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
1
AQUA AMERICA, INC. AND SUBSIDIARIES
(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
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
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
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
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
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) |
7 | 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
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
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
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
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
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
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,