Page 32 - SWGas Annual Report 2015

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

Business Combinations
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. Subsequent to the measurement period or the final determination of
the estimated value of the tax allowance or contingency, whichever comes first, changes to these uncertain tax
positions and tax-related valuation allowances will affect the provision for income taxes in the Consolidated
Statements of Income, and could have a material impact on the Company’s results of operations and financial
position. The fair value assigned to the intangible assets acquired and liabilities assumed in 2014, and the
determination of goodwill associated with the acquisition, are described in Note 17 – Acquisition of Construction
Services Businesses.

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

Forward-Looking Statements
This annual report contains statements which constitute “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995 (“Reform Act”). All statements other than statements of historical
fact included or incorporated by reference in this annual report are forward-looking statements, including, without
limitation, statements regarding the Company’s plans, objectives, goals, intentions, projections, strategies, future
events or performance, and underlying assumptions. The words “may,” “if,” “will,” “should,” “could,” “expect,”

Southwest Gas Corporation