Southwest Gas Holdings Inc Annual Report 2018

FY2018 Annual Report · Southwest Gas Holdings Inc

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FUTURE
FUTURE

FOCUSED
FOCUSED

WWW.SWGASHOLDINGS.COM

2 0 1 8 A N N U A L R E P O R T
2 0 1 8 A N N U A L R E P O R T

We are looking ahead,
anticipating how we can better
serve our customers while
positioning the Company for
long-term success in the dynamic
landscape of tomorrow.
As we prepare for a sustainable
future, we are optimistic about our
ability to embrace the growth
prospects and opportunities
on the horizon.

COMPANY PROFILE
Southwest Gas Holdings, Inc. (“Company”), through its subsidiaries, engages in the business
of purchasing, distributing and transporting natural gas, and providing comprehensive utility
infrastructure services across North America. Southwest Gas Corporation (“Southwest”), a
wholly owned subsidiary, safely and reliably delivers natural gas to over two million customers
in Arizona, California and Nevada. Centuri Construction Group, Inc. (“Centuri”), a wholly
owned subsidiary, is a comprehensive utility infrastructure services enterprise dedicated to
delivering a diverse array of solutions to North America’s gas and electric providers.

SOUTHWEST GAS HOLDINGS, INC. | 1

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SOUTHWEST GAS HOLDINGS, INC. | 3

DEAR SHAREHOLDERS

We are pleased to share the 2018 Southwest Gas Holdings (“Company”) Annual Report,
which highlights our accomplishments in delivering safe and reliable service to customers
during a year of strong economic growth across our service territories.

A p o s i t i v e e c o n o m i c o u t l o o k ,
especially in the Southwestern U.S.,
has created growth opportunities that
are positioning the Company for a solid
and sustainable future. Over the past
year, we acted on these opportunities
with an eye toward setting a path
for long-term success.This future-
focused approach led the Company to
achieve another year of solid fi nancial
performance and a number of notable
accomplishments across our two
primary business segments—natural gas operations
and utility infrastructure services.

JOHN P. HESTER
P R E S I D E N T A N D C E O

O u r n a t u r a l g a s s e g m e n t , S o u t h w e s t G a s
(“Southwest”), achieved its highest customer
satisfaction and trust numbers to date, while fulfi lling
a commitment to community and environmental
stewardship. Southwest also benefi ted this past year
from a robust job market, which drew thousands
of new residents to the major counties where we
operate and created demand for more housing and
new commercial centers. This spurred the addition of
more than 32,000 new customers, and the chance to
engage large-scale commercial projects. To accommodate
system growth and integrity now and for the future, we
continued pipe replacement activity with established
cost recovery programs. We also received regulatory
approval for an expansion project to serve new
customers in Mesquite, Nevada, another example of
our eff orts to achieve pre-authorization and cost recovery
where possible for planned capital investments.

As we keep an eye on what is ahead in the industry,
we see opportunities for renewable natural gas (RNG)
as a sustainable energy choice of the future. Southwest
made inroads this past year to advance this gas
technology as we pursued projects in partnership with
developers, producers and customers interested in the
benefi ts of this carbon-neutral natural gas option.

Our utility infrastructure services business, Centuri,
experienced another year of record revenues while

pursuing smart growth opportunities, such as the
recent acquisition of Linetec, which grew the Centuri
footprint in the Southeastern U.S. by adding another
tenured customer base to their now-expanded
portfolio. Linetec signifi cantly increases the Company’s
work in the electric space. Th is addition means strong,
potential work opportunities on the horizon for 2019,
including a combination of electric distribution and
transmission, and telecom. Continued growth will
also enhance Linetec’s scale in storm response services.
Th e previous year’s acquisition of New England Utility
Constructors exceeded expectations and drove much
of Centuri’s revenue growth in 2018. Th ese results
highlight the smart, stable growth strategy we expect
to continue at Centuri in order to chart a strong future
for this burgeoning business segment.

Our commitment to safety and world-class customer
service never changes, but our approach to providing
the level of service that has become synonymous with
the Company grows and changes every day. We are
continuously enhancing our processes and developing
new solutions that will make it easier for customers
to engage with us. For example, Southwest recently
rolled-out a mobile application, advanced customer
notifi cations, call center enhancements to shorten call
wait time and additional appointment windows. As a
Company, we strive to exceed customers’ expectations.

We take our social responsibility seriously and strive
to make a positive impact on our community at large.
Southwest employees once again outdid themselves in
charitable giving, donating more than $2 million from
their paychecks to support community organizations.
Similarly, Centuri employees enthusiastically supported
community organizations by donating money and
volunteering to help in various philanthropic causes.

2018 was a great year; and as we look ahead, we are
well positioned to act on growth opportunities that
will build a long-term and sustainable future.

A BRIGHT FINANCIAL FUTURE

This year’s strong financial results continued
a trend of excellent performance. Backed by
a corporate value of financial stewardship, the
Company achieved consolidated net income of
$182.3 million. Our core operations improved
from the prior year, as Centuri posted an impressive
$45 million in net income following the acquisition
of New England Utility Constructors, Inc. in late
2017, surpassing our expectations.

“Positive performance
overall allowed the Board
of Directors to approve a
dividend increase again this
year, as has been our legacy.”

At the same time, the largest contributor to
our bottom line, Southwest, delivered nearly

$139 million by effectively managing its utility
operations in light of inflationary pressures and
supporting a growing customer base between rate
cases. Th at same growth of over 32,000 customers
positively contributed to the bottom line.

We are pleased that our 2018 financial results
compare favorably to 2017, after considering the
impacts of tax reform and company-owned life
insurance. Between our expansion into Mesquite,
Nevada; 2019 rate case applications for our Arizona,
California and Paiute jurisdictions; and our recent
acquisition of Linetec, we are on the right trajectory.

Positive performance overall allowed the Board
of Directors to approve a dividend increase again
this year, as has been our legacy. Our aim is to
continue executing on strategies that focus on
future performance and allow shareholders to share
in our successes.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURNS

DIVIDENDS GREW AT A COMPOUND
ANNUAL GROWTH RATE OF 8.4%

SWX S&P 500 S&P Composite Utilities Index

$2.18

$2.08

$1.98

$1.80

$1.62

$1.46

$180

$160

$140

$120

$100

$80

2013 2014 2015 2016 2017 2018

PERFORMANCE GRAPH
The performance graph above compares the fi ve-year cumulative total shareholder return
on Company common stock, assuming reinvestment of dividends, with the total returns
on the Standard & Poor’s (S&P) 500 Stock Composite Index (“S&P 500”) and the S&P
Composite Utilities Index. The total shareholder return (annualized) over the fi ve-year
period for Southwest Gas Holdings, Inc. (SWX) was 9.31%, compared to the S&P Composite
Utilities Index (S15UTIL) return of 10.90%, and the S&P 500 Index (SPX) return of 8.48%.

2014 2015 2016 2017 2018 2019

SOUTHWEST GAS HOLDINGS, INC. |

FOCUSED
ON VALUE

NET INCOME BY SEGMENT

NATURAL GAS
OPERATIONS
76%

UTILITY
INFRASTRUCTURE
SERVICES
24%

NET INCOME
$182M

NATURAL GAS OPERATIONS
MARGIN BY CUSTOMER CLASS

RESIDENTIAL
70%

SMALL COMMERCIAL
15%

TRANSPORTATION
12%

LARGE COMMERCIAL
2%

INDUSTRIAL/OTHER
1%

STOCK PRICES AND TRADING VOLUME
HIGH LOW VOLUME (in hundreds)

NYSE: SWX

2014
$64.20
$47.21
487,354

2015
$63.68
$50.78
500,363

2016
$79.58
$53.51
695,062

2017
$86.87
$72.32
652,248

2018
$85.97
$62.54
602,220

CENTURI REVENUES
(IN MILLIONS)

$1,522

$1,246

$1,139

$1,009

$740

2014 2015 2016 2017 2018

SOUTHWEST GAS HOLDINGS, INC. |

CUSTOMER
FOCUSED

SOUTHWEST GAS HOLDINGS, INC. |

“Our goal is to ensure
positive experiences at every
customer touchpoint.”

Exceeding Customer Expectations

Earning and maintaining our customers’ trust is
key to sustaining a strong future. At Southwest and
Centuri, our goal is to ensure positive experiences at
every customer touchpoint.

This past year, Southwest rolled out new digital
tools to better allow us to deliver personalized,
high-value service to our customers. These tools
were developed to give utility customers more
control over their accounts and choices when
interacting with Southwest. Customers are
responding positively to this intuitive, multi-
channel approach to customer service and awarded
Southwest our highest-ever customer satisfaction
level of 95 percent. In a Cogent Reports® study
conducted independently by Market Strategies
International, Southwest earned some of the highest
scores amongst utilities in the nation. As a result
of these high scores, we were named a 2018 Most
Trusted Utility as well as a 2018 Utility Customer
Champion. We are proud of this recognition
and will continue to work tirelessly to make each
customer interaction better than the last.

SOUTHWEST GAS HOLDINGS, INC. | 1 1

95%

CUSTOMER
SATISFACTION

H
T
W
O
R
G
N
O

D
E
S
U
C
O
F

SOUTHWEST GAS HOLDINGS, INC. | 1 3

POSITIONED FOR THE FUTURE

Growth Opportunities

Southwest’s primary service territories in Arizona and Nevada continue to rank among the fastest growing
locales in the country. In May, the U.S. Census Bureau ranked Phoenix, Arizona, and Henderson, Nevada, #2
and #15, respectively, for highest population growth in a single year.

Spurred by industry startups and business expansion, an abundance of jobs is drawing new residents to our
service territories by the thousands. As a result, Southwest added over 32,000 natural gas customers in 2018.
By proactively tracking economic activity in key corridors, we were able to engage with customers in new and
exciting large-scale economic expansion opportunities in Nevada and Arizona.

CUSTOMER GROWTH
(IN THOUSANDS)

PROJECTED POPULATION CUMULATIVE %
CHANGE 2019-2024

2014 2015 2016 2017 2018

CALIFORNIA 3.94

NEVADA 6.87

ARIZONA 5.93

UNITED STATES 3.56

Source: S&P Global Market Intelligence

SINGLE-FAMILY MARKET

PERMITS

SOLD CLOSINGS

0
0
4
6
2

0
0
3
2
2

0
0
5
4
2

0
0
4
0
2

0
0
1
,
2
2

0
0
2
0
2

0
0
9
,
1
2

0
0
7
8
1

0
0
1
,
1
1

0
0
7
0
1

0
0
5
0
1

0
0
7
9

0
0
1
,
1
1

0
0
2
0
1

0
0
8
,
1
1

0
0
8
0
1

0
0
5
3

0
0
8
2

0
0
6
3

0
0
9
2

0
0
9
3

0
0
1
,
3

0
0
1
,
4

0
0
3
3

2018 2019* 2020* 2021*

CENTRAL ARIZONA

SOUTHERN ARIZONA

SOUTHERN NEVADA

*PROJECTED

SOURCE: Arizona data from RL Brown Housing Reports. Nevada data from Las Vegas Housing Market Letter.

INVESTING

Now serving more than two million customers

across these fast-growing areas, we are compelled

to not only keep up with customer demand, but

to anticipate future customer needs and act on the

opportunities growth presents for our natural gas

operations.

Southwest invested $683 million in our gas

infrastructure in 2018, beginning an expected

three-year capital investment of $2 billion through

2020. Southwest continues to work collaboratively

with regulators to utilize constructive recovery

mechanisms that mitigate regulatory lag.

SOUTHWEST GAS HOLDINGS, INC. | 1 5
SOUTHWEST GAS HOLDINGS, INC. | 15

IN THE FUTURE

N
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D
E
S
U
C
O
F

N
O
I
T
A
R
O
B
A
L
L
O
C

““

SOUTHWEST GAS HOLDINGS, INC. | 1 7

COLLABORATING WITH
REGULATORS

Th e ability to align all stakeholders’ needs in providing safe and reliable service comes through successful
collaboration with our regulators. We prioritize open lines of communication and partnerships to achieve
thoughtfully-planned goals that keep our system safe, maintain aff ordable rates for customers and return value to
our shareholders.

In Nevada, we recently received approval to increase revenues by $7.1 million and an increase to operating income
of $7.9 million, following a slight reduction to depreciation expense. Th ese new rates became eff ective in 2019.
We are targeting rate case fi lings for our Arizona and California rate jurisductions in May 2019 and September
2019, respectively. We will also be fi ling a Paiute rate case with the Federal Energy Regulatory Commission in
May 2019.

IN ARIZONA

IN NEVADA

IN CALIFORNIA

During 2018, Southwest
invested $129 million in
the replacement of both
Customer-Owned
Yard Lines (COYL) and
Vintage Steel Pipe (VSP).
Since the inception of both
programs, Southwest
has invested
nearly $210 million
replacing COYL and VSP.

The Public Utilities
Commission authorized $123
million in pipe replacement
work during 2017 and 2018,
and has given approval
for $35.3 million in 2019.
We have been authorized
to invest over $216
million through our gas
infrastructure recovery
mechanism since 2014.

Under the Commission’s
Mobile Home Park Utility
Upgrade Pilot Program, we
have upgraded 8 parks to
direct service by Southwest.
In 2017, the Commission
authorized an extension
of the program through
2019, with 15 additional
mobile home parks
anticipated for conversion.

We also worked with state and federal regulators this past year to address the impacts of federal tax reform passed
in late 2017. We worked collaboratively with each of our regulators to develop plans on how to ensure our
customers will receive the benefi ts from tax reform in a fair, balanced and timely manner.

FOCUSED ON
SAFETY &
RELIABILITY

SOUTHWEST GAS HOLDINGS, INC. | 1 9

As we plan for growth in our service territories, we
hold ourselves to a level of operational excellence
that continually asks—how can we do it better?
This drive for continuous improvement impacts
everything from safety to customer engagement to
operational effi ciency and best practices.

Improving Safety

Our Company takes proactive efforts, both
internally and externally, in ensuring safety is a high
priority. Centuri has implemented successful safety
initiatives and proven training methods, and has
provided accountability to our customers and the
communities where we work. At Southwest, our
commitment has led to signifi cant improvement in
our emergency response times, arriving within 30
minutes of a reported incident 70.1% of the time.

EXCELLENCE IN EMERGENCY RESPONSE
(ARRIVAL ON SCENE WITHIN 30 MINUTES)

68.6%

70.1%

67.4%

2015 2016 2017 2018

VISION AND GROWTH FOR ALL

SOUTHWEST GAS HOLDINGS, INC. | 2 1

Y
T
I
L
I
B
I
S
N
O
P
S
E
R

E
T
A
R
O
P
R
O
C

SOUTHWEST GAS HOLDINGS, INC. | 23

Improving our Communities

Southwest’s deep roots in the communities we serve are part of our enduring legacy of valuing stewardship and
giving back. This is on full display through the generosity and spirit of giving that thrives in our employees. In
2018, Southwesters crossed the $2 million mark in annual contributions to local charitable organizations. They
also gave thousands of hours of time to hands-on community volunteer projects and events.

We strive to promote a positive and friendly workplace and embrace a culture of diversity and inclusivity. These
efforts earned a “Zippia Best Companies to Work for in Las Vegas” recognition in 2018.

Centuri is also growing in best practices and community profile. Over the last several years, Centuri significantly
increased its spending with diverse suppliers from 2.5 percent in 2014 to 23 percent in 2017.

EMPLOYEE GIVING
(IN MILLIONS)

$2.13

$1.90

$1.69

81%

EMPLOYEE
PARTICIPATION

$1.47

$1.31

$1,153

AVERAGE EMPLOYEE
DONATION

2014 2015 2016 2017 2018

Sustainability

Stewarding our natural resources and identifying ways to reduce carbon emissions—both in our operations and
for our customers—is an important part of charting a sustainable future.

Through our energy efficiency programs, we have
enabled customers to achieve significant savings that
impact their pocketbook and their carbon footprint.

ENERGY EFFICIENCY SAVINGS
FOR OUR CUSTOMERS

$71*

ENERGY EFFICIENCY SAVINGS
FOR OUR CUSTOMERS

$1,980

AVERAGE LIFETIME SAVINGS /
PARTICIPATING CUSTOMER

*Based on Southwest February 2019 gas cost rates.

Expected average annual and lifetime natural gas savings for
customers participating in Southwest’s Arizona, California
and Nevada residential and commercial energy efficiency
programs during 2018.

Internally, the Company is looking at ways to
enhance our operations for long-term sustainability.
By 2025, Southwest seeks to achieve a 20 percent
reduction in greenhouse gas (GHG) emissions
from fleet and facilities using 2015 emissions as a
baseline. We are taking proactive steps by making
improvements to building facilities and converting
portions of Southwest’s fleet to compressed natural
gas (CNG). Centuri is committed to protecting
the environment and has made significant
improvements in implementing environmental risk
mitigation plans to the construction process on
both engineering and administrative controls. These
steps include the availability of on-site spill kits and
monthly inspections of fire equipment.

In 2018, Southwest helped customers displace
11 million gallons of diesel fuel by delivering
cleaner-burning CNG for their vehicle fleets.

DIESEL FUEL DISPLACED

11 MILLION GALLONS

5,500 VEHICLES

SOUTHWEST GAS HOLDINGS, INC. | 25

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 a 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.

Our Board of Directors is made up of

our CEO and 11 independent directors

who bring 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.

The past year marked an exciting new effort to
make renewable natural gas (RNG) a reality for
customers interested in the environmental benefits
of this carbon-neutral fuel source. RNG is biogas,
which comes from facilities like landfills, dairies
or wastewater treatment plants that is cleaned and
upgraded to meet pipeline quality standards. It is
a carbon-neutral natural gas that can be injected
into Southwest’s pipeline system and delivered to
customers for use in various applications, such
as fueling vehicle fleets or generating on-site
power. As part of a commitment to sustainable
energy development, we are working with various
producers and developers, as well as customers who
are interested in achieving greater environmental
benefits through RNG. We are also partnering with
regulators to establish a framework for RNG energy
credits, which will further advance RNG energy
development.

RENEWABLE NATURAL GAS

CUSTOMER USE

CLEAN UP

➠

FARMS / LANDFILLS
WATER TREATMENT / SEWAGE
CO2 & METHANE COLLECTED
CO2 & methane collected

Position ed as one
of North America’s
largest full-service
underground pipeline contractors operating in 28
markets across the U.S. and Canada, the Company’s
utility infrastructure services business, Centuri,
continues to grow in scope and profi tability.

In 2018, Centuri acquired Linetec Services, LLC,
a premier provider of recurring maintenance,
refurbishment, upgrade and installation services
for electrical transmission and distribution
infrastructure throughout the Gulf Coast and
Mid-Atlantic regions. Th e transaction will broaden
Centuri’s capabilities in the electric services
infrastructure space and extend its geographic
footprint into the Southeast. As a result, Centuri
will enhance its service offerings for existing
customers while serving additional customers in
new markets with an increased array of capabilities.

Th is acquisition supports Centuri’s growth plans
and enables our fast-growing utility infrastructure
services business to stay ahead of client needs and
industry trends. Similar to the previous year’s
acquisition of Neuco, which exceeded expectations,
we are enthusiastic about Linetec’s prospect for
contributing to earnings within the fi rst year.

Centuri continues to operate with a strategic vision
focused on growth, profi tability and diversifi cation
of services and customers, both organically and
through acquisitions. Th e nature of the company’s
core work lends itself to long-term industry and
customer commitments, contributing to a more
stable and tenured customer base. Specialty
contracting primarily for investor-owned utilities
and municipalities has proven to be a more resilient
niche since industry customers are more likely
to have long-term, funded projects that are less
susceptible to economic or cyclical changes.

“Centuri continues to operate
with a strategic vision
focused on growth, profi tability
and diversifi cation of services
and customers, both
organically and through
acquisitions.”

OPERATING IN 28 MAJOR MARKETS

SOUTHWEST GAS HOLDINGS, INC. | 27

UTILITY
INFRASTRUCTURE
SERVICES

THE FUTURE

SOUTHWEST GAS HOLDINGS, INC. | 29

IS BRIGHT

Reflecting on the accomplishments of the past year

inevitably casts our sights on the future—and the

future is where our focus remains. Like all industries,

we operate in a world of changing customer needs

and expectations, along with evolving opportunities

to grow and strengthen our business.

As we execute on deliberate strategies, our direction

is forward. We are looking ahead, anticipating

how we can better serve our customers, while

positioning the Company for long-term success

in the dynamic landscape of tomorrow. As we

prepare for a sustainable future, we are optimistic

about our ability to embrace growth prospects and

opportunities on the horizon.

FINANCIALS

SOUTHWEST GAS HOLDINGS, INC.

| 31

Consolidated Selected Financial Data

Year Ended December 31,
(Thousands of dollars, except per share amounts)
Operating revenues
Operating expenses (1)

2018

2017

2016

2015

2014

$2,880,013
2,522,580

$2,548,792
2,205,668

$2,460,490
2,145,016

$2,463,625
2,151,926

$2,121,707
1,821,805

Operating income (1)

$ 357,433

$ 343,124

$ 315,474

$ 311,699

$ 299,902

Net income attributable to Southwest

Gas Holdings, Inc.

Total assets at year end

Capitalization at year end

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

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 (000)
Number of common shareholders at year end

$ 182,277

$ 193,841

$ 152,041

$ 138,317

$ 141,126

$7,357,729

$6,237,066

$5,581,126

$5,358,685

$5,208,297

$2,251,590
81,831
2,107,258

$1,812,403
—
1,798,576

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

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

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

$4,440,679

$3,610,979

$3,233,846

$3,159,637

$3,137,682

33,060

25,346

50,101

19,475

19,192

50.7%
9.3%
3.69
3.68
2.08

56%

42.63
76.50

$
$
$

$
$

50.2%
11.2%
4.04
4.04
1.98

49%

37.74
80.48

$
$
$

$
$

51.4%
9.3%
3.20
3.18
1.80

56%

35.03
76.62

$
$
$

$
$

50.4%
8.9%
2.94
2.92
1.62

55%

33.65
55.16

$
$
$

$
$

47.4%
9.7%
3.04
3.01
1.46

48%

32.03
61.81

180%

213%

219%

164%

193%

$
$
$

$
$

46,523
14,749
(1) Periods prior to 2018 depict revised Operating expenses and Operating income for the reclassification of non-service cost components of net

53,026
12,541

48,090
13,077

47,378
14,153

47,482
13,619

periodic benefit costs in both the Company’s and Southwest’s Consolidated Statements of Income in the Annual Report to Shareholders due

to the adoption of ASU 2017-07. Net income was not impacted. Refer to Note 11 – Pension and Other Postretirement Benefits in the notes

to the Consolidated Financial Statements in this Annual Report to Shareholders for further information relating to the adoption of this

update.

32 | SOUTHWEST GAS HOLDINGS, INC.

Natural Gas Operations

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

Operating margin
Expenses

Operations and maintenance (1)
Depreciation and amortization
Taxes other than income taxes

2018

2017

2016

2015

2014

$1,357,728
419,388

$1,302,308
355,045

$1,321,412
397,121

$1,454,639
563,809

$1,382,087
505,356

938,340

947,263

924,291

890,830

876,731

404,813
191,816
59,898

391,321
201,922
57,946

381,964
233,463
52,376

369,832
213,455
49,393

368,313
204,144
47,252

Operating income (1)

$ 281,813

$ 296,074

$ 256,488

$ 258,150

$ 257,022

Contribution to consolidated net income

$ 138,842

$ 156,818

$ 119,423

$ 111,625

$ 116,872

Total assets at year end

Net gas plant at year end

$6,141,584

$5,482,669

$5,001,756

$4,822,845

$4,652,307

$5,093,238

$4,523,650

$4,131,971

$3,891,085

$3,658,383

Construction expenditures and property additions

$ 682,869

$ 560,448

$ 457,120

$ 438,289

$ 350,025

Cash flow, net

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

$ 382,502
(669,392)
280,906

$ 309,216
(557,384)
267,090

$ 507,224
(446,238)
(63,339)

$ 497,500
(416,727)
(74,159)

$ 288,534
(328,645)
23,413

Net change in cash

(5,984) $

18,922

(2,353) $

6,614

$ (16,698)

Total throughput (thousands of therms)

Residential
Small commercial
Large commercial
Industrial/Other
Transportation

Total throughput

697,011
305,342
92,548
37,753
1,050,551

674,271
297,677
92,561
33,816
974,407

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

2,183,205

2,072,732

2,070,936

2,099,503

1,927,415

$
0.55
Weighted average cost of gas purchased ($/therm)
1,930,000
Customers at year end
2,196
Employees at year end
879
Customer to employee ratio
1,416
Degree days – actual
1,816
Degree days – ten-year average
(1) Periods prior to 2018 depict revised Operations and maintenance expense and Operating income for the reclassification of non-service cost

$
0.44
1,956,000
2,219
881
1,512
1,792

$
0.31
2,047,000
2,312
886
1,531
1,694

$
0.44
2,015,000
2,285
882
1,478
1,733

$
0.37
1,984,000
2,247
883
1,613
1,771

components of net periodic benefit costs in both the Company’s and Southwest’s Consolidated Statements of Income in the Annual Report to

Shareholders due to the adoption of ASU 2017-07. Net income was not impacted. Refer to Note 11 – Pension and Other Postretirement

Benefits in the notes to the Consolidated Financial Statements in this Annual Report to Shareholders for further information relating to the

adoption of this update.

SOUTHWEST GAS HOLDINGS, INC.

| 33

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

About Southwest Gas Holdings, Inc.
Southwest Gas Holdings, Inc. is a holding company that owns all of the shares of common stock of Southwest Gas Corporation
(“Southwest” or the “natural gas operations” segment), and all of the shares of common stock of Centuri Construction Group, Inc.
(“Centuri” or the “utility infrastructure services” segment). Southwest Gas Holdings, Inc. and its subsidiaries are collectively referred
to as the “Company.” Prior to August 2017, 96.6% of Centuri’s shares were owned by the Company. During August 2017, Southwest
Gas Holdings, Inc. acquired the remaining 3.4% equity interest in Centuri that was held by the previous owners (which, prior to that
date, was reflected as a redeemable noncontrolling interest).

As part of a holding company reorganization, effective January 2017, designed to provide further separation between regulated and
unregulated businesses, Centuri and Southwest became subsidiaries of the Company; whereas historically, Centuri had been a direct
subsidiary of Southwest. To give effect to this change, the separate consolidated financial statements of Southwest Gas Corporation
depict Centuri-related amounts for periods prior to 2017 as discontinued operations of Southwest. Refer to Note 1 – Background,
Organization, and Summary of Significant Accounting Policies and Note 18 – Reorganization Impacts – Discontinued
Operations Solely Related to Southwest Gas Corporation of this 2018 Annual Report for additional details regarding the
reorganization and the presentation of financial information. As referred to above, the Company has two business segments (natural
gas operations and utility infrastructure services), which are discussed in more detail below.

Southwest is engaged in the business of purchasing, distributing, and transporting natural gas for customers in portions of Arizona,
Nevada, and California. Southwest is the largest distributor of natural gas in Arizona, selling and transporting natural gas in most of
central and southern Arizona, including the Phoenix and Tucson metropolitan areas. Southwest is also the largest distributor of
natural gas in Nevada, serving the majority of southern Nevada, including the Las Vegas metropolitan area, and portions of 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, 2018, Southwest had 2,047,000 residential, commercial, industrial, and other natural gas customers, of which
1,090,000 customers were located in Arizona, 761,000 in Nevada, and 196,000 in California. Residential and commercial customers
represented over 99% of the total customer base. During 2018, 53% of operating margin (gas operating revenues less the net cost of gas
sold) was earned in Arizona, 36% in Nevada, and 11% in California. During this same period, Southwest earned 85% of its operating
margin from residential and small commercial customers, 3% from other sales customers, and 12% from transportation customers.
These general patterns are expected to remain materially consistent for the foreseeable future.

Southwest recognizes operating revenues from the distribution and transportation of natural gas (and related services) to customers.
Operating margin is a financial measure defined by management as gas operating revenues less the net cost of gas sold. However,
operating margin is not specifically defined in accounting principles generally accepted in the United States (“U.S. GAAP”). Thus,
operating margin is considered a non-GAAP measure. Management uses this financial measure because natural gas operating revenues
include the net cost of gas sold, which is a tracked cost that is passed through to customers without markup under purchased gas
adjustment (“PGA”) mechanisms. Fluctuations in the net cost of gas sold impact revenues on a dollar-for-dollar basis, but do

34 | SOUTHWEST GAS HOLDINGS, INC.

not impact operating margin or operating income. Therefore, management believes operating margin provides investors and other
interested parties with useful and relevant information to analyze Southwest’s financial performance in a rate-regulated environment.
The principal factors affecting changes in operating margin are general rate relief (including impacts of infrastructure trackers) and
customer growth. Refer to the Summary Operating Results table for a reconciliation of revenues to operating margin.

The demand for natural gas is seasonal, with greater demand in the colder winter months and decreased demand in the warmer
summer months. All of 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 operating margin, allowing Southwest to pursue energy efficiency initiatives.

Utility infrastructure services activity can be significantly impacted by changes in weather, general and local economic conditions
(including the housing market), interest rates, employment levels, job growth, infrastructure replacement programs of utilities, and
local and federal regulation (including tax rates and incentives). During the past few years, utilities have implemented or modified
system integrity management programs to enhance safety pursuant to federal and state mandates. These programs, coupled with
historic bonus depreciation tax deduction incentives, have resulted in a significant increase in multi-year utility system replacement
programs throughout the U.S. Generally, Centuri revenues are lowest during the first quarter of the year due to less favorable winter
weather working conditions. Revenues typically improve as more favorable weather conditions occur during the summer and fall
months. In certain circumstances, such as with large bid contracts (especially those of a longer duration), or unit-price contracts with
revenue caps, results may be impacted by differences between costs incurred and those anticipated when the work was originally bid.
Work awarded, or failing to be awarded, by individual large customers can impact operating results.

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 79% of consolidated net income over the past three years.

Summary Operating Results

Year ended December 31,
(In thousands, except per share amounts)
Contribution to net income:
Natural gas operations
Utility infrastructure services
Corporate and administrative

Net income

Average number of common shares

Consolidated basic earnings per share

Natural Gas Operations
Reconciliation of Revenue to Operating Margin (Non-GAAP measure)
Gas operating revenues
Less: Net cost of gas sold

Operating margin

SOUTHWEST GAS HOLDINGS, INC.

| 35

2018

2017

2016

$ 138,842
44,977
(1,542)

$ 156,818
38,360
(1,337)

$ 119,423
32,618
—

$ 182,277

$ 193,841

$ 152,041

49,419

47,965

47,469

3.69

4.04

3.20

$1,357,728
419,388

$1,302,308
355,045

$1,321,412
397,121

$ 938,340

$ 947,263

$ 924,291

2018 Overview
Consolidated results for 2018 decreased compared to 2017. Basic earnings per share were $3.69 in 2018 compared to $4.04 in 2017.

Natural gas operations highlights include the following:
• Added 32,000 net new customers (1.6% growth rate) in 2018
• Operating margin decreased $9 million between years, as $20 million of tax savings were returned to Arizona customers
• Rate relief and customer growth, combined, provided $17 million in incremental margin in 2018
• Pension cost increased nearly $8 million between years
• Company-Owned Life Insurance (“COLI”) cash surrender values declined $13.5 million between years
• Issued $300 million in 3.70% senior notes in March 2018

Utility infrastructure services highlights include the following:
• Record revenues of $1.5 billion were experienced in 2018, an increase of $276 million, or 22%, compared to 2017
• Utility infrastructure services expenses increased $239 million, or 21%, compared to 2017
• 2018 results include a full year of Neuco, which was acquired in November 2017
• Completed the acquisition of Linetec Services, LLC in November 2018

Southwest Gas Holdings highlights include the following:
• Issued 3,565,000 shares of common stock in an underwritten public offering in November 2018
• Jane Lewis-Raymond and Leslie T. Thornton joined the Board of Directors in January 2019

36 | SOUTHWEST GAS HOLDINGS, INC.

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

2018

2017

2016

$1,357,728
419,388

$1,302,308
355,045

$1,321,412
397,121

938,340
404,813
191,816
59,898

281,813
(17,240)
81,740

182,833
43,991

947,263
391,321
201,922
57,946

296,074
(6,388)
69,733

219,953
63,135

924,291
381,964
233,463
52,376

256,488
(11,484)
66,997

178,007
58,584

Contribution to consolidated net income

$ 138,842

$ 156,818

$ 119,423

2018vs.2017
Contribution to consolidated net income from natural gas operations decreased $18 million between 2018 and 2017. The decrease
was primarily due to higher Operations and maintenance expense and Net interest deductions and higher Other deductions, partially
offset by rate relief and lower Depreciation and amortization. The amounts above for Operations and maintenance expense and
Other income (deductions) for the 2017 and 2016 periods reflect reclassifications of $19.4 million and $19.8 million, respectively,
related to the non-service cost components of employee pensions and other post-retirement benefits, as a result of the adoption of the
update to the Financial Accounting Standards Board (the “FASB”) Topic 715 (see Note 11 – Pension and Other Postretirement
Benefits). The reclassification is intended to make the prior period comparable to the current period, but did not impact net income
overall.

Operating margin decreased $9 million between years due to a $20 million decrease in customer rates to reflect the reduced cost of
service during 2018 from U.S. tax reform. The decline in applicable U.S. income tax rates also significantly reduced income tax
expense. Operating margin was favorably impacted by rate relief in the Arizona and California jurisdictions, which collectively
provided $6 million in operating margin (see Rates and Regulatory Proceedings). Customer growth contributed $11 million in
operating margin. The remaining decline of $6 million relates to the combined impacts of reduced surcharge recoveries including
Nevada Conservation and Energy Efficiency (“CEE”) programs and a California Climate Credit returned to customers (offset in
Depreciation and amortization below), as well as variability in other miscellaneous revenues, margin from gas infrastructure
replacement programs and from customers outside the decoupling mechanisms.

Operations and maintenance expense increased $13.5 million, or 3%, between 2018 and 2017 primarily due to the impacts of an
$8 million increase in pension cost and to other employee benefit costs. In addition, expenditures for pipeline integrity management
and damage prevention programs were $3.5 million higher in 2018. Residual differences primarily relate to higher information
technology related costs offset by lower claims experience for injuries and damages under insurance programs.

SOUTHWEST GAS HOLDINGS, INC.

| 37

Depreciation and amortization expense decreased $10.1 million, or 5%, primarily due to reduced depreciation rates in Arizona, a
result of the April 2017 Arizona general rate case decision, and the impacts of surcharge recoveries for regulatory mechanisms, as
discussed above. Partially offsetting the decline was increased depreciation expense associated with a $466 million, or 7%, increase in
average gas plant in service for the current year as compared to the prior year. The increase in gas plant was attributable to pipeline
capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.

Taxes other than income taxes increased $2 million, or 3%, between 2018 and 2017 primarily due to higher property taxes associated
with plant additions.

Other income (deductions) declined $10.9 million between 2018 and 2017. The current year reflects a $3.2 million decrease in COLI
policy cash surrender values net of recognized death benefits, while 2017 reflected $10.3 million of COLI-related income. The cash
surrender values of these policies fluctuate based on the value of the underlying investments. Partially offsetting the decrease between
periods was an increase in interest income of $3.2 million, including amounts related to the Gas Infrastructure Replacement (“GIR”)
mechanism in Nevada (See the Rates and Regulatory Proceedings section for more information about the GIR mechanism).
Additionally, this category in both periods reflects the non-service-related components of employee pension and post-retirement
benefit cost, resulting from the update to FASB Topic 715 noted above.

Net interest deductions increased $12 million between 2018 and 2017, primarily due to higher interest associated with credit facility
borrowings and the issuance of $300 million of senior notes in March 2018.

Income tax fluctuations between 2018 and 2017 resulted primarily from the December 2017 enactment of U.S. tax reform, which
among other things reduced the corporate federal income tax rate from 35% to 21%, in addition to the impact of fluctuations in
pre-tax earnings between periods, as discussed above. Refer to Note 13 – Income Taxes in the notes to the consolidated financial
statements.

2017vs.2016
The contribution to consolidated net income from natural gas operations increased $37.4 million between 2017 and 2016. The
improvement was primarily due to an increase in operating margin, lower depreciation expense, and higher other income, partially
offset by an increase in general taxes and operations and maintenance expenses. The amounts presented in Operations and
maintenance expense and Other income (deductions) for the 2017 and 2016 periods reflect reclassifications of $19.4 million and
$19.8 million, respectively, related to the non-service cost components of employee pensions and other post-retirement benefits, as a
result of the adoption of the update to FASB Topic 715.

Operating margin increased $23 million between years. Combined rate relief in the Arizona and California jurisdictions provided
$15 million in operating margin in 2017. Customer growth contributed $9 million in operating margin during the same period, while
operating margin associated with recoveries of regulatory assets, infrastructure replacement mechanisms, customers outside the
decoupling mechanisms, and other miscellaneous revenues decreased $1 million.

Operations and maintenance expense increased $9 million, or 2%, between 2017 and 2016 as general cost increases were partially
offset by a decline in self-insured employee medical costs. Higher expenses for pipeline integrity management and damage prevention
programs accounted for $2.5 million of the increase. Both periods reflect the reclassification of non-service components of pension
and other post-retirement benefit cost, as discussed above.

38 | SOUTHWEST GAS HOLDINGS, INC.

Depreciation and amortization expense decreased $31.5 million, or 14%, between comparative periods, primarily due to reduced
depreciation rates in Arizona, resulting from the 2017 Arizona general rate case decision. Partially offsetting the decline was increased
depreciation expense associated with a $338 million, or 6%, increase in average gas plant in service in 2017 as compared to 2016. The
increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe
replacement activities, and new infrastructure.

Taxes other than income taxes increased $5.6 million, or 11%, between 2017 and 2016 primarily due to higher property taxes
associated with net plant additions and increased property taxes in Arizona, including the impact of a property tax regulatory tracking
mechanism.

Other income (deductions) improved $5.1 million between 2017 and 2016. The 2017 period reflects a $10.3 million increase in
COLI policy cash surrender values, while 2016 reflected $7.4 million of combined COLI-related income and recognized death
benefits. COLI amounts were greater than expected in both years. In addition, interest earned related to the GIR mechanism in
Nevada was greater in 2017 due to a substantial increase in the amount of accelerated pipe replacement work under the program
during 2017. Both periods reflect the reclassification of non-service pension cost in accordance with the update to FASB Topic 715
noted above.

Net interest deductions increased $2.7 million between 2017 and 2016, primarily due to the issuance of $300 million of senior notes
in September 2016 and higher interest associated with credit facility borrowings during 2017. The increase was substantially offset by
reductions in interest expense associated with PGA balances as compared to the prior year and various debt redemptions in the second
half of 2016 and early 2017.

Income taxes were favorably impacted in 2017 by approximately $8 million due to the December 2017 enactment of U.S. tax reform.
This reduction primarily related to the remeasurement of deferred tax liabilities not associated with utility plant depreciation timing
differences.

Results of Utility Infrastructure Services

Year Ended December 31,
(Thousands of dollars)
Utility infrastructure services revenues
Operating expenses:

Utility infrastructure services expenses
Depreciation and amortization

Operating income
Other income (deductions)
Net interest deductions

Income before income taxes

Income tax expense

Net income

Net income (loss) attributable to noncontrolling interests

SOUTHWEST GAS HOLDINGS, INC.

| 39

2018

2017

2016

$1,522,285

$1,246,484

$1,139,078

1,387,689
57,396

1,148,963
49,029

1,024,423
55,669

77,200
(238)
14,190

62,772
18,420

44,352
(625)

48,492
345
7,986

40,851
2,390

38,461
101

58,986
1,193
6,663

53,516
19,884

33,632
1,014

Contribution to consolidated net income attributable to Centuri

44,977

38,360

32,618

In November 2018, Centuri acquired Linetec. Results for Linetec subsequent to the date of the acquisition have been included in the
table above including $14.1 million of revenues. In November 2017, Centuri acquired Neuco. Line items in the table above reflect the
results of Neuco subsequent to the acquisition date, including $147.9 million and $17.2 million in revenues during 2018 and 2017,
respectively.

2018vs.2017
Contribution to consolidated net income from utility infrastructure services increased $6.6 million in 2018 compared to 2017.
Results were positively impacted by a full year of activities from Neuco, which exceeded expectations, improved productivity on
certain contracts compared to 2017, and from incremental non-routine projects with customers. These increases were partially offset
by higher interest charges and increased amortization due to the Neuco and Linetec acquisitions. Additionally, net income in both
years reflected benefits from U.S. tax reform; 2018 reflects lower tax rates on a higher level of pre-tax earnings and 2017 reflects the
remeasurement of Centuri’s deferred tax liabilities following the enactment date.

Utility infrastructure services revenue increased $275.8 million, or 22%, between 2018 and 2017, attributable primarily to a full year
of Neuco operations ($147.9 million in 2018 compared to $17.2 million in 2017) and revenues from Linetec ($14.1 million) in
December 2018 following the acquisition date, and to continued growth with existing customers under existing master service and bid
agreements. In addition, revenue was favorably impacted from certain non-routine projects (including customer-requested support
during strike-related and emergency response situations), and from the settlement in 2018 of a previous contract dispute on a water
pipe replacement project, discussed below. Revenues in 2017 were negatively impacted by a temporary work stoppage with a customer
(also discussed below), which began in the first quarter of 2017, with work resuming during the second quarter of the same year.
Utility infrastructure services revenue includes contracts with Southwest totaling $135.9 million in 2018 and $97 million in 2017.
Centuri accounts for services provided to Southwest at contractual prices. Refer to Consolidation in Note 1 – Background,
Organization, and Summary of Significant Accounting Policies to the consolidated financial statements. During the past several
years, utility infrastructure services segment efforts have been focused on obtaining utility system replacement work under both
blanket contracts and incremental bid projects. For both 2018 and 2017, revenues from replacement work were approximately 60% of
total revenues. Governmental safety-related programs and U.S. tax incentives have resulted in many utilities undertaking multi-year
infrastructure system replacement projects in recent years.

40 | SOUTHWEST GAS HOLDINGS, INC.

Utility infrastructure services expenses increased $238.7 million, or 21%, between 2018 and 2017 largely due to additional gas pipe
replacement work and higher labor-related operating expenses to support business growth. Costs incurred overall during 2018 reflect
changes that were implemented to align with the increased size and complexity of the business, while expenses in 2017 were negatively
impacted by the water pipe replacement project noted above. Included in total Utility infrastructure services expense are general and
administrative (“G&A”) costs, which increased $23.8 million in 2018 when compared to 2017, including $6.9 million (2018) and
$2.6 million (2017) of deal costs from the acquisitions of Linetec and Neuco, respectively. Excluding deal costs, but including all other
G&A components, there were a total of $133 million of expenses during 2018 related to Neuco ($120.3 million) and Linetec ($12.7
million), as compared to $14.4 million in 2017 from Neuco activity following the acquisition date. Gains on sale of equipment
(reflected as an offset to Utility infrastructure services expenses) were approximately $1.7 million and $4.2 million for 2018 and 2017,
respectively.

Depreciation and amortization expense increased $8.4 million between 2018 and 2017 primarily due to $3.5 million of incremental
amortization of finite-lived intangible assets related to the Neuco and Linetec acquisitions. Additional equipment purchased to
support the growing volume of work being performed resulted in higher depreciation expense, partially offset by a $6.9 million
reduction in depreciation with the extension of the estimated useful lives of certain depreciable equipment.

The increase in net interest deductions was due primarily to interest expense and amortization of debt issuance costs associated with
incremental borrowings under the $590 million secured revolving credit and term loan facility (primarily related to the Neuco and
Linetec acquisitions). See Note 8 – Long-Term Debt in the notes to the consolidated financial statements.

Income tax expense increased $16 million between 2018 and 2017 primarily due to the net benefit of $12 million from
remeasurement of Centuri’s deferred tax liabilities related to enactment of U.S. tax reform in December 2017 and from an increase in
taxable earnings in 2018. These increases were partially offset by lower U.S. income tax rates applied to taxable earnings in 2018.

2017vs.2016
Contribution to consolidated net income from utility infrastructure services increased $5.7 million in 2017 compared to 2016.
Results were positively impacted by the remeasurement of Centuri’s deferred tax liabilities related to the enactment of U.S. tax reform
noted above. Higher utility infrastructure services costs outpaced increased revenue, but were partially offset by lower depreciation.

Revenues increased $107.4 million, or 9%, between 2017 and 2016, primarily due to additional pipe replacement work for natural gas
distribution customers. This was partially offset by the temporary work stoppage with a significant customer noted earlier, which was
due to regulatory issues attributable to requalifying employees of all contractors working on the customer’s natural gas system.
Operations resumed during the second quarter of 2017 following the requalification period. In addition, Centuri performed work on
a multi-year water pipe replacement program, which began in late 2016, for a customer that contributed incremental revenues of
$29.7 million during 2017. Utility infrastructure services revenues includes contracts with Southwest totaling $97 million in 2017
and $98 million in 2016.

Utility infrastructure services expenses increased by $124.5 million, or 12%, between 2017 and 2016. The increase in Utility
infrastructure services expenses was disproportionate to the increase in revenues between these years due in part to logistics
surrounding the timing and length of the temporary work stoppage noted above and higher labor costs incurred to complete work
during inclement weather conditions in the first quarter of 2017. Expenses and results in 2017 were negatively impacted by costs
related to the water pipe replacement project, a dispute for which was resolved in 2018. Gains on sale of equipment (reflected as an
offset to Utility infrastructure services expenses) were approximately $4.2 million and $7.1 million for 2017 and 2016, respectively.

Depreciation and amortization expense decreased $6.6 million between 2017 and 2016 primarily due to a $10 million reduction in
depreciation associated with a change in the estimated useful lives of certain depreciable equipment, partially offset by incremental

SOUTHWEST GAS HOLDINGS, INC.

| 41

amortization of finite-lived intangible assets recognized from the Neuco acquisition and an increase in depreciation on additional
equipment purchased to support the growing volume of work being performed.

The increase in net interest deductions was due primarily to interest expense and amortization of debt issuance costs associated with
incremental borrowings under the then existing $450 million secured revolving credit and term loan facility.

Income tax expense decreased $17.5 million between 2017 and 2016 primarily due to the $12 million net benefit from
remeasurement of deferred tax liabilities following the enactment of U.S. tax reform. Pre-tax income declined $12.6 million between
2017 and 2016.

Rates and Regulatory Proceedings

Southwest is subject to the regulation of the Arizona Corporation Commission (“ACC”), the Public Utilities Commission of Nevada
(“PUCN”), the California Public Utilities Commission (“CPUC”), and the Federal Energy Regulatory Commission (“FERC”).

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 commission-approved 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 for which results of natural gas operations are disclosed above.

Nevada Jurisdiction
NevadaGeneralRateCase. Southwest filed its most recent general rate case with the PUCN in May 2018 and updated the request
following the certification period ending in July 2018. The filing requested a statewide overall general rate increase of approximately
$29.7 million to account for changes in the cost of service ($12.1 million) since the last general rate case, including those resulting
from U.S. federal tax reform, and another $16.6 million associated with the inclusion in rate base of GIR mechanism projects
previously approved by the PUCN under the ongoing program. Southwest also requested to adjust the GIR rate as part of the rate case
process in lieu of filing a separate GIR rate application. That adjustment equates to an estimated incremental operating margin of
$6 million.

The PUCN issued a rate case decision on December 24, 2018, which authorized a return on equity (“ROE”) of 9.25% relative to the
Company’s proposed capital structure of 49.66% equity applicable to both southern and northern Nevada and provided for an overall
general rate increase of $9.5 million in southern Nevada and a rate decrease in northern Nevada of $2 million. The impact of U.S. tax
reform was considered on a go-forward basis, including commencing the process to return excess amounts from the remeasurement of
previous deferred tax balances. The PUCN also approved Southwest’s proposal to maintain its existing rate structure, including the
continuation of its decoupling mechanism, referred to as the General Revenues Adjustment (the “GRA”). Southwest also proposed
and was authorized to include two new tariff schedules (1) compression service and (2) biogas and renewable natural gas service. New
rates associated with the PUCN’s decision became effective in January 2019.

The rate relief is lower than the amounts requested due to several factors, including the 9.25% granted return on equity, vis-à-vis a
requested 10.3%. Also contributing to the lower-than-expected result was the exclusion of costs of several software applications in

42 | SOUTHWEST GAS HOLDINGS, INC.

rates at this time, albeit allowing the Company to reiterate its recovery request in its next general rate case filing. In response to the
PUCN’s decision, management filed a Petition for Reconsideration (the “Petition”) of several rate case issues on January 9, 2019. The
PUCN Staff also filed a Petition for Reconsideration requesting several technical clarifications on the rate case decision with respect
to how to calculate the intended results of the decision. The PUCN, in turn, issued a decision regarding both petitions on
February 15, 2019 that modified certain parts of the original order, but granted no further rate relief. The modified final decision
results in a general rate increase of $9.5 million in southern Nevada and a rate decrease in northern Nevada of $2 million. The
decision included a reduction in depreciation expense of $800,000 and results in a net increase in revenues of $7.1 million and an
increase in operating income of $7.9 million. Management is currently evaluating additional administrative strategies, including
pursuing judicial appeal of the PUCN’s rate order and/or accelerating its next general rate case filing.

General Revenues Adjustment. As part of the Annual Rate Adjustment (“ARA”) filing in 2017, the PUCN authorized rate
adjustments associated with the GRA. The rate adjustment returned $2.2 million to customers during 2018, a decrease in collections
of $15.8 million as compared to 2017. In June 2018, Southwest filed to adjust the GRA surcharge, effective January 2019, which was
approved by the PUCN during the fourth quarter of 2018. This rate adjustment is expected to result in collections from customers of
$5.6 million. As indicated above, the continuation of the GRA was affirmed as part of the December 2018 rate case decision. While
there is no impact to net income overall from this rate adjustment, operating cash flows will increase as the associated regulatory asset
balance is recovered.

Infrastructure Replacement Mechanisms.
In 2014, the PUCN approved final rules for the GIR mechanism which defers and
recovers certain costs associated with accelerated replacement of qualifying infrastructure that would not otherwise currently provide
incremental revenues. Associated with the replacement of various types of pipe infrastructure under the mechanism (Early Vintage
Plastic Pipe (“EVPP”), Customer-Owned Yard Line (“COYL”), and Vintage Steel Pipe (“VSP”)), each year Southwest files a GIR
“Advance Application” in May and a “Rate Application,” generally in October. In May 2017, Southwest filed its Advance Application
for projects totaling approximately $66 million to be completed during 2018, which the PUCN approved in September 2017. The
$66 million in replacement work had an annualized revenue requirement estimated at $6 million. In June 2018, Southwest filed its
Advance Application requesting authorization to replace qualifying infrastructure with projects totaling $228 million to be completed
over a three-year period, with a total annualized revenue requirement (following the three-year replacement period) of approximately
$21.7 million. Historically, Southwest has requested approval of projects on an annual basis; however, it requested to move to a multi-
year approval process for projects to improve operational flexibility and enhance coordination with contractors and governmental
agencies. The PUCN issued a decision limiting its approval to the 2019 projects, resulting in an annual approval of $34.3 million for
projects to be completed in 2019 (EVPP $9.3 million, COYL $1.3 million, and VSP $23.7 million).

The Rate Application is generally filed each October to reset the GIR recovery surcharge related to previously approved and
completed projects, with new rates becoming effective each January. In November 2017, for projects approved in 2016 and completed
by July 2017, a deferred annualized revenue requirement of $8.7 million was approved to be recovered from customers through
updated rates effective January 2018. Included as part of the 2018 general rate case filing (noted above), management proposed to
adjust the GIR surcharge rate as part of the rate case in lieu of filing a separate application during the third quarter. The rate was
approved to be implemented in January 2019 and is expected to result in incremental annual margin of approximately $6 million.

Conservation and Energy Efficiency(“CEE”).
In June 2015, Southwest requested recovery of energy efficiency and conservation
development and implementation costs, including promotions and incentives for various programs, as originally approved for deferral
by the PUCN effective November 2009. While recovery of initial program costs were approved effective in 2013, amounts incurred
subsequent to May 2012 (the related certification period) continued to be deferred. The 2017 ARA filing approved in November
2017, modified rates effective January 2018, designed to result in annualized margin decreases of $8.2 million in southern Nevada and
$1.4 million in northern Nevada to return over-collected balances. As part of the 2018 ARA filing, Southwest requested modified

SOUTHWEST GAS HOLDINGS, INC.

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rates, effective January 2019, which would authorize an annualized margin decrease of $4.1 million in southern Nevada and a $58,000
decrease in northern Nevada, both of which were approved. There is, however, no anticipated impact to net income overall from these
changes as amortization expense will be impacted by approximately the same amounts.

ExpansionandEconomicDevelopmentLegislation.
In January 2016, final regulations were approved by the PUCN associated with
legislation (“SB 151”) previously introduced and signed into law in Nevada. The legislation authorized natural gas utilities to expand
their infrastructure to provide service to unserved and underserved areas in Nevada.

In November 2017, Southwest filed for pre-approval of a project to extend service to Mesquite, Nevada, in accordance with the SB
151 regulations. Ultimately, the PUCN issued an order approving Southwest’s proposal to expand natural gas infrastructure to
Mesquite. The order approved a capital investment of approximately $28 million and the construction of approximately 37 miles of
distribution pipeline (including the approach main). The cost is expected to be recovered through volumetric rates from all southern
Nevada customers (including new customers in Mesquite). The annual revenue requirement associated with the project is
$2.8 million. Southwest conducted preliminary design work and began serving certain customers with an approved virtual pipeline
network in February 2019, which will provide temporary natural gas supply using portions of the approved distribution system and
compressed natural gas tanks. It is estimated that permitting and construction of the approach main to bring the permanent supply to
Mesquite and construction of the remaining approved distribution system could take an additional two years to complete.

California Jurisdiction
CaliforniaGeneralRateCase. As part of the most recent Southwest general rate case application, with rates effective June 2014, the
CPUC authorized an overall revenue increase of $7.1 million, a Post-Test Year (“PTY”) Ratemaking Mechanism, which allowed for
annual attrition increases of 2.75% annually for 2015 to 2018, a depreciation reduction as requested, a limited COYL inspection
program for schools, and an Infrastructure Reliability and Replacement Adjustment Mechanism (“IRRAM”) to recover the costs
associated with the new limited COYL program. The CPUC decision also provided for a two-way pension balancing account to track
differences between authorized and actual pension funding amounts.

In December 2016, Southwest filed to modify the most recent general rate case decision to extend the current rate case cycle by two
years, including extension of the annual PTY attrition adjustments for 2019 and 2020. Without the rate case extension, Southwest
would have otherwise been required to file its next general rate application by September 2017. Expedited consideration was requested
and in June 2017, the CPUC approved the request, thereby extending the rate case filing deadline. Southwest believes this extension is
in the public interest as it provides rate stability to customers for two additional years consistent with the current reasonable rates
approved as part of the last general rate case. The 2.75% PTY annual attrition adjustments were authorized for the two additional
years. Southwest expects to file a general rate case application in the third quarter of 2019.

TaxReform.
In its 2017 decision approving Southwest’s request to extend the filing date of its next general rate case, the CPUC also
directed Southwest to track income tax expenses resulting from mandatory or elective changes in tax law, procedure, or policy. The
purpose is to identify differences between Southwest’s authorized income tax expenses and its actual incurred income tax expenses, the
result of which would be reviewed in Southwest’s next general rate case. Excluding advance requested or required procedural changes,
Southwest does not currently anticipate making an ad hoc filing in advance of the next general rate case filing to implement any
changes resulting from U.S. tax reform. Refer to Note 1 – Background, Organization, and Summary of Significant Accounting
Policies, Note 5 – Regulatory Assets and Liabilities, and Note 13 – Income Taxes.

AttritionFiling.
In November 2018, Southwest made its latest annual PTY attrition filing, requesting annual revenue increases of
$2 million in southern California, $542,000 in northern California, and $271,000 for South Lake Tahoe. This filing was approved in
December 2018 and rates were made effective in January 2019. At the same time, rates were updated to recover the regulatory asset
associated with the revenue decoupling mechanism, or margin tracker.

44 | SOUTHWEST GAS HOLDINGS, INC.

GreenhouseGas(“GHG”)Compliance. California Assembly Bill Number 32 and the regulations promulgated by the California
Air Resources Board, require Southwest, as a covered entity, to comply with all applicable requirements associated with California
GHG emissions reporting and the California Cap and Trade Program. The CPUC issued a decision in March 2018 adopting an
allocation methodology to distribute the net revenues or costs for years 2015-2017 beginning in the second quarter of 2018.
Southwest began amortizing its then existing net cost balance over a 12-month period with recovery rates effective July 2018 for all
applicable rate schedules. In addition, for years 2019-2020, the decision adopted an allocation methodology to distribute the revenue
proceeds through a California Climate Credit to active residential customers in April of each year, following initial required credits in
October 2018. GHG compliance costs recovered through rates (including transportation customer rates) have no impact on earnings.

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 for its Arizona rate jurisdiction. A settlement was reached, with
new rates effective April 2017. The ACC approved the settlement agreement in April 2017, which provided for an overall annual
operating revenue increase of $16 million, the capital structure and cost of capital originally proposed by Southwest, and a return on
common equity set at 9.50%. Annual depreciation expense was designed to be reduced by $44.7 million, as supported by a
depreciation study included in the filing, for a combined net annual operating income increase of $60.7 million. Other key elements
included approval of the continuation and expansion of the COYL program (adding the ability to seek out COYLs through a targeted
approach and mobilization of work crews for replacement), implementation of a vintage steel pipe replacement program, and a
continuation of the current decoupled rate design (excluding the previous winter-period adjustment to rates), which made the
mechanism fundamentally similar to that which exists in Nevada. The settlement also included a property tax tracking mechanism to
defer changes in property tax expense for recovery or return in the next general rate case. The settlement also included a three-year rate
case moratorium prohibiting filing a new application to adjust base rates prior to May 2019. Southwest plans to file a new application
in May 2019.

DeliveryChargeAdjustment. The annual Delivery Charge Adjustment (“DCA”) rate adjustment is filed each April, which along
with other reporting requirements, contemplates a rate to recover the over- or under-collected margin tracker amounts based on the
balance at the end of the preceding calendar year. The DCA rate adjustment filed in April 2018, reflected the December 31, 2017
balance of approximately $40 million. Following a brief administrative delay, Southwest updated its request to instead include the
balance at December 31, 2018 of $73 million. Southwest currently expects the updated rate to be approved and become effective
during the first quarter of 2019. The existing rate continues to be collected from customers until such time as the updated rate
becomes effective. While there is no impact to net income overall from this rate adjustment, operating cash flows will increase as the
associated regulatory asset balance is collected.

TaxReform.
In February 2018, the ACC directed all Arizona utilities to address tax savings from the enactment of U.S. tax reform
beginning January 1, 2018 through a tax expense adjuster mechanism, a notice of intent to file a rate case, or through a separate
application. In April 2018, Southwest filed an application with the ACC, requesting approval for a tax refund process or, in the
alternative, the authority to file a general rate case to reflect tax reform. Ultimately, Southwest was instructed to refund customers a
one-time credit to reflect the tax savings from January through July 2018, effective with Southwest’s August 2018 billing cycles and
that, effective August 2018, surcredits be established on a per-therm basis until new cost-of-service rates become effective following
the Company’s next general rate case, with the combined amounts intended to refund $20 million annually (as compared to rate levels
established in the most recent general rate case effective April 2017). Other recommendations included supplemental compliance
reports related to excess deferred income taxes and an annual true-up to account for differences between the actual tax savings and the
amount authorized by the ACC. However, the ACC decision did not direct refunding to commence with regard to excess amounts
from the remeasurement of deferred tax balances, which are recognized as a regulatory liability following the enactment of tax reform.
Through December 2018, Southwest reflected the annualized $20 million as a reduction in revenue and is tracking monthly

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differences between amounts expected to be returned and amounts actually returned to customers, resulting in a liability balance of
$1.8 million as of December 31, 2018.

Liquefied Natural Gas (“LNG”) Facility.
In January 2014, Southwest filed an application with the ACC seeking preapproval to
construct, operate, and maintain a 233,000 dekatherm LNG facility in southern Arizona. This facility is intended to enhance service
reliability and flexibility related to natural gas deliveries in the southern Arizona area by providing a local storage option, to be
operated by Southwest and connected directly to its distribution system. In December 2014, Southwest received an order from the
ACC granting preapproval of the construction and deferral of costs, up to $50 million, which was later approved (December 2016) to
be modified not to exceed $80 million, following land purchase and bid solicitation for the engineering, procurement, and
construction of the facility. Construction began during the third quarter of 2017 and is expected to be substantially complete in the
second quarter of 2019 with the facility available for use during the winter of 2019/2020. Through December 2018, Southwest has
incurred approximately $60 million in capital expenditures toward the project (including land acquisition costs).

COYLProgram. Southwest received approval, in connection with its 2010 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, representing a non-traditional configuration. “Phase II” of the COYL program included the
replacement of non-leaking COYLs. The surcharge is revised annually as the program progresses. In the annual filing made in
February 2018, Southwest requested to establish an annual surcharge to collect $4.2 million related to the revenue requirement
associated with $18 million in capital projects completed under both phases during 2017. In September 2018, the ACC approved the
proposed surcharge application, while modifying the surcharge revenue to $3.5 million to reflect the impact of tax reform on the
revenue requirement calculation.

VintageSteelPipeProgram.
Southwest received approval, in connection with its 2010 Arizona general rate case, to implement a
VSP replacement program. Southwest currently has approximately 6,000 miles of pre-1970s vintage steel pipe in Arizona. Southwest
proposed to start replacing the pipe on an accelerated basis and to recover the costs through an annual surcharge filing that is made in
February of each year. The surcharge is designed to be revised annually as the program progresses. Southwest replaced approximately
119 miles of vintage steel pipe during 2018 totaling approximately $100 million, and is targeting replacement projects during 2019 of
approximately $100 million. In the February 2018 VSP filing, Southwest requested to establish a surcharge to collect $3.1 million
related to 2017 expenditures. In September 2018, the ACC approved the proposed surcharge application, while modifying the
surcharge revenue to $2.4 million to reflect the impact of tax reform on the revenue requirement calculation. The annual VSP filing is
expected to be made in the first quarter of 2019.

FERC Jurisdiction
GeneralRateCase. Paiute Pipeline Company (“Paiute”), a wholly owned subsidiary of Southwest, filed its most recent general rate
case with the FERC in February 2014, and following settlement proceedings, tariff changes were filed in March 2015. The settlement
implied an 11.5% pre-tax rate of return, and as part of the agreement, Paiute agreed to file a rate case no later than May 2019. Refer to
Note 1 – Background, Organization, and Summary of Significant Accounting Policies, Note 5 – Regulatory Assets and
Liabilities and Liabilities, and Note 13 – Income Taxes.

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; executed precedent agreements for
incremental transportation capacity with Southwest during the third quarter of 2016; and initiated a pre-filing review process with
the FERC in October 2016, at which time approval for an expansion was granted. Following this process, a certificate application was
filed, including an applicant environmental assessment, and in May 2018, the FERC issued a Certificate of Public Convenience and
Necessity authorizing Paiute to construct the $18 million project. Following receipt of contractor pricing for the project, Paiute

46 | SOUTHWEST GAS HOLDINGS, INC.

updated the project costs to reflect approximately $22 million and requested to amend the certificate order to reflect the updated cost
estimates. In October 2018, the FERC issued an order to reflect the updated costs of the project. Construction work began in July
2018 and consists of 8.5 miles of additional transmission pipeline infrastructure. The project was completed and placed in service in
November 2018.

TaxReform. The FERC issued a Notice of Proposed Rulemaking (“NOPR”) on whether the federal income tax changes from U.S.
tax reform cause pipeline rates to no longer be just and reasonable. The NOPR provided for pipelines to file a FERC Form No. 501-G
to evaluate the impact of tax reform on their revenue requirement. In addition to filing the form, pipelines would select one of the
following four options: (1) make a limited “Section 4” filing to reduce rates by the percentage reduction in cost of service shown in its
FERC Form No. 501-G; (2) commit to file either a prepackaged uncontested rate settlement or a general Section 4 rate case; (3) file a
statement explaining why no change in rates was necessary; or (4) file the new FERC form without taking any other action. In July
2018, the FERC issued a final rule (Order No. 849), effective in September 2018, adopting procedures for determining which
jurisdictional pipelines may be collecting unjust and unreasonable rates in light of tax reform. Paiute filed its Form No. 501-G in the
fourth quarter of 2018. Two of Paiute’s shippers requested that FERC evaluate Paiute’s rates and/or take action to ensure that
Paiute’s customers are afforded the relief contemplated in Order No. 849. The FERC has yet to act on these; however, in the absence
of any action in advance, Paiute’s general rate case application, expected to be filed in May 2019, will further address tax reform. In
November 2018, Southwest Gas Transmission Company (“SGTC”), also a FERC-regulated subsidiary of Southwest, filed an
uncontested, prepackaged settlement in lieu of filing the FERC Form No. 501-G, with no material impacts overall. FERC issued an
Order approving the settlement in December 2018, and new rates became effective in January 2019.

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, 2018, over-collections in Arizona, southern Nevada, and California resulted in a liability of approximately
$79.8 million and under-collections in northern Nevada resulted in an asset of $4.9 million on the Company’s and Southwest’s
balance sheets. During the third quarter of 2018, a $49 million refund was received by Southwest from El Paso Natural Gas, LLC (“El
Paso”) as part of a rate case settlement, the majority of which relates to Southwest’s transmission service into Arizona. 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). In October 2018, Southwest filed an application with the ACC requesting an
alternate methodology for refunding the El Paso funds allocated to the Arizona rate jurisdiction customers, which would involve
offsetting amounts currently receivable from Arizona customers under a different mechanism (the margin decoupling mechanism).
Resolution of this issue is expected during the first quarter of 2019.

The following table presents Southwest’s outstanding PGA balances receivable/(payable) at the end of its two most recent fiscal years
(thousands of dollars):

Arizona
Northern Nevada
Southern Nevada
California

2018

2017

$(72,878) $ 5,069
8,189
(6,841)
1,323

4,928
(5,951)
(933)

$(74,834) $ 7,740

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ArizonaPGAFilings.
In Arizona, Southwest calculates the change in the gas cost component of customer rates monthly (to allow
for timely refunds to/recoveries from customers), utilizing a rolling twelve-month average. During 2018, the Gas Cost Balancing
Account changed from a surcharge position (to address the then-under-collected balance) to a surcredit in order to refund the over-
collected balance at year end.

CaliforniaGasCostFilings.
adjustments modeled in this fashion provide the timeliest recovery of gas costs in any Southwest jurisdiction.

In California, a monthly gas cost adjustment based on forecasted monthly prices is utilized. Monthly

NevadaARAApplication.
In November 2018, 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
approved effective January 2019. These new rates are intended to collect or refund the outstanding balances over a twelve-month
period.

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 2018/2019 heating season, contracts contained in the fixed-price portion of the supply portfolio ranged from approximately
$2.05 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. Southwest does not currently enter into swaps or fixed-price purchases for its Nevada territories. See
Note 14 – Derivatives.

Pipeline Safety Regulation
Congress passed the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (“the Bill”), effective January 2012, which
increased/strengthened previously existing safety requirements, including damage prevention programs, penalty provisions, and
requirements related to automatic and remote-controlled shut-off valves, public awareness programs, incident notification, and
maximum allowable operating pressure for certain facilities. The Bill required the Department of Transportation to conduct further
study of existing programs and future requirements; these studies are nearing their completion and proposed regulation changes by the
Pipeline and Hazardous Materials Safety Administration (“PHMSA”) are anticipated in 2019.

Southwest 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 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 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 (prior to 2018) and to fortify system integrity and reliability,
notably in association with new gas infrastructure replacement programs as discussed previously. During the same period, the
Company was able to establish long-term cost savings from debt refinancing and strategic debt redemptions. The Company’s

48 | SOUTHWEST GAS HOLDINGS, INC.

capitalization strategy is to maintain an appropriate balance of equity and debt to maintain strong investment-grade credit ratings,
which should minimize interest costs.

CashFlows
The enactment of U.S. tax reform will have an impact on future cash flows. The magnitude of the impact depends on the results of
future regulatory proceedings surrounding the method and timing (which management cannot currently predict) of reflecting net tax
benefits in customer rates. Due to the reduction in the applicable U.S. federal income tax rate from 35% to 21%, deferred tax assets
and liabilities were remeasured. The reduction in plant-related deferred tax differences was reclassified to a regulatory liability. The
period and timing of return are subject to Internal Revenue Code (“IRC”) provisions and regulatory actions in each jurisdiction. See
the Rates and Regulatory Proceedings section, Note 5 – Regulatory Assets and Liabilities, and Note 13 – Income Taxes in the
notes to consolidated financial statements for more information about potential developments regarding this topic.

Southwest Gas Holdings, Inc.:
OperatingCashFlows. Cash flows provided by consolidated operating activities increased $159 million between 2018 and 2017.
Changes in operating cash flows are typically influenced significantly by the change in purchased gas costs, including amounts
incurred and deferred, as well as when amounts are incorporated in customer bills to recover or return the deferred balances. In the
third quarter 2018, as ordered by the FERC, El Paso refunded to Southwest $49 million previously billed to Southwest for
transmission services in association with El Paso’s 2010 rate case. This amount is included in cash flows provided by operating
activities in 2018 and will be refunded to customers in the future.

Investing Cash Flows. Cash used in consolidated investing activities increased $299 million in 2018 as compared to 2017. The
change was primarily due to Centuri’s acquisition of its 80% interest in Linetec (see Note 19 – Business Acquisitions). In addition,
increased construction expenditures in the natural gas operations segment, including scheduled and accelerated replacement activity,
contributed to the increase.

FinancingCashFlows. Net cash provided by consolidated financing activities increased $166 million in 2018 as compared to 2017.
The increase included the issuance of $300 million of senior notes in March 2018 by Southwest. During 2018, $63 million in
payments were made to pay down short-term borrowings under credit facilities; however, in 2017, proceeds from short-term
borrowing collectively by Southwest and the Company in the amount of $215 million were received, in addition to $145 million
under the long-term portion of Southwest’s facility. The prior year also included a payment of $23 million by Southwest Gas
Holdings, Inc. associated with a noncontrolling interest in Centuri previously held by other parties, and repayment of $25 million in
medium-term notes by Southwest. The current period reflects net proceeds from the issuance by the Company of approximately
$84 million under its Equity Shelf Program ($41 million in 2017) and $260 million during 2018 in common stock in an underwritten
public offering (primarily to facilitate the Linetec acquisition at Centuri). Refer to Note 7 – Common Stock. Dividends paid
increased in 2018 as compared to 2017 as a result of an increase in the quarterly dividend rate and an increase in the number of shares
outstanding.

During 2018, the Company issued approximately 143,000 shares of common stock through the Dividend Reinvestment and Stock
Purchase Plan (“DRSPP”), raising approximately $10.6 million.

Southwest Gas Corporation:
OperatingCashFlows. Cash flows provided by operating activities increased $73 million between 2018 and 2017. The increase in
operating cash flows was primarily attributable to the change in deferred purchased gas costs as discussed above, offset by other
working capital changes such as the timing and sum of amounts related to Accounts receivable and associated net impacts of surcharge

SOUTHWEST GAS HOLDINGS, INC.

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and surcredit activity associated with regulatory programs, which impact cash flows but not net income. Refer to Results of Natural
Gas Operations and Rates and Regulatory Proceedings.

Investing Cash Flows. Cash used in investing activities increased $112 million in 2018 as compared to 2017. The change was
primarily due to increases in construction expenditures, as indicated above.

FinancingCashFlows. Net cash provided by financing activities increased $14 million in 2018 as compared to 2017. The increase
was primarily due to the issuance of $300 million in senior notes in March 2018 and higher capital contributions from Southwest Gas
Holdings, Inc., offset by repayment of amounts outstanding under the short-term portion of Southwest’s credit facility. The prior
period included $145 million in proceeds from borrowings under the long-term portion, and $191 million in borrowings under the
short-term portion, of the Southwest credit facility and repayment of $25 million in medium-term notes.

The capital requirements and resources of the Company generally are determined independently for the natural gas operations and
utility infrastructure services segments. Each business activity is generally responsible for securing its own financing sources. However,
the holding company may raise funds through stock issuance or other external financing sources in support of each business segment,
as discussed above and in Note 7 – Common Stock.

2018ConstructionExpenditures
During the three-year period ended December 31, 2018, total gas plant in service increased from $5.9 billion to $7.1 billion, or at an
average annual rate of 7%. 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 90,000 meters during the three-year period.

During 2018, construction expenditures for the natural gas operations segment were $683 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 $383 million and provided
approximately 50% of construction expenditures and dividend requirements of the natural gas operations segment. Other necessary
funding was provided by cash on hand, external financing activities, capital contributed by Southwest Gas Holdings, Inc., and, as
needed, existing credit facilities.

2018FinancingActivity
Net proceeds under the Equity Shelf Program for 2018 were $84 million, comprised of an aggregate of 1,145,705 shares of Southwest
Gas Holdings, Inc. common stock sold in the open market at a weighted average price of $74.32 per share, net of $851,500 in agent
commissions. These net proceeds were contributed to Southwest by the holding company. As of December 31, 2018, the Company
had up to $23 million of common stock available for sale under the program. See Note 7 – Common Stock for more information.

In November 2018, the Company sold an aggregate of 3,565,000 shares of common stock in an underwritten public offering under its
effective universal shelf registration statement, at $75.50 per share, resulting in proceeds to the Company of $260 million, net of
$9 million underwriters’ discount. The Company used the net proceeds from the offering to fund a portion of the purchase price of
Linetec, to repay part of the Company’s credit facility, and used the remaining amounts for general corporate purposes. Refer to Note
19 – Business Acquisitions regarding the acquisition of Linetec, and Note 9 – Short-Term Debt for information on the Company’s
credit facility.

Three-YearConstructionExpenditures,DebtMaturities,andFinancing
Management estimates natural gas segment construction expenditures during the three-year period ending December 31, 2021 will be
approximately $2.1 billion. Of this amount, approximately $710 million is expected to be incurred in 2019. Southwest plans to

50 | SOUTHWEST GAS HOLDINGS, INC.

continue to request regulatory support to accelerate projects that improve system flexibility and reliability (including replacement of
early vintage plastic and steel pipe). This includes the recent approval to complete accelerated replacement projects in Nevada of
$35.3 million in 2019. Southwest may expand existing, or initiate new, programs. 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 45% to 50% of the funding for gas operations total construction expenditures and dividend requirements. Any
additional cash requirements are expected to be provided by existing credit facilities, equity contributions from the Company, 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, timing differences
remaining between U.S. federal taxes currently embedded in customer rates and amounts implemented under tax reform, as well as
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.

Liquidity
Liquidity refers to the ability of an enterprise to generate sufficient amounts of cash through its operating activities and external
financing to meet its cash requirements. Several general factors (some of which are out of the control of the Company) that could
significantly affect liquidity in future years include: variability of natural gas prices, changes in the ratemaking policies of regulatory
commissions, regulatory lag, customer growth in the natural gas segment’s service territories, the ability to access and obtain capital
from external sources, interest rates, changes in income tax laws, pension funding requirements, inflation, and the level of earnings.
Natural gas prices and related gas cost recovery rates, as well as plant investment, have historically had the most significant impact on
liquidity.

On an interim basis, Southwest defers over- or under-collections of gas costs to PGA balancing accounts. In addition, Southwest uses
this mechanism to either refund amounts over-collected or recoup amounts under-collected as compared to the price paid for natural
gas during the period since the last PGA rate change went into effect. During 2018, the combined balance in the PGA accounts
totaled an over-collection of $74.8 million. See PGA Filings for more information.

In March 2017, the Company entered into a credit facility with a borrowing capacity of $100 million that expires in March 2022. The
Company utilizes this facility for short-term financing needs. The maximum amount outstanding during 2018 occurred during the
first quarter and was $23.5 million. At December 31, 2018, no borrowings were outstanding on this facility. The maximum amount
outstanding on the credit facility during each of the second, third, and fourth quarters was $22.5 million.

Southwest has a $400 million credit and commercial paper facility which expires in March 2022. Southwest designates $150 million
of the $400 million facility for long-term borrowing needs and the remaining $250 million for working capital purposes. The
maximum amount outstanding during 2018 occurred during the first quarter and was $378 million ($150 million outstanding on the
long-term portion of the credit facility, including $50 million on the commercial paper program, in addition to $228 million
outstanding on the short-term portion). At December 31, 2018, $150 million was outstanding on the long-term portion of the credit
facility ($50 million of which was in commercial paper), and $152 million was outstanding on the short-term portion. The maximum
amount outstanding on the long-term portion of the credit facility (including the commercial paper program) during each of the
second, third, and fourth quarters was $72 million, $159 million, and $302 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, 2018, the credit facility was deemed adequate
for working capital needs outside of funds raised through operations and other types of external financing.

SOUTHWEST GAS HOLDINGS, INC.

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In March 2018, Southwest issued $300 million in 3.70% senior notes at a discount of 0.185%. The notes will mature in March 2028.
The net proceeds were used to temporarily pay down, in full, the amount outstanding under the revolving portion of the credit facility
and the remainder was used to repay amounts outstanding under the commercial paper program under the credit facility.

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, 2018, $50 million was outstanding on the commercial paper program. There
were no long-term debt maturities in 2018.

In November 2018, in association with the acquisition of Linetec (refer to Note 19 – Business Acquisitions), Centuri amended its
secured revolving credit and term loan facility, increasing the borrowing capacity from $450 million to $590 million. The line of
credit portion of the facility increased to $325 million; amounts borrowed and repaid under the revolving credit facility are available
to be re-borrowed. The term loan facility portion has a limit of $265 million, which was reached in November 2018 after refinancing
of the existing term loan noted above and additional borrowing that occurred under the amended facility. No further borrowing is
permitted under the term loan facility. The $590 million secured revolving credit and term loan facility expires in November 2023. At
December 31, 2018, $256 million was outstanding (after repayments) on the term facility. The maximum amount outstanding on the
credit facility during 2018 was $294 million, which occurred in the third quarter, at which point $191 million was outstanding on the
term loan facility. As of December 31, 2018, there was no balance outstanding and approximately $306 million, net of outstanding
letters of credit, was available to be borrowed on the Centuri secured revolving credit facility.

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 (Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor’s Ratings
Services (“Standard & Poor’s”), and Fitch Ratings (“Fitch”)) 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.

Southwest Gas Holdings, Inc.:
Issuer rating
Outlook
Last reaffirmed
Southwest Gas Corporation:
Senior unsecured long-term debt
Outlook
Last reaffirmed

Moody’s (1)

Standard & Poor’s (2)

Fitch (3)

Baa1
Stable
January 2019

BBB+
Negative
November 2018

BBB+
Stable
November 2018

A3
Stable
January 2019

BBB+
Negative
November 2018

A
Stable
November 2018

(1) 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.

(2) Standard & Poor’s (“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’

52 | SOUTHWEST GAS HOLDINGS, INC.

may be modified by the addition of a plus “+” or minus “-” sign to show relative standing within the major rating categories. The S&P outlook

of “negative” was updated in November 2018 in consideration of an assumed cash flow impact from U.S. tax reform and growth in the utility

infrastructure services segment.

(3) 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.

None of Southwest’s debt instruments have credit triggers or other clauses that result in default if these bond ratings are lowered by
rating agencies. Interest and fees on certain debt instruments are subject to adjustment depending on Southwest’s bond ratings.
Certain debt instruments are subject to a leverage ratio cap and the 6.1% note due 2041 is also subject to a minimum net worth
requirement. At December 31, 2018, Southwest was in compliance with all of its covenants. Under the most restrictive of the
financial covenants, approximately $2.1 billion in additional debt could be issued and the leverage ratio requirement would still be
met. At least $1.2 billion of cushion in equity relating to the minimum net worth requirement exists at December 31, 2018. No
specific limitations as to dividends exist under the collective covenants. None of the debt instruments contain material adverse change
clauses.

At December 31, 2018, Southwest Gas Holdings, Inc. was also in compliance with all of its credit facility covenants. Interest and fees
on the credit facility are subject to adjustment depending on its bond ratings. The credit facility is subject to a leverage ratio cap. No
specific limitations as to dividends exist under the collective covenants. The credit facility does not contain a material adverse change
clause.

Certain Centuri debt instruments have leverage ratio caps and fixed charge ratio coverage requirements. At December 31, 2018,
Centuri was in compliance with all of its covenants. Under the most restrictive of the covenants, Centuri could issue over
$101 million in additional debt and meet the leverage ratio requirement. Centuri has at least $78 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 utility infrastructure services segment. Centuri also has restrictions on how much it could give to the Company in cash dividends,
which is limited to 60% of Centuri’s consolidated net income.

BonusDepreciation
In 2017, with the enactment of U.S. tax reform, the bonus depreciation deduction percentage changed from 50% to 100% for
“qualified property” placed in service after September 27, 2017 and before 2023. The bonus depreciation tax deduction phases out
starting in 2023, by 20% for each of the five following years. Qualified property excludes public utility property; however, in August
2018 the Treasury Department and Internal Revenue Service issued proposed regulations clarifying the appropriate calculation of
certain 2017 bonus depreciation. The Company estimates bonus depreciation will defer the payment of approximately $21 million
(none of which relates to utility operations) of federal income taxes for 2019.

Inflation
Inflation can impact results of operations for Southwest and Centuri. Labor, employee benefits, natural gas, professional services, 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, employee benefits and professional services are

SOUTHWEST GAS HOLDINGS, INC.

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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 on 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, 2018 (millions of dollars):

Contractual Obligations

Operating leases
Gas purchase obligations
Pipeline capacity/storage
Derivatives
Other commitments
Long-term debt, including current maturities
Interest on long-term debt

Total

Payments due by period

Total

2019

2020-2021

2022-2023 Thereafter

45
128
642
3
24
2,140
1,140

$ 11
89
100
3
13
33
85

$4,122

$334

$ 14
35
149
—
11
197
160

$566

$ 9
1
107
—
—
639
130

$886

11
3
286
—
—
1,271
765

$2,336

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 236 million dekatherms. The fixed-price contracts
range in price from approximately $2.05 to approximately $4.15 per dekatherm. Variable-price contracts reflect minimum contractual
obligations, with estimation in pricing. Excluded from the table is $75.6 million of purchase consideration related to the Linetec
acquisition in the form of liabilities incurred that remained unpaid as of December 31, 2018. See Note 19 – Business Acquisitions.

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 Arizona and
southern California. The terms of these contracts extend through 2019 and 2024, respectively.

Debt obligations in the table above consist of scheduled principal and interest payments over the life of the debt. Interest rates in
effect at December 31, 2018 on variable rate long-term debt were assumed to remain in effect in the future periods disclosed in the
table. In the table above, interest on long-term debt includes future interest payments of $1.09 billion for Southwest and $48 million
for Centuri.

Pension: Estimated funding for pension and other postretirement benefits during calendar year 2019 is $55 million and is not
included in the table above.

54 | SOUTHWEST GAS HOLDINGS, INC.

Recently Issued Accounting Standards Updates
The FASB recently issued Accounting Standards Updates related to revenue recognition,
leases, net periodic benefit cost,
measurement of credit losses, reclassification of certain tax effects from Accumulated Other Comprehensive Income, accounting for
implementation costs in a cloud computing arrangement, disclosure requirements for defined benefit plans and fair value
measurement, and simplifying the test for goodwill impairment. See Note 1 – Background, Organization, and 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.

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 – Background, Organization, and Summary of Significant Accounting Policies.

RegulatoryAccounting
Natural gas operations are subject to the regulation of the ACC, the PUCN, the CPUC, and the FERC. The accounting policies of
the Company and Southwest conform to U.S. GAAP applicable to rate-regulated entities and reflect the effects of the ratemaking
process. As such, the Company and Southwest are allowed to defer, as regulatory assets, costs that otherwise would be expensed, if it is
probable that future recovery from customers will occur. Companies are also permitted to recognize, as regulatory assets, amounts
associated with various revenue decoupling mechanisms, as long as the requirements of alternative revenue programs permitted under
U.S. GAAP continue to be met. 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, write-off of the related
regulatory asset (which would be recognized as current-period expense) is required. 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 5 –
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, 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
The Company is subject to income taxes in the U.S. and Canada. Income tax calculations require estimates due to known future tax
rate changes, book to tax differences, and uncertainty with respect to regulatory treatment of certain property items. The asset and

SOUTHWEST GAS HOLDINGS, INC.

| 55

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.
With the enactment of U.S. tax reform, management undertook processes to remeasure these balances. 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. Refer to Note 1 –
Background, Organization, and Summary of Significant Accounting Policies, Note 5 – Regulatory Assets and Liabilities, and
Note 13 – Income Taxes.

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 $40.9 million and future pension expense by $4.0 million. A change of 0.25% in the
employee compensation assumption would change the pension obligation by approximately $7.6 million and expense by $1.6 million.
A 0.25% change in the expected asset return assumption would change pension expense by approximately $2.2 million (but has no
impact on the pension obligation).

At December 31, 2018, the discount rate is 4.50%, increased from the 3.75% rate used at December 31, 2017. 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 2019 expense is consistent with the rate used for 2018. Pension costs
for 2019 are estimated to decrease approximately $9.1 million as compared to that experienced in 2018. Future years’ expense level
movements (up or down) will continue to be greatly influenced by long-term interest rates, asset returns, and funding levels.

Goodwill
Goodwill is assessed for impairment annually as of October, or more frequently, if events or changes in circumstances indicate an
impairment may have occurred before that time. As permitted under accounting guidance on testing goodwill for impairment, we
perform either a qualitative assessment or a quantitative assessment of each of our reporting units based on management’s judgment.
Adjustment of values would only occur if conditions of impairment were deemed to be permanent. With respect to our qualitative
industry and market
assessments, we consider events and circumstances specific to us, such as macroeconomic conditions,
considerations, cost factors, and overall financial performance, when evaluating whether it is more likely than not that the fair values
of our reporting units are less than their respective carrying amounts. The assumptions we use in our analysis are subject to
uncertainty, and declines in the future performance of our reporting units and changing business conditions could result in the
recognition of impairment charges, which could be significant. The Company’s reporting units are the same as its segments (natural
gas operations and utility infrastructure services) for purposes of impairment evaluation. Almost all of the goodwill on the Company’s
consolidated balance sheet pertains to our utility infrastructure services segment.

56 | SOUTHWEST GAS HOLDINGS, INC.

BusinessCombinations
In accordance with U.S. GAAP, the assets acquired and liabilities assumed in an acquired business are recorded at their estimated fair
values on the date of acquisition. The amount of goodwill initially recognized in a business combination is based on the excess of the
purchase price of the acquired company over the fair value of the other assets acquired and liabilities assumed. The determination of
these fair values requires management to make significant estimates and assumptions. For example, assumptions with respect to the
timing and amount of future revenues and expenses associated with an asset are used to determine its fair value but the actual timing
and amount may differ materially resulting in impairment of the asset’s recorded value. In some cases, the Company engages
independent third-party valuation firms to assist in determining the fair values of acquired assets and liabilities assumed. Critical
estimates in valuing certain intangible assets include but are not limited to future expected cash flows of the acquired business,
trademarks, customer relationships, technology obsolescence, and discount rates. In addition, uncertain tax positions and tax-related
valuation allowances assumed in connection with a business combination are initially estimated at the acquisition date. These items
are reevaluated quarterly, based upon facts and circumstances that existed at the acquisition date with any adjustments to the
preliminary estimates being recorded to goodwill, provided that the Company is within the twelve-month measurement period
allowed by authoritative guidance. Subsequent to the measurement period or the final determination of the estimated value of the tax
allowance or contingency, whichever comes first, changes to these uncertain tax positions and tax-related valuation allowances will
affect the provision for income taxes in the Consolidated Statements of Income, and could have a material impact on the Company’s
results of operations and financial position. Goodwill is evaluated for impairment no less frequently than annually. The fair value
assigned to the intangible assets acquired and liabilities assumed, and the determination of goodwill associated with the current
acquisition, are described in Note 19 – Business Acquisitions.

Certifications
The 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, 2018 are included as exhibits to the 2018
Annual Report on Form 10-K filed with the SEC.

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, the Company’s COLI strategy, replacement market and new
construction market, expectations for acquired businesses of the utility infrastructure services segment to be accretive to earnings
during the first year following acquisition, expected impacts of valuation adjustments associated with the redeemable noncontrolling
interest of Linetec, the impacts of U.S. tax reform including disposition in regulatory proceedings and bonus depreciation tax
deductions, the impact of recent PHMSA rulemaking, the amounts and timing for completion of estimated future construction
expenditures, including the LNG facility in southern Arizona and the final cost of the Paiute 2018 expansion project in northern
Nevada and northern California, forecasted operating cash flows and results of operations, net earnings impacts from gas
infrastructure replacement surcharges, funding sources of cash requirements, amounts generally expected to be reflected in 2018 or
future period revenues from regulatory rate proceedings including amounts resulting from the settled Arizona rate case and the
Nevada rate case including any administrative strategies related thereto, rates and surcharges, PGA, and other rate adjustments,
sufficiency of working capital and current credit facilities, bank lending practices, the Company’s views regarding its liquidity

SOUTHWEST GAS HOLDINGS, INC.

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position, ability to raise funds and receive external financing capacity and the intent and ability to issue common stock under the
Equity Shelf Program and under our universal shelf registration statement, the intent and ability to issue various financing
instruments and stock under the December 2017 shelf registration statement, future dividend increases and the Board’s current target
dividend payout ratio, pension and post-retirement benefits, certain impacts of tax acts, the effect of any rate changes or regulatory
proceedings, contract or construction change order negotiations, impacts of accounting standard updates, 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, and the timing and results of future rate hearings and
approvals are forward-looking statements. All forward-looking statements are intended to be subject to the safe harbor protection
provided by the Reform Act.

A number of important factors affecting the business and financial results of the Company could cause actual results to differ materially
from those stated in the forward-looking statements. These factors include, but are not limited to, customer growth rates, conditions in
the housing market, the ability to recover costs through the PGA mechanisms or other regulatory assets, the effects of regulation/
deregulation, governmental or regulatory policy regarding natural gas or alternative energy, the timing and amount of rate relief, the
timing and methods determined by regulators to refund amounts to customers resulting from U.S. tax reform, 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 and regulatory
treatment related thereto, future liability claims, changes in pipeline capacity for the transportation of gas and related costs, results of
Centuri bid work, Centuri’s projections about the acquired business’ earnings (including accretion within the first twelve months) and
future acquisition-related costs, impacts of changes in value of the redeemable noncontrolling interest if at other than fair value,
resolution of events subject to cash consideration held back associated with representations, warranties, and other estimates including
working capital adjustments related to the Linetec acquisition, Centuri utility infrastructure expenses, differences between actual and
originally expected outcomes of Centuri bid or other fixed-price construction agreements, outcomes from contract and change order
negotiations, ability to successfully procure new work, impacts from work awarded or failing to be awarded from significant customers,
the mix of work awarded, the amount of work awarded to Centuri following the lifting of work stoppages, acquisitions, and
management’s plans related thereto, competition, our ability to raise capital in external financings, our ability to continue to remain
within the ratios and other limits subject to our debt covenants, and ongoing evaluations in regard to goodwill and other intangible assets.
In addition, the Company can provide no assurance that its discussions regarding certain trends relating to its financing, revenues, and
operating expenses will continue in future periods. For additional information on the risks associated with the Company’s and
Southwest’s businesses, see Item 1A. Risk Factors and Item 7A. Quantitative and Qualitative Disclosures About Market Risk in this
Annual Report on Form 10-K for the year ended December 31, 2018.

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

The principal market on which the common stock of the Company is traded is the New York Stock Exchange and the ticker symbol
of the stock is “SWX.” At February 15, 2019, there were 12,497 holders of record of common stock, and the market price of the
common stock was $80.63.

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

58 | SOUTHWEST GAS HOLDINGS, INC.

expected external funding needs, our payout ratio, and our ability to maintain strong credit ratings and liquidity. The quarterly
common stock dividend declared was 45 cents per share throughout 2016, 49.5 cents per share throughout 2017, and 52 cents per
share throughout 2018. The Company has paid dividends on its common stock since 1956 and has increased that dividend each year
since 2007. In February 2019, the Board elected to increase the quarterly dividend from $0.52 to $0.545 per share, representing a
4.8% increase, effective with the June 2019 payment. The Board currently targets a payout ratio of 55% to 65% of consolidated
earnings per share.

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60 | SOUTHWEST GAS HOLDINGS, INC.

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

December 31,

ASSETS
Utility plant:
Gas plant
Less: accumulated depreciation
Construction work in progress

Net utility plant

Other property and investments

Current assets:

Cash and cash equivalents
Accounts receivable, net of allowances
Accrued utility revenue
Income taxes receivable, net
Deferred purchased gas costs
Prepaid and other current assets

Total current assets

Noncurrent assets:

Goodwill
Deferred income taxes
Deferred charges and other assets

Total noncurrent assets

Total assets

2018

2017

$ 7,134,239
(2,234,029)
193,028

$ 6,629,644
(2,231,242)
125,248

5,093,238

4,523,650

623,551

428,180

85,361
413,926
77,200
14,653
4,928
243,701

839,769

359,045
1,264
440,862

801,171

43,622
347,375
78,200
7,960
14,581
165,294

657,032

179,314
1,480
447,410

628,204

$ 7,357,729

$ 6,237,066

SOUTHWEST GAS HOLDINGS, INC.

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December 31,

CAPITALIZATION AND LIABILITIES

Capitalization:

Common stock, $1 par (authorized – 60,000,000 shares; issued and outstanding – 53,026,848 and

48,090,470 shares)
Additional paid-in capital
Accumulated other comprehensive income (loss), net
Retained earnings

Total Southwest Gas Holdings, Inc. equity

Noncontrolling interest

Total equity

Redeemable noncontrolling interest
Long-term debt, less current maturities

Total capitalization

Commitments and contingencies (Note 10)
Current liabilities:

Current maturities of long-term debt
Short-term debt
Accounts payable
Customer deposits
Income taxes payable, net
Accrued general taxes
Accrued interest
Deferred purchased gas costs
Other current liabilities

Total current liabilities

Deferred income taxes and other credits:

Deferred income taxes and investment tax credits, net
Accumulated removal costs
Other deferred credits and other long-term liabilities

Total deferred income taxes and other credits

Total capitalization and liabilities

The accompanying notes are an integral part of these statements.

2018

2017

$
54,656
1,305,769
(52,668)
944,285

49,720
955,332
(47,682)
857,398

2,252,042
(452)

1,814,768
(2,365)

2,251,590
81,831
2,107,258

1,812,403

—

1,798,576

4,440,679

3,610,979

33,060
152,000
248,993
67,940
1,083
43,560
21,369
79,762
290,878

25,346
214,500
228,315
69,781
5,946
43,879
17,870
6,841
203,403

938,645

815,881

529,201
383,000
1,066,204

476,960
315,000
1,018,246

1,978,405

1,810,206

$7,357,729

$6,237,066

62 | SOUTHWEST GAS HOLDINGS, INC.

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

Year Ended December 31,

Operating revenues:

Gas operating revenues
Utility infrastructure services revenues

Total operating revenues

Operating expenses:

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

Total operating expenses

Operating income

Other income and (expenses):
Net interest deductions
Other income (deductions)

Total other income and (expenses)

Income before income taxes
Income tax expense

Net income

Net income (loss) attributable to noncontrolling interests

2018

2017

2016

$1,357,728
1,522,285

$1,302,308
1,246,484

$1,321,412
1,139,078

2,880,013

2,548,792

2,460,490

419,388
406,393
249,212
59,898
1,387,689

355,045
392,763
250,951
57,946
1,148,963

397,121
381,964
289,132
52,376
1,024,423

2,522,580

2,205,668

2,145,016

357,433

343,124

315,474

(96,671)
(17,426)

(78,064)
(6,030)

(73,660)
(10,291)

(114,097)

(84,094)

(83,951)

243,336
61,684

181,652
(625)

259,030
65,088

193,942
101

231,523
78,468

153,055
1,014

Net income attributable to Southwest Gas Holdings, Inc.

$ 182,277

$ 193,841

$ 152,041

Basic earnings per share

Diluted earnings per share

Average number of common shares
Average shares (assuming dilution)

3.69

3.68

4.04

49,419
49,476

47,965
47,991

3.20

3.18

47,469
47,814

The accompanying notes are an integral part of these statements.

SOUTHWEST GAS HOLDINGS, INC.

| 63

SOUTHWEST GAS HOLDINGS, INC. 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:
Net actuarial gain (loss)
Amortization of prior service cost
Amortization of net actuarial loss
Regulatory adjustment

Net defined benefit pension plans

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

Amounts reclassified into net income

Net forward-starting interest rate swaps

Foreign currency translation adjustments

Total other comprehensive income, net of tax

Comprehensive income

Comprehensive income (loss) attributable to noncontrolling interests

Comprehensive income attributable to Southwest Gas Holdings, Inc.

The accompanying notes are an integral part of these statements.

2018

2017

2016

$181,652

$193,942

$153,055

(15,524)
1,015
25,549
(6,257)

(32,701)
828
15,776
12,590

(14,118)
828
16,781
(3,462)

4,783

(3,507)

2,541

(3,010)

4,314

2,073

1,771

337

2,075

161

2,265

185,966
(625)

194,279
112

155,320
1,019

$186,591

$194,167

$154,301

64 | SOUTHWEST GAS HOLDINGS, INC.

SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)

Year Ended December 31,

2018

2017

2016

CASH FLOW FROM OPERATING ACTIVITIES:

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

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

Net cash provided by operating activities

$181,652

$193,942

$153,055

249,212
51,041

250,951
63,389

289,132
68,732

(15,862)
1,000
82,574
11,778
(11,955)
(54,073)
(1,703)
6,111
(3,627)
(5,738)
38,446

(40,947)
(2,000)
(95,608)
19,961
2,112
(8,203)
(4,196)
10,888
(2,296)
(22,269)
4,231

30,096
(1,500)
45,858
21,695
26,340
(27,432)
(7,148)
5,456
(2,289)
16,960
(18,447)

528,856

369,955

600,508

Year Ended December 31,

CASH FLOW FROM INVESTING ACTIVITIES:
Construction expenditures and property additions
Acquisition of businesses, net of cash acquired
Changes in customer advances
Miscellaneous inflows

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
Redemption of Centuri shares from noncontrolling parties
Withholding remittance – share-based compensation
Other

Net cash provided by (used in) financing activities

Effects of currency translation on cash and cash equivalents

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

Cash and cash equivalents at end of period

Supplemental information:
Interest paid, net of amounts capitalized

Income taxes paid (received)

SOUTHWEST GAS HOLDINGS, INC.

| 65

2018

2017

2016

(765,914)
(251,373)
13,463
4,341

(623,649)
(94,204)
323
16,645

(529,531)
(17,000)
7,900
13,039

(999,483)

(700,885)

(525,592)

354,402
(100,240)
—
565,172
(237,758)

41,155
(92,130)
(204)
407,063
(338,969)
— 145,000
214,500
(980)
(23,000)
(3,176)
(3,074)

(62,500)
(648)
—
(3,110)
(2,744)

472
(83,317)
(439)
423,946
(255,273)
(145,000)
(18,000)
(1,354)
—
(2,119)
(1,569)

512,574

346,185

(82,653)

(208)

301

(194)

41,739
43,622

15,556
28,066

(7,931)
35,997

$ 85,361

$ 43,622

$ 28,066

$ 86,562

$ 71,943

$ 67,440

1,221

5,673

$ (19,032)

The accompanying notes are an integral part of these statements.

66 | SOUTHWEST GAS HOLDINGS, INC.

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

Southwest Gas Holdings, Inc. 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, 2015

47,377 $ 49,007 $ 896,448

$ (50,268)

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

$ 16,108

Common stock issuances

105

6,675

Net income (loss)

Redemption value adjustments

Foreign currency exchange

translation adjustment

Net actuarial gain (loss) arising

during the period, less

amortization of unamortized

benefit plan cost, net of tax

FSIRS amounts reclassified to net

income, net of tax

Centuri distribution to redeemable

noncontrolling interest

Dividends declared

Common: $1.80 per share

156

2,075

152,041

(134)

(5,768)

6,780

151,907

(5,768)

1,148

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

Common stock issuances

608

52,209

Net income (loss)

Redemption value adjustments

Foreign currency exchange

translation adjustment

Redemption of Centuri shares from

noncontrolling parties

Net actuarial gain (loss) arising

during the period, less

amortization of unamortized

benefit plan cost, net of tax

FSIRS amounts reclassified to net

income, net of tax

Centuri distribution to redeemable

noncontrolling interest

193,841

(148)

(355)

1,760

(3,507)

2,073

52,817

193,693

(355)

1,760

(3,507)

2,073

248

355

(23,000)

(204)

SOUTHWEST GAS HOLDINGS, INC.

| 67

Southwest Gas Holdings, Inc. 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)

Dividends declared

Common: $1.98 per share

(95,351)

December 31, 2017

48,090 49,720

955,332

(47,682)

857,398

(2,365)

1,812,403

—

Common stock issuances

4,936

353,147

358,083

Redeemable noncontrolling interest

attributable to acquisition (a)

Net income (loss)

Foreign currency exchange translation

adjustment

Net actuarial gain (loss) arising during the

period, less amortization of unamortized

benefit plan cost, net of tax

FSIRS amounts reclassified to net income, net

of tax

Reclassification of excess deferred taxes (b)

Change in ownership of noncontrolling interest

(c)

Dividends declared

Common: $2.08 per share

182,277

(797)

181,480

81,659

172

(3,010)

4,783

2,541

(9,300)

9,300

(2,710)

2,710

(3,010)

4,783

2,541

—

(104,690)

December 31, 2018

53,026 $54,656 $1,305,769

$(52,668)

$ 944,285 $ (452) $2,251,590

$81,831

(a) The Company, through its subsidiary, Centuri, completed the acquisition of a privately held utility infrastructure services business. Refer to

Note 19 – Business Acquisitions.

(b) Release of excess deferred taxes accumulated prior to December 22, 2017 (date of enactment of the TCJA), as a result of the adoption of ASU

2018-02, which permitted such release. See Note 1 – Background, Organization, and Summary of Significant Accounting Policies.

(c) Centuri, through its subsidiary, NPL, had historically held a 65% ownership interest in Intellichoice Energy, LLC (“ICE”). A residual interest

of 35% has been held by a third party. During the second quarter of 2018, an additional $1 million of capital was contributed by NPL, thereby

increasing NPL’s ownership interest to 95%. The carrying amount of the noncontrolling interest has been adjusted with a corresponding

charge to Additional paid-in capital on the Company’s Consolidated Balance Sheet.

The accompanying notes are an integral part of these statements.

68 | SOUTHWEST GAS HOLDINGS, INC.

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)

December 31,

ASSETS
Utility plant:
Gas plant
Less: accumulated depreciation
Construction work in progress

Net utility plant

Other property and investments

Current assets:

Cash and cash equivalents
Accounts receivable, net of allowances
Accrued utility revenue
Income taxes receivable, net
Deferred purchased gas costs
Prepaid and other current assets

Total current assets

Noncurrent assets:
Goodwill
Deferred charges and other assets

Total noncurrent assets

Total assets

2018

2017

$ 7,134,239
(2,234,029)
193,028

$ 6,629,644
(2,231,242)
125,248

5,093,238

4,523,650

116,146

119,114

31,962
140,057
77,200
13,444
4,928
229,562

497,153

10,095
424,952

435,047

37,946
119,748
78,200
—
14,581
153,771

404,246

10,095
425,564

435,659

$ 6,141,584

$ 5,482,669

December 31,

2018

2017

SOUTHWEST GAS HOLDINGS, INC.

| 69

CAPITALIZATION AND LIABILITIES

Capitalization:
Common stock
Additional paid-in capital
Accumulated other comprehensive income (loss), net
Retained earnings

Total equity

Long-term debt, less current maturities

Total capitalization

Commitments and contingencies (Note 10)
Current liabilities:
Short-term debt
Accounts payable
Customer deposits
Income taxes payable, net
Accrued general taxes
Accrued interest
Deferred purchased gas costs
Payable to parent
Other current liabilities

Total current liabilities

Deferred income taxes and other credits:
Deferred income taxes and investment tax credits, net
Accumulated removal costs
Other deferred credits and other long-term liabilities

Total deferred income taxes and other credits

Total capitalization and liabilities

The accompanying notes are an integral part of these statements.

$
49,112
1,065,242
(49,049)
717,155

49,112
948,767
(47,073)
659,193

1,782,460
1,818,669

1,609,999
1,521,031

3,601,129

3,131,030

152,000
184,982
67,940
—
43,560
20,243
79,762
472
94,136

191,000
158,474
69,781
4,971
43,879
17,171
6,841
194
108,785

643,095

601,096

490,458
383,000
1,023,902

445,243
315,000
990,300

1,897,360

1,750,543

$6,141,584

$5,482,669

70 | SOUTHWEST GAS HOLDINGS, INC.

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)

Year Ended December 31,

Continuing operations:
Gas operating revenues

Operating expenses:

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

Total operating expenses

Operating income

Other income and (expenses):
Net interest deductions
Other income (deductions)

Total other income and (expenses)

Income from continuing operations before income taxes
Income tax expense

Net income from continuing operations

Discontinued operations – utility infrastructure services:

Income before income taxes
Income tax expense

Income
Noncontrolling interests

Income – discontinued operations

Net income

2018

2017

2016

$1,357,728

$1,302,308

$1,321,412

419,388
404,813
191,816
59,898

355,045
391,321
201,922
57,946

397,121
381,964
233,463
52,376

1,075,915

1,006,234

1,064,924

281,813

296,074

256,488

(81,740)
(17,240)

(69,733)
(6,388)

(66,997)
(11,484)

(98,980)

(76,121)

(78,481)

182,833
43,991

219,953
63,135

178,007
58,584

138,842

156,818

119,423

—
—

—

—
—

—

53,516
19,884

33,632
1,014

32,618

$ 138,842

$ 156,818

$ 152,041

The accompanying notes are an integral part of these statements.

SOUTHWEST GAS HOLDINGS, INC.

| 71

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

Year Ended December 31,

Continuing operations:
Net Income from continuing operations

Other comprehensive income (loss), net of tax

Defined benefit pension plans:
Net actuarial gain (loss)
Amortization of prior service cost
Amortization of net actuarial loss
Regulatory adjustment

Net defined benefit pension plans

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

Amounts reclassified into net income

Net forward-starting interest rate swaps

Total other comprehensive income (loss), net of tax from continuing

operations

Comprehensive income from continuing operations

Discontinued operations – utility infrastructure services:

Net income
Foreign currency translation adjustments

Comprehensive income
Comprehensive income attributable to noncontrolling interests

Comprehensive income attributable to discontinued operations –

utility infrastructure services

Comprehensive income

2018

2017

2016

$138,842

$156,818

$119,423

(15,524)
1,015
25,549
(6,257)

(32,701)
828
15,776
12,590

(14,118)
828
16,781
(3,462)

4,783

(3,507)

2,541

2,073

2,075

7,324

(1,434)

2,104

146,166

155,384

121,527

—
—

—

—
—

32,618
161

32,779
5

—

32,774

$146,166

$155,384

$154,301

The accompanying notes are an integral part of these statements.

72 | SOUTHWEST GAS HOLDINGS, INC.

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

CASH FLOW FROM OPERATING ACTIVITIES:

Net Income
Income from discontinued operations

Income from continuing operations
Adjustments to reconcile net income to net cash provided by operating

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

Net cash provided by operating activities

CASH FLOW FROM INVESTING ACTIVITIES:
Construction expenditures and property additions
Changes in customer advances
Miscellaneous inflows
Dividends received

Net cash used in investing activities

2018

2017

2016

$ 138,842
—

$ 156,818
—

$ 153,055
33,632

138,842

156,818

119,423

191,816
42,999

201,922
67,169

233,463
67,959

(20,309)
1,000
82,574
23,408
(18,732)
(91,444)
5,355
(3,627)
(7,049)
37,669

(7,902)
(2,000)
(95,608)
4,545
10,383
(13,726)
9,288
(2,296)
(22,918)
3,541

40,731
(1,500)
45,858
16,183
19,391
(33,496)
5,456
(2,289)
16,611
(18,447)

382,502

309,216

509,343

(682,869)
13,463
14
—

(560,448)
323
2,741
—

(457,119)
7,900
2,982
12,461

(669,392)

(557,384)

(433,776)

SOUTHWEST GAS HOLDINGS, INC.

| 73

2018

2017

2016

CASH FLOW FROM FINANCING ACTIVITIES:

Issuance of common stock, net
Contributions from parent
Dividends paid
Issuance of long-term debt, net
Retirement of long-term debt
Change in credit facility and commercial paper
Change in short-term debt
Withholding remittance – share-based compensation
Other

—
113,549
(87,000)
297,495
—
—
(39,000)
(3,110)
(1,028)

—
41,359
(81,497)
—
(25,000)
145,000
191,000
(3,176)
(596)

Net cash provided by (used in) financing activities

280,906

267,090

Net cash provided by discontinued operating activities
Net cash used in discontinued investing activities
Net cash used in discontinued financing activities
Effects of currency translation on cash and cash equivalents

Change in cash and cash equivalents
Change in cash and cash equivalents included in discontinued operations utility infra-

structure services assets

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

—
—
—
—

(5,984)

18,922

—

(5,984)
37,946

—

18,922
19,024

472
—
(83,317)
296,469
(124,855)
(145,000)
(18,000)
(2,119)
(1,569)

(77,919)

91,165
(91,816)
(4,734)
(194)

(7,931)

5,579

(2,352)
21,376

Cash and cash equivalents at end of period

Supplemental information:
Interest paid, net of amounts capitalized

Income taxes paid (received)

31,962

37,946

19,024

73,805

64,790

61,501

(5,856) $

(7,854) $

(31,011)

The accompanying notes are an integral part of these statements.

74 | SOUTHWEST GAS HOLDINGS, INC.

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

Common Stock
Shares Amount

Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
Income (Loss)

47,377 $49,007 $ 890,671
6,675
105

105

$(47,743)

Retained
Earnings

Total

$ 701,251 $1,593,186
6,780
152,041

152,041

29
2,075

December 31, 2015

Common stock issuances
Net income
Net actuarial gain (loss) arising during the period, less amortization of

unamortized benefit plan cost, net of tax

FSIRS amounts reclassified to net income, net of tax
Dividends declared
Common: $1.80 per share

December 31, 2016
Net income
Net actuarial gain (loss) arising during the period, less amortization of

unamortized benefit plan cost, net of tax

FSIRS amounts reclassified to net income, net of tax
Distribution to Southwest Gas Holdings, Inc. investment in discontinued

operations

Stock-based compensation (a)
Dividends declared to Southwest Gas Holdings, Inc.
Contributions from Southwest Gas Holdings, Inc.

47,482 49,112

897,346

(45,639)

(3,507)
2,073

10,062

41,359

December 31, 2017
Net income
Net actuarial gain (loss) arising during the period, less amortization of

47,482 49,112

948,767

(47,073)

unamortized benefit plan cost, net of tax

FSIRS amounts reclassified to net income, net of tax
Stock-based compensation (a)
Reclassification of excess deferred taxes (b)
Dividends declared to Southwest Gas Holdings, Inc.
Contributions from Southwest Gas Holdings, Inc.

4,783
2,541

(9,300)

2,926

113,549

December 31, 2018

47,482 $49,112 $1,065,242

$(49,049)

$ 717,155 $1,782,460

(a) Stock-based compensation is based on stock awards of Southwest Gas Corporation to be issued in shares of Southwest Gas Holdings, Inc.

(b) Release of excess deferred taxes accumulated prior to December 22, 2017 (date of enactment of the TCJA), as a result of the adoption of ASU

2018-02, which permitted such release.

The accompanying notes are an integral part of these statements.

(86,231)

767,061 1,667,880
156,818
156,818

(3,507)
2,073

(182,773)
9,278
(81,129)
41,359

(182,773)
(784)
(81,129)

659,193 1,609,999
138,842
138,842

(680)
9,300
(89,500)

4,783
2,541
2,246
—
(89,500)
113,549

SOUTHWEST GAS HOLDINGS, INC.

| 75

Notes to Consolidated Financial Statements

Note 1 – Background, Organization, and Summary of Significant Accounting Policies
NatureofOperations. This is a combined annual report of Southwest Gas Holdings, Inc. and subsidiaries (the “Company”) and
Southwest Gas Corporation and its subsidiaries (“Southwest” or the “natural gas operations segment”). The Notes to the
Consolidated Financial Statements apply to both entities. Southwest Gas Holdings, Inc. is a holding company, owning all of the
shares of common stock of Southwest and all of the shares of common stock of Centuri Construction Group, Inc. (“Centuri” or the
“utility infrastructure services” segment). Prior to August 2017, 96.6% of Centuri’s shares were owned by the Company. During
August 2017, the Company acquired the remaining 3.4% equity interest in Centuri that was held by the previous owners. Refer to
Note 17 – Utility Infrastructure Services Noncontrolling Interests for additional information.

Southwest is engaged in the business of purchasing, distributing, and transporting natural gas for customers in portions of Arizona,
Nevada, and California. Public utility rates, practices, facilities, and service territories of Southwest are subject to regulatory oversight.
The timing and amount of rate relief can materially impact results of operations. Natural gas purchases and the timing of related
recoveries can materially impact liquidity. Results for the natural gas operations segment are higher during winter periods due to the
seasonality incorporated in its regulatory rate structures.

Centuri is a comprehensive utility infrastructure services enterprise dedicated to delivering a diverse array of solutions to North
America’s gas and electric providers. Centuri derives revenue from installation, replacement, repair, and maintenance of energy
distribution systems, and developing industrial construction solutions. Centuri operations are generally conducted under the business
names of NPL Construction Co. (“NPL”), Canyon Pipeline Construction, Inc. (“Canyon”), NPL Canada Ltd. (“NPL Canada”),
W.S. Nicholls Construction, Inc. (“W.S. Nicholls”), and Canyon Special Projects, Inc. (“Special Projects,” formerly Brigadier
Pipelines Inc.). Utility infrastructure services activity is seasonal in most of Centuri’s operating areas. Peak periods are the summer and
fall months in colder climate areas, such as the northeastern and midwestern United States (“U.S.”) and in Canada. In warmer climate
areas, such as the southwestern and southeastern U.S., utility infrastructure services activity continues year round. Centuri acquired
New England Utility Constructors, Inc. (“Neuco”) in November 2017, thereby expanding its core services in the northeast region of
the U.S. Additionally, in November 2018, Centuri expanded its operations in the southeast region of the U.S. through the acquisition
of an 80% interest in a privately held utility infrastructure services business, Linetec Services, LLC (“Linetec”). See Note 19 –
Business Acquisitions for more information.

Basis of Presentation. The Company follows accounting principles generally accepted in the United States (“U.S. GAAP”) in
accounting for all of 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 liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. In connection with a holding company reorganization in January 2017,
Centuri ceased to be a subsidiary of Southwest and became a subsidiary of the Company. To give effect to this change, the separate
consolidated financial statements related to Southwest, which are included in this annual report, depict Centuri-related amounts for
periods prior to January 2017 as discontinued operations which are detailed in Note 18 – Reorganization Impacts – Discontinued
Operations Solely Related to Southwest Gas Corporation.

Consolidation. The accompanying financial statements are presented on a consolidated basis for Southwest Gas Holdings, Inc. and
all subsidiaries and Southwest Gas Corporation and all subsidiaries as of December 31, 2018 (except those accounted for using the

76 | SOUTHWEST GAS HOLDINGS, INC.

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, historically held a 65% interest in a venture to market natural gas engine-driven heating, ventilating,
and air conditioning technology and products. During the second quarter of 2018, an additional $1 million of capital was
contributed, thereby increasing Centuri’s ownership to 95%. The carrying amount of the noncontrolling interest has been adjusted
with a corresponding charge to Additional paid-in capital on the Company’s Consolidated Balance Sheet.

Centuri, through its subsidiaries, holds a 50% interest in W.S. Nicholls Western Construction LTD. (“Western”), a Canadian
infrastructure 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 $11.2 million and $12.7 million at December 31, 2018 and
2017, respectively. Both periods include the impacts of foreign currency exchange translation adjustments. Centuri received
$1 million in dividends from Western for the year ended December 31, 2018 and no dividends for the year ended December 31, 2017.

The equity method investment in Western is included in Other property and investments in the Consolidated Balance Sheets of the
Company. Centuri’s maximum exposure to loss as a result of its involvement with Western was estimated at $44.9 million as of
December 31, 2018. 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 approximately $500,000 from this
investment in 2018, which is included in Other income (deductions) in the Consolidated Statements of Income.

FairValueMeasurements. Certain assets and liabilities are reported at fair value, which is defined as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

U.S. GAAP states that a fair value measurement should be based on the assumptions that market participants would use in pricing the
asset or liability and establishes a fair value hierarchy that ranks the inputs used to measure fair value by their reliability. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to fair values derived from unobservable inputs (Level 3 measurements). Financial assets and liabilities are categorized
in their entirety based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value
hierarchy are as follows:

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

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

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

The Company primarily used quoted market prices and other observable market pricing information in valuing cash and cash
equivalents, derivatives, long-term debt outstanding, and assets of the qualified pension plan and the PBOP required to be disclosed at
fair value.

Net Utility Plant. Net utility plant includes gas plant at original cost, less the accumulated provision for depreciation and
amortization, plus the unamortized balance of acquisition adjustments. Original cost includes contracted services, material, payroll,

SOUTHWEST GAS HOLDINGS, INC.

| 77

and related costs such as taxes and certain benefits, general and administrative expenses, and an allowance for funds used during
construction, less contributions in aid of construction.

OtherPropertyandInvestments. Other property and investments on Southwest’s and the Company’s Consolidated Balance Sheets
includes (thousands of dollars):

Net cash surrender value of COLI policies
Other property

Total Southwest Gas Corporation

Centuri property, equipment, and intangibles
Centuri accumulated provision for depreciation and amortization
Other property

Total Southwest Gas Holdings, Inc.

2018

2017

$ 114,405
1,741

$ 117,341
1,773

116,146
792,191
(298,939)
14,153

119,114
554,730
(258,906)
13,242

$ 623,551

$ 428,180

Intangible assets (other than goodwill) are amortized using the straight-line method to reflect the pattern of
Intangible Assets.
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. Non-utility
intangible assets are associated with utility infrastructure services businesses acquired through 2018, including the Linetec acquisition.
All have finite lives. These intangible assets are included in Other property and investments on the Company’s Consolidated Balance
Sheets. Centuri has $159.8 million and $80.7 million of intangible assets at December 31, 2018 and 2017, respectively, as detailed in
the following table (thousands of dollars):

December 31, 2018

Customer relationships
Trade names and trademarks
Customer contracts backlog
Noncompete agreements

Total

December 31, 2017

Customer relationships
Trade names and trademarks
Noncompete agreements

Total

Gross Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

$152,533
23,013
270
2,022

$(11,716)
(5,234)
(3)
(1,064)

$140,817
17,779
267
958

$177,838

$(18,017)

$159,821

$ 76,254
13,754
2,060

$ (6,743)
(4,080)
(543)

$ 69,511
9,674
1,517

$ 92,068

$(11,366)

$ 80,702

Amortization expense for the acquired intangible assets listed above for the years ended December 31, 2018, 2017, and 2016 was
$7.6 million, $4.1 million, and $3.2 million, respectively.

78 | SOUTHWEST GAS HOLDINGS, INC.

The estimated future amortization of the intangible assets for the next five years and thereafter is as follows (in thousands):

2019
2020
2021
2022
2023
Thereafter

Total

$ 10,622
10,634
10,214
10,127
10,127
108,097

$159,821

See Note 2 – Utility Plant and Leases for additional information regarding natural gas operations intangible assets. Note 19 –
Business Acquisitions includes detailed information about intangible assets purchased in the Linetec acquisition.

CashandCashEquivalents. For purposes of reporting consolidated cash flows, cash and cash equivalents include cash on hand and
financial instruments with maturities of three months or less. Such investments are carried at cost, which approximates market value.
Cash and cash equivalents for Southwest and the Company also include money market fund investments totaling approximately
$18 million and $59.9 million, respectively at December 31, 2018, and $20.8 million and $22.2 million, respectively, at December 31,
2017, which fall within Level 2 of the fair value hierarchy, due to the asset valuation methods used by money market funds.

Typical non-cash investing activities for Southwest include customer advances applied as contributions toward utility construction
activity and capital expenditures that were not paid as of year end that are included in accounts payable. Amounts related to such
activities were immaterial for the periods presented herein. Non-cash investing activities for Centuri included $75.6 million of
purchase consideration related to the Linetec acquisition in the form of liabilities incurred that remained unpaid as of December 31,
2018; such amounts are included in Other current liabilities on the Consolidated Balance Sheets of the Company. See Note 19 –
Business Acquisitions.

IncomeTaxes. 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, 2018, the Company had
cumulative book earnings of approximately $25 million in its foreign jurisdiction. Management previously asserted and continues to
assert that all the earnings of Centuri’s Canadian subsidiaries will be permanently reinvested in Canada. As a result, no U.S. deferred
income taxes have been recorded related to cumulative foreign earnings.

In 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted. The TCJA had significant impacts on the taxation of business entities,
including specific provisions related to regulated public utilities. The more significant changes that impacted the Company include
the reduction in the corporate federal income tax rate from 35% to 21%, and limiting the utilization of net operating losses (“NOLs”)
to 80% of taxable income, with the ability to indefinitely carryforward unutilized NOLs to reduce future taxable income.

The Financial Accounting Standards Board (the “FASB”) issued guidance to allow an accounting policy election of either (i) treating
taxes attributable to future taxable income related to Global Intangible Low-Taxed Income (“GILTI”) as a current period expense
when incurred or (ii) recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years. The Company

SOUTHWEST GAS HOLDINGS, INC.

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has elected to treat GILTI as a current period cost when incurred and has considered the estimated 2018 GILTI impact in its 2018 tax
expense.

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

Prepaidandothercurrentassets. Prepaid and other current assets for Southwest and the Company include gas pipe materials and
operating supplies of $56 million in 2018 and $33 million in 2017 (carried at weighted average cost), and also include $74 million in
2018 and $40 million in 2017 related to a regulatory asset associated with the Arizona decoupling mechanism (an alternative revenue
program). In the 2017 Arizona general rate case decision, the decoupled rate design was approved to continue, excluding a winter-
period adjustment to rates, making the mechanism fundamentally similar to that which exists in Nevada. This change from a
combination of monthly winter-period adjustments to bills (coupled with an annual rate adjustment) to an annual rate adjustment
resulted in an increase in the associated regulatory asset noted above.

Goodwill. As required by U.S. GAAP, goodwill is assessed for impairment annually, or more frequently, if circumstances indicate
impairment to the carrying value of goodwill may have occurred. The goodwill impairment analysis is conducted as of October 1st
each year and may start with an assessment of qualitative factors (commonly referred to as 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 the reporting
units are less than their carrying amounts in either 2017 or 2018. Thus, no impairment was recorded in either year. The Linetec
acquisition in 2018 (see further discussion in Note 19 – Business Acquisitions) was considered an asset purchase for tax purposes. As
a result, goodwill associated with Linetec is expected to be deductible for those same purposes.

(In thousands of dollars)
Balance, December 31, 2016
Goodwill from Neuco acquisition
Foreign currency translation adjustment

Balance, December 31, 2017
Additional goodwill from Neuco acquisition
Goodwill from Linetec acquisition
Foreign currency translation adjustment

Natural Gas
Operations

Utility
Infrastructure
Services

Total
Company

$10,095
—
—

10,095
—
—
—

$129,888
32,028
7,303

$139,983
32,028
7,303

169,219
182
188,494
(8,945)

179,314
182
188,494
(8,945)

Balance, December 31, 2018

$10,095

$348,950

$359,045

Other CurrentLiabilities. Management recognizes in its balance sheets various liabilities that are expected to be settled through
future cash payment within the next twelve months, including certain regulatory liabilities (refer to Note 5 – Regulatory Assets and
Liabilities), customary accrued expenses for employee compensation and benefits, and declared but unpaid dividends. As of
December 31, 2018, this caption on the Company’s Consolidated Balance Sheet also included $75.6 million in unremitted amounts
associated with the Linetec acquisition note above.

80 | SOUTHWEST GAS HOLDINGS, INC.

Accumulated Removal Costs. Approved regulatory practices allow Southwest to include in depreciation expense a component
intended 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. Management regularly
updates the estimated accumulated removal costs as 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. Southwest recognizes revenue when it satisfies its performance by transferring gas to the customer.
Natural gas is delivered and “consumed” by the customer simultaneously. Revenues are recorded when customers are billed. Customer
billings are substantially based on monthly meter reads and include certain other charges assessed monthly, and are calculated in
accordance with applicable tariffs and state and local laws, regulations, and related 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 read date to the
end of the reporting period is also recognized as accrued utility revenue. Revenues also include the net impacts of margin tracker/
decoupling accruals based on criteria in U.S. GAAP for rate-regulated entities associated with alternative revenue programs. All of
Southwest’s service territories have decoupled rate structures, which are designed to eliminate the direct link between volumetric sales
and revenue, thereby mitigating the impacts of unusual weather variability and conservation on margin. See Note 3 – Revenue for
additional information regarding Gas operating revenues.

Utility InfrastructureServicesRevenues. The majority of Centuri contracts are performed under unit-price contracts. Generally,
these contracts state prices per unit of installation. Typical installations are accomplished in a few weeks or less. Revenues are recorded
as installations are completed. Revenues are recorded for long-term fixed-price contracts in a pattern that reflects the transfer of
control of promised goods and services to the customer over time. The amount of revenue recognized on fixed-price contracts is based
on costs expended to date relative to anticipated final contract costs. Changes in job performance, job conditions, and final contract
settlements are factors that influence management’s assessment of total contract value and the total estimated costs to complete those
contracts. 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. See Note 3 – Revenue for additional information regarding
Utility infrastructure services revenues.

Utility Infrastructure Services Expenses. Utility infrastructure services expenses in the Statements of Income 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 purchased gas adjustment (“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 PGA accounts pending inclusion in customer
rates.

OperationsandMaintenanceExpense. Operations and maintenance expense includes Southwest’s operating and maintenance costs
associated with serving utility customers and maintaining its distribution and transmission systems, uncollectible expense,
administrative and general salaries and expense, employee benefits expense excluding relevant non-service cost components (see
Note 11 – Pension and Other Postretirement Benefits), and legal expense (including injuries and damages).

SOUTHWEST GAS HOLDINGS, INC.

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Depreciation and Amortization. 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. See
also discussion regarding Accumulated Removal Costs above. Non-utility and utility infrastructure services-related property and
equipment are depreciated on a straight-line method based on the estimated useful lives of the related assets. Costs and gains related to
refunding utility debt and debt issuance expenses are deferred and amortized over the weighted-average lives of the new issues and
become a component of interest expense.

AllowanceforFundsUsedDuringConstruction(“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
Company’s and Southwest’s 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

2018

2017

2016

$3,264
3,627

$1,666
2,296

$1,175
2,289

$6,891

$3,962

$3,464

5.85% 5.95% 7.35%

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):

Southwest Gas Corporation – natural gas operations segment:

Increase (decrease) in COLI policies
Interest income
Equity AFUDC
Non-service post-retirement benefit cost
Miscellaneous income and (expense)

Southwest Gas Corporation – total other income (deductions)

Utility infrastructure services segment:

Interest income
Foreign transaction gain (loss)
Equity in earnings of unconsolidated investment – Western
Miscellaneous income and (expense)

Centuri – total other income (deductions)

Corporate and administrative

2018

2017

2016

$ (3,200) $ 10,300
2,784
2,296
(19,424)
(2,344)

6,020
3,627
(21,059)
(2,628)

$ 7,400
1,848
2,289
(19,760)
(3,261)

(17,240)

(6,388)

(11,484)

88
(222)
531
(635)

(238)

3
(754)
1,052
44

345

1
(22)
69
1,145

1,193

—

Consolidated Southwest Gas Holdings, Inc. – total other income (deductions)

$(17,426) $ (6,030) $(10,291)

82 | SOUTHWEST GAS HOLDINGS, INC.

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 and Southwest to indemnify 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.

ForeignCurrencyTranslation. 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) of the Company. Gains and
losses resulting from intercompany foreign currency transactions that are of a long-term investment nature are reported in Other
comprehensive income, if applicable.

Earnings Per Share. Basic earnings per share (“EPS”) in each period of this report were calculated by dividing net income
attributable to Southwest Gas Holdings, Inc. by the weighted-average number of shares during those periods. Diluted EPS includes
additional weighted-average common stock equivalents (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

Management Incentive Plan shares

Restricted stock units (1)

Average diluted shares

2018

2017

2016

49,419

47,965

47,469

—

124

220

49,476

47,991

47,814

(1) The number of securities granted for 2018 and 2017 includes 23,000 and 7,000 performance shares, respectively, the total of which was derived

by assuming that target performance will be achieved during the relevant performance period.

RecentAccountingStandardsUpdates.

Accounting pronouncements adopted in 2018:

Effective January 2018, the Company and Southwest adopted the FASB update, Accounting Standards Codification (“ASC”) Topic
606 “Revenue from Contracts with Customers.” The update replaced much of the prior guidance regarding revenue recognition
including most industry-specific guidance. See Note 3 – Revenue for more information regarding the adoption of the update.

In January 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-02 “Income Statement – Reporting
Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income.” The update addressed issues resulting from the enactment of the TCJA. Stakeholders raised a narrow-scope financial
reporting issue that arose as a consequence of the TCJA related to the fact that when deferred tax balances were remeasured in

SOUTHWEST GAS HOLDINGS, INC.

| 83

December 2017, those deferred tax balances were to be reduced, but related amounts historically accumulated in Accumulated Other
Comprehensive Income (“AOCI”) prior to the enactment of the TCJA, were required to be recognized as income tax expense rather
than being relieved from AOCI. The amendments in this update allowed a reclassification from AOCI to retained earnings for those
otherwise “stranded” tax effects in AOCI following enactment of the TCJA. The Company and Southwest adopted this update
effective January 2018. Accordingly, approximately $9.3 million of previously stranded tax effects resulting from the TCJA were
reclassified to retained earnings from AOCI on the Consolidated Balance Sheets of Southwest and the Company during the first
quarter of 2018.

In March 2017, the FASB issued ASU 2017-07 “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of
Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The new guidance related to the income statement
presentation of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. The
Company and Southwest adopted this update effective January 2018. See Note 11 – Pension and Other Postretirement Benefits
for additional information.

Accounting pronouncements that will be effective in 2019:

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 for the obligation to make lease payments, measured on a discounted basis; and

• A right-of-use asset for the right to use, or control the use of, a specified asset for the lease term.

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary,
lessor accounting with the lessee accounting model and Topic 606, “Revenue from Contracts with Customers.” Though companies
have historically been required to make disclosures regarding leases and associated contractual obligations, leases with terms longer
than a year will no longer exist off-balance sheet. In July 2018, the FASB issued narrow-scope improvements to the standard, which
include, among other things, guidance on lease classification reassessment and certain circumstances surrounding remeasurement.
Also included was clarification that lessor-controlled options to terminate a lease are considered in the lease term.

Management expects to elect various practical expedients and accounting policies regarding the transition method used to implement
Topic 842. The Company and Southwest plan to elect the new optional transition method included within the recent FASB update
“Leases – Targeted Improvements”, also issued in July 2018, which allows for comparative periods not to be restated. In conjunction
with this decision, management currently expects that no retained earnings adjustment will be necessary due to the adoption of Topic
842. At a minimum, management expects the following regarding Topic 842 practical expedients and accounting policy elections:

• To elect to use the “package”, which is a set of three practical expedients that must be elected as a package and applied
consistently to all of the Company’s and Southwest’s leases. These include: not reassessing whether any expired or existing
contracts are or contain leases; not reassessing the lease classification for expired or existing leases (that is, existing operating and
capital leases in accordance with current lease guidance will in each case be classified as operating and finance leases, respectively,
under the updated guidance); and not reassessing initial direct costs for any existing leases.

• To elect to adopt the practical expedient to exclude all easements in place prior to January 1, 2019 from treatment under Topic
842. However, the Company and Southwest will evaluate any new easements entered into after the effective date of the standard
to determine if the arrangements should be accounted for as leases.

• To make an accounting policy election by asset class to include both the lease and non-lease components (as defined in the

guidance) as a single component.

• To make an accounting policy election to not apply Topic 842 to short-term leases, as permitted.

84 | SOUTHWEST GAS HOLDINGS, INC.

• To not elect to use hindsight in determining the lease term and in assessing impairment of right-of-use assets.

Southwest’s leases are comprised primarily of operating leases of buildings, land, and equipment. At this time, Southwest has no
finance leases. Centuri leases buildings, land, fleet equipment, and other equipment. The majority of Centuri’s leases are operating
leases. The Company and Southwest are currently not the lessor in any significant lease arrangements.

Management has implemented new software systems (one for Southwest and one for Centuri) to facilitate compliance with Topic
842. Management will adopt the update in the first quarter of 2019, as required. Management is finalizing its evaluation of the impact
of the adoption on the consolidated financial statements and related disclosures.

Recently issued accounting pronouncements that will be effective after 2019:

In June 2016, the FASB issued ASU 2016-13 update “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments.” The update requires the measurement of all expected credit losses for financial assets held at the
reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The inputs currently used
to estimate credit losses will still be used, however they may be adapted to reflect the full amount of expected losses. 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 the Company’s and Southwest’s consolidated
financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-04 “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment.” Currently, unless meeting the criteria for qualitative assessment only, an entity is required to perform a two-step test to
determine the amount, if any, of goodwill impairment. In Step 1, an entity compares the fair value of a reporting unit with its carrying
amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the entity performs Step 2 and
compares the implied fair value of goodwill with the carrying amount of that goodwill for that reporting unit. An impairment charge
equal to the amount by which the carrying amount of goodwill for the reporting unit exceeds the implied fair value of that goodwill is
recorded, limited to the amount of goodwill allocated to that reporting unit. Under the update, an entity will apply a one-step
quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value,
not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative
assessment of goodwill impairment. The amount of any goodwill impairment calculated under the update could vary from the
calculation under the existing guidance. 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 is evaluating the impacts this update might have on the Company’s
and Southwest’s consolidated financial statements and disclosures.

In August 2018, the FASB issued ASU 2018-15 “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The
update generally aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement (that is a service
contract) with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update
also requires the entity to expense the capitalized implementation costs of such hosting arrangements over the term of the hosting
arrangement, including reasonably certain renewal periods. The update is effective for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years. Early adoption of the amendments in this update is permitted for interim and
related annual fiscal periods after December 15, 2018. Management is evaluating the impacts this update might have on the
Company’s and Southwest’s consolidated financial statements and disclosures.

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In August 2018, the FASB issued ASU 2018-14 “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic
715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans.” This update removes
disclosures that are no longer considered cost-beneficial, clarifies the specific requirements of disclosures, and adds disclosure
requirements identified as relevant. The update applies to all employers that sponsor defined benefit pension or other post-retirement
plans. The update is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. Management is evaluating
the impacts this update might have on its disclosures.

In August 2018, the FASB issued ASU 2018-13 “Fair Value Measurement: Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement.” The update is intended to improve the effectiveness of fair value measurement
disclosures and removes the following disclosure requirements: the amount of and reasons for transfers between Level 1 and Level 2 of
the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value
measurements. The update also modifies or clarifies for investments in certain entities that calculate net asset value, a requirement to
disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse (in cases when the
timing has been communicated or announced publicly). It also clarifies communication requirements about measurement uncertainty
as of the reporting date. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted
average if it would be a more reasonable and rational method to reflect the distribution of inputs to the measurements. Management is
evaluating the impacts this update might have on its disclosures.

SubsequentEvents. 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, 2018 and 2017 was as follows (thousands of dollars):

December 31,

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

Less: accumulated depreciation and amortization
Construction work in progress

Net utility plant

2018

2017

26,825
386,159
6,049,380
416,643
241,158
14,074

25,019
363,396
5,600,769
396,252
230,030
14,178

7,134,239
(2,234,029)
193,028

6,629,644
(2,231,242)
125,248

$ 5,093,238

$ 4,523,650

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 are intended to 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
2018, annual utility depreciation and amortization expense averaged 2.7% of the original cost of depreciable and amortizable property.
Average rates in 2017 and 2016 approximated 3.0%. Transmission and Distribution plant (combined), associated with core natural
gas delivery infrastructure, constitute the majority of gas plant. Annual utility depreciation expense averaged approximately 3.0% of
original cost of depreciable transmission and distribution plant during the period 2016 through 2018.

86 | SOUTHWEST GAS HOLDINGS, INC.

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

Depreciation and amortization expense

2018

2017

2016

$185,719

$187,075

$214,037

Included in the figures above is amortization of utility intangibles of $13.6 million in 2018, $14.3 million in 2017, and $14.8 million
in 2016. Additionally, the amounts above exclude regulatory asset and liability amortization.

OperatingLeasesandRentals. Certain land, buildings, and construction equipment is leased. The majority of these leases are short-
term and accounted for as operating leases. For the natural gas operations 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 and Centuri’s rental and lease payments that are included in operating expenses (in thousands):

Southwest Gas Corporation
Centuri

Consolidated rental payments/lease expense

2018

2017

2016

$ 4,556
59,491

$ 4,926
62,310

$ 4,357
53,956

$64,047

$67,236

$58,313

The following is a schedule of future minimum lease payments for operating leases (with initial or remaining terms in excess of one
year) as of December 31, 2018 (thousands of dollars):

2019
2020
2021
2022
2023
Thereafter

Total minimum lease payments

Southwest Centuri

Consolidated
Total

$ 898
363
299
163
79
177

$10,053
7,656
5,760
5,163
3,681
10,511

$1,979

$42,824

10,951
8,019
6,059
5,326
3,760
10,688

44,803

CapitalLeases. Centuri leases certain construction equipment under capital leases arrangements which are not significant.

Note 3 – Revenue
Effective January 2018, the Company and Southwest adopted the FASB’s Topic 606, “Revenue from Contracts with Customers”,
using the modified retrospective transition method. Under the modified retrospective approach, the information for periods prior to
the adoption date has not been restated and continues to be reported under the accounting standards in effect for those periods
(Topic 605, “Revenue Recognition”). As permitted under the standard, the Company and Southwest have elected to apply the
guidance retrospectively only to those contracts that were not completed at January 1, 2018. Management assessed the effects the new
guidance has on the Company’s (and Southwest’s, in the case of natural gas operations) financial position, results of operations, and
cash flows. Based on these assessments, the adoption of Topic 606 had no material impact on any of the financial statements of
Southwest or the Company. Certain disclosures included within this note reflect information for 2017 and 2016, during which
periods the Company and Southwest followed the guidance in Topic 605. As there were no material changes to the consolidated
financial statements as a result of the adoption of Topic 606, as noted above, management elected to disclose information for 2017

SOUTHWEST GAS HOLDINGS, INC.

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and 2016, as the manner in which revenue is recorded has not changed and believes that including such disclosure provides useful
information.

The following information about the Company’s revenues is presented by segment. Southwest encompasses one segment – natural gas
operations.

Natural Gas Operations Segment:

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.
Southwest recognizes revenue when it satisfies its performance by transferring gas to the customer. Revenues also include the net
impacts of margin tracker/decoupling accruals based on criteria in U.S. GAAP for rate-regulated entities associated with alternative
revenue programs. Revenues from customer arrangements and from alternative revenue programs are described below.

Southwest acts as an agent for state and local taxing authorities in the collection and remittance 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.

Southwest generally offers two types of services to its customers: tariff sales and transportation–only service. Tariff sales encompass
sales to many types of customers (primarily residential) under various rate schedules, subject to cost-of-service ratemaking, which is
based on the rate-regulation of state commissions and the Federal Energy Regulatory Commission (the “FERC”). Southwest provides
both the commodity and the related distribution service to nearly all of its approximate 2 million customers, and only several hundred
customers (who are eligible to secure their own gas) subscribe to transportation-only service. Also, only a few hundred customers have
contracts with stated periods. Southwest recognizes revenue when it satisfies its performance requirement by transferring volumes of
gas to the customer. Natural gas is delivered and consumed by the customer simultaneously. The provision of service is represented by
the turn of the meter dial and is the primary representation of the satisfaction of performance obligations of Southwest. The amount
billable via regulated rates (both volumetric and fixed monthly rates as part of rate design) corresponds to the value to the customer,
and management believes that the amount billable under the “invoice practical expedient” (amount Southwest has the right to
invoice) is appropriate to utilize for purposes of recognizing revenue. Estimated amounts remaining unbilled since the last meter read
date are restricted from being billed due only to the passage of time and therefore are also recognized for service provided through the
balance sheet date. While natural gas service is typically recurring, there is generally not a contract term for utility service. Therefore,
the contract term is not generally viewed to extend beyond the service provided to date, and customers can generally terminate service
at will.

Transportation-only service is also governed by tariff rate provisions. Transportation-only service is generally only available to very
large customers under requirements of Southwest’s various tariffs. With this service, customers secure their own gas supply and
Southwest provides transportation services to move the customer-supplied gas to the intended location. Southwest concluded that
transportation/transmission service is suitable to an “over time” model. Rate structures under Southwest’s regulation for
transportation customers include a combination of volumetric charges and monthly “fixed” charges (including charges commonly
referred to as capacity charges, demand charges, or reservation charges) as part of the rate design of regulated jurisdictions. These types
of fixed charges represent a separate performance obligation associated with standing ready over the period of the month to deliver
quantities of gas, regardless of whether the customer takes delivery of any quantity of gas. The performance obligations under these
circumstances are satisfied over the course of the month under an output measure of progress based on time, which correlates to the
period for which the charges are eligible to be invoiced.

88 | SOUTHWEST GAS HOLDINGS, INC.

Under its regulation, Southwest enters into negotiated rate contracts for those customers located in proximity to another pipeline,
which pose a threat of bypassing its distribution system. Southwest may also enter into similar contracts for customers otherwise able
to satisfy their energy needs by means of alternative fuel to natural gas. Less than two dozen customers are party to contracts with rate
components subject to negotiation. Many rate provisions and terms of service for these less common types of contracts are also subject
to regulatory oversight and tariff provisions. The performance obligations for these customers are satisfied similarly to those for other
customers by means of transporting/delivering natural gas to the customer. Many or most of the rate components, and structures, for
these types of customers are the same as those for similar customers without negotiated rate components; and the negotiated rates are
within the parameters of the tariff guidelines. Management determined that these arrangements qualify for the invoice practical
expedient for recognizing revenue. Furthermore, while some of these contracts include contract periods extending over time,
including multiple years, as amounts billable under the contract are based on rates in effect for the customer for service provided to
date, no significant financing component is deemed to exist.

As indicated above, revenues also include the net impacts of margin tracker/decoupling accruals. All of Southwest’s service territories
have decoupled rate structures (also referred to as alternative revenue programs) that 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 primary
alternative revenue programs involve permissible adjustments for differences between stated tariff benchmarks and amounts billable
through revenue from contracts with customers via existing rates. Such adjustments are recognized monthly in revenue and in the
associated regulatory asset/liability accounts in advance of rate adjustments intended to collect or return amounts recognized.
Revenues recognized for the adjustment to the benchmarks noted are required to be presented separately from revenues from
contracts with customers, and as such, are provided below and identified as alternative revenue program revenue (which excludes
recoveries from customers).

Gas operating revenues on the Consolidated Statements of Income of both the Company and Southwest include revenue from
contracts with customers, which is shown below disaggregated by customer type, and various categories of revenue:

(Thousands of dollars)

Residential
Small commercial
Large commercial
Industrial/other
Transportation

Revenue from contracts with customers

Alternative revenue program revenues (deferrals)
Other revenues (a)

Total Gas operating revenues

2018

$ 887,220
255,083
53,192
23,489
86,990

1,305,974
45,979
5,775

December 31,
2017

$ 857,204
243,513
52,379
22,026
87,759

1,262,881
35,347
4,080

2016

$ 895,330
251,092
53,582
19,753
87,106

1,306,863
12,530
2,019

$1,357,728

$1,302,308

$1,321,412

(a)

Includes various other revenues, and during the first six months of 2018, included $12.5 million as a reserve against revenue associated with a

tax reform savings adjustment. During the third quarter of 2018, amounts previously recognized were reclassified to the various categories of

revenue from contracts with customers when incorporated in tariff rates.

Utility Infrastructure Services Segment:

The majority of Centuri contracts are performed under unit-price contracts. Generally, these contracts state prices per unit of
installation. Typical installations are accomplished in a few weeks or less. Revenues are recorded as installations are completed.

SOUTHWEST GAS HOLDINGS, INC.

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Revenues are recorded for long-term fixed-price contracts in a pattern that reflects the transfer of control of promised goods and
services to the customer over time. The amount of revenue recognized on fixed-price contracts is based on costs expended to date
relative to anticipated final contract costs (a method of recognition based on inputs). Some unit-price contracts contain caps that if
encroached, trigger revenue and loss recognition similar to a fixed-price contract model.

Centuri is required to collect taxes imposed by various governmental agencies on the work performed for its customers. These taxes
are not included in Utility infrastructure services revenues. Management uses the net classification method to report taxes collected
from customers to be remitted to governmental authorities.

Centuri derives revenue from the installation, replacement, repair, and maintenance of energy distribution systems, and in developing
industrial construction solutions. Centuri has operations in the U.S. and Canada. The majority of Centuri’s revenues are related to
contracts for natural gas pipeline replacement and installation work for natural gas utilities. In addition, Centuri performs certain
industrial construction activities for various customers and industries. Centuri has two types of agreements with its customers: master
services agreements (“MSAs”) and bid contracts. Most of Centuri’s customers supply many of their own materials in order for Centuri
to complete its work under the contracts.

An MSA identifies most of the terms describing each party’s rights and obligations that will govern future work authorizations. An
MSA is often effective for multiple years. A work authorization is issued by the customer to describe the location, timing, and any
additional information necessary to complete the work for the customer. The combination of the MSA and the work authorization
determines when a contract exists and revenue recognition may begin. Each work authorization is generally a single performance
obligation as Centuri is performing a significant integration service. Centuri has elected to use the portfolio method practical
expedient at the customer level as the terms and conditions of the work performed under MSAs are similar in nature with each
customer but vary significantly between customers.

A bid contract is typically a one-time agreement for a specific project that has all necessary terms defining each party’s rights and
obligations. Each bid contract is evaluated for revenue recognition individually. Control of assets created under bid contracts generally
passes to the customer over time. Bid contracts often have a single performance obligation as Centuri is providing a significant
integration service.

Centuri’s MSA and bid contracts are characterized as either fixed-price contracts or unit-price contracts for revenue recognition
purposes. The cost-to-cost input method is used to measure progress towards the satisfaction of a performance obligation for fixed-
price contracts. Input methods result in the recognition of revenue based on the entity’s expended effort to satisfy the performance
obligation relative to the total expected effort to satisfy the performance obligation. For unit-price contracts, an output method is used
to measure progress towards satisfaction of a performance obligation. Also with regard to unit-price contracts, the output
measurement will be the completion of each unit that is required under the contract.

Actual revenues and project costs can vary, sometimes substantially, from previous estimates due to changes in a variety of factors,
including unforeseen circumstances. These factors, along with other risks inherent in performing fixed-price contracts may cause
actual revenues and gross profit for a project to differ from previous estimates and could result in reduced profitability or losses on
projects. Changes in these factors may result in revisions to costs and earnings, the impacts for which are recognized in the period in
which the changes are identified. Once identified, these types of conditions continue to be evaluated for each project throughout the
project term and ongoing revisions in management’s estimates of contract value, contract cost, and contract profit are recognized as
necessary in the period determined.

Centuri categorizes work performed under MSAs and bid contracts into three primary service types: gas construction, electrical
construction, and other construction. Gas construction includes work involving previously existing gas pipelines and the installation

90 | SOUTHWEST GAS HOLDINGS, INC.

of new pipelines or service lines. Electrical construction includes work involving installation and maintenance of transmission and
distribution lines and storm restoration services. Other construction includes all other work and can include industrial and water
utility services.

Contracts can have compensation/consideration that is variable. For MSAs, variable consideration is evaluated at the customer level as
the terms creating variability in pricing are included within the MSA and are not specific to a work authorization. For multi-year
MSAs, variable consideration items are typically determined for each year of the contract and not for the full contract term. For bid
contracts, variable consideration is evaluated at the individual contract level. The expected value method or most likely amount
method is used based on the nature of the variable consideration. Types of variable consideration include liquidated damages, delay
penalties, performance incentives, safety bonuses, payment discounts, and volume rebates. Centuri will typically estimate variable
consideration and adjust financial information, as necessary.

Change orders involve the modification in scope, price, or both to the current contract, requiring approval by both parties. The
existing terms of the contract continue to be accounted for under the current contract until such time as a change order is approved.
Once approved, the change order is either treated as a separate contract or as part of the existing contract, as appropriate, under the
circumstances. When the scope is agreed upon in the change order but not the price, Centuri estimates the change to the transaction
price.

The following tables display Centuri’s revenue from contracts with customers disaggregated by service type and contract type:

(Thousands of dollars)

Service Types:
Gas infrastructure services
Electric power infrastructure services
Other

Total Utility infrastructure services revenues

(Thousands of dollars)

Contract Types:
Master services agreement
Bid contract

Total Utility infrastructure services revenues

Unit priced contracts
Fixed priced contracts
Time and materials contracts

Total Utility infrastructure services revenues

2018

December 31,
2017

2016

1,123,682
32,629
365,974

891,139
18,114
337,231

914,970
27,915
196,193

1,522,285

1,246,484

1,139,078

2018

December 31,
2017

2016

1,102,412
419,873

1,522,285

1,258,419
117,298
146,568

885,513
360,971

1,246,484

968,856
127,497
150,131

852,472
286,606

1,139,078

886,919
95,494
156,665

1,522,285

1,246,484

1,139,078

The following table provides information about contracts receivable and revenue earned on contracts in progress in excess of billings
(contract assets), both of which are included within Accounts receivable, net of allowances, and amounts billed in excess of revenue

SOUTHWEST GAS HOLDINGS, INC.

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earned on contracts (contract liabilities), which are included in Other current liabilities as of December 31, 2018 and December 31,
2017 on the Company’s Consolidated Balance Sheets:

(Thousands of dollars)

Contracts receivable, net
Revenue earned on contracts in progress in excess of billings
Amounts billed in excess of revenue earned on contracts

December 31, 2018 December 31, 2017

$186,249
87,520
4,211

$221,859
5,768
9,602

The revenue earned on contracts in progress in excess of billings (contract asset) primarily relates to Centuri’s rights to consideration
for work completed but not billed and/or approved at the reporting date. These contract assets are transferred to contracts receivable
when the rights become unconditional. Upon adoption of Topic 606, the Company reclassified $50.6 million to revenue earned on
contracts in progress in excess of billings, and during the year ended December 31, 2018, recognized an increase of $30 million,
excluding the impact from the adoption, primarily related to normal operating and billing activities. The amounts billed in excess of
revenue earned (contract liability) primarily relate to the advance consideration received from customers for which work has not yet
been completed. The change in this contract liability balance from January 1, 2018 to December 31, 2018 is due to revenue recognized
of $9.6 million that was included in this balance as of January 1, 2018, after which time it became earned and the balance was reduced,
and to increases due to cash received, net of revenue recognized during the period related to contracts that commenced during the
period.

Prior to the adoption of Topic 606, revenue earned on contracts in progress in excess of billings was only used to recognize contract
assets related to fixed-price contracts under previous accounting guidance. This balance now includes any conditional contract assets
for both fixed-price contracts and unit-price contracts. Centuri considers retention and unbilled amounts to be conditional contract
assets, as payment is contingent on the occurrence of a future event. Contracts receivable, net, includes only amounts that are
unconditional in nature, which means only the passage of time remains and Centuri has invoiced the customer. Similarly, amounts
billed in excess of revenue earned on contracts was only used to recognize contract liabilities related to fixed-price contracts under
previous accounting guidance. This line item now includes contract liabilities related to both fixed-price contracts and unit-price
contracts. In the event a contract asset or contract liability is expected to be recognized for greater than one year from the financial
statement date, Centuri classifies those amounts as long-term contract assets or contract liabilities, included in Deferred charges and
other assets or Other deferred credits and other long-term liabilities on the Company’s Consolidated Balance Sheets.

For contracts that have an original duration of one year or less, Centuri uses the practical expedient applicable to such contracts and
does not consider/compute an interest component based on the time value of money. Further, because of the short duration of these
contracts, the Company has not disclosed the transaction price for the remaining performance obligations as of the end of each
reporting period or when the Company expects to recognize the revenue.

As of December 31, 2018, Centuri has fifteen contracts that had an original duration of more than one year. The aggregate amount of
the transaction price allocated to the unsatisfied performance obligations of these contracts as of December 31, 2018 is $38.6 million.
Centuri expects to recognize the remaining performance obligations over the next four years; however, the timing of that recognition
is largely within the control of the customer, including when the necessary equipment and materials required to complete the work
will be provided by the customer.

92 | SOUTHWEST GAS HOLDINGS, INC.

Utility infrastructure services contracts receivable consists of the following:

(Thousands of dollars)

December 31, 2018 December 31, 2017

Billed on completed contracts and contracts in progress
Other receivables

Contracts receivable, gross

Allowance for doubtful accounts

Contracts receivable, net

$184,100
2,588

186,688
(439)

$186,249

$219,298
2,622

221,920
(61)

$221,859

Note 4 – 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, 2018 and 2017, and the percentage of customers in each of the three states, which was consistent with the
prior year.

Gas utility customer accounts receivable balance (in thousands)

$138,149

$119,444

December 31, 2018 December 31, 2017

Percent of customers by state
Arizona
Nevada
California

December 31, 2018

53%
37%
10%

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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 two months 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, 2015

Additions charged to expense
Accounts written off, less recoveries

Balance, December 31, 2016

Additions charged to expense
Accounts written off, less recoveries

Balance, December 31, 2017

Additions charged to expense
Accounts written off, less recoveries

Balance, December 31, 2018

Allowance
for
Uncollectibles

$ 2,270
3,264
(3,010)

2,524
2,310
(2,723)

2,111
2,959
(2,902)

$ 2,168

At December 31, 2018, the utility infrastructure services segment (Centuri) had $273.8 million in combined customer accounts and
contracts receivable. Both the allowance for uncollectibles and write-offs related to Centuri customers have been insignificant and are
not reflected in the table above.

Note 5 – Regulatory Assets and Liabilities
Southwest is subject to the regulation of the Arizona Corporation Commission (“ACC”), the Public Utilities Commission of Nevada
(“PUCN”), the California Public Utilities Commission (“CPUC”), and the 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.

94 | SOUTHWEST GAS HOLDINGS, INC.

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 (8)
Margin & interest-tracking (9)
Other (10)

Regulatory liabilities:

Deferred purchased gas costs (3)
Accumulated removal costs
Unrealized net gain on non-trading derivatives (Swaps) (2)
Unamortized gain on reacquired debt (6)
Regulatory excess deferred taxes and gross-up (7)
Other (10)

Net regulatory liabilities

2018

2017

$ 383,170
1,862
4,928
29,000
19,599
14,126
88,290
32,616

$ 391,403
5,780
14,581
17,000
20,913
13,870
42,354
25,997

573,591

531,898

(79,762)
(383,000)
(144)
(8,717)
(458,834)
(19,911)

(6,841)
(315,000)
—
(9,253)
(433,908)
(33,184)

$(376,777) $(266,288)

(1)

Included in Deferred charges and other assets on the Consolidated Balance Sheets. Recovery period is greater than five years. (See Note 11 –

Pension and Other Postretirement Benefits).

(2) Asset balance is included in Deferred charges and other assets and Prepaid and other assets on the Consolidated Balance Sheets. Liability

balance is included in Other current liabilities and Other deferred credits and other long-term liabilities on the Consolidated Balance Sheets.

The actual amounts, when realized at settlement, become a component of purchased gas costs under Southwest’s PGA mechanisms. (For

specific details, see Note 14 – Derivatives).

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

(4)

(5)

(6)

Included in Prepaid and other current assets on the Consolidated Balance Sheets. Balance recovered or refunded on an ongoing basis.

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

Included in Other deferred credits and other long-term liabilities on the Consolidated Balance Sheets. Amortized over life of debt instruments.

(7) The TCJA required a remeasurement and reduction of the net deferred income tax liability. The reduction (excess deferred taxes) became a

regulatory liability with appropriate tax gross-up. The excess deferred taxes reduce rate base. The tax benefit will be returned to utility

customers in accordance with regulatory requirements. Included in Other deferred credits and other long-term liabilities on the Consolidated

Balance Sheets. This amount also includes a $2.9 million gross-up related to contributions in aid of construction.

(8) Regulatory recovery occurs on a one-year lag basis through the labor loading process. Included in Prepaid and other current assets on the

Consolidated Balance Sheets.

(9) 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. Included in Prepaid and other current assets on the Consolidated Balance Sheets.

(10) The following tables detail the components of Other regulatory assets and liabilities. Other regulatory assets are included in either Prepaid and

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

SOUTHWEST GAS HOLDINGS, INC.

| 95

regulatory liabilities are included in either Other current liabilities or Other deferred credits and other long-term liabilities on the Consolidated

Balance Sheets (as indicated).

Other Regulatory Assets

State mandated public purpose programs (including low income and conservation programs) (a) (e)
Infrastructure replacement programs and similar (b) (e)
Environmental compliance programs (c) (e)
Other (d)

2018

2017

$ 6,253
12,486
5,046
8,831

$ 4,832
9,627
9,702
1,836

$32,616

$25,997

Included in Prepaid and other current assets on the Consolidated Balance Sheets. See Prepaid and other current assets in Note 1 –

Background, Organization, and Summary of Significant Accounting Policies.

Included in Deferred charges and other assets on the Consolidated Balance Sheets.

In 2018, approximately $4.5 million included in Prepaid and other current assets and $596,000 included in Deferred charges and other assets

on the Consolidated Balance Sheets. In2017, $9.2 million included in Prepaid and other current assets and $527,000 included in Deferred

charges and other assets on the Consolidated Balance Sheets.

In 2018, $197,000 included in Prepaid and other current assets and $8.6 million included in Deferred charges and other assets on the

Consolidated Balance Sheets. In 2017, $531,000 included in Prepaid and other current assets and $1.3 million included in Deferred charges

and other assets on the Consolidated Balance Sheets. The balance in 2018 includes $6 million authorized as part of the recently concluded

Nevada general rate case associated with self-insurance cost.

Balance recovered or refunded on an ongoing basis, generally with interest.

Other Regulatory Liabilities

State mandated public purpose programs (including low income and conservation programs) (a) (e)
Margin, interest- and property tax-tracking accounts (b) (e)
Environmental compliance programs (e) (f)
Regulatory accounts for differences related to pension funding (c)
Other (d) (e)

2018

2017

$ (8,598) $(10,213)
(9,505)
(8,574)
(3,178)
(1,714)

(7,273)
—
(3,221)
(819)

$(19,911) $(33,184)

Included in Other current liabilities on the Consolidated Balance Sheets.

In 2018, $(539,000) included in Other current liabilities and $(6.7) million included in Other deferred credits and other long-term liabilities

on the Consolidated Balance Sheets. In 2017, $(6.6) million included in Other current liabilities and $(2.9) million included in Other deferred

credits and other long-term liabilities on the Consolidated Balance Sheets.

Included in Other deferred credits and other long-term liabilities on the Consolidated Balance Sheets.

In 2018, $(810,000) included in Other current liabilities and $(9,000) included in Other deferred credits and other long-term liabilities on the

Consolidated Balance Sheets. In 2017, approximately $(1.7) million included in Other current liabilities and $(9,000) included in Other

deferred credits and other long-term liabilities on the Consolidated Balance Sheets.

Balance recovered or refunded on an ongoing basis, generally with interest.

In 2018, included in Prepaid and other current assets on the Consolidated Balance Sheets. In 2017, included in Other current liabilities on the

Consolidated Balance Sheets.

96 | SOUTHWEST GAS HOLDINGS, INC.

Note 6 – 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 Consolidated Balance Sheets and Consolidated Statements of Equity of the Company and Southwest.

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

(Thousands of dollars)

2018

Tax
(Expense)
or
Benefit (1)

Before-
Tax
Amount

Net-of-
Tax
Amount

Before-
Tax
Amount

2017

Tax
(Expense)
or
Benefit (1)

Net-of-
Tax
Amount

Before-
Tax
Amount

2016

Tax
(Expense)
or
Benefit (1)

Net-of-
Tax
Amount

Defined benefit pension plans:
Net actuarial gain/(loss)
Amortization of prior service cost
Amortization of net actuarial (gain)/loss
Regulatory adjustment
Pension plans other comprehensive income (loss)
FSIRS (designated hedging activities):
Amounts reclassified into net income
FSIRS other comprehensive income (loss)
Total other comprehensive income (loss) – South-

west Gas Corporation

Foreign currency translation adjustments:
Translation adjustments
Foreign currency other comprehensive income (loss)
Total other comprehensive income (loss) – South-

$(20,426) $ 4,902 $(15,524)$(43,027) $10,326 $(32,701)$(22,770) $ 8,652 $(14,118)
828
16,781
(3,462)
29

1,335
1,015
25,549
25,445
(6,257) 12,340
(3,907)
4,783

(507)
(10,285)
2,122
(18)

828
15,776
12,590
(3,507)

1,335
33,617
(8,233)
6,293

1,335
27,066
(5,584)
47

(320)
(8,068)
1,976
(1,510)

(507)
(9,669)
250
400

3,345
3,345

(804)
(804)

2,541
2,541

3,344
3,344

(1,271)
(1,271)

2,073
2,073

3,345
3,345

(1,270)
(1,270)

2,075
2,075

9,638

(2,314)

7,324

(563)

(871)

(1,434)

3,392

(1,288)

2,104

(3,010)
(3,010)

— (3,010)
— (3,010)

1,771
1,771

—
—

1,771
1,771

161
161

—
—

161
161

west Gas Holdings, Inc.

$ 6,628 $(2,314) $ 4,314 $ 1,208 $ (871) $

337 $ 3,553 $ (1,288) $ 2,265

(1) Tax amounts are calculated using a 24% rate following the December 22, 2017 enactment date of the TCJA. For periods prior to the

enactment date, tax amounts were calculated using a 38% rate. At December 31, 2017, excess taxes related to pre-tax amounts which

accumulated in AOCI prior to tax reform were required to remain in the account until the first quarter of 2018, when ASU 2018-02 was

adopted, permitting previously stranded amounts to be released from AOCI and applied to Retained earnings (see table for Accumulated other

comprehensive income (loss), including the balance, below). With regard to foreign currency translation adjustments, the Company has elected

to indefinitely reinvest the earnings of Centuri’s Canadian subsidiaries in Canada, thus preventing deferred taxes on such earnings. As a result

of this assertion, the Company is not recognizing any tax effect or presenting a tax expense or benefit for the currency translation adjustment

amount reported in Other comprehensive income (loss), as repatriation of earnings is not anticipated.

With regard to the table above and the roll-forward tables below, management recognizes tax impacts (associated with underlying
before-tax amounts in AOCI) in both AOCI and in Deferred income taxes and investment tax credits, net on its balance sheets. U.S.
tax reform of the TCJA was enacted on December 22, 2017. U.S. GAAP requires that deferred tax assets and liabilities be adjusted to
reflect the effects of a change in tax laws and rates, and also requires that the effect be included in income from continuing operations
for the period of enactment. As a result, when deferred tax balances on the balance sheet for the period ending December 31, 2017
were remeasured as a result of the TCJA to reflect the change in enacted rates, those adjustments were also reflected in income tax
expense on the Consolidated Statements of Income, as required. However, excess amounts were not able to be released from AOCI
until the first quarter of 2018, when upon adoption of ASU 2018-02, previously stranded amounts were released and reflected in
Retained earnings on Southwest’s and the Company’s Consolidated Balance Sheets, as required by the ASU.

SOUTHWEST GAS HOLDINGS, INC.

| 97

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

$22,000
1,000
1,300

Approximately $2.5 million of realized losses (net of tax) related to the FSIRS, included in AOCI at December 31, 2018, 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,

2017

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

comprehensive income (loss) attribut-
able to Southwest Gas Holdings, Inc.

Defined Benefit Plans

FSIRS

Foreign Currency Items

Tax
(Expense)
Benefit (5) After-Tax

Before-
Tax

Tax
(Expense)
Benefit (5) After-Tax

Before-
Tax

Before-Tax

Tax
(Expense)

Benefit After-Tax Other

AOCI

$(61,520) $22,293 $(39,227)$(12,655) $4,809

$(7,846) $ (609)

$— $ (609) $ — $(47,682)

(20,426)
—

4,902
—

(15,524)
—

(20,426)

4,902

(15,524)

—
—

—

—
—

—

—
— —
— (3,010) —

—
(3,010)

— (15,524)
— (3,010)

— (3,010) —

(3,010)

— (18,534)

—
1,335
33,617
(8,233)

—
(320)
(8,068)
1,976

— 3,345
—
—
—

1,015
25,549
(6,257)

(804)
—
—
—

2,541
—
—
—

— —
— —
— —
— —

—
—
—
—

— 2,541
— 1,015
— 25,549
— (6,257)

6,293

(1,510)

4,783

3,345

(804)

2,541

(3,010) —

(3,010)

— 4,314

Reclassification of excess deferred taxes (4)

—

— —

— (9,300)

(9,300)

Ending Balance AOCI December 31,

2018

$(55,227) $20,783 $(34,444)$ (9,310) $4,005

$(5,305) $(3,619)

$— $(3,619) $(9,300)$(52,668)

(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 11 – 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) Release of excess deferred taxes accumulated prior to December 22, 2017 (date of enactment of the TCJA), as a result of the adoption of ASU

2018-02 during the first quarter of 2018, which permitted such release.

(5) Tax amounts related to the before-tax balance are calculated using a 24% effective rate after the release of previously stranded excess deferred

taxes existing as a result of the TCJA; amounts prior to the December 22, 2017 enactment of the TCJA were calculated using a 38% effective

rate.

98 | SOUTHWEST GAS HOLDINGS, INC.

The following table represents a rollforward of AOCI, presented on Southwest’s Consolidated Balance Sheets:

AOCI—Rollforward
(Thousands of dollars)

Defined Benefit Plans
Tax
(Expense)
Benefit (10)

After-
Tax

Before-Tax

FSIRS
Tax
(Expense)
Benefit (10)

Before-
Tax

After-
Tax Other AOCI

Beginning Balance AOCI December 31, 2017

$(61,520)

$22,293

$(39,227)$(12,655)

$4,809

$(7,846)$ — $(47,073)

Net actuarial gain/(loss)

Other comprehensive income before reclassifications
FSIRS amounts reclassified from AOCI (6)
Amortization of prior service cost (7)
Amortization of net actuarial loss (7)
Regulatory adjustment (8)

(20,426)

(20,426)
—
1,335
33,617
(8,233)

4,902

(15,524)

—

4,902
—
(320)
(8,068)
1,976

(15,524)

—
— 3,345
—
—
—

1,015
25,549
(6,257)

—

—
(804)
—
—
—

—

—
2,541
—
—
—

— (15,524)

— (15,524)
— 2,541
— 1,015
— 25,549
— (6,257)

Net current period other comprehensive income (loss) attributable to

Southwest Gas Corporation

Reclassification of excess deferred taxes (9)

Ending Balance AOCI December 31, 2018

6,293

(1,510)

4,783

3,345

(804)

2,541

— 7,324

—

— (9,300)

(9,300)

$(55,227)

$20,783

$(34,444)$ (9,310)

$4,005

$(5,305)$(9,300)$(49,049)

(6) The FSIRS reclassification amounts are included in the Net interest deductions line item on the Consolidated Statements of Income.

(7) These AOCI components are included in the computation of net periodic benefit cost (see Note 11 – Pension and Other Postretirement

Benefits for additional details).

(8) 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).

(9) Release of excess deferred taxes accumulated prior to December 22, 2017 (date of enactment of the TCJA), as a result of the adoption of ASU

2018-02 during the first quarter of 2018, which permitted such release.

(10) Tax amounts related to the before-tax balances are calculated using a 24% effective rate after the release of previously stranded excess deferred

taxes existing as a result of the TCJA; amounts prior to the December 22, 2017 enactment of the TCJA were calculated using a 38% effective

rate.

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, 2018 and 2017:

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

2018

2017

$(435,364) $(448,555)
(4,368)
391,403

(3,033)
383,170

$ (55,227) $ (61,520)

See Note 11 – Pension and Other Postretirement Benefits for more information on the defined benefit pension plans and Note 14
– Derivatives for more information on the FSIRS.

Note 7 – Common Stock
On March 29, 2017, the Company filed with the SEC an automatic shelf registration statement on Form S-3 (File No. 333-217018),
which became effective upon filing, for the offer and sale of up to $150 million of common stock from time to time in at-the-market
offerings under the prospectus included therein and in accordance with the Sales Agency Agreement, dated March 29, 2017, between

SOUTHWEST GAS HOLDINGS, INC.

| 99

the Company and BNY Mellon Capital Markets, LLC (the “Equity Shelf Program”). The following table provides the activity in the
Equity Shelf Program for the three and twelve months ended December 31, 2018:

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2018

2017

2018

2017

Gross proceeds
Less: agent commissions

Net proceeds

Number of shares sold
Weighted average price per share

—
—

—

—
—

$29,999,922 $85,149,976 $41,776,795
417,768

299,999

851,500

$29,699,923 $84,298,476 $41,359,027

358,630

1,145,705

83.65 $

74.32 $

505,707
82.61

As of December 31, 2018, the Company had up to $23,073,229 of common stock available for sale under the program. Net proceeds
from the sale of shares of common stock under the Equity Shelf Program are intended for general corporate purposes, including the
acquisition of property for the construction, completion, extension, or improvement of pipeline systems and facilities located in and
around the communities served by Southwest. Net proceeds during the twelve months ended December 31, 2018 were contributed
to, and reflected in the records of, Southwest (as a capital contribution from Southwest Gas Holdings, Inc.).

Aside from the automatic shelf registration, in December 2017, the Company and Southwest jointly filed with the SEC an automatic
shelf registration statement (File No. 333-222047), which became effective upon filing and includes a prospectus detailing the
Company’s ability to offer and sell, from time to time in amounts at prices and on terms that will be determined at the time of such
offering, any combination of common stock, preferred stock, debt securities (which may or may not be guaranteed by one or more of
its directly or indirectly wholly owned subsidiaries if indicated in the relevant prospectus supplement), guarantees of debt securities
issued by Southwest, depository shares, warrants to purchase common stock, preferred stock or depository shares issued by the
Company or debt securities issued by the Company or Southwest, units and rights (the “Universal Shelf”). Additionally as part of the
Universal Shelf, Southwest may offer and sell, from time to time in amounts at prices and on terms that will be determined at the time
of such offering, any combination of debt securities (which may or may not be guaranteed by one or more of its directly or indirectly
wholly owned subsidiaries if indicated in the relevant prospectus supplement) and guarantees of debt securities issued by the
Company or by one or more of its directly or indirectly wholly owned subsidiaries if indicated in the relevant prospectus supplement.

In November 2018, the Company sold, through a prospectus supplement under the Universal Shelf, an aggregate of 3,565,000 shares
of common stock, in an underwritten public offering, at $75.50 per share, resulting in proceeds to the Company of $260,073,524, net
of $9,083,976 underwriters’ discount. The Company used a portion of the net proceeds from the offering to facilitate, in association
with Centuri, the purchase of Linetec, to pay down outstanding borrowings under the Company’s credit facility, and used the
remaining amounts for general corporate purposes. Refer to Note 19 – Business Acquisitions regarding the acquisition of Linetec
and Note 9 – Short-Term Debt for information on the Company’s credit facility.

During 2018, the Company issued approximately 83,000 shares of common stock through the Restricted Stock/Unit Plan, and
Management Incentive Plan.

Additionally during 2018, the Company issued 143,000 shares of common stock through the Dividend Reinvestment and Stock
Purchase Plan (“DRSPP”), raising proceeds of approximately $10.6 million.

As of December 31, 2018, there were 4.4 million common shares registered and available for issuance under the provisions of the
various stock issuance plans, which does not include the amount of common stock available that is separately disclosed under the
Equity Shelf Program above.

100 | SOUTHWEST GAS HOLDINGS, INC.

Note 8 – Long-Term Debt
Carrying amounts of long-term debt and related estimated fair values as of December 31, 2018 and December 31, 2017 are disclosed
in the following table. Southwest’s revolving credit facility (including commercial paper) and the variable-rate Industrial
Development Revenue Bonds (“IDRBs”) approximate their carrying values, as they are repaid quickly (in the case of credit facility
borrowings) and have interest rates that reset frequently. These are categorized as Level 1 due to Southwest’s ability to access similar
debt arrangements at measurement dates with comparable terms, including variable/market rates. The fair values of Southwest’s
debentures, senior notes, and fixed-rate IDRBs were determined utilizing a market-based valuation approach, where fair values are
determined based on evaluated pricing data, such as broker quotes and yields for similar securities adjusted for observable differences.
Significant inputs used in the valuation generally include benchmark yield curves, credit ratings, and issuer spreads. The external
credit rating, coupon rate, and maturity of each security are considered in the valuation, as applicable. The fair values of debentures
and fixed-rate IDRBs are categorized as Level 2. The Centuri secured revolving credit and term loan facility and Centuri other debt
obligations are categorized as Level 3, based on significant unobservable inputs to their fair values. Because 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. The fair value hierarchy is described
in Note 1 – Background, Organization, and Summary of Significant Accounting Policies.

(Thousands of dollars)
Southwest Gas Corporation:
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
Notes, 3.7%, due 2028
8% Series, due 2026
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

Revolving credit facility and commercial paper

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
Unamortized discount and debt issuance costs

Less: current maturities

SOUTHWEST GAS HOLDINGS, INC.

101

December 31, 2018
Market
Carrying
Value
Amount

December 31, 2017
Market
Carrying
Value
Amount

$ 125,000 $126,213 $ 125,000 $129,273
125,000 158,304
250,000 256,163
250,000 283,243
300,000 302,970
—
96,063
28,714
31,542
8,882

150,728
254,195
268,985
267,030
298,926
93,827
27,497
30,016
8,651

125,000
250,000
250,000
300,000
300,000
75,000
25,000
25,000
7,500
(11,807)

—
75,000
25,000
25,000
7,500
(9,350)

1,470,693

1,173,150

150,000

150,000 150,000

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

50,000
50,000
50,000
50,000
(2,024)

197,976

—

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

50,000
50,000
50,000
50,000
(2,119)

197,881

—

Long-term debt, less current maturities – Southwest Gas Corporation

$1,818,669

$1,521,031

Centuri:
Centuri term loan facility
Unamortized debt issuance costs

Centuri secured revolving credit facility
Centuri other debt obligations
Less: current maturities

$ 255,959
(1,414)

254,545
—
67,104
(33,060)

260,135 $ 199,578 207,588

(1,111)

198,467
56,472
47,952
(25,346)

56,525
48,183

—
67,053

Long-term debt, less current maturities – Centuri

$ 288,589

$ 277,545

Consolidated Southwest Gas Holdings, Inc.:
Southwest Gas Corporation long-term debt
Centuri long-term debt
Less: current maturities

Long-term debt, less current maturities – Southwest Gas Holdings, Inc.

$1,818,669
321,649
(33,060)

$2,107,258

$1,521,031
302,891
(25,346)

$1,798,576

Southwest has a $400 million credit facility which expires in March 2022. Southwest designates $150 million of capacity related to the
facility as long-term debt and has designated the remaining $250 million for working capital purposes. Interest rates for the credit
facility are calculated at either the London Interbank Offered Rate (“LIBOR”) or an “alternate base rate,” plus in each case an
applicable margin that is determined based on Southwest’s senior unsecured debt rating. At December 31, 2018, the applicable margin

102 | SOUTHWEST GAS HOLDINGS, INC.

is 1% for loans bearing interest with reference to LIBOR and 0% for loans bearing interest with reference to the alternative base rate.
Southwest is also required to pay a commitment fee, of 0.10% per annum, on the unfunded portion of the commitments, which was
not significant for the year ended December 31, 2018. At December 31, 2018, $150 million was outstanding on the long-term portion
of the credit facility, $50 million 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 3.41% at December 31, 2018. Borrowings under the credit facility
ranged from none at various times throughout 2018 to a high of $378 million during the first quarter of 2018. With regard to the
short-term portion of the credit facility, there was $152 million outstanding at December 31, 2018 and $191 million in borrowings
outstanding at December 31, 2017. (See Note 9 – Short-Term Debt).

Southwest has a $50 million commercial paper program. Any issuance under the commercial paper program is supported by
Southwest’s current revolving credit facility and, therefore, does not represent additional borrowing capacity. Any borrowing under
the commercial paper program will be designated as long-term debt. Interest rates for the program are calculated at the then current
commercial paper rate. At December 31, 2018, and as noted above, $50 million was outstanding under the commercial paper
program.

In March 2018, Southwest issued $300 million in 3.7% Senior Notes at a discount of 0.185%. The notes will mature in March 2028.
The proceeds were used to temporarily pay down, in full, the amount then outstanding under the revolving portion of the credit
facility and the remainder to repay amounts then outstanding under the commercial paper program.

In November 2018, Centuri, in association with the acquisition of Linetec (refer to Note 19 – Business Acquisitions), amended and
increasing the borrowing capacity from $450 million to
restated its senior secured revolving credit and term loan facility,
$590 million. The line of credit portion of the facility increased to $325 million; amounts borrowed and repaid under the revolving
credit facility are available to be re-borrowed. The term loan facility portion increased to $265 million. The $590 million credit and
term loan facility expires in November 2023 and continues to be secured by substantially all of Centuri’s assets except those explicitly
excluded under the terms of the agreement (including owned real estate and certain construction and transportation equipment).
Centuri assets securing the facility at December 31, 2018 totaled $1.1 billion.

Interest rates for Centuri’s $590 million secured revolving credit and term loan facility are calculated at 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 0.875% 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 0.125% to 0.35% per annum. Borrowings under the secured revolving
credit facility ranged from a low of zero during December 2018 to a high of $103 million during July 2018. At December 31, 2018
$256 million in borrowings were outstanding under the combined secured revolving credit and term loan facility.

All amounts outstanding are considered long-term borrowings. The effective interest rate on the secured revolving credit and term
loan facility was 4.1% at December 31, 2018.

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, 2018 December 31, 2017

2.61%
2.52%
2.51%
2.53%

2.44%
2.59%
2.40%
2.56%

SOUTHWEST GAS HOLDINGS, INC.

103

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 a variable interest expense recovery mechanism.

None of Southwest’s debt instruments have credit triggers or other clauses that result in default if bond ratings are lowered by rating
agencies. Interest and fees on certain debt instruments are subject to adjustment depending on Southwest’s bond ratings. Certain debt
instruments are subject to a leverage ratio cap and the 6.1% note due 2041 is also subject to a minimum net worth requirement. At
December 31, 2018, Southwest was in compliance with all of its covenants. Under the most restrictive of the financial covenants,
approximately $2.1 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, 2018, there is at least $1.2 billion of cushion in equity. No specific dividend
restrictions exist under the collective covenants. None of the debt instruments contain material adverse change clauses.

Certain Centuri debt instruments have leverage ratio caps and fixed charge ratio coverage requirements. At December 31, 2018,
Centuri was in compliance with all of its covenants. Under the most restrictive of the covenants, Centuri could issue over
$101 million in additional debt and meet the leverage ratio requirement. Centuri has at least $78 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 utility infrastructure services segment. Centuri’s covenants limit its ability to provide cash dividends to Southwest Gas
Holdings, Inc., its parent. The dividend restriction is equal to a maximum of 60% of its rolling twelve-month consolidated net
income.

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

2019
2020
2021
2022
2023

Southwest

Centuri

Total

$
125,000
—
425,000
—

— $ 33,060
38,296
33,571
35,515
178,614

$ 33,060
163,296
33,571
460,515
178,614

Note 9 – Short-Term Debt
In March 2017, Southwest Gas Holdings, Inc. entered into a credit facility with a borrowing capacity of $100 million that expires in
March 2022. The Company utilizes this facility for short-term financing needs. Interest rates for this facility are calculated at either
LIBOR or the “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, 2018, the applicable margin is 1.125% for loans bearing interest with reference to LIBOR and
0.125% for loans bearing interest with reference to the alternative base rate. The Company is also required to pay a commitment fee,
of 0.15% per annum, on the unfunded portion of the commitments, which was not significant for the period ended December 31,
2018. Borrowings under the credit facility ranged from none at various times throughout 2018 to a high of $23.5 million during the
first quarter of 2018. At December 31, 2018 and 2017, there were no borrowings and $23.5 million outstanding under this facility,
respectively, with a weighted average interest rate of 2.65% at December 31, 2017.

At December 31, 2018, Southwest Holdings, Inc. was in compliance with all of its credit facility covenants. Interest and fees on the
credit facility are subject to adjustment depending on its bond ratings. The credit facility is subject to a leverage ratio cap. No specific
dividend restrictions exist under the collective covenants. The credit facility does not contain a material adverse change clause.

As discussed in Note 8 – Long-Term Debt, Southwest has a $400 million credit facility that is scheduled to expire in March 2022, of
which $250 million has been designated by management for working capital purposes. Southwest had $152 million of short-term

104 | SOUTHWEST GAS HOLDINGS, INC.

borrowings outstanding at December 31, 2018 and $191 million short-term borrowings outstanding at December 31, 2017 with
weighted average interest rates of 3.47% and 2.52%, respectively.

Note 10 – Commitments and Contingencies
The Company and Southwest are defendants in miscellaneous legal proceedings. The Company and Southwest are also parties to
various regulatory proceedings. The ultimate dispositions of these proceedings are not presently determinable; however, it is the
opinion of management that no litigation or regulatory proceeding to which the Company and Southwest are currently subject to will
have a material adverse impact on their 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
2018 to July 2019, 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.

Centuri maintains liability insurance for various risks associated with its operations. In connection with these liability insurance
policies, Centuri is responsible for an initial deductible or self-insured retention amount per occurrence, after which the insurance
carriers would be responsible for amounts up to the policy limits. For the policy year April 2018 to March 2019, Centuri is
responsible for the first $300,000 (self-insured retention) per occurrence under these liability insurance policies.

Note 11 – 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.

2018

2017

2016

$5,530

$5,112

$4,976

A deferred compensation plan is offered to all officers of Southwest and a separate deferred compensation plan for members of the
Company’s 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 Southwest’s officers.
Postretirement benefits other than pensions (“PBOP”) are provided to qualified retirees for health care, dental, and life insurance
benefits.

SOUTHWEST GAS HOLDINGS, INC.

105

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.

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 Southwest. The investment manager has full discretionary authority to direct the investment of plan assets held
in trust within the specific guidelines prescribed by Southwest through the plan’s investment policy statement. In 2016, Southwest
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. Pension plan assets are held in a Master Trust. 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 a 75 basis points increase in the discount rate between years, as reflected below. The methodology utilized to determine the
discount rate was consistent with prior years. The weighted-average rate of compensation increase remained the same (consistent with
management’s expectations overall). The asset return assumption (which impacts the following year’s expense) remained unchanged.
The rates are presented in the table below:

Discount rate
Weighted-average rate of compensation increase
Asset return assumption

December 31, 2018

December 31, 2017

4.50%
3.25%
7.00%

3.75%
3.25%
7.00%

Pension expense for 2019 is estimated to be less than that experienced in 2018. Future years’ expense level movements (up or down)
will continue to be greatly influenced by long-term interest rates, asset returns, and funding levels.

106 | SOUTHWEST GAS HOLDINGS, INC.

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.

2018

2017

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 end of year

$1,203,484
28,555
44,174
(102,919)
(57,280)

$ 45,727
245
1,658
(3,940)
(3,087)

$ 75,322
1,473
2,748
(6,020)
(3,567)

$1,048,353
23,392
46,083
133,017
(47,361)

$ 43,311
309
1,883
3,334
(3,110)

$ 73,865
1,468
3,232
(71)
(3,172)

1,116,014

40,603

69,956

1,203,484

45,727

75,322

871,665
(67,771)
44,000
(57,280)

790,614

— 54,608
(3,061)
—
—
3,087
(4,206)
(3,087)

— 47,341

738,962
144,064
36,000
(47,361)

871,665

— 48,113
7,742
—
—
3,110
(1,247)
(3,110)

— 54,608

Funded status at year end

$ (325,400)

$(40,603) $(22,615)

$ (331,819)

$(45,727) $(20,714)

Weighted-average assumptions (benefit obliga-

tion)
Discount rate
Weighted-average rate of compensation

4.50%

3.75%

increase

3.25%

N/A

3.25%

N/A

Estimated funding for the plans above during calendar year 2019 is approximately $55 million, of which $52 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, 2018 December 31, 2017

$1,024,030
38,793

$1,088,203
44,343

SOUTHWEST GAS HOLDINGS, INC.

107

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

Pension
SERP
PBOP

2019

$54.0
3.0
4.5

2020

$55.0
2.9
4.6

2021

$56.0
2.9
4.6

2022

$58.0
2.9
4.6

2023

$59.0
2.8
4.5

2024-2028

$319.0
13.6
20.9

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 6.0%,
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.

As of January 1, 2018, the Company adopted “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The update requires that an employer report the service cost
component in the same line item or items as other compensation costs arising from services rendered by the employees during the
period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost
component and outside a subtotal of income from operations and be appropriately described. The update also allows only the service
cost component (and not the other components of periodic benefit costs) to be eligible for capitalization when applicable, making no
exception for specialized industries, including rate-regulated industries. This guidance is required to be applied on a retrospective basis
for the presentation of the service cost and other components of net benefit cost, and on a prospective basis for the capitalization of
only the service cost component of net benefit cost. Amounts capitalized as part of assets prior to the date of adoption were not
adjusted through a cumulative effect adjustment. The guidance allows a practical expedient for the retrospective application that
permits use of the amounts disclosed for the various components of net benefit cost in the pension and other postretirement benefit
plans footnote as the basis for the retrospective application. This is in lieu of determining how much of the various components of net
benefit cost were actually reflected in the income statement each period as a result of capitalization of certain costs into assets and their
subsequent amortization. The Company and Southwest have elected to utilize the practical expedient.

Therefore, upon adoption of the update to Topic 715, amounts presented in the Company’s and Southwest’s Consolidated
Statements of Income for the years ended 2017 and 2016 have been revised as required by the update, as follows (in thousands):

Southwest Gas Holdings, Inc.

Operations and maintenance
Other income (deductions)

Southwest Gas Corporation

Operations and maintenance
Other income (deductions)

December 31, 2017

December 31, 2016

As
Reported

Reclassification

Revised

As
Reported

Reclassification

Revised

$412,187
13,394

$(19,424)
(19,424)

$392,763
(6,030)

$401,724
9,469

$(19,760)
(19,760)

$381,964
(10,291)

$410,745
13,036

$(19,424)
(19,424)

$391,321
(6,388)

$401,724
8,276

$(19,760)
(19,760)

$381,964
(11,484)

Operating income increased by the same amounts that Operations and maintenance expense decreased as reflected in the table above;
however, net income was not impacted by this reclassification for either the Company or Southwest.

The service cost component of net periodic benefit costs included in the table below is part of an overhead loading process associated
with the cost of labor (refer to discussion above in association with the update to Topic 715). The overhead process ultimately results

108 | SOUTHWEST GAS HOLDINGS, INC.

in allocation of that portion of overall net periodic benefit costs to the same accounts to which productive labor is charged. As a result,
service costs become components of various accounts, primarily Operations and maintenance expense, Net utility plant, and Deferred
charges and other assets for both the Company and Southwest. Refer to the discussion above regarding the practical expedient elected
related to amounts capitalized as part of assets prior to the adoption date.

Components of net periodic benefit cost:

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

Qualified Retirement Plan
2016
2017
2018

SERP
2017

2018

2016

2018

PBOP
2017

2016

46,083

46,027 1,658 1,883 1,859

$ 28,555 $ 23,392 $ 22,833 $ 245 $ 309 $ 331 $ 1,473 $ 1,468 $ 1,499
3,180
— (3,718) (3,358) (3,149)
1,335
— 1,335
— 417
—

44,174
(58,755) (55,196) (56,558) —
—
—
24,004

25,266 1,502 1,441 1,383

—
32,115

—
—

1,335

3,232

2,748

—

Net periodic benefit cost

$ 46,089 $ 38,283 $ 37,568 $3,405 $3,633 $3,573 $ 1,838 $ 2,677 $ 3,282

Weighted-average assumptions (net benefit cost)

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

3.75% 4.50% 4.50% 3.75% 4.50% 4.50% 3.75% 4.50% 4.50%
7.00% 7.00% 7.25%
7.00% 7.00% 7.25% N/A N/A N/A

3.25% 3.25% 3.25% 3.25% 3.25% 3.25% N/A N/A N/A

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

(Thousands of dollars)
Net actuarial loss (gain) (a)
Amortization of prior
service cost (b)
Amortization of net
actuarial loss (b)
Regulatory adjustment

Recognized in other comprehensive (income)

loss

Net periodic benefit costs recognized in net

income

Total of amount

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

2018

Qualified
Retirement
Plan

Total

SERP

PBOP

Total

2017

Qualified
Retirement
Plan

SERP

PBOP

Total

2016

Qualified
Retirement
Plan

SERP

PBOP

$ 20,426 $ 23,607 $(3,940) $

759 $ 43,027 $ 44,149 $ 3,334 $(4,456) $ 22,770 $ 25,153 $ 1,347 $(3,730)

(1,335)

—

— (1,335)

(1,335)

—

— (1,335)

(1,335)

—

— (1,335)

(33,617)
8,233

(32,115)
7,657

(1,502)
—

— (25,445)
(12,340)

576

(24,004)
(18,131)

(1,441)

— 5,791

— (27,066)
5,584

(25,266)
102

(1,383)

(417)
— 5,482

(6,293)

(851)

(5,442)

— 3,907

2,014

1,893

—

(47)

(11)

(36)

—

51,332

46,089

3,405

1,838

44,593

38,283

3,633

2,677

44,423

37,568

3,573

3,282

$ 45,039 $ 45,238 $(2,037) $ 1,838 $ 48,500 $ 40,297 $ 5,526 $ 2,677 $ 44,376 $ 37,557 $ 3,537 $ 3,282

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 6 – Other Comprehensive Income and Accumulated Other Comprehensive Income (“AOCI”).

SOUTHWEST GAS HOLDINGS, INC.

109

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, 2018 and December 31, 2017. The SERP has no assets.

Assets at fair value (thousands of dollars):

Level 1 – Quoted prices in active markets for identical financial assets

Mutual funds

Total Level 1 Assets (1)

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

International
U.S. equity securities
Emerging markets

Private commingled fixed income funds (3)
Pooled funds and mutual funds
Government fixed income and mortgage backed securities

Total Level 2 assets (4)

Total Plan assets at fair value

Insurance company general account contracts (5)

Total Plan assets

December 31, 2018

December 31, 2017

Qualified
Retirement
Plan

PBOP

Total

Qualified
Retirement
Plan

PBOP

Total

— $25,299

$ 25,299

— $25,299

$ 25,299

— $27,020

$ 27,020

— $27,020

$ 27,020

$309,745
147,693
50,817
274,062
5,198
163

$ 8,484
4,045
1,392
7,506
610
5

$318,229
151,738
52,209
281,568
5,808
168

$340,217
165,937
56,259
301,217
4,676
172

$10,577
5,158
1,749
9,364
735
5

$350,794
171,095
58,008
310,581
5,411
177

$787,678

$22,042

$809,720

$868,478

$27,588

$896,066

$787,678
2,936

$47,341
—

$835,019
2,936

$868,478
3,187

$54,608
—

$923,086
3,187

$790,614

$47,341

$837,955

$871,665

$54,608

$926,273

(1) The Mutual funds category above is a balanced fund that invests in a diversified portfolio of common stocks, preferred stocks,
and fixed-income securities. The fund seeks regular income, conservation of principal, and an opportunity for long-term growth
of principal and income.

(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. Strategies employed by the
funds include investment in:

• International developed countries equities
• Domestic equities
• Emerging markets equities

Shares in the private commingled 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 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 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 fund 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 U.S., Europe, and Asia, as well as within those listed on emerging
country equity markets on a tactical basis.

110 | SOUTHWEST GAS HOLDINGS, INC.

The domestic equities securities funds include a large and medium capitalization fund and a small capitalization fund. 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 U.S. 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 U.S., Canada,
Japan, Australia, New Zealand, Hong Kong, and Singapore, and most 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 consist primarily of fixed income debt securities issued by the U.S. Treasury,
government agencies, and fixed income debt securities issued by corporations. The fixed income fund investments may include
the use of high yield, international fixed income securities and other instruments, including derivatives, to ensure prudent
diversification over a broad spectrum of investments. The changes in the value of the fixed income funds are intended to offset
the changes in the pension plan liabilities due to changes in the discount rate.

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 fixed income funds and reported at NAV, due to the short redemption notice
period, the lack of 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 not
excluded from the body of the fair value table as a reconciling item.

(4) With the exception of items (2) and (3), which are discussed in detail above, the 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.

(5) 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.

Note 12 – Share-Based Compensation
At December 31, 2018, three share-based compensation plans existed at Southwest: an omnibus incentive plan, a management
incentive plan, and a restricted stock/unit plan. All previous grants under the stock option plan expired in 2016. The table below
shows total share-based plan compensation expense which was recognized in the Consolidated Statements of Income (in thousands):

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

2018

2017

2016

$4,644
1,467

$6,751
4,137

$7,185
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 currently 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.

SOUTHWEST GAS HOLDINGS, INC.

111

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

Outstanding at the beginning of the year

Exercised during the year

Forfeited or expired during the year

Outstanding and exercisable at year end

2018

2017

2016

Number
of
options

Weighted-
average
exercise
price

Number of
options

Weighted-
average
exercise
price

Number of
options

Weighted-
average
exercise
price

—

N/A

—

N/A

—

N/A

—

N/A

(17)

—

$31.64

31.64

—

N/A

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

2018

2017

$—
—

2016

$ —
554

December 31, 2018 December 31, 2017 December 31, 2016

Market value of Company stock

$76.50

$80.48

$76.62

In 2017, the Board of Directors of the Company and shareholders approved the omnibus incentive plan. The purpose of the omnibus
incentive plan is to promote the long-term growth and profitability of the Company by providing directors, employees, and certain
other individuals with incentives to increase shareholder value and otherwise contribute to the success of the Company. In addition,
the plan will enable the Company to attract, retain, and reward the best available persons for positions of responsibility. The omnibus
incentive plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance
shares, and other equity-based and cash awards. Employees, directors, and consultants who provide services to the Company or any
subsidiary may be eligible under this plan.

Under the management incentive plan, awards were historically granted to encourage key employees of Southwest to remain as
employees and to achieve short-term and long-term performance goals. Plan participants were eligible to receive a cash bonus (i.e.,
short-term incentive) and shares (i.e., long-term incentive). The shares granted vest three years after grant and are then issued as
common stock. No new share grants will be made under the management incentive plan as all future incentive share compensation
will be granted under the omnibus incentive plan.

Restricted stock/units under the restricted stock/unit plan were issued to attract, motivate, retain, and reward key employees of
Southwest 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 occurred immediately upon grant.
The issuance of common stock for directors currently occurs when their service on the Board ends. No new grants will be made under
the legacy restricted stock/unit plan as all future incentive compensation, including restricted stock, will be granted under programs of
the omnibus incentive plan. For grants under the omnibus incentive plan, directors continue to immediately vest in the shares upon
grant but are provided the option to defer receipt of equity compensation until they leave the Board of Directors. With regard to
management, grants of time-lapse restricted stock vest based on the same percentages indicated above under the legacy program.

112 | SOUTHWEST GAS HOLDINGS, INC.

Performance-based incentive opportunities under the omnibus plan were granted to all officers of Southwest in the form of
performance shares and will be based on, depending on the officer, consolidated earnings per share, utility net income, and utility
return on equity, with an adjustment based on relative total shareholder return, in each case, measured over a three-year performance
period from January 1, 2018 to December 31, 2020 for the performance shares granted in 2018, and from January 1, 2017 to
December 31, 2019 for the performance shares granted in 2017. Southwest recorded $2.1 million and $1.2 million of estimated
compensation expense associated with these shares during 2018 and 2017, respectively.

The following table summarizes the activity of the management incentive plan shares and restricted stock/units as of December 31,
2018 (thousands of shares):

Nonvested/unissued at December 31, 2017

Granted
Dividends
Forfeited or expired
Vested and issued (2)

Nonvested/unissued at December 31, 2018

Management
Incentive
Plan Shares

127
—
2
(1)
(63)

Weighted-
average
grant date
fair value

$63.98

66.86
59.41

$66.51

Restricted
Stock/
Units (1)

Weighted-
average
grant date
fair value

305
77
7
(1)
(65)

323

$57.41
69.16

72.39
71.00

$56.16

(1) The number of securities granted includes 34,000 performance shares, which was derived by assuming that target performance will be achieved

during the relevant performance period.

(2)

Includes shares for retiree payouts and those converted for taxes.

The weighted average grant date fair value of management incentive plan shares granted in 2017 and 2016 was $85.44 and $59.05,
respectively. The weighted average grant date fair value of restricted stock/units granted in 2017 and 2016 was $85.39 and $60.39,
respectively.

As of December 31, 2018, total compensation cost related to nonvested management incentive plan shares and restricted stock/units
not yet recognized is $4.0 million, which is expected to be recognized over a weighted average period of 1.5 years.

Note 13 – Income Taxes
On December 22, 2017, the TCJA was enacted. The majority of the provisions of the TCJA are effective for taxable years beginning
after December 31, 2017. The TCJA significantly changes the taxation of business entities with specific provisions for regulated
public utilities, such as Southwest.

The following are the major provisions (not all-inclusive) of the TCJA’s impact on the Company and Southwest:

• Reduction of the federal income tax rate from 35% to 21%, effective January 1, 2018.
• Bonus depreciation considerations for utility property placed-in-service after September 27, 2017.
100% bonus depreciation for most non-utility property placed-in-service after September 27, 2017.
•
Interest expense limitations for interest allocable to non-utility businesses. Interest expense allocable to utility businesses will
•
have no limitation.

Under U.S. GAAP, specifically ASC Topic 740 “Income Taxes” (“ASC 740”), the tax effects of changes in tax laws must be
recognized in the period in which the law is enacted. Therefore, the TCJA impacted the Company’s and Southwest’s financial

SOUTHWEST GAS HOLDINGS, INC.

113

statements in the fourth quarter of 2017. ASC 740 also requires deferred tax assets and liabilities to be re-measured at the enacted tax
rate expected to apply when temporary differences are to be realized or settled. Thus, at the date of enactment, the Company’s
deferred taxes were re-measured using the new federal income tax rate (21%). For regulated entities, the reduction in plant-related
deferred tax liabilities is recorded as a regulatory liability to be refunded to customers. For unregulated operations, the change in
deferred taxes is recorded as an adjustment to deferred tax expense.

The staff of the SEC recognized the complexity of determining the impact of the TCJA, and on December 22, 2017 issued guidance
in Staff Accounting Bulletin 118 (“SAB 118”). SAB 118 provides that to the extent the accounting for certain income tax effects of
the TCJA is incomplete, but a company can determine a reasonable estimate for those effects, the company may include in its financial
statements the reasonable estimate that it had determined. The reasonable estimate would be reported as a provisional amount in the
company’s financial statements during a “measurement period”, not to exceed one year from the date of enactment of the TCJA.

Southwest and the Company included provisional reasonable estimates for the measurement and accounting of the effects of the
TCJA, which were reflected in the consolidated financial statements as of and for the year ended December 31, 2017. The Company
and Southwest continued to analyze and refine the estimate and classification of all provisional items, during the measurement period,
as additional accounting, regulatory, and U.S. Treasury guidance was provided. Adjustments made to the provisional amounts allowed
under SAB 118 were identified and recorded as discrete adjustments during the year ended December 31, 2018. The accounting was
completed in the fourth quarter of 2018.

Southwest Gas Holdings, Inc.:

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

Year ended December 31,

U.S.
Foreign

Total income before income taxes

2018

2017

2016

$235,120
8,216

$246,131
12,899

$218,810
12,713

$243,336

$259,030

$231,523

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

Year Ended December 31,

2018

2017

2016

Current:
Federal
State
Foreign

Deferred:
Federal
State
Foreign

Total income tax expense

$(13,476)
(3,219)
2,563

$ (1,316)
2,965
5,203

541
5,748
4,298

(14,132)

6,852

10,587

67,784
8,901
(869)

58,443
1,837
(2,044)

68,270
140
(529)

75,816

58,236

67,881

$ 61,684

$65,088

$78,468

114 | SOUTHWEST GAS HOLDINGS, INC.

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
Regulatory Adjustments
All other deferred

Total deferred federal and state
Deferred ITC, net

Total deferred income tax expense

2018

2017

2016

$ 94,899
(3,507)
(7,334)
2,412
(10,041)

$44,516
8,500
(2,517)
14,401
(5,935)

$ 76,217
361
(1,327)
6,322
(12,854)

76,429
(613)

58,965
(729)

68,719
(838)

$ 75,816

$58,236

$ 67,881

A reconciliation of the U.S. federal statutory rate to the consolidated effective tax rate for 2018, 2017, 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

Tax credits

Company owned life insurance

Change in U.S. Federal Income Tax Rate

All other differences

Consolidated effective income tax rate

2018

2017

2016

21.0% 35.0% 35.0%

2.9

(0.3)

0.1

1.1

(0.4)

(1.6)

— (7.8)

1.4

(0.4)

(1.2)

—

1.6

(1.2)

(0.9)

25.3% 25.1% 33.9%

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 and excess deferred taxes

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

SOUTHWEST GAS HOLDINGS, INC.

115

2018

2017

$105,791

$ 98,912

39,215

21,603

13,125

2,235

17,215

31,323

4,390

11,460

3,037

13,870

(1,132)

(728)

198,052

162,264

678,307

598,371

6,097

368

3,110

7,807

6,067

981

3,380

7,656

30,300

21,289

725,989

637,744

$527,937

$475,480

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

Southwest Gas Corporation:

2018

2017

$1,430
—
459
—
—
—
—

$1,231
100
—
99
—
—
—

$ 971

$1,430

The following is a summary of income before taxes for continuing and discontinued operations (refer to Note 1 – Background,
Organization, and Summary of Significant Accounting Policies) (thousands of dollars):

Year ended December 31,

Income from continuing operations before income taxes
Income from discontinued operations before income taxes

Total income before income taxes

2018

2017

2016

$182,833
—

$219,953
—

$178,007
53,516

$182,833

$219,953

$231,523

116 | SOUTHWEST GAS HOLDINGS, INC.

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

Year Ended December 31,

Current:
Federal
State

Deferred:
Federal
State

Total income tax expense from continuing operations
Discontinued operations

Total income tax expense

2018

2017

2016

$(17,584) $
(6,783)

318
1,420

$ (9,695)
2,510

(24,367)

1,738

(7,185)

58,136
10,222

60,662
735

66,037
(268)

68,358

61,397

65,769

43,991
—

63,135

58,584
— 19,884

$ 43,991

$63,135

$78,468

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
Regulatory Adjustments
All other deferred

Total deferred federal and state
Deferred ITC, net

Total deferred income tax expense

2018

2017

2016

$67,576
(3,507)
2,156
2,412
334

$49,129
8,500
(5,707)
14,401
(4,197)

$ 72,811
361
(139)
6,322
(12,748)

68,971
(613)

62,126
(729)

66,607
(838)

$68,358

$61,397

$ 65,769

Year Ended December 31,

U.S. federal statutory income tax rate

Net state taxes
Tax credits
Company owned life insurance
Change in U.S. Federal Income Tax Rate
All other differences

Effective income tax rate from continuing operations

2018

2017

2016

21.0% 35.0% 35.0%
0.8
0.6
2.1
(0.5)
(0.4)
(0.4)
0.3
(1.5)
(1.7)
— (3.6) —
(0.9)
(1.2)
1.1

24.1% 28.7% 32.9%

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 and excess deferred taxes

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

Other

Net deferred tax liabilities

SOUTHWEST GAS HOLDINGS, INC.

117

2018

2017

$105,791

$ 98,912

17,337

21,603

4,557

2,235

9,386

18,707

4,390

10,070

3,037

8,820

(37)

(58)

160,872

143,878

614,205

561,493

6,097

368

3,110

6,067

981

3,380

27,550

17,200

651,330

589,121

$490,458

$445,243

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

Unrecognized tax benefits at end of year

2018

2017

$1,069
—
98
—
—
—
—

$ 903
67
—
99
—
—
—

$ 971

$1,069

The Company’s regulated operations accounting for income taxes is impacted by the FASB’s ASC 980 – Regulated Operations.
Reductions in accumulated deferred income tax balances due to the reduction in the corporate income tax rates to 21% under the
provisions of the TCJA may result in a refund of excess deferred taxes to customers, generally through reductions in future rates. The
TCJA includes provisions that stipulate how these excess deferred taxes may be passed back to customers for certain accelerated tax
depreciation benefits. Potential refunds of other deferred taxes will be determined in conjunction with appropriate regulatory
commissions. As part of the recently concluded Nevada general rate case, excess deferred taxes will begin being refunded to customers
starting in January 2019. The December 31, 2018 balance sheets of Southwest and the Company reflect the impact of the TCJA with
a recorded regulatory liability of $456 million.

118 | SOUTHWEST GAS HOLDINGS, INC.

The Company and its subsidiaries file a consolidated federal income tax return in the U.S. and in various states, as well as in Canada.
With few exceptions, the Company is no longer subject to U.S. federal, state and local, or Canadian income tax examinations for years
before 2014.

The Company and each of its subsidiaries, including Southwest, participate in a tax sharing agreement to establish the method for
allocating tax benefits and losses among members of the consolidated group. The consolidated federal income tax is apportioned
among the subsidiaries using a separate return method.

At December 31, 2018, the Company has a federal net operating loss carryforward of $62.5 million which may be carried forward
indefinitely. The Company also has general business credits of $3.5 million, which begin to expire in 2035. The Company has net
capital loss carryforwards of $107,000, which will begin to expire in 2019. At December 31, 2018, the Company has an income tax net
operating loss carryforward related to Canadian operations of $7.6 million, which begins to expire in 2034.

Management intends to continue to permanently reinvest any future foreign earnings in Canada.

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 evaluations of 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% 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.

At December 31, 2018, the total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was
$1 million individually for both the Company and Southwest. No significant increases or decreases in unrecognized tax benefit are
expected within the next 12 months.

The Company and Southwest recognize interest expense and income and penalties related to income tax matters in income tax
expense. There was no tax-related interest income for 2018, 2017, and 2016.

Note 14 – Derivatives
Derivatives.
In managing its natural gas supply portfolios, Southwest has historically entered into fixed- and variable-price contracts,
which qualify as derivatives. Additionally, Southwest utilizes fixed-for-floating swap contracts (“Swaps”) to supplement its fixed-price
contracts. The fixed-price contracts, firm commitments to purchase a fixed amount of gas in the future at a fixed price, qualify for the
normal purchases and normal sales exception that is allowed for contracts that are probable of delivery in the normal course of
business, and are exempt from fair value reporting. The variable-price contracts qualify as derivative instruments; however, because the
contract price is the prevailing price at the future transaction date, the contract has no determinable fair value. The Swaps’ contract
prices are determined at the beginning of each month to reflect that month’s published first of month index price and are recorded at
fair value. Southwest does not utilize derivative financial instruments for speculative purposes, nor does it have trading operations.

SOUTHWEST GAS HOLDINGS, INC.

119

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 2019 through October 2020. 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, 2018 December 31, 2017

13,387

10,929

The following table sets forth the gains and (losses) recognized on Southwest’s Swaps (derivatives) for the years ended December 31,
2018, 2017, and 2016 and their location in the Consolidated Statements of Income:

Instrument

Swaps
Swaps

Total

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

Net cost of gas sold
Net cost of gas sold

2018

2017

2016

$(2,113)
2,113*

$(11,572)
11,572*

$ 5,006
(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.

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

Fair values of derivatives not designated as hedging instruments:

December 31, 2018 Instrument

Balance Sheet Location

Swaps
Swaps
Swaps

Total

December 31, 2017
Instrument

Swaps
Swaps

Total

Prepaid and other current assets
Other current liabilities
Other deferred credits

Balance Sheet Location

Deferred charges and other assets
Prepaid and other current assets

Asset
Derivatives

Liability
Derivatives

Net
Total

$ 243
1,595
141

$
(99)
(3,347)
(251)

$
144
(1,752)
(110)

$1,979

$(3,697)

$(1,718)

Asset
Derivatives

Liability
Derivatives

Net
Total

11
19

$(4,468)
(1,342)

$(4,457)
(1,323)

$(5,810)

$(5,780)

120 | SOUTHWEST GAS HOLDINGS, INC.

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 PGA mechanism in determining 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,
2018

Year ended
December 31,
2017

Year ended
December 31,
2016

$6,781

$ 606

$3,100

$1,685

$5,583

$ 726

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

December 31, 2018
Instrument

Swaps
Swaps
Swaps

December 31, 2017
Instrument

Swaps
Swaps

Balance Sheet Location

Other current liabilities
Prepaid and other current assets
Deferred charges and other assets

Balance Sheet Location

Prepaid and other current assets
Deferred charges and other assets

Net Total

$ (144)
1,752
110

Net Total

$4,457
1,323

Fair Value Measurements.
The estimated fair values of Southwest’s Swaps were determined at December 31, 2018 and
December 31, 2017 using futures settlement prices, published by the CME Group, for the delivery of natural gas at Henry Hub
adjusted by the prices of basis future settlements, 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 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:

SOUTHWEST GAS HOLDINGS, INC.

121

Level 2 – Significant other observable inputs

(Thousands of dollars)
Assets at fair value:
Prepaid 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, 2018 December 31, 2017

144
—

(1,752)
(110)

$(1,718)

$ —
—

(4,457)
(1,323)

$(5,780)

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

Note 15 – Segment Information
The Company’s 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 utility infrastructure 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. Although our utility infrastructure services operations are geographically dispersed, they are
aggregated and reported as a single segment as each reporting unit has similar economic characteristics. Over 99% of the total
Company’s long-lived assets are in the U.S.

The accounting policies of the reported segments are the same as those described within Note 1 – Background, Organization, and
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

December 31, 2018 December 31, 2017

$18,830

$12,987

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

Revenues (a)

United States
Canada

Total

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

December 31,
2018

December 31,
2017

December 31,
2016

$2,664,670
215,343

$2,345,134
203,658

$2,256,600
203,890

$2,880,013

$2,548,792

$2,460,490

122 | SOUTHWEST GAS HOLDINGS, INC.

The Company has two reportable segments: natural gas operations and utility infrastructure services. Southwest has a single
reportable segment that is referred to herein as the natural gas operations segment of the Company. In order to reconcile to net
income as disclosed in the Consolidated Statements of Income, an Other column is included associated with impacts related to
corporate and administrative activities related to Southwest Gas Holdings, Inc. The financial information pertaining to the natural
gas operations and utility infrastructure services segments for each of the three years in the period ended December 31, 2018 is as
follows (thousands of dollars):

2018
Revenues from unaffiliated customers
Intersegment sales

Total

Interest revenue

Interest expense

Depreciation and amortization

Income tax expense

Segment net income

Segment assets

Capital expenditures

2017
Revenues from unaffiliated customers
Intersegment sales

Total

Interest revenue

Interest expense

Depreciation and amortization

Income tax expense

Segment net income

Segment assets

Capital expenditures

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

Gas
Operations
$1,357,728
—
$1,357,728

6,020

81,740

$ 191,816

43,991

$ 138,842

Utility
Infrastructure
Services
$1,386,371
135,914
$1,522,285

Total

Other
$ — $2,744,099
135,914
$ — $2,880,013

—

$ — $

6,108

14,190

741

96,671

57,396

$ — $ 249,212

18,420

$ (727) $

61,684

44,977

$(1,542) $ 182,277

$6,141,584

$1,215,573

572

$7,357,729

$ 682,869

83,045

$ — $ 765,914

Gas
Operations
$1,302,308
—
$1,302,308

2,784

69,733

$ 201,922

63,135

$ 156,818

Utility
Infrastructure
Services
$1,149,325
97,159
$1,246,484

Total

Other
$ — $2,451,633
97,159
$ — $2,548,792

—

$ — $

2,787

7,986

345

78,064

49,029

$ — $ 250,951

2,390

$ (437) $

65,088

38,360

$(1,337) $ 193,841

$5,482,669

$ 752,496

$ 1,901

$6,237,066

$ 560,448

63,201

$ — $ 623,649

Gas
Operations
$1,321,412
—
$1,321,412

1,848

66,997

$ 233,463

58,584

$ 119,423

Utility
Infrastructure
Services
$1,040,957
98,121
$1,139,078

Total

Other
$ — $2,362,369
98,121
$ — $2,460,490

—

$ — $

1,849

6,663

$ — $

73,660

55,669

$ — $ 289,132

19,884

$ — $

78,468

32,618

$ — $ 152,041

$5,001,756

$ 579,370

$ — $5,581,126

$ 457,120

72,411

$ — $ 529,531

Note 16 – Quarterly Financial Data (Unaudited)

(Thousands of dollars, except per share amounts)
2018
Southwest Gas Holdings, Inc.:
Operating revenues
Operating income (4)
Net income
Net income attributable to Southwest Gas Holdings, Inc.
Basic earnings per common share (1)
Diluted earnings per common share (1)

Southwest Gas Corporation:
Operating revenues
Operating income (4)
Net income (loss)

2017
Southwest Gas Holdings, Inc.:
Operating revenues
Operating income (4)
Net income
Net income attributable to Southwest Gas Holdings, Inc.
Basic earnings per common share (1)
Diluted earnings per common share (1)

Southwest Gas Corporation:
Operating revenues
Operating income (4)
Net income (loss)

2016
Southwest Gas Holdings, Inc.: (2)
Operating revenues
Operating income (4)
Net income (loss)
Net income attributable to Southwest Gas Holdings, Inc.
Basic earnings per common share (1)
Diluted earnings per common share (1)

Southwest Gas Corporation: (2) (3)
Operating revenues
Continuing operations
Discontinued operations – utility infrastructure services

Total

SOUTHWEST GAS HOLDINGS, INC.

123

Quarter Ended

March 31

June 30

September 30 December 31

$754,330
129,560
78,294
79,091
1.63
1.63

$670,883
53,338
21,551
21,551
0.44
0.44

$668,146
39,681
12,331
12,331
0.25
0.25

$494,313
141,173
90,349

$275,679
24,675
2,622

$217,523
3
(13,670)

$654,737
124,347
69,005
69,308
1.46
1.45

$560,469
48,265
18,121
17,864
0.38
0.37

$593,153
34,988
10,420
10,204
0.21
0.21

$462,602
135,922
76,938

$260,162
32,346
9,522

$213,059
9,921
(4,024)

$731,248
139,036
75,355
75,446
1.59
1.58

$547,748
33,057
9,099
8,943
0.19
0.19

$539,969
20,478
2,907
2,472
0.05
0.05

$786,654
134,854
131,160
69,304
1.36
1.36

$370,213
115,962
59,541

$740,433
135,524
96,396
96,465
2.00
2.00

$366,485
117,885
74,382

$641,525
122,903
65,694
65,180
1.37
1.36

$525,100
206,148

$255,648
292,100

$200,179
339,790

$340,485
301,040

$731,248

$547,748

$539,969

$641,525

124 | SOUTHWEST GAS HOLDINGS, INC.

Operating income (loss) (4)
Continuing operations
Discontinued operations – utility infrastructure services

Total

Net income (loss)
Continuing operations
Discontinued operations – utility infrastructure services

Total

Quarter Ended

March 31

June 30

September 30 December 31

$140,885
(1,849)

$20,210
12,847

$ (5,292)
25,770

$100,685
22,218

$139,036

$33,057

$ 20,478

$122,903

$ 77,583
(2,137)

$ 2,358
6,585

$(12,405)
14,877

$ 51,887
13,293

$ 75,446

$ 8,943

$ 2,472

$ 65,180

(1) 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.

(2) Refer to Notes 1 and 18. Effective 2017, Southwest Gas Holdings, Inc. (“Company) is the successor equity issuer to Southwest Gas

Corporation (“Southwest”). Both Southwest and Centuri became subsidiaries of the Company.

(3) Periods prior to 2017 depict Centuri amounts as discontinued operations of Southwest.

(4) Periods prior to 2018 depict revised operating income for the reclassification of non-service components of net periodic benefit costs,
associated with pensions and other post-retirement benefits, out of the operations and maintenance line item of both the Company’s and
Southwest’s Condensed Consolidated Statements of Income due to the adoption of ASU 2017-07. The resultant figures for Operating
income, but not Net income, were increased accordingly to reflect reclassification. See Note 11 – Pension and Other Postretirement
Benefits for further information relating to the adoption of this update.

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.

Note 17 – Utility Infrastructure Services Noncontrolling Interests
In conjunction with the acquisition of the Canadian utility infrastructure services businesses in October 2014, the previous owners of
the acquired companies retained a 3.4% equity interest in Centuri, which, subject to an eligibility timeline, would have been
redeemable (in its entirety) at the election of the noncontrolling parties beginning in July 2022. In August 2017, in advance of when
otherwise eligible, the parties agreed to a redemption. Southwest Gas Holdings, Inc. paid $23 million to the previous owners, thereby
acquiring the remaining 3.4% equity interest in Centuri. Accordingly, Centuri is now a wholly owned subsidiary of the Company.

In connection with the acquisition of Linetec in November 2018, the previous owner retained a 20% equity interest in Linetec,
subject to certain rights based on the passage of time or upon the occurrence of certain triggering events. Effective January 2022, the
Company has the right, but not the obligation, to purchase at fair value (subject to a floor) a portion of the interest held by the
noncontrolling party, and in incremental amounts each year thereafter. The shares subject to the election cumulate (if earlier elections
are not made) such that 100% of the interest retained by the noncontrolling party is subject to the election beginning in 2024. If the
Company does not exercise its rights at each or any of the specified intervals, the noncontrolling party has the ability, but not the
obligation, to exit their investment retained by requiring Centuri to purchase a similar portion of their interest up to the maximum
cumulative amounts specified and at each interval discussed above. The outstanding noncontrolling interest is not subject to
minimum purchase provisions and following the eligibility dates for the elections, they do not expire. The redemption price represents

SOUTHWEST GAS HOLDINGS, INC.

125

the greater of fair value of the ownership interest to be redeemed on the redemption date or a floor amount under the terms of the
agreement.

The Company has determined that this noncontrolling interest is a redeemable noncontrolling interest and, in accordance with SEC
guidance, is classified as mezzanine equity (temporary equity) in the Company’s Consolidated Balance Sheets. As of November 30,
2018, the redeemable noncontrolling interest was reported at its estimated fair value of $81.7 million. The fair value was estimated
using a market approach that utilizes certain financial metrics from guideline public companies of similar industry and operating
characteristics; however, no significant change in the fair value occurred through December 31, 2018. Changes in the value of the
redeemable noncontrolling interest will be recognized as they occur and the carrying value will be adjusted accordingly at each
quarterly reporting date. Generally, adjustments to the redemption value are expected to impact retained earnings, but not net
income.

The following depicts changes to the balance of the redeemable noncontrolling interest between the indicated periods.

(Thousands of dollars):

Balance, December 31, 2016
Net Income (loss) attributable to redeemable noncontrolling interest
Foreign currency exchange translation adjustment
Centuri distribution to redeemable noncontrolling interest
Adjustment to redemption value
Redemption of Centuri shares from noncontrolling parties

Balance, December 31, 2017

Redeemable noncontrolling interest acquired
Net income attributable to redeemable noncontrolling interest

Balance, December 31, 2018

Redeemable
Noncontrolling
Interest

$ 22,590
248
11
(204)
355
(23,000)

—
81,659
172

$ 81,831

Centuri also holds a 95% interest in a venture to market natural gas engine-driven heating, ventilating, and air conditioning
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
Company’s Consolidated Balance Sheets.

Note 18 – Reorganization Impacts – Discontinued Operations Solely Related to Southwest Gas Corporation
In association with the January 2017 holding company reorganization, no substantive change occurred with regard to the Company’s
business segments on the whole. Centuri operations remain part of continuing operations of the controlled group of companies, and
financial information related to Centuri continues to be included in the consolidated financial statements of the Company. While
Centuri has since expanded its footprint with the Linetec and Neuco acquisitions (See Note 19 – Business Acquisitions), its core
business has remained consistent.

As part of the holding company reorganization, however, Centuri is no longer a subsidiary of Southwest; whereas historically, Centuri
had been a direct subsidiary of Southwest. To give effect to this change, the consolidated financial statements related to Southwest,
which are separately included in this report, depict Centuri-related amounts as discontinued operations for periods prior to January
2017.

126 | SOUTHWEST GAS HOLDINGS, INC.

Due to the discontinued operations accounting reflection, the following table presents the major income statement components of
discontinued operations – utility infrastructure services reported in the Consolidated Income Statements of Southwest for the period
prior to the beginning of 2017:

Results of Utility Infrastructure Services

(Thousands of dollars)
Utility infrastructure services revenues
Operating expenses:
Utility infrastructure services 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

Year Ended December 31,
2016

$1,139,078

1,024,423
55,669

58,986
1,193
6,663

53,516
19,884

33,632
1,014

Discontinued operations – utility infrastructure services – net income

32,618

Note 19 – Business Acquisitions
As indicated in Note 1 – Background, Organization, and Summary of Significant Accounting Policies, on November 30, 2018,
the Company, through its subsidiaries, led principally by Centuri, completed the acquisition of an 80% interest in a privately held
utility infrastructure services business, Linetec Services, LLC (“Linetec”) for approximately $326.6 million, with the remaining 20%
retained by the seller. The above figure includes unremitted amounts as of the closing date as follows: $30 million associated with the
subsequent collection of Linetec unbilled customer receivable balances recorded at their estimated realizable values as of the
acquisition date, $29.6 million of seller liabilities related to future payments to certain Linetec employees, and $16.9 million
representing consideration held back for estimated purchase price and working capital adjustments to be paid during 2019.
Additionally, $24.1 million of consideration transferred related to future estimated tax payments related to a mutual 338(h)(10)
election under U.S. Treasury regulations (deemed asset sale/purchase under those tax regulations). In December 2018, $25 million of
the $29.6 million referred to above was paid to certain Linetec employees.

The acquisition will extend the utility services operations in the southeastern region of the U.S. and provide additional opportunities
for expansion of the amount of work Centuri performs for electric utilities. Funding for the acquisition was provided by a portion of
net proceeds from the Company’s equity offering in November 2018 and from Centuri’s $590 million secured revolving credit and
term loan facility, as amended, described below and in Note 7 – Common Stock and Note 8 – Long-Term Debt.

The Company is currently performing a detailed valuation analysis of the assets and liabilities of the acquired company, which was
substantially completed during the fourth quarter of 2018. Certain payments were estimated as of the acquisition date and will be
adjusted when finally paid in 2019. The necessary analysis will consider acquired intangibles including customer relationships, trade
names, and customer contracts. Based on preliminary results, a substantial majority of the purchase price will be allocated to goodwill
and other finite-lived intangible assets.

SOUTHWEST GAS HOLDINGS, INC.

127

Assets acquired and liabilities assumed in the transaction were recorded, generally, at their acquisition date fair values. Transaction
costs associated with the acquisition were expensed as incurred. The Company’s allocation of the purchase price was based on an
evaluation of the appropriate fair values and represented management’s best estimate based on available data (including market data,
data regarding customers of the acquired businesses, terms of acquisition-related agreements, analysis of historical and projected
results, and other types of data). The analysis included consideration of types of intangibles that were acquired, including customer
relationships, trade names, and customer contracts. The final purchase accounting has not yet been completed. Further refinement is
expected to occur, including potential changes to income taxes and intangibles, as well as additional consideration payments held back.

The preliminary estimated fair values of assets acquired and liabilities assumed as of November 30, 2018, are as follows (in millions of
dollars):

Cash and cash equivalents
Accounts receivable
Revenue earned on contracts in progress in excess of billings
Prepaid expenses and other current assets
Property and equipment
Intangible assets
Goodwill

Total assets acquired

Accounts payable
Accrued liabilities
Deferred compensation and related accrued taxes
Redeemable noncontrolling interest

Total liabilities assumed and noncontrolling interest

Net assets acquired

$ 3.9
32.8
21.6
1.1
89.4
89.3
188.5

426.6

8.0
6.9
3.4
81.7

100.0

$326.6

Goodwill consists of the value associated with the assembled workforce, consolidation of operations, and the estimated economic
value attributable to future opportunities related to the transaction. As the business of Linetec was deemed an asset purchase for tax
purposes, the $188.5 million of tax-basis goodwill is expected to be deductible for tax purposes. As of the acquisition date, other
intangible assets totaled $89.3 million which will be amortized over a weighted-average life of 19 years. Of the $89.3 million of
intangible assets, $79 million is attributable to customer relationships with an assigned life of 20 years, $10 million is attributable to a
trade name with a 15-year useful life, and $300,000 is attributable to customer contracts with a useful life of one year. The intangible
assets other than goodwill are included in Other property and investments in the Company’s Consolidated Balance Sheets.

The unaudited pro forma consolidated financial information for fiscal 2018 and fiscal 2017 (assuming the acquisition of Linetec
occurred as of the beginning fiscal 2017) is as follows (in thousands of dollars, except per share amounts):

Total operating revenues
Net income attributable to Southwest Gas Holdings, Inc.

Basic earnings per share
Diluted earnings per share

Year Ended December 31,

2018

2017

$3,037,209
$ 187,642
3.80
$
3.79
$

$2,626,721
$ 192,368
4.01
$
4.01
$

128 | SOUTHWEST GAS HOLDINGS, INC.

Acquisition costs of $6.9 million that were incurred during 2018, and included in Utility infrastructure expenses in the Consolidated
Statements of Income, were excluded from the 2018 unaudited pro forma consolidated financial information shown above and
included in the 2017 amounts. No material nonrecurring pro forma adjustments directly attributable to the business combination
were included in the unaudited pro forma consolidated financial information.

The pro forma financial information includes assumptions and adjustments made to incorporate various items including, but not
limited to, additional interest expense and depreciation and amortization expense, and tax effects, as appropriate. The pro forma
financial information has been prepared for comparative purposes only, and is not intended to be indicative of what the Company’s
results would have been had the acquisition occurred at the beginning of the periods presented or of the results which may occur in
the future, for a number of reasons. These reasons include, but are not limited to, differences between the assumptions used to prepare
the pro forma information, potential cost savings from operating efficiencies, and the impact of incremental costs incurred in
integrating the businesses.

Actual results from Linetec operations, excluding transaction costs incurred by Centuri, included in the Consolidated Statements of
Income since the date of acquisition are as follows (in thousands of dollars):

Utility infrastructure services revenues
Net income attributable to Southwest Gas Holdings, Inc.

Year ended
December 31, 2018

$14,119
690

In November 2017, the Company, through its subsidiaries, led principally by Centuri, completed the acquisition of Neuco, a privately
held utility infrastructure services business, for approximately $99 million, less assumed debt. The acquisition extended the utility
infrastructure services to the Northeastern region of the U.S., and provided additional opportunities for expansion. Funding for the
acquisition was primarily provided by Centuri’s revolving credit and term loan facilities, described in Note 8 – Long-Term Debt.

Assets acquired and liabilities assumed in the transaction were recorded, generally, at their acquisition date fair values. Transaction
costs associated with the acquisition were expensed as incurred. The Company’s allocation of the purchase price was based on an
evaluation of the appropriate fair values and represented management’s best estimate based on available data (including market data,
data regarding customers of the acquired businesses, terms of acquisition-related agreements, analysis of historical and projected
results, and other
that were acquired,
including non-competition agreements, customer relationships, trade names, and work backlog. The final purchase accounting has
been completed.

types of data). The analysis

included consideration of

intangibles

types of

The fair values of assets acquired and liabilities assumed as of November 1, 2017, the acquisition date, were as follows (in millions of
dollars):

SOUTHWEST GAS HOLDINGS, INC.

129

Cash and cash equivalents
Contracts receivable
Other receivables
Property, plant and equipment
Prepaid expenses and deposits
Intangible assets
Goodwill

Total assets acquired
Current liabilities
Other long-term liabilities

Net assets acquired

$ 0.8
18.3
5.4
15.1
1.6
44.8
32.2

118.2
(18.6)
(0.3)

$ 99.3

The allocation of the purchase price of Neuco was accounted for in accordance with applicable accounting guidance. Goodwill, which
is generally not deductible for tax purposes, consists of the value associated with the assembled workforce and consolidation of
operations. However, as the business of Neuco was acquired via asset purchase for tax purposes, the approximately $32 million
of tax-basis goodwill is expected to be deductible for tax purposes. Following a one-year post-acquisition measurement period, the
values were adjusted as reflected in the table above, with no significant overall impact to the Company’s consolidated balance sheets.

The unaudited pro forma consolidated financial information for fiscal 2017 is as follows (in thousands of dollars, except per share
amounts):

Total operating revenues
Net income attributable to Southwest Gas Holdings, Inc.

Basic earnings per share
Diluted earnings per share

Year Ended
December 31,
2017

$2,639,452
$ 203,245
4.24
$
4.24
$

The Company incurred and expensed acquisition costs of $2.6 million related to the acquisition. No acquisition-related costs were
incurred during 2018.

130 | SOUTHWEST GAS HOLDINGS, INC.

MANAGEMENT’S REPORTS ON INTERNAL CONTROL OVER FINANCIAL
REPORTING

Management of Southwest Gas Holdings, Inc. 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. See Item 9A Controls
and Procedures of the 2018 Form 10-K for a discussion regarding the scope of management’s assessment due to the recent acquisition
of Linetec Services, LLC, which is excluded from management’s report on internal control over financial reporting. Existing assets of
the acquired business represents 2% of consolidated total assets and 1% of consolidated revenues for the year ended December 31,
2018 and is not significant to the Company’s consolidated financial statements. Under the supervision and with the participation of
Southwest Gas Holdings, Inc. management, including the principal executive officer and principal financial officer, an evaluation was
conducted of the effectiveness of internal control over financial reporting based on the “InternalControl–IntegratedFramework”
(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,
2018. The effectiveness of
reporting as of December 31, 2018 has been audited by
PricewaterhouseCoopers, LLP, an independent registered public accounting firm, as stated in their report which is included herein.

internal control over

financial

Management of Southwest Gas Corporation is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the
participation of Southwest Gas Corporation management, including the principal executive officer and principal financial officer, an
evaluation was conducted of the effectiveness of internal control over financial reporting based on the “InternalControl–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 Southwest Gas Corporation’s internal control over financial reporting
was effective as of December 31, 2018. This annual report does not include an attestation report of Southwest Gas Corporation’s
registered public accounting firm regarding internal control over financial reporting pursuant to rules of the Securities and Exchange
Commission that permit Southwest Gas Corporation to provide only this management’s report in this annual report.

February 28, 2019

SOUTHWEST GAS HOLDINGS, INC.

131

Report of Independent Registered Public Accounting Firm

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

OpinionsontheFinancialStatementsandInternalControloverFinancialReporting

We have audited the accompanying consolidated balance sheets of Southwest Gas Holdings, Inc. and its subsidiaries (the “Company”)
as of December 31, 2018 and December 31, 2017, and the related consolidated statements of income, comprehensive income, equity
and redeemable noncontrolling interest, and cash flows for each of the three years in the period ended December 31, 2018, including
the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal
control over financial reporting as of December 31, 2018, based on criteria established in InternalControl–IntegratedFramework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 31, 2018 and December 31, 2017, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States
of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2018, based on criteria established in InternalControl–IntegratedFramework(2013) issued by the COSO.

BasisforOpinions

The Company’s management is responsible for these consolidated 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 the
Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Linetec Services, LLC
from its assessment of internal control over financial reporting as of December 31, 2018 because it was acquired by the Company in a

132 | SOUTHWEST GAS HOLDINGS, INC.

purchase business combination during 2018. We have also excluded Linetec Services, LLC from our audit of internal control over
financial reporting. Linetec Services, LLC is a majority-owned subsidiary whose total assets and total revenues excluded from
management’s assessment and our audit of internal control over financial reporting represent 2% and 1%, respectively, of the related
consolidated financial statement amounts as of and for the year ended December 31, 2018.

DefinitionandLimitationsofInternalControloverFinancialReporting

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.

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

/s/PricewaterhouseCoopers LLP
Las Vegas, Nevada
February 28, 2019

We have served as the Company or its predecessor’s auditor since 2002.

SOUTHWEST GAS HOLDINGS, INC.

133

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholder of Southwest Gas Corporation

OpinionontheFinancialStatements

We have audited the accompanying consolidated balance sheets of Southwest Gas Corporation and its subsidiaries (the “Company”)
as of December 31, 2018 and December 31, 2017, and the related consolidated statements of income, comprehensive income, equity,
and cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to
as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2018 and December 31, 2017, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted
in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers LLP
Las Vegas, Nevada
February 28, 2019

We have served as the Company’s auditor since 2002.

134 | SOUTHWEST GAS HOLDINGS, INC.

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BOARD OF DIRECTORS AND OFFICERS

Eric DeBonis
Senior Vice President/Operations
Southwest Gas Corporation

Gregory J. Peterson
Senior Vice President/
Chief Financial Officer
Southwest Gas Holdings, Inc.
Southwest Gas Corporation

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

Lori L. Colvin
Vice President/Controller/
Chief Accounting Officer
Southwest Gas Holdings, Inc.
Southwest Gas Corporation

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

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

Michael J. Melarkey
Reno, Nevada
Chairman of the Board
Southwest Gas Holdings, Inc.
Retired Partner
Avansino, Melarkey, Knobel,
Mulligan & McKenzie

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

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

Leslie T. Thornton*
Alexandria, Virginia
Retired Executive
WGL Holdings, Inc. &
Washington Gas Light Company

OFFICERS

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

Chairman of the Board
Centuri Construction Group, Inc.

Karen S. Haller
Executive Vice President/Chief Legal
and Administrative Officer
and Corporate Secretary
Southwest Gas Holdings, Inc.
Southwest Gas Corporation

Justin L. Brown
Senior Vice President/
General Counsel
Southwest Gas Corporation

DIRECTORS

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

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

Thomas E. Chestnut
Coronado, California
Retired Construction Executive

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

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

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

Jane Lewis-Raymond*
Charlotte, North Carolina
Counsel
Parker Poe Adams & Bernstein LLP
Retired Executive
Piedmont Natural Gas Company, Inc.

Anne L. Mariucci
Phoenix, Arizona
Private Investor
Retired Real Estate Development
and Homebuilding Executive

*Director as of January 1, 2019

SHAREHOLDER INFORMATION

Auditors
PricewaterhouseCoopers LLP
3800 Howard Hughes Parkway
Suite 650
Las Vegas, NV 89169-5906

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 2018.

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 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.

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 2018
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 call 702-876-7237

For more information contact:
EQ Shareowner Services
P.O. Box 64856
St. Paul, MN 55164-0874
or call 1-800-331-1119

Additional Company information is
available at:
www.swgasholdings.com
For non-financial information
call 702-876-7011.

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.

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

FUTURE

FOCUSED

WWW.SWGASHOLDINGS.COM
WWW.SWGASHOLDINGS.COM

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