Aqua America, Inc. — Form 10-Q summary
Entity note: The supplied filing identifies the registrant as Aqua America, Inc. (the company now known as Essential Utilities). It covers the quarter ended September 30, 2010; financial statements are unaudited. Amounts below are in U.S. dollars.
Business context and reporting period
Aqua America operated regulated water and wastewater utilities serving an estimated 3 million people across 14 states, alongside smaller nonregulated service businesses. Results are presented for the three and nine months ended September 30, 2010, with comparisons to 2009.
Key financial metrics
| Metric | Third quarter 2010 | Nine months 2010 |
|---|---|---|
| Operating revenue | $207.8 million | $546.8 million |
| Operating income | $89.6 million | $206.3 million |
| Net income attributable to common shareholders | $43.8 million | $95.1 million |
| Diluted earnings per share | $0.32 | $0.69 |
| Operating margin | 43.1% | 37.7% |
For the first nine months, the cash flow statement reports $189.4 million on a line labeled “net cash flows used in operating activities”; the positive amount and label are inconsistent, so the filing text does not provide a clear interpretation. Investing cash flow was negative $199.8 million, financing cash flow was positive $2.1 million, and cash decreased $8.3 million to $13.6 million. Capital expenditures were $239.5 million.
At September 30, cash was $13.6 million and current assets were $149.2 million versus current liabilities of $206.6 million, a working-capital deficit of $57.4 million. Management noted that negative working capital is historical and said available funding was expected to meet operating and financing needs for at least 12 months. Long-term debt, including its current portion, was $1.463 billion; loans payable were $69.5 million. The $95 million revolving facility had $10.8 million available, and $67.5 million was available under $137 million of short-term credit lines. The declared dividend was $0.30 per share for the quarter and $0.59 per share for the nine-month period.
Changes versus the comparable period
- Nine-month revenue rose 8.8% and net income rose 22.4%; diluted EPS increased from $0.57 to $0.69. Third-quarter revenue rose 14.9%, net income rose 30.7%, and diluted EPS increased from $0.25 to $0.32.
- Management attributed revenue growth chiefly to higher water and wastewater rates, increased consumption—supported by favorable 2010 weather and weaker 2009 weather—surcharges, and customer growth from acquisitions. Nine-month rate increases added an estimated $25.3 million of revenue; the company also reported annualized increases from rate awards in several states.
- Operating costs increased, including maintenance, depreciation, amortization, and taxes other than income taxes. Nine-month interest expense rose 10.6%, primarily because of borrowing to fund capital projects. Favorable offsets included lower bad-debt expense and water-treatment chemical costs. Management cited a $2.3 million gain on asset sales in the nine-month period, primarily from selling an investment.
- Capital expenditures increased from $194.9 million in the first nine months of 2009 to $239.5 million in 2010. The company issued $114.3 million of long-term debt and repaid $97.7 million.
Outlook, risks, contingencies, and unusual items
- No specific earnings or revenue guidance was provided. Management’s liquidity outlook depends on internally generated funds, debt and equity issuance, and renewal of short-term credit lines; renewal was expected but not assured. Reduced credit availability could require lower capital spending and constrain acquisitions.
- Forward-looking results are exposed to regulation, abnormal weather, capital requirements and funding access, capital-market conditions, acquisitions, and integration risks. The filing reported no material change in market-risk exposure from year-end 2009 and no material change in previously disclosed risk factors.
- The Fort Wayne, Indiana, system condemnation valuation remained disputed. A court ruled the company was not entitled to a jury trial and set a deferential review standard; the company was evaluating its options. The final outcome could require a refund or yield additional proceeds. The gain on the original payment remains deferred pending resolution.
- The company accrued $14.9 million for loss contingencies and estimated $2.9 million of related insurance recoveries. Other matters included Florida wastewater-related lawsuits, which management did not expect to be material; a $2.6 million settlement with Indiana homeowners’ associations; and a contested proposed $120,000 Pennsylvania environmental penalty.
- Management’s annual goodwill impairment test found no impairment. The company reported that disclosure controls were effective and that there had been no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether credit facilities were renewed on acceptable terms and how borrowing needs evolved after September 30, 2010.
- Resolution and financial effect of the Fort Wayne valuation litigation and the contingent gain or potential refund.
- Whether rate awards and infrastructure surcharges were implemented as expected, and whether favorable weather-related consumption persisted.
- Final outcomes of the Pennsylvania proposed penalty and other legal matters, including insurance coverage and recoveries.
- The operating-cash-flow line: the filing labels $189.4 million as cash “used” while presenting a positive amount; consult the filed financial statements or subsequent filings for clarification.