Page 17 - SWGas Annual Report 2015

Results of Construction Services 2015 2014 2013

Year Ended December 31, $1,008,986 $739,620 $650,628

(Thousands of dollars) 898,781 647,857 573,284
56,656 48,883 42,969
Construction revenues
Operating expenses: 53,549 42,880 34,375
587 (58) 39
Construction expenses
Depreciation and amortization 7,784 3,770 1,145

Operating income 46,352 39,052 33,269
Other income (deductions) 18,547 14,776 12,565
Net interest deductions
27,805 24,276 20,704
Income before income taxes 1,113 22 (447)
Income tax expense
$ 26,692 $ 24,254 $ 21,151
Net income
Net income (loss) attributable to noncontrolling interests

Contribution to consolidated net income attributable to Centuri

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

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

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

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

Southwest Gas Corporation