Business Context and Reporting Period
This Form 10-Q is filed by Aqua America, Inc. (Note: The input metadata referenced "Essential Utilities, Inc.", but the filing text explicitly identifies the registrant as Aqua America, Inc.). The report covers the quarterly period ended June 30, 2009. Aqua America is a holding company for regulated utilities providing water and wastewater services to approximately 3 million people across 13 states, with its largest operations in Pennsylvania.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Operating Revenues | $321,820,000 | $290,034,000 |
| Operating Income | $105,630,000 | $93,345,000 |
| Net Income (Common Shareholders) | $44,224,000 | $36,873,000 |
| Diluted EPS | $0.33 | $0.28 |
| Operating Cash Flow | $106,549,000 | $77,989,000 |
| Capital Expenditures | $117,134,000 | $110,523,000 |
| Total Debt (Long-term + Current) | $1,255,403,000 | $1,255,401,000 |
| Cash and Equivalents | $13,822,000 | $14,944,000 |
Liquidity: As of June 30, 2009, the company had $18,946,000 available under a $95,000,000 unsecured revolving credit facility and $41,922,000 available under short-term lines of credit totaling $139,000,000.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 11.0% ($31.8 million) year-over-year. This was driven primarily by rate increases ($33.5 million) and acquisitions ($2.7 million), partially offset by decreased water consumption due to unfavorable weather and revenue loss from asset dispositions ($1.4 million).
- Profitability: Net income increased 19.9% ($7.4 million). Operating income rose 13.2% due to revenue growth outpacing expense increases.
- Expense Increases:
- Operations & Maintenance: Increased 4.7% due to higher water production costs (purchased water, power, chemicals), insurance costs, and pension expenses.
- Depreciation: Increased 22.0% ($9.3 million) due to higher depreciation rates and new plant placed in service.
- Amortization: Increased significantly due to the recovery of costs associated with rate filings in Texas and North Carolina.
- Interest Expense: Decreased 2.2% due to lower interest rates on short-term and long-term debt.
Guidance, Outlook, Risks, and Unusual Items
- Rate Cases: The company received base rate increases in New York, Indiana, Ohio, North Carolina, and Florida expected to add approximately $16.0 million annually. A Texas rate case approved in 2008 is currently under appeal; $41.8 million of revenue recognized is subject to refund if the appeal succeeds, though management believes no reserve is currently necessary.
- Legal Contingencies:
- Fort Wayne, Indiana: The City of Fort Wayne is acquiring a portion of the company's system via eminent domain. An initial payment of $16.9 million was received, but the final valuation is pending a court ruling expected in the second half of 2009. The outcome could result in a refund or additional proceeds.
- Florida Litigation: Lawsuits allege negligence regarding a wastewater treatment plant in Pasco County. The company believes claims are without foundation, but insurance coverage is not guaranteed.
- Indiana Plant Closure: Homeowners' associations claim an agreement exists to close a wastewater plant. The company is challenging this; if enforced, it could require constructing a new plant.
- Market Risk: The company notes that the credit crisis has increased the cost and reduced availability of credit. While current facilities are adequate, there is no assurance they will be renewed on acceptable terms.
- Unusual Items: A gain of $1.0 million was recognized from the sale of a utility system in Texas in June 2009.
Investor Verification Checklist
- Rate Case Outcomes: Monitor the status of the Texas rate case appeal and the potential refund of $41.8 million in recognized revenue.
- Legal Valuation: Track the Fort Wayne, Indiana eminent domain ruling expected in late 2009 to determine if the $16.9 million initial payment will be adjusted.
- Weather Impact: Assess the extent to which "unfavorable weather" reduced water consumption and whether this is a temporary or recurring trend.
- Debt Renewal: Verify the renewal status of the $139 million in short-term credit lines maturing in 2009, given the noted credit market volatility.
- Capital Expenditures: Confirm that the $117 million in capital spending aligns with the company's ability to fund projects via internal cash flow and debt markets.