Essential Utilities Inc (WTRG) 2005 Q1 法說會逐字稿

Good morning, and welcome to the Aqua America's First Quarter Earnings Results Conference Call. [OPERATOR INSTRUCTIONS] At this time it is my pleasure to introduce Cheryl Hansen. Cheryl, the floor is yours.

Thank you, Ann. Good morning everyone. We are pleased that everyone was able to join us today. If you did not receive a copy of the press release, you can find it by visiting the Investor Relations section of our Website at www. aquaamerica.com. Presenting today is Nicholas DeBenedictis, Chairman and CEO of Aqua America, along with David Smeltzer, the Company's Chief Financial Officer. As a reminder, some of the matters discussed during this call may include forward-looking statements that involve risk, uncertainties, and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward-looking statements. Please refer to our most recent 10-K, 10-Q, and other SEC filings for description of such risk and uncertainties. During the course of this call reference may be made to the Company's EBITDA. A reconciliation of EBITDA to net income is contained in the Investor Relations section of our Website. At this time, I would like to turn the call over to Nick for his formal remarks, after which we will open the call for questions. Nick?

Thank you, Cheryl. Good morning everyone. Pleased to report good quarter for Aqua America. Net income increased 21%, earnings were up from $0.17 a year ago to $0.20 for this quarter, and that's on 3% more shares outstanding due to the offering we made late in '04 to capitalize the equity portion of the Heater and Florida Water acquisitions that we did last summer.

The revenues were strong. They increased about $14 million or little over 14%, and that's in the face of a couple of percent downturn. In Sundale, it was not a great weather quarter. Florida was okay, but some of the Southern states, the volume was down due to damp weather, and in the Northeast, it was down about 1% from normal. So, I am very pleased to see that our increase in revenues was in spite of that, and little more than half of that came from rates that were build in from rate cases last year and some early rate cases we got this year, which I'll deliver later in the presentation and the other half was from new customers, chiefly the Heater and Florida Water acquisitions that occurred as I mentioned mid-year '04. So, they are in the comparison they weren't in the first quarter of last year. Of course, also included in the first quarter of this year, which was not in the first quarter of last year were expenses.

Virtually, expenses we are not up as fast as revenue. They were up about 13%. But, more importantly the ratio that we like to track ourselves on and I think many of the analyst track us on is how efficient we are with the new revenues, and we are at $0.415 including Heater, and that's $0.415 meaning O&M expenses over total revenues. So, we spent $0.415 out of every revenue dollar to run the business, pre-interest in our investment and that's down year-to-year from $0.419. But, if we just take the Heater and Florida Water revenues and expenses that were incurred in the first quarter of '05 and say they were exactly the same in '04. It's a drop of over a 100 basis points. So, that's really our goal to try and get a 100 basis points to 150 basis points a year out of these acquisitions from AquaSource and Heater and Florida Water. And, that shows that we are well on the way of doing that.

We have had a number of small acquisitions that is more or less a routine part of our business now. We have 11 so far this year through May 1 or May 2 and we will fit our 25 to 30, I am confident this year, and also do our 4% growth, which is our normal growth pattern. And, we try and go with the model 4-7-10-5, 4% customer growth, 7% revenue growth meaning that the units were enhanced by some rate increases, pricing increases because of all the investment we make. That should generate 10% in earnings and 5% in dividend increases. The earnings are there. We like to reward our shareholders. We have been beating those numbers over the years, and I am comfortable we'll beat those goal numbers again this year, and as you can see we are well on the way just with first quarter results.

We also completed our -- this is little old news but we want to make sure, we have never reported before, we had no problem with the 404 control section, which many companies unfortunately did in the -- under Sarbanes-Oxley. So, we have got a clean audit and there were no material weaknesses in our controls. Thanks to a lot of work from our own internal accounting department and a lot of expenses with the external accounting. So, it helped us achieve this goal. The thing that I think is very relevant at this time of the year is how are your reservoirs, because if you are going into the peak use season, which starts around May, mid-May, right through mid-September, you have to make sure you have water to sell, in case of the dry hot summer. And I can report that all our reservoirs are full, so that's not a problem, and we are welcoming a dry hot summer.

The -- net, sometimes that's 5 to 10%, up or down from a normalized weather year. If it's a cool, wet summer, that's very bad for us, and we've had a couple of those in the last 5 years. And if it's a hot dry summer, which we have not had for a couple of years, that could add 5 to 10% on the upside with very few extra expenses other than the little electricity and little chemicals.

That's really the bulk of our presentation this morning. Rates, I can bring you, speak a little bit on rates. We did have the cases last year, which generated almost $40 million, of which 27 already flowed into our revenues last year. And the remainder comes in these first 4 or 5 month this year. So, we will see a positive trend of probably about 12, 13 million from last year's rates, still flowing into revenues this year, most of that being in the first and second quarters. In the mean time, we have filed cases and received cases in the first quarter of '05, which will help immediately going forward. A case in Struthers, Ohio of quarter million. A desk filing in Pennsylvania of 1.7 million, that is which is being surcharged.

Our first desk in Indiana was about 200, 000. Our routine, what they call QUIPs, which is the same thing, surcharge, in Illinois of 300,000. And we just were awarded last week a case in North Carolina for the Heater properties. We went and filed a case immediately after we bought it last July, and we received 1.5 million, and that's effective 415. And then, just was awarded late last week, Vermilion, Ohio case, which is our second biggest operation -- I am sorry Vermilion, Illinois, our second biggest operation there.

Illinois, if you are familiar with Illinois, 1.3 million. And then, we also got our first ever filing in Ohio for surcharge, 200,000. And we have 3 Pennsylvania wastewater cases, not big dollars, 85,000. The significance is, this is our first filing under our new wastewater program in Pennsylvania, and that we also had 3 cases pending in Illinois that we are waiting, for 1.2 million.

We have no fewer than 7 cases ready to go in, Virginia a couple of million, Florida over 6 million, Indiana 6 million, New Jersey, later this year, couple of million, and Pennsylvania, which is

$25 million range, late this year, which is a normal routine for us as we spend the capital -- continue to spend the capital at a pace of about 200 million for the budget this year. Which then drives -- first we have to fix this system, which is what the regulators want, both the EPA regulators and the PUC regulators, and then we get a fair return on that. That's were most of our growth in debt, and most of our growth in equity has occurred over the years.

There's an interesting article in Forbes last week, which we are very happy to get that kind of recognition. But they did mention our debt going up 200% since 1992 as we have grown the Company. I would like to counter that and tell you that our market cap has gone up from under a 100 million to 2.5 billion at that same time period. Stockholder equity has gone up 600%, 3 times what the debt has gone up. So, you can see, we are getting a much healthier balance sheet because of this growth. And the 10-year investment has also gone up over 640%. So, I think, the model is working, short of a are large acquisition this year and there's always some that we are looking at. But we will only pay if they are -- only do them if they are accretive. We will have our normal 25 to 30, and we will grow at our normal 4%. And you can see from the rate activity, we are going to be very busy there, and that gives us that extra for the revenue stream, which gets us well above the 7% goal that we usually look.

So, with that, I can open it up for questions.

[OPERATOR INSTRUCTIONS] Michael Goggler, Benning

.

Nick, I was wondering what you are seeing on the acquisition front, are any particular areas more favorable in terms of pricing on a geographic basis?

The South is more favorable pricing-wise because lot of it is small systems that there are no other buyers for it; people want to get out. And the other is the new growth, which we are able to work with developers on as their provider choice. And they are more interested in getting the service than they are getting huge amounts of money for it, since we're, again, the only servicer. That gives us a little advantage. In the Northeast, where we do have competition from the other larger companies, United, American, and so on, there tends to be more shopping on an acquisition. And where there is a municipality involved, there is an expectation to at least more than cover their embedded debt or they won't sell. On the other hand, they have had a 100 years of equity buildup into these systems, sometimes 150, if they deserve to get some money out off. So cost-wise, they cost more in the Northeast, and the Midwest and the South. Competition-wise, it's a little stronger in the Northeast, but not as much as it was a couple of years ago. Plus, we've geared up our Corporate Development Department to start working with builders in advance versus letting them build the system and then buy it 10 years later, which I think is a much more prudent way of doing it.

Well, you just also answered my follow-up question with that last statement, so I'll turn it over to someone else. Thanks again.

David Schanzer, Janney Montgomery Scott.

Congratulation on a solid quarter.

Couple of questions. First of all, we've been seeing, obviously, a lot of companies hit hard by Sarbanes-Oxley, and I was wondering if you could characterize what you thought your expenses would be over the next couple of years with regard to Sarbanes-Oxley as opposed to what you've seen so far. Do you think the

will diminish?

Well, Dave, what a tight

I am, and this has been a rough year, swallowing hard as we keep getting the audit fees coming in for the same practice basically that we had years prior for a much less money. But having said that, audit fee has more than tripled from our budget in '04, which therefore, we had to eat as it wasn't in rates. We did capture some of it in the North Carolina rates. We will capture it in Pennsylvania rates later this year. It looks like the run rate now, going forward, will be probably at least 10% less as much as 20% less. But still, if you triple, and then we will get our 20%. It's still in my mind an area that we're going to continue to look at to see if we can cut cost. But it's now filled into our pro forma, I guess, I can argue.

Is there any way to characterize that not so much has happened recently, but going forward, on a cents per share basis, I mean, a rough estimate?

Yes.

How much do you think it will cost shareholders?

It's 0.2% of our revenue stream, right? 0.4% -- we have a chart, let's see if it's in our -- I'll get you that Dave, but it's a considerable amount of dollars. I don't have it right here, but we just did a chart that compares to the other water utilities, which I'll provide for you after the call, as a percentage of our revenues, as a percentage of our net income. And it's considerable -- let's just do it this way, if you look at well over $2 million of cost; that's not accounting our internal cost where we've added staffing, but just the external cost of last year. I'd say it is about $0.015 of

net income.

Let me go an outside consultant.

Well, you are lucky. We are seeing $0.06 to $0.08 with some of the smaller companies?

That would make sense because of the economy's scale.

Sure. As far as another effect on earnings, you mentioned that weather was milder than normal in the first quarter. I would think that partial offset would have probably been a little less in the way of repairing pipe crack and so forth. So, I mean on a net-net basis what do you think were the hitch in terms of earnings in that quarter?

Well, let's do Pennsylvania. In Pennsylvania, we had fewer breaks. We had about 270 breaks versus 350. So, not enough to really move the needle greatly, but better than down the tier. We were down, I think in

, not revenues, I could remember we raised rates last year, but Sundale was down about 1.7%. I would rather have that 1.7 than 50 more breaks. But on the other hand, it's pretty wet and so on, and a little bit of that I think was industrial, but we are starting to see some stabilization there, April for the first month in a long time, Sundale on our top 10 customers is actually up. So, I think the worst is over and whether it comes back rapidly or not. I know Boeing was up and couple of the other industries were up. So, that's good news for the economy too.

Do you think about a penny or two would be the overall net effect?

Down you mean?

Yes, in the quarter.

Well, 1.7% on revenues is about $1 million, $1.5 million, may be a little less than a penny.

Okay, less than penny?

Yes.

Okay. My next question is to do with eminent domain, I mean that's an ongoing headache I know. I was wondering if you're seeing any change in trends?

No, I think, and I'm not taking a shy on our competition, but I think it is accelerated when you have the foreign ownership and not only because its foreign but because of an easy political shot for a municipal official, but you're little more distant from the local service, and I really think our business is all like politics or local. I really think in the water business, everybody considers their water company theirs, whether it's a big conglomerate or whether it's just a small water company servicing 10,000 people. I think a lot of it on condemnation depends on two things, one is obviously price and how quickly prices go up, that accelerates the controversy, and second and therefore a larger company can spread it over more customers

sales in full rate. Second is, the service they get at the local level. So, your Division Manager is as important as your CEO sitting in Bryn Mawr or in Berlin. So, at this point I would say, we are not seeing it as much as some of the other water companies. We'll see it more in the South over the next couple of years, because we are new and we are growing and we are trying to get things straightened down on rate, so there is going to be some larger rate increases in the south. So, I would expect to see it there for a while. But as we get our Presidents in place, so we've made change out almost every state now with our new people. Their job is basically to make sure people understand why the rates are going up and those were being treated fairly and that their service is better which is the key. Most people play the percentage game in water rates, but when they really look at the cost of water, even with the huge rate increase. It's still very reasonable once your getting good service.

Okay. Kind of the last general or philosophical question. You have had a little bit of time now then really get a real offensive what the AquaSource acquisition means to you guys? And I was wondering whether or not you be willing to comment on which states have been a pleasant surprise or which states have been more of a negative surprise, now that you have had a chance to see whole package?

Yes, two of the states. One, we did exit from Kentucky, was little tough, and New York we are still trying. Can't even sell a facility in New York, luckily it's only couple of 1000 customers. We were hoping we can make a goal of it. Missouri, the Commissioners have really tried to work with this, but the staff and the rules are little tougher at Missouri, so we are contemplating our expansion plans their to make sure that we will be treated fairly. I can tell you Texas has been the best pleasant surprise, North Carolina close second. We can't talk about Virginia or Florida acres, we have really been in for case stay, but the growth is there, and we are getting along with the local officials, because we are fixing things I mean obviously if you make things better and you don't charge it anymore, the guy is happy with you but then when you charge him is when the question comes in, but we are pretty comfortable, that's our place to grow.

Has Indiana been as you expected?

Yes. In Indiana, it's not any problem with the IURC. We are getting on very well with them, they are processing all our stuff and we are growing in the Indianapolis area. We are competing, as you remember, it used to be a private company, now we are competing with Cassidy, which is good to compete with Cressidy. On the other hand, in Fort Wayne we have a mayor who wants to condemn the properties, but his offering is less than, a ridiculously low amount and there is no way we are going to sell once we get it, what we consider fair which is, I don't want to bargain publicly, but basically no where, you know what we've been getting, two times rate base, and so at this point in time we are moving ahead as if we are expanding in Fort Wayne, and we are going to be filing the case and that's a sensitive one for us, and we mentioned it in our Q or K at least. But at this point they do want to condemn us but there's not much action actually happening on the way of really putting dollars up to make it a reality.

Okay. Thanks.

Stuart Sharp of Standard & Poor's.

Good morning everyone.

Good morning Stuart.

Could you explain a little about the pension cost now and how that is working out as through eliminating pension benefits for new employees?

Well, we decided that with the expansion and especially with new employees who were not all getting defined benefit plans that we basically have all new employees where they would be union non-union, North or South not eligible for defined benefits but we have offered them an expanded 401k, defined contribution plan. And that was much more easier or recover in rates and its also there's no guesswork. You know exactly what you are giving as long as they participate. And that's been very well received by the new employees because most new employees are looking at salary benefits, healthcare but not necessarily defined benefits anymore so that's the good news. Now our defined benefit plan therefore is consolidated among the former companies that we bought, our own Company and then consumers, and I would say it represents about, I am going to guess Dave, that's of our 1,500 employees maybe a 1,000 employees, roughly, and that goes down each year not up as somebody leaves because not everyone stays till retirement. But it's capped now with retirees and the existing employees. So, we know what our max is. And I'll let David and Bob comment on what our pension expenses this year and where we are going to go with it in rates.

Stuart, we had a large increase in pension expense in 2003 -- 2004 rather and that's surpassed by the increase in 2005. The first quarter impact was in the neighborhood of $1 million, we expect that to be fairly consistent for the rest of the year. However, the good news is that's already been incorporated in rates. The vast majority of that increase is in Pennsylvania that was incorporated in the case that was concluded in August 2004. Having said that we expect partly as a result of, as a way the actuarial analyses is done partly, as a result of capping entry into the plan that the cost would be fairly stable over the next few years. And with its inclusion in Pennsylvania rates, don't see this posing a risk for us during that next few year period.

So, we will have to ask for a large -- last rate case in Pennsylvania, a vast majority of the expense increased was because of pension, big chunk, and that was the controversial issue because we tried to ask for it going back and they would only give it to us going forward. But with the movements we have made in our new employees and the fact that the market has done better rather than worse and we are getting rid of those bad years of 2000, 2001 soon in the five-year averaging. We should not need a major increase in rates in Pennsylvania to carry the pension. I guess that's what we are saying. And therefore it's covered. We already aided in '04, actually '03 is when we aided. We didn't get any '03 money back, and little bit in '04 and '05 we should be getting enough that's carried. We wont need to ask for huge rate increase to go forward in '06, '07. Much less degree in our consumer states, the Midwest states because the fund there -- the pension plan there did better in prior years and it's actually close to being over funded, I think we are not adding too much there. The other area in pension is the post retirement healthcare, which is really the issue that you hear a lot with GM and Ford and causing future fiscal concerns. We have that capped, there is no new employee gets post retirement healthcare, its capped to only existing and once again each state we have it tied into a trust mechanism, so that's just trued up in every rate case, and I would imagine healthcare cost will continue to go up. When they go up we will be able to true it up in our next rate case. So, there won't be any hit in our revenue stream, it will just be a deferred revenue, I guess, you can call it. I think we have taken the action to limit our future exposure in that area. Is that answered, Stuart?

Thank you. Once again the floor is opened for questions. If you have a question, please press star one on your touch-tone telephone at this time. Debra Coy of Stanford WA.

A follow-on just on your thoughts on where you stand on the Heater and the Florida acquisitions in terms of the integration. And also, I know your Florida case is pending, are you caught up on Heater? What's the most recent case and what would be your allowed RV on Heater at this point?

The Heater water, which is about - - of the 55,000 customers, I think water case -- the water was close to 40,000 of it, because if the wastewater was earning its keep, it couldn't go in for a rate case there, and it is just went for one. We got 10.7 on 50% equity level.

So, that's good.

Yes, we are treated very fairly, and we are now looking at how we are going to organize and coordinate. We now have three legal entities in North Carolina because we bought the first one, then we got AquaSource, and we bought Heater, and we didn't want to merge everything until we had them all.

So, AquaSource is still seperate?

Yes, AquaSource is still separate, and we need a rate case for the very small 5,000 customer base on AquaSource, which will be filed later this year. And, Hydraulics is earnings its just keep. We'd got the rate case there last year.

That's the wastewater piece.

No, Hydraulics was the original water company we had in North Carolina. That was small and it has grown now that we've got 15,000 customers. The good news is that the water rate should all end up and the three entities being very close. So, therefore, when we put three entities together, we should be able to get one uniform rate for water, and the waste water -- except for 1 town, I think it called Brookwood where it has got a well that -- basically the water shortage in expense so that we can regulate there. But the wastewater, we will look at merger that all together and let's see if we could -- we've got do a filing later. And I would say, with the capital we're spending in North Carolina, we will probably be on a fairly routine for a while, rate mechanism. Every couple of years, we've gone in for a reasonable size rate increase. Now, the reason the capital is being spend, Debra, is that we had -- in the Heater acquisition, we had an acquisition adjustment of - - we had a premium we paid remember, about $18 million, and they gave us $12 million of an earning acquisition adjustment. If we buy troubled water companies and fix them up, we work off that $12 million an earn on the $12 million plus earn on the acquisition cost and the fix-up costs of these troubled water companies. Now, the state gets less troubled water companies, better service for their customers and everybody has the same rates, either way. What we get is the chance to earn back the $12 million in addition to investing and earning on the, let's say, other $12 million of acquisition and capital costs. And, I think that will be a 10-year program, but as you could see, that's the steady way to spend money and be rewarded for it, and to fix up the problems. So, that's - - I would say, Dave Schanzer asked earlier, what are some of the great regulatory states, Pennsylvania obviously leads the pack, but North Carolina is very innovative on how they want to handle this, and as the only large water company in North Carolina, we are basically a partner with.

So, that state's good and it sounds like Florida is still at the

?

Florida, I'm not, - - we don't need to say where we are yet. Florida water acquisition brought us 70 new entities. They had not let us consolidate rates yet. So, Cathy, it's going to be going in for a number of rate cases, but I think, when the regulators see the aggravation, they causes them paperwork and they have to do filings, and it's just a good way to do business. And, I think, eventually we will win our strikes in Florida as one of the few companies down there that's ready to take on some of the challenges. So, I'd say, Texas was our first turnaround problem and with the rate case in Texas, with the new President and with the new organization, we are humming in Texas. North Carolina, we now have everything in place, but we have another six months or so of organizational, legal entities, filing rate cases, and then it will be more of a routine basis.

Because you had said back when you reported fourth quarter that you would also have some weather issues and still some, you know, a variety of political and management issues in Florida?

Yes, and we just - - our new President just showed up on Monday. I

weeks. I haven't called him yet, and he was one of our senior managers in New Jersey and was willing to move his family, go down, and we've made a change in the presidency there and have a new engineer being hired, new corporate development person being hired. So, we're really putting the team together in Florida, but I would say, other than cutting obvious expenses where we can and hoping for some better weather, it wasn't. They had weather in the first quarter of Florida. That's going to be a late '05, early '06 turnaround, especially when we file the rates.

So, we would still classify them. I mean it is relatively small compared to overall operations, but there is still earning in the mid-single digit, something like that?

No, even less, 3, 4, or 5%. You mean returning on equity? I think is 5% of revenues or earning, but we will get you that number though. I mean if I look at the silver lining, as we turned those around, that's where you going see the incremental--

That's exactly -- my overall point was I am just kind of looking through your more recent acquisitions because my quick math is that -- in this quarter, your earned return is about 10.5% and clearly you still have some assets that are under earning. So there is certainly the upside potential?

Yes. Remember, when we were a single state company, we were doing 12, 13%. So, I think you are absolutely right. I think Texas is the almost there now. North Carolina is not there yet, we're still I think on our

, we are still in the 6 to 7 range. So, we have our ways to go in North Carolina, I am very confident we will get there. Florida, I don't want to predict timing and so we see how our treated in the rate mechanism, and I am assuming that the President can really grab handle on organization. And we have done all the right things, we hired the staffs, we got the roads, changed offices, it's in the right place, and things of that sort. But as you know, that's expense, it is not revenue. Now, we have got to start generating some revenue dollar.

So, if we look around -- I mean, I would -- it's sounds to me from what you are saying that most of your have been certainly -- your older operations or where they should be in these, North Carolina, Florida, and Texas is where we are still catching up a little bit?

No, it is Virginia. Virginia, North Carolina, and Florida will be the big -- either drag us down or be the big winners over the next year, year-and-a-half. Texas is humming. It is not quite in fourth gear yet, but it is clearly in third gear.

And then my last question is, you mentioned earlier in your comments that CapEx was around couple of hundred million this year. I was looking back again through my old notes, you had said $225 million, is it around $225 million, you said?

our budget.

So, you are ramping up to about $225 million this year and then we should see it levelizing after that excluding any major additional acquisitions?

Now, let me give the exact numbers on that because the capital in the South is much higher now than the run rate will be eventually. We had to fix everything that

hadn't, and we are putting all kinds of new technology in state-of-the-art, using GE equipment in North Carolina, so that we don't have to hire as many operators and we will able to take out all these small systems by instrumentation versus having to have an operator there every day. That's huge savings in labor and gives us a chance to expand with our existing labor force. But what is it, $260 million. Looks like $260 million is our budget this year.

$260 million?

Yes.

That's even higher than I thought?

Yes. And a lot of that is in Pennsylvania. What we are finding is that the depreciation factor going up, means that

a lot of this has gone in the pipes. So, you are seeing a shift to probably 50-50 pipe, non-pipe, clamps, boosters, tanks, to be coming and a lot of that 50 is weighted to the South now because they needed tanks, they needed new wells, and everything else. But eventually, the capital budget is going to be mostly pipe in the North East, which is typically risk free. I mean basically there is not a whole lot of design, destructing fees, the bidding could be -- the more you do, the more you can get the prices down, and the better you get out of, the more pipes you have. So, it's going to be an interesting thing as we get -- everything is humming, where the cash flow has come out of one area as you stop spending capital on your earning, on your rates of return that could flow into the area. We are still spending and will be able to spend for years because pipe is all old and that's what this program is all about.

And just as an aside, last question promise. Are you seeing significant increases in materials cost. I mean, is it still pipe that's going in or is it HDPE, is cost an issue for you now?

The North East is all ductile iron. We have seen an increase in the pipe price. But that's only about 20% of the cost to land the pipe because it is mostly -- it's the labor and big enough in Street and repaid in the Street, but there has been an increase. Meter prices, we bid yearly and we actually went down this year. So, you know, because of our economy of scale, we're still doing pretty well in that purchasing. Chemicals are up. chemicals are about 10%, lime and chlorine and things of that sort. The plastic pipe, HPDE, and so on is up because, obviously, the fuel is not oil. On the other hand we don't use a lot of it because in the South the builders put it in and we get it donated to us, and the pipe that we have in now is only 20, 30 years old. So, it is not ready for replacement yet.

Okay. Thanks.

Most of our material in this -- most of our work in the South is wells, tanks, hydropneumatic tanks, and instrumentation.

Got it. Thank you.

Thanks.

Jonathan

, A.G. Edwards.

Good morning gentlemen.

Good morning Jonathan.

Do you have what the current individual efficiency ratios are at like AquaSource, Heater and Florida and what could be your long-term goals are for those properties?

Heater is below 50s. We think we can get that maybe another 500 basis points. Texas is probably high 40s, I think, we can that a little better. The North -- Pennsylvania is probably low 30s, and the consumer states are probably in the high 30s. Maine probably in the mid 40s, because it is a small state. So, when you blend them all together I think we are comfortable looking at

. I think we are comfortable getting below 40% this year on a combined basis for the full year. You know, I think we are running now 41.5. So, I think I am comfortable saying we are going to get down right around 40% or lower. f

Okay. Do you guys have any external financing needs that you are aware for '05 or '06?

We just got awarded by the state of Pennsylvania a allotment for $72 million, Pennsylvania being the state we are doing most of that capital work. And we are ready that we got the tough -- what's called the tougher hearing and all that through the counties and it is going to be a tax free and we are expecting to refinance $25 million. It is now at 6.3, I think, Cathy. 6.35, plus add a new 50 in debt, stretched it out to 34 more years and we think we are going to come in under 5. So, that is very healthy for our customers, but also keeps our balance sheet intact.

Okay, all right, thanks.

I don't think we are doing any borrowing in any other states right now. Cash flow is adequate to fund all of it. So, Pennsylvania is the big cash strange state. That is the one we -- I call it deferred revenues, we go right back in and it is allowed back in the surcharge or in the next rate case.

All right. I appreciate it.

Jim Lykins, Hilliard Lyons.

Good morning everyone.

Good morning Jim.

You said your revenue increased, it was about half or

and has customer additions. So there is customer additions, could you tell us how much of that was organic growth, and also if you could for the rest of '05 from organic growth perspective tell us what you may expect in both Texas and Florida?

Sure. Well, quarter-to-quarter we are probably up 10 or 11%. But that's unfair because the Heater wasn't in the first quarter of last year. So, we have to subtract Heater, subtract Florida Water, subtract the organic growth from those and so on, because it is difficult. I am comfortable saying when we look at the year-end numbers, which included Heater at the year end and Florida Water at the year end of 2004, we will be up, that's 4%. And I think we are going to see about little less than half of that which would be about 35,000 new customers. Little less than half of that would be organic mostly from the Southern states. Jersey grows organic, maybe 2%, Pennsylvania little less than 1%, Illinois a little less than 1%, Indiana actually is growing a little faster than that, but the South is the one where we are seeing 4%, 5% organic growth. And then the other half, little more than half would be from acquisitions. And we are probably going to need between 25 to 30 acquisitions to get there, I think we are about a 11 now, and some of these ones in the first quarter were very small, but there are some larger ones that we are working on as we speak. So, I am pretty comfortable we will hit that 4% on a year-to-year basis, Jim.

Okay, thanks.

Thank you. [OPERATOR INSTRUCTIONS]. Kevin Monroe, Thomas Weisel.

Good morning.

Hi, Kevin.

The 11 acquisitions you've done so far today, what kind of revenue on an annual basis did they represent?

Now, that didn't include the sewer when we bought, which is about $1 million in revenue. So, if I take -- it's a $1 million plus, the 11 -- not a whole lot.

Probably, less a couple of 100,000.

Less a couple of 100,000, most of these were small in the quarter.

In the quarter -- on a annualized basis?

Yes. Close to a million then, 800,000 to 1 million, and then, the Golden acquisition should bring in a million. We are seeing good progress there. You had asked me about that a couple of weeks ago. We didn't lose any customers. We have actually picked up customers and we are -- our goal is this to grow that business about 10% this year. That's the one where we actually use it ourselves, because a lot of builders use what they call Pump and Haul, when they don't have the sewer system in, they still have to take care of the wastewater from the houses that are built. We actually now do that service for them and then we take it to our wastewater plants and then to dispose it off.

Thank you. At this time, there are no further questions. I would like to turn the floor back over to management for any closing remarks.

Just thank everybody for their time and appreciate all the tension we have been getting in the media, but many of the people in the call has been hearing us for 6, 7 years and though the story has been the same, it's just that, I guess the rest of the world's discovering the water industry. Thank you.

Thank you. This does concludes today's teleconference. You may disconnect your line and have a wonderful day.