UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from_______________ to _______________
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
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(Address of principal executive offices) | (Zip Code) |
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( | |
(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 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 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.:
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Accelerated Filer £ | |
Non-Accelerated Filer £ | Smaller Reporting Company |
Emerging Growth Company |
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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
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Securities registered pursuant to Section 12(b) of the Act: | ||||
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
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Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of October 22, 2021:
TABLE OF CONTENTS
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except per share amounts)
(UNAUDITED)
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| September 30, |
| December 31, | ||
Assets |
| 2021 |
| 2020 | ||
Property, plant and equipment, at cost |
| $ | |
| $ | |
Less: accumulated depreciation |
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Net property, plant and equipment |
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Current assets: |
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Cash and cash equivalents |
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Accounts receivable, net |
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Unbilled revenues |
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Inventory - materials and supplies |
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Inventory - gas stored |
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Prepayments and other current assets |
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Regulatory assets |
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Total current assets |
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Regulatory assets |
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Deferred charges and other assets, net |
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Funds restricted for construction activity |
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Goodwill |
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Operating lease right-of-use assets |
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Intangible assets |
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Total assets |
| $ | |
| $ | |
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The accompanying notes are an integral part of these consolidated financial statements |
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
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| September 30, |
| December 31, | ||
Liabilities and Equity |
| 2021 |
| 2020 | ||
Stockholders' equity: |
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Common stock at $ |
| $ | |
| $ | |
Capital in excess of par value |
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Retained earnings |
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Treasury stock, at cost, |
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Total stockholders' equity |
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Long-term debt, excluding current portion |
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Less: debt issuance costs |
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Long-term debt, excluding current portion, net of debt issuance costs |
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Commitments and contingencies (See Note 14) |
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Current liabilities: |
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Current portion of long-term debt |
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Loans payable |
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Accounts payable |
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Book overdraft |
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Accrued interest |
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Accrued taxes |
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Regulatory liabilities |
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Other accrued liabilities |
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Total current liabilities |
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Deferred credits and other liabilities: |
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Deferred income taxes and investment tax credits |
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Customers' advances for construction |
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Regulatory liabilities |
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Asset retirement obligations |
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Operating lease liabilities |
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Pension and other postretirement benefit liabilities |
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Other |
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Total deferred credits and other liabilities |
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Contributions in aid of construction |
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Total liabilities and equity |
| $ | |
| $ | |
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The accompanying notes are an integral part of these consolidated financial statements |
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(UNAUDITED)
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| Three Months Ended | ||||
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| September 30, | ||||
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| 2021 |
| 2020 | ||
Operating revenues |
| $ | |
| $ | |
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Operating expenses: |
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Operations and maintenance |
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Purchased gas |
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Depreciation |
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Amortization |
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Taxes other than income taxes |
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Total operating expenses |
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Operating income |
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Other expense (income): |
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Interest expense |
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Interest income |
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| ( |
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| ( |
Allowance for funds used during construction |
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| ( |
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| ( |
Gain on sale of other assets |
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| ( |
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| ( |
Equity loss in joint venture |
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| - |
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Other |
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| ( |
Income before income taxes |
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Provision for income taxes |
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Net income |
| $ | |
| $ | |
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Comprehensive income |
| $ | |
| $ | |
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Net income per common share: |
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Basic |
| $ | |
| $ | |
Diluted |
| $ | |
| $ | |
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Average common shares outstanding during the period: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these consolidated financial statements | ||||||
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(UNAUDITED)
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| Nine Months Ended | ||||
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| September 30, | ||||
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| 2021 |
| 2020 | ||
Operating revenues |
| $ | |
| $ | |
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Operating expenses: |
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Operations and maintenance |
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Purchased gas |
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Depreciation |
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Amortization |
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Taxes other than income taxes |
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Total operating expenses |
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Operating income |
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Other expense (income): |
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Interest expense |
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Interest income |
|
| ( |
|
| ( |
Allowance for funds used during construction |
|
| ( |
|
| ( |
Gain on sale of other assets |
|
| ( |
|
| ( |
Equity loss in joint venture |
|
| - |
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Other |
|
| ( |
|
| ( |
Income before income taxes |
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Provision for income taxes (benefit) |
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| ( |
Net income |
| $ | |
| $ | |
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Comprehensive income |
| $ | |
| $ | |
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Net income per common share: |
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Basic |
| $ | |
| $ | |
Diluted |
| $ | |
| $ | |
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Average common shares outstanding during the period: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these consolidated financial statements |
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(In thousands of dollars, except per share amounts)
(UNAUDITED)
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| September 30, |
| December 31, | ||
|
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| 2021 |
| 2020 | ||
Stockholders' equity: |
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Common stock, $ |
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| $ | |
| $ | |
Capital in excess of par value |
|
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Retained earnings |
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| |
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Treasury stock, at cost |
|
|
| ( |
|
| ( |
Total stockholders' equity |
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Long-term debt of subsidiaries (substantially collateralized by utility plant): |
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Interest Rate Range | Maturity Date Range |
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Notes payable to bank under revolving credit agreement, variable rate, due |
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Unsecured notes payable: |
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Amortizing notes at |
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Notes at |
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Notes at |
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Notes ranging from |
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Notes at |
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Notes ranging from |
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Current portion of long-term debt |
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Long-term debt, excluding current portion |
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| | |
Less: debt issuance costs |
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Long-term debt, excluding current portion, net of debt issuance costs |
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| | |
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Total capitalization |
|
| $ | |
| $ | |
|
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The accompanying notes are an integral part of these consolidated financial statements |
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands of dollars)
(UNAUDITED)
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| Capital in |
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| Common |
| Excess of |
| Retained |
| Treasury |
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| Stock |
| Par Value |
| Earnings |
| Stock |
| Total | |||||
Balance at December 31, 2020 |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
Net income |
|
| - |
|
| - |
|
| |
|
| - |
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Dividends declared ($ |
|
| - |
|
| - |
|
| ( |
|
| - |
|
| ( |
Issuance of common stock under dividend reinvestment plan ( |
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|
| - |
|
| - |
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Repurchase of stock ( |
|
| - |
|
| - |
|
| - |
|
| ( |
|
| ( |
Equity compensation plan ( |
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|
| ( |
|
| - |
|
| - |
|
| - |
Exercise of stock options ( |
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|
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|
| - |
|
| - |
|
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Stock-based compensation |
|
| - |
|
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|
| ( |
|
| - |
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Other |
|
| - |
|
| ( |
|
| - |
|
| |
|
| |
Balance at March 31, 2021 |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
Net income |
|
| - |
|
| - |
|
| |
|
| - |
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Dividends declared ($ |
|
| - |
|
| - |
|
| ( |
|
| - |
|
| ( |
Issuance of common stock under dividend reinvestment plan ( |
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| |
|
| |
|
| - |
|
| - |
|
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Repurchase of stock ( |
|
| - |
|
| - |
|
| - |
|
| ( |
|
| ( |
Equity compensation plan ( |
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|
| ( |
|
| - |
|
| - |
|
| - |
Exercise of stock options ( |
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|
| - |
|
| - |
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Stock-based compensation |
|
| - |
|
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|
| ( |
|
| - |
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Other |
|
| - |
|
| ( |
|
| - |
|
| |
|
| |
Balance at June 30, 2021 |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
Net income |
|
| - |
|
| - |
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| |
|
| - |
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Dividends declared ($ |
|
| - |
|
| - |
|
| ( |
|
| - |
|
| ( |
Issuance of common stock from stock purchase contracts ( |
|
| |
|
| ( |
|
| - |
|
| - |
|
| - |
Issuance of common stock under dividend reinvestment plan ( |
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| |
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|
| - |
|
| - |
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Issuance of common stock from forward equity sale agreement ( |
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|
| - |
|
| - |
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Repurchase of stock ( |
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| - |
|
| - |
|
| - |
|
| ( |
|
| ( |
Equity compensation plan ( |
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| |
|
| ( |
|
| - |
|
| - |
|
| - |
Exercise of stock options ( |
|
| |
|
| |
|
| - |
|
| - |
|
| |
Stock-based compensation |
|
| - |
|
| |
|
| ( |
|
| - |
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| |
Other |
|
| - |
|
| |
|
| - |
|
| |
|
| |
Balance at September 30, 2021 |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
|
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The accompanying notes are an integral part of these consolidated financial statements |
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands of dollars)
(UNAUDITED)
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| Capital in |
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| |
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| Common |
| Excess of |
| Retained |
| Treasury |
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| ||||
|
| Stock |
| Par Value |
| Earnings |
| Stock |
|
| Total | ||||
Balance at December 31, 2019 |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
Net income |
|
| - |
|
| - |
|
| |
|
| - |
|
| |
Dividends declared ($ |
|
| - |
|
| - |
|
| ( |
|
| - |
|
| ( |
Issuance of common stock from private placement ( |
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| |
|
| |
|
| - |
|
| - |
|
| |
Issuance of common stock from stock purchase contracts ( |
|
| |
|
| ( |
|
| - |
|
| - |
|
| - |
Issuance of common stock under dividend reinvestment plan ( |
|
| |
|
| |
|
| - |
|
| - |
|
| |
Repurchase of stock ( |
|
| - |
|
| - |
|
| - |
|
| ( |
|
| ( |
Equity compensation plan ( |
|
| |
|
| ( |
|
| - |
|
| - |
|
| - |
Exercise of stock options ( |
|
| |
|
| |
|
| - |
|
| - |
|
| |
Stock-based compensation |
|
| - |
|
| |
|
| ( |
|
| - |
|
| |
Other |
|
| - |
|
| ( |
|
| - |
|
| - |
|
| ( |
Balance at March 31, 2020 |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
Net income |
|
| - |
|
| - |
|
| |
|
| - |
|
| |
Dividends declared ($ |
|
| - |
|
| - |
|
| ( |
|
| - |
|
| ( |
Expenses incurred for private placement issuance of common stock |
|
| - |
|
| ( |
|
| - |
|
| - |
|
| ( |
Issuance of common stock under dividend reinvestment plan ( |
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| |
|
| |
|
| - |
|
| - |
|
| |
Repurchase of stock ( |
|
| - |
|
| - |
|
| - |
|
| ( |
|
| ( |
Equity compensation plan ( |
|
| |
|
| ( |
|
| - |
|
| - |
|
| - |
Exercise of stock options ( |
|
| |
|
| |
|
| - |
|
| - |
|
| |
Stock-based compensation |
|
| - |
|
| |
|
| ( |
|
| - |
|
| |
Other |
|
| - |
|
| ( |
|
| - |
|
| |
|
| |
Balance at June 30, 2020 |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
Net income |
|
| - |
|
| - |
|
| |
|
| - |
|
| |
Dividends declared ($ |
|
| - |
|
| - |
|
| ( |
|
| - |
|
| ( |
Issuance of common stock under dividend reinvestment plan ( |
|
| |
|
| |
|
| - |
|
| - |
|
| |
Repurchase of stock ( |
|
| - |
|
| - |
|
| - |
|
| ( |
|
| ( |
Equity compensation plan ( |
|
| |
|
| ( |
|
| - |
|
| - |
|
| - |
Exercise of stock options ( |
|
| |
|
| |
|
| - |
|
| - |
|
| |
Stock-based compensation |
|
| - |
|
| |
|
| ( |
|
| - |
|
| |
Other |
|
| - |
|
| ( |
|
| - |
|
| |
|
| ( |
Balance at September 30, 2020 |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
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The accompanying notes are an integral part of these consolidated financial statements |
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands of dollars)
(UNAUDITED)
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| Nine Months Ended | ||||
|
| September 30, | ||||
|
| 2021 |
| 2020 | ||
Cash flows from operating activities: |
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Net income |
| $ | |
| $ | |
Adjustments to reconcile net income to net cash flows from operating activities: |
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Depreciation and amortization |
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| |
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| |
Deferred income taxes |
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| |
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Provision for doubtful accounts |
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| |
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| |
Stock-based compensation |
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| |
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| |
Gain on sale of utility systems and other assets |
|
| ( |
|
| ( |
Net change in receivables, inventory and prepayments |
|
| ( |
|
| |
Net change in payables, accrued interest, accrued taxes and other accrued liabilities |
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| |
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| |
Pension and other postretirement benefits contributions |
|
| ( |
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| ( |
Other |
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| |
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| |
Net cash flows from operating activities |
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| |
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| |
Cash flows from investing activities: |
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|
Property, plant and equipment additions, including the debt component of allowance for funds used during construction of $ |
|
| ( |
|
| ( |
Acquisitions of utility systems, net |
|
| ( |
|
| ( |
Net proceeds from the sale of other assets |
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| |
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| |
Other |
|
| ( |
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| |
Net cash flows used in investing activities |
|
| ( |
|
| ( |
Cash flows from financing activities: |
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|
Customers' advances and contributions in aid of construction |
|
| |
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| |
Repayments of customers' advances |
|
| ( |
|
| ( |
Net repayments of short-term debt |
|
| ( |
|
| ( |
Proceeds from long-term debt |
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| |
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| |
Repayments of long-term debt |
|
| ( |
|
| ( |
Change in cash overdraft position |
|
| ( |
|
| |
Proceeds from issuance of common stock under dividend reinvestment plan |
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| |
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| |
Proceeds from issuance of common stock from private placement |
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| |
Proceeds from issuance of common stock from forward equity sale agreement |
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| |
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Proceeds from exercised stock options |
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| |
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| |
Repurchase of common stock |
|
| ( |
|
| ( |
Dividends paid on common stock |
|
| ( |
|
| ( |
Other |
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| |
|
| ( |
Net cash flows from financing activities |
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| |
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| |
Net change in cash and cash equivalents |
|
| |
|
| ( |
Cash and cash equivalents at beginning of period |
|
| |
|
| |
Cash and cash equivalents at end of period |
| $ | |
| $ | |
| ||||||
Non-cash investing activities: | ||||||
Property, plant and equipment additions purchased at the period end, but not yet paid for |
| $ | |
| $ | |
Non-cash customer advances and contributions in aid of construction |
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| |
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| |
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|
The accompanying notes are an integral part of these consolidated financial statements |
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The accompanying unaudited consolidated balance sheets and statements of capitalization of Essential Utilities, Inc. and subsidiaries (collectively, the “Company”, “we”, “us” or “our”) at September 30, 2021, the unaudited consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2021 and 2020, and the unaudited consolidated statements of cash flows and consolidated statements of equity for the nine months ended September 30, 2021 and 2020, have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim reporting and the rules and regulations for reporting on Quarterly Reports on Form 10-Q. Because they cover interim periods, the statements and related notes to the financial statements do not include all disclosures and notes normally provided in annual financial statements and, therefore, should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments, consisting of only recurring accruals, which are necessary to present a fair statement of its consolidated financial position, consolidated changes in equity, consolidated results of operations, and consolidated cash flow for the periods presented, have been made.
The preparation of financial statements often requires the selection of specific accounting methods and policies. Further, significant estimates and judgments may be required in selecting and applying those methods and policies in the recognition of the assets and liabilities in its consolidated balance sheets, the revenues and expenses in its consolidated statements of operations and comprehensive income, and the information that is contained in its summary of significant accounting policies and notes to consolidated financial statements. Making these estimates and judgments requires the analysis of information concerning events that may not yet be complete and of facts and circumstances that may change over time. Accordingly, actual amounts or future results can differ materially from those estimates that the Company includes currently in its consolidated financial statements, summary of significant accounting policies, and notes.
In the preparation of these financial statements and related disclosures, we have assessed the impact that the COVID-19 pandemic has had on our estimates, assumptions, forecasts, and accounting policies. Because of the essential nature of our business, we do not believe the COVID-19 pandemic had a material impact on our estimates, assumptions and forecasts used in the preparation of our financial statements, although we continue to monitor this closely. As the COVID-19 pandemic is continuing to evolve, future events and effects related to the COVID-19 pandemic cannot be determined with precision, and actual results could significantly differ from our estimates or forecasts.
There have been no changes to the summary of significant accounting policies previously identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The following table presents our revenues disaggregated by major source and customer class:
|
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| Three Months Ended |
| Three Months Ended | ||||||||||||||||||||
| September 30, 2021 |
| September 30, 2020 | ||||||||||||||||||||
| Water Revenues |
| Wastewater Revenues |
| Natural Gas Revenues |
| Other Revenues |
| Water Revenues |
| Wastewater Revenues |
| Natural Gas Revenues |
| Other Revenues | ||||||||
Revenues from contracts with customers: |
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|
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Residential | $ | |
| $ | |
| $ | |
| $ | - |
| $ | |
| $ | |
| $ | |
| $ | - |
Commercial |
| |
|
| |
|
| |
|
| - |
|
| |
|
| |
|
| |
|
| - |
Fire protection |
| |
|
| - |
|
| - |
|
| - |
|
| |
|
| - |
|
| - |
|
| - |
Industrial |
| |
|
| |
|
| |
|
| - |
|
| |
|
| |
|
| |
|
| - |
Gas transportation & storage |
| - |
|
| - |
|
| |
|
| - |
|
| - |
|
| - |
|
| |
|
| - |
Other water |
| |
|
| - |
|
| - |
|
| - |
|
| |
|
| - |
|
| - |
|
| - |
Other wastewater |
| - |
|
| |
|
| - |
|
| - |
|
| - |
|
| |
|
| - |
|
| - |
Customer rate credits |
| - |
|
| - |
|
| - |
|
| - |
|
| ( |
|
| ( |
|
| - |
|
| - |
Other utility |
| - |
|
| - |
|
| |
|
| |
|
| - |
|
| - |
|
| |
|
| |
Revenues from contracts with customers |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Alternative revenue program |
| |
|
| |
|
| - |
|
| - |
|
| ( |
|
| ( |
|
| - |
|
| - |
Other and eliminations |
| - |
|
| - |
|
| - |
|
| |
|
| - |
|
| - |
|
| |
|
| |
Consolidated | $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| Nine Months Ended | ||||||||||||||||||||
| September 30, 2021 |
| September 30, 2020 | ||||||||||||||||||||
| Water Revenues |
| Wastewater Revenues |
|
| Natural Gas Revenues | Other Revenues |
| Water Revenues |
| Wastewater Revenues |
| Natural Gas Revenues |
| Other Revenues | ||||||||
Revenues from contracts with customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential | $ | |
| $ | |
| $ | |
| $ | - |
| $ | |
| $ | |
| $ | |
| $ | - |
Commercial |
| |
|
| |
|
| |
|
| - |
|
| |
|
| |
|
| |
|
| - |
Fire protection |
| |
|
| - |
|
| - |
|
| - |
|
| |
|
| - |
|
| - |
|
| - |
Industrial |
| |
|
| |
|
| |
|
| - |
|
| |
|
| |
|
| |
|
| - |
Gas transportation & storage |
| - |
|
| - |
|
| |
|
| - |
|
| - |
|
| - |
|
| |
|
| - |
Other water |
| |
|
| - |
|
| - |
|
| - |
|
| |
|
| - |
|
| - |
|
| - |
Other wastewater |
| - |
|
| |
|
| - |
|
| - |
|
| - |
|
| |
|
| - |
|
| - |
Customer rate credits |
| - |
|
| - |
|
| - |
|
| - |
|
| ( |
|
| ( |
|
| - |
|
| - |
Other utility |
| - |
|
| - |
|
| |
|
| |
|
| - |
|
| - |
|
| |
|
| |
Revenues from contracts with customers |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Alternative revenue program |
| |
|
| |
|
| |
|
| - |
|
| ( |
|
| ( |
|
| |
|
| - |
Other and eliminations |
| - |
|
| - |
|
| - |
|
| |
|
| - |
|
| - |
|
| |
|
| |
Consolidated | $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
|
|
|
|
|
|
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On March 16, 2020, the Company completed the Peoples Gas Acquisition, which expanded the Company’s regulated utility business, to include natural gas distribution. The natural gas revenues of Peoples are included for the period since the date of the acquisition.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Revenues from Contracts with Customers – These revenues are composed of four main categories: water, wastewater, natural gas, and other. Water revenues represent revenues earned for supplying customers with water service. Wastewater revenues represent revenues earned for treating wastewater and releasing it into the environment. Natural gas revenues represent revenues earned for the gas commodity and delivery of natural gas to customers. Other revenues are associated fees that relate to our utility businesses but are not water, wastewater, or natural gas revenues. Refer to the description below for a discussion of the performance obligation for each of these revenue streams.
Tariff Revenues – These revenues are categorized by customer class: residential, commercial, fire protection, industrial, gas transportation, other water and other wastewater. The rates that generate these revenues are approved by the respective state utility commission, and revenues are billed cyclically and accrued for when unbilled. The regulated natural gas rates are set and adjusted for increases or decreases in our purchased gas costs through purchased gas adjustment mechanisms. Purchased gas adjustment mechanisms provide us with a means to recover purchased gas costs on an ongoing basis without filing a rate case. Other water and other wastewater revenues consist primarily of fines, penalties, surcharges, and availability lot fees. Our performance obligation for tariff revenues is to provide potable water, wastewater treatment service, or delivery and sale of natural gas to customers. This performance obligation is satisfied over time as the services are rendered. The amounts that the Company has a right to invoice for tariff revenues reflect the right to consideration from the customers in an amount that corresponds directly with the value transferred to the customer for the performance completed to date.
Other Utility Revenues – Other utility revenues represent revenues earned primarily from: antenna revenues, which represent fees received from telecommunication operators that have put cellular antennas on our water towers; operation and maintenance and billing contracts, which represent fees earned from municipalities for our operation of their water or wastewater treatment services or performing billing services; fees earned from developers for accessing our water mains; miscellaneous service revenue from gas distribution operations; gas processing and handling revenue; sales of natural gas at market-based rates and contracted fixed prices; sales of gas purchased from third parties; and other gas marketing activities. The performance obligations vary for these revenues, but all are primarily recognized over time as the service is delivered.
Alternative Revenue Program:
Water / Wastewater Revenues: These revenues represent the difference between the actual billed utility volumetric water and wastewater revenues for Aqua Illinois and the revenues set in the last Aqua Illinois rate case. In accordance with the Illinois Commerce Commission, we recognize revenues based on the target amount established in the last rate case, and then record either a regulatory asset or liability based on the cumulative annual difference between the target and actual amounts billed, which results in either a payment from customers or a refund due to customers. The cumulative annual difference is either refunded to customers or collected from customers over a nine-month period.
Natural Gas Revenues: These revenues represent the weather-normalization adjustment (“WNA”) mechanism in place for our natural gas customers served in Kentucky. The WNA serves to minimize the effects of weather on the Company’s results for its residential and small commercial natural gas customers. This regulatory mechanism adjusts revenues earned for the variance between actual and normal weather and can have either positive (warmer than normal) or
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
negative (colder than normal) effects on revenues. Customer bills are adjusted in the December through April billing months, with rates adjusted for the difference between actual revenues and revenues calculated under this mechanism billed to the customers.
These revenue programs represent a contract between the utility and its regulators, not customers, and therefore are not within the scope of the Financial Accounting Standards Board’s (“FASB”) accounting guidance for recognizing revenue from contracts with customers.
Other and Eliminations – Other and eliminations consist of our market-based revenues, which comprises: our non-regulated natural gas operations, Aqua Infrastructure and Aqua Resources (described below) and intercompany eliminations for revenue billed between our subsidiaries. Our non-regulated natural gas operations consist of utility service line protection solutions and repair services to households and the operations of gas marketing and production entities. Revenue is recognized and the performance obligation is satisfied over time as the service is delivered.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Peoples Gas Acquisition
On March 16, 2020 (the “Closing Date”), the Company completed the acquisition of Peoples Natural Gas (the “Peoples Gas Acquisition”), which expanded the Company’s regulated utility business to include natural gas distribution, serving approximately
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Base purchase price | $ | |
Adjustments: |
|
|
Estimated change in working capital |
| |
Certain estimated capital expenditures |
| |
Assumption of indebtedness |
| ( |
Cash consideration | $ | |
The assumption of $
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The Company accounted for the Peoples Gas Acquisition as a business combination using the acquisition method of accounting. The purchase price was allocated to the net tangible and intangible assets based upon their estimated fair values at the date of the acquisition. The purchase price allocation was preliminary and was subject to revision through the end of the measurement period on March 15, 2021. During the first quarter of 2021, the Company recorded an adjustment to increase goodwill by $
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| Amounts |
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| Amounts | ||
| Previously |
| Measurement |
| Recognized as of | |||
| Recognized as of |
| Period |
| Acquisition Date | |||
| Acquisition Date (a) |
| Adjustments |
| (as Adjusted) | |||
Property, plant and equipment, net | $ | |
| $ | - |
| $ | |
Current assets |
| |
|
| ( |
|
| |
Regulatory assets |
| |
|
| ( |
|
| |
Goodwill |
| |
|
| |
|
| |
Other long-term assets |
| |
|
| - |
|
| |
Total assets acquired |
| |
|
| ( |
|
| |
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
| |
|
| - |
|
| |
Loans payable |
| |
|
| - |
|
| |
Other current liabilities |
| |
|
| ( |
|
| |
Long-term debt |
| |
|
| - |
|
| |
Deferred income taxes |
| |
|
| ( |
|
| |
Regulatory liabilities |
| |
|
| |
|
| |
Other long-term liabilities |
| |
|
| ( |
|
| |
Total liabilities assumed |
| |
|
| ( |
|
| |
Net assets acquired | $ | |
| $ | - |
| $ | |
|
|
|
|
|
|
|
|
|
(a)As reported, the Essential Utilities, Inc. Form 10-K for the period ended December 31, 2020.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The Company incurred transaction-related expenses for the Peoples Gas Acquisition, which consisted of costs recorded as operations and maintenance expenses in the first quarter of 2020 of $
The results of Peoples have been included in our consolidated financial statements as of the Closing Date. Peoples contributed revenues of $
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| ||
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|
| |||
| Three Months Ended |
| Nine Months Ended | |||||
| September 30, 2020 |
| September 30,2020 | |||||
Operating revenues | $ |
|
| $ | ||||
Net income | |
|
| 264,785 |
The supplemental pro forma information is not necessarily representative of the actual results that may have occurred for the period or of the results that may occur in the future. This supplemental pro forma information is based upon the historical operating results of Peoples for the period prior to the Closing Date and is adjusted to reflect the effect of non-recurring acquisition-related costs, incurred in 2020 as if they occurred on January 1, 2019. The adjustments include $
Water and Wastewater Utility Acquisitions - Completed
In August 2021, the Company acquired the water utility system assets of The Commons Water Supply, Inc., which serves
In December 2020, the Company acquired the wastewater utility system assets of New Garden Township, Pennsylvania, which serves
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
In October 2020, the Company acquired the water and wastewater utility system of Rockwell Utilities, which serves
In June 2020, the Company acquired the wastewater utility system assets of East Norriton Township, Pennsylvania, which serves
In January 2020, the Company acquired the water utility system assets of the City of Campbell, Ohio, which serves
The purchase price allocation for these acquisitions consisted primarily of acquired property, plant and equipment.
The pro forma effect of the utility systems acquired is not material either individually or collectively to the Company’s results of operations.
Water and Wastewater Utility Acquisitions – Pending Completion
In October 2021, the Company entered into a purchase agreement to acquire the wastewater utility assets of the City of Beaver Falls, Pennsylvania which consists of approximately
In July 2021, the Company entered into a purchase agreement to acquire the water utility assets of Shenandoah Borough, Pennsylvania which consists of approximately
The purchase price for these pending acquisitions are subject to certain adjustments at closing, and are subject to regulatory approval, including the final determination of the fair value of the rate base acquired. We plan to finance the purchase price of these acquisitions by utilizing our revolving credit facility until permanent debt and common equity are secured. The closing for the wastewater assets of Lower Makefield Township is expected to occur in the first quarter of 2022, and the closings of our acquisitions of East Whiteland Township and Willistown Township are expected to occur in the second quarter of 2022. The closings of our Shenandoah and Beaver Falls acquisitions are expected to occur in the second half of 2022. The closing of our Oak Brook acquisition is expected to occur in the fourth quarter of 2022. Closing for our utility acquisitions are subject to the timing of the respective regulatory approval processes.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
In September 2019, the Company entered into a purchase agreement to acquire the wastewater utility system assets of the Delaware County Regional Water Quality Control Authority (“DELCORA”), which consists of approximately
The following table summarizes the changes in the Company’s goodwill, by business segment:
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| Regulated Water |
| Regulated Natural Gas |
| Other |
| Consolidated | ||||
Balance at December 31, 2020 |
| $ | |
| $ | |
| $ | |
| $ | |
Goodwill acquired |
|
| - |
|
| - |
|
|
|
|
|
|
Measurement period purchase price allocation adjustments |
|
| - |
|
| |
|
|
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|
| |
Reclassification to utility plant acquisition adjustment |
|
| ( |
|
| - |
|
|
|
|
| ( |
Balance at September 30, 2021 |
| $ | |
| $ | |
| $ | |
| $ | |
The measurement period purchase price allocation adjustments resulted from the completion of the Peoples Gas Acquisition on March 16, 2020, which resulted in goodwill of $
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The reclassification of goodwill to utility plant acquisition adjustment results from a mechanism approved by the applicable utility commission. The mechanism provides for the transfer over time, and the recovery through customer rates, of goodwill associated with some acquisitions upon achieving specific objectives.
Goodwill is not amortized but is tested for impairment annually, or more often, if circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. When testing goodwill for impairment, the Company may assess qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and entity specific events, for some or all of our reporting units to determine whether it’s more likely than not that the fair value of a reporting unit is less than its carrying amount. Alternatively, based on our assessment of the qualitative factors previously noted, we may perform a quantitative goodwill impairment test by determining the fair value of a reporting unit. If we perform a quantitative test and determine that the fair value of a reporting unit is less than its carrying amount, we would record an impairment loss for the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill.
The Company performed a quantitative assessment for its annual test of the goodwill attributable to its Regulated Natural Gas reporting unit as of July 31, 2021. We estimated the fair value of the reporting unit by weighting results from the market approach and the income approach. Key assumptions in the valuation methodologies for goodwill included growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in our industry. Based on our analysis, we determined that the fair values of our Regulated Natural Gas reporting unit exceeded their carrying values, indicating none of its goodwill was impaired.
In October 2020, the Company sold its investment in a joint venture. Its investment represented its
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
In April 2021, the Company filed a universal shelf registration through a filing with the Securities and Exchange Commission (“SEC”) to allow for the potential future offer and sale by the Company, from time to time, in one or more public offerings, of an indeterminate amount of our common stock, preferred stock, debt securities and other securities specified therein at indeterminate prices.
Stockholders’ Equity
In August 2020, the Company entered into a forward equity sale agreement for
On August 9, 2021, the Company settled the forward equity sale agreement in full by physical share settlement. The Company issued
Private Placement
On March 29, 2019, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Canada Pension Plan Investment Board (the “Investor”), pursuant to which the Company agreed to issue and sell to the Investor in a private placement (the “Private Placement”)
The shares issued and sold to the Investor pursuant to the Private Placement were to be priced at the lower of (1) $
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The Stock Purchase Agreement contains customary representations, warranties and covenants of the Company and the Investor, and the parties have agreed to indemnify each other for losses related to breaches of their respective representations and warranties. At the closing of the Private Placement, the Company reimbursed the Investor for reasonable out-of-pocket diligence expenses of $
Tangible Equity Unit Issuances
On April 23, 2019, the Company issued $
Each Unit consists of a prepaid stock purchase contract and an amortizing note due April 30, 2022, each issued by the Company. Unless earlier settled or redeemed, each stock purchase contract will automatically settle on April 30, 2022 (subject to postponement in limited circumstances) for between
Long-term Debt and Loans Payable
On April 15, 2021, the Company’s operating subsidiary, Aqua Ohio, Inc., issued $
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The Company follows the FASB’s accounting guidance for fair value measurements and disclosures, which defines fair value and establishes a framework for using fair value to measure assets and liabilities. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
|
|
l | Level 1: unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access; |
|
|
l | Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in non-active markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or |
|
|
l | Level 3: inputs that are unobservable and significant to the fair value measurement. |
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. There have been no changes in the valuation techniques used to measure fair value, or asset or liability transfers between the levels of the fair value hierarchy for the quarter ended September 30, 2021.
Financial instruments are recorded at carrying value in the financial statements and approximate fair value as of the dates presented. The fair value of these instruments is disclosed below in accordance with current accounting guidance related to financial instruments.
The fair value of loans payable is determined based on its carrying amount and utilizing Level 1 methods and assumptions. As of September 30, 2021 and December 31, 2020, the carrying amount of the Company’s loans payable was $
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Unrealized gain and losses on equity securities held in conjunction with our non-qualified pension plan is as follows:
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Net gain recognized during the period on equity securities |
| $ | |
| $ | |
| $ | |
| $ | |
Less: net gain / loss recognized during the period on equity securities sold during the period |
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Unrealized gain recognized during the reporting period on equity securities still held at the reporting date |
| $ | |
| $ | |
| $ | |
| $ | |
The net gain (loss) recognized on equity securities is presented on the consolidated statements of operations and comprehensive income on the line item “Other.”
The carrying amounts and estimated fair values of the Company’s long-term debt is as follows:
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| September 30, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
Carrying amount |
| $ | |
| $ | |
Estimated fair value |
|
| |
|
| |
The fair value of long-term debt has been determined by discounting the future cash flows using current market interest rates for similar financial instruments of the same duration utilizing Level 2 methods and assumptions.
The Company’s customers’ advances for construction have a carrying value of $
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Basic net income per common share is based on the weighted average number of common shares outstanding and the minimum number of shares to be issued upon settlement of the stock purchase contracts issued under the tangible equity units. Diluted net income per common share is based on the weighted average number of common shares outstanding, potentially dilutive shares, and the expected number of shares to be issued upon settlement of the stock purchase contracts issued under the tangible equity units, based on the applicable market value of our common stock. The dilutive effect of employee stock-based compensation and shares issuable under the forward equity sale agreement (from the date the Company entered into the forward equity sale agreement to the settlement date) are included in the computation of diluted net income per common share. The dilutive effect of stock-based compensation and shares issuable under the forward equity sale agreement are calculated using the treasury stock method and expected proceeds upon exercise or issuance of the stock-based compensation and settlement of the forward equity sale agreement. The treasury stock method assumes that the proceeds from stock-based compensation and settlement of the forward equity sale agreement are used to purchase the Company’s common stock at the average market price during the period. The following table summarizes the shares, in thousands, used in computing basic and diluted net income per common share:
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| Three Months Ended |
| Nine Months Ended | ||||
|
| September 30, |
| September 30, | ||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
Average common shares outstanding during the period for basic computation |
| |
| |
| |
| |
Effect of dilutive securities: |
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|
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Forward equity sale agreement |
| |
| - |
| |
| - |
Issuance of common stock from private placement |
| - |
| - |
| - |
| |
Tangible equity units |
| - |
| |
| - |
| |
Employee stock-based compensation |
|
|
| |
| | ||
Average common shares outstanding during the period for diluted computation |
| |
| |
| |
| |
For the three and nine months ended September 30, 2020, the average common shares outstanding during the period for diluted computation reflects the impact of the issuance of common stock from the March 16, 2020 private placement as if the shares were issued on January 1, 2020.
The average common shares outstanding during the period for basic computation includes the weighted-average impact of
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Under the Company’s Amended and Restated Equity Compensation Plan (the “Plan”) approved by the Company’s shareholders on May 2, 2019, to replace the 2004 Equity Compensation Plan, stock options, stock units, stock awards, stock appreciation rights, dividend equivalents, and other stock-based awards may be granted to employees, non-employee directors, and consultants and advisors. The Plan authorizes
Performance Share Units – A performance share unit (“PSU”) represents the right to receive a share of the Company’s common stock if specified performance goals are met over the
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Stock-based compensation within operations and maintenance expenses |
| $ | |
| $ | |
| $ | |
| $ | |
Income tax benefit |
|
| |
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| |
|
| |
|
| |
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The following table summarizes the PSU transactions for the nine months ended September 30, 2021:
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| Number |
| Weighted | |
|
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| of |
| Average | |
|
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| Share Units |
| Fair Value | |
Nonvested share units at beginning of period |
|
| |
| $ | |
Granted |
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| |
|
| |
Performance criteria adjustment |
|
| |
|
| |
Forfeited |
|
| ( |
|
| |
Share units issued |
|
| ( |
|
| |
Nonvested share units at end of period |
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| |
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| |
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A portion of the fair value of PSUs was estimated at the grant date based on the probability of satisfying the market-based conditions using the Monte Carlo valuation method, which assesses probabilities of various outcomes of market conditions. The other portion of the fair value of the PSUs is based on the fair market value of the Company’s stock at the grant date, regardless of whether the market-based condition is satisfied. The per unit weighted-average fair value at the date of grant for PSUs granted during the nine months ended September 30, 2021 and 2020 was $
Restricted Stock Units – A restricted stock unit (“RSU”) represents the right to receive a share of the Company’s common stock. RSUs are eligible to be earned at the end of a specified restricted period, which is generally
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Stock-based compensation within operations and maintenance expenses |
| $ | |
| $ | |
| $ | |
| $ | |
Income tax benefit |
|
| |
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| |
|
| |
|
| |
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The following table summarizes the RSU transactions for the nine months ended September 30, 2021:
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| Number |
| Weighted | |
|
|
| of |
| Average | |
|
|
| Stock Units |
| Fair Value | |
Nonvested stock units at beginning of period |
|
| |
| $ | |
Granted |
|
| |
|
| |
Stock units vested and issued |
|
| ( |
|
| |
Forfeited |
|
| ( |
|
| |
Nonvested stock units at end of period |
|
| |
|
| |
The per unit weighted-average fair value at the date of grant for RSUs granted during the nine months ended September 30, 2021 and 2020 was $
Stock Options – A stock option represents the option to purchase a number of shares of common stock of the Company as specified in the stock option grant agreement at the exercise price per share as determined by the closing market price of our common stock on the grant date. Stock options are exercisable in installments of
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
|
| September 30, | |||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Stock-based compensation within operations and maintenance expenses |
| $ | |
| $ | |
| $ | |
| $ | |
Income tax benefit |
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| |
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| |
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| |
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| |
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The Company did
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The following table summarizes stock option transactions for the nine months ended September 30, 2021:
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| Weighted |
| Weighted |
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| |
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| Average |
| Average |
| Aggregate | ||
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| Exercise |
| Remaining |
| Intrinsic | ||
|
| Shares |
| Price |
| Life (years) |
| Value | ||
Outstanding at beginning of period |
| |
| $ | |
|
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|
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Granted |
| - |
|
| - |
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Forfeited |
| ( |
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| |
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Expired |
| ( |
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| |
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Exercised |
| ( |
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| |
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Outstanding at end of period |
| |
| $ | |
|
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| | |
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Exercisable at end of period |
| |
| $ | |
|
|
| |
Restricted Stock – Restricted stock awards provide the grantee with the rights of a shareholder, including the right to receive dividends and to vote such shares, but not the right to sell or otherwise transfer the shares during the restriction period. Restricted stock awards result in compensation expense that is equal to the fair market value of the stock on the date of the grant and is amortized ratably over the restriction period. The Company expects forfeitures of restricted stock to be de minimis. The following table provides the compensation cost and income tax benefit for stock-based compensation related to restricted stock:
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|
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Stock-based compensation within operations and maintenance expenses |
| $ | |
| $ | |
| $ | |
| $ | |
Income tax benefit |
|
| |
|
| |
|
| |
|
| |
The following table summarizes restricted stock transactions for the nine months ended September 30, 2021:
|
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|
|
|
|
| Number |
| Weighted | |
|
| of |
| Average | |
|
| Shares |
| Fair Value | |
Nonvested restricted stock at beginning of period |
| |
| $ | |
Granted |
| |
|
| |
Vested |
| ( |
|
| |
Nonvested restricted stock at end of period |
| |
| $ | |
The weighted-average fair value at the date of the grant for restricted stock awards granted during the nine months ended September 30, 2021 and 2020 was $
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Stock Awards – Stock awards represent the issuance of the Company’s common stock, without restriction. The issuance of stock awards results in compensation expense that is equal to the fair market value of the stock on the grant date and is expensed immediately upon grant. The following table provides the compensation cost and income tax benefit for stock-based compensation related to stock awards:
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Stock-based compensation within operations and maintenance expenses |
| $ | |
| $ | |
| $ | |
| $ | |
Income tax benefit |
|
| |
|
| |
|
| |
|
| |
The following table summarizes stock award transactions for the nine months ended September 30, 2021:
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| Number |
| Weighted | |
|
| of |
| Average | |
|
| Stock Awards |
| Fair Value | |
Nonvested stock awards at beginning of period |
|
|
| $ |
|
Granted |
| |
|
| |
Vested |
| ( |
|
| ( |
Nonvested stock awards at end of period |
|
|
|
|
|
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The Company maintains a qualified defined benefit pension plan (the “Pension Plan”), a nonqualified pension plan, and other postretirement benefit plans for certain of its employees. On March 16, 2020, we completed the Peoples Gas Acquisition and assumed the pension and other postretirement benefit plans for its employees. The operating results of Peoples has been included in our consolidated financial statements since the date of acquisition. On April 1, 2020, the Company merged the pension plans acquired in the Peoples Gas Acquisition into the Company’s legacy Pension Plan.
The following tables provide the components of net periodic benefit cost for the Company’s pension and other postretirement benefit plans:
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| Pension Benefits | ||||||||||
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Service cost |
| $ | |
| $ | |
| $ | |
| $ | |
Interest cost |
|
| |
|
| |
|
| |
|
| |
Expected return on plan assets |
|
| ( |
|
| ( |
|
| ( |
|
| ( |
Amortization of prior service cost |
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| |
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| |
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| |
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| |
Amortization of actuarial loss |
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| |
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| |
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| |
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| |
Net periodic benefit cost |
| $ | ( |
| $ | |
| $ | ( |
| $ | |
|
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| Other | ||||||||||
|
| Postretirement Benefits | ||||||||||
|
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| Three Months Ended |
|
| Nine Months Ended | ||||||
|
|
| September 30, |
|
| September 30, | ||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Service cost |
| $ | |
| $ | |
| $ | |
| $ | |
Interest cost |
|
| |
|
| |
|
| |
|
| |
Expected return on plan assets |
|
| ( |
|
| ( |
|
| ( |
|
| ( |
Amortization of prior service credit |
|
| ( |
|
| ( |
|
| ( |
|
| ( |
Amortization of actuarial loss |
|
| |
|
| |
|
| |
|
| |
Net periodic benefit cost |
| $ | |
| $ | |
| $ | |
| $ | |
The net periodic benefit cost is based on estimated values and an extensive use of assumptions about the discount rate, expected return on plan assets, the rate of future compensation increases received by the Company’s employees, mortality, turnover, and medical costs. The Company presents the components of net periodic benefit cost other than service cost in the consolidated statements of operations and comprehensive income on the line item “Other”.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The Company made cash contributions of $
Note 11 – Rate Activity
On August 20, 2021, the Company’s regulated water and wastewater operating subsidiary in Pennsylvania, Aqua Pennsylvania, filed an application with the Pennsylvania Public Utility Commission designed to increase rates by $
Base rate cases are also underway for our water and wastewater utility operating division in Ohio and our natural gas utility operating division in Kentucky.
During the first nine months of 2021, the Company’s water and wastewater utility operating divisions in New Jersey, Ohio, Virginia and Indiana were granted base rate increases designed to increase total operating revenues on an annual basis by $
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 12 – Taxes Other than Income Taxes
The following table provides the components of taxes other than income taxes:
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Property |
| $ | |
| $ | |
| $ | |
| $ | |
Gross receipts, excise and franchise |
|
| |
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| |
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| |
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| |
Payroll |
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| |
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| |
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| |
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| |
Regulatory assessments |
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| |
Pumping fees |
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| |
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| |
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| |
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| |
Other |
|
| |
|
| |
|
| |
|
| |
Total taxes other than income |
| $ | |
| $ | |
| $ | |
| $ | |
|
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|
|
|
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|
|
On March 16, 2020, the Company completed the Peoples Gas Acquisition, marking the Company’s entrance into the regulated natural gas business. The operating results of Peoples are included in the consolidated financial statements for the period since the acquisition date. As a result, the Company now has
In addition to the Company’s
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
regulated natural gas segments report interest expense that includes long-term debt that was pushed-down to the regulated operating subsidiaries from Essential Utilities, Inc.
The following table presents information about the Company’s reportable segments, including the operating results and capital expenditures of the Regulated Natural Gas segment for the period since the completion of the Peoples Gas Acquisition on March 16, 2020:
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| Three Months Ended |
| Three Months Ended | ||||||||||||||||||||
|
| September 30, 2021 |
| September 30, 2020 | ||||||||||||||||||||
|
| Regulated Water |
| Regulated Natural Gas |
| Other |
| Consolidated |
| Regulated Water |
| Regulated Natural Gas |
| Other |
| Consolidated | ||||||||
Operating revenues |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
Operations and maintenance expense |
|
| |
|
| |
|
| ( |
|
| |
|
| |
|
| |
|
| ( |
|
| |
Purchased gas |
|
| - |
|
| |
|
| |
|
| |
|
| - |
|
| |
|
| |
|
| |
Depreciation and amortization |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Taxes other than income taxes |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Operating income (loss) |
|
| |
|
| ( |
|
| |
|
| |
|
| |
|
| ( |
|
| |
|
| |
Interest expense, net |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Allowance for funds used during construction |
|
| ( |
|
| ( |
|
| - |
|
| ( |
|
| ( |
|
| ( |
|
| - |
|
| ( |
Equity loss in joint venture |
|
| - |
|
| - |
|
| - |
|
| - |
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| - |
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| - |
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Other |
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| ( |
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| ( |
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| ( |
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| ( |
Income before income taxes |
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| ( |
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| ( |
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| ( |
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| ( |
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Provision for income taxes (benefit) |
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| ( |
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| ( |
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| ( |
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| ( |
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Net income (loss) |
| $ | |
| $ | ( |
| $ | ( |
| $ | |
| $ | |
| $ | ( |
| $ | ( |
| $ | |
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| Nine Months Ended |
| Nine Months Ended | ||||||||||||||||||||
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| September 30, 2021 |
| September 30, 2020 | ||||||||||||||||||||
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| Regulated Water |
| Regulated Natural Gas |
| Other |
| Consolidated |
| Regulated Water |
| Regulated Natural Gas |
| Other |
| Consolidated | ||||||||
Operating revenues |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
Operations and maintenance expense |
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| ( |
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Purchased gas |
|
| - |
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| |
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| |
|
| |
|
| - |
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Depreciation and amortization |
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Taxes other than income taxes |
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Operating income (loss) |
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| ( |
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Interest expense, net |
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Allowance for funds used during construction |
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| ( |
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| ( |
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| - |
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| ( |
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| ( |
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| ( |
|
| - |
|
| ( |
Equity loss in joint venture |
|
| - |
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| - |
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| - |
|
| - |
|
| - |
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| - |
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Other |
|
| ( |
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| |
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| ( |
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| ( |
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| ( |
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| ( |
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| ( |
Income before income taxes |
|
| |
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| ( |
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| |
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| |
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| ( |
|
| |
Provision for income taxes (benefit) |
|
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|
| ( |
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| ( |
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| |
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| |
|
| ( |
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| ( |
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| ( |
Net income (loss) |
| $ | |
| $ | |
| $ | ( |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
Capital expenditures |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
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| September 30, |
| December 31, | ||
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| 2021 |
| 2020 | ||
Total assets: |
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Regulated water |
| $ | |
| $ | |
Regulated natural gas |
|
| |
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Other |
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Consolidated |
| $ | |
| $ | |
|
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 14 – Commitments and Contingencies
The Company is routinely involved in various disputes, claims, lawsuits and other regulatory and legal matters, including both asserted and unasserted legal claims, in the ordinary course of business. The status of each such matter, referred to herein as a loss contingency, is reviewed and assessed in accordance with applicable accounting rules regarding the nature of the matter, the likelihood that a loss will be incurred, and the amounts involved. As of September 30, 2021, the aggregate amount of $
During a portion of 2019, the Company initiated a do not consume advisory for some of its water customers in one division served by the Company’s Illinois subsidiary. During the second quarter of 2021, an immaterial amount was accrued for the portion of the fine or penalty that we determined to be probable and estimable of being incurred. In addition, on September 3, 2019, two individuals, on behalf of themselves and those similarly situated, commenced an action against the Company’s Illinois subsidiary in the State court in Will County, Illinois related to this do not consume advisory. The complaint seeks class action certification, attorney's fees, and "damages, including, but not limited to, out of pocket damages, and discomfort, aggravation, and annoyance” based upon the water provided by the Company’s subsidiary to a discrete service area in University Park, Illinois. The complaint contains allegations of damages as a result of supplied water that exceeded the standards established by the federal Lead and Copper Rule. The complaint is in the discovery phase and class certification has not been granted. The Company is vigorously defending against this claim. A claim for the expenses incurred has been submitted to the Company’s insurance carrier for potential recovery of a portion of these costs, and on August 3, 2020, the Company received $
Although the results of legal proceedings cannot be predicted with certainty, other than disclosed above, there are no other pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of its properties is the subject that are material or are expected to have a material effect on the Company’s financial position, results of operations, or cash flows.
In addition to the aforementioned loss contingencies, the Company self-insures its employee medical benefit program, and maintains stop-loss coverage to limit the exposure arising from these claims. The Company’s reserve for these claims totaled $
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Associated with the approval of the Peoples Gas Acquisition from the Pennsylvania Public Utility Commission, the Company has committed to addressing the replacement of gathering pipe over a
On March 16, 2020, the Company completed the Peoples Gas Acquisition. On March 31, 2020, the Company changed the method of tax accounting for certain qualifying infrastructure investments at its Peoples Natural Gas subsidiary, its largest natural gas subsidiary in Pennsylvania. This change allows a tax deduction for qualifying utility asset improvement costs that were formerly capitalized for tax purposes. The Company is performing an analysis to determine the ultimate amount of qualifying utility asset improvement costs eligible to be deducted under the IRS’s final tangible property regulations that will be reflected on its 2021 and 2020 Federal Tax Return. As a result, the Company has estimated a portion of its infrastructure investment at Peoples Natural Gas since the acquisition date that will qualify as a utility system repairs deduction for 2021 and 2020. Consistent with the Company’s accounting for differences between book and tax expenditures in Pennsylvania, the Company is utilizing the flow-through method to account for this timing difference. The Company completed its analysis of the income tax benefits for qualifying capital expenditures made prior to March 16, 2020 (“catch-up adjustment”) and recorded a regulatory liability of $
The Company’s effective tax rate was
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
including the basis difference for the adoption of the tangible property regulations. Qualifying utility asset improvement costs and the amortization of excess deferred income taxes caused the year-to-date effective tax rate to be significantly different from the statutory rate.
In connection with the completion of the Peoples Gas Acquisition, the Company identified changes to acquired deferred tax asset valuation allowances or liabilities related to uncertain tax positions during the one year measurement period, which related to new information obtained about facts and circumstances that existed as of the acquisition date. Those changes are considered a measurement-period adjustment, and an offset was recorded as an adjustment to goodwill. The Company records all other changes to deferred tax asset valuation allowances and liabilities related to uncertain tax positions in current-period income tax expense.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Pronouncements to be adopted upon the effective date:
In August 2020, the FASB issued updated accounting guidance on accounting for convertible instruments and contracts in an entity’s own equity. The updated guidance reduces the number of accounting models for convertible debt and convertible preferred stock instruments and makes certain disclosure amendments intended to improve the information provided to users. Additionally, the guidance also amends the derivative guidance for the “own stock” scope exception, which exempts qualifying instruments from being accounted for as derivatives if certain criteria are met. Further, the standard changes the way certain convertible instruments are treated when calculating earnings per share. The updated accounting guidance is effective for fiscal years beginning after December 15, 2021 with early adoption permitted beginning in 2021. The Company is evaluating the requirements of the updated guidance to determine the impact of adoption.
In March 2020, the FASB issued accounting guidance that provides companies with optional guidance, including expedients and exceptions for applying generally accepted accounting principles to contracts and other transactions affected by reference rate reform, such as the London Interbank Offered Rate (LIBOR). In January 2021, the FASB clarified the scope of that accounting standards update with additional guidance for reference rate reform on financial reporting. The accounting guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. The Company is evaluating the impact of this accounting guidance.
Pronouncement adopted during the year:
In December 2019, the FASB issued updated accounting guidance that simplifies the accounting for income taxes. The updated guidance removes certain exceptions to the general principles of accounting for income taxes to reduce the cost and complexity of its application, including the accounting for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, deferred tax liabilities for equity method investments when a foreign subsidiary becomes an equity method investment or when a foreign equity method investment becomes a subsidiary, and calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Additionally, the updated guidance clarifies and amends the existing guidance over accounting for franchise taxes and other taxes partially based on income, an entity’s tax basis of goodwill, separate entity financial statements, interim recognition of enactment of tax laws or rate changes, and improvements to the Codification for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. As permitted, we adopted this updated guidance on January 1, 2021, which did not have a material impact on our consolidated financial statements.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share amounts)
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report contain, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address, among other things: the expected timing of closing of our acquisitions; the projected impact of various legal proceedings; the projected effects of recent accounting pronouncements; prospects, plans, objectives, expectations and beliefs of management, as well as information contained in this report where statements are preceded by, followed by or include the words “believes,” “expects,” “estimates,” “anticipates,” “plans,” “future,” “potential,” “probably,” “predictions,” “intends,” “will,” “continue,” “in the event” or the negative of such terms or similar expressions. Forward-looking statements are based on a number of assumptions concerning future events, and are subject to a number of risks, uncertainties and other factors, many of which are outside our control, which could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, among others, the effects of the COVID-19 pandemic, the effects of regulation, abnormal weather, changes in capital requirements and funding, our ability to close acquisitions, changes to the capital markets, and our ability to assimilate acquired operations, as well as those risks, uncertainties and other factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in such report and those included under the captions “Risk Factors” and this Quarterly Report. As a result, readers are cautioned not to place undue reliance on any forward-looking statements. We undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.
Essential Utilities, Inc. (“we”, “us”, “our” or the “Company”), a Pennsylvania corporation, is the holding company for regulated utilities providing water, wastewater, or natural gas services to an estimated five million people in Pennsylvania, Ohio, Texas, Illinois, North Carolina, New Jersey, Indiana, Virginia, West Virginia, and Kentucky under the Aqua and Peoples brands. One of our largest operating subsidiaries, Aqua Pennsylvania, Inc. (“Aqua Pennsylvania”), provides water or wastewater services to approximately one-half of the total number of water or wastewater customers we serve, who are located in the suburban areas in counties north and west of the City of Philadelphia and in 27 other counties in Pennsylvania. Our other regulated water or wastewater utility subsidiaries provide similar services in seven additional states. Additionally, pursuant to the Company’s growth strategy, commencing on March 16, 2020, with the completion of the Peoples Gas Acquisition, the Company began to provide natural gas distribution services to customers in western Pennsylvania, Kentucky, and West Virginia. Approximately 93% of the total number of natural gas utility customers we serve are in western Pennsylvania. Lastly, the Company’s market-based activities are conducted through Aqua Infrastructure, LLC and Aqua Resources, Inc. and certain other non-regulated subsidiaries of Peoples. Prior to our October 30, 2020 sale of our investment in a joint venture, Aqua Infrastructure provided non-utility raw water supply services for firms in the natural gas drilling industry. Following the October 30, 2020
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
closing, Aqua Infrastructure does not provide any services to the natural gas drilling industry. Aqua Resources offers, through a third party, water and sewer service line protection solutions and repair
services to households.
The non-regulated subsidiaries of Peoples provide utility service line protection solutions and repair services to households and operates gas marketing and production entities.
Essential Utilities, Inc., which prior to its name change in February 2020 was known as Aqua America, Inc., was formed in 1968 as a holding company for its primary subsidiary, Aqua Pennsylvania, formerly known as Philadelphia Suburban Water Company. In the early 1990s, we embarked on a growth-through-acquisition strategy. Our most significant transactions to date have been the merger with Consumers Water Company in 1999, the acquisition of the regulated water and wastewater operations of AquaSource, Inc. in 2003, the acquisition of Heater Utilities, Inc. in 2004, the acquisition of American Water Works Company, Inc.’s regulated operations in Ohio in 2012, and the March 16, 2020 acquisition of Peoples, a Pittsburgh, Pennsylvania based natural gas distribution company. For many years, starting in the early 1990s, our business strategy has been primarily directed toward the regulated water and wastewater utility industry, where we have more than quadrupled the number of regulated customers we serve, and have extended our regulated operations from southeastern Pennsylvania to include our current regulated utility operations in seven other states. On March 16, 2020, the Company completed the Peoples Gas Acquisition, a natural gas distribution utility, marking its entrance into the regulated natural gas business. The Company seeks to acquire businesses in the U.S. regulated sector, which includes water and wastewater utilities, natural gas utilities, and other regulated utilities, and to opportunistically pursue growth ventures in select market-based activities, such as infrastructure opportunities that are supplementary and complementary to our regulated utility businesses.
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes.
COVID-19 Pandemic
We provide a critical service to our customers, which means that it is paramount that we keep our employees who operate the business safe and informed while supporting our customers and assuring the continuity of our operations. We continue to monitor the COVID-19 pandemic and continue to take steps to mitigate the potential risks to our employees. We continue to implement strong physical and cyber-security measures in an effort to ensure that our systems remain functional in order to both serve our operational needs with a hybrid workforce and maintain uninterrupted service to our customers.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
We continue to monitor developments affecting our business, workforce, and suppliers and take additional precautions as we believe are warranted. We are continuing with our capital investment program and continue to work with our suppliers to monitor and address the risks present in our supply chain. While we have experienced some delays in certain materials, we have been able to adjust our purchasing procedures to secure and stock the necessary materials without materially impacting our operations or capital investment program. We are actively monitoring our utility billings for changes in residential, commercial and industrial usage. In response to concerns about customer economic hardship and affordability during the COVID-19 pandemic, our state regulators mandated the temporary curtailment of certain collection practices, such as disconnections from utility service. In addition, we are monitoring collections of customer utility accounts as to potential impacts on cash flows, and increased expenses for costs associated with workforce-related expenses, security and cleaning of company offices and operating facilities, as well as other one-time expenses above the expense amounts included in general rates. In most of the states where we operate, regulators have allowed utilities to resume disconnections from utility service for certain customers who have unpaid balances. In eight of the ten states in which we operate regulated utilities, public utility commissions issued guidance for utilities to defer COVID-19 expenses in anticipation of seeking recovery in a future rate proceeding, and we continue to evaluate the impact of this guidance.
While the pandemic presents risks to the Company's business, as further described in the Company’s 2020 Form 10-K in Part II, Item 1A — Risk Factors, as of the date of this report, the Company has not experienced any material financial or operational impacts related to COVID-19. Despite our efforts, the potential for a material negative impact on the Company exists as the COVID-19 pandemic also depends on factors beyond our knowledge, control, or ability to predict, including the duration and severity of this pandemic, the emergence of new variants of the virus, the development and availability of effective treatments and vaccines, as well as third party actions taken to contain its spread and mitigate its public health effects.
Hurricane Ida
On September 1, 2021, Hurricane Ida made landfall in Pennsylvania and the Company had to temporarily shut down two of its water treatment plants, Pickering East and Pickering West, which had been damaged due to heavy rainfall, flooding and loss of power. These plants serve a significant portion of Aqua Pennsylvania’s service territory in southeastern Pennsylvania. The Company was able to maintain supply to most of its customers by ramping up production at other treatment plants located throughout its system. However, water pressure fell in some locations, and the Company asked customers to adopt voluntary water conservation measures during a two-week period. As of September 30, 2021, total costs incurred to date to restore operations at the Pickering water treatment plants amounted to approximately $3,845, of which $2,160 were expenses. The Company is still in the process of determining the total cost to repair or replace the equipment damaged by Hurricane Ida. Management is considering all avenues to recover storm-related costs from Hurricane Ida in a manner that will minimize its effects on customers.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Financial Condition
The Company’s consolidated balance sheet historically has had a negative working capital position whereby our current liabilities routinely exceed our current assets. Management believes that internally generated funds along with existing credit facilities, and the proceeds from the issuance of long-term debt and equity will be adequate to provide sufficient working capital to maintain normal operations and to meet our financing requirements for at least the next twelve months.
During the first nine months of 2021, we incurred $675,845 of capital expenditures, issued $795,153 of long-term debt, and repaid debt and made sinking fund contributions and other loan repayments of $749,432. The capital expenditures were related to new and replacement water, wastewater, and natural gas mains, improvements to treatment plants, tanks, hydrants, and service lines, construction of natural gas fueled energy plants, well and booster improvements, information technology improvements, and other enhancements and improvements. The issuance of long-term debt was for funds borrowed under our revolving credit facility and used for capital expenditures.
In August 2020, we entered into a forward equity sale agreement for 6,700,000 shares of common stock with affiliates of a certain underwriter (“forward purchaser”). In connection with the forward equity sale agreement, the forward purchaser borrowed an equal number of shares of our common stock from stock lenders and sold the borrowed shares to the public. On August 9, 2021, the Company settled the forward equity sale agreement in full by physical share settlement. The Company issued 6,700,000 shares and received cash proceeds of $299,739 at a forward price of $44.74 per share. The net proceeds were used for general corporate purposes, including for water and wastewater utility acquisitions, working capital and capital expenditures.
Associated with the approval of the Peoples Gas Acquisition from the Pennsylvania Public Utility Commission, the Company has committed to addressing the replacement of gathering pipe over a seven year timeframe for an estimated cost of $120,000, which will be recoverable through customer rates. Additionally, the Company committed to provide $23,004 of one-time customer rate credits to its Pennsylvania natural gas utility customers and water and wastewater customers served by Aqua Pennsylvania. The Company granted $4,080 of customer rate credits to its water and wastewater
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
customers during the third quarter of 2020, and $18,924 was granted to its natural gas utility customers in the fourth quarter of 2020 to satisfy the $23,004 commitment.
On March 31, 2020, we changed the method of tax accounting for the certain qualifying infrastructure investments at Peoples Natural Gas, our largest gas subsidiary in Pennsylvania. This change allows a tax deduction for qualifying capital expenditures, including those made prior to March 16, 2020 (“catch-up adjustment”) that have been deferred and recorded as a regulatory liability on the consolidated balance sheet. As a result of a settlement agreement approved by the Pennsylvania Public Utility Commission, the income tax benefits associated with the catch-up adjustment of $160,655 are being refunded to utility customers over a five-year period starting in August 2021. In addition, the Company contributed $500 to a customer-bill payment assistance program in July 2021 and in December 2021, will provide $5,000 in relief to past-due accounts for natural gas customers impacted by the COVID-19 pandemic.
On April 15, 2021, the Company’s operating subsidiary Aqua Ohio, Inc. issued $100,000 of first mortgage bonds, of which $50,000 is due in 2031 and $50,000 is due in 2051, with interest rates of 2.37% and 3.35%, respectively. The proceeds from these bonds were used for general corporate purposes and to repay existing indebtedness. Further on April 19, 2021, the Company issued $400,000 of long-term debt, less expenses of $4,010, which is due in 2031 with an interest rate of 2.40%. The Company used the proceeds from this issuance to repay $50,000 of borrowings under our Aqua Pennsylvania five- year revolving credit facility, and the balance was used to repay in full the borrowings under its existing five-year unsecured revolving credit agreement.
At September 30, 2021 we had $9,736 of cash and cash equivalents compared to $4,827 at December 31, 2020. During the first nine months of 2021, we used the proceeds from long-term debt, issuance of common stock and internally generated funds to fund the cash requirements discussed above and to pay dividends.
At September 30, 2021 our $1,000,000 unsecured revolving credit facility, which expires in December 2023, had $966,684 available for borrowing. Additionally, at September 30, we had short-term lines of credit of $235,500, of which $188,918 was available for borrowing. One of our short-term lines of credit is an Aqua Pennsylvania $100,000 364-day unsecured revolving credit facility with four banks, which is used to provide working capital, and as of September 30, 2021, $83,418 was available for borrowing. Another one of our short-term lines of credit is a Peoples Natural Gas Companies $100,000 364-day unsecured revolving credit facility with two banks, which is used to provide working capital, and as of September 30, 2021, $70,000 was available for borrowing. Our short-term lines of credit of $235,500 are subject to renewal on an annual basis. Although we believe we will be able to renew these facilities, there is no assurance that they will be renewed, or what the terms of any such renewal will be.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Consolidated results
Operating revenues increased by $13,213 or 3.8% for the three months ended September 30, 2021, as compared to the same period in 2020. Revenues from our Regulated Water segment, Regulated Natural Gas segment and Other business segment increased by $4,134, $5,872 and $3,207, respectively. Refer below for further details on the changes on Regulated Water and Regulated Natural Gas segment revenues. The increase in our Other business segment revenue is largely due to higher purchased gas revenues of $3,199, which has a corresponding offset in expense, and went up due to an increase in gas prices.
Operations and maintenance increased by $3,181 or 2.3%, primarily due to:
costs related to the restoration and repair of facilities damaged by Hurricane Ida of $2,160;
increase in employee related costs of $6,825 related to pension and post-retirement benefits, medical and labor;
increase in insurance expense of $2,407 due to higher insurance claims;
increase in outside services of $1,656 and production costs for water and wastewater operations of $747;
additional operating costs associated with acquired and pending acquisitions of water and wastewater utility systems of $1,185; and
expenses of $401 associated with remediating an advisory for some of our water utility customers served by our Illinois subsidiary, plus the prior year effect of net insurance proceeds of $2,145 for expenses incurred related to such advisory. We expect the expenses associated with remediating the advisory to continue in the fourth quarter of 2021;
offset by decreased COVID-19 pandemic related expenses of $9,387 and contributions to charitable trust of $5,720.
Purchased gas increased by $8,744 or 52.2%. Purchased gas represents the cost of gas sold by Peoples for the regulated and non-regulated gas business and has a corresponding offset in revenue. This expense increased for the regulated natural gas business and non-regulated business by $5,545 and $3,199, respectively, as a result of the increase in natural gas prices.
Depreciation and amortization expense increased by $4,431 or 6.5% and $135 or 7.6%, respectively, principally due to continued capital expenditures to expand and improve our utility facilities, our acquisitions of new utility systems, and additional rate case filings. Expenses associated with filing rate cases are deferred and amortized over periods that generally range from one to three years.
Taxes other than income taxes increased by $503 or 2.4%.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Interest expense increased by $2,271 or 4.6% for the quarter primarily due to the increase in average borrowings.
Equity loss from the joint venture was $3,626 in 2020, and our investment in the joint venture was sold in October 2020.
Other expense, which largely consist of the non-service cost component of our net benefit cost for pension benefits, increased by $8,146 during the quarter compared to the same period in the prior year. The net benefit in 2020 is primarily due to a recovery of a previously incurred cost that resulted in the recognition of a regulatory asset based on the Company’s recovery in a rate case.
Our effective income tax rate was 3.4% in the third quarter of 2021 and 6.7% in the third quarter of 2020. The decrease in the effective tax rate for the third quarter is primarily attributed to an increase in the income tax benefit associated with the tax deduction for qualifying infrastructure.
Net income decreased by $5,229 or 9.4% primarily as a result of the factors described above.
Regulated Water Segment
Our Regulated Water segment is comprised of eight operating segments representing its water and wastewater regulated utility companies which are organized by the states where the Company provides water and wastewater services. The Regulated Water segment is aggregated into one reportable segment.
Revenues increased by $4,134 or 1.6% for the third quarter of 2021 as compared to the same period in 2020, mainly due to the following:
an increase in water and wastewater rates, including infrastructure rehabilitation surcharges, of $6,770;
additional water and wastewater revenues of $2,624 associated with a larger customer base due to utility acquisitions and organic growth;
prior year effect of customer rate credits of $4,080 granted to our water and wastewater customers served by Aqua Pennsylvania in the third quarter of 2020; and
offset by a decrease in customer water and wastewater volumes amounting to $9,590 and foregone water revenue of $292 as a result of an advisory for some of our water utility customers
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
served by our Illinois subsidiary. We expect this impact on revenues resulting from the advisory to continue in the fourth quarter of 2021.
Operations and maintenance expense for the three months ended September 30, 2021 was $86,923 (33.5% of revenues) compared to $79,313 (31.0% of revenues) in the prior period. The increase of $7,610 or 9.6% was primarily due to the following:
costs related to the restoration and repair of facilities damaged by Hurricane Ida of $2,160;
additional operating costs resulting from acquired water and wastewater utility systems and higher customer base of $1,185;
increase in pension and post-retirement benefits expense of $5,083;
expenses of $401 associated with remediating an advisory for some of our water utility customers served by our Illinois subsidiary, plus the prior year effect of net insurance proceeds of $2,145 for expenses incurred related such advisory. We expect the expenses associated with remediating the advisory to continue in the fourth quarter of 2021; offset by,
the decrease in COVID-19 pandemic related expenses of $3,329.
Depreciation and amortization increased by $2,551 or 5.9% primarily due to continued capital spend.
Taxes other than income taxes increased by $385 or 2.4%.
Interest expense, net, increased by $325 or 1.2% for the quarter primarily due to the increase in average borrowings.
Other expense decreased by $2,006, resulting in a net benefit of $1,896 for the quarter, primarily due to the decrease in the non-service cost component of our net benefit cost for pension benefits. This is driven by improved investment returns as a result of favorable market experience from the prior period.
Regulated Natural Gas Segment
Our Regulated Natural Gas segment is affected by the cost of natural gas, which is passed through to customers using a purchased gas adjustment clause and includes commodity price, transportation and storage costs. These costs are reflected in the consolidated statement of operations and comprehensive income as purchased gas expenses. Therefore, fluctuations in the cost of purchased gas impact operating revenues on a dollar-for-dollar basis, but do not impact gross margin. Management uses gross margin, a
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
non-GAAP financial measure, defined as operating revenues less purchased gas expense, to analyze the financial performance of our Regulated Natural Gas segment, as management believes gross margin provides a meaningful basis for evaluating our natural gas utility operations since purchased gas expenses are included in operating revenues and passed through to customers. The following table includes the operating results for our Regulated Natural Gas segment for the period since the acquisition date of March 16, 2020, including the reconciliation of gross margin (non-GAAP) to operating revenues (GAAP):
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| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Operating revenues (GAAP) | $ | 94,752 |
| $ | 88,880 |
| $ | 579,429 |
| $ | 273,798 |
Purchased gas |
| 20,386 |
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| 14,841 |
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| 183,062 |
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| 68,807 |
Gross margin (non-GAAP) |
| 74,366 |
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| 74,039 |
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| 396,367 |
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| 204,991 |
The term gross margin is not intended to represent operating revenues, the most comparable GAAP financial measure, as an indicator of operating performance. In addition, our measurement of gross margin is not necessarily comparable to similarly titled measures reported by other companies.
Operating revenues from the Regulated Natural Gas segment increased by $5,872 or 6.6% due to:
impact of higher gas cost of $6,534 during the quarter as compared to the prior quarter;
higher average delivery and rider rates of $2,183; and
increased revenues from strategic projects of $1,234;
offset by lower usage of $1,620 due to warmer weather during the third quarter of 2021 as compared to the same period in 2020; credit to customers for tax repair catch-up of $2,439; and increased refund of the tax benefit associated with the Tax Cuts and Jobs Act of $46.
Operations and maintenance expense for the three months ended September 30, 2021 decreased by $5,606 or 9.4% primarily due to the following:
decrease in COVID-19 pandemic related expenses of $6,058 and contributions to charitable trust of $5,720;
offset by increase in employee related costs of $1,959 and outside services expense of $1,087.
Purchased gas increased by $5,545 or 37.4% which has a corresponding offset in revenues. The increase is due to an increase in the price of natural gas in the third quarter of 2021 as compared to the prior year.
Depreciation and amortization increased by $2,401 or 9.3% primarily due to continued capital spend.
Taxes other than income taxes increased by $126 or 3.0% mainly due to higher property tax expense.
Interest expense, net, increased by $9,073 or 97.2% for the quarter due to additional borrowings.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Other expense increased by $6,090 due to the non-service cost component of our net benefit cost for pension benefits.
Net income for the Regulated Natural Gas segment decreased by $5,941or 26.6% during the third quarter of 2021 as compared to the same period in 2020 as a result of the factors described above.
Consolidated results
Consolidated operations and maintenance expenses increased by $20,530 or 5.5%, primarily due to:
the timing of the People’s Natural Gas acquisition that resulted in an increase in operations and maintenance expense of $42,864 for the first quarter of 2021 as compared to the same period in 2020;
costs related to the restoration and repair of facilities damaged by Hurricane Ida of $2,160;
an increase in employee related costs of $5,475;
additional operating costs associated with acquired and pending acquisitions of water and wastewater utility systems of $2,951;
an increase in outside services and maintenance expenses of $2,672;
an increase in insurance expense of $7,926 for increased insurance claims; offset by
a decrease in contributions to charitable trust of $8,820;
a decrease in COVID-19 pandemic related costs of $14,199; and,
the prior year effect of transaction expenses of $25,397 in the first quarter of 2020 for the Peoples Gas Acquisition, primarily representing expenses associated with investment banking fees, employee related expenses, obtaining regulatory approvals, legal expenses, and integration planning.
Purchased gas increased by $129,604. Purchased gas represents the cost of gas sold by Peoples for regulated and non-regulated gas business. This expense increased by $114,255 and $15,349 for the
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
regulated natural gas and non-regulated gas business, respectively, mainly due to the timing of the Peoples Gas acquisition.
Depreciation expense increased by $35,341or 19.5%, primarily due to depreciation expense associated with our completion of the Peoples Gas Acquisition on March 16, 2020 and the utility plant placed in service, significant capital expenditures made to expand and improve our utility facilities, and our acquisitions of new utility systems.
Amortization slightly increased by $204 or 4.6% during the period as compared to the prior period.
Taxes other than income taxes increased by $6,795 or 12.0% principally due to an increase in payroll taxes of $2,796 and property taxes of $2,162 associated with acquired operations, primarily the Peoples Gas Acquisition.
Interest expense increased by $18,287 or 13.4% primarily due to the following items:
an increase in average borrowings; and
interest on debt assumed in the Peoples Gas Acquisition; offset by
a decrease in our effective interest rate.
Interest income decreased by $4,056 or 75.9%, primarily due to the utilization of the proceeds held from our 2019 equity and debt offerings to close the Peoples Gas Acquisition on March 16, 2020.
AFUDC increased by $5,201 or 59.6% due to the increase in the average balance of utility plant construction work in progress, to which AFUDC is applied.
Equity loss in joint venture was $3,283 in 2020, and our investment in the joint venture was sold in October 2020.
Other expense increased by $1,777 or 56.1%. The net benefit in 2020 is primarily due to a recovery of a previously incurred cost that resulted in the recognition of a regulatory asset based on the Company’s recovery in a rate case.
Our effective income tax rate was 3.2% for the nine months ended September 30, 2021 and (1.5%) for the same period in the prior year. The increase in the effective tax rate for the nine months ended September 30, 2021 over the first nine months of 2020 is due to an increase in income taxed at the statutory Federal and State tax rates partially offset by an increase in the income tax benefit associated with the tax deduction for qualifying infrastructure.
Net income increased by $132,964 or 73.0% primarily because of the factors described above.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Regulated Water Segment
Revenues from our Regulated Water segment for the first nine months of 2021 increased by $30,381 or by 4.3%, as a result of the following:
an increase in water and wastewater rates, including infrastructure rehabilitation surcharges, of $21,019 (net of $364 refund of the tax benefit associated with the Tax Cuts and Jobs Act);
additional water and wastewater revenues of $8,559 associated with a larger customer base due to utility acquisitions and organic growth;
prior year effect of customer rate credits of $4,080 granted to our water and wastewater customers served by Aqua Pennsylvania in the third quarter of 2020; and,
offset by the decrease in customer water and wastewater volumes of $4,238 and by foregone water revenue of $842 as a result of an advisory for some of our water utility customers served by our Illinois subsidiary. We expect this impact on revenues resulting from the advisory to continue in the fourth quarter of 2021.
Operations and maintenance expense was $243,071 (33.0% of revenues) compared to $229,652 (32.5% of revenues) in the prior period. The increase of $13,419 or 5.8% was principally due to the following:
costs related to the restoration and repair of facilities damaged by Hurricane Ida of $2,160;
additional operating costs resulting from acquired water and wastewater utility systems and higher customer base of $2,951;
increase in labor and benefits expense of $3,751;
increase in insurance expense of $4,811 due to higher claims;
increase in outside services of $908; and,
expenses of $1,471 associated with remediating an advisory for some of our water utility customers served by our Illinois subsidiary, plus the prior year effect of net insurance proceeds of $1,088 for expenses incurred related to such advisory. We expect the expenses associated with remediating the advisory to continue in the fourth quarter of 2021; offset by
the decrease in COVID-19 pandemic related expenses of $7,304.
Depreciation and amortization increased by $8,975 or 7.1% primarily due to continued capital spend.
Taxes other than income taxes increased by $2,464 or 5.4% largely due to higher public utility realty taxes of $933 in 2021 as compared with 2020.
Interest expense, net, increased by $2,471 or 3.1% for the quarter primarily due to the increase in average borrowings.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Other expense decreased by $5,742, resulting in a net benefit of $5,265, primarily due to the decrease in the non-service cost component of our net benefit cost for pension benefits. This is driven by improved investment returns as a result of favorable market experience from the prior period.
Regulated Natural Gas Segment
Impact of Recent Accounting Pronouncements
We describe the impact of recent accounting pronouncements in Note 16, Recent Accounting Pronouncements, to the consolidated financial statements in this report.
Item 3 – Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risks in the normal course of business, including changes in interest rates and equity prices. Refer to Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed March 1, 2021, for additional information on market risks.
Item 4 – Controls and Procedures
(a)Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
(b)Changes in Internal Control over Financial Reporting
On March 16, 2020, we completed the Peoples Gas Acquisition. For additional information refer to Note 3 – Acquisitions to the consolidated financial statements included in this report. We consider this acquisition material to our business, financial condition, and results of operations, and believe the changes in our internal controls and procedures as a result of the Peoples Gas Acquisition have a material effect on our internal control over financial reporting. During the time since acquisition, we have assessed the control environment and made certain changes in our internal control over financial reporting, including design changes, and we have performed testing of operating effectiveness over many of Peoples’ internal controls. We now consider the Peoples’ business to be included in the scope of our assessment over internal controls.
Part II. Other Information
Item 1 – Legal Proceedings
We are party to various legal proceedings in the ordinary course of business. Although the results of these legal proceedings cannot be predicted with certainty, there are no pending legal proceedings to which we or any of our subsidiaries is a party or to which any of our properties is the subject that we believe are material or are expected to have a material adverse effect on our financial position, results of operations or cash flows.
Item 1A – Risk Factors
Please review the risks disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, under “Part 1, Item 1A – Risk Factors.”
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes the Company’s purchases of its common stock for the quarter ended September 30, 2021:
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| Issuer Purchases of Equity Securities |
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| Purchased |
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| Average |
| Announced |
| Under the | |
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| Price Paid |
| Plans or |
| Plan or | |
Period |
| Purchased (1) |
| per Share |
| Programs |
| Programs | |
July 1-31, 2021 |
| 136 |
| $ | 46.50 |
| - |
| - |
August 1-31, 2021 |
| 40 |
| $ | 47.48 |
| - |
| - |
September 1-30, 2021 |
| - |
| $ | - |
| - |
| - |
Total |
| 176 |
| $ | 46.72 |
| - |
| - |
(1)These amounts consist of 176 shares we acquired from employees associated with the withholding of shares to pay certain withholding taxes upon the vesting of stock-based compensation. This feature of our equity compensation plan is available to all employees who receive stock-based compensation under the plan. We purchased these shares at their fair market value, as determined by reference to the closing price of our common stock on the day prior to the award vesting.
Item 6 – Exhibits
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Exhibit No. |
| Description |
31.1* |
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31.2* |
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32.1* |
| Certification of Chief Executive Officer, furnished pursuant to 18 U.S.C. Section 1350 |
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32.2* |
| Certification of Chief Financial Officer, furnished pursuant to 18 U.S.C. Section 1350 |
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101.INS |
| Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRES |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
| The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL (included in Exhibit 101) |
*Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be executed on its behalf by the undersigned thereunto duly authorized.
November 5, 2021
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| Essential Utilities, Inc. | |
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| Registrant | |
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| /s/ Christopher H. Franklin | |
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| Christopher H. Franklin | |
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| Chairman, President and | |
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| Chief Executive Officer | |
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| /s/ Daniel J. Schuller | |
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| Daniel J. Schuller | |
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| Executive Vice President and | |
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| Chief Financial Officer |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER, PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES AND EXCHANGE ACT OF 1934
I, Christopher H. Franklin, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Essential Utilities, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and |
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Christopher H. Franklin |
President and Chief Executive Officer |
November 5, 2021 |
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Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER, PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES AND EXCHANGE ACT OF 1934
I, Daniel J. Schuller, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Essential Utilities, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting, and |
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Daniel J. Schuller |
Executive Vice President and Chief Financial Officer |
November 5, 2021 |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350
In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2021 of Essential Utilities, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher H. Franklin, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m or Section 78o(d)); and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Christopher H. Franklin |
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President and Chief Executive Officer |
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November 5, 2021 |
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Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350
In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2021 of Essential Utilities, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel J. Schuller, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m or Section 78o(d)); and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Daniel J. Schuller |
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Executive Vice President and Chief Financial Officer |
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November 5, 2021 |
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