Good day, and welcome to the Aqua America Inc. third quarter 2011 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brian Dingerdissen. Please go ahead.

Thank you, Alicia. Good morning, everyone. Thank you for joining us for Aqua America's third quarter 2011 earnings conference call. If you did not receive a copy of the press release, you can find it by visiting the Investor Relations section of our website at aquaamerica.com or call Fred Martino at 610-645-1196. There will also be a webcast of this event available on our site. Presenting today is Nick DeBenedictis, Chairman and President of Aqua America along with Dave Smeltzer, the company's Chief Financial Officer. As a reminder, some of the matters discussed during this call may include forward-looking statements that involve risks, uncertainties and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward-looking statements. Please refer to our most recent 10-Q, 10-K and other SEC filings for a description of such risks and uncertainties. During the course of this call, reference may be made to certain non-GAAP financial measures. Reconciliation of these non-GAAP to GAAP financial measures are posted in the Investor Relations section of the company's website. At this time, I would like to turn the call over to Nick for his formal remarks, after which we will open up the call for questions. Nick?

Thank you, Brian. Good morning, everyone and this morning I am going to try and explain what is a complicated GAAP non-GAAP, continuing non-continuing and hopefully put some clarity. Dave can help us to put the numbers, but in my mind after looking at all the numbers, it was a very solid quarter and really the thing that was the biggest challenge this quarter was the most erratic weather in over a century in our area. On continuing operations basis, net income and EPS were up 13%, 33 versus 29. The net income from continuing operations eliminated the operations of two of our states, Maine and New York starting in the third quarter because we announced the sale of Maine to Connecticut Water and the sale New York to American Water early in the quarter. So the quarter had to assume both the accelerated depreciation and remove their results from the continuing operations. In addition because of another accounting policy, we have to assume these deals will go through and assume which they will both be, the one will be profitable, the Maine, the other one is being traded at book value. But we have to declare what tax will be paid on them ahead of time and that came to $0.05. So there is a $0.05 deduction in the GAAP numbers, in the total GAAP numbers based on this taxes we will pay when we sell. Now something that’s very understandable. The board is very confident in the future of the company, in future cash flows and profitability and declared that December 1 dividend will go up 6.5%. They did this in August, but this will be the record date. For the December 1 dividend, it will go from $15.5 to $16.5 and that’s our 21st increase in 20…

You know what we reported last year, because there was no noise last year’s income statement. It’s 32.

That had about $0.02 and because it was up significantly from like $0.26 a year prior and that had about $0.02 in good weather if you remember last year. So $0.30 would have been a real number but, and we projected 33 without noise I’ll call it number, none of this is accounting lingo. So I am sure the lawyers are fainting. So that $0.33 would have been a normal operation 10% over a normal year. Unfortunately it wasn’t a normal year and I’d argue we lost at least $0.02 from weather. And remember you always lose a quarter or half of percent, so that’s quarter of a cent, a half of cent at a buck earnings from conservation that you have to make up along the way and you make that up through either rate adjustments or selling a little bit more and getting more acquisitions. So we had a real swing this quarter of $0.04 between this just because of the weather 4 plus and last quarter this time three months ago, I said look I think 33 is a reasonable number from pure operations because well if you took the $0.02 out of the, extra out of ten that would have been 30.10%, it would have been 33%. Now I remember this was August I think we did our call and we had just had a record July. So I was very, very conservative in that 33, not knowing what was going to hit us in August and September which wiped out July plus. I said the 33 would be positively effected by what we are considering a one-time tax plus but it’s real gap and it’s real money in Pennsylvania and that would get us to 35. Many companies are just putting it in there, not…

(Operator Instructions). We’ll go first to Michael Gaugler from Brean Murray Carret.

I think I want to follow up on kind of your closing comments on the Marcellus Shale opportunity, I saw in your release that you mentioned, the first stage of that pipeline that you’re working on currently looking to open up and I'm wondering what kind of returns are you expecting on your investments out there?

Well, here again it’s economy of scale. If we have just the one customer that we have locked in now at the amounts that they anticipate needing now, it’s not guaranteed because they could stop drilling the Mar, but as long as they’re drilling they’re going to need the water. The returns will be and this is in 100% equity, so obviously it could be leveraged. The returns are in excess of the regulated return. At a 100%.

I like that math. No wonder you’ve been up there a lot? So what else are you seeing up there I mean now you’ve kind of made a broad stroke that you know it’s kind of going gangbusters there, but I mean for Aqua in particular, are you working on other pipeline opportunities or you’re just kind of focused on?

No, no we’re talking to other, see the people we’re dealing with, are what they called the midstream gas gatherers. They are not Shells, the Exxons and the Chesapeakes and the Ranges and the Atlases and so on. There are customers in the end, but the pipelines are put in a conjunction with a gas company, midstream collector already putting in line though it gets it from the well to the transcontinental pipelines which is Tennessee and Transco that runs across Pennsylvania. So some of these names you have never heard of, like I don’t know how many people have heard of PVR, they are publically traded but they are resource developers. But there are other companies like them that we are talking to who are already planning the pipeline and we are just basically saying, let us partner with us on the water side. So that as you are putting one line, we will build you two. If you have time, I would love to show you how we are boring under streams and showing you the sophistication of the construction and the pumping process and so on. And this is all mountainous terrain. I don’t know how the trucks get up the hills, but it is going to be much more efficient for these drillers. So they have the water when they need it versus waiting for the trucks and if it is raining, they have plenty of water in the streams to get, but they can’t get the trucks up the road because of the mud. So this avoids all that, it gives them reliability which is really what they are paying for.

I might take you up on the offer for the tour. The other thing on the acquisition you made this morning, kind of valuing that off of a per connection basis, is that about what you typically paying these days or was that one a little bit more?

This one was a little more, an arm’s length transaction because this was not a troubled water company. So it wasn’t forced to sell, but it is going to grow to a thousand homes, it’s a very nice development. I rode around and looked at it. Up near the Mountaintop Golf Course and very nice area between Hazelton and Wilkesboro. This one, this one we paid for some of that growth because there will be no payment back as the houses hook up. We get all the revenue.

We will go next to Christopher Purchill from Janney Montgomery Scott.

Thank you also for the thorough review of the quarter. There are a lot of moving parts, but I think you did a great job in kind of clarifying things for us.

And the world hasn't healed that yet.

You kind of mentioned this a couple of times on the call. I am just curious, you know, if you are hearing any discussion out of Harrisburg or out of Washington on extending that bonus depreciation --

I am glad you brought that up. The Jobs Act Bill that has not moved too well. Now they are talking about doing it separately, absolutely has an extension of the 100% bonus depreciation factor for ’12. So if there is any section of the Jobs Bill that's passed, I think there's a shot that the bonus depreciation will happen. Regarding the state bonus depreciation, I have talked to key administration officials and they are, I don't know, what the right word is, they are saying when they are willing to look at doing, if the Feds do it the state would do it. Now having said that, the state budgets are very tight and this is really a hit on the state budget in the sense that its real cash that's not coming in, they get it later but it’s a question of whether they want to spur investment or take the cash now and be able to balance the budget better or whatever. We’re hopeful that with couple months to really convince the administration because they don’t write the budget until December, January is proposed, to see if the Feds do it that the state will follow suit.

Okay.

That would obviously -- the Fed would not change first call for 2012, but if we picked up the bonus depreciation again that’s another $0.08 or $0.09.

Right. Okay, but regardless of what happened there, you don’t see yourself in the secondary equity market for the foreseeable future?

No, looking at next year, even with all the tax policies disappearing, we’re closing in almost funding our whole capital budget with just internally generate cash because of the profit increased just and the depreciation increases.

Okay, great. And then just quickly on the efficiency ratio. You’ve talked in the past, I think it was on the last call we talked. You know, in two years you can get that number down 36%, 37%, I am talking about you know mid-30’s on this call. If you were to look at that improvement and kind of break it up in to its core pieces, how would kind of allocate it between improvement in the south and general assets swaps? I don’t know if you are seeing any specific expense your lines where you have reductions, I would kind of doubt that but how would you break out the expected improvement, I guess over, the next two years?

Four areas to get granular. First, the south still has some room to go and is Chris Franklin, as you know, is working on that. As you grow, not grow your expenses, as fast as you grow your revenues and/or its customers. So that is the biggest potential and we think Ohio has big potential now that we are going to be a 200,000 customer system or 150 versus 80 or whatever it is now. 110 now it’s going to 170. The second area is pensions and this is really a north issue not the south. And I think if you look at most of the utilities that you and your colleagues on the phone are following, you are going to see big hits, the pensions next year. So anybody who has a large unfunded pension plan is really to going to get hit pretty hard, because interest rates are so low on the treasury that the accounting rules say you have to discount it at a rate that’s tied to the treasury, and where we were discounting the pensions, let’s say 5, 7, 5, it could be below 5 this year. That is a huge jump even as the market does well and the other end of your asset return. That’s going to affect everybody including us because we have a pension plan and some are older states, although we have frozen new entrants to the pension plan. We still have probably a third of our older state employees on it. In other words, all the south is no pensions, but an enhanced 401-K to find contribution. But the north still has about a third of the Union employees on the plan of action more than assuming anyhow. So the pension is going to be. Now, I guess, it…

We go next to [Hydra Dor].

Thank you. Nick, I wonder if we can talk a little bit about the CapEx budget for this year. I believe we had been talking about $325 million and now we are talking about $300 million can you tell us?

This year 2011, I said we will exceed last years $326 by $5 million to $10 million. So we are talking about 330 to 335.

And how should we think about 2012?

In excess of 300 because we haven’t really developed the whole plan here, pretty much a basic, we are at a 320 run rate now.

Got it. And do you have an update for us on how spill 1294 and Pennsylvania and if that goes through, how you would you think about implementing a forward test year?

Yes, really Pennsylvania almost has a forward test year now. I mean we don’t call it that but Pennsylvania allows you to look forward labor contracts, healthcare benefits that are signed on. So it wont be as big A+ as some of the electrics are making it. It passed the House overwhelmingly. We are supportive of it. It does have one provision for combining water and waste water rate base, which will help us and Pennsylvania American because we have small amounts of our over all rate base is waste water. So that will take away the risk of never earning fair amount on your waste water and the other thing is it will allow us to develop because the legislation will be needed a waste water disk. I do think though it has much more potential. I am being very honest with you. It’s a plus for us, but it’s a big plus for the electrics and gas. They will get a disk where they don't have it now.

Alright. Are there any other efforts like this to change larger regulatory policy that you guys are undertaking in some of your other larger states?

Well, we proposed legislation and they got at least through committee but they didn't break through and get it passed, in Texas, North Carolina for a disk. And the disk would be broadened beyond pipe, because pipe isn't the problem. It’s wells and tanks and small and in Ohio, we are working right now on legislation, which would mimic the gas legislation, which allows for a future test year and a disk, which we already have but broadened amount of things that could be included in the disk and how its implemented in a future test year method versus a historic test tube method. So if that is approved and it’s already been approved for gas, that will be a very, very positive thing for our Ohio operation.

We will go next to Michael Roomberg from Ladenburg Thalmann.

Just a couple of questions on the asset sales, just in terms of the financial impact in the fourth quarter and the first quarter of next year. So you booked the tax implications of the gain on the sales. Can you quantify what the gain would be and what the timing of that would be for Maine?

1Q and I am going to say $0.06 to $0.08.

Got you. And also kind of looking backwards so that we can get a better understanding of how this continue actually affect the fourth quarter of 2011. Can you quantify the impact of the New York and Maine on your financials in the fourth quarter of 2010?

There will be very little tax implications. We will have stopped depreciation because we accelerated all the depreciation into this quarter that was part of into this quarter’s earnings because that’s the rule and Bob I think its pretty – we pick up maybe a $0.05, yeah probably $0.05.

Okay. And safe to assume that the revenue contribution from those assets was around $10 million, just in terms of getting a top-line number from continuing ops?

We’ll look that up and give you the exact numbers from last year’s fourth quarter for those two states and you can anticipate what they would have been this year; it’s very little movement in Maine and New York. The only time they really sell a lot more or lot less is from May to September. This is the lawn watering, so it probably should be pretty, pretty basic.

And then with respect to the I guess more aggressive CapEx budget is that 330 to 335 range that we are now looking at; is that inclusive of this pipeline JV project?

I am missing.

Just wondering if there are capital budget includes may be contribution.

No, the JV is 100% -- both of us are doing a 100% equity right now and it’s off balance sheet.

And with respect to that project, what is the impact if any of the bonus depreciation on the cash flows that you could realized from that project in years one and beyond?

Well, it will be eligible for both the state and federal. Now there is no state taxes yet paid, because we don’t have – it’s not operating yet still so. And if there is no tax increase in the – there is no bonus depreciation next year then we won’t get any benefit. On the other hand bonus depreciation for this year, we are going to take. Dave?

Yeah.

It will be completed by year end. And you just remind me, I mean I’ll be on the phone call with the engineers this afternoon, because we’re trying to get the all the solar projects done by the end of the year too. We have two in Georgia and one in Pennsylvania so that we get the bonus depreciation and the ITC.

Got you. That’s all I had, congratulations on a nice quarter.

And this tend to have 11 million, Bob just looked it out.

We’ll go next to Stewart Scharf from S&P Capital. Stewart Scharf - S&P Equity Research: I was wondering if you can add color to you know you were talking about with the sales drilling and the water systems and in the past you mentioned about the stations on the highway to make it easier and little bit and just the comparison of what your – how that will affect these systems that you are stalling, these pipelines and then what the potential is, the timetable on the growth rate going forward?

Sure. Well, first of all the evolution of this industry is very interesting to watch. It was a lot of talk five years ago because the technology was so new and they were still saying we think there is a lot of gas in Pennsylvania. I am pretty sure that’s now been confirmed and actually the first of wells out produced any projection. So the second is everybody thought gas prices would be at $7 an Mbtu and they are around $4 and they are still drilling so that tells you something. Third is the drilling has started the land accumulation and the royalties and all that and its still happening but not a frantic pace it was, because a lot of the land has already been garnered for the drilling. And what we saw that a year and a half ago was an increased usage of our fire hydrants in our small towns up there, big tanker charge to command and pay for it, they pay tariff rate and what we’re getting was complaints from the town officials, we don’t want all these trucks filling up at the fire hydrants. So we started looking at how can we get them out, still sell them water but get them out of the little towns that we set up and we now have five already located stations right on highways that are the trucks still – they went to the town, they pull up to the highway, we’ve run a pipeline to that filling station and they pay, we pay tariff rate to the water company and the trucker pays are unregulated entity. The fare going rate on what they pay anywhere else, when they do it. Now, we’re still looking at stations and places to put more because it will…

Why don’t you give me a call on that, I can give you what -- we are not allowed to give you because these are all independent confidential contracts and then we can calculate it for yourself.

We will next go to Jonathan Reeder from Wells Fargo

Just try to read through the weather noise, would you characterize overall 2011 as a normal given the favorable June and July and then really the wet August and September or does that more than offset it?

A bad winter; that was more of expense; we have lot of breeze of cold this winter for some reason. A good June, great July and terrible August and September and October is flat. A great year in Texas, because it’s been hot and dry in Texas all year and so balance of it out. So I would say taking into account the good year in Texas and North Carolina and the bad years elsewhere, I think $0.02 to $0.03 negative versus last year which was at least $0.02 positive.

So I guess if last year was $0.02 positive this is $0.02 to $0.03 negative, so maybe a penny lower than normal I guess?

Right.

Okay. And then on the O&M efficiency ratio, is there any reason Q4 would go up from I guess where the trailing 12 months ratio is right now where there any kind of sales gains recorded last year Q4 that helped I guess lower it?

No, but remember fourth quarter if you just look at as a quarter is always higher; first and fourth are higher because your revenues drop and your expenses are fixed. So really like if we took just the third quarter, sometimes they are low as 35, 34 something like that, so fourth quarter usually doesn't help, but that's why I gave you trailing 12. All we have to do is beat last year's fourth quarter.

Right, I mean relative to the trailing 12 you would think for the full year we come in around there maybe a little better even?

Yeah, may be 10 basis points. But there was no one-time sales that go into reduction of expense or anything like that last year's fourth quarter.

Right, that's what I was trying to get at. Okay, and then I guess last question assuming the Pennsylvania bonus depreciation is extended for 2012, what's the expected effective tax rate?

Well, your federal tax rate….

It would be much more in line with last years. Standard minor flow through right, I mean probably around the 40% mark.

And at this time we have no further questions.

Okay, thank you very much everyone.

And that does conclude today’s conference. We thank you for your participation.