UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2005
[ ] 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)
Registrant's telephone number, including area code: (610)-527-8000
--------------
- --------------------------------------------------------------------------------
(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 X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
--- ---
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 25, 2005.
96,504,549.
- -----------
Part I - Financial Information
Item 1. Financial Statements
AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except per share amounts)
(UNAUDITED)
September 30, December 31,
Assets 2005 2004
----------------------------
Property, plant and equipment, at cost $ 2,789,781 $ 2,626,151
Less: accumulated depreciation 603,589 556,339
--------------------------
Net property, plant and equipment 2,186,192 2,069,812
--------------------------
Current assets:
Cash and cash equivalents 9,475 13,116
Accounts receivable and unbilled revenues, net 69,603 64,538
Inventory, materials and supplies 8,363 6,903
Prepayments and other current assets 5,938 5,570
--------------------------
Total current assets 93,379 90,127
--------------------------
Regulatory assets 127,277 122,935
Deferred charges and other assets, net 53,958 52,120
Funds restricted for construction activity 50,705 17,196
--------------------------
$ 2,511,511 $ 2,352,190
==========================
Liabilities and Stockholders' Equity
Common stockholders' equity:
Common stock at $.50 par value, authorized 300,000,000
shares, issued 97,120,840 and 96,071,580 in 2005 and 2004 $ 48,560 $ 48,036
Capital in excess of par value 483,832 468,524
Retained earnings 262,994 245,115
Treasury stock, 686,902 and 686,747 shares in 2005 and 2004 (12,931) (12,702)
Accumulated other comprehensive loss (1,742) (1,742)
Unearned compensation (624) -
--------------------------
Total common stockholders' equity 780,089 747,231
--------------------------
Minority interest 1,414 1,237
Long-term debt, excluding current portion 854,469 784,461
Commitments - -
Current liabilities:
Current portion of long-term debt 24,359 50,195
Loans payable 116,950 85,115
Accounts payable 18,470 23,534
Accrued interest 10,879 12,029
Accrued taxes 14,267 8,975
Dividends payable 13,742 -
Other accrued liabilities 39,547 37,534
--------------------------
Total current liabilities 238,214 217,382
--------------------------
Deferred credits and other liabilities:
Deferred income taxes and investment tax credits 236,904 223,887
Customers' advances for construction 73,710 73,095
Regulatory liabilities 12,871 11,942
Other 17,915 15,147
--------------------------
Total deferred credits and other liabilities 341,400 324,071
--------------------------
Contributions in aid of construction 295,925 277,808
--------------------------
$ 2,511,511 $ 2,352,190
==========================
See notes to consolidated financial statements beginning on page 7 of this
report.
1
AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(UNAUDITED)
Nine Months Ended
September 30,
------------------------
2005 2004
------------------------
Operating revenues $ 373,871 $ 326,597
Costs and expenses:
Operations and maintenance 150,866 132,840
Depreciation 44,890 41,292
Amortization 3,627 3,096
Taxes other than income taxes 24,033 21,455
------------------------
223,416 198,683
------------------------
Operating income 150,455 127,914
Other expense (income):
Interest expense, net 38,615 35,584
Allowance for funds used during construction (1,497) (2,028)
Gain on sale of other assets (582) (967)
------------------------
Income before income taxes 113,919 95,325
Provision for income taxes 44,913 37,792
------------------------
Net income $ 69,006 $ 57,533
========================
Net income $ 69,006 $ 57,533
Other comprehensive income (loss), net of tax:
Unrealized gain on securities - 59
Reclassification adjustment for gains reported in net income - (230)
------------------------
Comprehensive income $ 69,006 $ 57,362
========================
Net income per common share:
Basic $ 0.72 $ 0.62
========================
Diluted $ 0.71 $ 0.61
========================
Average common shares outstanding
during the period:
Basic 95,867 92,874
========================
Diluted 97,226 93,884
========================
Cash dividends declared per common share $ 0.5325 $ 0.49
========================
See notes to consolidated financial statements beginning on page 7 of this
report.
2
AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(UNAUDITED)
Three Months Ended
September 30,
------------------------
2005 2004
------------------------
Operating revenues $ 136,783 $ 120,305
Costs and expenses:
Operations and maintenance 52,666 46,526
Depreciation 15,578 14,112
Amortization 1,172 1,177
Taxes other than income taxes 8,276 7,493
------------------------
77,692 69,308
------------------------
Operating income 59,091 50,997
Other expense (income):
Interest expense, net 13,279 12,346
Allowance for funds used during construction (433) (695)
Gain on sale of other assets (77) (491)
------------------------
Income before income taxes 46,322 39,837
Provision for income taxes 18,405 15,750
------------------------
Net income $ 27,917 $ 24,087
========================
Net income $ 27,917 $ 24,087
Other comprehensive income, net of tax:
Unrealized gain on securities - -
Reclassification adjustment for gains reported in net income - -
------------------------
Comprehensive income $ 27,917 $ 24,087
========================
Net income per common share:
Basic $ 0.29 $ 0.26
========================
Diluted $ 0.29 $ 0.26
========================
Average common shares outstanding
during the period:
Basic 96,185 93,065
========================
Diluted 97,674 94,023
========================
Cash dividends declared per common share $ 0.2725 $ 0.25
========================
See notes to consolidated financial statements beginning on page 7 of this
report.
3
AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(In thousands of dollars, except per share amounts)
(UNAUDITED)
September 30, December 31,
2005 2004
----------------------------
Common stockholders' equity:
Common stock, $.50 par value $ 48,560 $ 48,036
Capital in excess of par value 483,832 468,524
Retained earnings 262,994 245,115
Treasury stock (12,931) (12,702)
Accumulated other comprehensive loss (1,742) (1,742)
Unearned compensation (624) -
----------------------------
Total common stockholders' equity 780,089 747,231
----------------------------
Long-term debt:
Long-term debt of subsidiaries (substantially secured by utility plant):
Interest Rate Range
0.00% to 2.49% 21,758 20,051
2.50% to 2.99% 28,862 29,924
3.00% to 3.49% 17,348 17,546
3.50% to 3.99% 6,815 7,123
4.00% to 4.49% 1,300 1,300
4.50% to 4.99% 29,395 8,135
5.00% to 5.49% 237,606 165,615
5.50% to 5.99% 79,000 89,260
6.00% to 6.49% 88,360 110,360
6.50% to 6.99% 32,000 42,000
7.00% to 7.49% 16,019 45,105
7.50% to 7.99% 25,068 25,231
8.00% to 8.49% 26,560 26,714
8.50% to 8.99% 9,000 9,000
9.00% to 9.49% 46,844 53,244
9.50% to 9.99% 40,933 42,088
10.00% to 10.50% 6,000 6,000
----------------------------
712,868 698,696
Notes payable, 6.05%, maturing in 2006 through 2008 960 960
Unsecured notes payable, 4.87%, maturing in various installments through 2023 135,000 135,000
Unsecured notes payable, 5.01%, due 2015 18,000 -
Unsecured notes payable, 5.20%, due 2020 12,000 -
----------------------------
878,828 834,656
Current portion of long-term debt 24,359 50,195
----------------------------
Long-term debt, excluding current portion 854,469 784,461
----------------------------
Total capitalization $ 1,634,558 $ 1,531,692
============================
See notes to consolidated financial statements beginning on page 7 of this
report.
4
AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
(In thousands of dollars)
(UNAUDITED)
Accumulated Unearned
Capital in Other Compensation
Common excess of Retained Treasury Comprehensive on Restricted
Stock par value earnings Stock Loss Stock Total
--------------------------------------------------------------------------------------
Balance at December 31, 2004 $48,036 $ 468,524 $ 245,115 $ (12,702) $ (1,742) $ - $ 747,231
Net income - - 69,006 - - - 69,006
Dividends paid - - (37,385) - - - (37,385)
Dividends declared - - (13,742) - - - (13,742)
Sale of stock (277,387 shares) 118 5,853 - 1,112 - - 7,083
Repurchase of stock (42,254 shares) - - - (1,341) - - (1,341)
Equity Compensation Plan (28,314 shares) 14 708 - - - (722) -
Exercise of stock options (785,658 shares) 392 8,747 - - - - 9,139
Amortization of unearned compensation - - - - - 98 98
-------------------------------------------------------------------------------------
Balance at September 30, 2005 $48,560 $ 483,832 $ 262,994 $ (12,931) $ (1,742) $ (624) $ 780,089
=====================================================================================
See notes to consolidated financial statements beginning on page 7 of this
report.
5
AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands of dollars)
(UNAUDITED)
Nine Months Ended
September 30,
---------------------
2005 2004
---------------------
Cash flows from operating activities:
Net income $ 69,006 $ 57,533
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 48,517 44,388
Deferred income taxes 14,562 18,318
Gain on sale of other assets (582) (967)
Net increase in receivables, inventory and prepayments (1,348) (8,592)
Net decrease in payables, accrued interest, accrued taxes
and other accrued liabilities (3,895) (759)
Other 1,284 2,570
---------------------
Net cash flows from operating activities 127,544 112,491
---------------------
Cash flows from investing activities:
Property, plant and equipment additions, including allowance
for funds used during construction of $1,497 and $2,028 (156,649) (125,825)
Acquisitions of water and wastewater systems, net (4,271) (53,586)
Proceeds from the sale of other assets 595 1,788
Additions to funds restricted for construction activity (82,652) -
Release of funds previously restricted for construction activity 49,143 4,995
Other (68) (412)
---------------------
Net cash flows used in investing activities (193,902) (173,040)
---------------------
Cash flows from financing activities:
Customers' advances and contributions in aid of construction 10,352 7,345
Repayments of customers' advances (3,148) (2,569)
Net proceeds (repayments) of short-term debt 37,623 30,160
Proceeds from long-term debt 112,272 98,288
Repayments of long-term debt (71,878) (40,932)
Proceeds from issuing common stock 16,222 10,097
Repurchase of common stock (1,341) (529)
Dividends paid on common stock (37,385) (33,428)
---------------------
Net cash flows from financing activities 62,717 68,432
---------------------
Net increase (decrease) in cash and cash equivalents (3,641) 7,883
Cash and cash equivalents at beginning of period 13,116 10,757
---------------------
Cash and cash equivalents at end of period $ 9,475 $ 18,640
=====================
See notes to consolidated financial statements beginning on page 7 of this
report.
6
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 sheet and statement of
capitalization of Aqua America, Inc. (the "Company") at September 30,
2005, the consolidated statements of income and comprehensive income
for the nine months and quarter ended September 30, 2005 and 2004, the
consolidated statements of cash flow for the nine months ended
September 30, 2005 and 2004, and the consolidated statement of common
stockholders' equity for the nine months ended September 30, 2005, are
unaudited, but reflect all adjustments, consisting of only normal
recurring accruals, which are, in the opinion of management, necessary
to present fairly the consolidated financial position, the changes in
common stockholders' equity, the consolidated results of operations,
and the consolidated cash flow for the periods presented. Because they
cover interim periods, the statements and related notes to the
financial statements do not include all disclosures and notes normally
provided in annual financial statements and, therefore, should be read
in conjunction with the Aqua America Annual Report on Form 10-K for the
year ended December 31, 2004 and the Quarterly Reports on Form 10-Q for
the quarters ended June 30, 2005 and March 31, 2005. The results of
operations for interim periods may not be indicative of the results
that may be expected for the entire year. Certain prior year amounts
have been reclassified to conform with current year's presentation.
Note 2 Long-term Debt and Loans Payable
In February 2005, Aqua America issued $30,000 of unsecured notes of
which $18,000 are due in 2015 with an interest rate of 5.01% and
$12,000 are due in 2020 with an interest rate of 5.20%. The proceeds of
this financing were used to refinance existing short-term debt.
In May 2005, the Company's Pennsylvania operating subsidiary issued
$72,000 of tax-exempt bonds secured by a supplement to the trust
indenture relating to its First Mortgage Bonds on the following terms:
$22,000 at 4.87% due in 2036, $25,000 at 4.88% due in 2037 and $25,000
at 4.89% due in 2038. Of the $72,000 in proceeds, $22,000 was used to
retire previously issued tax-exempt bonds in August 2005 and the
balance of the proceeds are restricted to funding the costs of certain
capital projects in 2005 and 2006.
In September 2005, the Company's Ohio operating subsidiary issued
$21,260 of tax-exempt bonds secured by a supplement to the trust
indenture relating to its First Mortgage Bonds at 4.50% due in 2035.
The proceeds were used to retire long-term debt of $10,260 and the
balance of the proceeds is restricted to funding the costs of certain
capital projects.
7
AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except per share amounts) (continued)
(UNAUDITED)
Note 3 Stockholders' Equity
On August 2, 2005, Aqua America's Board of Directors declared a
four-for-three common stock split effected in the form of a 33.3% stock
distribution for shareholders of record on November 17, 2005. The new
shares will be distributed on December 1, 2005. Aqua America's par
value of $0.50 per share will not change as a result of the common
stock distribution, and as a result, on the distribution date an amount
will be transferred from Capital in Excess of Par Value to Common Stock
to record the common stock split. Except where noted, the share and per
share data contained in this Quarterly Report on Form 10-Q have not
been restated to give effect to this stock split. The following table
shows the pro forma effect on the Company's historical net income per
share:
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------- ---------------------------
2005 2004 2005 2004
---------------------------- ---------------------------
Pre-split net income per common
share, as reported:
Basic $ 0.72 $ 0.62 $ 0.29 $ 0.26
Diluted 0.71 0.61 0.29 0.26
Pro forma post-split net income
per common share:
Basic $ 0.54 $ 0.46 $ 0.22 $ 0.19
Diluted 0.53 0.46 0.21 $ 0.19
Aqua America reports other comprehensive income in accordance with
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." The following table summarizes the activity of
accumulated other comprehensive income (loss):
2005 2004
---------------------
Balance at January 1, $(1,742) $ 171
Unrealized holding gain arising during the period,
net of tax of $32 in 2004 - 59
Less: reclassification adjustment for gains included in
net income, net of tax of $173 in 2004 - (230)
---------------------
Other comprehensive income (loss), net of tax - (171)
---------------------
Balance at September 30, $(1,742) $ -
=====================
8
AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except per share amounts) (continued)
(UNAUDITED)
Note 4 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 options is included in the computation of diluted net
income per common share. The following table summarizes the shares, in
thousands, used in computing basic and diluted net income per common
share:
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- --------------------------
2005 2004 2005 2004
-------------------------- --------------------------
Average common shares outstanding during
the period for basic computation 95,867 92,874 96,185 93,065
Dilutive effect of employee stock options 1,359 1,010 1,489 958
-------------------------- --------------------------
Average common shares outstanding during
the period for diluted computation 97,226 93,884 97,674 94,023
========================== ==========================
For the quarter and nine months ended September 30, 2005, there were no
outstanding employee stock options excluded from the calculation of
diluted net income per share as the average market price of the
Company's common stock was greater than the options' exercise price.
For the quarter and nine months ended September 30, 2004, outstanding
employee stock options to purchase 573,900 shares of common stock were
excluded from the calculation of diluted net income per share as the
options' exercise price was greater than the average market price of
the Company's common stock during this period.
9
AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except per share amounts) (continued)
(UNAUDITED)
Note 5 Stock-Based Compensation
Aqua America currently accounts for stock-based compensation using the
intrinsic value method in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no
compensation expense related to granting of stock options has been
recognized in the financial statements for stock options that have been
granted, as the grant price is equal to the market price on the date of
grant. Please refer to Note 8 - Recent Accounting Pronouncements for
information concerning changes to Aqua America's accounting for
stock-based compensation. Pursuant to the current disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation," as amended by SFAS No. 148, pro forma net income and
earnings per share are presented in the following table as if
compensation cost for stock-based employee compensation was determined
as of the grant date under the fair value method:
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------- -------------------------
2005 2004 2005 2004
------------------------- -------------------------
Net income, as reported: $ 69,006 $ 57,533 $ 27,917 $ 24,087
Add: stock-based employee compensation
expense included in reported net income,
net of tax 255 217 45 49
Less: pro forma expense related to stock
options granted, net of tax effects (1,590) (1,588) (490) (506)
------------------------- -------------------------
Pro forma $ 67,671 $ 56,162 $ 27,472 $ 23,630
========================= =========================
Basic net income per share:
As reported $ 0.72 $ 0.62 $ 0.29 $ 0.26
Pro forma 0.71 0.60 0.29 0.25
Diluted net income per share:
As reported $ 0.71 $ 0.61 $ 0.29 $ 0.26
Pro forma 0.70 0.60 0.28 0.25
The fair value of options at the date of grant was estimated using the
Black-Scholes option-pricing model.
10
AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except per share amounts) (continued)
(UNAUDITED)
Note 6 Pension Plans and Other Postretirement Benefits
The Company maintains a qualified, defined benefit plan, nonqualified
pension plans and other postretirement benefit plans for certain of its
employees. The net periodic benefit cost is based on estimated values
provided by independent actuaries. The following tables provide the
components of net periodic benefit costs:
Pension Benefits
---------------------------------------------------------
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------------------------------------
2005 2004 2005 2004
-------------------------- ----------------------------
Service cost $ 3,635 $ 3,265 $ 1,212 $ 1,004
Interest cost 7,354 7,203 2,451 2,215
Expected return on plan assets (7,152) (6,943) (2,384) (2,135)
Amortization of transition
obligation (asset) (157) (158) (52) (49)
Amortization of prior service cost 302 331 101 102
Amortization of actuarial loss 1,205 764 403 235
Capitalized costs (1,344) (816) (433) (292)
-------------------------- ----------------------------
Net periodic benefit cost $ 3,843 $ 3,646 $ 1,298 $ 1,080
========================== ============================
Other
Postretirement Benefits
---------------------------------------------------------
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------------------------------------
2005 2004 2005 2004
-------------------------- ----------------------------
Service cost $ 917 $ 783 $ 306 $ 261
Interest cost 1,412 1,293 472 431
Expected return on plan assets (947) (754) (317) (251)
Amortization of transition
obligation (asset) 602 558 201 186
Amortization of prior service cost (43) (39) (14) (13)
Amortization of actuarial loss 164 87 55 29
Amortization of regulatory asset 114 102 38 34
Capitalized costs (538) (485) (170) (164)
-------------------------- ----------------------------
Net periodic benefit cost $ 1,681 $ 1,545 $ 571 $ 513
========================== ============================
The Company contributed $878 to its defined benefit pension plan during
2005 and intends to fund its estimated 2005 contribution of $6,400 in
2006. In addition, the Company expects to contribute approximately
$2,876 for the funding of its other postretirement benefits.
11
AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except per share amounts) (continued)
(UNAUDITED)
Note 7 Water and Wastewater Rates
In April 2005, the Company's operating divisions in Illinois and North
Carolina's Heater division were granted rate increases designed to
increase total revenue on an annual basis by approximately $1,287 and
$1,489, respectively. In June 2005, the Company's wastewater subsidiary
in Pennsylvania was granted rate increases for three separate systems
designed to increase total revenue on an annual basis by approximately
$125.
In May 2004, the Company's operating subsidiary in Texas filed an
application with the Texas Commission on Environmental Quality to
increase rates by $11,920 over a multi-year period. The application
seeks to increase annual revenues in phases and is accompanied by a
plan to defer and amortize a portion of the Company's depreciation,
operating and other tax expense over a similar multi-year period, such
that the annual impact on operating income approximates the requested
amount. The application is currently pending before the Commission, and
several parties have joined the proceeding to challenge our rate
request. The Company commenced billing for the requested rates and
implemented the deferral plan in August 2004, in accordance with
authorization from the Texas Commission on Environmental Quality in
July 2004. The revenue recognized and the expenses deferred by the
Company reflect an estimate of the final outcome of the ruling. As of
September 30, 2005, the Company has deferred $8,643 of expenses and
recognized $3,537 of revenue that is subject to refund based on the
outcome of the final commission order. In the event the Company's
request is denied completely or in part, it could be required to refund
some or all of the revenue billed to date, and write-off some or all of
the regulatory asset for the expense deferral. Based on the Company's
review of the present circumstances, no additional reserve or change in
estimate adjustments are required for the revenue recognized to date or
for the impairment of its regulatory asset.
Note 8 Recent Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 154,
"Accounting Changes and Error Corrections, a replacement of APB Opinion
No. 20 and FASB Statement No. 3." SFAS No. 154 requires retrospective
application to prior periods' financial statements for changes in
accounting principle, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change.
SFAS No. 154 also requires that retrospective application of a change
in accounting principle be limited to the direct effects of the change.
Indirect effects of a change in accounting principle should be
recognized in the period of the accounting change. SFAS No. 154 further
requires that a change in depreciation, amortization or depletion
method for long-lived, nonfinancial assets be accounted for as a change
in accounting estimate effected by a change in accounting principle.
Aqua America intends to adopt this standard as required in 2006.
12
AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except per share amounts) (continued)
(UNAUDITED)
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting
for Conditional Asset Retirement Obligations," which clarifies that an
entity is required to recognize a liability for the fair value of a
conditional asset retirement obligation if the fair value can be
reasonably estimated. The obligation to perform the asset retirement
activity is unconditional even though uncertainty exists about the
timing and (or) method of settlement. Aqua America intends to adopt
this standard as required in 2006. Aqua America is currently evaluating
the provisions of this statement and has not yet determined the effect
of adoption on its results of operations or financial position.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment,"
which revises SFAS No. 123, "Accounting for Stock-based Compensation,"
and supersedes APB No. 25, "Accounting for Stock Issued to Employees."
In April 2005, the effective date for this standard was changed to
require adoption of the standard at the beginning of the next fiscal
year after June 15, 2005. As noted in Note 5 - Stock-based
Compensation, the Company currently provides pro forma disclosure of
its compensation costs associated with the fair value of stock options
that have been granted. The Company currently accounts for stock-based
compensation associated with stock options using the intrinsic method,
and accordingly, no compensation costs have been recognized in its
consolidated financial statements. SFAS 123R generally requires that
the Company measure the cost of employee services received in exchange
for stock-based awards on the grant-date fair value and this cost will
be recognized over the period during which an employee provides service
in exchange for the award. The fair value of the option grant will be
estimated using an option-pricing model. The Company is currently
evaluating this standard to determine the impact on its consolidated
financial statements, including the selection of an appropriate
option-pricing model as permitted under SFAS No. 123R, and the method
by which it will adopt SFAS No. 123R. The impact of adoption of SFAS
No. 123R on the Company's earnings depends on a number of variables
including the level of share-based payments granted in the future, the
fair value of options granted and the associated income tax benefits
that the Company receives. Assuming the Company grants a comparable
number of stock options in 2006 as compared to 2005 and the fair value
approximates the value of recent stock option grants previously
reported in the notes to the Company's consolidated financial
statements, the after-tax impact of SFAS No. 123R is expected to
approximate $3,000 during the year ending December 31, 2006. The
Company believes the adoption will have no impact on its overall
financial position or cash flow, but will result in the
reclassification of related tax benefits from operating cash flow to
financing cash flow to the extent these tax benefits exceed the
associated compensation cost recognized in the income statement. The
Company is currently evaluating the change in the cash flow reporting
and has not yet determined the effect of adoption on its cash flow
statement presentation.
13
AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except per share amounts) (continued)
(UNAUDITED)
In November 2004, the FASB approved Statement of Financial Accounting
Standards ("SFAS") No. 151, "Inventory Costs - An Amendment of ARB No.
43, Chapter 4." SFAS No. 151 requires the exclusion of certain costs
from inventories and the allocation of fixed production overheads to
inventories to be based on the normal capacity of the production
facilities. The standard is effective for the Company for costs
incurred after December 31, 2005. The Company believes this statement
will not have a material impact on its results of operations or
financial position.
In November 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets - An Amendment of APB Opinion No. 29." SFAS No. 153
eliminates the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance.
SFAS No. 153 specifies that a nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS No. 153 is effective
for fiscal periods beginning after June 15, 2005. The Company adopted
this standard and it did not have a material impact on its results of
operations or financial position.
On October 22, 2004, the American Jobs Creation Act ("AJCA") was signed
into law. Among other provisions, the AJCA creates a new deduction for
qualified domestic production activities. Certain activities of the
Company, such as its water treatment activity, are considered as
qualifying production activities for purposes of determining the
deduction for qualified production activities. In December 2004, the
FASB issued FSP 109-1, "Application of FASB Statement No. 109,
Accounting for Income Taxes, to the Tax Deduction on Qualified
Production Activities Provided by the American Jobs Creation Act of
2004." In accordance with FSP 109-1, the Company will treat the
deduction for qualified domestic production activities as a reduction
of the income tax provision in the period as realized. The Company
adopted this statement in the first quarter of 2005 and has recorded an
estimate for the effect of the statement which reduced the provision
for income taxes by approximately $680 for the first nine months of
2005.
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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)
Forward-looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Quarterly Report contain, in addition to
historical information, forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements address, among other things: our use of cash; projected capital
expenditures; liquidity; possible acquisitions and other growth ventures; the
completion of various construction projects; the timing and projected annual
value of rate increases; the recovery of certain costs and capital investments
through rate increase requests; the projected effects of recent accounting
pronouncements, as well as information contained elsewhere in this report where
statements are preceded by, followed by or include the words "believes,"
"expects," "anticipates," "plans" or similar expressions. These statements are
based on a number of assumptions concerning future events, and are subject to a
number of uncertainties and other factors, many of which are outside our
control. Actual results may differ materially from such statements for a number
of reasons, including the effects of regulation, abnormal weather, changes in
capital requirements and funding, acquisitions, and our ability to assimilate
acquired operations. In addition to these uncertainties or factors, our future
results may be affected by the factors and risk factors set forth in our annual
report on Form 10-K for the fiscal year ended December 31, 2004. We undertake no
obligation to update or revise forward-looking statements, whether as a result
of new information, future events or otherwise.
General Information
Nature of Operations - Aqua America, Inc. ("we" or "us"), a Pennsylvania
corporation, is the holding company for regulated utilities providing water or
wastewater services to what we estimate to be more than 2.5 million people in
Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Florida,
Indiana, Virginia, Maine, Missouri, New York and South Carolina. Our largest
operating subsidiary, Aqua Pennsylvania, Inc., provides water or wastewater
services to approximately 1.3 million residents in the suburban areas north and
west of the City of Philadelphia and in 21 other counties in Pennsylvania. Our
other subsidiaries provide similar services in 12 other states. In addition, we
provide water and wastewater service through operating and maintenance contracts
with municipal authorities and other parties close to our operating companies'
service territories. We are the largest U.S.-based publicly-traded water utility
based on number of people served.
15
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)
Financial Condition
During the first nine months of 2005, we had $156,649 of capital expenditures,
acquired water and wastewater systems for $4,271, repaid $3,148 of customer
advances for construction and repaid debt and made sinking fund contributions
and other loan repayments of $71,878. The capital expenditures were related to
improvements to treatment plants, new and rehabilitated water mains, tanks,
hydrants, and service lines, in addition to well and booster improvements.
During the first nine months of 2005, the proceeds from the issuance of
long-term debt, the proceeds from the issuance of common stock, internally
generated funds and available working capital were used to fund the cash
requirements discussed above and to pay dividends. In February 2005, Aqua
America issued unsecured notes of $30,000 at a weighted-average interest rate of
5.086% and the proceeds of this financing were used to refinance existing
short-term debt. In May 2005, our Pennsylvania operating subsidiary issued
$72,000 tax-exempt bonds secured by a supplement to the trust indenture relating
to its First Mortgage Bonds at a weighted-average interest rate of 4.88% due in
years ranging from 2036 to 2038. Of the $72,000 in proceeds, $22,000 was used to
retire previously issued tax-exempt bonds of 6.35% in August 2005 and the
balance of the proceeds are restricted to fund the costs of certain capital
projects in 2005 and 2006. In September 2005, our Ohio operating subsidiary
issued $21,260 of tax-exempt bonds secured by a supplement to the trust
indenture relating to its First Mortgage Bonds at 4.50% due in 2035. The
proceeds were used to retire long-term debt of $10,260 and the balance of the
proceeds is restricted to funding the costs of certain capital projects. At
September 30, 2005, we had short-term lines of credit of $217,000, of which
$100,050 was available. Effective with the December 1, 2005 payment, Aqua
America increased the quarterly cash dividend on common stock from $0.13 per
share to $0.1425 per share.
Management believes that internally generated funds along with existing credit
facilities and the proceeds from the issuance of long-term debt and common stock
will be adequate to meet our financing requirements for the balance of the year
and beyond.
16
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)
Results of Operations
Analysis of First Nine Months of 2005 Compared to First Nine Months of 2004
Revenues for the first nine months increased $47,274 or 14.5% primarily due to
additional revenues of $24,570 resulting from increased water and wastewater
rates implemented in various operating subsidiaries, additional water and sewer
revenues of $12,519 associated with a larger customer base and increased water
consumption compared to the same period in 2004. The larger customer base
primarily resulted from acquisitions, principally the Heater acquisition which
closed in June 2004 and the Florida Water acquisition which occurred in June
2004. The increased water consumption is primarily associated with the
relatively normal weather conditions experienced in the third quarter of 2005 as
compared to the unfavorable weather conditions experienced in the third quarter
of 2004.
Operations and maintenance expenses increased by $18,026 or 13.6% primarily due
to the additional operating costs associated with acquisitions, principally the
Heater and Florida Water acquisitions, increased pension costs, higher water
production costs including purchased water expenses, increased insurance costs
and normal increases in operating costs.
Depreciation expense increased $3,598 or 8.7% reflecting the utility plant
placed in service since the third quarter of 2004, including the assets acquired
through system acquisitions, offset partially by an adjustment in the second
quarter of 2005 resulting from the identification in the second quarter of 2005
of a previously issued rate order that permitted the deferral of $520 of
depreciation expense. This depreciation expense was recognized in prior periods.
Amortization increased $531 due to the amortization of the costs associated
with, and other costs being recovered in, various rate filings.
Taxes other than income taxes increased by $2,578 or 12.0% due to the additional
taxes associated with acquired operations, increased property taxes and
additional local taxes incurred in the first nine months of 2005.
Interest expense increased by $3,031 or 8.5% primarily due to additional
borrowings to finance the Heater and Florida Water acquisitions, and capital
projects, offset partially by decreased interest rates on borrowings due to the
refinancing of certain existing debt issues.
Allowance for funds used during construction ("AFUDC") decreased by $531
primarily due to investment income of $762 earned in the second quarter of 2005
which reduced both AFUDC and interest expense, and a decrease in the average
balance of utility plant construction work in progress, to which AFUDC is
applied. These variances were offset partially by additional AFUDC recorded as
an adjustment in the second quarter of 2005 of $974 resulting from the
identification in the second quarter of 2005 of a previously issued rate order
which allowed the continuation of AFUDC on certain capital projects subsequent
to being placed into utility service. This AFUDC was not recognized in prior
periods.
17
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)
Gain on sale of other assets totaled $582 in the first nine months of 2005 and
$967 in the first nine months of 2004. The change is due to timing of sales of
land and marketable securities.
Our effective income tax rate was 39.4% in the first nine months of 2005 and
39.6% in the first nine months of 2004. The change was due to the recognition of
the American Jobs Creation Act tax deduction for qualified domestic production
activities that reduced our tax provision in the first nine months of 2005 by
approximately $680, offset partially by a decrease in tax-deductible expenses.
Net income for the first nine months increased by $11,473 or 19.9%, in
comparison to the same period in 2004 primarily as a result of the factors
described above. On a diluted per share basis, earnings increased $0.10 or 16.4%
reflecting the change in net income and a 3.6% increase in the average number of
common shares outstanding. The increase in the number of shares outstanding is
primarily a result of the additional shares issued in the November 2004 share
offering, and the additional shares sold or issued through the dividend
reinvestment plan and the employee stock and incentive plan.
Analysis of Third Quarter of 2005 Compared to Third Quarter of 2004
Revenues for the quarter increased $16,478 or 13.7% primarily due to additional
revenues of $5,566 resulting from increased water and wastewater rates
implemented in various operating subsidiaries, $1,652 of additional revenues
from the infrastructure rehabilitation surcharge in Pennsylvania, and increased
water consumption compared to the third quarter of 2004. The increased water
consumption is primarily associated with the relatively normal weather
conditions experienced in the third quarter of 2005 as compared to the
unfavorable weather conditions experienced in the third quarter of 2004.
Operations and maintenance expenses increased by $6,140 or 13.2% primarily due
to increased water production costs, higher insurance costs, increased benefit
costs, and normal increases in operating costs. The increased water production
costs, principally purchased power and chemicals, were associated with the
higher water consumption. The higher insurance costs during the third quarter of
2005 was due to the favorable closure of insurance claims during the third
quarter of 2004.
Depreciation expense increased $1,466 or 10.4% reflecting the utility plant
placed in service since the third quarter of 2004, including the assets acquired
through system acquisitions.
Amortization decreased $5 or 0.4% due to the amortization of the costs
associated with, and other costs being recovered in, various rate filings.
18
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)
Taxes other than income taxes increased by $783 or 10.4% due to increased
property taxes and additional local taxes incurred in the third quarter of 2005.
Interest expense increased by $933 or 7.6% primarily due to additional
borrowings to finance capital projects, offset partially by decreased interest
rates on borrowings due to the refinancing of certain existing debt issues.
Allowance for funds used during construction ("AFUDC") decreased by $262
primarily due to a decrease in the average balance of utility plant construction
work in progress, to which AFUDC is applied, and a lower AFUDC rate.
Gain on sale of other assets totaled $77 in the third quarter of 2005 and $491
in the third quarter of 2004. The change is due to the timing of sales of land.
Our effective income tax rate was 39.7% in the third quarter of 2005 and 39.5%
in the third quarter of 2004. The change was due to a decrease in our
tax-deductible expenses.
Net income for the quarter increased by $3,830 or 15.9%, in comparison to the
same period in 2004 primarily as a result of the factors described above. On a
diluted per share basis, earnings increased $0.03 or 11.5% reflecting the change
in net income and a 3.9% increase in the average number of common shares
outstanding. The increase in the number of shares outstanding is primarily a
result of the additional shares issued in the November 2004 share offering, and
the additional shares sold or issued through the dividend reinvestment plan and
the employee stock and incentive plan.
Impact of Recent Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 154, "Accounting Changes and
Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No.
3." SFAS No. 154 requires retrospective application to prior periods' financial
statements for changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. SFAS No. 154 also requires that retrospective application of a change in
accounting principle be limited to the direct effects of the change. Indirect
effects of a change in accounting principle should be recognized in the period
of the accounting change. SFAS No. 154 further requires that a change in
depreciation, amortization or depletion method for long-lived, nonfinancial
assets be accounted for as a change in accounting estimate effected by a change
in accounting principle. Aqua America intends to adopt this standard as required
in 2006.
19
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)
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations," which clarifies that an entity is
required to recognize a liability for the fair value of a conditional asset
retirement obligation if the fair value can be reasonably estimated. The
obligation to perform the asset retirement activity is unconditional even though
uncertainty exists about the timing and (or) method of settlement. We intend to
adopt this standard as required in 2006. We are currently evaluating the
provisions of this statement and have not yet determined the effect of adoption
on our results of operations or financial position.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment," which
revises SFAS No. 123, "Accounting for Stock-based Compensation," and supersedes
APB No. 25, "Accounting for Stock Issued to Employees." In April 2005, the
effective date for this standard was changed to require adoption of the standard
at the beginning of the next fiscal year after June 15, 2005. As noted in Note 5
- - Stock-based Compensation, we currently provide pro forma disclosure of our
compensation costs associated with the fair value of stock options that have
been granted. We currently account for stock-based compensation associated with
stock options using the intrinsic method, and accordingly, no compensation costs
have been recognized in our consolidated financial statements. SFAS 123R
generally requires that we measure the cost of employee services received in
exchange for stock-based awards on the grant-date fair value and this cost will
be recognized over the period during which an employee provides service in
exchange for the award. The fair value of the option grant will be estimated
using an option-pricing model. We are currently evaluating this standard to
determine the impact on our consolidated financial statements, including the
selection of an appropriate option-pricing model as permitted under SFAS No.
123R, and the method by which we will adopt SFAS No. 123R. The impact of
adoption of SFAS No. 123R on our earnings depends on a number of variables
including the level of share-based payments granted in the future, the fair
value of the options granted and the associated income tax benefits that we
receive. Assuming we grant a comparable number of stock options in 2006 as
compared to 2005 and the fair value approximates the value of recent stock
option grants previously reported in the notes to the Company's consolidated
financial statements, the after-tax impact of SFAS No. 123R is expected to
approximate $3,000 during the year ending December 31, 2006. We believe the
adoption will have no impact on our overall financial position or cash flow, but
will result in the reclassification of related tax benefits from operating cash
flow to financing cash flow to the extent these tax benefits exceed the
associated compensation cost recognized in the income statement. We are
currently evaluating the change in the cash flow reporting and have not yet
determined the effect of adoption on our cash flow statement presentation.
In November 2004, the FASB approved Statement of Financial Accounting Standards
("SFAS") No. 151, "Inventory Costs - An Amendment of ARB No. 43, Chapter 4."
SFAS No. 151 requires the exclusion of certain costs from inventories and the
allocation of fixed production overheads to inventories to be based on the
normal capacity of the production facilities. The standard is effective for Aqua
America for costs incurred after December 31, 2005. We believe this statement
will not have a material impact on our results of operations or financial
position.
20
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)
In November 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- - An Amendment of APB Opinion No. 29." SFAS No. 153 eliminates the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS No. 153 is effective for
fiscal periods beginning after June 15, 2005. We adopted this standard and it
did not have a material impact on our results of operations or financial
position.
On October 22, 2004, the American Jobs Creation Act ("AJCA") was signed into
law. Among other provisions, the AJCA creates a new deduction for qualified
domestic production activities. Certain of our activities, such as our water
treatment activity, are considered as qualifying production activities for
purposes of determining the deduction for qualified production activities. In
December 2004, the FASB issued FSP 109-1, "Application of FASB Statement No.
109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004." In accordance
with FSP 109-1, we will treat the deduction for qualified domestic production
activities as a reduction of the income tax provision in the period as realized.
We adopted this statement in the first quarter of 2005 and have recorded an
estimate for the effect of the statement which reduced the provision for income
taxes by approximately $680 for the first nine months of 2005.
Economic Regulation
-------------------
The profitability of our utility operations is greatly influenced by the
timeliness and adequacy of rate allowances we are granted by the public utility
commissions or similar regulatory bodies in the states in which we operate. We
file rate increase requests to recover the capital investments that we make in
improving or replacing our facilities and to recover expenses. Some of the
states in which we recently acquired operations require separate rate filings
for each of our local systems, as compared to a single state-wide rate filing.
We have filed or are preparing to file rate filings in over 25 jurisdictions in
which these recently acquired operations are located. Due to the length of time
since the last rate increase for some acquired systems and the large amount of
capital improvements relative to the number of customers in some smaller
systems, the proposed rate increase in some of these jurisdictions may be
substantial. While each of these rate filings will proceed through the
applicable regulatory process, we can provide no assurances that the rate
increases will be granted in a timely or sufficient manner to cover the
investments and expenses for which we initially sought the rate increases.
We are currently consolidating our customer service locations into three
principal call centers, implementing a common customer information system, and
upgrading our financial information systems. We expect to complete our primary
customer service initiatives by the end of 2006. Consistent with prior practice,
we have capitalized costs and services associated with these projects and expect
to recover these costs in future rates. Although we believe it is probable that
the applicable public utility commissions will allow recovery of these costs, we
can provide no assurances as to their full recoverability until the conclusion
of the applicable rate proceeding.
21
AQUA AMERICA, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risks in the normal course of business,
including changes in interest rates and equity prices. There have been
no significant changes in our exposure to market risks since December
31, 2004. Refer to Item 7A of the Company's Annual Report on Form 10-K
for the year ended December 31, 2004 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 functioning effectively to provide
reasonable assurance that the information required to be disclosed
by us in reports filed under the Securities Exchange Act of 1934 is
(i) recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms and (ii) accumulated
and communicated to our management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding disclosure.
(b) Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred
during our most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal control
over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
There are no pending legal proceedings to which we or any of our
subsidiaries is a party or to which any of their properties is the
subject that are material or are expected to have a material effect on
our financial position, results of operations or cash flows.
22
AQUA AMERICA, INC. AND SUBSIDIARIES
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes Aqua America's purchases of its common
stock for the quarter ended September 30, 2005:
Issuer Purchases of Equity Securities
Total Maximum
Number of Number of
Shares Shares
Purchased that May
as Part of Yet be
Total Publicly Purchased
Number Average Announced Under the
of Shares Price Paid Plans or Plan or
Period Purchased (1) per Share Programs Programs (2)
- ------ ----------------- ------------- -------------- ------------------
July 1 - 31, 2005 1,512 $ 30.55 - 411,209
August 1 - 31, 2005 13,786 $ 33.73 - 411,209
September 1 - 30, 2005 11,012 $ 36.82 - 411,209
----------------- ------------- -------------- ------------------
Total 26,310 $ 34.84 - 411,209
================= ============= ============== ==================
(1) These amounts consist of shares we purchased 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 (and,
thus, selling) shares of Aqua America common stock in accordance
with the terms of our equity compensation plans that were
previously approved by our shareholders and disclosed in our proxy
statements. This feature of our equity compensation plan is
available to all employees who receive option grants 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.
(2) On August 5, 1997, our Board of Directors authorized a common stock
repurchase program that was publicly announced on August 7, 1997,
for up to 870,282 shares. No repurchases have been made under this
program since 2000. The program has no fixed expiration date. The
number of shares authorized for purchase was adjusted as a result
of the stock splits effected in the form of stock distributions
since the authorization date.
23
AQUA AMERICA, INC. AND SUBSIDIARIES
Item 6. Exhibits
(a) Exhibits
Exhibit No. Description
----------- -----------
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.
24
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 9, 2005
AQUA AMERICA, INC.
----------------------------------------------
Registrant
NICHOLAS DEBENEDICTIS
----------------------------------------------
Nicholas DeBenedictis
Chairman, President and
Chief Executive Officer
DAVID P. SMELTZER
----------------------------------------------
David P. Smeltzer
Senior Vice President - Finance
and Chief Financial Officer
25
EXHIBIT INDEX
- --------------------------------------------------------------------------------
Exhibit No. Description
- ----------- -----------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
26