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
1
(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
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
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
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
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
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
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 |
2 | 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
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
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
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,
11
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 |
- |
2 |
- |
1 | ||||||||
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
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 |