Company Quick10K Filing
Quick10K
Aqua America
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$37.71 216 $8,140
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-11 Other Events, Exhibits
8-K 2019-06-03 Officers
8-K 2019-05-02 Earnings, Exhibits
8-K 2019-05-02 Officers, Shareholder Vote, Other Events, Exhibits
8-K 2019-04-24 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-04-17 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-02-18 Earnings, Other Events, Exhibits
8-K 2018-12-12 Officers, Exhibits
8-K 2018-12-05 Enter Agreement, Leave Agreement, Off-BS Arrangement
8-K 2018-10-22 Enter Agreement, Regulation FD, Exhibits
8-K 2018-08-27 Officers
8-K 2018-08-08 Officers, Amend Bylaw, Exhibits
8-K 2018-08-01 Earnings, Exhibits
8-K 2018-07-01 Officers, Exhibits
8-K 2018-05-08 Shareholder Vote
8-K 2018-04-30 Officers
8-K 2018-02-27 Earnings, Regulation FD, Exhibits
ADP Automatic Data Processing 69,880
SEMG SemGroup 950
HMY Harmony Gold Mining 905
KVHI KVH Industries De 170
STKS One Group Hospitality 108
TACT Transact Technologies 69
TFLG Trafalgar Resources 0
CVLB Conversion Labs 0
ITOX Iiot-Oxys 0
TRIS Tri-State Generation & Transmission Association 0
WTR 2019-03-31
Note 1 – Basis of Presentation
Note 2 – Revenue Recognition
Note 3 – Goodwill
Note 4 – Acquisitions
Note 5 – Assets Held for Sale
Note 6 – Capitalization
Note 7 – Interest Rate Swap Agreements
Note 8 – Financial Instruments
Note 9 – Net Income per Common Share
Note 10 – Stock-Based Compensation
Note 11 – Pension Plans and Other Postretirement Benefits
Note 12 – Water and Wastewater Rates
Note 13 – Taxes Other Than Income Taxes
Note 14 – Segment Information
Note 15 – Commitments and Contingencies
Note 16 – Income Taxes
Note 17 – Leases
Note 18 – Recent Accounting Pronouncements
Item 2 – Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3 – Quantitative and Qualitative Disclosures About Market Risk
Item 4 – Controls and Procedures
Part II. Other Information
Item 1 – Legal Proceedings
Item 1A – Risk Factors
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
Item 6 – Exhibits
EX-31.1 wtr-20190331xex31_1.htm
EX-31.2 wtr-20190331xex31_2.htm
EX-32.1 wtr-20190331xex32_1.htm
EX-32.2 wtr-20190331xex32_2.htm

Aqua America Earnings 2019-03-31

WTR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 wtr-20190331x10q.htm 10-Q wtr-2019-3-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON DC  20549

FORM 10-Q

(Mark One) 

 QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. 

For the quarterly period ended March 31, 2019 

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 

For the transition period from_______________ to _______________

Commission File Number 1-6659 

AQUA AMERICA, INC. 

(Exact name of registrant as specified in its charter) 





 

 

 

Pennsylvania

23-1702594

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)



 

762 W. Lancaster Avenue, Bryn Mawr, Pennsylvania

19010 -3489

(Address of principal executive offices)

(Zip Code)



 

(610) 527-8000

(Registrant’s telephone number, including area code)



(Former Name, former address and former fiscal year, if changed since last report.)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 



Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12(b)-2 of the Exchange Act.:   



 

Large accelerated filer 

Accelerated filer 

Non-accelerated filer  

Smaller reporting company 

Emerging growth company  

 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 



Securities registered pursuant to Section 12(b) of the Act:



 

 

 

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, $.50 par value

 

WTR

 

New York Stock Exchange

6.00% Tangible Equity Units

 

WTRU

 

New York Stock Exchange



Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of April 24, 2019: 215,739,266

 

 


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES

 



TABLE OF CONTENTS



 



Page

Part I – Financial Information



 

Item 1.  Financial Statements:

 



 

Consolidated Balance Sheets (unaudited) – March 31, 2019 and December 31, 2018

 

 

Consolidated Statements of Operations and Comprehensive Income (unaudited) –
Three Months Ended March 31, 2019 and 2018



 

Consolidated Statements of Capitalization (unaudited) –
March 31, 2019 and December 31, 2018



 

Consolidated Statements of Equity (unaudited) –
Three Months Ended March 31, 2019 and 2018 



 

Consolidated Statements of Cash Flow (unaudited) –
Three Months Ended March 31, 2019 and 2018



 

Notes to Consolidated Financial Statements (unaudited)



 

Item 2.  Management’s Discussion and Analysis of Financial
Condition and Results of Operations

30 



 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

35 



 

Item 4.  Controls and Procedures

35 

 

Part II – Other Information

 

 

Item 1.  Legal Proceedings

35 



 

Item 1A.  Risk Factors

35 



 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

38 



 

Item 6.  Exhibits

38 



 

Signatures

40 







 

1


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED BALANCE SHEETS 

(In thousands of dollars, except per share amounts) 

(UNAUDITED)





 

 

 

 

 

 



 

 

 

 

 



 

March 31,

 

December 31,

Assets

 

2019

 

2018

Property, plant and equipment, at cost

 

$

7,747,530 

 

$

7,648,469 

Less:  accumulated depreciation

 

 

1,727,190 

 

 

1,718,143 

Net property, plant and equipment

 

 

6,020,340 

 

 

5,930,326 



 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

 

4,053 

 

 

3,627 

Accounts receivable and unbilled revenues, net

 

 

96,410 

 

 

101,225 

Inventory, materials and supplies

 

 

16,209 

 

 

15,844 

Prepayments and other current assets

 

 

24,096 

 

 

23,337 

Assets held for sale

 

 

3,007 

 

 

3,139 

Total current assets

 

 

143,775 

 

 

147,172 



 

 

 

 

 

 

Regulatory assets

 

 

803,093 

 

 

788,076 

Deferred charges and other assets, net

 

 

40,745 

 

 

39,237 

Investment in joint venture

 

 

6,840 

 

 

6,959 

Goodwill

 

 

53,069 

 

 

52,726 

Operating lease right-of-use assets

 

 

13,088 

 

 

 -

Total assets

 

$

7,080,950 

 

$

6,964,496 

Liabilities and Equity

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock at $.50 par value, authorized 300,000,000 shares, issued 181,481,408 and 181,151,827 as of March 31, 2019 and December 31, 2018

 

$

90,741 

 

$

90,576 

Capital in excess of par value

 

 

827,339 

 

 

820,378 

Retained earnings

 

 

1,152,197 

 

 

1,174,245 

Treasury stock, at cost, 3,112,330 and 3,060,206 shares as of March 31, 2019 and December 31, 2018

 

 

(77,692)

 

 

(75,835)

Total stockholders' equity

 

 

1,992,585 

 

 

2,009,364 



 

 

 

 

 

 

Long-term debt, excluding current portion

 

 

2,483,119 

 

 

2,419,115 

Less:  debt issuance costs

 

 

20,264 

 

 

20,651 

Long-term debt, excluding current portion, net of debt issuance costs

 

 

2,462,855 

 

 

2,398,464 

Commitments and contingencies (See Note 15)

 

 

 

 

 

 



 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

 

156,455 

 

 

144,545 

Loans payable

 

 

32,563 

 

 

15,449 

Accounts payable

 

 

55,110 

 

 

77,331 

Book overdraft

 

 

5,095 

 

 

8,950 

Accrued interest

 

 

27,628 

 

 

23,300 

Accrued taxes

 

 

22,563 

 

 

22,234 

Interest rate swap agreements

 

 

94,561 

 

 

59,779 

Other accrued liabilities

 

 

40,124 

 

 

47,389 

Total current liabilities

 

 

434,099 

 

 

398,977 



 

 

 

 

 

 

Deferred credits and other liabilities:

 

 

 

 

 

 

Deferred income taxes and investment tax credits

 

 

855,156 

 

 

845,403 

Customers' advances for construction

 

 

99,186 

 

 

93,343 

Regulatory liabilities

 

 

528,471 

 

 

531,027 

Operating lease liabilities

 

 

11,744 

 

 

 -

Other

 

 

96,897 

 

 

97,182 

Total deferred credits and other liabilities

 

 

1,591,454 

 

 

1,566,955 



 

 

 

 

 

 

Contributions in aid of construction

 

 

599,957 

 

 

590,736 

Total liabilities and equity

 

$

7,080,950 

 

$

6,964,496 



 

 

 

 

 

 

See notes to consolidated financial statements beginning on page 7 of this report.

 



 

2


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except per share amounts)

(UNAUDITED)







 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

Operating revenues

 

$

201,132 

 

$

194,347 



 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Operations and maintenance

 

 

79,314 

 

 

73,946 

Depreciation

 

 

39,074 

 

 

35,967 

Amortization

 

 

336 

 

 

130 

Taxes other than income taxes

 

 

14,969 

 

 

14,967 

Total operating expenses

 

 

133,693 

 

 

125,010 



 

 

 

 

 

 

Operating income

 

 

67,439 

 

 

69,337 



 

 

 

 

 

 

Other expense (income):

 

 

 

 

 

 

Interest expense, net

 

 

27,850 

 

 

23,471 

Allowance for funds used during construction

 

 

(4,056)

 

 

(2,867)

Change in fair value of interest rate swap agreements

 

 

34,782 

 

 

 -

Gain on sale of other assets

 

 

(220)

 

 

(196)

Equity earnings in joint venture

 

 

(543)

 

 

(382)

Other

 

 

872 

 

 

603 

Income before income taxes

 

 

8,754 

 

 

48,708 

Provision for income tax benefit

 

 

(8,170)

 

 

(2,131)

Net income

 

$

16,924 

 

$

50,839 



 

 

 

 

 

 

Comprehensive income

 

$

16,924 

 

$

50,839 



 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

Basic

 

$

0.09 

 

$

0.29 

Diluted

 

$

0.09 

 

$

0.29 



 

 

 

 

 

 

Average common shares outstanding during the period:

 

 

 

 

 

 

Basic

 

 

178,213 

 

 

177,801 

Diluted

 

 

178,552 

 

 

178,238 



 

 

 

 

 

 

See notes to consolidated financial statements beginning on page 7 of this report.



 

 

 

 

 

 

 





 

3


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED STATEMENTS OF CAPITALIZATION 

(In thousands of dollars, except per share amounts) 

(UNAUDITED)

  







 

 

 

 

 

 

 



 

 

 

 

 

 



 

 

March 31,

 

December 31,



 

 

2019

 

2018

Stockholders' equity:

 

 

 

 

 

 

 

    Common stock, $.50 par value

 

 

$

90,741 

 

$

90,576 

    Capital in excess of par value

 

 

 

827,339 

 

 

820,378 

    Retained earnings

 

 

 

1,152,197 

 

 

1,174,245 

    Treasury stock, at cost

 

 

 

(77,692)

 

 

(75,835)

Total stockholders' equity

 

 

 

1,992,585 

 

 

2,009,364 



 

 

 

 

 

 

 

Long-term debt of subsidiaries (substantially collateralized by utility plant):

 

 

 

 

 

 

Interest Rate Range

Maturity Date Range

 

 

 

 

 

 

0.00% to  0.99%

2023 to 2033

 

 

3,687 

 

 

3,732 

1.00% to  1.99%

2019 to 2035

 

 

11,301 

 

 

11,588 

2.00% to  2.99%

2019 to 2033

 

 

17,039 

 

 

17,488 

3.00% to  3.99%

2019 to 2056

 

 

497,026 

 

 

497,426 

4.00% to  4.99%

2020 to 2057

 

 

830,650 

 

 

831,066 

5.00% to  5.99%

2019 to 2043

 

 

154,633 

 

 

154,788 

6.00% to  6.99%

2026 to 2036

 

 

31,000 

 

 

31,000 

7.00% to  7.99%

2022 to 2027

 

 

31,365 

 

 

31,564 

8.00% to  8.99%

2021 to 2025

 

 

5,446 

 

 

5,581 

9.00% to  9.99%

2020 to 2026

 

 

20,000 

 

 

20,000 



 

 

 

1,602,147 

 

 

1,604,233 



 

 

 

 

 

 

 

Notes payable to bank under revolving credit agreement, variable rate, due 2023

 

 

448,000 

 

 

370,000 

Unsecured notes payable:

 

 

 

 

 

 

 

Bank notes at 2.48% and 3.50% due 2019 and 2020

 

 

100,000 

 

 

100,000 

Notes ranging from 3.01% and 3.59% due 2027 and 2041

 

 

245,000 

 

 

245,000 

Notes ranging from 4.62% to 4.87%, due 2019 through 2024

 

 

112,000 

 

 

112,000 

Notes ranging from 5.20% to 5.95%, due 2020 through 2037

 

 

132,427 

 

 

132,427 

.

 

 

 

2,639,574 

 

 

2,563,660 



 

 

 

 

 

 

 

Current portion of long-term debt

 

 

 

156,455 

 

 

144,545 

Long-term debt, excluding current portion

 

 

2,483,119 

 

 

2,419,115 

Less:  debt issuance costs

 

 

 

20,264 

 

 

20,651 

Long-term debt, excluding current portion, net of debt issuance costs

 

 

2,462,855 

 

 

2,398,464 



 

 

 

 

 

 

 

Total capitalization

 

 

$

4,455,440 

 

$

4,407,828 



 

 

 

 

 

 

 

See notes to consolidated financial statements beginning on page 7 of this report.

 



 



 

4


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED STATEMENTS OF EQUITY 

(In thousands of dollars)

(UNAUDITED)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 



 

 

 

 

Capital in

 

 

 

 

 

 

 

Other

 

 

 



 

Common

 

Excess of

 

Retained

 

Treasury

 

Comprehensive

 

 

 



 

Stock

 

Par Value

 

Earnings

 

Stock

 

Income

 

Total

Balance at December 31, 2018

 

$

90,576 

 

$

820,378 

 

$

1,174,245 

 

$

(75,835)

 

$

 -

 

$

2,009,364 

Net income

 

 

 -

 

 

 -

 

 

16,924 

 

 

 -

 

 

 -

 

 

16,924 

Dividends declared ($0.2190 per share)

 

 

 -

 

 

 -

 

 

(39,014)

 

 

 -

 

 

 -

 

 

(39,014)

Issuance of common stock under dividend reinvestment plan (117,845 shares)

 

 

59 

 

 

3,976 

 

 

 -

 

 

 -

 

 

 -

 

 

4,035 

Repurchase of stock (52,124 shares)

 

 

 -

 

 

 -

 

 

 -

 

 

(1,857)

 

 

 -

 

 

(1,857)

Equity compensation plan (134,257 shares)

 

 

67 

 

 

(67)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Exercise of stock options (77,479 shares)

 

 

39 

 

 

1,136 

 

 

 -

 

 

 -

 

 

 -

 

 

1,175 

Stock-based compensation

 

 

 -

 

 

1,929 

 

 

42 

 

 

 -

 

 

 -

 

 

1,971 

Other  

 

 

 -

 

 

(13)

 

 

 -

 

 

 -

 

 

 -

 

 

(13)

Balance at March 31, 2019

 

$

90,741 

 

$

827,339 

 

$

1,152,197 

 

$

(77,692)

 

$

 -

 

$

1,992,585 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 



 

 

 

 

Capital in

 

 

 

 

 

 

 

Other

 

 

 



 

Common

 

Excess of

 

Retained

 

Treasury

 

Comprehensive

 

 

 



 

Stock

 

Par Value

 

Earnings

 

Stock

 

Income

 

Total

Balance at December 31, 2017

 

$

90,350 

 

$

807,135 

 

$

1,132,556 

 

$

(73,280)

 

$

860 

 

$

1,957,621 

Net income

 

 

 -

 

 

 -

 

 

50,839 

 

 

 -

 

 

 -

 

 

50,839 

Dividends declared ($0.2047 per share)

 

 

 -

 

 

 -

 

 

(36,386)

 

 

 -

 

 

 -

 

 

(36,386)

Issuance of common stock under dividend reinvestment plan (11,252 shares)

 

 

 

 

355 

 

 

 -

 

 

 -

 

 

 -

 

 

361 

Repurchase of stock (71,940 shares)

 

 

 -

 

 

 -

 

 

 -

 

 

(2,491)

 

 

 -

 

 

(2,491)

Equity compensation plan (181,670 shares)

 

 

91 

 

 

(91)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Exercise of stock options (62,688 shares)

 

 

31 

 

 

979 

 

 

 -

 

 

 -

 

 

 -

 

 

1,010 

Stock-based compensation

 

 

 -

 

 

1,443 

 

 

(41)

 

 

 -

 

 

 -

 

 

1,402 

Cumulative effect of change in accounting principle - financial instruments

 

 

 -

 

 

 -

 

 

860 

 

 

 -

 

 

(860)

 

 

 -

Other  

 

 

 -

 

 

(197)

 

 

 -

 

 

 -

 

 

 -

 

 

(197)

Balance at March 31, 2018

 

$

90,478 

 

$

809,624 

 

$

1,147,828 

 

$

(75,771)

 

$

 -

 

$

1,972,159 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements beginning on page 7 of this report.

 

  

 

 

5


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

 

CONSOLIDATED STATEMENTS OF CASH FLOW 

(In thousands of dollars) 

(UNAUDITED)



  



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

16,924 

 

$

50,839 

Adjustments to reconcile net income to net cash flows from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

39,410 

 

 

36,097 

Deferred income taxes

 

 

(8,852)

 

 

(2,849)

Provision for doubtful accounts

 

 

803 

 

 

896 

Stock-based compensation

 

 

1,930 

 

 

1,444 

Gain on sale of other assets

 

 

(220)

 

 

(196)

Interest rate swap agreements

 

 

34,782 

 

 

 -

Net change in receivables, inventory and prepayments

 

 

2,263 

 

 

5,402 

Net change in payables, accrued interest, accrued taxes and other accrued liabilities

 

 

(3,402)

 

 

(996)

Pension and other postretirement benefits contributions

 

 

(3,947)

 

 

(5,217)

Other

 

 

(404)

 

 

2,934 

Net cash flows from operating activities

 

 

79,287 

 

 

88,354 

Cash flows from investing activities:

 

 

 

 

 

 

Property, plant and equipment additions, including the debt component of allowance for funds used during construction of $1,030 and $782

 

 

(133,792)

 

 

(105,136)

Acquisitions of utility systems, net

 

 

(469)

 

 

(190)

Net proceeds from the sale of other assets

 

 

242 

 

 

174 

Other

 

 

462 

 

 

(75)

Net cash flows used in investing activities

 

 

(133,557)

 

 

(105,227)

Cash flows from financing activities:

 

 

 

 

 

 

Customers' advances and contributions in aid of construction

 

 

1,858 

 

 

1,742 

Repayments of customers' advances

 

 

(765)

 

 

(1,014)

Net proceeds of short-term debt

 

 

17,114 

 

 

16,692 

Proceeds from long-term debt

 

 

117,995 

 

 

66,996 

Repayments of long-term debt

 

 

(41,976)

 

 

(21,898)

Change in cash overdraft position

 

 

(3,856)

 

 

(8,944)

Proceeds from issuing common stock

 

 

4,035 

 

 

361 

Proceeds from exercised stock options

 

 

1,175 

 

 

1,010 

Repurchase of common stock

 

 

(1,857)

 

 

(2,491)

Dividends paid on common stock

 

 

(39,014)

 

 

(36,386)

Other

 

 

(13)

 

 

(197)

Net cash flows from financing activities

 

 

54,696 

 

 

15,871 

Net change in cash and cash equivalents

 

 

426 

 

 

(1,002)

Cash and cash equivalents at beginning of period

 

 

3,627 

 

 

4,204 

Cash and cash equivalents at end of period

 

$

4,053 

 

$

3,202 



Non-cash investing activities:

Property, plant and equipment additions purchased at the period end, but not yet paid for

 

$

42,594 

 

$

23,629 

Non-cash customer advances and contributions in aid of construction

 

 

17,331 

 

 

4,979 



 

 

 

 

 

 

See notes to consolidated financial statements beginning on page 7 of this report.

 



 

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Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

Note 1 – Basis of Presentation 



The accompanying consolidated balance sheets and statements of capitalization of Aqua America, Inc. and subsidiaries (the “Company”, “we”, “us” or “our”) at March 31, 2019, the consolidated statements of operations and comprehensive income for the three months ended March 31, 2019 and 2018 the consolidated statements of cash flow for the three months ended March 31, 2019 and 2018, and the consolidated statements of equity for the three months ended March 31, 2019 and 2018 are unaudited, but reflect all adjustments, consisting of only normal recurring accruals, which are, in the opinion of management, necessary to present a fair statement of its consolidated financial position, consolidated changes in equity, consolidated results of operations, and consolidated cash flow for the periods presented.  Because they cover interim periods, the statements and related notes to the financial statements do not include all disclosures and notes normally provided in annual financial statements and, therefore, should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.  The results of operations for interim periods may not be indicative of the results that may be expected for the entire year.  The December 31, 2018 consolidated balance sheet data presented herein was derived from the Company’s December 31, 2018 audited consolidated financial statements but does not include all disclosures and notes normally provided in annual financial statements. 



The preparation of financial statements often requires the selection of specific accounting methods and policies.  Further, significant estimates and judgments may be required in selecting and applying those methods and policies in the recognition of the assets and liabilities in its consolidated balance sheets, the revenues and expenses in its consolidated statements of operations, and the information that is contained in its summary of significant accounting policies and notes to consolidated financial statements.  Making these estimates and judgments requires the analysis of information concerning events that may not yet be complete and of facts and circumstances that may change over time.  Accordingly, actual amounts or future results can differ materially from those estimates that the Company includes currently in its consolidated financial statements, summary of significant accounting policies, and notes.



There have been no changes to the summary of significant accounting policies, other than as described in Note 17 –  Leases as a result of the adoption of a new accounting pronouncement adopted on January 1, 2019, previously identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.  

 

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Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

Note 2 – Revenue Recognition



The following table presents our revenues disaggregated by major source and customer class:







 

 

 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Three Months Ended



March 31,2019

 

March 31,2018



Water Revenues

Wastewater Revenues

Other Revenues

 

Water Revenues

Wastewater Revenues

Other Revenues

Revenues from contracts with customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

$

114,047 

$

19,947 

$

 -

 

$

113,837 

$

17,532 

$

 -

Commercial

 

30,291 

 

3,566 

 

 -

 

 

30,342 

 

2,888 

 

 -

Fire protection

 

8,078 

 

 -

 

 -

 

 

7,938 

 

 -

 

 -

Industrial

 

6,865 

 

481 

 

 -

 

 

6,360 

 

463 

 

 -

Other water

 

12,808 

 

 -

 

 -

 

 

11,021 

 

 -

 

 -

Other wastewater

 

 -

 

1,396 

 

 -

 

 

 -

 

791 

 

 -

Other utility

 

 -

 

 -

 

2,890 

 

 

 -

 

 -

 

2,335 

Revenues from contracts with customers

 

172,089 

 

25,390 

 

2,890 

 

 

169,498 

 

21,674 

 

2,335 

Alternative revenue program

 

(36)

 

(113)

 

 -

 

 

 -

 

 -

 

 -

Other and eliminations

 

 -

 

 -

 

912 

 

 

 -

 

 -

 

840 

Consolidated

$

172,053 

$

25,277 

$

3,802 

 

$

169,498 

$

21,674 

$

3,175 



 

 

 

 

 

 

 

 

 

 

 

 

 



Revenues from Contracts with Customers – These revenues are composed of three main categories:  water, wastewater, and other.  Water revenues represent revenues earned for supplying customers with water service.  Wastewater revenues represent revenues earned for treating wastewater and releasing it into the water supply.  Other revenues are associated fees that relate to the regulated business but are not water and wastewater revenues.  See description below for a discussion on the performance obligation for each of these revenue streams.



Tariff Revenues – These revenues are categorized by customer class:  residential, commercial, fire protection, industrial, and other water and other wastewater.  The rates that generate these revenues are approved by the respective state utility commission, and revenues are billed cyclically and accrued for when unbilled.  Other water and other wastewater revenues consist primarily of fines, penalties, surcharges, and availability lot fees.  Our performance obligation for tariff revenues is to provide potable water or wastewater treatment service to customers.  This performance obligation is satisfied over time as the services are rendered.  The amounts that the Company has a right to invoice for tariff revenues reflect the right to consideration from the customers in an amount that corresponds directly with the value transferred to the customer for the performance completed to date.    



Other Utility Revenues – Other utility revenues represent revenues earned primarily from:  antenna revenues, which represent fees received from telecommunication operators that have put cellular antennas on our water towers, operation and maintenance and billing contracts, which represent fees earned from municipalities for our operation of their water or wastewater treatment services or performing billing services, and fees earned from developers for accessing our water mains.  The performance obligations vary for these revenues, but all are primarily recognized over time as the service is delivered.



Alternative Revenue Program – These revenues represent the difference between the actual billed utility water and wastewater revenues for Aqua Illinois and the revenues set in the last Aqua Illinois rate case.  We recognize revenues based on the target amount established in the last rate case, and then record either

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Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

a regulatory asset or liability based on the cumulative annual difference between the target and actual, which results in either a refund due to customers or a payment from customers.  The cumulative annual difference is either refunded to customers or collected from customers over a nine-month period.  This revenue program represents a contract between the utility and its regulators, not customers, and therefore is not within the scope of the Financial Accounting Standards Board’s (“FASB”) accounting guidance for recognizing revenue from contracts with customers.    



Other and Eliminations – Other and eliminations consist of our market-based revenues, which comprises:  Aqua Infrastructure and Aqua Resources (described below), and intercompany eliminations for revenue billed between our subsidiaries. 



Aqua Infrastructure is the holding company for our 49% investment in a joint venture that operates a private pipeline system to supply raw water to natural gas well drilling operations in the Marcellus Shale of north central Pennsylvania.  The joint venture earns revenues through providing non-utility raw water supply services to natural gas drilling companies which enter into water supply contracts.  The performance obligation is to deliver non-potable water to the joint venture’s customers.  Aqua Infrastructure’s share of the revenues recognized by the joint venture is reflected, net, in equity earnings in joint venture on our consolidated statements of operations.   



Aqua Resources earns revenues by providing non-regulated water and wastewater services through operating and maintenance contracts, and third-party water and sewer service line repair.  The performance obligations are performing agreed upon services in the contract, most commonly operation of third-party water or wastewater treatment services, or billing services, or allowing the use of our logo to a third-party water and sewer service line repair.  Revenues are primarily recognized over time as service is delivered.





Note 3 – Goodwill 



The following table summarizes the changes in the Company’s goodwill, by business segment:

 





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Regulated

 

 

 

 

 

 



 

Segment

 

Other

 

Consolidated

Balance at December 31, 2018

 

$

47,885 

 

$

4,841 

 

$

52,726 

Goodwill acquired

 

 

343 

 

 

 -

 

 

343 

Balance at March 31, 2019

 

$

48,228 

 

$

4,841 

 

$

53,069 











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Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

Note 4 – Acquisitions 



Peoples Gas Acquisition



Pursuant to the Company’s growth strategy, on October 22, 2018, the Company entered into a purchase agreement (the “Acquisition Agreement”) with LDC Parent LLC (“Seller”), to acquire its interests in LDC Funding LLC (“LDC”).  LDC is the parent of LDC Holdings LLC (“LDC Holdings”), and LDC Holdings is the parent of five natural gas public utility companies, which includes Peoples Natural Gas Company, Peoples Gas Company, and Delta Natural Gas Company as well as other operating subsidiaries.  This acquisition is referred to as the “Peoples Gas Acquisition,” and collectively these businesses are referred to as “Peoples.”   Peoples is headquartered in Pittsburgh, Pennsylvania, and serves approximately 740,000 gas utility customers in western Pennsylvania, West Virginia, and Kentucky.  At the closing of the Peoples Gas Acquisition, the Company will pay $4,275,000, in cash subject to adjustments for working capital, certain capital expenditures, transaction expenses and closing indebtedness as set forth in the Acquisition Agreement.  The Company expects to assume approximately $1,370,000 of Peoples’ indebtedness upon the closing of the Peoples Gas Acquisition, which would reduce the cash purchase price by approximately $1,370,000.   



On October 22, 2018, the Company obtained a commitment (the “Bridge Commitment”) from certain banks to provide senior unsecured bridge loans in an aggregate amount of up to $5,100,000 to, among other things, backstop the Peoples Gas Acquisition purchase price and refinancing of certain debt of the Company and Peoples.  On March 29, 2019, the Company entered into a Stock Purchase Agreement to issue shares of common stock in a private placement to fund a portion of the Peoples Gas Acquisition.    The gross proceeds of the Stock Purchase Agreement are expected to amount to approximately $750,000As of March 31, 2019, the Company had terminated approximately $1,633,000 of commitments under the Bridge Commitment.    Further, on April 18, 2019, the Company issued $1,293,750 of its common stock and $690,000 of its tangible equity units, with a stated amount of $50 per unit, and on April 26, 2019, the Company issued $900,000 of senior notes.  Lastly,  in April 2019, as a result of the Company’s common stock, tangible equity units, and senior notes issuances, we terminated approximately $2,717,000 of commitments under the Bridge Commitment.  The remaining balance available under the Bridge Commitment is $750,000.    Refer to Note 6 – Capitalization for further information on these financings.



On October 23, 2018, the Company entered into interest rate swap agreements to mitigate interest rate risk associated with an anticipated $850,000 of future debt issuances to fund a portion of the Peoples Gas Acquisition.  The interest rate swaps were settled on April 24, 2019 in conjunction with the issuance of long-term debt used to finance a portion of the purchase price of this acquisition, which resulted in a payment by the Company of $83,520.    Refer to Note 7 – Interest Rate Swap Agreements for further information.  The interest rate swaps did not qualify for hedge accounting and any changes in the fair value of the swaps was included in our earnings. 



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AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

The Peoples Gas Acquisition is subject to regulatory approval by the Pennsylvania public utility commission, and other customary closing conditions set forth in the Acquisition Agreement.  Approval from the United States Federal Trade Commission was obtained in December 2018 and approvals from the public utility commissions of Kentucky and West Virginia were obtained in March 2019 and April 2019, respectivelyThe Peoples Gas Acquisition is expected to close in mid-2019, once all regulatory approvals are obtained, and closing conditions are met, and it is anticipated that this acquisition will result in the recording of goodwill.  In the event that the Acquisition Agreement is terminated due to certain breaches by the Company, a fee of $120,000 would be payable to the Seller as a reverse termination fee



Water and Wastewater Utility Acquisitions



In July 2018, the Company acquired the wastewater utility systems assets of Limerick Township, Pennsylvania which serves 5,497 customers.  The total cash purchase price for the utility system was $74,836.  The purchase price allocation for this acquisition consisted primarily of acquired property, plant and equipment of $64,759, and goodwill of $10,790.  Additionally, during 2018, the Company completed seven acquisitions of water and wastewater utility systems in three states adding 8,661 customers.  The total purchase price of these utility systems consisted of $42,519 in cash.  The purchase price allocation for these acquisitions consisted primarily of acquired property, plant and equipment.  Further, in December 2018, the Company acquired the Valley Creek Trunk Sewer System, serving area municipalities in Pennsylvania, from the Tredyffrin Township Municipal Authority for $28,300.  The system receives untreated wastewater from area municipalities, which is conveyed to the Valley Forge Treatment Plant.  The system consists of 49,000 linear feet of gravity sewers, pump stations, and force mains



In November 2018, the Company entered into a purchase agreement to acquire the wastewater utility system assets of East Norriton Township, Pennsylvania, which serves approximately 4,950 customers for $21,000.  The purchase price for this pending acquisition is subject to certain adjustments at closing, and is subject to regulatory approval, including the final determination of the fair value of the rate base acquired.



In July 2018, the Company entered into a purchase agreement to acquire the wastewater utility system assets of Cheltenham Township, Pennsylvania, which serves approximately 10,500 customers for $50,250.  The purchase price for this pending acquisition is subject to certain adjustments at closing, and is subject to regulatory approval, including the final determination of the fair value of the rate base acquired. 



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Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

In addition to the Company’s pending acquisitions in East Norriton and Cheltenham Townships, as part of the Company’s growth-through-acquisition strategy, the Company entered into purchase agreements to acquire the water or wastewater utility system assets of four municipalities for a total combined purchase price in cash of $38,950 which we plan to finance by the issuance of debt.  The purchase price for these acquisitions is subject to certain adjustments at closing, and the acquisitions are subject to regulatory approvals, including the final determination of the fair value of the rate base acquired.  Closings for our remaining acquisitions (other than the Peoples Gas Acquisition) are expected to occur by the end of 2019, subject to the timing of the regulatory approval process.  In total, these acquisitions (other than the Peoples Gas Acquisition) will add approximately 4,000 customers in two of the states in which the Company operates in.   



Note 5 –  Assets Held for Sale



In the fourth quarter of 2018, the Company decided to market for sale a water system in Virginia that serves approximately 500 customers.  This water system is reported as assets held for sale in the Company’s consolidated balance sheet, and in April 2019, the Company completed the sale for proceeds of $1,882.



In the first quarter of 2017, the Company decided to market for sale a water system in Texas that serves approximately 265 customers.  This water system is reported as assets held for sale in the Company’s consolidated balance sheet, and the sale is expected to close in the second quarter of 2019.    



 

Note 6 – Capitalization



Private Placement



On March 29, 2019, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Canada Pension Plan Investment Board (the “Investor”), pursuant to which the Company has agreed to issue and sell to the Investor in a private placement (the “Private Placement”) 21,661,095 newly issued shares of common stock, par value $0.50 per share (the “Common Stock”).  The gross proceeds of the Private Placement are expected to amount to approximately $750,000,  less estimated expenses of $21,560.



The shares issued and sold to the Investor pursuant to the Private Placement were to be priced at the lower of (1) $34.62, which represents a 4.5% discount to the trailing 20 consecutive trading day volume weighted average price of the Common Stock ending on, and including, March 28, 2019, and (2) the volume weighted average price per share in the Company’s subsequent public offering of Common Stock to fund a portion of the Peoples Gas Acquisition.  Based on the common stock offering noted below, the Private Placement was priced at $34.62 per share.

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Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 



The closing of the Private Placement is expected to occur concurrently with the closing of the Peoples Gas Acquisition, subject to certain closing conditions, including the closing of the Peoples Gas Acquisition, and the execution and delivery of a shareholder agreement between the Investor and the Company.  The Investor has agreed to certain transfer restrictions for a period of 15 months from the closing date of the Peoples Gas Acquisition. 



The Stock Purchase Agreement contains customary representations, warranties and covenants of the Company and the Investor, and the parties have agreed to indemnify each other for losses related to breaches of their respective representations and warranties.  Upon closing of the Private Placement, the Company has agreed to reimburse the Investor for reasonable out-of-pocket diligence expenses of up to $4,000, subject to certain exceptions. 



Common Stock / Equity Unit Issuances



Subsequent to the quarterly period ended March 31, 2019, on April 23, 2019, the Company issued $1,293,750,  less estimated expenses of $30,496, of its common stock and $690,000,  less estimated expenses of $16,251, of its tangible equity units (the “Units”), with a stated amount of $50 per unit.  These issuances are part of securing the permanent financing to close the Peoples Gas Acquisition.  The common stock was issued at $34.62 per share and thus the Private Placement noted above was priced at $34.62 per share.     



Each Unit consists of a prepaid stock purchase contract and an amortization note due April 30, 2022, each issued by the Company.  Unless earlier settled or redeemed, each stock purchase contract will automatically settle on April 30, 2022 (subject to postponement in limited circumstances) for between 1.1790 and 1.4442 shares of the Company’s common stock, subject to adjustment, based upon the applicable market value of the common stock, as described in the final prospectus supplement relating to the Units.  The amortizing notes have an initial principal amount of $8.62909, or $119,081 in aggregate, and bear interest at a rate of 3.00% per year, and pay equal quarterly cash installments of $0.75000 per amortizing note (except for the July 30, 2019 installment payment, which will be $0.80833 per amortizing note), that will constitute a payment of interest and a partial repayment of principal, and which cash payment in the aggregate will be equivalent to 6.00% per year with respect to each $50 stated amount of the Units.  The amortizing notes represent unsecured senior obligations of the Company. 



The issuance of the common stock and the Units (including the component stock purchase contracts and amortizing notes) were separate public issuances made by means of separate prospectus supplements pursuant to the Company’s universal “pay as you go” shelf registration statement, filed with the SEC in February 2018, which allows for the potential future offer and sale by us, from time to time, in one or more public offerings, of an indeterminate amount of the Company’s common stock, preferred stock, debt securities, and other securities specified therein at indeterminate prices.  



The Company expects to record the issuance of the purchase contract portion of the Units as additional paid-in-capital of $570,919,  less estimated allocable issuance costs of $13,446, in our financial statements.  The Company also expects to record the amortizing notes portion of the Units of $119,081 as long-term debt and to record estimated allocable issuance costs of $2,805 as debt issuance costs.   

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AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 



Long-term Debt 



Subsequent to the quarterly period ended March 31, 2019, on April 26, 2019, the Company issued $900,000 of long-term debt (the “Senior Notes”), less estimated expenses of $9,147, of which $400,000 is due in 2029, and $500,000 is due in 2049 with interest rates of 3.566% and 4.276%, respectively    



The issuance of the Senior Notes was not conditioned upon the consummation of the Peoples Gas Acquisition; however, if (1) the Peoples Gas Acquisition has not been consummated on or prior to April 22, 2020, (2) on or prior to the April 22, 2020 and prior to the consummation of the Peoples Gas Acquisition, the Acquisition Agreement is terminated or (3) prior to the consummation of the Peoples Gas Acquisition, the Company otherwise publicly announces that the acquisition will not be consummated, then the Company will be required to redeem all outstanding Senior Notes on a special mandatory redemption date at a special mandatory redemption price equal to 101% of the aggregate principal amount of the notes, plus accrued and unpaid interest thereon, if any, to, but excluding, the special mandatory redemption date. 



The Company intends to use the net proceeds from the issuance of Senior Notes,  together with the net proceeds from the common stock offering and tangible equity unit offering noted above, as well as the proceeds from the Private Placement of common stock noted above, to (1) fund the Peoples Gas Acquisition, (2) complete the redemption of $313,500 aggregate principal amount of certain of the Company’s outstanding notes noted below, (3) pay related costs and expenses, and (4) for general corporate purposes.  Upon consummation of the Private Placement, the permanent financing for the Peoples Gas Acquisition will be complete. 



On May 18, 2019, the Company expects to redeem $313,500 of the Company’s outstanding notes (the “Company Debt Refinancing”) that have maturities ranging from 2019-2037 and interest rates ranging from 3.57-5.83%.  Additionally, the Company Debt Refinancing is subject to a make whole payment of approximately $25,000.



If for any reason the Peoples Gas Acquisition is not consummated, the Company intends to use the net proceeds from these financings, after the special mandatory redemption noted above, for general corporate purposes, which may include the redemption of certain of the Company’s outstanding notes, repurchases of the Company’s common stock, debt repayment, capital expenditures, and investments.    



Note 7 – Interest Rate Swap Agreements



In October 2018, the Company entered into interest rate swap agreements to mitigate interest rate risk associated with an anticipated $850,000 of future debt issuances to fund a portion of the Peoples Gas Acquisition and refinance a portion of the Company’s borrowings.    The interest rate swaps do not qualify for hedge accounting and any changes in the fair value of the swaps was included in our earnings.  The interest rate swaps were classified as financial derivatives used for non-trading activities.  Other than the interest rate swaps, the Company has no other derivative instruments.  The Company recorded the fair value of the interest rate swaps by discounting the future net cash flows associated with the debt issuance and recognized either an asset or liability at the balance sheet date.  



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AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

The following table provides a summary of the fair value of our interest rate swap agreements:







 

 

 

 

 

 

 

 

 



Derivative Assets

 

Derivative Liabilities



March 31,

 

March 31,



Balance Sheet Location

 

2019

 

Balance Sheet Location

 

2019

Derivatives not designated as hedging instrument:

 

 

 

 

 

 

 

 

 

Interest rate swaps

Current assets

 

$

 -

 

Current liabilities

 

$

94,561 



The following table provides a summary of the amounts recognized in earnings for our interest rate swap agreements:







 

 

 

 



 

 

Amount of Gain (Loss) Recognized in Income on Derivatives



 

 

Three Months Ended March 31,



Location of Gain (Loss) Recognized

 

2019

Derivatives not designated as hedging instrument:

 

 

 

 

Interest rate swaps

Other (expense) income

 

$

(34,782)









Subsequent to the quarterly period ended March 31, 2019, on April 24, 2019, the Company settled the interest rate swap agreements upon issuance of $900,000 of long-term debt used to finance a portion of the purchase price of the Peoples Gas Acquisition.  The settlement resulted in a payment by the Company of $83,520.





Note 8 – Financial Instruments 

 

The Company follows the FASB’s accounting guidance for fair value measurements and disclosures, which defines fair value and establishes a framework for using fair value to measure assets and liabilities.  That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are as follows:



·

Level 1:  unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access; 

·

Level 2:  inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in non-active markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or 

·

Level 3:  inputs that are unobservable and significant to the fair value measurement. 



The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.  Valuation techniques used

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Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

need to maximize the use of observable inputs and minimize the use of unobservable inputs.  There have been no changes in the valuation techniques used to measure fair value, or asset or liability transfers between the levels of the fair value hierarchy for the quarter ended March 31, 2019. 



Financial instruments are recorded at carrying value in the financial statements and approximate fair value as of the dates presented.  The fair value of these instruments is disclosed below in accordance with current accounting guidance related to financial instruments. 



The fair value of loans payable is determined based on its carrying amount and utilizing Level 1 methods and assumptions.  As of March 31, 2019, and December 31, 2018, the carrying amount of the Company’s loans payable was $32,563 and $15,449, respectively, which equates to their estimated fair value.  The fair value of the interest rate swap agreements was determined by discounting the future net cash flows utilizing level 2 methods and assumptions.  As of March 31, 2019 and December 31, 2018, the fair value of the Company’s interest rate swap agreements represented a liability of $94,561 and $59,779, respectively.  The fair value of cash and cash equivalents, which is comprised of uninvested cash, is determined based on the net asset value per unit utilizing Level 1 methods and assumptions.  As of March 31, 2019, and December 31, 2018, the carrying amounts of the Company's cash and cash equivalents was $4,053 and $3,627, respectively, which equates to their fair value.  The Company’s assets underlying the deferred compensation and non-qualified pension plans are determined by the fair value of mutual funds, which are based on quoted market prices from active markets utilizing Level 1 methods and assumptions.  As of March 31, 2019, and December 31, 2018, the carrying amount of these securities was $22,068 and $20,388, respectively, which equates to their fair value, and is reported in the consolidated balance sheet in deferred charges and other assets. 



Unrealized gain and losses on equity securities held in conjunction with our non-qualified pension plan is as follows:







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

Net gain recognized during the period on equity securities

 

$

133 

 

$

21 

Less:  net gain / loss recognized during the period on equity securities sold during the period

 

 

 -

 

 

 -

Unrealized gain recognized during the reporting period on equity securities still held at the reporting date

 

$

133 

 

$

21 



The net gain recognized on equity securities is presented on the consolidated statements of operations on the line item “Other.” 



The carrying amounts and estimated fair values of the Company’s long-term debt is as follows:



 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2019

 

2018

Carrying amount

 

$

2,639,574 

 

$

2,563,660 

Estimated fair value

 

 

2,689,570 

 

 

2,588,086 

 



16


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

The fair value of long-term debt has been determined by discounting the future cash flows using current market interest rates for similar financial instruments of the same duration utilizing Level 2 methods and assumptions. 



The Company’s customers’ advances for construction have a carrying value of $99,186 as of March 31, 2019, and $93,343 as of December 31, 2018.  Their relative fair values cannot be accurately estimated because future refund payments depend on several variables, including new customer connections, customer consumption levels, and future rates.  Portions of these non-interest bearing instruments are payable annually through 2029 and amounts not paid by the respective contract expiration dates become non-refundable.  The fair value of these amounts would, however, be less than their carrying value due to the non-interest bearing feature.

 

Note 9 – Net Income per Common Share 

 

Basic net income per common share is based on the weighted average number of common shares outstanding.  Diluted net income per common share is based on the weighted average number of common shares outstanding and potentially dilutive shares.  The dilutive effect of employee stock-based compensation is included in the computation of diluted net income per common share.  The dilutive effect of stock-based compensation is calculated using the treasury stock method and expected proceeds upon exercise or issuance of the stock-based compensation.  The treasury stock method assumes that the proceeds from stock-based compensation are used to purchase the Company’s common stock at the average market price during the period.  The following table summarizes the shares, in thousands, used in computing basic and diluted net income per common share: 





 

 

 

 



 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

Average common shares outstanding during the period for basic computation

 

178,213 

 

177,801 

Dilutive effect of employee stock-based compensation

 

339 

 

437 

Average common shares outstanding during the period for diluted computation

 

178,552 

 

178,238 



 

 

 

 



For the three months ended March 31, 2019, employee stock options to purchase 776,211 shares of common stock were excluded from the calculations of diluted net income per share as the calculated cost to exercise the stock options was greater than the average market price of the Company’s common stock during this period.  For the three months ended March 31, 2018, all of the Company’s employee stock options were included in the calculation of diluted net income per share as the calculated cost to exercise the stock options was less than the average market price of the Company’s common stock during these periods.      

 

Note 10 – Stock-based Compensation 

 

Under the Company’s 2009 Omnibus Equity Compensation Plan, as amended as of February 27, 2014 (the “2009 Plan”), as approved by the Company’s shareholders to replace the 2004 Equity Compensation Plan (the “2004 Plan”), stock options, stock units, stock awards, stock appreciation rights, dividend

17


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

equivalents, and other stock-based awards may be granted to employees, non-employee directors, and consultants and advisors.  No further grants may be made under the 2004 Plan.  The 2009 Plan authorizes 6,250,000 shares for issuance under the plan.  A maximum of 3,125,000 shares under the 2009 Plan may be issued pursuant to stock awards, stock units and other stock-based awards, subject to adjustment as provided in the 2009 Plan.  During any calendar year, no individual may be granted (i) stock options and stock appreciation rights under the 2009 Plan for more than 500,000 shares of Company stock in the aggregate or (ii) stock awards, stock units or other stock-based awards under the 2009 Plan for more than 500,000 shares of Company stock in the aggregate, subject to adjustment as provided in the 2009 Plan.  Awards to employees and consultants under the 2009 Plan are made by a committee of the Board of Directors of the Company, except that with respect to awards to the Chief Executive Officer, the committee recommends those awards for approval by the non-employee directors of the Board of Directors.  In the case of awards to non-employee directors, the Board of Directors makes such awards.  At March 31, 2019, 2,618,037 shares were still available for issuance under the 2009 Plan.   

 

Performance Share Units – A performance share unit (“PSU”) represents the right to receive a share of the Company’s common stock if specified performance goals are met over the three-year performance period specified in the grant, subject to exceptions through the respective vesting period, which is generally three years.  Each grantee is granted a target award of PSUs, and may earn between 0% and 200% of the target amount depending on the Company’s performance against the performance goals.  The following table provides compensation costs for stock-based compensation related to PSUs: 





 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

Stock-based compensation within operations and maintenance expenses

 

$

997 

 

$

859 

Income tax benefit

 

 

227 

 

 

241 

 

The following table summarizes the PSU transactions for the three months ended March 31, 2019:   





 

 

 

 

 

 



 

 

 

 

 

 



 

 

Number

 

Weighted



 

 

of

 

Average



 

 

Share Units

 

Fair Value

Nonvested share units at beginning of period

 

 

443,410 

 

$

27.20 

Granted

 

 

 -

 

 

 -

Performance criteria adjustment

 

 

(70,064)

 

 

33.56 

Forfeited

 

 

(668)

 

 

34.21 

Share units issued

 

 

(89,324)

 

 

52.39 

Nonvested share units at end of period

 

 

283,354 

 

 

17.67 



 

 

 

 

 

 

 

 

 

A portion of the fair value of PSUs was estimated at the grant date based on the probability of satisfying the market-based conditions using the Monte Carlo valuation method, which assesses probabilities of various outcomes of market conditions.  The other portion of the fair value of the PSUs is based on the fair market value of the Company’s stock at the grant date, regardless of whether the market-based condition is satisfied.  The per unit weighted-average fair value at the date of grant for PSUs granted

18


 

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)

 

during the three months ended March 31, 2018 was $37.65.  The Company did not grant PSUs for the three months ended March 31, 2019.  The fair value of each PSU grant is amortized monthly into compensation expense on a straight-line basis over their respective vesting periods, generally 36 months.  The accrual of compensation costs is based on the Company’s estimate of the final expected value of the award, and is adjusted as required for the portion based on the performance-based condition.  The Company assumes that forfeitures will be minimal, and recognizes forfeitures as they occur, which results in a reduction in compensation expense.  As the payout of the PSUs includes dividend equivalents, no separate dividend yield assumption is required in calculating the fair value of the PSUs.  The recording of compensation expense for PSUs has no impact on net cash flows.   



Restricted Stock UnitsA restricted stock unit (“RSU”) represents the right to receive a share of the Company’s common stock.  RSUs are eligible to be earned at the end of a specified restricted period, which is generally three years, beginning on the date of grant.  The Company assumes that forfeitures will be minimal, and recognizes forfeitures as they occur, which results in a reduction in compensation expense.  As the payout of the RSUs includes dividend equivalents, no separate dividend yield assumption is required in calculating the fair value of the RSUs.  The following table provides the compensation cost and income tax benefit for stock-based compensation related to RSUs:



 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,

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