wtr-20150930

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON DC  20549

FORM 10-Q

(Mark One) 

 QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. 

For the quarterly period ended September 30, 2015 

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 

For the transition period from_______________ to _______________

Commission File Number 1-6659 

AQUA AMERICA, INC. 

(Exact name of registrant as specified in its charter) 

 

 

 

 

 

Pennsylvania

23-1702594

(State or other jurisdiction of

(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)

 

 

(610) 527-8000

(Registrant’s telephone number, including area code)

 

(Former Name, former address and former fiscal year, if changed since last report.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    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    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.:   

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer   (do not check if a smaller reporting company)

Smaller reporting company

 

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

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of  

October 23, 2015:  176,428,025

  

 


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES

 

 

TABLE OF CONTENTS

 

 

 

Page

Part I – Financial Information 

 

 

Item 1.  Financial Statements: 

 

 

 

Consolidated Balance Sheets (unaudited) – September 30, 2015 and December 31, 2014 

2

 

 

Consolidated Statements of Net Income (unaudited)
Three Months Ended September 30, 2015 and 2014
 

3

 

 

Consolidated Statements of Net Income (unaudited) –
Nine Months Ended September 30, 2015 and 2014
 

4

 

 

Consolidated Statements of Comprehensive Income (unaudited) –
Three and Nine Months Ended September 30, 2015 and 2014
 

5

 

 

Consolidated Statements of Capitalization (unaudited) –
September 30, 2015 and December 31, 2014
 

6

 

 

Consolidated Statement of Equity (unaudited) –
Nine Months Ended September  30, 2015
 

7

 

 

Consolidated Statements of Cash Flow (unaudited) –
Nine Months Ended September 30, 2015 and 2014
 

8

 

 

Notes to Consolidated Financial Statements (unaudited) 

9

 

 

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

24

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk 

30

 

 

Item 4.  Controls and Procedures 

30

 

Part II – Other Information 

 

 

Item 1.  Legal Proceedings 

30

 

 

Item 1A.  Risk Factors 

30

 

 

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

31

 

 

Item 6.  Exhibits 

31

 

 

Signatures 

32

 

 

Exhibit Index 

33

 

 

 

1


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED BALANCE SHEETS 

(In thousands of dollars, except per share amounts) 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

Assets

 

2015

 

2014

Property, plant and equipment, at cost

 

$

5,985,452 

 

$

5,707,017 

Less: accumulated depreciation

 

 

1,379,940 

 

 

1,305,027 

Net property, plant and equipment

 

 

4,605,512 

 

 

4,401,990 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

 

4,071 

 

 

4,138 

Accounts receivable and unbilled revenues, net

 

 

111,076 

 

 

96,999 

Deferred income taxes

 

 

28,483 

 

 

26,849 

Inventory, materials and supplies

 

 

12,924 

 

 

12,788 

Prepayments and other current assets

 

 

11,753 

 

 

11,748 

Total current assets

 

 

168,307 

 

 

152,522 

 

 

 

 

 

 

 

Regulatory assets

 

 

799,858 

 

 

725,591 

Deferred charges and other assets, net

 

 

52,364 

 

 

52,084 

Investment in joint venture

 

 

41,397 

 

 

43,334 

Funds restricted for construction activity

 

 

 -

 

 

47 

Goodwill

 

 

33,907 

 

 

31,184 

Total assets

 

$

5,701,345 

 

$

5,406,752 

Liabilities and Equity

 

 

 

 

 

 

Aqua America stockholders' equity:

 

 

 

 

 

 

Common stock at $.50 par value, authorized 300,000,000 shares, issued 179,192,150 and 178,591,254 as of September 30, 2015 and December 31, 2014

 

$

89,596 

 

$

89,296 

Capital in excess of par value

 

 

768,428 

 

 

758,145 

Retained earnings

 

 

933,144 

 

 

849,952 

Treasury stock, at cost, 2,633,430 and 1,837,984 shares as of September 30, 2015 and December 31, 2014

 

 

(63,106)

 

 

(42,838)

Accumulated other comprehensive income

 

 

619 

 

 

788 

Total Aqua America stockholders' equity

 

 

1,728,681 

 

 

1,655,343 

 

 

 

 

 

 

 

Noncontrolling interest

 

 

 -

 

 

40 

Total equity

 

 

1,728,681 

 

 

1,655,383 

 

 

 

 

 

 

 

Long-term debt, excluding current portion

 

 

1,681,114 

 

 

1,560,655 

Commitments and contingencies (See Note 13)

 

 

 -

 

 

 -

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

 

47,599 

 

 

58,615 

Loans payable

 

 

28,030 

 

 

18,398 

Accounts payable

 

 

45,077 

 

 

63,035 

Accrued interest

 

 

21,155 

 

 

12,437 

Accrued taxes

 

 

27,048 

 

 

31,462 

Other accrued liabilities

 

 

47,113 

 

 

41,388 

Total current liabilities

 

 

216,022 

 

 

225,335 

 

 

 

 

 

 

 

Deferred credits and other liabilities:

 

 

 

 

 

 

Deferred income taxes and investment tax credits

 

 

1,115,672 

 

 

1,000,791 

Customers' advances for construction

 

 

87,253 

 

 

78,301 

Regulatory liabilities

 

 

264,346 

 

 

278,317 

Other

 

 

98,043 

 

 

109,692 

Total deferred credits and other liabilities

 

 

1,565,314 

 

 

1,467,101 

 

 

 

 

 

 

 

Contributions in aid of construction

 

 

510,214 

 

 

498,278 

Total liabilities and equity

 

$

5,701,345 

 

$

5,406,752 

 

 

 

 

 

 

 

See notes to consolidated financial statements beginning on page 9 of this report.

 

 

 

 

 

  

 

2


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED STATEMENTS OF NET INCOME

(In thousands, except per share amounts)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

September 30,

 

 

2015

 

2014

Operating revenues

 

$

221,051 

 

$

210,535 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Operations and maintenance

 

 

78,519 

 

 

72,374 

Depreciation

 

 

31,981 

 

 

29,482 

Amortization

 

 

816 

 

 

806 

Taxes other than income taxes

 

 

14,663 

 

 

12,815 

Total operating expenses

 

 

125,979 

 

 

115,477 

 

 

 

 

 

 

 

Operating income

 

 

95,072 

 

 

95,058 

 

 

 

 

 

 

 

Other expense (income):

 

 

 

 

 

 

Interest expense, net

 

 

19,239 

 

 

18,990 

Allowance for funds used during construction

 

 

(1,708)

 

 

(1,195)

Gain on sale of other assets

 

 

(170)

 

 

(75)

Equity loss in joint venture

 

 

698 

 

 

736 

Income from continuing operations before income taxes

 

 

77,013 

 

 

76,602 

Provision for income taxes

 

 

9,584 

 

 

8,891 

Income from continuing operations

 

 

67,429 

 

 

67,711 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

Income from discontinued operations before income taxes

 

 

 -

 

 

472 

Provision for income taxes

 

 

 -

 

 

187 

Income from discontinued operations

 

 

 -

 

 

285 

Net income attributable to common shareholders

 

$

67,429 

 

$

67,996 

 

 

 

 

 

 

 

Income from continuing operations per share:

 

 

 

 

 

 

Basic

 

$

0.38 

 

$

0.38 

Diluted

 

$

0.38 

 

$

0.38 

 

 

 

 

 

 

 

Income from discontinued operations per share:

 

 

 

 

 

 

Basic

 

$

 -

 

$

0.00 

Diluted

 

$

 -

 

$

0.00 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

Basic

 

$

0.38 

 

$

0.38 

Diluted

 

$

0.38 

 

$

0.38 

 

 

 

 

 

 

 

Average common shares outstanding during the period:

 

 

 

 

 

 

Basic

 

 

176,704 

 

 

176,900 

Diluted

 

 

177,495 

 

 

177,908 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.178 

 

$

0.165 

 

 

 

 

 

 

 

See notes to consolidated financial statements beginning on page 9 of this report.

 

 

 

 

 

 

 

 

 

 

 

 

 

3


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED STATEMENTS OF NET INCOME

(In thousands, except per share amounts)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30,

 

 

2015

 

2014

Operating revenues

 

$

617,137 

 

$

588,514 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Operations and maintenance

 

 

231,454 

 

 

214,435 

Depreciation

 

 

93,530 

 

 

91,689 

Amortization

 

 

2,589 

 

 

2,685 

Taxes other than income taxes

 

 

43,079 

 

 

37,943 

 

 

 

370,652 

 

 

346,752 

 

 

 

 

 

 

 

Operating income

 

 

246,485 

 

 

241,762 

 

 

 

 

 

 

 

Other expense (income):

 

 

 

 

 

 

Interest expense, net

 

 

56,804 

 

 

57,393 

Allowance for funds used during construction

 

 

(3,930)

 

 

(3,299)

(Gain) loss on sale of other assets

 

 

(338)

 

 

133 

Equity loss in joint venture

 

 

1,496 

 

 

2,673 

Income from continuing operations before income taxes

 

 

192,453 

 

 

184,862 

Provision for income taxes

 

 

19,097 

 

 

19,932 

Income from continuing operations

 

 

173,356 

 

 

164,930 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

Income from discontinued operations before income taxes

 

 

 -

 

 

2,497 

Provision for income taxes

 

 

 -

 

 

1,003 

Income from discontinued operations

 

 

 -

 

 

1,494 

Net income attributable to common shareholders

 

$

173,356 

 

$

166,424 

 

 

 

 

 

 

 

Income from continuing operations per share:

 

 

 

 

 

 

Basic

 

$

0.98 

 

$

0.93 

Diluted

 

$

0.98 

 

$

0.93 

 

 

 

 

 

 

 

Income from discontinued operations per share:

 

 

 

 

 

 

Basic

 

$

 -

 

$

0.01 

Diluted

 

$

 -

 

$

0.01 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

Basic

 

$

0.98 

 

$

0.94 

Diluted

 

$

0.98 

 

$

0.94 

 

 

 

 

 

 

 

Average common shares outstanding during the period:

 

 

 

 

 

 

Basic

 

 

176,891 

 

 

176,933 

Diluted

 

 

177,670 

 

 

177,872 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.508 

 

$

0.469 

 

 

 

 

 

 

 

See notes to consolidated financial statements beginning on page 9 of this report.

 

 

 

 

 

 

 

 

 

 

 

4


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

(In thousands of dollars) 

(UNAUDITED)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2015

 

2014

 

2015

 

2014

Net income attributable to common shareholders

 

$

67,429 

 

$

67,996 

 

$

173,356 

 

$

166,424 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding (loss) gain on investments, net of tax (benefit) expense of $(120) and $(33) for the three months and $(90) and $73 for the nine months ended September 30, 2015 and 2014, respectively

 

 

(223)

 

 

(62)

 

 

(169)

 

 

136 

Reclassification adjustment for loss reported in net income, net of tax benefit of $134 for the nine months ended September 30, 2014 (1)

 

 

 -

 

 

 -

 

 

 -

 

 

249 

Comprehensive income

 

$

67,206 

 

$

67,934 

 

$

173,187 

 

$

166,809 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Amount of pre-tax loss of $383 reclassified from accumulated other comprehensive income to loss on sale of other assets on the consolidated statements of net income for the nine months ended September 30, 2014.

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements beginning on page 9 of this report.

 

  

 

 

5


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED STATEMENTS OF CAPITALIZATION 

(In thousands of dollars, except per share amounts) 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

2015

 

2014

Aqua America stockholders' equity:

 

 

 

 

 

 

 

    Common stock, $.50 par value

 

 

$

89,596 

 

$

89,296 

    Capital in excess of par value

 

 

 

768,428 

 

 

758,145 

    Retained earnings

 

 

 

933,144 

 

 

849,952 

    Treasury stock, at cost

 

 

 

(63,106)

 

 

(42,838)

    Accumulated other comprehensive income

 

 

619 

 

 

788 

Total Aqua America stockholders' equity

 

 

 

1,728,681 

 

 

1,655,343 

 

 

 

 

 

 

 

 

Noncontrolling interest

 

 

 

 -

 

 

40 

 

 

 

 

 

 

 

 

Total equity

 

 

 

1,728,681 

 

 

1,655,383 

 

 

 

 

 

 

 

 

Long-term debt of subsidiaries (substantially secured by utility plant):

 

 

 

 

 

 

Interest Rate Range

Maturity Date Range

 

 

 

 

 

 

0.00% to  0.99%

2023 to 2033

 

 

5,148 

 

 

5,653 

1.00% to  1.99%

2016 to 2035

 

 

22,159 

 

 

24,871 

2.00% to  2.99%

2024 to 2031

 

 

18,597 

 

 

15,578 

3.00% to  3.99%

2016 to 2047

 

 

187,882 

 

 

190,875 

4.00% to  4.99%

2020 to 2054

 

 

483,837 

 

 

484,168 

5.00% to  5.99%

2016 to 2043

 

 

221,545 

 

 

242,102 

6.00% to  6.99%

2015 to 2036

 

 

64,960 

 

 

64,944 

7.00% to  7.99%

2022 to 2027

 

 

33,930 

 

 

34,424 

8.00% to  8.99%

2021 to 2025

 

 

18,607 

 

 

18,907 

9.00% to  9.99%

2018 to 2026

 

 

27,100 

 

 

27,800 

10.00% to 10.99%

2018

 

 

6,000 

 

 

6,000 

 

 

 

 

1,089,765 

 

 

1,115,322 

 

 

 

 

 

 

 

 

Notes payable to bank under revolving credit agreement, variable rate, due 2017

 

 

105,000 

 

 

72,000 

Unsecured notes payable:

 

 

 

 

 

 

 

Bank notes at 1.921% and 1.975% due 2017 and 2018

 

 

 

100,000 

 

 

50,000 

Notes at 3.57% and 3.59% due 2027 and 2030

 

 

 

120,000 

 

 

50,000 

Notes ranging from 4.62% to 4.87%, due 2016 through 2024

 

 

144,400 

 

 

144,400 

Notes ranging from 5.20% to 5.95%, due 2016 through 2037

 

 

169,548 

 

 

187,548 

Total long-term debt

 

 

 

1,728,713 

 

 

1,619,270 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

 

 

47,599 

 

 

58,615 

Long-term debt, excluding current portion

 

 

1,681,114 

 

 

1,560,655 

Total capitalization

 

 

$

3,409,795 

 

$

3,216,038 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements beginning on page 9 of this report.

 

 

 

 

 

 

 

 

 

 

 

 

 

6


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED STATEMENT OF EQUITY 

(In thousands of dollars)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

Common

 

Excess of

 

Retained

 

Treasury

 

Comprehensive

 

Noncontrolling

 

 

 

 

 

Stock

 

Par Value

 

Earnings

 

Stock

 

Income

 

Interest

 

Total

Balance at December 31, 2014

 

$

89,296 

 

$

758,145 

 

$

849,952 

 

$

(42,838)

 

$

788 

 

$

40 

 

$

1,655,383 

Net income

 

 

 -

 

 

 -

 

 

173,356 

 

 

 -

 

 

 -

 

 

 -

 

 

173,356 

Other comprehensive loss, net of income tax benefit of $90

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(169)

 

 

 -

 

 

(169)

Dividends

 

 

 -

 

 

 -

 

 

(89,842)

 

 

 -

 

 

 -

 

 

 -

 

 

(89,842)

Sale of stock (14,441 shares)

 

 

 

 

337 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

344 

Repurchase of stock (795,446 shares)         

 

 

 -

 

 

 -

 

 

 -

 

 

(20,268)

 

 

 -

 

 

 -

 

 

(20,268)

Equity compensation plan (319,839 shares)

 

 

160 

 

 

(160)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Exercise of stock options (266,616 shares)

 

 

133 

 

 

4,385 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

4,518 

Stock-based compensation

 

 

 -

 

 

4,728 

 

 

(322)

 

 

 -

 

 

 -

 

 

 -

 

 

4,406 

Employee stock plan tax benefits

 

 

 -

 

 

1,648 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,648 

Other  

 

 

 -

 

 

(655)

 

 

 -

 

 

 -

 

 

 -

 

 

(40)

 

 

(695)

Balance at September 30, 2015

 

$

89,596 

 

$

768,428 

 

$

933,144 

 

$

(63,106)

 

$

619 

 

$

 -

 

$

1,728,681 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements beginning on page 9 of this report.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

7


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED STATEMENTS OF CASH FLOW 

(In thousands of dollars) 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30,

 

 

2015

 

2014

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

173,356 

 

$

166,424 

Income from discontinued operations

 

 

 -

 

 

1,494 

Income from continuing operations

 

 

173,356 

 

 

164,930 

Adjustments to reconcile income from continuing operations

 

 

 

 

 

 

to net cash flows from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

96,119 

 

 

94,374 

Deferred income taxes

 

 

13,855 

 

 

15,055 

Provision for doubtful accounts

 

 

3,693 

 

 

4,648 

Stock-based compensation

 

 

4,728 

 

 

5,145 

(Gain) loss on sale of other assets

 

 

(338)

 

 

133 

Net change in receivables, inventory and prepayments

 

 

(18,677)

 

 

(13,928)

Net change in payables, accrued interest, accrued taxes and other accrued liabilities

 

 

16,450 

 

 

16,241 

Other

 

 

(6,804)

 

 

(11,023)

Operating cash flows from continuing operations

 

 

282,382 

 

 

275,575 

Operating cash flows used in discontinued operations, net

 

 

 -

 

 

(1,142)

Net cash flows from operating activities

 

 

282,382 

 

 

274,433 

Cash flows from investing activities:

 

 

 

 

 

 

Property, plant and equipment additions, including the debt component of allowance for funds used during construction of $1,015 and $1,033

 

 

(257,478)

 

 

(220,739)

Acquisitions of utility systems and other, net

 

 

(26,327)

 

 

(11,677)

Release of funds previously restricted for construction activity

 

 

47 

 

 

 -

Net proceeds from the sale of utility system and other assets

 

 

513 

 

 

386 

Other

 

 

(1,027)

 

 

513 

Investing cash flows used in continuing operations

 

 

(284,272)

 

 

(231,517)

Investing cash flows from discontinued operations, net

 

 

 -

 

 

(77)

Net cash flows used in investing activities

 

 

(284,272)

 

 

(231,594)

Cash flows from financing activities:

 

 

 

 

 

 

Customers' advances and contributions in aid of construction

 

 

4,286 

 

 

4,510 

Repayments of customers' advances

 

 

(2,332)

 

 

(2,107)

Net proceeds of short-term debt

 

 

9,632 

 

 

(29,743)

Proceeds from long-term debt

 

 

313,440 

 

 

221,058 

Repayments of long-term debt

 

 

(203,851)

 

 

(128,395)

Change in cash overdraft position

 

 

(14,918)

 

 

(16,883)

Proceeds from issuing common stock

 

 

344 

 

 

 -

Proceeds from exercised stock options

 

 

4,518 

 

 

4,870 

Stock-based compensation windfall tax benefits

 

 

1,469 

 

 

1,235 

Repurchase of common stock

 

 

(20,268)

 

 

(13,973)

Dividends paid on common stock

 

 

(89,842)

 

 

(82,953)

Other

 

 

(655)

 

 

(580)

Financing cash flows from (used) in continuing operations

 

 

1,823 

 

 

(42,961)

Financing cash flows used in discontinued operations, net

 

 

 -

 

 

(93)

Net cash flows from (used) in financing activities

 

 

1,823 

 

 

(43,054)

Net change in cash and cash equivalents

 

 

(67)

 

 

(215)

Cash and cash equivalents at beginning of period

 

 

4,138 

 

 

5,058 

Cash and cash equivalents at end of period

 

$

4,071 

 

$

4,843 

 

Non-cash investing activity:

Property, plant and equipment additions purchased at the period end, but not yet paid for

 

$

24,742 

 

$

28,933 

 

See notes to consolidated financial statements beginning on page 9 of this report.

 

 

 

 

 

8


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

Note 1 – Basis of Presentation 

 

The accompanying consolidated balance sheets and statements of capitalization of Aqua America, Inc. and subsidiaries (the “Company”) at September 30, 2015, the consolidated statements of net income and comprehensive income for the three and nine months ended September 30, 2015 and 2014, the consolidated statements of cash flow for the nine months ended September 30, 2015 and 2014, and the consolidated statement of equity for the nine months ended September 30, 2015 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, 2014.  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, 2014 consolidated balance sheet data presented herein was derived from the Company’s December 31, 2014 audited consolidated financial statements, but does not include all disclosures and notes normally provided in annual financial statements.    

 

Note 2 – Goodwill 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regulated

 

 

 

 

 

 

 

 

Segment

 

Other

 

Consolidated

Balance at December 31, 2014

 

$

24,564 

 

$

6,620 

 

$

31,184 

Goodwill acquired

 

 

 -

 

 

12 

 

 

12 

Reclassifications from (to) utility plant acquisition adjustment, net

 

 

2,723 

 

 

 -

 

 

2,723 

Other

 

 

 -

 

 

(12)

 

 

(12)

Balance at September 30, 2015

 

$

27,287 

 

$

6,620 

 

$

33,907 

 

9


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

  

The reclassification from utility plant acquisition adjustment to goodwill represents the purchase price in excess of the fair market value of the net assets acquired, from a prior acquisition, which was originally accounted for as utility plant acquisition adjustment.    The reclassification from goodwill to utility plant acquisition adjustment 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. 

 

The Company tested the goodwill attributable for each of our reporting units for impairment as of July 31, 2015, in conjunction with the timing of our annual strategic business plan, and concluded that the estimated fair value of each reporting unit, which has goodwill recorded, exceeded the reporting unit’s carrying amount, indicating that none of the Company’s goodwill was impaired.

 

 

 

 

  

Note 3 – Acquisitions 

 

In May 2015, the Company acquired the water utility systems assets of Mt. Jewett Borough water system located in Hamlin Township, Pennsylvania serving approximately 440 customers.  The total purchase price consisted of $1,166 in cash. 

 

In April 2015, the Company acquired the water and wastewater utility system assets of North Maine Utilities located in the Village of Glenview, Illinois serving approximately 7,400 customers.  The total purchase price consisted of $23,079 in cash.  The purchase price allocation for this acquisition consists primarily of acquired property, plant and equipment.      

 

 

 

In December 2014, the Company acquired the water utility system assets of Lake Mohawk and Lake Tomahawk utilities located in Northeastern Ohio serving approximately 1,250 customers.  The total purchase price consisted of $1,770 in cash.    

 

In December 2014, the Company acquired a business that specializes in providing water distribution system services to prevent the contamination of potable water, including training to waterworks operators.  The total purchase price consisted of $1,800 in cash, of which $700 was paid in the first quarter of 2015.  This business is included in the Company’s market-based activities. 

 

In September 2014, the Company acquired the water and wastewater utility system assets of Texas H2O, Inc. located in Mansfield, Texas serving approximately 1,100 customers.  The total purchase price consisted of $2,796 in cash.

 

In September 2014, the Company acquired the water utility system assets of Lake Caroline Water Co. located in Caroline County, Virginia serving approximately 1,040 customers.  The total purchase price consisted of $1,377 in cash.

 

In August 2014, the Company acquired a business that specializes in the inspection, cleaning and repair of storm and sanitary sewer lines.  The total purchase price consisted of $3,010 in cash, of which a total of $810 is contingent upon satisfying certain annual performance targets over a three-year period.  This business is included in the Company’s market-based activities.   

10


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

  

 

In March 2014, the Company acquired the wastewater utility system assets of Penn Township located in Chester County, Pennsylvania serving approximately 800 customers.  The total purchase price consisted of $3,668 in cash.

 

Note 4 –  Discontinued Operations 

 

In December 2014, we completed the sale of our water utility system in southwest Allen County, Indiana to the City of Fort Wayne, Indiana.  The completion of this sale settled the dispute concerning the City of Fort Wayne’s valuation of the northern portion of our water and wastewater utility systems, which were acquired by the City of Fort Wayne in February 2008, by eminent domain.  In addition, as a result of this transaction, Aqua Indiana will expand its sewer customer base by accepting new wastewater flows from the City of Fort Wayne.

 

In March 2014, we completed the sale of our wastewater treatment facility in Georgia.

 

The operating results and cash flows of the Company’s operations named above, during the periods owned, have been presented in the Company’s consolidated statements of net income and consolidated statements of cash flow as discontinued operations.  These 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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 2014

 

September 30, 2014

Operating revenues

 

$

1,935 

 

$

5,234 

Total operating expenses

 

 

1,463 

 

 

2,603 

Operating income

 

 

472 

 

 

2,631 

Other expense:

 

 

 

 

 

 

Loss on sale

 

 

 -

 

 

134 

Income from discontinued operations before income taxes

 

 

472 

 

 

2,497 

Provision for income taxes

 

 

187 

 

 

1,003 

Income from discontinued operations

 

$

285 

 

$

1,494 

 

 

 

 

 

As of September 30,  2015 and December 31, 2014, there were no assets or liabilities associated with the Company’s discontinued operations.

 

 

]

11


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

  

Note 5 – Capitalization 

 

In October 2015, the Company provided notice for the early redemption of $4,000 of first mortgage bonds at 8.14% that were originally maturing in 2025 and $95,985 of tax-exempt bonds at 5.00% that were originally maturing between 2035 and 2038.  The Company anticipates refinancing this debt through the issuance of long-term debt during the fourth quarter of 2015. 

 

In May 2015, the Company issued $70,000 of senior unsecured notes due in 2030 with an interest rate of 3.59%.  The proceeds were used to repay existing indebtedness and for general corporate purposes.   

 

In May 2015, Aqua Pennsylvania Inc., a subsidiary of the Company (“Aqua Pennsylvania”) entered into a $50,000 three-year unsecured loan at an interest rate of 1.975%.  The proceeds from this loan were used for refinancing existing indebtedness and general working capital purposes. 

 

In February 2015, the Company renewed its universal shelf registration, which had expired in February 2015, through a filing with the Securities and Exchange Commission (“SEC”) to allow for the potential future 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.

 

In February 2015, the Company filed a registration statement with the SEC to update an existing filing which permits the offering, from time to time, of an aggregate of $500,000 in shares of common stock and shares of preferred stock in connection with acquisitions.  The form and terms of any securities issued under these shelf registration statements will be determined at the time of issuance.         

 

Note 6 – Fair Value of Financial Instruments 

 

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:

 

·

Level 1:  unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access; 

 

·

Level 2:  inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in non-active markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or 

 

·

Level 3:  inputs that are unobservable and significant to the fair value measurement. 

 

12


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

  

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 or asset or liability transfers between the levels of the fair value hierarchy for the quarter ended September 30, 2015

 

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, 2015, the Company did not have any funds restricted for construction activity and as of December 31, 2014, the carrying amount of the Company’s funds restricted for construction activity was $47, which equates to its estimated fair value.  As of September 30, 2015 and December 31, 2014, the carrying amount of the Company’s loans payable was $28,030 and $18,398, respectively, 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, 2015 and December 31, 2014, the carrying amounts of the Company's cash and cash equivalents was $4,071 and $4,138, respectively, whi