SEC Filing | Essential Utilities, Inc.

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Table of Contents

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 June 30, 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 July 27, 2020: 245,151,093

Table of Contents

ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


	Page
Part I – Financial Information

Item 1. Financial Statements:

Consolidated Balance Sheets (unaudited) – June 30, 2020 and December 31, 2019	2

Consolidated Statements of Operations and Comprehensive Income (unaudited) – ‎Three Months Ended June 30, 2020 and 2019	4

Consolidated Statements of Operations and Comprehensive Income (unaudited) – Six Months Ended June 30, 2020 and 2019	5

Consolidated Statements of Capitalization (unaudited) – ‎June 30, 2020 and December 31, 2019	6

Consolidated Statements of Equity (unaudited) – ‎Six Months Ended June 30, 2020	7

Consolidated Statements of Equity (unaudited) – ‎Six Months Ended June 30, 2019	8

Consolidated Statements of Cash Flow (unaudited) – ‎Six Months Ended June 30, 2020 and 2019	9

Notes to Consolidated Financial Statements (unaudited)	10

Item 2. Management’s Discussion and Analysis of Financial ‎Condition and Results of Operations	39

Item 3. Quantitative and Qualitative Disclosures About Market Risk	52

Item 4. Controls and Procedures	52

Part II – Other Information

Item 1. Legal Proceedings		52

Item 1A. Risk Factors		53

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		55

Item 6. Exhibits		56

Signatures		57

Table of Contents

ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars, except per share amounts)

(UNAUDITED)


	June 30,		December 31,
Assets	2020		2019
Property, plant and equipment, at cost	$	11,012,300	$	8,201,936
Less: accumulated depreciation		1,961,540		1,856,146
Net property, plant and equipment		9,050,760		6,345,790

Current assets:
Cash and cash equivalents		7,227		1,868,922
Accounts receivable, net		152,902		67,137
Unbilled revenues		60,835		40,483
Inventory - materials and supplies		22,660		18,379
Inventory - gas stored		27,424		-
Prepayments and other current assets		34,194		16,259
Regulatory assets		5,654		2,389
Assets held for sale		1,558		1,558
Total current assets		312,454		2,015,127

Regulatory assets		1,198,340		875,743
Deferred charges and other assets, net		53,636		42,652
Investment in joint venture		5,943		5,984
Funds restricted for construction activity		1,223		-
Goodwill		2,333,535		63,822
Operating lease right-of-use assets		63,697		12,867
Intangible assets		8,820		-
Total assets	$	13,028,408	$	9,361,985

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

Table of Contents

ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)

(In thousands of dollars, except per share amounts)

(UNAUDITED)


	June 30,		December 31,
Liabilities and Equity	2020		2019
Stockholders' equity:
Common stock at $0.50 par value, authorized 600,000,000 shares, issued 248,342,756 and 223,871,284 as of June 30, 2020 and December 31, 2019	$	124,171	$	111,935
Capital in excess of par value		3,366,695		2,636,555
Retained earnings		1,226,622		1,210,072
Treasury stock, at cost, 3,192,646 and 3,112,565 shares as of June 30, 2020 and December 31, 2019		(81,954)		(77,702)
Total stockholders' equity		4,635,534		3,880,860

Long-term debt, excluding current portion		5,213,370		2,972,349
Less: debt issuance costs		38,769		29,022
Long-term debt, excluding current portion, net of debt issuance costs		5,174,601		2,943,327
Commitments and contingencies (See Note 15)

Current liabilities:
Current portion of long-term debt		87,839		105,051
Loans payable		15,000		25,724
Accounts payable		124,117		74,919
Book overdraft		19,534		10,944
Accrued interest		42,430		29,818
Accrued taxes		30,735		22,775
Regulatory liabilities		28,046		4,612
Other accrued liabilities		100,478		49,618
Total current liabilities		448,179		323,461

Deferred credits and other liabilities:
Deferred income taxes and investment tax credits		1,215,898		936,158
Customers' advances for construction		100,584		95,556
Regulatory liabilities		622,567		512,987
Asset retirement obligations		50,125		-
Operating lease liabilities		59,338		11,645
Pension and other postretirement benefit liabilities		107,899		69,406
Other		50,405		33,059
Total deferred credits and other liabilities		2,206,816		1,658,811

Contributions in aid of construction		563,278		555,526
Total liabilities and equity	$	13,028,408	$	9,361,985

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

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
	June 30,
	2020		2019
Operating revenues	$	384,468	$	218,892

Operating expenses:
Operations and maintenance		128,604		86,445
Purchased gas		43,420		-
Depreciation		67,925		39,550
Amortization		1,967		(2,920)
Taxes other than income taxes		19,433		14,868
Total operating expenses		261,349		137,943

Operating income		123,119		80,949

Other expense (income):
Interest expense		51,666		31,727
Interest income		(196)		(8,418)
Allowance for funds used during construction		(2,230)		(3,611)
Change in fair value of interest rate swap agreements		-		(11,040)
Loss on debt extinguishment		-		18,935
Gain on sale of other assets		(20)		(48)
Equity earnings in joint venture		(470)		(1,240)
Other		(722)		1,912
Income before income taxes		75,091		52,732
Provision for income taxes (benefit)		462		(2,171)
Net income	$	74,629	$	54,903

Comprehensive income	$	74,629	$	54,903

Net income per common share:
Basic	$	0.29	$	0.25
Diluted	$	0.29	$	0.25

Average common shares outstanding during the period:
Basic		254,167		219,055
Diluted		254,434		219,790

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

Table of Contents

ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except per share amounts)

(UNAUDITED)



	Six Months Ended
	June 30,
	2020		2019
Operating revenues	$	640,053	$	420,024

Operating expenses:
Operations and maintenance		235,241		165,759
Purchased gas		56,190		-
Depreciation		113,491		78,624
Amortization		2,646		(2,584)
Taxes other than income taxes		35,869		29,837
Total operating expenses		443,437		271,636

Operating income		196,616		148,388

Other expense (income):
Interest expense		86,788		59,596
Interest income		(5,231)		(8,437)
Allowance for funds used during construction		(5,178)		(7,667)
Change in fair value of interest rate swap agreements		-		23,742
Loss on debt extinguishment		-		18,935
Gain on sale of other assets		(125)		(268)
Equity earnings in joint venture		(343)		(1,783)
Other		957		2,784
Income before income taxes		119,748		61,486
Provision for income taxes (benefit)		(6,662)		(10,341)
Net income	$	126,410	$	71,827

Comprehensive income	$	126,410	$	71,827

Net income per common share:
Basic