(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 x No ¨

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 x No ¨

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.:

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of ~~October 24, 2012: 139,941,476~~April 23, 2013: 140,742,383


	September 30,			December 31,			March 31,			December 31,
	2012			2011			2013			2012
Assets
Property, plant and equipment, at cost	$	4,953,049		$	4,517,966		$	5,107,675		$	5,050,400
Less: accumulated depreciation		1,089,684			987,024			1,136,513			1,114,237

Net property, plant and equipment		3,863,365			3,530,942			3,971,162			3,936,163

Current assets:
Cash and cash equivalents		6,122			8,204			19,353			5,521
Accounts receivable and unbilled revenues, net		103,715			75,546			89,490			92,921
Income tax receivable								16,082			16,082
Deferred income taxes		10,422			37,758			32,855			37,818
Inventory, materials and supplies		12,178			11,014			11,994			11,757
Prepayments and other current assets		13,045			9,775			10,336			10,372
Assets of discontinued operations held for sale		85,503			263,061			32,863			86,423

Total current assets		230,985			405,358			212,973			260,894

Regulatory assets		244,606			240,032			536,695			521,264
Deferred charges and other assets, net		73,894			56,239			50,701			49,852
Investment in joint venture								42,471			38,620
Funds restricted for construction activity		35,575			88,905			23,180			23,572
Goodwill		38,729			26,944			28,142			28,152

	$	4,487,154		$	4,348,420		$	4,865,324		$	4,858,517

Liabilities and Equity
Aqua America stockholders’ equity:
Common stock at $.50 par value, authorized 300,000,000 shares,issued 140,697,726 and 139,525,580 in 2012 and 2011	$	70,348		$	69,762
Common stock at $.50 par value, authorized 300,000,000 shares, issued 141,507,824 and 140,943,621 in 2013 and 2012							$	70,754		$	70,472
Capital in excess of par value		713,627			686,106			730,419			718,482
Retained earnings		544,802			508,334			633,151			611,303
Treasury stock, at cost, 767,178 and 710,482 shares in 2012 and 2011		(14,446	)		(13,145	)
Treasury stock, at cost, 830,113 and 776,355 share in 2013 and 2012								(16,159	)		(14,668	)
Accumulated other comprehensive income		76			256			106			115

Total Aqua America stockholders’ equity		1,314,407			1,251,313			1,418,271			1,385,704

Noncontrolling interest		518			504			194			188

Total equity		1,314,925			1,251,817			1,418,465			1,385,892

Long-term debt, excluding current portion		1,519,694			1,395,457			1,464,481			1,543,954
Commitments and contingencies (See Note 13)		—			—

Commitments and contingencies (See Note 12)								—			—
Current liabilities:
Current portion of long-term debt		40,897			80,429			83,083			45,038
Loans payable		97,650			107,771			97,837			80,383
Accounts payable		45,078			67,595			31,600			55,506
Accrued interest		21,743			14,563			21,326			14,026
Accrued taxes		32,411			16,694			22,032			28,214
Dividends payable		24,488			—
Other accrued liabilities		25,385			22,595			26,689			27,360
Liabilities of discontinued operations held for sale		27,458			137,171			19,388			23,637

Total current liabilities		315,110			446,818			301,955			274,164

Deferred credits and other liabilities:
Deferred income taxes and investment tax credits		634,444			596,644			752,367			723,367
Customers’ advances for construction		75,906			66,198			68,848			71,595
Regulatory liabilities		48,601			41,292			238,898			241,363
Other		123,003			122,038			155,812			157,978

Total deferred credits and other liabilities		881,954			826,172			1,215,925			1,194,303

Contributions in aid of construction		455,471			428,156			464,498			460,204

	$	4,487,154		$	4,348,420		$	4,865,324		$	4,858,517

See notes to consolidated financial statements beginning on page 98 of this report.


	Nine Months Ended
	September 30,						Three Months Ended March 31,
	2012			2011			2013			2012
Operating revenues	$	570,279		$	520,498		$	180,035		$	164,024

Operating expenses:
Operations and maintenance		199,664			190,241			68,311			64,825
Depreciation		82,736			77,645			29,259			26,746
Amortization		3,773			4,041			1,370			1,121
Taxes other than income taxes		34,700			31,431			13,534			9,493

		320,873			303,358			112,474			102,185

Operating income		249,406			217,140			67,561			61,839

Other expense (income):
Interest expense, net		58,384			58,460			19,275			19,247
Allowance for funds used during construction		(3,484	)		(5,689	)		(552	)		(1,330	)
Gain on sale of other assets		(826	)		(475	)		(92	)		(442	)
Equity earnings in joint venture		(931	)		—
Equity loss in joint venture								656			—

Income from continuing operations before income taxes		196,263			164,844			48,274			44,364
Provision for income taxes		77,310			54,667			7,043			17,475

Income from continuing operations		118,953			110,177			41,231			26,889

Discontinued operations:
Income from discontinued operations before income taxes		18,813			10,454			8,302			18,170
Provision for income taxes		7,758			11,567			2,968			7,155

Income (loss) from discontinued operations		11,055			(1,113	)
Income from discontinued operations								5,334			11,015

Net income attributable to common shareholders	$	130,008		$	109,064		$	46,565		$	37,904

Income from continuing operations per share:
Basic	$	0.85		$	0.80		$	0.29		$	0.19

Diluted	$	0.85		$	0.79		$	0.29		$	0.19

Income from discontinued operations per share:
Basic	$	0.08		$	(0.01	)	$	0.04		$	0.08

Diluted	$	0.08		$	(0.01	)	$	0.04		$	0.08

Net income per common share:
Basic	$	0.93		$	0.79		$	0.33		$	0.27

Diluted	$	0.93		$	0.79		$	0.33		$	0.27

Average common shares outstanding during the period:
Basic		139,185			138,081			140,332			138,762

Diluted		139,751			138,625			141,200			139,456

Cash dividends declared per common share	$	0.67		$	0.63		$	0.175		$	0.165

See notes to consolidated financial statements beginning on page 98 of this report.


	Nine Months Ended						Three Months Ended
	September 30,						September 30,						Three Months Ended March 31,
	2012			2011			2012			2011			2013			2012
Net income attributable to common shareholders	$	130,008		$	109,064		$	50,659		$	41,123		$	46,565		$	37,904
Other comprehensive income, net of tax:
Unrealized holding gain (loss) on investments (1) (2)		139			(277	)		42			(373	)
Reclassification adjustment for gain reported in net income (3) (4)		(319	)		(156	)		(153	)		(83	)
Unrealized holding (loss) gain on investments (1)														(9	)		118
Reclassification adjustment for gain reported in net income (2) (3)														—			(166	)

Comprehensive income	$	129,828		$	108,631		$	50,548		$	40,667		$	46,556		$	37,856

See notes to consolidated financial statements beginning on page 98 of this report.


									March 31, 2013			December 31, 2012
Aqua America stockholders’ equity:							Aqua America stockholders’ equity:
Common stock, $.50 par value							Common stock, $.50 par value		$	70,754		$	70,472
Capital in excess of par value							Capital in excess of par value			730,419			718,482
Retained earnings							Retained earnings			633,151			611,303
Treasury stock, at cost							Treasury stock, at cost			(16,159	)		(14,668	)
Accumulated other comprehensive income							Accumulated other comprehensive income			106			115

Total Aqua America stockholders’ equity							Total Aqua America stockholders’ equity			1,418,271			1,385,704
Noncontrolling interest							Noncontrolling interest			194			188

Total equity							Total equity			1,418,465			1,385,892

Long-term debt:							Long-term debt:
Long-term debt of subsidiaries (substantially secured by utility plant):							Long-term debt of subsidiaries (substantially secured by utility plant):
Interest Rate Range		Maturity Date Range						Maturity Date Range
0.00% to 0.99%		2024 to 2031		3,411		6,777		2024 to 2031		2,831			2,884
1.00% to 1.99%		2014 to 2035		35,668		30,030		2014 to 2035		28,763			27,251
2.00% to 2.99%		2024 to 2031		12,482		12,798		2024 to 2031		16,076			17,120
3.00% to 3.99%		2016 to 2030		24,971		26,593		2016 to 2047		107,425			107,477
4.00% to 4.99%		2020 to 2043		367,846		367,226		2020 to 2043		368,356			367,657
5.00% to 5.99%		2012 to 2043		381,880		429,128		2014 to 2043		320,628			320,729
6.00% to 6.99%		2015 to 2036		64,898		63,253		2015 to 2036		64,908			64,903
7.00% to 7.99%	��	2012 to 2027		36,040		28,995		2022 to 2027		35,511			35,660
8.00% to 8.99%		2021 to 2025		24,716		33,957		2021 to 2025		19,547			19,632
9.00% to 9.99%		2013 to 2026		34,547		38,447		2013 to 2026		34,387			34,547
10.40%		2018		6,000		6,000		2018		6,000			6,000

				992,459		1,043,204				1,004,432			1,003,860

Notes payable to bank under revolving credit agreement, variable rate, due March 2017				83,000		38,212	Notes payable to bank under revolving credit agreement, variable rate, due March 2017			58,000			100,000
Unsecured notes payable:							Unsecured notes payable:
Notes at 3.57% due 2027				50,000		—	Notes at 3.57% due 2027			50,000			50,000
Notes ranging from 4.62% to 4.87%, due 2013 through 2024				193,000		193,000	Notes ranging from 4.62% to 4.87%, due 2013 through 2024			193,000			193,000
Notes ranging from 5.01% to 5.95%, due 2014 through 2037				242,132		242,132	Notes ranging from 5.01% to 5.95%, due 2014 through 2037			242,132			242,132

				1,560,591		1,516,548
Less: long-term debt of discontinued operations				—		40,662

				1,560,591		1,475,886				1,547,564			1,588,992
Current portion of long-term debt				40,897		80,429	Current portion of long-term debt			83,083			45,038

Long-term debt, excluding current portion				1,519,694		1,395,457	Long-term debt, excluding current portion			1,464,481			1,543,954

Total capitalization			$	2,834,619	$	2,647,274	Total capitalization		$	2,882,946		$	2,929,846

See notes to consolidated financial statements beginning on page 98 of this report.


	Nine Months Ended
	September 30,						Three Months Ended March 31,
	2012			2011			2013			2012
Cash flows from operating activities:
Net income	$	130,008		$	109,064		$	46,565		$	37,904
Income (loss) from discontinued operations		11,055			(1,113	)
Income from discontinued operations								5,334			11,015

Income from continuing operations		118,953			110,177			41,231			26,889

Adjustments to reconcile income from continuing operations to net cash flows from operating activities:
Depreciation and amortization		86,509			81,686			30,629			27,867
Deferred income taxes		59,498			57,476			11,232			6,827
Provision for doubtful accounts		3,072			3,382			922			741
Stock-based compensation		4,020			2,786			1,015			1,211
Gain on sale of utility system		—			(3,946	)
Gain on sale of other assets		(826	)		(475	)		(92	)		(442	)
Net increase in receivables, inventory and prepayments		(18,254	)		(12,561	)
Net decrease in receivables, inventory and prepayments								5,133			6,285
Net increase in payables, accrued interest, accrued taxes and other accrued liabilities		25,896			497			584			11,186
Other		(2,649	)		(2,580	)		(1,704	)		(4,249	)

Operating cash flows from continuing operations		276,219			236,442			88,950			76,315
Operating cash flows (used in) from discontinued operations, net		(10,005	)		10,661
Operating cash flows from discontinued operations, net								36			1,618

Net cash flows from operating activities		266,214			247,103			88,986			77,933

Cash flows from investing activities:
Property, plant and equipment additions, including allowance for funds used during construction of $3,484 and $5,689		(262,832	)		(222,354	)
Property, plant and equipment additions, including allowance for funds used during construction of $552 and $1,330								(59,200	)		(79,609	)
Acquisitions of utility systems and other, net		(116,050	)		(6,934	)		(10,674	)		(1,297	)
Additions to funds restricted for construction activity		(2,086	)		(135	)		(2	)		(1,293	)
Release of funds previously restricted for construction activity		55,416			34,644			394			6
Net proceeds from the sale of utility system and other assets		3,766			12,628			95			2,233
Proceeds from note receivable		—			5,289
Investment in joint venture		(19,156	)		—			(4,900	)		(4,900	)
Other		(1,701	)		(631	)		(233	)		(634	)

Investing cash flows used in continuing operations		(342,643	)		(177,493	)		(74,520	)		(85,494	)
Investing cash flows from (used in) discontinued operations, net		74,009			(6,636	)
Investing cash flows from discontinued operations, net								51,427			34,064

Net cash flows used in investing activities		(268,634	)		(184,129	)		(23,093	)		(51,430	)

Cash flows from financing activities:
Customers’ advances and contributions in aid of construction		5,742			2,587			800			2,619
Repayments of customers’ advances		(3,840	)		(1,577	)		(577	)		(835	)
Net (repayments) proceeds of short-term debt		(10,121	)		13,310
Net proceeds of short-term debt								17,453			4,643
Proceeds from long-term debt		179,166			24,974			35,010			28,112
Repayments of long-term debt		(109,265	)		(46,477	)		(77,991	)		(28,232	)
Change in cash overdraft position		(14,108	)		(4,122	)		(11,881	)		(17,551	)
Proceeds from issuing common stock		9,732			9,401			3,427			3,200
Proceeds from exercised stock options		12,733			5,835			7,901			2,005
Stock-based compensation windfall tax benefits		603			—			—			68
Repurchase of common stock		(1,464	)		(1,001	)		(1,618	)		(683	)
Dividends paid on common stock		(68,932	)		(64,266	)		(24,562	)		(22,915	)

Financing cash flows from (used in) continuing operations		246			(61,336	)
Financing cash flows from discontinued operations, net		92			416
Financing cash flows used in continuing operations								(52,038	)		(29,569	)
Financing cash flows (used in) from discontinued operations, net								(23	)		65

Net cash flows from (used in) financing activities		338			(60,920	)
Net cash flows used in financing activities								(52,061	)		(29,504	)

Net (decrease) increase in cash and cash equivalents		(2,082	)		2,054
Net increase (decrease) in cash and cash equivalents								13,832			(3,001	)
Cash and cash equivalents at beginning of period		8,204			5,934			5,521			8,204

Cash and cash equivalents at end of period	$	6,122		$	7,988		$	19,353		$	5,203

See notes to consolidated financial statements beginning on page 98 of this report.

The accompanying consolidated balance sheets and statements of capitalization of Aqua America, Inc. and subsidiaries (the “Company”) at ~~September 30, 2012,~~March 31, 2013, the consolidated statements of net income and comprehensive income for the ~~nine and~~ three months ended ~~September 30,~~March 31, 2013 and 2012 ~~and 2011,~~ the consolidated statements of cash flow for the ~~nine~~three months ended ~~September 30,~~March 31, 2013 and 2012 ~~and 2011,~~ and the consolidated statement of equity for the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013 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, ~~2011.~~2012. The results of operations for interim periods may not be indicative of the results that may be expected for the entire year. The December 31, ~~2011~~2012 consolidated balance sheet data presented herein was derived from the Company’s December 31, ~~2011~~2012 audited consolidated financial statements, but does not include all disclosures and notes normally provided in annual financial statements. Certain prior period amounts have been reclassified to conform to the reporting of discontinued operations (see Note 4).

The following table summarizes the changes in the Company’s goodwill, by business segment:

Included within the Company’s assets of discontinued operations held for sale as of December 31, 2011 is $12,316 of goodwill, and as of September 30, 2012 there was no goodwill associated with the Company’s assets of discontinued operations held for sale.

The reclassification of goodwill to utility plant acquisition adjustment in the table above results from a mechanism approved by the applicable public utility commission. The mechanism provides for the transfer over time, and the recovery through customer rates, of goodwill associated with certain acquisitions upon achieving certain objectives.

As of July 31, 2012, management performed its annual test of goodwill for impairment, in conjunction with the timing of the Company’s annual five-year financial plan. Based on the Company’s comparison of the estimated fair value of its reporting units to their respective carrying amounts, management concluded that the estimated fair value of each reporting unit, which has goodwill recorded, was substantially in excess of the reporting unit’s carrying amount.

As part of the Company’s growth-through-acquisition strategy, in July 2011, the Company entered into a definitive agreement with American Water Works Company, Inc. (“American Water”) to purchase all of the stock of the subsidiary that holds American Water’s regulated water and wastewater operations in Ohio. American Water’s Ohio operations served approximately 57,000 customers. On May 1, 2012, the Company completed its acquisition of American Water’s water and wastewater operations in Ohio. The total purchase price at closing consisted of $101,083 in cash plus certain assumed liabilities, including debt of $14,281, which is subject to certain post-closing adjustments. The transaction has been accounted for as a business combination. The Company has included the results of its acquisition in Ohio in our consolidated financial statements as part of our Regulated segment since the date of acquisition. The proforma impact of the Company’s Ohio acquisition was not material to our results of operations for the quarters and nine months ended September 30, 2012 and 2011, respectively, and to our financial condition as of September 30, 2012. The preliminary purchase price allocation is as follows:

~~Note 4Discontinued Operations~~In March 2013, the Company acquired the water and ~~Other Dispositions~~wastewater system assets of Total Environmental Solutions, Inc. located in Clearfield County, Pennsylvania serving approximately 4,200 customers. The total purchase price consisted of $10,350 in cash.

Discontinued Operations – In September 2012, the Company began to market for sale its water and wastewater operations in Florida, which ~~serves~~serve approximately 38,000 customers, and the Company’s ~~waste water~~wastewater treatment facility in Georgia. In December 2012, the Company entered into a definitive agreement to sell 80 of its water and wastewater systems in Florida to the Florida Governmental Utility Authority (“FGUA”). These 80 systems represented approximately 56% of our customers served in Florida. In March 2013, the Company completed its sale to FGUA. In addition, in March 2013, the Company sold 15 of its Florida water and wastewater systems representing approximately 9% of our customers served in Florida in separate transactions with separate buyers. The Company received total net proceeds from these sales of $52,286, and recognized a net gain on sale of $6,451 ($4,193 after-tax). The Company believes it will be able to complete the sales of our remaining Florida operations by the end of the third quarter of 2013. The Company has accounted for ~~these~~the remainder of its Florida operations and its wastewater treatment facility in Georgia as ~~business~~businesses held for sale. The sale of the Company’s water and wastewater operations in Florida and Georgia will conclude the Company’s operations in these states.

In July 2011, the Company entered into a definitive agreement with Connecticut Water Service, Inc. to sell its operations in Maine, which served approximately 16,000 customers, for cash at closing plus certain assumed liabilities, including debt of $17,364. On January 1, 2012, the Company completed the sale for net proceeds of $36,870, and recognized a gain on sale of ~~$17,699~~$17,373 ($~~10,821~~10,610 after-tax)~~. Beginning~~ in the ~~third~~first quarter of 2011, the Company recognized income tax expense of $4,008 for the additional deferred tax liabilities that arose from the difference between the stock and tax basis of the Company’s investment in its Aqua Maine subsidiary.2012.

In July 2011, the Company entered into a definitive agreement with American Water Works Company, Inc. to sell its operations in New York for its book value at closing plus certain assumed liabilities, including debt of approximately $23,000. On May 1, 2012, the Company completed the sale for net proceeds of ~~$39,274~~$36,688 in cash as adjusted pursuant to the sale agreement based on book value at ~~closing, which is subject to certain post-closing adjustments.~~

During the second quarter of 2012, the Company recognized a loss on sale of $2,736 ($1,874 after-tax), resulting from charges incurred from the sale. Beginning in the third quarter of 2011, the Company recognized income tax expense of $3,245 for the additional deferred tax liabilities that arise from the difference between the stock and tax basis of the Company’s investment in its Aqua New York subsidiary.closing. The Company’s New York operations served approximately 51,000 customers. In conjunction with the sale of our New York operations, we acquired additional utility systems (and approximately 59,000 customers) in Ohio, one of the larger states in Aqua America’s portfolio.

The operating results, cash flows, and financial position of the Company’s ~~subsidiaries~~operations named above, during the periods owned, have been presented in the Company’s consolidated statements of net income, consolidated statements of cash flow, and consolidated balance sheets as discontinued operations. These ~~subsidiaries~~operations were included in the Company’s “Regulated” segment.

A summary of discontinued operations presented in the consolidated statements of net income include the following:


	Nine Months Ended						Three Months Ended					Three Months Ended
	September 30,						September 30,					March 31,
	2012			2011			2012		2011			2013			2012
Operating revenues	$	25,308		$	50,607		$	5,934	$	20,469		$	6,010		$	11,131
Total operating expenses		20,212			37,211			4,206		12,457			4,160			9,744

Operating income		5,096			13,396			1,728		8,012			1,850			1,387
Other (income) expense:
Gain on sale		(17,699	)		—			—		—			(6,451	)		(17,373	)
Loss on sale		2,981			—			—		—
Other expense, net		1,001			2,942			909		1,806			(1	)		590

Income from discontinued operations before income taxes		18,813			10,454			819		6,206			8,302			18,170
Provision for income taxes		7,758			11,567			444		9,944			2,968			7,155

Income (loss) from discontinued operations	$	11,055		$	(1,113	)	$	375	$	(3,738	)
Income from discontinued operations												$	5,334		$	11,015

The assets and liabilities of discontinued operations presented in the consolidated balance sheets include the following:


	September 30,		December 31,		March 31,		December 31,
	2012		2011		2013		2012
Property, plant and equipment, at cost	$	128,578	$	299,689	$	49,639	$	128,463
Less: accumulated depreciation		49,112		104,889		20,833		48,856

Net property, plant and equipment		79,466		194,800		28,806		79,607
Current assets		3,626		16,341		3,807		4,656
Regulatory assets		2,282		36,656		176		2,034
Goodwill		—		12,316
Other assets		129		2,948		74		126

Assets of discontinued operations held for sale		85,503		263,061		32,863		86,423

Long-term debt, excluding current portion		—		40,326
Current liabilities		5,897		8,235		8,566		2,074
Deferred income taxes and investment tax credits		5,127		28,690		1,572		5,166
Contributions in aid of construction		15,554		25,940		8,421		15,560
Other liabilities		880		33,980		829		837

Liabilities of discontinued operations held for sale		27,458		137,171		19,388		23,637

Net assets	$	58,045	$	125,890	$	13,475	$	62,786

Other ~~Dispositions~~Disposition – The following dispositions have not been presented as discontinued operations in the Company’s consolidated financial statements as the Company does not believe that disclosure of the following disposed water and wastewater utility systems as discontinued operations is meaningful to the reader of the financial statements for making investment decisions either individually or in the aggregate. The gains disclosed below are reported in the consolidated statements of net income as a reduction to operations and maintenance expense.

In May 2012, the Company sold a water and wastewater utility system in Florida for net proceeds of $2,505. The sale resulted in the recognition of a gain on the sale of these assets, net of expenses, of $328. The utility systems represented approximately 0.05% of the Company’s total assets.

In June 2011, the Company sold a water and wastewater utility system in North Carolina for net proceeds of $4,106. The sale resulted in the recognition of a gain on the sale, net of expenses, of $2,692. In May 2011, the Company sold its regulated water and wastewater operations in Missouri for net proceeds of $3,225. The sale resulted in the recognition of a gain on the sale of these assets, net of expenses, of $280. This sale of the Company’s Missouri operations concluded its regulated utility operations in Missouri. In January 2011, the Company sold a water and wastewater utility system in Texas for net proceeds of $3,118. The sale resulted in the recognition of a gain on the sale of these assets, net of expenses, of $2,452. Theses utility systems represented approximately 0.11% of the Company’s total assets.

The City of Fort Wayne, Indiana ~~(“the City”~~(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 in Indiana. 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 stated that the final valuation of the northern 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 northern portion of the system to the City upon receipt of the initial valuation payment. The proceeds received by the Company 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. The net book value of the assets relinquished has been removed from the consolidated balance sheet and the difference between the net book value and the initial payment received has been deferred and is recorded in other accrued liabilities on the Company’s consolidated balance sheet. Once the contingency is resolved and the asset valuation is finalized, through the finalization of the litigation between the Company and the City of Fort Wayne, the amounts deferred will be recognized in the Company’s consolidated statement of net income. 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. On October 12, 2010, the Wells County Indiana Circuit Court ruled that the Company is not entitled to a jury trial, and that the Wells County judge should review the City of Fort Wayne Board of Public Works’ assessment based upon a “capricious, arbitrary or an abuse of discretion” standard.

The Company disagreed with the Court’s decision and appealed the Wells County Indiana Circuit Court’s decision to the Indiana Court of Appeals. On January 13, 2012, the Indiana Court of Appeals reached a decision upholding the Wells County Indiana Circuit Court decision. On February 10, 2012, the Company filed a petition for transfer requesting that the Indiana Supreme Court review the matter. ~~The~~On April 11, 2013, the Supreme Court of Indiana ~~accepted transfer~~ruled that the statute at issue gives the Company the right to a full evidentiary hearing before a jury regarding the value of the assets and remanded the ~~matter is pending~~case to the ~~Court’s decision.~~trial court for a proceeding consistent with that ruling. The Company continues to evaluate its legal options with respect to this decision. Depending upon the outcome of all of the legal proceedings the Company may be required to refund a portion of the initial valuation payment, or may receive additional proceeds. The northern portion of the utility system relinquished represents approximately 0.40% of the Company’s total assets. In addition, in December 2012, the Fort Wayne City Council considered an ordinance that sought to declare it a “public convenience and necessity” to acquire certain of the Company’s utility system assets located in the southwest section of the City, and if negotiations with Fort Wayne officials were to fail, to condemn certain of the Company’s utility system assets. The first public hearing on the ordinance was held on January 22, 2013 and a subsequent hearing scheduled for February 5, 2013 was not held due to ongoing settlement discussions between the parties. The Company continues to participate in settlement discussions with the City regarding both the condemned northern portion of the system and the water utility system assets located in the southwest section of the City and has agreed to participate in the City Council proceedings regarding this matter. The Company will evaluate its legal and operational options on an ongoing basis.

The Company follows the Financial Accounting Standards Board’s (“FASB”) accounting guidance for fair value measurements and disclosures, which defines fair value and establishes a framework for using fair value to measure assets and liabilities. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. There have been no changes in the valuation techniques used to measure fair value for the quarter ended ~~September 30, 2012.~~March 31, 2013.

Financial instruments are recorded at carrying value in the financial statements and approximate fair value as of the dates presented. The fair value of these instruments is disclosed below in accordance with current accounting guidance related to financial instruments.

The fair value of funds restricted for construction activity and loans payable are determined based on their carrying amount and utilizing level 1 methods and assumptions. As of ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011,~~2012, the carrying amount of the Company’s funds restricted for construction activity was ~~$35,575~~$23,180 and ~~$88,905,~~$23,572, which equates to their estimated fair value. As of ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011,~~2012, the carrying amount of the Company’s loans payable was ~~$97,650~~$97,837 and ~~$107,771,~~$80,383, which equates to their estimated fair value. The fair value of cash and cash equivalents, which is comprised of a money market fund, is determined based on the net asset value per unit utilizing level 2 methods and assumptions. As of ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011,~~2012, the carrying amounts of the Company’s cash and cash equivalents was ~~$6,122~~$19,353 and ~~$8,204,~~$5,521, which equates to their fair value.

The carrying amounts and estimated fair values of the Company’s long-term debt is as follows:

Included in the carrying amount of the Company’s long-term debt as of December 31, 2011, is long-term debt associated with discontinued operations of $40,662. The fair value of the Company’s long-term debt as of December 31, 2011 for its discontinued operations is $43,068.

The fair value of long-term debt has been determined by discounting the future cash flows using current market interest rates for similar financial instruments of the same duration utilizing level 2 methods and assumptions. The Company’s customers’ advances for construction and related tax deposits have a carrying value of ~~$75,906~~$68,848 as of ~~September 30, 2012,~~March 31, 2013, and ~~$66,198~~$71,595 as of December 31, ~~2011.~~2012. Their relative fair values cannot be accurately estimated because future refund payments depend on several variables, including new customer connections, customer consumption levels, and future rate increases. Portions of these non-interest bearing instruments are payable annually through ~~2027~~2028 and amounts not paid by the respective contract expiration dates become non-refundable. The fair value of these amounts would, however, be less than their carrying value due to the non-interest bearing feature.

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-based compensation is included in the computation of diluted net income per common share. The dilutive effect of stock-based compensation is calculated using the treasury stock method and expected proceeds upon exercise or issuance of the stock-based compensation. The following table summarizes the shares, in thousands, used in computing basic and diluted net income per common share:

For the nine and three months ended September 30, 2012, employee stock options to purchase 427,952 shares of common stock, 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. For the nine and three months ended September 30, 2011, employee stock options to purchase 933,800 shares of common stock, 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.

In June 2012, the Company issued $50,000 of senior unsecured notes due in 2027 with an interest rate of 3.57%. In May 2012, in connection with the Company’s acquisition in Ohio, the Company assumed $14,281 of long-term debt, which includes a purchase accounting fair value adjustment of $3,578, increasing the carrying value of the long-term debt. The long-term debt assumed has maturity dates ranging from 2026 to 2029 and interest rates ranging from 4.14% to 7.18%.

On March 23, 2012, the Company entered into a five-year $150,000 unsecured revolving credit facility with three banks that expires in March 2017. Included within this facility is a $15,000 sublimit for daily demand loans. Funds borrowed under this facility are classified as long-term debt and are used to provide working capital. The Company’s $150,000 unsecured revolving credit facility replaced the Company’s prior $95,000 unsecured revolving credit facility, which expired in May 2012.

~~In February 2012,~~For the ~~Company renewed its universal shelf registration statement, which expired in December 2011, through a filing with~~three months ended March 31, 2013, employee stock options to purchase 395,325 shares of common stock, were excluded from the ~~Securities and Exchange Commission (“SEC”), which allows for~~calculations of diluted net income per share as the ~~potential future offer and sale by~~calculated cost to exercise the ~~Company, from time to time, in one or more public offerings, of an indeterminate amount~~stock options was greater than the average market price of the Company’s common stock ~~preferred~~during these periods. For the three months ended March 31, 2012, employee stock ~~debt securities, and other securities specified therein at indeterminate prices. The Company’s Board~~options to purchase 919,800 shares of ~~Directors has authorized~~common stock, were excluded from the ~~Company~~calculations of diluted net income per share as the calculated cost to ~~issue up to $500,000~~exercise the stock options was greater than the average market price of the Company’s common stock preferred stock, debt securities, and other securities specified therein under this universal shelf registration statement. No issuances have been completed to date under this shelf registration statement.during these periods.

Under the Company’s 2009 Omnibus Equity Compensation Plan (the “2009 Plan”), as approved by the Company’s shareholders to replace the 2004 Equity Compensation Plan (the “2004 Plan”), stock options, stock units, stock awards, stock appreciation rights, dividend equivalents, and other stock-based awards may be granted to employees, non-employee directors, and consultants and advisors. The 2009 Plan authorizes 5,000,000 shares for issuance under the plan. A maximum of 50% of the shares available for issuance under the 2009 Plan may be issued as restricted stock and the maximum number of shares that may be subject to grants under the Plan to any one individual in any one year is 200,000. Awards under the 2009 Plan are made by a committee of the Board of Directors. At ~~September 30, 2012, 3,894,179~~March 31, 2013, 3,712,187 shares underlying stock-based compensation awards were still available for grants under the 2009 Plan. No further grants may be made under the 2004 Plan.

In the first quarter of 2012, the Company recognized a tax benefit of $588 associated with stock-based compensation that vested or was exercised during the fiscal year ended December 31, 2011, which, as a result of the Company’s 2011 Federal cumulative net operating loss, was not recognized in 2011, because the deduction did not reduce income taxes payable. The recognition in the first quarter of 2012 of the tax benefit resulted in a reduction to income taxes payable and an increase in stockholders’ equity.

Performance Share Units– A performance share unit (“PSU”) represents the right to receive a share of the Company’s common stock if specified performance goals are met over the three year performance period specified in the grant, subject to certain exceptions through the respective vesting period, which range from two to three years. Each grantee is granted a target award of PSUs, and may earn between 0% and 200% of the target amount depending on the Company’s performance against the performance goals. The following table provides compensation costs for stock-based compensation related to performance share units:

The following table summarizes nonvested PSU transactions for the ~~nine~~three months ended ~~September 30, 2012:~~March 31, 2013:


	Number			Weighted		Number			Weighted
	of			Average		of			Average
	Share Units			Fair Value		Share Units			Fair Value
Nonvested share units at beginning of period		137,584		$	24.38		331,225		$	23.52
Granted		127,950			23.89		133,275			33.60
Performance criteria adjustment		43,961			23.67		—			—
Forfeited		(11,494	)		23.87		(6,525	)		25.08
Vested		—			—		(14,400	)		24.38
Share unit awards issued		—			—		—			—

Nonvested share units at end of period		298,001		$	23.67		443,575		$	26.43

~~The~~A portion of the fair value of PSUs was estimated at the grant date based on the probability of satisfying the ~~performance~~market-based conditions associated with the PSUs using the Monte Carlo valuation method. The other portion of the fair value of the PSUs is based on the fair market value of the Company’s stock at the grant date, regardless of whether the market-based condition is satisfied. The per unit weighted-average fair value at the date of grant for PSUs granted during the ~~nine~~three months ended ~~September 30,~~March 31, 2013 and 2012 was $33.60 and ~~2011 was~~ $23.89, ~~and $24.38,~~ respectively. The fair value of each PSU grant is amortized monthly into compensation expense on a straight-line basis over their respective vesting periods, which range from 24 to 36 months. The accrual of compensation costs is based on our estimate of the final expected value of the award, and is adjusted as ~~required.~~required for the portion based on the performance-based condition. The Company assumes that forfeitures will be minimal, and recognizes forfeitures as they occur, which results in a reduction in compensation expense. As the payout of the PSUs includes dividend equivalents, no dividend yield assumption is required in calculating the fair value of the PSUs. The recording of compensation expense for PSUs has no impact on net cash flows.

Restricted Stock Units –A restricted stock unit (“RSU”) represents the right to receive a share of the Company’s common stock. RSUs are eligible to be earned at the end of a specified restricted period, generally three years, beginning on the date of grant. The Company assumes that forfeitures will be minimal, and recognizes forfeitures as they occur, which results in a reduction in compensation expense. The following table provides compensation costs for stock-based compensation related to restricted stock units:

The following table summarizes nonvested RSU transactions for the ~~nine~~three months ended ~~September 30, 2012:~~March 31, 2013:


	Number			Weighted		Number			Weighted
	of			Average		of			Average
	Stock Units			Fair Value		Stock Units			Fair Value
Nonvested stock units at beginning of period		44,342		$	22.21		68,468		$	22.36
Granted		37,850			22.49		38,500			29.10
Vested		(11,000	)		22.21		(15,600	)		22.29
Forfeited		(2,148	)		22.21		—			—

Nonvested stock units at end of period		69,044		$	22.36		91,368		$	25.21

The per unit weighted-average fair value at the date of grant for RSUs granted during the ~~nine~~three months ended ~~September 30,~~March 31, 2013 and 2012 was $29.10 and ~~2011 was~~ $22.49, ~~and $22.21, respectively~~respectively.

Stock Options– The fair value of stock options is estimated at the grant date using the Black-Scholes option-pricing model. The following table provides compensation costs for stock-based compensation related to stock options granted in prior periods:

~~There were no stock options granted during the nine months ended September 30, 2012 or 2011.~~

There were no stock options granted during the three months ended March 31, 2013 or 2012.

The following table summarizes stock option transactions for the ~~nine~~three months ended ~~September 30, 2012:~~March 31, 2013:


				Weighted		Weighted							Weighted		Weighted
				Average		Average		Aggregate					Average		Average		Aggregate
				Exercise		Remaining		Intrinsic					Exercise		Remaining		Intrinsic
	Shares			Price		Life (years)		Value		Shares			Price		Life (years)		Value
Options:
Outstanding at beginning of period		3,376,960		$	20.03						2,497,282		$	20.81
Granted		—			—						—			—
Forfeited		(9,015	)		17.60						—			—
Expired		(36,726	)		24.18						(7,627	)		29.46
Exercised		(726,068	)		17.54						(417,340	)		18.94

Outstanding at end of period		2,605,151		$	20.67		4.4	$	12,670
Outstanding and exercisable at end of period											2,072,315		$	21.15		4.1	$	21,319

Exercisable at end of period		2,462,402		$	20.87		4.2	$	11,583

Restricted Stock–During the ~~nine and~~ three months ended ~~September 30,~~March 31, 2013 and 2012, ~~and 2011,~~ the Company recorded stock-based compensation related to restricted stock awards as a component of operations and maintenance expense as follows:

The following table summarizes nonvested restricted stock transactions for the ~~nine~~three months ended ~~September 30, 2012:~~March 31, 2013:


	Number			Weighted		Number			Weighted
	of			Average		of			Average
	Shares			Fair Value		Shares			Fair Value
Nonvested shares at beginning of period		207,989		$	18.66		117,728		$	19.23
Granted		17,600			23.09		—			—
Vested		(105,473	)		18.80		(67,728	)		17.09
Forfeited		(2,082	)		17.25		—			—

Nonvested share units at end of period		118,034		$	19.23
Nonvested shares at end of period							50,000		$	22.13

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												Pension Benefits
	Nine Months Ended						Three Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2012			2011			2012			2011			2013			2012
Service cost	$	3,794		$	3,469		$	1,258		$	1,382		$	1,446		$	1,150
Interest cost		9,807			10,160			3,284			4,232			3,165			2,994
Expected return on plan assets		(10,327	)		(9,842	)		(3,595	)		(4,651	)		(3,693	)		(3,000	)
Amortization of prior service cost		188			260			69			173			57			62
Amortization of actuarial loss		5,160			3,057			1,644			1,024			2,016			1,685
Capitalized costs		(2,808	)		(2,761	)		(998	)		(954	)		(1,000	)		(891	)
Settlement charge		4,980			—			—			—
Curtailment (credit) charge		(480	)		100			—			100

		10,314			4,443			1,662			1,306
Less discontinued operations		4,876			930			—			344

Net periodic benefit cost	$	5,438		$	3,513		$	1,662		$	962		$	1,991		$	2,000


	Other												Other
	Postretirement Benefits												Postretirement Benefits
	Nine Months Ended						Three Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2012			2011			2012			2011			2013			2012
Service cost	$	1,008		$	927		$	349		$	176		$	425		$	299
Interest cost		1,981			2,071			665			447			667			625
Expected return on plan assets		(1,602	)		(1,523	)		(535	)		(281	)		(560	)		(453	)
Amortization of transition obligation		9			78			(9	)		9			—			18
Amortization of prior service cost		(202	)		(201	)		(98	)		(23	)		(74	)		(68	)
Amortization of actuarial loss		797			627			261			216			345			243
Amortization of regulatory asset		69			102			1			34			—			34
Capitalized costs		(515	)		(528	)		(184	)		(185	)		(182	)		(164	)
Settlement charge		325			—			—			—
Curtailment charge		—			27			—			27

		1,870			1,580			450			420
Less discontinued operations		390			188			—			61

Net periodic benefit cost	$	1,480		$	1,392		$	450		$	359		$	621		$	534

The Company made cash contributions of $7,977 to its defined benefit pension plans during the first three months of 2013, and intends to make cash contributions of $7,977 to the plans during the remainder of 2013. In addition, the Company expects to make cash contributions of $2,875 for the funding of its other postretirement benefit plans during the remainder of 2013.

The Company made cash contributions of $15,370 to its defined benefit pension plans during the first six months of 2012, which represented the completion of the Company’s 2012 cash contributions. In addition, the Company expects to make cash contributions of $2,685 for the funding of its other postretirement benefit plans during the remainder of 2012.

During the first nine months of 2012, the Company’s operating divisions in Texas, Ohio, Illinois, New Jersey, Pennsylvania (wastewater) Virginia, and Indiana were granted base rate increases designed to increase total operating revenues on an annual basis by $17,923.

On June 7, 2012, the Pennsylvania Public Utility Commission granted the Company’s operating subsidiary in Pennsylvania (“Aqua Pennsylvania”) a water rate increase designed to increase total operating revenues by $16,700, on an annualized basis. The rates in effect at the time of the filing included $27,449 in Distribution System Improvement Charges (“DSIC”) or 7.5% above prior base rates. Consequently, the total base rates increased by $44,149 since the last base rate increase and the DSIC was reset to zero. In addition, the rate case settlement provides for the flow-through accounting treatment of certain income tax benefits if the Company elects a change to its tax accounting method to permit the expensing of selected utility asset improvement costs that are presently being capitalized and depreciated for tax purposes (the “Repair Election”). The Company is presently evaluating the Repair Election for adoption in Aqua Pennsylvania in 2012 or 2013.

During the first nine months of 2012, the Company’s operating division in Pennsylvania received infrastructure rehabilitation surcharges of $2,764. Infrastructure rehabilitation surcharges are capped as a percentage of base rates, generally at 5% to 9% of base rates, and are reset to zero when new base rates that reflect the costs of those additions become effective or when a utility’s earnings exceed a regulatory benchmark. The Company’s other subsidiaries received infrastructure rehabilitation surcharges of $1,390 during the first nine months of 2012. In June 2012, the New Jersey Board of Public Utilities approved a rulemaking to implement an infrastructure rehabilitation surcharge for regulated water utilities; as a result, the Company’s operating subsidiary in New Jersey is in the process of implementing an infrastructure rehabilitation surcharge.

In February 2012, two of the Company’s operating divisions in Texas began to bill interim rates in accordance with authorization from the Texas Commission on Environmental Quality (the “TCEQ”). The additional revenue billed and collected prior to the TCEQ’s final ruling is subject to refund based on the outcome of the rate case. As of ~~September 30, 2012,~~March 31, 2013, the Company had billed revenue of ~~$3,419,~~$6,012, which is subject to refund based on the outcome of the TCEQ’s final ruling. Based on the Company’s review of the present circumstances, a reserve of ~~$1,197~~$2,104 has been established for the billings to date.

In October 2010, one of the Company’s operating divisions in Texas began to bill interim rates in accordance with authorization from the TCEQ. The additional revenue billed and collected prior to the TCEQ’S final ruling is subject to refund based on the outcome of the rate case. The rate case concluded with the issuance of an order on May 20, 2012, and no refunds of revenue previously billed and collected were required.


	Nine Months Ended				Three Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2012		2011		2012		2011		2013		2012
Property	$	19,796	$	20,782	$	6,511	$	6,930	$	6,537	$	4,046
Capital stock		2,394		2,668		746		895		534		779
Gross receipts, excise and franchise		7,752		7,818		3,276		2,881		2,698		1,376
Payroll		5,550		5,523		1,586		1,583		2,440		2,094
Other		4,403		4,584		1,625		1,875		1,325		1,198

		39,895		41,375		13,744		14,164
Less discontinued operations		5,195		9,944		553		3,393

Total taxes other than income	$	34,700	$	31,431	$	13,191	$	10,771	$	13,534	$	9,493

The Company has identified twelve operating segments and has one reportable segment named the “Regulated” segment. The reportable segment is comprised of ten 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, two segments are not quantitatively significant to be reportable and are comprised of the businesses that provide ~~on-site septic tank pumping,~~ sludge hauling, septage and grease services, ~~and~~backflow prevention services, certain other non-regulated water and wastewater services, and ~~serving the clean~~non-utility raw water ~~needs of~~supply services for certain firms in the ~~shale~~natural gas and oil ~~and gas exploration~~drilling industry. These segments are 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 table presents the Company’s segment information for its continuing operations:


	September 30,		December 31,		March 31,		December 31,
	2012		2011		2013		2012
Total assets:
Regulated	$	4,285,923	$	4,183,758	$	4,575,156	$	4,566,327
Other and eliminations		201,231		164,662		290,168		292,190

Consolidated	$	4,487,154	$	4,348,420	$	4,865,324	$	4,858,517

~~Included within the Company’s regulated segment total assets for September 30, 2012 and December 31, 2011 are total assets of discontinued operations of $85,503 and $263,061, respectively.~~

The Company is routinely involved in various disputes, claims, lawsuits and other regulatory and legal matters, including both asserted and unasserted legal claims, in the ordinary course of business. The status of each such matter, referred to herein as a loss contingency, is reviewed and assessed in accordance with applicable accounting rules regarding the nature of the matter, the likelihood that a loss will be incurred, and the amounts involved. As of ~~September 30, 2012,~~March 31, 2013, the aggregate amount of ~~$12,254~~$12,780 is accrued for loss contingencies and is reported in the Company’s consolidated balance sheet as other accrued liabilities and other liabilities. These accruals represent management’s best estimate of probable loss (as defined in the accounting guidance) for loss contingencies or the low end of a range of losses if no single probable loss can be estimated. For some loss contingencies, the Company is unable to estimate the amount of the probable loss or range of probable losses. While the final outcome of these loss contingencies cannot be predicted with certainty, and unfavorable outcomes could negatively impact the Company, at this time in the opinion of management, the final resolution of these matters are not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows. Further, the Company has insurance coverage for certain of these loss contingencies, and as of ~~September 30, 2012,~~March 31, 2013, estimates that approximately ~~$1,884~~$1,798 of the amount accrued for these matters are probable of recovery through insurance, which amount is also reported in the Company’s consolidated balance sheet as deferred charges and other assets, net.

During the nine and three months ended September 30, 2012, the Company utilized $76,593 and $24,611, respectively of its Federal net operating loss (“NOL”) carryfoward that was recognized in 2011 and 2010 to reduce its 2012 Federal tax liability. In addition, during the nine and three months ended September 30, 2012, the Company utilized $25,111 and $8,909, respectively of its state NOL carryfoward that was recognized in 2011 and 2010 to reduce its 2012 state tax liability. As of September 30, 2012, the balance of the Company’s Federal NOL is $20,665. The Company believes its Federal NOL carrryfoward is more likely than not to be recovered and requires no valuation allowance.

In addition to the aforementioned loss contingencies, the Company self-insures its employee medical benefit program, and maintains stop-loss coverage to limit the exposure arising from these claims. The Company’s reserve for these claims totaled $1,641 at March 31, 2013 and represents a reserve for unpaid claim costs, including an estimate for the cost of incurred but not reported claims.

During the three months ended March 31, 2013, the Company utilized $25,850 of its Federal net operating loss (“NOL”) carryfoward that was recognized in 2012, 2011, and 2010 to reduce its 2013 Federal tax liability. In addition, during the three months ended March 31, 2013, the Company utilized $9,263 of its state NOL carryfoward that was recognized in 2012, 2011, and 2010 to reduce its 2013 state tax liability. As of ~~September 30, 2012,~~March 31, 2013, the balance of the Company’s Federal NOL is $189,735. The Company believes its Federal NOL carrryfoward is more likely than not to be recovered and requires no valuation allowance. As of March 31, 2013, the balance of the Company’s state NOL is ~~$101,426,~~$366,036, a portion of which is offset by a valuation allowance of ~~$9,068~~$8,422 because the Company does not believe the NOLs are more likely than not to be realized. The Company’s Federal and state NOL carryfowards do not begin to expire until 2030 and 2021, respectively.

~~Note 15Recent Accounting Pronouncements~~On June 7, 2012, the Company’s Pennsylvania operating subsidiary (“Aqua Pennsylvania”) reached a settlement agreement in its rate filing with the Pennsylvania Public Utility Commission, which in addition to a water rate increase, provides for the flow-through accounting treatment of certain income tax benefits if Aqua Pennsylvania changes its tax accounting method to permit the expensing of certain utility asset improvement costs that have historically been capitalized and depreciated for book and tax purposes (the “repair change”). In December 2012, Aqua Pennsylvania implemented the repair change, and recognized a tax deduction for 2012 infrastructure investments that were formerly capitalized for tax purposes, and the impact was recorded in the fourth quarter of 2012. In addition, the income tax benefits for qualifying capital expenditures made prior to 2012 (“catch-up adjustment”) have been deferred as of December 31, 2012 and, based on the settlement agreement, a ten-year amortization of the income tax benefits began in the first quarter of 2013. In accordance with the settlement agreement, the amortization is expected to reduce income tax expense during periods when certain qualifying situations are met. As a result of the adoption of the repair change, prior to the receipt of Aqua Pennsylvania’s next rate order, the repair change results in a substantial reduction in income tax expense and greater net income and cash flows. The Company’s effective income tax rate in the first quarter of 2013 for its continuing operations was 14.6% and 39.4% in the first quarter of 2012.

In ~~September 2011,~~April 2013, the Internal Revenue Service completed its examination of tax years 2010 and 2011. The statute of limitations for these tax years remains open until 2014 and 2015, respectively.

In February 2013, the FASB issued ~~revised~~updated accounting guidance ~~for accounting for intangible assets, which is intended~~ to ~~reduce~~improve the ~~cost and complexity~~reporting of reclassifications out of accumulated other comprehensive income (“AOCI”). The update requires an entity to present information about the amounts reclassified from AOCI in their financial statements in either a single note or parenthetically on the face of the ~~annual goodwill impairment test by permitting an entity the option of performing a qualitative assessment to determine whether further impairment testing is necessary.~~financial statements. The ~~revised~~updated guidance is effective prospectively for ~~annual~~reporting periods beginning after December 15, ~~2011. In the third quarter of 2012, the~~2012. The Company adopted the provisions of the ~~revised~~updated guidance for its ~~2012 annual goodwill impairment test,~~quarterly reporting period beginning January 1, 2013, and the adoption of the revised guidance did not have an impact on the Company’s consolidated results of operations or consolidated financial position.

In May 2011, the FASB issued updated accounting guidance related to fair value measurements and disclosures that result in common fair value measurements and disclosures between U.S. Generally Accepted Accounting Principles (“GAAP”) and International Financial Reporting Standards. This new guidance amends current fair value measurement and disclosure guidance to increase transparency around valuation inputs and investment categorization. This guidance is effective for interim and annual periods beginning on January 1, 2012 and is required to be applied prospectively. The adoption of this guidance did not have a significant impact on the Company’s consolidated results of operations or consolidated financial position.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 belief in our ability to renew our short-term lines of credit; the impact and the actions we may need to take if we are unable to obtain sufficient capital; the projected impact of various legal proceedings; the projected effects of recent accounting pronouncements; prospects, plans, objectives, expectations and beliefs of management, as well as information contained in this report where statements are preceded by, followed by or include the words “believes,” “expects,” “anticipates,” “plans,” “future,” “potential,” “probably,” “predictions,”“intends,” “will,” “continue” or the negative of such terms or similar expressions. Forward-looking statements are based on a number of assumptions concerning future events, and are subject to a number of risks, uncertainties and other factors, many of which are outside our control, which could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, among others: the effects of regulation, abnormal weather, changes in capital requirements and funding, acquisitions, changes to the capital markets, and our ability to assimilate acquired operations, as well as those risks, uncertainties and other factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2011~~2012 under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in such report. As a result, readers are cautioned not to place undue reliance on any forward-looking statements. We undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

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~~almost three million people in Pennsylvania, Ohio, Texas, Illinois, North Carolina, ~~Illinois, Texas,~~ New Jersey, Florida, Indiana, Virginia, and Georgia. Our largest operating subsidiary, Aqua Pennsylvania, Inc., provides water or wastewater services to approximately one-half of the total number of people we serve, who are located in the suburban areas in counties north and west of the City of Philadelphia and in 2526 other counties in Pennsylvania. Our other subsidiaries provide similar services in 9nine other states.

In July 2011, we entered into a definitive agreement to sell our operations in Maine, which served approximately 16,000 customers. The sale of our utility in Maine closed in January 2012, concluding our regulated operations in Maine. Also, in July 2011, we entered into a definitive agreement to purchase all of American Water Works Company, Inc.’s regulated operations in Ohio (the “Ohio acquisition”), which served approximately ~~57,000~~59,000 customers, and to simultaneously sell our regulated water and wastewater operations in New York, which served approximately 51,000 customers. In May 2012, we completed this transaction, concluding our regulated operations in New York. The Ohio acquisition was initially financed by short-term debt. The proceeds from the dispositions of our operations in New York and Maine were used to paydown a portion of our short-term debt and other general corporate purposes. In September 2012, we began to market for sale our water and wastewater operations in Florida, which serves approximately 38,000 customers, and our waste water treatment facility in Georgia. In March 2013, we completed the sale of certain of our water and wastewater utility systems in Florida totaling approximately 65% of our customers served in Florida. We believe we will be able to complete the sales of our remaining Florida operations by the end of the third quarter of 2013. We have accounted for the sale of our water and wastewater operations in New York, Maine, and ~~Maine~~Florida and planned disposition of our water ~~and~~ wastewater ~~operations~~operation in ~~Florida and~~ Georgia as discontinued operations. In addition, we provide water and wastewater service through operating and maintenance contracts with municipal authorities and other parties close to our utility companies’ service territories, as well as sludge hauling, septage and grease services, backflow prevention services, ~~and~~ certain other non-regulated water and wastewater ~~services.~~services, and non-utility raw water supply services for firms in the natural gas and oil drilling industry.

Aqua America, Inc., 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. Since the early 1990s, we have 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 American Water Works Company, Inc.’s regulated operations in Ohio in 2012. Since the early 1990s, our business strategy has been primarily directed toward the regulated water and wastewater utility industry and has extended our regulated operations from southeastern Pennsylvania to include operations in nine other states.

Beginning in 2010, and continuing into ~~2012,~~2013, we ~~are following~~pursued a portfolio rationalization strategy to focus our operations in areas where we have critical mass and economic growth potential and to ~~prune~~divest operations where limited customer growth opportunities exist, or where we are unable to achieve favorable operating results or a return on equity that ~~do not fit into our future growth plans.~~we consider acceptable. In 2012 we sold our operations in Maine and New York, in 2011 we sold our operations in Missouri, and in 2010 we sold our operations in South Carolina. In connection with the sale of our New York and Missouri operations, we acquired additional utility systems (and customers) in Ohio and ~~Texas.~~Texas, two of the larger states in Aqua America’s portfolio. Initiated in 2012 we began to market for sale our Florida utility operations and we believe that these sales will conclude in 2013.

In 2011, one of our subsidiaries entered into a joint venture with a ~~third-party investor~~firm that operates natural gas pipelines and processing plants for the construction and operation of a private pipeline system to supply ~~fresh~~raw water to certain natural gas well drilling operations in Pennsylvania. The operation of the private pipeline system commenced in the second quarter of 2012 and marks an expansion of our growth venture in serving the ~~clean~~raw water needs of ~~drillers~~firms in the ~~shale~~natural gas and oil ~~and gas~~ drilling industry.

During the first ~~nine~~three months of ~~2012,~~2013, we had ~~$262,832~~$59,200 of capital expenditures, issued ~~$179,166~~$35,010 of long-term debt, and repaid debt and made sinking fund contributions and other loan repayments of ~~$109,265.~~$77,991. 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. The issuance of ~~$179,166~~$35,010 of long-term debt was comprised principally of the funds borrowed under our revolving credit facility of $114,000 and the proceeds received from the June 2012 issuance of senior unsecured notes payable of $50,000, which were utilized to fund the Company’s capital expenditures. In May 2012, in connection with our acquisition in Ohio, we assumed $14,281 of long-term debt, which includes a purchase accounting fair value adjustment of $3,578, increasing the carrying value of the long-term debt.$34,000.

At ~~September 30, 2012,~~March 31, 2013 we had ~~$6,122~~$19,353 of cash and cash equivalents compared to ~~$8,204~~$5,521 at December 31, ~~2011.~~2012. During the first ~~nine~~three months of ~~2012,~~2013, we used the proceeds from internally generated funds, the sale of ~~our Maine subsidiary,~~certain water and wastewater utility systems in Florida, the sale of other assets, and the sale or issuance of common stock through our equity compensation plan and dividend reinvestment plan, to fund the cash requirements discussed above and to pay dividends.

OnAt March ~~23, 2012, Aqua America, Inc. entered into a five-year~~31, 2013, our $150,000 unsecured revolving credit facility, ~~with three banks that~~which expires in March ~~2017. As of September 30, 2012, funds~~2017, had $70,899 available for borrowing under this facility were $48,786. The Company’s $150,000 unsecured revolving credit facility replaced the Company’s prior $95,000 unsecured revolving credit facility, which expired in May 2012.borrowing. At ~~September 30, 2012,~~March 31, 2013, we had short-term lines of credit of $160,500, of which ~~$62,850~~$62,663 was ~~available.~~available for borrowing. One of our short-term lines of credit is an Aqua Pennsylvania $100,000 364-day unsecured revolving credit facility with three banks, which is used to provide working capital, and as of ~~September 30, 2012, $14,791~~March 31, 2013, $11,244 was ~~available.~~available for borrowing.

Our short-term lines of credit of $160,500 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 occurred in 2008 and 2009 caused substantial volatility in capital markets, including credit markets and the banking industry, generally reduced the availability of credit from financing sources, and could reoccur 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; however, 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 at least the next twelve months.

In February 2012, we renewed our universal shelf registration statement, which expired in December 2011, through a filing with the SEC, which allows for the potential future offer and sale by the Company, from time to time, in one or more public offerings, of an indeterminate amount of our common stock, preferred stock, debt securities, and other securities specified therein at indeterminate prices. The Company’s Board of Directors has authorized the Company to issue up to $500,000 of our common stock, preferred stock, debt securities, and other securities specified therein under this universal shelf registration statement. No issuances have been completed to date under this shelf registration statement.

On June 7, 2012, the Company’s Pennsylvania operating subsidiary (“Aqua Pennsylvania”) reached a settlement agreement in its rate filing with the Pennsylvania Public Utility Commission, which in addition to a water rate increase, provides for the flow-through accounting treatment of certain income tax benefits if ~~the Company elects a change to~~Aqua Pennsylvania changes its tax accounting method to permit the expensing of ~~selected~~certain utility asset improvement costs that ~~are presently being~~have historically been capitalized and depreciated for book and tax purposes (the ~~“Repair Election”~~“repair change”). ~~The Company is presently evaluating the Repair Election for adoption in~~In December 2012, Aqua Pennsylvania ~~in 2012 or 2013. If adopted,~~implemented the repair change. As a result of the adoption of the repair change, prior to the receipt of Aqua Pennsylvania’s next rate order, the repair change ~~will result~~results in a substantial reduction in income tax expense and greater net income and cash flow, and as a result will allow the Company to ~~discontinue~~suspend any Distribution System Improvement Charges (“DSIC”) in 2013 and lengthen the amount of time until the next Aqua Pennsylvania rate case is filed.

Analysis of First ~~Nine Months~~Quarter of ~~2012~~2013 Compared to First ~~Nine Months~~Quarter of ~~2011~~2012

Unless specifically noted, the following discussion of the Company’s results of operations for the first ~~nine months~~quarter of ~~2012~~2013 refers to the Company’s results of operations from continuing operations.

Revenues increased ~~$49,781~~$16,011 or ~~9.6%~~9.8% primarily due to additional revenues associated with increased water and wastewater rates of ~~$26,534,~~$13,021 and additional water and wastewater revenues of ~~$18,578~~$10,100 associated with a larger customer base due to acquisitions, ~~and an increase~~offset by a decrease in ~~revenues~~infrastructure rehabilitation surcharges of $6,240. The decrease in infrastructure rehabilitation surcharges results from ~~non-regulated water and wastewater services~~the January 1, 2013 suspension of ~~$4,210.~~Aqua Pennsylvania’s DSIC as a result of the implementation of the repair change.

Operations and maintenance expenses increased by ~~$9,423~~$3,486 or ~~5.0%~~5.4% primarily due to operating costs associated with acquired utility systems and other growth ventures of $8,895, the effect of the gain on the sale in the first quarter of 2011 of our utility system in Texas of $2,452 and the gain on sale in the second quarter of 2011 of our utility system in North Carolina of $1,580,$4,944, an increase in postretirement benefits expenses of ~~$1,977, an increase in stock-based compensation of $1,271,~~$646, and normal increases in other operating costs. Offsetting these increases was a decrease in water production costs of $5,098, and the effect of the recognition of a regulatory asset resulting from a completed rate case which reduced operations and maintenance expense by $3,356. The decrease in water production costs results primarily from a decrease in the contractual rate of one of our purchased water contracts, and the non-renewal of another purchased water contract.$1,742.

Depreciation expense increased ~~$5,091~~$2,513 or ~~6.6%~~9.4% due to the utility plant placed in service since ~~September 30, 2011.~~

~~Amortization decreased $268 primarily~~March 31, 2012, and the utility plant added due to ~~the effect of additional amortization expense recognized during the first quarter of 2011 of $245 resulting from a rate case adjustment.~~

~~Taxes other than income taxes increased by $3,269 or 10.4% primarily due to an increase in excise taxes associated with~~ our acquisition in ~~Ohio, offset by a favorable adjustment related to the gross receipts, excise and franchise taxes return for one of our operating subsidiaries of $824.~~

Interest expense decreased by $76 or 0.1% primarily due to decreased interest rates on long-term debt and reduced borrowings as a result of the proceeds received from the sale of our operations in Maine.

Allowance for funds used during construction (“AFUDC”) decreased by $2,205 primarily due to a decrease in the average balance of proceeds held from tax-exempt bond issuances that are restricted to funding certain capital projects.

Gain on sale of other assets totaled $826 during the first nine months of 2012 and $475 during the first nine months of 2011. The increase of $351 is principally due to the timing of sales of an equity investment, land and other property.

~~Equity earnings in joint venture totaled $931 during the first nine months of 2012, and reflect our earnings in serving the clean water needs of firms in the shale oil and gas exploration industry.~~

Our effective income tax rate was 39.4% during the first nine months of 2012 and 33.3% during the first nine months of 2011. The effective income tax rate increased as a result of the effect of the recognition in 2011 of the net state income tax benefit of $11,193 associated with 100% bonus depreciation for qualifying capital additions. The net state income tax benefit reduced the Company’s 2011 state income tax expense as a result of the flow-through treatment afforded by a state’s regulatory commission.

Income from continuing operations increased by $8,776 or 8.0%, in comparison to the same period in 2011 primarily as a result of the factors described above, which includes the effect of the recognition in 2011 of the net state income tax benefit of $11,193 associated with 100% bonus depreciation for qualifying capital additions. On a diluted per share basis, income from continuing operations increased $0.06 reflecting the change in income from continuing operations and a 0.8% increase in the average number of common shares outstanding. As compared to the first nine months of 2011, income from continuing operations adjusted to exclude the net state income tax benefit associated with 100% bonus depreciation, a non-GAAP financial measure, would have increased by $0.14 per share. The increase in the number of shares outstanding is primarily a result of the additional shares sold or issued through our dividend reinvestment plan and our equity compensation plan.

Income from discontinued operations increased by $12,168 or $0.09 per diluted share, in comparison to the same period in 2011 primarily as a result of the recognition in the second quarter of 2012 of the gain on sale of our Maine operating subsidiary, net of income taxes, of $10,821, the effect of the income tax expense recognized in the third quarter of 2011 of $7,438 for the additional deferred tax liability that arose from the difference between the stock and tax basis of the Company’s investment in its New York and Maine operating subsidiaries, a reduction in interest expense, net of tax, of $765 as a result of debt assumed in 2012 by the acquirer(s) in the sale of our New York and Maine operating subsidiaries, offset by charges incurred from the disposal of our New York subsidiary of $2,090, and an asset impairment recognized in the third quarter of 2012, net of tax, of $592.

Net income attributable to common shareholders increased by $20,944 or 19.2%, in comparison to the same period in 2011 primarily as a result of the factors described above. On a diluted per share basis, earnings increased $0.14 reflecting the change in net income attributable to common shareholders and a 0.8% increase in the average number of common shares outstanding. The increase in the number of shares outstanding is primarily a result of the additional shares sold or issued through our dividend reinvestment plan and equity compensation plan.

~~Unless specifically noted, the following discussion of the Company’s results of operations for the third quarter of 2012 refers to the Company’s results of operations from continuing operations.~~

Revenues increased $23,482 or 12.3 % primarily due to additional revenues associated with increased water and wastewater rates of $11,046, additional water and wastewater revenues of $10,505 associated with a larger customer base due to acquisitions, and an increase in revenues from non-regulated water and wastewater services of $1,723.

Operations and maintenance expenses increased by $4,766 or 7.2% primarily due to operating costs associated with acquired utility systems and other growth ventures of $5,538, an increase in postretirement benefits expenses of $1,050, an increase in insurance expense of $970, and normal increases in other operating costs. Offsetting these increases was a decrease in water production costs of $1,609. The decrease in water production costs results primarily from a decrease in the contractual rate of one of our purchased water contracts, and the non-renewal of another purchased water contract.

~~Depreciation expense increased $2,122 or 8.1% due to the utility plant placed in service since September 30, 2011.~~Ohio.

Amortization increased ~~$341~~$249 primarily due to the amortization of costs associated with, and other costs being recovered in, various rate filings.

Taxes other than income taxes increased by ~~$2,420~~$4,041 or ~~22.5%~~42.6% primarily due to an increase in ~~excise~~property taxes of $2,491 associated with our acquisition in ~~Ohio.~~Ohio and the effect of a favorable adjustment recorded in the first quarter of 2012 related to gross receipts, excise and franchise taxes for one of our operating subsidiaries of $824 which had the effect of increasing the first quarter of 2013’s taxes other than income taxes.

AFUDC decreased by ~~$875~~$778 primarily due to a decrease in the average balance of proceeds held from tax-exempt bond issuances that are restricted to funding certain capital projects.

Gain on sale of other assets totaled ~~$320~~$92 in the ~~third~~first quarter of ~~2012~~2013 and ~~$216~~$442 in the ~~third~~first quarter of ~~2011.~~2012. The ~~increase~~decrease of ~~$104~~$350 is principally due to the timing of sales of land and other property.

Equity ~~earnings~~loss in joint venture totaled ~~$682~~$656 during the ~~third~~first quarter of ~~2012,~~2013, and ~~reflect our earnings~~reflects a decline in water sales, believed to be cyclical in nature, in connection with serving the ~~clean~~raw water needs of certain firms in the ~~shale~~natural gas and oil ~~and gas exploration~~drilling industry.

Our effective income tax rate was ~~39.3%~~14.6% in the ~~third~~first quarter of ~~2012~~2013 and ~~35.1%~~39.4% in the ~~third~~first quarter of ~~2011.~~2012. The effective income tax rate ~~increased as a result~~decreased due to Aqua Pennsylvania’s adoption in December 2012 of the ~~effect of the recognition in 2011 of the net state income tax benefit of $3,382 associated with 100% bonus depreciation for qualifying capital additions.~~repair change. The ~~net state income tax benefit~~repair change reduced the Company’s ~~third~~first quarter ~~2011 state~~2013 income tax expense ~~as a result of~~due to the flow-through treatment afforded by the Pennsylvania Public Utility Commission’s June 2012 rate order. The adoption of the repair change in December 2012, allowed a ~~state’s regulatory commission.~~tax deduction for 2012 infrastructure investments that were formerly capitalized for tax purposes, and the impact was recorded in the fourth quarter of 2012.

Income from continuing operations increased by ~~$5,423~~$14,342 or ~~12.1%~~53.3%, in comparison to the same period in ~~2011~~2012 primarily as a result of the factors described ~~above, which includes the effect of the recognition in 2011 of the net state income tax benefit of $3,382 associated with 100% bonus depreciation for qualifying capital additions.~~above. On a diluted per share basis, income from continuing operations increased ~~$0.04~~$0.10, reflecting the change in income from continuing operations and a ~~1.1%~~1.3% increase in the average number of common shares outstanding. As compared to the third quarter of 2011, income from continuing operations adjusted to exclude the net state income tax benefit associated with 100% bonus depreciation, a non-GAAP financial measure, would have increased by $0.06 per share. The increase in the number of shares outstanding is primarily a result of the additional shares sold or issued through our ~~dividend reinvestment~~equity compensation plan and our ~~equity compensation~~dividend reinvestment plan.

Income from discontinued operations ~~increased~~decreased by ~~$4,113~~$5,681 or ~~$0.03~~$0.04 per diluted share, in comparison to the same period in ~~2011~~2012 primarily as a result of the effect of the ~~income tax expense recognized~~recognition in the ~~third~~first quarter of ~~2011 of $7,438 for the additional deferred tax liability that arose from the difference between the stock and tax basis~~2012 of the ~~Company’s investment in its New York and Maine operating subsidiaries, a reduction in interest expense, net of tax, of $350 as a result of debt assumed in 2012 by the acquirer(s) in the~~gain on sale of our ~~New York and~~ Maine operating ~~subsidiaries,~~subsidiary net of income taxes of $10,610, offset by ~~an asset impairment~~the gain on sale in the ~~third~~first quarter of ~~2012,~~2013 of certain of our Florida water and wastewater utility systems net of ~~tax,~~income taxes of ~~$592.~~$4,193.

Net income attributable to common shareholders increased by ~~$9,536~~$8,661 or ~~23.2%~~22.8%, in comparison to the same period in 2011 primarily as a result of the factors described above. On a diluted per share basis, earnings increased $0.06 reflecting the change in net income attributable to common shareholders and a ~~1.1%~~1.3% increase in the average number of common shares outstanding. The increase in the number of shares outstanding is primarily a result of the additional shares sold or issued through our dividend reinvestment plan and equity compensation plan.

We describe the impact of recent accounting pronouncements in Note ~~15,~~14,Recent Accounting Pronouncements, of the consolidated financial statements.

In addition to reporting “income from continuing operations” and “income from continuing operations per common share”, U.S. GAAP financial measures, we are presenting below “income from continuing operations before net state income tax benefit associated with 100% bonus depreciation” and “income from continuing operations per common share before net state income tax benefit associated with 100% bonus depreciation”, which are considered non-GAAP financial measures. The Company is providing disclosure of the reconciliation of these non-GAAP measures to their most comparable GAAP financial measures. The Company believes that the non-GAAP financial measures provide investors the ability to measure the Company’s financial operating performance excluding the net state income tax benefit associated with 100% bonus depreciation, which is more indicative of the Company’s ongoing performance, and is more comparable to measures reported by other companies. The Company further believes that the presentation of these non-GAAP financial measures is useful to investors as a more meaningful way to compare the Company’s operating performance against its historical financial results and to assess the underlying profitability of our core business. 100% bonus depreciation was in effect for qualifying capital additions placed in service from September 8, 2010 through December 31, 2011.

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, ~~2011.~~2012. Refer to Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2011~~2012 for additional information.

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.

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.

There are various legal proceedings in which we are involved. Although the results of legal proceedings cannot be predicted with certainty, there are no pending legal proceedings, other than as set forth below, to which we or any of our subsidiaries is a party or to which any of our properties is the subject that we believe are material or are expected to have a material adverse effect on our financial position, results of operations or cash flows. Dollar amounts disclosed is this section, Item 1.Legal Proceedings are presented in whole dollars, not thousands of dollars.

The City of Fort Wayne, Indiana (the “City”) authorized the acquisition by eminent domain of the northern portion of the utility system of one of the Company’s operating subsidiaries in Indiana. In January 2008, we reached a settlement 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 stated 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 northern portion of the system to the City upon receipt of the initial valuation payment. The proceeds received by the Company 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. The net book value of the assets relinquished has been removed from the consolidated balance sheet and the difference between the net book value and the initial payment received has been deferred and is recorded in other accrued liabilities on the Company’s consolidated balance sheet. Once the contingency is resolved and the asset valuation is finalized, through the finalization of the litigation between the Company and the City of Fort Wayne, the amounts deferred will be recognized in the Company’s consolidated income statement. On March 16, 2009, oral argument was held before the Allen County Circuit Court on certain procedural aspects with respect to the valuation evidence that may be presented and whether we are entitled to a jury trial. On October 12, 2010, the Wells County Indiana Circuit Court ruled that the Company is not entitled to a jury trial, and that the Wells County judge should review the City of Fort Wayne Board of Public Works’ assessment based upon a “capricious, arbitrary or an abuse of discretion” standard. The Company appealed the Wells County Indiana Circuit Court’s decision to the Indiana Court of Appeals. On January 13, 2012, the Indiana Court of Appeals reached a decision upholding the Wells County Indiana Circuit Court decision. On February 10, 2012, the Company filed a petition for transfer requesting that the Indiana Supreme Court review the matter. ~~The~~On April 11, 2013, the Supreme Court of Indiana ~~accepted transfer~~ruled that the statute at issue gives the Company the right to a full evidentiary hearing before a jury regarding the value of the assets and remanded the ~~matter is pending~~case to the ~~Court’s decision.~~trial court for a proceeding consistent with that ruling. In addition, in December 2012, the Fort Wayne City Council considered an ordinance that sought to declare it a “public convenience and necessity” to acquire certain of the Company’s utility system assets located in the southwest section of the City and, if negotiations with Fort Wayne officials were to fail, to condemn certain of the Company’s utility system assets. The first public hearing on the ordinance was held on January 22, 2013 and a subsequent hearing scheduled for February 5, 2013 was not held due to ongoing settlement discussions between the parties. The Company continues to ~~evaluate its legal options~~participate in settlement discussions with ~~respect to this decision. Depending upon~~ the ~~outcome of all of~~City regarding both the ~~legal proceedings we may be required to refund a portion of the initial valuation payment, or may receive additional proceeds. The~~condemned northern portion of the system ~~relinquished~~and the water utility system assets located in the southwest section of the City and has agreed to participate in the City Council proceedings regarding this matter. The Company will evaluate its legal and operational options on an ongoing basis.

An appeal of a jury verdict for one of the Company’s subsidiaries, Aqua Utilities Florida, Inc., by a husband and wife who lived in a house abutting a percolation pond at a wastewater treatment plant owned by the Company’s subsidiary in Pasco County, Florida was voluntarily dismissed by the plaintiffs in 2011. 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 alleged 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. Subsequent amendments to the complaint included additional counts alleging trespass, nuisance, and strict liability. A trial of this matter during January 2011 resulted in a judicial dismissal of the count for strict liability and jury verdicts in favor of the Company on the remaining counts. On June 16, 2011, the plaintiffs agreed to dismiss their appeals and to release all claims against our subsidiary and the Company, which resulted in the conclusion of the original plaintiffs’ litigation against our subsidiary. In the third quarter of 2008, thirty-six additional plaintiffs, associated with approximately eight other homes in the area, filed a second lawsuit with the same court and represented ~~approximately 0.40%~~by the same attorneys making similar allegations against our subsidiary with respect to the operation of ~~Aqua America’s total assets.~~the facility. The court has severed the litigation so that the plaintiffs will be grouped by the houses in which they lived and a separate trial will be held for each of the households. Some of these plaintiffs testified in the trial of the original lawsuit in which all allegations were resolved in the Company’s favor. The claims from the first of these households was expected to go to trial in May 2013. However, the parties are in the process of implementing a confidential comprehensive agreement to settle the claims of all thirty-six plaintiffs. The settlement is dependent upon all plaintiffs signing releases, which has not yet occurred. The settlement is covered by the Company’s insurance coverage. At this time, the Company’s reserves are adequate and the Company believes that the estimated amount of any potential loss would not be material to the Company’s consolidated results of operations or consolidated financial condition.

One of the Company’s subsidiaries, South Haven Sewer Works, acquired in 2008 has been operating under a Consent Decree with the EPA and the United States Department of Justice entered into in ~~2003. The Consent Decree addresses the elimination~~2003 while under ownership of ~~sanitary sewer overflows from the subsidiary’s sewer system.~~a previous owner. Although substantial improvements to the system have been made to significantly reduce the number of sanitary sewer overflows at the sewer system since the Company’s acquisition of the subsidiary, the EPA and Department of Justice proposed ~~on May 11, 2010, a revised~~revisions to the Consent Decree ~~including new dates for completing work~~ to address ~~sanitary sewer overflows in the system and a proposed civil penalty of $364,000 for~~ purported sanitary sewer overflow violations since the date of the original Consent ~~Decree, which was entered into by~~Decree. On April 15, 2013, the ~~original owner. The~~ Company’s subsidiary ~~has contested the appropriateness of calculating the proposed penalty based on sanitary sewer violations occurring prior to the acquisition of the subsidiary~~ and ~~the amount of the proposed penalty. The Company continues to negotiate a proposed modification with~~ the EPA and Department of Justice ~~to resolve~~submitted a proposed modification of the ~~matter.~~Consent Decree for approval by the Northern District of Indiana US District Court. The Court entered the modification on April 25, 2013. The modification includes the provision of operational compliance and implementation of a Capacity, Management, Operations, and Maintenance program for one year and a civil penalty in the amount of $254,250. The Company ~~intends~~had withheld payment of a certain amount of shares payable to ~~seek~~the sellers as a contingent indemnification ~~from~~offset related to the ~~seller for this matter for any applicable~~proceedings. Pursuant to further agreement with the sellers, the Company has retained a portion of those shares in an amount covering the stipulated penalty ~~amounts.~~amounts and anticipated attendant costs, continued to withhold a designated amount of shares to cover contingent increases prior to entry of the final modification, and released a certain number of shares to the sellers.

There have been no material changes to the risks disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2011~~2012 (“Form 10-K”) under “Part 1, Item 1A – Risk Factors.”

The following table summarizes Aqua America’s purchases of its common stock for the quarter ended ~~September 30, 2012:~~March 31, 2013:

The information required by this Item is set forth in the Exhibit Index hereto which is incorporated herein by reference.

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.


Pennsylvania		23-1702594
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

762 W. Lancaster Avenue, Bryn Mawr, Pennsylvania		19010 -3489
(Address of principal executive offices)		(Zip Code)


	Page
~~Part I – Financial Information~~

Item 1. Financial Statements:

Consolidated Balance Sheets ~~(unaudited) – September 30,~~for the three months ended March 31, 2013 and 2012 ~~and December 31, 2011~~		2

Consolidated Statements of Net Income (unaudited) ~~- Nine~~– Three Months Ended ~~September 30,~~March 31, 2013 and 2012 ~~and 2011~~		3

Consolidated Statements of ~~Net~~Comprehensive Income (unaudited) -– Three Months Ended ~~September 30,~~March 31, 2013 and 2012 ~~and 2011~~		4

Consolidated Statements of ~~Comprehensive Income~~Capitalization (unaudited) ~~- Nine~~– March 31, 2013 and ~~Three Months Ended September 30,~~December 31, 2012 ~~and 2011~~		5

Consolidated ~~Statements~~Statement of ~~Capitalization~~Equity (unaudited) – ~~September 30, 2012 and December~~Three Months Ended March 31, ~~2011~~2013		6

Consolidated ~~Statement~~Statements of ~~Equity~~Cash Flow (unaudited) – ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2013 and 2012		7

~~Consolidated Statements of Cash Flow (unaudited) – Nine Months Ended September 30, 2012 and 2011~~		8

Notes to Consolidated Financial Statements (unaudited)		98

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2723

Item 3. Quantitative and Qualitative Disclosures About Market Risk		3528

Item 4. Controls and Procedures		3528

Part II – Other Information

Item 1. Legal Proceedings		3628

Item 1A. Risk Factors		3731

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3731

Item 4. Mine Safety Disclosures		3832

Item 6. Exhibits		3832

Signatures		3933

Exhibit Index		4034


	May 1,
	2012
Property, plant and equipment, net	$	119,595
Current assets		6,852
Other long-term assets		7,525
Goodwill		12,254

Total assets acquired		146,226

Current liabilities		3,409
Long-term debt, excluding current portion		14,233
Other long-term liabilities		27,501

Total liabilities assumed		45,143

Net assets acquired	$	101,083


	Three Months Ended							Three Months Ended
	September 30, 2012							September 30, 2011
	Regulated		Other			Consolidated		Regulated		Other			Consolidated
Operating revenues	$	209,674	$	4,891		$	214,565	$	187,823	$	3,260		$	191,083
Operations and maintenance expense		68,351		2,917			71,268		64,607		1,895			66,502
Depreciation		28,764		(513	)		28,251		26,402		(273	)		26,129
Operating income		98,503		2,032			100,535		85,444		1,258			86,702
Interest expense, net of AFUDC		16,915		1,763			18,678		16,334		1,433			17,767
Income tax expense (benefit)		32,682		(107	)		32,575		24,386		(96	)		24,290
Income from continuing operations		48,971		1,313			50,284		44,804		57			44,861

	Nine Months Ended							Nine Months Ended
	September 30, 2012							September 30, 2011
	Regulated		Other			Consolidated		Regulated		Other			Consolidated
Operating revenues	$	556,847	$	13,432		$	570,279	$	511,006	$	9,492		$	520,498
Operations and maintenance expense		190,276		9,388			199,664		183,089		7,152			190,241
Depreciation		83,772		(1,036	)		82,736		78,660		(1,015	)		77,645
Operating income		245,871		3,535			249,406		215,168		1,972			217,140
Interest expense, net of AFUDC		50,401		4,499			54,900		48,478		4,293			52,771
Income tax expense (benefit)		78,652		(1,342	)		77,310		55,826		(1,159	)		54,667
Income (loss) from continuing operations		117,133		1,820			118,953		111,042		(865	)		110,177
Capital expenditures		262,104		728			262,832		221,286		1,068			222,354


												Accumulated
			Capital in									Other
	Common		Excess of			Retained			Treasury			Comprehensive			Noncontrolling
	Stock		Par Value			Earnings			Stock			Income			Interest		Total
Balance at December 31, 2011	$	69,762	$	686,106		$	508,334		$	(13,145	)	$	256		$	504	$	1,251,817
Net income		—		—			130,008			—			—			14		130,022
Other comprehensive loss net of income tax of $99		—		—			—			—			(180	)		—		(180	)
Dividends paid		—		—			(68,932	)		—			—			—		(68,932	)
Dividends declared		—		—			(24,488	)		—			—			—		(24,488	)
Sale of stock (436,861 shares)		215		9,354			—			163			—			—		9,732
Repurchase of stock (62,997 shares)		—		—			—			(1,464	)		—			—		(1,464	)
Equity compensation plan (15,518 shares)		8		(8	)		—			—			—			—		—
Exercise of stock options (726,068 shares)		363		12,370			—			—			—			—		12,733
Stock-based compensation		—		4,049			(120	)		—			—			—		3,929
Employee stock plan tax benefits		—		1,756			—			—			—			—		1,756

Balance at September 30, 2012	$	70,348	$	713,627		$	544,802		$	(14,446	)	$	76		$	518	$	1,314,925


	Regulated
	Segment			Other		Consolidated
Balance at December 31, 2011	$	22,823		$	4,121	$	26,944
Goodwill acquired		12,254			—		12,254
Reclassifications to utility plant acquisition adjustment		(491	)		—		(491	)
Other		22			—		22

Balance at September 30, 2012	$	34,608		$	4,121	$	38,729


	Three Months Ended							Three Months Ended
	March 31, 2013							March 31, 2012
	Regulated		Other			Consolidated		Regulated		Other			Consolidated
Operating revenues	$	175,888	$	4,147		$	180,035	$	160,205	$	3,819		$	164,024
Operations and maintenance expense		66,194		2,117			68,311		61,468		3,357			64,825
Depreciation		29,724		(465	)		29,259		27,008		(262	)		26,746
Operating income		65,850		1,711			67,561		61,752		87			61,839
Interest expense, net of AFUDC		17,088		1,635			18,723		16,593		1,324			17,917
Income tax expense (benefit)		7,419		(376	)		7,043		18,419		(944	)		17,475
Income from continuing operations		41,395		(164	)		41,231		26,926		(37	)		26,889
Capital Expenditures		58,987		213			59,200		79,245		364			79,609


	Nine Months Ended September 30,				Three Months Ended September 30,
	2012		2011		2012		2011
Income from continuing operations (GAAP financial measure)	$	118,953	$	110,177	$	50,284	$	44,861
Less: Net state income tax benefit associated with 100% bonus depreciation		—		11,193		—		3,382

Income from continuing operations before net state income tax benefit associated with 100% bonus depreciation (Non-GAAP financial measure)	$	118,953	$	98,984	$	50,284	$	41,479

Income from continuing operations per common share (GAAP financial measure):
Basic	$	0.85	$	0.80	$	0.36	$	0.32
Diluted	$	0.85	$	0.79	$	0.36	$	0.32
Income from continuing operations per common share before net state income tax benefit associated with 100% bonus depreciation (Non-GAAP financial measure):
Basic	$	0.85	$	0.72	$	0.36	$	0.30
Diluted	$	0.85	$	0.71	$	0.36	$	0.30


	Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plan or Programs (2)
July 1 - 31, 2012		9,226	$	25.94		—		548,278
August 1 - 31, 2012		3,544	$	25.64		—		548,278
September 1 - 30, 2012		—	$	—		—		548,278

Total		12,770	$	25.86		—		548,278


Exhibit No.		Description

10.66		Form of Restricted Share Unit Grant Agreement for Chief Executive Officer

10.67		Form of Performance Share Unit Grant Agreement for Chief Executive Officer

10.68		Form of Restricted Share Unit Grant Agreements for other Executive Officers

10.69		Form of Performance Share Unit Grant Agreements for other Executive Officers

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.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRES		XBRL Taxonomy Extension Presentation Linkbase Document

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