Aqua America, Inc. (NYSE: WTR) today reported record second
quarter results for the quarter ending June 30, 2011. For the
quarter, net income rose to $37.6 million from $29.9 million in the
same quarter of 2010, an increase of 26 percent. Earnings per
diluted share for the quarter were $0.27 compared to $0.22 for the
second quarter of 2010, on one percent more shares outstanding.
Revenues for the quarter were $188.2 million compared to $178.4
million in the same period of 2010, an increase of 5.5 percent.
Second quarter net income and cash generation were positively
impacted by increased sales, cost controls (improving margins), and
the net state tax benefits of $3.5 million from the 100 percent
bonus depreciation for the quarter resulting from the regulatory
treatment afforded to such items.
Income before the effect of the net state income tax benefits
associated with 100 percent bonus depreciation (a non-GAAP
financial measure) also increased substantially to $34.1 million,
or 14 percent higher than 2010 second quarter earnings. The
corresponding earnings per diluted share was $0.25, versus $0.22 in
the same period of 2010. The second quarter earnings are a record
for the second quarter for the company, before accounting for the
state bonus depreciation recognition. A reconciliation of non-GAAP
to GAAP financial measures is provided in the accompanying
financial tables.
On August 2, 2011, the Board of Directors declared a quarterly
dividend increase of $0.01 per share from $0.155 to $.165 per
share, an increase of 6.5 percent, for the December 1, 2011
quarterly dividend to all shareholders of record on November 17,
2011. On an annualized basis, this increase is equivalent to $0.66
per share or $0.04 above the current annualized dividend rate of
$0.62 per share. This was the 21st dividend increase in 20 years.
The Board of Directors also declared the regular quarterly cash
dividend payment of $0.155 per share payable on September 1, 2011
to all shareholders of record on August 17, 2011. Aqua has paid a
consecutive quarterly dividend for more than 65 years.
Aqua America Chairman and CEO Nicholas DeBenedictis said, “The
Board’s consistent action of increasing the dividend demonstrates
its continued confidence in the company’s strategic business
model.”
DeBenedictis added, “The Company’s excellent second quarter
results reflect the ability of management to limit operating costs,
while at the same time focusing on continued investments for needed
infrastructure improvements.”
Operating revenues for the first half of 2011 totaled $359.6
million, an increase of six percent from revenues of $339.0 million
for the same period in 2010. For the first two quarters of 2011,
net income increased 32 percent to $67.9 million from $51.4
million, and corresponding diluted earnings per share increased to
$0.49 from $0.38 for the same period last year. Compared to the
first half of 2010, income before the effect of the net state
income tax benefits associated with 100 percent bonus depreciation
(a non-GAAP financial measure) increased 17 percent to $60.1
million from $51.4 million, and corresponding diluted earnings per
share increased to $0.43 from $0.38 for the same period last
year.
On July 11, 2011, Aqua America announced an agreement to
purchase all of American Water Works Company, Inc.’s (NYSE: AWK)
regulated operations in Ohio, acquiring approximately $98 million
in additional rate base and 57,000 additional customers
(approximately 66 percent customer growth in Ohio), and to
simultaneously sell Aqua’s New York regulated operations, which
includes approximately $50 million in rate base including 7 water
systems, serving approximately 51,000 customers in New York to
American Water. The company expects to complete these transactions
during the first quarter of 2012 and does not expect to raise new
equity to fund the Ohio transaction. Aqua America’s sale of its New
York operations will conclude its regulated operations in that
state. This is the second transaction Aqua America has made with
American Water in the last 7 months. In June the company closed its
agreement with American Water in which Aqua America purchased
American Water’s regulated Texas operations and sold the bulk of
its regulated Missouri operations to American Water.
On July 27, 2011, Aqua America announced an agreement to sell
its regulated operations in Maine to Connecticut Water Service,
Inc. (NASDAQ:CTWS) for $53.5 million, subject to certain
adjustments at closing. Aqua’s Maine operations include 11
systems serving 16,000 customers. This transaction, which is
subject to regulatory approval, is expected to close in early
2012.
DeBenedictis said, “These transactions demonstrate the continued
commitment to our growth-through-acquisition strategy, including
states like Texas and Ohio where we are building critical mass
allowing Aqua America subsidiaries to spread their fixed costs over
more customers. This should provide more cost efficiency to help
address future rates.”
DeBenedictis added, “Ohio and Texas, in addition to our largest
state, Pennsylvania, offer opportunities for the water-energy nexus
that could have a positive impact on the future of our company. We
are prepared to take a responsible and active role in what is
becoming the next energy boom—natural gas drilling, which is a very
water intensive business that can provide an economic boost well
into the future if it’s done right environmentally. We are
currently pursuing the growth opportunities provided by the shale
drilling industry, and more importantly focusing on the “clean
water” aspects of the drilling business.”
Aqua America has continued to expand its operations and
completed six acquisitions of water or wastewater utility systems
this year. These acquisitions not only included approximately 5,300
customers added through the Texas American acquisition, but also
included the water and wastewater system assets of Colvard Farms
Subdivision in Chatham County, North Carolina which serve
approximately 400 people and two water systems in Virginia that
serve approximately 375 people in New Kent and Culpeper counties.
Tuck-in acquisitions like the ones in North Carolina and Virginia
allow the company to grow its customer base and improve economies
of scale by expanding operations to areas within, or just outside,
of existing service territories.
For the first half of 2011, operations and maintenance expenses
increased less than one percent, compared to the same period in
2010. “Through the first half of 2011, management was diligent in
working to control operating costs and they continue to focus on
limiting expense growth. I am confident in their ability to
continue to improve the operations and maintenance expense to
revenue ratio, which at 38.3 percent year-to-date compares
favorably to 40.4 percent during the same period of 2010,” said
DeBenedictis.
To date in 2011, the company has received water and wastewater
rate awards estimated to increase annualized revenues by
approximately $18 million in Pennsylvania, Indiana and Ohio,
including infrastructure surcharges in various states. The company
has approximately $25 million of rate cases pending before seven
state regulatory bodies, including rate cases in North Carolina,
Texas, and Illinois. The company expects to seek additional rate
relief by filing cases and infrastructure surcharges in seven
states later in 2011 that are expected to impact 2012 results. The
primary driver of these filings is the recovery of capital
(infrastructure) investments and increased expenses since the
companies’ previous rate filings. The timing and extent to which
rate increases might be granted by the applicable regulatory
agencies will vary by state.
As part of its capital investment plan, the company has invested
$134.4 million in infrastructure improvements through the first six
months of 2011. The company remains on track to invest record
levels of approximately $325 million, which is roughly three times
depreciation, to improve infrastructure and service reliability for
its customers.
As of June 30, 2011, Aqua America’s weighted average cost of
fixed-rate long-term debt was 5.34 percent, and the company had
$63.5 million available on its credit lines. In June Standard and
Poor’s reiterated it’s A+ credit rating for Aqua Pennsylvania,
Inc., Aqua America’s largest subsidiary.
DeBenedictis said, “I am extremely pleased with our strong
performance in the second quarter of 2011. The company was able to
achieve record financial results, while at the same time working
diligently to complete acquisitions and strategically prune
operations to enhance our long-term ability to efficiently deliver
quality water and wastewater services to our customers. In addition
to our investments in the acquisition of new systems we continue to
make significant investments in infrastructure which we are able to
increasingly fund internally through our increasing cash
generation. We look to continue to execute our long-term strategy,
which has provided the core for our earnings growth.”
The company’s conference call with financial analysts will take
place on Wednesday, August 3, 2011 at 11 a.m. Eastern Daylight
Time. The call will be webcast live so that interested parties may
listen over the Internet by logging on to www.aquaamerica.com and
following the link for Investor Relations. The conference call will
be archived in the investor relations section of the company’s Web
site for 90 days following the call. Additionally, the call will be
recorded and made available for replay at 2 p.m. on August 3, 2011
for 10 business days following the call. To access the audio replay
in the U.S., dial 888.203.1112 (pass code 7104800). International
callers can dial 719.457.0820 (pass code 7104800).
Aqua America, Inc. is a U.S.-based publicly traded water and
wastewater utility holding company, serving approximately 3 million
people in Pennsylvania, New York, Ohio, North Carolina, Illinois,
Texas, Florida, New Jersey, Indiana, Virginia, Maine, and Georgia.
Aqua America is listed on the New York Stock Exchange under the
ticker symbol WTR.
This release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including, among others, the continued impact of state tax benefit
associated with bonus depreciation on financial results throughout
2011, the expected sale of the company’s operations in Maine, the
expected sale of our New York operations and simultaneous purchase
of American Water Works’ Ohio operations, the funding of the Ohio
transaction without new equity, the expected improvement in the
operations and maintenance expense to revenue ratio, the impact of
pending rate cases, the company's plans to file future rate
increases and the timing of the impact of such cases, the amount of
capital spending by the company planned for 2011 and the increasing
funding of capital from internal cash, the continuation of the
company’s business model and strategy, and the possible positive
impact on the company of water-energy nexus opportunities. There
are important factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking
statements including: general economic business conditions; housing
and customer growth trends; unfavorable weather conditions; the
success of certain cost containment initiatives; the extent to
which rate increase requests are granted and the timing of rate
awards; changes in regulations or regulatory treatment;
availability and the cost of capital; disruptions in the credit
markets; the success of growth initiatives; and other factors
discussed in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2010, which is on file with the SEC. We
undertake no obligation to publicly update or revise any
forward-looking statement.
WTRF
Aqua America, Inc. and Subsidiaries Selected Operating Data (In
thousands, except per share amounts) (Unaudited)
Quarter Ended
Six Months Ended
June 30,
June 30,
2011
2010
2011
2010
Operating revenues $ 188,229 $ 178,444 $ 359,553 $ 338,961
Net income attributable to common shareholders $ 37,590 $
29,855 $ 67,941 $ 51,366 Basic net income per common share $
0.27 $ 0.22 $ 0.49 $ 0.38 Diluted net income per common share $
0.27 $ 0.22 $ 0.49 $ 0.38 Basic average common shares
outstanding 138,114 136,785 137,971 136,647 Diluted average common
shares outstanding 138,781 137,012 138,518
136,960 Aqua America, Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income (In
thousands, except per share amounts) (Unaudited)
Quarter Ended
Six Months Ended
June 30,
June 30,
2011
2010
2011
2010
Operating revenues $ 188,229 $ 178,444 $ 359,553 $ 338,961
Cost & expenses: Operations and maintenance 70,437
69,310 137,762 136,911 Depreciation 27,578 26,802 54,871 53,002
Amortization 1,931 3,314 3,887 6,486 Taxes other than income taxes
13,446 12,943 27,211
25,803 Total 113,392 112,369
223,731 222,202 Operating
income 74,837 66,075 135,822 116,759 Other expense (income):
Interest expense, net 20,106 18,504 40,049 36,934 Allowance for
funds used during construction (1,932 ) (1,461 ) (3,909 ) (3,002 )
Gain on sale of other assets (138 ) (110 )
(259 ) (2,039 ) Income before income taxes 56,801 49,142
99,941 84,866 Provision for income taxes 19,211
19,287 32,000 33,500 Net
income attributable to common shareholders $ 37,590 $ 29,855
$ 67,941 $ 51,366 Net income
attributable to common shareholders $ 37,590 $ 29,855 $ 67,941 $
51,366 Other comprehensive income, net of tax: Unrealized holding
gain on investments 92 - 96 902 Reclassification adjustment for
loss (gain) reported in net income (71 ) -
(73 ) (1,330 ) Comprehensive income $ 37,611 $
29,855 $ 67,964 $ 50,938 Net income per
common share: Basic $ 0.27 $ 0.22 $ 0.49 $ 0.38 Diluted $ 0.27 $
0.22 $ 0.49 $ 0.38 Average common shares outstanding: Basic
138,114 136,785 137,971
136,647 Diluted 138,781 137,012
138,518 136,960 Aqua
America, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP
Financial Measure (In thousands, except per share amounts)
(Unaudited)
This press release includes a presentation of “income before net
state income tax benefit associated with 100 percent bonus
depreciation” and “diluted income per common share before net state
income tax benefit associated with 100 percent bonus depreciation”
(net state income tax benefit associated with 100 percent bonus
depreciation is referred to herein as the “special item”). These
financial measures are measures of the Company’s operating
performance that do not comply with U.S. generally accepted
accounting principles (GAAP), and are thus considered to be
“non-GAAP financial measures” under applicable SEC regulations.
These non-GAAP financial measures are derived from our consolidated
financial information, and should only be used as a supplement to
our GAAP disclosures.
The Company is providing disclosure of the reconciliation of
these non-GAAP financial measures to the most comparable GAAP
financial measures. The Company believes that the non-GAAP
financial measures provide investors the ability to measure the
Company’s financial operating performance excluding the special
item, which is more indicative of the Company’s ongoing performance
and is more comparable to measures reported by other companies. The
Company further believes that the presentation of these non-GAAP
financial measures is useful to investors as a more meaningful way
to compare the Company’s operating performance against its
historical financial results and to assess the underlying
profitability of our core business. As currently enacted, 100
percent bonus depreciation is in effect for qualifying capital
additions placed in service from September 8, 2010 through December
31, 2011. The reconciliation of the non-GAAP financial measures to
the comparable U.S. GAAP results provided for each period are
presented below:
Aqua America, Inc. and Subsidiaries Income Excluding Net State
Income Tax Benefit Associated with 100% Bonus Depreciation (In
thousands, except per share amounts) (A Non-GAAP, Unaudited Number)
Quarter Ended
Six Months Ended
June 30,
June 30,
2011
2010
2011
2010
Net income attributable to common shareholders (GAAP
measure) $ 37,590 $ 29,855 $ 67,941 $ 51,366 Less: Net state income
tax benefit associated with 100% bonus depreciation 3,483 - 7,811 -
Income attributable to common shareholders
before net state income tax benefit associated with 100% bonus
depreciation (Non-GAAP financial measure)
$ 34,107 $ 29,855 $ 60,130 $ 51,366 Net income per common
share (GAAP measure): Basic $ 0.27 $ 0.22 $ 0.49 $ 0.38 Diluted $
0.27 $ 0.22 $ 0.49 $ 0.38
Income per common share before net state
income tax benefit associated with 100% bonus depreciation
(Non-GAAP financial measure):
Basic $ 0.25 $ 0.22 $ 0.44 $ 0.38 Diluted $ 0.25 $ 0.22 $ 0.43 $
0.38 Average common shares outstanding: Basic 138,114
136,785 137,971 136,647 Diluted 138,781
137,012 138,518 136,960 Aqua America,
Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In
thousands of dollars) (Unaudited) June 30,
December 31,
2011
2010
Net property, plant and equipment $ 3,555,852 $ 3,467,800
Current assets 178,029 146,877 Regulatory assets and other assets
459,301 457,789 $ 4,193,182 $ 4,072,466
Total equity $ 1,212,137 $ 1,174,826 Long-term debt, excluding
current portion 1,468,525 1,531,976 Current portion of long-term
debt and loans payable 209,386 118,081 Other current liabilities
97,496 105,634 Deferred credits and other liabilities
1,205,638 1,141,949 $ 4,193,182 $ 4,072,466
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