Annual Reports

 
Quarterly Reports

  • 10-Q (Nov 2, 2017)
  • 10-Q (Aug 3, 2017)
  • 10-Q (May 4, 2017)
  • 10-Q (Nov 2, 2016)
  • 10-Q (Aug 3, 2016)
  • 10-Q (May 6, 2016)

 
8-K

 
Other

Aqua America 10-Q 2011
Form 10-Q
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2011
     
o   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
incorporation or organization)
  (I.R.S. Employer
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 þ No o
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 þ No o
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 þ   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
        (do not check if a 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 o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of October 24, 2011: 138,568,084
 
 

 

 


 

AQUA AMERICA, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
         
    Page  
Part I — Financial Information
 
       
       
 
       
    2  
 
       
    3  
 
       
    4  
 
       
    5  
 
       
    6  
 
       
    7  
 
       
    8  
 
       
    24  
 
       
    32  
 
       
    32  
 
       
Part II — Other Information
 
       
    32  
 
       
    34  
 
       
    35  
 
       
    36  
 
       
    37  
 
       
    38  
 
       
 Exhibit 2.1
 Exhibit 2.2
 Exhibit 2.3
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

 

1


Table of Contents

Part 1 — Financial Information
Item 1.   Financial Statements
AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except per share amounts)
(UNAUDITED)
                 
    September 30,     December 31,  
    2011     2010  
Assets
               
Property, plant and equipment, at cost
  $ 4,528,687     $ 4,322,260  
Less: accumulated depreciation
    1,015,529       964,903  
 
           
Net property, plant and equipment
    3,513,158       3,357,357  
 
           
Current assets:
               
Cash and cash equivalents
    7,988       5,934  
Accounts receivable and unbilled revenues, net
    86,710       78,170  
Income tax receivable
    33,600       33,600  
Deferred income taxes
    18,218        
Inventory, materials and supplies
    11,632       9,912  
Prepayments and other current assets
    8,075       10,403  
Assets of discontinued operations held for sale
    169,727       163,499  
 
           
Total current assets
    335,950       301,518  
 
           
 
               
Regulatory assets
    198,700       187,977  
Deferred charges and other assets, net
    51,219       62,610  
Funds restricted for construction activity
    100,577       135,086  
Goodwill
    28,465       27,918  
 
           
 
  $ 4,228,069     $ 4,072,466  
 
           
Liabilities and Equity
               
Aqua America stockholders’ equity:
               
Common stock at $.50 par value, authorized 300,000,000 shares, issued 139,268,821 and 138,449,039 in 2011 and 2010
  $ 69,633     $ 69,223  
Capital in excess of par value
    681,149       664,369  
Retained earnings
    474,358       452,470  
Treasury stock, at cost, 703,216 and 673,472 shares in 2011 and 2010
    (12,983 )     (12,307 )
Accumulated other comprehensive income
    66       499  
 
           
Total Aqua America stockholders’ equity
    1,212,223       1,174,254  
 
               
Noncontrolling interest
    585       572  
 
           
 
               
Total equity
    1,212,808       1,174,826  
 
           
 
               
Long-term debt, excluding current portion
    1,402,451       1,491,370  
Commitments and contingencies
           
 
               
Current liabilities:
               
Current portion of long-term debt
    95,362       28,087  
Loans payable
    102,978       89,668  
Accounts payable
    38,042       44,051  
Accrued interest
    16,685       15,550  
Accrued taxes
    14,863       18,283  
Dividends payable
    22,863        
Other accrued liabilities
    23,046       24,037  
Liabilities of discontinued operations held for sale
    114,821       103,599  
 
           
Total current liabilities
    428,660       323,275  
 
           
 
               
Deferred credits and other liabilities:
               
Deferred income taxes and investment tax credits
    550,470       456,298  
Customers’ advances for construction
    66,369       65,250  
Regulatory liabilities
    38,747       33,431  
Other
    87,650       93,565  
 
           
Total deferred credits and other liabilities
    743,236       648,544  
 
           
 
               
Contributions in aid of construction
    440,914       434,451  
 
           
 
  $ 4,228,069     $ 4,072,466  
 
           
See notes to consolidated financial statements beginning on page 8 of this report.

 

2


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(UNAUDITED)
                 
    Nine Months Ended  
    September 30,  
    2011     2010  
 
               
Operating revenues
  $ 539,256     $ 515,003  
 
               
Operating expenses:
               
Operations and maintenance
    200,535       198,448  
Depreciation
    79,884       77,635  
Amortization
    4,335       9,244  
Taxes other than income taxes
    33,126       32,161  
 
           
 
    317,880       317,488  
 
           
 
               
Operating income
    221,376       197,515  
 
               
Other expense (income):
               
Interest expense, net
    58,457       54,418  
Allowance for funds used during construction
    (5,710 )     (3,895 )
Gain on sale of other assets
    (475 )     (2,294 )
 
           
Income from continuing operations before income taxes
    169,104       149,286  
Provision for income taxes
    56,303       58,573  
 
           
Income from continuing operations
    112,801       90,713  
 
               
Discontinued operations:
               
Income from discontinued operations before income taxes
    6,194       7,385  
Provision for income taxes
    9,931       2,981  
 
           
(Loss) income from discontinued operations
    (3,737 )     4,404  
 
           
Net income attributable to common shareholders
  $ 109,064     $ 95,117  
 
           
 
               
Net income attributable to common shareholders
  $ 109,064     $ 95,117  
Other comprehensive income, net of tax:
               
Unrealized holding (loss) gain on investments
    (277 )     1,174  
Reclassification adjustment for gains reported in net income
    (156 )     (1,330 )
 
           
Comprehensive income
  $ 108,631     $ 94,961  
 
           
 
               
Income from continuing operations per share:
               
Basic
  $ 0.82     $ 0.66  
 
           
Diluted
  $ 0.81     $ 0.66  
 
           
 
               
(Loss) income from discontinued operations per share:
               
Basic
  $ (0.03 )   $ 0.03  
 
           
Diluted
  $ (0.03 )   $ 0.03  
 
           
 
               
Net income per common share:
               
Basic
  $ 0.79     $ 0.70  
 
           
Diluted
  $ 0.79     $ 0.69  
 
           
 
               
Average common shares outstanding during the period:
               
Basic
    138,081       136,798  
 
           
Diluted
    138,625       137,112  
 
           
 
               
Cash dividends declared per common share
  $ 0.63     $ 0.59  
 
           
See notes to consolidated financial statements beginning on page 8 of this report.

 

3


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(UNAUDITED)
                 
    Three Months Ended  
    September 30,  
    2011     2010  
 
               
Operating revenues
  $ 197,328     $ 193,477  
 
               
Operating expenses:
               
Operations and maintenance
    70,039       68,908  
Depreciation
    27,132       26,494  
Amortization
    1,074       3,310  
Taxes other than income taxes
    11,324       11,442  
 
           
 
    109,569       110,154  
 
           
 
               
Operating income
    87,759       83,323  
 
               
Other expense (income):
               
Interest expense, net
    19,560       18,574  
Allowance for funds used during construction
    (1,804 )     (1,018 )
Gain on sale of other assets
    (216 )     (291 )
 
           
Income from continuing operations before income taxes
    70,219       66,058  
Provision for income taxes
    24,703       25,728  
 
           
Income from continuing operations
    45,516       40,330  
 
               
Discontinued operations:
               
Income from discontinued operations before income taxes
    5,138       5,747  
Provision for income taxes
    9,531       2,326  
 
           
(Loss) income from discontinued operations
    (4,393 )     3,421  
 
           
Net income attributable to common shareholders
  $ 41,123     $ 43,751  
 
           
 
               
Net income attributable to common shareholders
  $ 41,123     $ 43,751  
Other comprehensive income, net of tax:
               
Unrealized holding (loss) gain on investments
    (373 )     272  
Reclassification adjustment for gain reported in net income
    (83 )      
 
           
Comprehensive income
  $ 40,667     $ 44,023  
 
           
 
               
Income from continuing operations per share:
               
Basic
  $ 0.33     $ 0.29  
 
           
Diluted
  $ 0.33     $ 0.29  
 
           
 
               
(Loss) income from discontinued operations per share:
               
Basic
  $ (0.03 )   $ 0.02  
 
           
Diluted
  $ (0.03 )   $ 0.02  
 
           
 
               
Net income per common share:
               
Basic
  $ 0.30     $ 0.32  
 
           
Diluted
  $ 0.30     $ 0.32  
 
           
 
               
Average common shares outstanding during the period:
               
Basic
    138,297       137,095  
 
           
Diluted
    138,951       137,394  
 
           
 
               
Cash dividends declared per common share
  $ 0.32     $ 0.30  
 
           
See notes to consolidated financial statements beginning on page 8 of this report.

 

4


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(In thousands of dollars, except per share amounts)
(UNAUDITED)
                 
    September 30,     December 31,  
    2011     2010  
Aqua America stockholders’ equity:
               
Common stock, $.50 par value
  $ 69,633     $ 69,223  
Capital in excess of par value
    681,149       664,369  
Retained earnings
    474,358       452,470  
Treasury stock, at cost
    (12,983 )     (12,307 )
Accumulated other comprehensive income
    66       499  
 
           
Total Aqua America stockholders’ equity
    1,212,223       1,174,254  
 
               
Noncontrolling interest
    585       572  
 
           
 
               
Total equity
    1,212,808       1,174,826  
 
           
Long-term debt:
Long-term debt of subsidiaries (substantially secured by utility plant):
                         
Interest Rate Range     Maturity Date Range                  
0.00% to 0.99%
    2012 to 2034       6,293       6,632  
1.00% to 1.99%
    2011 to 2035       26,127       22,758  
2.00% to 2.99%
    2019 to 2031       15,637       13,461  
3.00% to 3.99%
    2016 to 2030       25,174       26,548  
4.00% to 4.99%
    2020 to 2043       367,101       367,854  
5.00% to 5.99%
    2012 to 2043       429,423       429,663  
6.00% to 6.99%
    2011 to 2036       78,248       78,232  
7.00% to 7.99%
    2012 to 2025       29,292       30,155  
8.00% to 8.99%
    2021 to 2025       34,035       34,260  
9.00% to 9.99%
    2013 to 2026       38,994       44,694  
10.40%
    2018       6,000       6,000  
 
                   
 
            1,056,324       1,060,257  
 
                       
Notes payable to bank under revolving credit agreement, variable rate, due May 2012
            47,000       65,000  
Unsecured notes payable:
                       
Notes ranging from 4.62% to 4.87%, due 2013 through 2024
            193,000       193,000  
Notes ranging from 5.01% to 5.95%, due 2014 through 2037
            242,132       242,132  
 
                   
 
            1,538,456       1,560,389  
Less: long-term debt of discontinued operations
            40,643       40,932  
 
                   
 
            1,497,813       1,519,457  
Current portion of long-term debt
            95,362       28,087  
 
                   
Long-term debt, excluding current portion
            1,402,451       1,491,370  
 
                   
Total capitalization
          $ 2,615,259     $ 2,666,196  
 
                   
See notes to consolidated financial statements beginning on page 8 of this report.

 

5


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 (Loss)     Interest     Total  
Balance at December 31, 2010
  $ 69,223     $ 664,369     $ 452,470     $ (12,307 )   $ 499     $ 572     $ 1,174,826  
Net income
                109,064                   13       109,077  
Unrealized holding loss on investments, net of income tax of $149
                            (277 )           (277 )
Reclassification adjustment for gain reported in net income, net of income tax of $84
                            (156 )           (156 )
Dividends paid
                (64,266 )                       (64,266 )
Dividends declared
                (22,863 )                       (22,863 )
Sale of stock (445,004 shares)
    215       8,861             325                   9,401  
Repurchase of stock (44,165 shares)
                      (1,001 )                 (1,001 )
Equity compensation plan (14,176 shares)
    7       (7 )                              
Exercise of stock options (375,023 shares)
    188       5,647                               5,835  
Stock-based compensation
          2,852       (47 )                       2,805  
Employee stock plan tax benefits
          (573 )                             (573 )
 
                                         
Balance at September 30, 2011
  $ 69,633     $ 681,149     $ 474,358     $ (12,983 )   $ 66     $ 585     $ 1,212,808  
 
                                         
See notes to consolidated financial statements beginning on page 8 of this report.

 

6


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands of dollars)
(UNAUDITED)
                 
    Nine Months Ended  
    September 30,  
    2011     2010  
Cash flows from operating activities:
               
Net income
  $ 109,064     $ 95,117  
(Loss) income from discontinued operations
    (3,737 )     4,404  
 
           
Income from continuing operations
    112,801       90,713  
 
           
Adjustments to reconcile income from continuing operations to net cash flows from operating activities:
               
Depreciation and amortization
    84,219       86,879  
Deferred income taxes
    58,495       34,623  
Provision for doubtful accounts
    3,615       3,475  
Stock-based compensation
    2,768       3,015  
Gain on sale of utility system
    (3,946 )      
Gain on sale of other assets
    (475 )     (2,294 )
Net increase in receivables, inventory and prepayments
    (14,001 )     (20,634 )
Net increase (decrease) in payables, accrued interest, accrued taxes and other accrued liabilities
    323       (16,722 )
Other
    (3,162 )     (2,763 )
 
           
Operating cash flows from continuing operations
    240,637       176,292  
Operating cash flows from discontinued operations, net
    6,466       12,336  
 
           
Net cash flows from operating activities
    247,103       188,628  
 
           
Cash flows from investing activities:
               
Property, plant and equipment additions, including allowance for funds used during construction of $5,710 and $3,895
    (226,075 )     (231,542 )
Acquisitions of utility systems and other, net
    (6,934 )     (1,948 )
Additions to funds restricted for construction activity
    (135 )     (1,051 )
Release of funds previously restricted for construction activity
    34,644       41,635  
Net proceeds from the sale of utility system and other assets
    12,628       3,541  
Proceeds from note receivable
    5,289       1,955  
Other
    (631 )     (5,643 )
 
           
Investing cash flows used in continuing operations
    (181,214 )     (193,053 )
Investing cash flows used in discontinued operations, net
    (2,915 )     (5,967 )
 
           
Net cash flows used in investing activities
    (184,129 )     (199,020 )
 
           
Cash flows from financing activities:
               
Customers’ advances and contributions in aid of construction
    3,324       5,572  
Repayments of customers’ advances
    (1,577 )     (5,199 )
Net proceeds of short-term debt
    13,310       42,041  
Proceeds from long-term debt
    24,974       114,313  
Repayments of long-term debt
    (46,477 )     (97,332 )
Change in cash overdraft position
    (4,122 )     (10,173 )
Proceeds from issuing common stock
    9,401       9,288  
Proceeds from exercised stock options
    5,835       3,889  
Stock-based compensation windfall tax benefits
          302  
Repurchase of common stock
    (1,001 )     (744 )
Dividends paid on common stock
    (64,266 )     (59,584 )
 
           
Financing cash flows (used in) from continuing operations
    (60,599 )     2,373  
Financing cash flows used in discontinued operations, net
    (321 )     (296 )
 
           
Net cash flows (used in) from financing activities
    (60,920 )     2,077  
 
           
 
               
Net increase (decrease) in cash and cash equivalents
    2,054       (8,315 )
Cash and cash equivalents at beginning of period
    5,934       21,869  
 
           
Cash and cash equivalents at end of period
  $ 7,988     $ 13,554  
 
           
See notes to consolidated financial statements beginning on page 8 of this report.

 

7


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 1   Basis of Presentation
The accompanying consolidated balance sheets and statements of capitalization of Aqua America, Inc. and subsidiaries (the “Company”) at September 30, 2011, the consolidated statements of income and comprehensive income for the nine and three months ended September 30, 2011 and 2010, the consolidated statements of cash flow for the nine months ended September 30, 2011 and 2010, and the consolidated statement of equity for the nine months ended September 30, 2011, 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, 2010. 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, 2010 consolidated balance sheet data presented herein was derived from the Company’s December 31, 2010 audited consolidated financial statements, but does not include all disclosures and notes normally provided in annual financial statements. Certain prior period amounts have been reclassified including reporting discontinued operations (see Note 4) and to conform to the current period presentation.
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, 2010
  $ 36,113     $ 4,121     $ 40,234  
Goodwill acquired
    870             870  
Reclassifications to utility plant acquisition adjustment
    (323 )           (323 )
 
                 
Balance at September 30, 2011
  $ 36,660     $ 4,121     $ 40,781  
 
                 
Included in the Company’s regulated segment goodwill balance at September 30, 2011 and December 31, 2010 is $12,316 of goodwill associated with discontinued operations.
The reclassification of 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.

 

8


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
As of July 31, 2011, management performed its annual test of goodwill for impairment, in conjunction with the timing of the Company’s annual five-year financial plan. Based on the Company’s comparison of the estimated fair value of each reporting unit to its respective carrying amount management concluded that the estimated fair value of each reporting unit was substantially in excess of the reporting unit’s carrying amount, indicating that none of the Company’s goodwill was impaired.
Note 3   Acquisitions
As part of the Company’s growth-through-acquisition strategy, in July 2011, the Company entered into a definitive agreement with American Water Works Company, Inc. (“American Water”) to purchase all of the stock of the subsidiary that holds American Water’s regulated water and wastewater operations in Ohio for cash of approximately $88,000 at closing plus certain assumed liabilities, including debt of approximately $16,000. American Water’s Ohio operations serve approximately 57,000 customers. The purchase price is subject to certain adjustments at closing, and closing is conditioned upon the closing of the Company’s sale of its regulated water operations in New York to American Water, and is subject to applicable regulatory approvals. The transaction will be accounted for as a business combination and is expected to close in the first quarter of 2012.
In June 2011, the Company completed its acquisition of approximately 51 water and five wastewater systems in Texas serving approximately 5,300 customers. The total purchase price consisted of $6,245 in cash. The pro forma effect of the business acquired is not material to the Company’s results of operations.
Note 4   Discontinued Operations and Other Dispositions
Discontinued Operations — In July 2011, the Company entered into a definitive agreement with Connecticut Water Service, Inc. to sell its regulated water operations in Maine for cash of approximately $35,800 at closing plus certain assumed liabilities, including debt of approximately $17,500. The purchase price is subject to certain adjustments at closing. This subsidiary is included in the Regulated segment, and as of September 30, 2011, the carrying amount of Maine’s assets and liabilities were $60,844 and $48,202, respectively. The Company’s Maine operations serve approximately 16,000 customers. The sale is conditioned, among other things, on the receipt of regulatory approvals, and is expected to close in the first quarter of 2012. In the third quarter, the Company recognized additional income tax expense of $4,501 for the additional deferred tax liabilities that arise from the difference between the stock and tax basis of the Company’s investment in its Aqua Maine subsidiary. The completion of this transaction will conclude the Company’s operations in Maine.

 

9


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
In July 2011, the Company entered into a definitive agreement with American Water to sell its regulated water operations in New York for cash of approximately $42,000 at closing plus certain assumed liabilities, including debt of approximately $23,000. This subsidiary is included in the Regulated segment, and as of September 30, 2011, the carrying amount of New York’s assets and liabilities were $108,883 and $66,619, respectively. In the third quarter, the Company recognized additional income tax expense of $2,937 for the additional deferred tax liabilities that arise from the difference between the stock and tax basis of the Company’s investment in its Aqua New York subsidiary. The Company’s New York operations serve approximately 51,000 customers. The purchase price is subject to certain adjustments at closing, and closing is conditioned upon the closing of the Company’s acquisition of American Water’s regulated water and wastewater operations in Ohio, and is subject to applicable regulatory approvals. The sale is expected to close in the first quarter of 2012. The completion of this transaction will conclude the Company’s operations in New York.
Based on an assessment of the sale prices and the carrying values of the Company’s planned dispositions of its Maine and New York operations, there is no anticipated impairment of our long-lived assets or goodwill expected to be recognized as a result of the sale agreements. However, in the third quarter of 2011, the Company recognized an estimated loss on disposition of $1,254 primarily due to the cessation of depreciation in its New York operations.
The operating results, cash flows, and financial position of the Company’s subsidiaries named above have been presented in the Company’s Consolidated Statements of Income and Comprehensive Income, Consolidated Statements of Cash Flow, and Consolidated Balance Sheets as discontinued operations.
A summary of discontinued operations presented in the Consolidated Statements of Income and Comprehensive Income include the following:
                                 
    Nine Months Ended     Three Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
Operating revenues
  $ 31,849     $ 31,755     $ 14,224     $ 14,320  
Total operating expenses
    22,689       22,924       7,269       8,056  
 
                       
Operating income
    9,160       8,831       6,955       6,264  
Estimated loss on disposition
    1,254             1,254        
Other expense, net
    1,712       1,446       563       517  
 
                       
Income from discontinued operations before income taxes
    6,194       7,385       5,138       5,747  
Provision for income taxes
    9,931       2,981       9,531       2,326  
 
                       
(Loss) income from discontinued operations
  $ (3,737 )   $ 4,404     $ (4,393 )   $ 3,421  
 
                       

 

10


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:
                 
    September 30,     December 31,  
    2011     2010  
 
               
Property, plant and equipment, at cost
  $ 168,463     $ 165,935  
Less: accumulated depreciation
    56,923       55,492  
 
           
Net property, plant and equipment
    111,540       110,443  
Current assets
    12,768       8,858  
Regulatory assets
    30,685       29,399  
Goodwill
    12,316       12,316  
Other assets
    2,418       2,483  
 
           
Assets of discontinued operations held for sale
    169,727       163,499  
 
               
Long-term debt, excluding current portion
    40,307       40,606  
Current liabilities
    7,741       4,039  
Deferred income taxes and investment tax credits
    30,110       22,407  
Contributions in aid of construction
    9,794       9,656  
Other liabilities
    26,869       26,891  
 
           
Liabilities of discontinued operations held for sale
    114,821       103,599  
 
           
 
               
Net assets
  $ 54,906     $ 59,900  
 
           
Other Dispositions — The following dispositions have not been presented as discontinued operations in the Company’s consolidated financial statements as the Company does not believe that disclosure of the following disposed water and wastewater utility systems as discontinued operations is meaningful to the reader of the financial statements for making investment decisions either individually or in the aggregate.
In June 2011, the Company sold a water and wastewater utility system for net proceeds of $4,106. The sale resulted in the recognition of a gain on the sale, net of expenses, of $1,580 in the second quarter of 2011, and is reported in the consolidated statements of income and comprehensive income as a reduction to operations and maintenance expense. Further, an additional amount of contingent gain was deferred pending the final regulatory treatment afforded to such item.
In May 2011, the Company sold its regulated water and wastewater operations in Missouri for net proceeds of $3,225. This sale of the Company’s Missouri operations concluded the bulk of our regulated utility operations in Missouri.

 

11


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
In January 2011, the Company sold a water and wastewater utility system in Texas for net proceeds of $3,118. The sale resulted in the recognition of a gain on the sale of these assets, net of expenses, of $2,452. The gain is reported in the consolidated statements of income and comprehensive income as a reduction to operations and maintenance expense.
The City of Fort Wayne, Indiana (the “City”) has authorized the acquisition by eminent domain of the northern portion of the utility system of one of the operating subsidiaries that the Company acquired in connection with the AquaSource acquisition in 2003. In 2008, the Company reached a settlement with the City to transition the northern portion of the system in 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 portion of the Company’s system 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 portion of the system 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. Once the contingency is resolved and the asset valuation is finalized, through the finalization of the litigation between the Company and the City of Fort Wayne, the amounts deferred will be recognized in the Company’s consolidated income statement. 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 disagreed with the Court’s decision and as such on November 11, 2010, requested that the Wells County Indiana Circuit Court certify those issues for an interim appeal. The Wells County Indiana Circuit Court granted that request and on March 7, 2011, the Indiana Court of Appeals granted the Company’s request to review the decision of those issues on appeal. On July 6, 2011, the Company filed its appeal with the Indiana Court of Appeals. The case is now pending before the Indiana Court of Appeals. Depending upon the outcome of all of the legal proceedings the Company may be required to refund a portion of the initial valuation payment, or may receive additional proceeds. The northern portion of the utility system relinquished represents approximately 0.4% of the Company’s total assets.

 

12


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 5   Fair Value of Financial Instruments
The carrying amount of current assets and liabilities that are considered financial instruments approximates their fair value as of the dates presented. The carrying amounts and estimated fair values of the Company’s long-term debt are as follows:
                 
    September 30,     December 31,  
    2011     2010  
Carrying Amount
  $ 1,538,456     $ 1,560,389  
Estimated Fair Value
    1,599,070       1,483,816  
Included in the carrying amount of the Company’s long-term debt as of September 30, 2011 and December 31, 2010, is long-term debt associated with discontinued operations of $40,643 and $40,932, respectively. The fair value of the Company’s long-term debt as of September 30, 2011 and December 31, 2010 for its discontinued operations is $42,708 and $40,612, respectively.
The fair value of long-term debt has been determined by discounting the future cash flows using current market interest rates for similar financial instruments of the same duration. The Company’s customers’ advances for construction and related tax deposits have a carrying value of $68,087 as of September 30, 2011, and $66,966 as of December 31, 2010, which includes customer’s advances for construction and related tax deposits associated with discontinued operations of $1,718 and $1,716, respectively. Their relative fair values cannot be accurately estimated because future refund payments depend on several variables, including new customer connections, customer consumption levels, and future rate increases. Portions of these non-interest bearing instruments are payable annually through 2026 and amounts not paid by the contract expiration dates become non-refundable. The fair value of these amounts would, however, be less than their carrying value due to the non-interest bearing feature.

 

13


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 6   Net Income per Common Share
Basic net income per common share is based on the weighted average number of common shares outstanding. Diluted net income per common share is based on the weighted average number of common shares outstanding and potentially dilutive shares. The dilutive effect of employee stock-based compensation is included in the computation of diluted net income per common share. The dilutive effect of stock-based compensation is calculated using the treasury stock method and expected proceeds upon exercise or issuance of the stock-based compensation. The following table summarizes the shares, in thousands, used in computing basic and diluted net income per common share:
                                 
    Nine Months Ended     Three Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
Average common shares outstanding during the period for basic computation
    138,081       136,798       138,297       137,095  
Dilutive effect of employee stock-based compensation
    544       314       654       299  
 
                       
Average common shares outstanding during the period for diluted computation
    138,625       137,112       138,951       137,394  
 
                       
For the nine and three months ended September 30, 2011, employee stock options to purchase 933,800 shares of common stock, were excluded from the calculations of diluted net income per share as the calculated proceeds from the options’ exercise were greater than the average market price of the Company’s common stock during these periods. For the nine and three months ended September 30, 2010, employee stock options to purchase 2,623,273 and 1,512,197 shares of common stock, respectively, were excluded from the calculations of diluted net income per share as the calculated proceeds from the options’ exercise were greater than the average market price of the Company’s common stock during these periods.
Note 7   Stock-based Compensation
Under the Company’s 2009 Omnibus Equity Compensation Plan (the “2009 Plan”), as approved by the Company’s shareholders to replace the 2004 Equity Compensation Plan (the “2004 Plan”), stock options, stock units, stock awards, stock appreciation rights, dividend equivalents, and other stock-based awards may be granted to employees, non-employee directors, and consultants and advisors. The 2009 Plan authorizes 5,000,000 shares for issuance under the plan. A maximum of 50% of the shares available for issuance under the 2009 Plan may be issued as restricted stock and the maximum number of shares that may be subject to grants under the Plan to any one individual in any one year is 200,000. Awards under the 2009 Plan are made by a committee of the Board of Directors. At September 30, 2011, 4,133,278 shares underlying stock-based compensation awards were still available for grants under the 2009 Plan. No further grants may be made under the 2004 Plan.

 

14


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Included within the Company’s stock-based compensation for the nine months ended September 30, 2011 and 2010 is $77 and $80, respectively, and for the three months ended September 30, 2011 and 2010 is $27 and $23, respectively, of stock-based compensation associated with discontinued operations.
Performance Share Units — A performance share unit (“PSU”) represents the right to receive a share of the Company’s common stock if specified performance goals are met over the three year performance period specified in the grant, subject to certain exceptions through the three year vesting period. Each grantee is granted a target award of PSUs, and may earn between 0% and 200% of the target amount depending on the Company’s performance against the performance goals. During the nine and three months ended September 30, 2011, the Company recorded stock-based compensation related to PSUs as a component of operations and maintenance expense of $697, and $336, respectively. The following table summarizes nonvested PSU transactions for the nine months ended September 30, 2011:
                 
    Number     Weighted  
    of     Average  
    Share Units     Fair Value  
 
               
Nonvested share units at beginning of period
        $  
Granted
    109,375       24.38  
Performance criteria adjustment
    31,127       24.38  
Forfeited
    (2,039 )     24.38  
Vested
           
Share unit awards issued
           
 
           
Nonvested share units at end of period
    138,463     $ 24.38  
 
           
The fair value of PSUs was estimated at the grant date based on the probability of satisfying the performance conditions associated with the PSUs using the Monte Carlo valuation method. The per unit weighted-average fair value at the date of grant for PSUs granted during the nine months ended September 30, 2011 was $24.38. The fair value of each PSU grant is amortized into compensation expense on a straight-line basis over their respective vesting periods, which range from 24 to 36 months. The accrual of compensation costs is based on our estimate of the final expected value of the award, and is adjusted as required. The Company assumes that forfeitures will be minimal, and recognizes forfeitures as they occur, which results in a reduction in compensation expense. The recording of compensation expense for PSUs has no impact on net cash flows.

 

15


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Restricted Stock Units — A restricted stock unit (“RSU”) represents the right to receive a share of the Company’s common stock. RSUs are eligible to be earned at the end of a specified restricted period, generally three years, beginning on the date of grant. During the nine and three months ended September 30, 2011, the Company recorded stock-based compensation related to awards of RSUs as a component of operations and maintenance expense of $243, and $102, respectively. The Company assumes that forfeitures will be minimal, and recognizes forfeitures as they occur, which results in a reduction in compensation expense. The following table summarizes nonvested RSU transactions for the nine months ended September 30, 2011:
                 
    Number     Weighted  
    of     Average  
    Stock Units     Fair Value  
 
               
Nonvested stock units at beginning of period
        $  
Granted
    44,342       22.21  
Vested
           
Forfeited
           
 
           
Nonvested stock units at end of period
    44,342     $ 22.21  
 
           
Stock Options — The fair value of stock options is estimated at the grant date using the Black-Scholes option-pricing model. The following table provides compensation costs for stock-based compensation related to stock options granted in prior periods:
                                 
    Nine Months Ended     Three Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
Stock-based compensation for stock options within operations and maintenance expenses
  $ 1,105     $ 1,540     $ 337     $ 526  
Income tax benefit
    561       502       141       201  
There were no stock options granted during the nine months ended September 30, 2011. During the second quarter of 2011, the Company changed its estimation assumptions related to its historical stock option forfeitures which resulted in a favorable adjustment to compensation expense of $644 and additional income tax expense of $52.

 

16


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The following table summarizes stock option transactions for the nine months ended September 30, 2011:
                                 
            Weighted     Weighted        
            Average     Average     Aggregate  
            Exercise     Remaining     Intrinsic  
    Shares     Price     Life (years)     Value  
Options:
                               
Outstanding at beginning of period
    3,839,197     $ 19.54                  
Granted
                             
Forfeited
    (12,356 )     18.56                  
Expired
    (10,796 )     23.13                  
Exercised
    (375,023 )     15.56                  
 
                           
Outstanding at end of period
    3,441,022     $ 19.97       5.2     $ 9,835  
 
                       
 
                               
Exercisable at end of period
    2,956,178     $ 20.31       4.7     $ 8,055  
 
                       
Restricted Stock — During the nine months ended September 30, 2011 and 2010, the Company recorded stock-based compensation related to restricted stock awards as a component of operations and maintenance expense in the amounts of $1,451 and $1,555, respectively. During the three months ended September 30, 2011 and 2010, the Company recorded stock-based compensation related to restricted stock awards as a component of operations and maintenance expense in the amounts of $351 and $412, respectively. The following table summarizes nonvested restricted stock transactions for the nine months ended September 30, 2011:
                 
    Number     Weighted  
    of     Average  
    Shares     Fair Value  
 
               
Nonvested shares at beginning of period
    233,387     $ 17.62  
Granted
    16,000       22.44  
Vested
    (88,704 )     18.60  
Forfeited
    (1,824 )     17.23  
 
           
Nonvested share units at end of period
    158,859     $ 17.56  
 
           

 

17


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 8   Pension Plans and Other Postretirement Benefits
The Company maintains qualified defined benefit pension plans, nonqualified pension plans and other postretirement benefit plans for certain of its employees. The net periodic benefit cost is based on estimated values and an extensive use of assumptions about the discount rate, expected return on plan assets, the rate of future compensation increases received by the Company’s employees, mortality, turnover, and medical costs. The following tables provide the components of net periodic benefit costs:
                                 
    Pension Benefits  
    Nine Months Ended     Three Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
Service cost
  $ 3,469     $ 3,396     $ 1,382     $ 1,052  
Interest cost
    10,160       9,702       4,232       3,262  
Expected return on plan assets
    (9,842 )     (8,545 )     (4,651 )     (2,953 )
Amortization of prior service cost
    260       141       173       71  
Amortization of actuarial loss
    3,057       3,222       1,024       1,162  
Capitalized costs
    (2,761 )     (2,493 )     (954 )     (808 )
Settlement charge
          1,068             184  
Curtailment charge
    100             100        
 
                       
Net periodic benefit cost
  $ 4,443     $ 6,491     $ 1,306     $ 1,970  
 
                       
                                 
    Other  
    Postretirement Benefits  
    Nine Months Ended     Three Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
Service cost
  $ 927     $ 847     $ 176     $ 237  
Interest cost
    2,071       1,831       447       591  
Expected return on plan assets
    (1,523 )     (1,402 )     (281 )     (478 )
Amortization of transition obligation
    78       78       9       26  
Amortization of prior service cost
    (201 )     (201 )     (23 )     (67 )
Amortization of actuarial loss
    627       464       216       122  
Amortization of regulatory asset
    102       102       34       34  
Capitalized costs
    (528 )     (369 )     (185 )     (119 )
Curtailment charge
    27             27        
 
                       
Net periodic benefit cost
  $ 1,580     $ 1,350     $ 420     $ 346  
 
                       

 

18


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Included within the Company’s net periodic benefit costs for the nine months ended September 30, 2011 and 2010 is $1,118 and $1,121, respectively, and for the three months ended September 30, 2011 and 2010 is $405 and $333, respectively, of net periodic benefit costs associated with discontinued operations.
The Company made cash contributions of $16,840 to its defined benefit pension plans during the first nine months of 2011, and intends to make cash contributions of $300 to the plans during the remainder of 2011. In addition, the Company expects to make cash contributions of $2,012 for the funding of its other postretirement benefit plans during the remainder of 2011.
Note 9   Water and Wastewater Rates
During the first nine months of 2011, the Company’s operating divisions in North Carolina, Ohio, Indiana, Pennsylvania, and Maine, were granted base rate increases designed to increase total operating revenues on an annual basis by $6,087.
During the first nine months of 2011, the Company’s operating division in Pennsylvania received infrastructure rehabilitation surcharges of $13,150. Infrastructure rehabilitation surcharges are capped as a percentage of base rates, generally at 5% to 9% of base rates, and are reset to zero when new base rates that reflect the costs of those additions become effective or when a utility’s earnings exceed a regulatory benchmark.
In October 2010, the Company’s operating subsidiary in Texas began to bill interim rates for one of its divisions in accordance with authorization from the Texas Commission on Environmental Quality (“TCEQ”). The additional revenue billed and collected prior to the TCEQ’S final ruling is subject to refund based on the outcome of the rate case. The rate case is expected to conclude with the issuance of an order in the fourth quarter of 2011. However, based on the Company’s review of the rate proceeding during the third quarter of 2011, a revenue reserve was removed and additional operating revenues were recognized of $3,098. As of September 30, 2011, to date we have recognized $6,195 of revenue that is subject to refund based on the outcome of the final commission order. Based on the Company’s review of the present circumstances, a reserve is not considered necessary for the revenue recognized to date.

 

19


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 10   Taxes Other than Income Taxes
The following table provides the components of taxes other than income taxes:
                                 
    Nine Months Ended     Three Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
 
                               
Property
  $ 20,782     $ 20,466     $ 6,930     $ 7,376  
Capital stock
    2,668       2,641       895       850  
Gross receipts, excise and franchise
    7,818       7,790       2,881       3,111  
Payroll
    5,523       5,267       1,583       1,519  
Other
    4,584       3,821       1,875       1,326  
 
                       
Total taxes other than income
  $ 41,375     $ 39,985     $ 14,164     $ 14,182  
 
                       
Included within the Company’s taxes other than income taxes for the nine months ended September 30, 2011 and 2010 is $8,249 and $7,824, respectively, and for the three months ended September 30, 2011 and 2010 is $2,840 and $2,740, respectively, of taxes other than income taxes associated with discontinued operations.
Note 11   Segment Information
The Company has identified thirteen operating segments and has one reportable segment named the “Regulated” segment. The reportable segment is comprised of twelve operating segments for the Company’s water and wastewater regulated utility companies which are organized by the states where we provide these services. In addition, one segment is not quantitatively significant to be reportable and is comprised of the businesses that provide on-site septic tank pumping, sludge hauling services and certain other non-regulated water and wastewater services. This segment is included as a component of “Other” in the tables below. Also included in “Other” are corporate costs that have not been allocated to the Regulated segment and intersegment eliminations.

 

20


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The following table presents the Company’s segment information for its continuing operations:
                                                 
    Three Months Ended     Three Months Ended  
    September 30, 2011     September 30, 2010  
    Regulated     Other     Consolidated     Regulated     Other     Consolidated  
Operating revenues
  $ 194,068     $ 3,260     $ 197,328     $ 190,656     $ 2,821     $ 193,477  
Operations and maintenance expense
    69,016       1,023       70,039       66,014       2,894       68,908  
Depreciation
    27,461       (329 )     27,132       26,706       (212 )     26,494  
Operating income (loss)
    85,573       2,186       87,759       83,436       (113 )     83,323  
Interest expense, net of AFUDC
    16,668       1,088       17,756       16,210       1,346       17,556  
Income tax
    24,396       307       24,703       26,798       (1,070 )     25,728  
Income (loss) from continuing operations
    44,589       927       45,516       40,692       (362 )     40,330  
                                                 
    Nine Months Ended     Nine Months Ended  
    September 30, 2011     September 30, 2010  
    Regulated     Other     Consolidated     Regulated     Other     Consolidated  
Operating revenues
  $ 529,764     $ 9,492     $ 539,256     $ 506,820     $ 8,183     $ 515,003  
Operations and maintenance expense
    196,033       4,502       200,535       191,224       7,224       198,448  
Depreciation
    81,069       (1,185 )     79,884       78,629       (994 )     77,635  
Operating income
    216,584       4,792       221,376       196,758       757       197,515  
Interest expense, net of AFUDC
    49,489       3,258       52,747       47,810       2,713       50,523  
Gain on sale of other assets
    178       297       475       221       2,073       2,294  
Income tax
    55,985       318       56,303       59,996       (1,423 )     58,573  
Income from continuing operations
    111,288       1,513       112,801       89,173       1,540       90,713  
Capital expenditures
    225,007       1,068       226,075       231,216       326       231,542  
                 
    September 30,     December 31,  
    2011     2010  
Total assets:
               
Regulated
  $ 4,142,219     $ 3,991,493  
Other and eliminations
    85,850       80,973  
 
           
Consolidated
  $ 4,228,069     $ 4,072,466  
 
           
Included within the Company’s regulated segment total assets for September 30, 2011 and December 31, 2010 are total assets of discontinued operations of $169,727 and $163,499, respectively.

 

21


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 12   Commitments and Contingencies
The Company is routinely involved in various disputes, claims, lawsuits and other regulatory and legal matters, including both asserted and unasserted legal claims, in the ordinary course of business. The status of each such matter, referred to herein as a loss contingency, is reviewed and assessed in accordance with applicable accounting rules regarding the nature of the matter, the likelihood that a loss will be incurred, and the amounts involved. As of September 30, 2011, the aggregate amount of $10,910 is accrued for loss contingencies and is reported in the Company’s consolidated balance sheet as other accrued liabilities and other liabilities. These accruals represent management’s best estimate of probable loss (as defined in the accounting guidance) for loss contingencies or the low end of a range of losses if no single probable loss can be estimated. For some loss contingencies, the Company is unable to estimate the amount of the probable loss or range of probable losses. While the final outcome of these loss contingencies cannot be predicted with certainty, and unfavorable outcomes could negatively impact the Company, at this time in the opinion of management, the final resolution of these matters are not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows. Further, the Company has insurance coverage for certain of these loss contingencies, and as of September 30, 2011, estimates that approximately $1,191 of the amount accrued for these matters are probable of recovery through insurance, which amount is also reported in the Company’s consolidated balance sheet as deferred charges and other assets, net.

 

22


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 13   Income Taxes
As of September 30, 2011, the Company recorded a deferred tax asset for a Federal net operating loss (“NOL”) carryforward of $46,135, and for the Company’s Pennsylvania operating subsidiary, a state NOL of $20,621. The Company believes the Federal and state NOL carryforwards are more likely than not to be recovered and require no valuation allowance. The Company’s Federal and state NOL carryforwards do not begin to expire until 2030 and 2031, respectively.
On October 5, 2011, the Company received from the Internal Revenue Service its 2010 income tax refund of $33,600. The refund resulted from a substantial portion of the Company’s capital expenditures qualifying for either bonus depreciation or the 100% expensing allowance.
Note 14   Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (“FASB”) issued revised accounting guidance for accounting for intangible assets, which is intended to reduce the cost and complexity of the annual goodwill impairment test by permitting an entity the option of performing a qualitative assessment to determine whether further impairment testing is necessary. The revised guidance is effective for annual periods beginning after December 15, 2011. The Company will adopt the provisions of the revised guidance as of January 1, 2012, and the Company does not expect the impact of the adoption of the revised guidance to have an impact on the Company’s consolidated results of operations or consolidated financial position.

 

23


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share amounts)
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report contain, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address, among other things: our belief in our ability to renew our short-term lines of credit; the impact and the actions we may need to take if we are unable to obtain sufficient capital; the projected impact of various legal proceedings; the projected effects of recent accounting pronouncements; prospects, plans, objectives, expectations and beliefs of management, as well as information contained in this report where statements are preceded by, followed by or include the words “believes,” “expects,” “anticipates,” “plans,” “future,” “potential,” “probably,” “predictions,“intends,” “will,” “continue” or the negative of such terms or similar expressions. Forward-looking statements are based on a number of assumptions concerning future events, and are subject to a number of risks, uncertainties and other factors, many of which are outside our control, which could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, among others: the effects of regulation, abnormal weather, changes in capital requirements and funding, acquisitions, changes to the capital markets, and our ability to assimilate acquired operations, as well as those risks, uncertainties and other factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in such report. As a result, readers are cautioned not to place undue reliance on any forward-looking statements. We undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.
General Information
Nature of Operations — Aqua America, Inc. (“we” or “us”), a Pennsylvania corporation, is the holding company for regulated utilities providing water or wastewater services to what we estimate to be approximately 3 million people in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, New York, Florida, Indiana, Virginia, Maine, and Georgia. Our largest operating subsidiary, Aqua Pennsylvania, Inc., provides water or wastewater services to approximately one-half of the total number of people we serve, who are located in the suburban areas in counties north and west of the City of Philadelphia and in 25 other counties in Pennsylvania. Our other subsidiaries provide similar services in 11 other states. In July 2011, we entered into a definitive agreement to purchase all of American Water Works Company, Inc’s regulated operations in Ohio (the “Ohio acquisition”), which serve approximately 57,000 customers, and to simultaneously sell our regulated water and wastewater operations in New York, which serve approximately 51,000 customers. Also, in July 2011, we entered into a definitive agreement to sell our operations in Maine, which serve approximately

 

24


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
16,000 customers. The Ohio acquisition will be financed by the issuance of long-term and / or short-term debt. The proceeds from the dispositions of our operations in New York and Maine will be used to paydown a portion of our short-term debt and other general corporate purposes. These transactions are conditioned, among other things, on the receipt of regulatory approvals, and are expected to close in the first quarter of 2012. We are accounting for the sale of our water and wastewater operations in New York and Maine as discontinued operations. The completion of these transactions will conclude our operations in New York and Maine. In December 2010, we entered into a definitive agreement to sell our regulated water and wastewater operations in Missouri, which served approximately 3,900 customers. The sale of our utility in Missouri closed in May 2011, concluding the bulk of our utility operations in Missouri. In addition, we provide water and wastewater service through operating and maintenance contracts with municipal authorities and other parties close to our utility companies’ service territories as well as sludge hauling, septage and grease services, backflow prevention services, and certain other non-regulated water and wastewater services.
Aqua America, Inc., which prior to its name change in 2004 was known as Philadelphia Suburban Corporation, was formed in 1968 as a holding company for its primary subsidiary, Aqua Pennsylvania, Inc., formerly known as Philadelphia Suburban Water Company. In the early 1990s, we embarked on a growth-through-acquisition strategy focused on water and wastewater operations. Our most significant transactions to date have been the merger with Consumers Water Company in 1999, the acquisition of the regulated water and wastewater operations of AquaSource, Inc. in 2003, the acquisition of Heater Utilities, Inc. in 2004, and the acquisition of New York Water Service Corporation in 2007. Since the early 1990s, our business strategy has been primarily directed toward the regulated water and wastewater utility industry and has extended our regulated operations from southeastern Pennsylvania to include operations in 11 other states.
Financial Condition
During the first nine months of 2011, we had $229,006 of capital expenditures, including capital expenditures associated with discontinued operations of $2,931, and repaid debt and made sinking fund contributions and other loan repayments of $46,822, including repayments of debt associated with discontinued operations of $345. The capital expenditures were related to improvements to treatment plants, new and rehabilitated water mains, tanks, hydrants, and service lines, well and booster improvements, and other enhancements and improvements.
At September 30, 2011, we had $7,988 of cash and cash equivalents compared to $5,934 at December 31, 2010. During the first nine months of 2011, we used the proceeds from internally generated funds, the sale of other assets, and the sale or issuance of common stock through our equity compensation plan and dividend reinvestment plan, to fund the cash requirements discussed above and to pay dividends. On October 5, 2011, we received from the Internal Revenue Service our 2010 income tax refund of $33,600. This refund results from a substantial portion of our capital expenditures qualifying for either bonus depreciation or the 100% expensing allowance. The proceeds will be used to paydown a portion of our short-term debt and other general corporate purposes.

 

25


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
At September 30, 2011, our $95,000 unsecured revolving credit facility, which expires in May 2012, had $30,399 available for borrowing, and we have begun discussions on the renewal terms for another multi-year facility with our lenders. At September 30, 2011, we had short-term lines of credit of $164,500, which includes a short-term line of credit associated with a discontinued operation of $4,000, of which $61,522 was available. We did not renew one of our credit lines in the amount of $2,500, which expired on July 1, 2011, as it was no longer needed. One of our short-term lines of credit is an Aqua Pennsylvania $100,000 364-day unsecured revolving credit facility with three banks, which is used to provide working capital, and as of September 30, 2011, $19,763 was available.
Our short-term lines of credit of $164,500 are subject to renewal on an annual basis. Although we believe we will be able to renew these facilities, there is no assurance that they will be renewed, or what the terms of any such renewal will be. The United States credit and liquidity crisis that occurred in 2008 and 2009 caused substantial volatility in capital markets, including credit markets and the banking industry, generally reduced the availability of credit from financing sources, and could re-occur in the future. If in the future, our credit facilities are not renewed or our short-term borrowings are called for repayment, we would have to seek alternative financing sources; however, there can be no assurance that these alternative financing sources would be available on terms acceptable to us. In the event we are not able to obtain sufficient capital, we may need to reduce our capital expenditures and our ability to pursue acquisitions that we may rely on for future growth could be impaired.
The Company’s consolidated balance sheet historically has had a negative working capital position whereby routinely our current liabilities exceed our current assets. Management believes that internally generated funds along with existing credit facilities and the proceeds from the issuance of long-term debt and common stock will be adequate to provide sufficient working capital to maintain normal operations and to meet our financing requirements for at least the next twelve months.
Results of Operations

Analysis of First Nine Months of 2011 Compared to First Nine Months of 2010
Unless specifically noted, the following discussion of the Company’s results of operations for the first nine months of 2011 refers to the Company’s results of operations from continuing operations.
Revenues increased $24,253 or 4.7% primarily due to additional revenues associated with increased water and wastewater rates of $27,713 and additional water and wastewater revenues of $2,630 associated with a larger customer base due to acquisitions. Included as a component of the rates impact is $3,098 of additional revenue recognized in the third quarter of 2011 from our revised estimate of the final outcome of a rate proceeding. Offsetting these increases were decreases in customer water consumption largely due to unfavorable weather conditions in many of our service territories during the third quarter of 2011, as well an increase in water conservation awareness by our customers.

 

26


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Operations and maintenance expenses increased by $2,087 or 1.1% primarily due to increased water production costs of $3,023, an increase in postretirement benefits expenses of $1,964, increases in operating costs associated with acquired utility systems and other growth ventures of $1,954, increases in fuel costs for our service vehicles of $869, and normal increases in other operating costs. Offsetting these increases were the gains on the sales of our utility systems recognized during the first nine months of 2011 of $4,319, the effect of the write-off in 2010 of previously deferred regulatory expenses of $2,082, decreased insurance expense of $1,882, and reduced expenses of $870 associated with the disposition of utility systems. The increase in water production costs is primarily due to an increase in the cost of purchased water.
Depreciation expense increased $2,249 or 2.9% due to the utility plant placed in service since September 30, 2010.
Amortization decreased $4,909 primarily due to the additional expense recognized in the first nine months of 2010 of $5,168 resulting from the recovery of our costs associated with a completed rate filing in Texas, offset by the amortization of the costs associated with, and other costs being recovered in, various rate filings.
Taxes other than income taxes increased by $965 or 3.0% primarily due to an increase in taxes assessed resulting from the pumping of ground water of $759.
Interest expense increased by $4,039 or 7.4% primarily due to additional borrowings to finance capital projects, offset partially by decreased interest rates on long-term debt.
Allowance for funds used during construction (“AFUDC”) increased by $1,815 primarily due to an increase in the average balance of proceeds held from tax-exempt bond issuances that are restricted to funding certain capital projects.
Gain on sale of other assets totaled $475 in the first nine months of 2011 and $2,294 in the first nine months of 2010. The decrease of $1,819 is principally due to a gain on the sale of an investment that occurred in the first quarter of 2010.
Our effective income tax rate was 33.3% in the first nine months of 2011 and 39.2% in the first nine months of 2010. The effective income tax rate decreased as a result of the recognition in 2011 of the net state income tax benefit of $11,193 associated with 100% bonus depreciation for qualifying capital additions.
Income from continuing operations increased by $22,088 or 24.3%, in comparison to the same period in 2010 primarily as a result of the factors described above. On a diluted per share basis, income from continuing operations increased $0.15 reflecting the change in income from continuing operations and a 1.1% increase in the average number of common shares outstanding. As compared to the first nine months of 2010, income from continuing operations adjusted to exclude the net state income tax benefit associated with 100% bonus depreciation, a non-GAAP financial measure, would have increased by $0.07 per share. The increase in the number of shares outstanding is primarily a result of the additional shares sold or issued through our dividend reinvestment plan and equity compensation plan.

 

27


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Income from discontinued operations decreased by $8,141 or $0.06 per diluted share, in comparison to the same period in 2010 primarily as a result of the income tax expense recognized in the third quarter of 2011 of $7,438 for the additional deferred tax liabilities that arise from the difference between the stock and tax basis of the Company’s investment in its discontinued operations.
Net income attributable to common shareholders increased by $13,947 or 14.7%, in comparison to the same period in 2010 primarily as a result of the factors described above. On a diluted per share basis, earnings increased $0.10 reflecting the change in net income attributable to common shareholders and a 1.1% increase in the average number of common shares outstanding. The increase in the number of shares outstanding is primarily a result of the additional shares sold or issued through our dividend reinvestment plan and equity compensation plan.
Results of Operations
Analysis of Third Quarter of 2011 Compared to Third Quarter of 2010
Unless specifically noted, the following discussion of the Company’s results of operations for the third quarter of 2011 refers to the Company’s results of operations from continuing operations.
Revenues increased $3,851 or 2.0% primarily due to additional revenues associated with increased water and wastewater rates of $9,212 and additional water and wastewater revenues of $1,341 associated with a larger customer base due to acquisitions. Included as a component of the rates impact is $3,098 of additional revenue recognized in the third quarter of 2011 from our revised estimate of the final outcome of a rate proceeding. Offsetting these increases were decreases in customer water consumption largely due to unfavorable weather conditions in many of our service territories during the third quarter of 2011 as well an increase in water conservation awareness by our customers.
Operations and maintenance expenses increased by $1,131 or 1.6% primarily due to increases in operating costs associated with acquired utility systems and other growth ventures of $1,133, an increase in postretirement benefits expenses of $509, increases in fuel costs for our service vehicles of $420, and normal increases in other operating costs. Offsetting these increases was a decrease in insurance expense of $1,216, the effect of the write-off in the third quarter of 2010 of previously deferred regulatory expenses of $1,071, and reduced expenses of $596 associated with the disposition of utility systems.
Depreciation expense increased $638 or 2.4% due to the utility plant placed in service since September 30, 2010.

 

28


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Amortization decreased $2,236 primarily due to the additional expense recognized in the third quarter of 2010 of $1,737 resulting from the recovery of our costs associated with a completed rate filing in Texas, offset by the amortization of the costs associated with, and other costs being recovered in, various rate filings.
Taxes other than income taxes decreased by $118 or 1.0% primarily due to decreases in taxes assessed.
Interest expense increased by $986 or 5.3% primarily due to additional borrowings to finance capital projects, offset partially by decreased interest rates on long-term debt.
Allowance for funds used during construction (“AFUDC”) increased by $786 primarily due to an increase in the average balance of proceeds held from tax-exempt bond issuances that are restricted to funding certain capital projects.
Gain on sale of other assets totaled $216 in the third quarter of 2011 and $291 in the third quarter of 2010. The decrease of $75 is principally due to the timing of sales of land and other property.
Our effective income tax rate was 35.2% in the third quarter of 2011 and 38.9% in the third quarter of 2010. The effective income tax rate decreased as a result of the recognition in 2011 of the net state income tax benefit of $3,382 associated with 100% bonus depreciation for qualifying capital additions.
Income from continuing operations increased by $5,186 or 12.9%, in comparison to the same period in 2010 primarily as a result of the factors described above. On a diluted per share basis, income from continuing operations increased $0.04 reflecting the change in income from continuing operations and a 1.1% increase in the average number of common shares outstanding. As compared to the third quarter of 2010, income from continuing operations adjusted to exclude the net state income tax benefit associated with 100% bonus depreciation, a non-GAAP financial measure, would have increased by $0.01 per share. The increase in the number of shares outstanding is primarily a result of the additional shares sold or issued through dividend reinvestment plan and our equity compensation plan.
Income from discontinued operations decreased by $7,814 or $0.05 per diluted share, in comparison to the same period in 2010 primarily as a result of the income tax expense recognized in the third quarter of 2011 of $7,438 for the additional deferred tax liabilities that arise from the difference between the stock and tax basis of the Company’s investment in its discontinued operations.
Net income attributable to common shareholders decreased by $2,628 or 6.0%, in comparison to the same period in 2010 primarily as a result of the factors described above. On a diluted per share basis, earnings decreased $0.02 reflecting the change in net income attributable to common shareholders and a 1.1% increase in the average number of common shares outstanding. The increase in the number of shares outstanding is primarily a result of the additional shares sold or issued through our dividend reinvestment plan and equity compensation plan.

 

29


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Impact of Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (“FASB”) issued revised accounting guidance for accounting for intangible assets, which is intended to reduce the cost and complexity of the annual goodwill impairment test by permitting an entity the option of performing a qualitative assessment to determine whether further impairment testing is necessary. The revised guidance is effective for annual periods beginning after December 15, 2011. The Company will adopt the provisions of the revised guidance as of January 1, 2012, and the Company does not expect the impact of the adoption of the revised guidance to have an impact on the Company’s consolidated results of operations or consolidated financial position.

 

30


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Non-Generally Accepted Accounting Principle (“GAAP”) Financial Measures
In addition to reporting “income from continuing operations” and “income from continuing operations per common share”, U.S. GAAP financial measures, we are presenting below “income from continuing operations before net state income tax benefit associated with 100% bonus depreciation” and “income from continuing operations per common share before net state income tax benefit associated with 100% bonus depreciation”, which are considered non-GAAP financial measures. The Company is providing disclosure of the reconciliation of these non-GAAP measures to their most comparable GAAP financial measures. The Company believes that the non-GAAP financial measures provide investors the ability to measure the Company’s financial operating performance excluding the net state income tax benefit associated with 100% bonus depreciation, which is more indicative of the Company’s ongoing performance, and is more comparable to measures reported by other companies. The Company further believes that the presentation of these non-GAAP financial measures is useful to investors as a more meaningful way to compare the Company’s operating performance against its historical financial results and to assess the underlying profitability of our core business. As currently enacted, 100% bonus depreciation is in effect for qualifying capital additions placed in service from September 8, 2010 through December 31, 2011.
                                 
    Nine Months Ended     Three Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
 
                               
Income from continuing operations (GAAP financial measure)
  $ 112,801     $ 90,713     $ 45,516     $ 40,330  
Less: Net state income tax benefit associated with 100% bonus depreciation
    11,193             3,382        
 
                       
Income from continuing operations before net state income tax benefit associated with 100% bonus depreciation (Non-GAAP financial measure)
  $ 101,608     $ 90,713     $ 42,134     $ 40,330  
 
                       
 
                               
Income from continuing operations per common share (GAAP financial measure):
                               
Basic
  $ 0.82     $ 0.66     $ 0.33     $ 0.29  
Diluted
  $ 0.81     $ 0.66     $ 0.33     $ 0.29  
 
                               
Income from continuing operations per common share before net state income tax benefit associated with 100% bonus depreciation (Non-GAAP financial measure):
                               
Basic
  $ 0.74     $ 0.66     $ 0.30     $ 0.29  
Diluted
  $ 0.73     $ 0.66     $ 0.30     $ 0.29  
 
                               
Average common shares outstanding:
                               
Basic
    138,081       136,798       138,297       137,095  
 
                       
Diluted
    138,625       137,112       138,951       137,394  
 
                       

 

31


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risks in the normal course of business, including changes in interest rates and equity prices. There have been no significant changes in our exposure to market risks since December 31, 2010. Refer to Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for additional information.
Item 4.   Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
(b) Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1.   Legal Proceedings
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. In 2008, we reached a settlement agreement with the City to transition this portion of the system in 2008 upon receipt of the City’s initial valuation payment of $16,910,500. The settlement agreement specifically stated that the final valuation of the system will be determined through a continuation of the legal proceedings that were filed challenging the City’s valuation. On February 12, 2008, we turned over the northern portion of the system 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. Once

 

32


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
the contingency is resolved and the asset valuation is finalized, through the finalization of the litigation between the Company and the City of Fort Wayne, the amounts deferred will be recognized in the Company’s consolidated income statement. On March 16, 2009, oral argument was held before the Allen County Circuit Court on certain procedural aspects with respect to the valuation evidence that may be presented and whether we are 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 disagreed with the Court’s decision and as such, on November 11, 2010, requested that the Wells County Indiana Circuit Court certify those issues for an interim appeal. The Wells County Circuit Court granted that request and on March 7, 2011, the Indiana Court of Appeals granted the Company’s request to review the decision of those issues on appeal. On July 6, 2011, the Company filed its appeal with the Indiana Court of Appeals. The case is now pending before the Indiana Court of Appeals. Depending upon the ultimate outcome of all of the legal proceedings we may be required to refund a portion of the initial valuation payment, or may receive additional proceeds. The northern portion of the system relinquished represented approximately 0.40% of Aqua America’s total assets.
A lawsuit was filed by a husband and wife who lived in a house abutting a percolation pond at a wastewater treatment plant owned by one of the Company’s subsidiaries, Aqua Utilities Florida, Inc., in Pasco County, Florida. The lawsuit was originally filed in August 2006 in the circuit court for the Sixth Judicial Circuit in and for Pasco County, Florida and has been amended several times by the plaintiffs. The lawsuit alleged our subsidiary was negligent in the design, operation and maintenance of the plant, resulting in bodily injury to the plaintiffs and various damages to their property. Subsequent amendments to the complaint included additional counts alleging trespass, nuisance, and strict liability. A trial of this matter during January 2011 resulted in a judicial dismissal of the count for strict liability and jury verdicts in favor of the Company on the remaining counts. On June 16, 2011, the plaintiffs agreed to dismiss their appeals and to release all claims against our subsidiary and the Company, which resulted in the conclusion of the original plaintiffs’ litigation against our subsidiary. In the third quarter of 2008, approximately thirty-five additional plaintiffs, associated with approximately eight other homes in the area, filed a lawsuit with the same court making similar allegations against our subsidiary with respect to the operation of the facility. No trial date has been set for this lawsuit, but some of these plaintiffs testified in the trial of the original lawsuit in which all allegations were resolved in the Company’s favor. The lawsuit has been submitted to our insurance carriers, who have reserved their rights with respect to various portions of the plaintiffs’ claims. Based on the ultimate outcome of the litigation, we may or may not have insurance coverage for parts or all of the claim. The Company continues to assess this matter and any potential loss. At this time, the Company believes that the estimated amount of any potential loss would not be material to the Company’s consolidated results of operations or consolidated financial condition.

 

33


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
In July 2010 one of the Company’s subsidiaries, Aqua Pennsylvania, Inc., received a notice of violation from the Pennsylvania Department of Environmental Protection (the “DEP”). The notice of violation resulted from the subsidiary’s commencement of construction of a water tank prior to receipt of a construction permit from DEP. The permit was subsequently received. On September 29, 2010, the DEP notified the Company of a proposed penalty of $120,000 in connection with the violation. A settlement has been reached with the DEP and the penalty amount was reduced to $80,000 as of August 1, 2011, which was paid on August 10, 2011
Item 1A.   Risk Factors
There have been no material changes to the risks disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010 (“Form 10-K”) under “Part 1, Item 1A — Risk Factors.”

 

34


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes Aqua America’s purchases of its common stock for the quarter ended September 30, 2011:
Issuer Purchases of Equity Securities
                                 
                    Total     Maximum  
                    Number of     Number of  
                    Shares     Shares  
                    Purchased     that May  
                    as Part of     Yet be  
    Total             Publicly     Purchased  
    Number     Average     Announced     Under the  
    of Shares     Price Paid     Plans or     Plan or  
Period   Purchased (1)     per Share     Programs     Programs (2)  
 
                               
July 1 - 31, 2011
                      548,278  
August 1 - 31, 2011
    151     $ 21.78             548,278  
September 1 - 30, 2011
                      548,278  
 
                       
Total
    151     $ 21.78             548,278  
 
                       
     
(1)   These amounts consist of shares we purchased from employees who elected to pay the exercise price of their stock options (and then hold shares of the stock) upon exercise by delivering to us (and, thus, selling) shares of Aqua America common stock in accordance with the terms of our equity compensation plans that were previously approved by our shareholders and disclosed in our proxy statements. This feature of our equity compensation plan is available to all employees who receive stock-based compensation under the plans. We purchased these shares at their fair market value, as determined by reference to the closing price of our common stock on the day prior to the option exercise.
 
(2)   On August 5, 1997, our Board of Directors authorized a common stock repurchase program that was publicly announced on August 7, 1997, for up to 1,007,351 shares. No repurchases have been made under this program since 2000. The program has no fixed expiration date. The number of shares authorized for purchase was adjusted as a result of the stock splits affected in the form of stock distributions since the authorization date.

 

35


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES
Item 6.   Exhibits
The information required by this Item is set forth in the Exhibit Index hereto which is incorporated herein by reference.

 

36


Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be executed on its behalf by the undersigned thereunto duly authorized.
November 4, 2011
         
 
 
Aqua America, Inc.
Registrant
   
 
       
 
  Nicholas DeBenedictis
 
Nicholas DeBenedictis
   
 
  Chairman, President and Chief Executive Officer    
 
       
 
  David P. Smeltzer    
 
       
 
  David P. Smeltzer    
 
  Chief Financial Officer    

 

37


Table of Contents

EXHIBIT INDEX
         
Exhibit No.   Description
  2.1    
Stock Purchase Agreement, dated as of July 26, 2011, by and between Aqua America, Inc. and Connecticut Water Service, Inc.
  2.2    
Stock Purchase Agreement, dated as of July 8, 2011, by and among American Water Works Company, Inc., Ohio-American Water Company and Aqua Ohio, Inc.
  2.3    
Stock Purchase Agreement, dated as of July 8, 2011, by and among Aqua Utilities, Inc., Aqua New York, Inc. and American Water Works Company, Inc.
  31.1    
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934.
  31.2    
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934.
  32.1    
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350.
  32.2    
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.
101.INS  
XBRL Instance Document
101.SCH  
XBRL Taxonomy Extension Schema Document
101.CAL  
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF  
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB  
XBRL Taxonomy Extension Label Linkbase Document
101.PRES  
XBRL Taxonomy Extension Presentation Linkbase Document

 

38

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki