Good morning, and welcome to American Water's Year End 2011 Earnings Conference Call. As a reminder, this call is being recorded and also being webcast with an accompanying slide presentation through the company's website, www.amwater.com. Following the earnings conference call, an audio archive of the call will be available through March 5, 2012, by dialing (303)590-3030 for U.S. and international callers. The access code for replay is 4510317. The online archive of the webcast will be available through March 27, 2012, by accessing the Investor Relations page of the company's website located at www.amwater.com. [Operator Instructions] I would now like to introduce your host for today's call, Ed Vallejo, Vice President of Investor Relations. Mr. Vallejo, you may begin.

Thank you. Good morning, everyone, and welcome to American Water's 2011 Year End Conference Call. At the end of our prepared remarks, we will have time for questions. Before we begin, I'd like to remind everyone that during the course of this conference call, both in our prepared remarks and answers to your questions, we may make statements related to future performance. Our statements represent our most reasonable estimate. However, since these statements deal with future events, they are subject to numerous risks, uncertainties and other factors that may cause the actual performance of American Water to be materially different from the performance indicated or implied by such statements. Such risk factors are set forth in the company's SEC filings. And now I'd like to turn the call over to American Water's President and CEO, Jeff Sterba.

Thanks, Ed. Good morning to all, and thanks for joining us today. Ellen Wolf, our CFO, is here with me and will join in the presentation. We also have Walter Lynch, our head of Regulated Operations; and Kellye Walker, our General Counsel and Chief Administrator Officer, with us. We're pleased to announce continued strong performance for 2011 on virtually all fronts. My comments will be brief, since we've previously covered our general performance during the earnings guidance call that we just held a few weeks ago. Additionally, we'll be discussing results for the full year of 2011. Details around the year and the fourth quarter in specific will be able to be found in the 10-K, which should be filed tomorrow. Turning to Slide 5, you can see that we delivered solid results for the year all around. Total revenues increased $111 million year-over-year to approximately $2.7 billion. Adjusted net income and earnings per share increased to approximately $320 million and $1.81 per share, respectively. These adjusted earnings are represented in the same manner that we have throughout the year, and Ellen will go through those adjustments in more detail. In 2011, our regulated O&M expense was flat to 2010, which when coupled with a 3.6% increase in regulated revenues, drove 170 basis point improvement in our O&M efficiency ratio, from 45.5% to 43.8% over the last 12 months. We also generated a 4.3% year-over-year increase in consolidated cash flow, and when you take into account a onetime tax refund that was received in 2010 and an additional pension contribution that we made at the end of 2011, cash flow from operations really increased about 16%. All of these items resulted in slightly more than 100 basis points increase in our earned ROE to just over 7.5%. While we're not yet where we want to be, significant progress has obviously been made. In recognition of this financial performance, as we previously announced, our quarterly cash dividend payment of $0.23 per share was declared in December. And additionally, on February 24 of this year, our board declared a quarterly cash dividend payment of $0.23 per share payable on June 1, 2012, to shareholders of record as of April 20, 2012. We also reaffirm the 2012 earnings guidance range we provided a few weeks ago of between $1.90 to $2 per share for ongoing operations. Before turning the call over to Ellen to go into more detail on this year's financial results, let me just note that Slide 6 shows that we successfully accomplished all of the items we laid out for 2011 at our Analyst Day a little over a year ago. We're very pleased with this progress and look forward to continuing that trend into and through this year. With that said, Ellen, let me turn it over to you.

Good morning, and thank you, Jeff. And good morning to those of you who are listening to our 2011 year-end earnings conference call. As Jeff mentioned, our 2011 10-K will be filed within the next day, as we continue to work with our auditors to make sure all the Is are dotted and Ts are crossed. Jeff has just reviewed with you some of the highlights for 2011. I will also briefly add some additional detail around the results for the year. Turning to the Slide 8. Our overall 2011 was another year of strong financial performance with increases in revenue, net income and cash flow, as well as continued improvement in our regulated O&M efficiency ratio. For 2011, we reported operating revenues of approximately $2.7 billion, a $111 million or 4.4% increase over the $2.6 billion reported for 2011. GAAP earnings per share increased approximately 14%. Included in the GAAP number and related only to our discontinued operation is a per share benefit of $0.09 related to the cessation of depreciation, as well as a noncash charge of $0.14 related to the write-down of parent company goodwill associated with these discontinued operations. This write-down should have been recorded in the first and second quarter of this year. Therefore, when reviewing our 2011 financial statement, you will note in footnote 22, we have recast the 2011 quarterly results. This recast had no impact on ongoing net income, EPS or cash flow, and our year-end financial statements are correct. As some of you may remember, when American Water was purchased by RWE in 2003, the premium RWE paid for American Water was booked at the parent company level. Even though American Water was sold in 2008 through a public offering, that goodwill remains on our books. When we sell subsidiaries, the…

Thanks, Ellen. So in addition to growing ongoing earnings to $1.90 to $2 per share, what else should you expect from us in 2012? Well, if you look at Slide 15, we have laid out, once again, the expectations that you can judge us by as we go through the year for this next year. First and foremost, we'll remain dedicated to providing safe and reliable water services to our customers and the communities that we serve. We'll also continue our portfolio optimization effort with the closure of the Ohio-New York transactions and continued evaluation of other opportunities that may present themselves. We'll also continue to be active on the regulatory front, both in filing appropriate rate cases needed to earn an appropriate return on our investments, to actively addressing regulatory issues like regulatory lag and usage trends that Ellen talked about, and continuing to champion the increased use of infrastructure surcharge mechanisms to help minimize rate impact, as well as provide the cash flow necessary to maintain the level of investment that we do. And lastly, in our market-based operations, we will continue to expand the businesses that show promising growth like our homeowner services and military contract operations, while seeking to optimize the contribution from our muni contract ops group. These efforts will anchor our long-term earnings per share growth range of 7% to 10%. With approximately a 3% dividend yield, we seek to provide investors with a double-digit investment return with a thesis centered around investing in our country's critical water infrastructure. Again, we're very pleased with the 2011 performance and believe that we will keep the momentum moving through 2012. With that, we'd be happy to take any questions that you may have.

[Operator Instructions] Our first question comes from the line of Dan Eggers from Credit Suisse.

Jeff, I wonder if you could maybe talk or help walk us through the O&M efficiency target ratios you guys were using and kind of the goal of getting that down below 40% by '15. What leverage are you seeing to pull right now and kind of give you the confidence you're going to continue to be able to grind that number down over the next few years?

Yes. Dan, there's really a series that focus on our operating excellence mantra. So trying to drive operating cost, for example, we have initiated 2 rounds of new efforts regarding our supply chain, where we have over $2 billion of flows through it. But quite frankly, we found that we're not really leveraging it across the system as much as we could. We do a good job, just not great. And so we're finding opportunities. For example, just from a recent pipe acquisition, we saved somewhere in the $3 million to $5 million range. We've got one in process on our fleet and meters, and we're seeing really good, solid results as we move from really -- move more into what I like to call strategic sourcing initiatives. We also, with the bringing forward of the elements of the SAP system through what we called Business Transformation, the first of 3 phases of which will go into service in August, we won't really see savings this year. But as we go forward, particularly starting in '14 and out, we will be able to drive savings in both our -- largely labor, which we can, hopefully, manage mostly through attrition, because these systems are going to enable a much higher degree of automation, a much higher degree of data that we can mine. And then last, I would just put it as, really, driving a culture of continuous improvement, where we're already starting to see the impact of projects that -- they may save $0.5 million here, $0.25 million there. But frankly, that starts to add up. So there is not one big thing, there are a series of things of which we are tackling: the processes we use to get our work done, to procure the materials for it, and how we deploy our skilled labor to meet the needs of our customers.

And Dan, if I can add, these strategic sourcing savings that Jeff is talking about is really around our capital and capital spend. And the money that we would save there, we can then reinvest in other capital projects within the system, which over the long run, as we replace those pipes faster, can help us on our O&M number.

So the idea is that the base would be O&M savings as the efficiency of reinvestment, not so much the money being saved by getting the supply chain cheaper.

Not -- on the strategic sourcing side.

Yes. Just on the strategic sourcing. All the other items -- because some of the sourcing, a lot of the sourcing that we're doing does affect our O&M costs, obviously, the labor side and being able to hold our labor cost constant through increased efficiency, as well as -- give you an example on the supply chain where it directly hits the O&M: our chemicals and power acquisition. So for example, what we've done with this entity called ENBALA to be able to sell power back into the grid, not just in a regular demand-management way, but really selling ancillary services, which have high value in markets like PJM. That drives down operating cost right away. So Ellen was referring just really to some of the strategic sourcing, which is more geared around our capital side. But we're exercising the same kind of approaches relative to the operating cost we procure through the supply chain.

Not to belabor this issue, but when you think about the savings you get, there's also a regular cycle of rate cases being filed with the utilities. How much of this O&M benefit do you guys expect to retain at the bottom line rather than being a reduction in customer rates or need for increased customer rates?

Over time, Dan, we won't retain -- we don't anticipate retaining it. What it really does is help mitigate rate increases over time, that allows us to invest more capital on which we earn. So the way we look at it with our employees is, look, for every $1 of O&M expense we're able to take out of rates we can, in turn, invest $6 of capital with the same rate impact and earn $0.30 a share per year. So it's really a matter of helping structure what rates are made of to create more value for customers by infrastructure investment, which in return creates value for our owners because of the returns on that investment. The challenge, and what we want to make sure we avoid, is kind of what happened to the electric industry back in the early '90s when we pushed too far on rates. And all of a sudden, with O&M costs going up and capital being invested, regulators said, "Wait a minute. This is just too much pressure on customers." And so we ended up getting capital disallowed and all the things that I really don't ever want to go through again. So we expect, over time, we'll get back all the O&M savings. We'll keep it for windows of time until the next rate case, et cetera. But it really is given back and it creates headroom, if you will, for capital expansion.

Thank you for explaining that. I guess, Ellen, just to make sure I understand this, the no equity for 2012 does that include a DRIP program equity raise? Or is that really 0 equity for coming in the door this year?

We'll still have slight, a very small amounts of equity that will be raised through the dividend reinvestment plan, as well as through any employee stock purchases. But that is, as you see historically, is minimal.

Our next question comes from the line of Michael Roomberg with Ladenburg Thalmann.

So I'm looking at the broader trend. You guys underspent your, I guess, $800 million to $1 billion soft target for capital expenditures in '09 and '10. And it looks like you're now back on track in '11 and into '12 to meet or exceed those goals. And I guess, what I'm trying to get at was, in '09 and '10 I would imagine that construction cost came down a bit. And now, since then, they have now rebounded. And I'm just wondering whether or not you could quantify the impact of that, so as to determine whether or not the same volume of projects was completed as expected in '09 and '10 and therefore there wouldn't be a backlog that exists into '12, '13, '14. Or that's not necessarily what drove the less CapEx in 2009, 2010?

Michael, I understand your point. It's very hard to filter through. I mean, there are obviously certain costs like copper and some components of steel that have increased in '11 versus earlier, versus, say, for example '08. But really, I think that's a pretty small impact on the overall cap spend. It's more driven by -- in '11, we had a couple of significant projects. One in Pennsylvania, or it's really a series but all associated with our Pittsburgh system. And then another major one in New Jersey. So it's -- are there some changes that have happened in individual components? Yes. Some have come up and there's a few that have gone down. So I think that's a relatively small impact. And part of that is also when and how we procure those materials. I think the strategic outsourcing, our strategic supply sourcing that we've talked about, is really geared around trying to create greater efficiency in our capital spend so we can get more done with the same dollars. But I think the thing that really drove 2011 is the completion of the projects, or the movement through the projects in Pennsylvania and New Jersey. Ellen?

Prices came down a little bit in '09 and '10. But not all that much, if you'll remember, because there was a lot of federal dollars going towards construction. So there wasn't that same amount of drive down to get business. And as Jeff said, a lot of this is around major projects. The Pennsylvania and New Jersey projects continue into '12. We have, as we've talked about before, a major project starting in California related to the supply issues out in California. So the capital continues to increase based on the needs.

And a lot of the items where you're seeing more rapid escalation -- for example, copper, frankly, we've reduced our use of copper and are reducing it further by going to other materials. So it has had less impact on us than it probably would have had 5 years ago.

Got you. Okay. That's very helpful. And just moving on to rate cases. It looks like, based on your slide deck here, that you've settled the Missouri case. I'm just wondering if you have the terms available of that settlement.

Go ahead, Walter.

Walter?

This is Walter. No terms available yet, but we did reach a non-unanimous settlement and it's going to be going in front of the commission at some point.

And we'll disclose those to you as soon as we have them, we will let -- as soon as we know that they can become public, we will make them public.

Okay. And then just a couple of other quick rate questions as well...

Michael, just a clarification. When we say it's a non-unanimous settlement, all parties have agreed not to contest it, even though they may not have signed onto the stipulation. So it's not going to be a contested stipulation.

Okay. Understood. In New Jersey, you guys have settled previously a lot of your prior cases a pretty short order. And we noticed that the rate council had, in this case, filed a formal recommendation. I'm just wondering, in terms of your thinking, whether or not you're surprised by that, your inability to settle it and how you look at this case now in the larger lights of what appears to be steadily improving regulatory environments in New Jersey?

Well, the New Jersey rate case is going through its normal process. And right now, we're in discussions with all parties to try to reach settlement. And so it's a going through its normal process with a normal timing.

I think they're coming out and releasing what their case, et cetera, is. It's really kind of, as Walter said, part of the process. I think there's certainly more focus on increasing rates. But I think we're reasonably -- we're hopeful that we'll be able to get to a good place for customers and for us, and have a reason to believe that will occur.

And I'd like to remind, normally in New Jersey, it's a 9- to 12-month process and we're still well within that timeframe.

Sure. Okay. And then lastly the New York-Ohio swap, any update on the timing of that?

It should close -- well, I guess, one tick after midnight on April 1.

On April 1.

[Operator Instructions] And our next question comes from the line of Neil Mehta from Goldman Sachs.

So you completed, since our guidance call here, the sale of your Southwest operations. Just wanted to confirm that the cash inflow associated with construction, that's $470 million and you expect to book it in Q1?

The actual cash flow which came in was $461 million. The difference is debt that was assumed and yes, we are booking it. The cash has come in, we've used it to pay down our short-term debt. And we were very happy to have it. And any other items related to the transaction will be booked in the first quarter. But as we noted, because there was the technical loss on the sale due to the goodwill at the parent company, all of that was now booked in 2011.

Got it. And the second question, any regulatory events we should be keeping our eyes on, whether it's a set date that's in the public domain for staff, or a final decision in any of your major rate cases?

The only one that is truly mandated and less biased that we see is the Illinois rate case. And as we've said, that's 11 months. So that won't be until much later in the year. But again, it's something you might want to look at. And as Walter said earlier, there's settlement in New York and Missouri. So we would watch for timing on those as well.

The only other one I'd mention would be California, where we do have a partial settlement that covers most of the rate case. And we did have hearings on the cost of capital, which seemed to go very well. They were, quite frankly, fairly short. And so we remain optimistic that the cost of capital element will get put in place and the rate case will get resolved. We do have the assurance from the commission that the rates will be retro to January 1 of 2012. So while we'd like to get them in place, we're not losing anything.

Okay. And then year-end estimated company-wide rate base, do you have that number?

No. We'll get it worked up for you and supply it. We don't have it at the moment. And again, I just need to caution you, it's an approximate number because each state has a very different nuance to it, so we do a very high-level rate base number.

Our next question comes from the line of Steve Fleishman with Bank of America Merrill Lynch.

A couple of things. First, is there any update on the New Jersey DSIC process and just either timing or update there?

Everything seems to be going according to plan, as we -- we believe that the commission will be holding -- they've gotten comments, they've received comments from parties. I'd say that the comments that were received on the proposal were generally positive and supportive of what's been in place. So we would expect that the commission would act on those comments and put forward the order within the next 30, 45 days, something like that. I don't think it should go much longer than that. So it's really -- now that it finally got through after the election, I think it's moving according to the schedule. And again, remember that, that probably won't have an impact on our earnings until we move into the second half of '13.

Okay. And then, when you talked about seeking other types of infrastructure charges and the other mechanisms to reduce regulatory lag, are there other certain key cases we should watch where those are pending right now, or to be pending, so we can kind of track how that's going?

I'll let Walter address any that are pending. There's a few states where we had a proposal and we ended up modifying its timing, so for example, extending in Missouri beyond the St. Louis district. Others that you would mention, Walter?

No. I think that's it. Getting New Jersey DSIC in place is obviously one of our keys. But we continue to look at the declining usage mechanisms in each of the states and working through some and [ph] to recognize that the decline, as we've said in this discussion here, is a little more steep than what's been going on in the past and we want to get recovery of those revenues. So that's really a huge focus for us.

Okay. And one other question, and pardon if I didn't recall this, but in your guidance for 2012, did you give an assumption for your -- for sales?

No, we did not. We did say that we do continue to look at the decline as we put together our revenue figures.

This concludes the question-and-answer portion of the call. I will now turn the call back over to Jeff Sterba for closing remarks. Please go ahead.

Well, again, thanks very much for joining us today. And we look forward to -- if we don't talk to you before the next quarterly call, we'll talk to you then. Have a great week.

This does concludes this morning's conference call. You may now disconnect.