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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 March 31, 2020 

£ 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 

ESSENTIAL UTILITIES, 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)

N/A

(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

WTRG

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 April 27, 2020: 245,041,284


Table of Contents

ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

Page

Part I – Financial Information

Item 1. Financial Statements:

Consolidated Balance Sheets (unaudited) – March 31, 2020 and December 31, 2019

2

Consolidated Statements of Operations and Comprehensive Income (unaudited) –
Three Months Ended March 31, 2020 and 2019

4

Consolidated Statements of Capitalization (unaudited) –
March 31, 2020 and December 31, 2019

5

Consolidated Statements of Equity (unaudited) –
Three Months Ended March 31, 2020

6

Consolidated Statements of Equity (unaudited) –
Three Months Ended March
31, 2019

7

Consolidated Statements of Cash Flow (unaudited) –
Three Months Ended March 31, 2020 and 2019

8

Notes to Consolidated Financial Statements (unaudited)

9

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

38

Item 3. Quantitative and Qualitative Disclosures About Market Risk

47

Item 4. Controls and Procedures

47

 

Part II – Other Information

 

Item 1. Legal Proceedings

47

Item 1A. Risk Factors

48

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

51

Item 6. Exhibits

53

Signatures

56

1


Table of Contents

ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS 

(In thousands of dollars, except per share amounts) 

(UNAUDITED)

 

March 31,

December 31,

Assets

2020

2019

Property, plant and equipment, at cost

$

10,795,110 

$

8,201,936 

Less: accumulated depreciation

1,905,274 

1,856,146 

Net property, plant and equipment

8,889,836 

6,345,790 

Current assets:

Cash and cash equivalents

31,848 

1,868,922 

Accounts receivable, net

179,572 

67,137 

Unbilled revenues

83,979 

40,483 

Inventory - materials and supplies

22,224 

18,379 

Inventory - gas stored

11,693 

-

Prepayments and other current assets

32,024 

16,259 

Regulatory assets

5,110 

2,389 

Assets held for sale

1,558 

1,558 

Total current assets

368,008 

2,015,127 

Regulatory assets

1,186,102 

875,743 

Deferred charges and other assets, net

61,754 

42,652 

Investment in joint venture

5,473 

5,984 

Funds restricted for construction activity

1,223 

-

Goodwill

2,351,526 

63,822 

Operating lease right-of-use assets

65,064 

12,867 

Total assets

$

12,928,986 

$

9,361,985 

The accompanying notes are an integral part of these consolidated financial statements

2


Table of Contents

ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS (continued)

(In thousands of dollars, except per share amounts) 

(UNAUDITED)

 

March 31,

December 31,

Liabilities and Equity

2020

2019

Stockholders' equity:

Common stock at $0.50 par value, authorized 300,000,000 shares, issued 248,234,603 and 223,871,284 as of March 31, 2020 and December 31, 2019

$

124,117 

$

111,935 

Capital in excess of par value

3,361,586 

2,636,555 

Retained earnings

1,209,501 

1,210,072 

Treasury stock, at cost, 3,194,287 and 3,112,565 shares as of March 31, 2020 and December 31, 2019

(82,041)

(77,702)

Total stockholders' equity

4,613,163 

3,880,860 

Long-term debt, excluding current portion

4,757,427 

2,972,349 

Less: debt issuance costs

28,393 

29,022 

Long-term debt, excluding current portion, net of debt issuance costs

4,729,034 

2,943,327 

Commitments and contingencies (See Note 15)

 

 

Current liabilities:

Current portion of long-term debt

115,011 

105,051 

Loans payable

381,005 

25,724 

Accounts payable

115,611 

74,919 

Book overdraft

-

10,944 

Accrued interest

51,871 

29,818 

Accrued taxes

41,876 

22,775 

Regulatory liabilities

31,663 

4,612 

Other accrued liabilities

90,337 

49,618 

Total current liabilities

827,374 

323,461 

Deferred credits and other liabilities:

Deferred income taxes and investment tax credits

1,192,900 

936,158 

Customers' advances for construction

99,447 

95,556 

Regulatory liabilities

640,503 

512,987 

Asset retirement obligations

49,272 

-

Operating lease liabilities

60,970 

11,645 

Pension and other postretirement benefit liabilities

110,018 

69,406 

Other

48,864 

33,059 

Total deferred credits and other liabilities

2,201,974 

1,658,811 

Contributions in aid of construction

557,441 

555,526 

Total liabilities and equity

$

12,928,986 

$

9,361,985 

The accompanying notes are an integral part of these consolidated financial statements

3


Table of Contents

ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except per share amounts)

(UNAUDITED)

 

Three Months Ended

March 31,

2020

2019

Operating revenues

$

255,585

$

201,132

Operating expenses:

Operations and maintenance

106,637

79,314

Purchased gas

12,770

-

Depreciation

45,566

39,074

Amortization

679

336

Taxes other than income taxes

16,436

14,969

Total operating expenses

182,088

133,693

Operating income

73,497

67,439

Other expense (income):

Interest expense

35,122

27,869

Interest income

(5,035)

(19)

Allowance for funds used during construction

(2,948)

(4,056)

Change in fair value of interest rate swap agreements

-

34,782

Gain on sale of other assets

(105)

(220)

Equity loss (earnings) in joint venture

127

(543)

Other

1,679

872

Income before income taxes

44,657

8,754

Provision for income tax benefit

(7,124)

(8,170)

Net income

$

51,781

$

16,924

Comprehensive income

$

51,781

$

16,924

Net income per common share:

Basic

$

0.22

$

0.09

Diluted

$

0.20

$

0.09

Average common shares outstanding during the period:

Basic

236,122

178,213

Diluted

255,054

178,552

The accompanying notes are an integral part of these consolidated financial statements

 

4


Table of Contents

ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CAPITALIZATION 

(In thousands of dollars, except per share amounts) 

(UNAUDITED)

  

 

March 31,

December 31,

2020

2019

Stockholders' equity:

Common stock, $0.50 par value

$

124,117

$

111,935

Capital in excess of par value

3,361,586

2,636,555

Retained earnings

1,209,501

1,210,072

Treasury stock, at cost

(82,041)

(77,702)

Total stockholders' equity

4,613,163

3,880,860

Long-term debt of subsidiaries (substantially collateralized by utility plant):

Interest Rate Range

Maturity Date Range

0.00% to 0.99%

2023 to 2033

3,225

3,474

1.00% to 1.99%

2020 to 2039

10,682

10,733

2.00% to 2.99%

2022 to 2033

117,667

15,674

3.00% to 3.99%

2020 to 2056

1,148,133

655,685

4.00% to 4.99%

2020 to 2059

1,419,071

1,054,791

5.00% to 5.99%

2028 to 2043

65,852

60,683

6.00% to 6.99%

2022 to 2036

35,410

31,000

7.00% to 7.99%

2022 to 2027

30,540

30,751

8.00% to 8.99%

2021 to 2025

4,880

5,026

9.00% to 9.99%

2020 to 2026

19,300

19,300

2,854,760

1,887,117

Notes payable to bank under revolving credit agreement, variable rate, due 2023

802,000

-

Unsecured notes payable:

Bank note at 3.50% due 2020

50,000

50,000

Amortizing notes at 3.00% due 2022

89,751

99,356

Notes ranging from 3.01% to 3.59% due 2029 through 2041

525,000

490,000

Notes at 4.28%, due 2049

500,000

500,000

Notes ranging from 5.64% to 5.95%, due 2020 through 2034

50,927