SEC Filing | Essential Utilities, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2019

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

For the transition period from_______________ to _______________

Commission File Number 1-6659

AQUA AMERICA, INC.

(Exact name of registrant as specified in its charter)


Pennsylvania	23-1702594
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

762 W. Lancaster Avenue, Bryn Mawr, Pennsylvania	19010 -3489
(Address of principal executive offices)	(Zip Code)

(610) 527-8000
(Registrant’s telephone number, including area code)

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

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

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

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


Large Accelerated Filer S	Accelerated Filer £
Non-Accelerated Filer £	Smaller Reporting Company £
Emerging Growth Company £

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

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


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.50 par value	WTR	New York Stock Exchange
6.00% Tangible Equity Units	WTRU	New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of October 23, 2019: 215,840,774

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


	Page
Part I – Financial Information

Item 1. Financial Statements:

Consolidated Balance Sheets (unaudited) – September 30, 2019 and December 31, 2018	2

Consolidated Statements of Operations and Comprehensive Income (unaudited) – ‎Three Months Ended September 30, 2019 and 2018	3

Consolidated Statements of Operations and Comprehensive Income (unaudited) – ‎Nine Months Ended September 30, 2019 and 2018	4

Consolidated Statements of Capitalization (unaudited) – ‎September 30, 2019 and December 31, 2018	5

Consolidated Statements of Equity (unaudited) – ‎Nine Months Ended September 30, 2019	6

Consolidated Statements of Equity (unaudited) – ‎Nine Months Ended September 30, 2018	7

Consolidated Statements of Cash Flow (unaudited) – ‎Nine Months Ended September 30, 2019 and 2018	8

Notes to Consolidated Financial Statements (unaudited)	9

Item 2. Management’s Discussion and Analysis of Financial ‎Condition and Results of Operations	34

Item 3. Quantitative and Qualitative Disclosures About Market Risk	42

Item 4. Controls and Procedures	42

Part II – Other Information

Item 1. Legal Proceedings		42

Item 1A. Risk Factors		43

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		46

Item 6. Exhibits		47

Signatures		48

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars, except per share amounts)

(UNAUDITED)


	September 30,		December 31,
Assets	2019		2018
Property, plant and equipment, at cost	$	7,998,861	$	7,648,469
Less: accumulated depreciation		1,801,909		1,718,143
Net property, plant and equipment		6,196,952		5,930,326

Current assets:
Cash and cash equivalents		2,030,568		3,627
Accounts receivable, net		75,573		65,825
Unbilled revenues		41,406		35,400
Inventory, materials and supplies		17,035		15,844
Prepayments and other current assets		12,753		23,337
Assets held for sale		1,558		3,139
Total current assets		2,178,893		147,172

Regulatory assets		851,061		788,076
Deferred charges and other assets, net		42,227		39,237
Investment in joint venture		6,253		6,959
Goodwill		52,701		52,726
Operating lease right-of-use assets		12,883		-
Total assets	$	9,340,970	$	6,964,496
Liabilities and Equity
Stockholders' equity:
Common stock at $0.50 par value, authorized 300,000,000 shares, issued 218,940,681 and 181,151,827 as of September 30, 2019 and December 31, 2018	$	109,471	$	90,576
Capital in excess of par value		2,633,193		820,378
Retained earnings		1,197,600		1,174,245
Treasury stock, at cost, 3,112,565 and 3,060,206 shares as of September 30, 2019 and December 31, 2018		(77,702)		(75,835)
Total stockholders' equity		3,862,562		2,009,364

Long-term debt, excluding current portion		2,933,905		2,419,115
Less: debt issuance costs		35,607		20,651
Long-term debt, excluding current portion, net of debt issuance costs		2,898,298		2,398,464
Commitments and contingencies (See Note 15)

Current liabilities:
Current portion of long-term debt		178,116		144,545
Loans payable		10,000		15,449
Accounts payable		57,589		77,331
Book overdraft		5,068		8,950
Accrued interest		38,251		23,300
Accrued taxes		17,568		22,234
Interest rate swap agreements		-		59,779
Other accrued liabilities		45,531		47,389
Total current liabilities		352,123		398,977

Deferred credits and other liabilities:
Deferred income taxes and investment tax credits		909,232		845,403
Customers' advances for construction		104,393		93,343
Regulatory liabilities		520,213		531,027
Operating lease liabilities		11,700		-
Other		100,025		97,182
Total deferred credits and other liabilities		1,645,563		1,566,955

Contributions in aid of construction		582,424		590,736
Total liabilities and equity	$	9,340,970	$	6,964,496

See notes to consolidated financial statements beginning on page 9 of this report.

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except per share amounts)

(UNAUDITED)


	Three Months Ended
	September 30,
	2019		2018
Operating revenues	$	243,626	$	226,137

Operating expenses:
Operations and maintenance		82,022		68,624
Depreciation		39,489		37,457
Amortization		444		199
Taxes other than income taxes		15,201		15,564
Total operating expenses		137,156		121,844

Operating income		106,470		104,293

Other expense (income):
Interest expense		32,643		25,403
Interest income		(9,680)		(44)
Allowance for funds used during construction		(4,613)		(3,066)
Gain on sale of other assets		(175)		(261)
Equity earnings in joint venture		(135)		(215)
Other		1,494		325
Income before income taxes		86,936		82,151
Provision for income taxes (benefit)		(1,553)		3,935
Net income	$	88,489	$	78,216

Comprehensive income	$	88,489	$	78,216

Net income per common share:
Basic	$	0.38	$	0.44
Diluted	$	0.38	$	0.44

Average common shares outstanding during the period:
Basic		232,053		177,923
Diluted		232,464		178,357

See notes to consolidated financial statements beginning on page 9 of this report.

‎

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except per share amounts)

(UNAUDITED)



	Nine Months Ended
	September 30,
	2019		2018
Operating revenues	$	663,650	$	632,344

Operating expenses:
Operations and maintenance		247,781		216,085
Depreciation		118,113		110,037
Amortization		(2,140)		478
Taxes other than income taxes		45,038		45,360
Total operating expenses		408,792		371,960

Operating income		254,858		260,384

Other expense (income):
Interest expense		92,239		72,664
Interest income		(18,117)		(111)
Allowance for funds used during construction		(12,280)		(8,510)
Change in fair value of interest rate swap agreements		23,742		-
Loss on debt extinguishment		18,920		-
Gain on sale of other assets		(443)		(598)
Equity earnings in joint venture		(1,918)		(1,508)
Other		4,293		1,365
Income before income taxes		148,422		197,082
Provision for income taxes (benefit)		(11,894)		1,437
Net income	$	160,316	$	195,645

Comprehensive income	$	160,316	$	195,645

Net income per common share:
Basic	$	0.76	$	1.10
Diluted	$	0.76	$	1.10

Average common shares outstanding during the period:
Basic		209,971		177,876
Diluted		210,335		178,347

See notes to consolidated financial statements beginning on page 9 of this report.

Table of Contents

AQUA AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CAPITALIZATION

(In thousands of dollars, except per share amounts)

(UNAUDITED)



	September 30,		December 31,
	2019		2018
Stockholders' equity:
Common stock, $0.50 par value	$	109,471	$	90,576
Capital in excess of par value		2,633,193		820,378
Retained earnings		1,197,600		1,174,245
Treasury stock, at cost		(77,702)		(75,835)
Total stockholders' equity		3,862,562		2,009,364