Filing summary
Entity and period: The supplied filing is Aqua America, Inc.’s Form 10-K for the fiscal year ended December 31, 2012—not an Essential Utilities filing, and not a standalone fourth-quarter report. The filing incorporates its principal financial statements and MD&A by reference; those detailed sections are not included in the supplied text.
Business context
Aqua America operated regulated water and wastewater utilities serving almost 3 million people across 10 states, alongside smaller non-regulated service businesses. Pennsylvania was the largest market. The company pursued acquisitions in areas where it could build scale and divestitures in markets it viewed as less strategic.
Financial and operating metrics
- Continuing-operations revenue: $757.8 million in 2012. Regulated operations contributed $739.9 million (97.7%) and Other contributed $17.9 million (2.3%). Pennsylvania represented $420.0 million, or 55.4%, of continuing-operations revenue.
- Revenue mix: Water revenue was $661.1 million (87.2%); wastewater revenue was $68.2 million (9.0%). Residential water revenue was $447.3 million (59.0% of total).
- Customer growth: Customer count, excluding dispositions, increased by 69,858 in 2012, primarily from the Ohio acquisition and natural growth. Acquisition and other growth ventures added 7.2% customer growth, excluding dispositions.
- Debt: Long-term debt totaled $1.589 billion at year-end: $1.489 billion fixed-rate and $100 million variable-rate. The filing’s debt schedule reports a 4.81% weighted-average interest rate overall. Scheduled maturities were $45.0 million in 2013, $86.4 million in 2014, $58.5 million in 2015, $35.6 million in 2016, $142.8 million in 2017, and $1.221 billion thereafter.
- Capital assets: Net property, plant and equipment for continuing operations was $3.936 billion at December 31, 2012.
- Dividends: $0.67 per common share was paid in 2012, versus $0.63 in 2011. The annualized rate rose to $0.70 per share beginning with the December 2012 payment. The company reported 68 consecutive years of dividend payments.
- Profit, cash flow, margins and liquidity: The supplied text does not provide clear values for net income, operating cash flow, margins, cash balances, or credit-facility availability. These items are in financial statements incorporated by reference.
Changes and unusual items
- In 2012, Aqua America acquired American Water Works’ Ohio water and wastewater operations, serving about 59,000 customers; sold its Maine operations, serving about 16,000 customers; and sold its New York operations, serving about 51,000 customers.
- The company began marketing its Florida operations and Georgia wastewater facility for sale. In December 2012, it agreed to sell 80 Florida systems—about 56% of its Florida customers—to the Florida Governmental Utility Authority, with closing expected in the first half of 2013. The remaining Florida operations were also being marketed. These operations were presented as discontinued operations.
- Aqua Pennsylvania adopted a tax accounting change allowing deductions for certain qualifying utility improvements. The filing says related Pennsylvania regulatory treatment would financially offset the suspension of that subsidiary’s infrastructure rehabilitation surcharge for 2013.
- Infrastructure rehabilitation surcharges generated $15.9 million in 2012, compared with $15.9 million in 2011 and $14.0 million in 2010.
Outlook, risks and contingencies
- The company intended to continue pursuing acquisitions and infrastructure investment, while completing the announced Florida divestiture and exploring sales of remaining Florida and Georgia operations. The supplied text gives no consolidated earnings or revenue guidance.
- Management said water and wastewater facilities were generally adequate under normal conditions. It estimated outstanding environmental compliance capital needs at less than 5% of expected capital expenditures over the next five years. Certain specific compliance programs were estimated at less than 1% each of planned five-year capital spending.
- A Pennsylvania dam improvement was estimated at $15 million, with design and construction planned during 2013–2018. Four dams required improvements; spending across them was estimated at about 1% of the planned capital program over 2013–2017.
- Key risks include regulatory delays or inadequate rate increases, significant infrastructure and compliance spending, access to debt and equity financing, interest-rate changes, weather and drought, declining per-customer water use, water contamination, acquisitions and divestitures, and disruption to systems or suppliers. The filing also identifies exposure of the raw-water pipeline joint venture to hydraulic-fracturing regulation and natural-gas demand.
- Legal matters: Fort Wayne, Indiana’s valuation of a previously transferred utility system remained in litigation; the company could owe a refund or receive additional proceeds, with no final amount stated. The city was also considering condemnation of other system assets. A wastewater overflow consent-decree matter included a proposed civil penalty of about $254,000, which remained under negotiation. The filing did not consider the described Florida property litigation loss material at that time.
Important facts for investors to verify
- Confirm the intended issuer: the filing identifies Aqua America, Inc., while the request metadata names Essential Utilities, Inc.
- Review the incorporated 2012 annual report for net income, earnings per share, cash flows, full balance-sheet liquidity, capital expenditures and year-over-year comparisons; the supplied filing text does not provide clear values for these.
- Check the completion, proceeds and accounting effects of the Florida and Georgia dispositions, and whether additional Florida operations were sold.
- Track the Fort Wayne condemnation proceedings and the final valuation of the transferred system.
- Assess debt maturities, financing needs, rate-case outcomes, and the sustainability of the dividend alongside planned infrastructure investment.