Page 14 - SWGas Annual Report 2015

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

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

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

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

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

Southwest Gas Corporation