Good day and welcome to the Aqua America Incorporated Fourth Quarter 2012 (sic) [First Quarter 2013] Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brian Dingerdissen, Director of Investor Relations. Please go ahead, sir.

Good morning, everyone. Thank you for joining us for Aqua America's First Quarter 2013 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 by calling Fred Martino at (610) 645-1196. There will also be a webcast of this event available on our site. Presenting today is Nicholas DeBenedictis, Chairman and President of Aqua America, along with David 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 risk, 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 risk 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 the call up for questions. Nick?

Thank you, Brian, and good morning, everyone. Pleased to report on strong first quarter performance, as Aqua's on its way to its 14th straight year of record earnings. As a quick update, our Annual Meeting will be held next week, May 8, and signs are that all things will go smoothly and we already have a quorum. Going back to the earnings call, net income for the quarter grew 23% to $46.6 million. Corresponding earnings per share were $0.33 versus $0.27 in the first quarter of '12 on 1.3% more shares outstanding. Income from continuing operations was up a strong 53%, represented by $0.29 per share in the quarter versus $0.19 last year. During the quarter, management executed on our strategic programs of profitable growth through our region acquisitions, investment in infrastructure, while holding down customer rates through the use of the favorable tax policies that we explained in the last earnings call and we'll get into a little bit more today. Successfully disposing of assets for sale and maintaining our position as the most cost-efficient utility and one of the strongest financially in the nation. Revenues are strong in the quarter, up 10% to $180 million, positively driven by customer growth from acquisitions in comparison of the Aqua Ohio purchase of quarter-over-quarter last year was not in the numbers, and 16 others that were bought during the last year in 6 other states. That represented, of the 10%, 6.5% of it. Great activities for '12, which come in to '13 and those in '13 already. Mainly Pennsylvania, New Jersey, where we had cases decided last April and June in Pennsylvania and New Jersey and 4 other states added 4% to the revenue growth. But they were negatively -- but the earnings for the quarter were negatively affected -- I'm…

[Operator Instructions] And we'll go first to Heike Doerr. Heike M. Doerr - Robert W. Baird & Co. Incorporated, Research Division: I wanted to start with CapEx. I see that year-over-year were down. Is that a weather-related slow start to the year?

It's timing. A little bit of weather, it was a little colder winter. Last winter, we didn't have a winter, so we never slowed down. It's more of a traditional where you do less in the first quarter and you do a lot more in the second and third. We're still on target to do the $325 million to $340 million level in order to maximize repair tax, we've reassessed some of the work we were doing and made sure that it met the standards of the, what we think, is the IRS guidelines. We moved some projects around. That's where the timing came in. But the -- and the other thing that's important to recognize is when we had the DISC, which of course we had to forgo because of the repair tax PUC order we made, the DISC had to be done exactly by a certain date to be eligible. The date was, if I'm not mistaken, February. And there's a lot more pressure on our construction crews to get things done by a certain date. So I think a little bit of the timing is that way. They're doing a little bit more value engineering and I think it's actually being a positive. But I'm not concerned over the -- it's not 25% is what you're looking at, so where you're going to make your numbers and we're comfortable we will. Heike M. Doerr - Robert W. Baird & Co. Incorporated, Research Division: Got it. That extra clarity is helpful. As we think long term, this $325 million to $350 million CapEx spending, what percentage of that is going towards disqualified infrastructure investment? Is it over half?

I'll get you that number. We believe it is but we'll get you an exact number. It's only relevant in Pennsylvania because we are still doing surcharges in the other states. So we'll give you a breakdown between the other states where we have traditionally done less pipe because we're still working on compliance and in Pennsylvania where our compliance is pretty much done. I can tell you because we're going to present it to the Annual Meeting. Our capital budget needs have dropped -- 3 25. Only 4% is compliance-related. In other words, only 4% of our budget would have to be spent in order to meet EPA rules versus probably 5 years ago, it was in the 30s to 40s. But the big shift in the priority setting in our capital so it has shifted much more towards needed infrastructure. It's still prudent, but it's not EPA-compliant driven. [indiscernible] into that percentage. Heike M. Doerr - Robert W. Baird & Co. Incorporated, Research Division: The Treasure Lake acquisition looks expensive. This $12 million based on the population served of 6,000 customers. Can you tell us a little bit more about this system and the value of it?

Yes, absolutely. First of all, it's in the heart of the area for the drilling. Second, it's an upscale near Dubois upscale development that it's probably 1/2 or less sold-out. So there's going to be a lot of growth. And third is we had to outbid the local water company, which had been actually higher than what we paid. So fair value is really what drove the price.

We'll go next to Jonathan Reeder with Wells Fargo.

I was wondering is there any change to the expected extent of the repairs tax deduction benefit for full year 2013? I think you previously said, including the amortization portion, it's about 125% to 130% of what 2012 was?

I think that's still -- until we see how all the final capital projects come in and this is constantly reviewed by the -- both our consultants on this project, which is KPMG and our auditors, PwC. So we had 1/2 of the national brain trust working on the -- on us doing it right. So if you give us that leeway, if they say something, do this differently, we will. But at this point, I think it's still accurate.

Okay. And then Nick, you're touching on the strong cash flow position that you're in and with earnings and the dividend, I guess I was kind of surprised yesterday that the board just increased it, your normal rate didn't think about accelerating it. Can you just kind of talk on that?

Yes, sure. That's why I mentioned May 8 next week is our Board and Annual Meeting. We did not have time because of the record date and everything else to have a board meeting just to look at the dividend. So we, by unanimous consent, approved the next dividend. So everybody would get there already increased dividend. Remember, we just increased it 2 quarters ago. But I think it will be a major topic of discussion at our annual and our board meeting. It follows the Annual Meeting on May 8.

As far as future growth, I mean what sort of trajectory should we expect? I mean, is it a one-time jump up? Or would you take a couple of bites of the apple?

I don't want to preempt the board. This the most delicate decision you make as a board member. We're going to be recommending 3 or 4 different options, they'll have to choose. You'll know in 3 days, in 3 working days.

Okay. So you expect to make an announcement following that board meeting?

If they make a change, absolutely.

Okay. And then just lastly, a little clarification in Florida. Once you make the Sarasota sale, which you said expected in Q3, that will put you completely out of the state?

Yes. Right now, that's the only [indiscernible] it's the only one we have left because Desoto was actually operated and we actually operated the systems we sold for about 1 month for customer service. That's done now, too. So the only thing we're really doing in Florida today as we speak is running our Sarasota and owning our Sarasota group, which, by the way, is about 1/3 of the system and has earned its keep and has always earned its keep. And the other 2/3 that lost the -- I think we said in the release for over $12 million over the year. So there is, because we've decided to exit Florida, but this isn't one that was driving it. Sarasota and [indiscernible] the rest of them.

All right. And then would you say this effectively ends your pruning program? Or are there any other properties that you're continuing to eye on up?

No, no, I think as to what we would be able to say to you clearly, this is something that I'll look at. But management is looking at small systems within states or every state's reviewed every year as we look at what its earnings potential is. And we're going to look at what enhanced the shareholder value the most, running it or selling it. But there is nothing more now that we could tell you that's on the table.

We'll go next to Gerry Sweeney with Boenning.

Just a quick question on the O&M side. Obviously, it was another great quarter in that area. Is some of that going to be benefited by exiting those -- I assume some of it is benefited from exiting those underperforming assets in Florida?

Well, Florida's O&M to revenue ratio, that's something we have always tracked. Florida's O&M to revenue ratio, it's best year was probably 85%. And you're used to hearing me say 35%, 36%. Yes, so clearly, it will help in that sense. But in selling 3% of our business. It's not as relevant. What we're doing to improve is really the sum of the AquaSource states, which are very, very spread out in small systems, which necessarily are more expensive to run than the large integrated systems like you're used to here around Philadelphia, Jerry, are just has to be higher. But they didn't have to be as high as they were and we're bringing those down and that's in the goals of our Vice President and each of the state presidents to squeeze every -- as much as you can to make them efficient. Because that keeps rates down. That's the real reason we're doing it. But in addition, it will help our overall corporation’s cash flow, right? And I think the -- we're closing in on efficiency in the Midwest states when we bought those 10 years ago, they were way out of whack. But we still have some room to go on the southern states. Now the other factor on the O&M to revenue that I'd like to bring up is, we're -- because where Pennsylvania was half of the company and the rate cases were pretty routine, and DISC very routine, there is no revenue growth because we're getting it all through the tax side. Remember, on that -- that's the [indiscernible]. So using O&M to revenue isn't as relevant as it used to be because of the fact that we're losing our denominator. And that always helps if you get more sales and rate revenues and watch your expenses, it's a double way to leverage that O&M to revenue ratio. Now we have a couple of states, which will be growing revenues and customer base and helping the denominator. But the numerator is the only place to go. So I'm going to start shifting to talk about how much overall expenses grow with knowing that if you want to take the corporate O&M to revenue ratio, I think we still have about a 500 or 1,000 basis points better than the next best company. So I don't think we have to prove ourselves in that area. But I think that's more relevant now.

You did mention, on the repair tax accounting in Pennsylvania not being able going in for rates and DISC. And when you spoke about it a quarter ago, I know it's only a quarter later, it was sort of a moving target as to when you could go back in for rates. Has that become any more clearer, with the caveat that we're still early?

No, I -- we told the commission we will not be in, in '13, which was a normal filing and there will be no DISC in '13. '14 will be a lot clearer, after the summer, we're doing a 5-year planning exercise, where we review every capital request of every engineer for the next 5 years, put those in. And when you put those in the model, we'll be able to see how much is tax repair eligible. At which point, I can give you a better answer.

Okay. And then finally on the -- on the unregulated side -- I'm sorry? I thought someone was commenting there. On the Aqua infrastructure side, you mentioned the joint venture adding, well, say $0.02 to this year. You thought you were on track for that. Any other updates as to what's going on outside of maybe of the JV in the shale areas?

Yes, we're talking to a number of people in Ohio. The Utica is where Marcellus was 5 years ago, probably. And the -- everything I read and hear from my electric company board duties is that gas is replacing coal in generation. We just announced last week that we're moving our entire fleet to CNG. So you're going to see more and more vehicles driven by gas so that the structural inherent demand pull is there. It's just timing and Karl, as you know our Vice President there, is very confident. It's just timing between this first quarter, where we saw very little and when Shell starts drilling and when some of the other people he's talking to the -- they're still very bullish on gas and they're still very bullish on gas in Pennsylvania and Ohio.

Sure. On that fleet conversion, I'm not sure if you mentioned it in the press release, are you converting or are these all new vehicles?

No. We've decided to turn the whole fleet over, but using new vehicles so we don't get into retrofit. And we're hoping that as more companies and individuals start doing it and you get the chicken and egg and more infrastructure to sell the vehicles, that you'll see the price come down of new original equipment manufacturer vehicles. Right now, they are more expensive. We're applying for some state grants. We expect to hear soon. we've been one of the leaders in the state doing this. We just did a press conference last week with some legislators and there's been some press on it. We'll send it to you.

Okay. Great. And then finally obviously, any comment on Allentown? I thought that was an interesting process, with the growth of the Lehigh Valley group winning the bid.

Yes. Let's see. Billy Joel, is that [indiscernible]? The -- we gave it a college try but the final cost and the requirements that were put on with no bend in the RFP. It turned out to be -- we just couldn't see how we could make any money out of it. We would like to have had done it. I give credit to the Mayor for standing up and doing what he thinks is right for his town even though there's a lot of local opposition and council members are running on the issue both ways. But we just -- Jerry, I'll tell you, we've looked at the numbers 15 different ways and you're locking yourself in for 50 years and we couldn't see how you could do it. You might want to ask some of the bigger French companies how they looked at it. But the winner was a local authority. So [indiscernible] is public money. But that local authority is very small compared to the size of Allentown [indiscernible]. So the economy of scale doesn't help you either. So I think it's -- there are other strategic reasons for the authorities, the County authorities do it, obviously. But for those 2 reasons, you're bidding against a strategic bidder versus a financial bidder, and then the second piece was the numbers just didn't work for us.

Yes, I mean, there was just, I guess, $225 million is the large chunk, plus infrastructure improvements. I was just more curious...

By the way, $0.5 million payment a year for 50 years, regardless of how you're doing to the city coffers.

Yes, I thought it interesting on local authority, yes, it sort of splits the middle between privatizing or a concession and a quasi-governmental institution coming in and sort of splits the middle between the general public being opposed to private companies running the water systems, that's also.

[Operator Instructions] And we'll go next to Stewart Scharf with S&P Capital IQ. Stewart Scharf - S&P Equity Research: You talked a little about the housing market and continuing to recover. Are you seeing much organic growth coming from there?

I'll get you exact numbers by state and we'll call you back. We're starting to see some infilling again in North Carolina but I think job growth in North Carolina, they have pretty high unemployment rate right now, is going to have to precede a major boom in construction unless it's all vacation homes, which I don't think is going to happen in North Carolina. It was happening for a while when people were using it as a halfway spot to Florida from New York. But we are starting to see -- in North Carolina, just to give you an example, of all the developers -- we have 1,000 systems in North Carolina, and a lot of them were developer systems where you design them and laid pipe and drilled wells for maybe 300 to 500 homes and only 100 were built. And when you add all that up over how many lots have infrastructure in front of them, there's 15,000 to 20,000. And what our hope is and what we're starting to see, the larger national builders are going in and saying we'll take this development over from bank or whoever and rather than start with Greenland and start from scratch plotting the acreage just to fill these in and maybe even build housing that is maybe not the $1 million homes we're used to, but maybe the 300 to 400, which is the sweet spot now. Texas is growing still organically, and we'll get you that number. Do you recall [indiscernible] the number offhand see what we can give you. But the Midwest and the more mature areas we [indiscernible] Pennsylvania and New Jersey and so on, it's coming off the floor, when the floor being almost nothing in '11 and '12. But it's -- I wouldn't say it's -- I don't want to give you undue optimism. But we're starting to see some activity now, which is good news. Stewart Scharf - S&P Equity Research: Okay. And the shale you -- you're looking for the 20% double load team do you still see that trend continuing, as you said, in the past over the next few years?

On the shale that you saw? Stewart Scharf - S&P Equity Research: Yes, the $0.01 from the shale.

Yes, yes -- no, we're still optimistic that our original estimate over the where we built the pipeline for, that was -- we weren't sure if we were going to earn anything on our first year and then we ended up doing that and that was $0.01 last year. And we said we think we could double it every year going forward until we get to that $0.10 a share. And we're still confident on that even though we had a soft first quarter. And I want to be honest with everybody in showing that, that was soft. But you'll see that in the JV number on the balance sheet. It looks like Texas -- I'm going back to your question on organic growth, in the first quarter we grew about 1,200 customers across everything. But Texas has the largest organic growth annualized and that's about 0.5%. We'd like to see that get -- the country get back to the 1% we were seeing in '08. Stewart Scharf - S&P Equity Research: Okay. And just on the -- on the legislation in Indiana, the action has strengthened that this year. Do you see these issues providing more based on the [indiscernible] rulings and...

Yes, I'll tell you why. Because -- and what we used was the case that was a Connecticut case on taking and the Indiana Supreme Court really was a very, very solid decision saying if you're going to condemn somebody's property, you have to give them fair value. Since the 2008 condemnation proceeding in -- by Fort Wayne in Indiana against us, legislation in the Indiana legislature has also been passed as it was also in Illinois, making it more difficult for condemnation of a private system by a municipal. And it's also being looked at in North Carolina. So I think -- I think there will always be condemnation proceedings between cities and between -- because of growth aspects in areas and so on. But I think this gives you the ability, if you have the ability, to fight back and maybe stall it, stop it, or at least if you can, to get to fair value. And that's what we -- and this one was already done. It was lost, the law allowed them to do it. But now I think it gives us leverage as we go through the court proceedings. Did that answer your question? Stewart Scharf - S&P Equity Research: Yes.

[Operator Instructions] It appears there are no further questions at this time. I would like to turn the conference back over to Nick DeBenedictis for any additional or closing remarks.

No. Thank you very much. And if anybody has questions that they didn't get a chance to ask now, just call us anytime today. Thanks.

That does conclude today's conference. Thank you for your participation.