What changed in this filing

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Item 1. Financial Statements

2024-08-07 compared with 2024-05-09 · 184 added, 107 removed, 578 unchanged (33% of the section changed)

3 unchanged sentences

(In thousands)

March 31, 2024

June 30, 2024

December 31, 2023

48 unchanged sentences

(In thousands, except per share amounts)

For the Three Months Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Operating revenues

10 unchanged sentences

Operating income

Other income, net

Allowance for funds used during construction (AFUDC)

Miscellaneous income

Miscellaneous (expense) income

Income before interest charges

1 unchanged sentence

Net income applicable to common stock

Net income per common share:

Income per common share:

Weighted average common shares outstanding:

4 unchanged sentences

(In thousands)

For the Three Months

Ended March 31,

For the Six Months

Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES

2 unchanged sentences

Amortization of debt expense

Amortization of rate case expense

Amortization of deferred income tax regulatory liability

Provision for expected credit loss

2 unchanged sentences

AFUDC, equity portion

Changes in assets and liabilities, net of acquisitions:

Changes in assets and liabilities:

Accounts and other receivables

24 unchanged sentences

Net proceeds from issuance of common stock

Equity issuance costs

Issuance of long-term debt

2 unchanged sentences

NET CASH PROVIDED BY FINANCING ACTIVITIES

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

CASH AND CASH EQUIVALENTS AT END OF PERIOD

ARTESIAN RESOURCES CORPORATION

1 unchanged sentence

(In thousands)

For the Six Months

Ended June 30,

NET INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

CASH AND CASH EQUIVALENTS AT END OF PERIOD

Supplemental Disclosures of Cash Flow Information

For the Six Months

Ended June 30,

Non-cash Investing and Financing Activity:

1 unchanged sentence

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

Supplemental Disclosures of Cash Flow Information:

Interest paid

18 unchanged sentences

Balance as of March 31, 2023

Cash dividends declared

Issuance of common stock

Public offering, net of costs

Dividend reinvestment plan

Employee stock options and awards (4)

Employee Retirement Plan (3)

Balance as of June 30, 2023

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

11 unchanged sentences

Balance as of March 31, 2024

At March 31, 2024 , and March 31, 2023 , Class A Stock had 15,000,000 shares authorized.

Cash dividends declared

Issuance of common stock

Dividend reinvestment plan

Employee stock options and awards (4)

Employee Retirement Plan (3)

Balance as of June 30, 2024

At June 30, 2024 and June 30, 2023 , Class A Stock had 15,000,000 shares authorized.

For the same periods, shares issued, inclusive of treasury shares, were 9,443,071 and 9,422,321 , respectively.

At March 31, 2024 , and March 31, 2023 , Class B Stock had 1,040,000 shares authorized and 881,452 shares issued.

At June 30, 2024 and June 30, 2023 , Class B Stock had 1,040,000 shares authorized and 881,452 shares issued.

Artesian Resources Corporation registered 200,000 shares of Class A 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 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 March 31, 2024 and March 31, 2023 , See Note 8 - Stock Compensation Plans.

Includes stock compensation expense for June 30, 2024 , and June 30, 2023 .

See Note 8 - Stock Compensation Plans.

See notes to the condensed consolidated financial statements.

29 unchanged sentences

The wastewater treatment facilities in Middletown provide reclaimed wastewater for use in spray irrigation on public and agricultural lands in the area.

Artesian Utility also offers three protection plans to customers, 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 (collectively, SLP Plans).

The WSLP Plan covers all parts, material and labor required to repair or replace participating customers’ leaking water service lines up to an annual limit.

6 unchanged sentences

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, for Form 10-Q.

Certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

Accordingly, these condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes in the Company’s annual report on Form 10-K for fiscal year 2023 as filed with the SEC on March 18, 2024.

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 March 31, 2024 , the results of its operations for the three -month periods ended March 31, 2024 and March 31, 2023 , its cash flows for the three -month periods ended March 31, 2024 and March 31, 2023 and the changes in stockholders’ equity for the three -month periods ended March 31, 2024 and March 31, 2023 .

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, 2024 , the results of its operations for the three and six -month periods ended June 30, 2024 and June 30, 2023 , its cash flows for the six -month periods ended June 30, 2024 and June 30, 2023 and the changes in stockholders’ equity for the three and six -month periods ended June 30, 2024 and June 30, 2023 .

The December 31 , 2023 Condensed Consolidated Balance Sheet was derived from the Company’s December 31 , 2023 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.

Reclassification

Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements.

These reclassifications had no effect on net income or stockholders' equity.

Regulated Utility Accounting

8 unchanged sentences

Actual results could differ from management's estimates.

Utility Plant

Utility plant is stated at original cost.

Cost includes direct labor, materials, AFUDC (see description below) and indirect charges for such capitalized items as transportation, supervision, pension, medical, and other fringe benefits related to employees engaged in construction activities.

When depreciable units of utility plant are retired, the historical costs of plant retired is charged to accumulated depreciation.

Any cost associated with retirement, less any salvage value or proceeds received, is charged to the regulated retirement liability.

Maintenance, repairs, and replacement of minor items of utility plant are charged to expense as incurred.

Allowance for Funds Used during Construction, or AFUDC, is a non-cash credit to income with a corresponding charge to utility plant that represents the cost of borrowed funds and a return on equity funds devoted to plant under construction.

Utility plant comprises :

Estimated Useful Life

June 12, 2024

December 31, 2023

Utility plant at original cost

Utility plant in service-Water

Intangible plant

Source of supply plant

Pumping and water treatment plant

Transmission and distribution plant

Storage tanks

General plant

Utility plant in service-Wastewater

Intangible plant

Treatment and disposal plant

Collection mains & lift stations

General plant

Property held for future use

Construction work in progress

Less – accumulated depreciation

Depreciation and Amortization

For financial reporting purposes, depreciation is recorded using the straight-line method at rates based on estimated economic useful lives, which range from 5 to 85 years.

Composite depreciation rates for water utility plant were 1.92 % and 2.13 % for June 30, 2024 and December 31, 2023, respectively.

In a rate order issued by the DEPSC, the Company was directed effective June 12, 2024, to begin using revised depreciation rates for utility plant in Artesian Water, which are based on the estimated useful life years noted in the table above.

Artesian Water offsets depreciation recorded on utility plant by depreciation on utility property funded by Contributions in Aid of Construction, or CIAC, and Advances for Construction, or Advances, respectively.

This reduction in depreciation expense is also applied to outstanding CIAC and Advances.

Other deferred assets are amortized using the straight-line method over applicable lives, which range from 20 to 24 years.

NOTE 3 – REVENUE RECOGNITION

Artesian’s operating revenues are primarily attributable to contract services based upon regulated tariff rates approved by the DEPSC, the MDPSC, and the PAPUC.

Artesian’s operating revenues are primarily derived from contract services based upon regulated tariff rates approved by the DEPSC, the MDPSC, and the PAPUC.

Regulated tariff contract service revenues consist of water consumption, industrial wastewater services, fixed fees for water and wastewater services including customer and fire protection fees, service charges and Distribution System Improvement Charges, or DSIC, billed to customers at rates outlined in our tariffs that represent stand-alone selling prices.

Our non-tariff contract revenues, which are primarily non-utility revenues, consist of SLP Plan fees, water and wastewater contract operations, design and installation contract services, and wastewater inspection fees.

Other regulated operating revenue primarily consists of developer guarantee contributions for wastewater and rental income for antenna agreements, which are not considered in the scope of Accounting Standards Codification 606, Revenue from Contracts with Customers.

Our non-tariff contract revenues, which are primarily non-utility revenues, are derived from SLP Plan fees, water and wastewater contract operations, design and installation contract services, and wastewater inspection fees.

Other regulated operating revenue are derived from developer guarantee contributions for wastewater and rental income for antenna agreements, which are not considered in the scope of Accounting Standards Codification 606, Revenue from Contracts with Customers.

Tariff Contract Revenues

14 unchanged sentences

Any estimated revenue amounts are recorded as unbilled operating revenue (contract asset) through the end of the accounting period and will be billed at each year end for any shortfall of the actual volume from the required minimal volume.

Artesian generates revenue from metered wastewater services provided to certain customers in Sussex County, Delaware.

Artesian generates revenue from metered wastewater services provided to customers in Sussex County, Delaware.

We recognize metered wastewater services at tariff rates on a cycle basis for the volume of wastewater transferred to Artesian’s wastewater facilities based upon meter readings for actual gallons of water transferred, as well as unbilled amounts for estimated volume from the date of the last meter reading to the end of the accounting period.

23 unchanged sentences

We recognize this revenue based on the same guidelines as noted above depending on whether the additional rate was applied to consumption revenue or fixed-fee revenue.

Until permanent rates are determined by the DEPSC, if it is probable that a refund of revenue associated with temporary rates will occur, a reserve would be recorded reducing revenue from temporary rates.

As of March 31, 2024 and March 31, 2023, no such reserve or reduction to revenue was recorded.

Until final rates are determined by the DEPSC, if it is probable that a refund of revenue associated with temporary rates will occur, a reserve would be recorded reducing revenue from temporary rates.

Temporary rates that were previously effective as of November 28, 2023, were replaced with final rates effective June 12, 2024, with no reserve or reduction to previously recorded revenue, as approved by the DEPSC.

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

20 unchanged sentences

These services are invoiced at the end of every month based on incurred costs to date.

As of March 31, 2024, there is no associated contract asset or liability.

As of June 30, 2024, there is no associated contract asset or liability.

There is no provision for expected credit loss or bad debt expense associated with this revenue.

10 unchanged sentences

all revenues are generated within a similar geographical location:

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

(in thousands)

Three months ended March 31, 2024

Three months ended March 31, 2023

Tariff Revenue

15 unchanged sentences

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

4 unchanged sentences

Total Deferred Revenue

For the three months ended March 31, 2024, the Company recognized revenue of $ 1.3 million from amounts that were included in Deferred Revenue – Tariff at the beginning of the year and revenue of $ 0.4 million from amounts that were included in Deferred Revenue – Non- Tariff at the beginning of the year.

For the six months ended June 30, 2024, the Company recognized revenue of $ 1.3 million from amounts that were included in Deferred Revenue – Tariff at the beginning of the year and revenue of $ 0.4 million from amounts that were included in Deferred Revenue – Non- Tariff at the beginning of the year.

The changes in Contract Assets and Deferred Revenue are primarily due to normal timing differences between our performance and customer payments.

Remaining Performance Obligations

As of March 31, 2024 and December 31, 2023, 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 March 31, 2024 and December 31, 2023, Deferred Revenue – Non-Tariff is recorded within Other current liabilities and represents our remaining performance obligations for our SLP Plan services, contract water operation services and wastewater inspections, which are expected to be satisfied and associated revenue recognized within the next three months , approximately five years for the contract service revenue and one year for the SLP Plan revenue and inspection fee revenue, respectively.

As of June 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, Deferred Revenue – Non-Tariff is recorded within Other current liabilities and represents our remaining performance obligations for our SLP Plan services, contract water operation services and wastewater inspections, which are expected to be satisfied and associated revenue recognized within the next three months , approximately five years and one year , respectively.

NOTE 4 – ACCOUNTS RECEIVABLE

2 unchanged sentences

Two installments for approximately $ 2.5 million each were paid in August 2022 and July 2023.

The remaining $ 5.0 million is due in two equal installments no later than July of 2024 and 2025.

The remaining $ 5.0 million is payable in two equal installments, one of which was paid in July 2024 and the final payment is due no later than July 2025.

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 contaminants of concern and of emerging concern.

6 unchanged sentences

Customer accounts receivable – wastewater

Customer accounts receivable – SLP Plan

Settlement agreement receivable – short term

Miscellaneous accounts receivable

Developer receivable

Miscellaneous receivable

provision for expected credit loss

14 unchanged sentences

Three Months Ended

March 31, 2024

March 31, 2023

Six Months Ended

Minimum rentals

2 unchanged sentences

(in thousands)

Three Months Ended

March 31, 2024

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

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

5 unchanged sentences

except lease term and discount rate)

March 31, 2024

June 30, 2024

December 31, 2023

8 unchanged sentences

Operating leases

Maturities of operating lease liabilities that have initial or remaining non-cancelable lease terms in excess of one year as of March 31, 2024 are as follows:

Maturities of operating lease liabilities that have initial or remaining non-cancelable lease terms in excess of one year as of June 30, 2024 are as follows:

(in thousands)

3 unchanged sentences

Total lease liabilities recognized

As of March 31, 2024, we have not entered into operating or finance leases that will commence at a future date.

As of June 30, 2024, we have not entered into operating or finance leases that will commence at a future date.

N OTE 6 – FAIR VALUE OF FINANC IAL INSTRUMENTS

4 unchanged sentences

Long-term Financial Liabilities

As of March 31, 2024 and December 31, 2023, all of the Company’s outstanding lo ng-term debt interest rates were a fixed-rate.

As of June 30, 2024 and December 31, 2023, all of the Company’s outstanding lo ng-term debt interest rates were a 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.

4 unchanged sentences

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

14 unchanged sentences

For the full year 2023, the Company accrued approximately $ 12,000 in penalties and interest related to positions taken on the 2022 corporate income tax return.

For the three months ended March 31, 2024, the Company has accrued approximately $ 4,000 in penalties and interest related to positions taken on the 2022 corporate income tax return.

For the six months ended June 30, 2024, the Company has accrued approximately $ 9,000 in penalties and interest related to positions taken on the 2022 corporate income tax return.

The Company remains subject to examination by federal and state authorities for the tax years 2020 through 2023 .

12 unchanged sentences

These restricted stock awards will be fully vested and released one year after the grant date and, prior to their vesting date, are subject to forfeiture in the event of the recipient’s termination of service.

Compensation expense of $ 68,000 , related to the May 2023 issue of restricted stock awards, was recorded for the three months ended March 31, 2024.

Compensation expense of $ 56,000 was recorded for the three months ended March 31, 2023 for restricted stock awards issued in May 2022.

On May 9, 2023, 5,000 shares of Class A Common Stock, or Class A Stock, were granted as restricted stock awards.

The fair value per share was $ 54.88 , the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 9, 2023.

These restricted stock awards were fully vested and released one year after the grant date.

Compensation expense, for the three and six months ended June 30, 2024 of approximately $ 57,000 and $ 125,000 , respectively, was recorded for restricted stock awards issued in May 2023 and May 2024.

Compensation expense, for the three and six months ended June 30, 2023 of approximately $ 60,000 and $ 116,000 , respectively, was recorded for restricted stock awards issued in May 2022 and May 2023.

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.

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

The following summary reflects changes in the shares of Class A Stock underlying options and restricted stock awards for the three months ended March 31, 2024:

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, 2024:

Restricted Awards

Option Shares

Weighted Average Exercise Price

Weighted Average Remaining Life (Yrs.)

Aggregate Intrinsic Value (in thousands)

Outstanding Restricted Stock Awards

Outstanding Restricted

Weighted Average

Plan options/restricted stock awards

Restricted stock awards

Outstanding at January 1, 2024

1 unchanged sentence

Expired/cancelled

Outstanding at March 31, 2024

Exercisable/vested at March 31, 2024

There were no options exercised during the three months ended March 31, 2024.

There were no unvested option shares outstanding under the 2015 Plan during the three months ended March 31, 2024 .

As of March 31, 2024, there were no unrecognized expenses related to non-vested option shares granted under the 2015 Plan.

As of March 31, 2024, there was $ 28,000 total unrecognized expenses related to non-vested awards of restricted shares awarded under the 2015 Plan.

Outstanding at June 30, 2024

Exercisable/vested at June 30, 2024

There were no options exercised during the six months ended June 30, 2024.

There were no unvested option shares outstanding under the 2015 Plan during the six months ended June 30, 2024 .

As of June 30, 2024, there were no unrecognized expenses related to non-vested option shares granted under the 2015 Plan.

As of June 30, 2024, there was $ 157,000 total unrecognized expenses related to non-vested awards of restricted shares awarded under the 2015 Plan.

The cost will be recognized over 0.85 years, the remaining vesting period for the restricted stock awards.

1 unchanged sentence

Artesian Water, Artesian Water Maryland and Artesian Water Pennsylvania provide regulated water utility service to customers within their established service territory in all three counties of Delaware and in portions of Maryland and Pennsylvania, pursuant to rates filed with and approved by the DEPSC, the MDPSC and the PAPUC.

As of March 31, 2024, Artesian Water was serving approximately 96,200 customers, Artesian Water Maryland was serving approximately 2,600 customers and Artesian Water Pennsylvania was serving approximately 40 customers.

As of June 30, 2024, Artesian Water was serving approximately 96,600 customers, Artesian Water Maryland was serving approximately 2,600 customers and Artesian Water Pennsylvania was serving approximately 40 customers.

Artesian Wastewater and TESI provide regulated wastewater utility service to customers within their established service territory in Sussex County, Delaware pursuant to rates filed with and approved by the DEPSC.

As of March 31, 2024, Artesian Wastewater and TESI were serving approximately 8,200 customers combined, including one large industrial customer.

As of June 30, 2024, Artesian Wastewater and TESI were serving approximately 8,300 customers combined, including one large industrial customer.

NOTE 10 – OTHER DEFERRED ASSETS

The investment in CoBank, ACB, or 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.

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

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

10 unchanged sentences

Affiliated interest agreement deferred costs relate to the regulatory and administrative costs resulting from efforts necessary to secure water allocations in Artesian Water Pennsylvania’s territory for the provision of service to the surrounding area and interconnection to Artesian Water Pennsylvania’s affiliate regulated water utility Artesian Water.

These costs were specifically included for cost recovery pursuant to an Affiliated Interest Agreement between Artesian Water and Artesian Water Pennsylvania and were approved for recovery by the PAPUC and were reclassed from deferred costs to a regulatory asset in 2022.

These costs were specifically included for cost recovery pursuant to an Affiliated Interest Agreement between Artesian Water and Artesian Water Pennsylvania and were approved for recovery by the PAPUC and were reclassified from deferred costs to a regulatory asset in 2022.

Amortization of these deferred costs began in the fourth quarter of 2023.

Deferred acquisition adjustments represent the excess payment for purchases of utility plant from Delaware municipalities over the determined original cost net of depreciation.

Deferred acquisition costs represent the closing cost associated with the acquisitions.

Costs of $ 3.7 million were reclassified from net utility plant and $ 0.1 million were reclassified from contributions in aid of construction, which will be recovered in customer rates effective June 12, 2024 as part of the DEPSC approved settlement agreement for the Artesian Water rate application filed on April 28, 2023.

Unrecovered reserve for depreciation of $ 4.3 million is the result of the implementation of a change in depreciation methods for certain general plant assets that will be recovered in customer rates effective June 12, 2024 as part of the DEPSC approved settlement agreement for the Artesian Water rate application filed on April 28, 2023.

Regulatory expenses amortized on a straight-line basis are noted below:

3 unchanged sentences

Delaware rate proceedings

Maryland rate proceedings

Debt related costs

1 unchanged sentence

Deferred costs affiliated interest agreement

Goodwill (resulting from acquisition of Mountain Hill Water Company in 2008)

Deferred acquisition costs (resulting from purchase of water assets in Cecil County, Maryland in 2011 and Port Deposit, Maryland in 2010)

Franchise Costs (resulting from purchase of water assets in Cecil County, Maryland in 2011)

Goodwill (Mountain Hill Water Company acquisition in 2008)

Deferred acquisition and franchise costs - Maryland

Deferred acquisition costs - Delaware

Deferred acquisition adjustments - Delaware

Unrecovered reserve for depreciation (general plant assets)

Regulatory assets, net of amortization, comprise:

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

1 unchanged sentence

Rate case studies

Rate proceedings

Delaware rate proceedings

Deferred income taxes

1 unchanged sentence

Deferred costs affiliated interest agreement

Deferred acquisition and franchise costs

Deferred acquisition and franchise costs – Maryland

Deferred acquisition costs – Delaware

Deferred acquisition adjustments – Delaware

Unrecovered reserve for depreciation

NOTE 12 – REGULATORY LIABILITIES

7 unchanged sentences

Two installments for approximately $ 2.5 million each were paid in August 2022 and July 2023.

The remaining $ 5.0 million is due in two equal installments no later than July of 2024 and 2025.

The remaining $ 5.0 million is payable in two equal installments, one of which was paid in July 2024 and the final payment is due no later than July 2025.

Artesian Water received approval from the DEPSC in October 2022 to refund to its customers these reimbursements for past capital and operating costs.

6 unchanged sentences

The regulatory liability amount is subject to certain Internal Revenue Service normalization rules that require the benefits to customers be spread over the remaining useful life of the underlying assets giving rise to the associated deferred income taxes.

On January 31, 2019, the DEPSC approved the amortization of the regulatory liability amount of $ 22.2 million over a period of 49.5 years beginning February 1, 2018, subject to audit at a later date.

In May 2022, the Company received a rate order from the DEPSC instructing the Company to continue amortizing the liability over a period of 49.5 years, subject to review in the Company’s next base rate filing.

On January 31, 2019, the DEPSC approved Artesian Water to amortize the regulatory liability amount of $ 22.2 million over a period of 49.5 years beginning February 1, 2018, subject to audit at a later date.

In May 2022, Artesian Water received a rate order from the DEPSC instructing Artesian Water to continue amortizing the liability over a period of 49.5 years, subject to review in Artesian Water’s next base rate filing.

On June 12, 2024, the DEPSC approved a settlement agreement for the Artesian Water rate application, filed on April 28, 2023, that required two changes to the deferred income tax regulatory liability effective June 12, 2024.

A $ 7.6 million gross-up adjustment was recorded to reflect the benefit customers would receive from the implementation of new base rates and $ 4.0 million of the regulatory liability, which represents costs not subject to IRS normalization rules, is now required to be amortized over a six-year period rather than 49.5 years.

The MDPSC has not issued a final order on the regulatory liability amount of $ 0.6 million regarding the effects of the TCJA on Maryland customers.

1 unchanged sentence

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

20 unchanged sentences

We can provide no assurances that rate increase requests will be approved by applicable regulatory agencies and, if approved, we cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover the investments and expenses for which we initially sought the rate increase.

Artesian Water filed an initial request with the DEPSC on April 28, 2023, further supplemented with a request filed on November 30, 2023, to implement new rates to meet a requested increase in revenue of 22.66 %, or approximately $ 16.7 million, on an annualized basis.

The actual effective increase is less than 22.66 % since Artesian Water has been permitted to recover specific investments made in infrastructure through the assessment of a 7.50 % DSIC.

Since the DSIC rate is set to zero when temporary rates are placed into effect, customers would experience an incremental increase of 15.16 %, the net of the overall 22.66 % increase less the DSIC rate of 7.50 % then in effect, if the requested increase is granted in full by the DEPSC.

The new rates are designed to support Artesian Water’s ongoing capital improvement program and to cover increased costs of operations, including chemicals and electricity for water treatment, water quality testing, fuel, taxes, interest, labor and benefits.

In accordance with applicable Delaware law, Artesian Water is permitted to implement a temporary base rate increase of 15 % of gross water sales on an annual basis, or $ 2.5 million, whichever is lower, 60 days after the application is filed.

Since Artesian Water had DSIC surcharges in excess of the allowable temporary increase and imposing the temporary increase would have required DSIC to be reset to zero, Artesian Water elected not to request the initial temporary rate increase.

However, since the application was not resolved within the seven-month statutory timeframe, in accordance with applicable Delaware law, Artesian Water is permitted a temporary base rate increase of up to 15 % of gross water sales on an annual basis.

Artesian Water filed an interim rates application, which was approved, to place into effect on November 28, 2023 a temporary base rate increase of 15 % of gross water sales on an annual basis and reducing the 7.5 % DSIC rate to zero, with such interim rates subject to refund, until permanent rates are determined by the DEPSC..

As of March 31, 2024, no amounts were held in reserve related to the temporary base rate increase.

Artesian Water’s last comprehensive application for an increase in base rate charges was filed in April 2014.

Artesian Water filed an initial request with the DEPSC on April 28, 2023, further supplemented with a request filed on November 30, 2023, to implement new rates to meet a requested increase in revenue of approximately $ 16.7 million, on an annualized basis, or 22.7 %.

The DEPSC approved and Artesian Water implemented a temporary rate increase effective November 28, 2023 of approximately $ 10.8 million, on an annualized basis, or 14.6 %, subject to refund, and reduced the DSIC previously in effect from approximately 7.5 % to zero.

On May 22, 2024, Artesian Water, the Staff of the DEPSC, and the Division of the Public Advocate, or DPA, (collectively, the Parties) entered into an agreement, or Settlement Agreement, to settle Artesian Water’s April 2023 application to implement new rates.

On June 12, 2024, a DEPSC order was issued approving the settlement agreement entered into on May 22, 2024 between the Parties.

The Settlement Agreement authorizes a total increase in the revenue requirement of $ 11.2 million, on an annualized basis, or approximately 15.2 %, with a rate effective date of June 12, 2024, which encompasses a 9.5 % return on common equity and an overall rate of return on rate base of 6.75 %.

Temporary rates that were in effect since November 28, 2023 were replaced with the final approved rates from the Settlement Agreement.

Revised depreciation rates for utility plant and revised amortization rates for certain regulatory assets and liabilities were also approved effective June 12, 2024.

Other Proceedings

3 unchanged sentences

The DSIC rate applied between base rate filings is capped at 7.50 % of the amount billed to 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 last application with the DEPSC to collect DSIC rates and (2) the rate upon which eligible plant improvements was based:

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

Application Date

5 unchanged sentences

Eligible Plant Improvements – Installed Ending Date

The rate reflected the eligible plant improvements installed through April 30, 2019.

The January 1, 2021 rate was reset to zero when temporary rates were placed into effect on November 28, 2023 and is subject to periodic audit by the DEPSC.

For the three months ended March 31, 2023, we earned approximately $ 1.2 million in DSIC revenue.

On June 12, 2024, the DEPSC approved Artesian Water’s application to implement a DSIC rate of 0.34 %, effective July 1, 2024.

Effective January 1, 2021, Artesian Water was permitted to recover specific investments made in infrastructure through the assessment of a 7.50 % DSIC.

The January 1, 2021 DSIC rate was reset to zero when the temporary base rate increase was placed into effect on November 28, 2023.

The July 1, 2024 DSIC is subject to periodic audit by the DEPSC.

For the three and six months ended June 30, 2024, DSIC revenue was zero .

For the three and six months ended June 30, 2023, we earned approximately $ 1.3 million and $ 2.5 million in DSIC revenue.

NOTE 14 – NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE

2 unchanged sentences

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

For the Three Months Ended March 31,

For the Three Months Ended

For the Six Months Ended

(in thousands)

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Weighted average common shares outstanding during the period for diluted computation

For the three months ended March 31, 2024 and 2023, no shares of restricted stock awards were excluded from the calculations of diluted net income per share.

For the three months ended March 31, 2024 and 2023, no stock options were excluded from the calculations of diluted net income per share.

For the three and six months ended June 30, 2024 and 2023, no shares of restricted stock awards were excluded from the calculations of diluted net income per share.

The Company has 15,000,000 authorized shares of Class A Non-Voting Stock, and 1,040,000 authorized shares of Class B Stock.

As of March 31, 2024, 9,406,808 shares of Class A Non-Voting Stock and 881,452 shares of Class B Stock were issued and outstanding.

As of March 31, 2023 , 8,622,999 shares of Class A Non-Voting Stock and 881,452 shares of Class B Stock were issued and outstanding.

As of June 30, 2024, 9,414,094 shares of Class A Non-Voting Stock and 881,452 shares of Class B Stock were issued and outstanding.

As of June 30, 2023 , 9,393,344 shares of Class A Non-Voting 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 $ 22.55 and $ 23.00 at March 31, 2024 and December 31, 2023 , respectively.

These amounts were computed by dividing common stockholders’ equity by the number of weighted average shares of common stock outstanding on March 31, 2024 and December 31, 2023 , respectively.

Equity per common share was $ 22.78 and $ 23.00 at June 30, 2024 and December 31, 2023 , respectively.

These amounts were computed by dividing common stockholders' equity by the number of weighted average shares of common stock outstanding on June 30, 2024 and December 31, 2023 , respectively.

NOTE 15 – COMMON STOCK OFFERING

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However, we cannot ensure that we will prevail in any litigation and, regardless of the outcome, may incur significant litigation expense and may have significant diversion of management attention.

Several of the water systems of Artesian Resources’ subsidiaries are eligible claimants in two multi-district litigation, or MDL, class action settlements designed to resolve Claims for per - and polyfluoroalkyl substances, or PFAS, contamination in Public Water Systems’ Drinking Water, as those terms are defined in the respective Agreements (the “Settlements”), which are with two groups of settling defendants on behalf of:

Several of the water systems of Artesian Resources’ subsidiaries are claimants in two multi-district litigation, or MDL, class action settlements designed to resolve Claims for per - and polyfluoroalkyl substances, or PFAS, contamination in Public Water Systems’ Drinking Water, as those terms are defined in the respective Agreements (the “Settlements”), which are with two groups of settling defendants on behalf of:

(1) the 3M company (“3M”);

1 unchanged sentence

(collectively, “DuPont”).

The DuPont settlement is effective, and the phase one settlement claims forms are due by June 17, 2024.

The 3M settlement is not effective yet, and the phase one settlement claims forms will be due sixty days after the effective date, which has not yet been established.

Artesian Resources’ eligible systems have remained in the multi-district litigation class action settlements with 3M and DuPont, having elected not to opt out in advance of the opt-out deadline.

Phase One Public Water System Settlement Claims Forms have been submitted on behalf of Artesian Resources’ eligible systems in each of the Settlements.

The amount of any recovery, if any, by Artesian Resources’ subsidiaries is uncertain.

Several of the water systems of Artesian Resources’ subsidiaries are eligible claimants in the MDL class action settlement designed to resolve Claims for PFAS contamination in Public Water Systems’ Drinking Water, as those terms are defined in the settlement agreement of settling defendants Tyco Fire Products LP and Chemguard, Inc.

(the “Tyco Settlement”).

The Tyco Settlement is not yet effective.

The deadline for eligible claimants to submit requests for exclusion from the settlement is September 23, 2024.

The amount of any recovery, if any, by Artesian Resources’ subsidiaries is uncertain.

Several of the water systems of Artesian Resources’ subsidiaries may be eligible claimants in the MDL class action settlement designed to resolve Claims for PFAS contamination in Public Water Systems’ Drinking Water, as those terms are defined in the settlement agreement of settling defendant BASF Corporation (the “BASF Settlement”).

The BASF Settlement is not yet effective.

The deadline for eligible claimants to submit requests for exclusion from the settlement is October 15, 2024.

The amount of any recovery, if any, by Artesian Resources’ subsidiaries is uncertain.

NOTE 17 – BUSINESS SEGMENT INFORMATION

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The measurement of depreciation, interest, and capital expenditures are predominately related to our Regulated Utility segment.

These amounts in our non-utility business are negligible and account for approximately less than 1% of condensed consolidated amounts as of March 31, 2024 and March 31, 2023.

These amounts in our non-utility business are negligible and account for approximately less than 1% of condensed consolidated amounts as of June 30, 2024 and June 30, 2023.

(in thousands)

Three Months Ended

Six Months Ended

Regulated Utility

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Inter-segment elimination

Condensed Consolidated Revenues

Consolidated Revenues

Operating Income:

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Other (non-utility)

Condensed Consolidated Operating Income

Consolidated Operating Income

Income Taxes:

1 unchanged sentence

Other (non-utility)

Condensed Consolidated Income Taxes

Consolidated Income Taxes

Regulated Utility

Other (non-utility)

Condensed Consolidated Assets

Consolidated Assets

NOTE 18 – IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

15 unchanged sentences

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