
$
|
49,112
|
|
|
$
|
904,715
|
|
|
$
|
(43,413
|
)
|
|
$
|
631,226
|
|
|
$
|
1,541,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Stock-based compensation is based on stock awards of Southwest Gas Corporation to be issued in shares of
Southwest Gas Holdings, Inc.
|
The table above gives effect to the holding company reorganization whereby Southwest and
Centuri became subsidiaries of the Company. The historic investment in Centuri was distributed to the parent holding company. This presentation is only applicable to Southwest and not to the Company overall, as Centuri continues to be included in
the continuing operations of the Company. Also in connection with the holding company creation, compensation plans of Southwest include programs that will be settled with equity shares issued by Southwest Gas Holdings, Inc. Management has
determined that when no consideration is directly exchanged for these programs between Southwest and the Company, the accounting impact at Southwest for these programs is reflected both as compensation expense and as an equity contribution (of the
parent) in Southwest.
The following information provides insight into amounts impacting the Companys Other Comprehensive Income
(Loss), both before and after-tax, within the Condensed Consolidated Statements of Comprehensive Income, which also impact Accumulated Other Comprehensive Income in the Condensed Consolidated Balance Sheets and the associated column in the equity
table above, as well as the Redeemable Noncontrolling Interest. See
Note 4 Derivatives and Fair Value Measurements
for additional information on the FSIRS.
25
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
Related Tax Effects Allocated to Each Component of Other Comprehensive Income (Loss)
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2017
|
|
|
Three Months Ended
June 30, 2016
|
|
|
|
Before-
|
|
|
Tax
|
|
|
Net-of-
|
|
|
Before-
|
|
|
Tax
|
|
|
Net-of-
|
|
|
|
Tax
|
|
|
(Expense)
|
|
|
Tax
|
|
|
Tax
|
|
|
(Expense)
|
|
|
Tax
|
|
|
|
Amount
|
|
|
or Benefit (1)
|
|
|
Amount
|
|
|
Amount
|
|
|
or Benefit (1)
|
|
|
Amount
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
$
|
334
|
|
|
$
|
(127
|
)
|
|
$
|
207
|
|
|
$
|
334
|
|
|
$
|
(127
|
)
|
|
$
|
207
|
|
Amortization of net actuarial (gain)/loss
|
|
|
6,361
|
|
|
|
(2,417
|
)
|
|
|
3,944
|
|
|
|
6,766
|
|
|
|
(2,572
|
)
|
|
|
4,194
|
|
Regulatory adjustment
|
|
|
(5,735
|
)
|
|
|
2,179
|
|
|
|
(3,556
|
)
|
|
|
(6,123
|
)
|
|
|
2,327
|
|
|
|
(3,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plans other comprehensive income (loss)
|
|
|
960
|
|
|
|
(365
|
)
|
|
|
595
|
|
|
|
977
|
|
|
|
(372
|
)
|
|
|
605
|
|
FSIRS (designated hedging activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassifed into net income
|
|
|
836
|
|
|
|
(318
|
)
|
|
|
518
|
|
|
|
837
|
|
|
|
(318
|
)
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FSIRS other comprehensive income
|
|
|
836
|
|
|
|
(318
|
)
|
|
|
518
|
|
|
|
837
|
|
|
|
(318
|
)
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) - Southwest Gas Corporation
|
|
|
1,796
|
|
|
|
(683
|
)
|
|
|
1,113
|
|
|
|
1,814
|
|
|
|
(690
|
)
|
|
|
1,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
629
|
|
|
|
|
|
|
|
629
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency other comprehensive income (loss)
|
|
|
629
|
|
|
|
|
|
|
|
629
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc.
|
|
$
|
2,425
|
|
|
$
|
(683
|
)
|
|
$
|
1,742
|
|
|
$
|
1,884
|
|
|
$
|
(690
|
)
|
|
$
|
1,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2017
|
|
|
Six Months Ended
June 30, 2016
|
|
|
|
Before-
|
|
|
Tax
|
|
|
Net-of-
|
|
|
Before-
|
|
|
Tax
|
|
|
Net-of-
|
|
|
|
Tax
|
|
|
(Expense)
|
|
|
Tax
|
|
|
Tax
|
|
|
(Expense)
|
|
|
Tax
|
|
|
|
Amount
|
|
|
or Benefit (1)
|
|
|
Amount
|
|
|
Amount
|
|
|
or Benefit (1)
|
|
|
Amount
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
$
|
668
|
|
|
$
|
(254
|
)
|
|
$
|
414
|
|
|
$
|
668
|
|
|
$
|
(254
|
)
|
|
$
|
414
|
|
Amortization of net actuarial (gain)/loss
|
|
|
12,722
|
|
|
|
(4,834
|
)
|
|
|
7,888
|
|
|
|
13,533
|
|
|
|
(5,143
|
)
|
|
|
8,390
|
|
Regulatory adjustment
|
|
|
(11,470
|
)
|
|
|
4,358
|
|
|
|
(7,112
|
)
|
|
|
(12,246
|
)
|
|
|
4,654
|
|
|
|
(7,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plans other comprehensive income (loss)
|
|
|
1,920
|
|
|
|
(730
|
)
|
|
|
1,190
|
|
|
|
1,955
|
|
|
|
(743
|
)
|
|
|
1,212
|
|
FSIRS (designated hedging activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassifed into net income
|
|
|
1,672
|
|
|
|
(636
|
)
|
|
|
1,036
|
|
|
|
1,673
|
|
|
|
(635
|
)
|
|
|
1,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FSIRS other comprehensive income
|
|
|
1,672
|
|
|
|
(636
|
)
|
|
|
1,036
|
|
|
|
1,673
|
|
|
|
(635
|
)
|
|
|
1,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)Southwest Gas Corporation
|
|
|
3,592
|
|
|
|
(1,366
|
)
|
|
|
2,226
|
|
|
|
3,628
|
|
|
|
(1,378
|
)
|
|
|
2,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
849
|
|
|
|
|
|
|
|
849
|
|
|
|
852
|
|
|
|
|
|
|
|
852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency other comprehensive income (loss)
|
|
|
849
|
|
|
|
|
|
|
|
849
|
|
|
|
852
|
|
|
|
|
|
|
|
852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)Southwest Gas Holdings, Inc.
|
|
$
|
4,441
|
|
|
$
|
(1,366
|
)
|
|
$
|
3,075
|
|
|
$
|
4,480
|
|
|
$
|
(1,378
|
)
|
|
$
|
3,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
June 30, 2017
|
|
|
Twelve Months Ended
June 30, 2016
|
|
|
|
Before-
|
|
|
Tax
|
|
|
Net-of-
|
|
|
Before-
|
|
|
Tax
|
|
|
Net-of-
|
|
|
|
Tax
|
|
|
(Expense)
|
|
|
Tax
|
|
|
Tax
|
|
|
(Expense)
|
|
|
Tax
|
|
|
|
Amount
|
|
|
or Benefit (1)
|
|
|
Amount
|
|
|
Amount
|
|
|
or Benefit (1)
|
|
|
Amount
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain/(loss)
|
|
$
|
(22,770
|
)
|
|
$
|
8,652
|
|
|
$
|
(14,118
|
)
|
|
$
|
(30,519
|
)
|
|
$
|
11,597
|
|
|
$
|
(18,922
|
)
|
Amortization of prior service cost
|
|
|
1,335
|
|
|
|
(507
|
)
|
|
|
828
|
|
|
|
1,336
|
|
|
|
(508
|
)
|
|
|
828
|
|
Amortization of net actuarial (gain)/loss
|
|
|
26,255
|
|
|
|
(9,976
|
)
|
|
|
16,279
|
|
|
|
30,723
|
|
|
|
(11,675
|
)
|
|
|
19,048
|
|
Regulatory adjustment
|
|
|
(4,808
|
)
|
|
|
1,826
|
|
|
|
(2,982
|
)
|
|
|
(2,318
|
)
|
|
|
882
|
|
|
|
(1,436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plans other comprehensive income (loss)
|
|
|
12
|
|
|
|
(5
|
)
|
|
|
7
|
|
|
|
(778
|
)
|
|
|
296
|
|
|
|
(482
|
)
|
FSIRS (designated hedging activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassifed into net income
|
|
|
3,344
|
|
|
|
(1,271
|
)
|
|
|
2,073
|
|
|
|
3,345
|
|
|
|
(1,271
|
)
|
|
|
2,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FSIRS other comprehensive income (loss)
|
|
|
3,344
|
|
|
|
(1,271
|
)
|
|
|
2,073
|
|
|
|
3,345
|
|
|
|
(1,271
|
)
|
|
|
2,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)Southwest Gas Corporation
|
|
|
3,356
|
|
|
|
(1,276
|
)
|
|
|
2,080
|
|
|
|
2,567
|
|
|
|
(975
|
)
|
|
|
1,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
158
|
|
|
|
|
|
|
|
158
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency other comprehensive income (loss)
|
|
|
158
|
|
|
|
|
|
|
|
158
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)Southwest Gas Holdings, Inc.
|
|
$
|
3,514
|
|
|
$
|
(1,276
|
)
|
|
$
|
2,238
|
|
|
$
|
2,528
|
|
|
$
|
(975
|
)
|
|
$
|
1,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
(1)
|
Tax amounts are calculated using a 38% rate. The Company has elected to indefinitely reinvest the earnings of
Centuris Canadian subsidiaries in Canada, thus preventing deferred taxes on such earnings. As a result of this assertion, the Company is not recognizing any tax effect or presenting a tax expense or benefit for the currency translation
adjustment amount reported in Other Comprehensive Income, as repatriation of earnings is not anticipated.
|
Approximately
$2.1 million of realized losses (net of tax) related to the FSIRS, reported in Accumulated other comprehensive income (AOCI) at June 30, 2017, will be reclassified into interest expense within the next 12 months as the related
interest payments on long-term debt occur.
The following table represents a rollforward of AOCI, presented on the Companys Condensed Consolidated
Balance Sheets:
AOCIRollforward
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
|
FSIRS
|
|
|
Foreign Currency Items
|
|
|
|
|
|
|
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, 2016
|
|
$
|
(57,613
|
)
|
|
$
|
21,893
|
|
|
$
|
(35,720
|
)
|
|
$
|
(15,999
|
)
|
|
$
|
6,080
|
|
|
$
|
(9,919
|
)
|
|
$
|
(2,369
|
)
|
|
$
|
|
|
|
$
|
(2,369
|
)
|
|
$
|
(48,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
849
|
|
|
|
|
|
|
|
849
|
|
|
|
849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before reclassifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
849
|
|
|
|
|
|
|
|
849
|
|
|
|
849
|
|
FSIRS amounts reclassified from AOCI (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,672
|
|
|
|
(636
|
)
|
|
|
1,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,036
|
|
Amortization of prior service cost (2)
|
|
|
668
|
|
|
|
(254
|
)
|
|
|
414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
414
|
|
Amortization of net actuarial loss (2)
|
|
|
12,722
|
|
|
|
(4,834
|
)
|
|
|
7,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,888
|
|
Regulatory adjustment (3)
|
|
|
(11,470
|
)
|
|
|
4,358
|
|
|
|
(7,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss)
|
|
|
1,920
|
|
|
|
(730
|
)
|
|
|
1,190
|
|
|
|
1,672
|
|
|
|
(636
|
)
|
|
|
1,036
|
|
|
|
849
|
|
|
|
|
|
|
|
849
|
|
|
|
3,075
|
|
Less: Translation adjustment attributable to redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
29
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings,
Inc.
|
|
|
1,920
|
|
|
|
(730
|
)
|
|
|
1,190
|
|
|
|
1,672
|
|
|
|
(636
|
)
|
|
|
1,036
|
|
|
|
820
|
|
|
|
|
|
|
|
820
|
|
|
|
3,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance AOCI June 30, 2017
|
|
$
|
(55,693
|
)
|
|
$
|
21,163
|
|
|
$
|
(34,530
|
)
|
|
$
|
(14,327
|
)
|
|
$
|
5,444
|
|
|
$
|
(8,883
|
)
|
|
$
|
(1,549
|
)
|
|
$
|
|
|
|
$
|
(1,549
|
)
|
|
$
|
(44,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The FSIRS reclassification amounts are included in the Net interest deductions line item on the Companys
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 the Deferred charges and other assets line item on the Companys Condensed Consolidated Balance Sheets).
|
(4)
|
Tax amounts are calculated using a 38% rate.
|
The following table represents a rollforward of AOCI, presented on Southwests Condensed Consolidated Balance Sheets:
AOCIRollforward
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
|
FSIRS
|
|
|
|
|
|
|
Before-Tax
|
|
|
Tax
(Expense)
Benefit (8)
|
|
|
After-Tax
|
|
|
Before-Tax
|
|
|
Tax
(Expense)
Benefit (8)
|
|
|
After-Tax
|
|
|
AOCI
|
|
Beginning Balance AOCI December 31, 2016
|
|
$
|
(57,613
|
)
|
|
$
|
21,893
|
|
|
$
|
(35,720
|
)
|
|
$
|
(15,999
|
)
|
|
$
|
6,080
|
|
|
$
|
(9,919
|
)
|
|
$
|
(45,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FSIRS amounts reclassified from AOCI (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,672
|
|
|
|
(636
|
)
|
|
|
1,036
|
|
|
|
1,036
|
|
Amortization of prior service cost (6)
|
|
|
668
|
|
|
|
(254
|
)
|
|
|
414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
414
|
|
Amortization of net actuarial loss (6)
|
|
|
12,722
|
|
|
|
(4,834
|
)
|
|
|
7,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,888
|
|
Regulatory adjustment (7)
|
|
|
(11,470
|
)
|
|
|
4,358
|
|
|
|
(7,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss) attributable to Southwest Gas
Corporation
|
|
|
1,920
|
|
|
|
(730
|
)
|
|
|
1,190
|
|
|
|
1,672
|
|
|
|
(636
|
)
|
|
|
1,036
|
|
|
|
2,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance AOCI June 30, 2017
|
|
$
|
(55,693
|
)
|
|
$
|
21,163
|
|
|
$
|
(34,530
|
)
|
|
$
|
(14,327
|
)
|
|
$
|
5,444
|
|
|
$
|
(8,883
|
)
|
|
$
|
(43,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
The FSIRS reclassification amounts are included in the Net interest deductions line item on Southwests
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 the Deferred charges and other assets line item on Southwests Condensed Consolidated Balance Sheets).
|
(8)
|
Tax amounts are calculated using a 38% rate.
|
27
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
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:
Amounts Recognized in AOCI (Before Tax)
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
(Thousands of dollars)
|
|
|
|
|
|
|
Net actuarial (loss) gain
|
|
$
|
(418,251
|
)
|
|
$
|
(430,973
|
)
|
Prior service cost
|
|
|
(5,035
|
)
|
|
|
(5,703
|
)
|
Less: amount recognized in regulatory assets
|
|
|
367,593
|
|
|
|
379,063
|
|
|
|
|
|
|
|
|
|
|
Recognized in AOCI
|
|
$
|
(55,693
|
)
|
|
$
|
(57,613
|
)
|
|
|
|
|
|
|
|
|
|
Note 9 Construction Services Redeemable Noncontrolling Interest
In conjunction with the acquisition of the Canadian construction businesses in October 2014, the previous owners of the acquired companies hold
a 3.4% equity interest in Centuri as of June 30, 2017. The terms of the agreement subject to the 3.4% interest permit the previous owners (when eligible) to exit their investment retained by requiring (if elected) the purchase of a portion of
their interest based on an eligibility timeline, with incremental amounts subject to the election each year. The redemption price of the redeemable noncontrolling interest in accordance with the terms of the agreement is at fair value. The shares
subject to the election cumulate (if earlier elections are not made) such that 100% of their interest retained would be subject to the election beginning in July 2022.
Due to the ability of the noncontrolling parties to redeem their interest for cash under the eligibility timeline, their interest is presented
on the Companys Condensed Consolidated Balance Sheet at June 30, 2017 as a Redeemable noncontrolling interest, a category of mezzanine equity (temporary equity). The following depicts changes to the balance of the redeemable
noncontrolling interest between the indicated periods.
|
|
|
|
|
|
|
Redeemable
Noncontrolling
Interest
|
|
(Thousands of dollars):
|
|
|
|
Balance, December 31, 2016
|
|
$
|
22,590
|
|
Net income (loss) attributable to redeemable noncontrolling interest
|
|
|
49
|
|
Foreign currency exchange translation adjustment
|
|
|
29
|
|
Centuri dividend to redeemable noncontrolling interest
|
|
|
(204
|
)
|
Adjustment to redemption value
|
|
|
(2,315
|
)
|
|
|
|
|
|
Balance, June 30, 2017
|
|
$
|
20,149
|
|
|
|
|
|
|
Note 10 Reorganization Impacts Discontinued Operations Solely Related to Southwest Gas Corporation
No substantive change has occurred with regard to the Companys business segments on the whole, or in the primary businesses comprising
those segments (Centuri operations continue to be part of continuing operations of the controlled group of companies), and financial information related to Centuri continues to be included in condensed consolidated financial statements of Southwest
Gas Holdings, Inc.
However, as part of the holding company reorganization effective January 2017, Centuri is no longer a subsidiary of
Southwest; whereas historically, Centuri had been a direct subsidiary of Southwest. To give effect to this change, the condensed consolidated financial statements related to Southwest Gas Corporation, which are separately included in this
Form 10-Q, depict Centuri-related amounts as discontinued operations for periods prior to January 2017.
Due to the discontinued
operations accounting reflection, the following disclosures provide additional information regarding the assets, liabilities, equity, revenues, and expenses of Centuri which are shown as discontinued operations on the condensed consolidated
financial statements of Southwest Gas Corporation for periods prior to the beginning of 2017.
28
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
The following table presents the major categories of assets and liabilities within the
amounts reported as discontinued operations construction services in the Condensed Consolidated Balance Sheet of Southwest Gas Corporation:
|
|
|
|
|
(Thousands of dollars)
|
|
December 31, 2016
|
|
Assets:
|
|
|
|
|
Other property and investments
|
|
$
|
233,774
|
|
Cash and cash equivalents
|
|
|
9,042
|
|
Accounts receivable, net of allowances
|
|
|
173,300
|
|
Prepaids and other current assets
|
|
|
10,470
|
|
Goodwill
|
|
|
129,888
|
|
Other noncurrent assets
|
|
|
22,897
|
|
|
|
|
|
|
Discontinued operations - construction services - assets
|
|
$
|
579,371
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
25,101
|
|
Accounts payable
|
|
|
46,440
|
|
Other current liabilities
|
|
|
74,518
|
|
Long-term debt, less current maturities
|
|
|
174,903
|
|
Deferred income taxes and other deferred credits
|
|
|
59,653
|
|
|
|
|
|
|
Discontinued operationsconstruction servicesliabilities
|
|
$
|
380,615
|
|
|
|
|
|
|
The following table presents the components of the Discontinued operationsconstruction services
non-owner equity amount shown in the Southwest Gas Corporation Condensed Consolidated Balance Sheet:
|
|
|
|
|
(Thousands of dollars)
|
|
December 31, 2016
|
|
Construction services equity
|
|
$
|
(4,390
|
)
|
Construction services noncontrolling interest
|
|
|
(2,217
|
)
|
Construction services redeemable noncontrolling interest
|
|
|
22,590
|
|
|
|
|
|
|
Discontinued operations - construction services non - owner equity
|
|
$
|
15,983
|
|
|
|
|
|
|
The following table presents the major income statement components of discontinued operations
construction services reported in the Condensed Consolidated Income Statements of Southwest Gas Corporation:
Results of Construction Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
Six
|
|
|
Twelve
|
|
|
Twelve
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Months Ended
|
|
(Thousands of dollars)
|
|
June 30, 2016
|
|
|
June 30, 2016
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Construction revenues
|
|
$
|
292,100
|
|
|
$
|
498,248
|
|
|
$
|
640,830
|
|
|
$
|
1,074,168
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction expenses
|
|
|
263,926
|
|
|
|
457,308
|
|
|
|
567,115
|
|
|
|
955,332
|
|
Depreciation and amortization
|
|
|
15,327
|
|
|
|
29,942
|
|
|
|
25,727
|
|
|
|
58,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
12,847
|
|
|
|
10,998
|
|
|
|
47,988
|
|
|
|
60,073
|
|
Other income (deductions)
|
|
|
34
|
|
|
|
|
|
|
|
1,193
|
|
|
|
1,067
|
|
Net interest deductions
|
|
|
1,660
|
|
|
|
3,151
|
|
|
|
3,512
|
|
|
|
7,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
11,221
|
|
|
|
7,847
|
|
|
|
45,669
|
|
|
|
54,054
|
|
Income tax expense (benefit)
|
|
|
4,480
|
|
|
|
3,334
|
|
|
|
16,550
|
|
|
|
20,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
6,741
|
|
|
|
4,513
|
|
|
|
29,119
|
|
|
|
33,640
|
|
Net income attributable to noncontrolling interests
|
|
|
156
|
|
|
|
65
|
|
|
|
949
|
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations - construction services - net income
|
|
$
|
6,585
|
|
|
$
|
4,448
|
|
|
$
|
28,170
|
|
|
$
|
32,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Southwest Gas Holdings, Inc. is a holding company that owns all of the shares of common stock of Southwest Gas Corporation
(Southwest or the natural gas operations segment) and 96.6% of the common stock of Centuri Construction Group Inc. (Centuri or the construction services segment) as of June 30, 2017. As part of
the holding company reorganization effective January 2017, Centuri and Southwest are now subsidiaries of Southwest Gas Holdings, Inc.; whereas historically, Centuri had been a direct subsidiary of Southwest. Southwest Gas Holdings, Inc. and its
subsidiaries (the Company) have two business segments (natural gas operations and construction services), which are discussed below.
Southwest is engaged in the business of purchasing, distributing, and transporting natural gas for customers in portions of Arizona, Nevada,
and California. Southwest is the largest distributor of natural gas in Arizona, selling and transporting natural gas in most of central and southern Arizona, including the Phoenix and Tucson metropolitan areas. Southwest is also the largest
distributor of natural gas in Nevada, serving the Las Vegas metropolitan area and northern Nevada. In addition, Southwest distributes and transports natural gas for customers in portions of California, including the Lake Tahoe area and the high
desert and mountain areas in San Bernardino County.
As of June 30, 2017, Southwest had 1,994,000 residential, commercial,
industrial, and other natural gas customers, of which 1,063,000 customers were located in Arizona, 738,000 in Nevada, and 193,000 in California. Residential and commercial customers represented over 99% of the total customer base. During the twelve
months ended June 30, 2017, 54% of operating margin was earned in Arizona, 35% in Nevada, and 11% in California. During this same period, Southwest earned 85% of its operating margin (gas operating revenues less the net cost of gas sold) from
residential and small commercial customers, 3% from other sales customers, and 12% from transportation customers. These general patterns are expected to remain materially consistent for the foreseeable future.
Southwest recognizes operating revenues from the distribution and transportation of natural gas (and related services) to customers. Operating
margin is a financial measure defined by management as gas operating revenues less the net cost of gas sold. However, operating margin is not specifically defined in accounting principles generally accepted in the United States (U.S.
GAAP). Thus, operating margin is considered a non-GAAP measure. Management uses this financial measure because natural gas operating revenues include the net cost of gas sold, which is a tracked cost that is passed through to customers without
markup under purchased gas adjustment (PGA) mechanisms. Fluctuations in the net cost of gas sold impact revenues on a dollar-for-dollar basis, but do not impact operating margin or operating income. Therefore, management believes
operating margin provides investors and other interested parties with useful and relevant information to analyze Southwests financial performance in a rate-regulated environment. The principal factors affecting changes in operating margin are
general rate relief (including impacts of infrastructure trackers) and customer growth.
The demand for natural gas is seasonal, with
greater demand in the colder winter months and decreased demand in the warmer summer months. All of Southwests service territories have decoupled rate structures (alternative revenue programs), which are designed to eliminate the direct link
between volumetric sales and revenue, thereby mitigating the impacts of weather variability and conservation on operating margin, allowing Southwest to pursue energy efficiency initiatives.
Centuri is a comprehensive construction services enterprise dedicated to meeting the growing demands of North American utilities, energy and
industrial markets. Centuri derives revenue from installation, replacement, repair, and maintenance of energy distribution systems, and developing industrial construction solutions primarily for energy services utilities. Centuri operates in 24
major markets in the United States (primarily as NPL) and in 3 major markets in Canada (as NPL Canada (formerly Link-Line Contractors Ltd.), and W.S. Nicholls). Construction activity is cyclical and can be significantly impacted by changes in
weather, general and local economic conditions (including the housing market), interest rates, employment levels, job growth, pipe replacement programs of utilities, and local and federal regulation (including tax rates and incentives). During the
past few years, utilities have implemented or modified pipeline integrity management programs to enhance safety pursuant to federal and state mandates. These programs, coupled with recent bonus depreciation tax deduction incentives, have resulted in
a significant increase in multi-year pipeline replacement projects throughout the U.S. Generally, revenues are lowest during the first quarter of the year due to less favorable winter weather conditions. Revenues typically improve as more favorable
weather
30
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
conditions occur during the summer and fall months. This is expected in both the U.S. and Canadian markets. In certain circumstances, such as with large bid contracts (especially those of a
longer duration), or unit-price contracts with revenue caps, results may be impacted by differences between costs incurred and those anticipated when the work was originally bid. Work awarded, or failing to be awarded, by individual large customers
can impact operating results.
This Managements Discussion and Analysis (MD&A) of Financial Condition and Results of
Operations should be read in conjunction with the consolidated financial statements and the notes thereto, as well as MD&A included in the 2016 Annual Report to Shareholders, which is incorporated by reference into the 2016 Form 10-K.
Executive Summary
The items discussed
in this Executive Summary are intended to provide an overview of the results of the Companys operations. As needed, certain items are covered in greater detail in later sections of managements discussion and analysis.
As reflected in
the table below, the natural gas operations segment accounted for an average of 80% of twelve-month-to-date consolidated net income over the past two years. As such, managements discussion and analysis is primarily focused on that segment.
Natural gas sales are seasonal, peaking during the winter months; therefore, results of operations for interim periods are not necessarily indicative of results for a full year.
Summary Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended June 30,
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Twelve Months
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands, except per share amounts)
|
|
Contribution to net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas operations
|
|
$
|
9,522
|
|
|
$
|
2,358
|
|
|
$
|
86,460
|
|
|
$
|
79,941
|
|
|
$
|
125,942
|
|
|
$
|
113,302
|
|
Construction services
|
|
|
8,716
|
|
|
|
6,585
|
|
|
|
1,382
|
|
|
|
4,448
|
|
|
|
29,552
|
|
|
|
32,472
|
|
Corporate and administrative
|
|
|
(374
|
)
|
|
|
|
|
|
|
(670
|
)
|
|
|
|
|
|
|
(670
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
17,864
|
|
|
$
|
8,943
|
|
|
$
|
87,172
|
|
|
$
|
84,389
|
|
|
$
|
154,824
|
|
|
$
|
145,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding
|
|
|
47,571
|
|
|
|
47,473
|
|
|
|
47,550
|
|
|
|
47,455
|
|
|
|
47,516
|
|
|
|
47,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
0.38
|
|
|
$
|
0.19
|
|
|
$
|
1.83
|
|
|
$
|
1.78
|
|
|
$
|
3.26
|
|
|
$
|
3.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas operating revenues
|
|
$
|
260,162
|
|
|
$
|
255,648
|
|
|
$
|
722,764
|
|
|
$
|
780,748
|
|
|
$
|
1,263,428
|
|
|
$
|
1,395,629
|
|
Net cost of gas sold
|
|
|
69,421
|
|
|
|
71,416
|
|
|
|
216,300
|
|
|
|
285,016
|
|
|
|
328,405
|
|
|
|
486,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
$
|
190,741
|
|
|
$
|
184,232
|
|
|
$
|
506,464
|
|
|
$
|
495,732
|
|
|
$
|
935,023
|
|
|
$
|
909,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
2nd Quarter 2017 Overview
Natural gas operations highlights:
|
|
|
Benefits of Arizona rate case reflected in quarterly operating results
|
|
|
|
32,000 net new customers in last 12 months (1.6% growth rate)
|
|
|
|
Depreciation and amortization expense declined $11 million compared to the prior-year quarter
|
|
|
|
Operating income increased $12.2 million compared to the prior-year quarter
|
|
|
|
Received approval to extend current rate case cycle in California
|
|
|
|
Proposed $66 million of accelerated pipe replacement in Nevada GIR application
|
|
|
|
Targeting $27 million of vintage steel pipe replacement in Arizona during 2017
|
|
|
|
Received approval for a $1.8 million surcharge associated with Arizona COYL program
|
Construction services highlights:
|
|
|
Revenues increased $8.2 million compared to the prior-year quarter
|
|
|
|
Construction expenses increased $8.1 million compared to the prior-year quarter
|
|
|
|
Depreciation and amortization expense declined $3.5 million compared to the prior-year quarter
|
|
|
|
Completed requalification of employees affected by temporary work stoppage
|
32
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
Results of Natural Gas Operations
Quarterly Analysis
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Thousands of dollars)
|
|
Gas operating revenues
|
|
$
|
260,162
|
|
|
$
|
255,648
|
|
Net cost of gas sold
|
|
|
69,421
|
|
|
|
71,416
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
190,741
|
|
|
|
184,232
|
|
Operations and maintenance expense
|
|
|
102,501
|
|
|
|
98,744
|
|
Depreciation and amortization
|
|
|
46,254
|
|
|
|
57,232
|
|
Taxes other than income taxes
|
|
|
14,497
|
|
|
|
12,987
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
27,489
|
|
|
|
15,269
|
|
Other income (deductions)
|
|
|
2,052
|
|
|
|
2,436
|
|
Net interest deductions
|
|
|
16,991
|
|
|
|
16,561
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
12,550
|
|
|
|
1,144
|
|
Income tax expense (benefit)
|
|
|
3,028
|
|
|
|
(1,214
|
)
|
|
|
|
|
|
|
|
|
|
Contribution to consolidated net income
|
|
$
|
9,522
|
|
|
$
|
2,358
|
|
|
|
|
|
|
|
|
|
|
The contribution to consolidated net income from natural gas operations increased $7.2 million between the
second quarters of 2017 and 2016. The improvement was primarily due to higher operating margin and lower depreciation expense, both resulting from the recent Arizona general rate case decision.
Operating margin increased nearly $7 million between quarters. Rate relief in Arizona (effective April 2017) and California provided $5
million in operating margin (see
Rates and Regulatory Proceedings
). Approximately $2 million was attributable to customer growth, as 32,000 net new customers were added during the last twelve months.
Operations and maintenance expense increased $3.8 million, or 4%, between quarters due primarily to higher employee-related expenses and
general cost increases. Employee-related expenses reflect approximately $1.3 million of incremental costs recognized associated with the amount and timing of incentive plan grants (including accelerated recognition for retirement eligible
employees).
Depreciation and amortization expense decreased $11 million between quarters primarily due to reduced depreciation rates in
Arizona, a result of the recent Arizona general rate case decision. Partially offsetting the decline was increased depreciation associated with a $321 million, or 5%, increase in average gas plant in service for the current quarter as compared to
the corresponding quarter a year ago. The increase was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.
Taxes other than income taxes increased $1.5 million between quarters primarily due to higher property taxes associated with net plant
additions and increased property taxes in Arizona. Property taxes were also impacted by a property tax tracking mechanism enacted as part of the recently settled Arizona general rate case.
Other income, which principally includes returns on company-owned life insurance (COLI) policies and non-utility expenses,
decreased $384,000 between quarters. The current quarter reflects $1.9 million of COLI-related income associated with COLI policy cash surrender value increases, while the prior-year quarter reflected $2.2 million of COLI-related income.
Net interest deductions increased $430,000 between quarters, primarily due to the September 2016 issuance of $300 million of senior
notes, partially offset by reductions associated with the redemption of debt ($100 million of 4.85% IDRBs in July 2016, and $24.9 million of 4.75% IDRBs in September 2016) and lower interest expense associated with PGA balances as compared to
the prior-year quarter.
33
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
Results of Natural Gas Operations
Six-Month Analysis
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Thousands of dollars)
|
|
Gas operating revenues
|
|
$
|
722,764
|
|
|
$
|
780,748
|
|
Net cost of gas sold
|
|
|
216,300
|
|
|
|
285,016
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
506,464
|
|
|
|
495,732
|
|
Operations and maintenance expense
|
|
|
211,180
|
|
|
|
199,541
|
|
Depreciation and amortization
|
|
|
107,449
|
|
|
|
117,977
|
|
Taxes other than income taxes
|
|
|
29,279
|
|
|
|
27,000
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
158,556
|
|
|
|
151,214
|
|
Other income (deductions)
|
|
|
5,663
|
|
|
|
4,191
|
|
Net interest deductions
|
|
|
34,201
|
|
|
|
32,791
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
130,018
|
|
|
|
122,614
|
|
Income tax expense
|
|
|
43,558
|
|
|
|
42,673
|
|
|
|
|
|
|
|
|
|
|
Contribution to consolidated net income
|
|
$
|
86,460
|
|
|
$
|
79,941
|
|
|
|
|
|
|
|
|
|
|
The contribution to consolidated net income from natural gas operations increased $6.5 million between the
first six months of 2017 and 2016. The improvement was primarily due to higher operating margin and lower depreciation expense, partially offset by an increase in operations and maintenance expenses.
Operating margin increased $11 million between the comparative six-month periods. Rate relief in the Arizona and California jurisdictions
provided $6 million in operating margin (see
Rates and Regulatory Proceedings
). The remaining $5 million increase was attributable to customer growth.
Operations and maintenance expense increased $11.6 million, or 6%, between periods due primarily to higher employee-related expenses and
general cost increases. Employee-related expenses reflect approximately $3.9 million of incremental costs recognized associated with the amount and timing of incentive plan grants (including accelerated recognition for retirement-eligible
employees).
Depreciation and amortization expense decreased $10.5 million between periods primarily due to reduced depreciation rates in
Arizona, a result of the recent Arizona general rate case decision. The depreciation decrease also included a decline of approximately $3.5 million in amortization related to the recovery of regulatory assets. Partially offsetting the decline
was depreciation associated with a $330 million, or 6%, increase in average gas plant in service for the current period as compared to the prior period. The increase was attributable to pipeline capacity reinforcement work, franchise
requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.
Taxes other than income taxes increased $2.3
million, or 8%, between periods primarily due to higher property taxes in Arizona, including the impacts of the Arizona property tax tracking mechanism.
Other income, which principally includes returns on COLI policies and non-utility expenses, increased $1.5 million between periods. The
current period reflects $4.7 million of COLI-related income associated with COLI policy cash surrender value increases, while the prior-year period reflected $3.1 million of COLI-related income.
Net interest deductions increased $1.4 million between periods, primarily due to the September 2016 issuance of $300 million of senior
notes, partially offset by reductions associated with debt redemptions and lower interest expense associated with PGA balances as compared to the prior-year period.
34
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
Results of Natural Gas Operations
Twelve-Month Analysis
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Thousands of dollars)
|
|
Gas operating revenues
|
|
$
|
1,263,428
|
|
|
$
|
1,395,629
|
|
Net cost of gas sold
|
|
|
328,405
|
|
|
|
486,048
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
935,023
|
|
|
|
909,581
|
|
Operations and maintenance expense
|
|
|
413,363
|
|
|
|
397,886
|
|
Depreciation and amortization
|
|
|
222,935
|
|
|
|
224,845
|
|
Taxes other than income taxes
|
|
|
54,655
|
|
|
|
50,982
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
244,070
|
|
|
|
235,868
|
|
Other income (deductions)
|
|
|
9,748
|
|
|
|
3,569
|
|
Net interest deductions
|
|
|
68,407
|
|
|
|
65,041
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
185,411
|
|
|
|
174,396
|
|
Income tax expense
|
|
|
59,469
|
|
|
|
61,094
|
|
|
|
|
|
|
|
|
|
|
Contribution to consolidated net income
|
|
$
|
125,942
|
|
|
$
|
113,302
|
|
|
|
|
|
|
|
|
|
|
Contribution to consolidated net income from natural gas operations increased by $12.6 million between the
twelve-month periods of 2017 and 2016. The improvement was primarily due to higher operating margin and an increase in other income, partially offset by an increase in operations and maintenance expenses.
Operating margin increased $25 million between periods including a combined $11 million of rate relief in the Arizona and California
jurisdictions, as well as Paiute Pipeline Company. Customer growth provided $8 million in operating margin. Operating margin associated with recoveries of regulatory assets, infrastructure replacement mechanisms, customers outside the decoupling
mechanisms, and other miscellaneous revenues improved $6 million.
Operations and maintenance expense increased $15.5 million, or 4%,
between periods primarily due to general cost increases and higher employee-related expenses. In addition, expenses for pipeline integrity management and damage prevention programs increased (collectively, $1 million).
Depreciation and amortization expense decreased $1.9 million, or 1%, between periods primarily due to reduced depreciation rates in Arizona, a
result of the recent Arizona general rate case decision. Largely offsetting the decline was depreciation associated with a $345 million, or 6%, increase in average gas plant in service for the current period as compared to the prior period. The
increase was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.
Taxes other than income taxes increased $3.7 million, or 7%, between periods primarily due to higher property taxes associated primarily with
net plant additions and increased property taxes in Arizona.
Other income increased $6.2 million between the twelve-month periods of
2017 and 2016. The current period reflects a $9 million increase in COLI policy cash surrender values and recognized death benefits (combined), while the prior-year period reflected $1.3 million of COLI-related income.
Net interest deductions increased $3.4 million between periods, primarily due to the September 2016 issuance of $300 million of senior
notes. The increase was substantially offset by reductions associated with the redemption of debt ($20 million of 5.25% IDRBs in September 2015, $100 million of 4.85% IDRBs in July 2016, and $24.9 million of 4.75% IDRBs in September 2016).
35
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
Results of Construction Services
Quarterly Analysis
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Thousands of dollars)
|
|
Construction revenues
|
|
$
|
300,307
|
|
|
$
|
292,100
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Construction expenses
|
|
|
272,001
|
|
|
|
263,926
|
|
Depreciation and amortization
|
|
|
11,828
|
|
|
|
15,327
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
16,478
|
|
|
|
12,847
|
|
Other income (deductions)
|
|
|
(6
|
)
|
|
|
34
|
|
Net interest deductions
|
|
|
1,629
|
|
|
|
1,660
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
14,843
|
|
|
|
11,221
|
|
Income tax expense
|
|
|
5,870
|
|
|
|
4,480
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
8,973
|
|
|
|
6,741
|
|
Net income attributable to noncontrolling interests
|
|
|
257
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
Contribution to consolidated net income attributable to Centuri
|
|
$
|
8,716
|
|
|
$
|
6,585
|
|
|
|
|
|
|
|
|
|
|
Contribution to consolidated net income from construction services in the current quarter increased by $2.1
million when compared to the prior-year quarter. Increased revenues from higher volume of work and lower depreciation and amortization, as described below, contributed to the increase. Results were negatively impacted due to a temporary work
stoppage by a significant customer that began in the first quarter of 2017 and continued through part of the second quarter of 2017. The temporary work stoppage was initiated due to state-mandated requalification of employees of all contractors
working within the jurisdictional boundary of one state. Operations resumed gradually during the quarter following the requalification of Centuris employees during the second quarter of 2017.
Revenues increased $8.2 million, or 3%, in the second quarter of 2017 when compared to the prior-year quarter, primarily due to an increase in
pipe replacement work with existing customers, partially offset by a decrease in revenues associated with the temporary work stoppage noted above. During the second quarter of 2017, the suspension of work resulted in a $15.8 million reduction in
revenue, compared to the prior-year quarter, and a $100,000 pre-tax loss in the current quarter.
Construction expenses increased
$8.1 million, or 3%, between quarters due to additional pipe replacement work and higher labor costs related to the temporary work stoppage. Gains on sale of equipment (reflected as an offset to construction expenses) were approximately $1.1
million and $1.4 million for the second quarters of 2017 and 2016, respectively.
Depreciation and amortization decreased $3.5
million between quarters, primarily due to a $2.7 million reduction associated with the extension of the estimated useful lives of certain depreciable equipment during the past 12 months.
36
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
Results of Construction Services
Six-Month Analysis
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Thousands of dollars)
|
|
Construction revenues
|
|
$
|
492,442
|
|
|
$
|
498,248
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Construction expenses
|
|
|
463,957
|
|
|
|
457,308
|
|
Depreciation and amortization
|
|
|
23,111
|
|
|
|
29,942
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
5,374
|
|
|
|
10,998
|
|
Other income (deductions)
|
|
|
248
|
|
|
|
|
|
Net interest deductions
|
|
|
3,133
|
|
|
|
3,151
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,489
|
|
|
|
7,847
|
|
Income tax expense
|
|
|
1,153
|
|
|
|
3,334
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,336
|
|
|
|
4,513
|
|
Net income (loss) attributable to noncontrolling interests
|
|
|
(46
|
)
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
Contribution to consolidated net income attributable to Centuri
|
|
$
|
1,382
|
|
|
$
|
4,448
|
|
|
|
|
|
|
|
|
|
|
Contribution to consolidated net income from construction services for the first six months of 2017 declined
by $3.1 million when compared to the prior-year period. Results were negatively impacted by the temporary work stoppage previously described. Poor weather during the first quarter of 2017 also negatively impacted current-period results. These
impacts were partially offset by lower depreciation and amortization.
Revenues decreased $5.8 million, or 1%, in the first six months of
2017 when compared to the prior-year period. The suspension of work during the first six months of 2017 noted above resulted in a $26.3 million reduction in revenues, compared to the prior-year period, and a $3.7 million pre-tax loss in the current
period. Additionally, inclement weather in several operating areas negatively impacted revenues and reduced productivity in the first quarter. Increased revenues from additional pipe replacement work partially offset the other decreases.
Construction expenses increased $6.6 million, or 1%, between periods. The increase in construction expenses is disproportionate to that
noted above with regard to revenues due in part to logistics surrounding the timing and length of the temporary work stoppage with the significant customer, and to higher labor costs incurred to complete work during inclement weather conditions in
the first quarter. Gains on sale of equipment (reflected as an offset to construction expenses) were approximately $1.4 million and $2.7 million for the first six months of 2017 and 2016, respectively.
Depreciation and amortization decreased $6.8 million between periods, primarily due to a $6.2 million reduction in depreciation
associated with the extension of the estimated useful lives of certain depreciable equipment during the past 12 months.
37
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
Results of Construction Services
Twelve-Month Analysis
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Thousands of dollars)
|
|
Construction revenues
|
|
$
|
1,133,272
|
|
|
$
|
1,074,168
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Construction expenses
|
|
|
1,031,072
|
|
|
|
955,332
|
|
Depreciation and amortization
|
|
|
48,838
|
|
|
|
58,763
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
53,362
|
|
|
|
60,073
|
|
Other income (deductions)
|
|
|
1,441
|
|
|
|
1,067
|
|
Net interest deductions
|
|
|
6,645
|
|
|
|
7,086
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
48,158
|
|
|
|
54,054
|
|
Income tax expense
|
|
|
17,703
|
|
|
|
20,414
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
30,455
|
|
|
|
33,640
|
|
Net income attributable to noncontrolling interests
|
|
|
903
|
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
Contribution to consolidated net income attributable to Centuri
|
|
$
|
29,552
|
|
|
$
|
32,472
|
|
|
|
|
|
|
|
|
|
|
Contribution to consolidated net income from construction services for the twelve-month period ended
June 30, 2017 decreased $2.9 million compared to the same period of 2016. The decrease is primarily due to higher construction costs relative to increased revenues, resulting in pre-tax losses on certain projects, partially offset by a decline
in depreciation and amortization.
Revenues increased $59.1 million, or 6%, in the current twelve-month period compared to the same period
of 2016 primarily due to additional pipe replacement work for existing customers. During the past several years, Centuri has focused its efforts on obtaining replacement work under both blanket contracts and incremental bid projects. For each of the
twelve-month periods ended June 30, 2017 and 2016, revenues from replacement work provided over 60% of total revenues. During the fourth quarter of 2016, Centuri began work on a multi-year water pipe replacement program for a new municipal
customer.
Construction expenses increased $75.7 million, or 8% between periods, due to additional pipe replacement work, higher
labor costs experienced due to changes in the mix of work with existing customers, start-up costs associated with new customer contracts, and increased operating expenses to support increased growth in operations. Additionally, the logistics
surrounding the timing and length of a temporary work stoppage with a significant customer during the first six months of 2017 resulted in costs disproportionate to revenues. Gains on sale of equipment (reflected as an offset to construction
expenses) were $5.8 million and $3.3 million for the twelve-month periods ended June 30, 2017 and 2016, respectively.
Depreciation and amortization decreased $9.9 million between the current and prior-year periods primarily due to an $11.5 million
reduction associated with the extension of the estimated useful lives of certain depreciable equipment over the last twelve months.
Net
interest deductions decreased $441,000 between periods primarily due to lower interest rates and lower average outstanding borrowings.
38
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
Rates and Regulatory Proceedings
Arizona Jurisdiction
Arizona
General Rate Case.
Southwest filed a general rate application with the Arizona Corporation Commission (ACC) in May 2016 requesting an increase in authorized annual operating revenues of approximately $32 million, or 4.2%, to reflect
existing levels of expense and requested returns, in addition to reflecting capital investments made by Southwest since June 2010. The application requested an overall rate of return of 7.82% on an original cost rate base of $1.336 billion, a
10.25% return on common equity, and a capital structure utilizing 52% common equity. The filing included a depreciation study that supported a proposal to reduce currently effective depreciation expense by approximately $42 million, which was
considered in the overall requested amount. This expense reduction coupled with the requested revenue increase, resulted in a net annual operating income increase request of $74 million. A settlement was reached among several parties in
December 2016 and a formal draft settlement was filed in January 2017. Hearings were held in February 2017, and the ACC approved the settlement agreement in April 2017. The settlement provides for an overall operating revenue increase of
$16 million and the capital structure and cost of capital as proposed by Southwest, with the exception of the return on common equity, which was set at 9.50%. Depreciation expense is expected to be reduced by $44.7 million, for a combined
net annual operating income increase of $60.7 million. Other key elements of the settlement include approval of the continuation and expansion of the current Customer-Owned Yard Line (COYL) program (adding the ability to seek out
COYLs through a targeted approach and mobilization of work crews for replacement), implementation of a vintage steel pipe replacement program, and a continuation of the current decoupled rate design, excluding a winter-period adjustment to rates,
making the mechanism fundamentally similar to that which exists in Nevada. The settlement also included a property tax tracking mechanism to defer changes in property tax expense for recovery in the next general rate case. For 2017, this is expected
to result in a modest increase to property tax expense and then remain relatively flat until Southwests next Arizona general rate case decision. New rates were effective April 2017. The settlement also includes a three-year rate case
moratorium prohibiting a new application to adjust base rates from being filed prior to May 2019.
LNG (Liquefied Natural
Gas) Facility
. In January 2014, Southwest filed an application with the ACC seeking preapproval to construct, operate and maintain a 233,000 dekatherm LNG facility in southern Arizona. This facility is intended to enhance service
reliability and flexibility in natural gas deliveries in the southern Arizona area by providing a local storage option, to be operated by Southwest and connected directly to its distribution system. In December 2014, Southwest received an order
from the ACC granting pre-approval of Southwests application to construct the LNG facility and the deferral of costs, up to $50 million. Following the December 2014 preapproval, Southwest purchased the site for the facility and
completed detailed engineering design specifications for the purpose of soliciting bids for the engineering, procurement and construction (EPC) of the facility. Southwest solicited requests for proposals for the EPC phase of the
project, and in October 2016 made a filing with the ACC to modify the previously issued Order to update the pre-approved costs to reflect a not-to-exceed amount of $80 million, which was approved by the ACC in December 2016. Through June 2017,
Southwest has incurred approximately $6.1 million in capital expenditures toward the project (including land acquisition costs). Construction is expected to commence in September 2017 and be completed by the end of 2019.
COYL Program.
Southwest received approval, in connection with an earlier Arizona general rate case, to implement a program to conduct
leak surveys, and if leaks were present, to replace and relocate service lines and meters for Arizona customers whose meters were set off from the customers home, which is not a traditional configuration. Customers with this configuration were
previously responsible for the cost of maintaining these lines and were subject to the immediate cessation of natural gas service if low-pressure leaks occurred. Effective June 2013, the ACC authorized a surcharge to recover the costs of
depreciation and pre-tax return on the costs incurred to replace and relocate service lines and meters. The surcharge is revised annually as the program progresses. In 2014, Southwest received approval to add a Phase II component to the
COYL program to include the replacement of non-leaking COYLs. In the most recent annual COYL filing made in February 2017, Southwest requested to establish an annual surcharge to collect $1.8 million related to the revenue requirement associated
with $12.1 million in capital projects completed under both Phase I and Phase II during 2016. In June, the ACC issued a decision approving the surcharge application. All capital work completed in earlier years was incorporated in
Southwests Arizona rate base in connection with the its recently completed general rate proceeding, as discussed above.
39
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
Vintage Steel Pipe Program
. Southwest received approval, in connection with its most
recent Arizona general rate case, to implement a vintage steel pipe replacement program. Southwest currently has approximately 6,000 miles of pre-1970s vintage steel pipe in Arizona. Southwest proposed to start replacing the pipe on an
accelerated basis and to recover the costs through an annual surcharge filing that will be made in February of each year. The surcharge is designed to be revised annually as the program progresses. Southwest is currently targeting the
replacement of nearly 40 miles of vintage steel pipe during calendar-year 2017 totaling approximately $27 million.
California Jurisdiction
Attrition Filing.
In November 2016, Southwest made its latest annual post-test year (PTY) attrition filing with
the California Public Utilities Commission (CPUC), requesting annual revenue increases of $2.1 million in southern California, $513,000 in northern California, and $256,000 for South Lake Tahoe. This filing was approved in December
2016 and rates were made effective in January 2017. At the same time, rates were updated to recover the regulatory asset associated with the revenue decoupling mechanism, or margin tracker.
California General Rate Case
. In December 2016, Southwest filed to modify the most recent general rate case decision to extend the
current rate case cycle by two years, including extension of the annual PTY attrition adjustments through 2020 from 2018. That latest rate case decision would have required Southwest to file its next general rate application by September 2017.
Expedited consideration was requested and in June 2017, the CPUC approved the request, thereby extending the rate case filing deadline. Southwest believes this extension is in the public interest as it provides rate stability to customers for two
additional years consistent with the current reasonable rates approved as part of the last general rate case, and the current revenue requirement and rate of return are not in need of adjustment (with the continuation of the currently approved 2.75%
PTY attrition adjustment for the two additional years).
Nevada Jurisdiction
General Revenues Adjustment.
In June 2016, Southwest requested authorization from the Public Utilities Commission of
Nevada (PUCN) to adjust rates associated with its revenue decoupling mechanism (General Revenues Adjustment, or GRA). The filing was approved in December 2016, with rates effective January 2017. The rate adjustment is
expected to refund approximately $16.7 million during 2017. In June 2017, Southwest filed to adjust the GRA surcharge effective January 2018. This would result in a decrease in revenues of $15.4 million, based on the overrecovered balance in
the account at the end of April 2017. The filing is expected to be approved by year end. While there is no impact to net income overall from this rate adjustment, operating cash flows will be reduced as the regulatory liability balance is refunded.
Infrastructure Replacement Mechanisms.
In January 2014, the PUCN approved final rules for a mechanism to defer and recover
certain costs associated with accelerated replacement of infrastructure that does not otherwise currently provide incremental revenues. Associated with such mechanism, each year, Southwest files a Gas Infrastructure Replacement (GIR)
Advance Application requesting authority to replace qualifying infrastructure and files separately as part of an annual GIR filing to reset the recovery surcharge, related to previously approved and completed projects. For projects approved in 2015
and completed in 2016, the annualized revenue was approximately $4.5 million. In September 2016, Southwest filed to adjust the GIR surcharge to recover the annual revenue requirement for amounts previously deferred. This filing was approved in
December 2016 and new rates became effective January 2017. In June 2016, Southwest filed an Advance Application for projects expected to be completed during 2017, proposing approximately $60 million of accelerated pipe replacement to include early
vintage plastic, early vintage steel, and a COYL program. The COYL program, while not large in magnitude, represents the first of its kind in Nevada, modeled after the program in place in Southwests Arizona jurisdiction for several years. The
PUCN issued an Order on the Advance Application in October 2016, approving approximately $57.3 million of replacement work with an annualized revenue requirement estimated at approximately $5.3 million. With regard to the proposed COYL program,
approval was granted for the northern Nevada rate jurisdiction, but consideration for the southern Nevada rate jurisdiction was deferred until 2020, at which time certain early vintage plastic pipe programs are expected to be completed.
40
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
In May 2017, Southwest filed a GIR Advance Application with the PUCN for projects totaling
approximately $66 million that are expected to be completed during 2018. Similar to previous years, the proposed projects consist of early vintage plastic and early vintage steel pipe, as well as the continuation of the previously approved COYL
program in northern Nevada. Southwest recently entered into a settlement agreement with the intervening parties and filed a proposed stipulation requesting the Commission approve the settlement agreement. The settlement agreement proposes to approve
the request as filed, but also authorizes Southwest to start replacing COYLs in southern Nevada in certain situations, and to recover costs through the GIR mechanism.
Subsequent to three GIR rate applications, the GIR regulations require Southwest to either file a general rate case or a request for waiver
before it can file another GIR advance application. The October 2016 rate application was the third such filing by Southwest subject to these regulations, necessitating a request for waiver to permit Southwest to proceed with the GIR program without
filing a general rate case in 2017. This waiver was approved by the PUCN in January 2017; however, in order to continue the GIR program in 2018, a general rate case will need to be filed before June 2018.
Conservation and Energy Efficiency(CEE).
In June 2015, Southwest requested recovery of energy efficiency and conservation
development and implementation costs, including promotions and incentives for various programs, as originally approved for deferral by the PUCN effective November 2009. While recovery of initial program costs was approved as part of the most recent
general rate case, amounts incurred subsequent to May 2012 (the certification period) continued to be deferred. Approved rates for the post-May 2012 costs deferred (including previously expected program expenditures for 2016) became effective
January 2016 and resulted in annualized margin increases of $2 million in northern Nevada and $8.5 million in southern Nevada. Then, as part of the ARA filing approved in December 2016, Southwest modified rates, effective January 2017,
expected to result in annualized margin decreases of $1.4 million in northern Nevada and $1.3 million in southern Nevada to return over-collected balances. There is, however, no anticipated impact to net income overall from these decreases as
amortization expense will also be reduced.
Federal Energy Regulatory Commission (FERC) Jurisdiction
2018 Expansion.
In response to growing demand in the Carson City and South Lake Tahoe areas of northern California and northern
Nevada, Paiute Pipeline Company (Paiute) evaluated shipper interest in acquiring additional transportation capacity and executed precedent agreements for incremental transportation capacity with Southwest during the third quarter of
2016. In October 2016, Paiute initiated a pre-filing review process with the FERC for an expansion project, which was approved during the same month. In July 2017, a certificate application was filed, which included an applicant
environmental assessment. The project is anticipated to consist of 8.4 miles of additional transmission pipeline infrastructure at an approximate cost of $18 million. If the process progresses as planned, a decision should be received by
April 2018 and the additional facilities could be in place by the end of 2018.
PGA Filings
The rate schedules in all of Southwests service territories contain provisions that permit adjustments to rates as the cost of purchased
gas changes. These deferred energy provisions and purchased gas adjustment clauses are collectively referred to as PGA clauses. Differences between gas costs recovered from customers and amounts paid for gas by Southwest result in over-
or under-collections. At June 30, 2017, under-collections in Arizona and Northern Nevada resulted in an asset of approximately $6 million and over-collections in Southern Nevada and California resulted in a liability of $20.6 million on the
Companys and Southwests condensed consolidated balance sheets. Gas cost rates paid to suppliers have been higher than amounts recovered from customers during the first six months of 2017, resulting in fluctuations since December 31,
2016. Tariff rates have been adjusted in all jurisdictions during this period. Filings to change rates in accordance with PGA clauses are subject to audit by state regulatory commission staffs. PGA changes impact cash flows but have no direct impact
on profit margin. However, gas cost deferrals and recoveries can impact comparisons between periods of individual consolidated income statement components. These include Gas operating revenues, Net cost of gas sold, Net interest deductions, and
Other income (deductions).
41
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
The following table presents Southwests outstanding PGA balances receivable/(payable) (thousands of
dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
June 30, 2016
|
|
Arizona
|
|
$
|
4,822
|
|
|
$
|
(20,349
|
)
|
|
$
|
(33,941
|
)
|
Northern Nevada
|
|
|
1,134
|
|
|
|
(3,339
|
)
|
|
|
(14,380
|
)
|
Southern Nevada
|
|
|
(17,741
|
)
|
|
|
(66,788
|
)
|
|
|
(75,440
|
)
|
California
|
|
|
(2,887
|
)
|
|
|
2,608
|
|
|
|
(2,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(14,672
|
)
|
|
$
|
(87,868
|
)
|
|
$
|
(126,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Resources and Liquidity
Cash on hand and cash flows from operations in the past twelve months have generally provided the majority of cash used in investing activities
(primarily for construction expenditures and property additions). In recent years, certain pipe replacement has been accelerated to take advantage of bonus depreciation tax incentives and to fortify system integrity and reliability, notably in
association with new gas infrastructure replacement programs as discussed above. During this same time, cost savings were achieved from debt refinancing and strategic debt redemptions. The Companys capitalization strategy is to maintain an
appropriate balance of equity and debt to maintain strong investment-grade credit ratings, which should minimize interest costs.
Cash Flows
Southwest Gas Holdings, Inc.:
Operating Cash Flows.
Cash flows provided by consolidated operating activities decreased $219 million in the first six months
of 2017 as compared to the same period of 2016. The decline in operating cash flows was primarily attributable to the change in deferred purchased gas costs noted above, lower depreciation, and temporary changes in other working capital components.
Refer to
Results of Natural Gas Operations
and
Rates and Regulatory Proceedings
.
Investing Cash Flows.
Cash
used in consolidated investing activities decreased $18.8 million in the first six months of 2017 as compared to the same period of 2016. The decrease was primarily due to a prior-period outflow of $17 million to facilitate a construction
services acquisition.
Financing Cash Flows.
Net cash provided by consolidated financing activities increased
$225.5 million in the first six months of 2017 as compared to the same period of 2016. The increase was primarily due to activity under the credit facility and commercial paper program (an increase in borrowings in the current-year six-month
period and the repayment of borrowings in the prior-year six-month period). Dividends paid increased in the first six months of 2017 as compared to the same period of 2016 as a result of an increase in the quarterly dividend rate and an increase in
the number of shares outstanding.
The Company issued approximately 101,000 additional shares of common stock collectively through the
Restricted Stock/Unit Plan and the Management Incentive Plan.
Southwest Gas Corporation:
Operating Cash Flows.
Cash flows provided by operating activities decreased $190.5 million in the first six months of 2017 as
compared to the same period of 2016. The decline in operating cash flows was primarily attributable to the change in deferred purchased gas costs as discussed above, which favorably impacted the prior-year six-month period, but had the opposite
impact in the current six-month period. Refer to
Results of Natural Gas Operations
and
Rates and Regulatory Proceedings
.
Investing Cash Flows.
Cash used in investing activities increased $16.5 million in the first six months of 2017 as compared
to the same period of 2016. The increase was primarily due to additional construction expenditures, including scheduled and accelerated pipe replacement.
Financing Cash Flows.
Net cash provided by financing activities increased $226.1 million in the first six months of 2017 as
compared to the same period of 2016. The increase was primarily due to activity under the credit facility and commercial paper program (an increase in borrowings in the current-year six-month period and the repayment of borrowings in the prior-year
six-month period).
42
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
The capital requirements and resources of the Company generally are determined independently
for the natural gas operations and construction services segments. Each business activity is generally responsible for securing its own financing sources.
Gas Segment Construction Expenditures and Financing
During the twelve-month period ended June 30, 2017, construction expenditures for the natural gas operations segment were
$467 million. The majority of these expenditures represented costs associated with scheduled and accelerated replacement of existing transmission, distribution, and general plant. Cash flows from operating activities of Southwest were
$319 million during this time and provided approximately 58% of construction expenditures and dividend requirements.
Southwest
estimates natural gas segment construction expenditures during the three-year period ending December 31, 2019 will be between $1.6 billion and $1.8 billion. Of this amount, approximately $570 million is expected to be incurred in 2017.
Southwest plans to continue, as appropriate, to request regulatory support to accelerate projects that improve system flexibility and reliability (including replacement of early vintage plastic and steel pipe). This includes the recent approval to
complete $57.3 million in accelerated replacement projects in Nevada in 2017 and the $66 million requested for 2018 in the Nevada GIR Advance Application, as well as programs included in the recently approved Arizona general rate case settlement
(the continuation of the COYL program and implementation of a vintage steel pipe replacement program). Southwest may expand existing, or initiate new, programs. If efforts continue to be successful, significant replacement activities are expected to
continue well beyond the next few years. See also
Rates and Regulatory Proceedings
for discussion of Nevada infrastructure, Arizona COYL, and an LNG facility. During the three-year period, cash flows from operating activities of Southwest are
expected to provide approximately 60% to 70% of the funding for gas operations total construction expenditures and dividend requirements. Any additional cash requirements are expected to be provided by existing credit facilities and/or other
external financing sources. The timing, types, and amounts of any additional external financings will be dependent on a number of factors, including the cost of gas purchases, conditions in the capital markets, timing and amounts of rate relief,
growth levels in Southwests service areas, and earnings. External financings could include the issuance of debt securities, bank and other short-term borrowings, and other forms of financing.
Bonus Depreciation
In December 2015, the
Protecting Americans from Tax Hikes Act of 2015 (PATH Act) was enacted extending the 50% bonus depreciation tax deduction for qualified property acquired or constructed and placed in-service during 2015 (and additional years as noted
below) as well as other tax deductions, credits, and incentives. The bonus depreciation tax deduction will be phased out over five years. The PATH Act provides for a 50% bonus depreciation tax deduction in 2015 through 2017, 40% in 2018, 30% in
2019, and no deduction after 2019. Based on forecasted qualifying construction expenditures, Southwest estimates the bonus depreciation provision of the PATH Act will defer the payment of approximately $21 million of federal income taxes for
2017.
Dividend Policy
Dividends are
payable on the Companys common stock at the discretion of the Board of Directors (Board). In setting the dividend rate, the Board considers, among other factors, current and expected future earnings levels, our ongoing capital
expenditure plans and expected external funding needs, our payout ratio, and our ability to maintain strong credit ratings and liquidity. The Company has paid dividends on its common stock since 1956 and has increased that dividend each year since
2007. In February 2017, the Board elected to increase the quarterly dividend from $0.45 to $0.495 per share, representing a 10% increase, effective with the June 2017 payment. The Board currently targets a payout ratio of 55% to 65% of consolidated
earnings per share.
Liquidity
Liquidity refers to the ability of an enterprise to generate sufficient amounts of cash through its operating activities and external financing
to meet its cash requirements. Several general factors (some of which are out of the control of the Company) that could significantly affect liquidity in future years include: variability of natural gas prices, changes in the ratemaking policies of
regulatory commissions, regulatory lag, customer growth in the natural gas segments
43
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
service territories, the ability to access and obtain capital from external sources, interest rates, changes in income tax laws, pension funding requirements, inflation, and the level of
earnings. Natural gas prices and related gas cost recovery rates have historically had the most significant impact on liquidity.
On an
interim basis, Southwest defers over- or under-collections of gas costs to PGA balancing accounts. In addition, Southwest uses this mechanism to either refund amounts over-collected or recoup amounts under-collected as compared to the price paid for
natural gas during the period since the last PGA rate change went into effect. At June 30, 2017, the combined balance in the PGA accounts totaled an over-collection of $14.7 million. See
PGA Filings
for more information.
In March 2017, Southwest Gas Holdings, Inc. entered into a credit facility with a borrowing capacity of $100 million that expires in
March 2022. The Company intends to utilize this facility for short-term financing needs. At June 30, 2017, $2.5 million was outstanding on this facility.
In March 2017, Southwest Gas Corporation amended its credit facility, increasing the borrowing capacity from $300 million to
$400 million, and extended the term of the facility from March 2021 to March 2022. Southwest continues to designate $150 million of the facility for long-term borrowing needs and the remaining $250 million for working capital
purposes. The maximum amount outstanding on the credit facility (including a commercial paper program, as noted below) during the first six months of 2017 was $92 million, which was also the amount outstanding on the long-term portion of the
credit facility at June 30, 2017. The credit facility can be used as necessary to meet liquidity requirements, including temporarily financing under-collected PGA balances, if any, or meeting the refund needs of over-collected balances. This
credit facility has been adequate for Southwests working capital needs outside of funds raised through operations and other types of external financing.
Southwest has a $50 million commercial paper program. Any issuance under the commercial paper program is supported by Southwests current
revolving credit facility and, therefore, does not represent additional borrowing capacity. Any borrowing under the commercial paper program will be designated as long-term debt. Interest rates for the commercial paper program are calculated at the
current commercial paper rate during the borrowing term. At June 30, 2017, no borrowings were outstanding under this program.
Centuri has a $300 million secured revolving credit and term loan facility that is scheduled to expire in October 2019. The term loan facility
portion had an initial limit of approximately $150 million, which was reached in 2014 and is in the process of being repaid ($106 million was outstanding at June 30, 2017). No further borrowing is permitted under this portion of the facility.
The secured revolving credit facility portion also has a limit of $150 million; amounts borrowed and repaid under this portion of the facility are available to be re-borrowed. The maximum amount outstanding on the credit facility during the
first six months of 2017 was $100 million, which was the amount outstanding at June 30, 2017. At June 30, 2017, there was approximately $36 million, net of letters of credit, available under the line of credit.
The following table sets forth the ratios of earnings to fixed charges for the Company. Due to the seasonal nature of the Companys
business, these ratios are computed on a twelve-month basis:
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Ratio of earnings to fixed charges
|
|
|
3.42
|
|
|
|
3.46
|
|
Earnings are defined as the sum of pretax income plus fixed charges. Fixed charges consist of all interest
expense including capitalized interest, one-third of rent expense (that approximates the interest component of such expense), and net amortized debt costs.
44
|
|
|
SOUTHWEST GAS HOLDINGS, INC.
|
|
Form 10-Q
|
SOUTHWEST GAS CORPORATION
|
|
June 30, 2017
|
Forward-Looking Statements
This quarterly report contains statements which constitute forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (Reform Act). All statements other than statements of historical fact included or incorporated by reference in this quarterly report are forward-looking statements, including, without limitation, statements
regarding the Companys plans, objectives, goals, intentions, projections, strategies, future events or performance, and underlying assumptions. The words may, if, will, should, could,
expect, plan, anticipate, believe, estimate, predict, project, continue, forecast, intend, promote, seek,
and similar words and expressions are generally used and intended to identify forward-looking statements. For example, statements regarding operating margin patterns, customer growth, the composition of our customer base, price volatility, seasonal
patterns, payment of debt, interest savings, the Companys COLI strategy, replacement market and new construction market, bonus depreciation tax deductions, amount and timing for completion of estimated future construction expenditures,
including the LNG facility in southern Arizona, the cost of the 2018 Paiute expansion project in northern Nevada and northern California, forecasted operating cash flows and results of operations, net earnings impacts from gas infrastructure
replacement surcharges, funding sources of cash requirements, amounts generally expected to be reflected in 2017 or future period revenues from regulatory rate proceedings including amounts resulting from the settled Arizona general rate case, rates
and surcharges, PGA, and other rate adjustments, sufficiency of working capital and current credit facilities, bank lending practices, the Companys views regarding its liquidity position, ability to raise funds and receive external financing
capacity and the intent and ability to issue common stock under the Equity Shelf Program, future dividend increases and the Boards current target dividend payout ratio, pension and post-retirement benefits, certain benefits of tax acts, the
effect of any rate changes or regulatory proceedings, impacts of accounting standard updates, infrastructure replacement mechanisms and the COYL program, statements regarding future gas prices, gas purchase contracts and derivative financial
instruments, recoverability of regulatory assets, the impact of certain legal proceedings, and the timing and results of future rate hearings and approvals are forward-looking statements. All forward-looking statements are intended to be subject to
the safe harbor protection provided by the Reform Act.
A number of important factors affecting the business and financial results
of the Company could cause actual results to differ materially from those stated in the forward-looking statements. These factors include, but are not limited to, customer growth rates, conditions in the housing market, the ability to recover costs
through the PGA mechanisms or other regulatory assets, the effects of regulation/deregulation, the timing and amount of rate relief, changes in rate design, variability in volume of gas or transportation service sold to customers, changes in gas
procurement practices, changes in capital requirements and funding, the impact of conditions in the capital markets on financing costs, changes in construction expenditures and financing, changes in operations and maintenance expenses, effects of
pension expense forecasts, accounting changes, future liability claims, changes in pipeline capacity for the transportation of gas and related costs, results of Centuri bid work, Centuri construction expenses, differences between actual and
originally expected outcomes of Centuri bid or other fixed-price construction agreements, and ability to successfully procure new work, impacts from work awarded or failing to be awarded from significant customers, the mix of work awarded, the
amount of work awarded to Centuri following the lifting of the recent work stoppage, acquisitions and managements plans related thereto, competition, our ability to raise capital in external financings, our ability to continue to remain within
the ratios and other limits subject to our debt covenants, and ongoing evaluations in regard to goodwill and other intangible assets. In addition, the Company can provide no assurance that its discussions regarding certain trends relating to its
financing and operating expenses will continue in future periods. For additional information on the risks associated with the Companys business, see
Item 1A. Risk Factors
and
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk
in the Annual Report on
Form 10-K
for the year ended December 31, 2016.
All forward-looking statements in this quarterly report are made as of the date hereof, based on information available to the Company
as of the date hereof, and the Company assumes no obligation to update or revise any of its forward-looking statements even if experience or future changes show that the indicated results or events will not be realized.
We caution you not to
unduly rely on any forward-looking statement(s).