2015 ANNUAL REPORT
REVENUE GROWTH
PURSUANT TO 2014 RATE ORDER
$3.1M
of additional annualized revenue
35
based on 2015 connections
30
25
20
11.0%
15
increase over 2015 regulated revenue
10
* Adjusted for the condemnation of Valencia Water Company, Inc.
5
0
N
O
I
T
I
S
O
P
S
I
D
M
O
H
T
A
F
N
O
I
T
I
S
O
P
S
I
D
A
C
N
E
L
A
V
I
2004 2005 2006 2007 2008 2009 2010
2011
2012
2013
2014
2015
35
Phased in Revenue Increase
(millions USD)
30
$2.7
$2.3
$1.9
$1.6
$3.1
N
O
I
T
I
S
O
P
S
I
D
M
O
H
T
A
F
N
O
I
T
I
S
O
P
S
I
D
A
C
N
E
L
A
V
I
2004 2005 2006 2007 2008 2009 2010
$1.2
2011
2012
2013
2014
2015
2016P
2017P
2018P
2019P
2020P
2021P
$3.1
$2.7
$2.3
$1.9
$1.6
$1.2
25
3.5
20
3.0
15
10
5
0
3.5
3.0
2.5
2.0
1.5
1.0
2.5
2.0
1.5
1.0
0.5
0.0
0.35
0.5
0.34
0.33
HIGH GROWTH RETURNS TO ARIZONA
0.32
2019P
2018P
2017P
2016P
2020P
0.0
2021P
0.31
0.30
37,784
0.29
active service connections as of December 2015
0.28
0.27
0.26
0.25
0.35
4
1
0
2
R
P
A
2.9%
average annual active connection growth
over last 4 years
5
1
0
2
R
A
M
4
1
0
2
V
O
N
5
1
0
2
Y
A
M
4
1
0
2
Y
A
M
4
1
0
2
G
U
A
4
1
0
2
T
C
O
4
1
0
2
C
E
D
5
1
0
2
R
P
A
5
1
0
2
B
E
F
4
1
0
2
P
E
S
4
1
0
2
N
U
5
1
0
2
N
U
5
1
0
2
N
A
4
1
0
2
L
U
5
1
0
2
L
U
0.33
0.32
0.34
J
J
J
J
J
5
1
0
2
G
U
A
5
1
0
2
P
E
S
5
1
0
2
T
C
O
5
1
0
2
V
O
N
5
1
0
2
C
E
D
0.31
0.30
39,000
38,000
0.29
2.5%
vacancy rate (which continues to decline)
0.27
0.28
37,000
0.26
0.25
36,000
35,000
34,000
4
1
0
2
R
P
A
4
1
0
2
Y
A
M
4
1
0
2
N
U
J
4
1
0
2
L
U
J
4
1
0
2
G
U
A
4
1
0
2
P
E
S
4
1
0
2
T
C
O
4
1
0
2
V
O
N
4
1
0
2
C
E
D
5
1
0
2
N
A
J
5
1
0
2
B
E
F
5
1
0
2
R
A
M
5
1
0
2
R
P
A
5
1
0
2
Y
A
M
5
1
0
2
N
U
J
5
1
0
2
L
U
J
5
1
0
2
G
U
A
5
1
0
2
P
E
S
5
1
0
2
T
C
O
5
1
0
2
V
O
N
5
1
0
2
C
E
D
33,000
Total Connections*
Active Connections*
* Connections adjusted to reflect the condemnation of Valencia Water Company, Inc.
32,000
39,000
31,000
38,000
9
0
0
2
37,000
-
1
Q
9
0
0
2
-
2
Q
9
0
0
2
-
3
Q
9
0
0
2
-
4
Q
0
1
0
2
-
1
Q
0
1
0
2
-
2
Q
0
1
0
2
-
3
Q
0
1
0
2
-
4
Q
1
1
0
2
-
1
Q
1
1
0
2
-
2
Q
1
1
0
2
-
3
Q
1
1
0
2
-
4
Q
2
1
0
2
-
1
Q
2
1
0
2
-
2
Q
2
1
0
2
-
3
Q
2
1
0
2
-
4
Q
3
1
0
2
-
1
Q
3
1
0
2
-
2
Q
3
1
0
2
-
3
Q
3
1
0
2
-
4
Q
4
1
0
2
-
1
Q
4
1
0
2
-
2
Q
4
1
0
2
-
3
Q
4
1
0
2
-
4
Q
5
1
0
2
-
1
Q
5
1
0
2
-
2
Q
5
1
0
2
-
3
Q
5
1
0
2
-
4
Q
36,000
35,000
34,000
33,000
32,000
31,000
9
0
0
2
-
1
Q
9
0
0
2
-
2
Q
9
0
0
2
-
3
Q
9
0
0
2
-
4
Q
0
1
0
2
-
1
Q
0
1
0
2
-
2
Q
0
1
0
2
-
3
Q
0
1
0
2
-
4
Q
1
1
0
2
-
1
Q
1
1
0
2
-
2
Q
1
1
0
2
-
3
Q
1
1
0
2
-
4
Q
2
1
0
2
-
1
Q
2
1
0
2
-
2
Q
2
1
0
2
-
3
Q
2
1
0
2
-
4
Q
3
1
0
2
-
1
Q
3
1
0
2
-
2
Q
3
1
0
2
-
3
Q
3
1
0
2
-
4
Q
4
1
0
2
-
1
Q
4
1
0
2
-
2
Q
4
1
0
2
-
3
Q
4
1
0
2
-
4
Q
5
1
0
2
-
1
Q
5
1
0
2
-
2
Q
5
1
0
2
-
3
Q
5
1
0
2
-
4
Q
REGULATED
REVENUE GROWTH
23.5%
CAGR
Regulated Revenue
(millions USD)
Market
Downturn
35
30
25
20
15
10
5
0
35
30
25
20
3.5
15
3.0
10
2.5
5
N
O
I
T
I
S
O
P
S
I
D
M
O
H
T
A
F
N
O
I
T
I
S
O
P
S
I
D
A
C
N
E
L
A
V
I
2004 2005 2006 2007 2008 2009 2010
2011
2012
2013
2014
2015
N
O
I
T
I
S
O
P
S
I
D
$3.1
M
O
H
T
A
F
N
O
I
T
I
S
O
P
S
I
D
A
C
N
E
L
A
V
I
$2.7
$2.3
2011
2012
2013
2014
2015
0
2.0
DIVIDEND POLICY & HISTORY
2004 2005 2006 2007 2008 2009 2010
1.5
$1.6
$1.9
$1.2
1.0
C$0.3396
0.5
current annual dividend (paid monthly)
0.0
3.5
2016P
2017P
2018P
2019P
3.0
2.5
4.4%
dividend yield (as of 3/31/2016)
$1.6
$1.9
2.0
$2.3
$3.1
2021P
2020P
$2.7
1.5
1.0
$1.2
0.5
0.35
28.6%
0.34
0.33
increase
0.32
2016P
0.0
2017P
2018P
2019P
2020P
2021P
0.31
0.30
0.29
0.28
Annualized Dividend Amount
0.27
0.26
0.25
0.35
0.34
0.33
0.32
0.31
4
1
0
2
R
P
A
4
1
0
2
Y
A
M
4
1
0
2
N
U
J
4
1
0
2
L
U
J
4
1
0
2
G
U
A
4
1
0
2
P
E
S
4
1
0
2
T
C
O
4
1
0
2
V
O
N
4
1
0
2
C
E
D
5
1
0
2
N
A
J
5
1
0
2
B
E
F
5
1
0
2
R
A
M
5
1
0
2
R
P
A
5
1
0
2
Y
A
M
5
1
0
2
N
U
J
5
1
0
2
L
U
J
5
1
0
2
G
U
A
5
1
0
2
P
E
S
5
1
0
2
T
C
O
5
1
0
2
V
O
N
5
1
0
2
C
E
D
39,000
0.30
0.29
38,000
0.28
0.27
37,000
36,000
0.26
0.25
35,000
34,000
33,000
32,000
39,000
31,000
38,000
37,000
36,000
35,000
34,000
33,000
32,000
31,000
4
1
0
2
R
P
A
4
1
0
2
Y
A
M
4
1
0
2
N
U
J
4
1
0
2
L
U
J
4
1
0
2
G
U
A
4
1
0
2
P
E
S
4
1
0
2
T
C
O
4
1
0
2
V
O
N
4
1
0
2
C
E
D
5
1
0
2
N
A
J
5
1
0
2
B
E
F
5
1
0
2
R
A
M
5
1
0
2
R
P
A
5
1
0
2
Y
A
M
5
1
0
2
N
U
J
5
1
0
2
L
U
J
5
1
0
2
G
U
A
5
1
0
2
P
E
S
5
1
0
2
T
C
O
5
1
0
2
V
O
N
5
1
0
2
C
E
D
9
0
0
2
-
1
Q
9
0
0
2
-
2
Q
9
0
0
2
-
3
Q
9
0
0
2
-
4
Q
0
1
0
2
-
1
Q
0
1
0
2
-
2
Q
0
1
0
2
-
3
Q
0
1
0
2
-
4
Q
1
1
0
2
-
1
Q
1
1
0
2
-
2
Q
1
1
0
2
-
3
Q
1
1
0
2
-
4
Q
2
1
0
2
-
1
Q
2
1
0
2
-
2
Q
2
1
0
2
-
3
Q
2
1
0
2
-
4
Q
3
1
0
2
-
1
Q
3
1
0
2
-
2
Q
3
1
0
2
-
3
Q
3
1
0
2
-
4
Q
4
1
0
2
-
1
Q
4
1
0
2
-
2
Q
4
1
0
2
-
3
Q
4
1
0
2
-
4
Q
5
1
0
2
-
1
Q
5
1
0
2
-
2
Q
5
1
0
2
-
3
Q
5
1
0
2
-
4
Q
9
0
0
2
-
1
Q
9
0
0
2
-
2
Q
9
0
0
2
-
3
Q
9
0
0
2
-
4
Q
0
1
0
2
-
1
Q
0
1
0
2
-
2
Q
0
1
0
2
-
3
Q
0
1
0
2
-
4
Q
1
1
0
2
-
1
Q
1
1
0
2
-
2
Q
1
1
0
2
-
3
Q
1
1
0
2
-
4
Q
2
1
0
2
-
1
Q
2
1
0
2
-
2
Q
2
1
0
2
-
3
Q
2
1
0
2
-
4
Q
3
1
0
2
-
1
Q
3
1
0
2
-
2
Q
3
1
0
2
-
3
Q
3
1
0
2
-
4
Q
4
1
0
2
-
1
Q
4
1
0
2
-
2
Q
4
1
0
2
-
3
Q
4
1
0
2
-
4
Q
5
1
0
2
-
1
Q
5
1
0
2
-
2
Q
5
1
0
2
-
3
Q
5
1
0
2
-
4
Q
TABLE OF CONTENTS
Management’s Discussion & Analysis of Financial Condition
and Results of Operations - GWR Global Water Resources Corp.
3
Management’s Discussion & Analysis of Financial Condition
and Results of Operations - Global Water Resources, Inc.
12
Financial Statements - GWR Global Water Resources Corp.
Independent Auditors’ Report
Balance Sheets
Statements of Operations
Statements of Shareholders’ Equity
Statements of Cash Flows
Notes to the Financial Statements
Consolidated Financial Statements - GWR Global Water Resources, Inc.
Independent Auditors’ Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
41
42
44
45
46
47
48
58
59
61
62
63
64
65
1
2015 ANNUAL REPORT GLOBAL WATER
March 15, 2016
March 15, 2016
To Our Shareholders:
To Our Shareholders:
GWR Global Water Resources Corp. (“GWRC”) is pleased to present our management’s
discussion and analysis, along with management’s discussion and analysis of Global Water
Resources, Inc. (“GWRI”), for the year ended December 31, 2015. Because GWRI
represents the sole asset of GWRC and is not consolidated into the financial statements of
GWRC, management’s discussion and analysis of GWRI for the three and year months
ended December 31, 2015 is filed together with management’s discussion and analysis of
GWRC.
GWR Global Water Resources Corp. (“GWRC”) is pleased to present our management’s
discussion and analysis, along with management’s discussion and analysis of Global Water
Resources, Inc. (“GWRI”), for the year ended December 31, 2015. Because GWRI
represents the sole asset of GWRC and is not consolidated into the financial statements of
GWRC, management’s discussion and analysis of GWRI for the three and year months
ended December 31, 2015 is filed together with management’s discussion and analysis of
GWRC.
On behalf of the Board of Directors, management and employees of GWRC and GWRI, I
thank you for your ongoing support.
On behalf of the Board of Directors, management and employees of GWRC and GWRI, I
thank you for your ongoing support.
Warm regards,
Warm regards,
Mike Liebman
Chief Financial Officer and Corporate Secretary
Mike Liebman
Chief Financial Officer and Corporate Secretary
21410 North 19th Avenue, Suite 220, Phoenix, Arizona 85027
21410 North 19th Avenue, Suite 220, Phoenix, Arizona 85027
gwresources.com
gwresources.com
Phn
Fax
623.580.9600
Phn
623.580.9659
Fax
623.580.9600
623.580.9659
2
GLOBAL WATER 2015 ANNUAL REPORT
March 15, 2016
To Our Shareholders:
GWR Global Water Resources Corp. (“GWRC”) is pleased to present our management’s
discussion and analysis, along with management’s discussion and analysis of Global Water
Resources, Inc. (“GWRI”), for the year ended December 31, 2015. Because GWRI
represents the sole asset of GWRC and is not consolidated into the financial statements of
GWRC, management’s discussion and analysis of GWRI for the three and year months
ended December 31, 2015 is filed together with management’s discussion and analysis of
GWRC.
On behalf of the Board of Directors, management and employees of GWRC and GWRI, I
thank you for your ongoing support.
Warm regards,
Mike Liebman
Chief Financial Officer and Corporate Secretary
21410 North 19th Avenue, Suite 220, Phoenix, Arizona 85027
Phn
Fax
623.580.9600
623.580.9659
gwresources.com
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GWR GLOBAL WATER RESOURCES CORP.
The following management’s discussion and analysis of GWR Global Water Resources Corp.’s (the “Company”,
“GWRC”, “we”, or “us”) financial condition and results of operations dated March 15, 2016 relates to the years
ended December 31, 2015 and 2014 and should be read together with our audited consolidated financial statements
and related notes as of and for the years ended December 31, 2015 and 2014. Investors should also refer to the 2015
audited financial statements and the accompanying notes and the management’s discussion and analysis of Global
Water Resources, Inc. (“GWRI”) and the Company’s current annual information form, all of which are available on
the Company’s SEDAR profile at www.sedar.com. Financial information of GWRI is not consolidated with the financial
statements of GWRC.
Basis of Presentation
The financial statements of the Company have been prepared in accordance with generally accepted accounting
principles of the United States (“U.S. GAAP”) and, except where otherwise indicated, are presented in U.S. dollars.
Unless otherwise indicated, the financial information contained in this management’s discussion and analysis has been
prepared in accordance with U.S. GAAP and is expressed in U.S. dollars. References to “C$” are to Canadian dollars.
In February 2008, the Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA)
confirmed that publicly accountable enterprises would be required to convert to International Financial Reporting
Standards (IFRS) in place of Canadian generally accepted accounting principles for interim and annual reporting
purposes for fiscal years beginning on or after January 1, 2011.
In September 2010, the AcSB decided to offer an optional one year deferral for converting to IFRS for qualifying
entities with rate regulated activities and permit such entities to continue to apply Part V – Pre-changeover accounting
standards of the CICA Handbook during that period. The Company is a qualifying entity for purposes of this deferral
which we elected.
During 2011, we applied for, and in July 2011 received, an exemption from the Ontario Securities Commission (OSC)
allowing the Company and GWRI to adopt U.S. GAAP and defer their conversion to IFRS until financial years beginning
on or after January 1, 2015. Accordingly, effective January 1, 2012, we converted to U.S. GAAP.
In June 2014, we were granted an extension of the exemption previously received from the OSC. The extended
exemption allows the Company and GWRI to defer the conversion to IFRS until the earliest of: (a) January 1, 2019;
(b) if GWRC or GWRI, as applicable, ceases to have activities subject to rate regulation, the first day of the financial
year of GWRC or GWRI, respectively, that commences after GWRC or GWRI, respectively, ceases to have activities
subject to rate regulation; and (c) the effective date prescribed by the International Accounting Standards Board for the
mandatory application of a standard within IFRS specific to entities with rate-regulated activities.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements in this management’s discussion and analysis are forward-looking in nature and may constitute
“forward-looking information” within the meaning of applicable securities laws. Often, but not always, forward-looking
statements can be identified by the words “believes”, “anticipates”, “plans”, “expects”, “intends”, “projects”,
“estimates”, “objective” and similar expressions. These forward-looking statements include expectations of earnings
-1-
3
2015 ANNUAL REPORT GLOBAL WATER
growth described in "Outlook." These forward-looking statements reflect management’s current expectations regarding
GWRC’s and GWRI’s future growth, results of operations, performance and business prospects and opportunities and
other future events and speak only as of the date of this management’s discussion and analysis. Forward-looking
statements should not be read as guarantees of future performance or results, and will not necessarily be accurate
indications of whether or not or the times at or by which such performance or results will be achieved. Investors are
cautioned not to place undue reliance on forward-looking information. A number of factors could cause actual results
to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors
discussed under “Risk Factors” in GWRC’s most recent Annual Information Form, which is available on SEDAR at
www.sedar.com. Although the forward-looking statements contained in this management’s discussion and analysis are
based upon what management believes to be reasonable assumptions, investors cannot be assured that actual results
will be consistent with these forward-looking statements, and the differences may be material. These forward-looking
statements are made as of the date of this management’s discussion and analysis and neither GWRC nor GWRI assume
any obligation to update or revise them to reflect new events or circumstances, except as required by applicable law.
Executive Overview
General – The Company was incorporated under the Business Corporations Act (British Columbia) on March 23, 2010
to acquire shares of GWRI, a corporation incorporated in the State of Delaware of the United States of America, and
to actively participate in the management, business and operations of GWRI through its representation on the board of
GWRI and its shared management with GWRI. The formation of GWRI occurred on December 30, 2010 through a
reorganization of Global Water Resources, LLC and its subsidiaries and Global Water Management, LLC (the
predecessors of GWRI).
GWRI operates in the Western United States as a water resource management company that owns and operates regulated
water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix,
Arizona. GWRI’s model focuses on the broad issues of water supply and scarcity and applies principles of water
conservation through water reclamation and reuse. The basic premise of GWRI’s business is that the world’s water
supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by
providing individuals and communities resources that promote wise water usage practices. GWRI deploys its integrated
approach, Total Water Management (‘‘TWM’’), a term which it uses to mean managing the entire water cycle, both to
conserve water and to maximize its total economic and social value. GWRI uses TWM to promote sustainable
communities in areas where GWRI expects growth to outpace the existing potable water supply.
On December 30, 2010, the Company completed its initial public offering of 8,185,000 common shares (the “Offering”)
at C$7.50 per share for gross proceeds totaling C$61,387,500. The Company used the net proceeds of the Offering to
acquire 81,850 shares of GWRI common stock. On January 28, 2011, the underwriters of the Offering exercised their
over-allotment option and purchased an additional 569,611 common shares at C$7.50 per share. Net proceeds from the
exercise of the over-allotment option, after taking into account underwriters’ commissions and issuance costs of
$262,000, were $4,011,000. The net proceeds of the over-allotment were used to purchase 5,696 shares of GWRI’s
common stock on January 28, 2011, increasing the Company’s ownership interest in GWRI to approximately 48.1%.
In 2015 the Company received approval from the Toronto Stock Exchange ("TSX") to repurchase, for cancellation
common shares of the Company pursuant to a normal course issuer bid ("NCIB"). As a result of the subsequent share
repurchase, the Company's ownership interest GWRI decreased to approximately 47.8% as of December 31, 2015. See
"—Outstanding Share Data" for additional information regarding the NCIB.
Stipulated Condemnation of the Operations and Assets of Valencia Water Company — On July 14, 2015, GWRI closed
the stipulated condemnation to transfer the operations and assets of Valencia Water Company with the City of Buckeye.
Terms of the condemnation were agreed upon through a settlement agreement wherein the City of Buckeye acquired
all the operations and assets of Valencia Water Company and assumed operations of the utility upon close. The City of
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4
GLOBAL WATER 2015 ANNUAL REPORT Buckeye paid GWRI $55.0 million at close, plus an additional $108,000 in working capital adjustments. The City of
Buckeye will also pay GWRI a growth premium equal to $3,000 for each new water meter installed within Valencia
Water Company’s prior service areas, for a 20-year period ending December 31, 2034, subject to a maximum payout
of $45.0 million over the term of the agreement. The condemnation of Valencia, combined with the associated tax
liability resulted in approximately $22.8 million of additional income in GWRI's financial statements for the year ended
December 31, 2015. As a result of GWRI's then 48.0% interest in GWRI, GWRC recorded $11.0 million of additional
equity method earnings for the year ended December 31, 2015.
Proposed transaction — On January 19, 2016, GWRC announced that it has agreed to pursue a proposed transaction
with GWRI that will result in, subject to the satisfaction of shareholder approval and certain other conditions, GWRC
merging with and into GWRI (the “Proposed Transaction”). The Proposed Transaction is part of GWRI’s overall plan
to simplify its corporate structure by eliminating one level of holding company ownership, refinance its outstanding
tax-exempt bonds on more favorable terms (as described below), improve liquidity for shareholders over the medium
to long-term and have a single governing jurisdiction in the U.S., where all of the assets, operations and employees of
the business are located. As a result of the merger, GWRC will cease to exist as a British Columbia corporation and
GWRI, governed by the corporate laws of the State of Delaware, will be the surviving entity. The Proposed Transaction
is conditional upon the concurrent completion of a proposed initial public offering of shares of common stock of GWRI
in the United States (the “U.S. IPO”). GWRI has filed a registration statement on Form S-1 with the U.S. Securities
and Exchange Commission in connection with the U.S. IPO.
On completion of the Proposed Transaction, GWRI will have the right to redeem all of its outstanding tax-exempt
bonds at a price of 103% of the principal amount, plus interest accrued at the redemption date. As of December 31,
2015, the principal balance of such bonds was U.S.$106.7 million. Following completion of the Proposed Transaction,
GWRI plans to refinance these bonds and, based on discussions with lenders, believes it can reduce the effective interest
rate on the outstanding balance by 75 to 150 basis points. The refinancing of the GWRI’s tax-exempt bonds at reduced
interest or at all will depend on a number of factors that are beyond its control including market conditions, and therefore
the completion of the bond refinancing cannot be assured.
Subject to the satisfaction of all application conditions, including the requisite shareholder approval and those conditions
relating to the U.S. IPO, the Proposed Transaction is expected to close in the second quarter of 2016.
Outlook - Whereas the Company accounts for its investment in GWRI using the equity method of accounting, the
carrying value of the investment is adjusted each period to include GWRC’s proportionate share of the earnings or
losses of the investee. Since the date of the Offering through December 31, 2013, GWRC recorded significant equity
investment losses as a result of losses generated by GWRI. However, in February 2014, GWRI completed the regulatory
rate case which was initiated by GWRI’s utility companies in 2012. The regulatory rate case provided, among other
things, additional revenues to GWRI which will be phased-in over time.
The ruling provided for a collective revenue requirement increase of $4.0 million, adjusting for the condemnation of
the operations and assets of Valencia, based on 2011 test year service connections. This increase will be phased-in over
time, with the first increase taking effect in January 2015 as follows (in thousands of US$):
2015
2016
2017
2018
2019
2020
2021
Incremental
Cumulative
$
$
1,285
1,089
335
335
335
335
335
-3-
1,285
2,374
2,709
3,044
3,379
3,714
4,049
5
2015 ANNUAL REPORT GLOBAL WATER This phase-in of additional revenues was determined using a 2011 test year, to the extent that the number of active
service connections increases from 2011 levels, the additional revenues may be greater than the amounts set forth above.
We expect that the carrying value of GWRC’s investment in GWRI will continue to increase.
Additionally, the impact of the rate decision, combined with the effect of reversing the income tax valuation allowance
was approximately $32.1 million ($66.8 million multiplied by GWRC’s 48.1% interest) of equity method earnings as
a result of GWRI’s gain in the first quarter ended March 31, 2014.
Please see the accompanying management discussion and analysis of GWRI for more details regarding the completion
of the regulatory rate case.
Rate decision No. 74364 is a public document and is posted on the Company’s website and at the ACC’s eDocket
website, http://edocket.azcc.gov under the docket number 12-0309.
Results of operations for the years ended December 31, 2015, 2014 and 2013–The following table summarizes
GWRC’s results of operations for the years ended December 31, 2015, 2014 and 2013 (in thousands of US$, except
per share amounts).
Gain (loss) from equity investment
Operating expenses
Operating income (loss)
Income (loss) before income taxes
Income tax expense
Net income (loss)
Earnings (loss) per share
Diluted earnings (loss) per share
Income/(Loss) per share, excluding the net gain on condemnation of Valencia and
the gain on GWRI’s regulatory order, the effect of the reversal of GWRI’s valuation
allowance, loss on sale of FATHOM and gain on sale of 303 contracts
For the Years Ended December 31,
2014
2013
2015
10,259
$
31,225
$
1,846
8,413
8,413
897
9,310
1.06
1.06
$
$
$
666
30,559
30,559
(1,666)
28,893
3.30
3.30
$
$
$
(3,628)
320
(3,948)
(3,948)
—
(3,948)
(0.45)
(0.45)
(0.19) $
(0.37) $
(0.53)
$
$
$
$
$
Gain (loss) from Equity Investment – Gain from equity investment totaled $10.3 million for the year ended
December 31, 2015 compared to the gain of $31.2 million for the year ended December 31, 2014. The gain (loss)
from equity investment represents the portion of GWRI’s net income (loss) attributed to the equity method investment
during the respective period. The amount is calculated based on GWRI’s net income (loss) for the years ended
December 31, 2015 and 2014, multiplied by GWRC’s equity interest in GWRI. The gain from equity investment for
the year ended December 31, 2015 primarily reflects the Company recording its $11.0 million proportionate share of
GWRI's gain on condemnation of Valencia. The gain from equity investment for the year ended December 31, 2014
primarily reflects the Company recording its $32.1 million proportionate share of GWRI's gain on regulatory order
relating to the ACC's February 2014 Rate Decision No. 74364 and GWRI’s deferred tax valuation allowance reversal.
For a discussion of GWRI’s results of operations, please see GWRI’s management’s discussion and analysis, which is
available on the Company’s SEDAR profile at www.sedar.com.
We evaluate our investment in GWRI for impairment whenever events or changes in circumstances indicate that the
carrying value of our investment may have experienced an “other-than-temporary” decline in value. In February 2014,
GWRI completed the regulatory rate case which was initiated by GWRI’s utility companies in 2012. The regulatory
rate case provides, among other things, additional revenues to GWRI which will be phased-in over time. As of
December 31, 2014, GWRI evaluated the impact of the rate case decision, including whether sufficient evidence existed
6
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GLOBAL WATER 2015 ANNUAL REPORT that GWRI’s net deferred tax assets would be utilized in the future, thus allowing the reversal of the valuation allowance
currently recorded at GWRI. With the exception of the phase-in of new rates to be charged to GWRI’s utility customers,
the impact of the rate decision was effective for GWRI in the first quarter of 2014. The impact of the rate decision,
combined with the effect of reversing the valuation allowance, resulted in approximately $66.8 million of additional
income in GWRI’s financial statements for the year ended December 31, 2014. As a result of GWRC’s then 48.1%
interest in GWRI, GWRC recorded a total of $31.2 million of equity method earnings for the year ended December 31,
2014, which had the effect of significantly increasing the carrying value of GWRC’s investment in GWRI. The Company
performed an analysis comparing the carrying value of GWRC’s investment in GWRI with its estimated fair value,
and we concluded that an impairment of the investment did not exist as of December 31, 2014.
In July 2015, GWRI closed the condemnation of the operations and assets of Valencia Water company. As a result of
GWRC’s then 48.0% interest in GWRI, GWRC recorded $11.0 million of equity method earnings for the year ended
December 31, 2015, which had the effect of significantly increasing the carrying value of GWRC's investment in GWRI.
This increase in investment was offset by a special one-time dividend paid in August 2015, wherein $10.4 million was
paid out to shareholders of record as of August 8, 2015. The Company performed an analysis comparing the carrying
value of GWRC’s investment in GWRI with its estimated fair value, and concluded that an impairment of the investment
did not exist as of December 31, 2015. However, this analysis is sensitive to management assumptions including
forecasted results of GWRI and as a result, changes in these assumptions could have a material impact on the analysis.
Operating Expenses – Operating expenses for the years ended December 31, 2015 and 2014 consisted primarily of
compensation provided to the independent members of the Company’s board of directors, accounting and legal fees,
directors’ and officers’ insurance, listing fees and other costs directly associated with operating as a publicly traded
company.
Net Income (Loss) – Net income (loss) was determined by deducting operating and income tax expenses from gain
(loss) from equity investment income. For the years ended December 31, 2015 and 2014, the Company experienced
net income of $9.3 million and $28.9 million, respectively. Net income for the year ended December 31, 2015 primarily
reflects GWRC’s nonrecurring gain of $11.0 million related to our 48.0% share of GWRI's $22.8 million net gain on
the condemnation of Valencia. Net income for the year ended December 31, 2014 primarily reflects GWRC's 48.1%
portion of (i) a nonrecurring gain of $50.7 million recognized by GWRI upon receipt of a regulatory order from GWRI’s
economic regulator, and (ii) GWRI’s release of its deferred income tax valuation allowance of $16.1 million during
the 2014 period. Excluding these items, the Company experienced a loss of $1.7 million, or $0.19 per share, for the
year ended December 31, 2015 and a loss of $3.2 million, or $0.37 per share, for the year ended December 31, 2014.
The following table sets forth financial data for the last eight quarters ended December 31, 2015 (in thousands of US
$). This financial information has been derived from the interim financial statements prepared by, and is the responsibility
of, the Company’s management.
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7
2015 ANNUAL REPORT GLOBAL WATER Q4
Q3
2015
Q2
Q1
Q4
Q3
Q2
Q1
2014
GAIN (LOSS) FROM EQUITY INVESTMENT
$
(15) $ 10,520 $
194 $
(440) $
(403) $
(13) $
(235) $ 31,876
OPERATING EXPENSES
OPERATING INCOME (LOSS)
INCOME (LOSS) BEFORE INCOME TAXES
INCOME TAX BENEFIT (EXPENSE)
521
(536)
(536)
158
829
9,691
9,691
707
262
(68)
(68)
(81)
234
(674)
(674)
113
127
(530)
(530)
110
131
(144)
(144)
(250)
262
146
(497)
31,730
(497)
31,730
311
(1,837)
NET INCOME (LOSS)
$
(378) $ 10,398 $
(149) $
(561) $
(420) $
(394) $
(186) $ 29,893
EARNINGS (LOSS) PER SHARE
$ (0.04) $
1.19 $
(0.02) $ (0.06) $ (0.05) $
(0.04) $ (0.02) $
DILUTED EARNINGS (LOSS) PER SHARE
$ (0.04) $
1.19 $
(0.02) $ (0.06) $ (0.05) $
(0.04) $ (0.02) $
3.41
3.41
Loss per share, excluding gain on condemnation of
Valencia, gain on GWRI’s regulatory order and the
effect of GWRI’s valuation allowance
Outstanding Share Data
$ (0.04) $ (0.07) $
(0.02) $ (0.06) $ (0.05) $
(0.04) $ (0.02) $ (0.26)
As of March 15, 2016, there were 8,726,748 common shares of the Company outstanding with no options to acquire
additional common shares of GWRC as the 209,591 options outstanding as of December 31, 2015 expired in January
2016.
Liquidity and Capital Resources
We are economically dependent on GWRI. Our ability to service operating costs and pay distributions (if any) is entirely
dependent on the receipt of distributions from GWRI. Significant events affecting or transactions involving GWRI
could materially influence our ability to make such payments.
We do not carry on any active business operations as our activities are generally restricted to holding securities of our
equity investee, GWRI. To date, we have not incurred debt to finance our investments. Therefore, our capital structure
is composed solely of our shareholders’ equity.
To date, capital resources have been provided from equity financing, and there were no cash flows of the Company for
the years ended December 31, 2015 and 2014, respectively, with the exception of certain cash advances and dividends
from GWRI, which are discussed below. GWRI funded the operating expenses incurred by the Company through
December 31, 2015. See Notes 3 and 6 to GWRC’s financial statements for the years ended December 31, 2015 and
2014.
In March 2014, the Company initiated a dividend program to declare and pay a monthly dividend. The initial monthly
dividend was C$0.0220 per share. In November 2014 the Company increased the monthly dividend to $0.0240 per
share. In March 2015, the Company increased the monthly dividend to C$0.0260 per share. In July 2015, the Company
further increased the monthly dividend to C$0.0283 per share. The Company expects that monthly dividends of similar
amounts will be declared and paid for the foreseeable future. Nevertheless, the ability of the Company to maintain its
dividend program is dependent upon GWRI making distributions to the Company. Declaration of dividends is at the
discretion of the Company’s board of directors.
Insurance Coverage
As we do not carry on any active business operation, the Company does not carry insurance coverage other than a
$15,000,000 Directors’ and Officers’ Liability insurance policy. GWRI carries financial insurance policies with limits,
8
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GLOBAL WATER 2015 ANNUAL REPORT deductibles and exclusions consistent with industry standards. However, insurance coverage may not be adequate or
available to cover unanticipated losses or claims.
Contractual Obligations and Commitments
GWRC had no significant contractual obligations or commitments with third parties as of December 31, 2015.
Quantitative and Qualitative Disclosure about Market Risk
Through its equity interest in GWRI, the Company is indirectly exposed to market risk associated with changes in
interest rates and with price increases for chemicals, electricity and labor that affect the business of GWRI. However,
the potential for an increase is mitigated by GWRI’s ability to recover its costs through rate increases to its customers
as well as the fact that it holds fixed-rate debt.
The Company’s future performance and financial condition involves a number of risks and uncertainties. Any of these
risks and uncertainties could have a material adverse effect on the results of operations, business prospects and financial
condition of GWRI, the Company or the market price or value of the Company’s common shares. These risks are
discussed in the Company’s most recent Annual Information Form, which is available on SEDAR at www.sedar.com.
Related Party Transactions
Except for the Chief Executive Officer and Chief Financial Officer (who serve in the same roles at GWRI and who
receive no compensation from the Company in connection with their roles), we have no employees and the management
and general administration services for our business and affairs are provided by GWRI pursuant to a management
agreement. Services provided by GWRI are provided at no charge to the Company.
The management agreement may be terminated (i) by the Company, in its sole discretion, by notice in writing to GWRI
at least 30 days prior to the effective date of termination; (ii) by either party in the event of the termination of the
existence of the Company or the insolvency, receivership or bankruptcy of GWRI, or in the case of default by the other
party in the performance of a material obligation under the management agreement which is not remedied within 30
days after notice thereof has been delivered to the defaulting party; or (iii) if the Company no longer holds voting
securities of GWRI.
For a description of the specific services provided by GWRI to the Company under the management agreement, please
refer to the management agreement, a copy of which has been filed on SEDAR at www.sedar.com.
Stock option grant to employees of GWRI – In January 2012, the Company’s Board of Directors granted 385,697 options
to acquire GWRC common stock to nine employees of GWRI pursuant to the GWR Global Water Resources Corp.
Stock Option Plan (the “Option Plan”). The options vested in equal installments over the eight quarters of 2012 and
2013 and expire four years after the date of issuance. We account for the option grant in accordance with FASB’s
Accounting Standards Codification (ASC) 323, Investment-Equity Method & Joint Ventures. At December 31, 2012,
the estimated fair value of the unvested options was $33,000 based on a Black-Scholes pricing model. The options
were initially measured on June 30, 2012, the first period-end following the date when the Option Plan received
shareholder approval. The Company remeasured the fair value of the award at the end of each period until the options
became fully vested on December 31, 2013.
In the third quarter of 2015, 59,636 options were exercised by two individuals, with an exercise price of C$4.00 per
option. As of December 31, 2015, 209,591 options were outstanding compared to 269,227 as of December 31, 2014.
In January 2016, all outstanding options expired.
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9
2015 ANNUAL REPORT GLOBAL WATER Proposed transaction between GWRC and GWRI – For a description of the proposed transaction between the Company
and GWRI, please refer to "Executive Overview—Proposed Transaction."
Off Balance Sheet Arrangements
As of December 31, 2015 and December 31, 2014, we do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The application of critical accounting policies is particularly important to GWRC’s financial condition and results of
operations and provides a framework for management to make significant estimates, assumptions and other judgments.
Additionally, GWRC’s financial condition, results of operations and cash flow are impacted by the methods, assumptions
and estimates used in the application of critical accounting policies. Although GWRC’s management believes that these
estimates, assumptions and other judgments are appropriate, they relate to matters that are inherently uncertain and
that may change in subsequent periods. Accordingly, changes in the estimates, assumptions and other judgments applied
to these accounting policies could have a significant impact on GWRC’s financial condition and results of operations
as reflected in GWRC’s financial statements.
A summary of GWRC’s significant accounting policies used in the preparation of its financial statements appears in
Note 2 of GWRC’s financial statements for years ended December 31, 2015 and 2014. GWRC has identified policies
related to the application of the equity method to its investment in GWRI and its assessment of impairment of such
investment as critical to its business operations and the understanding of its results of operations. Management has
reviewed those critical accounting policies and the associated estimates and assumptions.
Additionally, as indicated above, effective January 1, 2012, the Company and GWRI prepare their financial statements
in accordance with U.S. GAAP. See also Note 1 to GWRC’s financial statements for the year ended December 31,
2015.
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated our disclosure controls and
procedures. Based on that evaluation, they have concluded that our disclosure controls and procedures are effective in
providing them with timely material information relating to the Company.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, and
has designed such internal control over financial reporting to provide reasonable assurance regarding the reliability of
financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance
with U.S and Canadian GAAP.
Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our internal
controls and procedures over financial reporting will prevent all error and all fraud. A control system can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of controls also is based in part upon certain assumptions
10
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GLOBAL WATER 2015 ANNUAL REPORT about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated
goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management evaluated the design and operation of our internal control over financial reporting as of December 31,
2015, and concluded that such internal control over financial reporting is effective as of December 31, 2015. There are
no material weaknesses that have been identified by management in this regard. This assessment was based on criteria
for effective internal control over financial reporting described in Internal Control - Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013).
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the last fiscal year that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Other Required Disclosures
Additional information relating to GWRC, including the Company’s Annual Information Form, has been filed on
SEDAR at www.sedar.com.
* * * * * *
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11
2015 ANNUAL REPORT GLOBAL WATER MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GLOBAL WATER RESOURCES, INC.
The following management’s discussion and analysis of Global Water Resources, Inc.’s (the “Company”, “GWRI”,
“we”, or “us”) financial condition and results of operations dated March 15, 2016 relates to the years ended
December 31, 2015 and 2014 and should be read together with the consolidated financial statements and accompanying
notes of GWRI as well as GWR Global Water Resources Corp.’s (“GWRC”) financial statements and associated
management’s discussion and analysis and current annual information form, all of which are available on GWRC’s
SEDAR profile at www.sedar.com. Financial information of GWRC is not consolidated with financial information of
GWRI.
Basis of Presentation
The financial statements of Global Water Resources, Inc. have been prepared in accordance with U.S. generally accepted
accounting principles (“U.S. GAAP”) and, except where otherwise indicated, are presented in U.S. dollars. Unless
otherwise indicated, the financial information contained in this management’s discussion and analysis has been prepared
in accordance with U.S. GAAP and is expressed in U.S. dollars and references to “$”, “US$” and “dollars” are to U.S.
dollars. References to “C$” are to Canadian dollars.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements in this management’s discussion and analysis are forward-looking in nature and may constitute
“forward-looking information” within the meaning of applicable securities laws. Often, but not always, forward-looking
statements can be identified by the words “believes”, “anticipates”, “plans”, “expects”, “intends”, “projects”,
“estimates”, “objective”, “goal”, “focus”, “aim” and similar expressions. These forward-looking statements include
future estimates described in “Business Outlook”, "Factors Affecting our Results of Operations," and expectations of
future liquidity in “Liquidity and Capital Resources”, and of future market risk in “Quantitative and Qualitative
Disclosure about Market Risk.” These forward-looking statements reflect management’s current expectations regarding
the GWRC’s and GWRI’s future growth, results of operations, performance and business prospects and opportunities
and other future events and speak only as of the date of this management’s discussion and analysis. Forward-looking
statements should not be read as guarantees of future performance or results, and will not necessarily be accurate
indications of whether or not or the times at or by which such performance or results will be achieved. Investors are
cautioned not to place undue reliance on forward-looking information. A number of factors could cause actual results
to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors
discussed under “Risk Factors” in GWRC’s most recent Annual Information Form, which is available on GWRC’s
SEDAR profile at www.sedar.com. Although the forward-looking statements contained in this management’s discussion
and analysis are based upon what management believes to be reasonable assumptions, investors cannot be assured that
actual results will be consistent with these forward-looking statements, and the differences may be material. These
forward-looking statements are made as of the date of this management’s discussion and analysis and neither GWRI
nor GWRC assumes any obligation to update or revise them to reflect new events or circumstances, except as required
by applicable law.
Overview
We are a leading water resource management company that owns, operates and manages water, wastewater and recycled
water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. We seek to deploy
our integrated approach, which we refer to as "Total Water Management," a term we use to mean managing the entire
water cycle by owning and operating the water, wastewater and recycled water utilities within the same geographic
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12
GLOBAL WATER 2015 ANNUAL REPORT
areas in order to both conserve water and maximize its total economic and social value. We use Total Water Management
to promote sustainable communities in areas where we expect growth to outpace the existing potable water supply. Our
model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through
water reclamation and reuse. Our basic premise is that the world's water supply is limited and yet can be stretched
significantly through effective planning, the use of recycled water and by providing individuals and communities
resources that promote wise water usage practices.
Business Outlook
2014 and 2015 continued the trend of positive growth in new connections and re-establishing service on existing
previously vacant homes. According to the 2010 U.S. Census Data, the Phoenix metropolitan statistical area (“MSA”)
had a population of 4.2 million in 2010 and is the 14th largest MSA in the U.S., an increase of 29% over the 3.25 million
people in the 2000 Census. Metropolitan Phoenix’s growth data continues to improve due to its low-cost housing,
excellent weather, large and growing universities, a diverse employment base and low taxes. The Employment and
Population Statistics Department of the State of Arizona predicts that Maricopa County will have a population of 4.5
million by 2020 and 6.0 million by 2040. During the twelve months ended December 31, 2015 Arizona’s employment
rate improved by 2.5%, ranking the state in the top eight nationally for job growth.
Also, according to the W.P. Carey School of Business Greater Phoenix Blue Chip Real Estate Consensus panel, most
sectors of real estate are expected to experience improved occupancy and growth. For Maricopa County and Pinal
County combined, the W.P. Carey School of Business, using U.S. Census data, reported that after a decline to fewer
than 7,400 units in 2010, single family housing permits bounced back to 11,821 units in 2012, and continued to climb
in 2013 to 12,771 units. The same data indicated permits for 2014 declined to approximately 11,700 units at year end.
However, for the year ended December 31, 2015, permits were up approximately 43% to 16,768 units in Maricopa and
Pinal Counties combined, and the forecast for 2016 remains positive at approximately 20,000 units. From there, we
believe growth in the region could steadily return to its normal historical rate of greater than 30,000 single family
dwelling permits. Additionally, multifamily, office, retail, and industrial market occupancy rates continued to increase
in 2015 compared to 2014 and are expected to continue to increase through 2016. Phoenix was one of the worst
performing housing markets during the housing downturn, but home prices have risen on average 7.85% per year over
the past three years ending December 2015, according to the S&P/Case-Shiller Phoenix Home Price Index.
We believe that our acquired utilities and service areas are directly in the anticipated path of growth primarily in the
metropolitan Phoenix area. Market data indicates that our service areas currently incorporate a large portion of the
final platted lots, partially finished lots and finished lots in metropolitan Phoenix. Management believes that the
Company is well-positioned to benefit from the near-term growth in metropolitan Phoenix due to the availability of
lots and existing infrastructure in place within our services areas.
Factors Affecting our Results of Operations
Our financial condition and results of operations are influenced by a variety of industry-wide factors, including but not
limited to:
•
•
•
•
•
population and community growth;
economic and environmental utility regulation;
economic environment;
the need for infrastructure investment;
production and treatment costs;
• weather and seasonality; and
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13
2015 ANNUAL REPORT GLOBAL WATER •
access to and quality of water supply.
We are subject to economic regulation by the state regulator, the Arizona Corporation Commission. The US federal
and state governments also regulate environmental, health and safety and water quality matters. We continue to execute
on our strategy to optimize and focus the Company in order to provide greater value to our customers and shareholders
by aiming to deliver predictable financial results, making prudent capital investments and focusing our efforts on earning
an appropriate rate of return on our investments.
Population and Community Growth
Population and community growth in the metropolitan Phoenix area served by our utilities have a direct impact on our
earnings. An increase or decrease in our active service connections will affect our revenues and variable expenses in a
corresponding manner. Due to the condemnation of the operations and assets of Valencia Water Company in July 2015
(see - "Recent Events" below), total service connections, which include active service connections and connections to
vacant homes, decreased to 38,744 as of December 31, 2015 from 45,235 as of December 31, 2014. Our active service
connections decreased to 37,784 as of December 31, 2015, with approximately 94.9% being serviced by our Santa
Cruz and Palo Verde utilities, compared to 43,568 as of December 31, 2014. See "Risk Factors—Our active service
connections are primarily concentrated in one water utility and one wastewater utility," in GWRC’s most recent Annual
Information Form, which is available on GWRC’s SEDAR profile at www.sedar.com.
Adjusting for the condemnation of the operations and assets of Valencia Water Company, we continue to see a positive
trend in new connections combined with re-establishing service to existing homes. As illustrated in the graph below,
which reflects the adjustment for the condemnation of the operations and assets of Valencia Water Company, adjusted
total connections totaled 38,744 as of December 31, 2015 compared to 38,262 as of December 31, 2014, which
represents an increase of 482 connections, or an annualized increase of approximately 1.3%. Adjusted active connections
totaled 37,784 as of December 31, 2015 compared to 36,895 as of December 31, 2014, which represents an increase
of 889 connections, or an annualized increase of approximately 2.4%.
14
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GLOBAL WATER 2015 ANNUAL REPORT During the economic downturn beginning in 2008, our utilities experienced an increase in the number of vacant homes,
reaching a peak of 4,647 vacant connections as of February 28, 2009, approximately 11.2% of our total connections at
the time; however, the negative trend began to reverse thereafter with the number of vacant homes decreasing to 960
or 2.5% of total connections at December 31, 2015.
Economic and Environmental Utility Regulation
We are subject to extensive regulation of our rates by the Arizona Corporation Commission, which is charged with
establishing rates based on the provision of reliable service at reasonable cost while also providing an opportunity to
earn a fair rate of return on rate base for investors of utilities. The Arizona Corporation Commission uses a historical
test year to evaluate whether the plant in service is used and useful, to assess whether costs were prudently incurred
and to set “just and reasonable” rates. Rate base is typically the depreciated original cost of the plant in service (net of
contributions in aid of construction (“CIAC”) and advances in aid of construction (“AIAC”) which are funds or property
provided to a utility under the terms of a collection main extension agreement, the value of which may be refundable),
that has been determined to have been “prudently invested” and “used and useful” although the reconstruction cost of
the utility plant may also be considered in determining the rate base. The Arizona Corporation Commission also decides
on an applicable capital structure based on actual or hypothetical analyses. The Arizona Corporation Commission
determines a “rate of return” on that rate base, which includes the approved capital structure and the actual cost of debt
and a fair and reasonable cost of equity based on the Arizona Corporation Commission's judgment. The overall revenue
requirement for rate making purposes is established by multiplying the rate of return by the rate base, and adding
“prudently” incurred operating expenses for the test year, depreciation and any applicable pro forma adjustments.
To ensure an optimal combination of access to water and water conservation balanced with a fair rate of return for
investors, our water utility operating revenue is based on two components: a fixed fee and a consumption or volumetric
fee. For our water utilities, the fixed fee, or “basic service charge,” provides access to water for residential usage and
has generally been set at a level to produce 50% of total revenue. The volumetric fee is based on the total volume of
water supplied to a given customer after the minimum number of gallons, if any, covered by the basic service charge,
multiplied by a price per gallon set by a tariff approved by the Arizona Corporation Commission. A discount to the
volumetric rate applies for customers that use less than an amount specified by the Arizona Corporation Commission.
For all investor-owned water utilities, the Arizona Corporation Commission requires the establishment of inverted tier
conservation oriented rates, meaning that the price of water increases as consumption increases. For wastewater utilities,
wastewater collection and treatment can be based on volumetric or fixed fees. Our wastewater utility services are billed
based solely on a fixed fee, determined by the size of the water meter installed. Recycled water is sold on a volumetric
basis with no fixed fee component.
We are required to file rate cases with the Arizona Corporation Commission to obtain approval for a change in rates.
Rate cases and other rate-related proceedings can take a year or more to complete. As a result, there is frequently a
delay, or regulatory lag, between the time of a capital investment or incurrence of an operating expense increase and
when those costs are reflected in rates. In normal conditions, it would not be uncommon to see us file for a rate increase
every three years based on year one being the test year, year two being the rate case filing year and year three being
the rate case award year. However, based on the recent settlement with the Arizona Corporation Commission and
extended new rate phase-in period, we will not be initiating the next rate case on this timeline. Moving forward, we
will continue to analyze all factors that drive the requirement for increased revenue, including our rate of investment
and recurring expenses, and determine the appropriate test year for a future rate case. See “—Recent Rate Case
Activities.”
Our water and wastewater operations are also subject to extensive United States federal, state and local laws and
regulations governing the protection of the environment, health and safety, the quality of the water we deliver to our
customers, water allocation rights and the manner in which we collect, treat and discharge wastewater. We are also
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15
2015 ANNUAL REPORT GLOBAL WATER required to obtain various environmental permits from regulatory agencies for our operations. The Arizona Corporation
Commission also sets conditions and standards for the water and wastewater services we deliver. We incur substantial
costs associated with compliance with environmental, health and safety and water quality regulation.
Environmental, health and safety and water quality regulations are complex and change frequently, and they have
tended to become more stringent over time. As newer or stricter standards are introduced, they could increase our
operating expenses. We would generally expect to recover expenses associated with compliance for environmental,
health and safety standards through rate increases, but this recovery may be affected by regulatory lag.
Economic Environment
The growth of our customer base depends almost entirely on the success of developers in developing residential and
commercial properties within our service areas. Real estate development is a cyclical industry and the growth rate of
development, especially residential development, since 2006, both nationally and in Arizona has been below historical
rates. In addition, development in our service areas is contingent upon construction or acquisition of major public
improvements, such as arterial streets, drainage facilities, telephone and electrical facilities, recreational facilities, street
lighting and local in-tract improvements (e.g., site grading). Many of these improvements are built by municipalities
with public financing, and municipal resources and access to capital may not be sufficient to support development in
areas of rapid population growth.
See “Risk Factors—Our growth depends significantly on increased residential and commercial development in our
service areas, and if developers or builders are unable to complete additional residential and commercial projects, our
revenue may not increase” and “Risk Factors—A deep or prolonged slowdown of the development process and growth
rate within the various developments in our service areas could materially and adversely affect the growth of our
customer base and revenues” in GWRC’s most recent Annual Information Form, which is available on GWRC’s SEDAR
profile at www.sedar.com for additional information.
Infrastructure Investment
Capital expenditures for infrastructure investment are a component of the rate base on which our regulated utility
subsidiaries are allowed to earn an equity return. Capital expenditures for infrastructure provide a basis for earnings
growth by expanding our “used and useful” rate base, which is a component of its permitted return on investment and
revenue requirement. We are generally able to recover a rate of return on these capital expenditures (return on equity
and debt), together with debt service and certain operating costs, through the rates we charge.
We have made significant capital investments in our territories within the last twelve years, and because the infrastructure
is new, we do not expect significant capital, either for growth or to maintain the existing infrastructure, to be required
in the near term. Nevertheless, we will repair and replace existing infrastructure as needed. We need to make non-
growth capital investments on an ongoing basis to comply with existing and new regulations, to renew treatment and
network assets as they age, to enhance system reliability, and to provide security and quality of service. The need for
continuous investment can present a challenge due to the potential for regulatory lag in rate increases described above.
See “—Factors Affecting Our Results of Operations.”
Production and Treatment Costs
Our water and wastewater services require significant production resources and therefore result in significant production
costs. Although we are permitted to recover these costs through the rates we charge, regulatory lag can decrease our
margins and earnings if production costs or other operating expenses increase significantly before we are able to recover
them through increased rates. Our most significant costs include labor, chemicals used to treat water and wastewater,
and power used to operate pumps and other equipment. Power and chemical costs can be volatile. However, we employ
16
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GLOBAL WATER 2015 ANNUAL REPORT a variety of technologies and methodologies to minimize costs and maximize operational efficiencies. Additionally,
with our Total Water Management approach, whereby we maximize the direct beneficial reuse of recycled water, we
can realize significant treatment costs and power savings because smaller volumes of water are required for potable
use. Many utilities require that all water be treated to potable standards irrespective of use. Total Water Management
focuses on the right water for the right use. Potable water is needed for consumption and recycled water is acceptable
for non-potable uses such as irrigation and toilet flushing. Non-potable water does not need to be treated for commonly
occurring and regulated constituents such as arsenic, or for other current or future human consumption health-based
contaminants.
Weather and Seasonality
Our ability to meet the existing and future water demands of our customers depends on an adequate supply of water.
Drought, overuse of sources of water, the protection of threatened species or habitats or other factors may limit the
availability of ground and surface water. Also, customer usage of water is affected by weather conditions, particularly
during the summer. Our water systems generally experience higher demand in the summer due to the warmer
temperatures and increased usage by customers for irrigation and other outdoor uses. However, summer weather that
is cooler or wetter than average generally suppresses customer water demand and can have a downward effect on our
operating revenue and operating income. Conversely, when weather conditions are extremely dry, our business may
be affected by government-issued drought-related warnings and/or water usage restrictions that would artificially lower
customer demand and reduce our operating revenue. The limited geographic diversity of our service areas could make
the results of our operations more sensitive to the effect of local weather extremes The second and third quarters of the
year are generally those in which water services revenue and wastewater services revenue are highest. Accordingly,
interim results should not be considered representative of the results of a full year.
Access to and Quality of Water Supply
In many areas of Arizona (including certain areas that we service), water supplies are limited and, in some cases, current
usage rates exceed sustainable levels for certain water resources. We currently rely predominantly (and are likely to
continue to rely) on the pumping of groundwater and the generation and delivery of recycled water for non-potable
uses to meet future demands in our service areas. At present, groundwater (and recycled water derived from groundwater)
is the primary water supply available to us. In addition, regulatory restrictions on the use of groundwater and the
development of groundwater wells, lack of available water rights, drought, overuse of local or regional sources of water,
protection of threatened species or habitats or other factors, including climate change, may limit the availability of
ground or surface water.
See “Risk Factors—Inadequate water and wastewater supplies could have a material adverse effect upon our ability to
achieve the customer growth necessary to increase our revenues” and “Risk Factors—There is no guaranteed source
of water” in GWRC’s most recent Annual Information Form, which is available on GWRC’s SEDAR profile at
www.sedar.com for additional information.
Recent Rate Case Activities
On September 15, 2010, the Arizona Corporation Commission issued Rate Decision No. 71878 for the rate cases filed
in February 2009 for the following utilities: Santa Cruz, Palo Verde, Valencia Water Company, Water Utility of Greater
Buckeye, Inc. (“Greater Buckeye”), Water Utility of Greater Tonopah, Inc. (“Greater Tonopah”) and Willow Valley
Water Co., Inc. (“Willow Valley”). The Arizona Corporation Commission established new rates for the utilities resulting
in approximately $9.6 million of additional annual revenues retroactive to August 1, 2010, including a phase-in of rates
for Palo Verde on January 1, 2011 and January 1, 2012. The Arizona Corporation Commission established new rates
based on connections during the 2008 test year for the recovery of reasonable costs incurred by the utilities. Such rate
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17
2015 ANNUAL REPORT GLOBAL WATER changes increased rates for water and wastewater services for all but one of our utilities, Greater Tonopah (for which
rates were reduced), resulting in a collective overall 47% increase over previous rates.
On July 11, 2012, we filed rate applications with the Arizona Corporation Commission to adjust the revenue requirements
for seven utilities. In August 2013, the Company entered into a settlement agreement with the Arizona Corporation
Commission staff, the Residential Utility Consumers Office, the City of Maricopa, and other parties to the rate case.
The settlement required approval by the Arizona Corporation Commission’s commissioners before it could take effect.
In February 2014, the rate case proceedings were completed and the Arizona Corporation Commission issued Rate
Decision No. 74364, approving the settlement agreement. The collective rate increase included a 9.5% return on common
equity which contributed to a 15% increase over revenue in 2011.
For our utilities, adjusting for the condemnation of the operations and assets of Valencia Water Company, the settlement
provided for a collective aggregate revenue requirement increase of $4.0 million based on 2011 test year service
connections, phased-in over time, with the first increase in January 2015 as follows (in thousands of dollars):
2015
2016
2017
2018
2019
2020
2021
Incremental
Cumulative
$
$
1,285
1,089
335
335
335
335
335
1,285
2,374
2,709
3,044
3,379
3,714
4,049
Whereas this phase-in of additional revenues was determined using a 2011 test year, to the extent that the number of
active service connections has increased and continues to increase from 2011 levels, the additional revenues will be
greater than the amounts set forth above. On the other hand, if we experience declining usage per customer, we may
not realize all of the anticipated revenues.
From 2003 to 2008, we entered into approximately 183 infrastructure coordination and financing agreements with
developers and landowners covering approximately 275 square miles. Under these agreements, we have a contractual
obligation to the developers and landowners to ensure that amongst other things, physical capacity exists through our
regulated utilities for water and wastewater to the landowner/developer when needed. We receive fees from the
landowner/developer for undertaking these obligations that typically are a negotiated amount per planned equivalent
dwelling unit for the specified development or parcel of land. Payments are generally due to us from the landowner/
developer based on progress of the development, with a portion due upon signing of the agreement, a portion due upon
completion of certain milestones, and the final payment due upon final plat approval or sale of the subdivision. The
payments are non-refundable. Our investment can be considerable, as we may phase-in the construction of facilities in
accordance with a regional master plan, as opposed to a single development.
Prior to January 1, 2010, we accounted for funds received under infrastructure coordination and financing agreements
as revenue once the obligations specified in the agreements were met. As these arrangements are with developers and
not with the end water or wastewater customer, the timing of revenue recognition coincided with the completion of our
performance obligations under the agreement with the developer and with our ability to provide fitted capacity for
water and wastewater service to the applicable development or parcel through our regulated subsidiaries. In Rate
Decision No. 71878 in 2010, the Arizona Corporation Commission imputed a reduction to our rate base for all amounts
we collected under these agreements as the Commission deemed these payments to be contributions in aid of construction
for rate making purposes. As a result of that decision, effective January 1, 2010, we changed our accounting policy for
the accounting of infrastructure coordination and financing agreement funds and recorded these funds received as
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GLOBAL WATER 2015 ANNUAL REPORT contributions in aid of construction. Thereafter, the infrastructure coordination and financing agreement-related
contributions in aid of construction were amortized as a reduction of depreciation expense over the estimated depreciable
life of the utility plant at the related utilities. The balance of infrastructure coordination and financing agreement related
contributions in aid of construction, net of accumulated amortization, totaled approximately $64.1 million as of
December 31, 2013.
Pursuant to Rate Decision No. 74364 in 2014, the Arizona Corporation Commission changed how infrastructure
coordination and financing agreement funds would be characterized and accounted for going forward. Most notably,
infrastructure coordination and financing agreement funds that we previously received would no longer be required to
reduce future rates as a result of the ratemaking process. We have eliminated the CIAC liability that is no longer
required and reversed the associated regulatory liability brought about by Rate Decision No. 74364 by recording a gain
of $50.7 million for the year ended December 31, 2014. These funds which were already received or which had become
due prior to the date of Rate Decision No. 74364 would be accounted for in accordance with our infrastructure
coordination and financing agreement revenue recognition policy that had been in place prior to Rate Decision No. 71878
in 2010. For infrastructure coordination and financing agreement funds to be received in the future, Rate Decision
No. 74364 prescribes that 70% of these funds will be recorded as a hook-up fee liability, with the remaining 30% to
be recorded as deferred revenue, to be accounted for in accordance with our infrastructure coordination and financing
agreement revenue recognition policy.
We now account for the portion of future payments received under these agreements allocated to hook-up fee liability
as contributions in aid of construction. However, from the regulator’s perspective, hook-up fees do not impact rate base
until the related funds are expended. These funds are segregated in a separate bank account and used for plant. A hook-
up fee liability, once established, will be relieved once the funds are used for the construction of plant. For facilities
required under a hook-up fee or infrastructure coordination and financing agreement, we must first use the hook-up
fee funds received, after which we may use debt or equity financing for the remainder of construction. The 30% deferred
revenue portion of these fees is recognized as revenue once the obligations specified within the applicable infrastructure
coordination and financing agreement are met.
We have agreed to not enter into any new infrastructure coordination and financing agreements, and instead will utilize
hook-up fee tariffs, which have become an acceptable industry practice in Arizona. As part of the settlement, a hook-
up fee tariff was established for each utility. Existing infrastructure coordination and financing agreements will remain
in place, but a portion (approximately 70%) of future payments to be received under the infrastructure coordination
and financing agreements will be considered as hook-up fees, which are accounted for as contributions in aid of
construction once expended on plant (i.e., hook-up fees will be recorded as a liability, but will only reduce rate base
once such funds are expended on plant). The remaining approximate 30% of future infrastructure coordination and
financing agreement payments will be recognized using the same income recognition accounting applied to
infrastructure coordination and financing agreement funds already received, wherein such funds will be recorded as
revenue or deferred revenue.
In addition to infrastructure coordination and financing agreements, we have various line extension agreements with
developers and builders, whereby funds, water line extensions, or wastewater line extensions are provided to us by the
developers and are considered refundable advances for construction. These advances in aid of construction are subject
to refund by us to the developers through annual payments that are computed as a percentage of the total annual gross
revenue earned from customers connected to utility services constructed under the agreement over a specified period.
Upon the expiration of the agreements’ refunding period, the remaining balance of the advances in aid of construction
becomes nonrefundable and at that time is considered contributions in aid of construction. Contributions in aid of
construction are amortized as a reduction of depreciation expense over the estimated remaining life of the related utility
plant. For rate-making purposes, an utility plant funded by advances in aid of construction and contributions in aid of
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19
2015 ANNUAL REPORT GLOBAL WATER construction is excluded from rate base. For the year ended December 31, 2014, we transferred $7.4 million of advances
in aid of construction balances to contributions in aid of construction for amounts for which the refunding period had
expired. For the year ended December 31, 2015, we did not transfer any advances in aid of construction balances to
contributions in aid of construction.
Recent Events
Proposed Transaction
On January 19, 2016, GWRC announced that it has agreed to pursue a proposed transaction with the Company that
will result in, subject to the satisfaction of shareholder approval and certain other conditions, GWRC merging with and
into the Company (the “Proposed Transaction”). The Proposed Transaction is part of the Company’s overall plan to
simplify its corporate structure by eliminating one level of holding company ownership, refinance its outstanding tax-
exempt bonds on more favorable terms (as described below), improve liquidity for shareholders over the medium to
long-term and have a single governing jurisdiction in the U.S., where all of the assets, operations and employees of the
business are located. As a result of the merger, GWRC will cease to exist as a British Columbia corporation and the
Company, governed by the corporate laws of the State of Delaware, will be the surviving entity. The Proposed Transaction
is conditional upon the concurrent completion of a proposed initial public offering of shares of common stock of the
Company in the United States (the “U.S. IPO”). The Company has filed a registration statement on Form S-1 with the
U.S. Securities and Exchange Commission in connection with the U.S. IPO.
On completion of the Proposed Transaction, the Company will have the right to redeem all of its outstanding tax-exempt
bonds at a price of 103% of the principal amount, plus interest accrued at the redemption date. As of December 31,
2015, the principal balance of such bonds was U.S.$106.7 million. Following completion of the Proposed Transaction,
the Company plans to refinance these bonds and, based on discussions with lenders, believes it can reduce the effective
interest rate on the outstanding balance by 75 to 150 basis points. The refinancing of the Company’s tax-exempt bonds
at reduced interest or at all will depend on a number of factors that are beyond its control including market conditions,
and therefore the completion of the bond refinancing cannot be assured. For a description of our tax exempt bonds,
see “Liquidity and Capital Resources—Tax Exempt Bonds” in this MD&A.
Subject to the satisfaction of all application conditions, including the requisite shareholder approval and those conditions
relating to the U.S. IPO, the Proposed Transaction is expected to close in the second quarter of 2016.
Stipulated Condemnation of the Operations and Assets of Valencia Water Company
On July 14, 2015, the Company closed the stipulated condemnation to transfer the operations and assets of Valencia
Water Company with the City of Buckeye. Terms of the condemnation were agreed upon through a settlement agreement
wherein the City of Buckeye acquired all the operations and assets of Valencia Water Company and assumed operations
of the utility upon close. The City of Buckeye paid the Company $55.0 million at close, plus an additional $108,000
in working capital adjustments. The City of Buckeye will also pay a growth premium equal to $3,000 for each new
water meter installed within Valencia Water Company’s prior service areas, for a 20-year period ending December 31,
2034, subject to a maximum payout of $45.0 million over the term of the agreement.
Pending Sale of Willow Valley
On March 23, 2015, the Company reached an agreement to sell the operations and assets of Willow Valley to EPCOR
Water Arizona Inc. (“EPCOR”). Pursuant to the terms of the agreement, EPCOR will purchase all the operations, assets
and rights used by Willow Valley to operate the utility system for approximately $2.3 million, subject to current rate
base calculations and certain post-closing adjustments. Subject to a 30 day appeal period, the Arizona Corporation
Commission approved the transaction on March 2, 2016.
20
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GLOBAL WATER 2015 ANNUAL REPORT Sierra Negra Ranch, LLC Settlement
We previously filed a claim against Sierra Negra Ranch, LLC and New World Properties, Inc. for breach of the
infrastructure coordination and financing agreements for their respective developments. In May 2011, we initiated a
demand for arbitration and statement of claim against Sierra Negra Ranch, LLC and New World Properties, Inc. The
arbitration panel found in our favor on almost all claims and ruled that we were entitled to approximately $4.2 million
of infrastructure coordination and financing agreement fees, 15% per annum interest totaling $2.0 million and recovery
of one-third of the legal costs incurred in connection with the litigation. In August 2012, we received the monies due
from New World Properties, Inc. totaling $2,044,000, consisting of $1,219,000 of past due infrastructure coordination
and financing agreement fees, $719,000 of interest and $106,000 of reimbursed litigation costs. However, subsequent
to the award, Sierra Negra Ranch, LLC filed for Chapter 11 bankruptcy. In July 2013, the bankruptcy court ruled that
Sierra Negra Ranch, LLC must cure its default in order to assume the infrastructure coordination and financing
agreement, which would require full payment of past due infrastructure coordination and financing agreement fees,
interest and reimbursement of legal costs by no later than March 21, 2014, stating that such value would be determined
by the court at a future date. In October 2013, we entered into a settlement with Sierra Negra Ranch, LLC, wherein
payment terms were set to serve as the basis of Sierra Negra Ranch, LLC’s bankruptcy plan of reorganization. Under
the plan and settlement agreement that was approved by the court, we would receive monies due from Sierra Negra
Ranch, LLC totaling $5,321,000, consisting of $2,802,000 of past due infrastructure coordination and financing
agreement fees, $2,021,000 of interest (recorded within other income (expense) in our statement of operations for the
year ended December 31, 2014) and $498,000 of reimbursed litigation costs, all of which was received during the first
quarter of 2014.
Sale of Loop 303 Contracts
In September 2013, we entered into an agreement to sell certain wastewater facilities main extension agreements and
offsite water management agreements, along with their related rights and obligations (which we refer to collectively
as the “Loop 303 Contracts”), relating to the 7,000-acre territory within a portion of the western planning area of the
City of Glendale, Arizona known as the “Loop 303 Corridor.” Pursuant to the agreement, we sold the Loop 303 Contracts
to EPCOR for total proceeds of approximately $4.1 million ($3.1 million of which has been received as of December
31, 2015), which will be paid to us over a multi-year period. Receipt of the remaining proceeds will occur and be
recorded as additional income over time as certain milestones are met between EPCOR and the developers/landowners
of the Loop 303 Corridor. As part of the consideration, we agreed to complete certain engineering work required in the
offsite water management agreements, which we completed in 2013, thereby satisfying our remaining obligations
relating to the Loop 303 Contracts.
Sale of FATHOM™ Business
In June 2013, the Company sold its wholly-owned subsidiary, Global Water Management, LLC (“GWM”), to an investor
group led by a private equity firm which specializes in the water industry. The Company recorded a loss on the sale of
GWM in the amount of $1.9 million. GWM owns and operates the FATHOM™ business. Initially developed to support
and optimize our own utilities, the Company commercialized the FATHOM™ business in 2009 and marketed the
FATHOM™ platform as an integrated suite of technology-enabled services to municipally-owned utilities. The services
offered by FATHOM™ provide automation, cost savings and opportunities for operational efficiencies. Pursuant to the
purchase agreement for the sale of GWM, the Company is entitled to quarterly royalty payments based on a percentage
of certain of GWM’s recurring revenues for a 10-year period, up to a maximum of $15.0 million. In addition, the
Company entered into a services agreement with GWM whereby the Company has agreed to use the FATHOM™
platform for all of its regulated utility services for an initial term of 10 years. The services agreement is automatically
renewable thereafter for successive 10-year periods, unless notice of termination is given prior to any renewal period.
The services agreement may be terminated by either party for default only and the termination of the services agreement
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21
2015 ANNUAL REPORT GLOBAL WATER will also result in the termination of the royalty payments payable to the Company. The Company retains an approximate
8% interest in GWM at December 31, 2015.
Cautionary Statement Regarding Non-GAAP Measures
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contains
references to “EBITDA” and Adjusted EBITDA. EBITDA is defined for the purposes of this management’s discussion
and analysis as net income or loss before interest, income taxes, depreciation and amortization. Adjusted EBITDA is
defined as EBITDA less the gain or loss related to non-recurring events. Management believes that EBITDA and
Adjusted EBITDA are useful supplemental measures of our operating performance and provide meaningful measures
of overall corporate performance exclusive of our capital structure and the method and timing of expenditures associated
with building and placing our systems. EBITDA is also presented because management believes that it is frequently
used by investment analysts, investors and other interested parties as a measure of financial performance. Adjusted
EBITDA is also presented because management believes that it provides a measure of our recurring core business.
However, EBITDA and Adjusted EBITDA are not recognized earnings measures under U.S. GAAP and do not have a
standardized meaning prescribed by U.S. GAAP. Therefore, EBITDA and Adjusted EBITDA may not be comparable
to similar measures presented by other issuers. Investors are cautioned that EBITDA and Adjusted EBITDA should not
be construed as an alternatives to net income or loss or other income statement data (which are determined in accordance
with U.S. GAAP) as an indicator of our performance or as a measure of liquidity and cash flows. Management’s method
of calculating EBITDA and Adjusted EBITDA may differ materially from the method used by other companies and
accordingly, may not be comparable to similarly titled measures used by other companies.
Segment Reporting
Operating segments are defined as components of an enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing
operating performance. In consideration of Accounting Standards Codification (“ASC”) 280, “Segment Reporting,”
we are not organized around specific products and services, geographic regions or regulatory environments. The
Company currently operates in one geographic region within the State of Arizona, wherein each operating utility operates
within the same regulatory environment.
While we report revenue, disaggregated by service type, on the face of its statement of operations, the Company does
not manage the business based on any performance measure at the individual revenue stream level. We do not have
any customers that contribute more than 10% to the Company’s revenues or revenue streams. Additionally, the chief
operating decision maker uses consolidated financial information to evaluate our performance, which is the same basis
on which he communicates our results and performance to our board of directors. It is upon this consolidated basis
from which he bases all significant decisions regarding the allocation of our resources on a consolidated level. Based
on the information described above and in accordance with the applicable literature, management has concluded that
we are currently organized and operated as one operating and reportable segment.
22
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GLOBAL WATER 2015 ANNUAL REPORT Selected Financial Information
The following contains selected financial information of the Company's financial position, which has been derived
from the audited financial statements as of December 31, 2015, December 31, 2014, and December 31, 2013 (in
thousands of US$):
ASSETS:
Net property, plant and equipment
Current assets
Other assets
Total Assets
LIABILITIES:
Current liabilities
Noncurrent liabilities
Total Liabilities
SHAREHOLDERS’ EQUITY (DEFICIT)
Total Liabilities and Shareholders’ Equity
December 31,
2015
December 31,
2014
December 31,
2013
$
$
$
$
194,152
$
240,424
$
18,715
25,108
12,293
54,884
237,975
$
307,601
$
10,663
$
13,630
$
207,249
217,912
20,063
266,291
279,921
27,680
237,975
$
307,601
$
249,010
7,010
41,917
297,937
12,338
318,441
330,779
(32,842)
297,937
The following contains selected financial information of the Company's results of operations, which has been derived
from the audited financial statements for the years ended December 31, 2015, 2014, and 2013 (in thousands of US$):
Revenues
Operating expenses
Operating income
Total other income (expense)
Income (loss) before income taxes
Income tax benefit (expense)
Net income (loss)
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
Years Ended December 31,
2015
2014
2013
$
31,956
$
32,559
$
25,429
6,527
35,459
41,986
(20,623 )
21,363
$
117.55
117.55
$
$
(22,232)
54,791
(6,855)
47,936
16,995
64,931
$
356.67
356.67
$
$
$
$
$
33,538
32,550
988
(8,802)
(7,814)
(30,667 )
(38,481)
(211.38 )
(211.38 )
Comparison of Results of Operations for the Years Ended December 31, 2015 and 2014
Revenues – The following table summarizes the Company's revenues for the years ended December 31, 2015 and 2014
(in thousands of US$).
Water services
Wastewater and recycled water services
Unregulated revenues
Total revenues
Years Ended December 31,
2015
2014
$
$
16,320
$
15,020
616
31,956
$
18,076
14,112
371
32,559
Total revenues decreased $603,000, or 1.9%, for the year ended December 31, 2015 compared with the year ended
December 31, 2014. The decrease in revenues is primarily due to the condemnation of the operations and assets of
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23
2015 ANNUAL REPORT GLOBAL WATER Valencia Water Company, which occurred in July 2015. Adjusting for the condemnation of the operations and assets
of Valencia Water Company, revenue increased $2.0 million, or 7.5% reflecting a decrease in precipitation resulting in
higher usage of water, for the year ended December 31, 2015 compared to the year ended December 31, 2014 combined
with the increase in rates due to Rate Decision No. 74364 and an increase in active connections.
Water Services – Water services revenues decreased $1.8 million, or 9.7%, to $16.3 million for the year ended
December 31, 2015 compared with $18.1 million for the year ended December 31, 2014. Adjusting for the condemnation
of the operations and assets of Valencia Water Company, water services revenue for the year ended December 31, 2015
increased $839,000, or 6.9%, compared to the year ended December 31, 2014.
Water services revenue based on consumption decreased $1.1 million or 13.9% to $6.7 million from $7.8 million for
the year ended December 31, 2015 and 2014, respectively. The decrease in revenue was primarily driven by a decrease
in active water connections related to the condemnation of the operations and assets of Valencia Water Company.
Adjusting for the condemnation of the operations and assets of Valencia Water Company, which contributed $2.8 million
for the year ended December 31, 2014, consumption revenue increased $234,000, or 4.7%, to $5.2 million for the year
ended December 31, 2015 compared to $5.0 million for the year ended December 31, 2014. Adjusted consumption
revenue increased due to the onset of new rates in 2015 combined with an increase in active water connections and an
increase in consumption compared to 2014.
Active water connections decreased 23.8% to 19,964 as of December 31, 2015 from 26,188 as of December 31, 2014
as a result of the condemnation of the operations and assets of Valencia Water Company. However, adjusting for the
condemnation of the operations and assets of Valencia Water Company, active connections increased 2.3% to 19,964
as of December 31, 2015 from 19,515 as of December 31, 2014.
Water consumption decreased 17.2% to 2.4 billion gallons for the year ended December 31, 2015 from 2.9 billion
gallons for the year ended December 31, 2014. The decrease in consumption was primarily driven by the condemnation
of the operations and assets of Valencia Water Company in July 2015. Adjusting for the condemnation of the operations
and assets of Valencia Water Company, from which 410 million gallons were consumed for the year ended December
31, 2015 compared to 807 million gallons consumed for the year ended December 31, 2014, water consumption
decreased 4.6% to 2.0 billion gallons for the year ended December 31, 2015 compared to 2.1 billion gallons for the
year ended December 31, 2014.
Water services revenue associated with the basic service charge decreased $650,000, or 6.6%, to $9.2 million for the
year ended December 31, 2015 compared to $9.9 million for the year ended December 31, 2014 due to the condemnation
of the operations and assets of Valencia Water Company. Adjusting for the condemnation of the operations and assets
of Valencia Water Company, basic service charge revenue increased $641,000, or 9.3%, to $7.6 million for the year
ended December 31, 2015 compared to $7.0 million for the year ended December 31, 2014, reflecting growth in total
active connections as well as an increase in rates due to Rate Decision No. 74364.
Wastewater and Recycled Water Services – Wastewater and recycled water services revenues increased $908,000, or
6.4%, to $15.0 million for the year ended December 31, 2015 compared to $14.1 million for the year ended December 31,
2014. The increase was primarily due to the onset of new rates in 2015 due to Rate Decision no. 74364 combined with
an increase in the number of active connections.
Recycled water revenue, which is based on the number of gallons delivered increased $181,000, or 54.8%, to $510,000
for the year ended December 31, 2015 compared to $330,000 for the year ended December 31, 2014. The volume of
recycled water delivered increased 63 million gallons, or 11.0%, to 639 million gallons for the year ended December 31,
2015 compared to 576 million gallons for the year ended December 31, 2014.
24
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GLOBAL WATER 2015 ANNUAL REPORT
Unregulated Revenues – Unregulated revenues, which are primarily rental fees derived from leases of space on a utility-
owned communications tower and the imputed revenue resulting from our public-private partnership with the City of
Maricopa, increased $245,000, or 66.0%, to $616,000 for the year ended December 31, 2015 compared to $371,000
for the year ended December 31, 2014. The increase in revenue was driven by an increase in infrastructure coordination
and financing agreement-related imputed revenue resulting from our public-private partnership memorandum of
understanding with the City of Maricopa starting in April 2014, wherein we agreed to offset the cash payment of our
license fee through December 31, 2015 for miscellaneous utility related services the City of Maricopa required from
the Company. These commitments were previously finalized, and the associated license fees are being accounted for
as unregulated revenue until the expiration of the agreement on December 31, 2015.
Operating Expenses – The following table summarizes the Company's operating expenses for the years ended
December 31, 2015 and 2014 (in thousands of US$):
Operations and maintenance
Operations and maintenance - related party....................................................................................
General and administrative
Gain on regulatory order
Depreciation
Total operating expenses (benefit)
Years Ended December 31,
2015
2014
7,080
$
2,179
7,957
—
8,213
25,429
$
8,020
2,398
8,809
(50,664)
9,205
(22,232)
$
$
Operations and Maintenance – Operations and maintenance costs, consisting of personnel costs, production costs
(primarily chemicals and purchased power), maintenance costs, contract services, and property tax, decreased $940,000,
or 11.7%, for the year ended December 31, 2015 compared to the year ended December 31, 2014.
Total personnel costs decreased $349,000, or 14.3%, for the year ended December 31, 2015 compared to the year ended
December 31, 2014 primarily due to a decrease in personnel related to the condemnation of the operations and assets
of Valencia Water Company. Adjusting for the condemnation of the operations and assets of Valencia Water Company,
personnel costs increased $52,000 for the year ended December 31, 2015 compared to the year ended December 31,
2014.
Utilities and power expenses decreased $358,000, or 18.4%, for the year ended December 31, 2015 compared to the
year ended December 31, 2014. Utilities and power expense decreased as a result of the condemnation of operations
and assets of Valencia Water Company. Adjusting for the condemnation of the operations and assets of Valencia Water
Company, utilities and power expense decreased $72,000 for the year ended December 31, 2015 compared to the year
ended December 31, 2014.
Contract services expense decreased $116,000, or 35.4%, during the year ended December 31, 2015 compared to the
year ended December 31, 2014. Contract services decreased as a result of a reduction in disposal fees. Disposal fees
decreased $88,000, or 77.4%, during the year ended December 31, 2015 compared to the year ended December 31,
2014. Residual disposal declined due to the elimination of third party transportation expenses related to the transfer
of certain disposal activities in-house combined with the elimination of bio-solid disposal fees, as we initiated direct
land application of bio-solids in July 2014. Bio-solids are a by-product of our water reclamation process and were
previously disposed of within a landfill. Currently, bio-solids are beneficially reused as fertilizer by an agricultural
farmer who accepts the bio-solids at no cost.
Operations and Maintenance - related party – Operations and maintenance related party expenses are for service fees
paid to FATHOM™ with respect to billing, customer service and other support provided to the Company’s regulated
utilities. FATHOM™ service fees totaled $2.2 million for the year ended December 31, 2015 compared to $2.4 million
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25
2015 ANNUAL REPORT GLOBAL WATER for the year ended December 31, 2014. Fathom services fees decreased as a result of the condemnation of the operations
and assets of Valencia Water Company.
General and Administrative – General and administrative costs include the day-to-day expenses of office operation:
personnel costs, legal and other professional fees, insurance, rent and regulatory fees. These costs decreased $852,000,
or 9.7%, during the year ended December 31, 2015 compared to the year ended December 31, 2014.
For the year ended December 31, 2015, personnel costs decreased $1.0 million, or 19.9%, compared to the year ended
December 31, 2014. Personnel costs decreased as a result of a decline in wage and bonus expense combined with a
decrease in deferred compensation. Salary, bonus and benefit expense decreased $514,000 for the year ended
December 31, 2015 as compared to the year ended December 31, 2014. The decrease in salary, bonus and benefit
expense is primarily due to a decrease of approximately $821,000 related to the completion of our executive transition
plan, wherein we no longer accrue and pay a salary and bonus to Mr. Hill and Ms. Bowers, who now serve as directors
of the Company. The decrease related to our executive transition plan is inclusive of $300,000 of cash bonus payments
made in lieu of phantom stock units (“PSUs”) in 2014 that did not occur in 2015, which were made to reduce the
potential exposure to an increase in deferred compensation expense resulting from PSU re-measurement corresponding
to an increase in share price. This decrease is partially offset by a one-time bonus of $591,000 for members of
management holding stock appreciation rights at the time of the special dividend paid out in August 2015, combined
with a $65,000 increase in labor capitalized to ongoing projects.
Deferred compensation decreased $587,000 for the year ended December 31, 2015 compared to the year ended
December 31, 2014. Deferred compensation decreased primarily as a result of the reduction in the total number of
PSUs outstanding for the year ended December 31, 2015 compared to the year ended December 31, 2014. Deferred
compensation is calculated based upon the current period change in share price, multiplied by the number of outstanding
units. The U.S. Dollar adjusted share price increased $0.97 for both the years ended December 31, 2015 and 2014.
Regulatory expenses increased $154,000, or 205.3%, for the year ended December 31, 2015 compared to the year ended
December 31, 2014. The increase in regulatory expense was due to amortization of deferred rate case costs incurred
during the latest rate case that resulted in Rate Decision No. 74364. Amortization of the deferred rate case costs began
in January 2015 in conjunction with the onset of new rates.
Professional fees decreased $76,000, or 5.3%, for the year ended December 31, 2015 compared to the year ended
December 31, 2014, as certain accounting and legal fees related to Rate Decision No. 74364 were incurred during the
year ended December 31, 2014 that did not occur in 2015.
Board compensation increased $238,000, or 154.3%, to $392,000 for the year ended December 31, 2015 compared to
the year ended December 31, 2014. Board compensation increased due to the completion of the executive transition
plan, wherein Mr. Hill and Ms. Bowers are now compensated as board members rather than employees. In addition
to the transition plan, board compensation was also affected by an approximately $44,000 in deferred phantom units
("DPUs") awarded to certain board members in conjunction with the one-time dividend paid out in August 2015 in
relation to the condemnation of the operations and assets of Valencia Water Company.
Gain on Regulatory Order. The $50.7 million gain on regulatory order recorded during the year ended December 31,
2014 represents the benefit to the Company’s periodic earnings as a result of Rate Decision No. 74364, which concluded
that infrastructure coordination and financing agreement funds received historically would no longer be recorded as
contributions in aid of construction.
Depreciation. Depreciation expense decreased by $992,000, or 10.8%, to $8.2 million for the year ended December 31,
2015 compared to $9.2 million the year ended December 31, 2014. The decrease of depreciation expense is primarily
26
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GLOBAL WATER 2015 ANNUAL REPORT due to the condemnation of the operations and assets of Valencia Water Company combined with some of our assets
reaching their full useful life and, therefore, having been fully depreciated.
Other Income (Expense) – Other income totaled $35.5 million for the year ended December 31, 2015 compared to
$6.9 million of net expense for the year ended December 31, 2014. Other income (expense) primarily consisted of the
gain on the condemnation of the operations and assets of Valencia Water Company, interest expense, loss on equity
method investment and other income. The $41.9 million change in other income is primarily attributed to the $43.0
million gain recorded in 2015 with the condemnation of the operations and assets of Valencia Water Company combined
with $624,000 of income attributed to the Valencia Water Company earn out, wherein we receive $3,000 for each new
meter installed within our prior service area over a 20-year period, beginning January 1, 2015. The gain on the
condemnation of the operations and assets of Valencia Water Company was partially offset by $2.0 million of interest
income related to the Sierra Negra Ranch, LLC litigation recorded during the year ended December 31, 2014, which
was not recorded in 2015. See “—Recent Events-Sierra Negra Ranch, LLC Settlement” for additional information.
Loss on equity method investment decreased by $473,000 for the year ended December 31, 2015 compared to the year
ended December 31, 2014 due to the reduction in the Company’s share of ongoing losses, which declined as a result
of the recapitalization of Fathom Water Management Holdings, LLP (the “FATHOM Partnership”) in November 2014.
Income Tax Benefit (Expense) – Income tax expense increased to $20.6 million for the year ended December 31,
2015 compared to a benefit of $17.0 million for the year ended December 31, 2014. The change in income tax expense
is driven by the $20.2 million tax expense related to the condemnation of the operations and assets of Valencia Water
Company for the year ended December 31, 2015 compared to a $16.1 million tax benefit related to the reversal of
substantially all the deferred tax asset valuation allowance for the year ended December 31, 2014 as a result of Rate
Decision No. 74364.
Effective June 2012 and through December 31, 2013, the Company maintained a full income tax valuation allowance
against its net deferred tax assets. During the year ended December 31, 2014, as a result of the additional revenues
expected to be provided by Rate Decision No. 74364, as well as other factors, the Company performed an evaluation
of its deferred tax assets and determined that sufficient evidence existed such that the majority of the Company’s deferred
tax assets would be utilized in the future. Accordingly, the Company reversed substantially all of the deferred tax asset
valuation allowance previously recorded, resulting in a $16.1 million income tax benefit. For the year ended
December 31, 2014, the Company recorded an $868,000 income tax benefit related to current year losses.
Net Income – Net income totaled $21.4 million for the year ended December 31, 2015 compared to $64.9 million for
the year ended December 31, 2014. The change in net income for the year ended December 31, 2015 is primarily
attributed to the $43.0 million gain on the condemnation of the operations and assets of Valencia, net of a $20.2 million
tax liability for the year ended December 31, 2015 compared to the $50.7 million gain on regulatory order, $16.1 million
release of income tax asset valuation allowance and interest income of $2.0 million related to the SNR litigation recorded
for the year ended December 31, 2014 that did not occur in 2015. Additionally, the Company recognized approximately
$296,000 of income for proceeds related to the sale of Loop 303 Contracts along with a $176,000 loss in conjunction
with the classification of Willow Valley's assets as held for sale, which did not occur in 2014.
EBITDA and Adjusted EBITDA – EBITDA totaled $58.5 million for the year ended December 31, 2015 compared
to $66.6 million for the year ended December 31, 2014. The change in EBITDA for year ended December 31, 2015
compared to the year ended December 31, 2014 is primarily attributed to the $50.7 million gain on regulatory order
recorded for the year ended December 31, 2014 and the $43.0 million gain on the condemnation of the operations and
assets of Valencia Water Company recorded for the year ended December 31, 2015.
Adjusted EBITDA totaled $15.7 million for the year ended December 31, 2015 compared to $13.7 million for the year
ended December 31, 2014. The increase to Adjusted EBITDA is primarily driven by an increase in rates related to Rate
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27
2015 ANNUAL REPORT GLOBAL WATER Decision No. 74364 combined with increases in active connections. Additionally, Adjusted EBITDA increased as a
result of previously discussed general and administrative expense reductions. These increases were partially offset due
to the condemnation of the operations and assets of Valencia Water Company.
A reconciliation of Net Income to EBITDA and Adjusted EBITDA in the years ended December 31, 2015 and 2014 is
as follows (in thousands of US$):
Net Income
Income tax expense (benefit)
Interest income
Interest expense
Depreciation
EBITDA(1)
Gain on regulatory order
Sierra Negra Ranch interest income
Gain on condemnation of the operations and assets of Valencia Water Company
Writedown of Willow Valley assets held for sale
Gain on sale of Loop 303 Contracts
Equity investment loss (income)
EBITDA Adjustments
Adjusted EBITDA(2)
Years Ended December 31,
2015
2014
$
$
$
21,363
$
20,623
(11)
8,299
8,213
58,487
$
—
—
(42,983)
176
(296)
330
(42,773)
15,714
$
64,931
(16,995)
(79)
9,512
9,205
66,574
(50,664)
(2,021)
—
—
—
(144)
(52,829)
13,745
(1) EBITDA is defined as net income or loss before interest, income taxes, depreciation and amortization. EBITDA is not a recognized measure
under U.S. GAAP and does not have a standardized meaning prescribed by U.S. GAAP. Therefore, EBITDA may not be comparable to similar
measures presented by other companies. The table above reconciles EBITDA to net income. See “Cautionary Statement Regarding Non-
GAAP Measures” for further information regarding EBITDA.
(2) Adjusted EBITDA is defined as EBITDA less the gain or loss related to non-recurring events, and includes an adjustment for gain on
condemnation of the operations and assets of Valencia, the writedown of Willow Valley assets held for sale, gain on sale of Loop 303 Contracts
and equity investment loss for the year ended December 31, 2015. Adjustments for the year ended December 31, 2014 include an adjustment
for the regulatory gain related to Rate Decision No. 74364, interest income related to the Sierra Negra Ranch, LLC litigation, and loss (income)
on equity method investment (inclusive of a $1.0 million gain on our ownership interest in FATHOM™). Adjusted EBITDA is not a recognized
measure under U.S. GAAP and does not have a standardized meaning prescribed by U.S. GAAP. Therefore, Adjusted EBITDA may not be
comparable to similar measures presented by other companies. The table above reconciles Adjusted EBITDA to EBITDA. See “Cautionary
Statement Regarding Non-GAAP Measures” for further information regarding Adjusted EBITDA.
Comparison of Results of Operations for the Quarter ended December 31, 2015 and 2014
Revenues – The following table summarizes GWRI’s revenues for the three months ended December 31, 2015 and
2014 (in thousands of US$).
Water services
Wastewater and recycled water services
Unregulated revenues
Total revenues
Three Months Ended December 31,
2015
2014
$
$
3,182
$
3,777
150
7,109
$
4,245
3,551
117
7,913
Total revenues decreased $804,000, or 10.2%, for the three months ended December 31, 2015 compared with the three
months ended December 31, 2014. The decrease in revenues is due to the condemnation of the operations and assets
of Valencia Water Company which occurred in July 2015. Adjusting for the condemnation of the operations and assets
of Valencia Water Company, which contributed revenue of $1.4 million for the three months ended December 31, 2014,
28
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GLOBAL WATER 2015 ANNUAL REPORT revenue increased $604,000 or 9.3% in the three months ended December 31, 2015 compared to the three months ended
December 31, 2014. The increase in adjusted revenues reflects the increase in rates related to Rate Decision No. 74364
in February 2014 combined with a 2.4% increase in active service connections combined with a 4.6% increase in
consumption during the fourth quarter of 2015 compared to the fourth quarter of 2014.
Water Services – Water services revenues decreased $1.1 million, or 25.0%, to $3.2 million for the three months ended
December 31, 2015 compared to $4.2 million for the three months ended December 31, 2014. Adjusting for the
condemnation of the operations and assets of Valencia Water Company, water services revenue for the three months
ended December 31, 2015 increased $345,000 compared to the three months ended December 31, 2014.
Water services revenue based on consumption decreased $458,000, or 27.5% to $1.2 million from $1.7 million for the
three months ended December 31, 2015 and 2014, respectively. The decrease in revenue was primarily driven by a
decrease in active water connections related to the condemnation of the operations and assets of Valencia Water
Company. Adjusting for the condemnation of the operations and assets of Valencia Water Company, which contributed
$641,000 for the three months ended December 31, 2014, consumption revenue increased $183,000, or 17.8%, to $1.2
million for the three months ended December 31, 2015 compared to $1.0 million for the three months ended
December 31, 2014. Adjusted consumption revenue increased due to the onset of new rates in 2015 combined with an
increase in active water connections and an increase in consumption compared to 2014.
Active water connections decreased 23.8% to 19,964 as of December 31, 2015 from 26,188 as of December 31, 2014
as a result of the condemnation of the operations and assets of Valencia Water Company. However, adjusting for the
condemnation of the operations and assets of Valencia Water Company, active connections increased 2.3% to 19,964
as of December 31, 2015 from 19,515 as of December 31, 2014.
Water consumption decreased 28.7% to 443 million gallons for the three months ended December 31, 2015 from 621
million gallons for the three months ended December 31, 2014. The decrease in consumption was primarily driven by
the condemnation of the operations and assets of Valencia Water Company. Adjusting for the condemnation of the
operations and assets of Valencia Water Company, from which 197 million gallons were consumed for the three months
ended December 31, 2014, water consumption increased 4.6% to 443 million gallons for the three months ended
December 31, 2015 compared to 424 million gallons for the three months ended December 31, 2014.
Water services revenue associated with the basic service charge decreased $566,000, or 22.9%, to $1.9 million for the
three months ended December 31, 2015 compared to $2.5 million for the three months ended December 31, 2014 due
to the condemnation of the operations and assets of Valencia Water Company. Adjusting for the condemnation of the
operations and assets of Valencia Water Company, basic revenue increased $163,000, or 9.3%, to $1.9 million for the
three months ended December 31, 2015 compared to $1.7 million for the three months ended December 31, 2014,
reflecting growth in total active connections as well as an increase in rates due to Rate Decision No. 74364.
Wastewater and Recycled Water Services – Wastewater and recycled water services revenues increased $226,000, or
6.4%, for the three months ended December 31, 2015 compared to the three months ended December 31, 2014. The
increase was primarily due to the number of active connections.
Recycled water revenue, which is based on the number of gallons delivered, increased $41,000, or 54.2%, to $118,000
for the three months ended December 31, 2015 compared to $76,000 for the three months ended December 31, 2014.
The recycled water revenue increase is a function of an increase in rate and volume delivered. The volume of recycled
water delivered increased 13 million gallons, or 9.7%, to 147 million gallons for the three months ended December 31,
2015 from 134 million gallons for the three months ended December 31, 2014.
Unregulated Revenues – Unregulated revenues, which are primarily rental fees derived from leases of space on a utility-
owned communications tower and the imputed revenue resulting from our public-private partnership with the City of
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29
2015 ANNUAL REPORT GLOBAL WATER Maricopa, increased $33,000, or 28.2%, to $150,000 for the three months ended December 31, 2015 compared to
$117,000 for the three months ended December 31, 2014. The increase in revenue was driven by an increase in
infrastructure coordination and financing agreement-related imputed revenue resulting from our public-private
partnership memorandum of understanding with the City of Maricopa starting in April 2014, wherein we agreed to
offset the cash payment of our license fee through December 31, 2015 for miscellaneous utility related services the
City of Maricopa required from the Company. These commitments were previously finalized, and the associated license
fees are being accounted for as unregulated revenue until the expiration of the agreement on December 31, 2015.
Operating Expenses – The following table summarizes the Company’s operating expenses for the three months ended
December 31, 2015 and 2014 (in thousands of US$):
Operations and maintenance
Operations and maintenance - related party
General and administrative
Depreciation
Total operating expenses
Three Months Ended December 31,
2015
2014
$
$
1,473
$
467
2,066
1,687
5,693
$
1,959
604
2,199
2,279
7,041
Operations and Maintenance – Operations and maintenance costs, consisting of personnel costs, production costs
(primarily chemicals and purchased power), maintenance costs, contract services and property tax , decreased $486,000,
or 24.8%, for the three months ended December 31, 2015 compared to the three months ended December 31, 2014.
Total personnel costs decreased $157,000, or 24.0%, in the three months ended December 31, 2015 compared to the
three months ended December 31, 2014, primarily due to a decrease in personnel related to the condemnation of the
operations and assets of Valencia Water Company. Adjusting for the condemnation of the operations and assets of
Valencia Water Company, personnel expenses increased $43,000, or 9.5%, for the three months ended December 31,
2015 compared to the three months ended December 31, 2014. Adjusted personnel expense increased due to an increase
in medical expense for the three months ended December 31, 2015 compared to the three months ended December 31,
2014.
Utilities and power expenses decreased $175,000, or 38.5%, for the three months ended December 31, 2015 compared
to the three months ended December 31, 2014. Utilities and power expense decreased as a result of the condemnation
of the operations and assets of Valencia Water Company. Adjusting for the condemnation of the operations and assets
of Valencia Water Company, utilities and power expense decreased $70,000, or 20%, for the three months ended
December 31, 2015 compared to the three months ended December 31, 2014.
Contract service expenses decreased $45,000, or 54.2%, for the three months ended December 31, 2015 compared to
the three months ended December 31, 2014. Adjusting for the condemnation of the operations and assets of Valencia
Water Company, contract service expenses decreased $19,000, or 32.9%, for the three months ended December 31,
2015 compared to the three months ended December 31, 2014.
Property taxes decreased $53,000, or 11.3%, for the three months ended December 31, 2015 compared to the three
months ended December 31, 2014. Adjusting for the condemnation of the operations and assets of Valencia Water
Company, property taxes increased $15,000, or 3.6%, for the three months ended December 31, 2015 compared to the
three months ended December 31, 2014. Property taxes are calculated using a centrally valued property calculation,
which derives property values based upon three-year historical average revenues of the Company. As revenues increase,
property taxes will continue to increase.
30
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GLOBAL WATER 2015 ANNUAL REPORT Operations and Maintenance - related party – Operations and maintenance related party expenses are for service fees
paid to FATHOM™ with respect to billing, customer service and other support provided to the Company’s regulated
utilities. Fathom service fees totaled $467,000 for the three months ended December 31, 2015 compared to $604,000
for the three months ended December 31, 2014. Fathom services fees decreased as a result of the condemnation of the
operations and assets of Valencia Water Company.
General and Administrative – General and administrative costs include the day-to-day expenses of office operation;
personnel costs, legal and other professional fees, insurance, rent and regulatory fees. These costs decreased $133,000,
or 6.0%, during the three months ended December 31, 2015 compared to the three months ended December 31, 2014.
Personnel costs decreased $179,000, or 14.0%, for the three months ended December 31, 2015 compared to the three
months ended December 31, 2014. Personnel costs decreased primarily as a result of a decrease in wage and bonus
expense for the three months ended December 31, 2015 compared to the three months ended December 31, 2014
attributed to the completion of the executive transition plan, net of a $69,000 increase in medical expense for the three
months ended December 31, 2015 compared to the three months ended December 31, 2014.
Regulatory expense increased $33,000, or 157.1%, for the three months ended December 31, 2015 compared to the
three months ended December 31, 2014. The increase in regulatory expense is primarily due to amortization of deferred
rate case costs incurred during the latest rate case that resulted in Rate Decision No. 74364 in February 2014.
Amortization of the deferred rate case costs began in January 2015 in conjunction with the onset of new rates.
Professional fees, which include legal and accounting costs, decreased $28,000, or 8.1%, for the three months ended
December 31, 2015 compared to the three months ended December 31, 2014. Professional fees decreased primarily
due to the shift in the timing of audit work, which shifted from the fourth quarter of 2014 to the third quarter of 2015,
thus leading to a reduction for the three months ended December 31, 2015 compared to the three months ended
December 31, 2014.
Miscellaneous expenses increased $84,000 or 61.3% for the three months ended December 31, 2015 compared to the
three months ended December 31, 2014. This increase is primarily related to an increase in board compensation of
approximately $69,000. Board compensation increased due to the completion of the executive transition plan, wherein
Mr. Hill and Ms. Bowers are now compensated as board members rather than employees. Additionally, compensation
increased due to an increase in the number of outstanding deferred phantom units (“DPUs”) held by directors combined
with appreciation related to an increase in share price.
Depreciation – Depreciation expense decreased by $592,000, or 26.0%, to $1.7 million for the three months ended
December 31, 2015. This decrease is primarily related to the condemnation of the operations and assets of Valencia
Water Company which recorded depreciation of approximately $493,000 for the three months ended December 31,
2014 in addition to certain assets reaching their useful life and, therefore, having been fully depreciated.
Other Income (Expense) – Other income (expense) totaled $1.7 million of net expense for the three months ended
December 31, 2015 compared to $2.2 million of net expense for the three months ended December 31, 2014. Total
other income (expense) primarily consists of interest expense and other miscellaneous gains and losses. Interest expense
decreased by $1.2 million compared to the three months ended December 31, 2014 primarily due to the write-off of
certain deferred loan fees and bond fees which occurred at the time of refinancing during the last quarter of fiscal year
2014. During the three months ended December 31, 2015, the Company recorded a loss of $118,000 on its equity
method investment in FATHOM compared to income of $618,000 for the three months ending December 31, 2014.
Equity method income of $618,000 for the three months ended December 31, 2014 is inclusive of the $1.0 million gain
on revaluation of our ownership interest in FATHOM.
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31
2015 ANNUAL REPORT GLOBAL WATER Income Tax Benefit (Expense) – Income tax benefit decreased $244,000 to $274,000 for the three months ended
December 31, 2015 compared to a benefit of $518,000 for the three months ended December 31, 2014.
Net Loss – The Company's net loss totaled $30,000 for the three months ended December 31, 2015 compared to a net
loss of $839,000 for the three months ended December 31, 2014. The change in net loss for the three months ended
December 31, 2015 compared to the three months ended December 31, 2014 is primarily attributed to a $1.2 million
decrease in interest related to the debt refinancing in the fourth quarter of 2014 combined with an interest reduction
achieved with the retirement of the MidFirst loan in July 2015. In addition to the change in interest, general and
administrative personnel expenses decreased in relation to executive transition plan, combined with an increase in other
income of $225,000 attributed to the Valencia Water Company earn out recorded for the three months ended
December 31, 2015. These changes were partially offset by a $734,000 decrease in equity method investment for the
three months ended December 31, 2015 compared to three months ended December 31, 2014.
EBITDA and Adjusted EBITDA – EBITDA totaled $3.2 million for the three months ended December 31, 2015
compared to $3.9 million for the three months ended December 31, 2014. The change in EBITDA for the three months
ended December 31, 2015 compared to the three months ended December 31, 2014 is primarily attributed to the
$734,000 change in equity method investment, from a gain of $618,000 for three months ended December 31, 2014 to
a loss of $118,000 for the three months ended December 31, 2015. This decrease was partially offset by a decrease in
general and administrative personnel expenses attributable to the executive transition plan, combined with $225,000
of income attributed to the Valencia Water Company earn out recorded for the three months ended December 31, 2015.
Adjusted EBITDA totaled $3.4 million for the three months ended December 31, 2015 compared to $3.3 million for
the three months ended December 31, 2014. The increase to Adjusted EBITDA is primarily driven by an increase in
rates related to Rate Decision No. 74364 combined with increases in active connections. Additionally, Adjusted
EBITDA increased as a result of previously discussed general and administrative expense reductions. These increases
were partially offset due to the condemnation of the operations and assets of Valencia Water Company.
A reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA in the three months ended December 31,
2015 and 2014 is as follows (in thousands of US$):
Net income (loss)
Income tax expense (benefit)
Interest income
Interest expense
Depreciation
EBITDA(1)
Gain on condemnation of the operations and assets of Valencia Water Company
Equity investment (gains) losses
EBITDA Adjustments
Adjusted EBITDA(2)
Three Months Ended December 31,
2015
2014
(30) $
(274)
(3)
1,803
1,687
3,183
$
91
118
209
3,392
$
(839)
(518)
(15)
3,025
2,279
3,932
—
(618)
(618)
3,314
$
$
$
(1) EBITDA is defined as income or loss before interest, income taxes, depreciation and amortization. EBITDA is not a recognized measure under
U.S. GAAP and does not have a standardized meaning prescribed by U.S. GAAP. Therefore, EBITDA may not be comparable to similar
measures presented by other companies. The table above reconciles EBITDA to net income (loss). See “Cautionary Statement Regarding Non-
GAAP Measures” for further information regarding EBITDA.
(2) Adjusted EBITDA is defined as EBITDA less the gain or loss related to non-recurring events, and includes an adjustment for the gain on
condemnation of the operations and assets of Valencia Water Company and for the income (loss) on equity method investment. Adjusted
EBITDA is not a recognized measure under U.S. GAAP and does not have a standardized meaning prescribed by U.S. GAAP. Therefore,
Adjusted EBITDA may not be comparable to similar measures presented by other companies. The table above reconciles EBITDA to Adjusted
EBITDA. See “Cautionary Statement Regarding Non-GAAP Measures” for further information regarding EBITDA.
32
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GLOBAL WATER 2015 ANNUAL REPORT Quarterly Results – Our results of operations have varied and may continue to vary from quarter to quarter and are
not necessarily indicative of the results of any future period. We believe that we have included all adjustments, consisting
only of normal recurring adjustments necessary for a fair statement of our quarterly data. You should read our quarterly
data in conjunction with our consolidated financial statements and the related notes.
Operating results of our Regulated business are subject to significant seasonality. GWRI’s water systems generally
experience higher demand in the summer due to the warmer temperatures and increased usage by customers for irrigation
and other outdoor uses. Accordingly, the second and third quarters of the year are generally those in which water services
revenue and recycled water revenue are highest. Nevertheless, cooler or wetter weather can have a downward effect
on our operating results.
The following table sets forth consolidated financial data for the last eight quarters ended December 31, 2015 (in
thousands of US$). This financial information has been derived from the interim financial statements prepared by and
is the responsibility of the Company’s management.
2015
2014
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$
3,182 $
4,131 $
5,114 $
3,893
$
4,245 $
5,087 $
5,127 $
3,617
3,777
150
7,109
1,473
467
2,066
—
1,687
5,693
1,416
3,848
164
8,143
1,690
483
2,020
—
1,894
6,087
2,056
3,793
175
9,082
2,057
618
1,807
—
2,320
6,802
2,280
3,602
127
7,622
1,860
611
2,064
—
2,312
6,847
775
3,551
117
7,913
1,959
604
2,199
—
2,279
7,041
872
3,584
124
8,795
2,077
600
1,841
—
2,255
6,773
2,022
3,612
116
8,855
2,097
598
2,280
3,365
14
6,996
1,888
595
2,489
— (50,664)
2,427
7,402
1,453
2,244
(43,448)
50,444
REVENUES:
Water services
Wastewater and recycled water services
Unregulated revenues
Total revenues
OPERATING EXPENSES:
Operations and maintenance
Operations and maintenance - related party.........
General and administrative
Gain on regulatory order
Depreciation
Total operating expenses
OPERATING INCOME
OTHER INCOME (EXPENSE):
Interest income
Interest expense
Gain on condemnation of Valencia
Other
3
4
(1,803)
(2,367)
(91) 43,074
402
203
2
(2,050)
—
338
2
(2,079)
—
(176)
15
(3,025)
—
89
692
23
(2,111)
—
21
2
22
(2,152)
—
19
(166)
19
(2,224)
—
2,033
(112)
(284)
Other - related party ............................................
(32)
(31)
25
35
Total other income (expense)
(1,720)
41,082
(1,685)
(2,218)
(2,229)
(2,065)
(2,277)
INCOME (LOSS) BEFORE INCOME TAXES
(304)
43,138
595
(1,443)
(1,357)
INCOME TAX BENEFIT (EXPENSE)
274
(21,233)
(192)
528
518
(43)
17
(824)
50,160
335
16,125
NET INCOME (LOSS)
$
(30) $ 21,905 $
403 $
(915) $
(839) $
(26) $
(489) $ 66,285
Adjusted EBITDA (1)
$
3,392 $
4,433 $
4,723 $
3,166
$
3,314 $
4,367 $
3,966 $
2,098
Outstanding Share Data
As of March 15, 2016, there were 181,179 shares of common stock of GWRI outstanding and options to acquire an
additional 431 shares of common stock of GWRI.
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33
2015 ANNUAL REPORT GLOBAL WATER Liquidity and Capital Resources
The Company’s capital resources are provided by internally generated cash flows from operations as well as debt and
equity financing. Additionally, the Company’s regulated utility subsidiaries receive advances and contributions from
customers, home builders and real estate developers to partially fund construction necessary to extend service to new
areas. The Company uses its capital resources to:
•
•
fund operating costs;
fund capital requirements, including construction expenditures;
• make debt and interest payments; and
•
invest in new and existing ventures.
The Company’s utility subsidiaries operate in rate-regulated environments in which the amount of new investment
recovery may be limited; such recovery will take place over an extended period of time because recovery through rate
increases is subject to regulatory lag.
As of December 31, 2015, the Company had notable near-term cash expenditure obligations. Most significantly, the
Company has approximately $9.0 million of debt interest and principal payments due before December 31, 2016. While
specific facts and circumstances could change, we believe that we have sufficient cash on hand and will be able to
generate sufficient cash flows to meet our required debt service and operating cash flow requirements as well as remain
in compliance with our debt covenants until at least December 31, 2016.
In March 2014, the Company initiated a dividend program to declare and pay a monthly dividend. The initial monthly
dividend was C$0.0220 per share. In November 2014, the Company increased the monthly dividend to C$0.0240 per
share. In March 2015, the Company increased the monthly dividend to C$0.0260 per share. In July 2015, the Company
increased the monthly dividend to C$0.0283 per share. The Company expects monthly dividends of similar amounts
will be declared and paid for the foreseeable future. Declaration of any dividends is at the discretion of the Company’s
board of directors.
Cash Flows from Operating Activities – Cash flows provided by operating activities are used for operating needs
and to meet capital expenditure requirements. The Company’s future cash flows from operating activities will be affected
by economic utility regulation, infrastructure investment, growth in service connections, customer usage of water,
compliance with environmental health and safety standards, production costs, and weather and seasonality.
For the years ended December 31, 2015 and December 31, 2014, the Company’s net cash provided by operating activities
totaled $4.2 million and $11.6 million, respectively. The $7.4 million change in cash from operating activities was
primarily driven by $2.8 million of infrastructure coordination and financing agreement funds and $2.0 million of
interest in connection with the settlement of the Sierra Negra Ranch, LLC litigation, received for the year ended
December 31, 2014 and not for 2015. Additionally, cash from operations was affected by a $1.4 million payout of
accrued PSU expense for the year ended December 31, 2015. Further, operating cash flows are affected by the timing
of the recording and settlement of accounts payable and other accrued liabilities.
Cash Flows Provided By (Used In) Investing Activities – For the year ended December 31, 2015, the Company’s
net cash provided by investing activities totaled $52.0 million compared to $1.4 million in net cash used in investing
activities for the year ended December 31, 2014. The $53.4 million change was primarily driven by the $55.2 million
in proceeds received in relation to the condemnation of the operations and assets of Valencia Water Company and
$296,000 in proceeds from the sale of Loop 303 Contracts received during the year ended December 31, 2015. These
increases were partially offset by a $1.9 million increase in capital expenditures for the year ended December 31, 2015
compared to the year ended December 31, 2014.
34
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GLOBAL WATER 2015 ANNUAL REPORT The Company continues to invest capital prudently in its existing, core service areas where the Company is able to
deploy its Total Water Management model and as service connections grow. This includes any required maintenance
capital expenditures and the construction of new water and wastewater treatment and delivery facilities. The Company’s
projected capital expenditures and other investments are subject to periodic review and revision to reflect changes in
economic conditions and other factors.
Cash Flows from Financing Activities – For the years ended December 31, 2015 and December 31, 2014, the
Company’s net cash used in financing activities totaled $51.3 million and $5.6 million, respectively. The $45.7 million
increase in cash used in financing activities was principally driven by $21.3 million in cash used to retire our term loan
with MidFirst Bank in July 2015 combined with an increase of $24.2 million in the amount of dividends paid during
the year ended December 31, 2015 compared to the year ended December 31, 2014, of which $22.8 million of the
increase is related to a special one-time cash dividend paid out on August 12, 2015.
Tax Exempt Bonds – The Company issued tax-exempt bonds through The Industrial Development Authority of the
County of Pima in the amount of $36,495,000 on December 28, 2006; $53,624,000, net of a discount of $511,000, on
November 19, 2007; and $24,550,000 on October 1, 2008. The Series 2006, 2007 and 2008 bonds have interest payable
semiannually on the first of June and December. Recurring payments of principal are payable annually on the first of
December for the Series 2006, 2007 and 2008 Bonds. Proceeds from these bonds were used for qualifying costs of
constructing and equipping the water and wastewater treatment facilities of our subsidiaries, Palo Verde and Santa
Cruz. The Company has not granted any deed of trust, mortgage, or other lien on property of Santa Cruz or Palo Verde.
These bonds are secured by a security agreement that gives the trustee rights to the net operating income generated by
our Santa Cruz and Palo Verde utilities. The tax-exempt bonds require we maintain a minimum debt service coverage
ratio of 1.10:1.00, tested annually based on the combined operating results of our Santa Cruz and Palo Verde utilities.
As of December 31, 2015, we maintained a ratio of 1.38:1.00.
Insurance Coverage
The Company carries various property, casualty and financial insurance policies with limits, deductibles and exclusions
consistent with industry standards. However, insurance coverage may not be adequate or available to cover unanticipated
losses or claims. The Company is self-insured to the extent that losses are within the policy deductible or exceed the
amount of insurance maintained. Such losses could have a material adverse effect on the Company’s short-term and
long-term financial condition and the results of operations and cash flows.
Contractual Obligations and Commitments
The following table presents contractual obligations and commercial commitments as of December 31, 2015 (in
thousands of US$):
Contractual obligations (1)
Long term debt obligations (2)
Interest on long term debt (3)
Capital lease obligation
Interest on capital lease
Total
Total
Less than 1
Year
1 – 3 Years
4 – 5 Years
More than 5
Years
$
106,695 $
1,885 $
4,115 $
5,120 $
104,906
287
31
6,940
109
18
13,536
13,006
159
12
19
1
95,575
71,424
—
—
$
211,919 $
8,952 $
17,822 $
18,146 $
166,999
(1)
In addition to these obligations, the Company pays annual refunds on advances in aid of construction over a specific period of time based on
operating revenues generated from developer-installed infrastructure. The refund amounts are considered an investment in infrastructure and
eligible for inclusion in future rate base. These refund amounts are not included in the above table because the refund amounts and timing are
dependent upon several variables, including new customer connections, customer consumption levels and future rate increases, which cannot
be accurately estimated. Portions of these refund amounts are payable annually over the next two decades, and amounts not paid by the contract
expiration dates become nonrefundable and are transferred to contributions in aid of construction.
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35
2015 ANNUAL REPORT GLOBAL WATER (2) The long-term debt obligations reflected in the table above exclude the debt discount related to the Series 2007 bonds. The debt discount at
December 31, 2015 totaled $338,000 and is netted within the bonds payable balance on the Company’s balance sheet. The debt discount is
being amortized over the term of the Series 2007 bonds.
(3)
Interest on the Company’s Series 2006, 2007 and 2008 bonds is based on the fixed rates.
Off Balance Sheet Arrangements
As of December 31, 2015 and December 31, 2014, we do not have any off-balance sheet arrangements.
Risk Factors
The Company's future performance and financial condition involves a number of risks and uncertainties. Any of these
risks and uncertainties could have a material adverse effect on its results or operations, business prospects and financial
condition. These risks are discussed in GWRC's most recent Annual Innformation Form, which is available on GWRC's
SEDAR profile at www.sedar.com.
Related Party Transactions
Other than as described in "Recent Events—Proposed Transaction" and in Note 8 to the consolidated financial statements
for the year ended December 31, 2015, we are not party to any related party transactions.
Quantitative and Qualitative Disclosure about Market Risk
For the year ended December 31, 2015, the Company was exposed to market risk associated with changes in commodity
prices, equity prices and interest rates. The Company used a combination of fixed-rate and variable-rate debt to reduce
interest rate exposure. A hypothetical 10% increase in interest rates associated with variable rate debt would result in
a $42,000 reduction in the Company’s pre-tax income for the year ended December 31, 2015. To reduce the risk from
interest rate fluctuations, the Company entered into two five-year interest rate cap transaction agreements for the majority
of the Company’s variable-rate bond debt. Under the interest rate cap agreements, the Company would have been
reimbursed for the interest costs that occurred in excess of the interest rate cap levels. With the retirement of its term
loan with MidFirst bank in July 2015, the Company no longer carries any significant debt at a variable rate.
Other than interest-related risks, the Company believes the risks associated with price increases for chemicals, electricity
and other commodities are mitigated by the Company’s ability over the long-term to recover its costs through rate
increases to its customers, though such recovery is subject to regulatory lag.
Critical Accounting Policies and Estimates
The application of critical accounting policies is particularly important to the Company’s financial condition and results
of operations and provides a framework for management to make significant estimates, assumptions and other
judgments. Additionally, the Company’s financial condition, results of operations and cash flow are impacted by the
methods, assumptions and estimates used in the application of critical accounting policies. Although the Company’s
management believes that these estimates, assumptions and other judgments are appropriate, they relate to matters that
are inherently uncertain and that may change in subsequent periods. Accordingly, changes in the estimates, assumptions
and other judgments applied to these accounting policies could have a significant impact on the Company’s financial
condition and results of operations as reflected in the Company’s financial statements.
Income Taxes
Estimation of income taxes includes an evaluation of the recoverability of deferred tax assets based on an assessment
of the Company’s ability to utilize the underlying future tax deductions against future taxable income before they expire.
The Company’s assessment is based upon existing tax laws and estimates of future taxable income. If the assessment
36
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GLOBAL WATER 2015 ANNUAL REPORT of the Company’s ability to utilize the underlying future tax deductions changes, the Company would be required to
recognize fewer of the tax deductions as assets, which would increase the income tax expense in the period in which
the determination is made.
Goodwill
Goodwill is evaluated for impairment at least annually. For the purposes of this evaluation, management must make
an estimate of a weighted-average cost of capital to be used as a company-specific discount rate, which takes into
account certain risk and size premiums, risk-free yields, and the capital structure of the industry. The Company also
considers other qualitative and quantitative factors including the regulatory environment that can significantly impact
future earnings and cash flows and the effects of the volatile current economic environment. Changes in these projections
or estimates could result in a reporting unit either passing or failing the first step in the goodwill impairment model.
Recent Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which changes
the criteria for reporting discontinued operations and changing the disclosures for disposals that meet the definition
under the new guidance. Under the new guidance, only disposals representing a strategic shift in a company’s strategy
would be deemed a discontinued operation. To meet the definition of strategic shift, the disposal should have a major
effect on the organization’s operations and financial results. Examples of the type of disposals that would qualify as a
discontinued operation include a disposal of a major geographic area, a major line of business, or a major equity method
investment. For those disposals that meet the criteria, expanded disclosures on assets, liabilities, income and expenses
would apply. The Company’s adoption of ASU 2014-08 in the first quarter of 2015 did not have a material effect on
our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which completes the joint
effort between the FASB and the International Accounting Standards Board to converge the recognition of revenue
between the two boards. The new standard affects any entity using U.S. GAAP that either enters into contracts with
customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets not included within
other FASB standards. The guiding principal of the new standard is that an entity should recognize revenue in an amount
that reflects the consideration to which an entity expects to be entitled for the delivery of goods and services. ASU
2014-09 may be adopted using either of two acceptable methods: (1) retrospective adoption to each prior period
presented with the option to elect certain practical expedients; or (2) adoption with the cumulative effect recognized
at the date of initial application and providing certain disclosures. To assess at which time revenue should be recognized,
an entity should use the following steps: (1) identify the contract(s) with a customer; (2) identify the performance
obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance
obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. For
public business entities, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017,
including interim periods within the reporting period. For private companies, ASU 2014-09 is effective for annual
reporting periods beginning after December 15, 2018, and interim reporting periods beginning after December 15,
2019. Earlier application allowed in certain circumstances. The Company is currently assessing the impact that this
guidance may have on our consolidated financial position.
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements-Going Concern: Disclosure of
Uncertainties about an Entity’s Ability to Continue as a Going Concern,” which defines management’s responsibility
in evaluating whether there is substantial doubt about an organizations ability to continue as a going concern. The new
standard provides that an entity’s management should evaluate whether conditions or events exist that would raise
substantial doubt about an entity’s ability to continue as a going concern. If substantial doubt exists, the guidance
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37
2015 ANNUAL REPORT GLOBAL WATER provides principles and definitions to assist management in assessing the appropriate timing and content in their financial
statement disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016. The adoption of
ASU 2014-15 is not expected to have a material effect on our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “Interest-Imputation of Interest: Simplifying the Presentation of Debt
Issuance Costs,” which requires debt issuance costs be presented in the balance sheet as a direct deduction from the
carrying amount of the associated debt liability, consistent with the accounting of debt discounts. The effects of this
update are to be applied retrospectively as a change in accounting principal. For public business entities, ASU 2015-03
is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods
within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal
years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016.
The adoption of ASU 2015-03 will require the Company to reclassify debt issuance costs retrospectively beginning
January 1, 2016. The Company is currently assessing the impact that this guidance may have on our consolidated
financial statements.
In November 2015, the FASB issued ASU 2015-17, “Income Taxes: Balance Sheet Classification of Deferred Taxes,”
which requires that deferred tax liabilities and assets be classified as noncurrent in the classified statement of financial
position. The purpose of this update is to simplify the presentation of deferred liabilities and assets. For public business
entities, ASU 2015-17 is effective for annual periods beginning after December 15, 2016, and interim periods within
those annual periods. For private companies, the ASU is effective for financial statements for annual periods beginning
after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early
application is permitted for all entities as of the beginning of an interim or annual reporting period. The Company has
elected to early adopt ASU 2015-17 and report the impact of such adoption prospectively, which change has been
reflected in our 2015 financial statements.
JOBS Act Accounting Election and Other Matters
We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies
can elect to delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act
until such time as those standards apply to private companies. We are choosing to take advantage of this extended
accounting transition provision.
The Company has historically accounted for compensation expense related to its liability-classified stock appreciation
rights (“SARs”) using the intrinsic value method, as permitted by ASC 718 for nonpublic entities, with changes to the
value of the SARs recognized as compensation expense at each quarterly reporting date. Upon becoming a public
company, as defined in ASC 718, in the first quarter of 2016, the Company is required to change its methodology for
valuing the SARs. While the SARs will continue to be re-measured at each quarterly reporting date, the SARs are
required to be accounted for prospectively at fair value using a fair value pricing model, such as Black-Scholes. The
Company plans to record the impact of the change in valuation methods as a cumulative effect of a change in accounting
principle, as permitted by ASC 250. The effect of the change will be to increase or decrease the SAR liability by the
difference in compensation cost measured using the intrinsic value method and the fair value method with an equal
and offsetting change to retained earnings in the consolidated balance sheet. Any changes in fair value after the initial
adoption will be recorded as compensation expense in the consolidated statement of operations.
38
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GLOBAL WATER 2015 ANNUAL REPORT Disclosure Controls and Procedures and Internal Control over Financial Reporting
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Office and Chief Financial Officer reviewed and evaluated our disclosure controls and procedures.
Based on that evaluation, they have concluded that our disclosure controls and procedures are effective in providing
them with timely material information relating to the Company
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, and
has designed such internal control over financial reporting to provide reasonable assurance regarding the reliability of
financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance
with U.S. GAAP.
Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our internal
controls and procedures over financial reporting will prevent all error and all fraud. A control system can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated
goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management has evaluated the design and operation of our internal control over financial reporting as of December 31,
2015, and concluded that such internal control over financial reporting is effective as of December 31, 2015. There are
no material weaknesses that have been identified by management in this regard. This assessment was based on criteria
for effective internal control over financial reporting described in Internal Control - Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013).
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting during the last fiscal year that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Other Required Disclosures
Additional information relating to GWRI, including GWRC's Annual Information Form, has been filed on GWRC's
profile on SEDAR at www.sedar.com
* * * * * *
-28-
39
2015 ANNUAL REPORT GLOBAL WATER March 15, 2016
To Our Shareholders:
GWR Global Water Resources Corp. (“GWRC”) is pleased to present our financial
statements, along with the financial statements of Global Water Resources, Inc. (“GWRI”),
for the year ended December 31, 2015. Because GWRI represents the sole asset of GWRC
and is not consolidated into the financial statements of GWRC, the financial statements of
GWRI for the year ended December 31, 2015 is filed together with management’s discussion
and analysis of GWRC.
On behalf of the Board of Directors, management and employees of GWRC and GWRI, I
thank you for your ongoing support.
Warm regards,
Mike Liebman
Chief Financial Officer and Corporate Secretary
40
GLOBAL WATER 2015 ANNUAL REPORT GWR GLOBAL WATER RESOURCES CORP.
FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2015 AND 2014
41
2015 ANNUAL REPORT GLOBAL WATER
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Shareholders of
GWR Global Water Resources Corp.
Vancouver, British Columbia, Canada
notes to the financial statements.
Management’s Responsibility for the Financial Statements
error.
Auditors’ Responsibility
statements.
our audit opinion.
We have audited the accompanying financial statements of GWR Global Water Resources Corp. (the
“Company”), which comprise the balance sheets as of December 31, 2015 and 2014, and the related
statements of operations, shareholders’ equity, and cash flows for the years then ended, and the related
To the Board of Directors and Shareholders of
GWR Global Water Resources Corp.
Vancouver, British Columbia, Canada
INDEPENDENT AUDITORS’ REPORT
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of the financial statements that are free from material misstatement, whether due to fraud or
We have audited the accompanying financial statements of GWR Global Water Resources Corp. (the
“Company”), which comprise the balance sheets as of December 31, 2015 and 2014, and the related
statements of operations, shareholders’ equity, and cash flows for the years then ended, and the related
notes to the financial statements.
Management’s Responsibility for the Financial Statements
Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States of
America (and Canada). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement.
Auditors’ Responsibility
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of the financial statements that are free from material misstatement, whether due to fraud or
error.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the Company’s
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control. Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall presentation of the financial
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States of
America (and Canada). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the Company’s
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control. Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
42
GLOBAL WATER 2015 ANNUAL REPORT Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of GWR Global Water Resources Corp. as of December 31, 2015 and 2014, and the
results of their operations and their cash flows for the years then ended in accordance with accounting
principles generally accepted in the United States of America.
March 15, 2016
43
2015 ANNUAL REPORT GLOBAL WATER GWR GLOBAL WATER RESOURCES CORP.
BALANCE SHEETS
As of December 31, 2015 and December 31, 2014
December 31,
2015
GWR GLOBAL WATER RESOURCES CORP.
BALANCE SHEETS
As of December 31, 2015 and December 31, 2014
December 31,
2014
(in thousands of US$, except share data)
December 31,
2015
— $
December 31,
2014
(in thousands of US$, except share data)
179
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Dividend receivable
Other current assets
ASSETS
Total current assets
CURRENT ASSETS:
Equity method investment
Cash and cash equivalents
TOTAL ASSETS
Dividend receivable
Other current assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Total current assets
LIABILITIES:
Equity method investment
TOTAL ASSETS
Dividends payable, accounts payable and accrued expenses
Other noncurrent liabilities
Deferred tax liability
LIABILITIES AND SHAREHOLDERS’ EQUITY
Total liabilities
LIABILITIES:
COMMITMENTS AND CONTINGENCIES (see Note 9)
Dividends payable, accounts payable and accrued expenses
Other noncurrent liabilities
SHAREDHOLDERS’ EQUITY:
Deferred tax liability
Total liabilities
Common stock, unlimited shares authorized, 8,726,748 and 8,754,612 shares issued and
outstanding at December 31, 2015 and December 31, 2014, respectively
(Accumulated deficit) retained earnings
COMMITMENTS AND CONTINGENCIES (see Note 9)
Total shareholders’ equity
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
SHAREDHOLDERS’ EQUITY:
Common stock, unlimited shares authorized, 8,726,748 and 8,754,612 shares issued and
outstanding at December 31, 2015 and December 31, 2014, respectively
(Accumulated deficit) retained earnings
Total shareholders’ equity
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
$
$
$
$
$
$
$
36
215
55,549
— $
55,764
179
$
36
215
55,549
345
55,764
$
$
275
769
1,389
$
345
275
769
1,389
55,532
(1,157)
54,375
55,764
$
55,532
(1,157)
54,375
55,764
$
189
—
18
207
59,794
189
60,001
—
18
207
59,794
212
60,001
155
1,666
2,033
212
155
1,666
2,033
55,807
2,161
57,968
60,001
55,807
2,161
57,968
60,001
44
See accompanying notes to the financial statements
-1-
See accompanying notes to the financial statements
-1-
GLOBAL WATER 2015 ANNUAL REPORT GWR GLOBAL WATER RESOURCES CORP.
BALANCE SHEETS
As of December 31, 2015 and December 31, 2014
December 31,
2015
GWR GLOBAL WATER RESOURCES CORP.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2015 and 2014
December 31,
2014
(in thousands of US$, except share data)
2015
2014
$
— $
(in thousands of US$, except share and per share data)
189
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Dividend receivable
GAIN FROM EQUITY INVESTMENT
Other current assets
OPERATING EXPENSES
Total current assets
OPERATING INCOME
INCOME BEFORE INCOME TAXES
Equity method investment
INCOME TAX BENEFIT (EXPENSE)
TOTAL ASSETS
NET INCOME
LIABILITIES AND SHAREHOLDERS’ EQUITY
WEIGHTED AVERAGE SHARES:
Basic
LIABILITIES:
Diluted
Dividends payable, accounts payable and accrued expenses
Other noncurrent liabilities
EARNINGS PER SHARE:
Deferred tax liability
Basic
Total liabilities
Diluted
COMMITMENTS AND CONTINGENCIES (see Note 9)
SHAREDHOLDERS’ EQUITY:
Common stock, unlimited shares authorized, 8,726,748 and 8,754,612 shares issued and
outstanding at December 31, 2015 and December 31, 2014, respectively
(Accumulated deficit) retained earnings
Total shareholders’ equity
$
$
$
$
$
$
179
10,259
36
1,846
215
8,413
8,413
55,549
897
55,764
9,310
8,747,801
8,747,813
345
275
769
1.06
1,389
1.06
$
$
$
$
$
$
55,532
(1,157)
54,375
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
55,764
$
See accompanying notes to the financial statements
-1-
See accompanying notes to the financial statements
-2-
—
31,225
18
666
207
30,559
30,559
59,794
(1,666)
60,001
28,893
8,754,612
8,764,494
212
155
1,666
3.30
2,033
3.30
55,807
2,161
57,968
60,001
45
2015 ANNUAL REPORT GLOBAL WATER GWR GLOBAL WATER RESOURCES CORP.
BALANCE SHEETS
As of December 31, 2015 and December 31, 2014
December 31,
2015
GWR GLOBAL WATER RESOURCES CORP.
STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2015 and 2014
December 31,
2014
(in thousands of US$, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Dividend receivable
Other current assets
Total current assets
BALANCE – December 31, 2013
Stock-based compensation
Equity method investment
Declared dividends paid or payable
TOTAL ASSETS
Net loss
BALANCE – December 31, 2014
LIABILITIES AND SHAREHOLDERS’ EQUITY
BALANCE – December 31, 2014
LIABILITIES:
Declared dividends paid or payable
Dividends payable, accounts payable and accrued expenses
Options exercised
Other noncurrent liabilities
Share repurchase
Deferred tax liability
Net income
Total liabilities
BALANCE – December 31, 2015
COMMITMENTS AND CONTINGENCIES (see Note 9)
$
Shares
Common Stock
— $
Retained Earnings
(Accumulated
179
Deficit)
36
(in thousands of US$, except share amounts)
8,754,612
$
55,815
$
215
(24,935) $
—
—
—
$
$
8,754,612
8,754,612
—
59,636
(87,500)
—
$
$
(8)
—
—
55,807
55,807
$
$
—
182
(457)
—
8,726,748
$
55,532
$
189
Total Equity
—
18
207
30,880
(8)
59,794
(1,797)
60,001
28,893
57,968
57,968
(12,628)
212
182
155
(457)
1,666
9,310
2,033
54,375
55,807
2,161
57,968
60,001
55,549
55,764
—
(1,797)
$
28,893
2,161
2,161
$
$
(12,628)
$
—
345
275
769
1,389
—
9,310
(1,157) $
55,532
(1,157)
54,375
SHAREDHOLDERS’ EQUITY:
Common stock, unlimited shares authorized, 8,726,748 and 8,754,612 shares issued and
outstanding at December 31, 2015 and December 31, 2014, respectively
(Accumulated deficit) retained earnings
Total shareholders’ equity
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
55,764
$
46
See accompanying notes to the financial statements
-1-
See accompanying notes to the financial statements
-3-
GLOBAL WATER 2015 ANNUAL REPORT GWR GLOBAL WATER RESOURCES CORP.
BALANCE SHEETS
As of December 31, 2015 and December 31, 2014
December 31,
2015
GWR GLOBAL WATER RESOURCES CORP.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2015 and 2014
December 31,
2014
(in thousands of US$, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Dividend receivable
CASH FLOWS FROM OPERATING ACTIVITIES:
Other current assets
Net income
Total current assets
Adjustments to reconcile net income to net cash provided by operating activities:
Gain from equity investment
Equity method investment
Deferred income tax (benefit) expense
TOTAL ASSETS
Deemed distribution from related party
Cash distributions received from related party
LIABILITIES AND SHAREHOLDERS’ EQUITY
Other changes in assets and liabilities
Net cash provided by operating activities
LIABILITIES:
Dividends payable, accounts payable and accrued expenses
CASH FLOWS FROM INVESTING ACTIVITIES:
Other noncurrent liabilities
Repayment of related party cash advance
Deferred tax liability
Cash distributions from related party
Total liabilities
Deemed distribution from related party
Net cash provided by investing activities
COMMITMENTS AND CONTINGENCIES (see Note 9)
CASH FLOWS FROM FINANCING ACTIVITIES:
SHAREDHOLDERS’ EQUITY:
Dividends paid
Common stock, unlimited shares authorized, 8,726,748 and 8,754,612 shares issued and
outstanding at December 31, 2015 and December 31, 2014, respectively
Share repurchase
Proceeds from options exercised
(Accumulated deficit) retained earnings
Net cash used in financing activities
Total shareholders’ equity
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS – Beginning of period
CASH AND CASH EQUIVALENTS – End of period
Supplementary disclosure:
Income taxes paid
Interest paid
$
$
$
$
$
$
$
$
2015
— $
(in thousands of US$)
179
2014
$
$
36
9,310
215
(10,259)
55,549
(897)
55,764
1,211
13,293
56
12,714
345
$
275
(12,745)
769
12,745
1,389
—
—
(12,628)
(457)
55,532
182
(1,157)
(12,903)
54,375
$
55,764
(189)
189
— $
189
—
18
28,893
207
(31,225)
59,794
1,666
60,001
372
1,796
169
1,671
212
155
—
1,666
—
2,033
126
126
(1,608)
—
55,807
—
2,161
(1,608)
57,968
60,001
189
—
189
— $
— $
—
—
See accompanying notes to the financial statements
-1-
See accompanying notes to the financial statements
-4-
47
2015 ANNUAL REPORT GLOBAL WATER GWR GLOBAL WATER RESOURCES CORP.
Notes to the Financial Statements
GWR GLOBAL WATER RESOURCES CORP.
Notes to the Financial Statements
1. General Business Description
1. General Business Description
GWR Global Water Resources Corp. (the ‘‘Company’’, ‘‘GWRC’’, ‘‘we’’, or ‘‘us’’) was incorporated under the Business
Corporations Act (British Columbia) on March 23, 2010 to acquire shares of Global Water Resources, Inc. (‘‘GWRI’’), a
corporation incorporated in the State of Delaware of the United States of America, and to actively participate in the
management, business and operations of GWRI through its representation on the board of GWRI and its shared management
with GWRI. The formation of GWRI occurred through a reorganization of Global Water Resources, LLC and its subsidiaries
and Global Water Management, LLC (the predecessors of GWRI).
GWR Global Water Resources Corp. (the ‘‘Company’’, ‘‘GWRC’’, ‘‘we’’, or ‘‘us’’) was incorporated under the Business
Corporations Act (British Columbia) on March 23, 2010 to acquire shares of Global Water Resources, Inc. (‘‘GWRI’’), a
corporation incorporated in the State of Delaware of the United States of America, and to actively participate in the
management, business and operations of GWRI through its representation on the board of GWRI and its shared management
with GWRI. The formation of GWRI occurred through a reorganization of Global Water Resources, LLC and its subsidiaries
and Global Water Management, LLC (the predecessors of GWRI).
GWRI operates in the Western United States as a water resource management company that owns and operates regulated
water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix,
Arizona. GWRI’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation
through water reclamation and reuse. The basic premise of GWRI’s business is that the world’s water supply is limited,
and yet can be stretched significantly by effectively planning the use of recycled water and by providing individuals and
communities resources that promote wise water usage practices. GWRI deploys its integrated approach, Total Water
Management (‘‘TWM’’), a term which it uses to mean managing the entire water cycle, both to conserve water and to
maximize its total economic and social value. GWRI uses TWM to promote sustainable communities in areas where GWRI
expects growth to outpace the existing potable water supply. GWRI’s utilities are regulated by the Arizona Corporation
Commission.
GWRI operates in the Western United States as a water resource management company that owns and operates regulated
water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix,
Arizona. GWRI’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation
through water reclamation and reuse. The basic premise of GWRI’s business is that the world’s water supply is limited,
and yet can be stretched significantly by effectively planning the use of recycled water and by providing individuals and
communities resources that promote wise water usage practices. GWRI deploys its integrated approach, Total Water
Management (‘‘TWM’’), a term which it uses to mean managing the entire water cycle, both to conserve water and to
maximize its total economic and social value. GWRI uses TWM to promote sustainable communities in areas where GWRI
expects growth to outpace the existing potable water supply. GWRI’s utilities are regulated by the Arizona Corporation
Commission.
The Company, pursuant to an underwriting agreement with a syndicate of underwriters dated December 16, 2010, filed a
prospectus (the “Offering Prospectus”) on December 16, 2010 for an initial public offering (the ‘‘Offering’’) of 8,185,000
common shares of the Company at C$7.50 per share. On December 30, 2010, the Company completed the Offering and
raised gross proceeds totaling C$61,387,500. On January 28, 2011, the underwriters of the Offering exercised their over-
allotment option for an additional 569,611 common shares at C$7.50 per share resulting in additional gross proceeds of
C$4,272,083. Net proceeds from the Offering, including from the exercise of the over-allotment option, were used to
purchase 87,546 shares of GWRI’s common stock, representing a total ownership interest in GWRI of approximately
48.1% (see Note 3 and Note 6).
The Company, pursuant to an underwriting agreement with a syndicate of underwriters dated December 16, 2010, filed a
prospectus (the “Offering Prospectus”) on December 16, 2010 for an initial public offering (the ‘‘Offering’’) of 8,185,000
common shares of the Company at C$7.50 per share. On December 30, 2010, the Company completed the Offering and
raised gross proceeds totaling C$61,387,500. On January 28, 2011, the underwriters of the Offering exercised their over-
allotment option for an additional 569,611 common shares at C$7.50 per share resulting in additional gross proceeds of
C$4,272,083. Net proceeds from the Offering, including from the exercise of the over-allotment option, were used to
purchase 87,546 shares of GWRI’s common stock, representing a total ownership interest in GWRI of approximately
48.1% (see Note 3 and Note 6).
Basis of Presentation – The financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”). Amounts are stated in U.S. dollars unless
otherwise noted.
Subsequent events have been evaluated through March 15, 2016, the date of report.
Basis of Presentation – The financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”). Amounts are stated in U.S. dollars unless
otherwise noted.
Conversion to U.S. GAAP – In February 2008, the Accounting Standards Board (AcSB) of the Canadian Institute of
Chartered Accountants (CICA) confirmed that publicly accountable enterprises would be required to convert to International
Financial Reporting Standards (IFRS) in place of Canadian generally accepted accounting principles for interim and annual
reporting purposes for fiscal years beginning on or after January 1, 2011.
Subsequent events have been evaluated through March 15, 2016, the date of report.
In September 2010, the AcSB decided to offer an optional one year deferral for conversion to IFRS for qualifying entities
with rate regulated activities and permit such entities to continue to apply Part V – Pre-changeover accounting standards
of the CICA Handbook during that period. The Company is a qualifying entity for purposes of this deferral, which we
elected.
Conversion to U.S. GAAP – In February 2008, the Accounting Standards Board (AcSB) of the Canadian Institute of
Chartered Accountants (CICA) confirmed that publicly accountable enterprises would be required to convert to International
Financial Reporting Standards (IFRS) in place of Canadian generally accepted accounting principles for interim and annual
reporting purposes for fiscal years beginning on or after January 1, 2011.
During 2011, we applied for, and in July 2011 received, an exemption from the Ontario Securities Commission ("OSC")
allowing the Company and GWRI to adopt U.S. GAAP and defer the conversion to IFRS until financial years beginning
on or after January 1, 2015. Accordingly, effective January 1, 2012, we converted to U.S. GAAP.
In September 2010, the AcSB decided to offer an optional one year deferral for conversion to IFRS for qualifying entities
with rate regulated activities and permit such entities to continue to apply Part V – Pre-changeover accounting standards
of the CICA Handbook during that period. The Company is a qualifying entity for purposes of this deferral, which we
elected.
In June 2014, we were granted an extension of the exemption previously received from the OSC. The extended exemption
allows the Company and GWRI to defer the conversion to IFRS until the earliest of: (a) January 1, 2019; (b) if GWRC or
GWRI, as applicable, ceases to have activities subject to rate regulation, the first day of the financial year of GWRC or
GWRI, respectively, that commences after GWRC or GWRI, respectively, ceases to have activities subject to rate regulation;
During 2011, we applied for, and in July 2011 received, an exemption from the Ontario Securities Commission ("OSC")
allowing the Company and GWRI to adopt U.S. GAAP and defer the conversion to IFRS until financial years beginning
on or after January 1, 2015. Accordingly, effective January 1, 2012, we converted to U.S. GAAP.
-5-
48
In June 2014, we were granted an extension of the exemption previously received from the OSC. The extended exemption
allows the Company and GWRI to defer the conversion to IFRS until the earliest of: (a) January 1, 2019; (b) if GWRC or
GWRI, as applicable, ceases to have activities subject to rate regulation, the first day of the financial year of GWRC or
GWRI, respectively, that commences after GWRC or GWRI, respectively, ceases to have activities subject to rate regulation;
-5-
GLOBAL WATER 2015 ANNUAL REPORT GWR GLOBAL WATER RESOURCES CORP.
Notes to the Financial Statements
and (c) the effective date prescribed by the International Accounting Standards Board for the mandatory application of a
standard within IFRS specific to entities with rate-regulated activities.
Use of accounting estimates – U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses as well as disclosures of contingent assets and liabilities in the financial
statements. We use estimates for certain items such as income taxes, fair values of financial instruments and commitments
and contingencies. By nature, these estimates and assumptions are subject to measurement uncertainty and as such, actual
results could differ from estimates used in these financial statements.
Economic dependence – We are economically dependent on GWRI. Our ability to pay distributions is entirely dependent
on the distributions received from GWRI. Significant events affecting or transactions involving GWRI could materially
influence our ability to pay distributions. We also rely on GWRI for payment of our operating expenses (see Note 4).
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Equity method investment – We account for our investment in GWRI using the equity method of accounting because
we exercise significant influence over GWRI’s operating, investing and financial policies, though such rights do not result
in a controlling financial interest. Under the equity method of accounting, an investment is initially recorded at cost, with
any amounts paid in excess of our share of the net fair value of identifiable assets and liabilities recognized as goodwill
at at the date of the acquisition, which is included within the carrying amount of the investment.
If an other than temporary loss occurs in the value of an equity method investment, the carrying amount of the investment
is written down to reflect the loss. The amount of the write down is recorded in net income and is not reversed even if
there is a subsequent increase in value (see Note 3).
The carrying value of the investment is adjusted thereafter to include the investor’s pro rata share of post-acquisition
earnings of the investee. The amount of the adjustment is included in the determination of net income by the investor,
and the investment account of the investor is increased or decreased to reflect the investor’s share of capital transactions,
changes in accounting policies and corrections of errors relating to prior period financial statements applicable to post-
acquisition periods. Profit distributions received or receivable from an investee reduce the carrying value of the investment.
Income or losses from equity investment is recorded based on our percentage ownership in the net earnings of investments
over which we exercise significant influence over operating, investing and financial policies but over which we do not
have control.
Distributions – Distributions receivable from GWRI are recorded when declared by GWRI. To the extent that distributions
received are in excess of equity earnings from GWRI, the distributions are considered a return of investment and are
reflected within cash flows from investing activities in the Company’s statement of cash flows. Otherwise distributions
received are considered a return on investment and reflected within cash flows from operating activities in the statement
of cash flows.
Distributions payable to our shareholders are recorded when declared.
Income taxes – We utilize the asset and liability method of accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance
when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
We evaluate uncertain tax positions using a two-step approach. Recognition (step one) occurs when we conclude that a
tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement
(step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of
-6-
49
GWR GLOBAL WATER RESOURCES CORP.Notes to the Financial Statements-5-1. General Business DescriptionGWR Global Water Resources Corp. (the ‘‘Company’’, ‘‘GWRC’’, ‘‘we’’, or ‘‘us’’) was incorporated under the Business Corporations Act (British Columbia) on March 23, 2010 to acquire shares of Global Water Resources, Inc. (‘‘GWRI’’), a corporation incorporated in the State of Delaware of the United States of America, and to actively participate in the management, business and operations of GWRI through its representation on the board of GWRI and its shared management with GWRI. The formation of GWRI occurred through a reorganization of Global Water Resources, LLC and its subsidiaries and Global Water Management, LLC (the predecessors of GWRI). GWRI operates in the Western United States as a water resource management company that owns and operates regulated water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. GWRI’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The basic premise of GWRI’s business is that the world’s water supply is limited, and yet can be stretched significantly by effectively planning the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. GWRI deploys its integrated approach, Total Water Management (‘‘TWM’’), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. GWRI uses TWM to promote sustainable communities in areas where GWRI expects growth to outpace the existing potable water supply. GWRI’s utilities are regulated by the Arizona Corporation Commission. The Company, pursuant to an underwriting agreement with a syndicate of underwriters dated December 16, 2010, filed a prospectus (the “Offering Prospectus”) on December 16, 2010 for an initial public offering (the ‘‘Offering’’) of 8,185,000common shares of the Company at C$7.50 per share. On December 30, 2010, the Company completed the Offering and raised gross proceeds totaling C$61,387,500. On January 28, 2011, the underwriters of the Offering exercised their over-allotment option for an additional 569,611 common shares at C$7.50 per share resulting in additional gross proceeds of C$4,272,083. Net proceeds from the Offering, including from the exercise of the over-allotment option, were used to purchase 87,546 shares of GWRI’s common stock, representing a total ownership interest in GWRI of approximately 48.1% (see Note 3 and Note 6).Basis of Presentation – The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Amounts are stated in U.S. dollars unless otherwise noted. Subsequent events have been evaluated through March 15, 2016, the date of report.Conversion to U.S. GAAP – In February 2008, the Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA) confirmed that publicly accountable enterprises would be required to convert to International Financial Reporting Standards (IFRS) in place of Canadian generally accepted accounting principles for interim and annual reporting purposes for fiscal years beginning on or after January 1, 2011.In September 2010, the AcSB decided to offer an optional one year deferral for conversion to IFRS for qualifying entities with rate regulated activities and permit such entities to continue to apply Part V – Pre-changeover accounting standards of the CICA Handbook during that period. The Company is a qualifying entity for purposes of this deferral, which we elected.During 2011, we applied for, and in July 2011 received, an exemption from the Ontario Securities Commission ("OSC") allowing the Company and GWRI to adopt U.S. GAAP and defer the conversion to IFRS until financial years beginning on or after January 1, 2015. Accordingly, effective January 1, 2012, we converted to U.S. GAAP.In June 2014, we were granted an extension of the exemption previously received from the OSC. The extended exemption allows the Company and GWRI to defer the conversion to IFRS until the earliest of: (a) January 1, 2019; (b) if GWRC or GWRI, as applicable, ceases to have activities subject to rate regulation, the first day of the financial year of GWRC or GWRI, respectively, that commences after GWRC or GWRI, respectively, ceases to have activities subject to rate regulation; 2015 ANNUAL REPORT GLOBAL WATER
GWR GLOBAL WATER RESOURCES CORP.
Notes to the Financial Statements
a tax position that was previously recognized would occur when we subsequently determine that a tax position no longer
meets the more-likely-than-not threshold of being sustained.
The Company is incorporated in Canada and, as such, is subject to income tax provisions in Canada. Furthermore, the
Company was formed to acquire shares in a U.S. corporation, GWRI. The U.S. Internal Revenue Code has provisions
dealing with the ‘‘inversion’’ of a U.S. corporation, which provide that a non-U.S. corporation may be treated as a U.S.
corporation for U.S. federal income tax purposes in certain circumstances. Management believes that the Company should
not be treated as a U.S. corporation for U.S. federal income tax purposes pursuant to the inversion rules because the
Company has not acquired and should not be deemed to have acquired substantially all of the stock or assets of GWRI,
as provided for under current U.S. income tax guidelines, which is generally more than fifty percent. Additionally, any
investment in the Company by historical shareholders of GWRI will bear no relationship to their respective historical
ownership of GWRI and will be on the same terms made available to the public.
However, there is a risk that the U.S. Internal Revenue Service could take a contrary position and assert that the Company
should be treated as a U.S. corporation under the inversion rules as a result of the transactions which took place under
the investment agreement between the Company and GWRI dated December 30, 2010 under which the Company acquired
its interest in GWRI (the “Investment Agreement”). As a result, if the Company were subsequently determined to be a
U.S. corporation for U.S. federal income tax purposes under the inversion rules, the Company could owe U.S. corporate
income tax, withholding tax, penalties and interest, which could be significant. Such treatment may be retroactive to the
Company’s initial acquisition of shares of GWRI if a subsequent acquisition is considered to be part of a plan or series
of related transactions that includes the transactions contemplated under the Investment Agreement.
Earnings per share – Basic earnings per share is based on the weighted-average number of shares outstanding during
the period. Diluted earnings per share is computed in accordance with the treasury stock method and based on the weighted
average number of shares and dilutive share equivalents (see Note 7).
3.
ACQUISITION OF INVESTMENTS
From its inception through the date of the Offering, the Company did not make any investments.
The Company completed its initial public offering on December 30, 2010, with gross Offering proceeds totaling
C$61,387,500. On December 30, 2010, the Company used the net proceeds of the Offering in the amount of $55,363,000
for (i) the payment of approximately $51,659,000 for 81,850 shares of GWRI common stock (an approximate 46.4%
interest in GWRI), and (ii) reimbursement of approximately $3,704,000 of Offering expenses incurred by GWRI on our
behalf (see Note 6).
During 2010, all legal, professional and other costs incurred in connection with the Offering had been capitalized as
deferred financing costs on GWRI’s balance sheet. All such amounts were charged to the Company upon consummation
of the Offering on December 30, 2010 and are netted against equity in our balance sheet.
On January 28, 2011, the underwriters of the Offering exercised their over-allotment option and with the related net
proceeds of $4,011,000, we purchased an additional 5,696 shares of GWRI’s common stock, resulting in the Company
owning an approximate 48.1% of GWRI upon completion of the Offering and the over-allotment (see Note 6). In 2015
the Company received approval from the Toronto Stock Exchange ("TSX") to repurchase, for cancellation common shares
of the Company pursuant to a normal course issuer bid ("NCIB"). As a result of the subsequent share repurchase, the
Company's ownership interest GWRI decreased to approximately 47.8% as of December 31, 2015. See Note 6 for
additional information regarding the NCIB.
The Company completed the process of determining the allocation of the amount invested in GWRI common stock to
the underlying fair value of the net assets of GWRI.
50
-7-
GWR GLOBAL WATER RESOURCES CORP.Notes to the Financial Statements-5-1. General Business DescriptionGWR Global Water Resources Corp. (the ‘‘Company’’, ‘‘GWRC’’, ‘‘we’’, or ‘‘us’’) was incorporated under the Business Corporations Act (British Columbia) on March 23, 2010 to acquire shares of Global Water Resources, Inc. (‘‘GWRI’’), a corporation incorporated in the State of Delaware of the United States of America, and to actively participate in the management, business and operations of GWRI through its representation on the board of GWRI and its shared management with GWRI. The formation of GWRI occurred through a reorganization of Global Water Resources, LLC and its subsidiaries and Global Water Management, LLC (the predecessors of GWRI). GWRI operates in the Western United States as a water resource management company that owns and operates regulated water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. GWRI’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The basic premise of GWRI’s business is that the world’s water supply is limited, and yet can be stretched significantly by effectively planning the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. GWRI deploys its integrated approach, Total Water Management (‘‘TWM’’), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. GWRI uses TWM to promote sustainable communities in areas where GWRI expects growth to outpace the existing potable water supply. GWRI’s utilities are regulated by the Arizona Corporation Commission. The Company, pursuant to an underwriting agreement with a syndicate of underwriters dated December 16, 2010, filed a prospectus (the “Offering Prospectus”) on December 16, 2010 for an initial public offering (the ‘‘Offering’’) of 8,185,000common shares of the Company at C$7.50 per share. On December 30, 2010, the Company completed the Offering and raised gross proceeds totaling C$61,387,500. On January 28, 2011, the underwriters of the Offering exercised their over-allotment option for an additional 569,611 common shares at C$7.50 per share resulting in additional gross proceeds of C$4,272,083. Net proceeds from the Offering, including from the exercise of the over-allotment option, were used to purchase 87,546 shares of GWRI’s common stock, representing a total ownership interest in GWRI of approximately 48.1% (see Note 3 and Note 6).Basis of Presentation – The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Amounts are stated in U.S. dollars unless otherwise noted. Subsequent events have been evaluated through March 15, 2016, the date of report.Conversion to U.S. GAAP – In February 2008, the Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA) confirmed that publicly accountable enterprises would be required to convert to International Financial Reporting Standards (IFRS) in place of Canadian generally accepted accounting principles for interim and annual reporting purposes for fiscal years beginning on or after January 1, 2011.In September 2010, the AcSB decided to offer an optional one year deferral for conversion to IFRS for qualifying entities with rate regulated activities and permit such entities to continue to apply Part V – Pre-changeover accounting standards of the CICA Handbook during that period. The Company is a qualifying entity for purposes of this deferral, which we elected.During 2011, we applied for, and in July 2011 received, an exemption from the Ontario Securities Commission ("OSC") allowing the Company and GWRI to adopt U.S. GAAP and defer the conversion to IFRS until financial years beginning on or after January 1, 2015. Accordingly, effective January 1, 2012, we converted to U.S. GAAP.In June 2014, we were granted an extension of the exemption previously received from the OSC. The extended exemption allows the Company and GWRI to defer the conversion to IFRS until the earliest of: (a) January 1, 2019; (b) if GWRC or GWRI, as applicable, ceases to have activities subject to rate regulation, the first day of the financial year of GWRC or GWRI, respectively, that commences after GWRC or GWRI, respectively, ceases to have activities subject to rate regulation; GLOBAL WATER 2015 ANNUAL REPORT
GWR GLOBAL WATER RESOURCES CORP.
Notes to the Financial Statements
The allocation of the amount invested in GWRI is set forth as follows (in thousands of US$):
Net assets of GWRI
Intangible asset - FATHOM contracts
Goodwill
Deferred tax liability
Total
$
$
(19,976)
1,242
74,733
(329)
55,670
The components of the allocation are aggregated in the carrying value of the equity method investment in the Company’s
balance sheet. The portion of the allocation attributed to the intangible asset would be amortized over the contractual
lives of the underlying contracts. As indicated above, a deferred tax liability was established as a result of the book versus
tax basis difference created by the intangible asset. In 2013, GWRI sold Global Water Management, LLC (“GWM”) and
its unregulated business which was marketed by GWRI as FATHOM Utility to Utility Solutions ("FATHOM"). Prior to
the sale, amortization of the intangible asset and the reversal of the deferred tax liability was recorded each period as a
component of the Company’s gain (loss) from equity investment. However, as a result of the sale of the FATHOM
business, we determined it appropriate to fully amortize the intangible asset as GWRI no longer owned the FATHOM
contracts.
Our interest in GWRI shares provides certain rights with respect to GWRI, including the right to appoint three of the six
directors of GWRI’s board of directors (the “Board”). However, the owners of the remaining shares of GWRI have the
right to increase the size of the Board to seven members and appoint the seventh member as long as their interest in GWRI
exceeds 50%, upon written notice to the Board.
The Company recorded a gain on equity investment of approximately $10.3 million and $31.2 million for the years ended
December 31, 2015 and 2014, respectively. The Company's gain on its equity method investment of $10.3 million for
the year ended December 31, 2015, was driven by the Company's share of GWRI's $22.8 million gain, net of taxes, on
the condemnation of Valencia (as defined below). The Company's gain on its equity method investment of $31.2 million
for the year ended December 31, 2014, was driven by (i) a nonrecurring gain recognized by GWRI upon receipt of a
regulatory order from GWRI’s economic regulator, and (ii) by GWRI’s release of its deferred income tax valuation
allowance during the 2014 period.
The following contains summarized financial data of GWRI’s financial position as of December 31, 2015 and
December 31, 2014 (in thousands of US$):
December 31, 2015
December 31, 2014
ASSETS:
Net property, plant and equipment
$
194,152
$
Current assets
Other assets
TOTAL ASSETS
LIABILITIES:
Current liabilities
Noncurrent liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
18,715
25,108
237,975
$
10,663
$
207,249
217,912
20,063
237,975
$
$
$
$
240,424
12,293
54,884
307,601
13,630
266,291
279,921
27,680
307,601
-8-
51
GWR GLOBAL WATER RESOURCES CORP.Notes to the Financial Statements-5-1. General Business DescriptionGWR Global Water Resources Corp. (the ‘‘Company’’, ‘‘GWRC’’, ‘‘we’’, or ‘‘us’’) was incorporated under the Business Corporations Act (British Columbia) on March 23, 2010 to acquire shares of Global Water Resources, Inc. (‘‘GWRI’’), a corporation incorporated in the State of Delaware of the United States of America, and to actively participate in the management, business and operations of GWRI through its representation on the board of GWRI and its shared management with GWRI. The formation of GWRI occurred through a reorganization of Global Water Resources, LLC and its subsidiaries and Global Water Management, LLC (the predecessors of GWRI). GWRI operates in the Western United States as a water resource management company that owns and operates regulated water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. GWRI’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The basic premise of GWRI’s business is that the world’s water supply is limited, and yet can be stretched significantly by effectively planning the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. GWRI deploys its integrated approach, Total Water Management (‘‘TWM’’), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. GWRI uses TWM to promote sustainable communities in areas where GWRI expects growth to outpace the existing potable water supply. GWRI’s utilities are regulated by the Arizona Corporation Commission. The Company, pursuant to an underwriting agreement with a syndicate of underwriters dated December 16, 2010, filed a prospectus (the “Offering Prospectus”) on December 16, 2010 for an initial public offering (the ‘‘Offering’’) of 8,185,000common shares of the Company at C$7.50 per share. On December 30, 2010, the Company completed the Offering and raised gross proceeds totaling C$61,387,500. On January 28, 2011, the underwriters of the Offering exercised their over-allotment option for an additional 569,611 common shares at C$7.50 per share resulting in additional gross proceeds of C$4,272,083. Net proceeds from the Offering, including from the exercise of the over-allotment option, were used to purchase 87,546 shares of GWRI’s common stock, representing a total ownership interest in GWRI of approximately 48.1% (see Note 3 and Note 6).Basis of Presentation – The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Amounts are stated in U.S. dollars unless otherwise noted. Subsequent events have been evaluated through March 15, 2016, the date of report.Conversion to U.S. GAAP – In February 2008, the Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA) confirmed that publicly accountable enterprises would be required to convert to International Financial Reporting Standards (IFRS) in place of Canadian generally accepted accounting principles for interim and annual reporting purposes for fiscal years beginning on or after January 1, 2011.In September 2010, the AcSB decided to offer an optional one year deferral for conversion to IFRS for qualifying entities with rate regulated activities and permit such entities to continue to apply Part V – Pre-changeover accounting standards of the CICA Handbook during that period. The Company is a qualifying entity for purposes of this deferral, which we elected.During 2011, we applied for, and in July 2011 received, an exemption from the Ontario Securities Commission ("OSC") allowing the Company and GWRI to adopt U.S. GAAP and defer the conversion to IFRS until financial years beginning on or after January 1, 2015. Accordingly, effective January 1, 2012, we converted to U.S. GAAP.In June 2014, we were granted an extension of the exemption previously received from the OSC. The extended exemption allows the Company and GWRI to defer the conversion to IFRS until the earliest of: (a) January 1, 2019; (b) if GWRC or GWRI, as applicable, ceases to have activities subject to rate regulation, the first day of the financial year of GWRC or GWRI, respectively, that commences after GWRC or GWRI, respectively, ceases to have activities subject to rate regulation; 2015 ANNUAL REPORT GLOBAL WATER
GWR GLOBAL WATER RESOURCES CORP.
Notes to the Financial Statements
The following contains summarized financial data of GWRI’s results of operations for the years ended December 31,
2015 and 2014 (U.S. GAAP in thousands of US$):
Revenues
Operating expenses
Operating income
Total other expense, net
Income before income taxes
Income tax (expense) benefit
Net income
2015
2014
31,956
$
25,429
6,527
35,459
41,986
(20,623)
21,363
$
32,559
(22,232)
54,791
(6,855)
47,936
16,995
64,931
$
$
The Company evaluates its investment in GWRI for impairment whenever events or changes in circumstances indicate
that the carrying value of our investment may have experienced an “other-than-temporary” decline in value. In February
2014, GWRI completed the regulatory rate case which was initiated by GWRI’s utility companies in 2012. The regulatory
rate case provides, among other things, additional revenues to GWRI, which will be phased-in over time. During 2014
GWRI evaluated the impact of the rate case decision, including whether sufficient evidence existed that GWRI’s net
deferred tax assets would be utilized in the future, thus allowing the reversal of the valuation allowance recorded at GWRI.
With the exception of the phase-in of new rates to be charged to GWRI’s utility customers, the impact of the rate decision
was effective for GWRI in the first quarter of 2014. The impact of the rate decision, combined with the effect of reversing
the valuation allowance, resulted in approximately $66.8 million of additional income in GWRI’s financial statements
for the year ended December 31, 2014. As a result of GWRC's then 48.1% interest in GWRI, GWRC recorded $32.1
million of equity method earnings for the year ended December 31, 2014, which had the effect of significantly increasing
the carrying value of GWRC’s investment in GWRI. The Company performed an analysis comparing the carrying value
of GWRC’s investment in GWRI with its estimated fair value, and concluded that an impairment of the investment did
not exist as of December 31, 2014.
On July 14, 2015, GWRI closed the stipulated condemnation to transfer the assets and operations of Valencia Water
Company, Inc. ("Valencia") to the City of Buckeye ("Buckeye"). Terms of the condemnation were agreed upon through
a settlement agreement in March 2015, pursuant to which Buckeye acquired all the assets and operations of Valencia and
assumed operations of the utility upon close. Buckeye paid GWRI $55.0 million at close, plus an additional $108,000 in
working capital adjustments. As a result of the transaction, GWRI recorded a gain of $43.0 million net of a tax liability
of $20.2 million during the year ended December 31, 2015. The impact of the condemnation of Valencia, combined with
the associated tax liability resulted in approximately $22.8 million of additional income in GWRI’s financial statements
for the year ended December 31, 2015. As a result of GWRC’s then 48.0% interest in GWRI, GWRC recorded $11.0
million of equity method earnings for the year ended December 31, 2015, which had the effect of significantly increasing
the carrying value of GWRC's investment in GWRI. This increase in investment was offset by a special one-time dividend
paid in August 2015, wherein $10.4 million was paid out to shareholders of record as of August 8, 2015. The Company
performed an analysis comparing the carrying value of GWRC’s investment in GWRI with its estimated fair value, and
concluded that an impairment of the investment did not exist as of December 31, 2015. However, this analysis is sensitive
to management assumptions including forecasted results of GWRI and as a result, changes in these assumptions could
have a material impact on the analysis.
4.
RELATED PARTY TRANSACTIONS
Proposed Transaction – On January 19, 2016, GWRC announced that it has agreed to pursue a proposed transaction with
GWRI that will result in, subject to the satisfaction of shareholder approval and certain other conditions, GWRC merging
with and into GWRI (the “Proposed Transaction”). The Proposed Transaction is part of GWRI’s overall plan to simplify
its corporate structure by eliminating one level of holding company ownership, refinance its outstanding tax-exempt
bonds on more favorable terms (as described below), improve liquidity for shareholders over the medium to long-term
and have a single governing jurisdiction in the U.S., where all of the assets, operations and employees of the business are
-9-
52
GWR GLOBAL WATER RESOURCES CORP.
Notes to the Financial Statements
located. As a result of the merger, GWRC will cease to exist as a British Columbia corporation and GWRI, governed by
the corporate laws of the State of Delaware, will be the surviving entity. The Proposed Transaction is conditional upon
the concurrent completion of a proposed initial public offering of shares of common stock of GWRI in the United States
(the “U.S. IPO”). GWRI has filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission
in connection with the U.S. IPO.
On completion of the Proposed Transaction, GWRI will have the right to redeem all of its outstanding tax-exempt bonds
at a price of 103% of the principal amount, plus interest accrued at the redemption date. As of December 31, 2015, the
principal balance of such bonds was U.S.$106.7 million. Following completion of the Proposed Transaction, GWRI
plans to refinance these bonds and, based on discussions with lenders, believes it can reduce the effective interest rate on
the outstanding balance by 75 to 150 basis points. The refinancing of the GWRI’s tax-exempt bonds at reduced interest
or at all will depend on a number of factors that are beyond its control including market conditions, and therefore the
completion of the bond refinancing cannot be assured.
Subject to the satisfaction of all application conditions, including the requisite shareholder approval and those conditions
relating to the U.S. IPO, the Proposed Transaction is expected to close in the second quarter of 2016.
Relationship with GWRI – Except for the Chief Executive Officer and Chief Financial Officer of the Company (who
receive no compensation from the Company in connection with their roles), we have no employees and the management
and general administration services of our business and affairs are provided by GWRI pursuant to a management agreement.
The services provided by GWRI pursuant to the management agreement include, but are not limited to the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
monitoring compliance by the Company at all times with the constraints on the ownership of common shares
of the Company by U.S. Persons as imposed by the United States Investment Company Act of 1940;
managing the timely preparation of the annual and interim financial statements of the Company, as well as
relevant tax information and providing or causing the same to be provided to the Company’s shareholders, as
appropriate;
managing the audit of the annual financial statements of the Company by the Company’s auditors;
managing the preparation of all of the Company’s income, sales or commodity tax returns and filings and
arranging for their filing within the time required by applicable tax law;
rendering such services as requested by the Company’s officers or the board to implement the advice of the
professionals engaged by the Company for advice regarding compliance by the Company with all applicable
laws and stock exchange requirements including, without limitation, all continuous disclosure obligations
under securities laws;
managing the preparation of any circular or other disclosure document required under applicable securities
laws in response to an offer to purchase securities of the Company;
providing investor relations services for the Company;
managing the logistics of calling and holding all annual and/or special meetings of shareholders and preparing,
and arranging for the distribution of all materials (including notices of meetings and information circulars) in
respect thereof;
with the advice of the Company’s advisors, preparing and providing or causing to be provided to shareholders
on a timely basis all information to which shareholders are entitled under applicable laws and stock exchange
requirements, including financial statements relating to the Company and GWRI;
managing the timing and terms of future offerings of securities of the Company, if any, as requested by the
obtaining and maintaining the insurance coverage selected by the board or officers for the benefit of the
providing such services as requested by the board or officers of the Company in regard to any financings by
assisting in the preparation and coordination of meetings of the board, including preparation of minutes of
board or officers of the Company;
Company and its directors and officers;
the Company;
meetings of the board;
-10-
GWR GLOBAL WATER RESOURCES CORP.Notes to the Financial Statements-5-1. General Business DescriptionGWR Global Water Resources Corp. (the ‘‘Company’’, ‘‘GWRC’’, ‘‘we’’, or ‘‘us’’) was incorporated under the Business Corporations Act (British Columbia) on March 23, 2010 to acquire shares of Global Water Resources, Inc. (‘‘GWRI’’), a corporation incorporated in the State of Delaware of the United States of America, and to actively participate in the management, business and operations of GWRI through its representation on the board of GWRI and its shared management with GWRI. The formation of GWRI occurred through a reorganization of Global Water Resources, LLC and its subsidiaries and Global Water Management, LLC (the predecessors of GWRI). GWRI operates in the Western United States as a water resource management company that owns and operates regulated water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. GWRI’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The basic premise of GWRI’s business is that the world’s water supply is limited, and yet can be stretched significantly by effectively planning the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. GWRI deploys its integrated approach, Total Water Management (‘‘TWM’’), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. GWRI uses TWM to promote sustainable communities in areas where GWRI expects growth to outpace the existing potable water supply. GWRI’s utilities are regulated by the Arizona Corporation Commission. The Company, pursuant to an underwriting agreement with a syndicate of underwriters dated December 16, 2010, filed a prospectus (the “Offering Prospectus”) on December 16, 2010 for an initial public offering (the ‘‘Offering’’) of 8,185,000common shares of the Company at C$7.50 per share. On December 30, 2010, the Company completed the Offering and raised gross proceeds totaling C$61,387,500. On January 28, 2011, the underwriters of the Offering exercised their over-allotment option for an additional 569,611 common shares at C$7.50 per share resulting in additional gross proceeds of C$4,272,083. Net proceeds from the Offering, including from the exercise of the over-allotment option, were used to purchase 87,546 shares of GWRI’s common stock, representing a total ownership interest in GWRI of approximately 48.1% (see Note 3 and Note 6).Basis of Presentation – The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Amounts are stated in U.S. dollars unless otherwise noted. Subsequent events have been evaluated through March 15, 2016, the date of report.Conversion to U.S. GAAP – In February 2008, the Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA) confirmed that publicly accountable enterprises would be required to convert to International Financial Reporting Standards (IFRS) in place of Canadian generally accepted accounting principles for interim and annual reporting purposes for fiscal years beginning on or after January 1, 2011.In September 2010, the AcSB decided to offer an optional one year deferral for conversion to IFRS for qualifying entities with rate regulated activities and permit such entities to continue to apply Part V – Pre-changeover accounting standards of the CICA Handbook during that period. The Company is a qualifying entity for purposes of this deferral, which we elected.During 2011, we applied for, and in July 2011 received, an exemption from the Ontario Securities Commission ("OSC") allowing the Company and GWRI to adopt U.S. GAAP and defer the conversion to IFRS until financial years beginning on or after January 1, 2015. Accordingly, effective January 1, 2012, we converted to U.S. GAAP.In June 2014, we were granted an extension of the exemption previously received from the OSC. The extended exemption allows the Company and GWRI to defer the conversion to IFRS until the earliest of: (a) January 1, 2019; (b) if GWRC or GWRI, as applicable, ceases to have activities subject to rate regulation, the first day of the financial year of GWRC or GWRI, respectively, that commences after GWRC or GWRI, respectively, ceases to have activities subject to rate regulation; GLOBAL WATER 2015 ANNUAL REPORT
GWR GLOBAL WATER RESOURCES CORP.
Notes to the Financial Statements
located. As a result of the merger, GWRC will cease to exist as a British Columbia corporation and GWRI, governed by
the corporate laws of the State of Delaware, will be the surviving entity. The Proposed Transaction is conditional upon
the concurrent completion of a proposed initial public offering of shares of common stock of GWRI in the United States
(the “U.S. IPO”). GWRI has filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission
in connection with the U.S. IPO.
On completion of the Proposed Transaction, GWRI will have the right to redeem all of its outstanding tax-exempt bonds
at a price of 103% of the principal amount, plus interest accrued at the redemption date. As of December 31, 2015, the
principal balance of such bonds was U.S.$106.7 million. Following completion of the Proposed Transaction, GWRI
plans to refinance these bonds and, based on discussions with lenders, believes it can reduce the effective interest rate on
the outstanding balance by 75 to 150 basis points. The refinancing of the GWRI’s tax-exempt bonds at reduced interest
or at all will depend on a number of factors that are beyond its control including market conditions, and therefore the
completion of the bond refinancing cannot be assured.
Subject to the satisfaction of all application conditions, including the requisite shareholder approval and those conditions
relating to the U.S. IPO, the Proposed Transaction is expected to close in the second quarter of 2016.
Relationship with GWRI – Except for the Chief Executive Officer and Chief Financial Officer of the Company (who
receive no compensation from the Company in connection with their roles), we have no employees and the management
and general administration services of our business and affairs are provided by GWRI pursuant to a management agreement.
The services provided by GWRI pursuant to the management agreement include, but are not limited to the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
monitoring compliance by the Company at all times with the constraints on the ownership of common shares
of the Company by U.S. Persons as imposed by the United States Investment Company Act of 1940;
managing the timely preparation of the annual and interim financial statements of the Company, as well as
relevant tax information and providing or causing the same to be provided to the Company’s shareholders, as
appropriate;
managing the audit of the annual financial statements of the Company by the Company’s auditors;
managing the preparation of all of the Company’s income, sales or commodity tax returns and filings and
arranging for their filing within the time required by applicable tax law;
rendering such services as requested by the Company’s officers or the board to implement the advice of the
professionals engaged by the Company for advice regarding compliance by the Company with all applicable
laws and stock exchange requirements including, without limitation, all continuous disclosure obligations
under securities laws;
managing the preparation of any circular or other disclosure document required under applicable securities
laws in response to an offer to purchase securities of the Company;
providing investor relations services for the Company;
managing the logistics of calling and holding all annual and/or special meetings of shareholders and preparing,
and arranging for the distribution of all materials (including notices of meetings and information circulars) in
respect thereof;
with the advice of the Company’s advisors, preparing and providing or causing to be provided to shareholders
on a timely basis all information to which shareholders are entitled under applicable laws and stock exchange
requirements, including financial statements relating to the Company and GWRI;
managing the timing and terms of future offerings of securities of the Company, if any, as requested by the
board or officers of the Company;
obtaining and maintaining the insurance coverage selected by the board or officers for the benefit of the
Company and its directors and officers;
providing such services as requested by the board or officers of the Company in regard to any financings by
the Company;
assisting in the preparation and coordination of meetings of the board, including preparation of minutes of
meetings of the board;
-10-
53
GWR GLOBAL WATER RESOURCES CORP.Notes to the Financial Statements-5-1. General Business DescriptionGWR Global Water Resources Corp. (the ‘‘Company’’, ‘‘GWRC’’, ‘‘we’’, or ‘‘us’’) was incorporated under the Business Corporations Act (British Columbia) on March 23, 2010 to acquire shares of Global Water Resources, Inc. (‘‘GWRI’’), a corporation incorporated in the State of Delaware of the United States of America, and to actively participate in the management, business and operations of GWRI through its representation on the board of GWRI and its shared management with GWRI. The formation of GWRI occurred through a reorganization of Global Water Resources, LLC and its subsidiaries and Global Water Management, LLC (the predecessors of GWRI). GWRI operates in the Western United States as a water resource management company that owns and operates regulated water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. GWRI’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The basic premise of GWRI’s business is that the world’s water supply is limited, and yet can be stretched significantly by effectively planning the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. GWRI deploys its integrated approach, Total Water Management (‘‘TWM’’), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. GWRI uses TWM to promote sustainable communities in areas where GWRI expects growth to outpace the existing potable water supply. GWRI’s utilities are regulated by the Arizona Corporation Commission. The Company, pursuant to an underwriting agreement with a syndicate of underwriters dated December 16, 2010, filed a prospectus (the “Offering Prospectus”) on December 16, 2010 for an initial public offering (the ‘‘Offering’’) of 8,185,000common shares of the Company at C$7.50 per share. On December 30, 2010, the Company completed the Offering and raised gross proceeds totaling C$61,387,500. On January 28, 2011, the underwriters of the Offering exercised their over-allotment option for an additional 569,611 common shares at C$7.50 per share resulting in additional gross proceeds of C$4,272,083. Net proceeds from the Offering, including from the exercise of the over-allotment option, were used to purchase 87,546 shares of GWRI’s common stock, representing a total ownership interest in GWRI of approximately 48.1% (see Note 3 and Note 6).Basis of Presentation – The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Amounts are stated in U.S. dollars unless otherwise noted. Subsequent events have been evaluated through March 15, 2016, the date of report.Conversion to U.S. GAAP – In February 2008, the Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA) confirmed that publicly accountable enterprises would be required to convert to International Financial Reporting Standards (IFRS) in place of Canadian generally accepted accounting principles for interim and annual reporting purposes for fiscal years beginning on or after January 1, 2011.In September 2010, the AcSB decided to offer an optional one year deferral for conversion to IFRS for qualifying entities with rate regulated activities and permit such entities to continue to apply Part V – Pre-changeover accounting standards of the CICA Handbook during that period. The Company is a qualifying entity for purposes of this deferral, which we elected.During 2011, we applied for, and in July 2011 received, an exemption from the Ontario Securities Commission ("OSC") allowing the Company and GWRI to adopt U.S. GAAP and defer the conversion to IFRS until financial years beginning on or after January 1, 2015. Accordingly, effective January 1, 2012, we converted to U.S. GAAP.In June 2014, we were granted an extension of the exemption previously received from the OSC. The extended exemption allows the Company and GWRI to defer the conversion to IFRS until the earliest of: (a) January 1, 2019; (b) if GWRC or GWRI, as applicable, ceases to have activities subject to rate regulation, the first day of the financial year of GWRC or GWRI, respectively, that commences after GWRC or GWRI, respectively, ceases to have activities subject to rate regulation; 2015 ANNUAL REPORT GLOBAL WATER
GWR GLOBAL WATER RESOURCES CORP.
Notes to the Financial Statements
GWR GLOBAL WATER RESOURCES CORP.
Notes to the Financial Statements
•
•
•
preparing, and delivering, on behalf of the Company and with the advice of the Company’s advisors, any
prospectus or comparable document of the Company to qualify the sale or distribution of securities of the
Company from time to time;
promptly notifying the Company of any information or event that, to GWRI’s knowledge, might reasonably
be expected to have a material adverse effect with respect to the Company or that might reasonably be expected
to be a ‘‘material change’’ or ‘‘material fact’’ as regards the Company or GWRI; and
providing all other services as may be requested by the Company, for the administration of the business and
affairs of the Company.
Services provided by GWRI are provided at no charge to the Company.
Notwithstanding the foregoing, the Company is solely responsible for the selection of accountants, lawyers, consultants,
investment bankers and other such professional advisors, as well as other service providers from time to time, to provide
advice and other administrative services directly to the Company. Further, the Company is responsible for certain costs
including the fees paid to members of our board of directors. Since the Company has no cash, other than cash received
for dividends, and does not expect to have cash flows from operating activities, the operating costs incurred by the
Company are paid by GWRI. Amounts paid by GWRI on the Company’s behalf for the years ended December 31, 2015
and December 31, 2014 totaled $1.2 million and $498,000, respectively. The Company accounts for the amounts paid by
GWRI on its behalf as distributions from GWRI. As such, the amounts paid by GWRI reduce the carrying value of the
Company’s equity method investment.
At times, GWRI has provided cash advances to the Company to satisfy the Company's short term cash obligations.
Amounts advanced are utilized to fund the Company's monthly dividend and other cash requirements, as needed. The
residual balance of the cash advance is presented on the Company's December 31, 2015 balance sheet as due to related
party. The related party balance is reduced upon dividend declaration by GWRI. As of December 31, 2015, the due to
related party balance was zero.
The management agreement may be terminated (i) by the Company, in its sole discretion, by notice in writing to GWRI
at least 30 days prior to the effective date of termination; (ii) by either party in the event of the termination of the existence
of the Company or the insolvency, receivership or bankruptcy of GWRI, or in the case of default by the other party in
the performance of a material obligation under the management agreement which is not remedied within 30 days after
notice thereof has been delivered to the defaulting party; or (iii) if the Company no longer holds voting securities of
GWRI.
Stock option grant to employees of GWRI – In January 2012, the Company’s Board of Directors granted 385,697 options
to acquire GWRC common stock to nine employees of GWRI pursuant to the GWR Global Water Resources Corp. Stock
Option Plan (the “Option Plan”). The options vested in equal installments over the eight quarters of 2012 and 2013 and
expire four years after the date of issuance. We accounted for the option grant in accordance with FASB’s Accounting
Standards Codification ("ASC") 323, Investment-Equity Method & Joint Ventures. The options were initially measured
on June 30, 2012, the first period-end following the date when the Option Plan received shareholder approval. The
Company remeasured the fair value of the award at the end of each period until the options fully vested on December 31,
2013.
In the third quarter of 2015, 59,636 options were exercised by two individuals, with an exercise price of C$4.00 per
option. As of December 31, 2015, 209,591 options were outstanding compared to 269,227 as of December 31, 2014.
Total number of stock options forfeited due to attrition or the sale of GWM in June 2013 totaled 116,470.
5.
INCOME TAXES
The Company purchased an equity investment in GWRI on December 30, 2010. Distributions from GWRI and income
or loss generated by the Company's equity investment in GWRI will result in outside basis differences between the carrying
value of the investment compared to the tax basis of the investment. Outside basis differences between the carrying value
and the tax basis of the investment in GWRI were evaluated for the tax consequences of the potential realization of an
equity investment (e.g., disposition, dividends, return of capital, etc.) to determine the proper accounting for the reversal
of any temporary differences in the tax basis and carrying value of the investment. As of December 31, 2015, the carrying
value of the equity investment exceeded the tax basis in the investment by approximately $2.9 million and a deferred tax
liability was recorded in the amount of $770,000 based on a combined statutory tax rate of 26.5%. The periodic changes
to the deferred tax liability balance are recorded to income tax expense.
6.
SHAREHOLDERS’ EQUITY
one vote per share.
The Company has a single class of common shares authorized for issuance and each share entitles the holder thereof to
Prior to the Offering, no capital had been contributed into the Company and no shares of the Company had been issued,
with the exception of a single common share in connection with the initial organization of the Company.
As discussed in Note 1, on December 30, 2010, the Company completed its Offering of 8,185,000 common shares at
C$7.50 per share for gross proceeds totaling C$61,387,500, or approximately US$61,189,000. The costs incurred in
connection with the Offering have been netted against equity in our balance sheet as of December 31, 2010. Net proceeds
from the Offering, after taking into consideration underwriters’ commissions of approximately $3,671,000 and legal,
professional and other Offering costs of approximately $5,859,000, totaled approximately $51,659,000.
On January 28, 2011, the underwriters of the Offering exercised their over-allotment option for an additional 569,611
common shares at C$7.50 per share. Net proceeds from the exercise of the over-allotment option, after taking into account
underwriters’ commissions and issuance costs of $262,000, were $4,011,000. Such net proceeds were used to purchase
5,696 shares of GWRI’s common stock on January 28, 2011, increasing the Company’s ownership interest in GWRI to
approximately 48.1%.
Normal Course Issuer Bid — On May 11, 2015, GWRC received approval from the TSX to repurchase, for cancellation,
common shares of the Company pursuant to a NCIB. The NCIB enabled GWRC to repurchase up to 87,500 common
shares, representing approximately 1% of the Company’s 8,754,612 issued and outstanding common shares as of May
5, 2015. The NCIB commenced on May 13, 2015 and was completed on December 30, 2015. Except as permitted under
TSX rules, daily purchases were limited to a maximum of 3,239 common shares other than block purchase exemptions,
which represented 25% of the average daily trading volume on the TSX for the six months ended April 30, 2015. All
purchases under the NCIB were made on the open market through the facilities of the TSX by a participating organization.
The actual number of shares purchased and the timing of such purchases was be determined by GWRC considering market
conditions, stock prices, its cash position and other factors. For the year ended December 31, 2015, GWRC repurchased
87,500 shares of stock for a total of $457,000. GWRI repurchased 871 common shares held by GWRC in connection
with GWRC's repurchases under its NCIB, which reduced GWRC's ownership interest in GWRI from 48.1% as of
December 31, 2014 to 47.8% as of December 31, 2015.
The share repurchase was mostly offset by the issuance of 59,636 shares in connection with the exercise of 59,636 options,
which were exercised by two individuals in the third quarter of 2015, with an exercise price of C$4.00 per option.
54
-11-
-12-
GWR GLOBAL WATER RESOURCES CORP.Notes to the Financial Statements-5-1. General Business DescriptionGWR Global Water Resources Corp. (the ‘‘Company’’, ‘‘GWRC’’, ‘‘we’’, or ‘‘us’’) was incorporated under the Business Corporations Act (British Columbia) on March 23, 2010 to acquire shares of Global Water Resources, Inc. (‘‘GWRI’’), a corporation incorporated in the State of Delaware of the United States of America, and to actively participate in the management, business and operations of GWRI through its representation on the board of GWRI and its shared management with GWRI. The formation of GWRI occurred through a reorganization of Global Water Resources, LLC and its subsidiaries and Global Water Management, LLC (the predecessors of GWRI). GWRI operates in the Western United States as a water resource management company that owns and operates regulated water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. GWRI’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The basic premise of GWRI’s business is that the world’s water supply is limited, and yet can be stretched significantly by effectively planning the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. GWRI deploys its integrated approach, Total Water Management (‘‘TWM’’), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. GWRI uses TWM to promote sustainable communities in areas where GWRI expects growth to outpace the existing potable water supply. GWRI’s utilities are regulated by the Arizona Corporation Commission. The Company, pursuant to an underwriting agreement with a syndicate of underwriters dated December 16, 2010, filed a prospectus (the “Offering Prospectus”) on December 16, 2010 for an initial public offering (the ‘‘Offering’’) of 8,185,000common shares of the Company at C$7.50 per share. On December 30, 2010, the Company completed the Offering and raised gross proceeds totaling C$61,387,500. On January 28, 2011, the underwriters of the Offering exercised their over-allotment option for an additional 569,611 common shares at C$7.50 per share resulting in additional gross proceeds of C$4,272,083. Net proceeds from the Offering, including from the exercise of the over-allotment option, were used to purchase 87,546 shares of GWRI’s common stock, representing a total ownership interest in GWRI of approximately 48.1% (see Note 3 and Note 6).Basis of Presentation – The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Amounts are stated in U.S. dollars unless otherwise noted. Subsequent events have been evaluated through March 15, 2016, the date of report.Conversion to U.S. GAAP – In February 2008, the Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA) confirmed that publicly accountable enterprises would be required to convert to International Financial Reporting Standards (IFRS) in place of Canadian generally accepted accounting principles for interim and annual reporting purposes for fiscal years beginning on or after January 1, 2011.In September 2010, the AcSB decided to offer an optional one year deferral for conversion to IFRS for qualifying entities with rate regulated activities and permit such entities to continue to apply Part V – Pre-changeover accounting standards of the CICA Handbook during that period. The Company is a qualifying entity for purposes of this deferral, which we elected.During 2011, we applied for, and in July 2011 received, an exemption from the Ontario Securities Commission ("OSC") allowing the Company and GWRI to adopt U.S. GAAP and defer the conversion to IFRS until financial years beginning on or after January 1, 2015. Accordingly, effective January 1, 2012, we converted to U.S. GAAP.In June 2014, we were granted an extension of the exemption previously received from the OSC. The extended exemption allows the Company and GWRI to defer the conversion to IFRS until the earliest of: (a) January 1, 2019; (b) if GWRC or GWRI, as applicable, ceases to have activities subject to rate regulation, the first day of the financial year of GWRC or GWRI, respectively, that commences after GWRC or GWRI, respectively, ceases to have activities subject to rate regulation; GLOBAL WATER 2015 ANNUAL REPORT
GWR GLOBAL WATER RESOURCES CORP.
Notes to the Financial Statements
5.
INCOME TAXES
The Company purchased an equity investment in GWRI on December 30, 2010. Distributions from GWRI and income
or loss generated by the Company's equity investment in GWRI will result in outside basis differences between the carrying
value of the investment compared to the tax basis of the investment. Outside basis differences between the carrying value
and the tax basis of the investment in GWRI were evaluated for the tax consequences of the potential realization of an
equity investment (e.g., disposition, dividends, return of capital, etc.) to determine the proper accounting for the reversal
of any temporary differences in the tax basis and carrying value of the investment. As of December 31, 2015, the carrying
value of the equity investment exceeded the tax basis in the investment by approximately $2.9 million and a deferred tax
liability was recorded in the amount of $770,000 based on a combined statutory tax rate of 26.5%. The periodic changes
to the deferred tax liability balance are recorded to income tax expense.
6.
SHAREHOLDERS’ EQUITY
The Company has a single class of common shares authorized for issuance and each share entitles the holder thereof to
one vote per share.
Prior to the Offering, no capital had been contributed into the Company and no shares of the Company had been issued,
with the exception of a single common share in connection with the initial organization of the Company.
As discussed in Note 1, on December 30, 2010, the Company completed its Offering of 8,185,000 common shares at
C$7.50 per share for gross proceeds totaling C$61,387,500, or approximately US$61,189,000. The costs incurred in
connection with the Offering have been netted against equity in our balance sheet as of December 31, 2010. Net proceeds
from the Offering, after taking into consideration underwriters’ commissions of approximately $3,671,000 and legal,
professional and other Offering costs of approximately $5,859,000, totaled approximately $51,659,000.
On January 28, 2011, the underwriters of the Offering exercised their over-allotment option for an additional 569,611
common shares at C$7.50 per share. Net proceeds from the exercise of the over-allotment option, after taking into account
underwriters’ commissions and issuance costs of $262,000, were $4,011,000. Such net proceeds were used to purchase
5,696 shares of GWRI’s common stock on January 28, 2011, increasing the Company’s ownership interest in GWRI to
approximately 48.1%.
Normal Course Issuer Bid — On May 11, 2015, GWRC received approval from the TSX to repurchase, for cancellation,
common shares of the Company pursuant to a NCIB. The NCIB enabled GWRC to repurchase up to 87,500 common
shares, representing approximately 1% of the Company’s 8,754,612 issued and outstanding common shares as of May
5, 2015. The NCIB commenced on May 13, 2015 and was completed on December 30, 2015. Except as permitted under
TSX rules, daily purchases were limited to a maximum of 3,239 common shares other than block purchase exemptions,
which represented 25% of the average daily trading volume on the TSX for the six months ended April 30, 2015. All
purchases under the NCIB were made on the open market through the facilities of the TSX by a participating organization.
The actual number of shares purchased and the timing of such purchases was be determined by GWRC considering market
conditions, stock prices, its cash position and other factors. For the year ended December 31, 2015, GWRC repurchased
87,500 shares of stock for a total of $457,000. GWRI repurchased 871 common shares held by GWRC in connection
with GWRC's repurchases under its NCIB, which reduced GWRC's ownership interest in GWRI from 48.1% as of
December 31, 2014 to 47.8% as of December 31, 2015.
The share repurchase was mostly offset by the issuance of 59,636 shares in connection with the exercise of 59,636 options,
which were exercised by two individuals in the third quarter of 2015, with an exercise price of C$4.00 per option.
-12-
55
GWR GLOBAL WATER RESOURCES CORP.Notes to the Financial Statements-5-1. General Business DescriptionGWR Global Water Resources Corp. (the ‘‘Company’’, ‘‘GWRC’’, ‘‘we’’, or ‘‘us’’) was incorporated under the Business Corporations Act (British Columbia) on March 23, 2010 to acquire shares of Global Water Resources, Inc. (‘‘GWRI’’), a corporation incorporated in the State of Delaware of the United States of America, and to actively participate in the management, business and operations of GWRI through its representation on the board of GWRI and its shared management with GWRI. The formation of GWRI occurred through a reorganization of Global Water Resources, LLC and its subsidiaries and Global Water Management, LLC (the predecessors of GWRI). GWRI operates in the Western United States as a water resource management company that owns and operates regulated water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. GWRI’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The basic premise of GWRI’s business is that the world’s water supply is limited, and yet can be stretched significantly by effectively planning the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. GWRI deploys its integrated approach, Total Water Management (‘‘TWM’’), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. GWRI uses TWM to promote sustainable communities in areas where GWRI expects growth to outpace the existing potable water supply. GWRI’s utilities are regulated by the Arizona Corporation Commission. The Company, pursuant to an underwriting agreement with a syndicate of underwriters dated December 16, 2010, filed a prospectus (the “Offering Prospectus”) on December 16, 2010 for an initial public offering (the ‘‘Offering’’) of 8,185,000common shares of the Company at C$7.50 per share. On December 30, 2010, the Company completed the Offering and raised gross proceeds totaling C$61,387,500. On January 28, 2011, the underwriters of the Offering exercised their over-allotment option for an additional 569,611 common shares at C$7.50 per share resulting in additional gross proceeds of C$4,272,083. Net proceeds from the Offering, including from the exercise of the over-allotment option, were used to purchase 87,546 shares of GWRI’s common stock, representing a total ownership interest in GWRI of approximately 48.1% (see Note 3 and Note 6).Basis of Presentation – The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Amounts are stated in U.S. dollars unless otherwise noted. Subsequent events have been evaluated through March 15, 2016, the date of report.Conversion to U.S. GAAP – In February 2008, the Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA) confirmed that publicly accountable enterprises would be required to convert to International Financial Reporting Standards (IFRS) in place of Canadian generally accepted accounting principles for interim and annual reporting purposes for fiscal years beginning on or after January 1, 2011.In September 2010, the AcSB decided to offer an optional one year deferral for conversion to IFRS for qualifying entities with rate regulated activities and permit such entities to continue to apply Part V – Pre-changeover accounting standards of the CICA Handbook during that period. The Company is a qualifying entity for purposes of this deferral, which we elected.During 2011, we applied for, and in July 2011 received, an exemption from the Ontario Securities Commission ("OSC") allowing the Company and GWRI to adopt U.S. GAAP and defer the conversion to IFRS until financial years beginning on or after January 1, 2015. Accordingly, effective January 1, 2012, we converted to U.S. GAAP.In June 2014, we were granted an extension of the exemption previously received from the OSC. The extended exemption allows the Company and GWRI to defer the conversion to IFRS until the earliest of: (a) January 1, 2019; (b) if GWRC or GWRI, as applicable, ceases to have activities subject to rate regulation, the first day of the financial year of GWRC or GWRI, respectively, that commences after GWRC or GWRI, respectively, ceases to have activities subject to rate regulation; 2015 ANNUAL REPORT GLOBAL WATER
GWR GLOBAL WATER RESOURCES CORP.
Notes to the Financial Statements
GWR GLOBAL WATER RESOURCES CORP.
Notes to the Financial Statements
7. EARNINGS PER SHARE
cash flows. Since inception, the Company has not identified any contingencies which we believe could materially affect
Basic earnings per share (“EPS”) is computed by dividing net income (loss) attributable to GWRC’s common stockholders
by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed on the basis
of the weighted-average number of shares of common stock plus the effect of dilutive potential common shares outstanding
during the period, reduced for treasury stock. Dilutive potential common shares include outstanding stock options.
The following table summarizes the computation of basic and diluted EPS (in thousands, except share data):
Net income available to GWRC common shareholders - basic
Net income available to GWRC common shareholders - diluted
Weighted-average shares outstanding - basic
Effect of dilutive securities:
Incremental shares from stock options
Weighted-average shares outstanding - diluted
Earnings per common share - basic
Earnings per common share - diluted
Twelve Months Ended December 31,
2015
2014
9,310
9,310
$
$
8,747,801
12
8,747,813
1.06
1.06
$
$
28,893
28,893
8,754,612
9,882
8,764,494
3.30
3.30
$
$
$
$
The following table summarizes the potential shares of common stock that were excluded from diluted EPS, because the
effect of including these potential shares was antidilutive:
Stock options
8.
CAPITAL MANAGEMENT AND LIQUIDITY MATTERS
Twelve Months Ended December 31,
2015
2014
209,591
209,561
As discussed in Note 1, we are economically dependent on GWRI. Our ability to service operating costs and pay
distributions (if any) is entirely dependent on the receipt of distributions, or loans, from GWRI. Significant events affecting
or transactions involving GWRI could materially influence our ability to make such payments.
We do not carry on any active business operations as our activities are generally restricted to holding securities of our
equity investee, GWRI. To date, we have not incurred debt to finance our investments. Therefore, our capital structure
is composed solely of our shareholders’ equity.
In March 2014, the Company initiated a dividend program wherein we declare and pay a monthly dividend. The initial
monthly dividends were approximately C$0.0220 per share. In November 2014, the Company increased the monthly
dividend to approximately C$0.0240 per share. In March 2015, the Company increased the monthly dividend to
approximately C$0.0260 per share. In July 2015, the Company further increased the monthly dividend to C$0.0283 per
share. The Company expects that monthly dividends of similar amounts will be declared and paid for the foreseeable
future. Nevertheless, the ability of the Company to maintain its dividend program is dependent upon GWRI making
distributions to the Company.
9.
COMMITMENTS AND CONTINGENCIES
Commitments – As discussed in Note 4, the Company uses the services of GWRI for the management and general
administration of our business and affairs. The Company does not pay a fee for these services. We currently have no
commitments expected to result in future minimum payments.
Contingencies – From time to time, we may become involved in proceedings arising in the ordinary course of business
of which the ultimate resolution of such matters could materially affect our financial position, results of operations, or
56
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our financial statements.
10. SUBSEQUENT EVENTS
On January 19, 2016, GWRI filed a registration statement on Form S-1 with the Securities and Exchange Commission
for a proposed offering of its common stock (the "U.S. IPO"). In connection with the proposed U.S. IPO, GWRI plans
to apply to list its common stock on the NASDAQ Global Market under the symbol "GWRS."
In January 2016, the 209,591 options outstanding as of December 31, 2015 expired. As of March 15, 2016, the date of
this report, no options exist or are outstanding.
Subsequent events have been evaluated up to and including March 15, 2016, the date of this report.
*****
-14-
GWR GLOBAL WATER RESOURCES CORP.Notes to the Financial Statements-5-1. General Business DescriptionGWR Global Water Resources Corp. (the ‘‘Company’’, ‘‘GWRC’’, ‘‘we’’, or ‘‘us’’) was incorporated under the Business Corporations Act (British Columbia) on March 23, 2010 to acquire shares of Global Water Resources, Inc. (‘‘GWRI’’), a corporation incorporated in the State of Delaware of the United States of America, and to actively participate in the management, business and operations of GWRI through its representation on the board of GWRI and its shared management with GWRI. The formation of GWRI occurred through a reorganization of Global Water Resources, LLC and its subsidiaries and Global Water Management, LLC (the predecessors of GWRI). GWRI operates in the Western United States as a water resource management company that owns and operates regulated water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. GWRI’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The basic premise of GWRI’s business is that the world’s water supply is limited, and yet can be stretched significantly by effectively planning the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. GWRI deploys its integrated approach, Total Water Management (‘‘TWM’’), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. GWRI uses TWM to promote sustainable communities in areas where GWRI expects growth to outpace the existing potable water supply. GWRI’s utilities are regulated by the Arizona Corporation Commission. The Company, pursuant to an underwriting agreement with a syndicate of underwriters dated December 16, 2010, filed a prospectus (the “Offering Prospectus”) on December 16, 2010 for an initial public offering (the ‘‘Offering’’) of 8,185,000common shares of the Company at C$7.50 per share. On December 30, 2010, the Company completed the Offering and raised gross proceeds totaling C$61,387,500. On January 28, 2011, the underwriters of the Offering exercised their over-allotment option for an additional 569,611 common shares at C$7.50 per share resulting in additional gross proceeds of C$4,272,083. Net proceeds from the Offering, including from the exercise of the over-allotment option, were used to purchase 87,546 shares of GWRI’s common stock, representing a total ownership interest in GWRI of approximately 48.1% (see Note 3 and Note 6).Basis of Presentation – The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Amounts are stated in U.S. dollars unless otherwise noted. Subsequent events have been evaluated through March 15, 2016, the date of report.Conversion to U.S. GAAP – In February 2008, the Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA) confirmed that publicly accountable enterprises would be required to convert to International Financial Reporting Standards (IFRS) in place of Canadian generally accepted accounting principles for interim and annual reporting purposes for fiscal years beginning on or after January 1, 2011.In September 2010, the AcSB decided to offer an optional one year deferral for conversion to IFRS for qualifying entities with rate regulated activities and permit such entities to continue to apply Part V – Pre-changeover accounting standards of the CICA Handbook during that period. The Company is a qualifying entity for purposes of this deferral, which we elected.During 2011, we applied for, and in July 2011 received, an exemption from the Ontario Securities Commission ("OSC") allowing the Company and GWRI to adopt U.S. GAAP and defer the conversion to IFRS until financial years beginning on or after January 1, 2015. Accordingly, effective January 1, 2012, we converted to U.S. GAAP.In June 2014, we were granted an extension of the exemption previously received from the OSC. The extended exemption allows the Company and GWRI to defer the conversion to IFRS until the earliest of: (a) January 1, 2019; (b) if GWRC or GWRI, as applicable, ceases to have activities subject to rate regulation, the first day of the financial year of GWRC or GWRI, respectively, that commences after GWRC or GWRI, respectively, ceases to have activities subject to rate regulation; GLOBAL WATER 2015 ANNUAL REPORT
GWR GLOBAL WATER RESOURCES CORP.
Notes to the Financial Statements
cash flows. Since inception, the Company has not identified any contingencies which we believe could materially affect
our financial statements.
10. SUBSEQUENT EVENTS
On January 19, 2016, GWRI filed a registration statement on Form S-1 with the Securities and Exchange Commission
for a proposed offering of its common stock (the "U.S. IPO"). In connection with the proposed U.S. IPO, GWRI plans
to apply to list its common stock on the NASDAQ Global Market under the symbol "GWRS."
In January 2016, the 209,591 options outstanding as of December 31, 2015 expired. As of March 15, 2016, the date of
this report, no options exist or are outstanding.
Subsequent events have been evaluated up to and including March 15, 2016, the date of this report.
*****
-14-
57
GWR GLOBAL WATER RESOURCES CORP.Notes to the Financial Statements-5-1. General Business DescriptionGWR Global Water Resources Corp. (the ‘‘Company’’, ‘‘GWRC’’, ‘‘we’’, or ‘‘us’’) was incorporated under the Business Corporations Act (British Columbia) on March 23, 2010 to acquire shares of Global Water Resources, Inc. (‘‘GWRI’’), a corporation incorporated in the State of Delaware of the United States of America, and to actively participate in the management, business and operations of GWRI through its representation on the board of GWRI and its shared management with GWRI. The formation of GWRI occurred through a reorganization of Global Water Resources, LLC and its subsidiaries and Global Water Management, LLC (the predecessors of GWRI). GWRI operates in the Western United States as a water resource management company that owns and operates regulated water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. GWRI’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The basic premise of GWRI’s business is that the world’s water supply is limited, and yet can be stretched significantly by effectively planning the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. GWRI deploys its integrated approach, Total Water Management (‘‘TWM’’), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. GWRI uses TWM to promote sustainable communities in areas where GWRI expects growth to outpace the existing potable water supply. GWRI’s utilities are regulated by the Arizona Corporation Commission. The Company, pursuant to an underwriting agreement with a syndicate of underwriters dated December 16, 2010, filed a prospectus (the “Offering Prospectus”) on December 16, 2010 for an initial public offering (the ‘‘Offering’’) of 8,185,000common shares of the Company at C$7.50 per share. On December 30, 2010, the Company completed the Offering and raised gross proceeds totaling C$61,387,500. On January 28, 2011, the underwriters of the Offering exercised their over-allotment option for an additional 569,611 common shares at C$7.50 per share resulting in additional gross proceeds of C$4,272,083. Net proceeds from the Offering, including from the exercise of the over-allotment option, were used to purchase 87,546 shares of GWRI’s common stock, representing a total ownership interest in GWRI of approximately 48.1% (see Note 3 and Note 6).Basis of Presentation – The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Amounts are stated in U.S. dollars unless otherwise noted. Subsequent events have been evaluated through March 15, 2016, the date of report.Conversion to U.S. GAAP – In February 2008, the Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA) confirmed that publicly accountable enterprises would be required to convert to International Financial Reporting Standards (IFRS) in place of Canadian generally accepted accounting principles for interim and annual reporting purposes for fiscal years beginning on or after January 1, 2011.In September 2010, the AcSB decided to offer an optional one year deferral for conversion to IFRS for qualifying entities with rate regulated activities and permit such entities to continue to apply Part V – Pre-changeover accounting standards of the CICA Handbook during that period. The Company is a qualifying entity for purposes of this deferral, which we elected.During 2011, we applied for, and in July 2011 received, an exemption from the Ontario Securities Commission ("OSC") allowing the Company and GWRI to adopt U.S. GAAP and defer the conversion to IFRS until financial years beginning on or after January 1, 2015. Accordingly, effective January 1, 2012, we converted to U.S. GAAP.In June 2014, we were granted an extension of the exemption previously received from the OSC. The extended exemption allows the Company and GWRI to defer the conversion to IFRS until the earliest of: (a) January 1, 2019; (b) if GWRC or GWRI, as applicable, ceases to have activities subject to rate regulation, the first day of the financial year of GWRC or GWRI, respectively, that commences after GWRC or GWRI, respectively, ceases to have activities subject to rate regulation; 2015 ANNUAL REPORT GLOBAL WATER
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Shareholders of
Global Water Resources, Inc.
Phoenix, Arizona
We have audited the accompanying consolidated financial statements of Global Water Resources, Inc.
and its subsidiaries (the “Company”), which comprise the consolidated balance sheets as of December 31,
2015 and 2014, and the related consolidated statements of operations, shareholders’ equity, and cash
flows for the years then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditors’ judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the Company’s preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no
such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
GLOBAL WATER RESOURCES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2015 AND 2014
58
GLOBAL WATER 2015 ANNUAL REPORT INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Shareholders of
Global Water Resources, Inc.
Phoenix, Arizona
We have audited the accompanying consolidated financial statements of Global Water Resources, Inc.
and its subsidiaries (the “Company”), which comprise the consolidated balance sheets as of December 31,
2015 and 2014, and the related consolidated statements of operations, shareholders’ equity, and cash
flows for the years then ended, and the related notes to the consolidated financial statements.
To the Board of Directors and Shareholders of
Global Water Resources, Inc.
Phoenix, Arizona
INDEPENDENT AUDITORS’ REPORT
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of consolidated financial statements that are free from material misstatement,
We have audited the accompanying consolidated financial statements of Global Water Resources, Inc.
and its subsidiaries (the “Company”), which comprise the consolidated balance sheets as of December 31,
2015 and 2014, and the related consolidated statements of operations, shareholders’ equity, and cash
flows for the years then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Consolidated Financial Statements
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
Auditors’ Responsibility
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
whether due to fraud or error.
Auditors’ Responsibility
presentation of the consolidated financial statements.
our audit opinion.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditors’ judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the Company’s preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no
such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the overall
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditors’ judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the Company’s preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no
such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
59
2015 ANNUAL REPORT GLOBAL WATER Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Global Water Resources, Inc. and its subsidiaries as of December 31,
2015 and 2014, and the results of their operations and their cash flows for the years then ended in
accordance with accounting principles generally accepted in the United States of America.
March 15, 2016
60
GLOBAL WATER 2015 ANNUAL REPORT GLOBAL WATER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
GLOBAL WATER RESOURCES, INC.
As of December 31, 2015 and December 31, 2014
CONSOLIDATED BALANCE SHEETS
As of December 31, 2015 and December 31, 2014
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
December 31, 2015
December 31, 2014
(in thousands of US$, except share data)
December 31, 2015
December 31, 2014
ASSETS
Property, plant and equipment
Less accumulated depreciation
PROPERTY, PLANT AND EQUIPMENT:
CURRENT ASSETS:
CURRENT ASSETS:
Net property, plant and equipment
Total current assets
Net property, plant and equipment
Property, plant and equipment
Less accumulated depreciation
Cash and cash equivalents
Accounts receivable—net
Due from related party
Cash and cash equivalents
Accrued revenue
Accounts receivable—net
Prepaid expenses and other current assets
Due from related party
Deferred tax assets—current
Accrued revenue
Assets held for sale
Prepaid expenses and other current assets
Deferred tax assets—current
Assets held for sale
Goodwill
Total current assets
Intangible assets—net
Regulatory assets
Goodwill
Deposits
Intangible assets—net
Bond service fund and other restricted cash
Regulatory assets
Debt issuance costs—net
Deposits
Equity method investment—related party
Bond service fund and other restricted cash
Deferred tax assets
Debt issuance costs—net
Total other assets
Equity method investment—related party
Deferred tax assets
Total other assets
OTHER ASSETS:
OTHER ASSETS:
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
Total current liabilities
CURRENT LIABILITIES:
TOTAL ASSETS
Accounts payable
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses
CURRENT LIABILITIES:
Deferred revenue
Accounts payable
Customer and meter deposits
Accrued expenses
Long-term debt—current portion
Deferred revenue
Liabilities held for sale
Customer and meter deposits
Long-term debt—current portion
NONCURRENT LIABILITIES:
Liabilities held for sale
Long-term debt
Total current liabilities
Deferred regulatory gain
NONCURRENT LIABILITIES:
Regulatory liability
Long-term debt
Advances in aid of construction
Deferred regulatory gain
Contributions in aid of construction—net
Regulatory liability
Deferred income tax liability
Advances in aid of construction
Acquisition liability
Contributions in aid of construction—net
Other noncurrent liabilities
Deferred income tax liability
Total noncurrent liabilities
Acquisition liability
Total liabilities
Other noncurrent liabilities
Total noncurrent liabilities
Total liabilities
Commitments and contingencies (see Note 14)
SHAREHOLDERS' EQUITY :
SHAREHOLDERS' EQUITY :
Commitments and contingencies (see Note 14)
Common stock, $0.01 par value, 1,000,000 shares authorized, 181,179 and 182,050
shares issued and outstanding as of December 31, 2015 and December 31, 2014,
respectively
Common stock, $0.01 par value, 1,000,000 shares authorized, 181,179 and 182,050
Paid in capital
shares issued and outstanding as of December 31, 2015 and December 31, 2014,
Accumulated deficit
respectively
Total shareholders' equity
Paid in capital
Accumulated deficit
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
Total shareholders' equity
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
$
$
$
$
$
$
$
(in thousands of US$, except share data)
$
$
$
$
$
$
258,244
(64,092)
194,152
258,244
(64,092)
11,513
194,152
1,132
306
11,513
1,745
1,132
1,179
306
—
1,745
2,840
1,179
18,715
—
2,840
—
18,715
12,772
227
—
13
12,772
9,042
227
2,233
13
821
9,042
—
2,233
25,108
821
237,975
—
25,108
237,975
1,322
5,137
11
1,322
1,706
5,137
1,994
11
493
1,706
10,663
1,994
493
104,650
10,663
19,730
7,859
104,650
61,480
19,730
4,426
7,859
4,164
61,480
4,688
4,426
252
4,164
207,249
4,688
217,912
252
207,249
217,912
2
21,659
(1,598)
2
20,063
21,659
237,975
(1,598)
20,063
237,975
$
$
318,995
(78,571)
240,424
318,995
(78,571)
6,577
240,424
1,365
645
6,577
1,762
1,365
353
645
1,591
1,762
—
353
12,293
1,591
—
13,082
12,293
12,772
400
13,082
25
12,772
9,927
400
2,722
25
1,150
9,927
14,806
2,722
54,884
1,150
307,601
14,806
54,884
307,601
1,531
6,832
13
1,531
2,601
6,832
2,653
13
—
2,601
13,630
2,653
—
127,491
13,630
19,730
7,859
127,491
89,206
19,730
17,096
7,859
—
89,206
4,688
17,096
221
—
266,291
4,688
279,921
221
266,291
279,921
2
50,639
(22,961)
2
27,680
50,639
307,601
(22,961)
27,680
307,601
See accompanying notes to the consolidated financial statements
-2-
See accompanying notes to the consolidated financial statements
-2-
61
2015 ANNUAL REPORT GLOBAL WATER GLOBAL WATER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
GLOBAL WATER RESOURCES, INC.
As of December 31, 2015 and December 31, 2014
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2015 and 2014
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment
Less accumulated depreciation
Net property, plant and equipment
REVENUES:
CURRENT ASSETS:
Water services
Wastewater and recycled water services
Cash and cash equivalents
Accounts receivable—net
Unregulated revenues
Due from related party
Accrued revenue
Total revenues
Prepaid expenses and other current assets
Deferred tax assets—current
OPERATING EXPENSES:
Assets held for sale
Operations and maintenance
Total current assets
OTHER ASSETS:
Operations and maintenance - related party
Goodwill
General and administrative
Intangible assets—net
Gain on regulatory order
Regulatory assets
Depreciation
Deposits
Total operating expenses
Bond service fund and other restricted cash
Debt issuance costs—net
Equity method investment—related party
Deferred tax assets
OTHER INCOME (EXPENSE):
Total other assets
OPERATING INCOME
Interest income
TOTAL ASSETS
Interest expense
LIABILITIES AND SHAREHOLDERS' EQUITY
Other
Gain on condemnation of Valencia
CURRENT LIABILITIES:
Accounts payable
Other - related party
Accrued expenses
Deferred revenue
Total other income (expense)
Customer and meter deposits
Long-term debt—current portion
INCOME BEFORE INCOME TAXES
Liabilities held for sale
INCOME TAX (EXPENSE) BENEFIT
Total current liabilities
NET INCOME
NONCURRENT LIABILITIES:
Diluted earnings per common share
Long-term debt
Deferred regulatory gain
Basic earnings per common share
Regulatory liability
Advances in aid of construction
Dividends declared per common share
Contributions in aid of construction—net
Dividends declared per common share
Deferred income tax liability
Acquisition liability
Other noncurrent liabilities
Total noncurrent liabilities
Basic earnings per common share
Total liabilities
Diluted earnings per common share
Commitments and contingencies (see Note 14)
Weighted average number of common shares used in the determination of:
December 31, 2015
December 31, 2014
(in thousands of US$, except share data)
December 31,
$
$
$
$
$
$
$
C$
$
2015
$
2014
(in thousands of US$, except share data)
258,244
(64,092)
194,152
16,320
11,513
15,020
1,132
616
306
1,745
31,956
1,179
—
2,840
7,080
18,715
2,179
—
7,957
12,772
—
227
8,213
13
25,429
9,042
6,527
2,233
821
—
25,108
11
237,975
(8,299)
42,983
767
1,322
(3)
5,137
11
35,459
1,706
1,994
41,986
493
(20,623)
10,663
21,363
$
$
$
$
$
$
104,650
19,730
117.55
7,859
117.55
61,480
187.18 C$
4,426
143.95
4,164
4,688
252
207,249
181,733
217,912
181,733
$
318,995
(78,571)
240,424
18,076
6,577
14,112
1,365
371
645
1,762
32,559
353
1,591
—
8,020
12,293
2,398
13,082
8,809
12,772
(50,664)
400
9,205
25
(22,232)
9,927
54,791
2,722
1,150
14,806
54,884
79
307,601
(9,512)
—
2,162
1,531
416
6,832
13
(6,855)
2,601
2,653
47,936
—
16,995
13,630
64,931
127,491
19,730
356.67
7,859
356.67
89,206
22.40
17,096
20.49
—
4,688
221
266,291
182,050
279,921
182,050
2
50,639
(22,961)
27,680
307,601
SHAREHOLDERS' EQUITY :
Common stock, $0.01 par value, 1,000,000 shares authorized, 181,179 and 182,050
shares issued and outstanding as of December 31, 2015 and December 31, 2014,
respectively
Paid in capital
Accumulated deficit
Total shareholders' equity
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
2
21,659
(1,598)
20,063
237,975
$
See accompanying notes to the consolidated financial statements
-2-
See accompanying notes to the consolidated financial statements
62
-3-
GLOBAL WATER 2015 ANNUAL REPORT GLOBAL WATER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
GLOBAL WATER RESOURCES, INC.
As of December 31, 2015 and December 31, 2014
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2015 and 2014
December 31, 2015
December 31, 2014
(in thousands of US$, except share data)
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment
Less accumulated depreciation
Net property, plant and equipment
CURRENT ASSETS:
Dividend declared C$22.40 per share declared ($20.49 per share)
Cash and cash equivalents
BALANCE – December 31, 2013
Accounts receivable—net
Due from related party
Accrued revenue
Prepaid expenses and other current assets
Deferred tax assets—current
Assets held for sale
Deemed distribution to related party
Stock-based compensation
Net income
BALANCE – December 31, 2014
Total current assets
Dividend declared C$187.18 per share declared ($143.95 per share)
Deemed distribution to related party
OTHER ASSETS:
BALANCE – December 31, 2014
Goodwill
Intangible assets—net
Regulatory assets
Deposits
Bond service fund and other restricted cash
Debt issuance costs—net
BALANCE – December 31, 2015
Equity method investment—related party
Deferred tax assets
Total other assets
Share repurchase
Net income
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued expenses
Deferred revenue
Customer and meter deposits
Long-term debt—current portion
Liabilities held for sale
Total current liabilities
NONCURRENT LIABILITIES:
Long-term debt
Deferred regulatory gain
Regulatory liability
Advances in aid of construction
Contributions in aid of construction—net
Deferred income tax liability
Acquisition liability
Other noncurrent liabilities
Total noncurrent liabilities
Total liabilities
Commitments and contingencies (see Note 14)
SHAREHOLDERS' EQUITY :
$
Common Stock
Paid-in Capital
$
Accumulated
Deficit
258,244
(64,092)
194,152
(in thousands of US$)
$
$
$
$
$
$
$
$
2
—
—
—
—
2
2
—
—
—
—
2
$
$
(87,892) $
—
—
—
64,931
(22,961) $
(22,961) $
—
—
—
21,363
(1,598) $
$
$
55,048
(3,904)
(8)
(497)
—
50,639
11,513
$
1,132
306
1,745
1,179
—
2,840
$
18,715
50,639
(27,607)
(909)
(464)
—
21,659
$
—
12,772
227
13
9,042
2,233
$
821
—
25,108
237,975
1,322
5,137
11
1,706
1,994
493
10,663
104,650
19,730
7,859
61,480
4,426
4,164
4,688
252
207,249
217,912
Common stock, $0.01 par value, 1,000,000 shares authorized, 181,179 and 182,050
shares issued and outstanding as of December 31, 2015 and December 31, 2014,
respectively
Paid in capital
Accumulated deficit
Total shareholders' equity
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
2
21,659
(1,598)
20,063
237,975
$
Total Equity
318,995
(78,571)
240,424
6,577
(32,842)
1,365
(3,904)
645
1,762
(8)
353
(497)
1,591
64,931
—
27,680
12,293
27,680
13,082
12,772
(27,607)
400
(909)
25
(464)
9,927
21,363
2,722
20,063
1,150
14,806
54,884
307,601
1,531
6,832
13
2,601
2,653
—
13,630
127,491
19,730
7,859
89,206
17,096
—
4,688
221
266,291
279,921
2
50,639
(22,961)
27,680
307,601
See accompanying notes to the consolidated financial statements
-2-
See accompanying notes to the consolidated financial statements
-4-
63
2015 ANNUAL REPORT GLOBAL WATER
GLOBAL WATER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
GLOBAL WATER RESOURCES, INC.
As of December 31, 2015 and December 31, 2014
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2015 and 2014
December 31, 2015
December 31, 2014
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment
Less accumulated depreciation
Net property, plant and equipment
CASH FLOWS FROM OPERATING ACTIVITIES:
CURRENT ASSETS:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Deferred compensation
Cash and cash equivalents
Accounts receivable—net
Due from related party
Accrued revenue
Prepaid expenses and other current assets
Write-off of debt issuance costs
Deferred tax assets—current
Loss on disposal of fixed assets
Assets held for sale
Amortization of deferred debt issuance costs and discounts
Gain on condemnation of Valencia
Total current assets
Gain on sale of 303 contracts
OTHER ASSETS:
Loss (Gain) on equity method investment
Goodwill
Gain on regulatory order
Intangible assets—net
Regulatory assets
Other losses (gains)
Deposits
Provision for doubtful accounts receivable
Bond service fund and other restricted cash
Deferred income tax expense (benefit)
Debt issuance costs—net
Changes in assets and liabilities:
Equity method investment—related party
Accounts receivable
Deferred tax assets
Other current assets
Total other assets
Accounts payable and other current liabilities
Other noncurrent assets
Other noncurrent liabilities
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by operating activities
CURRENT LIABILITIES:
Accounts payable
Accrued expenses
Capital expenditures
Deferred revenue
Proceeds from the condemnation of Valencia
Customer and meter deposits
Proceeds received from the sale of Loop 303 Contracts
Long-term debt—current portion
Liabilities held for sale
(Deposits) withdrawals of restricted cash
Total current liabilities
Cash advance to related party
NONCURRENT LIABILITIES:
Repayment of related party cash advance
Other cash flows from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of bond debt
Deposits in bond service fund
Long-term debt
Deferred regulatory gain
Regulatory liability
Advances in aid of construction
Contributions in aid of construction—net
Deferred income tax liability
Acquisition liability
Other noncurrent liabilities
Total noncurrent liabilities
Principal payments under capital leases
Total liabilities
Commitments and contingencies (see Note 14)
Debt issuance costs paid
SHAREHOLDERS' EQUITY :
Advances in aid of construction
Proceeds withdrawn from bond service fund
Loan repayments
Loan borrowings
Net cash provided by (used in) investing activities
Refunds of advances for construction
Common stock, $0.01 par value, 1,000,000 shares authorized, 181,179 and 182,050
shares issued and outstanding as of December 31, 2015 and December 31, 2014,
Dividends paid
respectively
Share repurchase
Paid in capital
Accumulated deficit
Net cash used in financing activities
Total shareholders' equity
INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS – Beginning of period
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
CASH AND CASH EQUIVALENTS – End of period
(in thousands of US$, except share data)
December 31,
2015
$
$
$
$
$
$
$
2014
(in thousands of US$)
258,244
(64,092)
194,152
$
$
$
21,363
11,513
1,132
798
306
8,213
1,745
204
1,179
282
—
—
2,840
(42,983)
18,715
(296)
329
—
—
12,772
227
176
13
69
9,042
20,561
2,233
821
125
—
(2,241)
25,108
(2,502)
237,975
147
—
4,245
1,322
5,137
(3,355)
11
55,107
1,706
296
1,994
493
(70)
10,663
(12,745)
12,745
104,650
(6)
19,730
51,972
7,859
61,480
(1,775)
4,426
—
4,164
1,001
4,688
—
252
(21,719)
207,249
(99)
217,912
—
357
(975)
(27,607)
2
(464)
21,659
(51,281)
(1,598)
4,936
20,063
6,577
237,975
11,513
$
$
318,995
(78,571)
240,424
64,931
6,577
1,365
1,361
645
9,205
1,762
334
353
696
1,591
6
—
—
12,293
—
(144)
13,082
(50,664)
12,772
400
(56)
25
83
9,927
(16,995)
2,722
1,150
26
14,806
—
54,884
(227)
307,601
34
3,056
11,646
1,531
6,832
(1,655)
13
—
2,601
—
2,653
—
198
13,630
—
—
127,491
26
19,730
(1,431)
7,859
89,206
(12,347)
17,096
(1,000)
—
626
4,688
21,800
221
(10,390)
266,291
(105)
279,921
(346)
365
(747)
(3,454)
2
—
50,639
(5,598)
(22,961)
4,617
27,680
1,960
307,601
6,577
See accompanying notes to the consolidated financial statements
-2-
See accompanying notes to the consolidated financial statements
64
-5-
GLOBAL WATER 2015 ANNUAL REPORT 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or
‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages
water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix,
Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water
conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited
and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals
and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total
Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and
to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas
where it expects growth to outpace the existing potable water supply.
History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water
and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an
affiliated company to provide business development, management, construction project management, operations, and
administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona
Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’).
On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo
Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations,
respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and
are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC
(‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential
and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service
area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition.
In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire,
own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as
C corporations and became subsidiaries of GWI.
On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the
parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company
(‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye,
Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern
Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.
On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation
providing water services near the cities of Maricopa and Casa Grande, Arizona.
GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively,
‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity
of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission
approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting
it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial
phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned
primarily for a rail served industrial park.
Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital
markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated
under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC
completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds
totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’
exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.
-6-
65
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.2015 ANNUAL REPORT GLOBAL WATER GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
In connection with the Offering, GWR and GWM (collectively, “GWRI’s predecessor entities”) were reorganized to form
GWRI (the “Reorganization”). Accordingly, all references herein to GWRI with respect to periods prior to December 30,
2010 should be understood as meaning GWRI’s predecessor entities.
Basis of Presentation and Principles of Consolidation – The consolidated financial statements include the accounts of
GWRI and all of its subsidiaries. All intercompany account balances and transactions between GWRI and its subsidiaries
have been eliminated.
We prepare our financial statements in accordance with accounting principles generally accepted in the United States of
America (‘‘U.S. GAAP’’) and with the rules and regulations of the Securities and Exchange Commission ("SEC"). The
preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The U.S. dollar is our reporting currency and the Company’s functional currency.
As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company”
as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), under the rules and regulations of the
Securities and Exchange Commission (“SEC”). An emerging growth company may take advantage of specified reduced
reporting and other requirements that are otherwise applicable generally to public companies. We elected to take advantage
of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We have
elected to take advantage of some of the reduced disclosure obligations regarding financial statements. Also, as an emerging
growth company we can elect to delay adopting new or revised accounting standards issued subsequent to the enactment
of the JOBS Act until such time as those standards apply to private companies. We are choosing to take advantage of this
extended accounting transition provision.
Corporate Transactions — Sale of certain MXA and WMA contracts — In September 2013, the Company sold its
Wastewater Facilities Main Extension Agreements ("MXAs) and Offsite Water Management Agreements (“WMAs") along
with their related rights and obligations to a third party (the “Transfer of Project Agreement”, or “Loop 303 Contracts”).
Pursuant to the Transfer of Project Agreement, GWRI will receive total proceeds of approximately $4.1 million over a
multi-year period. As part of the consideration, GWRI agreed to complete certain engineering work required in the WMAs,
which work had been completed prior to January 1, 2014. As the engineering work has been completed, the Company
effectively has no further obligations under the WMAs, MXAs or the Transfer of Project Agreement. Prior to January 1,
2014, the Company had received $2.8 million of proceeds and recognized income of approximately $3.3 million within
other income (expense) in the statement of operations related to the gain on sale of these agreements and the proceeds
received prior to January 1, 2014 for engineering work required in the WMAs. The Company received additional proceeds
of approximately $296,000 in April 2015 and recognized those amounts as income at that time. Receipt of the remaining
$1.0 million of proceeds will occur and be recorded as additional income over time as certain milestones are met between
the third party acquirer and the developers/landowners.
Stipulated condemnation of Valencia — On March 17, 2015, the Company reached a settlement agreement for a stipulated
condemnation to sell the utility operating as Valencia Water Company, Inc. ("Valencia") to the City of Buckeye ("Buckeye"),
which was approved by Buckeye's City Council on March 19, 2015. On July 14, 2015, the Company closed the stipulated
condemnation of Valencia with the City of Buckeye. Terms of the condemnation were agreed upon through a settlement
agreement in March 2015, pursuant to which Buckeye acquired the operations and assets of Valencia and assumed operations
of the utility upon close. Buckeye paid the Company $55.0 million at close, plus an additional $108,000 in working capital
adjustments. As a result of the transaction, the Company recorded a gain of $43.0 million net of tax liability of $20.2
million for the year ended December 31, 2015. Buckeye will also pay a growth premium equal to $3,000 for each new
water meter installed within Valencia's prior service areas, for a 20-year period ending December 31, 2034, subject to a
maximum payout of $45.0 million over the term of the agreement. For the year ended December 31, 2015, the Company
recognized $624,000 in other income within the consolidated financial statements related to the earn out on growth premium.
In consideration of FASB’s Accounting Standards Codification ("ASC") 205-20-45-1, the condemnation of Valencia
transaction does not meet the criteria of discontinued operations. As the transaction did not change the services provided
66
-7-
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.GLOBAL WATER 2015 ANNUAL REPORT GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
nor the manner in which the Company operates, it was determined the transaction did not represent a strategic shift and
therefore does not qualify for presentation as a discontinued operation.
Pending sale of Willow Water Valley Co., Inc. — On March 23, 2015, the Company reached an agreement to sell the
operations and assets of Willow Water Valley Co., Inc. (“Willow Valley”) to EPCOR Water Arizona Inc. (“EPCOR”). The
terms of the agreement are that EPCOR will purchase the operations, assets and rights used by Willow Valley to operate
the utility system for approximately $2.3 million, subject to current rate base calculations and certain post-closing
adjustments. The transaction is subject to final approval from the Arizona Corporate Commission (the “Commission” or
“ACC”). Subject to a 30 day appeal period, the Arizona Corporation Commission approved the transaction on March 2,
2016.
Per ASC 360-10-45-9 the assets and liabilities considered in the sale of Willow Valley were determined to meet the criteria
to be classified as held for sale. The criteria utilized to make this determination are: (i) management has the authority and
has entered into an agreement to sell the assets of Willow Valley; (ii) the assets and liabilities are available for immediate
sale in their present condition; (iii) the approval from the ACC is probable within the next year; (iv) a reasonable price has
been agreed upon; and (v) it is unlikely that significant changes to the agreement will be made prior to approval. In
consideration of ASC 205-20-45-1, the Willow Valley transaction does not meet the criteria for discontinued operations.
As the transaction did not change the services provided nor the manner in which the Company operates, it was determined
the transactions do not represent a strategic shift and therefore do not qualify for presentation as a discontinued operation.
Additionally, as the carrying value of the assets and liabilities of Willow Valley were greater than the agreed upon sales
price, a loss of $176,000 was recorded in other expense during the second quarter of 2015, when the assets were classified
as held for sale, to adjust the carrying value of the asset group to the agreed upon fair value less cost to sell. The assets
and liabilities included within the agreements are as follows:
Property, plant and equipment
Less Accumulated Depreciation
Net property, plant and equipment
Goodwill
Total assets
Advances in aid of construction
Contributions in aid of construction — net
Total liabilities
December 31, 2015
Willow Valley
(in thousands of US$)
5,223
(2,606)
2,617
223
2,840
70
423
493
$
$
$
$
Normal Course Issuer Bid — On May 11, 2015, GWR Global Water Resources Corp. ("GWRC") received approval from
the Toronto Stock Exchange (“TSX”) to repurchase, for cancellation, common shares of GWRC pursuant to a normal
course issuer bid (“NCIB”). The NCIB enables GWRC to repurchase up to 87,500 common shares, representing
approximately 1% of GWRC’s 8,754,612 issued and outstanding common shares as of May 5, 2015. The NCIB commenced
on May 13, 2015 and was completed on December 30, 2015. Except as permitted under TSX rules, daily purchases were
limited to a maximum of 3,239 common shares other than block purchase exemptions, which represented 25% of the
average daily trading volume on the TSX for the six months ended April 30, 2015. All purchases under the NCIB were
made on the open market through the facilities of the TSX by a participating organization. The actual number of shares
purchased and the timing of such purchases was determined by GWRC considering market conditions, stock prices, its
cash position and other factors. For the year ended December 31, 2015, GWRC repurchased 87,500 shares of stock for a
total of $464,000. GWRI's outstanding shares as of December 31, 2015 are 181,179 compared to 182,050 as of
December 31, 2014. The Company repurchased 871 common shares held by GWRC in connection with GWRC's
repurchases under its NCIB, which reduced GWRC's ownership interest in GWRI from 48.1% to 47.8%.
-8-
67
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.2015 ANNUAL REPORT GLOBAL WATER GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
One-time Dividend—On July 28, 2015, the Company announced a special one-time cash dividend of $22.8 million or
C$1.55 per share. This dividend was paid out on August 12, 2015 to shareholders of record as of the close of business on
August 7, 2015.
Significant Accounting Policies - Significant accounting policies are as follows:
Regulation - Our regulated utilities and certain other balances are subject to regulation by the ACC and are therefore subject
to Accounting Standards Codification Topic 980, Regulated Operations (“ASC Topic 980”) (See Note 3).
Property, plant and equipment - Property, plant and equipment is stated at cost less accumulated depreciation provided on
a straight-line basis (see Note 4).
Depreciation rates for asset classes of utility property, plant and equipment are established by the Commission. The cost
of additions, including betterments and replacements of units of utility fixed assets are charged to utility property, plant
and equipment. When units of utility property are replaced, renewed or retired, their cost plus removal or disposal costs,
less salvage proceeds, is charged to accumulated depreciation.
For non-utility property, plant and equipment, depreciation is calculated by the straight-line method over the estimated
useful lives of depreciable assets. Cost and accumulated depreciation for non-utility property, plant and equipment retired
or disposed of are removed from the accounts and any resulting gain or loss is included in earnings.
In addition to third party costs, direct personnel costs and indirect construction overhead costs may be capitalized. Interest
incurred during the construction period is also capitalized as a component of the cost of the constructed assets, which
represents the cost of debt associated with construction activity. Expenditures for maintenance and repairs are charged to
expense.
Revenue Recognition - Water Services - Water services revenues are recorded when service is rendered or water is delivered
to customers. However, in addition to the monthly basic service charge, the determination and billing of water sales to
individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At
the end of each reporting period, amounts of water delivered to customers since the date of the last meter reading are
estimated and the corresponding accrued, but unbilled revenue is recorded.
Water connection fees are the fees associated with the application process to set up a customer to receive utility service
on an existing water meter. These fees are approved by the ACC through the regulatory process and are set based on the
costs incurred to establish services including the application process, billing setup, initial meter reading and service transfer.
Because the amounts charged for water connection fees are set by our regulator and not negotiated in conjunction with
the pricing of ongoing water service, the connection fees represent the culmination of a separate earnings process and are
recognized when the service is provided. For the years ended December 31, 2015 and December 31, 2014, the Company
recognized $276,000 and $366,000 in connection fees, respectively.
Meter installation fees are the fees charged to developers or builders associated with installing new water meters. Certain
fees for meters are regulated by the ACC, and are refundable pursuant to the end customer over a period of time. Refundable
meter installation fees are recorded as a liability upon receipt. Other certain meter fees are negotiated directly with
developers or builders and are not subject to ACC regulation and represent the culmination of a separate earnings process.
These fees are recognized as revenue when the service is rendered, or when a water meter is installed.
Revenue Recognition - Wastewater and Recycled Water Services - Wastewater service revenues are generally recognized
when service is rendered. Wastewater services are billed at a fixed monthly amount per connection, and recycled water
services are billed monthly based on volumetric fees.
Revenue Recognition - Unregulated Revenues - Unregulated Revenues represent those revenues that are not subject to the
ratemaking process of the ACC. Unregulated revenues are limited to rental revenue and imputed revenues resulting from
certain ICFA arrangements.
68
-9-
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.GLOBAL WATER 2015 ANNUAL REPORT GLOBAL WATER RESOURCES, INC.
GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Allowance for Doubtful Accounts - Provisions are made for doubtful accounts due to the inherent uncertainty around the
Allowance for Doubtful Accounts - Provisions are made for doubtful accounts due to the inherent uncertainty around the
collectability of accounts receivable. The allowance for doubtful accounts is recorded as bad debt expense, and is classified
collectability of accounts receivable. The allowance for doubtful accounts is recorded as bad debt expense, and is classified
as general and administrative expense. The allowance for doubtful accounts is determined considering the age of the
as general and administrative expense. The allowance for doubtful accounts is determined considering the age of the
receivable balance, type of customer (e.g., residential, commercial), payment history as well as specific identification of
receivable balance, type of customer (e.g., residential, commercial), payment history as well as specific identification of
any known or expected collectability issues (see Note 5).
any known or expected collectability issues (see Note 5).
Infrastructure coordination and financing fees - Infrastructure coordination and financing agreements (“ICFAs”) are
Infrastructure coordination and financing fees - Infrastructure coordination and financing agreements (“ICFAs”) are
agreements with developers and homebuilders whereby GWRI, which owns the operating utilities, provides services to
agreements with developers and homebuilders whereby GWRI, which owns the operating utilities, provides services to
plan, coordinate and finance the water and wastewater infrastructure that would otherwise be required to be performed or
plan, coordinate and finance the water and wastewater infrastructure that would otherwise be required to be performed or
subcontracted by the developer or homebuilder. Services provided within these agreements include coordination of
subcontracted by the developer or homebuilder. Services provided within these agreements include coordination of
construction services for water and wastewater treatment facilities as well as financing, arranging and coordinating the
construction services for water and wastewater treatment facilities as well as financing, arranging and coordinating the
provision of utility services.
provision of utility services.
ICFA revenue is recognized when the following conditions are met:
ICFA revenue is recognized when the following conditions are met:
• The fee is fixed and determinable
• The fee is fixed and determinable
• The cash received is nonrefundable
• The cash received is nonrefundable
• Capacity currently exists to serve the specific lots
• Capacity currently exists to serve the specific lots
• There are no additional significant performance obligations
• There are no additional significant performance obligations
As these arrangements are with developers and not with the end water or wastewater customer, revenue recognition
As these arrangements are with developers and not with the end water or wastewater customer, revenue recognition
coincides with the completion of our performance obligations under the agreement with the developer and our ability to
coincides with the completion of our performance obligations under the agreement with the developer and our ability to
provide fitted capacity for water and wastewater service. Payments received under the agreements are recorded as deferred
provide fitted capacity for water and wastewater service. Payments received under the agreements are recorded as deferred
revenue until the point at which all of the conditions described above are met. Historically ICFAs have been accounted
revenue until the point at which all of the conditions described above are met. Historically ICFAs have been accounted
for as revenue pursuant to the obligations being met as outlined above, or as contributions in aid of construction (“CIAC”)
for as revenue pursuant to the obligations being met as outlined above, or as contributions in aid of construction (“CIAC”)
when funds were received. Pursuant to Rate Decision no. 74364, approximately 70% of ICFAs are now recorded as a
when funds were received. Pursuant to Rate Decision no. 74364, approximately 70% of ICFAs are now recorded as a
hook-up fee ("HUF"), with 30% recorded as revenue once all components of revenue recognition are met (See Note 3).
hook-up fee ("HUF"), with 30% recorded as revenue once all components of revenue recognition are met (See Note 3).
Cash and Cash Equivalents - Cash and cash equivalents include all highly liquid investments in debt instruments with an
Cash and Cash Equivalents - Cash and cash equivalents include all highly liquid investments in debt instruments with an
original maturity of three months or less.
original maturity of three months or less.
Restricted Cash - Restricted cash represents cash deposited as a debt service reserve for certain loans and bonds. The
Restricted Cash - Restricted cash represents cash deposited as a debt service reserve for certain loans and bonds. The
following table summarizes the restricted cash balance as of December 31, 2015 and December 31, 2014 (in thousands of
following table summarizes the restricted cash balance as of December 31, 2015 and December 31, 2014 (in thousands of
US$):
US$):
Bond reserve
Bond reserve
HUF funds
HUF funds
Certificate of deposits
Certificate of deposits
December 31, 2015
December 31, 2015
December 31, 2014
December 31, 2014
8,824
8,824
38
38
180
180
9,042
9,042
$
$
$
$
9,823
9,823
—
—
104
104
9,927
9,927
$
$
$
$
Income Taxes - The Company utilizes the asset and liability method of accounting for income taxes. Under the asset and
Income Taxes - The Company utilizes the asset and liability method of accounting for income taxes. Under the asset and
liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance
those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not
when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not
be realized. The Company’s valuation allowance totaled $8,500 as of December 31, 2015 and December 31, 2014 (see
be realized. The Company’s valuation allowance totaled $8,500 as of December 31, 2015 and December 31, 2014 (see
Note 11).
Note 11).
We evaluate uncertain tax positions using a two-step approach. Recognition (step one) occurs when we conclude that a
We evaluate uncertain tax positions using a two-step approach. Recognition (step one) occurs when we conclude that a
tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement
tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement
(step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of
(step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of
a tax position that was previously recognized would occur when we subsequently determine that a tax position no longer
a tax position that was previously recognized would occur when we subsequently determine that a tax position no longer
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69
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.2015 ANNUAL REPORT GLOBAL WATER GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
meets the more-likely-than-not threshold of being sustained. The use of a valuation allowance as a substitute for
derecognition of tax positions is prohibited, and to the extent that uncertain tax positions exist, we provide expanded
disclosures.
Basic and Diluted Earnings per Common Share - The Company has 431 options outstanding to acquire an equivalent
number of shares of GWRI common stock. As of December 31, 2015 and December 31, 2014, these options are out of
the money. Therefore, the Company does not have any common share equivalents to be considered for purposes of
calculating earnings per share. See Note 12. Any changes in the weighted average common shares relate only to the buy-
back of shares. See "Corporate Transactions—Normal Course Issuer Bid" for more information regarding the share
repurchase program.
Goodwill - Goodwill represents the excess of acquisition cost over the fair value of net tangible and identifiable intangible
assets acquired in business combinations. Goodwill is tested for impairment at least annually on October 1 and more
frequently if circumstances indicate that it may be impaired. Goodwill impairment testing is performed at the reporting
unit level. The goodwill impairment model is a two-step process. First, it requires a comparison of the book value of net
assets to the fair value of the related operations that have goodwill assigned to them. We use the terminal valuation method
in estimating fair value which assumes a business will be sold at the end of the projection period at a specific terminal
value. Earnings and discounted cash flows were developed from our internal forecasts. Additionally, management must
make an estimate of a weighted-average cost of capital to be used as a company-specific discount rate, which takes into
account certain risk and size premiums, risk-free yields, and the capital structure of the industry. We have also considered
other qualitative and quantitative factors including the regulatory environment that can significantly impact future earnings
and cash flows and the effects of the volatile current economic environment. Changes in these projections or estimates
could result in a reporting unit either passing or failing the first step in the goodwill impairment model.
If the fair value of a reporting unit is determined to be less than book value, a second step is performed to determine if
goodwill is impaired, and if so, the amount of such impairment. In this process, an implied fair value for goodwill is
estimated by allocating the fair value of the reporting unit to the applicable reporting unit’s assets and liabilities resulting
in any excess fair value representing the implied fair value of goodwill. The amount by which carrying value exceeds the
implied fair value represents the amount of goodwill impairment (see Note 7).
Intangible Assets - Intangible assets not subject to amortization consist of certain permits expected to be renewable
indefinitely, water rights and certain service areas acquired in transactions which did not meet the definition of business
combinations for accounting purposes, and are considered to have indefinite lives. Intangible assets with indefinite lives
are not amortized but are tested for impairment annually, or more often if certain circumstances indicate a possible
impairment may exist. Amortized intangible assets consist primarily of acquired ICFA contract rights.
Pursuant to Rate Decision No. 71878 issued by the ACC on September 15, 2010 for the February 2009 filed rate cases for
Santa Cruz, Palo Verde, Valencia, Greater Buckeye, Greater Tonopah and Willow Valley (the "2010 Regulatory Rate
Decision"), ICFA funds received were accounted for as CIAC. The Company established a regulatory liability against the
Company’s intangible assets balance to offset the value of the intangible assets related to the expected receipt of ICFA
fees in the future. As of January 1, 2014 the Company had a regulatory liability balance of $11.4 million. However, in
2014, in conjunction with Rate Decision No. 74364, the ACC determined that ICFA funds were no longer to be recorded
as CIAC, but rather approximately 70% of funds received should be recorded as HUF, with the remaining 30% to be
deferred and recognized according to the Company's ICFA revenue recognition policy (see Note 3). Accordingly, in 2014
30%, or $3.4 million, of the regulatory liability was reversed in connection with the recognition of the rate decision.
Debt Issuance Costs - In connection with the issuance of some of our long-term debt, we have incurred legal and other
costs that we believe are directly attributable to realizing the proceeds of the debt issued. These costs are capitalized in
other assets and amortized as interest expense using the effective interest method over the term of the respective debt.
Amortization of debt issuance costs and discounts totaled $486,000 for the year ended December 31, 2015, of which
$282,000 was for the write off of debt issuance costs related to the MidFirst loan which was retired in July 2015, and
$204,000 was for the current year amortization. Amortization of debt issuance costs and discounts totaled $1.0 million
for the year ended December 31, 2014, of which $696,000 was for the write off of debt issuance costs and $327,000 was
70
-11-
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.GLOBAL WATER 2015 ANNUAL REPORT GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
for the current year amortization. The 2014 write off of debt issuance costs was related to the Series 2012A and 2012B
bonds and the Regions Term loan, which were retired in 2014.
Impairment of Long-Lived Assets - Management evaluates the carrying value of long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If an indicator
of possible impairment exists, an undiscounted cash flow analysis would be prepared to determine whether there is an
actual impairment. Measurement of the impairment loss is based on the fair value of the asset. Generally, fair value will
be determined using appraisals or valuation techniques such as the present value of expected future cash flows.
Advances and Contributions in Aid of Construction - The Company has various agreements with Developers and builders,
whereby funds, water line extensions, or wastewater line extensions are provided to us by the Developers and are considered
and are
refundable advances for construction. These advances in aid of construction (“AIAC”) are
subject to refund to the Developers through annual payments that are computed as a percentage of the total annual gross
revenue earned from customers connected to utility services constructed under the agreement over a specified period.
Upon the expiration of the agreements’ refunding period, the remaining balance of the advance becomes nonrefundable
and at that time is considered CIAC. CIAC are amortized as a reduction of depreciation expense over the estimated
remaining life of the related utility plant. For rate-making purposes, utility plant funded by advances and contributions
in aid of construction are excluded from rate base. For the year ended December 31, 2014, the Company transferred $7.4
million of AIAC balances to CIAC for amounts for which the refunding period had expired. No AIAC balances were
transferred to CIAC for the year ended December 31, 2015.
Fair Value of Financial Instruments - The carrying values of cash equivalents, trade receivables, and accounts payable
approximate fair value due to the short-term maturities of these instruments. See Note 10 for information as to the fair
value of our long-term debt. Our refundable AIAC have a carrying value of $61.5 million and $89.2 million as of
December 31, 2015 and December 31, 2014, respectively. Portions of these non-interest-bearing instruments are payable
annually through 2032 and amounts not paid by the contract expiration dates become nonrefundable. Their relative fair
values cannot be accurately estimated because future refund payments depend on several variables, including new customer
connections, customer consumption levels, and future rate increases. However, the fair value of these amounts would be
less than their carrying value due to the non-interest-bearing feature.
Asset Retirement Obligations - Liabilities for asset retirement obligations are typically recorded at fair value in the period
in which they are incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized
cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement. Our legal obligations for retirement reflect
principally the retirement of wastewater treatment facilities, which are required to be closed in accordance with the Clean
Closure Requirements of the Arizona Department of Environmental Quality (ADEQ). The Clean Closure Requirements
of ADEQ for wastewater facilities are driven by a need to protect the environment from inadvertent contamination associated
with the decommissioning of these systems. As such, our regulated subsidiaries incur asset retirement obligations. As of
December 31, 2015 and December 31, 2014 we had provided $306,000 and $229,000 in certificates of deposit, respectively,
or letters of credit to benefit ADEQ for such anticipated closure costs. Water systems, unlike wastewater systems, do not
require Aquifer Protection Permits or the associated Clean Closure Requirement obligation.
Amounts recorded for asset retirement obligations are subject to various assumptions and determinations, such as
determining whether a legal obligation exists to remove assets; estimating the fair value of the costs of removal; estimating
when final removal will occur; and determining the
risk-free interest rates to be utilized on discounting
future liabilities. Changes that may arise over time with regard to these assumptions will change amounts recorded in the
future. Estimating the fair value of the costs of removal were determined based on third-party costs.
Segments - Operating segments are defined as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker ("CODM") in deciding how to allocate resources
and in assessing operating performance. In consideration of ASC 280 - Segment Reporting the Company notes it is not
organized around specific products and services, geographic regions or regulatory environments. The Company currently
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71
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.2015 ANNUAL REPORT GLOBAL WATER GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
operates in one geographic region within the State of Arizona, wherein each operating utility operates within the same
regulatory environment.
While the Company reports its revenue, disaggregated by service type, on the face of its Statements of Operations, the
Company does not manage the business based on any performance measure at the individual revenue stream level. The
Company does not have any customers that contribute more than 10% to the Company's revenues or revenue streams.
Additionally we note that the CODM uses consolidated financial information to evaluate the Company’s performance,
which is the same basis on which he communicates the Company’s results and performance to the Board of Directors. It
is upon this consolidated basis from which he bases all significant decisions regarding the allocation of the Company's
resources on a consolidated level. Based on the information described above and in accordance with the applicable
literature, management has concluded that the Company is currently organized and operated as one operating and reportable
segment.
2. NEW ACCOUNTING PRONOUNCEMENTS
In April 2014, the Financial Accounting Standards Board ("FASB") issued Auditing Standards Update ("ASU") 2014-08,
Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity, which change the criteria for reporting discontinued
operations and changing the disclosures for disposals that meet the definition under the new guidance. Under the new
guidance, only disposals representing a strategic shift in a company's strategy would be deemed a discontinued operation.
To meet the definition of strategic shift, the disposal should have a major effect on the organization's operations and
financial results. Certain examples of the type of disposals that would qualify as a discontinued operation include a
disposal of a major geographic area, a major line of business, or a major equity method investment. For those disposals
that meet the criteria, expanded disclosures on assets, liabilities, income and expenses would apply. The Company’s
adoption of ASU 2014-08 in the first quarter of 2015 did not have a material effect on our consolidated financial statements.
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers, which completes the joint effort
between the FASB and IASB to converge the recognition of revenue between the two boards. The new standard affects
any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into
contracts for the transfer of nonfinancial assets not included within other FASB standards. The guiding principal of the
new standard is that an entity should recognize revenue in an amount that reflects the consideration to which an entity
expects to be entitled for the delivery of goods and services. ASU 2014-09 may be adopted using either of two acceptable
methods: (1) retrospective adoption to each prior period presented with the option to elect certain practical expedients;
or (2) adoption with the cumulative effect recognized at the date of initial application and providing certain disclosures.
To assess at which time revenue should be recognized, an entity should use the following steps: (1) identify the contract
(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4)
allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the
entity satisfies a performance obligation. For public business entities, ASU 2014-09 is effective for annual reporting
periods beginning after December 15, 2017, including interim periods within the reporting period. For private companies,
ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2018 and interim reporting periods
beginning after December 15, 2019. Earlier application is allowed in certain circumstances. The Company is currently
assessing the impact that this guidance may have on our consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a
Going Concern, which defines management's responsibility in evaluating whether there is substantial doubt about an
organizations ability to continue as a going concern. The new standard provides that an entity's management should
evaluate whether conditions or events exist that would raise substantial doubt about an entity's ability to continue as a
going concern. If substantial doubt exists, the guidance provides principles and definitions to assist management in
assessing the appropriate timing and content in their financial statement disclosures. ASU 2014-15 is effective for annual
periods ending after December 15, 2016. The adoption of ASU 2014-15 is not expected to have a material effect on our
consolidated financial statements.
72
-13-
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.GLOBAL WATER 2015 ANNUAL REPORT GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest: Simplifying the Presentation of Debt
Issuance Costs, which requires debt issuance costs be presented in the balance sheet as a direct deduction from the carrying
amount of the associated debt liability, consistent with the accounting of debt discounts. The effects of this update are
to be applied retrospectively as a change in accounting principal. For public business entities, ASU 2015-03 is effective
for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal
years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after
December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. The adoption of ASU
2015-03 will require the Company to reclassify debt issuance costs retrospectively beginning January 1, 2016. The
Company is currently assessing the impact that this guidance may have on our consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes, which
requires that deferred tax liabilities and assets be classified as noncurrent in the classified statement of financial position.
The purpose of this update is to simplify the presentation of deferred liabilities and assets. For public business entities,
ASU 2015-17 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual
periods. For private companies, the ASU is effective for financial statements for annual periods beginning after December
15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early application is permitted
for all entities as of the beginning of an interim or annual reporting period. The Company has elected to early adopt ASU
2015-17 and report the impact of such adoption prospectively, which change has been reflected in our 2015 financial
statements.
3. REGULATORY DECISION AND RELATED ACCOUNTING AND POLICY CHANGES
Our regulated utilities and certain other balances are subject to regulation by the ACC and meet the requirements for
regulatory accounting found within ASC Topic 980, Regulated Operations.
In accordance with ASC Topic 980, rates charged to utility customers are intended to recover the costs of the provision
of service plus a reasonable return in the same period. Changes to the rates, are made through formal rate applications,
which we have done for all of our operating utilities and which are described below.
On July 11, 2012, we filed formal rate applications with the ACC to adjust the revenue requirements for seven utilities
representing a collective rate increase of approximately 28% over 2011’s revenue. In August 2013, the Company entered
into a settlement agreement with ACC Staff, the Residential Utility Consumers Office, the City of Maricopa, and other
parties to the rate case. The settlement required approval by the ACC’s Commissioners before it could take effect. In
February 2014, the rate case proceedings were completed and the ACC issued Rate Decision No. 74364, effectively
approving the settlement agreement. The rulings of the decision include, but are not limited to, the following:
•
For the Company’s utilities, adjusting for the condemnation of Valencia, a collective revenue requirement increase
of $4.0 million based on 2011 test year service connections, phased-in over time, with the first increase in January
2015 as follows (in thousands of US$):
2015
2016
2017
2018
2019
2020
2021
Incremental
Cumulative
$
1,285
$
1,089
335
335
335
335
335
1,285
2,374
2,709
3,044
3,379
3,714
4,049
Whereas this phase-in of additional revenues was determined using a 2011 test year, to the extent that the number of
active service connections increases from 2011 levels, the additional revenues may be greater than the amounts set forth
above.
-14-
73
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.2015 ANNUAL REPORT GLOBAL WATER GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
•
Full reversal of the imputation of CIAC balances associated with funds previously received under ICFAs, as required
in the Company’s last rate case. The reversal restores rate base or future rate base, and has a significant impact of
restoring shareholder equity on the balance sheet.
• The Company has agreed to not enter into any new ICFAs. Existing ICFAs will remain in place, but a portion of
future payments to be received under the ICFAs will be considered as hook-up fees, which are accounted for as CIAC
once expended on plant.
A 9.5% return on common equity will be adopted.
•
• None of the Company’s utilities will file another rate application before May 31, 2016. GWRI’s subsidiaries, Santa
Cruz Water Company (“Santa Cruz”) and Palo Verde Utilities Company (“Palo Verde”) may not file for another rate
increase before May 31, 2017.
The following provides additional discussion on accounting and policy changes resulting from Rate Decision No. 74364.
Infrastructure Coordination and Financing Agreements – ICFAs are agreements with developers and homebuilders
whereby the GWRI parent company, which owns the operating utilities, provides services to plan, coordinate and finance
the water and wastewater infrastructure that would otherwise be required to be performed or subcontracted by the developer
or homebuilder.
Under the ICFAs, GWRI has a contractual obligation to ensure physical capacity exists through its regulated utilities for
water and wastewater to the landowner/developer when needed. This obligation persists regardless of connection growth.
Fees for these services are typically a negotiated amount per equivalent dwelling unit for the specified development or
portion of land. Payments are generally due in installments, with a portion due upon signing of the agreement, a portion
due upon completion of certain milestones, and the final payment due upon final plat approval or sale of the subdivision.
The payments are non-refundable. The agreements are generally recorded as a lien against the land and must be assumed
in the event of a sale or transfer. The regional planning and coordination of the infrastructure in the various service areas
has been an important part of GWRI’s business model.
Prior to January 1, 2010, GWRI accounted for funds received under ICFAs as revenue once the obligations specified in
the ICFA were met. As these arrangements are with developers and not with the end water or wastewater customer, the
timing of revenue recognition coincided with the completion of GWRI’s performance obligations under the agreement
with the developer and with GWRI’s ability to provide fitted capacity for water and wastewater service through its
regulated subsidiaries.
The 2010 Regulatory Rate Decision established new rates for the recovery of reasonable costs incurred by the utilities
and a return on invested capital. In determining the new annual revenue requirement, the ACC imputed a reduction to
rate base for all amounts related to ICFA funds collected by the Company that the ACC deemed to be CIAC for rate
making purposes. As a result of the decision by the ACC, GWRI changed its accounting policy for the accounting of
ICFA funds. Effective January 1, 2010, GWRI recorded ICFA funds received as CIAC. Thereafter, the ICFA-related
CIAC was amortized as a reduction of depreciation expense over the estimated depreciable life of the utility plant at the
related utilities. The balance of ICFA-related CIAC, net of accumulated amortization, totaled approximately $64.1 million
as of January 1, 2014.
With the issuance of Rate Decision No. 74364, in February 2014, the ACC changed how ICFA funds would be characterized
and accounted for going forward. Most notably, ICFA funds would no longer be required to reduce future rates as a result
of the ratemaking process. We have eliminated the CIAC liability that is no longer required and reversed the associated
regulatory liability brought about by Rate Decision No. 74364 by recording a gain of $50.7 million for the year ended
December 31, 2014. ICFA funds which were already received or which had become due prior to the date of Rate Decision
No. 74364 would be accounted for in accordance with the Company’s ICFA revenue recognition policy that had been in
place prior to the 2010 Regulatory Rate Decision. For ICFA funds to be received in the future, Rate Decision No. 74364
prescribes that 70% of ICFA funds to be received by the Company will be recorded in the associated utility subsidiary as
a HUF liability, with the remaining 30% to be recorded as deferred revenue, to be accounted for in accordance with the
Company's ICFA revenue recognition policy.
-15-
74
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.GLOBAL WATER 2015 ANNUAL REPORT GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
The Company will account for the portion allocated to the HUF as a CIAC contribution. However, in accordance with
the ACC directives the CIAC is not deducted from rate base until the HUF funds are expended for utility plant. Such
funds will be segregated in a separate bank account and used for plant. A HUF liability will be established and will be
amortized as a reduction of depreciation expense over the useful life of the related plant once the HUF funds are utilized
for the construction of plant. For facilities required under a HUF or ICFA, the utilities must first use the HUF moneys
received, after which, it may use debt or equity financing for the remainder of construction. The Company will record
the 30% as deferred revenue, which is to be recognized as revenue once the obligations specified within the ICFA are
met. As of December 31, 2015 and December 31, 2014, ICFA deferred revenue recorded on the consolidated balance
sheet totaled $19.7 million, which represents deferred revenue recorded for ICFA funds received on contracts that had
become due prior to Rate Decision No. 74364. For ICFA contracts coming due after Rate Decision No. 74364, 30% will
be added to this balance with the remaining 70% recorded to a HUF liability.
Regulatory asset – Under ASC Topic 980, rate regulated entities defer costs and credits on the balance sheet as regulatory
assets and liabilities when it is probable that these costs and credits will be recognized in the rate making process in a
period different from the period in which they would have been reflected in income by an unregulated company. Certain
costs associated with our rate cases have been deferred on our balance sheet as regulatory assets as approved by the ACC.
At December 31, 2015 and December 31, 2014, the Company had one regulatory asset in the amount of $227,000 and
$400,000, respectively, related to costs incurred in connection with our most recent rate case. This amount began to
amortize in January 2015, and will amortize over a three-year period, which period is aligned with the phase-in of the
new rates provided by Rate Decision No. 74364. In addition, there was a decrease of approximately $50,000 in the
regulatory asset associated with the condemnation of Valencia.
Intangible assets / Regulatory liability – The Company had previously recorded certain intangible assets related to
ICFA contracts obtained in connection with our Santa Cruz, Palo Verde and Sonoran Utility Services (‘‘Sonoran’’)
acquisitions. The intangible assets represented the benefits to be received over time by virtue of having those contracts.
Prior to January 1, 2010, the ICFA-related intangibles were amortized when ICFA funds were recognized as revenue.
Effective January 1, 2010, in connection with the 2010 Regulatory Rate Decision, these assets became fully offset by a
regulatory liability of $11.2 million since the imputation of ICFA funds as CIAC effectively resulted in the Company not
being able to benefit (through rates) from the acquired ICFA contracts.
Effective January 1, 2010, the gross ICFAs intangibles began to be amortized when cash was received in proportion to
the amount of total cash expected to be received under the underlying agreements. However, such amortization expense
was offset by a corresponding reduction of the regulatory liability in the same amount.
As a result of Rate Decision No. 74364, the Company changed its policy around the ICFA related intangible assets. As
discussed above, pursuant to Rate Decision No. 74364, approximately 70% of ICFA funds to be received in the future
will be recorded as a HUF at the Company’s applicable utility subsidiary. The remaining approximate 30% of future
ICFA funds will be recorded at the parent company level and will be subject to the Company’s ICFA revenue recognition
accounting policy. Since the Company now expects to experience an economic benefit from the 30% portion of future
ICFA funds, 30% of the regulatory liability, or $3.4 million, was reversed during the three months ended March 31, 2014.
The remaining 70% of the regulatory liability, or $7.9 million, will continue to be recorded on the balance sheet. At
December 31, 2015 and December 31, 2014, this was the Company's sole regulatory liability.
Subsequent to Rate Decision No. 74364, the intangible assets will continue to amortize when the corresponding ICFA
funds are received in proportion to the amount of total cash expected to be received under the underlying agreements.
The recognition of amortization expense will be partially offset by a corresponding reduction of the regulatory liability.
Income taxes – As a result of the additional revenues expected to be provided by Rate Decision No. 74364, as well as
other factors, the Company performed an evaluation of its deferred income taxes and determined that sufficient evidence
now exists that the majority of the Company’s net deferred tax assets will be utilized in the future. Accordingly in 2014,
the Company reversed substantially all of the deferred tax asset valuation allowance previously recorded (see Note 11).
-16-
75
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.2015 ANNUAL REPORT GLOBAL WATER GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 2015 and December 31, 2014 consist of the following (in thousands of
US$):
December 31, 2015
December 31, 2014
PROPERTY, PLANT AND EQUIPMENT:
Mains/lines/sewers
$
113,318
$
Plant
Equipment
Meters
Furniture, fixture and leasehold improvements
Computer and office equipment
Software
Land and land rights
Other
Construction work-in-process
Total property, plant and equipment
Less accumulated depreciation
Net property, plant and equipment
5. ACCOUNTS RECEIVABLE
64,983
27,961
4,253
386
1,022
177
752
148
45,244
258,244
(64,092)
$
194,152
$
138,116
79,983
44,286
6,336
430
1,006
163
986
139
47,550
318,995
(78,571)
240,424
Average
Depreciation
Life (in years)
47
25
10
12
8
5
3
Accounts receivable at December 31, 2015 and December 31, 2014 consist of the following (in thousands of US$):
Billed receivables
Less allowance for doubtful accounts
Accounts receivable – net
December 31, 2015
December 31, 2014
$
$
1,326
(194)
1,132
$
$
1,523
(158)
1,365
The following table summarizes the allowance for doubtful accounts activity as of and for the years ended December 31,
2015 and December 31, 2014 (in thousands of US$):
Beginning balance
Allowance additions
Write-offs
Recoveries
Ending balance
December 31, 2015
December 31, 2014
$
$
(158) $
(36)
12
(12)
(194) $
(102)
(92)
57
(21)
(158)
76
-17-
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.GLOBAL WATER 2015 ANNUAL REPORT
GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
6. EQUITY METHOD INVESTMENT AND CONVERTIBLE NOTE
On June 5, 2013, the Company sold Global Water Management, LLC (“GWM”) to an investor group led by a private
equity firm that specializes in the water industry. GWR was a wholly-owned subsidiary of GWRI that owned and operated
the FATHOM business ("FATHOM"). In connection with the sale of GWM, the Company made an investment in the
FATHOM Partnership. This limited partnership investment is accounted for under the equity method due to our investment
being considered more than minor.
The original investment in FATHOM consisted of an investment of $750,000 in the Series A preferred units and $98,000
of common units. Additionally, GWRI invested $750,000 in a 10% convertible promissory note of GWM with an original
maturity of December 31, 2014. We accounted for this investment in accordance with relevant accounting guidance for
debt and equity securities which requires the fair value measurement of the investment pursuant to ASC Topic 820, Fair
Value Measurement. The fair value of the investment in the convertible notes at initial recognition was determined using
the transaction price, of which the price paid by the Company was consistent with the price paid by third party investors
for comparable convertible notes.
In November 2014, FATHOM experienced a qualified financing event (qualified financing was defined as an equity
financing by FATHOM Partnership in which FATHOM Partnership sells its units for at least $1.75 per unit and the
aggregate proceeds from such financing was at least $15 million, exclusive of convertible note amounts converted). At
the time of the qualified financing, the convertible promissory note was converted into Series B Preferred Units, and
accounted for under the equity method. The Company's resulting ownership of common and preferred units represented
an approximate 8.0% ownership (on a fully diluted basis).
In conjunction with the qualified financing, our equity interest in the Series A and Series B preferred shares was adjusted
in accordance with ASC 323, wherein we recorded a gain of $1.0 million in the fourth quarter of 2014. The adjustment
to the carrying value of our investments was calculated using our proportionate share of FATHOM's adjusted net equity.
The gain was recorded within other income and expense in our consolidated statement of operations. The carrying value
of our investment consisted of a balance of $821,000 as of December 31, 2015 and $1.2 million as of December 31, 2014,
and reflects our initial investment, the adjustment related to the qualified financing and our proportionate share of
FATHOM's cumulative losses.
We evaluate our investment in FATHOM Partnership/GWM for impairment whenever events or changes in circumstances
indicate that the carrying value of our investment may have experienced an "other-than-temporary" decline in value. Since
the sale of GWM, the losses incurred on the investment were greater than anticipated; however, based upon our evaluation
of various relevant factors, including the recent equity event and the ability of FATHOM to achieve and sustain an earnings
capacity that would justify the carrying amount of our investment, as of December 31, 2015 we do not believe the
investment to be impaired.
We have evaluated whether GWM qualifies as a variable interest entity (“VIE”) pursuant to the accounting guidance of
ASC 810, Consolidations. Considering the potential that the total equity investment in FATHOM Partnership/GWM may
not be sufficient to absorb the losses of FATHOM, we believe it is currently appropriate to view GWM as a VIE. However,
considering GWRI’s minority interest and limited involvement with the FATHOM business, the Company would not be
required to consolidate the financial statements of GWM. Rather, we have accounted for our investment under the equity
method.
7. GOODWILL AND INTANGIBLE ASSETS
The carrying value of goodwill was zero as of December 31, 2015. With the condemnation of Valencia, $12.7 million of
goodwill was written off. An impairment of $176,000 was recorded against the goodwill recorded in the Willow Valley
reporting unit during 2015, to bring its carrying value down to $223,000, which balance was reclassified as held for sale
as of December 31, 2015. The carrying value of goodwill was $13.1 million as of December 31, 2014, which included
balances of $12.7 million and $398,000 in the Valencia and Willow Valley reporting units, respectively.
-18-
77
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.2015 ANNUAL REPORT GLOBAL WATER GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
Intangible assets at December 31, 2015 and December 31, 2014 consisted of the following (in thousands of US$):
December 31, 2015
December 31, 2014
Gross
Accumulated
Net
Gross
Accumulated
Net
Amount
Amortization
Amount
Amount
Amortization
Amount
INDEFINITE LIVED INTANGIBLE ASSETS:
CP Water CC&N service area
$
1,532
$
— $
1,532
$
1,532
$
— $
Intangible trademark
AMORTIZED INTANGIBLE ASSETS:
Acquired ICFAs
Sonoran contract rights
13
1,545
17,978
7,406
25,384
—
—
(12,154)
(2,003)
(14,157)
13
1,545
5,824
5,403
11,227
13
1,545
17,978
7,406
25,384
—
—
(12,154)
(2,003)
(14,157)
Total intangible assets
$
26,929
$
(14,157) $
12,772
$
26,929
$
(14,157) $
1,532
13
1,545
5,824
5,403
11,227
12,772
Acquired ICFAs and Sonoran contract rights are amortized when cash is received in proportion to the amount of total
cash expected to be received under the underlying agreements. Due to the uncertainty of the timing of when cash will
be received under ICFA agreements and contract rights, we cannot reliably estimate when the remaining intangible assets'
amortization will be recorded. No amortization was recorded for these balances for the years ended December 31, 2015
and December 31, 2014.
8. TRANSACTIONS WITH RELATED PARTIES
On January 19, 2016, GWRC announced that it has agreed to pursue a proposed transaction with the Company that will
result in, subject to the satisfaction of shareholder approval and certain other conditions, GWRC merging with and into
the Company (the “Proposed Transaction”). The Proposed Transaction is part of the Company’s overall plan to simplify
its corporate structure by eliminating one level of holding company ownership, refinance its outstanding tax-exempt
bonds on more favorable terms (as described below), improve liquidity for shareholders over the medium to long-term
and have a single governing jurisdiction in the U.S., where all of the assets, operations and employees of the business are
located. As a result of the merger, GWRC will cease to exist as a British Columbia corporation and the Company, governed
by the corporate laws of the State of Delaware, will be the surviving entity. The Proposed Transaction is conditional upon
the concurrent completion of a proposed initial public offering of shares of common stock of the Company in the United
States (the “U.S. IPO”). The Company has filed a registration statement on Form S-1 with the U.S. Securities and
Exchange Commission in connection with the U.S. IPO.
On completion of the Proposed Transaction, the Company will have the right to redeem all of its outstanding tax-exempt
bonds at a price of 103% of the principal amount, plus interest accrued at the redemption date. As of December 31, 2015,
the principal balance of such bonds was U.S.$106.7 million. Following completion of the Proposed Transaction, the
Company plans to refinance these bonds and, based on discussions with lenders, believes it can reduce the effective
interest rate on the outstanding balance by 75 to 150 basis points. The refinancing of the Company’s tax-exempt bonds
at reduced interest or at all will depend on a number of factors that are beyond its control including market conditions,
and therefore the completion of the bond refinancing cannot be assured. For a description of our tax exempt bonds, see
Note 10.
Subject to the satisfaction of all application conditions, including the requisite shareholder approval and those conditions
relating to the U.S. IPO, the Proposed Transaction is expected to close in the second quarter of 2016.
We provide medical benefits to our employees through our participation in a pooled plan sponsored by an affiliate of a
shareholder and director of the Company. Medical claims paid to the plan were approximately $493,000 and $532,000
for the years ended December 31, 2015 and December 31, 2014, respectively.
78
-19-
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.GLOBAL WATER 2015 ANNUAL REPORT GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
GWRC was organized in 2010 and holds an approximate 47.8% interest in the Company. GWRC is not part of the
consolidated Company. GWRC has no employees and GWRI provides for the ongoing management and general
administration of all of GWRC’s business affairs pursuant to a management agreement between GWRC and GWRI to
provide such services. Accordingly, GWRC is economically dependent on the Company. Services provided by the
Company under the management agreement are provided at no charge to GWRC, and are not monetarily significant.
However, GWRC does incur certain costs not covered by the management agreement. These include GWRC’s accounting
fees, listing fees and other costs directly associated with operating as a publicly traded company. Whereas GWRC does
not expect to generate cash flows from operating activities, the operating costs incurred by GWRC and other cash
requirements are paid by the Company. Amounts paid by GWRI on GWRC’s behalf during the years ended December 31,
2015 and December 31, 2014 totaled $1.4 million and $505,000, respectively. The Company accounts for such payments
as equity distributions to GWRC.
For the years ended December 31, 2015 and December 31, 2014, the Company provided cash advances of approximately
$12.7 million and $519,000 to satisfy GWRC's short term cash obligations, respectively. The amount advanced is utilized
to fund GWRC's monthly dividend and other cash requirements, as needed. The residual balance of the cash advance is
presented on the Company's balance sheet in due from related party. The related party balance will be reduced upon
dividend declaration, when the amount declared is presented as a reduction in equity. As of December 31, 2014, the
balance of the advance was $188,000. As of December 31, 2015, the balance of the advance was zero.
GWM has historically provided billing, customer service and other support services for the Company’s regulated utilities.
Amounts collected by GWM from the Company’s customers that GWM has not yet remitted to the Company are included
within the ‘due from related party’ caption on the Company’s consolidated balance sheet. As of December 31, 2015 and
December 31, 2014, the unremitted balance totaled $306,000 and $457,000, respectively. Notwithstanding the sale of
GWM on June 5, 2013, FATHOM will continue to provide these services to the Company’s regulated utilities under a
long-term service agreement. Based on current service connections, we estimate that fees to be paid to GWM for FATHOM
services will be $7.72 per water account/month, which is an annual rate of approximately $1.8 million. For the years
ended December 31, 2015 and December 31, 2014 the Company incurred FATHOM service fees of approximately $2.2
million and $2.4 million, respectively.
Pursuant to the purchase agreement for the sale of GWM, the Company is entitled to quarterly royalty payments based
on a percentage of certain of GWM’s recurring revenues for a 10-year period, up to a maximum of $15.0 million. In
addition, the Company entered into a services agreement with GWM whereby the Company has agreed to use the
FATHOM™ platform for all of its regulated utility services for an initial term of 10 years. The services agreement is
automatically renewable thereafter for successive 10-year periods, unless notice of termination is given prior to any
renewal period. The services agreement may be terminated by either party for default only and the termination of the
services agreement will also result in the termination of the royalty payments payable to the Company. The Company
made the election to record these quarterly royalty payments prospectively in income as the amounts are earned. Royalties
recorded within other income totaled approximately $326,000 and $272,000 for the years ended December 31, 2015 and
December 31, 2014, respectively.
As part of the condemnation of Valencia the Company paid FATHOM $74,000 for consulting services rendered in relation
to the transfer of customer data to Buckeye.
-20-
79
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.2015 ANNUAL REPORT GLOBAL WATER GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
9. ACCRUED EXPENSES
Accrued expenses at December 31, 2015 and December 31, 2014 consist of the following (in thousands of US$):
Deferred compensation
Interest
Property taxes
Other accrued expenses
Total accrued expenses
10. DEBT
December 31, 2015
December 31, 2014
$
$
$
598
877
958
2,704
5,137
$
1,551
1,066
1,038
3,177
6,832
The outstanding balances and maturity dates for short-term (including the current portion of long-term debt) and long-
term debt as of December 31, 2015 and December 31, 2014 are as follows (in thousands of US$):
December 31, 2015
December 31, 2014
Short-term
Long-term
Short-term
Long-term
BONDS PAYABLE –
5.450% Series 2006, maturing December 1, 2017
$
1,000
$
1,040
$
930
$
5.600% Series 2006, maturing December 1, 2022
5.750% Series 2006, maturing December 1, 2032
6.550% Series 2007, maturing December 1, 2037 – net of
unamortized discount of $338 at December 31, 2015 and $359 at
December 31, 2014
6.375% Series 2008, maturing December 1, 2018
7.500% Series 2008, maturing December 1, 2038
TERM LOAN –
LIBOR plus 3.00% MidFirst Term Loan, maturing November 10,
2024
OTHER LOANS –
Capital lease obligations
Total debt
—
—
700
185
—
1,885
—
109
6,215
23,370
50,177
435
23,235
104,472
—
178
—
—
660
185
—
1,775
2,025
6,215
23,370
50,856
635
23,235
106,336
788
20,929
90
226
$
1,994
$
104,650
$
2,653
$
127,491
Tax Exempt Bonds – We issued tax exempt bonds through The Industrial Development Authority of the County of Pima
in the amount of $36,495,000 on December 28, 2006; $53,624,000, net of a discount of $511,000, on November 19, 2007;
and $24,550,000 on October 1, 2008. The Series 2006, 2007 and 2008 bonds have interest payable semiannually on the
first of June and December. Recurring annual payments of principal are payable annually on the first of December for the
Series 2006, 2007 and 2008 Bonds. Proceeds from these bonds were used for qualifying costs of constructing and equipping
the water and wastewater treatment facilities of our subsidiaries, Palo Verde and Santa Cruz. The Company has not granted
any deed of trust, mortgage, or other lien on property of Santa Cruz or Palo Verde. These bonds are secured by a security
agreement that gives the trustee rights to the net operating income generated by our Santa Cruz and Palo Verde utilities.
The bonds are subject to an early redemption option at 103%, plus accrued interest, in the event of the Company's listing
on a US stock exchange. The tax exempt bonds require we maintain a minimum debt service coverage ratio of 1.10:1.00,
tested annually based on the combined operating results of our Santa Cruz and Palo Verde utilities.
2012 Financings – On June 29, 2012, we secured $25,000,000 of financing consisting of $7,625,000 of tax-exempt revenue
bonds (the “Series 2012A Bonds”) and $6,375,000 taxable revenue bonds (the “Series 2012B Bonds”) through The Industrial
Development Authority of the County of Pima, and an $11,000,000 term loan through Regions Bank (the “2012 Term
Loan”).
These loans had semiannual interest payments and annual principal payments, which commenced December 1, 2012. The
Series 2012A Bonds accrued interest at a rate of 65% of LIBOR plus 242 or 292 basis points (“bps”) depending on debt
80
-21-
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.GLOBAL WATER 2015 ANNUAL REPORT GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
service coverage ratios, and the Series 2012B Bonds accrued interest at a rate of LIBOR plus 250 or 300 bps also depending
upon debt service coverage ratios. The 2012 Term Loan accrued interest at a rate of LIBOR plus 325 bps. The Series
2012A Bonds, Series 2012B Bonds and 2012 Term Loan were retired in November 2014, with the addition of the MidFirst
Term Loan in November 2014.
Prior to retirement, we amended the 2012 Term Loan with Regions Bank in March 2014. In conjunction with the amendment
to the 2012 Term Loan, on March 31, 2014, the Company agreed to make an unscheduled $1,000,000 prepayment to
Regions Bank representing a portion of the term loan principal payment that was previously scheduled to be paid December
1, 2014.
MidFirst Term Loan – In November 2014, we secured a $21.8 million term loan from MidFirst bank ("MidFirst Term
Loan"). Principal and interest are paid monthly with payments calculated using a 20 year amortization schedule. The
MidFirst Term Loan accrued interest at a variable rate of LIBOR plus 300 basis points. The note was collateralized with
a security interest from customer payments for the remaining utilities included within West Maricopa Combine, Inc. The
note had a maturity date in November 2024, but was retired early in July 2015 with proceeds received from the condemnation
of Valencia, at which time we incurred and paid a prepayment penalty of approximately $213,000.
As of December 31, 2015, the Company was in compliance with its financial debt covenants.
At December 31, 2015, the remaining aggregate annual maturities of our debt and minimum lease payments under capital
lease obligations for the years ended December 31 are as follows (in thousands of US$):
2016
2017
2018
2019
2020
Thereafter
Subtotal
Less: amount representing interest
Total
Debt
Capital Lease
Obligations
$
$
$
1,885
1,995
2,120
2,480
2,640
95,575
106,695
—
106,695
$
$
$
127
103
67
21
—
—
318
(31)
287
At December 31, 2015, the carrying value of the non-current portion of long-term debt was $104.7 million, with an estimated
fair value of $116.7 million. At December 31, 2014, the carrying value of the non-current portion of long-term debt was
$127.5 million, with an estimated fair value of $143.1 million. The fair value of our debt was estimated based on interest
rates considered available for instruments of similar terms and remaining maturities.
11. INCOME TAXES
The Company utilizes the asset and liability method of accounting for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company does not have any uncertain tax positions.
-22-
81
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.2015 ANNUAL REPORT GLOBAL WATER GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
The income tax benefit from continuing operations for the years ended December 31, 2015 and December 31, 2014 is
comprised of (in thousands of US$):
Current income tax expense
Deferred income tax expense
Income tax expense
Current income tax benefit
Deferred income tax benefit
Income tax benefit
Federal
63
17,735
17,798
$
$
Federal
(10) $
(15,472)
(15,482) $
$
$
$
$
— $
2,825
2,825
$
2015
State
2014
State
(1) $
(1,512)
(1,513) $
Total
63
20,560
20,623
Total
(11)
(16,984)
(16,995)
The income tax benefit for the year ended December 31, 2015 and December 31, 2014 differs from the amount that
would be computed using the federal statutory income tax rate due to the following (in thousands of US$):
Computed federal tax expense at statutory rate
State income taxes - net of federal tax benefit
Gain on condemnation of Valencia
Valuation allowance
Other differences
Income tax expense
Years Ended December 31,
2015
2014
14,275
$
1,865
4,312
—
171
20,623
$
16,298
2,056
—
(35,800)
451
(16,995)
$
$
ASC Topic 740, Income Taxes, prescribes the method to determine whether a deferred tax asset is realizable and significant
weight is given to evidence that can be objectively verified. During 2012, as a result of the cumulative losses experienced
over the prior three years, which under the accounting standard represented significant objective negative evidence and
prohibited the Company from considering projected income, we concluded that a full valuation allowance should be
recorded against our net deferred tax assets. As mentioned in Note 3 above, as a result of the additional revenues expected
to be provided by Rate Decision No. 74364, as well as other factors, the Company re-evaluated its deferred income taxes
and determined that sufficient evidence now exists that the majority of the Company’s net deferred tax assets will be
utilized in the future. Accordingly, during the year ended December 31, 2014, the Company reversed substantially all of
the deferred tax valuation allowance of $35.8 million recorded as of December 31, 2013. As of December 31, 2015 and
December 31, 2014, the valuation allowance totaled $8,500, which relates to state net operating loss carryforwards expected
to expire prior to utilization.
82
-23-
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.GLOBAL WATER 2015 ANNUAL REPORT GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
The following table summarizes the Company’s temporary differences between book and tax accounting that give rise to
the deferred tax assets and deferred tax liabilities, including the valuation allowance, as of December 31, 2015 and
December 31, 2014 (in thousands of US$):
December 31, 2015
December 31, 2014
DEFERRED TAX ASSETS:
Taxable meter deposits
Net operating loss carry forwards
Balterra intangible asset acquisition
Deferred gain on Sale of GWM
Contributions in aid of construction
Deferred gain on ICFA funds received
Regulatory liability related to intangible assets
Equity investment loss
Property, plant and equipment
Other
Total deferred tax assets
Valuation allowance
Net deferred tax asset
DEFERRED TAX LIABILITIES:
CP Water intangible asset acquisition
ICFA intangible asset
Gain on condemnation of Valencia
Total deferred tax liabilities
Net deferred tax asset
$
46
$
5,322
336
1,705
—
7,346
—
333
863
482
16,433
(9)
16,424
(571)
(141)
(19,876)
(20,588)
(4,164) $
$
711
4,785
336
921
0
7,364
2,933
210
1,669
761
19,690
(9)
19,681
(572)
(2,712)
—
(3,284)
16,397
As of December 31, 2015, we have approximately $14.9 million in federal net operating loss (“NOL”) carry forwards and
$7.8 million in state NOLs available to offset future taxable income, with the NOLs expiring in 2029-2032 for the federal
return and expiring in 2016-2032 for the state return (effective for the 2012 tax year and thereafter, state NOLs for the
state of Arizona expire after 20 years).
12. DEFERRED COMPENSATION AWARDS
Stock-based compensation — Stock-based compensation related to option awards is measured based on the fair value
of the award. The fair value of stock option awards is determined using a Black-Scholes option-pricing model. We
recognize compensation expense associated with the options over the vesting period.
At December 31, 2015 and December 31, 2014, there were options to acquire 431 shares of common stock of GWRI
outstanding. The options were all vested and exercisable as of each date. The stock options have a remaining contractual
life of approximately 2.5 years and have an exercise price of $870.66 per share.
GWRC stock option grant – In January 2012, GWRC’s Board of Directors granted options to acquire 385,697 GWRC
common shares to nine employees of GWRI in lieu of paying cash bonuses for 2011. The options vested in equal
installments over the eight quarters of 2012 and 2013, with exercise prices of C$7.50 and C$4.00 per share and expire
four years after the date of issuance. We accounted for the GWRC stock option grant in accordance with ASC 323,
Investment-Equity Method & Joint Ventures. The Company remeasured the fair value of the award at the end of each
period until the options fully vested as of December 31, 2013.
In the third quarter of 2015, 59,636 GWRC options were exercised by two individuals. As of December 31, 2015, 209,591
GWRC options were outstanding compared to 269,227 as of December 31, 2014. Total GWRC stock options forfeited
due to attrition or the sale of GWM totaled 116,470. The 209,591 options outstanding as of December 31, 2015 expired
in January 2016.
There was no stock-based compensation expense recorded during the years ended December 31, 2015 and December 31,
2014.
-24-
83
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.2015 ANNUAL REPORT GLOBAL WATER GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
Phantom stock compensation – On December 30, 2010, we adopted a phantom stock unit plan authorizing the directors
of the Company to issue phantom stock units (‘‘PSUs’’) to our employees. The value of the PSUs issued under the plan
tracks the performance of GWRC’s shares and gives rise to a right of the holder to receive a cash payment the value of
which, on a particular date, will be the market value of the equivalent number of shares of GWRC at that date. The issuance
of PSUs as a core component of employee compensation is intended to strengthen the alignment of interests between the
employees of the Company and the shareholders of GWRC by linking their holdings and a portion of their compensation
to the future value of the common shares of GWRC.
On December 30, 2010, 350,000 PSUs were issued to members of management, with an initial value of approximately
$2.6 million. The PSUs were accounted for as liability compensatory awards under ASC 710, Compensation – General,
rather than as equity awards. The PSU awards are remeasured each period based on the present value of the benefits
expected to be provided to the employee upon vesting, which benefits are based on GWRC’s share price multiplied by
the number of units. The present value of the benefits was recorded as expense in the Company’s financial statements
over the related vesting period. The December 30, 2010 PSUs vested at the end of four years from the date of their
issuance. There is no exercise price attached to PSU awards. The remaining value of these PSUs, $1.3 million, was paid
to the holders in January 2015.
In January 2012, 135,079 additional PSUs were issued to nine members of management as a reward for performance in
2011. The PSUs issued to management vested ratably over 12 consecutive quarters beginning January 1, 2012 and were
accounted for as liability compensatory awards similar to the PSUs issued in December 2010. These PSUs were remeasured
each period and a liability was recorded equal to GWRC’s closing share price on the period end date multiplied by the
number of units vested. As of December 31, 2015 no additional PSUs remain outstanding. For the year ended December 31,
2015, $38,000 was paid to the holders for these vested PSUs. For the year ended December 31, 2014, $469,000 was paid
to the holders for these vested PSUs.
During the first quarter of 2013, 76,492 PSUs were issued to nine members of management as a reward for performance
in 2012. The PSUs issued to management vest ratably over 12 consecutive quarters beginning January 1, 2013 and are
accounted for as liability compensatory awards similar to the PSUs issued in December 2010 and January 2012. These
PSUs were remeasured each period and a liability was recorded equal to GWRC’s closing share price on the period end
date multiplied by the number of units vested. As of December 31, 2015, 5,479 of these PSUs remain outstanding. For
the year ended December 31, 2015, $110,000, was paid to holders for these vested PSUs, with the remaining value of the
PSUs, $29,000, paid out to holders in January 2016. For the year ended December 31, 2014, $178,000 was paid to the
holders for these vested PSUs.
During the first quarter of 2014, 8,775 PSUs were issued to three members of management as a reward for performance
in 2013. These PSUs vest ratably over 12 consecutive quarters beginning January 1, 2014. As of December 31, 2015,
1,856 of these PSUs remain outstanding. For the year ended December 31, 2015, $7,000, was paid to holders for these
vested PSUs. For the year ended December 31, 2014, $10,000 was paid to the holders for these vested PSUs.
During the first quarter of 2015, 28,828 PSUs were issued to two members of management as a reward for performance
in 2014. These PSUs vest ratably over 12 consecutive quarters beginning January 1, 2015. As of December 31, 2015,
21,621 of these PSUs remain outstanding. For the year ended December 31, 2015, $38,000, was paid to holders for these
vested PSUs.
Stock appreciation rights compensation – In January 2012, in an effort to reward employees for their performance in
2011 as well as to recognize performance since 2007, the last year the Company paid bonuses, we adopted a stock
appreciation rights plan authorizing the directors of the Company to issue stock appreciation rights (‘‘SARs’’) to our
employees. The value of the SARs issued under the plan track the performance of GWRC’s shares. Each holder of the
January 2012 award had the right to receive a cash payment amounting to the difference between C$4.00 per share (the
“exercise price”) and the closing price of GWRC’s common shares on the exercise date, provided that the closing price
was in excess of C$4.00 per share. In total, 152,091 SARs were issued to employees below the senior management level,
and zero remain outstanding as of December 31, 2015. The SARs vested in equal installments over the four quarters of
-25-
84
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.GLOBAL WATER 2015 ANNUAL REPORT GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
2012 and expired four years after the date of issuance. Holders of SARs could exercise their awards once they vested.
Individuals who voluntarily or involuntarily leave the Company forfeit their rights under the awards. For the year ended
December 31, 2015, $69,000, was paid to holders for these vested SARs. For the year ended December 31, 2014, $9,000,
was paid to holders for these vested SARs.
SARs are accounted for as liability compensatory awards under ASC 710, Compensation – General, rather than as equity
awards. The 2012 SAR awards were remeasured each period based on GWRC’s share price relative to the C$4.00 per
share exercise price. To the extent that GWRC’s share price exceeded C$4.00 per share, a liability was recorded in other
accrued liabilities in the Company’s financial statements representing the present value of the benefits expected to be
provided to the employee upon exercise.
In the third quarter of 2013, the Company granted 100,000 SARs to a key executive of the Company. These SARs vest
ratably over sixteen quarters from the grant date and give the employee the right to receive a cash payment amounting
to the difference between C$2.00 per share exercise price and the closing price of GWRC’s common shares on the exercise
date, provided that the closing price is in excess of C$2.00 per share. The exercise price was determined by taking the
weighted average share price of the five days prior to July 1, 2013. As of December 31, 2015, 92,500 of these SARs
remain outstanding. For the year ended December 31, 2015, $37,000, was paid to the holder for these vested SARs.
In the fourth quarter of 2013, the Company granted 100,000 SARs to a newly hired officer of the Company. These SARs
vest ratably over sixteen quarters from the grant date and give the employee the right to receive a cash payment amounting
to the difference between C$3.38 per share exercise price and the closing price of GWRC’s common shares on the exercise
date, provided that the closing price is in excess of C$3.38 per share. The exercise price was determined by taking the
weighted average share price of the 30 days prior to November 14, 2013. As of December 31, 2015, 100,000 of these
SARs remain outstanding.
In the first quarter of 2015, the Company granted 299,000 SARs to seven members of management. These SARs vest
ratably over 16 quarters from the grant date and give the employee the right to receive a cash payment amounting to the
difference between the C$5.35 per share exercise price and the closing price of GWRC’s common shares on the exercise
date, provided that the closing price is in excess of C$5.35 per share. The exercise price was determined to be the fair
market value of one share of stock on the grant date of February 11, 2015. As of December 31, 2015, 299,000 of these
SARs remain outstanding.
In the second quarter of 2015, the Company granted 300,000 SARs to two key executives of the Company. These SARs
vest over 16 quarters, vesting 20% per year for the first three years, with the remainder vesting in year four. The SARs
give the employee the right to receive a cash payment amounting to the difference between the C$6.44 per share exercise
price and the closing price of GWRC’s common shares on the exercise date, provided that the closing price is in excess
of C$6.44 per share. The exercise price was determined to be the fair market value of one share of stock on the grant date
of May 8, 2015. As of December 31, 2015, 300,000 of these SARs remain outstanding.
The Company recorded approximately $695,000 and $1.3 million of compensation expense related to the PSUs and SARs
for the years ended December 31, 2015 and December 31, 2014, respectively. Based on GWRC’s closing share price on
December 31, 2015 deferred compensation expense to be recognized over future periods is estimated for the years ending
December 31 as follows (in thousands of US$):
2016
2017
2018
2019
Total
PSU
SARs
$
$
$
61
53
—
— $
$
114
345
276
206
25
852
-26-
85
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.2015 ANNUAL REPORT GLOBAL WATER GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
13. SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental cash flow information for the years ended December 31, 2015 and December 31, 2014
(in thousands of US$):
Cash paid for interest
$
7,475
$
Capital expenditures included in accounts payable and accrued liabilities
Bond reserve funds used to repay bond debt
Equity method investment gain on recapitalization of FATHOM
184
—
—
8,116
253
1,833
1,088
Years Ended
December 31, 2015
December 31, 2014
14. COMMITMENTS AND CONTINGENCIES
Commitments – Prior to the sale of GWM, we leased certain office space in Arizona under operating leases with terms
that expire in February 2016. The operating lease agreements are between GWM and the landlord. Accordingly, effective
June 5, 2013, the Company is no longer a party under the lease agreements. Nevertheless, GWRI continues to utilize a
portion of the office space covered under the lease agreements. The Company leases certain office space from GWM for
approximately $5,000 per month. Rent expense arising from the operating leases totaled approximately $64,000 and
$70,000 for the years months ended December 31, 2015 and December 31, 2014, respectively.
See also Note 8 regarding our commitment to provide services to GWRC.
Contingencies – Legal Matters – Global Water Resources, Inc v. Sierra Negra Ranch, LLC and New World Properties,
Inc (American Arbitration Association Case No. 76 198 Y 0010411 & 76 198 Y 0010511 respectively): GWRI filed a
claim against Sierra Negra Ranch, LLC (“SNR”) and New World Properties, Inc (“NWP”) for breach of the Infrastructure
Coordination and Financing Agreements (“Agreements”) for their respective developments. As the Agreements require
binding arbitration for any dispute arising out of or relating in any way to the Agreements, we initiated a Demand for
Arbitration and Statement of Claim against SNR and NWP (collectively the “Respondents”) in May 2011 in response to
the non-payment of certain fees due from Respondents to GWRI for major permitting milestones achieved. SNR and
NWP did not dispute that we achieved the permit milestones that trigger payment. The monies we contended GWRI was
owed pursuant to the Agreements from the Respondents were in excess of $3.7 million of principal (not including interest
and recovery of litigation costs, which we pursued during arbitration). Including interest and litigation costs, GWRI
sought in excess of $6.0 million. In response, SNR and NWP filed counterclaims for amongst other things, breach of
contract and rescission. The arbitration hearing concluded on March 2, 2012 and the interim award was received on
March 28, 2012 indicating GWRI as the prevailing party in the arbitration. The final award was received April 20,
2012. According to the award, the arbitration panel found in the Company’s favor on almost all claims, and ruled that
the Company is entitled to approximately $4.2 million of ICFA fees, 15% per annum interest totaling $2.0 million and
recovery of 1/3 of the legal costs incurred in connection with the litigation. In August 2012, we received the monies due
from NWP totaling $2,044,000, consisting of $1,219,000 of past due ICFA fees, $719,000 of interest and $106,000 of
reimbursed litigation costs.
Subsequent to the award, SNR filed for Chapter 11 bankruptcy. In July 2013, the Bankruptcy court ruled that SNR must
cure their default in order to assume the ICFA, which would require full payment of past due ICFA fees, interest and
reimbursement of legal costs by no later than March 21, 2014, stating that such value would be determined by the court
at a future date. In October 2013, the Company entered into a settlement agreement with SNR wherein payment terms
were set to serve as the basis of SNR’s bankruptcy plan of reorganization. Under the plan and settlement agreement that
was approved by the court, the Company would receive monies due from SNR totaling $5,321,000, consisting of
$2,802,000 of past due ICFA fees, $2,021,000 of interest (recorded within other income (expense) in our statement of
operations for the year ended December 31, 2014) and $498,000 of reimbursed litigation costs, all of which was received
during the first quarter of 2014. With respect to the $2,802,000 ICFA fees mentioned above, since such amount was due
86
-27-
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.GLOBAL WATER 2015 ANNUAL REPORT GLOBAL WATER RESOURCES, INC.
Notes to Consolidated Financial Statements
to the Company prior to January 1, 2014, in accordance with Rate Decision No. 74364, we were not required to allocate
any portion of the amount as a HUF.
Separately, on March 18, 2014, SNR and NWP filed an application for rehearing with the ACC regarding Rate Decision
No. 74364. The application relates only to the particular issue of whether ICFA funds to be paid in the future will be
subject to a Consumer Price Index (“CPI”) adjustment, which Rate Decision No. 74364 approved. The ACC had twenty
days from the date of the application to decide if a rehearing would be granted, but that period passed without such action,
eliminating any opportunity for rehearing.
From time to time, we may become involved in other proceedings arising in the ordinary course of business. Management
believes the ultimate resolution of such matters will not materially affect our financial position, results of operations, or
cash flows.
15. SUBSEQUENT EVENTS
On January 19, 2016, the Company filed a registration statement on Form S-1 with the Securities and Exchange
Commission for a proposed offering of its common stock (the "U.S. IPO"). In connection with the proposed U.S. IPO,
the Company plans to apply to list its common stock on the NASDAQ Global Market under the symbol "GWRS."
On March 2, 2016, the Arizona Corporation Commission approved the sale of Willow Valley Water Company to
EPCOR Water Arizona, Inc ("EPCOR"). The ACC's approval is subject to a thirty day appeal period.
Subsequent events have been evaluated through March 15, 2016, the date of this report.
* * * * * *
-28-
87
GLOBAL WATER RESOURCES, INC.Notes to Consolidated Financial Statements-6-1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Global Water Resources, Inc. and its subsidiaries (collectively, the ‘‘Company’’, “GWRI”, ‘‘we’’, ‘‘us’’, or ‘‘our’’) operate in the Western United States as a water resource management company that owns, operates and manages water, wastewater and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. The Company’s model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. The Company’s basic premise is that the world’s water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water and by providing individuals and communities resources that promote wise water usage practices. The Company deploys its integrated approach, Total Water Management (“TWM”), a term which it uses to mean managing the entire water cycle, both to conserve water and to maximize its total economic and social value. The Company uses TWM to promote sustainable communities in areas where it expects growth to outpace the existing potable water supply.History - Global Water Resources, LLC (“GWR”) was organized in 2003 to acquire, own, and manage a portfolio of water and wastewater utilities in the Southwestern United States. Global Water Management, LLC (“GWM”) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries. Our regulated utilities are regulated by the Arizona Corporation Commission (the ‘‘Commission’’ or ‘‘ACC’’). On February 4, 2004, GWR purchased its first two utilities, Santa Cruz Water Company, LLC (‘‘Santa Cruz’’) and Palo Verde Utilities Company, LLC (‘‘Palo Verde’’). Santa Cruz and Palo Verde provide water and wastewater operations, respectively, to residential and commercial customers in the vicinity of the City of Maricopa in Pinal County, Arizona and are regulated by the ACC. Effective March 31, 2005, GWR purchased the assets of Sonoran Utility Services, LLC (‘‘Sonoran’’), an unregulated utility. The Sonoran assets were used to provide water and wastewater operations to residential and commercial customers in a water improvement district and a wastewater improvement district adjacent to the service area of Santa Cruz and Palo Verde. The Sonoran assets were contributed to Santa Cruz and Palo Verde upon acquisition. In March 2005, Global Water, Inc. (“GWI”), an Arizona corporation, was established as a subsidiary of GWR to acquire, own, and manage a portfolio of water and wastewater utilities. In 2006, Santa Cruz and Palo Verde were reorganized as C corporations and became subsidiaries of GWI.On July 11, 2006, GWI acquired 100% of the outstanding common shares of West Maricopa Combine (“WMC”), the parent company of Valencia Water Company (‘‘Valencia Water’’) in the Town of Buckeye, Willow Valley Water Company (‘‘Willow Valley’’) near Bullhead City, Water Utility of Greater Buckeye (‘‘Greater Buckeye’’) near the town of Buckeye, Water Utility of Greater Tonopah (‘‘Greater Tonopah’’) west of the Hassayampa River, and Water Utility of Northern Scottsdale (“Northern Scottsdale”) in northeast Scottsdale, all within the state of Arizona.On December 30, 2006, GWI purchased the net assets of CP Water Company (“CP Water”), an Arizona corporation providing water services near the cities of Maricopa and Casa Grande, Arizona. GWI formed Global Water-Picacho Cove Water Company and Global Water-Picacho Cove Utilities Company (collectively, ‘‘Picacho’’) in October 2006, to provide integrated water, wastewater and recycled water service to an area in the vicinity of Eloy, Arizona along Interstate 10 about midway between Tucson and Phoenix. On April 8, 2008, the Commission approved the application for the creation of a Certificate of Convenience and Necessity (“CC&N”) for Picacho, granting it the exclusive right to provide services to an area of approximately 1,480 acres with 4,900 homes planned for the initial phase. On July 28, 2009, the Commission approved an expansion application for an additional 2,300 acres planned primarily for a rail served industrial park.Reorganization - In early 2010, the members of GWR and GWM made the decision to raise money through the capital markets. The members established a new entity, GWR Global Water Resources Corp. (“GWRC”), which was incorporated under the Business Corporations Act (British Columbia) to acquire shares of the Company. On December 30, 2010, GWRC completed its initial public offering in Canada (the “Offering”) on the Toronto Stock Exchange, raising gross proceeds totaling C$65,659,583 (including gross proceeds received January 28, 2011 of C$4,272,083 pursuant to the underwriters’ exercise of their over-allotment option). The proceeds of the Offering were used to acquire a 48.1% interest in the Company.2015 ANNUAL REPORT GLOBAL WATER 88
GLOBAL WATER 2015 ANNUAL REPORT BOARD OF DIRECTORS
Trevor T. Hill
Chairman of the Board, Co-founder
Phoenix, Arizona, USA
William S. Levine
Co-founder & Director
Phoenix, Arizona, USA
David Tedesco
Independent Director
Scottsdale, Arizona, USA
Richard M. Alexander
Independent Director
Calgary, Alberta, Canada
L. Rita Theil
Independent Director
Aurora, Ontario, Canada
Cindy M. Bowers
Director of Global Water
Resources, Inc. (US entity)
Grenada, Mississippi, USA
EXECUTIVE OFFICERS
Ron L. Fleming
President and
Chief Executive Officer
Mike Liebman
Senior Vice President and
Chief Financial Officer
INVESTOR INFORMATION
Laura Scutaru
Investor Relations
416.586.1964
lscutaru@national.ca
Stock Exchange Listing
The Toronto Stock Exchange
Stock symbol: GWR
OTCQX
Stock symbol: GWGWF
Transfer Agent & Registrar
TMX Equity Transfer Services
200 University Avenue
Suite 300 Toronto, ON M5H 4H1
Global Water Resources, Inc.
21410 N 19th Avenue, Suite 220
Phoenix, AZ 85027 USA
gwresources.com