Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON DC  20549

FORM 10-Q

(Mark One) 

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

For the quarterly period ended September 30, 2017March 31, 2018 

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

For the transition period from_______________ to _______________

Commission File Number 1-6659 

AQUA AMERICA, INC. 

(Exact name of registrant as specified in its charter) 





 

 

 

Pennsylvania

23-1702594

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)



 

762 W. Lancaster Avenue, Bryn Mawr, Pennsylvania

19010 -3489

(Address of principal executive offices)

(Zip Code)



 

(610) 527-8000

(Registrant’s telephone number, including area code)



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



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   No 



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12(b)-2 of the Exchange Act.:   



 

Large accelerated filer 

Accelerated filer 

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

Smaller reporting company 

Emerging growth company  

 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 



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

 

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

October 20, 2017:  177,690,598April 30,  2018:  177,897,654

  

 


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES

 



TABLE OF CONTENTS



 



Page

Part I – Financial Information



 

Item 1.  Financial Statements:

 



 

Consolidated Balance Sheets (unaudited) – September 30, 2017March 31, 2018 and December 31, 20162017

 

 

Consolidated Statements of Net Income (unaudited) –
Three Months Ended September 30,March 31, 2018 and 2017 and 2016

3

Consolidated Statements of Net Income (unaudited) –
Nine Months Ended September 30, 2017 and 2016

4 



 

Consolidated Statements of Comprehensive Income (unaudited) –
Three and Nine Months Ended September 30,March 31, 2018 and 2017 and 2016

54 



 

Consolidated Statements of Capitalization (unaudited) –
September 30, 2017March 31, 2018 and December 31, 20162017

65 



 

Consolidated Statement of Equity (unaudited) –
NineThree Months Ended September 30, 2017March 31, 2018  

76 



 

Consolidated Statements of Cash Flow (unaudited) –
NineThree Months Ended September 30,March 31, 2018 and 2017 and 2016

87 



 

Notes to Consolidated Financial Statements (unaudited)

98 



 

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

2625 



 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

3129 



 

Item 4.  Controls and Procedures

3129 

 

Part II – Other Information

 

 

Item 1.  Legal Proceedings

3129 



 

Item 1A.  Risk Factors

3129 



 

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

3230 



 

Item 6.  Exhibits

3230 



 

Exhibit Index

3331 



 

Signatures

3432 





 

1


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED BALANCE SHEETS 

(In thousands of dollars, except per share amounts) 

(UNAUDITED)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

March 31,

 

December 31,

Assets

 

2017

 

2016

 

2018

 

2017

Property, plant and equipment, at cost

 

$

6,857,093 

 

$

6,509,117 

 

$

7,088,016 

 

$

7,003,993 

Less: accumulated depreciation

 

 

1,580,619 

 

 

1,507,502 

 

 

1,627,797 

 

 

1,604,133 

Net property, plant and equipment

 

 

5,276,474 

 

 

5,001,615 

 

 

5,460,219 

 

 

5,399,860 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

4,139 

 

 

3,763 

 

 

3,202 

 

 

4,204 

Accounts receivable and unbilled revenues, net

 

 

104,894 

 

 

97,394 

 

 

91,818 

 

 

98,596 

Inventory, materials and supplies

 

 

16,557 

 

 

12,961 

 

 

15,290 

 

 

14,361 

Prepayments and other current assets

 

 

11,209 

 

 

12,804 

 

 

12,274 

 

 

12,542 

Assets held for sale

 

 

1,543 

 

 

1,728 

 

 

1,558 

 

 

1,543 

Total current assets

 

 

138,342 

 

 

128,650 

 

 

124,142 

 

 

131,246 

 

 

 

 

 

 

 

 

 

 

 

 

Regulatory assets

 

 

1,044,787 

 

 

948,647 

 

 

731,417 

 

 

713,971 

Deferred charges and other assets

 

 

36,169 

 

 

30,845 

Deferred charges and other assets, net

 

 

38,696 

 

 

38,485 

Investment in joint venture

 

 

7,379 

 

 

7,026 

 

 

7,004 

 

 

6,671 

Goodwill

 

 

42,230 

 

 

42,208 

 

 

42,230 

 

 

42,230 

Total assets

 

$

6,545,381 

 

$

6,158,991 

 

$

6,403,708 

 

$

6,332,463 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock at $.50 par value, authorized 300,000,000 shares, issued 180,669,222 and 180,311,345 as of September 30, 2017 and December 31, 2016

 

$

90,334 

 

$

90,155 

Common stock at $.50 par value, authorized 300,000,000 shares, issued 180,955,861 and 180,700,251 as of March 31, 2018 and December 31, 2017

 

$

90,478 

 

$

90,350 

Capital in excess of par value

 

 

804,753 

 

 

797,513 

 

 

809,624 

 

 

807,135 

Retained earnings

 

 

1,115,601 

 

 

1,032,844 

 

 

1,147,828 

 

 

1,132,556 

Treasury stock, at cost, 2,984,973 and 2,916,969 shares as of September 30, 2017 and December 31, 2016

 

 

(73,229)

 

 

(71,113)

Treasury stock, at cost, 3,058,248 and 2,986,308 shares as of March 31, 2018 and December 31, 2017

 

 

(75,771)

 

 

(73,280)

Accumulated other comprehensive income

 

 

806 

 

 

669 

 

 

 -

 

 

860 

Total stockholders' equity

 

 

1,938,265 

 

 

1,850,068 

 

 

1,972,159 

 

 

1,957,621 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, excluding current portion

 

 

1,974,327 

 

 

1,759,962 

 

 

2,084,283 

 

 

2,029,358 

Less: debt issuance costs

 

 

21,854 

 

 

22,357 

 

 

21,217 

 

 

21,605 

Long-term debt, excluding current portion, net of debt issuance costs

 

 

1,952,473 

 

 

1,737,605 

 

 

2,063,066 

 

 

2,007,753 

Commitments and contingencies (See Note 13)

 

 

 

 

 

 

Commitments and contingencies (See Note 14)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

 

84,704 

 

 

150,671 

 

 

103,832 

 

 

113,769 

Loans payable

 

 

20,990 

 

 

6,535 

 

 

20,342 

 

 

3,650 

Accounts payable

 

 

63,358 

 

 

59,872 

 

 

40,211 

 

 

59,165 

Book overdraft

 

 

12,685 

 

 

21,629 

Accrued interest

 

 

23,210 

 

 

18,367 

 

 

24,624 

 

 

21,359 

Accrued taxes

 

 

21,745 

 

 

25,607 

 

 

22,971 

 

 

23,764 

Other accrued liabilities

 

 

38,943 

 

 

40,484 

 

 

34,470 

 

 

41,152 

Total current liabilities

 

 

252,950 

 

 

301,536 

 

 

259,135 

 

 

284,488 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred credits and other liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes and investment tax credits

 

 

1,391,096 

 

 

1,269,253 

 

 

786,014 

 

 

769,073 

Customers' advances for construction

 

 

107,715 

 

 

91,843 

 

 

90,599 

 

 

93,186 

Regulatory liabilities

 

 

239,469 

 

 

250,635 

 

 

543,449 

 

 

541,910 

Other

 

 

110,412 

 

 

115,583 

 

 

107,746 

 

 

107,341 

Total deferred credits and other liabilities

 

 

1,848,692 

 

 

1,727,314 

 

 

1,527,808 

 

 

1,511,510 

 

 

 

 

 

 

 

 

 

 

 

 

Contributions in aid of construction

 

 

553,001 

 

 

542,468 

 

 

581,540 

 

 

571,091 

Total liabilities and equity

 

$

6,545,381 

 

$

6,158,991 

 

$

6,403,708 

 

$

6,332,463 

 

 

 

 

 

 

 

 

 

 

 

 

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

See notes to consolidated financial statements beginning on page 8 of this report.

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 NET INCOME

(In thousands, except per share amounts)

(UNAUDITED)







 

 

 

 

 

 



 

Three Months Ended



 

September 30,



 

2017

 

2016

Operating revenues

 

$

215,008 

 

$

226,593 



 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Operations and maintenance

 

 

67,982 

 

 

79,812 

Depreciation

 

 

34,264 

 

 

33,881 

Amortization

 

 

42 

 

 

389 

Taxes other than income taxes

 

 

15,234 

 

 

14,712 

Total operating expenses

 

 

117,522 

 

 

128,794 



 

 

 

 

 

 

Operating income

 

 

97,486 

 

 

97,799 



 

 

 

 

 

 

Other expense (income):

 

 

 

 

 

 

Interest expense, net

 

 

22,411 

 

 

20,168 

Allowance for funds used during construction

 

 

(3,914)

 

 

(2,267)

Gain on sale of other assets

 

 

(43)

 

 

(62)

Equity earnings in joint venture

 

 

(593)

 

 

(1,621)

Income before income taxes

 

 

79,625 

 

 

81,581 

Provision for income taxes

 

 

3,400 

 

 

8,411 

Net income

 

$

76,225 

 

$

73,170 



 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

Basic

 

$

0.43 

 

$

0.41 

Diluted

 

$

0.43 

 

$

0.41 



 

 

 

 

 

 

Average common shares outstanding during the period:

 

 

 

 

 

 

Basic

 

 

177,660 

 

 

177,336 

Diluted

 

 

178,124 

 

 

177,817 



 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.2047 

 

$

0.191 



 

 

 

 

 

 

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



 

 

 

 

 

 

3


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF NET INCOME

(In thousands, except per share amounts)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Three Months Ended

 

September 30,

 

March 31,

 

2017

 

2016

 

2018

 

2017

Operating revenues

 

$

606,213 

 

$

623,076 

 

$

194,347 

 

$

187,787 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Operations and maintenance

 

 

207,963 

 

 

227,347 

 

 

73,946 

 

 

67,890 

Depreciation

 

 

101,508 

 

 

97,645 

 

 

35,967 

 

 

33,837 

Amortization

 

 

358 

 

 

1,367 

 

 

130 

 

 

189 

Taxes other than income taxes

 

 

44,390 

 

 

43,094 

 

 

14,967 

 

 

14,737 

Total operating expenses

 

 

354,219 

 

 

369,453 

 

 

125,010 

 

 

116,653 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

251,994 

 

 

253,623 

 

 

69,337 

 

 

71,134 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

65,124 

 

 

60,136 

 

 

23,471 

 

 

21,326 

Allowance for funds used during construction

 

 

(10,570)

 

 

(6,446)

 

 

(2,867)

 

 

(3,193)

Gain on sale of other assets

 

 

(322)

 

 

(390)

 

 

(196)

 

 

(269)

Equity earnings in joint venture

 

 

(402)

 

 

(1,143)

Equity (earnings) loss in joint venture

 

 

(382)

 

 

30 

Other

 

 

603 

 

 

1,238 

Income before income taxes

 

 

198,164 

 

 

201,466 

 

 

48,708 

 

 

52,002 

Provision for income taxes

 

 

11,899 

 

 

16,933 

Provision for income tax (benefit) expense

 

 

(2,131)

 

 

2,930 

Net income

 

$

186,265 

 

$

184,533 

 

$

50,839 

 

$

49,072 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.05 

 

$

1.04 

 

$

0.29 

 

$

0.28 

Diluted

 

$

1.05 

 

$

1.04 

 

$

0.29 

 

$

0.28 

 

 

 

 

 

 

 

 

 

 

 

 

Average common shares outstanding during the period:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

177,583 

 

 

177,243 

 

 

177,801 

 

 

177,479 

Diluted

 

 

178,103 

 

 

177,781 

 

 

178,238 

 

 

177,969 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.5873 

 

$

0.5473 

 

$

0.2047 

 

$

0.1913 

 

 

 

 

 

 

 

 

 

 

 

 

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

See notes to consolidated financial statements beginning on page 8 of this report.

See notes to consolidated financial statements beginning on page 8 of this report.

 

 

 

 

 

 

 





 

43


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

(In thousands of dollars) 

(UNAUDITED)

  





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



 

September 30,

 

September 30,



 

2017

 

2016

 

2017

 

2016

Net income

 

$

76,225 

 

$

73,170 

 

$

186,265 

 

$

184,533 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gain on investments, net of tax expense of $22 and $11 for the three months, and $73 and $14 for the nine months ended September 30, 2017 and 2016, respectively

 

 

42 

 

 

20 

 

 

137 

 

 

26 

Reclassification of gain on sale of investment to net income, net of tax of $30 for the nine months ended September 30, 2016 (1)

 

 

 -

 

 

 -

 

 

 -

 

 

(57)

Comprehensive income

 

$

76,267 

 

$

73,190 

 

$

186,402 

 

$

184,502 



 

 

 

 

 

 

 

 

 

 

 

 

(1) Amount of pre-tax gain of $87 reclassified from accumulated other comprehensive income to gain on sale of other assets on the consolidated statements of net income for the nine months ended September 30, 2016.



 

 

 

 

 

 

 

 

 

 

 

 

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



 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2018

 

2017

Net income

 

$

50,839 

 

$

49,072 

Other comprehensive income, net of tax:

 

 

 

 

 

 

Unrealized holding gain on investments, net of tax expense of $31 for the three months ended March 31, 2017

 

 

 -

 

 

58 

Comprehensive income

 

$

50,839 

 

$

49,130 



 

 

 

 

 

 

See notes to consolidated financial statements beginning on page 8 of this report.

 

  



 

54


 

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,

 

 

March 31,

 

December 31,

 

 

2017

 

2016

 

 

2018

 

2017

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $.50 par value

 

 

$

90,334 

 

$

90,155 

 

 

$

90,478 

 

$

90,350 

Capital in excess of par value

 

 

 

804,753 

 

 

797,513 

 

 

 

809,624 

 

 

807,135 

Retained earnings

 

 

 

1,115,601 

 

 

1,032,844 

 

 

 

1,147,828 

 

 

1,132,556 

Treasury stock, at cost

 

 

 

(73,229)

 

 

(71,113)

 

 

 

(75,771)

 

 

(73,280)

Accumulated other comprehensive income

Accumulated other comprehensive income

 

 

806 

 

 

669 

Accumulated other comprehensive income

 

 

 -

 

 

860 

Total stockholders' equity

 

 

 

1,938,265 

 

 

1,850,068 

 

 

 

1,972,159 

 

 

1,957,621 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

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

 

 

 

 

 

 

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

 

 

 

 

 

 

Interest Rate Range

Maturity Date Range

 

 

 

 

 

Maturity Date Range

 

 

 

 

 

0.00% to 0.99%

2023 to 2033

 

4,196 

 

 

4,661 

2023 to 2033

 

4,148 

 

 

4,196 

1.00% to 1.99%

2019 to 2035

 

13,196 

 

 

15,539 

2019 to 2035

 

12,626 

 

 

12,914 

2.00% to 2.99%

2024 to 2033

 

19,689 

 

 

19,668 

2019 to 2033

 

18,817 

 

 

19,254 

3.00% to 3.99%

2019 to 2056

 

475,904 

 

 

381,944 

2019 to 2056

 

474,525 

 

 

475,232 

4.00% to 4.99%

2020 to 2054

 

556,681 

 

 

487,318 

2020 to 2057

 

631,513 

 

 

631,599 

5.00% to 5.99%

2019 to 2043

 

205,703 

 

 

213,078 

2019 to 2043

 

205,445 

 

 

205,578 

6.00% to 6.99%

2017 to 2036

 

44,000 

 

 

52,985 

2018 to 2036

 

44,000 

 

 

44,000 

7.00% to 7.99%

2022 to 2027

 

32,521 

 

 

33,066 

2022 to 2027

 

32,146 

 

 

32,335 

8.00% to 8.99%

2021 to 2025

 

6,214 

 

 

6,565 

2021 to 2025

 

5,968 

 

 

6,092 

9.00% to 9.99%

2018 to 2026

 

25,700 

 

 

26,400 

2018 to 2026

 

25,700 

 

 

25,700 

10.00% to 10.99%

2018

 

 

6,000 

 

 

6,000 

2018

 

 

6,000 

 

 

6,000 

 

 

 

1,389,804 

 

 

1,247,224 

 

 

 

1,460,888 

 

 

1,462,900 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable to bank under revolving credit agreement, variable rate, due 2021

Notes payable to bank under revolving credit agreement, variable rate, due 2021

 

 

49,000 

 

 

25,000 

Notes payable to bank under revolving credit agreement, variable rate, due 2021

 

 

117,000 

 

 

60,000 

Unsecured notes payable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank notes at 1.975% and 2.48% due 2018 and 2019

 

 

 

100,000 

 

 

100,000 

Bank notes at 1.975% and 2.48% due 2018 and 2019

 

 

100,000 

 

 

100,000 

Notes ranging from 3.01% to 3.59% due 2027 through 2041

 

 

245,000 

 

 

245,000 

Notes at 3.01% and 3.59% due 2027 and 2041

Notes at 3.01% and 3.59% due 2027 and 2041

 

 

245,000 

 

 

245,000 

Notes ranging from 4.62% to 4.87%, due 2018 through 2024

Notes ranging from 4.62% to 4.87%, due 2018 through 2024

 

 

122,800 

 

 

133,600 

Notes ranging from 4.62% to 4.87%, due 2018 through 2024

 

 

122,800 

 

 

122,800 

Notes ranging from 5.20% to 5.95%, due 2018 through 2037

Notes ranging from 5.20% to 5.95%, due 2018 through 2037

 

 

152,427 

 

 

159,809 

Notes ranging from 5.20% to 5.95%, due 2018 through 2037

 

 

142,427 

 

 

152,427 

Total long-term debt

 

 

 

2,059,031 

 

 

1,910,633 

 

 

 

2,188,115 

 

 

2,143,127 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

 

 

84,704 

 

 

150,671 

 

 

 

103,832 

 

 

113,769 

Long-term debt, excluding current portion

Long-term debt, excluding current portion

 

 

1,974,327 

 

 

1,759,962 

Long-term debt, excluding current portion

 

 

2,084,283 

 

 

2,029,358 

Less: debt issuance costs

 

 

 

21,854 

 

 

22,357 

 

 

 

21,217 

 

 

21,605 

Long-term debt, excluding current portion, net of debt issuance costs

Long-term debt, excluding current portion, net of debt issuance costs

 

 

1,952,473 

 

 

1,737,605 

Long-term debt, excluding current portion, net of debt issuance costs

 

 

2,063,066 

 

 

2,007,753 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capitalization

 

 

$

3,890,738 

 

$

3,587,673 

 

 

$

4,035,225 

 

$

3,965,374 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

See notes to consolidated financial statements beginning on page 8 of this report.

See notes to consolidated financial statements beginning on page 8 of this report.

 



 



 

65


 

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

 

 

 



 

Stock

 

Par Value

 

Earnings

 

Stock

 

Income

 

Total

Balance at December 31, 2016

 

$

90,155 

 

$

797,513 

 

$

1,032,844 

 

$

(71,113)

 

$

669 

 

$

1,850,068 

Net income

 

 

 -

 

 

 -

 

 

186,265 

 

 

 -

 

 

 -

 

 

186,265 

Other comprehensive income, net of income tax of $73

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

137 

 

 

137 

Dividends

 

 

 -

 

 

 -

 

 

(104,286)

 

 

 -

 

 

 -

 

 

(104,286)

Sale of stock (34,814 shares)

 

 

17 

 

 

1,067 

 

 

 -

 

 

 -

 

 

 -

 

 

1,084 

Repurchase of stock (68,004 shares)         

 

 

 -

 

 

 -

 

 

 -

 

 

(2,116)

 

 

 -

 

 

(2,116)

Equity compensation plan (165,442) shares)

 

 

83 

 

 

(83)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Exercise of stock options (157,621) shares)

 

 

79 

 

 

2,524 

 

 

 -

 

 

 -

 

 

 -

 

 

2,603 

Stock-based compensation

 

 

 -

 

 

4,379 

 

 

(204)

 

 

 -

 

 

 -

 

 

4,175 

Cumulative effect of change in accounting principle - windfall tax benefit

 

 

 -

 

 

 -

 

 

982 

 

 

 -

 

 

 -

 

 

982 

Other  

 

 

 -

 

 

(647)

 

 

 -

 

 

 -

 

 

 -

 

 

(647)

Balance at September 30, 2017

 

$

90,334 

 

$

804,753 

 

$

1,115,601 

 

$

(73,229)

 

$

806 

 

$

1,938,265 



Refer to Note 15 - Recent Accounting Pronouncements for a discussion of the cumulative effect of change in accounting principle - windfall tax benefit

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



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 



 

 

 

 

Capital in

 

 

 

 

 

 

 

Other

 

 

 



 

Common

 

Excess of

 

Retained

 

Treasury

 

Comprehensive

 

 

 



 

Stock

 

Par Value

 

Earnings

 

Stock

 

Income

 

Total

Balance at December 31, 2017

 

$

90,350 

 

$

807,135 

 

$

1,132,556 

 

$

(73,280)

 

$

860 

 

$

1,957,621 

Net income

 

 

 -

 

 

 -

 

 

50,839 

 

 

 -

 

 

 -

 

 

50,839 

Dividends

 

 

 -

 

 

 -

 

 

(36,386)

 

 

 -

 

 

 -

 

 

(36,386)

Sale of stock (11,252 shares)

 

 

 

 

355 

 

 

 -

 

 

 -

 

 

 -

 

 

361 

Repurchase of stock (71,940 shares)         

 

 

 -

 

 

 -

 

 

 -

 

 

(2,491)

 

 

 -

 

 

(2,491)

Equity compensation plan (181,670 shares)

 

 

91 

 

 

(91)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Exercise of stock options (62,688 shares)

 

 

31 

 

 

979 

 

 

 -

 

 

 -

 

 

 -

 

 

1,010 

Stock-based compensation

 

 

 -

 

 

1,443 

 

 

(41)

 

 

 -

 

 

 -

 

 

1,402 

Cumulative effect of change in accounting principle - financial instruments

 

 

 -

 

 

 -

 

 

860 

 

 

 -

 

 

(860)

 

 

 -

Other  

 

 

 -

 

 

(197)

 

 

 -

 

 

 -

 

 

 -

 

 

(197)

Balance at March 31, 2018

 

$

90,478 

 

$

809,624 

 

$

1,147,828 

 

$

(75,771)

 

$

 -

 

$

1,972,159 



Refer to Note 15 - Recent Accounting Pronouncements for a discussion of the cumulative effect of change in accounting principle - financial instruments

See notes to consolidated financial statements beginning on page 8 of this report.

 

  

 

 

76


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED STATEMENTS OF CASH FLOW 

(In thousands of dollars) 

(UNAUDITED)



  

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Three Months Ended

 

September 30,

 

March 31,

 

2017

 

2016

 

2018

 

2017

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

186,265 

 

$

184,533 

 

$

50,839 

 

$

49,072 

Adjustments to reconcile net income to net cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

101,866 

 

99,012 

 

 

36,097 

 

34,026 

Deferred income taxes

 

 

9,774 

 

15,345 

 

 

(2,849)

 

2,681 

Provision for doubtful accounts

 

 

3,476 

 

3,533 

 

 

896 

 

1,111 

Stock-based compensation

 

 

4,379 

 

3,642 

 

 

1,444 

 

1,312 

Loss (gain) on sale of utility system and market-based business unit

 

 

324 

 

(1,824)

Loss on sale of market-based business unit

 

 

 -

 

278 

Gain on sale of other assets

 

 

(322)

 

(390)

 

 

(196)

 

(269)

Net change in receivables, inventory and prepayments

 

 

(13,550)

 

(15,235)

 

 

5,402 

 

5,729 

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

 

 

3,705 

 

(241)

 

 

(996)

 

(4,519)

Pension and other postretirement benefits contributions

 

 

(15,421)

 

(8,145)

 

 

(5,217)

 

(7,711)

Other

 

 

1,565 

 

 

8,404 

 

 

2,934 

 

 

(507)

Net cash flows from operating activities

 

 

282,061 

 

 

288,634 

 

 

88,354 

 

 

81,203 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment additions, including the debt component of allowance for funds used during construction of $2,533 and $1,626

 

 

(337,731)

 

(270,019)

Property, plant and equipment additions, including the debt component of allowance for funds used during construction of $782 and $721

 

 

(105,136)

 

(94,562)

Acquisitions of utility systems and other, net

 

 

(5,860)

 

(5,626)

 

 

(190)

 

(220)

Net proceeds from the sale of utility system and other assets

 

 

1,144 

 

6,545 

Net proceeds from the sale of market-based business unit and other assets

 

 

174 

 

639 

Other

 

 

1,448 

 

 

(32)

 

 

(75)

 

 

(171)

Net cash flows used in investing activities

 

 

(340,999)

 

 

(269,132)

 

 

(105,227)

 

 

(94,314)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Customers' advances and contributions in aid of construction

 

 

5,648 

 

6,006 

 

 

1,742 

 

1,585 

Repayments of customers' advances

 

 

(3,519)

 

(1,882)

 

 

(1,014)

 

(511)

Net proceeds of short-term debt

 

 

14,455 

 

31,269 

 

 

16,692 

 

21,197 

Proceeds from long-term debt

 

 

441,294 

 

234,288 

 

 

66,996 

 

117,879 

Repayments of long-term debt

 

 

(293,270)

 

(181,359)

 

 

(21,898)

 

(89,666)

Change in cash overdraft position

 

 

(1,932)

 

(12,586)

 

 

(8,944)

 

(2,403)

Proceeds from issuing common stock

 

 

1,084 

 

1,029 

 

 

361 

 

360 

Proceeds from exercised stock options

 

 

2,603 

 

3,836 

 

 

1,010 

 

1,536 

Stock-based compensation windfall tax benefits

 

 

 -

 

1,263 

Repurchase of common stock

 

 

(2,116)

 

(2,905)

 

 

(2,491)

 

(2,053)

Dividends paid on common stock

 

 

(104,286)

 

(96,994)

 

 

(36,386)

 

(33,945)

Other

 

 

(647)

 

 

(984)

 

 

(197)

 

 

(206)

Net cash flows from (used in) financing activities

 

 

59,314 

 

 

(19,019)

Net cash flows from financing activities

 

 

15,871 

 

 

13,773 

Net change in cash and cash equivalents

 

 

376 

 

 

483 

 

 

(1,002)

 

 

662 

Cash and cash equivalents at beginning of period

 

 

3,763 

 

 

3,229 

 

 

4,204 

 

 

3,763 

Cash and cash equivalents at end of period

 

$

4,139 

 

$

3,712 

 

$

3,202 

 

$

4,425 

Non-cash investing activities:

Non-cash investing activities:

Non-cash investing activities:

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

 

$

35,145 

 

$

23,548 

 

$

23,629 

 

$

27,084 

Non-cash customer advances and contributions in aid of construction

 

31,615 

 

20,065 

 

4,979 

 

4,282 

 

 

 

 

 

 

 

 

Refer to Note 3 - Acquisitions for a description of non-cash activities

 

 

 

 

 

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

See notes to consolidated financial statements beginning on page 8 of this report.

See notes to consolidated financial statements beginning on page 8 of this report.

 



 

87


 

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, 2017,March 31, 2018, the consolidated statements of net income and comprehensive income for the three and nine months ended September 30,March 31, 2018 and 2017 and 2016 the consolidated statements of cash flow for the ninethree months ended September 30,March 31, 2018 and 2017, and 2016, and the consolidated statement of equity for the ninethree months ended September 30, 2017March 31, 2018 are unaudited, but reflect all adjustments, consisting of only normal recurring accruals, which are, in the opinion of management, necessary to present a  fair statement of its consolidated financial position, consolidated changes in equity, consolidated results of operations, and 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, 2016.2017.  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, 20162017 consolidated balance sheet data presented herein was derived from the Company’s December 31, 20162017 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 to conform to the current period presentation in the consolidated statements of cash flows:

·

pension and other postretirement benefit contributions, and

·

as a result of the early adoption, in the third quarter of 2017, of the Financial Accounting Standards Board’s (“FASB”) accounting guidance on the classification of certain cash receipts and cash payments,  the presentation of debt extinguishment costsnet income as a result of the adoption, in the first quarter of 2018, of the Financial Accounting Standards Board’s (“FASB”) accounting guidance on the presentation of net periodic pension and postretirement benefit cost (refer to Note 15 – Recent Accounting Pronouncements).



The preparation of financial statements often requires the selection of specific accounting methods and policies.  Further, significant estimates and judgments may be required in selecting and applying those methods and policies in the recognition of the assets and liabilities in its consolidated balance sheets, the revenues and expenses in its consolidated statements of net income, and the information that is contained in its summary of significant accounting policies and notes to consolidated financial statements.  Making these estimates and judgments requires the analysis of information concerning events that may not yet be complete and of facts and circumstances that may change over time.  Accordingly, actual amounts or future results can differ materially from those estimates that the Company includes currently in its consolidated financial statements, summary of significant accounting policies, and notes.



There have been no changes to the summary of significant accounting policies, other than as described in Note 2 – Revenue Recognition as a result of the adoption of a new accounting pronouncement adopted on January 1, 2018, previously identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.  2017.  

8


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

Note 2 – Revenue Recognition

The Company recognizes  revenue as water and wastewater services are provided to our customers, which happens over time as the service is delivered and the performance obligation is satisfied.  The Company’s utility revenues recognized in an accounting period include amounts billed to customers on a cycle basis and unbilled amounts based on estimated usage from the last billing to the end of the accounting period.  Unbilled amounts are calculated by deriving estimates based on average usage of the prior month.  The Company’s actual results could differ from these estimates, which would result in operating revenues being adjusted in the period that the revision to our estimates is determined.  Unbilled amounts are included in accounts receivable and unbilled revenues, net on the consolidated balance sheet.   

Generally, payment is due within 30 days once a bill is issued to a customer.  Sales tax and other taxes we collect on behalf of government authorities, concurrent with our revenue-producing activities, are primarily excluded from revenue.  The Company has determined that its revenue recognition is not materially different under the FASB’s new accounting standard for revenue from contracts with customer, and has not made any changes to our accounting policy.  The Company’s revenues are being reported identical to how they were reported under the FASB’s former accounting standard for revenue recognition.  The following table presents our revenues disaggregated by major source and customer class:



 

 

 

 

 

 



Three Months Ended



March 31,2018



Water Revenues

Wastewater Revenues

Other Revenues

Regulated:

 

 

 

 

 

 

Residential

$

113,837 

$

17,532 

$

 -

Commercial

 

30,342 

 

2,888 

 

 -

Fire protection

 

7,938 

 

 -

 

 -

Industrial

 

6,360 

 

463 

 

 -

Other water

 

11,021 

 

 -

 

 -

Other wastewater

 

 -

 

791 

 

 -

Other utility

 

 -

 

 -

 

2,335 

Regulated segment total

 

169,498 

 

21,674 

 

2,335 

Other and eliminations

 

 -

 

 -

 

840 

Consolidated

$

169,498 

$

21,674 

$

3,175 



 

 

 

 

 

 

Regulated Segment Revenues – These revenues are composed of three main categories:  water, wastewater, and other.  Water revenues represent revenues earned for supplying customers with water service.  Wastewater revenues represent revenues earned for treating wastewater and releasing it into the water supply.  Other revenues are associated fees that relate to the regulated business but are not water and wastewater revenues.  See description below for a discussion on the performance obligation for each of these revenue streams.



9


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

Tariff Revenues – These revenues are categorized by customer class:  residential, commercial, fire protection, industrial, and other water and other wastewater.  The rates that generate these revenues are approved by the respective state utility commission, and revenues are billed cyclically and accrued for when unbilled.  Other water and other wastewater revenues consist primarily of fines, penalties, surcharges, and availability lot fees.  Our performance obligation for tariff revenues is to provide potable water or wastewater treatment service to customers.  This performance obligation is satisfied over time as the services are rendered.

Other Utility Revenues – Other utility revenues represent revenues earned primarily from:  antenna revenues, which represent fees received from telecommunication operators that have put cellular antennas on our water towers, operation and maintenance and billing contracts, which represent fees earned from municipalities for our operation of their water or wastewater treatment services or performing billing services, and fees earned from developers for accessing our water mains.  The performances obligations vary for these revenues, but all are primarily recognized over time as the service is delivered.

Other and Eliminations – Other and eliminations consist of our market-based revenues, which comprises:   Aqua Infrastructure and Aqua Resources (described below), and intercompany eliminations for revenue billed between our subsidiaries. 

Aqua Infrastructure is the holding company for our 49% investment in a joint venture that operates a private pipeline system to supply raw water to natural gas well drilling operations in the Marcellus Shale of north central Pennsylvania.  The joint venture earns revenues through providing non-utility raw water supply services to companies which enter into a water supply contract in the natural gas drilling industry.  The performance obligation is to deliver non-potable water to its customers.  Aqua Infrastructure’s share of the revenues recognized by the joint venture is reflected, net, in equity earnings in joint venture on our consolidated statements of net income.   

Aqua Resources earns revenues by providing non-regulated water and wastewater services through operating and maintenance contracts, and third party water and sewer line repair service.  The performance obligations are performing agreed upon services in the contract, most commonly operation of third party water or wastewater treatment services, or billing services, or allowing the use of our logo to a third party water and sewer line repair service.  Revenues are primarily recognized over time as service is delivered.

Note 23 –  Goodwill 



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

 





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Regulated

 

 

 

 

 

 



 

Segment

 

Other

 

Consolidated

Balance at December 31, 2016

 

$

37,367 

 

$

4,841 

 

$

42,208 

Goodwill acquired

 

 

72 

 

 

 -

 

 

72 

Reclassification to utility plant acquisition adjustment

 

 

(50)

 

 

 -

 

 

(50)

Balance at September 30, 2017

 

$

37,389 

 

$

4,841 

 

$

42,230 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Regulated

 

 

 

 

 

 



 

Segment

 

Other

 

Consolidated

Balance at December 31, 2017

 

$

37,389 

 

$

4,841 

 

$

42,230 

Goodwill acquired

 

 

 -

 

 

 -

 

 

 -

Balance at March 31, 2018

 

$

37,389 

 

$

4,841 

 

$

42,230 

The reclassification of goodwill to utility plant acquisition adjustment results from a mechanism approved by the applicable utility commission.  The mechanism provides for the transfer over time, and the recovery through customer rates, of goodwill associated with some acquisitions upon achieving specific objectives.

Goodwill is not amortized but is tested for impairment annually, or more often, if circumstances indicate a possible impairment may exist, to determine whether it  is more likely than not that the fair value of a reporting unit is less than its carrying amount.  When testing goodwill for impairment, the Company may assess qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and entity specific events.  Alternatively, the Company may bypass this qualitative assessment for some of its reporting units and perform a quantitative goodwill impairment test by determining the fair value of a reporting unit based on a discounted cash flow analysis.  The Company tested the goodwill attributable to each of its reporting units for impairment as of July 31, 2017, in conjunction with the timing of its annual strategic business plan, and concluded that the estimated fair value of each reporting unit, which has goodwill recorded, exceeded the reporting unit’s carrying amount, indicating that none of the Company’s goodwill was impaired.



10


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

Note 34 –  Acquisitions 



During the first ninethree months of 2018, the Company completed three acquisitions of water and wastewater utility systems in various states adding 448 customers.  The total purchase price of these utility systems consisted of $190 in cash.  The purchase price allocation for these acquisition consisted primarily of acquired property, plant and equipment.  The pro forma effect of the businesses acquired is not material either individually or collectively to the Company’s results of operations.

During 2017, the Company completed four acquisitions of water and wastewater utility systems in various states adding 1,003 customers.  The total purchase price of these utility systems consisted of $5,860 in cash, which resulted in $72 of goodwill being recorded.  The pro forma effect of the businesses acquired is not material either individually or collectively to the Company’s results of operations. 



As part of the Company’s growth-through-acquisition strategy, the Company has entered into purchase agreements to acquire the water or wastewater utility system assets of fivesix municipalities for a total combined purchase price in cash of $145,700.$150,700, which we plan to finance by the issuance of long-term debt.  The purchase price for these pending acquisitions is subject to certain adjustments at closing, and isthe pending acquisitions are subject to regulatory approvals.  Closingapprovals, including the final determination of the fair value of the rate base acquired.  Closings for these acquisitions are expected to occur by mid-yearthe end of 2018, which is subject to the timing of the regulatory approval process.  These acquisitions willare expected to add approximately 14,90016,325 customers in two of the states that the Company operates in.     

Pursuant to its strategy to grow through acquisitions, in January 2016, the Company acquired Superior Water Company, Inc., which provides public water service to approximately 3,900 customers in portions of Berks, Chester, and Montgomery counties in Pennsylvania.  The total purchase price for the utility system was $16,750, which consisted of the issuance of 439,943 shares of the Company’s common stock and $3,905 in cash.  The purchase price allocation for this acquisition consisted primarily of acquired property, plant and equipment of $25,167, contributions in aid of construction of $16,565, and goodwill of $8,622.  Additionally, during 2016, the Company completed eighteen acquisitions of water and wastewater utility systems in various states adding 2,469 customers.  The total purchase price of these utility systems consisted of $5,518 in cash, which resulted in $1,756 of goodwill being recorded.  The pro forma effect of the businesses acquired is not material either individually or collectively to the Company’s results of operations.        



Note 45 –  Assets Held for Sale



In the first quarter of 2017, the Company decided to market for sale a water system that serves approximately 265 customers.  This water system is reported as assets held for sale in the Company’s consolidated balance sheet.



In the second quarter of 2016, the Company decided to market for sale two business units that are reported within the Company’s market-based subsidiary, Aqua Resources.  One business unit installed and tested devices that prevent the contamination of potable water and repaired water and wastewater systems, for which the sale was completed in January 2017.  The other business unit repairs and performs maintenance on water and wastewater systems, for which the sale was completed in June 2017.





]

11


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

Note 5  –  Capitalization

In October 2017, Aqua Pennsylvania issued $75,000 of first mortgage bonds, of which $35,000 is due in 2054,  $20,000 is due in 2055, and $20,000 is due in 2057 with interest rates of 4.06%,  4.07%, and 4.09%, respectively.  The proceeds from these bonds were used to repay existing indebtedness and for general corporate purposes.

In July 2017, Aqua Illinois issued $100,000 of first mortgage bonds consisting of the following:

\

 

 

Amount

Interest Rate

Maturity

$25,000

3.64%

2032

$6,000

3.89%

2037

$15,000

3.90%

2038

$10,000

4.18%

2047

$22,000

4.22%

2049

$22,000

4.24%

2050

The proceeds from these bonds were used to repay existing indebtedness and for general corporate purposes. 

In July 2017, Aqua Pennsylvania issued $80,000 of first mortgage bonds, of which $40,000 is due in 2055 and $40,000 is due in 2057 with interest rates of 4.04% and 4.06%, respectively.  The proceeds from these bonds were used to repay existing indebtedness and for general corporate purposes. 

In January 2017, Aqua Pennsylvania issued $50,000 of first mortgage bonds, of which $10,000 is due in 2042 and $40,000 is due in 2044 with interest rates of 3.65% and 3.69%, respectively. The proceeds from these bonds were used to repay existing indebtedness and for general corporate purposes.

 

Note 6  –Fair Value of Financial Instruments 

 

The Company follows the FASB’s accounting guidance for fair value measurements and disclosures, which defines fair value and establishes a framework for using fair value to measure assets and liabilities.  That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are as follows:



·

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

 

·

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

·

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

1211


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

·

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



The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.  Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.  There have been no changes in the valuation techniques used to measure fair value, or asset or liability transfers between the levels of the fair value hierarchy for the quarter ended September 30, 2017.March 31, 2018. 



Financial instruments are recorded at carrying value in the financial statements and approximate fair value as of the dates presented.  The fair value of these instruments is disclosed below in accordance with current accounting guidance related to financial instruments. 



The fair value of loans payable is determined based on its carrying amount and utilizing Level 1 methods and assumptions.    As of September 30, 2017March 31, 2018 and December 31, 2016,2017, the carrying amount of the Company’s loans payable was $20,990$20,342 and $6,535,$3,650, respectively, which equates to their estimated fair value.  The Company’s assets underlying the deferred compensation plan liability isand non-qualified pension plans are determined by the fair value of mutual funds, which are based on quoted market prices from active markets utilizing Level 1 methods and assumptions.  As of September 30, 2017March 31, 2018 and December 31, 2016,2017, the carrying amount of these securities was $18,145$21,576 and $17,072,$21,776,  which equates to their fair value, and is reported in the consolidated balance sheet in deferred charges and other assets.  The fair value of cash and cash equivalents, which is comprised of a money market fund,uninvested cash, is determined based on the net asset value per unit utilizing Level 21 methods and assumptions.  As of September 30, 2017March 31, 2018 and December 31, 2016,2017, the carrying amounts of the Company's cash and cash equivalents was $4,139$3,202 and $3,763,$4,204, respectively, which equates to their fair value.

Unrealized gain and losses on equity securities held in conjunction with our non-qualified pension plan is as follows:

Three Months Ended

March 31,

2018

Net loss recognized during the period on equity securities

$

21 

Less:  net gain / loss recognized during the period on equity securities sold during the period

 -

Unrealized loss recognized during the reporting period on equity securities still held at the reporting date

$

21 

12


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

The net loss recognized on equity securities is presented on the consolidated statements of net income on the line item “Other.”  Additionally, the unrealized gain recognized during the three months ended March 31, 2017, was reported on the consolidated statements of comprehensive income. 



The carrying amounts and estimated fair values of the Company’s long-term debt is as follows:



 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2017

 

2016

Carrying Amount

 

$

2,059,031 

 

$

1,910,633 

Estimated Fair Value

 

 

2,185,051 

 

 

2,018,933 



 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2018

 

2017

Carrying amount

 

$

2,188,115 

 

$

2,143,127 

Estimated fair value

 

 

2,235,447 

 

 

2,262,785 

 



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 utilizing Level 2 methods and assumptions. 

The Company’s customers’ advances for construction have a carrying value of $107,715$90,599 as of September 30, 2017,March 31, 2018, and $91,843$93,186 as of December 31, 2016.2017.  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.rates.  Portions of these non-interest bearing instruments are payable annually through 20272028 and amounts not paid by the respective 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.

 

Note 7  –  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

13


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

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 treasury stock method assumes that the proceeds from stock-based compensation are used to purchase the Company’s common stock at the average market price during the period.  The following table summarizes the shares, in thousands, used in computing basic and diluted net income per common share: 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

Three Months Ended

 

September 30,

 

September 30,

 

March 31,

 

2017

 

2016

 

2017

 

2016

 

2018

 

2017

Average common shares outstanding during the period for basic computation

 

177,660 

 

177,336 

 

177,583 

 

177,243 

 

177,801 

 

177,479 

Dilutive effect of employee stock-based compensation

 

464 

 

481 

 

520 

 

538 

 

437 

 

490 

Average common shares outstanding during the period for diluted computation

 

178,124 

 

177,817 

 

178,103 

 

177,781 

 

178,238 

 

177,969 

 

 

 

 

 

 

 

 

 

 

 

 



13


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

For the three and nine months ended September 30,March 31, 2018 and 2017, and 2016, all of the Company’s employee stock options were included in the calculations of diluted net income per share as the calculated cost to exercise the stock options was less than the average market price of the Company’s common stock during these periods.

 

Note 8  –  Stock-based Compensation 

 

Under the Company’s 2009 Omnibus Equity Compensation Plan, as amended as of February 27, 2014 (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.  No further grants may be made under the 2004 Plan.  The 2009 Plan authorizes 6,250,000 shares for issuance under the plan.  A maximum of 3,125,000 shares under the 2009 Plan may be issued pursuant to stock awards, stock units and other stock-based awards, subject to adjustment as provided in the 2009 Plan.  During any calendar year, no individual may be granted (i) stock options and stock appreciation rights under the 2009 Plan for more than 500,000 shares of Company stock in the aggregate or (ii) stock awards, stock units or other stock-based awards under the 2009 Plan for more than 500,000 shares of Company stock in the aggregate, subject to adjustment as provided in the 2009 Plan.  Awards to employees and consultants under the 2009 Plan are made by a committee of the Board of Directors of the Company, except that with respect to awards to the Chief Executive Officer, the committee recommends those awards for approval by the non-employee directors of the Board of Directors.  In the case of awards to non-employee directors, the Board of Directors makes such awards.  At September 30, 2017,  3,741,526March 31, 2018,  3,454,922 shares were still available for issuance 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)

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 exceptions through the respective vesting period, generally three years.  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.  The following table provides compensation costs for stock-based compensation related to PSUs: 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

Three Months Ended

 

September 30,

 

September 30,

 

March 31,

 

2017

 

2016

 

2017

 

2016

 

2018

 

2017

Stock-based compensation within operations and maintenance expenses

 

$

1,035 

 

$

1,012 

 

$

2,875 

 

$

2,504 

 

$

859 

 

$

870 

Income tax benefit

 

 

420 

 

 

411 

 

 

1,167 

 

1,013 

 

 

241 

 

 

353 

 

14


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 the PSU transactions for the ninethree months ended September 30, 2017:March 31, 2018:   



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

 

Weighted

 

Number

 

Weighted

 

of

 

Average

 

of

 

Average

 

Share Units

 

Fair Value

 

Share Units

 

Fair Value

Nonvested share units at beginning of period

 

476,896 

 

$

27.96 

 

452,333 

 

$

26.16 

Granted

 

125,202 

 

 

30.79 

 

87,593 

 

 

37.65 

Performance criteria adjustment

 

(64,398)

 

 

27.75 

 

(33,109)

 

 

29.71 

Forfeited

 

(16,306)

 

 

28.26 

 

(5,522)

 

 

29.59 

Share units vested in prior period and issued in current period

 

32,400 

 

 

25.31 

 

9,400 

 

 

26.54 

Share units issued

 

(125,999)

 

 

36.37 

 

(136,081)

 

 

31.70 

Nonvested share units at end of period

 

427,795 

 

$

26.13 

 

374,614 

 

26.48 

 

 

 

 

 

 

 

 

 

 

 

 

 

A portion of the fair value of PSUs was estimated at the grant date based on the probability of satisfying the market-based conditions using the Monte Carlo valuation method, which assesses probabilities of various outcomes of market conditions.  The other portion of the fair value of the PSUs is based on the fair market value of the Company’s stock at the grant date, regardless of whether the market-based condition is satisfied.  The per unit weighted-average fair value at the date of grant for PSUs granted during the ninethree months ended September 30,March 31, 2018 and 2017 was $37.65 and 2016 was $30.79, and $28.89, respectively.  The fair value of each PSU grant is amortized monthly into compensation expense on a straight-line basis over their respective vesting periods, generally 36 months.  The accrual of compensation costs is based on the Company’s estimate of the final expected value of the award, and is adjusted as required for the portion based on the performance-based condition.  The Company assumes that forfeitures will be minimal, and recognizes forfeitures as they occur, which results in a reduction in compensation expense.  As the payout of the PSUs includes dividend equivalents, no separate dividend yield assumption is required in calculating the fair value of the PSUs.  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 UnitsA 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.  The Company assumes that forfeitures will be minimal, and recognizes forfeitures as they occur, which results in a reduction in compensation expense.  As the payout of the RSUs includes dividend equivalents, no separate dividend yield assumption is required in calculating the fair value of the RSUs.  The following table provides the compensation cost and income tax benefit for stock-based compensation related to RSUs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

Three Months Ended

 

September 30,

 

September 30,

 

March 31,

 

2017

 

2016

 

2017

 

2016

 

2018

 

2017

Stock-based compensation within operations and maintenance expenses

 

$

311 

 

$

299 

 

$

915 

 

$

763 

 

$

351 

 

$

281 

Income tax benefit

 

 

129 

 

 

124 

 

 

378 

 

 

315 

 

 

100 

 

 

116 

 



15


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 the RSU transactions for the ninethree months ended September 30, 2017:March 31, 2018: 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

 

Weighted

 

Number

 

Weighted

 

of

 

Average

 

of

 

Average

 

Stock Units

 

Fair Value

 

Stock Units

 

Fair Value

Nonvested stock units at beginning of period

 

109,273 

 

$

28.48 

 

116,787 

 

$

29.46 

Granted

 

41,293 

 

30.37 

 

54,073 

 

34.91 

Stock units vested in prior period and issued in current period

 

1,467 

 

31.47 

Stock units vested and issued

 

(26,914)

 

26.18 

 

(42,836)

 

26.39 

Forfeited

 

(2,287)

 

30.52 

 

 -

 

 -

Nonvested stock units at end of period

 

121,365 

 

$

29.60 

 

129,491 

 

31.78 

 



The per unit weighted-average fair value at the date of grant for RSUs granted during the ninethree months ended September 30,March 31, 2018 and 2017 was $34.91 and 2016 was $30.37, and $32.09, respectively.   



Stock Options –  A stock option represents the option to purchase a number of shares of common stock of the Company as specified in the stock option grant agreement at the exercise price per share as determined by the closing market price of our common stock on the grant date.  Stock options are exercisable in installments of 33% annually, starting one year from the grant date and expire 10 years from the grant date.    The fair value of each stock option is amortized into compensation expense using the graded-vesting method, which results in the recognition of compensation costs over the requisite service period for each separately vesting tranche of the stock options as though the stock options were, in substance, multiple stock option grants.  The following table provides the compensation cost and income tax benefit for stock-based compensation related to stock options:



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



 

September 30,

 

 

September 30,



 

2017

 

2016

 

2017

 

2016

Stock-based compensation within operations and maintenance expenses

 

$

73 

 

$

 -

 

$

177 

 

$

 -

Income tax benefit

 

 

43 

 

 

15 

 

 

167 

 

 

249 

16


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)



 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2018

 

2017

Stock-based compensation within operations and maintenance expenses

 

$

94 

 

$

30 

Income tax benefit

 

 

58 

 

 

92 



 

 

 

 

 

 

The fair value of options was estimated at the grant date using the Black-Scholes option-pricing model.  The following assumptions were used in the application of this valuation model:



2017

Expected term (years)

5.45 

Risk-free interest rate

2.01% 

Expected volatility

17.7% 

Dividend yield

2.51% 

Grant date fair value per option

$       4.07



 

 



2018

2017

Expected term (years)

5.46 5.45 

Risk-free interest rate

2.72% 2.01% 

Expected volatility

17.2% 17.7% 

Dividend yield

2.37% 2.51% 

Grant date fair value per option

$       5.10

$       4.07



Historical information was the principal basis for the selection of the expected term and dividend yield.  The expected volatility is based on a weighted-average combination of historical and implied volatilities over a time period that approximates the expected term of the option.  The risk-free interest rate was selected based upon the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option.

For the nine months ended September 30, 2016, there were no compensation costs for stock-based compensation related to stock options, as the previous stock option grant that occurred in 2010 became fully amortized in 2013.  Additionally, there were no stock options granted during the nine months ended September 30, 2016. 

The following table summarizes stock option transactions for the nine months ended September 30, 2017:



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

Weighted

 

Weighted

 

 

 



 

 

 

Average

 

Average

 

Aggregate



 

 

 

Exercise

 

Remaining

 

Intrinsic



 

Shares

 

Price

 

Life (years)

 

Value

Outstanding at beginning of period

 

427,335 

 

$

15.55 

 

 

 

 

 

Granted

 

120,127 

 

 

30.47 

 

 

 

 

 

Forfeited

 

(2,439)

 

 

30.47 

 

 

 

 

 

Expired / Cancelled

 

(2,812)

 

 

14.26 

 

 

 

 

 

Exercised

 

(157,621)

 

 

16.51 

 

 

 

 

 

Outstanding at end of period

 

384,590 

 

$

19.73 

 

3.9 

 

$

5,175 



 

 

 

 

 

 

 

 

 

 

Exercisable at end of period

 

266,902 

 

$

15.00 

 

1.4 

 

$

4,855 

1716


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

selected based upon the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option.

The following table summarizes stock option transactions for the three months ended March 31, 2018:



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

Weighted

 

Weighted

 

 

 



 

 

 

Average

 

Average

 

Aggregate



 

 

 

Exercise

 

Remaining

 

Intrinsic



 

Shares

 

Price

 

Life (years)

 

Value

Outstanding at beginning of period

 

364,932 

 

$

19.83 

 

 

 

 

 

Granted

 

160,859 

 

 

34.51 

 

 

 

 

 

Forfeited

 

(2,371)

 

 

30.47 

 

 

 

 

 

Expired / Cancelled

 

(41)

 

 

30.47 

 

 

 

 

 

Exercised

 

(62,688)

 

 

16.11 

 

 

 

 

 

Outstanding at end of period

 

460,691 

 

$

25.40 

 

6.2 

 

$

4,060 



 

 

 

 

 

 

 

 

 

 

Exercisable at end of period

 

225,594 

 

$

17.24 

 

2.6 

 

$

3,794 

Stock Awards –     Stock awards represent the issuance of the Company’s common stock, without restriction.  The issuance of stock awards results in compensation expense which is equal to the fair market value of the stock on the grant date, and is expensed immediately upon grant.  The following table provides the compensation cost and income tax benefit for stock-based compensation related to stock awards:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

Three Months Ended

 

September 30,

 

September 30,

 

March 31,

 

2017

 

2016

 

2017

 

2016

 

2018

 

2017

Stock-based compensation within operations and maintenance expenses

 

$

150 

 

$

131 

 

$

412 

 

$

375 

 

$

140 

 

$

131 

Income tax benefit

 

 

62 

 

 

54 

 

 

171 

 

 

155 

 

 

40 

 

 

54 



The following table summarizes stock award transactions for the ninethree months ended September 30, 2017:March 31, 2018:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

 

Weighted

 

Number

 

Weighted

 

of

 

Average

 

of

 

Average

 

Stock Awards

 

Fair Value

 

Stock Awards

 

Fair Value

Nonvested stock awards at beginning of period

 

 -

 

$

 -

 

 -

 

$

 -

Granted

 

12,529 

 

32.92 

 

4,130 

 

33.90 

Vested

 

(12,529)

 

32.92 

 

(4,130)

 

33.90 

Nonvested stock awards at end of period

 

 -

 

$

 -

 

 -

 

$

 -



The per unit weighted-average fair value at the date of grant for stock awards granted during the ninethree months ended September 30,March 31, 2018 and 2017 was $33.90 and 2016 was $32.92 and $32.57,$32.15, respectively.

1817


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

Note 9  –  Pension Plans and Other Postretirement Benefits   

 

The Company maintains a qualified defined benefit pension plan (the “Pension Plan”), a nonqualified pension plan, 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 cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Benefits

 

Pension Benefits

 

Three Months Ended

 

Nine Months Ended

 

Three Months Ended

 

September 30,

 

September 30,

 

March 31,

 

2017

 

2016

 

2017

 

2016

 

2018

 

2017

Service cost

 

$

794 

 

$

784 

 

$

2,382 

 

$

2,394 

 

$

812 

 

$

794 

Interest cost

 

 

3,108 

 

 

3,251 

 

 

9,324 

 

9,787 

 

 

2,874 

 

 

3,108 

Expected return on plan assets

 

 

(4,270)

 

 

(4,215)

 

 

(12,810)

 

(12,696)

 

 

(4,553)

 

 

(4,270)

Amortization of prior service cost

 

 

145 

 

 

145 

 

 

435 

 

435 

 

 

132 

 

 

145 

Amortization of actuarial loss

 

 

2,001 

 

 

1,797 

 

 

6,003 

 

5,354 

 

 

1,823 

 

 

2,001 

Settlement charge

 

 

 -

 

 

 -

 

 

 -

 

3,028 

Special termination benefit charge

 

 

 -

 

 

 -

 

 

 -

 

 

302 

Net periodic benefit cost

 

$

1,778 

 

$

1,762 

 

$

5,334 

 

$

8,604 

 

$

1,088 

 

$

1,778 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Other

 

Postretirement Benefits

 

Postretirement Benefits

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

September 30,

 

 

September 30,

 

 

March 31,

 

2017

 

2016

 

2017

 

2016

 

2018

 

2017

Service cost

 

$

255 

 

$

253 

 

$

765 

 

$

761 

 

$

262 

 

$

255 

Interest cost

 

 

737 

 

 

726 

 

 

2,211 

 

2,202 

 

 

708 

 

 

737 

Expected return on plan assets

 

 

(647)

 

 

(645)

 

 

(1,941)

 

(2,001)

 

 

(677)

 

 

(647)

Amortization of prior service cost

 

 

(127)

 

 

(137)

 

 

(381)

 

(411)

 

 

(127)

 

 

(127)

Amortization of actuarial loss

 

 

291 

 

 

220 

 

 

873 

 

 

707 

 

 

296 

 

 

291 

Net periodic benefit cost

 

$

509 

 

$

417 

 

$

1,527 

 

$

1,258 

 

$

462 

 

$

509 



Effective July 1, 2015,The components of net periodic benefit cost other than service cost are presented on the Company added a permanent lump sum option toconsolidated statements of net income on the form of benefit payments offered to participants of the qualified defined benefit pension plan and non-qualified retirement plans upon retirement or termination.  During the first quarter of 2016, the lump sum payments paid to participants who elected this option for payments from the non-qualified retirement plans resulted in a settlement charge.line item “Other.”  



The Company made cash contributions of $15,421$5,198 to its Pension Plan during the first sixthree months of 2017,  which completed2018,  and intends to make additional cash contributions of $7,286 to the Company’s 2017 cash contributions.Pension Plan during the remainder of 2018. 

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 –  Water and Wastewater Rates 

 

During the first ninethree months of 2017,2018, the Company’s operating divisions in IndianaIllinois and Ohio were granted base rate increases designed to increase total operating revenues on an annual basis by $7,403.$8,640.  On April 6, 2018, the base rate case in Illinois was petitioned for a rehearing;  however, this petition was

18


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

denied on April 19, 2018.  The other parties to the case have thirty days to file an appeal.  The approved rates, for which we have billed $300 to date in March 2018, are in effect, but could be subject to refund if an appeal is granted.  Further, during the first ninethree months of 2017,2018, the Company’s operating divisions in Illinois, New Jersey,Pennsylvania and North Carolina received approval to bill infrastructure rehabilitation surcharges designed to increase total operating revenues on an annual basis by $3,659.$9,731.

As of February 10, 2018, the Company has been billing interim rates in Virginia, which has a base rate case filing in progress.  As of March 31, 2018, $821 of billings is subject to refund pending the conclusion of the rate case.  

 

Note 11 –  Taxes Other than Income Taxes 

 

The following table provides the components of taxes other than income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

Three Months Ended

 

September 30,

 

September 30,

 

March 31,

 

2017

 

2016

 

2017

 

2016

 

2018

 

2017

Property

 

$

6,955 

 

$

7,007 

 

$

20,608 

 

$

20,119 

 

$

6,749 

 

$

6,785 

Gross receipts, excise and franchise

 

 

3,969 

 

 

3,409 

 

 

10,507 

 

 

9,468 

 

 

3,265 

 

 

3,175 

Payroll

 

 

2,066 

 

 

2,140 

 

 

7,322 

 

 

7,775 

 

 

3,275 

 

 

3,124 

Regulatory assessments

 

 

674 

 

 

639 

 

 

1,933 

 

 

1,991 

 

 

627 

 

 

629 

Pumping fees

 

 

1,526 

 

 

1,442 

 

 

3,820 

 

 

3,501 

 

 

991 

 

 

944 

Other

 

 

44 

 

 

75 

 

 

200 

 

 

240 

 

 

60 

 

 

80 

Total taxes other than income

 

$

15,234 

 

$

14,712 

 

$

44,390 

 

$

43,094 

 

$

14,967 

 

$

14,737 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





Note 12 –  Segment Information 

 

The Company has ten operating segments and one reportable segment.  The Regulated segment, the Company’s single reportable segment, is comprised of eight operating segments representing its water and wastewater regulated utility companies which are organized by the states where the Company provides water and wastewater services.  These operating segments are aggregated into one reportable segment because each of these operating segments has the following similarities: economic characteristics, nature of services, production processes, customers, water distribution or wastewater collection methods, and the nature of the regulatory environment.



Two operating segments are included within the Other category below.  These segments are not quantitatively significant and are comprised of Aqua ResourcesInfrastructure and Aqua Infrastructure.Resources.  Aqua Infrastructure provides non-utility raw water supply services for firms in the natural gas drilling industry.    Aqua Resources provides water and wastewater service through operating and maintenance contracts with municipal authorities and other parties close to its utility companies’ service territories; and offers, through a third party, water and sewer line repair service and protection solutions to households.  Aqua Infrastructure provides non-utility raw water supply services for firms in the natural gas drilling industry.  In addition to these segments, Other is comprised of other business activities not included in the reportable segment, including corporate costs that have not been allocated to the Regulated segment and intersegment eliminations.  Corporate costs include general and administrative expenses, and interest expense.   Additionally, contained within total assets for the Other category, in the table below, is a regulatory asset for postretirement benefits for the underfunded status of the Company’s  pension and other postretirement benefit plans and an intercompany receivable. 



2019


 

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 information about the Company’s reportable segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

Three Months Ended

 

Three Months Ended

 

September 30, 2017

 

September 30, 2016

 

March 31, 2018

 

March 31, 2017

 

Regulated

 

Other

 

Consolidated

 

Regulated

 

Other

 

Consolidated

 

Regulated

 

Other

 

Consolidated

 

Regulated

 

Other

 

Consolidated

Operating revenues

 

$

214,032 

 

$

976 

 

$

215,008 

 

$

222,231 

 

$

4,362 

 

$

226,593 

 

$

193,507 

 

$

840 

 

$

194,347 

 

$

186,349 

 

$

1,438 

 

$

187,787 

Operations and maintenance expense

 

 

70,772 

 

 

(2,790)

 

67,982 

 

 

73,013 

 

6,799 

 

79,812 

 

 

71,303 

 

 

2,643 

 

73,946 

 

 

66,272 

 

1,618 

 

67,890 

Depreciation

 

 

34,533 

 

 

(269)

 

34,264 

 

 

34,025 

 

(144)

 

33,881 

 

 

35,958 

 

 

 

35,967 

 

 

33,666 

 

171 

 

33,837 

Operating income (loss)

 

 

94,142 

 

 

3,344 

 

97,486 

 

 

100,563 

 

(2,764)

 

97,799 

Interest expense, net

 

 

20,753 

 

 

1,658 

 

22,411 

 

 

19,167 

 

1,001 

 

20,168 

Allowance for funds used during construction

 

 

3,914 

 

 

 -

 

3,914 

 

 

2,267 

 

 -

 

2,267 

Income tax expense (benefit)

 

 

3,138 

 

 

262 

 

3,400 

 

 

9,027 

 

(616)

 

8,411 

Net income (loss)

 

 

74,208 

 

 

2,017 

 

76,225 

 

 

74,681 

 

(1,511)

 

73,170 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Nine Months Ended

 

September 30, 2017

 

September 30, 2016

 

Regulated

 

Other

 

Consolidated

 

Regulated

 

Other

 

Consolidated

Operating revenues

 

$

602,341 

 

$

3,872 

 

$

606,213 

 

$

606,323 

 

$

16,753 

 

$

623,076 

Operations and maintenance expense

 

 

210,842 

 

 

(2,879)

 

 

207,963 

 

 

210,014 

 

 

17,333 

 

 

227,347 

Depreciation

 

 

102,340 

 

 

(832)

 

 

101,508 

 

 

98,445 

 

 

(800)

 

 

97,645 

Amortization

 

 

88 

 

 

42 

 

130 

 

 

209 

 

(20)

 

189 

Operating income (loss)

 

 

246,361 

 

 

5,633 

 

 

251,994 

 

 

255,431 

 

 

(1,808)

 

 

253,623 

 

 

72,058 

 

 

(2,721)

 

69,337 

 

 

72,305 

 

(1,171)

 

71,134 

Interest expense, net

 

 

60,277 

 

 

4,847 

 

 

65,124 

 

 

57,061 

 

 

3,075 

 

 

60,136 

 

 

21,708 

 

 

1,763 

 

23,471 

 

 

19,777 

 

1,549 

 

21,326 

Allowance for funds used during construction

 

 

10,570 

 

 

 -

 

 

10,570 

 

 

6,446 

 

 

 -

 

 

6,446 

 

 

2,867 

 

 

 -

 

2,867 

 

 

3,193 

 

 -

 

3,193 

Income tax expense (benefit)

 

 

12,243 

 

 

(344)

 

 

11,899 

 

 

18,610 

 

 

(1,677)

 

 

16,933 

 

 

(643)

 

 

(1,488)

 

(2,131)

 

 

3,856 

 

(926)

 

2,930 

Net income (loss)

 

 

184,733 

 

 

1,532 

 

 

186,265 

 

 

186,579 

 

 

(2,046)

 

 

184,533 

 

 

54,027 

 

 

(3,188)

 

50,839 

 

 

50,896 

 

(1,824)

 

49,072 

Capital expenditures

 

 

337,321 

 

 

410 

 

 

337,731 

 

 

269,046 

 

 

973 

 

 

270,019 

 

 

105,136 

 

 

 -

 

105,136 

 

 

94,409 

 

153 

 

94,562 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

March 31,

 

December 31,

 

2017

 

2016

 

2018

 

2017

Total assets:

 

 

 

 

 

 

 

 

 

 

 

 

Regulated

 

$

6,355,896 

 

$

5,953,702 

 

$

6,321,372 

 

$

6,236,109 

Other

 

 

189,485 

 

 

205,289 

 

 

82,336 

 

 

96,354 

Consolidated

 

$

6,545,381 

 

$

6,158,991 

 

$

6,403,708 

 

$

6,332,463 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note 13 –  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, 2017,March 31, 2018, the aggregate amount of $16,898$20,231 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 March 31, 2018, estimates that approximately $8,231 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.

Although the results of legal proceedings cannot be predicted with certainty, there are no pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of its properties is

2120


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

cash flows.  Further, the Company has insurance coverage for certain of these loss contingencies, and as of September 30, 2017, estimatessubject that approximately $5,415 of the amount accrued for these matters are probable of recovery through insurance, which amount is also reported inmaterial or are expected to have a material effect on the Company’s consolidated balance sheet as deferred charges and other assets.financial position, results of operations, or cash flows.



In addition to the aforementioned loss contingencies, the Company self-insures its employee medical benefit program, and maintains stop-loss coverage to limit the exposure arising from these claims.  The Company’s reserve for these claims totaled $1,451 at September 30, 2017March 31, 2018 and represents a reserve for unpaid claim costs, including an estimate for the cost of incurred but not reported claims.  

 

Note 14 –  Income Taxes 

 

During the ninethree months ended September 30, 2017,March 31, 2018, the Company’s Federal net operating loss (“NOL”) carryforward decreased by $31,935.$6,760.  In addition, during the ninethree months ended September 30, 2017,March 31, 2018, the Company’s state NOL carryforward increased by $23,173.$3,866.  As of September 30, 2017,March 31, 2018, the balance of the Company’s Federal NOL was $81,208.$56,542.  The Company believes its Federal NOL carryforward is more likely than not to be recovered and requires no valuation allowance.  As of September 30, 2017,March 31, 2018, the balance of the Company’s gross state NOL was $600,358,$631,124, a portion of which is offset by a valuation allowance because the Company does not believe the state NOLs are more likely than not to be realized.  The Company’s Federal and state NOL carryforwards begin to expire in 2032 and 2023, respectively.  The Company’s Federal and state NOL carryforwards are reduced by an unrecognized tax position, on a gross basis, of $64,738$64,814 and $85,523,$85,380, respectively.  The amounts of the Company’s Federal and state NOL carryforwards prior to being reduced by the unrecognized tax positions were $145,947$121,356 and $685,880$716,504 respectively.  The Company records its unrecognized tax benefit as a reduction to its deferred income tax liability. 



In accordance with a 2012 settlement agreement with the Pennsylvania Public Utility Commission, Aqua Pennsylvania expenses, for tax purposes, qualifying utility asset improvement costs, which results in a substantial reduction in income tax expense and greater net income and cash flows.  The Company’s effective income tax rate for the thirdfirst quarter of 2018 and 2017 was -4.4% and 2016 was 4.3% and 10.3%, respectively, and for the first nine months of 2017 and 2016 was 6.0% and 8.4%5.6%, respectively. 



As of September 30, 2017 regulatory assets increased by $96,140, as compared to the beginning of the year, primarily due to the effect of additional tax deductions for certain qualifying infrastructure improvements, which results in differences between costs capitalized for book and deducted as an expense for tax purposes. 

As of September 30, 2017,March 31, 2018,  the total gross unrecognized tax benefit was $28,938, of which $23,700, if recognized, would affect the Company’s effective tax rate as$18,143.   As a result of the regulatory treatment afforded for qualifying infrastructure improvements in Pennsylvania.Pennsylvania,  $24,834, if recognized, would affect the Company’s effective tax rate.  At December 31, 2016,2017, the Company had unrecognized tax benefits of $28,099.$17,583.    



Accounting rules for uncertain tax positions specify that tax positions for which the timing of resolution is uncertain should be classified as long-term liabilities.  Judgment is required in evaluating the Company’s uncertain tax positions and determining the provision for income taxes.  Management believes that an adequate provision has been made for any adjustments that may result from tax

22


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

examinations.  Although the timing of income tax audit resolutions and negotiations with taxing authorities is highly uncertain, the Company does not anticipate a significant change to the total amount of unrecognized income tax benefits within the next 12 months.

On December 22, 2017, President Trump signed the “Tax Cuts and Jobs Acts” (the “TCJA”) into law.  Substantially all of the provisions of the TCJA are effective for taxable years beginning after December 31, 2017.  The TCJA includes significant changes to the Code and the taxation of business entities, and includes specific provisions related to regulated public utilities. Significant changes that

21


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

impact the Company included in the TCJA are a reduction in the corporate federal income tax rate from 35% to 21%, effective January 1, 2018, and a limitation of the utilization of NOLs arising after December 31, 2017 to 80% of taxable income with an indefinite carryforward.  The specific TCJA provisions related to our regulated entities generally allow for the continued deductibility of interest expense, the elimination of full expensing for tax purposes of certain property acquired after September 27, 2017 and the continuation of certain rate normalization requirements for accelerated depreciation benefits.  Our market-based companies still qualify for 100% deductibility of qualifying property acquired after September 27, 2017.

In accordance with the FASB’s accounting guidance for income taxes, the tax effects of changes in tax laws must be recognized in the period in which the law is enacted, or December 22, 2017 for the TCJA.  Additionally, deferred tax assets and liabilities are required to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled.  Thus, at the date of enactment, the Company’s deferred taxes were re-measured based upon the new tax rate.  For our regulated entities, the change in deferred taxes is recorded as either an offset to a regulatory asset or liability and may be subject to refund to customers.  In instances where the deferred tax balances are not in ratemaking, such as the Company’s market-based operations, the change in deferred taxes is recorded as an adjustment to our deferred tax provision.

The staff of the SEC has recognized the complexity of reflecting the impacts of the TCJA, and on December 22, 2017 issued guidance, which clarifies accounting for income taxes if information is not yet available or complete and provides for up to a one year period in which to complete the required analyses and accounting (the measurement period).  The guidance describes three scenarios (or “buckets”) associated with a company’s status of accounting for income tax reform:  (1) a company is complete with itsaccounting for certain effects of tax reform, (2) a company is able to determine areasonable estimate for certain effects of tax reform and records that estimate as aprovisional amount, or (3) a company is not able to determine a reasonable estimate andtherefore continues to apply the FASB’s accounting guidance, based on the provisions of the taxlaws that were in effect immediately prior to the TCJA being enacted.

The Company has completed or has made a reasonable estimate for the measurement and accounting of the effect of the TCJA which were reflected in the December 31, 2017 financial statements, which resulted in a decrease to the accumulated deferred income tax liability of $303,320.  Additionally, due to the reduction in the Company’s corporate income tax rate,  in the first quarter of 2018, the Company reserved $2,532 for amounts expected to be refundable to utility customers.  During the first quarter of 2018, in Illinois and Virginia, the Company’s base rates have been adjusted to reflect the lower corporate income tax rate, and Texas and New Jersey implemented adjusted tariff rates in the second quarter of 2018.            

One of our states, Pennsylvania, has not yet issued an accounting or procedural order addressing how the TCJA changes are to be reflected in our utility customer rates.  As of December 31, 2017, the Company had provisionally estimated that $175,108 of deferred income tax liabilities for our Pennsylvania subsidiary will be a regulatory liability.  Additionally, two operating divisions in Ohio operate under locally-negotiated contractual rates with their respective counties, and it is expected that negotiations will result in a contract that will return to customers the effects of the reduction in the corporate net income tax rate under the TCJA; however, these negotiations have not yet started.  As of December 31, 2017, the Company had provisionally estimated that $9,419 of deferred income tax liabilities for these two

22


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

divisions will be a regulatory liability.  Overall, the Company has applied a reasonable interpretation of the impact of the TCJA and a reasonable estimate of the regulatory resolution.  Further clarification of the TCJA and regulatory resolution may change the amounts estimated of the deferred income tax provision and the accumulated deferred income tax liability.      

The Company’s regulated operations accounting for income taxes are impacted by the FASB’s accounting guidance for regulated operations.  Reductions in accumulated deferred income tax balances due to the reduction in the Federal corporate income tax rates to 21% under the provisions of the TCJA will result in amounts previously collected from utility customers for these deferred taxes to be refundable to such customers, generally through reductions in future rates.  The TCJA includes provisions that stipulate how these excess deferred taxes related to certain accelerated tax depreciation deduction benefits are to be passed back to customers.  Potential refunds of other deferred taxes will be determined by our state regulators.  Our state regulatory commissions have or are in the process of issuing procedural orders directing how the tax law changes are to be reflected in our utility customer rates. 

 

Note 15 –  Recent Accounting Pronouncements   



In March 2017, the FASB issued updated accounting guidance on the presentation of net periodic pension and postretirement benefit cost (net benefit cost).  Historically, net benefit cost is reported as an employee cost within operating income, net of amounts capitalized.  The guidance requires the bifurcation of net benefit cost.  The service cost component will be presented with other employee compensation costs in operating income and the other components of net benefit cost will be reported separately outside of operating income, and will not be eligible for capitalization.  The guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period, and is to be applied retrospectively for the presentation of the service cost component and the other components of net benefit cost, and on a prospective basis for the capitalization of only the service cost component of net benefit cost.  TheOn January 1, 2018, the Company is evaluating the requirements ofadopted the updated guidance, to determine the impact of adoption, and doeswhich did not believe it will have a material impact on its results of operations or financial position.  

In January 2017, the FASB issued updated accounting guidance that eliminates step 2 of the current goodwill impairment test, which requires a hypothetical purchase price allocation to measure goodwill impairment.  A goodwill impairment loss will instead be measured at the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill.  The guidance will be effective for annual reporting periods beginning after December 15, 2019,position, and interim periods within that reporting period, with early adoption permitted for any impairment test performed on testing dates after January 1, 2017.  The Company has elected to early adopt the provisions of the updated guidance, for its annual impairment valuation performed in the third quarter of 2017, and the provisions of the updated guidance did not have an impact on its results of operations or financial position.  

In August 2016, the FASB issued updated accounting guidance on the classification of certain cash receipts and cash payments in the statement of cash flows, which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows.  This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted.  The Company has elected to early adopt the provisions of the updated guidance, which resulted in the reclassification, of $375 debt extinguishment costs, for the ninethree months ended September 30, 2016,March 31, 2017, of $1,238 for the other components of net benefit cost from cash flows from operatingoperations and maintenance expense to financing activities to conform toother in the new classification. 

23


Tableconsolidated statements of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

In March 2016, the FASB issued updated accounting guidance on simplifying the accounting for share-based payments, which includes several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.   The updated guidance was effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption available.  On January 1, 2017, the Company adopted the updated guidance, prospectively, and recognized a previously unrecognized windfall tax benefit for stock-based compensation of $982 associated with the Company’s 2012 Federal net operating loss, which was recorded as an adjustment to deferred income taxes and retained earnings (refer to the presentation of “cumulative effect of change in accounting principle - windfall tax benefit” on the Company’s Consolidated Statement of Equity).  Additionally, income tax benefits in excess of compensation costs or tax deficiencies for share-based compensation are now recorded to the Company’s income tax provision, instead of historically to stockholder’s equity, which impacts its effective tax rate.  Lastly, all tax-related cash flows resulting from share-based payments are reported prospectively as operating activities on the statement of cash flows, a change from the historical requirement to present tax benefits as an inflow from financing activities and an outflow from operating activities.income.



In February 2016, the FASB issued updated accounting guidance on accounting for leases, which requires lessees to establish a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  For income statement purposes, leases will be classified as either operating or finance.  Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern.  The updated accounting guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption available.  The Company is evaluating the requirements of the updated guidance to determine the impact of adoption.



23


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 2016, the FASB issued updated accounting guidance on the recognition and measurement of financial assets and financial liabilities, which amends certain aspects of recognition, measurement, presentation, and disclosure of financial instruments, including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income.  The updated guidance is effective for interim and annual periods beginning after December 31, 2017.  TheOn January 1, 2018, the Company does not expect the provisions ofadopted the updated guidance, towhich did not have a material impact on its results of operations or financial position.position, and resulted in the recognition of $860 of previous unrealized gains, which was recorded as an adjustment to beginning retained earnings (refer to the presentation of “cumulative effect of change in accounting principle – financial instruments” on the Company’s consolidated statement of equity).  



24


Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

In May 2014, the FASB issued updated accounting guidance on recognizing revenue from contracts with customers, which outlines a single comprehensive model that an entity will apply to determine the measurement of revenue and timing of recognition.  The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services.  The updated guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract.  Additionally, the accounting for contributions in aid of construction may be impacted by the updated accounting guidance if the contributions are determined to be in scope.  In July 2015, the FASB approved a one year deferral to the original effective date of this guidance.  The updated guidance is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the updated guidance in each prior reporting period, or (ii) a modified retrospective approach with the cumulative effect of initially adopting the updated guidance recognized through retained earnings at the date of adoption.  In 2016, the Company performed an evaluation of the requirements of the updated guidance and based on current interpretations of the updated guidance believes that the impact of adoption will not result in a material change in the Company’s measurement of revenue and timing of recognition if contributions in aid of construction are determined to not be in scope.revenue.  In 2017, the American Institute of Certified Public Accountants (AICPA)(“AICPA”) power and utility entities revenue recognition task force has determined that contributions in aid of construction are not in the scope of the new standard, and submitted its recommendation to the AICPA’s revenue recognition working group for approval.  The Company plans to implementimplemented the updated guidance using the modified retrospective approach on January 1, 2018.2018, which did not result in a change in the Company’s measurement of revenue, and reached the following conclusions:

·

The Company’s tariff sale contracts, including those with lower credit quality customers, are generally deemed to be probable of collection, and thus the timing of revenue recognition will continue to be concurrent with the delivery of water and wastewater services, consistent with our current practice.

·

Contributions in aid of construction are outside of the scope of the standard, and will continue to be accounted for as a noncurrent liability.

 



 

2524


 

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: 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,” “in the event” 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, 20162017 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 

 

Aqua America, Inc. (“we”, “us”, “our” or the “Company”), a Pennsylvania corporation, is the holding company for regulated utilities providing water or wastewater services to what we estimate to be almost three million people in Pennsylvania, Ohio, Texas, Illinois, North Carolina, New Jersey, Indiana, and Virginia.  Our largest operating subsidiary, Aqua Pennsylvania, 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 27 other counties in Pennsylvania.  Our other regulated utility subsidiaries provide similar services in seven other states.  In addition, the Company’s market-based activities are conducted through Aqua Infrastructure, LLC and Aqua Resources, Inc.  Aqua Infrastructure provides non-utility raw water supply services for firms in the natural gas drilling industry.    Aqua Resources provides water and wastewater service through operating and maintenance contracts with municipal authorities and other parties close to our utility companies’ service territories; and offers, through a third party, water and wastewater line repair service and protection solutions to households.   



2625


 

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)

 

During 2016, we completed the sale of business units within Aqua Resources which provided liquid waste hauling and disposal services, and inspection, cleaning and repair of storm and sanitary wastewater lines.  Additionally, in 2016, we decided to market for sale two business units that are reported within the Company’s market-based subsidiary, Aqua Resources.  One business unit installed and tested devices that prevent the contamination of potable water and repaired water and wastewater systems, for which the sale was completed in January 2017.  The other business unit repairs and performs maintenance on water and wastewater systems, for which the sale was completed in June 2017.  

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, 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 American Water Works Company, Inc.’s regulated operations in Ohio in 2012.  Since the early 1990s, our business strategy has been primarily directed toward the regulated water and wastewater utility industry, where we have more than quadrupled the number of regulated customers we serve, and has extended our regulated operations from southeastern Pennsylvania to include operations in seven other states.  Currently, the Company seeks to acquire businesses in the U.S. regulated sector, which includes water and wastewater utilities and other regulated utilities, and to opportunistically pursue growth ventures in select market-based activities, such as infrastructure opportunities that are supplementary and complementary to our regulated businesses.



The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes.



Financial Condition

 

During the first ninethree months of 2017,2018, we had $337,731$105,136 of capital expenditures, expended $5,860$190 for the acquisition of water and wastewater utility systems, issued $441,294$66,996 of long-term debt, and repaid debt and made sinking fund contributions and other loan repayments of $293,270.$21,898. The capital expenditures were related to new and replacement water mains, improvements to treatment plants, tanks, hydrants, and service lines, well and booster improvements, and other enhancements and improvements.  The issuance of long-term debt was comprised principally of the funds borrowed under our revolving credit facility and the issuances of $80,000 and $50,000 of first mortgage bonds by Aqua Pennsylvania in July and January 2017 and $100,000 of first mortgage bonds by Aqua Illinois in July 2017.facility. 



At September 30, 2017,March 31, 2018, we had $4,139$3,202 of cash and cash equivalents compared to $3,763$4,204 at December 31, 2016.2017.  During the first ninethree months of 2017,2018, we used the proceeds from the issuance of long-term debt and internally generated funds to fund the cash requirements discussed above and to pay dividends.

 

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)

At September 30, 2017,March 31, 2018, our $250,000 unsecured revolving credit facility, which expires in February 2021, had $183,547$113,189 available for borrowing.  At September 30, 2017,March 31, 2018, we had short-term lines of credit of $135,500, of which $114,510$115,158 was available for borrowing.  One of our short-term lines of credit is an Aqua Pennsylvania $100,000 364-day unsecured revolving credit facility with four banks, which is used to provide working capital, and as of September 30, 2017, $80,000March 31, 2018, $79,658 was available for borrowing.   In July we issued $180,000 of long-term debt, the proceeds of which were used to reduce our borrowings under our revolving credit facilities.  Subsequently, in October we issued $75,000 of long-term debt, the proceeds of which were used to reduce our borrowings under our revolving credit facilities.          



Our short-term lines of credit of $135,500 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.     

 

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)

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 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 ThirdFirst Quarter of 20172018 Compared to ThirdFirst Quarter of 20162017 



Revenues decreasedincreased by $11,585$6,560 or 5.1%3.5%, primarily due to a decreasean increase in customer water consumption, and a decrease in market-based activities revenue of $3,431 associated with the dispositions of business units, offset by an increase in water and wastewater rates and infrastructure rehabilitation surcharges of $1,759,$5,097, and additional water and wastewater revenues of $505$1,634 associated with a larger customer base due to organic growth and utility acquisitions.acquisitions, offset by a reserve, recognized in the first quarter of 2018, of $2,532 for amounts expected to be refundable to utility customers associated with the decrease in the corporate income tax rate from 35% to 21% due to the TCJA.     

 

Operations and maintenance expenses decreasedincreased by $11,830$6,056 or 14.8%8.9%,  primarily due to a reductionan increase in operatinglabor expense of $1,559, which included additional overtime expenses for Aqua Resources of $4,249 associated with the completion of the disposition of business units, which was finalized in June 2017, a decrease in water production costs of $2,928, a decrease in the Company’s self-insured employee medical benefit program expense of $2,425, and a decreaseincreased maintenance activities, an increase in postretirement benefits expense of $1,011.  The decrease$1,442, and an increase in water production costs ismaintenance expenses of $1,057, mainly resulting from expenses incurred due to a reduction in purchased water expense of $1,907 due to replacing a purchased water supply coincident with the Company securing its own water supply source.more severe winter weather conditions. 



Depreciation expense increased by $383$2,130 or 1.1%6.3%, primarily due to the utility plant placed in service since September 30, 2016.March 31,  2017. 

 

Interest expense increased by $2,243$2,145 or 11.1%10.1%, primarily due to an increase in average borrowings.borrowings, offset by a decrease in our effective interest rate. 

Allowance for funds used during construction (“AFUDC”) decreased by $326, due to a decrease in the average balance of utility plant construction work in progress, to which AFUDC is applied. 

Equity earnings in joint venture increased by $412 due to an increase in the sale of raw water to firms in the natural gas drilling industry. 

Other decreased by $635 primarily due to a decrease in the non-service cost components of our net benefit cost for pension and postretirement benefits.   

Our effective income tax rate was -4.4% in the first quarter of 2018 and 5.6% in the first quarter of 2017.  The effective income tax rate decreased due to the reduction in the corporate income tax rate from 35% to 21%, and the effect of additional tax deductions recognized in the first quarter of 2018 for certain qualifying infrastructure improvements for Aqua Pennsylvania.  A revenue reserve has been recognized in the first quarter of 2018 for the amounts expected to be refundable to utility customers associated with the decrease in the corporate income tax rate from 35% to 21% due to the TCJA.        



2827


 

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)

 

Allowance for funds used during construction (“AFUDC”) increased by $1,647, due to an increase in the average balance of utility plant construction work in progress, to which AFUDC is applied, and an increase in the AFUDC rate as a result of an increase in the amount of AFUDC related to equity. 

Our effective income tax rate was 4.3% in the third quarter of 2017 and 10.3% in the third quarter of 2016.  The effective income tax rate decreased due to the effect of additional tax deductions recognized in the third quarter of 2017 for certain qualifying infrastructure improvements for Aqua Pennsylvania.     

Net income increased by $3,055$1,767 or 4.2%, primarily as a result of the factors described above. 

Analysis of First Nine Months of 2017 Compared to First Nine Months of 2016 

Revenues decreased by $16,863 or 2.7%, primarily due to a decrease in market-based activities revenue of $12,970 associated with the dispositions of business units, and a decrease in customer water consumption, offset by an increase in water and wastewater rates and infrastructure rehabilitation surcharges of $4,586,  additional water and wastewater revenues from organic growth of $2,296, and additional water and wastewater revenues of $1,257 associated with a larger customer base due to utility acquisitions. 

Operations and maintenance expenses decreased by $19,384 or 8.5%, primarily due to a reduction in operating expenses for Aqua Resources of $12,981 associated with the completion of the disposition of business units, which was finalized in June 2017, a decrease in water production costs of $4,459, a decrease in the Company’s self-insured employee medical benefit program expense of $4,239, and a decrease in postretirement benefits expense of $2,946, offset by the prior year effect of a gain on sale of a utility system of $1,215.  The gain on sale of a utility system is reported in the consolidated statement of net income as a component of operations and maintenance expense.  The decrease in water production costs is due to a reduction in purchased water expense of $2,886 due to replacing a purchased water supply coincident with the Company securing its own water supply source.   

Depreciation expense increased by $3,863 or 4.0%, primarily due to the utility plant placed in service since September 30, 2016. 

Taxes other than income taxes increased by $1,296 or 3.0% primarily due to an increase in property taxes of $489 primarily due to the effect of a benefit recorded in 2016 for Ohio based on the final settlement of a property tax bill, and an increase in pumping fees of $319 in Texas due to higher rates and water production.

Interest expense increased by $4,988 or 8.3%, primarily due to an increase in average borrowings. 

AFUDC increased by $4,124, due to an increase in the average balance of utility plant construction work in progress, to which AFUDC is applied, and an increase in the AFUDC rate as a result of an increase in the amount of AFUDC related to equity. 

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)

Our effective income tax rate was 6.0% in the first nine months of 2017 and 8.4% in the first nine months of 2016.  The effective income tax rate decreased due to the effect of additional tax deductions recognized in the first nine months of 2017 for certain qualifying infrastructure improvements for Aqua Pennsylvania.     

Net income increased by $1,732 or 0.9%3.6%, primarily as a result of the factors described above. 





Impact of Recent Accounting Pronouncements 

 

We describe the impact of recent accounting pronouncements in Note 15,  Recent Accounting Pronouncements, to the consolidated financial statements in this report.

 

 

3028


 

Table of Contents

 

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, 2016.2017.  Refer to Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 20162017, filed February 28, 2018, 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 Securities and Exchange Commission’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 

 

We are party to various legal proceedings.  Although the results of legal proceedings cannot be predicted with certainty, there are no pending legal proceedings to which we or any of our subsidiaries is a party or to which any of our properties is the subject that we believe are material or are expected to have a material adverse effect on our financial position, results of operations or cash flows.   

 

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, 20162017, filed February 28, 2018, under “Part 1, Item 1A – Risk Factors.”

3129


 

Table of Contents

 

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



The following table summarizes the Company’s purchases of its common stock for the quarter ended September 30, 2017:March 31, 2018:





 

 

 

 

 

 

 

 

 



 

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

July 1-31, 2017

 

196 

 

$

33.46 

 

 -

 

 -

August 1-31, 2017

 

513 

 

$

33.86 

 

 -

 

 -

September 1-30, 2017

 

 -

 

$

 -

 

 -

 

 -

Total

 

709 

 

$

33.75 

 

 -

 

 -



 

 

 

 

 

 

 

 

 



 

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

January 1-31, 2018

 

2,662 

 

$

36.37 

 

 -

 

 -

February 1-28, 2018

 

68,805 

 

$

34.56 

 

 -

 

 -

March 1-31, 2018

 

473 

 

$

33.84 

 

 -

 

 -

Total

 

71,940 

 

$

34.63 

 

 -

 

 -

 

 

(1)

These amounts include the following:  (a) 19663,941 shares we acquired from employees associated with the withholding of shares to pay certain withholding taxes upon the vesting of stock-based compensation; and (b) 5137,999 shares we acquired from our 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 shares of our common stock in accordance with the terms of our equity compensation plan that were previously approved by our shareholders and disclosed in our proxy statements.  These features of our equity compensation plan are available to all employees who receive stock-based compensation under the plan.  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.     

 

Item 6 – Exhibits  

 

The information required by this Item is set forth in the Exhibit Index hereto which is incorporated herein by reference.

3230


 

Table of Contents

 

EXHIBIT INDEX 





 

 

Exhibit No. 

 

 Description 

4.1

Bond Purchase Agreement, dated July 10, 2017 by and among Aqua Illinois, Inc., Teachers Insurance and Annuity Association of America

4.2

Bond Purchase Agreement, dated July 20, 2017 by and among Aqua Pennsylvania, Inc., New York Life Insurance Company, New York Life Insurance and Annuity Corporation, New York Life Insurance and Annuity Corporation Institutionally Owned Life Insurance Separate Account (BOLI 3), New York Life Insurance and Annuity Corporation Institutionally Owned Life Insurance Separate Account (BOLI 3-2)

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



3331


 

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 2,  2017May 9, 2018



 

 

 

 

 



 

Aqua America, Inc.                  



 

Registrant



 

 

 



 

 

 



 

 

 



 

/s/ Christopher H. Franklin



 

Christopher H. Franklin



 

Chairman, President and



 

Chief Executive Officer



 

 

 



 

 

 



 

 

 



 

/s/ David P. Smeltzer



 

David P. Smeltzer



 

Executive Vice President and



 

Chief Financial Officer 

 

3432