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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/09/22 Essential Utilities, Inc. 10-Q 6/30/22 75:17M Certent, Inc./FA |
Document/Exhibit Description Pages Size 1: 10-Q Quarterly Report HTML 5.08M 2: EX-10.1 Material Contract HTML 173K 3: EX-10.2 Material Contract HTML 70K 4: EX-31.1 Certification -- §302 - SOA'02 HTML 28K 5: EX-31.2 Certification -- §302 - SOA'02 HTML 28K 6: EX-32.1 Certification -- §906 - SOA'02 HTML 24K 7: EX-32.2 Certification -- §906 - SOA'02 HTML 24K 13: R1 Document And Entity Information HTML 73K 14: R2 Consolidated Balance Sheets HTML 158K 15: R3 Consolidated Balance Sheets (Parenthetical) HTML 29K 16: R4 Consolidated Statements Of Operations And HTML 108K Comprehensive Income 17: R5 Consolidated Statements Of Capitalization HTML 99K 18: R6 Consolidated Statements Of Capitalization HTML 79K (Parenthetical) 19: R7 Consolidated Statements Of Equity HTML 84K 20: R8 Consolidated Statements Of Equity (Parenthetical) HTML 38K 21: R9 Consolidated Statements Of Cash Flow HTML 110K 22: R10 Consolidated Statements Of Cash Flow HTML 22K (Parenthetical) 23: R11 Basis Of Presentation HTML 29K 24: R12 Revenue Recognition HTML 451K 25: R13 Acquisitions HTML 47K 26: R14 Goodwill HTML 65K 27: R15 Capitalization HTML 46K 28: R16 Financial Instruments HTML 103K 29: R17 Net Income Per Common Share HTML 79K 30: R18 Stock-Based Compensation HTML 482K 31: R19 Pension Plans And Other Postretirement Benefits HTML 163K 32: R20 Rate Activity HTML 32K 33: R21 Taxes Other Than Income Taxes HTML 106K 34: R22 Segment Information HTML 556K 35: R23 Commitments And Contingencies HTML 32K 36: R24 Income Taxes HTML 32K 37: R25 Recent Accounting Pronouncements HTML 27K 38: R26 Revenue Recognition (Tables) HTML 447K 39: R27 Goodwill (Tables) HTML 66K 40: R28 Financial Instruments (Tables) HTML 92K 41: R29 Net Income Per Common Share (Tables) HTML 72K 42: R30 Stock-Based Compensation (Tables) HTML 467K 43: R31 Taxes Other Than Income Taxes (Tables) HTML 104K 44: R32 Segment Information (Tables) HTML 545K 45: R33 Revenue Recognition (Schedule Of Disaggregation Of HTML 81K Revenue) (Details) 46: R34 Acquisitions (Details) HTML 97K 47: R35 Goodwill (Details) HTML 33K 48: R36 Capitalization (Details) HTML 136K 49: R37 Financial Instruments (Narrative) (Details) HTML 32K 50: R38 Financial Instruments (Summary Of Unrealized Gain HTML 27K And Losses) (Details) 51: R39 Financial Instruments (Schedule Of Carrying HTML 26K Amounts And Estimated Fair Values Of Long-Term Debt) (Details) 52: R40 Net Income Per Common Share (Narrative) (Details) HTML 24K 53: R41 Net Income Per Common Share (Schedule Of Earnings HTML 33K Per Share) (Details) 54: R42 Stock-Based Compensation (Narrative) (Details) HTML 86K 55: R43 Stock-Based Compensation (Summary Of PSU HTML 41K Transactions) (Details) 56: R44 Stock-Based Compensation (Summary Of RSU HTML 47K Transactions) (Details) 57: R45 Stock-Based Compensation (Summary Of Compensation HTML 38K Costs) (Details) 58: R46 Stock-Based Compensation (Assumptions Used In The HTML 33K Pricing Model) (Details) 59: R47 Stock-Based Compensation (Summary Of Stock Option HTML 66K Transactions) (Details) 60: R48 Stock-Based Compensation (Summary Of Nonvested HTML 41K Share Activity) (Details) 61: R49 Stock-Based Compensation (Summary Of Restricted HTML 41K Stock Transactions) (Details) 62: R50 Pension Plans And Other Postretirement Benefits HTML 24K (Narrative) (Details) 63: R51 Pension Plans And Other Postretirement Benefits HTML 45K (Components Of Net Periodic Benefit Costs) (Details) 64: R52 Rate Activity (Details) HTML 47K 65: R53 Taxes Other Than Income Taxes (Details) HTML 36K 66: R54 Segment Information (Narrative) (Details) HTML 31K 67: R55 Segment Information (Company's Segment HTML 112K Information, Continuing Operations) (Details) 68: R56 Segment Information (Company's Segment HTML 37K Information, Assets) (Details) 69: R57 Commitments And Contingencies (Details) HTML 29K 70: R58 Income Taxes (Details) HTML 38K 73: XML IDEA XML File -- Filing Summary XML 132K 71: XML XBRL Instance -- wtrg-20220630x10q_htm XML 5.30M 72: EXCEL IDEA Workbook of Financial Reports XLSX 138K 9: EX-101.CAL XBRL Calculations -- wtrg-20220630_cal XML 178K 10: EX-101.DEF XBRL Definitions -- wtrg-20220630_def XML 610K 11: EX-101.LAB XBRL Labels -- wtrg-20220630_lab XML 1.06M 12: EX-101.PRE XBRL Presentations -- wtrg-20220630_pre XML 993K 8: EX-101.SCH XBRL Schema -- wtrg-20220630 XSD 166K 74: JSON XBRL Instance as JSON Data -- MetaLinks 371± 544K 75: ZIP XBRL Zipped Folder -- 0001562762-22-000352-xbrl Zip 384K
wtrg-20220630x10q |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM i 10-Q
(Mark One)
i S QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended i June 30, i 2022 /
i £ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from_______________ to _______________
Commission File Number i 1-6659
i ESSENTIAL UTILITIES, INC.
(Exact name of registrant as specified in its charter)
|
|
i Pennsylvania | i 23-1702594 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
|
|
i 762 W. Lancaster Avenue, i Bryn Mawr, i Pennsylvania | i 19010 -3489 |
(Address of principal executive offices) | (Zip Code) |
|
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( i 610) i 527-8000 | |
(Registrant’s telephone number, including area code) |
N/A
(Former Name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes S No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12(b)-2 of the Exchange Act.:
|
|
i Large Accelerated Filer S | Accelerated Filer £ |
Non-Accelerated Filer £ | Smaller Reporting Company i £ |
Emerging Growth Company i £ |
|
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 i S
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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 |
i Common stock, $0.50 par value |
| i WTRG |
| i New York Stock Exchange |
|
|
|
|
|
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 22, 2022: i 262,170,763
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
(In thousands of dollars, except per share amounts)
(UNAUDITED)
|
|
|
|
|
|
|
|
| June 30, |
| December 31, | ||
Assets |
| 2022 |
| 2021 | ||
Property, plant and equipment, at cost |
| $ | i 13,111,170 |
| $ | i 12,610,376 |
Less: accumulated depreciation |
|
| i 2,518,805 |
|
| i 2,358,510 |
Net property, plant and equipment |
|
| i 10,592,365 |
|
| i 10,251,866 |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
| i 12,976 |
|
| i 10,567 |
Accounts receivable, net |
|
| i 143,385 |
|
| i 141,025 |
Unbilled revenues |
|
| i 79,394 |
|
| i 119,896 |
Inventory - materials and supplies |
|
| i 38,193 |
|
| i 33,756 |
Inventory - gas stored |
|
| i 90,417 |
|
| i 75,804 |
Prepayments and other current assets |
|
| i 31,722 |
|
| i 36,597 |
Regulatory assets |
|
| i 17,208 |
|
| i 20,150 |
Total current assets |
|
| i 413,295 |
|
| i 437,795 |
|
|
|
|
|
|
|
Regulatory assets |
|
| i 1,511,541 |
|
| i 1,429,840 |
Deferred charges and other assets, net |
|
| i 136,764 |
|
| i 141,955 |
Funds restricted for construction activity |
|
| i 1,313 |
|
| i 1,313 |
Goodwill |
|
| i 2,340,792 |
|
| i 2,340,815 |
Operating lease right-of-use assets |
|
| i 44,713 |
|
| i 48,930 |
Intangible assets |
|
| i 5,381 |
|
| i 5,764 |
Total assets |
| $ | i 15,046,164 |
| $ | i 14,658,278 |
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
| June 30, |
| December 31, | ||
Liabilities and Equity |
| 2022 |
| 2021 | ||
Stockholders' equity: |
|
|
|
|
|
|
Common stock at $ i i 0.50 / par value, authorized i i 600,000,000 / shares, issued i 265,415,337 and i 256,102,388 as of June 30, 2022 and December 31, 2021 |
| $ | i 132,707 |
| $ | i 128,050 |
Capital in excess of par value |
|
| i 3,715,975 |
|
| i 3,705,814 |
Retained earnings |
|
| i 1,577,442 |
|
| i 1,434,201 |
Treasury stock, at cost, i 3,244,664 and i 3,234,765 shares as of June 30, 2022 and December 31, 2021 |
|
| ( i 84,092) |
|
| ( i 83,615) |
Total stockholders' equity |
|
| i 5,342,032 |
|
| i 5,184,450 |
|
|
|
|
|
|
|
Long-term debt, excluding current portion |
|
| i 6,135,390 |
|
| i 5,815,211 |
Less: debt issuance costs |
|
| i 47,654 |
|
| i 35,707 |
Long-term debt, excluding current portion, net of debt issuance costs |
|
| i 6,087,736 |
|
| i 5,779,504 |
Commitments and contingencies (See Note 13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Current portion of long-term debt |
|
| i 120,931 |
|
| i 132,146 |
Loans payable |
|
| i 4,703 |
|
| i 65,000 |
Accounts payable |
|
| i 194,105 |
|
| i 192,932 |
Book overdraft |
|
| i 20,659 |
|
| i 81,722 |
Accrued interest |
|
| i 43,384 |
|
| i 40,815 |
Accrued taxes |
|
| i 34,457 |
|
| i 37,924 |
Regulatory liabilities |
|
| i 1,878 |
|
| i 384 |
Other accrued liabilities |
|
| i 124,008 |
|
| i 124,140 |
Total current liabilities |
|
| i 544,125 |
|
| i 675,063 |
|
|
|
|
|
|
|
Deferred credits and other liabilities: |
|
|
|
|
|
|
Deferred income taxes and investment tax credits |
|
| i 1,511,182 |
|
| i 1,406,537 |
Customers' advances for construction |
|
| i 109,457 |
|
| i 103,619 |
Regulatory liabilities |
|
| i 755,651 |
|
| i 769,617 |
Asset retirement obligations |
|
| i 1,268 |
|
| i 1,256 |
Operating lease liabilities |
|
| i 41,736 |
|
| i 48,230 |
Pension and other postretirement benefit liabilities |
|
| i 28,698 |
|
| i 50,226 |
Other |
|
| i 28,328 |
|
| i 43,666 |
Total deferred credits and other liabilities |
|
| i 2,476,320 |
|
| i 2,423,151 |
|
|
|
|
|
|
|
Contributions in aid of construction |
|
| i 595,951 |
|
| i 596,110 |
Total liabilities and equity |
| $ | i 15,046,164 |
| $ | i 14,658,278 |
|
|
|
|
|
|
|
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 of dollars, except per share amounts)
(UNAUDITED)
|
|
|
|
|
|
|
|
| Three Months Ended | ||||
|
| |||||
|
| 2022 |
| 2021 | ||
Operating revenues |
| $ | i 448,756 |
| $ | i 397,032 |
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
Operations and maintenance |
|
| i 134,981 |
|
| i 127,515 |
Purchased gas |
|
| i 75,143 |
|
| i 44,897 |
Depreciation |
|
| i 77,425 |
|
| i 72,764 |
Amortization |
|
| i 1,751 |
|
| i 1,408 |
Taxes other than income taxes |
|
| i 21,720 |
|
| i 21,120 |
Total operating expenses |
|
| i 311,020 |
|
| i 267,704 |
|
|
|
|
|
|
|
Operating income |
|
| i 137,736 |
|
| i 129,328 |
|
|
|
|
|
|
|
Other expense (income): |
|
|
|
|
|
|
Interest expense |
|
| i 55,221 |
|
| i 52,036 |
Interest income |
|
| ( i 824) |
|
| ( i 338) |
Allowance for funds used during construction |
|
| ( i 6,151) |
|
| ( i 4,906) |
Gain on sale of other assets |
|
| ( i 478) |
|
| ( i 223) |
Other |
|
| ( i 423) |
|
| ( i 1,941) |
Income before income taxes |
|
| i 90,391 |
|
| i 84,700 |
Provision for income taxes |
|
| i 8,100 |
|
| i 3,786 |
Net income |
| $ | i 82,291 |
| $ | i 80,914 |
|
|
|
|
|
|
|
Comprehensive income |
| $ | i 82,291 |
| $ | i 80,914 |
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
Basic |
| $ | i 0.31 |
| $ | i 0.32 |
Diluted |
| $ | i 0.31 |
| $ | i 0.32 |
|
|
|
|
|
|
|
Average common shares outstanding during the period: |
|
|
|
|
|
|
Basic |
|
| i 262,099 |
|
| i 254,769 |
Diluted |
|
| i 262,558 |
|
| i 255,441 |
|
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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 of dollars, except per share amounts)
(UNAUDITED)
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|
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| Six Months Ended | ||||
|
| |||||
|
| 2022 |
| 2021 | ||
Operating revenues |
| $ | i 1,148,031 |
| $ | i 980,597 |
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
Operations and maintenance |
|
| i 277,562 |
|
| i 252,590 |
Purchased gas |
|
| i 302,855 |
|
| i 177,050 |
Depreciation |
|
| i 155,303 |
|
| i 144,401 |
Amortization |
|
| i 2,219 |
|
| i 2,715 |
Taxes other than income taxes |
|
| i 44,727 |
|
| i 42,161 |
Total operating expenses |
|
| i 782,666 |
|
| i 618,917 |
|
|
|
|
|
|
|
Operating income |
|
| i 365,365 |
|
| i 361,680 |
|
|
|
|
|
|
|
Other expense (income): |
|
|
|
|
|
|
Interest expense |
|
| i 108,857 |
|
| i 102,805 |
Interest income |
|
| ( i 1,433) |
|
| ( i 725) |
Allowance for funds used during construction |
|
| ( i 11,990) |
|
| ( i 7,840) |
Gain on sale of other assets |
|
| ( i 478) |
|
| ( i 303) |
Other |
|
| ( i 2,125) |
|
| ( i 5,412) |
Income before income taxes |
|
| i 272,534 |
|
| i 273,155 |
Provision for income taxes (benefit) |
|
| ( i 9,133) |
|
| i 8,552 |
Net income |
| $ | i 281,667 |
| $ | i 264,603 |
|
|
|
|
|
|
|
Comprehensive income |
| $ | i 281,667 |
| $ | i 264,603 |
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
Basic |
| $ | i 1.08 |
| $ | i 1.04 |
Diluted |
| $ | i 1.07 |
| $ | i 1.04 |
|
|
|
|
|
|
|
Average common shares outstanding during the period: |
|
|
|
|
|
|
Basic |
|
| i 262,026 |
|
| i 254,667 |
Diluted |
|
| i 262,545 |
|
| i 255,268 |
|
|
|
|
|
|
|
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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|
|
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| |
|
|
| June 30, |
| |||
|
|
| 2022 |
| 2021 | ||
Stockholders' equity: |
|
|
|
|
|
|
|
Common stock, $ i i 0.50 / par value |
|
| $ | i 132,707 |
| $ | i 128,050 |
Capital in excess of par value |
|
|
| i 3,715,975 |
|
| i 3,705,814 |
Retained earnings |
|
|
| i 1,577,442 |
|
| i 1,434,201 |
Treasury stock, at cost |
|
|
| ( i 84,092) |
|
| ( i 83,615) |
Total stockholders' equity |
|
|
| i 5,342,032 |
|
| i 5,184,450 |
|
|
|
|
|
|
|
|
Long-term debt of subsidiaries (substantially collateralized by utility plant): |
|
|
|
|
|
| |
Interest Rate Range | Maturity Date Range |
|
|
|
|
|
|
i i 0.00 / % to i i 0.99 / % | i i 2023 / to i i 2033 / |
|
| i 2,029 |
|
| i 2,341 |
i i 1.00 / % to i i 1.99 / % | i i 2023 / to i i 2039 / |
|
| i 8,892 |
|
| i 9,341 |
i i 2.00 / % to i i 2.99 / % | i i 2022 / to i i 2058 / |
|
| i 311,075 |
|
| i 312,751 |
i i 3.00 / % to i i 3.99 / % | i i 2022 / to i i 2056 / |
|
| i 1,355,474 |
|
| i 1,359,284 |
i i 4.00 / % to i i 4.99 / % | i i 2023 / to i i 2059 / |
|
| i 1,282,991 |
|
| i 1,286,024 |
i i 5.00 / % to i i 5.99 / % | i i 2023 / to i i 2043 / |
|
| i 15,715 |
|
| i 16,119 |
i i 6.00 / % to i i 6.99 / % | i i 2022 / to i i 2036 / |
|
| i 32,417 |
|
| i 32,475 |
i i 7.00 / % to i i 7.99 / % | i i 2022 / to i i 2027 / |
|
| i 28,504 |
|
| i 28,980 |
i i 8.00 / % to i i 8.99 / % | i i 2025 / to i i 2025 / |
|
| i 2,424 |
|
| i 2,772 |
i i 9.00 / % to i i 9.99 / % | i i 2026 / to i i 2026 / |
|
| i 11,800 |
|
| i 11,800 |
|
|
|
| i 3,051,321 |
|
| i 3,061,887 |
|
|
|
|
|
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|
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Notes payable to bank under revolving credit agreement, variable rate, due i i 2023 / |
|
| i 140,000 |
|
| i 300,000 | |
Unsecured notes payable: |
|
|
|
|
|
|
|
Amortizing notes at i i 3.00 / % due i i 2022 / |
|
| - |
|
| i 20,470 | |
Notes at i i 2.40 / % due i i 2031 / |
|
|
| i 400,000 |
|
| i 400,000 |
Notes at i i 2.704 / % due i i 2030 / |
|
|
| i 500,000 |
|
| i 500,000 |
Notes ranging from i i 3.01 / % to i i 3.59 / % due i i 2029 / through i i 2050 / |
|
| i 1,125,000 |
|
| i 1,125,000 | |
Notes at i i 4.28 / %, due i i 2049 / |
|
| i 500,000 |
|
| i 500,000 | |
Notes at i i 5.30 / %, due i 2052 |
|
| i 500,000 |
|
| - | |
Notes ranging from i i 5.64 / % to i i 5.95 / %, due i i 2022 / through i i 2034 / |
|
| i 40,000 |
|
| i 40,000 | |
Total long-term debt |
|
|
| i 6,256,321 |
|
| i 5,947,357 |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
|
| i 120,931 |
|
| i 132,146 |
Long-term debt, excluding current portion |
|
| i 6,135,390 |
|
| i 5,815,211 | |
Less: debt issuance costs |
|
|
| i 47,654 |
|
| i 35,707 |
Long-term debt, excluding current portion, net of debt issuance costs |
|
| i 6,087,736 |
|
| i 5,779,504 | |
|
|
|
|
|
|
|
|
Total capitalization |
|
| $ | i 11,429,768 |
| $ | i 10,963,954 |
|
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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, except per share amounts)
(UNAUDITED)
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|
|
|
|
| Capital in |
|
|
|
|
|
|
|
|
| |
|
| Common |
| Excess of |
| Retained |
| Treasury |
|
|
| ||||
|
| Stock |
| Par Value |
| Earnings |
| Stock |
| Total | |||||
Balance at December 31, 2021 |
| $ | i 128,050 |
| $ | i 3,705,814 |
| $ | i 1,434,201 |
| $ | ( i 83,615) |
| $ | i 5,184,450 |
Net income |
|
| - |
|
| - |
|
| i 199,376 |
|
| - |
|
| i 199,376 |
Dividends of March 1, 2022 ($ i 0.2682 per share) |
|
| - |
|
| - |
|
| ( i 67,821) |
|
| - |
|
| ( i 67,821) |
Dividends of June 1, 2022 ($ i 0.2682 per share) |
|
| - |
|
| - |
|
| ( i 67,863) |
|
| - |
|
| ( i 67,863) |
Issuance of common stock under dividend reinvestment plan ( i 93,833 shares) |
|
| i 47 |
|
| i 4,070 |
|
| - |
|
| - |
|
| i 4,117 |
Repurchase of stock ( i 21,290 shares) |
|
| - |
|
| - |
|
| - |
|
| ( i 1,012) |
|
| ( i 1,012) |
Equity compensation plan ( i 57,052 shares) |
|
| i 29 |
|
| ( i 29) |
|
| - |
|
| - |
|
| - |
Exercise of stock options ( i 28,516 shares) |
|
| i 14 |
|
| i 998 |
|
| - |
|
| - |
|
| i 1,012 |
Stock-based compensation |
|
| - |
|
| i 2,716 |
|
| ( i 136) |
|
| - |
|
| i 2,580 |
Other |
|
| - |
|
| ( i 9) |
|
| - |
|
| i 270 |
|
| i 261 |
Balance at March 31, 2022 |
| $ | i 128,140 |
| $ | i 3,713,560 |
| $ | i 1,497,757 |
| $ | ( i 84,357) |
| $ | i 5,255,100 |
Net income |
|
| - |
|
| - |
|
| i 82,291 |
|
| - |
|
| i 82,291 |
Dividends of June 1, 2022 ($ i 0.2682 per share) |
|
| - |
|
| - |
|
| ( i 2,424) |
|
| - |
|
| ( i 2,424) |
Issuance of common stock from stock purchase contracts ( i 9,029,461 shares) |
|
| i 4,515 |
|
| ( i 4,515) |
|
| - |
|
| - |
|
| - |
Issuance of common stock under dividend reinvestment plan ( i 92,889 shares) |
|
| i 47 |
|
| i 4,007 |
|
| - |
|
| - |
|
| i 4,054 |
Repurchase of stock ( i 305 shares) |
|
| - |
|
| - |
|
| - |
|
| ( i 15) |
|
| ( i 15) |
Equity compensation plan ( i 4,736 shares) |
|
| i 2 |
|
| ( i 2) |
|
| - |
|
| - |
|
| - |
Exercise of stock options ( i 6,462 shares) |
|
| i 3 |
|
| i 224 |
|
| - |
|
| - |
|
| i 227 |
Stock-based compensation |
|
| - |
|
| i 2,725 |
|
| ( i 182) |
|
| - |
|
| i 2,543 |
Other |
|
| - |
|
| ( i 24) |
|
| - |
|
| i 280 |
|
| i 256 |
Balance at June 30, 2022 |
| $ | i 132,707 |
| $ | i 3,715,975 |
| $ | i 1,577,442 |
| $ | ( i 84,092) |
| $ | i 5,342,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, except per share amounts)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Capital in |
|
|
|
|
|
|
|
|
| |
|
| Common |
| Excess of |
| Retained |
| Treasury |
|
|
| ||||
|
| Stock |
| Par Value |
| Earnings |
| Stock |
|
| Total | ||||
Balance at December 31, 2020 |
| $ | i 124,285 |
| $ | i 3,379,057 |
| $ | i 1,261,862 |
| $ | ( i 81,327) |
| $ | i 4,683,877 |
Net income |
|
| - |
|
| - |
|
| i 183,689 |
|
| - |
|
| i 183,689 |
Dividends of March 1, 2021 ($ i 0.2507 per share) |
|
| - |
|
| - |
|
| ( i 61,520) |
|
| - |
|
| ( i 61,520) |
Issuance of common stock under dividend reinvestment plan ( i 98,904 shares) |
|
| i 49 |
|
| i 4,112 |
|
| - |
|
| - |
|
| i 4,161 |
Repurchase of stock ( i 76,105 shares) |
|
| - |
|
| - |
|
| - |
|
| ( i 3,262) |
|
| ( i 3,262) |
Equity compensation plan ( i 192,407 shares) |
|
| i 97 |
|
| ( i 97) |
|
| - |
|
| - |
|
| - |
Exercise of stock options ( i 20,201 shares) |
|
| i 10 |
|
| i 704 |
|
| - |
|
| - |
|
| i 714 |
Stock-based compensation |
|
| - |
|
| i 2,631 |
|
| ( i 174) |
|
| - |
|
| i 2,457 |
Other |
|
| - |
|
| ( i 31) |
|
| - |
|
| i 256 |
|
| i 225 |
Balance at March 31, 2021 |
| $ | i 124,441 |
| $ | i 3,386,376 |
| $ | i 1,383,857 |
| $ | ( i 84,333) |
| $ | i 4,810,341 |
Net income |
|
| - |
|
| - |
|
| i 80,914 |
|
| - |
|
| i 80,914 |
Dividends of June 1, 2021 ($ i 0.2507 per share) |
|
| - |
|
| - |
|
| ( i 61,584) |
|
| - |
|
| ( i 61,584) |
Issuance of common stock under dividend reinvestment plan ( i 90,654 shares) |
|
| i 46 |
|
| i 4,049 |
|
| - |
|
| - |
|
| i 4,095 |
Repurchase of stock ( i 364 shares) |
|
| - |
|
| - |
|
| - |
|
| ( i 17) |
|
| ( i 17) |
Equity compensation plan ( i 4,874 shares) |
|
| i 2 |
|
| ( i 2) |
|
| - |
|
| - |
|
| - |
Exercise of stock options ( i 22,786 shares) |
|
| i 11 |
|
| i 781 |
|
| - |
|
| - |
|
| i 792 |
Stock-based compensation |
|
| - |
|
| i 2,316 |
|
| ( i 146) |
|
| - |
|
| i 2,170 |
Other |
|
| - |
|
| ( i 148) |
|
| - |
|
| i 252 |
|
| i 104 |
Balance at June 30, 2021 |
| $ | i 124,500 |
| $ | i 3,393,372 |
| $ | i 1,403,041 |
| $ | ( i 84,098) |
| $ | i 4,836,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
| Six Months Ended | ||||
|
| |||||
|
| 2022 |
| 2021 | ||
Cash flows from operating activities: |
|
|
|
|
|
|
Net income |
| $ | i 281,667 |
| $ | i 264,603 |
Adjustments to reconcile net income to net cash flows from operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
| i 157,522 |
|
| i 147,116 |
Deferred income taxes |
|
| ( i 13,810) |
|
| i 19,594 |
Provision for doubtful accounts |
|
| i 12,793 |
|
| i 16,511 |
Stock-based compensation |
|
| i 5,471 |
|
| i 5,053 |
Gain on sale of other assets |
|
| ( i 478) |
|
| ( i 808) |
Net change in receivables, inventory and prepayments |
|
| i 6,742 |
|
| i 55,561 |
Net change in payables, accrued interest, accrued taxes and other accrued liabilities |
|
| ( i 4,222) |
|
| ( i 78,587) |
Pension and other postretirement benefits contributions |
|
| ( i 14,564) |
|
| ( i 12,971) |
Other |
|
| ( i 14,819) |
|
| ( i 3,204) |
Net cash flows from operating activities |
|
| i 416,302 |
|
| i 412,868 |
Cash flows from investing activities: |
|
|
|
|
|
|
Property, plant and equipment additions, including the debt component of allowance for funds used during construction of $ i 3,013 and $ i 1,393 |
|
| ( i 424,645) |
|
| ( i 404,557) |
Acquisitions of utility systems, net |
|
| ( i 50,010) |
|
| - |
Net proceeds from the sale of other assets |
|
| i 485 |
|
| i 960 |
Other |
|
| i 157 |
|
| ( i 184) |
Net cash flows used in investing activities |
|
| ( i 474,013) |
|
| ( i 403,781) |
Cash flows from financing activities: |
|
|
|
|
|
|
Customers' advances and contributions in aid of construction |
|
| i 5,796 |
|
| i 8,988 |
Repayments of customers' advances |
|
| ( i 901) |
|
| ( i 1,961) |
Net repayments of short-term debt |
|
| ( i 60,297) |
|
| ( i 6,349) |
Proceeds from long-term debt |
|
| i 770,376 |
|
| i 760,176 |
Repayments of long-term debt |
|
| ( i 464,585) |
|
| ( i 619,477) |
Change in cash overdraft position |
|
| ( i 61,061) |
|
| ( i 30,595) |
Proceeds from issuance of common stock under dividend reinvestment plan |
|
| i 8,171 |
|
| i 8,256 |
Proceeds from exercised stock options |
|
| i 1,239 |
|
| i 1,506 |
Repurchase of common stock |
|
| ( i 1,027) |
|
| ( i 3,279) |
Dividends paid on common stock |
|
| ( i 138,108) |
|
| ( i 123,104) |
Other |
|
| i 517 |
|
| i 329 |
Net cash flows from (used in) financing activities |
|
| i 60,120 |
|
| ( i 5,510) |
Net change in cash and cash equivalents |
|
| i 2,409 |
|
| i 3,577 |
Cash and cash equivalents at beginning of period |
|
| i 10,567 |
|
| i 4,827 |
Cash and cash equivalents at end of period |
| $ | i 12,976 |
| $ | i 8,404 |
| ||||||
Non-cash investing activities: | ||||||
Property, plant and equipment additions purchased at the period end, but not yet paid for |
| $ | i 94,473 |
| $ | i 74,752 |
Non-cash customer advances and contributions in aid of construction |
|
| i 8,789 |
|
| i 17,651 |
|
|
|
|
|
|
|
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)
i Note 1 – Basis of Presentation
The accompanying unaudited consolidated balance sheets and statements of capitalization of Essential Utilities, Inc. and subsidiaries (collectively, the “Company”, “we”, “us” or “our”) at June 30, 2022, the unaudited consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2022 and 2021, and the consolidated statements of cash flows and of equity for the six months ended June 30, 2022 and 2021, 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, 2021. 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 balance sheets, consolidated statements of equity, consolidated statements of operations and comprehensive income, 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 and the global geopolitical uncertainties (“major events”) has had on our estimates, assumptions, forecasts, and accounting policies. Because of the essential nature of our business, we do not believe these major events 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 these major events are continuing to evolve, future events and effects related to these major events 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, 2021.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
i Note 2 – Revenue Recognition
The following table presents our revenues disaggregated by major source and customer class:
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended | ||||||||||||||||||||
|
| ||||||||||||||||||||||
| Water Revenues |
| Wastewater Revenues |
| Natural Gas Revenues |
| Other Revenues |
| Water Revenues |
| Wastewater Revenues |
| Natural Gas Revenues |
| Other Revenues | ||||||||
Revenues from contracts with customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential | $ | i 149,542 |
|
| i 30,653 |
|
| i 95,942 |
|
| - |
| $ | i 144,415 |
| $ | i 24,312 |
| $ | i 83,760 |
| $ | - |
Commercial |
| i 41,025 |
|
| i 6,973 |
|
| i 18,853 |
|
| - |
|
| i 37,967 |
|
| i 5,268 |
|
| i 14,850 |
|
| - |
Fire protection |
| i 9,547 |
|
| - |
|
| - |
|
| - |
|
| i 8,919 |
|
| - |
|
| - |
|
| - |
Industrial |
| i 7,604 |
|
| i 432 |
|
| i 957 |
|
| - |
|
| i 7,747 |
|
| i 410 |
|
| i 521 |
|
| - |
Gas transportation & storage |
| - |
|
| - |
|
| i 40,573 |
|
| - |
|
| - |
|
| - |
|
| i 37,789 |
|
| - |
Other water |
| i 15,899 |
|
| - |
|
| - |
|
| - |
|
| i 12,714 |
|
| - |
|
| - |
|
| - |
Other wastewater |
| - |
|
| i 3,507 |
|
| - |
|
| - |
|
| - |
|
| i 2,564 |
|
| - |
|
| - |
Other utility |
| - |
|
| - |
|
| i 11,840 |
|
| i 3,325 |
|
| - |
|
| - |
|
| i 5,971 |
|
| i 3,489 |
Revenues from contracts with customers |
| i 223,617 |
|
| i 41,565 |
|
| i 168,165 |
|
| i 3,325 |
|
| i 211,762 |
|
| i 32,554 |
|
| i 142,891 |
|
| i 3,489 |
Alternative revenue program |
| i 1,109 |
|
| ( i 161) |
|
| i 176 |
|
| - |
|
| i 421 |
|
| ( i 50) |
|
| ( i 5) |
|
| - |
Other and eliminations |
| ( i 545) |
|
| - |
|
| - |
|
| i 11,505 |
|
| - |
|
| - |
|
| - |
|
| i 5,970 |
Consolidated | $ | i 224,181 |
| $ | i 41,404 |
| $ | i 168,341 |
| $ | i 14,830 |
| $ | i 212,183 |
| $ | i 32,504 |
| $ | i 142,886 |
| $ | i 9,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Six Months Ended | ||||||||||||||||||||
|
| ||||||||||||||||||||||
| Water Revenues |
| Wastewater Revenues |
| Natural Gas Revenues |
| Other Revenues |
| Water Revenues |
| Wastewater Revenues |
| Natural Gas Revenues |
| Other Revenues | ||||||||
Revenues from contracts with customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential | $ | i 280,830 |
| $ | i 57,148 |
|
| i 381,048 |
| $ | - |
| $ | i 277,272 |
| $ | i 48,673 |
| $ | i 297,953 |
| $ | - |
Commercial |
| i 76,145 |
|
| i 13,038 |
|
| i 75,893 |
|
| - |
|
| i 71,155 |
|
| i 10,263 |
|
| i 55,871 |
|
| - |
Fire protection |
| i 18,740 |
|
| - |
|
| - |
|
| - |
|
| i 17,964 |
|
| - |
|
| - |
|
| - |
Industrial |
| i 14,785 |
|
| i 776 |
|
| i 2,799 |
|
| - |
|
| i 14,736 |
|
| i 854 |
|
| i 1,478 |
|
| - |
Gas transportation & storage |
| - |
|
| - |
|
| i 119,747 |
|
| - |
|
| - |
|
| - |
|
| i 115,593 |
|
| - |
Other water |
| i 33,250 |
|
| - |
|
| - |
|
| - |
|
| i 23,157 |
|
| - |
|
| - |
|
| - |
Other wastewater |
| - |
|
| i 6,005 |
|
| - |
|
| - |
|
| - |
|
| i 4,314 |
|
| - |
|
| - |
Other utility |
| - |
|
| - |
|
| i 35,066 |
|
| i 6,240 |
|
| - |
|
| - |
|
| i 15,151 |
|
| i 7,315 |
Revenues from contracts with customers |
| i 423,750 |
|
| i 76,967 |
|
| i 614,553 |
|
| i 6,240 |
|
| i 404,284 |
|
| i 64,104 |
|
| i 486,046 |
|
| i 7,315 |
Alternative revenue program |
| i 1,724 |
|
| ( i 188) |
|
| - |
|
| - |
|
| i 830 |
|
| ( i 4) |
|
| i 206 |
|
| - |
Other and eliminations |
| ( i 545) |
|
| - |
|
| - |
|
| i 25,530 |
|
| - |
|
| - |
|
| - |
|
| i 17,816 |
Consolidated | $ | i 424,929 |
| $ | i 76,779 |
| $ | i 614,553 |
| $ | i 31,770 |
| $ | i 405,114 |
| $ | i 64,100 |
| $ | i 486,252 |
| $ | i 25,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
i Note 3 – Acquisitions
Water and Wastewater Utility Acquisitions - Completed
In March 2022, the Company acquired the wastewater system of Lower Makefield Township, which serves approximately i 11,000 customer connections in Lower Makefield, Falls and Middletown townships, and Yardley Borough, Bucks County, Pennsylvania, for a cash purchase price of $ i 53,000.
In August 2021, the Company acquired the water utility system assets of The Commons Water Supply, Inc., which serves i 992 customers in Harris County, Texas, and the wastewater utility system assets of the Village of Bourbonnais, which serves approximately i 6,500 customers in Kankakee County, Illinois. The total cash purchase prices for these utility systems were $ i 4,000 and $ i 32,100, respectively.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
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 July 2022, the Company’s subsidiary, Aqua Pennsylvania Wastewater, was granted a one-year exclusivity agreement by the board of the Bucks County Water and Sewer Authority (“BCWSA”) regarding the sale of the county’s wastewater assets. Aqua Pennsylvania Wastewater made an offer to purchase the BCWSA’s wastewater assets for a purchase price of $ i 885,000 plus adjustments for additional utility assets acquired by BCWSA, and capital expenditures prior to closing. In addition, an agreement is proposed where Aqua Pennsylvania Wastewater will continue to make payments to the seller after closing to acquire additional wastewater treatment capacity as required by customer growth over time. The award is conditioned upon several items, including a final vote by the BCWSA and entering into a definitive agreement in which Aqua will buy and BCWSA will sell the wastewater assets.
In December 2021, the Company entered into a purchase agreement to acquire the water utility assets of the Southern Oaks Water System, which serves approximately i 740 customers for $ i 3,300. 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 i 7,600 customers for $ i 41,250. In July 2021, the Company entered into a purchase agreement to acquire the water utility assets of Shenandoah Borough, Pennsylvania which consists of approximately i 2,930 customers for $ i 12,000. In April 2021, the Company entered into a purchase agreement to acquire certain water or wastewater utility assets of Oak Brook, Illinois which consists of approximately i 4,000 customers for $ i 12,500. In January 2021, the Company entered into purchase agreements to acquire, in separate transactions, the wastewater utility system assets of East Whiteland Township, Pennsylvania and Willistown Township, Pennsylvania which consist of approximately i 10,500 customers for $ i 72,400.
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 closings of our acquisitions of East Whiteland Township and Willistown Township are expected to occur during the third quarter of 2022, while the Oak Brook acquisition is expected to occur during the fourth quarter of 2022. The closings of our Shenandoah Borough, Beaver Falls, and Southern Oaks acquisitions are expected to occur in the first half of 2023. 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)
DELCORA Purchase Agreement
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 i 16,000 customers, or the equivalent of i 198,000 retail customers, in i 42 municipalities in Southeast Pennsylvania for $ i 276,500. In May 2020, Delaware County, Pennsylvania filed a lawsuit alleging that DELCORA does not have the legal authority to establish and fund a customer trust with the net proceeds of the transaction. In December 2020, the judge in the Delaware County Court lawsuit issued an order that (1) the County cannot interfere with the purchase agreement between DELCORA and the Company; (2) the County cannot terminate DELCORA prior to the closing of the transaction; and (3) the establishment of the customer trust was valid. Delaware County appealed this decision to Commonwealth Court of Pennsylvania. On March 3, 2022, the Commonwealth Court issued a decision finding that Delaware County can dissolve the Authority if it so chooses, but the purchase agreement must be upheld regardless of who is operating the system. The case was remanded back to the trial court for the entry of an order consistent with the Commonwealth Court’s opinion.
The administrative law judges in the regulatory approval process recommended that the Company’s application be denied, and subsequently, the Company provided exceptions to the recommended decision. On March 30, 2021, the Pennsylvania Public Utility Commission (“PUC”) ruled that the case be remanded back to the Office of Administrative Law Judge (“ALJ”) and vacated the original administrative law judges’ recommended decision (“2021 Order”). This 2021 Order was also appealed to the Commonwealth Court by Delaware County, and a decision is expected in the next several months.
After the PUC issued the 2021 Order, on April 16, 2021, the administrative law judge issued an order staying the proceeding until the Delaware County Court lawsuit is final and unappealable. On March 25, 2022, the Company sent a letter notifying the PUC of the March 3, 2022 Commonwealth Court decision and requested that the PUC move forward with processing the application. Several parties responded to the Company’s letter and referenced the issues in the second appeal before Commonwealth Court regarding the 2021 Order. On July 14, 2022, the Commission moved to lift the stay imposed by the ALJ, and required the ALJ to establish a schedule on remand for the proceeding.
The purchase price for this pending acquisition is subject to certain
adjustments at closing, and is 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 this acquisition by the issuance of common stock and by utilizing our revolving credit facility until permanent debt is secured. Closing of our acquisition of DELCORA is expected to occur in late 2022 or early 2023, subject to the timing of the regulatory approval process and Delaware County’s on-going litigation.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
i Note 4 – Goodwill
The following table summarizes the changes in the Company’s goodwill, by business segment:
i
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| Regulated Water |
| Regulated Natural Gas |
| Other |
| Consolidated | ||||
Balance at December 31, 2021 |
| $ | i 58,527 |
| $ | i 2,277,447 |
| $ | i 4,841 |
| $ | i 2,340,815 |
Reclassification to utility plant acquisition adjustment |
|
| ( i 23) |
|
| - |
|
| - |
|
| ( i 23) |
Balance at June 30, 2022 |
| $ | i 58,504 |
| $ | i 2,277,447 |
| $ | i 4,841 |
| $ | i 2,340,792 |
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.
i Note 5 – Capitalization
Forward Equity Sale
In August 2020, the Company entered into a forward equity sale agreement for i 6,700,000 shares of common stock with a third party (the “forward purchaser”). In connection with the forward equity sale agreement, the forward purchaser borrowed an equal number of shares of the Company’s common stock from stock lenders and sold the borrowed shares to the public. The Company did not receive any proceeds from the sale of its common stock by the forward purchaser until settlement of the shares underlying the forward equity sale agreement. The actual proceeds to be received by the Company would have varied depending upon the settlement date, the number of shares designated for settlement on that settlement date, and the method of settlement. The forward equity sale agreement was accounted for as an equity instrument and was recorded at a fair value of $ i 0 at inception. The fair value was not adjusted as the Company continued to meet the accounting requirements for equity instruments.
On August 9, 2021, the Company settled the forward equity sale agreement in full by physical share settlement. The Company issued i 6,700,000 shares and received cash proceeds of $ i 299,739 at a forward price of $ i 44.74 per share. Pursuant to the agreement, the forward price was computed based upon the initial forward price of $ i 46.00 per share, adjusted for a floating interest rate factor equal to a specified daily rate less a spread and scheduled dividends during the term of the agreement. The Company used the proceeds received upon settlement of the forward equity sale agreement to fund general corporate purposes, including for water and wastewater utility acquisitions, working capital and capital expenditures. The forward equity sale agreement has now been completely settled, and there are no additional shares subject to the forward equity sale agreement.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Tangible Equity Units
On April 23, 2019, the Company issued $ i 690,000, less expenses of $ i 16,358, of its tangible equity units (the “Units”), with a stated amount of $ i 50.00 per unit. This issuance was part of the permanent financing to close the Peoples Gas Acquisition. Each Unit consisted of a prepaid stock purchase contract and an amortizing note, each issued by the Company. The amortizing notes had an initial principal amount of $ i 8.62909, or $ i 119,081 in aggregate, and yielded interest at a rate of i 3.00% per year, and paid equal quarterly per unit cash installments of $ i 0.75 per amortizing note (except for the July 30, 2019 installment payment, which was $ i 0.80833 per amortizing note), that constituted a payment of interest and a partial repayment of principal. This cash payment in the aggregate was equivalent to i 6.00% per year with respect to each $ i 50.00 stated amount of the Units. The amortizing notes represented unsecured senior obligations of the Company.
Certain holders of the tangible equity units had early settled their prepaid stock purchase contracts prior to the due date, and, in exchange, the Company issued shares of its common stock. During April 2022, i 981,919 stock purchase contracts were early settled by the holders of the contracts, resulting in the issuance of i 1,166,107 shares of the Company’s common stock. On May 2, 2022, the remaining i 6,621,315 stock purchase contracts were each mandatorily settled for i 1.18758 shares of the Company’s common stock, and in the aggregate the Company issued i 7,863,354 shares of its common stock. Additionally, the final quarterly installment payment was made, which resulted in the complete pay-off of the amortizing notes.
Long-term Debt and Loans Payable
On June 30, 2022, the following debt amendments were executed: (1) Peoples Natural Gas Companies amended its 364-day revolving credit agreement primarily to increase the amount of the facility from $ i 100,000 to $ i 300,000 and to update the termination date of the facility to i June 29, 2023, and (2) Aqua Pennsylvania amended its 364-day revolving credit agreement primarily to update the termination date of the facility to June 29, 2023 to coincide with the term of the Peoples Natural Gas Companies’ facility.
On April 15, 2021, the Company’s operating subsidiary, Aqua Ohio, Inc., issued $ i 100,000 of first mortgage bonds, of which $ i 50,000 is due in 2031 and $ i 50,000 is due in 2051, with interest rates of i 2.37% and i 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 $ i 400,000 of long-term debt, less expenses of $ i 4,010, which is due in 2031, with an interest rate of i 2.40%. The Company used the proceeds from this issuance to repay $ i 50,000 of borrowings under the Aqua Pennsylvania revolving credit facility, and the balance was used to repay in full the borrowings under its existing i five year unsecured revolving credit agreement.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
i Note 6 – Financial Instruments
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. 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 three and six months ended June 30, 2022 and 2021.
The fair value of loans payable is determined based on its carrying amount and utilizing Level 1 methods and assumptions. As of June 30, 2022 and December 31, 2021, the carrying amount of the Company’s loans payable was $ i 4,703 and $ i 65,000, respectively, which equates to their estimated fair value. The fair value of cash and cash equivalents, is determined based on Level 1 methods and assumptions. As of June 30, 2022 and December 31, 2021, the carrying amounts of the Company's cash and cash equivalents was $ i 12,976 and $ i 10,567, respectively, which equates to their fair value. The Company’s assets underlying the deferred compensation and non-qualified pension plans are determined by the fair value of mutual funds, which are based on quoted market prices from active markets utilizing Level 1 methods and assumptions. As of June 30, 2022 and December 31, 2021, the carrying amount of these securities was $ i 25,630 and $ i 28,576, respectively, which equates to their fair value, and is reported in the consolidated balance sheet in deferred charges and other assets.
Unrealized gain and losses on equity securities held in conjunction with our non-qualified pension plan is as follows:
i
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| Three Months Ended |
| Six Months Ended | ||||||||
|
| June 30, |
| |||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Net gain (loss) recognized during the period on equity securities |
| $ | ( i 459) |
| $ | i 251 |
| $ | ( i 737) |
| $ | i 499 |
Less: net gain / loss recognized during the period on equity securities sold during the period |
|
| - |
|
| - |
|
| - |
|
| - |
Unrealized gain (loss) recognized during the reporting period on equity securities still held at the reporting date |
| $ | ( i 459) |
| $ | i 251 |
| $ | ( i 737) |
| $ | i 499 |
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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| June 30, |
| |||
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| 2022 |
| 2021 | ||
Carrying amount |
| $ | i 6,256,321 |
| $ | i 5,947,357 |
Estimated fair value |
|
| i 5,545,498 |
|
| i 6,482,499 |
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.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The Company’s customers’ advances for construction have a carrying value of $ i 109,457 as of June 30, 2022, and $ i 103,619 as of December 31, 2021. Their relative fair values cannot be accurately estimated because future refund payments depend on several variables, including new customer connections, customer consumption levels, and future rates. Portions of these non-interest-bearing instruments are payable annually through 2032, and amounts not paid by the respective contract expiration dates become non-refundable. The fair value of these amounts would, however, be less than their carrying value due to the non-interest-bearing feature.
i Note 7 – Net Income per Common Share
Basic net income per common share is based on the weighted average number of common shares outstanding and the weighted average minimum number of shares 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 and potentially dilutive shares. 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 |
| Six Months Ended | ||||
|
| June 30, |
| |||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
Average common shares outstanding during the period for basic computation |
| i 262,099 |
| i 254,769 |
| i 262,026 |
| i 254,667 |
Effect of dilutive securities: |
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|
Forward equity sale agreement |
| - |
| i 285 |
| - |
| i 147 |
Tangible equity units |
| - |
| - |
| - |
| - |
Employee stock-based compensation |
| i 459 |
| i 387 |
| i 519 |
| i 454 |
Average common shares outstanding during the period for diluted computation |
| i 262,558 |
| i 255,441 |
| i 262,545 |
| i 255,268 |
For the three and six months ended June 30, 2022, the weighted average impact of i 2,830,021 and i 5,912,617 shares, respectively, were included in the basic computation of the average common shares outstanding based on the number of shares that were issued upon settlement of the stock purchase contracts under the tangible equity units. For both the three and six months ended June 30, 2021, the minimum settlement amount of the stock purchase contracts under the tangible equity units of i 9,091,179 shares were considered outstanding for the basic computation of the average common shares outstanding.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The number of outstanding employee stock options that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was i 83,080 for the three and six months ended June 30, 2022. For the three and six months ended June 30, 2021, all of the Company’s outstanding employee stock options were included in the calculations of diluted net income per share as there were no anti-dilutive employee stock options. Additionally, the dilutive effect of performance share units and restricted share units granted are included in the Company’s calculation of diluted net income per share.
i Note 8 – Stock-based Compensation
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 i 6,250,000 shares for issuance under the Plan. A maximum of i 3,125,000 shares under the Plan may be issued pursuant to stock awards, stock units and other stock-based awards, subject to adjustment as provided in the Plan. During any calendar year, no individual may be granted (i) stock options and stock appreciation rights under the Plan for more than i 500,000 shares of Company stock in the aggregate or (ii) stock awards, stock units or other stock-based awards under the Plan for more than i 500,000 shares of Company stock in the aggregate, subject to adjustment as provided in the Plan. Awards to employees and consultants under the Plan are made by a committee of the Board of Directors of the Company, except that with respect to awards to the Chief Executive Officer, the committee recommends those awards for approval by the non-employee directors of the Board of Directors. In the case of awards to non-employee directors, the Board of Directors makes such awards. At June 30, 2022, i 1,804,222 shares were still available for issuance under the Plan. i No further grants may be made under the Company’s 2004 Equity Compensation Plan.
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 i three year performance period specified in the grant, subject to exceptions through the respective vesting period, which is generally i three years. Each grantee is granted a target award of PSUs and may earn between i 0% and i 200% of the target amount depending on the Company’s performance against the performance goals. The following table provides compensation expense for PSUs:
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| Three Months Ended |
| Six Months Ended | ||||||||
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| June 30, |
| |||||||||
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| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Stock-based compensation within operations and maintenance expenses |
| $ | i 1,692 |
| $ | i 1,290 |
| $ | i 3,342 |
| $ | i 2,931 |
Income tax benefit |
|
| i 485 |
|
| i 364 |
|
| i 952 |
|
| i 826 |
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 six months ended June 30, 2022:
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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 |
|
| i 355,384 |
| $ | i 42.19 |
Granted |
|
| i 160,245 |
|
| i 42.31 |
Forfeited |
|
| ( i 18,150) |
|
| i 44.46 |
Nonvested share units at end of period |
|
| i 497,479 |
|
| i 42.15 |
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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 six months ended June 30, 2022 and 2021 was $ i 42.31 and $ i 43.18, respectively. The fair value of each PSU grant is amortized monthly into compensation expense on a straight-line basis over their respective vesting periods, generally i 36 months. The accrual of compensation costs is based on the Company’s estimate of the final expected value of the award and is adjusted as required for the portion based on the performance-based condition. The Company assumes that forfeitures will be minimal, and recognizes forfeitures as they occur, which results in a reduction in compensation expense. As the payout of the PSUs includes dividend equivalents, no separate dividend yield assumption is required in calculating the fair value of the PSUs. The recording of compensation expense for PSUs has no impact on net cash flows.
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 i three years, beginning on the date of grant. The Company assumes that forfeitures will be minimal and recognizes forfeitures as they occur, which results in a reduction in compensation expense. As the payout of the RSUs includes dividend equivalents, no separate dividend yield assumption is required in calculating the fair value of the RSUs. The following table provides the compensation expense and income tax benefit for RSUs:
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| Three Months Ended |
| Six Months Ended | ||||||||
|
| June 30, |
| |||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Stock-based compensation within operations and maintenance expenses |
| $ | i 727 |
| $ | i 761 |
| $ | i 1,504 |
| $ | i 1,365 |
Income tax benefit |
|
| i 209 |
|
| i 212 |
|
| i 428 |
|
| i 381 |
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 six months ended June 30, 2022:
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| Number |
| Weighted | |
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| of |
| Average | |
|
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| Stock Units |
| Fair Value | |
Nonvested stock units at beginning of period |
|
| i 193,687 |
| $ | i 43.76 |
Granted |
|
| i 71,376 |
|
| i 45.10 |
Stock units vested and issued |
|
| ( i 54,926) |
|
| i 36.76 |
Forfeited |
|
| ( i 6,621) |
|
| i 44.77 |
Nonvested stock units at end of period |
|
| i 203,516 |
|
| i 46.12 |
The per unit weighted-average fair value at the date of grant for RSUs granted during the six months ended June 30, 2022 and 2021 was $ i 45.10 and $ i 44.44, respectively.
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 i i i 33 / / % annually, starting i one year from the grant date and expire i 10 years from the grant date, subject to satisfaction of designated performance goals. The fair value of each stock option is amortized into compensation expense using the graded-vesting method, which results in the recognition of compensation costs over the requisite service period for each separately vesting tranche of the stock options as though the stock options were, in substance, multiple stock option grants. The following table provides the compensation cost and income tax benefit for stock-based compensation related to stock options:
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| Three Months Ended |
| Six Months Ended | ||||||||
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| June 30, |
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| ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Stock-based compensation within operations and maintenance expenses |
| $ | i 141 |
| $ | i 90 |
| $ | i 241 |
| $ | i 301 |
Income tax benefit |
|
| i 41 |
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| i 26 |
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| i 69 |
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| i 86 |
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The fair value of options was estimated at the grant date using the Black-Scholes option-pricing model. The following assumptions were used in the application of this valuation model:
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| 2022 | |
Expected term (years) |
| i 5.48 |
Risk-free interest rate |
| i 1.92% |
Expected volatility |
| i 26.50% |
Dividend yield |
| i 2.37% |
Grant date fair value per option | $ | i 9.34 |
The Company did i not grant stock options for the six months ended June 30, 2021.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Historical information was the principal basis for the selection of the expected term and dividend yield. The expected volatility is based on a weighted-average combination of historical and implied volatilities over a time period that approximates the expected term of the option. The risk-free interest rate was selected based upon the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option.
The following table summarizes stock option transactions for the six months ended June 30, 2022:
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| Weighted |
| Weighted |
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| |
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| Average |
| Average |
| Aggregate | ||
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| Exercise |
| Remaining |
| Intrinsic | ||
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| Shares |
| Price |
| Life (years) |
| Value | ||
Outstanding at beginning of period |
| i 813,492 |
| $ | i 35.37 |
|
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Granted |
| i 84,296 |
|
| i 45.19 |
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|
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Forfeited |
| ( i 2,344) |
|
| i 41.78 |
|
|
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|
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Expired |
| ( i 125) |
|
| i 35.94 |
|
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|
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Exercised |
| ( i 34,978) |
|
| i 35.42 |
|
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|
|
|
Outstanding at end of period |
| i 860,341 |
| $ | i 36.32 |
| i 6.7 |
| $ | i 8,199 |
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Exercisable at end of period |
| i 777,449 |
| $ | i 35.37 |
| i 6.4 |
| $ | i 8,144 |
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:
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended | ||||||||
|
| June 30, |
| |||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Stock-based compensation within operations and maintenance expenses |
| $ | i 13 |
| $ | i 12 |
| $ | i 25 |
| $ | i 106 |
Income tax benefit |
|
| i 3 |
|
| i 4 |
|
| i 7 |
|
| i 31 |
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The following table summarizes restricted stock transactions for the six months ended June 30, 2022:
i
|
|
|
|
|
|
|
| Number |
| Weighted | |
|
| of |
| Average | |
|
| Shares |
| Fair Value | |
Nonvested restricted stock at beginning of period |
| i 1,068 |
| $ | i 46.83 |
Granted |
| i - |
|
| i - |
Vested |
| - |
|
| - |
Nonvested restricted stock at end of period |
| i 1,068 |
| $ | i 46.83 |
The Company did i not grant restricted stock for the six months ended June 30, 2022.
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:
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended | ||||||||
|
| June 30, |
| |||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Stock-based compensation within operations and maintenance expenses |
| $ | i 165 |
| $ | i 175 |
| $ | i 357 |
| $ | i 350 |
Income tax benefit |
|
| i 47 |
|
| i 51 |
|
| i 103 |
|
| i 101 |
The following table summarizes stock award transactions for the six months ended June 30, 2022:
i
|
|
|
|
|
|
|
|
|
|
|
|
|
| Number |
| Weighted | |
|
| of |
| Average | |
|
| Stock Awards |
| Fair Value | |
Nonvested stock awards at beginning of period |
| - |
| $ | - |
Granted |
| i 7,660 |
|
| i 46.66 |
Vested |
| ( i 7,660) |
|
| ( i 46.66) |
Nonvested stock awards at end of period |
| - |
|
| - |
The weighted-average fair value at the date of grant for stock awards granted during the six months ended June 30, 2022 and 2021 was $ i 46.66 and $ i 45.28, respectively.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
i Note 9 – Pension Plans and Other Postretirement Benefits
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.
The following tables provide the components of net periodic benefit (credit) cost for the Company’s pension and other postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension Benefits | ||||||||||
|
| Three Months Ended |
| Six Months Ended | ||||||||
|
| June 30, |
| |||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Service cost |
| $ | i 707 |
| $ | i 876 |
| $ | i 1,414 |
| $ | i 1,953 |
Interest cost |
|
| i 3,202 |
|
| i 3,255 |
|
| i 6,403 |
|
| i 6,316 |
Expected return on plan assets |
|
| ( i 5,894) |
|
| ( i 5,791) |
|
| ( i 11,789) |
|
| ( i 11,698) |
Amortization of prior service cost |
|
| i 134 |
|
| i 140 |
|
| i 268 |
|
| i 280 |
Amortization of actuarial loss |
|
| i 436 |
|
| i 727 |
|
| i 871 |
|
| i 1,797 |
Net periodic benefit cost (credit) |
| $ | ( i 1,415) |
| $ | ( i 793) |
| $ | ( i 2,833) |
| $ | ( i 1,352) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other | ||||||||||
|
| Postretirement Benefits | ||||||||||
|
|
| Three Months Ended |
|
| Six Months Ended | ||||||
|
|
| June 30, |
|
| |||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Service cost |
| $ | i 477 |
| $ | i 699 |
| $ | i 955 |
| $ | i 1,398 |
Interest cost |
|
| i 843 |
|
| i 839 |
|
| i 1,685 |
|
| i 1,678 |
Expected return on plan assets |
|
| ( i 1,126) |
|
| ( i 1,039) |
|
| ( i 2,251) |
|
| ( i 2,078) |
Amortization of prior service credit |
|
| - |
|
| ( i 108) |
|
| - |
|
| ( i 216) |
Amortization of actuarial loss |
|
| ( i 334) |
|
| i 55 |
|
| ( i 668) |
|
| i 110 |
Net periodic benefit cost |
| $ | ( i 140) |
| $ | i 446 |
| $ | ( i 279) |
| $ | i 892 |
The net periodic benefit (credit) 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 (credit) cost other than service cost in the consolidated statements of operations and comprehensive income on the line item “Other”.
There were $ i 14,564 cash contributions made to the Pension Plan during the first six months of 2022.
i
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 10 – Rate Activity
On May 16, 2022, the Company’s regulated water and wastewater operating subsidiary in Pennsylvania, Aqua Pennsylvania, received an order from the Pennsylvania Public Utility Commission that allowed base rate increases that would increase total annual operating revenues by $ i 69,251. New rates went into effect on May 19, 2022. At the time the rate order was received, the rates in effect also included $ i 35,470 in Distribution System Improvement Charges (“DSIC”), which was i 7.2% above prior base rates. Consequently, the aggregate base rates increased by $ i 104,721 since the last base rate increase and DSIC was reset to i zero.
On January 3, 2022, the Company’s natural gas operating division in Kentucky received an order from the Kentucky Public Service Commission resulting in an increase of $ i 5,238 in annual revenues, and new rates went into effect on January 4, 2022. On June 7, 2022, an additional $ i 260 was approved and made effective by the Commission, resulting from a rehearing requested by the operating division.
On June 30, 2022, the Company’s regulated water and wastewater operating subsidiary in North Carolina, Aqua North Carolina, filed an application with the North Carolina Utilities Commission designed to increase rates by $ i 18,064 in the first year of new rates being implemented, then an additional $ i 4,303 and $ i 4,577 in the second and third years, respectively.
A base rate case is also underway for our water and wastewater utility operating divisions in Ohio which is expected to increase operating revenues by $ i 5,483 annually based on a settlement agreement that remains subject to approval by the Public Utilities Commission of Ohio. New rates are expected to be effective in the third or fourth quarter of 2022.
During the first six months of 2022, the Company’s two other water utility operating divisions in Ohio were granted base rate increases designed to increase total operating revenues on an annual basis by $ i 1,378. Further, during the first six months of 2022, the Company received approval to bill infrastructure rehabilitation surcharges designed to increase total operating revenues on an annual basis by $ i 6,789 in its water and wastewater utility operating divisions in Pennsylvania, North Carolina, and Illinois.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
i Note 11 – Taxes Other than Income Taxes
The following table provides the components of taxes other than income taxes:
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended | ||||||||
|
| June 30, |
| |||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Property |
| $ | i 8,239 |
| $ | i 9,570 |
| $ | i 16,253 |
| $ | i 17,284 |
Gross receipts, excise and franchise |
|
| i 4,017 |
|
| i 3,949 |
|
| i 8,117 |
|
| i 7,633 |
Payroll |
|
| i 4,778 |
|
| i 4,718 |
|
| i 11,439 |
|
| i 11,474 |
Regulatory assessments |
|
| i 1,812 |
|
| i 847 |
|
| i 3,577 |
|
| i 1,685 |
Pumping fees |
|
| i 1,947 |
|
| i 1,464 |
|
| i 3,323 |
|
| i 2,590 |
Other |
|
| i 927 |
|
| i 572 |
|
| i 2,018 |
|
| i 1,495 |
Total taxes other than income |
| $ | i 21,720 |
| $ | i 21,120 |
| $ | i 44,727 |
| $ | i 42,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
i Note 12 – Segment Information
The Company has i twelve operating segments and i two reportable segments. The Regulated Water segment is comprised of i 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 i eight water and wastewater utility operating segments are aggregated into i one reportable segment, because each of these operating segments has the following similarities: economic characteristics, nature of services, production processes, customers, water distribution or wastewater collection methods, and the nature of the regulatory environment. The Regulated Natural Gas segment is comprised of i one operating segment representing natural gas utility companies, acquired in the Peoples Gas Acquisition, for which the Company provides natural gas distribution services.
In addition to the Company’s i two reportable segments, we include i three of our operating segments within the Other category below. These segments are not quantitatively significant and are comprised of our non-regulated natural gas operations, Aqua Infrastructure, and Aqua Resources. Our non-regulated natural gas operations consist of utility service line protection solutions and repair services to households and the operation of gas marketing and production entities. Prior to the October 30, 2020 sale of our investment in joint venture, Aqua Infrastructure provided non-utility raw water supply services for firms in the natural gas drilling industry. Aqua Resources offers, through a third party, water and sewer service line protection solutions and repair services to households. In addition to these segments, Other is comprised of business activities not included in the reportable segments, corporate costs that have not been allocated to the Regulated Water and Regulated Natural Gas segments, and intersegment eliminations. Corporate costs include general and administrative expenses, and interest expense. The Company reports these corporate costs within Other as they relate to corporate-focused responsibilities and decisions and are not included in internal measures of segment operating performance used by the Company to measure the underlying performance of the operating segments. The Regulated Water and 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.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The following table presents information about the Company’s reportable segments:
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended | ||||||||||||||||||||
|
|
| ||||||||||||||||||||||
|
| Regulated Water |
| Regulated Natural Gas |
| Other |
| Consolidated |
| Regulated Water |
| Regulated Natural Gas |
| Other |
| Consolidated | ||||||||
Operating revenues |
| $ | i 269,355 |
| $ | i 167,729 |
| $ | i 11,672 |
| $ | i 448,756 |
| $ | i 248,177 |
| $ | i 141,562 |
| $ | i 7,293 |
| $ | i 397,032 |
Operations and maintenance expense |
|
| i 92,815 |
|
| i 44,907 |
|
| ( i 2,741) |
|
| i 134,981 |
|
| i 77,801 |
|
| i 52,334 |
|
| ( i 2,620) |
|
| i 127,515 |
Purchased gas |
|
| - |
|
| i 63,392 |
|
| i 11,751 |
|
| i 75,143 |
|
| - |
|
| i 39,788 |
|
| i 5,109 |
|
| i 44,897 |
Depreciation and amortization |
|
| i 50,260 |
|
| i 29,131 |
|
| ( i 215) |
|
| i 79,176 |
|
| i 45,546 |
|
| i 28,121 |
|
| i 505 |
|
| i 74,172 |
Taxes other than income taxes |
|
| i 15,562 |
|
| i 5,614 |
|
| i 544 |
|
| i 21,720 |
|
| i 16,044 |
|
| i 4,638 |
|
| i 438 |
|
| i 21,120 |
Operating income |
|
| i 110,718 |
|
| i 24,685 |
|
| i 2,333 |
|
| i 137,736 |
|
| i 108,786 |
|
| i 16,681 |
|
| i 3,861 |
|
| i 129,328 |
Interest expense, net (a) |
|
| i 27,604 |
|
| i 19,171 |
|
| i 7,622 |
|
| i 54,397 |
|
| i 27,122 |
|
| i 20,422 |
|
| i 4,154 |
|
| i 51,698 |
Allowance for funds used during construction |
|
| ( i 5,347) |
|
| ( i 804) |
|
| - |
|
| ( i 6,151) |
|
| ( i 4,438) |
|
| ( i 468) |
|
| - |
|
| ( i 4,906) |
Other |
|
| ( i 1,728) |
|
| i 10 |
|
| i 817 |
|
| ( i 901) |
|
| ( i 1,940) |
|
| ( i 439) |
|
| i 215 |
|
| ( i 2,164) |
Income before income taxes |
|
| i 90,189 |
|
| i 6,308 |
|
| ( i 6,106) |
|
| i 90,391 |
|
| i 88,042 |
|
| ( i 2,834) |
|
| ( i 508) |
|
| i 84,700 |
Provision for income taxes (benefit) |
|
| i 13,847 |
|
| ( i 5,170) |
|
| ( i 577) |
|
| i 8,100 |
|
| i 9,193 |
|
| ( i 4,739) |
|
| ( i 668) |
|
| i 3,786 |
Net income (loss) |
| $ | i 76,342 |
| $ | i 11,478 |
| $ | ( i 5,529) |
| $ | i 82,291 |
| $ | i 78,849 |
| $ | i 1,905 |
| $ | i 160 |
| $ | i 80,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Six Months Ended | ||||||||||||||||||||
|
|
| ||||||||||||||||||||||
|
| Regulated Water |
| Regulated Natural Gas |
| Other |
| Consolidated |
| Regulated Water |
| Regulated Natural Gas |
| Other |
| Consolidated | ||||||||
Operating revenues |
| $ | i 508,553 |
| $ | i 612,912 |
| $ | i 26,566 |
| $ | i 1,148,031 |
| $ | i 476,530 |
| $ | i 484,677 |
| $ | i 19,390 |
| $ | i 980,597 |
Operations and maintenance expense |
|
| i 178,903 |
|
| i 104,359 |
|
| ( i 5,700) |
|
| i 277,562 |
|
| i 156,148 |
|
| i 103,660 |
|
| ( i 7,218) |
|
| i 252,590 |
Purchased gas |
|
| - |
|
| i 280,698 |
|
| i 22,157 |
|
| i 302,855 |
|
| - |
|
| i 162,676 |
|
| i 14,374 |
|
| i 177,050 |
Depreciation and amortization |
|
| i 98,976 |
|
| i 58,835 |
|
| ( i 289) |
|
| i 157,522 |
|
| i 90,684 |
|
| i 55,711 |
|
| i 721 |
|
| i 147,116 |
Taxes other than income taxes |
|
| i 31,453 |
|
| i 11,805 |
|
| i 1,469 |
|
| i 44,727 |
|
| i 31,465 |
|
| i 9,085 |
|
| i 1,611 |
|
| i 42,161 |
Operating income (loss) |
|
| i 199,221 |
|
| i 157,215 |
|
| i 8,929 |
|
| i 365,365 |
|
| i 198,233 |
|
| i 153,545 |
|
| i 9,902 |
|
| i 361,680 |
Interest expense, net |
|
| i 55,159 |
|
| i 39,823 |
|
| i 12,442 |
|
| i 107,424 |
|
| i 53,582 |
|
| i 37,719 |
|
| i 10,779 |
|
| i 102,080 |
Allowance for funds used during construction |
|
| ( i 10,496) |
|
| ( i 1,493) |
|
| ( i 1) |
|
| ( i 11,990) |
|
| ( i 7,685) |
|
| ( i 155) |
|
| - |
|
| ( i 7,840) |
Other |
|
| ( i 3,673) |
|
| ( i 434) |
|
| i 1,504 |
|
| ( i 2,603) |
|
| ( i 3,369) |
|
| ( i 867) |
|
| ( i 1,479) |
|
| ( i 5,715) |
Income before income taxes |
|
| i 158,231 |
|
| i 119,319 |
|
| ( i 5,016) |
|
| i 272,534 |
|
| i 155,705 |
|
| i 116,848 |
|
| i 602 |
|
| i 273,155 |
Provision for income taxes (benefit) |
|
| i 21,346 |
|
| ( i 31,645) |
|
| i 1,166 |
|
| ( i 9,133) |
|
| i 12,826 |
|
| ( i 4,307) |
|
| i 33 |
|
| i 8,552 |
Net income (loss) |
| $ | i 136,885 |
| $ | i 150,964 |
| $ | ( i 6,182) |
| $ | i 281,667 |
| $ | i 142,879 |
| $ | i 121,155 |
| $ | i 569 |
| $ | i 264,603 |
Capital expenditures |
| $ | i 216,612 |
| $ | i 207,394 |
| $ | i 639 |
| $ | i 424,645 |
| $ | i 247,911 |
| $ | i 156,252 |
| $ | i 394 |
| $ | i 404,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) The regulated water and 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.
/
i
|
|
|
|
|
|
|
|
| June 30, |
| |||
|
| 2022 |
| 2021 | ||
Total assets: |
|
|
|
|
|
|
Regulated water |
| $ | i 8,645,314 |
| $ | i 8,403,586 |
Regulated natural gas |
|
| i 6,121,964 |
|
| i 5,960,602 |
Other |
|
| i 278,886 |
|
| i 294,090 |
Consolidated |
| $ | i 15,046,164 |
| $ | i 14,658,278 |
|
|
|
|
|
|
|
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
Note 13 – 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 June 30, 2022, the aggregate amount of $ i 16,941 is accrued for loss contingencies and is reported in the Company’s consolidated balance sheet as other accrued liabilities and other liabilities. These accruals represent management’s best estimate of probable loss (as defined in the accounting guidance) for loss contingencies or the low end of a range of losses if no single probable loss can be estimated. For some loss contingencies, the Company is unable to estimate the amount of the probable loss or range of probable losses. Further, the Company has insurance coverage for certain of these loss contingencies, and as of June 30, 2022, estimates that approximately $ i 2,255 of the amount accrued for these matters are probable of recovery through insurance, which amount is also reported in the Company’s consolidated balance sheet as deferred charges and other assets, net.
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. The do not consume advisory was lifted in 2019 and, in 2022, the water system was determined to be in compliance with the federal Lead and Copper Rule. 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 $ i 2,874 in insurance proceeds. The Company continues to assess the potential loss contingency on this matter. While the final outcome of this claim cannot be predicted with certainty, and unfavorable outcomes could negatively impact the Company, at this time in the opinion of management, the final resolution of this matter is not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
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 $ i 2,470 at June 30, 2022 and represents a reserve for unpaid claim costs, including an estimate for the cost of incurred but not reported claims.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
The Company’s effective tax rate was i 9.0% and ( i 3.4)% for the three and six months ended June 30, 2022, respectively. The Company’s effective tax rate was i 4.5% and i 3.1% for the three and six months ended June 30, 2021, respectively. The increase in the effective tax rate for the second quarter of the year is primarily attributed to a decrease in the amortization of certain regulatory liabilities associated with deferred taxes. The decrease in the effective tax rate for the first half of the year is primarily attributed to an increase in our income tax benefit associated with the tax deduction for qualifying infrastructure and the amortization of the customer surcredit tax repair catch-up adjustment during 2022 in our Regulated Natural Gas segment. The statutory Federal tax rate is i i i i 21 / / / % for the three and six months ended June 30, 2022 and 2021. For states with a corporate net income tax, the state corporate net income tax rates range from i 2.5% to i 9.99% for all periods presented. In determining its interim tax provision, the Company reflects its estimated permanent and flow-through tax differences for the taxable year.
The Company uses a method of tax accounting for certain qualifying infrastructure investments at its Peoples Natural Gas subsidiary, its largest natural gas subsidiary in Pennsylvania that allows a tax deduction for qualifying utility asset improvement costs. Consistent with the Company’s accounting for differences between book and tax expenditures in Pennsylvania in its other regulated subsidiaries, the Company uses the flow-through method to account for this timing difference. In addition, the Company calculated the income tax benefits for qualifying capital expenditures made prior to the date of its acquisition in March 16, 2020 (“catch-up adjustment”) and recognized a regulatory liability for $ i 160,655 for these income tax benefits. On May 6, 2021, the Pennsylvania Public Utility Commission approved a settlement order which stipulates, among other points, that the catch-up adjustment be provided by a surcredit to utility customers over a five-year period beginning August 2021, and the Company can continue to use flow-through accounting for the current tax repair benefit until its next base rate case. During the second quarter and the first six months of 2022, $ i 4,751 and $ i 17,238, respectively, of income tax benefits were amortized as refunds to Peoples Natural Gas customers.
ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands of dollars, except per share amounts)
(UNAUDITED)
i Note 15 – Recent Accounting Pronouncements
Pronouncements to be adopted upon the effective date:
In October 2021, the FASB issued accounting guidance on accounting for acquired revenue contracts with customers in a business combination. The guidance specifies for all acquired revenue contracts, regardless of their timing of payment, the circumstances in which the acquirer should recognize contract assets and contract liabilities that are acquired in a business combination, as well as how to measure those contract assets and contract liabilities. The updated accounting guidance is effective for fiscal years beginning after December 15, 2022 with early adoption permitted. The Company is evaluating the requirements of the updated guidance to determine the impact of adoption.
Pronouncement adopted during the year:
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. As permitted, we adopted this updated guidance on January 1, 2022, 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, geopolitical forces, 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, 2021 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. (formerly known as Aqua America, 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. The Company also operates market-based businesses, conducted through its non-regulated subsidiaries, that provide utility service line protection solutions and repair services to households and gas marketing and production activities.
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)
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, focusing on water and wastewater 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.
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 take steps to mitigate the potential risks to our business. Since the start of the COVID-19 pandemic, we have implemented protective measures in the field, our plants, and within our offices, which we continuously update for changes in conditions and emerging trends and align with the recommendations of the Centers for Disease Control and Prevention and Federal, State and local health authorities. Our office employees returned to the workplace safely in 2021 and remain working in a hybrid flex schedule as positions allow. We also encouraged employees to become vaccinated. In addition, we are monitoring collections of customer utility accounts, risks present in our supply chain, and increased expenses for costs associated with workforce-related supplies, security and cleaning of company offices and operating facilities, as well as other one-time expenses above the expense amounts included in general rates.
Inflationary Cost Environment
During the six months ended June 30, 2022, we experienced inflationary cost increases in our materials, labor and other operating costs, as well as supply chain pressures as a result of the COVID-19 pandemic and global uncertainties associated with the current conflict in Ukraine and sanctions imposed in response to this conflict. The price of natural gas substantially increased and resulted in the significant increase in the revenue and expenses of our Regulated Natural Gas business during the six month period ended June 30, 2022, as compared to the same period a year earlier. We expect these pressures to continue throughout 2022. We continue to review the adequacy of our rates as approved by public utility commissions in relation to the increasing cost of providing services and the inherent regulatory lag in adjusting those rates. We also 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
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)
able to adjust our purchasing procedures to secure and stock the necessary materials without materially impacting our operations or capital investment program.
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 six months of 2022, we incurred $424,645 of capital expenditures, expended $50,010 for the acquisition of a wastewater utility system, issued $770,376 of long-term debt, and repaid debt and made sinking fund contributions and other loan repayments of $524,882. The capital expenditures were related to new and replacement water, wastewater, and natural gas mains, improvements to treatment plants, tanks, hydrants, and service lines, 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 and general corporate purposes, including a municipal acquisition.
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)
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| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||||||||||||
Operating revenues | $ | 448,756 |
| $ | 397,032 |
| $ | 1,148,031 |
| $ | 980,597 | ||||||||||||
Operations and maintenance expense | $ | 134,981 |
| $ | 127,515 |
| $ | 277,562 |
| $ | 252,590 | ||||||||||||
Purchased gas | $ | 75,143 |
| $ | 44,897 |
| $ | 302,855 |
| $ | 177,050 | ||||||||||||
Net income | $ | 82,291 |
| $ | 80,914 |
| $ | 281,667 |
| $ | 264,603 | ||||||||||||
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Operating Statistics |
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Selected operating results as a percentage of operating revenues: |
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Operations and maintenance |
| 30.1% |
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| 32.1% |
|
| 24.2% |
|
| 25.8% | ||||||||||||
Purchased gas |
| 16.7% |
|
| 11.3% |
|
| 26.4% |
|
| 18.1% | ||||||||||||
Depreciation and amortization |
| 17.6% |
|
| 18.7% |
|
| 13.7% |
|
| 15.0% | ||||||||||||
Taxes other than income taxes |
| 4.8% |
|
| 5.3% |
|
| 3.9% |
|
| 4.3% | ||||||||||||
Interest expense, net of interest income |
| 12.1% |
|
| 13.0% |
|
| 9.4% |
|
| 10.4% | ||||||||||||
Net income |
| 18.3% |
|
| 20.4% |
|
| 24.5% |
|
| 27.0% | ||||||||||||
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Effective tax rate |
| 9.0% |
|
| 4.5% |
|
| -3.4% |
|
| 3.1% |
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)
Depreciation and amortization expense increased by $5,004 or 6.7% principally due to continued capital expenditures to expand and improve our utility facilities and our acquisitions of new utility systems.
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)
·increase in insurance expense of $4,685, which includes the impact of a favorable insurance reserve adjustment of $2,426 during the first quarter of 2021;
·increase in legal expenses of $1,280,
·increase in outside services and maintenance expenses of $7,962 in our Regulated Water segment;
and,
·expenses of $376, associated with remediating an advisory for some of our water utility customers served by our Illinois subsidiary. We expect the expenses associated with remediating the advisory to continue through 2022;
·offset by the decrease in bad debt expense of $3,718; and,
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)
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)
The following tables present selected operating results and statistics for our Regulated Water segment:
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| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||
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| 2022 |
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| 2021 |
| 2022 |
| 2021 | ||
Operating revenues | $ | 269,355 |
| $ | 248,177 |
| $ | 508,553 |
| $ | 476,530 |
Operations and maintenance expense | $ | 92,815 |
| $ | 77,801 |
| $ | 178,903 |
| $ | 156,148 |
Net income | $ | 76,342 |
| $ | 78,849 |
| $ | 136,885 |
| $ | 142,879 |
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Operating Statistics |
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Selected operating results as a percentage of operating revenues: |
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Operations and maintenance |
| 34.5% |
|
| 31.3% |
|
| 35.2% |
|
| 32.8% |
Depreciation and amortization |
| 18.7% |
|
| 18.4% |
|
| 19.5% |
|
| 19.0% |
Taxes other than income taxes |
| 5.8% |
|
| 6.5% |
|
| 6.2% |
|
| 6.6% |
Interest expense, net of interest income |
| 10.2% |
|
| 10.9% |
|
| 10.8% |
|
| 11.2% |
Net income |
| 28.3% |
|
| 31.8% |
|
| 26.9% |
|
| 30.0% |
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Effective tax rate |
| 15.4% |
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| 10.4% |
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| 13.5% |
|
| 8.2% |
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)
·increase in legal expense of $1,266; and,
·increase in outside services and maintenance expenses of $7,962 in our Regulated Water segment
·increase in production costs for water and wastewater operations of $3,001;
·expenses of $376, associated with remediating an advisory for some of our water utility customers served by our Illinois subsidiary. We expect the expenses associated with remediating the advisory to continue through 2022;
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)
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)
The following tables present selected operating results and statistics for our Regulated Natural Gas segment:
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| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||
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| 2022 |
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| 2021 |
| 2022 |
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| 2021 | |
Operating revenues | $ | 167,729 |
| $ | 141,562 |
| $ | 612,912 |
| $ | 484,677 |
Operations and maintenance expense | $ | 44,907 |
| $ | 52,334 |
| $ | 104,359 |
| $ | 103,660 |
Purchased gas | $ | 63,392 |
| $ | 39,788 |
| $ | 280,698 |
| $ | 162,676 |
Net income | $ | 11,478 |
| $ | 1,905 |
| $ | 150,964 |
| $ | 121,155 |
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Operating Statistics |
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Selected operating results as a percentage of operating revenues: |
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Operations and maintenance |
| 26.8% |
|
| 37.0% |
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| 17.0% |
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| 21.4% |
Purchased gas |
| 37.8% |
|
| 28.1% |
|
| 45.8% |
|
| 33.6% |
Depreciation and amortization |
| 17.4% |
|
| 19.9% |
|
| 9.6% |
|
| 11.5% |
Taxes other than income taxes |
| 3.3% |
|
| 3.3% |
|
| 1.9% |
|
| 1.9% |
Interest expense, net of interest income |
| 11.4% |
|
| 14.4% |
|
| 6.5% |
|
| 7.8% |
Net income |
| 6.8% |
|
| 1.3% |
|
| 24.6% |
|
| 25.0% |
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Effective tax rate |
| -82.0% |
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| 167.2% |
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| -26.5% |
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| -3.7% |
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| Three Months Ended |
| Six Months Ended | ||||||||
| June 30, |
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| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Operating revenues (GAAP) | $ | 167,729 |
| $ | 141,562 |
| $ | 612,912 |
| $ | 484,677 |
Purchased gas |
| 63,392 |
|
| 39,788 |
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| 280,698 |
|
| 162,676 |
Gross margin (non-GAAP) | $ | 104,337 |
|
| 101,774 |
| $ | 332,214 |
| $ | 322,001 |
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)
·increase of $2,601 due to higher rates and other surcharges;
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)
·increase of $5,968 due to higher rates and other surcharges;
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)
Impact of Recent Accounting Pronouncements
We describe the impact of recent accounting pronouncements in Note 15, 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, 2021, filed March 1, 2022, 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
We have implemented a new enterprise resource planning (ERP) system for our Regulated Water business segment that enhances our business and financial processes and standardizes some of our information technology systems with our other segments. In connection with this new ERP implementation, we have updated our internal controls over financial reporting, as necessary, to accommodate modifications in our Regulated Water business processes and accounting procedures.
Except as described above, there were no changes in our internal control over financial reporting, during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.
Please review the risks disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, 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 June 30, 2022:
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| Issuer Purchases of Equity Securities |
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| that May |
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| as Part of |
| Yet be |
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| Purchased |
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| Number |
| Average |
| Announced |
| Under the | |
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| of Shares |
| Price Paid |
| Plans or |
| Plan or | |
Period |
| Purchased (1) |
| per Share |
| Programs |
| Programs | |
April 1 - 30, 2022 |
| 47 |
| $ | 51.75 |
| - |
| - |
May 1 -31, 2022 |
| 66 |
| $ | 49.31 |
| - |
| - |
June 1 - 30, 2022 |
| 192 |
| $ | 47.01 |
| - |
| - |
Total |
| 305 |
| $ | 48.24 |
| - |
| - |
(1)These amounts consist of 305 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.
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Exhibit No. |
| Description |
4.1
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4.2
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10.1* |
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10.2* |
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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 June 30, 2022, formatted in Inline XBRL (included in Exhibit 101) |
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.
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| Essential Utilities, Inc. | |
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| Registrant | |
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| Chairman, President and | |
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| Chief Executive Officer | |
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| Executive Vice President and | |
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| Chief Financial Officer |
This ‘10-Q’ Filing | Date | Other Filings | ||
---|---|---|---|---|
6/29/23 | ||||
12/31/22 | ||||
12/15/22 | ||||
Filed on: | 8/9/22 | |||
7/22/22 | ||||
7/14/22 | ||||
For Period end: | 6/30/22 | |||
6/7/22 | ||||
6/1/22 | ||||
5/20/22 | 8-K | |||
5/19/22 | 424B5 | |||
5/16/22 | ||||
5/2/22 | 25-NSE | |||
3/31/22 | 10-Q, 4 | |||
3/25/22 | ||||
3/3/22 | 8-K | |||
3/1/22 | 10-K | |||
1/4/22 | 4 | |||
1/3/22 | ||||
1/1/22 | ||||
12/31/21 | 10-K, 11-K, 11-K/A, 4 | |||
8/9/21 | 4/A | |||
6/30/21 | 10-Q, 4 | |||
6/1/21 | 4 | |||
5/6/21 | 8-K | |||
4/19/21 | 8-K | |||
4/16/21 | 424B5 | |||
4/15/21 | 424B5, 8-K, FWP, S-3ASR | |||
3/31/21 | 10-Q, 4 | |||
3/30/21 | ||||
3/1/21 | 10-K, S-3ASR | |||
12/31/20 | 10-K, 11-K, 4 | |||
10/30/20 | ||||
8/3/20 | ||||
3/16/20 | 3, 4, 8-K, PRE 14A | |||
9/3/19 | ||||
7/30/19 | ||||
5/2/19 | 3, 8-K, DEF 14A | |||
4/23/19 | 8-A12B, 8-K | |||
List all Filings |
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 2/29/24 Essential Utilities, Inc. 10-K 12/31/23 131:33M Certent, Inc./FA 3/01/23 Essential Utilities, Inc. 10-K 12/31/22 139:36M Certent, Inc./FA 10/17/22 Essential Utilities, Inc. 424B5 10/14/22 2:483K 2ENGAGE/FA |
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 5/20/22 Essential Utilities, Inc. 8-K:1,2,9 5/18/22 14:627K 2ENGAGE/FA 4/19/21 Essential Utilities, Inc. 8-K:1,2,9 4/15/21 15:666K 2ENGAGE/FA |