Good day, ladies and gentlemen, and welcome to the Southwest Gas 2014 Third Quarter Earnings Conference Call. My name is Tony, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Ken Kenny, Vice President of Finance and Treasurer. Please proceed.

Thank you, Tony. Welcome to the Southwest Gas Corporation 2014 third quarter conference call. As Tony mentioned, my name is Ken Kenny, I am the Vice President of Finance and Treasurer. Our conference call is being broadcast live over the Internet. For those of you who would like to access the webcast, please visit our website at www.swgas.com and click on the Conference Call link. We have slides on the Internet, which can be accessed to follow our presentation. Today, we have: Mr. Jeffrey W. Shaw, Southwest Chief Executive Officer; Mr. John P. Hester, President; and Mr. Roy R. Centrella, Senior Vice President and Chief Financial Officer; and other members of senior management to provide a brief overview of the company's operations and earnings ended September 30, 2014, and an outlook for the remainder of 2014. Our general practice is not to provide earnings projections. Therefore, no attempt will be made to project earnings for 2014. Rather, the company will address those factors that may impact this coming year's earnings. Further, our lawyers have asked me to remind you that some of the information that will be discussed contains forward-looking statements. These statements are based on management's assumptions, which may or may not come true, and you should refer to the language in the press release, Page 2 of our presentation, and also the SEC filings for a description of all the factors that may cause actual results to differ from our forward-looking statements. All forward-looking statements are made as of today, and we assume no obligation to update any such statement. With that said, I'd like to turn the time over to Jeff.

Thanks, Ken, and welcome on the call, everyone. First, to Slide 3. Third quarter highlights. We realized $5 million in margin from rate relief in our most recent California rate case. We'll speak to that a little bit later. We have reached a settlement in principle during September 2014 for the Paiute Pipeline general rate case and the settlement rates were effective September 1 this year. A little more about that later as well. NPL recorded a quarterly contribution of $13.4 million on the bottom line in the third quarter. And we'll speak to that. We're very encouraged that the work that needed to get done, and we were unable to do as a result of weather in the first quarter, the management was able to make that happen in the third quarter. So I would say, I think we've mentioned that we expected to be able to do that, and it's good that we were able to deliver on that promise. Or at least, that expectation. NPL completed, as you are probably aware, the acquisition of the Link-Line group of companies in October 2014. And we were very encouraged by the platform that gives us to grow the business, especially in Canada. We remain focused on executing our strategy to build long-term shareholder value. It's pretty basic, pretty focused and it's work. And so, we are optimistic for the prospects for the duration of 2014. I will say this, that with respect to 2015, comments regarding '15 will more be appropriate for our call at the end of the year, when we have full year-end results. So we'll speak mostly to the expectations for '14 in the call today. Slide 4, the call outline. First of all, we will report on consolidated earnings for periods ended September 30, 2014.…

Thank you, Jeff, and let me also welcome those of you joining us today. I plan to provide a comparative summary of third quarter and rolling 12 month operating results for both operating segments and identify those factors, which we expect will impact full year 2014 results. Well, starting on Slide 5. During the third quarter of 2014, we reported net income of $0.04 per share versus a loss of $0.06 per share during the third quarter of 2013. The improved results were attributed to NPL, which reflected income of $13.4 million compared to $9.1 million in the prior period. The gas segment experienced a loss of $11.5 million in the quarter, a slight improvement from last year's third quarter loss of $11.9 million. For the 12-month period, we earned $140 million or $3.01 per basic share versus $150 million or $3.25 per basic share during the prior period. We were very pleased with NPL's strong quarter as they have now fully recovered from the poor weather impacts earlier in the year. Next, we'll look at results by segment. Starting with the gas operations on Slide 6. The gas segment operating loss during the quarter improved from $8.3 million last year to $2.7 million this year. Operating margin grew by nearly $6 million, whereas operating expenses were relatively flat between periods. Unfavorable between period variances and interest expense resulting from a 2013 $250 million debt offering, and other income, due mainly to company-owned life insurance, or COLI, returns, largely offset the operating loss improvement. Please note that due to the seasonal nature of our business, losses during the third quarter for the gas operations segment are normal. Next, on Slide 7. Let me talk just for a minute about operating margin, which increased $6 million between periods. You'll note that…

Thanks, Roy. Turning to Slide 18. We have the summary of the results of our California rate case proceeding. This case concluded with the CPUC decision issued in June of this year. As we noted in our August earnings call, in addition to the $7.1 million in annual margin authorized by the CPUC, we'll have 2.75% increases in margin each year for the period of 2015 to 2018. We are on a 5-year rate case cycle in California, so our next rate case application is scheduled to be filed in late 2017, with new rates requested effective January 1, 2019. As Roy indicated, given the mid-year implementation of new California rates this year and the realization of $5 million in the third quarter, fourth quarter incremental California rate case margin should total only a few hundred thousand dollars. Moving to Slide 19. As Jeff mentioned earlier, we're very happy to report that we've reached a settlement in our previously pending Paiute Pipeline rate case that was filed in February this year. Recall that this rate case filing was required to be submitted per Paiute's last rate case settlement in 2009. Paiute had originally filed for a $9 million increase earlier this year. And in September, reached an agreement with shippers for a $2.4 million margin increase, along with a $1.3 million depreciation decrease. The new rates are effective September 1. An official settlement document is expected to be filed for next week, with final approval expected in January. In addition to the increase in operating income from this resolution, Paiute also secured 5-year contract extensions from its largest customers. Finally, under the terms of the settlement, Paiute is required to file its next rate case application no earlier than May of 2016 and no later than May of 2019. On…

Thanks, John. Let's look -- turn to Slide 24, speak to customer growth briefly. First of all, for the 12 months ended September, we had 20,000 first-time meter sets. We also added 9,000 additional meters that were the previously termed excess inactive meters. That number now is down below 20,000. It was at the worst, time period, 55,000, throughout our service areas, but it's down now below 20,000. We're happy to report that those meters are coming back on. So 29,000 net additional customers, about 1.5% growth rate. We expect for 2014 that, that growth rate of 1.5% will hold through the remainder of the year. Slide 25. If you look at our -- two rates here, the unemployment rate and the growth rate. You can see that in every one of our geographical areas, the unemployment rate has declined year-over-year, which is a good development. It's not dramatic, but it's definitely directionally positive. And then if you look at unemployment growth -- or excuse me, the employment growth numbers, they have all improved in every jurisdiction. So again, everything that you see on this chart is directionally positive. We're not seeing dramatic growth, but it's consistent, and it leads us to the conclusion that, that 1.5% number that we're giving you is a reasonable number to rely on. Slide 26, capital -- excuse me, construction expenditures. The total -- either expected for 2014 to total approximately $375 million. Franchise work and other replacements will account for about $182 million of that pie chart that you see on the slide, about 49%; growth will account for about $107 million or 29%; general plant, $47 million; replacement under trackers, $31 million, which is about 8%. And as you might have surmised, we are making efforts to try to increase that number…

Thanks, Jeff. On October 1, the company completed its acquisition of the Link-Line group of companies for $171 million plus $14 million of assumed debt. This acquisition expands our Construction Services footprint into Canada, making NPL one of the largest LDC service providers in North America. The deal was financed by NPL using a new 5-year $300 million secure revolving credit and term loan facility. Slide 29 provides some details about the 3 acquired entities. Link-Line Contractors is the single largest LDC contractor in Canada, operating in the Ontario province with about 700 employees. They serve 2 of the largest LDCs in Canada, as Ontario is the most populous province with over 13 million people. W.S. Nicholls provides fabrication and multi-trade operations for industrial projects in a number of varied industries in Ontario and Western Canada. They've been in business since 1996. And Brigadier Pipelines performs midstream Construction in Pennsylvania, providing NPL an entry point in a fast growing market segment. The next slide provides a map of the NPL and Link-Line companies' operating areas. The takeaway here is that there are no overlapping service territories in the Distribution and Construction businesses. And finally, Slide 31 shows the Link-Line company's revenue, operating income and EBITDA levels for 2013. Much like the U.S., Ontario has significant pipe replacement needs for pre-1960s steel mains, early vintage plastic pipe and aged mechanical fittings. They're also experiencing strong population expansion, which is translating into new housing growth. As such, we are very excited with this acquisition, and expect earnings accretion in the first full year of operations. With that, I'll turn the time back to Jeff for a few closing slides and comments.

Okay, thank you. Slide 32, now is the time I'll speak to dividends. Over the last 5 years, our annual growth rate has been approximately 9%, just under. In the last 3 years, we've exceeded a 10% increase of the dividend in each of those years. Over time, the Board tends to increase the dividend, such that our payout ratio approaches our local distribution company peer group average of around 55% to 65%, while maintaining our strong credit ratings on our ability to effectively fund the future rate base rate growth. Our payout ratio for the 12 months ended September 30, 2014, the dividends per share were $1.46; EPS $3.01; out ratio, 48.5%. The timing and amount of any increases will be based on the Board's continuing review of our dividend rate in the context of the company's 2 operating segments and their future growth prospects. If you look historically, the Board's addressed dividend policy in February of next year for the last several years. Finally, 2014 outlook update. For the Construction Services portion of our business, we remain cautiously optimistic that earnings for the full year 2014 net of acquisition-related costs will be consistent with or exceed 2013 results. We believe Link-Line fourth quarter earnings, expect to substantially offset acquisition costs. We've also believe the current low interest rate environment and the regulatory environment, which occurs in the natural gas industry to replace aging pipeline infrastructure will continue to positively influence revenues. And the management team is charged and enthusiastically pursuing growing revenues by 5% to 8% on average over the long-term, and that would include the combined entities of NPL and Link-Line. For the natural gas operations segment on Slide 34, operating margin for 2014 is expected to be favorably influenced by customer growth, again, approximately -- approximating 1.5%. The infrastructure mechanisms, both in Nevada and Arizona should contribute modestly to 2014 results. The rate relief we previously mentioned from the recent California rate case decision has been largely recognized in the current year. And incremental margin for the fourth quarter will not -- above 2013 levels for the fourth quarter will not be significant. And a proportion share of Paiute's recent settlement rate increase is anticipated to be realized during the fourth quarter. Finally, Slide 35, operating costs increases, we expect approximately 3% for the current full year. Now that includes a net pension and expense decrease of $5 million and a legal accrual expense of around $5 million net out. Net financing cost will also increase this year by about $6 million in total, primarily due to the October 2013 issuance of $250 million of 4.875% senior notes, partially offset by our November 14 redemption of $65 million of 5.25% Series A fixed rate IDRBs. With that, I will return the time back to Ken, prior to our -- taking any of your questions.

Thanks, Jeff. That concludes our prepared presentation. For those of you who have access to our slides, we have also provided an appendix with slides which includes other pertinent information about Southwest Gas, and can be reviewed in your convenience. Our operator, Tony, will now explain the process for asking questions.

[Operator Instructions] Your first question comes from the line of Mr. Matt Tucker of KeyBanc Capital Markets.

First question on the Link-Line acquisition. I appreciate that you gave us some 2013 financials. Would you be willing to talk at all about how those numbers have trended so far in 2014, year-to-date?

The results, at this point in time, have been pretty solid. I mean, I don't think -- given that we've only had them starting in October 1, it's difficult to provide much color on that, but we're very pleased with the first 9 months of the year as reported back to us. Obviously, we didn't have the keys then, but -- we think their -- that the fourth quarter will be good, and our full year for next year will be good.

And you talked in the past about the $1 billion revenue as kind of a threshold that you need to reach before it even makes sense to consider kind of strategic options for NPL. Based on the 2013 numbers you provided for Link-Line, and kind of your long-term growth expectations for the business, it looks like you could be approaching that number next year. Can you just talk a little bit about how now you're thinking about the longer-term strategy with the Construction segment?

This is Jeff. Let me go ahead and address that. Firstly, we're very, very excited to have this acquisition. We really like the management team that came with the acquisition. We think they have a great business. We think they have a lot of potential for growth in Canada. We're also very bullish on the management team that we've assembled, and that has continued to evolve at NPL. And we have talked about some of the additions that we made there. So we think we've positioned ourselves to take advantage of some opportunities that are before us. Most of the utilities, the LDCs throughout the country, and also in Canada, have announced multiple-year, large replacement type -- infrastructure replacement-type projects or work that needs to be accomplished. And we believe we have a -- 2 companies here, by bringing them together, that are very -- that carry very good reputations, that know how to bid, know how to proceed profitably. So when we did this acquisition, we wanted to make sure that we saw accretion in the future by making the acquisition as we've disclosed before, we expect it to be accretive in the year 2015. And as I mentioned earlier, we think that the performance in the fourth quarter will largely offset the transaction cost. So we're very bullish going forward. Now to your question, yes, we did mention $1 billion is sort of a threshold. And it's possible that next year, we reach that threshold. But I will say this, when you get the keys to a car, you want to drive it and make sure that you understand it and take full advantage. And I think we have some opportunity with that combined entity to take a little time, and not be too much in a hurry to jump to a conclusion. What we did say is we felt like we needed to get to $1 billion before it would even be an option for the Board to consider something different than just continuing to hold it. But let me also say that holding the business on a going forward basis is also an option for the Board. And if the business does well and we can continue to grow the utility, then there may be no impetus to cause us to want it to shed the company. So I think we have options that are evolving and developing before our Board, and that was the whole idea behind doing the acquisition.

That's great color. Just shifting gears to the utility side. I guess, could you just help me understand kind of the mechanics behind the $5 million benefit from California rate relief that you on the third quarter, and why you're not expecting much now in the fourth quarter? And then also, your comment about not seeing much additional rate relief going forward. Was that just for the fourth quarter? Or does that apply to 2015 as well?

Matt, this is John. With respect to the California margin, what we have in California is a decoupling mechanism subsidy amount of margins annually. And when we get a rate case decision, we spread that margin across the various months, the amounts of that margin by month are incorporated in our tariffs. So we wanted to see what that margin would be in a particular month, and I think that when you compare how that spreads with, in place for 2013 and then you compare that to 2014, that's where that differential comes from. So that the goal is to certainly recover the entire amount of margin over a 12-month period, but depending on the rate case, the cost of service, the value of the amount of the increase, et cetera, that spread over the various months can differ.

And then, just with respect to your interest expense guidance, and I guess, how will you finance the IDRB redemption, in I guess, later this month? And I assume the borrowings to finance the Link-Line acquisition are included in that guidance, is that interest rate just so low there, that doesn't have much of an impact?

Yes, this is Roy. In terms of the IDRBs, we had capacity on our working credit -- working capital facility to take that out. And so at least in the short run, you would see some significant cost savings, but that's already -- that's been baked in for the rest of this year into our forecast of interest expense. But some of those savings would roll forward into 2015. At some point, given our capital requirements, we will have to go out and do another offering. It could be late '15 or early '16. We haven't decided on the timing yet, but at this point in time, our working capital facility was sufficient. The Link-Line acquisition that was on the books of NPL and -- so that being a 5-year note, the interest rates on that are, at this point, fairly modest. I'd say LIBOR plus a spread rate, 1.75%, or it's a Canadian equivalent, plus a spread, depending on which entity -- where the borrowings are, so we could borrow either in Canada or the U.S. So yes, I guess, -- so that -- those borrowings are not part of our debt forecast, so we say interest is up $6 million, that's the gas segment.

There are no further questions in the queue.

Okay. Well, thank you, Tony. This concludes our conference call, and we appreciate your participation and interest in Southwest Gas Corporation. Thank you.