Southwest Gas Holdings Inc Annual Report 2016

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FY2016 Annual Report · Southwest Gas Holdings Inc

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2016
ANNUAL REPORT

Building on the past. Shaping the future.

NYSE: SWX

STOCK PRICES AND TRADING VOLUME

$46.08
$39.01
432,089

$56.03
$42.02
355,808

$64.20
$47.21
487,354

$63.68
$50.78
500,363

$79.58
$53.51
695,062

High
Low
Volume
(in hundreds)

COMPANY PROFILE

Southwest Gas Holdings, Inc. (“Company”), through its
subsidiaries, engages in the business of purchasing,
distributing and transporting natural gas, and providing
construction services across North America. Southwest
Gas Corporation
(“Southwest”), a wholly owned
subsidiary, safely and reliably delivers natural gas to
nearly 2 million commercial and residential customers
in Arizona, California and Nevada. Centuri Construction
Group, Inc. (“Centuri”), a majority-owned subsidiary, offers
construction and maintenance services throughout the
United States and Canada.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS

NET INCOME BY SEGMENT

2012

2013

2014

2015

2016

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

$250

$200

$150

$100

$50

2011

2012

2013

2014

2015

2016

PERFORMANCE GRAPH

The performance graph above compares the ﬁve-
year cumulative total shareholder 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”) , the S&P Small Cap
Gas Index and the S&P Utilities Index.

In last year’s annual report, the S&P Small Cap Gas Index
was used for performance comparison purposes. On
June 30, 2016, the Company was removed from the S&P
Small Cap Gas Index and was added to the S&P MidCap
Gas Index. This change reﬂects the Company’s increased
market capitalization and trading volume. As a result, the
Company has adopted the broader S&P Utilities Index for
performance comparison purposes.

Southwest Gas Holdings, Inc.

Net Income: $152.0MM
A: Natural Gas Operations 79% ($119.4MM Net Income)
B: Construction Services 21% ($32.6MM Net Income)

NATURAL GAS OPERATIONS
MARGIN BY CUSTOMER CLASS

A: Residential 69% B: Small Commercial 16% C: Transportation 12%
D: Large Commercial 2% E: Industrial/Other 1%

CUSTOMERS PER EMPLOYEE

879

881

883

858

836

2012 2013

2014 2015

2016

Building on the Past.
Shaping the Future.

FELLOW SHAREHOLDERS

The Southwest Gas story is one of steady growth
throughout a proud history spanning eight decades.
From our days as a one-town, start-up propane
company to today, Southwest Gas has built an enviable
reputation as a trusted natural gas provider and a leader
in our ﬁeld. This reputation—which we proudly tout and
ﬁercely guard—is built upon a foundation of operational
excellence. We strengthen this foundation each day,
leveraging our past to shape our future, as we safely
and reliably serve our customers and diligently manage
our ﬁnancial resources.

Our story recently added a new chapter through the
formation of a holding company—Southwest Gas
Holdings, Inc. The creation of a holding company
for the
following 2016 year-end turns the page
Company; it allows us additional ﬂexibility in our future
corporate ﬁnancing activities and provides additional
legal separation between our regulated natural gas
operations business and unregulated construction
services business. Further, reorganizing both of our
business segments under the new entity puts us in a
solid position to respond to and pursue opportunities
that deliver value to our shareholders.

To celebrate the launch of Southwest Gas Holdings, John
Hester, President & CEO, along with several members of the
Company’s senior management team, rang the closing bell at
the New York Stock Exchange on January 3, 2017.

Achievements
These accomplishments rounded out a year of outstanding operational performance and continued
growth. It was a great year and we are well-positioned to continue to deliver on our commitment to safe
and reliable service to our customers and strong ﬁnancial performance and shareholder value.

79.58
79.58

RECORD STOCK
PRICE IN 2016

Formation of
Southwest Gas Holdings, Inc.

152
152

MILLION
MILLION
RECORD EARNINGS
ALL-TIME HIGH

3.20
3.20

EARNINGS PER
SHARE

Strong capital investment program.

Improved on our safety record in the ﬁeld.

Infrastructure replacement projects that
delivered on our promise of safe and
reliable service to customers.

Worked hard to ensure the best
customer experience.

Earned top rankings on national customer
engagement, satisfaction and trust surveys.

Hired Centuri CEO Paul Daily, a highly
experienced construction industry veteran.

NPL Construction Co. celebrates 50 years of
serving utilities across the nation.

Continued a growing trend of increasing
revenue and proﬁtability with record ﬁnancial
results in 2016.

Southwest Gas Holdings, Inc.

Corporate Governance
We support our core values and track record of
excellence with a long-term focus, corporate
governance practices aligned with shareholder
interests, a pay-for-performance culture and an
active program of shareholder engagement.
Committed to building long-term shareholder
value, we strive to operate sustainably with
accountability, transparency and integrity.

Long-term focus on building shareholder
value, with “pay for performance”
compensation program structured to
mitigate excessive short-term risk-taking.

Corporate governance practices that align
with shareholder interests and support our
core values, including robust stock ownership
guidelines, annual election of all directors
and the ability for shareholders to call special
meetings and act by written consent.

Ten of eleven directors are independent.
The Board of Directors brings deep and
diverse management, ﬁnancial and operational
experience, signiﬁcant expertise in the
industries that matter most to our business and
important ties to our key service territories.

Sustainable and responsible business
practices that protect the environment,
preserve natural resources and support
our local communities.

We value input from shareholders and
maintain a robust program of shareholder
engagement on a range of topics,
including our ﬁnancial performance and
matters of corporate governance.

Pipeline replacement project at the
Catalina Foothills in Tucson.
Catalina Foothills in Tucson.

ills

Long-term Value

STRONG FINANCIAL PERFORMANCE DELIVERS
SHAREHOLDER VALUE

We are pleased to report that 2016 continued a trend of
strong ﬁnancial performance across both lines of business.

2016 consolidated net income was $152 million, or $3.20
per basic share, compared to $138 million, or $2.94 per
basic share, for 2015. The natural gas segment recognized
$924 million of operating margin and contributed $119
million of net income.

Our construction services segment continues
to
complement our business exceptionally well. In 2016,
Centuri delivered record revenues of $1.1 billion and
a contribution to net income of $32.6 million. Centuri
is continuing to experience increased proﬁtability and
expanding success, as 2016 marks the fourth consecutive
year of increased revenues and earnings.

Southwest continued to grow its capital investments
in 2016, laying the groundwork for longer-term growth
opportunities. In 2016, we invested $457 million in
support of customer growth, system improvements and
accelerated pipe replacement.

In 2016, total shareholder return approximated 42.5
percent, compared to the S&P Utilities Index return
of approximately 17.6 percent. The strong ﬁnancial
performance in 2016 allowed our Board of Directors to
increase the dividend in February 2017 to an annualized
level of $1.98 per share, giving the Company a 10.9
percent growth rate over the past ﬁve years.

ANNUALIZED DIVIDENDS DECLARED PER SHARE

$1.98

$1.80

$1.62

$1.18

$1.32

$1.46

2012

2013

2014

2015

2016

2017

Southwest Gas Holdings, Inc.

Operational Excellence

CAPITAL EXPENDITURES
NATURAL GAS OPERATIONS (IN MILLIONS)

$570

$438

$457

2015

2016

2017
(Estimated)

2017-2019 Estimate: Up to $1.8 Billion

$600

$550

$500

$450

$400

$350

$300

$250

$200

$150

$100

$50

ENDURING VALUES SHAPE OUR CORE BUSINESS

More than a corporate slogan, the values of “safety,
service and reliability” deﬁne how we run our natural
gas business, providing service to nearly two million
customers in Arizona, California and Nevada. Our strong
safety culture is a priority established and modeled at the
top—so much so that we have safety metrics incorporated
into the management compensation plan. Southwest
continues to experience improvement in our safety
measures at a time of heightened industry safety focus.

In 2016, Southwest invested $457 million to modernize
our pipeline system and expand it to reliably serve more
customers. To maintain system integrity we continued
an aggressive pipeline replacement strategy targeting
early vintage plastic pipe and vintage steel pipe. We
anticipate a total three-year investment between 2017-
2019 of $1.6-$1.8 billion, with a sizeable portion of
this amount eligible for cost recovery under already
established regulatory mechanisms.

In 2016, Southwest Gas:

• Replaced 351 miles of pipe for a total capital

investment of $268.4 million.

• Invested $108.9 million into the pipeline system

to accommodate new customer growth.

• On the heels of the $35 million Adobe pipeline
project completed
last year, Paiute Pipeline
announced another major expansion project that
is expected to be completed by the end of 2018.

DAMAGE PREVENTION
DAMAGES PER 1000 TICKETS (ROLLING 12 MONTHS)

1.9 5

1.78

1.3 9

2 014

2 015

2 016

In central Arizona, a project along 16th
Street stretching from the I-10 Freeway
north to Thomas Road in Phoenix, will
replace 1.14 miles of vintage steel
transmission main with new 8-inch
steel main, improving pipeline safety.
steel main, improving pipeline safety.

Growth

GROWING TOWARD TWO MILLION CUSTOMERS

With an eye to the future, we are working to make sure our system is ready to support
the demands of our growing customer base. In 2016, Southwest added 28,000 net
new customers, bringing our total customer count to 1,984,000. As we drive toward
the two-million customer milestone, we are positioned to embrace the growth
we see across our service territories. Economic trends in Arizona, California and
Nevada are positive, with unemployment down and population up in each of our
operating divisions.

PROJECTED POPULATION % CHANGE 2017-2022

ARIZONA

5.86%

CALIFORNIA

4.74%

NEVADA

6.39%

UNITED STATES

3.77%

Source: S&P Global Market Intelligence

Southwest Gas Holdings, Inc.

SINGLE-FAMILY HOUSING MARKET HAS
STRONG 2016 CLOSE AND 2017 OUTLOOK

The post-recession housing market continued its
upward momentum in 2016. All three major markets
in Southwest’s service territories out-performed the
previous year’s metrics in both new permits and home
closings. In the Phoenix housing market, new permits
increased by almost 12 percent and new home closings
rose by 24 percent over the previous year. Likewise,
Tucson saw permits rise 19 percent and closings by
12 percent, while Las Vegas permits had a 3 percent
bump and closings were up 11 percent for the year. In
2016, Southwest’s market share in the single-family new
construction segment is 93 percent in our certiﬁcated areas
in Arizona and nearly 100 percent in Southern Nevada.

SINGLE-FAMILY MARKET

a
n
o
z
i
r
A

a
r
t
n
e
C

a
d
a
v
e
N
n
r
e
h
t
u
o
S

a
n
o
z
i
r
A
n
r
e
h
t
u
o
S

2019*

2018*

2017*

2016

2019*

2018*

2017*

2016

2019*

2018*

2017*

2016

24,000

21,100

22,000

19,200

20,000

17,500

18,000

15,900

9,000
8,800

8,700
8,400

8,300
8,000

7,900
7,600

3,600

3,000

3,300

2,800

3,000

2,500

2,700

2,300

Permits

Closings

*Projected

Source: Arizona data from Greg Burger,
RL Brown Housing Reports.
Nevada data from Dennis Smith,
Las Vegas Housing Market Letter.

With all signs pointing toward continued growth and a robust economic
environment across our service territory, we are looking expectantly for
opportunities to serve new customers and experience growth throughout
Southwest’s distribution network. The Nevada legislature has identiﬁed access to
natural gas service as a driver of economic development. Senate Bill 151 facilitates
the expansion of pipeline facilities to unserved and under-served areas. With receipt
of ﬁnal approval of the regulations last year, we continue to work with and identify
communities that seem best situated for expanded service.

Customer Satisfaction

A POSITIVE CUSTOMER EXPERIENCE INSPIRES
BRAND TRUST AND CUSTOMER LOYALTY

The trust of our customers is a source of our Company’s
strength. We continue to work hard to enhance the quality
of our customer relationships and to make the customer
experience better than ever. 2016’s 93 percent customer
satisfaction score proves that our efforts have resonated
with customers.

Seeing how we stack up to our peers is a valuable
measure of our success
in developing customer
satisfaction and trust. We were honored to receive
recognition as a 2016 Utility Customer Champion
and to rank second among 130 peer utilities in the
Cogent Reports 2016 Utility Trusted Brand & Customer
Engagement Residential Study. The study measures and
tracks brand trust, customer engagement, satisfaction
and relationship strength among residential customers
across 130 gas, electric and combination utilities. In a
recent JD Power report of the 2016 Gas Utility Residential
Customer Satisfaction Study, Southwest was ranked
second among large gas utilities in the west region of
the United States.

We are proud of these distinctions and strive to identify
improve our
new strategies and opportunities to
customer experience.

Southwest Gas Holdings, Inc.

Community Support

SHAPING BRIGHT FUTURES THROUGH OUR
COMMUNITY CARE PROGRAM

Caring for our communities is part of our Company’s
foundation which contributes to our reputation as
a trusted community partner. The generosity of
our employees cultivates a culture of giving back
at Southwest. In 2016, our employees set a record
with their contributions to non-proﬁt organizations
in Arizona, California and Nevada—donating an
impressive $1.69 million.

Southwest supports the community in a variety of ways
through our Community Care Program—a newly deﬁned
suite of six programs that encompass Southwest’s
dedication to making a positive impact in the communities
we serve. From employee giving and volunteerism to low-
income bill assistance and corporate foundation gifts,
Southwest continues to shape a positive future in local
communities. For more information about Southwest’s
community impact programs, as well as business practices
that protect the environment and support our employees,
we invite you to visit www.swgas.com/sustainability.

1.69

MILLION

2016

TOTAL EMPLOYEE
DONATIONS

Regulatory Collaboration

COLLABORATION WITH OUR REGULATORS YIELDS
POSITIVE OUTCOMES FOR CUSTOMERS AND
SHAREHOLDERS

Having open, collaborative and productive relationships
with state and federal regulatory agencies was vital to our
success this year—and every year. In 2016, we worked
with each of our regulators and their staffs to implement
several regulatory initiatives that will beneﬁt both our
customers and shareholders.

2016 marked the end of a rate case moratorium in
Arizona, which provided an opportunity for Southwest to
ﬁle a general rate case in May. We continue to work with
the parties as we make progress towards a ﬁnal decision
from the Commission. A major milestone was entering
into a settlement agreement that will be voted on by
the Commission in early 2017. Our proposal includes
an increase in revenue, along with three regulatory
mechanisms that will help facilitate continued investment
and timely cost recovery in Arizona.

Establishing and expanding regulatory mechanisms
that facilitate continued investment and timely cost
recovery is an important and ongoing corporate strategy.
Southwest currently has some form of infrastructure
recovery mechanism in all three states. This past year we
invested close to $56 million in pipe replacement work
through previously approved infrastructure replacement
programs in Arizona and Nevada. We also received
approval in Nevada to invest another $57.3 million in 2017
and anticipate increased investment in Arizona based
upon the terms of our proposed settlement agreement.

In October 2016, Paiute initiated a pre-filing review
process with the FERC for a $17 million expansion
project in South Lake Tahoe. Paiute expects to ﬁle a
formal certiﬁcate application by mid-2017.

We also continue to make progress on construction of our
233,000 dekatherm liquiﬁed natural gas (LNG) storage
facility in southern Arizona. The Arizona Corporation
Commission recently reaffirmed its support for this project
by approving our proposal to modify its previous decision
to reﬂect an allowable investment up to $80 million,
which reﬂects the current market price to construct the
LNG facility.

Southwest Gas Holdings, Inc.

Construction Services

GROWTH IN CONSTRUCTION SERVICES FUELS
FUTURE OF OPPORTUNITY

Centuri is a comprehensive construction services
enterprise dedicated to meeting the growing demands
of North American utilities, energy and
industrial
focused on utility underground
markets. Primarily
construction services, Centuri continued a growing
trend of increasing revenue and proﬁtability with record
ﬁnancial results in 2016.

CENTURI NET INCOME HISTORY
(IN MILLIONS)

$35

$30

$25

$20

$15

$10

$32.6

$26.7

$24.3

$21.2

$16.7

2012

2013

2014

2015

2016

In 2016, we conducted an extensive search process to
identify and hire Centuri CEO, Paul Daily, who assumed
the role in April. Mr. Daily leads Centuri’s strategy in
partnering with North American utilities as they increase
investments in critical infrastructure upgrades. With
a large portion of his career focused on natural gas
distribution systems, he will be able to draw upon his 35
years of operations and ﬁnancial experience to continue
Centuri’s growth.

Centuri is well-situated to continue capitalizing on its
strengths – its well-established market position, strong
culture of safety and quality, and full-service capabilities
– to support its diverse set of gas distribution customers,
many of which are in the midst of multi-year pipeline
replacement programs. Having Centuri’s services in
the Company’s portfolio presents an array of exciting
business opportunities for the future. We look forward to
facilitating continued growth and development within this
business segment.

UTILITY REPLACEMENT PROJECT
IN INDIANA

NPL’s Stateline to Highland Junction
project is a high-pressure natural gas
pipe replacement job that spans 3½
miles through the towns of Munster and
Highland, Indiana. The approximately $25
million project for NPL customer NIPSCO,
includes 18,650 feet of 24” high-pressure
steel pipe that runs through a variety of
surroundings including urban roads, city
parks and bicycle pathways to the rural
state roads of the Indiana countryside.
NPL is providing a full range of construction
services on
the
this project,
installation of three transmission stations
and the demolition of one existing station;
boring under railroads, a river and a stream;
hydrostatical testing of the new and replaced
mainline; and 100 percent restoration services
of the entire project line.

including

Looking Ahead

EYES ON THE HORIZON AND POISED FOR GROWTH

Strong results from 2016 demonstrate how the Company
is building on its solid foundation and is poised to embrace
the exciting opportunities of the future. We are proud of our
corporate history and track record of serving our customers,
shareholders, employees and the coommunity. We also
shareholders employees and the community We also
know that opportunity lives in tthe future e and our eye is on
the horizon.

We move into 2017 with the same commitment to safety,
service and reliability that has guided our company for more
than 80 years; and yet fueled with a drive to do more and
better. We maintain a strategic focus on fostering growth
across our business segments and continuously managing
with an eye on long-term success.

As we look ahead, we continue to see signiﬁcant growth
opportunities and we are very optimistic about the prospects
for both our natural gas operations and construction services
segments. We plan to move these business lines forward
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Southwest GaGas Hs Holdinggs, Incc.

Financial Section

Key drivers for
2017 and beyond

• Arizona rate relief

• Customer growth prospects

• Customer engagement and

satisfaction

• Continued investment in our

distribution system

• Prudent capital management

• Capitalizing on Centuri growth

opportunities

Consolidated Selected Financial Statistics

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

2016

2015

2014

2013

2012

$2,460,490 $2,463,625 $2,121,707 $1,950,782 $1,927,778
1,656,254
1,837,224

2,175,293

2,164,776

1,676,567

Operating income

$ 295,714 $ 288,332 $ 284,483 $ 274,215 $ 271,524

Net income attributable to Southwest

Gas Corporation

$ 152,041 $ 138,317 $ 141,126 $ 145,320 $ 133,331

Total assets at year end

Capitalization at year end

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

$5,581,126 $5,358,685 $5,208,297 $4,565,174 $4,488,057

$1,661,273 $1,592,325 $1,486,266 $1,412,395 $1,308,498
—

22,590

20,042

16,108

—

maturities

1,549,983

1,551,204

1,631,374

1,381,327

1,268,373

$3,233,846 $3,159,637 $3,137,682 $2,793,722 $2,576,871

50,101 $

19,475 $

19,192 $

11,105 $

50,137

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 to book value per share
Common shares outstanding at year end

$
$
$

$
$

51.4%
9.3%
3.20 $
3.18 $
1.80 $
56%
35.03 $
76.62 $
219%

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%

(000)

47,482

47,378

46,523

46,356

46,148

Number of common shareholders at year

end

Ratio of earnings to fixed charges

13,619
3.46

14,153
3.43

14,749
3.58

15,359
3.90

16,028
3.61

Southwest Gas Corporation

Natural Gas Operations

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

Operating margin
Expenses

2016

2015

2014

2013

2012

$1,321,412 $1,454,639 $1,382,087 $1,300,154 $1,321,728
479,602

505,356

397,121

436,001

563,809

924,291

890,830

876,731

864,153

842,126

Operations and maintenance
Depreciation and amortization
Taxes other than income taxes

401,724
233,463
52,376

393,199
213,455
49,393

383,732
204,144
47,252

384,914
193,848
45,551

369,979
186,035
41,728

Operating income

$ 236,728 $ 234,783 $ 241,603 $ 239,840 $ 244,384

Contribution to consolidated net income

$ 119,423 $ 111,625 $ 116,872 $ 124,169 $ 116,619

Total assets at year end

$5,001,756 $4,822,845 $4,652,307 $4,272,029 $4,204,948

Net gas plant at year end

$4,131,971 $3,891,085 $3,658,383 $3,486,108 $3,343,794

Construction expenditures and property

additions

Cash flow, net

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

$ 457,120 $ 438,289 $ 350,025 $ 314,578 $ 308,951

$ 507,224 $ 497,500 $ 288,534 $ 265,290 $ 344,441
(296,886)
(43,453)

(446,238)
(63,339)

(416,727)
(74,159)

(328,645)
23,413

(304,189)
44,947

Net change in cash

(2,353) $

6,614 $ (16,698) $

6,048 $

4,102

Total throughput (thousands of therms)

Residential
Small commercial
Large commercial
Industrial/Other
Transportation

684,626
294,525
90,949
30,275
970,561

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

Total throughput

2,070,936

2,099,503

1,927,415

2,230,259

2,088,218

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

0.37 $

0.44 $

0.55 $

0.42 $

1,984,000
2,247
883
1,613
1,771

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

0.42
1,876,000
2,245
836
1,740
1,866

Southwest Gas Corporation

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

About Southwest Gas Corporation
In 2015, the Board of Directors (“Board”) of Southwest Gas Corporation 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. As part of the holding company reorganization, Centuri
Construction Group, Inc. (“Centuri” or the “construction services” segment) and Southwest Gas Corporation would
each be subsidiaries of the new publicly traded parent holding company; whereas, historically, Centuri had been a
direct subsidiary of Southwest Gas Corporation. All of Southwest Gas Corporation’s outstanding debt securities (not
associated with Centuri) at the time of the reorganization would remain at the Southwest Gas utility entity.
Regulatory applications for preapproval of the reorganization were filed with the Arizona Corporation Commission
(“ACC”), the California Public Utilities Commission (“CPUC”), and the Public Utilities Commission of Nevada
(“PUCN”) in October 2015. Approvals were received from the CPUC, the PUCN, and the ACC in January, March,
and May, respectively, of 2016. The reorganization, which was approved by the Board in December 2016, became
effective in January 2017. Each outstanding share of Southwest Gas Corporation common stock automatically
converted into a share of stock in Southwest Gas Holdings, Inc., on a one-for-one basis, and the ticker symbol of
the stock, “SWX,” remains unchanged. Throughout this report, the “Company” refers to Southwest Gas Corporation
and subsidiaries for periods prior to January 1, 2017 and to Southwest Gas Holdings, Inc. and subsidiaries for
periods subsequent to December 31, 2016.

The Company consists 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
and transporting natural gas in most of central and southern Arizona,
including the Phoenix and Tucson
metropolitan areas. Southwest is also the largest distributor of natural gas in Nevada, serving the Las Vegas
metropolitan area and northern Nevada. In addition, Southwest distributes and transports natural gas for customers
in portions of California, including the Lake Tahoe area and the high desert and mountain areas in San Bernardino
County.

As of December 31, 2016, Southwest had 1,984,000 residential, commercial,
industrial, and other natural gas
customers, of which 1,058,000 customers were located in Arizona, 733,000 in Nevada, and 193,000 in California.
Residential and commercial customers represented over 99% of the total customer base. During 2016, 54% of
operating margin was earned in Arizona, 35% in Nevada, and 11% in California. During this same period, Southwest
earned 85% of its operating margin (gas operating revenues less the net cost of gas sold) from residential and
small commercial customers, 3% from other sales customers, and 12% from transportation customers. These
general patterns are expected to remain materially consistent for the foreseeable future.

Southwest recognizes operating revenues from the distribution and transportation of natural gas (and related
services) to customers. Operating margin is 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.
(including the impact of
The principal factors affecting changes in operating margin are general rate relief

Southwest Gas Corporation

infrastructure trackers) and customer growth. All of Southwest’s service territories have decoupled rate structures
(alternative revenue programs), which are designed to eliminate the direct link between volumetric sales and
revenue, thereby mitigating the impacts of weather variability and conservation on margin, allowing Southwest to
pursue energy efficiency initiatives.

Centuri is a comprehensive construction services enterprise dedicated to meeting the growing demands of North
American utilities, energy and industrial markets. Centuri derives revenue from installation, replacement, repair, and
maintenance of energy distribution systems, and developing industrial construction solutions primarily for energy
services utilities. Centuri operates in 20 major markets in the United States (primarily as NPL) and in 2 major
markets in Canada (as NPL Canada (formerly Link-Line Contractors Ltd.), and W.S. Nicholls). Construction activity is
cyclical and can be significantly impacted by changes in weather, general and local economic conditions (including
the housing market), interest rates, employment levels, job growth, pipe replacement programs of utilities, and local
and federal regulation (including tax rates and incentives). During the past few years, utilities have implemented or
modified pipeline integrity management programs to enhance safety pursuant to federal and state mandates.
These programs, coupled with recent bonus depreciation tax deduction incentives, have resulted in a significant
increase in multi-year pipeline replacement projects throughout the U.S. Generally, revenues are lowest during the
first quarter of the year due to less favorable winter weather conditions. Revenues typically improve as more
favorable weather 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 81% 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

2016

2015

2014

$ 119,423 $ 111,625 $ 116,872
24,254

26,692

32,618

$ 152,041 $ 138,317 $ 141,126

Average number of common shares outstanding

47,469

46,992

46,494

Basic earnings per share
Consolidated

Natural Gas Operations
Gas operating revenues
Net cost of gas sold

Operating margin

3.20 $

2.94 $

3.04

$1,321,412 $1,454,639 $1,382,087
505,356

397,121

563,809

$ 924,291 $ 890,830 $ 876,731

Southwest Gas Corporation

2016 Overview
Consolidated results for 2016 increased compared to 2015 as improvements were experienced in both operating
segments. Basic earnings per share were $3.20 in 2016 compared to basic earnings per share of $2.94 in 2015.

Natural gas operations highlights include the following:
• 28,000 net new customers (1.4% growth rate)
• Operating margin increased $33 million, or 4%, compared to the prior year
• Net financing costs increased $3 million between 2016 and 2015
• COLI income was $7.4 million in 2016 compared to a loss of $500,000 in 2015
• Redeemed $100 million of 4.85% and $24.9 million of 4.75% IDRBs
•
• Credit facility expiration date extended one year to March 2021
• Settlement reached among several parties in Arizona general rate case (regulatory approval pending)
• Holding company reorganization became effective in January 2017

Issued $300 million of 3.8% senior notes

Construction services highlights include the following:
• Revenues in 2016 increased $130 million, or 13%, compared to 2015
• Construction expenses increased $126 million, or 14%, compared to 2015
• Contribution to net income increased $6 million compared to 2015
• Acquisition of ETTI construction businesses in May 2016
• Hired Paul Daily as CEO of Centuri

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

2016

2015

2014

$1,321,412 $1,454,639 $1,382,087
505,356

397,121

563,809

924,291
401,724
233,463
52,376

236,728
8,276
66,997

178,007
58,584

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

Contribution to consolidated net income

$ 119,423 $ 111,625 $ 116,872

2016vs.2015
The contribution to consolidated net income from natural gas operations increased $7.8 million between 2016 and
2015. The improvement was primarily due to an increase in operating margin and other income, partially offset by
an increase in operating expenses and net interest deductions.

Operating margin increased $33 million between years. Combined rate relief in the California jurisdiction and
Paiute Pipeline Company provided $10 million in operating margin (see Rates and Regulatory Proceedings). New

Southwest Gas Corporation

customers contributed $8 million in operating margin. The Nevada Conservation and Energy Efficiency (“CEE”)
surcharge, which was implemented in January 2016, provided $11 million of the increase. Amounts collected
through the surcharge do not impact net income as they also result in an increase in associated amortization
expense. Infrastructure replacement mechanisms and customers outside the decoupling mechanisms, as well as
other miscellaneous revenues, collectively provided $4 million of operating margin.

Operations and maintenance expense increased $8.5 million, or 2%, between 2016 and 2015 due primarily to
general cost increases and higher employee medical costs, partially offset by a decline in pension expense. Higher
expenses for pipeline integrity management and damage prevention programs accounted for $2.6 million of the
increase.

Depreciation and amortization expense increased $20 million, or 9%. Average gas plant in service for the current
year increased $341 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
infrastructure, which collectively resulted in increased depreciation expense. Amortizations associated with the
regulatory assets increased approximately $7.1 million overall, notably due to amortization
recovery of
accompanying the recovery of Nevada CEE costs indicated above.

Taxes other than income taxes increased $3 million, or 6%, between 2016 and 2015 primarily due to higher
property taxes associated with net plant additions.

Other income, which principally includes returns on COLI policies (including recognized net death benefits) and
non-utility expenses, increased $6 million between 2016 and 2015. The current year reflects $7.4 million of COLI-
related income associated with cash surrender value increases and recognized net death benefits, while the prior-
year period reflected a COLI-related loss of $500,000.

Net interest deductions increased $2.9 million between 2016 and 2015, primarily due to higher interest expense
associated with deferred purchased gas adjustment (“PGA”) balances and the issuance of $300 million of senior
notes. The increase was substantially offset by reductions associated with the redemption of debt ($20 million of
5.25% 2003 Series D IDRBs in September 2015, $100 million of 4.85% 2005 Series A IDRBs in July 2016, and
$24.9 million of 4.75% 2006 Series A in September 2016).

The effective income tax rates in both 2016 and 2015 were impacted by COLI results, which are not subject to tax.
income tax credit, which resulted in a recognized benefit of
Additionally,
approximately $1.7 million during 2016.

the Company claimed a federal

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 2015 and 2014. New customers contributed $8 million in
operating margin during 2015. Combined rate relief in the California jurisdiction and Paiute Pipeline Company
provided $5 million of
the increase. Operating margin associated with customers outside the decoupling
mechanisms and other miscellaneous revenues increased by $1 million between these years.

Southwest Gas Corporation

Operations and maintenance expense increased $9.5 million, or 2%, between years due primarily to general cost
in 2015. These increases were
increases and higher employee-related expenses,
partially offset by certain expenses that were higher in 2014, including a $5 million legal accrual
in 2014 and
$1.1 million in rent expense (associated with a previously leased corporate headquarters complex).

including pension expense,

Depreciation and amortization expense increased $9.3 million, or 5% between 2015 and 2014. Average gas plant in
service increased $276 million, or 5%, between these years. This was attributable to pipeline capacity
reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new
infrastructure, which collectively resulted in increased depreciation expense. 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 2015 and 2014 primarily due to higher
property taxes associated with net plant additions.

Other income decreased $4.9 million between 2015 and 2014. Cash surrender values of COLI policies decreased
$500,000 in 2015, while COLI-related income was $5.3 million in 2014.

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

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 attributable to noncontrolling interests

2016

2015

2014

$1,139,078 $1,008,986 $739,620

1,024,423
55,669

898,781
56,656

647,857
48,883

58,986
1,193
6,663

53,516
19,884

33,632
1,014

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

Contribution to consolidated net income attributable to Centuri

32,618 $

26,692 $ 24,254

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. In May 2016, Centuri acquired ETTI. Line items in the tables above reflect the results of ETTI only since the
acquisition date, including approximately $6 million in revenues during 2016.

Southwest Gas Corporation

2016vs.2015
Contribution to consolidated net income from construction services increased $5.9 million compared to 2015.
Additional bid work, lower depreciation and amortization, and decreased interest expense positively impacted net
income. The prior year included a $3.4 million pretax loss associated with an industrial construction project in
Canada.

Revenues increased $130.1 million, or 13%, when compared to 2015, primarily due to work performed on certain
large bid projects and additional pipe replacement work. In addition, higher revenues were recognized due to
favorable weather conditions during the year, generally in the mid-western and north-eastern parts of the United
States and in Canada, which extended the construction season. Governmental-mandated pipeline safety-related
programs resulted in many utilities undertaking multi-year distribution pipe replacement projects. Construction
revenues include contracts with Southwest totaling $98 million in 2016 and $104 million in 2015. Centuri accounts
for services provided to Southwest at contractual prices. Refer to Consolidation under Summary of Significant
Accounting Policies in Note 1 to the consolidated financial statements.

Construction expenses increased $125.6 million, or 14%, during the year due to additional pipe replacement work,
higher labor costs experienced due to changes in the mix of work with existing customers, and greater operating
expenses to support increased growth in operations. General and administrative expense (included in construction
expenses) increased approximately $1.6 million overall to support the growth in operations and the increasing size,
geographic footprint and complexity of Centuri’s business. Gains on sale of equipment (reflected as an offset to
construction expenses) were approximately $7.1 million and $3.4 million for 2016 and 2015, respectively.

Depreciation and amortization expense decreased $1 million between 2016 and 2015 primarily due to a $4 million
lives of certain depreciable
reduction in depreciation associated with an extension of the estimated useful
equipment and to a decline in amortization of certain finite-lived intangible assets recognized from the October
2014 acquisition, partially offset by an increase in depreciation on additional equipment purchased to support the
growing volume of work being performed.

Operating income increased $5.4 million, or 10%, when compared to 2015, primarily due to increased bid work at
favorable profit margins overall.

Net interest deductions were lower by $1.1 million, primarily due to lower interest rates on outstanding borrowings
during 2016 as compared to 2015 and to a decrease in the average line of credit balance outstanding during 2016.

During the past several years, construction services segment efforts have been focused on obtaining pipe
replacement work under both blanket contracts and incremental bid projects. For 2016 and 2015, revenues from
replacement work were 65% and 68%, respectively, of total revenues. As noted above, governmental pipeline
safety-related programs and U.S. bonus depreciation tax incentives resulted in many utilities undertaking multi-year
distribution pipe replacement projects.

2015vs.2014
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
to 2015 including a full year of revenues of the acquired companies (an increase of $124 million). NPL revenues in

Southwest Gas Corporation

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 as compared to 2014. Governmental-
mandated pipeline safety-related programs resulted in many utilities undertaking multi-year distribution pipe
replacement projects. Construction revenues included contracts with Southwest totaling $104 million in 2015 and
$92 million in 2014.

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 included a $3.4 million loss on a previous Canadian project. 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.

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

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) changes,
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 (2014—2016) for which results of Natural Gas Operations are
disclosed above.

Nevada Jurisdiction
GeneralRateCaseStatus. The most recent general rate case decision was received from the PUCN in November
2012, and was amended in a Rehearing Decision in April 2013. Ultimately, Southwest 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.

General Revenues Adjustment. As part of the Annual Rate Adjustment (“ARA”) filing in June 2016, Southwest
requested authorization to adjust rates associated with its revenue decoupling mechanism (General Revenues

Southwest Gas Corporation

Adjustment, or “GRA”). The ARA,
including amounts to refund the over-collected balance in the accounts
associated with this mechanism, was approved in December 2016, with rates effective January 2017. The rate
adjustment is expected to refund approximately $16.7 million during 2017. While there is no impact to net income
overall from this rate adjustment, operating cash flows will be reduced as the regulatory liability balance is
refunded.

Infrastructure Replacement Mechanisms. In January 2014, the PUCN approved final rules for a mechanism to
defer and recover certain costs associated with accelerated replacement of infrastructure that does not currently
provide incremental revenues. This mechanism has been in place since that time. Each year, Southwest files a Gas
Infrastructure Replacement (“GIR”) Advance Application requesting authority to replace infrastructure under this
mechanism and files separately as part of an annual GIR filing to reset the recovery surcharge. In December 2015,
the PUCN approved new rates, effective in January 2016, which resulted in approximately $4 million in annualized
revenues. For 2016, the annualized revenue requirement associated with the accelerated pipe replacement
approved in 2015, to be completed during 2016 was approximately $4.5 million. In June 2016, Southwest filed a
GIR Advance Application with the PUCN for projects expected to be completed during 2017. This filing proposed
approximately $60 million of accelerated pipe replacement to include early vintage plastic, early vintage steel, and
a Customer-Owned Yard Line (“COYL”) program. The COYL program, while not large in magnitude, represents the
first of its kind in Nevada, modeled after the program in place in Southwest’s Arizona jurisdiction for several years.
The PUCN issued an Order on the Advance Application in October 2016, approving approximately $57.3 million of
replacement work with an annualized revenue requirement estimated at approximately $5.3 million. The proposed
COYL program was approved for the northern Nevada rate jurisdiction, but consideration for the southern Nevada
rate jurisdiction was deferred until 2020, at which time certain early vintage plastic pipe programs are expected to
be completed. In September 2016, Southwest filed to adjust the GIR surcharge to recover the annual revenue
requirement for amounts previously deferred. This filing was approved in December 2016 and new rates became
effective January 2017.

Subsequent to three GIR rate applications, the GIR regulations require Southwest to either file a general rate case
or a request for waiver before it can file another GIR advance application. The October 2016 rate application was
the third filed by Southwest, necessitating a filing requesting a waiver to allow Southwest to proceed with the GIR
program without filing a general rate case in 2017. This waiver was approved by the PUCN in January 2017;
however, in order to continue the GIR program in 2018, a general rate case will need to be filed before June 2018.

ConservationandEnergyEfficiency(“CEE”). In June 2015, Southwest requested recovery of energy efficiency and
conservation development and implementation costs, including promotions and incentives for various programs, as
originally approved for deferral by the PUCN effective November 2009. While recovery of initial program costs was
approved as part of the most recent general rate case, amounts incurred subsequent to May 2012 (the certification
period) continued to be deferred. Approved rates for the post-May 2012 costs deferred became effective January
2016 and resulted in annualized margin increases of $2 million in northern Nevada and $8.5 million in southern
Nevada, and also include amounts representing expected program expenditures for 2016. As part of the ARA filing
approved in December 2016, Southwest will modify rates that will result in annualized margin decreases of
$1.4 million in northern Nevada and $1.3 million in southern Nevada effective January 2017. There is, however, no
anticipated impact to net income overall from these lower recoveries as amortization expense will also be reduced.

Southwest Gas Corporation

California Jurisdiction
In December 2012, Southwest filed a general rate case application, based on a 2014 future
General Rate Case.
test year, with the 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 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 provided 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, and annual attrition increases
were implemented in January of both 2015 and 2016 in accordance with the June 2014 decision.

In November 2016, Southwest made its latest annual PTY attrition filing, requesting annual revenue increases of
$2.1 million in southern California, $513,000 in northern California, and $256,000 for South Lake Tahoe. This filing
was approved in December 2016 and rates were made effective in January 2017. At the same time, rates were
updated to recover the regulatory asset associated with the revenue decoupling mechanism, or margin tracker.

In December 2016, Southwest filed to modify the most recent general rate case decision to extend the annual PTY
attrition adjustments through 2020. The original decision would have required Southwest to file its next general
rate application by September 2017. Southwest believes this extension would be in the public interest as it allows
customers two additional years of reasonable and relatively stable rates, and would not be expected to be
detrimental to Southwest. Expedited consideration has been requested; however, Southwest also requested that if
a decision has not been received by April 2017, the CPUC suspend the filing requirements until such time as a
decision is issued.

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 (in the third
quarters of each year 2014 through 2016) its allocations for each year from 2015 through 2017. Of those allocated
allowances, Southwest must consign a certain percentage to the CARB for auction. Southwest 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.

Southwest Gas Corporation

Arizona Jurisdiction
Arizona General Rate Case. Southwest filed a general rate application with the ACC in May 2016 requesting an
increase in authorized annual operating revenues of approximately $32 million, or 4.2%, to reflect existing levels of
expense and requested returns, in addition to reflecting capital investments made by Southwest since June 2010.
The application requested an overall rate of return of 7.82% on an original cost rate base of $1.336 billion, a 10.25%
return on common equity, and a capital structure utilizing 52% common equity. The filing included a depreciation
study that supported a proposal to reduce currently effective depreciation expense by approximately $42 million,
which was considered in the overall requested amount. This expense reduction coupled with the requested
revenue increase, resulted in a net annual operating income increase request of $74 million. Southwest also sought
to continue the current COYL program approved in its last general rate case and to expand this mechanism to
include other non-revenue producing projects such as the replacement of vintage steel pipe, while utilizing the
same cost recovery methodology. Southwest also requested a property tax tracker and to maintain the current
(contingent on ACC approval) was reached among several parties in
decoupled rate design. A settlement
December 2016 and a formal draft settlement was filed in January 2017. Hearings were held in February 2017. The
draft settlement provides for an overall operating revenue increase of $16 million and the capital structure and cost
of capital as proposed by Southwest, with the exception of the return on common equity, which would be set at
9.50%. If approved, depreciation expense would be reduced by $44.7 million, for a combined net annual operating
income increase of $60.7 million. Other key elements of the draft settlement include approval of the continuation of
the current COYL program, a property tax mechanism to defer any changes in property tax expense for recovery in
the next general rate case, implementation of a vintage steel pipe replacement program, and a continuation of the
current decoupled rate design excluding a winter-period adjustment to rates, making the mechanism fundamentally
similar to Nevada. The draft settlement also includes a three-year rate case moratorium prohibiting a new
application to adjust base rates from being filed prior to May 2019. Pending ACC approval, new rates are expected
to be in place by May 2017.

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, to be 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 the LNG facility and the deferral of costs, up to
$50 million. The initial cost estimate was made in 2013 prior to selecting the land and receipt of the detailed
engineering design specifications. Following the December 2014 preapproval, Southwest purchased the site for
the facility and completed detailed engineering design specifications for the purpose of soliciting bids for the
engineering, procurement and construction (“EPC”) of the facility. Southwest solicited requests for proposals for the
EPC phase of the project, and in October 2016 made a filing with the ACC to modify the previously issued Order to
update the pre-approved costs to reflect a not-to-exceed amount of $80 million, which was intended to update the
pre-approval to reflect the current pricing information made available through the recently completed EPC phase.
The filing was approved by the ACC in December 2016. Through December 2016, Southwest
incurred
approximately $4.1 million in capital expenditures toward the project (including land acquisition costs). Southwest
included a proposal for the ratemaking treatment of facility costs as part of its current Arizona rate case filing; the
draft settlement discussed in the section above includes an agreement
to defer the revenue requirement
associated with all costs incurred before December 31, 2020 for recovery in Southwest’s next general rate case

Southwest Gas Corporation

proceeding and extended the authorization to defer costs through the same date. 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.
Construction is expected to be completed by the end of 2019.

COYL Program. Southwest received approval,
in connection with its previous Arizona general rate case, to
implement a program to conduct leak surveys, and if leaks were present, to replace and relocate service lines and
meters for Arizona customers whose meters were set off from the 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. Effective June
2013, the ACC authorized a surcharge to recover the costs of depreciation and pre-tax return on the costs incurred
to replace and relocate service lines and meters. The surcharge is revised annually as the program progresses. In
2014, Southwest received approval
to the COYL program to include the
replacement of non-leaking COYLs. In the most recent annual COYL filing made in February 2016, Southwest
requested to increase the annual surcharge revenue from $2.5 million to $3.7 million to reflect additional costs
incurred for both Phase I and Phase II. This request was based on total capital expenditures of $23.1 million,
$13.4 million of which was incurred during 2014 and 2015. In May 2016, the ACC issued a decision approving the
surcharge application, effective in June 2016.

to add a “Phase II” component

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. In September 2014, Paiute reached an agreement in principle with the
FERC Staff and intervenors to settle the case, and in February 2015, the FERC approved the settlement. Tariff
changes 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 implied an 11.5% pre-tax rate of return. Also,
as part of this agreement, Paiute agreed to file a rate case no later than May 2019. No filing in advance of the date
required is currently contemplated.

ElkoCountyExpansionProject. Paiute previously requested to expand its existing transmission system to provide
additional firm transportation-service capacity in the Elko County, Nevada area, in order to meet growing natural
gas demands caused by increased residential and business load and the greater energy needs of mining
operations in the area. 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 project were implemented in
January 2016 and are designed to result in $6 million in revenue annually. As of December 31, 2016, costs incurred
were approximately $35 million and costs associated with remaining site restoration along the construction corridor
are estimated at less than $1 million.

2018 Expansion. In response to growing demand in the Carson City and South Lake Tahoe areas of northern
California and northern Nevada, Paiute evaluated shipper interest in acquiring additional transportation capacity
and executed precedent agreements for incremental transportation capacity with Southwest during the third
quarter of 2016. In October 2016, Paiute initiated a pre-filing review process with the FERC for an expansion
project, which was approved during the same month. The project is anticipated to consist of 8.4 miles of additional
transmission pipeline infrastructure at an approximate cost of $17 million. A formal certificate application is

Southwest Gas Corporation

expected to be filed in mid-2017, at which time, an environmental assessment will also be facilitated. If the process
progresses as planned, the additional facilities could be in place by the end of 2018.

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, 2016, under-collections in California
resulted in an asset of $2.6 million, and over-collections in Arizona and northern and southern Nevada collectively
resulted in a liability of $90.5 million on Southwest’s balance sheet. Gas cost rates paid to suppliers have been
lower
resulting in additional over-recoveries since
December 31, 2015. Despite surcredits in place during 2016, the lower cost of natural gas resulted in PGA payables
existing at December 31, 2016. 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).

than amounts recovered from customers during 2016,

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

2016

2015

$(20,349) $ (3,537)
(2,311)
(39,753)
3,591

(3,339)
(66,788)
2,608

$(87,868) $(42,010)

Arizona PGA Filings. In Arizona, Southwest calculates the change in the gas cost component of customer rates,
which are updated monthly, utilizing a rolling twelve-month average. 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 component of $0.06 per therm effective August 2014. After this surcharge
component was reduced during 2015, it was then eliminated in August 2015 as the receivable balance was fully
collected. A surcredit was implemented in April 2016 to refund the over-collected balance, which has been
adjusted monthly through December 2016.

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 2016, 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 2017. 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 2016/2017 heating season, contracts contained in
the fixed-price portion of the supply portfolio ranged from approximately $2.65 to approximately $4.15 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, Southwest suspended
fixed-for-floating-index-price swaps and fixed-price purchases pursuant to the Volatility Mitigation Program (“VMP”)
for its Nevada service territories. Southwest evaluates, on a quarterly basis, the suspension of Nevada VMP
purchases in light of prevailing market fundamentals and regulatory conditions.

Pipeline Safety Regulation
The Pipeline and Hazardous Materials Safety Administration (“PHMSA”) is in the process of proposing a series of
significant rulemakings that are expected to further transform the regulatory requirements for pipelines. In October
2016, PHMSA issued a final rule regarding expanding the use of excess flow valves in natural gas distribution
systems. The new rule has an effective date of April 2017. Management continues to evaluate potential impacts of
this regulation on its operations and customers. Management continues to monitor changing pipeline safety
legislation and participates to the extent possible in developing associated mandates and reporting requirements.
Additionally, it works with its state and federal commissions, where possible, to develop customer rates that are
responsive to incremental costs of compliance. However, due to the timing of when rates are implemented in
response to new requirements, and as additional rules are developed, compliance requirements could impact
operating expenses and the timing and amount of capital expenditures.

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 of Southwest 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. 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 Bonus Depreciation for
more information.

CashFlows
OperatingCashFlows. Cash flows provided by consolidated operating activities increased $51.2 million between
2016 and 2015. The improvement in operating cash flows included an increase in net income and benefits from
depreciation and deferred income taxes as well as the impacts of working capital components overall. Additionally,
new and updated surcharges for decoupling mechanisms, conservation and energy efficiency and gas

Southwest Gas Corporation

infrastructure programs improved cash flows during 2016. Refer to Results of Natural Gas Operations and Rates and
Regulatory Proceedings.

InvestingCashFlows. Cash used in consolidated investing activities increased $55.8 million in 2016 as compared
including scheduled and
to 2015. The increase was primarily due to additional construction expenditures,
accelerated pipe replacement, and equipment purchases by Centuri due to the increased replacement
construction work of its customers, as well as the acquisition of ETTI in the construction services segment.

Financing Cash Flows. Net cash used in consolidated financing activities increased $1 million between 2016 and
2015. Southwest issued $300 million in senior notes and redeemed approximately $125 million of IDRBs during the
current period (see Note 7 – Long-Term Debt). It also temporarily paid down $145 million of amounts outstanding on
the long-term portion, as well as $18 million of amounts outstanding on the short-term portion, of its credit and
commercial paper facility during 2016. All other long-term debt issuance amounts and retirements of long-term
debt during this period are attributable to Centuri’s borrowing and repayment activity. The Company issued stock
under its Equity Shelf Program during 2015, but not in 2016. See Note 6 – Common Stock, and discussion below.
Dividends paid increased in 2016 as compared to 2015 as a result of an increase in the quarterly dividend rate and
an increase in the number of shares outstanding.

Capital requirements and resources 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.

2016ConstructionExpenditures
During the three-year period ended December 31, 2016, total gas plant in service increased from $5.3 billion to
$6.2 billion, or at an average annual rate of 6%. Replacement, reinforcement, and franchise work was a substantial
portion of the plant increase. To a lesser extent, customer growth impacted expenditures as Southwest set
approximately 70,000 meters during the three-year period.

During 2016, construction expenditures for the natural gas operations segment were $457 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 $507 million and provided approximately 94% 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.

2016FinancingActivity
The $100 million 2005 4.85% Series A fixed-rate IDRBs (originally due in 2035) were redeemed at par plus accrued
interest in July 2016. In September 2016, the $24.9 million 2006A 4.75% fixed-rate IDRBs (originally due in 2036)
were redeemed at par plus accrued interest. Subsequently, in January 2017, Southwest repaid in full $25 million of
7.59% medium-term notes at maturity.

In September 2016, $300 million in 3.8% Senior Notes were issued at a discount of 0.302%. The notes will mature
in September 2046. A portion of the net proceeds were used to temporarily pay down amounts outstanding under
the credit facility. The remaining net proceeds were used for general corporate purposes.

Southwest Gas Corporation

During 2016, approximately 105,000 shares of common stock collectively were issued through the Restricted
Stock/Unit Plan, the Management Incentive Plan, and the Stock Incentive Plan. Approximately $735,000 was raised
from the issuance of shares of common stock through the Stock Incentive Plan.

Three-YearConstructionExpenditures,DebtMaturities,andFinancing
Management estimates natural gas segment construction expenditures during the three-year period ending
December 31, 2019 will be between $1.6 billion and $1.8 billion. Of this amount, approximately $570 million is
expected to be incurred in 2017. Southwest plans to continue, as appropriate, to request regulatory support to
accelerate projects that improve system flexibility and reliability (including replacement of early vintage plastic and
steel pipe). This includes the recent approval in Nevada to complete $57.3 million in accelerated replacement
projects in Nevada in 2017 as well as programs included in the current Arizona general rate case draft settlement
(approval of the continuation of the COYL program and implementation of a vintage steel pipe replacement
program) 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, 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 of natural gas operations. 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 debt securities, bank and other short-
term borrowings, and other forms of financing. See additional discussion in the Notes to our financial statements
(specifically, Note 6 – Common Stock).

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 management) 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, the ability to access and obtain capital from external sources, interest rates, changes
inflation, and the level of earnings. Natural gas prices and
in income tax laws, pension funding requirements,
related gas cost recovery rates have historically had the most significant impact on liquidity.

On an interim basis, Southwest defers over- or under-collections of gas costs to PGA balancing accounts. In
addition, Southwest uses 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 2016, the PGA net payable (over-collected) balance increased from $42 million to $87.9 million at
December 31, 2016. See PGA Filings for more information.

In March 2016, Southwest amended its $300 million credit and commercial paper facility. The facility was previously
scheduled to expire in March 2020 and was extended to March 2021. 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 2016 occurred during the third quarter and was $230 million
($150 million outstanding on the long-term portion of the credit facility, including $50 million on the commercial
paper program, in addition to $80 million outstanding on the short-term portion). At December 31, 2016, $5 million

Southwest Gas Corporation

was outstanding on the long-term portion of the credit facility (none of which was in commercial paper), and no
borrowings were 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 fourth quarters was $68 million,
$5 million, and $9 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. At December 31, 2016, the credit facility was deemed
adequate for working capital needs outside of funds raised through operations and other types of external
financing.

Southwest has a $50 million commercial paper program as noted above. Any issuance under the commercial
paper program is supported by the 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, 2016,
no borrowings were outstanding on the commercial paper program. The maximum outstanding on the program
was $50 million in each of the first and third quarters. Other than the $25 million 7.59% medium-term notes, which
were repaid upon maturity in January 2017, there are no other long-term debt maturities in 2017.

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 credit facility during 2016 was
$198 million, which occurred in the third quarter, at which point $115 million was outstanding on the term loan
facility. At December 31, 2016, $41.2 million was outstanding on the Centuri secured revolving credit facility. At
December 31, 2016, there was approximately $95 million, net of letters of credit, available under the line of credit.

CreditRatings
Credit ratings apply to debt securities such as bonds, notes, and other debt instruments and do not apply to equity
securities such as common stock. Borrowing costs and the ability to raise funds are directly impacted by the credit
ratings of the Company. Credit ratings issued by nationally recognized ratings agencies provide a method for
determining the credit worthiness of an issuer. Credit ratings are important because long-term debt constitutes a
significant portion of total capitalization. These credit ratings are a factor considered by lenders when determining
the cost of future debt for both Southwest and Southwest Gas Holdings, Inc. (i.e., generally the better the rating, the
lower the cost to borrow funds). The current unsecured long-term debt ratings of both companies are all
considered investment grade.

The issuer credit rating for Southwest Gas Holdings, Inc. from Standard & Poor’s Ratings Services (“S&P”) is BBB+
with a stable outlook as assigned in December 2016. Southwest’s unsecured long-term debt rating from Standard &
Poor’s Ratings Services (“S&P”) is BBB+ with a stable outlook as reaffirmed in December 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.

The issuer credit rating of Southwest Gas Holdings, Inc. from Moody’s Investors Service, Inc. (“Moody’s”) is Baa1
with a stable outlook as assigned in December 2016. Southwest Gas Corporation’s senior unsecured long-term

Southwest Gas Corporation

debt rating from Moody’s Investors Service, Inc. (“Moody’s”) is A3 with a stable outlook as last affirmed 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 long-term issuer default rating (“IDR”) of Southwest Gas Holdings, Inc. from Fitch Ratings (“Fitch”) is BBB+ (with
a stable outlook) as assigned in December 2016. Southwest’s senior unsecured long-term debt rating from Fitch
Ratings (“Fitch”) is A (with a stable outlook) as affirmed in December 2016. 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.

A credit rating is not a recommendation to buy, sell, or hold a debt security, but is intended to provide an estimation
of the relative level of credit risk of debt securities, and is subject to change or withdrawal at any time by the rating
agency. The foregoing credit ratings are subject to change at any time in the discretion of the applicable ratings
agency. Numerous factors, including many that are not within management’s control, are considered by the ratings
agencies in connection with assigning credit ratings.

No debt instruments have credit triggers or other clauses that result in default if these bond ratings are lowered by
rating agencies. Certain 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, 2016, the Company is in compliance with all covenants. Under the most
restrictive of the covenants, approximately $2.3 billion in additional debt could be issued and the leverage ratio
requirement would still be met. At least $1.1 billion of cushion in equity relating to the minimum net worth
requirement exists at December 31, 2016.

Certain Centuri debt instruments have leverage ratio caps and fixed charge ratio coverage requirements. At
December 31, 2016, Centuri is in compliance with all of its covenants. Under the most restrictive of the covenants,
Centuri could issue over $145 million in additional debt and meet the leverage ratio requirement. Centuri has at
least $21 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.

BonusDepreciation
In December 2015, the Protecting Americans from Tax Hikes Act of 2015 (“PATH Act”) was enacted, extending the
50% bonus depreciation tax deduction for qualified property acquired or constructed and placed in-service during
2015 (and additional years as noted below) as well as other tax deductions, credits, and incentives. The bonus
depreciation tax deduction will be phased out over five years. The PATH Act provides for a 50% bonus
depreciation tax deduction in 2015 through 2017, 40% in 2018, 30% in 2019, and no bonus deduction after 2019.
Management estimates the bonus depreciation provision of the PATH Act will defer the payment of more than
$60 million of federal income taxes for 2016. The actual amount will be dependent upon the ultimate level of
qualifying expenditures. The foregoing does not contemplate any further changes not already enacted.

Inflation
Inflation can impact 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

Southwest Gas Corporation

components of the cost of service, and gas infrastructure 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.

Off-BalanceSheetArrangements
All debt is recorded in the balance sheet. Long-term operating and capital leases 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 table below summarizes the Company’s contractual obligations at December 31, 2016 (millions of dollars):

Payments due by period

Contractual Obligations

Total

2017

2018-2019

2020-2021

Thereafter

Operating leases (Note 2)
Gas purchase obligations
Pipeline capacity/storage
Other commitments
Long-term debt, including current maturities
(Note 7)
Interest on long-term debt
Capital leases (Note 2)

21
155
1,117
22

1,600
1,088
2

7
108
137
12

50
65
1

8
46
192
10

159
129
1

4
1
150
—

142
114
—

2
—
638
—

1,249
780
—

Total

$4,005

$380

$545

$411

$2,669

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
155 million dekatherms. The fixed-price contracts range in price from approximately $2.65 to approximately $4.15
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 mechanisms. 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 consist 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, 2016 on
variable rate long-term debt were assumed to remain in effect in the future periods disclosed in the table.

Pension:
$39 million and is not included in the table above.

Estimated funding for pension and other postretirement benefits during calendar year 2017 is

Southwest Gas Corporation

recognition and measurement of

Recently Issued Accounting Standards Updates
The Financial Accounting Standards Board (“FASB”) recently issued Accounting Standards Updates related to
revenue recognition,
leases, stock compensation,
measurement of credit losses, classification of certain cash receipts and cash payments in the cash flow statement,
accounting for income taxes relating to intra-entity asset transfers other than inventory, consolidation of a variable
interest entity involving related parties under common control, and simplifying the test for goodwill impairment. See
Note 1 – Summary of Significant Accounting Policies for more information regarding these accounting standards updates
and their potential impact on financial position, results of operations, and disclosures.

instruments,

financial

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 operating
environment changes. While management may make many estimates and judgments, many would not be
materially altered, or provide a material impact to the financial statements taken as a whole, if different estimates,
or means of estimation were employed. The following are accounting policies that are deemed critical to the
financial statements. For more information regarding significant accounting policies, see Note 1—Summary of
Significant Accounting Policies.

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. Management reviews the 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 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, operating
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,

Southwest Gas Corporation

analyses reflecting significant historical trends, seasonality, and experience. The interplay of these assumptions can
impact the variability of the accrued utility revenue estimates. All Southwest rate jurisdictions have decoupled rate
structures, limiting variability due to extreme weather conditions.

AccountingforIncomeTaxes
Income tax calculations require
The Company is subject to income taxes in the United States and Canada.
estimates due to known future tax rate changes, book to tax differences, and uncertainty with respect to regulatory
treatment of certain property items. The asset and liability method of accounting is utilized 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 management 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. Management 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, financial position, and/or results of operations.

AccountingforPensionsandOtherPostretirementBenefits
Southwest has a noncontributory qualified retirement plan with defined benefits covering substantially all employees. In
addition, there is a separate unfunded supplemental retirement plan which is limited to officers. 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 $36.3 million and future pension expense by $3.6 million. A change
of 0.25% in the employee compensation assumption would change the pension obligation by approximately $7.0 million
and expense by $1.5 million. A 0.25% change in the expected asset return assumption would change pension expense
by approximately $1.9 million (but has no impact on the pension obligation).

At December 31, 2016, the discount rate is 4.50%, the same as at December 31, 2015. The methodology utilized to
determine the discount rate was consistent with prior years. The weighted-average rate of compensation
escalation remains at 3.25%. The asset return assumption of 7.00% to be used for 2017 expense was lowered from
the 7.25% rate used for 2016. Pension expense for 2017 is estimated to be similar to that experienced in 2016.
Future years’ expense level movements (up or down) will continue to be greatly influenced by long-term interest
rates, asset returns, and funding levels.

Certifications
The Securities and Exchange Commission (“SEC”) requires the filing of certifications of the Chief Executive Officer
(“CEO”) and Chief Financial Officer (“CFO”) of registrants regarding reporting accuracy, disclosure controls and
procedures, and internal control over financial reporting as exhibits to periodic filings. The CEO and CFO
certifications for the period ended December 31, 2016 are included as exhibits to the 2016 Annual Report on Form
10-K filed with the SEC.

Southwest Gas Corporation

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 management’s plans, objectives, goals, intentions, projections, strategies, future
events or performance, and underlying assumptions. The words “may,” “if,” “will,” “should,” “could,” “expect,”
“plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “continue,” “forecast,” “intend,” “promote,” “seek,”
and similar words and expressions are generally used and intended to identify forward-looking statements. For
example, statements regarding operating margin patterns, customer growth, the composition of our customer base,
price volatility, seasonal patterns, payment of debt, interest savings, replacement market and new construction
market, bonus depreciation tax deductions and future changes not yet enacted, amount and timing for completion
of estimated future construction expenditures, including the LNG facility in southern Arizona and the cost of the
Paiute 2018 expansion, forecasted operating cash flows and results of operations, net earnings impacts from gas
infrastructure replacement surcharges, funding sources of cash requirements, amounts generally expected to be
reflected in 2017 or future period revenues from regulatory rate proceedings, approval of the Arizona general rate
case settlement and effective date of new general rates, PTY rate adjustments and the extension request including
period for the next California general rate case, ARA rates and other surcharges, Nevada Conservation and Energy
Efficiency programs, PGA, and other rate adjustments, sufficiency of working capital and current credit facilities,
bank lending practices, ability to raise funds and receive external financing capacity, 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 effect of any rate changes or regulatory proceedings,
effective dates of pipeline regulations, infrastructure replacement mechanisms and COYL programs, 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 ETTI will be deductible
for tax purposes, 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 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, 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
In addition,
management 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 business risks, see Item 1A. Risk

intangible assets.

Southwest Gas Corporation

Factors and Item 7A. Quantitative and Qualitative Disclosures About Market Risk in the Annual Report on Form 10-K for the
year ended December 31, 2016.

All forward-looking statements in this annual report are made as of the date hereof, based on information available
to management as of the date hereof, and we assume no obligation to update or revise any 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

2016

2015

High

$67.29
79.43
79.58
76.64

Low

$53.51
62.75
67.97
64.35

High

$63.68
59.75
58.40
62.56

Low

$52.94
51.69
51.26
50.78

Dividends Declared
2015
2016

$0.450
0.450
0.450
0.450

$0.405
0.405
0.405
0.405

$1.800

$1.620

The principal market on which the common stock of the Company is traded is the New York Stock Exchange. At
February 15, 2017, there were 13,488 holders of record of common stock, and the market price of the common
stock was $82.93.

Dividends are payable on the Company’s common stock at the discretion of the Board of Directors (“Board”). In
setting the dividend rate, the Board considers, among other factors, current and expected future earnings levels,
our ongoing capital expenditure plans and expected external funding needs, our payout ratio, and our ability to
maintain strong credit ratings and liquidity. The quarterly common stock dividend declared was 36.5 cents per
share throughout 2014, 40.5 cents per share throughout 2015, and 45 cents per share throughout 2016. The
Company has paid dividends on its common stock since 1956 and has increased that dividend each year since
2007. In February 2017, the Board elected to increase the quarterly dividend from $0.45 to $0.495 per share,
representing a 10% increase, effective with the June 2017 payment. The Board currently targets a payout ratio of
55% to 65% of consolidated earnings per share.

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)

Current assets:

Cash and cash equivalents
Accounts receivable, net of allowances (Note 3)
Accrued utility revenue
Income taxes receivable, net
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

2016

2015

$ 6,193,564 $ 5,854,917
(2,084,007)
370
119,805

(2,172,966)
196
111,177

4,131,971

3,891,085

342,343

313,531

28,066
285,145
76,200
4,455
2,608
136,833

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

533,307

558,174

139,983
1,288
432,234

126,145
428
469,322

573,505

595,895

$ 5,581,126 $ 5,358,685

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 –

47,482,068 and 47,377,575 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

2016

2015

49,112 $

903,123
(48,008)
759,263

49,007
896,448
(50,268)
699,221

1,663,490
(2,217)

1,594,408
(2,083)

1,661,273
22,590
1,549,983

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

3,233,846

3,159,637

50,101
—
184,669
72,296
1,909
42,921
17,939
90,476
168,064

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

628,375

535,045

840,653
308,000
570,252

769,445
303,000
591,558

1,718,905

1,664,003

$ 5,581,126 $ 5,358,685

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

2016

2015

2014

$1,321,412 $1,454,639 $1,382,087
739,620
1,008,986

1,139,078

2,460,490

2,463,625

2,121,707

397,121
401,724
289,132
52,376
1,024,423

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

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

2,164,776

2,175,293

1,837,224

295,714

288,332

284,483

(73,660)
9,469

(71,879)
2,879

(72,069)
7,107

(64,191)

(69,000)

(64,962)

231,523
78,468

153,055
1,014

219,332
79,902

139,430
1,113

219,521
78,373

141,148
22

Net income attributable to Southwest Gas Corporation

$ 152,041 $ 138,317 $ 141,126

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)

3.20 $

2.94 $

3.18 $

2.92 $

47,469
47,814

46,992
47,383

3.04

3.01

46,494
46,944

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

2016

2015

2014

$153,055 $139,430 $ 141,148

(14,118)
828
16,781
—
(3,462)

(18,922)
828
21,316
—
(3,500)

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

(278)

(9,913)

2,075

2,073

161

(1,954)

(659)

2,265

(159)

(8,499)

155,320
1,019

139,271
1,047

132,649
—

Comprehensive income attributable to Southwest Gas Corporation

$154,301 $138,224 $ 132,649

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:

2016

2015

2014

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

$ 153,055 $ 139,430 $ 141,148

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

289,132
68,732

270,111
48,785

253,027
64,309

30,096
(1,500)
45,858
21,695
26,340
(29,551)
(7,148)
5,456
(2,289)
16,960
(18,447)

(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

Net cash provided by operating activities

598,389

547,147

346,423

Southwest Gas Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS – Continued

Year Ended December 31,

2016

2015

2014

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

(529,531)
(17,000)
—
7,900
13,039
—

(488,000)
(9,261)
785
18,300
8,354
—

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

(525,592)

(469,822)

(555,588)

472
(83,317)
(439)
423,946
(255,273)
(145,000)
(18,000)
(1,354)
(1,569)

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)

Net cash provided by (used in) financing activities

(80,534)

(79,487)

207,512

Effects of currency translation on cash and cash equivalents

(194)

(1,407)

142

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

Cash and cash equivalents at end of period

Supplemental information:
Interest paid, net of amounts capitalized

Income taxes paid (received)

(7,931)
35,997

(3,569)
39,566

(1,511)
41,077

$ 28,066 $ 35,997 $ 39,566

$ 67,440 $ 66,623 $ 65,552

$ (19,032) $ 43,225 $ 24,247

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, 2013

46,356 $ 47,986 $ 840,521

$ (41,698)

$ 567,714 $ (2,128) $ 1,412,395

—

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

167

10,860

11,027

141,126

(129)

140,997

18,952
151

(961)

961

(637)

(22)

(9,913)

2,073

(9,913)

2,073

(68,715)

DECEMBER 31, 2014

46,523

48,153

851,381

(50,175)

639,164

(2,257)

1,486,266

20,042

Common stock issuances
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)

854

39,290

138,317

174

40,144
138,491

939

5,777

(1,069)

4,708

(4,708)

(1,888)

(66)

(278)

2,073

(278)

2,073

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

Centuri distribution to

redeemable noncontrolling
interest

Dividends declared

Common: $1.62 per share

(77,191)

Redeemable
Noncontrolling
Interest
(Temporary
Equity)

(99)

DECEMBER 31, 2015

47,377 49,007 896,448

(50,268)

699,221

(2,083)

1,592,325

16,108

Common stock issuances
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: $1.80 per share

105

6,675

152,041

(134)

6,780
151,907

1,148

(5,768)

5,768

156

2,075

(439)

(86,231)

DECEMBER 31, 2016

47,482*$49,112 $903,123

$(48,008)

$759,263 $(2,217) $1,661,273

$22,590

* There are 3.8 million common shares registered and available for issuance under provisions of the various stock

issuance plans.

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
Holding Company Reorganization. In 2015, the Board of Directors (“Board”) of the Southwest Gas Corporation (“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. As part of the
holding company reorganization, Centuri Construction Group, Inc. (“Centuri” or the “construction services” segment) and
Southwest Gas Corporation would each be subsidiaries of the new publicly traded parent holding company (Southwest
Gas Holdings, Inc.); whereas, historically, Centuri had been a direct subsidiary of Southwest Gas Corporation. All of
Southwest Gas Corporation’s outstanding debt securities (not associated with Centuri) at the time of the reorganization
would remain at the Southwest Gas utility entity. Regulatory applications for preapproval of such reorganization were
filed with the ACC, the CPUC, and the PUCN in October 2015. Approvals were received from the CPUC, the PUCN, and
the ACC in January, March, and May, respectively, of 2016. The Board approved the reorganization in December 2016
which became effective in January 2017. Each outstanding share of Southwest Gas Corporation common stock
automatically converted into a share of stock in Southwest Gas Holdings, Inc., on a one-for-one basis, and the ticker
symbol of the stock, “SWX,” remains unchanged. Throughout this report, the “Company” refers to Southwest Gas
Corporation and subsidiaries for periods prior to January 1, 2017 and to Southwest Gas Holdings, Inc. and subsidiaries for
periods subsequent to December 31, 2016. Specific disclosures and references to Southwest Gas Holdings, Inc. (the
“holding company”) give effect to events and conditions of the equity registrant/consolidated entity and its officers or
directors after December 31, 2016.

Nature of Operations. The Company consists of
two segments: natural gas operations (“Southwest”) and
construction services (Centuri). 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, a 96.6% owned subsidiary, is a comprehensive construction services enterprise dedicated
to meeting the growing demands of North American utilities, energy and industrial markets. Centuri derives
revenue from installation, replacement, repair, and maintenance of energy distribution systems, and developing
industrial construction solutions primarily for energy services utilities. Centuri operations occur in 20 major markets
in the U.S. and within the Canadian provinces of British Columbia and Ontario, and are generally conducted under
the business names of NPL Construction Co.
formerly Link-Line
Contractors Ltd.), W.S. Nicholls Construction, Inc. and related companies (“W.S. Nicholls”), and Brigadier Pipelines
In May 2016, Centuri completed the acquisition of two privately held, affiliated construction
Inc.
businesses: Enterprise Trenchless Technologies, Inc. and ETTI Holdings (collectively, “ETTI”). ETTI is operated as
part of Brigadier. See AcquisitionofConstructionServicesBusinesses below for more information. In January 2017,
W.S. Nicholls began conducting business as WSN Fabrication, a division of NPL Canada Ltd.

(“NPL”), NPL Canada Ltd.

(“NPL Canada”,

(“Brigadier”).

in accounting for all of

Basis of Presentation. The Company follows generally accepted accounting principles in the United States (“U.S.
GAAP”)
its businesses. Unless specified otherwise, all amounts are in U.S. dollars.
Accounting for natural gas utility operations conforms with U.S. GAAP as applied to rate-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

Southwest Gas Corporation

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 as of December 31, 2016 (except those accounted for
using the equity method as discussed further below). All significant intercompany balances and transactions have
been eliminated with the exception of transactions between Southwest and Centuri in accordance with accounting
treatment for rate-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 investment in Western
totaled $10.8 million at December 31, 2015 and 2016. Both periods include the impacts of foreign currency
exchange translation adjustments. Dividends of $500,000 were received from Western during 2016 with no impact
on earnings. No dividends were received from Western in 2015. A management fee was paid by Western to its
partners, including W.S. Nicholls, in accordance with underlying agreements. 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 $35.8 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 were deemed to be worthless. Centuri recorded earnings of $69,000 from this investment in 2016,
which is included in Other Income (deductions) in the Consolidated Statements of Income.

In addition, Centuri, through its subsidiaries, has a 25% interest in CCI-TBN Toronto, Inc. and a 50% interest in
Matheson-Nicholls Joint Venture, which are also equity method investments.

Net Utility Plant. Net utility plant
less the accumulated provision for
includes gas plant at original cost,
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 (thousands of dollars):

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

Total

2016

2015

$ 451,114 $ 423,369
(221,028)
99,276
11,914

(228,374)
106,744
12,859

$ 342,343 $ 313,531

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

Southwest Gas Corporation

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 $30 million in 2016 and $24 million in 2015 (carried at weighted average cost). Also included is natural
gas stored underground and liquefied natural gas (both carried at weighted average cost), in addition to prepaid
assets.

Income Taxes. The asset and liability method of accounting is utilized for the recognition of 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, 2016, the Company
had cumulative earnings of approximately $5 million in its foreign jurisdiction. However, management intends to
permanently reinvest any foreign earnings in Canada. See Note 12 – Income Taxes for further information.

Cash and Cash Equivalents. For purposes of reporting consolidated cash flows, cash and cash equivalents
include cash on hand and financial instruments with a purchase-date maturity of three months or less. In general,
cash and cash equivalents fall within Level 1 (quoted prices for identical financial instruments) of the three-level fair
value hierarchy that ranks the inputs used to measure fair value by their reliability. However, cash and cash
equivalents also includes money market fund investments totaling approximately $5.3 million and $250,000 at
December 31, 2016 and 2015, respectively, 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 $6.5 million, $3.1 million, and $8.1 million during 2016,
2015, and 2014, 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. This outflow activity was
recorded in investing activities in 2015 as Acquisition of businesses, net of cash acquired.

Goodwill. Goodwill is assessed for impairment annually, 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 is
conducted in the 4th quarter each year and 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 our reporting units are less than
their carrying amounts in either 2015 or 2016. Thus, no impairment was recorded in either year. One of the
businesses associated with the ETTI acquisition in 2016 (further discussion below) was acquired via asset purchase.
As a result, goodwill associated with ETTI is expected to be deductible for tax purposes.

Southwest Gas Corporation

(In thousands of dollars)

December 31, 2015
Additional goodwill from ETTI acquisition
Foreign currency translation adjustment

December 31, 2016

Natural
Gas
Operations

Construction
Services

Consolidated

$10,095
—
—

$ 116,050
10,726
3,112

$ 126,145
10,726
3,112

$10,095

$129,888

$139,983

Goodwill from the ETTI acquisition consists of the excess of purchase price over the fair value of the acquired net
assets and represents the value of the assembled workforce and the estimated economic value attributable to
future opportunities that will arise based on the strong financial performance of the combined entities.

AcquisitionofConstructionServicesBusinesses. In May 2016, Centuri completed the acquisition of ETTI, which is
based in Lisbon Falls, Maine, and has a primary focus on underground utility installation using horizontal directional
drilling technology. The acquisition of ETTI will provide complementary operational support to, and be operated as
part of, Brigadier, expanding operations into Maine. Neither the acquisition itself nor the impacts to assets and
operations were material to the construction services segment or the Company at December 31, 2016.

Assets acquired in the transaction were recorded at their acquisition date fair values. The final purchase accounting
is complete. The final estimated fair values of assets acquired as of May 6, 2016, the acquisition date, are as follows
(in millions of dollars):

Property, plant and equipment
Intangible assets
Goodwill

Total assets acquired

Acquisition
Date

$ 4.3
2.9
10.7

$17.9

The purchase price consisted of $17 million in cash on the acquisition date with the remaining amount being
deferred over four years.

Southwest Gas Corporation

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 construction services
businesses acquired in 2014 and have finite lives. Centuri has $37.7 million and $36.8 million of intangible assets
(varies due to foreign currency translation) at December 31, 2016 and 2015, respectively, as detailed in the
following table (thousands of dollars):

December 31, 2016

Customer relationships
Trade names and trademarks
Customer contracts backlog
Noncompete agreement

Total

December 31, 2015

Customer relationships
Trade names and trademarks
Customer contracts backlog
Noncompete agreement

Total

Gross Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

$34,033
9,349
1,656
1,029

$46,067

$31,226
8,621
1,606
437

$41,890

$(3,906)
(2,565)
(1,656)
(271)

$30,127
6,784
—
758

$(8,398)

$37,669

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

$29,156
7,290
—
327

$(5,117)

$36,773

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):

2017
2018
2019
2020
2021

$3,339
3,126
2,463
2,395
2,269

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

Southwest Gas Corporation

recognized as accrued utility revenue. Revenues also include the net impacts of margin tracker/decoupling
accruals. All of Southwest’s service territories have decoupled rate structures (alternative revenue programs), which
are designed to eliminate the direct link between volumetric sales and revenue, thereby mitigating the impacts of
unusual weather variability and conservation on margin.

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.
Management uses the net classification method to report taxes collected from customers to be remitted to
governmental authorities.

installations

are recorded as

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.
Long-term fixed-price contracts use the
are completed.
Revenues
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.

Construction Expenses. The construction expenses classification in the income statement
includes payroll
expenses, office and equipment rental costs, subcontractor expenses, training, job-related materials, gains and
losses on equipment sales, and professional fees of Centuri.

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, which by their inclusion, result in net cost of gas
sold overall that is comparable to amounts included in billed gas operating revenues. Differences between
amounts incurred with suppliers, transmission pipelines, etc. and those already included in customer rates, are
temporarily deferred in purchased gas adjustment accounts pending inclusion in customer rates.

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. During the third quarter of 2016, Centuri evaluated the estimated useful lives of its depreciable
assets, and in so doing determined that certain equipment lives should be extended. This change in estimate

Southwest Gas Corporation

reduced 2016 depreciation by approximately $4 million. Costs and gains related to refunding utility debt and debt
issuance expenses are deferred and 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

AFUDC rate

2016

2015

2014

$1,175 $1,666 $1,228
1,995
3,008

2,289

$3,464 $4,674 $3,223

7.35%

7.32%

7.73%

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)

2016

2015

2014

$ 7,400 $ (500) $ 5,300
2,602
2,173
1,995
3,008
(178)
(824)
107
310
(2,719)
(1,288)

1,849
2,289
(22)
69
(2,116)

$ 9,469 $ 2,879 $ 7,107

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 the Company to indemnify itself against the loss of talent, expertise, and
knowledge, as well as to provide indirect funding for certain nonqualified benefit plans. Current tax regulations
provide for tax-free treatment of life insurance (death benefit) proceeds. Therefore, changes in the cash surrender
value components of COLI policies, as they progress towards the ultimate death benefits, are also recorded
without tax consequences.

Foreign CurrencyTranslation. 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

Southwest Gas Corporation

from intercompany foreign currency transactions that are of a long-term investment nature are reported in other
comprehensive income, if applicable.

EarningsPerShare. Basic earnings per share (“EPS”) in each period of this report were calculated by dividing net
income attributable to Southwest Gas Corporation by the weighted-average number of shares outstanding during
those periods. 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

2016

2015

2014

47,469 46,992 46,494

124

220

171

212

215

218

47,814 47,383 46,944

Recently Issued Accounting Standards Updates. 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 the customer, identify the performance obligations in the contract,
determine the transaction price, allocate the transaction price to the performance obligations in the contract, and
recognize revenue when (or as) the entity satisfies a performance obligation. In addition to the new revenue recognition
requirements, entities will be required to disclose sufficient information to enable users of financial statements to
understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
Entities may choose between two retrospective transition methods when applying the update. In July 2015, the FASB
approved a one-year deferral of the effective date (annual periods beginning after December 15, 2017). In March, April,
May, and December of 2016, the FASB issued updates to Topic 606 related to “Principal versus Agent Considerations
(Reporting Revenue Gross versus Net)”, “Identifying Performance Obligations and Licensing”, “Narrow-Scope
Improvements and Practical Expedients”, and certain “Technical Corrections and Improvements”. The amendments in
the first two updates, respectively, provide guidance when another party, along with the entity, is involved in providing a
good or service to a customer, and provide clarification with regard to identifying performance obligations and of the
licensing implementation guidance in Topic 606. The third update includes improvements to the guidance on
collectability, noncash consideration, and completed contracts at transition. In addition, a practical expedient is provided
for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and
other similar taxes collected from customers. The fourth update affects narrow aspects of the guidance as issued to
date. The combined amendments do not change the core principles of the guidance in Topic 606. Management plans to
adopt all of these updates at the required adoption date, which is for interim and annual reporting periods commencing
January 2018.

Management has substantially completed the evaluation of the sources of revenue and are currently assessing the
effect of the new guidance on the financial position, results of operations and cash flows. The assessment is
contingent, in part, upon the completion of deliberations currently in progress by the utility industry, notably in

Southwest Gas Corporation

connection with efforts to produce an accounting guide intended to be developed by the American Institute of
Certified Public Accountants (“AICPA”). In association with this undertaking, the AICPA formed a number of industry
task forces, including a Power & Utilities (“P&U”) Task Force, on which Company personnel actively participate via
formal membership. Industry representatives and organizations, the largest auditing firms, the AICPA’s Revenue
Recognition Working Group and its Financial Reporting Executive Committee have undertaken, and continue to
undertake, consideration of several items relevant to the utility industry. Where applicable or necessary, the FASB’s
Transition Resource Group (TRG) is also participating. Currently, the industry is working to address several items
including the evaluation of collectability from customers if a utility has regulatory mechanisms to help assure
recovery of uncollected accounts from ratepayers and the accounting for funds received from third parties to
partially or fully reimburse the cost of construction of an asset. Currently, a timeline for the resolution of these
deliberations has not been established. Southwest is actively working with its peers in the rate-regulated natural
gas industry and with the public accounting profession to conclude on the accounting treatment for several other
issues that are not expected to be addressed by the P&U Task Force.

As of December 31, 2016, the construction services segment has substantially completed the evaluation of sources
of revenue and is currently assessing the effect of the new guidance on financial position, results of operations and
cash flows. The principals of the new revenue recognition guidance are very similar to existing guidance for
construction contractors. Similar to the P&U Task Force noted above, the AICPA formed the Engineering and
Construction Contractors Task Force to assist the construction industry with implementing the new guidance. The
accounting guide the AICPA intends to release is expected to provide implementation guidance related to several
issues including 1) combining contracts and separating performance obligations; 2) estimating change orders,
incentives, penalties, liquidated damages and other variable consideration items and 3) acceptable measures of
progress when recognizing revenue over time.

Given the uncertainty with respect to the conclusions that might arise from the deliberations on issues associated
with both the natural gas and construction services segments, the Company is currently unable to determine the
effect the new guidance will have on its financial position, results of operations, cash flows, business processes, or
the transition method it will utilize to adopt the new guidance.

In January 2016, the FASB issued the update “Financial Instruments – Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities” in order to improve the recognition and measurement of
financial
instruments. The update makes targeted improvements to existing U.S. GAAP by: 1) requiring equity
investments to be measured at fair value with changes in fair value recognized in net income; 2) requiring the use of
the exit price notion when measuring the fair value of financial instruments for disclosure purposes; 3) requiring
separate presentation of financial assets and financial liabilities by measurement category and form of financial asset
on the balance sheet or the accompanying notes to the financial statements; 4) eliminating the requirement to
disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for
financial instruments measured at amortized cost on the balance sheet; and 5) requiring a reporting entity to present
separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a
change in instrument-specific credit risk when the organization has elected to measure the liability at fair value in
accordance with the fair value option for financial instruments. The update is effective for fiscal years beginning after
December 15, 2017, including interim periods within those fiscal years. All entities can early adopt the provision to
record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk
in other comprehensive income. Management is evaluating what impact,
if any, this update might have on its
consolidated financial statements and disclosures.

Southwest Gas Corporation

In February 2016, the FASB issued the update “Leases (Topic 842)”. Under the update, lessees will be required to
recognize the following for all leases (with the exception of short-term leases) at the commencement date:

• A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a

discounted basis; and

• A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified

asset for the lease term.

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to
lessor accounting with the lessee accounting model and Topic 606, Revenue from
align, where necessary,
Contracts with Customers. Though companies have historically been required to make disclosures regarding
leases and of contractual obligations, leases (with terms longer than a year) will no longer exist off-balance sheet.
Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must
apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the
earliest comparative period presented in the financial statements. The modified retrospective approach would not
require any transition accounting for leases that expired before the earliest comparative period presented. Lessees
and lessors may not apply a full retrospective transition approach. Early application is permitted. Management
currently plans to adopt the update at the required adoption date, which is for interim and annual reporting periods
commencing January 1, 2019. Existing leases have been documented by both segments and management is in the
process of determining if special software will be necessary to implement the standard. In addition, management is
evaluating the potential impacts of various natural gas industry-related issues in light of the leasing standard. Given
the uncertainty with respect to the conclusions that might arise from these deliberations, management is currently
unable to determine the effect the new guidance will have on its financial position, results of operations, cash flows,
or business processes.

In March 2016, the FASB issued the update “Compensation – Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting”. The amendments are intended to improve the accounting for
employee share-based payments and affect all organizations that issue share-based payment awards to their
employees. The update requires the recording of all of the tax effects related to share-based payments at
settlement (or expiration) through the income statement. Currently, tax benefits in excess of compensation cost
(“windfalls”) are recorded in equity, and tax deficiencies (“shortfalls”) are recorded in equity to the extent of
previous windfalls, and then recorded in the income statement. While the simplification will reduce some of the
administrative complexities by eliminating the need to track a “windfall pool,” it will increase the volatility of income
tax expense. The update also allows entities to withhold shares for the employee tax burden up to the employees’
maximum individual tax rate in the relevant jurisdiction without resulting in a liability classification of the award
(currently such withholding is limited to the employer’s minimum statutory withholding). The update clarifies that all
cash payments made to taxing authorities on the employees’ behalf for withheld shares should be presented as
financing activities on the statement of cash flows. Also, the update requires all tax-related cash flows resulting
from share-based payments be reported as operating activities on the statement of cash flows, a change from the
current requirement to present windfall tax benefits as an inflow from financing activities and an outflow from
operating activities. The update is effective for fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. Management issues share-based payment awards to its employees. The update
was adopted by management in January 2017.

In June 2016, the FASB issued the update “Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments”. The update amends guidance on reporting credit losses for financial

Southwest Gas Corporation

assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis,
the update eliminates the “probable” threshold for initial recognition of credit losses in current U.S. GAAP and,
instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit
losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net
amount expected to be collected. For available for sale debt securities, credit losses should be measured in a
manner similar to current U.S. GAAP, however the update will require that credit losses be presented as an
allowance rather than as a write-down. This update affects entities holding financial assets and net investment in
leases that are not accounted for at fair value through net income. The update affects loans, debt securities, trade
receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other
financial assets not excluded from the scope that have the contractual right to receive cash. The update is effective
for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All entities
may adopt the amendments in this update earlier as of fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. Management is evaluating what impact, if any, this update might have on
its consolidated financial statements and disclosures.

instruments or other debt

In August 2016, the FASB issued the update “Classification of Certain Cash Receipts and Cash Payments”. This
update addresses the following specific cash flow issues: debt prepayment or debt extinguishment costs;
settlement of zero-coupon debt
instruments with coupon interest rates that are
insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made
after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of
corporate-owned life insurance (“COLI”) policies; distributions received from equity method investees; beneficial
interests in securitization transactions; and separately identifiable cash flows,
the
predominant nature in cases where cash receipts and payments have aspects of more than one class of cash flows.
The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those
fiscal years. Early adoption is permitted. Management is evaluating the impacts this update might have on its
consolidated cash flow statements and disclosures.

including identification of

In October 2016, the FASB issued the update “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets
Other than Inventory.” This update eliminates the current U.S. GAAP exception for all intra-entity sales of assets
other than inventory. As a result, a reporting entity would recognize the tax expense from the sale of the asset in
the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are
eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized
at the time of the transfer. The update is effective for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. Early adoption is permitted; however, the guidance can only be adopted in
the first interim period of a fiscal year. The modified retrospective approach will be required for transition to the
new guidance, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period
of adoption. Management is evaluating the impacts this update might have on its consolidated financial statements.

In October 2016, the FASB issued the update “Consolidation (Topic 810): Interests Held through Related Parties
That Are under Common Control.” The amendments affect reporting entities that are required to evaluate whether
they should consolidate a variable interest entity in certain situations involving entities under common control. The
update is effective for fiscal and interim periods beginning after December 15, 2016. Management has determined
that this update is not impactful to its consolidated financial statements.

Southwest Gas Corporation

In January 2017, the FASB issued the update “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment.” The update eliminates Step 2 from the goodwill impairment test. The annual, or interim,
goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An
impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s
fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting
unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit
should be considered when measuring the goodwill impairment loss, if applicable. The update also eliminates the
requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment
and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to
perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.
The amendments should be applied on a prospective basis. The update is effective for fiscal and interim periods
beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests
performed on testing dates after January 1, 2017. Management has determined that this update would have had no
impact on the consolidated financial statements for the periods presented if it had been effective during those
periods.

Subsequent Events. Management 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, 2016 and 2015 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

2016

2015

24,614 $

349,981
5,198,531
382,084
224,260
14,094

22,944
312,996
4,935,730
365,865
203,323
14,059

6,193,564
(2,172,966)
196
111,177

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

$ 4,131,971 $ 3,891,085

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
regulatory commission approvals and/or mandates.
In 2016, annual depreciation and amortization expense
averaged 3.6% of the original cost of depreciable and amortizable property. Average rates in 2015 and 2014 also
approximated 3.6%. Transmission and Distribution plant (combined), associated with our core natural gas delivery

Southwest Gas Corporation

infrastructure, constitute the majority of gas plant. Annual depreciation expense averaged approximately 3.3% of
original cost of depreciable transmission and distribution plant during the period 2014 through 2016.

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

Depreciation and amortization expense

2016

2015

2014

$214,037 $201,233 $194,360

Included in the figures above is amortization of intangibles of $14.8 million in 2016, $12.7 million in 2015, and
$11.7 million in 2014.

Operating Leases and Rentals. Certain office and construction equipment is leased. 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

2016

2015

2014

$ 4,357 $ 4,186 $ 5,330
30,012
45,849

53,956

$58,313 $50,035 $35,342

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, 2016 (thousands of dollars):

Year Ending December 31,

2017
2018
2019
2020
2021
Thereafter

Total minimum lease payments

$ 6,929
4,837
3,449
2,411
1,098
2,730

$21,454

Capital Leases. Centuri leases certain construction equipment under capital leases arrangements. The amounts
leases of equipment as of December 31, 2016 and 2015 are as follows (thousands of
associated with capital
dollars):

December 31,

Capital leased assets, gross
Less: accumulated amortization

Capital leased assets, net

2016

2015

$ 3,189 $ 4,584
(1,043)

(1,172)

$ 2,017 $ 3,541

Southwest Gas Corporation

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, 2016 (thousands of dollars):

Year Ending December 31,

2017
2018
2019
2020
2021
Thereafter

Less: amount representing interest

Total minimum lease payments

$ 931
546
84
—
—
—

1,561
(101)

$1,460

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, 2016 and 2015, and the percentage of customers
in each of the three states.

Gas utility customer accounts receivable balance (in thousands)

$111,320

$151,775

December 31,
2016

December 31,
2015

Percent of customers by state

Arizona
Nevada
California

December 31,
2016

53%
37%
10%

Southwest Gas Corporation

Although Southwest seeks to minimize its credit risk related to utility operations by requiring security deposits from
new customers, imposing late fees, and actively pursuing collection on overdue accounts, some accounts are
ultimately not collected. Customer accounts are subject to collection procedures that vary by jurisdiction (late fee
assessment, noticing requirements for disconnection of service, and procedures for actual disconnection and/or
reestablishment of service). After disconnection of service, accounts are 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, 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

Additions charged to expense
Accounts written off, less recoveries

Balance, December 31, 2016

Allowance for
Uncollectibles

$ 1,725
4,146
(3,616)

2,255
4,113
(4,098)

2,270
3,264
(3,010)

$ 2,524

At December 31, 2016, the construction services segment (Centuri) had $173 million in customer accounts
receivable. Both the allowance for uncollectibles and write-offs related to Centuri customers have been
insignificant and are not reflected in the table above.

is subject

to the regulation of

the Arizona Corporation Commission (“ACC”),

Note 4 – Regulatory Assets and Liabilities
Southwest
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)
Accrued absence time (9)
Other (6)

Regulatory liabilities:

Deferred purchased gas costs (3)
Accumulated removal costs
Accrued purchased gas costs (4)
Unrealized net gain on non-trading derivatives (Swaps) (2)
Unamortized gain on reacquired debt (7)
Other (8)

Net regulatory assets

2016

2015

$ 379,063 $ 384,647
5,486
3,591
—
21,511
13,240
59,782

—
2,608
37,100
21,975
13,440
23,557

477,743

488,257

(90,476)
(308,000)
—
(4,377)
(9,789)
(24,659)

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

$ 40,442 $ 82,300

(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 Southwest’s purchased gas adjustment (“PGA”) mechanisms. (See Note 13).

Instrument

Swaps
Swaps
Swaps
Swaps

Balance Sheet Location

Deferred charges and other assets
Prepaids and other current assets
Other current liabilities
Other deferred credits

2016

—
—
(3,532)
(845)

2015

$1,219
4,267
—
—

(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.

Southwest Gas Corporation

(6) The following table details the components of Other regulatory assets which are included in either Prepaids and other

current assets or Deferred charges and other assets on the Consolidated Balance Sheets (as indicated). Recovery periods

vary. Margin tracking/decoupling mechanisms are alternative revenue programs and revenue associated with under-

collections (for the difference between authorized margin levels and amounts billed to customers through rates currently)

are recognized as revenue so long as recovery is expected to take place within 24 months.

Other Regulatory Assets

State mandated public purpose programs (including low income and conservation

programs) (a) (f)

Margin and interest-tracking accounts (b) (f)
Infrastructure replacement programs and similar (c) (f)
Environmental compliance programs (d) (f)
Other (e)

2016

2015

$ 7,096
3,517
6,976
4,329
1,639

$18,101
30,339
6,947
2,300
2,095

$23,557

$59,782

2016 included in Prepaids and other current assets on the Consolidated Balance Sheets; 2015 included in Deferred
charges and other assets on the Consolidated Balance Sheets.
2016 included in Prepaids and other current assets on the Consolidated Balance Sheets; 2015 included in Prepaids
and other current assets on the Consolidated Balance Sheets ($11 million) and Deferred charges and other assets on
the Consolidated Balance Sheets ($19.3 million).
Included in Deferred charges and other assets on the Consolidated Balance Sheets with the exception of $6,000 in
2016 that is included in Prepaids and other current assets on the Consolidated Balance Sheets.
2016 included in Prepaids and other current assets on the Consolidated Balance Sheets ($3.8 million) and Deferred
charges and other assets on the Consolidated Balance Sheets ($500,000); 2015 included in Prepaids and other
current assets on the Consolidated Balance Sheets ($1.8 million) and Deferred charges and other assets on the
Consolidated Balance Sheets ($484,000).
2016 included in Prepaids and other current assets on the Consolidated Balance Sheets ($622,000) and Deferred
charges and other assets on the Consolidated Balance Sheets ($1 million); 2015 included in Deferred charges and
other assets on the Consolidated Balance Sheets.
Balance recovered or refunded on an ongoing basis, generally with interest.

(7)

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

(8) The following table details the components of Other regulatory liabilities which are included in either Other current liabilities

or Deferred credits and other liabilities on the Consolidated Balance Sheets (as indicated).

Other Regulatory Liabilities

State mandated public purpose programs (including low income and con-

servation programs) (a) (d)

Margin and interest-tracking accounts (a) (d)
Environmental compliance programs (b) (d)
Regulatory offsets to deferred tax balances (c)
Regulatory accounts for differences related to pension funding (c)
Income tax and gross-up (c)
Other (d) (e)

2016

2015

$ (7,101)
(3,668)
(4,469)
(3,390)
(2,284)
(3,203)
(544)

$ (4,888)
(20,191)
(2,252)
(4,866)
(1,363)
(3,067)
(4)

$(24,659)

$(36,631)

Southwest Gas Corporation

2016 included in Other current liabilities on the Consolidated Balance Sheets; 2015 included in Other deferred credits
and other long-term liabilities on the Consolidated Balance Sheets.
Included in Other current liabilities on the Consolidated Balance Sheets.
Included in Other deferred credits and other long-term liabilities on the Consolidated Balance Sheets.

b)
c)
d) Balance recovered or refunded on an ongoing basis, generally with interest.
e)

2016 included in Other current liabilities on the Consolidated Balance Sheets ($536,000) and in Other deferred credits
and other long-term liabilities on the Consolidated Balance Sheets ($8,000); 2015 included in Other deferred credits
and other long-term liabilities on the Consolidated Balance Sheets.

(9) Regulatory recovery occurs on a one-year lag basis through the labor loading process.

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:

Net actuarial gain/(loss)
Amortization of prior serv-

ice cost

Amortization of net actua-

rial (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-

hensive income (loss)

2016
Tax
(Expense)
or
Benefit (1)

Before-
Tax
Amount

2015

2014

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

$(22,770) $ 8,652 $(14,118) $(30,519) $ 11,597 $(18,922) $(173,646) $ 65,985 $(107,661)

1,335

(507)

828

1,335

(507)

828

355

(135)

220

27,066 (10,285) 16,781
—
(3,462)

—
(5,584)

—
2,122

34,381
—
(5,646)

(13,065)
—
2,146

21,316
—

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

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

14,667
(4,130)
86,991

(18)

(449)

171

(278)

(15,988)

6,075

(9,913)

3,345

(1,270)

2,075

3,344

(1,271)

2,073

3,345

(1,272)

2,073

3,345

(1,270)

2,075

3,344

(1,271)

2,073

3,345

(1,272)

2,073

161

—

161

(1,954)

161

(1,954)

—

(1,954)

(659)

(1,954)

(659)

—

(659)

$ 3,553 $ (1,288) $ 2,265 $

941 $ (1,100) $

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

(8,499)

(1)

Tax amounts are calculated using a 38% rate. Management 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,

management 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.

Southwest Gas Corporation

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 prior service cost

$24,000
1,500
1,300

Approximately $2.1 million of realized losses (net of tax) related to the FSIRS, included in AOCI at December 31,
2016, 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, 2015

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 compre-

hensive income (loss)

Less: Translation adjustment attrib-

utable to redeemable non-
controlling interest

Net current period other compre-
hensive income (loss) attribut-
able to Southwest Gas
Corporation

Ending Balance AOCI
December 31, 2016

Defined Benefit Plans (Note 10)
Tax
(Expense)
Benefit
(4)

Before-
Tax

After-
Tax

FSIRS (Note 13)
Tax
(Expense)
Benefit
(4)

After-
Tax

Before-
Tax

Foreign Currency Items

Before-
Tax

Tax
(Expense)
Benefit

After-
Tax

AOCI

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

$—

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

(22,770)
—

8,652 (14,118)
—

—

(22,770)

8,652 (14,118)

—
—

—

—
—

—

—
—

—

3,345

(1,270)

2,075

1,335

(507)

828

27,066 (10,285) 16,781
(3,462)
2,122
(5,584)

—

—
—

—

—
—

—

—
—

—
161

161

—

—
—

—

(18)

3,345

(1,270)

2,075

161

—

—
—

—

—
—

—

— (14,118)
161

161

161 (13,957)

—

2,075

828

— 16,781
— (3,462)

161

2,265

(18)

3,345

(1,270)

2,075

156

—

156

2,260

$(57,613) $ 21,893 $(35,720) $(15,999) $ 6,080 $ (9,919) $(2,369)

$—

$(2,369) $(48,008)

(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).

(4) Tax amounts are calculated using a 38% rate.

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, 2016
and 2015:

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

2016

2015

$(430,973) $(435,269)
(7,038)
384,647

(5,703)
379,063

$ (57,613) $ (57,660)

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 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 the twelve months ended December 31,
2016, the Company sold no shares through the continuous equity offering program. Since the start of the program
in March 2015, the Company sold an aggregate of 645,225 shares of common stock under this program resulting
in proceeds of $35,167,584, net of $355,228 in agent commissions. Effective January 2017, no further shares will
be issued under this registration statement.

During 2016, the Company issued approximately 105,000 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, 2016
and December 31, 2015 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
instruments) within the
reset frequently. They are categorized as Level 1 (quoted prices for identical financial
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,

2016

2015

(Thousands of dollars)
Debentures:

Notes, 4.45%, due 2020
Notes, 6.1%, due 2041
Notes, 3.875%, due 2022
Notes, 4.875%, due 2043
Notes, 3.8%, due 2046
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

Carrying
Amount

Market
Value

Carrying
Amount

Market
Value

$ 125,000 $129,703 $ 125,000 $130,273
141,581
253,600
251,483
—
97,035
26,253
29,855
31,890
8,684

149,734
254,900
266,793
283,029
94,691
25,040
29,290
31,905
8,769

125,000
250,000
250,000
300,000
75,000
25,000
25,000
25,000
7,500
(9,931)

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

Revolving credit facility and commercial paper

5,000

150,000

1,197,569

901,363

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:

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

—
—
(2,489)

197,511

106,700
(516)

106,184

41,185
52,635

—
—

106,819

41,292
52,840

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

1,600,084
(50,101)

$1,549,983

1,570,679
(19,475)

$1,551,204

Southwest Gas Corporation

In March 2016, the Company amended its $300 million credit and commercial paper facility. The facility was
previously scheduled to expire in March 2020, but was extended to March 2021. 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, 2016, 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, 2016, $5 million was
outstanding on the long-term portion of the credit facility, none of which was in commercial paper (see commercial
paper program discussion below). The effective interest rate on the long-term portion of the credit facility was
5.21% at December 31, 2016. Borrowings under the credit facility ranged from none at various times throughout
2016 to a high of $230 million during the third quarter of 2016. With regard to the short-term portion of the credit
facility, there were no borrowings outstanding at December 31, 2016 and $18 million outstanding at December 31,
2015. (See Note 8 – Short-Term Debt).

The Company has a $50 million commercial paper program. Any issuance under the commercial paper program is
therefore, does not represent additional
supported by the Company’s current revolving credit
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, 2016, and
as noted above, no borrowings were outstanding under the commercial paper program.

facility and,

Southwest redeemed its $100 million 2005 4.85% Series A fixed-rate IDRBs (originally due in 2035) at par with
accrued interest in July 2016. In September 2016, Southwest redeemed its $24.9 million 2006 Series A 4.75%
fixed-rate IDRBs (originally due in 2036) at par with accrued interest. In January 2017, subsequent to the most
recent balance sheet date, the $25 million 7.59% medium-term notes were repaid at maturity, using available cash
on hand.

In September 2016, Southwest issued $300 million in 3.8% Senior Notes at a discount of 0.302%. The notes will
mature in September 2046. A portion of the net proceeds were used to temporarily pay down amounts then
outstanding under the credit facility. The remaining net proceeds were used for general corporate purposes.

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. 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, 2016 totaled $445 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 their consolidated leverage ratio. The
commitment fee ranges from 0.15% to 0.40% per annum. Borrowings under the revolving credit facility ranged from

Southwest Gas Corporation

a low of $36.2 million during February 2016 to a high of $83.2 million during July 2016. All amounts outstanding are
considered long-term borrowings. The effective interest rate on the secured revolving credit and term loan facility
was 2.63% at December 31, 2016.

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

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

December 31,
2016

December 31,
2015

1.47%
1.53%
1.43%
1.51%

0.87%
0.87%
0.75%
0.81%

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

None of Southwest’s debt instruments have credit triggers or other clauses that result in default if bond ratings are
lowered by rating agencies. Certain 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, 2016, the Company is in compliance with all of its covenants. Under the most
restrictive of the covenants, at December 31, 2016, approximately $2.3 billion in additional debt could be issued
while still meeting the leverage ratio requirement. Relating to the minimum net worth requirement, as of
December 31, 2016, there is at least $1.1 billion of cushion in equity.

Certain Centuri debt instruments also have leverage ratio caps and fixed charge ratio coverage requirements. At
December 31, 2016, Centuri is in compliance with all of its covenants. Under the most restrictive of the covenants,
Centuri could issue approximately $145 million in additional debt and meet the leverage ratio requirement. Centuri
has at least $21 million of cushion relating to the minimum fixed charge ratio coverage requirement.

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

2017
2018
2019
2020
2021

$ 50,101
24,082
134,534
134,452
7,815

Note 8 – Short-Term Debt
As discussed in Note 7, Southwest has a $300 million credit facility that is scheduled to expire in March 2021, of
which $150 million has been designated by management for working capital purposes. Southwest had no short-
term borrowings outstanding at December 31, 2016 and $18 million in short-term borrowings outstanding 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

Southwest Gas Corporation

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, results of operations, or cash flows.

Southwest maintains liability insurance for various risks associated with the operation of its natural gas pipelines
and facilities. In connection with these liability insurance policies, Southwest is responsible for an initial deductible
or self-insured retention amount per incident, after which the insurance carriers would be responsible for amounts
up to the policy limits. For the policy year August 2016 to July 2017, 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, Southwest
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, Southwest will make an accrual, as necessary.

Note 10 – Pension and Other Postretirement Benefits
An Employees’ Investment Plan is offered to eligible employees of Southwest through deduction of a percentage
of base compensation, subject to IRS limitations. The Employees’ Investment Plan provides for purchases of various
mutual fund investments and Company common stock. One-half of amounts deferred by employees are matched,
up to a maximum matching contribution of 3.5% of an employee’s annual compensation. The cost of the plan is
disclosed below (in thousands):

Employee Investment Plan cost

Centuri has a separate plan, the cost and liability of which are not significant.

2016

2015

2014

$4,976 $5,072 $4,816

A deferred compensation plan is offered to 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.
One-half of amounts deferred by officers are matched, 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.

A noncontributory qualified retirement plan with defined benefits covering substantially all Southwest employees is
available in addition to a separate unfunded supplemental executive retirement plan (“SERP”) which is limited to
officers. Postretirement benefits other than pensions (“PBOP”) are provided to qualified retirees for health care,
dental, and life insurance benefits.

The overfunded or underfunded positions of defined benefit postretirement plans, including pension plans, are
recognized in the 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.

A regulatory asset has been established 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.

Southwest Gas Corporation

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, manage funded status risk 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, 2016, the percentage ranges of the target portfolio
are:

Type of Investment

Equity securities
Debt securities
Other

Percentage Range

63 to 67
33 to 37
up to 1

The qualified retirement plan invests the majority of its plan assets in common collective trusts which includes a
well-diversified portfolio of domestic and international equity securities and fixed income securities, which are
managed by a professional investment manager appointed by the Company. The investment manager has full
discretionary authority to direct the investment of plan assets held in trust within the specific guidelines prescribed
by the Company through the plan’s investment policy statement. In 2016, the Company adopted a liability driven
investment (“LDI”) strategy for part of the portfolio, a form of investing designed to better match the movement in
pension plan assets with the impact of interest rate changes and inflation assumption changes on the pension plan
liability. The implementation of the LDI strategy will be phased in over time by using a glide path. The glide path is
designed to increase the allocation of the plan’s assets to fixed income securities, as the funded status of the plan
increases, in order to more closely match the duration of the plan assets to that of the plan liability.

During the third quarter of 2016, qualifying term-vested participants were offered a lump-sum present value payout
of their pensions. The offer was primarily intended to reduce insurance and ongoing maintenance costs associated
with qualifying participant balances. About one-half of the approximate 800 participants subject to the offer
accepted the offer, resulting in an approximate $30 million payment from pension assets paid in the fourth quarter
of 2016.

In August 2016, Russell Investments Trust Company (“Russell”), an outside professional investment manager as
defined in Section 3(38) of ERISA, was engaged as a fiduciary of the pension plan. Russell has full discretionary
authority to direct the investment of the pension plan’s assets within the guidelines prescribed by the pension
plan’s investment policy statement. The change, related to managing pension plan assets, has no impact on
retirement benefit calculations for pension plan participants, and was approved by the Board of Directors of the
Company.

Pension plan assets are held in a Master Trust. Investment objectives and strategies for the qualified retirement
plan are developed and approved by the Pension Plan Investment Committee of the Board of Directors. The
objective of the investment policy is to manage assets in such a way that will allow the eventual settlement of the
obligations to the pension plan’s beneficiaries. To meet this objective, the pension plan assets are managed by an

Southwest Gas Corporation

outside adviser using a portfolio strategy that will provide liquidity to meet the plan’s benefit payment obligations.
The pension plan funding policy is in compliance with the federal government’s funding requirements.

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
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, management 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.

There was no change in the discount rate between years. The methodology utilized to determine the discount rate
was consistent with prior years. The weighted-average rate of compensation increase also remained the same
(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:

December 31, 2016

December 31, 2015

Discount rate
Weighted-average rate of compensa-

tion increase

Asset return assumption

4.50%

3.25%
7.00%

4.50%

3.25%
7.25%

Pension expense for 2017 is estimated to be similar to that experienced in 2016. 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.

2016

2015

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
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

$1,044,817
22,833
46,027
8,550
(73,874)

$ 42,720 $ 72,632
1,499
3,180
(2,060)
(1,386)

331
1,859
1,347
(2,946)

$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)

1,048,353

43,311

73,865

1,044,817

42,720

72,632

736,880
39,956
36,000
(73,874)

—
—
2,946
(2,946)

43,584
4,818
—
(289)

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

—
—
2,793
(2,793)

44,892
(1,034)
—
(274)

end of year

738,962

—

48,113

736,880

—

43,584

Funded status at year end

$ (309,391)

$(43,311) $(25,752)

$ (307,937)

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

Weighted-average assumptions

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

4.50%

3.25%

N/A

3.25%

N/A

Estimated funding for the plans above during calendar year 2017 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, 2016 December 31, 2015

$939,002
40,852

$922,992
39,270

Southwest Gas Corporation

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

Pension
SERP
PBOP

2017

$48.6
2.9
4.1

2018

$50.1
2.9
4.3

2019

$51.5
2.9
4.4

2020

$53.2
2.9
4.5

2021

2022-2026

$55.1
2.9
4.5

$294.2
14.4
20.6

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% declining to 4.5%. Fixed contributions are made for health care benefits of employees who retire
after 1988, but Southwest 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
2016

SERP
2015

2016

2014

2016

PBOP
2015

2014

(Thousands of dollars)
Service cost
Interest cost
Expected return on plan

$ 22,833 $ 25,123 $ 21,360 $ 331 $ 320 $ 292 $ 1,499 $ 1,641 $ 1,101
2,829

43,440 1,859 1,695 1,745

44,229

46,027

3,180

2,999

assets

(56,558)

(57,808)

(53,342)

Amortization of prior service

cost

—

Amortization of net actuarial

—

— (3,149)

(3,464)

(3,264)

— 1,335

1,335

355

loss

25,266

32,743

22,873 1,383 1,293

783

417

345

—

Net periodic benefit cost

$ 37,568 $ 44,287 $ 34,331 $3,573 $3,308 $2,820 $ 3,282 $ 2,856 $ 1,021

Weighted-average assump-
tions (net benefit cost)
Discount rate
Expected return on plan

4.50%

4.25%

5.00% 4.50% 4.25% 5.00% 4.50% 4.25% 5.00%

assets

7.25%

7.75%

7.75% N/A

N/A

7.25% 7.75% 7.75%

Weighted-average rate of
compensation increase

3.25%

2.75%

3.25% 3.25% 2.75% 3.25%

N/A

Southwest Gas Corporation

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

2016

Qualified
Retirement
Plan

Total

SERP

PBOP

Total

2015

Qualified
Retirement
Plan

SERP

PBOP

Total

2014

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 adjustment

Recognized in other
comprehensive
(income) loss
Net periodic benefit

costs recognized in
net income

Total of amount recog-
nized in net periodic
benefit cost and
other compre-
hensive (income)
loss

$ 22,770 $ 25,153 $ 1,347 $(3,730) $ 30,519 $ 26,949 $ 2,322 $ 1,248 $ 173,646 $ 163,215 $5,460 $ 4,971

(1,335)

—

— (1,335)

(1,335)

—

— (1,335)

(355)

—

(355)

(27,066)
—
5,584

(25,266)
—
102

(417)
(1,383)
—
—
— 5,482

(34,381)
—
5,646

(32,743)
—
5,214

(1,293)
—
—

(345)
—

(23,656)
6,661
432 (140,308)

(22,872)
—
(129,031)

—
(784)
—
6,661
— (11,277)

(47)

(11)

(36)

—

449

(580) 1,029

—

15,988

11,312 4,676

—

44,423

37,568

3,573

3,282

50,451

44,287

3,308

2,856

38,172

34,331 2,820

1,021

$ 44,376 $ 37,557 $ 3,537 $ 3,282 $ 50,900 $ 43,707 $ 4,337 $ 2,856 $ 54,160 $ 45,643 $7,496 $ 1,021

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.

Southwest Gas Corporation

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, 2016 and December 31, 2015. The change in the types of
pension investment holdings between years is due to the engagement of Russell and the subsequent transition of
pension investments to Russell
the pension plan
investments into private commingled equity and fixed income funds. The SERP has no assets.

funds. The transition efforts consolidated the majority of

December 31, 2016

December 31, 2015

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 finan-

cial 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
Futures contracts

— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—

— $
—
—
—
—
—
—
—
—
—
—
—
24,922
—
—

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)

Total Level 1 Assets (1)

— $24,922 $ 24,922

$333,310

$31,300 $364,610

Level 2 – Significant other observable inputs
Private commingled equity funds (2)

International
Large and medium capitalization
Small capitalization
Emerging markets

Private commingled fixed income funds (3)

U.S. corporate bonds
U.S. debt market long duration
U.S. Treasury securities

Pooled funds and mutual funds
Government fixed income and mortgage backed

securities

Corporate fixed income securities

Asset-backed and mortgage-backed
Banking
Insurance
Utilities
Other

Real estate investment trusts
State and local obligations
Preferred securities
Convertible securities

Total Level 2 assets (4)

Total Plan assets at fair value

Commingled equity funds (5)
Insurance company general account contracts (6)

Total Plan assets (7)

$290,668
121,434
25,947
45,309

$ 9,140 $299,808
125,253
26,763
46,733

3,819
816
1,424

— $
—
—
—

—
—
—
—

161,086
77,349
8,665
4,889

167

—
—
—
—
—
—
—
—
—

5,066
2,432
272
216

166,152
79,781
8,937
5,105

—
—
—
14,808

—
—
—
796

—
—
—
15,604

—
—
—
—
—
—
—
—
—

172

49,571

1,475

51,046

—
—
—
—
—
—
—
—
—

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

701
621
146
114
922
58
28
17
6

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

$735,514

$23,190 $758,704

$152,144

$ 4,884 $157,028

$735,514
—
3,448

$48,112 $783,626
—
3,448

—
—

$485,454
250,511
3,719

$36,184 $521,638
257,966
3,719

7,455
—

$738,962

$48,112 $787,074

$739,684

$43,639 $783,323

Southwest Gas Corporation

(1)

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 fund include pursuit of regular income,
conservation of principal, and an opportunity for long-term growth of principal and income. Currently, this
balanced fund is the only mutual fund in which the Plan invests.

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

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

• Domestic equities
•
• Emerging markets equities

International developed countries equities

Shares in the private equity commingled funds may be redeemed given one business day notice. While they
are private equity funds and reported at NAV, due to the short redemption notice period, the lack of significant
redemption fees, the fact that the underlying investments are exchange-traded, and that substantial liabilities
do not exist subject to the NAV calculation, these investments are viewed as indirectly observable (level 2) and
are also therefore, not excluded from the body of the fair value table as a reconciling item.

Two funds are classified as international funds. One invests in international financial markets, primarily those of
developed economies in Europe and the Pacific Basin. The fund invests primarily in equity securities issued by
foreign corporations, but may invest in other securities perceived as offering attractive investment return
opportunities. The other provides diversified exposure to global equity markets. The fund seeks to provide
long-term capital growth by investing primarily in securities listed on the major developed equity markets of
the United States, Europe, and Asia, as well as within those listed on emerging country equity markets on a
tactical basis.

The large and medium capitalization fund is designed to track the performance of the large and medium
capitalization companies contained in the index, which represents approximately 90% of
the market
capitalization of the United States stock market.

The small capitalization fund is designed to provide maximum long-term appreciation through investments that
are well diversified by industry.

The emerging markets fund was developed to invest in emerging market equities worldwide. The purposes of
the fund’s operations, “emerging market countries” include every country in the world except the developed
markets of the United States, Canada, Japan, Australia, New Zealand, Hong Kong and Singapore, and most

Southwest Gas Corporation

countries located in Western Europe. Fund investments are made directly in each country or, where direct
investment is inefficient or prohibited, through appropriate financial instruments or participation in commingled
funds.

(3) The private commingled fixed income funds include domestic fixed income securities. These funds are shown
in the above table at NAV. Shares in the private commingled fixed equity funds may be redeemed given one
business day notice. While they are private equity funds and reported at NAV, due to the short redemption
notice period, the lack of significant redemption fees, the fact that the underlying investments are exchange-
traded, and that substantial liabilities do not exist subject to the NAV calculation, these investments are viewed
as indirectly observable (level 2) and are also therefore, not excluded from the body of the fair value table as a
reconciling item.

The U.S. corporate bond fund seeks to provide high quality, mostly corporate bond-based exposure to fixed
income securities which closely match those found in discount curves used to value United States pension
liabilities.

The United States debt market long duration fund provides participation in the full spectrum of investment
opportunities in primarily United States debt markets with longer maturities. The fund seeks to offer effective
diversification against equities, take advantage of market trading opportunities, and provide a competitive rate
of return on assets. The fund’s current duration is close to 14 years.

The United States Treasuries securities funds seeks to replicate the risk and return characteristics of the
Barclays Treasury U.S. Separate Trading of Registered Interest and Principal of Securities (“STRIPS”) 28-29
Years Index with minimum tracking error.

(4) With the exception of items (2) and (3), which are discussed in detail above, the current year Level 2 assets
consist mainly of pooled funds and mutual funds. These funds are collective short-term funds that invest in
Treasury bills and money market funds and are used as a temporary cash repository.

In the prior year, the fair value of the Level 2 investments in debt securities with remaining maturities of one
year or more was 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.

(5)

In the prior year, the commingled equity funds included 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 included:

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 were redeemed varied among
the funds; the notice required ranged from one day to 30 days prior to the valuation date (month end). One of
the commingled equity funds required the payment of a minimal impact fee to be applied to redemptions and

Southwest Gas Corporation

subscriptions of $5 million or greater; the relative fee diminished the greater the transaction. Other such funds
imposed fees to recover direct costs incurred by the fund at redemption, but were indeterminable prior to
redemption.

(6) 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.

(7)

In the prior year, the assets in the above table exceeded 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), which includes a
payable for securities purchased, partially offset by receivables for interest, dividends, and securities sold.

Note 11 – Stock-Based Compensation
At December 31, 2016, two stock-based compensation plans existed: a performance share stock plan which
includes a cash award, and a restricted stock/unit plan. All previous grants under the stock option plan expired in
2016. 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

2016

2015

2014

$7,185 $7,278 $8,130
4,983
4,461

4,404

Under the option plan, options to purchase shares of common stock at a stated exercise price were previously
granted 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 the Company’s common stock on the
date of grant and a maximum term of ten years. The final options were exercised in 2016.

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

2016

2015

2014

Weighted-
average
exercise
price

Number
of options

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

(17)

—

$31.64

31.64

—

N/A

(19)

—

$28.97

26.69

—

$31.64

(16)

—

$27.57

24.31

—

$28.97

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

2016

$ —
554

2015

$394
590

2014

$1,194
451

Market value of Company stock

$76.62

$55.16

$61.81

December 31, 2016 December 31, 2015 December 31, 2014

During 2016, $735,000 in cash was received from the exercise of options with a corresponding tax benefit of
$205,000, which was recorded in additional paid-in capital.

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

Restricted stock/units under the restricted stock/unit plan are issued to attract, motivate, retain, and reward key
employees with an incentive to attain high levels of individual performance and improved financial performance.
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 currently 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, 2016 (thousands of shares):

Nonvested/unissued at beginning of year

Granted
Dividends
Forfeited or expired
Vested and issued*

Nonvested/unissued at December 31, 2016

Performance
Shares

Weighted-
average
grant date
fair value

Restricted
Stock/
Units

Weighted-
average
grant date
fair value

197
44
5
—
(78)

168

$50.63
59.05

—
41.82

$55.62

228
73
6
—
(45)

262

$44.36
60.39

—
51.98

$46.41

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

The weighted average grant date fair value of performance shares and restricted stock/units granted in 2015 and
2014 was $63.09 and $53.73, respectively.

As of December 31, 2016, total compensation cost related to nonvested performance shares and restricted stock/
units not yet recognized is $3.3 million.

Southwest Gas Corporation

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,

2016

2015

2014

U.S.
Foreign

$218,810 $221,660 $221,471
(1,950)

12,713

(2,328)

Total income before income taxes

$231,523 $219,332 $219,521

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

Year Ended December 31,

2016

2015

2014

Current:

Federal
State
Foreign

Deferred:
Federal
State
Foreign

Total income tax expense

541 $21,321 $ 1,739
5,073
9,899
2,193
650

5,748
4,298

10,587

31,870

9,005

68,270
140
(529)

51,132
(2,574)
(526)

71,439
614
(2,685)

67,881

48,032

69,368

$78,468 $79,902 $78,373

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

2016

2015

2014

$76,217 $ 65,931 $52,814
15,049
(32,993)
109
623
2,257
15,332

361
(1,327)
(6,532)

68,719
(838)

48,893
(861)

70,229
(861)

$67,881 $ 48,032 $69,368

Southwest Gas Corporation

A reconciliation of the U.S. federal statutory rate to the consolidated effective tax rate for 2014, 2015, and 2016 (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 noncurrent deferred tax liabilities

2016 2015 2014

35.0% 35.0% 35.0%

1.4

—

(0.4)

(1.2)

(0.9)

1.8

0.1

(0.4)

0.1

(0.2)

1.9

0.1

(0.5)

(1.0)

0.2

33.9% 36.4% 35.7%

2016

2015

1,094 $

1,614

38,231

36,923

4,827

1,204

6,080

4,809

868

7,351

18,415

24,636

(495)

(499)

69,356

75,702

872,136

794,850

1,104

1,710

5,712

8,803

743

2,549

5,497

9,547

19,256

31,533

908,721

844,719

$839,365 $769,017

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 2012.

At December 31, 2016, the Company has U.S. federal net capital loss carryforwards of $278,000, which begin to
expire in 2017. At December 31, 2016, the Company has an income tax net operating loss carryforward related to
Canadian operations of $4.5 million which begins to expire in 2032.

As of December 31, 2016, the Company has approximately $5 million of undistributed foreign earnings. However,
management intends to permanently reinvest any future foreign earnings in Canada.

Southwest Gas Corporation

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

2016

2015

$ 296 $305
—
(9)
—
—
—
—

897
—
38
—
—
—

$1,231 $296

In assessing whether uncertain tax positions should be recognized in its financial statements, management 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, management 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, management 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. Unrecognized tax benefits are recognized 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. Measurement of 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
$935,000 at December 31, 2016. 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 2016, 2015, and 2014.

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. Management expects the IRS
to issue natural gas industry guidance that 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, management expects the regulations could result in a modest acceleration of tax
deductibility and the deferral of tax payments.

Southwest Gas Corporation

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 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 2017 through March 2019. Under such contracts, Southwest pays the counterparty a fixed rate and
receives from the counterparty a floating rate per MMBtu (“dekatherm”) of natural gas. Only the net differential is
actually paid or received. The differential is calculated based on the notional amounts under the contracts, which
are detailed in the table below (thousands of dekatherms):

Contract notional amounts

December 31, 2016 December 31, 2015

10,543

7,407

Southwest does not utilize derivative financial
operations.

instruments for speculative purposes, nor does it have trading

The following table sets forth the gains and (losses) recognized on Southwest’s Swaps (derivatives) for the years
ended December 31, 2016, 2015, and 2014 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

2016

2015

2014

$ 5,006 $(7,598) $(2,363)
2,363*
7,598*

(5,006)*

— $

—

* 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, and the second, in March 2012. Losses on both FSIRS are being amortized over ten-year periods
from Accumulated other comprehensive income (loss) into interest expense.

Southwest Gas Corporation

The following table sets forth the fair values of the Swaps and their location in the Consolidated Balance Sheets
(thousands of dollars):

Fair values of derivatives not designated as hedging instruments:

December 31, 2016
Instrument

Swaps
Swaps

Total

December 31, 2015
Instrument

Swaps
Swaps

Total

Balance Sheet Location

Deferred charges and other assets
Prepaids and other current assets

Balance Sheet Location

Other current liabilities
Other deferred credits

Asset
Derivatives

Liability
Derivatives

Net
Total

$ 899
3,551

$4,450

(54)
(19)

(73)

$ 845
3,532

$ 4,377

Asset
Derivatives

Liability
Derivatives

Net
Total

—
4

$(4,267)
(1,223)

$(4,267)
(1,219)

$(5,490)

$(5,486)

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

Pursuant to regulatory deferral accounting treatment for rate-regulated entities, unrealized gains and losses in fair
value of the Swaps are recorded as a regulatory asset and/or liability. When the Swaps mature, any prior positions
held are reversed and the settled position is recorded as an increase or decrease of purchased gas under the
related purchased gas adjustment (“PGA”) mechanism in determining its deferred PGA balances. Neither changes
in fair value, nor settled amounts, of Swaps have a direct effect on earnings or other comprehensive income.

The following table presents the amounts paid to and received from counterparties for settlements of matured
Swaps.

(Thousands of dollars)
Paid to counterparties

Received from counterparties

Year ended
December 31,
2016

Year ended
December 31,
2015

Year ended
December 31,
2014

$5,583

$ 726

$7,537

—

$ 829

$4,713

Southwest Gas Corporation

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

fair value in the

December 31, 2016
Instrument

Swaps
Swaps

December 31, 2015
Instrument

Swaps
Swaps

Balance Sheet Location

Other deferred credits
Other current liabilities

Net Total

$ (845)
(3,532)

Balance Sheet Location

Net Total

Prepaids and other current assets
Deferred charges and other assets

$ 4,267
1,219

Fair Value Measurements. The estimated fair values of Southwest’s Swaps were determined at December 31,
2016 and December 31, 2015 using New York Mercantile Exchange (“NYMEX”) futures settlement prices for
delivery of natural gas at Henry Hub adjusted by the price of NYMEX ClearPort basis Swaps, which reflect the
difference between the price of natural gas at a given delivery basin and the Henry Hub pricing points. These
Level 2 inputs (inputs, other than quoted prices, for similar assets or liabilities) are observable in the marketplace
throughout the full term of the Swaps, but have been credit-risk adjusted with no significant impact to the overall
fair value measurement.

The following table sets forth, by level within the three-level fair value hierarchy that ranks the inputs used to
measure fair value by their reliability, 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)
Assets at fair value:
Prepaids and other current assets – Swaps
Deferred charges and other assets – Swaps
Liabilities at fair value:
Other current liabilities – Swaps
Other deferred credits – Swaps

Net Assets (Liabilities)

December 31, 2016 December 31, 2015

$3,532
845

—
—

$4,377

—
—

(4,267)
(1,219)

$(5,486)

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.

With regard to the fair values of assets associated with pension and postretirement benefit plans, refer to Note 10 –
Pension and Other Post Retirement Benefits.

Southwest Gas Corporation

Note 14 – Segment Information
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 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

$10,585

$10,006

December 31, 2016 December 31, 2015

The following table presents the amount of revenues for both segments by geographic area (thousands of dollars):

Revenues (a)

United States
Canada

Total

December 31,
2016

December 31,
2015

December 31,
2014

$2,256,600
203,890

$2,289,133
174,492

$2,069,513
52,194

$2,460,490

$2,463,625

$2,121,707

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

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, 2016 is as follows (thousands of dollars):

2016

Revenues from unaffiliated customers
Intersegment sales

Total

Interest revenue

Interest expense

Depreciation and amortization

Income tax expense

Segment net income

Segment assets

Capital expenditures

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

Gas
Operations

Construction
Services

$1,321,412 $1,040,957
98,121

—

$1,321,412 $1,139,078

1,848 $

66,997 $

6,663

$ 233,463 $

55,669

58,584 $

19,884

$ 119,423 $

32,618

$5,001,756 $ 579,370

$ 457,120 $

72,411

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

$2,362,369
98,121

$2,460,490

1,849

73,660

$ 289,132

78,468

$ 152,041

$5,581,126

$ 529,531

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

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.

Note 15 – Quarterly Financial Data (Unaudited)

(Thousands of dollars, except per share amounts)
2016
Operating revenues
Operating income
Net income
Net income attributable to Southwest Gas Corporation
Basic earnings per common share*
Diluted earnings per common share*

2015
Operating revenues
Operating income
Net income (loss)
Net income (loss) attributable to Southwest Gas Corpo-

ration

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*

March 31

June 30

September 30 December 31

Quarter Ended

$731,248 $547,748
28,116
9,099
8,943
0.19
0.19

134,096
75,355
75,446
1.59
1.58

$539,969
15,539
2,907
2,472
0.05
0.05

$641,525
117,963
65,694
65,180
1.37
1.36

$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

* 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 operations. Also, the timing of general rate relief can have a significant impact
on earnings for interim periods. See Management’s Discussion and Analysis for additional discussion of operating results.

Southwest Gas Corporation

Note 16 – Construction Services Noncontrolling Interests
the Canadian construction
Associated with the agreement reached in conjunction with the acquisition of
businesses in October 2014, the previous owners of the acquired companies initially retained an approximate 10%
equity interest in the Canadian-specific businesses, and 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 are currently eligible to exit their investment retained by requiring the purchase of a portion of their interest
and in incremental amounts annually. 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 ability of the
noncontrolling parties to redeem their interest in Centuri for cash, their collective interest is presented on the
Consolidated Balance Sheets at December 31, 2016 and December 31, 2015 as a Redeemable noncontrolling
interest, a category of mezzanine equity (temporary equity), in accordance with SEC guidance.

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 exercised during the third quarter of 2015, an updated valuation was conducted. A significant decrease in the
value of the redeemable noncontrolling interest was recognized at that time, 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. Future adjustments to the redemption value are not
permitted below a floor established subject to such conditions, and upward adjustments since the exchange date
have had an offsetting impact to Retained earnings on the Balance Sheets. The following depicts impacts to the
balance of the redeemable noncontrolling interest between the indicated periods.

(Thousands of dollars):

Balance, December 31, 2015

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, 2016

Redeemable
Noncontrolling
Interest

$16,108
1,148
5
(439)
5,768

$22,590

Southwest Gas Corporation

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

Southwest Gas Corporation

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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
including the principal executive officer and principal
supervision and with the participation of management,
financial officer, an evaluation was conducted 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 management’s evaluation under such framework, management concluded
that the internal control over financial reporting was effective as of December 31, 2016. The effectiveness of
internal
by
PricewaterhouseCoopers, LLP, an independent registered public accounting firm, as stated in their report which is
included herein.

of December

reporting

financial

audited

control

been

2016

over

has

31,

February 28, 2017

Southwest Gas Corporation

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Southwest Gas Holdings, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income,
in all
comprehensive income, equity and redeemable noncontrolling interest , and cash flows present fairly,
material respects, the financial position of Southwest Gas Corporation and its subsidiaries as of December 31, 2016
and 2015, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2016 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, 2016, 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.

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.

its inherent

reporting may not prevent or detect
Because of
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

limitations,

financial

/s/ PricewaterhouseCoopers LLP
Las Vegas, Nevada
February 28, 2017

Southwest Gas Corporation

[THIS PAGE INTENTIONALLY LEFT BLANK]

Eric DeBonis
Senior Vice President/Operations
Southwest Gas Corporation

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

Paul M. Daily
President and Chief Executive Officer
Centuri Construction Group, Inc.

Michael M. Cicchella, Jr.
Executive Vice President/Chief
Administrative Officer
Centuri Construction Group, Inc.

Rock L. McHenry
Executive Vice President/Chief
Customer Officer
Centuri Construction Group, Inc.

Kevin L. Neill
Executive Vice President/Chief
Financial Officer and Treasurer
Centuri Construction Group, Inc.

Ricardo B. Pringle
Executive Vice President/Chief
Counsel and Corporate Secretary
Centuri Construction Group, Inc.

Board of Directors and Officers

Directors
Robert L. Boughner
Las Vegas, Nevada
Retired Gaming Executive
Private Investor

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

Thomas E. Chestnut
Coronado, California
Retired Construction Executive

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

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 Holdings, Inc.

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

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 Holdings, Inc.

Officers
John P. Hester
President and Chief Executive
Officer
Southwest Gas Holdings, Inc.
Southwest Gas Corporation

Chairman of the Board
Centuri Construction Group, Inc.

Roy R. Centrella
Senior Vice President/Chief
Financial Officer
Southwest Gas Holdings, Inc.
Southwest Gas Corporation

Karen S. Haller
Senior Vice President/General
Counsel and Corporate Secretary
Southwest Gas Holdings, Inc.
Southwest Gas Corporation

Kenneth J. Kenny
Vice President/Finance/Treasurer
Southwest Gas Holdings, Inc.
Southwest Gas Corporation

Gregory J. Peterson
Vice President/Controller/Chief
Accounting Officer
Southwest Gas Holdings, Inc.
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 2016.

Shareholder Information

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 2016 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 Holdings, Inc.,
P. O. Box 98510, Las Vegas, NV
89193-8510
or by calling 702-876-7237.

Additional Company
information is available at
www.swgasholdings.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 Holdings, Inc.
(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.swgasholdings.com.

Dividend Reinvestment and
Stock Purchase Plan
Our Dividend Reinvestment and
Stock Purchase Plan (DRSPP)
provides investors 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

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

swgasholdings.com