Form 10-Q
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2010
     
o   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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12(b)-2 of the Exchange Act.:
             
Large accelerated filer þ    Accelerated filero    Non-accelerated filer   o
(do not check if a smaller reporting company)
  Smaller reporting company o 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of April 19, 2010: 136,954,756
 
 

 

 


 

AQUA AMERICA, INC. AND SUBSIDIARIES
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 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
Part 1 – Financial Information
Item 1.   Financial Statements
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except per share amounts)
(UNAUDITED)
                 
    March 31,     December 31,  
    2010     2009  
Assets
               
Property, plant and equipment, at cost
  $ 4,198,936     $ 4,141,690  
Less: accumulated depreciation
    940,628       914,396  
 
           
Net property, plant and equipment
    3,258,308       3,227,294  
 
           
Current assets:
               
Cash and cash equivalents
    14,786       21,869  
Accounts receivable and unbilled revenues, net
    73,690       78,742  
Inventory, materials and supplies
    9,987       9,519  
Prepayments and other current assets
    12,029       11,441  
 
           
Total current assets
    110,492       121,571  
 
           
 
               
Regulatory assets
    224,252       226,351  
Deferred charges and other assets, net
    57,500       59,468  
Funds restricted for construction activity
    84,852       84,830  
Goodwill
    43,083       43,083  
 
           
 
  $ 3,778,487     $ 3,762,597  
 
           
Liabilities and Equity
               
Aqua America stockholders’ equity:
               
Common stock at $.50 par value, authorized 300,000,000 shares, issued 137,621,149 and 137,148,749 in 2010 and 2009
  $ 68,810     $ 68,574  
Capital in excess of par value
    647,601       642,786  
Retained earnings
    411,095       409,402  
Treasury stock, at cost, 674,056 and 662,410 shares in 2010 and 2009
    (12,314 )     (12,138 )
Accumulated other comprehensive income
    (148 )     280  
 
           
Total Aqua America stockholders’ equity
    1,115,044       1,108,904  
 
               
Noncontrolling interest
    558       560  
 
               
 
           
Total equity
    1,115,602       1,109,464  
 
           
 
               
Long-term debt, excluding current portion
    1,393,323       1,386,557  
Commitments and contingencies
           
 
               
Current liabilities:
               
Current portion of long-term debt
    35,443       59,577  
Loans payable
    64,468       27,487  
Accounts payable
    35,841       57,862  
Accrued interest
    18,496       16,265  
Accrued taxes
    26,311       18,813  
Other accrued liabilities
    23,932       21,003  
 
           
Total current liabilities
    204,491       201,007  
 
           
 
               
Deferred credits and other liabilities:
               
Deferred income taxes and investment tax credits
    411,397       408,583  
Customers’ advances for construction
    68,109       76,913  
Regulatory liabilities
    29,783       28,812  
Other
    111,080       114,490  
 
           
Total deferred credits and other liabilities
    620,369       628,798  
 
           
 
               
Contributions in aid of construction
    444,702       436,771  
 
           
 
  $ 3,778,487     $ 3,762,597  
 
           
See notes to consolidated financial statements beginning on page 7 of this report.

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(UNAUDITED)
                 
    Three Months Ended  
    March 31,  
    2010     2009  
 
               
Operating revenues
  $ 160,517     $ 154,487  
 
               
Operating expenses:
               
Operations and maintenance
    67,601       66,989  
Depreciation
    26,200       26,387  
Amortization
    3,172       2,755  
Taxes other than income taxes
    12,860       11,590  
 
           
 
    109,833       107,721  
 
           
 
               
Operating income
    50,684       46,766  
 
               
Other expense (income):
               
Interest expense, net
    18,430       16,628  
Allowance for funds used during construction
    (1,541 )     (625 )
Gain on sale of other assets
    (1,929 )     (133 )
 
           
Income before income taxes
    35,724       30,896  
Provision for income taxes
    14,213       12,525  
 
           
Net income attributable to common shareholders
  $ 21,511     $ 18,371  
 
           
 
               
Net income attributable to common shareholders
  $ 21,511     $ 18,371  
Other comprehensive income, net of tax:
               
Unrealized holding gain on investments
    902       37  
Reclassification adjustment for gain reported in net income
    (1,330 )      
 
           
Comprehensive income
  $ 21,083     $ 18,408  
 
           
 
               
Net income per common share:
               
Basic
  $ 0.16     $ 0.14  
 
           
Diluted
  $ 0.16     $ 0.14  
 
           
 
               
Average common shares outstanding during the period:
               
Basic
    136,509       135,406  
 
           
Diluted
    136,800       135,876  
 
           
 
               
Cash dividends declared per common share
  $ 0.145     $ 0.135  
 
           
See notes to consolidated financial statements beginning on page 7 of this report.

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(In thousands of dollars, except per share amounts)
(UNAUDITED)
                         
            March 31,     December 31,  
            2010     2009  
Aqua America stockholders’ equity:
                 
Common stock, $.50 par value
    $ 68,810     $ 68,574  
Capital in excess of par value
      647,601       642,786  
Retained earnings
      411,095       409,402  
Treasury stock, at cost
      (12,314 )     (12,138 )
Accumulated other comprehensive income
      (148 )     280  
 
                   
Total Aqua America stockholders’ equity
            1,115,044       1,108,904  
 
                       
Noncontrolling interest
      558       560  
 
                   
 
                       
Total equity
      1,115,602       1,109,464  
 
                   
 
                       
Long-term debt:
                 
Long-term debt of subsidiaries (substantially secured by utility plant):        
Interest Rate Range
  Maturity Date Range                
0.00% to 0.99%
    2012 to 2034       6,588       6,868  
1.00% to 1.99%
    2011 to 2035       22,004       21,917  
2.00% to 2.99%
    2019 to 2029       14,129       12,935  
3.00% to 3.99%
    2010 to 2025       27,851       28,455  
4.00% to 4.99%
    2020 to 2041       270,696       271,346  
5.00% to 5.99%
    2011 to 2043       384,854       384,694  
6.00% to 6.99%
    2011 to 2036       121,577       121,876  
7.00% to 7.99%
    2012 to 2025       30,952       31,236  
8.00% to 8.99%
    2021 to 2025       34,494       34,543  
9.00% to 9.99%
    2011 to 2026       49,489       69,983  
10.40%
    2018       6,000       6,000  
 
                   
 
            968,634       989,853  
 
                       
Notes payable to bank under revolving credit agreement, variable rate, due May 2012   68,000       64,149  
Unsecured notes payable:
                       
Notes ranging from 4.72 to 4.87%, due 2010 through 2023
  185,000       185,000  
Notes ranging from 5.01% to 5.95%, due 2013 through 2037
  207,132       207,132  
 
                   
 
            1,428,766       1,446,134  
Current portion of long-term debt   35,443       59,577  
 
                   
Long-term debt, excluding current portion   1,393,323       1,386,557  
 
                   
Total capitalization $ 2,508,925     $ 2,496,021  
 
                   
See notes to consolidated financial statements beginning on page 7 of this report.

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(In thousands of dollars)
(UNAUDITED)
                                                         
                                    Accumulated              
            Capital in                     Other              
    Common     Excess of     Retained     Treasury     Comprehensive     Noncontrolling        
    Stock     Par Value     Earnings     Stock     Income     Interest     Total  
Balance at December 31, 2009
  $ 68,574     $ 642,786     $ 409,402     $ (12,138 )   $ 280     $ 560     $ 1,109,464  
Net income
                21,511                   (2 )     21,509  
Unrealized holding gain on investments, net of income tax of $486
                            902             902  
Reclassification adjustment for gain reported in net income, net of income tax of $716
                            (1,330 )           (1,330 )
Dividends paid
                (19,818 )                       (19,818 )
Sale of stock (187,268 shares)
    90       2,817             168                   3,075  
Repurchase of stock (19,853 shares)
                      (344 )                 (344 )
Equity compensation plan (172,788 shares)
    86       (86 )                              
Exercise of stock options (120,551 shares)
    60       1,028                               1,088  
Stock-based compensation
          946                               946  
Employee stock plan tax benefits
          110                               110  
 
                                         
Balance at March 31, 2010
  $ 68,810     $ 647,601     $ 411,095     $ (12,314 )   $ (148 )   $ 558     $ 1,115,602  
 
                                         
See notes to consolidated financial statements beginning on page 7 of this report.

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands of dollars)
(UNAUDITED)
                 
    Three Months Ended  
    March 31,  
    2010     2009  
Cash flows from operating activities:
               
Net income attributable to common shareholders
  $ 21,511     $ 18,371  
Adjustments to reconcile net income attributable to common shareholders to net cash flows from operating activities:
               
Depreciation and amortization
    29,372       29,142  
Deferred income taxes
    1,791       8,391  
Provision for doubtful accounts
    1,115       1,494  
Stock-based compensation
    946       729  
Gain on sale of other assets
    (1,929 )     (133 )
Net decrease in receivables, inventory and prepayments
    3,625       6,298  
Net increase (decrease) in payables, accrued interest, accrued taxes and other accrued liabilities
    10,886       (1,414 )
Other
    (2,860 )     (182 )
 
           
Net cash flows from operating activities
    64,457       62,696  
 
           
Cash flows from investing activities:
               
Property, plant and equipment additions, including allowance for funds used during construction of $1,541 and $625
    (67,174 )     (62,135 )
Acquisitions of utility systems and other, net
    (205 )     (290 )
Additions to funds restricted for construction activity
    (980 )     (29 )
Release of funds previously restricted for construction activity
    958       24,335  
Net proceeds from the sale of other assets
    3,031       246  
Other
    51       (758 )
 
           
Net cash flows used in investing activities
    (64,319 )     (38,631 )
 
           
Cash flows from financing activities:
               
Customers’ advances and contributions in aid of construction
    2,886       581  
Repayments of customers’ advances
    (4,290 )     (473 )
Net proceeds of short-term debt
    36,981       3,817  
Proceeds from long-term debt
    31,334       303  
Repayments of long-term debt
    (48,881 )     (1,920 )
Change in cash overdraft position
    (9,362 )     (9,741 )
Proceeds from issuing common stock
    3,075       2,879  
Proceeds from exercised stock options
    1,088       800  
Stock-based compensation windfall tax benefits
    110       72  
Repurchase of common stock
    (344 )     (300 )
Dividends paid on common stock
    (19,818 )     (18,283 )
 
           
Net cash flows used in financing activities
    (7,221 )     (22,265 )
 
           
 
               
Net (decrease) increase in cash and cash equivalents
    (7,083 )     1,800  
Cash and cash equivalents at beginning of period
    21,869       14,944  
 
           
Cash and cash equivalents at end of period
  $ 14,786     $ 16,744  
 
           
See notes to consolidated financial statements beginning on page 7 of this report.

 

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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”) at March 31, 2010, the consolidated statements of income and comprehensive income for the three months ended March 31, 2010 and 2009, the consolidated statements of cash flow for the three months ended March 31, 2010 and 2009, and the consolidated statement of equity for the three months ended March 31, 2010, are unaudited, but reflect all adjustments, consisting of only normal recurring accruals, which are, in the opinion of management, necessary to present fairly the consolidated financial position, the consolidated changes in equity, the consolidated results of operations, and the 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, 2009. The results of operations for interim periods may not be indicative of the results that may be expected for the entire year. In accordance with the preparation of the consolidated financial statements the Company evaluated subsequent events after the balance sheet date of March 31, 2010 through to the time the financial statements were filed with the Securities and Exchange Commission.
Note 2 Dispositions
The City of Fort Wayne, Indiana (“the City”) has authorized the acquisition by eminent domain of the northern portion of the utility system of one of the operating subsidiaries that the Company acquired in connection with the AquaSource acquisition in 2003. The Company challenged whether the City was following the correct legal procedures in connection with the City’s attempted condemnation, but the Indiana Supreme Court, in an opinion issued in June 2007, supported the City’s position. In October 2007, the City’s Board of Public Works approved proceeding with its process to condemn the northern portion of the Company’s utility system at a preliminary price based on the City’s valuation. The Company has filed an appeal with the Allen County Circuit Court challenging the Board of Public Works’ valuation on several bases. In November 2007, the City Council authorized the taking of the northern portion of the Company’s system and the payment of $16,911 based on the City’s valuation of this portion of the system. In January 2008, the Company reached a settlement with the City to transition the northern portion of the system in February 2008 upon receipt of the City’s initial valuation payment of $16,911. The settlement agreement specifically stated that the final valuation of the northern portion of the Company’s system will be determined through a continuation of the legal proceedings that were filed challenging the City’s valuation. On February 12, 2008, the Company turned over the northern portion of the system to the City upon receipt of the initial valuation payment. The Indiana Utility Regulatory Commission also reviewed and acknowledged the transfer of the Certificate of Territorial Authority for the northern portion of the system to the City. The proceeds received by the Company are in excess of the book value of the assets relinquished. No gain has been recognized due to the contingency over the final valuation of the assets. On March 16, 2009, oral argument was held on certain procedural aspects with respect to the valuation evidence that may be presented and whether the Company is entitled to a jury trial. Depending upon the outcome of the legal proceeding the Company may be required to refund a portion of the initial valuation payment, or may receive additional proceeds. The northern portion of the utility system relinquished represents approximately 0.50% of the Company’s total assets.

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 3 Fair Value of Financial Instruments
The carrying amount of current assets and liabilities that are considered financial instruments approximates their fair value as of the dates presented. The carrying amount and estimated fair value of the Company’s long-term debt are as follows:
                 
    March 31,     December 31,  
    2010     2009  
Carrying Amount
  $ 1,428,766     $ 1,446,134  
Estimated Fair Value
    1,371,098       1,315,954  
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. The Company’s customers’ advances for construction and related tax deposits have a carrying value of $68,109 as of March 31, 2010, and $76,913 as of December 31, 2009. 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 rate increases. Portions of these non-interest bearing instruments are payable annually through 2024 and amounts not paid by the 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.

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 4 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 options is included in the computation of diluted net income per common share. The dilutive effect of stock options is calculated using the treasury stock method and expected proceeds upon exercise of the stock options. The following table summarizes the shares, in thousands, used in computing basic and diluted net income per common share:
                 
    Three Months Ended  
    March 31,  
    2010     2009  
Average common shares outstanding during the period for basic computation
    136,509       135,406  
Dilutive effect of employee stock options
    291       470  
 
           
Average common shares outstanding during the period for diluted computation
    136,800       135,876  
 
           
For the three months ended March 31, 2010 and 2009, employee stock options to purchase 3,136,875 and 1,561,609 shares of common stock, respectively, were excluded from the calculations of diluted net income per share as the calculated proceeds from the options’ exercise were greater than the average market price of the Company’s common stock during these periods.
Note 5 Stock-based Compensation
Under the Company’s 2009 Omnibus Equity Compensation Plan (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 equivalents, and other stock-based awards may be granted to employees, non-employee directors, and consultants and advisors. The 2009 Plan authorizes 5,000,000 shares for issuance under the plan. A maximum of 50% of the shares available for issuance under the 2009 Plan may be issued as restricted stock and the maximum number of shares that may be subject to grants under the Plan to any one individual in any one year is 200,000. Awards under the 2009 Plan are made by a committee of the Board of Directors. At March 31, 2010, 4,344,675 shares underlying stock option and restricted stock awards were still available for grants under the 2009 Plan. No further grants may be made under the 2004 Plan.
Stock Options– During the three months ended March 31, 2010 and 2009, the Company recognized compensation costs associated with stock options as a component of operations and maintenance expense of $494 and $543, respectively. For the three months ended March 31, 2010 and 2009, the Company recognized income tax benefits associated with stock options in its income statement of $152 and $101, respectively. In addition, the Company capitalized compensation costs associated with stock options within property, plant and equipment of $0 and $73 during the three months ended March 31, 2010 and 2009, respectively.

 

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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 fair value of options was estimated at the grant date using the Black-Scholes option-pricing model. The per share weighted-average fair value at the date of grant for stock options granted during the three months ended March 31, 2010 and 2009 was $3.49 and $4.37 per option, respectively. The following assumptions were used in the application of this valuation model:
                 
    2010     2009  
Expected term (years)
    6.0       5.3  
Risk-free interest rate
    2.8 %     2.2 %
Expected volatility
    26.7 %     31.3 %
Dividend yield
    3.3 %     3.0 %
Historical information was the principal basis for the selection of the expected term and dividend yield. The expected volatility is based on a weighted-average combination of historical and implied volatilities over a time period that approximates the expected term of the option. The risk-free interest rate was selected based upon the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option.
The following table summarizes stock option transactions for the three months ended March 31, 2010:
                                 
            Weighted     Weighted        
            Average     Average     Aggregate  
            Exercise     Remaining     Intrinsic  
    Shares     Price     Life (years)     Value  
Options:
                               
Outstanding at beginning of period
    3,895,329     $ 19.17                  
Granted
    459,837       17.14                  
Forfeited
    (4,472 )     18.63                  
Expired
    (13,327 )     22.25                  
Exercised
    (120,551 )     9.03                  
 
                           
Outstanding at end of period
    4,216,816     $ 19.23       6.2     $ 4,223  
 
                       
 
                               
Exercisable at end of period
    3,184,694     $ 19.49       5.3     $ 4,026  
 
                       

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Restricted Stock– During the three months ended March 31, 2010 and 2009, the Company recorded stock-based compensation related to restricted stock awards as a component of operations and maintenance expense in the amounts of $452 and $186, respectively. The following table summarizes nonvested restricted stock transactions for the three months ended March 31, 2010:
                 
    Number     Weighted  
    of     Average  
    Shares     Fair Value  
 
               
Nonvested shares at beginning of period
    102,918     $ 19.73  
Granted
    172,788       17.07  
Vested
    (37,837 )     21.41  
Forfeited
           
 
           
Nonvested shares at end of period
    237,869     $ 17.53  
 
           

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 6 Pension Plans and Other Postretirement Benefits
The Company maintains qualified defined benefit pension plans, nonqualified pension plans and other postretirement benefit plans for certain of its employees. The net periodic benefit cost is based on estimated values and an extensive use of assumptions about the discount rate, expected return on plan assets, the rate of future compensation increases received by the Company’s employees, mortality, turnover, and medical costs. The following tables provide the components of net periodic benefit costs:
                 
    Pension Benefits  
    Three Months Ended  
    March 31,  
    2010     2009  
Service cost
  $ 1,172     $ 1,125  
Interest cost
    3,220       3,112  
Expected return on plan assets
    (2,796 )     (2,317 )
Amortization of transition asset
          (46 )
Amortization of prior service cost
    35       35  
Amortization of actuarial loss
    1,030       1,202  
Capitalized costs
    (797 )     (671 )
 
           
Net periodic benefit cost
  $ 1,864     $ 2,440  
 
           
                 
    Other  
    Postretirement Benefits  
    Three Months Ended  
    March 31,  
    2010     2009  
Service cost
  $ 305     $ 278  
Interest cost
    620       573  
Expected return on plan assets
    (462 )     (422 )
Amortization of transition obligation
    26       26  
Amortization of prior service cost
    (67 )     (70 )
Amortization of actuarial loss
    171       135  
Amortization of regulatory asset
    34       38  
Capitalized costs
    (121 )     (92 )
 
           
Net periodic benefit cost
  $ 506     $ 466  
 
           
The Company made cash contributions of $5,830 to its defined benefit pension plans during the first three months of 2010, and intends to make cash contributions of $5,733 to the plans during the remainder of 2010. In addition, the Company expects to make cash contributions of $1,494 for the funding of its other postretirement benefit plans during the remainder of 2010.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 7 Water and Wastewater Rates
During the first three months of 2010, the Company’s operating divisions in New York, North Carolina, and Ohio were granted base rate increases designed to increase total operating revenues on an annual basis by approximately $6,251.
On September 23, 2008, the Texas Commission on Environmental Quality (“TCEQ”) issued its final ruling with a unanimous decision approving the rate application that was filed in 2004 by the Company’s operating subsidiaries in Texas to increase rates, on an annualized basis, by $11,920 over a multi-year period beginning in 2004. The application sought to increase annual revenues in phases and was accompanied by a plan to defer and amortize a portion of the Company’s depreciation, operating and other tax expense over a similar multi-year period, such that the impact on operating income approximated the requested amount during the first years that the new rates were in effect. The Company commenced billing for the requested rates and implemented the deferral plan in 2004. As a result of the final order, the regulatory asset for the deferred operating costs and rate case expenses was set at $13,697. As of February 1, 2009, recovery of the regulatory assets for the deferred operating costs and rate case expenses began through two surcharge mechanisms. The final order was appealed to the TCEQ by two parties, and the TCEQ exercised its legal authority to take no action within the required period, therefore affirming the TCEQ’s approval decision. Thereafter, the appealing parties filed suit against the TCEQ in an effort to appeal the order. On April 15, 2010, a hearing on the appeal of TCEQ’s approval decision was held in the Travis County Texas District Court, which resulted in the TCEQ’s final order being upheld by the District Court Judge. The Travis County District Court Judge’s ruling is subject to appeal. The additional revenue billed and collected in connection with the case are subject to refund based on the outcome of any appeals. The revenue recognized and the expenses deferred by the Company reflect an estimate of the final outcome of the case. As of March 31, 2010, the Company has deferred $4,378 of operating costs and $1,099 of rate case expenses and recognized $49,881 of revenue. Based on the Company’s review of the present circumstances, no reserve is considered necessary for the revenue recognized to 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)
Note 8 Taxes Other than Income Taxes
The following table provides the components of taxes other than income taxes:
                 
    Three Months Ended  
    March 31,  
    2010     2009  
 
               
Property
  $ 6,526     $ 6,163  
Capital stock
    866       605  
Gross receipts, excise and franchise
    2,220       1,952  
Payroll
    2,149       2,079  
Other
    1,099       791  
 
           
Total taxes other than income
  $ 12,860     $ 11,590  
 
           

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 9 Segment Information
The Company has identified fifteen operating segments and has one reportable segment named the “Regulated” segment. The reportable segment is comprised of fourteen operating segments for the Company’s water and wastewater regulated utility companies which are organized by the states where we provide these services. In addition, one segment is not quantitatively significant to be reportable and is comprised of the businesses that provide on-site septic tank pumping, sludge hauling services and certain other non-regulated water and wastewater services. This segment is included as a component of “Other” in the tables below. Also included in “Other” are corporate costs that have not been allocated to the Regulated segment and intersegment eliminations.
The following tables present the Company’s segment information:
                                                 
    Three Months Ended     Three Months Ended  
    March 31, 2010     March 31, 2009  
    Regulated     Other     Consolidated     Regulated     Other     Consolidated  
Operating revenues
  $ 158,006     $ 2,511     $ 160,517     $ 151,731     $ 2,756     $ 154,487  
Operations and maintenance expense
    66,058       1,543       67,601       65,627       1,362       66,989  
Depreciation
    26,605       (405 )     26,200       26,781       (394 )     26,387  
Operating income
    49,851       833       50,684       45,433       1,333       46,766  
Interest expense, net of AFUDC
    16,223       666       16,889       15,897       106       16,003  
Gain (Loss) on sale of other assets
    (117 )     2,046       1,929       114       19       133  
Income tax
    13,844       369       14,213       12,267       258       12,525  
Net income attributable to common shareholders
    19,667       1,844       21,511       17,383       988       18,371  
Capital expenditures
    67,045       129       67,174       61,475       660       62,135  
                 
    March 31,     December 31,  
    2010     2009  
Total assets:
               
Regulated
  $ 3,717,039     $ 3,689,689  
Other and eliminations
    61,448       72,908  
 
           
Consolidated
  $ 3,778,487     $ 3,762,597  
 
           

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 10 Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board issued revised accounting guidance for variable interest entities, which replaces the quantitative approach for determining which reporting entity has a controlling financial interest in a variable interest entity with a qualitative approach that focuses on which reporting entity controls the most significant economic activities of the variable interest entity. The revised guidance is effective January 1, 2010. The Company adopted the revised guidance as required, and the adoption did not have an impact on the Company’s consolidated results of operations or consolidated financial position.

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
M ANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share amounts)
Forward-looking Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report contain, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address, among other things: our belief in our ability to renew our short-term lines of credit; the impact and the actions we may need to take if we are unable to obtain sufficient capital; the projected impact of various legal proceedings; the projected effects of recent accounting pronouncements; prospects, plans, objectives, expectations and beliefs of management, as well as information contained elsewhere in this report where statements are preceded by, followed by or include the words “believes,” “expects,” “anticipates,” “plans,” “future,” “potential,” “probably,” “predictions,”“intends,” “will,” “continue” or the negative of such terms or similar expressions. These statements are based on a number of assumptions concerning future events, and are subject to a number of uncertainties and other factors, many of which are outside our control. Actual results may differ materially from such statements for a number of reasons, including the effects of regulation, abnormal weather, changes in capital requirements and funding, acquisitions, changes to the capital markets, and our ability to assimilate acquired operations. In addition to these uncertainties or factors, our future results may be affected by the factors and risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009. We undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.
General Information
Nature of Operations - Aqua America, Inc. (“we” or “us”), a Pennsylvania corporation, is the holding company for regulated utilities providing water or wastewater services to what we estimate to be approximately 3 million people in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, New York, Florida, Indiana, Virginia, Maine, Missouri, South Carolina, and Georgia. Our largest operating subsidiary, Aqua Pennsylvania, Inc., provides water or wastewater services to approximately one-half of the total number of people we serve, which are located in the suburban areas in counties north and west of the City of Philadelphia and in 25 other counties in Pennsylvania. Our other subsidiaries provide similar services in 13 other states. In addition, we provide water and wastewater service through operating and maintenance contracts with municipal authorities and other parties close to our utility companies’ service territories as well as sludge hauling, septage and grease services and backflow prevention services.
Aqua America, Inc., which prior to its name change in 2004 was known as Philadelphia Suburban Corporation, was formed in 1968 as a holding company for its primary subsidiary, Aqua Pennsylvania, Inc., formerly known as Philadelphia Suburban Water Company. In the early 1990s we embarked on a growth through acquisition strategy focused on water and wastewater operations. Our most significant transactions to date have been the merger with Consumers Water Company in 1999, the acquisition of the regulated water and wastewater operations of AquaSource, Inc. in 2003, the acquisition of Heater Utilities, Inc. in 2004, and the acquisition of New York Water Service Corporation in 2007. Since the early 1990s, our business strategy has been primarily directed toward the regulated water and wastewater utility industry and has extended our regulated operations from southeastern Pennsylvania to include operations in 13 other states.

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Financial Condition
During the first three months of 2010, we had $67,174 of capital expenditures, repaid debt and made sinking fund contributions and other loan repayments, net of long-term debt proceeds of $17,547, and repaid $4,290 of customer advances for construction. The capital expenditures were related to improvements to treatment plants, new and rehabilitated water mains, tanks, hydrants, and service lines, well and booster improvements, and other enhancements and improvements.
At March 31, 2010, we had $14,786 of cash and cash equivalents compared to $21,869 at December 31, 2009. During the first three months of 2010, we used the proceeds from internally generated funds, the issuance of common stock, the sale of other assets, and available working capital to fund the cash requirements discussed above and to pay dividends.
At March 31, 2010, our $95,000 unsecured revolving credit facility, which expires in May 2012, had $12,257 available for borrowing. At March 31, 2010, we had short-term lines of credit of $137,000, of which $72,532 was available. One of our short-term lines of credit is an Aqua Pennsylvania $70,000 364-day unsecured revolving credit facility with two banks, which is used to provide working capital.
Our short-term lines of credit of $137,000 are subject to renewal on an annual basis. Although we believe we will be able to renew these facilities, there is no assurance that they will be renewed, or what the terms of any such renewal will be. The United States credit and liquidity crisis that started in 2008 which caused substantial volatility in capital markets, including credit markets and the banking industry, has increased the cost and significantly reduced the availability of credit from financing sources, which may continue or worsen in the future. If in the future, our credit facilities are not renewed or our short-term borrowings are called for repayment, we would have to seek alternative financing sources, although there can be no assurance that these alternative financing sources would be available on terms acceptable to us. In the event we are not able to obtain sufficient capital, we may need to reduce our capital expenditures and our ability to pursue acquisitions that we may rely on for future growth could be impaired.
The Company’s consolidated balance sheet historically has had a negative working capital position whereby routinely our current liabilities exceed our current assets. Management believes that internally generated funds along with existing credit facilities and the proceeds from the issuance of long-term debt and common stock will be adequate to provide sufficient working capital to maintain normal operations and to meet our financing requirements for the balance of the year and the reasonably foreseeable future.

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Results of Operations
Analysis of First Quarter of 2010 Compared to First Quarter of 2009
Revenues for the quarter increased $6,030 or 3.9% primarily due to additional revenues associated with increased water and wastewater rates of $4,750, additional revenues associated with increased infrastructure rehabilitation surcharges of $3,626, and additional water and wastewater revenues of $640 associated with a larger customer base due to acquisitions, offset partially by decreased water consumption as compared to the first quarter of 2009, and the loss of utility revenues of $126 associated with utility systems sold.
Operations and maintenance expenses increased by $612 or 0.9% primarily due to additional expenses resulting from the write-off of previously deferred regulatory expenses of $1,011, increases in fuel costs for our service vehicles of $246, increases in operating costs associated with acquisitions of $230, increased insurance and claims expense of $151, and normal increases in other operating costs. Offsetting these increases were decreased water production costs of $721, and decreased bad debt expense of $379. The decreased water production costs, principally power and chemicals, were associated with a decrease in water consumption.
Depreciation expense decreased $187 or 0.7% due to the effect of the additional expense of $2,037 recognized in the first quarter of 2009 resulting from a rate case adjustment related to our rate filing in North Carolina, offset by the utility plant placed in service since March 31, 2009.
Amortization increased $417 due to additional expense of $577 resulting from recovery of our costs associated with our rate filing in Texas, and the amortization of the costs associated with, and other costs being recovered in, various rate filings, offset by the effect of the additional expense recognized in the first quarter of 2009 of $394 resulting from a rate case adjustment related to our rate filing in North Carolina.
Taxes other than income taxes increased by $1,270 or 11.0% primarily due to an increase in property taxes, an increase in recoverable expenses associated with a recent rate award, an increase in gross receipts, excise and franchise taxes, and an increase in capital stock taxes for our operating subsidiary in Pennsylvania.
Interest expense increased by $1,802 or 10.8% primarily due to additional borrowings to finance capital projects, offset partially by decreased interest rates on long-term debt.
Allowance for funds used during construction (“AFUDC”) increased by $916 primarily due to an increase in the average balance of utility plant construction work in progress, to which AFUDC is applied, and an increase in short-term interest rates, which are a component of the applied AFUDC rate.

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Gain on sale of other assets totaled $1,929 in the first quarter of 2010 and $133 in the first quarter of 2009. The increase of $1,796 is principally due to a gain on the sale of an investment in the first quarter of 2010.
Our effective income tax rate was 39.8% in the first quarter of 2010 and 40.5% in the first quarter of 2009. The effective income tax rate decreased due to an increase in a tax credit for qualified domestic production activities in the first quarter of 2010 versus the same period in 2009.
Net income attributable to common shareholders for the quarter increased by $3,140 or 17.1%, in comparison to the same period in 2009 primarily as a result of the factors described above. On a diluted per share basis, earnings increased $0.02 reflecting the change in net income attributable to common shareholders and a 0.7% increase in the average number of common shares outstanding. The increase in the number of shares outstanding is primarily a result of the additional shares sold or issued through our dividend reinvestment plan, equity compensation plan, and employee stock purchase plan, and the additional shares issued in August 2009 in connection with an acquisition.
Impact of Recent Accounting Pronouncements
We describe the impact of recent accounting pronouncements in Note 10, Recent Accounting Pronouncements, of the consolidated financial statements.

 

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Item 3.   Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risks in the normal course of business, including changes in interest rates and equity prices. There have been no significant changes in our exposure to market risks since December 31, 2009. Refer to Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 for additional information.
Item 4.   Controls and Procedures
  (a)   Evaluation of Disclosure Controls and Procedures
 
      Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
 
  (b)   Changes in Internal Control over Financial Reporting
 
      No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1.   Legal Proceedings
In 2004, our subsidiaries in Texas filed an application with the Texas Commission on Environmental Quality (“TCEQ”) to increase rates over a multi-year period. On September 23, 2008, the TCEQ issued its final ruling with a unanimous decision approving this rate application. The final order had been appealed to the TCEQ by two parties, and the TCEQ has exercised its legal authority to take no action within the required period, therefore, affirming the TCEQ’s approval decision. Thereafter, the appealing parties filed suit against the TCEQ in the Travis County District Court in an effort to appeal the order. On April 15, 2010, the Travis County District Court Judge upheld the TCEQ’s final order, and this ruling is subject to appeal. In accordance with authorization from the TCEQ in 2004, our subsidiaries commenced billing for the requested rates and deferred recognition of certain expenses for financial statement purposes. In the event the TCEQ’s final order is overturned on appeal, completely or in part, we could be required to refund some or all of the revenue billed to-date, and write-off some or all of the regulatory asset for the expense deferral. For more information, see the description under the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2009, and refer to Note 7, Water and Wastewater Rates, to the Consolidated Financial Statements of Aqua America, Inc. and subsidiaries in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.

 

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The City of Fort Wayne, Indiana (“the City”) authorized the acquisition by eminent domain of the northern portion of the utility system of one of the Company’s operating subsidiaries in Indiana. We challenged whether the City was following the correct legal procedures in connection with the City’s condemnation, but the Indiana Supreme Court, in an opinion issued in June 2007, supported the City’s position. In October 2007, the City’s Board of Public Works approved proceeding with its process to condemn the northern portion of our utility system at a preliminary price based on the City’s valuation. In October 2007, we filed an appeal with the Allen County Circuit Court challenging the Board of Public Works’ valuation on several bases. In November 2007, the City Council authorized the taking of this portion of our system and the payment of $16,910,500 based on the City’s valuation of the system. In January 2008, we reached a settlement agreement with the City to transition this portion of the system in February 2008 upon receipt of the City’s initial valuation payment of $16,910,500. The settlement agreement specifically states that the final valuation of the system will be determined through a continuation of the legal proceedings that were filed challenging the City’s valuation. On February 12, 2008, we turned over the northern portion of the system to the City upon receipt of the initial valuation payment. The Indiana Utility Regulatory Commission also reviewed and acknowledged the transfer of the Certificate of Territorial Authority for the northern portion of the system to the City. The proceeds received by the Company are in excess of the book value of the assets relinquished. No gain has been recognized due to the contingency over the final valuation of the assets. On March 16, 2009, oral argument was held before the Allen County Circuit Court on certain procedural aspects with respect to the valuation evidence that may be presented and whether we are entitled to a jury trial. Depending upon the ultimate outcome of the legal proceeding in the Allen County Circuit Court we may be required to refund a portion of the initial valuation payment, or may receive additional proceeds. The northern portion of the system relinquished represented approximately 0.50% of Aqua America’s total assets.
A lawsuit was filed by a husband and wife who lived in a house abutting a percolation pond at a wastewater treatment plant owned by one of the Company’s subsidiaries, Aqua Utilities Florida, Inc., in Pasco County, Florida. The lawsuit was originally filed in August 2006 in the circuit court for the Sixth Judicial Circuit in and for Pasco County, Florida and has been amended several times by the plaintiffs. The lawsuit alleges our subsidiary was negligent in the design, operation and maintenance of the plant, resulting in bodily injury to the plaintiffs and various damages to their property. The plaintiffs filed an amended complaint in July 2008 to include additional counts alleging nuisance and strict liability. In the third quarter of 2008, approximately thirty-five additional plaintiffs, associated with approximately eight other homes in the area, filed another lawsuit with the same court making similar allegations against our subsidiary with respect to the operation of the facility. Both lawsuits have been submitted to our insurance carriers, who have reserved their rights with respect to various portions of the plaintiffs’ claims. Based on the ultimate outcome of the litigation, we may or may not have insurance coverage for parts or all of the claims. The Company continues to assess the matter and any potential losses. At this time, the Company believes that the estimated amount of any potential losses would not be material to the Company’s consolidated results of operations or consolidated financial condition.

 

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Two homeowners’ associations comprised of approximately 180 homes located next to a wastewater plant owned by one of the Company’s subsidiaries in Indiana claim that the subsidiary’s prior management, before our acquisition of the subsidiary in 2003, allegedly entered into an agreement to cease the majority of operations at the wastewater plant and to remove most of the facilities located at the plant site by April 2009. The plant treats approximately 75% of wastewater flow from the subsidiary’s 12,000 customers in the area. The Company filed a formal request for review of the purported agreement with the Indiana Utility Regulatory Commission (IURC). In September 2009, the homeowners’ associations filed suit in Allen County, Indiana Superior Court claiming breach of contract, breach of warranty, fraud, unjust enrichment, promissory estoppel and constructive fraud. If the purported agreement is ultimately determined to be valid, the subsidiary may be subject to liability to the homeowners for failure to remove the plant and/or, if the agreement is enforced, the subsidiary may be required to expand another existing plant or construct a new plant elsewhere and close and remove the existing plant. The scope of any such possible expansion or construction is difficult to determine at this time, but the construction costs for new wastewater treatment plants are estimated at anywhere from $9 to $12 per gallon of flow per day. The current plant is treating an average flow of approximately 2.3 million gallons per day. The book value of the current plant is $5,000,000. On April 26, 2010, the Company and the homeowners’ associations submitted to the IURC a settlement agreement to settle the dispute. The settlement agreement includes the payment of $2,600,000 to the homeowners’ associations, certain conditions for future plant improvements, which should not materially interfere with the operation of the plant, and the transfer of a parcel of land to the homeowners’ associations for which the Company will receive a $50,000 credit to the settlement amount. The settlement agreement is subject to approval by the membership of the homeowners’ associations and the IURC by final non-appealable order. This matter would not be covered by any of the Company’s insurance policies.

 

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There are no other pending legal proceedings to which we or any of our subsidiaries is a party or to which any of their properties is the subject that are material or are expected to have a material effect on our financial position, results of operations or cash flows.
Item 1A.   Risk Factors
There have been no material changes to the risks disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009 (“Form 10-K”) under “Part 1, Item 1A – Risk Factors.” The risks described in our Form 10-K are not the only risks facing the Company. Additional risks that we do not presently know or that we currently believe are immaterial could also impair our business, financial position, or future results and prospects.
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes Aqua America’s purchases of its common stock for the quarter ended March 31, 2010:
                                 
Issuer Purchases of Equity Securities  
                    Total     Maximum  
                    Number of     Number of  
                    Shares     Shares  
                    Purchased     that May  
                    as Part of     Yet be  
    Total             Publicly     Purchased  
    Number     Average     Announced     Under the  
    of Shares     Price Paid     Plans or     Plan or  
Period   Purchased (1)     per Share     Programs     Programs (2)  
 
                               
January 1 - 31, 2010
        $             548,278  
February 1 - 28, 2010
    19,853     $ 17.31             548,278  
March 1 - 31, 2010
        $             548,278  
 
                       
Total
    19,853     $ 17.31             548,278  
 
                       
     
(1)   These amounts consist of the following: (a) shares we purchased from employees who elected to have us withhold shares to pay certain withholding taxes upon the vesting of restricted stock awards granted to such employees; and (b) shares we purchased from employees who elected to pay the exercise price of their stock options (and then hold shares of the stock) upon exercise by delivering to us (and, thus, selling) shares of Aqua America common stock in accordance with the terms of our equity compensation plans that were previously approved by our shareholders and disclosed in our proxy statements. These features of our equity compensation plans are available to all employees who receive stock-based compensation under the plans. We purchased these shares at their fair market value, as determined by reference to the closing price of our common stock on the day of vesting of the restricted stock award or on the day prior to the option exercise.
 
(2)   On August 5, 1997, our Board of Directors authorized a common stock repurchase program that was publicly announced on August 7, 1997, for up to 1,007,351 shares. No repurchases have been made under this program since 2000. The program has no fixed expiration date. The number of shares authorized for purchase was adjusted as a result of the stock splits effected in the form of stock distributions since the authorization date.

 

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AQUA AMERICA, INC. AND SUBSIDIARIES
Item 6.   Exhibits
         
Exhibit No.   Description
       
 
  31.1    
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934.
       
 
  31.2    
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934.
       
 
  32.1    
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350.
       
 
  32.2    
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.

 

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Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be executed on its behalf by the undersigned thereunto duly authorized.
             
May 7, 2010
           
    Aqua America, Inc.
     
 
  Registrant
 
           
    Nicholas DeBenedictis
     
        Nicholas DeBenedictis
        Chairman, President and
        Chief Executive Officer
 
           
    David P. Smeltzer
     
        David P. Smeltzer
        Chief Financial Officer

 

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Table of Contents

EXHIBIT INDEX
         
Exhibit No.   Description
       
 
  31.1    
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934.
       
 
  31.2    
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934.
       
 
  32.1    
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350.
       
 
  32.2    
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.

 

27

Exhibit 31.1
Exhibit 31.1
Certification
I, Nicholas DeBenedictis, certify that:
1.   I have reviewed this quarterly report on Form 10-Q of Aqua America, Inc.;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 7, 2010
     
 
  Nicholas DeBenedictis
 
   
 
  Nicholas DeBenedictis
 
  Chairman, President and Chief Executive Officer

 

 

Exhibit 31.2
Exhibit 31.2
Certification
I, David P. Smeltzer, certify that:
1.   I have reviewed this quarterly report on Form 10-Q of Aqua America, Inc.;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
     
Date: May 7, 2010
  David P. Smeltzer
 
   
 
  David P. Smeltzer
 
  Chief Financial Officer

 

 

Exhibit 32.1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2010 of Aqua America, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nicholas DeBenedictis, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m(a) or Section 78o(d)); and
 
(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
     
Nicholas DeBenedictis
   
 
   
Nicholas DeBenedictis
   
Chairman, President and Chief Executive Officer
   
May 7, 2010
   

 

 

Exhibit 32.2
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2010 of Aqua America, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David P. Smeltzer, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m(a) or Section 78o(d)); and
 
(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
     
David P. Smeltzer
 
   
 
   
David P. Smeltzer
   
Chief Financial Officer
   
May 7, 2010