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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported):		April 20, 2006

Aqua America, Inc.
__________________________________________
(Exact name of registrant as specified in its charter)

Pennsylvania	001-06659	23-1702594
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)
762 West Lancaster Avenue, Bryn Mawr, Pennsylvania		19010-3489
_________________________________ (Address of principal executive offices)		___________ (Zip Code)

Registrant’s telephone number, including area code:		610-527-8000

Not Applicable
______________________________________________
Former name or former address, if changed since last report

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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Item 7.01 Regulation FD Disclosure.

On April 20, 2006, the Registrant's CEO and CFO made a presentation to analysts and investors on a strategic and financial overview of the Registrant. The presentation was Web-cast live from the Registrant's Web site and has been archieved for 30 days on the Registrant's Web site. The Registrant issued a press release on April 13, 2006 announcing that the Web-cast would be held.

A transcript of the presentation is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

This presentation contains in addition to historical information, forward-looking statements based on assumptions made by management regarding future circumstances over which the Registrant may have little or no control, that involve risks, uncertainties and other factors that may cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors include, among others, the following: general economic and business conditions; weather c onditions affecting customers’ water usage or the company’s cost of operations; the success of cost containment initiatives, including costs arising from changes in regulations; regulatory treatment of rate increase requests; availability and cost of capital; the success of growth initiatives, including pending acquisitions; the effect of regulation on consolidation of the industry; the ability to generate earnings from capital investment; and the other risks an uncertainties described in our filings with the Securities and Exchange Commission.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

99.1 Analyst Day Presentation Transcript

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		Aqua America, Inc.
April 26, 2006		By:		Roy H. Stahl
				Name: Roy H. Stahl
				Title: Executive Vice President and General Counsel

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Exhibit Index

Exhibit No.		Description
99.1		Analyst Day Presentation Transcript

Aqua America, Inc.
2006 Analysts Day
April 20, 2006

Then the electrics deregulated and when the electrics deregulated, many of them sold their power plants, had cash around and some of them decided the water business would be an easy place to make quick money and everyone that got in has already been out, probably a five to six year cycle. Enron was the most – the best Harvard case study – 19 months start to finish, a lot of fanfare and not much beef. Where’s the beef? Probably the worst example of financial problems, other than that, was Ducane which got into it with a small systems strategy and we ended up, after they had numerous write-offs, buying their systems — we’re fixing them now and that’s part of our story here – but buying it well below what they paid for them, even below what’s called rate-base, which is what it’s regulated at in the States. All the electrics have been in and out.

Then the Europeans, the French, started invested early. I believe it was – and we had a large French firm, Vivendi, now called Veolia which had a big interest in us. I believe they were trying to – they were worried about nationalization in France, had a lot of money, knew the water business and bought a little stock in a lot of American companies, not many buy(?), liked a couple of them and bought more in those, us being one of them. And then what happened is the English and then the Germans, after deregulation, decided they had to be in the US, so they couldn’t be players. I don’t know if part of it was as an idea that now that there was deregulated power they could use the water and the power and the trading and everything else. I think that might have been RWE’s initial strategy. TEMs original strategy was to take on the Vivendi and Suez – make it a threesome versus a duopoly in worldwide water services. And that, of course, has now been reversed. But a couple small ones – Kelda(?), Newon(?), which was a Dutch company that we never heard from after the announcement, and they’re all – Newon is selling, Kelda is selling. American RWE has announced that they are selling. Originally private equity was their preference, now IPO is their preference. We’ll see how it all ends up. And United is still under direct ownership of the French government.

Now the latest wave to come into the business – I personally think it’s going to be short-lived – is private equity. And my problem with that is the model doesn’t work in the regulated model and if it does work, we have huge upside potential because it’s double leverage and consolidated tax taking advantage of that, which we don’t think we’re allowed to, but if we are allowed to, that would give us a huge upside potential. If any of you are interested – I don’t want to take the time today – I’ll send you a paper I’ve done for the commissioners’ edit and now their money is as green as anybody else’s and they’re professionals, so I’m not defaming any of these firms, it’s just whether the financial engineering is being used, fits the US-US monopoly-regulated model. And if it does, then it’s going to be very beneficial for those of us who are in it now.

So I think what you see is probably two dozen, down to less than a dozen now. If you take all those other 10 and put them together, they’re not our size. And really, American is the only other large one. If they go back on the public market, we’ll be two multi-state reasonably well capitalized businesses. I mean when you compared us to the electrics, we’re all still very small. So it’s a small business. But clearly, two firms which would not      . The 20% sector that Dave mentioned. So that puts it in perspective and I think the unstable period, after the one or two changes that still have to be done – the Kelda deal and the American deciding what they’re going – I think we’re going to start seeing a lot more stability in our industry here.

So you’re going to see a number of those type in AquaSource where we finally have now the regulatory wherewithal to go ahead. The biggest example being Texas, which was done last year and Texas turned from probably our most profitable state from our least profitable in one year, after we got the rates.

Dave: I’d like to move into a discussion of our strategy and our strategy really is twofold from a growth perspective. It’s acquiring companies, regulated water and waste water systems to grow that base. And that works very well in conjunction with our capital spending program. If we just tried to grow with capital spending, we’d be somewhat limited in our ability to grow and it would all be necessary to file rate cases in order to provide that growth. But it’s a nice complement to have the acquisition program on top of that as we bring in new customers, we make those investments, they come with revenue, they come with earning potential, if not earning right away and it’s a nice complement that has allowed us to reach the earnings that we’ve experienced over the recent years. We take those two key focal points and combine it with our drive to manage expenses and drive productivity, either view economies of scale, as we grow, or via converting expenses to capital, which is very important to us. And I’ll just give you one example there.

We used to read meters manually and we’ve recently introduced electronic radio read system into our company. And if it costs us a dollar to read manually, and $7 of capital in place to read electronically, they’re about equal from a standpoint of the revenue that they require generated in a rate case — $7 in capital probably generates $1 of revenue and $1 of expense will generate $1 of revenue. Bur, having said that, when you had $1 of revenue and $1 expense, there was no income associated with the meter reading process. But now that we have $1 of revenue and no expenses, some of that $1 obviously goes towards interest expense for the half that’s covered by interest expense, but the other $1 now goes to income. So we’re able to generate income simply by being more efficient and operating the company in the most appropriate way.

Let’s take a look at our revenue growth. Our revenue growth has been twofold, as I mentioned. Units from a standpoint of new customers and price from a standpoint of returns on our capital. One of the pleasant surprises we’ve seen in the last year is the Southern operations, organic growth in the 5 to 8% range. We’re been looking at our customer growth for a long time and I don’t remember a year, until 2005, actually, where our organic customer growth exceeded our acquisition customer growth. And really, that’s why we got into the South. We knew that to grow in the North would require acquisitions. There aren’t a lot of people moving to the north, but on the other hand, there’s tremendous movement of the Southern states, particularly North Carolina, Florida, Texas and we’re now there. We’re the provider of choice and we see tremendous opportunities to grow via that organic growth.

This is a look at our operating revenue over the last 10 years. You can see compound growth about 10% over that period of time, a little bit more than our 7% target that we often have discussed. And that really, you can see, is because the revenue growth has been a little bit faster in the last couple years because of some larger acquisitions, including AquaSource in 2003, Heater and Florida Water in 2004. So they have contributed to allow us to exceed that target over that period, but that’s not our year-in-year-out target. It tends to be a little bit closer to 7%.

From a customer growth perspective, we’ve also talked about 4% in terms of our year-in-year-out customer growth. You can see over the last 10 years that’s been about 13% on a compound basis, again, strengthened by some of the larger deals that I’ve mentioned before.

Talk a little bit about the acquisition arena as it exists today. Of those 50,000 water systems we talk about, there are about 22,000 of them in the 13 states in which we operate today. So we see tremendous opportunity to continue to acquire water and waste water systems. And I’ll get to waste water in the next slide. The other thing that’s happening, and we’ve touched on a little bit before, is that the drinking water regulations continue to become more stringent, year-in-year-out. New maximum contaminant levels are identified and new contaminants are recognized. And so as those things happen, it becomes more complicated to handle a water system and improvements are often needed to the treatment facilities to handle those changes. And while we tend to be ahead of the regulations and actually working with the policymakers on those regulations, there are many, many systems, particularly the smaller ones, that don’t have that benefit and are sometimes caught off guard when the new regulations are issued. And when that happens, and when capital infusion is required into a small system that the owner or perhaps a municipality is not intending, or is not financially capable of providing, that, in and of itself can provide a catalyst to move towards privatization or a sale to a company like ours. So we see that as a tremendous opportunity to help inspire companies towards considering sale in the foreseeable future.

In the waste water side, if you go back, and not too many years, we had no waste water operations. We actually go into it in a small way, about five years ago in Pennsylvania. It grew to a slightly larger amount when we acquired the Consumer’s Water Company and I remember at one time talking about maybe 5% waste water revenue one day. But when we acquired AquaSource in 2003, we got into the waste water business in a much larger way and it was nearly 10% of our revenue in 2005. It’s an interesting business. It is nearly as bifurcated as the water utility sector, so we see a tremendous opportunity for growth. And one of the keys here is that the waste water systems are 98% municipal and that a bulk of the investment that was put into waste water systems when they were originated, and not too long ago, came from the Federal Government subsidies and grants. We don’t see those programs in place today and as we enter periods wherein those systems and plants will need to be rehabilitated, upgraded to meet new requirements, we’re not sure where the money is going to come from. So unless municipalities decide that it’s time to raise rates, borrow the money and deal with these issues — which is also a very difficult decision for somebody that’s getting elected in a couple of years – then we see, again, further opportunities in waste water moving into the private sector and opportunities for us.

I mentioned septage hauling a little while ago. This is a new growth opportunity for us. It is essentially the waste water, but instead of having pipes in place, we use trucks. So people that capture their waste water at their premises, we now have a very small business that goes and retrieves that waste water and delivers it to the waste water treatment plant. It’s unregulated, but it’s very much like what we’re used to in terms of capturing and treating waste water. And we believe that we’re in a very unique position to achieve a key economy of scale in this business. Many of the providers that are out there now are small Mom and Pop companies with a couple of trucks. And they’re held captive by the local, municipal waste water plant, who they need desperately to discharge what they pick up. And as a waste water operator, with waste water treatment plants, we believe that that connection and the ability to use our facilities for that discharge, really puts us in a key position to take advantage of that economy of scale. And it’s very small now. I think we have $1.2 million of revenue in 2005, so it pales in comparison to the $500 million, but we see opportunities to grow this business in the future in a way that we think could be very profitable and helpful to our growth.

Nick: Dave, can I just take a minute here because a couple things we’ve just mentioned are new. They’re all water related, or waste water related, just as we started by putting our toe in the water with the waste water, now really see this as a great benefit program that we can grow, especially without Federal grants. ’72 is when the Federal Government passed a law and put $50 billion into the system. That’s the last time all that investment was made in most of these cities, so as you can see, it’s 30, 40 years old.

On an earlier slide we showed something called Basin Water. We’ve made an investment in this company that does reverse osmosis for arsenic nitrates and so on because we think there’s going to be a need for rehabbing old wells, that some people are abandoning now because they’ve become contaminated with one of the EPA contaminates. But eventually, that water is going to be needed and we’ve made – just like any investor – we’ve invested in this company and we anticipate – they plan to go public – when they do, you’ll get more information about it. But more importantly for me, we want to work with them in the states we’re in, especially the ag(?) states like Illinois and Pennsylvania. But we think their product works, and we would get into a mechanism where we would buy it, put it on the well and then charge an unregulated fee to the city or the company that wants to use the water again after it being abandoned.

Second is the little company called Home Services – it’s not little, it’s pretty big in Great Britain, but they’re just starting here. This is a water line, sewer line services business, so that if you have a break in your water line between your house and the curb, you owe – you have to fix it — and whether it’s a city or a private company. We started it very small in our company. The uptake was phenomenal — I couldn’t believe it – at 12%, I think, of our customers pay $59 a year for the service. We do nothing. It’s all contracted out. We get a commission from the Home Services. They do everything. They hire the plumbers, they have the call center and so on. And we’ve now expanded that to two other states and the uptake is about the same, so I think we’ll be a quarter million this year, right to the bottom-line because there’s no costs associated with it.

The third is this septage hauling. I’ve always been pushing – I was the one who got us in the waste water because the old days the water industry didn’t like waste water. It was like a clean water, it’s dirty water. And now that that’s worked, you’re seeing all these private water companies like ourselves getting into waste water. This is a business that I just thought was a natural complement once you got into waste water. It’s not a sexy business. We affectionately call them honey dippers, rather than septage haulers. But the bottom-line is, it’s a truck business and the person who has the disposal is the important one and that’s what we’re in. We’re in the waste water business, we have our own plant. So we tiptoed again – a lot of Mom and Pops — no big companies in this at all. And we bought a small company for, I think it was about eight-tenths of revenues, 80% of revenues. Revenues were $700,000 the first year. We built that to $1.2 million without much advertising or anything else, just the fact that the trucks say Aqua. And now we’re talking to three or four other ones right in the Southeast Pennsylvania area. And I think by the end of the year, we’ll be able to say we’re in this business for real, at least in Pennsylvania, and then try and replicate that in our other areas. It’s unregulated, but it’s in directly in line with the businesses we’re in, however, it is regulated by the environmental regulators, which is the real driver and I think you’re going to see tighter and tighter rules on septage systems, the repairs and maintenance as we go ahead. And we think we wanted to get a foothold. We wanted to make sure we could do it. If it wasn’t – half a million investment wasn’t the end of the world, but it’s actually throwing off – what, 28% margin?

So the next thing I’d like to talk a little bit about is earnings. And of course, the bottom-line for us is the return on rate-base business. It’s still that old regulated model and investing really is key to the growth. And we look at it from a standpoint of trying to maximize our returns as best we can...and utilizing whatever the commissions will provide in terms of regulatory mechanisms to allow that to happen. Some of those things include the distribution system improvement charge, that we’ve cited there as an example, that really has extracted a large chunk of our capital budget from the typical regulatory lag and provided a surcharge to recover those costs. Now in Pennsylvania where we have our largest example of that, we capped out at our disk at 5% last year. So we don’t see any of those benefits early on this year, but nonetheless, it’s been a tremendous program. There are other regulatory mechanisms. I mentioned before, acquisition incentives and the like that have all come to play a large part in our growth program.

From a capital expenditure standpoint, we anticipate over $250 million to invest this year, about four times depreciation. So now you can see why we’re negative cash, but at the same time, why we’re growing the company and do anticipate in the range of a billion dollars over the next five years or so. And I’ll show you some charts that will indicate how the capital has grown over the last few years and where we stand from a rate-base perspective. This is our five-year look at capital expenditures, growing a rate of 16% a year and topping out where we are this year at $255 million. But more importantly, if we translate that into our invested capital, or from a regulatory perspective, our rate-base, the base on which we earn a regulated return, you can see that’s grown by about 12% compound. So when you look at the formula and you look later on at our net income slide and see that we’ve grown net income at 10 or 11% per year, this is the underlying, fundamental reason that we’ve been able to do that because we’re growing the amount of investment that we have in utility capital at a consistent basis.

This is the model that we use. It’s fairly straightforward, but it works like this. Again, it’s a regulated return on equity. So if we bill the water plant that costs $50, we’ll finance $25 of it with debt, $25 with equity. The interest on the debt will be recovered in rates on a dollar-for-dollar basis. So there’s no income associated with that. But to finance the other $25 with equity, we’ll go into the market and sell one share of stock. And if we sell that one share of stock for $25 and achieve that 10% after-tax regulated rate of return – and by the way, 10% is about the minimum. We see a number of states that are a little bit higher than that. Then that one share will earn $2.50. And obviously, when we merge those shares, used to support the growth of the company, in with the shares that are earning $0.71 per share in 2005, you can see whereby the growth via capital, the growth via acquisition, to the extent that it’s supported by equity, is accretive to the company.

And this is a look at how that has worked over the last 10 years. You can see the compound growth rate in earnings per share has been about 11% over that period of time. And interestingly, as you dissect these numbers, if you were to go back to ’98 and extract the gain on the sale of the water system that was old in New Hampshire, and add back to ’99 the transition costs associated with the Consumer’s merger that occurred during that period, you would see a fairly straight line as it relates to the growth in earnings of the company over this period.

From a dividend perspective, we’re two-thirds retail. Our retail shareholders love the dividend. We’ve targeted our payout ratio at the 55 to 60% range sometime ago and we’ve now achieved that range. We continue to increase the dividend each year. We increased it nearly 10% in December 2005, as a result of our confidence in the business and the payout ratio having been achieved. And again, this is an important factor for our retail shareholders and we hope that we’ll be in a position to continue to increase the dividend for the foreseeable future.

Talk a little bit about 2005 and then where we are in 2006. This is old news already. It’s April, but 2005 our revenues were up 12%, net income 14. Earnings up 11%, interestingly, with the two cents gain in that 64 of 2004 from a systems sale. So you can see on a fundamental basis, actually a little bit higher than that as it relates to the operating earnings. So 2005 was a fine year. Interestingly, 2005 was an odd year in that a bulk of the growth came in the first half of 2005. Many of you that watched the company saw 20% earnings growth in the first half of the year and some tail off in the second half that resulted in the 11% growth. So 2005 was front-load a little bit as it relates to some major 2004 acquisitions and some major 2004 rate cases. And we’re going to see a similar phenomenon with 2006, that I’ll get to in one moment.

But just for starters for 2006, just to give you a few highlights – we’ve completed seven acquisitions through Q1, so we think we’re on pace to meet or beat last year’s record of 30 acquisitions. But perhaps more interesting than that, we’ve done 38 developer system deals, primarily in the South, whereby we’ve agreed to be the provider of water or waste water with a new development that’s going in somewhere in the South. And what makes this interesting to me is some of these developments will eventually have build-out of thousand and thousands of customers. So not only do we have our foot in the door initially, to be the provider of choice, but we have tremendous opportunities for future organic growth to supplement that which we’re already receiving in the South to continue to drive that growth from the South.

As Nick mentioned, we have finalized the purchase price in Florida Water, got a little money back. We held onto our arrangement of buying that below the rate base, so that was a nice transaction and once we get rates in place, it will actually earn some money. So that will be a good thing.

Earnings expectations for 2006, we have some regulatory lag for 2006. It’s actually looking kind of the opposite to 2005. 2005 all our growth was in the first half of the year and it sure looks like 2006, our growth will be in the second half of the year for similar reasons. We have a number of issues that are contributing to that regulatory lag in the first half of the year, not the least of which are interest and depreciation on major capital and advance of getting the rates in place to recover that. I mentioned earlier the maximization of our surcharge in Pennsylvania and no more room there. And we’ve had some recent expense increases, not unlike many other industries are seeing, in healthcare, pension arena, power and chemicals, driven largely from the rise in gasoline prices, and of course, options expense is about 800-some thousand dollars per quarter, effecting us for the first time in the first quarter of 2006. So a bunch of new things that have combined to create that regulatory lag in the first half of the year.

So although the capital is certainly in place, and we anticipate continued growth in that capital will drive the long-term earnings, it’s certainly not going to help us that much for the first half of the year, and we actually expect earnings to be down in the first half, the first two quarters, from the 2005 levels, slightly more so in Q1 than Q2. Again, much like 2005, we expect the year to be split in half and the back half of the year to see the growth. And to a large extent, if the weather is reasonably satisfactory in 2006, and discounting options expense, which is a one-time addition that we’re really unable to overcome from a standpoint of demonstrating our earnings growth, we could certainly finish the year consistent with our long-term earnings objectives. And that will be our goal.

On that mark, and on the next slide I have more details, we’ve got $53 million in pending rate requests in place today. And another 18 cases we expect to file in this year for another $14 million. So you can see the regulatory lag will soon come to an end as these cases begin to come to fruition. And just to take a quick look at that, the largest case, you can see, is the Pennsylvania, on file for $38 million. We’re actually pretty far along in settlement discussions and we hope that this case will settle, which gives us a degree of certainty to the outcome, gives us a little bit improvement in the timing. A fully litigated case may not come to fruition in Pennsylvania, for example, until mid to late August, whereas a settlement could come in in June at the earliest, perhaps July. So we see some benefits to that. Another of other cases, as you can see, on file.

Down at the bottom you can see the major cases that we expect to file and, again, picking up on Nick’s comments earlier, Florida is going to be a very important filing for us to turn that Florida Water property into a contributor. Filings in Indiana, a couple of cases, $6 million that are as important, as well as filing cases in Florida, to again, improve the operations in Florida. So that’s where we are in 2006 and some of the expectations.

But I’m very comfortable. If you look at the bottom-line, that linear line, and subtract the two to three cents in option costs, which is non cash, that we’ll be right in line with that going forward and we see the same thing in ’07.

Dave: Just a couple slides to wrap it up. The kinds of things we do work on to mitigate earnings risk. Obviously, from a standpoint of geographic diversification, we’ve done that as to mitigate both the weather in a region and the regulatory risk in a region. So being in 13 states helps that out. We do file rate allowances when necessary. We do have a lull and a backlog that’s coming to fruition in 2006, that you’ve heard about. Increasing interest rates can be a risk. It’s obviously hampered our regulatory lag in the first half of this year, but we see it as an opportunity for regulators to consider higher ROEs as well. And with the surcharges that we have in place for the long term, we believe that we’re able to mitigate much of that interest rate risk as it relates to our capital investment program. Acquisitions are always in place. We’re doing a number of deals each month and they make a contribution immediately, typically, and help to move earnings forward.

And condemnation is an interesting topic. We’ve seen it happen at some of the larger companies – Pennichuck Water, for example has been fighting condemnation by the City of Nashua. We’ve seen it a couple of time. Nick mentioned Fort Wayne. We’ve seen it some small systems in Ohio and actually, from our standpoint, those systems were under earning, they were fairly small and it was nice to get out with a premium, make a couple dollars and deploy that somewhere else. So that’s actually worked for us. But to a large extent, our big systems are interconnected, they cover multiple municipalities and we really don’t see condemnation as an issue for those systems.

Just to wrap up with a couple of charts. This is a look at our 5, 10 and 20 years returns, both annualized and total returns. So you can see it’s fairly consistent performance in the stock. And this is a look at how our performance over the 5-year period and a 10-year period compares to some of the most widely traded stocks on the exchange. So you can see we’re in pretty good company there as it relates to our returns compared to some pretty nice companies.

So where are we? We believe our strategy is in tact. The capital is there, the acquisition pipeline is full. We’re going to continue to move forward. We’re going to focus on earnings growth in the regulated model. We’re going to continue to focus on the asset ownership model from the standpoint of the water and waste water systems. And we’re going to do everything we can to continue our reputation as predictable, credible company and work with you all, work with our shareholders, work with the regulators and all those that are impacted by our business.

So in the end, we see it as a great value. We deliver 200 gallons of our product to your house every day for little over a dollar. And at the same time, you can spend a dollar for this and you have to get it yourself and deal with it. So we think it is a tremendous value. We think as prices need to go up, there’s little opposition to that because it’s necessary and it’s an important and valued resource that they provide. And we do consider ourselves an environmental company. This is a look at our Springton Reservoir. Watershed protection starts at the reservoir and we do what we can to make sure that that water that’s headed to the treatment plant is in as good as shape as it possibly can be and really do consider ourselves a green company.

So that’s it for today and we’d be happy to entertain any questions that you have.

END