Aqua America, Inc. — Q1 2011 Form 10-Q
Entity and period: The supplied filing is for Aqua America, Inc. and subsidiaries, for the three months ended March 31, 2011—not a filing under the name Essential Utilities, Inc. The company operated regulated water and wastewater utilities serving approximately 3 million people in 13 states, alongside smaller nonregulated service businesses. Financial amounts below are in millions of dollars unless noted.
Financial results and position
| Metric | Q1 2011 | Q1 2010 / prior date |
|---|---|---|
| Operating revenue | $171.3 | $160.5 |
| Operating income | $61.0 | $50.7 |
| Operating margin | 35.6% | 31.6% |
| Net income attributable to common shareholders | $30.4 | $21.5 |
| Diluted EPS | $0.22 | $0.16 |
| Operating cash flow | $74.1 | $64.1 |
| Capital expenditures | $60.3 | $67.2 |
| Cash and cash equivalents | $7.3 | $5.9 at Dec. 31, 2010 |
| Total current assets / current liabilities | $156.9 / $209.3 | $146.9 / $223.7 at Dec. 31, 2010 |
| Long-term debt, including current portion | $1,558.4 | $1,560.4 at Dec. 31, 2010 |
| Loans payable | $92.0 | $89.7 at Dec. 31, 2010 |
| Dividends declared per common share | $0.155 | $0.145 |
Net income margin was 17.7%, versus 13.4% in Q1 2010. Cash flow from operations less reported capital expenditures was $13.8 million, compared with negative $3.1 million a year earlier; this is a simple calculation, not a company-presented non-GAAP measure.
Changes and management commentary
- Revenue rose $10.8 million, or 6.7%, primarily from rate increases ($8.0 million), higher water consumption, and acquisition-related customer growth.
- Net income increased 41.1%. Management attributed improvement to operating factors and a $4.3 million net state income tax benefit associated with 100% bonus depreciation. Excluding that benefit, the company reported non-GAAP diluted EPS of $0.19, versus $0.16 in Q1 2010; the reported increase was $0.06 per share.
- Operations and maintenance expense declined $0.3 million, including a $2.5 million gain on a Texas utility-system sale recorded as a reduction to that expense. Depreciation increased $1.1 million; interest expense increased $1.5 million, mainly due to borrowing for capital projects.
- Capital expenditures were $60.3 million, primarily for treatment plants and water-system improvements. The company reported $1.9 million of long-term debt repayments and $21.4 million of dividends paid.
Liquidity, debt, outlook, and risks
- At March 31, the $95 million revolving credit facility had $12.4 million available. Short-term lines of credit totaled $167 million, with $75.0 million available. The short-term facilities are renewed annually; management expected renewal but cautioned that renewal and terms were not assured.
- Management noted the company historically has negative working capital and expected internally generated funds, credit facilities, and future debt and equity issuance to meet working-capital and financing needs for at least 12 months. It warned that unavailable financing could require reduced capital spending and constrain acquisitions. No earnings or revenue guidance was provided.
- The Fort Wayne, Indiana, eminent-domain valuation dispute remained on appeal. The company had received an initial $16.9 million payment for a system transferred in 2008, but had recognized no gain pending final valuation. It could be required to refund part of the payment or could receive additional proceeds; the system represented approximately 0.5% of total assets.
- Accrued loss contingencies were $12.4 million, with approximately $2.6 million estimated as recoverable through insurance. Management did not expect their resolution to materially adversely affect financial position, results, or cash flows, while noting outcomes could not be predicted with certainty.
- Other stated risks included regulation, abnormal weather, capital requirements and access to funding, acquisitions, and the ability to integrate acquired operations. Management reported no material change in risk factors or market-risk exposure from year-end, and said disclosure controls were effective.
Investor verification priorities
- Confirm the issuer and filing period: the document identifies Aqua America, Inc., Q1 2011.
- Review the $4.3 million tax benefit and the company’s reconciliation of reported to non-GAAP earnings.
- Verify renewal terms and availability of short-term credit facilities, and assess liquidity against the company’s recurring capital needs.
- Track the Fort Wayne valuation litigation and any potential payment, refund, or gain recognition.
- Review the 2010 Form 10-K for full risk-factor and debt-maturity disclosures; the filing states interim results may not indicate full-year results.