What changed in this filing

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Item 1A. Risk Factors

2024-03-18 compared with 2023-03-10 · 123 added, 123 removed, 171 unchanged (59% of the section changed)

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financial condition.

General economic conditions may materially and adversely affect our financial condition and results of operations.

The effects of adverse U.S.

economic conditions may lead to a number of impacts on our business that may materially and adversely affect our financial

condition and results of operations.

Such impacts may include a reduction in discretionary and recreational water use by our residential water customers, particularly during the summer months;

a decline in usage by industrial and commercial customers

as a result of decreased business activity and commerce in our customers’ businesses;

an increased incidence of customers’ inability to pay their bills, bankruptcy or delay in paying their bills which may lead to higher bad debt expense and reduced

and a lower natural customer growth rate may result as compared to what had been experienced before the economic downturn due to a decline in new housing starts and a possible slight decline in the number of active customers due to housing

vacancies or abandonments.

Aging infrastructure may lead to service disruptions, property damage and increased capital expenditures and operation and management costs, all of which

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quality, and terrorism causing contamination of the water supply and a reduction in water quality.

We have security measures in place at our facilities to reduce the possibility of future occurrences of sabotage, vandalism, or terrorism and to secure

our water and wastewater systems.

We have security measures in place at our facilities to reduce the possibility of occurrences of sabotage, vandalism, or terrorism and to secure our

water and wastewater systems.

These security measures address water collection, pretreatment, treatment, distribution, storage, wastewater disposal, electronic or automated systems, and the use, handling, delivery, and storage of all chemicals.

We also have programs in place to ensure employee awareness of potential threats.

also have programs in place to ensure employee awareness of potential threats.

We have and will continue to bear any increase in costs, most of which have been recoverable under state regulatory policies, for security precautions to protect our

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affect our future results of operations.

Climate variability may cause weather volatility in the future and may impact water usage and related revenue, or may require additional expenditures to

reduce risk associated with any increasing storm, flood, drought or other weather occurrences, all of which may not be fully recoverable in rates or otherwise.

Severe weather, climate variability patterns and natural or other events, such as increased precipitation and flooding, increased frequency and severity of

storms and other weather events, may cause decreases in water supply, changes in water usage patterns, potential degradation of water quality, disruptions in water or wastewater services to our customers, and increases in expenditures to repair any

Due to the uncertainty of weather volatility related to climate variability, we cannot predict its potential impact on our financial condition, results of operations, cash flows and liquidity.

Although some or all potential expenditures and

costs with respect to our regulated businesses could be recovered through rates we charge to our customers, there can be no assurance that the applicable regulatory authority would authorize recovery of such costs, in whole or in part, for any of these

We may be adversely affected by global climate change or by regulatory, legal or market responses to such change.

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there will be worsening of weather volatility in the future associated with climate variability, which presents several potential challenges to water and wastewater utilities.

Severe weather, climate variability patterns and natural or other events

may cause weather volatility in the future and may impact water usage and related revenue, or may require additional expenditures, all of which may not be fully recoverable in rates or otherwise.

We may experience substantial negative impacts to our business if an unexpectedly severe weather event or natural disaster damages our facilities and/or

operations or those of our suppliers or independent contractors in our service areas, or from the unintended consequences of regulatory changes that directly or indirectly impose substantial restrictions on our activities or adaptation requirements.

Potential climate variability challenges include the following:

frequency and duration of droughts, increased frequency and severity of storms and other weather events, increased precipitation and flooding, potential degradation of water quality, unexpected changes in temperature, increases in ocean levels,

increases in disruption of service, decreases in available water supply, extreme changes in water usage patterns, increased costs to repair damaged facilities, increased costs to reduce risks associated with significant weather events or natural

disasters, increased costs to improve the reliability of our water and wastewater systems and facilities.

We may experience substantial negative impacts to our business if an unexpectedly severe weather event or natural disaster damages our operations

or those of our suppliers or independent contractors in our service areas, or from the unintended consequences of regulatory changes that directly or indirectly impose substantial restrictions on our activities or adaptation requirements.

Furthermore, federal, state and local authorities and legislative bodies have issued, implemented or proposed regulations, penalties, standards or guidance

intended to restrict, moderate or promote activities consistent with resource conservation, Greenhouse Gas, or GHG, emission reduction, environmental protection or other climate-related objectives.

Compliance with those directed at or otherwise

affecting our business or our suppliers’ (or their suppliers’) operations, or services, could lead to increased environmental compliance expenditures, increased energy and raw materials costs and new and/or additional investment in designs and

technologies.

increased frequency and duration of droughts, increased precipitation and flooding, increased frequency and severity of storms and other weather events, potential degradation of water

quality, unexpected changes in temperature, increases in ocean levels, disruptions in water or wastewater services to our customers, decreases in available water supply, extreme changes in water usage patterns, increases in expenditures to repair any

damages, increases in costs to reduce risks associated with significant weather events or natural disasters, and increases in costs to improve the reliability of our water and wastewater systems and facilities.

Due to the uncertainty of weather

volatility related to climate variability, we cannot predict its potential impact on our financial condition, results of operations, cash flows and liquidity.

Although some or all potential expenditures and costs with respect to our regulated

businesses could be recovered through rates we charge to our customers, there can be no assurance that the applicable regulatory authority would authorize recovery of such costs, in whole or in part, for any of these impacts.

Furthermore, federal, state and local authorities and legislative bodies have issued, implemented or proposed regulations, penalties, standards and/or

guidance intended to restrict, moderate or promote activities consistent with resource conservation, Greenhouse Gas, or GHG, emission reduction, environmental protection or other climate-related objectives.

Compliance with those directed at or

otherwise affecting our business or our suppliers’ (or their suppliers’) operations, or services, could lead to increased environmental compliance expenditures, increased energy and raw materials costs and new and/or additional investment in designs

and technologies.

We continually assess our compliance status and management of environmental matters to ensure our operations are in compliance with all applicable environmental laws and regulations.

It is reasonably possible that costs incurred related

to the various physical and regulatory risks from climate change may affect our future results of operations, financial condition or cash flows.

While we have health and safety protocols in place, we can provide no assurance that we or our suppliers

or independent contractors can successfully operate in areas experiencing a significant weather event or natural disaster, and we or they may be more significantly impacted and take longer, and incur higher costs, to resume operations in an affected

location, depending on the nature of the event or other circumstances.

Although some or all potential expenditures and costs with respect to our regulated businesses could be recovered through rates we charge to our customers, there can be no

assurance that the applicable regulatory authority would authorize recovery of such costs, in whole or in part, for any of these impacts.

It is reasonably possible that costs incurred

related to the various physical and regulatory risks from climate change may affect our future results of operations, financial condition, cash flows or liquidity.

While we have health and safety protocols in place, we can provide no assurance that we

or our suppliers or independent contractors can successfully operate in areas experiencing a significant weather event or natural disaster, and we or they may be more significantly impacted and take longer, and incur higher costs, to resume operations

in an affected location, depending on the nature of the event or other circumstances.

Although some or all potential expenditures and costs with respect to our regulated businesses could be recovered through rates we charge to our customers, there can

be no assurance that the applicable regulatory authority would authorize recovery of such costs, in whole or in part, for any of these impacts.

Though we have not as of the date of this report identified or experienced any particular material impact, whether singular or in combination, to our

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assets or increased costs, our profitability may suffer.

We file rate increase requests, from time to time, to recover our investments in utility plant, deferred regulatory assets and expenses.

increase petition is filed with a public service commission, the ensuing administrative and hearing process may be lengthy and costly.

Artesian Water provided notice to the DEPSC of its intent to file a request in the second quarter of 2023 to

implement new rates to support Artesian Water’s ongoing capital improvement program and to cover increased costs of operations.

We can provide no assurances that any future rate increase request will be approved by the DEPSC, MDPSC or PAPUC, and if

approved, we cannot guarantee that these rate increases will be granted in a timely manner and/or will be sufficient in amount to cover the investments, deferred regulatory assets and expenses for which we initially sought the rate increase.

extent we are able to pass through such costs to customers and a state public service commission subsequently determines that such costs should not have been paid by customers, we may be required to refund such costs, with interest, to customers.

such costs not recovered through rates, or any such refund, could adversely affect our results of operations, financial position or cash flows.

We file rate increase requests, from time to time, to recover our investments in utility plant, deferred regulatory assets and expenses, see Notes to Consolidated Financial Statements - Note 13 – Regulatory Proceedings .

Once a rate increase petition is filed with a public service commission, the ensuing

administrative and hearing process may be lengthy and costly.

We can provide no assurances that any future rate increase request will be approved by the DEPSC, MDPSC or PAPUC, and if approved, we cannot guarantee that these rate increases will be

granted in a timely manner and/or will be sufficient in amount to cover the investments, deferred regulatory assets and expenses for which we initially sought the rate increase.

To the extent we are able to pass through such costs to customers and a

state public service commission subsequently determines that such costs should not have been paid by customers, we may be required to refund such costs, with interest, to customers.

Any such costs not recovered through rates, or any such refund, could

adversely affect our results of operations, financial position or cash flows.

Our water and wastewater operations are subject to extensive federal and state laws and regulations.

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raise our operating costs and capital expenditures.

Thus, we can provide no assurances that our costs of complying with, or discharging liability under current and future environmental and health and safety laws will not adversely affect our business,

results of operations or financial condition.

Thus, we can provide no assurances that our costs of complying with, or discharging liability under, current and future environmental and health and safety laws will not adversely affect our

business, results of operations or financial condition.

Risks Related to Our Financial Statements and Operating Results

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Moreover, governmental restrictions on water usage during drought conditions may result in a decreased demand for water, which may adversely affect our revenue and earnings.

General economic conditions may materially and adversely affect our financial condition and results of operations.

The effects of adverse U.S.

economic conditions may lead to a number of impacts on our business that may materially and adversely affect our financial

condition and results of operations.

Such impacts may include a reduction in discretionary and recreational water use by our residential water customers, particularly during the summer months;

a decline in usage by industrial and commercial customers

as a result of decreased business activity and commerce in our customers’ businesses;

an increased incidence of customers’ inability to pay their bills, bankruptcy or delay in paying their bills which may lead to higher bad debt expense and reduced

and a lower natural customer growth rate may result as compared to what had been experienced before due to a decline in new housing starts or a decline in the number of active customers due to housing vacancies or abandonments.

We could be adversely impacted by inflation.

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adversely affect our results of operations, financial position or cash flows.

We may be required to record impairments of goodwill in the future that could have a material adverse effect on our financial condition and results of

We may be required to record impairments of goodwill, or otherwise change the fair value of certain assets, in the future that could have a material

adverse effect on our financial condition and results of operations.

The Company records goodwill when the purchase price of a business combination exceeds the estimated fair value of net identified tangible and intangible

assets acquired as of the date of an acquisition.

The Company’s goodwill is primarily associated with the January 2022 acquisition of Tidewater Environmental Services, Inc.

Goodwill is not amortized, but is evaluated for impairment at least annually,

or more frequently, if impairment indicators are present that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

We may be required to recognize in the future an impairment of goodwill due to market

conditions, or other factors related to our performance or the performance of an acquired business, or other circumstances that may impact the fair value of assets acquired.

Recognition of impairments of goodwill and changes in fair value of certain

of our assets would result in a charge to income in the period in which the impairment or change occurred, which may negatively affect our financial condition, results of operations and total capitalization.

The Company’s goodwill is associated with the January 2022 acquisition of Tidewater Environmental Services, Inc.

Goodwill is not amortized, but is evaluated for impairment at least annually, or more

frequently, if impairment indicators are present that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

We may be required to recognize in the future an impairment of goodwill due to market conditions, or

other factors related to our performance or the performance of an acquired business, or other circumstances that may impact the fair value of assets acquired.

Recognition of impairments of goodwill and changes in fair value of certain of our assets

would result in a charge to income in the period in which the impairment or change occurred, which may negatively affect our financial condition, results of operations and total capitalization.

Risks Related to Our Business Strategy

We face competition from other water and wastewater utilities for the acquisition of new exclusive service territories.

We face competition from other water and wastewater utilities as we pursue the right to exclusively serve territories in Delaware and Maryland.

this competition by entering into agreements with landowners, developers or municipalities and, under current law, then applying to the DEPSC or the MDPSC for a CPCN.

We face competition from other water and wastewater utilities as we pursue the right to exclusively serve new territories in Delaware and Maryland.

address this competition by entering into agreements with landowners, developers or municipalities and, under current law, then applying to the DEPSC or the MDPSC for a CPCN.

If we are unable to enter into agreements with landowners, developers or

municipalities and secure CPCNs for the right to exclusively serve territories in Delaware or Maryland, our ability to expand may be significantly impeded.

municipalities and secure CPCNs for the right to exclusively serve new territories in Delaware or Maryland, our ability to expand may be significantly impeded.

Any future acquisitions we undertake or other actions to further grow our water and wastewater business may involve risks.

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into new ones.

It is our intent, when practical, to integrate any businesses we acquire with our existing operations.

The negotiation of potential acquisitions as well as the integration of acquired businesses could require us to incur significant

costs and cause diversion of our management’s time and resources.

We may not be successful in the future in identifying businesses that meet our acquisition criteria.

The failure to identify such businesses may limit the rate of our growth.

addition, future acquisitions or expansion of our service areas by us could result in:

It is our intent, when practical, to integrate any organizations we acquire with our existing operations.

The negotiation of potential acquisitions as well as the integration of acquired organizations could require us to incur

significant costs and cause diversion of our management’s time and resources.

We may not be successful in the future in identifying organizations that meet our acquisition criteria.

The failure to identify such organizations may limit the rate of our

In addition, future acquisitions or expansion of our service areas by us could result in:

Dilutive issuance of our equity securities;

Incurrence of debt and contingent liabilities;

Difficulties in integrating the operations and personnel of the acquired businesses;

Difficulties in integrating the operations and personnel of the acquired organization;

Diversion of our management’s attention from ongoing business concerns;

Failure to have effective internal control over financial reporting;

Overload of human resources;

Overload of human capital resources;

Other acquisition-related expense.

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requirements.

The businesses we acquire in the future may not achieve sales and profitability that would justify our investment.

The organizations we acquire in the future may not achieve sales and profitability that would justify our investment.

We also may experience risks relating to the challenges and costs of closing a transaction and the risk that an announced transaction may not close.

Completion of certain acquisition transactions are conditioned upon, among other things, the receipt of approvals, including from certain state public utilities commissions.

Failure to complete a pending transaction would prevent us from realizing the

anticipated benefits.

We would also remain liable for significant transaction costs, including legal and accounting fees, whether or not the transaction is completed.

The timeliness and outcome of those state public utilities commissions could

hinder future acquisitions and any failure to complete a pending transaction would prevent us from realizing the anticipated benefits.

We would also remain liable for significant transaction costs, including legal and accounting fees, whether or not

the transaction is completed.

Risks Related to Legal Uncertainty

Contamination of our water supply may result in disruption in our services

and could lead to litigation that may adversely affect our business, operating results and financial condition.

Contamination of our water supply or wastewater operational malfunctions may

result in disruption in our services and could lead to litigation that may adversely affect our business, operating results and financial condition.

Our water supplies are subject to contamination from naturally-occurring compounds as well as pollution resulting from man-made sources.

Even though we

monitor the quality of our water on an on-going basis, any possible contamination due to factors beyond our control could interrupt the use of our water supply until we are able to substitute it from an uncontaminated water source.

Additionally,

treating the contaminated water source could involve significant costs and could adversely affect our business.

We could also be held liable for consequences arising out of human or environmental exposure to hazardous substances, if found, in our

water supply.

This could adversely affect our business, results of operations and financial condition.

We are subject to, and could be further subject to, governmental investigations or actions by other third parties.

We are subject to various federal and state laws, including environmental laws, violations of which can involve civil or criminal sanctions.

Our operations from time to time could be parties to or targets of lawsuits, claims, investigations and proceedings, including system failure, injury,

contract, environmental, health and safety and employment matters, which are handled and defended in the ordinary course of business.

The results of any future litigation or settlement of such lawsuits and claims are inherently unpredictable, but such

outcomes could also materially and adversely affect our business, financial position and results of operations.

monitor the quality of our water on an ongoing basis, any possible contamination could interrupt the use of our water supply until we are able to substitute it from an uncontaminated water source.

Additionally, treating the contaminated water source

could involve significant costs and could adversely affect our business.

We could also be held liable for consequences arising out of human or environmental exposure to hazardous substances, if found, in our water supply.

If wastewater collection or

treatment systems fail, overflow, or do not operate properly, untreated wastewater or other contaminants could spill onto nearby properties or into nearby streams and rivers, causing damage to persons or property, injury to wildlife and economic

damages for which we could be held liable.

Any such occurrence could adversely affect our business, results of operations and financial condition.

We are subject to various laws and regulations that could expose us to governmental investigations or actions by other third parties.

We are subject to various federal and state laws and regulations, including environmental laws and regulations, violations of which can involve civil or

criminal sanctions.

Our Company from time to time could be parties to or our operations targets of, lawsuits, claims, investigations and proceedings, including system failure,

injury, contract, environmental, health and safety and employment matters, which are handled and defended in the ordinary course of business.

The results of any future litigation or settlement of such lawsuits and claims are inherently unpredictable,

but such outcomes could also materially and adversely affect our business, financial position and results of operations.

Risk Related to Cybersecurity and Technology

We are dependent on the continuous and reliable operation of our information technology systems.

We are dependent on the continuous and reliable operation of our information technology systems that require, potentially costly, maintenance and could

become subject to cyberattacks disrupting our operations.

We rely on our information technology systems to manage operation of our business.

Specifically, our business relies on the following technology

customer information system, financial reporting system, asset tracking system, remote monitoring system for some of our treatment, storage and pumping facilities, human resources management system, inventory management system, and accounts

receivable collection management system.

Such systems require periodic modifications, upgrades or replacement that subject us to inherent costs and risks, including substantial capital expenditures, additional administration and operating expenses,

and other risks and costs of delays in transitioning to new systems or of integrating new systems into our current systems.

Our computer and communications systems and operations could be damaged or interrupted by natural disasters,

telecommunications failures or acts of war or terrorism, sabotage, theft or similar events or disruptions.

A loss of these systems or major problems with the operation of these systems could affect our operations and have a material adverse effect

on our results of operations.

There have been an increasing number of cyberattacks on companies around the world, which have caused operational failures or compromised sensitive

corporate or customer data.

These attacks have occurred over the internet, through malware, viruses or attachments to e-mails, or through persons inside the organization or with access to systems inside the organization.

We have implemented security

measures and will continue to devote resources to address any security vulnerabilities in an effort to prevent cyberattacks.

We utilize third parties to provide and maintain many of our information technology, or IT, resources, including disaster

recovery and business continuity services intended to safeguard access to and use of our IT resources during a general or local network outage, under agreements with evolving security and service level standards.

Our senior IT executives also

periodically update the audit and disclosure committees and our board of directors on our cybersecurity practices and risks, most recently in November 2022.

A reporting process has been established, and periodically tested and refined with the

assistance of outside experts, to escalate notice within our organization and coordinate and deploy our response to IT security events.

Depending on the severity of an event, our incident reporting process includes informing, as early as

practicable, our senior corporate management.

Despite our efforts, a cyberattack, if it occurred, could cause water or wastewater system problems, disrupt service to our customers, compromise important data or systems or result in an unintended

release of customer information.

Specifically, our business relies on the following technology systems,

among others:

accounts receivable collection management system.

Such systems require periodic modifications, upgrades or replacement that subject us to inherent costs and risks, including substantial capital expenditures, additional administration and operating

expenses, and other risks and costs of delays in transitioning to new systems or of integrating new systems into our current systems.

Our computer and communications systems and operations could be damaged or interrupted by natural disasters, power

loss, telecommunications failures or acts of war or terrorism, sabotage, theft or similar events or disruptions.

A loss of these systems or major problems with the operation of these systems could affect our operations and have a material adverse

effect on our business and results of operations.

To date, there have been no risks identified from cybersecurity threats or previous cybersecurity incidents that have materially affected or are reasonably

likely to materially affect the company.

Despite our efforts, a cyberattack, if it occurred, could cause water or wastewater system operational complications, disrupt

service to our customers, compromise important data or systems or result in an unintended release of customer or other confidential information.

Possible impacts associated with a cyberattack could also include remediation costs related to lost,

stolen, or compromised data, repairs to information technology and data processing systems, increased cyber security protection costs, adverse effects on our compliance with regulatory and environmental laws and regulations, including standards for

water and wastewater utility providers, and litigation.

We feel we have adequate cybersecurity insurance coverage to mitigate the cost of any such cyberattack;

however, a possible cyberattack could affect our operations and have a material adverse effect on our business

and results of operations.

however, a possible cyberattack could affect our operations and have a material adverse

effect on our business and results of operations.

We have implemented, and will continue to internally monitor and manage, business processes to support our cybersecurity program.

For additional information concerning the Company’s cybersecurity

program, see Item 1C - Cybersecurity.

Risk Associated with Management

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Under our Restated Certificate of Incorporation, the right to

vote for the election of directors and other stockholder matters is exercised exclusively by the holders of Class B Common Stock and the holders of shares of our Class A Non-Voting Common Stock do not have voting rights on any matters that are

submitted to a vote of stockholders, including with respect to the election of directors and other matters voted upon by stockholders, except as required by the Delaware General Corporation Law.

The principal stockholders have significant control over

the outcome of most fundamental corporate matters.

vote for the election of directors and other stockholder matters is exercised exclusively by the holders of Class B Common Stock.

The holders of our Class A Non-Voting Common Stock do not have voting rights on any matters that are submitted to a vote

of stockholders, including with respect to the election of directors and other matters voted upon by stockholders, except as required by the Delaware General Corporation Law.

The principal stockholders have significant control over the outcome of most

fundamental corporate matters.

The price of our common stock may be volatile and may be affected by market conditions beyond our control.

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financial results.

Factors that could cause fluctuations in the trading price of our common stock include but are not limited to volatility of the general stock market or the utility stock index, regulatory developments, general economic conditions and

trends, actual or anticipated changes or fluctuations in our results of operations, actual or anticipated changes in the expectations of investors or securities analysts, actual or anticipated developments in our competitors’ businesses or the

and trends, actual or anticipated changes or fluctuations in our results of operations, actual or anticipated changes in the expectations of investors or securities analysts, actual or anticipated developments in our competitors’ businesses or the

competitive landscape generally, litigation involving us or our industry, major catastrophic events or sales of large blocks of our stock.

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Our business, results of operations, financial condition, cash flows and stock price may be adversely affected by pandemics, epidemics or other public

health emergencies, such as the outbreak of the coronavirus and its variants, or COVID-19.

health emergencies.

Our business, results of operations, financial condition, cash flows and stock price may be adversely affected by

pandemics, epidemics or other public health emergencies, such as the outbreak of COVID-19.

pandemics, epidemics or other public health emergencies.

We are considered an essential utility service company, as defined by the U.S.

Department of Homeland Security.

Although we continue to operate our business

consistent with federal guidelines and state and local orders, the outbreak of pandemics, epidemics or other public health emergencies and any preventive or protective actions taken by governmental authorities may have an adverse effect on our

Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets, which may adversely impact our stock price.

UNRESOLVED STAFF COMMENTS

We believe we will continue to operate our business consistent with any federal

guidelines or state and local orders, however, the outbreak of pandemics, epidemics or other public health emergencies and any preventive or protective actions taken by governmental authorities may have an adverse effect on our operations.

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-K

Item 1A. Risk Factors