38ff557848844e9

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 June 30, 2014 

 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  

July 25,  2014:  177,180,169

  

 


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES

 

 

TABLE OF CONTENTS

 

 

 

Page

Part I – Financial Information 

 

 

Item 1.  Financial Statements: 

 

 

 

Consolidated Balance Sheets (unaudited) – June 30, 2014 and December 31, 2013 

 

 

Consolidated Statements of Net Income (unaudited) -
Three Months Ended June 30, 2014 and 2013
 

 

 

Consolidated Statements of Net Income (unaudited)
Six Months Ended June 30, 2104 and 2013
 

 

 

Consolidated Statements of Comprehensive Income (unaudited) –
Three and Six Months Ended June 30, 2014 and 2013
 

 

 

Consolidated Statements of Capitalization (unaudited) –
June 30, 2014 and December 31, 2013
 

 

 

Consolidated Statement of Equity (unaudited) –
Six Months Ended June 30, 2014
 

 

 

Consolidated Statements of Cash Flow (unaudited) –
Six Months Ended June 30, 2014 and 2013
 

 

 

Notes to Consolidated Financial Statements (unaudited) 

 

 

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

26 

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk 

34 

 

 

Item 4.  Controls and Procedures 

34 

 

Part II – Other Information 

 

 

Item 1.  Legal Proceedings 

34 

 

 

Item 1A.  Risk Factors 

35 

 

 

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

36 

 

 

Item 6.  Exhibits 

36 

 

 

Signatures 

37 

 

 

Exhibit Index 

38 

 

1

 


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED BALANCE SHEETS 

(In thousands of dollars, except per share amounts) 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

Assets

 

2014

 

2013

Property, plant and equipment, at cost

 

$

5,500,281 

 

$

5,350,868 

Less: accumulated depreciation

 

 

1,266,441 

 

 

1,212,300 

Net property, plant and equipment

 

 

4,233,840 

 

 

4,138,568 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

 

3,858 

 

 

5,058 

Accounts receivable and unbilled revenues, net

 

 

100,474 

 

 

94,704 

Deferred income taxes

 

 

41,867 

 

 

40,038 

Inventory, materials and supplies

 

 

12,294 

 

 

11,353 

Prepayments and other current assets

 

 

12,995 

 

 

18,954 

Assets of discontinued operations held for sale

 

 

30,330 

 

 

30,747 

Total current assets

 

 

201,818 

 

 

200,854 

 

 

 

 

 

 

 

Regulatory assets

 

 

630,305 

 

 

585,140 

Deferred charges and other assets, net

 

 

51,346 

 

 

50,290 

Investment in joint venture

 

 

46,170 

 

 

48,695 

Funds restricted for construction activity

 

 

47 

 

 

47 

Goodwill

 

 

27,999 

 

 

28,223 

Total assets

 

$

5,191,525 

 

$

5,051,817 

Liabilities and Equity

 

 

 

 

 

 

Aqua America stockholders' equity:

 

 

 

 

 

 

Common stock at $.50 par value, authorized 300,000,000 shares, issued 178,451,832 and 177,928,922 as of June 30, 2014 and December 31, 2013

 

$

89,226 

 

$

88,964 

Capital in excess of par value

 

 

751,853 

 

 

743,335 

Retained earnings

 

 

773,717 

 

 

729,272 

Treasury stock, at cost, 1,273,171 and 1,178,323 shares as of June 30, 2014 and December 31, 2013

 

 

(29,431)

 

 

(27,082)

Accumulated other comprehensive income

 

 

793 

 

 

346 

Total Aqua America stockholders' equity

 

 

1,586,158 

 

 

1,534,835 

 

 

 

 

 

 

 

Noncontrolling interest

 

 

223 

 

 

208 

Total equity

 

 

1,586,381 

 

 

1,535,043 

 

 

 

 

 

 

 

Long-term debt, excluding current portion

 

 

1,481,449 

 

 

1,468,583 

Commitments and contingencies (See Note 13)

 

 

 -

 

 

 -

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

 

118,116 

 

 

86,288 

Loans payable

 

 

40,362 

 

 

36,740 

Accounts payable

 

 

38,112 

 

 

65,815 

Accrued interest

 

 

13,097 

 

 

13,615 

Accrued taxes

 

 

8,911 

 

 

14,176 

Other accrued liabilities

 

 

31,390 

 

 

33,596 

Liabilities of discontinued operations held for sale

 

 

27,985 

 

 

29,649 

Total current liabilities

 

 

277,973 

 

 

279,879 

 

 

 

 

 

 

 

Deferred credits and other liabilities:

 

 

 

 

 

 

Deferred income taxes and investment tax credits

 

 

926,447 

 

 

866,211 

Customers' advances for construction

 

 

78,394 

 

 

73,892 

Regulatory liabilities

 

 

283,707 

 

 

281,014 

Other

 

 

68,121 

 

 

81,552 

Total deferred credits and other liabilities

 

 

1,356,669 

 

 

1,302,669 

 

 

 

 

 

 

 

Contributions in aid of construction

 

 

489,053 

 

 

465,643 

Total liabilities and equity

 

$

5,191,525 

 

$

5,051,817 

 

 

 

 

 

 

 

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

 

 

June 30,

 

 

2014

 

2013

 

 

 

 

 

 

 

Operating revenues

 

$

195,307 

 

$

193,943 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Operations and maintenance

 

 

70,375 

 

 

70,412 

Depreciation

 

 

31,226 

 

 

29,311 

Amortization

 

 

746 

 

 

1,368 

Taxes other than income taxes

 

 

13,026 

 

 

13,102 

Total operating expenses

 

 

115,373 

 

 

114,193 

 

 

 

 

 

 

 

Operating income

 

 

79,934 

 

 

79,750 

 

 

 

 

 

 

 

Other expense (income):

 

 

 

 

 

 

Interest expense, net

 

 

19,093 

 

 

19,208 

Allowance for funds used during construction

 

 

(937)

 

 

(490)

(Gain) loss on sale of other assets

 

 

(140)

 

 

109 

Equity loss in joint venture

 

 

1,251 

 

 

1,154 

Income from continuing operations before income taxes

 

 

60,667 

 

 

59,769 

Provision for income taxes

 

 

5,849 

 

 

6,765 

Income from continuing operations

 

 

54,818 

 

 

53,004 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

Income from discontinued operations before income taxes

 

 

1,253 

 

 

943 

Provision for income taxes

 

 

502 

 

 

361 

Income from discontinued operations

 

 

751 

 

 

582 

Net income attributable to common shareholders

 

$

55,569 

 

$

53,586 

 

 

 

 

 

 

 

Income from continuing operations per share:

 

 

 

 

 

 

Basic

 

$

0.31 

 

$

0.30 

Diluted

 

$

0.31 

 

$

0.30 

 

 

 

 

 

 

 

Income from discontinued operations per share:

 

 

 

 

 

 

Basic

 

$

0.00 

 

$

0.00 

Diluted

 

$

0.00 

 

$

0.00 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

Basic

 

$

0.31 

 

$

0.30 

Diluted

 

$

0.31 

 

$

0.30 

 

 

 

 

 

 

 

Average common shares outstanding during the period:

 

 

 

 

 

 

Basic

 

 

177,058 

 

 

175,983 

Diluted

 

 

178,012 

 

 

177,078 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.152 

 

$

0.292 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30,

 

 

2014

 

2013

 

 

 

 

 

 

 

Operating revenues

 

$

377,979 

 

$

372,495 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Operations and maintenance

 

 

142,061 

 

 

138,206 

Depreciation

 

 

62,207 

 

 

58,356 

Amortization

 

 

1,879 

 

 

2,745 

Taxes other than income taxes

 

 

25,128 

 

 

26,500 

 

 

 

231,275 

 

 

225,807 

 

 

 

 

 

 

 

Operating income

 

 

146,704 

 

 

146,688 

 

 

 

 

 

 

 

Other expense (income):

 

 

 

 

 

 

Interest expense, net

 

 

38,403 

 

 

38,483 

Allowance for funds used during construction

 

 

(2,104)

 

 

(1,042)

Loss on sale of other assets

 

 

208 

 

 

17 

Equity loss in joint venture

 

 

1,937 

 

 

1,810 

Income from continuing operations before income taxes

 

 

108,260 

 

 

107,420 

Provision for income taxes

 

 

11,041 

 

 

13,552 

Income from continuing operations

 

 

97,219 

 

 

93,868 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

Income from discontinued operations before income taxes

 

 

2,025 

 

 

9,868 

Provision for income taxes

 

 

816 

 

 

3,585 

Income from discontinued operations

 

 

1,209 

 

 

6,283 

Net income attributable to common shareholders

 

$

98,428 

 

$

100,151 

 

 

 

 

 

 

 

Income from continuing operations per share:

 

 

 

 

 

 

Basic

 

$

0.55 

 

$

0.53 

Diluted

 

$

0.55 

 

$

0.53 

 

 

 

 

 

 

 

Income from discontinued operations per share:

 

 

 

 

 

 

Basic

 

$

0.01 

 

$

0.04 

Diluted

 

$

0.01 

 

$

0.04 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

Basic

 

$

0.56 

 

$

0.57 

Diluted

 

$

0.55 

 

$

0.57 

 

 

 

 

 

 

 

Average common shares outstanding during the period:

 

 

 

 

 

 

Basic

 

 

176,949 

 

 

175,701 

Diluted

 

 

177,868 

 

 

176,598 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.304 

 

$

0.432 

 

 

 

 

 

 

 

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

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common shareholders

 

$

55,569 

 

$

53,586 

 

$

98,428 

 

$

100,151 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gain (loss) on investments, net of tax expense (benefit) of $68 and $(18) for the three months and $106 and $(23) for the six months ended, June 30, respectively

 

 

126 

 

 

(33)

 

 

198 

 

 

(42)

Reclassification adjustment for loss reported in net income, net of tax benefit of $49 for the three months and $134 and $49 for the six months ended, June 30, respectively (1)  (2)

 

 

 -

 

 

90 

 

 

249 

 

 

90 

Comprehensive income

 

$

55,695 

 

$

53,643 

 

$

98,875 

 

$

100,199 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Amount of pre-tax loss of $139 reclassified from accumulated other comprehensive income to loss on sale of other assets on the consolidated statements of net income for the three months ended June 30, 2013.

(2) Amount of pre-tax loss of $383 and $139 reclassified from accumulated other comprehensive income to loss on sale of other assets on the consolidated statements of net income for the six months ended June 30, 2014 and 2013, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

2014

 

2013

Aqua America stockholders' equity:

 

 

 

 

 

 

 

    Common stock, $.50 par value

 

 

$

89,226 

 

$

88,964 

    Capital in excess of par value

 

 

 

751,853 

 

 

743,335 

    Retained earnings

 

 

 

773,717 

 

 

729,272 

    Treasury stock, at cost

 

 

 

(29,431)

 

 

(27,082)

    Accumulated other comprehensive income

 

 

793 

 

 

346 

Total Aqua America stockholders' equity

 

 

 

1,586,158 

 

 

1,534,835 

 

 

 

 

 

 

 

 

Noncontrolling interest

 

 

 

223 

 

 

208 

 

 

 

 

 

 

 

 

Total equity

 

 

 

1,586,381 

 

 

1,535,043 

 

 

 

 

 

 

 

 

Long-term debt:

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Interest Rate Range

Maturity Date Range

 

 

 

 

 

 

0.00% to  0.99%

2023 to 2033

 

 

5,794 

 

 

5,035 

1.00% to  1.99%

2014 to 2035

 

 

26,148 

 

 

28,615 

2.00% to  2.99%

2024 to 2031

 

 

16,709 

 

 

14,903 

3.00% to  3.99%

2016 to 2047

 

 

166,232 

 

 

167,365 

4.00% to  4.99%

2020 to 2048

 

 

444,460 

 

 

447,296 

5.00% to  5.99%

2015 to 2043

 

 

256,414 

 

 

284,362 

6.00% to  6.99%

2015 to 2036

 

 

64,934 

 

 

64,924 

7.00% to  7.99%

2022 to 2027

 

 

34,743 

 

 

35,056 

8.00% to  8.99%

2021 to 2025

 

 

19,099 

 

 

19,283 

9.00% to  9.99%

2018 to 2026

 

 

28,500 

 

 

28,500 

10.40%

2018

 

 

6,000 

 

 

6,000 

 

 

 

 

1,069,033 

 

 

1,101,339 

 

 

 

 

 

 

 

 

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

 

 

77,000 

 

 

 -

Unsecured notes payable:

 

 

 

 

 

 

 

Notes at 3.57% due 2027

 

 

 

50,000 

 

 

50,000 

Notes ranging from 4.62% to 4.87%, due 2014 through 2024

 

 

171,400 

 

 

171,400 

Notes ranging from 5.01% to 5.95%, due 2015 through 2037

 

 

232,132 

 

 

232,132 

 

 

 

 

1,599,565 

 

 

1,554,871 

Current portion of long-term debt

 

 

 

118,116 

 

 

86,288 

Long-term debt, excluding current portion

 

 

1,481,449 

 

 

1,468,583 

Total capitalization

 

 

$

3,067,830 

 

$

3,003,626 

 

 

 

 

 

 

 

 

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, 2013

 

$

88,964 

 

$

743,335 

 

$

729,272 

 

$

(27,082)

 

$

346 

 

$

208 

 

$

1,535,043 

Net income

 

 

 -

 

 

 -

 

 

98,428 

 

 

 -

 

 

 -

 

 

15 

 

 

98,443 

Other comprehensive income, net of income tax of $240

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

447 

 

 

 -

 

 

447 

Dividends

 

 

 -

 

 

 -

 

 

(53,787)

 

 

 -

 

 

 -

 

 

 -

 

 

(53,787)

Repurchase of stock (94,853 shares)         

 

 

 -

 

 

 -

 

 

 -

 

 

(2,349)

 

 

 -

 

 

 -

 

 

(2,349)

Equity compensation plan (212,920 shares)

 

 

107 

 

 

(107)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Exercise of stock options (309,990 shares)

 

 

155 

 

 

4,537 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

4,692 

Stock-based compensation

 

 

 -

 

 

3,149 

 

 

(196)

 

 

 -

 

 

 -

 

 

 -

 

 

2,953 

Employee stock plan tax benefits

 

 

 -

 

 

1,301 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,301 

Other  

 

 

 -

 

 

(362)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(362)

Balance At June 30, 2014

 

$

89,226 

 

$

751,853 

 

$

773,717 

 

$

(29,431)

 

$

793 

 

$

223 

 

$

1,586,381 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30,

 

 

2014

 

2013

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

98,428 

 

$

100,151 

Income from discontinued operations

 

 

1,209 

 

 

6,283 

Income from continuing operations

 

 

97,219 

 

 

93,868 

Adjustments to reconcile income from continuing operations

 

 

 

 

 

 

to net cash flows from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

64,086 

 

 

61,101 

Deferred income taxes

 

 

7,845 

 

 

17,681 

Provision for doubtful accounts

 

 

3,141 

 

 

2,016 

Stock-based compensation

 

 

3,538 

 

 

2,694 

Gain on sale of utility system

 

 

 -

 

 

(1,025)

Loss on sale of other assets

 

 

208 

 

 

17 

Net increase in receivables, inventory and prepayments

 

 

(11,087)

 

 

(4,561)

Net increase (decrease) in payables, accrued interest, accrued taxes and other accrued liabilities

 

 

4,740 

 

 

(10,841)

Other

 

 

(15,050)

 

 

(2,795)

Operating cash flows from continuing operations

 

 

154,640 

 

 

158,155 

Operating cash flows (used in) from discontinued operations, net

 

 

(582)

 

 

1,252 

Net cash flows from operating activities

 

 

154,058 

 

 

159,407 

Cash flows from investing activities:

 

 

 

 

 

 

Property, plant and equipment additions, including the non-equity component of allowance for funds used during construction of $649 and $944

 

 

(131,966)

 

 

(134,722)

Acquisitions of utility systems and other, net

 

 

(4,467)

 

 

(10,721)

Additions to funds restricted for construction activity

 

 

 -

 

 

(5)

Release of funds previously restricted for construction activity

 

 

 -

 

 

394 

Net proceeds from the sale of utility system and other assets

 

 

308 

 

 

113 

Investment in joint venture

 

 

 -

 

 

(9,800)

Other

 

 

(30)

 

 

(343)

Investing cash flows used in continuing operations

 

 

(136,155)

 

 

(155,084)

Investing cash flows from discontinued operations, net

 

 

 

 

51,124 

Net cash flows used in investing activities

 

 

(136,153)

 

 

(103,960)

Cash flows from financing activities:

 

 

 

 

 

 

Customers' advances and contributions in aid of construction

 

 

3,182 

 

 

2,159 

Repayments of customers' advances

 

 

(1,294)

 

 

(928)

Net proceeds of short-term debt

 

 

3,622 

 

 

31,704 

Proceeds from long-term debt

 

 

116,074 

 

 

172,069 

Repayments of long-term debt

 

 

(70,910)

 

 

(226,914)

Change in cash overdraft position

 

 

(19,128)

 

 

(1,330)

Proceeds from issuing common stock

 

 

 -

 

 

6,816 

Proceeds from exercised stock options

 

 

4,692 

 

 

20,662 

Stock-based compensation windfall tax benefits

 

 

1,217 

 

 

 -

Repurchase of common stock

 

 

(2,349)

 

 

(11,710)

Dividends paid on common stock

 

 

(53,787)

 

 

(49,192)

Other

 

 

(362)

 

 

 -

Financing cash flows used in continuing operations

 

 

(19,043)

 

 

(56,664)

Financing cash flows used in discontinued operations, net

 

 

(62)

 

 

(32)

Net cash flows used in financing activities

 

 

(19,105)

 

 

(56,696)

Net decrease in cash and cash equivalents

 

 

(1,200)

 

 

(1,249)

Cash and cash equivalents at beginning of period

 

 

5,058 

 

 

5,521 

Cash and cash equivalents at end of period

 

$

3,858 

 

$

4,272 

 

 

 

 

 

 

 

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 June 30, 2014, the consolidated statements of net income and comprehensive income for the three and six months ended June 30, 2014 and 2013 the consolidated statements of cash flow for the six months ended June 30, 2014 and 2013, and the consolidated statement of equity for the six months ended June 30, 2014 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, 2013.  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, 2013 consolidated balance sheet data presented herein was derived from the Company’s December 31, 2013 audited consolidated financial statements, but does not include all disclosures and notes normally provided in annual financial statements.  All common share, per common share, stock unit, and per stock unit data, for all periods presented, has been adjusted to give effect to the September 1, 2013 five-for-four stock split effected in the form of a 25% stock distribution (see Note 5).  Certain prior period amounts have been reclassified to conform to the reporting of discontinued operations (see Note 4).

 

   

 

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, 2013

 

$

24,102 

 

$

4,121 

 

$

28,223 

Reclassifications to utility plant acquisition adjustment

 

 

(202)

 

 

 -

 

 

(202)

Other

 

 

(22)

 

 

 -

 

 

(22)

Balance At June 30, 2014

 

$

23,878 

 

$

4,121 

 

$

27,999 

 

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 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. 

   

 

 

  

Note 3 – Acquisitions 

 

Subsequent to the quarter ended June 30, 2014, in August, the Company acquired Tri-State Grouting, which is a non-regulated business that specializes in the cleaning, televising, and trenchless repair of storm and sanitary sewer  pipes and appurtenances.  The total purchase price consisted of $3,010, of which a total of $810 is contingent upon satisfying certain annual performance targets over a three-year period.      

 

In May 2014, the Company entered into an asset purchase agreement for the acquisition of the water and wastewater utility system assets of North Maine Utilities owned by the Village of Glenview, Illinois serving approximately 7,200 customers, for cash at closing of up to $22,000, subject to final adjustment pursuant to the purchase agreement.  Closing of this acquisition is anticipated to occur in mid-2015.          

 

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.

 

In March 2013, the Company acquired the water and wastewater utility 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.      

 

 

Note 4 –  Discontinued Operations 

 

Discontinued Operations – In September 2012, the Company began to market for sale its water and wastewater operations in Florida, which served approximately 38,000 customers, and the Company’s wastewater treatment facility in Georgia.  In March, April, and December 2013, through five separate sales transactions, the Company completed the sale of its water and wastewater utility systems in Florida, which concluded its regulated operations in Florida.  The Company received total net proceeds from these sales of $88,934 and recognized a gain on sale of $21,178 ($13,766 after-tax).  One of the Company’s sales in Florida, which was completed in March 2013, and represented approximately 8% of its customers served in Florida, remained subject to customary regulatory review, for which the Company received the regulator’s decision approving the sale in June 2014.  On March 12, 2014, the Company completed the sale of its wastewater treatment facility in Georgia.     

 

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 (the “Northern Assets”).  In January 2008, the Company reached a settlement with the City to transition the

10

 


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

  

Northern Assets 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 Assets 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 Assets 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 Northern Assets 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, 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 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.  On April 11, 2013, the Indiana Supreme Court 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 case to the trial court for a proceeding consistent with that ruling.  The Northern Assets relinquished represent approximately 0.4% 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 water utility system assets located in the southwest section of the City and in Allen County (the “Southern Assets”), and if negotiations with Fort Wayne officials were to fail, to condemn the Southern 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. As part of such settlement discussions, the parties negotiated an acquisition agreement that was approved by the City on May 13, 2014.  The acquisition agreement will settle both the acquisition of the Southern Assets and the dispute concerning the Northern Assets.  The acquisition agreement establishes an aggregate purchase price of $67,011 for the Southern and Northern Assets.  The City has already paid Aqua Indiana $16,911 for the Northern Assets.  The completion of the transaction is conditioned upon approval by various regulatory bodies.  If this transaction is consummated, the Company will expand its sewer customer base by accepting new wastewater from the City.  The transaction is not expected to close until the fourth quarter of 2014.  The Company continues to evaluate its legal and operational options on an ongoing basis.    The planned sale of these operations is accounted for as a  discontinued operation held for sale beginning in the first quarter of 2014

 

The operating results, cash flows, and financial position of the Company’s operations named above, during the periods owned, have been presented in the Company’s consolidated statements of net income,

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Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

  

consolidated statements of cash flow, and consolidated balance sheets 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

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2014

 

2013

 

2014

 

2013

Operating revenues

 

$

1,720 

 

$

4,120 

 

$

3,299 

 

$

11,613 

Total operating expenses

 

 

467 

 

 

2,193 

 

 

1,140 

 

 

7,213 

Operating income

 

 

1,253 

 

 

1,927 

 

 

2,159 

 

 

4,400 

Other (income) expense:

 

 

 

 

 

 

 

 

 

 

 

 

Loss (gain) on sale

 

 

 -

 

 

982 

 

 

134 

 

 

(5,469)

Other, net

 

 

 -

 

 

 

 

 -

 

 

Income from discontinued operations before income taxes

 

 

1,253 

 

 

943 

 

 

2,025 

 

 

9,868 

Provision for income taxes

 

 

502 

 

 

361 

 

 

816 

 

 

3,585 

Income from discontinued operations

 

$

751 

 

$

582 

 

$

1,209 

 

$

6,283 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2014

 

2013

 

 

 

 

 

 

 

Property, plant and equipment, at cost