SOUTHWEST GAS CORP - FORM 8-K - EX-99.2

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EX-99.1 - EX-99.1 - SOUTHWEST GAS CORP	d310933dex991.htm
EX-2.2 - EX-2.2 - SOUTHWEST GAS CORP	d310933dex22.htm
EX-2.1 - EX-2.1 - SOUTHWEST GAS CORP	d310933dex21.htm
8-K - FORM 8-K - SOUTHWEST GAS CORP	d310933d8k.htm

EXHIBIT 99.2

SOUTHWEST GAS CORPORATION

UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION

Southwest Gas Corporation historically consisted of two segments: natural gas utility operations and construction services. In 2015, the Board of Directors (“Board”) of Southwest Gas Corporation authorized management to evaluate and pursue a holding company reorganization (“Reorganization”) to provide further separation between regulated utility operations and unregulated construction services businesses, and to provide additional financing flexibility. In connection with the Reorganization plans, a new holding company, Southwest Gas Holdings, Inc. (“SWG Holdings”) was created. In January 2017, SWG Holdings implemented the Reorganization, which consisted of converting each outstanding share of Southwest Gas Corporation common stock into a share of common stock of SWG Holdings and adjusting the corporate structure hierarchy of construction services. Following the Reorganization, Southwest Gas Corporation became a wholly owned subsidiary of publicly traded SWG Holdings, and Southwest Gas Corporation’s 96.6% interest in Centuri Construction Group (“Centuri”) was transferred to SWG Holdings. Thus, Centuri and Southwest Gas Corporation became subsidiaries of SWG Holdings, but Centuri was no longer a subsidiary of Southwest Gas Corporation. Shareholders of Southwest Gas Corporation immediately prior to consummation of the Reorganization own the same relative percentages of SWG Holdings upon consummation of the Reorganization. All of Southwest Gas Corporation’s outstanding debt securities (not associated with Centuri) at the time of the Reorganization remained at the Southwest Gas Corporation utility entity (“Southwest Gas”). Construction services debt outstanding would continue to be obligations solely of Centuri. After the Reorganization, debt securities could be issued by SWG Holdings, Southwest Gas, or Centuri.

Regulatory applications for preapproval of the Reorganization were filed with the Arizona Corporation Commission, the California Public Utilities Commission, and the Public Utilities Commission of Nevada in 2015. Approvals were received from all three state regulatory commissions in the first half of 2016 and final Board approval was announced on December 28, 2016. The completion of the holding company component of the Reorganization became effective January 1, 2017, and the transfer of Centuri to SWG Holdings was effective on January 3, 2017. The consolidated financial statements of SWG Holdings will reflect the same consolidated activities as the predecessor company. However, the financial statements of Southwest Gas (utility operations) will no longer reflect the activities of Centuri, and the outstanding debt securities (not associated with Centuri) at the time of the Reorganization will be obligations of Southwest Gas and not separate obligations of Centuri or SWG Holdings.

The following unaudited pro forma condensed financial statements for Southwest Gas (utility operations) are based on historical consolidated financial statements of Southwest Gas Corporation, as adjusted to reflect the Reorganization (i.e., the transfer of Centuri to SWG Holdings and that Centuri is no longer a subsidiary of Southwest Gas). The unaudited pro forma condensed statements of income for the nine months ended September 30, 2016 and each of the three years ended December 31, 2015, 2014, and 2013 give effect to the Reorganization as if it had occurred on January 1, 2013. The unaudited pro forma condensed balance sheet as of September 30, 2016 gives effect to the Reorganization as if it had occurred as of September 30, 2016.

The assumptions underlying the unaudited adjustments to the pro forma condensed financial statements are described in the accompanying notes, which should be read together with the pro forma condensed financial statements.

Southwest Gas Corporation

Unaudited Pro Forma Condensed Balance Sheet

As of September 30, 2016

(Thousands of dollars, except par value)


	Registrant Historical			Adjustments			Note 2		Pro Forma
ASSETS
Utility plant:
Gas plant	$	6,118,900		$	—				$	6,118,900
Less: accumulated depreciation		(2,158,099	)		—					(2,158,099	)
Acquisition adjustments, net		234			—					234
Construction work in progress		105,847			—					105,847

Net utility plant		4,066,882			—					4,066,882

Other property and investments		348,565			(241,786	)		(a)		106,779

Current assets:
Cash and cash equivalents		85,154			(7,082	)		(a)		78,072
Accounts receivable, net of allowances		286,696			(225,799	)		(a)		60,897
Accrued utility revenue		33,000			—					33,000
Income taxes receivable, net		38,369			(5,462	)		(a)		32,907
Prepaids and other current assets		101,081			(13,410	)		(a)		87,671

Total current assets		544,300			(251,753	)				292,547

Noncurrent assets:
Goodwill		142,439			(132,344	)		(a)		10,095
Deferred income taxes		783			(783	)		(a)		—
Deferred charges and other assets		429,827			(14,618	)		(a)		415,209

Total noncurrent assets		573,049			(147,745	)				425,304

Total assets	$	5,532,796		$	(641,284	)			$	4,891,512

CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock, $1 par (authorized - 60,000,000 shares; issued and outstanding - 47,482,068 shares)	$	49,112		$	—				$	49,112
Additional paid-in capital		901,966			(5,777	)		(a)		896,189
Accumulated other comprehensive income (loss), net		(46,300	)		1,932			(a)		(44,368	)
Retained earnings		720,401			(176,101	)		(a)		544,300

Total Southwest Gas Corporation equity		1,625,179			(179,946	)				1,445,233
Noncontrolling interest		(2,263	)		2,263			(a)		—

Total equity		1,622,916			(177,683	)				1,445,233
Redeemable noncontrolling interest		17,379			(17,379	)		(a)		—
Long-term debt, less current maturities		1,592,946			(222,938	)		(a)		1,370,008

Total capitalization		3,233,241			(418,000	)				2,815,241

Commitments and contingencies
Current liabilities:
Current maturities of long-term debt		49,480			(24,480	)		(a)		25,000
Accounts payable		138,810			(63,823	)		(a)		74,987
Customer deposits		72,039			—					72,039
Income taxes payable, net		219			(219	)		(a)		—
Accrued general taxes		46,323			—					46,323
Accrued interest		20,152			(625	)				19,527
Deferred purchased gas costs		123,399			—					123,399
Other current liabilities		162,622			(74,635	)		(a)		87,987

Total current liabilities		613,044			(163,782	)				449,262

Deferred income taxes and other credits:
Deferred income taxes and investment tax credits, net		814,978			(36,097	)		(a)		778,881
Accumulated removal costs		305,000			—					305,000
Other deferred credits and other long-term liabilities		566,533			(23,405	)		(a)		543,128

Total deferred income taxes and other credits		1,686,511			(59,502	)				1,627,009

Total capitalization and liabilities	$	5,532,796		$	(641,284	)			$	4,891,512

See the accompanying notes to the Unaudited Pro Forma Condensed Financial information.

Southwest Gas Corporation

Unaudited Pro Forma Condensed Statement of Income

For the nine months ended September 30, 2016

(In thousands, except per share amounts)


	Registrant Historical			Adjustments			Note 2		Pro Forma
Operating revenues:
Gas operating revenues	$	980,927		$	—				$	980,927
Construction revenues		838,038			(838,038	)		(a)		—

Total operating revenues		1,818,965			(838,038	)				980,927

Operating expenses:
Net cost of gas sold		324,072			—					324,072
Operations and maintenance		301,979			—					301,979
Depreciation and amortization		217,764			(43,351	)		(a)		174,413
Taxes other than income taxes		39,480			—					39,480
Construction expenses		757,919			(757,919	)		(a)		—

Total operating expenses		1,641,214			(801,270	)				839,944

Operating income		177,751			(36,768	)				140,983

Net interest deductions		(54,100	)		4,945			(a)		(49,155	)
Other income (deductions)		6,756			(44	)				6,712

Total other income and (expenses)		(47,344	)		4,901					(42,443	)

Income before income taxes		130,407			(31,867	)				98,540
Income tax expense		43,046			(12,042	)		(a)		31,004

Net income		87,361			(19,825	)				67,536
Net income attributable to noncontrolling interests		500			(500	)		(a)		—

Net income attributable to Southwest Gas Corporation	$	86,861		$	(19,325	)			$	67,536

Basic earnings per share	$	1.83			N/A					N/A

Diluted earnings per share	$	1.82			N/A					N/A

Average number of common shares outstanding		47,464			N/A			(b)		N/A
Average shares outstanding (assuming dilution)		47,802			N/A			(b)		N/A

See the accompanying notes to the Unaudited Pro Forma Condensed Financial information.

Southwest Gas Corporation

Unaudited Pro Forma Condensed Statement of Income

For the year ended December 31, 2015

(In thousands, except per share amounts)


	Registrant Historical			Adjustments			Note 2	Pro Forma
Operating revenues:
Gas operating revenues	$	1,454,639		$	—			$	1,454,639
Construction revenues		1,008,986			(1,008,986	)	(a)		—

Total operating revenues		2,463,625			(1,008,986	)			1,454,639

Operating expenses:
Net cost of gas sold		563,809			—				563,809
Operations and maintenance		393,199			—				393,199
Depreciation and amortization		270,111			(56,656	)	(a)		213,455
Taxes other than income taxes		49,393			—				49,393
Construction expenses		898,781			(898,781	)	(a)		—

Total operating expenses		2,175,293			(955,437	)			1,219,856

Operating income		288,332			(53,549	)			234,783

Net interest deductions		(71,879	)		7,784		(a)		(64,095	)
Other income (deductions)		2,879			(587	)	(a)		2,292

Total other income and (expenses)		(69,000	)		7,197				(61,803	)

Income before income taxes		219,332			(46,352	)			172,980
Income tax expense		79,902			(18,547	)	(a)		61,355

Net income		139,430			(27,805	)			111,625
Net income attributable to noncontrolling interests		1,113			(1,113	)	(a)		—

Net income attributable to Southwest Gas Corporation	$	138,317		$	(26,692	)		$	111,625

Basic earnings per share	$	2.94			N/A				N/A

Diluted earnings per share	$	2.92			N/A				N/A

Average number of common shares outstanding		46,992			N/A		(b)		N/A
Average shares outstanding (assuming dilution)		47,383			N/A		(b)		N/A

See the accompanying notes to the Unaudited Pro Forma Condensed Financial information.

Southwest Gas Corporation

Unaudited Pro Forma Condensed Statement of Income

For the year ended December 31, 2014

(In thousands, except per share amounts)


	Registrant Historical			Adjustments			Note 2	Pro Forma
Operating revenues:
Gas operating revenues	$	1,382,087		$	—			$	1,382,087
Construction revenues		739,620			(739,620	)	(a)		—

Total operating revenues		2,121,707			(739,620	)			1,382,087

Operating expenses:
Net cost of gas sold		505,356			—				505,356
Operations and maintenance		383,732			—				383,732
Depreciation and amortization		253,027			(48,883	)	(a)		204,144
Taxes other than income taxes		47,252			—				47,252
Construction expenses		647,857			(647,857	)	(a)		—

Total operating expenses		1,837,224			(696,740	)			1,140,484

Operating income		284,483			(42,880	)			241,603

Net interest deductions		(72,069	)		3,770		(a)		(68,299	)
Other income (deductions)		7,107			58		(a)		7,165

Total other income and (expenses)		(64,962	)		3,828				(61,134	)

Income before income taxes		219,521			(39,052	)			180,469
Income tax expense		78,373			(14,776	)	(a)		63,597

Net income		141,148			(24,276	)			116,872
Net income attributable to noncontrolling interests		22			(22	)	(a)		—

Net income attributable to Southwest Gas Corporation	$	141,126		$	(24,254	)		$	116,872

Basic earnings per share	$	3.04			N/A				N/A

Diluted earnings per share	$	3.01			N/A				N/A

Average number of common shares outstanding		46,494			N/A		(b)		N/A
Average shares outstanding (assuming dilution)		46,944			N/A		(b)		N/A

See the accompanying notes to the Unaudited Pro Forma Condensed Financial information.

Southwest Gas Corporation

Unaudited Pro Forma Condensed Statement of Income

For the year ended December 31, 2013

(In thousands, except per share amounts)


	Registrant Historical			Adjustments			Note 2		Pro Forma
Operating revenues:
Gas operating revenues	$	1,300,154		$	—				$	1,300,154
Construction revenues		650,628			(650,628	)		(a)		—

Total operating revenues		1,950,782			(650,628	)				1,300,154

Operating expenses:
Net cost of gas sold		436,001			—					436,001
Operations and maintenance		384,914			—					384,914
Depreciation and amortization		236,817			(42,969	)		(a)		193,848
Taxes other than income taxes		45,551			—					45,551
Construction expenses		573,284			(573,284	)		(a)		—

Total operating expenses		1,676,567			(616,253	)				1,060,314

Operating income		274,215			(34,375	)				239,840

Net interest deductions		(63,700	)		1,145			(a)		(62,555	)
Other income (deductions)		12,300			(39	)		(a)		12,261

Total other income and (expenses)		(51,400	)		1,106					(50,294	)

Income before income taxes		222,815			(33,269	)				189,546
Income tax expense		77,942			(12,565	)		(a)		65,377

Net income		144,873			(20,704	)				124,169
Net income attributable to noncontrolling interests		(447	)		447			(a)		—

Net income attributable to Southwest Gas Corporation	$	145,320		$	(21,151	)			$	124,169

Basic earnings per share	$	3.14			N/A					N/A

Diluted earnings per share	$	3.11			N/A					N/A

Average number of common shares outstanding		46,318			N/A			(b)		N/A
Average shares outstanding (assuming dilution)		46,758			N/A			(b)		N/A

See the accompanying notes to the Unaudited Pro Forma Condensed Financial information.

Note 1 — Basis of Presentation

The unaudited pro forma condensed financial statements for Southwest Gas (utility operations) are based on historical consolidated financial statements of Southwest Gas Corporation, as adjusted to reflect the Reorganization (i.e., the transfer of Centuri to SWG Holdings and that Centuri is no longer a subsidiary of Southwest Gas). The unaudited pro forma condensed statements of income for the nine months ended September 30, 2016 and each of the three years ended December 31, 2015, 2014, and 2013 give effect to the Reorganization as if it had occurred on January 1, 2013. The unaudited pro forma condensed balance sheet as of September 30, 2016 gives effect to the Reorganization as if it had occurred as of September 30, 2016. The historical consolidated financial statements have been adjusted in the pro forma condensed financial statements to reflect that Centuri will no longer be a subsidiary of Southwest Gas and that Southwest Gas will be a wholly owned subsidiary of Southwest Gas Holdings, Inc. The adjustments are directly attributable to the holding company reorganization.

The pro forma financial statements may not be useful in predicting the future financial condition and results of operations of Southwest Gas. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. Dividends historically paid by Southwest Gas through the Balance Sheet date presented above continue to be reflected in retained earnings on a pro forma basis for Southwest Gas, as management would expect that the process of holding company dividend declaration and payment (associated with holders of shares in the holding company subsequent to the one-for-one conversion) would occur coincident with comparable dividends paid by Southwest Gas to its sole shareholder (the parent holding company) in association with a holding company structure.

Note 2 – Pro Forma Adjustments

The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:

(a)	Adjustment to reflect the elimination of Centuri as a subsidiary of Southwest Gas and elimination of the noncontrolling interests associated with construction services activities.

(b)	Adjustment to reflect that Southwest Gas will be a wholly owned subsidiary of SWG Holdings and that Southwest Gas stock will not be publicly traded.

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