What changed in this filing

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Item 1. Financial Statements

2022-11-04 compared with 2022-08-05 · 216 added, 164 removed, 682 unchanged (36% of the section changed)

3 unchanged sentences

(In thousands)

June 30, 2022

September 30, 2022

December 31, 2021

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Current portion of long-term debt

Dividends payable

Accounts payable

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(In thousands, except per share amounts)

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

Operating revenues

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(In thousands)

For the Six Months

Ended June 30,

For the Nine Months

Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

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Materials and supplies

Income tax payable

Prepaid property taxes

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Regulatory liabilities

Income tax payable

Accounts payable

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CASH FLOWS FROM FINANCING ACTIVITIES

Net (repayments) under lines of credit agreements

Deferred debt issuance cost

Net (repayments) borrowings under lines of credit agreements

Increase in overdraft payable

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Dividends paid

Deferred debt issuance costs

Principal repayments of long-term debt

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CASH AND CASH EQUIVALENTS AT END OF PERIOD

ARTESIAN RESOURCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED

(In thousands)

Non-cash Investing and Financing Activity:

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Dividends declared but not paid

Amounts included in accounts payable and accrued payables related to capital expenditures

Change in amounts included in accounts payable and accrued payables related to capital expenditures

Supplemental Disclosures of Cash Flow Information:

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Income taxes paid

Preliminary purchase price of allocation of investment in acquisitions:

Preliminary purchase price allocation of investment in acquisitions:

Utility plant

1 unchanged sentence

Contributions in aid of construction

Cash paid for acquisition

Cash received from acquisition

Net cash paid for acquisition

Cash paid for acquisitions

Cash received from acquisitions

Net cash paid for acquisitions

See notes to the condensed consolidated financial statements.

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Balance as of June 30, 2021

Cash dividends declared

Issuance of common stock

Dividend reinvestment plan

Employee stock options and awards (4)

Employee Retirement Plan (3)

Balance as of September 30, 2021

Common Shares Outstanding Class A Non-Voting (1) (3) (4)

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Balance as of June 30, 2022

At June 30, 2022 and June 30, 2021, Class A Common Stock had 15,000,000 shares authorized.

For the same periods,

shares issued, inclusive of treasury shares, were 8,606,597 and 8,548,106 , respectively.

At June 30, 2022 and June 30, 2021, Class B Common Stock had 1,040,000 shares authorized and 881,452 shares issued.

Artesian Resources Corporation registered 200,000 shares of Class A Common Stock, subsequently adjusted

for stock splits, available for purchase through the Company’s 401(k) retirement plan.

Under the Equity Compensation Plan, effective December 9, 2015, or the 2015 Plan, Artesian Resources Corporation authorized up to 331,500 shares of Class A Common Stock for issuance of grants in the form of stock options, stock units, dividend equivalents and other stock-based awards, subject to adjustment in certain circumstances as

discussed in the 2015 Plan.

Includes stock compensation expense for June 30, 2022, and June 30, 2021, see Note 5-Stock Compensation Plans.

Cash dividends declared

Issuance of common stock

Dividend reinvestment plan

Employee stock options and awards (4)

Employee Retirement Plan (3)

Balance as of September 30, 2022

At September 30, 2022 and September 30, 2021, Class A Common Stock had 15,000,000 shares

For the same periods, shares issued, inclusive of treasury shares, were 8,638,474 and 8,553,070 , respectively.

At September 30, 2022 and September 30, 2021, Class B Common Stock had 1,040,000 shares authorized

and 881,452 shares issued.

Artesian Resources Corporation registered 200,000 shares of Class A Common Stock,

subsequently adjusted for stock splits, available for purchase through the Company’s 401(k) retirement plan.

certain circumstances as discussed in the 2015 Plan.

Includes stock compensation expense for September 30, 2022, and September 30, 2021, see Note 6-Stock Compensation Plans.

See notes to the condensed consolidated financial statements

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In addition, as further discussed below, Artesian Utility operates the Water Service Line Protection Plan, or WSLP Plan, the Sewer Service Line Protection Plan, or SSLP Plan, and the Internal Service

Line Protection Plan, or ISLP Plan.

Line Protection Plan, or ISLP Plan (collectively, SLP Plans).

Artesian Utility currently operates wastewater treatment facilities for the town of Middletown, in southern New Castle County, Delaware, or Middletown, under

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wastewater facility, as well as property for current operations, including an office facility in Sussex County, Delaware.

The facility consists of approximately 10,000 square feet of office space along with nearly 10,000 square feet of warehouse space.

The facility consists of approximately 10,000 square feet of office space along with nearly 10,000 square feet of warehouse

Artesian Storm Water, incorporated in 2017, was formed to provide design, installation, maintenance and repair

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the consolidated financial statements and related notes in the Company's annual report on Form 10-K for fiscal year 2021 as filed with the SEC on March 11, 2022.

The condensed consolidated financial statements include the accounts of Artesian Resources Corporation and its wholly owned subsidiaries, including its

principal operating company, Artesian Water.

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments (unless otherwise noted) necessary to present fairly the

Company's balance sheet position as of June 30, 2022, the results of its operations for the three and six-month periods ended June 30, 2022 and June 30, 2021, its cash flows for the six-month periods ended June 30, 2022 and June 30, 2021 and the

changes in stockholders’ equity for the three and six-month periods ended June 30, 2022 and June 30, 2021.

The December 31, 2021 Condensed Consolidated Balance Sheet was derived from the Company’s December 31, 2021 audited consolidated financial

statements, but does not include all disclosures and notes normally provided in annual financial statements.

The condensed consolidated financial statements include the accounts of Artesian

Resources Corporation and its wholly owned subsidiaries, including its principal operating company, Artesian Water.

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring

adjustments (unless otherwise noted) necessary to present fairly the Company's balance sheet position as of September 30, 2022, the results of its operations for the three and nine -month periods ended September 30, 2022 and September 30, 2021 , its cash flows for the nine -month periods ended September 30, 2022 and September 30, 2021 and the changes in stockholders’ equity for the three and nine -month periods ended September 30, 2022 and September 30, 2021 .

The December 31, 2021 Condensed Consolidated Balance Sheet was derived from the Company’s

December 31, 2021 audited consolidated financial statements, but does not include all disclosures and notes normally provided in annual financial statements.

The results of operations for the interim periods presented are not necessarily indicative of the results for the full year or for future periods.

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Clayton in May 2022.

As of June 30, 2022, the accounting for these transactions was preliminary.

Management’s preliminary determination of fair value of the tangible assets acquired using the cost method requires management to make significant

estimates and assumptions related to economic lives of the assets, replacement costs, and physical characteristics of the tangible assets acquired.

Third-party valuation specialists are assisting with the valuation of the assets acquired.

purchase price allocations are expected to be finalized once the valuations of assets acquired have been completed, no later than one year after the acquisition date in each case.

As of September 30, 2022, the fair value determination for TESI is finalized, with the exception of deferred income taxes, which is still preliminary but expected to be complete by December 31, 2022.

The fair value for deferred

income taxes affects both goodwill and deferred income taxes.

As of September 30, 2022, The town of Clayton transaction is preliminary.

Management’s preliminary determination of fair value of the tangible assets acquired using the cost method

requires management to make significant estimates and assumptions related to economic lives of the assets, replacement costs, and physical characteristics of the tangible assets acquired.

A third-party valuation specialist is assisting with the

valuation of the assets acquired.

The purchase price allocation for the Town of Clayton is expected to be finalized once the valuation of assets acquired has been completed, no later than one year after the acquisition date.

Reclassification

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Accounts receivable related to tariff contract revenues are typically due within 25 days of invoicing.

An allowance for doubtful accounts is calculated as a percentage of total associated revenues based upon historical trends and adjusted for current

We mitigate our exposure to credit losses by discontinuing services in the event of non-payment;

An allowance for doubtful accounts is calculated as a percentage of total associated revenues based upon historical trends and adjusted for current conditions.

our exposure to credit losses by discontinuing services in the event of non-payment;

accordingly, the related allowance for doubtful accounts and associated bad debt expense has not been significant.

However, due to the

COVID-19 pandemic causing hardships for many utility customers, the Company experienced longer receivable cycles throughout 2020 and into 2021 and made an adjustment to increase the reserve for bad debt by $ 0.5 million in 2020.

However, due to the COVID-19 pandemic causing

hardships for many utility customers, the Company experienced longer receivable cycles throughout 2020 and into 2021 and made an adjustment to increase the reserve for bad debt by $ 0.5 million in 2020.

In June 2021 we made an adjustment to reduce the reserve by $ 0.3

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incurred costs to date.

As of June 30, 2022, there is no associated contract asset or liability.

As of September 30, 2022, there is no associated contract asset or liability.

There is no allowance for doubtful accounts or bad debt expense associated with this revenue.

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Three months ended

June 30, 2022

September 30, 2022

Three months ended

June 30, 2021

Six months ended

June 30, 2022

Six months ended

June 30, 2021

September 30, 2021

Nine months ended

September 30, 2022

Nine months ended

September 30, 2021

Tariff Revenue

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(in thousands)

June 30, 2022

September 30, 2022

December 31, 2021

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Total Deferred Revenue

For the six months ended June 30, 2022, the Company recognized revenue of $ 1.2

For the nine months ended September 30, 2022, the Company recognized revenue of $ 1.2

million from amounts that were included in Deferred Revenue – Tariff at the beginning of the year and revenue of $ 0.3 million from amounts that

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Remaining Performance Obligations

As of June 30, 2022 and December 31, 2021, Deferred Revenue – Tariff is recorded net of contract assets within Unbilled operating revenues and represents our remaining

As of September 30, 2022 and December 31, 2021, Deferred Revenue – Tariff is recorded net of contract assets within Unbilled operating revenues and represents our remaining

performance obligations for our fixed fee water and wastewater services, all of which are expected to be satisfied and associated revenue recognized in the next three months.

As of June 30, 2022 and December 31, 2021, Deferred Revenue – Non-Tariff is recorded within Other current liabilities and represents our remaining performance obligations for our

As of September 30, 2022 and December 31, 2021, Deferred Revenue – Non-Tariff is recorded within Other current liabilities and represents our remaining performance obligations for our

SLP Plan services, wastewater inspections and one operation contract, which are expected to be satisfied and associated revenue recognized within the next three months, one year and seven years for the SLP Plan revenue, inspection fee revenue and

contract operations revenue, respectively.

NOTE 4 – ACCOUNTS RECEIVABLE

Accounts receivable are recorded at the invoiced amounts.

As set forth in a settlement agreement, Artesian Water will receive reimbursements from the

Delaware Sand and Gravel Remedial Trust, or Trust, for Artesian Water’s past capital and operating costs, totaling approximately $ 10.0 million,

related to the treatment costs associated with the release of contaminants from the Delaware Sand & Gravel Landfill Superfund Site, or Site, in groundwater that Artesian Water uses for public potable water supply.

Approximately $ 2.5 million was paid in August 2022.

The remaining $ 7.5

million is due in three equal installments no later than August of each year from 2023 through 2025.

An allowance for doubtful accounts is

calculated as a percentage of total associated revenues based upon historical trends and adjusted for current conditions.

We mitigate our exposure to credit losses by discontinuing services in the event of non-payment;

accordingly, the related

allowance for doubtful accounts and associated bad debt expense has not been significant.

The following table summarizes the changes in the Company’s accounts receivable balance:

September 30,

Customer accounts receivable – water

Customer accounts receivable – wastewater

Settlement agreement receivable

Miscellaneous accounts receivable

Developer receivable

Long-term portion of settlement agreement receivable (included in other deferred assets)

Less allowance for doubtful accounts

Net accounts receivable

NOTE 5 – LEASES

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Minimum rentals

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(in thousands)

Six Months Ended

June 30, 2022

June 30, 2021

Nine Months Ended

September 30, 2022

September 30, 2021

Cash paid for amounts included in the measurement of lease liabilities:

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except lease term and discount rate)

June 30, 2022

September 30, 2022

December 31, 2021

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Operating leases

Maturities of operating lease liabilities that have initial or remaining non-cancelable lease terms in excess of one year as of June 30, 2022 are as follows:

Maturities of operating lease liabilities that have initial or remaining non-cancelable lease terms in excess of one year as of September 30, 2022 are as follows:

(in thousands)

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Total lease liabilities recognized

As of June 30, 2022, we have not entered into

As of September 30, 2022, we have not entered into

operating or finance leases that will commence at a future date.

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eligible for grants under the 2015 Plan.

Compensation expense, for the three and six months ended June 30, 2022 of approximately $ 55,000 and $ 104,000 , respectively, was recorded for restricted stock

awards issued in May 2021 and May 2022.

Compensation expense, for the three and six months ended June 30, 2021 of approximately $ 49,000 and $ 91,000 , respectively, was recorded for restricted stock awards issued in May 2020 and May 2021.

Costs were determined based on the fair value on the dates

of the awards and those costs were charged to income over the service periods associated with the awards.

Compensation expense, for the three and nine months ended September 30, 2022 of approximately $ 57,000 and

$ 162,000 , respectively, was recorded for restricted stock awards issued in May 2021 and May 2022.

Compensation expense, for the three and nine months ended September 30, 2021 of

approximately $ 51,000 and $ 142,000 ,

respectively, was recorded for restricted stock awards issued in May 2020 and May 2021.

Costs were determined based on the fair value on the dates of the awards and those costs were charged to income over the service periods associated with the

There was no stock compensation cost capitalized as part of an asset.

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Prior to their release date, these restricted stock awards may be subject to forfeiture in the event of the recipient’s termination of service.

The following summary reflects changes in the shares of Class A Stock underlying options and restricted stock awards for

the six months ended June 30, 2022:

The following summary reflects changes in the shares of Class A Stock underlying options and

restricted stock awards for the nine months ended September 30, 2022:

Restricted Awards

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Expired/cancelled

Outstanding at June 30, 2022

Exercisable/vested at June 30, 2022

The total intrinsic value of options exercised during the six months ended June 30, 2022 was approximately $ 905,000 .

There were no unvested option shares outstanding under the 2015 Plan during the six months ended June 30, 2022.

As of June 30, 2022, there were no unrecognized expenses related to non-vested option shares granted under the 2015 Plan.

As of June 30, 2022, there was $ 191,000 total unrecognized expenses related to non-vested awards of restricted shares awarded under the 2015 Plan.

Outstanding at September 30, 2022

Exercisable/vested at September 30, 2022

The total intrinsic value of options exercised during the nine months ended September 30, 2022 was approximately $ 1,894,000 .

There were no unvested option shares outstanding under the 2015 Plan during the nine months ended September 30, 2022.

As of September 30, 2022, there were no unrecognized expenses related to non-vested option shares granted under the 2015 Plan.

As of September 30, 2022, there was $ 134,000 total unrecognized expenses related to non-vested awards of restricted shares awarded under the 2015 Plan.

The cost will be recognized over 0.59 years, the remaining vesting period for the restricted stock awards.

NOTE 7 – OTHER DEFERRED ASSETS

The investment in CoBank, which is a cooperative bank, is related to certain outstanding First Mortgage Bonds and is a required investment in the bank based on the underlying long-term debt

Other deferred assets is primarily associated with the acquisition of TESI in January 2022 based on the preliminary purchase price allocation.

The purchase price allocation will be finalized once the valuation of assets acquired has been

completed, no later than one year after the acquisition date.

In addition, other deferred assets includes the Mountain Hill Water Company acquisition.

June 30, 2022

The investment in CoBank, which is a cooperative bank, is related to certain outstanding First Mortgage Bonds and is a required investment in the bank based on the

underlying long-term debt agreements.

The settlement agreement receivable is related to the long-term portion of reimbursements due in years 2024 and 2025 as further discussed in Note 4-Accounts Receivable.

September 30, 2022

December 31, 2021

Investment in CoBank

Settlement agreement receivable-long term

Other deferred assets

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(in thousands)

June 30, 2022

September 30, 2022

December 31, 2021

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Each year the liability is increased by an annual amount authorized by the DEPSC.

Deferred settlement refunds consist of reimbursements from the Delaware Sand and Gravel Remedial Trust for Artesian Water’s past capital and operating costs,

totaling approximately $ 10.0 million, related to the treatment costs associated with the release of contaminants from the Delaware Sand &

Gravel Landfill Superfund Site in groundwater that Artesian Water uses for public potable water supply, pursuant to the Settlement Agreement.

Approximately $ 2.5

million was paid in August 2022.

The remaining $ 7.5 million is due in three equal installments no later than August of each year from 2023 through 2025.

Artesian Water received approval from the DEPSC in October 2022 to refund to its customers these

reimbursements for past capital and operating costs.

The refund for the reimbursements will be applied to current and future customer bills in annual installments, with the first refund occurring in October 2022, and future customer refunds occurring

no later than August of each year from 2023 through 2025.

The amount of the credit will be calculated by dividing the amount of the reimbursement by the number of eligible customers.

Artesian Water will record 2022 and future recovery of capital

expenditures as Contributions in Aid of Construction and will record expense recovery as an offset to operations and maintenance expense, with the intention that those recoveries will then be available for inclusion and consideration in any future rate

applications.

For a full discussion of the Settlement Agreement, refer to Part II – Other Information – Item 1 – Legal Proceedings.

Pursuant to the enactment of the Tax Cuts and Jobs Act, or TCJA, on December 22, 2017, the Company adjusted its existing deferred income tax balances to

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(in thousands)

June 30, 2022

September 30, 2022

December 31, 2021

Utility plant retirement cost obligation

Deferred settlement refunds

Deferred income taxes (related to TCJA)

NOTE 9 - NET INCOME PER COMMON

SHARE AND EQUITY PER COMMON SHARE

NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE

Basic net income per share is based on the weighted average number of common shares outstanding.

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average number of common shares outstanding, the potentially dilutive effect of employee stock options and restricted stock awards.

The following table summarizes the shares used in computing basic and diluted net income per share:

The following table summarizes the shares used in computing basic and diluted net income

For the Three Months Ended

For the Six Months Ended

September 30,

For the Nine Months Ended

September 30,

(in thousands)

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Weighted average common shares outstanding during the period for Diluted computation

For the three and six months ended June 30, 2022

For the three and nine months ended September 30, 2022

and 2021, no shares of

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Class A Stock and 1,040,000 authorized shares of Class B Common Stock, or Class B Stock.

As of June 30, 2022, 8,577,620 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding.

As of June 30, 2021 , 8,519,129

shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding.

As of September 30, 2022, 8,609,497 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding.

As of September 30, 2021 , 8,524,093 shares of Class A Stock and 881,452 shares of Class B Stock were issued

and outstanding.

The par value for both classes is $ 1.00 per share.

Equity per common share was $ 19.17 and $ 18.94 at June 30, 2022 and December 31, 2021 , respectively.

These amounts were computed by dividing common stockholders' equity by the number of weighted average shares

of common stock outstanding on June 30, 2022 and December 31, 2021 , respectively.

Equity per common share was $ 19.88 and $ 18.94 at September 30, 2022 and December 31, 2021 , respectively.

These amounts were computed by dividing common stockholders' equity by the number of weighted average shares of common stock outstanding on September 30, 2022 and December 31, 2021 ,

respectively.

N OTE 11 - REGULATO RY PROCEEDINGS

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customers under otherwise applicable rates and charges, and the DSIC rate increase applied cannot exceed 5.0 % within an y 12-month period.

The following table summarizes (1) Artesian Water’s applications with the DEPSC to collect DSIC rates and (2) the rates upon which eligible plant improvements are based:

The following table summarizes (1) Artesian Water’s applications with the DEPSC to collect DSIC rates and (2) the rates upon which eligible plant

improvements are based:

Application Date

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The rate reflects the eligible plant improvements installed through April 30,

The DSIC rate effective January 1, 2021 is still subject to audit by the DEPSC at a later date.

For the three and six months ended June 30, 2022, we earned approximately $ 1.3 million and $ 2.5 million in DSIC revenue, respectively.

three and six months ended June 30, 2021, we earned approximately $ 1.3 million and $ 2.5 million in DSIC revenue, respectively.

The January 1, 2021 rate currently remains in effect and is subject to periodic audit by the DEPSC.

For the three and nine months ended September 30, 2022, we earned approximately $ 1.4

million and $ 3.9 million in DSIC revenue, respectively.

For the three and nine months ended September 30, 2021, we earned approximately $ 1.4 million and $ 3.9 million in DSIC revenue,

respectively.

NOTE 12 – INCOME TAXES

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of the reserve in the amount of approximately $ 26,000 .

has elected to recognize accrued interest (net of related tax benefits) and penalties related to uncertain tax positions as a component of its income tax expense.

The Company has accrued approximately $ 10,000 in penalties and interest for the six months ended June 30, 2022 .

The Company remains subject to examination by federal and state authorities for the

tax years 2018 through 2021 .

The statute of limitations for the 2018 tax returns lapsed during the third quarter of

2022, which resulted in the reversal of the reserve in the amount of approximately $ 212,000 .

The Company has elected to recognize accrued interest (net of related tax benefits) and penalties related to uncertain tax positions as a component of its income tax expense.

During the third quarter, the Company has

reversed approximately $ 10,000 in penalties and interest

for the nine months ended September 30, 2022 leaving a zero balance.

The Company remains subject to examination by federal and state

authorities for the tax years 2019 through 2021 .

Investment tax credits were deferred through 1986 and are recognized as a reduction of deferred income tax expense over the estimated economic useful lives

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of those instruments.

Long-term Financial Liabilities

All of Artesian Resources’ outstanding lo ng-term debt as of June 30, 2022 and December 31, 2021 was fixed-rate.

The fair value of the Company’s long-term debt is

determined by discounting their future cash flows using current market interest rates on similar instruments with comparable maturities consistent with FASB ASC 825.

Under the fair value hierarchy, the fair value of the long-term debt in the table

below is classified as Level 2 measurements.

All of Artesian Resources’ outstanding lo ng-term

debt as of September 30, 2022 and December 31, 2021 was fixed-rate.

The fair value of the Company’s

long-term debt is determined by discounting their future cash flows using current market interest rates on similar instruments with comparable maturities consistent with FASB ASC 825.

Under the fair value hierarchy, the fair value of the long-term

debt in the table below is classified as Level 2 measurements.

Level 2 is valued using observable inputs other than quoted prices.

The fair values for long-term debt differ from the carrying values primarily due to interest rates that differ from the current market

interest rates.

The fair values for long-term debt differ from the carrying values primarily due to interest rates that differ from the

current market interest rates.

The carrying amount and fair value of Artesian Resources' long-term debt (including current portion) are shown below:

June 30, 2022

September 30, 2022

December 31, 2021

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the Company utilized the services of MNAT in 2021 for various regulatory, real estate and public policy matters.

Approximately $ 58,000 and $ 71,000 was paid to MNAT during the three and six months ended June 30, 2021, respectively, for legal services and director related services.

Approximately $ 89,000 and $ 160,000 was paid to MNAT during the three and nine months ended September 30, 2021, respectively, for legal services and director related services.

As set forth in the Charter of the Audit Committee of the Board, the Audit Committee is responsible for reviewing and, if appropriate, approving all related

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acquire TESI, which provides regulated wastewater services in Delaware.

Artesian Wastewater purchased all of the stock of TESI from Middlesex Water Company for $ 6.4 million in cash and other consideration, including forgiveness of a $ 2.1 million note due from Middlesex,

consisting of $ 3.1 million paid at closing.

This acquisition more

than doubled the number of wastewater customers served by Artesian in Sussex County, Delaware.

The acquisition is being accounted for as a business combination under ASC Topic 805, “Business Combinations,” in accordance with the acquisition

method whereby the total purchase price consideration will be allocated to intangible assets and utility plant assets acquired and liabilities assumed based on their respective estimated fair values.

The acquisition method of accounting requires,

among other things, that assets acquired, and liabilities assumed in a business purchase combination be recognized at their fair values as of the acquisition date.

The process for estimating the fair values of identifiable intangible assets and

certain tangible assets requires the use of significant estimates and assumptions.

The Company is still gathering detailed records for valuing utility plant assets and related contributions in aid of construction at replacement cost adjusted for

depreciation and valuing real property using a comparative sales approach in order to complete the purchase price allocation for the items as well as some of the assumed liabilities.

The purchase price allocation will be finalized once the valuation

of assets acquired has been completed, no later than one year after the acquisition date.

Artesian Wastewater purchased all of the stock of TESI from Middlesex Water Company for $ 6.4 million in cash and other consideration, including forgiveness of a $ 2.1 million

note due from Middlesex, consisting of $ 3.1 million paid at closing.

This acquisition more than doubled the number of wastewater customers served by Artesian in Sussex County, Delaware.

The acquisition is being accounted for as a business combination under ASC Topic 805, “Business Combinations.” The

purchase price allocation is primarily attributed to intangible assets and utility plant assets acquired and liabilities assumed based on their respective estimated fair values.

The acquisition method of accounting requires, among other things, that

assets acquired, and liabilities assumed in a business purchase combination be recognized at their fair values as of the acquisition date.

The Company utilized a third-party valuation firm to assist with the fair value of the assets acquired.

fair value determination is now finalized, with the exception of deferred income taxes, which is still preliminary but expected to be complete by December 31, 2022.

The fair value for deferred income taxes affects both goodwill and deferred income

A combination of methods was used to determine the reasonableness of the purchase price:

the cost approach and the comparative sales (market) approach.

Given the majority of the net assets acquired were tangible utility plant assets and

related contributions in aid of construction, the Company primarily utilized the cost approach to record the fair value of the assets as well as some of the assumed liabilities.

This approach values the underlying assets to derive market value based

on the estimated replacement cost, adjusted for depreciation.

Real property was valued using the comparative sales approach.

Goodwill was recognized primarily as a result of expected synergies of operations and interconnections to our existing

utility plant infrastructure.

Any goodwill as a result of the transaction is not expected to be deductible for tax purposes.

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treatment of the acquisition price and the assets acquired in Artesian Wastewater’s next base rate case.

The Company reflected revenue of $ 0.7 million and $ 1.4 million for the three and six months ended June 30, 2022 , respectively, in its condensed consolidated statement of operations related to the acquisition.

The pro forma revenue for the three and six months ended June

30, 2022 is estimated to be approximately $ 0.7 million and $ 1.4 million, respectively.

The Company anticipates the pro forma effects of revenue for the three and six months ended June 30, 2021 to be approximately the same given there has not been any changes in the rates.

pro forma information is not necessarily indicative of the Company’s future results.

Any pro forma effects of earnings is not practicable, as we continue to integrate TESI operations and adjust the operating cost structure as it relates to operating

expenses reflective of synergies of the combined operations, and therefore would not present an accurate comparison.

The table below sets forth the preliminary purchase price allocation of this acquisition as of June 30, 2022.

The preliminary purchase price allocation is provisional and there could be material changes to the estimates below.

The Company reflected revenue of $ 0.8 million and $ 2.2 million for the three and nine months ended September 30, 2022, respectively, in its

condensed consolidated statement of operations related to the acquisition.

The pro forma revenue for the three and nine months ended September 30, 2022 is estimated to be approximately $ 0.8

million and $ 2.2 million, respectively.

The Company anticipates the pro forma effects of revenue for the three and nine months ended September 30, 2021 to be

approximately the same given there has not been any changes in the rates.

The pro forma information is not necessarily indicative of the Company’s future results.

Any pro forma effects of earnings is not practicable, as we continue to integrate

TESI operations and adjust the operating cost structure as it relates to operating expenses reflective of synergies of the combined operations, and therefore would not present an accurate comparison.

The table below sets forth the purchase price allocation of this acquisition as of September 30, 2022.

The fair value determination is now finalized, with the exception of deferred income taxes, which is still

preliminary but expected to be complete by December 31, 2022.

The fair value for deferred income taxes affects both goodwill and deferred income taxes, which is included in the liability amount below.

(In thousands)

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The pro forma effects of the business acquired are not material to

the Company’s financial position or results of operations based on estimated annual revenue related to customers acquired.

the Company’s financial position or results of operations based on estimated annual revenue of approximately $ 0.5 million related to customers acquired.

NOTE 16 – GEOGRAPHIC CONCENTRATION OF CUSTOMERS

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MDPSC and the PAPUC.

As of June 30, 2022, Artesian Water was serving approximately 94,000 customers, Artesian Water Maryland was serving

approximately 2,600 customers and Artesian Water Pennsylvania was serving approximately 40 customers.

As of September 30, 2022, Artesian Water was serving approximately 94,400 customers, Artesian Water Maryland was serving approximately 2,600 customers

and Artesian Water Pennsylvania was serving approximately 40 customers.

Artesian Wastewater and TESI provide wastewater utility service to customers within their established service territory in Sussex County, Delaware pursuant

1 unchanged sentence

The number of wastewater customers served more than doubled following the acquisition of TESI in January 2022.

As of June 30, 2022, Artesian Wastewater combined with TESI were serving approximately 7,300 customers, including one large industrial

As of September 30, 2022, Artesian Wastewater combined with TESI were serving approximately 7,400

customers, including one large industrial customer.

NOTE 17 – IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

There was no new guidance issued by the FASB during the six months ended June 30, 2022 that is applicable to the

NOTE 17 – SUBSEQUENT EVENT

On July 19, 2022, final judgment was entered by the United States District Court, or Court, for a Consent Decree

between the Delaware Sand and Gravel Remedial Trust, or Trust, and the United States Environmental Protection Agency, or USEPA, that governs the implementation of Amendment No 2 to the USEPA’s 1988 Record of Decision for the Delaware Sand & Gravel

Landfill Superfund Site, or Site, located in New Castle County, Delaware, issued on December 12, 2017, or ROD Amendment No.

2, confirming, among other things, the terms and conditions set forth in a Settlement Agreement upon which The Chemours Company

FC, LLC, Hercules, LLC, Waste Management of Delaware, Inc., SC Holdings, Inc., Cytec Industries, Inc., Zeneca Inc., and Bayer CropScience Inc., collectively the Percentage Settlors, and the Trust, on one hand, and Artesian Water, on the other hand,

have agreed to resolve certain of Artesian Water’s claims and issues relating to releases of contaminants from the Site.

ROD Amendment No.

2 sets forth the remedy for the contamination existing at and emanating from the Site, or the

Remedy, to address a release of contaminants of concern and of emerging concern, or COC’s, from the Site into groundwater.

Artesian Water has found in groundwater that Artesian Water uses for public potable water supply certain COC’s that the Remedy

is designed to address, as a result of which Artesian has incurred, and potentially will incur additional, capital and operating costs to treat the groundwater to meet applicable drinking water standards.

The Remedy includes requirements that are

directly linked to Artesian’s continued operation of the treatment plant associated with groundwater around the Site.

As set forth in the Settlement Agreement, Artesian Water shall have access to financial assurances that the Percentage Settlors have provided, or will

provide, to the USEPA in connection with the Consent Decree governing the implementation of the Remedy.

In addition, the Trust shall reimburse Artesian Water for past capital and operating costs, totaling approximately $ 10.0 million, with approximately $ 2.5 million due

by August 18, 2022, within 30 days after the Court’s July 19, 2022 approval of the Consent Decree.

The remaining $ 7.5 million will be payable in three equal

installments annually on the anniversary date of the Court’s approval of the Consent Decree.

In addition, the Trust shall reimburse Artesian Water for documented reasonable and necessary capital and operating costs after July 1, 2021 that Artesian

Water incurs to treat Site-related COC’s.

Any reimbursements Artesian Water receives from the Trust shall be subject to final determination by the DEPSC as to the appropriate regulatory rate-making treatment.

The Trust’s reimbursement of such costs

shall end if and when, based upon testing information from the Trust’s Remedy facilities and Artesian Water’s facilities, treatment of Site-related COC’s is no longer necessary for Artesian Water to meet the treatment levels that Artesian Water chooses

to not exceed in water it distributes to the general public throughout its service territory to provide a margin of safety in complying with applicable drinking water standards.

There was no new guidance issued by the FASB during the nine months ended September 30, 2022 that is applicable to the Company.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements