Business Context and Reporting Period
Company: Aqua America, Inc. (Note: Input metadata referenced "Essential Utilities, Inc.", but the filing text identifies the registrant as Aqua America, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: Aqua America is a holding company for regulated utilities providing water and wastewater services to approximately 3 million people across 13 states, including Pennsylvania, Ohio, North Carolina, and Texas. The company operates primarily through a "Regulated" segment and a smaller "Other" segment involving non-regulated services.
Key Financial Metrics (Nine Months Ended Sept 30, 2009)
| Metric | 2009 (YTD) | 2008 (YTD) |
|---|---|---|
| Operating Revenues | $502,646 | $467,132 |
| Operating Income | $177,085 | $167,919 |
| Net Income (Common Shareholders) | $77,694 | $72,253 |
| Diluted EPS | $0.57 | $0.54 |
| Operating Cash Flow | $180,905 | $156,091 |
| Capital Expenditures | $194,886 | $188,063 |
| Total Debt (Long-term + Current) | $1,320,252 | $1,255,401 |
| Cash and Equivalents | $18,015 | $14,944 |
Values in thousands of dollars, except per share amounts.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 7.6% ($35.5 million) year-over-year. This was driven primarily by rate increases ($50.6 million) and acquisitions ($3.9 million), partially offset by decreased water consumption due to favorable weather conditions and revenue loss from utility system dispositions.
- Expense Increases: Operations and maintenance expenses rose 4.0% ($7.8 million). Key drivers included the absence of a $4.1 million gain on a utility sale in 2008, increased water production costs, higher insurance claims, and pension expense increases. Fuel costs decreased by $1.7 million.
- Depreciation and Amortization: Depreciation increased 18.3% due to higher rates and new plant in service. Amortization increased significantly ($4.8 million) due to the recovery of costs associated with rate filings in Texas and North Carolina.
- Profitability: Net income increased 7.5% ($5.4 million). The effective income tax rate decreased to 39.6% from 40.2% due to an increase in tax credits for qualified domestic production activities.
- Debt and Liquidity: Total debt increased by approximately $65 million. The company utilized proceeds from long-term debt issuance and common stock sales to fund capital expenditures and dividends. Cash and cash equivalents increased by $3.1 million.
Guidance, Outlook, Risks, and Contingencies
- Capital Expenditures: The company plans to issue up to $75 million in long-term debt in the fourth quarter of 2009 to fund capital projects. Total capital expenditures for the first nine months were $194.9 million.
- Liquidity: The company maintains a $95 million unsecured revolving credit facility with $9.2 million available as of September 30, 2009. Management believes internally generated funds and existing credit facilities are adequate for foreseeable needs, though credit market volatility remains a risk.
- Legal Proceedings & Contingencies:
- Texas Rate Case: A final ruling approved rate increases, but the order is under appeal. The company has recognized $44.5 million in revenue subject to potential refund if the appeal is successful. No reserve is currently deemed necessary.
- Fort Wayne, Indiana Condemnation: The City of Fort Wayne acquired a portion of the company's system via eminent domain. While an initial payment of $16.9 million was received, the final valuation is pending litigation. The outcome could require a refund or result in additional proceeds.
- Florida Litigation: Lawsuits allege negligence regarding a wastewater treatment plant in Pasco County, Florida. Insurance carriers have reserved rights, and potential losses are being assessed.
- Indiana Plant Dispute: Homeowners' associations claim a prior agreement required the removal of a wastewater plant. If enforced, the company may face significant construction costs to build a replacement facility.
- Forward-Looking Statements: Management notes that actual results may differ due to regulatory changes, weather conditions, capital market volatility, and acquisition integration.
Investor Verification Checklist
- Rate Case Outcomes: Verify the status of the Texas rate case appeal and the potential impact of the $44.5 million revenue at risk.
- Legal Valuation: Monitor the Fort Wayne, Indiana eminent domain litigation for final valuation rulings that could impact cash flows.
- Capital Markets Access: Assess the company's ability to renew short-term credit lines and issue long-term debt given the 2008-2009 credit market volatility.
- Weather Sensitivity: Review how weather patterns in service territories continue to impact water consumption and revenue stability.
- Debt Maturity Profile: Examine the maturity schedule of the $1.32 billion debt load, noting the mix of fixed and variable rates.