UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005 Commission File
number 1-6659
AQUA AMERICA, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1702594
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
762 W. Lancaster Avenue, Bryn Mawr, Pennsylvania 19010-3489
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 527-8000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common stock, par value $.50 per share New York Stock Exchange, Inc.
Philadelphia Stock Exchange Inc.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes x No
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Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No x
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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 x No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12(b)-2 of the Exchange Act: Large
accelerated filer x Accelerated filer Non-accelerated filer
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Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes No x
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The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of June 30, 2005: $2,837,883,767
For purposes of determining this amount only, registrant has defined
affiliates as including (a) the executive officers named in Part I of
this 10-K report, (b) all directors of registrant, and (c) each
shareholder that has informed registrant by June 30, 2005, that it has
sole or shared voting power of 5% or more of the outstanding common
stock of registrant.
The number of shares outstanding of each of the registrant's classes of common
stock as of February 17, 2006: 129,205,090
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of registrant's 2005 Annual Report to Shareholders have
been incorporated by reference into Parts I and II of this Form 10-K
Report.
(2) Portions of the Proxy Statement, relative to the May 17, 2006
annual meeting of shareholders of registrant, to be filed within 120
days after the end of the fiscal year covered by this Form 10-K Report,
have been incorporated by reference into Part III of this Form 10-K
Report.
TABLE OF CONTENTS
Part I
Page
----
Item 1. Business 4
Item 1A. Risk Factors 14
Item 1B. Unresolved Staff Comments 17
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Part II
Item 5. Market for the Registrant's Common Stock, Related Stockholder Matters
and Purchases of Equity Securities 18
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 20
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 20
Item 9A. Controls and Procedures 20
Item 9B. Other Information 21
Part III
Item 10. Directors and Executive Officers of the Registrant 21
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 23
Item 13. Certain Relationships and Related Transactions 23
Item 14. Principal Accountant Fees and Services 24
Part IV
Item 15. Exhibits and Financial Statement Schedules 24
Signatures 25
Exhibit Index 27
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K ("10-K"), or incorporated
by reference into this 10-K, are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that are made based upon, among other things, our current
assumptions, expectations and beliefs concerning future developments and their
potential effect on us. These forward-looking statements involve risks,
uncertainties and other factors, many of which are outside our control, that may
cause our actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
these forward-looking statements. In some cases you can identify forward-looking
statements where statements are preceded by, followed by or include the words
"believes," "expects," "anticipates," "plans," "future," "potential," "probably"
or the negative of such terms or similar expressions. Forward-looking statements
in this 10-K, or incorporated by reference into this 10-K, include, but are not
limited to, statements regarding:
o projected capital expenditures and related funding requirements;
o developments, trends and consolidation in the water and wastewater
utility industries;
o dividend payment projections;
o opportunities for future acquisitions, the success of pending
acquisitions and the impact of future acquisitions;
o the capacity of our water supplies, water facilities and wastewater
facilities;
o the impact of geographic diversity on our exposure to unusual
weather;
o our capability to pursue timely rate increase requests;
o our authority to carry on our business without unduly burdensome
restrictions;
o our ability to obtain fair market value for condemned assets;
o the impact of fines and penalties;
o the development of new services and technologies by us or our
competitors;
o the availability of qualified personnel;
o the condition of our assets;
o the impact of legal proceedings;
o general economic conditions;
o acquisition-related costs and synergies; and
o the forward-looking statements contained under the heading
"Forward-Looking Statements" in the section entitled "Management's
Discussion and Analysis" from the portion of our 2005 Annual Report
to Shareholders incorporated by reference herein and made a part
hereof.
Because forward-looking statements involve risks and uncertainties, there are
important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including but
not limited to:
o changes in general economic, business and financial market
conditions;
o changes in government regulations and policies, including
environmental and public utility regulations and policies;
2
o changes in environmental conditions, including those that result in
water use restrictions;
o abnormal weather conditions;
o changes in, or unanticipated, capital requirements;
o changes in our credit rating;
o our ability to integrate businesses, technologies or services which
we may acquire;
o our ability to manage the expansion of our business;
o the extent to which we are able to develop and market new and
improved services;
o the effect of the loss of major customers;
o our ability to retain the services of key personnel and to hire
qualified personnel as we expand;
o labor disputes;
o increasing difficulties in obtaining insurance and increased cost
of insurance;
o cost overruns relating to improvements or the expansion of our
operations;
o increases in the costs of goods and services;
o civil disturbance or terroristic threats or acts; and
o changes in accounting policies.
Given these uncertainties, you should not place undue reliance on these
forward-looking statements. You should read this 10-K and the documents that we
incorporate by reference into this 10-K completely and with the understanding
that our actual future results may be materially different from what we expect.
These forward-looking statements represent our estimates and assumptions only as
of the date of this 10-K. Except for our ongoing obligations to disclose
material information under the federal securities laws, we are not obligated to
update these forward-looking statements, even though our situation may change in
the future. For further information or other factors which could affect our
financial results and such forward-looking statements, see "Risk Factors." We
qualify all of our forward-looking statements by these cautionary statements.
3
PART I
Item 1. Business
The Company
Aqua America, Inc. (referred to as "Aqua America", "we" or "us") is the holding
company for regulated utilities providing water or wastewater services to
approximately 2.5 million people in Pennsylvania, Ohio, North Carolina,
Illinois, Texas, New Jersey, Florida, Indiana, Virginia, Maine, Missouri, New
York and South Carolina. Our largest operating subsidiary, Aqua Pennsylvania,
Inc., accounts for approximately 56% of our operating revenues for 2005 and as
of December 31, 2005, provides water or wastewater services to approximately
one-half of the total number of people we serve, located in the suburban areas
north and west of the City of Philadelphia and in 22 other counties in
Pennsylvania. Our other subsidiaries provide similar services in 12 other
states. In addition, we provide water and wastewater service through operating
and maintenance contracts with municipal authorities and other parties close to
our operating companies' service territories. We are the largest U.S.-based
publicly-traded water utility based on number of people served.
The following table reports our operating revenues by principal state for the
year ended December 31, 2005:
Operating
Revenues
(000's)
---------
Pennsylvania $279,691
Ohio 39,839
Texas 37,953
Illinois 35,300
North Carolina 29,840
New Jersey 22,588
Indiana 16,867
Florida 15,286
Maine 9,418
Virginia 8,337
Other states 1,660
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$496,779
========
4
The following table indicates by customer class our operating revenues for the
year ended December 31, 2005:
Operating
Revenues
Customer class (000's)
---------
Residential water $295,473
Commercial water 73,455
Fire protection 21,861
Industrial water 18,364
Other water 28,966
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Water 438,119
Wastewater 42,176
Water and wastewater
operating contracts and other 16,484
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$496,779
========
Our customer base is diversified among residential, commercial, fire protection,
industrial, other water, wastewater customers and operating contracts and other
customers. Residential customers make up the largest component of our customer
base, with these customers representing 67% of our total water revenues.
Substantially all of our water customers are metered, which allows us to measure
and bill for our customers' water consumption. Water consumption per customer is
affected by local weather conditions during the year, especially during the late
spring and early summer in our northern U.S. service territories. In general,
during these seasons, an extended period of dry weather increases consumption,
while above average rainfall decreases water consumption. Also, an increase in
the average temperature generally causes an increase in water consumption. On
occasion, abnormally dry weather in our service areas can result in governmental
authorities declaring drought warnings and water use restrictions in the
affected areas, which could reduce water consumption. See "Water Supplies, Water
Facilities and Wastewater Facilities" for a discussion of water use restrictions
that may impact water consumption during abnormally dry weather. The geographic
diversity of our customer base reduces our exposure to extreme or unusual
weather conditions in any one area of our service territory.
Our growth in revenues over the past three years is a result of increases in our
customer base and in water rates. The majority of the increase in customer base
is due to customers added through acquisitions. During the three-year period of
2000 through 2002, our customer base increased at an annual compound rate of
3.3%. The customer growth rate in 2003 was 23.8%, and reflects the additional
customers obtained in the AquaSource acquisition on July 31, 2003. In 2004, the
customer growth rate was 11.5% and reflects the additional customers added
through the Heater and Florida Water Services acquisitions. In 2005, the
customer growth rate was 3.5%. Overall, for the five-year period of 2001 through
2005, our customer base increased at an annual compound rate of 8.9%.
Acquisitions and Water Sale Agreements
With approximately 50,000 community water systems in the U.S. (84% of which
serve less than 3,300 customers), the water industry is the most fragmented of
the major utility industries (telephone, natural gas, electric, water and
wastewater). The nation's water systems range in size from large
municipally-owned systems, such as the New York City water system that serves
approximately 9 million people, to small systems, where a few customers share a
common well. In the states where we operate, we believe there are over 22,000
public water systems of widely-varying size, with the majority of the population
being served by government-owned water systems.
5
Although not as fragmented as the water industry, the wastewater industry in the
U.S. also presents opportunities for consolidation. According to the U.S
Environmental Protection Agency's ("EPA") most recent survey of publicly-owned
wastewater treatment facilities in 2000, there are approximately 16,000 such
facilities in the nation serving approximately 72% of the U.S. population. The
remaining population represents individual homeowners with their own treatment
facilities; for example, community on-lot disposal systems and septic tank
systems. The vast majority of wastewater facilities are government-owned rather
than privately-owned. The EPA survey also indicated that there are approximately
6,600 wastewater facilities in operation or planned in the 13 states where we
operate. In 2005, we acquired a business providing on-site septic tank pumping
and other services. This business presently serves approximately 2,000 customers
in southeastern Pennsylvania and northern Delaware.
Because of the fragmented nature of the water and wastewater utility industries,
we believe that there are many potential water and wastewater system acquisition
candidates throughout the United States. We believe the factors driving
consolidation of these systems are:
o the benefits of economies of scale;
o increasingly stringent environmental regulations;
o the need for capital investment; and
o the need for technological and managerial expertise.
We are actively exploring opportunities to expand our utility operations through
acquisitions or other growth ventures. During the five-year period ended
December 31, 2005, we completed 123 acquisitions or other growth ventures.
We believe that acquisitions will continue to be an important source of growth
for us. We intend to continue to pursue acquisitions of municipally-owned and
investor-owned water and wastewater systems of all sizes that provide services
in areas adjacent to our existing service territories or in new service areas.
We engage in continuing activities with respect to potential acquisitions,
including calling on prospective sellers, performing analyses and investigations
of acquisition candidates, making preliminary acquisition proposals and
negotiating the terms of potential acquisitions.
Water Supplies, Water Facilities and Wastewater Facilities
Our water utility operations obtain their water supplies from surface water
sources such as reservoirs, lakes, ponds, rivers and streams, in addition to
obtaining water from wells and purchasing water from other water suppliers. Less
than 10% of our water sales are purchased from other suppliers. It is our policy
to obtain and maintain the permits necessary to obtain the water we distribute.
Our supplies by principal service area are as follows:
o Pennsylvania - The principal supply of water is surface water from rural
streams, rivers and reservoirs. Wells and interconnections with adjacent
municipal authorities supplement these surface supplies. There are 11 surface
water treatment plants.
o Ohio - Water supply is obtained for customers in Lake County from Lake Erie.
Customers in Mahoning County obtain their water from man-made lakes and the
Ashtabula division is supplied by purchased water obtained through an
interconnection with an adjacent water utility. Water supply is obtained for
customers in Stark and Summit counties from wells. In Trumbull County,
customers are served through an interconnection from our Pennsylvania
division.
o North Carolina - Water supply in 747 non-contiguous divisions is obtained
principally from wells, with several divisions purchasing water from
neighboring municipalities.
o Illinois - Water supply is obtained for customers in Kankakee County from the
Kankakee River and satellite wells, while customers in Vermilion County are
supplied from Lake Vermilion. In Will, Lee, Boone, Lake and Knox counties,
our customers are served from wells. In some areas, water supply is
supplemented with purchased water obtained through interconnections with
adjacent water utilities.
o Texas - Water supply in 295 non-contiguous water systems is obtained
principally from wells, supplemented in some cases by purchased water from
adjacent surface water systems.
6
o Florida - Water supply in the majority of the 70 non-contiguous divisions is
obtained principally from wells, supplemented in some cases by purchased
water from adjacent surface water systems.
o New Jersey - Water supply is obtained principally from wells and the supply
is supplemented with purchased water obtained through interconnections with
adjacent water utilities.
o Indiana - Water supply in three water systems is obtained principally from
wells.
o Virginia - Water supply in 127 non-contiguous divisions is obtained from
wells, one division's supply is from surface water, and four divisions
supplement their supply with purchased water from a nearby water system.
o Maine - Eleven non-contiguous water systems obtain their water supply as
follows: six systems use groundwater, four systems use surface water and one
system purchases water from a neighboring municipal district.
We believe that the capacities of our sources of supply, and our water
treatment, pumping and distribution facilities are generally sufficient to meet
the present requirements of our customers under normal conditions. We plan
system improvements and additions to capacity in response to changing regulatory
standards, changing patterns of consumption and increased demand from a growing
number of customers. The various state public utility commissions have generally
recognized the operating and capital costs associated with these improvements in
setting water rates.
On occasion, drought warnings and water use restrictions are issued by
governmental authorities for portions of our service territories in response to
extended periods of dry weather conditions. The timing and duration of the
warnings and restrictions can have an impact on our water revenues and net
income. In general, water consumption in the summer months is affected by
drought warnings and restrictions to a higher degree because nonessential and
recreational use of water is at its highest during the summer months. At other
times of the year, warnings and restrictions generally have less of an effect on
water consumption.
We believe that our wastewater treatment facilities are generally adequate to
meet the present requirements of our customers. In addition, we own several
sewer collection systems where the wastewater is treated at a municipally-owned
facility. Capital funds are included in our capital plans to address inflow and
infiltration in the collection systems, and wet weather flows at our lift
stations and treatment plants, and other conditions and requirements that can
affect compliance. Changes in regulatory requirements may be reflected in
revised permit limits and conditions when National Pollution Discharge
Elimination System ("NPDES") permits are renewed, typically on a five-year
cycle. Capital improvements are planned and budgeted to meet anticipated changes
in regulations and needs for increased capacity related to projected growth. The
various state public utility commissions have generally recognized the operating
and capital costs associated with these improvements in setting wastewater rates
for current customers and capacity charges for new customers.
Economic Regulation
Most of our water and wastewater utility operations are subject to regulation by
their respective state regulatory commissions, which have broad administrative
power and authority to regulate rates and charges, determine franchise areas and
conditions of service, approve acquisitions and authorize the issuance of
securities. The regulatory commissions also establish uniform systems of
accounts and approve the terms of contracts with affiliates and customers,
business combinations with other utility systems, loans and other financings,
and the franchise areas that we serve. A small number of our operations are
subject to rate regulation by county or city governments. The profitability of
our utility operations is influenced to a great extent by the timeliness and
adequacy of rate allowances we are granted by the respective regulatory
commissions or authorities in the various states in which we operate.
7
Accordingly, we maintain a rate case management capability to provide that the
tariffs of our utility operations reflect, to the extent practicable, the timely
recovery of increases in costs of operations, capital, taxes, energy, materials
and compliance with environmental regulations. We file rate increase requests to
recover the capital investments that we make in improving or replacing our
facilities and to recover expenses. In the states in which we operate, we are
subject to economic regulation by the following state regulatory commissions:
State Regulatory Commission
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Pennsylvania Pennsylvania Public Utility Commission
Ohio The Public Utilities Commission of Ohio
North Carolina North Carolina Utilities Commission
Illinois Illinois Commerce Commission
Texas Texas Commission on Environmental Quality
New Jersey New Jersey Board of Public Utilities
Florida Florida Public Service Commission
Indiana Indiana Utility Regulatory Commission
Virginia Virginia State Corporation Commission
Maine Maine Public Utilities Commission
Missouri Missouri Public Service Commission
New York New York Public Service Commission
South Carolina South Carolina Public Service Commission
Some of the states in which we acquired operations in 2004 and 2003 require
separate rate filings for each of our local systems, as compared to a single
state-wide rate filing. Between August 2003 and December 2005, we filed or were
preparing to file rate filings in over 25 jurisdictions. Due to the length of
time since the last rate increase for some acquired systems and the large amount
of capital improvements relative to the number of customers in some smaller
systems, the proposed rate increase in some of these systems may be substantial.
While each of these rate filings will proceed through the applicable regulatory
process, we can provide no assurance that the rate increases will be granted in
a timely or sufficient manner to cover the investments and expenses for which we
initially sought the rate increases. Further, there remains 116 divisions within
these recently acquired operations where we have not yet filed a rate request.
We are currently consolidating our customer service locations into three
principal call centers, implementing a common customer information system, and
upgrading our financial information systems. We expect to complete our primary
customer service initiatives by the end of 2006. Consistent with prior practice,
we have capitalized costs and services associated with the projects and expect
to recover these costs in future rates. Although we believe it is probable that
the applicable public utility commissions will allow recovery of these costs, we
can provide no assurances as to their full recoverability until the conclusion
of the applicable rate proceeding.
Five states in which we operate permit water utilities, and in some states
wastewater utilities, to add a surcharge to their water or wastewater bills to
offset the additional depreciation and capital costs associated with certain
capital expenditures related to replacing and rehabilitating infrastructure
systems. Prior to these mechanisms being approved, water and wastewater
utilities absorbed all of the depreciation and capital costs of these projects
between base rate increases without the benefit of additional revenues. The gap
between the time that a capital project is completed and the recovery of its
costs in rates is known as regulatory lag. The infrastructure rehabilitation
surcharge mechanism is intended to substantially reduce regulatory lag, which
often acted as a disincentive to water and wastewater utilities to rehabilitate
their infrastructure. In addition, our subsidiaries in certain states use a
surcharge or credit on their bill to reflect changes in certain costs, such as
changes in state tax rates, until such time as the costs are incorporated into
base rates.
Currently, Pennsylvania, Illinois, Ohio, Indiana and Missouri allow for the use
of infrastructure rehabilitation surcharges. These mechanisms typically adjust
periodically based on additional qualified capital expenditures completed or
anticipated in a future period. The infrastructure rehabilitation surcharge is
capped at a percentage of base rates, generally at 5% to 9% of base rates, and
is reset to zero when new base rates that reflect the costs of those additions
become effective or when a utility's earnings exceed a regulatory benchmark.
Infrastructure rehabilitation surcharges provided revenues of $10,186,000 in
2005, $7,817,000 in 2004 and $8,147,000 in 2003.
8
In general, we believe that Aqua America, Inc. and its subsidiaries have valid
authority, free from unduly burdensome restrictions, to enable us to carry on
our business as presently conducted in the franchised or contracted areas we now
serve. The rights to provide water or wastewater service to a particular
franchised service territory are generally non-exclusive, although the
applicable regulatory commissions usually allow only one regulated utility to
provide service to a given area. In some instances, another water utility
provides service to a separate area within the same political subdivision served
by one of our subsidiaries.
In the states where our subsidiaries operate, it is possible that portions of
our subsidiaries' operations could be acquired by municipal governments by one
or more of the following methods:
o eminent domain;
o the right of purchase given or reserved by a municipality or political
subdivision when the original franchise was granted; and
o the right of purchase given or reserved under the law of the state in which
the subsidiary was incorporated or from which it received its permit.
The price to be paid upon such an acquisition by the municipal government is
usually determined in accordance with applicable law governing the taking of
lands and other property under eminent domain. In other instances, the price may
be negotiated, fixed by appraisers selected by the parties or computed in
accordance with a formula prescribed in the law of the state or in the
particular franchise or charter. We believe that our operating subsidiaries will
be entitled to fair market value for any assets that are condemned, and we
believe the fair market value will be in excess of the book value for such
assets.
In December 2004, as a result of the settlement of a condemnation action, our
Ohio operating subsidiary sold its water utility assets within the municipal
boundaries of the City of Geneva in Ashtabula County, Ohio for net proceeds of
approximately $4,716,000, which was in excess of the book value for these
assets. The sale resulted in the recognition in the fourth quarter of 2004 of a
pre-tax gain on the sale of these assets, net of expenses, of $2,342,000. We
continue to operate this water system for the City of Geneva under an operating
contract that began upon the closing of the sale for a period through December
2006. These water utility assets represent less than 1% of Aqua America's total
assets, and the total number of customers included in the water system sold
represents less than 1% of our total customer base. The increase in earnings
associated with reinvesting the sale's proceeds and the operating income
generated by the operating contract has offset the loss of this water system's
historic contribution to income.
The City of Fort Wayne, Indiana has authorized the acquisition, by eminent
domain or otherwise, of a portion of the utility assets of one of the operating
subsidiaries that we acquired in connection with the AquaSource acquisition in
2003. We have challenged whether the City is following the correct legal
procedures in connection with the City's attempted condemnation and we have
challenged the City's valuation of this portion of our system. The portion of
the system under consideration represents approximately 1% of our total customer
base. While we continue to discuss this matter with officials from the City of
Fort Wayne, we continue to protect our interests in this proceeding.
Despite the sales and possible condemnation referred to above, our strategy
continues to be to acquire additional water and wastewater systems, maintain our
existing systems, and actively oppose efforts by municipal governments to
acquire any of our operations, particularly for less than the fair market value
of our operations or where the municipal government seeks to acquire more than
it is entitled to under the applicable law or agreement.
9
Environmental, Health and Safety Regulation
Provision of water and wastewater services is subject to regulation under the
federal Safe Drinking Water Act, the Clean Water Act and related state laws, and
under federal and state regulations issued under these laws. These laws and
regulations establish criteria and standards for drinking water and for
wastewater discharges. In addition, we are subject to federal and state laws and
other regulations relating to solid waste disposal, dam safety and other
operations. Capital expenditures and operating costs required as a result of
water quality standards and environmental requirements have been traditionally
recognized by state public utility commissions as appropriate for inclusion in
establishing rates.
Environmental compliance issues remain at various water and wastewater
facilities associated with acquired systems, including facilities acquired in
connection with the AquaSource acquisition that was completed in 2003, the
Heater and Florida Water Service acquisitions completed in 2004 and the
acquisitions of small utilities in Northeastern Pennsylvania. We believe that
the capital expenditures required to address these compliance issues have been
budgeted in our capital program and represent less than 10% of our expected
total capital expenditures over the next five years. We are parties to
agreements with regulatory agencies in Texas, Florida, Indiana, Virginia and
North Carolina under which we have committed to make certain improvements for
environmental compliance. These agreements are intended to provide the
regulators with assurance that problems covered by these agreements will be
addressed, and the agreements generally provide protection to us from fines,
penalties and other actions while corrective measures are being implemented. We
are actively working directly with state environmental officials to implement or
amend these agreements as necessary.
Safe Drinking Water Act - The Safe Drinking Water Act establishes criteria and
procedures for the U.S. Environmental Protection Agency to develop national
quality standards for drinking water. Regulations issued pursuant to the Safe
Drinking Water Act and its amendments set standards on the amount of certain
microbial and chemical contaminants and radionuclides allowable in drinking
water. Current requirements under the Safe Drinking Water Act are not expected
to have a material impact on our operations or financial condition as we have
made and are making investments to meet existing water quality standards. We
may, in the future, be required to change our method of treating drinking water
at certain sources of supply if additional regulations become effective.
The EPA's issuance of a rule regulating radon in tap water has been postponed
repeatedly since 1991. Limits for radon in tap water, if promulgated, would
probably become effective 4 or 5 years after promulgation and would likely
contain two standards to recognize cost-effective alternative approaches to
dealing with radon in indoor air. We anticipate that the higher level
established by such a rule might require treatment at a small percentage of our
wells, primarily in North Carolina, Pennsylvania and Virginia. If the states in
which we operate elect not to implement general radon reduction (Multi-Media
Mitigation) programs, then a more stringent limit for radon could apply and a
larger number of wells would be affected. We anticipate that states will adopt
Multi-Media Mitigation programs, and the capital costs to comply with this
future regulation could approximate $4,000,000 over a five year period.
The Safe Drinking Water Act provides for the regulation of radionuclides other
than radon, such as radium and uranium. The Radionuclides Rule that became
effective in December 2003 left unchanged the existing standards for gross alpha
and radium, but changed the monitoring protocol. The rule also added a maximum
contaminant level for uranium. Under the new testing protocols, some of our
smaller groundwater facilities have exceeded one or more of the radionuclide
standards and require treatment by January 2008. Treatment processes have
already been installed at twelve facilities, and approximately twenty additional
facilities will require the installation of a treatment process, replacement or
modification of a well, or other remedy. The future capital cost of compliance
is expected to be less than $5,000,000. The impact of the rulemaking is not
expected to have a material impact on our results of operations or financial
condition.
10
In order to remove or inactivate microbial organisms, rules were issued by the
EPA to improve disinfection and filtration of potable water and reduce
consumers' exposure to disinfectants and by-products of the disinfection
process. In the future, we may be required to install filtration or other
treatment, for one currently unfiltered surface water supply. The cost of this
treatment, should it be required, is not expected to exceed $5,000,000. Certain
small groundwater systems could be reclassified as being influenced by surface
water. This may require additional treatment or the development of replacement
sources of supply over time, the cost for which is not expected to exceed a
total of $1,000,000. In addition, ten small systems in Florida were recently
found to have trihalomethanes above the current maximum contaminant level.
Treatment modifications are being planned that may require capital costs of
approximately $1,500,000 over the next two years.
The EPA promulgated the Long Term 2 Enhanced Surface Water Treatment Rule and a
Stage 2 Disinfection/Disinfection By-product Rule in January 2006. These rules
will result in additional one-time special monitoring costs of approximately
$600,000 over a four-year period from 2006 to 2010. The results of the
monitoring might require modification of treatment, including capital
improvements, in year 2008 and beyond. It is not possible at this time to
reasonably project the potential impact on the capital budget, if any, from
these rules, but the impact is not expected to have a material impact on our
results of operations or financial condition.
A rule lowering the limit on arsenic was promulgated in 2001 and becomes
effective in January 2006, with a provision for further time extensions for
small systems. The rule will require installation of treatment or development of
alternative supplies at a very limited number of our groundwater sources. The
largest of these, in Pennsylvania, was equipped with treatment in 2004. A small
system in Maine was equipped with treatment in 2005. One system each in Texas
and Ohio will require treatment in 2006, and one system in North Carolina will
require treatment or replacement of a currently unused back-up well. The cost of
these remaining capital improvements to fully achieve compliance with this
regulation is not expected to exceed $500,000.
In 2000, the gasoline additive Methyl tert-Butyl Ether ("MtBE") was discovered
in a production well in one of our operating subsidiaries at levels exceeding
the state drinking water standard. The well was immediately taken out of service
and alternate water supplies were obtained. A legal settlement was reached in
2004 with the company believed to be responsible for the contamination and we
received a settlement amount of $2,000,000 to cover the cost of a permanent
replacement well, which was completed and placed in service in 2004, and to
cover our interim purchased water costs incurred. Traces of MtBE may be found
throughout the environment as the result of extensive use of MtBE as a gasoline
additive.
Clean Water Act - The Clean Water Act regulates discharges from drinking water
and wastewater treatment facilities into lakes, rivers, streams, and
groundwater. It is our policy to obtain and maintain all required permits and
approvals for the discharges from our water and wastewater facilities, and to
comply with all conditions of those permits and other regulatory requirements. A
program is in place to monitor facilities for compliance with permitting,
monitoring and reporting for wastewater discharges. From time to time, discharge
violations may occur which may result in fines. We are also parties to
compliance agreements with regulatory agencies in several states where we
operate while improvements are being made to address wastewater discharge
compliance issues. These fines and penalties, if any, are not expected to have a
material impact on our results of operations or financial condition. The
required costs to comply with the agreements previously cited are included in
our capital program, are not expected to be significant, and are expected to be
recoverable in rates.
Recent changes in wastewater regulations in the state of Missouri will require
improvements at certain of the 52 small wastewater systems we operate in that
state. We presently estimate the cost of these improvements to be approximately
$1,500,000 over the next three years.
11
Solid Waste Disposal - The handling and disposal of residuals and solid waste
generated from water and wastewater treatment facilities is governed by federal
and state laws and regulations. A program is in place to monitor our facilities
for compliance with regulatory requirements, and we do not currently anticipate
any major expenditures in connection with the handling and disposal of waste
material from our water and wastewater operations.
Dam Safety - Our subsidiaries own seventeen major dams that are subject to the
requirements of the Federal and state regulations related to dam safety. All
major dams undergo an annual engineering inspection. We believe that all
seventeen dams are structurally sound and well-maintained.
In Pennsylvania, the Department of Environmental Protection has adopted the use
of a revised formula for determining the magnitude of a probable maximum flood.
We have studied our dams to determine what improvements may be needed as a
result of this new calculation. Our initial studies identified three dams in
Pennsylvania that could require capital improvements; however, further study
reduced this to two dams needing improvements of approximately $6,000,000 in the
aggregate. Our findings have been accepted by the Department of Environmental
Protection, and design is underway for both dam improvement projects.
Construction is anticipated to be completed over the next three years, and we
believe that these capital expenditures will be recoverable in our rates.
Similarly, in Ohio, the Department of Natural Resources has adopted the use of a
revised formula. We have studied our dams in Ohio and determined that three of
the dams will require improvements. Construction began in 2005 on one of these
dams, and we believe that capital expenditures of approximately $4,600,000 in
the aggregate will be required on these dams over the next four years.
Safety Standards - Our facilities and operations may be subject to inspections
by representatives of the Occupational Safety and Health Administration from
time to time. We maintain safety policies and procedures to comply with the
Occupational Safety and Health Administration's rules and regulations, but
violations may occur from time to time, which may result in fines and penalties,
which are not expected to be material. We endeavor to correct such violations
promptly after they are brought to our attention.
Security
In light of concerns regarding security in the wake of the September 11, 2001
terrorist attacks, we have increased security measures at our facilities. These
increased security measures were not made in response to any specific threat. We
are in contact with federal, state and local authorities and industry trade
associations regarding information on possible threats and security measures for
water utility operations. The cost of the increased security measures, including
capital expenditures, is expected to be recoverable in water rates and is not
expected to have a material impact on our results of operations or financial
condition.
Employee Relations
As of December 31, 2005, we employed a total of 1,489 full-time employees. Our
subsidiaries are parties to 10 agreements with labor unions covering 428
employees that expire at various times between March 2006 and May 2009. One of
the agreements, representing 275 employees, expires in December 2006 and five
additional contracts, representing 91 employees, expire at various other times
in 2006.
12
Available Information
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission ("SEC"). You may read
and copy any document we file with the SEC at the SEC's public reference room at
100 F. Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. You may
also obtain our SEC filings from the SEC's Web site at www.sec.gov.
Our Internet Web site address is http://www.aquaamerica.com. We make available
free of charge through our Web site's Investor Relations page all of our filings
with the SEC, including our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and other information. These reports and
information are available as soon as reasonably practicable after such material
is electronically filed or furnished to the SEC.
Our Board of Directors has various committees including an audit committee, an
executive compensation and employee benefits committee and a corporate
governance committee. Each of the three committees named above has a formal
charter. We also have Corporate Governance Guidelines and a Code of Ethical
Business Conduct. Copies of these charters, guidelines and codes, and any
waivers or amendments to such codes which are applicable to our executive
officers, senior financial officers or directors, can be obtained free of charge
from our Web site, www.aquaamerica.com.
In addition, you may request a copy of the foregoing filings, charters,
guidelines and codes, and any waivers or amendments to such codes which are
applicable to our executive officers, senior financial officers or directors, at
no cost by writing or telephoning us at the following address or telephone
number:
Investor Relations Department
Aqua America, Inc.
762 W. Lancaster Avenue
Bryn Mawr, PA 19010-3489
Telephone: 610-527-8000
13
Item 1A. Risk Factors
In addition to the other information included in this Report, the following
factors should be considered in evaluating our business and future prospects.
Any of the following risks, either alone or taken together, could materially and
adversely affect our business, financial position or results of operations. If
one or more of these or other risks or uncertainties materialize, or if our
underlying assumptions prove to be incorrect, our actual results may vary
materially from what we projected. There may be additional risks that we do not
presently know or that we currently believe are immaterial which could also
impair our business or financial position.
OUR BUSINESS REQUIRES SIGNIFICANT CAPITAL EXPENDITURES AND THE RATES WE CHARGE
OUR CUSTOMERS ARE SUBJECT TO REGULATION. IF WE ARE UNABLE TO OBTAIN SUFFICIENT
CAPITAL ON REASONABLE TERMS OR OBTAIN GOVERNMENT APPROVAL OF OUR REQUESTS FOR
RATE INCREASES, OR IF APPROVED RATE INCREASES ARE UNTIMELY OR INADEQUATE TO
COVER OUR CAPITAL INVESTMENTS AND TO RECOVER EXPENSES, OUR PROFITABILITY MAY
SUFFER.
The water utility business is capital intensive. In addition to the capital
required to fund our growth through acquisition strategy, on an annual basis, we
spend significant sums for additions to or replacement of property, plant and
equipment. Our ability to maintain and meet our financial objectives is
dependent upon the availability of adequate capital and the recovery of our
capital investments through the rates we charge our customers. There is no
guarantee that we will be able to obtain sufficient capital in the future on
reasonable terms and conditions for expansion, construction and maintenance. In
the event we are unable to obtain sufficient capital, our expansion efforts
could be curtailed, which may affect our growth and may affect our future
results of operations. The rates we charge our customers are subject to approval
by the public utility commissions or similar regulatory bodies in the states in
which we operate. We file rate increase requests, from time to time, to recover
our investments in utility plant and expenses. Once a rate increase petition is
filed with a public utility commission, the ensuing administrative and hearing
process may be lengthy and costly. The timing of our rate increase requests are
therefore partially dependent upon the estimated cost of the administrative
process in relation to the investments and expenses that we hope to recover
through the rate increase to the extent approved. We can provide no assurances
that any future rate increase request will be approved by the appropriate state
public utility commission; and, if approved, we cannot guarantee that these rate
increases will be granted in a timely or sufficient manner to cover the
investments and expenses for which we initially sought the rate increase.
OUR OPERATING COSTS COULD BE SIGNIFICANTLY INCREASED IN ORDER TO COMPLY WITH NEW
OR STRICTER REGULATORY STANDARDS IMPOSED BY FEDERAL AND STATE ENVIRONMENTAL
AGENCIES.
Our water and wastewater services are governed by various federal and state
environmental protection and health and safety laws and regulations, including
the federal Safe Drinking Water Act, the Clean Water Act and similar state laws,
and federal and state regulations issued under these laws by the United States
Environmental Protection Agency and state environmental regulatory agencies.
These laws and regulations establish, among other things, criteria and standards
for drinking water and for discharges into the waters of the United States and
states. Pursuant to these laws, we are required to obtain various environmental
permits from environmental regulatory agencies for our operations. We cannot
assure you that we have been or will be at all times in total compliance with
these laws, regulations and permits. If we violate or fail to comply with these
laws, regulations or permits, we could be fined or otherwise sanctioned by
regulators. Environmental laws and regulations are complex and change
frequently. These laws, and the enforcement thereof, have tended to become more
stringent over time. While we have budgeted for future capital and operating
expenditures to maintain compliance with these laws and our permits, it is
possible that new or stricter standards could be imposed that will raise our
operating costs. Although these costs may be recovered in the form of higher
rates, there can be no assurance that the various state public utility
commissions or similar regulatory bodies that govern our business would approve
rate increases to enable us to recover such costs. In summary, we cannot assure
you that our costs of complying with, or discharging liability under, current
and future environmental and health and safety laws will not adversely affect
our business, results of operations or financial condition.
14
OUR BUSINESS IS SUBJECT TO SEASONAL FLUCTUATIONS, WHICH COULD AFFECT DEMAND FOR
OUR WATER SERVICE AND OUR REVENUES.
Demand for our water during the warmer months is generally greater than during
cooler months due primarily to additional requirements for water in connection
with irrigation systems, swimming pools, cooling systems and other outside water
use. Throughout the year, and particularly during typically warmer months,
demand will vary with temperature and rainfall levels. In the event that
temperatures during the typically warmer months are cooler than normal, or if
there is more rainfall than normal, the demand for our water may decrease and
adversely affect our revenues.
DROUGHT CONDITIONS MAY IMPACT OUR ABILITY TO SERVE OUR CURRENT AND FUTURE
CUSTOMERS, AND MAY IMPACT OUR CUSTOMERS' USE OF OUR WATER, WHICH MAY ADVERSELY
AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We depend on an adequate water supply to meet the present and future demands of
our customers. Drought conditions could interfere with our sources of water
supply and could adversely affect our ability to supply water in sufficient
quantities to our existing and future customers. An interruption in our water
supply could have a material adverse effect on our financial condition and
results of operations. Moreover, governmental restrictions on water usage during
drought conditions may result in a decreased demand for our water, even if our
water reserves are sufficient to serve our customers during these drought
conditions, which may adversely affect our revenues and earnings.
AN IMPORTANT ELEMENT OF OUR GROWTH STRATEGY IS THE ACQUISITION OF WATER AND
WASTEWATER SYSTEMS. ANY FUTURE ACQUISITIONS WE DECIDE TO UNDERTAKE MAY INVOLVE
RISKS.
An important element of our growth strategy is the acquisition and integration
of water and wastewater systems in order to broaden our current, and move into
new, service areas. We will not be able to acquire other businesses if we cannot
identify suitable acquisition opportunities or reach mutually agreeable terms
with acquisition candidates. It is our intent, when practical, to integrate any
businesses we acquire with our existing operations. The negotiation of potential
acquisitions as well as the integration of acquired businesses could require us
to incur significant costs and cause diversion of our management's time and
resources. Future acquisitions by us could result in:
o dilutive issuances of our equity securities;
o incurrence of debt and contingent liabilities;
o failure to have effective internal control over financial reporting;
o fluctuations in quarterly results; and
o other acquisition-related expenses.
Some or all of these items could have a material adverse effect on our business
and our ability to finance our business and comply with regulatory requirements.
The businesses we acquire in the future may not achieve sales and profitability
that would justify our investment, and any difficulties we encounter in the
integration process, including in the integration of controls necessary for
internal control and financial reporting, could interfere with our operations,
reduce our operating margins and adversely affect our internal controls. In
addition, as consolidation becomes more prevalent in the water and wastewater
industries, the prices for suitable acquisition candidates may increase to
unacceptable levels and limit our ability to grow through acquisitions.
15
CONTAMINATION TO OUR WATER SUPPLY MAY RESULT IN DISRUPTION IN OUR SERVICES AND
LITIGATION WHICH COULD ADVERSELY AFFECT OUR BUSINESS, OPERATING RESULTS AND
FINANCIAL CONDITION.
Our water supplies are subject to contamination, including contamination from
the development of naturally-occurring compounds, chemicals in groundwater
systems, pollution resulting from man-made sources, such as MtBE, and possible
terrorist attacks. In the event that our water supply is contaminated, we may
have to interrupt the use of that water supply until we are able to substitute
the flow of water from an uncontaminated water source. In addition, we may incur
significant costs in order to treat the contaminated source through expansion of
our current treatment facilities, or development of new treatment methods. If we
are unable to substitute water supply from an uncontaminated water source, or to
adequately treat the contaminated water source in a cost-effective manner, there
may be an adverse effect on our revenues, operating results and financial
condition. The costs we incur to decontaminate a water source or an underground
water system could be significant and could adversely affect our business,
operating results and financial condition and may not be recoverable in rates.
We could also be held liable for consequences arising out of human exposure to
hazardous substances in our water supplies or other environmental damage. For
example, private plaintiffs have the right to bring personal injury or other
toxic tort claims arising from the presence of hazardous substances in our
drinking water supplies. Our insurance policies may not be sufficient to cover
the costs of these claims.
In addition to the potential pollution of our water supply as described above,
in the wake of the September 11, 2001 terrorist attacks and the ensuing threats
to the nation's health and security, we have taken steps to increase security
measures at our facilities and heighten employee awareness of threats to our
water supply. We have also tightened our security measures regarding the
delivery and handling of certain chemicals used in our business. We have and
will continue to bear increased costs for security precautions to protect our
facilities, operations and supplies. These costs may be significant. Despite
these tightened security measures, we may not be in a position to control the
outcome of terrorist events should they occur.
WASTEWATER OPERATIONS MAY ENTAIL SIGNIFICANT RISKS.
Wastewater collection and treatment involve many risks associated with damage to
the surrounding environment. If collection or treatment systems fail or do not
operate properly, untreated or partially treated wastewater could discharge onto
property or into nearby streams and rivers, causing property damage or injury to
aquatic life, or even human life. Liabilities resulting from such damage could
materially and adversely affect the Company's results of operations and
financial condition.
WORK STOPPAGES AND OTHER LABOR RELATIONS MATTERS COULD ADVERSELY AFFECT OUR
OPERATING RESULTS.
Approximately 33% of our workforce, are unionized under ten labor contracts (or
contracts under negotiation) with labor unions, which expire over several years.
We believe our labor relations are good, but in light of rising costs for
healthcare and pensions, contract negotiations in the future may be difficult.
We are subject to a risk of work stoppages and other labor relations matters as
we negotiate with the unions to address these issues, which could affect the
Company's results of operations and financial condition. We cannot assure you
that issues with our labor forces will be resolved favorably to us in the future
or that we will not experience work stoppages.
WE DEPEND SIGNIFICANTLY ON THE SERVICES OF THE MEMBERS OF OUR MANAGEMENT TEAM,
AND THE DEPARTURE OF ANY OF THOSE PERSONS COULD CAUSE OUR OPERATING RESULTS TO
SUFFER.
Our success depends significantly on the continued individual and collective
contributions of our management team. The loss of the services of any member of
our management team or the inability to hire and retain experienced management
personnel could harm our operating results.
16
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our properties consist of transmission and distribution mains and conduits,
water and wastewater treatment plants, pumping facilities, wells, tanks, meters,
supply lines, dams, reservoirs, buildings, vehicles, land, easements, rights and
other facilities and equipment used for the operation of our systems, including
the collection, treatment, storage and distribution of water and the collection
and treatment of wastewater. Substantially all of our properties are owned by
our subsidiaries, and a substantial portion of our property is subject to liens
of mortgage or indentures. These liens secure bonds, notes and other evidences
of long-term indebtedness of our subsidiaries. For certain properties that we
acquired through the exercise of the power of eminent domain and certain other
properties we purchased, we hold title for water supply purposes only. We own,
operate and maintain several thousand miles of transmission and distribution
mains, 23 water treatment plants, and many well treatment stations and
wastewater treatment plants. Some properties are leased under long-term leases.
The following table indicates our net property, plant and equipment, in
thousands of dollars, as of December 31, 2005 in the principal states where we
operate:
Net Property,
Plant and
Equipment
----------
Pennsylvania $1,337,190
Illinois 179,391
Ohio 176,296
Texas 160,880
North Carolina 140,126
New Jersey 117,999
Indiana 95,025
Florida 56,371
Maine 40,452
Virginia 37,850
Missouri 4,755
Inter-company eliminations
and other states (66,385)
----------
$2,279,950
==========
We believe that our properties are generally maintained in good condition and in
accordance with current standards of good waterworks industry practice. We
believe that the facilities used in the operation of our business are in good
condition in terms of suitability, adequacy and utilization.
Our corporate offices are leased from Aqua Pennsylvania, Inc. and located in
Bryn Mawr, Pennsylvania.
Item 3. Legal Proceedings
There are various legal proceedings in which we are involved. Although the
results of legal proceedings cannot be predicted with certainty, there are no
pending legal proceedings to which we or any of our subsidiaries is a party or
to which any of our 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 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 2005.
17
PART II
Item 5. Market for the Registrant's Common Stock, Related Stockholder Matters
and Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange and the Philadelphia
Stock Exchange under the ticker symbol WTR. As of February 17, 2006, there were
approximately 27,457 holders of record of our common stock.
The following table shows the high and low intraday sales prices for our common
stock as reported on the New York Stock Exchange composite transactions
reporting system and the cash dividends paid per share for the periods indicated
(all per share data as presented has been adjusted for the 2005 4-for-3 common
stock split effected in the form of a stock distribution):
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-----------------------------------------------------------------
2005
---------------------------------------------------------------------------------------------------------------
Dividend paid per common share $0.0975 $0.0975 $0.0975 $0.1069 $0.3994
Dividend declared per common share 0.0975 0.0975 0.2044 - $0.3994
Price range of common stock
- high 19.37 23.24 29.15 29.22 29.22
- low 17.49 18.03 21.61 22.88 17.49
2004
---------------------------------------------------------------------------------------------------------------
Dividend paid per common share $ 0.09 $ 0.09 $ 0.09 $0.0975 $0.3675
Dividend declared per common share 0.09 0.09 0.1875 - 0.3675
Price range of common stock
- high 17.14 16.47 16.67 18.48 18.48
- low 15.00 14.24 14.18 15.58 14.18
We have paid common dividends consecutively for 61 years. Effective December 1,
2005, our Board of Directors authorized an increase of 9.6% in the dividend rate
over the amount Aqua America, Inc. paid in the previous quarter. As a result of
this authorization, beginning with the dividend payment in December 2005, the
annualized dividend rate increased to $0.4276 per share. We presently intend to
pay quarterly cash dividends in the future, on March 1, June 1, September 1 and
December 1, subject to our earnings and financial condition, regulatory
requirements and such other factors as our Board of Directors may deem relevant.
During the past five years, our common dividends paid have averaged 56.3% of net
income.
In August 2005, our Board of Directors declared a 4-for-3 common stock split
effected in the form of a 33 1/3 % stock distribution for all common shares
outstanding, to shareholders of record on November 17, 2005. The new shares were
distributed on December 1, 2005. All share and per share data for all periods
presented have been restated to give effect to the stock split.
18
The following table summarizes the Company's purchases of its common stock for
the quarter ending December 31, 2005:
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)
------ ------------ ---------- ---------- -----------
October 1-31, 2005 1,579 $ 27.55 - 548,278
November 1-30, 2005 720 $ 25.49 - 548,278
December 1-31, 2005 12,952 $ 26.71 - 548,278
------------ ---------- ---------- -----------
Total 15,251 $ 26.74 - 548,278
============ ========== ========== ===========
(1) These amounts consist of 10,656 shares we purchased from shareholders for
the fractional shares that would otherwise be issued in connection with the
December 1, 2005 stock split, and shares we purchased from our 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. This feature of our equity compensation plan
is available to all employees who receive option grants under the plan and these
shares are purchased at their fair market value, as determined by reference to
the closing price of our common stock 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.
Item 6. Selected Financial Data
The information appearing in the section captioned "Summary of Selected
Financial Data" from the portions of our 2005 Annual Report to Shareholders
filed as Exhibit 13.1 to this Form 10-K Report is incorporated by reference
herein.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information appearing in the section captioned "Management's Discussion and
Analysis" from the portions of our 2005 Annual Report to Shareholders filed as
Exhibit 13.1 to this Form 10-K Report is incorporated by reference herein.
19
Item 7A. 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. The exposure to changes in interest
rates is a result of financings through the issuance of fixed-rate, long-term
debt. Such exposure is typically related to financings between utility rate
increases, since generally our rate increases include a revenue level to allow
recovery of our current cost of capital. Interest rate risk is managed through
the use of a combination of long-term debt, which is at fixed interest rates and
short-term debt, which is at floating interest rates. As of December 31, 2005,
the debt maturities by period, in thousands of dollars, and the weighted average
interest rate for fixed-rate, long-term debt are as follows:
Fair
2006 2007 2008 2009 2010 Thereafter Total Value
---------------------------------------------------------------------------------------------------------------------
Long-term
debt (fixed rate) $24,645 $30,959 $23,651 $ 6,672 $53,884 $ 763,272 $903,083 $950,479
Weighted average
interest rate 5.74% 5.64% 5.63% 5.72% 5.44% 5.35% 5.74%
From time to time, we make investments in marketable equity securities. As a
result, we are exposed to the risk of changes in equity prices for the
"available-for-sale" marketable equity securities. As of December 31, 2005, we
owned no marketable equity securities as we sold the balance of our securities
during 2004.
Item 8. Financial Statements and Supplementary Data
Information appearing under the captions "Consolidated Statements of Income and
Comprehensive Income", "Consolidated Balance Sheets", "Consolidated Cash Flow
Statements", "Consolidated Statements of Capitalization", "Consolidated
Statements of Common Stockholders' Equity" and "Notes to Consolidated Financial
Statements" from the portions of our 2005 Annual Report to Shareholders filed as
Exhibit 13.1 to this Form 10-K Report is incorporated by reference herein. Also,
the information appearing in the sections captioned "Management's Report on
Internal Control Over Financial Reporting" and "Report of Independent Registered
Public Accounting Firm" from the portions of our 2005 Annual Report to
Shareholders filed as Exhibit 13.1 to this Form 10-K Report is incorporated by
reference herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. 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 to provide reasonable assurance 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. A
controls system cannot provide absolute assurance, however, that the objectives
of the controls system are met, and no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within a company have been detected.
(b) Management's Report on Internal Control Over Financial Reporting - The
information appearing in the section captioned "Management's Report on Internal
Control Over Financial Reporting" from the portions of our 2005 Annual Report to
Shareholders filed as Exhibit 13.1 to this Form 10-K Report is incorporated by
reference herein.
20
(c) 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.
Item 9B. Other Information
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
We make available free of charge within the Investor Relations / Corporate
Governance section of our Internet Web site, at www.aquaamerica.com, and in
print to any shareholder who requests, our Corporate Governance Guidelines, the
Charters of each Committee of our Board of Directors, and our Code of Ethical
Business Conduct. Requests for copies may be directed to Investor Relations
Department, Aqua America, Inc., 762 W. Lancaster Avenue, Bryn Mawr, PA
19010-3489. Amendments to the Code, and any grant of a waiver from a provision
of the Code requiring disclosure under applicable SEC rules will be disclosed on
the Company's Web site. The information contained on our Web site is not
incorporated by reference into this Form 10-K and should not be considered part
of this or any other report that we file with or furnish to the SEC.
Directors of the Registrant, Audit Committee, Audit Committee Financial Expert
and Filings under Section 16(a)
The information appearing in the sections captioned "Information Regarding
Nominees and Directors", "Corporate Governance" and "Section 16(a) Beneficial
Ownership Reporting Compliance" of the Proxy Statement relating to our May 17,
2006, annual meeting of shareholders, to be filed within 120 days after the end
of the fiscal year covered by this Form 10-K Report, is incorporated herein by
reference.
21
Executive Officers of the Registrant
The following table and the notes thereto set forth information with respect to
our executive officers, including their names, ages, positions with Aqua
America, Inc. and business experience during the last five years:
Position with
Name Age Aqua America, Inc. (1)
---- --- ----------------------
Nicholas DeBenedictis 60 Chairman, President and Chief Executive Officer (May 1993 to
present); President and Chief Executive Officer (July 1992 to May
1993); Chairman and Chief Executive Officer, Aqua Pennsylvania,
Inc. (July 1992 to present); President, Philadelphia Suburban Water
Company (February 1995 to January 1999) (2)
Roy H. Stahl 53 Executive Vice President and General Counsel (May 2000 to present);
Secretary (June 2001 to present); Senior Vice President and General
Counsel (April 1991 to May 2000) (3)
David P. Smeltzer 47 Senior Vice President - Finance and Chief Financial Officer
(December 1999 to present); Vice President - Finance and Chief
Financial Officer (May 1999 to December 1999); Vice President -
Rates and Regulatory Relations, Philadelphia Suburban Water Company
(March 1991 to May 1999) (4)
Richard R. Riegler 59 Senior Vice President - Engineering and Environmental Affairs
(January 1999 to present); Senior Vice President - Operations,
Philadelphia Suburban Water Company (April 1989 to January 1999) (5)
Richard D. Hugus 56 President, Southern Operations (August 2003 to present); Vice
President - Corporate Development, Pennsylvania Suburban Water
Company (March 1991 to August 2003) (6)
Karl M. Kyriss 55 President - Aqua Pennsylvania (March 2003 to present) (7)
Robert G. Liptak, Jr. 58 President, Northern Operations (March 1999 to present); President,
Consumers Pennsylvania Water Company (1980 to March 1999) (8)
Robert A. Rubin 43 Vice President, Controller and Chief Accounting Officer (May 2005
to present); Controller and Chief Accounting Officer (March 2004 to
May 2005); Controller (March 1999 to March 2004) (9)
(1) In addition to the capacities indicated, the individuals named in the above
table hold other offices or directorships with subsidiaries of the
Registrant. Officers serve at the discretion of the Board of Directors.
(2) Mr. DeBenedictis was Secretary of the Pennsylvania Department of
Environmental Resources from 1983 to 1986. From December 1986 to April 1989,
he was President of the Greater Philadelphia Chamber of Commerce. Mr.
DeBenedictis was Senior Vice President for Corporate and Public Affairs of
Philadelphia Electric Company from April 1989 to June 1992.
(3) From January 1984 to August 1985, Mr. Stahl was Corporate Counsel, from
August 1985 to May 1988 he was Vice President - Administration and Corporate
Counsel of Aqua America, Inc., and from May 1988 to April 1991 he was Vice
President and General Counsel of Aqua America, Inc..
(4) Mr. Smeltzer was Vice President - Controller of Philadelphia Suburban Water
Company from March, 1986 to March 1991.
22
(5) Mr. Riegler was Chief Engineer of Philadelphia Suburban Water Company from
1982 to 1984. He then served as Vice President and Chief Engineer from 1984
to 1986 and Vice President of Operations from 1986 to 1989.
(6) Mr. Hugus was Vice President and Treasurer of Philadelphia Suburban Water
Company from December 1988 to March 1991.
(7) Mr. Kyriss was Vice President - Northeast Region of American Water Works
Services Company from 1997 to 2003.
(8) Mr. Liptak was President of Consumers Pennsylvania Water Company from 1980
to March 1999.
(9) Mr. Rubin was Accounting Manager with Aqua America, Inc. from June 1989 to
June 1994. He then served from June 1994 to March 1999 as Assistant
Controller of Philadelphia Suburban Water Company.
Item 11. Executive Compensation
The information appearing in the sections captioned "Executive Compensation" of
the Proxy Statement relating to our May 17, 2006, annual meeting of
shareholders, to be filed within 120 days after the end of the fiscal year
covered by this Form 10-K Report, is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Ownership of Common Stock - The information appearing in the section captioned
"Ownership of Common Stock" of the Proxy Statement relating to our May 17, 2006,
annual meeting of shareholders, to be filed within 120 days after the end of the
fiscal year covered by this Form 10-K Report, is incorporated herein by
reference.
Securities Authorized for Issuance under Equity Compensation Plans - The
following table provides information for our equity compensation plan as of
December 31, 2005:
---------------------------------------------------------------------------------------------------------------
Number of securities
Number of securities remaining available for
to be issued upon Weighted-average future issuance under
exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities
Plan Category warrants and rights (a) warrants and rights (b) reflected in column (a))
---------------------------------------------------------------------------------------------------------------
Equity compensation
plans approved
by security holders 3,492,363 $13.70 4,093,297
---------------------------------------------------------------------------------------------------------------
Equity compensation
plans not approved
by security holders 0 0 0
---------------------------------------------------------------------------------------------------------------
Total 3,492,363 $13.70 4,093,297
---------------------------------------------------------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions
The information appearing in the sections captioned "Certain Relationships and
Related Transactions" of the Proxy Statement relating to our May 17, 2006,
annual meeting of shareholders, to be filed within 120 days after the end of the
fiscal year covered by this Form 10-K Report, is incorporated herein by
reference.
23
Item 14. Principal Accountant Fees and Services
The information appearing in the section captioned "Independent Registered
Public Accounting Firm - Services and Fees" of the Proxy Statement relating to
our May 17, 2006, annual meeting of shareholders, to be filed within 120 days
after the end of the fiscal year covered by this Form 10-K Report, is
incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
Financial Statements. The following is a list of our consolidated financial
statements and supplementary data incorporated by reference in Item 8 hereof:
Management's Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - December 31, 2005 and 2004
Consolidated Statements of Income and Comprehensive Income - 2005, 2004
and 2003
Consolidated Cash Flow Statements - 2005, 2004 and 2003
Consolidated Statements of Capitalization - December 31, 2005 and 2004
Consolidated Statements of Common Stockholders' Equity - December 31,
2005, 2004 and 2003
Notes to Consolidated Financial Statements
Financial Statement Schedules. All schedules to our consolidated financial
statements are omitted because they are not applicable or not required, or
because the required information is included in the consolidated financial
statements or notes thereto.
Exhibits, Including Those Incorporated by Reference. A list of exhibits filed as
part of this annual report on Form 10-K is set forth in the Exhibit Index hereto
which is incorporated herein by reference. Where so indicated by footnote,
exhibits which were previously filed are incorporated by reference. For exhibits
incorporated by reference, the location of the exhibit in the previous filing is
indicated in parentheses.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AQUA AMERICA, INC.
By NICHOLAS DEBENEDICTIS
-----------------------------------------------
Nicholas DeBenedictis
Chairman, President and Chief Executive Officer
Date: March 13, 2006
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Roy H. Stahl, Executive Vice President and
General Counsel, and David P. Smeltzer, Senior Vice President -- Finance and
Chief Financial Officer, as true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities to sign this Report filed
herewith and any or all amendments to said Report, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission granting unto said attorneys-in-fact and
agents the full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the foregoing, as to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or his
or her substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
25
NICHOLAS DEBENEDICTIS DAVID P. SMELTZER
-------------------------------------------- -----------------------------------
Nicholas DeBenedictis David P. Smeltzer
Chairman, President, Chief Executive Officer Senior Vice President - Finance and
(principal executive officer) Chief Financial Officer
and Director
ROBERT A. RUBIN MARY C. CARROLL
-------------------------------------------- -----------------------------------
Robert A. Rubin Mary C. Carroll
Principal Accounting Officer Director
RICHARD H. GLANTON LON R. GREENBERG
-------------------------------------------- -----------------------------------
Richard H. Glanton Lon R. Greenberg
Director Director
WILLIAM P. HANKOWSKY JOHN F. MCCAUGHAN
-------------------------------------------- -----------------------------------
William P. Hankowsky John F. McCaughan
Director Director
JOHN E. MENARIO DR. CONSTANTINE PAPADAKIS
-------------------------------------------- -----------------------------------
John E. Menario Dr. Constantine Papadakis
Director Director
RICHARD L. SMOOT
--------------------------------------------
Richard L. Smoot
Director
26
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3.1 Restated Articles of Incorporation (as of December 9, 2004) (20)
(Exhibit 3.1)
3.2 By-Laws, as amended (9) (Exhibit 3.2)
3.3 Amendment to Section 3.03 and addition of Section 3.17 to Bylaws
(11) (Exhibits 1 and 2)
3.4 Amendment to Section 3.03 of the Bylaws (13) (Exhibit 3.8)
3.5 Amendments to Sections 2.01(a), 2.02 and 3.08(b) of the Bylaws
(14) (Exhibit 3.10)
4.1 Indenture of Mortgage dated as of January 1, 1941 between
Philadelphia Suburban Water Company and The Pennsylvania
Company for Insurance on Lives and Granting Annuities(now
First Pennsylvania Bank, N.A.), as Trustee, with supplements
thereto through the Twentieth Supplemental Indenture dated as
of August 1, 1983 (2) (Exhibits 4.1 through 4.16)
4.2 Agreement to furnish copies of other long-term debt instruments
(1) (Exhibit 4.7)
4.3 Twenty-fourth Supplemental Indenture dated as of June 1, 1988 (3)
(Exhibit 4.5)
4.4 Twenty-fifth Supplemental Indenture dated as of January 1, 1990
(4) (Exhibit 4.6)
4.5 Twenty-sixth Supplemental Indenture dated as of November 1, 1991
(5) (Exhibit 4.12)
4.6 Twenty-eighth Supplemental Indenture dated as of April 1, 1993 (6)
(Exhibit 4.15)
4.7 Twenty-ninth Supplemental Indenture dated as of March 30, 1995 (7)
(Exhibit 4.17)
4.8 Thirtieth Supplemental Indenture dated as of August 15, 1995 (8)
(Exhibit 4.18)
4.9 Thirty-first Supplemental Indenture dated as of July 1, 1997 (10)
(Exhibit 4.22)
4.10 First Amended and Restated Rights Agreement, dated as of February
20, 2004 between Aqua America, Inc. and Equiserve Trust
Company, N.A., as Rights Agent. (22) (Exhibit 4.10)
4.11 Thirty-second Supplement Indenture, dated as of October 1, 1999
(12) (Exhibit 4.26)
4.12 Thirty-third Supplemental Indenture, dated as of November 15,
1999. (13) (Exhibit 4.27)
4.13 Revolving Credit Agreement between Philadelphia Suburban Water
Company and PNC Bank National Association, First Union
National Bank, N.A., Mellon Bank, N.A. dated as of December
22, 1999 (13) (Exhibit 4.27)
4.14 First Amendment to Revolving Credit Agreement dated as of November
28, 2000, between Philadelphia Suburban Water Company and PNC
Bank, National Association, First Union National Bank, N.A.,
Mellon Bank, N.A. dated as of December 22, 1999 (14) (Exhibit
4.19)
4.15 Second Amendment to Revolving Credit Agreement dated as of
December 18, 2001, between Philadelphia Suburban Water Company
(and its successor Pennsylvania Suburban Water Company) and
PNC Bank, National Association, Citizens Bank of Pennsylvania,
First Union National Bank, N.A., Fleet National Bank dated as
of December 22, 1999 (15) (Exhibit 4.20)
27
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
4.16 Thirty-fourth Supplemental Indenture, dated as of October 15,
2001. (15) (Exhibit 4.21)
4.17 Thirty-fifth Supplemental Indenture, dated as of January 1, 2002.
(15) (Exhibit 4.22)
4.18 Thirty-sixth Supplemental Indenture, dated as of June 1, 2002.
(17) (Exhibit 4.23)
4.19 Thirty-seventh Supplemental Indenture, dated as of December 15,
2002. (18) (Exhibit 4.23)
4.20 Credit Agreement dated as of October 25, 2002, between
Philadelphia Suburban Corporation and PNC Bank, National
Association. (18) (Exhibit 4.24)
4.21 Third Amendment to Revolving Credit Agreement dated as of December
16, 2002, between Philadelphia Suburban Water Company (and its
successor Pennsylvania Suburban Water Company) and PNC Bank,
National Association, Citizens Bank of Pennsylvania, Fleet
National Bank dated as of December 22, 1999. (18) (Exhibit
4.25)
4.22 Fourth Amendment to Revolving Credit Agreement dated as of
December 24, 2002, between Philadelphia Suburban Water Company
(and its successor Pennsylvania Suburban Water Company) and
PNC Bank, National Association, Citizens Bank of Pennsylvania,
Fleet National Bank, National City Bank dated as of December
22, 1999. (18) (Exhibit 4.26)
4.23 Note Purchase Agreement among the note purchasers and Philadelphia
Suburban Corporation, dated July 31, 2003 (19) (Exhibit 4.27)
4.24 Credit Agreement dated as of July 31, 2003, between Philadelphia
Suburban Corporation and PNC Bank, National Association (19)
(Exhibit 4.28)
4.25 Fifth Amendment to Revolving Credit Agreement dated as of December
14, 2003, between Philadelphia Suburban Water Company (and its
successor Pennsylvania Suburban Water Company) and PNC Bank,
National Association, Citizens Bank of Pennsylvania, Fleet
National Bank, National City Bank dated as of December 22,
1999. (22) (Exhibit 4.25)
4.26 Credit Agreement dated as of May 28, 2004, between Aqua America,
Inc. and PNC Bank, National Association (21) (Exhibit 4.26)
4.27 Sixth Amendment to Revolving Credit Agreement dated as of December
12, 2004 between Aqua Pennsylvania, Inc. (formerly known as
Pennsylvania Suburban Water Company, successor by merger to
Philadelphia Suburban Water Company) and PNC Bank, National
Association, Citizens Bank of Pennsylvania, Fleet National
Bank, National City Bank dated as of December 22, 1999. (25)
(Exhibit 4.27)
4.28 Thirty-eighth Supplemental Indenture, dated as of November 15,
2004. (25) (Exhibit 4.28)
4.29 Thirty-ninth Supplemental Indenture, dated as of May 1, 2005. (24)
(Exhibit 4.29)
4.30 Seventh Amendment to Revolving Credit Agreement dated as of
December 6, 2005 between Aqua Pennsylvania, Inc. (formerly
known as Pennsylvania Suburban Water Company, successor by
merger to Philadelphia Suburban Water Company) and PNC Bank,
National Association, Citizens Bank of Pennsylvania, Bank of
America, N.A. (formerly Fleet National Bank), National City
Bank dated as of December 22, 1999.
4.31 Fortieth Supplemental Indenture, dated as of December 15, 2005.
10.1 Excess Benefit Plan for Salaried Employees, effective December 1,
1989* (4) (Exhibit 10.4)
10.2 Supplemental Executive Retirement Plan, effective December 1,
1989* (4) (Exhibit 10.5)
10.3 Supplemental Executive Retirement Plan, effective March 15, 1992*
(1) (Exhibit 10.6)
10.4 Employment letter agreement with Mr. Nicholas DeBenedictis, dated
May 20, 1992* (1) (Exhibit 10.8)
28
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.5 1994 Equity Compensation Plan, as amended by Amendment effective
August 5, 2003* (22) (Exhibit 10.5)
10.6 Placement Agency Agreement between Philadelphia Suburban Water
Company and PaineWebber Incorporated dated as of March 30,
1995 (7) (Exhibit 10.12)
10.7 Bond Purchase Agreement among the Delaware County Industrial
Development Authority, Philadelphia Suburban Water Company and
Legg Mason Wood Walker, Incorporated dated August 24, 1995 (8)
(Exhibit 10.13)
10.8 Construction and Financing Agreement between the Delaware County
Industrial Development Authority and Philadelphia Suburban
Water Company dated as of August 15, 1995 (8) (Exhibit 10.14)
10.9 Philadelphia Suburban Corporation Amended and Restated Executive
Deferral Plan* (22) (Exhibit 10.9)
10.10 Philadelphia Suburban Corporation Deferred Compensation Plan
Master Trust Agreement with PNC Bank, National Association,
dated as of December 31, 1996* (9) (Exhibit 10.24)
10.11 First Amendment to Supplemental Executive Retirement Plan* (9)
(Exhibit 10.25)
10.12 Placement Agency Agreement between Philadelphia Suburban Water
Company and A.G. Edwards and Sons, Inc., Janney Montgomery
Scott Inc., HSBC Securities, Inc., and PaineWebber
Incorporated (10) (Exhibit 10.26)
10.13 The Director Deferral Plan* (22) (Exhibit 10.13)
10.14 Bond Purchase Agreement among the Delaware County Industrial
Development Authority, Philadelphia Suburban Water Company and
Commerce Capital Markets dated September 29, 1999 (12)
(Exhibit 10.37)
10.15 Construction and Financing Agreement between the Delaware County
Industrial Development Authority and Philadelphia Suburban
Water Company dated as of October 1, 1999 (12) (Exhibit 10.38)
10.16 Placement Agency Agreement between Philadelphia Suburban Water
Company and Merrill Lynch & Co., PaineWebber Incorporated,
A.G. Edwards & Sons, Inc., First Union Securities, Inc., PNC
Capital Markets, Inc. and Janney Montgomery Scott, Inc., dated
as of November 15, 1999 (13) (Exhibit 10.41)
10.17 Bond Purchase Agreement among the Delaware County Industrial
Development Authority, Philadelphia Suburban Water Company and
The GMS Group, L.L.C., dated October 23, 2001 (15) (Exhibit
10.35)
10.18 Construction and Financing Agreement between the Delaware County
Industrial Development Authority and Philadelphia Suburban
Water Company dated as of October 15, 2001 (15) (Exhibit
10.36)
10.19 Agreement among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Nicholas DeBenedictis, dated August
7, 2001* (15) (Exhibit 10.37)
29
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.20 Agreement among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Roy H. Stahl, dated August 7, 2001*
(15) (Exhibit 10.38)
10.21 Agreement among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Richard R. Riegler, dated August 7,
2001* (15) (Exhibit 10.39)
10.22 Agreement among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and David P. Smeltzer, dated August 7,
2001* (15) (Exhibit 10.40)
10.23 Agreement among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Richard D. Hugus, dated August 7,
2001* (22) (Exhibit 10.23)
10.24 2004 Annual Cash Incentive Compensation Plan* (22) (Exhibit 10.30)
10.25 Bond Purchase Agreement among the Bucks County Industrial
Development Authority, Pennsylvania Suburban Water Company and
Janney Montgomery Scott LLC, dated May 21, 2002 (17) (Exhibit
10.42)
10.26 Construction and Financing Agreement between the Bucks County
Industrial Development Authority and Pennsylvania Suburban
Water Company dated as of June 1, 2002 (17) (Exhibit 10.43)
10.27 Bond Purchase Agreement among the Delaware County Industrial
Development Authority, Pennsylvania Suburban Water Company,
and The GMS Group, L.L.C., dated December 19, 2002 (18)
(Exhibit 10.44)
10.28 Construction and Financing Agreement between the Delaware County
Industrial Development Authority and Pennsylvania Suburban
Water Company dated as of December 15, 2002 (18) (Exhibit
10.45)
10.29 2005 Annual Cash Incentive Compensation Plan* (25) (Exhibit 10.29)
10.30 2006 Annual Cash Incentive Compensation Plan*
10.31 Bond Purchase Agreement among the Northumberland County Industrial
Development Authority, Aqua Pennsylvania, Inc., and Sovereign
Securities Corporation, LLC, dated November 16, 2004. (25)
(Exhibit 10.31)
10.32 Aqua America, Inc. 2004 Equity Compensation Plan* (23)
10.33 2005 Executive Deferral Plan* (25) (Exhibit 10.33)
10.34 2005 Director Deferral Plan* (25) (Exhibit 10.34)
10.35 Non-Employee Directors' Compensation for 2006* (26) (Exhibit 10.1)
10.36 Bond Purchase Agreement among the Delaware County Industrial
Development Authority, Aqua Pennsylvania, Inc. and Sovereign
Securities Corporation, LLC, dated May 10, 2005. (24) (Exhibit
10.36)
10.37 Bond Purchase Agreement among the Delaware County Industrial
Development Authority, Aqua Pennsylvania, Inc. and Sovereign
Securities Corporation, LLC, dated December 21, 2005.
10.38 Aqua America, Inc. Dividend Reinvestment and Direct Stock Purchase
Plan* (29)
10.39 Aqua America, Inc. Amended and Restated Employee Stock Purchase
Plan*
10.40 Form of Stock Option Agreement*
10.41 2005 Salaries; Annual Incentive Compensation Earned in 2004* (27)
(Exhibit 10.1)
30
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.42 Acceleration of Payout of 2003 and 2004 Dividend Equivalent
Awards; Grants of 2005 Dividend Equivalent Awards; Performance
Criteria for Acceleration of Payout of Dividend Equivalent
Awards* (27) (Exhibit 10.2)
10.43 Vesting of Restricted Stock Granted in 2004; Grants of Restricted
Stock* (27) (Exhibit 10.3)
10.44 2006 Salaries; Annual Incentive Compensation Earned in 2005* (28)
(Exhibit 10.1)
10.45 Acceleration of Payout of 2004 and 2005 Dividend Equivalent
Awards; Grants of 2006 Dividend Equivalent Awards; Performance
Criteria for Acceleration of Payout of Dividend Equivalent
Awards* (28) (Exhibit 10.2)
10.46 Vesting of Restricted Stock Granted in 2005; Grants of Restricted
Stock* (28) (Exhibit 10.3)
13.1 Selected portions of Annual Report to Shareholders for the year
ended December 31, 2005 incorporated by reference in Annual
Report on Form 10-K for the year ended December 31, 2005.
21.1 Subsidiaries of Aqua America, Inc.
23.1 Consent of Independent Registered Public Accounting Firm -
PricewaterhouseCoopers LLP
24.1 Power of Attorney (included on signature page)
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
31
Notes -
Documents Incorporated by Reference
(1) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1992.
(2) Indenture of Mortgage dated as of January 1, 1941 with supplements thereto
through the Twentieth Supplemental Indenture dated as of August 1, 1983
were filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1983.
(3) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1988.
(4) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1989.
(5) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1991.
(6) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1993.
(7) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.
(8) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
(9) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1996.
(10) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997.
(11) Filed as an Exhibit to Form 8-K filed August 7, 1997.
(12) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
(13) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1999.
(14) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 2000.
(15) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 2001.
(16) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002.
(17) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002.
(18) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 2002.
(19) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003
(20) Filed as an Exhibit to Form 8-K filed December 9, 2004.
(21) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
June 30, 2004.
(22) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 2003.
(23) Filed as Appendix C to definitive Proxy Statement dated April 2, 2004.
(24) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
June 30, 2005.
(25) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 2004.
(26) Filed as an Exhibit to Form 8-K filed December 12, 2005.
(27) Filed as an Exhibit to Form 8-K filed March 7, 2005.
(28) Filed as an Exhibit to Form 8-K filed March 13, 2006.
(29) Filed as a Registration Statement on Form S-3 on February 18, 2005.
*Indicates management contract or compensatory plan or arrangement.
32