Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
(Mark One)
 	 	 	
þ	 	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.	
For the quarterly period ended March 31, 2009
 	 	 	
o	 	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.	
For the transition period from                      to                     
Commission File Number 1-6659
AQUA AMERICA, INC.
(Exact name of registrant as specified in its charter)
 	 	 	
Pennsylvania	 	23-1702594	
 	 	 	
(State or other jurisdiction of
incorporation or organization)	 	(I.R.S. Employer
Identification No.)	
 	 	 	
762 W. Lancaster Avenue, Bryn Mawr, Pennsylvania	 	19010 -3489	
 	 	 	
(Address of principal executive offices)	 	(Zip Code)	
(610) 527-8000

(Registrant’s telephone number, including area code)
(Former Name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  þ  No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  o  No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12(b)-2 of the Exchange Act.:
 	 	 	 	 	 	 	
Large accelerated filer þ	 	Accelerated filer o	 	Non-accelerated filer o	 	Smaller reporting company o	
 	 	 	 	(do not check if a smaller reporting company)	 	 	
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No  þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of April 24, 2009.
135,649,486.

 

 
AQUA AMERICA, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
 	 	 	 	 	 	 	 	 	
 	 	Page	 	 	 	 	 	
Part I — Financial Information	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Item 1. Financial Statements:	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Consolidated Balance Sheets (unaudited) —
March 31, 2009 and December 31, 2008	 	 	2	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Consolidated Statements of Income and Comprehensive Income (unaudited) —
Three Months Ended March 31, 2009 and 2008	 	 	3	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Consolidated Statements of Capitalization (unaudited) —
March 31, 2009 and December 31, 2008	 	 	4	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Consolidated Statement of Equity (unaudited) —
Three Months Ended March 31, 2009	 	 	5	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Consolidated Statements of Cash Flow (unaudited) —
Three Months Ended March 31, 2009 and 2008	 	 	6	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Notes to Consolidated Financial Statements (unaudited)	 	 	7	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	 	17	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Item 3. Quantitative and Qualitative Disclosures About Market Risk	 	 	21	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Item 4. Controls and Procedures	 	 	21	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Part II — Other Information	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Item 1. Legal Proceedings	 	 	21	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Item 1A. Risk Factors	 	 	23	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	 	 	24	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Item 6. Exhibits	 	 	25	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Signatures	 	 	26	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Exhibit Index	 	 	27	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
 Exhibit 31.1	
 Exhibit 31.2	
 Exhibit 32.1	
 Exhibit 32.2	

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Table of Contents
Part I — Financial Information
Item 1. Financial Statements
AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except per share amounts)
(UNAUDITED)
 	 	 	 	 	 	 	 	 	
 	 	March 31,	 	 	December 31,	 	
 	 	2009	 	 	2008	 	
Assets	 	 	 	 	 	 	 	 	
Property, plant and equipment, at cost	 	$	3,897,640	 	 	$	3,848,419	 	
Less: accumulated depreciation	 	 	870,944	 	 	 	851,036	 	
 	 	 	 	 	 	 	
Net property, plant and equipment	 	 	3,026,696	 	 	 	2,997,383	 	
 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	 	16,744	 	 	 	14,944	 	
Accounts receivable and unbilled revenues, net	 	 	77,280	 	 	 	84,523	 	
Inventory, materials and supplies	 	 	9,358	 	 	 	9,822	 	
Prepayments and other current assets	 	 	11,349	 	 	 	11,752	 	
 	 	 	 	 	 	 	
Total current assets	 	 	114,731	 	 	 	121,041	 	

Regulatory assets	 	 	220,378	 	 	 	222,057	 	
Deferred charges and other assets, net	 	 	50,711	 	 	 	50,603	 	
Funds restricted for construction activity	 	 	28,611	 	 	 	52,931	 	
Goodwill	 	 	40,842	 	 	 	41,007	 	
 	 	 	 	 	 	 	
 	 	$	3,481,969	 	 	$	3,485,022	 	
 	 	 	 	 	 	 	
Liabilities and Stockholders’ Equity	 	 	 	 	 	 	 	 	
Aqua America stockholders’ equity:	 	 	 	 	 	 	 	 	
Common stock at $.50 par value, authorized 300,000,000 shares, issued 136,341,948 and 136,053,467 in 2009 and 2008	 	$	68,170	 	 	$	68,026	 	
Capital in excess of par value	 	 	627,661	 	 	 	623,407	 	
Retained earnings	 	 	379,866	 	 	 	379,778	 	
Treasury stock, 692,462 and 683,958 shares in 2009 and 2008	 	 	(12,926	)	 	 	(12,751	)	
Accumulated other comprehensive income	 	 	23	 	 	 	(14	)	
 	 	 	 	 	 	 	
Total Aqua America stockholders’ equity	 	 	1,062,794	 	 	 	1,058,446	 	
 	 	 	 	 	 	 	 	 	
Noncontrolling interest	 	 	2,231	 	 	 	2,181	 	

Total equity	 	 	1,065,025	 	 	 	1,060,627	 	

Long-term debt, excluding current portion	 	 	1,226,232	 	 	 	1,248,104	 	
Commitments and contingencies	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	
Current portion of long-term debt	 	 	27,533	 	 	 	7,297	 	
Loans payable	 	 	84,407	 	 	 	80,589	 	
Accounts payable	 	 	27,157	 	 	 	50,044	 	
Accrued interest	 	 	16,909	 	 	 	16,070	 	
Accrued taxes	 	 	17,593	 	 	 	15,362	 	
Other accrued liabilities	 	 	18,436	 	 	 	23,809	 	
 	 	 	 	 	 	 	
Total current liabilities	 	 	192,035	 	 	 	193,171	 	

Deferred credits and other liabilities:	 	 	 	 	 	 	 	 	
Deferred income taxes and investment tax credits	 	 	365,525	 	 	 	355,166	 	
Customers’ advances for construction	 	 	73,890	 	 	 	72,955	 	
Regulatory liabilities	 	 	14,928	 	 	 	14,971	 	
Other	 	 	118,388	 	 	 	120,333	 	
 	 	 	 	 	 	 	
Total deferred credits and other liabilities	 	 	572,731	 	 	 	563,425	 	

Contributions in aid of construction	 	 	425,946	 	 	 	419,695	 	
 	 	 	 	 	 	 	
 	 	$	3,481,969	 	 	$	3,485,022	 	
 	 	 	 	 	 	 	
See notes to consolidated financial statements beginning on page 7 of this report.

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AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(UNAUDITED)
 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	
 	 	March 31,	 	
 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	
Operating revenues	 	$	154,487	 	 	$	139,283	 	
 	 	 	 	 	 	 	 	 	
Costs and expenses:	 	 	 	 	 	 	 	 	
Operations and maintenance	 	 	66,989	 	 	 	64,304	 	
Depreciation	 	 	26,387	 	 	 	21,481	 	
Amortization	 	 	2,755	 	 	 	1,173	 	
Taxes other than income taxes	 	 	11,590	 	 	 	12,109	 	
 	 	 	 	 	 	 	
 	 	 	107,721	 	 	 	99,067	 	

Operating income	 	 	46,766	 	 	 	40,216	 	
 	 	 	 	 	 	 	 	 	
Other expense (income):	 	 	 	 	 	 	 	 	
Interest expense, net	 	 	16,628	 	 	 	17,130	 	
Allowance for funds used during construction	 	 	(625	)	 	 	(956	)	
Gain on sale of other assets	 	 	(133	)	 	 	—	 	
 	 	 	 	 	 	 	
Income before income taxes	 	 	30,896	 	 	 	24,042	 	
Provision for income taxes	 	 	12,525	 	 	 	9,721	 	
 	 	 	 	 	 	 	
Net income attributable to common shareholders	 	$	18,371	 	 	$	14,321	 	

Net income attributable to common shareholders	 	$	18,371	 	 	$	14,321	 	
Other comprehensive income, net of tax:	 	 	 	 	 	 	 	 	
Unrealized holding gain on investments	 	 	37	 	 	 	—	 	
 	 	 	 	 	 	 	
Comprehensive income	 	$	18,408	 	 	$	14,321	 	

Net income per common share:	 	 	 	 	 	 	 	 	
Basic	 	$	0.14	 	 	$	0.11	 	
 	 	 	 	 	 	 	
Diluted	 	$	0.14	 	 	$	0.11	 	

Average common shares outstanding during the period:	 	 	 	 	 	 	 	 	
Basic	 	 	135,406	 	 	 	133,415	 	
 	 	 	 	 	 	 	
Diluted	 	 	135,876	 	 	 	133,970	 	

Cash dividends declared per common share	 	$	0.135	 	 	$	0.125	 	
 	 	 	 	 	 	 	
See notes to consolidated financial statements beginning on page 7 of this report.

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AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(In thousands of dollars, except per share amounts)
(UNAUDITED)
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	March 31,	 	 	December 31,	 	
 	 	 	 	 	 	2009	 	 	2008	 	
Aqua America stockholders’ equity:	 	 	 	 	 	 	 	 	
Common stock, $.50 par value	 	$	68,170	 	 	$	68,026	 	
Capital in excess of par value	 	 	627,661	 	 	 	623,407	 	
Retained earnings	 	 	379,866	 	 	 	379,778	 	
Treasury stock	 	 	(12,926	)	 	 	(12,751	)	
Accumulated other comprehensive income	 	 	23	 	 	 	(14	)	
 	 	 	 	 	 	 	 	 	 	 	
Total Aqua America stockholders’ equity	 	 	1,062,794	 	 	 	1,058,446	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Noncontrolling interest	 	 	2,231	 	 	 	2,181	 	

Total equity	 	 	1,065,025	 	 	 	1,060,627	 	

Long-term debt:	 	 	 	 	 	 	 	 	
Long-term debt of subsidiaries (substantially secured by utility plant):	 	 	 	 	 	 	 	 	
Interest Rate Range	 	Maturity Date Range	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
0.00% to 0.99%	 	 	2012 to 2034	 	 	 	3,530	 	 	 	3,606	 	
1.00% to 1.99%	 	 	2009 to 2035	 	 	 	21,969	 	 	 	22,076	 	
2.00% to 2.99%	 	 	2019 to 2027	 	 	 	13,501	 	 	 	13,683	 	
3.00% to 3.99%	 	 	2010 to 2025	 	 	 	30,004	 	 	 	30,437	 	
4.00% to 4.99%	 	 	2020 to 2041	 	 	 	196,093	 	 	 	196,150	 	
5.00% to 5.99%	 	 	2011 to 2043	 	 	 	318,930	 	 	 	318,913	 	
6.00% to 6.99%	 	 	2011 to 2036	 	 	 	121,557	 	 	 	121,552	 	
7.00% to 7.99%	 	 	2012 to 2025	 	 	 	31,999	 	 	 	32,245	 	
8.00% to 8.99%	 	 	2021 to 2025	 	 	 	34,743	 	 	 	34,806	 	
9.00% to 9.99%	 	 	2010 to 2026	 	 	 	70,807	 	 	 	71,301	 	
10.00% to 10.99%	 	 	2018 to 2018	 	 	 	6,000	 	 	 	6,000	 	
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	849,133	 	 	 	850,769	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Notes payable to bank under revolving credit agreement, variable rate, due May 2012	 	 	62,500	 	 	 	62,500	 	
Unsecured notes payable:	 	 	 	 	 	 	 	 	
Notes of 4.87%, due 2010 through 2023	 	 	135,000	 	 	 	135,000	 	
Notes ranging from 5.00% to 5.99%, due 2013 through 2037	 	 	207,132	 	 	 	207,132	 	
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	1,253,765	 	 	 	1,255,401	 	
Current portion of long-term debt	 	 	27,533	 	 	 	7,297	 	
 	 	 	 	 	 	 	 	 	 	 	
Long-term debt, excluding current portion	 	 	1,226,232	 	 	 	1,248,104	 	
 	 	 	 	 	 	 	 	 	 	 	
Total capitalization	 	$	2,291,257	 	 	$	2,308,731	 	
 	 	 	 	 	 	 	 	 	 	 	
See notes to consolidated financial statements beginning on page 7 of this report.

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AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(In thousands of dollars)
(UNAUDITED)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Accumulated	 	 	 	 	 	 	 	
 	 	 	 	 	 	Capital in	 	 	 	 	 	 	 	 	 	 	Other	 	 	 	 	 	 	 	
 	 	Common	 	 	Excess of	 	 	Retained	 	 	Treasury	 	 	Comprehensive	 	 	Noncontrolling	 	 	 	 	
 	 	Stock	 	 	Par Value	 	 	Earnings	 	 	Stock	 	 	Income	 	 	Interest	 	 	Total	 	
Balance at December 31, 2008	 	$	68,026	 	 	$	623,407	 	 	$	379,778	 	 	$	(12,751	)	 	$	(14	)	 	$	2,181	 	 	$	1,060,627	 	
Net income	 	 	—	 	 	 	—	 	 	 	18,371	 	 	 	—	 	 	 	—	 	 	 	50	 	 	 	18,421	 	
Unrealized holding gain on investments, net of income tax of $20	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	37	 	 	 	—	 	 	 	37	 	
Dividends paid	 	 	—	 	 	 	—	 	 	 	(18,283	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(18,283	)	
Sale of stock (162,815 shares)	 	 	78	 	 	 	2,676	 	 	 	—	 	 	 	125	 	 	 	—	 	 	 	—	 	 	 	2,879	 	
Repurchase of stock (14,935 shares)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(300	)	 	 	—	 	 	 	—	 	 	 	(300	)	
Equity compensation plan (45,500 shares)	 	 	23	 	 	 	(23	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Exercise of stock options (86,597 shares)	 	 	43	 	 	 	757	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	800	 	
Stock-based compensation	 	 	—	 	 	 	802	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	802	 	
Employee stock plan tax benefits	 	 	—	 	 	 	42	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	42	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at March 31, 2009	 	$	68,170	 	 	$	627,661	 	 	$	379,866	 	 	$	(12,926	)	 	$	23	 	 	$	2,231	 	 	$	1,065,025	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See notes to consolidated financial statements beginning on page 7 of this report.

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AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands of dollars)
(UNAUDITED)
 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	
 	 	March 31,	 	
 	 	2009	 	 	2008	 	
Cash flows from operating activities:	 	 	 	 	 	 	 	 	
Net income attributable to common shareholders	 	$	18,371	 	 	$	14,321	 	
Adjustments to reconcile net income attributable to common shareholders to net cash flows from operating activities:	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	29,142	 	 	 	22,654	 	
Deferred income taxes	 	 	8,391	 	 	 	1,672	 	
Provision for doubtful accounts	 	 	1,494	 	 	 	1,788	 	
Stock-based compensation	 	 	729	 	 	 	978	 	
Gain on sale of other assets	 	 	(133	)	 	 	—	 	
Net decrease in receivables, inventory and prepayments	 	 	6,298	 	 	 	4,367	 	
Net decrease in payables, accrued interest, accrued taxes and other accrued liabilities	 	 	(1,414	)	 	 	(877	)	
Other	 	 	(182	)	 	 	(1,029	)	
 	 	 	 	 	 	 	
Net cash flows from operating activities	 	 	62,696	 	 	 	43,874	 	
 	 	 	 	 	 	 	
Cash flows from investing activities:	 	 	 	 	 	 	 	 	
Property, plant and equipment additions, including allowance for funds used during construction of $625 and $956	 	 	(62,135	)	 	 	(56,467	)	
Acquisitions of utility systems and other, net	 	 	(290	)	 	 	—	 	
Proceeds from the sale of other assets	 	 	246	 	 	 	16,947	 	
Additions to funds restricted for construction activity	 	 	(29	)	 	 	(556	)	
Release of funds previously restricted for construction activity	 	 	24,335	 	 	 	1,676	 	
Other	 	 	(758	)	 	 	(5	)	
 	 	 	 	 	 	 	
Net cash flows used in investing activities	 	 	(38,631	)	 	 	(38,405	)	
 	 	 	 	 	 	 	
Cash flows from financing activities:	 	 	 	 	 	 	 	 	
Customers’ advances and contributions in aid of construction	 	 	581	 	 	 	1,769	 	
Repayments of customers’ advances	 	 	(473	)	 	 	(850	)	
Net proceeds of short-term debt	 	 	3,817	 	 	 	26,909	 	
Proceeds from long-term debt	 	 	303	 	 	 	56	 	
Repayments of long-term debt	 	 	(1,920	)	 	 	(13,508	)	
Change in cash overdraft position	 	 	(9,741	)	 	 	(6,938	)	
Proceeds from exercised stock options	 	 	800	 	 	 	651	 	
Stock-based compensation windfall tax benefits	 	 	72	 	 	 	82	 	
Proceeds from issuing common stock	 	 	2,879	 	 	 	2,628	 	
Repurchase of common stock	 	 	(300	)	 	 	(283	)	
Dividends paid on common stock	 	 	(18,283	)	 	 	(16,678	)	
Proceeds from net cash settlements of forward equity sale agreement	 	 	—	 	 	 	2,662	 	
 	 	 	 	 	 	 	
Net cash flows used in financing activities	 	 	(22,265	)	 	 	(3,500	)	

Net increase in cash and cash equivalents	 	 	1,800	 	 	 	1,969	 	
Cash and cash equivalents at beginning of period	 	 	14,944	 	 	 	14,540	 	
 	 	 	 	 	 	 	
Cash and cash equivalents at end of period	 	$	16,744	 	 	$	16,509	 	
 	 	 	 	 	 	 	
See notes to consolidated financial statements beginning on page 7 of this report.

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 1 Basis of Presentation
The accompanying consolidated balance sheets and statements of capitalization of Aqua America, Inc. and subsidiaries (the “Company”) at March 31, 2009, the consolidated statements of income and comprehensive income for the three months ended March 31, 2009 and 2008, the consolidated statements of cash flow for the three months ended March 31, 2009 and 2008, and the consolidated statement of equity for the three months ended March 31, 2009, are unaudited, but reflect all adjustments, consisting of only normal recurring accruals, which are, in the opinion of management, necessary to present fairly the consolidated financial position, the consolidated changes in equity, the consolidated results of operations, and the consolidated cash flow for the periods presented. Because they cover interim periods, the statements and related notes to the financial statements do not include all disclosures and notes normally provided in annual financial statements and, therefore, should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. The results of operations for interim periods may not be indicative of the results that may be expected for the entire year. Effective January 1, 2009, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51,” which was retrospectively applied, and requires a noncontrolling interest to be separately presented as a component of stockholders’ equity on the Consolidated Balance Sheet and Statement of Equity. See Note 10,  Recent Accounting Pronouncements,  for further information. Certain prior year amounts have been changed to conform with current year’s presentation.
Note 2 Goodwill
The following table summarizes the changes in the Company’s goodwill, by business segment:
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Regulated	 	 	 	 	 	 	 	
 	 	Segment	 	 	Other	 	 	Consolidated	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2008	 	$	36,887	 	 	$	4,120	 	 	$	41,007	 	
Reclassifications to utility plant acquisition adjustment	 	 	(1,353	)	 	 	—	 	 	 	(1,353	)	
Other	 	 	1,188	 	 	 	—	 	 	 	1,188	 	
 	 	 	 	 	 	 	 	 	 	
Balance at March 31, 2009	 	$	36,722	 	 	$	4,120	 	 	$	40,842	 	

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 3 Dispositions
The City of Fort Wayne, Indiana (the “City”) has authorized the acquisition by eminent domain of the northern portion of the utility system of one of the Company’s operating subsidiaries that the Company acquired in connection with the AquaSource acquisition in 2003. The Company had challenged whether the City was following the correct legal procedures in connection with the City’s condemnation, but the Indiana Supreme Court, in an opinion issued in June 2007, supported the City’s position. In October 2007, the City’s Board of Public Works approved proceeding with its process to condemn the northern portion of the Company’s utility system at a preliminary price based on the City’s valuation. The Company has filed an appeal with a local Circuit Court challenging the Board of Public Works’ valuation on several bases. In November 2007, the City Council authorized the taking of the northern portion of the Company’s system and the payment of $16,911 based on the City’s valuation of this portion of the system. In January 2008, the Company reached a settlement with the City to transition the northern portion of the system in February 2008 upon receipt of the City’s initial valuation payment of $16,911. The settlement agreement specifically states that the final valuation of the portion of the Company’s system will be determined through a continuation of the legal proceedings that were filed challenging the City’s valuation. On February 12, 2008, the Company turned over the system to the City upon receipt of the initial valuation payment. The Indiana Utility Regulatory Commission also reviewed and acknowledged the transfer of the Certificate of Territorial Authority for the Company’s northern system to the City. The proceeds received are in excess of the book value of the assets relinquished. No gain has been recognized due to the contingency over the final valuation of the assets. On March 16, 2009, oral argument was held on certain procedural aspects with respect to the valuation evidence that may be presented and whether the Company is entitled to a jury trial. The Company expects a ruling from the judge in the second half of 2009. Depending upon the outcome of the legal proceeding in the Circuit Court the Company may be required to refund a portion of the initial valuation payment, or may receive additional proceeds. The northern portion of the system relinquished represents approximately 0.5% of the Company’s total assets.

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 4 Net Income per Common Share
Basic net income per common share is based on the weighted average number of common shares outstanding. Diluted net income per common share is based on the weighted average number of common shares outstanding and potentially dilutive shares. The dilutive effect of employee stock options is included in the computation of diluted net income per common share. The dilutive effect of stock options is calculated using the treasury stock method and expected proceeds upon exercise of the stock options. The following table summarizes the shares, in thousands, used in computing basic and diluted net income per common share:
 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	
 	 	March 31,	 	
 	 	2009	 	 	2008	 	
Average common shares outstanding during the period for basic computation	 	 	135,406	 	 	 	133,415	 	
Dilutive effect of employee stock options	 	 	470	 	 	 	555	 	
 	 	 	 	 	 	 	
Average common shares outstanding during the period for diluted computation	 	 	135,876	 	 	 	133,970	 	
 	 	 	 	 	 	 	
For the three months ended March 31, 2009 and 2008, employee stock options to purchase 1,561,609 and 1,697,647 shares of common stock, respectively, were excluded from the calculations of diluted net income per share as the calculated proceeds from the options’ exercise were greater than the average market price of the Company’s common stock during these periods.
Note 5 Stock-based Compensation
Under the Company’s 2004 Equity Compensation Plan (the “2004 Plan”), as approved by the shareholders to replace the 1994 Equity Compensation Plan (the “1994 Plan”), qualified and nonqualified stock options may be granted to officers, key employees and consultants at prices equal to the market price of the stock on the day of the grant. Officers and key employees may also be granted dividend equivalents and restricted stock. Restricted stock may also be granted to non-employee members of the Board of Directors. The 2004 Plan authorizes 4,900,000 shares for issuance under the plan. A maximum of 50% of the shares available for issuance under the 2004 Plan may be issued as restricted stock and the maximum number of shares that may be subject to grants under the plans to any one individual in any one year is 200,000. Awards under the 2004 Plan are made by a committee of the Board of Directors. At March 31, 2009, 1,872,316 shares underlying stock option and restricted stock awards were still available for grant under the 2004 Plan, although under the terms of the 2004 Plan, terminated, expired or forfeited grants under the 1994 Plan and shares withheld to satisfy tax withholding requirements under the plan may be re-issued under the 2004 Plan.
Stock Options—During the three months ended March 31, 2009 and 2008, the Company recognized compensation cost associated with stock options as a component of operations and maintenance expense of $543 and $788, respectively. For the three months ended March 31, 2009 and 2008, the Company recognized income tax benefits associated with stock options in its income statement of $101 and $79, respectively. In addition, the Company capitalized compensation costs associated with stock options within property, plant and equipment of $73 and $95 during the three months ended March 31, 2009 and 2008, respectively.

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The fair value of options was estimated at the grant date using the Black-Scholes option-pricing model. The per share weighted-average fair value at the date of grant for stock options granted during the three months ended March 31, 2009 and 2008 was $4.37 and $4.12 per option, respectively. The following assumptions were used in the application of this valuation model:
 	 	 	 	 	 	 	 	 	
 	 	2009	 	 	2008	 	
Expected term (years)	 	 	5.3	 	 	 	5.2	 	
Risk-free interest rate	 	 	2.2	%	 	 	3.0	%	
Expected volatility	 	 	31.3	%	 	 	23.7	%	
Dividend yield	 	 	2.98	%	 	 	2.24	%	
Historical information was the principal basis for the selection of the expected term and dividend yield. The expected volatility is based on a weighted-average combination of historical and implied volatilities over a time period that approximates the expected term of the option. The risk-free interest rate was selected based upon the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option.
The following table summarizes stock option transactions for the three months ended March 31, 2009:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Weighted	 	 	Weighted	 	 	 	 	
 	 	 	 	 	 	Average	 	 	Average	 	 	Aggregate	 	
 	 	 	 	 	 	Exercise	 	 	Remaining	 	 	Intrinsic	 	
 	 	Shares	 	 	Price	 	 	Life (years)	 	 	Value	 	
Options:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Outstanding at beginning of period	 	 	3,543,573	 	 	$	18.83	 	 	 	 	 	 	 	 	 	
Granted	 	 	586,950	 	 	 	19.12	 	 	 	 	 	 	 	 	 	
Forfeited	 	 	(16,717	)	 	 	20.78	 	 	 	 	 	 	 	 	 	
Expired	 	 	(21,716	)	 	 	24.04	 	 	 	 	 	 	 	 	 	
Exercised	 	 	(86,597	)	 	 	9.24	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Outstanding at end of period	 	 	4,005,493	 	 	$	19.04	 	 	 	6.6	 	 	$	10,149	 	

Exercisable at end of period	 	 	2,871,353	 	 	$	18.62	 	 	 	5.5	 	 	$	9,634	 	

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Restricted Stock—During the three months ended March 31, 2009 and 2008, the Company recorded stock-based compensation related to restricted stock awards as a component of operations and maintenance expense in the amounts of $186 and $190, respectively. The following table summarizes nonvested restricted stock transactions for the three months ended March 31, 2009:
 	 	 	 	 	 	 	 	 	
 	 	Number	 	 	Weighted	 	
 	 	of	 	 	Average	 	
 	 	Shares	 	 	Fair Value	 	
 	 	 	 	 	 	 	 	 	
Nonvested shares at beginning of period	 	 	74,251	 	 	$	21.88	 	
Granted	 	 	45,500	 	 	 	19.15	 	
Vested	 	 	(27,333	)	 	 	23.88	 	
Forfeited	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	
Nonvested shares at end of period	 	 	92,418	 	 	$	19.94	 	

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 6 Pension Plans and Other Postretirement Benefits
The Company maintains qualified defined benefit pension plans, nonqualified pension plans and other postretirement benefit plans for certain of its employees. The net periodic benefit cost is based on estimated values and an extensive use of assumptions about the discount rate, expected return on plan assets, the rate of future compensation increases received by the Company’s employees, mortality, turnover, and medical costs. The following tables provide the components of net periodic benefit costs:
 	 	 	 	 	 	 	 	 	
 	 	Pension Benefits	 	
 	 	Three Months Ended	 	
 	 	March 31,	 	
 	 	2009	 	 	2008	 	
Service cost	 	$	1,125	 	 	$	1,153	 	
Interest cost	 	 	3,112	 	 	 	3,049	 	
Expected return on plan assets	 	 	(2,317	)	 	 	(2,998	)	
Amortization of transition asset	 	 	(46	)	 	 	(52	)	
Amortization of prior service cost	 	 	35	 	 	 	66	 	
Amortization of actuarial loss	 	 	1,202	 	 	 	64	 	
Capitalized costs	 	 	(671	)	 	 	(620	)	
 	 	 	 	 	 	 	
Net periodic benefit cost	 	$	2,440	 	 	$	662	 	

 	 	 	 	 	 	 	 	 	
 	 	Other	 	
 	 	Postretirement Benefits	 	
 	 	Three Months Ended	 	
 	 	March 31,	 	
 	 	2009	 	 	2008	 	
Service cost	 	$	278	 	 	$	271	 	
Interest cost	 	 	573	 	 	 	544	 	
Expected return on plan assets	 	 	(422	)	 	 	(448	)	
Amortization of transition obligation	 	 	26	 	 	 	26	 	
Amortization of prior service cost	 	 	(70	)	 	 	(70	)	
Amortization of actuarial loss	 	 	135	 	 	 	58	 	
Amortization of regulatory asset	 	 	38	 	 	 	38	 	
Capitalized costs	 	 	(92	)	 	 	(123	)	
 	 	 	 	 	 	 	
Net periodic benefit cost	 	$	466	 	 	$	296	 	
 	 	 	 	 	 	 	
The Company made cash contributions of $4,929 to its defined benefit pension plans during the first three months of 2009 and intends to make cash contributions of $12,009 to the plans during the remainder of 2009. In addition, the Company expects to make cash contributions of $1,874 for the funding of its other postretirement benefit plans during the remainder of 2009.

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 7 Water and Wastewater Rates
In April 2009, certain of the Company’s operating divisions in North Carolina and Florida were granted rate increases designed to increase total operating revenues on an annual basis by approximately $13,242.
On September 23, 2008, the Texas Commission on Environmental Quality (“TCEQ”) issued its final ruling with a unanimous decision approving the rate application that was filed in 2004 by the Company’s operating subsidiaries in Texas to increase rates, on an annualized basis, by $11,920 over a multi-year period beginning in 2004. The application sought to increase annual revenues in phases and was accompanied by a plan to defer and amortize a portion of the Company’s depreciation, operating and other tax expense over a similar multi-year period, such that the impact on operating income approximated the requested amount during the first years that the new rates were in effect. The Company commenced billing for the requested rates and implemented the deferral plan in 2004. As a result of the final order, the regulatory asset for the deferred operating costs and rate case expenses was set at $13,697. Beginning January 1, 2009, the regulatory asset for the deferred operating costs and rate case expense will be recovered through two twenty-four month surcharge mechanisms. The final order was appealed to the TCEQ by two parties, and the TCEQ has exercised its legal authority to take no action within the required period, therefore affirming the TCEQ’s approval decision. As a result, the appealing parties have filed suit against the TCEQ in an effort to appeal the order. The additional revenue billed and collected in connection with the case are subject to refund based on the outcome of the appeal. The revenue recognized and the expenses deferred by the Company reflect an estimate of the final outcome of the case. As of March 31, 2009, the Company has deferred $9,994 of operating costs and $2,512 of rate case expenses and recognized $39,105 of revenue that is subject to refund based on the outcome of any appeals. Based on the Company’s review of the present circumstances, no reserve is considered necessary for the revenue recognized to date.

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 8 Taxes Other than Income Taxes
The following table provides the components of taxes other than income taxes:
 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	
 	 	March 31,	 	
 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	
Property	 	$	6,163	 	 	$	6,857	 	
Capital stock	 	 	605	 	 	 	773	 	
Gross receipts, excise and franchise	 	 	1,952	 	 	 	1,956	 	
Payroll	 	 	2,079	 	 	 	1,871	 	
Other	 	 	791	 	 	 	652	 	
 	 	 	 	 	 	 	
Total taxes other than income	 	$	11,590	 	 	$	12,109	 	

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 9 Segment Information
The Company has identified fourteen operating segments and has one reportable segment named the Regulated segment. The reportable segment is comprised of thirteen operating segments for the Company’s water and wastewater regulated utility companies which are organized by the states where we provide these services. In addition, one segment is not quantitatively significant to be reportable and is comprised of the businesses that provide on-site septic tank pumping, sludge hauling services and certain other non-regulated water and wastewater services. This segment is included as a component of “Other” in the tables below. Also included in “Other” are corporate costs that have not been allocated to the Regulated segment and intersegment eliminations.
The following tables present the Company’s segment information:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended	 	 	Three Months Ended	 	
 	 	March 31, 2009	 	 	March 31, 2008	 	
 	 	Regulated	 	 	Other	 	 	Consolidated	 	 	Regulated	 	 	Other	 	 	Consolidated	 	
Operating revenues	 	$	151,731	 	 	$	2,756	 	 	$	154,487	 	 	$	136,469	 	 	$	2,814	 	 	$	139,283	 	
Operations and maintenance expense	 	 	65,627	 	 	 	1,362	 	 	 	66,989	 	 	 	62,267	 	 	 	2,037	 	 	 	64,304	 	
Depreciation	 	 	26,781	 	 	 	(394	)	 	 	26,387	 	 	 	21,938	 	 	 	(457	)	 	 	21,481	 	
Operating income	 	 	45,433	 	 	 	1,333	 	 	 	46,766	 	 	 	39,380	 	 	 	836	 	 	 	40,216	 	
Interest expense, net of AFUDC	 	 	15,897	 	 	 	106	 	 	 	16,003	 	 	 	15,398	 	 	 	776	 	 	 	16,174	 	
Income tax	 	 	12,267	 	 	 	258	 	 	 	12,525	 	 	 	9,975	 	 	 	(254	)	 	 	9,721	 	
Net income attributable to common shareholders	 	 	17,383	 	 	 	988	 	 	 	18,371	 	 	 	14,007	 	 	 	314	 	 	 	14,321	 	
Capital Expenditures	 	 	61,475	 	 	 	660	 	 	 	62,135	 	 	 	56,416	 	 	 	51	 	 	 	56,467	 	

 	 	March 31,	 	 	December 31,	 	
 	 	2009	 	 	2008	 	
Total assets:	 	 	 	 	 	 	 	 	
Regulated	 	$	3,422,753	 	 	$	3,412,519	 	
Other and eliminations	 	 	59,216	 	 	 	72,503	 	
 	 	 	 	 	 	 	
Consolidated	 	$	3,481,969	 	 	$	3,485,022	 	
 	 	 	 	 	 	 	
Note 10 Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which replaced SFAS No. 141. SFAS No. 141(R) establishes principles for recognizing assets and liabilities acquired in a business combination, contractual contingencies and certain acquired contingencies to be measured at their fair values at the acquisition date. This statement requires that acquisition-related costs and restructuring costs be recognized separately from the business combination. SFAS No. 141(R) is effective for the Company’s fiscal year beginning January 1, 2009. With the adoption of SFAS No. 141(R), the Company’s accounting for business combinations changed on a prospective basis beginning with transactions closing in the first quarter of 2009.

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.” This statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. This statement requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interest of the parent and the interest of the noncontrolling owners. The Company adopted SFAS No. 160 as required on January 1, 2009, and this statement did not have a material impact on the Company’s consolidated results of operations or consolidated financial position.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The statement applies when other statements require or permit the fair value measurement of assets and liabilities. This statement does not expand the use of fair value measurement. In February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”). FSP 157-2 delays the effective date of SFAS No. 157 for certain non-financial assets and liabilities to fiscal years beginning after November 15, 2008. The Company adopted SFAS No. 157 as required on January 1, 2008 for all financial assets and liabilities, and this statement did not have a material impact on the Company’s consolidated results of operations or consolidated financial position. Effective January 1, 2009, the Company adopted SFAS No. 157 on all non-financial assets and liabilities, and the adoption did not have a material impact on the Company’s consolidated results of operations or consolidated financial position.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
AQUA AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share amounts)
Forward-looking Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report contain, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address, among other things: our use of cash; projected capital expenditures; liquidity; possible acquisitions and other growth ventures; the completion of various construction projects; the projected timing and annual value of rate increases; the recovery of certain costs and capital investments through rate increase requests; the projected effects of recent accounting pronouncements, as well as information contained elsewhere in this report where statements are preceded by, followed by or include the words “believes,” “expects,” “anticipates,” “plans,” “intends,” “will,” “continue” or similar expressions. These statements are based on a number of assumptions concerning future events, and are subject to a number of uncertainties and other factors, many of which are outside our control. Actual results may differ materially from such statements for a number of reasons, including the effects of regulation, abnormal weather, changes in capital requirements and funding, acquisitions, and our ability to assimilate acquired operations. In addition to these uncertainties or factors, our future results may be affected by the factors and risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008. We undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.
General Information
Nature of Operations — Aqua America, Inc. (“we” or “us”), a Pennsylvania corporation, is the holding company for regulated utilities providing water or wastewater services to what we estimate to be approximately 3 million people in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, New York, Florida, Indiana, Virginia, Maine, Missouri, and South Carolina. Our largest operating subsidiary, Aqua Pennsylvania, Inc., provides water or wastewater services to approximately one-half of the total number of people we serve, which are located in the suburban areas north and west of the City of Philadelphia and in 23 other counties in Pennsylvania. Our other subsidiaries provide similar services in 12 other states. In addition, we provide water and wastewater service through operating and maintenance contracts with municipal authorities and other parties, and septage services, close to our utility companies’ service territories. Aqua America, which prior to its name change in 2004 was known as Philadelphia Suburban Corporation, was formed in 1968 as a holding company for its primary subsidiary, Aqua Pennsylvania, Inc., formerly known as Philadelphia Suburban Water Company. In the early 1990’s we embarked on a growth through acquisition strategy focused on water and wastewater operations. Our most significant transactions to date have been the merger with Consumers Water Company in 1999, the acquisition of the regulated water and wastewater operations of AquaSource, Inc. in 2003, the acquisition of Heater Utilities, Inc. in 2004, and the acquisition of New York Water Service Corporation in 2007. Since the early 1990’s, our business strategy has been primarily directed toward the regulated water and wastewater utility industry and has extended the Company’s regulated operations from southeastern Pennsylvania to include operations in 12 other states.

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AQUA AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Financial Condition
During the first three months of 2009, we had $62,135 of capital expenditures, repaid debt and made sinking fund contributions and other loan repayments of $1,920, and repaid $473 of customer advances for construction. The capital expenditures were related to improvements to treatment plants, new and rehabilitated water mains, tanks, hydrants, and service lines, well and booster improvements, and other enhancements and improvements.
At March 31, 2009, we had $16,744 of cash and cash equivalents compared to $14,944 at December 31, 2008. During the first three months of 2009, we used the proceeds from the issuance of common stock, internally generated funds and available working capital, to fund the cash requirements discussed above and to pay dividends.
At March 31, 2009, our $95,000 unsecured revolving credit facility, that expires May 2012, had $18,946 available for borrowing. At March 31, 2009, we had short-term lines of credit of $139,000, of which $54,593 was available. One of our short-term lines of credit is an Aqua Pennsylvania $70,000 364-day unsecured revolving credit facility with two banks. This facility is used to provide working capital and was renewed in December 2008 on substantially similar terms as the expired credit facility. In addition, we renewed $33,000 of bank credit lines in the fourth quarter of 2008.
Our short-term lines of credit of $139,000 are subject to renewal on an annual basis. Although we believe we will be able to renew these facilities, there is no assurance that they will be renewed, or what the terms of any such renewal will be. The United States credit and liquidity crisis that started in 2008 which caused substantial volatility in capital markets, including credit markets and the banking industry, has increased the cost and significantly reduced the availability of credit from financing sources, which may continue or worsen in the future. If in the future, our credit facilities are not renewed or our short-term borrowings are called for repayment, we would have to seek alternative financing sources, although there can be no assurance that these alternative financing sources would be available on terms acceptable to us. In the event we are not able to obtain sufficient capital, we may need to reduce our capital expenditures and our ability to pursue acquisitions that we may rely on for future growth could be impaired.
The Company’s consolidated balance sheet historically has had a negative working capital position whereby routinely our current liabilities exceed our current assets. Management believes that internally generated funds along with existing credit facilities and the proceeds from the issuance of long-term debt and common stock will be adequate to provide sufficient working capital to maintain normal operations and to meet our financing requirements for the balance of the year and the reasonably foreseeable future.

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AQUA AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Results of Operations
Analysis of First Quarter of 2009 Compared to First Quarter of 2008
Revenues for the quarter increased $15,204 or 10.9% primarily due to additional revenues associated with increased water and wastewater rates of $14,006 and additional wastewater and water revenues of $1,306 associated with a larger customer base due to acquisitions, offset partially by the loss of utility revenues of $830 associated with utility systems sold.
Operations and maintenance expenses increased by $2,685 or 4.2% primarily due to increases in water production costs of $1,304, additional expenses resulting from the write-off of previously deferred expenses related to our rate filing in North Carolina of $914, operating costs associated with acquisitions of $710, increased insurance and claims expense of $596, and normal increases in other operating costs. Offsetting these increases were decreases in fuel costs for our service vehicles of $438, reduced expenses of $406 associated with the dispositions of utility systems, and reduced bad debt expense of $294. The increased water production costs, principally purchased power, chemicals, and water were associated with vendor price increases and higher water production.
Depreciation expense increased $4,906 or 22.8% reflecting the utility plant placed in service since March 31, 2008, and additional expense of $2,037 resulting from a rate case adjustment related to our rate filing in North Carolina.
Amortization increased $1,582 due to the amortization of the costs associated with, and other costs being recovered in, various rate filings, and additional expense of $394 resulting from a rate case adjustment related to our rate filing in North Carolina.
Taxes other than income taxes decreased by $519 or 4.3% primarily due to a reduction in the assessment of property taxes.
Interest expense decreased by $502 or 2.9% primarily due to decreased interest rates on short-term borrowings and long-term debt, offset partially by additional borrowings to finance capital projects.
Allowance for funds used during construction (“AFUDC”) decreased by $331 primarily due to a decrease in the average balance of utility plant construction work in progress, to which AFUDC is applied.
Gain on sale of other assets totaled $133 in the first quarter of 2009 and $0 in the first quarter of 2008. The increase of $133 is due to the timing of sales of land and other property.

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AQUA AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Our effective income tax rate was 40.5% in the first quarter of 2009 and 40.4% in the first quarter of 2008. The effective income tax rate can vary over time due to changes in our expenses that are non tax-deductible.
Net income attributable to common shareholders for the quarter increased by $4,050 or 28.3%, in comparison to the same period in 2008 primarily as a result of the factors described above. On a diluted per share basis, earnings increased $0.03 reflecting the change in net income attributable to common shareholders and a 1.4% increase in the average number of common shares outstanding. The increase in the number of shares outstanding is primarily a result of the issuance of 1,000,000 shares related to the settlement of the forward equity sale agreement in June 2008, and the additional shares sold or issued through our dividend reinvestment plan, employee stock purchase plan, and equity compensation plan.
Impact of Recent Accounting Pronouncements
We describe the impact of recent accounting pronouncements in Note 10, Recent Accounting Pronouncements, of the consolidated financial statements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risks in the normal course of business, including changes in interest rates and equity prices. There have been no significant changes in our exposure to market risks since December 31, 2008. Refer to Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 for additional information.
Item 4. Controls and Procedures
 	(a)	 	Evaluation of Disclosure Controls and Procedures	
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
 	(b)	 	Changes in Internal Control over Financial Reporting	
No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II — Other Information
Item 1. Legal Proceedings
In 2004, our subsidiaries in Texas filed an application with the Texas Commission on Environmental Quality (“TCEQ”) to increase rates over a multi-year period. On September 23, 2008, the TCEQ issued its final ruling with a unanimous decision approving this rate application. The final order was appealed to the TCEQ by two parties, and the TCEQ has exercised its legal authority to take no action within the required period, therefore affirming the TCEQ’s approval decision. As a result, the appealing parties have filed suit against the TCEQ in the Travis County District Court in an effort to appeal the order. In accordance with authorization from the TCEQ in 2004, our subsidiaries commenced billing for the requested rates and deferred recognition of certain expenses for financial statement purposes. In the event the TCEQ’s final order is overturned on appeal, completely or in part, we could be required to refund some or all of the revenue billed to-date, and write-off some or all of the regulatory asset for the expense deferral. For more information, see the description under the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2008, and refer to “Note 7 — Water and Wastewater Rates” to the Consolidated Financial Statements of Aqua America, Inc. and subsidiaries in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.

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AQUA AMERICA, INC. AND SUBSIDIARIES
The City of Fort Wayne, Indiana (“the City”) has authorized the acquisition by eminent domain of the northern portion of the utility system of one of the operating subsidiaries in Indiana. We challenged whether the City was following the correct legal procedures in connection with the City’s condemnation, but the Indiana Supreme Court, in an opinion issued in June 2007, supported the City’s position. In October 2007, the City’s Board of Public Works approved proceeding with its process to condemn the northern portion of our utility system at a preliminary price based on the City’s valuation. In October 2007, we filed an appeal with a local Circuit Court challenging the Board of Public Works’ valuation on several bases. In November 2007, the City Council authorized the taking of this portion of our system and the payment of $16,910,500 based on the City’s valuation of the system. In January 2008, we reached a settlement agreement with the City to transition this portion of the system in February 2008 upon receipt of the City’s initial valuation payment of $16,910,500. The settlement agreement specifically states that the final valuation of the system will be determined through a continuation of the legal proceedings that were filed challenging the City’s valuation. On February 12, 2008, we turned over the system to the City upon receipt of the initial valuation payment. The Indiana Utility Regulatory Commission also reviewed and acknowledged the transfer of the Certificate of Territorial Authority for our northern system to the City. The proceeds received are in excess of the book value of the assets relinquished. No gain has been recognized due to the contingency over the final valuation of the assets. On March 16, 2009, oral argument was held on certain procedural aspects with respect to the valuation evidence that may be presented and whether we are entitled to a jury trial. We expect a ruling from the judge in the second half of 2009. Depending upon the outcome of the legal proceeding in the Circuit Court we may be required to refund a portion of the initial valuation payment, or may receive additional proceeds. The northern portion of the system relinquished represented approximately 0.5% of Aqua America’s total assets.

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AQUA AMERICA, INC. AND SUBSIDIARIES
A lawsuit was filed by a husband and wife who lived in a house abutting a percolation pond at a Pasco County, Florida wastewater treatment plant owned by one of the Company’s subsidiaries, Aqua Utilities Florida, Inc. The lawsuit was originally filed in August 2006 in the Circuit Court for the Sixth Judicial Circuit in and for Pasco County, Florida and has been amended several times by the plaintiffs. The lawsuit alleges our subsidiary was negligent in the design, operation and maintenance of the plant, resulting in bodily injury to the plaintiffs and various damages to their property. The plaintiffs were recently allowed to amend their complaint to include additional counts alleging nuisance and strict liability. In the third quarter of 2008, approximately thirty-five additional plaintiffs, associated with approximately eight other homes in the area, filed another lawsuit with the same court making similar allegations against our subsidiary with respect to the operation of the facility. They are represented by the same counsel as the original 2006 plaintiffs. Both lawsuits have been submitted to our insurance carriers, who have reserved their rights with respect to various portions of the plaintiffs’ claims. Based on the ultimate outcome of the litigation, we may or may not have insurance coverage for parts or all of the claims. We believe that the plaintiffs’ claims in both lawsuits are without foundation. At this time, it is impossible to estimate the likelihood of a loss in these matters or the extent of a loss should one occur.
Two homeowners’ associations comprised of approximately 170 homes located next to a wastewater plant owned by one of the Company’s subsidiaries in Indiana are claiming that the subsidiary’s prior management, before our acquisition of the company in 2003, allegedly entered into an agreement to cease the majority of operations at the wastewater plant and to remove most of the facilities located at the plant site by April 2009. The plant treats approximately 75% of wastewater flow from the subsidiary’s 12,000 customers in the area. The Company has filed a formal request for review of the purported agreement with the Indiana Utility Regulatory Commission. If the purported agreement is ultimately determined to be valid, the subsidiary may be subject to liability to the homeowners for failure to remove the plant and/or, if the agreement is enforced, the subsidiary may be required to construct a new plant elsewhere and close and remove the existing plant. While the Company continues to assess the matter and any potential losses, we cannot currently estimate the likelihood of a loss in connection with this matter or the extent of a loss should one occur. Based on our current understanding of the controversy, this matter would not be covered by any of the Company’s insurance policies.
There are no other pending legal proceedings to which we or any of our subsidiaries is a party or to which any of their properties is the subject that are material or are expected to have a material effect on our financial position, results of operations or cash flows.
Item 1A. Risk Factors
There have been no material changes to the risks disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008 (“Form 10-K”) under “Part 1, Item 1A — Risk Factors”. The risks described in our Form 10-K are not the only risks facing the Company. Additional risks that we do not presently know or that we currently believe are immaterial could also impair our business, financial position, or future results and prospects.

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AQUA AMERICA, INC. AND SUBSIDIARIES
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes Aqua America’s purchases of its common stock for the quarter ended March 31, 2009:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Issuer Purchases of Equity Securities	 	
 	 	 	 	 	 	 	 	 	 	Total	 	 	Maximum	 	
 	 	 	 	 	 	 	 	 	 	Number of	 	 	Number of	 	
 	 	 	 	 	 	 	 	 	 	Shares	 	 	Shares	 	
 	 	 	 	 	 	 	 	 	 	Purchased	 	 	that May	 	
 	 	 	 	 	 	 	 	 	 	as Part of	 	 	Yet be	 	
 	 	Total	 	 	 	 	 	 	Publicly	 	 	Purchased	 	
 	 	Number	 	 	Average	 	 	Announced	 	 	Under the	 	
 	 	of Shares	 	 	Price Paid	 	 	Plans or	 	 	Plan or	 	
Period	 	Purchased (1)	 	 	per Share	 	 	Programs	 	 	Programs (2)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
January 1 — 31, 2009	 	 	3,265	 	 	$	20.75	 	 	 	—	 	 	 	548,278	 	
February 1 — 28, 2009	 	 	11,670	 	 	$	19.91	 	 	 	—	 	 	 	548,278	 	
March 1 — 31, 2009	 	 	—	 	 	$	—	 	 	 	—	 	 	 	548,278	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	14,935	 	 	$	20.09	 	 	 	—	 	 	 	548,278	 	

(1)	 	These amounts consist of shares we purchased from our employees who elected to pay the exercise price of their stock options (and then hold shares of the stock) upon exercise by delivering to us (and, thus, selling) shares of Aqua America common stock in accordance with the terms of our equity compensation plans that were previously approved by our shareholders and disclosed in our proxy statements. This feature of our equity compensation plans is available to all employees who receive option grants under the plans. We purchased these shares at their fair market value, as determined by reference to the closing price of our common stock on the day prior to the option exercise.	
 	 	 	
(2)	 	On August 5, 1997, our Board of Directors authorized a common stock repurchase program that was publicly announced on August 7, 1997, for up to 1,007,351 shares. No repurchases have been made under this program since 2000. The program has no fixed expiration date. The number of shares authorized for purchase was adjusted as a result of the stock splits effected in the form of stock distributions since the authorization date.	

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AQUA AMERICA, INC. AND SUBSIDIARIES
Item 6. Exhibits
 	 	 	 	 	
Exhibit No.	 	Description	
 	 	 	 	 	
 	31.1	 	 	Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934.	
 	 	 	 	 	
 	31.2	 	 	Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934.	
 	 	 	 	 	
 	32.1	 	 	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350.	
 	 	 	 	 	
 	32.2	 	 	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.	

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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 executed on its behalf by the undersigned thereunto duly authorized.
May 7, 2009
 	 	 	 	 	
 	 	AQUA AMERICA, INC.	 	 	
 	 	Registrant	 	 	
 	 	 	 	 	
 	 	NICHOLAS DEBENEDICTIS
  Nicholas DeBenedictis	 	 	
 	 	Chairman, President and	 	 	
 	 	Chief Executive Officer	 	 	
 	 	 	 	 	
 	 	DAVID P. SMELTZER
  David P. Smeltzer	 	 	
 	 	Chief Financial Officer	 	 	

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EXHIBIT INDEX
 	 	 	 	 	
Exhibit No.	 	Description	
 	 	 	 	 	
 	31.1	 	 	Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934.	
 	 	 	 	 	
 	31.2	 	 	Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934.	
 	 	 	 	 	
 	32.1	 	 	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350.	
 	 	 	 	 	
 	32.2	 	 	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.	

27

Exhibit 31.1
Certification
I, Nicholas DeBenedictis, certify that:
1.	 	I have reviewed this quarterly report on Form 10-Q of Aqua America, Inc.;	

2.	 	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	 	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	 	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

 	a.	 	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	 	 	 	
 	b.	 	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	 	 	 	
 	c.	 	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	 	 	 	
 	d.	 	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and	

5.	 	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

 	a.	 	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	 	 	 	
 	b.	 	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

Date: May 7, 2009	 	NICHOLAS DEBENEDICTIS
  Nicholas DeBenedictis	 	 	
 	 	Chairman, President and Chief Executive Officer	 	 	

 

Exhibit 31.2
Certification
I, David P. Smeltzer, certify that:
1.	 	I have reviewed this quarterly report on Form 10-Q of Aqua America, Inc.;	

2.	 	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	 	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	 	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

 	a.	 	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	 	 	 	
 	b.	 	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	 	 	 	
 	c.	 	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	 	 	 	
 	d.	 	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and	

5.	 	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

 	a.	 	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	 	 	 	
 	b.	 	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

Date: May 7, 2009	 	DAVID P. SMELTZER
  David P. Smeltzer	 	 	
 	 	Chief Financial Officer	 	 	

 

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2009 of Aqua America, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nicholas DeBenedictis, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)	 	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m(a) or Section 78o(d)); and	

(2)	 	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

NICHOLAS DEBENEDICTIS
  Nicholas DeBenedictis	 	 	
Chairman, President and Chief Executive Officer	 	 	
May 7, 2009	 	 	

 

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2009 of Aqua America, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David P. Smeltzer, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)	 	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m(a) or Section 78o(d)); and	

(2)	 	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

DAVID P. SMELTZER
  David P. Smeltzer	 	 	
Chief Financial Officer	 	 	
May 7, 2009