Acquisitions and Divestitures (Notes)

6 Months Ended

Jun. 30, 2020

Discontinued Operations and Disposal Groups [Abstract]

Business Combination Disclosure [Text Block]

Acquisitions and Divestitures

Pending Acquisition of Elkton Gas

In July 2020, we closed on the acquisition of Elkton Gas, which provides natural gas distribution service to approximately 7,000 residential and commercial customers within a franchised area of Cecil County, Maryland. The purchase price is approximately $15.0 million. Elkton Gas’ territory is contiguous to our franchised service territory in Cecil County, Maryland. Elkton Gas will continue to operate out of its existing office with the same local personnel who are also expected to serve our existing franchised service territory in Cecil County.

Acquisition of Boulden

In December 2019, Sharp acquired certain propane operating assets of Boulden, which provides propane distribution service to approximately 5,200 customers in Delaware, Maryland and Pennsylvania, for approximately $24.6 million, net of cash acquired. Additionally, the purchase price included $0.2 million of working capital. We recorded contingent consideration of $0.6 million related to the seller's adherence to various provisions contained in the contract through the first anniversary of the transaction closing. We accounted for the purchase of the operating assets of Boulden as a business combination and integrated the business into our Sharp operation. There are multiple strategic benefits to this acquisition including it: (i) overlays with the pending Elkton Gas acquisition to establish an integrated energy delivery platform in Cecil County, Maryland; (ii) includes an established customer base with opportunities for future growth; (iii) enables operational synergies, including supply, for the northern Delmarva Peninsula; and (iv) provides opportunities to market additional services and pricing programs to these customers.

In connection with this acquisition, we recorded $8.3 million in property, plant and equipment, $5.1 million in intangible assets associated with customer relationships and non-compete agreements and $11.2 million in goodwill, all of which is deductible for income tax purposes. The amounts recorded in conjunction with the acquisition are preliminary, and subject to adjustment based on contractual provisions and will be finalized in the fourth quarter of 2020. For the three months ended June 30, 2020, Boulden generated operating revenue and income of $0.8 million and $0.1 million, respectively. For the six months ended June 30, 2020, Boulden generated operating revenue and income of $3.6 million and $1.4 million, respectively.

Divestiture of PESCO

During the fourth quarter of 2019, we sold PESCO's assets and contracts in four separate transactions and exited the natural gas marketing business. As a result of the sales agreements, we began to report PESCO as discontinued operations during the third quarter of 2019, excluded PESCO's performance from continuing operations for all periods presented and classified its assets and liabilities as held for sale where applicable. We received a total of $23.1 million in cash consideration from the buyers, inclusive of working capital of $8.0 million and recognized total pre-tax gain of $7.5 million ($5.5 million after tax) in connection with these transactions, $7.3 million of this gain was recognized in the fourth quarter of 2019.

Operating revenues and costs of sales from the previous reporting periods, which were previously eliminated in consolidation, have been grossed up and are now reflected as a component of operating revenues and costs of sales for the three and six months ended June 30, 2019. We recast these amounts because, upon completion of the sales transactions, we continued to provide and receive services from the buyers through the remainder of the contractual terms.

A summary of discontinued operations presented in the condensed consolidated statements of income includes the following:    

	Three Months						Six Months
	June 30,						June 30,
(in thousands)	2020			2019			2020			2019
Operating revenues(1)	$	3		$	41,280		$	23		$	118,302
Cost of sales(1)	10			40,539			1			115,701
Other operating expenses	39			1,470			197			3,460
Operating loss	(46		)	(729		)	(175		)	(859		)
Interest and other expense	(6		)	(101		)	(29		)	(166		)
Loss from Discontinued Operations before income taxes	(52		)	(830		)	(204		)	(1,025		)
Gain on sale of Discontinued Operations	200			—			200
Income tax benefit	(147		)	(220		)	(188		)	(268		)
Gain (Loss) from Discontinued Operations, Net of Tax	$	295		$	(610	)	$	184		$	(757	)

⁽¹⁾ Included in operating revenues and cost of sales for the three and six months ended June 30, 2019, is $4.9 million and $14.8 million, respectively, representing amounts which had been previously eliminated in consolidation related to intercompany activity that continued with the buyers after the disposition of the assets of PESCO.

Since the disposition of the assets and contracts of PESCO was completed in the fourth quarter of 2019, there were no assets or liabilities classified as held for sale at June 30, 2020 and December 31, 2019.      

We have elected not to separately disclose discontinued operations on the condensed consolidated statements of cash flows. The following table summarizes significant statements of cash flows data related to the discontinued operations of PESCO:

(in thousands)	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Depreciation and amortization	$	146		$	291
Deferred income taxes	$	(1,021	)	$	375
Realized loss on commodity contracts	$	(97	)	$	(681	)

Our Delmarva Peninsula natural gas distribution operations had asset management agreements with PESCO to manage their natural gas transportation and storage capacity. The agreements were effective as of April 1, 2017, and expired on March 31, 2020. As a result of the sale of the assets of PESCO, effective October 1, 2019, these agreements were managed by New Jersey Resource Energy Services Company through the remainder of the contract term. In March 2020, our Delmarva Peninsula natural gas distribution operations entered into asset management agreements with a third party to manage their natural gas transportation and storage capacity. The agreements were effective as of April 1, 2020, and expire on March 31, 2023. In addition to the asset management agreements, Eastern Shore had several firm transportation and capacity arrangements with PESCO, which were included in the assets sold to United Energy Trading, LLC. Eastern Shore will continue to fulfill these arrangements throughout the remainder of their contractual term. These agreements currently have expiration dates of November 30, 2021.

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

Divestiture of PESCO

During the fourth quarter of 2019, we sold PESCO's assets and contracts in four separate transactions and exited the natural gas marketing business. As a result of the sales agreements, we began to report PESCO as discontinued operations during the third quarter of 2019, excluded PESCO's performance from continuing operations for all periods presented and classified its assets and liabilities as held for sale where applicable. We received a total of $23.1 million in cash consideration from the buyers, inclusive of working capital of $8.0 million and recognized total pre-tax gain of $7.5 million ($5.5 million after tax) in connection with these transactions, $7.3 million of this gain was recognized in the fourth quarter of 2019.

Operating revenues and costs of sales from the previous reporting periods, which were previously eliminated in consolidation, have been grossed up and are now reflected as a component of operating revenues and costs of sales for the three and six months ended June 30, 2019. We recast these amounts because, upon completion of the sales transactions, we continued to provide and receive services from the buyers through the remainder of the contractual terms.

A summary of discontinued operations presented in the condensed consolidated statements of income includes the following:    

	Three Months						Six Months
	June 30,						June 30,
(in thousands)	2020			2019			2020			2019
Operating revenues(1)	$	3		$	41,280		$	23		$	118,302
Cost of sales(1)	10			40,539			1			115,701
Other operating expenses	39			1,470			197			3,460
Operating loss	(46		)	(729		)	(175		)	(859		)
Interest and other expense	(6		)	(101		)	(29		)	(166		)
Loss from Discontinued Operations before income taxes	(52		)	(830		)	(204		)	(1,025		)
Gain on sale of Discontinued Operations	200			—			200
Income tax benefit	(147		)	(220		)	(188		)	(268		)
Gain (Loss) from Discontinued Operations, Net of Tax	$	295		$	(610	)	$	184		$	(757	)

⁽¹⁾ Included in operating revenues and cost of sales for the three and six months ended June 30, 2019, is $4.9 million and $14.8 million, respectively, representing amounts which had been previously eliminated in consolidation related to intercompany activity that continued with the buyers after the disposition of the assets of PESCO.

Since the disposition of the assets and contracts of PESCO was completed in the fourth quarter of 2019, there were no assets or liabilities classified as held for sale at June 30, 2020 and December 31, 2019.      

We have elected not to separately disclose discontinued operations on the condensed consolidated statements of cash flows. The following table summarizes significant statements of cash flows data related to the discontinued operations of PESCO:

(in thousands)	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Depreciation and amortization	$	146		$	291
Deferred income taxes	$	(1,021	)	$	375
Realized loss on commodity contracts	$	(97	)	$	(681	)

Our Delmarva Peninsula natural gas distribution operations had asset management agreements with PESCO to manage their natural gas transportation and storage capacity. The agreements were effective as of April 1, 2017, and expired on March 31, 2020. As a result of the sale of the assets of PESCO, effective October 1, 2019, these agreements were managed by New Jersey Resource Energy Services Company through the remainder of the contract term. In March 2020, our Delmarva Peninsula natural gas distribution operations entered into asset management agreements with a third party to manage their natural gas transportation and storage capacity. The agreements were effective as of April 1, 2020, and expire on March 31, 2023. In addition to the asset management agreements, Eastern Shore had several firm transportation and capacity arrangements with PESCO, which were included in the assets sold to United Energy Trading, LLC. Eastern Shore will continue to fulfill these arrangements throughout the remainder of their contractual term. These agreements currently have expiration dates of November 30, 2021.