Southwest Gas Holdings Inc Annual Report 2015

FY2015 Annual Report · Southwest Gas Holdings Inc

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SAFETY, SERVICE, RELIABILITY | ANNUAL REPORT 2015

COMPANY PROFILE
Southwest Gas Corporation (“Southwest Gas” or “Company”), headquartered in Las Vegas, NV, provides natural
gas service to over 1.9 million customers in Arizona, Nevada, and California. Centuri Construction Group, Inc.
(“Centuri”), a subsidiary, is a full-service underground piping contractor that primarily provides utility companies
with trenching and installation, replacement, and maintenance services for energy distribution systems, and
develops industrial construction solutions. Centuri operates in 20 major markets in the United States (primarily
under the NPL Construction Co. [“NPL”] name) and in two major markets in Canada (under the Link-Line Contrac-
tors Ltd. and W.S. Nicholls Construction Inc. names).

NYSE: SWX

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS

NET INCOME BY SEGMENT

Southwest Gas / S&P 500 / S&P Small Cap Gas Index

$300

$250

$200

$150

$100

$50

2010

2011

2012

2013

2014

2015

PERFORMANCE GRAPH
The performance graph above compares the ﬁve-year cumulative total

return on Company common stock, assuming reinvestment of dividends,

with the total returns on the Standard & Poor's 500 Stock Composite Index

(“S&P 500”) and the S&P Small Cap Gas Index, consisting of the Company

and ﬁve other gas distribution companies.

The S&P Small Cap Gas Index, which is weighted by year-end market

capitalization, consists of the following companies: Laclede Group Inc., New

Jersey Resources Corp., Northwest Natural Gas Co., Piedmont Natural Gas

Company, South Jersey Industries Inc., and the Company.

STOCK PRICES AND TRADING VOLUME

$43.20
$32.12
569,341

$46.08
$39.01
432,089

$56.03
$42.02
355,808

$64.20
$47.21
487,354

$63.68
$50.78
500,363

High
Low
Volume
(in hundreds)

Net Income: $138.3MM
A: Natural Gas Operations 81% ($111.6MM Net Income)
B: Construction Services 19% ($26.7MM Net Income)

NATURAL GAS OPERATIONS

MARGIN BY CUSTOMER CLASS

A: Residential and Small Commercial 85%
B: Transportation Customers 11% C: Other Sales Customers 4%

CUSTOMERS PER EMPLOYEE

809

836

858

879

881

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

period. Southwest Gas remains among the top utilities

for customer growth with 26,000 net new customer ad-

ditions in 2015. This is due in part to a growing economic

recovery across Southwest Gas service territories. Pos-

itive customer growth and economic conditions, paired

with investments in infrastructure and efforts to mitigate

regulatory lag, have led to successful performance today

and a strong sense of optimism for tomorrow.

TRUSTED TO DELIVER:
HONORING OUR COMMITMENTS

Southwest Gas has an enviable reputation as a trusted

company with a high level of integrity. We know that this

reputation is hard to earn and easy to lose. In all Company

projects, we focus on successful completion in an expe-

ditious, ethical, and diligent manner.

We reported in last year’s annual report that the Company

would embark on constructing the proposed $35 million,

35-mile lateral connecting Ruby Pipeline to the growing

Elko, Nevada area. This expansion project is now com-

plete and is providing enhanced service and reliability

for Northern Nevada’s growing residential, business, and

industrial customers.

Progress also continues on the development of a $55 mil-

lion liqueﬁed natural gas (LNG) storage facility in south-

ern Arizona, which has received pre-approval by the

Arizona Corporation Commission. We are currently in the

process of designing the LNG facility, which will enhance

our southern Arizona system reliability by protecting

customers from potential upstream supply disruptions.

Fellow Shareholders:
Trust takes time to build and hard work to maintain. It is

something we will never take for granted at Southwest Gas.

2015 was a good year for the Company as we contin-

ued to deliver on strategies that earn the trust of custom-

ers, shareholders, regulators, and other key stakeholders.

Whether in long-term planning or daily execution, we are

committed to guarding our reputation as a trusted utility

focused on safety, service, and reliability. We will continue

to position Southwest Gas as an industry leader, trusted to

make prudent decisions, exceed customer expectations,

and deliver on the strategies we undertake.

We take great pride that Southwest Gas customers express

a high level of trust in our Company and continue to rank

us high in customer satisfaction. Our most recent survey

results revealed a 93 percent customer satisfaction rate.

In 2015, Southwest Gas was ranked third in the nation
for utility brand trust amongst residential customers1. The
report considers the factors of company reputation and

advocacy, customer focus, community support, commu-

nication effectiveness, environmental dedication, and

reliable quality as drivers of utility brand trust. Further, the

report suggests a correlation between trust and ﬁnancial

performance.

We believe our ongoing efforts to earn your trust have

contributed to excellent ﬁnancial results and positioned

us well to embrace the opportunities of the future. For

2015, we are pleased to report earnings per share of

$2.94. These results allowed the Board of Directors to

increase the annual dividend rate on common stock to

$1.80 per share, an 11 percent increase over the existing

dividend level. This change marks a decade of annual

increases for our shareholders, gaining 120 percent over this

DIVIDENDS DECLARED PER SHARE

$1.80

$1.62

$1.46

$1.32

$1.18

$0.90

$0.95

$0.86

$1.00

$1.06

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

1 Market Strategies International. Cogent ReportsTM. Utility Trusted Brand & Customer
Engagement: Residential: June 2015.

Southwest Gas Corporation

CONSTRUCTION SERVICES MARKETS

In Nevada, we were able to collaborate with various key

stakeholders to develop legislation (Senate Bill 151) and

new regulations that authorize natural gas utilities to expand

their infrastructure to provide service to unserved and

underserved areas in Nevada with an investment cost

recovery mechanism. Southwest Gas is actively working

with business and government organizations on identifying

areas for possible infrastructure expansion projects. We

anticipate that future expansions into unserved and

underserved areas will support economic development

in these areas and will pair perfectly with the Company’s

continuous goal to serve our communities by safely and

reliably delivering natural gas.

2015 also marked the successful integration of the Link-

Line group of companies, which the Company acquired

in October 2014, with NPL to form Centuri Construction

Group, Inc. (Centuri). Centuri now operates as one of North

America’s largest full-service underground pipeline con-

tractors and serves markets across the U.S. and Canada.

The results of Centuri’s expanded operations are reﬂected

in the record revenues and earnings achieved for 2015.

TRUSTED LEADER: STRONG FINANCIAL RESULTS

The positive ﬁnancial impacts of customer trust, bolstered

by prudent management of Company operations, are

apparent in our continued solid ﬁnancial performance.

Both the natural gas operations and construction segments

of the Company experienced favorable results in 2015,

contributing a total net income of $138 million.

We are especially pleased with the ﬁnancial performance

of Centuri, which reached a signiﬁcant milestone by
achieving $1 billion in revenues and $26.7 million in net

income in 2015. These records are impressive achieve-

ments that show great promise for the future given that

Centuri has just completed its ﬁrst full year as an inte-

grated unit. With a vast footprint in the U.S. and Cana-

da, along with Centuri’s record of excellence in serving

utility customers, we believe that this business segment

is poised to capitalize on growing infrastructure opportu-
nities for years to come.

The natural gas operations business segment also contrib-

uted a solid performance in 2015, with operating margin of

$891 million, an increase of 1.6 percent over 2014, and

Southwest Gas Corporation

PICTURED ABOVE
1. Night work in downtown Chicago, IL limits disruption to workday activities and city traffic. 2. Paiute Pipeline’s Jade Flats Interconnect for the
recently constructed 35-mile Adobe Lateral. The Adobe Lateral was completed in 2015 and is now providing enhanced service to customers in
Elko, NV. 3. New pipe is staged at a laydown yard in Phoenix, AZ. 4. Heavy equipment towers over streetlights on an underground replacement
project near Midway International Airport in Chicago, IL. 5. Desert sunset in Las Vegas, NV, the city where Company headquarters is located.
6. “Paperless” job site documentation streamlines communication on a suburban pipeline job.

Southwest Gas Corporation

PICTURED ABOVE
1. Customers can now enjoy enhanced online services at the redesigned swgas.com website. 2. Maintenance work in a neighborhood in
Manassas, VA to ensure reliable natural gas delivery. 3. Employees are committed to excellent service in their interactions with customers.
4. Technician conducting inspections to ensure the safe operation of our gas facilities. 5. Employees volunteering at a community event as part
of their commitment to the communities we serve. 6. Production is enhanced through ﬁeld automation, with crews using tablets to check plans and
schedules on a job site in Dallas, TX.

Southwest Gas Corporation

net income of $112 million. The impressive performance

from this segment was driven by the Company’s focus on

continued operating efficiency, strategic regulatory initia-

tives, and continued organic customer growth.

SOUTHWEST GAS SERVICE TERRITORIES PROJECTED
POPULATION ANNUAL GROWTH RATES 2016 - 2026

United States

0.77%

Tucson, AZ

1.18%

Las Vegas-Henderson-Paradise, NV

1.51%

Victorville-Barstow-Big Bear, CA

Phoenix-Mesa-Scottsdale, AZ

1.74%

1.81%

Source: IHS Global Insight

To deliver on the Company’s commitment to safety, service,

and reliability, Southwest Gas continued its aggressive cap-

ital expenditure plan with an investment of $438 million in

our gas distribution system during 2015. Over the next three

years, we plan to invest up to $1.6 billion to ensure the Com-

pany’s readiness to safely and reliably serve today’s custom-

ers and meet tomorrow’s growth.

CAPITAL EXPENDITURES
NATURAL GAS OPERATIONS (IN MILLIONS)

$438

$460

$350

2014

2015

2016 Estimated

$500

$450

$400

$350

$300

$250

$200

$150

$100

$50

To better position the Company to serve growing markets

in the U.S. and Canada through our multiple lines of busi-

ness, Southwest Gas recently ﬁled regulatory applications

in Arizona, Nevada, and California requesting authority to

establish a holding company. We believe that this structure

will enhance the existing legal and ﬁnancial separation be-

tween our two business segments and provide greater ﬂex-

ibility in Southwest Gas’ future corporate ﬁnancing activities.

This proactive step will help position the Company to better

serve its two distinct business segments well into the future.

TRUSTED PARTNER: REGULATORY COLLABORATION

Just as Southwest Gas works daily to earn and keep the

trust of its customers and shareholders, we also take

pride in fostering and maintaining trusting relationships
with regulators who are among our most important part-

2016-2018 Estimate: Up to $1.6 billion

ners. Partnering with state regulatory bodies in Arizona,

Nevada, and California, as well as federal regulators,

The level of capital expenditures will necessitate that we

Southwest Gas continues to pursue projects that en-

raise both debt and equity capital in the coming years. All

hance safety and reliability and mitigate regulatory lag

three rating agencies maintain investment grade unse-

by achieving timely cost recovery.

cured credit ratings for the Company with Fitch, Moody’s,

and S&P assigning Southwest Gas credit ratings of A, A3,

The Company currently has infrastructure recovery mech-

and BBB+, respectively. These investment grade credit

anisms in each of its states. These are the product of our

ratings place us in a strong position to access the debt

continuous effort to collaborate with regulators to identify

capital markets on relatively favorable terms. We also

opportunities to enhance pipeline safety and reliability for

have in place a program to cost-effectively raise small

our customers, and also allow us to recover our costs in a

amounts of equity as needed.

timely manner.

Southwest Gas Corporation

As an example, in Nevada, pursuant to recently adopted

TRUST FOR TOMORROW

gas infrastructure replacement (GIR) regulations, South-

Our aim in the year ahead is to continue earning your

west Gas received approval from the Public Utilities Com-

trust by establishing a track record of achievement and

mission of Nevada to replace $43.5 million of plastic and

delivering on our strategies. We will advance that goal by

steel pipe on an accelerated basis. The Company also

remaining focused on the core elements of our business

received approval to implement rates to collect approxi-

including safety and customer satisfaction; maintaining

mately $3.8 million of annualized operating margin asso-

trusted relationships with regulators; retaining a work-

ciated with previously approved and completed projects.

force of skilled and motivated employees; implementing

measures to control costs and increase productivity; and

In Arizona, our Customer-Owned Yard Line program is

fostering growth across our business segments.

entering its fourth year in 2016. This program is anoth-

er example of partnering with our regulators to enhance

With increasingly positive economic conditions in our

safety and mitigate service disruptions to customers.

service territories, which will yield continued investment

The Company is currently recovering annual operating

opportunities, we believe the outlook is bright for South-

margin of $2.5 million based upon cumulative capital

west Gas this year and into the future. The potential for

expenditures of $16 million through 2014.

growth is signiﬁcant for both our natural gas operations

and construction services business segments. We will

remain focused on a strong yet sustainable growth plan

that meets the needs of our expanding customer base,

while making prudent investment decisions. Looking

ahead, we remain conﬁdent in our Company’s perfor-

mance as we continue to bring to fruition the exciting

growth opportunities that the future holds.

Michael J. Melarkey
Chairman of the Board

John P. Hester
President and
Chief Executive Officer

April 2016 marks the end of the Arizona rate case ﬁling

moratorium, which creates the opportunity for rate relief

through a general rate case ﬁling. Similar to our other re-

cent rate case ﬁlings, we will be updating various oper-

ating expenses and revenues to reﬂect current needs,

including updating our depreciation rates. We will also

be focused on expanding our existing infrastructure re-

covery mechanism to include other qualifying non-reve-

nue producing efforts.

Southwest Gas Corporation

John P. Hester

To access an online version of this report or to learn more about Southwest Gas,
visit www.swgas.com.

Southwest Gas Corporation

Consolidated Selected Financial Statistics

Year Ended December 31,
(Thousands of dollars, except pershare amounts)
Operating revenues
Operating expenses

2015

2014

2013

2012

2011

$2,463,625 $2,121,707 $1,950,782 $1,927,778 $1,887,188
1,637,108
1,676,567

2,175,293

1,837,224

1,656,254

Operating income

Net income

$ 288,332 $ 284,483 $ 274,215 $ 271,524 $ 250,080

$ 138,317 $ 141,126 $ 145,320 $ 133,331 $ 112,287

Total assets at year end

$5,358,685 $5,208,297 $4,565,174 $4,488,057 $4,276,007

Capitalization at year end

Total equity
Redeemable noncontrolling interest
Long-term debt, excluding current

$1,592,325 $1,486,266 $1,412,395 $1,308,498 $1,225,031
—

16,108

20,042

—

maturities

1,551,204

1,631,374

1,381,327

1,268,373

930,858

Current maturities of long-term debt
Common stock data

Common equity percentage of

capitalization

Return on average common equity
Basic earnings per share
Diluted earnings per share
Dividends declared per share
Payout ratio
Book value per share at year end
Market value per share at year end
Market value per share to per share
Common shares outstanding at year

$3,159,637 $3,137,682 $2,793,722 $2,576,871 $2,155,889

19,475 $

19,192 $

11,105 $

50,137 $ 322,618

50.4%
8.9%
2.94 $
2.92 $
1.62 $
55%
33.65 $
55.16 $
164%

47.4%
9.7%
3.04 $
3.01 $
1.46 $
48%
32.03 $
61.81 $
193%

50.6%
10.6%
3.14 $
3.11 $
1.32 $
42%
30.51 $
55.91 $
183%

50.8%
10.4%
2.89 $
2.86 $
1.18 $
41%
28.39 $
42.41 $
149%

56.8%
9.3%

2.45
2.43
1.06

43%

26.68
42.49

159%

$
$
$

$
$

end (000)

47,378

46,523

46,356

46,148

45,956

Number of common shareholders at

year end

Ratio of earnings to fixed charges

14,153
3.43

14,749
3.58

15,359
3.90

16,028
3.61

16,834
3.21

Southwest Gas Corporation

Natural Gas Operations

Year Ended December 31,
(Thousands of dollars)
Operating revenue
Net cost of gas sold

Operating margin
Expenses

2015

2014

2013

2012

2011

$1,454,639 $1,382,087 $1,300,154 $1,321,728 $1,403,366
613,489

436,001

563,809

505,356

479,602

890,830

876,731

864,153

842,126

789,877

Operations and maintenance
Depreciation and amortization
Taxes other than income taxes

393,199
213,455
49,393

383,732
204,144
47,252

384,914
193,848
45,551

369,979
186,035
41,728

358,498
175,253
40,949

Operating income

$ 234,783 $ 241,603 $ 239,840 $ 244,384 $ 215,177

Contribution to consolidated net income

$ 111,625 $ 116,872 $ 124,169 $ 116,619 $

91,420

Total assets at year end

$4,822,845 $4,652,307 $4,272,029 $4,204,948 $4,048,613

Net gas plant at year end

$3,891,085 $3,658,383 $3,486,108 $3,343,794 $3,218,944

Construction expenditures and property

additions

Cash flow, net

From operating activities
From (used in) investing activities
From (used in) financing activities

$ 438,289 $ 350,025 $ 314,578 $ 308,951 $ 305,542

$ 497,500 $ 288,534 $ 265,290 $ 344,441 $ 216,745
(289,234)
(2,327)

(416,727)
(74,159)

(296,886)
(43,453)

(304,189)
44,947

(328,645)
23,413

Net change in cash

6,614 $ (16,698) $

6,048 $

4,102 $ (74,816)

Total throughput (thousands of therms)

Residential
Small commercial
Large commercial
Industrial/Other
Transportation

655,421
285,118
92,284
30,973
1,035,707

617,377
276,582
94,391
32,374
906,691

741,327
298,045
102,761
50,210
1,037,916

655,046
270,665
116,582
47,830
998,095

718,765
303,923
112,256
50,208
941,544

Total throughput

2,099,503

1,927,415

2,230,259

2,088,218

2,126,696

Weighted average cost of gas purchased

($/therm)

Customers at year end
Employees at year end
Customer to employee ratio
Degree days – actual
Degree days – ten-year average

0.44 $

0.55 $

0.42 $

1,956,000
2,219
881
1,512
1,792

1,930,000
2,196
879
1,416
1,816

1,904,000
2,220
858
1,918
1,876

1,876,000
2,245
836
1,740
1,866

0.58
1,859,000
2,298
809
2,002
1,888

Southwest Gas Corporation

Management’s Discussion and Analysis of Financial Condition and Results of
Operations

About Southwest Gas Corporation
Southwest Gas Corporation and its subsidiaries (the “Company”) consist of two business segments: natural gas
operations (“Southwest” or the “natural gas operations” segment) and construction services.

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
including the Phoenix and Tucson
and transporting natural gas in most of central and southern Arizona,
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 December 31, 2015, Southwest had 1,956,000 residential, commercial,
industrial, and other natural gas
customers, of which 1,045,000 customers were located in Arizona, 720,000 in Nevada, and 191,000 in California.
Residential and commercial customers represented over 99% of the total customer base. During 2015, 55% of
operating margin was earned in Arizona, 34% in Nevada, and 11% in California. During this same period, Southwest
earned 85% of its operating margin from residential and small commercial customers, 4% from other sales
customers, and 11% 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 the measure of gas operating revenues less the net cost of gas sold.
Management uses operating margin as a main benchmark in comparing operating results from period to period.
The principal factors affecting changes in operating margin are general rate relief
(including the impact of
infrastructure trackers) and customer growth. All of Southwest’s service territories have decoupled rate structures,
which are designed to eliminate the direct link between volumetric sales and revenue, thereby mitigating the
impacts of weather variability and conservation on margin, allowing the Company to aggressively pursue energy
efficiency initiatives.

Centuri Construction Group, Inc. (“Centuri” or the “construction services” segment) is a full-service underground
piping contractor that primarily provides utility companies with trenching and installation, replacement, and
maintenance services for energy distribution systems, and develops industrial construction solutions. In October
2014, the Company acquired three privately held construction businesses, primarily based in Canada. The financial
information contained herein only includes the results of the acquired entities since October 2014. Centuri operates
in 20 major markets in the United States (primarily under the NPL name) and in 2 major markets in Canada (under
the Link-Line and W.S. Nicholls names). 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, the equipment resale market, 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

Southwest Gas Corporation

first quarter of the year due to less favorable winter weather conditions. Revenues typically improve as more
favorable weather 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.

Executive Summary
The items discussed in this Executive Summary are intended to provide an overview of the results of the Company’s operations
and are covered in greater detail in later sections of management’s discussion and analysis. As reflected in the table below,
the natural gas operations segment accounted for an average of 83% of consolidated net income over the past
three years. As such, management’s discussion and analysis is primarily focused on that segment.

Summary Operating Results

Year ended December 31,
(In thousands, except per share amounts)
Contribution to net income
Natural gas operations
Construction services

Consolidated

Average number of common shares outstanding

Basic earnings per share fine
Consolidated

Natural Gas Operations
Operating margin

2015

2014

2013

$111,625 $116,872 $124,169
21,151

24,254

26,692

$138,317 $141,126 $145,320

46,992

46,494

46,318

2.94 $

3.04 $

3.14

$890,830 $876,731 $864,153

2015 Overview
Consolidated results for 2015 decreased compared to 2014 due to results from the natural gas operations segment,
partially offset by improved results from the construction services segment. Basic earnings per share were $2.94 in
2015 compared to basic earnings per share of $3.04 in 2014.

Natural gas operations highlights include the following:
• Operating margin increased $14 million, or 2%, compared to the prior year
• Operating expenses increased $21 million, or 3%, between years
• Net financing costs decreased $4 million between 2015 and 2014
• COLI loss of $500,000 in 2015 compared to income of $5.3 million in 2014
• Paiute Pipeline Company general rate case settlement approved by FERC
• Redeemed $31.2 million of 5.00% IDRBs and $20 million of 5.25% IDRBs
• Credit facility expiration date extended one year to March 2020
•
• Filed for a holding company structure with state regulatory commissions – approval received in California

Issued $35.5 million in common stock under a $100 million Equity Shelf Program

Southwest Gas Corporation

Construction services highlights include the following:
• Revenues in 2015 increased $269 million, or 36%, compared to 2014, reaching $1 billion for the first time
• Construction expenses increased $251 million or 39%, compared to 2014
• Contribution to net income increased $2 million compared to 2014
• Completed integration of Link-Line group of companies

Customer Growth. Southwest completed 23,000 first-time meter sets, but realized 26,000 net new customers
during 2015, an increase of 1.35%. The incremental additions reflect a return to service of customer meters on
previously vacant homes. Southwest projects customer growth of about 1.5% for 2016.

Company-OwnedLifeInsurance(“COLI”). Southwest has life insurance policies on members of management and
other key employees to indemnify itself against the loss of talent, expertise, and knowledge, as well as to provide
indirect funding for certain nonqualified benefit plans. The COLI policies have a combined net death benefit value
of approximately $237 million at December 31, 2015. The net cash surrender value of these policies (which is the
cash amount that would be received if Southwest voluntarily terminated the policies) is approximately $99 million at
December 31, 2015 and is included in the caption “Other property and investments” on the balance sheet. The
Company currently intends to hold the COLI policies for their duration. Current tax regulations provide for tax-free
treatment of life insurance (death benefit) proceeds. Therefore, changes in the cash surrender value components of
COLI policies as they progress toward the ultimate death benefits are also recorded without tax consequences.
Cash surrender values are directly influenced by the investment portfolio underlying the insurance policies. This
portfolio includes both equity and fixed income (mutual fund) investments. As a result, generally the cash surrender
value (but not the net death benefit) moves up and down consistent with movements in the broader stock and
bond markets.
In 2015, as indicated in Note 1 of the Notes to Consolidated Financial Statements, the cash
surrender values of COLI policies declined $500,000 (compared to positive returns of $5.3 million in 2014). Over
the long-term, management expects average income of $3 million to $5 million annually on the COLI policies,
excluding any net death benefits recognized.

Liquidity. Southwest believes its liquidity position is sufficient. Southwest has a $300 million credit facility
maturing in March 2020. The facility is provided through a consortium of eight major banking institutions. The
maximum amount outstanding on the credit facility (including a commercial paper program) during 2015 was $180
million. In May 2015, the Company redeemed at par the $31.2 million 5.00% 2004 Series B Industrial Development
Revenue Bonds (“IDRBs”) originally due in 2033. In September 2015, the Company redeemed at par the $20
million 5.25% 2003 Series D IDRBs originally due in 2038. The Company facilitated these redemptions primarily
from cash on hand and borrowings under its $300 million credit facility. At December 31, 2015, $150 million was
outstanding on the long-term portion of the credit facility ($50 million of which was under the commercial paper
program), and $18 million was outstanding on the short-term portion of the credit facility. Southwest has no debt
maturities prior to 2017.

Centuri has a $300 million secured revolving credit and term loan facility maturing in October 2019. The facility is
provided through a consortium of six banking institutions and consists of a term loan with an initial
limit of
approximately $150 million (which was reached in 2014) and a revolving line of credit of $150 million. The maximum
amount outstanding on the credit facility during 2015 was $276 million including $113 million outstanding on the
term loan facility. At December 31, 2015, there was approximately $77.4 million, net of letters of credit, available
under the line of credit.

Southwest Gas Corporation

Results of Natural Gas Operations

Year Ended December 31,
(Thousands of dollars)
Gas operating revenues
Net cost of gas sold

Operating margin

Operations and maintenance expense
Depreciation and amortization
Taxes other than income taxes

Operating income

Other income (deductions)
Net interest deductions

Income before income taxes

Income tax expense

2015

2014

2013

$1,454,639 $1,382,087 $1,300,154
436,001

505,356

563,809

890,830
393,199
213,455
49,393

234,783
2,292
64,095

172,980
61,355

876,731
383,732
204,144
47,252

241,603
7,165
68,299

180,469
63,597

864,153
384,914
193,848
45,551

239,840
12,261
62,555

189,546
65,377

Contribution to consolidated net income

$ 111,625 $ 116,872 $ 124,169

2015vs.2014
The contribution to consolidated net income from natural gas operations decreased $5.2 million between 2015 and
2014. The decline was primarily due to an increase in operating expenses and a decrease in other income, partially
offset by improved operating margin and a decline in net interest deductions.

Operating margin increased $14 million between years. New customers contributed $8 million in operating margin
during 2015. Combined rate relief in the California jurisdiction and Paiute Pipeline Company (see Rates and
Regulatory Proceedings) provided $5 million in operating margin. Operating margin associated with customers
outside the decoupling mechanisms and other miscellaneous revenues increased by $1 million.

Operations and maintenance expense increased $9.5 million, or 2%, between years due primarily to general cost
increases and higher employee-related expenses including pension expense. These increases were partially offset
by certain expenses that were higher in the prior year, including a $5 million legal accrual in 2014 and $1.1 million in
rent expense (associated with the previously leased corporate headquarters complex).

Depreciation and amortization expense increased $9.3 million, or 5%. Average gas plant in service for the current
year increased $276 million, or 5%, as compared to the prior year. This was attributable to pipeline capacity
reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new
business. Increases in depreciation from these plant additions were partially offset by lower depreciation rates in
California. Amortizations associated with the recovery of regulatory assets increased approximately $2.4 million
overall (primarily due to Arizona integrity management and California energy efficiency programs).

Taxes other than income taxes increased $2.1 million, or 5%, between years primarily due to higher property taxes
associated with net plant additions.

Southwest Gas Corporation

Other income, which principally includes returns on COLI policies (including recognized net death benefits) and
non-utility expenses, decreased $4.9 million between 2015 and 2014. The current year reflects a loss of $500,000
associated with COLI policy cash surrender value decreases, while the prior year included $5.3 million of COLI-
related income.

interest deductions decreased $4.2 million between years. The decrease primarily resulted from the
Net
redemptions of $65 million 5.25% Series A IDRBs in November 2014, $31.2 million 5.00% 2004 Series B IDRBs in
May 2015, and $20 million 5.25% 2003 Series D IDRBs in September 2015, partially offset by increased interest
expense on PGA balances.

2014vs.2013
Contribution to consolidated net income from natural gas operations decreased by $7.3 million between 2014 and
Increases in net interest deductions, as well as a decrease in other income, offset improved operating
2013.
income.

Operating margin increased $13 million between years including a combined $8 million of rate relief in the
California jurisdiction and Paiute Pipeline Company. New customers contributed $8 million of the increase during
2014. Operating margin associated with customers outside the decoupling mechanisms and other miscellaneous
revenues declined by $3 million.

Operations and maintenance expense decreased $1.2 million, or less than 1%, between years primarily due to
declines in employee-related costs, partially offset by a $5 million legal accrual in the first quarter of 2014 and
higher general costs. A $9 million reduction in pension costs and a $3 million reduction in employer-sponsored
medical costs, due to positive claims experience between years, resulted in a favorable impact to 2014 operations
and maintenance expense of approximately $9.5 million.

Depreciation and amortization expense increased $10.3 million, or 5%. Average gas plant in service for 2014
increased $297 million, or 6%, as compared to the prior year. This was attributable to pipeline capacity
reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new
business, partially offset by depreciation rate decreases resulting from the most recent California general rate case
decision. Amortization primarily associated with software-related intangible assets increased approximately $1.3
million. Amortization associated with the recovery of regulatory assets increased approximately $1.2 million overall
(primarily due to Arizona demand-side management, or “DSM,” programs).

Taxes other than income taxes increased $1.7 million between years due to higher property taxes in Arizona and
Nevada.

Other income decreased $5.1 million between 2014 and 2013. Cash surrender values of COLI policies (including net
death benefits recognized) increased $5.3 million in 2014, while COLI-related income was $12.4 million in the prior
year. Interest income increased $2.1 million between years, as under-collected PGA balances and the associated
interest thereon rose significantly in 2014.

Net interest deductions increased $5.7 million between years, primarily due to the issuance of $250 million of long-
term debt in the fourth quarter of 2013. The increase was mitigated by higher interest expense in 2013 associated
with PGA balances, which were in an over-collected status for the majority of 2013.

Southwest Gas Corporation

Results of Construction Services

Year Ended December 31,
(Thousands of dollars)
Construction revenues
Operating expenses:

Construction expenses
Depreciation and amortization

Operating income

Other income (deductions)
Net interest deductions

Income before income taxes

Income tax expense

Net income

Net income (loss) attributable to noncontrolling interests

2015

2014

2013

$1,008,986 $739,620 $650,628

898,781
56,656

647,857
48,883

573,284
42,969

53,549
587
7,784

46,352
18,547

27,805
1,113

42,880
(58)
3,770

39,052
14,776

24,276
22

34,375
39
1,145

33,269
12,565

20,704
(447)

Contribution to consolidated net income attributable to Centuri

26,692 $ 24,254 $ 21,151

2015vs.2014
In October 2014, construction services operations were expanded by the acquisition of the Link-Line group of
companies. Line items in the table above reflect the results of the acquired companies only since the acquisition
date. Contribution to consolidated net income from construction services for 2015 increased $2.4 million compared
to 2014.

Revenues increased $269.4 million, or 36%, when compared to 2014, due to additional pipe replacement work and
the inclusion of a full year of revenues of the acquired companies (an increase of $124 million). NPL revenues in the
United States increased over $140 million primarily due to securing contracts to perform accelerated pipeline
replacement work for its large utility customers. Favorable weather conditions in several operating areas during the
fourth quarter of 2015 also provided an extended construction season. Governmental-mandated pipeline safety-
related programs have resulted in many utilities undertaking multi-year distribution pipe replacement projects.
Construction revenues include contracts with Southwest totaling $104 million in 2015 and $92 million in 2014.
Centuri accounts for services provided to Southwest at contractual (market) prices.

Construction expenses increased $250.9 million, or 39%, due primarily to additional pipe replacement work in 2015
and the inclusion of a full year of the acquired companies’ construction costs (an increase of $115 million). The
increase in expense includes a $3.4 million loss on a Canadian project, discussed below. General and
administrative expense (included in construction expenses) increased approximately $9 million overall, including
$8 million from the acquired companies, which included changes that were implemented to match the increased
size of the business and its complexity. Offsetting these increases were approximately $5 million of acquisition-
related expenses in 2014 that were not incurred in 2015. Gains on sale of equipment (reflected as an offset to
construction expenses) were $3.4 million and $6.2 million in 2015 and 2014, respectively.

During 2015, a loss of $3.4 million was recorded on an industrial construction project in Canada (revenue of
$22.3 million and construction costs of $25.7 million). Work commenced on this project in March 2015 and was
completed in the third quarter. During construction, delays in delivery of critical equipment to the job site resulted

Southwest Gas Corporation

in production inefficiencies and an increase in total estimated project costs. At the end of the first quarter, total
project costs were estimated to exceed contract revenues by $5.6 million, and by the end of the third quarter the
estimated overrun was $7.7 million. Change orders were being negotiated during the construction period to offset
the additional costs. In situations where losses on a project are possible, accounting rules and adopted policies
require that future costs to complete the project be estimated and recognized currently, but potential incremental
revenue to cover such costs is recognized only if and when change orders are formally approved. In October,
Centuri and the general contractor agreed to mediation to attempt to resolve open change orders. In December, a
final settlement of approximately $4 million was reached and the overall
loss on this project was reduced to
$3.4 million.

Depreciation and amortization expense increased $7.8 million between 2015 and 2014 due primarily to the
incremental amortization of
finite-lived intangible assets recognized from the acquisition ($3 million) and
incremental depreciation from the acquired companies ($4 million).

Net interest deductions were $7.8 million in 2015 compared to $3.8 million in 2014. The increase was due primarily
to interest expense and amortization of debt issuance costs associated with the $300 million secured revolving
credit and term loan facility entered into coincident with the acquisition.

During the past several years, construction services has focused its efforts on obtaining pipe replacement work
under both blanket contracts and incremental bid projects. For 2015 and 2014, revenues from replacement work
were 68% and 67%, respectively, of total revenues. Governmental pipeline safety-related programs and U.S. bonus
depreciation tax incentives resulted in many utilities undertaking multi-year distribution pipe replacement projects.

2014vs.2013
Contribution to consolidated net income from construction services for 2014 increased $3.1 million compared to
2013.

Revenues increased $89.0 million, or 14%, when compared to 2013 primarily due to additional pipe replacement
work in 2014 and the inclusion of the acquired companies’ revenues ($54.3 million) beginning in the fourth quarter
of 2014. Construction revenues include Centuri contracts with Southwest totaling approximately $92 million in 2014
and $88 million in 2013.

increased $9.5 million,

Construction expenses increased $74.6 million, or 13%, due primarily to additional pipe replacement work in 2014
and the inclusion of the acquired companies’ construction costs ($49.4 million). General and administrative
expense (included in construction expenses)
including $3.7 million from the acquired
companies, acquisition costs ($5 million), and changes that were implemented to match the increased size of the
business and its complexity. Offsetting these increases was approximately $4 million that was recorded in 2013
associated with a legal settlement, which was resolved in February 2014. Gains on sale of equipment (reflected as
an offset to construction expenses) were $6.2 million and $4.1 million in 2014 and 2013, respectively. Depreciation
and amortization expense increased $5.9 million between 2014 and 2013 due to the amortization on finite-lived
intangible assets recognized from the acquisition ($1.5 million) and additional equipment purchased to support
growth in the volume of work being performed.

Net interest deductions were $3.8 million in 2014 compared to $1.1 million in 2013. The increase was due primarily
to interest expense and amortization of debt issuance costs associated with the $300 million secured revolving
credit and term loan facility entered into coincident with the acquisition.

Southwest Gas Corporation

Rates and Regulatory Proceedings

GeneralRateReliefandRateDesign
Rates charged to customers vary according to customer class and rate jurisdiction and are set by the individual
state and federal regulatory commissions that govern Southwest’s service territories. Southwest makes periodic
filings for rate adjustments as the costs of providing service (including the cost of natural gas purchased) change,
and as additional investments in new or replacement pipeline and related facilities are made. Rates are intended to
provide for recovery of all prudently incurred costs and provide a reasonable return on investment. The mix of fixed
and variable components in rates assigned to various customer classes (rate design) can significantly impact the
operating margin actually realized by Southwest. Management has worked with its regulatory commissions in
designing rate structures that strive to provide affordable and reliable service to its customers while mitigating the
volatility in prices to customers and stabilizing returns to investors. Such rate structures were in place in all of
Southwest’s operating areas during all periods (2013—2015) for which results of Natural Gas Operations are
disclosed above.

Nevada Jurisdiction
General Rate Case Status. The most recent general rate case decision was received from the Public Utility
Commission of Nevada (“PUCN”) in November 2012, and was amended in a Rehearing Decision in March 2013. The
Rehearing Decision addressed issues raised by Southwest regarding capital structure. Ultimately, the Company
was authorized an overall rate of return of 6.56%, and a 10% return on 42.7% common equity in southern Nevada;
and an overall rate of return of 7.88%, and a 9.30% return on 59.1% common equity in northern Nevada, while
retaining an alternative capital structure rather than what was initially proposed by Southwest.

General Revenues Adjustment. As part of the Annual Rate Adjustment (“ARA”) filing in June 2015, Southwest
requested recovery of amounts associated with its revenue decoupling mechanism (General Revenues Adjustment,
or “GRA”). The ARA,
including amounts to recover the regulatory asset associated with this mechanism, was
approved in December 2015, with rates effective January 2016. The rate adjustment is expected to recover
approximately $19 million of the associated regulatory asset during 2016. There is no impact to net income overall
from these recoveries, but there is a favorable impact to cash flows as the regulatory asset balance is recovered.

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 non-revenue producing infrastructure.
The regulations provide for the establishment of regulatory assets that recover the depreciation expense and
authorized pre-tax rate of return of infrastructure replacement investments between rate cases, which also allows
Southwest to develop rates to recover the associated amounts in a future general rate case proceeding, at which
time the plant will be “rolled into” rate base. Southwest made a filing in May 2014, referred to as a Gas
Infrastructure Replacement (“GIR”) Advance Application, identifying early vintage plastic pipe (“EVPP”) and vintage
steel pipe (“VSP”) projects for replacement beginning in 2015.
In October 2014, the PUCN approved EVPP
replacement expenditures of $14.4 million for 2015. In June 2015, Southwest filed its GIR Advance Application with
the PUCN proposing $43.5 million of accelerated pipe replacements for 2016 (subject to the GIR mechanism). Once
completed, the annualized revenue requirement associated with the accelerated replacement is estimated at
$4.6 million. In October 2015, the PUCN approved the GIR Advance Application, granting Southwest the authority
to replace the $43.5 million of infrastructure under the GIR mechanism. Also in October 2015, management filed a
rate application to reset the GIR surcharge, based upon project costs deferred through August 2015. In December,
the PUCN approved new rates, effective in January 2016, which are expected to result in approximately $4 million
in annualized revenues.

Southwest Gas Corporation

ConservationandEnergyEfficiency. As part of the ARA filing, Southwest requested recovery of energy efficiency
including promotions and incentives for various
and conservation development and implementation costs,
programs, as originally approved for deferral by the PUCN effective November 2009. While recovery of these costs
was approved as part of the most recent general rate case made effective May 2012, amounts incurred subsequent
to the effective date continued to be deferred. Approved rates became effective January 2016 and will result in
annualized margin increases of $2 million in northern Nevada and $8.7 million in southern Nevada, and also
includes amounts representing expected program expenditures for 2016. There is, however, no anticipated impact
to net income overall from these recoveries as the amounts collected through customer rates will also be reflected
as higher amortization expense.

Expansion and Economic Development Legislation. In February 2015,
legislation (“SB 151”) was introduced in
Nevada directing the PUCN to adopt regulations authorizing natural gas utilities to expand their infrastructure
consistent with a program of economic development. This includes providing natural gas service to unserved and
underserved areas in Nevada, as well as attracting and retaining utility customers and accommodating the
expansion of existing business customers. SB 151 was signed into law in May 2015. The draft regulations were
reviewed by the Legislative Council Bureau and final regulations were approved by the PUCN in January 2016.
Southwest is currently assessing and prioritizing potential areas to extend service to based on the legislation and
regulations. The process will require the identification of projects, advance approval requests, and development of
rates for investment in excess of allowable investment.

California Jurisdiction
General Rate Case.
In December 2012, Southwest filed a general rate case application, based on a 2014 future
test year, with the California Public Utilities Commission (“CPUC”) requesting an annual revenue increase of
approximately $11.6 million for its California rate jurisdictions. Southwest sought to continue a Post-Test Year
(“PTY”) Ratemaking Mechanism, which allows for annual attrition increases. The application included a request to
establish a Customer-Owned Yardline (“COYL”) program and an Infrastructure Reliability and Replacement
Adjustment Mechanism (“IRRAM”)
to facilitate and complement projects involving the enhancement and
replacement of gas infrastructure, promoting timely cost recovery for qualifying non-revenue producing capital
expenditures.

In June 2014, the CPUC issued a final decision in this proceeding (“CPUC decision”), authorizing a $7.1 million
overall revenue increase and PTY attrition increases of 2.75% annually for 2015 to 2018. A depreciation reduction
of $3.1 million, as requested by Southwest, was also approved. The CPUC decision also provides for a two-way
pension balancing account to track differences between authorized and actual pension funding amounts, a limited
COYL inspection program for schools, and an IRRAM to recover the costs associated with the new limited COYL
program. New rates associated with the CPUC decision were effective June 2014.

In November 2015, Southwest made its annual PTY attrition filing, requesting annual revenue increases of
$1.8 million in southern California, $499,000 in northern California and $249,000 for South Lake Tahoe. This filing
was approved in December 2015 and rates were made effective in January 2016. At the same time, rates were
updated to recover, the regulatory asset associated with the revenue decoupling mechanism, or margin tracker.
The rate adjustment is expected to recover approximately $18 million of the associated regulatory asset balance
during 2016. There is no impact to net income overall from margin tracker recoveries; however, there is a favorable
impact to cash flows as the regulatory asset balance is recovered. In addition to the PTY attrition and margin
to recover costs associated with
tracking mechanism approvals,

the CPUC also approved an adjustment

Southwest Gas Corporation

Southwest’s Natural Gas Transmission Pipeline Comprehensive Pressure Testing Implementation Plan
(“Implementation Plan”), effective January 2016. The Implementation Plan involved replacing 7.1 miles of
transmission pipeline in its system,
in addition to installing a remote control shut-off valve. This adjustment is
expected to result in an annualized margin increase of $1.7 million during 2016.

Greenhouse Gas (“GHG”) Compliance. California Assembly Bill Number 32 and the regulations promulgated by
the California Air Resources Board (“CARB”), require Southwest, as a covered entity, to comply with all applicable
requirements associated with the California GHG emissions reporting and the California Cap and Trade Program.
The objective of these programs is to reduce California statewide GHG emissions to 1990 levels by 2020.
Southwest must report annual GHG emissions by April of each year and third-party verification of those reported
amounts is required by September of each year. Starting with 2015, the CARB will annually allocate to Southwest a
certain number of allowances based on Southwest’s reported 2011 GHG emissions. Southwest received its
in the third quarter of 2015. Of those allocated
allocation for 2015 in the third quarter of 2014 and for 2016,
allowances, Southwest must consign a certain percentage to the CARB for auction. The Company can use any
allocated allowances that remain after consignment, along with allowances it can purchase through CARB auctions
or reserve sales, or through over the counter (“OTC”) purchases with other market participants, to meet its
compliance obligations. The CPUC has issued a decision that provides for the regulatory treatment of the program
costs and there is no expected impact on earnings.

Arizona Jurisdiction
GeneralRateCaseStatus. The most recent general rate case decision from the Arizona Corporation Commission
(“ACC”) in Southwest’s Arizona rate jurisdiction was made effective in January 2012 and authorized a return on
common equity of 9.50%, a fair value rate of return of 6.92% and a capital structure consisting of 47.7% long-term
debt and 52.3% common equity, relative to an authorized original cost rate base of $1.07 billion. That ACC decision
also approved a full revenue decoupling mechanism with a monthly weather adjuster. At that time, Southwest
agreed not to file a general rate case prior to April 30, 2016. Given the period covered by the moratorium,
Southwest is currently preparing its rate case filing and intends to request approval to continue its decoupled rate
design, expand its currently approved infrastructure recovery program, and update its cost of service, including an
increase in rate base of approximately 22-24% to reflect various investments Southwest has made since its last rate
case to enhance its distribution system. Southwest also intends to include a depreciation study in compliance with
the most recent general rate case decision to update depreciation rates. Southwest anticipates filings its general
rate case in the second quarter of 2016, shortly after the “stay-out” period has expired.

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 and to
recover the actual costs, including the establishment of a regulatory asset. 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, operated by Southwest and connected directly to its distribution system. Southwest requested approval of
the actual cost of the project (including those facilities necessary to connect the proposed storage tank to
Southwest’s existing distribution system). In December 2014, Southwest received an order from the ACC granting
pre-approval of Southwest’s application to construct
limited to
$50 million. The authorization to defer costs expires on November 1, 2017 (from which point, expenditures incurred
would not be eligible for deferral) and also requires any unquantified cost savings to be deferred. Any gas costs
incurred that are not related to the initial construction and placement of the facility are to be recovered through the
PGA mechanism. The Company purchased the site for the facility in October 2015 and is preparing the construction

the LNG facility and the deferral of costs,

Southwest Gas Corporation

requirements bid package for potential contractors. The contract to construct the facility is currently expected to be
in place in the second half of 2016 and construction is expected to take approximately two to three years to
complete. The Company anticipates including a proposal for the ratemaking treatment of facility costs as part of its
next Arizona rate case filing.

Customer-OwnedYardline(“COYL”)Program. The Company received approval, in connection with its most recent
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 approximately 100,000 Arizona customers whose meters were set off
from the customer’s 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. To facilitate this program, the Company was authorized to
collect estimated leak survey costs in rates commencing in 2012. Effective June 2013, the ACC authorized a
surcharge to recover the costs of depreciation and pre-tax return the Company would have received if the
additional pipe replacement costs themselves (incurred to replace and relocate service lines and meters) had been
included in rate base concurrent with the most recent Arizona rate case. The surcharge is revised annually as the
program progresses, with the undepreciated plant balance to be incorporated in rate base at the time of the next
Arizona general rate case. In January 2014, the Company received approval to add a “Phase II” component to the
COYL program to include the replacement of non-leaking COYLs, which was subsequently revised effective June
2014. Resources continue to be focused on contacting customers within replacement project areas to participate in
the Phase II meter relocation.
In February 2015, the Company filed to increase the surcharge revenue from
$1.5 million to $2.5 million to reflect additional costs incurred for both Phase I and Phase II. This request was based
on total capital expenditures of $16 million, $6.3 million of which was incurred during 2014. In May 2015, the ACC
issued a decision approving the surcharge application, effective in June 2015.

Federal Energy Regulatory Commission (“FERC”) Jurisdiction
General Rate Case. Paiute Pipeline Company (“Paiute”), a wholly owned subsidiary of Southwest, filed a general
rate case with the FERC in February 2014. The filing fulfilled an obligation from the settlement agreement reached
in the 2009 Paiute general rate case. In September 2014, Paiute reached an agreement in principle with the FERC
Staff and intervenors to settle the case. In October 2014, Paiute requested, and was granted, the authority to place
the settlement rates into effect on an interim basis effective September 2014. In February 2015, the FERC issued a
letter order approving the settlement as filed. Tariff charges in compliance with the settlement were filed in
March 2015. In addition to agreeing to rate design changes to encourage longer-term contracts with its shippers,
the settlement resulted in an annual revenue increase of $2.4 million, plus a $1.3 million depreciation reduction.
The settlement implies an 11.5% pre-tax rate of return. Also, as part of this agreement, Paiute agreed not to file a
rate case prior to May 2016, but no later than May 2019.

Elko County Expansion Project. During the second and third quarters of 2013, Paiute notified present and
potential shippers of its plans to expand its existing transmission system to provide additional firm transportation-
service capacity in the Elko County, Nevada area. This additional capacity is required to meet growing natural gas
demands caused by increased residential and business load and the greater energy needs of mining operations in
the area. Through the “open season” process, shippers responded with substantial
interest. A certificate
application for the project was filed in June 2014. In May 2015, the FERC issued an order authorizing a Certificate of
Public Convenience and Necessity to Paiute to construct and operate the Elko County Expansion Project, and
subsequently provided a formal Notice to Proceed. Construction began in the second quarter of 2015 and the
project was placed in service in January 2016 as authorized by the FERC. Rates to begin recovering the cost of the

Southwest Gas Corporation

project were implemented in January 2016 and are expected to result in $6 million in revenue annually. The total
including remaining costs associated with site
cost of this project is estimated at approximately $35 million,
restoration along the construction corridor.

PGA Filings
The rate schedules in all of Southwest’s 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 December 31, 2015, under-collections in California
resulted in an asset of $3.6 million, and over-collections in Arizona and northern and southern Nevada collectively
resulted in a liability of $45.6 million on the Company’s balance sheet. Gas cost rates paid to suppliers have been
lower than amounts recovered from customers during 2015. The lower cost of natural gas, combined with
surcharges in place during 2015, fully recovered PGA receivables existing at December 31, 2014. 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 Statements of Income components. These include
Gas operating revenues, Net cost of gas sold, Net interest deductions, and Other income (deductions).

Southwest had the following outstanding PGA balances receivable/(payable) at the end of its two most recent fiscal
years (millions of dollars):

Arizona
Northern Nevada
Southern Nevada
California

2015

$ (3.5)
(2.3)
(39.8)
3.6

$(42.0)

2014

$48.4
10.2
20.4
8.6

$87.6

Arizona PGA Filings. In May 2014, Southwest filed an application to provide for monthly adjustments to the
surcharge component of the Gas Cost Balancing Account to allow for more timely refunds to/recoveries from
ratepayers, which was approved in July 2014. As part of this filing, the ACC also approved an initial surcharge of
$0.06 per therm effective August 2014. This surcharge was reduced in June and July 2015 and was eliminated in
August 2015 as the receivable balance was fully collected, while gas cost rates paid to suppliers remained low for
the remainder of the year.

California Gas Cost Filings. In California, a monthly gas cost adjustment based on forecasted monthly prices is
utilized. Monthly adjustments modeled in this fashion provide the timeliest recovery of gas costs in any Southwest
jurisdiction and are designed to send appropriate pricing signals to customers.

Nevada Annual Rate Adjustment (“ARA”) Application. In November 2015, Southwest filed to adjust its quarterly
Deferred Energy Account Adjustment rate, which is based upon a twelve-month rolling average, in addition to
requesting adjusted Base Tariff Energy rates, both of which were also approved effective January 2016. These new
rates are intended to reduce the outstanding liability over a twelve-month period.

Southwest Gas Corporation

GasPriceVolatilityMitigation
Regulators in Southwest’s service territories have encouraged Southwest to take proactive steps to mitigate price
volatility to its customers. To accomplish this, Southwest periodically enters into fixed-price term contracts and
Swaps under its collective volatility mitigation programs for a portion (up to 25% in the Arizona and California
jurisdictions) of its annual normal weather supply needs. For the 2015/2016 heating season, contracts contained in
the fixed-price portion of the supply portfolio ranged from slightly under $3 to approximately $4.40 per dekatherm.
Southwest makes natural gas purchases not covered by fixed-price contracts under variable-price contracts with
firm quantities, and on the spot market. The contract price for these contracts is determined at the beginning of
each month to reflect that month’s published first-of-month index price. The contract price of commitments to
purchase gas at daily market prices is based on a published daily price index. In either case, the index price is not
published or known until the purchase period begins. In late 2013, the Company suspended fixed-for-floating-
index-price swaps and fixed-price purchases pursuant to the Volatility Mitigation Program (“VMP”) for its Nevada
service territories. The Company evaluates, on a quarterly basis, the suspension of Nevada VMP purchases in light
of prevailing market fundamentals and regulatory conditions.

Holding Company Reorganization
In 2015, the Board of Directors (“Board”) of the Company authorized management to evaluate and pursue a holding
company reorganization to provide further separation between regulated and unregulated businesses, and to
provide additional financing flexibility. Regulatory applications for preapproval of the reorganization were filed with
the ACC, the CPUC, and the PUCN in October 2015. In January 2016, approval was received by the CPUC, but
to approval by the
approvals by the ACC and the PUCN are still pending. The reorganization is subject
aforementioned state regulatory commissions, consents from various third parties, and final Board approval.
Subject to such conditions, the reorganization could become effective in the second half of 2016. In this event,
each outstanding share of Southwest Gas common stock would automatically convert into a share of stock in the
holding company, on a one-for-one basis.

Capital Resources and Liquidity
Over the past three years, cash on hand and cash flows from operations have generally provided the majority of
cash used in investing activities (primarily construction expenditures and property additions). Certain pipe
replacement work was accelerated during these years to take advantage of bonus depreciation tax incentives and
to fortify system integrity and reliability. During the same three-year period, the Company was able to establish
long-term cost savings from debt refinancing and strategic debt redemptions.
in March 2015, the
Company filed an automatic shelf registration statement for the offer and sale of up to $100 million of its common
stock for general corporate purposes and for the noted investment activities, refer to Note 6 – Common Stock and the
discussion below. The Company’s capitalization strategy is to maintain an appropriate balance of equity and debt
to maintain strong investment-grade credit ratings which should minimize interest costs. In December 2015, the
Protecting Americans from Tax Hikes Act of 2015 (“PATH Act”) was enacted extending the 50% bonus depreciation
tax deduction provided for by earlier legislation 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 through
2016. See BonusDepreciationfor more information.

In addition,

CashFlows
Operating Cash Flows. Cash flows provided by consolidated operating activities increased $200.7 million
between 2015 and 2014. The improvement in operating cash flows was primarily attributable to temporary
increases from working capital components overall (notably the collection of deferred purchased gas costs).

Southwest Gas Corporation

Investing Cash Flows. Cash used in consolidated investing activities decreased $85.8 million in 2015 as
compared to 2014. The decline was primarily due to the acquisition of the construction services businesses in 2014.
Construction expenditures,
including scheduled and accelerated pipe replacement, and to a lesser extent,
equipment purchases by Centuri due to the increased replacement construction work of its customers were higher
in 2015.
In association with the acquisition of construction services businesses, a $9 million working capital
adjustment related to a contractual true-up period was paid in the first quarter of 2015.

FinancingCashFlows. The change in financing cash flows was primarily due to net borrowings in 2014 to finance
the construction services acquisition compared to net debt repayments and redemptions in 2015. Repayment of
long-term debt in 2015 included $51.2 million of IDRBs, while the prior year included the repayment of $65 million
of IDRBs. The long-term debt issuance amounts and the remaining retirements of long-term debt primarily relate to
borrowings and repayments under the secured revolving credit facility portion of Centuri’s secured revolving credit
and term loan facility. The majority of Centuri’s borrowings in the prior year were associated with the acquisition of
construction services businesses. Southwest also issued approximately $35 million in stock under its Equity Shelf
Program. See also Note 6 – Common Stock, and the discussion below. Dividends paid increased in 2015 as compared
to 2014 as a result of an increase in the quarterly dividend rate and an increase in the number of shares
outstanding. While Centuri paid dividends during 2015, the only impact to consolidated cash flows overall was due
to the amount paid to the holders of the redeemable noncontrolling interest.

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.

2015ConstructionExpenditures
During the three-year period ended December 31, 2015, total gas plant increased from $5 billion to $5.9 billion, or
at an average annual rate of 5%. Replacement, reinforcement, and franchise work was a substantial portion of the
plant increase. To a lesser extent, customer growth impacted expenditures as the Company set approximately
64,000 meters during the three-year period.

During 2015, construction expenditures for the natural gas operations segment were $438 million. The majority of
these expenditures represented costs associated with scheduled and accelerated replacement of existing
transmission, distribution, and general plant to fortify system integrity and reliability. Cash flows from operating
activities of Southwest were $498 million and provided approximately 97% of construction expenditures and
dividend requirements of the natural gas operations segment. Other necessary funding was provided by cash on
hand, external financing activities, and, as needed, existing credit facilities.

2015FinancingActivity
In May 2015, the Company redeemed at par its $31.2 million 2004 5.00% Series B IDRBs originally due in 2033. In
September 2015, the Company redeemed at par the $20 million 5.25% 2003 Series D IDRBs originally due in
2038. The Company facilitated the redemptions primarily from cash on hand and borrowings under its $300 million
credit facility.

In March 2015, the Company filed with the SEC a shelf registration statement which included a prospectus detailing
the Company’s plans to sell up to $100 million of the Company’s common stock over a period of time. In March
2015, the Company entered into a Sales Agency Agreement with BNY Mellon Capital Markets, LLC relating to this

Southwest Gas Corporation

issuance and sale of shares of the Company’s common stock (“Equity Shelf Program”). Sales of the shares will
continue to be made at market prices prevailing at the time of sale. Net proceeds from the sale of shares of
common stock under the Equity Shelf Program are intended for general corporate purposes,
including the
acquisition of property for the construction, completion, extension or improvement of pipeline systems and facilities
located in and around the communities Southwest serves.

During 2015, 645,225 shares were issued in at-the-market offerings at an average price of $55.05 per share with
gross proceeds of $35.5 million, agent commissions of $355,000, and net proceeds of $35.2 million. See Note 6 –
Common Stock for more information.

During 2015, the Company issued approximately 209,000 additional shares of common stock collectively through
the Restricted Stock/Unit Plan, the Management Incentive Plan, and the Stock Incentive Plan. The Company raised
approximately $741,000 from the issuance of shares of common stock through the Stock Incentive Plan.

Three-YearConstructionExpenditures,DebtMaturities,andFinancing
Southwest estimates natural gas segment construction expenditures during the three-year period ending
December 31, 2018 will be between $1.4 billion and $1.6 billion. Of this amount, approximately $460 million is
expected to be incurred in 2016. Southwest plans to request regulatory support to accelerate projects that improve
system flexibility and reliability (including replacement of early vintage plastic and steel pipe). This will include
requests in California and Arizona to expand existing or initiate new programs. If 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, California IRRAM, 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 the 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 Southwest’s service areas, and earnings. External financings could include the issuance of both debt and
equity securities, bank and other short-term borrowings, and other forms of financing.

Liquidity
Liquidity refers to the ability of an enterprise to generate sufficient amounts of cash through its operating activities
and external financings 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
segment’s service territories, Southwest’s ability to access and obtain capital from external sources, interest rates,
changes in income tax laws, pension funding requirements, inflation, and the level of Company earnings. Natural
gas prices and related gas cost recovery rates have historically had the most significant impact on Company
liquidity.

On an interim basis, Southwest defers over- or under-collections of gas costs to PGA balancing accounts. In
addition, Southwest uses these mechanisms 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. During 2015, the PGA balance went from an under-collected balance of $87.6 million to an over-collected
balance of $42 million at December 31, 2015. See PGA Filings for more information.

Southwest Gas Corporation

In March 2015, the Company amended its $300 million credit and commercial paper facility. The facility was
previously scheduled to expire in March 2019 and was extended to March 2020. Southwest has designated
$150 million of the $300 million facility for long-term borrowing needs and the remaining $150 million for working
capital purposes. The maximum amount outstanding during 2015 occurred during the fourth quarter and was
$180 million ($150 million outstanding on the long-term portion of the credit facility (including $50 million on the
commercial paper program), in addition to $30 million outstanding on the short-term portion). At December 31,
2015, $150 million was outstanding on the long-term portion of the credit facility (including $50 million under the
commercial paper program), and $18 million was outstanding on the short-term portion. The maximum amount
outstanding on the credit facility (including the commercial paper program) during each of the first, second, and
third quarters was $160 million, $56 million, and $97 million, respectively. The credit facility can be used as
necessary to meet liquidity requirements, including temporarily financing under-collected PGA balances, meeting
the refund needs of over-collected balances, or temporarily funding capital expenditures. This credit facility has
been, and is expected to continue to be, adequate for Southwest’s working capital needs outside of funds raised
through operations and other types of external financing.

The Company has a $50 million commercial paper program as noted above. Any issuance under the commercial
paper program is supported by the Company’s 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 then current commercial paper rate. At
December 31, 2015, $50 million was outstanding on the commercial paper program, which is the maximum amount
outstanding at any time during the year.

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. 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 Centuri secured revolving
credit facility during 2015 was $104.3 million, which occurred in the second quarter. At December 31, 2015,
$60.6 million was outstanding on the Centuri secured revolving credit facility. At December 31, 2015, there was
approximately $77.4 million, net of letters of credit, available under the line of credit.

CreditRatings
The Company’s borrowing costs and ability to raise funds are directly impacted by its credit ratings. Securities
ratings issued by nationally recognized ratings agencies provide a method for determining the credit worthiness of
an issuer. Company debt ratings are important because long-term debt constitutes a significant portion of total
capitalization. These debt ratings are a factor considered by lenders when determining the cost of debt for the
Company (i.e., generally the better the rating, the lower the cost to borrow funds). The Company’s current
unsecured long-term debt ratings are all considered investment grade.

The Company’s unsecured long-term debt rating from Standard & Poor’s Ratings Services (“S&P”) is BBB+ with a
stable outlook as reaffirmed in January 2016. S&P debt ratings range from AAA (highest rating possible) to D
(obligation is in default). The S&P rating of BBB+ indicates the issuer of the debt is regarded as having an adequate
capacity to pay interest and repay principal. The ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a
plus “+” or minus “-” sign to show relative standing within the major rating categories.

Southwest Gas Corporation

The Company’s senior unsecured long-term debt rating from Moody’s Investors Service, Inc. (“Moody’s”) is A3 with
a stable outlook as reaffirmed in January 2016. Moody’s debt ratings range from Aaa (highest rating possible) to C
(lowest quality, usually in default). Moody’s applies an A rating to obligations which are considered upper-medium
grade obligations with low credit risk. A numerical modifier of 1 (high end of the category) through 3 (low end of the
category) is included with the A to indicate the approximate rank of a company within the range.

The Company’s senior unsecured ratings including IDRBs from Fitch Ratings (“Fitch”) is A (with a stable outlook) as
reaffirmed in July 2015. Fitch debt ratings range from AAA (highest credit quality) to D (defaulted debt obligation).
The Fitch rating of A indicates low default risk and a strong ability to pay financial commitments. The modifiers “+”
or “-” may be appended to a rating to denote relative status within major rating categories. Such suffixes are not
added to the ‘AAA’ obligation rating category, or to corporate finance obligation ratings in the categories below
‘CCC’.

A securities rating is not a recommendation to buy, sell, or hold a security and is subject to change or withdrawal at
any time by the rating agency. The foregoing securities ratings are subject to change at any time in the discretion
of the applicable ratings agency. Numerous factors, including many that are not within the Company’s control, are
considered by the ratings agencies in connection with assigning securities ratings.

No debt instruments have credit triggers or other clauses that result in default if Company bond ratings are lowered
by rating agencies. Certain Company debt instruments contain securities ratings covenants that, if set in motion,
would increase financing costs if debt ratings deteriorated. Certain debt instruments also have leverage ratio caps
and minimum net worth requirements. At December 31, 2015, the Company is in compliance with all of its
covenants. Under the most restrictive of the covenants, the Company could issue approximately $2.2 billion in
additional debt and meet the leverage ratio requirement. The Company has at least $1 billion of cushion in equity
relating to the minimum net worth requirement.

Certain Centuri debt instruments have leverage ratio caps and fixed charge ratio coverage requirements. At
December 31, 2015, Centuri is in compliance with all of its covenants. Under the most restrictive of the covenants,
Centuri could issue over $75 million in additional debt and meet the leverage ratio requirement. Centuri has at
least $15 million of cushion relating to the minimum fixed charge ratio coverage requirement. Centuri’s revolving
credit and term loan facility is secured by underlying assets of the construction services segment.

Inflation
Inflation can impact the Company’s results of operations. Natural gas, labor, employee benefits, consulting, and
construction costs are the categories most significantly impacted by inflation. Changes to the cost of gas are
generally recovered through PGA mechanisms and do not significantly impact net earnings. Labor and employee
benefits are components of the cost of service, and construction costs are the primary component of utility rate
base. In order to recover increased costs, and earn a fair return on rate base, general rate cases are filed by
Southwest, when deemed necessary, for review and approval by regulatory authorities. Regulatory lag, that is, the
time between the date increased costs are incurred and the time such increases are recovered through the
ratemaking process, can impact earnings. See Rates and Regulatory Proceedings for a discussion of recent rate case
proceedings.

Southwest Gas Corporation

Off-BalanceSheetArrangements
All Company debt is recorded on its balance sheets. The Company has long-term operating and capital leases,
which are described in Note 2 – Utility Plant and Leases of the Notes to Consolidated Financial Statements, and
included in the Contractual Obligations Table below.

ContractualObligations
The Company has various contractual obligations such as long-term purchase contracts, significant non-cancelable
operating leases, capital leases, gas purchase obligations, and long-term debt agreements. The Company has
classified these contractual obligations as either operating activities or financing activities, which mirrors their
presentation in the Consolidated Statements of Cash Flows. No contractual obligations for investing activities exist
at this time. The table below summarizes the Company’s contractual obligations at December 31, 2015 (millions of
dollars):

Contractual Obligations

Total

2016

2017-2018

2019-2020

Thereafter

Payments due by period

Operating leases (Note 2)
Gas purchase obligations
Pipeline capacity/storage
Derivatives (Note 13)
Other commitments
Long-term debt, including current maturities

(Note 7)

Interest on long-term debt
Capital leases (Note 2)
Other

22
151
1,145
5
22

1,571
899
3
6

7
89
124
4
12

19
60
2
—

8
55
211
1
10

57
117
1
1

4
7
131
—
—

418
111
—
1

3
—
679
—
—

1,077
611
—
4

Total

$3,824

$317

$461

$672

$2,374

In the table above, operating leases represent multi-year obligations for office rent and certain equipment. Gas
purchase obligations include fixed-price and variable-rate gas purchase contracts covering approximately
151 million dekatherms. The fixed-price contracts range in price from slightly under $3 to $4 per dekatherm.
Variable-price contracts reflect minimum contractual obligations, with estimation in pricing.

Southwest has pipeline capacity/storage contracts for firm transportation service, both on a short- and long-term
basis, with several companies for all of its service territories, some with terms extending to 2044. Southwest also
has interruptible contracts in place that allow additional capacity to be acquired should an unforeseen need arise.
Costs associated with these pipeline capacity contracts are a component of the cost of gas sold and are recovered
from customers primarily through the PGA mechanism. Included in the pipeline capacity payments shown in the
above table, are payments associated with storage that Southwest has contracted for in southern California and
Arizona. The terms of these contracts extend through 2024 and 2019, respectively.

Debt obligations, in the table above, consists of scheduled principal and interest payments over the life of the debt.
Capital leases represent multi-year obligations for equipment. Interest rates in effect at December 31, 2015 on
variable rate long-term debt were assumed to remain in effect in the future periods disclosed in the table.

Pension: Estimated funding for pension and other postretirement benefits during calendar year 2016 is
$39 million and is not included in the table above.

Southwest Gas Corporation

BonusDepreciation
In December 2015, the 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 deferred the payment of approximately $55 million of
federal income taxes for 2015.

Recently Issued Accounting Standards Updates
The Financial Accounting Standards Board (“FASB”) recently issued Accounting Standards Updates related to
revenue recognition, going concern, recognition and measurement of financial instruments, the presentation of
deferred taxes in the balance sheet, net asset value (“NAV”) used as a practical expedient, and the presentation of
debt issuance costs in the balance sheet. See Note 1 – Summary of Significant Accounting Policies for more information
regarding these accounting standards updates and their potential
impact on the Company’s financial position,
results of operations, and disclosures.

Application of Critical Accounting Policies
A critical accounting policy is one which is very important to the portrayal of the financial condition and results of a
company, and requires the most difficult, subjective, or complex judgments of management. The need to make
estimates about the effect of items that are uncertain is what makes these judgments difficult, subjective, and/or
complex. Management makes subjective judgments about the accounting and regulatory treatment of many items
and bases its estimates on historical experience and on various other assumptions that it believes to be reasonable
under the circumstances, the results of which form the basis for making judgments. These estimates may change
as new events occur, as more experience is acquired, as additional information is obtained, and as the Company’s
operating environment changes. While management may make many estimates and judgments, many would not
be materially altered, or provide a material
if different
estimates, or means of estimation were employed. The following are accounting policies that are deemed critical to
the financial statements of the Company. For more information regarding the significant accounting policies of the
Company, see Note 1 – Summary of Significant Accounting Policies.

impact to the financial statements taken as a whole,

It is also permitted to recognize,

RegulatoryAccounting
Natural gas operations are subject to the regulation of the Arizona Corporation Commission, the Public Utilities
Commission of Nevada, the California Public Utilities Commission, and the Federal Energy Regulatory Commission.
The accounting policies of the Company conform to generally accepted accounting principles applicable to rate-
regulated entities and reflect the effects of the ratemaking process. As such, the Company is allowed to defer as
regulatory assets, costs that otherwise would be expensed, if it is probable that future recovery from customers will
occur.
in its regulatory assets, amounts associated with its various revenue
decoupling mechanisms, as long as it continues to meet the requirements of alternative revenue programs
permitted under U.S. Generally Accepted Accounting Principles. The Company reviews its regulatory assets to
assess their ultimate recoverability within the approved regulatory guidelines.
If rate recovery is no longer
probable, due to competition or the actions of regulators, the Company is required to write-off the related
regulatory asset (which would be recognized as current-period expense). Regulatory liabilities are recorded if it is
probable that revenues will be reduced for amounts that will be credited to customers through the ratemaking
process. The timing and inclusion of costs in rates is often delayed (regulatory lag) and results in a

Southwest Gas Corporation

reduction of current-period earnings. Refer to Note 4 – Regulatory Assets and Liabilities for a list of regulatory assets
and liabilities.

AccruedUtilityRevenues
Revenues related to the sale and/or delivery of natural gas are generally recorded when natural gas is delivered to
customers. However, the determination of natural gas sales to individual customers is based on the reading of their
meters, which is performed on a systematic basis throughout the month. At the end of each month, margin
associated with natural gas service that has been provided but not yet billed is accrued. This accrued utility
revenue is estimated each month based primarily on applicable rates, number of customers, rate structure,
analyses reflecting significant historical trends, seasonality, and experience. The interplay of these assumptions can
impact the variability of the accrued utility revenue estimates. All Company rate jurisdictions have decoupled rate
structures, limiting variability due to extreme weather conditions.

AccountingforIncomeTaxes
We are subject to income taxes in the United States and Canada. The income tax calculations of the Company
require estimates due to known future tax rate changes, book to tax differences, and uncertainty with respect to
regulatory treatment of certain property items. The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Regulatory tax assets and liabilities are recorded to the extent the
Company believes they will be recoverable from or refunded to customers in future rates. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The Company regularly assesses financial
statement tax provisions to identify any change in the regulatory treatment or tax-related estimates, assumptions,
or enacted tax rates that could have a material
impact on cash flows, the financial position, and/or results of
operations of the Company.

AccountingforPensionsandOtherPostretirementBenefits
Southwest has a noncontributory qualified retirement plan with defined benefits covering substantially all
In addition, Southwest has a separate unfunded supplemental retirement plan which is limited to
employees.
officers. The Company’s pension obligations and costs for these plans are affected by the amount and timing of
cash contributions to the plans, the return on plan assets, discount rates, and by employee demographics,
including age, compensation, and length of service. Changes made to the provisions of the plans may also impact
current and future pension costs. Actuarial formulas are used in the determination of pension obligations and costs
and are affected by actual plan experience and assumptions about future experience. Key actuarial assumptions
include the expected return on plan assets, the discount rate used in determining the projected benefit obligation
and pension costs, and the assumed rate of increase in employee compensation. Relatively small changes in these
assumptions (particularly the discount rate) may significantly affect pension obligations and costs for these plans.
For example, a change of 0.25% in the discount rate assumption would change the pension plan projected benefit
obligation by approximately $39.5 million and future pension expense by $4 million. A change of 0.25% in the
employee compensation assumption would change the pension obligation by approximately $7.5 million and
expense by $1.6 million. A 0.25% change in the expected asset return assumption would change pension expense
by approximately $2 million (but has no impact on the pension obligation).

Southwest Gas Corporation

At December 31, 2015, the Company raised the discount rate to 4.50% from a rate of 4.25% at December 31, 2014.
The methodology utilized to determine the discount rate was consistent with prior years. The weighted-average
rate of compensation escalation increased to 3.25% at December 31, 2015 from 2.75% in the prior year. The
Company lowered the asset return assumption to 7.25% to be used for 2016 expense from the 7.75% rate used in
the previous year. A change to a new actuarial mortality table occurred in 2014, which took into account longer life
spans for plan participants; however, just one year later, a decline in the mortality improvement scale was reflected
by the same Society of Actuaries, highlighting the nature of estimation. Pension expense for 2016 is estimated to
decrease by $6.7 million compared to 2015 because of the new mortality assumption and higher discount rate.
Future years’ expense level movements (up or down) will continue to be greatly influenced by long-term interest
rates, asset returns, and funding levels.

these fair values requires management

BusinessCombinations
The amount of goodwill initially recognized in a business combination is based on the excess of the purchase price
of the acquired company over the fair value of the other assets acquired and liabilities assumed. The determination
of
to make significant estimates and assumptions. For example,
assumptions with respect to the timing and amount of future revenues and expenses associated with an asset are
used to determine its fair value but the actual timing and amount may differ materially resulting in impairment of the
asset’s recorded value. In some cases, the Company engages independent third-party valuation firms to assist in
determining the fair values of acquired assets and liabilities assumed. Critical estimates in valuing certain intangible
assets include but are not limited to future expected cash flows of the acquired business, trademarks, customer
relationships, technology obsolescence, and discount rates. In addition, uncertain tax positions and tax-related
valuation allowances assumed in connection with a business combination are initially estimated at the acquisition
date. These items are reevaluated quarterly, based upon facts and circumstances that existed at the acquisition
date with any adjustments to the preliminary estimates being recorded to goodwill, provided that the Company is
within the twelve-month measurement period. Subsequent to the measurement period or the final determination of
the estimated value of the tax allowance or contingency, whichever comes first, changes to these uncertain tax
positions and tax-related valuation allowances will affect the provision for income taxes in the Consolidated
Statements of Income, and could have a material impact on the Company’s results of operations and financial
position. The fair value assigned to the intangible assets acquired and liabilities assumed in 2014, and the
determination of goodwill associated with the acquisition, are described in Note 17 – Acquisition of Construction
Services Businesses.

(“CEO”) and Chief Financial Officer

Certifications
The Securities and Exchange Commission (“SEC”) requires the Company to file certifications of its Chief Executive
regarding reporting accuracy, disclosure controls and
Officer
procedures, and internal control over financial reporting as exhibits to the Company’s periodic filings. The CEO and
CFO certifications for the period ended December 31, 2015 are included as exhibits to the 2015 Annual Report on
Form 10-K filed with the SEC.

(“CFO”)

Forward-Looking Statements
This annual 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 annual report are forward-looking statements, including, without
limitation, statements regarding the Company’s plans, objectives, goals, intentions, projections, strategies, future
events or performance, and underlying assumptions. The words “may,” “if,” “will,” “should,” “could,” “expect,”

Southwest Gas Corporation

“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 Company’s COLI strategy, annual COLI
returns, 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 and the
cost of the Paiute expansion in Elko County, Nevada, 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 2016 or future period revenues from regulatory rate proceedings, PTY rate
adjustments, ARA rates and other surcharges, PGA, and other rate adjustments, sufficiency of working capital and
current credit facilities, bank lending practices, the Company’s views regarding its liquidity position, ability to raise
funds and receive external financing capacity and the intent and ability to issue the remaining capacity under the
Equity Shelf Program, future dividend increases, earnings trends, future Centuri operating revenues, operating
income, amortization and interest expense, pension and post-retirement benefits, certain benefits of tax acts, the
infrastructure replacement mechanisms and the COYL
effect of any rate changes or regulatory proceedings,
program, statements regarding future gas prices, gas purchase contracts and derivative financial
instruments,
recoverability of regulatory assets, the impact of certain legal proceedings, the expectation that goodwill assigned
to Brigadier will be deductible for tax purposes, the process required with regard to SB 151 legislation and resulting
Nevada regulations, the success in securing remaining approvals of the proposed holding company structure or
timing of the related reorganization, 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, our continued ability to meet consignment and purchase
requirements under Cap and Trade regulations, results of Centuri bid work, impacts of structural and management
changes at Centuri, 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,
acquisitions and management’s 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 Company’s business, see Item 1A. Risk Factors
and Item 7A. Quantitative and Qualitative Disclosures About Market Risk in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2015.

All forward-looking statements in this annual 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

Southwest Gas Corporation

forward-looking statements even if experience or future changes show that the indicated results or events will not
be realized. We caution you to not rely unduly on any forward-looking statement(s).

Common Stock Price and Dividend Information

First quarter
Second quarter
Third quarter
Fourth quarter

2015

2014

High

$63.68
59.75
58.40
62.56

Low

$52.94
51.69
51.26
50.78

High

$55.33
55.69
53.34
64.20

Low

$51.70
50.96
47.21
48.23

Dividends Declared
2014
2015

$0.405
0.405
0.405
0.405

$0.365
0.365
0.365
0.365

$1.620

$1.460

The principal market on which the common stock of the Company is traded is the New York Stock Exchange. At
February 16, 2016, there were 14,095 holders of record of common stock, and the market price of the common
stock was $59.56.

In reviewing dividend policy, the Board of Directors (“Board”) considers the adequacy and sustainability of earnings
and cash flows of the Company and its subsidiaries; the strength of the Company’s capital structure; the
sustainability of the dividend through all business cycles; and whether the dividend is within a normal payout range
for its respective businesses. The quarterly common stock dividend declared was 33 cents per share throughout
2013, 36.5 cents per share throughout 2014, and 40.5 cents per share throughout 2015. As a result of its ongoing
review of dividend policy, in February 2016, the Board increased the quarterly dividend from 40.5 cents to 45 cents
per share, effective with the June 2016 payment. This marks the tenth consecutive year in which the dividend was
increased. The Board’s policy is to target a dividend payout ratio that allows the Company to maintain its strong
credit ratings and effectively fund its rate base growth and is consistent with the local distribution company peer
group average. The timing and amount of any increases will be based on the Board’s continual review of the
Company’s dividend rate in the context of the performance of the Company’s two operating segments and their
future growth prospects.

Southwest Gas Corporation

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Southwest Gas Corporation

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except par value)

December 31,

ASSETS
Utility plant:
Gas plant

Less: accumulated depreciation
Acquisition adjustments, net
Construction work in progress

Net utility plant (Note 2)

Other property and investments (Note 1)

Restricted cash

Current assets:

Cash and cash equivalents
Accounts receivable, net of allowances (Note 3)
Accrued utility revenue
Income taxes receivable, net
Deferred income taxes, net (Note 12)
Deferred purchased gas costs (Note 4)
Prepaids and other current assets (Notes 1, 4, and 13)

Total current assets

Noncurrent assets:
Goodwill (Note 1)
Deferred income taxes (Note 12)
Deferred charges and other assets (Notes 2, 4, and 13)

Total noncurrent assets

Total assets

2015

2014

$ 5,854,917 $ 5,556,599
(1,973,098)
550
74,332

(2,084,007)
370
119,805

3,891,085

3,658,383

313,531

326,743

—

821

35,997
314,512
74,700
34,175
—
3,591
95,199

39,566
281,824
73,900
21,853
2,109
87,556
99,803

558,174

606,611

126,145
428
469,322

143,160
—
472,579

595,895

615,739

$ 5,358,685 $ 5,208,297

Southwest Gas Corporation

CONSOLIDATED BALANCE SHEETS – Continued

December 31,

CAPITALIZATION AND LIABILITIES
Capitalization:

Common stock, $1 par (authorized – 60,000,000 shares; issued and outstanding –

47,377,575 and 46,523,184 shares) (Note 11)

Additional paid-in capital
Accumulated other comprehensive income (loss), net (Note 5)
Retained earnings

Total Southwest Gas Corporation equity

Noncontrolling interest

Total equity

Redeemable noncontrolling interest (Note 16)
Long-term debt, less current maturities (Note 7)

Total capitalization

Commitments and contingencies (Note 9)
Current liabilities:

Current maturities of long-term debt (Note 7)
Short-term debt (Note 8)
Accounts payable
Customer deposits
Income taxes payable, net
Accrued general taxes
Accrued interest
Deferred purchased gas costs (Note 4)
Other current liabilities (Notes 2, 4, and 13)

Total current liabilities

Deferred income taxes and other credits:

Deferred income taxes and investment tax credits, net (Note 12)
Accumulated removal costs (Note 4)
Other deferred credits and other long-term liabilities (Notes 2, 4, 10, and 13)

Total deferred income taxes and other credits

Total capitalization and liabilities

2015

2014

49,007 $

896,448
(50,268)
699,221

48,153
851,381
(50,175)
639,164

1,594,408
(2,083)

1,488,523
(2,257)

1,592,325
16,108
1,551,204

1,486,266
20,042
1,631,374

3,159,637

3,137,682

19,475
18,000
164,857
72,631
940
47,337
16,173
45,601
150,031

19,192
5,000
167,988
71,546
—
44,339
16,468
—
145,584

535,045

470,117

769,445
303,000
591,558

723,688
304,000
572,810

1,664,003

1,600,498

$5,358,685 $5,208,297

The accompanying notes are an integral part of these statements.

Southwest Gas Corporation

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)

Year Ended December 31,

Operating revenues:

Gas operating revenues
Construction revenues

Total operating revenues

Operating expenses:

Net cost of gas sold
Operations and maintenance
Depreciation and amortization
Taxes other than income taxes
Construction expenses

Total operating expenses

Operating income

Other income and (expenses):

Net interest deductions (Notes 7 and 8)
Other income (deductions)

Total other income and (expenses)

Income before income taxes
Income tax expense (Note 12)

Net income

Net income (loss) attributable to noncontrolling interests

2015

2014

2013

$1,454,639 $1,382,087 $1,300,154
650,628

1,008,986

739,620

2,463,625

2,121,707

1,950,782

563,809
393,199
270,111
49,393
898,781

505,356
383,732
253,027
47,252
647,857

436,001
384,914
236,817
45,551
573,284

2,175,293

1,837,224

1,676,567

288,332

284,483

274,215

(71,879)
2,879

(72,069)
7,107

(63,700)
12,300

(69,000)

(64,962)

(51,400)

219,332
79,902

139,430
1,113

219,521
78,373

141,148
22

222,815
77,942

144,873
(447)

Net income attributable to Southwest Gas Corporation

$ 138,317 $ 141,126 $ 145,320

Basic earnings per share (Notes 1 and 15)

Diluted earnings per share (Notes 1 and 15)

Average number of common shares outstanding
Average shares outstanding (assuming dilution)

2.94 $

3.04 $

2.92 $

3.01 $

46,992
47,383

46,494
46,944

3.14

3.11

46,318
46,758

The accompanying notes are an integral part of these statements.

Southwest Gas Corporation

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands of dollars)

Year Ended December 31,

Net Income

Other comprehensive income (loss), net of tax

Defined benefit pension plans (Notes 5 and 10):

Net actuarial gain (loss)
Amortization of prior service cost
Amortization of net actuarial loss
Prior service cost
Regulatory adjustment

Net defined benefit pension plans

Forward-starting interest rate swaps:

Amounts reclassified into net income (Notes 5 and 13)

Net forward-starting interest rate swaps

Foreign currency translation adjustments

Total other comprehensive income (loss), net of tax

Comprehensive income

Comprehensive income (loss) attributable to noncontrolling interests

2015

2014

2013

$139,430 $ 141,148 $144,873

(18,922)
828
21,316
—
(3,500)

(107,661)
220
14,667
(4,130)
86,991

62,214
220
21,190
—
(76,651)

(278)

(9,913)

6,973

2,073

(1,954)

(659)

2,074

—

(159)

(8,499)

9,047

139,271
1,047

132,649
—

153,920
(447)

Comprehensive income attributable to Southwest Gas Corporation

$138,224 $ 132,649 $154,367

The accompanying notes are an integral part of these statements.

Southwest Gas Corporation

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)

Year Ended December 31,

CASH FLOW FROM OPERATING ACTIVITIES:

2015

2014

2013

Net Income
Adjustments to reconcile net income to netcash provided by operating

$139,430 $141,148 $ 144,873

activities:
Depreciation and amortization
Deferred income taxes
Changes in current assets and liabilities:

Accounts receivable, net of allowances
Accrued utility revenue
Deferred purchased gas costs
Accounts payable
Accrued taxes
Other current assets and liabilities

Gains on sale
Changes in undistributed stock compensation
AFUDC
Changes in other assets and deferred charges
Changes in other liabilities and deferred credits

270,111
48,785

253,027
64,309

236,817
68,639

(39,850)
(800)
129,566
(3,491)
(8,405)
18,300
(3,102)
2,914
(3,008)
(14,166)
10,863

(3,683)
(1,200)
(69,339)
(41,499)
(13,573)
23,379
(6,171)
7,973
(1,995)
(21,732)
15,779

(22,556)
(700)
(111,143)
27,668
925
5,084
(4,112)
6,958
(2,274)
(21,719)
17,749

Net cash provided by operating activities

547,147

346,423

346,209

Southwest Gas Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS – Continued

Year Ended December 31,

2015

2014

2013

CASH FLOW FROM INVESTING ACTIVITIES:

Construction expenditures and property additions
Acquisition of businesses, net of cash acquired
Restricted cash
Changes in customer advances
Miscellaneous inflows
Miscellaneous outflows

Net cash used in investing activities

CASH FLOW FROM FINANCING ACTIVITIES:

Issuance of common stock, net
Dividends paid
Centuri distribution to redeemable noncontrolling interest
Issuance of long-term debt, net
Retirement of long-term debt
Change in credit facility and commercial paper
Change in short-term debt
Principal payments on capital lease obligations
Other

Net cash provided by (used in) financing activities

Effects of currency translation on cash and cash equivalents

Change in cash and cash equivalents
Cash and cash equivalents at beginning of period

(488,000)
(9,261)
785
18,300
8,354
—

(396,898)
(190,497)
1,233
20,363
11,611
(1,400)

(364,276)
—
—
7,773
8,465
—

(469,822)

(555,588)

(348,038)

35,396
(74,248)
(99)
135,816
(187,973)
—
13,000
(1,420)
41

405
(66,275)
—
269,228
(139,155)
140,000
5,000
(434)
(1,257)

1,635
(59,535)
—
311,290
(137,013)
(101,000)
1,999
—
—

(79,487)

207,512

17,376

(1,407)

(3,569)
39,566

142

(1,511)
41,077

—

15,547
25,530

Cash and cash equivalents at end of period

$ 35,997 $ 39,566 $ 41,077

Supplemental information:
Interest paid, net of amounts capitalized

Income taxes paid

$ 66,623 $ 65,552 $ 58,730

$ 43,225 $ 24,247 $

6,850

The accompanying notes are an integral part of these statements.

Southwest Gas Corporation

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
AND REDEEMABLE NONCONTROLLING INTEREST
(In thousands, except per share amounts)

Southwest Gas Corporation Equity

Common Stock
Shares Amount

Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings

Non-
controlling
Interest

Total

Redeemable
Noncontrolling
Interest
(Temporary
Equity)

DECEMBER 31, 2012

46,148 $ 47,778 $ 828,777

$ (50,745)

$ 484,369 $ (1,681) $ 1,308,498

—

Common stock issuances
Net income (loss)
Net actuarial gain (loss)

arising during the period,
less amortization of
unamortized benefit plan
cost, net of tax
(Notes 5 and 10)

Amounts reclassified to net

income, net of tax
(Notes 5 and 13)

Dividends declared
Common: $1.32 per share

DECEMBER 31, 2013

Common stock issuances
Redeemable noncontrolling
interest attributable to
acquisition

Net income (loss)
Redemption value

adjustments (Note 16)
Foreign currency exchange

translation adj.

Net actuarial gain (loss)

arising during the period,
less amortization of
unamortized benefit plan
cost,net of tax
(Notes 5 and 10)

Amounts reclassified to net

income, net of tax
(Notes 5 and 13)

Dividends declared
Common: $1.46 per share

208

11,744

145,320

(447)

11,952
144,873

6,973

2,074

46,356 47,986 840,521
10,860
167

167

(61,975)

(41,698)

567,714

(2,128)

6,973

2,074

(61,975)

1,412,395
11,027

141,126

(129)

140,997

—

18,952
151

(961)

961

(637)

(22)

(9,913)

2,073

(9,913)

2,073

(68,715)

Southwest Gas Corporation

CONSOLIDATED STATEMENTS OF EQUITY – Continued

Southwest Gas Corporation Equity

Common Stock
Shares Amount

Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings

Non-
controlling
Interest

Total

Redeemable
Noncontrolling
Interest
(Temporary
Equity)

DECEMBER 31, 2014

46,523 $ 48,153 $ 851,381

$ (50,175)

$ 639,164 $ (2,257) $ 1,486,266

$20,042

Common stock issuances

854

39,290

40,144

Net income (loss)

Redemption value

adjustments (Note 16)

Foreign currency

exchange translation

adj.

Net actuarial gain (loss)

arising during the

period, less amortization

of unamortized benefit

plan cost, net of tax

(Notes 5 and 10)

Amounts reclassified to

net income, net of tax

(Notes 5 and 13)

Centuri distribution to

redeemable

noncontrolling interest

Dividends declared

Common: $1.62 per

138,317

174

138,491

939

5,777

(1,069)

4,708

(4,708)

(1,888)

(66)

(278)

2,073

(278)

2,073

(99)

(77,191)

DECEMBER 31, 2015

47,377* $49,007 $896,448

$(50,268)

$699,221 $(2,083) $1,592,325

$16,108

* At December 31, 2015, 3.6 million common shares were registered and available for issuance under provisions of
the Company’s various stock issuance plans. In addition, approximately 17,000 common shares are registered for
issuance upon the exercise of options granted under the Stock Incentive Plan (see Note 10).

The accompanying notes are an integral part of these statements.

Southwest Gas Corporation

Notes to Consolidated Financial Statements

Note 1 – Summary of Significant Accounting Policies
Nature of Operations. Southwest Gas Corporation and its subsidiaries (the “Company”) consist of two segments:
natural gas operations (“Southwest” or the “natural gas operations” segment) and construction services. Southwest
is engaged in the business of purchasing, distributing, and transporting natural gas for customers in portions of
Arizona, Nevada, and California. Public utility rates, practices, facilities, and service territories of Southwest are
subject to regulatory oversight. The timing and amount of rate relief can materially impact results of operations.
Natural gas purchases and the timing of related recoveries can materially impact liquidity. Centuri Construction
is a full-service
Group,
underground piping contractor
that primarily provides utility companies with trenching and installation,
replacement, and maintenance services for energy distribution systems, and industrial construction solutions.
Centuri operations occur in 20 major markets in the U.S. and within the provinces of British Columbia and Ontario
in Canada, and are generally conducted under the business names of NPL Construction Co. (“NPL”), Link-Line
Contractors Ltd. (“Link-Line”), W.S. Nicholls Construction, Inc. and related companies (“W.S. Nicholls”), and Brigadier
Pipelines Inc. (“Brigadier”). The Company acquired Link-Line, W.S. Nicholls, and Brigadier in October 2014. See
Note 17 – Acquisition of Construction Services Businesses for more information.

(“Centuri” or the “construction services” segment), a 96.6% owned subsidiary,

Inc.

in accounting for all of

Basis of Presentation. The Company follows generally accepted accounting principles in the United States (“U.S.
its businesses. Unless specified otherwise, all amounts are in U.S. dollars.
GAAP”)
Accounting for natural gas utility operations conforms with U.S. GAAP as applied to regulated companies and as
prescribed by federal agencies and commissions of the various states in which the utility operates. The preparation
of financial statements in conformity with U.S. GAAP 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.

Consolidation. The accompanying financial statements are presented on a consolidated basis and include the
accounts of Southwest Gas Corporation and all subsidiaries (except those accounted for using the equity method
as discussed further below). All significant intercompany balances and transactions have been eliminated with the
in accordance with accounting treatment for rate-
exception of transactions between Southwest and Centuri
regulated entities.

Centuri, through its subsidiaries, holds a 65% interest in a venture to market natural gas engine-driven heating,
ventilating, and air conditioning (“HVAC”) technology and products. Centuri consolidates the entity (IntelliChoice
Energy, LLC).

Centuri, through its subsidiaries, holds a 50% interest in W.S. Nicholls Western Construction LTD. (“Western”), a
Canadian construction services company that is a variable interest entity. Centuri determined that it is not the
primary beneficiary of the entity due to a shared-power structure; therefore, Centuri does not consolidate the entity
and has recorded its investment, and results related thereto, using the equity method. The Company’s investment
in Western totaled $14.7 million and $10.8 million at December 31, 2014 and 2015, respectively. Both periods
include the impacts of foreign currency exchange translation adjustments. No dividends were paid during 2015.
The equity method investment in Western is included in Other Property and Investments in the Consolidated
Balance Sheets. Centuri’s maximum exposure to loss as a result of its involvement with Western is estimated at

Southwest Gas Corporation

$14.7 million. The estimated maximum exposure to loss represents the maximum loss that would be absorbed by
Centuri in the event that all of the assets of Western are deemed worthless. Centuri recorded earnings of $310,000
from this investment in 2015 which is included in Other Income (deductions) in the Consolidated Statements of
Income.

Centuri, through its subsidiaries, also has a 25% interest in CCI-TBN Toronto, Inc. and a 50% interest in Matheson-
Nicholls Joint Venture. Any future changes to the values of these entities will be recorded by Centuri using the
equity method.

less the accumulated provision for
includes gas plant at original cost,
Net Utility Plant. Net utility plant
depreciation and amortization, plus the unamortized balance of acquisition adjustments. Original cost includes
contracted services, material, payroll and related costs such as taxes and benefits, general and administrative
expenses, and an allowance for funds used during construction, less contributions in aid of construction.

OtherPropertyandInvestments. Other property and investments includes (millions of dollars):

Centuri property, equipment, and intangibles
Centuri accumulated provision for depreciation and amortization
Net cash surrender value of COLI policies
Other property

Total

2015

2014

$ 423 $ 405
(187)
99
10

(221)
99
13

$ 314 $ 327

Deferred Purchased Gas Costs. The various regulatory commissions have established procedures to enable
Southwest to adjust its billing rates for changes in the cost of natural gas purchased. The difference between the
current cost of gas purchased and the cost of gas recovered in billed rates is deferred. Generally, these deferred
amounts are recovered or refunded within one year.

Prepaids and other current assets. Prepaids and other current assets includes gas pipe materials and operating
supplies of $24 million in 2015 and $23 million in 2014 (carried at weighted average cost), and also includes natural
gas stored underground and liquefied natural gas, in addition to prepaid assets.

IncomeTaxes. The Company uses the asset and liability method of accounting for income taxes. Under the asset
and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the
enactment date. For regulatory and financial reporting purposes, investment tax credits (“ITC”) related to gas utility
operations are deferred and amortized over the life of related fixed assets. As of December 31, 2015, the Company
sustained losses in its foreign jurisdiction and therefore has no undistributed foreign earnings. However, the
Company intends to permanently reinvest any future foreign earnings in Canada.

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,

Southwest Gas Corporation

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 December 31, 2015 and 2014 also includes two money market
fund investments totaling
approximately $250,000 which fall 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 activities for the natural gas operations segment included the following: Upon
contract expiration, customer advances of approximately $3.1 million, $8.1 million, and $9.3 million during 2015,
2014, and 2013, respectively, were applied as contributions toward utility construction activity and represent non-
cash investing activity. In 2014, investing activities included an $18.9 million non-cash investing outflow due to the
equity of the noncontrolling interest associated with businesses acquired. In addition, a non-cash investing outflow
activity of $10.8 million in 2014 related to acquisition consideration payable.

Goodwill. Goodwill is assessed for impairment annually in October, as required by U.S. GAAP, or otherwise, if
circumstances indicate impairment to the carrying value of goodwill may have occurred. The goodwill impairment
analysis may start with an assessment of qualitative factors (Step 0) to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying amount. If, after assessing the qualitative factors,
management determines that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount, or if management does not perform a qualitative assessment, a Step 1 impairment test will be performed.
Management considered the qualitative factors and the evidence obtained and determined that it is not more likely
than not that the fair value of any reporting unit is less than its carrying amount in 2014 or 2015. Thus, no
impairment was recorded in 2014 or 2015. The acquisition date adjustment shown in the table below was recorded
in the first quarter of 2015. No acquisition date adjustments occurred subsequently. The business of Brigadier was
acquired via asset purchase. Therefore, goodwill assigned to Brigadier is expected to be deductible for tax
purposes, resulting in an after-tax value of $4.9 million. All other goodwill associated with the acquisition is not
deemed deductible for tax purposes.

(In thousands of dollars)

December 31, 2014
Acquisition date adjustment
Foreign currency translation adjustment

December 31, 2015

Natural
Gas
Operations

Construction
Services

Consolidated

$10,095
—
—

$133,065
1,380
(18,395)

$143,160
1,380
(18,395)

$10,095

$116,050

$126,145

Intangible Assets.
Intangible assets (other than goodwill) are amortized using the straight-line method to reflect
the pattern of economic benefits consumed over the estimated periods benefited. The recoverability of intangible
assets is evaluated when events or circumstances indicate that a revision of estimated useful lives is warranted or
that an intangible asset may be impaired. Intangible assets are primarily associated with the 2014 acquisition of
construction services businesses and have finite lives.

Southwest Gas Corporation

Centuri has $36.8 million and $48.2 million of intangible assets (varies due to foreign currency translation) at
December 31, 2015 and 2014, respectively, as detailed in the following table (thousands of dollars):

December 31, 2015

Customer relationships
Trade names and trademarks
Customer contracts backlog
Noncompete agreement

Total

December 31, 2014

Customer relationships
Trade names and trademarks
Customer contracts backlog
Noncompete agreement

Total

Gross Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

$31,226
8,621
1,606
437

$41,890

$(2,070)
(1,331)
(1,606)
(110)

$29,156
7,290
—
327

$(5,117)

$36,773

Gross Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

$37,059
10,208
1,912
519

$49,698

$ (524)
(241)
(724)
(34)

$36,535
9,967
1,188
485

$(1,523)

$48,175

The intangible assets (other than goodwill and software-related intangibles) are included in Other property and
investments in the Consolidated Balance Sheets. The estimated future amortization of the intangible assets for the
next five years is as follows (in thousands):

2016
2017
2018
2019
2020

$2,809
2,809
2,605
1,971
1,906

See Note 2 – Utility Plant and Leases for additional information regarding natural gas operations intangible assets.

Accumulated Removal Costs. Approved regulatory practices allow Southwest to include in depreciation expense
a component to recover removal costs associated with utility plant retirements. In accordance with the Securities
and Exchange Commission (“SEC”) position on presentation of these amounts, management reclassifies estimated
removal costs from accumulated depreciation to accumulated removal costs within the liabilities section of the
Consolidated Balance Sheets. Amounts fluctuate between periods depending on the level of replacement work
performed, the estimated cost of removal in rates and the actual cost of removal experienced.

Gas Operating Revenues. Revenues are recorded when customers are billed. Customer billings are based on
monthly meter reads and are calculated in accordance with applicable tariffs and state and local laws, regulations,
and agreements. An estimate of the margin associated with natural gas service provided, but not yet billed, to
residential and commercial customers from the latest meter reading date to the end of the reporting period is also
recognized as accrued utility revenue. Revenues also include the net impacts of margin tracker/decoupling
accruals.

Southwest Gas Corporation

The Company acts as an agent for state and local taxing authorities in the collection and remission of a variety of
taxes, including sales and use taxes and surcharges. These taxes are not included in gas operating revenues. The
Company uses the net classification method to report
taxes collected from customers to be remitted to
governmental authorities.

Construction Revenues. The majority of Centuri contracts are performed under unit-price contracts. Generally,
these contracts state prices per unit of installation. Typical installations are accomplished in a few weeks or less.
Revenues are recorded as installations are completed. Long-term fixed-price contracts use the percentage-of-
completion method of accounting and, therefore, take into account the cost, estimated earnings, and revenue to
date on contracts not yet completed. The amount of revenue recognized on fixed-price contracts is based on costs
expended to date relative to anticipated final contract costs. Revisions in estimates of costs and earnings during
the course of work are reflected in the accounting period in which the facts requiring revision become known. If a
loss on a contract becomes known or is anticipated, the entire amount of the estimated ultimate loss is recognized
at that time in the financial statements. Some unit-price contracts contain caps that if encroached, trigger revenue
and loss recognition similar to a fixed-price contract model.

includes payroll
Construction Expenses. The construction expenses classification in the income statement
expenses, job-related equipment costs, direct construction costs, gains and losses on equipment sales, general
and administrative expenses, acquisition and acquisition-related costs, and office-related fixed costs of Centuri.
During 2015, construction expenses were impacted by a loss reserve on an industrial construction project in
Canada recognized earlier in the year, in the amount of $7.7 million. Delays in delivery of critical equipment to the
job site resulted in production inefficiencies and an increase in total project costs. Work commenced on this project
in March 2015 and was completed in the third quarter.
In situations where losses on a project are possible,
accounting rules and adopted policies require that future costs to complete the project be estimated and a loss
recognized currently, but potential incremental revenue to cover such costs is recognized only if and when change
orders are formally approved. In October, Centuri and the general contractor agreed to mediation to attempt to
resolve open change orders. In December 2015, a final settlement of approximately $4 million was reached and the
overall loss on this project was reduced to $3.4 million.

Net Cost of Gas Sold. Components of net cost of gas sold include natural gas commodity costs (fixed-price and
variable-rate), pipeline capacity/transportation costs, and actual settled costs of natural gas derivative instruments.
Also included are the net impacts of PGA deferrals and recoveries.

Operations and Maintenance Expense. For financial reporting purposes, operations and maintenance expense
includes Southwest’s operating and maintenance costs associated with serving utility customers, uncollectible
expense, administrative and general salaries and expense, employee benefits expense, and legal expense
(including injuries and damages).

DepreciationandAmortization. Utility plant depreciation is computed on the straight-line remaining life method at
composite rates considered sufficient to amortize costs over estimated service lives, including components which
compensate for removal costs (net of salvage value), and retirements, as approved by the appropriate regulatory
agency. When plant is retired from service, the original cost of plant, including cost of removal, less salvage, is
charged to the accumulated provision for depreciation. Other regulatory assets, including acquisition adjustments,
are amortized when appropriate, over time periods authorized by regulators. Nonutility and construction services-
related property and equipment are depreciated on a straight-line method based on the estimated useful lives of
the related assets. Costs and gains related to refunding utility debt and debt issuance expenses are deferred and

Southwest Gas Corporation

amortized over the weighted-average lives of the new issues and become a component of interest expense. See
also discussion regarding AccumulatedRemovalCostsabove.

Allowance for Funds Used During Construction (“AFUDC”). AFUDC represents the cost of both debt and equity
funds used to finance utility construction. AFUDC is capitalized as part of the cost of utility plant. The debt portion
of AFUDC is reported in the Consolidated Statements of Income as an offset to net interest deductions and the
equity portion is reported as other income. Utility plant construction costs, including AFUDC, are recovered in
authorized rates through depreciation when completed projects are placed into operation, and general rate relief is
requested and granted.

(In thousands)
AFUDC:

Debt portion
Equity portion

AFUDC capitalized as part of utility plant

2015

2014

2013

$1,666 $1,228 $1,260
2,274
1,995

3,008

$4,674 $3,223 $3,534

Other Income (Deductions). The following table provides the composition of significant items included in Other
income (deductions) on the consolidated statements of income (thousands of dollars):

Change in COLI policies
Interest income
Equity AFUDC
Foreign currency transaction gain (loss)
Equity in earnings of unconsolidated investment - Western
Miscellaneous income and (expense)

Total other income (deductions)

2015

2014

2013

$ (500) $ 5,300 $12,400
461
2,602
2,274
1,995
—
(178)
—
107
(2,835)
(2,719)

2,173
3,008
(824)
310
(1,288)

$ 2,879 $ 7,107 $12,300

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
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
value components of COLI policies, as they progress towards the ultimate death benefits, are also recorded
without tax consequences.

to indemnify itself against the loss of

Foreign Currency Translation. Foreign currency-denominated assets and liabilities of consolidated subsidiaries
are translated into U.S. dollars at exchange rates existing at the respective balance sheet dates. Translation
adjustments resulting from fluctuations in exchange rates are recorded as a separate component of accumulated
other comprehensive income within stockholders’ equity. Results of operations of
foreign subsidiaries are
translated using the monthly weighted-average exchange rates during the respective periods. Gains and losses
resulting from foreign currency transactions are included in other income (expense). Gains and losses resulting
from intercompany foreign currency transactions that are of a long-term investment nature are reported in other
comprehensive income, if applicable.

Southwest Gas Corporation

Earnings Per Share. Basic earnings per share (“EPS”) are calculated by dividing net income attributable to
Southwest Gas Corporation by the weighted-average number of shares outstanding during the period. Diluted EPS
includes additional weighted-average common stock equivalents (stock options, performance shares, and
restricted stock units). Unless otherwise noted, the term “Earnings Per Share” refers to Basic EPS. A reconciliation
of the denominator used in the Basic and Diluted EPS calculations is shown in the following table.

(In thousands)

Average basic shares

Effect of dilutive securities:

Stock options

Performance shares

Restricted stock units

Average diluted shares

2015

2014

2013

46,992 46,494 46,318

171

212

215

218

231

183

47,383 46,944 46,758

RecentlyIssuedAccountingStandardsUpdates. In May 2014, the Financial Accounting Standards Board (“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 a 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 April 2015, the FASB voted to propose, and in July 2015 it approved, a one-year deferral of the
effective date (annual periods beginning after December 15, 2017), but to permit entities to adopt one year earlier if
they choose (i.e., the original effective date). The FASB decided, based on its outreach to various stakeholders and
the forthcoming exposure drafts, which amend the update, that a deferral is necessary to provide adequate time to
effectively implement the update. The Company plans to adopt the update at the required adoption date, which is
for interim and annual reporting periods commencing January 1, 2018. The Company is evaluating what impact this
update might have on its consolidated financial statements and disclosures.

In August 2014, the FASB issued the update “Disclosure of Uncertainties about an Entity’s Ability to Continue as a
Going Concern,” which requires management to assess a company’s ability to continue as a going concern and to
provide related footnote disclosures in certain circumstances. Under the update, disclosures are required when
conditions give rise to substantial doubt about a company’s ability to continue as a going concern within one year
from the financial statement
the annual period ending after
December 15, 2016, and all annual and interim periods thereafter. This update and changes thereto are not
expected to have a material impact on the Company’s disclosures.

issuance date. The update is effective for

In April 2015, the FASB issued the update “Interest—Imputation of Interest (Subtopic 835-30) Simplifying the
Presentation of Debt Issuance Costs.” To simplify presentation of debt issuance costs, the amendments in this
update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as
a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. While balance
sheet presentation is impacted by the update, the recognition and measurement of debt issuance costs are not.

Southwest Gas Corporation

Retrospective application of the update is required. The amendments in this update are effective for financial
statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years
beginning after December 15, 2015. Early adoption of the amendments in this update is permitted for financial
statements that have not been previously issued. The Company adopted this update as of December 31, 2015, as
permitted. See Note 7 – Long-Term Debt for additional information.

In May 2015, the FASB issued the update “Disclosures for Investments in Certain Entities that Calculate Net Asset
Value per Share (or its Equivalent).” This guidance simplifies disclosure requirements relating to investments for
which fair value is measured using the net asset value per share, or its equivalent. The update removes the
requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the
net asset value per share practical expedient.
Investments that calculate net asset value per share (or its
equivalent), but for which the practical expedient is not applied, will continue to be included in the fair value
hierarchy. The update removes the requirement to make certain disclosures for all investments that are eligible to
be measured at fair value using the net asset value per share practical expedient. A reporting entity should
continue to disclose information on investments for which fair value is measured at net asset value as a practical
expedient to help users understand the nature and risks of the investments and whether the investments, if sold,
are probable of being sold at amounts different from net asset value. The amendments in this update are effective
for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods thereafter.
Early application is permitted and the Company adopted this update as of December 31, 2015. See Note 10 – Pension
and Other Postretirement Benefits for additional information.

In November 2015, the FASB issued the update “Income Taxes (Topic 740)” in order to simplify the presentation of
deferred income taxes. The update requires that deferred tax liabilities and assets be classified as noncurrent in a
classified statement of financial position. The previous guidance required an entity to separate deferred income tax
liabilities and assets into current and noncurrent amounts in a classified statement of financial position. This update
is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim
periods within those annual periods. Early application is permitted and the Company adopted this update as of
December 31, 2015. See Note 12 – Income Taxes for additional information.

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
instruments. The update makes targeted improvements to existing U.S. GAAP by: 1) requiring equity
financial
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
organization 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 the 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. The Company is evaluating what
impact, if any, this update might have on its consolidated financial statements and disclosures.

Southwest Gas Corporation

Subsequent Events. Management of the Company monitors events occurring after the balance sheet date and
prior to the issuance of the financial statements to determine the impacts, if any, of events on the financial
statements to be issued or disclosures to be made, and has reflected them where appropriate.

Note 2 – Utility Plant and Leases

Net utility plant as of December 31, 2015 and 2014 was as follows (thousands of dollars):

December 31,

Gas plant:
Storage
Transmission
Distribution
General
Software and software-related intangibles
Other

Less: accumulated depreciation
Acquisition adjustments, net
Construction work in progress

Net utility plant

2015

2014

22,944 $

312,996
4,935,730
365,865
203,323
14,059

5,854,917
(2,084,007)
370
119,805

22,531
312,300
4,655,640
356,072
196,035
14,021

5,556,599
(1,973,098)
550
74,332

$ 3,891,085 $ 3,658,383

Utility plant depreciation is computed on the straight-line remaining life method at composite rates considered
sufficient to amortize costs over estimated service lives, including components which compensate for removal
costs (net of salvage value), and retirements, based on the processes of regulatory proceedings and related
In 2015, annual depreciation and amortization expense
regulatory commission approvals and/or mandates.
averaged 3.6% of the original cost of depreciable and amortizable property. Average rates in 2014 and 2013 also
approximated 3.6% on average.

Depreciation and amortization expense on gas plant, including intangibles, was as follows (thousands of dollars):

Depreciation and amortization expense

2015

2014

2013

$201,233 $194,360 $185,283

Included in the figures above is amortization of intangibles of $12.7 million in 2015, $11.7 million in 2014, and
$10.3 million in 2013.

Operating Leases and Rentals. The Company leases certain office and construction equipment. The majority of
these leases are short-term and accounted for as operating leases. For the gas segment, these leases are also
treated as operating leases for regulatory purposes. Centuri has various short-term operating leases of equipment
and temporary office sites. The table below presents Southwest’s rental payments and Centuri’s lease payments
that are included in operating expenses (in thousands):

Southwest Gas
Centuri

Consolidated rental payments/lease expense

2015

2014

2013

$ 4,186 $ 5,330 $ 8,308
27,118
30,012

45,849

$50,035 $35,342 $35,426

Southwest Gas Corporation

The following is a schedule of future minimum lease payments for significant non-cancelable operating leases (with
initial or remaining terms in excess of one year) as of December 31, 2015 (thousands of dollars):

Year Ending December 31,

2016
2017
2018
2019
2020
Thereafter

Total minimum lease payments

$ 6,836
4,732
2,993
2,110
1,473
3,583

$21,727

Capital Leases. Centuri leases certain construction equipment under capital leases arrangements. The amounts
associated with capital leases of equipment as of December 31, 2015 and 2014 are as follows (thousands of dollars):

December 31,

Capital leases of equipment
Less: accumulated amortization

Net capital leases

2015

2014

$ 4,584
(1,043)

$5,763
(287)

$ 3,541

$5,476

The following is a schedule of future minimum lease payments for non-cancelable capital leases (with initial or
remaining terms in excess of one year) as of December 31, 2015 (thousands of dollars):

Year Ending December 31,

2016
2017
2018
2019
2020
Thereafter

Less: amount representing interest

Total minimum lease payments

$1,469
869
494
21
—
—

2,853
(223)

$2,630

Note 3 – Receivables and Related Allowances
Business activity with respect to gas utility operations is conducted with customers located within the three-state
region of Arizona, Nevada, and California. The table below contains information about the gas utility customer
accounts receivable balance (net of allowance) at December 31, 2015 and 2014, and the percentage of customers
in each of the three states.

Gas utility customer accounts receivable balance (in thousands)

$151,775

$136,148

December 31, 2015 December 31, 2014

Southwest Gas Corporation

Percent of customers by state

Arizona
Nevada
California

December 31, 2015

53%
37%
10%

Although the Company seeks to minimize its credit risk related to utility operations by requiring security deposits
from new customers, imposing late fees, and actively pursuing collection on overdue accounts, some accounts are
ultimately not collected. Customer accounts are subject to collection procedures that vary by jurisdiction (late fee
assessment, noticing requirements for disconnection of service, and procedures for actual disconnection and/or
reestablishment of service). After disconnection of service, accounts are generally written off approximately one
month after inactivation. Dependent upon the jurisdiction, reestablishment of service requires both payment of
previously unpaid balances and additional deposit requirements. Provisions for uncollectible accounts are recorded
monthly based on experience, customer and rate composition, and write-off processes. They are included in the
ratemaking process as a cost of service. The Nevada jurisdictions have a regulatory mechanism associated with the
gas cost-related portion of uncollectible accounts. Such amounts are deferred and collected through a surcharge in
the ratemaking process. Activity in the allowance account for uncollectibles is summarized as follows (thousands of
dollars):

Balance, December 31, 2012

Additions charged to expense
Accounts written off, less recoveries

Balance, December 31, 2013

Additions charged to expense
Accounts written off, less recoveries

Balance, December 31, 2014

Additions charged to expense
Accounts written off, less recoveries

Balance, December 31, 2015

Allowance for
Uncollectibles

$ 2,504
3,583
(4,362)

1,725
4,146
(3,616)

2,255
4,113
(4,098)

$ 2,270

At December 31, 2015, the construction services segment (Centuri) had $162 million in customer accounts
receivable. Both the allowance for uncollectibles and write-offs have been insignificant and are not reflected in the
table above.

Note 4 – Regulatory Assets and Liabilities
Natural gas operations are subject to the regulation of the Arizona Corporation Commission (“ACC”), the Public
Utilities Commission of Nevada (“PUCN”), the California Public Utilities Commission (“CPUC”), and the Federal
Energy Regulatory Commission (“FERC”). Accounting policies of Southwest conform to U.S. GAAP applicable to
rate-regulated entities and reflect the effects of the ratemaking process. Accounting treatment for rate-regulated
entities allows for deferral as regulatory assets, costs that otherwise would be expensed, if it is probable that
future recovery from customers will occur. If rate recovery is no longer probable, due to competition or the
actions of regulators, Southwest is required to write-off the related regulatory asset. Regulatory liabilities are
recorded if it is probable that revenues will be reduced for amounts that will be credited to customers through
the ratemaking process.

Southwest Gas Corporation

The following table represents existing regulatory assets and liabilities (thousands of dollars):

December 31,

Regulatory assets:

Accrued pension and other postretirement benefit costs (1)
Unrealized net loss on non-trading derivatives (Swaps) (2)
Deferred purchased gas costs (3)
Accrued purchased gas costs (4)
Unamortized premium on reacquired debt (5)
Other (6)

Regulatory liabilities:

Deferred purchased gas costs (3)
Accumulated removal costs
Accrued purchased gas costs (4)
Deferred gain on southern Nevada division operations facility (7)
Unamortized gain on reacquired debt (8)
Other (9)

Net regulatory assets

2015

2014

$ 384,647 $ 390,293
5,425
87,556
2,600
20,478
72,132

5,486
3,591
—
21,511
73,022

488,257

578,484

(45,601)
(303,000)
(10,400)
—
(10,325)
(36,631)

—
(304,000)
—
(115)
(10,862)
(34,233)

$ 82,300 $ 229,274

(1)

Included in Deferred charges and other assets on the Consolidated Balance Sheets. Recovery period is greater than five

years. (See Note 10).

(2) The following table details the regulatory assets/(liabilities) offsetting the derivatives (Swaps) at

fair value in the

Consolidated Balance Sheets (thousands of dollars). The actual amounts, when realized at settlement, become a

component of purchased gas costs under the Company’s purchased gas adjustment (“PGA”) mechanisms. (See Note 13).

Instrument

Swaps
Swaps

Balance Sheet Location

Deferred charges and other assets
Prepaids and other current assets

2015

$ 1,219
4 ,267

2014

$ 363
5,062

(3) Balance recovered or refunded on an ongoing basis with interest.

(4) Asset included in Prepaids and other current assets and liability included in Other current liabilities on the Consolidated

Balance Sheets. Balance recovered or refunded on an ongoing basis.

(5)

Included in Deferred charges and other assets on the Consolidated Balance Sheets. Recovered over life of debt

instruments.

(6) Other regulatory assets including deferred costs associated with rate cases, regulatory studies, and state mandated public

purpose programs (including low income and conservation programs), as well as margin and interest-tracking accounts,

amounts associated with accrued absence time, and deferred post-retirement benefits other than pensions. Recovery

periods vary.

(7) The amortization period ended October 2015.

(8)

Included in Other deferred credits on the Consolidated Balance Sheets. Amortized over life of debt instruments.

(9) Other regulatory liabilities include amounts associated with income tax and gross-up.

Southwest Gas Corporation

Note 5 – Other Comprehensive Income and Accumulated Other Comprehensive Income (“AOCI”)
The following information provides insight into amounts impacting Other Comprehensive Income (Loss), both
before and after-tax, within the Consolidated Statements of Comprehensive Income, which also impact
Accumulated Other Comprehensive Income in the Company’s Consolidated Balance Sheets and Consolidated
Statements of Equity, as well as the Redeemable Noncontrolling Interest.

Related Tax Effects Allocated to Each Component of Other Comprehensive Income (Loss)

(Thousands of dollars)

Defined benefit pension

plans:

2015
Tax
(Expense)
or
Benefit (1)

Before-
Tax
Amount

2014

2013

Net-of-
Tax
Amount

Before-
Tax
Amount

Tax
(Expense)
or Benefit (1)

Net-of-
Tax
Amount

Before-
Tax
Amount

Tax
(Expense)
or Benefit (1)

Net-of-
Tax
Amount

Net actuarial gain/(loss) $(30,519) $ 11,597 $(18,922) $(173,646) $ 65,985 $(107,661) $ 100,345 $(38,131) $ 62,214
Amortization of prior

service cost

Amortization of net

actuarial (gain)/loss

Prior service cost
Regulatory adjustment

Pension plans other
comprehensive
income (loss)

Forward-starting interest
rate swaps (“FSIRS”)
(designated hedging
activities):

Amounts reclassified
into net income

FSIRS other compre-

hensive income (loss)
Foreign currency trans-
lation adjustments:
Translation adjustments

Foreign currency other

comprehensive
income (loss)

Total other compre-

1,335

(507)

828

355

(135)

220

355

(135)

220

34,381 (13,065) 21,316
—

—
(5,646)

—
2,146

23,656
(6,661)
(3,500) 140,308

(8,989)
2,531
(53,317)

34,177
14,667
—
(4,130)
86,991 (123,630)

(12,987)
—
46,979

21,190
—
(76,651)

(449)

171

(278)

(15,988)

6,075

(9,913)

11,247

(4,274)

6,973

3,344

(1,271)

2,073

3,345

(1,272)

2,073

3,345

(1,271)

2,074

3,344

(1,271)

2,073

3,345

(1,272)

2,073

3,345

(1,271)

2,074

(1,954)

—

(1,954)

(659)

(1,954)

—

(1,954)

(659)

—

(659)

—

hensive income (loss) $

941 $ (1,100) $

(159) $ (13,302) $ 4,803 $

(8,499) $ 14,592 $ (5,545) $ 9,047

(1)

Tax amounts are calculated using a 38% rate. The Company has elected to indefinitely reinvest the earnings of Centuri’s

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.

The estimated amounts that will be amortized from accumulated other comprehensive income or regulatory assets
into net periodic benefit cost over the next year are summarized below (in thousands):

Retirement plan net actuarial loss
SERP net actuarial loss
PBOP net actuarial loss
PBOP prior service cost

$ 25,000
1,400
400
1,300

Southwest Gas Corporation

Approximately $2.1 million of realized losses (net of tax) related to the FSIRS, included in AOCI at December 31,
2015, will be reclassified into interest expense within the next twelve months as the related interest payments on
long-term debt occur.

The following table represents a rollforward of AOCI, presented on the Company’s Consolidated Balance Sheets
and its Consolidated Statements of Equity:

AOCI – Rollforward
(Thousands of dollars)

Beginning Balance AOCI
December 31, 2014

Net actuarial gain/(loss)
Translation adjustments

Other comprehensive income
before reclassifications
FSIRS amounts reclassified

from AOCI (1)

Amortization of prior service

cost (2)

Amortization of net actuarial

loss (2)

Regulatory adjustment (3)

Net current period other com-
prehensive income (loss)
Less: Translation adjustment
attributable to redeemable
noncontrolling interest

Net current period other com-
prehensive income (loss)
attributable to Southwest Gas
Corporation

Ending Balance AOCI
December 31, 2015

Defined Benefit Plans (Note 10)
Tax
(Expense)
Benefit

Before-
Tax

After-
Tax

FSIRS (Note 13)
Tax
(Expense)
Benefit

After-
Tax

Before-
Tax

Foreign Currency Items
Tax
(Expense)
Benefit

After-
Tax

Before-
Tax

AOCI

$ (57,211) $ 21,740 $(35,471) $(22,688) $ 8,621 $(14,067) $ (637)

$ —

$ (637) $(50,175)

(30,519) 11,597 (18,922)
—

—

(30,519) 11,597 (18,922)

—
—

—

—
—

—

—
—
— (1,954)

— (1,954)

—

3,344

(1,271)

2,073

1,335

(507)

828

34,381 (13,065) 21,316
(3,500)
2,146
(5,646)

—

—
—

—

—
—

—

—
—

—

—
—

(449)

171

(278)

3,344

(1,271)

2,073 (1,954)

—

(66)

—
—

—

—
—

—

— (18,922)
(1,954)

(1,954)

(20,876)

—

2,073

828

— 21,316
(3,500)
—

(1,954)

(159)

(66)

(449)

171

(278)

3,344

(1,271)

2,073 (1,888)

—

(1,888)

(93)

$ (57,660) $ 21,911 $(35,749) $(19,344) $ 7,350 $(11,994) $(2,525)

$ —

$(2,525) $(50,268)

(1)

The FSIRS reclassification amounts are included in the Net interest deductions line item on the Consolidated Statements of

Income.

(2) These AOCI components are included in the computation of net periodic benefit cost (see Note 10 – Pension and Other

Postretirement Benefits 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 Consolidated

Balance Sheets).

Southwest Gas Corporation

The following table represents amounts (before income tax impacts) included in Accumulated other comprehensive
income (in the table above), that have not yet been recognized in net periodic benefit cost as of December 31, 2015
and 2014:

Amounts Recognized in AOCI (Before Tax)
(Thousands of dollars)

Net actuarial (loss) gain
Prior service cost
Less: amount recognized in regulatory assets

Recognized in AOCI

2015

2014

$(435,269) $(439,131)
(8,373)
390,293

(7,038)
384,647

$ (57,660) $ (57,211)

See Note 10 – Pension and Other Postretirement Benefits for more information on the defined benefit pension plans and
Note 13 – Derivatives and Fair Value Measurements for more information on the FSIRS.

Note 6 – Common Stock
On March 10, 2015, the Company filed with the Securities Exchange Commission (“SEC”) an automatic shelf
registration statement on Form S-3 (File No. 333-202633), which became effective upon filing, for the offer and sale
of up to $100,000,000 of the Company’s 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 10, 2015, between
the Company and BNY Mellon Capital Markets, LLC (the “Equity Shelf Program”). During 2015, the Company sold
an aggregate of 645,225 shares of common stock under this program resulting in proceeds to the Company of
$35,167,584, net of $355,228 in agent commissions. No sales occurred in the fourth quarter of 2015. As of
December 31, 2015, the Company had up to $64,477,188 of common stock available for sale under the program.
Net proceeds from the sale of shares of common stock under the Equity Shelf Program are intended for general
corporate purposes,
the construction, completion, extension or
improvement of pipeline systems and facilities located in and around the communities Southwest serves.

including the acquisition of property for

In addition, during 2015, the Company issued approximately 209,000 shares of common stock through the Stock
Incentive Plan, Restricted Stock/Unit Plan, and Management Incentive Plan.

Note 7 – Long-Term Debt
Carrying amounts of the Company’s long-term debt and their related estimated fair values as of December 31, 2015
and December 31, 2014 are disclosed in the following table. The fair values of the 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. They are categorized as Level 1 (quoted prices for identical financial
instruments) within the
three-level fair value hierarchy that ranks the inputs used to measure fair value by their reliability, due to the
Company’s ability to access similar debt arrangements at measurement dates with comparable terms, including
variable rates. The fair values of debentures, senior notes, and fixed-rate IDRBs were determined utilizing a market-
based valuation approach, where fair market 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 market values of

Southwest Gas Corporation

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. Since
Centuri’s 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 Centuri’s debt maturity spectrum, of other industrial bonds with an assumed credit
rating comparable to the Company’s.

December 31,

(Thousands of dollars)
Debentures:

Notes, 4.45%, due 2020
Notes, 6.1%, due 2041
Notes, 3.875%, due 2022
Notes, 4.875%, due 2043
8% Series, due 2026
Medium-term notes, 7.59% series, due 2017
Medium-term notes, 7.78% series, due 2022
Medium-term notes, 7.92% series, due 2027
Medium-term notes, 6.76% series, due 2027
Unamortized discount and debt issuance costs

2015

2014

Carrying
Amount

Market
Value

Carrying
Amount

Market
Value

$ 125,000 $130,273 $ 125,000 $133,403
157,290
262,030
280,903
102,296
27,573
31,144
33,695
9,156

141,581
253,600
251,483
97,035
26,253
29,855
31,890
8,684

125,000
250,000
250,000
75,000
25,000
25,000
25,000
7,500
(6,137)

125,000
250,000
250,000
75,000
25,000
25,000
25,000
7,500
(6,604)

Revolving credit facility and commercial paper

150,000

901,363

900,896

Industrial development revenue bonds:

Variable-rate bonds:

Tax-exempt Series A, due 2028
2003 Series A, due 2038
2008 Series A, due 2038
2009 Series A, due 2039

Fixed-rate bonds:

5.25% 2003 Series D, due 2038
5.00% 2004 Series B, due 2033
4.85% 2005 Series A, due 2035
4.75% 2006 Series A, due 2036
Unamortized discount and debt issuance costs

Centuri term loan facility
Unamortized debt issuance costs

Centuri secured revolving credit facility
Centuri other debt obligations

Less: current maturities

Long-term debt, less current maturities

50,000
50,000
50,000
50,000

—
—
100,000
24,855
(3,946)

320,909

112,571
(692)

111,879

60,627
25,901

50,000
50,000
50,000
50,000

—
—
100,452
25,130

112,665

60,724
26,059

50,000
50,000
50,000
50,000

20,000
31,200
100,000
24,855
(5,964)

370,091

142,071
(816)

141,255

57,196
31,128

50,000
50,000
50,000
50,000

20,277
31,223
100,071
25,399

143,021

57,320
31,127

1,570,679
(19,475)

$1,551,204

1,650,566
(19,192)

$1,631,374

Southwest Gas Corporation

In March 2015, Southwest amended its $300 million credit and commercial paper facility. The facility was previously
scheduled to expire in March 2019, but was extended to March 2020. The Company will continue to use
$150 million of the facility as long-term debt and the remaining $150 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 Company’s senior unsecured
debt rating. At December 31, 2015, 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 December 31, 2015, $150 million
was outstanding on the long-term portion of the credit facility, including $50 million in commercial paper (see
commercial paper program discussion below). The effective interest rate on the long-term portion of the credit
facility was 1.45% at December 31, 2015. Borrowings under the credit facility ranged from none during the second
quarter of 2015 to a high of $180 million during the fourth quarter of 2015. With regard to the short-term portion of
the credit
there was $18 million outstanding at December 31, 2015 and $5 million outstanding at
December 31, 2014. (See Note 8 – Short-Term Debt).

facility,

The Company has a $50 million commercial paper program. Any issuance under the commercial paper program is
supported by the Company’s current revolving credit
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 program are calculated at the then current commercial paper rate. At December 31, 2015, and
as noted above, $50 million was outstanding on the commercial paper program. The effective interest rate on the
commercial paper program was 1.01% at December 31, 2015.

facility and,

In May 2015, the Company redeemed at par the $31.2 million 5.00% 2004 Series B IDRBs originally due in 2033.
The Company facilitated the redemption primarily from cash on hand and borrowings under its $300 million credit
facility.

In September 2015, the Company redeemed at par the $20 million 5.25% 2003 Series D IDRBs originally due in
2038. The Company facilitated the redemption primarily from cash on hand and borrowings under its $300 million
credit facility.

Centuri has a $300 million secured revolving credit and term loan facility that is scheduled to expire in October
2019. This facility includes a revolving credit facility and a term loan facility. The term loan facility had an initial limit
of approximately $150 million, which was reached in 2014 and is in the process of being repaid. No further
borrowing is permitted under the term loan facility. In January 2016, administrative amendments were made to the
revolving credit and term loan facility with no impact to borrowing capacity, due dates, or interest provisions. The
revolving credit facility has a limit of $150 million; amounts borrowed and repaid under the revolving credit facility
are available to be re-borrowed. The revolving credit and term loan facility is secured by substantially all of
Centuri’s assets except ones explicitly excluded under the terms of the agreement (including owned real estate
and certain certificated vehicles). Centuri assets securing the facility at December 31, 2015 totaled $437 million.

Interest rates for Centuri’s $300 million secured revolving credit and term loan facility are calculated at the LIBOR,
the Canadian Dealer Offered Rate (“CDOR”), or an alternate base rate or Canadian base rate, plus in each case an
applicable margin that is determined based on Centuri’s consolidated leverage ratio. The applicable margin ranges
from 1.00% to 2.25% for loans bearing interest with reference to LIBOR or CDOR and from 0.00% to 1.25% for loans
bearing interest with reference to the alternate base rate or Canadian base rate. Centuri is also required to pay a
commitment fee on the unfunded portion of the commitments based on the consolidated leverage ratio. The

Southwest Gas Corporation

commitment fee ranges from 0.15% to 0.40% per annum. Borrowings under the revolving credit facility ranged from
a low of $60.6 million during December 2015 to a high of $105.2 million during May 2015. All amounts outstanding
are considered long-term borrowings. The effective interest rate on the secured revolving credit and term loan
facility was 2.46% at December 31, 2015.

The effective interest rates on the variable-rate IDRBs are included in the table below:

2003 Series A
2008 Series A
2009 Series A
Tax-exempt Series A

December 31, 2015 December 31, 2014

0.87%
0.87%
0.75%
0.81%

0.85%
0.90%
0.89%
0.84%

In Nevada, interest fluctuations due to changing interest rates on the 2003 Series A, 2008 Series A, and 2009
Series A variable-rate IDRBs are tracked and recovered from ratepayers through an interest balancing account.

Estimated maturities of long-term debt for the next five years are (in thousands):

2016
2017
2018
2019
2020

$ 19,475
42,245
14,906
142,452
275,238

No debt instruments have credit triggers or other clauses that result in default if Company bond ratings are lowered
by rating agencies. Certain Company debt instruments contain securities ratings covenants that, if set in motion,
would increase financing costs. Certain debt instruments also have leverage ratio caps and minimum net worth
requirements. At December 31, 2015, the Company is in compliance with all of its covenants. Under the most
restrictive of the covenants, the Company could issue approximately $2.2 billion in additional debt and meet the
leverage ratio requirement. The Company has at least $1 billion of cushion in equity relating to the minimum net
worth requirement.

Certain Centuri debt instruments have leverage ratio caps and fixed charge ratio coverage requirements. At
December 31, 2015, Centuri is in compliance with all of its covenants. Under the most restrictive of the covenants,
Centuri could issue approximately $75 million in additional debt and meet the leverage ratio requirement. Centuri
has at least $15 million of cushion relating to the minimum fixed charge ratio coverage requirement.

Early Adoption of Accounting Standards Update (“ASU”) No. 2015-03. As of December 31, 2015, the Company
adopted FASB ASU No. 2015-03 “Interest-Imputation of Interest (subtopic 835-30)”. To simplify presentation of
debt issuance costs, the amendments in this update require that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. The adoption of this update is considered a change in an accounting principle.
Upon adoption, the 2014 amounts in the Consolidated Balance Sheets were restated for Long-term debt (from
$1,637,592,000 to $1,631,374,000), Deferred charges and other assets (from $478,625,000 to $472,579,000), and
Prepaids and other current assets (from $99,975,000 to $99,803,000). The 2014 amounts in the debt listing table
for unamortized discount and debt issuance costs for debentures and IDRBs previously included only amounts

Southwest Gas Corporation

associated with unamortized discount, ($5,223,000) for debentures and ($1,943,000) for IDRBs. The difference
between the associated figures in the debt listing table and these figures are amounts associated with unamortized
debt issue costs reclassified in accordance with the update.

In a related update, the SEC provided guidance that for line-of-credit (“LOC”) arrangements, companies could elect
to present debt issuance costs within assets, regardless of whether there is an outstanding balance on such
borrowings. Making such an election may make presentations less confusing as net negative balances would
otherwise result in cases when there are no outstanding LOC borrowings but associated issuance costs are still
being amortized. Therefore, for LOC arrangements, such as Southwest’s revolving credit facility and Centuri’s
secured revolving credit portion of its facility, the Company has elected, as permitted, to continue to recognize
unamortized debt issuance costs within its asset categories and no such amounts have been reclassified. The
unamortized debt issuance costs associated with the term loan portion of Centuri’s $300 million facility, ($816,000),
have been reclassified as a deduction from the related 2014 debt balance. The debt listing table has been updated
to reflect these changes based on the elections made.

Note 8 – Short-Term Debt
As discussed in Note 7, Southwest has a $300 million credit facility that is scheduled to expire in March 2020, of
which $150 million has been designated by management for working capital purposes. The Company had
$18 million in short-term borrowings outstanding at December 31, 2015 and $5 million in short-term borrowings
outstanding at December 31, 2014. The effective interest rate on the short-term portion of the credit facility was
1.37% at December 31, 2015.

Note 9 – Commitments and Contingencies
The Company is a defendant in miscellaneous legal proceedings. The Company is also a party to various regulatory
proceedings. The ultimate dispositions of these proceedings are not presently determinable; however, it is the
opinion of management that no litigation or regulatory proceeding to which the Company is currently subject will
have a material adverse impact on its financial position or results of operations.

The Company maintains liability insurance for various risks associated with the operation of its natural gas pipelines
and facilities.
In connection with these liability insurance policies, the Company is responsible for an initial
deductible or self-insured retention amount per incident, after which the insurance carriers would be responsible
for amounts up to the policy limits. For the policy year August 2015 to July 2016, these liability insurance policies
require Southwest to be responsible for the first $1 million (self-insured retention) of each incident plus the first
$4 million in aggregate claims above its self-insured retention in the policy year. Through an assessment process,
the Company may determine that certain costs are likely to be incurred in the future related to specific legal
matters. In these circumstances and in accordance with accounting policies, the Company will make an accrual, as
necessary.

Note 10 – Pension and Other Postretirement Benefits
Southwest has an Employees’ Investment Plan that provides for purchases of various mutual fund investments and
Company common stock by eligible Southwest employees through deduction of a percentage of base
compensation, subject to IRS limitations. Southwest matches one-half of amounts deferred by employees, up to a
maximum matching contribution of 3.5% of an employee’s annual compensation. Centuri has a separate plan, the
cost and liability of which are not significant. The cost of the Southwest plan is listed below (in thousands):

Employee Investment Plan cost

2015

2014

2013

$5,072 $4,816 $4,850

Southwest Gas Corporation

Southwest has a deferred compensation plan for all officers and a separate deferred compensation plan for
members of the Board of Directors. The plans provide the opportunity to defer up to 100% of annual cash
compensation. Southwest matches one-half of amounts deferred by officers, up to a maximum matching
contribution of 3.5% of an officer’s annual base salary. Upon retirement, payments of compensation deferred, plus
interest, are made in equal monthly installments over 10, 15, or 20 years, as elected by the participant. Directors
have an additional option to receive such payments over a five-year period. Deferred compensation earns interest
at a rate determined each January. The interest rate equals 150% of Moody’s Seasoned Corporate Bond Rate
Index.

Southwest has a noncontributory qualified retirement plan with defined benefits covering substantially all
employees and a separate unfunded supplemental executive 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 benefits.

The Company recognizes the overfunded or underfunded positions of defined benefit postretirement plans,
including pension plans, in its Consolidated Balance Sheets. Any actuarial gains and losses, prior service costs and
transition assets or obligations are recognized in Accumulated other comprehensive income under Stockholders’
equity, net of tax, until they are amortized as a component of net periodic benefit cost.

The Company has established a regulatory asset for the portion of the total amounts otherwise chargeable to
accumulated other comprehensive income that are expected to be recovered through rates in future periods.
Changes in actuarial gains and losses and prior service costs pertaining to the regulatory asset will be recognized
as an adjustment to the regulatory asset account as these amounts are amortized and recognized as components
of net periodic pension costs each year.

Investment objectives and strategies for the qualified retirement plan are developed and approved by the Pension
Plan Investment Committee of the Board of Directors of the Company. They are designed to enhance capital,
maintain minimum liquidity required for retirement plan operations and effectively manage pension assets.

A target portfolio of investments in the qualified retirement plan is developed by the Pension Plan Investment
Committee and is reevaluated periodically. Asset return assumptions are determined by evaluating performance
expectations of the target portfolio. Projected benefit obligations are estimated using actuarial assumptions and
Company benefit policy. A target mix of assets is then determined based on acceptable risk versus estimated
returns in order to fund the benefit obligation. At December 31, 2015, the percentage ranges of the target portfolio
are:

Type of Investment

Equity securities
Debt securities
Other

Percentage Range

59 to 71
31 to 37
up to 5

The Company’s pension costs for these plans are affected by the amount and timing of cash contributions to the
plans, the return on plan assets, discount rates, and by employee demographics, including age, compensation, and
length of service. Changes made to the provisions of the plans may also impact current and future pension costs.
Actuarial formulas are used in the determination of pension costs and are affected by actual plan experience and
assumptions about future experience. Key actuarial assumptions include the expected return on plan assets, the

Southwest Gas Corporation

discount rate used in determining the projected benefit obligation and pension costs, and the assumed rate of
increase in employee compensation. Relatively small changes in these assumptions, particularly the discount rate,
may significantly affect pension costs and plan obligations for the qualified retirement plan. In determining the
discount rate, the Company matches the plan’s projected cash flows to a spot-rate yield curve based on highly
rated corporate bonds. Changes to the discount rate from year-to-year, if any, are generally made in increments of
25 basis points.

Due to a higher interest rate environment for high-quality fixed income investments, the Company increased the
discount rate at December 31, 2015 from 2014. The methodology utilized to determine the discount rate was
consistent with prior years. The weighted-average rate of compensation increase was also raised (consistent with
management’s expectations overall). The asset return assumption (which impacts the following year’s expense)
was lowered. The rates are presented in the table below:

Discount rate
Weighted-average rate of
compensation increase

Asset return assumption

December 31, 2015

December 31, 2014

4.50%

3.25%
7.25%

4.25%

2.75%
7.75%

Pension expense for 2016 is estimated to decrease by $6.7 million compared to 2015 notably due to the higher
discount rate and lower mortality projection. Future years expense level movements (up or down) will continue to
be greatly influenced by long-term interest rates, asset returns, and funding levels.

Southwest Gas Corporation

The following table sets forth the retirement plan, SERP, and PBOP funded statuses and amounts recognized on
the Consolidated Balance Sheets and Consolidated Statements of Income.

2015

2014

Qualified
Retirement Plan

SERP

PBOP

Qualified
Retirement Plan

SERP

PBOP

(Thousands of dollars)
Change in benefit obligations

Benefit obligation for service

rendered to date at
beginning of year (PBO/
PBO/APBO)

Service cost
Interest cost
Plan amendments
Actuarial loss (gain)
Benefits paid

Benefit obligation at end of
year (PBO/PBO/APBO)

Change in plan assets

Market value of plan assets at

beginning of year

Actual return on plan assets
Employer contributions
Benefits paid

Market value of plan assets at

$1,060,240
25,123
44,229
—
(44,553)
(40,222)

$ 41,176 $ 72,202
1,641
2,999
—
(3,251)
(959)

320
1,695
—
2,322
(2,793)

$ 886,714
21,360
43,440
—
144,606
(35,880)

$ 36,143 $ 58,020
1,101
2,829
6,661
4,567
(976)

292
1,745
—
5,459
(2,463)

1,044,817

42,720

72,632

1,060,240

41,176

72,202

754,796
(13,694)
36,000
(40,222)

—
—
2,793
(2,793)

44,892
(1,034)
—
(274)

719,944
34,732
36,000
(35,880)

—
—
2,463
(2,463)

42,314
2,859
—
(281)

end of year

736,880

—

43,584

754,796

—

44,892

Funded status at year end

$ (307,937)

$(42,720) $(29,048)

$ (305,444)

$(41,176) $(27,310)

Weighted-average assumptions

(benefit obligation)
Discount rate
Weighted-average rate of
compensation increase

4.50%

4.25%

3.25%

N/A

2.75%

N/A

Estimated funding for the plans above during calendar year 2016 is approximately $39 million of which $36 million
pertains to the retirement plan. Management monitors plan assets and liabilities and could, at its discretion,
increase plan funding levels above the minimum in order to achieve a desired funded status and avoid or minimize
potential benefit restrictions.

The accumulated benefit obligation for the retirement plan and the SERP is presented below (in thousands):

Retirement plan
SERP

December 31, 2015 December 31, 2014

$922,992
39,270

$886,215
39,125

Southwest Gas Corporation

Benefits expected to be paid for the pension, PBOP, and the SERP over the next 10 years are as follows (in
millions):

Pension
PBOP
SERP

2016

$44.0
3.9
2.8

2017

$45.5
4.1
2.8

2018

$47.2
4.3
2.8

2019

$48.9
4.5
2.9

2020

2021-2025

$50.5
4.5
2.9

$283.5
21.3
14.1

No assurance can be made that actual funding and benefits paid will match these estimates.

For PBOP measurement purposes, the per capita cost of the covered health care benefits medical rate trend
assumption is 7.5% declining to 4.5%. The Company makes fixed contributions for health care benefits of
employees who retire after 1988, but pays all covered health care costs for employees who retired prior to 1989.
The medical trend rate assumption noted above applies to the benefit obligations of pre-1989 retirees only.

Components of net periodic benefit cost

Qualified
Retirement Plan
2014

2015

2013

2015

SERP
2014

2013

2015

PBOP
2014

2013

(Thousands of dollars)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service

cost

Amortization of net actuarial

$ 25,123 $ 21,360 $ 23,056 $ 320 $ 292 $ 373 $ 1,641 $ 1,101 $ 1,220
2,482
(2,824)

37,607 1,695 1,745 1,535
(49,840)

2,999
— (3,464)

43,440
(53,342)

44,229
(57,808)

2,829
(3,264)

—

— 1,335

355

loss

32,743

22,873

32,261 1,293

783

971

345

—

945

Net periodic benefit cost

$ 44,287 $ 34,331 $ 43,084 $3,308 $2,820 $2,879 $ 2,856 $ 1,021 $ 2,178

Weighted-average assumptions

(net benefit cost)

Discount rate
Expected return on plan assets
Weighted-average rate of
compensation increase

4.25%
7.75%

5.00%
7.75%

4.25% 4.25% 5.00% 4.25% 4.25% 5.00% 4.25%
8.00% 7.75% 7.75% 8.00% 7.75% 7.75% 8.00%

2.75%

3.25%

2.75% 2.75% 3.25% 2.75%

N/A

Southwest Gas Corporation

Other Changes in Plan Assets and Benefit Obligations Recognized in Net Periodic Benefit Cost and Other Comprehensive Income

2015

Qualified
Retirement
Plan

Total

SERP

PBOP

Total

2014

Qualified
Retirement
Plan

SERP

PBOP

Total

2013

Qualified
Retirement
Plan

SERP

PBOP

(Thousands of dollars)
Net actuarial loss

(gain) (a)

Amortization of prior
service cost (b)
Amortization of net
actuarial loss (b)
Prior service cost
Regulatory adjust-

ment

Recognized in other
comprehensive

(income) loss
Net periodic benefit
costs recognized
in net income

Total of amount

recognized in net
periodic benefit
cost and other
comprehensive
(income) loss

$ 30,519 $ 26,949 $ 2,322 $ 1,248 $ 173,646 $ 163,215 $5,460 $ 4,971 $(100,345) $ (91,115) $ (662) $(8,568)

(1,335)

—

— (1,335)

(355)

—

(355)

—

(355)

(34,381)
—

(32,743)
—

(1,293)
—

(345)
—

(23,656)
6,661

(22,872)
—

(784)
—

—
6,661

(34,177)
—

(32,261)
—

(971)
—

(945)
—

5,646

5,214

—

432 (140,308)

(129,031)

— (11,277) 123,630 113,762

— 9,868

449

(580) 1,029

—

15,988

11,312 4,676

—

(11,247)

(9,614)

(1,633)

—

50,451

44,287

3,308

2,856

38,172

34,331 2,820

1,021

48,141

43,084

2,879

2,178

$ 50,900 $ 43,707 $ 4,337 $ 2,856 $ 54,160 $ 45,643 $7,496 $ 1,021 $ 36,894 $ 33,470 $ 1,246 $ 2,178

The table above discloses the net gain or loss and prior service cost recognized in other comprehensive income,
separated into (a) amounts initially recognized in other comprehensive income, and (b) amounts subsequently
recognized as adjustments to other comprehensive income as those amounts are amortized as components of net
periodic benefit cost.

See also Note 5 – Other Comprehensive Income and Accumulated Other Comprehensive Income (“AOCI”).

U.S. GAAP states that a fair value measurement should be based on the assumptions that market participants
would use in pricing the asset or liability and establishes a fair value hierarchy that ranks the inputs used to
measure fair value by their reliability. The three levels of the fair value hierarchy are as follows:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that a company has the ability
to access at the measurement date.

Level 2 – inputs other than quoted prices included within Level 1 that are observable for similar assets or liabilities,
either directly or indirectly.

Level 3 – unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the
extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market
activity for the asset or liability at the measurement date.

The following table sets forth, by level within the three-level fair value hierarchy, the fair values of the assets of the
qualified pension plan and the PBOP as of December 31, 2015 and December 31, 2014. The SERP has no assets.
The FASB issued guidance in 2015, which the Company has adopted early as permitted, removing the requirement
to categorize assets in the fair value hierarchy that are measured using the net asset value (“NAV”) practical

Southwest Gas Corporation

expedient. See note (3) to the table below. Based on this guidance, no Level 3 assets existed (nor are reflected in
the table below) at December 31, 2015 and December 31, 2014.

December 31, 2015

December 31, 2014

Qualified
Retirement
Plan

PBOP

Total

Qualified
Retirement
Plan

PBOP

Total

Assets at fair value (thousands of dollars):

Level 1 – Quoted prices in active markets for

identical financial assets
Common stock
Agriculture
Capital equipment
Chemicals/materials
Consumer goods
Energy and mining
Finance/insurance
Healthcare
Information technology
Services
Telecommunications/internet/media
Other

Real estate investment trusts
Mutual funds
Government fixed income securities
Preferred securities
Futures contracts

7,021 $
533
3,304
41,035
11,066
29,957
37,930
29,229
12,341
25,883
9,043
5,010
87,483
33,482
—
(7)

209 $
16
98
1,221
329
892
1,129
870
367
770
269
149
23,985
996
—
—

7,230 $
549
3,402
42,256
11,395
30,849
39,059
30,099
12,708
26,653
9,312
5,159
111,468
34,478
—
(7)

6,661 $
2,222
5,233
41,731
18,502
20,685
37,846
25,881
28,846
18,498
10,958
5,713
86,159
44,694
568
—

198 $
66
155
1,238
549
613
1,122
767
855
549
325
169
24,567
1,325
17
—

6,859
2,288
5,388
42,969
19,051
21,298
38,968
26,648
29,701
19,047
11,283
5,882
110,726
46,019
585
—

Total Level 1 Assets (1)

$333,310 $31,300 $364,610 $354,197 $32,515 $386,712

Level 2 – Significant other observable inputs

Government fixed income and mort-

gage backed securities

Corporate fixed income securities

Asset-backed and mortgage-backed
Banking
Insurance
Utilities
Other

Pooled funds and mutual funds
Real estate investment trusts
State and local obligations
Preferred securities
Convertible securities

Total Level 2 assets (2)

Total Plan assets at fair value

Commingled equity funds (3)
Insurance company general account

contracts (4)

Total Plan assets (5)

$ 49,571 $ 1,475 $ 51,046 $ 48,312 $ 1,433 $ 49,745

23,542
20,857
4,896
3,826
30,995
14,808
1,949
950
554
196

701
621
146
114
922
796
58
28
17
6

24,243
21,478
5,042
3,940
31,917
15,604
2,007
978
571
202

27,071
23,289
6,182
4,232
23,120
11,968
—
1,499
—
—

803
691
183
126
686
984
—
44
—
—

27,874
23,980
6,365
4,358
23,806
12,952
—
1,543
—
—

$152,144 $ 4,884 $157,028 $145,673 $ 4,950 $150,623

$485,454 $36,184 $521,638 $499,870 $37,465 $537,335
266,922

257,966

250,511

259,235

7,455

7,687

3,719

—

3,719

4,003

—

4,003

$739,684 $43,639 $783,323 $763,108 $45,152 $808,260

Southwest Gas Corporation

(1) Common stock, Real Estate Investment Trusts, Mutual funds, and U.S. Government securities listed or regularly
traded on a national securities exchange are valued at quoted market prices as of the last business day of the
calendar year.

The Mutual funds category above is an intermediate-term bond fund whose manager employs multiple
concurrent strategies and takes only moderate risk in each, thereby reducing the risk of poor performance
arising from any single source, and a balanced fund that invests in a diversified portfolio of common stocks,
preferred stocks and fixed-income securities. Strategies utilized by the bond fund include duration
management, yield curve or maturity structuring, sector rotation, and all bottom-up techniques including in-
house credit and quantitative research. Strategies employed by the balanced fund include pursuit of regular
income, conservation of principal, and an opportunity for long-term growth of principal and income.

(2) The fair value of investments in debt securities with remaining maturities of one year or more is determined by
dealers who make markets in such securities or by an independent pricing service, which considers yield or
price of bonds of comparable quality, coupon, maturity, and type.

The pooled funds and mutual funds are two collective short-term funds that invest in Treasury bills and money
market funds. These funds are used as a temporary cash repository for the pension plan’s various investment
managers.

(3) The commingled equity funds include private equity funds that invest in domestic and international securities
regularly traded on securities exchanges. These funds are shown in the above table at net asset value, which
is the value of securities in the fund less the amount of any liabilities outstanding. Investment strategies
employed by the funds include:

International developed countries value and growth equities

• Domestic large capitalization value equities
•
• Emerging markets equities
•

International small capitalization equities

The terms and conditions under which shares in the commingled equity funds may be redeemed vary among
the funds; the notice required ranges from one day to 30 days prior to the valuation date (month end). One of
the commingled equity funds requires the payment of a minimal impact fee to be applied to redemptions and
subscriptions of $5 million or greater; the relative fee diminishes the greater the transaction. Other such funds
may impose fees to recover direct costs incurred by the fund at redemption, but are indeterminable prior to
redemption.

Early adoption of ASU No. 2015-07: As permitted the Company adopted (earlier than the required adoption
date) FASB ASU No. 2015-07 “Disclosures for Investments in Certain Entities that Calculate Net Asset Value
per Share (or its Equivalent)” as of December 31, 2015. This guidance simplifies disclosure requirements
relating to investments for which fair value is measured using the NAV per share, or its equivalent. The update
removes the requirement to categorize within the fair value hierarchy all investments for which fair value is
measured using the NAV per share practical expedient. The FASB determined that including those assets in
the fair value hierarchy is potentially confusing and misleading to financial statement users. The fair value of
the commingled equity funds was determined using NAV as an expedient since no significant observable
inputs were available (these funds are not publicly traded on an exchange). Because of the requirements of

Southwest Gas Corporation

this update, the commingled equity funds are no longer included in the above fair value hierarchy table as a
Level 3 fair value measurement but instead are disclosed as a reconciling item to the table. The associated
Fair Value Measurement Using Significant Unobservable Inputs (Level 3) table is no longer presented due to
this change, as the commingled equity funds were the only assets whose values were previously indicated to
be Level 3 fair value measurements.

(4) The insurance company general account contracts are annuity insurance contracts used to pay the pensions of
employees who retired prior to 1989. The balance of the account disclosed in the above table is the contract
value, which is the result of deposits, withdrawals, and interest credits.

(5) The assets in the above table exceed the market value of plan assets shown in the funded status table by
$2,859,000 (qualified retirement plan – $2,803,000, PBOP – $56,000) and $8,572,000 (qualified retirement
plan – $8,312,000, PBOP – $260,000) for 2015 and 2014, respectively, which includes a payable for securities
purchased, partially offset by receivables for interest, dividends, and securities sold.

Note 11 – Stock-Based Compensation
the Company had three stock-based compensation plans: a stock option plan, a
At December 31, 2015,
performance share stock plan which includes a cash award, and a restricted stock/unit plan. The table below shows
total stock-based plan compensation expense,
including the cash award, which was recognized in the
Consolidated Statements of Income (in thousands):

Stock-based compensation plan expense, net of related tax benefits
Stock-based compensation plan related tax benefits

2015

2014

2013

$7,278 $8,130 $8,012
4,910
4,983

4,461

Under the option plan, the Company previously granted options to purchase shares of common stock, to key
employees and outside directors. The last option grants were in 2006 and no future grants are anticipated. Each
option had an exercise price equal to the market price of Company common stock on the date of grant and a
maximum term of ten years. Therefore, remaining options, if not exercised prior to the anniversary date of the 2006
grant (in 2016), will then expire.

The following tables summarize Company stock option plan activity and related information (thousands of options):

2015

2014

2013

Number of
options

Weighted-
average
exercise price

Number of
options

Weighted-
average
exercise price

Number of
options

Weighted-
average
exercise price

Outstanding at the beginning

of the year

Exercised during the year

Forfeited or expired during

the year

Outstanding and exercisable

at year end

(19)

—

$28.97

26.69

—

$31.64

(16)

—

$27.57

24.31

—

$28.97

125

(72)

(1)

$28.13

28.44

33.07

$27.57

Southwest Gas Corporation

The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the
exercise price of the option. The aggregate intrinsic value of outstanding and exercisable options, and options that
were exercised, are presented in the table below (in thousands):

Outstanding and exercisable
Exercised

2015

$394
590

2014

$1,194
451

2013

$1,473
1,402

December 31, 2015 December 31, 2014 December 31, 2013

Market value of Southwest Gas stock

$55.16

$61.81

$55.91

The weighted-average remaining contractual
life for outstanding options was less than one year for 2015. All
outstanding options are fully vested and exercisable. The following table summarizes information about stock
options outstanding at December 31, 2015 (thousands of options):

Range of
Exercise Price

Number outstanding

Options Outstanding and Exercisable
Weighted-average
remaining contractual life

Weighted-average
exercise price

$29.08 to $33.07

0.5 Years

$31.64

The Company received $523,000 in cash from the exercise of options during 2015 and a corresponding tax benefit
of $218,000 which was recorded in additional paid-in capital.

the Company may issue performance shares to encourage key
Under the performance share stock plan,
employees to remain in its employment and to achieve short-term and long-term performance goals. Plan
participants are eligible to receive a cash bonus (i.e., short-term incentive) and performance shares (i.e., long-term
incentive). The performance shares vest three years after grant and are then issued as common stock.

The Company awards restricted stock/units under the restricted stock/unit plan to attract, motivate, retain, and
reward key employees with an incentive to attain high levels of individual performance and improved financial
performance of the Company. The restricted stock/units vest 40% at the end of year one and 30% at the end of
years two and three and are issued annually as common stock in accordance with the percentage vested. The
restricted stock/unit plan was also established to attract, motivate, and retain experienced and knowledgeable
independent directors. Vesting for grants of restricted stock/units to directors occurs immediately upon grant. The
issuance of common stock for directors occurs when their service on the Board ends.

The following table summarizes the activity of the performance share stock and restricted stock/unit plans as of
December 31, 2015 (thousands of shares):

Nonvested/unissued at beginning of year

Granted
Dividends
Forfeited or expired
Vested and issued*

Nonvested/unissued at December 31, 2015

* Includes shares for retiree payouts and those converted for taxes.

Performance
Shares

Weighted-
average
grant date
fair value

Restricted
Stock/
Units

Weighted-
average
grant date
fair value

271
80
6
—
(160)

197

$43.71
63.09

—
43.12

$50.63

257
73
7
—
(109)

228

$41.22
63.09

—
46.65

$44.36

Southwest Gas Corporation

The average grant date fair value of performance shares and restricted stock/units granted in 2014 and 2013 was
$53.73 and $44.83, respectively.

As of December 31, 2015, total compensation cost related to nonvested performance shares and restricted stock/
units not yet recognized is $3.3 million.

Note 12 – Income Taxes
The following is a summary of income before taxes and noncontrolling interest for domestic and foreign operations
(thousands of dollars):

Year ended December 31,

2015

2014

2013

U.S.
Foreign

$221,660 $221,471 $222,815
—

(2,328)

(1,950)

Total income before income taxes

$219,332 $219,521 $222,815

Income tax expense (benefit) consists of the following (thousands of dollars):

Year Ended December 31,

2015

2014

2013

Current:

Federal
State
Foreign

Deferred:
Federal
State
Foreign

Total income tax expense

$21,321 $ 1,739 $ 3,549
5,107
—

9,899
650

5,073
2,193

31,870

9,005

8,656

51,132
(2,574)
(526)

71,439
614
(2,685)

67,414
1,872
—

48,032

69,368

69,286

$79,902 $78,373 $77,942

Deferred income tax expense (benefit) consists of the following significant components (thousands of dollars):

Year Ended December 31,

Deferred federal and state:
Property-related items
Purchased gas cost adjustments
Employee benefits
All other deferred

Total deferred federal and state
Deferred ITC, net

Total deferred income tax expense

2015

2014

2013

$ 65,931 $52,814 $62,737
16,189
15,049
(2,769)
109
(6,010)
2,257

(32,993)
623
15,332

48,893
(861)

70,229
(861)

70,147
(861)

$ 48,032 $69,368 $69,286

Southwest Gas Corporation

A reconciliation of the U.S. federal statutory rate to the consolidated effective tax rate for 2013, 2014, and 2015 (and
the sources of these differences and the effect of each) are summarized as follows:

Year Ended December 31,

U.S. federal statutory income tax rate

Net state taxes

Property-related items

Tax credits

Company owned life insurance

All other differences

Consolidated effective income tax rate

Deferred tax assets and liabilities consist of the following (thousands of dollars):

December 31,

Deferred tax assets:

Deferred income taxes for future amortization of ITC

Employee benefits

Alternative minimum tax credit

Net operating losses and credits

Interest rate swap

Other

Valuation allowance

Deferred tax liabilities:

Property-related items, including accelerated depreciation

Regulatory balancing accounts

Unamortized ITC

Debt-related costs

Intangibles

Other

Net deferred tax liabilities

Current

Noncurrent

Net deferred tax liabilities

2015 2014 2013

35.0% 35.0% 35.0%

1.8

0.1

(0.4)

0.1

(0.2)

1.9

0.1

(0.5)

(1.0)

0.2

2.4

0.1

(0.4)

(2.1)

—

36.4 % 35.7 % 35.0 %

2015

2014

1,614 $

2,146

36,923

4,809

868

7,351

31,557

20,172

9,719

8,622

24,636

25,872

(499)

(253)

75,702

97,835

794,850

736,810

743

2,549

5,497

9,547

31,533

33,736

3,410

5,066

12,792

27,600

844,719

819,414

769,017

721,579

—

(2,109)

769,017

723,688

$769,017 $721,579

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various states, and in
Canada. With few exceptions, the Company is no longer subject to United States federal, state and local, or
Canadian income tax examinations for years before 2011.

Southwest Gas Corporation

At December 31, 2015, the Company has U.S. federal net capital loss carryforwards of $505,000, which begin to
expire in 2016. At December 31, 2015, the Company has an income tax net operating loss carryforward related to
Canadian operations of $3 million which begins to expire in 2032.

As of December 31, 2015,
the Company sustained losses in its foreign jurisdiction and therefore has no
undistributed foreign earnings. However, the Company intends to permanently reinvest any future foreign earnings
in Canada.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (thousands of
dollars):

Unrecognized tax benefits at beginning of year
Gross increases-tax positions in prior period
Gross decreases-tax positions in prior period
Gross increases-current period tax positions
Gross decreases-current period tax positions
Settlements
Lapse in statute of limitations

Unrecognized tax benefits at end of year

2015 2014

$305 $ —
— 305
—
(9)
—
—
—
—
—
—
—
—

$296 $305

In assessing whether uncertain tax positions should be recognized in its financial statements, Southwest first
determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including
resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating
whether a tax position has met the more-likely-than-not recognition threshold, Southwest presumes that the
position will be examined by the appropriate taxing authority that would have full knowledge of all relevant
information. For tax positions that meet the more-likely-than-not recognition threshold, Southwest measures the
amount of benefit recognized in the financial statements at the largest amount of benefit that is greater than
50 percent likely of being realized upon ultimate settlement. Southwest recognizes unrecognized tax benefits in
the first financial reporting period in which information becomes available indicating that such benefits will more-
likely-than-not be realized. For each reporting period, management applies a consistent methodology to measure
unrecognized tax benefits, and all unrecognized tax benefits are reviewed periodically and adjusted as
circumstances warrant. Southwest’s measurement of its unrecognized tax benefits is based on management’s
assessment of all relevant information, including prior audit experience, the status of audits, conclusions of tax
audits, lapsing of applicable statutes of limitation, identification of new issues, and any administrative guidance or
developments

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $0 at
December 31, 2015. No significant increases or decreases in unrecognized tax benefit are expected within the next
12 months.

The Company recognizes interest expense and income and penalties related to income tax matters in income tax
expense. There was no tax-related interest income for 2015, 2014, and 2013.

Southwest Gas Corporation

Income Tax Regulations.
In September 2013, the United States Department of the Treasury and the Internal
Revenue Service (“IRS”) issued regulations for the tax treatment of tangible property. The regulations include
standards for determining whether and when a taxpayer must capitalize costs incurred in acquiring, maintaining, or
improving tangible property. The regulations are generally effective for tax years beginning on or after January 1,
2014, and were eligible for adoption in earlier years under certain circumstances. Regulations were also released
that revise the rules for dispositions of tangible property and general asset accounts. The Company expects the IRS
to issue natural gas industry guidance which will facilitate its analysis regarding the regulations’ impact on natural
gas distribution networks. Based upon preliminary analysis of the regulations, and in anticipation of specific
guidance for the natural gas industry, the Company expects the regulations could result in a modest acceleration of
tax deductibility and the deferral of tax payments.

Early Adoption of ASU No. 2015-17. As permitted, the Company adopted FASB ASU No. 2015-17 Income Taxes
(Topic 740) as of December 31, 2015. This ASU simplifies the presentation of deferred income taxes in that deferred
tax liabilities and assets will now be classified as noncurrent in the Consolidated Balance Sheets instead of current
and noncurrent. The adoption of this ASU is considered a change in accounting principle. The Company chose to
apply the content of the update prospectively as permitted. Prior periods were not retrospectively updated.

Note 13 – 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”)
firm commitments to
purchase a fixed amount of gas in the future at a fixed price, qualify for the normal purchases and normal sales
exception that is allowed for contracts that are probable of delivery in the normal course of business, and are
exempt from fair value reporting. The variable-price contracts have no significant market value. The Swaps are
recorded at fair value.

its fixed-price contracts. The fixed-price contracts,

to supplement

The fixed-price contracts and Swaps are utilized by Southwest under its ongoing 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 January 2016 through March 2018. 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):

Contract notional amounts

December 31, 2015 December 31, 2014

7,407

5,105

In late 2013, the Company suspended using swaps and fixed-price purchases pursuant to the Volatility Mitigation
Program (“VMP”) for its Nevada service territories. The Company, along with its regulators, will continue to evaluate
this strategy in light of prevailing or anticipated changing market conditions.

Southwest does not utilize derivative financial
operations.

instruments for speculative purposes, nor does it have trading

Southwest Gas Corporation

The following table sets forth the gains and (losses) recognized on the Company’s Swaps (derivatives) for the years
ended December 31, 2015, 2014, and 2013 and their location in the Consolidated Statements of Income:

Gains (losses) recognized in income for derivatives not designated as hedging instruments:
(Thousands of dollars)

Instrument

Swaps
Swaps

Total

Location of Gain or (Loss)
Recognized in Income on Derivative

Net cost of gas sold
Net cost of gas sold

2015

2014

2013

$(7,598) $(2,363) $ 976

7,598*

2,363*

(976)*

— $

— $ —

* 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 Company’s Swaps and their location in the Consolidated
Balance Sheets (thousands of dollars):

Fair values of derivatives not designated as hedging instruments:

December 31, 2015
Instrument

Swaps
Swaps

Total

December 31, 2014
Instrument

Swaps
Swaps

Total

Balance Sheet Location

Other current liabilities
Other deferred credits

Balance Sheet Location

Other current liabilities
Other deferred credits

Asset
Derivatives

Liability
Derivatives

Net
Total

$—
4

$ 4

$(4,267)
(1,223)

$(4,267)
(1,219)

$(5,490)

$(5,486)

Asset
Derivatives

Liability
Derivatives

Net
Total

$—
—

$—

$(5,062)
(363)

$(5,425)

The estimated fair values of the natural gas derivatives were determined using future natural gas index prices (as
more fully described below). The Company has master netting arrangements with each counterparty that provide
for the net settlement (in the settlement month) of all contracts through a single payment. As applicable, the
Company has elected to reflect the net amounts in its balance sheets. The Company had no outstanding collateral
associated with the Swaps during either period shown in the above table.

Southwest Gas Corporation

Pursuant to regulatory deferral accounting treatment for rate-regulated entities, Southwest records the unrealized
gains and losses in fair value of the Swaps as a regulatory asset and/or liability. When the Swaps mature,
Southwest reverses any prior positions held and records the settled position 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.

(Thousands of dollars)

Paid to counterparties

Received from counterparties

Year ended
December 31,
2015

Year ended
December 31,
2014

Year ended
December 31,
2013

$7,537

—

$ 829

$4,713

$3,148

$ 915

The following table details the regulatory assets/(liabilities) offsetting the derivatives at
Consolidated Balance Sheets (thousands of dollars).

fair value in the

December 31, 2015
Instrument

Swaps
Swaps

December 31, 2014
Instrument

Swaps
Swaps

Balance Sheet Location

Net Total

Prepaids and other current assets
Deferred charges and other assets

$4,267
1,219

Balance Sheet Location

Net Total

Prepaids and other current assets
Deferred charges and other assets

$5,062
363

Fair Value Measurements.
The estimated fair values of Southwest’s Swaps were determined at December 31,
2015 and 2014 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.

Southwest Gas Corporation

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 Company’s financial assets and liabilities that were accounted for at fair
value (see Note 10 – Pension and Other Post Retirement Benefits for definitions of the levels of the fair value hierarchy):

Level 2 – Significant other observable inputs

(Thousands of dollars)
Liabilities at fair value:
Other current liabilities – Swaps
Other deferred credits – Swaps

Net Assets (Liabilities)

December 31, 2015 December 31, 2014

$(4,267)
(1,219)

$(5,486)

$(5,062)
(363)

$(5,425)

No financial assets or liabilities associated with the Swaps, which were accounted for at fair value, fell within Level 1
or Level 3 of the fair value hierarchy.

Note 14 – Segment Information
Company operating segments are determined based on the nature of their activities. The natural gas operations
segment is engaged in the business of purchasing, distributing, and transporting natural gas. Revenues are
generated from the distribution and transportation of natural gas. The construction services segment is primarily
engaged in the business of providing utility companies with trenching and installation, replacement, and
maintenance services for energy distribution systems, and providing industrial construction solutions. Over 99% of
the total Company’s long-lived assets are in the United States.

The accounting policies of the reported segments are the same as those described within Note 1 – Summary of
Significant Accounting Policies. Centuri accounts for the services provided to Southwest at contractual (market) prices
at contract inception. Accounts receivable for these services, which are not eliminated during consolidation, are
presented in the table below (in thousands).

Accounts receivable for Centuri services

$10,006

$9,169

December 31, 2015 December 31, 2014

The following table presents the amount of revenues and long-lived assets for both segments by geographic area
(thousands of dollars):

Revenues (a)

United States
Canada

Total

(a) Revenues are attributed to countries based on the location of customers.

December 31,
2015

December 31,
2014

$2,289,133
174,492

$2,069,513
52,194

$2,463,625

$2,121,707

Southwest Gas Corporation

The financial information pertaining to the natural gas operations and construction services segments for each of
the three years in the period ended December 31, 2015 is as follows (thousands of dollars):

2015

Revenues from unaffiliated customers
Intersegment sales

Total

Interest revenue

Interest expense

Depreciation and amortization

Income tax expense

Segment net income

Segment assets

Capital expenditures

2014

Revenues from unaffiliated customers
Intersegment sales

Total

Interest revenue

Interest expense

Depreciation and amortization

Income tax expense

Segment net income

Segment assets

Capital expenditures

2013

Revenues from unaffiliated customers
Intersegment sales

Total

Interest revenue

Interest expense

Depreciation and amortization

Income tax expense

Segment net income

Segment assets

Capital expenditures

Gas
Operations

Construction
Services

$1,454,639 $ 904,870
104,116

—

$1,454,639 $1,008,986

1,754 $

419

64,095 $

7,784

$ 213,455 $

56,656

61,355 $

18,547

$ 111,625 $

26,692

$4,822,845 $ 535,840

$ 438,289 $

49,711

Gas
Operations

Construction
Services

$1,382,087 $ 647,432
92,188

—

$1,382,087 $ 739,620

2,596 $

68,299 $

3,770

$ 204,144 $

48,883

63,597 $

14,776

$ 116,872 $

24,254

Adjustments

Total

$2,359,509
104,116

$2,463,625

2,173

71,879

$ 270,111

79,902

$ 138,317

$5,358,685

$ 488,000

Adjustments (a)

Total

$2,029,519
92,188

$2,121,707

2,602

72,069

$ 253,027

78,373

$ 141,126

$4,652,307 $ 566,589

$(10,599)

$5,208,297

$ 350,025 $

46,873

$ 396,898

Gas
Operations

Construction
Services

$1,300,154 $ 562,475
88,153

—

$1,300,154 $ 650,628

456 $

62,555 $

1,145

$ 193,848 $

42,969

65,377 $

12,565

$ 124,169 $

21,151

Adjustments (b)

Total

$1,862,629
88,153

$1,950,782

461

63,700

$ 236,817

77,942

$ 145,320

$4,272,029 $ 293,811

(666)

$4,565,174

$ 314,578 $

49,698

$ 364,276

Southwest Gas Corporation

(a) Construction services segment assets included two liabilities that were netted against gas operations segment assets

during consolidation in 2014. They are: Income taxes payable of $3.3 million, netted against income taxes receivable, net

and deferred income taxes of $1.4 million, netted against deferred income taxes, net. Construction services segment assets

exclude a long-term deferred tax benefit of $1.4 million, which was netted against gas operations segment deferred income

taxes and investment tax credits, net during consolidation. Gas operations segment assets include a deferred income tax

liability of $4.5 million, which was netted against a construction services segment asset for deferred income taxes, net

during consolidation.

(b) Construction services segment assets included income taxes payable of $666,000 in 2013, which was netted against gas

operations segment income taxes receivable, net during consolidation.

Note 15 – Quarterly Financial Data (Unaudited)

(Thousand of dollars, except per share amounts)
2015
Operating revenues
Operating income
Net income (loss)
Net income (loss) attributable to Southwest Gas

Corporation

Basic earnings (loss) per common share*
Diluted earnings (loss) per common share*

2014
Operating revenues
Operating income
Net income
Net income attributable to Southwest Gas Corporation
Basic earnings per common share*
Diluted earnings per common share*

2013
Operating revenues
Operating income
Net income (loss)
Net income (loss) attributable to Southwest Gas

Corporation

Basic earnings (loss) per common share*
Diluted earnings (loss) per common share*

March 31

June 30

September 30 December 31

Quarter Ended

$734,220 $538,604
25,047
5,063

129,556
71,879

$505,396
16,143
(4,210)

$685,405
117,586
66,698

71,983
1.54
1.53

4,949
0.11
0.10

(4,734)
(0.10)
(0.10)

66,119
1.40
1.38

$608,396 $453,153
26,755
9,627
9,627
0.21
0.21

127,065
70,697
70,783
1.52
1.51

$432,475
18,290
1,927
1,970
0.04
0.04

$627,683
112,373
58,897
58,746
1.26
1.25

$613,505 $411,574
28,908
10,067

138,394
80,674

$387,346
6,141
(3,057)

$538,357
100,772
57,189

80,773
1.75
1.73

10,108
0.22
0.22

(2,864)
(0.06)
(0.06)

57,303
1.24
1.22

* The sum of quarterly earnings (loss) per average common share may not equal the annual earnings (loss) per

share due to the ongoing change in the weighted-average number of common shares outstanding.

The demand for natural gas is seasonal, and it is the opinion of management that comparisons of earnings for interim periods do
not reliably reflect overall trends and changes in the operations of the Company. Also, the timing of general rate relief can have
interim periods. See Management’s Discussion and Analysis for additional
a significant

impact on earnings for

Southwest Gas Corporation

discussion of operating results. Additionally, see Note 16 – Construction Services Noncontrolling Interests regarding
allocation of earnings and Note 17 – Acquisition of Construction Services Businesses regarding the acquisition in the last
quarter of 2014.

Note 16 – Construction Services Noncontrolling Interests
Associated with the agreement reached in conjunction with the acquisition of the Canadian constriction businesses, the
previous owners of the acquired companies initially retained an approximate 10% equity interest in the Canadian-specific
businesses. The agreement, associated with that approximate 10% equity interest, provided special dividend rights which
entitled the sellers, as holders, to dividends equal to 3.4% of dividends paid at the level of Centuri, and subject to certain
conditions, such interests could become exchangeable for a 3.4% equity interest in Centuri. In consideration of the underlying
exchange rights of the original agreement, earnings attribution by Centuri to the previous owners also occurred in an amount
equivalent to 3.4% of Centuri earnings since October 2014. During the third quarter of 2015, the sellers formally exercised their
exchange rights under the terms of the original agreement. No new rights were conveyed to the noncontrolling parties as a
result of the exchange and no new consideration was involved. The previous owners continue to be able to exit their investment
retained by requiring the purchase of a portion of their interest commencing July 2017 and in incremental amounts each
anniversary date thereafter. The shares subject to the election cumulate (if earlier elections are not made) such that 100% of
their interest retained is subject to the election beginning in July 2022. Due to the continued ability of the noncontrolling parties
to redeem their interest for cash, their interest continues to be presented on the Company’s Consolidated Balance Sheet at
December 31, 2015 as a Redeemable noncontrolling interest, a category of mezzanine equity (temporary equity), in accordance
with SEC guidance. However, that interest, previously associated with the Canadian businesses, is now formally an interest in
Centuri.

Significant changes in the value of the redeemable noncontrolling interest are recognized as they occur, and the carrying value
is adjusted as necessary at each reporting date. Guidance by the SEC indicates that downward adjustments in the value of
redeemable noncontrolling interests are only permitted to the extent that upward adjustments in value were previously
recognized. A floor for the noncontrolling interest was originally set at the acquisition date (in October 2014). However, U.S.
GAAP generally views changes in ownership interest, where the parent retains its controlling interest, as an equity transaction,
whereby the carrying amount of the noncontrolling interest is adjusted to reflect the change in ownership interest in the
subsidiary.
In connection with the exchange rights being exercised during the third quarter, an updated valuation was
conducted. A significant decrease in the value of the redeemable noncontrolling interest was recognized, due in part to the
exchange option no longer being subject to probability estimates. In light of the U.S. GAAP requirement to adjust the carrying
amount, a new floor was set for the redeemable noncontrolling interest at the exchange date (July 31, 2015), with a
corresponding adjustment made to additional paid in capital of the Company. Future adjustments to the redemption value are
not permitted below the new floor. The following depicts impacts to the balance of the redeemable noncontrolling interest
between the indicated periods.

(Thousands of dollars):

Balance, December 31, 2014

Net Income (loss) attributable to redeemable noncontrolling interest
Foreign currency exchange translation adjustment
Centuri distribution to redeemable noncontrolling interest
Adjustment to redemption value

Balance, December 31, 2015

Redeemable
Noncontrolling
Interest

$20,042
939
(66)
(99)
(4,708)

$16,108

The redemption value of the redeemable noncontrolling interest utilizes a market approach to determine a construction services
including actively
enterprise value. Publicly traded “guideline” companies are identified by using a selection criteria,

Southwest Gas Corporation

traded equities, their financial solvency, and other factors. Once the guideline companies are determined, enterprise value is
calculated using a weighted approach of projected earnings before interest expense and taxes (“EBIT”) and earnings before
interest expense, taxes, and depreciation and amortization expense (“EBITDA”). After an estimated fair value is determined, it is
multiplied by 3.4%. A discount is then applied due to limitations of the nonpublic noncontrolling interest being valued. Prior to
the exchange rights being exercised in the third quarter of 2015, a Monte Carlo simulation methodology was used to assign a
value to the redeemable noncontrolling interest. Each quarter, market changes in the guideline companies are considered and
the weighted approach to projected EBIT and EBITDA, in relation to the guideline companies, is re-evaluated to determine if
value changes are necessary at each quarterly reporting date. The negative adjustment to the redemption value in the table
above reflects the sum of adjustments made during the year.

Centuri also holds a 65% interest in a venture to market natural gas engine-driven heating, ventilating, and air conditioning
(“HVAC”) technology and products. Centuri consolidates the entity (IntelliChoice Energy, LLC) as a majority-owned subsidiary.
The interest is immaterial to the consolidated financial statements, but is identified as the Noncontrolling interest within Total
equity on the Consolidated Balance Sheets.

Note 17 – Acquisition of Construction Services Businesses
In October 2014, the Company, through its subsidiaries, completed the acquisition of three privately held, affiliated construction
businesses. The acquisition extended the construction services operations into Canada and provides additional opportunities
for market expansion. Funding for the acquisition was primarily provided by a new $300 million secured revolving credit and
term loan facility described in Note 7 – Long-Term Debt. The acquired companies comprise: (i) Link-Line Contractors Ltd., an
Ontario corporation (“Link-Line”), (ii) W.S. Nicholls Construction, Inc., an Ontario corporation, as well as two additional companies
also operating under the name W.S. Nicholls (collectively “W.S. Nicholls”); and (iii) via asset purchase, the business of Brigadier
Pipelines Inc., a Delaware corporation, operating primarily in Pennsylvania (“Brigadier”).

Assets acquired and liabilities assumed in the transaction were recorded, generally, at their acquisition date fair values.
Transaction costs associated with the acquisition were expensed in 2014. The Company’s allocation of the purchase price in
2014 was based on an evaluation of the appropriate fair values and represented management’s best estimate based on
available data (including market data, data regarding customers of the acquired businesses, terms of acquisition-related
agreements, analysis of historical and projected results, and other types of data). The analysis included the impacts of
differences between Accounting Standards for Private Enterprises in Canada and U. S. GAAP applicable to public companies, as
well as consideration of types of intangibles that were acquired, including non-competition agreements, customer relationships,
trade names, and work backlog. The final purchase accounting has been completed. The October 1, 2014 fair values of assets
acquired and liabilities assumed, revised during the first quarter of 2015, are as follows (in millions of dollars):

Cash, cash equivalents, and restricted cash
Contracts receivable and other receivables
Property, plant and equipment
Other assets
Intangible assets
Goodwill

Total assets acquired
Current liabilities
Deferred income tax – long-term
Other long-term liabilities

Net assets acquired

Acquisition
Date

Measurement
Period
Adjustments

Revised
Acquisition
Date

3
62
17
17
52
130

281
39
17
4

$—
—
—
(2)
—
1

(1)
1
—
—

3
62
17
15
52
131

280
40
17
4

$221

$(2)

$219

Southwest Gas Corporation

The Company incurred and expensed acquisition costs of $5 million in 2014; no acquisition costs were incurred during 2015.

The allocation of the purchase price of Link-Line, W.S. Nicholls, and Brigadier was accounted for in accordance with the
applicable accounting guidance. Goodwill consisted of the value associated with the assembled workforce and consolidation of
operations. When acquisition-date values were updated in the first quarter of 2015, as reflected in the table above, there was no
significant overall impact to the Company’s Consolidated Balance Sheets.

The unaudited pro forma consolidated financial information for fiscal 2014 (assuming the acquisition of Link-Line, W.S. Nicholls,
and Brigadier occurred as of the beginning of fiscal 2014) is as follows (in thousands of dollars, except per share amounts):

Total operating revenues
Net income attributable to Southwest Gas Corporation

Basic earnings per share
Diluted earnings per share

Year Ended
December 31,
2014

$2,295,318
$ 149,588
3.22
$
3.19
$

Southwest Gas Corporation

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Company management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined by Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Under
the supervision and with the participation of Company management, including the principal executive officer and
principal financial officer, the Company conducted an evaluation of the effectiveness of internal control over
financial reporting based on the “Internal Control – Integrated Framework” (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based upon the Company’s evaluation under such
framework, Company management concluded that the internal control over financial reporting was effective as of
December 31, 2015. The effectiveness of the Company’s internal control over financial reporting as of December 31,
2015 has been audited by PricewaterhouseCoopers, LLP, an independent registered public accounting firm, as
stated in their report which is included herein.

February 25, 2016

Southwest Gas Corporation

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Southwest Gas Corporation

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income,
of comprehensive income, of cash flows and of equity and redeemable noncontrolling interest present fairly, in all
material respects, the financial position of Southwest Gas Corporation and its subsidiaries at December 31, 2015
and 2014, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.
in all material respects, effective internal control over financial
Also in our opinion, the Company maintained,
reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s
management is responsible for these financial statements, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express
opinions on these financial statements and on the Company’s internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 12 to the Consolidated Financial Statements, the Company changed the manner in which it
classifies deferred income taxes in 2015.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
the
company’s assets that could have a material effect on the financial statements.

Southwest Gas Corporation

limitations,

its inherent

Because of
reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

internal control over

financial

PricewaterhouseCoopers LLP
Las Vegas, Nevada
February 25, 2016

Southwest Gas Corporation

[THIS PAGE INTENTIONALLY LEFT BLANK]

Southwest Gas Corporation

Directors
Robert L. Boughner
Las Vegas, Nevada
Executive Vice President and
Chief Business Development Officer
Boyd Gaming Corporation

José A. Cárdenas
Tempe, Arizona
Senior Vice President and
General Counsel
Arizona State University

Thomas E. Chestnut
Coronado, California
Retired Construction Executive

Stephen C. Comer
Las Vegas, Nevada
Retired Managing Partner
Deloitte & Touche LLP

LeRoy C. Hanneman, Jr.
Phoenix, Arizona
Retired Construction Executive
Private Investor

John P. Hester
President and
Chief Executive Officer
Southwest Gas Corporation

Anne L. Mariucci
Phoenix, Arizona
Private Investor
Former Construction Executive

Jeffrey W. Shaw
Las Vegas, Nevada
Retired Chief Executive Officer
Southwest Gas Corporation

A. Randall Thoman
Las Vegas, Nevada
Retired Partner
Deloitte & Touche LLP

Thomas A. Thomas
Las Vegas, Nevada
Managing Partner
Thomas & Mack Co. LLC

Terrence “Terry” L. Wright
Las Vegas, Nevada
Owner/Chairman of the Board
of Directors
Nevada Title Company

Officers
John P. Hester
President and
Chief Executive Officer

William N. Moody
Executive Vice President

Roy R. Centrella
Senior Vice President/
Chief Financial Officer

Eric DeBonis
Senior Vice President/
Operations

Michael J. Melarkey
Reno, Nevada
Retired Partner
Avansino, Melarkey, Knobel,
Mulligan & McKenzie
Chairman and Manager
Pioneer Crossing Casinos
Chairman of the Board of Directors
Southwest Gas Corporation

Karen S. Haller
Senior Vice President/General
Counsel and Corporate Secretary

Edward A. Janov
Senior Vice President/
Corporate Development

Anita M. Romero
Senior Vice President/
Staff Operations and Technology

Sharon W. Braddy-McKoy
Vice President/Human Resources

Justin L. Brown
Vice President/
Regulation and Public Affairs

Jose L. Esparza, Jr.
Vice President/Energy Solutions

Luis F. Frisby
Vice President/
Central Arizona Division

Randall P. Gabe
Vice President/Gas Resources

Bradford T. Harris
Vice President/
Northern Nevada Division

Kenneth J. Kenny
Vice President/Finance/Treasurer

Gregory J. Peterson
Vice President/Controller/
Chief Accounting Officer

Jerome T. Schmitz
Vice President/Engineering

Christopher W. Sohus
Vice President/
Southern Nevada Division

Frank J. Stanbrough
Vice President/Risk Management
and Compliance Officer

Julie M. Williams
Vice President/
Southern Arizona Division

Southwest Gas Corporation

Forward-looking Statements
This Annual Report contains
forward-looking statements
regarding the Company’s
current expectations. These
statements are subject to a
variety of risks that could cause
actual results to differ materially
from expectations. These risks
and uncertainties include, in
addition to those discussed
herein, all factors discussed in
the Company’s Annual Report on
Form 10-K for the year 2015.

Dividends
Dividends on common stock
are declared quarterly by
the Board of Directors and
are generally payable on
the first day of March, June,
September, and December.

Investor Relations
The Company is committed
to providing relevant and
complete investment
information to shareholders,
individual investors, and
members of the investment
community. Copies of the
Company’s 2015 Annual Report
on Form 10-K, without exhibits,
as ﬁled with the Securities and
Exchange Commission may be
obtained from our Corporate
Secretary upon request free
of charge. Additional requests
of a ﬁnancial nature should be
directed to Kenneth J. Kenny,
Investor Relations, Southwest
Gas Corporation, P. O. Box
98510, Las Vegas, NV 89193-8510
or by calling 702-876-7237.

Additional Company information
is available at www.swgas.com.
For non-financial information,
please call 702-876-7011.

Transfer Agent and Registrar
Wells Fargo Shareowner Services
P.O. Box 64874
St. Paul, MN 55164-9942

Auditors
PricewaterhouseCoopers LLP
3800 Howard Hughes Parkway
Suite 650
Las Vegas, NV 89169

Stock Listing Information
Southwest Gas Corporation
(Company) common stock
is listed on the New York
Stock Exchange under the
ticker symbol “SWX.” Quotes
may be obtained in daily
financial newspapers or some
local newspapers where it
is sometimes listed under
“SoWestGas,” or on our website
at www.swgas.com.

Annual Meeting
The Annual Meeting of
Shareholders will be held on
May 4, 2016, at 4 p.m.
at Cili Restaurant at
Bali Hai Golf Club
5160 Las Vegas Blvd., South
Las Vegas, NV 89119

Dividend Reinvestment and
Stock Purchase Plan
Our Dividend Reinvestment and
Stock Purchase Plan (DRSPP)
provides the Company’s
shareholders, natural gas
customers, employees, and
residents of Arizona, Nevada,
and California with a simple and
convenient method of purchasing
the Company’s common
stock and investing cash
dividends in additional shares
without payment of brokerage
commissions.

DRSPP features include a
minimum initial investment
of $250, up to a maximum of
$100,000 annually, automatic
investing, no commissions on
purchases, and the safekeeping
of common stock certiﬁcates.
For more information contact:
Wells Fargo Shareowner Services
P.O. Box 64856
St. Paul, MN 55164-0874
or call 1-800-331-1119